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Why Floor & Decor Holdings Stock Was Up 23% in May

By Jon Quast – Jun 3, 2020 at 10:44AM

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The company ended April with good financial results and rising shares, but a secondary stock offering brought the stock back down a little.

What happened

Shares of Floor & Decor Holdings (FND -0.11%) rose 22.6% in May, according to data provided by S&P Global Market Intelligence. This market-beating monthly return came on the heels of the company's earnings results for the first quarter of 2020 which beat Wall Street's expectations.

Floor & Decor's stock could have gained even more, but shares gave a little back after the company announced a secondary stock offering of 5 million shares on May 20. As it now stands, the stock price has recovered to around the point where it started in 2020.

FND Chart

FND data by YCharts

So what

First-quarter results for Floor & Decor were strong. Quarterly net sales grew 16% year over year to $477 million and included a comparable-sales gain of 2.4%. That's because the quarter was only effected by COVID-19 for six days -- negligible on overall results. Revenue growth translated to earnings growth, with net income increasing 21% from last year.

Solid results coupled with overall improving investor sentiment led to Floor & Decor stock's out-performance in May. However, the stock took a small step back late in the month with the company's secondary stock offering. Shareholders typically don't like these offerings because they can dilute shareholder value. And they normally indicate the company needs money that operations can't provide.

In this case, Floor & Decor's secondary offering allows a couple of funds to unload their stake in the company. Floor & Decor won't get any of the proceeds. This kind of selling is typical with newly public companies. Even though the company went public three years ago, this news shouldn't be viewed as anything out of the ordinary. 

A dollar bill is folded into an arrow pointing up.

Image source: Getty Images.

Now what

Floor & Decor's Q1 was good, but the upcoming second quarter will be a different story. In the last six days of March, comparable sales plummeted 46% from the same period in 2019, and sales remain sharply down. Other home-improvement retailers aren't seeing that kind of drop in sales, but then again they offer more general consumer-discretionary products. When the economy is struggling, flooring projects may not be high on homeowners' list of priorities.

That said, management is hopeful purchases will quickly rebound in the coming months. In its recent conference call, it noted that sales of flooring samples have increased, suggesting flooring projects are on the horizon and Floor & Decor is still top-of-mind for consumers.

Jon Quast owns shares of Floor & Decor Holdings, Inc. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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