This is Matt Reustle, and today we are breaking down the specialty retailer, Floor & Decor. Now prior to this Breakdown, I cannot say that I thought much about Floor & Decor. It felt like the stereotypical specialty store that sat somewhere between a mom-and-pop shop and a home improvement giant. Little did I know....Floor & Decor had compounded revenue at nearly 30% over the past decade, and it was another business driven by the things you "don't see," like an inventory and logistics strategy that feels proper for a brick-and-mortar business in the 21st century. To break down Floor & Decor, I am joined by Drew Cohen of Speedwell Research. I hope you enjoy the episode.

For the full show notes, transcript, and links to the best content to learn more, check out the episode page here.

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Show Notes

[00:02:54] - [First question] - The origin story of Floor & Decor 

[00:04:41] - Size of the flooring market and the ongoing battle between hard surface and carpet flooring

[00:07:26] - A shift in ownership in 2009 and how much that changed the business

[00:08:08] - High level overview of the business today writ large

[00:09:30] - Independent players and their competitive landscape 

[00:12:34] - Unique differentiators that give them a competitive advantage 

[00:15:42] - Their customer split between pros and DIY consumers

[00:16:30] - Key drivers that allow them to leverage their position with inventory providers

[00:18:46] - Whether or not they’ve considered doing private label or in house products

[00:19:45] - Their store model from top to bottom and the economics involved 

[00:22:03] - What their maturity looks like and what metrics they’re watching 

[00:22:46] - Existing commercial opportunities for Floor and Decor

[00:26:04] - Overview of their earnings profile from a bottom line perspective 

[00:27:05] - The Home Depot: The Pro Builder’s Choice; Drivers of their 500 basis point differential in terms of their mature margin profile

[00:29:17] - Nick Sleep’s 2005 Letter; Considerations about franchising 

[00:29:48] - How he thinks about growth beyond their existing footprint and potential growth impacts from the economy 

[00:32:06] - The level of revenue generated from the Decor side of their business

[00:33:02] - How ecommerce might impact their growth, if at all 

[00:35:44] - Overview of their good, better, best pricing strategy 

[00:37:56] - Variance of store level performance from region to region 

[00:39:20] - The chemistry of all their strategies that contribute to sustained growth 

[00:41:37] - The general investment sentiment around their brand  

[00:44:37] - Other potential risks to Floor and Decor 

[00:45:48] - The Secret of our Success

[00:47:24] - Key lessons for investors when studying Floor and Decor