Floor and Decor - Thesis Tracking, Valuation Update, FY2022 Results Review
Floor and Decor - Thesis Tracking, Valuation Update, FY2022 Results Review
Clear evidence FND is taking market share from Home Depot and peers, FY2022 marks 14 consecutive years of organic growth. FY2023 expects fewer store openings.
Hi everyone,
Just a quick post to review the FY2022 results of Floor and Decor FND 0.00%↑ - Future Monopoly in Hard-flooring Retail, our third and most recent sleep well investment.
The company reported Q4’22 and FY2022 results yesterday, 23 Feb 2023.
In one paragraph, FY2022 results show Floor and Decor has undoubtedly taken more market shares from Home Depot and Lowe’s - highlighting FND’s superior value proposition compared to peers. Professionals (the most loyal customer segment) also spent 18% more than last year, far above the overall comparable sales (SSS) of 9%, marking organic growth for 14 years consecutively. Tom Taylor, the CEO, guided lower store openings for FY2023 and likely FY2024, so the valuation has changed slightly, but the long-term thesis is intact.
In one quote from Tom Taylor, the CEO,
Total sales in 2022 grew 24.2%. We were able to post a pretty decent comp for the year. And when you look around the competitive landscape reports on our category, they don't seem to be too close to what - how our performance is. So yes, I - from everything that we see, we're taking share in a pretty meaningful way.
Q4’22 earnings call
Enjoy the FY2022 review as follow, and sleep well investing!
Introduction
Floor and Decor FND 0.00%↑ reported solid FY2022 results. I am satisfied and see no change in the long-term thesis - the dominant retailer for a one-stop shop for hard-flooring needs.
I am adjusting the valuation model to account for the better-than-expected FY2022 results, FY2023 guidance, and fewer stores opening for FY2023/24.
Before reviewing FY2022 results, here is a quick recap of Floor and Decor.
Floor and Decor’s primer
Floor and Decor is a hard-flooring warehouse retailer with a 9% market share operating 191 stores across the US. It has a clear capital allocation plan to widen moats and win market share. At maturity (450 stores in 10 years - my base case), I estimate that FND could command 25-30% of the market at the expense of the industry leaders, Home Depot HD 0.00%↑, Lowe’s LOW 0.00%↑ , and even more so, the independent and ‘mom-and-pop’ shops.
Solid FY2022 results
Revenue came in at $4.2B, up 24% YoY, and operating income was nearly $400M, up 17% YoY. Growth was driven by both solid store expansion and growing comparable sales.
It expanded store count rapidly to 191 total, up 32 units YoY, 1 unit less than targeted.
More importantly, organically, full-year comparable sales increased 9.2% YoY, and Q4’s comparable sales increased 2.5% YoY. It shows that in FY2022, FND continued to take shares from Home Depot and Lowe’s rapidly, despite having less store coverage and selling only hard flooring merchandise.
Total sales in 2022 grew 24.2%. We were able to post a pretty decent comp for the year. And when you look around the competitive landscape reports on our category, they don't seem to be too close to what - how our performance is. So yes, I - from everything that we see, we're taking share in a pretty meaningful way.
Q4’22 earnings call - Tom Taylor, FND’s CEO
Meanwhile, Home Depot's comparable sales for flooring materials have been terrible since Q2’22. In Q4’22, it was ‘soft,’ despite HD’s other big-ticket items performing.
While we saw big-ticket strength across Pro-heavy categories like portable power, hype and fitting, and gypsum, we did experience softness in other categories like laundry, soft flooring, and roofing.
What I like even more is the growth in comparable sales within the Pros segment. They are the industry's most knowledgeable, frequent, and high-ticket buyers segment. Thus, their affinity for FND’s products speaks volumes.
Q4’22 pro comparable store sales increased by 18.8% and transactions by 3.9% from the fourth quarter of 2021. Their gross spending accounted for 42.2% of the Q4’22 sales and 40.6% of FY22 sales. By comparison, Pros accounted for 35% of FY21 sales. Pro’s membership also grew to 30K in Q4’22, from 29K in Q3’22, and increased by 24% YoY from 23K members.