Floor & Decor Holdings, Inc.

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. One, of course, seems 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 understand better 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 press release, which is available on our investor relations website at ir.florentaccord.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 2023 second quarter earnings conference call. During today's call, Trevor and I will discuss some of our fiscal 2023 second quarter highlights. Then Brian will provide a more in-depth review of our second quarter financial performance and share our thoughts about our projections for the remainder of fiscal 2023. Let me start by saying how pleased we are that amidst the economic challenges of rising mortgage rates and near record low existing home sales, we delivered fiscal 2023 second quarter diluted earnings per share of 66 cents, which exceeded our expectations. These financial results reflect our team's intense focus on what we can control during this challenging period. We are executing our growth and customer service strategies at an elevated level, investing in new and existing stores, and effectively managing our profitability when sales are modestly below our expectations. There have now been 22 consecutive months of year-over-year declines in existing home sales from rising mortgage rates, which continues to create intermediate-term headwinds to our sales growth. Notwithstanding these headwinds, we continue to deliver on our growth plans by opening nine new warehouse stores in the second quarter, including our 200th store opening in Metairie, Louisiana. We are proud that our growth led us to open a New England region which creates exciting promotional opportunities for our field organization. Moreover, we are fortunate that the strength of our balance sheet and cash flows allows us to continue to invest in our existing stores and drive inspiration and newness at a time when the industry is contracting. In the second quarter of fiscal 2023, we executed 49 design center refreshes, including 34 exciting new XL slab vignettes, 153 decorative accessory resets, and by the end of 2023, we expect that all stores will have an updated wood inspiration center. When industry demand turns, we believe these investments will position us for accelerated market share growth. We continue to successfully execute our plans to strategically reduce retail prices on specific SKUs while at the same time growing our gross margin rate sequentially and year over year. Our product price gaps are as strong as ever, and unlike items, they sequentially widen during the second quarter. Moreover, we have been successfully diversifying our product sourcing away from China. In 2022, our product source from China declined to approximately 29% of sales from 50% in 2018. And we see a path to further reduce this percentage meaningfully over time. Through our agile diversification strategies, we have demonstrated that we can reduce our product costs, drive product innovation and newness, achieve optimal economies of scales, and lower our geopolitical risks from tariffs, and more recently, UFLPA enforcement efforts. Turning to commercial, not only are we pleased with the emerging organic growth at Spartan Surfaces, but we were able to build on their successes by acquiring Sales Master 4 solutions in June. As we look forward, we expect existing home sales to be more challenging than we previously contemplated and customers to increasingly prioritize value and savings, seeking out those retailers that best meet these needs. We believe we are well positioned to navigate a longer duration of weak existing home sales headwinds and grow our market share even as the flooring industry contracts in 2023. Let me now turn the call over to Trevor to discuss our second quarter sales and growth pillars. Thanks, Tom.

We are incredibly pleased with how our stores are executing strategies to grow our market share during this challenging period. We are focused on driving top line sales growth in the second half of 2023 through new product introductions, compelling bulk out price displays at the front of our stores, basket selling, open quote conversion, select skew price reductions, and engagement and loyalty strategies, particularly amongst our top pros. We will continue emphasizing our everyday low prices on a broad assortment of top quality and trend forward products, our in-stock job lot quantities, and in-store and online customer experience. We are pleased our second quarter customer service scores remain at all-time highs. At the same time, we are protecting our profitability by flexing payroll hours to align with transactions, improving operational efficiencies across the organization, optimizing our media mix and advertising spend for the most effective return and moderating discretionary spending. Let me turn my comments to fiscal 2023 second quarter sales. Total sales increased 4.2% to 1 billion, 100 million from last year and comparable store sales declined 6%, which was modestly below our expectations. Comparable store sales fell 6.6% in April, 5.5% in May, and 6% in June. From a regional perspective, and like the first quarter, sales in our western division remain the weakest. Our fiscal 2023 third quarter to date, comparable store sales are down 8.4%, which is reflected in our updated earnings guidance provided in today's press release. Turning to our fiscal 2023 second quarter transaction and average ticket performance, Comparable store transactions declined 7.1% from last year, which was modestly below our expectations, but an improvement from the 9.9% decline in the first quarter and a 10.4% decline in the fourth quarter of fiscal 2022. Our second quarter average ticket growth of 1.1% sequentially decelerated from 7.3% in the first quarter and 14.4% in the fourth quarter of 2022. The sequential decelerating growth in our average ticket is mainly due to retail increases last year that we are now starting to anniversary in a more meaningful way, as well as customers purchasing less square footage and our strategic decision to selectively lower retail prices on specific SKUs. Overall, homeowners and pros are engaging in fewer projects and undertaking smaller scale flooring projects and are very intentional in their purchase decisions. For example, they are choosing a single bathroom project rather than a bathroom and a kitchen project or a four room project rather than a five room project. Additionally, the cost of financing projects has risen due to the increase in interest rates, fewer subsidized financing programs, and tighter lending standards. Collectively, we believe these factors are contributing to us selling less square footage when compared with last year. That said, when the consumers are considering a flooring project, we continue to see an ongoing customer preferences towards our better and best price point products, where we offer industry-leading innovation trends and styles at everyday low prices. Indeed, we are excited about the new SKUs landing in our stores in the second half of the year. Consequently, we believe we can grow our market share even while the industry is contracting. I will now discuss our new store pillar of growth. In the second quarter of fiscal 2023, we opened nine new warehouse format stores towards our goal of opening 32 warehouse format stores for the year. Among the nine new warehouse store openings, three opened in each month of the quarter with one opening on the last day of the quarter. We celebrated a milestone in our compelling growth story in early May by completing our 200th warehouse store opening in Metairie, Louisiana. I want to take a moment to recognize all of the people that made this possible. Each year, I believe we get better at opening new stores and they are better than the previous class. And I'm excited about the new stores we have in the pipeline to open towards achieving our 500 US store potential. We have a busy 11 new warehouse store opening plan for the third quarter of fiscal 2023. including a record-setting monthly store opening plan of nine new stores in the month of September. Moreover, we are excited about our plan to open four new stores and new markets in the third quarter, including Buffalo, Rochester, and Albany, New York, and Minneapolis, Minnesota. Among the 32 warehouse format stores we intend to open in fiscal 2023, 59% will be in existing and 41% in new markets. As a reminder, we consider any market where our stores have been open less than three years to be a new market. Looking beyond 2023, we expect construction delays to ease and anticipate a more balanced quarterly store opening cadence, which will lead to more warehouse store operating weeks. According to our pro business, our fiscal 2023 second quarter total sales to pros increased by 8.3% and accounted for 43% of total sales. Pro comparable store sales declined 1.1% from last year, driven by a decline in transactions. While second quarter comparable store sales to pros declined slightly from last year, we are pleased with our engagement metrics where our top pros continue to spend more with us compared with last year, resulting in a growing wallet share. Furthermore, we are pleased that our pros continue demonstrating a strong appreciation for the value of our industry-leading pro premier rewards loyalty program. Over 80% of our pro sales are from PPR members, and second quarter PPR points redeemed increased by 73% from last year. We continue to grow our pro context and are excited about the refinements we are making in our customer relationship management or CRM dashboard tools, which will further allow us to optimize and enhance our lead capabilities and drive engagement. We also build sticky relationships and lifetime value with pros through education and training about flooring products, installation, and design solutions. As discussed in prior earnings call, we aim to be the premier destination for our pro education by expanding our industry partnerships. In the second quarter of 2023, we hosted 27 educational workshops, training over 500 pros. We have 121 pro educational workshop events planned for the year compared to 71 in 2022. We believe these investments are working as those trained pros have significantly increased their spending with us from last year. According to our e-commerce business, our e-commerce team continues to focus on executing strategies to drive traffic and optimizing our customers' digital experiences. In the second quarter, we drove 20 million clicks to our website. Our fiscal 2023 second quarter e-commerce sales increased 12.6% from last year and accounted for 19.1% of our sales compared to 17.5% in the previous year and 18% in the first quarter of 2023. Importantly, our digital and physical assets are working together. 79% of customers who purchased in-store say they have been to our website. Importantly, about 80% of our online sales are picked up in-store. From a merchandising perspective, we continue to be focused on current trends, adding inspirational and user generated content and expanding into new categories. Moving on to our design services, we believe our design services strategies are working. We're driving an elevated level of service versus our competition from trained designers capable of managing any size project with any customer. We now have about five designers per store, which gives us coverage for all days and hours of business. We have equipped designers with hardware and design software, which allows us to give customers a better and more consistent experience. Our in-home design test is now in six markets, and we are pleased with the results. The in-home design allows us to work with the project space, including reviewing samples, taking measurements, and defining the customer's style. This experience also allows us to produce better visualization tools to help customers make the buying decision. In the second quarter of 2023, our design sales penetration increased 335 basis points from last year. We now have about 930 designers working in our stores with plans to have over 1,000 designers by the end of the year. Moving on to commercial flooring business, Spartan Services reported another strong quarter, further reaffirming that our strategies to grow our commercial market share are working. Spartan's fiscal 2023 second quarter total sales increased by 40.5% from last year. We are pleased that Spartan's gross margin and EBITDA margin rate continues to be better than expected. which was partially offset by transaction calls from Salesmaster in the quarter. We are equally pleased with the regional account managers or our RAMs that work with our stores and that are not included in Spartan's financial results. Our RAM second quarter total sales increased 39% from last year. In June, we took another step towards growing our commercial business when Spartan Services acquired Salesmaster Flooring Solutions, a top distributor of commercial flooring in the New York City market. The acquisition significantly expands and deepens our presence in the large and highly fragmented New York City and New England markets. We're excited about leveraging SalesMaster's strong contractor relationships in their core markets, large sundries offerings, delivery and logistics network, and great customer service. As we expand in the Northeast, we believe these attributes will result in higher win rates. We expect SalesMaster to benefit from increased purchasing power, better inventory levels, and logistics, enhancing the value they deliver to their customers. As discussed in prior earnings calls, we remain excited about the commercial market opportunity and our strategies. Finally, we are operating from a position of strength and are excited about the opportunity to continue to grow our market share at fiscal 2023 and beyond. We are confident that we have the right people, strategies, and business models to continue navigating this challenging macroeconomic environment successfully. I will now turn the call over to Brian to discuss our fiscal 2023 second quarter financial results in more detail and to share our outlook for the remainder of the year.