Floor & Decor's Q3 2025: Contradictions Emerge on Store Performance, Pricing, and Labor Inflation

Date of Call: October 30, 2025

Financials Results

• Revenue: $1.180B (Q3), up 5.5% YOY
• EPS: $0.53 per diluted share, up 10.4% YOY from $0.48
• Gross Margin: 43.4%, down ~10 basis points YOY from 43.5% (Q2 was 43.9% sequential)
• Operating Margin: Adjusted EBITDA margin 11.8%, down ~10 basis points YOY (Adjusted EBITDA $138.8M, +4.4% YOY)

Guidance:

• Total sales $4.660B–$4.710B, +5%–6% YOY
• Open 20 warehouse-format stores in fiscal 2025
• 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 FY DC headwind; Q4 ~100 bps)
• Selling & store operating expense ~31.5% of sales; G&A ~6% (includes ~$9M ERP)
• Adj. EBITDA $530M–$545M; diluted EPS $1.87–$1.97; FY capex $280M–$300M

Business Commentary:

* Leadership Transition and Strategic Focus: - Floor & Decor announced the appointment of Brad Paulsen as the new CEO, effective at the start of fiscal 2026, with Tom Taylor transitioning to Executive Chair. - This change aims to capitalize on Brad's extensive experience across retail, commercial, and services to drive future growth.

• Financial Performance and Gross Margin:
• Total sales grew 5.5% to $1.180 billion, with a gross margin rate of 43.4%.

• The disciplined execution of tariff mitigation strategies enabled healthy merchandising price gaps and protected profitability amid soft demand.

• Comparable Store Sales and Market Pressures:

• Comparable store sales declined by 1.2%, with a continued sequential decline through September.

• Persistent housing market pressures and struggling consumer demand for hard surface flooring contributed to sustained softness in sales.

• New Store Expansion and Distribution Center Growth:

• During the quarter, Floor & Decor opened five new stores and launched its fifth distribution center in Seattle, further enhancing supply chain capacity.
• This expansion is part of a broader strategy to maintain flexibility in store openings and capitalize on emerging site opportunities.

Sentiment Analysis:

Overall Tone: Neutral

• Management highlighted EPS beat ($0.53, +10.4% YOY) and operational discipline, while acknowledging persistent softness: comparable store sales down 1.2% and guidance estimates comps down 2% to 1%. They emphasized gross-margin resilience (product margin up after DC impacts) and cautious optimism on housing stabilization.

Q&A:

• Question from Christopher Horvers (JPMorgan Chase & Co, Research Division): Whether valid or not, the extended period of subdued sales and the impact on lower new store productivity that you talked about is also coincident with the timing of you stepping back to the Executive Chair role, while there's a bigger emphasis on growing commercial as a company growth driver. So how do you respond to investors that might perceive the timing is something more concerning regarding the timing of a potential recovery or the core store growth opportunity?
  Response: Transition is orderly: Tom remains involved as Executive Chair, Brad is prepared to lead, and management expects continuity with no operational disruption.

• Question from Christopher Horvers (JPMorgan Chase & Co, Research Division): If existing home sales rise ~3%–4% next year (holding mortgage rates around low-6%), how do you think about what the comp and business waterfall look like given new store openings and regional headwinds?
  Response: If existing-home sales sustain positive comps, the company believes it can comp positive, aided by a young store fleet and the incremental contribution from recent new stores.

• Question from Uriel Zachary Abraham (Morgan Stanley, Research Division): Home equity lines of credit are starting to rise. So are there any signs the funds are being used or deployed towards flooring or may be able to do so in the near term?
  Response: Historically HELOC increases support home improvement; management sees early regional green shoots but it's too early to attribute demand change to HELOCs conclusively.

• Question from Uriel Zachary Abraham (Morgan Stanley, Research Division): Can you speak to how you're able to attribute this slowdown to a contracting industry versus something else like potentially greater competition?
  Response: Management attributes the slowdown primarily to broad category contraction—competitors and manufacturers also report weak demand—and cites outperformance versus peers in many markets.

• Question from Michael Lasser (UBS Investment Bank, Research Division): Your same-store sales appear to be getting worse despite store closures among competitors; why is the trend degrading and what underpins your view that it will improve?
  Response: Management says trends are near the trough and improving on a 2-year stack; they point to stable competitive dynamics and product-margin gains as drivers for eventual improvement.

• Question from Michael Lasser (UBS Investment Bank, Research Division): Your guidance implies a significant improvement in the 2-year stack—what's driving that optimism and are big boxes becoming more aggressive requiring margin sacrifice?
  Response: Optimism is driven by steady sales trends and product-margin improvement (product margin up ~80 bps offsetting DC costs); management does not see materially increased big-box aggression necessitating margin sacrifice.

• Question from Seth Sigman (Barclays Bank PLC, Research Division): How concentrated are the declines across the store base—are a small subset of problem stores dragging down the rest?
  Response: Declines are more isolated—concentrated in some mature, high-volume markets (notably parts of Texas and Florida); other regions, especially the West, show improvement.

• Question from Seth Sigman (Barclays Bank PLC, Research Division): Can you quantify the price changes you've made to date and the consumer response given concerns about elasticity?
  Response: Modest price increases have been implemented; higher-end (better/best) products continue to outperform while customers buy smaller projects, so pricing has held without large elasticity-driven effects.

• Question from Steven Forbes (Guggenheim Securities, LLC, Research Division): Where will Tom prioritize his time as Executive Chair—what are the biggest opportunities (customer mix, product, services)?
  Response: Tom will focus on short-term category rollouts (outdoor, kitchen cabinets, XL slabs, loyalty), accelerate commercial growth, and pursue mid-/long-term adjacencies (design studios, international expansion) to expand TAM beyond 500 stores.

• Question from Steven Forbes (Guggenheim Securities, LLC, Research Division): On kitchen cabinets specifically, how should we think about the rollout and in‑store experience—will you expand displays or invest in remodels in 2026?
  Response: A pilot is underway; plan is to expand in-store displays/design-center space as rollout scales and as lower new-store costs free up investment dollars.

• Question from Zachary Fadem (Wells Fargo Securities, LLC, Research Division): You mentioned ~80 bps core product margin improvement excluding DC impact—what should we expect for that line in 2026?
  Response: Too early to give 2026 specifics; management expects product margins to remain solid but warns of a continued near-term DC-related cost headwind as the Baltimore DC ramps.

• Question from Charles Grom (Gordon Haskett Research Advisors): On commercial, how are you evaluating build versus buy while leveraging the retail opportunity?
  Response: Approach is mixed: Spartan will scale via internal investment and selective acquisitions; Pro desk and regional account manager capabilities will be built internally.

• Question from David Bellinger (Mizuho Securities USA LLC, Research Division): Design services seem to be performing well—what is needed to make it more top of mind and unlock higher penetration; do you need installation capabilities?
  Response: Focus is on better marketing and increasing designer-customer interactions; management has no plans to offer installation, viewing design services as a moat to drive higher tickets and conversion.

• Question from Peter Keith (Piper Sandler & Co., Research Division): What are you doing from a brand awareness and advertising standpoint—are you increasing ad spend or shifting channels (social, etc.)?
  Response: Management will continue to invest in brand-building to tell the Floor & Decor story while remaining tactical to capture limited demand and adapting to evolving digital/technology channels.

• Question from Jonathan Matuszewski (Jefferies LLC, Research Division): What are you seeing on labor inflation for installers—any second-half changes versus first half?
  Response: No broad installer labor-cost inflation observed; contractors are generally competitive and in some markets may be more aggressive to retain business, though pockets of pressure may exist.

• Question from Steven Zaccone (Citigroup Inc., Research Division): Average ticket was at the low end of expectations due to mix—are you seeing trade-down from better/best, and what's embedded in Q4 comps for transactions vs ticket?
  Response: Ticket pressure driven by mix (weaker laminate/vinyl growth) and smaller job sizes; Q4 implies essentially flat ticket and transactions down low- to mid-single digits.

Contradiction Point 1

Store Performance and New Store Productivity

It involves differing perspectives on the performance of new stores and the impact of market conditions on productivity, which are crucial for understanding the company's growth strategy.

How do you address concerns about the timing of your transition affecting a potential recovery or core store growth? - Christopher Horvers

2025Q3: New store productivity is tracking at the low end of our expectations with the average ticket being less than we anticipated. - Thomas Taylor(CEO)

Will you maintain 20-30 store openings per year, as in previous years? - Peter Jacob Keith

2025Q2: We are very pleased with the productivity of stores that we've opened in the last 2 years. Store openings in fiscal 2023 produced a 1-year return on investment of 27% and a 3-year return on investment of 65%. - Thomas Taylor(CEO)

Contradiction Point 2

Economic Outlook and Market Conditions

It reflects differing expectations regarding economic conditions and their impact on the industry, which are essential for assessing the company's outlook and strategic planning.

How will the business perform with 3% to 4% existing home sales next year? - Christopher Horvers

2025Q3: We believe if existing home sales are positive, we have the potential to be positive. We're opening new stores, which helps on the waterfall. - Thomas Taylor(CEO)

What is your outlook for fiscal 2026 given the consensus estimate, and how do macroeconomic factors affect your guidance? - Simeon Ari Gutman

2025Q2: Our guidance assumes that existing home sales will improve by 1% to 3% in fiscal 2026 and that we are able to open 20 new stores. - Bryan H. Langley(CFO)

Contradiction Point 3

Pricing Strategy and Consumer Behavior

It involves differing perspectives on the impact of pricing strategy on consumer behavior, which is critical for understanding the company's competitive positioning and market strategy.

Can you quantify price changes and consumer response to them? - Seth Sigman

2025Q3: We've taken modest price increases, and better products perform well. Consumers are buying more expensive products despite doing less square footage. - Thomas Taylor(CEO)

How much of the ticket price increase was due to tariff-driven price hikes versus upgrades to premium products? How is pricing strategy adjusted annually considering inventory cycles? - Barath Rao

2025Q2: Much of the benefit in average ticket came from mix, especially from wood, and some price changes. - Thomas V. Taylor(CEO)

Contradiction Point 4

Slowdown in New Store Performance and Industry Conditions

It involves differing explanations for the slowdown in new store performance, which can impact investor perceptions of the company's growth prospects and industry conditions.

What factors are causing the slowdown in new store performance? - Uriel Zachary Abraham (Morgan Stanley, Research Division)

2025Q3: The slowdown is more related to the contracting market. We're seeing pressure across retailers and manufacturers, and our performance is consistent with the industry. - Thomas Taylor(CEO)

Was the acceleration in the first month of the quarter driven by the tariff announcement? - Christopher Horvers (JPMorgan Chase & Co., Research Division)

2025Q1: We did continue to see in Q1 some pressure from the homebuilder side. It started coming in December. And we saw that pressure continue into Q1. And that is why we're working on those contract agreements. - Tom Taylor(CEO)

Contradiction Point 5

Labor Inflation and Industry Trends

It involves differing statements about the impact of labor inflation on the industry and the company's operations, which can influence investor views on cost management and industry trends.

What is the current trend in labor inflation among industry tradespeople? - Jonathan Matuszewski (Jefferies LLC, Research Division)

2025Q3: We're not experiencing labor inflation. Installer costs are likely reduced due to contractors keeping a book of business. There may be regional variations, but overall, it's not affecting us. - Thomas Taylor(CEO)

Can you clarify how the tariff impact is reflected in guidance and your approach to pricing and margin impacts? - Seth Sigman (Barclays Bank PLC, Research Division)

2025Q1: We expect the inflation to kick in at some point in '25, but we're not seeing it today. We have the power within our cost structure, we think, to manage it. - Tom Taylor(CEO)