Floor & Decor Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 3, 2023

There are 13 speakers on the call.

Operator

Good afternoon, and welcome to the Floor and Decor Holdings Incorporated Second Quarter 2023 Conference Call. At this time, all participants are in a listen only mode. As a reminder, this conference is being recorded. At this time, I would like to hand the call to Wayne Hood, Vice President of Investor Relations. Thank you.

Operator

You may begin.

Speaker 1

Only mode. Thank you, operator, and good afternoon, everyone. Welcome to Floor and Decor's fiscal 2023 2nd quarter earnings conference call. Only mode. Joining me on our call today are Tom Taylor, Chief Executive Officer Trevor Lang, President and Brian Langley, Executive Vice President and Chief Financial Officer.

Speaker 1

Only mode. Before we start, I want to remind everyone of the company's Safe Harbor language. Comments made during this conference call and webcast contain forward looking statements only mode within the meaning of the Private Securities Litigation Reform Act of 1995 and are subject to risks and uncertainties. Only mode. Any statement that refers to expectations, projections or other characterizations of future events, only mode, including financial projections or future market conditions is a forward looking statement.

Speaker 1

The company's actual Future results could differ materially from those expressed in such forward looking statements for any reason, including those listed in its SEC filings. Only. The Board assumes no obligation to update any such forward looking statements. Please also note that past performance or market information only mode. During this conference call, the company will discuss non GAAP financial measures as defined by SEC Regulation G.

Speaker 1

Only mode. We believe non GAAP disclosures enable investors to understand better our core operating performance on a comparable basis between periods. Only mode. 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, only mode. Let me now turn the call over to Tom.

Speaker 2

Thank you, Wayne, and everyone for joining us on our fiscal 2023 on a listen only mode. During today's call, Trevor and I will discuss some of our fiscal 2023 second quarter highlights, only mode, then Brian will provide a more in-depth review of our Q2 financial performance and share our thoughts about our projections for the remainder of fiscal 2023. Only mode. Let me start by saying how pleased we are that amidst the economic challenges of rising mortgage rates only mode and near record low existing home sales, we delivered fiscal 2023 second quarter diluted earnings per share of $0.66 only mode, which exceeded our expectations. These financial results reflect our team's intense focus on what we can control during this challenging period.

Speaker 2

Only mode. We are executing our growth and customer service strategies at an elevated level, investing in new and existing stores only mode and effectively managing our profitability when sales are modestly below our expectations. There have now been 22 consecutive months only. Year over year declines in existing home sales from rising mortgage rates, which continues to create intermediate term headwinds to our sales growth. Only mode.

Speaker 2

Notwithstanding these headwinds, we continue to deliver on our growth plans by opening 9 new warehouse stores in the 2nd quarter, only mode including our 200 store opening in Metairie, Louisiana. We are proud that our growth led us to open a New England region, which creates on exciting promotional opportunities for our field organization. Moreover, we are fortunate that the strength of our balance sheet and cash flows only allows us to continue to invest in our existing stores and drive inspiration and newness at a time when the industry is contracting. Only mode. In the Q2 of fiscal 2023, we executed 49 design center refreshes, only, including 34 exciting new XL slab vignettes, 153 decorative accessory resets

Speaker 3

only mode. And by the end of

Speaker 2

2023, we expect that all stores will have an updated Wood Inspiration Center. When industry demand turns, only. We believe these investments will position us for accelerated market share growth. We continue to successfully only mode. Our plans to strategically reduce retail prices on specific SKUs, while at the same time growing our gross margin rate sequentially and year over year.

Speaker 2

Only. Our product price gaps are as strong as ever and on like items, they sequentially widened during the Q2. Only mode. Moreover, we have been successfully diversifying our product sourcing away from China. In 2022, our product sourced from China only declined to approximately 29% of sales from 50% in 2018 and we see a path only mode to further reduce this percentage meaningfully over time.

Speaker 2

Through our agile diversification strategies, we have demonstrated that we can reduce our product costs, only. Drive product innovation and newness, achieve optimal economies of scale and lower our geopolitical risks from tariffs and more recently only. Turning to commercial, not only are we pleased with the emerging organic growth at Spartan Services, only, but we were able to build on their successes by acquiring Salesmaster Floor Solutions in June. As we look forward, we expect only. We see home sales to be more challenging than we previously contemplated and customers to increasingly prioritize value and save, only mode seeking out those retailers that best meet these needs.

Speaker 2

We believe we are well positioned to navigate a longer duration of weak existing home sales headwinds only mode and grow our market share even as the flooring industry contracts in 2023. Let me now turn the call over to Trevor to discuss on our 2nd quarter sales and growth pillars.

Speaker 4

Thanks, Tom.

Speaker 1

We are incredibly pleased with how our stores are executing strategies to our market share during this challenging period. We are focused on driving top line sales growth in the second half of twenty twenty three only mode. Through new product introductions, compelling bulk out price displays at the front of our stores, basket selling, open quote conversion, on select SKU price reductions and engagement and loyalty strategies, particularly amongst our top pros. We will continue

Speaker 3

only mode, emphasizing our everyday low prices on

Speaker 1

a broad assortment of top quality and trend forward products, our in stock job lot quantities only mode and in store and online customer experience. We are pleased our 2nd quarter customer service scores remain at all time highs.

Speaker 3

Only mode.

Speaker 1

At the same time, we are protecting our profitability by flexing payroll hours to align with transactions, improving operational efficiencies across the organization,

Speaker 5

only mode, optimizing our media mix

Speaker 1

and advertising spend for the most effective return and moderating discretionary spending. Let me turn my comments to fiscal 20 20 only. Total sales increased 4.2 percent to $1,100,000,000 from last year and comparable store sales alone 6%, which was modestly below our expectations. Comparable store sales fell 6.6% in April, 5.5% in May and 6% in June. Only mode.

Speaker 1

From a regional perspective and like the Q1, sales in our Western division remained the weakest. Our fiscal 2023 Q3 to date only. Comparable store sales are down 8.4%, which is reflected in our updated earnings guidance provided in today's press release. Only mode. Turning to our fiscal 2023 2nd quarter transaction and average ticket performance.

Speaker 1

Comparable store transactions declined 7.1% from last year, only mode, which was modestly below our expectations, but an improvement from the 9.9% decline in the Q1 and a 10.4% decline in the Q4 of fiscal 2022. Only. Our 2nd quarter average ticket growth of 1.1 percent sequentially decelerated from 7.3% in the Q1 and 14.4% in the Q4 of 20 only. The sequential decelerating growth in our average ticket is mainly due to retail increases last year that we are now starting to anniversary in a more meaningful way, only as well as customers purchasing less square footage and our strategic decision to selectively lower retail prices on specific SKUs. Only.

Speaker 1

Overall, homeowners and pros are engaging in fewer projects and undertaking smaller scale flooring projects and are very intentional in their purchase decisions. Only mode. For example, they are choosing a single bathroom project rather than a bathroom and a kitchen project or a 4 room project rather than a 5 room project. Only mode. Additionally, the cost of financing projects has risen due to the increase in interest rates, fewer subsidized financing programs and tighter lending standards.

Speaker 1

Only mode. Collectively, we believe these factors are contributing to us selling less square footage when compared with last year. That said, when the consumers are considering a foreign project, we and continue to see an ongoing customer preferences towards our better and best price point products, where we offer industry leading innovation trends and styles at everyday low prices. Only mode. Indeed, we are excited about the new SKUs landing in our stores in the second half of the year.

Speaker 1

Consequently, we believe we can grow our market share even while the industry is contracting.

Speaker 3

Only mode. I will now discuss our new store

Speaker 1

pillar of growth. In the Q2 of fiscal 2023, we opened 9 new warehouse format stores towards our goal of opening 32 warehouse format all for the year. Among the 9 new warehouse store openings, 3 opened in each month of the quarter with 1 opening on the last day of the quarter. Only. We celebrated a milestone in our compelling growth story in early May by completing our 200th warehouse store opening in Metairie, Louisiana.

Speaker 1

Only. I want to take a moment to recognize all of the people that made this possible. Each year, I believe we get better at opening new stores and they are better than the previous class. And I'm excited about the new stores we have in the pipeline to open towards achieving our 500 U. S.

Speaker 1

Store potential.

Speaker 2

We have a busy eleven only.

Speaker 1

New warehouse store opening plan for the Q3 of fiscal 2023, including a record setting monthly store opening plan of 9 new stores in the month of September. Only mode. Moreover, we are excited about our plan to open 4 new stores in new markets in the Q3, including Buffalo, Rochester and Albany, New York only mode and Minneapolis, Minnesota. Among the 32 warehouse format stores we intend to open in fiscal 2023, 59% will be in existing and 41% in new markets. Only.

Speaker 1

As a reminder, we consider any market where our stores have been opened less than 3 years to be a new market. Looking beyond 2023, only. We expect construction delays to ease and anticipate a more balanced quarterly store opening cadence, which will lead to more warehouse store operating weeks. Only. Turning to our Pro business, our fiscal 2023 second quarter total sales to Pros increased by 8.3% and accounted for 43% of total sales.

Speaker 1

Only. Pro comparable store sales declined 1.1% from last year, driven by a decline in transactions. While 2nd quarter comparable store sales to PROs declined only slightly from last year. We are pleased with our engagement metrics where our top pros continue to spend more with us compared with last year, resulting in a growing wallet share. Only mode.

Speaker 1

Furthermore, we are pleased that our PROs continue demonstrating a strong appreciation for the value of our industry leading Pro Premier Rewards loyalty program. Only mode. Over 80% of our pro sales are from PPR members and 2nd quarter PPR points redeemed increased by 73% from last year. Only mode. We continue to grow our Pro context and are excited about the refinements we are making in our customer relationship management or CRM dashboard tools, which will

Speaker 5

only mode. Further allow

Speaker 1

us to optimize and enhance our lead capabilities and drive engagement. We also build sticky relationships and lifetime value with on our pros through education and training about flooring products, installation and design solutions. As discussed in prior earnings call, we aim to be the premier destination for on pro education by expanding our industry partnerships. In the Q2 of 2023, we hosted 27 educational workshops only training over 500 pros. We have 121 pro educational workshop events planned for the year compared to 71 in 2022.

Speaker 1

Only. We believe these investments are working as those trained pros have significantly increased their spending with us from last year. Only. Turning to our e commerce business. Our e commerce team continues to focus on executing strategies to drive traffic and optimizing our customers' digital experience.

Speaker 1

Only mode. In the Q2, we drove 20,000,000 clicks to our website. Our fiscal 2023 second quarter e commerce sales increased 12.6% from last year and accounted for 19.1 percent of our sales compared to 17.5% in the previous year and 18% in the Q1 of 2023. Only. Importantly, our digital and physical assets are working together.

Speaker 1

79% of customers who purchased in stores say they have been to our website. Only. Importantly, about 80% of our online sales are picked up in store. From a merchandising perspective, we continue to be focused on current trends adding inspirational and user generated content and expanding into new categories. Moving on to our design services, we believe our design services strategies are working.

Speaker 1

We're driving an elevated level of service versus no competition from trained designers capable of managing any size project with any customer. We now have about 5 designers per store, only, which gives us coverage for all days and hours of business. We have equipped designers with hardware and design software, which allows us to give customers a better and more consistent experience. Only. Our in home design test is now in 6 markets and we are pleased with the results.

Speaker 1

The in home design allows us to work with the project space, only mode, including reviewing samples, taking measurements and defining the customer's style. This experience also allows us to produce better visualization tools only mode to help customers make the buying decision. In the Q2 of 2023, our design sales penetration increased 3 35 basis points from last year. Only. We now have about 9 30 designers working in our stores with plans to have over 1,000 designers by the end of the year.

Speaker 1

Moving on to Commercial Flooring Business, only. Spartan Services reported another strong quarter, further reaffirming that our strategies to grow our commercial market share are working. Only. Spartan's fiscal 2023 2nd quarter total sales increased by 40.5% from last year. We are pleased that Spartan's gross margin and EBITDA margin rate call.

Speaker 1

It continues to be better than expected, which was partially offset by transaction costs from Salesmaster in the quarter.

Speaker 4

We are equally pleased with

Speaker 1

the regional account managers or our RAMs only that work with our stores and that are not included in Spartan's financial results. Our ramp 2nd quarter total sales increased 39% from last year. Only mode. In June, we took another step towards growing our commercial business when Spartan Services acquired Salesmaster Flooring Solutions, a top distributor of commercial flooring in the New York only market. The acquisition significantly expands and deepens our presence in the large and highly fragmented New York City and New England also.

Speaker 1

We're excited about leveraging Salesmaster's strong contractor relationships in their core markets, large sundries offerings, delivery and logistics network and great customer service. Only mode. As we expand in the Northeast, we believe these attributes will result in higher win rates. We expect Salesmaster to benefit from increased purchasing power, on better inventory levels and logistics enhancing the value they deliver to their customers. As discussed in prior earnings calls, we remain excited about the commercial market opportunity and our strategies.

Speaker 1

Finally, we are operating from a position of strength and are excited about the opportunity to continue to grow our market share in fiscal 2023 beyond. Only mode. We are confident that we have the right people, strategies and business model to continue navigating this challenging macroeconomic environment successfully. Only mode. I will now turn the call over to Brian to discuss our fiscal 2023 Q2 financial results in more detail and to share our outlook for the remainder of the year.

Speaker 1

Only.

Speaker 4

Thank you, Tom and Trevor. I want to begin by thanking all of our associates and vendor partners for their hard work and dedication to serving our customers every day. Only mode. I'm particularly proud of our fiscal 2023 second quarter financial results as they demonstrate how we can grow our market share and manage our profitability during a period of industry contraction. We are executing our new store growth and gross margin recapture plans and effectively managing our expenses.

Speaker 4

Importantly, we successfully managed our inventory and other working capital, which led to a $469,000,000 on a positive swing in operating cash flow from the same period last year. We accomplished these results despite rising mortgage rates alone during the quarter leading to existing home sales that took a step back from where they were at the end of the Q1 of 2023 to near record lows. Only mode. Let me turn my discussion to some of the changes among the significant line items in our 2nd quarter income statement, balance sheet and statement of cash flows. Only.

Speaker 4

Then I will discuss our outlook for the remainder of the year. We are successfully executing our plans to grow our gross margin rate. Only. 2nd quarter gross margin rate grew sequentially and year over year. Our 2nd quarter gross margin rate increased approximately 220 basis points only to 42.2% from 40.0% last year, exceeding our expectations and sequentially improving from 41.8% only mode in the Q1 of fiscal 2023.

Speaker 4

The increase in gross margin rate is primarily due to retail price increases we took last year to mitigate higher year over year supply chain on product cost. As a reminder, we are in the weighted average cost method of accounting and as such the supply chain cost reductions we started to experience late last year only mode and into this year are still working their way through our income statement and will continue to benefit the back half of twenty twenty three. 2nd quarter selling and store operating expenses increased 16.1 percent to $311,400,000 in line with our expectations. Only mode. The growth is primarily attributable to higher occupancy costs related to 29 additional warehouse stores operating since June 30, 2022, on wage rate increases and higher credit card transaction processing fees.

Speaker 4

As a percentage of sales, selling and store operating expenses increased alone. Approximately 2 90 basis points to 27.4 percent from last year. The 2 90 basis points increase was modestly above our expectations, only mode, primarily due to deleverage in occupancy and other fixed costs from the decline in our comparable store sales. 2nd quarter general and administrative expenses only increased by 19.2% from last year, modestly above our expectations. The growth is due to investments to support our store growth, only, including increased store support staff, higher depreciation related to technology and other store support center investments only and operating expenses related to our Spartan subsidiary, including approximately $900,000 of transaction costs associated with the acquisition of SalesMaster.

Speaker 4

Only mode. As a percentage of sales, general and administrative expenses deleveraged 60 basis points to 5.5% from 4.9% last year, only mode, primarily due to the decline in our comparable store sales. Preopening expenses increased by 16.5% only to $10,000,000 from last year, in line with our expectations. The increase primarily resulted from an increase in the number of future stores we were and are prepared to open compared to the prior year. 2nd quarter net interest expense increased to $2,900,000 only from $1,700,000 in the same period last year.

Speaker 4

The $1,200,000 increase in interest expense is primarily due to an increase in average borrowings only mode. Outstanding under our ABL facility and interest rate increases on outstanding debt, partially offset by increases in capitalized interest and interest income only mode from our interest rate cap derivative contracts. Our 2nd quarter income tax expense was $20,600,000 only compared to $22,900,000 in the same period last year. The effective tax rate increased by 50 basis points to 22.4% only mode from 21.9 percent the previous year, primarily due to 162 limitations. Excluding the impact of excess tax benefits, Our 2nd quarter tax rate was approximately 24.5% compared to 23.9% in the same period last year.

Speaker 4

Only. While second quarter sales were modestly below our expectations, we demonstrated that we can effectively manage our profitability as industry growth contracts. Only. 2nd quarter adjusted EBITDA grew 1.7 percent to $152,800,000 and diluted earnings per share of $0.66 only mode, which exceeded our expectations. In today's earnings press release, you can find a complete reconciliation of our GAAP to non GAAP earnings.

Speaker 4

Only mode. Moving on to our balance sheet and cash flow. We are pleased that our inventory as of June 29, 2023 decreased by 12.8 percent only to $1,200,000,000 from last year and decreased by 9.3% from the end of fiscal 2022. The decline in inventory, Coupled with an increase in trade accounts payable, along with other working capital initiatives, enabled us to report a 468,800,000 on a positive swing in year over year operating cash flow and a significant year over year increase in free cash flow. The improvement in our cash flow allowed us to reduce borrowings alert under our ABL facility, which in turn enabled us to reduce our debt by $35,200,000 to $238,400,000 from the same period last year.

Speaker 4

Only mode. Consequently, we have an even stronger balance sheet, which will be a benefit to us as we weather the industry's contraction and make strategic investments like our recent acquisition of Salesmaster. Only. We ended the 2nd quarter with $703,300,000 of unrestricted liquidity consisting of $4,200,000 in cash and cash equivalents and $699,100,000 available for borrowing under the ABL facility. Let me now turn my comments to how we are thinking about the second half of twenty twenty three and and how this compares with our previous expectations.

Speaker 4

First, the Federal Reserve has continued tightening financial conditions by raising the federal funds rate only to 5.25% to 5.5% in July and continue shrinking its balance sheet to bring inflation under control to achieve its 2% inflation rate objective over time. Only. These ongoing monetary policy decisions led to mortgage interest rates rising to over 7% in the 2nd quarter and 7.34% in July, only, which led to existing home sales slipping back to 4,160,000 units in June from the prior recent peak of 4,550,000 units in February only and 4,430,000 units in March when we reported our fiscal 2023 Q1. As we think about the long and variable lagged impact Of these ongoing monetary policy actions and the likelihood that mortgage rates are now less likely to fall to 5% to 6% over the next 5 months, only. We now prudently expect existing home sales to exit 2023 around 4,100,000 to 4,300,000 units and remain near record lows.

Speaker 4

Only. This unit level is below our previous 2023 exit rate assumption of 4,700,000 to 4,900,000 units annualized as we discussed in the Q1. Only. 2nd, while home price appreciation has moderated, they remain elevated from previous years, which coupled with rising mortgage rates alone. According to NAR, the median price of an existing single family home was $416,000 only mode in June 2023, up 39% from $300,000 in 2020.

Speaker 4

A monthly payment is now 26.7% only mode of income compared with 14.7 percent in 2020. Taking these intermediate term headwinds and our recent sales trends into consideration, only. We prudently revised our fiscal 2023 sales and earnings guidance lower to reflect these ongoing headwinds. Only. While the macroeconomic environment does present some near term challenges, we believe the long term secular trends that underpin growth in home improvement spending and our potential market share and 500 store opportunity in the U.

Speaker 4

S. Remain as relevant as ever. We remain committed and making the investments that we believe will further expand our competitive mode and drive market share gains during this downturn to better position ourselves only existing home sales cycle terms. The well established factors supporting long term home improvement spending include significant home equity, only. Historically low inventory of new and existing homes for sale in an aging housing stock where over 80% of homes are 20 plus years old.

Speaker 4

Only. Furthermore, as more millennials enter their prime home buying years, we are well positioned to capitalize on this growing market. Only mode. Now I'll provide some more detail pertaining to our updated fiscal 2023 full year outlook. Net sales of approximately $4,460,000,000 only to $4,530,100,000 compared with our prior guidance of $4,610,100,000 to 4,750,100,000 Comparable store sales declined of approximately 7% to 5.5%, compared with our prior guidance of down only 3% to flat.

Speaker 4

We expect Q3 to be the lowest comp of the year. As a reminder, we are lapping a 10.4% decline The earnings flow through impact from a 1 percentage point change in comp is approximately $0.10 per share for the full year only and approximately $0.05 for each comp point for the remaining 2 quarters of the year. Diluted earnings per share of approximately $2.30 only mode to $2.50 compared with our prior guidance of $2.55 to $2.85 only mode. We expect Q4 earnings to be the lowest of the year. Adjusted EBITDA of approximately $570,000,000 to $595,000,000 only compared with our prior guidance of $605,000,000 to $650,000,000 Depreciation and amortization expense of approximately $200,000,000 only compared with our prior guidance of $190,000,000 net interest expense of approximately $16,000,000 to 17,000,000 only compared with our prior guidance of $17,000,000 to $18,000,000 tax rate of approximately 22% compared with our prior guidance of 23%, only.

Speaker 4

Diluted weighted average shares outstanding of approximately 108,000,000 unchanged from our prior guidance, opened 32 new warehouse format stores alert from our prior guidance of 32 to 35 stores, capital expenditures of approximately $590,000,000 to 630,000,000 only compared with our prior guidance of $620,000,000 to $675,000,000 Let me now pass the call back to Tom for some closing remarks.

Speaker 2

Only. Thanks, Brian. These are challenging times for everyone in our segment of the home improvement industry, but we believe we have a proven only differentiated business model and the right talent to execute our growth strategies to continue to grow our market share. We believe our ability to continue to make on our strategic investments in a year marked by sales contraction in the industry will enable us to accelerate our market share in 2023 and beyond, only mode, particularly among pros. We expect 2023 could be particularly difficult for independents to manage pricing, only mode.

Speaker 2

We believe we are managing our business to accelerate our market share, only mode. We believe we are managing our business to accelerate our market share and deliver significant earnings power when the industry returns to growth. Only mode. We believe our long term earnings growth algorithm remains intact. I want to thank all of our associates and vendor partners for their hard work and dedication to serving our only mode every day.

Speaker 2

Operator, we would now like to take questions.

Operator

Thank you. We will now be conducting a question and answer session. Only. One moment please while we poll for your questions. Our first Questions come from the line of Michael Lasser with UBS.

Operator

Please proceed with your questions.

Speaker 6

Good evening. Thanks a lot for taking my question. Only. What are the trends at your most mature stores? And the reason why I ask is because there's a debate about the degree to which only.

Speaker 6

Floor and Decor might have been over earning for the last few years because of things like whole house renovations, only. All the, excessive money that's been flowing to the consumers. So the key is what is the realistic level of on sales productivity for your most mature stores.

Speaker 1

Hey, Michael, this is Trevor. I'll take a crack at that and Brian may weigh in as well. I think I think our mature stores are maybe 200 basis points below our total comp that we reported there. Only mode. And as to how much was over earned during the COVID period, I mean, there's something to that.

Speaker 1

I don't know that we can specifically know what that number is. Only mode. But obviously, we went through that back then. People were stuck at home and they couldn't travel and they invested in their home because they were working from home. So there's probably to some truth to that, but I'm not sure we can tell you exactly how much of that was part of our when we had the strong results in 2020 and 2021 in the first half of twenty twenty two.

Speaker 4

Only. Yes. Hey, Michael, I'll jump in. I'll just I'll kind of unbundle the comp a little bit and then talk a little bit about mature stores as well. So if you think about it, if you follow the story, we were down on.

Speaker 4

3.3% in Q1, down 6% in Q2. What Trevor said on the call is we're down 8.4% now. That would imply that the back only. The high end is around 6.3% and the back half on the low end is at 9.3%. The reason that we believe Q4 will only mode.

Speaker 4

As we're stacking against our weakest transactions, in Q4 if you remember they were down 10.4% and in Q3 they were down 6.7%. Only. The other reason really is that we also opened 13 or 32 stores or 40% were in Q4 of last year. So all of those are going to start to enter into the comp base in Q4 as well. Only.

Speaker 4

And then to piggyback on Trevor's point, embedded in this guide is high single digit to low double digit declines for mature stores. So that's embedded within kind of the numbers that we gave you. So our new store classes are still comping positive to Trevor's point. So there our new stores are a little bit lower than what we guided to

Speaker 6

only. So Brian, when the dust settles, what do you think your new your mature only. Sure. Stores on average are going to be doing from a sales per store heading into 2024. And then as you think about 2024, only.

Speaker 6

Is your change to the guidance just simply pushing off the time of the recovery? Or Is this more of an acknowledgment that our stores were over earning and they're going to it's going to take some time for them to find on a sustainable level. Thank you so much.

Speaker 4

Yes. It's more of a push off we would say. We don't think that they've come down at any reason. Obviously, they're negative comping this year, but there's no reason they wouldn't earn back to where they were. We don't believe they overachieved to their long term goals.

Speaker 1

Only mode.

Speaker 2

As long as existing home sales are staying at this level, it gives us some challenge and we've got to continue to fight to take market share during this time, but only. This is just a push out to when things would get better.

Speaker 1

All right. Thank you very much and good luck.

Speaker 4

Only. Thanks, Michael. Yes.

Operator

Thank you. Our next questions come from the line of Steven Zaccone with Citi. Please proceed with your questions.

Speaker 7

Only. Great. Good afternoon. Thanks for taking my question. I wanted to ask about the market growth rate with your guidance calling for down mid alone across DIY versus pro and maybe product categories and then even the size of the project.

Speaker 7

What do you think is really coming in only weaker than expected by the biggest magnitude.

Speaker 2

I'll take the first part and then Trevor, you can take the second part. This only. Tom, so I would say, the market is growing at a slower pace than we are. We're still growing. I only.

Speaker 2

I mean, we have a negative comp environment, but as we open stores, we're still growing. So, our in the quarter, we were up 4%, and year to date, I think we're up somewhere around 6%. So we're growing. And when you just look at people that we compete with that are publicly traded, only. 15, Mohawk reported North America was down 9%.

Speaker 2

So we're growing. So we believe we're taking market share at a pretty good clip and the market is only. Absolutely, in much worse condition than we are.

Speaker 1

And if I understand the second question, our Pro business continues to do well relative to the rest of the business. We talked about our commercial, small, but our commercial business continues to do incredibly well both on the Spartan only mode. And our regional account managers on the retail side, the consumer, the DIY, that's the part that's on. We measure that closely. That's the part of the business that's least of us the ability to control.

Speaker 1

And as Tom mentioned, you've had, call it 5,500,000 to 6,000,000 existing home sales turnover for much of the last 50 years. You're now at 4,000,000 and this cycle is now 22 months into it only. And it hasn't gotten any better. Interest rates are back our mortgage rates are back above 7%. And so it's just that it's time of compression only on the just the housing cycle.

Speaker 1

We feel as good as ever about our medium and long term outlooks. We just need to get past the cycle. Only.

Speaker 7

Okay, great. The follow-up I had was on just the competitive dynamics that you're seeing in the market right now, only. Given your comments about value and savings, how do you feel about your price gaps? And do you see the competitive dynamic only changing as we get into the back half of the year and into next year.

Speaker 2

I'll take that. This is Tom. I feel good only about our price gaps versus our competition. We monitor those on on. It feels like a daily basis, but we model them on a weekly basis and we feel as good as ever about how we're competing in the marketplace.

Speaker 2

And only. As I look forward, do I think it's going to get worse? Do I think it's going to get more challenging? I mean, as Trevor said, this is the 22nd only. Consecutive month of negative existing home sales.

Speaker 2

This has been a tough market for people to sell our category for a while. And only mode. We're going to continue to monitor that. We're going to continue to protect our moat. We know we're getting new customers only mode every day that are looking for value in this type of environment.

Speaker 2

So, we feel good about our price gaps and we'll continue to make sure that they stay good.

Speaker 4

Only. Okay. Thanks for taking my questions.

Operator

Thank you. Our next questions come from the line of Stephen Forbes with Guggenheim.

Speaker 3

Mode. Please proceed with your questions.

Speaker 8

Good evening, Tom, Trevor, Brian. I wanted to focus on only. The updated capital spending plan, so I guess first just wanted to confirm that the reduction for the year is solely tied to the 3 stores only. That were pulled out. And then curious if you can maybe give us a preview on how you're thinking about 2024 in terms of the store pipeline only.

Speaker 8

Andor, what level of capital spending you're sort of comfortable planning for as we think through the free cash flow implications of the guidance revision?

Speaker 4

Only. Hey, Steven. I'll start and then Tom and Trevor will jump in. So on the very first question, the reduction is actually more tied to fewer land purchases that we had contemplated in the original guide and then a little bit for the spend of 24. Those 3 stores we're still spending on.

Speaker 4

They're really just kind of pushing into next year. So it's not that we only to cut that or anything else. It's really tied to more just spending for the future class of 'twenty four and land purchase that we have. And we're still looking to own probably 5% to 10% of any given class. So it's just a little bit less than we had kind of predicted in

Speaker 9

the beginning of the year.

Speaker 2

That's right. I'll take the second part of the question. As we've said through our script, only. We know this is a cycle. Things will be difficult.

Speaker 2

We're running the business to the best of our ability, but we're only. Trying to gain market share and we know that nothing's changed in our 500 store algorithm. So we plan to open at least 35 stores next year. As we sit here today, that's how we see the world only. We plan to open at least 35 stores next year.

Speaker 2

We may update that as we get into the next quarter. But we've got our class of 24 only. The pipeline is terrific. We've got a store in Brooklyn that we're going to open up, more stores in the Northeast, stores in our good market. So we're all excited about that pipeline and going to

Speaker 3

continue down that path.

Speaker 8

Thank you. Maybe just a quick follow-up for Brian. As we think back only to sort of the selling store operating expense deleverage you've experienced revenues experienced year to date. Can you help break that down into on comparable store deleverage versus the weight of the new growth?

Speaker 4

Yes. Hey, Susan. Yes, the majority of it is going to be in the all. Mature stores. And so when you think about it, what I said in the prepared remarks, we have seen wage rate increases, higher credit card transaction only.

Speaker 4

And so the new stores are still layering in the same way that they have. We've been able to combat kind of that inflation, but the cost on

Speaker 8

a like for like at all.

Speaker 4

The store is almost equal from where it was last year. So the deleverage is almost all due to just the decrease in sales. So it's all because we're negatively comping at those stores. Only. We've been able to kind of hold cost flat even with inflation coming in by flexing our store hours and cutting discretionary spend.

Speaker 4

Only. Thank you.

Operator

Thank you. Our next questions come from the line of Chuck Grom with accord and ask it. Please proceed with your questions.

Speaker 5

Thanks very much. Hope you guys are doing well. My question is on the recent uptick in rates and And if that's having any impact on what you're hearing from the PROs and current plans for projects over the next, call it, 6 to 9 months?

Speaker 1

Only. We have talked to a lot of pros over the last several months and They still have decent backlogs is what they tell us. And we're talking 100 and 100 of PROs across the United States. They saw decent backlogs, but it has slowed a little bit. Only mode.

Speaker 1

And when you're turning over 5,500,000, 6,000,000 homes, there's a lot bigger projects that are being done, right? There's when someone's going to sell a home, only. They may have to invest in multiple bedrooms and bathrooms and kitchens. Now that existing home sales is bumping along at $4,100,000 which again is one of the lowest we've seen in over 50 years. People are just doing much smaller projects, as opposed to doing a whole floor, maybe they just do a bathroom or a kitchen.

Speaker 1

And so they've also said the size of their project all. That's probably the biggest thing that's changed for us relative to when we started the year. Transactions are pretty close to what we thought. Only. The ticket is pretty close to what we thought, but some of the square footage size of the jobs has come down and I don't know that we would have thought to think that was going to happen.

Speaker 1

So that's probably the biggest changes. People are just doing smaller jobs as a lot less houses are turning over.

Speaker 5

Only. Okay, great. Thank you. And then my second question is just on new store productivity. You opened 9 stores.

Speaker 5

I think you said 3 within each on a month of the quarter and I think there's one store that you opened up on the last day, but the NSP is much lower than it's been. We're calculated around 61%. So is there anything going on there that would drive that lower?

Speaker 1

The way I always think about that is we just closed in our 10 ks. We think our new stores all should do anywhere from $14,500,000 to $16,000,000 $16,500,000 in sales in 1st year and we sort of build our portfolio of stores around those metrics. When things were incredible, we were doing $16,500,000 as you look at the class of 'nineteen, 'twenty and 'twenty one, The class of 'twenty two and early in 'twenty three, that number is probably more around $14,500,000 in sales. And so as you've seen our same store sales come down just because there's less people in the market. You've seen our new store sales productivity come down.

Speaker 1

So, do I think that number is going to go back up to 15, 15.5, only. I think as the economy recovers, it will. And those stores are those stores were making probably over 3 they were making over $3,000,000 in full wall EBITDA in year 1. And only. Now that you're going to do a 1,000,000 or so less, maybe a little bit more in a 1,000,000 or so less than that in this current environment, you can pull that through kind of in the mid to high 30s and so they're going to make still a really good only just under $2,000,000 or just over just under $3,000,000 maybe $2,500,000 but they're still very productive stores and they're going to give us return on invested capital well above our cost only

Speaker 4

mode. And this is Brian. It gives us more of a maturation curve as well as they mature. Yes, because they're ultimately get to the same. Only.

Speaker 5

Right. Yes, exactly. Thank you.

Operator

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

Speaker 10

Good afternoon, everyone. I want to ask first about gross margins. They're still benefiting and I think you mentioned there's still a little bit of a benefit through the back half of the year. Does it flip to a headwind? I think part of the question is only.

Speaker 10

What happens with price? And you mentioned there were some selective, I guess, taking price down, but curious on how it wraps into 'twenty four. I know it's early to talk about it, but

Speaker 3

curious if it does flip over.

Speaker 2

Only. Yes. It is early to talk about 2024. We're our margin I've been very pleased with our ability to only. Our value pass some price along back to our professional customers who saw us taking price up only mode and continuing to improve margin, like as I said in the script, and we've been able to do it sequentially and then year over year.

Speaker 2

Only. And I think that goes into 2024. I do believe that we have the ability to continue to improve our margin rates. Only. We're watching where we have taken price down and measuring unit elasticity seeing only.

Speaker 2

If we're going to benefit, it's inconclusive now, but we're watching it. But I think between our own initiatives of selling better and best products and design initiatives and continuing to watch our supply chain do a great job of getting costs on our merchants buying better. Alone. I think we have the ability to exceed our historical gross margin rates. How quick that comes, that's yet to be determined.

Speaker 2

We'll talk about 24 as we get closer to it, but I do

Speaker 3

only mode.

Speaker 10

Yes. And then it's actually it's another 24. I'm hesitant to talk about it, but it's more about the housing market. Only mode. Because Trevor mentioned that the consumer just spending a little bit less.

Speaker 10

There was a debate in this industry that the wealth and homeowners only. The lock in or stay in effect would continue to drive the industry, not necessarily support it, but not only mode. Not avoid negative comps, but it looks like, let's say, existing home sales don't grow in 2024, only, which some are forecasting. Like how do you I know it's early again, but how do you think about this wealth effect? Is there enough only mode for this business or the industry to grow or could be a longer transition period.

Speaker 2

Abby, I think that's difficult to answer. I'll take a stab. Only. We're all kind of looking at each other, who's going to answer that one? I would say, I mean, as I look into next year, even if the only.

Speaker 2

We just need existing home sales have been running in the negative 20% range. So if we get to as we start lapping as we get into the 4th quarter, They won't be if they stay at this 4,100,000,000,000, dollars 4,200,000,000 like we think we're going to exit the year, then they're not negative 20%, they're flat only slightly up and as we go into next year, we think that could get better. And if existing home sales are better than they were year over year, we think that benefits us. Only. And I also think there's going to be some pent up demand with this amount of slowdown in the business as you get to next year.

Speaker 2

Only. I think people will become more impatient and they may take on more projects and our consumers are they've slant to a little higher end. Their balance sheets look pretty good. Only. We do think that hopefully that will as time goes on and people are going to say, you know what, I've waited long enough, I'm going to redo that bathroom, I'm going to redo that kitchen.

Speaker 2

So I think between only. Existing home sales probably slight, maybe low, but they're not going to be 20% year over year low. And then I think only. As time goes on, I do think people will take on more because of the value of their homes is pretty good.

Speaker 4

This is Brian. I mean, if the duration lasts longer as you're alluding to, if It does. It's going to put a lot more pressure on our independent competitors, which could also allow us to gain even more market share. So just one way to think through it. That's true.

Speaker 1

Only. That's a good point.

Speaker 10

Yes. Thanks, guys.

Operator

Thank you. Our next questions come from the line of Zach Fadem with Wells Fargo. Order. Please proceed with your questions.

Speaker 11

Hey, good afternoon. I want to follow-up a bit on that last question and maybe you could talk only about the historical correlation between your business and existing home sales and how that relationship has and all the folks who've locked in low mortgage rates. I mean, is there any reason to believe that the historical correlation is Still the right way to think about modeling your business or could that actually change?

Speaker 4

I do think that's been

Speaker 1

the highest Macroeconomic factor that correlates to our business, you go back and look at kind of late 'seventeen, 'eighteen or 'eighteen and 'nineteen when existing home sales slowed, when interest all. Our business decelerated, Tom. Obviously, you've seen that same thing happen. Starting last year in July, existing home sales fell a lot, only mode. Anywhere from 20% to 35% per month for as we said the last 12 months and you saw our business slow down and actually turned negative for the first time.

Speaker 1

Only. Yes, I think that's right. I think as Tom mentioned though, I don't it doesn't feel like we're going to go way below 4,000,000 existing home sales. If you look over the last 50 years, I think that's only happened once. Alone.

Speaker 1

So we just need them to quit being so negative. And I think then we can grow from there only mode is our view. I mean, when we look at our model and what we're doing versus the competition, we're continuing to make huge strides forward. Only mode. I think we feel good about our people, our turnover is low, our customer service scores are high, our innovation and the assortment is fantastic.

Speaker 1

Only. So, yes, that's my best answer.

Speaker 2

Yes. No, mine too. I wouldn't say, I mean, much different. I don't think that there's anything that's happened in the last year or 2 that's going to change only. That existing home sales aren't good for us.

Speaker 2

Existing home sales are positive year over year, that's a good thing

Speaker 4

for Florham McGuire.

Speaker 11

Got it. I appreciate the color. And then I think you made a change to your private label credit card. Curious if you've seen any impact from the change or the tightening credit all terms as a whole, specifically on that card as well as for your customers in general, as well as the pro.

Speaker 1

Only. Very perceptive. We did make a change in May. We went with a bigger vendor that we felt was more aligned with us. Also.

Speaker 1

Early reads, it looks like their approval rate is slightly better than the previous provider only mode and we feel good about them. They're a big partner and we they do a lot of private I think they're the largest private label credit card only company in the United States that they're a good partner with us and we're optimistic about it.

Speaker 11

Got it. Appreciate the time guys.

Speaker 4

Only.

Operator

Thank you. In the interest of our remaining time to get to as many questions as possible, we ask that you please limit yourself to one question. Only. Our next question comes from the line of Seth Sigman with Barclays. Please proceed with your question.

Speaker 7

Okay, great. Thanks. Hey, everybody. Only. So a lot of the slowdown here is happening through average ticket.

Speaker 7

And I guess we're all trying to figure out where that settles. Your average ticket is up, let's say, 25 only mode. And it seems like a portion of that was same SKU price increases, but maybe a bigger piece of that all. And then how do you think about where that normalizes? Only mode.

Speaker 7

So does it go back to 2019 levels? Does it go lower based on EHS? How do you think about that?

Speaker 1

Only. I think our ticket will bounce around out where it's going to be this year. And then, only.

Speaker 8

I think it's going

Speaker 1

to grow in the future because our e commerce business is our highest ticket and that will hopefully continue to grow at a faster rate than sales like it has for the last 12 years. Only. Our pro ticket is higher than our homeowner business that we're hopeful will continue to grow. Our design ticket is higher. Design is a big only.

Speaker 1

A big focus for us, as Tom mentioned, that's up 3.30 basis points. So I think we just got to kind of level out and see what this year is. Our only. Ram sales, which really most of those get tendered through the stores, those are big commercial sales. Those are all higher ticket.

Speaker 1

So My expectation is once we get through this, arguably one of the worst housing markets we've seen in the last 50 years, those on strategic initiatives that we're focused on will drive ticket growth. And the final thing I mentioned is, our merchants continue to do a great job. People are doing less square footage, but they're still continuing to focus on better invest. And our pricing, generally speaking, when you look at our pricing versus better invest, we're not competing as much with the home all. We're competing against the independents and our value equation goes up a lot and that's why that part of our business continues to take market share only because our better and best assortment is incredible and our pricing differential versus our competition is also very high.

Speaker 1

Only.

Speaker 2

And the last thing I would say along with all those benefits is once existing home sales go positive, then people start doing They get back to doing this, Travis, you mentioned earlier in the call in one of the questions, people will do more rooms in their house. When people move into a house, it's they do more rooms. Only. And today, when they're staying in the same house or doing a room at a time. So when that gets back into the blend of the average ticket, that's a good thing.

Operator

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

Speaker 3

Only.

Speaker 7

Hey, good afternoon. So my question has 2 parts. So strong gross margin result call quarter and exceeded what we had been thinking for late 'twenty three. So as such, how should we be thinking about 3Q and 4Q gross margin? Only.

Speaker 7

Should we be planning for sequential improvements from recent levels? And then relatedly for gross margin, Tom, you mentioned that Pricing rollbacks have been inconclusive. Can you just share any more detail maybe where you've seen success, maybe where you haven't? Thanks so much.

Speaker 4

Only. Hey, Jonathan, this is Brian. I'll start it and then pass over to Tom. So for the gross margin, Q1, we were at 41.8%, Q2, we were at 42 only. So obviously, we did exceed our own internal expectations as well.

Speaker 4

We do think the back half is going to be at, if not slightly better than that 42.2%. So for the full year, only. We should be around kind of that 42.2 percent on a full year basis, which tells you the back half should be slightly better than where we just exited. Only.

Speaker 2

Yes, I think and then just the, what I mentioned earlier that our test results are inconclusive, I would say That remains the case. They are inconclusive. It's very hard. Some appear to have worked well. Some appear to have not made a difference.

Speaker 2

It's hard only to ascertain if we've just shifted a customer within our own store to a different SKU because our assortments are so broad, they come in and we've affected the price on one thing and it only. Taken from one SKU to another, so there's some difficulty. We do see some benefit to certain departments that we see more benefit than others, and we're going to continue only to lean on that learning and apply that as we think about more price reductions in the future.

Speaker 3

Only.

Operator

Thank you. Our next question comes from the line of Karen Short with Credit Suisse. Please proceed with your question.

Speaker 4

Only. Hi, thanks very much. Two questions. So first is, when we think about comp deleverage only. Yes.

Speaker 4

So this year, every comp point is worth about $40,000,000 So when you flow that through, it's usually in the mid-30s.

Speaker 3

Only.

Speaker 4

So for each comp point flex, that's where we get that $0.10 in EPS that we put for the full year. So for the back half, every comp point change is worth about $0.05 and it will be about half of that. So it's worth 20,000,000 only.

Operator

Thank you. Our next question comes from the line of Chris on Bottiglieri with BNP Paribas. Please proceed with your question.

Speaker 8

Hey, thanks for taking the question. Only. So I read that Spartan is creating a new home construction division. I guess why now? I mean historically, what have been some of the constraints that prevented on.

Speaker 8

Florida Core itself will not just end market, works for that matter. Thank you.

Speaker 2

I didn't get the question.

Speaker 4

You're talking about the new builder? Yes.

Speaker 1

He's talking about commercial or excuse me, the new builder within Spartan.

Speaker 2

Yes. So the search can be hired, Brad, so Salesmaster. Yes. Oh, no.

Speaker 5

Only. I saw a press

Speaker 8

release that Spartan was getting into the new home construction channel, not that accurate. Yes.

Speaker 2

Only. Spartan did a press release on someone that they've hired that's going to help them with sorry, we weren't sure if it was a sales measure question or a recent hire question. Sorry about that. Only. So, yes, Spartan recently did a press release on a person that we've hired that's helping us think about our only.

Speaker 2

New construction opportunities with it is a segment that Spartan has not really focused on historically. Only. We do a good job at floor and decor through our Rams with custom homebuilders, but we really don't do much of the new construction side. So we wanted to get some horsepower only mode. We think it's a big opportunity.

Speaker 2

We've got a Board member from Pulte Homes who's helped us think about that business differently and help to educate us about that business differently. So we think it's a big opportunity. And if you look at what's going on with new home sales today as the existing home inventory alone. That's a sector that's doing well and we think we can provide good opportunities there. So we want to make it a more meaningful part of our business in the future.

Speaker 2

Thus, we hired someone really good.

Operator

Only. Thank you. Our next question comes from the line of Seth Basham with Wedbush Securities. Please proceed with your question.

Speaker 7

Only. Good afternoon. I just wanted to follow-up on a couple of your comments regarding increased focus on value by consumers, but you're still seeing a mix shift to better invest. Only. First of

Speaker 11

all, is that accurate?

Speaker 7

Can you square that away? And second of all, as you move forward, are you adding more merchandise to service that opening price point?

Speaker 3

Only mode.

Speaker 2

So when we talk about value, I'll start with the first my first only kind of feelings about it. When a customer elects to do the job in their house, they're still electing to buy the best product only that we have in the stores, the better and best product. The value is still important to them and the value proposition on our better and best only because mainly we compete with the independents on that. The spread is really significant. So we think when someone is going to do the job, they're still going to be looking for only.

Speaker 2

They want to want the better and best products in their stores and we think in their homes and we think that our competitive moat around those products is better. So only mode. We are paying attention to opening price point. We always do. We know that's very important for us, particularly in the flipper business.

Speaker 2

We know that that's all significant. So, we pay attention. Our merchants do a good job of always updating our opening price points. I wouldn't say we've added to our opening price points, I'd say it's pretty much consistent to what we've historically done.

Operator

Thank you. Our next question comes from the line of Justin only. Please proceed with your question.

Speaker 9

Yes, good afternoon, everyone. Thanks for taking the question. Can you guys just talk about what's driving The deceleration in comps quarter to date, is transactions taking a step back or is it related to ticket? And then kind of only. Part of that question on the sequential improvement you've seen in transactions here in 2Q, did you comment on Pro specifically?

Speaker 9

I'm curious how that and trended relative to 1Q. Thank you.

Speaker 4

Hey, Jeff. And I'll take the first part of it and then maybe Trevor can jump in on the pro side. Only. So the number one thing that led to the deceleration is around transactions. It's all tied to the existing home sales step down that we're kind of seeing.

Speaker 4

So if you remember, existing home sales only. The January were $4,000,000 They stepped up to $4,600,000 in Feb, dollars 4,400,000 in March and then started to decline back down to $4,300,000 in April, dollars 4,300,000 in May and down to $4,200,000 in June. Only. That's really around transactions that are leading to that negative $8,400,000 more so. The leverage ticket is actually in line with our expectations.

Speaker 1

Only. And on the pro side, it is decelerated as well, but it's still outperforming the homeowner or the DIY business.

Operator

Only. Thank you. Our next question comes from the line of Keith Hughes with Truist Securities. Please proceed with your question.

Speaker 1

Only. Yes, this is building on the last question. So in the guidance in the second half, is ticket and add subtraction, what kind of numbers are we looking at and only

Speaker 4

mode. So ticket in the back half will actually be negative. And so it's been sequentially declining as we only. Kind of throughout the year, and so you have that kind of inflection or crossover point. Transactions will get better, but really they're less worse.

Speaker 4

So they'll stay down as well, but ticket will cross over and cut into negative for the back half of the year.

Operator

Thank you. Our final question call comes from the line of Greg Melich with Evercore.

Speaker 3

Please proceed

Speaker 4

with your question. Thanks.

Speaker 12

I'd love to follow-up and if you already answered this, only mode. Please just tell me, I dropped off there in the middle. But on category mix, just because it's changed so much over the years, I'd love to get an update only mode on how the mix is really driven between categories. I think you said you're still seeing trade up, but I'd love to know what it's doing, your laminates order versus what and what that does to your gross margins?

Speaker 1

Yes. So, we do see the what I'm going to call the man made products only. Continue to outperform the natural products. So on the wood look side of the business, laminate and rigid core vinyl

Speaker 4

only. Are taking share from

Speaker 1

wood, and on the, call it, the tile side of the business, the only. Mostly porcelain tile, but porcelain or ceramic tile versus the natural stone businesses are continuing to perform better than the stone businesses. So the answer is only. The man made products are better in almost all regards, same thing is going on in Deco. And the margin profile for those categories in the man made products are better than the natural products.

Speaker 1

The ticket is lower, but the margin profile in the Jim Roy is higher for the natural products I'm sorry for the man made products.

Speaker 4

This is Brian. Before the call ended, I just want to jump in

Speaker 8

and kind of help you

Speaker 4

guys a little bit with the modeling. Couldn't find only way to make a transition in. Just I know it's not the question that was asked, but the original guide had store and selling or selling to store operating expenses at at 27% of sales. We now feel like that's going to be 27.5% to 28% for the year. General and administrative was 5% of sales in the original guide.

Speaker 4

That's going to be closer to on slide 6 to 5.7 for the year. Pre opening expenses will still be maintaining around that 1%. And so I just wanted you guys to have that as well just to kind of help with

Speaker 2

the modeling. Only mode. So that concludes our question and answer portion of the call. I appreciate everyone's interest in our second quarter earnings and our and honest outlook for the year. We appreciate everything that everyone is doing.

Speaker 2

This is we feel like we're doing everything we can only mode to balance our profitability, while at the same time taking market share and ready for the other side of a down cycle. So, look forward to updating you on the next call.

Speaker 4

Only. Goodbye.

Operator

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and enjoy the rest of your evening.

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Key Takeaways

  • Floor & Decor delivered Q2 diluted EPS of $0.66, surpassing expectations, while adjusted EBITDA rose 1.7% to $152.8 million and gross margin expanded 220 bps year-over-year to 42.2%.
  • Net sales increased 4.2% to $1.10 billion despite a 6% comparable-store sales decline amid 22 consecutive months of existing home sales weakness; e-commerce grew 12.6% to represent 19.1% of revenue, and Pro segment comps fell just 1.1%.
  • The company opened nine new warehouse stores in Q2—including its 200th store milestone—and plans to open 32 new stores in fiscal 2023 (59% in existing markets, 41% in new), with at least 35 targeted for 2024 toward a long-term 500-store opportunity.
  • Inventory fell 12.8% year-over-year to $1.2 billion, driving a $469 million positive swing in operating cash flow, a $35.2 million debt reduction, and ending Q2 with $703 million in unrestricted liquidity.
  • Fiscal 2023 guidance was revised lower to net sales of $4.46 billion–$4.53 billion, comparable-store sales down 7%–5.5%, EPS of $2.30–$2.50, and adjusted EBITDA of $570 million–$595 million, reflecting extended headwinds from near-record low existing home sales.
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Earnings Conference Call
Floor & Decor Q2 2023
00:00 / 00:00