2017 Jefferies Consumer Conference June 20, 2017 Tom Taylor Chief - - PowerPoint PPT Presentation

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2017 Jefferies Consumer Conference June 20, 2017 Tom Taylor Chief - - PowerPoint PPT Presentation

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2017 Jefferies Consumer Conference June 20, 2017 Tom Taylor Chief Executive Officer Forward-Looking Statements This presentation and the associated webcast contain forward-looking statements, including with respect to the Companys estimated

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SLIDE 1

2017 Jefferies Consumer Conference

June 20, 2017 Tom Taylor

Chief Executive Officer

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SLIDE 2

Forward-Looking Statements

This presentation and the associated webcast contain forward-looking statements, including with respect to the Company’s estimated net sales, comparable store sales growth, GAAP EPS, adjusted diluted EPS, diluted share count, adjusted EBITDA, warehouse format store count and new warehouse format stores for both the thirteen weeks ended 6/29/17 and all of fiscal 2017 and with respect to the Company’s estimated depreciation and amortization expenses, interest expense, tax rate and capital expenditures for fiscal 2017. All statements other than statements of historical fact contained in this presentation, including statements regarding the Company’s future operating results and financial position, business strategy and plans and

  • bjectives of management for future operations, are forward-looking statements. These statements involve known and unknown risks, uncertainties and other important factors that may

cause the Company’s actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward- looking statements. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expects,” “intends,” “plans,” “anticipates,” “could,” “seeks,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “budget,” “potential,” “focused on” or “continue” or the negative of these terms or other similar expressions. The forward- looking statements in this presentation are only predictions. Although the Company believes that the expectations reflected in the forward-looking statements in this presentation are reasonable, the Company cannot guarantee future events, results, performance or achievements. A number of important factors could cause actual results to differ materially from those indicated by the forward-looking statements in this presentation or the associated webcast, including, without limitation, those factors described in “Risk Factors,” “Special Note Regarding Forward-Looking Statements,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Business” sections and elsewhere in the Company’s filings with the U.S. Securities and Exchange Commission (“SEC”). Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, you should not rely on these forward-looking statements as predictions of future events. The forward-looking statements contained in this presentation or the associated webcast speak only as of the date hereof. New risks and uncertainties arise over time, and it is not possible for the Company to predict those events or how they may affect the Company. If a change to the events and circumstances reflected in the Company’s forward-looking statements occurs, the Company’s business, financial condition and operating results may vary materially from those expressed in the Company’s forward- looking statements. Except as required by applicable law, the Company does not plan to publicly update or revise any information in this presentation, including any forward-looking statements contained herein, whether as a result of any new information, future events or otherwise, including the Company’s estimated net sales, comparable store sales growth, GAAP EPS, adjusted diluted EPS, diluted share count, adjusted diluted weighted average shares outstanding, adjusted EBITDA, warehouse format store count and new warehouse format stores for both the thirteen weeks ended 6/29/17 and all of fiscal 2017 and with respect to the Company’s estimated depreciation and amortization expenses, interest expense, tax rate and capital expenditures for fiscal 2017. This presentation includes certain non-GAAP financial measures, including adjusted diluted weighted average shares outstanding, adjusted net income, Adjusted diluted EPS, EBITDA and adjusted EBITDA. These non-GAAP financial measures should be considered only as supplemental to, and not as superior to, financial measures prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). Please refer to the slide labeled “Non-GAAP Financial Measures,” in the Appendix of this presentation for a reconciliation of the non-GAAP financial measures included in this presentation to the most directly comparable financial measures prepared in accordance with GAAP. 1

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SLIDE 3

Floor & Decor At a Glance

Highly differentiated, multi-channel specialty retailer of hard surface flooring and accessories

■ Broad, trend-right, in-stock assortment ■ Everyday low price strategy ■ Good / Better / Best merchandise

selection

■ Service oriented sales culture ■ In-stock inventory

One-stop shopping experience, with extensive service offering for the needs of all customers Eight consecutive years of double digit comparable store sales growth

(1) Represents fiscal 2016 sales by category. (2) Represents estimated sales by customer. (3) Please refer to the Appendix for a reconciliation of Adjusted EBITDA. (4) The store count used throughout this presentation excludes one 5,500 square foot design center in New Orleans, LA.

60% 40% 31% 14% 9% 12% 18% 16%

Tile Wood Natural Stone Laminate / Luxury Vinyl Plank Decorative Accessories Accessories Pro Customer and Buy It Yourself (“BIY”) Do It Yourself (“DIY”)

Diversified Product Breadth (1) Two Key Customer Segments (2) Key Statistics Current Store Count 72 (4) 2016 Net Sales $1,051 million 2016 Adj. EBITDA (3) $108 million 2016 Comparable Store Sales Growth 19.4%

2

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SLIDE 4

Favorable Ongoing Category Tailwinds

Hard Surface Retail Sales Growing (1)

$10.2 $12.3 $14.7 $16.9 2010 2012 2014 2016

Continued Market Shift Towards Hard Surface (2)

61% 39% 49% 51%

2002 2015

Sources: US Bureau of Economic Analysis, Federal Reserve Bank of St. Louis Economic Research. (1) Management and independent consultant estimates. (2) Catalina Floor Coverings Report. (3) Federal Reserve Bank of St. Louis Economic Research.

Hard Surface Soft Surface (Carpet) Hard Surface Soft Surface (Carpet)

(in billions)

Increasing Existing Home Sales in US (3)

0.0 2.0 4.0 6.0 8.0 Jan-78 Jun-84 Dec-90 Jun-97 Dec-03 Jun-10 Dec-16 5.5 0.0 5.0 10.0 15.0 Jan-78 Oct-85 Jul-93 Apr-01 Dec-08 Oct-16 $13.3

Rising Home Equity Values Nearing All-Time High (3)

(mm households)

3

($ in trillions)

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SLIDE 5

8.4% 9.5% 9.8% 18.9% 21.9% 23.6% 26.8% 16.6% 11.4% 15.7% 17.0% 18.5% 16.3% 12.9% 10.4% 14.9% 22.4% 22.6% 19.3% 14.0% 12.8% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1

Sustained Robust Financial Performance

Best in Class Comparable Store Sales Growth

2012: 11.7% 2013: 22.1% 2014: 15.8% 2015: 13.5% 2016: 19.4% Average: 16.4%

Net Sales ($mm) (1) Adjusted EBITDA ($mm) (1)(2)

$337 $444 $585 $772 $1,051 $837

2012 2013 2014 2015 2016 Q1 2016 Q1 2017

$33 $37 $51 $71 $108 $78 $120

2012 2013 2014 2015 2016 Q1 2016 Q1 2017

2017

4

Note: Comparable store sales begin on the first day of the 13th month following the stores opening. (1) Excludes 53rd week in 2015. (2) Please refer to the Appendix for a reconciliation of Adjusted EBITDA.

$1,123

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SLIDE 6

Our Whitespace Potential is Significant

We intend to grow our store base by ~20% annually over the next several years, with potential to grow to 400 stores nationwide in the next 15 years

2 2 1 1

Current Store Count: 72

Cincinnati Cincinnati Cincinnati Cincinnati Cincinnati Cincinnati Cincinnati Cincinnati Cincinnati Cincinnati Cincinnati Cincinnati Cincinnati Cincinnati Cincinnati Cincinnati Cincinnati Cincinnati Cincinnati Cincinnati Cincinnati Cincinnati Cincinnati Cincinnati Cincinnati Cincinnati Cincinnati Cincinnati Cincinnati Cincinnati Cincinnati Cincinnati Cincinnati Cincinnati Cincinnati Cincinnati Cincinnati Cincinnati Cincinnati Cincinnati Cincinnati Cincinnati Cincinnati Cincinnati Cincinnati Cincinnati Cincinnati Cincinnati Cincinnati Columbus Columbus Columbus Columbus Columbus Columbus Columbus Columbus Columbus Columbus Columbus Columbus Columbus Columbus Columbus Columbus Columbus Columbus Columbus Columbus Columbus Columbus Columbus Columbus Columbus Columbus Columbus Columbus Columbus Columbus Columbus Columbus Columbus Columbus Columbus Columbus Columbus Columbus Columbus Columbus Columbus Columbus Columbus Columbus Columbus Columbus Columbus Columbus Columbus Chicago Chicago Chicago Chicago Chicago Chicago Chicago Chicago Chicago Chicago Chicago Chicago Chicago Chicago Chicago Chicago Chicago Chicago Chicago Chicago Chicago Chicago Chicago Chicago Chicago Chicago Chicago Chicago Chicago Chicago Chicago Chicago Chicago Chicago Chicago Chicago Chicago Chicago Chicago Chicago Chicago Chicago Chicago Chicago Chicago Chicago Chicago Chicago Chicago Knoxville Knoxville Knoxville Knoxville Knoxville Knoxville Knoxville Knoxville Knoxville Knoxville Knoxville Knoxville Knoxville Knoxville Knoxville Knoxville Knoxville Knoxville Knoxville Knoxville Knoxville Knoxville Knoxville Knoxville Knoxville Knoxville Knoxville Knoxville Knoxville Knoxville Knoxville Knoxville Knoxville Knoxville Knoxville Knoxville Knoxville Knoxville Knoxville Knoxville Knoxville Knoxville Knoxville Knoxville Knoxville Knoxville Knoxville Knoxville Knoxville Nashville Nashville Nashville Nashville Nashville Nashville Nashville Nashville Nashville Nashville Nashville Nashville Nashville Nashville Nashville Nashville Nashville Nashville Nashville Nashville Nashville Nashville Nashville Nashville Nashville Nashville Nashville Nashville Nashville Nashville Nashville Nashville Nashville Nashville Nashville Nashville Nashville Nashville Nashville Nashville Nashville Nashville Nashville Nashville Nashville Nashville Nashville Nashville Nashville

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Palm Beach West Palm Beach West Palm Beach

Distribution Center

5

30 38 47 57 69 400 2012 2013 2014 2015 2016 Potential

(1)

Stores

Note: Distribution centers average ~255,000 square feet. (1) Management commissioned third party study.

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SLIDE 7

A Business Model and Value Proposition Like No Other

Estimated Hard Surface Flooring Size per Store (sq. ft.) ~72,000 6,500 – 7,500 14,700 / 22,000 (1) 3,000 – 5,000 (2) Varies Stores 72 380 123 ~4,400 Varies Flooring & Decorative Average SKUs per Store (3) Available 1,800+ 410 1,600 ~575 Varies In-Stock ~1,500 40 – 50 20 – 25 ~335 Varies Tile:

   

Various Categories Stone:

   

Wood:

   

Accessories:

   

In-Stock Quantities High Low Low Product Dependent Variable

Sources: SEC filings, earnings transcripts, analyst research. (1) Per Company’s Investor Conference presentation, June 2017. (2) Based on management observations. (3) Does not include accessories and molding.

Home Improvement Centers Independent Stores

Online only players are not able to compete effectively given size and weight of products, level of interaction, customer service and customization

6

Specialty Lumber Flooring Company Specialty Tile Flooring Company

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SLIDE 8

Our Global Supply Chain is a Competitive Advantage

Elimination of agents and distributors creates most efficient conduit between manufacturer and end-user by sourcing directly Source from 180+ suppliers in over 18 countries; strong partnerships with vendors No supplier accounts for more than 10% of net sales Policies and procedures in place to address supplier compliance, including independent third party audits  Regulatory Compliance: Focus on CARB, EPA, Lacey Act and Social Accountability  Work with 3rd party consultants for audits, testing and surveillance to ensure compliance and traceability

Typical Hard Flooring Supply Chain Typical F&D Supply Chain

Manufacturer Agent / Broker Importer Distributor Retailer Customer Manufacturer Floor & Decor Customer Direct Sourcing of Products

Added time / costs

Eliminates middleman; reduces time / costs

Efficient supply chain allows F&D to offer low prices at attractive margins

7

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SLIDE 9

Note: Number of SKUs reflects in-stock average SKUs per store. Excludes opportunity buys and discontinued inventory.

Tile 290 SKUs Wood 110 SKUs Natural Stone 190 SKUs Laminate / LVP 90 SKUs Decorative Accessories 815 SKUs Accessories 1,525 SKUs

2016 Sales Breakdown

Broad Product Offering

31% 14% 9% 12% 18% 16%

Tile Wood Natural Stone Decorative Accessories Accessories Laminate / Luxury Vinyl Plank

Broadest in-stock assortment Good, better and best price points Offer a wide range of styles to satisfy a broad customer base Combination of best-seller products and more unique,

exclusive products

Localized merchandising strategy utilized as a distinct

competitive advantage

Vendor partnerships to apply new technologies and innovation Global sourcing

8

Differentiated, Disciplined and Localized Merchandising Approach

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SLIDE 10

40% 40% ~35% ~35% 10%

20%

We Bend Over Backwards for Our Pro Customer

Attractive customer base given:

 Loyalty  Shop often  High ticket purchases  Refer customers  Help increase brand awareness

(1) Management commissioned third party study. (2) Investor Conference, March 2017. (3) Investor Relations Presentation, August 2016. (4) Investor Conference, June 2017. (5) Management estimates based on equity analyst reports.

60%

Pro Buy It Yourself

Highest Pro Customer Mix in the Industry (1)

(2) (3) (4) (5)

9

(1)

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SLIDE 11

Experienced Management Consistently Delivers by Focusing on the Customer

Decentralized Culture Management Team

Tom Taylor Chief Executive Officer 2012 Vincent West Founder and Vice Chairman 2000 Trevor Lang EVP, Chief Financial Officer 2011 Lisa Laube EVP, Chief Merchandising Officer 2012 Brian Robbins EVP of Supply Chain 2013 David Christopherson SVP, Secretary & General Counsel 2013

West Lumber

Name Title Year Joined F&D Prior Experience

Every store led by a Chief Executive Merchant (“CEM”) Commitment to training at all levels Engaged with the communities we serve Management team has ownership in the business

10

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SLIDE 12

We Have Multiple Channels for Growth

Open Stores in New and Existing Markets Increase Comparable Store Sales Expand Connected Customer Experience Continue to Invest in the Pro Customer Enhance Margins through Increased Operating Leverage

11

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SLIDE 13

Recent Financial Results and FY 2017 Guidance

(1) Please refer to the Appendix for a reconciliation of Adjusted diluted EPS.

First Quarter 2017 Financial Results

($ in millions, except store and per share data)

Three Months Ended 3/31/2016 3/30/2017 % Increase Warehouse format store count 60 72 20.0% Net sales $235 $307 30.6% Comparable store sales growth 22.4% 12.8% n/a Adjusted diluted EPS(1) $0.07 $0.13 85.7% Fiscal Year Ended 12/29/2016 12/28/2017 % Increase Warehouse format store count 69 83 20.3% Net sales $1,051 $1,285 - $1,304 22% to 24% Comparable store sales growth 19.4% 8% to 10% n/a Adjusted diluted EPS (1) $0.45 $0.54 - $0.57 20% to 27%

12

Fiscal Year 2017 Guidance

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SLIDE 14

Compelling Investment Proposition for Floor & Decor

Why Invest in Floor & Decor? Long-Term Growth Targets

Unit Growth (Annual) ~20% Comparable Store Sales Growth (Annual) Mid-single digits Net Income Growth (Annual) ~25% Store Potential ~400 stores

1

Unparalleled Customer Value Proposition

3

Differentiated Pro Customer Experience

2

Unique and Inspiring Shopping Environment

4

Decentralized Culture with Motivated Store-Level Team

5

Sophisticated Global Supply Chain

6

Proven Management Team

7

Multiple Growth Opportunities

Note: These goals are forward-looking, are subject to significant business, economic, regulatory and competitive uncertainties and contingencies, many of which are beyond the control of the Company and its management, and are based upon assumptions with respect to future decisions, which are subject to change. Actual results will vary and those variations may be material. For discussion of some of the important factors that could cause these variations, please consult the “Risk Factors” section of the Company’s final prospectus. Nothing in this presentation should be regarded as a representation by any person that these goals will be achieved, and the Company undertakes no duty to update its goals.

13

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SLIDE 15

Appendix

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SLIDE 16

Non-GAAP Financial Measures

To supplement the Company's financial information presented in accordance with GAAP and aid understanding of the Company's business performance, the Company uses certain non-GAAP financial measures (namely adjusted diluted weighted average shares outstanding, adjusted net income, Adjusted diluted EPS, EBITDA and adjusted EBITDA) to evaluate our operating and financial performance and to compare such performance to that of prior periods. We also use these non-GAAP financial measures in making operational and financial decisions and in establishing operational goals. We believe that providing these non-GAAP financial measures to investors, as a supplement to GAAP financial measures, helps investors to (i) evaluate our operating and financial performance and future prospects, (ii) compare financial results across accounting periods, (iii) better understand the long-term performance of our core business, (iv) to determine covenant compliance with respect to our credit facilities and (v) evaluate trends in our business, all consistent with how management and our board of directors evaluates such performance and movements. Under the SEC rules, non-GAAP financial measures may be considered in addition to results prepared in accordance with GAAP, but should not be considered a substitute for or superior to GAAP results. Adjusted diluted weighted average shares outstanding: We define adjusted diluted weighted average shares outstanding as the weighted average shares outstanding during the relevant period plus the weighted average impact of issuing 10.1 million shares in our IPO. We adjust diluted weighted average shares outstanding for the impact of the IPO as we believe it is useful to investors to better analyze the Company’s ongoing core financial performance in the periods shown to reflect the higher share count associated with the IPO. Adjusted net income: We define adjusted net income as net income before costs related to the September 30, 2016 refinancing (as described in the Company’s final prospectus, dated April 26, 2017 and filed with the SEC in accordance with Rule 424(b) of the Securities Act of 1933 on April 28, 2017) (the “September 2016 Refinancing”), the IPO, the Term Loan Repricing, legal settlement and loss on early extinguishment of debt and income tax expenses due to the adjustments for the September 2016 Refinancing, the IPO, the Term Loan Repricing, legal settlement and loss on early extinguishment of debt. We adjust interest expense for the September 2016 Refinancing because we believe that presenting the increased interest expense allows investors to better understand and analyze the Company’s core financial performance in the periods shown, including the higher debt incurred as part of the September 2016 Refinancing and associated higher interest in the thirteen weeks ended March 30, 2017. We adjust for estimated lowered interest expense due to the IPO because we believe that presenting the decreased interest expense allows investors to better understand and analyze the Company’s ongoing core financial performance in the periods shown with lower interest expense associated with our IPO. We adjust for estimated lowered interest expense due to the Term Loan Repricing because we believe that presenting the decreased interest expense allows investors to better understand and analyze the Company’s ongoing core financial performance in the periods shown. We adjust for legal settlements and loss on early extinguishment of debt because we believe these are discrete and not a normal part of our business and removing them allows investors to better understand and analyze the Company’s financial performance in the periods shown. We included the estimated income tax effect of the above mentioned adjustments when presenting adjusted net income because we believe that presenting the estimated income tax effect of adjustments allows investors to better understand and analyze the Company’s core financial performance in the periods shown. Adjusted diluted EPS: We define adjusted diluted EPS as adjusted net income divided by adjusted diluted weighted average shares outstanding. EBITDA and Adjusted EBITDA: We define EBITDA as net income before interest, loss on early extinguishment of debt, taxes, depreciation and amortization. We define Adjusted EBITDA as net income before interest, loss on early extinguishment of debt, taxes, depreciation and amortization, adjusted to eliminate the impact of certain items that we do not consider indicative of our core operating

  • performance. EBITDA and Adjusted EBITDA are key metrics used by management and our board of directors to assess our financial performance and enterprise value. We believe that EBITDA and Adjusted

EBITDA are useful measures, as they eliminate certain expenses that are not indicative of our core operating performance and facilitate a comparison of our core operating performance on a consistent basis from period to period. We also use Adjusted EBITDA as a basis to determine covenant compliance with respect to our credit facilities, to supplement GAAP measures of performance to evaluate the effectiveness of our business strategies, to make budgeting decisions, and to compare our performance against that of other peer companies using similar measures. EBITDA and Adjusted EBITDA are also used by analysts, investors and other interested parties as performance measures to evaluate companies in our industry. Use of these non-GAAP measures may differ from similar measures reported by

  • ther companies. Each of these non-GAAP measures has its limitations as an analytical tool, and you should not consider them in isolation or as a substitute for analysis of the Company's results as

reported under GAAP.

15

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SLIDE 17

16

EBITDA and Adjusted EBITDA Fiscal Year Ended 12/28/2017 12/29/2016 Low End High End Actual Net income (GAAP): $49.1 $52.1 $43.0 Depreciation and amortization 34.5 34.5 25.1 Interest expense 14.0 14.0 12.8 Loss on early extinguishment of debt 5.4 5.4 1.8 Income tax expense 29.1 30.2 11.5 EBITDA 132.1 136.2 94.2 Stock compensation expense 5.0 5.0 3.2 Loss on asset disposal 0.2 0.2 0.5 Legal settlement — — 10.5 IPO costs 0.6 0.6 — Adjusted EBITDA $137.9 $142.0 $108.4

Non-GAAP Financial Measures

Guidance Reconciliation - Fiscal Year 2017

(in millions) (unaudited)

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SLIDE 18

Non-GAAP Financial Measures

17

Adjusted diluted weighted average shares outstanding

Fiscal Year Ended 12/28/2017 12/29/2016 Low End High End Actual Diluted weighted average shares outstanding (GAAP) 99.6 99.6 88.4 Adjustments for issuance of shares at IPO 3.3 3.3 10.1 Adjusted diluted weighted average shares outstanding 102.9 102.9 98.6

Adjusted net income and Adjusted diluted EPS

Fiscal Year Ended 12/28/2017 12/29/2016 Low End High End Actual Net income (GAAP): $49.1 $52.1 $43.0 Interest due to September 2016 refinancing — — (8.8) Interest due to IPO 4.1 4.1 10.9 Term Loan Repricing 0.3 0.3 1.2 Legal settlement — — 10.5 Loss on early extinguishment of debt 5.4 5.4 1.8 Tax impact of adjustments to net income (3.6) (3.6) (14.4) Adjusted net income $55.3 $58.3 $44.2 Adjusted weighted average shares outstanding 102.9 102.9 98.6 Adjusted diluted EPS $0.54 $0.57 $0.45

Note: Certain numbers may not sum due to rounding.

Guidance Reconciliation - Fiscal Year 2017

(in millions, except per share data) (unaudited)

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SLIDE 19

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Non-GAAP Financial Measures

Thirteen Weeks Ended 3/30/2017 3/31/2016 Net income as reported $11,128 $7,101 Depreciation and amortization 7,768 5,337 Interest expense 5,414 2,486 Income tax expense 6,130 4,375 EBITDA 30,440 19,299 Stock compensation expense 885 755 Loss on asset disposal — 47 IPO costs 572 — Adjusted EBITDA $ 31,897 $ 20,101 EBITDA and Adjusted EBITDA Reconciliation of GAAP to Non-GAAP Financial Measures

(in thousands) (unaudited)

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SLIDE 20

Non-GAAP Financial Measures

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Adjusted diluted weighted average shares outstanding Thirteen Weeks Ended 3/30/2017 3/31/2016 Diluted weighted average shares outstanding (GAAP) 88,645 86,669 Adjustments for issuance of shares at IPO 10,147 10,147 Adjusted diluted weighted average shares outstanding 98,792 96,816 Adjusted net income and Adjusted diluted EPS Thirteen Weeks Ended 3/30/2017 3/31/2016 Net income as reported $11,128 $7,101 Interest due to September 2016 refinancing — (2,928) Interest due to IPO 2,730 2,730 Term Loan Repricing 295 295 Tax impact of adjustments to net income (1,119) (37) Adjusted net income $13,034 $7,161 Adjusted diluted weighted average shares outstanding 98,792 96,816 Adjusted diluted EPS $0.13 $0.07 Reconciliation of GAAP to Non-GAAP Financial Measures

(in thousands, except per share data) (unaudited)