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DATE

Thursday, July 30, 2026 at 5:00 p.m. ET

CALL PARTICIPANTS

• Senior Vice President of Investor Relations - Wayne Hood
• Chief Executive Officer - Brad Paulsen
• Executive Vice President and Chief Financial Officer - Bryan Langley

TAKEAWAYS

• Net Sales -- $1,250.3 million, representing a 3% increase from $1,214.2 million in the second quarter of fiscal 2025.
• Adjusted Diluted EPS -- $0.58, remaining unchanged compared to the prior year period.
• Comparable Store Sales -- Declined 2.1%, reflecting a sequential improvement from the 3.7% decline reported in the first quarter of fiscal 2026.
• Pro Customer Sales -- Grew approximately 4% year over year, accounting for 55% of total company sales during the period.
• Online Sales Penetration -- 20.3% of total sales, increasing from 18.6% in the second quarter of fiscal 2025.
• Warehouse Store Openings -- Five new locations opened in the second quarter in markets including Portland, Oregon, and Houston, Texas, bringing the total first-half openings to 11 stores.
• Adjusted Gross Margin -- 43.7%, a decrease of 20 basis points year over year, primarily due to inflationary headwinds and pricing investments.
• Tariff Refund Benefit -- $45.2 million net pretax benefit recognized from IEEPA tariff refunds, including a $56 million one-time benefit in gross profit for previously sold inventory.
• Comparable Transactions -- Declined 2.9%, showing improvement from a 5.5% decline in the first quarter of fiscal 2026.
• Average Ticket -- Increased 0.8% year over year, supported by sequential improvement in comparable square footage sales.
• Share Repurchases -- $65.7 million used to repurchase 1.3 million shares, with $334.3 million remaining under the current authorization.
• Unrestricted Liquidity -- $942.4 million at quarter end, including $320.6 million in cash and $621.8 million in available capacity under a new $800 million ABL facility.
• Fiscal 2026 Sales Guidance -- $4,770 million to $4,990 million, which includes approximately $65 million from the 53rd week of the fiscal year.
• Fiscal 2026 Adjusted Diluted EPS Guidance -- $1.88 to $2.13, with the 53rd week expected to contribute approximately $0.08 to the total.
• Operating Cash Flow -- $278.4 million generated during the first 26 weeks of fiscal 2026, compared to $155.3 million in the prior year period.
• Total Inventory -- $1.1 billion, representing a 0.7% increase from Dec. 25, 2025.
• Spartan Surfaces Sales -- Increased 2% year over year, driven by strong shipment activity from the conversion of project backlog.
• Regional Commercial Account Managers -- Team expanded to 80 associates to pursue nonspecified commercial product growth opportunities.
• Capital Expenditures Guidance -- $240 million to $275 million for the full fiscal year.
• Adjusted EBITDA Guidance -- $550 million to $585 million for fiscal 2026, including an $11 million contribution from the 53rd week.

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RISKS

• Paulsen stated, "The combination of slowing demand for vinyl and excess industry supply continues to put pressure on the category, which could continue into 2027," noting the category has been devalued by excess inventory.
• Langley indicated, "The demand environment for large discretionary home improvement flooring projects remains choppy," citing historically low existing home sales of approximately 4 million annualized units as a constraint on recovery.

SUMMARY

Management reported that **Floor & Decor Holdings, Inc.** (FND -0.83%) achieved sequential improvements in comparable store sales and transactions despite ongoing headwinds in the housing market and discretionary spending. The company utilized a portion of its $45.2 million net pretax tariff refund to offset inflationary impacts from oil and supply chain costs while maintaining its fiscal 2026 sales guidance. Financial activity during the quarter included a comprehensive refinancing of credit facilities and the return of $65.7 million to shareholders through stock repurchases. Strategic initiatives are currently focused on a multiyear digital transformation and the front-loaded expansion of the warehouse store base, with approximately 55% of planned 2026 openings completed in the first half of the year.

• The company launched the NatureMatch private label collection in June, featuring nearly 100 stock-keeping units across porcelain tile, luxury vinyl plank, and waterproof laminate to provide natural wood and stone aesthetics at lower price points.
• Paulsen attributed the improvement in customer conversion to high service levels, noting that "our store associates are highly engaged in this environment to win every sale."
• Management plans to introduce a new pro application next year to serve as the "connective tissue" for its professional customer ecosystem by integrating purchasing, rewards, and project management.
• The company reported that eight of its 16 districts achieved positive comparable store sales when excluding the impact of store cannibalization.
• The west and east regions both delivered positive comparable store sales on an ex-cannibalization basis during the second quarter.
• Management is shifting the focus of its regional commercial account manager program from headcount expansion toward increasing productivity and establishing scalable operating processes.
• Langley noted that while July started with "choppy" demand around the holiday, sales trends improved in late July and early August.

INDUSTRY GLOSSARY

• A-B-L Facility: An asset-based lending credit facility where the borrowing capacity is determined by the value of the company's inventory and receivables.
• Cannibalization: The reduction in sales volume of an existing store caused by the opening of a new store by the same company in the same market.
• IEEPA: The International Emergency Economic Powers Act, the regulatory framework under which certain trade tariffs and subsequent refunds were processed.
• Net Promoter Score: A metric used to measure customer experience and loyalty based on the likelihood of customers recommending the brand to others.
• R-A-M: Regional Commercial Account Manager, a specialized sales role focused on serving professional and commercial clients within specific geographic territories.
• Vetta Elements Collection: A proprietary product line in the tile category focused on differentiated designs and higher-value offerings.

Full Conference Call Transcript

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

Wayne Hood: Thank you, operator, good afternoon, everyone. Welcome to Floor & Decor's fiscal 2026 second quarter earnings conference call. Joining me today are Brad Paulsen, Chief Executive Officer, and Bryan Langley, Executive Vice President and Chief Financial Officer. Before we begin, I want to remind everyone of the company's safe harbor language. Comments made during this call contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Any statement that refers to expectations, projections, or other characterizations of future events, including financial projections or future market conditions, is a forward-looking statement.

These statements are subject to risk and uncertainties that could cause actual results to differ materially from those expressed in these forward-looking statements for any reason, including those listed at the end of the earnings release and in the company's 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 certain non-GAAP financial measures. We believe these measures enable investors to better understand 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 measures 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 Brad.

Brad Paulsen: Thank you, Wayne, thanks to everyone for joining us on our fiscal 2026 second quarter earnings call. I'll start by reviewing our second quarter performance and the key drivers behind our results. After that, Brian will share our perspective on the remainder of 2026, including how we're navigating the current environment while continuing to invest in our strategic priorities and long-term growth opportunities. Turning to our fiscal 2026 second quarter results, we are pleased to have delivered adjusted diluted earnings per share of $0.58, unchanged from the prior year period, despite a 2.1% decline in comparable store sales driven by continued softness in large discretionary flooring projects.

I was pleased with how our team stayed focused on the factors within our control, delivering compelling value to our pros and homeowners, providing an exceptional customer experience, executing our merchandising and operational initiatives, and maintaining disciplined expense management. Those efforts enabled us to maintain earnings per share in line with the prior year, while generating strong free cash flow, which provided the flexibility to repurchase $65.7 million in common stock during the quarter. I want to thank our approximately 14,000 associates for their commitment and hard work throughout the quarter. Their focus and disciplined execution demonstrated the resilience of our operating model and position us to continue creating long-term value for our shareholders.

Now, let's take a deeper look at our second quarter results. Total sales increased 3% to $1,250.3 million, compared to $1,214.2 million in the prior year period. Sales to pros continued to outperform the company and grew approximately 4% from the same period last year, accounting for about 55% of sales. Comparable store sales declined 2.1%, an improvement from the 3.7% decline reported in the first quarter, reflecting steady sequential improvement throughout the quarter. Comparable store sales declined 5.1% in April, declined 1.3% in May, and declined 0.3% in June. The improvement in comparable store sales reflected improving trends across several key metrics. First, our net promoter scores remained high, driving a sequential improvement in customer conversion.

This is one proof point in how our store associates are highly engaged in this environment to win every sale. Second, comparable transactions also improved, declining 2.9%, compared with a 5.5% decline in the first quarter. Lastly, average ticket grew 0.8% year-over-year, despite lapping last year's strongest quarterly growth rate of 3.8%. Both ticket and transactions were aided by a sequential improvement in comparable square footage sales from the first quarter. Demand softened around the Fourth of July holiday period while the housing market remained constrained by subdued existing home sales activity. Third quarter to date comparable store sales declined 2.2%. Encouragingly, sales trends improved in late fiscal July and early fiscal August.

Geographically, our comparable store sales improvement broadened during the second quarter. Our west region continued to outperform the company and delivered positive comparable store sales, excluding cannibalization, and encouragingly, our east region also turned positive on that basis. Furthermore, among our 16 districts, eight reported positive comparable store sales excluding cannibalization. From a merchandising category perspective, three departments outperformed the company's comparable store sales performance during the quarter: installation materials, tile, and wood. Installation materials continue to deliver strong year-over-year growth as we expanded our share of wallet with pros and further strengthened our position in the market.

We continue to execute our supply house strategies and expand our store base, we believe we are becoming an increasingly convenient and reliable destination for pros to purchase installation materials. Tile remained a standout performer, supported by the continued success of key initiatives, including the Vetta Elements Collection, which continues to resonate with both pro and homeowner customers. Growth in the wood category was driven by market share gains in engineered and unfinished wood, acoustic wall panels, and the success of our bulk out strategies. We expect to build on this momentum in the second half of 2026 with new SKUs and opportunity buys.

In the vinyl flooring category, comparable store sales and comparable square footage sales sequentially improved during the quarter, supported by a combination of merchandising, pricing, and value-focused initiatives that we will continue to build on in the second half of 2026. The combination of slowing demand for vinyl and excess industry supply continues to put pressure on the category, which could continue into 2027. Importantly, sales penetration of our better and best offerings increased both sequentially and year-over-year, reflecting sustained customer adoption of our higher-value offerings and reinforcing the effectiveness and resilience of our strategy despite ongoing macroeconomic pressures.

In June, we are excited to launch NatureMatch, a new private label collection that brings the authentic look and feel of natural wood and stone to consumers at a more accessible price point. Spanning nearly 100 SKUs across porcelain tile, luxury vinyl plank, and waterproof laminate, NatureMatch reflects our ongoing commitment to technology, product innovation, and value. In a challenging home improvement market, differentiated collections such as NatureMatch continue to drive customer engagement, support conversion, and create incremental cross-category selling opportunities. By combining premium design, strong performance, and a compelling value proposition, we are expanding our appeal across customer segments while continuing to gain market share.

As we look to drive sales in what we expect will remain a challenging demand environment through the second half of 2026, our marketing strategy is focused on reaching high-intent customers at key decision points in their purchase journey through more targeted, higher return tactics. We are aligning our marketing efforts across stores and digital channels. Let me turn to our new warehouse store expansion. Through the first half of fiscal 2026, we opened 11 new warehouse format stores, including five in the second quarter. Syracuse, New York, Portland, Oregon, Mount Vernon, New York, Houston, Texas, and Schererville, Indiana.

With approximately 55% of our planned 2026 locations now open, compared with 35% in the prior year period, the front-loaded cadence we outlined at the start of the year is progressing in line with our expectations. These locations extend our presence in tier 1 and tier 2 markets, where household units, population density, and home improvement activity support the long-term demand profile we target in site selection. We continue to expect the class of 2026 new stores to average approximately 55,000 sq ft, a format that, while smaller than our legacy footprint, allows us to enter higher density markets without sacrificing sales productivity. We expect the balance of our 2026 store openings to be weighted through the fourth quarter.

Let me spend a moment on our omnichannel strategy and the digital capabilities we are building to support it. In the second quarter, online sales penetration reached 20.3% of total sales, up from 18.6% in the prior year period and up 110 basis points from the first quarter. This continued improvement reflects the progress we are making to enhance the customer experience across both digital and store channels. We believe delivering a best-in-class omnichannel experience represents one of our largest opportunities to accelerate growth, gain market share, and achieve our long-term sales objectives. As customer expectations have evolved, particularly around digital engagement and convenience, we have recognized the need to strengthen our capabilities and are taking action.

We have launched a comprehensive 18 to 24-month transformation to enhance the customer experience, modernize our digital capabilities, and create a more seamless connection between our online and in-store experiences. Through targeted investments in talent, technology, and operating capabilities, we are building a stronger foundation for long-term growth. Importantly, our strategy is centered on the distinct needs of our two core customer segments, pros and homeowners. For homeowners, flooring is a highly researched and project-driven purchase. Our research shows that about 70%-80% of customers search online before visiting stores. Customers seek inspiration, education, project guidance, and confidence before making a buying decision. Our objective is to support them throughout that journey from initial project discovery to final installation.

For pros, the priorities are different. They value speed, convenience, pricing, transparency, inventory visibility, and tools that help them manage their businesses more efficiently. Our focus is on creating a seamless experience across every touch point, making it easier for pros to do business with us, whether they are planning a project, purchasing materials, managing rewards, or picking up an order. A key component of that strategy will be the launch of our new pro app next year, which will serve as the connective tissue across our pro ecosystem. By bringing together purchasing, loyalty rewards, pricing, and project management capabilities in one place, we are building a differentiated pro value proposition, particularly when compared with independent flooring retailers.

While there is meaningful work ahead, we are encouraged by the progress we are seeing. We believe a stronger digital foundation and a more seamless omni-channel experience will increasingly drive customer acquisition, engagement, conversion, market share gains, and ultimately, long-term shareholder value creation. Let me spend a moment on our regional commercial account managers, or RAMs, who operate in partnership with our warehouse stores. We continue to see meaningful opportunities to drive growth and have expanded our team of RAMs to 80 associates, significantly increasing our ability to serve customers, develop relationships, and pursue non-specified commercial product growth opportunities. As we look at the remainder of the year, our focus will now shift from adding RAMs to increasing productivity.

We plan to further strengthen the infrastructure, training, analytics, and operating processes needed to support long-term scalable growth. Our objective is to build a commercial organization that is increasingly productive, repeatable, and scalable. While we remain early in these initiatives, we are encouraged by the progress we are seeing. Turning to Spartan Surfaces, the second quarter represented an early inflection point for the business, with results improving sequentially from the first quarter and momentum building throughout the period. Second quarter sales increased 2% year-over-year, driven by strong shipment activity from the conversion of backlog into revenue. June was one of the strongest months for written sales in the company's history.

While commercial end markets remain mixed, particularly in multi-family housing, customer backlogs are beginning to recover from the lows experienced in the second half of 2025. Encouragingly, sampling activity improved late in the quarter. Average quoted project value increased, leading to a very strong project backlog at the end of the second quarter. Taken together, these indicators provide visibility and support our expectation for continued improvement through the second half of the year. As we turn the page on the first half of 2026, we remain focused on driving sales, managing expenses, and delivering value to our customers. We believe these actions are resonating with customers and position us well when demand conditions improve.

I continue to believe that this environment creates an opportunity for us to accelerate our market share gains through world-class leadership and disciplined execution. With that, I'll turn the call over to Bryan.

Bryan Langley: Thanks, Brad. Before turning to our financial results, I'd like to add my thanks to our associates across the organization. As I reflect on the second quarter, what stands out most is our ability to stay focused on the factors within our control. The quarter reinforced one of the strengths of our company, our ability to execute consistently across a range of operating environments. We managed expenses prudently, advanced key merchandising and operational initiatives, and maintained a strong focus on free cash flow and capital allocation.

These efforts enabled us to deliver adjusted diluted earnings per share of $0.58, which was above our expectations, generate strong free cash flow, and return $65.7 million to our shareholders through the repurchase of common stock during the quarter. Before moving to our underlying operating performance, let me discuss two items affecting comparability during the second quarter. First, we recognized a $45.2 million net pre-tax benefit related to the IEEPA tariff refunds, which affected gross margin, SG&A, and interest income. Second, we recognized a $1.3 million pre-tax loss on debt extinguishment associated with the refinancing of our credit facilities. Collectively, these items resulted in a net after-tax benefit of $32.9 million, contributing $0.31 to diluted earnings per share.

Our second quarter GAAP diluted earnings per share was $0.89, and excluding these items, adjusted diluted earnings per share was $0.58, flat to the prior year period. A reconciliation of our non-GAAP financial measures to the most directly comparable GAAP measures is included in today's earnings release, and additional information regarding these items is provided in our Form 10-Q. Turning to our underlying operating performance, our gross profit increased $70.4 million, or 13.2%, compared to the same period last year, driven primarily by a $56 million one-time benefit from IEEPA tariff refunds related to inventory we have previously sold through.

The remaining amount of tariff refunds was recognized as a reduction to inventories net related to previously capitalized amounts and will be recognized as we sell through the inventory. Excluding the IEEPA tariff refunds benefit, adjusted gross profit increased $14.3 million, or 2.7%, compared to the same period last year. Adjusted gross margin for the quarter was 43.7%, a decrease of 20 basis points year-over-year, which was within our range of expected outcomes. SG&A expenses increased $28.3 million, or 6.3%, in the second quarter compared with the prior year period.

The increase was driven primarily by the 24 stores opened since the second quarter of fiscal 2025, as well as higher incentive compensation related to the recognition of IEEPA tariff refunds. SG&A for non-comparable stores increased $26.7 million, while SG&A for comparable stores declined $13.7 million, reflecting our ongoing focus on expense management and productivity initiatives. As a percentage of sales, SG&A deleveraged 120 basis points to 38.3% from 37.1% in the prior year period. The one-time expenses related to IEEPA tariff refunds contributed approximately 110 basis points of the deleverage in the second quarter. Adjusted EBITDA increased 1.2% to $152.0 million from the same period last year.

Our second quarter adjusted EBITDA margin was 12.2%, compared with 12.4% in the prior year period. Our second quarter net interest income was $2.3 million, compared to net interest expense of $1.1 million in the same period last year. The year-over-year change was primarily driven by a one-time benefit of approximately $2.8 million in statutory interest on our IEEPA tariff refunds, along with higher interest income from larger cash balances. Additionally, we incurred $1.3 million of debt extinguishment costs associated with the refinancing of our credit facilities. Our second quarter income tax expense was $29.1 million compared to $17.6 million during the same period last year.

The effective tax rate was 23.3%, up from 21.8% in the same period last year, primarily due to a decrease in federal tax credits. Excluding the tax impacts related to the IEEPA tariff refunds and the loss on extinguishment of debt, our effective tax rate was 22.3% for the second quarter of 2026. Let me turn to our balance sheet and free cash flow, both of which remain strong. During the second quarter, we completed a comprehensive refinancing of our credit facilities that further strengthened our balance sheet and enhanced our financial flexibility.

We entered into a new $200 million term loan facility maturing June 2033 and used the proceeds to repay the remaining $197.1 million outstanding under our prior facility that was scheduled to mature February 2027. In addition, we entered into a new $800 million ABL facility maturing June 2031, replacing the current facility that was scheduled to mature August 2027. Collectively, these transactions extend our debt maturity profile, preserve ample borrowing base capacity, and further enhance the flexibility of our capital structure. We ended the quarter with $942.4 million of unrestricted liquidity, consisting of $320.6 million in cash and cash equivalents and $621.8 million of available capacity under our ABL facility.

During the 26 weeks ended June 25th, 2026, we generated $278.4 million of cash provided by operating activities, compared with $155.3 million in the prior year period. We continue to make progress on our working capital and inventory productivity initiatives, as evidenced by total inventory increasing only 0.7% to $1.1 billion compared with December 25th, 2025. Our net cash used in investing activities was $136.7 million, leading to significant excess free cash flow. Supported by our free cash flow and financial position, we began executing against the $400 million share repurchase authorization announced on our first quarter earnings call.

During the second quarter, we repurchased 1.3 million shares of common stock and returned $65.7 million to our shareholders and ended the quarter with $334.3 million remaining under the share repurchase authorization. Let me now turn to the macroeconomic considerations informing our outlook for the remainder of fiscal 2026. The demand environment for large discretionary home improvement flooring projects remains choppy, consistent with what we're seeing in housing market activity and broader macroeconomic conditions. Although existing home sales improved modestly during the spring selling season, the recovery has yet to gain meaningful traction, with June activity remaining near historically low levels of approximately 4 million annualized units.

In addition, housing affordability continues to be challenged, and persistent inflationary pressures, as well as potential changes in tariffs, continue to influence consumer behavior. As a result, our outlook assumes that consumers will remain cautious and project demand will continue to be influenced by the pace and sustainability of any improvement in housing market activity. Following our better-than-expected second quarter earnings and the anticipated greater impact from the repurchase of common stock, we have increased our fiscal 2026 earnings per share outlook. As a reminder, fiscal 2026 includes a 53rd week, which will be reported in the fourth quarter. I will highlight the expected contribution from the 53rd week as a part of our guidance.

Sales are expected to be in the range of $4,770 million-$4,990 million, or increase by 1.8%-6.5% from fiscal 2025. The 53rd week is expected to contribute approximately $65 million to sales. Comparable store sales are estimated to be flat to down 4%. Comp average ticket is estimated to be flat to up low single digits, and comp transactions is estimated to be down low to mid-single digits. Adjusted gross margin is expected to be approximately 43.6%-43.8%. The first quarter gross margin of 44.0% is likely to represent the high point for the year. SG&A, as a percentage of sales, is estimated to be approximately 38%.

From a quarterly perspective, the first and fourth quarters will be the most pressured from new stores if you exclude the one-time cost associated with IEEPA tariff refunds in the second quarter. Interest income expense net is expected to be approximately zero. This includes approximately $2.8 million of statutory interest benefit from tariff refunds. Tax rate is expected to be approximately 23%. Depreciation and amortization expense is expected to be approximately $250 million. Adjusted EBITDA is expected to be approximately $550 million-$585 million. The 53rd week is expected to contribute approximately $11 million to adjusted EBITDA. Diluted earnings per share is estimated to be approximately $2.20-$2.45. Adjusted diluted earnings per share is estimated to be approximately $1.88-$2.13.

The 53rd week is expected to contribute approximately $0.08 to adjusted diluted EPS, which implies our 52-week adjusted diluted EPS to be $1.80-$2.05. Diluted weighted average shares outstanding are estimated to be approximately 107 million shares. CapEx is estimated to be approximately $240 million-$275 million. Operator, we would like to now take questions.

Operator: Thank you. We'll now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two 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. One moment please while we poll for questions. Thank you. Our first question is from Seth Sigman with Barclays.

Seth Sigman: Hey, everybody. Nice progress in the quarter. I wanted to start with the tariff refunds. You had this $45 million net benefit this quarter. What's that number on a full year basis? What's embedded here? Can you talk a little bit about how you've started to deploy those dollars, I guess, either in Q2 or in Q3? To what extent do you think that has contributed to the improvement that you saw in June? Thank you.

Bryan Langley: Hi, Seth, and thanks for the question. I assumed that was going to be the first question. I want to just start off and say, really from the onset of tariffs last year through the refund, our team has executed at a really high level. Obviously, we've got multiple years of experience with this, and I would consider it an established capability at this point. What Bryan and I thought we would do, we're going to hand it over to him. He can unpack all things tariff for the folks on the call, and then I'll have a comment or two at the end to wrap it up. Bryan, why don't you walk them through it? Yep. Thanks, Brad.

From the mechanics of it, you'll see in the 10-Q today, you've got a little bit more detail there as well if you want to refer to that. We filed for $87 million in total IEEPA tariff refunds, and we've received substantially all of it subsequent to the end of the quarter. We've got all of the cash in at this point. We recorded a $56 million one-time benefit in gross profit related to inventory that we had previously sold through. We recorded a $28 million reduction to inventory for product that was still on hand at that point in time.

We'll recognize the benefit of that $28 million as we sell through the inventory, which I would anticipate the majority of that will be recognized in the back half, given that we turn slightly over two times per year. In Q2, the benefit that we recorded from that $28 million was approximately $6 million, that we saw in Q2 in gross profit from the sell-through of that reduced inventory. I think it's important for us to point out for that $6 million that Bryan just referenced for the second quarter. We obviously assumed some inflationary headwinds coming into the business. We had a set of actions that we were prepared to deploy.

Once we knew that we were getting the tariff refund, we elected not to deploy those actions and instead use the tariff refunds to offset that inflation. As we pivot into the second half of the year, obviously, a number of different things that we can do with the refund money. I think there are three big buckets that I would share with all of you. The first one, I just talked about it with the second quarter. We'll continue to use those funds to offset the inflationary impacts from both oil and supply chain. Number two, where it makes sense, and making sense means where we see elasticity, we'll selectively invest in price to drive market share gains.

Number three, we're going to execute our capital allocation framework. Big buckets on that are invest in stores, other growth initiatives, think commercial and other things like that. Third would be any type of excess cash that we would have, we would send back to our investors through a share repurchase program.

Seth Sigman: Very helpful.[crosstalk]

Bryan Langley: Hey, Seth. Sorry, just to clarify for you, the difference in the $56 million and the $45 million that you see in the adjusted EBITDA add back or the net income add back is we had $2.7 million of statutory interest that we also received. You'll see that's part of the add back. The rest of it really is just cost associated with the IEEPA tariffs as it rolls through SG&A, through incentive comp and other things.

Seth Sigman: Okay. Got it. I was just going to follow up and ask about the comp guidance for the rest of the year in that context. It implies a pretty wide range, -5% to +3%. You're running better than that at the low end right now. Comparisons get easier. Can you maybe talk about some of the scenarios to consider here? In that context, you also mentioned the broadening of performance that you've seen across regions, maybe tie that in. Thanks so much.

Brad Paulsen: Bryan and I will tag team this question as well. I'll start out with the second quarter. Definitely pleased with the sequential improvement that we saw through the quarter. A two key drivers. There are three drivers that I'll talk about. First was in the script. Service continues to be really, really high. Every month, we set record levels, and I think that's a reflection, one of the culture that we have and the team that we have in the field. Second, just all things pro. Pro continues to outpace the performance of the rest of the business. A lot of inputs into that pro performance.

We talked about installation materials, we talked about the performance in tile, and certainly getting some improvement in laminate and vinyl, which is something that we talked about on our first quarter call. The other piece is we're starting to see some nice traction from our digital business. Still very much early in that process, but starting to see some real benefit from that team. We talked about July. July was a really interesting month. The start of the month was really, really choppy around the Fourth of July. Had some pretty ugly days that we hadn't seen in a while.

As we said in the prepared remarks, really, really pleased with how we ended the month and certainly how that has continued into August. I'd say more in line with the run rate that we saw in both May and June, which is certainly encouraging. The one piece that I'll say and underline, Bryan will probably do the same when I turn it over to him, still feel really good about our guidance. In the first quarter, we said, "Hey, we're going to go a little bit wider than normal, given the uncertainty that's in the market." We went flat to -4% on the sales guidance.

Had some conversations about changing that coming into this call, still feel like there's too much uncertainty out there. Feel good with the flat to -4%, but do have a level of confidence, high level of confidence, that we're on track to hit the midpoint of that sales guidance.

Bryan Langley: Yeah, I think that's spot on, Brad. We would have liked to have tightened the range. We intentionally left it a little wider just because of the uncertainty. I think when you're thinking about just the cadence in the back half, a 2-year stack gets noisy because of all of the Hurricane Helene and Hurricane Milton benefits and everything associated with the storms. If you just look at it on a 3-year stack comp, just to help you guys model, we would expect the high end and the midpoint to increase sequentially from Q2. At the low end, there'd be a slight decrease sequentially from Q2 just to kind of get those.

It is a little bit wider of a range than we would typically do at the end of Q2. To Brad's point, there's still a lot of uncertainty in the macro environment that we see today. Great. Thanks, guys. We feel really good about midpoint, and that is our guidance philosophy too. You guys will always see that with us is if things continue on the path that they are right now and the macro environment stays where it is today, we have great visibility to kind of achieving at the midpoint.

Seth Sigman: Okay, thank you.

Operator: Our next question is from Simeon Gutman with Morgan Stanley.

Simeon Gutman: Hey, guys. One quick follow-up on the tariff. The $28 million, I think I got that number right, that's unrecognized, that will happen as you sell the inventory. I guess it's not huge on a basis points basis, I haven't done the math, but you held or you're basically not changing your gross margin guide. Sorry for the naivety, does this mean that when you sell through that product, there should be a higher gross margin on it going forward? And is that in the guidance? Did that help you keep the gross margin guide, or does that provide an upside lever, if I understood it right?

Bryan Langley: Hey, look. We put $28 million back into inventory for items that we still had on hand. Of that $28 million, $6 million flowed through in Q2, to help offset some of the inflationary measures that we were seeing with higher oil costs. We're now starting to see higher domestic supply chain costs due to trucking capacity, issues that we see across the industry. We're fine from a capacity standpoint, but we're starting to see some rate changes, as well as reinvesting into select pricing changes as well. What Brad talked about with laminate and vinyl and a couple other select pricing changes that we may try to go after and be more aggressive in market share.

All of that said, our adjusted gross margin guidance of 43.6%-43.8% incorporates the back half being benefited. Like I said, the majority of the residual $22 million within that $28 will flow through, it allows us, again, in this environment, to be a little more aggressive and not have to take further actions. As we exit 2026 into 2027, we've got a lot of things that we can do as a company. Again, we have a lot more to talk about. Whenever we think about 2027, we're not going to give you guys any clarity on that today. We've got a ton that we can do as a company when these tariff benefits do subside.

Again, it just gives us a lot of flexibility and optionality in 2026 to be able to take more market share.

Simeon Gutman: Okay, thanks for that explanation. One follow-up on the sales environment, more to Brad, and related to the last comment. We've had a couple of, I don't want to say false starts, but early reads of industry bottoming, especially your business. It sounds like we're going through another one, and it felt a little more emphatic, I thought the language this time. Anything you can point to that this is demand stabilizing, turning more from replacement demand outside of your initiatives, or how do you assess, could this be another false start?

Brad Paulsen: Yeah, I'm going to be really careful here because I don't want to be the initiator of a false start, I'll give you my perspective. Like I said, certainly pleased with the sequential improvement through the quarter. One of the things that we called out in the script is if you look at our business ex cannibalization, we had two regions, two of our three regions deliver a positive comp, which to me, is a really, really strong story. We saw some improved traction on our commercial business.

All that being said, where you sense the more emphatic approach from us is, we've said that we came into 2026 saying that we need to assume the environment's going to look a lot like 2025, that we are going to build a stack of initiatives that we felt like could deliver accelerated market share gains. We do have a level of confidence around the execution of our initiatives and feel like that's paying off. Probably, at least from my perspective, amateur perspective, too early to tell if things are truly bottoming.

We're going to assume that's going to continue to be the case and do everything we can to deliver a great customer experience and take as much share as possible.

Simeon Gutman: Okay. Thanks a lot. Good luck.

Brad Paulsen: Thank you.

Operator: Our next question is from Steven Zaccone with Citigroup.

Steven Zaccone: Great. Good afternoon. Thanks very much for taking my question. Can we talk a little about the laminate vinyl category? It sounds like you're expecting that weakness to continue into 2027. That sounded like a new comment. Maybe, what are you seeing there? Elaborate a little bit more on the pricing environment in that category as well.

Brad Paulsen: Sure, I'll rewind the tape a little bit with my answer. Laminate and vinyl, it's our second-largest category. It's the only category that we sell where we're seeing any type of downward pressure, and we believe that downward pressure is a result of excess supply in the market. The term that Ersan and I have used is the category's been devalued. What we mean by that is a SKU that used to be considered a better in a good, better, best lineup is now considered and priced as a good SKU. That obviously puts pressure on all parts of that category, and it is the vinyl part of laminate and vinyl.

We were really clear on our first quarter call to say we're going to play offense, we're going to be thoughtful around pricing, we're going to have aggressive opportunity buys, and we're going to add new SKUs to our assortment to make sure we're hitting the mark with the customers that are interested in that category. We did see improvement, and we're going to continue to push for more improvement for the remainder of the year. When we say, "Hey, we think that pressure is going to bleed over into 2027," that's consistent with what we talked about at the first quarter. We're just trying to get a sense of how quickly this excess inventory will dissipate.

Tough thing to tell. I trust Ersan. He's been in the business a long time. Our sense is it's going to run through at least the first half of next year. Again, our perspective is it's an opportunity for us to take share and make that comp performance better, certainly than it was in the first quarter.

Steven Zaccone: Okay. Understood. The follow-up I had, bearing in mind some of the tariff commentary and then in this category in particular, how do you think about the pricing environment and expectations and comps for the second half of the year? Has that changed versus your original thinking?

Brad Paulsen: I'll go first. Bryan, if you want to add anything, feel free. The term that I have used pretty consistently since the start of tariff is the market's been rational. I'll add a few more words in that. I'm not seeing anything disruptive from a pricing perspective outside of what I just explained on laminate and vinyl. We've got two sets of competitors. You have independents who do a terrific job around service, really thoughtful pricing approach, and have a sticky relationship with that pro customer. Then you've got big box. For us, as a reminder, big box, we compete on opening price point in good, in a good, better, best in installation materials.

We haven't seen anything that would say that the environment is becoming overly aggressive or overly promotional. We've been really consistent in saying that we will continue to take modest increases. The nature of our business, because we do have a really unique pricing model, there's always a little bit of up and a little bit of down, but it'll net out to a modest increase across our categories.

Bryan Langley: This is Bryan. Our guidance from last quarter to this quarter is the same, with average ticket expected to be kind of flat to up low single digits. The pressure in laminate and vinyl does put pressure on our average ticket because it's a much bigger project when somebody decides to take that on. Just overall, it's putting pressure on average ticket. No change from last quarter and what we think is going to be embedded for the guide or assumed in the guide.

Steven Zaccone: Okay. Thanks very much. Best of luck.

Brad Paulsen: Thank you.

Operator: Our next question is from Michael Lasser with UBS.

Michael Lasser: Good evening. Thank you so much for taking my question. Do you think the industry saw the same inflection that Floor & Decor has seen over the last few months, or has your initiatives kicked in such that your market share has accelerated? This is a part of that, why is there such a divergence between your pro performance in the quarter versus your DIY performance in the quarter?

Brad Paulsen: The second two questions are a lot easier to answer than the first. I think we're going to know more as some of our public competitors and manufacturers report their results. Obviously, it's a tough question to answer just because, by our measure, 60% of our space is still independents, all private. Really hard to get a gauge on how they're performing. Ersan does a nice job of kind of triangulating through conversations with both manufacturers and our supplier partners. Our sense is, I'll now get into your second question, is our initiatives are paying off. We feel like we're focused on the right things.

Some initiatives are a little bit further down the path and make more sense in this environment, and that is the pro piece. Going back to this idea that as a team, we said 2026 is going to look a lot like 2025. In order for us to deliver positive comp sales, we knew we had to do that through increased share of wallet gains through the pro customer. Why is that important? That customer is in our store every single day. We reported in the second quarter, that customer is 55% of our sales. We think they influence up to 20% of the remaining 45% of sales. Really, really important customer.

The thing, Michael, that I would point out, really pleased with installation materials. That is a driver of footsteps. The opportunity that we have, and why we're excited about the pro initiative, is we clearly have a hook when it comes to installation materials. Now we have a great opportunity to sell the rest of the categories that we sell. One other thing that's really important is we continue to open new stores and become even more convenient for our pro customers. I think we're going to drive traffic there. Really excited again and feel good about our initiatives. Still somewhat early in the process, but already seeing some dividends from them.

Michael Lasser: Okay. My follow-up question is, can you help calibrate the relationship between Floor & Decor same store sales growth and an eventual inflection in existing home sales? It's hard to necessarily use the historic relationship because Floor & Decor, throughout much of the 2010s, was seeing a benefit from the new stores ramping to maturity, the increase in vinyl, as well as less cannibalization. It seems like those are going to be no longer benefits to your same store sales as the market recovers. Is it best to think instead of maybe a high single-digit comp in a good case scenario as the market recovers, a mid-single-digit comp is the most realistic outcome in light of some of those factors?

Brad Paulsen: Listen, it's a great question. We are bouncing versions of that around the hallways here on what our business looks like at different points in the cycle. We still think existing home sales is the metric for us, strongly correlated to our performance. Historically, we have said as existing home sales improve, that it's generally a two to three-month flash to bang before you see it in our business. In an environment, though, I'll say this kind of current cycle, where you're just flirting with 4 million homes, kind of a little bit above it, a little bit below it. You do see outsized impact on our initiatives in different parts of the country.

If you think about the West, we've consistently said, "Hey, the West is outperforming the rest of the country." One, that's a part of the business that is generally dealing with less cannibalization and has less density than other parts of the U.S. You're naturally going to get more traction and more benefit from some of the things that we're focused on. As far as how we're forecasting what the business looks like from a organic growth perspective in kind of mid trough or kind of a more normal environment, not going to get into that level of detail on this call.

Michael Lasser: Understood. Good luck. Thank you so much.

Brad Paulsen: Thank you.

Operator: In the interest of time, we ask that participants limit themselves to one question. Our next question is from Kate McShane with Goldman Sachs.

Kate McShane: Hi, good afternoon. Thanks for taking our question. We wanted to speak a little bit more about the competitive environment, just in terms of what behavior you're seeing, more from the home improvement competitors versus the independents, and how they acted throughout the quarter. I do know that it seems like at least one of the larger scale home improvement retailers seems to be partnering more with Mohawk and there's a lot more initiative there it seems, even more recently. Can you just talk about that piece of the competitive set and again, just maybe tie it back to how you're thinking about the tariff refunds and how it can play a role in pricing relative to that?

Brad Paulsen: For me, big box retailers, amazing companies, like I said, have incredible locations. For our customer, hard surface flooring, that provides a level of convenience. They're always investing in their assortment. Generally speaking, where we compete with them is on opening price point, good, and installation materials. If you think about where we sell, it's primarily in the better invest. I think that's a really important distinction when you think about our model versus the big box retailers and where we overlap. Absolutely overlap, and we watch them very closely. As I said earlier, don't see anything at this point that would be disruptive that would lead me to think that there's accelerated share gains from either one of them.

That's speculation because I haven't obviously heard their results. We generally feel really good about the model that we have and how it competes against big box retail.

Operator: Our next question is from Steven Forbes with Guggenheim Securities.

Steven Forbes: Good afternoon. Brad, maybe just following up on laminate and vinyl, I think it was the Cohn's question before. Revisiting the improvement, I think you guys talked about some merchandising initiatives within that department, that you were rolling out regionally and nationally. Curious, maybe you could just remind us where those initiatives are in terms of breadth and scope, and if there's any other merchandising initiatives in the pipeline, particularly for laminate and vinyl that could maybe be a self-help story as it relates to getting that category back to growth.

Brad Paulsen: Yeah. Great question. Three areas that we really leaned into. The quickest reaction, as you would expect, was rethinking our pricing strategy. Credit to Ersan and team. We moved really quickly. We put more aggressive pricing in the market where we saw elasticity. We watched it, we refined it, and we're in a spot now where we feel really comfortable about the investment that we've made from a price perspective to drive more market share into that business. That's step 1. Step 2, and this is kind of in order of how they hit the stores, were opportunity buys. We knew we had a gap as far as our everyday current assortment relative to where customers were shopping.

We quickly leveraged the supplier partnerships we had across the U.S. and across the world to get really aggressive opportunity buys into our stores at the right inventory levels. Those were a huge win. And that's a matter of weeks from when we identified the opportunity. The third piece is we really rethought our everyday assortment and plugged those holes that the opportunity buys served as a band-aid on. Feel really good about how we operated.

We use the term micro-merchandising a lot, with all of you and certainly inside of our business, and I think this is a great example on how nimble we can be when we find a situation where the market has shifted a little bit, where some of our other competitors may struggle to have that type of speed to market. As far as where it's at, 2 and 3 opportunity buys in the resetting the assortment, that's national. From a pricing perspective, like I said, we're a little bit more surgical there, that's not national. That's in the markets, where we really need to win in laminate and vinyl.

Steven Forbes: Thank you.

Operator: Our next question is from Christopher Horvers with JPMorgan.

Christopher Horvers: Good evening. Thanks for taking my question. A two-parter. Just taking the other side of it and trying to think about what drove the slowdown on July 4th. Obviously, July 4th happens every year. Is there something that you point to and you say, "Well, that was just an anomaly, and that wasn't the improvement in the later part of July, really like the past two to three weeks, isn't just a normalization of demand relative to earlier in July?" A follow-up question on the pricing side. Most of your independents don't buy directly. What is your impression of what the wholesalers are doing?

Are they lowering prices as tariff refunds come in and such that the independent market could see prices come down, and is that already happening? Thanks so much.

Brad Paulsen: Chris, great question on July, and, as you can imagine, a lot of discussion here trying to dissect what actually happened in the first couple of weeks. We have three or four thoughts, but nothing that we're willing to share publicly. The great news, again, back half of July, we returned more to that kind of May, June performance and comp run rate, which is really encouraging. Right now, I'm going to say those two weeks were an anomaly. If for whatever reason we see a return to that two-week performance, then certainly we're going to have more concrete answers. It didn't continue, which again, for us is really, really encouraging. From an independent perspective, you're right.

For the most part, their sourcing model is a two-step sourcing model. One, when you think about tariff refunds, because they're not the importer of record, unlikely that they're going to get those tariff refunds and be able to reinvest into their business, which because of that, I think would prevent them from getting too aggressive around price or promotion in the second half of the year. Everything that we have seen, generally speaking, has been prices going up and certainly not going down.

Operator: Our next question is from Keith Hughes with Truist Securities.

Keith Hughes: Thank you. We've talked a good bit about your laminate and LVP product on the call, and it's been underperforming the group average. You have other products overperforming. Is this just the consumer changing its preference for one product over the other versus real category issues?

Brad Paulsen: Yeah. Again, great questions. I had made some notes on the laminate and vinyl question, my last bullet point that I continue to ignore is there is category shift we believe happening, both into wood and to tile. Certainly that's an element of the conversation. Of all the reasons why we're seeing pressure there, Keith, it's probably the least impactful, it's certainly a part of the conversation.

Keith Hughes: Is the tile sell a better sell for Floor & Decor? How it uses more accessories than LVT?

Brad Paulsen: Well, we like all of our categories. Tile is our largest category. It's in the center of the store. As we take both kind of customer feedback and associate feedback, that's the one that there's kind of universal confidence around, having the right products, having the right inventory, always being trend right. We love our Tile category, and we believe that's a category that we'll continue to lean into and will continue to grow for us.

Bryan Langley: Hey, Keith, Tile also, you're right, has more attachments when that happens. We still get attachment when Laminate and Vinyl is sold, but there tends to be more when Tile is sold, and IM is actually one of our best performing categories, and that's just winning more with pro. I know there was an earlier question on the outperformance within pro, and you see that within IM, just our supply house strategies are working.

Operator: Our next question is from Peter Keith with Piper Sandler.

Peter Keith: Thank you very much. Nice to see the sequential improvement. Brad, you did speak in the prepared remarks around your own sequential performance in conversion. I guess I was curious if, is there something you're doing at the store level that you can speak to that is driving better execution? Is the consumer behaving differently? Just hoping you could unpack that comment a bit.

Brad Paulsen: This is a play that the team continues to execute. If you go back three years ago, one of the things that we pointed to is just really strong service. The thing that's amazed all of us, it's continued to improve. The one area that I think we continue to dial in is making sure there's a consistency around what plays we're calling and the level of execution on the play, particularly with our Pro customer. We have a level of confidence that we could go into every one of our stores at this point and ask that team, "Hey, how are you growing Pro share wallet?" All of our stores would have the same answer.

They would have the data to support those efforts, to understand the customer, where the opportunity is. Then, like I hinted at around service, we've got great teams. We've got great teams that are passionate about taking care of our customers, love helping them navigate the journey of selecting a hard surface floor. We are well-positioned around service and really refining that conversion or the inputs to driving that conversion improvement that we talked about.

Peter Keith: Thank you.

Operator: Our next question is from Max Rakhlenko with TD Cowen.

Max Rakhlenko: Hey, guys. Thanks a lot. Can you provide more color on the work that your new pricing team is doing? What's ahead, and how could we see your portfolio approach to pricing evolve in the medium term?

Brad Paulsen: Yeah. When we talk about evolving our business, we talk a lot about digital. We talk about supply chain, and pricing is certainly an element that is front and center. Ersan has built a world-class merchandising team that has always been top-notch when it comes to pricing. The other piece that's unique about our business is we have a bottom-up kind of feedback process where there are decision rights at our stores to ensure that we're appropriately positioned from a pricing perspective in every geography in which we operate. At the same time, massive improvement around technology and tools that you can use to get really scientific around pricing. We've invested in team, in talent, in process.

We're on the cusp of a technology investment. I only expect that capability to get better and better and stronger and stronger for Floor & Decor. As far as the portfolio approach, there isn't meaningful changes ahead. I think we've got that pretty locked in. As we introduce different categories down the road, certainly that might be a different conversation, but we feel pretty locked in when it comes to our portfolio approach.

Operator: Our last question is from Jonathan Matuszewski with Jefferies.

Jonathan Matuszewski: Great. Good evening, and thanks for squeezing me in. Brad, can you update us on what you're hearing from your Pros during roundtable sessions, maybe just regarding project backlogs? Some of the data out there is talking to kind of rising cancellation rates or postponement rates among homeowners for remodeling projects. Are your Pro roundtables revealing anything in that regard regarding project deferrals or anything along those lines? Thanks.

Brad Paulsen: We have not heard anything that would signal a change to that behavior versus what we experienced in the first quarter. We did talk on the commercial side a little bit about delays in the first quarter driving some of the challenges they saw there. That obviously improved into the second quarter, and we don't expect any type of project delays unless the macro changes meaningfully in the second half of the year. Short answer is no, we haven't heard any change to that from what's previously been discussed with our Pros.

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