Q3 2024 Floor & Decor Holdings Inc Earnings Call

Unknown Executive: And everyone for joining us on our Fiscal 2024 3rd Quarter Earnings Conference Call. During today's call, Trevor and I will discuss some of our Fiscal 2024 3rd Quarter Earnings highlights. And Bryan will provide a more in-depth review of our third quarter financial performance and share our thoughts about our updated outlook for the remainder of Fiscal 2020. We are incredibly proud of how our store and store support team successfully executed our plans and managed costs during a period when demand for large project discretionary home improvement and hard surface flooring spending remains challenging. I particularly want to thank our associates affected by the hurricanes for their hard work and dedication to their communities.

Well 2024 third quarter earnings conference call during today's call Trevor and I will discuss some of our fiscal 2020 quarter third quarter earnings highlights then Brian will provide a more in depth review of our third quarter financial performance and share our thoughts about our updated outlook for the remainder of fiscal 2024.

We're incredibly proud of how our store and store support teams successfully executed our plans and manage costs during the period when demand for large project discretionary home improvement and hard surface flooring spending remains challenging.

Particularly want to thank our associates affected by the Hurricanes for their hard work and dedication to their communities due to their efforts we quickly reopened our stores to serve customers affected by the hurricanes as they begin their recovery and rebuilding efforts.

Unknown Executive: We quickly reopened our stores to serve customers affected by the hurricane as they began their recovery and rebuilding efforts. In the face of these challenges, our associates' hard work and dedication enable us to deliver better than expected fiscal 2024 third quarter.

In the face of these challenges our associates' hard work and dedication enabled us to deliver better than expected fiscal 2024 third quarter diluted earnings per share of 48 cents.

Unknown Executive: Please see the complete disclaimer at https://sites.google.com These results exceeded our expectations primarily due to the tight expense management across Bryan will discuss in more detail we are narrowing our fiscal 2024 diluted earnings per share guidance range from $165 to $175 from $155 Looking ahead, the Federal Reserve finally began its much-anticipated easing cycle in September of 2024, which leads us to believe that existing home sales and hard-surface flooring spending could potentially grind higher over the next 12 to 18 months. However, our optimism is tempered by the recent increase in 30-year mortgage rates. Moreover, September existing home sales declined 1% sequentially and 3.5% year-over-year to $3.84 million, while median existing home sales price growth, according to the National Association of Realtors, moderated to 3% year-over-year in September from its peak 2024 growth of 5.6% in February.

Compared with 61 in the same period last year.

These results exceeded our expectations, primarily due to the tight expense management across the company as Brian will discuss in more detail we are narrowing our fiscal 2024.

Looted earnings per share guidance range from $1 65 to $1 75 from $1 55 to 175.

Looking ahead, the federal reserve finally began its much anticipated easing cycle in September of 2024, which leads us to believe that existing home sales and hard surface flooring spending could potentially grind higher over the next 12 months to 18 months. However, our optimism is tempered by the recent increase in 30 year mortgage.

Unknown Executive: Housing affordability remains a headwind to increased demand due to the secular imbalance in the housing stock, which is pressuring homes. Finally, personal consumption expenditures still indicate that consumers are shifting more of their wallet share spending to services from goods.

Unknown Executive: In short, we remain optimistic, yet mindful of the challenges.

Unknown Executive: Let me shift my comments to the hurricanes that made landfall in fiscal 2024 and affected some of our stores in the third and early fourth quarters of the year. First and foremost, our hearts and prayers go out to the families and communities impacted by these events. TURNING TO THE FIRST HURRICANE OF THE SEASON, HURRICANE BARREL MADE LANDFALL ON THE TEXAS COAST IN EARLY JULY AS A CATEGORY 1 STORM. As we mentioned during our fiscal 2024 second quarter earnings call, we estimated that our 2024 third quarter-to-date comparable store sales were adversely impacted by approximately 70 basis points due to Hurricane Vera.

Unknown Executive: Because the storm caused mostly wind damage and not flooding, we did not see an offsetting increase in demand as the stores reopened.

Unknown Executive: This is a video recording of Hurricane Helene, which made landfall on September 26th. This hurricane caused catastrophic inland damage across a wide area, impacting six states and brought substantial flooding to the affected regions. Broadly, 35 stores were closed or partially closed for one or more days after Hurricane Helene as it moved across a wide area of the South. In contrast, Hurricane Milton made landfall 13 days later, on October 9th, mostly impacting Florida and causing more wind than flood damage. This storm resulted in 29 stores being closed or partially closed for one or more days. Combined, both hurricanes impacted 45 of our stores, or about 19% of our homes.

Unknown Executive: In response, we took a broad range of steps in the affected communities where we operate stores to support rebuilding efforts by adding additional staff. Furthermore, we introduced a solution for deliveries over 60 miles for those stores impacted by Hurricane Helene and implemented an 18-month credit program for all employees. We also delivered additional truckloads of key SKUs and important job lot quantities at everyday low prices to the Store Teams Postpone Projects to Focus on Inventory Pack Output Additionally, we are working with our National Restoration Partners to be a single source for the rebuilding.

Unknown Executive: Looking ahead, we expect to benefit from the rebuilding spend from the destructive flooding caused by Hurricane Helene and MILP.

Unknown Executive: However, at this point, the extent and duration of this benefit are difficult to forecast with any degree of precision, other than to say we believe it could extend over multiple quarters in 2019.

Unknown Executive: Please shift my comments to new store growth. We continue to grow our market share and brand awareness by prudently opening new warehouse format stores, even as growth in the flooring industry remains challenging. The changing industry fundamentals have recently forced some of our retail and distributor competitors to close stores and rethink their strategies. We are using this period of disruption as an opportunity to grow our market share by actively engaging with homeowners and pros in the affected trade areas who need support for their current and future projects. Furthermore, we are recruiting managers and sales associates who may be displaced by industry consolidations.

We're using this period of disruption as an opportunity to grow our market share by actively engaging with homeowners and pros and the effect of trade areas, who need support for their current and future projects.

Furthermore, we are recruiting managers and sales associates, who may be displaced by industry consolidation.

Unknown Executive: We are in a favorable position due to our significant investments over the last decade to build our business model with substantial competitive advantage. Dedicated teams and strategic investments positioned as well to navigate these challenges. In the third quarter of fiscal 2024, we opened 11 new warehouse format stores, including 8 openings and fiscal supplies. As a result, we ended the third quarter operating 241 warehouse format stores and 5 design studios. Paired with 207 warehouse format stores and 5 design studios in the same period. We now operate stores across 38. We plan to open 10 warehouse format stores in the fourth quarter of fiscal 2024 to achieve our 30 new warehouse format store opening plan in fiscal 2024.

We are in a favorable position due to our significant investments over the last decade to build our business model with substantial competitive advantages, our dedicated teams and strategic investments position us well to navigate these challenges and continue our growth.

Third quarter of fiscal 2024, we opened 11, new warehouse format stores, including eight openings in physical September.

As a result, we ended the third quarter operating 241 warehouse format stores and five design studios compared with 207 warehouse format stores in five design studios in the same period last year.

We now operate stores across 38 States, we plan to open 10 warehouse format stores in the fourth quarter of fiscal 2024 to achieve our 30 news warehouse format store opening plan in fiscal 2024.

Unknown Executive: In the physical fourth quarter, we have opened one warehouse store in Daytona, Florida, and expect most of the remaining openings to occur in late November and December.

To date and the physical fourth quarter, we have opened one warehouse store in Daytona, Florida and expect most of the remaining openings to occur in late November and December.

Unknown Executive: As discussed in our prior Quarter Earnings Conference calls, depending on market conditions, we intend to open approximately 25 new warehouse format stores Visible 2025, mainly in the second half of the year and in existence. The long-term goal of operating 500 stores is unchanged, however, we believe the slope and timeline of reaching 500 stores will be influenced by when we return to a historical normal level of operation.

As discussed in our prior quarter earnings conference calls depending on market conditions, we intend to open approximately 25, new warehouse format stores.

Unknown Executive: Moving to our third quarter step. Our fiscal 2024 third quarter sales total sales increased 0.9% to $1,118,000,000 from the same period last year. Comparable store sales decreased by 6.4% which is in line with our expectations. We are encouraged that the sequential rate of decline in our fiscal 2024 comparable store sales improved as we cycle past easier comparable store sales Comparable store sales declined 11.6% in the first quarter, 9% in the second quarter, and 6.4% in the third quarter of fiscal 2020. On a monthly basis, our third quarter comparable stores Comparable store sales declined 7.6% in July, 6.4% in August, and 5.4% in September.

Unknown Executive: We estimate the negative impact on our comparable store sales from hurricanes was approximately 70 basis points in July, 10 basis points in August, and 40 basis points in June. We estimate the full third-quarter impact was approximately 40 days. Fiscal 2024 fourth quarter to date comparable store sales declined 4.2% From a regional perspective, we continue to see encouraging comparable store sale trends emerging from our Western division. Parable Store sales are well above the company.

Unknown Executive: Let me comment about our comparable stores, average tickets and transactions. In the third quarter of fiscal 2024, our comparable average ticket decreased 2.4% compared to the same period last year, which is in line with our range of expectations. Unknown Executive, Michael Lasser, Maksim Rakhlenko, Ersan Sayman, Jonathan Matuszewski, As a reminder, our third quarter comparable transactions and average ticket benefited from cycling past easier comparables. We will continue to benefit from an easier sequential average ticket and transaction comparison in the fourth quarter of fiscal 2000. Comparable store sales and installation materials, decorative accessories, and adjacent categories were better than the company average.

Unknown Executive: Prior Quarters, our merchandising efforts continue to successfully drive sales towards our better and best price points, which offer industry-leading innovation, trends, and styles at everyday low prices. Furthermore, these strategies continue leading to a shift. sales to higher margin products enhancing our profitability.

Unknown Executive: Let me now turn the call over to Trevor to discuss a few more of our pillars of growth.

Trevor Lang: Thanks, Tom. I also want to express my gratitude to our associates for their hard work and dedication to serving our customers. We are tightly managing costs in our stores and store support center while ensuring this does not come at the expense of customer experience in our stores and online. Our teams are consistently executing our customer engagement plans at a high level, which resulted in record customer service scores and... We are proudly moving the needle on this important customer engagement metrics like greeting, assisting, and addressing customer questions. You achieve this with training and role playing. We know foreign projects come with complex questions and knowledgeable and engaging associates allow us to grow our market share despite challenging industry conditions.

Trevor Lang: Their knowledge and commitment sets us apart and helps us thrive in the competitive market. Shifting to our connected customer pillar of growth, our fiscal 2024 third quarter connected customer sales increased by 3.4% and accounted for approximately 19% of sales. As previously discussed, we continue executing strategies toward driving organic and paid traffic growth to our website. We continue to integrate our processes and technology solutions to further develop a seamless in-store and personalized online experience. We plan to achieve this by continuing to improve the quality of website search, adding inspiring and user-generated content for customers, and refining our online merchandising process to increase efficiency.

Trevor Lang: The execution of these strategies is essential to growing our design.

Trevor Lang: Let me turn my comments to our design team. Our design services teams are committed to delivering an elevated and personalized design experience to our homeowners and pros across in-store, online, and in-home channels. Their hard work and focus on high-value opportunities resulted in notable sequential growth in design, total, and comparable store sales during the third quarter of fiscal 2020. Consequently, our fiscal 2024 third quarter design total sales penetration increased significantly from the same period last To continue building on this growth, we developed strategies to build awareness and project credibility for design services on our website. We have enhanced design scheduling and functionality and created online design galleries.

Central growth in design total and comparable store sales during the third quarter of fiscal 2024.

Consequently, our fiscal 2024 third quarter design total sales penetration increased significantly from the same period last year.

To continue building on this growth, we develop strategies to build awareness and project credibility for design services on our website.

We have enhanced design scheduling and functionality and created online design galleries.

Trevor Lang: These galleries provide an extensive source of inspiration for interior design by showcasing real-life and designer-inspired projects with room-specific images. We are excited about how these galleries serve as sources of inspiration, providing beautiful ideas for any space or project.

Galleries, providing extensive source of inspiration for interior design by showcasing real life and designer inspired projects with rooms specific imagery.

We are excited about hobbies gallery serve as sources of inspiration providing beautiful ideas for any space for project.

Trevor Lang: Sending my comments to pro. Total sales to our pros continue to grow in the third quarter of fiscal 2024, accounting for approximately 48% of retail sales. We continue to deliver sales and market share growth with a grassroots supply house mindset that focuses on nurturing strong relationships with our existing pros and attracting new ones from outside of our warehouse. The top priority is to build these relationships and elevate the Floor & Decor brand in a marketplace by consistently executing a set of priorities that delivers exceptional customer service with speed. To achieve this, our pro services managers are increasingly spending more time outside of our stores and in new zip codes, directly engaging with pros to understand their needs and provide tailored solutions.

Turning my comments to pro total sales to our pros continue to grow in the third quarter of fiscal 2024 accounting for approximately 48% of retail sales.

To deliver sales and market share growth with a grass root supply house mindset that focuses on nurturing strong relationships with our existing pros and attracting new ones from outside of our warehouse stores. Our top priority is to build these relationships and elevate the floor and decor brand in our marketplace by consistently executing a set of priorities that delivers exceptional customer service.

The speed and precision.

To achieve this our pro services managers are increasingly spending more time outside of our stores and our new zip codes directly engaging with pros to understand their needs and provide tailored solutions.

Trevor Lang: They are focused on minimum weekly pro engagement targets, including facilitating a store tour that includes a meet and greet with our store chief executive. From a new store perspective, we have strengthened our new Warehouse Store Pro Blitz process with a larger team. This process involves intensive local marketing and community outreach efforts to build brand awareness and customer relationships quickly, which helps new stores get off to a stronger start in markets where our brand awareness is not fully developed. In our stores, we continue to focus on staffing, training, and scheduling that best aligns with demand. We prioritize having bilingual support at our Pro Desk to reflect specific market needs and to enhance customer service.

Focused on minimum weekly pro engagement targets, including facilitating a store tour that includes a meet and greet with our store chief executive merchant.

From a new store perspective, we have strengthened our new warehouse store pro Blitz process with a larger team. This process involves intensive local marketing and completed the outreach efforts to build brand awareness and customer relationships quickly, which helps new stores get office to a stronger start in markets, where our brand awareness is not fully developed.

Trevor Lang: We are also driving growth by successfully partnering with native advertising platforms within bank's digital channels to provide us with a practical and cost-efficient way to attract and retain new pros. Continue to drop loyalty with our Pro Premier Rewards Loyalty Program and our successful annual September Pro Appreciation Month, which includes free classes, giveaways, and nationwide sweepstakes. He successfully held 29 educational events in the third quarter of fiscal 2024 with over 425 attendees. These educational events have consistently driven higher sales with pros who attend demonstrating a notable uptick in their purchasing activity, especially in insulation materials. hosting approximately 145 educational events in 2024, Finally, we are pleased that our sales from our regional account managers in the third quarter of fiscal 2024 exceeded our expectations.

Trevor Lang: Now, let's discuss our commercial business. fiscal 2024 third quarter sales at Spartan services continue to grow faster than the company average Leadership team continues to execute on a set of disruptive strategies in the health care, education, senior living, and hospitality sectors to the commercial flooring market. These are high specification sectors of the commercial flooring market where the opportunity for long-term growth and profitability are the greatest. These sectors generally have high quote conversion rates, recurring revenue, and more attractive profitability. Over the long term, Spartan Services aims to become a disruptive leader in the specified commercial flooring industry by establishing a comprehensive nationwide sales This network would prioritize high-specification products and leverage strong relationships to provide superior availability, delivery, and service across the country.

Trevor Lang: Over the next several years, we will continue making investments. Sales Representatives Growth and Infrastructure to build out to support our growth at scale and achieve our market share and profitability objectives.

Unknown Executive: To conclude, we believe we have the right teams, strategic growth initiatives, and resilient business model enabling us to navigate this challenging period.

Unknown Executive: Let me now turn the call over to Bryan.

Bryan Langley: Tom and Trevor. I am proud of how our teams have successfully executed our strategies to grow our gross margin rate. Control Expenses, Manage our Inventory and Supply Chain, and Generate Strong Recast. These achievements are a testament to our team's commitment and strategic approach to managing our profitability when industry growth is changing.

Bryan Langley: Now let me discuss some of the changes among the significant line items in our 3rd quarter income statement, balance sheet, and statement of income. Fiscal 2024 3rd Quarter Gross Margin Rate increased by 130 basis points. 43.5%. 42.2% in the same period last year. in line with our expectations. year-over-year and sequential increase in gross margin rate is primarily due to favorable supply chain. In fiscal 2024, third quarter selling and store operating expenses increased by 9.9% to $339.1 million from the same period last year. The growth in selling and store operating expenses is primarily driven by an increase of $37.3 million from operating 34 additional warehouse stores.

Bryan Langley: and 1.0 million at Spartan Services. partially offset by a decrease of $7.7 million at our comparable Percentage of sales, selling, and store operating expenses increased by approximately 240 basis points. 30.3% from the same period. This performance exceeded our expectations due to our stores successfully managing store payroll and other operating costs. School 2024 3rd Quarter General and Administrative Expenses increased by 13.1%. 7.7 million from the same period last year. Growth is attributed to higher incentive compensation of $7.0 million and additional staffing costs of $1.6 million to support our store.

Bryan Langley: https://www.flooranddecor.com 0.1% primarily due to the decline in our comparable stores. Fiscal 2024 3rd quarter pre-opening expenses decreased by 10.5% to $12.7 million from the same period last year. The decrease was primarily due to a decrease in the number of future stores that we were preparing to open compared to the prior year. Fiscal 2024 third quarter net interest expense decreased 84.8% to $0.2 million from the same period last year. Production and interest expense is due to a decrease. Average amounts outstanding under our AVL facility. Interest Income from our cash balances. Partially offset by lower interest income from our interest cap derivative.

Bryan Langley: School 2024 3rd Quarter Effective Tax Rate Increased 70 Basis Points 21.8% https://www.flooranddecor.com SILENCE 3rd Quarter Adjusted EBITDA Declined 5.7% 132.9 million. © The Bulletproof Executive 2013 and Emergization increased 13.9%, contributing to net income declining by 21.6%.

Bryan Langley: Moving on to our balance sheet, we've got... We continue to maintain a strong balance sheet, which allows us to continue to prudently grow within our existing capital structure, even during a period of industry contraction. We ended the third quarter with $803.1 million of unrestricted liquidity, consisting of $180.8 million in cash and cash equivalents. 622.3 million available for borrowing under the AVL facility.

And $622 3 million available for borrowing under the ABL facility.

Bryan Langley: September 26, 2024, our inventory decreased by 5.4% to $1.0 billion from the same period Let me now turn my comments to how we were thinking about full-year fiscal 2024 and how it compares with our previous... Sales are expected to approximate $4,400,000,000. 4,430,000,000 paired with our prior guidance of $4,400,000,000 to $4,490,000,000. Terrible store sales are estimated to decline 7.5% to 8.5%. with our product guidance of down 6.5%. This margin is expected to be approximately 43.2% to 43.3% unchanged from our prior guidance. Selling and Store Operating Expenses as a Percentage of Sale. © The Bulletproof Executive 2013 We expect the fourth quarter expense rate to be the most pressured of the year due to the timing of new store openings late in the third quarter and the fourth quarter.

As of September 26, 2024, our inventory decreased by five 4% a 1.01 billion from the same period last year.

Let me now turn my comments to how we were thinking about full year fiscal 2024, and how it compares with our previous expectations.

Sales are expected to approximate $4.400 billion.

<unk> 4 billion and $430 million.

With our prior guidance of $4 $400 million to $4 billion $499.

Durable store sales are estimated to decline seven 5%.

Eight 5% compared with our prior guidance of down six 5% to eight 5%.

Gross margin is expected to be approximately 43, 2%.

43, 3% unchanged from our prior guidance.

Selling and store operating expenses as a percentage of sales are expected to be approximately 31%.

We expect the fourth quarter expense rate to be the most pressure of the year due to the timing of new store openings late in the third quarter and the fourth quarter.

Bryan Langley: The opening expenses, as a percentage of sales, are expected to be approximately one percent. General and Administrative expenses as a percentage of sale are expected to be slightly above 6%. The fourth quarter expense rate to be the most pressured of the year due to approximately 3 million of estimated European dollars. Appreciation and amortization expense is expected to be approximately $235 million, unchanged from our prior guidance. Interest Expense is expected to be approximately $4 million compared with our prior guidance of $6 million to $7 million. is expected to be approximately 18% unchanged from our prior guidance.

Preopening expenses as a percentage of sales are expected to be approximately 1%.

General and administrative expenses as a percentage of sales are expected to be slightly above 6%.

We expect the fourth quarter expense rate to be the most pressure to the year due to approximately $3 million of estimated ERP expenses.

Depreciation and amortization expense is expected to be approximately $235 million unchanged from our prior guidance.

Net interest expense is expected to be approximately $4 million compared with our prior guidance of 6 million to $7 million.

Tax rate is expected to be approximately 18%.

The change from our prior guidance.

Bryan Langley: Joseph Evita is expected to be approximately $490 million to $500 million, compared with our prior guidance of $480 million to $505 million. Looted Earnings Per Share are estimated to be in the range of $1.65 to $1.75 compared with our prior guidance of $1.55 to $1.75. Looted Weighted Average Shares Outstanding of Approximately 108 Million Shares Unchanged From Our Prior Guidelines Capital expenditures are expected to be approximately $360 million to $390 million compared with our prior guidance of $360 million to $410 million. Declining capital expenditures is due to a change in the timing of new warehouse store openings for the class of 2025.

Bryan Langley: We continue making prudent investments that we believe will result in strong earnings growth when industry fundamentals improve.

Unknown Executive: I want to thank our associates and vendor partners for their dedication and contributions to serving our customers every day.

Unknown Executive: Operators, we would now like to take questions. Thank you. We will now be conducting a question and answer. If you would like to ask a question, please press star 1 on your telephone keypad. The confirmation tone will indicate your line is in the question queue. You may press star 2 to remove yourself. Participants using speaker equipment, it may be necessary to pick up the handset before pressing the star key.

Unknown Executive: One moment, please, while we poll for your Our first questions come from the line of Simeon Gutman with Morgan Stanley.

Simeon Gutman: Please proceed with your Hi, everyone. Good afternoon. Hope you can hear me. Okay. My first question, Tom mentioned in the prepared remarks, he described the environment as maybe grinding higher over the next 12 to 18 months. Can I ask what what does that look like for floor and decor? Does that mean you'd open the 25 stores? And are you leaning in to invest into the grind higher? Or are you protecting margin?

Tom: Hey Simeon, this is Tom. So we said in the last call, 25 stores is what we're planning for next year. That has not changed. As I said, we've got flexibility. If we get into next year and we want to push out some of those openings, we have the ability to do that. But as we said today, the plan is still to do 25.

Tom: So definitely, if we're going to be in a bit more muted environment, we've done a lot of research and a lot of work over the last six months to take costs out of the stores so that if we are in this muted environment, we can operate successful new stores at a lower operating cost and a higher gross margin to still give us a good return on capital.

Unknown Executive: And a quick follow up on the macro, the level versus growth and existing home sales, which I'm sure you've had many times this question.

Unknown Executive: When Tom mentioned the 500 stores over time, It was referenced that assuming existing home sales reaches some normalized level, but in the next months, quarters, years, it's all about the rate of change growth, that should be enough to get this business moving in the right direction. It's growth, not a not a certain number that may take several years to get back.

Unknown Executive: That's right, Simeon.

Unknown Executive: I believe it's existing home sales turn positive, that's a net benefit for us. And that gives us the ability to start seeing our business trajectory improve. Thank you.

Christopher Horvers: Our next questions come from the line of Christopher Horvers with J.P. Morgan. Please proceed with your question. Thanks and good evening. So, a couple of follow-up questions.

Bryan Langley: So, the first question is, are your West Coast stores comping positively? If you look at some of the, you know, home price indexes and the existing home sales in certain markets in the West Coast, they are positive. I don't think that your West Coast stores have been positive prior to this, but are you seeing that inflection?

Bryan Langley: Hey, this is Bryan. I'll take this one. We haven't inflected a positive yet, but they're immediately outperforming the rest of the chain. That's really the way we're talking about it right now, but we're hopeful that we cross that bridge. Yeah, we like the existing home sales that we saw in the month of September that are coming out of the West. It is starting to show improvement, and we should see benefit from that. They're better than the company. We think that'll continue. Home Sales in the West were up over 5% in September. of over 5%. So, you know, you did a, you did a down, you did a down six.

Bryan Langley: So you're pretty close to, you're getting close to flat at this point. in the West. got it. So I guess a little bit of lag off of a positive existing home sales dynamic. So you sort of look at it from like a trend following up in the prior question that, you know, that it's not a comparison anymore. It's just more like we're coming to the bottom. The trend is the trend. And if if we can get back to positive existing, then we can be up. But if we stayed flat for an extended period of time, right, it's been very volatile, like Do you think, what factors would lead you to composite in that environment?

Bryan Langley: Or is that just not how you, you don't think that could happen? I would say, well, I mean, look, our compares continue to ease, so the comparisons are going to get easier. And if existing home sales do turn positive, as I said, I think that that's a net benefit for our business. The more homes that are turning over, the better it is for our category. I think in the event that that doesn't happen, let's say that there's a scenario where things stay flat, if interest rates continue to come down, then I think because of what's happened with household appreciation, that more people will take cash out of their houses.

<unk> to come down then I think you know because of what's happened with household appreciation that more people will will take cash out of their houses the refi or cash out and then we'll apply that historically that's been applied into home improvement and so I can't think of a better thing to do then redo your bathroom in the event that you take money out of your house, so I'm, hoping that.

Bryan Langley: They'll refi or cash out, and then they'll apply that. Historically, that's been applied into home improvement. And so I can't think of a better thing to do than redo your bathroom in the event that you take money out of your house. So I'm hoping that in the event we don't see existing home sales, if they stayed in that flat place, Chris, then the hope is that the rates continue to come down, and because of what's happened with household appreciation, people take cash out and apply that to the category.

In the event, we don't see existing home sales.

If they stayed in that flat place. Chris then the hope is that the rates continue to come down and because of what's happened with household appreciation people take cash out and apply that to the category.

Trevor Lang: This is Trevor. This is a bit short term, but with Hurricane Helene and Hurricane Milton coming through, you know, there's going to be some stores on the west side of Florida, maybe a few other markets that we believe will get a benefit. You know, it's just really happened. Some of the early signs are we're going to get a bit of a benefit. Now, we're obviously a lot bigger than we were when we had the huge benefit in Houston back in 2017 and 18. It's early, but there likely is going to be some benefit because of the, you know, the destruction of those two hurricanes that was very recent.

This is Trevor this is a bit short term, but with hurricane Helene and hurricane Milton coming through there is going to be some stores on the west side of Florida.

Other markets that we believe will get a benefit it's just really happened.

Some of the early signs are we going to get a bit of a benefit now where obviously a lot bigger than we were when we had the huge benefit in Houston back in 2017 and 18.

It's early but they are likely is going to be some benefit because of the destruction of those two hurricanes, but is very reasonable.

Trevor Lang: Well, I guess you read my mind on the follow-up, which is, you know, you talk about 90% of stores, Harvey was 6% of stores. On a 12-month basis, you saw a 400 basis point benefit from Harvey. Now, granted, like, I think maybe Milton's the one we should focus on, and it's not quite that level of stores, but it's like 4% of stores. So do you think that we should just take that ratio, 4% of stores affected by Milton versus the 6% in Harvey versus that 4-point lift that you saw in a subsequent 12-month from Harvey?

Speaker Change: Well I guess you read my mind on the follow up which is you talked about 90% of stores Harvey was 6% of stores on a 12 month basis, you saw 400 basis point benefit from Harvey now granted like I think maybe maybe Milton someone we should focus on and it's not quite that level of stores, but it's like.

It's like 4% of stores. So do you think that we should just take that ratio, 4% of stores affected by melin versus the 6% Harvey.

First is that four point lift that you saw on a subsequent 12 months from Harvey.

Trevor Lang: I think it's going to be much smaller, you know, we're 20% the size we are now when Harvey hit. And, you know, today what we're seeing is really again that west coast of Florida, Tampa down to Sarasota is where we're seeing the bigger impact. Over time, you know, obviously went through the Carolinas, there may be a little bit more opportunity for some of the stores in there, but it'll be a lot less impactful than Harvey.

I think it's going to be much smaller.

Sure.

20% the size, we are now when Harvey debt.

And you know today, what we're seeing is really again that west coast to Florida Tampa Sarasota.

Speaker Change: We're seeing the bigger impact overtime.

Speaker Change: Obviously went through the Carolinas, there may be a little more opportunity for some of the stores in there but.

It'll be a lot less impactful than Harvey.

Trevor Lang: I won't pile on, but I would say first, it's a bit too early to know for sure. I think Harvey was a bit different. Harvey was a flooding event over a very much more significant geographical area. So but, you know, look, it's early, we're prepared, we're seeing good things come out of those stores now, but it's just a little bit too early. In a month from now, I think we'll know a lot more, but, you know, we're doing everything we can to capture that rebuild as it's coming to us.

It won't pile on but.

I would take first because it's a bit it's a bit too early to know for sure.

I think Harvey was a bit different Harvey was a flooding event over a very much.

Much more significant geographical area.

Speaker Change: So.

Speaker Change: But look it's early.

We're prepared we're seeing good things come out of those stores now, but it's just a little bit too early or in a month from now I think we'll know a lot more but we're doing everything we can to capture that rebuild is its coming to us.

Unknown Executive: Thanks guys, appreciate it. Thank you.

Thanks, guys I appreciate it.

Thanks, Matt.

Steven Forbes: Our next questions come from the line of Steven Forbes with Guggenheim Securities. Please proceed with your question.

Thank you. Our next question is come from the line of Steven Forbes with Guggenheim Securities. Please proceed with your questions.

Unknown Executive: Good evening, Tom, Trevor, Bryan, maybe just following up, to start on ROIC, you know, lots of questions with investors on, on how to think about ROIC for the business, you know, just especially given the challenging macro that you're operating it within, you talk about the 25 stores you're planning for next year, any way to help frame how you're how the pro forma is modeled around year one ROIC versus cost of capital? And maybe on that point, can you remind us sort of some of the work you've done to reduce the initial capital cost behind the new stores that you're planning for next year?

Good evening, Tom Trevor Brian.

Steven Forbes: Maybe just following up to start on ROIC.

Lots of questions with investors on on how to think about ROIC for the business, especially given the challenging macro that you're operating at within.

Can you talk about the 25 stores you are planning for next year any way to help frame how your how the pro forma.

Is modeled around year, one ROIC versus cost of capital.

And maybe on that point can you remind us sort of some of the work you've done to reduce the initial capital cost behind the new stores that you are planning for next year.

Unknown Executive: Yeah, I will.

Speaker Change: Yes.

Tom: This is Tom. I will go first, and I'm sure Trevor and Bryan will weigh in after. We have done a tremendous amount of work to reduce the cost of our new store openings. So, we've done that by right-sizing the stores. We've done that by taking non-customer-facing things out of the store to reduce the cost, while at the same time, we've reduced the cost of operating the store. So, we've taken a really good approach in bringing it down, and then as we selected the 2025 stores, as we said earlier, we're trying to shoot with a bit more precision, going to more markets that we know, going to voids that we know will perform better than going into a new market.

This is Tom I will go first and then I'm sure Trevor and Brian will weigh in after we have done a tremendous amount of work to reduce the cost of our new store openings. So we've done that by right sizing the stores, we've done that by taking non customer facing things out of the store.

To reduce the costs.

Speaker Change: At the same time, we reduced the cost of operating the stores. So we've taken a really good approach and in bringing it down and then as we selected the 2025 stores as we said earlier, where we're trying to shoot with a bit more precision go into more markets that we know go into the voids that we know will perform better.

Then going into a new market, so theres less new markets more of a sure thing. So we think with what we've done with the cost of the store and the operating cost of the store and how our gross margins are improving and selecting better stores that that that will improve as we get through 2025. It will help alleviate some of the pressure obviously in this macro environment today, we've been very transparent that our stores are.

Tom: So, there's less new markets, more for sure things. So, we think with what we've done with the cost of the store and the operating cost of the store and how our gross margins are improving and selecting better stores, that that will improve as we get through 2025. Yeah, it'll help alleviate some of the pressure. Obviously, in this macro environment today, we've been very transparent that our stores are starting off a little bit lower than our full format target that we were shooting for in that $14 to $16 million year one. So, given the macro backdrop, that will put pressure on ROIC, but everything Tom just mentioned will help offset some of that.

Starting off a little bit lower than our pro forma target.

We received four in that $14 million to $16 million year, one so given the macro backdrop that will put pressure on ROIC, but everything Tom just mentioned will help offset some of that it wont fully offset a bit of a help offset and mitigate some of that.

Unknown Executive: It won't fully offset it, but it will help offset and mitigate some of that. Thank you both.

Unknown Executive: And Brian, maybe just a quick follow up. As we think about the growth burden on the margin structure of the business, you know, as you sort of work through the environment.

Speaker Change: Thank you both you and Brian maybe just a quick follow up.

Speaker Change: As we think about the growth burden on the margin structure of the business you know as you sort of work through the environment.

Bryan Langley: Any any any way to help frame sort of how to think through selling and store operating expenses for next year in it, you know, given the growth plans for stores, like what, you know, I don't know if you can maybe talk through what what level of comp right is sort of needed to hold the expense ratio at that 31% level that you guided this year to or any way to sort of think through, you know, how we how we measure the growth burden next year.

Any way to help frame sort of how to think through selling and store operating expenses for next year in <unk>.

Speaker Change: Given the growth plans for stores like what.

I don't know if you can maybe talk through what what level of comp right in sort of needed to hold the expense ratio at 31% level that you guided this year to or any way to sort of think through.

How we how we measure the growth burden next year.

Bryan Langley: We're not ready to comment on 2025 yet. Obviously, it will take some sort of growth to hold, just given the pressure of the late store openings in Q3 and the late store openings in Q4 of this year. Those will put a little bit of a drag next year on store and selling expenses, but more to come. We're just now getting into the detailed budgeting process on our side, so more to come on the next call for that. We'll give you guys, you know, obviously guidance and transparency around that, but we're not ready to commit or comment.

We're not ready to commit or comment on 2025, yet obviously.

We'll take some sort of growth to hold just given the pressure of the late store openings in Q3, and the late store openings in Q4 of this year those will put a little bit of a drag next year on store and selling expenses, but more to come we're just now getting into detailed budgeting.

<unk> on our side so more to come on the next call for them, we'll give you guys.

Speaker Change: Guidance and transparency around that but we're not ready to commit.

Unknown Executive: Thank you.

Speaker Change: Got it.

Thank you.

Chuck Grom: Our next questions come from the line of Chuck Grom with Gordon Haskett. Please proceed with your questions. Chuck, can you see if you're self-muted?

Thank you. Our next question is come from the line of Chuck Grom with Gordon Haskett. Please proceed with your questions.

Speaker Change: Okay.

Jeff could you just ask yourself muted please.

Unknown Executive: You go to the next question. Next caller, please.

Okay. The next question next caller please.

Zach Fadem: Our next questions come from the line of Zach Fadem with Wells Fargo. Please proceed with your question. Good afternoon, guys.

Our next questions come from the line of Jack <unk> with Wells Fargo. Please proceed with your questions.

Hey, good afternoon, guys. When you look at your operating margin outlook this year, which has implied about.

Tom: Um, when you look at your operating margin outlook this year, which is implied about 5%, how much would you say this is constrained by the new stores opened over the last year? And how does that drag compare to the margin drag in the past?

5%, how much would you say this is constrained by the new stores opened over the last year and how does that drag compare to the margin drag in the past and then as you start to think about a recovery scenario.

Unknown Executive: And then as you start to think about a recovery scenario, how should we think about just snapback potential for your operating and then Trevor and Tom can jump in.

How should we think about just snap back potential for your operating margins.

Hey, guys. This is Bryan I'll start and then Trevor and Tom can jump in I mean, its heavy pressure from the new stores that have come in but there is still some also from a declining comps I mean, you've got negative sales coming through which will put pressure, but a lot of the pressure is still from our new stores. You know this is the first environment, where I've been here for over 10 years.

Tom: https://www.flooranddecor.com This is Tom and I would say that we have learned to be more disciplined in our spending within our store support center, within the amount of projects that we undertake, within about the amount of investment that we make and we will be, those lessons will continue to apply as sales rebound so we should see benefit in kind of how we operate within our store support center and the investments that we make there. We should see the benefit as sales turn around, we would be more thoughtful in those investments and then the last thing is, you know, 25% of our stores are running at minimum hours as soon as we see sales start to kick around, we get really good flow throughout our stores so that would be very helpful.

First environment, where I've seen our mature stores delever. So the sales pressure has put a little bit there, but still a lot from our new stores and even the new stores, causing cannibalization on our existing stores without giving specifics on this too.

Speaker Change: As far as when it will snap back or what kind of glide path, it's going to be it won't snap back immediately it will take time, but we should have significant earnings power given any sort of growth environment. So if we get into next year and there is any sort of growth environment, you will see significant earnings power, but I don't think it goes back to historical levels overnight I think it will take time to kind of get there I think.

This is Tom and I would say that we.

Speaker Change: <unk> learned.

Speaker Change: To be more disciplined in our spending within our store support center and then the amount of projects that we undertake within Nevada.

Speaker Change: Out of investment that we make and we will be.

Speaker Change: Those lessons will continue to apply a sales rebound so we should see benefit and kind of how we operate within our store support center and in the <unk>.

Investments that we make there we should see the benefit of sales turnaround we need to be more thoughtful on those investments and then the last thing is getting 25% of our stores are running at minimum hours as soon as we see <unk>.

Speaker Change: Start to kick around we get really good flow through on those stores. So that that would be very helpful. Yeah. I think just to put numbers on it and you guys will see in the release and in the 10-Q that we were able to.

Bryan Langley: Yeah, I think just to put numbers on it, you guys will see in the release and in the 10Q, we were able to decrease $7.7 million out of our comp stores in Q3, year to date that number is $30.8 million that we've taken out but, you know, I've got to give credit to our store associates because as Trevor mentioned on the call, our customer service scores are as high as they've ever been so we're doing this in a way that it's not impacting the customer experience. If I was modeling, and we have to set the plan, so this is once the plan is set, like once we get guidance next year, if there's upside, I think we feel pretty confident that you're going to flow through in the mid to upper 30s on that incremental sales above a plan.

Decreased $7 7 million out of our comp stores in Q3 year to date that number is $30 8 million that we've taken out for Ya.

Speaker Change: I've got to give credit to our store associates, because as Trevor mentioned on the call our customer service scores are as high as they've ever been so we're doing this in a way that it is not impacting the customer experience.

Speaker Change: Got it and just as it is.

Speaker Change: Alright go ahead al.

Speaker Change: If I was modeling and we have to set the plans. So this is once the plan is that like once we give guidance next year. If there's upside I think we feel pretty confident that youre going to flow through in the mid to upper thirty's on that incremental sales above our plan.

Bryan Langley: And, you know, when you're operating at just above a 5% operating margin, if your sales are above that plan, you know, pulling that through in the mid to upper 30s is obviously very accretive to the operating margin and income.

When you're operating at just above 5% operating margin. If your if your sales were above that plan pulling that through in the mid to upper Thirty's is obviously very accretive to the operating margin and income.

Unknown Executive: Got it. And just if we enter, call it the first half of 25 and comps, you know, remain negative, similar to where we are today. And, you know, the new store drag on the operating margins, you know, remains negative as it is today.

Got it and just if we enter call. It the first half of 'twenty, five and comps remain negative similar to where we are today and the new store drag on the operating margins remain negative as it is today I'm curious just to <unk>.

Unknown Executive: Curious just to what extent you would push out new store openings into 26. Well, we will, as I said, the beginning of the call today, we're still planning on opening 25 stores. We put those stores to the back half of the year to give us flexibility in the event that we want to push stores out.

What extent you would push out.

New store openings into 'twenty six.

Speaker Change: But we will.

As I said at the beginning of the call today, we are still planning on opening 25 stores, we put those stores to the back half of the year to give us flexibility in the event that we wanted to push towards that we will make that decision. I guess is we will make it by the time. The next time, we're on the call we will have better visibility to that and it will depend on how our top line is trending if things improve we get benefit from the.

Unknown Executive: We will make that.

Unknown Executive: Transcripts provided by Transcription Outsourcing, LLC.

We see some benefit from refi existing home sales turned a little bit positive but.

Yeah, we would continue with our plan if things were to get worse, but yeah, certainly, we rethink that and pull stores out.

Unknown Executive: Got it.

Unknown Executive: Thanks for the time, guys.

Got it thanks for the time guys.

Unknown Executive: Thank you.

Unknown Executive: We ask that you please limit yourselves to one question.

Thank you we ask that you please limit yourself to one question.

Seth Sigman: Our next question comes from the line of Seth Sigman with Barclays. Please proceed with your question. Hey, guys, thanks for taking the question. As you think about exiting what seems to be an air pocket, right? How do you think about how the industry has changed over the last couple of years versus pre-pandemic? And I'm really thinking about from a competitive perspective. Is there anything that you see as different? You know, have you seen the industry shake out, as you would have expected from the downturn? Because it does feel like we're starting to see a wider range of results.

Speaker Change: Our next question comes from the line of Seth Sigman with Barclays. Please proceed with your question.

Hey, guys. Thanks for taking the question as you think about exiting what seems to be an air pocket right. How do you think about how the industry has changed over the last couple of years versus pre pandemic and I'm really thinking about from a competitive perspective is there anything that you see is different.

Have you seen the industry shake out as you would've expected from a downturn because it doesn't feel like we're starting to see a wider range of results. So just any context there. Thanks so much.

Tom: So just any context there.

Unknown Executive: Thanks so much.

Michael Lasser: I would say, and I'll let Ersan chime in after I go, or Trevor, if you see anything different. I would say that there will be less competitors as we come out of this cycle. We've already seen some closures, but then you heard Bumper Liquidators had to close stores. We had...

I would say and I'll, let <unk> chime in.

After I go or Trevor if you see anything different I would say that.

Speaker Change: There'll be less competitors as we come out of this cycle.

There you have already seen some closures.

Speaker Change: Bumper liquidators.

Speaker Change: Closed stores, we had.

Unknown Executive: David Bellinger, Floor & Decor Holdings Inc, Michael Lasser, Maksim Rakhlenko, Ersan Sayman, Phillip Blee, Bryan Langley, Phillip Blee, Bryan Langley, Phillip Blee, Michael Lasser, Thank you.

Speaker Change: Noise of distributors closing noise of independents closing, so I believe that there'll be less competitors.

When we entered the market and I think that will continue to have to deal with home improvement centers ebb and flow and getting better getting worse and we will continue to have to deal with it like we always have I don't think that's too much different than pre COVID-19 and I.

I don't think the independents have changed so much in how they go about their business. So I think the competitive advantages that we have today are similar to the competitive advantages, we had pre COVID-19 and I think there'll be the same as the bubble passes.

Speaker Change: And I'm good on.

On the back of the question and answer was sufficient.

Unknown Executive: Thank you.

Michael Lasser: Our next question comes from the line of Michael Lasser with UBS. Please proceed with your question. Good evening. Thank you so much for taking my question.

Thank you. Our next question comes from the line of Michael Lasser with UBS. Please proceed with your question.

Good evening. Thank you so much for taking my question.

Bryan Langley: Given, if you assume the midpoint of your guide for this year, where will your per-store transactions and per-store traffic end up this year versus 2019? And how is that compared to what your perception of the industry might be? Obviously, the question is related to market share. Your stores are being burdened with more cannibalization. But if transactions and traffic are flattish versus 2019, and there's been some...

Even if you assume the midpoint of your guide.

For this year, where will your per store transactions and per store traffic.

And up this year versus 2019, and how is that compared to what your perception of the industry might be.

Speaker Change: The question is related to market share your stores are being burdened with more cannibalization, but if transaction and traffic are flattish for 2019 and theres been some.

Bryan Langley: Closures Across the Market, why wouldn't that metric be better than it is?

Speaker Change: Closures across the market.

Wouldn't that metric be better than it is.

Bryan Langley: Hey, this is Bryan. I'll start and then Trevor and Tom can weigh in. When I look at kind of like the five year geocager, what's implied in there is that we would exit at almost a flat transaction. And so our transactions are basically in line with where we were to exit in 2019. From an average ticket, we're higher, but that's because of all the inflationary things that have happened post-2019. So when you think about that, our ticket's higher, but transactions are almost flat. And so that is burdened with cannibalization, as we have opened a lot of stores during this down macro environment.

Speaker Change: This is Bryan I'll start and then Trevor and Tom can weigh in.

Speaker Change: When I look at kind of like a five year G. O K here whats implied in there is that we would exited almost a flat transaction.

So our transactions are basically in line with where we would have.

Speaker Change: 2019 from an average ticket were higher but that's because of all the inflationary things that have happened post 2019. So when you think about that or ticket is higher but transactions are almost flat and so that is burdened with cannibalization as we have opened a lot of stores during this down macro environment.

Bryan Langley: But yeah, transactions against that time period on a per-store basis. Transcripts provided by Transcription Outsourcing, LLC. relatively flat.

Speaker Change: Transactions against that time period on a per store basis.

Flat today from where they were historically and our long term algorithm that we would've given back at the analyst day, we would've said mid to high single digits driven by mainly transactions. So it tells you that we believe theres a lot of pent up demand in some of those kind of things within the stores given the fact that we are.

Relatively flat to where we were back in 2019.

Unknown Executive: Thank you.

Chuck Grom: Our next question comes from the line of Chuck Grom with Gordon Haskett. Please proceed with your question. Hey, guys. Sorry about that. First call, I guess.

Thank you. Our next question comes from the line of Chuck Grom with Gordon Haskett. Please proceed with your question.

Speaker Change: Hey, guys, sorry about that.

Tom: With the category under duress, can you help us think about innovation and the pipeline on innovation products? What areas you're excited about over the next few years?

First of all I guess.

But the category are under duress can can you help us think about innovation in the pipeline on innovation products.

Youre excited about over the next few years and then installation.

Tom: And then, installation materials were up 21% nicely here in the quarter. Can you talk about the success there? How much of that may be attributable to price actions and any other areas? Thank you.

Materials were up 21% nicely here.

Speaker Change: In the quarter.

Speaker Change: Can you talk about the success there how much of that may be attributable to price actions in any other areas. Thank you.

Tom: Sure. This is Tom.

Sure. This is Tom I'll start and then her son can jump in.

Ersan Sayman: I'll start and then Ersan can jump in. I think from an innovation standpoint, you know, we are trying to do more things than we've historically done. We've got a good program going on with an outdoor pilot where we're bringing in more outdoor products into our store, so we try to expand the amount of things we can sell to a customer. We've continued down the path on our newness. Even since COVID, we've done the same amount of product line reviews that we've historically done, so there's constantly new products coming into the store. And, you know, I think we're continuing to add adjacent categories, add to our adjacent categories that make sense.

Speaker Change: I think from an innovation standpoint.

We are trying to do more things than we've historically done we've got a good program going on with the outdoor pilot, where we're bringing in more outdoor products into our stores. So we try to expand the amount of things we can sell to a customer we continued down the path on our newness, we'd even since COVID-19. We've done the same amount of product line reviews that we've historically done so there's constantly new.

Products coming into the store.

Speaker Change: I think we're continuing to to to add adjacent categories at to our adjacent categories that make sense of all of those things should help kind of on that out cycle.

Tom: So, you know, all of those things should help kind of on that out cycle.

Trevor Lang: I just want to add a few other things. The porcelain slabs that we've been expanding to more stores this year as well, and we continue to add those unique items such as 4x8, 4x9, 5x10 feet porcelain slabs to more stores to get the market going. On top of this, we also started the acoustic wood panels, and it's totally incremental business to our business, such as these are 1x7 to 7.7 wood panels that reduces the sound, and we're constantly trying newness, and innovation is going to be critical for the next year as well. And there's more coming.

Just wanted to ask you what do you think that porcelain slabs stays where it is.

In expanding to more stores and this year as well that would be continue to add doors.

Unique items, such as four by four by 95 by 10 feet porcelain slabs to more stores.

Speaker Change: Two to get the market going on top of these deals are started and acoustic wood panels, and it's totally incremental business too right.

Speaker Change: Our business session. These are one by seven to 7.7 wood panels reduces the song and constantly try to newness and innovation is going to be critical for the next year as well.

Trevor Lang: We have another big adjacent category that we're going to pilot in the first quarter. So, you know, we're not sitting still. We're trying to be innovative and trying to continue to add to our offering to satisfy our customers, and as we come out of this and the market turns, it'll even give us more ammunition to do better.

Speaker Change: And there is more comment we have another big adjacent category that we're piloting in the first quarter. So we're not sitting still we're trying to be innovative in trying to continue to add to our offering to satisfy our customers and as we come out of this in the market turns it will even give us more ammunition to do better here.

Trevor Lang: This is Trevor. Your question on insulation materials, you know, several years ago, we made a very strategic decision to go after a supply house strategy, so we added brands that really mattered to the professional customer, and we're seeing very good success with our professional customer, especially in that insulation materials category. And so we really just try to become a one-stop shop and have everything that the brand needs, and again, that's probably going on two years now, but that's been our best performing big category.

Speaker Change: This is Trevor your question on insulation materials several years ago, we made a very strategic decision to go after a supply house strategy. So we added brands that really mattered to the professional customer.

And we're seeing very good success with our professional customer, especially on that.

Speaker Change: <unk> materials category.

So we will just try to become a one stop shop and have everything that the brand needs and again, that's probably going on two years now, but that's been our best performing big category.

Unknown Executive: Thank you.

Keith Hughes: Our next question comes from the line of Keith Hughes with Truist Securities.

Thank you. Our next question comes from the line of Keith Hughes with true Securities. Please proceed with your question.

Unknown Executive: Please proceed with your Thank you. You talked earlier about the ticket getting less negative, particularly the comps, but I guess we dig down into that. Are you seeing any product categories or seeing average selling price or score for whatever metrics start to move up? Any kind of levels of inflation? Our ticket is getting better. That's been a bigger component of our comp. Improving each of the last three quarters is our ticket relative to each quarter has gotten better. The biggest issue we face with ticket today, wood and laminate are our largest ticket categories in the company.

Speaker Change: Alright, thank you.

Talked earlier about the ticket getting less negative, particularly with the comps, but I'll just dig down into that are you seeing any product categories are seeing average selling price per square foot or whatever metric start to move up in the kind of levels of inflation coming down.

Speaker Change: I'm not sure I completely got the question on the NIM.

This is Rob ticket I mean, our ticket is getting better that's been I think a bigger component of our comp.

Improving each of the last three quarters as our ticket relative to each quarter has gotten better the biggest issue we face with ticket today wooden laminate, our largest ticket categories in the company.

Tom: And when our business was very strong, and we had six and a half million existing homes back in 2022, you had a lot of house flipping going on and people generally do much larger wood and laminate projects when you've got that many houses flipping. Now that we're down, you know, whatever it is, 42% down to 3.8 million existing home sales, you don't have nearly as many houses flip. So people are staying in-house and they're focused much more on bathrooms and half bathrooms, and those are much smaller jobs. And so the ticket issue that we're facing is predominantly, almost completely, driven by wood and laminate businesses, as I said, because people just aren't flipping homes at the same rate that they were when the economy was stronger in housing.

And when our business was very strong and we had six and a half million existing homes back in 2022, you had a lot of house flipping going on and people generally do much larger wood and laminate projects when you've got that many houses flipping now that we're down you know whatever it is 42% down about $3 8 million existing home sales you don't have nearly as many houses flip.

So people are staying in house and they focus much more on bathrooms and half bathrooms and those are much smaller jobs and so the ticket issue that we're facing is predominantly almost completely driven by wood and laminate businesses I've said because people just aren't put their homes at the same rate that they were.

When the economy was stronger household yeah, and we still we still are seeing when the customers elect to do the project that they are still stepping into the better and best product has continued to outperform.

Tom: Yeah, and we still are seeing, when the customers elect to do the project, that they're still stepping into the better and best product. Those continue to outperform the best.

Speaker Change: Right.

Unknown Executive: Thank you.

Unknown Executive: Our next question comes from the line of Oliver Wintermantle with Evercore ISI. Please proceed with your question. Yeah, thanks very much. On the gross margin line, looks like the fourth quarter gross margin to implied guidance is still up year over year.

Thank you. Our next question comes from the line of Oliver Winter Matto with Evercore ISI. Please proceed with your question.

Yeah, Thanks, very much under gross margin line.

Like the fourth quarter gross margin to implied guidance is still up.

Tom: If you could maybe talk a little bit about the drivers in the fourth quarter, and then just conceptually, I know you're not going to guide to 2025, but conceptually, how do you think about gross margins into next year? Is there an opportunity to invest, reinvest in the business to drive traffic? A little bit of how you think about gross margins next year. Thank you. We're continuing to see good benefits to our gross margin line from supply chain costs and we've seen the benefits of that and from customers electing to buy better and best products, which makes better gross margin on.

Year over year, if you could maybe talk a little about but to drivers in the fourth quarter and then just conceptually I know youre not going to guide to 2025, but conceptually how do you think about gross margins into next year is there is there an opportunity to have to invest invest reinvest in the business to drive traffic.

Little bit of how you think about gross margins for next year. Thank you.

Speaker Change: Yes.

Continuing to see good benefits to our gross margin line from supply chain costs, and we're seeing the benefits of that and from customers electing to buy better and best products, which makes life better gross margin on so those things continue to be a driver of gross margin. We think that will continue into <unk>.

Bryan Langley: So those things continue to be a driver of gross margin. We think that will continue into the fourth quarter. As we look to next year, yes, this is still a challenging market for the category, so we're putting a lot of pressure on our merchants to buy as good as they can. As we do product line reviews and we get products from new vendors or new products from existing vendors, we're certainly challenging them on the cost side to make sure that we're trying to get our first cost to be as low as it possibly can and pass that on to the bottom line.

Into the fourth quarter as we as we look to next year. Yes. This is still a challenging market for the categories, where we're putting a lot of pressure on our merchants to buy as good as they can.

As you do product line abuse.

Get products from new vendors and new products from existing betters, we're certainly challenged them on the cost side to make sure that we're trying to get our first half to be as low as it possibly can and pass that onto the bottom line. So yes. We are planning on to have gross margins improve again next year.

Bryan Langley: So yes, we are planning on to have gross margins improve again next year.

Bryan Langley: And just as a reminder too, on top of that, this is Bryan, so just as a reminder, we do have optionality as we move into 2025, but when you're modeling, don't forget that we will open one distribution center in the second half of 2025 in Seattle, and then there's another one we're planning to open in the very beginning of 2026. Both of those will put pressure on our gross margin rate as we're in the back half and then entering into 2026. And then just as you guys are thinking about the model, Q4 should relatively be in line with Q7.

Just as a reminder, two on top of that this is Brian. So just as a reminder, we.

We do have optionality as we move into 2025, but when you're modeling don't forget that we will open one distribution center in the second half of 2025 in Seattle, and then Theres. Another one we're planning to open in the very beginning of 2026, both of those will put pressure on our gross margin rate as we are in the back half and then entering into 2026 and then just as you guys think about the model.

Q4 should relatively be in line with Q3 this year.

Unknown Executive: Thank you.

Jonathan Matuszewski: Our next question comes from the line of Jonathan Matuszewski with Jefferies.

Speaker Change: Thank you. Our next question comes from the line of Jonathan <unk> with Jefferies. Please proceed with your question.

Unknown Executive: Please proceed with your question. Good afternoon. Thanks for taking my question. Historically, I think you've shared your conversion levels are around 80% on average. Obviously, traffic is challenged with housing turnover and stretched household budgets. But, you know, for the footsteps you are seeing in stores, how has conversion been trending? And is that still holding up even with, you know, those stores on minimum labor hours? Thanks so much.

Good afternoon, and thanks for taking my question historically I think you've shared your conversion levels are around 80% on average obviously traffic is challenged with housing turnover and stretched household budget, but for the footsteps you are seeing in stores how has conversion been trending.

Speaker Change: And is that still holding up even with.

Speaker Change: Those stores on minimum labor hours. Thanks, so much.

Trevor Lang: Yeah, this is Trevor. Yeah, we really recently just conducted a pretty detailed brand tracker that we that we do quite often. And those trends continue.

Yes. This is Trevor yeah, we recently conducted a pretty detailed brand tracker that we do quite often and those trends continue if you look at the customers that are aware.

Unknown Executive: If you look at the customers that are aware https://www.flooranddecor.com Thank you.

And then they convert those numbers that you quoted are very consistent with what we've seen previously.

Issue is just the size of the people that are entering the market is just a lot less.

We get them exposed to the brand either online or in stores.

The conversion is very high for us not just the conversion of the brand tracker scores and customer service amongst approach animals do it yourself.

It continued to show improvement so not just the way we're measuring it on a monthly basis within our stores.

Speaker Change: <unk> shows in the results, we're pleased with our sales are executed.

Alexia Morgan: Our next question comes from the line of Peter Keith with Piper Sandler. Please proceed with your question.

Thank you. Our next question comes from the line of Peter Keith with Piper Sandler. Please proceed with your question.

Trevor Lang: Hi, this is Alexia Morgan on for Peter Keith. We are hearing about headwinds on Big Ticket Durables. You're wondering if you've noticed. Sales Opportunities for Lumber Liquidators?

Hi, This is Alexia Morgan on for Peter Keith.

We are hearing about headwinds on big ticket durables from election distraction Youre wondering if you've noticed this dynamic within your business and then are you seeing any sales opportunity from the 90 or so lumber liquidators stores that are closing.

Trevor Lang: This is Trevor. I'll go first and then Tom or Bryan can weigh in. I mean, we said this on the script, you know, our Q4 today comps, you know, have gotten better. And so, we don't know that we've seen that yet. I mean, that's certainly a reasonable expectation that happens every four years. But today, again, our Q4 numbers have continually gotten better throughout the quarter. So we haven't seen that yet. And the lumber liquidators benefit as they close, we think that's a net positive for us. Depending on where their stores are located, how close they are to ours, the ones that are closing, it's good.

This is Trevor I'll go first and then Tom or Brian can weigh in I mean, we certainly said this on the script in our Q4 to date comps have gotten better and so we don't know that we've seen that yet I mean, that's certainly a reasonable expectation that happens every four years.

Speaker Change: But to date again, our Q4 numbers are continually gotten better throughout the quarter.

Speaker Change:

Oh, sorry, I haven't figured out of it.

That's true.

We haven't seen that havent seen that yet in the lumber liquid lumber liquidators benefit today as they close we think that's a net positive for us there'll be no depending on where their stores are located how close they are to ours of the ones that are closing. It's good we've been fortunate to get some there'll be able to help place some of the displaced associates, we've been able to get a higher them and give them a plumber.

Trevor Lang: We've been fortunate to be able to help place some of the displaced associates. We've been able to hire them and give them employment in the event that a store is closed down and they've been affected. So again, that business will go somewhere. We think when we compete in that category, when you look across what they sell versus what we sell, our offerings are better than most. So we should be a net beneficiary.

Speaker Change: Or in any event that the stores closed down and they've been affected so.

Again that business will go somewhere we think when we compete in that category. When you look across what they sell versus what we sell our offerings are better than most so we should be a net beneficiary.

Karen short: Thank you. Our next question comes from the line of Karen Short with Mellius. Please proceed with your question. Hi, thanks very much. Good to talk to you again.

Thank you. Our next question comes from the line of Karen short with Melius. Please proceed with your question.

Hi, Thanks, very much good to talk to you again.

Unknown Executive: So my question is just on the implied 4Q guidance range. I mean, it's a pretty wide range. So just wondering if you can give puts and takes on comps in general, but also EBITDA margins. I mean, everything is a pretty wide range. So wondering if you could just talk to that a little more. Yeah, I mean, just it's still a macro environment that we're in, you know, there's still a lot of volatility out there, existing home sales just came in at 3.84 million readout for September. So there's still a little bit of movement in the macro, that gives us just a little bit of pause to hold that range.

So my question is just on the implied for Q.

Speaker Change: <unk> range.

Speaker Change: Pretty wide range. So just wondering if you can give puts and takes on comps in general.

Speaker Change: But also EBITDA margins.

Everything is a pretty wide range. So wondering if you could just talk to that a little more.

Yes, I mean, just it's still a macro environment that we're in you know there's still a lot of volatility out there existing home sales just came in at 384 million.

Readout for September so there is still a little bit of movement in the macro that gives us just a little bit of pause to hold that range. I mean, we did compress the range and ask from the last readout and so just the most of it is around that which is why when you think about our com. What's implied in there is about a two five to six and a half down Q4 to achieve seven five to eight <unk>.

Bryan Langley: I mean, we did compress the range in half from the last readout. And so just the most of it is around that, which is why we think about our comp, what's implied in there is about a two and a half to six and a half down in Q4, to achieve seven and a half to eight and a half down for the full year. Most of that is around transactions. So our transactions would be implied around down mid-single digits, with our ticket approximately sliding So most of the variability is just around transactions as we look at Thank you.

For the full year most of that is around transactions or transactions would be implied around down mid single digits with our ticket approximately flat in Q4. So most of the variability is just around transactions as we look at our business.

Speaker Change: Yes.

Phillip Blee: Our next question comes from the line of Phillip Blee with William Blair. Please proceed with your question. Hey, good afternoon, guys. You previously spoke a bit about the impact of rising freight costs having a minimal impact on fiscal 2024.

Thank you. Our next question comes from the line of Philip Lee with William Blair. Please proceed with your question.

Hey, Good afternoon, guys. You previously spoke a bit about the impact of rising freight costs, having a minimal impact on fiscal 2024, how does that play out though in 2025, if rates don't abate and then wood contracted capacity to keep your insulated from the spot market if demand begins to more meaningfully impact. Thank you.

Trevor Lang: How does that play out, though, in 2025 if rates don't abate? And then would contracted capacity keep you insulated from the spot market if demand begins to more meaningfully inflect? Thank you.

Trevor Lang: This is Trevor. As you said, the majority of our rates are on rolling long-term rates. In the spring, kind of late winter, early spring time frame is when we'll find out what those new rates are going to be. If the rates are higher because the spot market stays higher, then we and everybody else will have to deal with those higher rates. In the past, you know, I've been here, I'm going on 14 years at Floor & Decor. When we've seen higher rates, we've seen the market be rational and those higher rates are passed along. We would probably expect that to be a similar case for us.

Trevor: Yes. This is trevor.

We said the majority of our rates are on rolling long term rates.

In the spring kind of late winter early spring timeframe is when we'll find out what those new rates are going to be.

If the rates are higher because of the.

Spot market stays higher than we and everybody else will have to deal with those higher rates in the past.

I've been here 14 years at for Nucor, when we've seen higher rates, we've seen the market be rational and those higher rates are passed along and.

Trevor: We would probably expect that to be the similar case for.

Trevor Lang: One of the benefits we do have is we're not paying spot market rates at all today. Even if they do go up, we still have some of our contracts that will save us some money.

For us one of the benefits we do have as we really were not paying spot market rates at all today, even if they do go up we saw some of our contracts that will save us some money and and you really because we turn for just over two times a year. So you wouldn't see those retail increases come until probably later Q3 and Q4.

Trevor Lang: Because we turn our inventory just over two times a year, you probably wouldn't see those retail increases come until probably later Q3 and Q4.

Unknown Executive: Thank you.

Tom: Our next question comes from the line of Molly Baum with Bank of America. Hi, thanks for taking my question. Robbie had another earnings call this evening. But I wanted to follow up on Seth's question about the competitive dynamics, specifically, as it relates to your EDLP strategy. So I'm curious, you know, how you feel about your price positioning at present, and specifically as it relates to kind of the good categories and your breadth of opening price points. And I guess the last one on that piece, you know, if you're still seeing, you know, relative inelasticity from any price reductions.

Thank you. Our next question comes from the line of Molly Baum with Bank of America. Please proceed with your question.

Hi, Thanks for taking my question Robbie I had another earnings call. This evening, but I wanted to follow up on <unk> question about the competitive dynamic specifically as it relates to your ERP strategy. So I'm curious how you feel about your price positioning at present and specifically as it relates to kind of the good categories and your breadth of opening price points.

And I guess the last one on that piece, if you're still seeing.

Any elasticity from any price reductions thank you.

Tom: Thank you.

Tom: So this is Tom. We still feel good about our price.

Tom: So this is Tom.

We still feel good about our price.

Spread versus the competition at the good level, we mainly compete with the home improvement centers.

When we look apples for apples and features for features and line them up we still feel like we're in a good position versus the competitor so.

It's a moving target things go up and things go down we pay attention to that just like I'm sure. They do.

Tom: But I feel good about kind of how we compete within the category against them.

Tom:

Tom: We mentioned on previous calls, we see you've seen good reactions to.

Tom: Adjusting price for products that are specific for pros, so, particularly in our instrument installation materials.

Tom: We've seen benefit as we become more aggressive in that department to try to lure pros to give us more of their wallet. So we'll continue to pilot with that and continue to to move that within that department is looking at our results have shown is paying some dividends.

Justin Kleber: Our last question will come from the line of Justin Kleber with Baird.

Our last question will come from the line of Justin clever with Baird. Please proceed with your question.

Bryan Langley: Please proceed with your question. Thanks for sticking in here. Just a clarification on the quarter-to-date comp. Does that include a drag from the hurricanes and store closures? Or has that headwind been offset by some early demand creation in those markets? And I guess even more directly, does your implied 4Q comp guide include any lift from, you know, initial hurricane rebuild? Thank you.

Hey, guys. Thanks for sneaking me in here just a clarification on the quarter to date comp does that include a drag from the hurricanes and store closures or has that headwind been offset by some early demand creation in those markets.

I guess, even more directly.

<unk> comp guide include any lift from initial hurricane rebuild thank you.

Bryan Langley: Hey Justin, thanks for the question.

Tom: Hey, Justin Thanks for the question. This is Brian So our quarter today. Just a reminder was down four 2% that is kind of neutral from storm impacts. So we did have a little bit of headwinds early on in the quarter, obviously, when the storms hit its kind of neutralize that throughout that as Tom and Trevor I've mentioned that we've seen a little bit of business pick up it's just too hard to tell right now so it's new.

Bryan Langley: This is Bryan. So, our quarter today, just your reminder, was down 4.2%. That is kind of neutral from storm impact. So, we did have a little bit of headwinds early on in the quarter, obviously when the storms hit. It's kind of neutralized throughout that, as Tom and Trevor have mentioned, that we've seen, you know, a little bit of business pickup. It's just too hard to tell right now, so it's not implied within our guidance as any sort of material pickup within that. There's a little bit implied between that range of high and low, but there's no material amount that we've included.

Tom: Not implied within our guidance is any sort of material pick up within that there's a little bit implied between that range of high and low but theres no material amounts include timing of the release like the storms came and then people have to clean up so that there is a drag during the time and but as we've seen over since thats past things are better, but we'll see.

Bryan Langley: Tom, you know, the release, like the storms came and then people have to clean up so that there is a drag during the time, but as we've seen over, since that's passed, things are better, but we'll see. You know, we don't know for sure what the impact will be.

We don't know for sure what the impact could be.

Unknown Executive: So, I appreciate everyone joining us on the call, so we look forward to updating you on the next call. Thank you. That does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.

Tom: So.

I appreciate everyone joining us on the call.

So we look forward to updating you on our next call. Thank you.

Thank you that does conclude today's teleconference. We appreciate your participation you may disconnect. Your lines at this time and enjoy the rest of your day.

Tom: [music].

Tom: Okay.