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What changed in Floor & Decor Holdings, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Floor & Decor Holdings, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+297 added−525 removedSource: 10-K (2024-02-22) vs 10-K (2023-02-23)

Top changes in Floor & Decor Holdings, Inc.'s 2023 10-K

297 paragraphs added · 525 removed · 250 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

79 edited+8 added−104 removed15 unchanged
Biggest changeWe believe that we have good relations with our employees. We look at a variety of measures and objectives related to the development, attraction, safety, engagement, and retention of our employees, including: • Store Staffing . In order to provide the level of customer service that we expect, it is important that we adequately staff our stores with trained employees.
Biggest changeIn order to provide the level of customer service that we expect, it is important that we adequately staff our stores with trained employees. As of December 28, 2023, the majority of our stores were staffed at a level that we deem appropriate. • Training . Training associates is also important to ensuring appropriate levels of customer service.
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 and adjacent categories at everyday low prices positioning us as the one-stop destination for our customers’ entire hard surface flooring needs.
We believe that we offer the industry’s broadest in-stock assortment of tile, wood, laminate and vinyl, and natural stone flooring along with decorative and installation accessories and adjacent categories at everyday low prices positioning us as the one-stop destination for our customers’ entire hard surface flooring needs.
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 believe our differentiated focus on Pro customers has created a competitive advantage for us and will continue to drive net sales growth. We continue to 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 sought to integrate technology into all facets of our business, including supply chain, merchandising, store operations, point-of-sale, e-commerce, finance, accounting and human resources. The integration of technology allows us to analyze the business in real time and react accordingly. Our sophisticated inventory management system is our primary tool for forecasting, placing orders and managing in-stock inventory.
We have sought to integrate technology into all facets of our business, including supply chain, merchandising, store operations, point-of-sale, e-commerce, finance, accounting, and human resources. The integration of technology allows us to analyze the business in real time and react accordingly. Our inventory management system is our primary tool for forecasting and placing orders and managing in-stock inventory.
When opening new stores, inventory orders are placed several months prior to a new store opening. Significant investment is made in building out or constructing the site, hiring and training employees in advance, and advertising and marketing the new store through pre-opening events to draw the flooring industry community together.
When opening new stores, inventory orders are placed several months prior to a new store opening. Significant investment is made in building out or constructing the site, hiring and training employees in advance, and marketing the new store through pre-opening events to draw the flooring industry community together.
Outside of our stores, we have employees dedicated to corporate, store support, infrastructure, e-commerce, call center and similar functions as well as support for our distribution centers and sourcing office. We dedicate significant resources to training our employees and believe they are key to our success.
Outside of our stores, we have employees dedicated to corporate, store support, infrastructure, e-commerce, call center and similar functions as well as support for our distribution centers and sourcing office. We dedicate significant resources to training our employees as they are key to our success.
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 expect to grow 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.
We create or implement localized assortments that are not only trend-forward but often create trends in the industry, which we believe differentiates us from our national competitors that tend to have standard assortments across markets. Throughout the year, we train all of our employees on a variety of topics, including product knowledge, sales strategies, leadership and store operations.
We create or implement localized assortments, which are not only trend-forward but often create trends in the industry, which we believe differentiates us from our national competitors, which tend to have standard assortments across markets. Throughout the year, we regularly train all of our employees on a variety of topics, including product knowledge, sales strategies, leadership and store operations.
Our Pro customers use the website and our Pro app to browse our broad product assortment, to continually educate themselves on new techniques and trends and to share our virtual catalogue and design ideas with their customers and utilize tools such as our calculators to aid with shopping.
Our Pro customers use the website and our Pro app to browse our broad product assortment, to continually educate themselves on new techniques and trends and to share our virtual catalog and design ideas with their customers and utilize tools such as our calculators to aid with shopping.
We plan to continue to seek further opportunities to enhance our distribution capabilities and align them with our strategic growth initiatives. Management Information Systems We believe that technology plays a crucial role in the continued growth and success of our business.
We plan to continue to seek further opportunities to enhance our distribution capabilities and align them with our strategic growth initiatives. Management Information Systems Technology plays a crucial role in the continued growth and success of our business.
We provide an efficient one-stop shopping experience for our Pro customers, offering low prices on a broad selection of high-quality flooring products, deep inventory levels to support immediate availability of our products, credit offerings, free storage for purchased inventory, the convenience of early store hours and, in most stores, separate entrances for merchandise pick-up.
We provide an efficient one-stop shopping experience for our Pro customers, offering low prices on a broad selection of high-quality flooring products, deep inventory levels to support immediate availability of our products, credit offerings, free storage for purchased inventory, the convenience of early store hours, and separate entrances for merchandise pick-up.
You may access our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports, as well as other reports relating to us that are filed with, or furnished to, the SEC free of charge on our website as soon as reasonably practicable after such material is electronically filed with, or furnished to, the SEC.
You may access our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports, as well as other reports relating to us that are filed with, or furnished to, the SEC free of charge on our website as soon as reasonably practicable after such material is electronically filed with, or furnished to, the SEC. 11 Table of Contents
Our ability to purchase directly from manufacturers through our direct sourcing model enables us to be fast to market with a balanced assortment of bestseller and unique, hard to find items that are the latest trend-right products.
Our ability to purchase directly from manufacturers through our direct sourcing model enables us to be fast to market with a balanced assortment of best-seller and unique, hard-to-find items that are the latest trend-right products.
The following discussion contains references to fiscal 2018, fiscal 2019, fiscal 2020, fiscal 2021, fiscal 2022, and fiscal 2023, which represent our fiscal years ended or ending, as applicable, December 27, 2018, December 26, 2019, December 31, 2020, December 30, 2021, December 29, 2022, and December 28, 2023.
The following discussion contains references to fiscal 2019, fiscal 2020, fiscal 2021, fiscal 2022, fiscal 2023, and fiscal 2024, which represent our fiscal years ended or ending, as applicable, December 26, 2019, December 31, 2020, December 30, 2021, December 29, 2022, December 28, 2023, and December 26, 2024.
We believe this strategy creates trust with our Pro, DIY and BIY customers because they consistently receive low prices at Floor & Decor without having to wait for a sale or negotiate to obtain the lowest price. • One-Stop Project Destination with Immediate Availability .
We believe this strategy creates trust with our customers because they consistently receive low prices at Floor & Decor without having to wait for a sale or negotiate to obtain the lowest price. • One-Stop Project Destination with Immediate Availability .
Some of our competitors are organizations that are larger, are better capitalized, have existed longer, have product offerings that extend beyond hard surface flooring and related accessories, and have a more established market presence with substantially greater financial, marketing, personnel and other resources than we have.
Some of our competitors are organizations that are larger, better capitalized, have existed longer, have product offerings that extend beyond hard surface flooring and related accessories, and have a more established market presence with substantially greater resources than we have.
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.
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 low- to mid-teens annual percentage growth rate over the near-to-medium term, reaching at least 500 in the United States within approximately eight years.
Fiscal years 2018, 2019, 2021, 2022, and 2023 are 52-week periods, and fiscal 2020 is a 53-week period. Our Company Founded in 2000, Floor & Decor is a high growth, differentiated, multi-channel specialty retailer and commercial flooring distributor of hard surface flooring and related accessories.
Fiscal years 2019, 2021, 2022, 2023, and 2024 are 52-week periods, and fiscal 2020 is a 53-week period. Our Company Founded in 2000, Floor & Decor is a high-growth, differentiated, multi-channel specialty retailer of hard surface flooring and related accessories and seller of commercial surfaces.
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. 8 Tabl e of Contents Continue to Invest in the Pro Customer.
While the hard surface flooring category has a relatively low penetration of connected customer 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. Continue to Invest in the Pro Customer.
In-transit inventory generally varies due to contractual terms, country of origin, transit times, international holidays, weather patterns and other factors. We have invested significant resources to develop and enhance our distribution network. We have four distribution centers strategically located across the United States in port cities near Savannah, Georgia; Houston, Texas; Los Angeles, California; and Baltimore, Maryland.
In-transit inventory generally varies due to contractual terms, country of origin, transit times, international holidays, weather patterns and other factors. We have invested significant resources to develop and enhance our distribution network. We have four distribution centers strategically located across the United States in port cities near Savannah, Houston, Los Angeles, and Baltimore and a transload facility near Los Angeles.
We also offer Design Services to our Pro customer to support them in servicing their customers. Additionally, each store has a dedicated Pro sales force with technology to service our Pro customer more efficiently. We have a Pro loyalty rewards program, which provides business-building tools and awards points based on purchases.
We also offer Design Services, which helps our Pro customers serve their customers. Additionally, each store has a dedicated Pro sales force with technology to service our Pro customer more efficiently. We have a Pro loyalty rewards program, which provides awards points based on purchases and business-building tools.
We believe that the key competitive factors in the retail hard surface flooring industry include: • localized product assortment; • product innovation; • in-store availability of products in project-ready quantities; • product sourcing; • product presentation; • customer service; • store management; • store location; and • low prices.
We believe the key competitive factors in the retail hard surface flooring industry include localized product assortment, product innovation, in-store availability of products in job-lot quantities, product sourcing, product presentation, customer service, store management, store location, and low prices.
We have established a Global Sourcing and Compliance Department to, among other things, enhance our policies and procedures with respect to addressing compliance with appropriate regulatory bodies, including the requirements of the Lacey Act of 1900 (as amended, the “Lacey Act”), the California Air Resources Board (“CARB”) and the Environmental Protection Agency (“EPA”).
We have established a Global Sourcing and Compliance Department to, among other things, enhance our policies and procedures with respect to addressing compliance with appropriate regulatory bodies, including compliance with the requirements of the Lacey Act of 1900, the California Air Resources Board, and the Environmental Protection Agency.
Trademarks and other Intellectual Property As of February 23, 2023, we have 74 registered marks and several pending trademark applications in the United States. We regard our intellectual property, including our over 50 proprietary brands, as having significant value, and our brand is an important factor in the marketing of our products.
Trademarks and other Intellectual Property As of February 22, 2024, we have 68 registered marks and several pending trademark applications in the United States. We regard our intellectual property, including our over 50 proprietary brands, as having significant value, and our brand is an important factor in the marketing of our products.
Highly Experienced Management Team with a Proven Track Record. Led by our Chief Executive Officer, Tom Taylor, our management team brings substantial expertise from leading retailers and other companies across various core functions, including store operations, merchandising, marketing, real estate, e-commerce, supply chain management, finance, legal and information technology.
Led by our Chief Executive Officer, Tom Taylor, our management team brings substantial expertise from leading retailers and other companies across various core functions, including store operations, merchandising, marketing, real estate, e-commerce, supply chain management, finance, legal, and information technology.
Maintaining a safe shopping environment is very important to us. Our Safety & Loss Prevention team, managed by an experienced leader, works closely with our Store Operations team on safety training and initiatives. • Rewards .
Maintaining a safe shopping environment is very important to us. Our Safety & Loss Prevention team works closely with our Store Operations team on safety training and initiatives. • Rewards .
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.
Because approximately 55% of our stores have been open for less than five years, we believe they will continue to drive comparable store sales growth as newer stores ramp up to maturity.
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.
We continuously invest in our connected customer strategies to improve how 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. Our connected customer sales represented approximately 19% of our total net sales for fiscal 2023.
Our stores average approximately 79,000 square feet and are typically designed with warehouse features including high ceilings, clear signage, bright lighting and industrial racking and are staffed with knowledgeable store associates.
Our stores are typically designed with warehouse features including high ceilings, clear signage, bright lighting, and industrial racking and are staffed with knowledgeable store associates.
We have a Learning Department, and in 2022, associates engaged in approximately 191,700 hours of training. • Internal Advancement Opportunities . We believe our growth opportunities are a critical way to attract and retain employees, and we encourage a promote-from-within environment when internal resources permit. In 2022, approximately 2,000 employees were promoted to more senior positions. • Safety .
We have a Learning Department, and in 2023, associates engaged in approximately 275,000 hours of training. • Internal Advancement Opportunities . Our growth opportunities are a critical way to attract and retain employees, and we encourage a promote-from-within environment when internal resources permit. In 2023, approximately 1,550 employees were promoted to more senior positions. • Culture .
We believe that we compete favorably with respect to each of these factors by providing a highly diverse selection of products to our customers, at an attractive value, in appealing and convenient retail stores.
We believe that we compete favorably with respect to each of these factors by providing a highly diverse selection of products to our customers, at an attractive value, in appealing and convenient retail stores. Human Capital We have built a strong team of employees to support our continued success.
Over the course of his career at The Home Depot, Tom Taylor helped expand the store base from fewer than 15 stores to over 2,000 stores. Our President, Trevor Lang, was promoted to President in November 2022 after serving as the Executive Vice President and Chief Financial Officer since 2014 and Chief Financial Officer since 2011.
Tom Taylor, who joined us in 2012, spent 23 years at The Home Depot, where he helped expand the store base from fewer than 15 stores to over 2,000 stores. Our President, Trevor Lang, was promoted to President in November 2022 after serving as the Executive Vice President and Chief Financial Officer since 2014 and Chief Financial Officer since 2011.
This department also addresses compliance with Floor & Decor’s supplier compliance policies, such as specifications and packaging of the products we purchase. We also utilize third-party consultants for audits, testing and surveillance to ensure product safety and compliance.
This department also addresses compliance with Floor & Decor’s supplier compliance policies, such as specifications and packaging of the products we purchase. We utilize third-party consultants for audits, testing, and surveillance to ensure product safety and compliance. We have invested in technology and personnel to collaborate throughout the entire supply chain process.
By carrying a deep level of in-stock hard surface flooring inventory and wide range of tools and accessories, we seek to offer our customers immediate availability of everything they need to complete their entire flooring or remodeling project.
Other large format home improvement retailers only allocate a small percentage of their floor space to hard surface flooring and accessories. By carrying a deep level of in-stock hard surface flooring inventory and wide range of tools and accessories, we seek to offer our customers immediate availability of everything they need to complete their entire flooring or remodeling project.
The data-driven platform includes sophisticated forecasting tools based on historical trends in sales, inventory levels and vendor lead times at the store and distribution center level by SKU, allowing us to support store managers in their regional merchandising efforts. We rely on the forecasting accuracy of our system to maintain the in-stock, project-ready quantities that our customers rely on.
The data-driven platform includes sophisticated forecasting tools based on historical trends in sales, inventory levels and vendor lead times at the store and distribution center level by SKU, allowing us to support store managers in their regional merchandising efforts.
We believe rewarding our Pro customers through this program improves their loyalty to Floor & Decor, and by serving the needs of Pro customers, we drive repeat and high-ticket purchases, customer referrals, and brand awareness from this attractive and loyal customer segment.
Rewarding our Pro customers through this program improves their loyalty to Floor & Decor, and by serving the needs of Pro customers, we drive repeat and high-ticket purchases, customer referrals, and brand awareness from this attractive and loyal customer segment. Decentralized Culture with an Experienced Store-Level Team and Emphasis on Training.
We believe direct sourcing is a key competitive advantage, as many of our specialty retail flooring competitors are too small to have the scale or the resources to work directly with suppliers.
Direct sourcing is a key competitive advantage, as many of our specialty retail flooring competitors are too small to have the scale or the resources to work directly with suppliers. 5 Table of Contents Highly Experienced Management Team with a Proven Track Record.
Our store managers, who carry the title Chief Executive Merchant (“CEM”), have significant flexibility to customize product mix, pricing, marketing, merchandising, visual displays and other elements in consultation with their regional leaders.
We have a decentralized culture that empowers managers at the store and regional levels to make key decisions to maximize the customer experience. Our store managers, who carry the title Chief Executive Merchant (“CEM”), have significant flexibility to customize product mix, pricing, marketing, merchandising, visual displays and other elements in consultation with their regional leaders.
Third-party brokers arrange the shipping of our international and domestic purchases to our distribution centers and stores and bill us for shipping costs according to the terms of the purchase agreements with our suppliers. We are typically able to transport inventory from our distribution centers to our stores in less than one week.
Third-party brokers arrange the shipping of our international and domestic purchases to our distribution centers and stores and bill us for shipping costs according to the terms of the purchase agreements with our suppliers.
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. Increase Comparable Store Sales.
Our historical new store performance, the performance of our more mature stores, 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. Increase Comparable Store Sales.
We believe we have the most comprehensive in-stock, trend-right product assortment in the industry within our categories with on average approximately 4,400 stock keeping units (“SKUs”) in each store which, based on our market experience, is a far greater in-stock offering than any other flooring retailer.
We carry a comprehensive in-stock, trend-right product assortment with on average approximately 4,500 stock keeping units (“SKUs”) in each store which, based on our market experience, is a far greater in-stock offering than any other flooring retailer. Additionally, we customize our product assortment at the store level for the local preferences of each market.
We appeal to a wide range of customers through our “good/better/best” merchandise selection, our broad range of product styles from classic to modern, and our new trend-right products.
We work with our suppliers to quickly introduce new products and styles in our stores. We appeal to a wide range of customers through our “good/better/best” merchandise selection, our broad range of product styles from classic to modern, and our new trend-right products. We consistently innovate with proprietary brands. • Low Prices .
Compliance with these laws and regulations has not historically had a material effect on our financial condition or operating results; however, the effect of compliance in the future cannot be predicted.
We operate our business in accordance with standards and procedures designed to comply with applicable laws and regulations. Compliance with these laws and regulations has not historically had a material effect on our capital expenditures, earnings, competitive position, financial condition, or operating results; however, the effect of compliance in the future cannot be predicted.
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.
Floor & Decor’s online experience allows our 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.
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 invest in recruiting top design talent and provide extensive design-focused training, tools, and technology to ensure our teams are knowledgeable and prepared to deliver a start-to-finish consultative selling experience. 6 Table of Contents Expand Our Sales Growth in Commercial Surfaces.
Our Chief Human Resources Officer, supported by the entire executive team, is responsible for developing and executing our human capital strategy. This includes the attraction, acquisition, development and engagement of talent and the design of associate compensation and benefits programs.
Our Chief Human Resources Officer, supported by the entire executive team, is responsible for developing and executing our human capital strategy. This includes the attraction, development, engagement, safety, and retention of talent and the design of associate compensation and benefits programs. As of December 28, 2023, we had 12,783 employees, 9,857 of whom were full-time.
We are focused on bypassing agents, brokers, distributors, and other middlemen in our supply chain in order to reduce costs and lead time. We believe that our direct sourcing model and the resulting relationships we have developed with our suppliers are distinct competitive advantages.
We are focused on bypassing importers, exporters, wholesalers, distributors, and other middlemen in our supply chain in order to reduce costs and lead time. Our direct sourcing model and the resulting relationships we have developed with our suppliers are distinct competitive advantages. The cost savings we achieve by directly sourcing our merchandise enable us to offer our customers low prices.
Each new store is thoughtfully designed with store interiors that include interchangeable displays on wheels, racking to access products and stand-up visual displays to allow ease of shopping and an exterior highlighted by a large, bold Floor & Decor sign.
Each new store is thoughtfully designed with store interiors that include vignettes and interchangeable displays, racking to access products to allow ease of shopping, and an exterior highlighted by a large, bold Floor & Decor sign. Connected Customer We aim to elevate the total customer experience through our website FloorandDecor.com .
We believe in rewarding our associates for their hard work on behalf of Floor & Decor and provide a variety of incentives to allow associates to share in the Company’s success, including (i) incentive compensation plans for all associates, (ii) a 401(k) plan with Company-sponsored match, (iii) health care benefits for full-time associates, (iv) an employee stock purchase plan that facilitates purchases of Company stock at a discount by eligible associates, and (v) other benefits such as an employee assistance program.
We reward our associates for their hard work on behalf of Floor & Decor and provide a variety of incentives to allow associates to share in the Company’s success, including (i) incentive compensation plans for all associates, (ii) a 401(k) plan with Company-sponsored match, (iii) health care benefits for full-time associates, (iv) an employee stock purchase plan that facilitates purchases of Company stock at a discount by eligible associates, and (v) other benefits such as an employee assistance program. 10 Table of Contents Government Regulation We are subject to extensive and varied federal, state and local laws and regulations that impact us, our operations, properties, and suppliers, including those relating to employment, the environment, protection of natural resources, import and export, advertising, labeling, public health and safety, product safety, zoning, and fire codes.
Additionally, we believe operating margin improvement opportunities will include enhanced product sourcing processes and overall leveraging of our store-level fixed costs, existing infrastructure, supply chain, corporate overhead and other fixed costs resulting from increased sales productivity.
We intend to continue to focus on both organic and inorganic growth to address the entire commercial surfaces market. Enhance Margins Through Increased Operating Leverage. Operating margin improvement opportunities will include enhanced product sourcing processes and overall leveraging of our store-level fixed costs, existing infrastructure, supply chain, corporate overhead and other fixed costs resulting from increased sales productivity.
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.
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. Expand Our “Connected Customer” Experience.
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 continue to grow our commercial surfaces business both organically and through acquisitions, applying many of the same strategies that have allowed us to be successful in selling residential retail hard surface flooring, including high quality, trend-right hard surface flooring sourced at a low cost directly from the manufacturer.
The majority of our stores have design centers that showcase project ideas to further inspire our customers, and, in all of our stores, we employ experienced designers to provide design consulting to our customers free of charge.
These features educate and enable customers to visualize how the product would look in their homes or businesses. The majority of our stores have design centers, with multiple different vignettes that showcase project ideas to further inspire our customers, and we employ experienced designers in all of our stores to provide free design consulting.
We carry an extensive range of products, including flooring and decorative accessories, as well as installation accessories such as mortar, underlayment, grout and tools, to fulfill a customer’s entire flooring project. More recently, we added adjacent categories such as vanities, bathroom accessories, shower doors, and custom countertops.
We carry an extensive range of products, including flooring and decorative accessories, as well as installation materials and tools, to fulfill a customer’s entire flooring project. In addition, we have adjacent categories such as vanities, bathroom accessories, shower doors, and custom countertops. Our stores carry a large in-stock assortment and job size quantities to differentiate us from our competitors.
We believe we have an opportunity to continue to gain share in the hard surface flooring market with the largest selection of tile, wood, laminate, vinyl, natural stone, decorative accessories, and installation materials. Our strong focus on the customer experience drives us to remain innovative and locally relevant while maintaining low prices and in-stock merchandise in a one-stop shopping destination.
We believe we have an opportunity to continue to gain share in the hard surface flooring market with the largest in-stock selection of laminate and vinyl, tile, installation materials, decorative accessories, wood, and natural stone.
In addition, sales associates at our call center are available to assist our customers with their projects and questions. We designed the website to be a reflection of our stores and to promote our wide selection of high quality products and low prices.
We designed the website to be a reflection of our stores and to promote our wide selection of high quality products and low prices.
We take the same customized approach with our marketing as we do with our product selection; each region has a varied media mix based on local trends and what we believe will most efficiently drive sales. To further enhance our targeting efforts, our store managers have input into their respective stores’ marketing spend.
We use traditional advertising media, combined with social media and online marketing, to share the Floor & Decor story with a growing audience. We take the same customized approach with our marketing as we do with our product selection; each region has a varied media mix based on local trends and what we believe will most efficiently drive sales.
Our Structure Floor & Decor Holdings, Inc. was incorporated as a Delaware corporation in October 2010 in connection with the acquisition of Floor & Decor Outlets of America, Inc. (“F&D”) in November 2010 by our previous sponsor owners.
Floor & Decor Holdings, Inc. was incorporated as a Delaware corporation in October 2010 in connection with the acquisition of Floor and Decor Outlets of America, Inc. in November 2010 by our previous sponsor owners. As of December 28, 2023, we operated 221 warehouse-format stores and five small design studios across 36 states.
He brings more than 25 years of executive leadership experience, including 20 years in senior positions at high-growth public companies, including the Chief Financial Officer and Chief Administrative Officer of Zumiez Inc. In November 2022, Bryan Langley was promoted to serve as Executive Vice President and Chief Financial Officer.
He brings more than 25 years of executive leadership experience. In November 2022, Bryan Langley was promoted to serve as Executive Vice President and Chief Financial Officer. He joined the Company in 2014, and has served in various positions of increasing responsibility in corporate strategy, financial planning, and accounting.
Accordingly, we have taken, and continue to take, appropriate steps to protect our intellectual property. Available Information We maintain a website at www.FloorandDecor.com. The information on or available through our website is not, and should not be considered, a part of this Annual Report.
The information on or available through our website is not, and should not be considered, a part of this Annual Report.
As of December 29, 2022, we had 11,985 employees, 9,281 of whom were full-time and none of whom were represented by a union. Of the total employees, 10,437 work in our stores, 1,086 work in corporate, store support, customer care or similar functions, 450 work in distribution centers, and 12 work in our Asia sourcing office in Shanghai, China.
Of the total employees, 10,889 work in our stores, 1,423 work in corporate, store support, customer care or similar functions, 459 work in distribution centers, and 12 work in our Asia sourcing office in Shanghai, China.
We often collaborate with our vendors to design and manufacture products for us to address emerging customer preferences that we observe in our stores and markets. We procure the majority of our products directly from the manufacturers, which eliminates additional costs from exporters, importers, wholesalers and distributors.
We procure the majority of our products directly from manufacturers, which eliminates additional costs from exporters, importers, wholesalers, and distributors.
Our entire management team drives our organization with a focus on strong merchandising, superior customer experience, expanding our store footprint, and fostering a strong, decentralized culture.
Our entire management team drives our organization with a focus on strong merchandising, superior customer experience, expanding our store footprint, and fostering a strong, decentralized culture. Our Growth Strategy We expect to drive growth in net sales and profitability through the following strategies: Open Warehouse-Format Stores in New and Existing Markets.
We anticipate that the planned expansion of our store base and growth in comparable store sales will also support increasing economies of scale over the long-term.
We anticipate that the planned expansion of our store base and growth in comparable store sales will also support increasing economies of scale over the long-term while still making significant investments in our business. Our Industry Floor & Decor operates in the large, growing, and highly fragmented U.S. retail hard surface flooring market and commercial surfaces market.
In addition to highlighting our broad product selection, we believe FloorandDecor.com offers a convenient opportunity for customers to purchase products online and pick them up in our stores. Approximately 85% of our e-commerce sales are picked up in-store. As we continue to grow, we believe connected customer will become an increasingly important part of our strategy.
In addition to highlighting our broad product selection, FloorandDecor.com offers a convenient opportunity for customers to purchase products online and pick them up in our stores.
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.
Continue to Invest in Design Services. 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. According to our internal research, when a designer is involved, customer satisfaction and average ticket is higher, and customers are more likely to follow through with a purchase.
We believe that these investments will continue to strengthen our customer value proposition, further differentiate Floor & Decor from our competition, and position us for continued market share gains. Our Competitive Strengths We believe our strengths, described below, set us apart from our competitors and are the key drivers of our success. Unparalleled Customer Value Proposition.
We believe these factors create a differentiated value proposition for Floor & Decor and drive customer loyalty with our Pro and homeowner customers in our markets. 4 Table of Contents Our Competitive Strengths We believe our strengths, described below, set us apart from our competitors and are the key drivers of our success. Unparalleled Customer Value Proposition.
We seek to build a diverse and inclusive workplace where we can leverage our collective talents, striving to ensure that all associates are treated with dignity and respect. • Training . We believe that training associates is also important to ensuring appropriate levels of customer service.
We are mindful of the benefits of diversity and associate engagement in all aspects of the employment cycle as they are key to our culture and long-term success. We seek to build a diverse and inclusive workplace where we can leverage our collective talents, striving to ensure that all associates are treated with dignity and respect. • Safety .
In addition, our employee training certifications are entirely electronic, allowing us to effectively track the competencies of our staff and manage talent across stores. 14 Tabl e of Contents Competition The retail hard surface flooring market is highly fragmented and competitive. We face significant competition from large home improvement centers, national and regional specialty flooring chains and independent flooring retailers.
We rely on the forecasting accuracy of our system to maintain the in-stock, job-lot quantities that our customers rely on. 9 Table of Contents Competition The retail hard surface flooring market is highly fragmented and competitive. We face significant competition from large home improvement centers, national and regional specialty flooring chains, and independent flooring retailers.
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 made important investments in the Pro services regional team to better recruit and train the Pro services team in each store. We have also invested in technology to help us further penetrate and grow our Pro business. We continue to invest in refreshing and expanding our services to Pros to better facilitate our growing Pro business.
We believe this system helps service levels, reduces shrinkage and damage, helps us better manage our inventory, and allows us to better implement our connected customer initiatives. We completed the relocation of our previous distribution center near Houston, Texas to a larger distribution center in the Houston area in January 2022.
All of our distribution centers are Company-operated facilities, and we have implemented a warehouse management and transportation management system tailored to our unique needs across all distribution centers. We believe this system helps service levels, reduces shrinkage and damage, helps us better manage our inventory, and allows us to better implement our connected customer initiatives.
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 believe the majority of our BIY customers are homeowners. Our Pro customers are loyal, shop often and help promote our brand.
We appeal to a variety of customers, including professional installers and commercial businesses (“Pro”) and homeowners, which are comprised of do it yourself customers (“DIY”) and buy it yourself customers who buy the products for professional installation (“BIY”). Our warehouse-format stores, which average approximately 78,000 square feet, are typically larger than any of our specialty retail flooring competitors’ stores.
We believe our unique signage, which clearly displays individual product features and benefits, improves the ease of shopping and facilitates customer decision making. We invest heavily in large, visually inspiring merchandise displays that showcase our assortment as well as point of sale marketing throughout our stores to highlight product features, benefits, and design elements.
We offer an easy-to-navigate store layout with clear lines of sight and departments organized by our major product categories and we invest heavily in large, visually inspiring merchandise displays that showcase our assortment as well as marketing throughout our stores to highlight product features, benefits, and design elements.
We believe we are unique in our industry in employing an “everyday low price” strategy, where we strive to offer our products at consistently everyday low prices throughout the year instead of engaging in frequent promotional activities.
We leverage our ability to source directly from manufacturers and quarries to offer our flooring products and related accessories at everyday low prices throughout the year instead of engaging in frequent promotional activities.
Sourcing Floor & Decor has a well-developed and geographically diverse supplier base. We source our industry leading merchandise assortment from over 240 suppliers in 24 countries. Our largest supplier accounted for 16% of our net sales in fiscal 2022, while no other individual supplier accounted for more than 5% of our net sales.
To further enhance our targeting efforts, our store managers have input into their respective stores’ marketing spend. Sourcing Floor & Decor has a well-developed and geographically diverse supplier base. Our largest supplier accounted for 13% of our net sales in fiscal 2023, while no other individual supplier accounted for more than 10% of our net sales.
Marketing and Advertising We use a multi-platform approach to increasing Floor & Decor’s brand awareness, while historically maintaining a low average advertising to net sales ratio of approximately 2%. We use traditional advertising media, combined with social media and online marketing, to share the Floor & Decor story with a growing audience.
As we continue to grow, we believe connected customer will become an increasingly important part of our strategy. 8 Table of Contents Marketing and Advertising We use a multi-platform approach to increasing Floor & Decor’s brand awareness, while historically maintaining low advertising costs as a percentage of net sales of approximately 3%.
Sophisticated, Global Supply Chain. Our merchandising team has developed direct sourcing relationships with manufacturers and quarries in 24 countries. Through these relationships, we believe we understand the best places to procure our various product categories. We currently source our products from more than 240 vendors worldwide and have developed long-term relationships with many of them.
We currently source our products from more than 240 vendors worldwide and have developed long-term relationships with many of them. We often collaborate with our vendors to design products for us to address emerging customer preferences that we observe in our stores and markets.
Our store managers and store department managers are an integral part of our company, and many have over 15 years of relevant industry experience in retail. We have made important investments in the training and development of our people, including the creation of a full time training department.
Our store managers and store department managers are an integral part of our company, and many have years of relevant industry experience in retail. Sophisticated, Global Supply Chain. Our merchandising team has developed direct sourcing relationships with manufacturers and quarries in 26 countries.
We believe inspiring and educating customers within our stores and on our website provides us with a significant competitive advantage in serving our customers. Extensive Service Offerings to Enhance the Pro Customer Experience.
Additionally, we provide a robust online experience for potential customers on FloorandDecor.com . Extensive Service Offerings to Enhance the Pro Customer Experience.
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As of December 29, 2022, we operated 191 warehouse-format stores and six small design studios across 36 states.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeWhile we are unable to predict the impact such defect could have on our business, any necessary repairs could cause disruption in the operation of that distribution center, which could negatively impact the in-stock positions in the stores served by such distribution center and could have an adverse impact on our business, financial condition, and operating results. 20 Tabl e of Contents A disruption within our logistics or supply chain network could adversely affect our ability to deliver inventory in a timely manner, which could impair our ability to meet customer demand for products and result in lost sales, increased supply chain costs, or damage to our reputation.
Biggest changeA disruption within our logistics or supply chain network could adversely affect our ability to deliver inventory in a timely manner, which could impair our ability to meet customer demand for products and result in lost sales, increased supply chain costs, or damage to our reputation.
Some of our competitors are organizations that are larger, are better capitalized, have existed longer, have product offerings that extend beyond hard surface flooring and related accessories and have a more established market presence with substantially greater financial, marketing, delivery, customer loyalty, personnel and other resources than we have.
Some of our competitors are organizations that are larger, better capitalized, have existed longer, have product offerings that extend beyond hard surface flooring and related accessories and have a more established market presence with substantially greater financial, marketing, delivery, customer loyalty, personnel and other resources than we have.
Notwithstanding widespread recognition of the cyber-attack threat and improved data protection methods, high profile electronic security breaches leading to unauthorized release of sensitive information have occurred in recent years with increasing frequency at a number of major U.S. companies, including several large retailers, notwithstanding widespread recognition of the cyber-attack threat and improved data protection methods.
High profile electronic security breaches leading to unauthorized release of sensitive information have occurred in recent years with increasing frequency at a number of major U.S. companies, including several large retailers, notwithstanding widespread recognition of the cyber-attack threat and improved data protection methods.
In addition, when evaluating our internal control over financial reporting, we may identify material weaknesses that we may not be able to remediate in time to meet the applicable deadline imposed upon us for compliance with the requirements of Sections 302 and 404.
When evaluating our internal control over financial reporting, we may identify material weaknesses that we may not be able to remediate in time to meet the applicable deadline imposed upon us for compliance with the requirements of Sections 302 and 404.
These provisions include: • the sole power of a majority of our Board to fix the number of directors; • the requirement that certain advance notice procedures be followed for our stockholders to submit nominations of candidates for election to our Board and to bring other proposals before a meeting of the stockholders; • the power of our Board to amend our bylaws without stockholder approval; • the sole power of the Board to fill any vacancy on the Board, whether such vacancy occurs as a result of an increase in the number of directors or otherwise; • the ability of a majority of our Board (even if less than a quorum) to designate one or more series of preferred stock and issue shares of preferred stock without stockholder approval; • a requirement that, to the fullest extent permitted by law, certain proceedings against or involving us or our directors, officers, or associates be brought exclusively in the Court of Chancery in the State of Delaware; and • the lack of cumulative voting rights for the holders of our Class A common stock with respect to the election of directors.
These provisions include: • the sole power of a majority of our Board to fix the number of directors; • the requirement that certain advance notice procedures be followed for our stockholders to submit nominations of candidates for election to our Board and to bring other proposals before a meeting of the stockholders; • the power of our Board to amend our bylaws without stockholder approval; • the sole power of the Board to fill any vacancy on the Board, whether such vacancy occurs as a result of an increase in the number of directors or otherwise; 23 Table of Contents • the ability of a majority of our Board (even if less than a quorum) to designate one or more series of preferred stock and issue shares of preferred stock without stockholder approval; • a requirement that, to the fullest extent permitted by law, certain proceedings against or involving us or our directors, officers, or associates be brought exclusively in the Court of Chancery in the State of Delaware; and • the lack of cumulative voting rights for the holders of our Class A common stock with respect to the election of directors.
Further, any national, state or local government mandates or other orders taken to minimize the spread of a global health crisis could restrict our ability to conduct business as usual, as well as the business activities of our key customers and suppliers, including the potential for labor shortages.
Further, any national, state or local government mandates or other orders taken to minimize the spread of a public health crisis could restrict our ability to conduct business as usual, as well as the business activities of our key customers and suppliers, including the potential for labor shortages.
Our operating results may be adversely affected by increases in material, energy and transportation costs beyond our control, including increases in costs due to inflation. Our operating results may be affected by the wholesale prices of hard surface flooring products, setting and installation materials, and the related accessories that we sell.
Our operating results may be adversely affected by increases in wholesale prices of products, materials and transportation costs beyond our control, including increases in costs due to inflation. Our operating results may be affected by the wholesale prices of hard surface flooring products, setting and installation materials, and the related accessories that we sell.
Certain portions of our operations are subject to laws and regulations governing the environmental protection of natural resources and health and safety, including formaldehyde emissions and the use, storage, handling, generation, transportation, treatment, emission, release, discharge and disposal of certain hazardous materials and wastes.
Certain portions of our operations are subject to laws and regulations governing the environmental protection of natural resources and health and safety, including formaldehyde emissions and the use, storage, generation, transportation, treatment, emission, release and disposal of certain hazardous materials and wastes.
A material disruption in our information systems, including our website or call center, could adversely affect our business or operating results and lead to reduced net sales and reputational damage. We rely on our information systems to process transactions, summarize our results of operations and manage our business.
A material disruption in our information systems, including our website, could adversely affect our business or operating results and lead to reduced net sales and reputational damage. We rely on our information systems to process transactions, summarize our results of operations and manage our business.
In recent years, we and other parties in the flooring industry have been or currently are parties to litigation involving claims that allege violations of the foregoing laws, including claims related to product safety and patent claims.
In recent years, we and other parties in the flooring industry have been or currently are parties to litigation involving claims that allege violations of these laws, including claims related to product safety and patent claims.
Our ability to negotiate acceptable lease terms for these store locations, to re-negotiate acceptable terms on expiring leases or to negotiate acceptable terms for suitable alternate locations could depend on conditions in the real estate market, competition for desirable properties, our relationships with current and prospective landlords, or on other factors that are not within our control.
Our ability to negotiate acceptable lease terms for these store locations, to re-negotiate acceptable terms on expiring leases or to negotiate acceptable terms for suitable alternate locations depends on conditions in the real estate market, competition for desirable properties, our relationships with current and prospective landlords, and on other factors that are not within our control.
We are engaged in various legal actions, claims and proceedings arising in the ordinary course of business and, while we cannot predict the outcomes of such proceedings and other contingencies with certainty, this litigation and any potential future litigation could have an adverse impact on us.
General Risk Factors We are engaged in various legal actions, claims and proceedings arising in the ordinary course of business and, while we cannot predict the outcomes of such proceedings and other contingencies with certainty, this litigation and any potential future litigation could have an adverse impact on us.
While we believe we have appropriate indemnification and risk management practices in place, such activities involve liability and reputational risk, which could adversely affect us. Unfavorable allegations, government investigations and legal actions surrounding our products and us could harm our reputation, impair our ability to grow or sustain our business, and adversely affect our business, financial condition, and operating results.
While we believe we have appropriate indemnification and risk management practices in place, such activities involve liability and reputational risk, which could adversely affect us. 18 Table of Contents Unfavorable allegations, government investigations and legal actions surrounding our products and us could harm our reputation, impair our ability to grow or sustain our business, and adversely affect our business, financial condition, and operating results.
Extreme weather, natural disasters, power outages or other unexpected events could disrupt our operations by impacting the availability and cost of materials needed for manufacturing, causing physical damage and partial or complete closure of our manufacturing sites or distribution centers, loss of human capital, temporary or long-term disruption in the manufacturing and supply of products and services and disruption in our ability to deliver products and services to customers.
Extreme weather, natural disasters, power outages or other unexpected events could disrupt our operations by impacting the availability and cost of materials needed for manufacturing, causing physical damage and partial or complete closure of our manufacturing sites, retail stores, store support center or distribution centers, loss of human capital, temporary or long-term disruption in the manufacturing and supply of products and services and disruption in our ability to deliver products and services to customers.
In particular, the ongoing trade dispute between the U.S. and China has resulted in the U.S. imposing tariffs of 25% on the vast majority of the products we import from China. Approximately 29% of the products we sold in fiscal 2022 were produced in China.
In particular, the ongoing trade dispute between the U.S. and China has resulted in the U.S. imposing tariffs of 25% on the vast majority of the products we import from China. Approximately 25% of the products we sold in fiscal 2023 were produced in China.
Despite our security measures and those of third parties with whom we do business, such as our banks, merchant card processing and other technology vendors, our respective systems and facilities may be vulnerable to criminal cyber-attacks or security incidents due to malfeasance, intentional or inadvertent security breaches by associates, or other vulnerabilities such as defects in design or manufacture.
Despite our security measures and those of third parties with whom we do business, our respective systems and facilities may be vulnerable to criminal cyber-attacks or security incidents due to malfeasance, intentional or inadvertent security breaches by associates, or other vulnerabilities such as defects in design or manufacture.
Our indebtedness, combined with our lease and other financial obligations and contractual commitments, could adversely affect our business, financial condition, and operating results by: • making it more difficult for us to satisfy our obligations with respect to our indebtedness, including restrictive covenants and borrowing conditions, which may lead to an event of default under the agreements governing our debt; • making us more vulnerable to adverse changes in general economic, industry and competitive conditions and government regulation; 33 Tabl e of Contents • requiring us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing the availability of cash flows to fund current operations and future growth; • exposing us to the risk of increased interest rates as our borrowings under our Credit Facilities are at variable rates; • restricting us from making strategic acquisitions or causing us to make non-strategic divestitures; • requiring us to comply with financial and operational covenants, restricting us, among other things, from placing liens on our assets, making investments, incurring debt, making payments to our equity or debt holders and engaging in transactions with affiliates; • limiting our ability to borrow additional amounts for working capital, capital expenditures, acquisitions, debt service requirements, execution of our business and growth strategies or other purposes; and • limiting our ability to obtain credit from our suppliers and other financing sources on acceptable terms or at all.
Our indebtedness, combined with our lease and other financial obligations and contractual commitments, could adversely affect our business, financial condition, and operating results by: • making it more difficult for us to satisfy our obligations with respect to our indebtedness, including restrictive covenants and borrowing conditions, which may lead to an event of default under the agreements governing our debt; • requiring us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing the availability of cash flows to fund current operations and future growth; • exposing us to the risk of increased interest rates as our borrowings under our Credit Facilities are at variable rates; • restricting us from making strategic acquisitions; • requiring us to comply with financial and operational covenants, restricting us, among other things, from placing liens on our assets, making investments, incurring debt, making payments to our equity or debt holders and engaging in transactions with affiliates; • limiting our ability to borrow additional amounts for working capital, capital expenditures, debt service requirements, execution of our business and growth strategies or other purposes; and • limiting our ability to obtain credit from our suppliers and other financing sources on acceptable terms or at all.
In recent years, U.S. ports have been impacted by capacity constraints, port congestion and delays, periodic labor disputes, security issues, weather-related events, and natural disasters, which have been further exacerbated by the pandemic. Disruptions to our supply chain due to any of the factors listed above could negatively impact our financial performance or financial condition.
In recent years, global ports, trade lanes, and U.S. ports have been impacted by capacity constraints, port congestion and delays, periodic labor disputes, security issues, weather-related events, and natural disasters. Disruptions to our supply chain due to any of the factors listed above could negatively impact our financial performance or financial condition.
Techniques used for cyber-attacks designed to gain unauthorized access to these types of sensitive information by breaching or sabotaging critical systems of large organizations are constantly evolving and generally are difficult to recognize and react to effectively. We may be unable to anticipate these techniques or to implement adequate preventive or reactive security measures.
Techniques used for cyber-attacks designed to gain unauthorized access to these types of sensitive information by breaching or sabotaging critical systems of organizations, including those that use artificial intelligence, are constantly evolving and generally are difficult to recognize and react to effectively. We may be unable to anticipate these techniques or to implement adequate preventive or reactive security measures.
If we fail to successfully manage the challenges that our planned new store growth poses or encounter unexpected difficulties or higher costs during our expansion, our operating results and future growth opportunities could be adversely affected. We have 191 warehouse-format stores and six small-format standalone design studios located throughout the United States as of December 29, 2022.
If we fail to successfully manage the challenges that our planned new store growth poses or encounter unexpected difficulties or higher costs during our expansion, our operating results and future growth opportunities could be adversely affected. We have 221 warehouse-format stores and five small-format standalone design studios located throughout the United States as of December 28, 2023.
Any determination to pay dividends in the future will be at the discretion of our Board or directors (the “Board”) and will depend upon our operating results, financial condition, contractual restrictions, restrictions imposed by applicable law and other factors our Board deems relevant.
Any determination to pay dividends in the future will be at the discretion of our Board of Directors (the “Board”) and will depend upon our operating results, financial condition, contractual restrictions, restrictive covenants under our Credit Facilities, restrictions imposed by applicable law and other factors our Board deems relevant.
Additionally, in connection with evaluating potential strategic transactions and assets, we may incur significant expenses for the evaluation and due diligence investigation and negotiation of any potential transaction. We have no prior experience acquiring companies and may not be successful.
Additionally, in connection with evaluating potential strategic transactions and assets, we may incur significant expenses for the evaluation and due diligence investigation and negotiation of any potential transaction. Although we have limited experience acquiring companies, any future acquisitions may not be successful.
As a result, we are subject to risks associated with obtaining products from abroad, including: • the imposition of new or different duties (including antidumping and countervailing duties), tariffs, taxes and/or other charges on exports or imports, including as a result of errors in the classification of products upon entry or changes in the interpretation or application of rates or regulations relating to the import or export of our products; • political unrest, acts of war, terrorism and economic instability resulting in the disruption of trade from foreign countries where our products originate; • disruption due to the public health crises such as the COVID-19 pandemic; • currency exchange fluctuations; 26 Tabl e of Contents • the imposition of new or more stringent laws and regulations, including those relating to environmental, health and safety matters and climate change issues, labor conditions, quality and safety standards, trade restrictions, and restrictions on funds transfers; • the risk that one or more of our suppliers will not adhere to applicable legal requirements, including fair labor standards, the prohibition on child labor, environmental, product safety or manufacturing safety standards, anti-bribery and anti-kickback laws such as the Foreign Corrupt Practices Act (the “FCPA”) and sourcing laws such as the Lacey Act; • disruptions or delays in production, shipments, delivery or processing through ports of entry (including those resulting from strikes, lockouts, work-stoppages or slowdowns, or other forms of labor unrest); • changes in local economic conditions in countries where our suppliers are located; and • differences in product standards, acceptable business practice and legal environments.
As a result, we are subject to risks associated with obtaining products from abroad, including the imposition of new or different duties (including antidumping and countervailing duties), tariffs, taxes and/or other charges on exports or imports, including as a result of errors in the classification of products upon entry or changes in the interpretation or application of rates or regulations relating to the import or export of our products; political unrest, acts of war, terrorism and economic instability resulting in the disruption of trade from foreign countries where our products originate; disruption due to the public health crises; currency exchange fluctuations; the imposition of new or more stringent laws and regulations, including those relating to environmental, health and safety matters and climate change issues, labor conditions, quality and safety standards, trade restrictions, and restrictions on funds transfers; the risk that one or more of our suppliers will not adhere to applicable legal requirements, including fair labor standards, the prohibition on child labor, environmental, product safety or manufacturing safety standards, anti-bribery and anti-kickback laws such as the Foreign Corrupt Practices Act (the “FCPA”) and sourcing laws such as the Lacey Act; disruptions or delays in production, shipments, delivery or processing through ports of entry (including those resulting from strikes, lockouts, work-stoppages or slowdowns, or other forms of labor unrest). 15 Table of Contents Additionally, approximately 25% of the products we sold in fiscal 2023 were produced in China.
Any material disruption in our information systems, or delays or difficulties in implementing or integrating new systems or enhancing or expanding current systems, could have an adverse effect on our business (in particular our call center and online operations) and our operating results and could lead to reduced net sales and reputational damage. 30 Tabl e of Contents We may not be able to successfully maintain effective internal controls over financial reporting, which could have an adverse effect on our business and stock price.
Any material disruption in our information systems, or delays or difficulties in implementing or integrating new systems or enhancing or expanding current systems, could have an adverse effect on our business and our operating results and could lead to reduced net sales and reputational damage. 20 Table of Contents We may not be able to successfully maintain effective internal controls over financial reporting, which could have an adverse effect on our business and stock price.
We cannot guarantee that any project will be completed on time and delays in store openings could have a negative impact on our business and operating results.
We cannot guarantee that any project will be completed on time, and delays in store openings have had, and may continue to have, a negative impact on our business and operating results.
The completion date and ultimate cost of future store openings could differ significantly due to construction-related or other reasons, including construction and other delays and cost overruns, such as shortages of materials, shortages of skilled labor or work stoppages, unforeseen construction, scheduling, engineering, environmental or geological problems, governmental or permitting delays, weather interference, fires or other casualty losses and unanticipated cost increases.
As we continue to open new stores, the ultimate cost of future store openings could continue to rise significantly due to construction-related or other reasons, including construction and other delays and cost overruns, such as shortages of materials, shortages of skilled labor or work stoppages, unforeseen construction, scheduling, engineering, environmental or geological problems, governmental or permitting delays, weather interference, fires or other casualty losses and unanticipated cost increases.
Certain of our products may require us to spend significant time and resources in order to comply with applicable advertising, labeling, importation, exportation, environmental, health and safety laws and regulations because if we violate these laws or regulations, we could experience delays in shipments of our goods, be subject to fines or penalties, be liable for costs and damages or suffer reputational harm, any of which could reduce demand for our merchandise and adversely affect our business, financial condition, and operating results.
Any claim that alleges a failure by us to comply with any of these laws and regulations may subject us to fines, penalties, injunctions, litigation and/or potential criminal violations, which could adversely affect our reputation, business, financial condition, and operating results. 19 Table of Contents Certain of our products may require us to spend significant time and resources in order to comply with applicable advertising, labeling, importation, exportation, environmental, health and safety laws and regulations because if we violate these laws or regulations, we could experience delays in shipments of our goods, be subject to fines or penalties, be liable for costs and damages or suffer reputational harm, any of which could reduce demand for our merchandise and adversely affect our business, financial condition, and operating results.
In particular, our website and our call center are important parts of our integrated connected customer strategy and customers use these systems as information sources on the range of products available to them and as a way to order our products.
In particular, our website is an important part of our integrated connected customer strategy and customers use these systems as information sources on the range of products available to them and as a way to order our products.
We currently maintain a high level of inventory in order to have a broad assortment of products across a wide variety of hard surface flooring categories in project-ready quantities, with inventory per warehouse-format store consisting of on average approximately 4,400 SKUs and approximately $3.3 million of inventory at cost as of December 29, 2022.
We currently maintain a high level of inventory in order to have a broad assortment of products across a wide variety of hard surface flooring categories in job-lot quantities, with inventory per warehouse-format store consisting of on average approximately 4,500 SKUs and approximately $3.0 million of inventory at cost as of December 28, 2023.
We will require significant capital to fund our expanding business, which may not be available to us on satisfactory terms or at all.
We will require significant capital to fund our expanding business and service our existing indebtedness, and such capital may not be available to us on satisfactory terms or at all.
Our business could also be adversely affected if fuel prices increase or there are delays in product shipments due to freight difficulties, inclement weather, strikes by our associates or associates of third parties involved in our supply chain, or other difficulties.
In addition, our success is also dependent on our ability to provide timely delivery to our customers. Our business could also be adversely affected if fuel prices increase or there are delays in product shipments due to freight difficulties, inclement weather, strikes by our associates or associates of third parties involved in our supply chain, or other difficulties.
In particular, the ultimate extent of the impact of any epidemic, pandemic or other global health crisis on our business, financial condition and results of operations will depend on future developments which are highly uncertain and cannot be predicted, including new information that may emerge concerning the duration and severity of such epidemic, pandemic or other global health crisis, actions taken to contain or prevent their further spread and the pace of global economic recovery following containment of the spread. 24 Tabl e of Contents The Company continues to monitor the situation and take appropriate actions in accordance with the recommendations and requirements of relevant authorities.
In particular, the ultimate extent of the impact of any epidemic, pandemic or other public health crisis on our business, financial condition and results of operations will depend on future developments which are highly uncertain and cannot be predicted, including new information that may emerge concerning the duration and severity of such public health crisis, actions taken to contain or prevent their further spread and the pace of global economic recovery following containment of the spread.
These and other factors may cause the market price and demand for our common stock to fluctuate substantially, which may limit or prevent investors from readily selling their shares of common stock and may otherwise adversely affect the price or liquidity of our common stock.
These fluctuations sometimes have been unrelated or disproportionate to the operating performance of those companies. These and other factors may cause the market price and demand for our common stock to fluctuate substantially, which may limit or prevent investors from readily selling their shares of common stock and may otherwise adversely affect the price or liquidity of our common stock.
Our future operating results and ability to grow will depend on various other factors, including our ability to: • successfully select new markets and store locations; • attract, train and retain highly qualified managers and staff; • maintain our reputation of providing quality, safe and compliant products; and • manage store opening costs, including rising construction costs and costs due to delays in construction. 21 Tabl e of Contents Stores opened in new markets may have higher construction, occupancy or operating costs, or may have lower net sales, than stores opened in the past.
Our future operating results and ability to grow will depend on various other factors, including our ability to: successfully select new markets and store locations; attract, train and retain highly qualified managers and staff; maintain our reputation of providing quality, safe and compliant products; and manage store opening costs, including rising construction costs and costs due to delays in obtaining necessary permits and completing construction. 12 Table of Contents In addition, stores opened in new markets have had, and many continue to have, higher construction, occupancy and operating costs than stores opened in the past, and such stores may have lower profitability than stores opened in the past.
Any one or a combination of these factors could result in decreased demand for our products, reduce spending on homebuilding or remodeling of existing homes or cause purchases of new and existing homes to decline.
We believe any one or a combination of these factors has resulted, and could continue to result in, decreased demand for our products, reduced spending on homebuilding or remodeling of existing homes or caused purchases of new and existing homes to decline.
These events and disruptions could also adversely affect our customers’ and suppliers’ financial condition or ability to operate, resulting in reduced customer demand, delays in payments received or supply chain disruptions.
These events and disruptions could also adversely affect our customers’ and suppliers’ financial condition or ability to operate, resulting in reduced customer demand, delays in payments received or supply chain disruptions, including adverse effects on our ability to stock our stores and deliver products to our customers.
In turn, remodeling and new home construction depend on a number of factors that are beyond our control, including interest rates, inflation, tax policy, trade policy, employment levels, consumer confidence, credit availability, real estate prices, home-price appreciation, existing home sales, demographic trends, trends in response to the COVID-19 pandemic, weather conditions, natural disasters and general economic conditions.
In addition, existing home sales, remodeling, and new home construction depend on a number of other factors that are beyond our control, including inflation, tax policy, trade policy, employment levels, consumer confidence, credit availability, real estate prices, home-price appreciation, existing home sales, demographic trends, weather conditions, natural disasters, geopolitical or public safety conditions and general economic conditions.
In addition, to keep pace with changing technology, we must continuously implement new information technology systems as well as enhance our existing systems.
In addition, to keep pace with changing technology, we must continuously implement new information technology systems as well as enhance our existing systems, including a significant upgrade planned to begin in 2024.
In addition, as of December 29, 2022, we had the ability to access $556.5 million of unused borrowings available under the ABL Facility without violating any covenants thereunder and had $33.3 million in outstanding letters of credit thereunder.
In addition, as of December 28, 2023, we had the ability to access $718.4 million of unused borrowings available under the ABL Facility without violating any covenants thereunder and had $35.3 million in outstanding letters of credit thereunder.
Further, these events and disruptions could increase insurance and other operating costs, including impacting our decisions regarding construction of new facilities to select areas less prone to climate change risks and natural disasters, which could result in indirect financial risks passed through the supply chain or other price modifications to our products and services.
Further, these events and disruptions could increase insurance and other operating costs, including impacting our decisions regarding construction of new facilities to select areas less prone to climate change risks and natural disasters, which could result in indirect financial risks passed through the supply chain or other price modifications to our products and services. 17 Table of Contents Public health crises in the U.S. or countries where we source or sell products could adversely affect our operations and financial performance.
Any changes to the foregoing laws or regulations or any new laws or regulations that are passed or go into effect may make it more difficult for us to operate our business and in turn adversely affect our operating results. We may also be subject to audits by various taxing authorities.
Any changes to these laws or regulations or any new laws or regulations that are passed or go into effect may make it more difficult for us to operate our business and in turn adversely affect our operating results.
Our ability to restructure or refinance our debt will depend on the condition of the capital markets and our financial condition at such time. From time to time, capital markets may experience periods of disruption and instability.
Our ability to restructure or refinance our debt will depend on the condition of the capital markets and our financial condition at such time. From time to time, capital markets may experience periods of disruption and instability. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” for more information.
Even if we prevail in such disputes, the costs we incur in defending such dispute may be material and costly. Some third-party intellectual property rights may be extremely broad, and it may not be possible for us to conduct our operations in such a way as to avoid violating any such intellectual property rights.
Some third-party intellectual property rights may be extremely broad, and it may not be possible for us to conduct our operations in such a way as to avoid violating any such intellectual property rights.
The credit agreements governing our Credit Facilities contain, and any future indebtedness would likely contain, a number of restrictive covenants that impose significant operating and financial restrictions, including restrictions on our ability to engage in acts that may be in our best long-term interests.
The credit agreements governing our Credit Facilities contain, and any future indebtedness would likely contain, a number of customary financial, operative and other restrictive covenants that impose significant operating and financial restrictions, including restrictions on our subsidiaries paying dividends and otherwise transferring cash or other assets to us except in certain limited circumstances, and other restrictions on our ability to engage in acts that may be in our best long-term interests.
If we are unable to maintain sufficient levels of cash flow or if we do not have sufficient availability under our asset-based revolving credit facility (as amended, the “ABL Facility”), we may not meet our growth expectations or we may require additional financing, which could adversely affect our financial health and impose covenants that limit our business activities.
If we are unable to maintain sufficient levels of cash flow or if we are unable to meet our debt service obligations under our Credit Facilities, we may not meet our growth expectations or we may require additional financing, which could adversely affect our financial health and impose covenants that limit our business activities.
We cannot predict the adverse effects that any future organizational activities will have on our business, financial condition, and operating results. If we were to become subject to work stoppages, we could experience disruption in our operations and increases in our labor costs, either of which could adversely affect our business, financial condition, and operating results.
If we were to become subject to work stoppages, we could experience disruption in our operations and increases in our labor costs, either of which could adversely affect our business, financial condition, and operating results.
Our ability to pay interest on and principal of our debt obligations will primarily depend upon our future operating performance. As a result, prevailing economic conditions and financial, business and other factors, many of which are beyond our control, will affect our ability to make these payments.
As a result, prevailing economic conditions and financial, business and other factors, many of which are beyond our control, will affect our ability to make these payments.
Any such intellectual property claim could subject us to costly litigation and impose a significant strain on our financial resources and management personnel regardless of whether such claim has merit.
Any such intellectual property claim could subject us to costly litigation and impose a significant strain on our financial resources and management personnel regardless of whether such claim has merit. 21 Table of Contents We may, from time to time, consider or engage in strategic transactions.
In particular: • interest rates and inflation could continue to rise, undermining consumer confidence and eroding discretionary income; • home-price appreciation could slow or turn negative; • regions where we have stores could be impacted by hurricane, fire, or other natural disasters (including those due to the effects of climate change such as increased storm severity, drought, wildfires, and potential flooding due to rising sea levels and storm surges); • increased demand for home improvement products could continue to lessen as the COVID-19 pandemic subsides, causing consumers to spend discretionary income in other ways; • credit could become less available; • tax rates and/or health care costs could increase; or • fuel costs or utility expenses could increase.
In particular: interest rates and inflation could continue to rise or remain at high levels, undermining consumer confidence and eroding discretionary income; home-price appreciation could slow or turn negative; and regions where we have stores could be impacted by hurricane, fire, or other natural disasters (including those due to the effects of climate change such as increased storm severity, drought, wildfires, and potential flooding due to rising sea levels and storm surges).
While future net sales growth will depend substantially on our plans for new store openings, our comparable store sales growth is a significant driver of our net sales, profitability, cash flow, and overall business results.
This decrease in comparable store sales has had a negative impact on our net sales for the fiscal year ended December 28, 2023, and while future net sales growth will depend substantially on our plans for new store openings, our comparable store sales growth is a significant driver of our net sales, profitability, cash flow, and overall business results.
We regard our intellectual property as having significant value, and our brand is an important factor in the marketing of our products. However, we cannot assure you that the steps we take to protect our trademarks or intellectual property will be adequate to prevent others from copying or using our trademarks or intellectual property without authorization.
However, we cannot assure you that the steps we take to protect our trademarks or intellectual property will be adequate to prevent others from copying or using our trademarks or intellectual property without authorization, which could harm the value of our brand.
We may also incur substantial additional indebtedness in the future, subject to the restrictions contained in our Credit Facilities. If such new indebtedness is in an amount greater than our current debt levels, the related risks that we now face could intensify.
If such new indebtedness is in an amount greater than our current debt levels, the related risks that we now face could intensify.
These consequences are not entirely predictable and could have an adverse impact on our financing costs, returns on investments, valuation of derivative contracts and our financial results. Significant amounts of cash are required to service our indebtedness, and any failure to meet our debt service obligations could adversely affect our business, financial condition, and operating results.
These consequences are not entirely predictable and could have an adverse impact on our financing costs, returns on investments, valuation of derivative contracts and our financial results. Our fixed lease obligations could adversely affect our operating results.
As with any acquisition, we need to successfully integrate Spartan’s products, services, associates and systems into our business operations. Integration can be a complex and time-consuming process, and if the integration is not fully successful or is delayed for a material period of time, we may not achieve the anticipated synergies or benefits of the acquisition.
Integration can be a complex and time-consuming process, and if any such integration is not fully successful or is delayed for a material period of time, we may not achieve the anticipated synergies or benefits of the acquisition.
If we are not successful, our marketing efforts may be limited, and our business, results of operations, and financial condition could be adversely affected. 27 Tabl e of Contents Our business exposes us to personal injury, product liability and warranty claims and related governmental investigations, which could result in negative publicity, harm our brand and adversely affect our business, financial condition, and operating results.
Our business exposes us to personal injury, product liability and warranty claims and related governmental investigations, which could result in negative publicity, harm our brand and adversely affect our business, financial condition, and operating results.
Many economic factors outside of our control, including inflation, conditions in the housing market, interest rates, energy costs, consumer credit availability and terms, consumer debt levels, tax rates and policy, salaries and wage rates, unemployment trends, geopolitical events and uncertainty, influence consumer confidence and spending.
Consumer discretionary spending affects our sales and is impacted by factors outside of our control, including general economic and political conditions, interest rates, the residential housing market, unemployment rates and wage levels, inflation, disposable income levels, consumer confidence, recession fears, energy costs, consumer credit availability and terms, consumer debt levels, salaries and wage rates, geopolitical events and uncertainty.
Reference rates used to determine the applicable interest rates for our variable rate debt began to rise significantly in the second half of fiscal 2022.
The debt we incurred under our Credit Facilities are at variable rates of interest, which exposes us to interest rate risk. Reference rates used to determine the applicable interest rates for our variable rate debt began to rise significantly in the second half of fiscal 2022 and into fiscal 2023.
If we raise additional capital by issuing equity securities or securities convertible into equity securities, our stockholders’ ownership would be diluted. Changes in tax laws, trade policies and regulations or in our operations and newly enacted laws or regulations may impact our effective tax rate or may adversely affect our business, financial condition, and operating results.
Changes in tax laws, trade policies and regulations or in our operations and newly enacted laws or regulations may impact our effective tax rate or may adversely affect our business, financial condition, and operating results.
We are and may continue to become parties to disputes from time to time over rights and obligations concerning intellectual property, and we may not prevail in these disputes. Third parties have and may raise future claims against us alleging infringement or violation of the intellectual property of such third-party.
We may be involved in disputes from time to time relating to our intellectual property and the intellectual property of third parties. We are and may continue to become parties to disputes from time to time over rights and obligations concerning intellectual property, and we may not prevail in these disputes.
We risk damage to our brand and reputation if we fail to act responsibly in a number of areas, such as diversity and inclusion, environmental stewardship, support for local communities, corporate governance and transparency and considering ESG factors in our business operations.
We risk damage to our brand and reputation if we fail to act responsibly in a number of areas, such as diversity and inclusion, environmental stewardship, corporate governance and transparency. We will incur additional expenses as we continue to execute our ESG framework in the coming years.
We may not be able to adjust the prices of our products, especially in the short-term, to recover these cost increases, and a continual rise in such costs could adversely affect consumer spending and demand for our products and increase our operating costs, both of which could adversely affect our business, financial condition, and operating results. 22 Tabl e of Contents Our future success is dependent on our ability to execute our business strategy effectively and deliver value to our customers.
We may not be able to adjust the prices of our products, especially in the short-term, to recover these cost increases, and a continual rise in such costs could adversely affect consumer spending and demand for our products, which could adversely affect our business, financial condition, and operating results. 14 Table of Contents Our success depends substantially upon the continued retention of our key personnel, including our executive officers.
Based on the foregoing factors, the operating and financial restrictions and covenants in our current debt agreements and any future financing agreements could adversely affect our ability to finance future operations or capital needs or to engage in other business activities.
Such financial, operative and other restrictive covenants in our current debt agreements and any future financing agreements could adversely affect our ability to finance future operations or capital needs or to engage in other business activities. We may also incur substantial additional indebtedness in the future, subject to the restrictions contained in our Credit Facilities.
Additionally, we source the products that we sell from over 240 domestic and international suppliers. Although we purchase from a diverse supplier base, purchases from our largest supplier, which is headquartered in China, accounted for approximately 16% of our net sales in fiscal 2022. No other singular vendor supplied products representing more than 5% of net sales in fiscal 2022.
Although we purchase from a diverse supplier base, purchases from our largest supplier, which has substantial operations in China, accounted for approximately 13% of our net sales in fiscal 2023. No other singular vendor supplied products representing more than 10% of net sales in fiscal 2023.
Negative publicity surrounding product matters, including publicity about other retailers, may harm our reputation and affect the demand for our products.
If this negative impact is significant, our ability to grow or sustain our business could be jeopardized. Negative publicity surrounding product matters, including publicity about other retailers, may harm our reputation and affect the demand for our products.
If we are not able to manage our distribution centers successfully, it could adversely affect our business, financial condition, and operating results. As we continue to add distribution centers, we may incur unexpected costs, and our ability to distribute our products may be adversely affected.
Due to our rapid expansion, we continue to add distribution centers as needed to support our operations. Increasing the size of our distribution centers and adding additional distribution centers may decrease the efficiency of our distribution costs. If we are not able to manage our distribution centers successfully, it could adversely affect our business, financial condition, and operating results.
We plan to continue investing for growth, including opening new stores, remodeling existing stores, adding staff, adding distribution center capacity and upgrading our information technology systems and other infrastructure. These investments will require significant capital, which we plan on funding with cash flow from operations and borrowings under the ABL Facility.
We plan to continue investing for growth, including opening new stores, remodeling existing stores, adding staff, adding distribution center capacity, upgrading our information technology systems and other infrastructure, and strategic acquisitions.
Intense competitive pressures from any of our present or future competitors could cause price declines, decrease demand for our products and decrease our market share. Also, if we continue to grow and become more well-known, other companies may change their strategies to present new competitive challenges.
Intense competitive pressures from any of our present or future competitors could cause price declines, decrease demand for our products and decrease our market share.
We also carry an additional $709.7 million of inventory outside our stores, primarily at our distribution centers, as of the end of fiscal 2022. The investment associated with this high level of inventory is substantial, and efficient inventory management is a key component of our business success and profitability.
We also carry an additional $507.8 million of inventory outside our stores, primarily at our distribution centers, as of the end of fiscal 2023. The investment associated with this high level of inventory is substantial, and as we continue to broaden our supplier base we increase the number of SKUs and investments associated with inventory.
We also intend to purchase the real property for a small number of new locations, and such strategy may not be successful. Any or all of these factors and conditions could adversely affect our growth and profitability. Our success depends upon our ability to attract, hire, train, and retain highly qualified managers and staff.
We also intend to purchase the real property for a small number of new locations, and such strategy may not be successful. Any or all of these factors and conditions could adversely affect our growth and profitability. Any failure by us to successfully anticipate trends may lead to loss of consumer acceptance of our products, resulting in reduced net sales.
While the vast majority of our net sales are derived from home remodeling activity as opposed to new home construction, a decrease in any of these areas would adversely affect our business, financial condition, and operating results. 19 Tabl e of Contents We may not be able to offset higher costs associated with inflation and other general cost increases.
While the vast majority of our net sales are derived from home remodeling activity as opposed to new home construction, the decrease in these areas has adversely affected and could continue to adversely affect our business, financial condition, and operating results.
These payment options also subject us to potential fraud by criminal elements seeking to discover and take advantage of security vulnerabilities that may exist in some of these payment systems. For certain payment methods, including credit cards and debit cards, we pay interchange and other fees, which may increase over time and raise our operating costs and lower profitability.
These payment options also subject us to potential fraud by criminal elements seeking to discover and take advantage of security vulnerabilities that may exist in some of these payment systems.
If we complete an acquisition, we would need to successfully integrate the target company’s products, services, associates and systems into our business operations. On June 4, 2021, we acquired Spartan Surfaces, Inc. (“Spartan”), a commercial flooring specifier, and we may acquire additional commercial flooring companies in the future.
If we complete an acquisition, we would need to successfully integrate the target company’s products, services, associates and systems into our business operations.
Similarly, the ongoing war between Russia and Ukraine could escalate and impact our ability to import products from Europe, including due to further increases in energy costs. Our net sales growth could be adversely affected if comparable store sales growth is less than we expect.
Similarly, the ongoing war between Russia and Ukraine could escalate and impact our ability to import products from Europe, including due to further increases in energy costs, and attacks on shipping in the Red Sea could increase our supply chain costs.
We depend on a number of suppliers, and any failure by any of them to supply us with quality products on attractive terms and prices may adversely affect our business, financial condition, and operating results. We depend on our suppliers to deliver quality products to us on a timely basis at attractive prices.
If this trend continues, it is likely that overall net sales growth would be adversely affected, which could have a negative impact on our business, financial condition, and operating results. 16 Table of Contents We depend on a number of suppliers, and any failure by any of them to supply us with quality products on attractive terms and prices may adversely affect our business, financial condition, and operating results.
In addition, any negative publicity involving our suppliers, associates, and other parties who are not within our control could adversely affect us. In connection with the installation or delivery of our products, customers may engage third parties associated with us to enter their homes. In addition, we are piloting in-home design services.
If any of our products proves to be defective or otherwise in violation of applicable law, we may be required to recall such products and be subject to legal action. In connection with the installation or delivery of our products, customers may engage third parties associated with us to enter their homes. In addition, we are piloting in-home design services.
Developments in tax policy or trade relations could have a material adverse effect on our business, results of operations and liquidity.
Developments in tax policy or trade relations could also have a material adverse effect on our business, results of operations and liquidity. We are subject to payments-related risks that could increase our operating costs, expose us to fraud, subject us to potential liability and potentially disrupt our business.
In particular, any disruption to any of our distribution centers could have a material adverse impact on our business. Our intellectual property rights are valuable, and any failure to protect them could reduce the value of our products and brand and harm our business.
Our intellectual property rights are valuable, and any failure to protect them could reduce the value of our products and brand and harm our business. We regard our intellectual property as having significant value, and our brand is an important factor in the marketing of our products.
While we do not believe that our suppliers source materials from Xinjiang for the products they sell to us, any withhold release orders or inquires, other companies’ attempts to shift suppliers in response to this law, or other policy developments could result in shortages, delays, and/or price increases that could disrupt our own supply chain or cause our suppliers to renegotiate existing arrangements with us or fail to perform on such obligations.
While such detentions and inquiries have not had a material impact on our business as of December 28, 2023, continued detentions, withhold release orders, inquiries, or other policy developments could result in shortages, delays, and/or price increases that could disrupt our own supply chain or cause our suppliers to renegotiate existing arrangements with us or fail to perform on such obligations.
We will incur additional and potentially significant expenses as we continue to execute our ESG framework in the coming years. Adverse incidents could impact the value of our brand, the cost of our operations and relationships with investors, all of which could adversely affect our business and results. Changes to accounting rules or regulations could adversely affect our operating results.
Adverse incidents could impact the value of our brand, the cost of our operations and relationships with investors, all of which could adversely affect our business and operating results.
Currently none of our associates are represented by a union; however, our associates have the right at any time to form or affiliate with a union. As we continue to grow, enter different regions and operate distribution centers, unions may attempt to organize all or part of our associate base at certain stores or distribution centers within certain regions.
Although such unionization attempt was unsuccessful, as we continue to grow, enter different regions and operate distribution centers, unions may continue to attempt to organize all or part of our associate base at certain stores or distribution centers within certain regions. We cannot predict the adverse effects that any future organizational activities will have on us.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeAs of December 29, 2022, we operated 191 U.S. warehouse-format stores located in 36 states as shown in the table below: State Number of Stores Alabama 1 Arizona 6 California 27 Colorado 5 Connecticut 3 Florida 25 Georgia 9 Illinois 10 Indiana 2 Iowa 1 Kansas 2 Kentucky 2 Louisiana 2 Maryland 3 Massachusetts 5 Michigan 3 Minnesota 2 Missouri 2 Nebraska 1 Nevada 4 New Hampshire 1 New Jersey 5 New Mexico 1 New York 4 North Carolina 5 Ohio 4 Oklahoma 2 Oregon 1 Pennsylvania 2 South Carolina 3 Tennessee 4 Texas 30 Utah 3 Virginia 6 Washington 3 Wisconsin 2 Total 191 41 Tabl e of Contents The following table presents the percentage of our owned versus leased facilities in operation at the end of fiscal 2022 and their total square footage: square footage in thousands Owned Leased Total Square Footage Stores 5 % 95 % 15,093 Distribution centers 20 % 80 % 5,680 Offices and other — % 100 % 244 Total 21,017 Stores include our 191 warehouse-format stores and six small-format design studios.
Biggest changeAs of December 28, 2023, we operated 221 U.S. warehouse-format stores located in 36 states as shown in the table below: State Number of Stores Alabama 4 Arizona 7 California 27 Colorado 6 Connecticut 3 Florida 28 Georgia 10 Illinois 10 Indiana 2 Iowa 1 Kansas 2 Kentucky 2 Louisiana 4 Maryland 4 Massachusetts 7 Michigan 4 Minnesota 3 Missouri 2 Nebraska 1 Nevada 4 New Hampshire 1 New Jersey 9 New Mexico 1 New York 9 North Carolina 5 Ohio 4 Oklahoma 2 Oregon 1 Pennsylvania 4 South Carolina 3 Tennessee 4 Texas 31 Utah 3 Virginia 8 Washington 3 Wisconsin 2 Total 221 26 Table of Contents The following table presents the percentage of our owned versus leased facilities in operation at the end of fiscal 2023 and their total square footage: square footage in thousands Owned Leased Total Square Footage Stores 6 % 94 % 17,237 Distribution centers 20 % 80 % 5,680 Offices and other — % 100 % 530 Total 23,447 Stores include our 221 warehouse-format stores and five small-format design studios.
The property tables above exclude locations where we have taken possession of the premises but are not yet operating. See Note 9, “Commitments and Contingencies” of the notes to our consolidated financial statements included in this Annual Report for additional details related to our leases.
See Note 9, “Commitments and Contingencies” of the notes to our consolidated financial statements included in this Annual Report for additional details related to our leases.
Offices and other includes our headquarters, which we refer to as our store support center, located in Atlanta, Georgia, separate product review and sample fulfillment centers located in Marietta, Georgia, and other administrative, sales, and warehousing facilities supporting our commercial flooring distribution business.
Offices and other includes our headquarters, which we refer to as our store support center, located in Atlanta, our product review and sample fulfillment center located near Atlanta, and other administrative, sales, and warehousing facilities supporting our commercial surfaces business. The property tables above exclude locations where we have taken possession of the premises but are not yet operating.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeAny future determination to pay dividends will be at the discretion of our Board and will depend on then existing conditions, including our operating results, financial condition, contractual restrictions, capital requirements, business prospects and other factors that our Board may deem relevant. 42 Tabl e of Contents Stock Performance Graph The following graph shows a comparison of cumulative total return to holders of common stock against the cumulative total return of the S&P 500 Index and the S&P 500 Home Improvement Retail Index for our fiscal years 2018 through 2022.
Biggest changeAny future determination to pay dividends will be at the discretion of our Board and will depend on then existing conditions, including our operating results, financial condition, contractual restrictions, capital requirements, business prospects and other factors that our Board may deem relevant. 27 Table of Contents Stock Performance Graph The following graph shows a comparison of cumulative total return to holders of our common stock against the cumulative total return of the S&P 500 Index and the S&P 500 Home Improvement Retail Index for our fiscal years 2019 through 2023.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. Market Information Our common stock is publicly traded on the NYSE under the symbol “FND.” On February 20, 2023, there were 20 stockholders of record of our Class A common stock.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. Market Information Our common stock is publicly traded on the NYSE under the symbol “FND.” On February 19, 2024, there were 19 stockholders of record of our Class A common stock.
The comparison of the cumulative total returns for each investment assumes that $100 was invested in our Class A common stock and the respective indices on December 28, 2017 (the last trading day of fiscal 2017) through December 29, 2022, including reinvestment of any dividends.
The comparison of the cumulative total returns for each investment assumes that $100 was invested in our Class A common stock and the respective indices on December 27, 2018 (the last trading day of fiscal 2018) through December 28, 2023, including reinvestment of any dividends.
Removed
Fiscal Year Ended FND S&P 500 Index S&P 500 Home Improvement Retail Index December 28, 2017 $ 100.00 $ 100.00 $ 100.00 December 27, 2018 $ 52.45 $ 92.61 $ 92.12 December 26, 2019 $ 101.43 $ 120.55 $ 119.60 December 31, 2020 $ 187.24 $ 139.76 $ 148.40 December 30, 2021 $ 262.11 $ 177.81 $ 231.37 December 29, 2022 $ 143.15 $ 143.23 $ 181.50 Unregistered Sales of Equity Securities and Use of Proceeds None.
Added
Fiscal Year Ended FND S&P 500 Index S&P 500 Home Improvement Retail Index December 27, 2018 $ 100.00 $ 100.00 $ 100.00 December 26, 2019 $ 193.39 $ 130.18 $ 129.83 December 31, 2020 $ 356.98 $ 150.92 $ 161.10 December 30, 2021 $ 499.73 $ 192.01 $ 251.16 December 29, 2022 $ 272.93 $ 154.66 $ 197.03 December 28, 2023 $ 437.87 $ 192.19 $ 214.71 Unregistered Sales of Equity Securities and Use of Proceeds During fiscal 2023, the Company did not sell any unregistered equity securities. 28 Table of Contents Issuer Purchases of Equity Securities The following table presents the number and average price of the Company’s common shares repurchased in each fiscal month of the fourth quarter of fiscal 2023: Period Total Number of Shares Purchased (1) Average Price Paid per Share (1) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1) Maximum Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs (1) September 29 - October 26 — $ — N/A N/A October 27 - November 23 63 84.92 N/A N/A November 24 - December 28 — — N/A N/A Total 63 $ 84.92 N/A N/A (1) Under the Floor & Decor Holdings, Inc. 2017 Stock Incentive Plan (the “2017 Plan”), participants may surrender shares as payment of applicable tax withholding on the vesting of restricted stock awards.
Added
Shares so surrendered by participants in the 2017 Plan are repurchased pursuant to the terms of the 2017 Plan and applicable award agreements and not pursuant to any publicly announced share repurchase programs.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

57 edited+16 added−24 removed65 unchanged
Biggest changeFor information about the potential impacts that risks, such as global supply chain disruptions, inflation, geopolitical instability, and COVID-19, among others, may have on our results of operations and overall financial performance for future periods, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Overview” and Item 1A., “Risk Factors” For the fiscal years ended December 29, 2022 and December 30, 2021 The following tables summarize key components of our results of operations for the periods indicated (certain numbers may not sum due to rounding): Fiscal Year Ended 12/29/2022 12/30/2021 Increase (Decrease) dollars in thousands Amount % of Net sales Amount % of Net sales $ % Net sales $ 4,264,473 100.0 % $ 3,433,533 100.0 % $ 830,940 24.2 % Cost of sales 2,536,757 59.5 2,011,267 58.6 525,490 26.1 % Gross profit 1,727,716 40.5 1,422,266 41.4 305,450 21.5 % Operating expenses: Selling and store operating 1,078,466 25.3 849,440 24.7 229,026 27.0 % General and administrative 213,848 5.0 199,401 5.8 14,447 7.2 % Pre-opening 38,642 0.9 34,433 1.0 4,209 12.2 % Total operating expenses 1,330,956 31.2 1,083,274 31.5 247,682 22.9 % Operating income 396,760 9.3 338,992 9.9 57,768 17.0 % Interest expense, net 11,138 0.3 4,924 0.1 6,214 126.2 % Income before income taxes 385,622 9.0 334,068 9.7 51,554 15.4 % Provision for income taxes 87,427 2.1 50,838 1.5 36,589 72.0 % Net income $ 298,195 7.0 % $ 283,230 8.2 % $ 14,965 5.3 % Fiscal Year Ended 12/29/2022 12/30/2021 Comparable store sales 9.2 % 27.6 % Comparable average ticket 17.0 % 7.2 % Comparable customer transactions (6.6) % 19.1 % Number of warehouse-format stores 191 160 Adjusted EBITDA (in thousands) (1) $ 577,050 $ 485,100 Adjusted EBITDA (% of net sales) 13.5 % 14.1 % (1) Refer to “Reconciliation of Non-GAAP Measures” further below for reconciliation of Adjusted EBITDA to net income. 48 Tabl e of Contents Net Sales Net sales during fiscal 2022 increased $830.9 million, or 24.2%, compared to fiscal 2021 due to an increase in comparable store sales of 9.2% and sales from the net 31 new warehouse-format stores and four new design studios that we opened during the year.
Biggest changeFor the fiscal years ended December 28, 2023 and December 29, 2022 The following tables summarize key components of our results of operations for the periods indicated (certain numbers may not sum due to rounding): Fiscal Year Ended 12/28/2023 12/29/2022 Increase (Decrease) dollars in thousands Amount % of Net sales Amount % of Net sales $ % Net sales $ 4,413,884 100.0 % $ 4,264,473 100.0 % $ 149,411 3.5 % Cost of sales 2,555,536 57.9 2,536,757 59.5 18,779 0.7 % Gross profit 1,858,348 42.1 1,727,716 40.5 130,632 7.6 % Operating expenses: Selling and store operating 1,239,225 28.1 1,078,466 25.3 160,759 14.9 % General and administrative 252,713 5.7 213,848 5.0 38,865 18.2 % Pre-opening 44,982 1.0 38,642 0.9 6,340 16.4 % Total operating expenses 1,536,920 34.8 1,330,956 31.2 205,964 15.5 % Operating income 321,428 7.3 396,760 9.3 (75,332) (19.0) % Interest expense, net 9,897 0.2 11,138 0.3 (1,241) (11.1) % Income before income taxes 311,531 7.1 385,622 9.0 (74,091) (19.2) % Income tax expense 65,551 1.5 87,427 2.1 (21,876) (25.0) % Net income $ 245,980 5.6 % $ 298,195 7.0 % $ (52,215) (17.5) % Fiscal Year Ended 12/28/2023 12/29/2022 Comparable store sales (7.1) % 9.2 % Comparable average ticket 0.2 % 17.0 % Comparable customer transactions (7.2) % (6.6) % Number of warehouse-format stores 221 191 Adjusted EBITDA (in thousands) (1) $ 551,133 $ 577,050 Adjusted EBITDA (% of net sales) 12.5 % 13.5 % (1) Refer to “Reconciliation of Non-GAAP Measures” further below for reconciliation of Adjusted EBITDA to net income. 34 Table of Contents Net Sales Net sales during fiscal 2023 increased $149.4 million, or 3.5%, compared to fiscal 2022 due to sales from the 31 new warehouse-format stores that we opened during the year and growth in our commercial business, partially offset by a decrease in comparable store sales of 7.1%.
Our customers have the right to return the goods sold to them within a reasonable time period, typically 90 days. The right of return is an element of variable consideration as defined within Topic 606. We estimate a reserve for future returns of previously sold goods based on historical experience and various other assumptions that we believe to be reasonable.
Our customers have the right to return the goods sold to them within a reasonable time period, typically 90 days. The right of return is an element of variable consideration as defined within ASC 606. We estimate a reserve for future returns of previously sold goods based on historical experience and various other assumptions that we believe to be reasonable.
In some cases, merchandise is not physically ready for transfer to the customer at the point-of-sale, and revenue recognition is deferred until the customer has control of the inventory. Shipping and handling activities are accounted for as activities to fulfill the promise to transfer goods rather than as separate performance obligations as outlined within Topic 606.
In some cases, merchandise is not physically ready for transfer to the customer at the point-of-sale, and revenue recognition is deferred until the customer has control of the inventory. Shipping and handling activities are accounted for as activities to fulfill the promise to transfer goods rather than as separate performance obligations as outlined within ASC 606.
We believe that we offer the industry’s broadest assortment of tile, wood, laminate, vinyl, and natural stone flooring along with decorative and installation accessories and adjacent categories at everyday low prices positioning us as the one-stop destination for our customers’ entire hard surface flooring needs.
We believe that we offer the industry’s broadest in-stock assortment of tile, wood, laminate and vinyl, and natural stone flooring along with decorative and installation accessories and adjacent categories at everyday low prices, positioning us as the one-stop destination for our customers’ entire hard surface flooring needs.
Additionally, certain of our lease agreements include escalating rents over the lease terms, which, under Topic 842, 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. Judgments and uncertainties involved in the estimate.
Additionally, certain of our lease agreements include escalating rents over the lease terms, which, under ASC 842, 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. Judgments and uncertainties involved in the estimate.
The estimates have calculations that require management to make assumptions based on the current rate of sales, age, salability and profitability of inventory, historical percentages that can be affected by changes in our merchandising mix, customer preferences, rates of sell through, and changes in actual shrinkage trends. Effect if actual results differ from assumptions.
The estimates have calculations that require management to make assumptions based on the current rate of sales, age, salability and profitability of inventory, historical percentages that can be affected by changes in our merchandising mix, customer preferences, rates of sell through, and changes in actual shrinkage trends. 39 Table of Contents Effect if actual results differ from assumptions.
Since our e-commerce, regional account manager, and design studio sales are fulfilled by individual stores, they are included in comparable store sales only to the extent the fulfilling store meets the above mentioned store criteria. Sales through our Spartan subsidiary do not involve our stores and are therefore excluded from the comparable store sales calculation.
Since our e-commerce, regional account manager, and design studio sales are fulfilled by individual stores, they are included in comparable store sales only to the extent the fulfilling store meets the above mentioned store criteria. Sales through our Spartan Surfaces, LLC. (“Spartan”) subsidiary do not involve our stores and are therefore excluded from the comparable store sales calculation.
Net Cash Used In Investing Activities Investing activities typically consist primarily of capital expenditures for new store openings, existing store remodels (including leasehold improvements, racking, fixtures, product and display vignettes, and enhanced design centers), and new infrastructure and information systems. Cash payments to acquire businesses are also included in investing activities.
Net Cash Used In Investing Activities Investing activities typically consist primarily of capital expenditures for new store openings and existing store remodels, including leasehold improvements, racking, fixtures, vignettes, and design centers, and new infrastructure and information systems. Cash payments to acquire businesses are also included in investing activities.
In particular, the ongoing trade dispute between the U.S. and China has resulted in the U.S. imposing tariffs of 25% on many products from China. While exclusions from tariffs were granted for certain products from China, nearly all of these exclusions have expired. In fiscal 2022, approximately 29% of the products we sold were produced in China.
In particular, the ongoing trade dispute between the U.S. and China has resulted in the U.S. imposing tariffs of 25% on many products from China. While exclusions from tariffs were granted for certain products from China, nearly all of these exclusions have expired. In fiscal 2023, approximately 25% of the products we sold were produced in China.
Definitions and calculations of EBITDA and Adjusted EBITDA differ among companies in the retail industry, and therefore EBITDA and Adjusted EBITDA disclosed by us may not be comparable to the metrics disclosed by other companies. 46 Tabl e of Contents Other Key Financial Definitions Net Sales Net sales reflect our sales of merchandise, less discounts and estimated returns and include our in-store sales and e-commerce sales.
Definitions and calculations of EBITDA and Adjusted EBITDA differ among companies in the retail industry, and therefore EBITDA and Adjusted EBITDA disclosed by us may not be comparable to the metrics disclosed by other companies. 32 Table of Contents Other Key Financial Definitions Net Sales Net sales reflect our sales of merchandise, less discounts and estimated returns and include our in-store sales and e-commerce sales.
While we believe that our current sales returns reserves are adequate, there can be no assurances that historical data and trends will accurately predict returns or that future developments might not lead to a significant change in the reserve. 53 Tabl e of Contents Effect if actual results differ from assumptions .
While we believe that our current sales returns reserves are adequate, there can be no assurances that historical data and trends will accurately predict returns or that future developments might not lead to a significant change in the reserve. Effect if actual results differ from assumptions .
The determination of an appropriate secured incremental borrowing rate requires judgments in selecting an appropriate yield curve and estimating adjustments for collateralization and inflation. 54 Tabl e of Contents Effect if actual results differ from assumptions.
The determination of an appropriate secured incremental borrowing rate requires judgments in selecting an appropriate yield curve and estimating adjustments for collateralization and inflation. Effect if actual results differ from assumptions.
Our ability to open new, profitable stores is important to our long-term sales and profit growth goals. 45 Tabl e of Contents Gross Profit and Gross Margin Our gross profit is variable in nature and generally follows changes in net sales.
Our ability to open new, profitable stores is important to our long-term sales and profit growth goals. 31 Table of Contents Gross Profit and Gross Margin Our gross profit is variable in nature and generally follows changes in net sales.
A 10% change in our sales returns reserves and related return asset accruals at December 29, 2022 would have had a net impact of approximately $1.5 million on operating income in fiscal 2022.
A 10% change in our sales returns reserves and related return asset accruals at December 28, 2023 would have had a net impact of approximately $1.3 million on operating income in fiscal 2023.
For additional segment information, refer to Note 1, “Summary of Significant Accounting Policies” of the notes to the consolidated financial statements included in this Annual Report. 47 Tabl e of Contents Results of Operations The comparison of the fiscal years ended December 30, 2021 and December 31, 2020 can be found in our annual report on Form 10-K for the fiscal year ended December 30, 2021 (the “2021 Annual Report”) located within Part II, Item 7.
For additional segment information, refer to Note 1, “Summary of Significant Accounting Policies” of the notes to the consolidated financial statements included in this Annual Report. 33 Table of Contents Results of Operations The comparison of the fiscal years ended December 29, 2022 and December 30, 2021 can be found in our annual report on Form 10-K for the fiscal year ended December 29, 2022 (the “2022 Annual Report”) located within Part II, Item 7.
Operating income, EBITDA and Adjusted EBITDA are also frequently used by analysts, investors and other interested parties as performance measures to evaluate companies in our industry. EBITDA and Adjusted EBITDA are supplemental measures of financial performance that are not required by, or presented in accordance with, GAAP.
Operating income, EBITDA and Adjusted EBITDA are also frequently used by analysts, investors and other interested parties as performance measures to evaluate companies in our industry. EBITDA and Adjusted EBITDA are supplemental measures of financial performance that are not required by, or presented in accordance with, GAAP. We define EBITDA as net income before interest, taxes, depreciation and amortization.
We expect that our general and administrative expenses will increase in future periods with future growth. General and administrative expenses include both fixed and variable components, and therefore, are not directly correlated with net sales. The components of our general and administrative expenses may not be comparable to the components of similar measures of other retailers.
We expect that our general and administrative expenses will increase in future periods with future growth. General and administrative expenses include variable as well as fixed components, which may not directly correlate with net sales. The components of our general and administrative expenses may not be comparable to the components of similar measures of other retailers.
For additional information regarding our Term Loan Facility and ABL Facility, including recent amendments, applicable covenants, and other details, please refer to Note 10, “Debt” of the notes to the consolidated financial statements included in this Annual Report. Credit Ratings Our credit ratings are periodically reviewed by rating agencies.
For additional information regarding our Term Loan Facility and ABL Facility, including applicable covenants, and other details, please refer to Note 10, “Debt” of the notes to the consolidated financial statements included in this Annual Report. Credit Ratings Our credit ratings are periodically reviewed by rating agencies. In November 2023, Moody’s updated the Company’s outlook from positive to stable.
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 appeal to a variety of customers, including professional installers and commercial businesses (“Pro”) and homeowners, which are comprised of do it yourself customers (“DIY”) and buy it yourself customers, who buy the products for professional installation (“BIY”).
Overview Founded in 2000, Floor & Decor is a high-growth, differentiated, multi-channel specialty retailer of hard surface flooring and related accessories with 191 warehouse-format stores across 36 states as of December 29, 2022.
Overview Founded in 2000, Floor & Decor is a high-growth, differentiated, multi-channel specialty retailer of hard surface flooring and related accessories and seller of commercial surfaces with 221 warehouse-format stores across 36 states as of December 28, 2023.
Net Cash Provided by Financing Activities Financing activities consist primarily of borrowings and related repayments under our credit agreements, proceeds from the exercise of stock options and our employee share purchase program, and payments of contingent earn-out consideration related to the Spartan acquisition.
Net Cash (Used in) Provided by Financing Activities Financing activities consist primarily of borrowings and related repayments under our credit agreements, tax payments related to the vesting or exercise of stock-based compensation awards, proceeds from the exercise of stock options and our employee share purchase program, and payments of contingent earn-out consideration.
Our warehouse-format stores, which average approximately 79,000 square feet, carry on average approximately 4,400 flooring and decorative and installation accessory SKUs, approximately 1.1 million square feet of flooring products, and $3.3 million of inventory at cost as of December 29, 2022.
Our warehouse-format stores, which average approximately 78,000 square feet, carry on average approximately 4,500 flooring and decorative and installation accessory SKUs, approximately 1.0 million square feet of flooring products, and $3.0 million of inventory at cost as of December 28, 2023.
(3) For purposes of this table, interest has been estimated assuming our long-term debt is held to maturity and based on interest rates in effect for our indebtedness, adjusted for the effect of our interest rate caps, as of December 29, 2022.
(3) For purposes of this table, interest has been estimated assuming our long-term debt is held to maturity and based on interest rates in effect for our indebtedness, adjusted for the effect of our interest rate caps, as of December 28, 2023. Actual borrowing levels and interest costs may differ.
We expect that our selling and store operating expenses will increase in future periods with future growth. The components of our selling and store operating expenses may not be comparable to the components of similar measures of other retailers.
We expect that our selling and store operating expenses will increase in future periods with future growth. Selling and store operating expenses include variable as well as fixed components, which may not directly correlate with net sales. The components of our selling and store operating expenses may not be comparable to the components of similar measures of other retailers.
Actual borrowing levels and interest costs may differ. 52 Tabl e of Contents For fiscal 2022, we were not party to any material off-balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, net sales, expenses, results of operations, liquidity, capital expenditures, or capital resources.
For fiscal 2023, we were not party to any material off-balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, net sales, expenses, results of operations, liquidity, capital expenditures, or capital resources.
In September 2022, Standard & Poor's raised the Company’s issuer credit rating to BB from BB- with a stable outlook. Moody’s issuer credit rating of Ba3 and positive outlook for the Company remain unchanged. These ratings and our current credit condition affect, among other things, our ability to access new capital.
Moody’s issuer credit rating of Ba3 for the Company remains unchanged. As of December 28, 2023, Standard & Poor's issuer credit rating of BB with a stable outlook for the Company remains unchanged. These ratings and our current credit condition affect, among other things, our ability to access new capital.
We define EBITDA as net income before interest, (gain) loss on early extinguishment of debt, taxes, depreciation and amortization. We define Adjusted EBITDA as net income before interest, (gain) loss on early extinguishment of debt, taxes, depreciation and amortization, adjusted to eliminate the impact of certain items that we do not consider indicative of our core operating performance.
We define Adjusted EBITDA as net income before interest, taxes, depreciation and amortization, adjusted to eliminate the impact of non-cash stock-based compensation expense and certain items that we do not consider indicative of our core operating performance.
We expect that cash generated from operations together with cash on hand, the availability of borrowings under our credit facilities, and if necessary, additional funding through other forms of external financing, will be sufficient to meet liquidity requirements, anticipated capital expenditures, and payments due under our credit facilities for the next twelve months and the foreseeable future. 50 Tabl e of Contents Total capital expenditures in fiscal 2023 are planned to be between approximately $620 million to $675 million and are expected to be funded primarily by cash generated from operations and borrowings under the ABL Facility.
We expect that cash generated from operations together with cash on hand, the availability of borrowings under our credit facilities, and if necessary, additional funding through other forms of external financing, will be sufficient to meet liquidity requirements, anticipated capital expenditures, and payments due under our credit facilities for the next twelve months and the foreseeable future.
We believe our strong financial results are a reflection of a growing domestic hard surface flooring market, a unique approach to selling hard surface flooring, and our consistent and disciplined culture of innovation and reinvestment, together creating a differentiated business model in the hard surface flooring category.
We believe our unique approach to selling hard surface flooring and our consistent and disciplined culture of innovation and reinvestment create a differentiated business model in the hard surface flooring category.
Interest Expense Net interest expense in fiscal 2022 increased $6.2 million, or 126.2%, compared to fiscal 2021. The increase in interest expense was primarily due to an increase in amounts borrowed under our ABL Facility and interest rate increases on outstanding debt, partially offset by increases in interest capitalized and interest income from our interest cap derivative contracts.
Interest Expense, Net Net interest expense during fiscal 2023 decreased $1.2 million, or 11.1%, compared to fiscal 2022 due to a decrease in average amounts outstanding under our ABL Facility, higher interest income from our interest cap derivative contracts, and an increase in interest capitalized, partially offset by interest rate increases on outstanding debt.
Due to the complexity and diversity of the individual vendor agreements, we perform analyses and review historical purchase trends and volumes throughout the year, adjust accrual rates as appropriate, and confirm actual amounts with select vendors to ensure the amounts earned are appropriately recorded.
Judgments and uncertainties involved in the estimate. For vendor allowances, we develop accrual rates based on the provisions of the agreements in place. We perform analyses and review historical purchase trends and volumes throughout the year, adjust accrual rates as appropriate, and confirm actual amounts with select vendors to ensure the amounts earned are appropriately recorded.
We recognize revenue and the related cost of sales when we satisfy the performance obligations in contracts with our customers in accordance with Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers” (“Topic 606”).
We recognize revenue and the related cost of sales when we satisfy the performance obligations in contracts with our customers in accordance with Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers (“ASC 606”).
Accordingly, amounts due to our suppliers that elected to participate in the Finance Program totaled $82.5 million and $160.4 million as of December 29, 2022 and December 30, 2021, respectively, and are included in trade accounts payable in our Consolidated Balance Sheets.
Amounts due to financial intermediaries for suppliers that elected to participate in a supply chain finance program totaled $114.0 million and $82.5 million as of December 28, 2023 and December 29, 2022, respectively, and are included in trade accounts payable in our Consolidated Balance Sheets.
In particular, a weakening of our financial condition, including an increase in our leverage or decrease in our profitability or cash flows, could adversely affect our ability to obtain necessary funds, result in a credit rating downgrade or change in outlook, or otherwise increase our cost of borrowing.
In particular, a weakening of our financial condition, including an increase in our leverage or decrease in our profitability or cash flows, could adversely affect our ability to obtain necessary funds, result in a credit rating downgrade or change in outlook, or otherwise increase our cost of borrowing. 37 Table of Contents Supply Chain Finance Programs As part of our ongoing efforts to improve cash flow and liquidity, we facilitate supply chain finance programs through financial intermediaries.
Income Taxes The provision for income taxes was $87.4 million in fiscal 2022 compared to $50.8 million in fiscal 2021. The effective tax rate was 22.7% for fiscal 2022 compared to 15.2% for fiscal 2021.
Income Tax Expense The provision for income taxes was $65.6 million in fiscal 2023 compared to $87.4 million in fiscal 2022. The effective tax rate was 21.0% for fiscal 2023 compared to 22.7% for fiscal 2022.
A 10% change in our inventory valuation and shrinkage reserves at December 29, 2022 would have affected operating income by approximately $0.9 million in fiscal 2022. Inventory valuation and shrinkage reserves have increased approximately in proportion to our inventory growth over the last few years. Vendor Rebates and Allowances Description.
A 10% change in our inventory valuation and shrinkage reserves at December 28, 2023 would have affected operating income by approximately $0.6 million in fiscal 2023. Inventory valuation and shrinkage reserves typically fluctuate in proportion to changes in inventory balances. Vendor Rebates and Allowances Description.
We recognize lease assets and corresponding lease liabilities for all operating leases on our Consolidated Balance Sheets, excluding short-term leases (leases with terms of 12 months or less) as described under ASU No. 2016-02, “Leases (Topic 842).” The majority of our long-term operating lease agreements include options to extend, which are also factored into the recognition of their respective assets and liabilities when appropriate based on management’s assessment of the probability that the options will be exercised.
The majority of our long-term operating lease agreements include options to extend, which are also factored into the recognition of their respective assets and liabilities when appropriate based on management’s assessment of the probability that the options will be exercised.
The increase in gross profit was primarily driven by the 24.2% increase in net sales, partially offset by a decrease in gross margin to 40.5%, down approximately 90 basis points from 41.4% in fiscal 2021. The decrease in gross margin was primarily due to higher supply chain costs.
The increase in gross profit was primarily driven by the 3.5% increase in net sales and an increase in gross margin to 42.1%, up approximately 160 basis points from 40.5% in fiscal 2022. The increase in gross margin was primarily due to a decline in supply chain costs in 2023.
The increase in the effective tax rate was primarily due to year-over-year decreases in excess tax benefits related to stock-based compensation awards. 49 Tabl e of Contents Reconciliation of Non-GAAP Financial Measures EBITDA and Adjusted EBITDA For the periods presented, the following table reconciles EBITDA and Adjusted EBITDA to net income, the most directly comparable financial measure calculated and presented in accordance with GAAP: Fiscal Year Ended in thousands 12/29/2022 12/30/2021 Net income $ 298,195 $ 283,230 Depreciation and amortization (a) 153,446 115,223 Interest expense, net 11,138 4,924 Income tax expense 87,427 50,838 EBITDA 550,206 454,215 Stock-based compensation expense (b) 22,233 20,528 Acquisition and integration expense (c) — 3,392 Tariff refund adjustments (d) — 1,728 COVID-19 costs (e) — 1,154 Other (f) 4,611 4,083 Adjusted EBITDA $ 577,050 $ 485,100 (a) Excludes amortization of deferred financing costs, which is included as part of interest expense, net in the table above.
The decrease in the effective tax rate was primarily due to an increase in excess tax benefits related to stock-based compensation awards that was partially offset by limitations on deductions for compensation to certain employees under Internal Revenue Code Section 162(m). 35 Table of Contents Reconciliation of Non-GAAP Financial Measures EBITDA and Adjusted EBITDA For the periods presented, the following table reconciles EBITDA and Adjusted EBITDA to net income, the most directly comparable financial measure calculated and presented in accordance with GAAP: Fiscal Year Ended in thousands 12/28/2023 12/29/2022 Net income $ 245,980 $ 298,195 Depreciation and amortization (a) 199,856 153,446 Interest expense, net 9,897 11,138 Income tax expense 65,551 87,427 EBITDA 521,284 550,206 Stock-based compensation expense (b) 27,240 22,233 Other (c) 2,609 4,611 Adjusted EBITDA $ 551,133 $ 577,050 (a) Excludes amortization of deferred financing costs, which is included as part of interest expense, net in the table above.
Fiscal Year Ended dollars in thousands 12/29/2022 12/30/2021 Net sales $ 4,264,473 $ 3,433,533 Net income $ 298,195 $ 283,230 Adjusted EBITDA $ 577,050 $ 485,100 Comparable store sales 9.2 % 27.6 % Number of warehouse-format stores 191 160 During fiscal 2022, we continued to make key long-term strategic investments, including: • completing the relocation of our previous distribution center near Houston, Texas to a larger distribution center in the Houston area; • opening 32 new warehouse-format stores and four design studios and closing one warehouse-format store, ending the year with 191 warehouse-format stores and six design studios; • focusing on innovative new products and localized assortments, supported by inspirational in-store and online visual merchandising solutions; • investing in our Pro, connected customer, in-store designer, customer relationship, and store focused technology; • adding more resources dedicated to serving our Pro customers, including hiring professional external sales staff to drive more commercial sales; and • investing capital to continue enhancing the in-store shopping experience for our customers.
The following table presents a performance summary of our results of operations for fiscal years 2023 and 2022: Fiscal Year Ended dollars in thousands 12/28/2023 12/29/2022 Net sales $ 4,413,884 $ 4,264,473 Net income $ 245,980 $ 298,195 Adjusted EBITDA $ 551,133 $ 577,050 Comparable store sales (7.1) % 9.2 % Number of warehouse-format stores 221 191 During fiscal 2023, we continued to make key long-term strategic investments, including: • opening 31 new warehouse-format stores and closing one warehouse-format store, ending the year with 221 warehouse-format stores and five design studios; • continuing our strategic expansion into commercial surfaces through our acquisition of Salesmaster, a seller of commercial surfaces that primarily serves end users and flooring contractors in New York City and certain New England markets (refer to Note 15, “Acquisitions” of the notes to the consolidated financial statements included in this Annual Report for additional details); • focusing on innovative new products and localized assortments, supported by inspirational in-store and online visual merchandising solutions; • adding more resources dedicated to serving our Pro customers, including hiring professional external sales staff to drive more Pro sales; • investing in our Pro, connected customer, in-store designer, customer relationship, and store focused technology; and • investing capital to continue enhancing the in-store shopping experience for our customers.
Recently Adopted and Recently Issued Accounting Pronouncements Refer to Note 1, “Summary of Significant Accounting Policies” of the notes to the consolidated financial statements included in this Annual Report for information on the recently adopted and recently issued accounting pronouncements that are applicable to the Company.
While our efforts have mitigated a substantial portion of the overall effect of increased tariffs, the enacted tariffs have increased our inventory costs and associated cost of sales for the remaining products still sourced from China. 38 Table of Contents Recently Adopted and Recently Issued Accounting Pronouncements Refer to Note 1, “Summary of Significant Accounting Policies” of the notes to the consolidated financial statements included in this Annual Report for information on the recently adopted and recently issued accounting pronouncements that are applicable to the Company.
Payments made under the Finance Program are reflected in net cash provided by operating activities in our Consolidated Statements of Cash Flows. Material Cash Requirements, including Contractual Obligations to Third Parties We enter into long-term obligations and commitments in the normal course of business, primarily debt obligations and non-cancelable operating leases.
See Note 14, “Supply Chain Finance” of the notes to our consolidated financial statements included in this Annual Report for additional details related to our Finance Programs. Material Cash Requirements, including Contractual Obligations to Third Parties We enter into long-term obligations and commitments in the normal course of business, primarily debt obligations and non-cancelable operating leases.
Cash Flow Analysis A summary of our operating, investing, and financing activities are shown in the following table: Fiscal Year Ended in thousands 12/29/2022 12/30/2021 Net cash provided by operating activities $ 112,450 $ 301,342 Net cash used in investing activities (455,637) (471,238) Net cash provided by financing activities 213,537 1,568 Net decrease in cash and cash equivalents $ (129,650) $ (168,328) Net Cash Provided By Operating Activities Cash provided by operating activities consists primarily of (i) net income adjusted for non-cash items, including depreciation and amortization, changes in the fair values of contingent earn-out liabilities, deferred income taxes, and stock-based compensation and (ii) changes in working capital.
We currently expect the following for capital expenditures in fiscal 2024: • invest approximately $315 million to $365 million to open 30 to 35 warehouse-format stores, relocate stores, and begin construction on stores opening in fiscal 2025; • invest approximately $60 million to $75 million in existing store remodeling projects and our distribution centers; and • invest approximately $25 million to $35 million in information technology infrastructure, e-commerce, and other store support center initiatives. 36 Table of Contents Cash Flow Analysis A summary of our operating, investing, and financing activities are shown in the following table: Fiscal Year Ended in thousands 12/28/2023 12/29/2022 Net cash provided by operating activities $ 803,589 $ 112,450 Net cash used in investing activities (564,966) (455,637) Net cash (used in) provided by financing activities (214,035) 213,537 Net increase (decrease) in cash and cash equivalents $ 24,588 $ (129,650) Net Cash Provided By Operating Activities Cash provided by operating activities consists primarily of (i) net income adjusted for non-cash items, including depreciation and amortization, stock-based compensation, deferred income taxes, and changes in the fair values of contingent earn-out liabilities and (ii) changes in working capital.
Supply Chain Finance Program As part of our ongoing efforts to improve cash flow and liquidity, we facilitate a voluntary supply chain finance program (the “Finance Program”) for certain of our suppliers. Suppliers that participate in the Finance Program extend our payment terms by approximately 40 days on average.
Suppliers that participate in a supply chain finance program extend our payment terms by approximately 40 days on average.
Our Credit Facilities As of December 29, 2022, total Term Loan Facility debt was $204.5 million and the total amount borrowed under our ABL Facility was $210.2 million.
Our Credit Facilities As of December 28, 2023, total Term Loan Facility debt was $202.4 million, and no amounts were outstanding under our ABL Facility.
Selling and Store Operating Expenses Selling and store operating expenses increased $229.0 million, or 27.0%, compared to fiscal 2021. As a percentage of net sales, selling and store operating expenses increased by approximately 60 basis points to 25.3% from 24.7% in fiscal 2021.
As a percentage of net sales, selling and store operating expenses increased by approximately 280 basis points to 28.1% from 25.3% in fiscal 2022. This increase was primarily attributable to deleverage from a decrease in comparable store sales and new stores.
Our capital needs may change in the future due to changes in our business, new opportunities that we choose to pursue, or other factors.
Total capital expenditures in fiscal 2024 are planned to be between approximately $400 million to $475 million and are expected to be funded primarily by cash generated from operations and borrowings under the ABL Facility. Our capital needs may change in the future due to changes in our business, new opportunities that we choose to pursue, or other factors.
Non-comparable store sales were $515.4 million during the same period driven by new stores and revenue from our Spartan subsidiary, which was acquired in the second quarter of fiscal 2021.
The comparable store sales decline during the period of 7.1%, or $289.7 million, was primarily due to the 7.2% decrease in comparable customer transactions, which we believe was largely driven by declines in existing home sales. Non-comparable store sales of $439.1 million during the same period were primarily driven by new stores and revenue from Spartan.
Our liquidity is not generally seasonal, and our uses of cash are primarily tied to when we open stores and make other capital expenditures.
Unrestricted liquidity as of December 28, 2023 was $752.8 million, consisting of $34.4 million in cash and cash equivalents and $718.4 million immediately available for borrowing under the ABL Facility without violating any covenants thereunder. Our liquidity is generally not seasonal, and our uses of cash are primarily tied to when we open stores and make other capital expenditures.
Net cash used in investing activities was $455.6 million for fiscal 2022 and $471.2 million for fiscal 2021. The decrease in net cash used in investing activities was driven by a $59.8 million decrease in cash paid for acquisitions and $4.8 million in proceeds from a land sale, offset by a $48.9 million increase in capital expenditures.
Net cash used in investing activities was $565.0 million for fiscal 2023 and $455.6 million for fiscal 2022. The increase in cash used in investing activities was due to an increase in capital expenditures and cash paid for the Salesmaster acquisition.
Net cash provided by financing activities was $213.5 million for fiscal 2022 and $1.6 million for fiscal 2021. The increase in cash provided by financing activities was primarily driven by amounts borrowed under our ABL during fiscal 2022.
Net cash used in financing activities was $214.0 million for fiscal 2023 compared to net cash provided by financing activities of $213.5 million for fiscal 2022. The increase in net cash used in financing activities was primarily driven by net ABL Facility repayments and an increase in tax payments related to the vesting or exercise of stock-based compensation awards.
The following table summarizes our material cash requirements over the next several periods from known contractual or other obligations as of December 29, 2022: Payments due by period in thousands Total 12/28/2023 12/26/2024 12/25/2025 12/31/2026 12/30/2027 Thereafter Operating leases (1) $ 1,882,381 $ 170,669 $ 189,116 $ 177,156 $ 166,350 $ 158,809 $ 1,020,281 Purchase obligations (2) 880,315 847,565 8,165 9,051 10,141 5,393 — Long-term debt 414,699 2,103 2,103 2,103 2,629 405,761 — Estimated interest on long-term debt (3) 105,123 21,651 23,241 25,025 24,897 10,309 — Letters of credit 33,260 33,260 — — — — — Total $ 3,315,778 $ 1,075,248 $ 222,625 $ 213,335 $ 204,017 $ 580,272 $ 1,020,281 (1) We enter into operating leases during the normal course of business.
The following table summarizes our material cash requirements over the next several periods from known contractual or other obligations as of December 28, 2023: Payments due by period in thousands Total 12/26/2024 12/25/2025 12/31/2026 12/30/2027 12/28/2028 Thereafter Operating leases (1) $ 2,067,348 $ 201,830 $ 202,451 $ 189,438 $ 179,514 $ 159,645 $ 1,134,470 Purchase obligations (2) 805,766 770,229 15,323 14,822 5,392 — — Long-term debt 202,396 2,103 2,103 2,629 195,561 — — Estimated interest on long-term debt (3) 52,350 14,214 16,770 16,615 4,751 — — Total $ 3,127,860 $ 988,376 $ 236,647 $ 223,504 $ 385,218 $ 159,645 $ 1,134,470 (1) We enter into operating leases during the normal course of business.
Our general and administrative expenses as a percentage of net sales decreased by approximately 80 basis points to 5.0% from 5.8% in the prior year. The decline as a percentage of net sales was primarily driven by lower accruals for employee incentive compensation and sales growing faster than increases in rent and depreciation.
Our general and administrative expenses as a percentage of net sales increased by approximately 70 basis points to 5.7% from 5.0% in fiscal 2022. The increase as a percentage of net sales was primarily driven by deleverage from a decrease in comparable store sales. Pre-Opening Expenses Pre-opening expenses during fiscal 2023 increased $6.3 million, or 16.4%, compared to fiscal 2022.
General and Administrative Expenses General and administrative expenses increased $14.4 million, or 7.2%, during fiscal 2022 compared to fiscal 2021 due to costs to support store growth, including increased store support staff, higher depreciation related to technology and other store support center investments, and operating expenses related to our Spartan subsidiary.
General and Administrative Expenses General and administrative expenses during fiscal 2023 increased $38.9 million, or 18.2%, compared to fiscal 2022. The increase in general and administrative expenses was primarily comprised of costs to support store growth, including approximately $23.3 million for additional staff and $11.8 million in other administrative costs.
Net cash provided by operating activities was $112.5 million for fiscal 2022 and $301.3 million for fiscal 2021. The decrease in net cash provided by operating activities was primarily driven by increases in inventory purchases and other working capital items to support our operations, partially offset by higher operating income compared to the prior fiscal year.
The increase in net cash provided by operating activities was primarily driven by a decrease in inventory, an increase in trade accounts payable, an increase in cash earnings after adjusting net income for non-cash items such as depreciation and amortization, and other working capital items.
Adjustments to gross margin and inventory in the following fiscal year have historically not been material. Leases Description.
Adjustments to gross margin and inventory in the following fiscal year have historically not been material. Leases Description. We recognize lease assets and corresponding lease liabilities for all operating leases on our Consolidated Balance Sheets, excluding short-term leases (leases with terms of 12 months or less) as described under ASC 842, Leases (“ASC 842”).
Liquidity and Capital Resources Liquidity is provided primarily by our cash flows from operations and our $800.0 million ABL Facility. Unrestricted liquidity based on our December 29, 2022 financial data was $566.3 million, consisting of $9.8 million in cash and cash equivalents and $556.5 million immediately available for borrowing under the ABL Facility without violating any covenants thereunder.
Amounts for fiscal 2022 primarily relate to relocation expenses for our Houston distribution center and changes in the fair value of contingent earn-out liabilities. Liquidity and Capital Resources Liquidity is provided primarily by cash flows from operations and our $800.0 million ABL Facility.
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In fiscal 2022, we experienced our fourteenth consecutive year of comparable store sales growth.
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The housing market continued to be impacted by a number of macroeconomic factors during fiscal 2023, including rising interest rates and higher home prices putting pressure on housing affordability and resulting in declines in existing home sales, inflation, and a shift in consumer spending toward services.
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During fiscal 2022, although we continued to be impacted by the availability and cost of labor as well as supply chain challenges, including higher freight costs and congestion at ports of entry to the United States, these pressures began to show signs of easing toward the end of the year.
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We believe these factors directly contributed to a slowdown in demand for flooring resulting in year-over-year declines in our comparable store sales and net income.
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While we have passed our higher transportation costs on to customers, we remain focused on providing exceptional value to our customers through our broad assortment and “everyday low price” strategy.
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We believe that our continued focus on providing exceptional value to customers through our broad assortment and everyday low price strategy, while remaining disciplined to maintain profitability through cost control and strategic growth investments, have been instrumental in helping us to navigate this challenging housing market.
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We believe that our strong relationships with our suppliers and transportation partners have been instrumental in helping us to navigate difficulties in the supply chain environment; however, the potential significance and duration of these supply chain challenges is uncertain, and future capacity shortages or cost increases could have an adverse impact upon our business.
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However, the potential significance and duration of these macroeconomic difficulties is uncertain, and further pressures on the housing market could have an adverse impact on our business. 30 Table of Contents Key Performance Indicators We consider a variety of performance and financial measures in assessing the performance of our business.
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In addition, while we did not experience significant COVID-19 related disruptions to our business in fiscal 2022, there remains uncertainty regarding what impact COVID-19 may have on our business in the future. 44 Tabl e of Contents Key Performance Indicators We consider a variety of performance and financial measures in assessing the performance of our business.
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For information about the potential impacts that risks, such as declines in economic conditions that affect the residential housing market and consumer spending for hard surface flooring, interest rates, inflation, global supply chain disruptions, and geopolitical instability, among others, may have on our results of operations and overall financial performance for future periods, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Overview” and Item 1A., “Risk Factors”.
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The comparable store sales increase during the period of 9.2%, or $315.5 million, was driven by a 17.0% increase in comparable average ticket, partially offset by a 6.6% decrease in comparable customer transactions.
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We estimate that retail sales during fiscal 2023 were approximately 55% from homeowners and 45% from Pros compared to approximately 58% from homeowners and 42% from Pros during fiscal 2022. Gross Profit and Gross Margin Gross profit during fiscal 2023 increased $130.6 million, or 7.6%, compared to fiscal 2022.
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Among our seven product categories, five experienced comparable store sales increases during fiscal 2022, including laminate and vinyl, tile, decorative accessories and wall tile, installation materials and tools, and adjacent categories.
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Selling and Store Operating Expenses Selling and store operating expenses during fiscal 2023 increased $160.8 million, or 14.9%, compared to fiscal 2022. The increase in selling and store operating expenses was primarily due to $154.9 million for new stores and $8.9 million at Spartan, partially offset by a decrease of $3.0 million at our comparable stores.
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We believe the decrease in comparable customer transactions for fiscal 2022 was partly driven by macroeconomic demand slowing in fiscal 2022 as interest and mortgage rates increased and existing home sales declined, an unfavorable comparison to our strong fiscal 2021 results, and a shift in consumer spending toward travel and services.
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The increase primarily resulted from an increase in the number of future stores that we were preparing to open and delays in getting our stores open compared to the prior year.
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We have more than offset the decrease in comparable customer transactions with an increase in comparable average ticket due to focusing on driving higher sales through our ecommerce, pro, and design initiatives, which all carry a higher average ticket, as well as raising our retail prices due to higher supply chain and product costs.
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(b) Non-cash charges related to stock-based compensation programs, which vary from period to period depending on the timing of awards and forfeitures. (c) Other adjustments include amounts management does not consider indicative of our core operating performance. Amounts for fiscal 2023 relate to changes in the fair value of contingent earn-out liabilities.
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We also believe that our business model, with its focus on substantial amounts of trend-right, in-stock inventory, is also contributing to the sales increase. Gross Profit and Gross Margin Gross profit during fiscal 2022 increased $305.5 million, or 21.5%, compared to fiscal 2021.
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Net cash provided by operating activities was $803.6 million for fiscal 2023 and $112.5 million for fiscal 2022.
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These increases were primarily attributable to growth in new stores and, to a lesser extent, increased wages and higher credit card transaction processing fees across all of our stores.
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The year-over-year growth in capital expenditures was primarily driven by settlements of outstanding construction payables for recently completed stores and increases in new stores under construction.
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Pre-Opening Expenses Pre-opening expenses during fiscal 2022 increased $4.2 million, or 12.2%, compared to fiscal 2021. The increase primarily resulted from opening or preparing to open more stores compared to the prior year and was modestly impacted by higher costs to open new stores.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeA 1.0% increase in the effective interest rate for these debt instruments would cause an increase in interest expense of approximately $4.1 million over the next twelve months, excluding the impact of interest rate cap agreements. To lessen our exposure to interest rate risk, we entered into two $75.0 million interest rate cap agreements.
Biggest changeBased on the $202.4 million total outstanding principal balance of our Credit Facilities as of December 28, 2023, a 1.0% increase in the effective interest rate of this debt would cause an increase in interest expense of approximately $2.0 million over the next twelve months, excluding the impact of interest rate cap agreements.
While substantially all of these contracts are stated in U.S. dollars, there can be no assurance that the cost for the future production of our products will not be affected by exchange rate fluctuations between the U.S. dollar and the local currencies of these contractors.
While substantially all of these contracts are stated in U.S. dollars, there can be no assurance that the cost for the future production of our products will not be affected by exchange rate fluctuations between the U.S. dollar and the local currencies of these suppliers.
As a result, these agreements are partially offsetting increases in interest expense on our Term Loan Facility as rates have increased to a level above the specified SOFR caps. For additional information related to the Company’s Credit Facilities, refer to Note 10, “Debt” of the notes to the consolidated financial statements included in this Annual Report.
As a result, these agreements partially offset increases in interest expense on our Term Loan Facility as rates have increased to a level above the specified SOFR caps. For additional information related to the Company’s Credit Facilities, refer to Note 10, “Debt” of the notes to the consolidated financial statements included in this Annual Report.
To date, such fluctuations have not had a material impact on our financial condition or results of operations. 55 Tabl e of Contents
To date, such fluctuations have not had a material impact on our financial condition or results of operations. 41 Table of Contents
In the ordinary course of business, we are primarily exposed to foreign currency, interest rate risks, and risks from the impact of inflation or deflation. See further discussion in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for additional details. Foreign Currency Risk We contract for production with third parties primarily in Asia and Europe.
In the ordinary course of business, we are primarily exposed to foreign currency, interest rate risks, and risks from the impact of inflation or deflation.
The contracts effectively cap SOFR related interest payments on a portion of our Term Loan Facility to less than 1.68% through April 2024. The U.S. Federal Reserve began raising interest rates in fiscal 2022 and has signaled an intent to raise interest rates further.
To lessen our exposure to interest rate risk, we entered into two $75.0 million interest rate cap agreements in May 2021. The contracts effectively cap Secured Overnight Financing Rate (“SOFR”) based interest payments on a portion of our Term Loan Facility to less than 1.68% through April 2024. The U.S. Federal Reserve continued raising interest rates in fiscal 2023.
Interest Rate Risk Our operating results are subject to risk from interest rate fluctuations on our Credit Facilities, which carry variable interest rates. As of December 29, 2022, our Term Loan Facility and ABL Facility, which have variable interest rates, had remaining principal balances of $204.5 million and $210.2 million, respectively.
Interest Rate Risk Our operating results are subject to risk from interest rate fluctuations on our Credit Facilities, which have variable interest rates.
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See further discussion in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for additional details. 40 Table of Contents Foreign Currency Risk Our primary supplier contracts outside of the U.S. are with third parties in Asia and Europe.

Other FND 10-K year-over-year comparisons