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What changed in Floor & Decor Holdings, Inc.'s 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of Floor & Decor Holdings, Inc.'s 2023 and 2024 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 2024 report.

+334 added−348 removedSource: 10-K (2025-02-20) vs 10-K (2024-02-22)

Top changes in Floor & Decor Holdings, Inc.'s 2024 10-K

334 paragraphs added · 348 removed · 277 edited across 8 sections

Item 1. Business

Business — how the company describes what it does

64 edited+8 added−14 removed24 unchanged
Biggest changeOur Products Our merchandise is comprised of the following major product categories: • Laminate and vinyl : Wood-based laminate flooring, luxury vinyl, and engineered/composite (rigid core) vinyl. • Tile : Porcelain and ceramic. • Installation materials and tools : Grout, mortar, backer board, tools, adhesives, underlayments, moldings, and stair treads. • Decorative accessories and wall tile : Glass, natural stone, tile mosaics, decorative tiles, decorative trims, and wall tile. • Wood : Solid prefinished hardwood, solid unfinished hardwood, engineered hardwood, bamboo, and wood countertops. • Natural stone : Marble, limestone, travertine, slate, ledger, prefabricated countertops, thresholds, and shower benches. • Adjacent categories : Vanities, shower doors, bath accessories, faucets, sinks, custom countertops, bathroom mirrors, and bathroom lighting. 7 Table of Contents Our fiscal 2023 net sales by major product category are set forth below: (i) Other includes delivery, sample, and other product revenue and adjustments for deferred revenue, sales returns reserves, and other revenue related adjustments that are not allocated on a product-level basis.
Biggest changeOur Products Our merchandise is comprised of the following major product categories: • Laminate and vinyl : Wood-based laminate flooring, luxury vinyl, and engineered/composite rigid core vinyl. • Tile : Porcelain and ceramic tile, porcelain mosaics, and porcelain tile slabs. • Installation materials and tools : Grout, mortar, backer board, tools, adhesives, underlayments, moldings, and stair treads. • Decorative accessories and wall tile : Decorative tiles and mosaics, which includes natural stone, porcelain, ceramic, and glass, wall tile, and decorative trims. • Wood : Solid prefinished hardwood, solid unfinished hardwood, engineered hardwood, bamboo, and wood countertops. • Natural stone : Marble, limestone, travertine, slate, ledger, prefabricated countertops, thresholds, and shower benches. • Adjacent categories : Vanities, shower doors, bath accessories, faucets, sinks, custom countertops, bathroom mirrors, and bathroom lighting.
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.
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, wood, and natural stone flooring and installation materials and decorative accessories.
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.
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, to share our virtual catalog and design ideas with their customers, and to utilize tools such as our calculators to aid with shopping.
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.
We provide an efficient one-stop shopping experience for our Pro customers, offering everyday 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.
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.
These features educate our customers and enable them 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.
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.
Our 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.
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.
Our strong focus on the customer experience drives us to remain innovative and locally relevant while maintaining everyday low prices and in-stock merchandise in a one-stop shopping destination.
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 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. Enhance Our “Connected Customer” Experience.
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.
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 project.
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.
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-forward hard surface flooring sourced at a low cost directly from the manufacturer.
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.
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 and service providers 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.
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 everyday low prices.
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 .
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-forward products. We consistently innovate with proprietary brands. • Low Prices .
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.
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-forward products.
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 believe the key competitive factors in the retail hard surface flooring industry include: localized product assortment, design services, 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 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.
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. 9 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, fire codes, and other operations of our retail stores and distribution facilities.
When a product is not available in the store, our four regional distribution centers and neighboring stores can often quickly ship the product to meet a customer’s needs. Customers also have access to our full catalog of inventory for in-store pick up or delivery through FloorandDecor.com . Unique and Inspiring Shopping Environment.
When a product is not available in the store, our four regional distribution centers and neighboring stores can often quickly ship the product to meet a customer’s needs. Customers also have access to our full catalog of inventory for in-store pickup or delivery through FloorandDecor.com . Unique and Inspiring Shopping Environment.
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 .
We are mindful of the benefits of 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 workplace where we can leverage our collective talents, striving to ensure that all associates are treated with dignity and respect. • Safety .
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 believe these factors create a differentiated value proposition for Floor & Decor and drive customer loyalty with our Pro and homeowner customers in our markets. 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.
Distribution and Order Fulfillment Merchandise inventory is our most significant working capital asset and is considered “in-transit” or “available for sale”, based on whether we have physically received the products at an individual store location or in one of our four distribution centers.
Distribution and Order Fulfillment Merchandise inventory is our most significant working capital asset and is considered “in-transit” or “available for sale,” based on whether we have physically received the products at an individual store location or in one of our four distribution centers.
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.
We have established a Global Sourcing and Compliance Department to, among other things, enhance our policies and procedures with respect to addressing compliance with applicable regulatory bodies, including compliance with the requirements of the Lacey Act, the California Air Resources Board, and the Environmental Protection Agency.
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.
We currently source our products from more than 240 vendors worldwide and have long-term relationships with many of them. We often collaborate with our vendors to design products to address emerging customer preferences that we observe in our stores and markets.
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 carry a comprehensive in-stock, trend-forward product assortment 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. Additionally, we customize our product assortment at the store level for the local preferences of each market.
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 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”). 4 Table of Contents Our warehouse-format stores, which average approximately 77,000 square feet, are typically larger than any of our specialty retail flooring competitors’ stores.
In 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.
In 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 26, 2024, 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 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 expect to grow comparable store sales over the long-term by continuing to offer our customers a dynamic and expanding selection of compelling, everyday low priced hard surface flooring and accessories while maintaining strong service.
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 also offer design services through our experienced designers, 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 rewards Pro customers based on purchases and provides business-building tools.
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.
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. Expand Our Sales in Commercial Surfaces.
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.
Outside of our stores, we have employees dedicated to store support, infrastructure, e-commerce, customer care, 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.
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.
Rewarding our Pro customers through this program is intended to improve 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. 5 Table of Contents Decentralized Culture with an Experienced Store-Level Team and Emphasis on Training.
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 have a Learning Department, and in 2024, associates engaged in approximately 300,000 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 2024, more than 1,600 employees were promoted to more senior positions. • Culture .
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.
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 26, 2024, we operated 251 warehouse-format stores and five small-format design studios across 38 states.
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 that we offer the broadest in-stock assortment of laminate and vinyl, tile, wood, and natural stone flooring and installation materials and decorative accessories, as well as adjacent categories, at everyday low prices. This positions us as the one-stop destination for our customers’ entire hard surface flooring needs.
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.
The following discussion contains references to fiscal 2025, fiscal 2024, fiscal 2023, fiscal 2022, fiscal 2021, and fiscal 2020, which represent our fiscal years ended or ending, respectively, December 25, 2025, December 26, 2024, December 28, 2023, December 29, 2022, December 30, 2021, and December 31, 2020.
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
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 Securities and Exchange Commission (the “SEC”) free of charge on the Investor Relations page of our website as soon as reasonably practicable after such material is electronically filed with, or furnished to, the SEC.
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.
We create and implement localized assortments that are trend-forward, which often set trends in the industry. We believe this approach differentiates us from our national competitors, who tend to have standardized assortments across markets. Throughout the year, we regularly train our employees on a variety of topics, including product knowledge, sales strategies, leadership, and store operations.
We believe that growth in the hard surface flooring market will continue to be driven by several home remodeling demand drivers. These include a large supply of aging homes, millennials entering their household formation years, existing-home sales growth from the low supply of housing inventory, rising home equity values, and the secular shift from carpet to hard surface flooring.
We believe that long-term growth in the hard surface flooring market will continue to be driven by several home remodeling demand drivers. These include a large supply of aging homes, existing-home sales, rising home equity values, and the secular shift from carpet to hard surface flooring.
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.
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 26, 2024, we had 13,690 employees, 10,413 of whom were full-time.
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.
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 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.
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, job-lot quantities that our customers rely on.
Each of our stores is led by a CEM and is supported by an operations manager, product category department managers, a design team, a Pro sales and support team, and a number of additional associates.
Human Capital We have built a strong team of employees to support our continued success. Each of our stores is led by a CEM and is supported by an operations manager, product category department managers, a design team, a Pro sales and support team, and a number of additional associates.
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.
Of the total employees, 11,717 work in our stores, 1,440 work in our store support center, customer care, or similar functions, 523 work in our distribution centers, and 10 work in our Asia sourcing office in Shanghai, China.
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.
Trademarks and Other Intellectual Property We have registered trademarks and several pending trademark applications in the United States and other countries on a number of our brands, slogans, and products. We regard our intellectual property, including our many proprietary brands, as having significant value, and our brand is an important factor in the marketing and merchandising of our products.
Additionally, our close relationships with suppliers allow us to collaborate with them directly to develop and quickly introduce innovative and quality products that meet our customers’ evolving tastes and preferences at low prices.
The cost savings we achieve by directly sourcing our merchandise enable us to offer our customers everyday low prices. Additionally, our close relationships with suppliers allow us to collaborate with them directly to develop and quickly introduce innovative and quality products that meet our customers’ evolving tastes and preferences.
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.
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.
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 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. 6 Table of Contents Continue to Invest in Design Services.
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.
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.
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.
We procure the majority of our products directly from manufacturers, which eliminates additional costs from exporters, importers, wholesalers, and distributors. 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. Highly Experienced Management Team.
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.
Substantial investment is made in constructing the site, hiring and training employees, and marketing the new store through pre-opening events. Our historical new store performance, the performance of our more mature stores, and our disciplined real estate expansion strategy in successfully opening retail stores support our belief in the store expansion opportunity. Increase Comparable Store Sales.
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.
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 or have them delivered. As we continue to grow, we believe connected customer will become an increasingly important part of our strategy.
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%.
Marketing and Advertising We use a multi-platform approach to increasing Floor & Decor’s brand awareness, while historically maintaining low advertising costs of approximately 2% to 3% of net sales.
In addition to our stores, our website FloorandDecor.com showcases our products, offers informational training and design ideas and has our products available for sale, which a customer can pick up in-store or have delivered.
In addition to our stores, our website, FloorandDecor.com , showcases our products, offers informational training and design ideas, and provides product availability for in-store pickup or delivery.
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.
We believe that we compete favorably with respect to these factors by providing a highly diverse selection of products to our customers, at an attractive value, in appealing and convenient retail stores. For further discussion regarding competition, refer to Item 1A, “Risk Factors” of Part I of this Annual Report.
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.
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, as well as cost reductions due to operational efficiencies and managing expenses.
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.
Sourcing Floor & Decor has a well-developed and geographically diverse supplier base. Our largest supplier, which is multinational, accounted for 11% of our net sales in fiscal 2024, while no other individual supplier accounted for 10% or more of our net sales.
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.
According to our internal research, we believe when a designer is involved, customer satisfaction, gross margin, and average ticket are higher, and customers are more likely to follow through with a purchase.
We plan to target new store openings in both new and existing, adjacent, and underserved markets. We have a disciplined approach to new store development based on an analytical, research-driven site selection method and a rigorous real estate approval process.
Our disciplined approach to new store development integrates an analytical, research-driven site selection methodology with a rigorous real estate review and approval process, incorporating strategic store size optimization based on market-specific conditions.
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 continuously invest in our connected customer strategies to improve how customers experience our brand. Our connected customer sales represented approximately 19% of our total net sales for fiscal 2024. Continue to Invest in the Pro Customer. We believe our differentiated focus on Pro customers has created a competitive advantage for us and will continue to drive sales growth.
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.
In particular, in 2025 and 2026, we anticipate opening additional distribution centers near Seattle and Baltimore. 8 Table of Contents Management Information Systems Technology plays a crucial role in the continued growth and success of our business.
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.
In 2024, we began an upgrade to our existing core financial and merchandising systems, which is expected to occur in phases over the next few years. Competition The retail hard surface flooring market is highly fragmented and competitive. We face significant competition from big-box home improvement centers, national and regional specialty flooring retailers, independent flooring retailers, and distributors.
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 believe this system helps service levels, reduces shrink and damage, helps us better manage our inventory, and allows us to better implement our connected customer initiatives. We plan to continue to seek further opportunities to enhance our distribution capabilities and align them with our strategic growth initiatives.
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.
Logistics service providers arrange the shipping of our international and domestic purchases to our distribution centers and stores and bill us for shipping costs in accordance with our service agreements. All of our distribution centers are Company-operated facilities, and we have warehouse management and transportation management systems tailored to our unique needs across all distribution centers.
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.
We use a blend of digital and traditional advertising media to share the Floor & Decor story with a growing audience based on what we believe will most effectively drive awareness, customer acquisition, and sales. To further enhance our impact, our store managers have input into their respective stores’ marketing spend.
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.
Based on these characteristics, we believe there is a significant opportunity to expand our warehouse-format store base from 251 stores as of December 26, 2024 to at least 500 in the United States over the long-term. We plan to target store openings in new and existing markets across various market sizes.
Removed
We procure the majority of our products directly from manufacturers, which eliminates additional costs from exporters, importers, wholesalers, and distributors.
Added
Fiscal years 2025, 2024, 2023, 2022, and 2021 are 52-week periods, and fiscal 2020 is a 53-week period. When a 53-week fiscal year occurs, the Company reports the additional week at the end of the fiscal fourth quarter.
Removed
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.
Added
Through our site selection process, we evaluate key market characteristics including age of homes, housing density, length of home ownership, median income, competitor concentration, and other demographic variables in both new and existing markets.
Removed
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.
Added
We intend to open a range of store sizes from 50,000 to 80,000 square feet to serve different expected market sales potentials to achieve our desired rate of return over the long-term. When opening new stores, inventory orders are placed several months prior to a new store opening.
Removed
Our new store model targets on average net sales of $14 million to $16 million and four-wall adjusted EBITDA before pre-opening expenses of $2.5 million to $3.5 million during the first full year of operation, pre-tax payback in approximately two and a half to three and a half years and cash-on-cash returns of approximately 50% in the third year.
Added
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 made important investments in the Pro services regional teams to better recruit and train the Pro services team in each store.
Removed
Based on challenging macroeconomic conditions, our class of 2022 and class of 2023 new stores are estimated to be below these targets.
Added
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 at no additional cost.
Removed
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.
Added
In fiscal 2021, we acquired Spartan Surfaces, LLC (“Spartan”), a seller of commercial surfaces. 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.
Removed
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.
Added
Refer to Note 2, “Revenue” of the notes to our consolidated financial statements included in this Annual Report for our net sales by major product category. 7 Table of Contents Connected Customer We aim to elevate the total customer experience through our website FloorandDecor.com .
Removed
Refer to Note 2, “Revenue” of the notes to our consolidated financial statements included in this Annual Report for more information. Store Development Most of our stores are situated in highly visible retail and industrial locations.
Added
As of December 26, 2024, 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.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

116 edited+32 added−38 removed73 unchanged
Biggest changeThese 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.
Biggest changeThese provisions, among other things: • authorize the Board to issue “blank check” preferred stock without stockholder approval, which, if issued, would increase the number of outstanding shares of our capital stock, make it more difficult for someone to acquire us, and potentially adversely affect the voting power of the holders of our other classes of voting stock; • establish the sole power of a majority of our Board to fix the number of directors; • require 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; • provide our Board with the ability to amend our bylaws without stockholder approval; • provide that any vacancy on the Board, whether such vacancy occurs as a result of an increase in the number of directors or otherwise, may only be filled by a majority of the Board members still in office; • provide that only the Board or the chairperson of the Board may call special meetings of stockholders; • prohibit stockholder action by written consent, thus requiring all stockholder actions to be taken at a meeting of stockholders; and • require 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.
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.
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, inflation, disposable income levels, consumer confidence, recession fears, energy costs, consumer credit availability and terms, consumer debt levels, salaries and wage rates, and geopolitical events and uncertainty.
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, 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, demographic trends, weather conditions, natural disasters, geopolitical or public safety conditions, and general economic conditions.
We cannot ensure that store locations will be available to us, or that they will be available on terms acceptable to us. If additional retail store locations are unavailable on acceptable terms, we may not be able to carry out a significant part of our growth strategy or our new stores’ profitability may be lower.
We cannot ensure that new store locations will be available to us, or that they will be available on terms acceptable to us. If additional retail store locations are unavailable on acceptable terms, we may not be able to carry out a significant part of our growth strategy or our new stores’ profitability may be lower.
As a result of these factors and other factors that may be outside of our control, newly opened stores may not succeed or may reach profitability at all, or may be slower to reach profitability than we expect.
As a result of these factors and other factors that may be outside of our control, newly opened stores may not succeed or may not reach profitability at all, or may be slower to reach profitability than we expect.
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.
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 other factors that are not within our control.
Any disruption in our distribution capabilities, supply chain or our related planning and control processes may adversely affect our business, financial condition, and operating results. Our success is highly dependent on our planning and distribution infrastructure, which includes the ordering, transportation, and distribution of products to our stores and the ability of suppliers to meet distribution requirements.
Any disruption in our distribution capabilities, our supply chain, or our related planning and control processes may adversely affect our business, financial condition, and operating results. Our success is highly dependent on our planning and distribution infrastructure, which includes the ordering, transportation, and distribution of products to our stores and the ability of suppliers to meet distribution requirements.
Any failure by us to attract, hire, train, and retain highly qualified managers and staff could adversely affect our operating results and future growth opportunities, and any increased labor costs due to competition, increased minimum wage (including various federal, state, and local actions to increase minimum wages), associate benefit costs, unionization activity, or other factors would adversely impact our operating expenses.
Any failure by us to attract, hire, train, and retain highly qualified managers and staff could adversely affect our operating results and future growth opportunities, and any increased labor costs due to competition, increased wage costs (including various federal, state, and local actions to increase minimum wages), associate benefit costs, unionization activity, or other factors would adversely impact our operating expenses.
Unauthorized parties may also attempt to gain access to our systems or facilities through fraud, trickery or other forms of deception targeted at our customers, associates, suppliers and service providers. Any such, incidents could compromise our networks and the information stored there could be accessed, misused, publicly disclosed, lost or stolen.
Unauthorized parties may also attempt to gain access to our systems or facilities through fraud, trickery or other forms of deception or coercion targeted at our customers, associates, suppliers and service providers. Any such, incidents could compromise our networks, and the information stored there could be accessed, misused, publicly disclosed, lost or stolen.
In that case, the trading price of our common stock could decline, and you may lose all or part of your investment. Risks Related to Our Business Declines in certain economic conditions, which impact consumer discretionary spending, could adversely affect our business, financial condition and results of operations.
In that case, the trading price of our common stock could decline, and you may lose all or part of your investment. Risks Related to Our Business and Industry Declines in certain economic conditions, which impact consumer discretionary spending, could adversely affect our business, financial condition, and results of operations.
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.
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 incur substantial additional indebtedness in the future, subject to the restrictions contained in our Credit Facilities.
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.
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, or supply chain disruptions, including adverse effects on our ability to stock our stores and deliver products to our customers.
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.
Additionally, in connection with evaluating potential strategic transactions and assets, we may incur significant expenses for the evaluation, due diligence investigation, and negotiation of any potential transaction. We have limited experience acquiring companies, and any future acquisitions may not be successful.
Our business, like that of most retailers, involves the receipt, storage and transmission of customers’ personal information, consumer preferences and payment card data, as well as other confidential information related to us, our associates, our suppliers and other third parties, some of which is entrusted to third-party service providers and vendors that provide us with technology, systems and services that we use in connection with the receipt, storage and transmission of such information.
Our business, like that of most retailers, involves the receipt, use, storage and transmission of customers’ personal information, consumer preferences and payment card data, as well as other confidential information related to us, our associates, job applicants, our suppliers and other third parties, some of which is entrusted to third-party service providers and vendors that provide us with technology, systems and services that we use in connection with the receipt, use, storage and transmission of such information.
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, or regulations and newly enacted tax laws, trade policies, or regulations may impact our effective tax rate or may adversely affect our business, financial condition, and operating results.
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.
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 providing in-home design services.
If we are unable to enter into leases for additional stores on acceptable terms or renew or replace our current store leases, or if one or more of our current leases is terminated prior to expiration of its stated term and we cannot find suitable alternate locations, our growth and profitability could be adversely affected.
If we are unable to enter into leases or acquire properties for additional stores on acceptable terms or renew or replace our current store leases, or if one or more of our current leases is terminated prior to expiration of its stated term and we cannot find suitable alternate locations, our growth and profitability could be adversely affected.
Our success depends in part on our ability to attract, hire, train and retain qualified managers and staff. Purchasing hard surface flooring is an infrequent event for consumers, and the typical consumer in these groups has limited knowledge of the range, characteristics and suitability of the products available before starting the purchasing process.
Our success depends in part on our ability to attract, hire, train, and retain qualified managers and staff. Purchasing hard surface flooring is an infrequent event for consumers, and the typical consumer has limited knowledge of the range, characteristics and suitability of the products available before starting the purchasing process.
From time to time, we consider strategic transactions, including mergers, acquisitions, investments, alliances, and other growth and market expansion strategies, with the expectation that these transactions will result in increases in sales, cost savings, synergies and various other benefits. Assessing the viability and realizing the benefits of these transactions is subject to significant uncertainty.
From time to time, we consider strategic transactions, including mergers, acquisitions, investments, joint ventures, alliances, and other growth and market expansion strategies, with the expectation that these transactions will result in increases in sales, cost savings, synergies and various other benefits. Assessing the viability and realizing the benefits of these transactions is subject to significant uncertainty.
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.
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 that 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 its further spread, and the pace of global economic recovery following containment of the spread.
We accept payments using a variety of methods, including credit cards, debit cards, gift cards and physical bank checks.
We accept payments using a variety of methods, including credit cards, debit cards, gift cards, cash, and physical bank checks.
Due to the likelihood that we will continue to incur such costs in the future, we generally include an allowance for such costs in our projections. However, the costs that we actually incur may be substantially higher than our estimate and adversely affect our operating results.
Due to the likelihood that we will continue to incur such costs in the future, we generally include an allowance for such costs in our projections. However, the costs that we actually incur may be substantially higher than our estimates and may adversely affect our operating results.
While we do not believe that our suppliers source materials from Xinjiang for the products they sell to us, certain of our products, including luxury vinyl plank, have been subject to detentions and inquires.
While we do not believe that our suppliers source materials from Xinjiang for the products they sell to us, certain of our products, including luxury vinyl plank, have been subject to detentions and inquiries.
Declines in the level of consumer confidence and spending and rising interest rates have adversely affected, and could continue to adversely affect, consumer spending habits and consumer discretionary spending, which have resulted in, and may continue to result in, reduced demand for our products.
Declines in the level of consumer confidence and spending and high interest rates have adversely affected, and could continue to adversely affect, consumer spending habits and consumer discretionary spending, which have resulted in, and may continue to result in, reduced demand for our products.
In addition, consumers in new markets may be less familiar with our brand, and we may need to increase brand awareness in such markets through additional investments in advertising or high cost locations with more prominent visibility.
In addition, consumers in new markets may be less familiar with our brand, and we may need to increase brand awareness in such markets through additional investments in advertising or higher cost locations with more prominent visibility.
Further, we may have difficulty identifying, attracting and integrating new executives to replace any losses of our existing executive officers, all of which could adversely affect our business, financial condition, and operating results. Our success depends upon our ability to attract, hire, train, and retain highly qualified managers and staff.
Further, we may have difficulty identifying, attracting and integrating new executives to replace any losses of our other existing or future executive officers, all of which could adversely affect our business, financial condition, and operating results. Our success depends upon our ability to attract, hire, train, and retain highly qualified managers and staff.
Rising geopolitical tensions also could adversely affect our business, financial condition, and results of operations.
Rising geopolitical tensions could adversely affect our business, financial condition, and results of operations.
If our suppliers cannot deliver sufficient products, and we cannot find replacement suppliers, our net sales and operating results may be adversely affected. The effects of weather conditions, natural disasters or other unexpected events, including public health crises, may disrupt our operations and have a negative impact on our business.
If our suppliers cannot deliver sufficient products, and we cannot find replacement suppliers, our net sales and operating results may be adversely affected. 16 Table of Contents The effects of weather conditions, natural disasters or other unexpected events, including public health crises, may disrupt our operations and have a negative impact on our business.
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.
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 engaging in strategic acquisitions.
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 cyberattack threat and improved data protection methods.
If we fail to adequately project the amount or mix of our inventory, we may miss sales opportunities or have to take unanticipated markdowns or hold additional clearance events to dispose of excess inventory, which will adversely affect our operating results. In the past, we have incurred costs associated with inventory markdowns and obsolescence.
If we fail to adequately project the amount or mix of our inventory, we may miss sales opportunities or have to take unanticipated markdowns or hold additional clearance events to sell through excess inventory, which will adversely affect our operating results. In the past, we have incurred costs associated with inventory markdowns and obsolescence.
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.
Despite our security measures and those of third parties with whom we do business, our respective systems and facilities may be vulnerable to criminal cyberattacks or security incidents due to malfeasance, intentional or inadvertent security breaches by associates, or other vulnerabilities such as defects in design or manufacture.
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.
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, geopolitical or military conflicts, weather- and climate-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.
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.
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 further information regarding our liquidity.
Each of our stores is managed by a store manager who has the flexibility (with the support of regional managers) to use his or her knowledge of local market dynamics to customize each store in a way that is most likely to increase net sales and profitability.
Each of our stores is managed by a store manager who has the flexibility, with the support of regional managers, to use knowledge of local market dynamics to customize each store in a way that is most likely to increase net sales and profitability.
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.
These risks include 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 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; or 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 18% of the products we sold in fiscal 2024 were produced in China.
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.
This decrease in comparable store sales has had a negative impact on our net sales for the fiscal year ended December 26, 2024, 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.
Our store managers are also expected to anticipate, gauge and quickly respond to changing consumer demands in these markets. Further, it generally takes a substantial amount of time for our store managers to develop the entrepreneurial skills that we expect them to have in order to make our stores successful.
Our store managers are also expected to anticipate, gauge and quickly respond to changing consumer demands in these markets. Further, it generally takes a substantial amount of time for our store managers to develop the entrepreneurial skills we expect to make our stores successful.
Further, our ability to pay interest on and principal of our debt obligations under our ABL Facility and our $202.4 million senior secured term loan facility (as amended to date, the “Term Loan Facility” and together with the ABL Facility, our “Credit Facilities”) will primarily depend upon our future operating performance.
Further, our ability to pay interest on and principal of our debt obligations under our ABL Facility and our $200.3 million senior secured term loan facility (as amended to date, the “Term Loan Facility” and together with the ABL Facility, our “Credit Facilities”) will primarily depend upon our future operating performance.
We do not currently expect to pay any cash dividends. The continued operation and growth of our business will require substantial funding. Accordingly, we do not currently expect to pay any cash dividends on shares of our common stock.
Risks Related to the Ownership of Our Common Stock We do not currently expect to pay any cash dividends. The continued operation and growth of our business will require substantial funding. Accordingly, we do not currently expect to pay any cash dividends on shares of our common stock.
Accordingly, realization of a gain on your investment in our common stock will depend on the appreciation of the price of our common stock, which may never occur. See Item 5, “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities” for more information.
Accordingly, realization of a gain on an investment in our common stock will depend on the appreciation of the price of our common stock, which may not occur. See Item 5, “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities” for more information.
Although we believe that we have complied with these laws and regulations, there is nevertheless a risk that we will become subject to additional claims that allege we have failed to do so.
Although we believe that we have complied with these laws and regulations, there is nevertheless a risk that we will become subject to additional claims that allege we or our suppliers have failed to do so.
However, our information systems are subject to damage or interruption from planned upgrades in technology interfaces, power outages, computer and telecommunications failures, computer viruses, cyber-attacks or other security breaches and catastrophic events such as fires, floods, earthquakes, tornadoes, hurricanes, acts of war or terrorism and usage errors by our associates.
However, our information systems are subject to damage or interruption from upgrades in technology interfaces, power outages, computer and telecommunications failures, computer viruses, cyberattacks or other security breaches, and catastrophic events such as fires, floods, earthquakes, tornadoes, hurricanes, acts of war or terrorism, and misconduct or usage errors by our associates.
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.
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 and increased debt service obligations 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 that may restrict 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. 21 Table of Contents Certain of the variable rate indebtedness extended to us uses the Secured Overnight Financing Rate (“SOFR”) as a benchmark for establishing the interest rate.
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.
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 251 warehouse-format stores and five small-format standalone design studios located throughout the United States as of December 26, 2024.
The effects of global climate change, such as extreme weather conditions and natural disasters occurring more frequently or with more intense effects, or the occurrence of unexpected events including wildfires, tornadoes, hurricanes, earthquakes, floods, tsunamis and other severe hazards could adversely affect our business, financial condition, results of operations and cash flows.
The effects of extreme weather conditions and natural disasters occurring more frequently or with more intense effects, or the occurrence of unexpected events including wildfires, tornadoes, hurricanes, earthquakes, floods, tsunamis, and other severe hazards, could adversely affect our business, financial condition, results of operations, and cash flows.
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.
Any changes to these laws or regulations, increased or expanded enforcement of 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.
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.
Extreme weather, natural disasters, power outages or other unexpected events have in the past disrupted and could in the future disrupt our operations by, among other things, impacting the availability and cost of materials needed for manufacturing and causing physical damage and partial or complete closure of supplier manufacturing sites, our retail stores, our store support center or our distribution centers; causing loss of human capital; causing temporary or long-term disruption in the manufacturing and supply of products and services; and causing disruption in our ability to deliver products and services to customers.
Our ability to offer compelling products, particularly products made of more exotic species or unique stone, depends on the continued availability of sufficient suitable natural products. Our business strategy depends on offering a wide assortment of compelling products to our customers. We sell, among other things, flooring made from various wood species and natural stone from quarries throughout the world.
Our ability to offer compelling products to our customers depends on the continued availability of sufficient suitable natural products. Our business strategy depends on offering a wide assortment of compelling products to our customers. We sell, among other things, flooring made from various wood species and natural stone from quarries throughout the world.
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.
Any such intellectual property claim, regardless of whether such claim has merit, could subject us to material and costly disputes or litigation and impose a significant strain on our financial resources and management personnel. We may, from time to time, consider or engage in strategic transactions.
We currently lease the majority of our store locations and our store support center. Our growth strategy largely depends on our ability to identify and open future store locations, which can be difficult because our warehouse-format stores in major metropolitan markets generally require at least 60,000 square feet of floor space.
We currently lease the majority of our real estate, including most of our store locations and distribution centers and our store support center. Our growth strategy largely depends on our ability to identify and open future store locations, which can be difficult because our warehouse-format stores in major metropolitan markets generally require at least 60,000 square feet of floor space.
Because numerous factors affect our comparable store sales growth, it is possible that we will not achieve our targeted comparable store sales growth or that the change in comparable store sales could continue to be negative.
Because numerous factors affect our comparable store sales growth, as discussed in the other risk factors, it is possible that we will not achieve our targeted comparable store sales growth or that the change in comparable store sales could continue to be negative.
These prices may increase based on a number of factors beyond our control, including the price of raw materials used in the manufacture of hard surface flooring, transportation costs, energy costs, changes in supply and demand, concerns about inflation, general economic conditions, labor costs, competition, import duties, tariffs, currency exchange rates, government regulation, the impact of natural disasters (including those due to the effects of climate change), duty and other import costs.
These prices may increase based on a number of factors beyond our control, including the price of raw materials used in the manufacture of our products, transportation costs, energy costs, changes in supply and demand, concerns about inflation, general economic conditions, labor costs, competition, import duties, tariffs, currency exchange rates, government regulation, geopolitical or military conflicts, the impact of natural disasters, including those due to the effects of climate change, and other import costs.
Rising interest rates and any such shift in consumer behavior may adversely affect the demand for existing homes, remodeling, and new home construction.
High interest rates, housing affordability, and any such shift in consumer behavior may adversely affect the demand for existing homes, remodeling, and new home construction.
We are subject to a wide range of general and industry-specific laws and regulations imposed by federal, state and local authorities in the countries in which we operate including those related to customs, foreign operations (such as the FCPA), truth-in-advertising, consumer protection (such as the California Consumer Privacy Act and Telephone Consumer Protection Act), privacy, product safety (such as the Formaldehyde Standards in Composite Wood Products Act), the environment (such as the Lacey Act), import and export controls (such as the Uyghur Forced Labor Prevention Act), intellectual property infringement, zoning and occupancy matters as well as the operation of retail stores and distribution facilities.
We are subject to a wide range of general and industry-specific laws and regulations imposed by federal, state and local authorities in the countries in which we operate, including those related to customs, foreign operations (such as the FCPA), truth-in-advertising, consumer protection (such as the California Consumer Privacy Act and Telephone Consumer Protection Act), privacy, product safety (such as the Formaldehyde Standards in Composite Wood Products Act), the environment (such as the Lacey Act), import and export controls (such as the Uyghur Forced Labor Prevention Act), intellectual property infringement, immigration, the use, storage, generation, transportation, treatment, emission, release and disposal of certain hazardous materials and wastes, zoning and occupancy matters, and the operation of retail stores and distribution facilities.
Although these transitions have been smooth, any future changes to our key personnel, including our executive officers, or our failure to engage in effective succession planning may be disruptive to our business, including by distracting management from our core business and effective employee productivity.
Although our previous executive transitions have been smooth, any future changes to our key personnel, including our executive officers, or our failure to successfully manage the transition or engage in effective succession planning, may be disruptive to our business, including by distracting management from our core business and impacting employee productivity.
The hard surface flooring industry is highly dependent on existing home sales because homeowners often replace flooring before selling a home or shortly after purchasing a home and, to a lesser extent, new home construction. In response to increasing inflation, the U.S.
The hard surface flooring industry is highly dependent on existing home sales because homeowners often replace flooring before selling a home or shortly after purchasing a home and, to a lesser extent, on new home construction.
Although we conduct initial due diligence prior to engaging our suppliers and require our suppliers to certify compliance with applicable laws and regulations, we cannot guarantee that our suppliers will comply with applicable laws and regulations or operate in a legal, ethical and responsible manner.
Although we conduct due diligence prior to engaging our suppliers, require our suppliers to certify compliance with applicable laws and regulations, and have in place ongoing quality assurance and compliance programs, we cannot guarantee that our suppliers will comply with applicable laws and regulations or operate in a legal, ethical and responsible manner.
If we fail to comply with these rules or requirements, or if our data security systems or payment card information of our customers are breached or compromised, there is the potential that parties could seek damages from us, we may be liable for card issuing banks’ costs, subject to fines and higher transaction fees, and lose our ability to accept credit cards and debit card payments from our customers, process electronic funds transfers, or facilitate other types of online payments, we could lose the confidence of customers and our business, financial condition, and operating results could be adversely affected.
If we fail to comply with these rules or requirements, or if our data security systems or payment card information of our customers are breached or compromised, there is the potential that parties could seek damages from us; we may be liable for card issuing banks’ costs, subject to fines and higher transaction fees, and lose our ability to accept credit cards and debit card payments from our customers, process electronic funds transfers, or facilitate other types of online payments; we could lose the confidence of customers; and our business, financial condition, and operating results could be adversely affected. 20 Table of Contents 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 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 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 4,400 SKUs and approximately $2.7 million of inventory at cost as of December 26, 2024.
Increased competition could cause price declines, decrease demand for our products and decrease our market share. We operate in the hard surface flooring industry, which is highly fragmented and competitive. We face competition from large home improvement centers, national and regional specialty flooring chains, independent flooring retailers, and internet-based companies.
Increased competition could cause price declines, decrease demand for our products, and decrease our market share. We operate in the hard surface flooring industry, which is highly fragmented and competitive. We face significant competition from big-box home improvement centers, national and regional specialty flooring retailers, independent flooring retailers, and distributors.
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.
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.
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.
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 comparable store sales have become negative, and in the future our comparable store growth may be less than we expect, which has had and may continue to have a negative impact on our net sales, business, financial condition, and operating results.
We may continue to have negative comparable store sales or future comparable store growth lower than we expect, which has had and may continue to have a negative impact on our net sales, business, financial condition, and operating results.
If we violate or are alleged to have violated these laws, we could incur significant costs, be liable for damages, experience delays in shipments of our products, be subject to fines, penalties, criminal charges or other legal risks, or suffer reputational harm, any of which could reduce demand for our products and adversely affect our business, financial condition, and operating results.
If we or our suppliers violate or are alleged to have violated these laws and regulations, or if we become subject to unfavorable allegations, government investigations or legal actions involving our products or us, we could incur significant costs, be liable for damages, experience delays in shipments of our products, be subject to fines, penalties, injunctions, litigation, potential criminal charges or other legal risks, or suffer reputational harm, any of which could reduce demand for our products and adversely affect our business, financial condition, and operating results.
We maintain director and officer insurance to mitigate the risks associated with potential claims; however, we are responsible for meeting certain deductibles under such policies, and, in any event, we cannot assure you that the insurance coverage will adequately protect us from all claims made against us.
We maintain insurance to mitigate the risks associated with potential claims; however, we are responsible for meeting certain deductibles under such policies, and, in any event, the insurance coverage may not adequately protect us from all claims made against us.
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 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, labor disputes, or other difficulties.
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.
General Risk Factors We are engaged from time to time in various legal actions, claims and proceedings, and, while we cannot predict the outcomes of such proceedings and other contingencies with certainty, some of these outcomes and any potential future proceedings could have an adverse impact on us.
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.
While such detentions and inquiries have not had a material impact on our business as of December 26, 2024, any 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, adversely affect our relationships with our suppliers, or cause our suppliers to fail to perform their obligations.
Labor activities could cause labor relations difficulties for us. 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, and in 2023, certain of our subsidiary’s associates attempted to form a union in a small location operated by that subsidiary.
Labor activities could cause labor relations difficulties for us. 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.
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 carried an additional $507.9 million of inventory outside our stores, primarily at our distribution centers and in-transit to our distribution centers, as of December 26, 2024. The investment associated with this high level of inventory is substantial, and as we continue to broaden our supplier base, we may increase the number of SKUs and investments associated with inventory.
If our information systems are damaged or cease to function properly, we may have to make a significant investment to fix or replace them, and we may suffer losses of critical data and/or interruptions or delays in our operations.
If our information systems are damaged or cease to function properly, we may have to make a significant investment to fix or replace them, and we may suffer losses of critical data and/or interruptions or delays in our operations. Some of our information technology systems are currently outsourced to, or using cloud-based services provided by, third parties.
Anti-takeover provisions could impair a takeover attempt and adversely affect existing stockholders and the market value of our common stock.
Certain provisions in our organizational documents and Delaware law could impair a takeover attempt and adversely affect existing stockholders and the market value of our common stock.
Rising geopolitical tensions and U.S. policies related to global trade and tariffs, including with respect to antidumping and countervailing duties, could adversely affect our business, financial condition and results of operations.
All of these factors may harm us and adversely affect our net sales, market share, and operating results. Rising geopolitical tensions and U.S. policies related to global trade and tariffs, including with respect to antidumping and countervailing duties, could adversely affect our business, financial condition, and results of operations.
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.
Techniques used for cyberattacks 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.
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.
Adverse incidents related to these matters could negatively impact the value of our brand, operating costs, and relationships with investors, all of which could adversely affect our business and operating results.
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 rely on our information systems to process transactions, summarize our results of operations and manage our business. In particular, our website is an important part of our integrated connected customer strategy, and customers use our website as an information source on the range of products available to them and as a way to order our products.
In addition, laws or regulations in these new markets may make opening new stores more difficult or cause unexpected delays. For example, we have experienced unexpected delays in opening new stores due to delays in obtaining necessary construction and occupancy permits, which have resulted in higher costs than previously anticipated.
For example, we have experienced unexpected delays in opening new stores due to delays in obtaining necessary construction and occupancy permits, which have resulted in higher costs than previously anticipated.
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.
We source our products from over 240 domestic and international suppliers. Although we purchase from a diverse supplier base, purchases from our largest supplier, which has operations in China, accounted for approximately 11% of our net sales in fiscal 2024. No other singular vendor supplied products representing 10% or more of net sales in fiscal 2024.
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.
Further, as we expand into new and unfamiliar markets, we may experience different competitive conditions than in the past. 12 Table of Contents 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.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Biggest changeHowever, future incidents could have a material impact on our business strategy, results of operations, or financial condition.
Biggest changeHowever, future incidents could have a material impact on our business strategy, results of operations, or financial condition. For additional discussion of the risks posed by cybersecurity threats that are reasonably likely to materially affect us, refer to Item 1A, “Risk Factors” in Part I of this Annual Report.
A summary of our cybersecurity efforts is reported to the Audit Committee, which has primary responsibility for oversight and review of guidelines and policies with respect to risk assessment and risk management, including cybersecurity, regularly. Our Board also receives periodic updates relating to information security and cybersecurity risks.
A summary of our cybersecurity efforts is reported periodically to the Audit Committee, which has primary responsibility for oversight and review of guidelines and policies with respect to risk assessment and risk management, including cybersecurity. Our Board also receives periodic updates relating to information security and cybersecurity risks.
This program includes multiple layers of security controls, including network segmentation, security monitoring, endpoint protect, and identity and access management. The Company annually engages third parties to advise and assess the Company’s cybersecurity programs, including to engage in penetration testing.
This program includes multiple layers of security controls, including network segmentation, security monitoring, endpoint protection, and identity and access management. The Company annually engages third parties to advise and assess the Company’s cybersecurity programs, including to engage in penetration testing.
The incident response plan includes a procedure for notifying the CISO and CIO of any incident as well as a procedure for reporting any material incidents to the Audit Committee of our Board (the “Audit Committee”) and Board as appropriate. Our cybersecurity risk program is structured according to the National Institute of Standards and Technology (NIST) Cybersecurity framework.
The incident response plan includes a procedure for notifying the CISO and CIO of any incident as well as a procedure for reporting any material incidents to the Audit Committee of our Board (the “Audit Committee”) and Board as appropriate. 23 Table of Contents Our cybersecurity risk program is structured according to the National Institute of Standards and Technology (NIST) Cybersecurity framework.
Our CISO, CIO, and General Counsel collectively have over 35 years of business experience managing risks from cybersecurity threats and developing and implementing cybersecurity policies and procedures. Team members who support our information security program have relevant educational and industry experience.
Our CISO, CIO, and CLO collectively have over 35 years of business experience managing risks from cybersecurity threats and developing and implementing cybersecurity policies and procedures. Team members who support our information security program have relevant educational and industry experience.
Our CISO reports to our Chief Information Officer (“CIO”), and our CISO and CIO regularly meet with our General Counsel to review cybersecurity risks, and evaluate their nature and severity, as well as identify potential mitigation and assess the impact of those mitigations on residual risk.
Our CISO reports to our Chief Information Officer (“CIO”), and our CISO and CIO regularly meet with our Chief Legal Officer (“CLO”) to review cybersecurity risks and evaluate their nature and severity, as well as identify potential mitigations and assess the impact of those mitigations on residual risk.
The results of these assessments are reported to the CISO and our CISO, in consultation with our CIO and General Counsel, use the findings to improve our practices, procedures, and technologies.
The results of these assessments are reported to the CISO, and our CISO, in consultation with our CIO and CLO, uses the findings to improve our practices, procedures, and technologies.
In the last three fiscal years, we have not experienced a material information security breach incident and the expenses we have incurred from information security breach incidents have been immaterial, and we are not aware of any cybersecurity risks that are reasonably likely to materially affect our business.
During fiscal years 2024, 2023, and 2022, we did not experience a material information security breach incident, and the expenses we have incurred from information security breach incidents have been immaterial. We are not currently aware of any cybersecurity risks that are reasonably likely to materially affect our business.
Removed
For additional discussion of the risks posed by cybersecurity threats, see “Risk Factors— Risks Related to our Business—If our efforts to protect the privacy and security of information related to our customers, us, our associates, our suppliers and other third parties are not successful, we could become subject to litigation, investigations, liability and negative publicity that could significantly harm our reputation and relationships with our customers and adversely affect our business, financial condition, and operating results.” and “Risk Factors— Risks Related to our Business—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.” in Part 1 of this Annual Report. 25 Table of Contents

Item 2. Properties

Properties — owned and leased real estate

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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.
Biggest changeAs of December 26, 2024, we operated 251 warehouse-format stores located in 38 states as shown in the table below: State Number of Stores State Number of Stores Alabama 4 Nebraska 1 Arizona 7 Nevada 4 California 27 New Hampshire 1 Colorado 8 New Jersey 12 Connecticut 3 New Mexico 1 Florida 33 New York 10 Georgia 13 North Carolina 5 Illinois 11 Ohio 7 Indiana 2 Oklahoma 2 Iowa 1 Oregon 2 Kansas 2 Pennsylvania 4 Kentucky 2 Rhode Island 1 Louisiana 4 South Carolina 3 Maine 1 Tennessee 5 Maryland 6 Texas 33 Massachusetts 7 Utah 3 Michigan 4 Virginia 9 Minnesota 3 Washington 5 Missouri 3 Wisconsin 2 Total 251 24 Table of Contents The following table presents the percentage of our owned versus leased facilities in operation at the end of fiscal 2024 and their total square footage: square footage in thousands Owned Leased Total Square Footage Stores 7 % 93 % 19,307 Distribution centers 20 % 80 % 5,680 Offices and other — % 100 % 546 Total 25,533 Stores include our 251 warehouse-format stores and five small-format design studios.
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.
Offices and other include our headquarters, which we refer to as our store support center, our product review center, and our sample fulfillment center, all located in Atlanta, and other administrative, sales, and warehousing facilities supporting our Spartan subsidiary. The property tables above exclude locations where we have taken possession of the premises but are not yet operating.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeSee the information disclosed under the “Litigation” caption in Note 9, “Commitments and Contingencies” to our consolidated financial statements included in this Annual Report for further detail on legal proceedings.
Biggest changeRegardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources, and other factors. See the information disclosed under “Litigation” in Note 9, “Commitments and Contingencies” of the notes to our consolidated financial statements included in this Annual Report for further detail on legal proceedings.
ITEM 3. LEGAL PROCEEDINGS. We are engaged in various legal actions, claims and proceedings arising in the ordinary course of business, including claims related to breach of contracts, product liabilities, intellectual property matters and employment related matters resulting from our business activities.
ITEM 3. LEGAL PROCEEDINGS. We are engaged in various legal actions, claims and proceedings arising in the ordinary course of business, including claims related to breach of contracts, product liabilities, intellectual property matters, and employment-related matters resulting from our business activities. As with most actions such as these, an estimation of any possible and/or ultimate liability cannot always be determined.
Removed
As with most actions such as these, an estimation of any possible and/or ultimate liability cannot always be determined. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources, and other factors.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeFiscal 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.
Biggest changeIssuer 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 2024: 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 27, 2024 - October 24, 2024 — $ — N/A N/A October 25, 2024 - November 21, 2024 63 103.76 N/A N/A November 22, 2024 - December 26, 2024 — — N/A N/A Total 63 $ 103.76 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.
Any 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.
Any 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. 25 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 2020 through 2024.
Dividend Policy No dividends have been declared or paid on our common stock. We intend to continue to retain all available funds and any future earnings for use in the operation and growth of our business, and therefore we do not currently expect to pay any cash dividends on our common stock.
Dividend Policy No dividends have been declared or paid on our common stock since our initial public offering. We intend to continue to retain all available funds and any future earnings for use in the operation and growth of our business, and therefore we do not currently expect to pay any cash dividends on our 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 27, 2018 (the last trading day of fiscal 2018) through December 28, 2023, 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 26, 2019 (the last trading day of fiscal 2019) through December 26, 2024, including reinvestment of any dividends.
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.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. Market Information Our common stock has been listed for trading on the New York Stock Exchange under the symbol “FND” since April 27, 2017. On February 17, 2025, there were 19 stockholders of record of our Class A common stock.
Added
Fiscal Year Ended FND S&P 500 Index S&P 500 Home Improvement Retail Index December 26, 2019 $ 100.00 $ 100.00 $ 100.00 December 31, 2020 $ 184.59 $ 115.93 $ 124.08 December 30, 2021 $ 258.41 $ 147.50 $ 193.46 December 29, 2022 $ 141.13 $ 118.81 $ 151.76 December 28, 2023 $ 226.42 $ 147.64 $ 165.38 December 26, 2024 $ 200.93 $ 186.35 $ 187.30 Unregistered Sales of Equity Securities and Use of Proceeds During fiscal 2024, the Company did not sell any unregistered equity securities.

Item 7. Management's Discussion & Analysis

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

73 edited+13 added−16 removed49 unchanged
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%.
Biggest changeThe following tables summarize key components of our results of operations for the periods indicated: Fiscal Year Ended December 26, 2024 December 28, 2023 Increase (Decrease) dollars in thousands Amount % of Net Sales Amount % of Net Sales $ % Net sales $ 4,455,770 100.0 % $ 4,413,884 100.0 % $ 41,886 0.9 % Cost of sales 2,527,519 56.7 2,555,536 57.9 (28,017) (1.1) % Gross profit 1,928,251 43.3 1,858,348 42.1 69,903 3.8 % Operating expenses: Selling and store operating 1,362,325 30.6 1,239,225 28.1 123,100 9.9 % General and administrative 266,165 6.0 252,713 5.7 13,452 5.3 % Pre-opening 43,585 0.9 44,982 1.0 (1,397) (3.1) % Total operating expenses 1,672,075 37.5 1,536,920 34.8 135,155 8.8 % Operating income 256,176 5.8 321,428 7.3 (65,252) (20.3) % Interest expense, net 2,773 0.1 9,897 0.2 (7,124) (72.0) % Income before income taxes 253,403 5.7 311,531 7.1 (58,128) (18.7) % Income tax expense 47,531 1.1 65,551 1.5 (18,020) (27.5) % Net income $ 205,872 4.6 % $ 245,980 5.6 % $ (40,108) (16.3) % Fiscal Year Ended December 26, 2024 December 28, 2023 Comparable store sales (7.1) % (7.1) % Comparable average ticket (2.5) % 0.2 % Comparable transactions (4.7) % (7.2) % Number of warehouse-format stores 251 221 Adjusted EBITDA (in thousands) (1) $ 512,504 $ 551,133 Adjusted EBITDA (% of net sales) 11.5 % 12.5 % (1) Refer to “Reconciliation of Non-GAAP Financial Measures” below for a reconciliation of Adjusted EBITDA to net income. 31 Table of Contents Net Sales Net sales during fiscal 2024 increased $41.9 million, or 0.9%, compared to fiscal 2023 due to sales from the 30 new warehouse-format stores that we opened during the year and growth in Spartan, partially offset by a decrease in comparable store sales of 7.1%.
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.
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, and depreciation and amortization.
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 define Adjusted EBITDA as net income before interest, taxes, and 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.
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.
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, design centers, and new infrastructure and information systems. Cash payments to acquire businesses are also included in investing activities.
As we continue to manage the impact these tariffs may have on our business, we continue taking steps to mitigate some of these cost increases through negotiating lower costs from our vendors, increasing retail pricing as we deem appropriate, and sourcing from alternative countries.
As we continue to manage the impact these tariffs may have on our business, we continue taking steps to mitigate some of these cost increases through negotiating lower costs from our vendors, sourcing from alternative countries, and increasing retail pricing as we deem appropriate.
Our primary cash needs are for merchandise inventories, payroll, store rent, and other operating expenses and capital expenditures associated with opening new stores and remodeling existing stores, as well as information technology, e-commerce, and store support center infrastructure. We also use cash for the payment of taxes and interest and, as applicable, acquisitions.
Our primary cash needs are for merchandise inventories, payroll, store rent, and other operating expenses and capital expenditures associated with opening new stores and remodeling existing stores as well as information technology, e-commerce, store support center, and distribution center infrastructure. We also use cash for the payment of taxes and interest and, as applicable, acquisitions.
Pre-opening expenses primarily include the following: rent, advertising, training, staff recruiting, utilities, personnel, and equipment rental. A store is considered to be relocated if it is closed temporarily and re-opened within the same primary trade area. Segments We have two operating segments and one reportable segment.
Pre-opening expenses primarily include the following: rent, advertising, recruiting, training, utilities, personnel, and equipment rental. A store is considered to be relocated if it is closed temporarily and re-opened within the same primary trade area. Segments We have two operating segments and one reportable segment.
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.
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. 34 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.
We capitalize transportation, duties, and other costs to get product to our retail locations. Judgments and uncertainties involved in the estimate. We provide provisions for losses related to shrinkage and other amounts that are otherwise not expected to be fully recoverable. These provisions are calculated based on historical shrinkage, selling prices, margins, and current business trends.
We capitalize transportation, duties, and other costs to get product to our retail locations. Judgments and uncertainties involved in the estimate. We provide provisions for losses related to shrink and other amounts that are otherwise not expected to be fully recoverable. These provisions are calculated based on historical shrink, selling prices, margins, and current business trends.
With respect to our merchandising assortment, certain of our products tend to generate somewhat higher margins than other products within the same product categories or among different product categories. We have experienced inflation increases in certain of our product categories but historically have been able to source from a different manufacturer or pass increases on to our consumers.
With respect to our merchandising assortment, certain of our products generate higher margins than other products within the same product categories or among different product categories. We have experienced inflation increases in certain of our product categories but historically have been able to source from a different manufacturer or pass increases on to our consumers.
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.
Net Cash Used in 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.
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.
For fiscal 2024, 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.
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.
See Note 13, “Supply Chain Finance” of the notes to our consolidated financial statements included in this Annual Report for additional details related to our supply chain 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 non-cancelable operating leases and debt obligations.
Cost of sales consists of merchandise costs, as well as freight costs to transport inventory to our distribution centers and stores, and duty and other costs that are incurred to distribute the merchandise to our stores. Cost of sales also includes shrinkage, damage, warehousing costs, sourcing and compliance costs.
Cost of sales consists of merchandise costs, as well as freight costs to transport inventory to our distribution centers and stores, and duty and other costs that are incurred to distribute the merchandise to our stores. Cost of sales also includes shrink, damage, warehousing costs, sourcing and compliance costs.
Sales returns reserves and related return asset accruals over the last few years have fluctuated primarily based on changes in sales levels and, to a lesser extent, changes in customer return rates. Inventory Valuation and Shrinkage Description. Inventories consist of merchandise held for sale and are stated at the lower of cost or net realizable value.
Sales returns reserves and related return asset accruals over the last few years have fluctuated primarily based on changes in sales levels and, to a lesser extent, changes in customer return rates. Merchandise Inventories Description. Inventories consist of merchandise held for sale and are stated at the lower of cost or net realizable value.
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.
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.
The key measures we use to determine how our business is performing are comparable store sales, the number of new store openings, gross profit and gross margin, operating income, and EBITDA and Adjusted EBITDA. Comparable Store Sales Our comparable store sales growth is a significant driver of our net sales, profitability, cash flow, and overall business results.
The key measures we use to determine how our business is performing are comparable store sales, the number of new store openings, gross profit and gross margin, operating income, and EBITDA and Adjusted EBITDA. 27 Table of Contents Comparable Store Sales Our comparable store sales growth is a significant driver of our net sales, profitability, cash flow, and overall business results.
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.
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. Key Performance Indicators We consider a variety of performance and financial measures in assessing the performance of our business.
This discussion and analysis contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those discussed in “Item 1A. Risk Factors.” See the cautionary note regarding forward-looking statements set forth at the beginning of this Annual Report.
This discussion and analysis contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those discussed in Item 1A, “Risk Factors.” See the cautionary note regarding forward-looking statements set forth at the beginning of this Annual Report.
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.
Total capital expenditures in fiscal 2025 are planned to be between approximately $330 million to $400 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.
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.
Despite these macroeconomic challenges, 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.
Our gross profit and gross margin can also be impacted by changes in our prices, our merchandising assortment, shrinkage, damage, selling of discontinued products, the cost to transport our products from the manufacturer to our stores, and our distribution center costs.
Our gross profit and gross margin can also be impacted by changes in our prices, our merchandising assortment, customer preferences, shrink, damage, selling of discontinued products, the cost to transport our products from the manufacturer to our stores, and our distribution center costs.
We believe that operating income, EBITDA, and Adjusted EBITDA are useful measures, as they eliminate certain expenses that are not indicative of our core operating performance and facilitate a comparison of our core operating performance on a consistent basis from period to period.
We also believe that EBITDA and Adjusted EBITDA are useful measures, as they eliminate certain expenses that are not indicative of our core operating performance and facilitate comparisons on a consistent basis from period to period.
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.
A 10% change in our sales returns reserves and related return asset accruals at December 26, 2024 would have had a net impact of approximately $1.3 million on operating income in fiscal 2024.
In evaluating EBITDA and Adjusted EBITDA, you should be aware that in the future we will incur expenses that are the same as or similar to some of the items eliminated in the adjustments made to determine EBITDA and Adjusted EBITDA, such as stock-based compensation expense, distribution center relocation expenses, fair value adjustments related to contingent-earn out liabilities, and other adjustments.
In evaluating EBITDA and Adjusted EBITDA, you should be aware that in the future we may incur expenses that are the same as or similar to some of the items eliminated in the adjustments made to determine EBITDA and Adjusted EBITDA, such as stock-based compensation expense, litigation settlement recovery, fair value adjustments related to contingent earn-out liabilities, and other adjustments.
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.
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, and changes in actual shrink trends. Effect if actual results differ from assumptions.
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 that we offer the broadest in-stock assortment of laminate and vinyl, tile, wood, and natural stone flooring and installation materials and decorative accessories, as well as adjacent categories, at everyday low prices. This positions us as the one-stop destination for our customers’ entire hard surface flooring needs.
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.
Amounts due to financial intermediaries for suppliers that elected to participate in a supply chain finance program totaled $167.7 million and $114.0 million as of December 26, 2024 and December 28, 2023, respectively, and are included in trade accounts payable in our Consolidated Balance Sheets.
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.
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.
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.
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 251 warehouse-format stores across 38 states as of December 26, 2024.
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.
As of December 26, 2024, our Standard & Poor’s issuer credit rating of BB with a stable outlook and Moody’s issuer credit rating of Ba3 with a stable outlook remain unchanged from December 28, 2023. These ratings and our current credit condition affect, among other things, our ability to access new capital.
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.
The housing market continued to be impacted by a number of macroeconomic factors during fiscal 2024, including elevated interest rates and higher home prices putting pressure on housing affordability. This resulted in a decline in existing home sales, inflation, and a continued shift in consumer spending toward services.
All of our significant accounting policies are discussed in “Note 1. Summary of Significant Accounting Policies” to our audited consolidated financial statements included in this Annual Report. Revenue Recognition Description.
All of our significant accounting policies are discussed in Note 1, “Summary of Significant Accounting Policies” of the notes to our audited consolidated financial statements included in this Annual Report. Revenue Recognition Description.
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.
Amounts for both fiscal 2024 and fiscal 2023 relate to 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.
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.
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.
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.
As a percentage of net sales, selling and store operating expenses increased by approximately 250 basis points to 30.6% from 28.1% in fiscal 2023. This increase was primarily attributable to deleverage from a decrease in comparable store sales and the addition of new stores.
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”.
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, regulatory and political conditions, trade policy, and geopolitical instability, among others, may have on our results of operations and overall financial performance for future periods, see “Overview” further above and Item 1A, “Risk Factors” in Part I of this Annual Report.
Pre-opening Expenses We account for non-capital operating expenditures incurred prior to opening a new store or relocating an existing store as “pre-opening” expenses in our Consolidated Statements of Operations and Comprehensive Income.
The components of our general and administrative expenses may not be comparable to the components of similar measures of other retailers. Pre-opening Expenses We account for non-capital operating expenditures incurred prior to opening a new store or relocating an existing store as “pre-opening” expenses in our Consolidated Statements of Operations and Comprehensive Income.
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 gross profit was primarily driven by the 0.9% increase in net sales and an increase in gross margin to 43.3%, up approximately 120 basis points from 42.1% in fiscal 2023. The increase in gross margin was primarily driven by a decrease in supply chain costs.
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.
A 10% change in our inventory valuation and shrink reserves at December 26, 2024 would have affected operating income by approximately $0.7 million in fiscal 2024. Inventory valuation and shrink reserves typically fluctuate in proportion to changes in inventory balances. 36 Table of Contents Vendor Rebates and Allowances Description.
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.
Our Credit Facilities As of December 26, 2024, total Term Loan Facility debt was $200.3 million, and no amounts were outstanding under our ABL Facility.
Net cash provided by operating activities was $803.6 million for fiscal 2023 and $112.5 million for fiscal 2022.
Net cash provided by operating activities was $603.2 million for fiscal 2024 and $803.6 million for fiscal 2023.
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.
We currently expect the following for capital expenditures in fiscal 2025: • invest approximately $200 million to $245 million to open 25 warehouse-format stores and begin construction on stores opening after fiscal 2025; • invest approximately $20 million to $25 million in new distribution centers near Seattle and Baltimore; • invest approximately $50 million to $60 million in existing stores and distribution centers; and • invest approximately $60 million to $70 million in information technology infrastructure, e-commerce, and other store support center initiatives. 33 Table of Contents Cash Flow Analysis A summary of our operating, investing, and financing activities is shown in the following table: Fiscal Year Ended in thousands December 26, 2024 December 28, 2023 Net cash provided by operating activities $ 603,155 $ 803,589 Net cash used in investing activities (446,826) (564,966) Net cash used in financing activities (3,042) (214,035) Net increase in cash and cash equivalents $ 153,287 $ 24,588 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.
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 used in investing activities was $446.8 million for fiscal 2024 and $565.0 million for fiscal 2023. The decrease in net cash used in investing activities was due to a decrease in capital expenditures and cash paid for an acquisition in fiscal 2023.
(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.
(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) Net proceeds received related to the derivative litigation settlement in fiscal 2024. (d) Other adjustments include amounts management does not consider indicative of our core operating performance.
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.
The effective tax rate decrease was primarily due to a decrease in state income taxes and an increase in excess tax benefits related to stock-based compensation awards that were partially offset by limitations on deductions for compensation to certain employees under Internal Revenue Code Section 162(m). 32 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 December 26, 2024 December 28, 2023 Net income $ 205,872 $ 245,980 Depreciation and amortization (a) 230,293 199,856 Interest expense, net 2,773 9,897 Income tax expense 47,531 65,551 EBITDA 486,469 521,284 Stock-based compensation expense (b) 33,695 27,240 Litigation settlement recovery (c) (6,794) — Other (d) (866) 2,609 Adjusted EBITDA $ 512,504 $ 551,133 (a) Excludes amortization of deferred financing costs, which is included as part of interest expense, net.
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.
The year-over-year decline in capital expenditures was driven by the timing of construction payable settlements for recently completed stores and a decrease in new stores under construction.
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.
We estimate that retail sales during fiscal 2024 were approximately 51% from homeowners and 49% from Pros compared to approximately 55% from homeowners and 45% from Pros during fiscal 2023. Gross Profit and Gross Margin Gross profit during fiscal 2024 increased $69.9 million, or 3.8%, compared to fiscal 2023.
Critical Accounting Policies and Estimates The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires management to make estimates and assumptions about future events that affect amounts reported in our consolidated financial statements and related notes as well as the related disclosure of contingent assets and liabilities at the date of the financial statements.
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. 35 Table of Contents Critical Accounting Policies and Estimates The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires management to make estimates and assumptions about future events that affect amounts reported in our consolidated financial statements and related notes as well as the related disclosure of contingent assets and liabilities at the date of the financial statements.
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.
For additional segment information, refer to Note 14, “Segment Reporting” of the notes to the consolidated financial statements included in this Annual Report. 30 Table of Contents Results of Operations The comparison of the fiscal years ended December 28, 2023 and December 29, 2022 can be found in our annual report on Form 10-K for the fiscal year ended December 28, 2023 (the “2023 Annual Report”) located within Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Results of operations for prior periods should not be considered indicative of future results.
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.
Selling and Store Operating Expenses Selling and store operating expenses during fiscal 2024 increased $123.1 million, or 9.9%, compared to fiscal 2023. The increase in selling and store operating expenses was primarily driven by $156.7 million for new stores and $5.6 million at Spartan, partially offset by a decrease of $39.2 million at our comparable stores.
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 during fiscal 2024 increased $13.5 million, or 5.3%, compared to fiscal 2023. Our general and administrative expenses as a percentage of net sales increased by approximately 30 basis points to 6.0% from 5.7% in fiscal 2023.
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.
The decrease in net cash provided by operating activities was primarily driven by the change in inventory and a decline in cash earnings after adjusting net income for non-cash items, which were partially offset by an increase in trade accounts payable, accrued expenses and other current liabilities, and income taxes.
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.
Insurance, legal expenses, information technology costs, consulting, and other miscellaneous operating costs are also included. We expect that our general and administrative expenses will increase in future periods with future growth. General and administrative expenses include fixed as well as variable components, which may not directly correlate with net sales.
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.
Income Tax Expense Income tax expense was $47.5 million in fiscal 2024 compared to $65.6 million in fiscal 2023. The effective tax rate was 18.8% for fiscal 2024 compared to 21.0% for fiscal 2023.
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.
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.
A store is included in the comparable store sales calculation on the first day of the thirteenth full fiscal month following a store’s opening, which is when we believe comparability has been achieved. Changes in our comparable store sales between two periods are based on net sales for stores that were in operation during both of the two periods.
Comparable store sales refer to period-over-period comparisons of our net sales at the time of sale among the comparable store base. A store is included in the comparable store sales calculation on the first day of the thirteenth full fiscal month following a store’s opening, which is when we believe comparability has been achieved.
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.
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. These factors, coupled with rising construction costs, have made it difficult to achieve new store initial sales and profitability targets compared with those opened in prior years.
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.
Unrestricted liquidity as of December 26, 2024 was $905.7 million, consisting of $187.7 million in cash and cash equivalents and $718.0 million immediately available for borrowing under the ABL Facility without violating any covenants thereunder. Our liquidity is generally not seasonal.
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.
The comparable store sales decline during the period of 7.1%, or $299.1 million, was due to a 4.7% decrease in comparable transactions and a 2.5% decrease in comparable average ticket. We believe the decrease in comparable transactions was largely driven by the impact of lower existing home sales.
Before we open new stores, we incur pre-opening expenses, which are defined below. While net sales at new stores are generally lower than net sales at our stores that have been open for more than one year, our new stores have historically been profitable in their first year.
Before we open new stores, we incur pre-opening expenses, which are defined below under the heading “Other Key Financial Definitions.” Net sales at new stores are generally lower than net sales at our stores that have been open for more than one year. Our ability to open new, profitable stores is important to our long-term sales and profit growth goals.
General and Administrative Expenses General and administrative expenses consist primarily of costs incurred outside of our stores and include administrative personnel wages in our store support center and regional functions, bonuses and benefits, supplies, depreciation and amortization, and store support center expenses. Insurance, legal expenses, information technology costs, consulting, and other miscellaneous operating costs are also included.
The components of our selling and store operating expenses may not be comparable to the components of similar measures of other retailers. 29 Table of Contents General and Administrative Expenses General and administrative expenses consist primarily of costs incurred outside of our stores and include administrative personnel wages in our store support center and regional functions, bonuses and benefits, supplies, depreciation and amortization, and store support center expenses.
The retail and commercial sectors in which we operate are cyclical, and consequently our sales are affected by general economic conditions.
Revenue is recognized when we satisfy the performance obligations in contracts with our customers, which is typically when the customer obtains control of the underlying inventory. The retail and commercial sectors in which we operate are cyclical, and consequently our sales are affected by general economic conditions.
Gross profit and gross margin are also important indicators of our ability to grow profits and leverage our expenses on a growing sales base. Management uses gross profit and gross margin, among other measures, to make decisions related to product, pricing, supplier, and distribution strategies as well as other areas affecting the products we offer to our customers.
Management uses gross profit and gross margin, among other measures, to make decisions related to product, pricing, supplier, and distribution strategies as well as other areas affecting the products we offer to our customers. 28 Table of Contents Operating Income, EBITDA, and Adjusted EBITDA Operating income, EBITDA, and Adjusted EBITDA are key metrics used by management and our Board to assess our financial performance and enterprise value.
In certain cases, we arrange and pay for freight to deliver products to customers and bill the customer for the estimated freight cost, which is also included in net sales. Revenue is recognized when we satisfy the performance obligations in contracts with our customers, which is typically when the customer obtains control of the underlying inventory.
Other Key Financial Definitions Net Sales Net sales reflect our sales of merchandise, less discounts and estimated returns, and include our in-store sales, connected customer sales, and commercial sales. In certain cases, we arrange and pay for freight to deliver products to customers and bill the customer for the estimated freight cost, which is also included in net sales.
The amount available to be borrowed under our ABL Facility is reduced by the cumulative amount of any outstanding letters of credit.
We do not currently provide cash collateral for outstanding letters of credit. We have negotiated a letter of credit sublimit as part of our ABL Facility. The amount available to be borrowed under our ABL Facility is reduced by the cumulative amount of any outstanding letters of credit. Off-Balance Sheet Arrangements.
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.
We appeal to a variety of customers, including Pros and homeowners, which are comprised of DIY and BIY customers. Our warehouse-format stores, which average approximately 77,000 square feet, carry on average approximately 4,400 SKUs, approximately 1.0 million square feet of flooring products, and $2.7 million of inventory at cost as of December 26, 2024.
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.
Interest Expense, Net Net interest expense during fiscal 2024 decreased $7.1 million, or 72.0%, compared to fiscal 2023 primarily due to a decrease in average amounts outstanding under our ABL Facility and higher interest income as a result of higher cash balances.
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.
While exclusions from the previous 25% tariff were granted for certain products from China that we sell, nearly all of those exclusions have expired. In fiscal 2024, approximately 18% of the products we sold were produced in China.
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.
Gross Profit and Gross Margin Our gross profit is variable in nature and generally follows changes in net sales.
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.
Net cash used in financing activities was $3.0 million for fiscal 2024 and $214.0 million for fiscal 2023. The decrease in net cash used in financing activities was primarily driven by a decrease in net ABL Facility repayments.
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.
While our efforts have mitigated a substantial portion of the overall effect of increased tariffs to date, the enacted tariffs have increased our inventory costs and associated cost of sales for the remaining products still sourced from China and may impact sales of products sourced from China or other countries if new or higher tariffs are imposed.
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.
Pre-Opening Expenses Pre-opening expenses during fiscal 2024 decreased $1.4 million, or 3.1%, compared to fiscal 2023. The decrease in pre-opening expenses primarily resulted from a decrease in the number of stores that we opened compared to the prior year.
Removed
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”).
Added
The following table presents a performance summary of our results of operations for fiscal years 2024 and 2023: Fiscal Year Ended dollars in thousands December 26, 2024 December 28, 2023 Net sales $ 4,455,770 $ 4,413,884 Net income $ 205,872 $ 245,980 Adjusted EBITDA $ 512,504 $ 551,133 Comparable store sales (7.1) % (7.1) % Number of warehouse-format stores 251 221 During fiscal 2024, we opened 30 new warehouse-format stores, ending the year with 251 warehouse-format stores and five design studios.
Removed
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.
Added
Consequently, our class of 2022, 2023, and 2024 new stores are experiencing lower first year sales and initial returns compared to new stores opened in prior years. To optimize our return on investment, we focused on strategically reducing the construction costs and operating expenses.
Removed
Comparable store sales refer to period-over-period comparisons of our net sales among the comparable store base and are based on when the customer obtains control of the product, which is typically at the time of sale.
Added
Changes in our comparable store sales between two periods are based on net sales at the time of sale for stores that were in operation during both of the two periods.
Removed
Various factors affect comparable store sales, including: • national and regional economic conditions; • the retail sales environment and other retail trends; • the home improvement spending environment; • the hard surface flooring industry trends; • the impact of competition; • changes in our product mix; • changes in staffing at our stores; • cannibalization resulting from the opening of new stores in existing markets; • changes in pricing; • changes in advertising and other operating costs; and • weather conditions.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

7 edited+3 added−1 removed5 unchanged
Biggest changeAs 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.
Biggest changeFor 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. 41 Table of Contents
To date, such fluctuations have not had a material impact on our financial condition or results of operations. 38 Table of Contents
Based 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.
Based on the $200.3 million total outstanding principal balance of our Credit Facilities as of December 26, 2024, 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 our interest rate cap agreement.
Due to the number of currencies involved, we cannot quantify the potential impact of future currency fluctuations on net income or loss in future years. To date, such exchange fluctuations have not had a material impact on our financial condition or results of operations.
Due to the number of currencies involved, we cannot quantify the potential impact of future currency fluctuations on net income or loss in future years.
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.
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.
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.
Foreign Currency Risk Our primary supplier contracts outside of the U.S. are with third parties in Asia and Europe.
Interest Rate Risk Our operating results are subject to risk from interest rate fluctuations on our Credit Facilities, which have variable interest rates.
To date, such exchange fluctuations have not had a material impact on our financial condition or results of operations. 37 Table of Contents Interest Rate Risk Our operating results are subject to risk from interest rate fluctuations on our Credit Facilities, which have variable interest rates.
Removed
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.
Added
To lessen our exposure to interest rate risk, we entered into an interest rate cap agreement in January 2024 with a notional value of $150.0 million.
Added
The interest rate cap agreement effectively caps SOFR-based interest payments on a portion of the Company’s Term Loan Facility at 5.50% beginning in May 2024 and will continue until the agreement expires in April 2026.
Added
We do not anticipate that our outstanding interest rate cap agreement will significantly impact interest expense in the immediate near term as interest rates have decreased to a level below the specified SOFR cap.

Other FND 10-K year-over-year comparisons