Floor & Decor Holdings, Inc. (NYSE:FND) Q4 2023 Earnings Call Transcript

Floor & Decor Holdings, Inc. (NYSE:FND) Q4 2023 Earnings Call Transcript February 22, 2024

Floor & Decor Holdings, Inc. beats earnings expectations. Reported EPS is $0.34, expectations were $0.27. Floor & Decor Holdings, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Hello and welcome to the Floor & Decor Holdings, Inc. Fourth Quarter 2023 Conference Call. [Operator Instructions] It’s now my pleasure to turn the conference over to Wayne Hood Vice President Investor Relations. Please go ahead Wayne.

Wayne Hood: Thank you operator and good afternoon everyone. Welcome to Floor & Decor’s fiscal 2023 fourth quarter earnings conference call. Joining me on our call today are Tom Taylor, Chief Executive Officer; Trevor Lang, President; and Bryan Langley, Executive Vice President and Chief Financial Officer. Before we get started, I want to remind everyone of the company’s Safe Harbor language. Comments made during this conference call and webcast contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and are subject to risks and uncertainties. Any statement that refers to expectations projections or other characterizations of future events including financial projections or future market conditions is a forward-looking statement.

The company’s actual future results could differ materially from those expressed in such forward-looking statements for any reason including those listed in its SEC filings. Floor & Decor’s no obligation to update any such forward-looking statements. Please also note that past performance or market information is not a guarantee of future results. During this conference call, the comp will discuss non-GAAP financial measures as defined by SEC Regulation G. We believe non-GAAP disclosures enable investors to better understand our core operating performance on a comparable basis between periods. A reconciliation of each of these non-GAAP measures to the most directly comparable GAAP financial measure can be found in found in the Events press release which is available on our Investor Relations website at ir.flooranddecor.com.

A recorded replay of this call and related materials will be available on our Investor Relations website. Let me now turn the call over to Tom.

Tom Taylor: Thank you, Wayne and everyone for joining us on our fiscal 2023 fourth quarter earnings conference call. During today’s call, Trevor and I will discuss some of our fiscal 2023 fourth quarter and full year earnings highlights; then Bryan will provide a more in-depth view of our fourth quarter and full year financial performance and share our thoughts about some of our financial projections for fiscal 2024. We are pleased to deliver better-than-expected fiscal 2023 for order diluted earnings per share of $0.34, primarily due to total and comparable store sales that exceeded our updated expectations we communicated on our third quarter earnings call. For the fiscal 2023 year, we delivered diluted earnings per share of $2.28 exceeding our updated guidance of $2.14 to $2.24 per share.

Throughout the year, we are proud to have grown our market share and effectively managed our profitability, balance sheet, inventory, and cash flow, while continuing to make significant long-term growth investments towards our goal of operating 500 warehouse stores in the United States over time. As Bryan will discuss in more detail, we generated $238.6 million in free cash flow in fiscal 2023. We achieved these fiscal 2023 results, despite the headwinds caused by existing home sales declining to a seasonally adjusted annualized rate of 3.8 million units in December, a decade low as 30-year mortgage rates spiked higher to 8% in October and personal consumer consumption, expenditures continue to normalize to services and away from large ticket discretionary goods.

Against this backdrop, we executed what we can control in 2023, by opening 31 new stores, successfully executing our sales-driving initiatives, strategically growing our gross margin rate by 160 basis points year-over-year, maintaining our competitive price cuts, continuing to deliver exciting innovation and newness in merchandising assortments and further diversifying our countries of origin to reduce cost and mitigate risks. Importantly, we are prudently managing expenses without sacrificing the customer experience. We are thrilled, that our customer service scores remain near record high-levels and are building on our excellent service scores in early 2024. We are particularly pleased to receive high-scores for service, selection and professional staff.

These attributes are essential, when consumer spending and the category slows, resulting in declining transactions. We find that typically an assisted customer’s average ticket is significantly higher than unassisted customers. Achieving and building on these results, over any housing-related spending cycle requires us to make ongoing commitments to investing in our associates, finding ways to simplify store processes and deploying technology in-store and online to provide a seamless customer experience. We proudly promoted approximately 1,550 associates and created 2,000 new jobs in 2023. Our commitment to our associates resulted in notably higher associate retention in 2023, which we believe will help us control costs and support our growth for years to come.

We believe that by making these long-term investments we will further build our competitive moat and grow our market share. As we look to fiscal 2024 and beyond, we remain focused on executing our key growth strategies. We are fortunate that the strength of our business model, balance sheet and cash flow allows us to prudently invest in new and existing stores, merchandising growth initiatives, technology and our commercial business in the face of challenging industry fundamentals. As Bryan will discuss in more detail, we are approaching fiscal 2024 with continued rigor in our expense and inventory management and prudent discipline in our growth investments in capital spending, as we navigate industry headwinds. We have a long history of overcoming challenges with a strong and agile execution.

And we believe this period just represents another challenge to overcome in our journey to 500 stores. We will continue to make prudent investments that we believe will well position us for accelerated sales market share and strong earnings growth when industry fundamentals improve. Let me now turn the call over to Trevor.

Trevor Lang: Thanks Tom. I also want to express my appreciation, to all of our associates for their unwavering dedication and collaboration towards serving our customers and executing our key growth initiatives. Our fiscal 2023 total fourth quarter sales of $1,048,100,000 were flat compared to the fourth quarter of fiscal 2022. Comparable store sales decline at better-than-expected 9.4% primarily from the successful execution of our sales driving initiatives and cycling past easier sales comparisons. Monthly, comparable stores improved declining 11.6% in October, 10% in November and 6.7% in December. Regionally, our fourth quarter comparable store sales in the East were the strongest with the decline in the West division improving from the third quarter.

Fourth quarter comparable store sales in tile, wood, installation materials and adjacent categories were better than the 9.4% overall comp store sales decline. Within our merchandise assortments, we continue to see ongoing customer preferences towards our better and best price point products, where we offer industry-leading innovation, trends and styles at an everyday low price. On an annual basis, our fiscal 2023 total sales increased 3.5% to a record $4,413,900,000 primarily from opening of 31 new warehouse format stores and growth in our commercial business. Our fiscal 2023 comparable store sales declined 7.1% from fiscal 2022 which is modestly better than our expectations of a 7.8% to an 8.5% comparable store sales decline. As a reminder, we are comparing against fiscal 2022 comparable store sales growth of 9.2% when monthly annualized existing home sales averaged 5.1 million units and 30-year mortgage 5.5%.

I will now discuss our fiscal 2023 transactions and average ticket. Fiscal 2023 comparable store transactions declined 9.9% in the first quarter, 7.1% in the second quarter, 6.8% third quarter, and a better-than-expected 4.9% in the fourth quarter. For the fiscal 2023 year, our comparable store transaction declined 7.2% compared to a 6.6% decline in fiscal 2022. Our fiscal 2023 fourth quarter comparable store average ticket remained under pressure. After growing 7.3% in the first quarter and 1.1% in the second quarter our average ticket declined by 2.8% in the third and 4.7% in the fourth quarter. The deteriorating sequential trends reflect the macroeconomic housing headwinds, which created an ongoing drag from customers purchasing less square footage, second class retail price increases in fiscal 2022, and the impact of our strategic decision to selectively lower retail prices on specific SKUs. For the fiscal year 2023, our comparable store average ticket increased 0.2%.

Turning to our early fiscal 2024 sales trends. Our fiscal 2024 first quarter-to-date comparable store sales are down 12.8% in line with the 2024 sales and earnings guidance we provided in today’s press release. Our comparable to our store sales declined 14.7% in January, but have improved to a 10.9% decline in February month-to-date. As discussed in prior earnings conference calls, we expect the first half of 2024 to represent our most challenging sales period as existing home sales could remain below 4 million units, and we faced our most difficult sales comparisons of the year. Additionally, inclement weather caused us to reduce store hours in many of our stores in January and high wind and rain storms impacted our California stores in early February.

Turning my comments to our connected customer growth. We are pleased that our connected customer strategies resonate with our customers when search interest in the flooring category is down from last year. Our 2023 fourth quarter connected customer sales increased 7.6% from last year. As a result, the fourth quarter sales penetration increased approximately 160 basis points to 18.7% from 17.1% last year. For the year, connected customer sales increased 9.7% from last year accounting for 18.7% of our fiscal 2023 sales compared with 17.4% in 2022. We are successfully integrating our processes and technology solutions towards seamless in-store and online experience. We see customers, who visit our stores and interact with our website spend substantially more than single channel customers and we plan to continue to enhance these strategies.

As we look to 2024 and beyond, we have initiatives intended to drive organic growth to our website and further optimize the customer search experience. These include further improving our website speed, and the quality of our website search, adding content to drive inspiration and refining our online merchandising process to drive efficiency. Over time, we will enrich search results by infusing customer shopping behavior to inform personalized results. We continue to be pleased with our design services offering. This free service to our homeowners and pros exemplifies how we can drive exceptional customer service through engagement. Engagement leads to high customer satisfaction scores, positive social media comments, meaningfully higher average ticket and adjacent category sales, margin and market share with homeowner and Pro customers.

We ended fiscal 2023 with 904 designers including in-home designers in select markets. We have plans to continue to grow this theme in 2024 and we believe there is a further opportunity for collaboration between our designers and Pro partners to drive sales. Furthermore, we are streamlining our processes and performance reporting toward team performance to drive additional sales, productivity and conversion. Our design teams are focused on leveraging the power of our CRM solution where they can prioritize high-value sales opportunities from key my project quotes to ensure we have consistent, timely and thorough follow-up. Additionally, we are adding insulation estimating tools with our partner installations Made Easy, following wizard tool to deliver a complete project summary and are making enhancements to our design schedules.

Finally, we are reducing friction in the customer tender process by adding point-of-sale registers in a hotline to our designed guests. Moving on to our warehouse store format pillar growth. We remain excited about the long-term opportunity to operate 500 warehouse stores in the United States. We are fortunate that our strong balance sheet and cash flow enabled us to prudently invest in new store growth during an industry downturn. We opened 14 new warehouse format stores in the fourth quarter and 31 in fiscal 2023, ending fiscal 2023, operating 221 warehouse stores and five design studios across 36 states. On December 29, 2023 one day after the end of fiscal 2023, we opened our Mansfield Texas Warehouse store due to permitting delays the Mansfield store opening slipped out of fiscal 2023 fourth quarter ended fiscal 2024 first quarter.

We expect to open 30 to 35 new warehouse stores in fiscal 2024, unchanged from our prior guidance. Most of our fiscal 2024 warehouse store openings will be in large existing markets in the east and the south where we continue to solidify and grow our market share. In fiscal 2024, we anticipate about 30% of our new warehouse store openings will be in the first half of the year and most of those openings will be in April and May. We expect the remaining 70% of our fiscal 2024 new warehouse store openings will be in the second half of the year as we continue to face ongoing industry-wide construction delays. Because we are not fully built out in the United States, we believe we can navigate these ongoing construction delays with a flexible range of market openings and store sizes from 55,000 to 80,000 square feet.

We expect about 25% to 30% of our planned 2024 new warehouse store openings could be in smaller format stores. While these smaller format stores will naturally have lower first year pro forma sales than the larger store cohort in larger markets, we believe their operating margins can be as profitable as our existing stores due to their lower costs. Turning my comments to Pro. We proudly continue growing our market share with our Pros by embracing a supply house mindset. We believe embodying this mindset with specific strategies contributed to comparable store sales and installation materials growing throughout 2023. In the fourth quarter of fiscal 2023, Pro tendered sales accounted for approximately 45% of our sales compared with approximately 44% in fiscal 2022.

For fiscal 2023, Pro tendered sales accounted for approximately 45% of our sales compared with approximately 42% in fiscal 2022. Pro sales growth continued to outpace our homeowner sales in the fourth quarter and the full year of fiscal 2024. In fiscal 2024, we expect to continue growing our market share with flooring Pros by leveraging our pro dashboards and CRM tools to drive engagement with new inactive and active Pros. We are continuing to build long-term relationships and to accomplish this. We are focused on having our Pro services managers or PSMs spend most of their time in the field with a comprehensive measurable plan to drive Pro contacts and conversion. To better measure the effective of our PSM’s contact journey, we are now providing them with enhanced reporting that will enable them and field leadership to better understand the effectiveness of their contact and close journey and adjust tactics where necessary.

We are also excited about continuing to deepen our relationship with Pro customers by continuing to partner with trade associations to host educational events. We believe providing educational events is increasingly important to Pros as the flooring installation process in certain categories is new and more complex. We see a significant lift in sales from Pros attending these events and have plans to expand these events in 2024. In the fourth quarter of fiscal 2023 we hosted 33 educational events and trained approximately 530 Pros. We have 123 educational events in the entire year compared with 71 in 2022. We look forward to hosting about 145 educational events in 2024. We are continuing to find new solutions to identify Pros that may not have shopped with us and are focused on introducing them to our brand.

We continue to be pleased with the strong sales growth from our Regional Account Managers or RAMs. As a reminder, Regional Account Managers serve customers who require specialized account and project management that can be supported by our stores. For that reason their sales are included within our warehouse store sales. We ended fiscal 2023 with 60 ramps almost double our fiscal 2021 RAM count of 32. Let me now discuss our commercial sales. We are incredibly pleased with Spartan Services fiscal 2023 fourth quarter and full year sales and earnings results which exceeded our expectations and were accretive to earnings. The leadership team continued to build its national presence by adding 23 incremental A&D and contractor reps including those from June – from the June 2023 Sales Master acquisition, ending the year with 86 reps.

In 2024, we plan to continue to drive sales and market share growth through opportunistic acquisitions, organic rep growth and boosting rep productivity. We are excited to see Spartan’s awareness growing thereby enabling them to attract stronger talent. We also have plans to further integrate Sales Master to drive synergies and penetrate top MSAs, particularly in New York City. Additionally, we are excited to enhance Spartan’s core further with the private brands including community cobolt and [indiscernible] with these proprietary advance will help grow their market share in healthcare, education, hospitality homebuilders and the multifamily commercial. These proprietary brand exemplify how Spartan is leveraging Floor & Decor merchants and supply chain teams to design and curate exclusive flooring and wall tile products for commercial specifiers supported by a deep nationally available inventory.

Our strategic growth plans for Spartan will continue to index them to more economically attractive, less cyclical and price-sensitive healthcare and education commercial segments. As discussed in prior earnings calls, we remain excited about the long-term commercial market opportunity and our strategies. We remain confident that we have the right people, strategies and business model to continue successfully navigating this challenging macroeconomic environment. I will now turn the call over to Bryan to discuss our fiscal 2023 fourth quarter financial results in more detail and share our outlook for fiscal 2024.

Bryan Langley: Thank you, Tom and Trevor. As CFO, I take immense pride in how our teams continue navigating the macroeconomic challenges that those headwinds to our business. Their focused efforts enabled us to sustain market share growth and effectively manage our profitability, balance sheet, inventory and cash flow throughout fiscal 2023, despite contraction in the flooring industry year-over-year. We achieved a 3.5% increase in sales and generated $803.6 million of operating cash flow while investing $565.0 million in capital generating $238.6 million in free cash flow. As we embark on fiscal 2024, we do so from a position of strength and we believe we will continue to grow our market share by executing what we can control.

Now, let’s discuss some of the changes among the significant line items in our fiscal 2023 fourth quarter and full year income statement, balance sheet and statement of cash flows, as well as our outlook for 2024. I’ll begin my discussion with gross profit. As discussed in prior earnings calls, we are strategically managing our profitability by focusing on growing our gross margin rate. Fiscal 2023 fourth quarter gross profit increased by 1.4% on flat sales from the same period last year driven by a 60 basis point rise, and our gross margin rate to 42.2%. The increase was primarily attributed to favorable product margins from lower supply chain costs. Fiscal 2023, full year gross profit grew 7.6% on sales growth of 3.5% from the same period last year driven by a year-over-year increase of 160 basis points in our gross margin rate.

The increase in gross margin rate can be largely attributed to lower supply chain costs that started in late 2022, and are expected to continue to benefit us into fiscal 2024. Turning to our selling and store operating expenses. Our selling and store operating expenses for fiscal 2023 fourth quarter of $315.6 million, increased by 12.7% from the same period last year. This growth is primarily attributed to higher occupancy and store expenses, stemming from operating 30 additional warehouse stores versus the same period last year, offset by expense reductions in our comp stores of $4.6 million as we continue to manage expenses. As a percentage of sales, selling and store operating expenses deleveraged by 340 basis points to 30.1% from the same period last year.

This increase is primarily due to operating 30 additional warehouse stores and deleverage in occupancy and other fixed costs as well as store labor resulting from a 9.4% decrease in our comparable store sales. For fiscal 2023 full year, selling and store operating expenses increased by $160.8 million or 14.9% from the same period last year. The increase in selling and store expenses was driven by $154.9 million for new stores and $8.9 million at Spartan, partially offset by a decrease of $3.0 million in our comparable store expenses. As a percentage of sales, selling and store operating expenses deleveraged by approximately 280 basis points to 28.1% from the same period last year. This increase was primarily attributable to deleverage from a decrease in comparable store sales and new stores.

Turning to general and administrative expenses. Our fiscal 2023 fourth quarter general and administrative expenses of $67.7 million, increased by 31.6% from the same period last year. This growth is attributed to investments to support our store growth including, increased store supports under staff and investments as well as additional administrative costs including, higher incentive and equity compensation compared to the same period last year. As a percentage of sales, general and administrative expenses deleveraged 160 basis points to 6.5% primarily due to deleverage caused by the decline in our comparable store sales. Fiscal 2023 full year general and administrative expenses increased 18.2% from the same period last year. The increase was primarily comprised of cost to support store growth including, approximately $23.3 million for additional staff and $11.8 million in other administrative costs.

Our general and administrative expenses as a percentage of sales delevered by approximately 70 basis points to 5.7% from 5.0% in the same period last year. The increase as a percentage of sales was primarily driven by the deleverage from a decrease in comparable store sales. Moving to pre-opening expenses our fiscal 2023 fourth quarter pre-opening expenses of $12.8 million, increased 30.8% from the same period last year, resulting in a deleverage of 30 basis points year-over-year. This increase primarily stemmed from the increase in the number of new store openings future stores we were preparing to open and rent and labor expenses incurred related to delays in getting our stores open compared to the same period last year. Moving to interest expense.

Our fiscal 2023 fourth quarter net interest expense of $0.9 million, decreased $4.4 million from $5.3 million in the same period last year. The reduction in interest expense is primarily due to lower borrowings under our ABL facility and higher interest income from our interest rate cap derivative contracts. Turning to taxes. Our fiscal 2023 fourth quarter effective tax rate decreased by 450 basis points to 18.1% from 22.6% in the same period last year primarily due to increased tax benefits related to stock-based compensation awards. Moving to adjusted EBITDA. Our fiscal 2023 fourth quarter adjusted EBITDA of $107.8 million decreased by 24.7% from the same period last year, primarily due to expense deleverage from the decline in our comparable store sales.

Consequently, fourth quarter net income declined by 46.4% to $37.1 million and diluted earnings per share of $0.34 fell 46.9% from the same period last year. Moving on to our balance sheet and cash flow. We maintain a strong balance sheet that we believe allows us to prudently grow within our existing capital structure even during a period of industry contraction. We are particularly pleased with our working capital and inventory management. As of the end of fiscal 2023 inventory of $1.1 billion decreased by 14.4% from the same period last year generating a positive year-over-year swing in operating cash flow of $478.3 million. In fiscal 2023, our capital expenditures — including capital expenditures accrued at the end of the period totaled $566.3 million compared with $486.0 million during the same period last year and within our most recent guidance range of $550 million to $575 million.

Consequently, we are pleased to have delivered $238.6 million in free cash flow and had no borrowings under our ABL facility at the end of fiscal 2023. We believe this leaves us well positioned for 2024. We ended 2023 with $752.8 million of unrestricted liquidity consisting of $34.4 million in cash and cash equivalents and $718.4 million available for borrowing under the ABL facility. As Tom mentioned, we have continued diversifying our countries of origin to reduce our inventory cost and mitigate risk. In 2023, we successfully sourced products from 26 countries compared to 24 countries in 2022. Importantly, in fiscal 2023 approximately 25% of the products we sold were produced in China compared with approximately 50% in 2018. We now proudly source approximately 23% of our sales from products that are produced in the United States.

We anticipate our continuing diversification strategies to provide a tailwind to our gross margin rate in 2024 and beyond. Relatedly, we don’t believe the attacks on cargo ships moving through the Red Sea will have a material impact on the flow of our international shipments or ocean shipping costs in the United States. Fortunately, only a few of our international shipments are routed through the Red Sea. For shipments that can bypass the Red Sea we increased the lead times from these origins to account for the added transit time around the Cape of Good Hope Africa. Additionally, we have multiyear contracts with some of the world’s largest shippers with staggered contract end dates to manage our cost and mitigate risk. We are not experiencing capacity issues or facing any material cost increases at this time.

Global demand is weaker and ocean carrier capacity is larger than during the COVID-19 pandemic period further reducing the risk of supply chain impacts. As a reminder, our business is not highly influenced by seasonality or subject to promotional sales and we are in a very good inventory and cost position. Let me now discuss some of the assumptions behind our fiscal 2024 sales and earnings outlook. There remains considerable uncertainty and debate about when existing home sales and hard surface flooring spending will return to year-over-year growth. The discussion largely hinges on the direction and absolute level of 30-year mortgage interest rates, housing affordability and spending on large ticket discretionary durable goods. While we are pleased that 30 year mortgage interest rates have moved lower from our most recent peak of around 8% in October of 2023, they remain elevated.

Moreover, it now appears that the pace of potential interest rate cuts in 2024 could be slower and more second half weighted than forecasters previously expected following the recent CPI and PPI report. Therefore, we are prudently planning for continuing headwinds in existing home sales repair and remodel spending and industry growth that is likely to put continued pressure on our business. Taking all of these considerations into account, we provided a slightly wider range of potential earnings outcomes in fiscal 2024. As a reminder, every 100 basis points change in comparable store sales compared with our plan impacts earnings by about $0.10 per share. Over the long run we remain excited about the well-documented structural opportunities in repair and remodel and flooring spend including housing demand that exceeds supply and an aging housing stock.

We still see a path to achieving our long-term goal of mid to high teens adjusted EBITDA margin. Turning to our fiscal 2024 outlook. Our fiscal 2024 sales are expected to be in the range of $4.6 billion to $4.770 billion, an increase by approximately 4% to 8% from fiscal 2023. For fiscal 2024, our comparable store sales are estimated to decline 2% to 5.5%. We expect our comparable store sales to be the most challenged in the first half of fiscal 2024 with the first quarter comparable store sales likely to decline in low double-digits. We expect to be flat or return to growth in our comparable store sales in the fourth quarter of 2024. We were using the assumption that existing home sales sequentially improved throughout the year and exit at approximately 4.3 million units in the fourth quarter of 2024 and our high end outlook and remaining around approximately four million units and our low end outlook.

For fiscal 2024, we estimate our comparable average ticket to decline low single-digits and estimate our comparable transaction to decline mid to low single-digits. We expect sequential improvement in both comparable average ticket and comparable transactions throughout the year. We expect our fiscal 2024 sales to continue to be impacted by lower new store productivity due to the environment and a back end loaded store opening cadence. We expect continued sequential year-over-year gross margin rate expansion throughout 2024 from the fourth quarter of fiscal 2023. We estimate the first quarter of fiscal 2024 to have the largest sequential and year-over-year gross margin rate increase. We anticipate our full year fiscal 2024 gross margin rate could approximate 42.6% to 42.8%.

In fiscal 2024, we expect our selling and store operating expenses to approximate 30% of sales at the midpoint of our 2024 outlook. The year-over-year de-leverage in expenses from 2023 is primarily attributed to the decline in our comparable store sales. We expect the first quarter to be process of new store openings late in 2023 as well as the deposit comparable store sales. Additionally, the fourth quarter will be pressured due to most of our new store openings falling late in the third quarter and fourth quarters of 2024. We estimate fiscal 2024 general and administrative expenses to be approximately 6% of sales slightly above 2023. The expense de-leverage is caused by the decline in our comparable store sales and incentive and equity compensation recapture.

Fiscal 2024 pre-opening expenses are estimated to be approximately 1% of sales and flat to 2023. Fiscal 2024 interest expense is expected to be approximately $12 million to $14 million. The increase over 2023 is primarily due to an increase in borrowings under our ABL facility and interest rate increases. We estimate our fiscal 2024 adjusted EBITDA approximately decline by 5% or grow by 2% to approximately $520 million to $569 million. Our adjusted EBITDA margin rate is expected to be approximately 11.3% to 11.7%. For fiscal 2024, diluted earnings per share are estimated to be in the range of $1.75 to $2.05. Diluted weighted average shares outstanding is estimated to be approximately 109 million shares. Moving on to capital expenditures. Our fiscal 2024 capital expenditures are planned to be in the range of $400 million to $475 million compared with $566.3 million, including capital expenditures accrued at the end of the period in fiscal 2023 and to be funded primarily by cash flow from operations and borrowings under our ABL facility.

More specifically, we intend to make the following capital expenditures in fiscal 2024. We intend to open 30 to 35 warehouse format stores relocate two stores, and begin construction on stores opening in fiscal 2025. Collectively, these investments are expected to require $315 million to $365 million. We plan to invest in existing store modeling projects and distribution centers using approximately $60 million to $75 million. And finally, we plan to continue to invest in information technology infrastructure, e-commerce, and other store support center initiatives using approximately $25 million to $35 million. In closing, the resiliency of our business model has demonstrated our ability to grow our market share in the face of uncertainty during a period of industry contraction.

On behalf of the entire executive team, I want to express our gratitude and extend a personal thank you to our associates. Operator, we would now like to take questions.

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Q&A Session

Operator: Thank you. [Operator Instructions] Our first question is coming from Michael Lasser from UBS. Your line is now live.

Michael Lasser: Good evening. Thank you so much for taking my question. One of the pieces of feedback that we’ve been hearing is that Floor & Decor had been overly optimistic about the depth of the downturn that the flooring category was going to experience heading into 2023. So what did you learn? And why is it different that you’re not being overly optimistic this time, to expect that your comps are going to flatten out or turn positive by the fourth quarter of this year?

Trevor Lang: Hey Michael, this is Trevor. I would say, we certainly are not questioned. We take in all the data we can with our own internal resources and then we also look at The Economists. And last year around the same time people were expecting interest rates to go down and existing home sales to increase and that is expected to happen again, and it started to happen a little bit on the mortgage rate side. And I guess we had a slight bit of good news on existing home sales today coming in at $4 million versus $3.7 million, but that didn’t happen last year. Things just kept getting worse. The Fed was more aggressive and mortgage rates kept going up and existing home sales just kept getting work. So that’s the big difference from last year.

This year, we’ll see if those macroeconomic factors are correct. But assuming mortgage rates do continue to come down a little bit they were 8% not that long ago. I think they’re just under seven today. And again, it’s only one month but we had an improvement in existing home sales that got published today. If that continues to happen we think that will give us a better backdrop. When we — the final thing I’ll say is, when we compare our performance versus others in the flooring sector, even though our earnings were down about 18%, they appear to be materially better than anybody else we perform. So in a difficult environment, I think we performed well.

Tom Taylor: I would say the only thing I’d add is that, I think we’re being a little bit more conservative than we were last year in our approach in existing home sales. So we’re still expecting them to get a little bit better by the time we ended the year as an evidence and Bryan Langley’s prepared comments. But I think last year we were more optimistic that the interest rates were coming and it would be better. And we’re not anticipating that as much this year.

Michael Lasser: Got you. And my follow-up question is on, Floor & Decor’s market share, especially in more mature markets or more mature locations. What evidence you have to point to Floor & Decor market share trends. I think there’s some debate about, what’s happening within those markets and how that is influencing the productivity of some of the more mature floor in the core location. Thank you.

Bryan Langley: Hey, Michael, this is Bryan. I’ll jump in first. So we believe that we’re still taking accelerated market share, the same way we were in 2022. Historically we were taking about one point of market share across the industry. And so in the past two years we think we’ve taken anywhere from 150 to 200 basis points of market share. I mean we feel really confident and really good about our mature markets that we’re in today. And we’re still gaining share with Pros and still getting share of Wallet there. So we’re still getting traction in even our most mature markets versus our new ones.

Trevor Lang: The only thing I would add, if you look at our larger competitors that are 30% of the industry from what we can tell we’re meaningfully outperforming them. And when you look at the three or so public companies that are also selling flooring, we’re meaningfully outperforming them. And so from everything we can tell, we’re growing at a much faster rate on the residential side. And then on the commercial side, which is small for us but still on the commercial side, we’re growing that business pretty fast right now.

Michael Lasser: Thank you very much. I appreciate it.

Operator: Thank you. Our next question is coming from Simeon Gutman from Morgan Stanley. Your line is now live.

Simeon Gutman: Hey. Good afternoon guys. I wanted to ask on all, the good decremental margin question. Bryan you said, I think you said, $0.10 for every point of sale we were getting a little bit less meaning we’re getting like 25% on the way down. Curious, if that’s about right. And then and if that’s right it may be because you’re getting good gross margin expansion and does that mean the incrementals on the other way actually could be bigger what they’ve been historically?

Bryan Langley: I think within the guidance range, it’s pretty close to that $0.10. I think it just depends on how far you are outside the range, which would dictate that because then obviously your incentive compensation and other things tend to slope differently, so really depends on how far you are from the plan that will drive that. So I think last year we were just so far from the original plan that the flow-through was a little bit different. This year as we look at — as we set the plan that’s why I say it’s versus kind of the way we plan, it feel pretty good about that $0.10 on the up and downside. But once you get outside of normal range then it does start to deviate a little bit from there. It can move anywhere from $0.10 to $0.12 to $0.13 but it sound like it moves to $0.20 see right you can have margins up or down anywhere from $0.35 flow through to $0.30.

Simeon Gutman: Okay. And then a follow-up is on the CapEx. The number is a bit lower on roughly the same store number of stores it was much higher I think four to $475 million versus the $560 last year. So my question is first getting to the $500 million did that always like have an asterisk for maybe smaller stores? Or does the smaller store gets you to even a bigger number now?

Tom Taylor: No, we always had — I’ll take a stab at that. We always had in our plans that there would be three different store sizes, and we already operate today. We have stores that operate under all of those sizes today. So it was always in our assumption that in some of the single markets that we have single store markets we operate in stores could tend to be smaller. And then there’s places where you can only fit a small store. So we prefer the bigger ones. But if we’re going into intercity place is sometimes it’s harder to get, so smaller stores have always been in that assumption of 500 stores.

Bryan Langley: Good. And then Simeon I’ll just jump in and tell you a little bit on the CapEx guide. Majority of the reduction is actually spent for the future class. There is a little bit tied to the type of store we’re opening as well. We have our ground-up leases versus our second use facilities. This year we’ve got a little bit more second-use facility. I think it’s about 60%, whereas, last year we were 60% ground ups, so that’s a little bit of a change as well. So it’s a little bit of the class of 2025 spend that will happen this year versus what we’ve done in the past as well as the type of facility. Another thing that I want to talk about as well is we had communicated previously that we would have spent for our Northwest Seattle distribution center.

We’ve been able to actually push that out without any effect to our operation. So you’ll see just a little bit of spend this year where we had previously communicated you would see spend for a distribution center as well.

Simeon Gutman: Thanks, everyone. Good luck.

Operator: Thank you. Next question is coming from Zach Fadem from Wells Fargo. Your line is now live.

Zach Fadem: Hey, good afternoon. So first one for me on store OpEx, because I think you said a quarter ago that a small percent of your stores were on minimum hours. And I’m curious first of all where are you with that today? And then for 2024, is the game plan more about managing the stores to maintain a level of profitability? Or do you balance that with keeping the store staffed to drive growth when the category inflects?

Trevor Lang: Yes. I think we’re still about one-quarter of our stores today are at minimum hours in this environment. And we’ve, obviously, evaluated that and done some changes to what the minimum hours are this year. I think on the — let me say it this way. I think at minimum hours for the store the volumes the stores are doing, we think that’s the appropriate amount of hours. And we don’t we really try not to go below that minimum. Just when you think about the number of hours we’re open and the type of product we’re receiving it and getting it to the floor so we can sell it. So for those stores if God forbid they were to go lower in volumes, we probably would not change their hours because there’s just a minimum number of hour it takes to operate a store.

Zach Fadem: Got it. And then with existing home sales hovering around this $4 million level today, you mentioned the levels embedded in the 2024 outlook. But curious, at what level you would need to see for the business to step back into positive comp territory and to sustain positive comps?

Tom Taylor: So I’ll take a stab Bryan you can fill in after the end. I said on previous calls that I felt like existing home sales would have to turn positive year-over-year. And I think when they do that for a sustained amount of time that that gives us a much better shot of posting positive same-store sales growth. So when they turn positive there’s a bit of like it doesn’t come instantaneously customers, but there’s within a three-month window we feel like that those comps could turn positive.

Bryan Langley: Yeah. If you look at NAR’s data, we were below four million units starting in September 2023, so to tell us by there’s a little bit of lag built in. But if 4 million units or above start to happen around that September time frame, you built in a little bit of lag for two to three months that’s when we should be able to start to see positive comps on the business, which is why you heard me in the pre proved remarks is, we think we’ll start from where we are today — or from where we are today, you’re probably going to be in the low double-digits in Q1 and then turning flat to positive in Q4. That’s kind of what’s embedded time.

Trevor Lang: I think just longer term, Zach, the high we get on existing home sales is $6.5 million. We’re now at a 40-year low of 3.78%. I think the median is probably 5% to 5.5%. So I just think we’ve got aged houses. We got a lot of millennials and Gen X that are going to urgent that are going to come in and need homes. And so as we get past this time assuming mortgage rates continue to come down this is going to be a really good sector long term.

Zach Fadem: Thanks for the time guys.

Operator: [Operator Instructions] Our next question is coming from Steven Forbes from Guggenheim Securities. Your line is now live.

Steven Forbes: Thanks everyone. Trevor, maybe I’ll just focus on a follow-up to your response right there. A lot of sort of just debate about what the sort of post-recovery comp profile looks like inclusive of cannibalization and also just your relative strength in the end market. So any way to help frame like what you think the comp profile should or could return to, if we get back to a more normalized macro with $5.5 million existing home sales? Is this still based on your relative positioning in the business in the industry like a mid- to high single-digit comp story? Or has something’s changed? I would love to just hear how you guys are thinking about the next three to five years here?

Trevor Lang: Yeah. I think if we go back to 5.5% depending on how fast we got there, I mean that would be a pretty big lift to us. Obviously, that would be fantastic. We would love that. I think the things we’ve done throughout the last certainly 13 years that I’ve been here have positioned ourselves to be even better. And again, when we compare ourselves just financially comparing ourselves to our peers our performance pretty meaningfully outperform. What Ersan and team have done with the assortment and Steve on the operations team marketing, the way we handle our website, I mean all of those things as you heard in my prepared comments we continue to invest in this cycle. So I think our competitive position is as good as it’s ever been as a category killer.

And when it turns, we’re in great shape. But I think the other thing short term when it actually turns, we’re in the best in-stock levels we’ve ever been in. So we’ve seen that happen in my 13 years here when business gets strong and we have really good in-stocks and a really good curated assortment at local at the store level then we’ll take off like a rocket. We just we need something to happen in the macro to help store those consumers to come in and buy from us.

Tom Taylor: I would say the only thing I’d add — I agree with everything you said. I think the only thing I’d add is we’ve also because we’ve stayed on track with our strategy and continue to open stores during a really difficult market that we’ve got a batch of new stores that should give us a really nice lift that they as the market recovers because they started off slow we should get an incremental lift from those stores.