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Why Floor & Decor Holdings Stock Rose 14% in July

By Jon Quast – Aug 6, 2020 at 4:11PM

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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.

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Stocks Mentioned

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

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