Q1 2021 Floor & Decor Holdings Inc Earnings Call
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The risks and uncertainties any statements that refers to expectations projections or other characterizations of future events, including financial projections or future market conditions is a forward looking statement the company's actual future results could differ materially from those expressed in such forward looking statements for any <unk>.
Reason, including those listed in its SEC filings for on the core assumes no obligation to update any such forward looking statements. Please also note the past performance of market information is not a guarantee of future results. During this conference call of the company will discuss non-GAAP financial measures as defined by.
The SEC regulation G. We believe non-GAAP disclosures enable investors to better understand our core operating performance on a comparable basis between periods. A reconciliation of each of these non-GAAP measures for the most directly comparable GAAP financial measure can be found in the earnings press release, which is available on our investor.
Relations website at IR dot floor, and decor dot com number.
Recorded replay of this call together with related materials will be available on our Investor Relations website, Let me now turn the call over to Tom.
Thank you Wayne and thanks to everyone for joining us on our fiscal 2021 first quarter earnings conference call on today's call I will discuss some of the highlights of our strong fiscal 2021 first quarter earnings results. Trevor will then review our financial performance and discuss how we are thinking about the remainder of fiscal 2021.
And then we will open the call for your questions, we could not be more pleased with our fiscal 2021 first quarter earnings results, which are supported by the favorable macroeconomic environment and our excellent execution of amidst strong comparable store sales growth. Our first quarter 2021 total sales exceeded our expectations.
Increasing 41% or $227 6 million to $782 $5 million from $554 9 million in the first quarter of 2020, we are particularly proud that our fiscal 2021 first quarter total sales are equivalent to our full.
Year 2015 annual sales, which is a testament to the execution of our business plan and our resulting growth of.
Our first quarter 2021 comparable store sales increased 31, 1% and represented the strongest quarterly comparable store sales growth in our company's history.
It is also notable that our customer service scores improved during this period of strong growth as we continue to focus on serving our customers with on trend products. Our fiscal 2021 first quarter. Adjusted EBITDA also exceeded our expectations, increasing 74% to $127 1 million.
From $73 1 million in the first quarter of fiscal 2020, as our adjusted EBITDA margin increased 300 basis points to 16, 2% our fiscal 2021 adjusted first quarter diluted earnings per share increased 100% to 68 from 34 in the.
First quarter of fiscal 2020.
Let me now provide an update on each of our five strategic pillars of growth beginning with new store growth.
We successfully opened our first quarter record seven new warehouse stores in the first quarter of fiscal 2021 more than double the three new warehouse stores, we opened in the first quarter of fiscal 2020.
Recall that last year, we delayed two of our store openings in late March due to state and local construction restrictions caused by the COVID-19 pandemic.
And physical 2021, we opened two new warehouse stores in each of January and February and three new warehouse stores in March, including new market openings in Pleasant Hill, California in Danbury, Connecticut.
As we look to the second quarter of fiscal 2021, we expect to open eight new warehouse stores with most of the openings occurring in late June we continue to believe at the timing of our 2021 store openings will allow us to achieve our long desired objective of balance quarterly store openings for the full year, we still.
We expect to open 27, new warehouse stores, an increase of 23% from 2020.
We are also continuing to move forward with opening two more design studios in the fourth quarter of fiscal 2021 with openings in Miami and Houston.
Finally, we remain very pleased with the sales performance among all of our of store vintages, we were particularly pleased with some of our most mature stores based on the early strong results. We continue to believe that the new store classes of 2020, and 2021 will represent the strongest classes in our history from <unk>.
A top line and profit perspective.
Moving on to the second pillar of growth growing our comparable store sales.
We're very pleased with our comparable store sales growth momentum and the broad based strength, we continue to see across all of our merchandising categories and nine geographic regions. The 31, 1% growth in our first quarter comparable store sales was driven by strong 29, 2% growth in comparable store.
Our customer transactions and one 5% growth in our comparable store average ticket.
There was a favorable shift towards our better and best price points in the first quarter when compared with last year. This shift is at the direct result of being able to offer our homeowners and pros clear and compelling tradeoff of options. The recent launch of our optimized eco resilient flooring and our large format tile offerings are just a couple of examples.
<unk>, where we believe we have widened the gap with our competition with better and best products on a monthly basis, our comparable store sales increased 31% in January 19, 2% in February and 41, 3% in March there are a couple of events that influenced our monthly sales that we want to highlight.
First the shift in timing caused by the 50 <unk> week in fiscal 2020, historically of low volume week benefited our January comparable store sales by an estimated 560 basis points and 170 basis points for the first quarter of 2021 adjusting for this timing we estimate our comparable store sales.
Would have increased approximately 24, 5% in January.
Second in February 2021, about 20% of our stores were impacted by severe weather over multiple days and multiple states that slowed our sales in the weeks of seven and eight we estimate this adversely impacted our February comparable store sales by 500 basis points, but benefited our March comparable store sales by three.
Hundred basis points.
That said the net impact from the severe weather on our 2021 first quarter comparable store sales was not material.
Third the final six days of the first quarter of fiscal 2020, we limited our stores to curbside pickup which resulted in a 46% decline in our comparable store sales during that period. This created an easy sales comparison and was a significant contributing factor to the strong sales increase in physical March 2021, we.
Estimate our first quarter comparable store sales would have increased approximately 26, 5% after adjusting for the benefit of the 50 <unk> week shift and adjusting for the benefit of the decline in March 2020 sales when we were limited to curbside pickup as.
As we look at our second quarter sales results to date, our comparable store sales increased 170%, but that is comparing against the negative 50% last year due to our stores being closed for the public to COVID-19.
We believe using one and two year comparable store sales growth rates are less meaningful right now due to the store closures from last year, we believe the better way to evaluate our sales trends is to compare our total sales growth to 2019 as 2019 was more of a normal year by doing so our first quarter 2012.
The one net sales grew at a 28% compounded annual growth rate in our second quarter 2021 day net sales have grown at a similar compound annual growth rate. So far we expect our comparable store sales growth to be elevated in the second quarter, but moderated through the quarter as our stores began to reopen in <unk>.
Early may last year in most stores open by early June we call last year, our comparable store sales declined 26, 1% in May and increased seven 7% in June we are excited about our sales momentum and the prospects of achieving our 13th consecutive year of comparable store sales growth in fiscal 2021.
From a merchandising perspective, all of our product categories experienced double digit first quarter 2021 comparable store sales growth comparable store sales in laminate and luxury vinyl plank decorative accessories and adjacent categories were above the company average the broad based strength in our merchandising categories is the continuation of trends.
From the second half of 2020, and further validates our position as the one stop solution for all our customers hard surface flooring needs. We are continuing to consistently deliver on our strategy of offering our homeowners and pros the broadest most differentiated and trend for assortment in every category of.
Our large stores enable us to provide unmatched visual inspiration of all of our categories using larger displays side caps end caps and vignettes when compared with our competition. We complement this with in stock job lot quantities at the widest range of everyday low price points let.
Let me turn my comments to our supply chain we.
As for choosing to engage with our brand as they begin their flooring purchase journey.
We are continuing to make investments towards delivering an unmatched personalized customer experience for example in the first quarter of 2021, we enabled customers to upload their room photos into our visualize her rather than using one of our stockroom photos. This now permits them to view our product in their home setting. We are also taking.
Additional actions to further optimize the speed of our web site and the mobile experience, which in turn we believe will lead to further improvement in conversion and the customer experience in the first quarter of 2021, we completed another large site upgraded redesign, which further enhances search and our site pages. We believe these continue.
The investments will lead to further strong e-commerce performance metrics and growth for the years to come.
Our fourth pillar of growth rests on the successful investments, we are making in our pro and commercial customers to grow our market share. We continue to be pleased with the accelerating growth trends and our award winning pro Premier rewards PPR program, which drives engagement and loyalty with new and existing pros today about 80% of our <unk>.
<unk> sales come from our PPR members year to date enrollment in the PPR program has increased 50% from last year and was up 76% in March year to date points earned and redeemed increased 50% and 77% respectively validating the value of the program as we look to the remainder of fiscal 2020.
One and 2022, we're exploring opportunities that will further drive pro engagement and increase awareness of our value proposition.
We see opportunities to grow our market share through the introduction of PPR tears SKU based bonus points programs and pro credit card incentives that will further drive engagement from a product standpoint, we are continuing to make investments to grow our pro brand equity as the supply house and are excited about adding ladder of leading.
<unk> material brands to our assortment in 2021, we are now able to offer pros multiple leading brands and complete assortments, which will allow us to more easily crossover into the wholesale distribution channel.
We continue to be very pleased with the strong growth in commercial sales, particularly those sales that are originated by our regional account managers of Rams, which are now in most of our major markets.
While sales from our regional account managers are small relative to the size of our retail business. We are excited about the growth opportunity and plan to at approximately 14 regional account managers in fiscal 2021 over time, we expect commercial sales to become a material part of our growth as we leverage Florida, <unk> core strength in merchandising and direct.
Sourcing.
Let me now discuss the progress, we're making with our free design services. The fifth pillar of our growth. We continued to be pleased with the momentum in design services and have strategies in place that we believe will sustain strong growth for years to come first.
<unk> first quarter 2021 design appointments increased 100% from the first quarter of 2020 and design services sales penetration increased 290 basis points year over year, Inc.
Accordingly, our customer experience and social reputation scores are strong.
We are continuing to build on our success by further elevating the talent and the design services and exploring ways to create career path to attract and retain high caliber designers at.
As we have discussed in the past we are focused on building of consistent high touch best in class and seamless design service experience for our homeowner and pro customers to do so we are further building out and updating key performance metrics and management dashboards to enhance productivity. We believe we are in the early stages of developing long term.
Competitive advantage through our free design services.
Let me close by saying that our strong fiscal 2021 first quarter earnings reflect the unwavering efforts by our associates to serve our customers our entire executive leadership team I'd like to thank them for all of their hard work and dedication I will now turn the call over to Trevor to discuss in more detail our fiscal 2021 first quarter of results.
Thank you Tom we are extremely pleased with our fiscal 2021 first quarter sales on earnings results, which are supported by the favorable macroeconomic environment and excellent execution of our store strategies by our associates.
The execution led to exceptionally strong sales and earnings flow through in the first quarter of fiscal 2021.
Let me discuss some of the changes among the major line items on our first quarter income statement balance sheet and statement of cash flow and then I'll discuss how we're thinking about the remainder of fiscal 2021.
Our first quarter of 2021 gross profit increased $100 million under a thousand of 42, 7% compared to the corresponding prior year period.
The increase in gross profit was driven by a 41% increase from total sales and an increase in gross margins of 43, 1% up approximately 60 basis points from 42, 5% at the same period a year ago.
The increase in our gross margin was primarily due to improved leverage of our distribution center and supply chain infrastructure on the higher sales.
Turning to our fiscal 2000 total on expenses selling and store operating expenses increased $36 million out of 1000 for 24, 1% from the same period last year.
The increase was primarily attributable to 17, new warehouse stores opened since March 26, 2020, as well as additional staffing and operating expenses to align with our strong sales growth.
As a percentage of the net sales selling and store operating expenses securities approximately 330 basis points. The 24, 3% from 27, 6% in the corresponding prior year period.
This decrease was primarily driven by leveraging our cost across an increasing comparable store sales.
Comparable for selling and store operating expenses as a percentage of comparable store sales decreased approximately 390 basis points as we leveraged payroll and occupancy costs from strong sales.
First quarter general and administrative expenses increased $13 million $200 for.
Or 42, 7% from the same period last year.
Due to higher incentive compensation expense and cost of support our store growth, including increased store support staff and higher depreciation related to technology and other store support center investments.
On the rate basis, our general and administrative expenses as a percentage of net sales remained flat at approximately five 6%. During the 13 weeks ended April one 2021 at March 26 2020.
Our first quarter Preopening expenses increased $1 million 600000, or 28, 8% from the same period last year.
This increase is primarily the result of an increase of the number of stores that we either opened or pairing the opened compared to the prior year period.
First quarter net interest expense decreased $400000 or 23, 2% from the same period last year. The decrease in interest expense was primarily due to an increase in interest capitalized during the construction period of certain capital assets. During the first quarter of 2021 compared to the corresponding prior year period.
Our first quarter effective tax rate was 19, 8% compared to 17, 4% at the same period last year the.
Increase in our effective tax rate was primarily due to higher earnings without a proportional increase in the available tax credits and the recognition of lower excess tax benefits related to stock option exercises during the current quarter compared to the same period last year.
Moving on to our profitability, while our first quarter total sales increased 41% our adjusted EBITDA increased 73, 8% to 127 million of 100000 from 73 million of 100000 during the same period last year the.
The improvement in our gross margin rate and expense leveraged led to 300 basis point increase in our EBITDA margins of 16, 2% from 13, 2% last year.
We are proud that our first quarter of 2021 adjusted EBITDA in isolation now exceeds our annual 2016, adjusted EBITDA of 108 million of 400000.
Our first quarter GAAP net income increased 104, 5% for $75 million 800000 from 37 million of 100000 last year.
Our first quarter adjusted net income income increased 100%, the 72.700 million or <unk> 68 per diluted share from 36.300 million for 34 cents per diluted share last year.
We ended the first quarter with $107 million of 100000 diluted weighted average shares outstanding compared with 105 million of 500000 last year.
Moving on to our first quarter fiscal 2021 balance sheet and cash flow as.
As of April one 2021, there was 207.700 million Inc.
Term loan debt outstanding on our balance sheet compared with $419 million 600000 of term and ABL debt outstanding during the same period last year.
Last year as a precautionary and proactive measure as uncertainty in the credit markets escalated, we drew down $275 million or approximately 80% of what was available on our ABL facility.
We subsequently paid down $275 million on the ABL and the second quarter of 2020, as we have better visibility into the business and our liquidity needs.
When considering our first quarter of 2021 cash on hand of $354 million of 100000, we had no net debt outstanding at the end of the first quarter of 2021 due to our strong earnings growth and favorable working capital growth.
This led to our first quarter operating cash flow, increasing fourfold to $101 million from 24.700 million during the same period last year.
Our strong earnings growth cash flow and balance sheet enable us to consider taking on more ownership of stores, rather than leasing them and accelerating store and customer facing technology investments to further enhance the shopping experience across all of our channels.
We believe these investments will place us on an even stronger position competitively lead to longer term EBITDA margin expansion, while also helping us on the event of another cyclical down.
The decline in the economic activity.
Let me now turn my comments as to how we're thinking about fiscal 2021 from.
For the macroeconomic perspective, we have seen fiscal and monetary policies be very accommodative, which we believe will continue to provide tailwind for the existing and new home sales.
Additionally, the secular demand for homes continues to exceed available supply, which we believe will continue to lead the growth in home price appreciation and growth in home equity.
While the personal savings rates of decline from its peak at remains historically elevated.
Homeowners dollars to reinvest into the home.
We believe the reinvestment is being driven by value such as my own no longer meet my needs of me and my family I want to take advantage of the current market I want to house. The there's less work I don't want to live closer to friends and families of <unk>.
But we see these factors is continuing to support the reinvestment projects and our business.
While we are optimistic about the prospects of sustained economic recovery in 2021, and the momentum in our business, we recognize the business risks remain elevated elevated.
Lessening from the COVID-19 pandemic.
For that reason in the interim we are continuing our practice of not providing specific annual sales and earnings guidance that was established in the second quarter of fiscal 2020 as.
As business risk improved we expect to return to annual sales and earnings guidance.
As we've discussed on our fourth quarter fiscal 2020 earnings conference call. As we look beyond 2021, our goal is still to achieve $329 million and adjusted EBIT in 2022 as described in our 2020 annual proxy statement.
Our EBIT over three years in the throes of the worst pandemic in the century could be quite an accomplishment.
As we looked at the next three years, we believe our long term growth algorithm of 20% unit growth mid.
The mid to high single digit comparable store sales growth along with modest gross margin improvement should mean for net income growth of at least the 25% on a compounded annual growth rate basis.
Due to the COVID-19 pandemic the growth path will not be of straight line over the long term. We believe these goals are achievable Inc.
In closing I would like to say that our entire leadership team is encouraged by the continued momentum on our business and we are very excited about the growth that still lies in front of us moving back to personally. Thank all of our associates for their great work that they're doing every day to serve our customers operator, we will now turn it over to questions.
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And our first question comes from the line of Zach <unk> with Wells Fargo. Please proceed your line is open.
Hey, good afternoon guys.
Can you talk a little more about the desktop from January to March and if there were any particular drivers across DIY versus pro or just broader changes in consumer behavior and then as we looked at Q2, it looks like extending the Q1 growth rate versus 2019 would suggest the comp of at.
The 60% so just given the moving parts around new stores and just the wonky year over year compares is at the right way to think about the business essentially take on that yet.
Sequentially into Q2.
So the Trevor.
Hey, This is Tom Trevor will take the first part.
Let's talk about the monthly cadence and then I'll talk a little bit about the consumer on what we're seeing.
Hey, Jack.
Youre right, we had some unique things happened this quarter that make the comparisons a little odd the.
On the back out the benefit of that 50, <unk> week everything shifted out of week the week of new years and Christmas is the low volume week. So.
Thats part of the reason the accomplished Aloha in January but if you backed it out.
We're sort of in the 24, 5% February was a pretty close number of comes back out the impact of the storms and then we did see an acceleration of little bit of March even if you back out. The fact that we were closed for the last six days last year. So we exited the quarter to 26, five sort of on a pro forma basis, excluding the 50 <unk> week of excluding those six day.
So we were closed last year, but we did see a little bit of an improvement in.
In March relative to the first two months not a lot of maybe a.
Couple of 200 basis points.
One of the thing of Tom touched on his prepared comments that you sort of touched on at I think it's also worth repeating is because we had the big negative comps last year, right, which were up 170%. So far we do think the right way to think about the business is on the two year basis, we exited Q1 at a compound annual growth rate of 28% versus 2019.
At a similar rate in Q2.
And we're not giving guidance, but what I would say is the.
The run rate of our business has been fairly consistent this year. If you back out the holidays on some of the shifts we don't have the seasonal business, we want of a promotional business.
<unk> is a little bit higher volume in Q1, and Q3 of about average for the company and then Q4 is usually a little bit lower because people are working on the floor is during the holidays.
So I think one reason for not giving guidance just very hard to know what's going to happen, but depending on your perspective on the macro you could model out some of those numbers and if you think things are going to be really robust again at the weekly cadence has not been that different.
If you take the the macros in the slow a little bit the need to bring those numbers down but regardless of that.
Well either of those come out so we're going to have the looks like we're kind of a really strong year. This year.
The other thing I'd add just from a consumer standpoint, when youre seeing strength of like this you see strength on both.
Both homeowners and professional so we're seeing nice increases in both.
Pros continue to tell us that the backlog is at.
As long as.
And the amount of time to get the jobs is while in the company debt.
That we work with on installations at the best March ever so.
The both both consumers of our strong for us.
And then of longer term question.
Maybe talk about your expectations for multi year EBIT margin progression.
What's your store level margins at <unk>.
High teens rate do you think of it.
<unk> EBIT margin is that fair at long term landing spot for the business over time.
On.
This is trevor.
I would have said no historically.
But this last quarter of feedback out Preopening expenses.
Because we won't have that when we're done opening stores of long time from now we've been 17, 5% EBITDA margins drive back off.
Paul at 300 ish basis points for depreciation.
You are getting pretty close to that mid teen operating margin and obviously when were multiple billions of dollars bigger than we are today, we're going to run the business more efficiently. So.
We've just had a lot of things go our way obviously, we're in a very good macro environment. So that's possible.
At that feels rich to be but again, we're close to that today.
But we're obviously on the heightened sales environment, so possible for Boston.
Thank you for your question. Our next question comes from the line of Michael Lasser with UBS. Your line is open. Please proceed.
Yes, good evening day part for taking my question you mentioned that your pro customer has an 85% of your sales are in some way shape or form levered two of pro customer.
Have long backlogs.
The only when the customer gets the windfall of additional money.
At Kansas go the same day and spend it on something like a flooring project.
The considered purchase.
Between those two factors.
Long are you expecting the robust sales that you are experiencing now to lap is at is it reasonable to expect.
The extend well into the fall and winter.
I mean, that's the that's a good question Michael I think that's what Trevor said earlier, it's hard to predict we are seeing strong strength now our strength has been consistent.
The backlog has remained pretty consistent to the pros are backlog at that's not a new event that's been going on.
We started to come out of COVID-19. So.
<unk>.
The reason, we're not giving guidance at this kind of hard to predict exactly what's going to happen as I look at the macro existing home sales still still a strong last month.
Of 12, 3% over last year household values continue to go up you have got the aging household stock Millennials, Inc. Entering the housing market and Theres a lot of good things on the macro and then lastly, aging houses and the ambitious of lot of good things in the macro that support the category. So.
It's hard to predict because of the.
While the moving parts due to COVID-19, but.
We'll see.
Okay and my follow up question is Theres, a lot of well documented pressures on many of the key inputs for the products you are selling like lumber and how is that impacting both your cost.
On your ability.
To secure product at this point.
I'll, let Lisa talk a little bit about the costs I mean, securing securing product.
On the.
On your running this type of comp environment of net sales growth youre going to be chasing inventory.
As long as I've been here, we've produced in Crazy concentrate at the times. This is a little bit of unprecedented in and Youre going to have times when you Chase inventory I think.
What's the impressive in my mind is just we continue to have the ability because of our broad in stock assortment too when we chase inventory on the SKU of Tyler of SKU of Wood, we've got hundreds of other options in those categories that we can ship the customer too so while we're chasing inventory and we're dealing with that in this environment.
Bill are able it doesn't appear to be affecting ourselves so although at Liza address costs and how we are dealing with that on.
Michael.
So on the cost perspective, yes, we have started to see some increases now we're not going to be affected like lumber is.
Debt is a little of that frankly, we don't see those kind of increases that we have started to see the great news at really.
Terrific partners out there that we've worked with for years and income gave decades.
And to keep our cost as low as possible. We havent really extensive sourcing options. We have a lot of purchasing power. So where we've had to take increases we're able to take strategic retail increases at theyre not a lot of them, but we have had to do that in some cases, but we do remain really confident with our price GAAP I mean in the price shops that we do our GAAP.
With the competition is as big if not bigger than we've ever been.
Yes, we're facing some of the same price pressure as everyone else at but we feel very good about our ability to navigate through debt.
Thank you for your question. Our next question comes from the line of Steven Forbes with Guggenheim Securities. Please proceed your line is open.
Good evening.
Tom.
I wanted to focus on the adjacent category performance right and since Youre disclosing in the queue now.
One 6% of revenue it seems for the quarter.
Curious.
Sort of your takeaways on what.
What that means for the opportunity there I know you've talked about getting to $1 million per store, but.
But the strength of our teams, especially strong.
What does it mean any updated thoughts on.
Also about your ability to sort of continue to expand into new categories.
Yes, I would say.
A few things about adjacent categories.
One I have been.
Very pleased with how each one of them have worked now we've tried multiple adjacent categories and we've really tried to be thoughtful on what we add really to complete a project. We've heard from for a lot of my time here the consumers wanted to be able to buy the total project within the stores. So we've tried to be thoughtful and said, okay, what's going to be used in a bath remodel what makes sense thats going on.
Title of person may be using and we've tried to be thoughtful as we've added those and I've been I've been very pleased with how that's worked the benefit of it so one.
One pleased with how they've worked.
By the way I think we can do a lot better we've chased the inventory on that too so.
We get ourselves in a better program in place I think we will continue to improve in the categories that we participate in.
We have big stores in May of Big stores on purpose and we have been good and our whole time here of flexing space as categories of sales decelerate in one category, we can give space to another category and historically, we've done that within the hard surface flooring categories, but now we're doing that some within hard surface floor into some adjacent categories. So.
Our average store size has increased every year over the last few years that stores sides gives us the ability to do more we're never satisfied and we're always trying to do more.
So we're going to continue to explore other things our customers are expecting just to refine and we like the pilot things and will pilot on if it works you'll see at more stores.
And then just a quick follow up on the commercial ramp.
You talked about adding 14, I think the share any update on how the <unk>.
Legacy cohorts I guess for the classes of Rams are performing relative to those state of goal. The sales goals that you had in the past.
Yes. This is trevor.
They're off to a banner year two the commercial industry is expected to be.
Down this year at I think at maybe in total, but we're still small on that industry.
They are doing well we have some of the ramps that have now been with us for a couple of years theyre going to well exceed that two 5% of $3 million on some of those guys are getting close to that and the only whatever for months ended the year.
And as you said, we've hired a lot right, where the 12 last year from our 14. This year. So we got a lot of new folks on there.
But at the same core tenants that have made the residential business successful and working very well with the Rams really high quality trend on product at a low cost in the supply chain that can get at their fast.
So we're very pleased that's why we started the year. We said we were at 12, but based on some of the success for granted off of 2014.
On the answers, yes, we feel very strong in our commercial goals I think I think the only thing that I would add to that as.
I've also been surprised at the amount of talent that we've been able to attract I think people are starting to understand the.
The benefits of working with floor <unk> decor on commercial product projects and people in the industry is seeing that's where we'll be able to attract good talent.
That tends to bring the book of business growth.
Thank you for your question. Our next question comes from the line of Simeon Gutman with Morgan Stanley. Please proceed your line is open.
Hi, everyone. Good afternoon, I have two questions first on sales.
My sales question I guess, there's two parts first Trevor back to the comment around the CAGR for the last.
I guess some of the weeks, you're saying week to week, it's pretty stable and it's a good way to think about your business on the on I guess, the two year basis from 2019 or on the CAGR.
Did you also say, though that the underlying momentum seems did accelerate in the first quarter sort of I don't know if it was week to week or month to month.
That was one of that's my first question.
Yes, it does but just to be fair about that at <unk>.
Should because March is a bigger selling season enables one of our biggest volume months relative to January and February.
But so yes. The answer is our week to week volumes. When you look at every week to week, we have seen our volume increase.
But they should because March and April are higher volume months for us so so.
So the answer is yes, but the issue.
Good.
Got it Okay, and then within that is still on sales.
Have a sense of the composition of new customer.
The new transactions of our customers you haven't seen versus existing.
I don't know that we have the out of our CRM data I do know that we're all very proud of again. This is my 10th year at four in the core as Tom mentioned, the vast majority of our comps is coming from transactions end.
That's something we probably can pull from our CRM database.
The next time, but I do think that there is debt.
There is a lot of new customers coming into the marketplace. I mean would that type of transaction growth and net you combine that with we're slowly creeping up on awareness or style of a long ways to go but as we continue.
Opening of lot of stores, and we're getting into a lot of markets and those markets are maturing and that tends to bring new customers into the marketplace for us. So I mean for me when I look at our performance.
There is new customers and I think we're taking share at of <unk>.
The rate than we have historically.
And just the last follow up any end market share you mentioned, Tom mature market do you have a sense of just remind us what you've told us on in terms of market share in most mature markets I don't know if theres any update of 2020 data out there.
I think some of our we look at at more around the catchment area, whereas in the ability to look at some of that work and last time I remember seeing that we have some stores. Some of these higher volume stores could have 35, 40% market share within their 45 minute drive times, some somebody from slightly higher than that so I do think where we have some of the bigger volume stores at some of our.
More mature markets that we've been.
We've got very high market share in total we still think of of about 9% right. Because we only have 100 of.
The 40 stores, but.
But in our more mature markets for some of our higher volume stores.
Market share is a lot higher.
Thank you for your question. Our next question is coming from the line of Karen short with Barclays. Please proceed your line is open.
Hi, Thanks, very much just.
A couple of question I was wondering if you could talk a little bit more about inventory. Obviously, you had exceptionally strong sales, but inventory increase was pretty lean this quarter relative to <unk> much more so relative to <unk>. So wondering how youre thinking about of that going forward and then I did have one or two other questions.
Yeah, No as Tom mentioned, we weren't necessarily planning for this level of sales.
And.
We are chasing we have really good systems, we've got the.
Our strong team of merchants in the supply chain individuals that are helping us look into those trends, but we're definitely selling more than we would've expected.
Also as Tom mentioned the.
Benefits of our businesses.
We've got a lot of Skus that we can do a good job of selling we were just in stores today talking about the the teams in and consumers are excited and so we may have 15, 18 shades of gray pile all of little bit different in the feed that may not have the exact SKU that you originally sort of looking at we have something close to we can sell through so I do think our team of our merchants it will be of great job of walking through.
But the good better best on our store teams are doing a great job of show on the differences in the Skus.
And.
At the other thing is we're working very closely with our supply chain partners and our vendors to try and get those receipts to a level that will have our inbox to date, our in stocks arent that far below where they've been historically, but.
As time goes on where we are selling.
A lot.
That could those insights to come down but as of today. Our in stocks are still in good shape.
Okay and then my second question is just related to obviously you talked about at the percentage of sales pro sales from the P. P. R of members I'm wondering if you could just give an update on timing.
Tie end rewards programs for pro's using the pro credit card or just the general update on how youre thinking about tying the credit card into the rewards program in general.
Yeah. So we were working with the professional firm that does some of this for for a lot of big companies to help us think about prioritizing that we will have that analysis done in the next month or so.
I think you guys have heard US say, there's really three things we're trying to do with the PPR program and it's doing incredibly well as Tom mentioned, so far but we think there is at the next step is the logical as a tier type program a lot of the more.
More mature companies and retailers and consumer businesses at US, we'll put it on a tiered programs so that youre rewarding your best customers. The most of that's that's the.
That's the thing we're the most excited about.
To your point, we're working on exactly what the credit high end would be.
But we think we know the cost of materially lower on our private label credit card than the external card brands. So we are working on how do we reward people for using that plus our card currently has the best terms out there was six months no interest.
And then the final thing is as we introduce new really cool technology or other skus the Marshall.
The installation category.
There's ways, we can give points for trying some of those new skus and working with our vendors to do that so the goal is all of those would be in a position to be rolled out later this year. The ambition technology process and people we have to invest in those but we hope to have those ready to roll out later this year to give us a benefit into 2022.
And thank you for your question on.
Our next question comes from the line of Greg Melick with Evercore ISI. Please proceed your line is open.
Thanks Syed of follow up on inventory and then on Capex, So inventory was up 3% year over year.
And given the costs are going up and is there any inflation on that and as volume actually down on inventory.
So there is definitely a little bit of inflation right now most of our inflation will come we think later in the year for a return on inventory just over two times of year and the cost increases that we're seeing now most of those didn't exist with the receipts we have for that there'll be a little bit of inflation in there at least on our often always joke at all don't always look at last year's inventories at the best proxy because you don't always have last year's inventory.
I mean again, we the.
Just posted a 41% increase in sales so.
I mean, we'd love to have some more of our bestsellers and we're working aggressively with our partners to do at but.
That's the benefit of having a big sort of lots of inventory.
Is there, but theres there of <unk>.
Number like $50 million that you'd like to have ideally.
Some of what's going to have that the goods that feels a little high to me but.
But the.
That feels a little high okay.
Okay and then the second line you mentioned on the.
Prepared comments about doing more own versus lease.
I noticed you kept the Capex plan at I think for 40 or more.
And it was only 46 on the first quarter. So is that should we use the spend on the capex is going up to 130 of quarter end.
Is is on owning over of leasing become of new part of the strategy.
Yeah, I would say, we now own two stores, we have one in Connecticut, one in Texas and we're very pleased.
When we think about that if you really simplify it for spending somewhere between $7 million to $9 million for a new store today, when we own the land and obviously real estate at different throughout the United States, but we're going to spend somewhere on the low end of three 5% of $4 million for the land at the high end it could be north of $5 million.
Two independent all wise, what's the stores ROI independently and then what's the ROI on the real estate.
We're going to get a return on capital of about 10 percentage of our current expectations on those on those investments. So the answer is we do think we wanted to do more we have a set of rules that we follow.
Things like the great demographic areas at grow on do we felt we could make.
The bucket, we would ever want to sell the real estate and we are triggering through those and we're seeing what it looks like there's real estate investments will look like we want to do more and then there is other benefits when you own the real estate you can negotiate the taxes better you can negotiate the Cam you can manage some of your cost increases as well as better.
<unk> said.
Could it possibly be 10% to 20% of our new stores that we would own.
Still even at ways away from that so it will never know as you think about 20% unit growth, we're not talking looking at around 20% of our stores, but where it makes sense on a place like Dallas, Texas, We know at well, it's likely at a really good location, we're going to try to own more of those stores and then and then so as you think about that equation of longer term.
Yes, as we think about 2022 and 'twenty three because we're obviously working on those stores now.
It's possible that for 10% to 20% of that basis, if we can we'd like to own that real estate and again, it's going to call for us.
The.
Three 5% of $4 million range on the low end of five or $6 million on the <unk>.
High end on that land.
So long answer the simple question, but I don't think it will ever be all of that material relative to the total capex, we spend but where it makes sense, we're going to program of trying to pick on more ownership.
Thank you for your question. Our next question comes from the line of Chris <unk> with J P. Morgan. Please proceed your line is open.
Thanks, Good evening everybody.
A couple of margin questions top line has been pretty fully covered here.
Can you talk about.
Product margins you didn't you didn't call it out as a positive in this quarter and you had prior it does sound like you had you did have trade up to better and best and the.
Then you also talked about in transportation costs and input costs rising and inventory turns so.
Any color commentary about how to think about gross margin over the balance of the year end could we flatten out and maybe see some pressure.
As we get to the fourth quarter.
Got it at a high level at least on Tom can weigh in we saw some pretty meaningful gross margin improvements last year across all of our product categories.
This quarter.
When you look at the totality of at the majority as I mentioned in my prepared comments was driven by the leverage of the supply chain.
Was the bigger driver of our gross margin this quarter. The way, we think about our gross margins for the rest of the year and obviously a lot of this is predicated on sales, but assuming reasonable sales growth.
We're planning on.
We would expect to have higher gross margins again in Q2.
As we get to the back half of the year. Our current expectation is that there'll be flat to down maybe just a little bit.
<unk> of the fact that we are going to see some of these cost increases.
And Chris you followed us for a long time, when we think about these cost increases we try to keep our retails as low as possible.
We're going to likely pass on those cost increases to some extent.
But the market based approach to portfolio based approach.
But I do think as we see some of those inflationary pressures come in the.
The gross margin will not be growing in the back half of the year, but as we did when tariffs came in we don't think that will affect our ability to get to a gross profit goals on our profit goals.
Got it and then can you can you talk about.
Maybe quantify how much in incentive comp pressured.
From a dollar perspective and help us out in terms of sort of how you accrue for that do you typically say, we beat the first quarter versus our internal plan.
We raise the only for that or do you typically a recast of the year and then sort of adjust your accrual rate at.
At that point in time.
It's the latter.
Fortunately for US all of our incentive comp is pretty small of the percentage of our sales of doesn't have a massive impact as you would expect we're accruing at the very high end of the range right now based on the performance of the business.
There's a piece of that in the G&A, which is our corporate expenses. There is a piece of it up in stores for the store pieces of it.
And even with that as you guys saw on obviously our comps were good we still got over 300 basis points, almost 400 basis points on our comp stores leverage including the.
The last year's bonuses for basically zero because at the time we were at.
Heading into COVID-19.
And this year, we're accruing at the Max rate in each of those all fairly significant leverage.
Sure.
And the stores at the corporate a little less so.
At the reason you didn't get leverage in Q1 was basically because of the bonus because again, we were accruing almost zero last year and this year of recruiting at the high end of the range.
So said another way it was the comparison of year over year, it's not like you sort of recast your plan and said, okay. Now internally, we're expecting even better outcome than what we had predicated for the year.
I would say so we have a plan that the the compensation committee approved at the beginning of the year and then we will accrue based on what Youre at what do we think we're going to hit throughout the year. So as we re forecasting the businesses will take that incentive comp up throughout the year. So.
So hopefully that answers the question, but basically we do re forecast of the year and then we accrued based on how we're performing throughout that throughout the year end, obviously as we get closer to the end of the year that true up becomes pretty immaterial, because youre getting close to the end of the year.
Thank you for your question for the remainder of today's Q&A. Please keep your questions to one per line. Our next question comes from the line of Kate Mcshane with Goldman Sachs. Your line is open. Please proceed.
Hi, Thanks, good afternoon.
On a line of our questions have been answered. So this is a little bit more of a detailed one on the cadence of comps that you talked about today I know you mentioned that February was impacted by about 500 basis points by the stores, but you think 300 basis points of that got pushed into March do you think those 200 basis points.
Brands can still come back end, just with regards to the commentary around what you achieved in March I know, it's small but is there a way to know if that was from needing to replace floors because of the storms or is it from delayed projects.
Part of it for just a bit of of math equation March's of five week month February is a four week month and then also the March volumes are higher.
And in the February volume volumes are lower so the combination of those two things is they basically dollar wise, Washington other out, but because March is such a higher volume month, both because of the volume and it's a five week month, that's why it's only at $300000 benefit in March.
On the storm itself you guys know hurricane Harvey hit in late 2017, and it felt like the range stopped and the sales went through the roof.
And we're obviously a smaller company the company and more concentrated in the Houston. There. We don't think that happened here, maybe that will come maybe there's more to come throughout the year. It felt like we kind of lost some of what we would have gotten otherwise.
And maybe there's some upside to come as you know frozen pipes for burst and things like that.
It doesn't feel like we're going to see anything close to what we saw in.
And the Houston back when Hurricane Harvey hit.
Thank you for your question. Our next question comes from the line of Stephens of Cohen with Citi. Please proceed your line is open.
Great. Thanks for taking my question Congrats on the strong results. One quick one just wanted you to expand a bit more on what's driving the growth of the 2020 in 2021 cohort of stores stores to be so strong relative to prior cohorts.
Do you think the brand awareness is growing is it better execution. It seems like you are being more vocal with the Grand opening celebrations. So just what's the key drivers of the outperformance when you look at the fees versus prior cohort for thanks.
I don't I don't think it is one thing.
It's a little bit of everything you said certainly our execution.
I feel sort of at a high level.
What's encouraging is the stores, particularly in 2021, we're not opening at the same with the same fanfare that we have historically opened our stores over the last few years and we're seeing really strong results end.
So that our teams are executing theyre out of there out there finding new pros theyre getting them into the stores just not in one big mass party, because you can't do that and of COVID-19 world. So.
I'm pleased with that part of it I think that the 2020 one stores I do think our awareness is improving.
I think people are knowing where we are even in new markets people are starting to hear of the brand. So I think that that helps I think our real estate team has done a phenomenal job in our locations.
Mike.
Pulling up through our new stores and on like this is one of the best locations that we have.
I'm getting tired of saying it but I do think that they've done a good job of better job than we've historically done and getting the right locations in the with the right visibility.
It is important to us so.
And we're also opening end markets, where you would expect some higher volume. So we're getting some more stores up in the northeast for getting some some more stores in Texas and markets that we perform good at in the stores performed strong historically.
So I guess, it's a little bit of everything that there is no one magic bullet, but the <unk>.
Certainly we're pleased with the 2020 one stores.
The one other thing Stephen that we're kind of learning one thing I would say the 60% of our stores are in existing markets. This year. So that obviously helps got better brand recognition more pros, but but we're also starting to see a little bit as our real estate team is obviously, you're getting much better locations for us as for bigger company, you know much better balance sheet.
And then when you open that third or second of that full store.
We're really getting the leverage that you were hoping for because you do have better brand recognition now you've just made it more convenient for that Protos shop at multiple stores, which is obviously very encouraging with at least 400 stores we plan to open.
The only the 140, we've got a lot of markets left the open that second third fourth fifth sixth store.
So it is.
That's something that we're learning a lot about here on the last few years as well.
Thank you for your question. Our next question comes from the line of Chuck Grom with Gordon Haskett. Please proceed your line is open.
Hey, Thank you.
Great quarter, just a question on geographic performance just curious if you're seeing any.
On the version in performance and some of the markets that are farther along on the reopening process and then also just curious from the consumer perspective, if youre seeing shop.
Shoppers start to engage in larger purchase purchases at this point in time.
Yeah.
Geographically, we're pleased across the country all markets are performing.
Performing very well as I said in my prepared remarks, the others.
At one place Thats really driving at we're fortunate the strength across across all territories.
But what our customers are taking on larger projects.
It's hard to tell I mean, I don't think so I think theyre, taking on the same flooring project as of flooring project and that doesn't change so much so the.
One thing we are seeing you can see our average ticket is a little bit better at customers continue to step up to our better and best products of tend to be a little bit more expensive.
I think our merchants have done a terrific job in the.
The trend right and I think customers of gravitating net so that take the project up a little bit.
And this sort of reflective on our average ticket so feel good about both.
Thank you for your question. Our next question comes from the line of Alex from Morocco with Barnburner. Please proceed your line is open.
Good afternoon. Thanks for taking my question guys I might have missed this in the prepared remarks, but can you give us an update on the new California at Trans load facility and if your thoughts are on benefits for a minute changed given the current freight environment.
Yeah again, our supply chain team has just been very thoughtful about this.
We pulled the trigger to do it we don't plan on operating at until the fourth quarter.
And then it will take time to work at benefit and because of where on a weighted average cost of inventory method. So we will start to get some modest benefits for that at the end of Q4 and into Q1.
But with the congestion out there on the cost of dealing with the congestion out there.
If you can help US now we think some of that is going to hopefully abate over time as they get caught up but.
But we are on track and we plan to open at like I said I think of the fourth quarter and we'll start to see some of those benefits.
More realistically in the queue into 2022.
Thank you for your question. Our final question is coming from the line of Justin Kleber with Baird. Please proceed your line is open.
Hey, guys. Thanks for taking the question I wanted to ask just about web traffic I assume you've seen an acceleration in growth during <unk> I don't know if you have that specific number you can share but.
On the part of the question, what's the typical lag time from when you see of homeowner start to engage with your website and then when they actually make a purchase.
Hi, This is Lisa so yes, we did see.
Consistent web traffic through the first quarter there was the Mexican downs by week as we usually see I believe the total for the first.
The quarter was up 81% on web traffic so that was great.
<unk> did come down from that it's getting very fuzzy on because we are now going up against stores Inc.
If you remember last year the web represented at like 65% of our business in the second quarter last year. So there is a lot of noise now as you start to compare year over year, but first quarter. We felt very good on still running close to 17% of sales.
So thats great I don't know if one of the exact lead or lag time, I think you know kind of anecdotally, we've always said somewhere in the $39 30 to 90 day range from.
From the time somebody kind of start the thought process to do it until the time it actually gets done and I don't think we have any reason to believe that time that timeline has changed.
So I think that concludes our question and answer session.
We appreciate everyone joining our call today and appreciate your interest in our company and our performance and we look forward to talking to you on our next quarterly update.
That does conclude our conference call for today, we thank you for your participation and ask that you. Please disconnect your lines.
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