Floor And Decor (FND)

Specialty flooring retailer Floor & Decor (NYSE:FND) met Wall Street’s revenue expectations in Q1 CY2025, with sales up 5.8% year on year to $1.16 billion. On the other hand, the company’s full-year revenue guidance of $4.73 billion at the midpoint came in 1.8% below analysts’ estimates. Its GAAP profit of $0.45 per share was in line with analysts’ consensus estimates.

Company Overview

Operating large, warehouse-style stores, Floor & Decor (NYSE:FND) is a specialty retailer that specializes in hard flooring surfaces for the home such as tiles, hardwood, stone, and laminates.

Home improvement retailers serve the maintenance and repair needs of do-it-yourself homeowners as well as professional contractors. Home is where the heart is, so any homeowner will want to keep that home in good shape by maintaining the yard, fixing leaks, or improving lighting fixtures, for example. Home improvement stores win with depth and breadth of product, in-store consultations for customers who need help, and services that cater to professionals. It is hard for non-focused retailers and e-commerce competitors to match these. However, the research, convenience, and prices of online platforms means they can’t be fully written off, either.

Competitors offering flooring products and materials include LL Flooring (NYSE:LL), Tile Shop (NASDAQ:TTSH), Home Depot (NYSE:HD), and Lowe’s (NYSE:LOW).

A company’s long-term performance is an indicator of its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul.

With $4.52 billion in revenue over the past 12 months, Floor And Decor is a small retailer, which sometimes brings disadvantages compared to larger competitors benefiting from economies of scale and negotiating leverage with suppliers. On the bright side, it can grow faster because it has more white space to build new stores.

As you can see below, Floor And Decor’s 16.8% annualized revenue growth over the last six years (we compare to 2019 to normalize for COVID-19 impacts) was impressive as it opened new stores and expanded its reach.

This quarter, Floor And Decor grew its revenue by 5.8% year on year, and its $1.16 billion of revenue was in line with Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 9.5% over the next 12 months, a deceleration versus the last six years. Despite the slowdown, this projection is commendable and indicates the market is baking in success for its products.

Number of Stores

Floor And Decor sported 254 locations in the latest quarter. Over the last two years, it has opened new stores at a rapid clip by averaging 15.1% annual growth, among the fastest in the consumer retail sector. This gives it a chance to scale into a mid-sized business over time.

When a retailer opens new stores, it usually means it’s investing for growth because demand is greater than supply, especially in areas where consumers may not have a store within reasonable driving distance.

Same-Store Sales

The change in a company's store base only tells one side of the story. The other is the performance of its existing locations and e-commerce sales, which informs management teams whether they should expand or downsize their physical footprints. Same-store sales gives us insight into this topic because it measures organic growth for a retailer's e-commerce platform and brick-and-mortar shops that have existed for at least a year.

Floor And Decor’s demand has been shrinking over the last two years as its same-store sales have averaged 6.8% annual declines. This performance is concerning - it shows Floor And Decor artificially boosts its revenue by building new stores. We’d like to see a company’s same-store sales rise before it takes on the costly, capital-intensive endeavor of expanding its store base.

In the latest quarter, Floor And Decor’s same-store sales fell by 1.8% year on year. This decrease was an improvement from its historical levels. It’s always great to see a business’s demand trends improve.

Floor And Decor has great unit economics for a retailer, giving it ample room to invest in areas such as marketing and talent to grow its brand. As you can see below, it averaged an excellent 43.5% gross margin over the last two years. That means for every $100 in revenue, only $56.54 went towards paying for inventory, transportation, and distribution.

Floor And Decor produced a 43.8% gross profit margin in Q1, in line with the same quarter last year and exceeding analysts’ estimates by 0.9%. Zooming out, Floor And Decor’s full-year margin has been trending up over the past 12 months, increasing by 1 percentage points. If this move continues, it could suggest better unit economics due to more leverage from its growing sales on the fixed portion of its cost of goods sold.

Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.

Floor And Decor was profitable over the last two years but held back by its large cost base. Its average operating margin of 6.1% was weak for a consumer retail business. This result is surprising given its high gross margin as a starting point.

Looking at the trend in its profitability, Floor And Decor’s operating margin might fluctuated slightly but has generally stayed the same over the last year. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.

In Q1, Floor And Decor generated an operating profit margin of 5.5%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Floor And Decor’s full-year EPS grew at an unimpressive 9.3% compounded annual growth rate over the last five years, in line with the broader consumer retail sector.

In Q1, Floor And Decor reported EPS at $0.45, down from $0.46 in the same quarter last year. This print was close to analysts’ estimates. Over the next 12 months, Wall Street expects Floor And Decor’s full-year EPS of $1.89 to grow 10.8%.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Floor And Decor has shown decent cash profitability, giving it some flexibility to reinvest or return capital to investors. The company’s free cash flow margin averaged 3.4% over the last two years, slightly better than the broader consumer retail sector.

Taking a step back, we can see that Floor And Decor’s margin dropped by 1.4 percentage points over the last year. This decrease came from the higher costs associated with opening more stores.

Floor And Decor broke even from a free cash flow perspective in Q1. The company’s cash profitability regressed as it was 2.9 percentage points lower than in the same quarter last year, suggesting its historical struggles have dragged on.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Floor And Decor historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 9.1%, somewhat low compared to the best consumer retail companies that consistently pump out 25%+.

Floor And Decor reported $186.9 million of cash and $1.95 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $519.3 million of EBITDA over the last 12 months, we view Floor And Decor’s 3.4× net-debt-to-EBITDA ratio as safe. We also see its $730,000 of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

It was good to see Floor And Decor narrowly top analysts’ gross margin expectations this quarter. On the other hand, its full-year revenue guidance missed and its full-year EBITDA guidance fell short of Wall Street’s estimates. Overall, this was a softer quarter. The stock traded down 4.6% to $69 immediately after reporting.

Updated: May 22, 2025 at 10:22 PM EDT

A common mistake we notice when investors are deciding whether to buy a stock or not is that they simply look at the latest earnings results. Business quality and valuation matter more, so we urge you to understand these dynamics as well.

Floor And Decor isn’t a terrible business, but it doesn’t pass our quality test. Although its revenue growth was impressive over the last six years, it’s expected to deteriorate over the next 12 months and its shrinking same-store sales tell us it will need to change its strategy to succeed. And while the company’s new store openings have increased its brand equity, the downside is its relatively low ROIC suggests management has struggled to find compelling investment opportunities.

Floor And Decor’s P/E ratio based on the next 12 months is 35.4x. At this valuation, there’s a lot of good news priced in - we think there are better investment opportunities out there.

Wall Street analysts have a consensus one-year price target of $84.80 on the company (compared to the current share price of $74.11).

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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