Greetings and welcome to the Floor & Decor Holdings, Inc., 3rd Quarter, 2026 conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Wayne Hood, Senior Vice President of Investor Relations. Please go ahead.

Thank you, operator, and good afternoon, everyone. Welcome to Floor & Decor's fiscal 2026 third quarter earnings conference call. Joining me today are Brad Paulsen, Chief Executive Officer, and Bryan Langley, Executive Vice President and Chief Financial Officer. Before we begin, I want to remind everyone of the company's safe harbor language. Comments made during this call contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. 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. These statements are subject to risk and uncertainties that could cause Thank you for joining us. We believe these measures enable investors to understand better 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 Industrial Relations website at ir.laurendecor.com. A recorded replay of this call and related materials will be available on our investor relations website. Let me now turn the call over to Brad.

Thank you, Wayne, and good afternoon to everyone joining us for our fiscal 2026 third quarter earnings call. This afternoon, I will provide an overview of our third quarter financial performance and the key factors that drove our results. Following my remarks, Brian will share our outlook for the remainder of fiscal 2026, including how we are navigating the current operating environment while continuing to invest in initiatives that strengthen our competitive position. Turning to our third quarter results, we delivered diluted earnings per share of $0.61, up 15% from $0.53 last year. These results include a benefit of approximately $0.02 per share due to a lower year-over-year tax rate. Excluding this benefit, earnings per share grew 11%, reflecting disciplined expense management and solid operational execution. The earnings growth we delivered this quarter underscores the resilience of our business model and our ability to drive profitability in a challenging demand environment. Importantly, maintaining strong profitability and cash flow generation position us to continue investing in the business through the cycle. We believe our ability to continue investing in initiatives that enhance the customer experience, strengthen our pro offering, expand our store base, and advance our technology capabilities is a meaningful competitive advantage. The profitability and cash flow generation we have delivered this year provide us with the flexibility to both invest in our strategic growth initiatives and return capital to shareholders through our ongoing share repurchase program. Since announcing the $400 million authorization in April 2026, we have repurchased approximately $157 million in common stock through the end of the third quarter demonstrating our commitment to balance and prudent capital allocation while continuing to invest in the future growth of the business. Now let's take a deeper look at our third quarter results. Total sales increased 3% to $1,214.6 million compared with $1,179.5 million last year. Comparable store sales declined 1.4% in the quarter represented an improvement from declines of 2.1% in the second quarter and 3.7% in the first quarter. Looking at the quarter by month, comparable store sales declined 2.3% in July and 2.6% in August before increasing 0.4% in September, marking our first month of positive comparable sales growth since January 2026. On a three-year stack basis, comparable store sales improved sequentially throughout the quarter. While we are pleased with the progress made during the quarter, demand for big-ticket discretionary home improvement projects remains challenged into the fourth quarter. 30-year mortgage rates are now solidly above 7% and approximately 115 basis points higher than a year ago, continuing to pressure housing affordability, pending home and existing home sales. In addition, consumers remain selective with larger discretionary purchases while higher energy costs continue to weigh in household sentiment and budgets. Against this macroeconomic backdrop, fourth quarter to date, comparable store sales have declined approximately 3.8%. Despite these near-term challenges, we remain encouraged by the progress we are making across the business, including our continued momentum with pros, ongoing market share gains in key categories, and the actions we are taking to further strengthen are competitive position. Turning to some of the underlying third quarter sales drivers, pro sales growth accelerated throughout the quarter with September growth of 9% representing our strongest pro sales growth month of the year. Pro penetration increased to 55% for the quarter from approximately 50% in the prior year period, reflecting our belief that we are continuing to gain share within the professional flooring market. Growing our business with pros remains a key strategic priority, and our teams continue to execute well against that strategy during the quarter. We remain focused on expanding our share of wallet with existing customers, particularly our highest volume and most loyal pros. To support these efforts, our stores are operating with a supply house mentality, focusing time and resources on the activities that create the greatest value for our customers. This includes strengthening selling capabilities, increasing quote generation, and improving close rates on project opportunities. We are also making it easier and more convenient for customers to do business with us. Through our store expansion strategy, enhanced inventory positions in key product categories, and a continued focus on in-stock execution across our most important SKUs, we are improving product availability and service levels. In addition, we recently launched the pilot of our new Pro Loyalty program and Select Markets, marking another important milestone and keeping us on track for a broader launch in the first quarter of 2027, consistent with the timeline we outlined earlier this year. Taken together, we believe these initiatives are helping us deepen relationships with existing customers, attract new customers to the brand, and further strengthen our position within the professional flooring market. Beyond our continued progress with pros, several key sales metrics also improved during the quarter. Comparable average ticket increased 1.6%, accelerating from 0.8% growth in the second quarter. The increase in comparable average ticket reflects a sequential improvement of over 100 basis points in square footage sold. Comparable transactions declined 2.9%, consistent with the second quarter. and significantly improved from the 5.5% decline in the first quarter. Collectively, we believe these results reflect the progress we are making in strengthening our value proposition and driving demand across our key customer segments. Geographically, the improvement in our comparable store sales became more broad-based during the third quarter. Both our east and west regions outperformed the company and delivered positive comparable store sales, excluding cannibalization. 12 of our 16 districts also reported positive comparable store sales excluding cannibalization, up from 8 districts in the second quarter. From a merchandise category perspective, total sales in wood, insulation materials, and tile continued to outperform the company during the quarter. Tile, which represented approximately 23% of our sales, remained an area of strength, growing 5% year-over-year. Based on tile industry square footage sold data, we believe we are continuing to gain market share in the category, averaging approximately 100 basis points of annual share gains over the past several years, with that pace accelerating to roughly 150 basis points in 2026. By combining premium design, strong performance, and a compelling value proposition, we continue to expand our appeal across customer segments. Installation materials, which represented 22% of sales, delivered strong 10% sales growth year over year as we expanded our share of wallet with pros and continued to strengthen our market position. Through disciplined execution of our supply house strategies, broad and deep job lot inventory availability, and an expanding store footprint, we are making it easier for pros to source the products they need when and where they need them. These efforts are reinforcing our value proposition, deepening customer relationships, and further establishing floor & decor as a preferred destination for installation materials. We were encouraged by the improvement in laminate and vinyl flooring, which represented 23% of our sales. Comparable store sales and comparable square footage sales improved sequentially from the first and second quarters, becoming less negative, with notable sequential improvement in square footage. The improvement reflects the actions we have taken to strengthen our value proposition in the category, including the introduction of new specified SKUs and other value-focused merchandising and marketing initiatives. Finally, sales penetration of our better and best offerings increased both sequentially and year-over-year, providing further evidence that customers continue to respond to the value, quality, and differentiation in our assortments. Let me turn to our new warehouse store expansion. Through the first three quarters of fiscal 2026, we opened 12 new warehouse format stores, including Fredericksburg, Virginia, which opened on the final day of the third quarter. Looking ahead, we continue to plan to open eight new warehouse format stores in the fourth quarter, with those openings expected to be evenly split between October and November. This would bring our total new warehouse format store openings to 20 for fiscal 2026 in line with our plan for the year. As we finalize our plans for new store openings in 2027, we are doing so with the expectation that existing home sales will remain subdued and foreign demand will continue to face a challenging backdrop. In light of these conditions, we believe it is prudent to moderate the pace of our warehouse store expansion and currently plan for 10 to 15 openings in 2027. While our confidence in the long-term opportunity in the United States remains unchanged at 500 warehouse stores, the current macroeconomic environment warrants a measured approach to near-term growth. Importantly, our approach is guided by returns rather than a specific unit growth target. That discipline allows us to moderate our overall pace of expansion, while continuing to invest in locations where we see attractive long-term returns. Periods of softer demand can create unique real estate opportunities, including access to high-quality sites that may not be available to us when market conditions improve. Our planned 2027 openings in Fairfax, Virginia and Cherry Creek, Colorado are a couple of examples of markets where we continue to see compelling opportunities and attractive expected returns. We continue to view this as a question of pacing as we remain focused on optimizing returns. Importantly, we do not face a significant fast follower competitor seeking to replicate our national footprint, which provides us with considerable flexibility in managing our store opening cadence. As a result, we can remain disciplined in the near term and invest through the cycle where returns are compelling and preserve our ability to accelerate growth as the market conditions and expected returns improve. Turning to our omnichannel and digital transformation initiatives, we continue to make meaningful progress during the third quarter. We further enhance the customer experience by improving search capabilities, expanding the quality and depth of our product content, and modernizing our underlying technology platform. These investments drove measurable results. In the third quarter, online penetration reached 20.3%, up about 150 basis points from the third quarter of last year. Part conversion improved 380 basis points year-over-year, reflecting stronger site performance and our ongoing efforts to reduce friction throughout the customer journey. Taken together, these results provide encouraging evidence that our digital investments are improving customer engagement, enhancing the shopping experience, and driving increased conversion across our omnichannel platform. Turning to our Commercial Regional Account Managers or RAMs, we are encouraged by the positive momentum that developed throughout the quarter. The investments we have made in expanding our commercial sales organization, developing our reps and increasing account penetration are beginning to gain traction. Managed account comparable sales improved sequentially throughout the quarter and the gains were broad-based. We saw stronger performance across our existing territories, continued contribution from new and added accounts, and increased productivity across our sales team. Sales per rep increased each month of the quarter and reached its highest level in September, with productivity improving across every tenured group. While we still have work ahead of us, we are encouraged by the trajectory of the business and remain focused on building deeper customer relationships and improving sales productivity across the organization. Turning to Spartan Surfaces, we continue to see progress during the third quarter as the business built on the momentum established in the first half of the year. Sales increased approximately 6% from last year, reflecting continued momentum and key verticals. While commercial and market conditions remain mixed, particularly in multifamily, We believe Spartan is well positioned to continue benefiting from the actions taken over the past year and remain encouraged by the opportunities ahead. I would also like to thank our approximately 14,000 associates for their hard work and dedication, their commitment to supporting our customers throughout their purchase journey, providing compelling value to our pros and homeowners, and executing our growth initiatives with instrumental in delivering our third quarter results. Before I turn the call over to Bryan, I'd like to briefly touch on several Board updates that we announced this afternoon. As part of our ongoing Board succession and refreshment process, Norman Axelrod has informed the Board that he does not intend to stand for re-election at our 2027 Annual Meeting. Norman has served on our Board for 17 years, including as Chairman, and his leadership, judgment, and counsel have been invaluable. On behalf of the board and management team, I want to thank Norman for his many contributions and dedicated service to Floor & Decor. As part of that succession planning process, we are also announcing a board leadership transition. Effective January 1, 2027, Tom Taylor will transition from executive chair to chair of the board. This transition reflects the successful leadership handoff that has taken place between Tom and me and insurers, we continue to benefit from Tom's experience, strategic insight and guidance as our management team remains focused on executing our long-term growth strategy. We are also pleased to welcome Lauren Taylor-Wolfe as a new independent director, effective February 1st, 2027. Lauren was invited to join our board because of her extensive capital markets experience, strategic perspective and proven track record of helping companies create long-term shareholder value. We believe her expertise and perspective will be valuable additions to the board as we continue to execute our growth strategy and create value for our shareholders. Let me now turn the call over to Bryan.

Thank you, Brad. I would like to also thank our approximately 14,000 associates across the organization for their continued commitment to serving our customers and executing at a high level during the third quarter. Despite a demand environment that remains challenged, our teams remain focused on the areas within our control, delivering a differentiated customer experience, maintaining operational discipline, and advancing initiatives that strengthen our competitive position. These efforts help drive strong net promoter scores during the quarter, deepen engagement with our pro customers, and deliver market share gains. That execution contributed to our gross margin performance, effective expense management, and continued investment and capabilities that enhance the customer experience and support long-term growth. Now, let me walk through the details of our third quarter financial performance. Our gross profit increased $19.4 million, or 3.8%, compared to the same period last year. Our gross margin for the quarter was 43.7%, An increase of 30 basis points year-over-year, which was within our range of expected outcomes. The increase was primarily driven by the recognition of IEPA tariff refunds as the related inventory sold through. That benefit was partially offset by higher supply chain costs as diesel fuel prices reached record highs during the third quarter and were up approximately 70% versus last year. Higher supply chain costs represented an approximate 100 basis point headwind to gross margin compared to the prior year. As a reminder, we had approximately 22 million of IEPA tariff refunds still in inventory at the end of the second quarter. We recognized approximately 14 million of that benefit during the third quarter as the inventory was sold through, with the remaining approximately 8 million expected to flow through in the fourth quarter. SG&A expenses increased 13.4 million or 3.0% in the third quarter compared with the prior year period. The increase was primarily driven by the 20 new stores open since the third quarter of fiscal 2025. SG&A for non-comparable stores increased $25.0 million, while SG&A for comparable stores declined $7.9 million and store startup expenses declined $4.1 million. As a percentage of sales, SG&A was 37.3% or flat versus the prior year period and within our range of expected outcomes, reflecting our team's continued ability to manage expenses amid a persistently challenged demand environment. Our third quarter net interest income was $0.4 million compared to net interest expense of $0.6 million in the same period last year. The year-over-year change was primarily attributable to increased interest income earned on larger cash balances partially offset by a decrease in capitalized interest. Our third quarter income tax expense was $13.5 million compared to $14.2 million during the same period last year. Our effective tax rate decreased to 17.3% from 19.8% in the same period last year primarily due to a favorable return to provision adjustment driven by tax credits that were higher than anticipated. This lowered our effective tax rate and provided a 4 cent benefit to earnings per share in the third quarter relative to our expectation. Our balance sheet and free cash flow generation remain sources of strength, providing us with significant financial flexibility. During the 39 weeks ended September 24, 2026, we generated 485.3 million of cash provided by operating activities compared with 257.8 million in the prior year period. We ended the quarter with 1.0 billion of unrestricted liquidity consisting of 392.5 million in cash and cash equivalents and 641.3 million of available capacity under our ABL facility. This strong liquidity position provides us with the flexibility to navigate the current environment support working capital requirements and continue investing in the business for long-term growth. Our capital allocation priorities remain consistent and focused on creating long-term shareholder value. We continue to invest in strategic initiatives that enhance the customer experience, strengthen our competitive position, and support sustainable growth over time. These investments span key areas of the business, including our stores, pro-loyalty, Digital Capabilities, and Supply Chain, all of which are designed to deepen customer engagement, enhance our pro capabilities, drive productivity, and expand our long-term growth opportunity. At the same time, we remain disciplined in how we deploy capital, maintaining the flexibility to align new store growth with market conditions while continuing to invest where our highest return opportunities exist. This balanced approach positions us to continue funding the initiatives that will drive future growth Our disciplined capital allocation strategy remains unchanged. First, we will continue to invest in new stores and reinvest in our existing stores. Second, we will continue to invest in commercial flooring platforms and new growth concepts. And lastly, we will continue to utilize excess free cash flows to repurchase common shares while maintaining sufficient liquidity and a healthy balance sheet. Through the first three quarters of fiscal 2026, We invested $187.9 million in the business through capital expenditures while also continuing to execute against our $400 million share repurchase authorization announced in April 2026. In the third quarter, we repurchased 1.8 million shares of common stock, returning $91.4 million to shareholders, bringing our year-to-date total to 3.1 million shares of common stock, or $157.1 million. We ended the third quarter with $242.9 million remaining under our authorization. Now turning to our outlook for the remainder of fiscal 2026. As Brad described, market conditions remain challenged and continue to negatively impact demand for big ticket discretionary purchases. Higher interest rates, which continue to pressure housing affordability, along with inflationary pressures and ongoing uncertainty, are pressuring existing home sales and household spending decisions. These dynamics are included in our updated guidance as we assume existing home sales will remain subdued and demand for big ticket discretionary purchases will remain pressured throughout the remainder of the year. We are narrowing our full year guidance ranges, which I will walk you through now. As a reminder, fiscal 2026 includes a 53rd week, which will be reported in the fourth quarter. I will highlight the expected contribution from the 53rd week as part of our guidance. Sales are expected to be in the range of $4,765,000,000 to $4,835,000,000 or increase by 2% to 3% from fiscal 2025. The 53rd week is expected to contribute approximately $65 million to sales. Comparable store sales are estimated to be down 3.5% to down 2.0%. Comp average ticket is estimated to be up low single digits and comp transactions are estimated to be down mid single digits. Adjusted gross margin is expected to be approximately 43.6%. SG&A as a percentage of sales is estimated to be approximately 38.5% From a quarterly perspective, we expect the first and fourth quarters will be the most pressured from new stores if you exclude the one-time cost associated with the IEPA tariff refunds in the second quarter. Interest income expense net is expected to be approximately zero. This includes approximately $2.8 million of statutory interest benefit from tariff refunds, which was recognized in the second quarter. Tax rate is expected to be approximately 21.5% to 22.0%, down from our previous guidance of approximately 23%, largely reflecting the third quarter return to provision benefit. Depreciation and amortization expense is expected to be approximately $250 million. Adjusted EBITDA is expected to be approximately $535 million to $550 million. The 53rd week is expected to contribute approximately $11 million to adjusted EBITDA. Diluted earnings per share is estimated to be approximately $219 to $229. Adjusted diluted earnings per share is estimated to be approximately $188 to $198. The 53rd week is expected to contribute approximately $0.08 to adjusted diluted EPS. which implies our 52-week adjusted diluted EPS to be 180 to 190. Diluted weighted average shares outstanding are estimated to be approximately 107 million shares. CapEx is estimated to be approximately 235 million to 250 million. Operator, we would like to now take questions.

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys. One moment while we poll for questions. And our first question we'll hear from Chuck Grum with Gordon Haskett.

Hey, thanks very much. Thanks for all the information tonight. I wanted to talk about what you're seeing on the supply front in the LBT category and your outlook for pricing in the category. And if there's any expectation for you guys to start to lower prices a little bit to try to increase unit velocity in LBT.

Thanks for the question, Chuck. I know I've spent, I think, our last two earnings calls walking this team or this group through kind of the key drivers of the pressure that we're seeing in that category. And I would say at this point, we're really pleased with the actions that we've taken. As a reminder, it's a combination of special buys that we immediately send into our stores. We introduce new everyday SKUs into our assortment. And then we've been really thoughtful and surgical about where we've invested price into that category. And it is one of two categories where we see price elasticity. And I'm pleased. Like I said, I think we continue to make progress. And unfortunately, it's were becoming less and less negative. The unfortunate part is we're still negative, and that's consistent with the direction that we provided to all of you and the fact that we thought that category would be negative for the remainder of 2027. With that, we continue to see supply in the market. We've said that pressure is going to bleed over into 2027, and we still feel like that's the case. And I think the big unlock when it comes to the supply question is going to be improvement in EHS. When you see housing pick back up, I think you're going to see some easing and pressure on supply with that category.

Hey, Chuck, just to contextualize it, Q1 was down 10.4% in total sales. Q2 was down 4.6% in laminate and vinyl. Q3 was down 3% flat. So for us, we're seeing progress. We're making progress. It's getting less bad as we progress throughout the year. So the actions we're taking, we're seeing those effects come through.

Okay, that's great to hear. And then, Brian, my follow-up is on the gross margin line. It looks like you're projecting for Q closer to 43% than 44%. So, is that the right way to think about the margin structure, as you know now, for 2027, given some of the transportation headwinds that you're going to see?

Hey, look, I'll stay focused on 26% more so, obviously. We're still pretty early in the planning stages, so we'll give a gross margin outlook for 2027 when we give that guidance with Q4 results as we move through. But you're right, so I'll talk about Q3 and then Q4 and then kind of frame up some of the things we can do. So Q3 was impacted 100 basis points from supply chain costs. We anticipate Q4, that could be anywhere from 120 to 140 basis points of pressure. Majority of that is tied to the diesel fuel cost increases that we're seeing, which just keep in mind, those are not unique to us and they're not structural either. So they'll ebb and flow as the market kind of moves. As Brad just talked about a little bit, the other part of the tariff refunds that we were repurposing and putting back in were to absorb those pressures from supply chain costs. as well as to invest in the pricing that we saw within laminate vinyl and a couple other strategic places. So those refunds really did give us the flexibility in 2026 to kind of play offense, but we know that there are other levers that must replace that as we exit the year. So we'll continue to take actions around strategic pricing, but we'll maintain our price gaps and really that value proposition as we continue to do that. We'll lean in on assortment with Better Invest, which run at higher margins. That's where all of our innovation, newness, Really, that's where our competitive moat really widens when you think about the competition. We have supply chain efficiencies we'll continue to attack. And then we don't talk about a lot, but we've had a lot of great success with operational efficiencies as well. This year, we've seen really good progress with shrink and damage, and we'll continue to evolve that as we move into 2027. So there's a lot of different ways that we can attack it as we exit. So we're not going to commit to 2027 yet. Just wanted you guys to know it's what we said last time. Even without tariff refunds, we felt really good about our ability to land the plane this year at 436 to 438. We're still doing that, even though we knew Q4 was going to be the lowest point of the year, even in the prior guidances that we gave. So we feel good about how we're stepping into 2027. We feel good about our ability to react going into 2027.

Great. Thank you both.

And next we'll hear from Simeon Gutman with Morgan Stanley. Please go ahead.

Hey, Bryan, if you take that question one step further and you talk about the total margin, just more conceptually, do you try to protect profit if the backdrop still doesn't get better in existing home sales? Thank you.

So I'll go ahead and take that because I think that's a really important message that we want to deliver. When we think about managing through this environment, obviously there's a number of levers that we can pull, which Bryan just outlined most of them. But I'm going to describe our approach as being really balanced. We're going to protect the profitability of the business and then continue to be surgical in where we invest in price in particular. And that's going to be where we see elasticity and sensitivity, where we get the right level of return. Credit to Ersan and our merchandising team. They've been testing pricing for years. Obviously, the environment's a little bit different right now, but we do have, I think, really, really strong intelligence about our categories and how customers, both customers being homeowner and pros, respond to our moves. So we'll continue to execute that play. But again, the message to this group is we're going to be really balanced and thoughtful as we navigate through this environment.

And I think from a cost perspective, what I would say is we've been very, very good about being able to flex with the environment that we're in. In Q3, we're able to take out $7.9 million in sales, protecting that profit bottom line. We think about from an operating profit perspective. I know margins come down a little bit, but again, we're able to take out $7.9 million from comp stores in Q3. Our journey really started back in 2023. So since Q4 of 2023, we've taken out almost $100 million in our comparable stores. So we are doing what we need to do in this environment, but there's still some left to your point. As we move into 2027, we can continue to flex labor hours, as we always talk about. You know, 70% of our fleet we can flex naturally with transactions. The other 30% we can flex at a lower rate because they're lower volume stores. But the most important thing with that is we're not going to sacrifice our customer service experience. Our customer service scores, our NPS scores, are still at all-time highs. That's what we look at constantly just to make sure we're not pushing too much on the business so we feel good about our ability to flex there. We'll continue to push on discretionary spend within the four walls, and then we'll continue to align G&A expenses to the current environment. As Brad mentioned in his script, while still investing in growth initiatives for the future, we've got a lot of good things happening. So continue to invest for the future, but making sure that we can protect that profitability, as you mentioned.

And is your gauge of demand for big ticket, is it getting worse, or we're at natural replacement, we're at a bottom, and it's stable?

You know, it's, you know, it's an interesting question, you know, obviously felt really good. And this is probably a good moment for me just to kind of give my perspective on the transition from third quarter into the fourth quarter. You know, we're generally really pleased with the progress we made in the third quarter. When we talk about progress and specific initiatives around our customer experience, we call that out of MyScript Pro digital loyalty, feel really good about where we're at and know that's going to have a nice impact on our customer experience and our competitive position. But certainly, as we transition from September to October, our business felt the impact of, I'm just going to call them changing macro conditions, which I know this group's very well versed in. But for us, the list of those macro conditions or the driver of those macro conditions, first one is elevated 30-year mortgage rates hovering up to nearly 7.5% at one point in time. EHS continues to be pressured. Obviously, the cost of fuel has an impact on households across America. and then you're seeing just generally lower consumer sentiment. So all of these are headwinds for our business. All of these are headwinds for big ticket discretionary. So from our perspective on have we bottomed? I think that's a, as I said at the top, a tough question to answer. And our focus really is, you know, we're just going to control what we can control. We've got a really differentiated model. We think we're well positioned to take share in this type of market. We've got the right growth plan. We've got a great management team, great associates across the U.S. So we're going to stay the course. We're going to execute our play, and that is really taking care of our team, being really passionate about customer service. As Brian said a couple of times, we're going to invest in our customer experience, and we're going to continue to take market share. Thank you.

Good luck.

And Seth Segman with Barclays will have our next question. Please go ahead.

Great, thanks. Hey, everybody. I wanted to follow up on the margins. So you discussed that balanced approach, and that's clearly been the approach for some time. There's a lot to balance into next year, to your point earlier. Can you speak specifically to the pro-loyalty program? How do you think about the investment required there? Because that seems like a big undertaking. Help us think about that and the timeline into 27.

Maybe I steal this question from Bryan as well, but You know, we came out early and shared the news around the Pro Loafy program, and we shared that early because we really are excited about it. As I said in my prepared remarks, we finally, I'm going to say finally because we actually, the team worked really hard to get to this point, but it's finally in the fact that we're excited to get to the point where we're beta testing this in three markets across the U.S. as of about two weeks ago. And like any test, we're learning a lot. We're getting really, really helpful feedback from both our associates and our customers. And the initial response has been, on the associate perspective, I would say overwhelmingly positive. From a customer perspective, also positive. And when I think about customer feedback, the two boxes that I was looking to get checked was, number one, do they understand the program? And the second would be, do they see value in the program? And again, a couple of weeks in, really positive and encouraging signs that we're seeing from the beta test. But it is still early, and our expectation is we're going to continue to learn. But as we said in my prepared remarks, we are on track to launch that in the first quarter nationally. It will be just to kind of manage expectations from a financial perspective. We have modeled this. We do have, as you would expect, a really strong view on what it's going to mean from a sales perspective and a profitability standpoint. Maybe two or three things that I would share, and Brian, feel free to add anything that you think I missed. One is this program, like any other loyalty program, takes time to ramp up. It's not a flip of the switch and overnight all of a sudden you see the full impact. So it will be a ramp up over months and not days. One of the things that we've communicated to this group is our expectation is that it will be a slight headwind to gross margin rate. But we do expect, and the whole reason we're doing this program is going to drive share wallet with our pro customers. So it will drive incremental volume into our stores and then ultimately be accretive from an operating income standpoint.

Okay, great. Very helpful. I guess back on the demand side, throughout this year, you've had a couple of these periods of better comps, even positive comps, like you talked about in September, despite pretty weak housing trends throughout. So what else can you tell us about what you've seen during these periods of improvement and what ultimately it's going to take for comps to get back to positive more consistently? Thanks so much.

Yeah, so, you know, when I think about what we're seeing in October, it's not all that dissimilar to the discussion that we had around our early July performance. The only difference is it's been a little bit more prolonged and certainly worse from a performance perspective. You know, I really point to those demand drivers that I talked about with mortgage rates being well over 7%, EHS continuing to be pressure, inflationary pressure really weighing down on the consumer. That is what's changed the story a little bit and certainly informed some of our thinking as far as investments into 2027. So I think the short answer is we've got to see improvement there. One of the things that I would add to that, though, because of the focus on really key initiatives that we've been consistent talking about around digital and pro, I would say evolutionary investments into supply chain, we feel like we've got a stack of initiatives that will allow us to deliver outperformance, certainly. But as we've shared consistently, if we get any level of stability in this market, we think we've got a real line of sight to positive growth, positive comp growth.

Okay, thanks, Brad.

And we'll move on to Stephen Forbes with Guggenheim Securities.

Good evening, everyone. Hey, Brad Ryan. Brad, Brad, given the Given the plan moderation and new store growth for 2027 and some of the initiatives you talked about earlier this year around reduced DC to store lead times, I was curious if you can maybe give us a first look or early look on any merchandising initiatives you have planned for 2027 to drive mature store volumes and mature store productivity. Anything to highlight.

Sure. So I have to start with our existing assortment. obviously that's a lion's share of our sales and again Ersan and the merchandising team do a really nice job of constantly reviewing what we do and optimizing that assortment both from a newness perspective from a traffic driver pricing strategy which we've already touched on and again I've said that Thomas said it historically we think that's a real competitive advantage in how we assort our stores you know the second piece that I would say is We continue to think about how we use space inside of our stores. One of the things that we've communicated as we open new stores, the average size is going to be 55,000 to 65,000 square feet, so a little bit tighter space than the historical floor & decor stores, but we've been really creative in rethinking the front end, certainly the back end, that is freed up selling square footage, which is really, really important. I'll call out two, maybe three things. Ersan is in the room, so again, Ersan, if I miss any key categories, please chime in. You know, the first one is, you know, we're going to continue to invest in installation materials. That has been a really strong performer for us. It's a driver of Pro Footsteps. It's been our best performing category all year. We just referenced 10% growth in the previous quarter, and we use that as a proof point to really demonstrate where we think we're taking share. We do think we have the opportunity in both existing and new stores to continue to expand our footprint in that category. So you'll certainly see that in 2027. The second category that I'd like to talk about is outdoor. Outdoor is a category that we've been testing, I think, over the course of at least 18 months. A couple of different flavors across the United States. It's not a national play, but it does play in a majority of states across the United States. And we've had great success. We've had really, really good success. So you're going to see, I think, expanded assortments across many of our stores. And I would say there are really 10 states that drive a majority of the outdoor stores. Outdoor Sales. So you'll see expansion in that part of the business. And then, you know, there are new categories and other things that we're testing that aren't ready for prime time yet. But certainly having that conversation and how we can repurpose space in our existing stores to drive more productivity.

Appreciate that. And then just maybe a quick follow up. It's been probably about a year since you talked about sort of mature store, five year and older Average Sales, 4 Wall Margins. Curious if you can give us an update on where that stands today. And then if you could, just sort of talk about the more recent cohorts relative to that $11 million average volume you referenced in the past.

Hey, I'll jump in with the mature store commentary. So yeah, it's mature stores right now are doing right around $20 million, just slightly below on average, but they're still producing right around 23% EBITDA. So we're doing what we can to kind of, you know, manage through this, even though the volumes have come down from that peak volume at one point of 26 to 28 million, that peak. But again, right now they're doing about 20 million. From a new store cohort, you know, the class of 26, there's still a lot to be seen. You know, we've got eight more stores to open. We've got some that haven't had enough time yet, but we could see them being at, if not slightly below, from a new store sales volume of the class of 2025. whenever we think about those, and both 25 and 26 would be slightly below 2024. Just given the deterioration in the macro environment, that's what we're seeing.

Thank you.

And moving forward, we ask that you please limit your question to one question only to allow us to get everyone's question in. Next, we'll hear from Michael Lasser with UBS.

Good evening. Thank you so much for taking my question. So if we were to lay out a ledger with the puts and takes on your gross margin into 2027, on the headwind side, you will have some drag from the rollout of your loyalty program. You will have lapping the tariff, the tariff refunds from this year, as well as maybe the persistent inflationary pressure from supply chain costs as well as an aggressive pricing posture to match what's happening in the environment. Bryan was kind enough to lay out some of the goodness that you will use to offset that, but it does seem like those headwinds are going to outweigh the tailwinds that you can engage in in order to mitigate some of the issues. So why should we not be modeling a gross margin decline as it stands today for 2027 as we look out to next year.

Hey, Michael, this is Bryan. Yeah, I'll jump in and then, you know, Brad can wait if he needs to. Look, it's, like I said earlier, we're still super early in the planning process. We mentioned to you guys earlier, you know, with the last call on this one, there's still a lot of things that we can do as a management team, you know, to offset some of these pressures that we're seeing. You're right. I mean, there are headwinds that are real in the business with, Diesel fuel driving supply chain cost up. You will have the wraparound effect of tariff benefits that will then come off because majority of those will have sold through the inventory. But just like we do and have done in the past, you know, this is a battle tested team and, you know, we'll do what we can to make sure that we manage the business, to make sure that we're driving for as much market share as possible. And the diesel fuel cost, again, this is a point in time, so hopefully those start to subside. as we move into next year. But again, we'll manage the business the way that we need to, to make sure we're capturing as much market share as possible, driving value for our customers and maintaining those price gaps. So again, we're not the only ones that face this pressure. And so when you think about the industry, everybody's going to get hit with the same kind of fuel cost. For us, we think about that as a competitive advantage because we go direct. So when you think about it, we remove some of those touch points throughout. So we're not the only ones in the industry that are kind of facing this pressure.

And next we'll hear from Chris Hovers with JP Morgan and Chase.

Thanks, guys, and good evening. So I just want to touch a bit more on the board changes. Can you talk about what drove the impetus of the changes? Was the reduction in the unit growth to 4% next year a part of that conversation? And does that mean that CapEx maybe comes down 100 million bucks and that rolls into share repurchases? And then, in addition, is there any conversation about looking at, you know, broader alternatives to drive shareholder value? Thanks so much.

Hi, Chris. Yeah, zero connection between the decision and the moves that we made on the board. Tom and Norman and our board committee has, and I think we referenced this in our script, as far as having a well-thought-out succession process here. Norman, can't thank him enough for what he's done for the board, being on our board for 17 years, chairman for most of that, and obviously one of the key architects behind all things that are flowing to court today. For Tom, and you've had the conversation with Tom, so you know that Tom will always be a part of the business. He's been invaluable to me as an executive chairman, but also mentioned in the script as far as felt it was the right time for him to make that move from exec chair into chair. And we're really, really excited to have him into that role. As far as how we're thinking about the business, we continue to grow up. We're a bigger business. And capital allocation has been something that Bryan and I had both talked about at length this year. And to add someone to the board like Lauren, who's got a level of capital markets experience, is great. I had the opportunity to work with her or see her in action at HD Supply. So she brings so much more to the table other than just capital markets experience, and she just is going to be a huge help in helping our team really deliver long-term value creation for floor & decor. So we're excited to have her on board.

And we'll next move to Steve Zaccone with Citi. Please go ahead.

Great, good afternoon. Thanks so much for taking my question. I was hoping you could elaborate a little bit more on the decision to lower unit growth for next year. How do you balance a temporary reduction versus this being the new run rate for the business? And are there markets you'll still prioritize openings? You know, we've seen this sort of gradual step down in unit growth over the last few years. Yes, macro is tough, but more points of distribution is also key to growth share with that pro customer. So curious if you could expand upon it.

Thanks. Thanks for the question. And I'm going to just start out by reminding the group on our approach to new store openings because we had, you know, we've been calling it a pivot over the last, you know, 12 or so months. And the pivot is new store market, or excuse me, new store openings are going to be focused on opening in Tier 1 and Tier 2 markets. We think it's really important that we intensify urban markets. We're going to do that through the opening of smaller stores, and that's generally going to be in the range of 55,000 to 65,000 square feet. And I kind of hesitate to say smaller because they're smaller relative to what we do, but still by far the biggest option in every market. When you look at our class of 2026, the second half stores are really reflective of that strategy. And then the other piece I'd be remiss if I didn't mention it, as part of our process, we've made great progress and will continue to make progress in reducing the cost of construction and opening costs for our new stores. We feel like we've got the right set of priorities, which we think will prove to be successful over time. That being said, when we think about 2027, there are a few points that I want to make. The first point, I think this is really important for everyone to hear, we are still fully committed to 500 stores. Our decision to slow down to 10 to 15 is really a pacing decision, and it's not a change in our commitment to a 500 store network here in the US. The second point, I think it's just as important, and As a management team, we've been really open in saying that our focus over the last couple of years has been improving our new store performance. While we love the locations that we've opened up or we have a level of confidence that our opening process is as good as it's ever been, we have acknowledged opening new stores in this macro has put pressure on performance and early returns. So as a team, we look at the last four years of openings and we know we have a commitment to all of our investors to drive more productivity out of those stores that we've opened in the last four years. Which leads me into the last point. And that is, as we kind of look from 26 into 27, we're making the assumption that some of these headwinds that we're faced with today will last into 2027. And we consider the environment right now more challenging than what we saw in 25 and the early part of 26. So if you believe that, and we certainly do, it was a relatively straightforward decision for us to make around capital allocation to say, We can slow the pace of openings to 10 or 15, and we can do that because we don't have a fast-forward competitor. We still are opening 10 to 15 stores, which is a meaningful investment into our experience. And as soon as we see any type of improvement in those demand drivers, then we will plan to re-accelerate. So it's an incredibly long answer to your question. The short answer is we believe this is temporary and not a reflection of the new run rate around new store openings.

and Peter Keith with Piper Sandler. We'll have our next question. Please go ahead.

Oh, thank you, and good afternoon, everyone. Maybe thinking a little bit about next year, but we are hearing about a slowdown in flooring sales into new home builds. I tend to think about the existing home market as just frozen, but new home builds getting weaker. When I think about Florida Core, I think about you guys as much more around existing homes, but perhaps there is some of the pro business at stores that is going into new homes. And I'm wondering if there's a way you think about that or can quantify it as some type of percentage of sales.

So your intuition was correct. I mean, we really play with existing home sales, very, very small percentage of our businesses on new home sales. And you'd find that more often in our RAM team, our regional account manager team, which is a small team that calls on kind of light commercial type business. Even our Spartan business doesn't play really at all in new home construction. So I've been reading the same thing and certainly see those trends, but as far as the impact that that's going to have on our business, I believe it'll be minimal.

Very good. Thank you.

And we'll move on to Philip Lee with William Blair. Please go ahead.

Thanks for the question. So just wanted to go back to the pro-loyalty program. Just trying to, I guess, quantify or think about how big of a catalyst this could potentially be. Are there any early takeaways that you could share with us on the pilot? And then you talked a bit about a longer ramp for this. So how long do you think it would take to start seeing some sort of acceleration in comps once you've rolled it out to all markets? Are we talking more of a Thank you.

Yeah, still too early as far as any real learnings that we can share. Like I said, it's been, you know, less than two weeks for two of the markets, but really encouraged by what we're seeing. You know, the specific call out about ramp up is, you know, it's going to take time for our pros to enroll into the program and really start driving that incremental share wallet that we expect to happen. Some of our pros are not in our stores every day. Some may come in every other week. Some may come in once a month. So there is a little bit of a lag in having that conversation, informing them about the program, and making sure there's total clarity in what we're trying to do. So that's a little bit of me managing expectations to all of you on, hey, it's going to take a little bit of time. But again, I think the response that we've received has been very positive. We have a high level of confidence that Krystal and her team have built a terrific program that's unique to floor & decor. So we've got high expectations around it. I think you're going to see the benefits certainly start to come through in the P&L at some point in 2027. I'm absolutely not going to make that commitment on when in 2027 on this call, but we do think this is going to be a real strong play for us in the medium and long term.

And our final question today will come from David Bellinger with Mizuho Securities. Please go ahead.

Great. Thank you, guys. Let me ask a five-plus-year question. How do we think about flooring decor in a world characterized by agentic commerce, AI-powered shopping? Flooring can be a very visual category. I know you guys work a lot with Pinterest, but how do we think about the preparation for agentic, or are you Seeing anything today of traffic driven by LLMs coming into your channels? Thank you.

Listen, I'm going to state the obvious, and I'm sure I'm going to get some rolling eyes across this telephone call, but from our perspective, obviously a very exciting technology that we know is going to transform how we operate and how we do business. It's still early days in the floor-to-core journey when it comes to this, but certainly have emerging thinking when it comes to, number one, how do you drive productivity inside the business? But more importantly, how is it going to evolve the customer experience? I'm glad you asked the question because I'm especially interested in that part of the journey, the customer journey, and how Agentech is going to change how our customers engage with Floor & Decor. So how do they get into our platforms? And then what tools do they use to make decisions? You know, we're not at a point now where we're going to share how we're thinking about that and how we think we're going to succeed in that environment. But I will tell you, it's absolutely top of mind. It's a conversation that we have often here. We do think our business and our category is well positioned to really benefit from that change. And we're excited about being a leader as we go down that journey, go through that journey.

We have reached the end of our question and answer session. This does conclude today's conference we thank you again for your participation. You may now disconnect your lines.