Floor & Decor Holdings, Inc.: Form 10-Q for the period ended Sep 25, 2025

The following discussion and analysis of the financial condition and results of our operations should be read together with the financial statements and related notes of Floor & Decor Holdings, Inc. and Subsidiaries included in Part I, Item 1, “Financial Statements” of this Quarterly Report and with our audited financial statements and the related notes included in our Annual Report. As used in this Quarterly Report, except where the context otherwise requires or where otherwise indicated, the terms “Floor & Decor,” “Company,” “we,” “our,” or “us” refer to Floor & Decor Holdings, Inc. and its subsidiaries, and “Spartan” refers to our subsidiary Spartan Surfaces, LLC.

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 262 warehouse-format stores and five small-format standalone design studios across 38 states as of September 25, 2025. We believe our unique approach to selling hard surface flooring and our consistent and disciplined culture of innovation and reinvestment create a differentiated business model in the hard surface flooring category. 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. We appeal to a variety of customers, including Pros and homeowners, which are comprised of DIY and BIY customers.

During the thirty-nine weeks ended September 25, 2025, we opened 12 new warehouse-format stores and closed one warehouse-format store. Additionally, we opened a new distribution center near Seattle, Washington, ending the quarter with five distribution centers.

We operate on a 52- or 53-week fiscal year ending the Thursday on or preceding December 31. The following discussion contains references to the thirteen and thirty-nine weeks ended September 25, 2025 and September 26, 2024, respectively.

Key Performance Indicators

We consider a variety of performance and financial measures in assessing the performance of our business. The key performance and financial measures we use to determine how our business is performing are comparable store sales, the number of new store openings, gross profit and gross margin, operating income, and EBITDA and Adjusted EBITDA. For definitions and a discussion of how we use our key performance indicators, see the “Key Performance Indicators” section of Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report. See “Non-GAAP Financial Measures” below for a discussion of how we define EBITDA and Adjusted EBITDA and a reconciliation of EBITDA and Adjusted EBITDA to net income, the most directly comparable financial measure calculated and presented in accordance with GAAP.

Other key financial terms we use include net sales, selling and store operating expenses, general and administrative expenses, and pre-opening expenses. For definitions and a discussion of how we use other key financial terms, see the “Other Key Financial Definitions” section of Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report.

Results of Operations

Results of operations for any period should not be considered indicative of future results. See Part II, 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, tariffs and trade policy, and geopolitical instability, among others, may have on our results of operations and overall financial performance for future periods.

The following tables summarize key components of our results of operations for the periods indicated:

dollars in thousands

dollars in thousands

(1) Refer to “Non-GAAP Financial Measures” further below for a reconciliation of Adjusted EBITDA to net income.

Net Sales

Net sales during the thirteen weeks ended September 25, 2025 increased $61.6 million, or 5.5%, compared to the corresponding prior year period primarily due to sales from the 22 new warehouse-format stores that we opened since September 26, 2024, partially offset by a decrease in comparable store sales of 1.2%. The comparable store sales decline during the period of 1.2%, or $12.4 million, was due to a 3.0% decrease in comparable transactions, partially offset by a 1.8% increase in comparable average ticket. Non-comparable sales increased $74.0 million from the corresponding prior year period primarily driven by new stores.

Net sales during the thirty-nine weeks ended September 25, 2025 increased $206.1 million, or 6.2%, compared to the corresponding prior year period primarily due to sales from the 22 new warehouse-format stores that we opened since September 26, 2024, partially offset by a decrease in comparable store sales of 0.8%. The comparable store sales decline during the period of 0.8%, or $26.4 million, was due to a 3.3% decrease in comparable transactions, partially offset by a 2.6% increase in comparable average ticket. Non-comparable sales increased $232.5 million from the corresponding prior year period primarily driven by new stores.

We believe the decreases in comparable transactions during the thirteen and thirty-nine weeks ended September 25, 2025 were largely driven by the continued impact of low existing home sales. The increases in comparable average ticket during the thirteen and thirty-nine weeks ended September 25, 2025 were primarily due to changes in sales mix.

We estimate that retail sales during both the thirteen and thirty-nine weeks ended September 25, 2025 and September 26, 2024 were approximately 50% from homeowners and 50% from Pros.

Gross Profit and Gross Margin

Gross profit during the thirteen weeks ended September 25, 2025 increased $26.1 million, or 5.4%, compared to the corresponding prior year period. The increase in gross profit was primarily driven by the 5.5% increase in net sales, partially offset by a decrease in gross margin to 43.4%, down approximately 10 basis points from 43.5% in the corresponding prior year period. The decrease in gross margin was primarily driven by an increase in distribution center costs, partially offset by favorable product margin.

Gross profit during the thirty-nine weeks ended September 25, 2025 increased $105.9 million, or 7.3%, compared to the corresponding prior year period. The increase in gross profit was primarily driven by the 6.2% increase in net sales and an increase in gross margin to 43.7%, up approximately 50 basis points from 43.2% in the corresponding prior year period. The increase in gross margin was primarily driven by a decrease in supply chain costs, partially offset by an increase in distribution center costs.

Selling and Store Operating Expenses

Selling and store operating expenses during the thirteen weeks ended September 25, 2025 increased $24.6 million, or 7.3%, compared to the corresponding prior year period. The increase in selling and store operating expenses was primarily driven by $30.1 million for non-comparable stores. As a percentage of net sales, selling and store operating expenses increased by approximately 50 basis points to 30.8% from 30.3% in the corresponding prior year period.

Selling and store operating expenses during the thirty-nine weeks ended September 25, 2025 increased $93.9 million, or 9.3%, compared to the corresponding prior year period. The increase in selling and store operating expenses was primarily driven by $102.4 million for non-comparable stores. As a percentage of net sales, selling and store operating expenses increased by approximately 90 basis points to 31.2% from 30.3% in the corresponding prior year period.

The increases in selling and store operating expenses as a percentage of net sales during the thirteen and thirty-nine weeks ended September 25, 2025 were primarily attributable to the addition of new stores and deleverage from a decrease in comparable store sales.

General and Administrative Expenses

General and administrative expenses during the thirteen weeks ended September 25, 2025 decreased $0.1 million, or 0.2%, compared to the corresponding prior year period. Our general and administrative expenses as a percentage of net sales decreased by approximately 40 basis points to 5.7% from 6.1% in the corresponding prior year period.

General and administrative expenses during the thirty-nine weeks ended September 25, 2025 increased $4.0 million, or 2.0%, compared to the corresponding prior year period. Our general and administrative expenses as a percentage of net sales decreased by approximately 20 basis points to 5.8% from 6.0% in the corresponding prior year period. The increase in general and administrative expenses in total was primarily driven by an increase of $5.3 million in personnel expenses, partially offset by a decrease of $1.5 million in other operating expenses.

The decreases in general and administrative expenses as a percentage of net sales for the thirteen and thirty-nine weeks ended September 25, 2025 were primarily driven by leverage of our general and administrative costs on higher net sales.

Pre-Opening Expenses

Pre-opening expenses during the thirteen weeks ended September 25, 2025 decreased $4.1 million, or 32.2%, compared to the corresponding prior year period.

Pre-opening expenses during the thirty-nine weeks ended September 25, 2025 decreased $13.2 million, or 40.1%, compared to the corresponding prior year period.

The decreases in pre-opening expenses during the thirteen and thirty-nine weeks ended September 25, 2025 primarily resulted from decreases in the number of stores that we opened and lower relocation expenses compared to the corresponding prior year period.

Interest Expense, Net

Net interest expense during the thirteen weeks ended September 25, 2025 increased $0.4 million, or 212.7%, compared to the corresponding prior year period primarily due to a decrease in interest capitalized, partially offset by lower average interest rates and lower average outstanding borrowings.

Net interest expense during the thirty-nine weeks ended September 25, 2025 increased $0.4 million, or 14.5%, compared to the corresponding prior year period primarily due to a decrease in interest capitalized, partially offset by higher interest income as a result of higher cash balances.

Income Tax Expense

Income tax expense was $14.2 million during the thirteen weeks ended September 25, 2025 compared to $14.4 million during the thirteen weeks ended September 26, 2024. The effective tax rate was 19.8% for the thirteen weeks ended September 25, 2025 compared to 21.8% in the corresponding prior year period. The effective tax rate decrease during the thirteen weeks ended September 25, 2025 was primarily due to a decrease in state income taxes and an increase in federal tax credits.

Income tax expense was $45.6 million during the thirty-nine weeks ended September 25, 2025 compared to $35.8 million during the thirty-nine weeks ended September 26, 2024. The effective tax rate was 21.2% for the thirty-nine weeks ended September 25, 2025 compared to 18.4% in the corresponding prior year period. The effective tax rate increase during the thirty-nine weeks ended September 25, 2025 was primarily due to a decrease in excess tax benefits related to stock-based compensation awards.

Non-GAAP Financial Measures

EBITDA and Adjusted EBITDA are key metrics used by management and our Board of Directors to assess our financial performance and enterprise value. We 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. We also use Adjusted EBITDA as a basis to determine covenant compliance with respect to our ABL Facility and Term Loan Facility (together, the “Credit Facilities”), to supplement GAAP measures of performance to evaluate the effectiveness of our business strategies, to make budgeting decisions, and to compare our performance against that of other peer companies using similar measures. 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, 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. See below for a reconciliation of EBITDA and Adjusted EBITDA to net income, the most directly comparable financial measure calculated and presented in accordance with GAAP.

EBITDA and Adjusted EBITDA are non-GAAP measures of our financial performance and should not be considered as alternatives to net income as a measure of financial performance or any other performance measure derived in accordance with GAAP, and they should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items. Additionally, EBITDA and Adjusted EBITDA are not intended to be measures of liquidity or free cash flow for management’s discretionary use. In addition, these non-GAAP measures exclude certain non-recurring and other charges. Each of these non-GAAP measures has its limitations as an analytical tool, and you should not consider them in isolation or as a substitute for analysis of our results as reported under GAAP. 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, fair value adjustments related to contingent earn-out liabilities, and other adjustments. 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.

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:

in thousands

(1) Excludes amortization of deferred financing costs, which is included as part of interest expense, net.

(2) Represents non-cash charges related to stock-based compensation programs, which vary from period to period depending on the timing of awards and forfeitures.

(3) Other adjustments include amounts management does not consider indicative of our core operating performance. Amounts for the thirty-nine weeks ended September 25, 2025 and the thirteen and thirty-nine weeks ended September 26, 2024 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. Unrestricted liquidity as of September 25, 2025 was $893.5 million, consisting of $204.5 million in cash and cash equivalents and $689.0 million immediately available for borrowing under the ABL Facility without violating any covenants thereunder. Our liquidity is generally not seasonal.

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. We expect that cash generated from operations together with cash on hand, the availability of borrowings under our Credit Facilities, and if necessary, additional funding through other forms of external financing, will be sufficient to meet liquidity requirements, anticipated capital expenditures, and payments due under our Credit Facilities for the next twelve months and the foreseeable future.

Total capital expenditures in fiscal 2025 are planned to be between approximately $280 million to $300 million and are expected to be funded primarily by cash generated from operations. 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 currently expect the following for capital expenditures in fiscal 2025 (projected amounts are based on the gross costs that we expect to accrue for these investments on the Condensed Consolidated Balance Sheets in fiscal 2025, which may include amounts incurred but not yet settled in cash during the period):

• invest approximately $180 million to $200 million to open 20 warehouse-format stores, relocate stores, and begin construction on stores opening after fiscal 2025;
• invest approximately $20 million in new distribution centers near Seattle and Baltimore;
• invest approximately $45 million in existing stores and distribution centers; and
• invest approximately $35 million in information technology infrastructure, e-commerce, and other store support center initiatives.

Cash Flow Analysis

A summary of our operating, investing, and financing activities is shown in the following table:

in thousands

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 provided by operating activities during the thirty-nine weeks ended September 25, 2025 and September 26, 2024 was $257.8 million and $501.8 million, respectively. The decrease in net cash provided by operating activities was primarily driven by changes in inventory and trade accounts payable.

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.

Net cash used in investing activities during the thirty-nine weeks ended September 25, 2025 and September 26, 2024 was $238.8 million and $349.4 million, respectively. The decrease in net cash used in investing activities was due to a decrease in capital expenditures primarily driven by a decrease in new stores under construction compared to the corresponding prior year period.

Net Cash Used in Financing Activities

Financing activities consist primarily of borrowings and related repayments under our Credit Facilities, tax payments related to the vesting or exercise of stock-based compensation awards, proceeds from the exercise of stock options and our employee stock purchase program, and payments of contingent earn-out consideration.

Net cash used in financing activities during the thirty-nine weeks ended September 25, 2025 and September 26, 2024 was $2.1 million and $6.0 million, respectively. The decrease in net cash used in financing activities was primarily driven by a decrease in tax payments for stock-based compensation awards.

Our Credit Facilities

As of September 25, 2025, total Term Loan Facility debt outstanding was $198.7 million, and no amounts were outstanding under our ABL Facility. For additional information regarding our Term Loan Facility and ABL Facility, including applicable covenants and other details, please refer to Note 3, “Debt” to our condensed consolidated financial statements included in this Quarterly Report.

Credit Ratings

Our credit ratings are periodically reviewed by rating agencies. As of September 25, 2025, 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 26, 2024. These ratings and our current credit condition affect, among other things, our ability to access new capital. Negative changes to these ratings may result in more stringent covenants and higher interest rates under the terms of any new debt. Our credit ratings could be lowered or rating agencies could issue adverse commentaries in the future, which could have a material adverse effect on our business, financial condition, results of operations, and liquidity. 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.

U.S. Tariffs and Global Economy

The current geopolitical environment, particularly related to existing and potential changes in global trade and tariffs, has created uncertainty surrounding the future state of the global economy and related impacts to our supply chain. In 2025, the U.S. has imposed significant additional tariffs on products from most countries where we source products, with further tariffs being considered. Although some tariffs were subsequently paused, it is unclear whether the pauses will remain in place, and if so, for how long. Additionally, certain countries where we source products either have imposed or are considering imposing new tariffs and other trade measures on the U.S. in response, resulting in potentially escalating tariffs and trade conflict between the U.S. and its trading partners.

As we continue to manage the impact these tariffs may have on our business and the complexities of the various trade policy actions, we continue taking steps to mitigate some of the cost increases through negotiations with our vendors, sourcing from alternative countries, and increasing retail pricing as we deem appropriate. While we continue to mitigate the overall effect of increased tariffs, these tariffs have increased and will continue to increase our inventory costs and associated cost of sales, which may result in increased retail prices and may adversely impact sales. Furthermore, the broader impact of increased tariffs on the economy may negatively impact consumer demand, which may also have an adverse impact on sales.

Critical Accounting Policies and Estimates

Our consolidated financial statements have been prepared in accordance with GAAP, which requires management to make estimates and assumptions that affect reported amounts. The estimates and assumptions are based on historical experience and other factors management believes to be reasonable. These estimates may change as new events occur and additional information is obtained. Actual results could differ materially from these estimates under different assumptions or conditions.

For a description of our critical accounting policies and estimates, refer to Part II, Item 7, “Critical Accounting Policies and Estimates” in our Annual Report. There have been no material changes to our critical accounting policies and estimates as disclosed in our Annual Report. See Note 1, “Basis of Presentation and Summary of Significant Accounting Policies” to our condensed consolidated financial statements included in this Quarterly Report, which describes recent accounting pronouncements adopted by us.

For quantitative and qualitative disclosures about market risk affecting the Company, see Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” of Part II of the Annual Report. While our exposure to market risk has not changed materially since December 26, 2024, uncertainty with respect to the economic effects of declines in economic conditions that affect the residential housing market and consumer spending for hard surface flooring, inflation, global supply chain disruptions, regulatory and political conditions, tariffs and trade policy, and geopolitical instability, among other factors, have introduced significant volatility in the financial markets, including interest rates and foreign currency exchange rates. See further discussion in Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for additional details.

Interest Rate Risk

Our operating results are subject to risk from interest rate fluctuations on our Credit Facilities, which have variable interest rates. Based on the $198.7 million total outstanding principal balance of our Credit Facilities as of September 25, 2025, 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 contract. To lessen our exposure to interest rate risk, we entered into an interest rate cap contract in January 2024 with a notional value of $150.0 million. The interest rate cap contract 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 interest rate cap contract expires in April 2026. For additional information related to the Company’s Credit Facilities and the interest rate cap contract, refer to Note 3, “Debt” and Note 8, “Fair Value Measurements,” respectively, to our condensed consolidated financial statements included in this Quarterly Report.

Evaluation of Disclosure Controls and Procedures

The Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) are designed to provide reasonable assurance that the information required to be disclosed in the reports that the Company files or submits under the Exchange Act are recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in reports filed or submitted under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. The Company’s management, including the Chief Executive Officer and the Chief Financial Officer, have reviewed the effectiveness of the Company’s disclosure controls and procedures as of September 25, 2025 and, based on their evaluation, have concluded that the Company’s disclosure controls and procedures were effective at the reasonable assurance level. The condensed consolidated financial statements included in this Quarterly Report fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented in conformity with GAAP.

Changes in Internal Control Over Financial Reporting

There have been no changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) or 15d-15(f) of the Exchange Act) during the fiscal quarter ended September 25, 2025 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

The Company has begun a multi-year implementation of portions of our enterprise resource planning (ERP) system, which will replace our existing core financial and merchandising systems. The implementation is expected to occur in phases through 2027. As the phased implementation occurs, it may result in changes to our processes and procedures, which may result in changes to our internal controls over financial reporting. As such changes occur, we will evaluate quarterly whether they materially affect our internal control over financial reporting.

In addition to the other information set forth in this Quarterly Report, you should carefully consider the risk factors described in Part I, Item 1A, “Risk Factors” in our Annual Report, which could materially affect our business, financial condition, and/or operating results. Except as discussed under the heading “U.S. Tariffs and Global Economy” in Part II, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Quarterly Report, there have been no material changes to the risk factors in our Annual Report.