Telsey cuts Floor & Decor stock target by $10, retains Market Perform

On Wednesday, Telsey Advisory Group revised its price target for Floor & Decor Holdings, Inc. (NYSE:FND), reducing it to $100 from the previous $110, while maintaining a Market Perform rating on the stock. The firm anticipates a modest 1.5% year-over-year increase in second-quarter 2024 sales to $1.2 billion, with a comparable store sales decline of 8.0%, which is slightly worse than the previously estimated 7.0% decline.

The updated sales forecast comes after Floor & Decor reported a 9.3% comparable store sales decrease for the beginning of the second quarter, compared to a 6.2% decrease during the same period in 2023, and a strong 9.9% increase in April of 2022. The company is expected to continue facing challenges throughout the remainder of the quarter, with comparable sales in May and June of 2023 having decreased by 6% each, contrasting with increases of 9% in the same months of 2022.

Telsey's analysis points to broader issues in the housing market that are impacting Floor & Decor's performance. The TAG Housing Scorecard indicates that existing home sales dipped by 3% in the second quarter of 2024, consistent with the 3% decline in the first quarter, and a stark contrast to the 19% and 17% declines in 2023 and 2022, respectively.

This is a significant shift from the 8% increase in 2021. Additionally, the U.S. Census Bureau has reported a 2.2% drop in retail sales of building materials and supplies from April to June 2024, which suggests a pullback in remodeling activities and cautious consumer spending patterns.

The firm also projects a contraction in operating margin for the second quarter of 2024, estimating a decline of approximately 110 basis points to 6.7%, compared to the previous forecast of 7.3%. This anticipated decrease in profitability is attributed to softer sales and increased store operating expenses, although it is partially mitigated by an improved gross margin.

The gross margin is expected to expand by 30 basis points to 42.5%, bolstered by lower transportation costs and a more diversified supply chain. However, the selling, general and administrative (SG&A) expense ratio is forecasted to worsen by approximately 170 basis points to 35.8%, due to the softer sales outlook and the impact of new store openings.

In other recent news, Floor & Decor Holdings Inc. has been the subject of several analyst adjustments following its first-quarter results. The company reported an earnings per share of $0.46, exceeding market expectations, despite a decline in sales and comparable store sales. Mizuho Securities, UBS, and TD Cowen all revised their price targets for Floor & Decor, citing the company's weaker first quarter and ongoing macroeconomic pressures.

Despite a cautious tone from senior management and an 11.6% decline in comparable store sales, Floor & Decor reaffirmed its earnings range for fiscal year 2024, thanks to strength in gross margin and favorable below-the-line items. The company plans to open 30-35 new stores this year, aiming for a long-term target of 500 stores.

These are recent developments that investors should be aware of. While the company faces challenges, it has shown resilience by maintaining profitability and committing to long-term growth. Analysts from Mizuho, UBS, and TD Cowen maintain neutral ratings on the stock, reflecting a wait-and-see approach to the company's performance.

InvestingPro Insights

As Floor & Decor Holdings, Inc. (NYSE:FND) navigates a challenging quarter, insights from InvestingPro shed light on the financial health and market sentiment surrounding the company. With a market capitalization of $10.05 billion, FND is trading at a high earnings multiple with a P/E ratio of 44.34 for the last twelve months as of Q1 2024. The company's Price/Book ratio also stands high at 5.07, indicating a premium valuation in the market. Despite the modest year-over-year revenue growth of 0.72%, the stock has experienced significant price volatility in recent times, with a one-month price total return showing a steep decline of 17.42%. This aligns with Telsey Advisory Group's observations of softer sales and the broader housing market's impact on the company's performance.

InvestingPro Tips highlight that while the stock has faced downward pressure over the last month, analysts predict profitability for the current year, and the company has been profitable over the last twelve months. Additionally, Floor & Decor operates with a moderate level of debt and its cash flows can sufficiently cover interest payments, providing some financial stability in uncertain times. For those interested in deeper analysis and more tips, InvestingPro offers additional insights on Floor & Decor's financials and performance metrics. Readers can benefit from a special offer using the coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription, which includes a total of 11 InvestingPro Tips for FND.

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