m
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 28, 2019
OR
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 001-38070
Floor & Decor Holdings, Inc.
(Exact name of registrant as specified in its charter)
Delaware |
|
27‑3730271 |
(State or other jurisdiction of |
|
(I.R.S. Employer |
incorporation or organization) |
|
Identification No.) |
|
|
|
2233 Lake Park Drive |
|
|
Smyrna, Georgia |
|
30080 |
(Address of principal executive offices) |
|
(Zip Code) |
|
|
|
(404) 471‑1634 |
|
Not Applicable |
(Registrant’s telephone number, including area code) |
|
(Former name, former address and former fiscal year, if changed since last report) |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
Accelerated filer |
||||
Non-accelerated filer |
☐ |
|
|
Smaller reporting company Emerging growth company |
☐ ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered |
Class A common stock, $0.001 par value per share |
FND |
New York Stock Exchange |
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class |
|
Outstanding at April 30, 2019 |
Class A common stock, $0.001 par value |
|
98,244,175 |
|
|
|
Page |
3 | |||
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3 | ||
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3 | |
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Condensed Consolidated Statements of Operations and Comprehensive Income |
4 |
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5 | |
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6 | |
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7 | |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
13 | |
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13 | |
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22 | ||
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22 | ||
23 | |||
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23 | ||
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23 | ||
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23 | ||
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23 | ||
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23 | ||
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23 | ||
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23 |
2
PART I – FINANCIAL INFORMATION
Floor & Decor Holdings, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(In Thousands, Except Share and Per Share Data)
(Unaudited)
|
|
As of |
|
As of |
||
|
|
March 28, |
|
December 27, |
||
|
|
2019 |
|
2018 |
||
Assets |
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
451 |
|
$ |
644 |
Income taxes receivable |
|
|
— |
|
|
4,324 |
Receivables, net |
|
|
66,101 |
|
|
67,527 |
Inventories, net |
|
|
437,504 |
|
|
471,014 |
Prepaid expenses and other current assets |
|
|
23,342 |
|
|
15,949 |
Total current assets |
|
|
527,398 |
|
|
559,458 |
Fixed assets, net |
|
|
338,888 |
|
|
328,366 |
Right of use assets |
|
|
659,115 |
|
|
— |
Intangible assets, net |
|
|
109,322 |
|
|
109,330 |
Goodwill |
|
|
227,447 |
|
|
227,447 |
Other assets |
|
|
11,181 |
|
|
9,490 |
Total long-term assets |
|
|
1,345,953 |
|
|
674,633 |
Total assets |
|
$ |
1,873,351 |
|
$ |
1,234,091 |
Liabilities and stockholders’ equity |
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
Current portion of term loans |
|
$ |
3,500 |
|
$ |
3,500 |
Current portion of lease liabilities |
|
|
73,615 |
|
|
— |
Trade accounts payable |
|
|
229,498 |
|
|
313,503 |
Accrued expenses and other current liabilities |
|
|
76,390 |
|
|
82,038 |
Income taxes payable |
|
|
8,765 |
|
|
— |
Deferred revenue |
|
|
6,581 |
|
|
5,244 |
Total current liabilities |
|
|
398,349 |
|
|
404,285 |
Term loans |
|
|
141,152 |
|
|
141,834 |
Revolving line of credit |
|
|
2,100 |
|
|
— |
Deferred rent |
|
|
— |
|
|
36,980 |
Lease liabilities |
|
|
683,672 |
|
|
— |
Deferred income tax liabilities, net |
|
|
25,666 |
|
|
26,838 |
Tenant improvement allowances |
|
|
— |
|
|
37,295 |
Other liabilities |
|
|
2,451 |
|
|
2,550 |
Total long-term liabilities |
|
|
855,041 |
|
|
245,497 |
Total liabilities |
|
|
1,253,390 |
|
|
649,782 |
Commitments and Contingencies (Note 5) |
|
|
|
|
|
|
Stockholders’ equity |
|
|
|
|
|
|
Capital stock: |
|
|
|
|
|
|
Preferred stock, $0.001 par value; 10,000,000 shares authorized; 0 shares issued and outstanding at March 28, 2019 and December 27, 2018 |
|
|
— |
|
|
— |
Common stock Class A, $0.001 par value; 450,000,000 shares authorized; 97,997,529 shares issued and outstanding at March 28, 2019 and 97,588,539 issued and outstanding at December 27, 2018 |
|
|
98 |
|
|
98 |
Common stock Class B, $0.001 par value; 10,000,000 shares authorized; 0 shares issued and outstanding at March 28, 2019 and December 27, 2018 |
|
|
— |
|
|
— |
Common stock Class C, $0.001 par value; 30,000,000 shares authorized; 0 shares issued and outstanding at March 28, 2019 and December 27, 2018 |
|
|
— |
|
|
— |
Additional paid-in capital |
|
|
345,907 |
|
|
340,462 |
Accumulated other comprehensive income (loss), net |
|
|
(148) |
|
|
186 |
Retained earnings |
|
|
274,104 |
|
|
243,563 |
Total stockholders’ equity |
|
|
619,961 |
|
|
584,309 |
Total liabilities and stockholders’ equity |
|
$ |
1,873,351 |
|
$ |
1,234,091 |
See accompanying notes to condensed consolidated financial statements.
3
Floor & Decor Holdings, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations and Comprehensive Income
(In Thousands, Except Per Share Data)
(Unaudited)
|
|
Thirteen Weeks Ended |
||||
|
|
March 28, |
|
March 29, |
||
|
|
2019 |
|
2018 |
||
Net sales |
|
$ |
477,050 |
|
$ |
402,948 |
Cost of sales |
|
|
275,676 |
|
|
237,562 |
Gross profit |
|
|
201,374 |
|
|
165,386 |
Operating expenses: |
|
|
|
|
|
|
Selling and store operating |
|
|
127,383 |
|
|
102,567 |
General and administrative |
|
|
30,202 |
|
|
23,339 |
Pre-opening |
|
|
4,027 |
|
|
2,974 |
Total operating expenses |
|
|
161,612 |
|
|
128,880 |
Operating income |
|
|
39,762 |
|
|
36,506 |
Interest expense |
|
|
2,921 |
|
|
1,784 |
Income before income taxes |
|
|
36,841 |
|
|
34,722 |
Provision for income taxes |
|
|
6,121 |
|
|
2,851 |
Net income |
|
$ |
30,720 |
|
$ |
31,871 |
Change in fair value of hedge instruments, net of tax |
|
|
(334) |
|
|
430 |
Total comprehensive income |
|
$ |
30,386 |
|
$ |
32,301 |
Basic earnings per share |
|
$ |
0.31 |
|
$ |
0.33 |
Diluted earnings per share |
|
$ |
0.29 |
|
$ |
0.30 |
See accompanying notes to condensed consolidated financial statements.
4
Floor & Decor Holdings, Inc. and Subsidiaries
Condensed Consolidated Statements of Stockholders’ Equity
(In Thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
Additional |
|
Other |
|
|
|
|
Total |
||||||
|
|
Preferred Stock |
|
Class A |
|
Paid-in |
|
Comprehensive |
|
Retained |
|
Stockholders’ |
||||||||||
|
|
Shares |
|
Amount |
|
Shares |
|
Amount |
|
Capital |
|
Income (Loss) |
|
Earnings |
|
Equity |
||||||
Balance, December 28, 2018 |
|
— |
|
$ |
— |
|
97,588 |
|
$ |
98 |
|
$ |
340,462 |
|
$ |
186 |
|
$ |
243,563 |
|
$ |
584,309 |
Stock based compensation expense |
|
— |
|
|
— |
|
— |
|
|
— |
|
|
2,250 |
|
|
— |
|
|
— |
|
|
2,250 |
Exercise of stock options |
|
— |
|
|
— |
|
348 |
|
|
— |
|
|
1,776 |
|
|
— |
|
|
— |
|
|
1,776 |
Cumulative effect from adoption of ASU No. 2016-02 |
|
— |
|
|
— |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(179) |
|
|
(179) |
Shares issued under employee stock plans |
|
— |
|
|
— |
|
61 |
|
|
— |
|
|
1,419 |
|
|
— |
|
|
— |
|
|
1,419 |
Other comprehensive gain (loss), net of tax |
|
— |
|
|
— |
|
— |
|
|
— |
|
|
— |
|
|
(334) |
|
|
— |
|
|
(334) |
Net income |
|
— |
|
|
— |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
30,720 |
|
|
30,720 |
Balance, March 28, 2019 |
|
— |
|
$ |
— |
|
97,997 |
|
$ |
98 |
|
$ |
345,907 |
|
$ |
(148) |
|
$ |
274,104 |
|
$ |
619,961 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
Additional |
|
Other |
|
|
|
|
Total |
||||||
|
|
Preferred Stock |
|
Class A |
|
Paid-in |
|
Comprehensive |
|
Retained |
|
Stockholders’ |
||||||||||
|
|
Shares |
|
Amount |
|
Shares |
|
Amount |
|
Capital |
|
Income (Loss) |
|
Earnings |
|
Equity |
||||||
Balance, December 29, 2017 |
|
— |
|
$ |
— |
|
95,509 |
|
$ |
96 |
|
$ |
323,419 |
|
$ |
(205) |
|
$ |
119,550 |
|
$ |
442,860 |
Stock based compensation expense |
|
— |
|
|
— |
|
— |
|
|
— |
|
|
1,415 |
|
|
— |
|
|
— |
|
|
1,415 |
Exercise of stock options |
|
— |
|
|
— |
|
585 |
|
|
— |
|
|
3,195 |
|
|
— |
|
|
— |
|
|
3,195 |
Cumulative effect from adoption of ASU No. 2014-09 |
|
— |
|
|
— |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
7,826 |
|
|
7,826 |
Other comprehensive gain (loss), net of tax |
|
— |
|
|
— |
|
— |
|
|
— |
|
|
— |
|
|
430 |
|
|
— |
|
|
430 |
Net income |
|
— |
|
|
— |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
31,871 |
|
|
31,871 |
Balance, March 29, 2018 |
|
— |
|
$ |
— |
|
96,094 |
|
$ |
96 |
|
$ |
328,029 |
|
$ |
225 |
|
$ |
159,247 |
|
$ |
487,597 |
See accompanying notes to condensed consolidated financial statements.
5
Floor & Decor Holdings, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In Thousands)
(Unaudited)
|
|
Thirteen Weeks Ended |
||||
|
|
March 28, |
|
March 29, |
||
|
|
2019 |
|
2018 |
||
Operating activities |
|
|
|
|
|
|
Net income |
|
$ |
30,720 |
|
$ |
31,871 |
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
Depreciation and amortization |
|
|
17,184 |
|
|
11,534 |
Amortization of tenant improvement allowances |
|
|
— |
|
|
(1,045) |
Deferred income taxes |
|
|
(1,057) |
|
|
2,111 |
Interest cap derivative contracts |
|
|
610 |
|
|
(535) |
Stock based compensation expense |
|
|
2,250 |
|
|
1,415 |
Changes in operating assets and liabilities: |
|
|
|
|
|
|
Receivables, net |
|
|
22,568 |
|
|
15,775 |
Inventories, net |
|
|
33,510 |
|
|
(9,262) |
Trade accounts payable |
|
|
(84,005) |
|
|
(3,723) |
Accrued expenses and other current liabilities |
|
|
3,017 |
|
|
(12,926) |
Income taxes |
|
|
13,143 |
|
|
780 |
Deferred revenue |
|
|
1,337 |
|
|
1,500 |
Deferred rent |
|
|
— |
|
|
2,707 |
Tenant improvement allowances |
|
|
— |
|
|
128 |
Other, net |
|
|
(12,256) |
|
|
282 |
Net cash provided by operating activities |
|
|
27,021 |
|
|
40,612 |
Investing activities |
|
|
|
|
|
|
Purchases of fixed assets |
|
|
(31,634) |
|
|
(27,841) |
Net cash used in investing activities |
|
|
(31,634) |
|
|
(27,841) |
Financing activities |
|
|
|
|
|
|
Borrowings on revolving line of credit |
|
|
80,200 |
|
|
51,900 |
Payments on revolving line of credit |
|
|
(78,100) |
|
|
(66,100) |
Payments on term loans |
|
|
(875) |
|
|
(1,750) |
Proceeds from exercise of stock options |
|
|
1,776 |
|
|
3,195 |
Proceeds from employee stock purchase plan |
|
|
1,419 |
|
|
— |
Net cash provided by (used in) financing activities |
|
|
4,420 |
|
|
(12,755) |
Net increase (decrease) in cash and cash equivalents |
|
|
(193) |
|
|
16 |
Cash and cash equivalents, beginning of the period |
|
|
644 |
|
|
556 |
Cash and cash equivalents, end of the period |
|
$ |
451 |
|
$ |
572 |
Supplemental disclosures of cash flow information |
|
|
|
|
|
|
Buildings and equipment acquired under operating leases |
|
$ |
53,049 |
|
$ |
— |
Cash paid for interest |
|
$ |
1,987 |
|
$ |
2,368 |
Cash paid for income taxes |
|
$ |
— |
|
$ |
19 |
Fixed assets accrued at the end of the period |
|
$ |
10,836 |
|
$ |
16,332 |
Fixed assets acquired as part of lease - paid for by lessor |
|
$ |
— |
|
$ |
— |
See accompanying notes to condensed consolidated financial statements.
6
Floor & Decor Holdings, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
March 28, 2019
1. Summary of Significant Accounting Policies
Nature of Business
Floor & Decor Holdings, Inc., together with its subsidiaries (the “Company,” “we,” “our” or “us”) is a highly differentiated, rapidly growing specialty retailer of hard surface flooring and related accessories. We offer a broad in stock assortment of tile, wood, laminate and natural stone flooring along with decorative and installation accessories at everyday low prices. Our stores appeal to a variety of customers, including professional installers and commercial businesses (“Pro”), Do It Yourself customers (“DIY”) and customers who buy the products for professional installation (“Buy it Yourself” or “BIY”). We operate within one reportable segment.
As of March 28, 2019, the Company, through its wholly owned subsidiary, Floor and Decor Outlets of America, Inc. (“F&D”), operates 103 warehouse-format stores, which average 75,000 square feet, and one small-format standalone design center in 28 states, as well as three distribution centers and an e-commerce site, FloorandDecor.com.
Fiscal Year
The Company’s fiscal year is the 52- or 53-week period ending on the Thursday on or preceding December 31st. Fiscal years ended December 26, 2019 (“fiscal 2019”) and December 27, 2018 (“fiscal 2018”) include 52 weeks. When a 53-week fiscal year occurs, we report the additional week at the end of the fiscal fourth quarter. 52-week fiscal years consist of thirteen-week periods in the first, second, third and fourth quarters of the fiscal year.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and our wholly owned subsidiaries. These financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information. The Condensed Consolidated Balance Sheet as of December 27, 2018 has been derived from the audited Consolidated Balance Sheet for the fiscal year then ended. The interim condensed consolidated financial statements should be read together with the audited consolidated financial statements and related footnote disclosures included in the Company’s Annual Report on Form 10-K for fiscal 2018, filed with the Securities and Exchange Commission (the “SEC”) on February 25, 2019 (the “Annual Report”).
Management believes the accompanying unaudited condensed consolidated financial statements reflect all normal recurring adjustments considered necessary for a fair statement of results for the interim periods presented.
Results of operations for the thirteen weeks ended March 28, 2019 and March 29, 2018 are not necessarily indicative of the results to be expected for the full year.
There have been no updates to our Significant Accounting Policies since the Annual Report, except for the policy changes in connection with the newly adopted lease accounting standard outlined in Note 5. For information regarding our Significant Accounting Policies and Estimates, see the “Summary of Significant Accounting Policies” section of “Item 8. Financial Statements and Supplementary Data” of our Annual Report.
Recently Issued Accounting Pronouncements
There have been no updates to Recently Issued Accounting Pronouncements that have yet to be adopted since the Annual Report. For information regarding Recently Issued Accounting Pronouncements, see the “Summary of Significant Accounting Policies” section of “Item 8. Financial Statements and Supplementary Data” of our Annual Report.
7
Recently Adopted Accounting Pronouncements
In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-02, "Leases (Topic 842)." ASU No. 2016-02 requires that lessees recognize lease assets and lease liabilities on the balance sheet with an option to exclude short-term leases (leases with terms of 12 months or less). The guidance also requires disclosures about the amount, timing, and uncertainty of cash flows arising from leases. We adopted the ASU on December 28, 2018, the first day of our fiscal year 2019, using the modified retrospective approach. The cumulative effect adjustment upon adoption resulted in an immaterial opening balance sheet reduction to retained earnings. The adoption of ASU No. 2016-02 in the first quarter of fiscal 2019 had a material impact on the Company’s Condensed Consolidated Balance Sheet in respect to the right of use assets, lease liabilities, tenant improvement allowances, and deferred rent but did not have a material impact on the Company’s Condensed Consolidated Statements of Operations and Comprehensive Income or Statements of Cash Flows. Refer to Note 5 for further details.
2. Revenues
Disaggregated Revenue
The following table presents the net sales of each major product category (in thousands):
|
|
|
Thirteen Weeks Ended |
|
||||||||
|
|
|
March 28, 2019 |
|
March 29, 2018 |
|
||||||
|
|
|
|
|
|
% of |
|
|
|
|
% of |
|
Product Category |
|
|
Net Sales |
|
Net Sales |
|
Net Sales |
|
Net Sales |
|
||
Tile |
|
|
$ |
125,310 |
|
26 |
% |
$ |
117,402 |
|
29 |
% |
Laminate / Luxury Vinyl Plank |
|
|
|
97,502 |
|
20 |
|
|
66,892 |
|
17 |
|
Decorative Accessories |
|
|
|
94,440 |
|
20 |
|
|
78,489 |
|
19 |
|
Installation Materials and Tools |
|
|
|
79,709 |
|
17 |
|
|
63,581 |
|
16 |
|
Wood |
|
|
|
49,230 |
|
10 |
|
|
46,485 |
|
12 |
|
Natural Stone |
|
|
|
30,887 |
|
7 |
|
|
28,006 |
|
7 |
|
Delivery and Other |
|
|
|
(28) |
|
— |
|
|
2,093 |
|
— |
|
Total |
|
|
$ |
477,050 |
|
100 |
% |
$ |
402,948 |
|
100 |
% |
.
3. Debt
Fair Value of Debt
Market risk associated with our fixed and variable rate long‑term debt relates to the potential change in fair value and negative impact to future earnings, respectively, from a change in interest rates. The aggregate fair value of debt is based primarily on our estimates of interest rates, maturities, credit risk, and underlying collateral and is classified as Level 3 within the fair value hierarchy. At March 28, 2019 and December 27, 2018, the carrying amounts and fair values of our debt were as follows:
|
|
March 28, |
|
December 27, |
||
(in thousands) |
|
2019 |
|
2018 |
||
Total debt at par value |
|
$ |
150,225 |
|
$ |
149,000 |
Less: unamortized discount and debt issuance costs |
|
|
3,473 |
|
|
3,666 |
Net carrying amount |
|
$ |
146,752 |
|
$ |
145,334 |
Fair value |
|
$ |
148,003 |
|
$ |
147,883 |
4. Income Taxes
Our effective income tax rates were 16.6% and 8.2% for the thirteen weeks ended March 28, 2019 and March 29, 2018, respectively.
8
5. Commitments and Contingencies
Lease Commitments
On December 28, 2018, the first day of our fiscal year 2019, we adopted ASU No. 2016-02, "Leases (Topic 842)", which requires that lessees recognize lease assets and lease liabilities for all leases on the balance sheet with an option to exclude short-term leases (leases with terms of 12 months or less). We adopted ASU No. 2016-02 using the modified retrospective approach and elected the package of practical expedients to use in transition, which permitted us not to reassess, under the new standard, our prior conclusions about lease identification and lease classification. The cumulative effect adjustment upon adoption of ASU No. 2016-02 resulted in an immaterial adjustment to retained earnings. The adoption also resulted in the addition of $621 million right of use assets and corresponding $701 million lease liabilities to our balance sheet, while eliminating deferred rent and tenant improvement allowances. Additionally, we do not separate lease and nonlease components of contracts.
The majority of our long-term operating lease agreements through F&D are for our corporate office, retail locations, and distribution centers, which expire in various years through 2038. All of our building leases have 10-15 year lease terms, except one lease which has a 20-year term. The majority of our building leases also include options to extend, which are factored into the recognition of their respective assets and liabilities when appropriate. Additionally, one building lease contains variable lease payments, which are determined based on a percentage of retail sales over a contractual level, and we sublease real estate within one store and one distribution center to third parties. Certain lease agreements include escalating rents over the lease terms which, under the new accounting standard, results in rent being expensed on a straight‑line basis over the life of the lease that commences on the date we have the right to control the property. Our lease agreements do not contain any residual value guarantees or restrictive covenants that would reasonably be expected to have a material impact on our business.
As most of our leases do not provide a readily determinable implicit rate, we use a third party to determine our incremental borrowing rate, specifically the Bloomberg yield curve for US consumers with a BB- credit rating. The rate is adjusted for collateralization as well as inflation.
9
Lease Position
The table below presents supplemental balance sheet information related to operating leases.
|
|
|
|
As of |
|
(in thousands, except lease term and discount rate) |
|
Balance Sheet Classification |
|
March 28, 2019 |
|
Assets |
|
|
|
|
|
Building |
|
Right of use assets |
|
$ |
647,667 |
Equipment |
|
Right of use assets |
|
|
6,263 |
Land |
|
Right of use assets |
|
|
245 |
Software |
|
Right of use assets |
|
|
4,940 |
Total operating lease assets |
|
|
|
$ |
659,115 |
Liabilities |
|
|
|
|
|
Current |
|
|
|
|
|
Building |
|
Current portion of lease liabilities |
|
$ |
68,927 |
Equipment |
|
Current portion of lease liabilities |
|
|
2,784 |
Land |
|
Current portion of lease liabilities |
|
|
93 |
Software |
|
Current portion of lease liabilities |
|
|
1,811 |
Total current operating lease liabilities |
|
|
|
$ |
73,615 |
Noncurrent |
|
|
|
|
|
Building |
|
Lease liabilities |
|
$ |
675,769 |
Equipment |
|
Lease liabilities |
|
|
4,663 |
Land |
|
Lease liabilities |
|
|
158 |
Software |
|
Lease liabilities |
|
|
3,082 |
Total noncurrent operating lease liabilities |
|
|
|
$ |
683,672 |
Total operating lease liabilities |
|
|
|
$ |
757,287 |
|
|
|
|
|
|
Weighted-average remaining lease term |
|
|
|
|
9 years |
Weighted-average discount rate |
|
|
|
|
5.4% |
Lease Costs
The table below presents components of lease expense for operating leases.
|
|
|
|
Thirteen Weeks Ended |
|
(in thousands) |
|
Classification |
|
March 28, 2019 |
|
Operating lease cost (1) |
|
Selling and store operating |
|
$ |
26,015 |
Sublease income |
|
Selling and store operating |
|
|
(623) |
Total lease cost |
|
|
|
$ |
25,392 |
(1) Includes variable lease costs, which are immaterial.
10
Undiscounted Cash Flows
Future minimum lease payments under non‑cancelable operating leases (with initial or remaining lease terms in excess of one year) as of March 28, 2019, were:
(in thousands) |
|
Amount |
|
Thirty-nine weeks ended December 26, 2019 |
|
$ |
82,939 |
2020 |
|
|
112,086 |
2021 |
|
|
105,317 |
2022 |
|
|
98,163 |
2023 |
|
|
93,513 |
Thereafter |
|
|
503,402 |
Total minimum lease payments (2) |
|
$ |
995,420 |
Less: amount of lease payments representing interest |
|
|
238,133 |
Present value of future minimum lease payments |
|
|
757,287 |
Less: current obligations under leases |
|
|
73,615 |
Long-term lease obligations |
|
$ |
683,672 |
(2) Future lease payments exclude $311 million of legally binding minimum lease payments for operating leases signed but not yet commenced.
For the thirteen weeks ended March 28, 2019, cash paid for operating leases was $24.6 million.
Litigation
We are subject to other various legal actions, claims and proceedings arising in the ordinary course of business, which may include claims related to general liability, workers’ compensation, product liability, intellectual property and employment-related matters resulting from our business activities. We establish reserves for specific legal proceedings when we determine that the likelihood of an unfavorable outcome is probable and the amount of loss can be reasonably estimated. These proceedings are not expected to have a material impact on our consolidated financial position, cash flows or results of operations.
6. Stock Based Compensation
At our 2018 annual meeting of stockholders held on May 17, 2018, our stockholders approved the Floor & Decor Holdings, Inc. Employee Stock Purchase Plan (the “ESPP”), which became available to substantially all of our employees beginning in the third quarter of fiscal 2018. The ESPP permits eligible employees to purchase shares of our common stock through payroll deductions, subject to certain limitations. The purchase price of the shares under the ESPP in no event will be less than the lesser of 85% of the lower of the fair market value of our common stock on either the first or last trading day of each six-month offering period. There were 1,500,000 shares of our Class A common stock, par value $0.001 per share, approved for issuance. On December 31, 2018, $1.4 million in contributions were used to purchase 60,871 shares of our Class A common stock. Additionally, during the thirteen weeks ended March 28, 2019, the Company recognized $143 thousand of stock-based compensation expense related to the ESPP.
7. Earnings Per Share
Net Income per Common Share
We calculate basic earnings per share by dividing net income by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing net income by the weighted average number of common shares outstanding adjusted for the dilutive effect of stock options.
11
The following table shows the computation of basic and diluted earnings per share:
|
|
Thirteen Weeks Ended |
||||
|
|
March 28, |
|
March 29, |
||
(in thousands, except per share data) |
|
2019 |
|
2018 |
||
Net income |
|
$ |
30,720 |
|
$ |
31,871 |
Basic weighted average shares outstanding |
|
|
97,785 |
|
|
95,714 |
Dilutive effect of share based awards |
|
|
6,536 |
|
|
8,951 |
Diluted weighted average shares outstanding |
|
|
104,321 |
|
|
104,665 |
Basic earnings per share |
|
$ |
0.31 |
|
$ |
0.33 |
Diluted earnings per share |
|
$ |
0.29 |
|
$ |
0.30 |
The following awards have been excluded from the computation of dilutive effect of share based awards because the effect would be anti‑dilutive:
|
|
Thirteen Weeks Ended |
|
||
|
|
March 28, |
|
March 29, |
|
(in thousands) |
|
2019 |
|
2018 |
|
Stock options |
|
986 |
|
98 |
|
12
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of the financial condition and results of our operations should be read together with the financial statements and related notes of Floor & Decor Holdings, Inc. and Subsidiaries included in Item 1 of this quarterly report on Form 10-Q (this “Quarterly Report”) and with our audited financial statements and the related notes included in our Annual Report on Form 10-K for the fiscal year ended December 27, 2018 and filed with the Securities and Exchange Commission (the “SEC”) on February 25, 2019 (the “Annual Report”). As used in this Quarterly Report, except where the context otherwise requires or where otherwise indicated, the terms “Company,” “we,” “our” or “us” refer to Floor & Decor Holdings, Inc. and its subsidiaries.
The discussion in this Quarterly Report, including under Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of Part I and Item 1A, “Risk Factors” of Part II, contains forward-looking statements within the meaning of the federal securities laws. All statements other than statements of historical fact contained in this Quarterly Report, including statements regarding the Company’s future operating results and financial position, business strategy and plans and objectives of management for future operations, are forward-looking statements. These statements are based on our current expectations, assumptions, estimates and projections. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expects,” “intends,” “plans,” “anticipates,” “could,” “seeks,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “budget,” “potential” or “continue” or the negative of these terms or other similar expressions.
The forward-looking statements contained in this Quarterly Report are only predictions. Although we believe that the expectations reflected in the forward-looking statements in this Quarterly Report are reasonable, we cannot guarantee future events, results, performance or achievements. A number of important factors could cause actual results to differ materially from those indicated by the forward-looking statements in this Quarterly Report, including, without limitation, those factors described in Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of Part I and Item 1A, “Risk Factors” of Part II. Some of the key factors that could cause actual results to differ from our expectations include the following:
· |
an overall decline in the health of the economy, the hard surface flooring industry, consumer spending and the housing market; |
· |
any disruption in our distribution capabilities resulting from our inability to operate our distribution centers going forward; |
· |
competition from other stores and internet-based competition; |
· |
our failure to execute our business strategy effectively and deliver value to our customers; |
· |
our inability to manage our growth; |
· |
our inability to manage costs and risks relating to new store openings; |
· |
our dependence on foreign imports for the products we sell, which may include the impact of tariffs; |
· |
our inability to find, train and retain key personnel; |
· |
violations of laws and regulations applicable to us or our suppliers; |
· |
our failure to adequately protect against security breaches involving our information technology systems and customer information; |
· |
our failure to successfully anticipate consumer preferences and demand; |
· |
our inability to find available locations for our stores or our store support center on terms acceptable to us; |
· |
our inability to obtain merchandise on a timely basis at prices acceptable to us; |
13
· |
suppliers may sell similar or identical products to our competitors; |
· |
our inability to maintain sufficient levels of cash flow to meet growth expectations; |
· |
our inability to manage our inventory obsolescence, shrinkage and damage; |
· |
fluctuations in material and energy costs; |
· |
our vulnerability to natural disasters and other unexpected events; and |
· |
restrictions imposed by our indebtedness on our current and future operations. |
Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, you should not rely on these forward-looking statements as predictions of future events. The forward-looking statements contained in this Quarterly Report speak only as of the date hereof. New risks and uncertainties arise over time, and it is not possible for us to predict those events or how they may affect us. If a change to the events and circumstances reflected in our forward-looking statements occurs, our business, financial condition and operating results may vary materially from those expressed in our forward-looking statements. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events or otherwise.
Overview
Founded in 2000, Floor & Decor is a high growth, differentiated, multi-channel specialty retailer of hard surface flooring and related accessories with 103 warehouse format stores across 28 states as of March 28, 2019. We believe that we offer the industry’s broadest in stock assortment of tile, wood, laminate, vinyl, and natural stone flooring along with decorative and installation accessories at everyday low prices positioning us as the one stop destination for our customers’ entire hard surface flooring needs. We appeal to a variety of customers, including professional installers and commercial businesses (“Pro”), Do It Yourself customers (“DIY”) and customers who buy the products for professional installation (“Buy it Yourself” or “BIY”).
We operate on a 52- or 53-week fiscal year ending on the Thursday on or preceding December 31. The following discussion contains references to the first thirteen weeks of fiscal 2019 and fiscal 2018, which ended on March 28, 2019 and March 29, 2018, respectively.
During the thirteen weeks ended March 28, 2019, we continued to make long-term key strategic investments, including:
· |
opening three new warehouse-format stores ending the quarter with 103 warehouse-format stores; |
· |
focusing on innovative new products and localized assortments, supported by inspirational in-store and online visual merchandising solutions; |
· |
investing capital in our stores, information technology and our connected customer strategies to continue enhancing and integrating the online and in-store shopping experience for our customers; and |
· |
engaging more professional customers, including signing up more customers on our Pro Premier Loyalty Program. |
Key Performance Indicators
We consider a variety of performance and financial measures in assessing the performance of our business. The key performance and financial measures we use to determine how our business is performing are comparable store sales, the number of new store openings, gross profit and gross margin, operating income and EBITDA and Adjusted EBITDA. For definitions and a discussion of how we use our key performance indicators, see the “Key Performance Indicators” section of “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report. See “Non-GAAP Financial Measures” below for a discussion of how we define
14
EBITDA and Adjusted EBITDA and a reconciliation of our EBITDA and Adjusted EBITDA to net income, the most directly comparable financial measure calculated and presented in accordance with GAAP.
Other key financial terms we use include net sales, selling and store operating expenses, general and administrative expenses and pre-opening expenses. For definitions and a discussion of how we use our other key financial definitions, see the “Other Key Financial Definitions” section of “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report.
15
Results of Operations
The following table summarizes key components of our results of operations for the periods indicated, in dollars and as a percentage of net sales:
|
|
|
Thirteen Weeks Ended |
|
|
|
|
|
|
|
|||||||||
|
|
|
3/28/2019 |
|
|
3/29/2018 |
|
|
|
|
|
|
|
||||||
(in thousands) |
|
|
Actual |
|
% of Sales |
|
|
Actual |
|
% of Sales |
|
|
|
$ Increase/(Decrease) |
|
% Increase/(Decrease) |
|
||
Net sales |
|
|
$ |
477,050 |
|
100.0 |
% |
|
$ |
402,948 |
|
100.0 |
% |
|
$ |
74.1 |
|
18.4 |
% |
Cost of sales |
|
|
|
275,676 |
|
57.8 |
|
|
|
237,562 |
|
59.0 |
|
|
|
38.1 |
|
16.0 |
|
Gross profit |
|
|
|
201,374 |
|
42.2 |
|
|
|
165,386 |
|
41.0 |
|
|
|
36.0 |
|
21.8 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and store operating expenses |
|
|
|
127,383 |
|
26.7 |
|
|
|
102,567 |
|
25.4 |
|
|
|
24.8 |
|
24.2 |
|
General and administrative expenses |
|
|
|
30,202 |
|
6.4 |
|
|
|
23,339 |
|
5.8 |
|
|
|
6.9 |
|
29.4 |
|
Pre-opening expenses |
|
|
|
4,027 |
|
0.8 |
|
|
|
2,974 |
|
0.7 |
|
|
|
1.1 |
|
35.4 |
|
Total operating expenses |
|
|
|
161,612 |
|
33.9 |
|
|
|
128,880 |
|
31.9 |
|
|
|
32.7 |
|
25.4 |
|
Operating income |
|
|
|
39,762 |
|
8.3 |
|
|
|
36,506 |
|
9.1 |
|
|
|
3.3 |
|
8.9 |
|
Interest expense |
|
|
|
2,921 |
|
0.6 |
|
|
|
1,784 |
|
0.5 |
|
|
|
1.1 |
|
63.7 |
|
Income before income taxes |
|
|
|
36,841 |
|
7.7 |
|
|
|
34,722 |
|
8.6 |
|
|
|
2.1 |
|
6.1 |
|
Provision for income taxes |
|
|
|
6,121 |
|
1.3 |
|
|
|
2,851 |
|
0.7 |
|
|
|
3.3 |
|
NM |
|
Net income |
|
|
$ |
30,720 |
|
6.4 |
% |
|
$ |
31,871 |
|
7.9 |
% |
|
$ |
(1.2) |
|
(3.6) |
% |
NM – Not meaningful
Selected Financial Information
|
|