Floor & Decoration
In a hard surface flooring market that grew by an average of 4% per year from 2016 to 2021, Floor & Decor did three times better, with comparable sales up 12.6% on average by one year to the next.
Its fleet of large-scale warehouse stores is the company’s biggest advertisement. Month by month, its stores are attracting more and more luxury-seeking customers looking for the best priced hard surface flooring and wall tiles with the widest selection, as well as service with added value.
To fill that bill, it managed to attract more home service professionals and expand its design services. These have positioned it well to be the one-stop-shop, low-cost leader for customers looking for better and better flooring options at prices on par with or close to competitors’ good options. It’s a winning combination because everyone, even the wealthiest, loves a bargain.
“We serve a higher income client and they have significantly higher wealth and net worth compared to pre-pandemic levels,” CEO Tom Taylor said in the latest. earnings call present the results for fiscal 2021 and the fourth quarter ended December 30, 2021.
“Secular demand for housing continues to exceed available supply, which has led to an acceleration in home price appreciation. We believe these factors, combined with record levels of homeowners’ net worth and an aging housing stock, should further support home improvement spending,” he added.
Given these tailwinds, Taylor expects fiscal year 2022 sales to reach $4.3 billion to $4.4 billion, up 25% to 27% from $3.4 billion this year.
Reporting that the company has so far effectively weathered the supply chain crisis that has hampered other competitors, Taylor reports that it will add 32 new outlet stores and four smaller design studios in high-end markets. range. And as its footprint expands, it’s also banking on same-store sales to rise 10.5% to 13% as well.
Price increases caused by higher supply chain costs are factored into its forecast, but these increases will be modest. Taylor noted that an industry report found the average square foot price for hard surface flooring rose 8% in the fourth quarter and said, “Our price increases were nowhere near that.”
Acknowledging the uncertainties caused by the Russian invasion of Ukraine and other geopolitical events, as well as rising mortgage interest rates and continued inflationary pressures, Taylor said the company is well positioned.
“As we study the market and our competition, we believe our holistic value proposition is the best it has ever been. Simply put, we believe that no one offers the stock product line, the inspiration visual, compelling assortment or services we offer and certainly not at our prices,” he said.
And he added that the company plans to “wisely” increase retail prices through 2022, while increasing its margin rate throughout the year, aiming for 41% from the 38.8% achieved in the previous year. fourth quarter of 2021.
Net sales increased 41.5% from fiscal 2020 and 68% from 2019 before the pandemic. Same-store sales increased 27.6% year-on-year, well above levels of 5.5% in 2020 and 4.9% in 2019. Nonetheless, the year culminated 13 years of steady same-store sales growth.
E-commerce continues to be a growth driver, up 30.2% year-on-year and now represents 16.1% of sales compared to 9.4% in 2019. Its connected customer strategy complements its in-store activity , with almost 80% of web sales and almost 90% of web orders recovered in stores during the fourth quarter.
Net income increased 64.7% in 2021 to $283.2 million and adjusted EBITDA increased 50.2% to $485.1 million.
More stores, more sales, more sharing
As big as its e-commerce business is, Floor & Decor is all about stores. Its flagship warehouse store model averages 78,000 square feet. Its large size allows customers to showcase their entire range of tile, wood, laminate, vinyl, natural stone, decorative accessories and installation products.
In most outlet stores, a design studio offers different staged vignettes to inspire customers and professional designers are on hand to provide free design consultation.
Currently with 160 outlet stores and two independent design studios, it plans to grow to 192 outlet stores and six design studios by 2022. Three new design studios in Houston, TX, Tysons Corner, VA and Miami, FL will be added in the first trimester.
As for its new warehouse locations, approximately 56% will be in existing markets and 44% in new markets. Opening new stores in an existing market poses no threat of cannibalization to existing stores, the company reports. Instead, it helps to further increase its market penetration.
The research firm Placer.ai confirms this observation. Throughout 2021, the company increased foot traffic in its stores by an average of 50% month over month compared to 2019.
This makes its stores the best advertisement in the business, allowing it to maintain a low advertising-to-sales ratio of 3%. And rather than using a scattershot approach in media advertising, it precisely targets new locations through careful demographic and psychographic analysis in major metropolitan statistical areas across the country.
It’s a formula that works, allowing the company to increase its market share from 6% of the total addressable market to 8% share in 2021.
The high-income customers targeted by Floor & Decor not only expect quality products, but also services. This is where the warehouse store design studios fit in.
To date, client awareness of its design services remains low, with only a small portion of its clients having used it. But the company is determined to make its customers more aware of the importance that a designer’s expertise can bring to their project.
And when customers use the design service, the company finds it easier to entice customers to opt for its more expensive offerings, leading to a higher average ticket, higher conversions, and better margins.
“We know that if we can get designers involved, it’s easy to get customers to step in,” Taylor said.
Reiterating the importance of design services, President Lisa Laube added, “We believe there is a very, very long track on design services for us. Our ultimate goal is for design services to become a true competitive differentiator.
Professionals to do the heavy lifting
To support its business with high-income clients, Floor & Decor has made a big move into the professional home services market.
The pros have proven to be a very profitable and receptive market for the company. They tend to make more frequent and more expensive purchases, usually twice what a homeowner spends. They are also an important source of referrals.
What is particularly appealing to the home service professional is that Floor & Decor is able to offer a wide selection of products with inventory positions, so their customers don’t have to wait for delivery. Another advantage is that the stores sell all the installation equipment that professionals need to complete a job.
All systems will
Closing the earnings call, Taylor said early results show he is on track for fiscal 2022. January same-store sales were up 11.5% and month-to-date in February, they exceeded last year by 23.9%.
After successfully tackling the disruption caused by the Covid pandemic two years ago, the company believes it is ready for the uncertainties it faces this coming year.
While no one has a crystal ball, Placer.ai’s Ethan Chernofsky, who keeps a close eye on Floor & Decor as well as its array of competitors, says, “If there’s one brand that trumps them all, it’s Floor & Decor,” and he remains confident that the trends that have propelled him over the past two years will carry him into 2022.
“The home furnishings sector continues to outperform, and there are significant signs that this strength could continue even further into 2022. Changing migration patterns that have brought many people to the suburbs alongside of hybrid work environments, and the time people have had to look at their elder furnishing choices should favor retailers who can help fill and reinvent these spaces,” he concludes.