Welcome to the Floor & Decor Holdings, Inc s econd quarter 2024 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 during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Wayne Hood, Senior Vice President of Investor Relations. Thank you, operator, and good afternoon, everyone. Welcome to Floor & Decor's fiscal 2024 second quarter earnings conference call. Joining me on our call today are Tom Taylor, Chief Executive Officer, Trevor Lang, President, and Bryan Langley, Executive Vice President and Chief Financial Officer. Before we start, I want 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 risk 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. Floor & Decor assumes no obligation to update any such forward-looking statements. Please also note that past performance or market information is not a guarantee of future results. 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 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 Investor Relations website at ir.flooranddecor.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 Tom. Thank you, Wayne, and everyone for joining us on our fiscal 2024 second quarter earnings conference call. During today's call, Trevor and I will discuss some of our fiscal 2024 second quarter earnings highlights. Then Bryan will provide a more in-depth review of our second quarter financial performance and share our thoughts about some of our updated outlook for fiscal 2024. Our fiscal 2024 second quarter total and comparable store sales were modestly below our expectations. However, our gross margin rate exceeded our expectations, which, coupled with prudent expense management, helped mitigate most of the impact of weak sales. As a result, we were able to report fiscal 2024 second quarter diluted earnings per share of $0.52, compared with $0.66 in the same period last year. We and our industry continue to contend with monetary policy affecting the housing market and repair and remodeling spending, including ongoing soft demand for large project, discretionary, hard surface flooring. Existing home sales have now declined year-over-year for almost three years. In the month of June, existing home sales declined 5.4% to a seasonally adjusted annual rate of 3.89 million, the lowest level since December 2023 and one of the lowest readings in 40 years. Housing affordability remains a hurdle for most buyers, given elevated mortgage rates and record high home prices. Therefore, we are not seeing the resurgence in hard surface flooring demand that we had expected and believe some sustained mortgage interest rate relief is needed to improve existing home sales and flooring demand. Our revised fiscal 2024 sales and earnings outlook, provided in today's press release, reflects this muted market environment. We understand the short-term challenges current market conditions pose and are adapting our strategies accordingly. We remain committed to executing strategies that we expect to help us continue to grow our market share, while diligently working to manage our profitability and maintaining a strong balance sheet. We opened five new warehouse format stores in the second quarter of fiscal 2024, ending with 230 warehouse stores and five design studios, compared with 203 warehouse stores and five design studios in the same period last year. For the full fiscal 2024 year, we now plan to open 30 new warehouse stores, compared with our prior expectation of 30-35 stores. Looking forward to fiscal 2025 and considering current market conditions, we believe it is prudent to slow our new store opening pace to approximately 25 new warehouse stores. We are pivoting most of the new store openings to larger existing markets where our brand awareness is higher. We believe this increases the likelihood of successful store openings in a challenging housing backdrop. In fiscal 2025, we intend to focus on opening warehouse stores with the highest potential for success in this weak environment, thus maximizing our return on capital. As Bryan will discuss in more detail, we are using this period as an opportunity to better align sales projections and capital spending growth within the current environment. These actions have enabled us to reduce our fiscal 2025 capital investment per new store and increase the expected return for this class of stores by more than 200 basis points. Most of the growth in capital spending per new store over the past few years reflects significant industry-wide increases in new store construction costs, a strategic decision to increase the number of self-development projects, which raised capital spending per store, but lowered rent, and our entry into the Northeast, where all costs are higher. Our long-term goal of operating 500 stores is supported by our ability to open stores in large, medium, and smaller single-store markets across the United States to maximize our market share and profitability. We believe the slope and timeline of reaching 500 stores will be influenced by when we return to a historical normal level of existing home sales. We are fortunate to have a portfolio of store sizes that we can open to fit market needs, ranging from 55,000 sq ft- 80,000 sq ft warehouse stores. Our ability to successfully operate this range of store sizes is underpinned by executing a local merchandising strategy at scale. Once we determine the market potential and store size, we micro-merchandise a targeted assortment for each store with input from our regional merchants, chief executive merchants or store managers, and market analogs to optimize sales and inventory productivity. We are not peanut butter spreading our assortments across the country. In fact, we see further opportunities for customer segmentation to drive assortment decisions to widen our competitive moat. In smaller single-store markets, where our annualized sales per store could be less than larger markets, we are able to implement less costly labor and new store construction models. We can reduce our store footprint and SKUs without compromising our merchandising assortments or the customer experience. Because these markets are generally less expensive than larger markets, it's easier to operate. We believe we can generate internal rates of return that exceed our weighted average cost of capital, making them attractive markets. We are pleased that the market demographics for these potential stores we plan to open in fiscal 2024 and 2025, have higher average household incomes and higher ownership rates than our 2023 store class. Collectively, we expect our planned openings to further solidify our market share and position us for strong growth when industry fundamentals improve. Before turning the call over to Trevor, I want to express our pride in our teams. Their hard work enables us to sustain customer service scores and engagement that are near all-time highs, and to successfully manage our profitability, liquidity, inventory, and capital spending during this challenging period. By doing so, we can position ourselves to continue growing our market share and make significant strategic growth investments towards our long-term goal of operating 500 warehouse stores in the United States. We currently intend to re-accelerate our new store opening cadence, as well as generate healthy operating margin expansion and earnings growth in a normalized environment. Let me now turn the call over to Trevor. Thanks, Tom. I also want to express my gratitude to our associates for their hard work and dedication to serving our customers. Despite current market conditions, we are in a favorable position due to significant investments we have made over the last decade to build our business model that has significant competitive advantages. These investments continue to differentiate our results versus the competition. Many of you may notice that some of our competitors face significant challenges in the current market environment. Fortunately, we have a strong balance sheet and cash flow that allows us to continue to make investments in our associates, our new stores, merchandising, technology, and distribution centers. Thus, we believe we can continue to grow our market share further in both the short and long term, as we have done for almost 25 years. As Tom mentioned, we expect to generate healthy operating margin expansion and earnings growth in a normal housing environment. Turning to second quarter fiscal 2024, our total sales declined by 0.2% to $1,133.1 million, and comparable store sales decreased 9% from the same period last year. Monthly, comparable store sales fell 8.9% in April, 9.7% in May, and 8.6% in June. Our fiscal 2024 third quarter to date, comparable store sales declined to 7.7% from the same period last year. In the second quarter, like the first quarter of fiscal 2024, comparable store sales in the West Division were better than our company average. As a reminder, our West Division was the first to experience softening sales in 2022, and has been less impacted by cannibalization than other divisions due to fewer new store openings. Comparable store sales were similar in the East and South divisions. Let me comment about our comparable stores average ticket and transaction trends. In the second quarter of fiscal 2024, our average ticket decreased by 4.3% compared to the same period last year, in line with the 4.2% decline in the first quarter of fiscal 2024. Comparable store transactions declined by 4.9% compared to a 7.7% decline in the first quarter of 2024. These trends mainly stem from macroeconomic housing challenges and customer purchasing less square footage and undertaking smaller projects. Turning to our fiscal 2024 second quarter sales trends by merchandise categories. Comparable store sales and decorative accessories, installation materials, adjacent categories, wood, stone, and tile were all at or better than the overall comparable store sales, which declined by 9%. We are pleased that our strategic merchandising efforts are successfully driving sales towards our better and best price points, which offer industry-leading innovation, trends, and styles at everyday low prices. Furthermore, these strategies continue to lead to a sales mix shift to higher-margin products, enhancing our profitability. We are also making continued strides in our strategy of diversifying the country of origin of our products and reducing our exposure to China....As a reminder, in fiscal 2023, China accounted for approximately 25% of the products we sold, compared with approximately 50% in fiscal 2018. We expect a meaningful reduction in fiscal 2024 from our continuing diversification strategies. Turning up my comments to our connected customer pillar of growth, we remain pleased that our connected customer strategies continue to drive engagement and growth with our homeowner and pro customers. Our second quarter connected customer sales increased by approximately 1% from the same period last year, largely due to growth in transactions. Consequently, connected customer sales accounted for 19.5% of the second quarter sales, compared with 19.1% in the same period last year, and 19% in the first quarter of 2024. As a reminder, we continue to observe that customers who visit our stores and engage with our websites spend substantially more than single channel customers. Therefore, we are continuing to integrate our processes and technology solutions to further develop a seamless in-store and personalized online experience. We are building on these strategies with a focus on driving organic traffic growth to our website and further optimizing the customer search experience. We plan to achieve this by improving our website speed and the quality of website search, adding inspiring and user-generated content for customers, and refining our online merchandise process to increase efficiency. Turning to our design services. Our design teams are focused on delivering an elevated design experience by working closely with our pro desk to build relationships with our contractors, selling them entire projects to grow the basket size, and following up on high volume sales opportunities. These strategies contributed to an improved close rates and year-over-year growth in second quarter sales from design services. As a result, our fiscal 2024 second quarter design sales penetration increased meaningfully from the same period last year. Turning my comments to pros, we are pleased second quarter sales to pros improved sequentially and year-over-year, accounting for approximately 48% of retail sales. As discussed in prior earnings calls, we are growing our market share with pros by leveraging our pro dashboards and CRM tools to drive engagement with new, inactive, and active pros. We have added tools to better measure the effectiveness of our pro sales managers' new pro acquisition efforts. We continue to invest in quarterly pro roundtables, listening to our pro customers and adapting our tools based on what we learn to drive better engagement. We also have invested in rolled out payment technology to allow our pros to authorize payment remotely, removing friction in how our pros do business with us. We continue to deepen our relationship with pros by partnering with trade associations to host educational events. In the second quarter of fiscal 2024, we hosted 27 National Tile Contractors Association and eight National Wood Flooring Association education events, training approximately 533 pros. We remain excited about hosting approximately 145 educational events in 2024, which we believe is industry-leading in flooring. Importantly, we see significant lift in sales from pros attending these events. Furthermore, we continue to partner with native advertising platforms within banks' digital channels, providing a practical and cost-efficient way to successfully drive new pro acquisitions. Finally, we are pleased that our sales from our regional account managers in the second quarter of fiscal 2024 exceeded our expectations. We ended the second quarter with 71 regional account managers, compared with 61 at the end of second quarter of fiscal 2023. Let's now discuss our commercial business. We are pleased Spartan Surfaces' second quarter sales exceeded our expectations. Notably, June represented the best month in sales and profitability since our acquisition in 2021. As discussed on our prior earnings calls, Spartan continues to progress in its diversification strategies and reindexing to healthcare, education, and hospitality. In 2024, we plan to continue to drive sales and market share growth through organic rep growth and boosting rep productivity. We ended the second quarter of fiscal 2024 with 71 Spartan reps. In closing, we remain confident that we have the right people, strategies, and business model to navigate this challenging macroeconomic environment. Let me now turn the call over to Bryan. Thank you, Tom and Trevor. I am incredibly proud of how our teams have stepped up to manage our profitability, balance sheet, and inventory in fiscal 2024. I am particularly pleased with how we are growing our market share with pros, which accounted for approximately 48% of retail sales in the second quarter of fiscal 2024. Additionally, our second quarter results underscore how we continue to execute our plans to grow our gross margin rate, diligently manage expenses, and generate free cash flow in this muted market environment. Let me now discuss some of the changes among the significant line items in our second quarter income statement, balance sheet, and statement of cash flows. Then I will discuss our outlook for the remainder of the year. Our fiscal 2024 second quarter gross margin rate increased by 110 basis points to 43.3% from 42.2% the same period last year, exceeding our expectations and improving by 50 basis points from 42.8% in the first quarter of fiscal 2024. The year-over-year increase in gross margin rate is primarily due to favorable supply chain costs. Our fiscal 2024 second quarter selling and store operating expenses increased by 9.6% to $341.4 million from the same period last year. The growth in selling and store operating expenses is primarily driven by an increase of $39.1 million from operating 27 additional warehouse stores compared to the same period last year, and $1.8 million at Spartan Surfaces, partially offset by a decrease of $10.9 million at our comparable stores. As a percentage of sales, selling and store operating expenses increased by approximately 270 basis points to 30.1% from the same period last year. This expense deleverage is primarily due to the 9.0% decline in our second quarter comparable store sales and new store investments we continue to make to support our growth.... Our fiscal 2024 second quarter general and administrative expenses increased by 6.9% to $67.7 million from the same period last year. The growth in G&A expense was less than we anticipated due to diligently managing our costs and lower than expected incentive compensation. G&A expense deleveraged approximately 50 basis points to 6.0%, primarily due to the 9% decline in our comparable store sales and investments we continue to make to support our store growth. Our fiscal 2024 second quarter pre-opening expenses increased by 6.5% to $10.6 million from the same period last year. The increase primarily reflects higher store relocation expenses compared to the prior year. Our fiscal 2024 second quarter net interest expense decreased 77.1% to $0.7 million, from $2.9 million the same period last year. The reduction in interest expense is due to a decrease in average borrowings under the ABL facility and an increase in interest capitalized, partially offset by interest rate increases on outstanding debt and lower interest income from our interest cap derivative contracts. Our fiscal 2024 second quarter effective tax rate decreased to 19.8% from 22.4% in the same period last year, primarily due to increases in excess tax benefits related to stock-based compensation awards, partially offset by limitations on deductions for compensation to certain employees. Our fiscal 2024 second quarter adjusted EBITDA declined 10.4% to $136.9 million, primarily due to expense deleverage from the decline in our comparable store sales. Depreciation and amortization increased 17.6%, contributing to net income declining by 20.7% to $56.7 million, and diluted earnings per share of $0.52, a decline of 21.2% from the same period last year. Moving on to our balance sheet and cash flow. We continue to maintain a strong balance sheet, which allows us to continue to prudently grow within our existing capital structure, even during a period of industry contraction. We ended the second quarter with $772.1 million of unrestricted liquidity, consisting of $138.1 million in cash and cash equivalents, and $634.0 million available for borrowing under the ABL facility. Our inventory as of June 27, 2024, decreased by 11.5% to $1.0 billion from the same period last year, and decreased by 6.2% from the end of fiscal 2023. Let me briefly comment on the recent rise in spot rates for ocean containers. As a reminder, we strategically enter into long-term contracts with our ocean carrier partners, which provide us with dedicated capacity at a contracted rate, and the rising spot market rates are not expected to have a material impact on us in fiscal 2024. Let me now discuss how we were thinking about our updated outlook for fiscal 2024 full year. Our fiscal 2024 sales are expected to be in the range of $4.4 billion-$4.49 billion, compared with our prior guidance of $4.6 billion-$4.77 billion. Comparable store sales are estimated to decline 6.5%-8.5%, compared with our prior guidance of down 2%-5.5%. The midpoint of this guidance assumes existing home sales and business trends remain relatively unchanged from current levels for the remainder of the year. We expect our comparable store sales to sequentially improve throughout the remainder of fiscal 2024 on both the high and low end of guidance, primarily due to easier sales comparisons. As Tom mentioned, our third quarter to date, comparable store sales declined 7.7%. We estimate our third quarter to date comparable store sales were adversely impacted by approximately 70 basis points from Hurricane Beryl. The primary impact of this July storm was wind damage, and we are not anticipating an offsetting increase in demand, as we have experienced following other storm events involving substantial flooding. Gross margin is expected to be approximately 43.2%-43.3%. Depreciation and amortization expense is expected to be approximately $235 million, compared with our prior guidance of $230 million. Net interest expense is expected to be approximately $6 million-$7 million, compared with prior guidance of $9 million-$11 million. Tax rate is expected to be approximately 18%, compared with our prior guidance of 20%. Adjusted EBITDA is expected to be approximately $480 million-$505 million, compared with our prior guidance of $520 million-$560 million. Diluted earnings per share are estimated to be in the range of $1.55-$1.75, compared with our prior guidance of $1.75-$2.05. Diluted weighted average shares outstanding of approximately 108 million shares, compared with our prior guidance of 109 million shares. Capital expenditures are expected to be approximately $360 million-$410 million, compared with our prior guidance of $400 million-$475 million. The decline in capital expenditures is due to the reduction in new warehouse store openings to 30 stores, from 30- 35 stores, as per our prior guidance. We are currently planning to open one distribution center in 2025, located in Seattle, Washington. We are strategically pushing the opening of our Baltimore distribution center to 2026, as the current industry environment does not require additional capacity. Additionally, we are benefiting from our inventory optimization efforts. We can quickly bring this capacity on as demand improves. In the second half of fiscal 2024, we are beginning a multi-year investment to upgrade portions of our enterprise resource planning system that will replace our existing core financial and merchandising systems. We expect this investment to have a minimal impact on our fiscal 2024 earnings and is incorporated into our earnings and capital expenditures guidance. We continue making prudent investments that we believe position us for accelerated sales and market share, and strong earnings growth when industry fundamentals improve. I want to thank our associates and vendor partners for their dedication and contributions to serving our customers every day. Operator, we would now like to take questions. Ladies and gentlemen, if you would like to ask a question, please press star one on your telephone keypad, and a confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question comes from the line of Zach Fadem with Wells Fargo. Please proceed. Hey, good afternoon. So Tom, on the decision to reduce openings in 2025, how would you frame the go forward between small format and large format stores? And then, given the historical advantage of big stores with depth of assortment, in-stocks, job lot quantities, does this edge still hold if you pivot to smaller boxes? Hey, Zach. So, I'll take the first part of the question first. As we looked to the Class of 2025, a couple of things. One, you know, we've gone through and taken a large initiative and tried to determine how do we open stores that are less expensive. Our team has done a good job of identifying, you know, over $1.5 million of cost benefits that will affect the Class of 2025, so we should be able to get a better return on the store. We're shooting for more, and we're still working. We're not done. Additionally, we scrubbed the list of the options that we had for 2025, and we selected stores with the greatest chance of success. More of them are in larger markets, in Class of 2025 than we did in the Class of 2023. So, you know, we think that gives us a better chance in those larger markets. Our awareness is a bit better. Stores should start off a little bit, a little bit stronger. A couple other things on the Class of 2025, and then I'll talk about the small store, the second part of the question. Look, we're also purposely backloading 2025. We're, you know, those stores will have more open at the back half of the year. Our hopes are that interest rates are being lowered by that time, macro starting to see the better side of it, so that as we... It gives us some flexibility, and we think we'll be in a better environment where there's more demand for the category and give those stores a better chance for a successful start. So we are opening smaller stores, it's a fair point, in smaller markets. We did that in the Class of 2023. The Class of 2023 was approved in 2021. Things were a bit different, but we did take a smaller store approach. The benefits, our advantages of broad assortment, in-stock, presentation, having designers, having vignettes, services, all remain intact. The majority of the small 55,000 sq ft stores are going in markets where the competitive environment is just less. I mean, it's. There's 10x the amount of competitors in Dallas, Texas, than there is in Temple, Texas. You know, so when we're opening those small stores, the competitive landscape is different, and we feel like our, our advantages, even, even in that smaller store for a small market, they hold up to what we've always historically done. So, and, and, you know, the last thing I'll just say about the small, the small markets is, you know, we believe they have the potential to make the same operating margin as the rest of the fleet. They maybe do, do less sales volume because it's smaller markets, but they're cheaper stores, and we should be able to make the same operating margin. Got it. Appreciate that. And then just assuming the lag from rate cut to EHS improvement to comp improvement, could you share your latest recovery timeline, and what type of environment do you think you would need to see in order to comp positive in 2025? You can start. Hey, Zach, this is Bryan. I'll, I'll start, and then Tom and Trevor can weigh in. So for us, I mean, just, just to be clear, the midpoint of our guide assumes that trends stay the same from Q2. So we're assuming basically on a comp basis, we'll have sequential improvement in both the high and low end, throughout the back half, but the majority of that improvement is mainly due to easier comparisons. So you're right, there is a lag that comes to interest rates changing, to existing home sales, to then where we impact that. We still feel like, you know, it's somewhere around zero to three months, so it is still a tight correlation whenever we have that. But if there was a rate cut in September, you know, we'll feel a little bit of that this year. To hit the high end of our guidance, things would have to get a little bit better, so that's incorporated in there. To hit the low end, things would have to get a little bit worse from where we were in exiting Q2. Yeah, I mean, the only thing I think I'd add, as we've said it before, we, you know, we'd like to be in an environment where existing home sales are positive year over year, and we think as that turns, that'll be more flooring demand in the market. So there'll be a lag to that, and I don't know when that will turn. I certainly thought interest rates would have come down by now, and I thought existing home sales would have been better by now, and that just hasn't happened yet. So the Feds say they're gonna lower rates. We'll see how the consumer holds up, and only time will tell. Appreciate the time, guys. The next question comes from the line of Christopher Horvers with JP Morgan. Please proceed. Thanks. Good evening, guys. So my first question is, can you—going back to when there were tariffs and when there was freight—can you just give us a refresh on what happened? I know there was some gross margin rate pressure, but then there was also, you know, inflation and tickets. So I guess, can you remind us what happened? And the second part of the question is: How do you think it's different this time? It feels like the consumer is pretty priced out at this point, and really, you know, elasticity seems to be going up. So I know it's a lot of speculation, but any conjecture you could have there would be helpful. Thank you. Sure. Hey, Chris, this is Tom. You know, when tariffs came the last time around, we were heavily dependent on China. You know, when I joined the company, we were over 50% of what we got was out of China. That number is down to, you know, less than 25% today and going down further, so we'll have less dependency there. When it happened, we moved products outside of China to move them to the other parts of the world where we could buy similar products at similar prices. And then things we couldn't move, we passed that price along to consumer, and they were able to absorb it. What's different in this time, luckily, we have less, but we're still getting out of China to some extent. Everyone's got to get out of China. It's things that maybe are only made in China, so everyone's going to have to deal with that pressure. Our merchants are continuing to look for ways to lessen the dependency on it, and we'll see how the consumer responds. My, my guess is they'll step into a different product within the store. If the prices have to go up and they can't afford it, they'll step to something else out of our broad assortment. Yeah, I'll follow up, too. This is Bryan. The one difference between last time and this time, too, so back in 2018 and 2019, was we only passed through the cost. Since 2023 and into 2024, we've actually been able to recapture a lot of that margin as well. So now we're protecting the margin rate. Last time, the margin rate actually went down and, because we only passed through the cost itself, so. Probably just the last thing, Chris, I'd say is, you know, the other big benefit, you know, we have is our prices are already fairly below all of our competitors. And so, we think that our competitors will feel it more painfully than us. And as Tom mentioned, it's just so different because we were sourcing 50% of what we were buying now and, you know, that number is gonna be a lot lower, as we get into possible tariffs, if there's a change in the administration. I guess, well, what about then on the freight side? I mean, presumably sourcing similar relative to competitors. You know, you, you've recaptured these costs now, and that's certainly helping your gross margin. If, you know, spot rates stay here, presumably contract rates go up next year and, you know, again, like, how do you think about... Do you think the, sort of, the net impact is gonna be worse this time from a elasticity and margin perspective? Yeah, you know, first off, we usually have three-year rolling contracts, and so we'll feel it a little bit. We'll have the lower rates for a little bit longer because not all of our contracts are up next spring, which is when most of the supply chain contracts come up. But yeah, I mean, the spot markets stay where they are, you know, call it a third or whatever it'll be, that will come up for renewal next year, is we likely would have higher rates. Our view is that all of our competitors in the past have passed that along. We would expect to see that again in this environment. I get your point that still affects the consumer and the consumer stretch, but like I said differently, is I don't think we'll be in any different competitive position unless our competitors decide to meaningfully lower their gross margins, which historically they have not done. Makes a lot of sense. Thanks very much. The next question comes from the line of Michael Lasser with UBS. Please proceed. Good evening. Thank you so much for taking my question. So you're on pace to have just under $18 million in sales per store this year versus $17 million on a reported basis in 2019. So what percent of your stores right now have lower sales and traffic than they did in 2019? And outside of just very depressed existing home sales, why do you think a good chunk of your stores are producing lower volumes today than they were in 2019? So, I guess I'll give the broad answer. I certainly, Bryan can look at the store count part of it. I mean, we are in a very difficult macro housing environment. So prior to 2019, since we went public and going through 2019, existing home sales were hovering, you know, above 5.5 million, close to 6 million homes annualized. That was a wonderful environment for our category. As people buy and sell homes, they buy and use our category. And as you look fast-forward to today, you had a bit of a pull forward during COVID, so we're digesting the COVID, you know, pull forward. You've got a macro where existing home sales, we're in our third consecutive year of negative existing home sales. You've got housing pricing that's up through the roof and household affordability, which is at a 40-year high. Those things affect every store and every market. So, you know, it's, as things improve, we believe that volume comes back. I think, you know, where it's... Didn't realize how good things were, pre-COVID, and as we've come out, certainly our category and has taken more of a challenge. Yeah, Michael, this is Bryan. I'll jump in. Look, on a store-by-store basis, it's a little hard to analyze it that way because we do open in existing markets, so we actually do put pressure on our own stores through cannibalization. What I would really point to is our five-year geo categories. If you look at that, we're still positive. Even on a transactions basis, our geo comps against 2019 from a geo basis are still up, just sub 1%. So when you look at it in total, and we look at the markets that we're in, and we look at comp in total, our transactions are still up from 2019, and so I wouldn't look at it necessarily on a store-by-store basis. Got you. And then my follow-up question is: given the cycle that Floor & Decor has been through over the last several years, what do you think a normalized comp rate for the business is? Especially as you slow new stores, you'll get less of a benefit from the waterfall effect of those new stores ramping to maturity, and there could be some structural changes in the category. Some of the technology, like LVT and LVP, may mean that there's just been less changing of flooring in the United States. And if interest rates come down and it inspires some existing home sales, but interest rates are coming down because of a weakening macro environment, how does that play into it as well? Hey, Michael, this is Trevor. I'll take a crack at that. You know, we still have 130 million housing units in the United States. 80% of them are over 20 years old, and on average, they're over 40 years old. And as Tom said, there was a lot of pull forward of demand that happened during COVID, but eventually, people are gonna wanna, you know, likely are gonna wanna move or they're gonna wanna upgrade their houses. Most of the research we've seen is flooring is usually in the top three to five things that people will invest in before they sell their home, 'cause they know that'll help the price, or if they're moving into a new home, they'll wanna invest in flooring because they wanna make it look good. So I don't think we know, but if you look at the last 15 years, I think on average, when the existing home sales were good and we were at a decent backdrop, flooring sales kinda grew 3%, 4%, 5% per year. I think even our most mature stores would hopefully grow at that same rate, so just pick 3% as a number. You're right, we're opening less new stores, so we'll have less of that waterfall benefit, but I do think we will still have some of that going on. So, you know, I would think in, in a more normalized environment, you'd hopefully get to a mid-single-digit comp, and in a good year, it'd be at a, in a high single digit comp, 'cause we do still believe, you know, last 25 years has proven, that we just feel like we've got a better model, than most of what's going on out there. So, don't know what's gonna happen, but we're fortunate to be in an industry with just a very aged housing, and flooring is a top thing that people will invest in, either because of existing home sales or just because, you know, flooring will wear out or trends will change. Yeah, I think the only thing, the only thing I'd add, too, is that if, depending on the slope of the, on the slope of the recovery, you're gonna have, for, for us, I think two of the things are benefit. We've continued to open, while we're not open at the 20% unit rate that we've opened historically, we've opened a lot of stores in the last couple of years in a down market. Those stores should accelerate pretty nicely, in the event that the market starts to turn. Thank you very much, and good luck. Ladies and gentlemen, due to the interest of time, we ask that you limit yourselves to one question only. Thank you. Our next question comes from the line of Simeon Gutman with Morgan Stanley. Please proceed. Good afternoon, everyone. I'll ask one question, maybe a two-parter. First, if you look at the performance of immature stores, maybe years two, three, and four, are they performing where they should? And I'm assuming they're not because the environment is weak. And if you can adjust for the weakness of the macro, is that spread, you know, to where the industry is, is that about the same, or is there something else within those cohorts? And then maybe the second part, Trevor mentioned that California was healthier because it was first in. Are there examples of markets that were last in that are still the weakest right now? Is that trend uniform across the country? Thank you. On the second part, yeah, I mean, we've got markets that are big for us, particularly like Texas and Florida, and, you know, some in the Mid-Atlantic, that are now starting to feel what we saw out West, and that's why the overall comp has come down over the, you know, previous three or four quarters is, you know, Florida and Texas, places in the Mid-Atlantic, you know, Washington, D.C., markets like that, are much more meaningful for us just on raw volume numbers. So yeah, as the housing weakness started out west and moved to the east, you've seen our comps, you know, sort of follow that same trend. And then on the new store cohort, we still have a waterfall where, you know, for example, our stores that we opened in 2023 that are now comping, they're actually comping positive. Right. And then as you walk up through the waterfall, the comps get better, you know, the closer you get to the newer stores. So yeah, we still have a comp store waterfall that the oldest stores are comping the most negative, and then, as I mentioned, the stores that we just opened, that there's only a handful of them, but the stores that we just opened that are comping are comping positive. The next question comes from the line of Chuck Grom with Gordon Haskett. Please proceed. Hey, thanks very much. Gross margins, real nice improvement here in the second quarter, north of 43%. Is this a good level to think about going forward beyond fiscal 2024? Or do you think about investing some of that back in, into price or other areas to stimulate demand? Yeah, I'll, I'll take that. This is Tom. Yeah, we're, we're pleased with the execution and how we're executing on the gross margin side of the business. We, we have invested some back in price, in categories where price makes movement better. So, you know, we've, we've certainly tried to be sharp in installation materials, a product that the pro buys all the time, and where we see a unit improvement when we lower price, that we do that. Going across the rest of the store, our prices are, are still good versus the competition. We feel good about them. And, you know, we'll, we'll continue to, like we always do, we, we, we affect prices up and down every single week, depending on what's going up in the competitive landscape. I do believe that we can, you know, we've grown gross margin almost every year that I've been here for lots of reasons. I think our merchants are doing a terrific job, as they move product, getting it at a better margin. I think that it's because the flooring category within itself is under so much pressure, we're being able to buy better, as, you know, with our existing vendors because, you know, things are tough, so we're able to negotiate better. Getting a little bit of benefit from mix. We've got a good designer emphasis, and when our designers... We have 900+ designers in our stores. When those designers are with customers, they sell a higher ticket and better margin rate. So, you know, I think margin expansion can continue into 2024. That's certainly, certainly our goal. The next question will come from the line of Seth Sigman with Barclays. Please proceed. Hey, everyone. Thanks for taking the question. Just thinking about the recovery opportunity, you know, the relationship to housing turnover makes sense, should drive an improvement in transactions at some point, and actually, your transactions decline was less bad in Q2. I guess I'm thinking about the project size issue and therefore, average ticket. Are you seeing anything that could suggest that project sizes just don't go back to what you've seen over the last few years? So just any context on that, and then I'll tie it in with a product question as well. Just thinking about, you know, the laminate and LVP categories do seem to be underperforming quite a bit. It looks like down high teens based on the 10-Q. So any more perspective on that, why those categories are underperforming and maybe ties in with the project size? Thanks. Yeah. So this is Tom. I'll take a shot at that, and then others can weigh in if they so choose. So I would say, you know, existing home sales, in my opinion, are they - the higher that they go, the better it is for those categories. I think that that category lends itself to, if flippers are into the market and they're doing bigger jobs, they're doing whole homes, they're doing basements, they're doing larger projects. And I think as existing home sales improve, that that portion of the business comes back, which would help in project size. I think when people are doing projects within a house that they live in, if they elect to do their powder bath or they elect to do a kitchen, they're doing one job at a time, and that's it. They're not doing the whole house at once. And I just think someone selling a house and someone buying a house, that house could sit vacant for a portion, and that lends to be a larger size. So I do think that in time, when existing home sales normalize, that our project size comes back to where it was pre-COVID. The other thing I think that's affected laminate to a certain extent is that it was. It's an easier, not laminate, but laminate and vinyl. It's an easier installation process, so I think during COVID and when people were at home and not having to go into work and they were reinvesting in their homes, that that category lended to be a little bit more easy for them. So they could buy in and they could do a bedroom on their own and not have to get a pro to do it. So we probably sucked, you know, some business forward as people are coming out of COVID, versus not everyone's gonna take on a tile installation, but a lot of people will try to do a vinyl installation. So I think those two things benefited, which affected the category a little bit more, and I think as things get better, the category gets better. The next question comes from the line of Steve Forbes with Guggenheim Securities. Please proceed. Good evening. Tom, I was hoping you could provide a little more detail around the cadence of the 2025 store opening plan. You know, what does backloading mean? I don't know if you could be more specific there. And also, like, what does it mean for the ability to extract or generate EPS growth while still leaning into the investment profile of the business? Like, is there any way to sort of frame, like, what sort of comp level or sales growth profile would be needed next year based on the current investment plans to get EPS growth higher next year o r EPS higher? Yeah, I'll take, I'll take the first part of that, and maybe, you know, Bryan can weigh in at the second. I mean, first, I'll, I'll headline with, it's way too early to talk about 2025. We're, we're trying to give you our first thoughts on kind of how we're thinking about the class of 2025 stores. We get lots of questions about that, so we wanted to give you. You know, how we're thinking about it today. And, you know, things could change, but this is how we see it today. The reason the stores are back-end loaded is a bit purposeful, and when I say back-end loaded, that means they'll happen in the second half of the year. We will have some stores that open in the first half, but we'll have more that open up in the back half. And part of that is, you know, the, we think it's gonna take a minute for the market to get better, and the better that demand is in the category, the better the new stores will start. So we think later in the year will be better. So that's why we're. It also gives us flexibility in the stores that we select, if we push them to the second half of the year. So that's the answer on that. And, yeah, the EPS answer, I guess I answered. Yeah, we're, we're not ready to comment on 2025, kind of EPS and growth and what it's gonna take yet. We've, we've got a lot more planning to do as we get through the year, so more to come on that, you know, as we provide guidance next year. The next question comes from the line of Steven Zaccone with Citi. Please proceed. Great. Thanks very much for taking my question. I did want to understand the impact of slowing unit growth a bit more to the model. So if you're opening more in existing markets or the weight is more towards existing markets, is it fair to assume that there's a little bit more cannibalization on comps? And then conversely, just on the bottom line, if you're slowing unit growth, does it somewhat lower the leverage threshold for the business cause like if we do get back to slightly positive comp next year, can you start to leverage some of those fixed costs and operating expenses? Yeah, I would just say yes, that if we do open slightly more stores in existing markets, it will have more cannibalization. But because we're gonna have fewer stores as a percentage of total, we think the cannibalization probably goes down a little bit. You know, so, for example, this year, I think we're gonna open 13% new stores, and next year, based on the 25, the estimated 25 stores Tom mentioned, it's more like 10% growth. And so the math of that would be the cannibalization would probably be lower. Yeah, I mean, I think on the leverage point, you know, as Tom mentioned, and you guys have all seen, our gross margin has come up, and we've got a number of stores that are operating on, you know, much more minimum cost hours. So when we start to get back to comp positive, which hopefully will happen next year, we don't know, but if it does, then, yeah, we think the, the flow-through should be higher on that because we have a number of stores where the cost shouldn't go up as much, and we're operating at a higher gross margin, so the flow-through should be pretty high. Yes. Keep in mind that our new stores are a drag. They actually add delever. And so as we open fewer stores next year, if it's approximately 25, that'll actually allow us to lever quicker because you've got fewer new stores coming into that combination, so. The next question comes from the line of David Bellinger with Mizuho Securities. Please proceed. Hey, guys, thanks for the question. It's on the ERP, the enterprise resource planning system. Just help us a little more detail there. Just why is that needed now? Is there anything you're looking to improve or something that's lacking in the system today? And then just the second part on this multi-year rollout, can you help us just frame it, are there any safeguards going into place to sort of limit just any type of disruption, whether on the merchandising side or something else? How should we think about all this and just any safeguards you guys are thinking about? Yeah, this is Trevor. You know, I've been here 13 years, and shortly after I got here, you know, we had an incredible business, and we had to invest in technology to help us grow this business from, you know, some portion of $200 million to the $4.5 billion that we think we'll do this year. And so we've been putting in best-of-breed technologies, really for over 10 years. And the vast majority of our systems are really good companies that are big companies that you guys would know, public companies that are SaaS-based companies, whether it's CRM or HR or what we do with supply chain. And the last two that we need to invest in to move off-prem, old AS/400 technology is our kind of core merchandising systems and our financial systems. And so, they're not all that sexy or pretty, but they're core to what you do to run the business. And so we've got a lot of experience in putting in new systems. As I mentioned earlier, we've done a lot of that over the last, you know, 10 or so years. And these are just the last two that are sitting on old technology that we need to move forward. So we've got, again, a good team that's been here that entire time, and we feel like we know what we're doing. We picked an incredibly strong, very large player. When you hear the word ERP, don't think of that in the same sense for us, because our stores, or our systems that we're putting in are gonna be a small piece of that because we've already upgraded the rest of the best-of-breed technologies. These are just the last two to be put in. Hey, this is Bryan. I'll actually just jump in and weigh in a little bit, too, because I'm sure you guys have the question. But, you know, as I alluded to in the comments earlier, you know, it's not expected to have a material impact for the full year of 2024, so it'll be minimal. But I do want to call out that it is one of the reasons that we should expect, you know, sequential modest pressure on SG&A as a percent of sales in the back half. So it will add just a little bit of pressure, and so we expect to be slightly above 6% for the full year. So that will put just a little bit of pressure, again, minimal for the full year, but a little bit of pressure in Q3 and in Q4. The next question comes from the line of Greg Melich with Evercore ISI. Please proceed. Hi, thanks. So I wanted to follow up, on cash flow, sort of both from CapEx and inventory. I guess, how long can we keep inventory flat or down if we're still opening stores? What's the right level there? And then on the CapEx side, is, is the decline this year about next year's openings, or will next year's CapEx, is that where we'll see the decline come from fewer openings? Yep, this is Bryan. I'll take this and let Trevor and Tom weigh in if they need to. So when it comes to our free cash flow, you know, we expect inventory... You asked on inventory. We expect inventory could be flat year-over-year as we kinda exit the year. But just remember, a lot of that has to do with us optimizing our inventory this year within our distribution centers and also a reduction in supply chain costs. So I do think that as we exit this year and move into 2025, as we continue to add stores, I think you will see inventory pick up at that point, but it should hopefully grow in line with the rate of sales. So you will see a pickup there just as we add stores. So I think the inventory reductions will kind of be over as we exit 2024, and it kind of just normalized growth as we get into 2025. And then on the CapEx portion of that question, the majority of the drop really has to do with us opening 30 stores this year versus the original guide of 30-35. So it's mainly that, and then a little bit of timing for the spend of the class of 2025 stores, but most of it has to do with the reduction of five stores. Our average new store CapEx for the class of 2024 is around $10 million-$11 million. So if you drop those five stores, that's the majority of the reduction in the high end. So obviously, our self-development projects would be above that average, and then our site use facilities would be below that average. And our next question comes from the line of Max Rakhlenko with TD Cowen. Please proceed. Hey, guys, thanks a lot. Can you speak to competition and what you're seeing out there? Are smaller peers increasingly struggling? And if so, do you expect to see closures if the current environment persists? And then, are peers being rational with price, or are you starting to see price points move lower? This is Tom. I'll take the first part, and Ersan can weigh in if needed. So, we are hearing of more pressure. You know, we meet with our field teams on a quarterly basis, where they come in, and then we do shops on a weekly basis. We're hearing of competition struggling more today than we've heard during the last three years as the market's turned down. Distributors and small independents and publicly traded peers. So we're hearing it across the board. Everyone's under more pressure. In the last great housing recession, when things did turn, there was less competition in hard surface flooring there than there was going into it, and I suspect the same thing will be true during this cycle. I wouldn't say, from a pricing standpoint, I... It's the same, the same decent independent competitors in some markets are, you know, they're—yes, they're aggressive in price, but it's no different than it was six months ago to a year ago. We're not seeing much change in it. There, we have a handful of competitors across country that, you know, certainly they're much more aggressive in price and giving things away, and we've got to pay attention to that. But, but overall, I would say that it's, it's not too different than it was within the last six months to a year. And our gaps, our gaps versus—The way we measure it on like-for-like products, our gaps remain terrific against the independents and distributor network and, against the home improvement centers as well. The next question comes from the line of Peter Keith with Piper Sandler. Please proceed. Thanks. Good afternoon, guys. Just quickly on the gross margin. So real nice performance for Q2, and then you've, you've guided up the full year pretty nicely. Is, is that purely a function of the lower supply chain costs? And, and if so, is it- is that freight, or is there, like, DC efficiencies, transportation efficiencies? Can you just help us understand the benefits there? Yeah, this is Bryan. I'll, I'll jump in and let Tom and Trevor jump in if they need to. So you're right, the sequential improvement. So actually, I'll start. Year over year, we were up 110 basis points, Q2 versus Q2. That primarily was due to supply chain costs. The increase from Q1 to Q2 sequentially was really due to a couple of items. And so first, you know, we had less than anticipated impact from the bridge collapse in Baltimore. Second, we had better operations and execution with lower shrink, damage, and overall markdowns. And then third, you know, not having to pass through as much supply chain savings and retail reductions than we had planned for, that allowed us to expand the margin rate, but also allowed us to, you know, maintain our price gaps and everyday low price strategy, which will always, you know, kind of maintain that. So that, that's really gives us conviction that the back half should be in line with the exit rate in Q2, or, you know, moderate improvement, kind of to achieve that 43.2%- 43.3% for the full year. So again, we have better visibility and conviction today based on those things that we saw in Q2 versus Q1. Thank you. The last question will come from the line of Jonathan Matuszewski with Jefferies. Please proceed. Great. Good evening, thanks for squeezing me in. In the past, you shared some insights regarding your most valuable pro customers. I think, historically, you've said the top 20% of your pros were increasing order frequency despite the challenged overall, you know, demand for the category. Maybe if you could refresh us on trends you're seeing with your top 20% of pros and how they're behaving, you know, relative to, you know, the, your broader customer base, that'd be helpful. Thanks so much. I don't have the specific how our top 20% are doing, but our pro business continues to outperform our overall business. So yeah, we continue to see our pro business continue to outperform, and you know, maybe we'll have that for the next call. But yeah, we're pleased that our pro business continues to perform better than our homeowner business. Yeah. Okay. Well, we appreciate everyone's interest in our company. We thank everyone for joining the call. We look forward to updating you on the next quarter.