Floor & Decor Has A Proven Formula For Sustainable Business Growth

Retail Category-Killer Floor & Decor Has A Proven Formula For Sustainable Business Growth Pamela N. Danziger Senior Contributor Opinions expressed by Forbes Contributors are their own. I study the world’s most powerful consumers — The American Affluent New! Follow this author to improve your content experience.

Got it! Aug 6, 2022, 07:48am EDT | Share to Facebook Share to Twitter Share to Linkedin “We believe our competitive moat from people, product, price and access to inventory is strong, . . .

[+] giving us added confidence in our ability to grow our market share even in a difficult macroeconomic environment,” said CEO Tom Taylor, Floor & Decor. getty Floor & Decor just reported strong revenue growth for the second quarter ending June 30. Net sales increased 26.

7%, reaching $1. 1 billion with comparable store sales up 9. 2% year-over-year.

Explaining that the 2021 comparables faced in the second quarter were the “hardest” for the year, CEO Tom Taylor announced earnings per share of $0. 76 were better than expected, giving the company’s stock a 13. 5% bump in Friday’s trading to end at $92.

92. Through the first half of 2022, total sales are up 29%, topping $2. 1 billion, though net income was down 3.

7%, declining from 9. 7% to 7. 2%.

Looking to the end of the year, the company forecasts sales to reach $4,290 to $4,330 million – approximately 25% over $3,433. 5 million in 2021 and more than double sales of $2 billion in 2019. Comparable store sales growth is guided in the 10% to 11% range.

The company’s results are more remarkable when measured against current economic headwinds, notably high inflation, rising mortgage rates, recent declines in year-over-year existing home sales, higher supply chain costs and port congestion. Describing the company’s outlook as “prudent” in the current environment, Taylor affirmed, “We believe our competitive moat from people, product, price and access to inventory is strong, giving us added confidence in our ability to grow our market share even in a difficult macroeconomic environment. ” MORE FOR YOU ‘No Christmas Trees, No Christmas Trees’ Another Shortage May Be On The Way The Grocery Business Is Going To Get Much More Competitive Costco Addresses Supply Chain Pains By Chartering Their Own Ships While the earnings call focused on the past quarter’s performance, Taylor began with a reminder of where the company is headed: $17 billion in sales and 500 retail stores across the country.

Currently, it operates 174 warehouse stores and will end the year with 192 warehouse stores, plus six smaller Design Center stores catering to interior designers, architects and specifiers. New stores capture market share Floor & Decor still has a ways 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 toward that goal.

It all hinges 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 to break ground in Minneapolis in the third quarter.

Floor & Decor’s footprint is concentrated in big 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 major market like Minneapolis, it will likely follow a hub-and-spoke model to expand locally and capture more market share.

Category killer Nationwide, the specialty floor covering retail category is on the decline. The Census Department hasn’t reported retail sales in the category since 2016, when some 9,200 retail firms operated just over 11,000 stores. By 2019 that number dropped to 10,669 establishments operated by about 8,800 firms, a net loss of 362 stores.

And likely, the number of specialty floor covering stores has declined since then. That is clearly not the case for Floor & Decor which started 2017 with 69 stores and has added over 100 since then. Nationally, Floor & Decor has few direct competitors with scale.

One of them is Dallas-based Artisan Design Group which was formed in 2016 with the merger of Floors Inc. and Malibu Floors. Private equity Sterling Group subsequently acquired ADG in 2018.

Since then, ADG has followed a roll-up strategy by acquiring independent retailers that maintain their local brands. Floor Covering Weekly reports ADG generated $1. 5 billion in sales in 2021 and operated approximately 100 stores.

Then there is LL, formerly known as Lumber Liquidators LL . Yet with some 450 stores, LL’s revenues of nearly $1. 2 billion last year were only a fraction of Floor & Decor’s and in its most recent quarter ending June 30, sales dropped .

8% . Other than Artisan Design Group and LL, independent specialty flooring stores with fewer than 20 employees account for over 90% of the nation’s retail flooring firms. They are particularly vulnerable when Floor & Decor moves in.

The big box home improvement chains also compete but can’t offer the depth and breadth of products and services to the DYI or professional customers that a flooring specialist like Floor & Decor can. E-commerce expands reach and ticket As most retailers discover, once they establish a physical retail presence in a market, their e-commerce sales get a boost locally. That’s helped Floor & Decor.

In the current quarter, its e-commerce business increased 34% from last year and reached nearly 18% of total sales, a significant share considering the nature of its products. The pandemic shutdowns forced the company to lean into an omnichannel strategy and its local stores have played an integral role in that. The vast majority of e-commece orders are fulfilled through in-store pickup.

And the rapid adoption of a connected customer strategy has given both the company’s top and bottom line a lift, with the company reporting sales generated online have tickets “a lot higher than the in-store ticket. ” Trading up Not only is Floor & Decor opening stores rapidly, it is generating more sales out of those locations. The average retail ticket was up 18% in the second quarter, driven by customers trading up to its better and best offerings, notably laminate and luxury vinyl which now represent 27% of sales, up some 40% over the previous year.

In-store design services help boost the average sales ticket too, but designers’ influence goes much further. Taylor explained, “We continue to find that when a designer becomes involved with the project, we see a higher customer satisfaction score, a higher average ticket, higher basket selling attachment rates, higher penetration rates for our adjacent categories and a higher gross margin. ” Currently, the company employs some 800 designers in its stores and intends to keep adding to their numbers after proving their long-term potential.

In addition, it rolled out in-home design services in the Washington, D. C. market this quarter and Atlanta next, following successful launches in Houston, Dallas and Miami.

Designer housecalls should bolster tickets even further. And as it builds out more Design Center stores to attract independent interior designers, it will put its influence-the-influencer strategy on steroids. Professionals in pocket A finishing touch in its repeatable business process is attracting and servicing flooring professionals in local markets.

Described as a “holistic PRO strategy,” it offers a PRO Premier Rewards program to encourage repeat business and build wallet share among professionals. Taylor stated second quarter total and comparable store PRO sales growth were “significantly above” the company’s overall growth rate, with PRO sales accounting for nearly 40% of sales growth in the second quarter. Professionals are likely to become an even more important part of Floor & Decor’s business as consumers get back to normal and have less time at home to devote to DIY projects.

Taylor noted that the company didn’t quite reach its second-quarter comparable store sales expectations of 10% due to homeowners starting to travel once again over the summer weekends. Solid foundation for growth Floor & Decor has a proven formula to continue to capture more market share in a roughly $70 billion floor coverings market . By offering the most in-demand hard-flooring products, along with installation supplies and related cabinetry and fixtures to complete bathroom and kitchen projects, it’s well stocked with inventory which is an added advantage with the supply chain still dicey.

And it sees potential benefits emerging from the current economic uncertainty. Reporting that existing home sales have declined and mortgage rates have risen, the company expects more homeowners will stay in place. So they will turn to Floor & Decor to improve their current homes with new hard-surface flooring that will pay back over the long term.

Of note, new home construction is not a significant part of its business. “We are excited to be on track to report our 14th consecutive year of comparable store sales growth,” Taylor said as he concluded his prepared remarks. “We are demonstrating that we have the right teams, strategies and agile business model to navigate the global supply chain challenges, inflationary pressures and a weakening housing market.

” Follow me on Twitter or LinkedIn . Check out my website or some of my other work here . Pamela N.

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