Floor & Decor 4Q25 Immediate Call Postmortem
At least Tom Taylor did the beginning commentary for the call. Sadly, it sounds like he won’t do it anymore though. Story here is they are prepared for when things get better but didn’t sound like anything exciting towards that topic in the near-term (QTD comps bad).
Driving annual supply chain improvement is “top priority” for next several years. Focused on moving inventory more efficiently and increasing inventory turns. Sounds great when you have a B2B mindset but often more complicated of a task with a D2C business. Brad thinks it’s a “singles and doubles” transformation at this point.
Will have footprint in every major US market by end of 1Q27. Goal remains 500 stores across US. Class of 2026 stores will continue to benefit from efforts to reduce costs, which is somewhat impressive given that they are focused more on tier 1 and tier 2 cities.
January up 0.4% (first increase since 2022) but early February sales impacted by winter storms. Markets without weather issues continue to see sustained demand but total QTD now down 3.5%. Winter storms impacted 55% of stores and comps by 200-300 bps. Improvement will take time. Do not expect to recover lost sales from storms within first quarter. I am old enough to remember when management used to say the winter doesn’t really impact this business (because the work is mostly “inside”)…
Seeing “subtle” shift toward value – uh oh. Did it really take a new CEO for them to finally admit that trading down is occurring? Isn’t it funny how qualitatively spoken (not written in 10K/10Q) narratives often only change like that? Why didn’t a single sell-sider ask about trading down?
SG&A going forward will only be one line item (no longer broken out into selling, G&A, pre-opening, etc). Anytime a company reduces KPI’s investors should beware. The idea that management only looks at total SG&A to manage the business “day to day” (which is what they claimed on call) is ridiculous. But it is true that the much more diversified, larger scale, and not growing (stores) peers like Home Depot and Lowe’s report that way.
Horvers got them to say there are no deferred costs that they are kicking the can on. Any upside to the model should flow through in the high 30’s. 30% of fleet is on minimal hours so can flex on the upside.
Lasser asked the elephant in the room question towards market share gains. The key to taking share at a faster rate comes from initiatives Brad is taking charge of: 1) loyalty program, 2) tier system for Pros. Honestly don’t think either of those sound too exciting near-term.
In 2025 the tariff impact was “minimal”. Gross margin will face more pressure in 2H26 than 1H26. Thats going to change the consistency of how consensus gets to its numbers...
The commercial space is highly fragmented and “we will think about M&A as it comes up”. Brad Jacobs at QXO better stick to the non flooring world!
*These are our unabridged quick thoughts and notes from the call. We get them out as soon as possible after the call ends. Management has given some topics to dig deeper into and will circle back afterwards with much more in depth work on what was mentioned. You can find that work (and more on Floor & Decor and other retail/consumer research) at our website here: M Squared Capital
Originally posted on X and Substack.