Floor & Decor Holdings, Inc. Announces Fourth Quarter and Fiscal 2018 Financial Results

  • Net sales increased 23.5% from fiscal 2017 to $1,709.8 million
  • Comparable store sales increased 9.2% from fiscal 2017
  • Diluted earnings per share (“EPS”) increased 7.8% to $1.11 from
    $1.03 in fiscal 2017; Adjusted diluted EPS increased 40.6% to $0.97
    from $0.69 in fiscal 2017
  • Provides first quarter and full year fiscal 2019 sales and earnings
    outlook

ATLANTA–(BUSINESS WIRE)–Floor & Decor Holdings, Inc. (NYSE:FND) (“We,” “Our” the “Company,” or
“Floor & Decor”) announces its financial results for the fourth quarter
and fiscal 2018, which ended December 27, 2018.

Tom Taylor, Chief Executive Officer, stated, “We are pleased with our
fourth quarter and fiscal 2018 results. We successfully opened 17 new
stores during fiscal 2018, including the opening of our 100th store in
Burlingame, California. This is a significant milestone for our Company,
as we continue down a path towards 400 potential stores. Our fourth
quarter and full year 2018 results are a testament to the hard work and
dedication that all our associates demonstrate every day serving our
customers and communities. They are key to our success.”

Mr. Taylor continued, “We remain highly confident in the long-term
momentum that is building at Floor & Decor and are proud to have
finished 2018 with our 10th consecutive year of double-digit
comparable same store sales growth excluding the impact on the Houston
market due to Hurricane Harvey and our sixth consecutive year of 20% new
store growth. We enter 2019 in a strong position and remain committed to
and building on the same strategies and investments in our business that
have made us successful for almost two decades.”

Unless indicated otherwise, the information in this release has been
adjusted to give effect to a 321.820-for-one stock split of our common
stock effected on April 24, 2017. Please see “Comparable Store Sales”
below for information on how the Company calculates its comparable store
sales growth.

For the Fiscal Year Ended December 27, 2018

  • Net sales increased 23.5% to $1,709.8 million from $1,384.8 million in
    the same period of fiscal 2017. Comparable store sales increased 9.2%.
    Comparable store sales excluding Houston increased 10.0%.
  • The Company opened 17 new stores and relocated one store during the
    year ending December 27, 2018.
  • Operating income increased 11.5% to $131.3 million from $117.8 million
    in the same period of fiscal 2017. Operating margin decreased 80 basis
    points to 7.7%.
  • Net income increased 13.0% to $116.2 million compared to $102.8
    million in the same period of fiscal 2017. Diluted EPS was $1.11
    compared to $1.03 in the same period of fiscal 2017.
  • Adjusted net income* increased 42.9% to $101.5 million compared to
    $71.0 million in the same period of fiscal 2017. Adjusted diluted EPS*
    was $0.97 compared to $0.69 in the same period of fiscal 2017, an
    increase of 40.6%.
  • Adjusted EBITDA* increased 20.9% to $191.9 million compared to $158.8
    million in the same period of fiscal 2017.

For the Thirteen Weeks Ended December 27, 2018

  • Fourth quarter net sales increased 12.1% to $436.7 million from $389.5
    million in the fourth quarter of fiscal 2017. Comparable store sales
    increased 0.5%. Comparable store sales excluding Houston increased
    8.7%.
  • The Company opened five new stores and relocated one store during the
    fourth quarter of fiscal 2018, ending the quarter with 100 warehouse
    format stores.
  • Operating income decreased 28.0% to $23.3 million from $32.4 million
    in the fourth quarter of fiscal 2017. Operating margin decreased 300
    basis points to 5.3%.
  • Net income decreased 62.7% to $17.9 million compared to $48.0 million
    in the fourth quarter of fiscal 2017. Diluted EPS was $0.17 compared
    to $0.46 in the fourth quarter of fiscal 2017.
  • Adjusted net income* increased 4.7% to $20.8 million compared to $19.9
    million in the fourth quarter of fiscal 2017. Adjusted diluted EPS*
    was $0.20 compared to $0.19 in the fourth quarter of fiscal 2017, an
    increase of 5.3%.
  • Adjusted EBITDA* increased 2.3% to $44.5 million compared to $43.5
    million in the fourth quarter of fiscal 2017.

*Non-GAAP financial measures. Please see “Non-GAAP Financial
Measures” and “Reconciliation of GAAP to Non-GAAP Financial Measures”
below for more information.

     

First Quarter and Fiscal 2019 Sales and Earnings Outlook

(In millions, except EPS and store count)

 
Thirteen Weeks Ended
3/28/2019
Net sales $474 – $482
Comparable store sales 2.0% to 4.0%
GAAP diluted EPS $0.25 – $0.27
Adjusted diluted EPS $0.26 – $0.28
Diluted weighted average shares outstanding 104.1
Adjusted EBITDA $56.1 – $58.7
Warehouse format store count 103
New warehouse format stores 3
 
 
Year Ended
12/26/2019
Net sales $2,060 – $2,094
Comparable store sales 6.0% to 8.0%
GAAP diluted EPS $1.01 – $1.06
Adjusted diluted EPS $1.07 – $1.12
Diluted weighted average shares outstanding 104.5
Adjusted EBITDA $233.8 – $240.9
Depreciation and amortization Approximately $69.9
Interest expense Approximately $9.5
Tax rate 23.1%
Warehouse format store count 120
New warehouse format stores 20
Capital Expenditures $220 – $230
 

The above guidance includes certain non-GAAP financial measures (namely
Adjusted EBITDA and Adjusted diluted EPS). Please see “Non-GAAP
Financial Measures” and “Reconciliation of GAAP to Non-GAAP Financial
Measures” below for more information.

While the Company is still completing its assessment of the
effectiveness of its internal control over financial reporting as of
December 27, 2018, it expects to report a material weakness in internal
control over financial reporting in its upcoming Annual Report on Form
10-K for fiscal 2018. This material weakness relates to ineffective
information technology general controls in the areas of user access and
program change-management over certain information technology systems
that support the Company’s financial reporting processes. As a result of
the identification of the material weakness, the Company has performed
further analysis and completed additional procedures intended to ensure
its consolidated financial statements for fiscal 2018 are prepared in
accordance with GAAP. Based on these procedures and analysis, and
notwithstanding the material weakness in the Company’s internal control
over financial reporting, there have been no misstatements identified in
the Company’s financial statements as a result of this material
weakness, and the Company expects to timely file its upcoming Form 10-K.

While remediation efforts have begun, the material weakness will not be
considered remediated until the applicable controls operate for a
sufficient period of time and the Company’s management has concluded,
through testing, that such controls are operating effectively. The
Company expects that the remediation of this material weakness will be
completed prior to the end of fiscal 2019.

Conference Call Details

A conference call to discuss the fourth quarter and full year fiscal
2018 financial results is scheduled for today, February 21, 2019, at
9:00 a.m. Eastern Time. A live audio webcast of the conference call,
together with related materials, will be available online at ir.flooranddecor.com.

A recorded replay of the conference call is expected to be available
approximately two hours following the conclusion of the call and can be
accessed both online at ir.flooranddecor.com
and by dialing 844-512-2921 (international callers please dial
412-317-6671). The pin number to access the telephone replay is
13686467. The replay will be available until February 28, 2019.

About Floor & Decor Holdings, Inc.

Floor & Decor is a leading specialty retailer of hard surface flooring,
offering the broadest in-stock selection of tile, wood, stone, related
tools and flooring accessories at everyday low prices. The company was
founded in 2000 and is headquartered in Smyrna, Georgia.

Comparable Store Sales

Comparable store sales refer to period over period comparisons of our
net sales among the comparable store base, which has historically been
when customers obtained possession of their product. Starting in 2018,
when the new revenue recognition standard was adopted (as described in
the Company’s Annual Report for fiscal 2017 filed with the Securities
and Exchange Commission on March 5, 2018 (the “Annual Report”)) our
comparable store sales refer to period-over-period comparisons of our
net sales based on when the customer obtains control of their product,
which is typically at the time of sale and may be slightly different
than our historically reported net sales due to timing of when final
delivery of the product has occurred. A store is included in the
comparable store sales calculation on the first day of the thirteenth
full fiscal month following a store’s opening, which is when we believe
comparability has been achieved. Since our e-commerce sales are
fulfilled by individual stores, they are included in comparable store
sales only to the extent the fulfilling store meets the above mentioned
store criteria. Changes in our comparable store sales between two
periods are based on net sales for stores that were in operation during
both of the two periods. Any change in square footage of an existing
comparable store, including remodels and relocations, does not eliminate
that store from inclusion in the calculation of comparable store sales.
Stores that are closed temporarily and relocated within their primary
trade areas are included in same store sales. Additionally, any stores
that were closed during the current or prior fiscal year are excluded
from the definition of comparable stores.

Non-GAAP Financial Measures

Adjusted net income, Adjusted diluted EPS, EBITDA and Adjusted EBITDA
(which are shown in the reconciliations below) are presented as
supplemental measures of financial performance that are not required by,
or presented in accordance with, accounting principles generally
accepted in the United States (“GAAP”). We define Adjusted net income as
net income adjusted to eliminate the impact of certain items that we do
not consider indicative of our core operating performance and the tax
effect related to those items. We define Adjusted diluted EPS as
Adjusted net income divided by Adjusted diluted weighted average shares
outstanding (i.e., the weighted average shares outstanding during the
relevant period plus the weighted average impact of issuing shares in
our initial public offering (our “IPO”). We define EBITDA as net income
before interest, loss on early extinguishment of debt, taxes,
depreciation and amortization. We define Adjusted EBITDA as net income
before interest, loss on early extinguishment of debt, taxes,
depreciation and amortization, adjusted to eliminate the impact of
certain items that we do not consider indicative of our core operating
performance. Reconciliations of these measures to the most directly
comparable GAAP financial measure are set forth in the tables below.

Adjusted net income, Adjusted diluted EPS, EBITDA and Adjusted EBITDA
are key metrics used by management and our board of directors to assess
our financial performance and enterprise value. We believe that Adjusted
net income, Adjusted diluted EPS, EBITDA and Adjusted EBITDA are useful
measures, as they eliminate certain items that are not indicative of our
core operating performance and facilitate a comparison of our core
operating performance on a consistent basis from period to period. We
also use Adjusted EBITDA as a basis to determine covenant compliance
with respect to our credit facilities, to supplement GAAP measures of
performance to evaluate the effectiveness of our business strategies, to
make budgeting decisions, and to compare our performance against that of
other peer companies using similar measures. Adjusted net income,
Adjusted diluted EPS, EBITDA and Adjusted EBITDA are also used by
analysts, investors and other interested parties as performance measures
to evaluate companies in our industry.

Adjusted net income, Adjusted diluted EPS, EBITDA and Adjusted EBITDA
are non-GAAP measures of our financial performance and should not be
considered as alternatives to net income or diluted EPS as a measure of
financial performance, or any other performance measure derived in
accordance with GAAP and they should not be construed as an inference
that our future results will be unaffected by unusual or non-recurring
items. Additionally, Adjusted net income, EBITDA and Adjusted EBITDA are
not intended to be measures of liquidity or free cash flow for
management’s discretionary use. In addition, these non-GAAP measures
exclude certain non-recurring and other charges. Each of these non-GAAP
measures has its limitations as an analytical tool, and you should not
consider them in isolation or as a substitute for analysis of our
results as reported under GAAP. In evaluating Adjusted net income,
Adjusted diluted EPS, EBITDA and Adjusted EBITDA, you should be aware
that in the future we will incur expenses that are the same as or
similar to some of the items eliminated in the adjustments made to
determine Adjusted net income, Adjusted diluted EPS, EBITDA and Adjusted
EBITDA, such as stock compensation expense, loss on asset disposal, and
other adjustments. Our presentation of Adjusted net income, Adjusted
diluted EPS, EBITDA and Adjusted EBITDA should not be construed to imply
that our future results will be unaffected by any such adjustments.
Definitions and calculations of Adjusted net income, Adjusted diluted
EPS, EBITDA and Adjusted EBITDA differ among companies in the retail
industry, and therefore Adjusted net income, Adjusted diluted EPS,
EBITDA and Adjusted EBITDA disclosed by us may not be comparable to the
metrics disclosed by other companies.

Please see “Reconciliation of GAAP to Non-GAAP Financial Measures” below
for reconciliations of non-GAAP financial measures used in this release
to their most directly comparable GAAP financial measures.

                     

Floor & Decor Holdings, Inc.

Consolidated Statements of Income

(In thousands, except per share data)

(Unaudited)

 
Thirteen Weeks Ended
12/27/2018 12/28/2017 % Increase
Actual % of Sales Actual % of Sales (Decrease)
Net sales $ 436,739 100.0 % $ 389,501 100.0 % 12.1 %
Cost of sales   255,721 58.6   227,127 58.3 12.6
Gross profit 181,018 41.4 162,374 41.7 11.5
Operating expenses:
Selling & store operating expenses 119,120 27.3 102,223 26.2 16.5
General & administrative expenses 30,332 6.9 25,090 6.5 20.9
Pre-opening expenses   8,253 1.9   2,660 0.7 210.3
Total operating expenses   157,705 36.1   129,973 33.4 21.3
Operating income 23,313 5.3 32,401 8.3 (28.0)
Interest expense   2,817 0.6   2,400 0.6 17.4
Income before income taxes 20,496 4.7 30,001 7.7 (31.7)
Provision for income taxes   2,594 0.6   (17,975) (4.6) NM
Net income $ 17,902 4.1 % $ 47,976 12.3 % (62.7) %
Basic weighted average shares outstanding 97,428 94,961
Diluted weighted average shares outstanding 103,790 104,238
Basic earnings per share $ 0.18 $ 0.51 (64.7) %
Diluted earnings per share $ 0.17 $ 0.46 (63.0) %
                   
Year Ended
12/27/2018 12/28/2017 % Increase
Actual % of Sales Actual % of Sales (Decrease)
Net sales $ 1,709,848 100.0 % $ 1,384,767 100.0 % 23.5 %
Cost of sales   1,007,580 58.9   812,203 58.7 24.1
Gross profit 702,268 41.1 572,564 41.3 22.7
Operating expenses:
Selling & store operating expenses 439,495 25.7 353,647 25.5 24.3
General & administrative expenses 105,327 6.2 84,661 6.1 24.4
Pre-opening expenses   26,145 1.5   16,485 1.2 58.6
Total operating expenses   570,967 33.4   454,793 32.8 25.5
Operating income 131,301 7.7 117,771 8.5 11.5
Interest expense 8,917 0.5 13,777 1.0 (35.3)
Loss on early extinguishment of debt     5,442 0.4 (100.0)
Income before income taxes 122,384 7.2 98,552 7.1 24.2
Provision for income taxes   6,197 0.4   (4,236) (0.3) NM
Net income $ 116,187 6.8 % $ 102,788 7.4 % 13.0 %
Basic weighted average shares outstanding 96,770 90,951
Diluted weighted average shares outstanding 104,561 99,660
Basic earnings per share $ 1.20 $ 1.13 6.2 %
Diluted earnings per share $ 1.11 $ 1.03 7.8 %

NM – Not Meaningful

         

Consolidated Balance Sheets

(In thousands, except share and per share data)

(Unaudited)

 
As of As of
December 27, December 28,
2018 2017
Assets
Current assets:
Cash and cash equivalents $ 644 $ 556
Income taxes receivable 4,324 12,472
Receivables, net 67,527 54,041
Inventories, net 471,014 427,950
Prepaid expenses and other current assets   15,949   8,193
Total current assets 559,458 503,212
Fixed assets, net 328,366 220,952
Intangible assets, net 109,330 109,362
Goodwill 227,447 227,447
Other assets   9,490   7,019
Total long-term assets   674,633   564,780
Total assets $ 1,234,091 $ 1,067,992
Liabilities and stockholders’ equity
Current liabilities:
Current portion of term loans $ 3,500 $ 3,500
Trade accounts payable 313,503 258,730
Accrued expenses and other current liabilities 82,038 74,547
Deferred revenue   5,244   22,523
Total current liabilities 404,285 359,300
Term loans 141,834 144,562
Revolving line of credit 41,000
Deferred rent 36,980 25,570
Deferred income tax liabilities, net 26,838 27,218
Tenant improvement allowances 37,295 26,779
Other liabilities   2,550   703
Total long-term liabilities   245,497   265,832
Total liabilities   649,782   625,132
Commitments and contingencies
Stockholders’ equity
Capital stock:

Preferred stock, $0.001 par value; 10,000,000 shares authorized; 0
shares issued and
outstanding at December 27, 2018 and
December 28, 2017

Common stock Class A, $0.001 par value; 450,000,000 shares
authorized; 97,588,539
shares issued and outstanding at
December 27, 2018 and 95,509,179 issued and
outstanding at
December 28, 2017

98 96

Common stock Class B, $0.001 par value; 10,000,000 shares
authorized; 0 shares
issued and outstanding at December 27,
2018 and December 28, 2017

Common stock Class C, $0.001 par value; 30,000,000 shares
authorized; 0 shares
issued and outstanding at December 27,
2018 and December 28, 2017

Additional paid-in capital 340,462 323,419
Accumulated other comprehensive income (loss), net 186 (205)
Retained earnings   243,563   119,550
Total stockholders’ equity   584,309   442,860
Total liabilities and stockholders’ equity $ 1,234,091 $ 1,067,992
 
         

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 
Year Ended
December 27, December 28,
2018 2017
Operating activities
Net income $ 116,187 $ 102,788
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 51,992 38,062
Non-cash loss on early extinguishment of debt 5,442
Loss on asset disposals 23 128
Amortization of tenant improvement allowances (4,494) (3,311)
Deferred income taxes (968) (557)
Interest cap derivative contracts (212)
Stock based compensation expense 6,514 4,959
Changes in operating assets and liabilities:
Receivables, net (13,486) (19,508)
Inventories, net (53,557) (134,248)
Other assets (9,921) (1,591)
Trade accounts payable 54,773 100,264
Accrued expenses and other current liabilities (1,731) 9,485
Income taxes 6,221 (18,259)
Deferred revenue 3,002 8,067
Deferred rent 14,455 9,243
Tenant improvement allowances 15,010 7,984
Other   1,816   259
Net cash provided by operating activities 185,624 109,207
Investing activities
Purchases of fixed assets   (151,397)   (102,253)
Net cash used in investing activities (151,397) (102,253)
Financing activities
Borrowings on revolving line of credit 217,050 236,700
Payments on revolving line of credit (258,050) (245,700)
Payments on term loans (3,500) (197,500)
Net proceeds from initial public offering 192,336
Proceeds from exercise of stock options 10,531 8,874
Debt issuance costs (170) (1,559)
Net cash used in financing activities   (34,139)   (6,849)
Net increase in cash and cash equivalents 88 105
Cash and cash equivalents, beginning of the period   556   451
Cash and cash equivalents, end of the period $ 644 $ 556
Supplemental disclosures of cash flow information
Cash paid for interest $ 7,563 $ 15,748
Cash paid for income taxes $ 1,082 $ 14,392
Fixed assets accrued at the end of the period $ 15,120 $ 8,521
Fixed assets acquired as part of lease – paid for by lessor $ $ 1,786
 
             

Reconciliation of GAAP to Non-GAAP Financial Measures

(In thousands, except EPS)

(Unaudited)

 

Adjusted diluted weighted average shares outstanding

 
Year Ended
12/27/2018     12/28/2017
Diluted weighted average shares outstanding (GAAP) 104,561 99,660
Adjustments for issuance of shares at IPO     3,289
Adjusted diluted weighted average shares outstanding   104,561   102,949
         

Adjusted net income and Adjusted diluted EPS

 
Thirteen Weeks Ended
12/27/2018     12/28/2017
Net income (GAAP): $ 17,902 $ 47,976
Secondary offering costs (a) 730
Hurricane disaster recovery (b) (397)
Miami distribution center exit (c) 5,840
Tax benefit of stock option exercises (d) (1,572) (10,555)
Research and development tax credits (e) (429)
Deferred tax adjustment due to tax reform and other credits (f) (17,842)
Tax impact of adjustments to net income (g)   (1,332)   428
Adjusted net income $ 20,838 $ 19,911
Adjusted diluted weighted average shares outstanding 103,790 104,238
Adjusted diluted EPS $ 0.20 $ 0.19
         
Year Ended
12/27/2018     12/28/2017
Net income (GAAP): $ 116,187 $ 102,788
Interest due to IPO (h) 4,095
Term loan repricing (i) 880
Secondary offering costs (a) 1,134 1,712
Hurricane disaster (recovery) expenses (b) (516) 76
Loss on early extinguishment of debt (j) 5,442
Miami distribution center exit (c) 7,120
Tax benefit of stock option exercises (d) (19,728) (21,771)
Research and development tax credits (e) (429)
Deferred tax adjustment due to tax reform and other credits (f) (1,174) (17,842)
Tax impact of adjustments to net income (g)   (1,550)   (3,930)
Adjusted net income $ 101,473 $ 71,021
Adjusted diluted weighted average shares outstanding 104,561 102,949
Adjusted diluted EPS $ 0.97 $ 0.69

(a) For the period ended December 27, 2018, reflects costs accrued
in connection with the secondary public offerings of
the
Company’s common stock by certain of the Company’s stockholders
completed on September 18, 2018, (the
“September 2018
Secondary Offering”) and May 29, 2018 (the “May 2018 Secondary
Offering” and, together with
the September 2018 Secondary
Offering, the “2018 Secondary Offerings”). For the period ended
December 28,
2017, reflects costs accrued in connection with
secondary public offerings of the Company’s common stock by
certain
of the Company’s stockholders completed on November 20, 2017, (the
“November 2017 Secondary
Offering”) and July 25, 2017 (the
“July 2017 Secondary Offering” and, together with the November 2017
Secondary
Offering, the “2017 Secondary Offerings”). The Company did not
sell any shares in the secondary
offerings and did not
receive any proceeds from the sales of shares by the selling
stockholders.

(b) Expenses and losses, net of recoveries, from hurricanes Harvey
and Irma.

(c) Amounts for the thirteen weeks and year ended December 27,
2018, relate to costs incurred in connection with the
exit of
the Company’s Miami distribution center.

(d) Tax benefit due to stock option exercises.
(e) Research and development tax credits related to prior periods
recorded as a reduction of current year tax expense.

(f) Effect of the Company’s deferred tax rate adjustment to
reflect the expected rate its deferred tax liabilities and assets
will
actualize at in future periods related to the 2017 tax reform act
passed in December 2017. 2018 amount reflects
the impact of
tax rate changes resulting from tax reform on temporary
differences as reported in the 2017 tax return
as compared to
what was originally recorded in the fiscal 2017 provision and
other credits.

(g) Adjustments for taxes related to pre-tax adjustments above.

(h) Adjustment to decrease interest expense due to utilizing net
IPO proceeds of approximately $192.0 million to pay
down a
portion of the Term Loan Facility (as described in the Company’s
Annual Report) on March 31, 2017.

(i) Adjustment to reflect the decrease in interest expense due to
the repricing of the Term Loan Facility on March 31,
2017, to
lower our interest rate by 0.75% and another 0.50% effective
October 1, 2017 (as described in the Annual
Report).

(j) Reflects the use of net proceeds from the IPO of approximately
$192.0 million to repay a portion of the amounts
outstanding
under the Term Loan Facility, which resulted in a loss on
extinguishment of debt in the amount of
approximately $5.4
million in 2017 (as described in the Annual Report).

 

Contacts

Investor Contacts:

Wayne Hood
Vice President of Investor Relations
678-505-4415
[email protected]

or

Matt McConnell
Manager of Investor Relations
770-257-1374
[email protected]

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