Floor & Decor Holdings, Inc.

Greetings and welcome to the Floor and Decor Holdings second quarter 2025 conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow a formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note that this call is being recorded. I will now turn the conference over to your host, Wayne Hood, Senior Vice President of Investor Relations. Thank you. You may begin.

Thank you, Operator, and good afternoon, everyone. Welcome to Florida Corps' Fiscal 2025 Second Quarter Earnings Conference Call. Joining me on our call today are Tom Taylor, Chief Executive Officer, Brad Paulson, 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 call contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. 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. These statements are subject to risk and uncertainties that could cause actual future results to differ materially from those expressed in these forward-looking statements for any reason, including those listed at the end of the earnings release and in the company's SEC filings. Board of Core 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 call, the company will discuss certain non-GAAP financial measures We believe these measures 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 you release, which is available on our investor relations website at ir.laurentecor.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 2025 second quarter earnings conference call. During today's conference call, Brad, Brian, and I will discuss some of our second quarter earnings highlights. Then Brian will share our thoughts about the remainder of fiscal 2025. We are pleased to report that for the second quarter of fiscal 2025, our diluted earnings per share increased by 11.5% to 58 cents compared to 52 cents in the same period last year, reaching the high end of our expectations. Sales for the quarter rose by 7.1% to $1,214,000,000. Comparable store sales increased by 0.4%, marking the first quarterly increase since the fourth quarter of fiscal 2022. These results reflect the strength of our business fundamentals and the steadfast dedication of our associates. In a period marked by continued economic uncertainty, heightened complexity, and shifting market conditions, our team rose to the challenge. They remain focused and executing our strategic priorities with unwavering discipline and resolve. We are truly grateful for their contributions. Let me now discuss our new warehouse format store growth. In the second quarter of fiscal 2025, we opened three new warehouse format stores in Kissimmee, Florida, San Antonio, Texas, and Chula Vista, California. We are especially pleased to have opened in Chula Vista as it marks our first warehouse format store to open in California in close to three years. Year to date, we have opened seven new warehouse format stores and in the second quarter with 257 locations, up approximately 12% from 230 stores in the same period last year. We have a busy second half of the year new warehouse format store opening schedule, with most openings scheduled for the late third quarter and early fourth quarter. We remain on track to open 20 new warehouse format stores in fiscal 2025, primarily across large and mid-sized existing markets. Looking ahead to fiscal 2026, we currently anticipate opening at least 20 new warehouse format stores. As previously discussed, our company is well positioned to support the opening of more than 20 new warehouse format stores annually once housing market conditions improve. That said, we remain committed to a disciplined and agile growth strategy. Should the housing market or broader economic environment underperform relative to our expectations, we are prepared to adjust our expansion plans accordingly to ensure prudent capital allocation and long-term value creation. As you are aware, One of the most consequential challenges we and others across our industry continue to face is mitigating the impact of tariffs on our products. To assist with our execution in an uncertain and complex environment, we have continued to rely on our dedicated Tariff Steering Committee. This committee is tasked with guiding alignment on our top priorities and maintaining agility and discipline in our operational planning. This committee builds on our proven track record of managing prior tariffs and duties, leveraging both our experience and scale and flexibility of our operations to position us to navigate today's uncertainty and complexity, which we believe is significantly better than many of our competitors. With that context in mind, I'd like to take a minute to outline and update the key actions we're taking to mitigate universal, reciprocal, and sectoral tariffs to position the business for continued growth. First, We continue to actively negotiate and collaborate with our vendors to mitigate the higher incremental tariffs on the products we sell, as we have successfully done with prior tariff increases. Second, we continue to execute our product diversification and sourcing strategies with strong momentum. This includes the broad range of products we sell, as well as the countries from which we source them. Our direct global sourcing network spans over 240 vendors across 26 countries, enabling us to secure the highest quality products at the most competitive prices. In fiscal 2025, we continue to onboard more suppliers, factories, and products, further enhancing our agility and supply chain resilience. We believe our scale and direct global sourcing model provides a significant competitive advantage, particularly over the independent flooring retailers and distributors. Third, we continue to apply a balanced portfolio approach to product pricing. while effectively managing our gross margin rate and overall profitability. As we noted on our first quarter conference call, we've seen some independent retailers and distributors implement high single-digit or even higher price increases in response to tariffs. We believe tariffs will continue to pressure independents who are already contending with weak industry fundamentals that have persisted over the past three years. Amid the challenging market environment, We have also observed a shift among some retailers towards emphasizing opening price point products, which often feature lower product specifications compared to our offerings. As discussed during our first quarter earnings conference call, we will continue to adjust our retail prices both upward and downward as needed to help mitigate the impact of tariffs and competition. That said, we remain committed to maintaining our pricing gaps and reinforcing our everyday low price message. It is important to note that our broad and diverse merchandise assortments provide customers with more pricing options than our competitors, further strengthening our market position. Put simply, we believe our competitive moat is enhanced when we combine price leadership and other key business attributes, such as broad assortments, in-stock job lot quantities, inspirational new products, service offerings, and knowledgeable associates that meet the evolving needs of our customers. And finally, as we mentioned in our first quarter earnings call, customers are asking for products produced in the United States, and we have already taken action to identify American-made products in our stores. The United States is now our largest country of manufacture, accounting for approximately 27% of the products we sold in fiscal 2024, up from approximately 20% in fiscal 2018.