Company Overview
Floor & Decor Holdings, Inc. (NYSE:FND) is a leading specialty retailer of hard surface flooring and related accessories, serving both homeowners and professional contractors. With a unique business model focused on providing an expansive in-stock assortment, everyday low prices, and exceptional customer service, the company has established itself as a dominant player in the highly fragmented hard surface flooring market.
Established in 2000 and headquartered in Atlanta, Georgia, Floor & Decor has grown to operate 251 warehouse-format stores and 5 small-format design studios across 38 states as of the end of fiscal 2024. The company's expansive footprint, strategically located distribution centers, and sophisticated global supply chain sourcing from over 240 vendors in 26 countries have enabled it to offer customers the industry's broadest selection of tile, wood, laminate, vinyl, and natural stone flooring products.
Company History and Milestones
Floor & Decor's journey has been marked by significant milestones and challenges. In November 2010, the company was acquired by previous sponsor owners in connection with the acquisition of Floor and Decor Outlets of America, Inc., which helped expand its store footprint and product offerings. The company demonstrated resilience during the Great Recession in the late 2000s, showcasing its ability to navigate difficult economic conditions. A major step in the company's growth came in 2017 when it went public, raising capital to support its expansion strategy.
The company's commitment to growth is evident in its recent achievements. In December 2024, Floor & Decor opened its 250th store in North Seattle, Washington, marking the halfway point towards its vision of operating 500 warehouse format stores across the United States. This expansion has been consistent, with the company opening 30 new warehouse format stores in fiscal 2024 alone.
Competitive Landscape
Throughout its history, Floor & Decor has faced competition from various sources, including big-box home improvement centers, national and regional specialty flooring retailers, independent flooring retailers, and distributors. To differentiate itself, the company has focused on offering the broadest in-stock assortment of laminate and vinyl, tile, wood, and natural stone flooring, along with installation materials and decorative accessories, at everyday low prices.
Customer Experience and Strategy
Floor & Decor's commitment to providing a differentiated customer experience has been a key driver of its success. The company's warehouse-format stores, averaging 77,000 square feet, offer an inspirational shopping environment with clear sightlines, vibrant displays, and knowledgeable store associates. This, combined with the company's focus on everyday low pricing, has resonated strongly with both professional contractors and homeowner customers.
Financials
In fiscal 2024, Floor & Decor generated total revenue of $4.46 billion, representing a 0.9% increase from the prior year. While the company reported a 7.1% decline in comparable store sales for the full year, it achieved a 5.7% increase in total sales during the fourth quarter, reflecting a sequential improvement in performance. Diluted earnings per share for the year was $1.90, including a $0.05 benefit from a legal settlement.
For the full fiscal year 2024, Floor & Decor reported annual net income of $205.87 million, annual operating cash flow of $603.15 million, and annual free cash flow of $156.33 million. The company's performance in the most recent quarter (Q4 2024) showed revenue of $1.11 billion and net income of $47.48 million. Compared to Q4 2023, total sales increased by 5.7%, while comparable store sales decreased by 0.8%. This sequential improvement in comparable store sales was driven by a 1.3% increase in average ticket, partially offset by a 2.1% decline in transactions. The company estimates the fiscal 2024 Q4 benefit to comparable store sales from hurricanes was approximately 110 basis points.
Liquidity and Growth Initiatives
Despite the broader macroeconomic headwinds and challenges facing the hard surface flooring industry, Floor & Decor has continued to execute on its strategic growth initiatives. In fiscal 2024, the company opened 30 new warehouse-format stores, reaching a total of 251 locations by the end of the year. This expansion, along with the company's efforts to enhance its connected customer experience and grow its pro customer base, has enabled Floor & Decor to gain market share during the industry downturn.
As of December 26, 2024, the company had $187.67 million in cash and cash equivalents and $718 million immediately available for borrowing under its $800 million asset-based revolving credit facility without violating any covenants. The company's debt-to-equity ratio stood at 0.69, while its current ratio was 1.20 and quick ratio was 0.29, indicating a solid liquidity position.
Business Segments
Floor & Decor operates through two main product segments: Retail and Spartan.
Retail Segment: This is the company's core business, comprising the majority of its operations. The Retail segment includes the company's nationwide network of 251 warehouse-format stores and 5 small-format design studios across 38 states as of the end of fiscal 2024. These stores offer a broad in-stock assortment of laminate and vinyl, tile, wood, and natural stone flooring, as well as installation materials, tools, and decorative accessories. In fiscal 2024, the Retail segment generated $4.24 billion in net sales, accounting for 95% of total net sales. The segment reported operating income of $241.91 million, representing a 5.7% operating margin. Comparable store sales in the Retail segment decreased 7.1% during the year, primarily due to a 4.7% decline in comparable transactions and a 2.5% decrease in comparable average ticket.
Spartan Segment: This segment represents the company's commercial surfaces business, operated through its Spartan Surfaces, LLC subsidiary. The Spartan segment sells commercial flooring and related products to commercial customers, such as contractors and businesses. In fiscal 2024, the Spartan segment contributed $215.21 million, or 5%, to the company's total net sales. The segment's operating income was $14.26 million, representing a 6.6% operating margin.
Future Outlook
Looking ahead to fiscal 2025, Floor & Decor has provided the following guidance:
- Total sales expected to be between $4.74 billion and $4.90 billion, representing growth of 6.5% to 10% compared to the prior year. - Comparable store sales expected to be flat to up 3%, with average ticket comps in the low single digits and transaction comps slightly negative to up low single digits. - Gross margin anticipated to be approximately 43.4% to 43.7%, with the potential for higher rates in the second half of the year. - Selling and store operating expenses as a percentage of sales expected to be 31.0% to 31.5%. - General and administrative expenses as a percentage of sales expected to be approximately 6%. - Pre-opening expenses as a percentage of sales expected to be approximately 0.7%. - Interest expense net expected to be approximately $3 million. - Effective tax rate expected to be 21% to 22%. - Depreciation and amortization expense expected to be approximately $245 million. - Adjusted EBITDA expected to be $540 million to $575 million. - Diluted earnings per share expected to be $1.80 to $2.10. - Capital expenditures planned to be $330 million to $400 million.
The company plans to open 25 new warehouse format stores in fiscal 2025 and close 1 store.
Conclusion
While the near-term outlook for the hard surface flooring industry remains uncertain, given the continued challenges in the housing market, Floor & Decor's strategic initiatives, strong financial position, and proven ability to adapt to changing market conditions position the company well to navigate the industry cycle. The company's focus on providing an exceptional customer experience, expanding its geographic footprint, and capitalizing on the long-term secular trends driving demand for home improvement products suggest that Floor & Decor is poised for continued success in the years ahead. With its diversified product offerings, nationwide store footprint, and growing commercial surfaces business, Floor & Decor remains a leading specialty retailer in the large and fragmented hard surface flooring market.