FLOOR & DECOR HOLDINGS, INC., 10-Q filed on 7/31/2020
Quarterly Report
v3.20.2
Cover page - shares
6 Months Ended
Jun. 25, 2020
Jul. 28, 2020
Cover [Abstract]    
Document Type 10-Q  
Document Quarterly Report true  
Document Period End Date Jun. 25, 2020  
Document Transition Report false  
Entity File Number 001-38070  
Entity Registrant Name Floor & Decor Holdings, Inc.  
Entity Incorporation, State or Country Code DE  
Entity Tax Identification Number 27-3730271  
Entity Address, Address Line One 2500 Windy Ridge Parkway SE  
Entity Address, City or Town Atlanta  
Entity Address, State or Province GA  
Entity Address, Postal Zip Code 30339  
City Area Code 404  
Local Phone Number 471-1634  
Title of 12(b) Security Class A common stock, $0.001 par value per share  
Trading Symbol FND  
Security Exchange Name NYSE  
Entity Current Reporting Status Yes  
Entity Interactive Data Current Yes  
Entity Filer Category Large Accelerated Filer  
Entity Small Business false  
Entity Emerging Growth Company false  
Entity Shell Company false  
Entity Common Stock, Shares Outstanding   103,460,984
Entity Central Index Key 0001507079  
Amendment Flag false  
Current Fiscal Year End Date --12-31  
Document Fiscal Period Focus Q2  
Document Fiscal Year Focus 2020  
v3.20.2
Condensed Consolidated Balance Sheets - USD ($)
$ in Thousands
Jun. 25, 2020
Dec. 26, 2019
Current assets:    
Cash and cash equivalents $ 134,420 $ 27,037
Income taxes receivable 27,971 2,868
Receivables, net 54,118 69,301
Inventories, net 594,269 581,865
Prepaid expenses and other current assets 19,203 20,415
Total current assets 829,981 701,486
Fixed assets, net 481,770 456,289
Right-of-use assets 873,115 822,256
Intangible assets, net 109,283 109,299
Goodwill 227,447 227,447
Other assets 7,134 7,532
Total long-term assets 1,698,749 1,622,823
Total assets 2,528,730 2,324,309
Current liabilities:    
Current portion of term loan 2,558 0
Current portion of lease liabilities 90,543 74,592
Trade accounts payable 326,032 368,459
Accrued expenses and other current liabilities 106,170 102,807
Deferred revenue 8,387 6,683
Total current liabilities 533,690 552,541
Term loan 206,977 142,606
Lease liabilities 896,626 844,269
Deferred income tax liabilities, net 38,930 18,378
Other liabilities 2,011 2,179
Total long-term liabilities 1,144,544 1,007,432
Total liabilities 1,678,234 1,559,973
Commitments and Contingencies (Note 5)
Capital stock:    
Preferred stock, $0.001 par value; 10,000,000 shares authorized; 0 shares issued and outstanding at June 25, 2020 and December 26, 2019 0 0
Additional paid-in capital 387,344 370,413
Accumulated other comprehensive loss, net (33) (193)
Retained earnings 463,082 394,015
Total stockholders’ equity 850,496 764,336
Total liabilities and stockholders’ equity 2,528,730 2,324,309
Common stock Class A, $0.001 par value; 450,000,000 shares authorized; 103,146,537 shares issued and outstanding at June 25, 2020 and 101,457,858 issued and outstanding at December 26, 2019    
Capital stock:    
Common stock 103 101
Common stock Class B, $0.001 par value; 10,000,000 shares authorized; 0 shares issued and outstanding at June 25, 2020 and December 26, 2019    
Capital stock:    
Common stock 0 0
Common stock Class C, $0.001 par value; 30,000,000 shares authorized; 0 shares issued and outstanding at June 25, 2020 and December 26, 2019    
Capital stock:    
Common stock $ 0 $ 0
v3.20.2
Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares
Jun. 25, 2020
Dec. 26, 2019
Preferred stock, par value (in dollars per share) $ 0.001 $ 0.001
Preferred stock, shares authorized 10,000,000 10,000,000
Preferred stock, shares issued 0 0
Preferred stock, shares outstanding 0 0
Class A Common Stock    
Common stock, par value (in dollars per share) $ 0.001 $ 0.001
Common stock, shares authorized 450,000,000 450,000,000
Common stock, shares issued 103,146,537 101,457,858
Common stock, shares outstanding 103,146,537 101,457,858
Class B Common Stock    
Common stock, par value (in dollars per share) $ 0.001 $ 0.001
Common stock, shares authorized 10,000,000 10,000,000
Common stock, shares issued 0 0
Common stock, shares outstanding 0 0
Class C Common Stock    
Common stock, par value (in dollars per share) $ 0.001 $ 0.001
Common stock, shares authorized 30,000,000 30,000,000
Common stock, shares issued 0 0
Common stock, shares outstanding 0 0
v3.20.2
Condensed Consolidated Statements of Operations and Comprehensive Income - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jun. 25, 2020
Jun. 27, 2019
Jun. 25, 2020
Jun. 27, 2019
Income Statement [Abstract]        
Net sales $ 462,352 $ 520,311 $ 1,017,289 $ 997,361
Cost of sales 265,660 302,488 584,565 578,164
Gross profit 196,692 217,823 432,724 419,197
Operating expenses:        
Selling and store operating 138,457 134,643 291,523 262,026
General and administrative 33,713 30,916 64,571 61,118
Pre-opening 3,433 6,369 8,867 10,396
Total operating expenses 175,603 171,928 364,961 333,540
Operating income 21,089 45,895 67,763 85,657
Interest expense, net 2,303 2,223 4,110 5,144
Gain on early extinguishment of debt (1,015) 0 (1,015) 0
Income before income taxes 19,801 43,672 64,668 80,513
(Benefit) provision for income taxes (12,203) 76 (4,399) 6,197
Net income 32,004 43,596 69,067 74,316
Change in fair value of hedge instruments, net of tax 92 (213) 160 (547)
Total comprehensive income $ 32,096 $ 43,383 $ 69,227 $ 73,769
Basic earnings per share (in dollars per share) $ 0.31 $ 0.44 $ 0.68 $ 0.76
Diluted earnings per share (in dollars per share) $ 0.30 $ 0.42 $ 0.65 $ 0.71
v3.20.2
Condensed Consolidated Statements of Stockholders' Equity - USD ($)
$ in Thousands
Total
Cumulative Effect, Period of Adoption, Adjustment
Class A Common Stock
Common stock
Class A Common Stock
Additional paid-in capital
Accumulated other comprehensive income (loss)
Retained earnings
Retained earnings
Cumulative Effect, Period of Adoption, Adjustment
Beginning balance (in shares) at Dec. 27, 2018       97,588,000        
Beginning balance at Dec. 27, 2018 $ 584,309 $ (179)   $ 98 $ 340,462 $ 186 $ 243,563 $ (179)
Increase (Decrease) in Stockholders' Equity [Roll Forward]                
Stock-based compensation expense 2,250       2,250      
Exercise of stock options (in shares)       348,000        
Exercise of stock options $ 1,776       1,776      
Accounting Standards Update [Extensible List] us-gaap:AccountingStandardsUpdate201602Member              
Shares issued under employee stock plans (in shares)       61,000        
Shares issued under employee stock plans $ 1,419       1,419      
Other comprehensive gain (loss), net of tax (334)         (334)    
Net income 30,720           30,720  
Ending balance (in shares) at Mar. 28, 2019       97,997,000        
Ending balance at Mar. 28, 2019 619,961     $ 98 345,907 (148) 274,104  
Beginning balance (in shares) at Dec. 27, 2018       97,588,000        
Beginning balance at Dec. 27, 2018 584,309 $ (179)   $ 98 340,462 186 243,563 $ (179)
Increase (Decrease) in Stockholders' Equity [Roll Forward]                
Other comprehensive gain (loss), net of tax (547)              
Net income 74,316              
Ending balance (in shares) at Jun. 27, 2019       99,111,000        
Ending balance at Jun. 27, 2019 670,888     $ 99 353,450 (361) 317,700  
Beginning balance (in shares) at Mar. 28, 2019       97,997,000        
Beginning balance at Mar. 28, 2019 619,961     $ 98 345,907 (148) 274,104  
Increase (Decrease) in Stockholders' Equity [Roll Forward]                
Stock-based compensation expense 2,168       2,168      
Exercise of stock options (in shares)       1,090,000        
Exercise of stock options 5,376     $ 1 5,375      
Issuance of restricted stock awards (in shares)       24,000        
Issuance of restricted stock awards 0              
Other comprehensive gain (loss), net of tax (213)         (213)    
Net income 43,596           43,596  
Ending balance (in shares) at Jun. 27, 2019       99,111,000        
Ending balance at Jun. 27, 2019 670,888     $ 99 353,450 (361) 317,700  
Beginning balance (in shares) at Dec. 26, 2019     101,457,858 101,458,000        
Beginning balance at Dec. 26, 2019 764,336     $ 101 370,413 (193) 394,015  
Increase (Decrease) in Stockholders' Equity [Roll Forward]                
Stock-based compensation expense 2,908       2,908      
Exercise of stock options (in shares)       453,000        
Exercise of stock options 3,783     $ 1 3,782      
Issuance of restricted stock awards (in shares)       368,000        
Issuance of restricted stock awards 0              
Shares issued under employee stock plans (in shares)       30,000        
Shares issued under employee stock plans 1,131       1,131      
Other comprehensive gain (loss), net of tax 68         68    
Net income 37,063           37,063  
Ending balance (in shares) at Mar. 26, 2020       102,309,000        
Ending balance at Mar. 26, 2020 809,289     $ 102 378,234 (125) 431,078  
Beginning balance (in shares) at Dec. 26, 2019     101,457,858 101,458,000        
Beginning balance at Dec. 26, 2019 $ 764,336     $ 101 370,413 (193) 394,015  
Increase (Decrease) in Stockholders' Equity [Roll Forward]                
Exercise of stock options (in shares) 1,291,255              
Other comprehensive gain (loss), net of tax $ 160              
Net income 69,067              
Ending balance (in shares) at Jun. 25, 2020     103,146,537 103,147,000        
Ending balance at Jun. 25, 2020 850,496     $ 103 387,344 (33) 463,082  
Beginning balance (in shares) at Mar. 26, 2020       102,309,000        
Beginning balance at Mar. 26, 2020 809,289     $ 102 378,234 (125) 431,078  
Increase (Decrease) in Stockholders' Equity [Roll Forward]                
Stock-based compensation expense 4,234       4,234      
Exercise of stock options (in shares)       838,000        
Exercise of stock options 4,877     $ 1 4,876      
Other comprehensive gain (loss), net of tax 92         92    
Net income 32,004           32,004  
Ending balance (in shares) at Jun. 25, 2020     103,146,537 103,147,000        
Ending balance at Jun. 25, 2020 $ 850,496     $ 103 $ 387,344 $ (33) $ 463,082  
v3.20.2
Condensed Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
6 Months Ended
Jun. 25, 2020
Jun. 27, 2019
Operating activities    
Net income $ 69,067 $ 74,316
Adjustments to reconcile net income to net cash provided by operating activities:    
Depreciation and amortization 44,389 34,910
Gain on early extinguishment of debt (1,015) 0
(Gain) loss on asset impairments and disposals (29) 22
Deferred income taxes 20,552 (1,478)
Interest cap derivative contracts 170 1,250
Stock-based compensation expense 7,142 4,418
Changes in operating assets and liabilities:    
Receivables, net 15,183 15,809
Inventories, net (12,404) 24,618
Trade accounts payable (42,427) (40,808)
Accrued expenses and other current liabilities 258 9,058
Income taxes (25,100) 1,541
Deferred revenue 1,704 1,723
Other, net 19,215 (3,222)
Net cash provided by operating activities 96,705 122,157
Investing activities    
Purchases of fixed assets (65,994) (78,172)
Net cash used in investing activities (65,994) (78,172)
Financing activities    
Borrowings on revolving line of credit 275,000 95,300
Payments on revolving line of credit (275,000) (95,300)
Proceeds from term loans 75,000 0
Payments on term loans (1,237) (1,750)
Proceeds from exercise of stock options 8,660 7,152
Debt issuance costs (6,882) 0
Proceeds from employee stock purchase plan 1,131 1,419
Net cash provided by financing activities 76,672 6,821
Net increase in cash and cash equivalents 107,383 50,806
Cash and cash equivalents, beginning of the period 27,037 644
Cash and cash equivalents, end of the period 134,420 51,450
Supplemental disclosures of cash flow information    
Buildings and equipment acquired under operating leases 91,670 132,213
Cash paid for interest, net of capitalized interest 3,486 3,912
Cash paid for income taxes, net of refunds 147 12,099
Fixed assets accrued at the end of the period $ 22,631 $ 25,420
v3.20.2
Basis of Presentation and Summary of Significant Accounting Policies
6 Months Ended
Jun. 25, 2020
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Basis of Presentation and Summary of Significant Accounting Policies Basis of Presentation and Summary of Significant Accounting Policies
Nature of Business
Floor & Decor Holdings, Inc., together with its subsidiaries (the “Company,” “we,” “our” or “us”) is a highly differentiated, rapidly growing specialty retailer of hard surface flooring and related accessories. We offer a broad in-stock assortment of tile, wood, laminate/luxury vinyl plank, and natural stone flooring along with decorative and installation accessories at everyday low prices. Our stores appeal to a variety of customers, including professional installers and commercial businesses (“Pro”), Do-it-Yourself customers (“DIY”) and customers who buy our products for professional installation (“Buy-it-Yourself” or “BIY”). We operate within one reportable segment.
As of June 25, 2020, the Company, through its wholly owned subsidiary, Floor and Decor Outlets of America, Inc. ("Outlets"), operates 125 warehouse-format stores, which average 76,000 square feet, and one small-format standalone design center in 30 states, as well as four distribution centers and an e-commerce site, FloorandDecor.com.
Fiscal Year
The Company’s fiscal year is the 52- or 53-week period ending on the Thursday on or preceding December 31st. Fiscal year ending December 31, 2020 (“fiscal 2020”) includes 53 weeks, and the fiscal year ended December 26, 2019 (“fiscal 2019”) included 52 weeks. When a 53-week fiscal year occurs, we report the additional week at the end of the fiscal fourth quarter. 52-week fiscal years consist of thirteen-week periods in each quarter of the fiscal year.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. These financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information. The Condensed Consolidated Balance Sheet as of December 26, 2019 has been derived from the audited Consolidated Balance Sheet for the fiscal year then ended. The interim condensed consolidated financial statements should be read together with the audited consolidated financial statements and related footnote disclosures included in the Company’s Annual Report on Form 10-K for fiscal 2019, filed with the Securities and Exchange Commission (the “SEC”) on February 20, 2020 (the “Annual Report”).
Management believes the accompanying unaudited condensed consolidated financial statements reflect all normal recurring adjustments considered necessary for a fair statement of results for the interim periods presented.
Results of operations for the thirteen and twenty-six weeks ended June 25, 2020 and June 27, 2019 are not necessarily indicative of the results to be expected for the full years.
Impact of the COVID-19 Pandemic
On March 11, 2020, the World Health Organization announced that infections of the coronavirus (COVID-19) had become a pandemic, and on March 13, 2020, the President of the United States announced a National Emergency relating to the COVID-19 pandemic. While the full impact that the COVID-19 pandemic could have on the Company's business remains highly uncertain, it has had a material negative impact on the Company's fiscal 2020 operations and financial results to date. The following summarizes certain actions taken and impacts from the COVID-19 pandemic during and subsequent to the thirteen and twenty-six weeks ended June 25, 2020:
Beginning in late March 2020, for the health and safety of its customers and employees, the Company temporarily closed some of its stores and shifted its remaining stores to a curbside pickup model. Under this model, customers were not allowed to enter the Company's stores, resulting in a significant decline in sales compared to the same period of the prior year.
In May, the Company began a phased approach to reopening its stores for in-store shopping with enhanced safety and sanitation measures such as requiring associates to wear face masks, installing social distancing markers on floors and protective shields at cash registers, and regularly sanitizing shopping carts, pin pads, design desks, and other high-traffic areas. As of June 25, 2020, all of the Company's stores are open for in-store shopping, with June sales higher than the same period of the prior year.
To provide additional liquidity in response to the business uncertainties resulting from the evolving COVID-19 pandemic, the Company entered into a $75.0 million incremental term loan on May 18, 2020. See Note 3, "Debt" for additional information.
In response to the impact and uncertainties caused by the COVID-19 pandemic, the Company initially implemented a number of measures to minimize cash outlays, including lowering inventory purchases and related supply chain costs to align with reduced sales, temporarily reducing compensation for all executive officers and most employees, temporarily freezing new hiring, reducing or eliminating non-essential spending, reducing advertising spending, furloughing certain employees, and delaying or reducing rent payments and planned capital expenditures, including new store investments. Since the Company began to reopen stores for in-store shopping starting in May, many of these cost saving measures have been eliminated or relaxed as the Company's financial results have improved.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted, which includes provisions related to income taxes, the temporary deferral of the employer portion of social security taxes, and retention credits for 50% of eligible wages and health benefits paid to employees not providing services due to the COVID-19 pandemic. Refer to Note 4, "Income Taxes" for additional information.
The COVID-19 pandemic remains a rapidly evolving situation. The extent of the impact of the pandemic on the Company's business and financial results will depend on future developments, including the duration of the pandemic and the spread of COVID-19 within the markets in which the Company operates as well as the related impact on consumer confidence and spending, all of which are highly uncertain.
Summary of Significant Accounting Policies
Other than as noted below, there have been no updates to our Significant Accounting Policies since the Annual Report. For more information regarding our Significant Accounting Policies and Estimates, see the “Summary of Significant Accounting Policies” section of “Item 8. Financial Statements and Supplementary Data” of our Annual Report.
Impairment Assessment of Goodwill and Other Indefinite-Lived Intangible Assets
The Company tests goodwill and indefinite-lived intangible assets for impairment annually in the fourth quarter of each fiscal year, or more often if events occur or changes in circumstances indicate that the carrying amount of goodwill or indefinite-lived intangible assets may not be recoverable. We assess the value of our goodwill and indefinite-lived intangible assets under either a qualitative or quantitative approach. Under a qualitative approach, the Company evaluates various market and other factors to determine whether it is more likely than not that the Company’s goodwill or indefinite-lived intangible assets have been impaired. In performing the qualitative assessment, the Company considers the carrying value of its single reporting unit compared to its fair value as well as events and changes in circumstances that could include, but are not limited to, a significant adverse change in customer demand or business climate, an adverse action or assessment by a regulator, and significant adverse changes in the price of the Company’s common stock. If such qualitative assessment indicates that impairment may have occurred, an additional quantitative assessment is performed by comparing the carrying value of the assets to their respective estimated fair values. If the recorded carrying value of goodwill or an indefinite-lived intangible asset exceeds its estimated fair value, an impairment charge is recorded to write the asset down to its estimated fair value.
Due to the impact of the COVID-19 pandemic on the Company’s business, the Company qualitatively assessed whether it was more likely than not that the goodwill and indefinite-lived intangible assets were impaired as of March 26, 2020. As part of this assessment, the Company considered information available as of the April 30, 2020 filing date of its first quarter fiscal 2020 10-Q related to the negative financial impact that resulted from temporary store closures and limited curbside operations beginning in late March. Based on this interim impairment assessment, the Company determined that its goodwill and indefinite-lived intangible assets were not impaired as of March 26, 2020. Further, the Company considered events and changes in circumstances subsequent to April 30, 2020, including the improvement in sales since reopening stores to customers for in-store shopping, and did not identify an indication of impairment of its goodwill or indefinite-lived intangible assets as of June 25, 2020.
Leases
During the second quarter of fiscal 2020, Company negotiated rent deferrals or abatements for a significant number of its stores. The Company has also delayed rent payments for some stores as negotiations are in process with landlords. Total payments delayed or deferred as of June 25, 2020 were approximately $5.9 million, of which $4.9 million is included in the current portion of lease liabilities and $1.0 million is included in lease liabilities on the condensed consolidated balance sheets.
In accordance with Financial Accounting Standards Board ("FASB") Staff Q&A - Topic 842: "Accounting for Lease Concessions Related to the Effects of the COVID-19 Pandemic" issued in April 2020, the Company has elected to account for lease concessions that do not result in a substantial increase in the rights of the lessor or the obligations of the lessee as though enforceable rights and obligations for those concessions existed in the original lease agreements. For qualified rent deferrals, the Company has recognized a non-interest bearing accrued liability, which will be reduced when the deferred payment is made in the future. For qualifying rent abatement concessions, which are immaterial in aggregate, the Company is recognizing negative lease expense for the amount of the abatement on a straight-line basis over the term of the lease. During the thirteen and twenty-six weeks ended June 25, 2020, the Company recognized less than $0.1 million of negative lease expense related to rent abatement concessions.
Recently Adopted Accounting Pronouncements
Implementation Costs Incurred in Cloud Computing Arrangements. In August 2018, the FASB issued Accounting Standards Update (“ASU”) No. 2018-15, “Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract.” ASU No. 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. In the first quarter of fiscal 2020, the Company adopted ASU No. 2018-15 on a prospective basis for implementation costs for new or existing arrangements incurred on or after the adoption date. The adoption of ASU No. 2018-15 did not have a material impact on the Company’s condensed consolidated financial statements.
Credit Losses. In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” which modifies the measurement approach for credit losses on financial assets measured on an amortized cost basis from an 'incurred loss' method to an 'expected loss' method. The amended guidance requires the measurement of expected credit losses to be based on relevant information, including historical experience, current conditions, and a reasonable and supportable forecast that affects the collectability of the related financial asset. The adoption of ASU No. 2016-13 in the first quarter of fiscal 2020 did not have a material impact on the Company’s condensed consolidated financial statements.
Recently Issued Accounting Pronouncements
Reference Rate Reform. In March 2020, the FASB issued ASU No. 2020-04, “Reference Rate Reform (Topic 848),” which provides optional guidance to ease the potential accounting and financial reporting burden of reference rate reform, including the expected market transition from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates. The new guidance provides temporary optional expedients and exceptions for applying U.S. GAAP to transactions affected by reference rate reform if certain criteria are met. These transactions include contract modifications, hedging relationships, and the sale or transfer of debt securities classified as held-to-maturity. Entities may apply the provisions of the new standard as of the beginning of the reporting period when the election is made. Unlike other topics, the provisions of this update are only available until December 31, 2022, by which time the reference rate replacement activity is expected to be completed. The Company is currently evaluating the impact of this standard on its consolidated financial statements and related disclosures and has yet to elect an adoption date.
Simplifying the Accounting for Income Taxes. In December 2019, the FASB issued ASU No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.” The ASU simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The ASU also clarifies and amends existing guidance to improve consistent application among reporting entities. The guidance will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. The Company is currently evaluating the impact of adopting this standard on its consolidated financial statements.
v3.20.2
Revenues
6 Months Ended
Jun. 25, 2020
Revenue from Contract with Customer [Abstract]  
Revenues Revenues
Net sales consist of revenue associated with contracts with customers for the sale of goods and services in amounts that reflect the consideration the Company is entitled to receive in exchange for those goods and services.
Deferred Revenue
Under Accounting Standards Codification (“ASC”) 606, the Company recognizes revenue when the customer obtains control of the inventory. Amounts in deferred revenue at period-end reflect orders for which the inventory is not currently ready for physical transfer to the customer.
Disaggregated Revenue
The Company has one operating segment and one reportable segment. The following table presents the net sales of each major product category (in thousands):
Thirteen Weeks Ended
June 25, 2020June 27, 2019
Product CategoryNet Sales% of Net SalesNet Sales% of Net Sales
Tile$118,981  26 %$136,319  26 %
Laminate / luxury vinyl plank105,427  23  108,218  21  
Decorative accessories / wall tile87,547  19  97,594  19  
Installation materials and tools73,213  16  88,592  17  
Wood41,901   52,762  10  
Natural stone30,319   32,903   
Other (1)4,964   3,923   
Total$462,352  100 %$520,311  100 %
Twenty-six Weeks Ended
June 25, 2020June 27, 2019
Product CategoryNet Sales% of Net SalesNet Sales% of Net Sales
Tile$253,893  25 %$261,629  26 %
Laminate / luxury vinyl plank230,421  23  205,720  21  
Decorative accessories / wall tile201,144  20  192,034  19  
Installation materials and tools167,789  16  168,301  17  
Wood90,896   101,992  10  
Natural stone65,196   63,790   
Other (1)7,950   3,895   
Total$1,017,289  100 %$997,361  100 %
(1) Other includes delivery revenue less adjustments for deferred revenue, sales returns reserves, rewards under our Pro Premier Loyalty program, and other revenue related adjustments that are not allocated on a product-level basis.
v3.20.2
Debt
6 Months Ended
Jun. 25, 2020
Debt Disclosure [Abstract]  
Debt Debt
The following table summarizes the Company's long-term debt as of June 25, 2020 and December 26, 2019:
in thousandsJune 25, 2020December 26, 2019
Credit Facilities:
UBS Facility Term Loan B$144,263  $145,500  
UBS Facility Term Loan B-175,000  —  
Wells Facility Revolving Line of Credit—  —  
Total secured debt at par value219,263  145,500  
Less: unamortized discount and debt issuance costs9,728  2,894  
Net carrying amount209,535  142,606  
Less: current maturities2,558  —  
Total long-term debt$206,977  $142,606  
Total debt at fair value$203,915  $145,136  
Market risk associated with the Company's fixed and variable rate long-term debt relates to the potential change in fair value and negative impact to future earnings, respectively, from a change in interest rates. The aggregate fair value of debt is based primarily on the Company's estimates of interest rates, maturities, credit risk, and underlying collateral and is classified as Level 3 within the fair value hierarchy.
The following table summarizes scheduled maturities of the Company’s debt, including current maturities, as of June 25, 2020:
in thousandsAmount
Twenty-seven weeks ending December 31, 2020$1,460  
20211,647  
20222,196  
20232,196  
20242,196  
Thereafter (1)209,568  
Total minimum debt payments$219,263  
(1)Thereafter maturities are comprised of $137.8 million due under the term loan B facility and $71.8 million due under the term loan B-1 facility through February 14, 2027.
Credit Facility Amendments
Term Loan Facility
On February 14, 2020, the Company entered into a repricing and third amendment to the credit agreement governing its senior secured term loan facility (the "Term Loan Facility") which, among other things, (a) refinanced the existing term loan B facility with a new term loan B facility in the same aggregate principal amount of approximately $144.6 million, and (b) extended the stated maturity date under the Term Loan Facility to February 14, 2027. The Term Loan Facility also includes an “accordion” feature that allows the Company, under certain circumstances, to increase the size of the Term Loan Facility by an amount up to the greater of $270.0 million or 100.0% of Consolidated EBITDA (as defined in the Term Loan Facility), plus additional amounts (x) if such increase is secured on a pari passu basis with the loans under the Term Loan Facility, up to a Consolidated First Lien Leverage Ratio (as defined in the Term Loan Facility) of 2.50:1.00, (y) if such increase is secured on a junior basis with the loans under the Term Loan Facility, up to a Consolidated Secured Leverage Ratio (as defined in the Term Loan Facility) of 3.50:1.00 and (z) if such increase is unsecured, up to a Consolidated Total Leverage Ratio (as defined in the Term Loan Facility) of 3.50:1.00, subject to certain additional adjustments, which, under certain circumstances, allow for a Consolidated Total Leverage Ratio of up to 4.50:1.00.
The third amendment to the Term Loan Facility also amended the margin applied to loans under the term loan B facility to (x) in the case of ABR Loans (as defined in the Term Loan Facility), from 1.75% or 1.50% per annum (based on credit rating tests) to 1.00% per annum (subject to satisfying a leverage ratio test and subject to a leverage-based step-up to 1.25% if such leverage ratio test is exceeded), and (y) in the case of Eurodollar Loans (as defined in the Term Loan Facility), from 2.75% or 2.50% per annum (based on credit rating tests) to 2.00% per annum (subject to satisfying a leverage ratio test and subject to a leverage-based step-up to 2.25% if such leverage ratio test is exceeded) (subject to a 0.00% floor on Eurodollar Loans). The material terms of the Term Loan Facility were otherwise unchanged.
On May 18, 2020, to provide additional liquidity in response to the business uncertainties resulting from the evolving COVID-19 pandemic, the Company entered into a fourth amendment to the Term Loan Facility that, among other things, (a) provides for a new incremental term loan facility in an aggregate principal amount of $75.0 million with a maturity date of February 14, 2027 (the “term loan B-1 facility”). The Company received net proceeds of $70.5 million from the term loan B-1 facility after deducting a $4.1 million original issuance discount and $0.3 million of debt issuance costs to third parties. The Company intends to use the net proceeds to support its growth plans and for general corporate purposes. The term loan B-1 facility is a separate tranche from the Company's existing term loan B facility. The terms of loans under the term loan B facility remain unchanged.
The Term Loan Facility provides a margin for loans under the term loan B-1 facility of (x) in the case of ABR Loans (as defined in the Term Loan Facility), 3.00% per annum, and (y) in the case of Eurodollar Loans (as defined in the Term Loan Facility), 4.00% per annum (subject to a 1.00% floor on Eurodollar Loans). At June 25, 2020, the applicable interest rate for borrowings was 2.2% for the term loan B facility and 5.0% for the term loan B-1 facility.
All obligations under the Term Loan Facility are secured by (1) a first-priority security interest in substantially all of the property and assets of Outlets and the other guarantors under the Term Loan Facility, with certain exceptions, and (2) a second-priority security interest in the collateral securing the revolving credit facility.
Gain on Debt Extinguishment
During the second quarter of fiscal 2020, the Company evaluated the fourth amendment to the Term Loan Facility in accordance with ASC 470-50, "Debt - Modifications and Extinguishments," on a lender-by-lender basis and determined that the incremental term loan borrowing was provided entirely by one lender and its affiliates. As this lender held a portion of the existing Term Loan Facility debt, the Company performed the 10% cash flow test pursuant to ASC 470-50-40-10 and concluded that the results exceeded the 10% threshold. As a result, the Company accounted for this transaction as a partial extinguishment and derecognized the existing debt held by this lender and recorded the new debt at fair value. Based on the difference between the reacquisition price and carrying amount of debt, the Company recognized a $1.0 million gain on early extinguishment of debt, which included the original issuance discount of $4.1 million and $0.5 million of unamortized debt issuance costs related to the extinguished debt as part of the calculation.
ABL Facility
On February 14, 2020, the Company also entered into a repricing and general amendment to the credit agreement governing its revolving credit facility (as amended, the “ABL Facility”) that, among other things, (a) increased its revolving commitments to a total aggregate principal amount of $400.0 million, and (b) extended the stated maturity date under the ABL Facility to February 14, 2025. The ABL Facility also includes an “accordion” feature that allows the Company under certain circumstances, to increase the size of the facility by an amount up to $100.0 million, or such higher amount as may be agreed to by the Required Lenders (as defined in the ABL Facility).
The amendment to the ABL Facility also amended the margin applied to loans and letters of credit to (x) in the case of Base Rate Loans (as defined in the ABL Facility), from 0.25% or 0.50% per annum (based on availability) to a flat rate of 0.25% per annum, (y) in the case of LIBO Rate Loans (as defined in the ABL Facility) and letter of credit fees for standby letters of credit, from 1.25% or 1.50% per annum (based on availability) to a flat rate of 1.25% per annum (subject to a 0.00% floor on LIBO Rate Loans) and (z) in the case of letter of credit fees for commercial letters of credit, from 0.75% or 1.00% per annum (based on availability) to a flat rate of 0.75% per annum. The material terms of the ABL Facility were otherwise unchanged.
As of June 25, 2020, the Company's ABL Facility had a maximum availability of $400.0 million with actual available borrowings limited to the sum, at the time of calculation, of (a) eligible credit card receivables multiplied by the credit card advance rate, plus (b) the cost of eligible inventory, net of inventory reserves, multiplied by the applicable appraisal percentage, plus (c) 85% of eligible net trade receivables, plus (d) all eligible cash on hand, plus (e) 100% of the amount for which the eligible letter of credit must be honored after giving effect to any draws, minus certain Availability Reserves (each component as defined in the ABL Facility). The ABL Facility is available for issuance of letters of credit and contains a sublimit of $50.0 million for standby letters of credit and commercial letters of credit combined. Available borrowings under the facility are reduced by the face amount of outstanding letters of credit.
All obligations under the ABL Facility are secured by (1) a first-priority security interest in the cash and cash equivalents, accounts receivable, inventory, and related assets of Outlets and the other guarantors under the ABL Facility, with certain exceptions, and (2) a second-priority security interest in substantially all of the other property and assets of Outlets and the other guarantors under the Term Loan Facility.
Net availability under the ABL Facility, as reduced by outstanding letters of credit of $20.3 million, was $362.1 million based on financial data as of June 25, 2020.
Covenants
The credit agreements governing the Term Loan Facility and ABL Facility contain customary restrictive covenants that, among other things and with certain exceptions, limit the Company’s ability to (i) incur additional indebtedness and liens in connection with such indebtedness, (ii) pay dividends and make certain other restricted payments, (iii) effect mergers or consolidations, (iv) enter into transactions with affiliates, (v) sell or dispose of property or assets, and (vi) engage in unrelated lines of business. In addition, these credit agreements subject the Company to certain reporting obligations and require that the Company satisfy certain financial covenants, including, among other things, a requirement that if borrowings under the ABL Facility exceed 90% of availability, the Company will maintain a certain fixed charge coverage ratio (defined as Consolidated EBITDA less non-financed capital expenditures and income taxes paid to consolidated fixed charges, in each case as more fully defined in the ABL Facility).
The Term Loan Facility has no financial maintenance covenants. The Company is currently in compliance with all material covenants under the credit agreements.
v3.20.2
Income Taxes
6 Months Ended
Jun. 25, 2020
Income Tax Disclosure [Abstract]  
Income Taxes Income TaxesEffective tax rates for the thirteen and twenty-six weeks ended June 25, 2020 and June 27, 2019 were based on the Company’s forecasted annualized effective tax rates and were adjusted for discrete items that occurred within each period. The Company’s effective income tax rate was (61.6)% for the thirteen weeks ended June 25, 2020 and 0.2% for the thirteen weeks ended June 27, 2019. The Company’s effective income tax rate was (6.8)% for the twenty-six weeks ended June 25, 2020 and 7.7% for the twenty-six weeks ended June 27, 2019. For each period, the effective income tax rate was lower than the statutory federal income tax rate of 21.0% primarily due to the recognition of income tax benefits from tax deductions in excess of book expense related to stock option exercises and other discrete items. Additionally, the thirteen and twenty-six weeks ended June 25, 2020 included income tax benefits resulting from the enactment of the CARES Act.
The Company recognizes discrete expense for loss contingencies related to uncertain tax positions, including estimated interest and penalties. The Company recognized no expense related to uncertain tax positions during the thirteen weeks ended June 25, 2020 and $0.1 million during the thirteen weeks ended June 27, 2019. The Company recognized $2.6 million and $0.1 million of such expense during the twenty-six weeks ended June 25, 2020 and June 27, 2019, respectively.
The Company accounts for income taxes under the liability method in accordance with ASC 740, Income Taxes, which requires the recognition of deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts and tax basis of existing assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Changes in tax laws and rates could affect recorded deferred tax assets and liabilities in the future. The effect on deferred tax assets and liabilities of a change in tax laws or rates is recognized in the period that includes the enactment date of such a change.
The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which the associated temporary differences became deductible. On a quarterly basis, the Company evaluates whether it is more likely than not that its deferred tax assets will be realized in the future and concludes whether or not a valuation allowance must be established.
The Company accounts for uncertain tax positions in accordance with ASC 740. ASC 740-10 clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements using a two-step process for evaluating tax positions taken, or expected to be taken, on a tax return. The Company may only recognize the tax benefit from an uncertain tax position if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement. In addition, the Company recognizes a loss contingency for uncertain tax positions when it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. The amounts recognized for uncertain tax positions require that management make estimates and judgments based on provisions of the tax law, which may be subject to change or varying interpretations. The Company includes estimated interest and penalties related to uncertain tax position accruals within accrued expenses and other current liabilities in the condensed consolidated balance sheets and within income tax expense in the condensed consolidated statements of operations and comprehensive income.
Coronavirus Aid, Relief, and Economic Security Act (CARES Act)
The CARES Act includes, among other things, income tax provisions allowing for the temporary five-year carryback of net operating losses generated in 2018, 2019, and 2020, temporary modifications to the limitations placed on interest deductions, and technical corrections of tax depreciation methods for qualified improvement property ("QIP"), which changes 39-year property to 15-year property eligible for 100% tax bonus depreciation. In addition, the CARES Act includes provisions such as the temporary deferral of the employer portion of social security taxes incurred through the end of calendar 2020 and an employee retention credit for 50% of wages and health benefits paid to employees not providing services due to the COVID-19 pandemic. The Company has made estimates of the effect of the CARES Act and will adjust estimates, if needed, as new legislation or guidance becomes available.
As a result of the faster tax depreciation methods allowed under the CARES Act for QIP and the retroactive application of those methods for QIP placed in service during fiscal 2018 and 2019, the Company incurred a fiscal 2019 net operating loss for federal income tax purposes that it expects to carry back to prior years during which the federal tax rate was 35%, resulting in a $7.7 million income tax benefit during the thirteen and twenty-six weeks ended June 25, 2020. The Company expects to receive an estimated $28.4 million of cash refunds in fiscal 2020 related to the accelerated QIP depreciation and the carry back of the fiscal 2019 net operating loss. Furthermore, the Company expects the changes to QIP depreciation to result in reductions to estimated income tax payments for fiscal 2020.
As of June 25, 2020, the Company has deferred $3.1 million of employer social security taxes, of which 50% are required to be deposited by December 2021 and the remaining 50% by December 2022.
In addition, the Company recorded a credit of $1.1 million related to employee retention credits made available under the CARES Act during the thirteen and twenty-six weeks ended June 25, 2020, of which $0.9 million was recognized as an offset to selling and store operating expenses and $0.2 million was recognized as an offset to general and administrative expenses within the condensed consolidated statements of operations and comprehensive income.
v3.20.2
Commitments and Contingencies
6 Months Ended
Jun. 25, 2020
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies Commitments and Contingencies
Lease Commitments
The Company accounts for leases in accordance with ASC 842, Leases. The majority of our long-term operating lease agreements are for our corporate office, retail locations, and distribution centers, which expire in various years through 2041. The majority of our building leases also include options to extend, which are factored into the recognition of their respective assets and liabilities when appropriate based on management’s assessment of the probability that the options will be exercised.
When readily determinable, the rate implicit in the lease is used to discount lease payments to present value; however, substantially all of our leases do not provide a readily determinable implicit rate. If the rate implicit in the lease is not readily determinable, we use a third party to assist in the determination of a secured incremental borrowing rate, determined on a collateralized basis, to discount lease payments based on information available at lease commencement. The secured incremental borrowing rate is estimated based on yields obtained from Bloomberg for U.S. consumers with a BB- credit rating and is adjusted for collateralization as well as inflation. As of June 25, 2020 and June 27, 2019, our weighted average discount rate was 5.3% and 5.5%, respectively. As of June 25, 2020 and June 27, 2019, our weighted average remaining lease term was 10 years and 9 years, respectively.
Lease Costs
The table below presents components of lease expense for operating leases.
Thirteen Weeks EndedTwenty-six Weeks Ended
in thousandsClassificationJune 25, 2020June 27, 2019June 25, 2020June 27, 2019
Operating lease cost (1)Selling and store operating$34,221  $28,914  $68,037  $54,929  
Sublease incomeSelling and store operating(597) (606) (1,194) (1,229) 
Total lease cost$33,624  $28,308  $66,843  $53,700  
(1) Includes variable lease costs, which were immaterial for the thirteen and twenty-six weeks ended June 25, 2020 and June 27, 2019.
Undiscounted Cash Flows
Future minimum lease payments under non-cancelable operating leases (with initial or remaining lease terms in excess of one year) as of June 25, 2020 were as follows:
in thousandsAmount
Twenty-seven weeks ending December 31, 2020$132,231  
2021138,060  
2022129,040  
2023126,399  
2024123,096  
Thereafter656,948  
Total minimum lease payments (2)$1,305,774  
Less: amount of lease payments representing interest318,605  
Present value of future minimum lease payments987,169  
Less: current obligations under leases90,543  
Long-term lease obligations$896,626  
(2) Future lease payments exclude approximately $72.1 million of legally binding minimum lease payments for operating leases signed but not yet commenced.
For the twenty-six weeks ended June 25, 2020 and June 27, 2019, cash paid for operating leases was $59.9 million and $52.4 million, respectively.
Litigation

On May 20, 2019, an alleged stockholder of the Company filed a putative class action lawsuit, Taylor v. Floor & Decor Holdings, Inc., et al., No. 1:19-cv-02270-SCJ (N.D. Ga.), in the United States District Court for the Northern District of Georgia against the Company and certain of our officers, directors and stockholders. On August 14, 2019, the Court named a lead plaintiff, and the case was re-captioned In re Floor & Decor Holdings, Inc. Securities Litigation, No. 1:19-cv-02270-SCJ (N.D. Ga.). The operative complaint alleges certain violations of federal securities laws based on, among other things, purported materially false and misleading statements and omissions allegedly made by the Company between May 23, 2018 and August 1, 2018 and seeks class certification, unspecified monetary damages, costs and attorneys’ fees and equitable relief. The Company denies the material allegations and has moved to dismiss the lawsuit.
On June 18, 2020, an alleged stockholder filed a putative derivative complaint, Lincolnshire Police Pension Fund v. Taylor, et al., No. 2020-0487-JTL, in the Delaware Court of Chancery, purportedly on behalf of the Company against certain of the Company’s officers, directors, and stockholders. The complaint alleges breaches of fiduciary duties and unjust enrichment. The factual allegations underlying these claims are similar to the factual allegations made in the In re Floor & Decor Holdings, Inc. Securities Litigation pending in the United States District Court for the Northern District of Georgia, described above. The complaint seeks unspecified damages and restitution for the Company from the individual defendants and the payment of costs and attorneys’ fees. The time for the defendants to respond to the complaint has not yet expired.

The Company maintains insurance that may cover the above-referenced litigation up to the policy limits and subject to meeting certain deductibles and to other terms and conditions thereof. Estimating an amount or range of possible losses resulting from litigation proceedings is inherently difficult, particularly where the matters involve indeterminate claims for monetary damages and are in the stages of the proceedings where key factual and legal issues have not been resolved. For these reasons, we are currently unable to predict the ultimate timing or outcome of or reasonably estimate the possible losses or a range of possible losses resulting from the above-referenced litigation.
We are also subject to various other legal actions, claims and proceedings arising in the ordinary course of business, which may include claims related to general liability, workers’ compensation, product liability, intellectual property 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. We establish reserves for specific legal proceedings when we determine that the likelihood of an unfavorable outcome is probable and the amount of loss can be reasonably estimated. These various other ordinary course proceedings are not expected to have a material impact on our consolidated financial position, cash flows, or results of operations, however 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.
v3.20.2
Stock-Based Compensation
6 Months Ended
Jun. 25, 2020
Share-based Payment Arrangement [Abstract]  
Stock-Based Compensation Stock-based Compensation
The Company accounts for stock-based compensation in accordance with ASC 718, Compensation- Stock Compensation, which requires measurement of compensation cost for all stock awards at fair value on the date of grant and recognition of compensation, net of forfeitures, over the requisite service period for awards expected to vest. Stock-based compensation expense for the twenty-six weeks ended June 25, 2020 and June 27, 2019 was $7.1 million and $4.4 million, respectively, and was included in general and administrative expenses on the Company’s condensed consolidated statement of operations and comprehensive income.
Stock Options
The stock options granted to eligible employees during the twenty-six week period ended June 25, 2020 vest in four ratable annual installments on each of the first four anniversaries of the grant date, subject to the grantee’s continued service through the applicable vesting date. Stock option activity during the twenty-six weeks ended June 25, 2020 was as follows:
OptionsWeighted Average Exercise Price
Outstanding at December 27, 20196,037,079  $13.64  
Granted278,499  57.22  
Exercised(1,291,255) 6.71  
Forfeited or expired(91,618) 23.00  
Outstanding at June 25, 20204,932,705  $17.74  
Vested and exercisable at June 25, 20202,746,188  $10.39  
The Company estimated the fair value of stock option grants using the Black-Scholes-Merton option pricing model with the following weighted average assumptions during the period:
Twenty-six Weeks Ended
June 25, 2020
Risk-free interest rate1.22 %
Expected volatility38.7 %
Expected life (in years)5.75
Dividend yield— %
The Company determines the grant date fair value of stock options with assistance from a third-party valuation specialist. Expected volatility is estimated based on the historical volatility of the Company’s Class A common stock since its initial public offering in 2017 as well as the historical volatility of the common stock of similar public entities. The Company considers various factors in determining the appropriateness of the public entities used in determining expected volatility, including the entity's life cycle stage, industry, growth profile, size, financial leverage, and products offered. To determine the expected life of the options granted, the Company relied upon a combination of the observed exercise behavior of prior grants with similar characteristics and the contractual terms and vesting schedules of the current grants. The risk-free interest rate is based on the term structure of interest rates at the time of the option grant.
The weighted average grant date fair value of stock options granted during the twenty-six weeks ended June 25, 2020 was $21.70. The Company’s total unrecognized compensation cost related to stock options as of June 25, 2020 was $20,195 thousand, which is expected to be recognized over a weighted average period of 2.6 years.
Restricted Stock Units
During the twenty-six weeks ended June 25, 2020, the Company granted restricted stock units to certain employees that represent an unfunded, unsecured right to receive a share of the Company’s Class A common stock upon vesting. These awards vest in four ratable annual installments on each of the first four anniversaries of the grant date, subject to the grantee’s continued service through the applicable vesting date. The fair value of the restricted stock units was determined based on the closing price of the Company’s Class A common stock on the date of grant.
The following table summarizes restricted stock unit activity during the twenty-six weeks ended June 25, 2020:
Restricted Stock Units
Unvested at December 27, 2019—  
Granted114,440  
Vested—  
Forfeited(2,060) 
Unvested at June 25, 2020112,380  
The weighted average grant date fair value of the restricted stock units granted during the twenty-six weeks ended June 25, 2020 was $56.76. The Company’s total unrecognized compensation cost related to restricted stock units as of June 25, 2020 was $5,852 thousand, which is expected to be recognized over a weighted average period of 3.7 years.
Restricted Stock Awards
During the twenty-six weeks ended June 25, 2020, the Company issued restricted stock awards to certain executive officers and non-employee directors comprised of performance-based restricted stock, total shareholder return (“TSR”) awards, and service-based restricted stock. The performance-based restricted stock cliff vest based on (i) the Company's achievement of predetermined financial metrics at the end of a three year performance period and (ii) the grantee’s continued service through the vesting date. The TSR awards cliff vest based on (i) the Company's relative TSR compared to a specified peer group, with no vesting unless the Company’s TSR exceeds the median of the specified peer group and (ii) the grant recipient continues service through the vesting date.
The following table summarizes restricted stock award activity during the twenty-six weeks ended June 25, 2020:
Restricted Stock Awards
Service-basedPerformance-basedTSR
Unvested at December 27, 201937,032  —  —  
Granted102,931  160,315  104,456  
Vested(3,870) —  —  
Forfeited—  —  —  
Unvested at June 25, 2020136,093  160,315  104,456  
The fair value of performance-based and service-based restricted stock awards is based on the closing market price of the Company's Class A common stock on the date of grant. The fair value of the TSR awards is estimated on grant date using the Monte Carlo valuation method. Compensation cost for restricted stock awards is recognized using the straight-line method over the requisite service period, which for each of the awards is the service vesting period. The weighted average grant date fair value of the respective awards granted during the twenty-six weeks ended June 25, 2020 was $53.85. As of June 25, 2020, total unrecognized compensation cost related to unvested restricted stock awards was $18,457 thousand, which is expected to be recognized over a weighted average period of 3.1 years.
v3.20.2
Earnings Per Share
6 Months Ended
Jun. 25, 2020
Earnings Per Share [Abstract]  
Earnings Per Share Earnings Per Share
Net Income per Common Share
The Company calculates basic earnings per share by dividing net income by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing net income by the weighted average number of common shares outstanding adjusted for the dilutive effect of share-based awards.
The following table shows the computation of basic and diluted earnings per share:
Thirteen Weeks EndedTwenty-six Weeks Ended
in thousands, except per share dataJune 25, 2020June 27, 2019June 25, 2020June 27, 2019
Net income$32,004  $43,596  $69,067  $74,316  
Basic weighted average shares outstanding102,114  98,642  101,872  98,214  
Dilutive effect of share-based awards3,352  6,198  3,604  6,392  
Diluted weighted average shares outstanding105,466  104,840  105,476  104,606  
Basic earnings per share$0.31  $0.44  $0.68  $0.76  
Diluted earnings per share$0.30  $0.42  $0.65  $0.71  
The following share-based awards have been excluded from the computation of dilutive earnings per share because their effect would be anti-dilutive:
Thirteen Weeks EndedTwenty-six Weeks Ended
in thousandsJune 25, 2020June 27, 2019June 25, 2020June 27, 2019
Stock options591  1,011  599  1,003  
Restricted stock260  —  260  —  
Restricted stock units106  —  106  —  
v3.20.2
Basis of Presentation and Summary of Significant Accounting Policies (Policies)
6 Months Ended
Jun. 25, 2020
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Fiscal Year
Fiscal Year
The Company’s fiscal year is the 52- or 53-week period ending on the Thursday on or preceding December 31st. Fiscal year ending December 31, 2020 (“fiscal 2020”) includes 53 weeks, and the fiscal year ended December 26, 2019 (“fiscal 2019”) included 52 weeks. When a 53-week fiscal year occurs, we report the additional week at the end of the fiscal fourth quarter. 52-week fiscal years consist of thirteen-week periods in each quarter of the fiscal year.
Basis of Presentation
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. These financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information. The Condensed Consolidated Balance Sheet as of December 26, 2019 has been derived from the audited Consolidated Balance Sheet for the fiscal year then ended. The interim condensed consolidated financial statements should be read together with the audited consolidated financial statements and related footnote disclosures included in the Company’s Annual Report on Form 10-K for fiscal 2019, filed with the Securities and Exchange Commission (the “SEC”) on February 20, 2020 (the “Annual Report”).
Management believes the accompanying unaudited condensed consolidated financial statements reflect all normal recurring adjustments considered necessary for a fair statement of results for the interim periods presented.
Results of operations for the thirteen and twenty-six weeks ended June 25, 2020 and June 27, 2019 are not necessarily indicative of the results to be expected for the full years.
Impairment Assessment of Goodwill and Other Indefinite-Lived Intangible Assets
Impairment Assessment of Goodwill and Other Indefinite-Lived Intangible Assets
The Company tests goodwill and indefinite-lived intangible assets for impairment annually in the fourth quarter of each fiscal year, or more often if events occur or changes in circumstances indicate that the carrying amount of goodwill or indefinite-lived intangible assets may not be recoverable. We assess the value of our goodwill and indefinite-lived intangible assets under either a qualitative or quantitative approach. Under a qualitative approach, the Company evaluates various market and other factors to determine whether it is more likely than not that the Company’s goodwill or indefinite-lived intangible assets have been impaired. In performing the qualitative assessment, the Company considers the carrying value of its single reporting unit compared to its fair value as well as events and changes in circumstances that could include, but are not limited to, a significant adverse change in customer demand or business climate, an adverse action or assessment by a regulator, and significant adverse changes in the price of the Company’s common stock. If such qualitative assessment indicates that impairment may have occurred, an additional quantitative assessment is performed by comparing the carrying value of the assets to their respective estimated fair values. If the recorded carrying value of goodwill or an indefinite-lived intangible asset exceeds its estimated fair value, an impairment charge is recorded to write the asset down to its estimated fair value.
Due to the impact of the COVID-19 pandemic on the Company’s business, the Company qualitatively assessed whether it was more likely than not that the goodwill and indefinite-lived intangible assets were impaired as of March 26, 2020. As part of this assessment, the Company considered information available as of the April 30, 2020 filing date of its first quarter fiscal 2020 10-Q related to the negative financial impact that resulted from temporary store closures and limited curbside operations beginning in late March. Based on this interim impairment assessment, the Company determined that its goodwill and indefinite-lived intangible assets were not impaired as of March 26, 2020. Further, the Company considered events and changes in circumstances subsequent to April 30, 2020, including the improvement in sales since reopening stores to customers for in-store shopping, and did not identify an indication of impairment of its goodwill or indefinite-lived intangible assets as of June 25, 2020.
Leases
Leases
During the second quarter of fiscal 2020, Company negotiated rent deferrals or abatements for a significant number of its stores. The Company has also delayed rent payments for some stores as negotiations are in process with landlords. Total payments delayed or deferred as of June 25, 2020 were approximately $5.9 million, of which $4.9 million is included in the current portion of lease liabilities and $1.0 million is included in lease liabilities on the condensed consolidated balance sheets.
In accordance with Financial Accounting Standards Board ("FASB") Staff Q&A - Topic 842: "Accounting for Lease Concessions Related to the Effects of the COVID-19 Pandemic" issued in April 2020, the Company has elected to account for lease concessions that do not result in a substantial increase in the rights of the lessor or the obligations of the lessee as though enforceable rights and obligations for those concessions existed in the original lease agreements. For qualified rent deferrals, the Company has recognized a non-interest bearing accrued liability, which will be reduced when the deferred payment is made in the future. For qualifying rent abatement concessions, which are immaterial in aggregate, the Company is recognizing negative lease expense for the amount of the abatement on a straight-line basis over the term of the lease. During the thirteen and twenty-six weeks ended June 25, 2020, the Company recognized less than $0.1 million of negative lease expense related to rent abatement concessions.
Recently Adopted Accounting Pronouncements and Recently Issued Accounting Pronouncements
Recently Adopted Accounting Pronouncements
Implementation Costs Incurred in Cloud Computing Arrangements. In August 2018, the FASB issued Accounting Standards Update (“ASU”) No. 2018-15, “Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract.” ASU No. 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. In the first quarter of fiscal 2020, the Company adopted ASU No. 2018-15 on a prospective basis for implementation costs for new or existing arrangements incurred on or after the adoption date. The adoption of ASU No. 2018-15 did not have a material impact on the Company’s condensed consolidated financial statements.
Credit Losses. In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” which modifies the measurement approach for credit losses on financial assets measured on an amortized cost basis from an 'incurred loss' method to an 'expected loss' method. The amended guidance requires the measurement of expected credit losses to be based on relevant information, including historical experience, current conditions, and a reasonable and supportable forecast that affects the collectability of the related financial asset. The adoption of ASU No. 2016-13 in the first quarter of fiscal 2020 did not have a material impact on the Company’s condensed consolidated financial statements.
Recently Issued Accounting Pronouncements
Reference Rate Reform. In March 2020, the FASB issued ASU No. 2020-04, “Reference Rate Reform (Topic 848),” which provides optional guidance to ease the potential accounting and financial reporting burden of reference rate reform, including the expected market transition from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates. The new guidance provides temporary optional expedients and exceptions for applying U.S. GAAP to transactions affected by reference rate reform if certain criteria are met. These transactions include contract modifications, hedging relationships, and the sale or transfer of debt securities classified as held-to-maturity. Entities may apply the provisions of the new standard as of the beginning of the reporting period when the election is made. Unlike other topics, the provisions of this update are only available until December 31, 2022, by which time the reference rate replacement activity is expected to be completed. The Company is currently evaluating the impact of this standard on its consolidated financial statements and related disclosures and has yet to elect an adoption date.
Simplifying the Accounting for Income Taxes. In December 2019, the FASB issued ASU No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.” The ASU simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The ASU also clarifies and amends existing guidance to improve consistent application among reporting entities. The guidance will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. The Company is currently evaluating the impact of adopting this standard on its consolidated financial statements.
v3.20.2
Revenues (Tables)
6 Months Ended
Jun. 25, 2020
Revenue from Contract with Customer [Abstract]  
Schedule of Disaggregated Revenue The following table presents the net sales of each major product category (in thousands):​
Thirteen Weeks Ended
June 25, 2020June 27, 2019
Product CategoryNet Sales% of Net SalesNet Sales% of Net Sales
Tile$118,981  26 %$136,319  26 %
Laminate / luxury vinyl plank105,427  23  108,218  21  
Decorative accessories / wall tile87,547  19  97,594  19  
Installation materials and tools73,213  16  88,592  17  
Wood41,901   52,762  10  
Natural stone30,319   32,903   
Other (1)4,964   3,923   
Total$462,352  100 %$520,311  100 %
Twenty-six Weeks Ended
June 25, 2020June 27, 2019
Product CategoryNet Sales% of Net SalesNet Sales% of Net Sales
Tile$253,893  25 %$261,629  26 %
Laminate / luxury vinyl plank230,421  23  205,720  21  
Decorative accessories / wall tile201,144  20  192,034  19  
Installation materials and tools167,789  16  168,301  17  
Wood90,896   101,992  10  
Natural stone65,196   63,790   
Other (1)7,950   3,895   
Total$1,017,289  100 %$997,361  100 %
(1) Other includes delivery revenue less adjustments for deferred revenue, sales returns reserves, rewards under our Pro Premier Loyalty program, and other revenue related adjustments that are not allocated on a product-level basis.
v3.20.2
Debt (Tables)
6 Months Ended
Jun. 25, 2020
Debt Disclosure [Abstract]  
Schedule of Long Term Debt
The following table summarizes the Company's long-term debt as of June 25, 2020 and December 26, 2019:
in thousandsJune 25, 2020December 26, 2019
Credit Facilities:
UBS Facility Term Loan B$144,263  $145,500  
UBS Facility Term Loan B-175,000  —  
Wells Facility Revolving Line of Credit—  —  
Total secured debt at par value219,263  145,500  
Less: unamortized discount and debt issuance costs9,728  2,894  
Net carrying amount209,535  142,606  
Less: current maturities2,558  —  
Total long-term debt$206,977  $142,606  
Total debt at fair value$203,915  $145,136  
Schedule of Maturities of Debt
The following table summarizes scheduled maturities of the Company’s debt, including current maturities, as of June 25, 2020:
in thousandsAmount
Twenty-seven weeks ending December 31, 2020$1,460  
20211,647  
20222,196  
20232,196  
20242,196  
Thereafter (1)209,568  
Total minimum debt payments$219,263  
(1)Thereafter maturities are comprised of $137.8 million due under the term loan B facility and $71.8 million due under the term loan B-1 facility through February 14, 2027.
v3.20.2
Commitments and Contingencies (Tables)
6 Months Ended
Jun. 25, 2020
Commitments and Contingencies Disclosure [Abstract]  
Schedule of Components of Lease Expense
The table below presents components of lease expense for operating leases.
Thirteen Weeks EndedTwenty-six Weeks Ended
in thousandsClassificationJune 25, 2020June 27, 2019June 25, 2020June 27, 2019
Operating lease cost (1)Selling and store operating$34,221  $28,914  $68,037  $54,929  
Sublease incomeSelling and store operating(597) (606) (1,194) (1,229) 
Total lease cost$33,624  $28,308  $66,843  $53,700  
(1) Includes variable lease costs, which were immaterial for the thirteen and twenty-six weeks ended June 25, 2020 and June 27, 2019.
Schedule of Future Minimum Lease Payments under Non-Cancelable Operating Leases
Future minimum lease payments under non-cancelable operating leases (with initial or remaining lease terms in excess of one year) as of June 25, 2020 were as follows:
in thousandsAmount
Twenty-seven weeks ending December 31, 2020$132,231  
2021138,060  
2022129,040  
2023126,399  
2024123,096  
Thereafter656,948  
Total minimum lease payments (2)$1,305,774  
Less: amount of lease payments representing interest318,605  
Present value of future minimum lease payments987,169  
Less: current obligations under leases90,543  
Long-term lease obligations$896,626  
(2) Future lease payments exclude approximately $72.1 million of legally binding minimum lease payments for operating leases signed but not yet commenced.
v3.20.2
Stock-Based Compensation (Tables)
6 Months Ended
Jun. 25, 2020
Share-based Payment Arrangement [Abstract]  
Stock Option Activity Stock option activity during the twenty-six weeks ended June 25, 2020 was as follows:
OptionsWeighted Average Exercise Price
Outstanding at December 27, 20196,037,079  $13.64  
Granted278,499  57.22  
Exercised(1,291,255) 6.71  
Forfeited or expired(91,618) 23.00  
Outstanding at June 25, 20204,932,705  $17.74  
Vested and exercisable at June 25, 20202,746,188  $10.39  
Estimated Fair Value of Stock Option Grants
The Company estimated the fair value of stock option grants using the Black-Scholes-Merton option pricing model with the following weighted average assumptions during the period:
Twenty-six Weeks Ended
June 25, 2020
Risk-free interest rate1.22 %
Expected volatility38.7 %
Expected life (in years)5.75
Dividend yield— %
Restricted Stock Unit Activity
The following table summarizes restricted stock unit activity during the twenty-six weeks ended June 25, 2020:
Restricted Stock Units
Unvested at December 27, 2019—  
Granted114,440  
Vested—  
Forfeited(2,060) 
Unvested at June 25, 2020112,380  
Restricted Stock Award Activity
The following table summarizes restricted stock award activity during the twenty-six weeks ended June 25, 2020:
Restricted Stock Awards
Service-basedPerformance-basedTSR
Unvested at December 27, 201937,032  —  —  
Granted102,931  160,315  104,456  
Vested(3,870) —  —  
Forfeited—  —  —  
Unvested at June 25, 2020136,093  160,315  104,456