Q1 2024 Floor & Decor Holdings Inc Earnings Call
Operator: Greetings, and welcome to the Floor & Decor Holdings Inc. First Quarter 2024 conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Wayne Hood, Senior Vice President of Investor Relations. Please go ahead.
Greetings and welcome to the floor and Decor Holdings, Inc. First quarter 2024 conference call.
Operator: At this time all participants are in a listen only mode.
Wayne Hood: A question and answer session will follow the formal presentation.
Operator: If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
Operator: As a reminder, this conference is being recorded.
Operator: I would now like to turn the conference over to your host Wayne Hood Senior Vice President of Investor Relations. Please go ahead.
Wayne Hood: Thank you, Operator, and good afternoon, everyone. This is Floor & Decor's fiscal 2024 first quarter earnings conference call. Joining me on our call today are Tom Taylor, Chief Executive Officer; Trevor Lang, President; and Bryan Langley, Executive Vice President and Chief Financial Officer. Before we start, I want to remind everyone of the company's Safe Harbor language. Comments made during this conference call and webcast contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and are subject to risk and uncertainties.
Wayne Hood: Thank you operator, and good afternoon, everyone welcome to floor and decor is physical 'twenty 'twenty four first quarter earnings conference call. Joining me on our call today are Tom Taylor, Chief Executive Officer, Trevor Lang, President and Brian Langley Executive Vice President and Chief Financial Officer.
Wayne Hood: Any statement 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 reason, including those listed in its SEC filings. Floor & Decor assumes no obligation to update any such forward-looking statement.
Wayne Hood: Sure.
Wayne Hood: Before we start I want to remind everyone of the company's safe Harbor language comments made during this conference call and webcast contain forward looking statements within the meaning of the private Securities Litigation Reform Act of $19 95, and are subject to risks and uncertainties any statement that refers to.
Wayne Hood: Please also note that past performance or market information is not a guarantee of future results. During this conference call, the company will discuss non-GAAP financial measures as defined by 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 to the most directly comparable GAAP financial measures can be found in the earnings press release, which is available on our Investor Relations website at ir.flooranddecor.com. The recorded replay of this call and related materials will also be available on our Investor Relations website. Let me now turn the call over to Tom.
Wayne Hood: <unk> projections or other characterizations of future events, including financial projections or future market conditions is it forward looking statement the company's actual future results could differ materially from those expressed in such forward looking statements for any reason, including.
Tom: Those listed in its SEC filings.
Wayne Hood: <unk> assumes no obligation to update any such forward looking statements.
Tom: Please also note that past performance or market information is not a guarantee of future results. During this conference.
Tom: <unk> call the company will discuss non-GAAP financial measures as defined by 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 to the most directly comparable.
Tom: GAAP financial measures can be found in the earnings press release, which is available on our Investor Relations website at IR Doc boring floor and decor dot com.
Wayne Hood: Corded replay of this call and related materials will be available on our Investor Relations website, Let me now turn the call over to Tom.
Thomas V. Taylor: Thank you, Wayne, and everyone for joining us on our Fiscal 2024 First Quarter Earnings Conference Call. During today's call, Trevor and I will discuss some of our Fiscal 2024 First Quarter Earnings highlights. Then, Bryan will provide a more in-depth review of our First Quarter financial performance and share our thoughts about some of our financial projections for the remainder of Fiscal 2024. We are pleased to report Fiscal 2024 First Quarter diluted earnings per share of $0.46, which surpassed our expectations.
Tom: Thank you Wayne and everyone for joining us on our fiscal 2024 first quarter earnings conference call. During today's call Trevor and I will discuss some of our fiscal 2024 first quarter earnings highlights then Brian will provide a more in depth review of our first quarter financial performance and share our thoughts about some of our financial.
Thomas V. Taylor: Our projections for the remainder of fiscal 2024, we are pleased to report fiscal 2024 first quarter diluted earnings per share of 46.
Thomas V. Taylor: Which surpassed our expectations, we take pride in these results as they demonstrate how our teams can manage our profitability by continuing to strategically grow our gross margin rate and prudently manage expenses without sacrificing customer service amid ongoing weak demand for hard surface flooring.
Thomas V. Taylor: We take pride in these results as they demonstrate how our teams can manage our profitability by continuing to strategically grow our gross margin rate and prudently manage expenses without sacrificing customer service amid ongoing weak demand for hard surface flooring. These results are a testament to our store associates' hard work and dedication, reflecting their tireless work to drive sales and engagement with our homeowners and pro-customers daily. We are happy to report that their efforts continue to result in high customer service scores across all our touchpoints, which helps set us apart from our competition. During this uncertain demand period for hard surface flooring, it's important for us to focus on what we can control.
Thomas V. Taylor: These results are a testament to our store associates' hard work and dedication, reflecting their tireless work to drive sales and engagement with our homeowner and pro customers daily.
Thomas V. Taylor: We are happy to report that their efforts continue to result in high customer service scores across all our touch points, which helps set us apart from our competition.
Thomas V. Taylor: During this uncertain demand period for hard surface flooring, it's important for us to focus on what we can control. Therefore, we've taken steps to reinforce our price and value messaging at the front of our stores. We do this by offering bulk out displays of opportunity buys deals of the week and compelling adjacent category offerings our strategy.
Thomas V. Taylor: Therefore, we've taken steps to reinforce our price and value messaging at the front of our stores. We do this by offering bulk-out displays of opportunity buys, deals of the week, and compelling adjacent category offers. Our strategy also includes having well-equipped salespeople and designers on the floor at the right time. We proactively greet and assist customers who enter our stores by asking them, "what project are you working on?".
Thomas V. Taylor: <unk> also includes having well eclipse salespeople and designers on the floor at the right times.
Thomas V. Taylor: We proactively greet and assist customers, who enter our stores by asking them. What projects are you working on this approach helps us drive conversions and customer satisfaction.
Thomas V. Taylor: This approach helps us drive conversions and customer satisfaction. We are also diligent about following up on open quotes and are focused on closing high-value opportunities in design and pro using our CRM solution. We use our CRM data and business intelligence tools to drive sales and engagement with inactive, active, and new pros. Additionally, we continue to drive sales with innovative new products like Excel Slabs that were added to 17 additional locations in the first quarter, bringing the offering to 130 warehouse stores.
Thomas V. Taylor: We are also diligent about following up on open quotes and are focused on closing high value opportunities in design and pro using our CRM solutions, we use our CRM data and business intelligence tools to drive sales and engagement with inactive active and new pros. Additionally, we.
Thomas V. Taylor: To drive sales with innovative innovative new products like <unk> labs that were added to 17 additional locations in the first quarter, bringing the offering to 130 warehouse stores.
Thomas V. Taylor: While demand for hard surface flooring is likely to remain challenged in the near term, we remain committed to offering our customers innovative and stylish hard surface products of superior quality at everyday low prices, in job lot quantities, and providing them with a high level of service across all touchpoints. These values are fundamental to our growth strategy, and we believe they will help us increase our market share and create lifetime value among homeowners and pros. Let me briefly turn my comments to the tragedy in Baltimore caused by the Francis Scott Key Bridge collapse on March 26.
Thomas V. Taylor: While demand for hard surface flooring is likely to remain challenged in the near term, we remain committed to offering our customers innovative and stylish hard surface products of superior quality at everyday low prices in job lot quantities and providing them with a high level of service across all touch points.
Thomas V. Taylor: These values are fundamental to our growth strategy and we believe they will help us increase our market share and create lifetime value among homeowners and pros.
Thomas V. Taylor: Let me briefly turn my comments to the tragedy in Baltimore caused by the Francis Scott Key bridge collapse on March 26.
Thomas V. Taylor: We know many agencies are working very hard to reopen the channel as quickly as possible, and we thank them for their efforts. We have a 1.5 million square foot state-of-the-art distribution center near the Port of Baltimore, one of our four distribution centers in the United States. This facility is open and operating normally, except it now receives products from other ports. As many of you know, we have a strong, experienced distribution and supply chain leadership team with a long history of successfully overcoming unexpected global distribution and supply chain challenges.
Thomas V. Taylor: We know many agencies are working very hard to reopen the channel as quickly as possible and we thank them for their efforts. We have a one 5 million square foot state of the art distribution center near the Port of Baltimore, one of our four distribution centers in the United States.
Thomas V. Taylor: This facility is open and operating normally accepted now received products from other ports as many of you know we have a strong experienced distribution and supply chain leadership team with a long history of successfully overcoming unexpected global distribution and supply chain challenges, we have proudly called on them.
Thomas V. Taylor: We have proudly called on them again, and as expected, they quickly implemented strategies to ensure the timely flow of inventory to our stores with only a modest impact on profitability. We are working closely with our ocean carrier partners to divert containers to nearby ports in New York, New Jersey, Norfolk, and other East Coast ports. We are leveraging our existing dedicated trucking fleets to help mitigate the cost impacts of transporting products to our distribution centers.
Thomas V. Taylor: <unk>.
Thomas V. Taylor: And as expected they quickly implemented strategies to ensure the timely flow of inventory to our stores with only a modest impact on profitability. We are working closely with our ocean carrier partners to divert containers to the nearby ports of New York, New Jersey, Norfolk, and other East Coast ports, we are leveraging our existing debt.
Thomas V. Taylor: <unk> trucking fleets to help mitigate the cost impacts of transporting products to our distribution center.
Thomas V. Taylor: Recently, a channel that can accommodate smaller commercial vessels opened. We will shortly begin moving products on barge vessels, utilizing this channel to replenish our distribution center as well. We are hopeful the Baltimore port will start operating normally by the end of May. Army Corps of Engineers, Before turning the call over to Trevor, I would like to take a moment to express how proud our leadership is of our team's ability to manage our profitability, inventory, and capital spending despite the challenges posed by weak flooring demand.
Thomas V. Taylor: Recently, a channel that can accommodate smaller commercial vessels open we will shortly begin moving products on barge vessels utilizing this channel to replenish our distribution center as well we are hopeful the Baltimore Port will start operating normally by the end of May.
Thomas V. Taylor: Estimate of the Army Corp of engineers.
Speaker Change: Before turning the call over to Trevor I would like to take a moment to express how proud our leadership is of our team's ability to manage our profitability inventory and capital spending despite the challenges posed by week flooring demand.
Thomas V. Taylor: By doing so, we can continue to make significant strategic growth investments with the long-term goal of operating 500 warehouse stores in the United States. Trevor will share more details about our busy fiscal 2024 second quarter new warehouse store opening plan, which includes the opening of a new 129,000 square foot warehouse format store in Brooklyn, New York. We welcome the people of New York to visit this store and embark on their next inspirational flooring project. I now turn the call over to Trevor.
Trevor: By doing so we can continue to make significant strategic growth investments with a long term goal of operating 500 warehouse stores in the United States travel will share more details about our busy fiscal 2024 second quarter, New warehouse store opening plan, which includes the opening of a new 129000 square foot.
Thomas V. Taylor: Warehouse format store in Brooklyn, New York, We welcome the people of New York to visit the store and embark on their next inspirational flooring project, Let me now turn the call over to Trevor.
Trevor S. Lang: Thanks, Tom. We take pride in the execution of our sales driving initiatives by all of our associates to grow our market share and manage our profitability despite the near-term challenges and the demand for hard surface floors. In the first quarter of fiscal 2024, our sales declined by 2.2% to $1,097,300,000, with comparable store sales falling by 11.6% from the same period last year. As expected, comparables to our cells sequentially improved as we cycled past easier cell comparisons and successfully executed our cell driving initiative.
Trevor: Thanks, Tom we take pride in the execution of our sales driving initiatives by all of our associates to grow our market share and manage our profitability. Despite the near term challenges in the demand for hard surface flooring.
Trevor S. Lang: In the first quarter of fiscal 2024, our sales declined by two 2% to 1 billion 97.300 million with comparable store sales falling by 11, 6% from the same period last year.
Trevor S. Lang: As expected comparable store sales sequentially improved as we cycled past easier sales comparisons and successfully execute our sales driving initiatives.
Trevor S. Lang: Monthly comparable store sales climbed 14.7% in January, 10.7% in February, and 10% in March. However, our fiscal 2024 second quarter to date comparable store sales declined by 9.3% from the same period last year. As discussed in our fiscal 2023 fourth quarter prior earnings conference call, we expect the first half of 2024 to represent our most challenging comparable sales period. From a regional standpoint, we are seeing some, albeit early, positive sales trends emerging from our West division.
Trevor S. Lang: Monthly comparable store sales declined 14, 7% in January 10, 7% in February and 10% in March.
Trevor S. Lang: Our fiscal 2024 second quarter to date comparable store sales declined nine 3% from the same period last year.
Trevor S. Lang: As discussed in our fiscal 2000 22023 fourth quarter. Prior earnings Conference call. We expect the first half of 2024 to represent our most challenging comparable sales period.
Trevor S. Lang: From a regional standpoint, we are seeing some albeit early positive sales.
Trevor S. Lang: Sales trends emerging from our West Division.
Trevor S. Lang: Comparable store sales are improving sequentially and are better than the company average. The West Division was the first to experience softening cells in 2022 and has been less impacted by cannibalization compared to other divisions due to fewer new store openings.
Trevor S. Lang: Comparable store sales are improving sequentially and are better than the company average.
Trevor S. Lang: West Division was the first two experienced softening sales in 2022 and has been less impacted by cannibalization compared to other divisions due to fewer new store openings.
Trevor S. Lang: Comparable store sales were similar in our East and South divisions, excluding the impact of opening new stores. Turning to our sales trends by merchandise category, like the fourth quarter of fiscal 2023, our fiscal 2024 first quarter comparable store sales in tile, wood, insulation materials, and adjacent categories were better than the overall decline of 11.6% in comparable store sales. Laminate and vinyl remain our weakest merchandise category.
Trevor S. Lang: <unk> store sales were similar in our east and South divisions, excluding the impact of opening new stores.
Trevor S. Lang: Turning to our sales trends by merchandise categories like the fourth quarter of fiscal 2023, our fiscal 2024 first quarter comparable store sales in tile wood installation materials in adjacent categories were better than the overall decline of 11, 6% and comparable store sales.
Trevor S. Lang: Laminate and vinyl remains our weakest merchandize category.
Trevor S. Lang: We are pleased that our merchandise strategies continue to resonate with our customers as they remain consistently drawn to our better and best price point products, which offer industry-leading innovation, trends, and styles at everyday low prices. We are happy that the successful execution of our merchandising strategies continues to lead to a sales mix shift to higher margin products. Let me comment about our comparable store sales average ticket and transaction trend. Recall that our fiscal 2023 first quarter comparable SOARs average ticket increased by 7.3 percent and by 1.1 percent in the second quarter before declining by 2.8 percent in the third quarter and by 4.7 percent in the fourth quarter.
Trevor S. Lang: We're pleased that our merchandise strategies continue to resonate with our customers as they remained consistently drawn towards our better and best price point products, which offer industry, leading innovation trends and styles at everyday low prices.
Trevor S. Lang: We are happy that the successful execution of our merchandising strategies continues to lead to a sales mix shift to higher margin products.
Trevor S. Lang: In the first quarter of fiscal 2024, our average ticket sequentially improved slightly, declining 4.2 percent from the last year as we began to lap strategic price reductions we took in 2023. In terms of transactions, our 2024 first quarter comparable store transactions fell 7.7% compared to a 4.9% decline in the fourth quarter of fiscal 2023, a 6.8% decline in the third quarter, a 7.1% decline in the second quarter, and a 9.9% decline in the first quarter. The trends largely reflect macroeconomic headwinds as well as customers purchasing less square footage and undertaking smaller projects.
Trevor S. Lang: Let me comment about our comparable store sales average ticket and transaction trends recall that our fiscal 2023 first quarter comparable stores average ticket increased by seven 3% and by one 1% in the second quarter before declining by two 8% in the third quarter and by four 7% in the fourth quarter and.
Trevor S. Lang: In the first quarter of fiscal 2024, our average ticket sequentially improved slightly declining four 2% from last year as we began to lap strategic price reductions we took in 2023.
Trevor S. Lang: In terms of transactions, our 2024 first quarter comparable store transactions fell seven 7% compared to a four 9% decline in the fourth quarter of fiscal 2023, a six 8% decline in the third quarter.
Trevor S. Lang: 1% decline in the second quarter and a nine 9% decline in the first quarter the trends largely reflect the macroeconomic headwinds as well as customers are purchasing less square footage and undertaking smaller projects.
Trevor S. Lang: Turning my comments to our connected customer pillar of growth, we're happy to see that our connected customer strategies continue to resonate with our homeowner and pro customers. It's worth noting that our customers can engage with us through 10 different touchpoints during their purchase journey. Achieving unified execution among these touchpoints is crucial to the customer experience and a competitive advantage over the independents, particularly for high-consideration purchases like flooring.
Trevor S. Lang: Turning my comments to our connected customer pillar of growth, we're happy to see that our connected customer strategies continue to resonate with our homeowner and pro customers. It's worth noting that our customers can engage with us through 10 different touch points during their purchase journey, achieving a unified execution. Among these touch points is crucial to the customer experience and a competitive advantage over the independence.
Trevor S. Lang: Particularly for high consideration purchases like flooring.
Trevor S. Lang: We've observed that customers, who visit our stores and engage with our website has been substantially more than single channel customers.
Trevor S. Lang: We've observed that customers who visit our stores and engage with our website spend substantially more than single-channel customers. On our most recent earnings call, we discussed how we are integrating our processes and technology solutions to further develop a seamless in-store and online experience. To continue enhancing these strategies, we focus on driving organic traffic growth to our website and further optimizing the customer search experience. We plan to achieve this by improving our website speed and the quality of our website search, adding inspiring content for customers, and refining our online merchandise processes to increase efficiency.
Trevor S. Lang: On our most recent earnings call. We discussed how we are integrating our processes and technology solutions to further develop a seamless in store and online experience.
Trevor S. Lang: To continue enhancing the strategies, we focus on driving organic traffic growth through our website and further optimizing the customer search experience.
Trevor S. Lang: We plan to achieve this by improving our website speed and the quality of our website search, adding inspiring content for customers and refining our online merchandise processes to increase efficiency.
Trevor S. Lang: In the first quarter of fiscal 2024, we saw sequential improvement in organic traffic and connected customer sales increase by 1.1% from last year, which resulted in a 100 basis points increase in sales penetration to 19%. We continue to be pleased with our design services. Our design teams are focused on delivering an elevated design experience through engagement with designers who are passionate about our customer service and our products.
Trevor S. Lang: In the first quarter of fiscal 2024, we saw sequential improvement in organic traffic and connected customer sales increased by one 1% from last year, which resulted in a 100 basis points increase in the sales penetration to 19%.
Trevor S. Lang: We continue to be pleased with our design services. Our design teams are focused on delivering an elevated design experience through engagement with with designers who are passionate about our customer service and our products. The teams are focused on driving engagement selling the entire project and following up on high value sales opportunities by leveraging the power of our CRM solution.
Trevor S. Lang: The teams are focused on driving engagement, selling the entire project, and following up on high-value sales opportunities by leveraging the power of our CRM solution. Furthermore, our designers are collaborating with the ProDesk to build relationships with contractors. We are happy to report that our first quarter design sales growth was better than the company's overall sales performance. As a result, design sales penetration increased sequentially and year-over-year. Moreover, we are pleased that our net promoter score improved sequentially and that efforts to grow our basket selling are working.
Trevor S. Lang: Furthermore, our designers are collaborating with the pro desk to build relationships with contractors.
Trevor S. Lang: We are happy to report that our first quarter design sales growth was better than the company's overall sales performance as a result, the design sales penetration increased sequentially and year over year. Moreover, we are pleased that our net promoter score improved sequentially and that efforts to grow our basket selling are working.
Trevor S. Lang: Moving to our new warehouse store format pillar of growth, in the first quarter of fiscal 2024, we opened four new warehouse format stores, ending the quarter with 225 stores, an increase of 16% from the same period last year. These openings include new warehouse format stores in Mansfield, Texas; Somerville, Florida; Glen Burnie, Maryland; and Augusta, Georgia. We have a busy fiscal 2024 second quarter opening plan and have already opened four new warehouse stores, including Lone Tree, Colorado; Bremerton, Washington; Brooklyn, New York; and Hendersonville, Tennessee. In June, we expect to open new warehouse stores in West Palm Beach, Florida; and Columbus, Georgia.
Trevor S. Lang: Moving to our new warehouse store format pillar of growth in the first quarter of fiscal 2024, we opened four new warehouse format stores ending the quarter with 225 stores an increase of 16% from the same period last year. These openings include new warehouse format stores in Mansfield, Texas Somerville, Florida.
Trevor S. Lang: We plan to open 30 to 35 new warehouse format stores in fiscal 2024 across various large, medium, and small market sizes, unchanged from our previous guidance. Most of the 2024 warehouse format store openings are expected to be in large existing markets in the east and the south, where we continue to grow our market share. In fiscal 2024, we anticipate about 30% of our new warehouse store openings will be in the first half of the year. We expect the remaining 70% of our fiscal 2024 new warehouse store openings will be in the second half, with the majority of the openings in the fourth quarter.
Trevor S. Lang: Turning my comments to pros, in the first quarter of fiscal 2024, pros accounted for approximately 45% of sales. The top 20% of our pros are busy increasing their average order frequency moderately from last year. We are pleased that our market share with our pros continues to grow, particularly among our top pros, due to our engagement and supply house mindset. Notably, this mindset led comparable store sales in the first quarter for insulation materials exceeding the company average. Consequently, the first quarter sales penetration rate for insulation materials increased 200 basis points from last year and 220 basis points among the top 20% of our pros.
Trevor S. Lang: We are excited about the opportunity to grow our market share further in this underpenetrated, pro-heavy merchandise category. We intend to grow our market share further with PROs by leveraging our PRO dashboards and CRM tools to drive engagement with new, inactive, and active PROs. In the first quarter, we launched new tools that will better measure the effectiveness of our Store PRO Sales Manager's contact journey. We now provide enhanced reporting to help our field leadership better understand the effectiveness of their contact and close journey. Furthermore, we have begun to partner with native advertising platforms within banks' digital channels, which should provide us with a practical and cost-efficient avenue to drive new acquisitions.
Trevor S. Lang: We also see an opportunity to drive engagement by increasing the number of pro-customer roundtables we host quarterly. These successful networking events allow us to further understand professionals' needs better and update them on new initiatives and investments we are making that will benefit their business. Finally, we continue to deepen our relationship with PROs by partnering with trade associations to host educational events. Increasingly, educational events are important to our PROs as installation in certain categories is complex.
Trevor S. Lang: Importantly, we see a significant lift in sales from pros attending these events. In the first quarter of fiscal 2024, we hosted 25 National Tile Contractor Association and 5 National Wood Flooring Association educational events, training approximately 580 pros. We are excited to host about 145 educational events in 2024. We are pleased that the first quarter sales from our regional account managers exceeded our expectations and were significantly higher than last year. We ended the first quarter of fiscal 2024 with 65 regional account managers compared with 60 at the end of fiscal 2023.
Bryan H. Langley: Let's now discuss our commercial business. Spartan Services' first quarter sales exceeded our expectations, increasing significantly from last year due to the acquisition of SalesMaster in June 2023. With the acquisition of SalesMaster, Spartan ended the first quarter of fiscal 2024 with 81 reps compared to 65 at the end of March 2023. Spartan continues to progress in its diversification strategies, re-indexing to healthcare, education, hospitality, and home builders. Healthcare is an excellent example of an attractive commercial segment that is less sensitive to economic cycles, price, and specification changes due to its installed location.
Bryan H. Langley: In 2024, we plan to continue to drive sales and market share growth through opportunistic acquisitions, organic rep growth, and boosting rep productivity. In closing, we remain confident that we have the right people, strategies, and business model to navigate this challenging macroeconomic environment successfully. Let me now turn the call over to Bryan.
Bryan H. Langley: Thank you, Tom and Trevor. I want to express my gratitude to all of our associates who contributed to our fiscal 2024 first quarter results. Your hard work, dedication, and commitment enabled us to remain flexible, strong, and resilient, which allowed us to exceed our expectations at a time when customer spending on discretionary hard surface flooring is uncertain. Although first quarter sales fell at the low end of our expectations, we delivered diluted earnings per share of 46 cents, surpassing our expectations.
Bryan H. Langley: This achievement is due to the diligent efforts of our teams in delivering on our Gross Margin Expansion Plan and prudently managing expenses and capital spending. Now, let me discuss some of the changes among the significant line items in our Fiscal 2024 First Quarter Income Statement, Balance Sheet, and Statement of Cash Flows, as well as our outlook for the remainder of the year. Our fiscal 2024 first quarter gross margin rate was better than expected, increasing 100 basis points to 42.8%. This was mainly due to favorable supply chain costs and, to a lesser extent, product costs.
Bryan H. Langley: The increase in our gross margin rate enabled us to grow our gross profit by 0.2% from the same period last year, despite a 2.2% decline in sales. Our fiscal 2024 first quarter selling and store operating expenses increased by $30.7 million, or 10.1%, to $334.3 million from the same period last year. This growth was primarily driven by an increase of $39.6 million from operating 31 additional stores versus the same period last year and $3.5 million at Spartan, partially offset by a decrease of $12.4 million at our comparable stores.
Bryan H. Langley: As a percentage of sales, fiscal 2024 first quarter selling and store operating expenses de-leveraged by 340 basis points to 30.5% from the same period last year. This expense de-leverage is due to a decrease in comparable store sales and the addition of new stores. Our fiscal 2024 first quarter general and administrative expenses of $66.8 million increased by 7.9% from the same period last year. The growth can be attributed to the investments we continue to make to support our store growth, including growth of $4.9 million for personnel expenses related to additional staff and, to a lesser extent, incentive companies.
Bryan H. Langley: Due to the decline in our first quarter sales, general administrative expenses deleveraged 60 basis points to 6.1% as a percentage of sales. Our fiscal 2024 first quarter pre-opening expenses of $9.6 million increased 19.6% from the same period last year. The year-over-year increase primarily resulted from the timing of spend for new stores.
Bryan H. Langley: Our fiscal 2024 first quarter net interest expense decreased $2.9 million, or 59.8% from the same period last year. The reduction in interest expense is due to lower average borrowings under our ABL facility, higher interest income from our interest rate cap derivative contracts, and an increase in capitalized interest, partially offset by interest rate increases on outstanding debt. Our fiscal 2024 first quarter adjusted EBITDA of $123.0 million decreased by 17.8% from the same period last year, primarily due to expense de-leverage from the decline in our comparable store. Depreciation and amortization increased 21.7%, contributing to net income declining by 30% to $50.0 million and diluted earnings per share of $0.46, falling by 30.3% from the same period last year. Our fiscal 2024 first quarter effective tax rate of 12. Moving on, we have cash on our ballot sheet.
Bryan H. Langley: We continue to maintain a strong balance sheet, which allows us to prudently grow within our existing capital structure, even during a period of industry contraction. We are pleased that our fiscal 2024 first quarter inventory decreased 6.7% to $1.0 billion from the end of fiscal 2023 and declined 12.6% from the first quarter of fiscal 2023. As discussed in our prior earnings call, we anticipate inventory to grow slightly faster than sales as we exit 2024 due to most of our 2024 new store openings being late in the year and planned 2025 store. We ended the fiscal 2024 first quarter with $698.2 million of unrestricted liquidity, consisting of $57.4 million in cash and cash equivalents and $640.8 million available for borrowing under the AVL facility.
Bryan H. Langley: Let me now discuss how we were thinking about the macroeconomic environment and our financial performance for the remainder of 2024. There remains considerable uncertainty about the timing and slope of potential improvement in existing home sales and hard surface flooring spending in 2024. The absolute sales of existing home sales may have bottomed at 3.85 million units in October of last year, but they are chugging, improving sequentially to 4.38 million units in February 2024 before falling to 4.19 million units in March. Unfortunately, the direction and absolute level of 30-year mortgage interest rates are rising again, and housing affordability and spending on large-ticket discretionary durable goods remain headwinds.
Bryan H. Langley: For these reasons, we believe fiscal 2024 full-year sales could be at the low end of our guidance of $4,600,000,000 to $4,770,000,000 as the timing and slope of improvement could be more elongated. We expect to gain a better line of sight about the timing and slope of sales over the next several months, which will better inform us about the second half of 2024. That is not to say we don't expect sequential, quarterly improvement from comparable sources.
Bryan H. Langley: We expect our fiscal 2024 first quarter comparable store sales decline of 11.6% to represent the trough for the year and comparable store sales to improve sequentially throughout the year from easier sales comparisons and improved transactions. In the meantime, we believe we can manage our profitability. The successful execution of our Gross Margin Expansion Plan gives us more confidence in the top end of our annual 2024 Gross Margin Guidance of 42.6% to 42.8%.
Bryan H. Langley: As we look to the remainder of fiscal 2024, we expect to prudently manage selling and store operating expenses. We anticipate modest sequential growth in selling and store operating expense dollars from the first quarter of fiscal 2024. As a reminder, every 100 basis points change in annual comparable store sales compared with our plan impacts earnings by approximately 10 cents per share.
Operator: Our ability to manage our gross margin, prudently manage expenses, and lower interest and tax expense enables us to manage our profitability in this uncertain period. Based on our fiscal 2024 first quarter results. We now expect our fiscal 2024 four-year interest expense to approximate $9 million to $11 million and our tax rate to approximate 20%. Over the long run, we remain excited about the well-documented structural opportunities in repair, remodel, and flooring spend, including housing demand that exceeds supply in an aging housing system. We still see a path to achieving our long-term goal of mid to high teams adjusted even to margins. Operator, we would now like to take questions.
Operator: Ladies and gentlemen, if you would like to ask a question, please press star 1 on your telephone keypad, and a confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your headset before pressing the start key. And our first question comes from Chris Horvers with J.P. Morgan. Please proceed.
Christopher Michael Horvers: Thanks. Good morning, guys.
Christopher Michael Horvers: So my first question is, can you talk about how the quarter played out relative to your expectations? I think January had some weather impact, you know, how did it proceed from there and through April? And related to that, how reflexive is demand to mortgage rates above above or below 7%?
Thomas V. Taylor: Hey Chris, this is Tom. I'll start, and Bryan can jump in.
Thomas V. Taylor: The comp in the quarter each month got a little bit better. We did start off January. I think January was a negative 14. What was it?
Thomas V. Taylor: It was negative 14 to negative – Negative 10.7. Negative 10.7 to negative 10, and now we're negative 9.3. So the comp's moderating.
Thomas V. Taylor: We're going to be up against easier comparisons the further along we get into the year, so we'll see how that plays out. Interest rates are continuing to go up. At the last report, 7.5 percent, back to that approaching 8. It's the highest it's been in the year, but we don't know how that's going to affect us. We've only got existing home sales reported through the month of March. They stepped back in the month of March, so it's hard to tell what that will do, but I think interest rates will have an effect on existing home sales and make it a challenge.
Thomas V. Taylor: I guess maybe that's another way is, relative to how you thought about the cadence of the year, I guess, how much more are you sort of implicitly back half-weighting the sales relative to what you thought a few months ago.
Thomas V. Taylor: Yeah, I mean, I think that's what you heard in the prepared remarks, that we're turning towards the lower end. So I mean, we're not putting more into the back half. We do expect things have to get slightly better from where we are today. But that's reflected in that guide. And that's why we kind of alluded in the call that we're turning more towards the lower end.
Thomas V. Taylor: And Chris, the only thing else... But I would say is that the further we get into the year, I mean, you started in June of last year, we started bumping along, you know, below 4.1 million annualized for. Only one month went above that 4.1 million. And that was in the month of February that just occurred, which is 4.38. So as we start lapping those numbers, the spread year over year between existing home sales gets a little bit better. And as soon as they turn positive, we do think there'll be a lag, but then it gives us a better opportunity to count positives. Exactly.
Thomas V. Taylor: Exactly. Just to reiterate what we said in the last quarter, we do expect sequential improvement in both transactions and tickets, with the biggest movement coming in transactions. So if you think about it, we just ended Q1 at negative 7.7%. We'll get towards the end of the year and be flat to slightly positive. And the same thing on ticket sales is down 4.2 in Q1. That'll stay kind of where it is and then move towards, you know, hopefully getting flat towards the end of the year. So both of those movements are based on easier comparisons and then slight improvement through the year.
Thomas V. Taylor: We do expect sequential improvement in both transactions and ticket with the biggest movement coming in transaction. So if you think about it. We just did in Q1, a negative $7, 7%, we'll get towards the end of the year and being flat to slightly positive and then same thing on ticket is down four two in Q1 that will stay kind of where it is and then move towards hopefully getting flat towards the end of the year so far.
Christopher Michael Horvers: Got it, so if I were just going to reward it, it's like essentially you're leaving the back half, your back half view is largely unchanged, and it's really just what happened in the first half, and that's why you expect a low end of the range.
Thomas V. Taylor: Yeah, yes, that's right. Got it. Thanks.
Christopher Michael Horvers: Yes.
Christopher Michael Horvers: Got it. Thanks very much.
Operator: Our next question comes from the line of Simeon Gutman with Morgan Stanley. Please proceed.
Simeon Ari Gutman: Hey, good afternoon everyone. It's Simeon.
Simeon Ari Gutman: The comments that were made on the West... I don't know if it was normalizing or improving. Can I ask if that's happening against Easy Compares, or you're seeing some re-acceleration? And then, is that DIY or PRO? Are you able to decipher that?
Trevor S. Lang: Hey Simeon, this is Trevor. The West started off having issues a good six to eight months before the rest of the business in 2022. So they've had this now for. I think they've been dealing with this for a longer period of time because they had some of the more strenuous negative existing home sales to start off with. So we think they're going up against easier comparisons.
Trevor S. Lang: I think some of the housing malaise that ended up affecting everybody has come across the United States, and now we're seeing some of that more difficulty in some of our bigger markets. So places like North Texas and Florida and Georgia and even to a lesser extent up in the Midwest and the Northeast. And so I think just to call it the housing recession, for lack of a better term, started out West and worked its way East.
Trevor S. Lang: So lesser extent up to the Midwest and the northeast and so I think the just the call. It the housing recession for lack of better term started out west and worked its way eastern So that's why they are doing better and Conversely, that's why some of our stores in Texas, and Florida, and Georgia markets like that mid Atlantic are having a harder time, because it just didn't hit them at the same.
Trevor S. Lang: And so that's why they're doing better. And conversely, that's why some of our stores in Texas and Florida and Georgia and markets like that, the Mid-Atlantic, are having a harder time because it just didn't hit them at the same time as it hit out West.
Simeon Ari Gutman: Got it. Okay.
Speaker Change: Got it okay.
Simeon Ari Gutman: How much you are opening stores in the region versus the industry's health I mean, the industry's health is controlling the growth, but obviously in tougher environments.
Simeon Ari Gutman: It would feel like that cannibalization would pick up as well or is it more dictated by the pace at which we're opening stores.
Simeon Ari Gutman: And my follow-up is, you also said in the West, maybe some stores are not as cannibalized from growth. The cannibalization rate of the business, and I don't know if you've mentioned it recently, is that that's more controlled by the percentage opening, you know, how much you're opening stores in the region versus the industry's health. I mean, the industry's health is controlling the growth, but obviously, in tougher environments, it would feel like that cannibalization would pick up as well. Or is it more dictated by the pace at which you're opening stores?
Trevor S. Lang: Yeah, I think it's more of the latter. Our cannibalization in the last quarter was actually a little bit better than we'd seen in the previous four quarters. But, you know, that's obviously a little bit nice to see.
Trevor S. Lang: And that could be timing. But yeah, generally speaking, our cannibalization is dictated by where we're opening stores and what kind of stores we're opening against. And so if you're opening a brand new, beautiful, bigger store against an older, smaller store, you're going to have, and it's closed within, you know, call it 30 minutes or less, you're going to have higher cannibalization. If it's a big store going up against another new big store, that's, you know, call it, 45 minute drive time, you're not going to see as much cannibalization.
Trevor S. Lang: And I think we said this year that some, maybe 70% of our stores are in existing markets, which is probably similar to last year as well. So I think we own that cannibalization more than the market factor.
Trevor S. Lang: Sure that's call. It 45 minute drive time, youre not going to see as much cannibalization I think we said this year I think some maybe 70% of our stores are in existing markets, which is probably similar to last year as well. So I think we own what we own that cannibalization more than the market factors.
Simeon Ari Gutman: Got it. Okay. Thanks. Good luck.
Operator: And the next question comes from the line of Michael Lasser with UBS. Please proceed.
Michael Lasser: Good evening. Thank you so much for taking my question. How do you think your relative market share trended in the first quarter versus where it had been, especially in more mature markets? And what's happened quarter to date, especially in light of your comments that you think you'll hit the low end of the full year top line range? Thank you.
Michael Lasser: Your comments that you think you'll hit the low end of the full year topline range. Thank you.
Thomas V. Taylor: Yeah, Michael, this is Tom. I'll take a shot at that first.
Michael Lasser: Yes, Michael This is Tom I'll take a shot at that first.
Tom: <unk> grew our revenue by three 5%.
Tom: Ross the publically traded competitors tile shop lumber liquidators, they're all negative Mohawk reported North American sales negative. So we were positive in the first quarter only mohawks reported out they reported negative.
Thomas V. Taylor: It's hard to know in the first quarter kind of what happened from a market share perspective because not everyone's reported yet. So, you know, you have to take a minute to digest everyone's numbers to see. When you look at last year, Floor & Decor grew our revenue by three and a half percent. And Catalina predicted the market went down 5.2. The big boxes counted were negative, and Floor & Decor was worse than them. So, I would anticipate that we're continuing to take market share in a really tough market.
Michael Lasser: Okay. My follow-up question, is there anything you could say about what's been happening quarter to date, especially in light of the comments on getting to the low end of the full year guidance range?
Speaker Change: Okay and my follow up.
Thomas V. Taylor: I mean, you know, quarter of the day, again, the comps are modestly getting better month over month. So it's, you know, we would have hoped it would get better quicker.
Thomas V. Taylor: <unk> been in this since June of last year. This really low $4 1 million ish existing home sales and with only one month being up to $4 three which is February so.
Thomas V. Taylor: March's existing home sales taking a step backwards; there's a lag between what we see there and what we see here. But, you know, when you look at it, I mean, we've been in this since June of last year, this really low 4.1 million existing home sales and with only one month being up to 4.3, which is February. So, you know, it just gives us a pause as we think about the rest of the year; we'll know more, you know, spring is a very important selling season is very important for existing home sales.
Thomas V. Taylor: And we'll know more when we get the data on what happened during the month of April, what's going to happen during the month of May, and what happens in June. You know, with the lag of our benefit from existing home sales, if they're good, then you know, we should be good. If they're not, then it'll be tougher. But we'll talk about that when we get to the second quarter.
Thomas V. Taylor: Spring is a very important and selling it.
Thomas V. Taylor: The lag of our benefit from existing home sales if they are good.
Michael Lasser: Can I just dig into that, Tom? Is there a case or what would be the case where your trends become disconnected from existing home sales, either on the positive or on the negative? Would it be if there was some product category change that Floor & Decor was not well positioned for? Would it be that your prices became uncompetitive or maybe more competitive? What would that scenario be? Hey, Chris, this is Trevor.
Chris: On the negative would it be if there was some product category change.
Trevor S. Lang: I think, you know, just reading a lot of the other large consumer products companies that have reported here recently, they have a common theme, and it's just that the consumer is under pressure. You know, inflation is still a little bit high. Since savings rates have been drawn down, they don't have the same level of discretionary spending power that they used to. And so that's probably the only thing that, or one of the things that we're watching closely is just does that consumer stay under pressure?
Trevor S. Lang: Inflation is still a little bit high savings rates have been drawn down. They don't have the same level of discretionary spending power that they had and so that's probably the only thing that one of the things that we're watching closely is just as that consumer stay under pressure.
Trevor S. Lang: Historically, for us, as you've noted in your reporting, and others have as well, we have had a very high correlation to existing home sales. I think the only question I have now is just, you know, is the consumer in a more stretched position than they've been because of inflation? And just what we're hearing from other retailers that the consumer feels a little stretched.
Trevor S. Lang: Well noted in your reporting and others have as well we have had a very high correlation to existing home sales I think the only question I have dialysis is that consumer in a more stretched position that there may have been because of it.
Trevor S. Lang: <unk> and.
Trevor S. Lang: Before we are hearing from other retailers that the consumer feels a little stretched and Michael I would just say that.
Thomas V. Taylor: Yeah, and Michael, I would just say that the way we compete across every category result, that hasn't, that hasn't changed. I mean, our stores are, we still have a competitive advantage across every department that we participate in. So I don't think there's anything fundamental in the model that would affect that. It's much more the health of the consumer that would, you know, that would give it a challenge. All right.
Thomas V. Taylor: But that would.
Thomas V. Taylor: That would be a challenge.
Michael Lasser: All right, thank you very much, and good luck.
Speaker Change: Thank you Michael.
Operator: Ladies and gentlemen, due to the interest of time, we ask that you please limit yourselves to one question only. Thank you. And our next question comes from the line of Chuck Grom with Gordon Heskett Research. Please proceed.
Operator: And our next question comes from the line of Chuck Grom with Gordon Haskett.
Charles P. Grom: Research. Please proceed.
Charles P. Grom: Hey, thanks very much. Good afternoon.
Charles P. Grom: I'll just, you know, try two parts here. Can you just remind us about the store openings, just to switch gears, you know, how many are in the smaller format locations? And bigger picture, within your 500-store long-term target, can you remind us the mix of small versus large locations? And then, I guess, as a follow-up, you know, if comps were to continue to trend down in the high single-digit range, say, through the second or third quarter, I guess, how do you think about store growth in 2025 and 2026? Because I'm sure you've already begun that planning process. Thanks. Take the first part, and I'll take the second.
Charles P. Grom: If comps were to continue to trend down in the high single digit range say through the second or third quarter I guess, how do you think about store growth in 2025 and 26.
Unknown Executive: I was looking to see, I don't have it off the top of my head how many of the smaller format. I think it's less than 20% of our stores, maybe less than 30% of our stores are going to be in the smaller format this year relative to the larger format. And sometimes that's mostly in the smaller market, but that could also be if we're opening a store in a more tertiary market that's further out than existing markets.
Unknown Executive: Yes, I was looking to see I don't have Oklahoma ahead, how many of the smaller format.
Unknown Executive: Maybe less than 30% of our stores are going to be in the smaller format. This year relative to the larger format and sometimes that is.
Unknown Executive: Mostly in a smaller market, but that could also be if we're opening a store in a more tertiary markets. That's further out in existing markets.
Thomas V. Taylor: Yes, and then 25 is a long way away, so we're now prepared to talk about what our new store growth will be in 2025. We have slowed our new store growth down since existing home sales became under pressure.
Unknown Executive: And then.
Unknown Executive: 25 is a long ways away. So we're not prepared to talk about what our new store growth will be in 2025, we have slowed our new store growth down since existing home sales became under pressure. We went from opening 20% new units per year to now this year that'll be we gave guidance of 30 to 35 stores still believe it will.
Thomas V. Taylor: We went from opening 20% new units per year to now this year, you know. We gave guidance of 30 to 35 stores, so I believe we'll be within that range. We'll watch as the year progresses and make a determination on next year and let you know as we get to that determination. So, as of now, we're not going to grow at all costs.
Unknown Executive: You know, we're going to make sure that we're thoughtful about the way we're investing in the business. We already have been thoughtful about the way we're investing in the business. If we think that this is – if the slope or the range of recovery is continuing to slow, then we'll, you know, make the best decision we can on how we deploy our capital. But we still believe, you know, it doesn't affect our long-term plans of opening 500 stores. The pace of opening up has already slowed a little bit, and that may continue. It will depend on how the back half goes. I'll just look real quick while Tom was giving that elegant response.
Unknown Executive: The way we are investing business, we already have been thoughtful about the way we're investing in the business. If we think the ambitions.
Unknown Executive: It doesn't affect our long term plans of opening 500 stores the pace of opening.
Unknown Executive: Look real quick Tom was given the elegant response that I think we have seven of our stores roughly or is it going to be the small format stores. This year.
Unknown Executive: I think we have roughly seven of our stores that are going to be small format stores this year.
Speaker Change: Okay, great. Thank you guys.
Operator: And the next question comes from the line of Zach Fadem with Wells Fargo. Please proceed.
Unknown Executive: And our next question comes from the line of Zach Freedom with Wells Fargo. Please proceed.
Zachary Robert Fadem: Hey, good afternoon. So as we look back over the years, we've seen a lot of tailwinds, you know, both internally and externally from, you know, aging housing stock, you've had a shift to hard surfaces, house flippers, etc. And then some company-specific tailwinds, like designers, pro loyalty, etc. So just as we think about the next category upswing, could you walk us through what you think the next round of tailwinds could be, both internal and external? And is it fair to say that your comps on the next upswing could be as strong as they were on the last upswing?
Zachary Robert Fadem: Yes.
Zachary Robert Fadem: Could you walk us through what you think the next round of tailwind could be both internal and external and is it fair to say that your comps on the next upswing could be as strong as they've been over the last upswing.
Unknown Executive: I'll take a stab at that. I mean, I think, you know, we're making investments in key categories today that we think are, you know, unique to us. When you look at our stores, you know, XL Slabs, as Tom talked about, that's one area. Larger type products are trending better. You know, our stores are big. That's a nice category. It's small today.
Unknown Executive: Unique to us when you look at our stores access labs in Pompe talked about but that's one area larger type products or trend.
Unknown Executive: Trending better.
Unknown Executive: That's a nice category, it's small today, but if you look at our adjacent categories that category is growing we've got ideas there.
Unknown Executive: We can continue to add adjacent categories.
Unknown Executive: But if you look at our adjacent categories, you know, that category is growing. We've got ideas there about how we could continue to add adjacent categories. I think on the macro front, so those are things that, yeah, I mean, we've got great merchants, we've been thinking about ways to drive merchandising strategies that are unique to us, and we'll continue to do that. I think on the long term, as you guys have heard us say many times over the last seven or eight years, you know, you've got 130 million housing units in the United States, and 80% of On average, they're 40 years old, and there's just a replacement cycle that has to happen.
Unknown Executive: I think on the macro front. So those are the things that we've got great merchants we've been.
Unknown Executive: So I do think everybody in this space, including us, should do well over the medium to long term, just because we've got it. And we're not adding, as you know, nearly as many new homes relative to the household formation that we have as a country. And so that's part of the reason house values continue to go up and up. So I think for us, over the medium and long term, we're feeling good.
Unknown Executive: The household formation that we're having as a country and so that is part of the reason the housewives values continue to go up and up so I think for us over the medium and the long term we're feeling good.
Unknown Executive: One last thing I was just going to mention, Bryan, is that, you know, we're in the stores all the time, and we see our competition all the time. And I feel like even though our business isn't great, as Tom mentioned, our performance relative to all our peers is much better. But I think when you look at the stores, the aesthetics of the stores, the in-stock levels are better, our customer service scores are higher, our turnover's down, our supply chain is resilient, you know, we're ready when it comes.
Speaker Change: Okay, and one last thing I was just thinking Brian.
Unknown Executive: When you look at the stores the aesthetics of the stores in stock levels are better our customer service scores are higher our turnover is down our supply chain is resilience, we're ready when it comes.
Unknown Executive: Zach, I was going to say, even outside the four walls, you know, we're super excited about the opportunity for commercial as well. It's one of the early innings there, so when you think about your total sales growth, that's something that, you know, the next couple of years should accelerate as well. And lastly, as Trevor kind of mentioned, I would just say that we haven't changed anything with our product line review strategy.
Unknown Executive: We're continuing to bring in newness across every department that we have, newness in fashion, newness in durability across every department. So as the market turns, I mean, I feel better about our product sermon today than I did when we were 20%. So, you know, we're just in a tough macro, this too shall pass, it's just a question of when.
Unknown Executive: I feel better about our product assortment today, but I didn't care comp of 20% so.
Unknown Executive: It's just.
Unknown Executive: We're just in a tough macro this too shall pass it took your question to one.
Speaker Change: Thanks for the time.
Operator: And the next question comes from the line of Steven Zaccone with Citi. Please proceed.
Unknown Executive: And the next question comes from the line of Stephen Sarcoma with Citi. Please proceed.
Steven Emanuel Zaccone: All right, good afternoon, guys. Thanks for taking my question. I wanted to follow up on two points that have already been asked. The first is the West, so what are you actually seeing that's driving the improvement? Is it more traffic? Are you actually starting to see some larger project sizes? And then on the second aspect, cannibalization, can you just remind us what that is right now as a drag to the comp and, you know, what the long-term goal for cannibalization is?
Steven Emanuel Zaccone: Great. Good afternoon, guys. Thanks for taking my question I wanted to follow up on two points that have already been Dan asked the first on the west. So what are you actually seeing that's driving the improvement is it more traffic are you actually starting to see some larger project sizes and then on the second aspect cannibalism.
Steven Emanuel Zaccone: And can you just remind us what is that right now is a drag to the comp.
Steven Emanuel Zaccone: What is the long term goals for cannibalization.
Unknown Executive: Yeah, so I'll do my best to answer those. It's more transaction-based. I would say our size has increased slightly, but it's not the main driver. It's really around activity. So it's traffic and transactions on the West Coast that we're starting to see that, you know, get healthier out there. And the candle elevation, we've never actually given the number, so I can't quote exactly what it is. I'm gonna say exactly what Trevor just said, that it was slightly favorable compared to historical trends, more recent trends in Q1, but it's relatively in line, and we expect it to stay there probably the next couple of years as we're still opening stores. It's just a matter of where the stores are and how many stores they impact. To Trevor's point, it's more planned candle elevation. Yep, long, long term.
Speaker Change: Yes, So I'll do my best answer those so it's more transaction based I would say our size has increased slightly but it's not the main driver it's really around activity. So it's traffic and transactions on the west coast that we're starting to see that get healthier out there and the cannibalization we've never actually given the number so I can't quote exactly what it is I'm going to say it.
Unknown Executive: Actually what Trevor said is it was slightly favorable compared to historical trends more recent trends in Q1, but it's relatively in line and we expect it to stay there probably in the next couple of years as we're still opening stores. It. It's just a matter of where the stores are and how many stores the impact to <unk> point, it's it's more planned cannibalization on our side.
Unknown Executive: So, you know, long term, assuming we're still opening this level of store count, it'll come down just because you won't have as many new store openings because we're not adding 20% new stores. It's somewhat offset by the fact that at some point, we'll run out of new markets. Right now, I think we're 70, 30, 70 in existing stores and 30 in new markets. At some point, it'll be 100% in all markets because we just want to have a lot of new stores.
Unknown Executive: It will come down just because you won't have as many don't have as many new store openings, because we're not adding 20% new stores.
Unknown Executive: Somewhat offset by the fact that at some point, we'll run out of new markets right. Now I think we're 70 30 70 in existing stores and 30, new markets at some point it will be 100% in all markets because they just don't have a lot of new stores, but I think the other side of that is our new store productivity, we will get better because I've seen it here and as well as other companies I've worked at.
Unknown Executive: The other side of that is our new store productivity will get better because I've seen it here and at other companies I've worked at when you open the second half of stores. So in Houston, for example, the first five stores did well, but the second five stores did incredibly well. Same thing in Dallas, Atlanta, and Phoenix. So I do think our new store productivity, over time, will hopefully improve as we open more stores in these existing markets where they're, you know, got better brand recognition, more convenient for the pros, and more people know who you are.
Unknown Executive: When you open the second half of <unk>. So in Houston for example, with the first five stores is good but the second five stores that incredibly good same thing in Dallas, Atlanta, Phoenix. So I do think our new store productivity overtime will hopefully improve as we open more stores in these existing markets.
Unknown Executive: Weather got better brand recognition more convenient for the pros more more people know who you are.
Operator: And the next question comes from the line of Steven Forbes with Guggenheim Securities. Please proceed.
Steven Paul Forbes: And the next question comes from the line of Stephen Forbes with Guggenheim Securities. Please proceed.