Floor & Decor Holdings, Inc.

Greetings and welcome to the Floor and Decor Holdings Inc. Fourth Quarter 2022 Conference Call. At this time, all participants are in a 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 zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce to you host Wayne Hood, Vice President of Investor Relations. Thank you, Wayne. You may begin.

Thank you, Operator, and good afternoon, everyone. Welcome to Floor & Decor's fourth quarter and fiscal 22 earnings conference call. Joining me on our call today are Tom Taylor, Chief Executive Officer, Trevor Lang, President, and Brian Langley, Executive Vice President and Chief Financial Officer. Before we start, I want to remind everyone of the company's Safe Harbor language. Comments made during this conference call and webcast contain forward-looking statements within the meaning 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. Warren, of course, assumes 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 most directly comparable GAAP financial measures can be found in our earnings press release, which is available on our investor relations website at ir.florentecor.com. A recorded replay of this call and 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 fourth quarter earnings conference call. During today's call, Trevor and I will discuss some of the highlights of our fiscal 2022 fourth quarter earnings. Then Brian will provide a more in-depth review of our fourth quarter performance and share our thoughts about fiscal 2023. We are pleased to announce that our 2022 fourth quarter adjusted diluted earnings per share increased by 45.5% to 64 cents from 44 cents last year. exceeding the $0.53 to $0.63 per share guidance range that we provided on our 2022 third quarter earnings conference call. Our full year 2022 adjusted diluted earnings per share increased by 13.1% to $2.76 from $2.44 in 2021. Notably, our full year 2022 adjusted diluted earnings per share are slightly above the low end of our guidance range of $2.75 to $3 per share that we provided at the beginning of fiscal 2022, which did not contemplate the economic and geopolitical headwinds we faced during the year that were unknown at the time. We are particularly pleased to achieve these financial results considering the challenging macroeconomic environment including steep mortgage rate increases and moderating growth in home prices. These factors contributed to significant year-over-year declines in existing home sales in 2022, particularly in October, November, and December when they declined 28.4%, 35.5%, and 34% respectively. Despite these significant headwinds, we continued to grow our market share by remaining agile, executing our key growth strategies, and investing in initiatives that further widened our competitive moat. We continued to deliver on our gross margin rate recapture plans by executing our pricing strategies and from favorable supply chain costs, which contributed to our better-than-expected fourth quarter earnings results. Ocean freight rates have declined significantly due to lower global market demand and the easing of port congestion. In addition, we have seen material reductions in demurrage, tension, and drayage costs and softening in domestic logistic rates. Collectively, we believe these will provide a tailwind to our gross margin rate in fiscal 2023 and 2024. These improving supply chain costs should enable us to strategically pass certain cost savings to our homeowner and pro customers and continue to grow our market share as we move through fiscal 2023 and beyond. As we enter 2023, we intend to manage our stores in a way that reflects the current economic environment. That is to say, we will further lean into capitalizing on our low prices brought in stock assortments and industry leading customer service provided by our store associates. To further enhance our customer service, we introduced fit teams or field installation teams to handle daily tasks, allowing sales associates more time to engage with customers. We completed the rollout of these teams to six key markets in the fourth quarter of 2022 and plan to have 12 markets with fit teams at the end of 2023. We are proud of our best in class customer service and that we finished 2022 with our highest customer service scores. Our homeowners and pros rely on us to provide them with a wealth of information and style inspirations at the lowest possible price. Before I turn the call over to Trevor, I want to touch on a couple of management and board related items. First, I'd like to remind everyone that in February of 2020, our board of directors authorized retention grants for our executives that were tied to three main goals. doubling our adjusted EBIT over a three-year period, maintaining a prescribed return on invested capital, and stock performance that exceeded our peer group. We are pleased to announce that we have successfully achieved these financial targets. We believe that aligning management's interest with long-term shareholder value creation should be the cornerstone of our executive compensation strategy. For that reason, our board of directors again approved equity retention grants for our executive team linked to achieving specific long-term financial goals and total shareholder return. We will provide more information on these grants in our upcoming proxy statement. Second, I'd like to turn everyone's attention to our press release today on the nomination of Melissa Kersey to join our board. She's currently the Chief Human Resource Officer at Tractor Supply and previously held senior roles at McDonald's and Walmart. We believe Melissa's background will be valuable to our continued growth and that her nomination is consistent with our approach of adding diverse individuals with skills and experiences that will support our strategic growth objectives. Let me now turn the call over to Trevor to discuss our sales and some of our growth pillars.