Floor & Decor Faces Near-Term Challenges Despite Disruptive Potential: Analyst Revises Price Target Amid Lowered Guidance

Telsey Advisory Group analyst Joseph Feldman reiterated the Market Perform rating on Floor & Decor Holdings, Inc. FND, raising the price target to $105 from $85.

The company recently reported Q2 results, where net sales of $1.135 billion increased 4.2% Y/Y. Floor & Decor reported mostly inline results but lowered its 2023 guidance due to continued moderating performance.

Unfortunately, Q3 is off to a slow start, with the comp tracking at (8.4%) QTD, partly due to lapping a tough comparison of 13% QTD through August 4, 2022, and 11% QTD through August 5, 2021, notes the analyst.

Floor & Decor lowered its guidance for EPS to $2.30-$2.50 vs. $2.55- $2.85 previously.

In the near term, the analyst believes Floor & Decor’s business will remain under pressure from the soft housing market trends.

Management lowered FY23 total sales growth guidance 4.6%-6.2% vs. 8%-11.5% previously. Ticket and traffic growth are both expected to be negative throughout the rest of the year, although with ticket worsening sequentially and traffic improving sequentially.

The comp is expected to worsen in 3Q23 from 2Q23 before improving sequentially in 4Q23 but remaining negative. 

For 2023, the analyst lowered the EPS estimate to $2.45 from $2.66.

For 2024, the analyst now forecasts EPS of $3.13 vs. $3.29 previously.

The analyst continues to believe Floor & Decor will be a disruptor and market share gainer in the flooring space in the longer term.

The analyst adds that the company will benefit from mid- to high-teens annual store growth, with a long-term target of at least 500 locations vs. 203 in 2Q.

FND is also poised to gain from the expansion of high-margin installation materials and decorative products, with the addition of new regional commercial managers to grow in the new home sales market.

Price Action: FND shares are trading lower by 6.5% to $103.75 on the last check Friday.