Floor & Decor Holdings, Inc. (FND) Q1 2026 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call summary presents a mixed sentiment. While there are positives such as the expansion plans and Pro Loyalty Program revamp, these are countered by lowered guidance due to macroeconomic uncertainties and weaker home sales. The Q&A section confirms these concerns, with the company recalibrating its outlook and facing higher freight costs. The lack of specific guidance on key initiatives adds uncertainty. Overall, the sentiment is balanced, with both positive and negative elements, leading to a neutral stock price prediction.
Key Financial Performance
Diluted Earnings Per Share (EPS) $0.37 compared to $0.45 in the same period last year, representing a decrease. The decline was attributed to a challenging demand environment for big-ticket discretionary purchases, adverse weather mid-quarter, elevated 30-year mortgage rates, geopolitical tensions in the Middle East, higher gas prices, and a decline in consumer sentiment.
Total Sales $1.152 billion, a decrease of 0.7% from $1.161 billion last year. The decline was driven by a 3.7% decrease in comparable store sales, which was further impacted by adverse weather and a 5.5% decrease in transactions, partially offset by a 1.9% increase in average ticket.
Comparable Store Sales Declined 3.7%. The decline was driven by a 5.5% decrease in transactions due to adverse weather (accounting for 150 to 200 basis points of pressure) and customers taking on smaller projects, resulting in lower square footage purchases. However, there was a 1.9% increase in average ticket.
Gross Margin 44.0%, an increase from 43.8% in the prior year period. The improvement was primarily due to the timing benefit of strategic pricing initiatives, partially offset by higher supply chain costs and the growth in the distribution center network, which was a headwind of approximately 60 basis points.
SG&A Expenses Increased by $11.1 million or 2.5% compared to the same period last year. The increase was primarily driven by the 22 new stores opened since the first quarter of 2025, which increased personnel and occupancy costs. SG&A for non-comparable stores increased by $21.4 million, while SG&A for comparable stores decreased by $9.0 million due to tight expense management.
Operating Income Declined 18.4% to $52.4 million from the same period last year. The decline was attributed to the impact of new stores and expense deleverage driven by the 3.7% decline in comparable store sales.
Adjusted EBITDA $121.5 million, a decline of 6.4% from the same period last year. The adjusted EBITDA margin was 10.5%, compared to 11.2% in the prior year period. The decline was due to expense deleverage and the impact of new stores.
Net Interest Expense Decreased by $0.4 million or 26.8% to $1.1 million compared to the same period last year. The decrease was primarily due to higher interest income as a result of higher cash balances.
Income Tax Expense $11.6 million compared to $13.8 million during the same period last year. The effective tax rate increased to 22.5% from 22.0% in the prior year, primarily due to a decrease in excess tax benefits related to stock-based compensation awards.
Cash from Operating Activities $109.2 million, an increase from $71.2 million in the same period last year. The increase was primarily driven by changes in inventory and trade accounts payable.
Inventory Increased by 1.4% to $1.1 billion compared to December 25, 2025. The increase reflects store growth and proactive efforts to stay ahead of demand.
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Operating Highlights
New Vinyl Flooring Offers: Introduced value-driven offers, including special buys and enhanced in-store displays with over 20 in-stock styles priced under $2 per square foot. Early results show positive elasticity and improving square footage purchase trends.
Vetta Tile Collection: Continued success of the new Vetta tile collection, contributing to strong performance in the tile category.
New Store Openings: Opened 6 new warehouse-format stores in Q1 2026 in Staten Island, Dallas, Detroit, Pittsburgh, Vacaville, and Fayetteville. Plans to open 20 new stores in fiscal 2026, focusing on Tier 1 and Tier 2 markets.
Commercial Flooring Expansion: Investing in a scalable, strategic account-driven B2B platform and expanding regional commercial account managers to 76, with plans for further hires in strategic markets.
Connected Customer Sales Growth: First quarter sales grew 5.4% year-over-year, representing approximately 19% of total sales. Investments in talent, technology, and process enhancements to build a more personalized online experience.
Cost Management: Aligning store labor hours with sales trends, managing distribution and call center expenses, and tightening discretionary spending to protect profitability.
Share Repurchase Program: Authorized a $400 million share repurchase program, reflecting confidence in the operating model and cash flow durability.
Pro Loyalty Program: Development work on a new Pro loyalty program is on track for launch in Q1 2027 to strengthen customer loyalty and expand wallet share with Pro customers.
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Risk or Challenges
Demand Environment: Challenging demand environment for big-ticket discretionary purchases due to adverse weather, elevated 30-year mortgage rates, geopolitical tensions in the Middle East, higher gas prices, and declining consumer sentiment.
Comparable Store Sales: Decline of 3.7% in the first quarter, driven by a 5.5% decrease in transactions and smaller project sizes by customers, leading to lower square footage purchases.
Geographic Performance: Weak performance in the East and South regions due to adverse weather and broader softening demand, with the South region also facing tough comparisons from prior year hurricane-related sales boosts.
Vinyl Flooring Category: Continued contraction in the category, with expectations of pressure for the remainder of 2026 despite efforts to refine pricing and improve trends.
Commercial Market Conditions: Ongoing difficult conditions in the commercial market, with weaker-than-expected performance from Spartan Surfaces and a soft start to the year.
Cost Pressures: Higher supply chain costs, rising energy costs, and domestic logistics expenses, partially offset by strategic pricing initiatives.
SG&A Expenses: Increased by 2.5% due to new store openings, leading to deleverage as a percentage of sales.
Macroeconomic Factors: Persistent housing affordability challenges, higher mortgage rates, and geopolitical tensions impacting consumer sentiment and demand for hard surface flooring.
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Guidance & Outlook
Revenue Expectations: Sales are expected to be in the range of $4.770 billion to $4.990 billion, representing an increase of 1.8% to 6.5% from fiscal 2025. The 53rd week is expected to contribute approximately $65 million to sales.
Comparable Store Sales: Comparable store sales are estimated to be flat to down 4%. Average ticket is estimated to be flat to up low single digits, while transactions are estimated to be down low to mid-single digits.
Gross Margin: Gross margin is expected to be approximately 43.6% to 43.8%. Slight to modest sequential pressure is anticipated throughout the year due to tariff-related costs, distribution center openings, and reinvestment into value-driven pricing strategies.
SG&A Expenses: SG&A as a percentage of sales is estimated to be approximately 38.0%, with the first and fourth quarters being the most pressured due to new store openings.
Adjusted EBITDA: Adjusted EBITDA is expected to be approximately $545 million to $580 million, with the 53rd week contributing approximately $11 million.
Diluted Earnings Per Share (EPS): Diluted EPS is estimated to be approximately $1.83 to $2.08, with the 53rd week contributing approximately $0.08.
Capital Expenditures: CapEx is estimated to be approximately $250 million to $300 million, unchanged from prior guidance.
New Store Openings: The company plans to open 20 new stores in fiscal 2026, with approximately 50% of openings occurring in the first half of the year. The average size of new stores is expected to be approximately 55,000 square feet.
Market Trends and Consumer Behavior: The company anticipates continued pressure on big-ticket discretionary purchases due to higher mortgage rates, gas prices, and housing affordability challenges. Existing home sales are expected to remain a headwind for demand.
Strategic Investments: Investments will focus on new store openings, commercial flooring platforms, and new growth concepts. The company is also developing a new Pro loyalty program set to launch in the first quarter of 2027.
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Shareholder Return Plan
Share Repurchase Program: The Board of Directors has authorized a share repurchase program for up to $400 million of the company's outstanding common stock. This decision reflects the strength of the company's operating model, cash flow durability, and efficient new store investments. The program aligns with the company's capital allocation framework, which prioritizes high-return investments and returning excess capital to shareholders. The repurchase program will not involve incremental debt and has no defined timeline for completion. The company views the current economic conditions as an opportunity to repurchase shares at compelling valuations.
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Key Q&A
Q:What are the reasons behind the underperformance of the laminate and vinyl category?
A:The underperformance is primarily due to a shift in consumer preference towards lower quality and lower price point products, particularly in the vinyl segment. The average selling price has decreased, and there is no significant increase in square footage demand. The company has responded by adjusting its product offerings and price points to meet customer preferences.
Q:What is the EPS sensitivity to the sales shortfall and how are higher energy and logistic costs impacting it?
A:The company lowered its EPS guidance by $0.10 to $0.15, with $0.05 attributed to below-the-line factors. Higher energy costs are expected to have a modest impact on gross margin. Despite these pressures, the company raised the lower end of its gross margin guidance to 43.6%-43.8%. Actions such as flexing labor hours, managing distribution center costs, and aligning general and administrative expenses have helped offset some of the sales pressure.
Q:Why has the company decided to continue with 20 new store openings despite a weaker demand environment?
A:The company views new store openings as a critical part of its long-term strategy and the best use of capital. Initial results from six new stores in Tier 1 and Tier 2 markets have been encouraging. The company has optimized store layouts to reduce costs, with average store costs now at $7.5-$8 million compared to $11.7 million in 2023. The smaller store format (55,000 square feet) is designed to maintain customer experience and assortment while addressing urban market demands.
Q:How is the company addressing the lower end of the value segment in its product offerings?
A:The company has always had a presence in the lower end of the value spectrum but does not see a significant opportunity to reinvent its assortment for this segment. The better and best parts of the business have been resilient, and the company has adjusted its laminate and vinyl offerings to capture available share in the lower end.
Q:What are the new in-store merchandising initiatives for smaller format stores?
A:The company has optimized store layouts by reducing warehouse space and maximizing sales floor space. Newer stores feature a design center, Pro desk, and installation assortment without sacrificing the customer experience. Tile displays have been adjusted to fit smaller stores while maintaining SKU variety. The smaller format is aimed at densifying urban markets where larger spaces are unavailable or costly.
Q:Why did the company lower its guidance at this point in the year?
A:The company recalibrated its guidance due to unexpected changes in the demand environment, including weaker existing home sales and other macroeconomic factors. The wider guidance range reflects uncertainty in demand drivers. If current trends continue, the company expects to hit the midpoint of the guidance, with potential upside if demand improves.
Q:Is the company losing market share, and how is it addressing this concern?
A:The company does not believe it is losing market share, even in underperforming categories like laminate and vinyl. It cites positive performance in other categories and feedback from vendor partners and publicly available data. The focus remains on accelerating share gains, particularly from independents.
Q:What pricing actions has the company taken, and how are they impacting the business?
A:The company has taken modest price increases, which have been successfully passed on to customers. It is testing pricing strategies, including price reductions in laminate and vinyl, which have shown positive reactions in square footage demand. The company is investing in its pricing team and tools to optimize its strategy further.
Q:How are higher freight and input costs impacting the company?
A:Ocean freight contracts are being renegotiated, with changes expected to impact the P&L in the back half of the year. Domestic freight costs, influenced by higher energy prices, are already having a modest impact. The company is managing these costs through vendor negotiations and may pass on any remaining costs to consumers.
Q:What is the status of the Pro loyalty program revamp?
A:The revamped Pro loyalty program, led by the new Chief Customer Officer, aims to provide a comprehensive solution for Pro customers, including service, assortment, and pricing. The program will be supported by new technology and is expected to roll out in the first quarter of next year.
Q:What is the company's stance on offering installation services?
A:The company does not plan to deviate from its current strategy of not offering installation services to avoid conflict with Pro customers.
Q:What is the outlook for Spartan's performance?
A:Spartan's first-quarter performance was softer than expected, primarily due to delays in multifamily projects. However, leading indicators suggest a gradual improvement, supported by investments in new sales headcount and market share gains.
Q:How aggressive will the company be with its share repurchase program?
A:The share repurchase program will be discretionary, using both programmatic and opportunistic approaches. The company plans to start executing in the second quarter and will use excess cash without relying on debt. The minimum liquidity target is $500 million, combining cash and ABL.
Q:What is the company's perspective on competition from big box retailers?
A:The company does not see big box retailers leaning into the flooring category or having a disruptive impact. It competes with them primarily in opening price point and good segments, which represent a small percentage of its sales. The focus remains on taking share from independents.
Q:Is the company considering expanding its loyalty program to external interior designers?
A:The company sees an opportunity to lean into the designer and trade customer segment more but has not disclosed specific plans to expand its loyalty program to external interior designers.
Q:Review of Unclear Management Responses
A:Management avoided providing specific details on the revamped Pro loyalty program, stating that they could not share details at this point. Additionally, they did not quantify the impact of pricing actions on ticket growth or provide a detailed breakdown of how higher input costs like PVC would affect the business.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
BB platform
California Fayetteville
Carolina location
Dallas Texas
Detroit Michigan
East
South region
Spartan
Tier market
account manager
activity
allocation framework
capital allocation
customer engagement
development
focus
footage purchase
home improvement
loyalty
price band
refinement
repurchase program
return
share gain
share repurchase
strength model
surface
team
term value
track
vinyl
wallet
weather
FND Transcript
Floor & Decor Holdings, Inc. (FND) Q1 2026 Earnings Call Transcript
Unknown5-1
The earnings call summary presents a mixed sentiment. While there are positives such as the expansion plans and Pro Loyalty Program revamp, these are countered by lowered guidance due to macroeconomic uncertainties and weaker home sales. The Q&A section confirms these concerns, with the company recalibrating its outlook and facing higher freight costs. The lack of specific guidance on key initiatives adds uncertainty. Overall, the sentiment is balanced, with both positive and negative elements, leading to a neutral stock price prediction.
Floor & Decor Holdings, Inc. (FND) Q4 2025 Earnings Call Transcript
Unknown2-19
The earnings call summary presents mixed signals. Financial performance shows growth in revenue and Pro customer sales, but declines in comparable store sales and gross margin due to distribution costs. The Q&A highlights operational improvement plans and sustained growth in Spartan Surfaces, but also notes challenges in market share gains and pricing sensitivity. The lack of clear guidance on market share and vague management responses create uncertainties. Overall, the positive elements are balanced by challenges, leading to a neutral sentiment for stock price movement.
Floor & Decor Holdings, Inc. (FND) Q3 2025 Earnings Call Transcript
Unknown10-31
The earnings call summary presents a mixed sentiment. The guidance for fiscal 2025 indicates modest growth, but comparable store sales are flat to slightly down. While the company is performing better than competitors, challenges persist in high-volume markets. The Q&A reveals optimism for Q4 and strategic initiatives, but management's unclear responses on key issues and flat comps temper positive sentiment. Overall, the sentiment is neutral, reflecting balanced positive and negative factors.
Floor & Decor Holdings, Inc. (FND) Q2 2025 Earnings Call Transcript
Unknown8-1
The earnings call summary reveals mixed signals: modest price increases and well-managed tariffs are positive, but the company's cautious stance on 2026 guidance and reduced store openings indicate uncertainty. The Q&A session highlights management's focus on mitigating tariff impacts and strategic growth, but also reveals concerns about macroeconomic challenges. The sentiment is further balanced by potential market share gains and commercial growth. Overall, the insights suggest a neutral sentiment, with no strong catalysts for significant stock price movement.
FND Report
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