Q4 2024 Floor & Decor Holdings Inc Earnings Call
Speaker Change: Greetings and welcome to the Florence Decor Holdings fourth 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.
Speaker Change: 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 understand better our core operating performance on a comparable basis between periods.
Speaker Change: A reconciliation of each of these non-GAAP measures to the most directly comparable GAAP financial measure can be found in the earnings press release, which is available on our Investor Relations website at IR, Florida Court Dot com.
Tom: A recorded replay of this call and related materials will be available on our Investor Relations Web site, Let me now turn the call over to Tom.
Tom: Thank you Wayne and everyone for joining us on our fiscal 2020 for fourth quarter and full year earnings conference call. During today's call, Brian and I will discuss some of our fiscal 2020 for fourth quarter and full year earnings highlights then Brian will share our thoughts about fiscal 2025, let.
Tom: Let me start by saying how excited we were to announce in January the appointment of Brad Paulsen as our new President reporting directly to me as many of you know he will succeed Trevor who is retiring in March after a remarkable 14, new career with us.
Tom: We wish him well.
Tom: Brad brings nearly two decades of relevant experience and will be a valuable addition to our executive team helping to lead the next chapter of Florida cores growth.
Tom: Most recently he served as the CEO of North America for Rentokil initial plc, a global leader in pest control hygiene and wellness services.
Tom: Prior to Rentokil, Brad was CEO of <unk> USA, our leading electrical parts distributor. He has held the position of Chief operating officer at HD supply and has had various leadership in merchandising roles at the home depot.
Tom: Brad is an accomplished leader with experience in retail commercial and service based organizations. His deep understanding of home improvement merchandising retail and commercial sales and supply chain and operations will be particularly valuable to our company. Moreover, as customer service and associate support principles.
Tom: Align perfectly with our core values.
Tom: Let me now comment about our fiscal 2020 for fourth quarter and full year earnings results.
Tom: Our leadership team is proud of our store and store support teams. Despite the challenges we face within hard surface flooring category in fiscal 2024, they successfully executed our sales and customer service initiatives to grow our market share while diligently managing costs.
Tom: To their collective efforts, we reported better than expected comparable store sales earnings flow through operating cash flow and earnings per share for the fourth quarter of fiscal 2024.
Tom: We delivered fiscal 2020 for fourth quarter diluted earnings of 44 per share, which includes a favorable $6 8 million or <unk> per share net benefit from a derivative litigation settlement in December of 2024. This net settlement benefit was not contemplated in our prior.
Tom: Our earnings guidance.
Tom: For the fiscal 2024 year, we reported diluted earnings of $1 90 per share, which includes the <unk> <unk> net benefit from the settlement proceeds.
Brian: As Brian will discuss in more detail.
Brian: We're in a strong financial position that allows us to navigate through the short term and at the same time, making long term growth investments during this cyclical downturn in flooring.
Brian: Specifically, we continue to invest in opening new stores of various sizes, and new and existing markets and innovative and trend forward merchandize technology and our associates.
Brian: This has allowed us to grow our market share despite the industry contracting.
Brian: <unk> prepared us to maximize sales and profitability once the industry is cyclical growth accelerates to historical rates, we take a long term view when making these investments as we are optimistic about the secular spending opportunities and hard surface flooring and our adjacent categories. The demand for housing continues to outpace.
Brian: Supply.
Brian: And the 40 year median age of owner occupied housing is continuing to increase.
Brian: We believe the supply and demand imbalance in housing and aging housing stock remains a significant secular growth opportunity as older homes will need updates after the past several years of postponed remodeling turning to our new warehouse store format growth.
Brian: December 2024 March a historic milestone in our company's growth journey, we opened our 250 <unk> store in North Seattle, Washington, reaching the halfway point towards our vision of operating 500 warehouse format stores in various size markets across the United States over the past three years.
Brian: There's we have opened 93 warehouse format stores, including locations in five new states underscoring our commitment to strategic growth. Despite the cyclical pressures in our industry.
Brian: We remain excited about our future sales and earnings growth prospects as approximately 55% of our stores have opened in the last five years, leading what we believe is plenty of room for growth along the maturity curve.
Brian: Our commitment to opening new warehouse stores has contributed to our market share growth and positions us well for when the industry fundamentals improve.
Brian: In the fourth quarter of fiscal 2024, we opened 10, new warehouse format stores.
Brian: Culminating in 30, new warehouse format stores opened in fiscal 2024.
Brian: At the end of fiscal 2024, we operated 251 warehouse format stores and five design studios in 38 States and.
Brian: In the first quarter of fiscal 2025, we have already opened new warehouse format stores in Venice, Florida in Covington, Louisiana, We plan to open seven new warehouse format stores in the first half of 2025 <unk>.
Brian: Including two bullets in Oregon, Kissimmee, Florida, San Antonio, Texas, and two stores in California, Gilroy and Chula Vista.
Brian: Currently we plan to open 25, new warehouse format stores in fiscal 2025, and close one store at the end of the first quarter of fiscal 2025.
Brian: Most of our new stores will be located in existing markets.
Brian: Macroeconomic conditions are less favorable than we anticipate we have flexibility to adjust this number downward as most of these openings are slated for the second half of the fiscal year.
Brian: We recognize we cannot control the short term cyclical pressures affecting the hard surface flooring industry and their impact on the first year sales.
Brian: Of our new stores. We open however, we have identified specific strategic actions, we can take to maximize their chances for success. During this challenging period in fiscal 2025, we plan to be more intentional about reaching new customers, we intend to emphasize impression driving media and messaging updates.
Brian: To grow local brand awareness by taking these actions. We believe we can expand our brand awareness attract more new homeowners and pros and create a strong foundation for long term growth move.
Brian: Moving to our total and comparable store sales.
Brian: Our fiscal 2020 for fourth quarter total sales increased by five 7% from the same period last year and comparable store sales decreased by a better than expected <unk> eight.
Brian: 8%.
Brian: For the 2024 year, our total sales increased by <unk>, 9% to $4 billion $456 million driven by the opening of 30, new warehouse format stores and growth at Spartan surfaces, while our fiscal 2020 for comparable store sales declined by seven 1% we saw improvement each.
Brian: Quarter with the fourth quarter being the strongest of the year.
Brian: Fourth quarter comparable store sales decreased by <unk>, 8%, a notable improvement from a six 4% decline in the third quarter, a 9% decline in the second quarter and 11, 6% decline in the first quarter.
Brian: The improvement sequential sales trend, partially reflects long awaited modest growth in existing home sales. Despite elevated mortgage interest rates existing home sales rose for the third straight month in December the longest growth streak since early to mid 2021.
Brian: Our fourth quarter average ticket comp increased by one 3% the only quarterly increase in fiscal 2024, our average ticket comp benefited from a favorable product mix and the positive impacts of Hurricanes Helene and Milton.
Brian: Additionally, enhancements, we have made in associate training, including micro learning sessions are yielding positive results the training boost their confidence in articulating the features and benefits along our merchandising continuum.
Brian: Fourth quarter comparable transactions continued to sequentially improve declining by two 1% from the same period last year.
Breaking down our comparable store sales by month October declined by four 8%, which followed an increase of eight 1% in November and a four 8% decline in December adjusting for the Thanksgiving holiday shift from physical November to December comparable store sales for November and December.
Brian: Bind grew by one 2% from the same period last year.
Brian: We estimate the fiscal 2020 for fourth quarter benefit to our comparable store sales from Hurricanes lean and Milton was approximately 110 basis points.
Brian: In the first quarter of fiscal 2025 are quarter to date comparable store sales have decreased one 7%.
Brian: From a regional perspective, we continued to see encouraging comparable store sales trends emerging from our West Division, where fourth quarter comparable store sales grew modestly year over year. Our hearts go out to all of those impacted by the California, wildfires, which only impacted our San Gabriel in Woodland Hills stores for a few days.
Brian: Among our merchandising categories, the fourth quarter total sales growth in wood installation materials stone decorative accessories and adjacent categories increased above the company average compared to the same period last year.
Brian: The sales growth in these categories reflect successful merchandising initiatives to grow these categories.
Brian: We expect these initiatives to benefit us in 2025 and beyond.
Brian: The sales growth in laminate and vinyl and tile were below the company average but showed sequential improvement.
Brian: In fiscal 2025, we are excited to continue delivering new innovative products and programs to our homeowners and pros, we will expand our merchandize offerings in adjacent categories, including testing a high quality stylish semi custom cabinet program at approximately 40 warehouse stores and <unk>.
Brian: Online in the first quarter.
Brian: We can now offer online semi custom cabinets express ship plywood cabinets cabinet accessories decorative hardware and cabinet samples that we can ship to the job site.
Brian: This initiative helps our homeowners and pro customers complete kitchens, and other cabinet projects and is expected to drive incremental sales growth to our stores.
Brian: Furthermore, we will reset decorative accessories to improve the customer experience and product productivity. Further we will also continue expanding our outdoor and pool offerings and XL slab program.
Brian: I will now discuss our supply chain and how we expect to manage anticipated tariffs in 2025.
Brian: First we are pleased that the international Longshoremen's Association in the U S. Maritime Alliance reached an agreement in January as a result, we did not experience any material supply chain disruptions as we enter fiscal 2025, our merchandise in stock are strong we continue to closely monitor.
Brian: Third the fluid developments regarding tariffs on products, we sell particularly trade disputes between the U S and China.
Brian: These trade disputes will lead to additional tariffs beyond the 25 previous 25% imposed on most products that we sell that are produced in China. For example on February one and additional 10% tariff was announced for all products from China. As previously discussed we have been actively working to mitigate tariff.
Brian: Tariff cost pressures over the past five years by successfully diversifying our countries of origin.
Brian: And physical 2020 for China accounted for approximately 18% of the products, we sold down from approximately 25% in fiscal 2023 and approximately 50% in fiscal 2018.
Brian: In the fourth quarter of fiscal 2020 for China accounted for approximately 16% of the products. We sold we expect our diversification strategies to continue to meaningfully reduce our reliance on China in 2025 and beyond we.
Brian: We source products made in Canada, and Mexico, and a portion of our products sold in these countries for fiscal 2024 was not material. We are proud to report that the United States is now our largest country of manufacturer accounted for approximately 27% of the products. We sold in fiscal 2024 up from approximately <unk> <unk>.
Brian: 20% in fiscal 2018.
Brian: Regardless of any new tariffs timings and potential impacts our strategy remains the same first we expect to continue negotiating cost with our vendor partners to mitigate the incremental cost and second we will continue sourcing from alternative countries, where it makes sense third we will increase retail pricing as we deem appropriate.
Brian: While maintaining our price gaps, we believe our scale and worldwide direct sourcing model for more than 240 vendors in 26 countries is a competitive advantage, particularly amongst independent flooring retailers and distributors.
Shifting to our connected customer pillar of growth our fiscal 2020 for fourth quarter connected customer sales increased by 6% compared to the same period last year accounting for approximately 18% of sales.
Brian: For the full year connected customer sales rose by 3% accounting for approximately 19% of sales in fiscal 2025 and beyond we plan to continue integrating our processes and technology solutions to provide an inspirational robust and seamless personalized experience across all.
Brian: All of our engagement channels.
Brian: To that end, we are continuing to work towards ensuring continuity between our website and stores.
Brian: Moreover, we plan to continue improving our website and mobile download speed and visuals that obligation.
Brian: We believe we have an edge with visual shop in both content and our online image sets and galleries. These image sets and galleries promote inspiration and infused projects selling throughout the customer journey.
Brian: We are excited to add more inspiring designer and user generated content in 2025, which will benefit our free design services and.
Brian: In support we plan to expand our long form content library by including care guides refinishing guides and more in depth articles overall, we expect these strategies among others to further improve our brand affinity.
Brian: In fiscal 2024, we adopted a more convenient confirmed to pay payment option.
Brian: Which allows customers to provide payment information more conveniently and allows individuals they authorized to finalize the purchase and pick up those products on their behalf confirmed to pay is replacing an outdated paper based process. It has proven to be a successful payment option with high adoption, particularly among pros.
Brian: Making it easier to transact with US we believe this could slightly pressure our connected customer sales penetration metric as the sales shift from point of sale from online and other payment options. However, we better serve our president homeowners with multiple seamless payment options. This is just the change in the geography of where and how.
Brian: <unk> customers will transact with us.
Brian: Let me comment on design services. We are pleased to report that design service sales growth significantly accelerated throughout fiscal 2024 with the fourth quarter being the strongest these results reflect strong strong transaction growth and our commitment to design and services staffing at a time when labor hours were diligently managed.
Brian: Additionally, our designers are focused on closing high value design opportunities and building brand awareness and project credibility with homeowners and pros. Consequently, we achieved the highest net promoter score for design services since we began measuring it.
Brian: In summary, we are successfully executing our strategy of offering homeowners and pros and elevated and personalized design experience across in store online and in home channels. These combined efforts led to a remarkable year for our design services, highlighting our commitment to excellence and customer satisfaction.
Brian: Turning my comments to pros, we're pleased to report that the total sales to pros continued to grow in the fourth quarter of fiscal 2024 accounting for approximately 50% of our total sales.
Brian: Comparable store sales improved sequentially throughout through 2024.
Brian: These results demonstrate that our grassroots supply house approach is effective focusing on engagement and nurturing strong relationships with pros, we continue to benefit from partnering with native advertising plant platforms that provide a practical and cost efficient way to attract and retain new pros.
Brian: Additionally, we benefit from our pro service managers spending more time outside of our stores and our new ZIP codes, where they directly engaged with pros to build brand awareness understand their needs and provide tailored solutions.
Brian: Finally, we successfully held 144 educational events in our stores in 2024 and plan to have 155 events in 2025.
We believe these events are industry, leading in hard surface flooring and physical 2025, we will focus on driving growth among new pros and re engaging inactive pros.
Brian: Finally, I'll discuss our commercial business.
Brian: Fiscal 2024 fourth quarter sales at Spartan services declined 17, 9% from the same period last year. The sales decline is primarily due to weakness in the multifamily residential market pricing pressures in the commercial <unk> market.
Brian: And difficult comparisons against record Dissemble sales at Spartan last year.
Brian: Collectively these factors pressured Spartans physical 2020 for fourth quarter and full year gross margin and EBIT.
Brian: In fiscal 2020 for Spartan surfaces sales grew by 10, 1% to $215 $2 million.
Brian: <unk> two last year, but EBIT declined 25, 4% to $14 3 million from $19 1 million in fiscal 2023, primarily due to pressure on the gross margin rate.
Brian: In fiscal 2025, Spartan will continue to focus on the health care education senior living and hospitality sectors. As previously discussed these are high specification sectors of the commercial flooring market, where the opportunity for long term growth and profitability is greatest.
Brian: These sectors generally have high court to conversion rates reoccurring revenue and more attractive profitability. We plan to continue making investments in sales representative growth, particularly in those sectors that are most important to us. Additionally, we plan to continue building out <unk> infrastructure to support growth at <unk>.
Brian: <unk> and achieve our long term market share and profitability objectives.
Brian: The necessary long term investments, we are making will impact Spartans near term EBIT with fiscal 2025, EBIT rate expected to be about flat with fiscal 2024.
Brian: However, they are critical to driving significant market share growth in the coming years. It is important to note that the investment cycle and return timeline and our commercial business difference from what many of you are familiar with within our retail operations, reflecting the distinct nature and opportunities of the commercial sector over the long term Spartan services aim.
Brian: To become a disruptive leader in the specified commercial flooring industry by establishing a comprehensive nationwide sales network. This network with prioritize high specification products and leveraged strong relationships to provide superior availability delivery and service nationwide. Let me now turn the call over to Brian.
Brian: Thank you Tom.
Brian: In fiscal 2024.
Brian: We successfully grew our market share while effectively managing our profitability balance sheet inventory and cash flows even amid a decline in demand for hard surface flooring.
Brian: Im extremely proud of the resiliency of our business model, even though the contracting flooring industry is putting immense progress on other specialty retailers in this environment.
As Tom mentioned, we were pleased to be in a strong financial position, allowing us to continue investing in new store growth technology enhancements and our associates.
Brian: Our investments in our associates training and development enable us to proudly announce that our net promoter score reached a record high in January 2025.
Brian: This achievement underscores our associates ongoing dedication to serving our homeowners and pros with any of the hard surface flooring project.
Brian: As we embark on fiscal 2025, we believe that we have the right teams and strategies in place to control the controllable and flex our business model as market fundamentals change.
Brian: Now, let me discuss some of the changes among the significant line items in our fourth quarter and full year income statement balance sheet and statement of cash flows as well as our outlook for 2025.
Brian: We continue to be pleased with how we are managing and expanding our gross margin or.
Brian: Our fiscal 2020 for fourth quarter gross profit rose by eight 9% driven by a year over year increase of approximately 130 basis points and our gross margin rate to 43, 5% or.
Brian: Our fiscal 2020 for full year gross profit grew by three 8% driven by a rise in sales and an increase in our gross margin rate of approximately 120 basis points to 43, 3% from 42, 1% in the same period last year.
Full year gross margin rate of 43, 3% with in line with our previous guidance of 43, 2% to 43, 3%.
Brian: The increase in gross margin rate for the fourth quarter and full year is primarily due to lower supply chain costs.
Brian: Our fiscal 2020 for fourth quarter, selling and store operating expenses increased by 10, 1% to $347 4 million from the same period last year.
Brian: $31 9 million increase in selling and store operating expenses was primarily driven by $40 9 million for new stores, partially offset by a decrease of $8 3 million and our comparable stores.
As a percentage of sales selling and store operating expenses increased by approximately 130 basis points to 31, 4% from the same period last year.
Brian: Our fiscal 2020 for full year, selling and store operating expenses increased by $123 1 million or nine 9% from last year.
Brian: The increase in these expenses was primarily driven by $156 7 million for new stores and $5 6 million at Spartan, partially offset by a decrease of $39 2 million and our comparable store expenses.
Brian: As a percentage of sales selling and store operating expenses deleveraged by approximately 250 basis points to 36%.
Brian: The Delevering of these expenses was better than we expected primarily due to higher than forecasted sales and effective expense management, which led to strong earnings flow through.
Brian: Our fiscal 2020 for fourth quarter General and administrative expenses decreased by five 4% to $64 zero million from the same period last year.
Brian: As a percentage of sales fourth quarter general and administrative expenses leveraged by approximately 70 basis points to five 8%.
Brian: A couple of expense items impacted our fourth quarter general and administrative expense line includes.
Brian: Including an increase of $3 3 million in personnel expenses from higher incentive compensation and additional staffing cost, which was more than offset by the legal settlement recovery benefit of $6 8 million.
Brian: Additionally expenses related to our ERP implementation were approximately $2 5 million, which was in line with our expectations.
Brian: Our fiscal 2020 for full year general and administrative expenses increased five 3% from the same period last year as a percentage of sales general and administrative expenses Deleveraged, approximately 30 basis points to 6.0% from five 7% in the same period last year.
Brian: Moving to Preopening expenses.
Brian: Our fiscal 2020 for fourth quarter Preopening expenses of $10 6 million decreased 16, 6% from the same period last year.
Brian: As a percentage of sales pre opening expenses leveraged by approximately 30 basis points to <unk>, 9% compared to the same period last year.
Brian: This decrease resulted from a decline in the number of new store openings compared to the same period last year.
Brian: Our fiscal 2020 for full year Preopening expenses decreased three 1% from the same period last year.
Brian: As a percentage of sales pre opening expenses leveraged by approximately 10 basis points to 0.9% from 1.0% in the same period last year.
Brian: Fiscal 2020 for fourth quarter interest expense net decreased $0 9 million or approximately 103, 8% from the same period last year.
Brian: Our fiscal 2020 for full year interest expense net declined 72.0% to $2 8 million below our most recent annual guidance of approximately $4 million driven by higher interest income on higher cash balances from the same period last year.
Brian: Our fiscal 2020 for fourth quarter effective tax rate increased to 19, 9% from 18, 1% in the same period last year. The increase was primarily due to a decrease in excess tax benefits related to stock based compensation Awards.
Brian: Our fiscal 2020 for full year effective tax rate declined to 18, 8% from 21.0% in the same period last year in line with our most recent guidance of approximately 18%.
Brian: Year over year decrease was primarily due to a decrease in state income taxes, and an increase in excess tax benefits related to stock based compensation.
Brian: Our fiscal 2020 for fourth quarter, adjusted EBITDA increased 11, 1% to $119 8 million exceeding total sales growth of five 7% primarily due to the 130 basis point increase in our gross margin rate.
Brian: Our fourth quarter adjusted EBITDA margin rate increased 50 basis points to 10, 8% from 10, 3% in the same period last year.
Brian: Our fiscal 2020 for full year adjusted EBITDA declined 7.0%.
Brian: $512 5 million, which exceeded our most recent guidance of $490 million to $500 million, primarily due to higher than forecasted sales.
Brian: Okay.
Brian: For the fiscal 2020 for full year, our adjusted EBITDA margin rate declined 100 basis points to 11, 5% from 12, 5% in the same period last year.
Brian: Our fiscal 2020 for full year, depreciation and amortization was $232 5 million.
Brian: Moving on to our balance sheet liquidity.
We maintain a strong balance sheet, concluding fiscal 2024 with $203 million in debt and $187 7 million in cash and cash equivalents in terms of liquidity. We ended fiscal 2024 with $905 7 million of unrestricted liquidity consisting of.
Brian: $187 7 million in cash and cash equivalents and $718 zero million available for borrowing under our ABL facility.
Brian: As of December 26, 2024, our inventory increased by two 4% to $1 1 billion from the same period last year.
Brian: 2020 for capital expenditures, including those accrued at the end of the period declined to $376 3 million from $566 3 million in the same period last year and were in line with our previous guidance of $360 million to $390 million.
Brian: The decrease in capital expenditures was primarily due to the timing of spend for the class of 2024 occurring more in fiscal 2023, and pushing more of the class of 2025 spend into fiscal 2025.
Brian: Additionally, in the second half of fiscal 2024, we started to realize some of the 1 million to $1 5 million cost out savings from construction and optimizing the box size.
Brian: We expect to fully realize these savings for stores opening in the back half of 2025.
Brian: We believe our strong financial position provides us the flexibility to navigate the macroeconomic environment, while pursuing prudent strategic growth within our existing capital structure.
Brian: Turning to our fiscal 2025 outlook.
Brian: We enter 2025 facing considerable geo political and policy uncertainty and mixed leading economic indicators.
Brian: Existing home sales grew modestly for the third straight month in December to $4 2 million units affordability remains challenging and steady interest rate cuts seem less likely than they did last year.
Brian: It is unclear how these factors will flow through to the economy and the flooring industry. Specifically therefore, we are carefully planning fiscal 2025 and are providing a wide range of potential earnings outcomes and our earnings guidance we.
Brian: We expect to have better visibility for fiscal 2025, following the March and April which are more important months that should inform us better about 2025 outlook.
Brian: As a reminder, every one point change in comparable store sales compared with our annual plan impacts earnings by approximately <unk> <unk> per share.
Brian: Let me now share our thoughts about fiscal 2025 and our guidance.
Brian: Total sales are expected to be in the range of four $740 million to $4 billion $900 million four increased by six 5%.
Brian: The 10% from fiscal 2024.
Brian: As Tom mentioned this guidance reflects the planned opening of 25, new warehouse format stores.
Brian: Comparable store sales are estimated to be flat to an increase of 3%.
Brian: Average ticket comp is estimated to be up low single digits.
Brian: Transaction count is estimated to be slightly negative to up low single digits.
Brian: Gross margin rate is expected to be approximately 43, 4% to 43, 7%.
Brian: Our gross margin rate is expected to be adversely impacted by approximately 60 to 70 basis points from the two new distribution centers, which is incorporated into our guidance.
Brian: The low end of our guidance assumes our gross margin rate is approximately the same throughout the year.
Brian: The high end of our guidance assumes the second half gross margin rate could be higher than the first half.
Brian: Selling and store operating expenses as a percentage of sales are estimated to be approximately 31.0% to 31, 5%.
General and administrative expenses as a percentage of sales are estimated to be approximately 6%.
Brian: General and administrative expenses include approximately $9 million related to our finance and merchandising ERP implementation.
Brian: Preopening expenses as a percentage of sales are estimated to be approximately 0.7%.
Brian: Interest expense net is expected to be approximately $3 million.
Brian: Tax rate is expected to be approximately 21% to 22%.
Brian: Depreciation and amortization expense is expected to be approximately $245 million.
Brian: Adjusted EBITDA is expected to be approximately $540 million to $575 million.
Brian: Diluted earnings per share is estimated to be in the range of $1 80 to $2 10.
Brian: Diluted weighted average shares outstanding is estimated to be approximately 109 million shares.
Brian: Moving on to capital expenditures.
Brian: Our fiscal 2025 capital expenditures are planned to be in the range of $330 million to $400 million, including capital expenditures accrued.
Brian: We intend to open 25 warehouse format stores and began construction on stores opening in fiscal 2026 collectively these investments are expected to require $200 million to $245 million.
Brian: We plan to invest approximately $20 million to $25 million and new distribution centers in Seattle and Baltimore.
Brian: We intend to invest approximately 50 million to $60 million in existing stores and distribution centers.
Brian: And finally, we plan to continue to invest in information technology infrastructure E Commerce and other store support center initiatives, using approximately 60 million to $70 million.
Operator, we would now like to take questions.
Brian: Thank you we will now be conducting a question and answer session.
Brian: To ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue.
You May press Star two if you would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys.
Brian: One moment, please while we poll for questions.
Speaker Change: Thank you. Our first question comes from the line of Michael Lasser with UBS. Please proceed.
Michael Lasser: Good evening. Thank you so much for taking my question.
Speaker Change: So given the slightly weaker performance.
Speaker Change: Quarter to date, what do you think is driving that and how have you factored in.
Speaker Change: Some of the potential from the change in administration into your outlook for the year.
Speaker Change: Immigration policy and the impact that that could have on that.
Speaker Change: The workforce, who would be consuming your product. Thank you.
Speaker Change: Hey, Michael this is Tom.
Speaker Change: I would preface with the slight.
Speaker Change: Slowdown in comp from Q quarter to date versus Q4, there is a lot of weather noise. We've had parts of the country that have gotten snow that don't get snow forced shutdowns and week to week, we have to close stores and that's affected our quarter to date business in <unk>.
Speaker Change: My opinion, I think thats, a part of it.
Speaker Change: We and our business historically, when there's been weather impacts it comes back we get it. So it comes back over time, So we'll see how that plays out we're certainly prepared for it the stores are in good shape and we're ready for it.
Speaker Change: As far as the immigration policy changes into our forecast it's too early to tell.
Speaker Change: Here the same thing that you hear that there's pressure on some of the contractor workforce.
Speaker Change: But so far I don't think that that's playing anything into our demand and as we learn more we certainly will communicate more.
Speaker Change: Okay My follow up question.
Speaker Change: My follow up question.
As you saw much greater flow through.
Speaker Change: In the fourth quarter.
Speaker Change: The normal rule of thumb would suggest so.
Speaker Change: How telling is that experience moving forward, meaning if you comped up 5% this year rather than.
Speaker Change: The year to three.
Speaker Change: How should we think about the ingram integrity or the flow through to the model, but it would be both.
Speaker Change: <unk> per point of comp that you guided to.
Michael Lasser: Yeah, I'll, let Brian handle more of the numbers part, but yes, Michael I mean the.
Michael Lasser: The fourth quarter is a bit of a demonstration of what happens with sales comp sales were better than we think we flowed through pretty well we have I think we've done a good job over the last 18 months to two years of taking cost out of the business and we're not adding it back so when sales surprised us in a positive way, we flow through as well and if that <unk>.
Michael Lasser: <unk> grew to five we would flow through really well so.
Speaker Change: We hope that adds a lot Brian fill in blank from the numbers out of if you want to Hey, Michael It's Brian.
Speaker Change: So obviously you saw we had pretty strong flows through when youre looking at that and don't forget that in Q4. We also had $6 8 million benefit related to derivative legal settlement. So when you take that out that was worth 60 basis points.
Speaker Change: Within Q4, so when you back that out I think are more natural flow through was in the low forties as I'm looking at it there were a couple of other benefits that hit in Q4 traditionally our flow through model would be low <unk> to mid <unk>, we communicated on the last call as sales pick up because we've got 25% of our stores are minimum hours that we should see higher flow through.
Speaker Change: So we should see that in 2025 somewhere in the high 30% range. So you're right that that low 40 was a bit.
Speaker Change: Higher than what we would expect but I still would expect if we step above our 3% we should flow through in the high thirty's at minimum.
Speaker Change: Thank you very much good luck.
Speaker Change: Okay.
Speaker Change: Thank you. Our next question comes from the line of Simeon Gutman with Morgan Stanley. Please proceed.
Simeon Gutman: Good afternoon, everyone, Hey, I wonder if you'd like to follow up on incremental margins same topic.
Simeon Gutman: Business is levering on negative comps.
Simeon Gutman: The idea that there are not expenses that need to come back and I know the guidance doesn't imply that and Brian you mentioned.
Simeon Gutman: One point of comp 10 cents of EPS, which basically said normalcy.
Simeon Gutman: I think you still have ERP going on so.
Simeon Gutman: So what has changed or what is what are you doing that you can continue managing SG&A and such a range that dollars don't need to come back when the top line returns.
Simeon Gutman: Yes.
Simeon Gutman: There will be investment I mean, we flex our hours around transactions, we think about our stores.
We still average about 55% fixed cost 45% variable. The two biggest variable components are labor like our personnel within the stores and so we need to make sure that we matched that with transactions. So again on the upside or downside. We can flex those and then there is also some discretionary spend where we're constantly refreshing the stores we have <unk> resets, we have so much innovation.
Simeon Gutman: And newness that we need to make sure that we showcase that those are the two biggest buckets that we have to kind of flex within their system and we still have the opportunity to do that again I think you just heard me say at 25% of our stores are a minimum hours.
Simeon Gutman: So again, if things were to step down that 75% of our fleet that we could still kind of flex within there and then on the way up again, we don't need to invest as much which creates that higher flow through so again, you're always chasing yourself on the way up on the way down you can never quite cut fast enough but.
Simeon Gutman: I'd add just a.
Simeon Gutman: A couple of things we've been investing through the downturn. So we don't have to catch up investments. So the hours will flow as they flip over 25% of the stores on minimum hours. The sales go up about the flow through on that is really good because we don't have to we don't add hours to that over the last two years, because I combine them, we've taken out $42 two.
Simeon Gutman: From a comparable.
Simeon Gutman: Stores over the last two years and in Q4 alone. If you look at the two year stack, we've taken out $12 9 million.
Simeon Gutman: So.
Simeon Gutman: Our teams have been resilient our service scores as high as they've ever been so we're in a good place today, but again, we need to make sure we take care of our customer first and Thats all.
Simeon Gutman: Quick follow up on the guidance.
Simeon Gutman: Zero to three <unk>.
Simeon Gutman: You get to the middle to the high end and series.
Speaker Change: You would be exiting the year and middle mid to high single digits. I don't know if you said this in the prepared remarks I only heard that there was some flex in store count if the backdrop changes, but curious what type of housing backdrop.
Speaker Change: Do you assume is this just maturation or just immature stores comping into the comp base and therefore youre getting to those mid single digit comps by the end of the year. Thanks.
Speaker Change: Yes.
Speaker Change: I'll start and let I'll, let Brian weigh in a little bit.
Speaker Change: <unk>.
Speaker Change: 55% of our stores are still on their maturity curve. So we're expecting a benefit from those stores as the year goes on our comp waterfall is stayed intact. So we've opened a little bit less stores, but the waterfall stayed intact. So we should get some benefit of those stores that are immature, we're not expecting housing too.
Speaker Change: Rebound to historical levels.
Speaker Change: We're anticipating that housing is going to bounce along and hopefully it's better than it was a year ago as I've said on multiple calls I believe that if the existing home sales.
Speaker Change: To a positive territory for a consistent amount of time that we should be able to grow our same store sales in that environment, because more people will be buying hard surface flooring.
Speaker Change: I'll, just give you a little bit.
Speaker Change: Color on that so you're right, we do expect sequential improvement in our comp obviously as Tom Tom alluded to quarter today, we're down $1 seven.
Speaker Change: We expect comps in Q1 to be down just slightly low single digits and you're right. It's a sequential improvement, but we still expect low single digits. Throughout every quarter Q4 is going to be a little pressure just because we're lapping what we just did in Q4 of this year. So there was a little bit of an uptick there, but again it should be low single digits across our average ticket is pretty much true.
Speaker Change: <unk> remained the same throughout all four quarters and its transactions as Tom alluded to that we expect to improve so at the high end existing home sales would have to get a little bit better, but again to Tom's point not not back to historic levels. We do its still still expect this to be a slow grind as we said on the last call.
Speaker Change: Thank you. Our next question comes from the line of Chris <unk> with JP Morgan Chase and company. Please proceed.
Speaker Change: Thanks, Good evening, guys I had a follow up there I mean, let's just say as you think about the cadence of the year do you think the weather. The hurricane left is bigger in the first quarter than it was in the fourth quarter. There was some pressure to start.
Speaker Change: To start in November in terms of a headwind from the actual hurricanes an inch.
Speaker Change: Insurance payments are seem to be more delayed so is that a bigger number and then on the other side of it you're going to lap existing home sales are a little mini rebound here you look at pending home sales numbers are running down sort of mid single digit. So whats is the hurricane the offset that doesn't.
Speaker Change: Create more of a near term give it here in the first to second quarter from lapping that better home sales number.
Speaker Change: This is Brian I'll take a stab and then Tom can jump in the benefits so far quarter to date is it's in line with what we said for Q4.
Speaker Change: So the offset of that is what Tom said, which is really just some of the storm impacts that we've seen.
Speaker Change: So when you think about it that should be there most most of our gains for us depends on if it's Florida or if its wind damage, but if it's flooding and we will see the biggest impact the first two quarters, if not the third quarter, we see the arc of that usually go about 16 to 20 months it can but it dissipates pretty quickly off period. After it gets past that second to third quarter of impact.
Speaker Change: That's what's implied in the guidance that we gave.
Speaker Change: Okay. So no. So there is no lag tough lap on a year over year basis on existing home sales earlier in the year that would slow the business further.
Speaker Change: No year over year, you're right. When you look at February and March they were really strong now, whereas last year and then once you get past that the number dips below $4 two and continues kind of throughout the year until you hit what Tom said in his prepared remarks, where October November December started to pick back up so you're right. The summer months, we'll have much easier compares and existing home sales.
Thank you. Our next question comes from the line of Zack <unk> with Wells Fargo. Please proceed.
Speaker Change: Hey, good afternoon, and congrats on the progress.
Speaker Change: As you think through the incremental new tariffs the higher supply chain costs, maybe we could start with the game plan for like for like pricing in 2025, I think you'd mentioned some increases coming and then when you think about your price gaps versus peers like how have those evolve through 'twenty four.
Speaker Change: And how do you factor that in.
Speaker Change: In 2005.
Speaker Change: Okay.
Speaker Change: To how we can deal with what's happened. So far we think we can deal with the China change pretty well we've done a good job of diversifying out of there we're doing a good job negotiating with our suppliers, but if we can't then we'll take prices up.
Speaker Change: I think.
Speaker Change: Our versus our competition.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: We apologize for that technical.
Speaker Change: With difficulty.
Yes.
Speaker Change: Paul.
Speaker Change: Paul.
Speaker Change: Paul.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Alicia can you hear me.
Speaker Change: Yes.
Speaker Change: Yes.
Speaker Change: Yes, we can hear you now.
Speaker Change: We are here you are here.
Speaker Change: Alright, sorry speaking now I put the other line on hold.
Speaker Change: Yes.
Speaker Change: Yes, we can hear you.
Speaker Change: Okay.
Speaker Change: Alicia can you hear me.
Speaker Change: We're ready.
Speaker Change: Great.
Speaker Change: Zack I believe.
Speaker Change: Yes.
Yes.
Speaker Change: And then I asked.
Speaker Change: Zach you May proceed with your question.
Okay Alicia already.
Speaker Change: Yeah, not sure if you heard the first question or not but.
Speaker Change: Basically it was on the game plan for like for like price increases in 2025, where your price gaps versus peers have been trending in 'twenty four.
Speaker Change: And how you factor that into the changing environment.
Speaker Change: I apologize I lost the connection again.
Speaker Change: Matt can you hear us.
Speaker Change: Okay, gentlemen, there over here.
Speaker Change: $90 out there here.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Finally.
Speaker Change: I apologize.
Speaker Change: Facing technical difficulties.
Speaker Change: Would you mind waiting for a few more moments.
Speaker Change: No problem.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: Thank you guys for your patients.
Speaker Change: I believe we.
Speaker Change: The speakers back on the line.
Speaker Change: Yes, sorry for the technology difficulty.
Speaker Change: So I'm not sure we heard the last question. So go.
Speaker Change: Go ahead.
Tom Tom: Hi, Tom.
Speaker Change: It's the it's the price gap versus peers and the price increase question I think we missed that one yes.
Speaker Change: Yes, so what I said price gap versus peers, we still feel pretty good.
Speaker Change: When you look back historically, our spreads versus the people we compete with or are they remain intact and we're comfortable with that and I think what.
Speaker Change: I said earlier.
Speaker Change: And I don't know if you guys heard me on the tariff part of it will deal with the tariffs the way that we've always had.
Speaker Change: First negotiated with our supplier. The second is we will try to continue to diversify out of countries that are affected and then third if we have to pass price we will.
Speaker Change: Our main competition is the independents, we're comfortable with our spreads that we've got the ability to flex price if we have to flex price. So.
Speaker Change: We're paying attention and trying to react to the news as it comes.
Speaker Change: Our buying from 250 suppliers in 'twenty five plus countries has a tremendous advantage and it gives us lots of flexibility. So I feel good on the pricing front yoga without from.
Speaker Change: From what I know today I feel good about our ability to address the tariffs that could change because things are.
Speaker Change: A little a little fluid, but we'll be prepared.
Speaker Change: Got it and then just two quick ones for Brian hopefully I only need to ask one time.
Speaker Change: First of all 25, new store productivity, how are you thinking about that and then on the 60 to 70 bps of DC costs is that even through the year or is it more doubled.
Speaker Change: Double that but second half weighted.
Speaker Change: Yes, exactly so neutral productivity should be similar to the past two years that we're seeing it's still kind of below our historical targets.
Speaker Change: As we think about that and then on the gross margin piece.
Speaker Change: The $60 to 70 as the full year amount. It will start in Q1 around 30 basis points, and then kind of grow throughout the year. So we'll exit with a much higher impact, but then grow into it as we continue to open more stores.
Speaker Change: Got it thanks for the time guys.
Speaker Change: Yes. Thank you.
Speaker Change: Thank you.
Speaker Change: The nature of the.
Speaker Change: Technical issue, we will extend the call for a little bit.
Speaker Change: Please ask that you framed to only one question for.
Speaker Change: So we will answer as many participants as possible.
Speaker Change: Our next question comes from the line of Seth Sigman with Barclays. Please proceed.
Seth Sigman: A couple of product questions anything to read into wood and stone being positive and leading the improvement here and then I'm curious on <unk>.
Did seem to improve in the quarter, but still tracking below the company average how.
Seth Sigman: How do you feel about that do you think that just reflects demand for the category being weak or do you think something has changed competitively for that category. Thanks. So much.
Speaker Change: So I'll start our signs here with me in case, I missed something but al. So first I would say in wood and stone Yeah. We're pleased with what we're seeing our merchants have done a good job continuing to improve our assortments across the lines.
Seth Sigman: We're in better stock because those have come in and help.
Seth Sigman: Certainly we've had a major competitor closed some stores probably seen some benefit from that as well from a stone perspective, we've rolled out an outdoor program in stores Thats, having a positive effect that's added categories to the stone Department same thing we've added some new products in stone that thats, probably acting benefiting as well, but we're pleased with that I am pleased with the.
Trajectory of vinyl and laminate.
Seth Sigman: If you look at it quarter by quarter, we continue to improve in a pretty significant way.
Seth Sigman: We are in terrific in stock.
Seth Sigman: Merchants have done a good job with new products within the category some new signing the department to make it easier to understand.
Seth Sigman: But overall, we feel real good about the trajectory of what's going on in that business as well.
Speaker Change: Thank you. Our next question comes from the line of Steven Forbes with Guggenheim Securities. Please proceed.
Steven Forbes: Good afternoon guys.
Tom Brian maybe.
Steven Forbes: Complex question, but I feel like an important one you guys mentioned the waterfall benefit too to come.
Steven Forbes: And I think a lot of us are just trying to better understand sort of what's transpiring within the.
Steven Forbes: The store cohorts. So so the question is one can you can you reframe sort of.
Steven Forbes: What the sales and EBITDA margin profile is that what you would define as a mature store today versus those historic disclosures.
Steven Forbes: And then any way to help us contextualize sort of what is the comp spread that youre seeing as we think about maybe the 2023 cohort versus the <unk> cohort.
Steven Forbes: As we sort of try to contextualize, where better understand what you're framing as the as the waterfall likely turns to a potential positive contributor.
Steven Forbes: Yes.
Steven Forbes: I'll answer the latter first we've never given what that waterfall is other than say, it's a material meaningful difference between our new stores and our mature stores.
Steven Forbes: Do we still use today, obviously with the macro environment. The way. It is our stores that are five years or older. Today are doing about a little over $22 million close to $22 $5 million, but they are still producing EBITDA in the low twenty's and so there is still extremely profitable theres still producing but obviously the volumes have come down a little bit so to contextualize again to comp.
Steven Forbes: Waterfall, we've just never given that level of granularity. So so we've never been that specific about it other than to say there is a material difference between obviously R&D store comps all the way down to what we'd consider a mature store.
Steven Forbes: Yes.
Steven Forbes: Thank you.
Speaker Change: Our next question comes from the line of Chuck Grom with Gordon Haskett. Please proceed.
Speaker Change: Good evening, just a quick one for me just with smaller peers struggling you touched on in a minute just curious what youre seeing from the competitive landscape and if you think you are starting to gain share over the past few months from competitor closings.
Speaker Change: Yes.
Speaker Change: Still are hearing anecdotal closes across the country.
Speaker Change: Different competitors I do think that.
Speaker Change: I've said before the longer that this goes on the more of that plays on our benefit because we've continued to invest in the stores to continue to grow.
Speaker Change: So I think from a competitive standpoint, we're in as good a shape as we've ever been.
Speaker Change: And what is it what is a good example of you saw a competitor close a bunch of stores, we're probably seeing some of the benefit of that in.
Speaker Change: If we see more close we'll see the benefit alright.
Speaker Change: The stores are in terrific shape, our inventory levels are great.
New products are really good.
Speaker Change: We have multiple initiatives to try to control what we can control. So we're ready when it comes in service scores as high as they've ever correct.
Speaker Change: Thank you.
Speaker Change: Last question comes from the line of Karen short with Lucius Research. Please proceed.
Karen short: Hi, Thanks, very much exactly myriad.
No.
Speaker Change: Okay. Thank you.
Speaker Change: I guess I was curious with the lower cost structure in general.
Speaker Change: Could you help frame, whether or not there would be more torque I guess on the upside to EPS with a.
Speaker Change: A 1% Delta in comps or would you look at it.
Speaker Change: More of a scenario, where you had in <unk>.
Speaker Change: Yes.
Speaker Change: Flow through in <unk>.
Be that kind of range.
Speaker Change: But the 1% Delta in comps.
Joe: Thanks, Joe.
Speaker Change: Owner of travelers last call, we're going to let Trevor answer that Trevor Yes first of all I'd say I'm. So proud after eight years I mean, the team that we've got you on these calls is doing well I do think so your gross margin has gone up nicely.
Joe: For the last two or three years and our cost structure has come down.
Speaker Change: Brian articulated earlier and so.
Sales are good I mean, there are certainly investments wants to make but we'll do that in a measured pace and so yeah. I think it's possible. What you saw in Q4 that when sales are better than plan, we're going to flow through very nicely and as we've always been if there's investments that we need to make that are going to be material.
Speaker Change: We'll disclose those I mean I think.
Speaker Change: One thing I'd add to what Trevor said over the since we've been public.
Speaker Change: We've always had cycles, we're we've outperformed them we've made decisions on what we had to invest in.
Speaker Change: In this cycle that we're in now will want to see some sustained before you invest too much back into end to any infrastructure will want to see performance strong for a while.
Speaker Change: So that's why I do think that will flow through at the rates that Brian talked about we will and just to give you guys context around it this is Brian so.
At the midpoint of our guide our mature stores are actually elaborate in this environment. The only thing that's causing the deleverage is the new stores coming in exactly as Trevor alluded to as we move up that that is you start approaching 5% the entire ecosystem starts to leverage so we lever even inclusive because that's a question you guys always have so I just wanted to tell you. If we were to get up to a 5% comp.
Speaker Change: The entire store and selling line Leverages and said that's always been our case is mid single digits and this cost structure will take about 5% comp for the entire base to lever.
Speaker Change: Thank you Brian.
Speaker Change: Thank everyone for joining the call. So we had a little bit of technical difficulty.
Speaker Change: Hopefully, we got to everyone's questions.
Speaker Change: Thank Trevor this is Trevor is last call. He's asked if he could come tomorrow I've said no. So but we appreciate all of his contributions over the last 14 years, we certainly wouldnt be here without them. So we wish them well.
Speaker Change: Thank you.
Speaker Change: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.