Specialty flooring retailer Floor & Decor (NYSE:FND) missed analysts' expectations in Q3 FY2023, with revenue flat year on year at $1.11 billion. Next quarter's outlook also missed expectations with revenue guided to $NaN at the midpoint, or NaN% below analysts' estimates. Turning to EPS, Floor And Decor made a GAAP profit of $0.61 per share, down from its profit of $0.71 per share in the same quarter last year.
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Floor And Decor (FND) Q3 FY2023 Highlights:
- Revenue: $1.11 billion vs analyst estimates of $1.12 billion (1.39% miss)
- EPS: $0.61 vs analyst estimates of $0.56 (9.32% beat)
- The company dropped its revenue guidance for the full year from $4.5 billion to $4.37 billion at the midpoint, a 2.89% decrease
- Free Cash Flow of $87.8 million is up from -$109 million in the same quarter last year
- Gross Margin (GAAP): 42.2%, up from 41.4% in the same quarter last year
- Same-Store Sales were up 9.3% year on year
- Store Locations: 207 at quarter end, increasing by 29 over the last 12 months
Operating large, warehouse-style stores, Floor & Decor (NYSE:FND) is a specialty retailer that specializes in hard flooring surfaces for the home such as tiles, hardwood, stone, and laminates.
Home Improvement RetailerHome improvement retailers serve the maintenance and repair needs of do-it-yourself homeowners as well as professional contractors. Home is where the heart is, so any homeowner will want to keep that home in good shape by maintaining the yard, fixing leaks, or improving lighting fixtures, for example. Home improvement stores win with depth and breadth of product, in-store consultations for customers who need help, and services that cater to professionals. It is hard for non-focused retailers and e-commerce competitors to match these. However, the research, convenience, and prices of online platforms means they can’t be fully written off, either.
Sales GrowthFloor And Decor is a mid-sized retailer, which sometimes brings disadvantages compared to larger competitors benefiting from better economies of scale. On the other hand, it has an edge over smaller competitors with fewer resources and can still flex high growth rates because it's growing off a smaller base than its larger counterparts.
As you can see below, the company's annualized revenue growth rate of 22.6% over the last four years (we compare to 2019 to normalize for COVID-19 impacts) was exceptional as it added more brick-and-mortar locations and increased sales at existing, established stores.
This quarter, Floor And Decor grew its revenue by 0.91% year on year, falling short of Wall Street's estimates. Looking ahead, the analysts covering the company expect sales to grow 10.3% over the next 12 months.
Number of StoresA retailer's store count often determines on how much revenue it can generate.
When a retailer like Floor And Decor is opening new stores, it usually means it's investing for growth because demand is greater than supply. Since last year, Floor And Decor's store count increased by 29 locations, or 16.3%, to 207 total retail locations in the most recently reported quarter.
Taking a step back, the company has rapidly opened new stores over the last eight quarters, averaging 17.8% annual growth in its physical footprint. This store growth is much higher than other retailers and gives Floor And Decor an opportunity to become a large company over time. With an expanding store base and demand, revenue growth can come from multiple vectors: sales from new stores, sales from e-commerce, or increased foot traffic and higher sales per customer at existing stores.
Same-Store SalesA company's same-store sales growth shows the year-on-year change in sales for its brick-and-mortar stores that have been open for at least a year, give or take, and e-commerce platform. This is a key performance indicator for retailers because it measures organic growth and demand.
Floor And Decor's demand within its existing stores has generally risen over the last two years but lagged behind the broader consumer retail sector. On average, the company's same-store sales have grown by 7.95% year on year. With positive same-store sales growth amid an increasing physical footprint of stores, Floor And Decor is reaching more customers and growing sales.
In the latest quarter, Floor And Decor's same-store sales rose 9.3% year on year. This growth was a deceleration from the 11.6% year-on-year increase it posted 12 months ago, showing the business is still performing well but lost a bit of steam.
Key Takeaways from Floor And Decor's Q3 Results With a market capitalization of $8.83 billion, Floor And Decor is among smaller companies, but its $61.6 million cash balance and positive free cash flow over the last 12 months give us confidence that it has the resources needed to pursue a high-growth business strategy.
This was a bad quarter, with the company missing on same store sales, revenue, and EPS. Floor and Decor also lowered full year guidance, showing that the weakness is continuing. Overall, this was a mixed quarter for Floor And Decor. The company is down 10.5% on the results and currently trades at $76 per share.
The author has no position in any of the stocks mentioned in this report.
