Floor & Decor(US:FND)2022-11-06 12:00Financial 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]