What Management Said
Read the full Q2 2025 transcript ↗Welcome to Floor & Decor fiscal 2025 second quarter earnings conference call. A reconciliation of each of these non-GAAP measures to the most directly comparable GAAP financial measure can be found in the earnings release, which is available on our Investor Relations website at ir.flooranddecor.com. During today's conference call, Brad, Bryan, and I will discuss some of our second quarter earnings highlights. Comparable store sales increased by 0.4%, marking the first quarterly increase since the fourth quarter of fiscal 2022.
That said, we remain committed to a disciplined and agile growth strategy. Should the housing market or broader economic environment underperform relative to our expectations, we are prepared to adjust our expansion plans accordingly to ensure prudent capital allocation and long-term value creation. With that context in mind, I'd like to take a minute to outline and update the key actions we're taking to mitigate universal, reciprocal, and sectoral tariffs to position the business for continued growth. Third, we continue to apply a balanced portfolio approach to product pricing while effectively managing our Gross margin rate and overall profitability.
As discussed during our first quarter earnings conference call, we will continue to adjust our retail prices both upward and downward as needed to help mitigate the impact of tariffs and competition. Finally, as we mentioned in our first quarter earnings call, customers are asking for products produced in the United States, and we have already taken action to identify American-made products in our stores. These results are a clear reflection of the disciplined execution of our growth strategies, the agility of our operations, and the unwavering commitment of our associates. In the second quarter, we saw the strongest relative sales growth across several merchandise categories, including wood, installation materials, and adjacent categories.
- Second quarter diluted earnings per share increased 11.5% to $0.58 from $0.52 in the prior-year period, reaching the high end of expectations.
- Sales rose 7.1% to $1,214 million and comparable store sales increased 0.4%, the first quarterly comparable store sales increase since the fourth quarter of fiscal 2022.
- Gross margin rate improved approximately 60 basis points to 43.9%, primarily due to lower supply chain costs, with gross profit up 8.5%.
- The company opened three new warehouse format stores in the quarter, including its first California store in close to three years, ending the quarter with 257 locations, up about 12% year over year.
- Adjusted EBITDA increased 9.7% to $150.2 million with an adjusted EBITDA margin of 12.4%, up about 30 basis points.
- Spartan Surfaces delivered stronger than expected sales and EBIT, with sales up approximately 7% year over year and June its strongest month in company history.
- Comparable transactions declined 3.3% in the quarter, with comparable store sales declining 0.8% in June and quarter-to-date third quarter comparable store sales down 1%.
- Selling and store operating expenses increased 10.2% and deleveraged approximately 90 basis points to 31.0% of sales, primarily due to new stores.
- Demand for big-ticket durables and large projects remained challenged amid elevated mortgage rates above 6.6% and existing home sales that fell to a 3.93 million annual rate, the lowest in nine months.
- Net interest expense increased 62.3% to $1.1 million and the effective tax rate rose to 21.8% from 19.8%.
Guidance Changes
| Metric | Period | Current guidance |
|---|---|---|
| Total sales | FY2025 | $4,660M to $4,750M (up 5% to 7%) |
| Comparable store sales | FY2025 | down 2% to flat |
| Gross margin rate | FY2025 | approximately 43.5% to 43.7% |
| Diluted EPS | FY2025 | $1.75 to $2.00 |
| Adjusted EBITDA | FY2025 | approximately $520M to $550M |
| New warehouse format store openings | FY2025 | 20 stores |
| New warehouse format store openings | FY2026 | at least 20 stores |
Performance Breakdown
| Metric | YoY | Note |
|---|---|---|
| Diluted EPS | +11.5% to $0.58 | Higher sales and gross margin rate expansion. |
| Sales | +7.1% to $1,214M | New store growth and a 0.4% comparable store sales increase. |
| Comparable store sales | +0.4% | Average ticket up 3.8% from product mix toward wood and better/best tiers and minor price increases, partially offset by a 3.3% decline in transactions. |
| Gross margin rate | +~60 bps to 43.9% | Primarily lower supply chain costs. |
| Selling and store operating expenses | +10.2% to $376.2M (deleverage ~90 bps) | Primarily $33.8 million for new stores. |
| Spartan Surfaces sales | +~7% | Momentum in high-specification sectors such as healthcare, education, hospitality, and senior living. |
Earnings Call Themes & Trends
| Topic | Previous mention | Current period | Trend |
|---|---|---|---|
| Tariff mitigation | Independents implementing high single-digit or higher price increases | Vendor negotiation, sourcing diversification across 240+ vendors in 26 countries, and balanced pricing; modest price increases planned for the back half | Ongoing |
| Housing/macro environment | Existing home sales weak | Mortgage rates above 6.6%, existing home sales at 3.93 million annualized; bouncing along the bottom | Stable/weak |
| Better and best product mix | Outcomping good for about three years | Customers continue to gravitate to better and best tiers | Improving |
| U.S. sourcing | ~20% of products in fiscal 2018 | ~27% of products sold in fiscal 2024, now largest country of manufacture | Improving |
| Pro business | Approximately 50% of sales | Approximately 50% of sales, outpacing company growth on transactions and ticket | Improving |
Q&A Summary
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