Floor & Decor Holdings, Inc. — FY 2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020; 53 weeks, versus 52 weeks in fiscal 2019. The filing is an annual report, not a standalone quarterly filing. Q4 figures below are the unaudited quarter information included in the 10-K. All amounts are U.S. dollars.
Business context
Floor & Decor is a specialty retailer of hard-surface flooring and related products. At year-end it operated 133 warehouse-format stores in 31 states, two design studios, four distribution centers and an e-commerce site. It opened 13 warehouse-format stores in FY 2020.
Key financial metrics
| Metric | FY 2020 | FY 2019 |
|---|---|---|
| Net sales | $2,425.8 million | $2,045.5 million |
| Gross profit / margin | $1,034.9 million / 42.7% | $863.0 million / 42.2% |
| Operating income / margin | $214.6 million / 8.8% | $159.2 million / 7.8% |
| Net income / margin | $195.0 million / 8.0% | $150.6 million / 7.4% |
| Diluted EPS | $1.84 | $1.44 |
| Adjusted EBITDA / margin | $323.0 million / 13.3% | $242.6 million / 11.9% |
| Cash from operations | $406.2 million | $204.7 million |
| Capital expenditures | $212.4 million | $196.0 million |
Sales increased 18.6% and net income increased 29.4% year over year. Comparable sales rose 5.5%, driven by transactions up 4.8% and average ticket up 0.7%. Gross margin expanded about 50 basis points. Operating expenses grew 16.5%, slower than sales. The company reported a $1.0 million gain on early extinguishment of debt and a 5.9% effective tax rate, which included a $7.7 million CARES Act tax benefit.
Q4 FY 2020: Net sales were $723.7 million, gross profit $307.5 million and net income $57.1 million, compared with $527.0 million, $230.0 million and $35.3 million, respectively, in Q4 FY 2019. Comparable sales increased 21.6% in Q4. The 53rd week contributed an estimated $41.8 million in annual sales and $6.4 million in net income; FY 2020 comparable-sales growth excludes that week.
Liquidity, debt and material changes
- Year-end cash and cash equivalents were $307.8 million. The company reported $378.7 million available under its $400 million asset-based revolving facility, for unrestricted liquidity of $686.4 million.
- Term-loan principal was $217.8 million; no revolving borrowings were outstanding at year-end. Operating lease liabilities totaled $1.036 billion, including $94.5 million current. Lease obligations are a significant fixed commitment.
- Operating cash flow rose to $406.2 million, primarily reflecting higher net income and lower net working-capital use. Approximate operating cash flow less capital expenditures was $193.7 million; this is a simple calculation, not company-reported free cash flow.
- In May 2020, the company borrowed $75 million under an incremental term-loan tranche, receiving $70.5 million net of discount and fees. It stated that it expected available cash, operating cash flow and credit facilities to meet requirements for at least the next 12 months.
Outlook, commentary, risks and unusual items
- For FY 2021, management planned approximately 20% growth in warehouse-store count, 27 new warehouse stores and three design studios. Planned capital expenditures were $440–$460 million, including new stores and distribution-center projects. These are plans, not guaranteed outcomes.
- Longer term, management described an opportunity to grow to approximately 400 warehouse stores over 8–10 years. It also cited potential for continued comparable-sales growth and margin leverage, while noting execution and market risks.
- COVID-19 materially hurt sales and profit in the first half: comparable sales declined 20.8% for the 13 weeks and 9.6% for the 26 weeks ended June 25, 2020. Results rebounded in the second half; management cautioned that the elevated demand might not continue and the pandemic’s future financial impact could not be reasonably estimated.
- Tariff exclusions generated expected refunds of $24.3 million, including interest; $12.9 million was received in FY 2020, with $11.4 million receivable at year-end. Potential additional antidumping and countervailing duties were estimated at up to approximately $3 million; the company had not reserved for this exposure.
- Key risks include dependence on home remodeling and discretionary spending, COVID-19 effects, store-expansion execution, staffing, competition, foreign sourcing and tariffs, freight and inventory costs, distribution capacity, and variable-rate debt. Management also cited container and trucking cost increases and LIBOR transition uncertainty.
- A securities class action was dismissed in September 2020 with no appeal. A related derivative action remained pending; the company said it could not reasonably estimate possible losses. Other ordinary-course claims were also disclosed.
Important facts for investors to verify
- Whether Q4’s 21.6% comparable-sales growth and strong second-half demand persist after pandemic-related home-improvement activity normalizes.
- Whether planned FY 2021 store openings and $440–$460 million capital spending are delivered on schedule and meet management’s stated return expectations.
- How lease commitments, debt maturities, interest-rate exposure and the February 2021 supplemental term-loan amendment affect future liquidity and leverage.
- Collection of remaining tariff refunds and the outcome of the potential duty exposure and pending derivative litigation.
- How margin performance responds to sourcing, freight, labor and distribution costs; adjusted EBITDA is a non-GAAP measure and should be assessed alongside GAAP results.