Q3 2021 Floor & Decor Holdings Inc Earnings Call
The companies Safe Harbor language comments made during this conference call and webcast contains forward looking statements within the meaning of the private Securities Litigation at Litigation Reform Act of 1995 and are subject to risks and uncertainties any statement that refers to expectations projections or other.
<unk> of future events, including financial projections of future market conditions is a forward looking statement the companies actual.
Future results could differ materially from those expressed in such forward looking statements for any reason, including those listed in its SEC filings flooring decor assumes no obligation to update any such forward looking statements. Please also note that passed pro.
Foreman or market information, it's not a guarantee of future results.
During this conference call the company will discuss non-GAAP financial measures as defined by SEC regulation Gee, 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 to the most directly comparable.
GAAP financial measures can be found any earnings press release, which is available on our Investor Relations website at <unk> Dot, Florida decor Dot Com a 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 third quarter earnings conference call on today's call I will discuss some of the highlights of our fiscal 2021 third quarter earnings results. Trevor will then review our financial performance in more detail and discuss how we're thinking about the remainder of fiscal 2021 and then.
We will open the call for your questions.
Let me start by saying how pleased we are with our fiscal 2021 third quarter results, which build on our record third quarter financial results last year.
Two stores in August and three stores in September we remain excited about growing our brand awareness and market share in suburban locations within larger msas as we look to the future to that in some of our third quarter warehouse store openings included successful new stores in the towns of Comex and Bohemia long Island.
These openings, bringing the total to three warehouse stores that we now operate on long Island. We also opened a new warehouse store in the suburban market of Waltham, Massachusetts, bringing the total to three stores that we operate in the Boston market at the end of the third quarter.
Year to date through the third quarter of fiscal 2021, we have successfully opened 20, new warehouse stores, bringing our total warehouse store count to 153 warehouse stores operating in 33 States. We intend to open seven new warehouse stores in the fourth quarter of fiscal 2021 compared to five and fish.
2020, as a result, we will have opened 27, new warehouse stores in fiscal 2021, representing 23% growth from fiscal 2020, we.
We intend on opening two design studios, our small format stores located in densely populated higher income metropolitan markets late in the fourth quarter of fiscal 2021 in Miami, Florida, and Houston, Texas, However, delays in the supply chain, where we source unique fixtures for the design studios will likely push these openings into.
January of 2022.
Our strong third quarter and year to date results serve to reinforce our belief that the new store classes of 2020 in 2021 will likely represent the most robust first year sales and profit classes in our history the.
The improvement is from our real estate team increasingly bringing preferred site options with lower occupancy costs compared with prior years. Additionally, we have improved our grand opening cadence in 2021, resulting in more operating weeks. Furthermore, the improving performance results reflect excellent execution among our merchandising.
Construction, new store visual merchandising training marketing and store teams move.
Moving on to our second pillar of growth growing our comparable store sales fiscal 2021 third quarter comparable store sales increased 10, 9% from the same period last year and 14, 1% on a two year compound annual growth basis from the third quarter of fiscal 2019, both comparable.
Door sales growth measures are above our long term target of mid to high single digit comparable store sales growth monthly our comparable store sales increased 11, 5% in July 10, 5% in August and 10, 8% in September we are happy with our third quarter sales exit rate and the start to the fourth.
Fiscal 2021, where our comparable store sales are up 16% quarter to date.
Better way to look at our comparable store sales increase is on a two year compounded annual growth rate basis, due to COVID-19, and on that basis, our quarter to date comparable store sales are up 18% the highest of the year.
Our fiscal 2021 third quarter comparable ticket increased eight 3% from the same period last year and 4% on a two year compound annual growth rate basis from 2019, the increase in fiscal 2021 third quarter comp ticket is due primarily to a mixed benefit of selling more better and best.
Products and to a lesser extent certain retail price increases we took in the second half of the quarter to mitigate higher costs. Additionally, comparable store sales in our pro business exceeded our homeowner business, which had a favorable impact on our ticket.
Our fiscal 2021 third quarter comp transactions grew two 4% year over year and a robust nine 8% on a two year compound annual growth rate basis from fiscal 2019.
The two year solid growth rate in our transactions reinforces our belief that we are gaining market share.
We continue to see customers moving up to the better and best price points within our merchandising assortments.
Hello.
Moving onto the elevated cost headwinds that have emerged from the disruption in the global supply chain.
Like many companies continue to face higher supply chain costs, and select product cost increases from higher raw material labor and energy costs that will be a headwind to our gross margin right in the fourth quarter of fiscal 2021 and into fiscal 2022 is.
As Trevor will discuss in more detail over the immediate term. We believe these costs headwinds will change the complexion of our P&L as supply and demand remained unbalanced.
That said, we are uniquely well positioned to grow our market share during the demand and supply chain turmoil from flooring retailers that cannot effectively manage the growing complexity and rising costs as evidenced by our transaction growth and overall sales momentum.
As a reminder, we estimate that 60% of the industry sales are sold through hard surface specialty retailers small independent hard surface retailers and distributors.
Our third strategic pillar of growth is expanding our connected customer experience, we continue to invest in our connected customer capabilities to deliver what we feel is an unmatched and seamless personalized customer experience across our desktop mobile in store selling channels as a reminder, 79% of our customers who purchased in the stores.
Said, they had been to our website.
And 71% of customers, who bought online said they had been in in the store.
Our warehouse stores are integral to our website revenues as approximately 80% of online revenues are picked up in stores and.
Investments, we have made an e-commerce over the last several years resonate with our homeowners and prose leading to improving conversion and a significant increase in R. E. Commerce sales penetration rate are year to date fiscal 2021 E. Commerce sales penetration rate is $15, 9% up significantly from 9.7%.
In 2019, our fiscal 2021 third quarter E Commerce sales increased 34% year over year when measured on a two year compound annual growth rate basis, our third quarter E. Commerce sales grew 67% from 2019.
Pillar of our growth.
As we have discussed in the past we are focused on building a consistent high touch best in class and seamless designer service experience for our homeowner and pro customers. We have refined refined our strategy to attract and retain high caliber designers and recently added three new divisional design service services.
Directors across the U S. We continued to enhance our design opportunity under this new leadership structure and use the unified metrics across all of our warehouse stores and now in the home in the third quarter. We introduced an in home design services pilot in Dallas and Houston, Texas.
Homeowners approach can make appointments with our in home designers and our warehouse stores or online with our design scheduler and choose among three different compelling design fees based on project needs.
Before I close I want to give a special thanks to our associates in Louisiana in the northeast who responded to hurricane items. There are extra ordinary efforts allowed our stores to get back up and running quickly to serve our communities.
I'm also proud of all of our associates, who contribute to the west from our Associate assistance fund named after our founder Vincent West, which helped associates personally impacted by Hurricane items. The West Fund is one of our important ESG initiatives and I'm also pleased that we hired a new director of sustainability during the third quarter of fiscal 2002.
91 in 2022, we look forward to sharing more with you about these important initiatives and how they will strengthen our company I will now turn the call over to Trevor to discuss our fiscal 2021 third quarter results in more detail.
Thanks, Tom I also want to say, how happy I am with our operating and financial performance in the third quarter of fiscal 2021.
We have been successfully maneuvering through growing complexity in our supply chain and sequentially improved our merchandise in stock levels, which is impressive considering our year to date total sales increased 28, 8% on a compounded annual growth rate basis from 2019 today product availability is even more critical to grow market share. Additionally.
Many companies, we face higher supply chain costs rising product costs from higher raw material input costs, including energy and pressure on labor rates.
We have effectively managed our costs and very strategic about increasing prices to offset these broad cost pressures as a reminder, any price adjustments that we may make we'll be rolling and we intend to keep our price leadership and protect our value proposition.
We are fortunate to have broad assortments to make select strategic price adjustments without materially impacting our unit elasticity to date.
As we've said in prior earnings calls, we drive profitability towards managing gross profit dollars rather than gross margin rate.
We believe our strong fiscal 2021 third quarter financial results, where adjusted net income increased 129% from 2019 demonstrates our ability to grow our market share and successfully manage our profitability. During these industry wide challenging period.
Let me now turn my comments to some of the line items in our fiscal 2021 third quarter income statement balance sheet and statement of cash flows and then discuss how we're thinking about the remainder of fiscal 2021.
Let me begin with our gross profit we are pleased that our fiscal 2021 third quarter gross profit increased 24% to 365.300 million.
The increase in gross profit was driven by a 28% growth in total sales, partially offset by a lower gross margin rate.
Our third quarter gross margin rate decreased a better than expected 130 basis points to 41, 7% from 43% last year.
The decrease in gross margin was primarily due to higher supply chain costs.
As a reminder, our fiscal 2023rd quarter and fourth quarter gross margin rate increased 200 basis points and 90 basis points, respectively from 2019 adjusting for unique items called out in our previous non-GAAP reconciliation and the impact of the 50 <unk> week in 2020.
Based on higher sales to.
The 80 basis points decline in fiscal 2021 third quarter comparable store selling and store operating expense rate is on top of leveraging approximately 220 basis points in the third quarter of fiscal 2020.
Our third quarter general and administrative expenses increased 33, 6% to 52.500 million <unk>.
The increase is primarily due to cost to support our store growth, including increased store support staff and higher depreciation related to technology and other store support center investments as a percentage of sales G&A expense was in line with our expectations, increasing approximately 30 basis points to 6% from five 7% from the same period last year, primarily due.
The amortization of intangible assets acquired from Spartan surfaces, and other non payroll related general and administrative costs.
Our fiscal third quarter of 2021, Preopening expenses increased 113, 5% to $10 million 700000. The increase is primarily the result of an increase in the number of stores, we either opened or we're planning to open compared to the prior year period, We opened six warehouse stores. During the 13 weeks ended September 32021 <unk>.
To opening three warehouse stores and one design studio during the 13 weeks ended September 24 2020.
Our fiscal 2021 third quarter EBIT increased five 8% to $83 million 400000.
Adjusted EBITDA increased 12, 7% to 120.200 million or.
Our adjusted EBITDA margin decreased 190 basis points to 13, 7% from last year's record 15, 6%, primarily due to higher freight costs that impacted our gross margin rate as well as higher pre opening expenses as we ramped up our new store growth from 13% last year to 20% this year.
Percent year to date.
We expect our fiscal 2021 year and at.
At year end inventory to increase to approximately $900 million to $1 billion up about 40% to 50% from fiscal 2020.
The expected increase in our inventory is being driven primarily by two investments first we are investing in improving our in stock inventory in key Skus and second we intend to bring in a portion of the Chinese new year inventory a couple of months early landing in November and December to try to mitigate the current international container capacity capacity issues that exist.
Notwithstanding this inventory growth, we are experiencing an all time high and our inventory turnover.
Moving onto our capital expenditures through the 39 weeks ended September 32021, our capital expenditures totaled $346 million 101000, including capital expenditures accrued at the end of the period as.
As we look forward, we expect our annual fiscal 2021 capital expenditures to be approximately 455 million to $475 million unchanged from our prior guidance. We expect our fiscal 2021 capital spending to be funded by cash flow generated from operations and existing cash on hand as.
As of September 32021, we had $708 million and 900000 in unrestricted liquidity to support our growth, including 330.100 million in cash on our balance sheet.
Let me now turn to how we're thinking about the fourth quarter of fiscal 2021.
Product and freight costs and related gross margin rate pressure, we have plans to raise prices on certain products. We believe these actions coupled with our underlying organic growth could lead to a rate of comparable store sales growth in the short term that could be above our longer term comparable store sales growth targets of mid to high single digit growth.
As Tom mentioned, our quarter to date comparable store sales was up about 16% on top of the very healthy comparable store sales growth of 24% quarter to date last year.
As discussed on prior calls we are likely to see a year over year decline in our gross margin rate in the second half of 2021 due to the outsized gross margin rate increases last year as well as rising costs. This year are.
Our fiscal 2021 fourth quarter gross margin rate is expected to be approximately 39% to 40%.
I should also note that the acquisition of Spartan surfaces is expected to modestly lower our gross margin rate as commercial gross margin rates are below retail.
Turning to our selling and store operating expenses, we expect our fiscal 2021 fourth quarter, selling and store operating expenses to leverage compared to the fourth quarter of fiscal 2020, and approximately 26% or slightly lower.
As a percentage of sales our fiscal 2021 fourth quarter Preopening expenses are expected to be about 1% of sales in line with the fourth quarter of fiscal 2020.
In the fourth quarter, our general and administrative expenses are expected to be similar to the amount. We spent in the third quarter of fiscal 2021.
Plan on depreciation and amortization to be about $32 million and interest expense to be approximately $1 5 million daily.
Diluted weighted average shares outstanding are estimated to be $107 million 700000, and our tax rate is estimated to be slightly above 24%. As a reminder, this guidance does not consider the tax benefit due to the impact of stock option exercises that may occur in the fourth quarter of fiscal 2021.
Let me close by saying our entire executive team is incredibly proud of our performance in 2021, operator, we're now ready to take some questions.
Thank you, we'll now be conducting a question and answer session. We ask you. Please ask one question and one follow up then return to the queue.
Ticket versus transaction.
Once we do start to see maybe an easing of the supply chain.
Do you think happens to pricing when that supply chain starts to loosen up a little bit more.
Yes.
I think when the ticket this quarter is actually much more driven by better invest our merchants have done a great job selecting great products, our stores and the web side have done a great job showing those products. So the biggest driver of our ticket is again, just driven by the better best and you guys also probably noticed or you will when you get a chance to read our 10-Q.
Our laminate and <unk> category continues to be our best performing Department, It's now our largest department.
And we're winning all over their better and best people are buying more square footage, they're picking the better products. The price increases that we had that we instituted in the second half of the quarter were fairly modest in the very small piece of that 8% lift in ticket.
Yes.
Thank you. Our next question today is coming from Michael Lasser from UBS. Your line is now live.
Good evening, Thanks for taking my question.
The 350 basis points of gross margin degradation that you're guiding to for the fourth quarter is always.
This coming from the increased supply chain cost that youre not able to pass along in the form of higher price increases.
Long does this persist into next year and does this structurally change, Florida <unk> gross margin.
Great question. Michael These are very unique times and we're living in a very dynamic environment. So let me just start off.
All of our supply chain costs are increasing so.
<unk> International container costs are the largest component of our.
Cost structure those costs were about double what they were.
80% of what we sell we believe is manufactured outside the United States ups, obviously got to get to the United States.
Duties and import fees have also increased you guys will recall in August of last year.
<unk> removed 25 are added back to 25% tariff. So we were paying more there are domestic cost are up about 25% over last year and.
To merge maybe a term you've never even heard before but those are costs that the port charges when containers don't get in back into the port.
Quickly.
La is you guys have read is the biggest issue we're having we have a big distribution center out on the West coast.
And those costs are still rising even at this point right. We're seeing cost increase there. So that's the that's the bad news. The good news is that our supply chain team and our merchandising team have done a fantastic job in managing that so not only have we increased our inventory in this environment.
Beyond 2022, you would hope to see more ships in the water and more trucks on the road and some of those costs may come down, but as long as we're in this elevated cost environment. Our expectation is the topline would likely be higher the gross margin rate will be lower but we still get to a good gross profit growth and a good earnings growth again, assuming the macro stays good.
Yes.
Michael I'd I'd add just a couple of thoughts to it too.
The supply chain complexity.
It's partly it's partly costs, partly accessing product in our category.
The priority for us is to get the product within the stores.
We do feel like this is an opportunity to take share our model's unique we've got broad in stock Assortments <unk> expect to be able to get product and access product and our model allows them to do that so this is not a structural change to our business. This is a moment in time, we have to manage through it.
And over time things will normalize, but it's going to take it will take a little bit of time.
And.
Tom how are you thinking about.
Passing along costs.
Consumer because if we use rule through a 39% gross margin throughout 2022.
You get that maybe you don't see any earnings growth next year.
Well, we are going to be as Trevor said, we will continue to pass along cost is as costs come in but as the value retailer in hard to access product. We believe this is a time to take shares we'll be thoughtful and those price increases and manage the cost and we believe that our topline will be better and we believe we're trying to manage the gross margin dollars.
Yes, just I do want to follow up on that I want to be clear.
I understand the rates a little bit lower than you've seen from us in a while but the top line is a lot higher too. So the strategy that you guys have heard me say a lot over the last three years, let's say product cost US dollar we were selling it for $2. If now that product is costing us $1 five or $1 10 and were selling it for $2 five since 2010 since we still get to the same gross.
Profit dollars, we actually get more leverage through the rest of the P&L, because they're not having to handle that many more widgets and so we still think we can get to a good profit growth. So we'll talk more about what our goals are for next year next year, but there is no intention on our part that we won't be able to achieve a good gross profit dollar increase and a good.
Operating profit growth next year.
Thank you. Our next question today is coming from Steven Forbes from Guggenheim Securities. Your line is now live.
Good evening, Tom I wanted to expand on your last comment there around chair.
Curious if you could.
It was providing that product for them. So I you know I I feel I feel good about that so I don't know if this if there's anything you want to add on a competitive sign no I think that that's right I mean, certainly with 13000 independents out there everyone has a different story summer in better shape than others, but anecdotally, what we do see it sounds better.
The board if it is harder to get product and the product that they are able to get is going to be more expensive. So we feel very good about all they were taking some prices well that are competitive gap will remain and we think that you know if you talk about the motor round. Our castle has never been stronger and so we we feel really good that any type of challenging times that we're a.
Most of the cost increases we've seen to date have been on the supply chain side, but with energy and commodity and other cost inputs going on it's possible that we're going to see some vendor cost increases as well.
So I think the way we account for our inventory we try to capitalize those costs effectively ended the individual products and so as we see these higher cost come in Thats. When we work with the merchandising team and supply chain team then to push through retail. So maybe you said simply.
We don't have our crystal ball that far out yet, but there is nothing for us to believe as we think about next year that we're going to be materially off the gross margin rates that were that were projecting for the fourth quarter of this year.
Okay. That's very helpful. Thank you and then.
Question on new store openings for next year. Thank you referenced that there was some supply chain delays that constant push out of some design stores is there any reason to think you Couldnt do 20% unit growth next year.
Also drives a higher ticket.
Got it and then you are seeing there's a fair amount of wage inflation and I and I know you've made investments in and wages and and labor both from Ah right as well as an hour's perspective.
But it also seems like.
Some of the I guess jobs that are less desirable than than working in a store is such as yours are seeing more wage inflation. So it seems like there's compression between let's say fast food and.
Working at foreign decor isn't starting hourly associate how how are you thinking about <unk>.
Wage investments as we as we look forward into 2022 do do you think there's a sort of next level of investment that you have to make.
To keep some of that got wider.
Yeah I mean.
Chris as you said, we've been thoughtful about that through the course of this year B, we gave lots of increases across our associate base <unk> end of the second quarter. We haven't achieved bonus that we paid with associates when the stores to form and we are very good pie high per cent.
Age of our stores or or achieving that bonus and a good percentage of those are ordered in the Max bonus, which also helps our our wage we continue to look at it we feel good about where our wages today are starting wages. Good we feel like we're we're within market we're able.
Staffing challenges all year long they've been there uhm they haven't gotten any worse, it's almost a little bit of one market gets better than another market gets worse, but that's our job you have to react to that but will monitor it but we feel pretty good where we're at my wits today.
Thank our next question today is coming from the swimming and come in for Morgan Stanley. Your line is not alive.
Good evening. This is so mostly on for Simian just wanted to dig in on the D. I Y R. S's pro dynamic here. It seemed like the market is shifting to more pro you know just as people get more comfortable with pros coming in but I just wanted to get your thoughts on sort of the sustainability of this right. It seems like backlogs are still there, but just thank you to the next.
Couple of quarters on how that could help ticket and just the comp overall.
Yeah, I think uhm I'll take a stab at that I would say that from a pro perspective, we continue to hear that the backbone is very strong from our pros and so they've got they've got plenty of work I think I think people have been general been comfortable letting professionals into their homes for a while.
<unk> and I think that continues in the back long as strong I think from a homeowner perspective Racine no last year was artificially inflated with the homeowner they weren't able to go to restaurants, they weren't able to go to ball games, they weren't able to travel and that is definitely eased as we go forward. So it's a natural that you know pros are gonna continue to be busy.
And it's expected that the homeowners gonna have other places to to spend their time and spend their money and I think that's what we're seeing but we we feel terrific about the backlog in as evidence looking at our top line I mean, you know the pros are in there buying so we feel good about that.
In stock matters and stuck matters.
Right and then I don't much of the focus studies on gross margin, but just thinking about the S. G an airline and Opex I mean.
You know.
It feels like you guys are sort of have a better control on that line right. How should we think about the levers as we go into next year. You know is there an opportunity to maybe pull back somebody expensive that you sort of maneuver. This volatility on gross margin right can you just walk us through some of the puts and takes.
Yeah, I I think about it and halves. The first half of last year, we were still trying to get ramped up on staffing. So we were running a little bit light ourselves were really strong throughout really all this year, but certainly the the first half of the year and so I think the first half a year, we've got to make some investors back into a store we ran a little light on labor and the first in the.
First off your now that we've gotten our staffing up to levels that were more comfortable with but we'll know Roland and go against against last year, where we were a little bit understaff, but that's not gonna be a big driver.
I think on the Preopening expenses, you know they really shouldn't change much if anything will get a bit of a benefit because we're actually gonna one more of our stores next year. So I have a little bit less preopening expenses for those stores and then as we get to the back half of next year, when we're kind of going up against more comparable investments.
Investments back into the store I would expect to see a lot more leverage in the back half of the year and then just back to the common around gross margin because it matters to sales.
If our sales are gonna be elevated and driven more by ticket that generally leads to getting normal expenses, a better leverage because you're not really selling more units, you're just driving a higher ticket, which allows you to to get a little bit of leverage out the best of your day.
Thank you can the interest of time into a comedy further questions. We ask you. Please limit yourself to one question. Our next question is coming from the vet some money from credit Suisse. Your line is not alive.
Hey, Thank you for taking my question. So this is what I'm just wanted to call you, Tom and you'll prepared remarks, you were talking about uncertainty related to approvals from Verizon The times I will just need to figure out if that was even a consoling. This <unk>.
Can you say that one more time can you can you ask that question again to just slow the question, it's hard to hear concerned.
Sure No problem. So my my question is about the comment in the prepared remarks regarding the uncertainty put the pillows because of that the Ivy times, what the products triangle. This undecided if that was the fact that this quarter I need to leave I can see it on the table.
Yeah, I I think well no I think it's benefited us I I think in the prepared comments. It was no pros can't have uncertainty about accessing product in the floor and decor model gives them the ability to have a <unk> a reliable source of product and I think in the in the in the competitive landscape that would work.
And today with the difficulties of supply chain a lot of folks are having a hard time accessing inventory and when I'll I'll use one category as an example, when we have 250 options of tile in a given floor and decor. If we're out of 10 skus, while that's problematic, there's 240 to choose from and a lot of people that we compete.
With don't have that benefit so I think that's benefiting us I think it benefited us in the third quarter I think it's benefiting us even more in the fourth quarter.
So far.
Thank our next question is coming from Chuck Robb from order to ask you. Your line is in our lives.
[noise], Okay. Thank you great quarter to <unk> or call back here on price just curious how 'bout should take about the degree or amount of the price actions that you guys have taken so far in the month of October and I guess, how much more could be established in November and December 9th 2022, I guess, what I'm trying to get a sense for the for everything else holding equal including transaction.
Okay. So what do you think the calm could be in the fourth quarter to get to the 26% SG&A as a percentage of sales.
One thing I would call out about two four comps last year are cops got better every single month uhm throughout the quarter. For example October we come to 28% last year and for the quarter, we come to 21.6%. So I'll compares to get higher the other thing that's a bit of a technical items that we mentioned last year.
But it's worth mentioning again this year Christmas the day with Christmas fell in the 53rd week. So that that was a freebie, where we were benefit of last year, we estimate maybe 130 basis points by not having Christmas in the 13 weeks of the fiscal year. This year Christmas moves back into it because we don't have a 53rd week. So that's gonna be a headwind of about 100 and.
30 basis points for the quarter Uhm, and then and then the specifically answer your question.
Way to cost Rowlands arguments, where I went on a weighted average cost basis. So as these costs come in and they sort of they take up our inventory up over time, because we turn our inventory three to four times a year that cost just takes a little time to weigh in so that's why when we talk about having our price increases it's on a rolling basis, so as those costs will up higher.
<unk>, we then rollout those retails and so we do expect to continue to raise retails as we exit this year and today. We don't believe we've seen a lot of the elasticity impact and we will see obviously, what the future holds because obviously inflation is in things beyond just flooring and how the consumers can Iraq when everything costs more we'll we'll have.
To see how that plays out yeah I just saw on the pricing spun as Trevor said and we've set a couple of times now we're going to continue to pass price along as we have to I, we're sensitive to our price spread we think that we think we're getting a lot of new professionals in our in our stores. We think that this is not a structural change to the business. This is a moment of time and we went.
To be sure that when prose poems are gonna give us a first chance what they've been loyal to a place where they now can't get product now, they're gonna come into a floor and decor and we think when they come into the store there'll be sticky and they're like what they see so we're gonna be sensitive to our price versus the rest of the market and and because of our inventory position combined with a low price value. This.
As an opportunity for us to take more sure.
Thank you. Our next question is coming from carrying short from Barclays. Your line as allies.
Iron sauce off down for care and thanks for taking my question can you just talk a little bit about your your new store waterfall Uhm what is the average payback period for store now free Covid in house that maturity Kirk James.
Yeah, we are new stores are performing exceptionally well as Tom mentioned mccubbins in for over a year now it looks like the top line of the stores were gonna probably be about $15 million now and uhm. The bottom line you know it could be close to $3 million in for awhile EBITDA. It wasn't that long ago that our stores were $12 million in sales and making 600.
A thousand so we're doing fantastic you still pay that those stores, even though the volumes of elevated nicely from wherever you are just a handful of years ago. When those doors go into the comp base. The first year, the comps are materially higher than the than the mature stores. The second year. There is still substantially higher than the more mature stores the third year, they get a little bit close.
<unk> and then the fourth your between years, four and seven they'll sort of come into maturity based on whether it's a new market or an existing market. So.
That's a lot of backdrop to say the waterfall is still very good for our newer stores until they get to again years four to seven depending on whether it's an existing market or a new market.
[laughter]. Thank our next question is coming from Peter Keith from Piper Sandler Your line isn't alive.
Hey, Thanks, guys Uhm nice job navigating a tough environment, you know big picture just on the supply chain. It's it's obviously volatile but since you guys are kind of involved in this every single day of just curious to get your perspective on on the supply chain status you feel like is it getting worse as you sit here today is that getting any better.
<unk>, what's kind of your real time view.
I see it as and I'm looking at my partner, who run supply chain over there.
<unk> were climbing the hill, but we're sort of seeing a top of it is what our hope is and and is we're sort of looking over saying, Okay. We see you hopeful where it where it where it is now and as we look into 2022, we'd hope it gets better we think it's gonna get better.
Pedigree.
I'm Gonna nods from my head I'm surprised.
We have a microphone up but he agrees [laughter].
Thanks to my next question today is coming from Greg Military remember, where I found your line is not alive.
Hi, Thanks Uhm.
Yeah, I'd love to go a little deeper on the geography of the P&L in the margin degradation you mentioned a few times the extra sales will share gain.
But then I hear you mention it like a 26% or 28% or a leverage point either for the fourth quarter. If we think about sales growth.
And and if if we end up having 35%.
Gross is all of that leverage or how much SG&A would you need to add back to get those sales, but the higher S. Please.
I'm not sure I'm quite.
Greg maybe ask you one more time or a different way I'm I wanted to make sure I understand the question, so I answered correctly well it it just gross margin.
Down 300 plus steps.
Oh, but you're passing through dollars not right. So if we think about SG&A leverage you're talking about some of the puts and takes first half first or second half, but I guess more specifically is how should we think about.
Total net sales growth like at that ended up being.
20% it could we expect to leverage that year over here in the fourth quarter.
I play I think again, we'll talk about 22 next next quarter I mean, our our I think if things continue like they are preliminarily into the into the fourth quarter, you would see a higher level of elevated sales you would like to get some hopefully leverage out of your SG&A and would need your good.
Profit growth the other thing I would I would mentioned this year, we've obviously seen very outsized profit growth.
If you look at our our net income onto your basis.
Mark Hager for Q1 was up 56% on the net income it was up 50 per cent and Q2 and 51% on in Q3, So we're coming up it gets very hot compare so.
That's something else, we're gonna take into consideration that our profits will go next year, but not at the elevated rates that they drew this year.
Yeah.
Thanks to my next question today is coming from just in Cleveland from Bird. Your line is now alive.
Yeah. Thank you guys for taking the question I just wanted to go back to the supply chain cost pressures and the impact on margin.
Is it changed from what you were saying 90 days ago a function of.
Just the actual cost escalating or is it more about the decisions you're making.
Secure and bring in as much inventory as possible, including using more I guess spot right.
Really little intertwine, but it's more so that the cost structure has.
Uhm groan relative to where we were back in July.
Thank you. Our final question today is coming from Joel Selvin from Telsey Advisory Group. Your line is not alive.
Yeah, Hey, guys. Thanks for taking my question I wanted to go back to the the artists stocks that you do have.
Again, I I know you said your <unk> the transfer to another product has been pretty strong, but it does sound like that's <unk>. Those are the areas, where you are trying to accelerate or at least get some of those goods here more more rapidly and I was just curious.
You know what are those in in particular or is it just like the basic you know subway tiles that people want or is it something more precious than that.
That is a difficult question to answer with 3500, Skus I would say it would vary by department and it's <unk> it'd be a little bit different answer by department in General, though we've got the basics in stock I mean are in stock right improved from from last quarter This quarter.
And while it's not what are are in fact that historically when it's been it's it's much it's much better I'd say that the category that is the most challenging is wood, there's lots of reasons for that but the rest of the store, we're getting in pretty good shape.
Thank you we reach end of our question and answer session I'd like to turn the floor back over to management for any further are closing comments.
Alright, well. Thank you I appreciate everyone's interested in interested in our company and interested in a call and we look forward to talking to the next quarter. Thanks, everybody.
Thank you I just put a today's teleconference. Webcasting me, that's fine or lying at this time and have a wonderful day. Thank you for your participation today.