Floor & Decor Holdings, Inc.

Greetings, ladies and gentlemen, and welcome to Floor and Decor's first quarter of 2022 conference call. At this time, all participants are in listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star then zero on your telephone keypad. As a reminder, this conference call is being recorded. It is now my pleasure to introduce your host, Mr. Wayne Hood, Vice President of Investor Relations.

Thank you, operator, and good afternoon, everyone. Joining me on our first quarter earnings conference call today are Tom Taylor, Chief Executive Officer, Trevor Lang, Executive Vice President and Chief Financial Officer, and Ersan Sehman, Executive Vice President of Merchandising. Before we get started, I would like to remind everyone of the company's safe harbor language. Comments made during this conference call and webcast contain forward-looking statements within the meeting of the Private Securities Litigation Reform Act of 1995 and are subject to risk and uncertainties. Any statement that refers to expectations, projections, or other characterizations of future events, including financial projections or future market conditions, is a forward-looking statement. The company's actual future results could differ materially from those expressed in such forward-looking statements for any reason, including those listed in its SEC filings. Florida, of course, has no obligation to update any such forward-looking statements. Please also note that past performance or market information is not a guarantee of future results. During this conference call, the company will discuss non-GAAP financial measures as defined by SEC Regulation G. We believe non-GAAP disclosures enable investors to better understand our core operating performance on a comparable basis between periods. A reconciliation of each of these non-GAAP measures to the most directly comparable GAAP financial measure can be found in the earnings release, which is available on our investor relations website at irflorentecor.com. A recorded replay of this call together with related materials will be available on our investor relations website. Let me now turn the call over to Tom.

Thank you, Wayne, and everyone for joining us on our fiscal 2022 first quarter earnings conference call. During today's call, I will discuss some of the highlights of our 2022 first quarter earnings. Trevor will then review our financial performance in more detail and discuss how we are thinking about the remainder of 2022. We will then open the call for your questions. We enter fiscal 2022 with good momentum in our business and are pleased to deliver first quarter sales and earnings that exceeded expectations, especially considering lapping record sales and earnings last year. We are proud that our store, commercial, and support teams continue to successfully execute our growth strategies in a dynamic and challenging industry-wide operating environment. We believe our competitive moat from a product, price, and access to inventory standpoint has never been stronger, giving us added confidence and our ability to continue to grow our market share in a wide range of macroeconomic challenges. Moreover, we are happy that our investments and associate wages and training resulted in better staffing, lower turnover, and 100 basis and point sequential increase in our composite customer service score. Investing in our associates is core to our culture and success. Collectively, these efforts contributed to record fiscal 2022 first quarter sales. Total sales increased 31.5% to $1 billion. And comparable store sales grew 14.3% from last year, exceeding expectations. Fiscal 2022 adjusted first quarter earnings per share declined 1.5%, to 67 cents from the previous year's record earnings of 68 cents per share, also exceeding our expectations. Let me turn my comments to our new store openings. During the first quarter of fiscal 2022, we opened six new warehouse format stores compared with seven stores during the same period last year. We opened one store in January, two stores in February, and three stores in March. ending the first quarter of 2022 with 166 warehouse format stores in 34 states. We are excited to have opened our first store in Portland, Oregon, market in the first quarter of 2022, and are pleased with its early performance. Additionally, we are delighted with the strong acceptance of our newest store on Long Island in Garden City, New York. We remain on plan to open nine stores in the second quarter of and 32 total warehouse format stores in fiscal 2022. We evaluate each lease as they come up for renewal, and as such, we plan to close our Southlake store in Atlanta in the second quarter of fiscal 2022. This store was the second store opened by Floor & Decor, and we intend to reposition the store to an expected better location in 2023. The net store openings would bring our total warehouse format store count to 191 stores at the end of fiscal 2022. As discussed at our March investor day meeting, we forecast the path towards operating at least 500 warehouse format stores over time, implying we would only be 38% built out by the end of fiscal 2022. Moreover, 58% of our warehouse stores have been opened after 2016, with an average storage of just 2.3 years for this group of stores. Collectively, we believe these stores will continue to move up their sales maturity curve and support our longer-term comparable store sales growth target of mid to high single-digit growth. In the first quarter of fiscal 2022, we opened three design studios, including February openings in Miami, Florida, and Houston, Texas. In March, we opened at Tyson's Corner, Virginia. We now operate five design studios and have plans to open one additional design studio in Atlanta during the second half of fiscal 2022. Let me now discuss in more detail our comparable store sales. First quarter demand for hard surface flooring remains strong, particularly among pros, with broad-based strength across most merchandise categories and all store classes. We are particularly pleased with the sales performance of some of our most mature stores where many had their strongest sales weeks ever in the quarter. We experienced double-digit comparable store sales growth in all divisions led by the South. Our comparable store sales increased 11.5% in January, 23.5% in February, and 10.1% in March, bringing the first quarter growth to 14.3%. As a reminder, last year's comparable store sales increased 30.1% in January, 19.2% in February, and 41.3% in March. As we look to the second quarter of fiscal 2022, our April comparable store sales increased 9.9% and are up 9.7% month-to-date in May, in line with our expectations as we lap our most difficult comparisons. The first quarter comparable store sales increase of 14.3% was driven by a 16.7% increase in our average ticket. As expected, the increase in the average ticket is mainly due to retail price increases to mitigate cost increases, continuing strong sales in laminate and vinyl, and ongoing customer preferences towards our better and best price points across all departments. Our first quarter average ticket also benefited from an increase in the sales penetration rate from our designer-led initiatives and e-commerce, both of which have an average ticket above the company average. First quarter 2022, comparable store transactions declined 2.1% from last year, which was sequentially lower than the 0.7% decline in the fourth quarter of fiscal 2021. First quarter, comparable store sales among pros continue to grow faster than our homeowner sales as we successfully executed a holistic pro strategy that leans into relationship building and growing our wallet share. Pros accounted for 33.1% of our sales in the first quarter of 2022. We are pleased that the top 10% of our pros shop with us an average of 11 times in the first quarter, and their average spend was up 25% over last year, validating the strength of our growing brand equity. We continue to believe our in-stock job lock quantities are a clear competitive advantage during the current disruptions in the global supply chain. Let me turn to growth from our e-commerce business. The investments we are making towards improving our web experience by focusing on product content and conversion are working. First quarter e-commerce sales increased 46% from last year and accounted for 17.7% of sales compared with 15.4% in the same period the previous year and 16.4% in the fourth quarter of 2021. We are pleased with traffic to our website and double-digit conversion growth on both desktop and mobile devices. As we look ahead, we'll continue to optimize our customers' digital experience and focus on product and inspirational content. Let me now discuss the progress we are making with design services. We are focused on building a consistent, high-touch, best-in-class, and seamless design service experience for our homeowners and pro customers in our stores. We find that not only is our average ticket and gross margin higher when a designer is involved, but our customer experience score is materially higher. So we have been doubling down in design by investing in designers, and we have begun testing an enhanced organizational structure that we believe will improve our ability to attract and retain high caliber designers by providing them with clear career path opportunities. We are pleased that the focused attention and investments we are making in design contributed to a marked improvement in designer turnover in the first quarter of 2022. and the company's highest quarterly appointment penetration rate. We are in the early stages of benefiting from these initiatives and are excited about building awareness and familiarity with our design services. Let me turn my comments to our progress in commercial, which includes Spartan Services and our regional account managers, or RAMs, that work with our stores. As a reminder, Spartan Services targets 60% of our commercial addressable market by focusing on A&D firms that have large projects with hard product specifications and long lead times. By comparison, our regional account managers focus on 40% of the commercial market, where projects generally have soft product specifications or no product specifications. We are successfully integrating critical functional areas with Spartan Services and implementing strategies to accelerate growth in 2022 and beyond. To that end, we acquired Wisconsin-based distributor KRS Incorporated in February of 2022. While KRS is small and not material to our results, they are a leader in commercial hard surface flooring in Wisconsin and are an example of how we can expand nationally when we find the right opportunity and partners. We remain excited about Spartan's growth prospects and are pleased that their first quarter 2022 sales and earnings results exceeded our expectations following a strong 2021. As we look ahead, we are encouraged to see that AIA's Architecture Billings Index for March increased to 58 from a score of 51.3 in February, implying continued growth in billings and commercial flooring demand. We are pleased that first quarter sales from our RAMs increased 88% year over year. We are continuing to build out our regional account manager's with the addition of seven rams in the first quarter of fiscal 2022 towards our plan to onboard 16 rams in 2022. Let me update you about how we are navigating constraints in the global supply chain. As we assess US port congestion and its impact on our supply chain costs and distribution capability to our stores, we continue to see that the ports of Los Angeles and Long Beach remain our most significant challenge. However, We continue to divert to other ports and increase our dray capacity to minimize this impact. Congestion in the ports of Los Angeles and Long Beach have taken a step backwards in recent weeks as more ships leave Asia following the Lunar New Year. We are closely monitoring this trend and the impact of COVID-19 lockdowns in Shanghai, China, but at this point, it is not having a greater than expected net effect on our business. We are also monitoring labor contract negotiations between West Coast ports and the International Longshoremen and Warehouse Union that expires July 1st. We believe it's likely there could be a work slowdown or go slow measures put in place during contract negotiations. As we discussed at our March Investor Day meeting, we are planning on higher ocean freight costs throughout 2022. At this juncture, we have no major port concerns from our Houston, Savannah, or Baltimore distribution centers. Before turning the call over to Trevor, I want to thank all of our floor and decor associates for their collective hard work in our stores, distribution centers, and store support center to serve our customers. Together, we continue to prove to be an agile, resilient, and resourceful company. I'll now turn the call over to Trevor to discuss in more detail our fiscal 2022 first quarter earnings results.