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2Q25 Update.

FND reported 2Q25 and the stock was up 3% after hours.

Net revenues increased +7% y/y to $1.13bn with comparable sales +0.4%. This was the first time they posted same store sales (SSS) growth since 4Q22. Comparable transactions were -3.3%, offset by a 3.8% increase in price.

While the positive SSS figure is a good development after posting -1.8% last quarter, they took down their SSS guidance for the year. It is now -2% to 0%, a reduction in the high end of the range from +1% prior. This is because toward the end of the quarter their SSS turns negative again. April was +1.7%, May was +0.6%, and June was -0.8%. QTD they also announced SSS were -1%. This was attributed to the housing market softening again.

They opened 3 new warehouse stores this quarter, putting them at 7 year-to-date. They now have a total of 257 with a goal of getting to 500. They are on track to open another 13 in the back half of the year.

For 2026 they expect at least another 20 new warehouse stores as well. However, this could be higher depending on housing market condition improvements.

In terms of the impact of tariffs, CEO Tom Taylor noted several initiatives they undertook to mitigate the effects. First, they negotiated with vendors to have them absorb a portion of it. Second, they leveraged their network of 240 suppliers in 26 countries to best position their product portfolio to avoid the worst of it. They onboarded new factory suppliers as well. Third, they have taken price up on some items, but emphasized that they are balancing their portfolio for competitiveness and profitability. Taylor further noted that independents are very pressured and have take price up by as much as high single digits.

President Bradley Paulsen also noted that this has been an opportunity to take share and their ability to understand price elasticity better than peers has meant that they could be more deliberate with their price increases without losing sales.

Lastly, they have started to identify American-made product in their stores in response to customer requests. The U.S. is their largest manufacturer origin, representing 27% of all products sold, up from 20% in 2018. Their gross margins were 43.9%, +60bps y/y, suggesting they have certainly been navigating the tariffs well. Operating margins (adding back opening costs) were 7.2%, unchanged y/y. We do not expect to see better margins and more operating leverage come through until they return to SSS growth.

In terms of new products, they are continuing to introduce new designs, patterns, and colors that are all designed to closely mimic the texture and feel of natural materials. Aside from that, they have also been testing kitchen cabinets, outdoor products, and an XL slab program. Floor & Decor has by far more selection across product categories and price segments than any competitor.

Pros continue to be a strength of Floor & Decor and outpaced the rest of the business. They represent over 50% of their sales. Pros are not only loyal, high frequency customers, but also help Floor & Decor penetrate deeper into new zip codes. They are holding over 155 educational events this year in order to cater to and grow the pro business. Additionally, they are leaning into more marketing efforts to attract more pros.

Spartan Surfaces, their commercial business, delivered +7% y/y sales growth and strong EBIT results (they didn’t disclose any figures). Interestingly, they noted that June was the strongest month in the companies history. They also are successfully working to grow their Private Label Spartan brand. If you recall, the last quarter they started to talk about investing more into Spartan and it is starting to already show up in the results. This quarter they noted they will increase the sales force and invest in the leadership team.

Business Commentary.

Big picture the Floor & Decor story remains unchanged. They have a clear leading market position with the most in-stock flooring, the most selection, and the best money-for-value across the quality spectrum. However, they sell an infrequently purchased good that is very easy to defer the purchase of. Existing homes sales are a large trigger for a homeowner to redo their flooring (either to make the house look nicer for resale or because they want to replace the old homeowners floors).

While seasonally adjusted homes sales were looking like they were starting to recover, they fell again to a 9 month low in June—the same month Floor & Decor’s SSS reverted to negative again. It seems very believable that they will do better in an improved housing environment. In the mean time though they continue to gain share versus the independents who cannot navigate the downturn and tariffs as well as them.  

On the call they disclosed a number they seldom do: what their mature stores are doing. These are stores that are more than 5 years old and so have fully ramped up (when a new store opens—especially in a new market—it takes several years for people to learn of it and shop there). This figure at peak (and when they last disclosed it) was $28mn. Today, it sits at $22mn, down almost 21%. This is despite them adding new categories, emphasizing designers, and all of the strength of their Pro business (plus the help of some inflation). Perhaps no two numbers better encapsulate how much they are struggling.

They also noted that each store is still doing 23% EBITDA margins, which is down slightly from the 25% they quoted at peak. This is actually not terrible given the amount of deleveraging in the business.

CFO Brian Langley had this to say on the call:  “we have a ton of internal initiatives where we’ll continue to take market share. So even if things bounce around the bottom, we should be able to continue to put pressure on the competition, continue to take market share. We should be able to grow as long as things stabilize.”

It is not entirely surprising that sales in their mature stores are down that much given how much activity was pushed up in 2021-2022, how weak the housing market is, and how easy it is to defer the purchase a hard good. Nevertheless, you can’t put off getting new floors forever and when you do have to get them, most people are going to want to go to the place with the most selection and the best value.

At their after-market stock price of $80 a share, their market cap is $8.7bn. With $4.7bn in 2025 sales (mid-point of guidance) and 15% mature margins, they are trading at 16x mature margin earnings. If we want to assume $22mn in mature sales per store (down from the $25-30mn range we usually sensitize for), that is $11bn in revenue with 500 stores. At 15% mature margins, that is $1.3bn in NOPAT. An undemanding 18x multiple would yield $23bn. If we assume that takes 8 years for them to accomplish that, that is a 13% return before considering any of the cash flow it throws off during that 8 year period.

However, we wouldn’t want to assume their mature stores are going to be stuck at $22mn forever and think $25mn is a fairer low-end estimate (if we are thinking out many years). Of course, it is still possible that with the new categories they’ve added and growing strength with the Pro business, they exceed their old $28mn per store peak.

These potential returns suggest that many investors do not think Floor & Decor will be able to achieve their store target or keep up their mature store sales—or perhaps investors are just waiting for end market improvement to try to perfectly time an entry point. Whatever the reason is, each investor has to judge for themselves whether they believe Floor & Decor will be able to achieve their goals and if the prospective return is worth the risk of mature sales potentially never recovering (or falling as they open new stores), or if their 500 store target proved to be too lofty for North America. If an investor can gain comfort with those two variables, then it is really only a matter of how long it will take them to get there. (While achieving 15% mature margins is another risk, without all of their new store openings and growth expenses, it seems likely that they could achieve that in better times given their current store level EBITDA margins of 23%. Some investors may disagree though).

 Below we touch on some more notables from the call.

Call Notes.

Same Store Sales

• “Comparable store sales increased by 0.4%, marking the first quarterly increase since the fourth quarter of fiscal 2022.”

New Warehouse

• “Year-to-date, we have opened 7 new warehouse format stores ending the second quarter with 257 locations, up approximately 12% from 230 stores in the same period last year. We have a busy second half of the year, new warehouse format store opening schedule with most openings scheduled for the late third quarter and early fourth quarter. We remain on track to open 20 new warehouse format stores in fiscal 2025, primarily across large and midsized existing markets.”

Mature Stores

• “Our stores that are 5 years and older are averaging approximately $22 million today. But from a profitability, they’re still at 23% EBITDA.”
• “I mean if you’re looking for peak to trough and those kind of things, at peak, those stores we’re doing about $28 million in volume. Today, they’re doing $22 million. Back in ’19 it was somewhere in between.”

Tariffs

• “First, we continue to actively negotiate and collaborate with our vendors to mitigate the higher incremental tariffs on the products we sell as we have successfully done with prior tariff increases. Second, we continue to execute our product diversification and sourcing strategies with strong momentum….Third, we continue to apply a balanced portfolio approach to product price while effectively managing our gross margin rate and overall profitability.”
• “The United States is now our largest country of manufacturer, accounting for approximately 27% of the products we sold in fiscal 2024, up from approximately 20% in fiscal 2018.”

New Distribution Centers

• “We plan to invest approximately $20 million to $25 million in new distribution centers in Seattle and Baltimore.”
• “Our gross margin rate is expected to be adversely impacted by approximately 60 to 70 basis points from the 2 new distribution centers, which is incorporated into our guidance.”

Inventory

• “Inventory was up 17% primarily driven by the timing of receipts and the need to support the opening of our Seattle distribution center.”

Pros

• “Total and comparable store sales to pros once again outpaced the company’s overall growth, accounting for approximately 50% of sales.”
• “To further build brand awareness and drive engagement, we’re executing targeted pro marketing blitzes and leveraging lead generation tools supported by cost-efficient advertising platforms that help us attract and retain new pros. These efforts are delivering results as we continue to see the benefits of our focus on high-quality lead generation and strengthening relationships with both new and existing pros.”

Spartan

• “Spartan continues to build momentum by focusing on establishing a strong national presence in high specification sectors such as health care, education, hospitality and senior living. These sectors offer compelling long-term growth and profitability potential characterized by higher quote to conversion rates, recurring revenue streams and more attractive margins.”
• “We’re also encouraged by the growing success of Spartan’s private label brands, which is leading to increased quotes and orders. To support long-term growth, Spartan is making targeted investments in expanding its sales force across key verticals and markets as well as in its leadership team.”

Taking Share & Price Elasticity

• “I would just reinforce the point that I made earlier about the understanding around the elasticity that we have in our categories. I think if you pair that with the micro pricing efforts that we have in local market, it gives us a really good sense of how the customer is responding to our moves. And collectively from the get-go, as we enter this tariff environment, we felt like we were going to be better positioned than our competition to navigate through this environment. And we absolutely view this as a market share gain opportunity.”
• “We have a ton of internal initiatives where we’ll continue to take market share. So even if things bounce around the bottom, we should be able to continue to put pressure on the competition, continue to take market share. We should be able to grow as long as things stabilize.”

Pricing

• “Our best performing department is wood, which carries a higher average ticket. So that effect helped us. Additionally, the price changes that we did in the second quarter were not material.”
• “We will take some price in the back half of the year. We don’t believe it will be that modest with what we know today. Things could change. But with what we know today about tariffs, we think we’ve done a good job in mitigating a lot of it through moving SKUs into negotiating with our vendors will take some modest price increases.”

Macro

• “The U.S. consumer remains broadly resilient supported by a solid labor market, low unemployment and steady job growth, sustaining household incomes. While personal consumption expenditures on services continue to show resilience, spending on discretionary big-ticket durables and large projects remains challenged amid ongoing economic uncertainty, elevated mortgage rates and persistent housing affordability headwinds.”

Consumer Behavior

• “The only change in behavior we saw with the homeowner is as existing home sales slow, they’re doing smaller projects. They’re doing backsplashes versus full kitchens. They’re not doing the whole house.”

Guidance

• 2025 $4.66bn to $4.75bn or a 5-7% increase
• Gross Margins of 43.5 to 43.7% (including a 60-70bps impact from two new distribution centers)

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*At the time of this writing, one or more contributors to this report have a position in FND. Furthermore, accounts one or more contributors advise on may also have a position in FND. This may change without notice.