Based on our internal research with respect to housing density, demographic data, competitor concentration and other variables in both new and existing markets, we believe there is an opportunity to significantly expand our warehouse-format store base by a mid- to high-teens annual percentage growth rate over the near-to-medium term, reaching at least 500 in the United States within the next 8 to 9 years. We plan to target new store openings in both new and existing, adjacent, and underserved markets. We have a disciplined approach to new store development based on an analytical, research-driven site selection method and a rigorous real estate approval process. Our new store model targets on average net sales of $14 million to $16 million and four-wall adjusted EBITDA before pre-opening expenses of $2.5 million to $3.5 million during the first full year of operation, pre-tax payback in approximately two and a half to three and a half years and cash-on-cash returns of approximately 50% in the third year. Over the past several years, we have made significant investments in personnel, information technology, supply chain, warehouse infrastructure, Pro, commercial, design and connected customer strategies to support our current growth and the expansion of our stores. The performance of our new stores opened over the last three years, the performance of our older stores over that same time frame, our disciplined real estate strategy, and the track record of our management team in successfully opening retail stores support our belief in the significant store expansion opportunity.

We expect to grow our comparable store sales over the long-term by continuing to offer our customers a dynamic and expanding selection of compelling, value-priced hard surface flooring and accessories while maintaining strong service standards for our customers. We regularly introduce new products into our assortment through our category product line review process, including collaboration with our vendors to bring to market innovative products such as waterproof rigid core vinyl and water-resistant and waterproof laminates. Because almost 60% of our stores have been opened for less than five years, we believe they will continue to drive comparable store sales growth as newer stores ramp up to maturity. We believe that we can continue to enhance our customer experience by focusing on service, optimizing sales and marketing strategies, investing in store staff and infrastructure, remodeling existing stores and improving visual merchandising and the overall aesthetic appeal of our stores. We also believe that growing our proprietary credit offering, Pro, Commercial and design strategies, further integrating connected customer strategies, and enhancing other key information technology, will contribute to increased comparable store sales. As we increase awareness of Floor & Decor’s brand, we believe there is a significant opportunity to gain additional market share, especially from independent flooring retailers and large format home improvement retailers. We have also added adjacent categories that align with flooring projects like vanities, bathroom accessories, shower doors, and custom countertops. We believe the combination of these initiatives plus the expected growth of the hard surface flooring category described in more detail under “Our Industry” below will continue to drive comparable store sales growth.

Floor & Decor’s online experience allows our Pro, BIY and DIY customers to explore our product selection and design ideas before and after visiting our stores and offers the convenience of making online purchases for delivery or pick up in-store. We believe our online platform reflects our brand attributes and provides a powerful tool to educate, inspire and engage our consumers, and we view our website and omni-channel strategies as leading our brand. Our research indicates that approximately 70% of customers in the last two years have visited our website before shopping at our stores. We continuously invest in our connected customer strategies to improve how our customers experience our brand. For example, we regularly enhance our website, which provides our customers with inspirational vignettes, videos, products, a room visualizer, education, and a faster online shopping experience. Additional initiatives include: (i) continually enhancing and leveraging our Customer Relationship Management ("CRM") platform by developing personalized content based on behavioral, demographic, and geographic data, (ii) developing personalized content based on location, purchase and browsing history, (iii) developing more relevant content and improved search and purchasing tools to help customers add decorative and installation accessories and (iv) creating frequently asked questions to help customers choose the best product for their jobs. We believe this reinforces our unique customer value proposition and ultimately drives sales. Our e-commerce sales represented approximately 17% of our total net sales for fiscal 2022. While the hard surface flooring category has a relatively low penetration of e-commerce sales due to the nature of the product, we believe our connected customer presence represents an attractive growth opportunity to drive consumers to Floor & Decor.

We believe our differentiated focus on Pro customers has created a competitive advantage for us and will continue to drive our net sales growth. We will invest in gaining and retaining Pro customers due to their frequent and high-ticket purchases, loyalty, and propensity to refer other potential customers. We have made important investments in the Pro services regional team, including the additional Regional Pro Directors, to better recruit and train the Pro services team in each store. We have also invested in technology, such as an integrated CRM, to help us further penetrate and grow our Pro business, dedicated phone lines for our Pro customers to call and text, commercial credit and open account terms, jobsite delivery, Pro Premier App, a growing and successful Pro loyalty program, training on technical flooring installation solutions, and tools to facilitate large commercial jobs sourced throughout the store. We plan to further invest in initiatives to increase speed of service, financing solutions, enhance technology, elevate our Pro branding, dedicate additional store staffing to support Pro customers, and enhance the in-store experience for our Pro customers. We continue to invest in refreshing and expanding our Pro Premier Service area in the store to better facilitate our growing Pro business. Additionally, we communicate our value proposition and various Pro-focused offerings by hosting Pro networking events. We believe Pro customers will continue to be an integral part of our sales growth.

Our Design Services offer a unique experience to large format retail, which leads our customers through a seamless, inspirational design process to complete their projects. Our research tells us when a designer is involved, customer satisfaction is higher, the average ticket is approximately two times higher compared with customers who do not use a designer, and design appointments close at a higher rate than typical customers. We position our designers as experts through our inspirational content and promote design services through all channels. We intend to continue to invest in recruiting top design talent, training, tools and technology. Design-focused training is a priority to ensure our teams are knowledgeable and prepared to deliver a start-to-finish consultative selling experience. We believe the rollout of our CRM technology to our design teams enhances communication and workflow, from initial customer interaction through securing the close of the sale and beyond. Additionally, we intend to continue to test advanced service options in various markets to further set us apart.

Building on our success in serving the Pro customer, in 2016, we entered the adjacent commercial sales channel, thereby increasing the size of the addressable market we serve. We believe the same attributes that have allowed us to be successful in selling residential retail hard surface flooring, which include high quality, trend-right hard surface flooring sourced at a low cost directly from the manufacturer, will allow us to grow in the commercial flooring market. We estimate our domestic addressable commercial flooring market, inclusive of installation categories, to be approximately $16 billion. We estimate that approximately 60% of the commercial market utilizes architectural and design firms as the primary decision maker for their hard surface flooring purchasing decisions, while the other 40% are owners, builders, developers, general contractors, and commercial flooring installers that make the primary decisions for hard surface flooring purchases. Prior to 2021, Floor & Decor sales representatives targeted corporate customers, large scale multi-family developers, large home builders, hotels, restaurants, and retailers and focused primarily on the 40% of the market described above. On June 4, 2021, we acquired Spartan, a commercial specialty hard-surface flooring distribution company. Spartan focuses primarily on the architectural and design market and contractor channels. We intend to continue to focus on both organic and inorganic growth to address the entire commercial flooring market.