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2Q26 Update.
Floor & Decor reported 2Q26 earnings, and the stock reacted positively, up +11% in the subsequent 2 days.
Total net sales increased +3% y/y, but SSS was negative. However, from last quarter SSS improved from -4% to -2%. They noted that SSS saw consistent improvement throughout the quarter from -5.1% in April, to -1.3% in May, to just -0.3% in June. Although they noted they had a very choppy week around July 4th, which had “some pretty ugly days we hadn’t seen in a while”. But they then noted that they saw continued good performance in August.
Their stores in the West continue to outperform compared to the East and South, but CEO Brad Paulson noted on the call that is because their West stores are dealing with less cannibalization compared to their other regions. In addition, they noted that their East SSS turned positive in the quarter, which has help boost overall SSS.
Overall, two of their three regions delivered a positive comp, which is a positive development. Despite these encouraging trends, they maintained their 2026 guidance for 0 to -4% SSS, given lingering macro uncertainty (and likely because past guidance revisions when things started to improve had to be revised back down after macro unexpectedly deteriorated). Nevertheless, management noted they have high confidence in hitting at least the midpoint of guidance.
They saw a pick-up in demand with their installation materials segment among Pros, and noted that they have expanded wallet share in this category. Pro sales grew +4% y/y, now accounting for 55% of total revenues and they believe Pro’s influence a further 20% of sales, making them an extremely important category of customer. The mix shift of sales towards more pros over the last half a decade has greatly increase the quality of business since they are regular customers and do not have to be reacquired.
Separately, they noted a shift in consumer preferences towards tile and wood, away from laminate and vinyl, which historically were their strongest categories. This has slightly weighed on average ticket because it tends to be a bigger project, but average ticket growth still comped positive.
Spartan saw positive revenue growth of +2% y/y, signaling progress on the commercial side. CEO Brad Paulson stated that “June was one of the strongest months for written sales in the company’s history.” They are encouraged to see customer backlogs recovering, sampling activity improving late in the quarter, and average quoted project value increased.
One of the larger one-timers for the quarter was the benefit from tariff refunds. Since the courts ruled the 2025 tariffs violated the International Emergency Economic Powers Act (IEEPA), the government has to pay ~$166bn to importers. Floor & Decor filed for $87mn in total IEEPA tariff refunds. On the call, they noted that they received almost all of it. Of that $87mn, they recognized a net benefit of $45mn in the quarter, which gave a boost to gross profit and operating income. Gross profits increased +13% y/y and operating income grew +51% y/y, respectively, but that is inherently non-recurring.
On the call they noted that there are 3 buckets that they are using the tariff refund for: 1) offset inflationary impacts at the store level, 2) investing in price to drive market share gains, and 3) returning capital back to shareholders via share buybacks. In the quarter they bought back $66mn shares and ended the quarter with $334mn remaining in their share repurchase program.
Importantly, not all flooring businesses can qualify for this refund. Since many independents are not importers of record (IOR), which is needed to qualify for the IEEPA tariff refunds, they are ineligible to receive these proceeds (their distributor will receive them). As a result of this, Floor & Decor has the ability to be more aggressive on pricing because of these refunds, whereas the independents aren’t able to without eating into their own margin.
Valuation.
In terms of valuation, Floor & Decor currently trades at $57 per share, with a market cap of ~$6bn. On this year’s expected revenues of $4.8bn, if we apply a 15% mature margin, that is around $575mn in NOPAT, which puts them at a mature margin multiple of ~10x.
Below we show various revenue per store assumptions, mature margin assumptions and then apply a multiple from 12-20x. You can also pick between a more conservative 400 store target instead of their 500. (They currently have 281 warehouse stores.) We then assume it takes them 10 years to reach that (which is probably too conservative) and back into the implied return. This way an investor can lower their assumptions to a level that they feel confident in and see the associated return. Of course, some investors may not be comfortable with any of these assumptions.
We also sensitize from $20m to $32mn in sales per store. $28mn was the highest they ever reported, but alluded in the past that $30mn is well within reason. However, that was during the Covid boom and prior to the stark SSS deterioration. $25mn per store seems like a more achievable normalized assumption, with the potential for there to be some longer-term upside.
It is worth noting that this math does not explicitly value the commercial opportunity. Also, their RAMs (regional account managers) are included in the sales of the warehouse, but they could theoretically extend the reach of a store beyond it’s traditional footprint. On the call they noted they now have 80 RAMs, and are focusing on improving their productivity. This can show up in the financial model in terms of higher mature sales per warehouse store.
While they have no doubt faced ample headwinds over the past half a decade with one of the worst housing markets in 30 years, there is some hope that macro is starting to trend in the right direction for them. However, there have been several other “false starts” in the past few years that will give investors pause whether a continuation of the encouraging SSS trend can be extrapolate out.
*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.