Floor & Decor Holdings, Inc. (NYSE: FND) — FY2023 Form 10-K
Reporting period: Fiscal year ended December 28, 2023 (52 weeks). The filing also reports fourth-quarter results; FY2022 ended December 29, 2022.
Business context
Floor & Decor is a specialty retailer of hard-surface flooring, accessories and commercial surfaces. At year-end, it operated 221 warehouse-format stores and five design studios in 36 states, plus four distribution centers and an e-commerce site. It opened 31 warehouse stores and closed one during FY2023. Connected-customer sales represented approximately 19% of annual net sales.
Key financial metrics
| Metric | FY2023 | FY2022 | Change |
|---|---|---|---|
| Net sales | $4.414 billion | $4.264 billion | +3.5% |
| Gross profit / margin | $1.858 billion / 42.1% | $1.728 billion / 40.5% | Margin +160 bps |
| Operating income / margin | $321.4 million / 7.3% | $396.8 million / 9.3% | −19.0% |
| Net income / diluted EPS | $246.0 million / $2.28 | $298.2 million / $2.78 | Net income −17.5% |
| Adjusted EBITDA / margin | $551.1 million / 12.5% | $577.1 million / 13.5% | −4.5% |
| Cash from operating activities | $803.6 million | $112.5 million | Increase primarily from working capital |
| Cash used in investing activities | $565.0 million | $455.6 million | Higher capital spending and acquisition payments |
FY2023 comparable-store sales fell 7.1%, following 9.2% growth in FY2022. Comparable transactions declined 7.2%, while average ticket increased 0.2%. Sales growth came from new stores and commercial business, offset in part by weaker comparable sales. Gross margin improved as supply-chain costs declined, but higher store operating and corporate costs—including growth-related expenses and deleverage—reduced operating and net income margins.
Fourth quarter: Net sales were $1.048 billion, essentially flat versus $1.048 billion a year earlier. Gross profit rose to $442.1 million from $435.9 million, while net income fell to $37.1 million from $69.2 million. Diluted EPS was $0.34 versus $0.64. Fourth-quarter cash flow is not separately provided in the filing text.
Liquidity and debt: Year-end unrestricted liquidity was $752.8 million: $34.4 million in cash and $718.4 million available under the $800 million asset-based revolver, net of letters of credit. No revolver borrowings were outstanding at year-end. Term-loan principal was $202.4 million, variable-rate, with a February 2027 maturity; the stated year-end rate was 7.35%. Operating lease liabilities were $1.428 billion. The company reported compliance with debt covenants.
Outlook, commentary and risks
- Management attributed weaker demand to higher interest rates and home prices, reduced existing-home sales, inflation and consumer spending shifting toward services. It said the duration and severity of housing-market pressure remained uncertain.
- For FY2024, management planned capital expenditures of approximately $400–$475 million, including investment to open 30–35 warehouse stores, relocate stores, begin construction for FY2025 openings, remodel stores, expand distribution capacity and upgrade technology.
- Longer term, the company targets low- to mid-teens annual store-base growth and at least 500 U.S. warehouse stores within approximately eight years. Management cautioned that its FY2022 and FY2023 new-store cohorts are expected to fall below new-store model targets under challenging macroeconomic conditions.
- Key exposures include housing and discretionary-spending weakness; execution, cost and profitability risks from expansion; inventory and supply-chain disruption; competition; and import, tariff and geopolitical risks. Approximately 25% of products sold in FY2023 were produced in China, where many imports face U.S. tariffs.
- Variable-rate debt creates interest-rate exposure. A January 2024 interest-rate cap is intended to cap SOFR on $150 million of term-loan principal at 5.50% from May 2024 through April 2026.
- Contingencies include a Texas product-liability and wrongful-death lawsuit seeking more than $11 million collectively, plus exemplary damages; the company cannot reasonably estimate a possible loss. A derivative fiduciary-duty case proceeded to discovery after a dismissal motion was denied. The company maintains insurance, subject to limits and terms.
- Salesmaster was acquired in June 2023 for estimated consideration of $20.1 million to expand commercial surfaces; its post-acquisition FY2023 sales and earnings were immaterial. The company recorded a $2.6 million expense from changes in contingent earn-out fair value.
Important facts for investors to verify
- Whether comparable-store sales and transactions stabilize, and how much future growth depends on new-store openings.
- Whether gross-margin gains persist and offset operating-cost deleverage, store-opening costs and continued investment.
- How FY2024 capital spending, store openings and new-store performance compare with management’s plans and targets.
- Cash-flow quality: FY2023 operating cash flow benefited substantially from lower inventory and higher accounts payable; review working-capital trends and supplier-finance balances, which rose to $114.0 million from $82.5 million.
- Exposure to variable borrowing costs, lease commitments, China sourcing and tariffs, and possible supply-chain delays.
- Developments and potential financial effects of the pending litigation; the filing does not provide a clear estimate of possible losses.
The audited financial statements received an unqualified opinion, and management and the auditor reported effective internal control over financial reporting as of December 28, 2023.