Forward-Looking Statements and Risks - Forward-looking statements in the Annual Report are based on current expectations, assumptions, and projections, and involve risks and uncertainties that could materially affect future results[18] - The company does not plan to update or revise forward-looking statements unless required by law[22] Economic and Market Risks - Key factors that could impact actual results include economic decline, inflation, interest rates, and challenges in managing new store growth and expansion[20] - Geopolitical risks, such as conflicts in the Middle East and Ukraine, and U.S. trade policies, may impact the company's ability to import products and increase costs[20] Supply Chain and Operational Risks - Risks related to supply chain disruptions, transportation costs, and product shortages could affect operations[20] - Dependence on foreign imports and potential supplier failures could affect product quality and pricing[20] - The company faces challenges in managing inventory, including obsolescence, shrinkage, and damage[20] Performance and Growth Challenges - The company's ability to manage comparable store sales growth is a critical factor for future performance[20] External Disruptions - Weather conditions, natural disasters, and public health crises may disrupt operations[20] Human Resources Risks - The resignation or loss of key personnel could impact the company's performance[20]

Floor & Decor Holdings, Inc. Announces Fourth Quarter and Fiscal 2023 Financial Results Highlights for the Fourth Quarter of Fiscal 2023: Net sales of $1,048.1 million were flat compared to the fourth quarter of fiscal 2022 Comparable store sales decreased 9.4% Diluted earnings per share of $0.34 Opened 14 new warehouse stores ATLANTA--(BUSINESS WIRE)--February 22, 2024--Floor & Decor Holdings, Inc. (NYSE: FND) ("We," "Our," the "Company," or "Floor & Decor") announces its financial results for the fourth q ...

[Forward-Looking Statements](index=4&type=section&id=Forward-Looking%20Statements) This report contains forward-looking statements regarding future operating results, business strategy, and plans, subject to known and unknown risks and uncertainties - This report contains forward-looking statements regarding future operating results, business strategy, and plans. These statements are based on current expectations and are subject to known and unknown risks and uncertainties[9](index=9&type=chunk) - Key factors that could cause actual results to differ from expectations include declines in the economy and housing market, inflation, supply chain disruptions, failure to anticipate consumer demand, competition, and interest rate risks[11](index=11&type=chunk)[14](index=14&type=chunk) [Part I – Financial Information](index=6&type=section&id=Part%20I%20%E2%80%93%20Financial%20Information) [Item 1. Financial Statements](index=6&type=section&id=Item%201.%20Financial%20Statements) Unaudited financial statements show total assets at $4.64 billion, with nine-month net income of $208.9 million [Condensed Consolidated Balance Sheets](index=6&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets reached $4.64 billion, with liabilities at $2.75 billion and stockholders' equity at $1.89 billion Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 28, 2023 | Dec 29, 2022 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $61,628 | $9,794 | | Inventories, net | $1,105,450 | $1,292,336 | | Total current assets | $1,336,102 | $1,457,485 | | Fixed assets, net | $1,562,616 | $1,258,056 | | **Total assets** | **$4,638,082** | **$4,351,242** | | **Liabilities & Equity** | | | | Trade accounts payable | $706,325 | $590,883 | | Total current liabilities | $1,174,383 | $1,006,758 | | Revolving line of credit | $— | $210,200 | | Total liabilities | $2,752,606 | $2,694,066 | | Total stockholders' equity | $1,885,476 | $1,657,176 | | **Total liabilities and stockholders' equity** | **$4,638,082** | **$4,351,242** | [Condensed Consolidated Statements of Operations and Comprehensive Income](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Income) Q3 net sales reached $1.11 billion, but net income decreased to $65.9 million, with nine-month net income at $208.9 million Statement of Operations Highlights (in thousands, except per share data) | Metric | Thirteen Weeks Ended Sep 28, 2023 | Thirteen Weeks Ended Sep 29, 2022 | Thirty-nine Weeks Ended Sep 28, 2023 | Thirty-nine Weeks Ended Sep 29, 2022 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $1,107,812 | $1,097,824 | $3,365,763 | $3,216,404 | | Gross profit | $467,455 | $447,475 | $1,416,206 | $1,291,815 | | Operating income | $84,772 | $101,657 | $275,262 | $302,039 | | Net income | $65,923 | $76,175 | $208,899 | $228,958 | | Diluted EPS | $0.61 | $0.71 | $1.94 | $2.13 | [Condensed Consolidated Statements of Stockholders' Equity](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders%27%20Equity) Total stockholders' equity increased to $1.89 billion, primarily driven by net income of $208.9 million - Stockholders' equity grew to **$1,885,476 thousand** as of September 28, 2023, up from **$1,657,176 thousand** at the end of 2022[21](index=21&type=chunk) - The increase in equity was primarily due to **retained earnings growing from $1,170,421 thousand to $1,379,320 thousand**, reflecting the net income for the period[21](index=21&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=10&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Operating cash flow significantly increased to $699.0 million, leading to a net cash increase of $51.8 million for the period Cash Flow Summary (in thousands) | Activity | Thirty-nine Weeks Ended Sep 28, 2023 | Thirty-nine Weeks Ended Sep 29, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $698,975 | $7,325 | | Net cash used in investing activities | ($431,070) | ($319,173) | | Net cash (used in) provided by financing activities | ($216,071) | $180,091 | | **Net increase (decrease) in cash** | **$51,834** | **($131,757)** | | Cash and cash equivalents, end of period | $61,628 | $7,687 | [Notes to Condensed Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) Notes detail accounting policies, revenue by product, debt facilities, and the recent acquisition of Salesmaster Associates, Inc - As of September 28, 2023, the company operated **207 warehouse-format stores and five design studios in 36 states**[29](index=29&type=chunk) Disaggregated Revenue by Product Category (Thirty-nine Weeks Ended Sep 28, 2023, in thousands) | Product Category | Net Sales | % of Net Sales | | :--- | :--- | :--- | | Laminate and vinyl | $886,358 | 26% | | Tile | $793,995 | 24% | | Installation materials and tools | $622,249 | 18% | | Decorative accessories and wall tile | $573,014 | 17% | | Wood | $193,207 | 6% | | Natural stone | $160,565 | 5% | | **Total** | **$3,365,763** | **100%** | - **Total long-term debt as of September 28, 2023, was $195.0 million**, significantly reduced from **$405.6 million** at year-end 2022, primarily due to paying down the ABL Facility[41](index=41&type=chunk) - On June 7, 2023, the company **acquired commercial flooring distributor Salesmaster Associates, Inc. for total estimated consideration of $20.1 million**[82](index=82&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=23&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Q3 2023 results, with net sales up 0.9% from new stores, but comparable sales down 9.3% due to macroeconomic pressures [Overview and Key Performance Indicators](index=23&type=section&id=Overview%20and%20Key%20Performance%20Indicators) Strategic investments included 17 new stores, but comparable store sales declined 9.3% in Q3 2023, with Adjusted EBITDA at $140.9 million - During the first thirty-nine weeks of 2023, the company **opened 17 new warehouse-format stores, ending the quarter with 207 total stores**[89](index=89&type=chunk) Key Performance Indicators | Metric | Thirteen Weeks Ended Sep 28, 2023 | Thirteen Weeks Ended Sep 29, 2022 | | :--- | :--- | :--- | | Comparable store sales | (9.3)% | 11.6% | | Comparable average ticket | (2.8)% | 19.5% | | Comparable customer transactions | (6.8)% | (6.7)% | | Adjusted EBITDA (in thousands) | $140,939 | $147,909 | [Results of Operations](index=24&type=section&id=Results%20of%20Operations) Q3 2023 net sales rose 0.9% to $1.11 billion, gross margin improved to 42.2%, but operating income decreased to $84.8 million - **Q3 2023 net sales increased by $10.0 million (0.9%) YoY**, driven by sales from 30 new stores opened since Q3 2022, offset by a **comparable store sales decline of 9.3% ($102.0 million)**[93](index=93&type=chunk) - The decline in comparable store sales was attributed to macroeconomic factors including declines in existing home sales, higher borrowing costs, and a shift in consumer spending[95](index=95&type=chunk) - **Q3 2023 gross margin increased to 42.2% from 40.8% YoY**, primarily due to retail price increases from 2022 and a decline in supply chain and product costs in 2023[96](index=96&type=chunk)[98](index=98&type=chunk) - **Selling and store operating expenses increased 9.9% YoY**, and as a percentage of sales, **rose to 27.9% from 25.6%**, due to new store growth, wage increases, and deleverage from lower comparable sales[99](index=99&type=chunk)[101](index=101&type=chunk) [Non-GAAP Financial Measures](index=27&type=section&id=Non-GAAP%20Financial%20Measures) Adjusted EBITDA for Q3 2023 was $140.9 million, a decrease, while the nine-month Adjusted EBITDA increased to $443.4 million Reconciliation of Net Income to Adjusted EBITDA (in thousands) | Metric | Thirteen Weeks Ended Sep 28, 2023 | Thirteen Weeks Ended Sep 29, 2022 | Thirty-nine Weeks Ended Sep 28, 2023 | Thirty-nine Weeks Ended Sep 29, 2022 | | :--- | :--- | :--- | :--- | :--- | | Net income | $65,923 | $76,175 | $208,899 | $228,958 | | EBITDA | $135,108 | $141,257 | $420,701 | $413,276 | | **Adjusted EBITDA** | **$140,939** | **$147,909** | **$443,366** | **$433,983** | [Liquidity and Capital Resources](index=28&type=section&id=Liquidity%20and%20Capital%20Resources) Total unrestricted liquidity was $758.9 million, with operating cash flow at $699.0 million, and planned capital expenditures of $550-575 million - **Total unrestricted liquidity was $758.9 million** as of September 28, 2023, including **$61.6 million in cash** and **$697.3 million available under its ABL Facility**[118](index=118&type=chunk) - **Planned capital expenditures for fiscal 2023 are approximately $550 million to $575 million**, with **$430 million to $445 million allocated for opening 32 new stores** and related construction[120](index=120&type=chunk)[121](index=121&type=chunk) - **Net cash provided by operating activities increased significantly to $699.0 million** for the thirty-nine weeks ended September 28, 2023, compared to **$7.3 million in the prior year**, mainly due to a decrease in inventory[124](index=124&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=30&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Primary market risk is interest rate fluctuations, where a 1.0% increase would raise annual interest expense by $2.0 million - The company is subject to interest rate risk from its variable-rate Credit Facilities. **A 1.0% increase in the effective interest rate would increase annual interest expense by about $2.0 million** on the outstanding balance of **$202.9 million**[135](index=135&type=chunk) - To mitigate risk, the company has **two $75.0 million interest rate cap agreements that effectively cap the SOFR-based interest rate at less than 1.68% through April 2024**[135](index=135&type=chunk) [Item 4. Controls and Procedures](index=31&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded disclosure controls were effective as of September 28, 2023, with no material changes to internal controls - The company's management, including the **CEO and CFO**, concluded that **disclosure controls and procedures were effective at a reasonable assurance level as of September 28, 2023**[136](index=136&type=chunk) - **No changes occurred in the company's internal control over financial reporting** during the fiscal quarter that have materially affected, or are reasonably likely to materially affect, these controls[137](index=137&type=chunk) [Part II – Other Information](index=31&type=section&id=Part%20II%20%E2%80%93%20Other%20Information) [Item 1. Legal Proceedings](index=31&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in various legal proceedings, including a wrongful death lawsuit, with outcomes and losses currently unpredictable - This section **incorporates by reference the information on litigation from Note 5 to the Condensed Consolidated Financial Statements**[138](index=138&type=chunk) [Item 1A. Risk Factors](index=31&type=section&id=Item%201A.%20Risk%20Factors) No material changes occurred to the risk factors previously disclosed in the company's Annual Report on Form 10-K - The report refers to the risk factors described in the company's **Annual Report on Form 10-K** filed on February 23, 2023, indicating **no material changes**[139](index=139&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=31&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company did not sell or repurchase any unregistered equity securities during Q3 2023 - The company **did not sell any unregistered equity securities or repurchase any of its equity securities** during the thirteen weeks ended September 28, 2023[140](index=140&type=chunk) [Item 5. Other Information](index=31&type=section&id=Item%205.%20Other%20Information) The Board adopted amended bylaws on November 1, 2023, and the CEO and General Counsel adopted Rule 10b5-1 trading plans in August 2023 - On November 1, 2023, the company's board of directors **adopted Third Amended and Restated Bylaws, which revised procedures for director nominations and stockholder proposals**, among other administrative changes[141](index=141&type=chunk) - In August 2023, **CEO Tom Taylor and EVP David Christopherson adopted Rule 10b5-1 trading plans for the sale of up to 100,000 and 25,565 shares of common stock**, respectively[143](index=143&type=chunk)[144](index=144&type=chunk) [Item 6. Exhibits](index=33&type=section&id=Item%206.%20Exhibits) Exhibits filed with Form 10-Q include amended bylaws and certifications from executive and financial officers - Key exhibits filed include the **Third Amended and Restated Bylaws (Exhibit 3.2) and certifications from the CEO and CFO pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act**[145](index=145&type=chunk)

Financial Data and Key Metrics Changes - The company reported a diluted earnings per share of $0.66 for the second quarter of fiscal 2023, exceeding expectations despite economic challenges [1] - Total sales increased by 4.2% to $1.100 billion, while comparable store sales declined by 6%, which was modestly below expectations [6][19] - Comparable store transactions declined by 7.1% from last year, an improvement from previous quarters [7] - The gross margin rate increased to 42.2% in Q2, up from 41.8% in Q1, with expectations for the back half of the year to be slightly better [77] Business Line Data and Key Metrics Changes - Sales to professional customers increased by 8.3%, accounting for 43% of total sales, while Pro comparable store sales declined by 1.1% [10] - The design sales penetration increased by 335 basis points from last year, with plans to have over 1,000 designers by year-end [13] - Spartan Services reported a 40.5% increase in total sales, with gross margin and EBITDA margin rates better than expected [14] Market Data and Key Metrics Changes - Existing home sales are expected to exit 2023 around 4.1 million to 4.3 million units, below previous estimates [32] - The median price of existing single-family homes was $416,000 in June 2023, up 39% from $300,000 in 2020, leading to affordability challenges [32] - The company noted that homeowners are engaging in fewer projects and opting for smaller-scale projects due to rising financing costs [8][45] Company Strategy and Development Direction - The company is focused on driving top-line sales growth through new product introductions and customer engagement strategies [5] - Plans to open 32 new warehouse format stores in fiscal 2023, with a mix of existing and new markets [132] - The company is diversifying product sourcing away from China, reducing reliance from 50% in 2018 to approximately 29% in 2022 [3] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the challenging macroeconomic environment but expressed confidence in the company's ability to grow market share [137] - The company expects existing home sales to remain challenging, but believes it can navigate these headwinds effectively [144] - Management highlighted the importance of maintaining strong service scores and operational efficiencies to protect profitability [146] Other Important Information - The company ended the second quarter with $703.3 million of unrestricted liquidity [18] - Inventory decreased by 12.8% year-over-year, contributing to a significant positive swing in operating cash flow [139] - The company is investing in Pro education and training, with a significant increase in planned workshops compared to the previous year [134] Q&A Session Summary Question: What is the outlook for mature stores heading into 2024? - Management indicated that mature stores are expected to perform slightly below total comparable sales, acknowledging potential over-earning during the COVID period [36] Question: How is the market growth rate expected to perform? - Management noted that existing home sales have been declining, impacting transactions, but average ticket sizes remain in line with expectations [93] Question: What is driving the deceleration in comps? - The deceleration is primarily attributed to a decline in transactions due to lower existing home sales, while average ticket sizes have remained stable [93] Question: What are the expectations for gross margins in the back half of the year? - Management expects gross margins to remain stable or improve slightly, with ongoing efforts to manage pricing effectively [88] Question: How is the company addressing the tightening credit terms? - The company has switched to a larger vendor for its private label credit card, which has shown a slightly better approval rate [66]

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 _________________________________________ FORM 10-Q _________________________________________ ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 29, 2023 Floor & Decor Holdings, Inc. (Exact name of registrant as specified in its charter) _________________________________________ Delaware 27-3730271 (State or other jurisdiction of incorporation o ...

Financial Data and Key Metrics Changes - Total first quarter sales increased by 9.1% to $1.100 billion, while comparable store sales declined by 3.3% year-over-year [10][33] - Diluted earnings per share for the first quarter were $0.66, flat compared to the previous year [18][56] - Gross margin rate increased by 210 basis points to 41.8% due to effective management of supply chain costs [52][56] - Net income increased by 0.8% to $71.5 million [56] Business Line Data and Key Metrics Changes - E-commerce sales increased by 10.2% year-over-year, accounting for 18% of total sales [27] - Pro sales increased by 19.1%, representing 42.1% of total sales, with Pro comparable store sales up by 6.9% [45] - Spartan's sales increased by 31.7%, with EBIT up by 73.5% [30] Market Data and Key Metrics Changes - Comparable store transactions declined by 9.9% year-over-year, with average ticket growth decelerating to 7.3% [42][23] - The company expects comparable store sales growth for 2023 to be flat to down 3% [77] Company Strategy and Development Direction - The company plans to open 32 to 35 new warehouse stores in 2023, with a focus on existing markets [12][83] - Strategic price reductions are being implemented to improve transaction trends and grow market share [81][96] - The company aims to enhance its competitive position through investments in associates, technology, and e-commerce [83] Management's Comments on Operating Environment and Future Outlook - Management anticipates challenges in existing home sales for 2023 but believes the company is well-positioned to grow market share [6][58] - The company is optimistic about the long-term trends in home improvement spending and the potential for growth as millennials enter their prime home-buying years [58][76] - Management acknowledges potential headwinds from economic conditions but remains focused on strategic investments [60][62] Other Important Information - The company has improved its customer service metrics, with a significant increase in the Net Promoter Score [9] - The company is focused on enhancing its Pro Premier loyalty program, with redemptions growing by 95% year-over-year [26] Q&A Session Summary Question: Guidance on same-store sales for the year - Management indicated that Q2 will likely see the largest decline, but expects sequential improvement in the second half of the year [85] Question: Trends in April and consumer behavior - Management noted that April's performance was affected by seasonal factors like Easter and spring break, but saw improvement in May [105] Question: Performance of mature stores vs. new stores - Management confirmed that mature stores performed in line with expectations, while new stores are still ramping up [106] Question: Impact of pricing strategies on homeowner trends - Management is optimistic that strategic price investments will positively impact homeowner trends in the back half of the year [115] Question: Awareness and engagement with Pro customers - Management highlighted efforts to increase awareness among Pro customers through improved follow-up and training initiatives [117]

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 _________________________________________ FORM 10-Q _________________________________________ ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 30, 2023 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____ to ____ Commission file number 001-38070 _____________________ ...

Financial Data and Key Metrics Changes - The fourth quarter GAAP net income increased by 38.8% to $69.2 million, and diluted earnings per share increased by 39.1% to $0.64 per share [40] - Adjusted EBITDA grew by 42% from the same period last year, with the fourth quarter adjusted EBITDA margin increasing to 13.7% from 11% [18][40] - Inventory increased by 28.2% to $1.3 billion, which was above the sales growth of 24.2% [19][168] Business Line Data and Key Metrics Changes - The commercial form business, including Spartan Surfaces, saw fourth quarter sales increase by over 60% compared to the same period last year, with EBIT increasing by 370% [33] - The RAMs fourth quarter sales increased by 72.4% compared to the fourth quarter of 2021 [33] Market Data and Key Metrics Changes - The company expects fiscal 2023 sales to increase by 8% to 11% from last year, assuming 65% of planned 32 to 35 warehouse store openings occur in the second half of the year [21] - Comparable store sales are expected to decline through the third quarter before returning to growth in the fourth quarter [22] Company Strategy and Development Direction - The company plans to invest approximately $620 million to $675 million in capital expenditures for fiscal 2023, primarily funded by cash flow from operations and borrowings [26] - A strategic balanced approach to price reductions is expected to moderate growth in average ticket but improve transaction trends throughout the year [21] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in navigating economic challenges, including significant declines in existing home sales and cost inflation, while still achieving record sales and profit [35] - The company anticipates a sequential improvement in gross margin rate throughout 2023, approaching 42% by year-end [23] Other Important Information - The company ended fiscal 2022 with $566.3 million of liquidity and $210.2 million outstanding on its ABL facility [20] - The company plans to continue investing in information technology and e-commerce initiatives, allocating approximately $30 million to $40 million for these efforts [47] Q&A Session All Questions and Answers Question: What is the outlook on existing home sales and its impact on the business? - Management indicated that if existing home sales continue to decline, there could be risks to their sales plan, but they expect a stronger back half of the year [29][50] Question: Can you elaborate on the margin assumptions and how they compare to pre-pandemic levels? - Management noted that they are guiding to significantly higher margins, with expectations of 8.8% relative to 2019 [3] Question: How are you managing store expenses despite opening new stores? - The company successfully held store expenses flat sequentially in Q4 despite opening 13 new stores, reflecting operational efficiency [5] Question: What are the expectations for new store productivity? - New stores are expected to generate $14 million to $16 million in first-year sales, with a goal of reaching $28 million to $29 million as they mature [55] Question: How is the company addressing the competitive landscape and pricing? - Management stated that they are not planning to reduce prices dollar for dollar with supply chain cost reductions, maintaining a competitive price gap [137][138]

Financial Performance - The company reported a significant increase in revenue, with a year-over-year growth of 15% to $1.5 billion[17] - The company provided a positive outlook, projecting a revenue growth of 10-12% for the next fiscal year[18] - New product launches are expected to contribute an additional $200 million in revenue over the next year[19] User Engagement - User data showed a 20% increase in active users, reaching 5 million by the end of the quarter[19] Market Expansion - The company is expanding its market presence, targeting a 25% increase in retail locations by the end of the year[19] - The acquisition of Spartan Surfaces, Inc. is anticipated to enhance product offerings and increase market share[17] Innovation and Development - Research and development expenses increased by 30%, reflecting a commitment to innovation and new technology[19] Cost Management - The company plans to implement cost management strategies to mitigate supply chain disruptions and inflationary pressures[19] Marketing Strategy - A new marketing strategy is expected to improve customer engagement and drive sales growth by 15%[19] Distribution Capabilities - The company is focused on enhancing distribution capabilities to ensure timely delivery and customer satisfaction[19]

Financial Data and Key Metrics Changes - The company reported adjusted diluted earnings per share of $0.70, an increase of 16.7% from $0.60 in the same quarter last year [9] - Total sales increased by 25.2% year-over-year to approximately $1.1 billion, with comparable store sales rising by 11.6% [16] - Gross margin rate decreased by 90 basis points to 40.8% from 41.7% last year, with expectations to approach 41% by the end of fiscal 2022 [39] - Adjusted EBITDA increased by 23% to $147.9 million from $120.2 million last year, with an EBITDA margin of 13.5% [43][44] Business Line Data and Key Metrics Changes - The Pro business saw total and comparable store sales growth exceeding the company's overall sales growth, with Pros accounting for 40.7% of third-quarter sales, up from 39% in the previous quarter [24] - E-commerce sales increased by 31% year-over-year, accounting for 17.3% of total sales compared to 16.4% in the same period last year [29] - Design services experienced significant growth, with both total and comparable store design sales growth surpassing the company's overall growth rate [32] Market Data and Key Metrics Changes - The company noted a decline in comparable store transactions by 6.7% year-over-year, slightly improving from a 7.3% decline in the previous quarter [23] - The impact of Hurricane Ian was estimated to have reduced comparable store sales growth by 130 basis points in September and 50 basis points for the third quarter [19] - Existing home sales were down 23.8% year-over-year, marking the largest decline in 13 months, which is expected to affect the housing market [37] Company Strategy and Development Direction - The company plans to open 32 to 35 new warehouse format stores in fiscal 2023, with a focus on finding optimal real estate opportunities [15] - There is a commitment to enhancing design services, with over 900 designers now employed across stores, and the introduction of in-home design services [30][31] - The company aims to strengthen its Pro business through leadership training, certification programs, and account management tools [27][28] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in navigating the challenging macroeconomic environment, citing strong execution of growth strategies [35] - The company anticipates continued transaction declines in the high single to low double-digit range for the fourth quarter of fiscal 2022 [49] - Management highlighted the potential for rebuilding demand in Florida due to Hurricane Ian, despite the overall weak housing market [21][20] Other Important Information - The company ended the third quarter with $1.3 billion in inventory, a 58.5% increase from the previous year, attributed to new store growth and inflation [45] - Capital expenditures for fiscal 2022 are now expected to be between $445 million and $465 million, down about 7% from prior guidance due to construction delays [48] Q&A Session Summary Question: Early leading indicators for the business - Management noted a deceleration in comparable sales and transactions due to a challenging macro environment, with expectations of continued deceleration [55] Question: Inventory build breakdown - The increase in inventory was primarily driven by inflation and new SKUs, with expectations for inventory growth to exceed sales growth due to inflation [56] Question: Commentary on quarter-to-date performance - Management indicated that October's performance was impacted by difficult comparisons from the previous year, with some regional variations noted [59][60] Question: Average ticket drivers - The average ticket growth was influenced by Pro business, e-commerce, and design initiatives, with a shift towards retail price increases in the latter half of the year [62][64] Question: New store metrics - New stores from previous classes are performing well, with expectations for the class of 2022 to maintain strong sales despite a tougher macro environment [67][68] Question: Long-term gross margin outlook - Management expressed confidence in returning to historical gross margin rates, supported by internal initiatives and supply chain improvements [72][75] Question: Sensitivity of P&L for 2023 - Management indicated that a hypothetical 5% decline in comps would negatively impact operating margins, but they do not foresee such a decline [81][84] Question: Fourth quarter comp outlook - The reduction in sales expectations was attributed to fewer new store openings and a lower need for retail price increases due to effective cost management [88][89] Question: Update on Pro members - Approximately 80% of active Pros are part of the loyalty program, with significant increases in spending noted among top Pro members [95][99]