Floor & Decor Holdings, Inc.

Greetings and welcome to the Floor & Decor Third Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. The question and answer session will follow the formal presentation. If anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Wayne Hood, Senior Vice President of Investor Relations. Thank you. You may begin.

Thank you, Operator, and good afternoon, everyone. Welcome to Floor & Decor's fiscal 2024 third quarter 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 get started, I wanted 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. Foreign Decor 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 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.flooranddecor.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 2024 third quarter earnings conference call. During today's call, Trevor and I will discuss some of our fiscal 2024 third quarter earnings highlights. Then Brian will provide a more in-depth review of our third quarter financial performance and share our thoughts about our updated outlook for the remainder of fiscal 2024. We are incredibly proud of how our store and store support team successfully executed our plans and managed costs during a period when demand for large project discretionary home improvement and hard surface flooring spending remains challenging. I particularly want to thank our associates affected by the hurricanes for their hard work and dedication to their communities. Due to their efforts, we quickly reopened our stores to serve customers affected by the hurricanes as they began their recovery and rebuilding efforts. In the face of these challenges, our associates' hard work and dedication enabled us to deliver better than expected fiscal 2024 third quarter diluted earnings per share of 48 cents compared with 61 cents in the same period last year. These results exceeded our expectations primarily due to the tight expense management across the company. As Brian will discuss in more detail, we are narrowing our fiscal 2024 third quarter diluted earnings per share guidance range from 165 to 175 from 155 to 175. Looking ahead, the Federal Reserve finally began its much-anticipated easing cycle in September of 2024, which leads us to believe that existing home sales and hard surface flooring spending could potentially grind higher over the next 12 to 18 months. However, our optimism is tempered by the recent increase in 30-year mortgage rates Moreover, September existing home sales declined 1% sequentially and 3.5% year-over-year to $3.84 million, while median existing home sales price growth, according to the National Association of Realtors, moderated to 3% year-over-year in September from its peak 2024 growth of 5.6% in February. Housing affordability remains a headwind to increased demand due to the secular imbalance in the housing stock, which is pressuring home prices. Finally, personal consumption expenditures still indicate that consumers are shifting more of their wallet share spending to services from goods. In short, we remain optimistic yet mindful of the challenges. Let me shift my comments to the hurricanes that made landfall in fiscal 2024 and affected some of our stores in the third and early fourth quarters of the year. First and foremost, our hearts and prayers go out to the families and communities impacted by these hurricanes. Turning to the first hurricane of the season, Hurricane Beryl made landfall on the Texas coast in early July as a category one storm. As we mentioned during our fiscal 2024 second quarter earnings call, we estimated that our 2024 third quarter to date comparable store sales were adversely impacted by approximately 70 basis points due to Hurricane Beryl. Because the storm caused mostly wind damage and not flooding, we did not see an offsetting increase in demand as the stores reopened. Turning to Hurricane Helene, which made landfall on September 26th. This hurricane caused catastrophic inland damage across a wide area impacting six states and brought substantial flooding to the affected regions. Broadly, 35 stores were closed or partially closed for one or more days after Hurricane Helene as it moved across a wide area of the southeast. In contrast, Hurricane Milton made landfall 13 days later, on October 9th, mostly impacting Florida and causing more wind than flood damage. The storm resulted in 29 stores being closed or partially closed for one or more days. Combined, both hurricanes impacted 45 of our stores or about 19% of our store base. In response, we took a broad range of steps in the affected communities where we operate stores to support rebuilding efforts by adding additional staffing. Furthermore, we introduced a solution for deliveries over 60 miles for those stores impacted by Hurricane Helene and implemented an 18-month credit program for all impacted stores. We also delivered additional truckloads of key SKUs and important job lot quantities at everyday low prices to the affected stores. Our store teams postponed projects to focus on inventory packout and customer service. Additionally, we are working with our national restoration partners to be a single source for the rebuilding efforts. Looking ahead, we expect to benefit from the rebuilding spend from the destructive flooding caused by Hurricane Helene and milk. However, at this point, the extent and duration of this benefit are difficult to forecast with any degree of precision other than to say we believe it could extend over multiple quarters in 2025. Let me shift my comments to new store growth. We continue to grow our market share and brand awareness by prudently opening new warehouse format stores even as growth in the flooring industry remains challenging. These challenging industry fundamentals have recently forced some of our retail and distributor competitors to close stores and rethink their strategies. We are using this period of disruption as an opportunity to grow our market share by actively engaging with homeowners and pros in the affected trade areas who need support for their current and future projects. Furthermore, we are recruiting managers and sales associates who may be displaced by industry consolidations. We are in a favorable position due to our significant investments over the last decade to build our business model with substantial competitive advantages. Our dedicated teams and strategic investments position us well to navigate these challenges and continue our growth. Third quarter of fiscal 2024, we opened 11 new warehouse format stores, including eight openings in fiscal September. As a result, we ended the third quarter operating 241 warehouse format stores and five design studios, compared with 207 warehouse format stores and five design studios in the same period last year. We now operate stores across 38 states. We plan to open 10 warehouse format stores in the fourth quarter of fiscal 2024 to achieve our 30 new warehouse format store opening plan in fiscal 2024. To date, in the physical fourth quarter, we have opened one warehouse store in Daytona, Florida, and expect most of the remaining openings to occur in late November and December. As discussed in our prior quarter earnings conference calls, depending on market conditions, we intend to open approximately 25 new warehouse format stores in fiscal 2025, mainly in the second half of the year and in existing markets. Our long-term goal of operating 500 stores is unchanged. However, we believe the slope and timeline of reaching 500 stores will be influenced by when we return to a historical normal level of existing home sales. Moving to our third quarter sales. Our fiscal 2024 third quarter sales total sales increased 0.9% to $1,118,000,000 from the same period last year. Comparable store sales decreased by 6.4%, which is in line with our expectations. We are encouraged that the sequential rate of decline in our fiscal 2024 comparable store sales improved as we cycled past easier comparable store sales comparisons. Comparable store sales declined 11.6% in the first quarter, 9% in the second quarter, and 6.4% in the third quarter of fiscal 2024. On a monthly basis, our third quarter comparable store sales declined 7.6% in July, 6.4% in August, and 5.4% in September. We estimate the negative impact on our comparable store sales from hurricanes was approximately 70 basis points in July, 10 basis points in August, and 40 basis points in September. We estimate the full third quarter impact was approximately 40 basis points. Fiscal 2024 fourth quarter to date comparable store sales declined 4.2%. From a regional perspective, we continue to see encouraging comparable store sale trends emerging from our western division, where comparable store sales were well above the company average. Let me comment about our comparable stores average ticket and transaction trends. In the third quarter of fiscal 2024, our comparable average ticket decreased 2.4% compared to the same period last year, which is in line with our range of expectations. Comparable transactions were at the low end of our range of expectations due to the impact of the hurricanes, declining by 4.1% from the same period last year. As a reminder, our third quarter comparable transactions and average ticket benefited from cycling past easier comparisons. We will continue to benefit from an easier sequential average ticket and transaction comparison in the fourth quarter of fiscal 2024. Parable store sales and installation materials, decorative accessories, and adjacent categories were better than the company average. Like prior quarters, our merchandising efforts continue to successfully drive sales towards our better and best price points, which offer industry-leading innovation, trends, and styles at everyday low prices. Furthermore, these strategies continue leading to a shift in sales to higher margin products, enhancing our profitability. Let me now turn the call over to Trevor to discuss a few more of our pillars of growth.