Floor & Decor 2022 Earnings Recap
Speedwell Research: Business Updates Series
We are going to periodically share updates on companies we have covered in the past here. These will sometimes show up as Twitter threads first, but we want readers to be able to easily access the archive of earnings recaps. The start here tab allows for easy navigation. We may occasionally refine or expand our analysis based on feedback.
This week, we’re covering Floor & Decor. (This was originally published on Twitter in March.) We’ve since published updates on Coupang, RH and Constellation Software.
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Floor & Decor 2022 Earnings Recap
Floor & Decor is +22% YTD. They reported 4Q22 last week, guiding to their first ever negative sales comp. And management sees 2023 EPS potentially dropping y/y, but still will open >32 new stores.
What’s going on?
For full year 2022 revenues were $4.3bn, +24% y/y. But 4Q22 sales were +15% y/y, inline with the guidance midpoint which assumed a continued sales growth decel. Same store sales continued to soften to +2.5% y/y for the quarter.
They disclosed on the call that same store comps are -2.3% QTD. This is driven by transactions comping -10%, offset by higher average ticket prices, a dynamic they expect to continue into 2023.
Strong average ticket growth (+14% y/y 4Q22) is support by continued consumer preference for “better & best” product categories, which are higher priced premium products compared to the “good” category.
Despite macro they note, “We haven’t seen a trade down”.
Transactions declined -10% y/y in 4Q22, which they attribute to interest rates and declining home sales, as home turnovers are a common impetus to replace flooring.
But floors will still age nevertheless…
In the coming year, as gross margins has been improved by ocean freight cost declines, reductions in demurrage, and softening domestic logistics costs, they plan to start sharing these cost savings through price cuts.
They are careful to note it’s not reactionary.
In total, they opened 32 new stores in 2022, which expect to do again in 2023. They noted that new stores ramping up (which takes 3-5 years), added 3-4 points in comp growth, absent of which comps would be down close to -3-6% In 4Q23 they expect positive same store sales.
The Pro business is still performing strongly. Pros comp +19% y/y and positive transitions at +4% y/y for 4Q22. This is an important differentiator versus peers.
Their pro business is now 42% of sales in 4Q22, up 700bps from 2021. They added 30,000 new pro contacts and loyalty enrollment increased 24%. This is critical as Pro’s spend 3x more.
Also increasing spend is in-store design services. They now have 920 designers who have completed 550,000 appointments. This is a service few competitors have and drives average customer tickets higher.
The commercial business is also going strong with Spartan +60% y/y and RAMs (Regional Account Managers) sales +72% y/y.
The 2023 outlook isn’t very rosy with -3% to 0% comp store growth. 2023E EPS of $2.55 to $2.85 is a compression of 2022’s EPS of $2.78 at the low end of the range.
Long-story short, inflation won’t make aged housing stock younger or restore dilapidated floors. And yes, people will still buy and sell homes. Their value prop of the broadest selection of in-stock SKUs that are the most competitively priced still holds.
The slow down is arguably a long-term benefit to them as they take prices down to gain share, something independents might be hesitant to do as they are less likely to be able to make it up on volume.
CEO Tom Taylor on passing cost savings to customers below.
The goal of 500 warehouse stores with $30mn of revenue each at maturity and mid-teens operating margins is still the target.
And that is before layering in the commercial business.
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