Floor & Decor Holdings, Inc. — FY2022 10-K
Reporting period: Fiscal year ended December 29, 2022 (52 weeks). The requested Q4 figures are unaudited and cover the fourth quarter of FY2022. Floor & Decor operates a specialty hard-surface flooring retail and commercial distribution business; at year-end it had 191 warehouse-format stores and six design studios in 36 states.
Financial performance
| Metric | FY2022 | FY2021 |
|---|---|---|
| Net sales | $4.264 billion | $3.434 billion |
| Gross profit / margin | $1.728 billion / 40.5% | $1.422 billion / 41.4% |
| Operating income / margin | $396.8 million / 9.3% | $339.0 million / 9.9% |
| Net income / net margin | $298.2 million / 7.0% | $283.2 million / 8.2% |
| Diluted EPS | $2.78 | $2.64 |
| Adjusted EBITDA / margin | $577.1 million / 13.5% | $485.1 million / 14.1% |
| Cash from operations | $112.5 million | $301.3 million |
| Capital expenditures | $456.6 million | $407.7 million |
Q4 FY2022: Net sales were $1.048 billion, gross profit $435.9 million, net income $69.2 million, and diluted EPS $0.64. Q4 FY2021 comparatives were $914.3 million, $354.6 million, $49.9 million, and $0.46, respectively.
Sales drivers: FY2022 net sales grew 24.2%, reflecting 9.2% comparable-store sales growth and sales from new stores and Spartan. Comparable average ticket rose 17.0%, while comparable customer transactions fell 6.6%. Management attributed the transaction decline partly to slowing macroeconomic demand, higher interest and mortgage rates, lower existing-home sales, comparison with strong FY2021 results, and consumer spending shifting toward travel and services.
Liquidity, debt, and balance sheet
- Year-end cash was $9.8 million; reported unrestricted liquidity was $566.3 million, including $556.5 million available under the ABL facility without covenant violations.
- Debt principal totaled $414.7 million: $204.5 million under the term loan and $210.2 million borrowed under the ABL. Both facilities carry variable rates. The company reported compliance with debt covenants.
- Inventory was $1.292 billion, up from $1.008 billion. Management attributed the lower operating cash flow primarily to inventory purchases and other working-capital needs.
- Operating lease liabilities totaled $1.333 billion. Contractual undiscounted operating lease payments were $1.882 billion.
Changes, outlook, and risks
- Gross margin declined about 90 basis points, primarily due to higher supply-chain costs. Selling and store operating expenses rose to 25.3% of sales from 24.7%, reflecting store growth, wages, and credit-card processing fees. Net interest expense more than doubled to $11.1 million, and the effective tax rate rose to 22.7% from 15.2%.
- Management planned FY2023 capital expenditures of approximately $620 million to $675 million, including investment to open 32 to 35 warehouse stores, relocate stores, remodel locations, expand distribution capacity, and fund technology. The filing does not provide a clear FY2023 revenue or earnings forecast.
- The company expects cash from operations, cash on hand, and available credit to fund anticipated needs. It cited easing signs in labor and supply-chain pressures late in FY2022, while cautioning that the duration and effects of supply constraints and cost increases remain uncertain.
- Key risks include weaker housing and remodeling demand, inflation and interest rates, the ability to pass on cost increases, inventory and supply-chain disruption, store expansion execution, and variable-rate debt. About 29% of products sold in FY2022 were produced in China; tariffs and trade restrictions remain relevant risks.
- Disclosed contingencies include a wrongful-death and product-liability lawsuit concerning wood paneling and a stockholder derivative action. The company said it could not reasonably estimate possible losses or their range. It also disclosed a construction defect at its Maryland distribution center; the operational impact of any repairs was unclear.
- The auditor issued unqualified opinions on the financial statements and internal controls; management and the auditor reported effective internal control over financial reporting at year-end.
Important facts for investors to verify
- Whether lower transaction counts persist and whether higher average tickets can continue to offset them.
- Whether gross margin recovers as freight and other supply-chain costs change, and how pricing affects customer demand.
- Whether inventory growth converts to sales and operating cash flow; FY2022 operating cash flow fell substantially year over year.
- Execution and returns on the planned FY2023 store openings and capital spending, alongside lease and distribution commitments.
- Exposure to variable interest rates, China-related sourcing and tariffs, the Maryland facility issue, and the outcomes or potential costs of pending litigation.