Earnings Call: Q1 2021

May 6, 2021

Welcome to the floor into Cora Holdings, Inc. 1st Quarter 2021 Earnings Call. As a reminder, this conference is being recorded. I would now like to turn the conference over to Wayne Hood, Vice President of Investor Relations. Please go ahead. Thank you, operator, and good afternoon, everyone. Joining me on our earnings conference call today are Tom Taylor, Chief Executive Officer will be available at the Investor Relations website. Please note that our press release will be posted on the call for the call. Before we get started, I would like to remind everyone of the company's Safe Harbor language. Comments made during this conference call and webcast contain forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and are subject to risks and uncertainties. Any statement that refers to expectations, projections or other characterizations of future events, including financial projections or future market conditions is a forward looking statement. The company's actual future results could differ materially from those expressed in such forward looking statements for any reason, including those listed in its SEC filings. Warned of Corus' means no obligation to update any such forward looking statements. Please also note that past performance or market information will be available on the call for today's call. During this conference call, the company will discuss non GAAP financial measures as defined by SEC Regulation G, we believe non GAAP disclosures enable investors to better understand our core operating performance on a comparable basis between periods. A reconciliation of each of these non GAAP measures to the most directly comparable GAAP financial measure can be found in the earnings press release, which is available on our Investor Relations website at ir. Flooranddecor.com. A recorded replay of this call together with related materials will be available on our Investor Relations website. Let me now turn the call over to Tom. Thank you, Wayne, and thanks to everyone for joining us on our fiscal 2021 Q1 earnings conference call. On today's call, I will discuss some of the highlights of our strong fiscal 2021 Q1 earnings results. Trevor will then review our take a look at the financial performance and discuss how we are thinking about the remainder of fiscal 2021, and then we will open the call for your questions. We could not be more pleased with our fiscal 2021 Q1 earnings results, which are supported by the favorable macroeconomic environment and our excellent execution amidst strong comparable store sales growth. Our Q1 2021 total sales exceeded our expectations, are increasing 41 percent or $227,600,000 to $782,500,000 are participating in the Q1 of 2020. We are particularly proud that our fiscal 2021 Q1 total sales are equivalent to our full year 2015 annual sales, which is a testament to the execution of our business plan and our resulting growth. Our Q1 2021 comparable store sales increased is 31.1% and represented the strongest quarterly comparable store sales growth in our company's history. It is also notable that our customer service scores improved during this period of strong growth as we continue to focus on serving our customers with on trend products. Our fiscal 2021 Q1 adjusted EBITDA also exceeded our expectations, increasing 74% to 100 and are participating in the Q1 of fiscal 2020 as our adjusted EBITDA margin increased 300 basis points to 16.2%. Our fiscal 2021 adjusted 1st quarter diluted earnings per share increased 100% take a look at the Q1 of fiscal 2020. Let me now provide an update on each of our 5 strategic pillars of growth, begin with new store growth. We successfully opened a 1st quarter record 7 new warehouse stores in the Q1 of fiscal 2021, will be available to more than double the 3 new warehouse stores we opened in the Q1 of fiscal 2020. Recall that last year, we delayed 2 of our store openings in late March due to state and local construction restrictions caused by the COVID-nineteen pandemic. In fiscal 2021, we opened 2 new warehouse stores in each of January in February and 3 new warehouse stores in March, including new market openings in Pleasant Hill, California and Danbury, Connecticut. As we look to the Q2 of fiscal 2021, we expect to open 8 new warehouse stores with most of the openings occurring in late June. We continue to believe that the timing of our 2021 store openings will allow us to achieve our long desired objective of balanced quarterly store openings. Take a moment to open 27 new warehouse stores, an increase of 20.3% from 2020. We are also continuing to move forward with opening 2 more design studios in the Q4 of fiscal 2021 with openings in Miami and Houston. All participants will be in the range of $1,000,000,000. Finally, we remain very pleased with the sales performance among all of our store vintages. We were particularly pleased with some of our most mature stores. Based on the early strong results, we continue to believe that the new store classes of 2020 2021 will represent the strongest classes in our history from both a top line and profit perspective. Moving on to the 1st quarter comparable store sales was driven by strong 29.2% growth in comparable store customer transactions and 1.5% growth in our comparable store average ticket. There was a favorable shift towards our better and best price points in the Q1 when compared with last year. This shift is the direct result of being able to offer our homeowners and pros clear and compelling trade up options. The recent launch of our Optimax Eco Resilient Flooring and our large format tile offerings are just a couple of examples take 30.1% in January, 19.2% in February and 41.3% in March. There are a couple of events that influenced our monthly sales that we want to highlight. First, the shift in timing caused are expected to be in the 53rd week in fiscal 2020, historically a low volume week, benefited our January comparable store sales our comparable store sales would have increased approximately 24.5% in January. 2nd, In February 2021, about 20% of our stores were impacted by severe weather over multiple days and multiple states have slowed our sales in weeks 7 and 8. We estimate this adversely impacted our February comparable store sales by 500 basis had a strong quarter of record sales by 300 basis points. That said, the net impact from the severe weather on our 2021 Q1 comparable store sales was not material. 3rd, the final 6 days of the Q1 of fiscal to 2020, we limited our stores to curbside pickup, which resulted in a 46% decline in our comparable store sales during that period. This created an easy sales comparison and was a significant contributing factor to the strong sales increase in fiscal March 2021. We estimate our Q1 comparable store sales would have increased approximately 26.5% after adjusting for the benefit of the 53rd week shift and adjusting for the benefit of the decline in March 2020 sales when we were limited to curbside pickup. As we look at our 2nd quarter sales results to date, Our comparable store sales increased 170%, but that is comparing against the negative 50% last year due to our stores being closed to the public we believe a better way to evaluate our sales trends is to compare our total sales growth to 2019 as 2019 was more of a normal year. By doing so, our Q1 2021 net sales grew at a 28% compounded annual growth rate and our Q2 2021 date net sales have grown at a similar compound annual growth rate so far. We expect our comparable store sales growth to be elevated in the Q2, but moderate through the quarter as our stores began to reopen in early May last take this call to the call to questions. Thank you, Steve. Thank you, Steve. Good morning, everyone. I'll turn the call over to take 7.7% in June. We are excited about our sales momentum and the prospects of achieving our 13th consecutive year of comparable store take a look at our sales growth in fiscal 2021. From a merchandising perspective, all of our product categories experienced double digit 1st quarter 2021 comparable store sales growth. Comparable store sales in laminate and luxury vinyl plank, decorative accessories and adjacent categories were above the company average. The broad based strength in our merchandising categories is a continuation of trends from the second half of twenty twenty and further validates our position as the one stop solution for all our customers' hard surface flooring needs. We are continuing to consistently deliver on our strategy of offering our homeowners and pros the broadest, most differentiated and trend forward assortment in every category. Our large stores enable us to provide unmatched visual inspiration of all of our categories using larger displays, take a look at the slide caps, end caps and vignettes when compared with our competition. We complement this with in stock job lock quantities at the widest range take a look at the outlook for the Q1 of 2019. Let me turn my comments to our supply chain. We, like many companies, have been challenged by the constraints in the global supply and transportation chains that were brought on by the COVID-nineteen pandemic and unexpectedly strong demand. We are navigating these challenges amidst are exceptionally strong growth by focusing on securing international container capacity as well as North American logistics capacity. Between the 1st and second quarters of fiscal 2021, we have added significantly more capacity to our Ocean and North American logistics to align with our strong growth. We are fortunate to have agreements with our dedicated fleet, one way asset based carriers and ocean carriers to secure additional capacity and minimize costs. That said, we can pay premiums on surge capacity when necessary to maintain product flow. These strategies and our broad assortments have enabled us to offer our homeowners and alternative products where there are specific product availability challenges. Our 3rd strategic pillar of growth is expanding our connected customer experience. Are in the range of $1,000,000 and accounting for a meaningful 16.6 percent of our sales compared with 14.2% during the same period last year. We continue to see strong double digit growth from paid and organic searches as well as direct traffic to our website as our customers are choosing to engage with our brand as they begin their flooring purchase journey. We are continuing to make investments towards delivering an unmatched personalized customer experience. I'll take a moment to turn the call over to Eric. For example, in the Q1 of 2021, we enabled customers to upload their room photos into our visualizer rather than using one of our stock room photos. This now permits them to view our products in their home setting. We are also taking additional actions to further optimize the speed of our website and the mobile experience, we completed another large site upgrade and redesign, which further enhances search and our site pages. We believe these continuing investments will lead to further strong e commerce performance metrics and growth for the years to come. Our 4th pillar of growth rests on have the successful investments we are making in our Pro and commercial customers to grow our market share. We continue to be pleased with the accelerating growth trends in our award winning Pro Premier awards PPR program, which drives engagement and loyalty with new and existing PROs. Today, about 80% of our PRO sales come from our PPR members. Year to date, enrollment in the PPR program has increased 50% from last year and was up 76% in March. Year to date points earned and redeemed increased 50% and 77%, respectively, validating the value of the program. As we look to the remainder of fiscal 2021 2022, we are exploring opportunities that will further drive pro engagement and take a few questions from our Q1 of 2019. From a product standpoint, we are continuing to make investments to grow our take a look at our Pro brand equity as a supply house and are excited about adding LATICRETE, a leading installations material brand to our assortment in 2021. We are now able to offer PROS multiple leading brands and complete assortments, which will allow us to more easily cross over into their listen to the wholesale distribution channel. We continue to be very pleased with the strong growth in commercial sales, particularly those sales that are originated by Regional Account Managers or RAMs, which are now in most of our major markets. While sales from our regional account managers are small relative to the size of our retail business, We are excited about the growth opportunity and plan to add approximately 14 regional account managers in fiscal 2021. I'll take a moment to turn the call over to Steve. Over time, we expect commercial sales to become a material part of our growth as we leverage Floor and Decor's core strength in merchandising and direct sourcing. Let me now discuss the progress we are making with our free design services, the 5th pillar of our growth. We continue to be pleased with the momentum in design services have strategies in place that we believe will sustain strong growth for years to come. Q1 2021 design appointments increased 100% from the first quarter of 2020 and design service sales penetration increased 2 90 basis points year over year. Importantly, our customer experience and social reputation scores are strong. We are continuing to build on our success by further elevating the talent in the design services and exploring ways to create career paths to attract and retain high caliber designers. As we have discussed in the past, we are focused on building a consistent, high touch, best in class and seamless design service experience for our Homeowner and Pro customers. To do so, we are further building out and updating key performance metrics and management dashboards to enhance productivity. We believe we are in the early stages of developing long term competitive advantage through our free design services. Let me close by saying that our strong fiscal 2021 Q1 earnings reflect the unwavering efforts by our associates to serve our customers. Our entire executive leadership team would like to thank them for all of their hard work and dedication. I will now turn the call over to Trevor to discuss in more detail are participating in the Q1 sales and earnings results, which are supported by the favorable macroeconomic environment and excellent execution of our store strategies by our associates. Their execution led to exceptionally strong sales and earnings flow through in the Q1 of fiscal 2021. Let will discuss some of the changes among the major lines in our Q1 income statement, balance sheet and statement of cash flow, and then I will discuss how we're thinking about take the remainder of fiscal 2021. Our Q1 2021 gross profit increased $100,900,000 or 42.7 percent compare to the corresponding prior year period. The increase in gross profit was driven by a 41% increase in total sales and an increase in gross margins of 43.1%, are up approximately 60 basis points from 42.5% in the same period a year ago. The increase in our gross margin was are in the range of $1,000,000 primarily due to improved leverage of our distribution center and supply chain infrastructure on higher sales. Turning to our fiscal 2021 expenses, selling and store operating expenses increased $36,900,000 or 24.1 percent from the same period last year. The increase was primarily attributable to 17 new will be available to our Q1 of 2019. We will now begin the call to review our Q1 of 2019. Please turn to Slide 9. Thank you, Steve. Thank you, Steve. Thank you, Steve. Thank you, Steve. Thank you, Steve. Thank you, Steve. Good morning, everyone. As a percentage of the net sales, selling and store operating expenses decreased approximately 330 basis points to 24.3% from 27.6% in the corresponding prior year period. This decrease was primarily driven by leveraging our cost across an increase in comparable store sales. Comparable store selling and store operating expenses as a percentage of comparable store sales decreased approximately 3.90 basis points as we leveraged payroll and occupancy costs from strong sales. 1st quarter general and administrative expenses increased $13,200,000 or 42.7 percent from the same period last year, participants are participating in the Q1 of 2019. On a rate basis, our general and administrative expenses as a percentage of net sales remained flat at approximately 5 point percent during the 13 weeks ended April 1, 2021 March 26, 2020. Our first quarter preopening expenses increased $1,600,000 or 28.8 percent from the same period last year. This increase is primarily the result of an increase in the number of stores that we either opened or we're preparing to open compared to the prior year period. 1st quarter net interest expense decreased $400,000 or 23.2 percent from the same period last year. The decrease in interest expense was primarily due to an increase in interest capitalized during the construction period of certain capital assets during the Q1 of 2021 refer to the corresponding prior year period. Our Q1 effective tax rate was 19.8% compared to 17.4% in the same period last year. The increase in our effective tax rate was primarily due to higher earnings without a proportional increase in available tax credits and the recognition have lower excess tax benefits related to stock option exercises during the current quarter compared to the same period last year. Are participating. Moving on to our profitability, while our Q1 total sales increased 41%, our adjusted EBITDA increased 73.8 represent to $127,100,000 from $73,100,000 during the same period last year. The improvement in our gross margin rate and expense leverage led to a 300 basis point increase in our EBITDA margin to 16.2% from 13.2% last year. We are proud that our Q1 2021 adjusted EBITDA in isolation now exceeds our annual 2016 adjusted EBITDA of 108,000,000 take a moment to turn the call over to Mr. Earnings Call. Thank you, Steve. Thank you, Steve. Our first quarter adjusted net income increased 100% to 72,700,000 were $0.68 per diluted share from $36,300,000 or $0.34 per diluted share last year. We We ended the Q1 with 107,100,000 diluted weighted average shares outstanding compared with 105,500,000 last year. Moving on to our Q1 fiscal 2021 balance sheet and cash flow. As of April 1, 2021, there was 207,000,000 take a moment to discuss the balance sheet compared with $419,600,000 of term and ABL debt outstanding during the same period last year. Last year, as a precautionary and proactive measure as uncertainty in the credit markets escalated, We drew down $275,000,000 or approximately 80% of what was available on our ABL facility. We subsequently paid down $275,000,000 in the ABL in the Q2 of 2020 as we have better visibility into the business and our liquidity needs. When considering our Q1 2021 cash have cash on hand of $354,100,000 We had no net debt outstanding at the end of the Q1 of 2021 Due to our strong earnings growth and favorable working capital, this led to our Q1 operating cash flow increasing 4 fold to 101,000,000 from $24,700,000 during the same period last year. Our strong earnings growth, cash flow and balance sheet enable us to consider taking on more ownership of stores rather than leasing them and accelerating store and customer facing technology investments to further enhance the shopping experience across all of our channels. We believe these investments will place us in an even stronger position competitively, take a moment to longer term EBITDA margin expansion, while also helping us in the event of another cyclical decline in the economic activity. Let me now turn my comments as to how we're thinking about fiscal 2021. From a macroeconomic perspective, we have seen fiscal and monetary policies be very accommodative, which we believe will continue to provide tailwinds for the existing and new home sales. Additionally, the secular demand for homes continues to exceed available take a few questions. Thank you, Steve. Thank you, Steve. Thank you, Steve. Thank you, Steve. Thank you, Steve. Thank you, Steve. Thank you, Steve. Thank you, Steve. Thank you, Steve. Thank you, Steve. Thank you, Steve. Thank you, Steve. Thank you, Steve. Thank you, Steve. Thank you, Steve. Thank you, Steve. Thank you, Steve. Thank you, Steve. Good morning, everyone. A peek. It remains historically elevated, giving homeowners dollars to reinvest into their home. We believe the reinvestment is being driven by views such as I'll take advantage of the current market. I want a house that is less work and I want to live closer to friends and family. Collectively, we see these factors as continuing to support reinvestment projects and our business. While we are optimistic about the prospects of sustained economic recovery in 2021 and the momentum in our business recognize that business risks remain elevated, in the fiscal 2020 earnings conference call. As we look beyond 2021, our goal is still to achieve $329,000,000 in adjusted EBIT in 2022 take a look at the results of our 2020 annual proxy statement. Doubling our EBIT over 3 years in the throes of the worst pandemic in a century would be quite an accomplishment. As we look to the next 3 years, we believe our long term growth algorithm of 20% unit growth, mid- to high single digit comparable store sales growth, along with modest gross margin improvement should lead to net income growth of at least 25% on a compounded annual growth rate basis. Due to the COVID-nineteen pandemic, the growth path will not be a straight line, but over the long term, we believe these goals are achievable. In closing, I would like to say that our entire leadership team is encouraged by the continuing momentum in our business and we are very excited about the growth that still lies in front of us. We would like to personally thank all of our associates for their great work that they are doing every day to serve our customers. Operator, we will now turn it over to questions. And our first question comes from the line of Zach Fadem speak with Wells Fargo. Please proceed. Your line is open. Hey, good afternoon, guys. Can you talk a little more about the step up from January to March? And if there were any particular drivers across DIY versus pro or just broader changes in consumer behavior. And then as we look to Q2, it looks like extending the Q1 growth rate versus 2019 would suggest a comp of at least 60%. So Just given the moving parts around new stores and just the wonky year over year compares, is this the right way to think about the participants sequentially into Q2. Hey, this is Tom Szack. Trevor will take the first part. Talk about the monthly cadence and then I'll talk a little bit about the consumer and what we're seeing. Hey, Zach. You're right. We had unique things happened this quarter that make the comparisons a little odd. When you back out the benefit of that 53rd week, everything shifted out a week. The week of New Year's and Christmas is a low volume week. So, that's part of the reason the comp was so high in January. But if you back that out, participants We're sort of in the 24.5%. February was a pretty close number if you back out the impact of the storms. And then we did see an acceleration a little bit in March, even if you back out the fact that we were closed for the last 6 days last year. So we exited the quarter to 26.5 are on a pro form a basis excluding the 53rd week and excluding those 6 days that we were closed last year. But we did see a little bit of an improvement In March relative to the 1st 2 months, not a lot, maybe a couple of 200 basis points. One other thing that Tom touched on in his prepared comments that you sort of touched I think it's also worth repeating is because we had the big negative comps last year, right, we're up 170% so far. We do think the right way to think about the business is on a 2 year basis. We exited Q1 as a compound annual growth rate of 28% versus 2019. Were at a similar rate in Q2, and we're not giving guidance. But what I would say is, The run rate of our business has been fairly consistent this year, if you back out the holidays and some of the shifts. We don't have a seasonal business. We don't have a promotional business. Q2 is a little bit higher volume, Q1 and Q3 are about average for the company and then Q4 is usually a little bit lower because people aren't working on their floors during the holidays. So I think one of the reasons we're not giving guidance, it's just very hard to know what's going to happen. But depending on your perspective on the macro, you can model out some of those numbers. And If you think things are going to be really robust, again, the weekly cadence has not been that different. If you think the business if the macro is going to slow a little bit, then you could bring those numbers down. But regardless of that, either of those, you'll come out that we're going to have a looks like we're going to have a really strong year this year. Yes. And the other thing I'd add, just from a consumer standpoint, When you're seeing strength like this, you see strength in both homeowners and professionals. So we're seeing nice increases in both. Participants Our pros continue to tell us that the backlog is long and the amount of time to get the jobs is Weil and the company that we work with on installations, they had their best March ever. So all participants are strong for us. And then a longer term question. Maybe talk about your expectations for multiyear EBIT margin progression. And with your store level margins at a high Do you think a mid teens EBIT margin is a fair long term landing spot for the business over time? This is Trevor. I mean, I would have said no historically. But No, this last quarter, if you back out pre opening expenses, because we won't have that when we're done opening stores a long time from now, we've been 17.5 percent EBITDA margin, Right back off, call it 300 ish basis points for depreciation, and you're getting pretty close to that mid teen operating margin. And obviously, when we're are multiple $1,000,000,000 bigger than we are today, we're going to run the business more efficiently. So, we've just had a lot of things go our way. Obviously, we're in a very good macro environment and so that's possible. That feels rich to me, but again, we're close to that today, But we're obviously in a heightened sales environment, so possible, very possible. Thank you for your question. Our next question comes from the line of Michael Lasser with UBS. Your line is open. Please proceed. Good evening. Thanks a lot for taking my question. You mentioned that your Pro customers and 85% of your sales are in some way, shape or form, leverage to a pro customer have long backlogs. Presumably, when a customer gets a windfall of additional money that they can't just go that same day and spend it on something like a foreign project, it's a considered purchase. So between those two factors, how long are you expecting the robust sales that you're experiencing now Is it reasonable to expect that this could extend well into the fall and winter? I mean, that's a good question, Michael. I think that's what Trevor said earlier. It's hard to predict. We're seeing strong strength now. Our strength has been consistent. The backlog has remained pretty consistent too. While the PROs are backlogged, that's not a new event that's been going on As we started to come out of COVID. So, I think the reason we're not giving guidance is it's kind of hard to predict exactly what's going to happen. As I look at The macro existing home sales still are strong. Last month, we were up 12.3% over last year. Participants are in the range of $1,000,000,000. Household values continue to go up. You've got an aging household stock, Millennials Inc. Entering the housing market. And there's a lot of good things in the macro. And then lastly, aging houses. I mean, there's just a lot of good things in the macro that support the category. So It's hard to predict because of the moving parts due to COVID, but we'll see. And my follow-up question is there's a lot of well documented pressures on many of the key inputs for the products you're selling like lumber. And how is that impacting both your cost and your ability to secure product at this point? I'll let Lisa talk a little bit about the cost. I mean securing product, I mean, when you're running this type of comp environment and net sales growth, you're going to be chasing inventory. As long as I've been here, we produced some crazy comps during the times. This is are a little bit unprecedented and you're going to have times where you chase inventory. I think what's impressive in my mind are in the range of $1,000,000,000. We continue to have the ability because of our broad in stock assortment to when we chase inventory on a SKU of tile or a SKU of wood, We've got hundreds of other options in those categories that we can ship the customer to. And so while we're chasing inventory And we're dealing with that in this environment. We still are able it doesn't appear to be affecting our sales. So I'll let Lisa address costs and how we're dealing with that. Hi, Michael. So on a cost perspective, yes, we have started to see some increases. Now we're not going to be affected like lumber is all participants are in the range of $1,000,000,000. The wood that we use is a little different. So we don't see those kind of increases, but we have started to see some. The great news is we have really terrific partners out there that we've worked with for years and in some case decades, and they keep our costs as low as possible. We have really extensive sourcing options. We have a lot Purchasing power. So where we've had to take increases, we're able to take strategic retail increases. They're not a lot of them, but we have had to do that in some cases. But we do remain really confident with our price gap. I mean, in the price shop that we do, our GAAP with the competition is as big, if not bigger than we've ever been. So yes, we're facing some of the same are not going to be able to navigate through those. Thank you for your question. Our next question comes from the line of Stephen Forbes with Guggenheim Securities. Please proceed. Your line is open. Good evening. Tom, Tremrock, I wanted to focus on the adjacent category performance, right, since you're disclosing in the Qs now. 1.6 percent of revenue it seems for the quarter. Just curious, sort of your takeaways on what that means for opportunity there. I know you've talked about getting to $1,000,000 per store, but the strength here seems especially strong. So what does it mean? Any updated thoughts and also about your ability to sort of continue to expand into new categories? Yes. I would say a few things about adjacent categories. One, I have been very pleased speak to each one of them have worked. Now we've tried multiple adjacent categories and we really try to be thoughtful in what we add that really to complete a project. We've heard from A lot of my time here that consumers want to be able to buy the total project within the store. So we've tried to be thoughtful and say, okay, what's going to be used in a bath remodel? What makes sense that's going to the tile a person may be using, and we've tried to be thoughtful as we've added those. And I've been very pleased with how that's worked. The benefit of so one, pleased with how they've worked. And by the way, I think we can do a lot better. We've chased inventory in that too. So As we get ourselves in a better program in place, I think we'll continue to improve in the categories that we participate in. We have big stores and we have big stores on purpose And we've been good in our whole time here of flexing spaces as categories as sales decelerate in one category, we can give space to another category. And Historically, we've done that within the hard surface flooring categories, but now we're doing that some within hard surface flooring to some adjacent categories. So Our average store size has increased every year over the last few years. That store size gives us the ability to do more. We're never satisfied. We're always trying to do more. So we're going to continue to explore other things our customers are expecting to us to find and we like to pilot things and we'll pilot and if it works, you'll see it in more stores. And then just a quick follow-up on the commercial ramps. You talked about adding 14, I think, this year. Any update on how the legacy cohorts, I guess, or the classes of Rams are performing relative to those stated goals, the sales goals participants are expected to be down this year and I think it may be in total, but we're so small in that industry. They're doing well. We have some of the Rams that have now been with us for a couple of years, they're going to well exceed that $2,500,000 to 3,000,000 Some of those guys are getting close to that and they're only whatever 4 months into the year. And we've as you said, we've hired a lot, right? We hired 12 last year, we hired I'll take a few questions. We got a lot of new folks in there. But the same core tenants that have made the residential business successful are working very well with the Rams, really high quality trend on product at a low cost and a supply chain that can get it there fast. So we're very pleased. That's why we started the year, we said we were going at 12, but based on some of the success, we granted up to 14. So the answer is, yes, we feel very strong in our commercial goals. I think the only thing that I would add to that is, I've also been surprised at the amount of talent that we've been able to attract. I think people are starting to understand, The benefits of working with Floor and Decor and commercial projects and people in the industry are seeing that, so we'll be able to attract good talent And a lot of times, they bring a book of business with. Our next question comes from the line of Simeon Gutman with Morgan Stanley. Please proceed. Your line is open. Hi, everyone. Good afternoon. I have two questions. First on sales. My sales question, I guess, has 2 parts. First, all participants Trevor, back to the comment around the CAGR for the last, I guess, several of the weeks you're saying week to week, it's pretty are available and it's a good way to think about your business on, I guess, a 2 year basis from 2019 or on a CAGR. Did you also say though that underlying momentum seems to it did accelerate in the Q1 sort of I don't know if it was week to week or month to month? That was that's my first question. Yes, it does. But just to be fair about that, it should because March is a bigger selling listen and April is one of our biggest volume months relative to January February. But so yes, the answer is our week to week volumes, when you look at every week, week to week, we have seen our volumes increase, but they should because March April are higher volume months for us. So the answer is yes, but they should. Got it. Okay. And then within that, still on sales, do you have a sense of, the composition of new transactions for you haven't seen versus existing? I don't know that we have that out of our CRM data. I do know that we're all very proud. Again, this is my 10th year As Tom mentioned, the vast majority of our comps is coming from transactions. And That's something we probably can pull from our CRM database, but we'll have that next time. I do think that there's a lot of new customers coming into the are in the marketplace. I mean, with that type of transaction growth and that you combine that with we're slowly creeping up in awareness. We still have a long ways to go. But as we continue to we're opening a lot of stores and we're getting into a lot of markets and those markets are maturing and that tends to bring new customers into the marketplace So I mean to me, when I look at our performance, there's new customers and I think we're taking share at a faster rate than we have historically. And just the last follow-up, any on market share, you mentioned, Tom, mature markets. Do you have a sense or just remind us what you've told us in terms market share in most mature markets. I don't know if there's any updated 2020 data out there. I think some of our we look at it more catchment area, we have some ability to look at some of that work. And last time I remember seeing that, we have some stores, some of these higher volume stores could have 35%, forty Percent market share within their 45 minute drive times, some even slightly higher than that. So I do think where we have some of our bigger volume stores and some of our more mature participants We've got very high market share. In total, we still think we have about 9%, right, because we only have 140 stores. But Thank you for your question. Our next question is coming from the line of Karen Short with Barclays. Please proceed. Your line is open. Hi, thanks very much. Just a couple of questions. Wondering if you could talk a little bit more about inventory. Obviously, you had exceptionally strong sales, but inventory increase was pretty lean, this quarter relative to 4Q and much more so relative to 3Q. So wondering how you're thinking about that going forward? Then I did have 1 or 2 other questions. Yes. No, as Tom mentioned, we weren't necessarily planning for this level of sales and participants are chasing we have really good systems. We got a strong team of merchants and supply chain individuals that are are helping us look into those trends, but we're definitely selling more than we would have expected. Also as Tom mentioned, the benefit of our business is We've got a lot of SKUs that we can do a good job of selling. We were just in stores today talking about the teams and And consumers are excited. And so we may have 15, 18 shades of gray tile, all a little bit different. And if we may not have the exact I'll start looking at, we have something close that we can sell through. So I do think our team our merchants do a great job of walking through better, better, good, better, best And our store teams are doing a great job of showing the differences in those SKUs. And I think we're working very closely with our supply chain partners and our vendors to try and get those receipts to a level that will have our in stocks. To date, our in stocks aren't that far below where they've been historically, but As time goes on where we're selling a lot that could those in stocks could come down. But as of today, our in stocks are still in good shape. Okay. And then my second question is just related to obviously, you talked about the percent of sales, pro sales from the PPR members. I'm wondering if you could just give an update on tie in rewards programs for pros using the pro credit card or just a general update on how you're thinking about take the credit card into the reward program in general. Yes. So we were working with a professional firm that does some of this for a lot of big companies To help us think about prioritizing that, we will have that analysis done in the next month or so. And I think you guys have heard There's really 3 things we're trying to do with the PPR program and it's doing incredibly well, as Tom mentioned so far. But we think there's the next step is a logical is a tiered type program. A lot of the Some more mature companies and retailers and consumer businesses as well put it in a tier program so that you're rewarding your best customers the most. That's the thing we're the most excited about. Take a look at the outlook on exactly what the credit tie in would be. But we think we know the costs are materially lower on our private label credit card than the external card brands. So we're figuring out how do we reward participants are available for using that, plus our card currently has the best terms out there with 6 months no interest. And then the final thing is, as we introduce for trying some of those new SKUs and working with our vendors to do that. So the goal is all of those would be in a position to be rolled out later this year. Are conducting technology and process and people we have to invest in those, but we hope to have those ready to roll out later this year, to give us a benefit into 2022. And thank you for your question. Our next question comes from the line of Greg Melich with Evercore ISI. Please proceed. Your line is open. Thanks. I had a follow-up on inventory and then on CapEx. So if inventory was up 3 percent year over year. And given that costs are going up, is there any inflation in that? And is volume actually down on inventory? There's definitely a little bit of inflation right now. Most of our inflation will come, we think, later in the year. We turn our inventory just over 2 times a year and the cost increases that we're seeing now, most of those didn't exist have today. So there will be a little bit of inflation in there. Lisa and I often always joke, don't always look at last year's inventory as the best proxy because you don't always have last I mean, again, we just posted a 41% increase in sales. So, I We'd love to have some more of our best sellers and we're working aggressively with our partners to do it, but that's a benefit having a big soul with lots of inventory. Is there a number like $50,000,000 that you'd like to have ideally? That feels a little high to me, but that feels a little high to me. Okay. Okay. And then the second was, you mentioned in the prepared comments about doing more own versus lease. And I know you I noticed you kept the CapEx plan at, I think, $440,000,000 or more and it was only $46,000,000 in the first Quarter, so is that should we just assume that CapEx is going up to $130,000,000 a quarter? And is owning over leasing become a new part of the strategy? Yes. I would say we now own 2 stores. We have one in Connecticut and one in Texas, And we're very pleased. And when we think about that, if you really simplify it, we're spending somewhere between $7,000,000 to $9,000,000 for a new store today. We own the land and obviously real estate is different throughout the United States, but we're going to spend somewhere on the low end of $3,500,000 to $4,000,000 for the land and on the high end it could be north of $5,000,000 We do 2 independent ROIs, that's the store's ROI independently and then what's the ROI on the real estate. We're going to get a return on capital above 10% is our current expectations on those investments. And so the answer is, we do think we want to do more. We have a set of rules that we follow, things like, is it a great demographic areas that grow on, do we thought we could make a good buck if we were to ever want to sell the real estate. And we are triggering through those and we're seeing what it looks like, those real estate investments look like, we want to do more. And then there's other benefits when you own the real You can negotiate the taxes better and you can negotiate the CAM, you can manage some of your cost increases as well as better. That being said, Could it possibly be 10% to 20% of our new stores that we would own? We're still even a ways away from that. So it will never as you think about 20 percent unit growth, we're not talking we're going to own 20% of our stores, but where it makes sense in a place like Dallas, Texas, we know it well, it's are really good location. We're going to try to own more of those stores. And then so as you think about that equation of longer term, Yes. As we think about 2022 and 'twenty three, because we're obviously working on those stores now, it's possible that for 10% to 20% of that base if we can, we'd like to own that real estate. And again, it's going to cost us somewhere in the $3,500,000 to $4,000,000 range on the low end and $5,000,000 or $6,000,000 on the high end to own that land. So long answer to simple question, but I don't think it will all ever be all that material relative to the total CapEx we spend, but where it makes sense, we're going to try and take on more ownership. Thank you for your question. Our next question comes from the line of Chris Horvers with JPMorgan. Please proceed. Your line is open. Thanks. Good evening, everybody. A couple of margin questions. Top line has been pretty fully covered here. Can you talk about Product margins, you didn't call it out as a positive in this quarter than you had prior. It does sound like you had you did have trade up to better invest. And then you also talked about transportation costs and input costs rising and inventory turns. All participants Any color commentary about how to think about gross margin over the balance of the year? And could we flatten out and maybe see some pressure as we get to the Q4. Yes, I'll hit it at a high level and Lisa and Tom can weigh in. We saw some pretty Meaningful gross margin improvements last year across all of our product categories. This quarter, when you look at I'll take the majority as I mentioned in my prepared comments was driven by the leverage of the supply chain, was a bigger driver of our gross margin this quarter. The way we think about our gross margins for the rest of the year and obviously a little bit of this is predicated on sales, but assuming reasonable sales growth that we're planning on, We would expect to have higher gross margins again in Q2. As we get to the back half of the year, our current expectations is that they'll be flat to down Maybe just a little bit, driven by the fact that we are going to see some of these cost increases. And Chris, you followed us for a long time. When we think about these cost increases, we try to keep our retails as low as possible. We're going to likely pass on those cost increases to some extent. But it's a market based approach, it's a portfolio based approach. But I do think as we see some of those inflationary pressures come in, The gross margin will not be going in the back half of the year, but as we did when tariffs came in, we don't think that will affect our ability to get to our gross profit goals and our profit goals. Got it. And then can you talk about maybe quantifying how much incentive comp pressured From a dollar perspective and help us out in terms of sort of how you accrue for that? Do you typically say We beat the Q1 versus our internal plan and we raise only for that or do you typically recast the year and then It's the latter. Fortunately for us, our overall incentive comp is pretty small. Change of our sales, it doesn't have a massive impact. As you would expect, we're accruing at the very high end of the range right now based on the performance of the business. There's a piece of that in the G and A, which is almost 400 basis points on our comp stores leverage, including last year's bonuses were basically 0 because at the time we were heading into COVID. And this year, we're accruing at a max rate and you still saw fairly significant leverage in the stores, with the corporate a little less so. And that The reason you didn't get leverage in Q1 was basically because of bonus, because again we were accruing almost 0 last year and this year we're accruing at the high end of the range. Just said another way, it was the comparison year over year. It's not like you sort of recast your plan and said, okay, now internally we're expecting Even better outcome than what we had predicated for the year. I would say, so we have a plan that The compensation committee approves at the beginning of the year and then we will accrue based on what you're at, what do we think we're going to hit throughout the year. So as we're reforecasting the businesses, we'll take that comp up throughout the year. So, so hopefully that answers your question. But basically, we do reforecast the year and then we accrue based on how we're performing throughout the year and then obviously as we get close to the end of the year, that true up becomes pretty immaterial because you're getting close to the end of the year. Thank you for your question. For the remainder of today's Q and A, please keep your questions to one per line. Our next question comes from the line of Kate McShane with Goldman Sachs. Your line is open. Please proceed. Hi, thanks. Good afternoon. A lot of our questions have been answered, so this is a little bit more of a detailed one On the cadence of comps that you talked about today, I know you mentioned that February was impacted by about 500 basis points by the storms that you think 300 basis points of that got pushed into March. Do you think those 200 basis points participants can still come back. And just with regards to the commentary around what you achieved in March, I know it's small, but is there a way to know if that was from needing to replace floors because of the storms or is it from delayed projects? Part of this is just a bit of a math equation. March is a 5 week month, February is a 4 week month and then also the March volumes are higher And the February volumes were lower. So the combination of those two things is they basically dollar wise wash each other out. Because March is such a higher volume month, both because of the volumes and it's a 5 week month, that's why it's only a $300,000 benefit in March. On the storm itself, you guys know, Hurricane Harvey hit us in late 2017 and it felt like the rain stopped and the sales went through the roof. And we are obviously a smaller company and more concentrated in Houston there. We don't think that happened here. Maybe that will will come. Maybe there's going to be more to come throughout the year. It felt like we kind of lost some of what we would have gotten otherwise. And maybe there's some upside to come as frozen pipes were burst and things like that. But it doesn't feel like we're going to see anything close to what we saw in Houston back when Hurricane Harvey hit. Thank you for your question. Our next question comes from the line of Steven Zaccone with Citi. Please proceed. Your line is open. Great. Thanks for taking my question. Congrats on the strong results. One quick one, just wanted to expand a bit more on what's driving the growth of the 2020 and 2021 cohort of stores to be so strong relative to prior cohorts. Do you think the brand awareness is growing? Is it better execution? Take a question from Jim. It seems like you're being more vocal with the grand opening celebration. So just what's the key drivers of the outperformance when you look at the fees versus prior cohorts? Thanks. All participants I don't think it's one thing. It's a little bit of everything you said. Certainly, our execution, I feel is at a high level. I'll What's encouraging is that the stores, particularly in 2021, we're not opening the same With the same fanfare that we have historically opened our stores over the last few years and we're seeing really strong results. And So that our teams are executing. They're out. They're finding new pros. They're getting them into the stores, just not in one big mass party because you can't do that in a So, I'm pleased with that part of it. I think that the 2020 21 stores, I do think our awareness is improving. I think people are knowing where we are. Even in new markets, people are starting to hear of the brand. So I think that, that helps. I think our real estate team has done a phenomenal job in our locations, I keep pulling up to our new stores and I'm like, this is one of the best locations that we have. And it's I'm being tired of saying it, but I do think that they've done a good job, a better job than we've historically done in getting the right locations and with the right visibility, Which is important to us. So, we're also opening in markets where you'd expect some higher volume. So we're getting some more stores up in the Northeast. We're getting some more stores in Texas and markets that we performed good at and those stores performed strong historically. So, yes, a little bit of everything. There's no one magic bullet, but certainly we're pleased with the 2020 and 2021 stores. I think one other thing, Stephen, that we're kind of learning. One thing I would say is 60% of our stores are in existing markets this year. So that obviously helps. We've got better brand recognition, more pros. But I'll start to see a little bit is our real estate team is obviously getting much better locations for us as we're a bigger company, much better balance sheet. And then when you open that 3rd or second or that 4th step forward. You're really getting the leverage that you were hoping for, because you do have better brand recognition. Now you've just made it more convenient for that pro to shop at multiple stores, Which is obviously very encouraging with at least 400 stores we plan to open. We only have 140. We got a lot of markets left to open that second, 3rd, 4th, 5th, 6th are ready to explore. So it is that's something that we're learning a lot about here in the last few years as well. Thank you for your question. Our next question comes from the line of Chuck Grom with Gordon Haskett. Please proceed. Your line is open. Hey, thank you. Great quarter. Just a question on geographic performance. Just curious if you're seeing any diversion performance in some of the markets that are farther along in the reopening process. And then also just curious from a consumer perspective, if you're seeing Shoppers start to engage in larger purchases at this point in time. Geographically, we're pleased across the country. All markets are performing very well as I said in my prepared remarks. So there's not one place that's really driving it. We're are fortunate to see strength across all territories. Whether customers are taking on larger projects, it's hard to tell. I mean, I don't think so. I think they're are taking on the same flooring project as a flooring project and that doesn't change so much. So, the one thing we are seeing, you can see our average ticket is are in a little bit better. Customers continue to step up to our better and best products, which tend to be a little bit more expensive. I think our merchants have done a terrific job in are being trend right and I think customers are gravitating that. So that takes the project up a little bit, and it's reflective in our average ticket. So feel good about both. Thank you for your question. Our next question comes from the line of Alex Samuorico with Berenberg. Please proceed. Your line is open. Good afternoon. Thanks for taking my question, guys. I might have missed this in the prepared remarks, but can you give us an update on the new California transload facility and if your thoughts around benefits for a bit have changed given the current freight environment? Yes. Again, our supply chain team has just been very thoughtful about this. I'm so glad that we pulled the trigger to do it. We don't plan on operating it until the Q4. And then It will take time to work its benefit in because we're on a weighted average cost of inventory method. So we'll start to get some modest benefits take a look at the end of Q4 and into Q1. But with the congestion out there and the cost of dealing with the congestion out there, If you can help us now, we think some of that's going to hopefully abate over time as they get caught up. But we're on track. We plan to open it, like I said, I think in the will start to see some of those benefits really more realistically in the queue into 2022. Thank you for your question. Our final question is coming from the line of Justin Kleber with Baird. Please proceed. Your line is open. Hey, guys. Thanks for taking the question. I wanted to ask just about web traffic. I assume you've seen an acceleration in growth during 1Q. I don't know if you have that specific number you can share, but maybe as a part of the question, what's the typical lag time When you see a homeowner start to engage with your website and then when they actually make a purchase. Hi, this is Lisa. So yes, we did see pretty consistent web traffic through the Q1. There's some ups and downs by week as we usually see, I believe, the total for the Q1 was up 81%, web traffic, so that was great. April did come down some, but it's getting very fuzzy now because we are now going up against stores being closed. So if you remember last year, the web represented like 85% of our business in the Q2 last year. So there was a lot of noise now as we start to compare year over year. But Q1, we felt very good, still running close are in 17% of sales, so that's great. I don't know if I know the exact lead or lag time. I think kind of anecdotally, we've always said somewhere in are in the 30 to 90 day range, from the time somebody kind of starts the thought process to do it till the time it actually gets done. And I don't think we have any reason to believe that time have a listen and answer session. We appreciate everyone joining our call today and appreciate your interest in our company and our performance. And we look forward to talking to you on our next quarterly update. That does conclude our conference call for today. We thank you for your participation and ask that you please disconnect