Floor & Decor's Q3 2025: Contradictions Emerge on CEO Transition, Home Equity Impact, Pricing Strategy, Sales Trends, and Store Growth Plans

Date of Call: None provided

Financials Results

• Revenue: $1,180M, up 5.5% YOY
• EPS: $0.53 diluted EPS, up 10.4% YOY (prior year $0.48)
• Gross Margin: 43.4%, down ~10 bps YOY (43.5% prior year); ~90 bps DC-related pressure partially offset by favorable product margin
• Operating Margin: Adjusted EBITDA margin 11.8%, down ~10 bps YOY

Guidance:

• Total sales FY25 expected $4.66B–$4.71B (+5% to +6% vs FY24)
• Open 20 new warehouse-format stores in FY25 (and plan 20 in FY26)
• Comparable store sales down 2% to down 1%; avg ticket up low-single-digits; transactions down low- to mid-single-digits
• Gross margin ~43.6%–43.7% (includes ~70 bps distribution-center headwind)
• Adj. EBITDA $530M–$545M; diluted EPS $1.87–$1.97; diluted shares ~108.5M
• FY25 CapEx $280M–$300M (including $180M–$200M for store openings/construction; ~$20M DC; ~$35M IT); ~$30M deferred SaaS

Business Commentary:

* Financial Performance and Market Conditions: - Floor & Decor Holdings, Inc. reported fiscal 2025 third quarter diluted EPS of $0.53, a 10.4% increase over the prior year. - Total sales grew by 5.5% to $1,180 million, although comparable store sales declined by 1.2%. - The company operated in an environment marked by persistently soft demand in the hard surface flooring industry.

• Store Expansion and Cost Management:
• During the third quarter, Floor & Decor opened five new stores, including re-entering the Charlotte market and establishing a presence in Myrtle Beach, South Carolina.
• The company successfully reduced new store construction costs by $1.5 million for the fiscal 2025 class compared to the fiscal 2023 class.

• This cost reduction was achieved through optimizing store size and using more second-use sites in the pipeline.

• Design Services Growth and Strategy:

• Design services continued to deliver robust year-over-year sales growth, fueled by sustained increases in customer transactions.
• Floor & Decor views design services as a competitive moat, anchored in deep customer engagement and project-based selling.

• The company plans to enhance sales mix across adjacent categories and installation materials to drive conversion and attachment.

• Commercial Business and Future Growth:

• Spartan Services, the company's commercial division, achieved 13.3% year-over-year sales growth in the third quarter.
• Floor & Decor is focusing on faster growth in the commercial sector, with plans to accelerate through both acquisitions and internal investments.
• The company aims to capitalize on its high-specification capabilities in sectors like healthcare, education, and hospitality to mitigate headwinds in multifamily housing projects.

Sentiment Analysis:

Overall Tone: Neutral

• Management highlighted operating discipline and margin resilience ("diluted EPS of $0.53, a 10.4% increase"), but repeatedly noted persistent softness in hard-surface flooring and uncertain recovery timing ("persistently soft demand", "strength and slope of any recovery remain uncertain"). Commentary balances cautious optimism with clear near-term headwinds (inventory builds, DC costs).

Q&A:

• Question from Christopher Horvers (JP Morgan): You’re transitioning to Executive Chair while Brad becomes CEO; investors may see timing as concerning given subdued sales and lower new-store productivity — how do you respond?
  Response: Transition is orderly and not a signal of trouble: Tom will remain active as Executive Chair focused on strategy, Brad is an accepted, experienced successor, and timing is driven by leadership readiness rather than market signal.

• Question from Simeon Ari Gutman (Morgan Stanley): Home equity lines are rising — any signs those funds are being deployed to flooring? And how do you attribute the slowdown to a contracting industry versus greater competition?
  Response: Too early to confirm HELOC-driven demand; historically HELOCs help home improvement. The slowdown is industry-wide (not competitor-specific); publicly reported peers and manufacturers show similar weakness, and F&D believes relative outperformance reflects market contraction rather than competitive loss.

• Question from Michael Lasser (UBS): Given competitor closures, why are comps degrading rather than improving?
  Response: Comps are oscillating near a trough; two-year stacks are improving sequentially, and product margins actually expanded (offset by DC costs), so degradation reflects broad category malaise and regional housing weakness rather than loss of share.

• Question from Seth Ian Sigman (Barclays): How concentrated are the declines among stores, and what pricing changes have you made and seen in consumer response?
  Response: Declines are more concentrated in certain high-pressure markets (notably parts of Texas and Florida) while the West outperforms; the company has taken modest price increases, customers still gravitate to higher-end SKUs but are doing fewer square feet per project.

• Question from Steven Paul Forbes (Guggenheim): As you move to Executive Chair, where will you prioritize time and what are plans for kitchen cabinets rollout and other growth initiatives?
  Response: Tom will prioritize adjacencies and expansion (outdoor, kitchen cabinets, XL slab), accelerate commercial opportunities, and scale design services; kitchen cabinets are being piloted with expanded in-store displays planned and broader rollouts to ~200 stores by year-end.

• Question from Zachary Robert Fadem (Wells Fargo Securities): You cited ~80 bps core product margin improvement excluding DC impact — what should we expect on that line for 2026?
  Response: Too early for full 2026 guidance; current view is product margin strength should hold, but incremental DC headwinds will persist as Baltimore ramps; more definitive 2026 modeling will be provided when planning concludes.

• Question from David Leonard Bellinger (Mizuho): Design services are performing well — what do you need to unlock higher uptake and growth?
  Response: Focus on awareness and engagement: better marketing, more designer–customer interactions (designers roaming), and process to follow up on open quotes; no plan to offer installation — design services drive higher ticket and conversion.

• Question from Steven Emanuel Zaccone (Citigroup): Average ticket was at the low end of expectations and you cited mix — can you elaborate and what’s embedded in Q4 guidance for ticket and transactions?
  Response: Ticket pressure driven by slower laminate and vinyl (higher-ticket categories) and slightly smaller job sizes; implied Q4 guide expects ticket roughly flat while transactions decline low- to mid-single-digits.

Contradiction Point 1

Timing and Market Confidence in CEO Transition

It involves differing views on the timing and confidence in the CEO transition, which could impact investor trust and market perception.

How do you address concerns that the CEO transition timing reflects worries about recovery timing or core store growth opportunities? - Christopher Horvers (JP Morgan)

2025Q3: I appreciate your opening comments. I would say, look, I'm not going anywhere. We were fortunate to find Brad. He has come in and hit the ground running. He's got a proven track record. We felt now was the right time for the transition, although we can't thread the needle perfectly on when the market recovers. I'm confident that Brad is the right guy to lead the next chapter of our company. - Tom Taylor(CEO)

Given the current macroeconomic environment, when do you expect new stores to come online again? - Barath Rao (JPMorgan)

2025Q2: We are happy to have a capable and proven executive ready and willing to transition into the role in Brad. Brad was an unexpected opportunity that came about because he was looking for the next chapter in his career and the timing was good for both he and the company. - Thomas V. Taylor(CEO)

Contradiction Point 2

Impact of Home Equity Lines of Credit

It involves differing views on the potential impact of home equity lines of credit on flooring sales, which could influence investment decisions and market strategy.

Are HELOCs being used for flooring or could they be in the near term? - Simeon Ari Gutman (Morgan Stanley)

2025Q3: We have not seen cost increases from U.S. manufacturers yet, and we continue to monitor global pricing to maintain cost efficiency. - Ersan Sayman(EVP of Merchandising)

Can you comment on the consensus for fiscal 2026 considering the macro environment and tariffs affecting new store growth? - Simeon Ari Gutman (Morgan Stanley)

2025Q2: When home equity lines increase, this is usually good for home improvement. It's too early to say how much it might affect our business, but historically, when home equity lines increase, it should be good for home improvement over the long term. - Tom Taylor(CEO)

Contradiction Point 3

Pricing Strategy and Market Share Gains

It involves differing views on pricing strategy and its impact on market share, which are critical aspects for business growth and competitive positioning.

Why are comparable store sales declining despite store closures at competitors like LL Flooring and Tile Shop, which could boost Floor & Decor's market share? - Michael Lasser (UBS Investment Bank)

2025Q3: We seem to be doing better than the rest of the flooring industry. We're still doing a double-digit EPS growth, which is impressive in this market. We're not seeing a significant degradation in our trends, and we're still outperforming our competitors. - Tom Taylor(CEO)

How will price changes due to increased competition affect market share growth? - Seth Ian Sigman (Barclays Bank PLC)

2025Q2: We feel like we are gaining market share with better product offerings and service. Brad: Our understanding of pricing elasticity and local market micro pricing allows us to react to changes and maintain competitive pricing. - Thomas V. Taylor(CEO), Bradley S. Paulsen(President)

Contradiction Point 4

Sales Trends and Market Performance

It highlights differing perspectives on the company's sales trends and market performance, which are crucial for investors to assess the company's financial health and growth potential.

Why is there a decline in your comparable store sales trend, despite store closures at LL Flooring and Tile Shop, which could imply share gains for Floor & Decor? - Michael Lasser(UBS Investment Bank)

2025Q3: We seem to be doing better than the rest of the flooring industry. We're still doing a double-digit EPS growth, which is impressive in this market. We're not seeing a significant degradation in our trends, and we're still outperforming our competitors. - Tom Taylor(CEO)

Why is the business guidance being reduced, excluding tariffs and economic risks? - Michael Lasser(UBS)

2025Q1: Consumer demand is still difficult to predict, but we're focused on controlling what we can. Sales pressures could lead to cost reductions. The guidance assumes economic stability, but there's room to adjust if necessary. - Tom Taylor(CEO) and Bryan Langley(CFO)

Contradiction Point 5

Expansion and Store Growth Strategy

It involves changes in the company's expansion and store growth strategy, which are essential for evaluating the company's growth prospects and capital allocation.

Are the declines in comparable store sales concentrated, and are specific stores causing the decline? - Steve Ian Sigman(Barclays Bank PLC)

2025Q3: It is more isolated today than it's been over the last three years. The pressures are mainly in Texas and Florida due to existing home sales issues. Other regions like the West have been doing well. - Tom Taylor(CEO)

How did you determine the 20 new warehouse stores, and what criteria would reduce this number? - Simeon Ari Gutman(Morgan Stanley)

2025Q1: 20 stores were the first batch considered, and we're open to reducing the number further if business deteriorates. We haven't seen a need to reduce further yet, but if comps decline beyond the guidance low end, we may reconsider. - Bryan Langley(CFO)