“We believe that our competition of people, product, price and access to inventory is strong, … [+] giving us additional confidence in our ability to grow our market share, even in a challenging macroeconomic environment,” he said. CEO Tom Taylor, Floor and decor.
Floor & Decor just reported strong revenue growth for the second quarter ended June 30. Net sales increased 26.7% to $1.1 billion, with comparable store sales up 9.2% year over year.
CEO Tom Taylor said the second quarter’s 2021 comparables were the “toughest” of the year, announcing that earnings per share of $0.76 were better than expected, giving the company’s shares a jump of $0.76. Gained 13.5% in Friday’s trading to finish at $92.92.
In the first half of 2022, total revenue increased 29% to more than $2.1 billion, although net revenue declined 3.7%, from 9.7% to 7.2%.
By the end of the year, the company forecasts revenues of $4,290 to $4,330 million – about 25% more than $3,433.5 million in 2021 and more than doubled in revenue of $2 billion in 2019. Comparable revenue growth is headed in the 10% to 11. % range.
The company’s results are more remarkable when measured against the current economic headwind, especially high inflation, rising mortgage rates, recent declines in annualized home sales, higher supply chain costs and port congestion.
Describing the company’s prospects as “cautious” in the current environment, Taylor affirmed: “We believe our competition of people, products, price and access to inventory is strong, giving us additional confidence in our ability to grow our market share , even in a difficult macroeconomic environment.”
While the earnings call focused on last quarter’s performance, Taylor started with a reminder of where the company is headed: $17 billion in sales and 500 stores nationwide. It currently operates 174 warehouses and will end the year with 192 warehouses, plus six smaller Design Center stores for interior designers, architects and specifiers.
New stores capture market share
Floor & Decor still has a long way to go to reach its long-term goal. But it’s a big country and Floor & Decor has found a proven, repeatable business strategy to propel it further and faster towards that goal. To see also : Yelp chief urges business leaders to speak out on decision. It all depends on aggressively opening new stores.
To that end, it will add 32 new stores this year after opening 27 last year. It currently operates in 34 states, with its first store in Minnesota breaking ground in Minneapolis in the third quarter.
Floor & Decor’s footprint is concentrated in major cities along the coasts and in Texas, around Atlanta and Chicago. Overall, it has a long runway to open new stores in virgin markets. And once it gains traction in a large market like Minneapolis, it will likely follow a hub-and-spoke model to expand locally and gain more market share.
Category killer
Nationally, retail for specialty floor coverings is shrinking. See the article : Netflix’s New Tier-1 Marketing System May Not Be a Quick Stock Fix. The Census department has reported no retail sales in the category since 2016, when about 9,200 retail companies operated just over 11,000 stores.
By 2019, that number had fallen to 10,669 branches of approximately 8,800 companies, a net loss of 362 stores. And probably the number of specialty flooring stores has declined since then. That is clearly not the case for Floor & Decor that started 2017 with 69 stores and has since added over 100.
National, Floor & Decor has few direct competitors with scale. One of them is the Dallas-based Artisan Design Group, which was formed in 2016 through the merger of Floors Inc. and Malibu Floors. Private equity Sterling Group then acquired ADG in 2018.
Since then, ADG has pursued a roll-up strategy by acquiring independent retailers that retain their local brands. Floor Covering Weekly reports that ADG generated revenue of $1.5 billion in 2021 and operated approximately 100 stores.
Then there’s LL, formerly known as Lumber LiquidatorsLL
. But with some 450 stores, LL’s nearly $1.2 billion in sales last year was only a fraction of Floor & Decor’s and in the most recent quarter ended June 30, sales were down 0.8%.
Apart from Artisan Design Group and LL, independent specialty flooring stores with fewer than 20 employees account for more than 90% of the flooring businesses in the country. They are particularly vulnerable when Floor & Decor comes in.
E-commerce expands reach and ticket
The major home improvement chains also compete, but cannot offer the DYI or professional customers the depth and breadth of products and services that a flooring specialist like Floor & Decor can. See the article : Maine Commercial Real Estate Transactions: July 2022 – CentralMaine.com.
As most retailers are discovering, once they have a physical store presence in a market, their e-commerce sales get a boost locally. Floor & Decor. In the current quarter, e-commerce business grew 34% from last year, reaching nearly 18% of total sales, a significant proportion given the nature of its products.
The pandemic closures forced the company to adopt an omnichannel strategy and local stores have played an integral role in this. The vast majority of e-commece orders are handled via in-store pickup.
Trading up
And the rapid adoption of a connected customer strategy has boosted both the top and bottom line of the company, with the company reporting that the sales generated online have tickets that are “much higher than the in-store ticket.”
Not only is Floor & Decor opens stores quickly, it generates more revenue from those locations. Average sales ticket increased 18% in the second quarter, driven by customers trading its better and best offers, especially laminate and luxury vinyl, which now represent 27% of sales, up about 40% from the previous quarter. previous year.
In-store design services also help increase the average sales ticket, but the influence of designers goes much further. Taylor explains, “We continue to find that when a designer gets involved in the project, we see a higher customer satisfaction score, higher ticket average, higher cart sales attachment rates, higher penetration rates for our adjacent categories, and higher gross margin.”
Currently, the company has about 800 designers in its stores and plans to replenish their numbers after proving their long-term potential.
In addition, it rolled out in-home design services this quarter in the Washington, D.C. market and then Atlanta, following successful launches in Houston, Dallas and Miami. Designer housecalls should bolster tickets even further.
Professionals in pocket
And as it builds out more Design Center stores to attract independent interior designers, it will put its influence-the-influencer strategy on steroids.
A finishing touch to the repeatable business process is to attract and serve flooring professionals in local markets. Described as a ‘holistic PRO strategy’, it offers a PRO Premier Rewards program to encourage repeat purchases and build wallet share among professionals.
Taylor stated that the store’s total Q2 sales and comparable store sales growth were “significantly higher” than the company’s overall growth rate, with PRO sales accounting for nearly 40% of Q2 sales growth.
Solid foundation for growth
Professionals are likely to become an even more important part of Floor & Decor’s business as consumers go back to normal and have less time at home to spend on DIY projects. Taylor noted that the company didn’t quite hit its second-quarter comparable store sales expectations of 10% as homeowners started traveling again over summer weekends.
Floor & Decor has a proven formula for continuing to gain market share in an approximately $70 billion flooring market. Offering the most in-demand hard floor products along with installation supplies and related cabinets and fixtures to complete bathroom and kitchen projects, it is well stocked with inventory, which is an added advantage with its still unpredictable supply chain.
And it sees potential benefits emerging from the current economic uncertainty. The company reports that sales of existing homes have fallen and mortgage rates have risen, and expects more homeowners to stay put. So they will turn to Floor & Decor to enhance their current homes with new hard floors that pay off in the long run. Note that new housing construction is not an important part of its activities.
