FLOOR & DECOR HOLDINGS, INC., 10-Q filed on 5/3/2018
Quarterly Report
v3.8.0.1
Document and Entity Information - shares
3 Months Ended
Mar. 29, 2018
May 01, 2018
Document and Entity Information    
Entity Registrant Name Floor & Decor Holdings, Inc.  
Entity Central Index Key 0001507079  
Document Type 10-Q  
Document Period End Date Mar. 29, 2018  
Amendment Flag false  
Current Fiscal Year End Date --12-27  
Entity Current Reporting Status Yes  
Entity Filer Category Non-accelerated Filer  
Entity Common Stock, Shares Outstanding   96,482,741
Document Fiscal Period Focus Q1  
Document Fiscal Year Focus 2018  
v3.8.0.1
Condensed Consolidated Balance Sheets - USD ($)
$ in Thousands
Mar. 29, 2018
Dec. 28, 2017
Current assets:    
Cash and cash equivalents $ 572 $ 556
Income taxes receivable 9,766 12,472
Receivables, net 38,265 54,041
Inventories, net 426,719 427,950
Prepaid expenses and other current assets 11,096 8,193
Total current assets 486,418 503,212
Fixed assets, net 245,407 220,952
Intangible assets, net 109,354 109,362
Goodwill 227,447 227,447
Other assets 7,256 7,019
Total long-term assets 589,464 564,780
Total assets 1,075,882 1,067,992
Current liabilities:    
Current portion of term loans 3,500 3,500
Trade accounts payable 255,007 258,730
Accrued expenses 68,834 74,547
Deferred revenue 3,742 22,523
Total current liabilities 331,083 359,300
Term loans 143,005 144,562
Revolving line of credit 26,800 41,000
Deferred rent 28,450 25,570
Deferred income tax liabilities, net 29,920 27,218
Tenant improvement allowances 25,863 26,779
Other liabilities 3,164 703
Total long-term liabilities 257,202 265,832
Total liabilities 588,285 625,132
Commitments and contingencies
Capital stock:    
Preferred stock, $0.001 par value; 10,000,000 shares authorized; 0 shares issued and outstanding at March 29, 2018 and December 28, 2017 0 0
Additional paid-in capital 328,029 323,419
Accumulated other comprehensive income (loss), net 225 (205)
Retained earnings 159,247 119,550
Total stockholders' equity 487,597 442,860
Total liabilities and stockholders' equity 1,075,882 1,067,992
Class A Common Stock    
Capital stock:    
Common Stock 96 96
Class B Common Stock    
Capital stock:    
Common Stock 0 0
Class C Common Stock    
Capital stock:    
Common Stock $ 0 $ 0
v3.8.0.1
Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares
Mar. 29, 2018
Dec. 28, 2017
Preferred Stock, Number of Shares, Par Value and Other Disclosures [Abstract]    
Preferred stock, par value $ 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, Number of Shares, Par Value and Other Disclosures [Abstract]    
Common stock, par value $ 0.001 $ 0.001
Common stock, shares authorized 450,000,000 450,000,000
Common stock, shares issued 96,094,164 95,509,179
Common stock, shares outstanding 96,094,164 95,509,179
Class B Common Stock    
Common Stock, Number of Shares, Par Value and Other Disclosures [Abstract]    
Common stock, par value $ 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, Number of Shares, Par Value and Other Disclosures [Abstract]    
Common stock, par value $ 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
v3.8.0.1
Condensed Consolidated Statements of Income - USD ($)
$ in Thousands
3 Months Ended
Mar. 29, 2018
Mar. 30, 2017
Income Statement [Abstract]    
Net Sales $ 402,948 $ 307,296
Cost of sales 237,562 181,825
Gross profit 165,386 125,471
Operating expenses:    
Selling and store operating 102,567 80,751
General and administrative 23,339 17,881
Pre-opening 2,974 4,167
Total operating expenses 128,880 102,799
Operating income 36,506 22,672
Interest expense 1,784 5,414
Income before income taxes 34,722 17,258
Provision for income taxes 2,851 6,130
Net income $ 31,871 $ 11,128
Basic earnings per share $ 0.33 $ 0.13
Diluted earnings per share $ 0.30 $ 0.13
v3.8.0.1
Condensed Consolidated Statements of Comprehensive Income - USD ($)
$ in Thousands
3 Months Ended
Mar. 29, 2018
Mar. 30, 2017
Statement of Comprehensive Income [Abstract]    
Net income $ 31,871 $ 11,128
Other comprehensive income (loss) - change in fair value of hedge instruments, net of tax 430 (282)
Total comprehensive income $ 32,301 $ 10,846
v3.8.0.1
Condensed Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
3 Months Ended
Mar. 29, 2018
Mar. 30, 2017
Operating activities    
Net income $ 31,871 $ 11,128
Adjustments to reconcile net income to net cash provided by operating activities:    
Depreciation and amortization 11,534 8,933
Amortization of tenant improvement allowances (1,045) (755)
Deferred income taxes 2,111 5,453
Interest cap derivative contracts (535) 0
Stock based compensation expense 1,415 885
Changes in operating assets and liabilities:    
Receivables, net 15,775 1,150
Inventories, net (9,262) (22,838)
Other assets (2,204) (2,755)
Trade accounts payable (3,723) 47,473
Accrued expenses (12,926) (7,073)
Income taxes 780 699
Deferred revenue 1,500 6,470
Deferred rent 2,707 2,785
Tenant improvement allowances 128 4,495
Other 2,486 24
Net cash provided by operating activities 40,612 56,074
Investing activities    
Purchases of fixed assets (27,841) (19,801)
Net cash used in investing activities (27,841) (19,801)
Financing activities    
Borrowings on revolving line of credit 51,900 25,300
Payments on revolving line of credit (66,100) (60,800)
Payments on term loans (1,750) (875)
Proceeds from exercise of stock options 3,195 96
Net cash used in financing activities (12,755) (36,279)
Net increase (decrease) in cash and cash equivalents 16 (6)
Cash and cash equivalents, beginning of the period 556 556
Cash and cash equivalents, end of the period 572 445
Supplemental disclosures of cash flow information    
Cash paid for interest 2,368 7,945
Cash paid for income taxes 19 0
Fixed assets accrued at the end of the period $ 16,332 $ 7,372
v3.8.0.1
Summary of Significant Accounting Policies
3 Months Ended
Mar. 29, 2018
Summary of Significant Accounting Policies  
Summary of Significant Accounting Policies

1. 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 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 the products for professional installation (“Buy it Yourself” or “BIY”). We operate within one reportable segment.

As of March 29, 2018, the Company, through its wholly owned subsidiary, Floor and Decor Outlets of America, Inc. (“F&D”), operates 84 warehouse-format stores, which average 73,000 square feet, and one small-format standalone design center in 21 states, as well as three 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 years ended December 27, 2018 (“fiscal 2018”) and December 28, 2017 (“fiscal 2017”) include 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 the first, second, third and fourth quarters of the fiscal year.

Basis of Presentation 

The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and our 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 28, 2017 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 2017, filed with the Securities and Exchange Commission (the “SEC”) on March 5, 2018 (the “Annual Report”). Unless indicated otherwise, the information in this quarterly report on Form 10-Q (the “Quarterly Report”) has been adjusted to give effect to a 321.820-for-one stock split of the Company’s outstanding common stock, which was approved by the Company’s board of directors and shareholders on April 13, 2017 and effected on April 24, 2017. Certain prior year amounts have been reclassified in the consolidated financial statements to conform to the current year presentation.

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 weeks ended March 29, 2018 and March 30, 2017 are not necessarily indicative of the results to be expected for the full year.

Revenue Recognition

We recognize revenue and the related cost of sales when we satisfy the performance obligations in contracts with our customers. Our performance obligations for our retail store sales as well as for orders placed through our website and shipped to our customers are satisfied at the point-of-sale, which is the point at which the customer obtains control of the inventory as described under Accounting Standards Update (ASU) No. 2014-09, "Revenue from Contracts with Customers” (Topic 606). Shipping and handling activities are performed after the customer obtains control of the goods and are accounted for as activities to fulfill the promise to transfer goods, rather than a separate performance obligation as outlined within Topic 606. Payment is due from the customer immediately at the point-of-sale for both retail store sales and website sales. The nature of the goods offered include hard surface flooring and related accessories. We do not perform installation services, and we offer free design services in-store. The transaction price recognized in revenues represents the selling price of the products offered. Sales taxes collected are not recognized as revenue as these amounts are ultimately remitted to the appropriate taxing authorities.

Our customers have the right to return the goods sold to them within a reasonable period, typically ninety days. The right of return is an element of variable consideration as defined with Topic 606. We reserve for future returns of previously sold goods based on historical experience and various other assumptions that we believe to be reasonable. This reserve reduces sales and cost of sales as well as establishes a return asset and refund liability. The return asset is included within Inventories, net and the refund liability is included within Accrued Expenses, each respectively on the Condensed Consolidated Balance Sheets. Merchandise exchanges of similar product and price are not considered merchandise returns and, therefore, are excluded when calculating the sales returns reserve.

Gift Cards and Merchandise Credits

We sell gift cards to our customers in our stores and through our website and issue merchandise credits in our stores. We account for the programs by recognizing a liability at the time the gift card is sold or the merchandise credit is issued. The liability is relieved and revenue is recognized upon redemption. Additionally, we recognize breakage income in proportion to the pattern of rights exercised by the customer when we expect to be entitled to breakage. Net sales related to the estimated breakage are included in net sales in the Condensed Consolidated Statements of Income. We have an agreement with an unrelated third-party who is the issuer of our gift cards and also assumes the liability for unredeemed gift cards. We are not subject to claims under unclaimed property statutes, as the agreement effectively transfers the ownership of such unredeemed gift cards and the related future escheatment liability, if any, to the third-party. Accordingly, in the thirteen weeks ended March 29, 2018 and March 30, 2017, gift card breakage income of $258 thousand and $166 thousand, respectively was recognized in net sales in the Condensed Consolidated Statements of Income, respectively, for such unredeemed gift cards.

There have been no other additional updates to our Significant Accounting Policies since the Annual Report. For 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.

Recently Issued Accounting Pronouncements

There have been no updates to Recently Issued Accounting Pronouncements since the Annual Report. For information regarding Recently Issued Accounting Pronouncements, see the “Summary of Significant Accounting Policies” section of “Item 8. Financial Statements And Supplementary Data” of our Annual Report.

Recently Adopted Accounting Pronouncements

In October 2016, the FASB issued ASU No. 2016-16, "Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory." This standard update requires an entity to recognize the income tax consequences of intra-entity transfers of assets other than inventory when the transfer occurs. ASU No. 2016-16 is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, with early adoption permitted. The amendments in this update should be applied using a modified retrospective approach. The adoption of ASU No. 2016-16 did not have a material impact on the Company's Condensed Consolidated Financial Statements.

In August 2016, the FASB issued ASU No. 2016-15, "Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments." The standard update addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. ASU No. 2016-15 is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, with early adoption permitted. The amendments in this update should be applied using a retrospective approach. The adoption of ASU No. 2016-15 did not have a material impact on the Company's Condensed Consolidated Statements of Cash Flows.

In May 2014, the FASB issued Accounting Standards Update (ASU) No. 2014-09, "Revenue from Contracts with Customers." ASU No. 2014-09 provided new guidance related to the core principle that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to receive in exchange for those goods or services provided. We adopted this standard using the modified retrospective approach in the first quarter of fiscal 2018, effective December 29, 2017. Under the new guidance, we recognize revenue at the time the customer obtains control of the inventory. The cumulative adjustment upon adoption primarily resulted in a reduction of deferred revenue and related inventories and an increase to retained earnings. The adoption of ASU No. 2014-09 did not have a material impact to the Company’s Condensed Consolidated Financial Statements.

 

v3.8.0.1
Revenues
3 Months Ended
Mar. 29, 2018
Revenue from Contract with Customer [Abstract]  
Revenue from Contracts with Customers

2. Revenues

Adoption of ASC Topic 606, “Revenue from Contracts with Customers”

On December 29, 2017, we adopted Topic 606 using the modified retrospective method applied to those contracts that were not completed as of December 29, 2017. Results for reporting periods beginning after December 29, 2017 are presented under Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting under ASC 605, Revenue Recognition (Topic 605).

We recorded a net increase to opening retained earnings of $7.8 million, net of tax, as of December 29, 2017 due to the cumulative impact of adopting Topic 606, with the impact primarily related to transactions for which we allow customers to store their merchandise at our retail stores for final delivery at a later date. The cumulative adjustment primarily resulted in a reduction of deferred revenue and related inventories and an increase to retained earnings. The impact to revenues as a result of applying Topic 606 was immaterial for the thirteen weeks ended March 29, 2018.

Deferred Revenue

Under Topic 605 we recognized revenue for certain transactions for which we allow customers to store their merchandise at our retail stores for final delivery at a later date when both collection or reasonable assurance of collection of payment and final delivery of the product had occurred. Under Topic 605, the amount of revenue for which final delivery of the product had not occurred for these transactions was reflected in the Deferred revenue caption on the Condensed Consolidated Balance Sheet as of December 28, 2017. Under Topic 606, we evaluated the bill-and-hold criteria and recognize revenue at the point-of-sale, 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.

Gift Card Breakage

Under Topic 605, gift card breakage income is recognized based upon historical redemption patterns. Under Topic 606, gift card breakage income is recognized in proportion to the pattern of rights exercised by the customer when we expect to be entitled to breakage. The timing and amounts of revenue related to gift card breakage income in the cumulative transition adjustment, and for the thirteen weeks ended March 29, 2018 were immaterial to the Condensed Consolidated Financial Statements.

Disaggregated Revenue

The following table presents the net sales of each major product category (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Thirteen Weeks Ended

 

 

 

March 29, 2018

 

March 30, 2017

 

 

    

 

 

    

% of

    

 

 

    

% of

    

Product Category

 

Net Sales

 

Net Sales

 

Net Sales

 

Net Sales

 

Tile

 

$

117,402

 

29

%  

$

92,682

 

30

%  

Decorative Accessories

 

 

78,489

 

19

 

 

60,300

 

20

 

Accessories (Installation Materials and Tools)

 

 

66,892

 

17

 

 

42,539

 

14

 

Laminate / Luxury Vinyl Plank

 

 

63,581

 

16

 

 

48,552

 

16

 

Wood

 

 

46,485

 

12

 

 

36,993

 

12

 

Natural Stone

 

 

28,006

 

 7

 

 

24,500

 

 8

 

Delivery and Other

 

 

2,093

 

 —

 

 

1,730

 

 —

 

Total

 

$

402,948

 

100

%  

$

307,296

 

100

%  

 

v3.8.0.1
Fair Value Measurements
3 Months Ended
Mar. 29, 2018
Fair Value Measurements  
Fair Value Measurements

3. Fair Value Measurements

We estimate fair values in accordance with ASC 820, Fair Value Measurement. ASC 820 provides a framework for measuring fair value and expands disclosures required about fair value measurements. ASC 820 defines fair value as the price that would be received from the sale of an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. Additionally, ASC 820 defines levels within a hierarchy based upon observable and non-observable inputs.

·

Level 1—Inputs that are quoted prices in active markets for identical assets or liabilities

·

Level 2—Inputs other than quoted prices in active markets for assets or liabilities that are either directly or indirectly observable

·

Level 3—Inputs that are non‑observable that reflect the reporting entity’s own assumptions

Assets (Liabilities) Measured at Fair Value on a Recurring Basis

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of

 

 

 

 

 

 

 

 

 

 

 

March 29,

 

 

 

 

 

 

 

 

 

(in thousands)

 

2018

    

Level 1

    

Level 2

    

Level 3

Designated as hedges:

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate cap (cash flow hedge)

 

$

1,258

 

$

 

$

1,258

 

$

Not designated as hedges:

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate cap

 

$

1,258

 

$

 

$

1,258

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of

 

 

 

 

 

 

 

 

 

 

 

December 28,

 

 

 

 

 

 

 

 

 

(in thousands)

    

2017

    

Level 1

    

Level 2

    

Level 3

Designated as hedges:

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate cap (cash flow hedge)

 

$

710

 

$

 

$

710

 

$

Not designated as hedges:

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate cap

 

$

710

 

$

 

$

710

 

$

 

Our derivative contracts are negotiated with counterparties without going through a public exchange. Accordingly, our fair value assessments give consideration to the risk of counterparty default (as well as our own credit risk). Our interest rate derivatives consist of interest rate cap contracts and are valued primarily based on data readily observable in public markets.

v3.8.0.1
Derivatives and Risk Management
3 Months Ended
Mar. 29, 2018
Derivatives and Risk Management  
Derivatives and Risk Management

4. Derivatives and Risk Management

Changes in interest rates impact our results of operations. In an effort to manage our exposure to this risk, we enter into derivative contracts and may adjust our derivative portfolio as market conditions change.

Designated as Cash Flow Hedge

For derivative contracts designated as cash flow hedges, the effective portion of the gain or loss on the derivative is reported as a component of Accumulated Other Comprehensive Income (“AOCI”) and reclassified into earnings in the same period in which the hedged transaction affects earnings. The effective portion of the derivative represents the change in fair value of the hedge that offsets the change in fair value of the hedged item. To the extent the change in the fair value of the hedge does not perfectly offset the change in the fair value of the hedged item, the ineffective portion of the hedge is immediately recognized in earnings.

Not Designated as Accounting Hedge

For derivative contracts de-designated as accounting hedges, the change in the fair value is reflected through earnings. These changes in fair value are mark-to-market adjustments ("MTM adjustments"). MTM adjustments are defined as fair value changes recorded in periods other than the settlement period. Such fair value changes are not necessarily indicative of the actual settlement value of the underlying hedge in the contract settlement period. The AOCI related to the interest rate cap prior to the de-designation is being amortized over the remaining maturity period.

Interest Rate Risk

Our exposure to market risk from adverse changes in interest rates is primarily associated with our long‑term debt obligations, which carry variable interest rates. Market risk associated with our variable interest rate long‑term debt relates to the potential reduction in fair value and negative impact to future earnings, respectively, from an increase in interest rates.

In an effort to manage our exposure to the risk associated with our variable interest rate long‑term debt, we periodically enter into interest rate derivative contracts. We designate interest rate derivative contracts used to convert the interest rate exposure on a portion of our debt portfolio from a floating rate to a capped rate as cash flow hedges.

Hedge Position as of March 29, 2018:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

Final Maturity

 

Other

 

AOCI, Net

(in thousands)

    

Notional Balance

    

Date

    

Assets

    

of Tax

Designated as hedges:

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate cap (cash flow hedge)

 

$

102,500

 

U.S. dollars

 

December 2021

 

$

1,258

 

$

247

Not designated as hedges:

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate cap

 

$

102,500

 

U.S. dollars

 

December 2021

 

$

1,258

 

$

(22)

 

Hedge Position as of December 28, 2017:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

Final Maturity

 

Other

 

AOCI, Net

(in thousands)

    

Notional Balance

    

Date

    

Assets

 

of Tax

Designated as hedges:

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate cap (cash flow hedge)

 

$

102,500

 

U.S. dollars

 

December 2021

 

$

710

 

$

(133)

Not designated as hedges:

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate cap

 

$

102,500

 

U.S. dollars

 

December 2021

 

$

710

 

$

(72)

 

Designated Hedge Gains (Losses)

Gains (losses) related to our designated hedge contracts are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effective Portion Reclassified

 

 

Effective Portion Recognized in

 

 

From AOCI to Earnings

 

 

Other Comprehensive Income (Loss)

 

 

Thirteen Weeks Ended

 

 

March 29,

 

March 30,

 

March 29,

 

March 30,

(in thousands)

    

2018

    

2017

    

2018

    

2017

Interest rate caps (cash flow hedges)

 

$

 —

 

$

 

$

430

 

$

(282)

 

Credit Risk

To manage credit risk associated with our interest rate hedging program, we select counterparties based on their credit ratings and limit our exposure to any one counterparty.

The counterparties to our derivative contracts are large financial institutions with investment grade credit ratings. To manage our credit risk related to our derivative financial instruments, we periodically monitor the credit risk of our counterparties, limit our exposure in the aggregate and to any single counterparty, and adjust our hedging position, as appropriate. The impact of credit risk, as well as the ability of each party to fulfill its obligations under our derivative financial instruments, is considered in determining the fair value of the contracts. Credit risk has not had a significant effect on the fair value of our derivative contracts. We do not have any credit risk‑related contingent features or collateral requirements with our derivative financial instruments.

v3.8.0.1
Debt
3 Months Ended
Mar. 29, 2018
Debt  
Debt

5. Debt

Fair Value of Debt

Market risk associated with our 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 our estimates of interest rates, maturities, credit risk, and underlying collateral and is classified as Level 3 within the fair value hierarchy. At March 29, 2018 and December 28, 2017, the fair values of our debt were as follows:

 

 

 

 

 

 

 

 

    

March 29,

    

December 28,

(in thousands)

 

2018

 

2017

Total debt at par value

 

$

177,550

 

$

193,500

Less: unamortized discount and debt issuance costs

 

 

4,245

 

 

4,438

Net carrying amount

 

$

173,305

 

$

189,062

Fair value

 

$

177,927

 

$

193,881

 

v3.8.0.1
Income Taxes
3 Months Ended
Mar. 29, 2018
Income Taxes  
Income Taxes

6. Income Taxes

Income Taxes

Our effective income tax rates were 8.2% and 35.5% for the thirteen weeks ended March 29, 2018 and March 30, 2017, respectively. The lower effective rate for the thirteen weeks ended March 29, 2018 was primarily due to tax reform passed in December 2017 and the recognition of excess tax benefits related to stock options exercised.

Provisional amounts

In connection with the Tax Cuts and Jobs Act (the “Act”) passed in December 2017, we remeasured certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21% for federal income tax purposes and 3.6% currently estimated for state income tax purposes. We recorded a provisional amount of $17.9 million as of December 28, 2017 related to the remeasurement of certain deferred tax balances, and we have not made any adjustments to this provisional amount during the thirteen weeks ended March 29, 2018. However, we are still analyzing certain aspects of the Act and refining our calculations, which could potentially affect the measurement of these balances or potentially give rise to new deferred tax amounts.

 

The Act also subjects a U.S. shareholder to tax on global intangible low-taxed income (“GILTI”) earned by certain foreign subsidiaries. The FASB Staff Q&A, Topic 740, No. 5, Accounting for Global Intangible Low-Taxed Income, states that an entity can make an accounting policy election to either recognize deferred taxes for temporary basis differences expected to reverse as GILTI in future years or provide for the tax expense related to GILTI in the year the tax is incurred. Given the complexity of the GILTI provisions, we are still evaluating the possible effects of the GILTI provisions and have not yet determined our accounting policy. At March 29, 2018, because we are still evaluating the GILTI provisions and our analysis of future taxable income that may be subject to GILTI, we are unable to make a reasonable estimate and have not reflected any adjustments related to GILTI in our financial statements.

 

v3.8.0.1
Commitments and Contingencies
3 Months Ended
Mar. 29, 2018
Commitments and Contingencies.  
Commitments and Contingencies

7. Commitments and Contingencies

Lease Commitments

We lease our corporate office, retail locations and distribution centers through F&D, under long‑term operating lease agreements that expire in various years through 2038. Additionally, certain equipment is leased under short‑term operating leases.

Certain lease agreements include escalating rents over the lease terms. We expense rent on a straight‑line basis over the life of the lease, which commences on the date we have the right to control the property. The cumulative expense recognized on a straight‑line basis in excess of the cumulative payments is included in deferred rent in the accompanying balance sheets. Future minimum lease payments under non‑cancelable operating leases (with initial or remaining lease terms in excess of one year) as of March 29, 2018, were:

 

 

 

 

(in thousands)

    

Amount

Thirty-nine weeks ended December 27, 2018

 

$

67,163

2019

 

 

104,074

2020

 

 

104,322

2021

 

 

100,999

2022

 

 

93,476

Thereafter

 

 

606,510

Total minimum lease payments

 

$

1,076,544

 

Lease expense for the thirteen weeks ended March 29, 2018 and March 30, 2017 was approximately $22,005 thousand and $16,988 thousand, respectively.

Litigation

We are subject to other various legal actions, claims and proceedings arising in the ordinary course of business, including claims related to breach of contracts, products liabilities, intellectual property matters and employment related matters resulting from its business activities. 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 proceedings are not expected to have a material impact on our consolidated financial position, cash flows or results of operations.

v3.8.0.1
Earnings Per Share
3 Months Ended
Mar. 29, 2018
Earnings Per Share  
Earnings Per Share

8. Earnings Per Share

Net Income per Common Share

We calculate 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 stock options.

The following table shows the computation of basic and diluted earnings per share:

 

 

 

 

 

 

 

 

    

Thirteen Weeks Ended

 

 

March 29,

 

March 30,

(in thousands, except per share data)

 

2018

    

2017

Net income

 

$

31,871

 

$

11,128

Basic weighted average shares outstanding

 

 

95,714

 

 

83,529

Dilutive effect of share based awards

 

 

8,951

 

 

5,116

Diluted weighted average shares outstanding

 

 

104,665

 

 

88,645

Basic earnings per share

 

$

0.33

 

$

0.13

Diluted earnings per share

 

$

0.30

 

$

0.13

 

The following awards have been excluded from the computation of dilutive effect of share based awards because the effect would be anti‑dilutive:

 

 

 

 

 

 

 

    

Thirteen Weeks Ended

    

 

 

March 29,

 

March 30,

 

(in thousands)

 

2018

 

2017

 

Stock Options

 

98

 

2,360

 

v3.8.0.1
Summary of Significant Accounting Policies (Policies)
3 Months Ended
Mar. 29, 2018
Summary of Significant Accounting Policies  
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 years ended December 27, 2018 (“fiscal 2018”) and December 28, 2017 (“fiscal 2017”) include 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 the first, second, third and fourth quarters of the fiscal year.

Basis of Presentation

Basis of Presentation 

The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and our 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 28, 2017 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 2017, filed with the Securities and Exchange Commission (the “SEC”) on March 5, 2018 (the “Annual Report”). Unless indicated otherwise, the information in this quarterly report on Form 10-Q (the “Quarterly Report”) has been adjusted to give effect to a 321.820-for-one stock split of the Company’s outstanding common stock, which was approved by the Company’s board of directors and shareholders on April 13, 2017 and effected on April 24, 2017. Certain prior year amounts have been reclassified in the consolidated financial statements to conform to the current year presentation.

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 weeks ended March 29, 2018 and March 30, 2017 are not necessarily indicative of the results to be expected for the full year.

Revenue Recognition

Revenue Recognition

We recognize revenue and the related cost of sales when we satisfy the performance obligations in contracts with our customers. Our performance obligations for our retail store sales as well as for orders placed through our website and shipped to our customers are satisfied at the point-of-sale, which is the point at which the customer obtains control of the inventory as described under Accounting Standards Update (ASU) No. 2014-09, "Revenue from Contracts with Customers” (Topic 606). Shipping and handling activities are performed after the customer obtains control of the goods and are accounted for as activities to fulfill the promise to transfer goods, rather than a separate performance obligation as outlined within Topic 606. Payment is due from the customer immediately at the point-of-sale for both retail store sales and website sales. The nature of the goods offered include hard surface flooring and related accessories. We do not perform installation services, and we offer free design services in-store. The transaction price recognized in revenues represents the selling price of the products offered. Sales taxes collected are not recognized as revenue as these amounts are ultimately remitted to the appropriate taxing authorities.

Our customers have the right to return the goods sold to them within a reasonable period, typically ninety days. The right of return is an element of variable consideration as defined with Topic 606. We reserve for future returns of previously sold goods based on historical experience and various other assumptions that we believe to be reasonable. This reserve reduces sales and cost of sales as well as establishes a return asset and refund liability. The return asset is included within Inventories, net and the refund liability is included within Accrued Expenses, each respectively on the Condensed Consolidated Balance Sheets. Merchandise exchanges of similar product and price are not considered merchandise returns and, therefore, are excluded when calculating the sales returns reserve.

Gift Cards and Merchandise Credits

We sell gift cards to our customers in our stores and through our website and issue merchandise credits in our stores. We account for the programs by recognizing a liability at the time the gift card is sold or the merchandise credit is issued. The liability is relieved and revenue is recognized upon redemption. Additionally, we recognize breakage income in proportion to the pattern of rights exercised by the customer when we expect to be entitled to breakage. Net sales related to the estimated breakage are included in net sales in the Condensed Consolidated Statements of Income. We have an agreement with an unrelated third-party who is the issuer of our gift cards and also assumes the liability for unredeemed gift cards. We are not subject to claims under unclaimed property statutes, as the agreement effectively transfers the ownership of such unredeemed gift cards and the related future escheatment liability, if any, to the third-party. Accordingly, in the thirteen weeks ended March 29, 2018 and March 30, 2017, gift card breakage income of $258 thousand and $166 thousand, respectively was recognized in net sales in the Condensed Consolidated Statements of Income, respectively, for such unredeemed gift cards.

Recent Accounting Pronouncements

Recently Issued Accounting Pronouncements

There have been no updates to Recently Issued Accounting Pronouncements since the Annual Report. For information regarding Recently Issued Accounting Pronouncements, see the “Summary of Significant Accounting Policies” section of “Item 8. Financial Statements And Supplementary Data” of our Annual Report.

Recently Adopted Accounting Pronouncements

In October 2016, the FASB issued ASU No. 2016-16, "Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory." This standard update requires an entity to recognize the income tax consequences of intra-entity transfers of assets other than inventory when the transfer occurs. ASU No. 2016-16 is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, with early adoption permitted. The amendments in this update should be applied using a modified retrospective approach. The adoption of ASU No. 2016-16 did not have a material impact on the Company's Condensed Consolidated Financial Statements.

In August 2016, the FASB issued ASU No. 2016-15, "Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments." The standard update addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. ASU No. 2016-15 is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, with early adoption permitted. The amendments in this update should be applied using a retrospective approach. The adoption of ASU No. 2016-15 did not have a material impact on the Company's Condensed Consolidated Statements of Cash Flows.

In May 2014, the FASB issued Accounting Standards Update (ASU) No. 2014-09, "Revenue from Contracts with Customers." ASU No. 2014-09 provided new guidance related to the core principle that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to receive in exchange for those goods or services provided. We adopted this standard using the modified retrospective approach in the first quarter of fiscal 2018, effective December 29, 2017. Under the new guidance, we recognize revenue at the time the customer obtains control of the inventory. The cumulative adjustment upon adoption primarily resulted in a reduction of deferred revenue and related inventories and an increase to retained earnings. The adoption of ASU No. 2014-09 did not have a material impact to the Company’s Condensed Consolidated Financial Statements.

v3.8.0.1
Revenues (Tables)
3 Months Ended
Mar. 29, 2018
Disaggregation of Revenue [Abstract]  
Disaggregation of Revenue [Table Text Block]

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Thirteen Weeks Ended

 

 

 

March 29, 2018

 

March 30, 2017

 

 

    

 

 

    

% of

    

 

 

    

% of

    

Product Category

 

Net Sales

 

Net Sales

 

Net Sales

 

Net Sales

 

Tile

 

$

117,402

 

29

%  

$

92,682

 

30

%  

Decorative Accessories

 

 

78,489

 

19

 

 

60,300

 

20

 

Accessories (Installation Materials and Tools)

 

 

66,892

 

17

 

 

42,539

 

14

 

Laminate / Luxury Vinyl Plank

 

 

63,581

 

16

 

 

48,552

 

16

 

Wood

 

 

46,485

 

12

 

 

36,993

 

12

 

Natural Stone

 

 

28,006

 

 7

 

 

24,500

 

 8

 

Delivery and Other

 

 

2,093

 

 —

 

 

1,730

 

 —

 

Total

 

$

402,948

 

100

%  

$

307,296

 

100

%  

 

v3.8.0.1
Fair Value Measurements (Tables)
3 Months Ended
Mar. 29, 2018
Fair Value Measurements  
Schedule of Assets (Liabilities) Measured at Fair Value on a Recurring Basis

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of

 

 

 

 

 

 

 

 

 

 

 

March 29,

 

 

 

 

 

 

 

 

 

(in thousands)

 

2018

    

Level 1

    

Level 2

    

Level 3

Designated as hedges:

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate cap (cash flow hedge)

 

$

1,258

 

$

 

$

1,258

 

$

Not designated as hedges:

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate cap

 

$

1,258

 

$

 

$

1,258

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of

 

 

 

 

 

 

 

 

 

 

 

December 28,

 

 

 

 

 

 

 

 

 

(in thousands)

    

2017

    

Level 1

    

Level 2

    

Level 3

Designated as hedges:

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate cap (cash flow hedge)

 

$

710

 

$

 

$

710

 

$

Not designated as hedges:

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate cap

 

$

710

 

$

 

$

710

 

$

 

v3.8.0.1
Derivatives and Risk Management (Tables)
3 Months Ended
Mar. 29, 2018
Derivatives and Risk Management  
Schedule of derivative position

Hedge Position as of March 29, 2018:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

Final Maturity

 

Other

 

AOCI, Net

(in thousands)

    

Notional Balance

    

Date

    

Assets

    

of Tax

Designated as hedges:

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate cap (cash flow hedge)

 

$

102,500

 

U.S. dollars

 

December 2021

 

$

1,258

 

$

247

Not designated as hedges:

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate cap

 

$

102,500

 

U.S. dollars

 

December 2021

 

$

1,258

 

$

(22)

 

Hedge Position as of December 28, 2017:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

Final Maturity

 

Other

 

AOCI, Net

(in thousands)

    

Notional Balance

    

Date

    

Assets

 

of Tax

Designated as hedges:

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate cap (cash flow hedge)

 

$

102,500

 

U.S. dollars

 

December 2021

 

$

710

 

$

(133)

Not designated as hedges:

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate cap

 

$

102,500

 

U.S. dollars

 

December 2021

 

$

710

 

$

(72)

 

Schedule of gains (losses) related to our designated hedge contracts

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effective Portion Reclassified

 

 

Effective Portion Recognized in

 

 

From AOCI to Earnings

 

 

Other Comprehensive Income (Loss)

 

 

Thirteen Weeks Ended

 

 

March 29,

 

March 30,

 

March 29,

 

March 30,

(in thousands)

    

2018

    

2017

    

2018

    

2017

Interest rate caps (cash flow hedges)

 

$

 —

 

$

 

$

430

 

$

(282)

 

v3.8.0.1
Debt (Tables)
3 Months Ended
Mar. 29, 2018
Debt  
Schedule of fair value debt

 

 

 

 

 

 

 

 

    

March 29,

    

December 28,

(in thousands)

 

2018

 

2017

Total debt at par value

 

$

177,550

 

$

193,500

Less: unamortized discount and debt issuance costs

 

 

4,245

 

 

4,438

Net carrying amount

 

$

173,305

 

$

189,062

Fair value

 

$

177,927

 

$

193,881

 

v3.8.0.1
Commitments and Contingencies (Tables)
3 Months Ended
Mar. 29, 2018
Commitments and Contingencies.  
Schedule of future minimum lease payment

 

 

 

 

(in thousands)

    

Amount

Thirty-nine weeks ended December 27, 2018

 

$

67,163

2019

 

 

104,074

2020

 

 

104,322

2021

 

 

100,999

2022

 

 

93,476

Thereafter

 

 

606,510

Total minimum lease payments

 

$

1,076,544

 

v3.8.0.1
Earnings Per Share (Tables)
3 Months Ended
Mar. 29, 2018
Earnings Per Share  
Schedule of computation of basic and diluted earnings per share

 

 

 

 

 

 

 

 

    

Thirteen Weeks Ended

 

 

March 29,

 

March 30,

(in thousands, except per share data)

 

2018

    

2017

Net income

 

$

31,871

 

$

11,128

Basic weighted average shares outstanding

 

 

95,714

 

 

83,529

Dilutive effect of share based awards

 

 

8,951

 

 

5,116

Diluted weighted average shares outstanding

 

 

104,665

 

 

88,645

Basic earnings per share

 

$

0.33

 

$

0.13

Diluted earnings per share

 

$

0.30

 

$

0.13

 

Schedule of awards excluded from computation

 

 

 

 

 

 

 

    

Thirteen Weeks Ended

    

 

 

March 29,

 

March 30,

 

(in thousands)

 

2018

 

2017

 

Stock Options

 

98

 

2,360

 

 

v3.8.0.1
Summary of Significant Accounting Policies (Details)
ft² in Thousands
3 Months Ended 12 Months Ended
Apr. 24, 2017
Mar. 29, 2018
ft²
state
segment
facility
Dec. 27, 2018
Dec. 28, 2017
Real Estate Properties [Line Items]        
Number of reportable segments | segment   1    
Number of states with facilities | state   21    
Number of distribution centers   3    
Fiscal year period     364 days 364 days
Fiscal quarter period   91 days    
Stock split conversion ratio 321.820      
Minimum        
Real Estate Properties [Line Items]        
Fiscal year period   364 days    
Maximum        
Real Estate Properties [Line Items]        
Fiscal year period   371 days    
Warehouse Format Store [Member]        
Real Estate Properties [Line Items]        
Number of stores   84    
Area of facility | ft²   73    
Small Format Store [Member]        
Real Estate Properties [Line Items]        
Number of stores   1    
v3.8.0.1
Summary of Significant Accounting Policies - Revenues (Details) - USD ($)
$ in Thousands
3 Months Ended
Mar. 29, 2018
Mar. 30, 2017
Revenue from Contract with Customer [Abstract]    
Number Of Days Customer May Return Merchandise 90 days  
Gift card breakage income $ 258  
Calculated under Revenue Guidance in Effect before Topic 606 [Member]    
Revenue from Contract with Customer [Abstract]    
Gift card breakage income   $ 166
v3.8.0.1
Revenues (Details) - USD ($)
$ in Thousands
Mar. 29, 2018
Dec. 29, 2017
Dec. 28, 2017
New Accounting Pronouncements or Change in Accounting Principle [Line Items]      
Retained Earnings (Accumulated Deficit) $ 159,247   $ 119,550
Accounting Standards Update 2014-09 [Member] | Difference between Revenue Guidance in Effect before and after Topic 606 [Member]      
New Accounting Pronouncements or Change in Accounting Principle [Line Items]      
Retained Earnings (Accumulated Deficit)   $ 7,800  
v3.8.0.1
Disaggregated Revenue (Details) - USD ($)
$ in Thousands
3 Months Ended
Mar. 29, 2018
Mar. 30, 2017
Tile    
Net sales $ 117,402 $ 92,682
Percentage of Net Sales 29.00% 30.00%
Decorat