Q2 2025 Floor & Decor Holdings Inc Earnings Call

Wayne Hood: Greetings and welcome to the Floor & Decor Holdings' second quarter 2025 conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note that this call is being recorded. I will now turn the conference over to your host, Wayne Hood, Senior Vice President of Investor Relations. Thank you. You may begin.

Greetings, and welcome to the Floor and Decor holding.

Second quarter, 2025 conference call.

A question-and-answer session will follow the formal presentation.

If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad. Please note that this call is being recorded.

Tom Taylor: Thank you, Operator, and good afternoon, everyone. Welcome to Floor & Decor's physical 2025 second quarter earnings conference call. Joining me on our call today are Tom Taylor, Chief Executive Officer; Brad Paulsen, President; and Bryan Langley, Executive Vice President and Chief Financial Officer. Before we start, I want to remind everyone of the company's safe harbor language. Comments made during this call contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Any statement that refers to expectations, projections, or other characterizations of future events, including financial projections or future market conditions, is a forward-looking statement. These statements are subject to risk and uncertainties that could cause actual future results to differ materially from those expressed in these forward-looking statements for any reason, including those listed at the end of the earnings release and in the company's SEC filings.

Wayne Hood, Senior Vice President of Investor Relations. Thank you. You may begin.

Thank you, operator and good afternoon, everyone. Welcome to floor and decor's physical 2025 second quarter earnings conference call.

Joining me on our call today are Tom Taylor chief executive officer, Brad pawson president and Brian Langley Executive Vice, President and Chief Financial Officer. Before we start I want to remind everyone of the company's Safe Harbor language.

Comments made during this call contain forward-looking statements within the meaning of the private Securities. Litigation Reform, Act of 1995.

Any statement that refers to expectations projections or other characterizations of future events?

Including Financial projections or F future market. Conditions is a forward-looking statement

Tom Taylor: Floor & Decor assumes no obligation to update any such forward-looking statements. Please also note that past performance or market information is not a guarantee of future results. During this call, the company will discuss certain non-GAAP financial measures. We believe these measures enable investors to understand better our core operating performance on a comparable basis between periods. A reconciliation of each of these non-GAAP measures to the most directly comparable GAAP financial measure can be found in the earnings release, which is available on our Investor Relations website at ir.flooranddecor.com. A recorded replay of this call and related materials will be available on our Investor Relations website. Let me now turn the call over to Tom.

These statements are subject to risk and uncertainties that could cause actual future results to differ materially from those expressed in these forward-looking statements for any reason, including those listed at the end of the earnings release and is in the company's SEC filings.

Please also note that past performance or Market information is not a guarantee of future results.

Wayne Hood: Thank you, Wayne, and everyone for joining us on our fiscal 2025 second quarter earnings conference call. During today's conference call, Brad, Bryan, and I will discuss some of our second quarter earnings highlights. Then Bryan will share our thoughts about the remainder of fiscal 2025. We are pleased to report that for the second quarter of fiscal 2025, our diluted earnings per share increased by 11.5% to 58 cents compared to 52 cents in the same period last year, reaching the high end of our expectations. Sales for the quarter rose by 7.1% to 1,214,000,000. Comparable store sales increased by 0.4%, marking the first quarterly increase since the fourth quarter of fiscal 2022. These results reflect the strength of our business fundamentals and the steadfast dedication of our associates. In a period marked by continued economic uncertainty, heightened complexity, and shifting market conditions, our team rose to the challenge.

Thank you Wayne and everyone for joining us on our fiscal 2025 second quarter earnings conference call during today's conference call Brad, Brian. And I will discuss some of our second quarter earnings highlights. Then Brian will share our thoughts about the remainder of physical 2025.

we are pleased to report that for the second quarter of fiscal 2025, our diluted earnings per share increased by 11.5% to 58 cents, compared to 52 cents in the same period last year, reaching the high end of our expectations,

Wayne Hood: They remain focused and executing our strategic priorities with unwavering discipline and resolve. We are truly grateful for their contributions. Let me now discuss our new warehouse format store growth. In the second quarter of fiscal 2025, we opened three new warehouse format stores in Kissimmee, Florida; San Antonio, Texas, and Chula Vista, California. We are especially pleased to have opened in Chula Vista, as it marks our first warehouse format store to open in California in close to three years. Year to date, we have opened seven new warehouse format stores, ending the second quarter with 257 locations, up approximately 12% from 230 stores in the same period last year. We have a busy second half of the year new warehouse format store opening schedule, with most openings scheduled for the late third quarter and early fourth quarter.

Sales for the quarter, Rose by 7.1%, to 1,214 million comparable store sales increased by 0.4% marking, the first quarterly increase since the fourth quarter of fiscal 2022, these results reflect the strength of our business fundamentals and the steadfast dedication of our Associates in a period marked by continued economic uncertainty, heightened, complexity and shifting market conditions, our team Rose to the challenge. They remain focused, and executing our strategic priorities, with unwavering discipline, and resolve

We are truly grateful for their contributions. Let me now discuss our new Warehouse format store growth in the second quarter of fiscal 2025. We opened 3 new Warehouse formats stores in CMI, Florida. San Antonio, Texas. And Chula Vista California.

We are especially pleased to have opened in Chula Vista as it marks, our first Warehouse format store to open in California, in close to 3 years.

Wayne Hood: We remain on track to open 20 new warehouse format stores in fiscal 2025, primarily across large and mid-sized existing markets. Looking ahead to fiscal 2026, we currently anticipate opening at least 20 new warehouse format stores. As previously discussed, our company is well positioned to support the opening of more than 20 new warehouse format stores annually, once housing market conditions improve. That said, we remain committed to a disciplined and agile growth strategy. Should the housing market or broader economic environment underperform relative to our expectations, we are prepared to adjust our expansion plans accordingly to ensure prudent capital allocation and long-term value creation. As you are aware, one of the most consequential challenges we and others across our industry continue to face is mitigating the impact of tariffs on our products.

Year to date. We have opened 7, new Warehouse formats stores. And in the second quarter with 257 locations up approximately 12% from 230 stores in the same period last year. We have a busy second, half of the year. New Warehouse format store opening schedule with most opening scheduled for the late, third quarter and early fourth quarter. We remain on track to open 20, new Warehouse formats stores in.

Till 2025, primarily across large and mid-sized existing markets, looking ahead to fiscal 2026, we currently anticipate opening at least 20 new Warehouse format stores. As previously discussed, our company is well positioned to support the opening of more than 20 new Warehouse format stores annually, once housing market conditions improve. That said, we remain committed to a disciplined and agile growth strategy.

Should the housing market or broader? Economic environment? Underperform relative to our expectations. We are prepared to adjust our expansion plans accordingly to ensure prudent Capital allocation, and long-term value creation.

Wayne Hood: To assist with our execution in an uncertain and complex environment, we have continued to rely on our dedicated Tariff Steering Committee. This committee is tasked with guiding alignment on our top priorities and maintaining agility and discipline in our operational planning. This committee builds on our proven track record of managing prior tariffs and duties, leveraging both our experience and scale and flexibility of our operations to position us to navigate today's uncertainty and complexity, which we believe is significantly better than many of our competitors. With that context in mind, I'd like to take a minute to outline and update the key actions we're taking to mitigate universal, reciprocal, and sectoral tariffs to position the business for continued growth.

To assist with our execution, in an uncertain and complex environment, we have continued to rely on our dedicated tariff steering committee.

This committee is tasked with guiding alignment on our top priorities and maintaining agility and discipline in our operational planning.

This committee Builds on our proven track record of managing, prior, tariffs and duties, leveraging, both our experience and scale and flexibility of our operations to position us. To navigate today's uncertainty and complexity, which we believe is significantly better than many of our competitors.

Wayne Hood: First, we continue to actively negotiate and collaborate with our vendors to mitigate the higher incremental tariffs on the products we sell, as we have successfully done with prior tariff increases. Second, we continue to execute our product diversification and sourcing strategies with strong momentum. This includes the broad range of products we sell, as well as the countries from which we source them. Our direct global sourcing network spans over 240 vendors across 26 countries, enabling us to secure the highest quality products at the most competitive prices. In fiscal 2025, we continue to onboard more suppliers, factories, and products, further enhancing our agility and supply chain resilience. We believe our scale and direct global sourcing model provides a significant competitive advantage, particularly over the independent flooring retailers and distributors.

With that context in mind, I'd like to take a minute to outline and update the key actions. We're taking to mitigate Universal reciprocal and sectoral tariffs to position the business for continued growth.

First, we continue to actively negotiate and collaborate with our vendors to mitigate the higher incremental tariffs. On the products we sell as we have successfully done with prior tariff increases second. We continue to execute our product diversification and sourcing strategies, with strong momentum, this includes the broad range of products. We sell as well as the countries from which we Source them. Our direct Global sourcing Network spans over 240 vendors across 26 countries. Enabling us to secure the highest quality products at the most competitive prices. In fiscal 2025, we continue to onboard more suppliers factories and products. Further enhancing our agility and supply chain. Resilience, we believe our scale and

Wayne Hood: Third, we continue to apply a balanced portfolio approach to product pricing, while effectively managing our gross margin rate and overall profitability. As we noted on our first quarter conference call, we've seen some independent retailers and distributors implement high single-digit or even higher price increases in response to tariffs. We believe tariffs will continue to pressure independents, who are already contending with weak industry fundamentals that have persisted over the past three years. Amid the challenging market environment, we have also observed a shift among some retailers towards emphasizing opening price point products, which often feature lower product specifications compared to our offerings. As discussed during our first quarter earnings conference call, we will continue to adjust our retail prices, both upward and downward as needed, to help mitigate the impact of tariffs and competition.

Direct Global sourcing model provides a significant competitive Advantage particularly over the independent flooring retailers and distributors.

Third. We continue to apply a balanced portfolio. Approach to product pricing while effectively managing our gross margin rate and overall profitability.

As we noted on our first quarter off conference call, we've seen some independent retailers and Distributors Implement High single digit or even higher price increases in response to terrorists. We Believe terrorists will continue to pressure Independence who are already contending with weak industry. Fundamentals that have persisted over the past 3 years.

Wayne Hood: That said, we remain committed to maintaining our pricing gaps and reinforcing our everyday low price message. It is important to note that our broad and diverse merchandise assortments provide customers with more pricing options than our competitors, further strengthening our market position. Put simply, we believe our competitive moat is enhanced when we combine price leadership and other key business attributes, such as broad assortments, in-stock job lot quantities, inspirational new products, service offerings, and knowledgeable associates that meet the evolving needs of our customers. And finally, as we mentioned in our first quarter earnings call, customers are asking for products produced in the United States, and we have already taken action to identify American-made products in our stores. The United States is now our largest country of manufacture, accounting for approximately 27% of the products we sold in fiscal 2024, up from approximately 20% in fiscal 2018.

Amid the challenging Market environment. We have also observed, the shift among some retailers towards emphasizing opening price point products, which often feature lower product specifications compared to our offerings as discussed during our first quarter earnings conference call. We will continue to adjust our retail prices, both upward, and downward as needed to help mitigate the impact of tariffs and competition.

That said, we remain committed to maintaining our pricing gaps and reinforcing our everyday low price. It is important to note that our broad and diverse merchandise assortments provide customers with more pricing options than our competitors, further strengthening our market position. Put simply, we believe our competitive moat is enhanced when we combine price leadership with other key business attributes, such as broad assortments in stock and job lot quantities.

Wayne Hood: Let me now turn the call over to Brad.

Inspirational new products service options, offerings and knowledgeable, Associates that meet the evolving needs of our customers. And finally, as we mentioned in our first quarter earnings, call customers are asking for products produced in the United States. And we have already taken action to identify American-made products in our stores. The United States is now our largest country of manufacturer accounting for approximately 27% of the products we sold in. Physical 2024 up from approximately 20% in physical 2018,

Tom Taylor: Thanks, Tom. I'd like to take a moment to express my sincere appreciation to our entire team for their strong performance in the second quarter. These results are a clear reflection of the disciplined execution of our growth strategies, the agility of our operations, and the unwavering commitment of our associates. I'm especially proud of how we've navigated the challenges posed by tariffs and a global supply chain shift. We believe that our proactive approach and operational flexibility continue to set us apart in the industry. Let me now discuss our second quarter sales. As Tom mentioned, our second quarter comparable store sales increased 0.4% year over year, which was at the midpoint of our expectations and an improvement from the 1.8% decline in the first quarter. Second quarter comparable transactions declined 3.3%, and comparable average ticket increased 3.8% from the same period last year.

Let me now turn the call over to Brad. Thanks, Tom. I'd like to take a moment to express my sincere appreciation to our entire team for their strong performance in the second quarter.

These results are a clear reflection of the disciplined execution of our growth strategies, the agility of our operations, in the unwavering commitment of our Associates. I'm especially proud of how we've navigated the challenges posed by terrorists and Global Supply Chain shifts. We believe that our proactive approach and operational flexibility continue to set us apart in the industry.

Let me now discuss our second quarter sales, as Tom mentioned, our second quarter comparable store sales increased 0.4% year-over-year which was at the midpoint of our expectations and then improvement from the 1.8% decline in the first quarter.

Tom Taylor: By month, our comparable store sales increased by 1.7% in April, 0.6% in May, and declined 0.8% in June. From a regional perspective, comparable store sales in the West Division continue to outperform the company for the quarter and year to date. We estimate the second quarter benefit to our comparable store sales from Hurricanes Helene and Milton was approximately 40 basis points, compared with 100 basis points in the first quarter and 110 basis points in the fourth quarter of fiscal 2024. Our fiscal 2025 third quarter to date comparable store sales have declined by 1%. In the second quarter, we saw the strongest relative sales growth across several merchandise categories, including wood, installation materials, and adjacent categories. We are pleased that customers continue to gravitate towards our better and best tier products, where our value proposition is most compelling and our price advantage is most evident.

Second quarter comparable, transactions declined 3.3% and comparable, average ticket increase 3.8% from the same period last year.

By month our comparable store sales increased by 1.7% in April 0.6% in May and declined 0.8% in June.

From a regional perspective, comparable store sales in the West Division continued to outperform the company for the quarter and year-to-date.

Second quarter benefit to our comparable store sales from Hurricane Helen. And Milton was approximately 40 basis points, compared with a 1000 basis points in the fourth quarter of fiscal 2024

Our fiscal 2025 third quarter to date comparable store sales have declined by 1%.

Tom Taylor: As we look ahead to the remainder of fiscal 2025, we're excited to continue introducing a range of innovative products and programs tailored to meet the evolving needs of our customers. These include new designs, expanded color palettes, enhanced textures, and products with heightened realism that closely replicate the look and feel of natural materials. Our largest initiatives this year remain unchanged and include the continued rollout of kitchen cabinets, the expansion of our outdoor product assortment, and the growth of our XL slab program. These efforts reflect our commitment to delivering differentiated, high-quality solutions that inspire customers and drive long-term growth. Turning to our connected customer and design services pillars of growth. In the second quarter of fiscal 2025, connected customer sales rose by 2% year over year, now accounting for approximately 19% of sales.

And the second quarter, we saw the strongest relative sales growth across several merchandise categories. Including wood, installation materials, and adjacent categories. We are pleased that customers continue to gravitate towards our better and best tier products. Where our value proposition is most compelling and our price Advantage is most evident

As we look ahead to the remainder of fiscal 2025, we're excited to continue. Introducing a range of innovative products and programs tailored to meet the evolving needs of our customers.

These include new designs, expanded color, palettes enhance textures and products with heightened realism that closely. Replicate the look and feel of natural materials.

Our largest initiatives this year, remaining unchanged and include the continued rollout of kitchen cabinets. The expansion of our Outdoor Products assortment and the growth of our Excel slab programs. These efforts reflect our commitment to delivering differentiated high-quality solutions that Inspire customers and drive long-term growth

Tom Taylor: We're encouraged by our key engagement metrics, including healthy growth in weekly active users, a notable increase in organic traffic and conversions, and a sequential improvement in our comparable average ticket. Our design services continue to be a standout performer in the second quarter, delivering strong sequential and year-over-year sales growth. Year to date, both total and comparable store sales also significantly outpaced the company average, fueled by a sharp increase in customer transactions. This performance highlights the strength of our design services model, combining expert in-store designers, personalized customer experience, and collaboration with pros on complex projects. These elements are driving deeper engagement and higher value outcomes. When our designers are involved, the impact is clear. The average ticket is significantly higher, and gross margin rates rise substantially. This reinforces the strategic importance of design services in elevating our brand and driving profitable growth.

Turning to our connected customer and Design Services. Pillars of growth in the second quarter of fiscal 2025 connected customer sales Rose by 2% year-over-year now accounting for approximately 19% of sales. We're a key engagement metrics including Healthy Growth and weekly active users a notable increase in organic traffic and conversions. And a sequential improvement in our comparable average ticket.

Our Design Services can continue to be a standout performer in the second quarter delivering strong sequential and year-over-year. Sales growth.

Year to date both Total and comparable. Store sales also, significantly outpaced the company average fueled by a sharp increase in customer transactions. This performance highlights the strength of our Design Services model combining expert in-store designers.

Personalized customer experience and collaboration with Pros on complex projects. These elements are driving deeper engagement and higher value outcomes.

Tom Taylor: We're excited to build on this momentum by continuing to invest in our design talent and convert more high-value opportunities, both in-store and online. Turning my comments to pros, we're pleased to report that in the second quarter of fiscal 2025, total and comparable store sales to pros once again outpaced the company's overall growth, accounting for approximately 50% of sales. This strong performance was fueled by increases in both transactions and average ticket size. A key driver of this momentum is our commitment to delivering a consistent, best-in-class pro experience at the pro test, which contributed to a significant year-over-year increase in our pro net promoter score during the quarter. Furthermore, our pro service managers are actively engaging pros in the field, expanding into new zip codes to better understand their needs and provide tailored solutions.

When our designers are involved, the impact is clear. The average ticket is significantly higher, and gross margin rates rise substantially. This reinforces the strategic importance of Design Services, elevating our brand and driving profitable growth.

We're excited to build on this momentum by continuing to invest in our design talent and convert more high-value opportunities. Both in store and online.

Returning, my comments to Pro, we're pleased to report that in the second quarter of fiscal 2025 total and comparable store sales to Pros. Once again, outpace the company's overall growth accounting for approximately 50% of sales. This strong performance was fueled by increases in both transactions and average ticket size.

A key driver of this momentum is our commitment to delivering a consistent, best-in-class Pro experience at the protest, which contributed to a significant year-over-year increase in our Pro Net Promoter Score during the quarter.

Tom Taylor: We're also deepening pro loyalty through community events and partnerships with trade associations, with a strong focus on education. In the second quarter alone, we hosted 43 in-store educational events, part of our broader plan to hold 155 events in fiscal 2025, reinforcing our commitment to supporting pros with valuable resources and expertise. To further build brand awareness and drive engagement, we're executing targeted pro marketing blitzes and leveraging lead generation tools, supported by cost-efficient advertising platforms that help us attract and retain new pros. These efforts are delivering results as we continue to see the benefits of our focus on high-quality lead generation and strengthening relationships with both new and existing pros. Finally, let me discuss our commercial business. Spartan Services delivered stronger than expected sales and EBIT results for the second quarter of fiscal 2025, with sales rising approximately 7% year over year.

Furthermore, our Pro service managers are actively engaging Pros in the field expanding into new, zip codes, to better understand their needs and provide tailored Solutions.

We're also deepening pro loyalty through community events and Partnerships with trade associations with a strong focus on education. In the second quarter alone. We hosted 43, in-store educational events, part of our broader plan to hold 155 events in fiscal 2025, reinforcing our commitment to supporting Pros with valuable resources and expertise.

To further build brand awareness and drive engagement, were executing targeted Pro marketing, blitzes and leveraging lead generation tools supported by cost, efficient advertising platforms. That help us attract and retain new Pros. These efforts are delivering results as we continue to see the benefits of our focus on high-quality lead generation and strengthening relationships with both new and existing Pros.

Finally, let me discuss our Commercial Business.

Tom Taylor: Notably, June marked the strongest month in the company's history. Spartan continues to build momentum by focusing on establishing a strong national presence in high-specification sectors such as healthcare, education, hospitality, and senior living. These sectors offer compelling long-term growth and profitability potential, characterized by higher quote-to-conversion rates, recurring revenue streams, and more attractive margins. We're also encouraged by the growing success of Spartan's private label brands, which is leading to increased quotes and orders. To support long-term growth, Spartan is making targeted investments in expanding its sales force across key verticals and markets, as well as in its leadership team. These investments, combined with ongoing economic uncertainty, may result in fiscal 2025 EBIT remaining roughly flat compared to fiscal 2024. This outlook is consistent with our previous expectations. We continue to believe that Spartan's strategic priorities position the company for growth and long-term value creation.

Spartan surfaces delivered stronger than its expected sales and ebit results for the second quarter of fiscal 2025, with sales Rising approximately 7% year-over-year.

Spartan continues to build momentum by focusing on establishing a strong National presence in high specification. Sectors such as Healthcare education, hospitality and Senior Living.

These sectors offer compelling, long-term growth and profitability potential. Characterized by higher quote to conversion rates, recurring revenue streams and more attractive margins.

Tom Taylor: In closing, we remain focused on driving market share growth and long-term shareholder value as we navigate an extended bottom in the housing market. We believe the momentum we built in the first half of fiscal 2025 positions us well for the remainder of the year and beyond. Let me now turn the call over to Bryan.

We're also encouraged by the growing success of Spartans private label Brands which is leading to increased clothes and orders to support long-term growth. Spartan is making targeted investments in an expanding its sales force across key verticals and markets as well as in its leadership team. These Investments combined with ongoing economic uncertainty, may result in fiscal, 2025 ebit remaining, roughly flat. Compared to fiscal 2024. This Outlook is consistent with our previous expectations. We continue to believe that Spartans strategic priorities position the company for growth and long-term value creation.

Wayne Hood: Thank you, Brad and Tom. As Tom highlighted, we are very pleased with our second quarter financial performance. We believe this performance speaks to the strength and execution of our growth strategies and our continued focus on cost discipline. These efforts contributed to us reporting second quarter comparable store sales growth of 0.4%, our first positive comparable store sales since the fourth quarter of 2022, and diluted earnings per share of 58 cents, up 11.5% from last year. The second quarter is a clear demonstration of how we believe our team is driving value to increase our market share in a challenging macro environment that we expect will continue for the remainder of 2025. Let me now discuss some of the changes among the significant line items in our second quarter income statement, balance sheet, and statement of cash flows, as well as our updated outlook for fiscal 2025.

In closing, we remain focused on driving market, share growth, and long-term shareholder value as we navigate and extended bottom in the housing market. We believe the momentum we built in the first half of fiscal 2025 positions, as well for the remainder of the year and Beyond, let me now turn the call over to Brian.

Thank you, Brad and Tom.

As Tom highlighted, we are very pleased with our second quarter financial performance.

We believe this performance speaks to the strength and execution of our growth strategies and our continued focus on cost discipline.

These efforts contributed to us reporting second quarter comparable store, sales growth of 0.4%. Our first positive comparable, store sales, since the fourth quarter of 2022 and diluted earnings per share of 58 cents of 11.5% from last year.

The second quarter is a clear demonstration of how, we believe our team is driving value to increase our market, share, and a challenging macro environment that we expect will continue for the remainder of 2025.

Wayne Hood: We continue to be pleased with how we are managing and expanding our gross margin rate. In the second quarter, gross profit rose by 8.5% compared to the same period last year. The growth in gross profit was primarily driven by a 7.1% increase in sales and an approximately 60 basis points improvement in the gross margin rate, which rose to 43.9%, primarily due to lower supply chain costs. Second quarter selling and store operating expenses of $376.2 million increased by 10.2% from the same period last year. The increase in selling and store operating expenses was primarily driven by $33.8 million for new stores. As a percentage of sales, selling and store operating expenses increased by approximately 90 basis points to 31.0% from the same period last year. The expense deleverage was primarily attributable to the addition of new stores.

let me now discuss some of the changes among the significant line items and our second quarter income statement, balance sheet and statement of cash flows as well as our updated outlook for fiscal 2025

We continue to be pleased with how we are managing and expanding our gross margin rate.

And the second quarter gross profit Rose by 8.5% compared to the same period last year. The growth in gross profit was primarily driven by a 7.1%, increase in sales and approximately 60 basis, points Improvement in the gross margin rate, which rose to 43.9% primarily due to lower supply chain cost.

Second quarter selling and store operating expenses of 376.2 million increased by 10.2% from the same period last year, the increase in selling and store operating expenses was primarily driven by 33.8 million for new stores.

Wayne Hood: Second quarter general and administrative expenses of $69.4 million increased 2.6% from the same period last year. The increase was primarily attributed to the investments we continue to make to support our store growth, including a $3.5 million increase in personnel expenses, partially offset by a $2.1 million decrease in other operating expenses. As a percentage of sales, general and administrative expenses decreased by approximately 30 basis points to 5.7%, reflecting both a decline in other operating expenses and the leverage of our G&A cost on higher sales volume. ERP-related expenses totaled $2.2 million for the quarter, in line with our expectation. Second quarter pre-opening expenses to a reduction in the number of stores opened and future stores that we were preparing to open compared to the same period last year. Second quarter net interest expense of $1.1 million increased 0.4 million, or 62.3% from the same period last year.

As a percentage of sales selling and store operating expenses increased by approximately 90 basis points to 31.0% from the same period last year. The expense de-lever was primarily attributable to the addition of new stores.

Second quarter, General and administrative expenses of 69.4 million increased 2.6% from the same period last year. The increase was primarily attributed to the Investments, we continue to make to support our store growth.

Including a 3.5 million increase. In Personnel, expenses partially offset by a 2.1 million decrease in other operating expenses.

As a percentage of sales, General and Administrative expenses decreased by approximately 30 basis points to 5.7%, reflecting both a decline in other operating expenses and the leverage of our G&A costs on higher sales volume.

Erp related expenses, totaled, 2.2 million for the quarter in line with our expectation.

Second quarter free opening expenses.

To a reduction in the number of stores, open and future stores that we were preparing to open compared to the same period last year.

Wayne Hood: The increase was due to a decrease in interest capitalized, partially offset by higher interest income as a result of higher cash balances. The second quarter effective tax rate increased to 21.8% from 19.8% in the same period last year. The effective tax rate increase was primarily due to a decrease in the excess tax benefits related to stock-based compensation awards. Second quarter adjusted EBITDA of $150.2 million increased 9.7% from the same period last year. Our second quarter adjusted EBITDA margin rate was 12.4%, an increase of approximately 30 basis points from the same period last year. The growth was primarily due to higher sales and an increase in our gross margin rate. Moving on to our balance sheet, at the end of the second quarter, inventory increased by 7% to $1.2 billion compared to December 26, 2024.

Second quarter, net interest, expense of 1.1 million, increased 0.4 million or 62.3% from the same period last year. The increase was due to a decrease in interest capitalized, partially offset by higher interest income, as a result of higher cash, balances.

The second quarter effective tax rate increased to 21.8% from 19.8% in the same period last year.

The effective tax rate increase was primarily due to a decrease in the excess tax benefits related to stock based compensation Awards.

150.2 million increased 9.7% from the same period last year.

Our second quarter adjusted, even a margin rate was 12.4% and increase of approximately 30 basis points from the same period last year. The growth was primarily due to higher sales in an increase in our gross margin rate.

Wayne Hood: On a year-over-year basis, inventory was up 17%, primarily driven by the timing of receipts and the need to support the opening of our Seattle distribution center. Looking ahead, we expect inventory to be up modestly at the end of fiscal 2025 compared to last year. In terms of liquidity, we ended the quarter with $876.9 million in unrestricted liquidity, consisting of $176.9 million in cash and cash equivalents, and $700 million available under our ABL facility. Turning to our fiscal 2025 outlook, the U.S. consumer remains broadly resilient, supported by a solid labor market, low unemployment, and steady job growth, sustaining household incomes, while personal consumption expenditures on services continue to show resilience. Spending on discretionary big-ticket durables and large projects remains challenged amid ongoing economic uncertainty, elevated mortgage rates, and persistent housing affordability headwinds.

Moving on to our balance sheet, at the end of the second quarter inventory, increased by 7% to 1.2 billion compared to December 26th 2024 on a year-over-year basis. Inventory was up, 17% primarily driven by the timing of our seats and the need to support the opening of our Seattle Distribution Center.

Looking ahead. We expect inventory to be up modestly at the end of fiscal 2025 compared to last year.

In terms of liquidity, we ended the quarter with $876.9 million in unrestricted liquidity, consisting of $176.9 million in cash and cash equivalents, and $700 million available under our ABL facility.

Journey to our fiscal 2025 Outlook.

The U.S. consumer remains broadly resilient, supported by a solid labor market, low unemployment, and steady job growth, sustaining household incomes. However, personal consumption expenditures on services continue to show resilience, while spending on discretionary big-ticket items, durables, and large projects remains challenged amid ongoing economic uncertainty.

Wayne Hood: Affordability remains a major constraint as mortgage rates continue to hover above 6.6% and home prices are at all-time highs, discouraging both first-time and existing buyers. Existing home sales sequentially fell 2.7% in June to a seasonally adjusted annual rate of 3.93 million units, marking the lowest level in nine months. Looking ahead, we do not expect significant changes in consumer behavior or housing activity for the remainder of 2025. The labor market is likely to remain a stabilizing force, and while inflation and policy uncertainty may continue to weigh on sentiment, the underlying fundamentals point to a steady, if cautious, consumer and housing market. Our guidance reflects the impact of all negotiated tariffs, and for countries not finalized, we incorporated universal tariffs. Let me now discuss our updated fiscal 2025 earnings guidance.

elevated mortgage rates and persistent housing affordability, headwinds

Affordability remains a major constraint as mortgage rates. Continue to hover above 6.6% in home. Prices are at all-time highs. Discouraging, both first-time, and existing buyers.

existing home sales sequentially fell 2.7% in June to a seasonally adjusted annual rate of 3.93 million units, marking the lowest level in 9 months,

Looking ahead. We do not expect significant changes in consumer Behavior, or housing activity for the remainder of 2025.

The labor market is likely to remain a stabilizing force and while inflation and policy uncertainty may continue to weigh on sentiment. The underlying fundamentals point to a steady if cautious consumer and housing market,

our guidance reflects the impact of all negotiated tariffs. And for countries, not finalized, we incorporated, Universal tariffs,

Wayne Hood: Total sales are expected to be in the range of $4 billion 660 million to $4 billion 750 million, or increased by 5% to 7% from fiscal 2024. We are planning to open 20 new warehouse format stores. Comparable store sales are estimated to be down 2% to flat. Average ticket comp is estimated to be up low to mid-single digits. Transaction comp is estimated to be down low to mid-single digits. The gross margin rate is expected to be approximately 43.5% to 43.7%. 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 of 43.9% will represent the high quarter for the year.

Let me now discuss our updated fiscal 2025 earnings guidance.

Total sales are expected to be in the range of 4,660 million to 4,750 million or increase by 5% to 7% from fiscal 2024.

We are planning to open 20, new Warehouse format stores.

Comparable, store sales are estimated to be down 2% to flat.

Average ticket comp is estimated to be uploaded to Mid single digits.

Transaction comp is estimated to be down low to mid single digits.

The gross margin rate is expected to be approximately 43.5% to 43.7% as a reminder. Our gross margin rate is expected to be adversely impacted by a approximately 60 to 70 basis points from the 2, new distribution centers, which is incorporated into our guidance.

Wayne Hood: Selling and store operating expenses, as a percentage of sales, are estimated to be approximately 31.5% to 32%. The high end of our guidance assumes our first quarter and fourth quarters are the most pressured from a rate perspective due to the timing of new stores. General and administrative expenses, as a percentage of sales, are estimated to be approximately 6%. General and administrative expenses include approximately $9 million related to the finance and merchandising ERP implementation. Pre-opening expenses, as a percentage of sales, are estimated to be approximately 0.6%. Interest expense net is expected to be approximately $5 million. Our tax rate is expected to be approximately 21% to 22%. Depreciation and amortization expense is expected to be approximately $245 million. Adjusted EBITDA is expected to be approximately $520 million to $550 million. Diluted earnings per share is estimated to be in the range of $1.75 to $2.

We estimate that our second quarter gross margin. Rate of 43.9% will represent the high quarter for the year.

Selling and store operating expenses as a percentage of sales are estimated to be approximately 31.5% to 32%.

The high end of our guidance assumes our first quarter and fourth quarters are the most pressured from our rate perspective due to the timing of new stores.

General and administrative expenses as a percentage of sales are estimated to be approximately 6%.

General. Administrative expenses include approximately 9 million dollars related to the finance and Merchandising Erp implementation.

Reopening expenses as a percentage of sales are estimated to be approximately 0.6%.

Interest expense. Net is expected to be approximately 5 million.

Our tax rate is expected to be approximately 21% to 22%.

Depreciation and amortization expense, is expected to be approximately 245 million.

Adjusted Evas expected to be approximately 520 million to 550 million.

Wayne Hood: Diluted weighted average shares outstanding is estimated to be approximately 109 million shares. Moving on to capital expenditures, our fiscal 2025 capital expenditures are planned to be in the range of $280 million to $320 million, including capital expenditures accrued. We intend to open 20 warehouse format stores and begin construction on stores opening in fiscal 2026. Collectively, these investments are expected to require approximately $180 million to $205 million. We plan to invest approximately $20 million to $25 million in new distribution centers in Seattle and Baltimore. We intend to invest approximately $45 million to $50 million in existing stores and existing distribution centers. And finally, we plan to continue to invest in information technology infrastructure, e-commerce, and other store support center initiatives, using approximately $35 million to $40 million.

Diluted earnings per share is estimated to be in the range of a dollar 75 to 2 dollars.

Diluted weighted average shares outstanding is estimated to be approximately 109 million shares.

Moving on to Capital expenditures.

Our fiscal 2025 capital expenditures are planned to be in the range of $280 million to $320 million, including capital expenditures required.

And begin construction on stores opening in fiscal 2026.

Collectively, these Investments are expected to require approximately 180 million to 205 million.

We plan to invest approximately $20 million to $25 million in new distribution centers in Seattle and Baltimore.

We intend to invest approximately 45 million to 50 million in existing stores and existing distribution centers.

Wayne Hood: Additionally, we anticipate incurring approximately $20 million in deferred SaaS ERP implementation costs, which are not included in capital expenditures. Before I close, I want to extend a heartfelt thank you to our store associates across the country. Your dedication, hard work, and daily commitment to serving our customers are what drive our results. We're incredibly grateful for everything you do to support our business and our customers. Thank you. Operator, we would now like to take questions. Thank you. And at this time, we'll conduct our question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press the star key followed by the number two if you would like to remove your question from the queue.

And finally, we plan to continue to invest in Information, Technology, infrastructure, e-commerce and other store Sports Center initiatives using approximately 35 million to 40 million.

Additionally, we anticipate incurring approximately 20 million in deferred SAS Erp, implementation costs, which are not included in capital expenditures.

Before I close, I want to extend a heartfelt. Thank you to our store associates across the country. Your dedication, hard work and Daily Commitment to serving our customers are what Drive our results. We're incredibly grateful for everything you do to support our business and our customers. Thank you.

Operator. We would now like to take questions.

Thank you. And at this time, we'll conduct our question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue.

Wayne Hood: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we pull for questions. And our first question comes from Christopher Horvers with JP Morgan. Please state your question.

you may press the star key followed by the number 2, if you would like to remove your question from the queue,

For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star Keys 1 moment, please while we pull for questions.

And our first question comes from Christopher hoarvor with JP Morgan, please get your question.

Bryan Langley: Hi guys, it's Barath Rowe on for Chris. Thanks for taking the question. So ticket was up nicely during the quarter. Curious on how much of that was tariff-induced pricing increases versus any sort of trade up to better and best, as you mentioned. And then going off of that, it seems like the narrative so far has been low to mid-single price increases with the expectation to go higher as the year goes on. How are you thinking about price throughout the year, given your inventory cycle and any chance to come in higher than the low to mid-single digit ticket comp? Thank you.

Hi guys, it's breath. Row on for Chris. Thanks for taking the question. So ticket was up nicely during the quarter curious on how much of that was tariff? Induced pricing increases versus any sort of trade-up to better and best as you mentioned and then going off of that seems like the narrative. So far has been low to mid single price increases with the expectation to go higher as the year goes on.

How are you thinking about price throughout the year, given your inventory cycle, and any chance you come in higher than the low to mid-single-digit ticket comp? Thank you.

Tom Taylor: A lot of questions in there. This is Tom. I will do my best. If I miss something, one of the team will jump in. I would say for the second quarter that we just finished, much of the benefit that came in average ticket came from mix. Our best performing department is wood, which carries in higher average tickets. So that effect helped us. Additionally, the price changes that we did in the second quarter were not material. We took some prices up, took some prices down. So I would say between wood and between better and best and minor price increase would have affected ticket in the second quarter. We will take some price in the back half of the year. We don't believe it will be that modest with what we know today.

It's a lot of lot of questions in there. This is Tom, I will do my best, uh, if I missed something 1 of the team will jump in, uh, I would say, for the second quarter that we just finished

Tom Taylor: Things could change, but with what we know today about tariffs, we think we've done a good job in mitigating a lot of it through moving skews and through negotiating with our vendors. We'll take some modest price increases, but we think we'll be able to manage it fairly well.

Bryan Langley: And this is Brian. I mean, obviously, in the prepared remarks, our average ticket comp is assumed to be up low single digits to mid-single digit. So that helps kind of put the framework around what we believe through initiatives as well as modest price increases. And just as a heads up, you know, Q4 will be the most pressured because we'll be lapping Hurricanes, Milton, and Helene from last year. So that'll put a little bit of pressure on our ticket in Q4. But that should help give you a sense of magnitude of what we have in bed.

Much of the benefit that came in average ticket came from a mix. Uh, we our best performing department is wood which carries in higher average tickets? So that that affect helped us. Uh, Additionally, the, the price changes that we did in the second quarter were not Material, we took some prices up, took some prices down. So I would say between wood and between better and best and minor price, increase would have affected ticket. In the second quarter, we will take some price in the back half of the year. Um, we don't believe it will be that modest with what we know today, things could change. But with what we know today about tariffs, uh, we think we've done a good job and mitigating a lot of it through moving skus. And through negotiating with our vendors, we'll take some modest price increases. Uh, but we think we'll be able to manage it fairly well. And this is Brian. I mean, obviously in the prepared remarks are average ticket Compass assumed to be a low single.

Tom Taylor: And maybe we just go three for three here. But I think an important piece just to think about our philosophy in the second half. We talk a lot about our merchandising team and how proud we are of what they do for us day in and day out. And I think they've really earned their stripes through this process. You know, when I think about how we're going to handle pricing, the first thing is we've invested in pricing tests, really, you know, certainly in the first half and going back into 2024. So we understand the elasticity of both categories and also the line structure inside a category. So I think we're well positioned to understand how price moves are going to impact customer demand.

Digits to Mid single digit. So that helps kind of put the framework around where we believe through initiatives, as well as modest price increases. And just as a heads up, your Q4 will be the most pressure because we'll be lapping hurricanes Milton and Helen from last year. So that'll put a little bit of pressure on our ticket in Q4. But that should help give you a sense of magnitude of what we haven't been and maybe we just go 3 for 3 here. Um but I think an important piece just to think about our philosophy in the second half, we talked a lot about our merchandising team and and how proud We Are of what they do first day in and day out.

Tom Taylor: And then, you know, the second piece to it that I think is really important is we're not doing a peanut butter spread here. You know, because we have that level of intelligence, we can be very surgical. And as we said in the prepared remarks, we can have that balanced portfolio approach to how we're going to tackle the pricing that's in front of us.

And I think they've really earned their stripes through this process. You know, when I think about how we're going to handle pricing, the first thing is we've invested in pricing tests, really, you know, certainly in the first half and going back into 2024. So we understand the elasticity of both categories and also the line structure inside a category. So, I think we're well positioned to understand how price moves are going to impact customer demand. And then, you know, the second piece to it that I think is really important is we're not doing a peanut butter spread here. You know, because we have that level of intelligence, we can be very surgical. And as we said in the prepared remarks, we can have that balanced portfolio approach to how we're going to attack with the pricing that's in front of us.

Bryan Langley: Great. Thank you, guys.

Great. Thank you guys.

Wayne Hood: And your next question comes from Simeon Gutman with Morgan Stanley. Please state your question.

Brad Paulsen: Hey, good afternoon, guys. Two parts to my first question. The second half implied negative, and I think, Brian, you just clarified a little bit on the fourth quarter. Curious if you'd be willing to react to a consensus number for 26. I know it's early. I think the consensus is showing four. And thinking about the macro, maybe not changing or getting better, tariffs, which should help, and then immature stores. Just thinking about the natural curve of the progression of this business, you know, how you'd react to that 4% number that's out there right now. Thanks.

And your next question comes from Simeon, Gutman with Morgan Stanley. Please State your question,

Um, 2 parts, my first question it, the the second half implied negative and I think Brian, you just clarified a little bit on the fourth quarter.

Curious, if, if you'd be willing to react to a consensus number for 26, I know it's early. I think the consensus is showing 4 and thinking about the macro, maybe not changing or getting better tariffs which would help. And then, immature stores, just thinking about the natural curve of

Of the progression of this business. You know, how how you'd react to that 4%. Number that's out there right now. Thanks.

Tom Taylor: So this is Tom. I guess this one's for me, huh? Yeah, all right. So it's a little too early to react to 2026. You know, we continue to hope that we see some improvement in existing home sales. I mean, we're just not seeing that yet. If you look at the last release on existing home sales at 3.93 million annualized, rates continue to hover between 6.6% and 6.9%, making household affordability and turnover a bit of a challenge. So it's too early to know. You're right. We'll get some benefit out of our new store maturing. Those things will work in our favor. We'll be lapping easier numbers. Those things work in our favor. We'll have to take some price because of tariff. Those things work in our favor. But all that said, it's too little too early to react to next year's guide. Yeah, exactly.

So this this is Tom I guess I guess this 1's for me, huh? Yeah. All right. So uh it's it's a little too early to react to 2026

Tom Taylor: Not next year's guide, next year's consensus.

Bryan Langley: Yeah, I mean, thinking about this year, I alluded to some of it that you had, but you're right. The midpoint of our guidance assumes that we stay at the current trends. So we're kind of bouncing around the bottom. The high end would assume things get slightly better. Obviously, the low end would assume things get slightly worse. You know, the high end from a comp perspective would assume the second half are up low single digit positive. With Q3 being the peak, as I mentioned before, we will be lapping both the hurricane benefit and EHS that picked up in Q4 of last year. So we have both of those. And then the low end would assume that we sequentially decline each quarter, as you guys are kind of modeling now.

Um, I you know, we we continue to hope that we see some improvement in an existing home sales. I mean, uh, we're just not seeing that yet. Um if you look at the last release on existing home sales at 3.93 million annualized, um, rates continue to hover between 6.6 and 6.9% making household, affordability and turnover, a bit of a challenge. So it's too early to know you're, you're right, we'll get some benefit out of our new store mature, you know, maturing those things will work in our favor. We'll be lapping easier numbers those things work in our favor. Uh, we'll have to take some price because of tariffs. Those things work in our favor, but all that said, it's too too. Little too early to react to next year's guy. Yeah, exactly. Not next year's guy. Next year's consensus. Yeah, I mean, think about this year?

Tom Taylor: I think the only thing I'd probably add, Simeon, that we didn't mention, we're not, this is a really difficult macro that we're facing and that affects the category, but we're not sitting still. We are doing other things to try to drive sales. We're continuing to add newness within the categories. We're continuing to add things to our adjacent category assortments. We've got outdoor rolling out. Hopefully, by the end of this year, it'll be in closer to 70 stores and outdoor programs that really we're not doing, we haven't done before. And then just, you know, really improving our design experience. So we're doing everything we can to kind of, while we're bouncing along this bottom of existing home sales and the challenges that puts within us, we're not sitting still. We're trying to uncover every stone to drive that top line.

I alluded to some of it that you had, but you write the midpoint of our guidance assumes that we stay at the current trends. So we're kind of bouncing around the bottom. The high end would assume things get slightly better obviously as low and would assume things get slightly worse. You know, the high-end from a cop perspective would have assumed the second half are up low. Single digit positive with Q3 being the peak. As I mentioned before, we will be lapping, uh, both the hurricane benefit and EHS that picked up in Q4 of last year. So, we have both of those. And then the low end would assume that we sequentially decline. Each quarter, as you guys are kind of modeling now,

Brad Paulsen: Yeah, that's fair. And just tied within that follow-up is the spread between immature versus mature. Is that, how is that changing? Is it getting better? Is it getting worse? And could that alone be the driver? You know, and I know you're not reacting to that 4% number, but could that alone be the biggest driver next year, assuming the macro doesn't change much?

I think I think the only thing I'd probably add Simeon that that we didn't mention. I mean, we're not. This is a really difficult macro that we're facing and that affects the category, but we're not sitting still, we are doing other things to try to drive sales. We're continuing to add newness within the categories. We're continue to add things to our adjacent category assignments. We've got outdoor rolling out. Hopefully, by the end of the year, it'll be in closer to 70 stores in outdoor programs that, uh, really we're not doing we haven't done before. Uh, and then just, you know, really improving our design experience. So we're doing everything we can to kind of while we're bouncing along this bottom of existing home sales and the challenges that puts with on us, we're not we're not sitting still, we're trying to uncover every stone to drive that Top Line.

Yes, that's fair. Um and just tied tied within that follow-up, is this spread between immature versus mature? Is that is that how is that changing? Is it getting better? Is it getting worse? And and, and could that alone be The Driver, you know? And I know you're not reacting to that 4% number, but could that alone be the biggest driver next year, assuming the macro doesn't change much.

Bryan Langley: Simeon, this is Brian. The waterfall comp is still intact, as we've kind of mentioned. It hasn't gotten really better or worse over the last 12 months. I would say it's compressed a little bit from historical trends. Obviously, you would expect that, but our newer stores are outperforming our most mature stores, as you would expect. And so we will get a benefit from the stores we're opening. And I think you heard us say it, as you know, a lot of those stores will open kind of September, October, November, so late Q3, early Q4. So we'll start lapping those, but we will get comp benefit from the class of '24, as those are maturing into 2026 as well, once they come into the comp base. So you will get a pickup from that. Again, not ready to commit to anything in 2026.

Tom Taylor: We should too, like, as things, you know, if and when, as existing home sales get better too, you'll get some benefit of the stores you opened in the last three years, because they were soft, their openings, and they should ramp at a nice level as things get better.

Brad Paulsen: Okay, thanks. Good luck.

I mean this is Brian the waterfall comp is still intact as we've got to mention. It hasn't gotten really better or worse over the last 12 months. I would say. It's compressed a little bit from historical Trends. Obviously you would expect that but our newer stores are outperforming our most mature stores as you would expect. And so we will get a benefit from the stores we're opening. And I think you heard us say it is, you know, a lot of those stores will open kind of September October November, so late Q3 early Q4. So we'll start laughing those, but we will get comp benefit from the class of 24 as those are maturing into 20 um 2026 as well once they come into the comp pay. So you will get a pick up from that again. Not ready to commit to anything in 2026. We should do like as as things. You know, it if. And when as the existing home sales, get better too. You get some benefit of the stores. You open our last 3 years, uh, because they, they were softer openings and and they should ramp at a nice level as as things get better.

Okay, thanks. Good luck.

Wayne Hood: Your next question comes from Michael Lasser with UBS. Please state your question.

Analyst (various): Good evening. Thank you so much for taking my question. Throughout this conversation and up until now, the messaging has been Floor & Decor, and the flooring market's been bouncing along the bottom. We continue to debate the timing and magnitude of a recovery. But what if this is simply the new norm where interest rates remain elevated, existing home sales remain subdued? How do you approach running the business differently, and how do you approach creating shareholder value differently?

Your next question comes from Michael Lasser with UBS. Please State your question.

Good evening. Thank you so much for taking my question, throughout this conversation and up until now, the messaging has been

Floor & Decor and the flooring market have been bouncing along the bottom. We continue to debate the timing and magnitude of a recovery. But what is? This is simply the new norm where interest rates remain elevated and existing home sales remain subdued. How do you approach running the business differently, and how do you approach creating shareholder value differently?

Tom Taylor: So I would say that if things were to continue to run at this rate and if this was norm, because of what we're lapping, our business should start to grow over the course of time. I would say that we'd continue to invest in our in-store experience to get more out of our stores. We've got lots of commercial opportunities that we're excited about what's going on commercially now. We would continue to invest in our commercial space. You know, Brad's coming in has found additional opportunities of ways we can get better, and we would put investment behind that. But it is a possibility that we could bounce along at this rate of existing home sales for time, but because we're bouncing along at this rate, it's not getting worse. Our problem is it's been getting worse over the last few years.

Tom Taylor: So if we stabilize here, we think we got enough initiatives that we can continue to grow.

Analyst (various): Got you. And what does that translate to, Tom, from a volume basis, meaning sales per store? How does that look right now, and what does that, if you assume that you grow simply by bouncing along the bottom, and what does that look like in terms of the profitability of the business over time?

This was Norm because of what we're lapping, our business should start to grow. Um, over the course of time, I would say that we'd continue to invest in our in-store experience to get more out of our stores. Uh, we've got lots of commercial opportunities that were excited about what's going on in commercially. Now, we would continue to invest in our commercial space. Um, you know, Brad's coming in has found additional opportunities of ways we can get better and we would put investment behind that. But um, it it's, you know, it it is a possibility that we could bounce along with this rate of existing home sales for time but because we're bouncing along with this rate, it's not getting worse. Our problem is, it's been getting worse over the last few years. So, if we stabilize here, we think we got enough initiatives that we could continue to grow up.

Got you and what, what is that translate to Tom from a volume basis, meaning sales per store. How, how does that look right now? And what is that? Uh, if you assume that you grow simply by uh, bouncing along the bottom, and what does that look like for in terms of the profitability of the business over time?

Tom Taylor: So I think, you know, look, our job is to continue to grow our earnings and to continue to improve our in-store productivity. So we have lots of initiatives that will help, you know, kind of enhance that. So not exactly sure I can predict the point of inflection when things get better, but if they don't get better, I think we've demonstrated we have the ability to improve our gross margin rates. We have the ability to get sales from some of the new stuff routing within the store, and we keep leaving no stone unturned.

So I think, you know, look our job is to continue to to to grow our earnings and to continue to prove our in store productivity. So we have lots of initiatives that that uh will help, you know, kind of enhance that. So not exactly sure. I can predict, uh, the point of inflection.

Bryan Langley: Yeah, Michael, just to give you a sense of magnitude, our stores that are five years and older are averaging approximately $22 million today, but from a profitability, they're still at 23% EBITDA. And so the stores are doing incredibly well from a flow-through perspective and from an earnings perspective. To Tom's point, we have a ton of internal initiatives where we'll continue to take market share. So even if things bounce around the bottom, we should be able to continue to put pressure on the competition, continue to take market share. We should be able to grow as long as things stabilize, exactly to Tom's point. So there's a lot that we're doing internal to do that, and we'll keep a focus on cost as well. So longer term, we still believe in that long-term goal of mid-teens EBITDA. That's, you know, we're still on that path.

When things get better, but if they don't get better, I think we've demonstrated, we have the ability to improve our diverse margin rates. So we have the, the ability to get sales from some of the new stuff we're adding within the store. And we keep leaving. No stone unturned. Yeah. Michael just to

Give you a sense of magnitude, our stores that are 5 years and older are averaging approximately 22 million today. But from a profitability, they're still at 23% even though. Yeah. And so the stores are doing incredibly well from a flow through perspective. And from an earnings perspective, to Tom's point, we have a ton of internal initiatives where we'll continue to take market share. So, even if things Bounce Around the bottom, we should be able to continue to put pressure on the competition. Continue to take market share. We should be able to grow as long as things. Stabilize, exactly at the Tom's point. So I mean, there's a lot that we're doing internal to do that and we'll keep a focus on cost as well. So,

Analyst (various): And Brad, that's very helpful. Just if you could provide a frame of reference for where that cohort stood in 2019 or prior to this downturn, just to give some relative sense for those financial metrics today versus where they've been in the past. Thank you very much, and I'll turn it over.

Longer term, we still believe in that our goal of mid- team, zubaydah. That's you know, we're still on that path.

Bryan Langley: Yeah, Michael, I mean, if you're looking for peak to trough and those kind of things, I mean, at peak, those stores were doing about $28 million in volume. Today, they're doing $22 million. Back in '19, it was somewhere in between. And so without giving specifics, because we've quoted in the past what that was. So peak to trough, I mean, we hope we're bouncing along the bottom, right? I mean, we just hit 3.9 million units over the past 12 to 18 months. It's been somewhere around $4.41, $3.9, just keeps kind of bouncing along. And we're still at $22, and that's with the impact of cannibalization, strategic cannibalization as well. And so, you know, when we look at our stores, we do think that we are bouncing along the bottom at the $22 at peak.

And Brian, that's very helpful. And just, if you could, if you could probably a frame of reference for where that cohort, stood, uh, in 2019, or prior to this downturn, just to give some relative sense for those, um, Financial metrics today versus where they've been in the past. Thank you very much, and I'll turn it over.

Yeah. My I mean if you're looking for Peak tuross in those kind of things, I mean, it peaked. Those stores were doing about 28 million

Bryan Langley: Again, back post '22, kind of late '22, I think on a trend of 12 months, they were right around $28 million.

Analyst (various): Thank you very much, and good luck.

And volume today. They're doing 22 back in 19. It was somewhere in between and so without giving specifics because we've we've quoted in the past, what that was so Peak Toro, I mean, we hope we're bouncing along the bottom, right. I mean, we just hit 3.9 million units over the past 12 to 18 months. It's been somewhere around 4 41, 39, just keeps kind of bouncing along, and we're still at 22. And that's with the impact of cannibalization strategic cannibalization as well. And so, you know, when we look at our stores, we do think that we are balancing 1 of the bottom of the 22 at Peak again. Back post, 22 kind of late 22. I think our return to 12 months they were right around 28 million.

Bryan Langley: Yes, sir.

Thank you very much, and good luck.

Wayne Hood: Your next question comes from Seth Sigman with Barclays. Please state your question.

Yes, sir.

Analyst (various): Thanks. Hey everybody. I wanted to focus on pricing and market share maybe as a follow-up there. You talked about seeing high single-digit price increases across the industry. Seems like you've been more patient or perhaps able to raise just less than others. How do you see price gaps changing right now and any signs that your market share could be accelerating on the back of this? Obviously, we see those gains in wood, but maybe outside of that. Thank you.

Your next question comes from Seth Sigmund with Barclays. Please state your question. Thanks. Hey everybody. I wanted to focus on pricing and market share, maybe as a follow-up there. You talked about seeing high single-digit price increases across the industry. It seems like you've been more patient, or perhaps able to raise prices just less than others. How do you see price gaps changing right now? And are there any signs that your market share could be accelerating on the back of this? Obviously, we see those gains in wood, but maybe outside of that. Thank you.

Tom Taylor: Yeah, I mean, I think when you look at, on a market share perspective, as we look at the industry, our total sales grew over 7% in the second quarter, and we had a positive same-store sales increase. And looking across the spectrum of publicly traded flooring companies and people that sell our category, we feel like we're doing better, and we feel like we are taking share. I do think that the independent channels have taken price earlier, quicker, because they had to. And we were able, because the way we turned, this is when the benefit of slow turning inventory is beneficial, we were able to hold off and take less price increase. So I think that gap has probably widened a bit, and we feel good about that. And what was said?

Yeah, I mean, I think when you look at um, on the market share perspective, um, as we look at the industry, our total sales grow over 7% in the second quarter and we had to you know positive same store sales increase and look at across spectrum of publicly traded you know flooring companies and people that sell our category. We feel like we're doing better uh and we feel like we are taking share. Um I do think that the independent channels have taken price uh, earlier quicker because they had to um and we were we're able because the way we turned this is when the benefit of slow turning inventories beneficial, uh we were able to hold off and uh and take less price increase. So I think that Gap is probably widen a bit. Um and we feel good about that.

Bryan Langley: No, you know, I would just reinforce the point that I made earlier about the, you know, the understanding around the elasticity that we have in our categories. I think if you pair that with the micro pricing efforts that we have in the local market, it gives us a really good sense of how the customer is responding to our moves. And collectively, from the get-go, as we entered this tariff environment, we felt like we were going to be better positioned than our competition to navigate through this environment. And we absolutely view this as a market share gain opportunity. Now, it's a very fluid environment. And again, because of that micro process that we have in place, we think we can react to changes at the local level while maintaining a really good perspective here in Atlanta through our merchant team.

Tom Taylor: Yeah, and I'd say the other thing too, the one thing with gaining market share, when you kind of look at how we compete with others in the market, whether it's the independent flooring stores or the big boxes, you know, price is one part of our moat. You know, our moat expands into service. Our service scores are at an all-time high. You look at our assortments, our assortments are still larger than everyone else's, and we've continued to do PLRs and bring in new products across every category that we sell. Our in-stock is at an all-time high. We've got plenty of inventory. So the other pieces of the moat are improving versus the competition. And while we've, and our price has improved, but if it gets more competitive, we're in a really good place.

No, no. You know, just reinforce the point that I made earlier about the, you know, the the understanding around the elasticity that we have in our categories. I, I think if you pair that with the, the micro pricing efforts that we have in local market, it gives us a really good sense of how the customers responding to our moves and collectively from the get-go. As we enter this tariff environment, we felt like we were going to be better positioned than our competition to navigate through this environment. And we absolutely view this as a market that share gain opportunity. Now it's a very fluid environment and and again because of that micro process that we have in place, we think we can react to changes at the local level. While while maintaining a really good perspective here in Atlanta through our Merchants team.

Yeah. And I'd say the the other thing, too, the 1 thing with gaining market share, when you kind of look at how we compete with others in the market, whether it's the independent flowing stores or the big boxes, you know, the prices is 1 part of our moat, um, you know, our mode expands into service, our service scores are at an all-time high. Um, we you look at our assortments, our assortments are still larger than everyone else's and we've continued to do plrs and bring in new products across every category that we sell. Um, our in stock is at an all-time high. We've got plenty of inventory. So the other pieces of the moat are, are improving versus the competition? Uh, and while we've and our prices improved, uh, but if it gets more competitive we're in a really

Analyst (various): Okay, great. Very helpful. And then just from a margin perspective, as I think about tariffs, you've talked about a lot of the mitigation efforts, but also how timing helps this year, just based on the inventory turns. So I'm curious, when you look at the incremental tariffs today and what's changed versus even just three months ago, how does that change your view on what the impact could potentially be next year? Thank you.

Really good place.

Okay. Great very helpful. And then just from a margin perspective, um, as I think about tariffs, you've talked about a lot of the mitigation efforts, but also how timing helps this year, just based on the inventory turns. So I'm curious when you look at the incremental tariffs today and what's changed versus even just 3 months ago. How does that change your view on what the impact could potentially be next year? Thank you.

Tom Taylor: So I'll start, Brian, and then you can weigh in. So, you know, our margin, we've been able to manage it really well over the last couple of years through the tariff environment. We are going to have some challenges with distribution centers coming online. There's a cost that will impact our gross margin and make it more of a challenge, but those are one-time costs and we burn those off over the course of time. So I believe with what we know today with tariffs, we're going to do all we can to try to protect our rate and feel like we're confident we can do that with the exception of having to deal with our distribution centers.

Bryan Langley: Yeah, as we said on the last call, if it was just universal tariffs on the 10%, we felt very confident in maintaining the rate. We knew reciprocal tariffs if put into place, we put a little bit of pressure, but because of the job that Brad and Tom have talked about from our merchandising team, we've been able to mitigate a lot of that exposure. And so there may be slight pressure, but it's going to be very minimal pressure on gross margin rate from tariffs. More of it's going to come from what Tom talked about with some of the step investments that we have with the two new distribution centers coming online.

So I I'll start Brian and then uh then you then you could weigh in. So you know our margin we've been able to manage it really well over the last couple of years through the Tariff environment. Um we are going to have some challenges with distribution centers coming online. There's a a cost that will impact our gross margin and make it more of a challenge but those are 1-time costs and we burn those off over over the over the course of time. So um I I I believe with what we know today, with tariffs, we're going to do all we can to try to protect our rate and uh feel like a confident, we can, we can do that with the exception of having to deal with our distribution centers. Yeah. It's as we said on the last call, if it was just Universal Terrace in the 10%, we felt very confident in. In maintaining the rate we knew reciprocal tariffs have put into place, we put a little bit of pressure but because of the job that Brad and Tom have talked about from our merchandising team, we've been able to mitigate a lot of that exposure and so there may be slight pressure but it's going to be very minimal pressure on gross margin rate from tariffs. More of its going to come from what. Tom talked about with some of the steps.

Wayne Hood: Okay, thanks guys. Nice show. Your next question comes from Stephen Forbes with Guggenheim Securities. Please state your question.

Investments that we have with the 2 new distribution centers coming online.

Okay, thanks guys. Nice job.

Analyst (various): Good evening everyone. Tom, I was, and Brad, maybe I was hoping to maybe just explore the company's reach from an income demographic standpoint, right? And the thought here is how far up do the income bands go based on the model that you guys put into market today? Is the design studio format really giving you access to a new customer? And if it's not, right, like how do you guys think about potentially evolving the format, the assortment, right, and/or just other growth opportunities to make sure that you're drawing that higher income consumer into the brand in an environment, right, where the higher income consumer may lead us out of whatever we're in today?

Your next question comes from Stephen Forbes. With Guggenheim Securities. Please State your question.

Good evening, everyone.

Tom, I, I was and and Brad maybe I was hoping to um, maybe just explore the companies reach from an income demographic standpoint, right? In the thought here is how how far up do the income bands? Go based on the model that you guys put into market today.

yeah, is the design studio format, really, you know, giving you access to a new customer

And and if it's not right, like how how do you guys think about potentially evolving the format the assortment, right? Uh, you know, and or just other uh, growth opportunities to make sure that you're you're drawing that higher income consumer.

Uh, into the brand, uh, in an environment, right? Where the higher income consumer may may lead us out of whatever we're in today.

Tom Taylor: Yeah, I think there's two sides. One is we don't talk about the studios much, but we are in the middle of revisiting our studio strategy. We're excited about kind of how they're performing. And we've got a new leader. We took one of our top merchants and put them in charge of our design, our in-store design experience and our studios. And more to come on that as we get closer to the end of this year. We'll give you more of an update on kind of how we're thinking about the studios. Our stores do attract all different income levels of customers. We've, over the course of the last 10 years, we've continued to drift into better and best category that appeals to all income levels.

Yeah, I think there's I think there's 2 sides. You know, we don't uh, 1 is we don't talk about the studios much but we are in the middle of revisiting our studio strategy. Uh, we're excited about kind of how they're performing, and uh, we've got a new leader. We took 1 of our top merchants and put them in charge of our design, in our, in store, design experience, and our Studios and the more to come on that as we get closer to the end of the year, we'll give you more of an update on kind of how we're thinking about the studios. Um,

Tom Taylor: And we've got stores in very expensive zip codes, and we've got stores in very modest income level zip codes, and they do well. I think we're going to continue to push the envelope in better and best, and more of that is because in every market that we serve, irregardless of income level, that's what the customers are buying. If they elect to do a project at Hard Surface, they're stepping up within the category. So we'll continue to push that envelope. I do think, you know, we do like to think ourselves kind of a Costco, kind of we appeal to higher-end customers. Our income levels do slant higher, and if you walk in the store today, you see the type of product that would appeal to, you know, to very expensive homes. So we'll continue to push it.

Tom Taylor: We are thinking differently about the studios, more to come on that. That will even appeal to even a higher-end customer, but we'll fill you on that when we get more work done around it.

Market that we serve irregardless of income levels. That's what the customers are buying. If they elect to do a project in hard surface, they're stepping up within the category. So we'll continue to push that envelope. I do think, you know, we do like to think ourselves kind of, of Costco, kind of we appeal to higher-end customers. We are income levels, do slant higher. And if you walk in the store today, you see the type of product that would appeal to, you know, to, to very expensive homes. So, um, we'll continue to push it. We are thinking differently about the students more to come on that that will even appeal to even a higher-end customer. Uh, but we'll fill you on that when we get more work done around it.

Wayne Hood: And then maybe just a follow-up. You mentioned commercial sort of being excited about various things to come. So maybe a two-part question on that. The first is if we just revisit the Spartan profitability pressure, confirming that that is all investment. And then second, you know, can you give us any teasers on sort of the broader commercial growth plans here, you know, the RAM strategy or, you know, what you sort of see on the horizon here as potential future uses of your capital?

And then and then maybe just a follow-up. Uh, you mentioned, uh, commercial sort of being excited about various things to come. Um, so maybe a 2-part question on that the F. The first is if we just revisit the Spartan profitability pressure, confirming, that that is all investment. And then second, uh, you know, can you give us any teasers on sort of the broader commercial growth plans? Here, you know, the the ram strategy or, um, you know what you sort of see on the horizon here as potential future uses of your capital.

Tom Taylor: Yeah, so we're pleased with what's going on with Spartan. We have invested heavy in the beginning part of this year in sales reps to, you know, continue to kind of grow our sales. We're happy with the results and kind of we're happy with the book of bids that they have and the trajectory of the business. We're pleased with what it's going on. We're pushing that team to bring us ideas to grow even faster. You know, we slowed that back on the acquisitive side a little while ago as we were in a downturn, but we feel like we've got the ability to do more in commercial, and as we do more, you will know more. From a RAM perspective, we've hired in a new leader of our RAM organization. She comes with a great background.

Yes, so we're pleased with what's going on with Spartan. Uh, we have invested uh heavy um in the beginning part of this year, in, in sales reps to, you know, continue to kind of grow our sales. We're happy with the results and and kind of, we're happy with the book of bids that they have that and the trajectory of the business, we're pleased with, what it's going. We've we're pushing that team to

Tom Taylor: She had been with Home Depot Supply, and she had been with Grainger before that. So she, you know, she comes, she's got a great pedigree and thinks differently of how we can continue to grow the commercial space that we generate out of our stores. So we're going to continue to lean in that. We think they're both huge growth vehicles for us. We think we can, that we're still in the early stages of what will be in commercial.

Bring us ideas to grow even faster. Um, you know, we we slowed that back on the inquisitive side a little while ago as the as we were in a downturn, but we feel like we've got our, uh, we've got the ability to do more in commercial and as we do more, uh, you you will, you will know more from a ram perspective. Uh, We've hired in a new leader of our Ram organization. Um, she comes with a, a great background. She had been with, uh, Home Depot Supply, and she had been with Granger, um, before that. So she, you know, she comes, she's got a great pedigree and, and thinks differently of how we can continue to grow the commercial space that we generate out of our stores. So uh, we're going to continue to lean in that. We think they're both huge growth vehicles for us. We think we can uh that we're still in the early stages of. What will be in commercial?

Wayne Hood: Thank you. Your next question comes from Zach Sadum with Wells Fargo. Please state your question.

Thank you.

Analyst (various): Hey, good afternoon. Can you level set us on how you're mixing today across good, better, and best, since we know the latter has been, you know, outperforming for a while now? And Tom, you also mentioned some competitors shifting downstream a bit to opening price points. Any thoughts on how your opening price points are performing and if that, you know, elevated competition is having an impact?

Your next question comes from Zach fedom with Wells. Fargo, please State your question.

Hey, good afternoon. Um, can you level set us an on how you're mixing today across good better and best? Since we know the latter has been, you know, outperforming for for a while now and Tom, you also mentioned some competitors shifting Downstream a bit to opening price points.

Any thoughts on how?

You're opening price points or performing. And if you know elevated competition is having an impact.

Tom Taylor: So better and best is outcomped. Good for the last three years, you know, or so. So, and that continues to be the case within our assortments. There's not a material difference in how the good is performing as some of the competition has drifted into more opening price points. Even though there's more of it and it's more competitive, our opening price point is still better than their opening price point. We think that our features and benefits, when you really look apples to apples, we feel pretty good about kind of how we compete on it. So while some competition, both on the big box and on the independent side, are leaning more on that, I think they're just desperate looking for growth in the category and trying anything. But I feel good the way we compete there, and the performance of each segment is pretty consistent.

Analyst (various): And then is it still fair to say that better and best, you're maintaining a wider price gap relative to peers compared to good? So as you think through potential price increases, can you just talk to where you think you may have the most flexibility or opportunity, and would it be more on that better and best as opposed to good?

So a better investment out comp uh, good for the last 3 years or you know, or so. So um and that continues to be the case within our, uh, within our assortments. Um, there's not a material difference in how the, the good is performing as the sum of the competition is drifted into more opening price point even though, um, there's more of it and it's more competitive, our opening price point is still better than their opening price point. We think that our features and benefits when you really look Apples to Apples. Um, we feel pretty good about kind of how we compete on it. So um, while they while some competition both on the big box and on the independent side are leaning more and that I think they're just desperate looking for for growth in the category and trying anything. Um, but I feel good the way we compete there and the performance of each segment is pretty consistent.

And then is it fair to say, what? It's been.

Got it. Thanks Tom. And then is it still fair to say that that better and best? You're you're maintaining a wider price Gap relative to peers compared to good. So so as you think through potential price increases, can you just talk to where you think you may have the most flexibility or opportunity and, and would it be more on that better and best as opposed to good?

Tom Taylor: Well, we have, it kind of goes back to what Brad said a little bit earlier about the way we price. You know, we do have to try to maintain price by family. We can't just go and go, okay, because we don't compete with someone on X tile, we're going to price it off the boon. We want our customers to be able to logically walk up from opening price point to the next price point to the best. So you want to add to what you said? I think you nailed it. For us, you know, having that surgical approach has allowed us to really make decisions where we think we're going to drive benefit to the organization. I would say, generally speaking, the gaps on opening price point and good are going to be tighter than what you would find on better and best.

Well we have uh I'll let it kind of goes back to what? Brad said a little bit earlier about the way we price, you know. We we we do have to try to maintain price by family. We can't just go and go, okay, because we don't compete with someone on X tile. We're going to price it. Uh, off off the moon. We want our customers to be able to logically walk up from opening price point to the next price, point to the best. So you want to add to what you said? Yeah, I I think you I think you nailed it for us, you know, having that surgical approach has allowed us

Tom Taylor: So yeah, you're naturally going to have more flexibility from a dollars and cents perspective as you move up the line structure. But we've taken action from opening price point all the way up to best. So I feel really good about the strategy that we've implemented at this point. But as I've said a couple of times, it's very fluid, and we're watching the big box and independent actions very closely.

Perspective as you move up the line structure but we've taken action from opening price point, all the way up to best. So feel really good about

Analyst (various): Thanks for the time, guys.

Uh, the strategy that we've implemented at this point but as I've said a couple times, it's a couple times. It's very fluid and we're watching uh uh big box and independent actions very closely.

Thanks for the time, guys.

Wayne Hood: And ladies and gentlemen, in order to get through as many questions as we can in the time remaining, please limit yourself to one question when it's your turn to ask a question. The next question comes from Steven Sacone with City. Please state your question.

And ladies and gentlemen, in order to get through as many questions as we can, and the timer in many. In the time remaining, please limit yourself to 1 question. When it's your turn to ask a question.

Analyst (various): Great. Good afternoon. Thanks very much for taking my question. I wanted to just understand the second half thinking a bit more because it seems like the demand environment is coming in weaker than we all kind of expected, but that's offset by a bit better pricing, which is helping ticket. So maybe just help us understand how your view on the demand environment has changed and then drilling down into the third quarter versus fourth quarter. Brian, can you just help us understand, you know, the comp progression? Because 4Q does have a little bit of a tougher compare lapping the hurricane, you know, some ticket there. So just help us think through that third quarter versus fourth quarter. Thanks very much.

The next question comes from Stephen sewn with City. Please State your question.

Bryan Langley: Yeah, look, I'll start with the latter, Steve. So, you know, I think I said it earlier, but the high end would assume that the second half comps are low single digit positive with Q3 being the peak. Exactly as what you just mentioned, is we're going to be lapping Helene, Milton, and then also stronger EHS. So if you look at our cadence, we were down one eighth in Q1. We just finished with a positive 0.4. So the back half again would need to be positive to get to that kind of flat comp at the high end of the guide. Down to it at the low end, obviously would assume that we sequentially decline each quarter. And so in the low end, we have baked in some assumption around demand decay. You know, we're not sure, you know, the environment is still fluid, as Brad is mentioning.

Great good afternoon. Thanks very much for taking my question. Um I wanted to just understand the second half thinking a bit more because it seems like seems like the demand environment is coming in weaker than we all kind of expected. But that's offset by a bit better pricing which is helping tickets. So maybe just help us understand how your view on the demand environment has changed and then drilling down into the third quarter versus fourth quarter Franc. Can you just help us understand? You know, the comp progression because 4 q does have a little bit of a tougher compared laughing, the hurricane, you know, some ticket there. So just help us think through that third quarter versus fourth quarter. Thanks very much.

Yeah. Look I'll start with the ladder uh Steve and so you know, I think I said it earlier, but the high-end would assume that the second half comps are low single digit positive with Q3 being the peak. Exactly. Is what you just mentioned is we're going to be laughing, Helen Milton, and then also stronger EHS

So if you look at our cadence, we were down 18 in Q1; we just finished with a positive 0.4. So the back half again would need to be positive to get to that kind of flat comp at the high end of the guide.

Bryan Langley: So we've kind of got both bounds, but if things just stay the same from where we are, that's right down the fairway, right down the midpoint of our guidance. So we're kind of saying if we bounce around the bottom, we should be kind of right there in the middle of the midpoint.

Down to the low end. Obviously, we would assume that we sink, Quincy declines each quarter. And so in the low end, we have baked in some assumption around demand decay. You know, we're not sure, you know, the environment is still fluid, as Brad is mentioning. So we've kind of got both bounds, but if things just stay the same from where we are, that's right down the fairway, right down the midpoint of our guidance. So we're kind of saying if we bounce around the bottom, we should be kind of right there in the middle of the midpoint.

Wayne Hood: Thank you. And your next question comes from Peter Keith with Piper Sandler. Please go ahead.

Thank you, and your next question comes from Peter Keith with Piper Sandler. Please go ahead.

Analyst (various): Hey, thank you. Good afternoon, everyone. Tom, you had mentioned that you're targeting more than 20 stores for next year and you think you can do more than 20, I guess when we'll say housing is stabilized. I'm trying to think about like kind of the longer term store opening rate. You did peak for a couple of years there at 30. So is it fair to say you'll probably land somewhere between 20 to 30 openings per year as we kind of look out three to five years?

Hey uh, thank you. Uh, good afternoon everyone. Um, Tom, you had mentioned that um you're targeting more than uh, 20 stores for next year. And you think you can do more than 20. Um, I guess when we'll say housing is stabilized try to think about like kind of the longer term store opening rate you, you did Peak for a couple of years there at 30. So is it fair to say you'll probably land somewhere between 20 to 30 openings per year, as we kind of Look Out 3 to 5 years?

Tom Taylor: So what I said in my script was that our plan as of today is to open 20 stores in next year. And we've allowed ourselves flexibility. If things were to get worse, we could back off that number. If things were to get better, we have the ability to increase that number. As we look out to the next years, it's going to depend on what happens with demand. It's going to depend on what happens with existing home sales. And then we'll make those decisions. We have the ability, there's enough real estate pipeline and we have the talent on the team to go much faster, but we're trying to be prudent with kind of how we're managing our capital and want to make sure that we think about it in the right way.

So, uh, what I said on the what I said in my script was that our plan as of today, is to open 20 stores in, in next year. Um, and we've allowed our stuff, flexibility of things were to get worse. We could back off that number. If things were to get better, we have the ability to increase that number. Um, as we look out to the next few years, it's going to depend on what happens with demand. It's going to depend on what happens with existing home sales and then we'll make the decisions. We have the ability. Uh there's enough

Tom Taylor: But if things got better, we would open more than 20 in the next couple of years, but we just have to wait and kind of get to that environment.

Bryan Langley: Peter, this is Brian. Yeah, I mean, our infrastructure is built for more than 20. Yeah, so when things get better, we can accelerate from that 20. Not ready to commit to where a cap would be, but it would be north of 20, and we're built for more than 20 today if things were to be better.

Real estate Pipeline and we have the talent on the team to go, uh, to go much faster. But we're trying to be, you know, prudent with a kind of how we're managing our capital and want to make sure that we think about it in the right way. Um, but if things got better, we would open more than 20 in the next couple of years. But if we just have to wait and kind of get to that environment Peter, this is Brian. Yeah, I mean, our, our infrastructure is built for more than 20. Yeah. So when, when, when when things get better, we we can accelerate from that 20, not ready to commit to, where a cap would be, but but it would be north of 20 and we're built for more than 20 today. If if things were to be better.

Wayne Hood: And your next question comes from Peter Keith. I'm sorry, Kate McShane with Goldman Sachs. Please state your question.

And your next question comes from Peter, Keith. I'm sorry. Uh, Kate McShane with Goldman Sachs, please State your question.

Analyst (various): Hi, good afternoon. Thanks for taking our question. You did mention that 26% of your product is now made in the US, and we've heard anecdotally that even US manufacturers are now starting to feel higher costs as a result of tariffs and maybe just being in a more inflationary environment. We were just wondering if you're seeing this at all on that particular side of the product.

Hi, good afternoon. Thanks for taking our question. Um, you did mention that 26% of your product is now made in the U.S., and we've heard anecdotally that even U.S. manufacturers are now starting to feel higher costs as a result of tariffs and maybe just being in a more inflationary environment. We were just wondering if you're seeing this at all on that particular side of the product.

Ersan Sayman: Hi, this is Arisan. I mean, for the US, it's 27% of our sales at this point, and we're not seeing the cost increases yet from the US. But if that happens, I mean, as we normally do with every other country, that in case of costs go up, we look at all our options across the globe and we try to diversify. But at this point, we have not seen that.

Wayne Hood: Thank you. And your next.Question comes from Chuck Graham with Gordon Haskett. Please go ahead with your question.

Tom Taylor: Thanks very much. You guys have done a great job framing out the gross margin line in 2025 here, and notwithstanding the 60 to 70 basis points of pressure that probably wraps from the DC openings into next year. But can you help us think about the puts and takes beyond this year on the gross margin line and what could drive it higher? Do you want to drive it higher, or do you feel like 44 is a good long-term rate? Thank you.

Thank you. Your next question comes from Chuck Graham with Gordon Haskett. Please go ahead with your question.

Hey, thanks very much. Um, you guys have done a great job, framing out the gross margin line in 20 in 2025 here and and not withstanding the 60 to 70 basis points of pressure that probably wraps from the DC openings into into next year. But, but can you, can we help us think about the puts and takes Beyond this year on the gross margin line? And what could drive it higher? Do you want to drive it higher? Or do you feel like 44 is a good long-term rate? Thank you.

Bryan Langley: That is an excellent question and one that we internally debate often. So we've got lots of puts and takes in gross margins. So on the good side of gross margin and how we can continue to increase it, we do believe that within the category that consumers are going to continue to gravitate upwards and they're going to buy better and best product, that would be a benefit to gross margin. We do believe that while we're executing well on our service line, we can be even better on our design services and do even more. And when a designer engages with a customer, it's a benefit to the gross margin line. That would be a positive. We are doing a good job as Ursan and his team have done a good job of moving product from one vendor to another around the world.

Bryan Langley: In some cases, we're seeing some margin benefit from that because we're able to buy it better. So that will be a good thing. On the things that could work against us as our commercial business gets stronger, that runs at a slightly lower gross margin. So if that grows at a faster rate, that would put a challenge on gross margin. And some of the adjacent categories that we're trying, we bring them in and they don't carry the same margin level. We're okay with that in some cases because there's not a heavy lift to sell them and they kind of flow through above the store's operating margin and we're okay with that. So long way around of, we are running at a very high gross margin today. I don't believe that we've peaked, but I don't know when it improves.

This is an excellent question and 1 that we internally debate often. Um so um we've got lots of puts and takes and gross margins. So on on the good side of gross margin and how we can continue to increase. And we do believe that within the category that can cut consumers are going to continue to gravitate upwards and they're going to buy better and best product. That would be a benefit to gross margin. We do believe that we're while we're executing well on our service line, uh we can be even better on our Design Services and do even more. And when a designer engages with a customer, it's a benefit to the gross margin line, that would be a positive. Um, we are doing a good job as we as ersan, and his team have done a good job of moving product from 1 vendor to another around the world. In some cases, we're seeing some margin benefit from that because we're able to buy it better. So that will be a good thing on the on the things that could work against us as our Commercial Business gets stronger.

Bryan Langley: We've got to burn through two distribution centers next year. We've got a lot of other internal initiatives, but I, you know, there's no reason that we couldn't go higher from where we are today. But we're not ready to give an ultimate gross margin target, but I think it could be better, but it'll be a slow line to get there.

That runs at a slightly grow, lower, gross margin. So if that grows at a faster rate that would put the challenge on gross margin and some of the adjacent categories that we're trying, we bring them in and they don't have they don't carry the same margin level. We're okay with that in some cases because there's not a heavy lift to sell them and and uh they're just they kind of uh that they flow through above the store's operating margin. And we're okay with that. So long way around of um we are running at a very high gross margin today. I don't believe that we that we've peaked but I don't know when the when it when it improves we've got to burn through 2 distribution centers next year. We've got a lot of other internal initiatives but I but I you know there's there's no reason that we couldn't go higher from where we are today. Uh but they'll be, you know, they'll be uh it we're not ready to give an ultimate gross margin Target. Uh, but I think it could be better but there'll be, it'll be a slow line to get there.

Wayne Hood: And your next question comes from Greg Melich with Evercore ISI. Please state your question.

Brad Paulsen: Hi, thanks. I'd love to follow up on the progression of comps in the second quarter and then even more into the back half. If I just think about tariffs coming in a majority of the product, I get sort of 300 or 400 basis points of ticket if it were to flow through. Is it fair to say that you're expecting transactions growth or units per basket to go down to offset that with the comp trend remaining flattish?

And your next question comes from Greg Meluch with Evercore ISI. Please state your question.

Hi, thanks. Um, I love to follow up on the progression of comps, uh, in the second quarter and then even more into the back half.

Uh, if I just think about tariffs coming in a majority of the product.

I get sort of 300 to 400 basis points of ticket. If it were to flow through, is it fair to say that you're expecting transaction growth or unit curbed basket to go down to offset that with the comp trend remaining flattish?

Analyst (various): This is Brian. I'll take that, Greg. So yeah, I mean, look, we've got a little bit of compression in our ticket assumed in the guide. We think there may be a little bit of pressure on job size, but transactions also are going to be down. So you're right. Average ticket is still assumed to be up, you know, low single digits to that mid-single digit. But within that, also with a little bit of compression in basket size or project size potentially embedded in the ticket. And then transactions obviously would be down, you know, low single digits to mid-single digits to get to that flat to down to.

Tom Taylor: Remember, the hurricane had a benefit to average ticket and the hurricane had a benefit to transactions, and we'll be lapping that as we get past October.

This is Brian. I'll take that Greg. So yeah, I mean look we've got a little bit of compression in our ticket assumed in in the guide we we think there may be a little bit of pressure on job size. Um, but transactions also are going to be down. So you write average ticket is still assumed to be up, you know, listing a digits to that mid single digit. But within that also is a little bit of compression in basket size or project size, potentially embedded in the ticket and then transactions, obviously would be down, you know, low single digits to Mid single digits, to get to that flat to down to remember the the hurricane had a benefit to average ticket and the her hurricane had a benefit to transactions and we'll be lapping that as we get past October.

Wayne Hood: And your next question comes from David Bellinger with Mizuho Securities. Please state your question.

And your next question comes from David Bellinger with Mizuho Securities. Please state your question.

Analyst (various): Hey everyone, thanks for the time. I want to ask on farm services. I think you mentioned in the prepared remarks that you saw one of the best months in the company's history. That's despite all these external factors we've been talking about throughout this call. So what's behind that strength? Is there some new unlock that potentially enabled the higher pace of growth from here? What's going on with Spartan and why is that sort of outperformed despite a still slow external macro here?

Hey everyone, thank you. Thanks for the time. I want to ask about Spartan Services. I think you mentioned in the prepared remarks that...

You still 1 of the best months in the company's history that's despite all these external pressures, we've been talking about throughout this call. So so what's behind that that strength is there. Some new unlock that, you know, potentially enables a higher pace of growth from here, just what's going on with Spartan and why, why is that sort of outperformed despite of still slow external macro here?

Bryan Langley: Yeah, just to build on Tom's comments from earlier, we are very pleased with Spartan. Love that business. Very strong management team. I think we've communicated in the past there has been a shift from a vertical prioritization. We called it out in the prepared remarks, a big focus now on education, hospitality, healthcare, and senior living. We've moved away from multifamily, or I should say less focus on multifamily, which has certainly helped. And then the second piece, we've added some really good talent from a salesperson perspective. And while there is a ramp on that, generally, we are seeing nice returns from that investment.

Perspective. And, while there is a ramp on that, generally we are seeing nice returns from that investment.

Wayne Hood: Thank you. And the last question comes from the line of Robbie Ohms with Bank of America. Please state your question.

Thank you.

Analyst (various): Oh, thanks for fitting me in here. My question is, I was hoping you could maybe compare and contrast what you're seeing between the homeowner customer and the pro customer. I mean, the first side would be, is there any, what have you seen in pull forward overall, and is there any difference between those two sides of the business? Is there any difference in what, you know, the pro is buying versus a homeowner in terms of that move towards better and best? Is there any, do you think it stays 50-50, or do you think the pro is going to keep moving up? Just would love to get thoughts on that.

And the last question comes from the line of Robbie Ohms with Bank of America. Please state your question.

Oh, thanks for, uh, fitting me in here. My, my question is, uh, I was hoping you could, uh, maybe compare and contrast what you're seeing between the homeowner customer and the Pro customer. I mean, on the first side, would be, is there any, what have you seen in pull forward overall? And is there any difference between those two sides of the business? Um, is there any difference in what, you know, the Pro is buying versus a homeowner in terms of that move towards better and best? Um, is there any, do you think it stays 50/50 or do you think the Pro is going to keep, uh, moving up? Just would love to get, um, thoughts on that.

Bryan Langley: Thank God for our pros. We are, we're very pleased with our professional business. Our businesses, when you look at it by day, you know, the weekends are where we're under challenge, and that's where the homeowners, you know, we need more homeowners engaged in the category. And we think existing home sales drive a lot of that homeowner interest. People fix up their home before or after they sell. So as long as that's under pressure, negative year over year, in that 3 million, you know, high 3 million range, that customer is going to be under pressure. The behavior of the two customers is not a lot different. When you look at what a homeowner comes in to buy and even what a professional buys, they're buying for a homeowner somewhere, and they continue to buy in the better and best sectors of our business.

Um, there are thank God for our Pros. Uh, we are, uh, we're very pleased with our professional business, our our, our businesses, when you look at it by by day, you know, the the weekends are where we're under Challenge. And that's where the homeowners, um, you know, we need more homeowners engaged in the category, um, and we think existing home sales drive a lot of that, homeowner interest people fix up their home before after they sell. So as long as that's under pressure negative year-over-year, uh, in that 3 million, you know, High 3 million range, um, that customer's going to be under pressure, the behavior of the 2 customers is not a lot different, uh, when

Bryan Langley: So we haven't seen a real change in behavior. The only change in behavior we saw with the homeowner is as existing home sales slow, they're doing smaller projects. They're doing backsplashes versus full kitchens. They're not doing whole house. They're doing bathrooms. So that's it. So we're doing everything we can to drive that homeowner interest where, you know, our marketing points towards, you know, making, you know, recreating your space, making dreams come true, showing off inspiration. We're putting a ton of emphasis behind our design initiative to get customers to engage in the category. But really pleased with what's going on with pro. Pleased with what's going on with the homeowner. We just want more of them in the store. So with that, that is our last question.

When you look at what a when a homeowner comes in to buy and even go to professional buyers, they're buying for the for a homeowner somewhere and they continue to buy uh, in the better and best sectors of our business. So, um, that we haven't seen a real change in Behavior. Well, the the only change in Behavior, we saw with the homeowner is as existing home sales slow. They're they're doing smaller projects. They're doing backsplashes versus full kitchens. They're they're not doing whole house. They're doing bathrooms so.

That's it. So we we're doing everything we can to drive that homeowner interest, where, you know, our marketing points towards you know, making, you know, recreating your space making dreams. Come true, showing off inspiration. We're putting a ton of emphasis behind our design initiative to, uh, to get customers to get to engage in the category. But, uh, really pleased with what's going on with Pro. Uh, please leave a like, what's going on with the home? And it would just want want want more of them in the store.

Bryan Langley: I'd like to thank everyone for joining us on the call today, for our associates who are listening to the call. Thank you for all your hard work, for delivering excellent execution really on the financial side and on the soft side and on the service side. We couldn't be happier. So we look forward to updating you on the next call. Thank you.

Ersan Sayman: Goodbye.

Wayne Hood: This concludes today's conference. All parties may disconnect. Have a good day.

So with that, that is our last question. Um, I'd like to thank everyone for joining us on the call today for our Associates of listening to the call. Thank you for all your hard work for delivering, excellent and execution, it really on the financial side and and on the soft side, on the service side, I we couldn't be happier. So we look forward to updating you on the next call. Thank you, goodbye.

It's inclusive—a conference for all parties. May disconnect. Have a good day.