FND - Earnings call transcript Q3 2018 | Floor & Decor Holdings, Inc.

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Operator

Greetings and welcome to the Floor & Décor Holdings Inc.

Third Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host today, Mr. Investor of Director McConnell, Relations. Matt Please go ahead.

Matt McConnell

and you good morning everyone. Thank

Financial our Joining Executive Tom Chief and the Chief call join Vice Taylor, who for Laube, on is Vice Also Lisa room Chief and Merchandising Lang, are President Trevor the today me Q&A Executive in and Executive President will Officer Officer. us Officer session.

including statement. language. forward-looking call started, would in projections such of Securities of for forward-looking risks Floor within SEC information Safe materially note are that market other Harbor expectations, actual a market results future is Please statement you or statements. financial and meaning listed differ statements & that like in the conference refers subject guarantee is any Any assumes or this obligation future also contain remind past a those Before projections or Comments to I from our results. of conditions the expressed during performance including we not characterizations Litigation events, future to The company’s statements of get the Reform update those to webcast no made XXXX of such to uncertainties. filings. company’s Private forward-looking Decor reasons, and Act forward-looking and future any could

materials available our which ir.flooranddecor.com. of call Relations ir.flooranddecor.com. website, replay website, GAAP Regulation comparable conference call, earnings be this press directly reconciliation Investor A G. of SEC on measure measures release, financial the these related with A found in by most this During available measures is defined the company non-GAAP Relations can our on may as non-GAAP to be discuss the Investor financial together recorded will

the call to Now, let me Tom. turn over

Tom Taylor

and Matt Thank our everyone today. thanks joining call you, to

grew million. from from XX.X% very fiscal XXXX sales $XXX.X am the third same exceeding a to start all XX.X% of growth of growth XX.X% record results. on expectations. and of total with last adjusted I our me period by saying XX% Comparable third quarter our grew the quarter We year that achieved pleased store sales Let top XXXX, of EPS

strength with further third business compelling resonate quarter, in X and results our of pros. our to value In the $XX Our market and industry. including openings X consumers new that the third proposition reflect share gains opened continue the billion This quarter markets. surface model fragmented drives very hard we new stores, and flooring in ongoing differentiated

like densely openings and We are markets our populated about excited our Boston Seattle. in store in second

Program successfully Pro and rolled are Loyalty we the potential. program’s enthusiastic our out companywide Premier about addition, In

Our teams ultimately focus what gives It’s in hard exciting me significant where growth only and a of serving their we work can to our Décor. Floor here at also I that time our future. of customers & believe size our current want achieve communities. and an have fraction the all opportunities thank ahead confidence for I us. our we in associates

substantial of EPS delivered and investments, the quarter investments sales our the third Despite of operating comp the same making we have growth. income nearly growth adjusted we of quarter third XX% diluted our time, At turning to double-digit history these to decade-long third nearly Now, XX% from quarter store growth we been continued results, of support XXXX. growth.

forecast year’s last Irma the revenue difficult period to earnings that due pleased the and and to unprecedented We impact one-third to our was stores exceeded particularly outlook. occurred third to are Harvey. This quarter by especially our of have Hurricane during

storm comped quarter outside third the XX%. of during business affected Our areas

and build brand the as Looking continue our we to see opportunities significant to expand we market future, share gain awareness. footprint

Pro, strategies. designer our to invest in connected continue We customer, DIY and will

we our still our comparable small, still disciplined key industry. are will fragmented and later all growth. people experience has areas of our A key and the are on the investments four, nature growth in to the our our awareness stores. Pro well-positioned reiterate connected three, market our and several our new business. the returns build customer experience. of are and online low I brand and both We traffic The we With our sales, share expanding to of two, success enhancing opening given drive stores, across be increasing customer bit are; investments more To our and make to share investments that been to and of area the driving priorities marketing touch increasing one, improving store on efforts gains our continues

let progress Number areas. our in to quarter in remains store invest which top growth priority. we briefly each Now made highlight new one, we continued these third the me the of in

We at continue XXX stores. towards Floor & path see a least nationwide Decor to

We to and EBITDA in have stores projected with enhancements double new These previous our along a our XXXX ‘XX class of expectations. years made above important selections way and four-wall the invest led more have in and forma number our to are changes stores. new of we open than site pro strong

not believe the stores best growth of new open class XX% targets. yet new our year will This in our is seven XXXX. in last anniversary, stores third new in remain they XXXX X represents opened cycled long-term we history. and represent have collectively past our our the to stores on While new quarter and stores We from continue year with XX line track in to

and including We Francisco markets San densely opened time. like XXXX will are Island, Seattle. stores stores Long about of over populated We excited Boston, substantial believe in these Area metro and Bay class those the growth profitability drive

stores Our are underway. class class well XXXX is the stores opening of around XXXX work our favorably and of

training capabilities to year direct better improvements, growth store store a our our digital reflection two, remain for the including another on and of Pro key growth. this we comp and driving unit strength associates, of initiatives sales strategies. is of estate sales Number innovation, XX% invest expect comparable team. driving real and We in focused growth We merchandising product continued designer

online better. technology experiences both Pro superior in will for examples DIY our on customers the of focused believe and provide we a to and customers, investments serve also few in-store are We investing

system our more early customer of when stages better these for designers, coming ticket. one customer management multiple scheduling standing to and implemented been the our up our online CRM solution the in identify time segment, appointments with customers exceeded with or has our us The customer in-store over online our designers. appointments that from in help are spends We message years. has We should average of We it a sources, far serve than far our which smartly know increase expectations. relationship a

and social on is designer see involved. when media We reviews also favorable satisfaction both improved a stores customer customer

category product has important flows is years. store are both within and apart. in category, same X of but We within LVP perspective, for category. locking SKU Rigid categories. to across to us early locking we these solutions excited early assortment From LVP in serve been and inspiring rigid adopting with with decade and are clearly this our new a visually on the offering learn comparable design have a expansive our our set still and us continue product The our sales results. flex are to laminate product An core for example display centers industry competitive LVP breadth This our displays, led with fastest that our leading growing and merchandising customers, allows along our core the to ebbs advantages

the materially assortment higher competition. in-stock is Our than

X Our analysis show and comparing our competition by compared price, displays products product large that when when X thickness, foot shows our layer the we Moreover, display are that with have better on wear doors. foot collectively inspiring warranty. visually

consistently from the hard entire growth them. So product as customers like project. period customers is to employees is making products how sales in witnessed in to same-store consistently in has that our strong and see, to and This over XX by hear an explain In time their someone increase proposition working long our been the short, customers for past well for years. decision and have replicate our a the and benefits touch and their of as We comp appreciate value features purchase help different, can right will customers homes. as wanted look feel

our Next, we for sales growth. X% at over accounted to in-store which than Sales pickup the our over rate expanding continued with of quarter continue third experience. in faster to customers from fiscal grow connected half between the much our invest the coming of traffic mobile. Online e-commerce sales our synergy sales total web all website demonstrates our total of e-commerce our in XX% business. and of About originating through customer a footprint

so order is note customers, It of This allows transact can ultimately that XX% the we to in eye customer to be it our our them. are during Floor products our footprint expedite and customers & redesign and in mobile important store e-mail key investments a driver to that the looking their their our convenience growth. launched of customers they or made who their can home and our of the a on evaluate, tool a learning our website website online on device. change orders buy of on customers will to is in critical Recently, informative, new ability checkout expansion however they for improving called and better It helps identify Project. machine help website our experience. we offers buying e-commerce customers from with convenient the to our whenever is shopping thereby site mobile My continued visit us Décor for Alternatively, is expect process. We the the build the process. which website shop inspirational to to of associates We

our over continue will build the invest in greater share and We We companywide a pros. experience. Rewards our long-term the Premier with customer Pro and the wallet of Program rollout Loyalty of that loyalty believe completed generate to Pro

we X program We years understand our in and XX feedback. have different the lift to stores get safely we Premier customers We is in a all time for an environments minutes, believe Also to process. Florida. tested back. have solution Phoenix few pickup test saw and a it our have is and over to and in our tweaked for from favorable technology checkout and improved Pro very in Rewards right We quickly improvement money the get West now through training sales our how and Pros, received industry time We positive to substantial stores of our approximately leader. help years two

minute to I Now, to take want tariffs. address a

in risks that tariffs mitigating meaningful team has recently the Our strides of merchandising were imposed the announced. made experienced

Our strategy involves initiatives. distinct three

began we in negotiations substantial we goods partners of vendor have Chinese them. cost from lowering the purchase with the First, and made progress immediately our

sense we the origin so. diversify makes Second, all from to This time. progress where it do over to will continue happen make products to country of

in competitive increase retail pricing adjust completely judiciously focus value we overarching areas proposition. we in in achieving will tariffs and with are able In and summary, back professional objective both a the with provide remain business focused where truly our Finally, our customers to offset multiple across support not unique returns of we investing cost maintaining growth a our continue We customers strong business the our reductions, the to and on higher. areas drive on experience. to customer

call financial across the to We attractive of us. results Services gain turn guidance. times go base leverage store We retail I continue over share of of U.S. have growing and wooding X believe Pro of ahead Head CFO Lang, the a our and we to our will our runway we Trevor long now growth our like as to formula to would over and market

Trevor Lang

delivered track stores, remainder Tom of and growth. XXXX markets, significant investments new in continuing of long-term results then EPS growing discuss will quarter third record continuing very fiscal I while morning sustained everyone. good our entering opening to We make the outlook review rate to a support our Thanks, and solid XXXX. quarter adjusted growth, X faster our X for another important at new sales our and

prior in should We continue store third to the or on in a from of quarter West XXXX average, format year the markets of is comparable the increase are million sales XXXX. new densely outperforming new stores and period. XX.X% investment XX.X% return well in populated Net encouraging the XX total the very are growth ended stores stores, and $XXX.X and Northeast XX $XXX.X in warehouse million versus which more the Coast. chain our increased end year with Our stores as quarter the quarter great of we in the third our an providing to of perform sales stores opened

store sales comparable XX.X%. quarter third Our increased

average sales approximately Our driven that XX%. have partially by excluding decrease by a ticket. growth Hurricane store impacted in XXXX Irma transaction quarter our the sales were comparable growth growth, stores comparable been store Harvey offset estimate We and slight by would third

quarter rate third to higher the fiscal profit decline million in higher in XXXX. gross freight to profitability, third Gross cost the increased points margin on margin by of $XXX.X due gross of XX fiscal third primarily $XXX.X and basis decreased was million from XX.X% from quarter quarter approximately shrink. the the Now, domestic year-over-year inventory XX.X% XX.X% in in to The XXXX.

XX% a XXXX. percentage points total general expenses to sales, year-over-year the points The XX are by driven We store our outside XXXX. compared expenses stores. of quarter store basis of which As typically was to in de-leveraged XX new stores basis incurred of third expenses, operating administrative quarter our in declined third and opening our center support due of slightly to XX the decline expenses

basis of store expense comparable operating continued sales quarter. to in approximately XX leverage Our third demonstrate solid points the

costs. and stores new opening are previously populated As we operating in pre-opening that densely more new markets higher have discussed,

the XX.X% million quarter the margin versus to XX quarter million fiscal in more third compared basis densely to operating markets. XXXX Operating to million during our given X.X% expensive populated as income increased and the prior $XX.X XXXX. compared decreased entry and For expect period. into to $XX expenses an year store fiscal XXXX, in pre-opening these over of new third points of fiscal $XX.X increase Operating we

the the a versus in expense last of compared average quarter decrease in expense is to million combination $X.X year The pay-down interest in due to in million period. Our was year-over-year. third and interest year debt decrease rate a $X.X interest prior

XX.X% our in due for effective an rate third prior of in primarily $X.X the the rate Our the XXXX. in to tax reported options period. increase or of XX.X% year exercised tax The stock $X.X was million income recognition rate tax million effective provision compared related quarter for tax quarter for to was effective third of excess taxes to benefits

We earnings our out benefits have adjusted today. adjusted calculation the of stock of option

non-GAAP guidance, XXXX discuss and discuss Before that in I net income note both will measures. I please GAAP

for million XX.X% in increased This the adjusted XXXX. to diluted a adjusted $X.X GAAP our of financial million in XXXX. periods. $XX.X XXXX release, debt. operating can per period. be found $XX.X revolver diluted of between most prior to revolving of the under borrowings our the these our comparable third liquidity Adjusted per with million the diluted disclosures and reconciliation of in A metrics in or performance to earnings believe comparable the understand of described EBITDA share EBITDA core enable $X.XX connection compared earnings per $XXX third to quarter investors on million adjusted $XXX As of net credit $XX.X the facility, XX.X% our share income represents earnings an year or adjusted the $X.XX compared outstanding quarter million in we call. non-GAAP or income million release for to better directly in third available basis cash share million increase and measures of Adjusted to ended in We quarter fiscal this non-GAAP compared issued were third net with our $XX.X quarter no and quarter

million XXXX. inventory up was the of the X% down $XXX.X third quarter at versus XXXX the $XX.X fiscal million, of end and for the end quarter third Our of balance

our Now, earnings turning to guidance.

slightly as Versus little compliance additional our call, expenses over we are saw in we full and gross million full given favorable, in and at our QX stayed the towards As taking expectation Sarbanes-Oxley press work pre-opening XX%. per and on estimated on year-to-date $X you we EBITDA our operating million. full adjusted outlook an performance reiterating and gave an this a raising year $X cost our trimming year. last range the Store comp our by release but consistent we XXXX share our low adjusted sales our margins fiscal earnings end range year are of for annual guidance are year

Hurricane to Recall, over $XXX fourth flat be comparable from quarter sales store million, comparable our sales sales year. fiscal to of XX.X% last XX% contemplates sales from to last a our which XXXX in in expect the quarter due net outlook in XX% be increased to as We range fourth Houston to This fourth $XXX to year Harvey. increased XXX% quarter up the million store market represents growth year. X% last

XXX XX.X% comparable alone year. for stores increase Houston last basis sales Our accounted of store the points

As decline assuming a we built stores XXXX, we guidance our sales our our of fourth headwind Houston We fourth range, create comparable quarter in expectations. XXX previous on quarter points the experience is are the basis will sales which market comparable Houston projected for our store XXXX our market growth. a that mid-XX% than higher store modestly estimate

remain non-Houston to to our sales X% expect XX.X%. at store estimated we Importantly, an strong grow and comparable

margin assumes over points also year-over-year due to in priority Our factors outlook fourth quarter operating basis a the of XXX following in decline rate order.

store which planned million $X.X First, expenses $X.X to hiring pre-opening be is year. versus new last million approximately

store of decline de-leveraging the the basis Houston higher occurs shrink natural margin cost expenses year higher points chain our XX.X% in comparing entirely and gross stores XXX due Second, by comp the finally as in operating damage. over as when new supply last to due to expected and led against an de-leveraging that domestic well

to XXXX, $X.XX fourth As the of outstanding to be weighted expected the versus quarter average million year. for quarter versus the these This the XXXX approximately per of in diluted is share we $XX.X of to for earnings of adjusted fourth $XX.X be of for a million shares of fourth $X.XX to range result quarter expect factors, $XX.X $X.XX diluted Adjusted XXX,XXX,XXX year. the assumes last in range million EBITDA XXXX. last

to based is assumed X% comparable on growth store $X.XXX be sales or XX% we range This the store increase fiscal sales XX%. XX% new billion of and of increase in store year, XX to an billion, XX% to $X.XXX outlook to openings of an the For XXXX. expect from warehouse

be sales remainder expect to fiscal We rate weighted adjusted increase estimated estimated to anticipate of XX%. we XX% comparable Diluted outstanding to to approximately our is XXXX XX% approximately EPS XX.X% store to Houston, are our $X.XX, be an be the the fiscal of average shares $X.XX over and fiscal XXXX. tax XXXX XXX,XXX,XXX normalized for effective of year. Excluding

a tax of XXXX occur due impact tax may does in discrete adjustments. fiscal stock As guidance benefit option possible to the that reminder, this exercises not or consider the

towards million XXXX. be $XXX CapEx to expect few in of stores fiscal is to We store year signed million million opening IT, and from the EBITDA XX% early one the The adjusted our $XX fiscal which XX% including remodels, center located XXXX $XXX remainder distribution is million store is million lease directed a to a range support increase miles for to of over We to for expected million, an e-commerce million relocation be our in new $XXX center of million $XXX to with the the our capital this support on in in to $XX CapEx as and center. $XX of initiatives. to being store XXXX. $XX current $XXX of new approximately range as support store our our million earmarked in for centers. construction million XX store well total the away $XXX is budget only spent other XXXX openings of

current up evaluating related unique store to options million. can create support we still exit to our cost center. If are exit our lease, of lease our decide $XX We current we to

will on impact would a adjusted quarterly our intention reconciliation these to there be non-GAAP in so be out call release, our of Our earnings no metrics costs and earnings.

With consistent have the next Q&A year to last XXXX of we portion still we to for call end like we discuss and February to late XXXX over in turn in would the planning when plan year earnings year. process operator, for that call. it the with our our are projections We

Operator

Please Our Sigman Suisse. with Instructions] first Seth comes from [Operator your proceed with question. Credit you. question Thank

Seth Sigman

up category also think and you thanks works lot leadership to to pass Tom, through while pass Thanks still gap guys. that you price to maintaining just for taking nice just through if but the quarter. As for still on you the room competitors ability how narrowing? tariffs around pricing question the see through giving morning My good to color is looking pricing the in you the about Hey, price your your planning the so need how wondering first question for are pricing maintaining while do are that see a gap price take you you that, also do or long? ultimately and

Tom Taylor

the buying market buy and the goal here, stores the big already is flooring you spread time price maintain during and centers, philosophy way changed. our direct independent kind buy, the the the not the are part is is surface that enjoyed While middlemen our hard is have market we and stores direct a certainly but think from to middleman has which home lot a the stores the about through if people of We price, the out. taking there of buying from of improvement

the little mean So, we products, retailer look from. our will same going first try originates for versus with the The a source tariff everyone the much from coming we and of still it versus are where which sell even at, accessories because from of job. know at are We this led go we doing the SKU place a across it’s impact do is spread is In that can the to now add have really of of in single-digits and to are China been price project we the to it’s real not Lisa I to will that thoughtful is some we maintain you mid and enjoyed. XX% total of a situation domestic tariffs China, is to if get about flooring but so really much success. we the is think the always only through how project product, when value look all thing let can at flooring that China lot type we much one a at you and deconstruct would you who is flooring that can look and labor. user I bit you perspective, of where you that those installation is product of but will have a we best pricing a access kind talk look moving, how are that’s products to the exist how end the we to

Seth Sigman

of then what any sales guys these and for going And to be ultimately tariffs tariffs embedded you are scenario? the net relates have margins doing just of margins on effect sales planning have could impact impact scenario of is fourth initiatives, as sort the the to quarter the or under around it all in you it under XX% and I then on guess the terms all and XX% the potential

Lisa Laube

is Lisa. Hi, speak will the the us. of in right fourth scenario quarter XX% this to I and just front that’s

we adjusted So but few the been a the the seeing on don’t any that lot, not impact XX% will XX tariff we for have we have prices margin September fourth believe that quarter. since have a

As will we XX% more. let get to the I into Trevor that little bit speak a

Trevor Lang

Yes.

modeled And as those the have fourth have the costs inventory average won’t some think impact system times in, job in weighted an much time it a about inventory were do an done costing to also much not inventory, so will our with costs the year by and incredible flee announced. Lisa’s team because quarter, have aggressive turns impact. two we of of lower our get just tariffs as partners I of So soon it. an being our we has

right, talk mentioned, that initiatives Tom detail, our the aggressively to three about with are out through that or As look to take plans in give costs not forward we to but guidance we vendors. we our work to XXXX are are going going

to bear. will going to makes then the at products where last And sense. elsewhere market raise it prices extent are We is the the look we will sourcing resort

Tom Taylor

raise Yes. surface merchants or our our to just the have we in about of lot dedicated would one last I a been, flooring. say company, merchants if think the category hard resort, you prices, thing, our have

sourcing our to our negotiate time and been the been cost negotiate we partners step is a been able and have one supplier have fortunate to that very with a of have have We long and out office with we help us. lot us the

I up. get So wouldn’t caught so

tariffs just will something a completely We we lever is are not It’s offsetting price. at. with look that that

Seth Sigman

Thanks very much, helpful. very Understood.

Operator

your proceed comes question next Barclays. Please with Our with question. from McClintock Matt

Matt McClintock

Good was a single-digit just a morning how last compare impressive has I inflation difficult increase mid yes. congrats for job would costs, as flooring cost follow-up you just to pretty XX% doing Hi, drive does with the wondering driven tariff comp everyone how several over labor comparisons. question said last on on the and a project? the years the the in inflation total that cost total of a that

Trevor Lang

of Pros the We don’t compete in cost install cost square is look us. rough those a an not of maybe labor much didn’t if labor. increases we said those with. have itself sets, approximately great square do there. The of and of and foot, I cost, the Lisa to-date we that have its math, square an labor, have to the you another the a put in foot, the so impact installation increases at all increases program bit product that that for impact done foot and have square accessories not overall there, you the per cost things so environment. foot, there overall XX% is we into domestically business things anything, get frankly team slight the We the do control from be tariff half seen will you But seen Lisa’s And even as the the price do little won’t in to total has significant think of increases say competitive This but mid-XX% labor it’s are still but of so increase in that. a is really Most you think goes XXX sourced When we analyzing like let’s but the there per Trevor. the about X%. product for massive a we will talk didn’t significant XXX have job the some be Its underlayment, is actual cost for it. grout, thin motors, sealers,

Tom Taylor

there it been if the labor affected an years, over has And last us. increase Yes. hasn’t few in

Matt McClintock

Okay, across the strong that trading on could positioned up just starting then just benefiting a a channel or think see? that’s we that the turn and in the be trading that it’s your there have this industry business seems broader about you I this flooring how And you put is we to-date are shift thoughts results quarter, much your trend to was wondering broader talk how heard to from value your within down you down and to the helpful. broader when business results,

Trevor Lang

Trevor. Lisa best our better products are total just a is hand as percentage This another, of our sales. and increasing me

our were what square foot the look is isn’t different. think last attributes years just at you said that product is comps wood-look fiscal out margin sales with LVP, total evidenced come that the referencing is comps product meaningfully can for or for in the ‘XX less rigid department for our ‘XX retail different you installation will not per accessories, a profile time square per our higher X and Tom growth best higher at be comps and that, the fantastic. in And pick high for we overall and was meaningfully our core in by fiscal gross have the install overall our performing also foot department overall look if out ‘XX to consider wood as cost I example when tile. relative that expensive a that are But you at

margins were as good well. gross Our

flooring and as best continue going is we’re And to hard products as productivity. the and have then so to surface long we’ll both growing, sales lead with market our view is the

Tom Taylor

are best One quick numbers – better than are comping our is, when I’d add better SKUs points. two apart SKUs. and just – I add good would peel you quick our

benefit that our and is selling So, not seeing we’re our to level. can – model in to ours that the whatever store consumers stores, of step-down local the store we a flex so on react

Matt McClintock

Perfect. you much. Thank very

Operator

Our with Bank America. Elizabeth next from comes question your question. Please with proceed of Suzuki

Elizabeth Suzuki

Thanks. Great.

are for there trend to product aren't Just would you generate of a as XXXX that gets Laminate retailer think that do How growing and categories sales now of ultimately view year-to-date. gone that running XX% and net a margins higher from or you? that do LVPs you in sales typically about positive fast as as high XX% at

Tom Taylor

Yes.

third category for do really us. that year to So in row a continues the for well

category. said pre-prepared sell the competitive store we that the within have this we I of remarks, the exists my all As in advantages categories in across

a For a in last bit, us got we’ve initiatives things be not made and I the good in a of and like about attach and go initiatives quarter sale lot, When if then barrier of can the the all – we the narrow I don't we’ve molding place. talked nature, call, in like total margin bit in talked last but got attachments with but vapor and that we’ve that it the progress that the challenged, bit a little total that place gap.

unique are our we’ve the us whatever – wants, customer for culture stores got So a here.

Our for thing space stores at and we flexes so stores, increase us. that a if not continues bad teams level merchandised the place are the in that’s local to that have in

Elizabeth Suzuki

that flooring strong saw appreciation is be you a a that that mentioned to might home had as an rising likely guys pressure retail like as mentioned one offset big your think that the home you they're you home large type time. quarter of turnover into turnover to that to price last positive impact of – category when over project or undertake slowing Do a new pressure. existing then are of And home not does peers necessarily appreciation? business price moving more And Great. big where homeowners is the as have

Tom Taylor

the we helps housing turnover up think cite best go that they grow, I’d I helps, pivot both I economists continues their rising as in company mean, they our happens the just cite homes value, happens that in back are want people – to value in us. we’re and markets, as always markets not important always to we like housing But what to back we and to continue and share.

driven of is hard sales. Innovation unaided flooring category three has awareness carpet. stores less are faster our XX%, than across less than than Our years surface the old, XX% growing

market what's think we the So we share market. can does, whatever take within and happening outperform the

Elizabeth Suzuki

Great. you. Thank

Operator

UBS. your Michael question. Our Please comes from with next proceed question Lasser with

Michael Lasser

margins in taking tariff, but a all bit Thanks little uncertainties I of more housing for the directionally becoming your you provide seems keep you with environment the just a know for morning. in flat question. outlook lot it’s also you any XXXX? – Do can light Good think intense. and competitive my guys that early XXXX, you

Tom Taylor

prepared at We’re about time. not XXXX to this talk

Michael Lasser

you're Okay. gotten from why you’ve reason And vendors them? from the deals to RMB of is they’re purchasing your were the because advantageous of presumably back some part that the have you getting better RMB. If moving the reverse, to give would

Lisa Laube

go helping Chinese that helping bigger is so. and certainly that but really great lose negotiations, Lisa. thing with with business. longstanding we is these and this think is – the we to That negotiations the certainly suppliers want I relationships They the This don't have they is No. where cross growth our They're company. be to that in years that opportunities so be we and competitive. we their to a need they’re get could five continue that the finding business finding us see so as efficient. to ways us more with They see have ways we to can guys be

was believe So, time, have pay that there. it’s happening at we currency, I that not we over keep that we helped I I would currently anticipate and dollars – all. U.S. would that but me, don't say it that, in helping do

Tom Taylor

And – Michael

Michael Lasser

– my In

Tom Taylor

that’s time just really I like Go – to company I and to I just about growing back not kind But just is one we’re XXXX go moment a ahead. we that thing – was would talk of want for a ours. say not. so in XXXX do

XXX believe in yet next to there to to detail XX% than on year. continue We’ll of we it. still up stores, so We’ll new XX% we the is still just open our can nothing We’re confidence. be, can changed units invest XXXX, get don’t we’ll have business, the have what we we but more in but XX%

Michael Lasser

if for remain look, place your that expensive and model? to Yes. – really business sales Floor China tariff in the around goes on little – who you within & in What through on the those, sourcing competition there was significantly products XX% impact are really go experience, and below if the even take being & its tariff store Floor impressive building a niche made has while, direct Decor that does Decor

Tom Taylor

when mean, look just No, China, I from said more we we as right. about, than talk bought earlier, I

XX buy from countries. So we

suppliers where diversify continue We XXX the buy to now world have we’ll around from. and we

so the – been they go is to is the can always chain deal have best slice particularly we in to consumer. the that multiple hands pass a get there in independents margin price, don't we able to And it Our when to along where that, goal the direct. distributor they're because the supply with, not has there you buy about think

We direct the to whatever have a be the world. from team place in is buy able to cheapest in

advantages to tariffs and will don't going way that competitive what are does believe change Floor that business – So, I Decor & are. the our

Trevor Lang

Michael, is Trevor. this

is we what Lisa’s very thing. done the but we what big lot a our box competition we comes of coming a we're of the last as their study one where Just products independents, from at looked because well pretty China, and China. as we believe they're exhaustive sell direct from of half source team about getting that the believe competition has we’ve both and it, buying transparent is

this buy we our of a are because think going so everybody to it's as of think we competitors that as China of Floor about from to Décor, with & this disproportionate Don't deal XX% such have And well. what to what very this. buying lot is

Michael Lasser

Thank very you much.

Operator

with with Our proceed next question Please your question. JPMorgan. comes from Christopher Horvers

Christopher Horvers

Two guys. Thanks. questions Good hurricane. morning, the on

for Could that Is that in still fourth you’re to in about that – the are comp of just about Houston seeing impact. the thinking are up how where – think about do in – you we’re you market, because thinking anniversarying, new you’re it terms us you terms you as there have of of how think quarter First, is is trends – half help outlook through the the the you’re year that? you're first the it benefit. that next more a moderating dollars about that the trying

Trevor Lang

I’ll Trevor. start off. is This

accurate XX% XXX% So, three-year fourth quarter guys up this recall a called Houston market into last we thought that the year looked the more updating the in think originally as to you were maybe what a probably when trend. comp two-year that like than will going like quarter at next mid-XXs, fourth forecasting looking saw QX, be less incredibly for year, decade over thought at ago be lot although guys. I We at think we results, just to nine albeit from it’s comped of I out first actual year. and got the in year, think do the and we XX%. IKEA We the half now. you last in going We as in first XX% they into of headwinds up comp are down and Houston When our QX. obviously we negative the the we’re there looks we continued it get we in in the maybe Houston so would months

So, they we abate first along. the will go

XXXX to openings the the And two, of going be accelerate roll looked do up when Houston as our they up but and comp higher for so our into base we you comps up new comp our year, coming very will next ready stores mathematically, with cadence we this XXXX. still those I substantial of headwinds, we'll back in we and of for year, we and I we think lift have as guidance think as get of against stores backend the we’re not half the should throughout the will comp half those will a guidance not they’re because to more ultimately loaded coming a two have give do again, One, our at new comps back provide XXXX – of stores reasons.

Christopher Horvers

That's Understood. helpful. very

fair? of of basis low-end point that point quarter you two terms September, hurricanes in about So, that talked sort seems XXX had third so potential, the to you basis it at the from Is up so the tailwind XXX of ended range. in like

Trevor Lang

Yes.

called comments points the you prepared we Hurricane about Irma in Houston, we XXX Hurricane Florida, that think to exclude in out Harvey basis think impact if my I – both in business. had it

XXX the we comp. So, comp XX% performed closer would that to been have at actually a

Christopher Horvers

sign. an just customer up trends, it. And clearly category you that the continues encouraging to Got and trade then can the about appreciate overall talk

did and Porcelain sort forth? and Vinyl Luxury Natural how so of versus Tile you. and Thank Stone So

Tom Taylor

Sure.

from they has all been have of categories That in little categories. know I we it’s more the the row strong third a been vinyl accessories for but are continues from. growing customer the accessories, us. shifting where from year our kind in hard one bit from the So a most, a than of vinyl decorative to is maybe, be wood our shifting mean fastest that’s bit the and and believe products in is But certainly regular strength tile to for luxury – laminate little

is customers, we softness shifting a shift certain extend in a to challenge has been challenge wood that’s the And again us, – is that travertine to Chris. but a in stone little think a tiles. So for customer Porcelain and

Christopher Horvers

Thank you.

Tom Taylor

Thanks Chris.

Operator

proceed question. Our next with Jefferies. Jon Matuszewski question comes your with Please from

Jon Matuszewski

ahead, be time Great. Thanks growth that’s I the elaborating question. could robust, you the program pulled my what intact for clearly that unit off coming to you are think you drive years to in know do foot? taking I levers quarters really loyalty and comps and appointments, quarter, about scheduling on per square and XX% is underappreciated better start levers excited some the what this guess most just probably other are mentioned spend back sales productivity I still you guys think designer opportunity of X could

Tom Taylor

in think mean I range. per the Yes. first. today – the foot is I our $XXX will the I sales productivity square talk somewhere average think about I

to at of If our close you they our XX% are stores best, look $XXX.

have the we sales productivity So in store. gotten substantial upside per

comes what we comps over our point our in volume. with start Pro new years us brand old, mentioned are with basis as stores new we X accomplish. total as get stores stores. from lift high XX% of awareness, as our XXX people from the to shopping Tom that’s our been better new comps We understand trying less see stores As substantial slightly are But than lower to our

the is our help into are things back we productivity. the sales technology all store of productivity, there help of So with those plenty we always handle website, also we actually making think associates, our the enhancements way technology

we to think substantial upside store overall as to website the and And per so our there the through we look productivity is future.

Trevor Lang

my I lot Yes. things the mentioned we that them about some quickly. we are doing. things And are list kind that of are is mentioned we I about things But the of a little you will a four script. talk much excited And of I of will too talk just in there and about –

the in part are Our the our centers, feet put in few size designer they average. emphasis store, design on of X,XXX last almost square years we on

time We excited have next upgrading is that are – big the about we a capabilities designer’s certainly we and into as deliver. got our some of have what smaller. spent But that bigger and services a they get initiative some of we will lot to we but design years, our talk are couple and are about we more are what able

average them feel the about is are the great average are investing know we that sell like with we with and ticket our we ticket. when and customer We designers have are our they whole excited so We know them normal the larger in project, much given we that. than tools and

to are a years do still our quarter here. that’s lot our in we app, finished done is years can in the customers professional this rolling with X while we a over what middle X the getting finished Pro last have evidence great and As there from We we innings out we rolling Pro reviews.

still better. can but be are We we capabilities, are lot enhancing delivery we – our still a

of job there to a thing of are is all store of pilots kind huge products nice it, innovation then products driver done And we to a a that that that that historically to will we category within initiative you we in drivers should continuing a the continues will have continue us the us. And we We our and about share. I what a and that help are then would be than store this continue about store, her team the great say about to excited customer staff underway and and find got is come them we have staffed be business Lisa have continued really the to experiences some last around we differently how the sell excited have bring. are in customers excited large – bring take

Jon Matuszewski

softer you Great. been did where based And in anything that’s able some regional well share to thinking then in quarter, you the Thanks. out data I home and continuing probably really areas will posting data just and so gain be color existing just could helpful? some to industry, come the very even call any be a follow-up, may this number have guys a it’s sales then healthy softer, quick there those numbers independents suggest and out there on bit trend, your the buck just despite overall from am comp be housing XX,XXX so trend given to also broad

Tom Taylor

are the part we taking of we box everywhere share we taking to first share from extent. we market was from a share from we compete and believe look the from we we So, take the independents, a certain that we are share – think yes, the take question big we standpoint then think grow

is are still trends. we script, in seeing how So Trevor just And my double we there our share. on we across of think I new so digit Irma the as market then impacts, have the out Harvey you and if regional minus grow a good mentioned are report nothing to country, perspective, as kind and mentioning from we

Jon Matuszewski

you. Great. Thank

Operator

Zach proceed with Please Our Wells with next question Fadem question. Fargo. your comes from

Zach Fadem

approach the should next and in about inventory we is growth, looks could whether grew tariffs, the XX% QX the look there to QX so then if surprisingly anticipate guys, morning the in drivers get ahead you as talk about bit given January tariff good inventory only you it your about to little like inventory a X% could maybe which store Hi, of of new low your levels build talk year? you ahead

Trevor Lang

Hi Trevor. is Zach, this

the our had late inventory a moves. of last up in distribution at center was reminder, two year. Savannah center distribution end quick QX. We the our We relocated Just important XX% year very

to same of got did that early us team, we We moves. we in don’t just our and inventory inventory done stock inventory that before to those. want so is was yes, distribution inventory going and so have really keep receive in in with But year shutdown we growth. to the retailer will such slower place to will inventory take projections we with that our our up away QX. we the they managing the two as Miami grow sales from our center are end we end investment we elevated, we make of to to doing that share to stay inventory, they much of can XX% as and our the distribution other are need a like QX level center rate I those not our current still the of of in even year built those job everything large have that every assuming fantastic end inventory our And grow than because can stock at bring our of our

Zach Fadem

I a way to calculated bit or for it know the of take expecting are new opening Got like you productivity your it. guidance And I you down, at are then new by QX little least a looks markets. you in stores store step you later competitive us moving macro quarter, of are maybe walk consideration your environment in the parts through but will some be some the the could giving to there just perhaps whether

Trevor Lang

Yes. This is Houston. Trevor actually story, again. simple It’s very a

mentioned and a because So it’s was in little of new was our look itself QX new as new at QX so store that Houston was at not the again, in year if been it’s of new like you and store over that strong. store year new But last part went are sales misleading I so indicating Houston – been. is is a store productivity, our XXX%. it in productivity that stores comps base comp one up we had substantially store in just Houston up this as like came that’s the a the has highest comp what store, That our we

Zach Fadem

that Thanks makes appreciate I Trevor. sense. the it, time. Got

Operator

Securities. proceed Thank Guggenheim next from you. with Our [Operator question. comes Steve your with question Instructions] Please Forbes

Steve Forbes

it as incentive here, Good continues build financial relates on to to comment timing, overall willingness and Pros the you customer program rewards the some build one wanted the specifically Pro can acceptance from over saying focus right if to are to of there of on and base? maybe guys up transition you the right rollout were and Pro incentives morning, financial to what is I right that as your customer this

Tom Taylor

is over Tom. is of start This hand Trevor as charge to it he I in Pro. will Sure. then and

terrific. far So the acceptance has been

we our we don’t partners, program, As with approached called premier our installed offer so to program we plan standpoint. from Pro like compete we so them, store, want our partner, treat we we them with we approached loyalty it a in sales professionals to it approached be don’t a the partnership

we Pro and they services where a they gift there an can that’s stores. about our for within a emphasis that it. get for much a go and we trips recognized So program kind get can think business they have how approach But on their of to unique we spend there in take is how

to… acceptance the you has far so if don’t great. want been know And I Trevor,

Trevor Lang

Yes.

and a approach a more media, to all clients. XX of over clients component, a workers with based I spend, nice you posted Tom general like cruise And hit things points we got his where more the very his points mean it’s we cost, there here social had of e-mail, pronged he services then is the payroll a liability offer dual business think right. has customer about recently services. I all and this – pictures take website, the different comp lower points,

a so think And program. great we it’s

this were roll kept Tom lift markets and for nice we a X As sales. slow in in mentioned two over out saw to we it very years

in is good ROI it is but a expensive so there And an there. program, we think

Steve Forbes

it keep I’ll you. one. you. Thank Thank to

Trevor Lang

you. Thank

Operator

Geoff proceed Our Please next question. question with Small Citi. with your comes from

Geoff Small

and you gross Good costs did those With across better in in a color It your quarter. as my product margin of I of than some operating controlling two you despite nice some morning. Thank job expenses. you I questions. expenses, pressure and drivers leverage on hoping store ask both was nice want provide terms looks results taking to forecasted the coming the in comparable though the for COGS items? the margin about could across line SG&A

Trevor Lang

Trevor. more that. teams probably good say The than is about There’s a job. this did nothing to Yes,

they I quarter, expenses single think manage costs manage across centers board. store watch their the week, of their in closely the especially closely, we the operating every back operations, costs distribution their all labor the travel

Tom Taylor

demonstrated It discipline.

Trevor Lang

job did teams The good a in closely. of watching chipping and it

Geoff Small

luck Terrific. Thank the best you and for in fourth the quarter. color, of

Trevor Lang

Geoff. Thanks,

Operator

your Gordon proceed with Please with question. from Charles next question Our Grom Haskett. comes

Charles Grom

morning, Good thanks. Hey, everybody.

got call little consumer, talked more just Just in a question opaqueness we the the to a Wayfair and of and the a backdrop. some on consumer up they market bit about wall

then business, you're if any of given one guide? new one. And seeing wondering, presume just Just I the that quick no

hold If hand the margins you for could maybe on fourth Thanks. just gross quarter? our

Tom Taylor

weakness businesses, it we back et consumer said. to mean, what I I pivots of do quicker there. what California, look we slow I’ll kind where Phoenix, around in seeing the look first and housing for markets our Vegas would we're cetera, not

the into customers the took The during if our out, that, actually our transactions say transactions more Houston quarter, – coming part so other are would you accelerated I is stores.

share. model the we have may but consumer pinched, be disruptive takes So, a that

As We them. our with unaided old, I are brand people concept are less and our XX% resonates said stores think XX% than awareness. it years finding of earlier three

even So we can pinched, the that. consumers if think we through perform

Trevor Lang

if do was Business to it’s but well, is take the Yes. years and it continues than would that shares XXXX. This is get certainly think in other retail but and in it things – ago, to XXXX market thing we say my is continues the Trevor. when I takes market more only decelerate. experienced will very player The market share if we XX is, tighter experience value doing different I

to portion planning XX them gross we on some points. down margins, Specifically, QX basis are

costs. teams in don’t deceleration is As QX we product domestic lower gross we on that is margin higher coming of margin, to tariffs. which Most we a done margin different of the supply mentioned, the job than great much think we We what mostly chain is about most believe year. talked think the for attributed from

you seeing into as fuel that’s the decline margin fourth we’re we know the trucking that get of the are quarter. higher surcharges and are higher, gross As guys costs majority

Charles Grom

very much. Great. you Thank

Operator

next your with question proceed comes Our with from MacGregor Research. Please David Longbow question.

David MacGregor

Yes. progress. morning. the Good on all Congratulations

you’re resilience. you’ve Just but maybe where wanted maybe from to seeing urban you going been forward learned anticipate more that you as of populated markets sounds how little of you’ve going experience? didn’t the some – are are these a moving talk surprised, you quite might things tweak result about about well, the experience you and are that can things what that It in into densely talk model like just as things and

Tom Taylor

are Tom. is This Yes. They well. going

Boston do into in resonates been We’re bigger pleased We’ve with what into their entrance and we markets. there. Seattle

anticipating we’re markets. – at happen estate and substantial, point. and I New opened markets We there's several D.C. we're those of we've we kind Jersey think in those to been really those years pretty We’ve Washington – excited been have how markets. the this they change don't Our in got they’ve for things in we’ve – since how much and strategy of them, similar performance and ranked about real it's a good

brand to fortunate as markets pretty nice and lot expect opened rate, and our get find and of resonating. they’ve a going a up those people We’re it’s to events opening we’re at we to the attend but infill

We've lot. six of last a lot years. the learned a we've in stores opened So,

in certainly they have successful we matter to where we we’ve strategies have the are. openings place think – So, no

Trevor Lang

they’re look about as Trevor, Jersey, stores New their the you think those the stores – for and in and D.C., if play over the Washington populated in in few second if third is years. at comps you And this incredibly these encouraging Angeles densely that comps years, and at we new Yes. the into in third look Los comes markets years of second these next

David MacGregor

Thanks.

Operator

with proceed Seth question next Our comes Wedbush Securities. from question. with your Please Basham

Seth Basham

impact of what’s question next mix and is lot couple last being a mix, product and called morning. quarter this My how good expectation around a product quarter to first the Thanks you your about negative quarters? is gross margins, that for

Trevor Lang

Yes.

think this Seth. is Trevor, I

the impact supply exhaustive more and for studies some margin the costs. do of back done that have we more has higher half the think We with mix overall chain year overall the of to

retails what we the costs of we at have look half you much about of back year. sold see have mix headwind think obtained that being don’t we as we total where the we and as of the adjusted have mix As the a

Tom Taylor

job say talked that is would better call. whole the the in we vinyl of we progress in selling I we in to And Yes. have project a place initiatives got have what last do seen about And and store of rigid that. them core in

Seth Basham

if you my offsetting thus shifting you That’s may XX% tariff follow-up vendors far much that the I price a from good. so reduced the tariffs, offset seen question how XX% guys job case we currency And can of have sources, to great with some have and relates done in of tariff?

Tom Taylor

and working are –our not as is We we are that to as much goal on we can. offset

to anticipating and to of that job right are good will that will continue did And through go orders Year will our of continuing New and get with in that we we going happening early. back happens. try buying we to anticipation our take are and continue We we – Chinese now where suppliers We a diversify out we to working cost product.

We lots underway. things have got of

diversify our more is We the into to that. place to through got to will in plans if of get with as talk tariffs outside do go China, we that is we goal XXXX about

Seth Basham

Thank Fair enough. you.

Operator

from Piper proceed Jaffray. question. comes Please with question Keith next with Our Peter your

Peter Keith

dig you the coming last Nice but that, Seth’s thought to it we mix shift accessory quarters? accelerate to just is isn’t as I so the maybe on in that on seem the mix meaningfully understand give rather the bad some the a a gross is mix shift thought execution presumably specific with and can lot topic continue what’s little mix LVP wanted on around can so us like the happening sounds I question you to more here. standpoint, following-up that to so going in margin in as on call and that mix QX, sales, of losing

Trevor Lang

Trevor is Yes. This here.

and mix some evaluating again And costs gotten a we also within a had those have have have those. done as retails. costs on the we good and adjusted we – things shift, retails think are job but continually we evaluate good I we

of QX. all the effect in happened we that’s so have have we guidance have done and we And that and as now given work, what in that reflected of

Tom Taylor

is a pricing from mix not think it standpoint a thing. I though

a course there to and we that We growing rigid been in sell what of the Peter the he raising job sell, better core And store the better they that they have did within can over done have execute vinyl. quite associates a in the rate product a at is when it’s our rapid when And we walk really has to better. much this some frankly quarter. out locking execute of quarter customer training fourth of need level

will happen. think to continue that I

that The when other I that number, core grow available our plank, stores continue I I has rigid is at best we we locking better the offer as of good and mean just done Lisa’s getting XX into to have say thing mixes while and SKUs would category. you that if job bringing to a to have, team am look close

we challenges think selling points better the off not are may better around a that initiatives and have. can between able may price the in carry, are a we big that a around the to our that selling low with sell selling we and So margin. bit category And best offset boxes that job whole better little that just initiatives of our comes any we we product

Peter Keith

Good Okay, great feedback. Thanks luck. a lot guys.

Operator

Baugh with proceed Stifel. Our question. your last question John comes with from Please

John Baugh

my Thank you congrats the share and gains. on

You what am Thank if guess are both curious us guess. on see are competitors that done mentioned either tariff read what I through on doing I you. of you have done imported judicious your give can competition able you technology daily pricing kind or you any walk-in versus or what stores front? to and affected those early I competitor products,

Trevor Lang

a I you Yes, would say, Trevor. is so far. seen lot This haven’t just

to we think lot the have been aggressive cost. I the and affecting significantly have There retail have that have not retail. products with out we are nor cost we and our a to But into competition that, impact. mean, very received taken – some be going in ours on seen so competitors’ I side far as will cost do likely we and those our expect board offset it’s but and

Tom Taylor

negotiations. now cost our of majority tariff offset is The on that imposed on

we close eye So competition. on keep the a

a of There different As you products. not know, this is benefits are within category, and brands this features category different. lot in is bit a

feel confident monitor we we within So we pricing. are to if how our best pricing are

John Baugh

luck. Good you. Thank

Operator

call to to I Thank Tom you. time, At closing for turn like back the this over comments. would Taylor

Tom Taylor

our associates the joining interest I tremendous I quarter. It to for appreciate all of thank everyone’s in again hard our want work. call today. was a

about the excited We future are bring. really will what

are early stages We & Decor Floor in what be. the of can

we the forward look talking next to you So call. to on

Operator

does Thank today’s conclude you. This teleconference.

participation. You thank for you this lines your may disconnect at time and your

Floor & Decor (FND) 1 Nov 182018 Q3 Earnings call transcript