Operator: Thank you. The next question comes Simeon Gutman of Morgan Stanley.
Simeon Gutman: Good afternoon, everyone. The quarter to date step down and apologies to harp on this. It sounded the way Tom described it, were transactions if people were taking time off, et cetera. Or are you also seeing a further step down in footage purchase? That’s my first question.
Tom Taylor: Little bit of both. So we have seen square footage slow from what it’s been historically. So but it’s much more, it’s much more the foot traffic problem during the month of April. But as I said, April, I told you what I think my reasons are around April and we’re seeing some improvement as we get to the month of May.
Trevor Lang: I think – this is Trevor. One thing just worth mentioning as we forecast the business, you’re doing it at a fairly granular level. We take the current trends that we’re seeing in the business and then we make an assumption on what’s going to happen for the rest of the year is we said we expect existing home sales to – as we exit the year, hopefully get closer to 4.7, 4.8, maybe 4.9. And we think the combination of the fact that we’re going up against easier comparisons as well as the macro getting better that that’s going to be the driver. I mean, the Fed seems like they’re going to be pausing rates. Most of the banks that we’ve talked to see mortgage rates getting certainly below 6%, some haven’t been as low as 5%.
So I think the combination of our current trends plus what we’re seeing in the macro is what gives us some confidence going up against easier comparisons that our business will continue to accelerate. And we’re five weeks into the quarter, so that doesn’t make the whole year, but we’re doing really well against that forecast.
Simeon Gutman: And quick follow-up on gross margin, you’re getting pretty close to that 42 already. I think it was said – it’ll be up substantially in the first half. So if freight comes down, it feels like you kind of passed that 42 mark. I think that’s been asked prior. And then I was – maybe a little confused, it sounded like you’re investing in price, but you’re content with gaps. So are you actually maintaining price gaps or are you widening them?
Tom Taylor: Yes, this is Tom, I’ll go first. So yes, we’re pleased with our mortgage – our margin recapture. We did that or we’ve been accomplishing that while taking price at the same time. So supply chain costs continue to come down. Our team’s done an excellent job in managing that. We’re passing some along. We like the optionality, I mean, we’re going to continue to watch what happens to the elasticity of the SKUs as we adjust price and monitor that. And if we see that that’s going to be beneficial to transactions or if we’re going to get more square footage, then we’ll be a little more aggressive. But it’s possible that we could keep a lot of that margin and our margin rates would exit higher than we anticipated.
Bryan Langley: Hey, Simeon, on the other question, yes, I mean, we watch our prices versus the competition very closely and we feel great about where our pricing is versus the competition. And our merchants have done a fantastic job on some of these price reductions being very thoughtful about, where in the assortment we can make those improvements. And it’s early, but as Tom mentioned, the elasticity that we’re seeing is encouraging. So as those supply chain costs continue to come down, which we expect that it will, we’ll balance that growth of – a goal of growing the gross margin, but also making strategic investments in price that we think will drive incremental volume.
Tom Taylor: And it gives us optionality to manage P&L too, because changing complexions through payroll and other things like that, gross margins, that lever that we have. So it’s good to have that optionality.
Operator: Thank you. The next question comes from Steven Forbes of Guggenheim Partners.
Steven Forbes: Good afternoon, Tom, Trevor and Bryan. I wanted to start with homeowner trends. I think it was Trevor gave us the breakdown of Pro comps by ticket first transaction. I was wondering if you could do that for homeowner and DIY. And then just comment on how you sort of expect the strategic price investments to impact trends within the homeowner base into the back half here.
Tom Taylor: Yes. I don’t know if we have the homeowner trends at our fingertips, but obviously they’re below where the Pro is. And then on the expectation, I mean, the pricing, we feel – like we invested it in areas that matter the most and what we’re going to have the biggest impact. And there – and some of those SKUs include SKUs that really matter to the Pro. So again, I think we’ve been strategic on where we’re going to take those price reductions and just reiterate for last time, the earlier reads on elasticity are positive.
Steven Forbes: The math doesn’t – you can’t just add two together. But I mean, our segmentation series Pro or homeowner, so if we were down three-three and we know we were up six, seven and Pro, you can just literally do the university be down about 10% roughly on the homeowner’s side.
Tom Taylor: And I think the price, the kind of the – as we look at pricing is where we’ve adjusted it. It hasn’t been all that much, but where we have, it is going to benefit, you think the Pro who’s in our store, much more frequently they’ll see it and we want them to see it and we think it’ll benefit that.
Steven Forbes: And then maybe just a quick follow-up on the Pro, you think about awareness. I don’t know if you can sort of frame for us where awareness sits with the Pro in both new and existing markets. And then the opportunity right to grow the Pro member base this year. And just given the value proposition, some of these investments, et cetera. Maybe comment on, if there are any sort of targeted or planned initiatives that you have in the pipeline here to really press the awareness factor.
Tom Taylor: Yes, I mean, our Pro awareness is high. I think it’s in the 80% for the vast majority of our markets. Maybe some of the new markets might be a little bit lower than, but we have very good hated brand awareness with our Pros. And our business well – I think we’re – it’s a mosaic of things that we’re doing to service that Pro. It starts with great customer service. It starts with great assortment that’s curated for the market. It’s – prices that matter and SKUs they care about. It’s a dedicated team to take care of them. A great loyalty program, we’re testing this tiered based program that we’re excited about. Our in-stocks are better than they were last year. We see our in-stocks continuing to improve even from the good rate we’re at.
I mean, I think all those things together work in concert that we think will continue to take market share. We also have great CRM tools that allow us to follow-up with those Pros. I’ll speak to just a couple of things that we’re doing to increase awareness as well or that should help awareness. One recently we put in a feature where our stores when someone comes in and works with a designer and we don’t know the Pro or the Pros not in our system now, our teams can follow-up. We weren’t capturing that information historically. Same thing goes, if a Pro picks up product and they’re not in our database we now can contact them, that’s new relatively new. We’ve had it for a little bit of time, but that should help us get to Pros who may not be familiar with us.
Two, we’re back out on the street. After COVID, our Pro team stayed in the store more. We were trying to keep up with the business and now we have the ability to get back out and go find new Pros in the stores and our stores are out doing that pounding the pavement. And then third, and it was mentioned in the – it’s been mentioned in our scripts over the last few scripts, we’re doing an excellent job of getting Pros and doing training across we – whether it’s our vendors or NTCA, we’re doing classes and we’re impacting more Pros. All those things should help continue to build our brand awareness.
Operator: Thank you. The next question comes from Michael Lasser of UBS.
Michael Lasser: Good evening. Thanks a lot for taking my question. Tom, the skeptics are arguing, the Floor & Decor has assumed in its guidance that trends are going to get better based on the macro and easy comparisons and haven’t factored in the prospect of a recession that could not only impact consumer spending, but also the prospect of the ability for the consumer to buy a home, which in turn would negatively impact housing turnover and that’s going to cause downside risk to not only this year, but also next year from Floor & Decor. Why is that wrong?
Tom Taylor: I mean, I think we believe that as existing home sales turn positive towards the end of the year that, that we’ll see benefit from that. Historically, we’ve got a great correlation with the existing home sales. We think that number as we said on the previous two calls, we don’t believe that number goes below $4 million. If that number stays, we’ll start having an increase as we get to the back half of the year. We’re taking share, Michael, at a really good rate. Our indications are that in this market that’s contracting, we’re taking share quicker this year than we did last year. So I think from a share perspective, existing home sales turning positive I think those things will benefit us.
Bryan Langley: Yes. I mean, Michael, if you think about it’s of year-over-year declines that we’ve had an existing home sales. I mean, at some point you think that’s got to – it’s got to come out. Again, we have our house view. We’ve kind given you guys that as well that every comp point’s worth $0.10 of EPS, yes.
Tom Taylor: Our – we believe our category has been in a recession. It’s there like it that, so as we get to where things get positive towards back half of the year, we think that gets a little bit better.
Michael Lasser: Okay. My follow-up question is how much do you think the independence and other players in the industry have already reduced price? And how much do you think they will reduce price in the event that demand drops further than here?
Trevor Lang: Yes, this is Trevor. I mean, we are fortunate, we have merchants to live in all of our 12 regions, 13 regions, and we do detailed price shops every week. And as we said earlier, when we look at our pricing, not just against our larger competitors but even our smaller competitors, we think our price gaps are at or as good as they’ve ever been.
Tom Taylor: They have say look, it’s – we have seen price come down, others are passing on supply chain savings as well. But our – as Trevor said earlier, we’re confident in our spread versus them, we’re not seeing irrational behavior within the marketplace. And so we feel good about that part over the boat.
Trevor Lang: And I think you most everybody prognosis, but maybe just in case there’s new people on the phone, when you look at our pricing versus the independence, it’s demonstrably below. We’re not talking 5% or 10%, in many cases it could be 20%, 30%, some cases 50%, 100% below or their price might be a 100% above ours. And so even if they were to lower their prices more than we are, which we haven’t seen, our prices are so much below the independence that that I – we don’t think that that’s going to put pressure on us.
Operator: Thank you. Thank you. The next question comes from Chuck Grom of Gordon Haskett.
Chuck Grom: For doing this timing there, so I’m going to try to sneaking too. Wondering if you could share transactions by month during the quarter for us and also quarter to date. And then wondering if there’s any performance differences by region, particularly in some of these parts of the country warehousing has seen more price compression over the past several months.
Tom Taylor: I’ll take the first part while Bryan is looking the transaction part up. So yes, we’re seeing more pressure on the West, which is where the housing challenges the more significant we’re seeing the same challenges. I think the good news for us is we’re less mature in the West. Our – we’ve got a good density in the West, but the stores tend to be a little bit younger, so they’re still gaining awareness and gaining market share. So hopefully that helps offset a little bit of that softness. But there’s definitely been a change in trajectory in the West over the last six months.
Bryan Langley: Yes. And if you’re thinking about the trend, so the quarter was nine, nine down negative transaction comp, it was eight, seven down in January, 10, 8 down in February and 10, 1 down in March. So really didn’t deviate that much kind of as we moved throughout. So to Tom’s point, the average ticket change was due to us lapping higher retail from last year, as well as square footage being down just a little bit per transaction.
Operator: Thank you. The next question comes from Karen Short on Credit Suisse.
