Floor & Decor Holdings, Inc.

Greetings and welcome to the Floor & Decor Holdings, Inc., 3rd Quarter, 2026 conference call. At this time, all participants are in 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 Wayne Hood, Senior Vice President of Investor Relations. Please go ahead.

Thank you, operator, and good afternoon, everyone. Welcome to Floor & Decor's fiscal 2026 third quarter earnings conference call. Joining me today are Brad Paulsen, Chief Executive Officer, and Bryan 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 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 Thank you for joining us. 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 Industrial Relations website at ir.laurendecor.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 good afternoon to everyone joining us for our fiscal 2026 third quarter earnings call. This afternoon, I will provide an overview of our third quarter financial performance and the key factors that drove our results. Following my remarks, Brian will share our outlook for the remainder of fiscal 2026, including how we are navigating the current operating environment while continuing to invest in initiatives that strengthen our competitive position. Turning to our third quarter results, we delivered diluted earnings per share of $0.61, up 15% from $0.53 last year. These results include a benefit of approximately $0.02 per share due to a lower year-over-year tax rate. Excluding this benefit, earnings per share grew 11%, reflecting disciplined expense management and solid operational execution. The earnings growth we delivered this quarter underscores the resilience of our business model and our ability to drive profitability in a challenging demand environment. Importantly, maintaining strong profitability and cash flow generation position us to continue investing in the business through the cycle. We believe our ability to continue investing in initiatives that enhance the customer experience, strengthen our pro offering, expand our store base, and advance our technology capabilities is a meaningful competitive advantage. The profitability and cash flow generation we have delivered this year provide us with the flexibility to both invest in our strategic growth initiatives and return capital to shareholders through our ongoing share repurchase program. Since announcing the $400 million authorization in April 2026, we have repurchased approximately $157 million in common stock through the end of the third quarter demonstrating our commitment to balance and prudent capital allocation while continuing to invest in the future growth of the business. Now let's take a deeper look at our third quarter results. Total sales increased 3% to $1,214.6 million compared with $1,179.5 million last year. Comparable store sales declined 1.4% in the quarter represented an improvement from declines of 2.1% in the second quarter and 3.7% in the first quarter. Looking at the quarter by month, comparable store sales declined 2.3% in July and 2.6% in August before increasing 0.4% in September, marking our first month of positive comparable sales growth since January 2026. On a three-year stack basis, comparable store sales improved sequentially throughout the quarter. While we are pleased with the progress made during the quarter, demand for big-ticket discretionary home improvement projects remains challenged into the fourth quarter. 30-year mortgage rates are now solidly above 7% and approximately 115 basis points higher than a year ago, continuing to pressure housing affordability, pending home and existing home sales. In addition, consumers remain selective with larger discretionary purchases while higher energy costs continue to weigh in household sentiment and budgets. Against this macroeconomic backdrop, fourth quarter to date, comparable store sales have declined approximately 3.8%. Despite these near-term challenges, we remain encouraged by the progress we are making across the business, including our continued momentum with pros, ongoing market share gains in key categories, and the actions we are taking to further strengthen are competitive position. Turning to some of the underlying third quarter sales drivers, pro sales growth accelerated throughout the quarter with September growth of 9% representing our strongest pro sales growth month of the year. Pro penetration increased to 55% for the quarter from approximately 50% in the prior year period, reflecting our belief that we are continuing to gain share within the professional flooring market. Growing our business with pros remains a key strategic priority, and our teams continue to execute well against that strategy during the quarter. We remain focused on expanding our share of wallet with existing customers, particularly our highest volume and most loyal pros. To support these efforts, our stores are operating with a supply house mentality, focusing time and resources on the activities that create the greatest value for our customers. This includes strengthening selling capabilities, increasing quote generation, and improving close rates on project opportunities. We are also making it easier and more convenient for customers to do business with us. Through our store expansion strategy, enhanced inventory positions in key product categories, and a continued focus on in-stock execution across our most important SKUs, we are improving product availability and service levels. In addition, we recently launched the pilot of our new Pro Loyalty program and Select Markets, marking another important milestone and keeping us on track for a broader launch in the first quarter of 2027, consistent with the timeline we outlined earlier this year. Taken together, we believe these initiatives are helping us deepen relationships with existing customers, attract new customers to the brand, and further strengthen our position within the professional flooring market. Beyond our continued progress with pros, several key sales metrics also improved during the quarter. Comparable average ticket increased 1.6%, accelerating from 0.8% growth in the second quarter. The increase in comparable average ticket reflects a sequential improvement of over 100 basis points in square footage sold. Comparable transactions declined 2.9%, consistent with the second quarter. and significantly improved from the 5.5% decline in the first quarter. Collectively, we believe these results reflect the progress we are making in strengthening our value proposition and driving demand across our key customer segments. Geographically, the improvement in our comparable store sales became more broad-based during the third quarter. Both our east and west regions outperformed the company and delivered positive comparable store sales, excluding cannibalization. 12 of our 16 districts also reported positive comparable store sales excluding cannibalization, up from 8 districts in the second quarter. From a merchandise category perspective, total sales in wood, insulation materials, and tile continued to outperform the company during the quarter. Tile, which represented approximately 23% of our sales, remained an area of strength, growing 5% year-over-year. Based on tile industry square footage sold data, we believe we are continuing to gain market share in the category, averaging approximately 100 basis points of annual share gains over the past several years, with that pace accelerating to roughly 150 basis points in 2026. By combining premium design, strong performance, and a compelling value proposition, we continue to expand our appeal across customer segments. Installation materials, which represented 22% of sales, delivered strong 10% sales growth year over year as we expanded our share of wallet with pros and continued to strengthen our market position. Through disciplined execution of our supply house strategies, broad and deep job lot inventory availability, and an expanding store footprint, we are making it easier for pros to source the products they need when and where they need them. These efforts are reinforcing our value proposition, deepening customer relationships, and further establishing floor & decor as a preferred destination for installation materials. We were encouraged by the improvement in laminate and vinyl flooring, which represented 23% of our sales. Comparable store sales and comparable square footage sales improved sequentially from the first and second quarters, becoming less negative, with notable sequential improvement in square footage. The improvement reflects the actions we have taken to strengthen our value proposition in the category, including the introduction of new specified SKUs and other value-focused merchandising and marketing initiatives. Finally, sales penetration of our better and best offerings increased both sequentially and year-over-year, providing further evidence that customers continue to respond to the value, quality, and differentiation in our assortments. Let me turn to our new warehouse store expansion. Through the first three quarters of fiscal 2026, we opened 12 new warehouse format stores, including Fredericksburg, Virginia, which opened on the final day of the third quarter. Looking ahead, we continue to plan to open eight new warehouse format stores in the fourth quarter, with those openings expected to be evenly split between October and November. This would bring our total new warehouse format store openings to 20 for fiscal 2026 in line with our plan for the year. As we finalize our plans for new store openings in 2027, we are doing so with the expectation that existing home sales will remain subdued and foreign demand will continue to face a challenging backdrop. In light of these conditions, we believe it is prudent to moderate the pace of our warehouse store expansion and currently plan for 10 to 15 openings in 2027. While our confidence in the long-term opportunity in the United States remains unchanged at 500 warehouse stores, the current macroeconomic environment warrants a measured approach to near-term growth. Importantly, our approach is guided by returns rather than a specific unit growth target. That discipline allows us to moderate our overall pace of expansion, while continuing to invest in locations where we see attractive long-term returns. Periods of softer demand can create unique real estate opportunities, including access to high-quality sites that may not be available to us when market conditions improve. Our planned 2027 openings in Fairfax, Virginia and Cherry Creek, Colorado are a couple of examples of markets where we continue to see compelling opportunities and attractive expected returns. We continue to view this as a question of pacing as we remain focused on optimizing returns. Importantly, we do not face a significant fast follower competitor seeking to replicate our national footprint, which provides us with considerable flexibility in managing our store opening cadence. As a result, we can remain disciplined in the near term and invest through the cycle where returns are compelling and preserve our ability to accelerate growth as the market conditions and expected returns improve. Turning to our omnichannel and digital transformation initiatives, we continue to make meaningful progress during the third quarter. We further enhance the customer experience by improving search capabilities, expanding the quality and depth of our product content, and modernizing our underlying technology platform. These investments drove measurable results. In the third quarter, online penetration reached 20.3%, up about 150 basis points from the third quarter of last year. Part conversion improved 380 basis points year-over-year, reflecting stronger site performance and our ongoing efforts to reduce friction throughout the customer journey. Taken together, these results provide encouraging evidence that our digital investments are improving customer engagement, enhancing the shopping experience, and driving increased conversion across our omnichannel platform. Turning to our Commercial Regional Account Managers or RAMs, we are encouraged by the positive momentum that developed throughout the quarter. The investments we have made in expanding our commercial sales organization, developing our reps and increasing account penetration are beginning to gain traction. Managed account comparable sales improved sequentially throughout the quarter and the gains were broad-based. We saw stronger performance across our existing territories, continued contribution from new and added accounts, and increased productivity across our sales team. Sales per rep increased each month of the quarter and reached its highest level in September, with productivity improving across every tenured group. While we still have work ahead of us, we are encouraged by the trajectory of the business and remain focused on building deeper customer relationships and improving sales productivity across the organization. Turning to Spartan Surfaces, we continue to see progress during the third quarter as the business built on the momentum established in the first half of the year. Sales increased approximately 6% from last year, reflecting continued momentum and key verticals. While commercial and market conditions remain mixed, particularly in multifamily, We believe Spartan is well positioned to continue benefiting from the actions taken over the past year and remain encouraged by the opportunities ahead. I would also like to thank our approximately 14,000 associates for their hard work and dedication, their commitment to supporting our customers throughout their purchase journey, providing compelling value to our pros and homeowners, and executing our growth initiatives with instrumental in delivering our third quarter results. Before I turn the call over to Bryan, I'd like to briefly touch on several Board updates that we announced this afternoon. As part of our ongoing Board succession and refreshment process, Norman Axelrod has informed the Board that he does not intend to stand for re-election at our 2027 Annual Meeting. Norman has served on our Board for 17 years, including as Chairman, and his leadership, judgment, and counsel have been invaluable. On behalf of the board and management team, I want to thank Norman for his many contributions and dedicated service to Floor & Decor. As part of that succession planning process, we are also announcing a board leadership transition. Effective January 1, 2027, Tom Taylor will transition from executive chair to chair of the board. This transition reflects the successful leadership handoff that has taken place between Tom and me and insurers, we continue to benefit from Tom's experience, strategic insight and guidance as our management team remains focused on executing our long-term growth strategy. We are also pleased to welcome Lauren Taylor-Wolfe as a new independent director, effective February 1st, 2027. Lauren was invited to join our board because of her extensive capital markets experience, strategic perspective and proven track record of helping companies create long-term shareholder value. We believe her expertise and perspective will be valuable additions to the board as we continue to execute our growth strategy and create value for our shareholders. Let me now turn the call over to Bryan.