Specialty flooring retailer Floor & Decor (NYSE:FND) reported Q4 CY2024 results topping the market’s revenue expectations , with sales up 5.7% year on year to $1.11 billion. On the other hand, the company’s full-year revenue guidance of $4.82 billion at the midpoint came in 0.8% below analysts’ estimates. Its GAAP profit of $0.44 per share was 75% above analysts’ consensus estimates.
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Floor And Decor (FND) Q4 CY2024 Highlights:
Tom Taylor, Chief Executive Officer, stated, “We are extremely proud of our store and store support teams for executing our sales and customer service initiatives and diligently managing our costs during the fourth quarter and full-year. Their hard work enabled us to report fourth quarter comparable store sales, earnings flow-through, and earnings per share that were better-than-expected despite the macroeconomic challenges affecting our category. Our fourth quarter and full-year results demonstrate the resiliency of our business model and the potential earnings power we believe we can unlock over time as industry fundamentals improve.”
Company Overview
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 Retailer
Home 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 Growth
A company’s long-term performance is an indicator of its overall quality. While any business can experience short-term success, top-performing ones enjoy sustained growth for years.
With $4.46 billion in revenue over the past 12 months, Floor And Decor is a small retailer, which sometimes brings disadvantages compared to larger competitors benefiting from economies of scale and negotiating leverage with suppliers. On the other hand, it can grow faster because it’s working from a smaller revenue base and has more white space to build new stores.
As you can see below, Floor And Decor’s sales grew at an impressive 16.8% compounded annual growth rate over the last five years (we compare to 2019 to normalize for COVID-19 impacts) as it opened new stores and expanded its reach.
This quarter, Floor And Decor reported year-on-year revenue growth of 5.7%, and its $1.11 billion of revenue exceeded Wall Street’s estimates by 1.9%.
Looking ahead, sell-side analysts expect revenue to grow 9.3% over the next 12 months, a deceleration versus the last five years. Despite the slowdown, this projection is healthy and implies the market is baking in success for its products.
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Store Performance
Number of Stores
Over the last two years, Floor And Decor opened new stores at a rapid clip by averaging 15.9% annual growth, among the fastest in the consumer retail sector. This gives it a chance to scale into a mid-sized business over time.
When a retailer opens new stores, it usually means it’s investing for growth because demand is greater than supply, especially in areas where consumers may not have a store within reasonable driving distance.
Note that Floor And Decor reports its store count intermittently, so some data points are missing in the chart below.
Same-Store Sales
The change in a company's store base only tells one side of the story. The other is the performance of its existing locations and e-commerce sales, which informs management teams whether they should expand or downsize their physical footprints. Same-store sales gives us insight into this topic because it measures organic growth for a retailer's e-commerce platform and brick-and-mortar shops that have existed for at least a year.
Floor And Decor’s demand has been shrinking over the last two years as its same-store sales have averaged 6.8% annual declines. This performance is concerning - it shows Floor And Decor artificially boosts its revenue by building new stores. We’d like to see a company’s same-store sales rise before it takes on the costly, capital-intensive endeavor of expanding its store base.
In the latest quarter, Floor And Decor’s year on year same-store sales were flat. This performance was a well-appreciated turnaround from its historical levels, showing the business is improving.
Key Takeaways from Floor And Decor’s Q4 Results
We were impressed by how significantly Floor And Decor blew past analysts’ EBITDA expectations this quarter on better-than-expected revenue. Looking ahead, full year EBITDA guidance was in line with expectations. Overall, we think this was a great quarter with decent guidance. The stock traded up 10.8% to $102.86 immediately after reporting.
Floor And Decor had an encouraging quarter, but one earnings result doesn’t necessarily make the stock a buy. Let’s see if this is a good investment. If you’re making that decision, you should consider the bigger picture of valuation, business qualities, as well as the latest earnings. We cover that in our actionable full research report which you can read here, it’s free .
