Flooring and decoration contract
In a hardwood flooring market that averaged 4% annual growth from 2016 to 2021, Floor & Decor performed three times better, with a similar sales increase of 12.6% on average from year to year.
Its fleet of high-volume warehouses is the company’s biggest advertisement. Its stores monthly attract more and more luxury-minded customers who are looking for hard surface flooring and wall tiles at the best prices with the widest selection, along with value-added service.
To fill that bill, it has succeeded in attracting more home service professionals and expanding its design services. This has positioned it to serve as a one-stop shop and low-price leader for customers looking for the best and best flooring options at similar or close to good choices to competitors. It’s a winning combination because everyone, even the rich, loves a bargain.
“We serve high-income clients who have significantly more wealth and home ownership than pre-pandemic levels,” CEO Tom Taylor said in the latest report on earnings call results for fiscal year 2021 and fourth-quarter results ending December 30, 2021.
Secular demand for housing continues to outpace available supply, accelerating the rise in housing prices. We believe these factors, along with record levels of homeowner equity and aging home inventory, should support spending on home remodeling.”
Given these tailwinds, Taylor forecasts fiscal 2022 sales of $4.3 billion to $4.4 billion, up 25% to 27% from $3.4 billion this year.
Taylor reported that the company has so far successfully weathered the supply chain crisis that has held back other competitors, and stated that it will add 32 new stores and four smaller design studios in premium markets. And while its footprint is expanding, it is also counting on comparable store sales to grow 10.5% to 13% as well.
Price increases resulting from higher supply chain costs were factored in in its guidance, but these increases will be modest. Noting that an industry report found that the average price per square foot of hardwood flooring rose 8% in the fourth quarter, Taylor said, “Our price increases were nowhere near that.”
Taylor acknowledged the uncertainties caused by the Russian invasion of Ukraine and other geopolitical events, as well as rising mortgage interest rates and persistent inflationary pressures, and emphasized that the company is in a good position.
“As we study the market and compete, we believe our overall value proposition is the absolute best. Simply put, we do not believe that anyone offers the broad range of products available, the visual inspiration, the diverse assortment or services we offer, and certainly not our prices.”
He added that the company expects to raise retail prices “wisely” through 2022, while increasing its margin rate throughout the year, targeting 41% above the 38.8% it achieved in the fourth quarter of 2021.
Highlights of the end of the year
Net sales are up 41.5% during fiscal year 2020 and 68% compared to before the pandemic 2019. Similar-store sales are up 27.6% over the previous year, well above levels of 5.5% in 2020 and 4.9% in 2019. However The year culminated in 13 years of steady growth in comparable store sales.
E-commerce continues to be a growth driver, up 30.2% year over year, and now accounts for 16.1% of sales compared to 9.4% in 2019. A connected customer strategy complements its in-store business, with nearly 80% of web sales and nearly Of 90% of orders across the web are picked up in stores during the fourth quarter.
Net income increased 64.7% in 2021 to $283.2 million, and EBITDA grew 50.2% to $485.1 million.
More stores, more sales, more engagement
As important as the e-commerce business is, Floor & Decor is all about stores. Its flagship warehouse model averages 78,000 square feet. Its superior size allows it to display a full range of tile, wood, laminate, vinyl, natural stone, décor accessories and fixing products to a client’s friend.
Inside most warehouse stores, the design studio features various motifs in stages to inspire customers, and professional designers are on hand to provide a free design consultation.
With 160 existing stores and stand-alone design studios, it plans to reach 192 warehouse stores and six design studios in 2022. Three new design studios will be added in Houston, Texas, Tysons Corner, Virginia and Miami, Florida in the first quarter.
As for the new warehouse locations, about 56% will be in the existing markets and 44% in the new ones. The company reports that opening new stores in an existing market poses no threat to the disintegration of existing stores. Instead, it helps in increasing its market penetration further.
Research firm Placer.ai confirms this observation. Throughout 2021, the company increased visits to its stores on average by 50% on a monthly basis compared to 2019.
This makes its stores the best advertisement for the company, allowing it to maintain a low ad-to-sales ratio of 3%. Rather than using a dispersal approach to media advertising, it precisely targets new locations through careful demographic and psychological analysis across the country’s major metropolitan statistical areas.
The formula that has worked, and which allows the company to increase is its market share from 6% of the total addressed market to 8% in 2021.
High income customers do not expect Floor & Decor goals not only great product but also services. This is the place for warehouse design studios.
To date, customer awareness of his design services remains low, with only a small portion of his clients using them. But the company is intent on raising clients’ awareness of how much a designer’s expertise can bring to their project.
And when customers use the design service, the company finds it easier to convince customers to trade in for its higher-priced offers, thus increasing average tickets, higher conversions, and better profit margins.
“We know that if we can get designers involved, it’s easy to get clients to come forward,” Taylor said.
Emphasizing the importance of design services, President Lisa Loeb added: “We believe there is a very, very long runway for design services for us. Our goal over time is for design services to become a true competitive advantage.”
Heavy lifting specialists
To support its business for high-income clients, Floor & Decor has made a significant boost in the professional home services market.
Professionals have proven to be a very profitable and acceptable market for the company. They tend to make purchases more frequently and with a higher card, and are usually twice as large as what the homeowner spends. It is also an important source of referrals.
Home service professionals are especially attracted to the fact that Floor & Decor is able to carry a wide range of products with stock functionality, so their customers do not have to wait for delivery. Also the draw is that stores sell all the installation equipment that professionals need to complete the work.
All the joins are going
Closing the earnings call, Taylor said preliminary results show it’s on track for fiscal 2022. Similar-store sales for January are up 11.5% and month-to-date in February, they’re up 23.9% from a year ago.
Having successfully navigated the turmoil caused by the Covid pandemic two years ago, the company believes it is ready to tackle the uncertainties it faces in the coming year.
While no one owns a crystal ball, says Ethan Chernovsky, Placer.ai, who keeps close tabs on Floor & Decor along with its competitive pool, “If there’s one brand that beats them all, it’s Floor & Decor,” and neither He remains confident that the trends that have propelled him forward over the past two years will carry him into 2022.
“The home furnishings sector continues to outperform, and there are significant indications that this strength could continue even deeper into 2022. The shift in immigration patterns that has brought many to the suburbs combined with hybrid work environments, and a time when people have been forced to stare at old Age. Home furnishing options should privilege retailers who can help fill and reimagine those spaces.”