Floor & Decor(FND) - 2020 Q4 - Annual Report

Part I Business Overview Floor & Decor is a high-growth specialty retailer of hard surface flooring and accessories, targeting Pro, DIY, and BIY customers with a broad, in-stock product assortment at low prices and a strategy for significant store expansion Financial and Operational Growth (FY2016-FY2020) | Metric | FY2016 | FY2020 | CAGR | Fiscal 2020 Growth | | :--- | :--- | :--- | :--- | :--- | | Warehouse Stores | 69 | 133 | 17.8% | 11% increase (13 new stores) | | Net Sales | $1.05B | $2.43B | 23.3% | 18.6% increase YoY | | Net Income | $43.0M | $195.0M | 45.9% | 29.4% increase YoY | | Comparable Store Sales | N/A | 5.5% | N/A | 5.5% (vs 4.0% in FY2019) | - The company targets significant store expansion, aiming to grow from 133 warehouse-format stores to approximately 400 nationwide within the next 8-10 years, with a planned annual growth rate of about 20% for the next several years[40][58] - The business model focuses on a one-stop project destination concept, with large-format stores (average 78,000 sq. ft.) carrying deep in-stock inventory (average 4,100 SKUs, $2.5 million at cost per store) to ensure immediate product availability[28][34][56] - A direct global sourcing model from over 220 vendors in 24 countries is a key competitive advantage, enabling low prices and attractive gross margins by eliminating intermediaries[37][67] - Pro customers are a key focus, influencing 40% of sales, with dedicated services, loyalty programs, and commercial credit offerings to drive repeat, high-ticket purchases[35][43] Risk Factors The company faces key risks including economic dependency, operational challenges from growth and competition, global supply chain disruptions, and impacts from the COVID-19 pandemic and U.S. trade policies - The business is highly dependent on home remodeling activity, which is influenced by factors beyond the company's control such as interest rates, consumer confidence, and real estate prices[92] - The COVID-19 pandemic poses a significant risk, having negatively impacted business in the first half of 2020, with future resurgences potentially leading to store closures, supply chain disruptions, and reduced consumer demand[99][101] - U.S. trade policies, particularly tariffs on Chinese imports, present a major risk, as approximately 30% of products sold in fiscal 2020 were sourced from China and are subject to significant tariffs and duties[105] - Failure to manage new store growth, which is planned at a rate of 20% annually, could adversely affect operating results due to challenges in site selection, hiring qualified staff, and managing opening costs[95][40] - Disruptions to the supply chain and four internally-managed distribution centers could adversely affect business, with risks including weather events, shipping constraints, and public health crises[106][108] Unresolved Staff Comments The company reports no unresolved staff comments from the Securities and Exchange Commission - There are no unresolved staff comments[204] Properties As of fiscal year-end 2020, the company operated 133 leased warehouse-format stores and two design studios across 31 states, with its corporate headquarters also leased in Atlanta, Georgia Store Count by State (Top 5) | State | Number of Stores | | :--- | :--- | | Florida | 21 | | California | 19 | | Texas | 19 | | Georgia | 8 | | Illinois | 8 | - The company operates 133 warehouse-format stores and two small-format design studios across 31 states[206] - All of the company's stores, its store support center in Atlanta, GA, and its distribution centers are leased properties[207] Legal Proceedings The company is involved in various legal actions and claims arising in the ordinary course of business, including contract, product liability, intellectual property, and employment matters - The company is engaged in various legal actions and claims arising in the ordinary course of business[208] Mine Safety Disclosures This section is not applicable to the company's operations - Not applicable[209] Part II Market For Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on the NYSE under 'FND', with no current cash dividends planned, and has significantly outperformed market indices since its April 2017 IPO - Common stock is listed on the NYSE under the symbol 'FND'[211] - The company does not currently expect to pay any cash dividends, retaining funds for business operation and growth[212] Stock Performance Comparison (April 27, 2017 - Dec 31, 2020) | Index | Initial Investment ($100) | Value at 12/31/2020 | | :--- | :--- | :--- | | FND | $100.00 | $289.70 | | S&P 500 Index | $100.00 | $157.54 | | S&P 500 Home Improvement Retail | $100.00 | $175.37 | Selected Financial Data This section is not applicable as the company has elected not to provide this information, in accordance with recent SEC rule changes - No selected financial data is provided[217] Management's Discussion and Analysis of Financial Condition and Results of Operations Fiscal 2020 saw net sales grow 18.6% to $2.43 billion and net income rise 29.4% to $195.0 million, driven by comparable store sales and new openings, despite initial COVID-19 impacts Fiscal 2020 vs. Fiscal 2019 Results of Operations | Metric | Fiscal 2020 | Fiscal 2019 | % Change | | :--- | :--- | :--- | :--- | | Net Sales | $2.43B | $2.05B | 18.6% | | Gross Profit | $1.03B | $863.0M | 19.9% | | Operating Income | $214.6M | $159.2M | 34.8% | | Net Income | $195.0M | $150.6M | 29.4% | | Gross Margin | 42.7% | 42.2% | +50 bps | | Operating Margin | 8.8% | 7.8% | +100 bps | - The 53rd week in fiscal 2020 contributed approximately $41.8 million in net sales and $6.4 million in net income[258] - Comparable store sales increased 5.5%, driven by a 4.8% increase in customer transactions and a 0.7% increase in average ticket[258] - The COVID-19 pandemic caused comparable store sales to decline by 20.8% in Q1 and 9.6% for the first half of 2020, but they increased by 18.4% in Q3 and 21.6% in Q4[223] - The company plans capital expenditures of $440 million to $460 million in fiscal 2021, primarily for opening 27 new stores and relocating its Houston distribution center[280] Quantitative and Qualitative Disclosures about Market Risk The company's primary market risks include interest rate fluctuations on variable-rate debt, with minimal foreign currency exposure, and monitored inflation and commodity price changes - The company is exposed to interest rate risk from its variable-rate Term Loan Facility, which had a principal balance of $217.8 million at year-end[331] - A hypothetical 1.0% increase in the effective interest rate would increase annual interest expense by approximately $2.2 million[331] - Foreign currency risk is limited as substantially all contracts with overseas suppliers are denominated in U.S. dollars[330] Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements for fiscal year 2020, including balance sheets, income statements, equity statements, and cash flow statements, prepared in conformity with U.S. GAAP Consolidated Balance Sheet Highlights (as of Dec 31, 2020) | Account | Amount | | :--- | :--- | | Total Assets | $2.88B | | Cash and cash equivalents | $307.8M | | Inventories, net | $654.0M | | Fixed assets, net | $579.4M | | Right-of-use assets | $916.3M | | Total Liabilities | $1.88B | | Trade accounts payable | $417.9M | | Lease liabilities | $1.04B | | Term loans | $208.8M | | Total Stockholders' Equity | $997.4M | Consolidated Statement of Operations Highlights (Fiscal Year 2020) | Account | Amount | | :--- | :--- | | Net Sales | $2.43B | | Gross Profit | $1.03B | | Operating Income | $214.6M | | Net Income | $195.0M | | Diluted Earnings Per Share | $1.84 | - The independent auditor, Ernst & Young LLP, issued an unqualified opinion on the financial statements and the effectiveness of internal control over financial reporting[337][346] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants regarding accounting principles, financial disclosure, or auditing scope - None reported[528] Controls and Procedures Management concluded that both disclosure controls and internal control over financial reporting were effective as of December 31, 2020, with no material changes during the fourth quarter - Management concluded that both disclosure controls and procedures, and internal control over financial reporting, were effective as of December 31, 2020[529][533] - No material changes were made to the company's internal control over financial reporting during the fourth quarter of fiscal 2020[534] Other Information The company reports no other information for this item - None reported[535] Part III Directors, Executive Officers and Corporate Governance Information regarding directors, executive officers, and corporate governance is incorporated by reference from the company's definitive Proxy Statement - Information is incorporated by reference from the upcoming Proxy Statement[537] Executive Compensation Information concerning executive and director compensation is incorporated by reference from the company's definitive Proxy Statement - Information is incorporated by reference from the upcoming Proxy Statement[538] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information concerning security ownership of beneficial owners and management, and related stockholder matters, is incorporated by reference from the company's definitive Proxy Statement - Information is incorporated by reference from the upcoming Proxy Statement[539] Certain Relationships and Related Transactions, and Director Independence Information concerning certain relationships, related transactions, and director independence is incorporated by reference from the company's definitive Proxy Statement - Information is incorporated by reference from the upcoming Proxy Statement[539] Principal Accounting Fees and Services Information concerning principal accounting fees and services is incorporated by reference from the company's definitive Proxy Statement - Information is incorporated by reference from the upcoming Proxy Statement[540] Part IV Exhibits, Financial Statement Schedules This section lists all documents filed as part of the Annual Report on Form 10-K, including financial statements and a comprehensive list of exhibits - This section contains a list of all financial statements and exhibits filed with the Form 10-K[541] Form 10-K Summary The company has not provided a summary for this item - None provided[548]