Q1 2025 Floor & Decor Holdings Inc Earnings Call
Greetings and welcome to the floor and decor Holdings first quarter 2025 conference call. At this time, all participants are in a listen only mode.
Question and answer session will follow the formal presentation.
Speaker Change: You require operator assistance during the conference. Please press Star Zero on your telephone keypad. As a reminder, this conference is being recorded it is now my pleasure to introduce you to your host senior Vice President of Investor Relations Wayne Hood. Thank you Wayne you may begin thank you operator, and good afternoon everyone.
Speaker Change: Welcome to floor and decor is fiscal 2025 first quarter earnings conference call. Joining me on our call today are Tom Taylor, Chief Executive Officer, Brad Paulsen, President and Brian Langley Executive Vice President and Chief Financial Officer before we start I wanted to remind everyone of the companies.
Speaker Change: Harbor language comments made during this conference call and webcast contain forward looking statements within the meaning of the private Securities Litigation Reform Act of $19 95, and are subject to risks and uncertainties.
Speaker Change: Dave meant that refers to expectations projections or other characterizations of future events, including financial projections.
Speaker Change: Future market conditions is a forward looking statement the company's actual future results could differ materially from those expressed in such forward looking statements for any reason, including those listed in its SEC filings Lorne.
Speaker Change: Floor and decor assumes no obligation to update any such forward looking statements. Please note that past performance or market information is not a guarantee of future results.
Speaker Change: During this conference call the company will discuss non-GAAP financial measures as defined by SEC regulation G.
Speaker Change: 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.
Tom Taylor: Floor and decor dotcom, a recorded replay of this call and related materials will be available on our Investor Relations website, Let me now I'll turn the call over to Tom.
Tom Taylor: Thank you Wayne and everyone for joining us on our fiscal 2025 first quarter earnings Conference call. During today's conference call, Brad, Brian and I will discuss some of our physical 2025 first quarter earnings highlights then Brian will share our thoughts about fiscal 2025.
Tom Taylor: We were pleased to deliver fiscal 2025 first quarter diluted earnings per share up 45.
Tom Taylor: Compared to <unk> 46 per share in the same period last year. This result exceeded the low end of our first quarter earnings expectations.
Tom Taylor: Even though comparable store sales were at the lower end of our forecast our fiscal our fiscal year 2025 first quarter total sales increased by five 8% to.
Tom Taylor: Two 1.161 billion from $1.097 billion in the same period last year.
Tom Taylor: Brad and I have visited many of our stores over the past few months, giving us a great opportunity to see firsthand the dedication and hard work of our associates to engage with and serve our homeowners and professional customers every day, we could not be more pleased in our first quarter results demonstrate how effectively they continue.
Tom Taylor: Executing our growth strategies, achieving record customer satisfaction scores, managing our expenses and profitability and growing our market share even as sales in the hard surface flooring industry contract. The first quarter results are a testament to how we are focused on what we can control during this uncertain period.
Tom Taylor: As you know we're operating in an economic environment marked by high volatility uncertainty lack of clarity and the tail risk of a recession.
Tom Taylor: While we don't know how this could impact consumer spending for the remainder of fiscal 2025, we have a proactive flexible plan, we are implementing and executing.
Tom Taylor: First as many of you know we successfully managed an increase in tariffs back in 2018, and 2019 by pursuing strategies to grow our market share and protect our profitability.
Tom Taylor: Today, we intend to employ similar strategies to achieve these goals in 2025 and beyond.
Tom Taylor: That said unlike in 2008 <unk> 18 in 2019, we believe managing today's tariffs uncertainty and complexity at scale and speed could be more challenging for some competitors in the hard surface flooring industry.
Tom Taylor: To address this increased complexity, we have organized the tariffs steering Committee. This committee will ensure we stay focused on executing our top priorities and remain agile in our operational plans as needed for instance.
Tom Taylor: Following the U S announcements of a 90 day pause on all reciprocal tariffs, excluding China, we expedited purchase orders to maximize the likelihood they arrived before the end of the pause on July nine 2025.
Tom Taylor: This exemplifies how we're executing and we will continue to execute at speed and scale.
Tom Taylor: Second we are actively negotiating and collaborating with our vendors to mitigate the higher incremental tariffs on the products we sell.
Tom Taylor: As we have successfully done with prior tariff increases.
Tom Taylor: We believe we have the strategic option to thoughtfully widened price gaps further reinforcing our everyday low price value proposition against independents and to grow our market share we have.
Tom Taylor: Have already observed some retailers and distributors communicated price increases of high single digits to as much as 50%.
Tom Taylor: Third we will continue to effectively implement our sourcing diversification strategies to find the highest quality products at the lowest possible price for both our homeowner and professional customers.
Tom Taylor: Our scale and worldwide direct sourcing model, which involves over 240 vendors in 26 countries provide us with flexibility in a competitive advantage, particularly compared to independent flooring retailers and distributors.
Tom Taylor: Fourth it.
Tom Taylor: They will need to raise prices to mitigate some of the incremental tariffs following our negotiation. If we do so we will continue to use the balance portfolio approach to product pricing, ensuring a consistent pricing structure across different product categories, while managing our gross margin rate and profitability.
Tom Taylor: Fifth customers are asking for products produced in the United States and we have already taken action to identify American made products in our stores as we discussed in our fiscal 2020 for fourth quarter earnings call. We are proud to report that the United States is now our largest country.
Tom Taylor: Of manufacturer accounting for approximately 27% of the products, we sold in fiscal 2024 up from approximately 20% in fiscal 2018.
Tom Taylor: Turning to China.
Tom Taylor: In fiscal year 2020 for China accounted for 18% of the products, we sold declining from approximately 25% in fiscal 2023 and approximately 50% in fiscal 2018.
Tom Taylor: In the fourth quarter of fiscal 2024, this figure dropped to approximately 16%.
Tom Taylor: Based on current market conditions, and the universal tariffs that are in place, we anticipate our receipts from China to approximate mid to low single digits of our top of our total receipts as we exit fiscal 2025.
Tom Taylor: For instance, in the first quarter of fiscal 2025, we placed our last purchase order from China for laminate and vinyl our largest product category successfully diversifying to other countries. Additionally, we paused all purchase orders from China to evaluate the fluid environment and our assortments relative to our competition.
Tom Taylor: While some specific products can only be sourced from China, our industry, leading broad assortment and innovation enable us to offer homeowners and professional customers alternative options and product cost from China become untenable to U S consumers.
Tom Taylor: We believe our size and growth potential position us well to navigate the uncertainty in the market.
Tom Taylor: We are proud to be the second largest retailer of hard surface flooring in the United States. This underscores the strength of our differentiated business model and the effectiveness of our growth strategies, we have meticulously pursued since our inception in 2000.
Tom Taylor: Let me turn my comments to new Ware House store format growth.
Tom Taylor: In the first quarter of fiscal 2025, we opened four new warehouse format stores, including openings in Venice, Florida, Covington, Louisiana to Arlington, Oregon, and Gilroy, California.
Tom Taylor: As part of our market optimization efforts, we elected to close our oldest store and smallest store in Austin, Texas as the lease expired, we have been strategically positioning other nearby Florida core stores in Austin to maximize the market potential.
Tom Taylor: Plan to open two new warehouse format stores in the second quarter of fiscal 2025, including semi Florida, which opened in April in San Antonio, Texas later this month.
Tom Taylor: As we discussed in prior earnings conference calls, if the macroeconomic conditions become less favorable than anticipated we have the flexibility to lower our annual store opening plan as most of the openings were slated for the second half of fiscal 2025.
Tom Taylor: With that in mind and the potential for slowing economic growth in the second half of fiscal 2025, we plan to open 20, new warehouse format stores in.
Tom Taylor: Fiscal 2025, compared with our prior expectation of 25 warehouse format stores, mainly across large and midsize existing markets. We.
Tom Taylor: We will push the delayed five store openings from fiscal 2025 to our 2026, new warehouse store pipeline, yes.
Tom Taylor: If economic conditions worsen from our current expectations, we have the ability to further reduce physical 2025 openings.
Tom Taylor: It is important to note that our company is built for more than 20, new annual warehouse store openings per year when macroeconomic conditions improve.
Brad Paulsen: Now I'll turn the call over to Brad.
Brad Paulsen: Thanks, Tom as Tom mentioned, we spent majority of my first two months visiting stores and interact with both our team members and customers. These visits have served as an incredible process for me to learn our business and better appreciate the special people first culture here at floor <unk> decor.
Brad Paulsen: At each stop during our travels I've been highly impressed with the talent of our teams their passion for serving our customers and the teams overall excitement about the future potential of our business.
Brad Paulsen: Let me now discuss our sales.
Brad Paulsen: First quarter fiscal 2025 comparable store sales decreased by one 8% from the same period last year at the low end of our expectations from a regional perspective comparable store sales in the West Division outperformed the Companys, one 8% decline.
Brad Paulsen: By month, our company comparable store sales declined by one 4% in January one 5% in February and two 2% in March.
Brad Paulsen: We estimate the first quarter benefit to our comparable store sales from Hurricanes Helene and Milton was approximately 100 basis points compared with approximately 110 basis points in the fourth quarter of fiscal 2024.
Brad Paulsen: We estimate the adverse impact of the winter storms on our comparable store sales was approximately 50 basis points and.
Brad Paulsen: In the second quarter of fiscal 2025, we are pleased that our quarter to date comparable store sales increased by one 1%.
Brad Paulsen: Among our major merchandise categories first quarter fiscal 2025 sales growth was strongest in laminate and luxury vinyl plank road installation materials and adjacent categories.
Brad Paulsen: In adjacent categories, we successfully expanded our merchandise offering with a high quality semi custom cabinet program available on approximately 42 warehouse stores and online.
Brad Paulsen: We now offer online semi custom cabinets express ship plywood cabinets cabinet accessories decorative hardware and cabinet samples that we can ship directly to the job site.
Brad Paulsen: As we look ahead to the remainder of fiscal 2025, we are excited to continue delivering new innovative products and programs to our homeowners and pros.
Brad Paulsen: This includes new designs colors textures and enhance realism on tile and vinyl products that closely mimics some natural products.
Brad Paulsen: <unk> outdoor products and the expansion of our XL slab program will represent our largest projects in fiscal 2025.
Brad Paulsen: Shifting to our connected customer pillar of growth our first quarter fiscal 2025 connected customer sales increased by two 1% from the same period last year now accounting for approximately 18, 3% of sales. We were pleased with the strong year over year growth in weekly active users.
Brad Paulsen: Organic traffic and sequential improvement in our comparable average ticket.
Brad Paulsen: Building on these gains we enhanced our online design scheduler, resulting in a notable increase in first quarter design appointments. Additionally, in collaboration with our merchants and supplier partners are connected customer team expanded our website offering with a wide selection of fully assembled semi custom cabinets to support the law.
Brad Paulsen: These semi custom cabinets are connected customer team also partnered with our marketing team to develop a dedicated cabinet blog. Looking ahead, we remain excited about adding more inspiring designer and user generated content in 2025.
Brad Paulsen: Overall, we expect these strategies among others to improve the customer experience and further grow our brand affinity.
Speaker Change: Let me comment on design services. We are pleased to report that our design services have maintained strong momentum into the first quarter of fiscal 2025.
Speaker Change: Sales growth was significantly above the overall company performance and is well balanced between comparable transactions in comparable average ticket growth. These results reflect our commitment to design services, which include having trained designers in our stores, providing a personalized design experience and collaborated with pro.
Speaker Change: On projects, we will build on this success and continue to focus on converting high value design opportunities.
Speaker Change: It is important to remember that when our talented designers are involved in a project the average ticket amount more than doubles and the gross margin rate increases significantly.
Speaker Change: This underscores our designers vital role in driving our success with an elevated and personalized in store and online design experience.
Speaker Change: Turning my comments to pro we are pleased to report that sales and comparable store sales to pros continues to grow in the first quarter of fiscal 2025 compared to the same period last year accounting for approximately 50% of total sales.
Speaker Change: This growth surpassed the company's overall sales performance from growth in both comparable transactions and comparable ticket.
Speaker Change: These results continue to demonstrate that our supply house approach is effective focusing on engagement and nurturing strong relationships with pros.
Speaker Change: Our focus on speed and accuracy in the loadout process and ensuring we have the best support at the protest.
Speaker Change: As a result, we maintain a high pro net promoter score.
Speaker Change: To attract new probes, we are building brand awareness with our pro marketing blitzes.
Speaker Change: And tools to generate leads and contacts are marketing and awareness strategies include E mail campaigns to drive awareness of new products. We continue to benefit from partnering with advertising platforms that provide a practical and cost efficient way to attract and retain new pros.
Speaker Change: We plan to enhance this program with a new strategy targeting lapsed and importantly shopping pros. We also continue to benefit from a pro service managers spending more time outside our stores and in new Zip codes, where they directly engage with pros to build brand awareness understand their needs and provide tailored.
Speaker Change: Solutions.
Speaker Change: Finally in the first quarter, we successfully helped 46 educational events in our stores, which is part of our plan to have 155 events in fiscal 2025. We believe these events are industry, leading in the hard surface flooring industry.
Speaker Change: Finally, I will discuss our commercial business overall economic uncertainty continues to pressure the commercial market, particularly the multifamily segment. This uncertainty coupled with the potential for slowing economic growth is leading to a more cautious industry outlook around starting new projects and quotes and fiscal.
Speaker Change: 2025 Nonetheless.
Speaker Change: Nonetheless, Spartan services first quarter fiscal 2025 sales increased by three 8% from the same period last year as we lapped our most difficult comparison to last year.
Speaker Change: EBIT increased by one 7% from the same period last year in line with our expectation.
Speaker Change: In fiscal 2025, Spartan will continue to execute its plan to diversify away from multifamily and focus on developing a comprehensive national presence in the health care education senior living and hospitality sectors.
Speaker Change: Our high specification sectors of the commercial flooring market, where the opportunity for long term growth and profitability is greatest.
Speaker Change: These sectors generally have high quote to conversion rates recurring revenue and more attractive profitability.
Speaker Change: Additionally, we are pleased that Spartans gross margin rate is benefiting from growth in higher margin private label brands and buying synergies with Florida core.
Speaker Change: As we discussed during our fiscal 2020 for fourth quarter earnings call, we are making the necessary investments to support Spartans long term growth prospects. These investments coupled with the economic uncertainty are likely to mean Spartans fiscal 2025, EBIT could be approximately flat compared to fiscal 2000.
Brian Langley: 24 unchanged from our prior expectation, let me now turn the call over to Brian.
Brian Langley: Thank you Brad and Tom.
Brian Langley: We are pleased with our financial performance for the first quarter of fiscal 2025, our team's resilience and dedication were evident as they demonstrated excellent execution across both operations and merchandising and delivered tight expense control amid uneven consumer spending.
Brian Langley: Our gross margin continued to be well managed ex exceeding our expectations.
Brian Langley: As Tom mentioned these efforts enabled us to report first quarter fiscal 2025 diluted earnings per share of <unk> 45.
Brian Langley: Exceeding the lower end of our expectation.
Brian Langley: We are in a strong financial position with ample liquidity to navigate the economic uncertainty as we have in the past we can continue making prudent growth investments in new stores product innovation and newness inventory new distribution centers technology, and most importantly, our people to grow our market share.
Brian Langley: Now, let me discuss some of the changes among the significant line items in our first quarter fiscal 2025 income statement balance sheet and statement of cash flows as well as our outlook for 2025.
Brian Langley: We continue to be pleased with how we are managing and expanding our gross margin.
Brian Langley: Our first quarter fiscal 2025 gross profit rose by eight 1% from the same period last year. The increase in gross profit was primarily driven by the five 8% increase in sales and a 100 basis point increase in gross margin rate to 43, 8% from the same period last year.
Brian Langley: Primarily due to lower supply chain costs.
Brian Langley: Our first quarter fiscal 2025, selling and store operating expenses increased by 10, 3% to $368 8 million from the same period last year the.
Brian Langley: The increase in selling and store operating expenses was primarily driven by $38 5 million for new stores.
Brian Langley: Offset by a decrease of five zero million at our comparable stores.
Brian Langley: As a percentage of net sales selling and store operating expenses increased by approximately 130 basis points to 31, 8% from the same period last year. The expense deleverage was primarily attributable to the addition of new stores and deleverage from a decrease in comparable store sales.
Brian Langley: Our first quarter fiscal 2025 general and administrative expenses increased by three 5% to $69 1 million from the same period last year.
Brian Langley: The increase was primarily attributed to the investments we continue to make to support our store growth, including growth of $2 9 million in personnel expenses.
Brian Langley: As a percentage of sales first quarter general and administrative expenses leveraged by approximately 10 basis points to 6.0% from the same period last year.
Brian Langley: ERP expenses in the first quarter were $1 8 million in line with our expectations.
Brian Langley: Our first quarter fiscal 2025, Preopening expenses decreased $3 6 million or 37, 5% compared to the same period last year.
Brian Langley: The decrease was primarily due to a decrease in the number of future stores that we were preparing to open compared to the same period last year.
Brian Langley: First quarter fiscal 2025 interest expense net decreased <unk> 4 million or 28% from the same period last year due to lower average interest rates and lower average outstanding borrowings.
Brian Langley: Our fifth our first quarter fiscal 2025% effective tax rate increased 22.0% from 12, 8% in the same period last year. The effective tax rate increase was primarily due to a decrease in excess tax benefits related to stock based compensation awards.
Brian Langley: Our first quarter fiscal 2025, adjusted EBITDA increased five 5% to $129 8 million from the same period last year.
Brian Langley: Growth was primarily due to the five 8% increase in sales and the 100 basis points increase in our gross margin rate our first quarter. Adjusted EBITDA margin rate was 11, 2% flat from the same period last year.
Brian Langley: Moving onto our balance sheet and liquidity, we maintained a strong balance sheet and are pleased with our ability to manage our inventory in terms of liquidity. We ended the first quarter of fiscal 2025 with $949 8 million of unrestricted liquidity, consisting of $186 9 million in cash and cash equivalents.
Brian Langley: $762 9 million available for borrowing under our ABL facility.
Brian Langley: Inventory as of March 27, 2025 increased by 5% to $1 2 billion from December 26 2024.
Brian Langley: Turning to our fiscal 2025 outlook.
Brian Langley: Since we provided fiscal 2025 earnings guidance on February 22025, the global economic and political environment has become increasingly uncertain unclear and complex.
Brian Langley: In March existing home sales fell by five 9% from February reaching at a seasonally adjusted annual rate of 4.02 million the lowest reading for March since 2009, and a two 4% decline year over year.
Brian Langley: Housing affordability challenges driven by higher mortgage rates and elevated home prices continue to pose obstacles to sustained growth in existing home sales.
Brian Langley: The current environment has the potential increased inflation.
Brian Langley: Slow economic and consumer spending growth.
Speaker Change: Gary the tail risk of a recession.
Speaker Change: Consequently, we are updating our fiscal 2025 earnings guidance to take into consideration the uncertain economic environment.
Speaker Change: This guidance still carries risks due to the ongoing uncertainties.
Speaker Change: Let me share some thoughts about our fiscal 2025 guidance the guidance assumes the impact of universal tariffs, but does not contemplate reciprocal tariffs outside of China.
Speaker Change: Total sales are expected to be in the range of $4.660 billion to 4.800 billion or increased by 5% to 8% from fiscal 2024.
Speaker Change: We are planning to open 20, new warehouse format stores.
Speaker Change: Comparable store sales are estimated to be down 2% to an increase of 1%.
Speaker Change: Average ticket count is estimated to be up low to mid single digits.
Speaker Change: Transaction count is estimated to be down low to mid single digits.
Speaker Change: Gross margin rate is expected to be approximately 43, 5% to 43, 8%.
Speaker Change: As a reminder, 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.
We estimate that our second quarter gross margin rate will represent the high watermark for the year in the back half of the year will be lower than the first half in both the high end and low end of guidance.
Speaker Change: Selling and store operating expenses as a percentage of sales are estimated to be approximately 31, 5% to 32%.
Speaker Change: The high end of the guidance assumes our first and fourth quarters are the most pressured from a rate perspective due to the timing of new stores.
Speaker Change: General and administrative expenses as a percentage of sales are estimated to be approximately 6%.
Speaker Change: General and administrative expenses include approximately $9 million related to our finance and merchandising ERP implementation.
Speaker Change: Preopening expenses as a percentage of sales are estimated to be approximately 0.6%.
Speaker Change: Interest expense net is expected to be approximately $5 million.
Speaker Change: Our tax rate is expected to be approximately 21% to 22%.
Speaker Change: Depreciation and amortization expense is expected to be approximately $245 million.
Speaker Change: Adjusted EBITDA is expected to be approximately $520 million to $560 million.
Speaker Change: Diluted earnings per share is estimated to be in the range.
Speaker Change: 170 to $2.
Speaker Change: Diluted weighted average shares outstanding is estimated to be approximately 109 million shares.
Moving on to capital expenditures.
Speaker Change: Our fiscal 2025 capital expenditures are planned to be in the range of 310 million to $360 million, including capital expenditures accrued.
Speaker Change: We intend to open 20 warehouse format stores and began construction on stores opening in fiscal 2026 collectively these investments are expected to require approximately $200 million to $235 million.
Speaker Change: The reduction of new store openings from 'twenty five to 'twenty does not have a material impact on our fiscal 2025 capital expenditures.
Speaker Change: As most of the capital spending for these stores will still be in fiscal 2025.
Speaker Change: We plan to invest approximately 20 million to $25 million and new distribution centers in Seattle and Baltimore.
Speaker Change: We intend to invest approximately $50 million to $55 million in existing stores in existing distribution centers.
Speaker Change: And finally, we plan to continue to invest in information technology infrastructure E Commerce, and other store support center initiatives using approximately $40 million to $45 million.
Speaker Change: Also we will incur an additional $20 million of deferred SaaS ERP implementation cost and other assets not included in capital expenditures.
Speaker Change: Operator, we would now like to take questions.
Thank you we will now be conducting a question and answer session.
Speaker Change: I would like 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.
Speaker Change: 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.
Speaker Change: One moment, please while we poll for questions.
Speaker Change: Thank you.
Speaker Change: First question comes from the line of Seth Sigman with Barclays. Please proceed.
Speaker Change: Great. Thanks, Hey, everybody.
Speaker Change: I wanted to just follow up on the guidance and confirm the tariff impact and how youre thinking about it here. It sounds like it includes the 145% in China, and then universal tariffs outside of that can you talk more specifically about how you've embedded the impacting here, how youre thinking about pricing and the margin impact because you are lowering.
Speaker Change: <unk> EPS slightly seems like mostly for sales. So is the message that you can basically offset the tariff impact. Thanks, so much.
Speaker Change: Yes, so theres a lot into that Seth This is Tom I'll start.
Speaker Change: And just.
First off as we said in our prepared comments.
Speaker Change: We have experience in dealing with tariffs before.
Speaker Change: Our merchants have done an outstanding job looking at what's on the table today.
Speaker Change: And with the universal tariffs and making the necessary negotiations necessary moves and contemplating necessary price increases to offset the impact of those tariffs as we also mentioned China. We've made really good progress in.
Speaker Change: Diversifying outside of China, and as we said by the end of the fourth quarter, we anticipate our receipts to be down to that mid single digit range, which as you know from if you go back to 2017, where 50% of our sales are coming out of China. So we've continued to make nice efforts along that and with that we'd expected to offset will have we will have some modest pricing.
Speaker Change: Creases, if the universal tariffs go in.
Speaker Change: But looking at what we're hearing from what we're seeing in the marketplace. Today, we can do that and maintain our spreads pretty easily.
Speaker Change: The only thing I would add is you know in my prepared remarks, Jeremy said embedded in the average ticket comp being up mid single digits to up low single digits that incorporates a little bit of modest retail as Tom mentioned, so again, it's russell tariffs or something.
Speaker Change: And the team have done a great job of first negotiating with vendors and so we believe that we can maintain our margin rate versus in the past, where we really maintain gross profit dollars. We think this go round just given the impact that's embedded within the guidance right.
Speaker Change: Okay. Thank you for that and then as you think about reducing your exposure to China can you talk a little bit more about how youre going to manage the gap in the assortment.
Speaker Change: Foresee any sort of transition period as it relates to product and availability and I guess ultimately looking out does it have any margin implications in the future.
Speaker Change: We feel good about the efforts we've made to diversify outside of China that has been an ongoing plan.
Speaker Change: Have accelerated a bit from how we were planning to do it.
Speaker Change: Because of the <unk>.
Speaker Change: The size of the tariff that's been imposed.
Speaker Change: We don't anticipate theirs.
Speaker Change: If we had product gaps or certain things that we're all that you can only get out of China, but it's modest and it would be.
Speaker Change: Like I said, we'll be down to mid single digits I feel comfortable that we're not going to have with our broad assortments that we carry in the store that we're not gonna have lack of product availability from what our customers want.
Speaker Change: I mean throughout this entire process anytime we diversify we'd be able to get out if not better specifications at if not better cost as well that's what's helped us expand our gross margin throughout this process.
Speaker Change: Okay very helpful. Thanks, guys.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Michael Lasser with UBS. Please proceed with your question.
Michael Lasser: Good evening. Thank you so much for taking my question.
Michael Lasser: There is a perception out there that the business has gotten weaker you've taken down your guidance even before.
Michael Lasser: The impact of the tariffs both occurs to your business as well as the broader economy.
Michael Lasser: Which is going to usher in the potential for further downside risk and the guidance reduction may not fully take that into account.
Michael Lasser: Why is that wrong.
Michael Lasser: And the minimum.
Michael Lasser: Earnings number that Youre thinking about for this year, if indeed, a recession occurs and that has an impact further impact on the flooring category.
Tom Taylor: Hi, Michael This is Tom I will do my best with that answer, but I would just this is a bit.
Tom Taylor: Of unprecedented times as we've said in our script.
Tom Taylor: We are we are going to control what we can control, it's very difficult to predict consumer demand in the back half of the year.
Tom Taylor: I feel like our stores our assortment our service.
Tom Taylor: The way, we're executing is as high as it's ever been I believe that we are taking share I like the trends that we're seeing today, but I don't know what's going to happen in the back half. There is things that are out of our control, but from a tariff standpoint, we'll manage it to the best of our abilities like we've done from an expense standpoint, we certainly have a plan in place for all.
Tom Taylor: All its scenarios if sales continue to drop we we havent scenarios in place to reduce cost and manage the business. The best we can so.
Tom Taylor: It's a good art you meant to say, how bad things will get but I don't think any of us really know what that answer is and in the meantime, we'll execute the best we can yes. This is Bryan just to give a little bit of clarity in the guidance assumes that things stay kind of similar from a sales perspective at the high end or the low end does assume things to drop off.
Speaker Change: And so we do assume that sequentially. It would decline in the low end when you think about it from a comp perspective.
Speaker Change: High end of the guidance assumes comps are positive low single digits.
Speaker Change: Kind of throughout the remainder of the year with Q3 being the peak just remember we've got a much harder compare in Q4. When you guys are thinking about that due to lapping the hurricane benefit and improved existing home sales in Q4 last year as they stepped up. So we are we are being prudent we are being thoughtful and when you look at our Q1 sales as we mentioned on the call. They were towards the low end of our guidance.
Speaker Change: For Q1 comps and so that's really what we're looking at that plus kind of the start to Q2, just gives us that range that we settled at so I mean, we do have a little bit of a drop in the low end. So we're not necessarily just holding.
Speaker Change: Actually very helpful. My follow up question is on the tariffs, it's obviously very dynamic and fluid situation have you already seen.
Speaker Change: Price increases across the industry could you could you quantify that at slowing the core team.
Speaker Change: Price.
Speaker Change: Thanks to the higher cost inventory.
Speaker Change: And you can start to eat.
Speaker Change: So.
Okay.
Speaker Change: Yes, Michael we have.
Speaker Change: We have seen.
Speaker Change: Prices come up and independents and we've seen.
Speaker Change: Some of the larger flooring suppliers put announcements out the prices will be going up so yes, we have seen that.
Speaker Change: We have not taken prices yet beyond our normal course of business, where we're always moving price around up and down depending on what's going on in the competitive marketplace, but.
Speaker Change: The way, we turned our inventory in.
Speaker Change: Preparation for this event.
Speaker Change: We haven't had to take price yet so that will begin that as we get past the next couple of months.
Speaker Change: Thank you very much and good luck.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: Next question comes from the line of Simeon Gutman with Morgan Stanley. Please proceed with your question.
Simeon Gutman: Hey, everyone. Thanks. So my first question is on the store the unit growth.
Speaker Change: How did you arrive at 20.
Simeon Gutman: Instead of a different number.
Simeon Gutman: I guess, if you did you contemplate going lower and then the scenario in which you would take it even lower obviously recession that that's self explanatory.
Simeon Gutman: Existing home sales dipped below 4 million, what's the criterion, which you're using at this point outside of recession.
Simeon Gutman: Yes, I mean, they are going down to 20. It was just the first first batch we looked at and we've debated going back going down further we haven't seen evidence we need to go down further yet. These are good locations. We believe in them over the long term, but as we reported quarter to date. Our sales are positive comping, it's been a while since we've been able to say that.
Simeon Gutman: But yes, if things turn worse and.
Simeon Gutman: It's not so much in existing home sales barometer, although theres, a great correlation set to our comps, but it would really be if we saw deterioration in the business and if we started to see ourselves falling beyond the low end of our guide then would contemplate pushing the store count down even lower but we haven't seen that yet so no need to take more action. My guess is by the time, we get to the next quarters.
Simeon Gutman: Call will have more information and if we need to go down further we have the ability to do that.
Simeon Gutman: Okay.
Simeon Gutman: Follow up two parts on the Q2 the pick up the quarter to date is that ticket or does that orders turnover and then.
Simeon Gutman: Related I think Brian answered this earlier on tariffs.
Simeon Gutman: If you are taking price.
Simeon Gutman: And in some places.
Simeon Gutman: I guess why is that why is the top line outlook lower was that just for the first quarter and the back half outlook is higher implied maybe I missed that.
Simeon Gutman: So I am not sure I understand the second part I will do my best to answer it.
Simeon Gutman: I think first.
Simeon Gutman: When we look at our guide and we're contemplating some ticket increase historically when we've taken our prices up.
Simeon Gutman: It's been a net positive for our sales line.
Simeon Gutman: We see some small erosion in transaction, but offset by average ticket historically, but because the back ends a little bit unpredictable with how the consumer's going to behaving.
Simeon Gutman: Wanted to be prudent in the way, we think about that there's a lot of other economic pressures.
First on the consumer side, we don't know exactly sure if history is going to repeat itself. When we take modest price increases. So that's the first part of it yes, let me, let Tom touched on a little bit but incorporated in the back half is also just general demand case, just given the environment that we're in so you're right. It may not be necessarily correlated to us taking prices up or down, but it's really just how much.
Simeon Gutman: How much spend can be how much PPE is correlated to flooring and those kind of things. So it is us just looking at the environment.
Simeon Gutman: We're trying to call it the other the other part of the question was the improvement in trend. It's really we've seen improvement trend across everything transactions have gotten a little bit better tickets gotten a little bit better.
Simeon Gutman: And we've seen a little bit better strength in more areas in the country than just the west so.
Simeon Gutman: All of those things are the impacts of the improvement.
Simeon Gutman: Okay. Thanks for the clarity.
Simeon Gutman: Thank you.
Speaker Change: Next question comes from the line of Christopher <unk> with Jpmorgan. Please proceed.
Speaker Change: Thanks, Good evening, guys. So I guess following up on that.
Speaker Change: The acceleration that you've seen in.
Speaker Change: In the first month of the quarter.
Speaker Change: Is that just like some of the weather headwinds abating or do you think do you think the consumer knows that are things that flooring as an imported item where there could be some acceleration in demand, maybe maybe just plain getting their contractor to move faster.
Speaker Change: <unk>.
Speaker Change: And potentially creating a divot later on.
Speaker Change: I don't know, Chris I think that thats possible, but we.
Speaker Change: We saw a bit of improvement.
Speaker Change: When the announcement was made about tariffs that have been yes, we saw a bit of a sales trend improvement, but it's continued and it's been pretty consistent so I think that.
Speaker Change: The initial news of it may have spurred.
Speaker Change: Some some immediate closing of sales that may have been delayed further but we've continued to be pretty good from throughout this first month of the quarter. So.
Speaker Change: I don't I don't know I mean, I know when I look at ourselves from last year.
Speaker Change: Our in stocks are a bit better.
Speaker Change: We've got some newness with trials because we've got this outdoor department rolling out that's contributing.
Speaker Change: We've just about kitchens, which we're starting to see some.
Speaker Change: Some signs of life. So we're doing other things that are helping.
Speaker Change: So long way around of I don't think Theres a lot of pull forward from tariffs I don't think people have come in and said Oh My gosh, it's going to happen. There may have been a little bit of that but not a lot I think it's more than just the way we are executing within the business. Gary. This is Brian in more of a pickup sequentially was ticket both transactions and ticket have picked up but ticket has led the way for that.
Speaker Change: It tells me that's not necessarily pull forward as much yet.
Speaker Change: Thank you. So my follow up is you know you navigated the global supply chain crisis really well you've moved your sourcing really quickly.
Speaker Change: You think about that that structural advantage that you have us from a sourcing perspective does sort of the potential post tariff world diminish that in any way so like given that there's more opportunity to source domestically. That's a lot less complex less costly for your competitors.
Speaker Change: And the independent so does that does that somehow diminish right at the end of the day do you source from a fewer number of countries and more in the U S than you did prior to the tariffs thanks very much.
Speaker Change: I don't.
Speaker Change: It's a difficult question to answer but.
Sure in today's world as we sit here today, we're actually buying from more countries not less than we were a few years ago. So we've gone up now I think I think a couple of years ago with like 22 countries now where 26 countries.
Speaker Change: And there's just there's not enough domestic capacity to satisfy the category. So I don't anticipate that our advantage of buying from around the world.
Speaker Change: Going to change significantly in the future.
Speaker Change: <unk> Hi, this is Don I, just want it to other things I mean first of all Tom kind of said that there is not enough.
Speaker Change: Production capacity to satisfy the demand and this will impact the whole industry.
Speaker Change: But at the same time there is some product types that are not producing youth use at all.
Speaker Change: It has to come as an important and even with some universal tariff numbers.
Speaker Change: The still bringing from overseas.
Speaker Change: A cheaper than some of the prices in the United States. That's what the advantage is still there and diversification and buying from many different countries gives us the flexibility switch from one to another a lot easier.
Speaker Change: Awesome, Thanks, very much guys.
Speaker Change: Okay.
Speaker Change: Thank you.
Speaker Change: Next question comes from the line of Steven Forbes with Guggenheim Securities. Please proceed.
Steven Forbes: Good evening.
Speaker Change: Tom maybe just maybe just following up on.
Speaker Change: Yes sort of the philosophical approach to deploying growth capital here as we as we think about the 2026 should we be thinking about it differently than we have in the past and maybe in the idea of.
Speaker Change: More more profit management or balancing profit with growth.
Speaker Change: And any sort of a higher level thoughts on how you are sort of steering the team in the business as we think about just the deployment of growth capital not just this year, but also over the coming years as youre trying to sort of manage manage margin manage profitability in a complex backdrop here.
Speaker Change: Yes, I mean.
Speaker Change: Complex backdrop would be an understatement, but yeah.
Speaker Change: It's too early to talk about 2026 for sure.
Speaker Change: We're having those discussions today.
Speaker Change: We still are.
Speaker Change: Have lots of real estate opportunity and lots of white space in front of us to grow into.
Speaker Change: It's going to depend on how we see.
Speaker Change: If there is a line of sight to interest rates coming down if there is a line of sight to existing home sales improving.
Speaker Change: Then I would anticipate our sales would follow that and then we would have.
Speaker Change: And then we would go and we would push to open more stores than we're opening today.
Speaker Change: But it's just it's too early to tell we will be thoughtful in managing growth and profit.
Speaker Change: We are trying to be.
Speaker Change: We manage our balance sheet incredibly well, but it provides a ton of flexibility and so.
Speaker Change: While we were kind of saying I don't have the answer for 2026, if things stay like they were today, then yes, I would anticipate us to.
Speaker Change: To have battened down the hatches and run the business. The best we can if we see if we see a line of sight towards improvement then we would increase our store it from here and there are strategic opportunities as well, we can always push towards in commercial loans. Thanks, Todd That's correct. We have other other things to invest in two for sure.
Speaker Change: And then maybe just a follow up on that.
Speaker Change: I think you guys have spoken in the past that.
Speaker Change: New store cohorts sort of moved in tandem here right.
Speaker Change: Where that year, one year two year three year four year five productivity profile has sort of moved in conjunction with one another are you seeing any difference today like where.
Speaker Change: Our year, two comps, maybe breaking out versus year for comps versus sort of how the pro forma model is changing or are we still sort of seeing the store classes.
Speaker Change: Reform.
Speaker Change: Like for like rate versus.
Speaker Change: The performance.
Speaker Change: This is Brian it's our comp waterfall is still intact.
Speaker Change: Slightly but it's still intact, it's just albeit all at a lower base now. So we are still seeing growth in year two year three year, four and then kind of your five towards maturing so with today's environment, even even an environment. We're in we're still seeing kind of that comp maturation that comp waterfall.
Speaker Change: Thank you.
Thank you. Our next question comes from the line of Steven Zaccone with Citi. Please proceed.
Steven Zaccone: Great. Good afternoon, thanks, very much for taking my question.
Steven Zaccone: I wanted to understand the guidance revision because the sales guidance cut is a little bit bigger than what your typical or excuse me. The EPS guidance cut is a little bit less than your typical of that down one top 10 cents of EPS. So maybe Brian can you just flush out how you feel about managing the <unk>.
Steven Zaccone: SG&A side of the P&L.
Steven Zaccone: <unk> able to scale down then on hours to greater than 25% of the fleet just help us understand that.
Steven Zaccone: So I'll answer the second part first and then go into the first part so in today's environment, we're actually about 30% of our stores are on minimum hours. So theres still 70% that we can look at from a transaction basis and flex those hours.
Steven Zaccone: I just wanted to set the stage because again, you're asking about how much is left and again kudos goes to all of our teams in the stores and operating teams specifically, we took $3 million out of our comp stores in Q4 of 2023 last year, we were able to take out $39 million. This year in Q1 already we've taken out $5 million and when you add up across six quarters, we've take.
Steven Zaccone: <unk> had approximately $47 million of costs from our comparable stores. So the teams are just doing an incredible job controlling what they can control and again, we still got about 70% of our stores labors that biggest kind of.
Item that we can flex, there's still a little bit of discretionary spend that we can look at it there's a little bit in advertising and some other things. So I do think that there still is more run room, if we need to feel good about where we are today and you are right every comp point traditionally is worth 10 cents of comp. So our original guidance was flat to up three the new guidance is down two to up one so you would assume.
Steven Zaccone: The debt to flex would've dropped us to 190, it's because of the cost controls and also reducing the store count from $25 20, some of the Preopening expenses youll have a little bit of savings there.
Steven Zaccone: A couple of things embedded in the guidance that helped us get back up to that too, but really as a reduction in store count and just great cost management and also gross margin gross margin is running a little bit higher.
Steven Zaccone: We had anticipated in Q1 as well so again, it's a.
Steven Zaccone: It's a combination of all of those things that that gives us the confidence to only have to drop at 10 cents on the high end versus what you would traditionally see is 20.
Speaker Change: Okay, and then just a follow up.
Steven Zaccone: In terms of gross margin.
Steven Zaccone: The impact from tariffs it sounds like it's basically gross gross margin neutral is that the right way to think about it.
Steven Zaccone: Our goal is to.
Steven Zaccone: As to maintain our gross margin rate.
Steven Zaccone: So.
Speaker Change: Previously I think what Brian said earlier in the call was that.
Steven Zaccone: Historically.
Steven Zaccone: We would try to manage to the dollars, but we believe we can manage the gross margin rate.
Steven Zaccone: If the universal terroristic.
Steven Zaccone: Typical tariff goes in place that's a different story and we'll update you if that happens.
Speaker Change: Okay understood. Thanks best of luck.
Steven Zaccone: Just to follow up on that.
Steven Zaccone: <unk> tariffs do come in depending on the timing again, we turned two times a year. So that really will impact 2026, a lot more heavily than 25. So as you guys are building that out in more conversations around that later, but even if after the pause where simple tariffs do come in and it really will start to impact us more in 2020.
Steven Zaccone: Yes.
Speaker Change: Thank you.
Steven Zaccone: Allow as many questions as possible. Please.
Steven Zaccone: Ask that everyone limit themselves to one question.
Speaker Change: Our next question comes from the line of winter mantle with Evercore ISI. Please proceed.
Winter Mantle: Hi, guys.
Speaker Change: Just a clarification did you guys mentioned with ticket versus traffic was in the first quarter.
Speaker Change: Brian.
Brian Langley: It's ticket is average ticket was up two one transactions were down 38, that's how we get to that negative one eight comp in Q1.
Speaker Change: Perfect. Thanks, and then just on the second quarter quarter.
Speaker Change: Quarter to date trend did you see any trade down.
Speaker Change: Those numbers or maybe from a category perspective have you seen any any difference there versus the first quarter.
Speaker Change: No.
Speaker Change: And it's very consistent.
Speaker Change: Well.
Speaker Change: We measure what happens with our better and best products and we've continued to see customers when they come into the store they are still buying better and best So no change in consumer behavior.
Speaker Change: And from a category.
Speaker Change: Thank you. Our next question comes from the line of Ravi homes with Bank of America. Please proceed.
Speaker Change: Hey, Thanks for taking my question I was hoping you guys could give a little bit more on the maintaining the gross margin percent goal maybe.
Speaker Change: Can you sort of rank order, how you would do that from.
Speaker Change: Is pricing probably the number one thing how.
Speaker Change: How much.
Speaker Change: Supply chain cost coming down.
Speaker Change: Margin again this quarter, how much more room is there there.
Speaker Change: Other things that maybe you haven't mentioned that that gives you the confidence in that.
Speaker Change: That goal to maintain the gross margin in this tariff environment.
Speaker Change: Yes, I don't know that I would rank them for you, but I mentioned them for you. So.
Speaker Change: Yes, we were.
Speaker Change: We've been able to yield some better cost as we move products around.
Speaker Change: Around the around the world.
Speaker Change: The consumer continues to buy up in our Assortments, which provide a better rate.
Speaker Change: The product that the consumers are buying that as a benefit.
Speaker Change: We have.
Speaker Change: Continued to benefit from supply chain costs year over year, and we're seeing the benefit of that is in our gross margin and that has been helpful.
Speaker Change: We have.
Speaker Change: An emphasis on design and our designers when Theyre designer sales are up in the company. We've got more designers in the company. We've had historically and their sales we tend to run a higher gross margin rate than we do.
Speaker Change: If the designers not engaged in the project so all of those things.
Speaker Change: Give us good feeling at all that we can continue to grow gross margin in the last lever is price in the event that we can't diversify to the right place. If we can't negotiate enough then looking at the spreads versus our competition. We feel like we can still take price to protect that rate. So it will be a little bit of everything.
Speaker Change: That helps us get there and again this is in the universal tariff environment, and it's not easy and that standard is going to be.
Speaker Change: An easy task, but so far we've demonstrated we've been able to manage gross margin pretty well over the last few years and the power of that is really demonstrated when you look at the impact from the two new distribution centers I.
Speaker Change: I think as we just said on the call. Its can impact of 60 to 70 basis points, but that drag was really 30 basis points in line with our expectations in Q1 and that will sequentially get larger and larger kind of as you go throughout the year as we start operating those facilities and so everything we're doing is even in the face of that so when you think about the power of our growth even more than just year over year.
Speaker Change: <unk>.
Speaker Change: Yes.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of David Bellinger with Mizuho Securities. Please proceed.
Speaker Change: Hey, everyone. Thanks for the question.
Speaker Change: One for Brian on the guidance just a clarification.
Speaker Change: What exactly is in there.
Speaker Change: The China, 145% 10 on rest of the world.
Speaker Change: Is that in the guide the balance of the year or does something change once the 90 day.
Speaker Change: Lapses and then also on the Chinese.
Speaker Change: China exposure going from 18 down to mid single digits can you talk about where that servicing is going to is there one or two or three countries that are picking up those volumes. Thank you.
Speaker Change: Yeah.
Speaker Change: I'll take the first part and I'll take the second.
Speaker Change: Okay.
Speaker Change: So.
Speaker Change: Laughing.
Speaker Change: Go ahead and take this okay. So on.
Speaker Change: The second part.
Speaker Change: Certainly we said in our script you heard us talk about.
Speaker Change: We're proud of that.
Speaker Change: The USA now represents 27% of what we saw.
Speaker Change: <unk> been a big recipient of some manufacturing come into the country, and then outsourcing a little bit more from to the country, but but really it's everywhere we are.
Speaker Change: Our merchants are.
Speaker Change: As I mentioned in a couple of questions ago, we're actually to increase the amount of countries that we bought from and we've actually increased our vendor count we used to be in that 220 225 range now were up to 240 suppliers, so, but it's really gone around the world and it will continue to grow around the world I mean, we do the one thing we don't talk a lot about we do product line reviews on <unk>.
Speaker Change: The category that we deal and we do it a couple of times a year and when we do that we scour the world we have more merchants dedicated the category of an antibody you scour the world. We found the right place to buy the product and Thats, where we get it from and that will continue so.
Speaker Change: That answers the first part.
Speaker Change: The second part so embedded in the guidance is universal tariffs for the remainder of the year, except for China. So after the 90 day pause, we're just assuming that the universal tariffs will stay in place if that changes obviously, we'll we'll update the assumptions within our guidance, but again.
Speaker Change: Even after the 90 day pause if for <unk> tariffs do come into place given our turns and given the lead times of our inventory it really will be an impact more so to 2026 and 2025, there will be a little bit of impact in Q4.
Speaker Change: Thank you. Our next question comes from the line of Max <unk> with TD Cowen. Please proceed.
Speaker Change: Hey, guys. Thanks, a lot just curious how differentiated do you think your sourcing mix as compared to the Peter set as far as country of origin, and specifically China. As obviously you have the ability to be quite nimble, which I'm guessing that most of your peers will not be able to do.
John: Hi, This is John we believe that our China dependencies at favorable rates compared to our competition looking at the skew count with the competition and I think they are more diverse than any other country and we believe that is an advantage even though.
John: So close to the University of Texas at close to many countries, but we believe that.
John: We can.
John: Constantly just from moving from country to country based on.
Speaker Change: Well the geopolitical risks.
Speaker Change: And just to clarify just for everybody on the.
Speaker Change: Sorry, just one real quick clarification, even for the last answer as well as the mid single digits low single digits as on purchases. So thats really I was talking about the exposure risk sales will be higher than that as we're as we're leading through the inventory that we have so I just want to be clear on that.
Speaker Change: Guys are thinking about modeling and as we're talking about yes I do.
Speaker Change: Thank you.
Speaker Change: The question of <unk>.
Speaker Change: Our competitive advantage I do I do believe that at the end of this the longer this cycle lasts the harder it is that our sourcing model will be a competitive advantage and it will be very hard for the independent hard surface flooring companies to survive I mean, they have to buy from a middleman.
Speaker Change: It's very difficult to source so.
Speaker Change: The way we do it.
Speaker Change: It has been an advantage and will remain an advantage and I think as the longer this lasts less competition that will exist when we come out of it.
Speaker Change: Thank you.
Speaker Change: Last question comes from the line of Chuck Grom with Gordon Haskett. Please proceed.
Chuck Grom: Hey, thanks very much.
Speaker Change: Getting down to 5%.
Chuck Grom: Big number for you guys.
Chuck Grom: Trying to exposure I'm, just thinking about it from a different angle and an innovation as you move away from China and does that get diminished at all or do you still feel comfortable.
Chuck Grom: Your ability to grow the category and then separately as you think about the competition to that last question.
Chuck Grom: And for intense pressure.
Chuck Grom: It makes sense to lean into pricing a little bit more to try to gain market share or have you found it ought to be effective in the past. So just I guess a couple of thoughts philosophical questions.
Chuck Grom: Yes, so I'll give my philosophical opinion, and our son can weigh in if you disagree I believe innovation.
Chuck Grom: In fashion and durability comes from around the World I think we've had our vendors.
Chuck Grom: We've had good ideas come out of China, and but we've had good ideas come out of Italy, and we've had great ideas come out of the U S. So I think that innovation comes from around the world. So I don't believe that we will lose any advantage.
Chuck Grom: From that standpoint, I don't think the category will lose any advantage from that standpoint.
Speaker Change: And you agree disagree Okay and then the second philosophical question historically, we tried taking prices down.
Speaker Change: In our level one flooring skus.
Speaker Change: And historically.
Speaker Change: That has led to less of it.
Speaker Change: We trade, we get customers trading amongst our own skus, because our spread versus the competition is pretty decent and so it hasnt in the only place that's really work as an installation materials and we continue to experiment and installation materials and drive more demand. There. We do see this that the only bright side of this is we feel like it's a share.
Speaker Change: A share taking opportunity. So certainly we'll be aggressive where we can be aggressive and we will learn from the pricing pilots that we've done over the last bit of time and apply them as we look forward. So.
Speaker Change: I appreciate the philosophical questions. Thank you.
Speaker Change: And that concludes.
Matt: Yeah, Matt So look I.
Speaker Change: I want to thank everyone for joining the call today and thank everyone for their interest.
Speaker Change: I was hoping for more questions for bad I guess next time, we'll get more questions for Brad Brad has done great. We're excited to what he is contributing already in such a short early time and we look forward to updating you in the next quarter. Thank you.
Speaker Change: Goodbye.
Speaker Change: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Speaker Change: Okay.
Speaker Change: [music].