Floor & Decor Holdings, Inc.

Greetings and welcome to the Floor & Decor Holdings, Inc. First Quarter, 2026 Conference Call. At this time, all participants are on a listen-only mode. A 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 your host, 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 2026 First Quarter Earnings Conference Call. Joining me today are Brad Paulson, Chief Executive Officer, and Brian Langley, Executive Vice President and Chief Financial Officer. Before we begin, I want to remind everyone of the company's Safe Harbor language. Comments made during this call contain overlooking 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 the company's 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 certain 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 press release, which is available on our investor relations website at ir.laurentaccord.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 Brad.

Thank you, Wayne, and thanks to everyone for joining us on our 2026 first quarter earnings conference call. During today's call, I will walk through the key drivers of our performance this quarter, including the operational progress that continues to reinforce our long-term strategy. After that, Brian will discuss our updated outlook for the remainder of 2026 and how we are positioning the company to advance our strategic priorities, remain resilient in a dynamic environment, and deliver sustained long-term shareholder value. Before I turn to our first quarter earnings, I'd like to discuss our capital allocation framework and the actions we announced today. Consistent with our disciplined capital allocation framework, we announced that our board of directors has authorized a share repurchase program for up to 400 million of the company's outstanding common stock. This action reflects the continued strength of our operating model, the durability of our cash flows, and the increasing efficiency of our new store investment. As we continue to expand our store base, we are optimizing our capital spend per location, which should drive strong returns, enabling us to both fund growth and generate meaningful excess cash flow. This positions us to flex our pace of openings over time while returning capital to shareholders, all while supporting our long-term opportunity to operate 500 warehouse format stores across the United States. The repurchase program is a natural extension of our capital allocation philosophy, which prioritizes capital allocation based on returns that exceed our weighted average cost of capital. First, we prioritize opening new stores and investing in our existing stores with initiatives that are expected to grow and support our core business. Second, we continue to invest in our commercial flooring platforms and new growth concepts, including our outdoor and unfinished foreign offerings. Once these priorities are met, we intend to return excess capital to shareholders in ways that are designed to enhance long-term value while maintaining a strong balance sheet. We do not expect to use incremental debt to support the share repurchase program, and there is no defined timeline for the share repurchase program's completion. Guided by this disciplined framework, we believe the current uncertainty across the broader economic and capital markets landscape particularly within home improvement, has created a clear disconnect between our long-term intrinsic value and our share price. This dislocation provides us with an attractive opportunity to repurchase our shares at valuations we view as compelling. That opportunity is underscored by the strength of our business model as we are uniquely positioned in the marketplace as the only national pure play hard surface flooring retailer with a warehouse format model that delivers the broadest in-stock job lot assortment everyday low prices through direct global sourcing, and industry-leading customer service. Our differentiated business model resonates with both pros and homeowners, driving consistent market share gains in a highly fragmented category. With just over 55% of our U.S. store opportunity built out and a large underpenetrated opportunity in commercial flooring, we believe we have a substantial runway for growth ahead. As we scale, we believe our model becomes more efficient, our value proposition strengthens, and our competitive advantages deepen, creating what we believe is a durable foundation for long-term value creation and making us an attractive investment for shareholders with a multi-year horizon. Turning to our fiscal 2026 first quarter results, I want to begin by thanking our more than 14,000 associates across the company. We are proud of how our teams executed our strategy in a challenging demand environment for big-ticket discretionary purchases amid adverse weather mid-quarter, elevated 30-year mortgage rates, geopolitical tensions in the Middle East that contributed to higher gas prices, and a further decline in consumer sentiment. These dynamics resulted in first-quarter earnings coming in weaker than we anticipated. For the quarter, we diluted earnings per share of 37 cents, compared to 45 cents in the same period last year. Total sales decreased 0.7% to $1,152,000,000 from $1,161,000,000 last year, and comparable store sales declined 3.7%. On a monthly basis, comparable store sales increased 0.4% in January, declined 6.9% in February, and declined 4% in March. Our second quarter to date comparable store sales declined 4.5%. The decline in our first quarter comparable store sales was driven by a 5.5% decrease in transactions due in part to adverse weather, which accounted for 150 to 200 basis points of pressure, partially offset by a 1.9% increase in average ticket. Our average ticket was negatively impacted by the decline in the laminate and vinyl sales mix, as well as customers taking on smaller projects, resulting in meaningfully lower square footage purchases. We continued to see strong sales growth when the designer was involved, which reinforces the value of this free design service and its ability to drive higher quality customer engagements and average ticket growth. From a geographic standpoint, our West region continued to outperform the company and delivered positive comparable store sales excluding the impact of new store cannibalization. Our east region, followed closely by the south region, was the weakest, reflecting adverse weather and broader softening demand. As a reminder, the south region is comparing against Hurricanes Helene and Milton, which benefited sales by approximately 100 basis points in the first quarter of last year. From a merchandise category standpoint, four departments outperformed the company's comparable store sales, including installation materials, tile, decorative accessories, and wood. Installation materials continue to generate year-over-year growth as we expand our share of wallet and market share with pros. That momentum translated into a 1.4% increase in first quarter pro sales, supported by our supply house merchandising strategies. Tile also remained a consistently strong performer, supported by the continued success of our new VETA collection. In the vinyl flowing category, we introduced a series of straightforward value-driven offers, including special buys and enhanced in-store displays that group more than 20 in-stock styles priced under $2 per square foot. These additions, coupled with refinements to our price bands, are designed to meet pros where the demand is shifting and to position us to capture market share in a category that continues to contract. Although still early, results from our price band refinements are encouraging, with positive elasticity and improving square footage purchase trends. We have plans to expand this to additional stores in the second quarter. That said, we do expect the category to be under pressure for the remainder of 2026. Turning to our connected customer performance, first quarter sales grew 5.4% year over year, representing approximately 19% of total sales. Connected customer remains one of our highest priority strategic growth initiatives, And we are investing accordingly in talent, technology, and process enhancements. With a defined roadmap in place and a new digital leader who has successfully executed similar transformations, we are laying the groundwork for a differentiated and more personalized online experience. Our goal is to build a platform that complements our store experience and drive stronger customer engagement and conversion. Let me now turn to our new warehouse store expansion. In the first quarter, we opened six new warehouse format stores compared with four stores last year, including Staten Island, New York, Dallas, Texas, Detroit, Michigan, Pittsburgh, Pennsylvania, Vacaville, California, and Fayetteville, North Carolina. These locations strengthen our presence in several large tier one markets where household formation, population growth, and home improvement activity remain attractive over the long term. We are encouraged by the early sales performance of these new stores, which reflects both our focus on opening in Tier 1 and Tier 2 markets and the benefits of our improved new store operating processes and consistent execution. We remain on track to open 20 new stores in fiscal 2026, with development primarily concentrated in Tier 1 and Tier 2 markets where we already have a presence. We expect approximately 50% of 2026 openings to occur in the first half of the year, compared with 35% last year, providing more operating weeks and further supporting stronger first year productivity. We expect the class of 2026 new stores to average approximately 55,000 square feet. And while smaller in size, we believe this format allows us to enter more dense markets without sacrificing sales productivity. Looking ahead, our teams are aligned around the opportunities with the greatest potential to drive growth. We are focused on improving new store productivity and investing in initiatives that strengthen customer loyalty and expand wallet share with our pro customers. Our team continues to be excited about the development work being done on our new pro loyalty program and remain on track to launch this new program in the first quarter of 2027. We are also building a scalable, strategic, account-driven B2B platform that supports the phased expansion of our regional commercial account managers. We were pleased with the first quarter sales performance of our regional account managers, which numbers 76 today, and we are continuing to expand our presence in large strategic markets with additional hires. These multi-year asset-light investments are delivering early results and position us to win in this segment of the commercial markets. Turning to Spartan Services, Spartan's first quarter sales and earnings performance reflect the ongoing difficult conditions in the commercial market. And while we anticipated a soft start to the year, results were weaker than expected. That said, customer engagement remained solid, supported by rising quoting activity and stable sample volume. As these opportunities convert and the solid backlog begins to be released, the business is positioned for gradual improvement over the coming quarters. As Brian will discuss, we are committed to maintaining disciplined cost management while continuing to invest in the highest return growth opportunities. This includes aligning store labor hours with sales trends, managing distribution and call center expenses with greater precision, and tightening discretionary spending across the organization. Together, these actions are designed to ensure we remain agile, protect profitability, and position the company to drive stronger performance. Even in a challenging hard surface foreign market, we do believe we continue to take market share based on all publicly available data, third-party industry sources, and feedback from our vendor partners. We remain confident in the resilience of our business model and firmly focus on our core business. That focus is reflected in the commitment we see across our stores where morale remains strong and our culture continues to differentiate us. I'm confident this environment creates an opportunity for us to accelerate market share gains through world-class leadership and disciplined execution. With that, I'll turn the call over to Brian.

Thanks, Brad. Before we discuss the first quarter results, I want to begin by thanking each and every one of our associates across the company. Their commitment to serving our customers, focusing on execution, and staying resilient in this dynamic environment continues to be the foundation of our performance. We continue to achieve all-time high service scores thanks to what they do every day in our stores to better serve our customers. Now let me discuss our first quarter income statement, balance sheet, and statement of cash flows, as well as our outlook for the remainder of 2026. We continue to effectively manage our gross margin with our first quarter performance exceeding our expectations. Gross profit decreased 0.7 million or 0.1% compared to the same period last year, The decline was driven by the 0.7% decrease in sales, partially offset by 20 basis points improvement in gross margin, which increased to 44.0% from 43.8% in the prior year period. Our gross margin expansion primarily reflects the timing benefit of our strategic pricing initiatives, partially offset by higher supply chain costs that continue to work their way through our system. The growth in our distribution center network in Seattle and Baltimore was a headwind to gross margin of approximately 60 basis points year over year in line with our expectations. SG&A expenses for the first quarter increased 11.1 million or 2.5% compared to the same period last year. The primary driver of the increase was the 22 new stores we've opened since the first quarter of 2025, which increased personnel and occupancy costs. SG&A for non-comparable stores increased $21.4 million, while SG&A for comparable stores decreased $9.0 million as we continue to tightly manage expenses. As a percentage of sales, SG&A delevered by approximately 120 basis points to 39.5% from 38.3% in the same period last year. This was mainly due to the impact of new store openings and the decline in comparable store sales. I am pleased to share that we successfully completed portions of our ERP implementation and are now live with financial systems and certain merchandising portions in the first quarter, which is a clear example of the investments we are making to enhance productivity and build a more scalable platform to support future growth. We will still incur implementation costs throughout 2026 as we continue to implement other merchandising portions that will go live later this year or early next year. Our first quarter operating income declined 18.4% to $52.4 million from the same period last year, reflecting the impact of new stores and expense deleverage driven by the 3.7% decline in comp sales. Adjusted EBITDA declined 6.4% to $121.5 million from the same period last year, Our first quarter adjusted EBITDA margin was 10.5% compared with 11.2% in the prior year period. Our first quarter net interest expense decreased 0.4 million or 26.8% to 1.1 million compared to the same period last year, primarily due to higher interest income as a result of higher cash balances. Our first quarter income tax expense was 11.6 million compared to $13.8 million during the same period last year. The effective tax rate was 22.5% for the first quarter, compared to 22.0% in the same period last year. The year-over-year effective tax rate increase was primarily due to a decrease in excess tax benefits related to stock-based compensation awards. Turning to the balance sheet, our financial position remains a core strength of the company. In the first quarter, we generated 109.2 million in cash from operating activities compared with 71.2 million in the same period last year, primarily driven by 293.6 million in cash and cash equivalents and 713.6 million available under our ABL facility. This level of liquidity provides meaningful flexibility to navigate the current environment support working capital needs, invest in other growth initiatives. And as we announced today, our board of directors has authorized a share repurchase program for up to 400 million. As Brad mentioned, our capital allocation framework priorities remain intact. First, we will continue to invest in new stores and reinvest in our existing stores. Second, we will continue to invest in commercial flooring platforms and new growth concepts. And lastly, we will utilize excess free cash flows to repurchase common shares while maintaining sufficient liquidity and a healthy lease adjusted leverage ratio. Our repurchase program is discretionary and how we execute will be dependent upon the environment through both programmatic and opportunistic purchases. As of March 26th, 2026, inventory increased 1.4% to 1.1 billion compared to December 25th, 2025. This increase reflects store growth and our proactive efforts to stay ahead of demand and ensure we're well stocked to serve our customers. We closed the quarter with $198 million in debt associated with our term loan. Before I walk through our fiscal 2026 earnings guidance, I want to frame the dynamic macro environment our teams continue to navigate and how it informs our updated earnings guidance. Consumers remain cautious about big ticket discretionary purchases a trend reinforced by an increase in 30-year mortgage rates, higher gas prices, persistent housing affordability challenges, and unexpected geopolitical tensions in the Middle East that have all further weighed on consumer sentiment. The University of Michigan's Consumer Sentiment Index declined sharply to 53.3 in March 2026, near all-time lows. In housing, the National Association of Realtors reported March existing home sales were 3.98 million, down 3.6% sequentially and 1% year over year, which continues to pressure demand for hard surface flooring. Against this backdrop, our teams remain agile in a proactively mitigating portions of both direct and indirect cost pressures stemming from the recent tensions in the Middle East, while continuing to strengthen our ability to gain market share. We are seeing rising energy costs in domestic logistics expenses However, we believe we can effectively mitigate some of the increases and manage the residual through our disciplined approach. This positions us to navigate the uncertainty with confidence while continuing to deliver value to our customers and shareholders. Given the unexpected events that emerged following our fourth quarter earnings release, we believe it is prudent to reflect a wider range of potential outcomes in our fiscal 2026 guidance. If existing home sales further deteriorate and consumer reluctance towards big-ticket discretionary purchases persists longer than previously expected, we would expect to be at the low end of our updated guidance range. At the same time, we remain focused on the elements within our control, executing with discipline, managing expenses thoughtfully, and prioritizing investments that will support profitable growth while maintaining the agility needed as conditions evolve. We are confident in our ability to continue gaining market share, effectively managing expenses, and generating strong cash flows. I want to remind everyone that fiscal 2026 includes a 53rd week, which will be reported in the fourth quarter. I will highlight the expected contribution from the 53rd week as part of our guidance. Sales are expected to be in the range of $4,770,000,000 to $4,990,000,000 or increased by 1.8% to 6.5% from fiscal 2025. The 53rd week is expected to contribute approximately $65 million to sales. Comparable store sales are estimated to be flat to down 4%. Comp average ticket is estimated to be flat to up low single digits. And comp transactions is estimated to be down low to mid single digits. Gross margin is expected to be approximately 43.6% to 43.8%. The first quarter gross margin of 44.0% is likely to represent the high point for the year. From there, we anticipate light to modest sequential pressure as we move through the remainder of the year, driven by tariff-related cost, the approximately 25 basis points incremental wraparound effect from our distribution center openings, and reinvesting into value-driven pricing strategies. SG&A as a percentage of sales is estimated to be approximately 38.0%, with the first and fourth quarters being the most pressured from new stores. Interest expense net is expected to be approximately $4 million. Tax rate is expected to be approximately 22.5% to 23.0%. Depreciation and amortization is expected to be approximately $250 million. Adjusted EBITDA is expected to be approximately $545 million to $580 million. The 53rd week is expected to contribute approximately $11 million to adjusted EBITDA. Diluted earnings per share is estimated to be approximately $1.83 to $2.08 per share. The 53rd week is expected to contribute approximately 8 cents to diluted EPS, which implies our 52-week diluted EPS to be approximately $1.75 to $2. Diluted weighted average shares outstanding are estimated to be approximately 109 million shares. CapEx is estimated to be approximately 250 million to 300 million, unchanged from our prior guidance. Operator, we would like to now take questions.

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up their handset before pressing the start keys. And one moment, please, while we poll for questions. Our first question comes from the line of Seth Sigmund with Barclays. Please proceed with your question.

Hey, everyone. Thanks for taking the question. When you look at the category trends, it's been fairly mixed, but it does seem like laminate and vinyl has probably been the biggest problem and continues to underperform the rest of the store. This was one of the best categories for many years, although, obviously, in a very different housing backdrop. So I'm just wondering, do you think the issue is still housing? Is there something else going on with the product? Is it innovation? Is it sourcing? Just any more perspective on that, because that does seem like it's still one of the biggest holes.

Thanks so much. No, thanks for the question. And you're right. I mean, that category for us is our second largest category. When we look at the opportunity, it's really the vinyl part of laminate and vinyl. And we've seen pressure in this category really since the second half of last year. And the dynamics that we see, we talked a little bit about this in the last calls. We saw a shift in consumer preference. A portion of our consumers started to trend down to a lower quality spec and a lower price point. And that price point is sub $2. So we've taken really, really quick action. I think it's a reflection of how nimble we are. And we've been really open in saying that we're going to respond to those needs or those customer preferences, but we do expect that category to be under pressure. And the reason the category is going to be under pressure, at some point it becomes a math problem. Average selling price is going to be down. We don't see a meaningful lift in square footage coming. But our mindset is we're going to take share. We need that pro in our store, and we're going to make sure as that shift continues to happen that we've got the product and price points they want. The flip side is we are pleased with performance in our other categories. When you think about the other big categories inside of our business, tile, insulation materials, decorative accessories. Really pleased with how they're doing. Obviously, we want to see acceleration in the short term to offset the pressure that we're seeing in laminate and vinyl. But we are squarely focused on getting laminate and vinyl to a level that's much better than what we saw, certainly in the first quarter.

Okay, great. Thank you for that. And then my follow-up is for Brian. Just thinking about the EPS sensitivity to the sales shortfall, you're lowering your EPS by 10 to 15 cents, but I think there's about 5 cents below the line. So probably lowering more like 5 to 10 cents. It's actually in line to a little bit better than the prior rule of thumb, which was 10 cents per comp point. So can you just discuss the extent that this includes the higher energy and logistic costs? And then where are you still finding some of the offsets? Thanks.

Hey, thank you for the question. Yeah, look, it's something I'm most proud of with the company is just how we've reacted in this environment. I mean, we continue to pressure test the company and do the things, but we're not going to cut to the bone either. I mean, you heard me say it, our service scores are still the highest they've ever been. So when you think about it, I'll try to unbundle it multiple ways. So the higher energy costs are embedded in there. We do think that that is going to have, you know, a modest impact to the gross margin rate. You know, if the current elevated environment continues longer, we would trend towards the lower end of our guidance. But as you noticed, McCall, we were able to actually raised the lower end of our gross margin guidance that I gave on the original call. So we're at 43.6 to 43.8 versus originally we were 43.5 to 43.8. That allows us to take the low end up a little bit to offset some of the sales pressure. Historically, we've always said it's 10 cents per comp point. In this environment, again, we've taken a lot of actions. We continue to flex our labor hours to the transactions. 70% of our stores are able to move with the model and even above that a little bit 30%. We always talk about those as being, you know, not able to move those, but we've been able to actually tweak a little bit in our lower volume stores just at a reduced kind of lower rate than we can move the other 70% of our fleet. We continue to push on discretionary spend within the four walls. We're managing our distribution center costs in this environment, and we've continued to align our general administrative expenses to the current environment, and we'll continue to do that as we move along.

Okay. Thank you both. Yep.

Thank you. Our next question comes from the line of Simeon Gutman with Morgan Stanley. Please proceed with your question.

Hey, everyone. I wanted to ask about store opening. Can you talk about decision maybe not to slow down a little further, realize the Demand environment's a little weaker. I feel like the build-out environment's a little more costly, even though you are making tweaks. So talk about that decision and relative to, you know, buying stock back or buying a higher percentage back even. Thank you.

Sure. So I might give you a little bit longer answer through that piece about capital allocation there at the end. But you're right. You know, in our prepared remarks, we said we remain committed to 20 stores. We've also been open, I think, for at least the last year saying that we view that kind of new store openings as an opportunity and something that we treat as a priority coming into the, excuse me, 2026. And I would say it's still very early, but we're encouraged by the initial results that we're seeing in those six stores that we've opened, even in a really, really tough environment. You know, in the script we said we're very much focused on opening stores in Tier 1 and Tier 2 markets. I think the team's done a really nice job of refreshing our grand opening process. Ersan and team serve a lot of credit for optimizing kind of a smaller store layout. You heard us say the average in 26 is going to be 55,000 square feet, which is a much smaller footprint than we've done in years past. Question I get a lot there is, are we sacrificing the experience? Are we sacrificing the assortment in a store that's 60,000 square foot or less? And we feel like the answer is no. So really pleased with what we're seeing. When we think about capital allocation, you know, for us, we still feel like opening new stores is absolutely the best use of capital that we have. It's critical to our long-term strategy. So we're going to continue to lean into that. And that really has been our capital allocation strategy for quite some time. You know, we are fortunate and we're fortunate that we're a point in our company's history. Whereas we look at forward projections, we see that we're going to generate enough cash to still fund those new store openings and the reinvestment into existing stores. We can also fund any type of new growth concepts inside or outside the store. That would include M&A. And then any excess cash that we have, I shouldn't say it that way. And then we have the opportunity with excess cash to return that to shareholders in the form of a share repurchase. So, you know, we feel really good about our balance sheet, feel good about the priorities that we have in our framework. And as a management team, we are laser focused on growing the core business.

Just as a follow-up, just to put into context on the amount of spend, because what's helped us continue to open stores in this environment and have better returns is is our average store cost is going to be this year approximately $7.5 million to $8 million. If you rewind the clock just a couple of years, we were as high as $11.7 million in 2023. So for all the reasons Brad talked about and what we've done within the box, that just kind of contextualizes it within the numbers for you.

Thanks. The follow-up on value proposition, I think we talked about it a quarter ago. And can you focus especially on the lower end, the value segment, some of the lower tier product? And I know you've been trying to reassort there, but can you assess how you sit versus the market? Thanks.

Well, you know, one of the things that's been most surprising to me, and I think the rest of the team, has been how resilient the better, best part of our business has held up. I think that's a testament, again, to the assortment that we have, the jobs that our team – do in our stores and really explain the features and benefits of the product that we have. And, you know, we've always had a nice present in the lower end of the spectrum. It hasn't been a high percentage of our sales, but when we do see customer preference shift, like I explained in laminate and vinyl, we can react quickly and get the share that's available in that space. So I don't think it's a huge opportunity for us to reinvent our assortment to push down to the lower end because we're really not seeing that type of preference with laminate and vinyl being the only exception.

Thanks, guys, good luck.

Thank you.

Thank you. Our next question comes from the line of Stephen Forbes with Guggenheim Securities. Please proceed with your question.

Good evening, everyone. Brad, maybe expanding on Simeon's question around the new stores averaging 55,000 square feet, I'd be curious if you could maybe take us to the box here and talk about some of the newer in-store merchandising initiatives I know it may be early, right? Extended aisle, F&D Express, Wood Inspiration Center. What are you sort of seeing around these new initiatives that gives you conviction that you're not going to sort of give up productivity or return sort of profiles with this migration? Love to hear just conviction behind those.

Yeah, so I'll try to hit the headlines. You know, one of the things that I've shared pretty consistently is the team has done a nice job of optimizing the layout of the store. And for those of you that have been in our store, you know our store really has kind of two sections, if you will. We've got the selling floor and then we have the warehouse. So I'll start with the warehouse. I think we continue to get better and better in minimizing the amount of space that we need for warehouse so we can maximize the amount of sales floor that we have in a smaller box. And then when you come into the front of our stores, the first thing you're gonna see is cash registers and you're gonna see a design center. And when you think about optimizing that experience where it's a benefit to the customers and it's a benefit to our associates. I think we've hit a home run there. The example that I use, I know a lot of you are based in New York. If you get a chance to go out to Staten Island, I think it's the example of what we're talking about. And then from a design center perspective, which is really important to who we are and what we do every day, I think we've shrunk the experience without minimizing the experience, if that makes sense. Our designers still have the ability to drive inspiration with our customers out of the design center. As we said in the script, We've had a lot of effectiveness with our designers, no matter the size of the store. So feel good about that. And when we think about our core categories and the emphasis that we have on pro, you know, our pro desk and our installation assortment is not sacrificed at all. I mean, it's in some cases as big, if not bigger than you'd see in a larger store. And then our core categories like tile, laminate and vinyl and decorative accessories, really no kind of sacrifice in those categories either. On the tile, tile does take a lot of space in our stores, so we've got to be creative, and you'll see different fixtures in smaller volume stores that allow us to display more SKUs than we normally would on the floor. And again, we're really excited about what we're seeing, and we don't believe that we're going to sacrifice any type of top-line productivity, and that's because, and I should have said this originally, one of the reasons we're pushing into smaller volume stores is we've got to densify urban markets. That's where a lot of the demand is. And the reality is a 75,000 to 80,000 square foot box isn't available in those markets. And if it is available, it's very, very expensive. So we've done this strategic pivot as an organization. And again, you can tell by my comments, we're optimistic on how it's playing out thus far.

Thank you. Our next question comes from the line of Steven Zacon with Citigroup. Please proceed with your question.

Great. Thanks very much for taking my question. I wanted to follow up on the guidance change. I was hoping you could just elaborate a little bit more on why the decision to lower guidance at this point in the year. It seems a bit early. Because March and April sound pretty similar, and you actually saw somewhat of a two-year stack acceleration in April. So help us understand what's changed from a cadence of the year. Is this more a function of week or second half expectations, just given some step down in the existing home sales backdrop?

No, I certainly appreciate the question. And if you rewind the tape to our last call, what we communicate is that we came in from a planning perspective, assuming that 2026 was going to look a lot like 2025. We said if there's any level of stability when it comes to existing home sales or improvement, we felt like we had a path to delivering positive comp sales for the first time in a few years. Since that time, obviously, a number of things have occurred that we would consider unexpected, and I think that's how we described it. our script I'm not going to list them because we listed them more than once in our prepared comments but obviously that's changed the demand environment for our business and really I assume any kind of height big-ticket discretionary item so we thought it's prudent and responsible at this point in time to recalibrate given what we know now when you think about the range that we provided we'll be the first to admit wider than we normally would give and But the reality is there's just uncertainty in how our demand drivers are going to play out for the rest of the year. If you look at our current run rate and assume no improvement, then we have a level of confidence that we can hit the midpoint of the guidance. If we see any type of improvement when it comes to those demand drivers, then we feel like we can get closer to the high end of the range. But as you would expect, this is a question that we wrestled with. And we felt like, again, it was just prudent and responsible for us to reset. and recalibrate at this point in time.

Okay. Thanks for that detail.

Thank you. Our next question comes from the line of Michael Lasser with UBS. Please proceed with your question.

Good evening. Thank you so much for taking my question. As outsiders, it is very difficult for us to have an accurate assessment of market share. We tend to look at the performance of the big box retailers some of the vendors in this space. And it does seem on those metrics that floor and decor on a same store basis is lagging behind the industry. It's hard to explain that given the value proposition, the customer experience and all the other facets of the model. So A, as you look either category by category, Geography by geography, are you seeing evidence of market share gain? And B, how would you explain that market share loss and what is being done to address it? I'm going to have a quick follow-up.

So, and it's probably worth a more in-depth conversation at some point in time, but we don't see that. We don't see that we're losing share, you know, even on a category like laminate and vinyl where we admittedly say our performance has been below expectations. that market's under a lot of pressure. So I'm certainly not going to sign up and say that we're taking share in laminate and vinyl in a meaningful way. But I also don't think we're losing share in a meaningful way. And when I look at the other categories, insulation materials, tile, wood, deco, feel really good about our position. And like we said, and this was part of my close in the comments, when we look at publicly available data, and that would be big box retail, when we look at other third-party data that all of you look at, and then certainly the feedback from our vendor partners, we are not getting that same interpretation of the data. So we feel good about market share in a really tough environment. Do we want to have better sales performance? Absolutely. Absolutely. And I would say our focus is on accelerating share gains. And as I've said kind of time and time again, if we can get any level of stability in our space, you know, we're really, really committed to, excuse me, to delivering positive comp sales in our business.

Understood. My follow-up question is on some of the pricing actions that the corporation has tested and it sounds like will deploy a bit further as the year progresses. Can you quantify what the impact has been from those actions? How have you embedded those in the guidance? And why wouldn't Floor & Decor take up prices more aggressively, given that folks who are probably coming in at this point with a low level of overall traffic, probably are just going to be inherently less price sensitive.

Yeah. You know, the first thing that I would say is I can't compliment Ersan and his team enough and how they've executed through this environment, really performing at a high level and have kept us incredibly well positioned to take share in all of our categories. You know, my general observations around the market and pricing are, And I will answer your question, so just bear with me. I continue to see rational behavior, and I describe rational behavior from pricing, kind of low to mid-single-digit increases. We have shared that we've taken modest increases. And the good news is we've been able to pass that price on to customers. I mentioned that better and best penetration has held up, which has been a nice surprise. And for us, we continue to test our pricing strategy. One of the areas of investment that we've made is in our pricing team. We've hired new leadership there or a new pricing leader for our business. We're investing in tools. And even though we're pleased with the execution on our pricing, we know there's always more opportunity there. We're going to continue to test our price bands. For the first time in a long time as we've taken price down to laminate and vinyl, we have seen that positive reaction to square footage. And we're going to run tests to see if that takes place in other categories. And on the same token, take prices up to see what that impact is. We are very, very focused on taking market share, and our pricing strategy is going to be reflective of that.

Thank you very much, and good luck.

Thank you. Our next question comes from the line of Zach Fadum with Wells Fargo. Please proceed with your question.

Hey, good afternoon. Could you remind us how your freight contracts renew and how we should think about how higher ocean and domestic freight flows through? And then for other input cost inflation like PVC, et cetera, any thoughts on exposure or impact there and what's embedded in the guide?

Hey, Zach, this is Brian. I'll take a stab at it and then Brad can jump in. Our ocean contracts, we typically renegotiate those through the spring and early summer. So we're going through that right now. Again, we typically are on multi-year contracts. I think this go around, we're on more interim contracts, one year, kind of two year basis versus three historically that we've kind of blended in. So a lot of those will be renegotiated now. It'll take a little bit of time. It'll be probably the back half before we start seeing those price changes. And then it takes, you know, anywhere from six to eight months, depending on, you know, those international contracts to really kind of bleed fully through into the P&L, just from a flow through perspective. On the domestic side, it's a lot quicker than that. And so that's what we are starting to see some of the higher energy costs today. That's why I mentioned we are starting to see a modest impact today, and that'll continue just depending on how long this environment continues. But for us on that side, that's just a lot quicker because it's basically our domestic side post-distribution center to our stores. So that blows through a lot quicker into what you see into our results.

And on the PBC, how that input cost inflation could impact category?

It's still early right now. I mean, look, Ersan's team, again, getting a lot of kudos today. They've done a great job of working with our vendor partners long-term, you know, vendor partners that we've had there. So today where we see, you know, just minimal exposure today, I think we will always do what we do best, which is negotiate first and foremost with our current vendor base. If we do see any big sort of push or anything else, we can always diversify out and then whatever is left, you know, we'll push through to our consumers to the extent that we can't.

Got it. And then on the pro loyalty revamp, any thoughts on new features you're exploring there? I know we've talked about pro pricing. On that note, any updated thoughts on options in terms of discounts versus rebates and how you would plan to balance gross margin versus volume improvement potential?

Ted, I'd love to be able to share the details of that program. Unfortunately, can't do it at this point, but as we said in the prepared remarks, really excited about the progress we're making there. You know, that is an effort that is led by Crystal Zell, our new chief customer officer. She's got deep, deep expertise in building loyalty programs. She's done that at more than one stop along her career. And what I would say is, you know, our aim here is to have a differentiated program that is really a comprehensive solution for our pro customers. And I talk a lot about service assortment, price, it's going to touch on all those components and it's going to be supported by the right technology. And for me, I think that's going to be a real, a key piece to how we accelerate share gains from independence. We're really excited about the potential that it has and can't wait to roll it out in the first quarter of next year.

Thanks for the time.

Thank you. Our next question comes from the line of David Bellinger with Mizuho Securities. Please proceed with your question.

How aggressive could you be? Do you plan to be in the market immediately if shares are currently trading? Could you be now and through the balance of the year?

I think the question was, you know, how aggressive do we plan to be with the share repurchase? Brian, do you want to walk through the mechanics of how we're thinking about that program?

Yeah, David, I think this is you, but, you know, obviously we said it on the call, but this will be a discretionary repurchase program. We'll purchase both through programmatic and opportunistic given the current dislocation within our stock. We have a healthy balance sheet, and we'll use the excess cash to fund this program as we see fit. So more to come on it. I don't want to commit to anything in the near term or long term, but just know that we'll do both programmatic and opportunistic. We're not trying to be stock pickers. So, I mean, we're going to use our advisors and go through it that way. So we do plan to start executing it in the second quarter, but more to come on that kind of as we move forward.

Thank you. And in the interest of time, we do ask everyone in the queue to please limit themselves to only one question, just to give everyone a chance to ask their questions in the queue. Thank you. Our next question comes from the line of Chuck Grom from Gordon Haskett. Please proceed with your question.

Hey, guys. Thanks a lot. I'm curious what you're seeing from independents recently. I would imagine they're under considerable pressure and how you're attacking that opportunity. And then, Brian, How should we be thinking about the phasing of both comps and earnings over the balance of the year?

Thanks. Independence, as all of you know, we believe more than half of the market and very, very strong competitor in our local markets. I think I've been on record more than once saying I think they've done a really nice job in this environment of taking care of their pro customers, which reinforces the importance of us having a new pro loyalty and pro pricing program. I think the independents that cater to the more affluent customer are doing fine in this market. I'm certainly a believer in the K-shaped economy, and there's certainly a portion of that independent. I would say a small portion of the independents that cater to that audience and the higher-end designers, I think they're doing fine. I think everyone else is struggling. That is consistent with kind of the bottom-up feedback that we hear from our store partners and also our vendor partners. Our whole perspective, and you've heard me say throughout the call, is we want to play offense in this environment. We're going to make sure that we're positioned to take market share and really exceed our customers' expectations every single day. And we think that's going to be our path to success.

And from a comp, sequential nature, the biggest variation in the range is our transactions. I think as I alluded to on the prepared remarks, those would expect to be down low single digits to down mid single digits, where our ticket will be somewhat consistent. but flat to up low single digits is how we would get there. And then from a cadence perspective, on the low end of guidance, Q3 is modeled to be kind of the high quarter for the year. And on the high end, it assumes sequential improvement as we move throughout the year. And then just as a point of reference for you guys, as we talked about quarter today being down 4.5, I think it is important to call out that last year we are lapping a 1.7% increase in April. which had acceleration from the Liberation Day last year as we think about that. And then May was also 0.6%. Those are the two highest points of all of 2025, you know, just to call that out as well.

Thank you. Our next question comes from the line of Peter Keith with Piper Sandler. Please proceed with your question.

Hi. Thanks for taking the question. On the competitive front, to follow up on an earlier question, I want to focus on the big box stores. There is a narrative out there that some of your big box competitors are leaning in, investing more in the flooring category. And I guess maybe the weakness that you're seeing in laminate and vinyl could sort of feed into that narrative. So we'll just ask you directly, what are you seeing from the big box stores? Are you seeing any more competition or more investment on pricing?

Yes, I would say... Just as a reminder for the folks on the call, where we compete with big box retail is on opening price point and the good part of our assortment plus installation materials. And big box retail, terrific companies. And I would say when we think about market share, it's a little bit of a street fight. When we think about our ability to take meaningful share, it's going to be from the independents. And a primary reason for that is a very, very small percentage of our sales comes from opening price point and good. That being said, I've heard a comment like this numerous times over the last 12 months, and actually, we don't see that. We don't see them leaning into the category. We see, in some cases, them leaning out of the category, and that's more recently than anything else. I don't see anything disruptive from any of the big box retail. But again, great companies, great competitors, and companies that we watch very, very closely. but we don't feel like they are, again, having any disruptive impact on our business today. Very helpful.

Thank you.

Thank you. Our next question comes from the line of Kate Machain with Goldman Sachs. Please proceed with your question.

Thanks. Good afternoon. Thanks for taking our question. We wanted to ask about Spartan. You did mention that. the results were weaker than expected, but also seemed to indicate that there is an opportunity for better results in the coming quarters. I wondered if you could maybe contextualize the timing a little bit more and what would be driving that.

Yeah, so for Spartan, we came into the year, we knew that the first quarter was going to be a little bit softer, ended up being even softer than we expected. As we said, when we look at the leading indicators in that business, we've got a level of confidence that it's just a matter of time. So it's not an if, it's a when. You know, when you think about their core customers, it's multifamily, hospitality, healthcare, education, and senior living. The softness that we're seeing is coming out of multifamily. In some cases, it's timing. In some cases, it's projects getting delayed for an extended period of time. You know, the great news is we've made investment, consistent investment in that business around new sales headcount. So when you talk about taking market share, feel really good about our ability to rebound from the first quarter, have the gradual progress that we talked about in the script, and deliver a nice year from that business.

Thank you. Our next question comes from the line of Jonathan Matuszewski with Jefferies. Please proceed with your question.

Great. Good evening. Thanks for taking my question. Brad, I had a strategy question. You're evaluating pro-specific pricing potentially, which maybe you haven't offered in the past, and you're also looking to some smaller format stores than historical standards. I guess in the past, Floor & Decor has chose to not offer installation services to avoid conflict with pro-customers. I'm curious if your stance is any different there. Any comment would be helpful. Thanks.

No, no. And I would say, so no deviation from the previous strategy when it comes to how we think about installation. And even from a kind of smaller footprint store, I would say I'm building on a strategy that's already in place. You know, one of the reasons we had confidence in our ability to deliver on a 60,000 square foot store in an urban market is because we have stores out there doing that today. Again, I think the team continues to refine that and optimize our experience. But short answer to your question is no, we're not going to deviate from the current strategy around installation services.

Thank you. Our next question comes from the line of Philip Lee with William Blair. Please proceed with your question.

Hey guys, thanks for the question. So you've spoken about revamping the pro loyalty program next year. And I know you have your own internal design program, but same thing, kind of a larger scale strategy question. Would you ever consider expanding a loyalty program to the external interior design trade to try and build a relationship with that end of the market, maybe expand your customer base to a little bit of a higher income?

Oh, wow. You're putting me in a tough spot to answer that question. Listen, I think, When we look at our business today, I think we have a certain level of success with a designer and that customer that really requires a trade discount. We view that as an opportunity. I'll position it that way. We view that as an opportunity that we can lean into more. Now, what does that mean from our loyalty program? We're going to have to wait and see as we share that later in the year, what that framework looks like. But I think you're spot on with your observation as far as an opportunity for us to, like I said, lean into that customer segment a little bit more.

Thank you. Our next question comes from the line of Greg Mellich with Evercore ISI. Please proceed with your question.

Hi, thanks. I wanted to follow up on the pricing actions and how it influences the ticket through the year. I think it was – the flat to low single digit ticket comp, does that have four or 500 bps of same skew inflation in it before? And is that still the same kind of number? And how do we think of that flowing through over the course of the year?

Yeah, I don't know if I'm going to quantify that for you on that perspective. But again, the low end of our ticket being flat, we assume continued pressure in laminate and vinyl, kind of as Brad's mentioned. leading to smaller basket sizes and also some of the pricing pressures that we're talking about with value-driven options. Those are really kind of what's leading to the lower end of it versus the higher end. It's just the impact that those will have on the ticket itself.

Thank you. Our final question comes from the line of Peter Benedict with Baird. Please proceed with your question.

All right. Hey, guys. Thanks for taking the question. Just one more, I guess, on the buyback. Just a clarification first. It doesn't look like any is assumed in the outlook. The share count forecast didn't change. I just want to confirm that. And then just, Brian, maybe just can you help us think about the minimum amount of cash kind of the business needs to operate on as we start to think about how aggressive you could potentially be in any given quarter with the buyback? Thank you.

Yep. I mean, look, from where we sit today, given where we are in the year, the impact of this year isn't going to be very material. So it's incorporated within the guidance range itself, within the outcomes would be the share repurchase. We do think longer term, obviously, this is going to add value to shareholders and continue to grow as we move along and do the program consistently. So as far as minimum cash balances, I mean, we think about it from cash, but it's really liquidity. I mean, for us, we've got an ABL out there that's, you know, 800 million accordion feature. We can get up to a billion. We've got sufficient liquidity over a billion dollars today in combination with the two. I always think about it as a minimum cash or a minimum liquidity that we need to make sure that the company is, you know, healthy and in a good position. For me, that's usually around 500 million, just minimum in liquidity. And that'll be a balance of both cash and ABL. That's an absolute minimum. I don't think we'll get anywhere near that. But for me, that's just kind of a floor requirement. And then on the flip side, you heard it in my prepared remarks, but we want to make sure also, Brad said it, we will not be using debt to fund this. And so for us, you know, we'll maintain a very healthy least adjusted leverage ratio. Those are kind of the two financial guardrails that I look at, as well as what we would do to our ROIC. And so we think about all three of those, the management team, just making sure that, you know, we don't overstretch or do those as we get into this.

Okay. Thanks, Brian. And thank you everyone for your time tonight and support. Have a great night.

Goodbye.

Thank you, and this concludes today's conference, and you may disconnect your lines at this time. We thank you for your participation.