Please ensure Javascript is enabled for purposes of website accessibility

Why Floor & Decor Holdings Stock Rose 14% in July

By Jon Quast – Aug 6, 2020 at 4:11PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Investors were betting the specialty retailer's sales had bounced back, and they were right.

What happened

Shares of Floor & Decor Holdings (FND -3.31%) were up 14.3% in July, according to data provided by S&P Global Market Intelligence. In fact, the stock hit an all-time high of $71.72 on July 27 -- an increase of 42% for the year, and up 194% from where it bottomed in March.

For most of July, investors sent the specialty retailer's stock higher based merely on the assumption that its business was recovering from pandemic-related shutdowns. The company then closed the month by confirming those assumptions, delivering second-quarter earnings that exceeded expectations.

A businessman draws an upward arrow on a stock chart displayed on a transparent touchscreen.

Image source: Getty Images.

So what

Floor & Decor's stores were closed for a significant portion of Q2, leading to an 11% drop in net sales and a 21% drop in comparable sales. Nevertheless, the company was still profitable in the period with $32 million in net income. And sales quickly recovered once all of its locations reopened. In June, comp-store sales grew 7.7% year over year.

This was the kind of recovery investors had been betting on. The Census Bureau has been releasing encouraging data for home-improvement retail. Sales for the building material and garden category were up 13%, 18%, and 17% year over year in April, May, and June respectively. And big home-improvement retailers like Home Depot and Lowe's had already reported strong results that were consistent with the Census Bureau's data. Therefore it was reasonable to expect Floor & Decor to experience a similar bump.

Now what

Floor & Decor is primarily a brick-and-mortar retailer, and it's limited with how much it can do in e-commerce. Therefore, having stores closed was an incredible challenge. But this is a strong brand and growth stock. In the first six months of 2020, its net sales have actually increased 2% from the first half of 2019, while it delivered $50 million in net income. Not bad, all things considered.

Now, Floor & Decor management is looking ahead and mapping out a return to growth. Only two new locations were opened in Q2 -- far fewer than the company had wanted to open. And for 2020, it now only plans to open 13 total. However, in 2021 it plans to return to its long-term goal of 20% annual unit growth, which should excite shareholders.

Jon Quast owns shares of Floor & Decor Holdings, Inc. and Lowe's. The Motley Fool owns shares of and recommends Home Depot. The Motley Fool recommends Lowe's and recommends the following options: long January 2021 $120 calls on Home Depot and short January 2021 $210 calls on Home Depot. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Floor & Decor Holdings, Inc. Stock Quote
Floor & Decor Holdings, Inc.
$71.50 (-3.31%) $-2.45

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 10/07/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.