FLOOR & DECOR HOLDINGS, INC., 10-Q filed on 11/1/2019
Quarterly Report
v3.19.3
Document and Entity Information - shares
9 Months Ended
Sep. 26, 2019
Oct. 30, 2019
Document Type 10-Q  
Document Quarterly Report true  
Document Transition Report false  
Document Period End Date Sep. 26, 2019  
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, Postal Zip Code 30339  
Entity Address, State or Province GA  
City Area Code 404  
Local Phone Number 471-1634  
Title of 12(b) Security Class A common stock, $0.001 par value per share  
Trading Symbol FND  
Security Exchange Name NYSE  
Entity Current Reporting Status Yes  
Entity Interactive Data Current Yes  
Entity Filer Category Large Accelerated Filer  
Entity Small Business false  
Entity Emerging Growth Company false  
Entity Shell Company false  
Entity Common Stock, Shares Outstanding   101,057,968
Entity Central Index Key 0001507079  
Amendment Flag false  
Current Fiscal Year End Date --12-26  
Document Fiscal Period Focus Q3  
Document Fiscal Year Focus 2019  
Former Address [Member]    
Entity Address, Address Line One 2233 Lake Park Drive  
Entity Address, City or Town Smyrna  
Entity Address, Postal Zip Code 30080  
Entity Address, State or Province GA  
v3.19.3
Condensed Consolidated Balance Sheets - USD ($)
$ in Thousands
Sep. 26, 2019
Dec. 27, 2018
Current assets:    
Cash and cash equivalents $ 84,106 $ 644
Income taxes receivable 9,249 4,324
Receivables, net 45,284 67,527
Inventories, net 483,957 471,014
Prepaid expenses and other current assets 21,113 15,949
Total current assets 643,709 559,458
Fixed assets, net 425,498 328,366
Right-of-use assets 743,517 0
Intangible assets, net 109,307 109,330
Goodwill 227,447 227,447
Other assets 7,395 9,490
Total long-term assets 1,513,164 674,633
Total assets 2,156,873 1,234,091
Current liabilities:    
Current portion of term loans 0 3,500
Current portion of lease liability 53,117 0
Trade accounts payable 318,350 313,503
Accrued expenses and other current liabilities 112,141 82,038
Deferred revenue 8,824 5,244
Total current liabilities 492,432 404,285
Term loans 143,288 141,834
Deferred rent 0 36,980
Lease liabilities 775,838 0
Deferred income tax liabilities, net 20,005 26,838
Tenant improvement allowances 0 37,295
Other liabilities 2,270 2,550
Total long-term liabilities 941,401 245,497
Total liabilities 1,433,833 649,782
Commitments and contingencies (Note 5)
Capital stock:    
Preferred stock, $0.001 par value; 10,000,000 shares authorized; 0 shares issued and outstanding at September 26, 2019 and December 27, 2018 0 0
Additional paid-in capital 364,626 340,462
Accumulated other comprehensive income (loss), net (361) 186
Retained earnings 358,674 243,563
Total stockholders' equity 723,040 584,309
Total liabilities and stockholders' equity 2,156,873 1,234,091
Class A Common Stock    
Capital stock:    
Common stock 101 98
Class B Common Stock    
Capital stock:    
Common stock 0 0
Class C Common Stock    
Capital stock:    
Common stock $ 0 $ 0
v3.19.3
Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares
Sep. 26, 2019
Dec. 27, 2018
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 101,025,978 97,588,539
Common stock, shares outstanding 101,025,978 97,588,539
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
v3.19.3
Condensed Consolidated Statements of Operations and Comprehensive Income - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Sep. 26, 2019
Sep. 27, 2018
Sep. 26, 2019
Sep. 27, 2018
Income Statement [Abstract]        
Net Sales $ 521,093 $ 435,882 $ 1,518,454 $ 1,273,109
Revenue, Product and Service [Extensible List]     us-gaap:ProductMember  
Cost of sales 307,305 257,656 $ 885,469 751,859
Cost, Product and Service [Extensible List]     us-gaap:ProductMember  
Gross profit 213,788 178,226 $ 632,985 521,250
Operating expenses:        
Selling and store operating 136,958 109,182 398,984 320,375
General and administrative 37,246 26,477 98,364 74,995
Pre-opening 8,184 8,330 18,580 17,892
Total operating expenses 182,388 143,989 515,928 413,262
Operating income 31,400 34,237 117,057 107,988
Interest expense 1,978 2,171 7,122 6,100
Income before income taxes 29,422 32,066 109,935 101,888
(Benefit) provision for income taxes (11,552) 5,498 (5,355) 3,603
Net income 40,974 26,568 115,290 98,285
Change in fair value of hedge instruments, net of tax, post-adoption 0   (547)  
Change in fair value of hedge instruments, net of tax, pre-adoption   131   796
Total comprehensive income $ 40,974 $ 26,699 $ 114,743 $ 99,081
Basic earnings per share $ 0.41 $ 0.27 $ 1.17 $ 1.02
Diluted earnings per share $ 0.39 $ 0.25 $ 1.10 $ 0.94
v3.19.3
Condensed Consolidated Statements of Stockholders' Equity - USD ($)
$ in Thousands
Common stock
Class A Common Stock
Additional paid-in capital
Accumulated other comprehensive income (loss)
Retained earnings
Class A Common Stock
Class B Common Stock
Class C Common Stock
Total
Increase (Decrease) in Stockholders' Equity [Roll Forward]                
Cumulative effect from adoption       $ 7,826       $ 7,826
Balance at Dec. 28, 2017 $ 96 $ 323,419 $ (205) 119,550       442,860
Beginning balance (in shares) at Dec. 28, 2017 95,509,000              
Increase (Decrease) in Stockholders' Equity [Roll Forward]                
Stock-based compensation expense   1,415           1,415
Exercise of stock options   3,195           3,195
Exercise of stock options (in shares) 585,000              
Other comprehensive gain (loss), net of tax, pre-adoption     430         430
Net income       31,871       31,871
Balance at Mar. 29, 2018 $ 96 328,029 225 159,247       487,597
Ending balance (in shares) at Mar. 29, 2018 96,094,000              
Balance at Dec. 28, 2017 $ 96 323,419 (205) 119,550       442,860
Beginning balance (in shares) at Dec. 28, 2017 95,509,000              
Increase (Decrease) in Stockholders' Equity [Roll Forward]                
Other comprehensive gain (loss), net of tax, pre-adoption               796
Net income               98,285
Balance at Sep. 27, 2018 $ 97 337,327 591 225,661       563,676
Ending balance (in shares) at Sep. 27, 2018 97,326,000              
Balance at Mar. 29, 2018 $ 96 328,029 225 159,247       487,597
Beginning balance (in shares) at Mar. 29, 2018 96,094,000              
Increase (Decrease) in Stockholders' Equity [Roll Forward]                
Stock-based compensation expense   1,536           1,536
Exercise of stock options $ 1 5,459           5,460
Exercise of stock options (in shares) 1,124,000              
Other comprehensive gain (loss), net of tax, pre-adoption     235         235
Net income       39,846       39,846
Balance at Jun. 28, 2018 $ 97 335,024 460 199,093       534,674
Ending balance (in shares) at Jun. 28, 2018 97,218,000              
Increase (Decrease) in Stockholders' Equity [Roll Forward]                
Stock-based compensation expense   1,659           1,659
Exercise of stock options   644           644
Exercise of stock options (in shares) 108,000              
Other comprehensive gain (loss), net of tax, pre-adoption     131         131
Net income       26,568       26,568
Balance at Sep. 27, 2018 $ 97 337,327 591 225,661       563,676
Ending balance (in shares) at Sep. 27, 2018 97,326,000              
Increase (Decrease) in Stockholders' Equity [Roll Forward]                
Cumulative effect from adoption $ 0 0 0 (179)       (179)
Balance at Dec. 27, 2018 $ 98 340,462 186 243,563       584,309
Beginning balance (in shares) at Dec. 27, 2018 97,588,000       97,588,539 0 0  
Increase (Decrease) in Stockholders' Equity [Roll Forward]                
Stock-based compensation expense $ 0 2,250 0 0       2,250
Stock-based compensation (in shares) 0              
Exercise of stock options $ 0 1,776 0 0       1,776
Exercise of stock options (in shares) 348,000              
Shares issued under employee stock plan $ 0 1,419 0 0       1,419
Shares issued under employee stock plan (in shares) 61,000              
Other comprehensive gain (loss), net of tax, post-adoption $ 0 0 (334) 0       (334)
Net income 0 0 0 30,720       30,720
Balance at Mar. 28, 2019 $ 98 345,907 (148) 274,104       619,961
Ending balance (in shares) at Mar. 28, 2019 97,997,000              
Balance at Dec. 27, 2018 $ 98 340,462 186 243,563       584,309
Beginning balance (in shares) at Dec. 27, 2018 97,588,000       97,588,539 0 0  
Increase (Decrease) in Stockholders' Equity [Roll Forward]                
Other comprehensive gain (loss), net of tax, post-adoption               (547)
Net income               115,290
Balance at Sep. 26, 2019 $ 101 364,626 (361) 358,674       723,040
Ending balance (in shares) at Sep. 26, 2019 101,025,000       101,025,978 0 0  
Balance at Mar. 28, 2019 $ 98 345,907 (148) 274,104       619,961
Beginning balance (in shares) at Mar. 28, 2019 97,997,000              
Increase (Decrease) in Stockholders' Equity [Roll Forward]                
Stock-based compensation expense $ 0 2,168 0 0       2,168
Stock-based compensation (in shares) 0              
Exercise of stock options $ 1 5,375 0 0       5,376
Exercise of stock options (in shares) 1,090,000              
Issuance of restricted stock award $ 0 0 0 0       0
Issuance of restricted stock award (in shares) 24,000              
Other comprehensive gain (loss), net of tax, post-adoption $ 0 0 (213)         (213)
Net income 0 0 0 43,596       43,596
Balance at Jun. 27, 2019 $ 99 353,450 (361) 317,700       670,888
Ending balance (in shares) at Jun. 27, 2019 99,111,000              
Increase (Decrease) in Stockholders' Equity [Roll Forward]                
Stock-based compensation expense $ 0 2,242 0 0       2,242
Exercise of stock options $ 2 7,908 0 0       7,910
Exercise of stock options (in shares) 1,871,000              
Shares issued under employee stock plan $ 0 1,026 0 0       1,026
Shares issued under employee stock plan (in shares) 43,000              
Other comprehensive gain (loss), net of tax, post-adoption               0
Net income $ 0 0 0 40,974       40,974
Balance at Sep. 26, 2019 $ 101 $ 364,626 $ (361) $ 358,674       $ 723,040
Ending balance (in shares) at Sep. 26, 2019 101,025,000       101,025,978 0 0  
v3.19.3
Condensed Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
9 Months Ended
Sep. 26, 2019
Sep. 27, 2018
Operating activities    
Net income $ 115,290 $ 98,285
Adjustments to reconcile net income to net cash provided by operating activities:    
Depreciation and amortization 53,297 37,043
Loss on asset impairments and disposals 4,111 0
Amortization of tenant improvement allowances 0 (3,277)
Deferred income taxes (6,644) 2,605
Interest cap derivative contracts 323 (878)
Stock based compensation expense 6,660 4,611
Changes in operating assets and liabilities:    
Receivables, net 6,166 (1,627)
Inventories, net (12,943) 13,685
Trade accounts payable 4,847 (20,945)
Accrued expenses and other current liabilities 26,209 (2,352)
Income taxes (4,871) 312
Deferred revenue 3,579 2,806
Deferred rent 0 7,340
Tenant improvement allowances 0 11,974
Other 13,570 (5,883)
Net cash provided by operating activities 209,594 143,699
Investing activities    
Purchases of fixed assets (141,015) (109,395)
Net cash used in investing activities (141,015) (109,395)
Financing activities    
Borrowings on revolving line of credit 100,100 204,050
Payments on revolving line of credit (100,100) (245,050)
Payments on term loans (2,625) (2,625)
Proceeds from exercise of stock options 15,063 9,299
Proceeds from employee stock purchase plan 2,445 0
Net cash provided by (used in) financing activities 14,883 (34,326)
Net increase (decrease) in cash and cash equivalents 83,462 (22)
Cash and cash equivalents, beginning of the period 644 556
Cash and cash equivalents, end of the period 84,106 534
Supplemental disclosures of cash flow information    
Buildings and equipment acquired under operating leases 177,953 0
Cash paid for interest 5,726 5,732
Cash paid for income taxes 12,125 722
Fixed assets accrued at the end of the period $ 23,394 $ 14,500
v3.19.3
Summary of Significant Accounting Policies
9 Months Ended
Sep. 26, 2019
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, vinyl, 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 September 26, 2019, the Company, through its wholly owned subsidiary, Floor and Decor Outlets of America, Inc. (“F&D”), operates 113 warehouse-format stores, which average 76,000 square feet, and one small-format standalone design center in 28 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 ending December 26, 2019 (“fiscal 2019”) and December 27, 2018 (“fiscal 2018”) 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 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 27, 2018 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 2018, filed with the Securities and Exchange Commission (the “SEC”) on February 25, 2019 (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 thirty-nine weeks ended September 26, 2019 and September 27, 2018 are not necessarily indicative of the results to be expected for the full years.

There have been no updates to our Significant Accounting Policies since the Annual Report, except for the accounting policy changes in connection with the newly adopted lease accounting standard outlined in Note 5 to our Condensed Consolidated Financial Statements included in this Quarterly 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.

Recently Issued Accounting Pronouncements

There have been no updates to Recently Issued Accounting Pronouncements that have yet to be adopted 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 February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-02, “Leases (Topic 842).” ASU No. 2016-02 requires that lessees recognize lease assets and lease liabilities on the balance sheet with an option to exclude short-term leases (leases with terms of 12 months or less). The guidance also requires disclosures about the amount, timing, and uncertainty of cash flows arising from leases. We adopted the ASU in the first quarter of fiscal 2019 using the modified retrospective approach. The cumulative effect adjustment upon adoption resulted in an immaterial opening balance sheet reduction to retained earnings. The adoption of ASU No. 2016-02 had a material impact on the Company’s Condensed Consolidated Balance Sheets but did not have a material impact on the Company’s Condensed Consolidated Statements of Operations and Comprehensive Income or Condensed Consolidated Statements of Cash Flows. Refer to Note 5 to our Condensed Consolidated Financial Statements included in this Quarterly Report for further details.

v3.19.3
Revenues
9 Months Ended
Sep. 26, 2019
Revenue from Contract with Customer [Abstract]  
Revenues

2. Revenues

Disaggregated Revenue

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

Thirteen Weeks Ended

Thirteen Weeks Ended

September 26, 2019

September 27, 2018

    

    

    

% of

    

    

% of

Product Category

Net Sales

Net Sales

Net Sales

Net Sales

Tile

$

133,340

 

26

%  

$

119,988

 

28

%

Laminate / Luxury Vinyl Plank

 

116,037

 

22

 

83,667

 

19

Decorative Accessories

 

100,357

 

19

 

82,814

 

19

Installation Materials and Tools

 

88,197

 

17

 

69,412

 

16

Wood

 

51,807

 

10

 

49,005

 

11

Natural Stone

 

31,511

 

6

 

28,025

 

6

Other (1)

 

(156)

 

 

2,971

 

1

Total

$

521,093

 

100

%  

$

435,882

 

100

%

Thirty-nine Weeks Ended

Thirty-nine Weeks Ended

September 26, 2019

September 27, 2018

    

    

    

% of

    

    

% of

Product Category

Net Sales

Net Sales

Net Sales

Net Sales

Tile

$

394,969

 

26

%  

$

360,798

 

28

%

Laminate / Luxury Vinyl Plank

 

321,757

 

21

 

227,995

 

18

Decorative Accessories

 

292,391

 

19

 

244,279

 

19

Installation Materials and Tools

 

256,498

 

17

 

201,194

 

16

Wood

 

153,799

 

10

 

144,401

 

11

Natural Stone

 

95,301

 

6

 

85,564

 

7

Other (1)

 

3,739

 

1

 

8,878

 

1

Total

$

1,518,454

 

100

%  

$

1,273,109

 

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.

v3.19.3
Debt
9 Months Ended
Sep. 26, 2019
Debt  
Debt

3. 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 September 26, 2019 and December 27, 2018, the carrying amounts and fair values of our debt were as follows:

    

September 26,

    

December 27,

in thousands

2019

2018

Total debt at par value

$

146,375

$

149,000

Less: unamortized discount and debt issuance costs

 

3,087

 

3,666

Net carrying amount

$

143,288

$

145,334

Fair value

$

145,643

$

147,883

v3.19.3
Income Taxes
9 Months Ended
Sep. 26, 2019
Income Taxes  
Income Taxes

4. Income Taxes

Effective tax rates for the thirteen and thirty-nine weeks ended September 26, 2019 and September 27, 2018 were based on the Company’s forecasted annualized effective tax rates and were adjusted for discrete items, such as stock option exercises, that occurred within each period. Our effective income tax rates were (39.3)% and 17.1% for the thirteen weeks ended September 26, 2019 and September 27, 2018, respectively. The lower effective tax rate for the current period was primarily due to the recognition of higher excess tax benefits related to stock options exercised than in the corresponding prior year period

Our effective income tax rates were (4.9)% and 3.5% for the thirty-nine weeks ended September 26, 2019 and September 27, 2018, respectively. The lower effective tax rate for the thirty-nine weeks ended September 26, 2019 was primarily due to the recognition of higher excess tax benefits related to stock options exercised than in the corresponding prior year period.

v3.19.3
Commitments and Contingencies
9 Months Ended
Sep. 26, 2019
Commitments and Contingencies.  
Commitments and Contingencies

5. Commitments and Contingencies

Lease Commitments

In the first quarter of fiscal 2019, we adopted ASU No. 2016-02, Leases (Topic 842), which requires that lessees recognize lease assets and lease liabilities for all leases on the balance sheet with an option to exclude short-term leases (leases with terms of 12 months or less), which we elected. We adopted ASU No. 2016-02 using the modified retrospective approach and elected the package of practical expedients to use in transition, which permitted us not to reassess, under the new standard, our prior conclusions about lease identification and lease classification. The cumulative effect adjustment upon adoption of ASU No. 2016-02 resulted in an immaterial adjustment to retained earnings. The adoption also resulted in the addition of $620.8 million of right-of-use assets and a corresponding $683.0 million of lease liabilities to our balance sheet, while eliminating deferred rent and tenant improvement allowances. Additionally, we do not separate lease and nonlease components of contracts.

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 2040. The initial lease terms for these facilities range from 10-15 years, with the exception of two buildings which have 20-year initial lease terms. 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. Additionally, one building lease contains variable lease payments, which are determined based on a percentage of retail sales over a contractual level, and we sublease real estate within one distribution center to a third party. Certain of our lease agreements include escalating rents over the lease terms which, under Topic 842, results in rent being expensed on a straight-line basis over the life of the lease that commences on the date we have the right to control the property. Our lease agreements do not contain any residual value guarantees or restrictive covenants that would reasonably be expected to have a material impact on our business.

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.

Lease Position

The table below presents supplemental balance sheet information related to operating leases.

As of

in thousands, except lease term and discount rate

Classification

September 26, 2019

Assets

Building

Right-of-use assets

$

732,345

Equipment

Right-of-use assets

6,947

Land

Right-of-use assets

194

Software

Right-of-use assets

4,031

Total operating lease assets

$

743,517

Liabilities

 

Current

 

Building

Current portion of lease liabilities

$

47,747

Equipment

Current portion of lease liabilities

3,303

Land

Current portion of lease liabilities

85

Software

Current portion of lease liabilities

1,982

Total current operating lease liabilities

53,117

Noncurrent

Building

Lease liabilities

769,510

Equipment

Lease liabilities

4,066

Land

Lease liabilities

114

Software

Lease liabilities

2,148

Total noncurrent operating lease liabilities

775,838

Total operating lease liabilities

$

828,955

Weighted-average remaining lease term

 

10 years

Weighted-average discount rate

5.2%

Lease Costs

The table below presents components of lease expense for operating leases.

    

Thirteen Weeks Ended

    

Thirty-nine Weeks Ended

in thousands

Classification

September 26, 2019

September 26, 2019

Operating lease cost (1)

Selling and store operating

$

29,978

$

84,907

Operating lease right-of-use asset impairment

General and administrative

4,136

4,136

Sublease income

Selling and store operating

 

(588)

 

(1,817)

Total lease cost

$

33,526

$

87,226

(1) Includes variable lease costs, which are immaterial.

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 September 26, 2019, were:

in thousands

    

Amount

Thirteen weeks ending December 26, 2019

$

19,609

2020

 

108,355

2021

 

118,784

2022

 

111,501

2023

 

108,266

Thereafter

 

623,390

Total minimum lease payments (2)

$

1,089,905

Less: amount of lease payments representing interest

260,950

Present value of future minimum lease payments

828,955

Less: current obligations under leases

53,117

Long-term lease obligations

$

775,838

(2) Future lease payments exclude approximately $209.4 million of legally binding minimum lease payments for operating leases signed but not yet commenced.

For the thirty-nine weeks ended September 26, 2019, cash paid for operating leases was $80.2 million.

Right-of-use Asset Impairment

Long-lived assets, such as operating lease right-of-use assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Conditions that may indicate impairment include, but are not limited to, a significant adverse change in customer demand or business climate that could affect the value of an asset, a product recall, or an adverse action by a regulator. In accordance with ASC 360, the evaluation is performed at the lowest level for which identifiable cash flows are available that are largely independent of the cash flows of other assets or asset groups. If the sum of the estimated undiscounted future cash flows is less than the carrying value of the related asset or asset group, an impairment loss is recognized equal to the difference between carrying value and fair value.

During the thirteen weeks ended September 26, 2019, we began the move from our former Store Support Center in Smyrna, Georgia to a nearby location in Atlanta, Georgia. Prior to this period, we expected to fully cover future payments under the operating lease agreement with proceeds from a sublease. As of the end of the current quarter, we no longer expected to find a sublease tenant that would fully cover these future payments and concluded that the right-of-use asset related to the operating lease was not recoverable. Therefore, we determined the fair value of the right-of-use asset based on a discounted cash flow analysis reflective of the income expected from a sublease. Based on the excess of the asset’s carrying value over fair value, we recognized an impairment of $4.1 million. The operating lease right-of-use asset for the Smyrna, Georgia Store Support Center is classified within level 3 of the fair value hierarchy based on the use of unobservable inputs that were significant to the fair value measurement. The impairment had no impact on our lease liability.

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 in this lawsuit, which is in the early stages and has not yet been certified as a class, and intends to defend itself vigorously. In addition, the Company

maintains insurance that may cover any liability arising out of this 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 this 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.

v3.19.3
Stock-Based Compensation
9 Months Ended
Sep. 26, 2019
Stock-Based Compensation Abstract  
Stock-Based Compensation

6. Stock Based Compensation

At our 2018 annual meeting of stockholders held on May 17, 2018, our stockholders approved the Floor & Decor Holdings, Inc. Employee Stock Purchase Plan (the “ESPP”), which became available to substantially all of our employees beginning in the third quarter of fiscal 2018. The ESPP permits eligible employees to purchase shares of our common stock through payroll deductions, subject to certain limitations. The purchase price of the shares under the ESPP will in no event be less than the lesser of 85% of the lower of the fair market value of our common stock on either the first or last trading day of each six-month offering period. There were 1,500,000 shares of our Class A common stock, par value $0.001 per share, originally approved for issuance under the ESPP. During the thirteen and thirty-nine weeks ended September 26, 2019, the Company recognized $130 and $400 thousand of stock-based compensation expense related to the ESPP, respectively.

v3.19.3
Earnings Per Share
9 Months Ended
Sep. 26, 2019
Earnings Per Share  
Earnings Per Share

7. 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

    

Thirty-nine Weeks Ended

September 26,

September 27,

September 26,

September 27,

in thousands, except per share data

2019

    

2018

2019

    

2018

Net income

$

40,974

$

26,568

$

115,290

$

98,285

Basic weighted average shares outstanding

 

100,137

 

97,254

 

98,855

 

96,551

Dilutive effect of share based awards

 

5,043

7,311

 

5,957

8,185

Diluted weighted average shares outstanding

 

105,180

 

104,565

 

104,812

 

104,736

Basic earnings per share

$

0.41

$

0.27

$

1.17

$

1.02

Diluted earnings per share

$

0.39

$

0.25

$

1.10

$

0.94

The following awards have been excluded from the computation of dilutive earnings per share because the effect would be anti-dilutive:

    

Thirteen Weeks Ended

    

Thirty-nine Weeks Ended

September 26,

September 27,

September 26,

September 27,

in thousands

2019

2018

2019

2018

Stock options

 

281

 

209

 

997

 

168

v3.19.3
Subsequent Events
9 Months Ended
Sep. 26, 2019
Subsequent Events  
Subsequent Events

8. Subsequent Event

In October 2018, we signed a lease to relocate our Store Support Center to a nearby location in Atlanta, Georgia. During October 2019, we completed our move to the new location and terminated the lease for our previous Store Support Center facility in Smyrna, Georgia. As a result, we recognized a loss of $2.1 million related to the settlement of our remaining obligations under the lease and the write off of the remaining right-of-use asset for the facility upon lease termination.

v3.19.3
Summary of Significant Accounting Policies (Policies)
9 Months Ended
Sep. 26, 2019
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 ending December 26, 2019 (“fiscal 2019”) and December 27, 2018 (“fiscal 2018”) 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 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 27, 2018 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 2018, filed with the Securities and Exchange Commission (the “SEC”) on February 25, 2019 (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 thirty-nine weeks ended September 26, 2019 and September 27, 2018 are not necessarily indicative of the results to be expected for the full years.

Recent Accounting Pronouncements

Recently Issued Accounting Pronouncements

There have been no updates to Recently Issued Accounting Pronouncements that have yet to be adopted 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 February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-02, “Leases (Topic 842).” ASU No. 2016-02 requires that lessees recognize lease assets and lease liabilities on the balance sheet with an option to exclude short-term leases (leases with terms of 12 months or less). The guidance also requires disclosures about the amount, timing, and uncertainty of cash flows arising from leases. We adopted the ASU in the first quarter of fiscal 2019 using the modified retrospective approach. The cumulative effect adjustment upon adoption resulted in an immaterial opening balance sheet reduction to retained earnings. The adoption of ASU No. 2016-02 had a material impact on the Company’s Condensed Consolidated Balance Sheets but did not have a material impact on the Company’s Condensed Consolidated Statements of Operations and Comprehensive Income or Condensed Consolidated Statements of Cash Flows. Refer to Note 5 to our Condensed Consolidated Financial Statements included in this Quarterly Report for further details.

v3.19.3
Revenues (Tables)
9 Months Ended
Sep. 26, 2019
Disaggregation of Revenue [Abstract]  
Disaggregated Revenue

Thirteen Weeks Ended

Thirteen Weeks Ended

September 26, 2019

September 27, 2018

    

    

    

% of

    

    

% of

Product Category

Net Sales

Net Sales

Net Sales

Net Sales

Tile

$

133,340

 

26

%  

$

119,988

 

28

%

Laminate / Luxury Vinyl Plank

 

116,037

 

22

 

83,667

 

19

Decorative Accessories

 

100,357

 

19

 

82,814

 

19

Installation Materials and Tools

 

88,197

 

17

 

69,412

 

16

Wood

 

51,807

 

10

 

49,005

 

11

Natural Stone

 

31,511

 

6

 

28,025

 

6

Other (1)

 

(156)

 

 

2,971

 

1

Total

$

521,093

 

100

%  

$

435,882

 

100

%

Thirty-nine Weeks Ended

Thirty-nine Weeks Ended

September 26, 2019

September 27, 2018

    

    

    

% of

    

    

% of

Product Category

Net Sales

Net Sales

Net Sales

Net Sales

Tile

$

394,969

 

26

%  

$

360,798

 

28

%

Laminate / Luxury Vinyl Plank

 

321,757

 

21

 

227,995

 

18

Decorative Accessories

 

292,391

 

19

 

244,279

 

19

Installation Materials and Tools

 

256,498

 

17

 

201,194

 

16

Wood

 

153,799

 

10

 

144,401

 

11

Natural Stone

 

95,301

 

6

 

85,564

 

7

Other (1)

 

3,739

 

1

 

8,878

 

1

Total

$

1,518,454

 

100

%  

$

1,273,109

 

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.

v3.19.3
Debt (Tables)
9 Months Ended
Sep. 26, 2019
Debt  
Schedule of fair value debt

    

September 26,

    

December 27,

in thousands

2019

2018

Total debt at par value

$

146,375

$

149,000

Less: unamortized discount and debt issuance costs

 

3,087

 

3,666

Net carrying amount

$

143,288

$

145,334

Fair value

$

145,643

$

147,883

v3.19.3
Commitments and Contingencies (Tables)
9 Months Ended
Sep. 26, 2019
Commitments and Contingencies.  
Schedule of supplemental balance sheet information related to operating leases

As of

in thousands, except lease term and discount rate

Classification

September 26, 2019

Assets

Building

Right-of-use assets

$

732,345

Equipment

Right-of-use assets

6,947

Land

Right-of-use assets

194

Software

Right-of-use assets

4,031

Total operating lease assets

$

743,517

Liabilities

 

Current

 

Building

Current portion of lease liabilities

$

47,747

Equipment

Current portion of lease liabilities

3,303

Land

Current portion of lease liabilities

85

Software

Current portion of lease liabilities

1,982

Total current operating lease liabilities

53,117

Noncurrent

Building

Lease liabilities

769,510

Equipment

Lease liabilities

4,066

Land

Lease liabilities

114

Software

Lease liabilities

2,148

Total noncurrent operating lease liabilities

775,838

Total operating lease liabilities

$

828,955

Weighted-average remaining lease term

 

10 years

Weighted-average discount rate

5.2%

Schedule of components of lease expense

    

Thirteen Weeks Ended

    

Thirty-nine Weeks Ended

in thousands

Classification

September 26, 2019

September 26, 2019

Operating lease cost (1)

Selling and store operating

$

29,978

$

84,907

Operating lease right-of-use asset impairment

General and administrative

4,136

4,136

Sublease income

Selling and store operating

 

(588)

 

(1,817)

Total lease cost

$

33,526

$

87,226

(1) Includes variable lease costs, which are immaterial.

Schedule of Future minimum lease payments under non cancelable operating leases

in thousands

    

Amount

Thirteen weeks ending December 26, 2019

$

19,609

2020

 

108,355

2021

 

118,784

2022

 

111,501

2023

 

108,266

Thereafter

 

623,390

Total minimum lease payments (2)

$

1,089,905

Less: amount of lease payments representing interest

260,950

Present value of future minimum lease payments

828,955

Less: current obligations under leases

53,117

Long-term lease obligations

$

775,838

(2) Future lease payments exclude approximately $209.4 million of legally binding minimum lease payments for operating leases signed but not yet commenced.

v3.19.3
Earnings Per Share (Tables)
9 Months Ended
Sep. 26, 2019
Earnings Per Share  
Schedule of computation of basic and diluted earnings per share

    

Thirteen Weeks Ended

    

Thirty-nine Weeks Ended

September 26,

September 27,

September 26,

September 27,

in thousands, except per share data

2019

    

2018

2019

    

2018

Net income

$

40,974

$

26,568

$

115,290

$

98,285

Basic weighted average shares outstanding

 

100,137

 

97,254

 

98,855

 

96,551

Dilutive effect of share based awards

 

5,043

7,311

 

5,957

8,185

Diluted weighted average shares outstanding

 

105,180

 

104,565

 

104,812

 

104,736

Basic earnings per share

$

0.41

$

0.27

$

1.17

$

1.02

Diluted earnings per share

$

0.39

$

0.25

$

1.10

$

0.94

Schedule of awards excluded from computation

    

Thirteen Weeks Ended

    

Thirty-nine Weeks Ended

September 26,

September 27,

September 26,

September 27,

in thousands

2019

2018

2019

2018

Stock options

 

281

 

209

 

997

 

168

v3.19.3
Summary of Significant Accounting Policies (Details)
ft² in Thousands
9 Months Ended 12 Months Ended
Sep. 26, 2019
ft²
facility
segment
state
Dec. 26, 2019
Dec. 27, 2018
Dec. 31, 2015
Real Estate Properties [Line Items]        
Number of reportable segments | segment 1      
Number of states with facilities | state 28      
Number of distribution centers 3      
Fiscal year period   364 days 364 days 371 days
Fiscal quarter period 91 days      
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 113      
Area of facility | ft² 76      
Small Format Store [Member]        
Real Estate Properties [Line Items]        
Number of stores 1      
v3.19.3
Disaggregated Revenue (Details) - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Sep. 26, 2019
Sep. 27, 2018
Sep. 26, 2019
Sep. 27, 2018
Net Sales $ 521,093 $ 435,882 $ 1,518,454 $ 1,273,109
Revenue from Contract with Customer, Product and Service Benchmark [Member] | Product Concentration Risk [Member]        
Net Sales $ 521,093 $ 435,882 $ 1,518,454 $ 1,273,109
% of Net Sales 100.00% 100.00% 100.00% 100.00%
Tile | Revenue from Contract with Customer, Product and Service Benchmark [Member] | Product Concentration Risk [Member]        
Net Sales $ 133,340 $ 119,988 $ 394,969 $ 360,798
% of Net Sales 26.00% 28.00% 26.00% 28.00%
Decorative Accessories | Revenue from Contract with Customer, Product and Service Benchmark [Member] | Product Concentration Risk [Member]        
Net Sales $ 100,357 $ 82,814 $ 292,391 $ 244,279
% of Net Sales 19.00% 19.00% 19.00% 19.00%
Laminate Luxury Vinyl Plank | Revenue from Contract with Customer, Product and Service Benchmark [Member] | Product Concentration Risk [Member]        
Net Sales $ 116,037 $ 83,667 $ 321,757 $ 227,995
% of Net Sales 22.00% 19.00% 21.00% 18.00%
Installation Materials And Tools | Revenue from Contract with Customer, Product and Service Benchmark [Member] | Product Concentration Risk [Member]        
Net Sales $ 88,197 $ 69,412 $ 256,498 $ 201,194
% of Net Sales 17.00% 16.00% 17.00% 16.00%
Wood | Revenue from Contract with Customer, Product and Service Benchmark [Member] | Product Concentration Risk [Member]        
Net Sales $ 51,807 $ 49,005 $ 153,799 $ 144,401
% of Net Sales 10.00% 11.00% 10.00% 11.00%
Natural Stone | Revenue from Contract with Customer, Product and Service Benchmark [Member] | Product Concentration Risk [Member]        
Net Sales $ 31,511 $ 28,025 $ 95,301 $ 85,564
% of Net Sales 6.00% 6.00% 6.00% 7.00%
Other | Revenue from Contract with Customer, Product and Service Benchmark [Member] | Product Concentration Risk [Member]        
Net Sales $ (156) $ 2,971 $ 3,739 $ 8,878
% of Net Sales 0.00% 1.00% 1.00% 1.00%
v3.19.3
Debt - Fair Value of Debt (Details) - USD ($)
$ in Thousands
Sep. 26, 2019
Dec. 27, 2018
Debt Instrument [Line Items]    
Total debt at par value $ 146,375 $ 149,000
Less: unamortized discount and debt issuance costs 3,087 3,666
Net carrying amount 143,288 145,334
Level 3    
Debt Instrument [Line Items]    
Fair value $ 145,643 $ 147,883
v3.19.3
Income Taxes (Details)
3 Months Ended 9 Months Ended
Sep. 26, 2019
Sep. 27, 2018
Sep. 26, 2019
Sep. 27, 2018
Income Taxes        
Effective income tax rate (as a percent) (39.30%) 17.10% (4.90%) 3.50%
v3.19.3
Commitments and Contingencies - Lease costs (Details)
$ in Thousands
3 Months Ended 9 Months Ended
Dec. 27, 2018
USD ($)
Sep. 26, 2019
USD ($)
Sep. 26, 2019
USD ($)
facility
item
Dec. 28, 2018
USD ($)
Lease Commitments        
Lease, Practical Expedients, Package [true false] true      
Right-of-use assets $ 0 $ 743,517 $ 743,517  
Operating lease liability   828,955 $ 828,955  
Lease term for 1 particular lease     20 years  
Number of leases with longer term | item     2  
Existence of option to extend     true  
Number of leases with variable payments | facility     1  
Number of distribution centers subleased | facility     1  
Existence of residual value guarantee     false  
Current portion of lease liability 0 53,117 $ 53,117  
Lease liabilities $ 0 $ 775,838 $ 775,838  
Weighted average remaining lease term   10 years 10 years  
Weighted average discount rate   5.20% 5.20%  
Lease, Cost [Abstract]        
Operating lease cost   $ 29,978 $ 84,907  
Operating lease, right-of-use asset impairment   4,136 4,136  
Sublease income   (588) (1,817)  
Lease, Cost, Total   33,526 87,226  
Building [Member]        
Lease Commitments        
Right-of-use assets   732,345 732,345  
Current portion of lease liability   47,747 47,747  
Lease liabilities   769,510 769,510  
Equipment [Member]        
Lease Commitments        
Right-of-use assets   6,947 6,947  
Current portion of lease liability   3,303 3,303  
Lease liabilities   4,066 4,066  
Land [Member]        
Lease Commitments        
Right-of-use assets   194 194  
Current portion of lease liability   85 85  
Lease liabilities   114 114  
Software and Software Development Costs [Member]        
Lease Commitments        
Right-of-use assets   4,031 4,031  
Current portion of lease liability   1,982 1,982  
Lease liabilities   $ 2,148 $ 2,148  
Minimum        
Lease Commitments        
Lease term   10 years 10 years  
Maximum        
Lease Commitments        
Lease term   15 years 15 years  
Accounting Standards Update 2016-02 [Member] | Restatement Adjustment [Member]        
Lease Commitments        
Right-of-use assets       $ 620,800
Operating lease liability       $ 683,000
v3.19.3
Commitments and Contingencies - Lease Maturity (Details) - USD ($)
$ in Thousands
9 Months Ended
Sep. 26, 2019
Dec. 27, 2018
Lessee, Operating Lease, Liability, Payment, Due [Abstract]    
Thirteen weeks ended December 26, 2019 $ 19,609  
2020 108,355  
2021 118,784  
2022 111,501  
2023 108,266  
Thereafter 623,390  
Total minimum lease payments 1,089,905  
Amount representing interest 260,950  
Operating Lease, Liability, Total 828,955  
Current portion of lease liability 53,117 $ 0
Long-term lease obligations 775,838 $ 0
Minimum lease payments for leases not yet commenced 209,400  
Cash paid during the period against operating lease liabilities $ 80,200