Floor & Decor Holdings, Inc. — Q1 2021 Form 10-Q
Business context and reporting period. The 13 weeks ended April 1, 2021, compared with the 13 weeks ended March 26, 2020. Floor & Decor operates one reportable segment, selling hard-surface flooring and related products. At quarter-end it had 140 warehouse-format stores, two design studios, four distribution centers, and an e-commerce business. It opened seven warehouse stores during the quarter. The company notes fiscal 2020 had an additional 53rd week, which modestly benefited Q1 2021 comparable-store sales comparisons.
Key financial results
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Net sales | $782.5 million | $554.9 million |
| Gross profit / margin | $336.9 million / 43.1% | $236.0 million / 42.5% |
| Operating income / margin | $95.9 million / 12.3% | $46.7 million / 8.4% |
| Net income / margin | $75.8 million / 9.7% | $37.1 million / 6.7% |
| Diluted earnings per share | $0.71 | $0.35 |
| Adjusted EBITDA / margin | $127.1 million / 16.2% | $73.1 million / 13.2% |
| Net cash from operations | $101.0 million | $24.7 million |
| Capital expenditures | $45.9 million | $38.4 million |
Balance sheet and liquidity. At April 1, 2021, cash and cash equivalents were $354.1 million. Total debt at par was $207.7 million; the reported carrying amount, including current maturities and net of unamortized discount and issuance costs, was approximately $197.6 million. ABL availability, net of outstanding letters of credit, was $370.5 million, giving reported unrestricted liquidity of $724.6 million. Operating lease liabilities totaled approximately $1.05 billion. The company reported compliance with material debt covenants.
Material changes versus the prior comparable period
- Sales increased 41.0%; comparable-store sales rose 31.1%, driven primarily by a 29.2% increase in comparable transactions and a 1.5% increase in average ticket. Management also cited 17 stores opened since March 2020, stimulus and home-improvement spending, and the prior-year curbside-only period as contributing factors.
- Gross margin improved approximately 60 basis points, which management attributed mainly to better leverage of distribution-center and supply-chain infrastructure on higher sales.
- Operating expenses rose 27.3%, less than sales growth; selling and store operating expenses declined as a share of sales from 27.6% to 24.3%. Higher general and administrative expense reflected incentive compensation and costs supporting growth.
- Operating cash flow increased to $101.0 million, primarily reflecting higher net income and lower inventory. Investing cash outflow was $45.9 million. Financing cash flow was an $8.8 million outflow, versus a $276.6 million inflow a year earlier, when the company drew $275 million on its revolving facility.
- In February 2021, the company borrowed $65 million under a supplemental term loan and used the proceeds with cash on hand to repay a $75 million term-loan tranche and cover related costs.
Outlook, commentary, risks, and unusual items
- Capital and store plans: Management planned fiscal 2021 capital expenditures of approximately $440–$460 million, funded primarily by operating cash flow and potential ABL borrowings. Plans included 27 warehouse-store openings, two design studios, distribution-center projects, remodels, and technology investments. This is a capital plan, not earnings or revenue guidance.
- COVID-19 and supply chain: Management said Q1 operations did not appear negatively affected by the pandemic, but described continuing uncertainty. Port congestion, labor shortages, shipping costs, and delays had reduced in-stock levels for certain products. Future restrictions, staffing difficulties, demand changes, or supply disruptions could adversely affect results; the full financial impact was not estimable.
- Trade and duties: The company expected to recover $24.4 million, including interest, from certain Section 301 tariff refunds; $13.4 million had been received by April 1, 2021. Potential additional antidumping and countervailing duties on certain Chinese ceramic tile imports were estimated at up to approximately $3.0 million; no reserve was recorded because management did not believe additional deposits would apply.
- Litigation: A stockholder derivative suit alleges breaches of fiduciary duties and unjust enrichment and seeks unspecified damages. The company could not reasonably estimate a possible loss or range. Other ordinary-course proceedings were not expected to materially affect financial position, cash flows, or results.
- Other items: The company reported $12.1 million of deferred employer Social Security taxes under the CARES Act, payable in installments in 2021 and 2022, and recognized $0.7 million of employee-retention credits in the quarter. A 1 percentage-point increase in the interest rate on its variable-rate term debt would add approximately $2.1 million of interest expense over 12 months. The company also identified LIBOR transition risk.
- Management expected cash, operating cash flow, and available credit to cover liquidity needs and planned capital expenditures for at least the next 12 months, subject to the uncertainties described in the filing. The 10-Q gives no quantified revenue or earnings forecast.
Important facts for investors to verify
- Whether Q1’s unusually strong comparable sales and margin performance persist as pandemic-related demand, stimulus effects, and prior-year comparison effects change.
- Progress against the planned $440–$460 million fiscal 2021 capital-spending program and store-opening targets, including funding needs.
- Supply-chain availability, freight costs, labor capacity, and the effect of these factors on inventory levels and margins.
- Collection of the remaining expected tariff refunds and the outcome or exposure from the ceramic-tile duty matter and stockholder litigation.
- Debt, lease obligations, ABL availability, variable-rate exposure, and the company’s transition from LIBOR-based contracts.