Floor & Decor: Raising the Floor - [Business Breakdowns, EP. 87]

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Dec 7, 2022

In this discussion, Drew Cohen, an Analyst at Speedwell Research, delves into Floor & Decor's impressive growth story, revealing they’ve compounded revenue at nearly 30% over the last decade. He explores the shift in consumer preferences towards hard surface flooring and how strategic management decisions elevate their competitive edge. Drew also highlights the significant impact of logistics and inventory strategies in optimizing operations, as well as the challenges faced in replicating their unique business model in a competitive market.

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ANECDOTE

Origin Story

Floor & Decor's founder, George Vincent West, started the company in 2000 after struggling to find specific tiles for his wife's bathroom renovation.
He sold the company in 2002, after which new owners grew it into a larger chain.

INSIGHT

Flooring Market Shift

Hard surface flooring like tile, stone, and LVP has gained significant market share from carpet.
This shift is driven by factors such as lower cost, easier maintenance, and better aesthetics of hard surface flooring.

INSIGHT

Competitive Landscape

Floor & Decor competes with home improvement giants, specialty chains, and independent stores.
A key differentiator is their in-stock inventory, crucial for both professional and DIY customers.

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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