Floor & Decor Holdings, Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended December 30, 2021, a 52-week year. The filing also reports fourth-quarter results; fiscal 2020 included an extra week, and its comparable-store metrics exclude that week.
Business context
Floor & Decor operates a specialty hard-surface flooring retail and commercial distribution business. At year-end it had 160 warehouse-format stores across 33 states, two design studios, four distribution centers and an e-commerce platform. It opened 27 warehouse stores during FY2021 and acquired commercial flooring distributor Spartan Surfaces on June 4, 2021.
Financial performance
| Metric | FY2021 | FY2020 | Change |
|---|---|---|---|
| Net sales | $3.434 billion | $2.426 billion | +41.5% |
| Gross profit / margin | $1.422 billion / 41.4% | $1.035 billion / 42.7% | Profit +37.4%; margin down 1.3 percentage points |
| Operating income / margin | $339.0 million / 9.9% | $214.6 million / 8.8% | +58.0% |
| Net income / margin | $283.2 million / 8.2% | $195.0 million / 8.0% | +45.3% |
| Diluted EPS | $2.64 | $1.84 | Up from $1.84 |
| Adjusted EBITDA / margin | $485.1 million / 14.1% | $323.0 million / 13.3% | +50.2% |
Fourth quarter: Net sales were $914.3 million versus $723.7 million in Q4 FY2020. Net income was $49.9 million versus $57.1 million; diluted EPS was $0.46 versus $0.54. Quarterly gross profit was $354.6 million versus $307.5 million.
FY2021 comparable-store sales rose 27.6%, reflecting a 19.1% increase in transactions and a 7.2% increase in average ticket. Sales growth also reflected 27 new stores, Spartan, and comparison with FY2020 periods affected by temporary store restrictions and the extra fiscal week.
Cash flow, debt and liquidity
- Cash from operations was $301.3 million, down from $406.2 million, mainly because increased inventory and other working-capital needs more than offset higher cash earnings.
- Investing cash outflow was $471.2 million, including $407.7 million of fixed-asset purchases and $63.6 million paid for Spartan. Financing cash inflow was $1.6 million. Cash declined by $168.3 million to $139.4 million.
- Management reported unrestricted liquidity of $516.9 million: $139.4 million cash and $377.5 million available under the ABL facility. No ABL borrowings were outstanding at year-end; letters of credit were $22.5 million.
- Term-loan principal was $206.6 million, variable-rate and due primarily in 2027. The company reported compliance with material debt covenants. Operating lease liabilities totaled $1.226 billion; scheduled operating lease payments were $163.9 million in FY2022.
- Inventory was $1.008 billion, up from $654.0 million. Trade payables were $661.9 million, up from $417.9 million.
Material changes, outlook and risks
- Gross margin fell to 41.4%, chiefly due to higher freight costs. Selling and store operating expenses declined as a share of sales, reflecting leverage on occupancy, payroll and advertising as sales increased.
- Spartan’s estimated purchase consideration was $77.7 million. The transaction included up to $18.0 million of contingent earn-out payments; the year-end earn-out liability was $10.2 million. Spartan represented less than 2% of FY2021 net sales.
- For FY2022, management planned approximately 20% warehouse-store growth, 32 new warehouse stores and four design studios. Planned capital expenditures were $550–$590 million, primarily for new stores, remodeling, distribution centers and technology. The company’s longer-term target is at least 500 warehouse stores within 8–10 years; this is an ambition, not a guarantee.
- Management said demand remained strong but identified port congestion, labor shortages, higher transportation costs and weaker in-stock levels for some products. It said some higher transportation costs had been passed to customers, while the duration and financial effect of supply disruptions remained uncertain.
- Key exposures include inflation and the ability to pass on costs, economic and housing-market conditions, COVID-19 developments, store-opening execution, staffing, inventory management, foreign sourcing and tariffs. Approximately 30% of products sold in FY2021 were produced in China; the largest supplier accounted for 17% of net sales.
- The company expected $22.0 million of tariff refunds, including interest; $14.6 million had been received by year-end, and $7.4 million remained receivable. The outstanding amount was expected in FY2022, subject to U.S. Customs approval.
- Contingencies include ordinary-course litigation and a wrongful-death/product-liability lawsuit filed in Texas in 2021. The company denied the allegations and said it could not reasonably estimate the possible loss. It also disclosed a derivative lawsuit and other routine claims.
- President Lisa Laube planned to retire April 30, 2022; succession plans had not been finalized. The auditor issued unqualified opinions on the financial statements and internal controls; the internal-control assessment excluded the recently acquired Spartan.
Most important facts for investors to verify
- Whether FY2022 sales growth and store expansion can be sustained after the exceptional FY2021 comparable-store increase, and how new stores perform against management’s targets.
- Whether freight, tariff and other cost pressures ease or can continue to be passed through without weakening demand or margins.
- Inventory availability, working-capital requirements and operating cash flow as the company funds its stated capital-spending plan.
- Spartan’s integration, commercial growth, and earn-out performance against the acquisition assumptions.
- Debt and lease obligations, variable-rate exposure, and the company’s capacity to maintain liquidity while expanding.
- Developments in the disclosed litigation, tariff refunds and the distribution-center construction defect noted in the filing.