Investment Research report

Floor & Decor

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Floor & Decor
Floored By A Bad Investment
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Research Overview

S&P 500
Consumer Discretionary
Jul 1, 2024

After conducting a forensic financial review of Floor & Decor, a multi-channel American specialty retailer of hard surface flooring and related accessories, Spruce Point believes the Company’s strategy is struggling and its challenges are intensifying for a range of reasons including ballooning capital expenditures from new store openings. Based on our investigation, we estimate a 40% to 60% downside risk, or approximately $39.75 - $59.65 per share.

The report highlights several key concerns with the Company, including:

  • Believes that FND’s growth strategy is experiencing structural, not cyclical, challenges as competition increases, product, technology, marketing and labor advantages disappear, and customer demographics worsen as stores are opened in lower income and geographically challenged markets
  • Growing risks to earnings from potential tariff increases under a Trump re-election given that 25% of sales are products imported from China and a majority of products are imported from foreign countries  
  • Evidence that Floor & Decor recently made revisions to key revenue claims, numerous omissions of past disclosures, changes to accounting policy language and modifications to business practices that obscure its growing challenges
  • Concerns that CEO Thomas Taylor enjoys excessive personal travel perks and has enacted three recent stock sale programs as Floor & Decor’s fortunes sour
  • A growing risk that the Board, led by two former Linens ‘n Things executives who oversaw a similar retail growth strategy before the Company restated financial results and went bankrupt, is ill-equipped to safeguard shareholder interests
  • Believes analysts fail to include~$620 million of supply chain finance debt, legally binding lease commitments and asset retirement obligations which represent ~$5.75 per share of valuation downside
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