Floor & Decor - Q2 2023

Transcript

Operator (participant)

Good afternoon, welcome to the Floor & Decor Holdings, Inc. Second Quarter 2023 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 during the call, please press star zero your telephone keypad. As a reminder, this conference is being recorded. At this time, I would like to hand the call to Wayne Hood, Vice President of Investor Relations. Thank you. You may begin.

Wayne Hood (SVP of Investor Relations)

Thank you, operator, good afternoon, everyone. Welcome to Floor & Decor's Fiscal 2023 Second Quarter Earnings conference call. Joining me on our call today are Tom Taylor, Chief Executive Officer, Trevor Lang, President, and Brian Langley, Executive Vice President and Chief Financial Officer. Before we start, I want to remind everyone of the company's safe harbor language. Comments made during this conference call and webcast contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and are subject to risk and uncertainties. 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. The company's actual future results could differ materially from those expressed in such forward-looking statements for any reason, including those listed in its 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 non-GAAP financial measures as defined by SEC Regulation G. We believe non-GAAP disclosures enable investors to understand better 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 measure 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 Tom.

Tom Taylor (CEO)

Thank you, Wayne, and everyone for joining us on Our Fiscal 2023 Second Quarter Earnings Conference Call. During today's call, Trevor and I will discuss some of our fiscal 2023 second quarter highlights. Brian will provide a more in-depth review of our second quarter financial performance and share our thoughts about our projections for the remainder of fiscal 2023. Let me start by saying how pleased we are that amidst the economic challenges of rising mortgage rates and near record low existing home sales, we delivered fiscal 2023 second quarter diluted earnings per share of $0.66, which exceeded our expectations. These financial results reflect our team's intense focus on what we can control during this challenging period. We are executing our growth and customer service strategies at an elevated level, investing in new and existing stores, and effectively managing our profitability when sales are modestly below our expectations.

There have now been 22 consecutive months of year-over-year declines in existing home sales from rising mortgage rates, which continues to create intermediate-term headwinds to our sales growth. Notwithstanding these headwinds, we continue to deliver on our growth plans by opening 9 new warehouse stores in the second quarter, including our 200th store opening in Metairie, Louisiana. We are proud that our growth led us to open a New England region, which creates exciting promotional opportunities for our field organization. Moreover, we are fortunate that the strength of our balance sheet and cash flows allows us to continue to invest in our existing stores and drive inspiration and newness at a time when the industry is contracting.

In the second quarter of fiscal 2023, we executed 49 design center refreshes, including 34 exciting new XL slab vignettes, 153 decorative accessory resets, and by the end of 2023, we expect that all stores will have an updated wood inspiration center. When industry demand turns, we believe these investments will position us for accelerated market share growth. We continue to successfully execute our plans to strategically reduce retail prices on specific SKUs, while at the same time growing our gross margin rate sequentially and year-over-year. Our product price gaps are as strong as ever, and on like items, they sequentially widened during the second quarter. Moreover, we have been successfully diversifying our product sourcing away from China.

In 2022, our products sourced from China declined to approximately 29% of sales from 50% in 2018, and we see a path to further reduce this percentage meaningfully over time. Through our agile diversification strategies, we have demonstrated that we can reduce our product costs, drive product innovation and newness, achieve optimal economies of scales, and lower our geopolitical risks from tariffs, and more recently, UFLPA enforcement efforts. Turning to commercial, not only are we pleased with the emerging organic growth at Spartan Surfaces, but we were able to build on their successes by acquiring Salesmaster Flooring Solutions in June. As we look forward, we expect existing home sales to be more challenging than we previously contemplated and customers to increasingly prioritize value and savings, seeking out those retailers that best meet these needs.

We believe we are well positioned to navigate a longer duration of weak existing home sales headwinds and grow our market share, even as the flooring industry contracts in 2023. Let me now turn the call over to Trevor to discuss our second quarter sales and growth pillars.

Trevor Lang (President)

Thanks, Tom. We are incredibly pleased with how our stores are executing strategies to grow our market share during this challenging period. We are focused on driving top-line sales growth in the second half of 2023 through new product introductions, compelling bulk-out price displays at the front of our stores, basket selling, open quote conversion, select SKU price reductions, and engagement and loyalty strategies, particularly amongst our top pros. We will continue emphasizing our everyday low prices on a broad assortment of top quality and trend-forward products, our in-stock job lot quantities, and in-store and online customer experience. We are pleased our second quarter customer service scores remain at all-time highs.

At the same time, we are protecting our profitability by flexing payroll hours to align with transactions, improving operational efficiencies across the organization, optimizing our media mix and advertising spend for the most effective return, and moderating discretionary spending. Let me turn my comments to fiscal 2023 second quarter sales. Total sales increased 4.2% to $1.1 billion from last year, and comparable store sales declined 6%, which was modestly below our expectations. Comparable store sales fell 6.6% in April, 5.5% in May, and 6% in June. From a regional perspective, and like the first quarter, sales in our Western division remained the weakest.

Our fiscal 2023 third quarter to date, comparable store sales are down 8.4%, which is reflected in our updated earnings guidance provided in today's press release. Turning to our fiscal 2023 second quarter transaction and average ticket performance, comparable store transactions declined 7.1% from last year, which was modestly below our expectations, but an improvement from the 9.9% decline in the first quarter and a 10.4% decline in the fourth quarter of fiscal 2022. Our second quarter average ticket growth of 1.1% sequentially decelerated from 7.3% in the first quarter and 14.4% in the fourth quarter of 2022.

The sequential decelerating growth in our average ticket is mainly due to retail increases last year, that we are now starting to anniversary in a more meaningful way, as well as customers purchasing less square footage and our strategic decision to selectively lower retail prices on specific SKUs. Overall, homeowners and pros are engaging in fewer projects and undertaking smaller scale flooring projects and are very intentional in their purchase decisions. For example, they are choosing a single bathroom project rather than a bathroom and a kitchen project, or a four-room project rather than a five-room project. Additionally, the cost of financing projects has risen due to the increase in interest rates, fewer subsidized financing programs, and tighter lending standards. Collectively, we believe these factors are contributing to us selling less square footage when compared with last year.

That said, when the consumers are considering a flooring project, we continue to see an ongoing customer preferences towards our better and best price points products, where we offer industry-leading innovation trends and styles at everyday low prices. Indeed, we are excited about the new SKUs landing in our stores in the second half of the year. Consequently, we believe we can grow our market share even while the industry is contracting. I will now discuss our new store pillar of growth. In the second quarter of fiscal 2023, we opened nine new warehouse format stores towards our goal of opening 32 warehouse format stores for the year. Among the nine new warehouse store openings, three opened in each month of the quarter, with one opening on the last day of the quarter.

We celebrated a milestone in our compelling growth story in early May by completing our 200th warehouse store opening in Metairie, Louisiana. I want to take a moment to recognize all of the people that made this possible. Each year, I believe we get better at opening new stores, and they are better than the previous class, and I'm excited about the new stores we have in the pipeline to open towards achieving our 500 U.S. store potential. We have a busy 11 new warehouse store opening plan for the third quarter of fiscal 2023, including a record-setting monthly store opening plan of nine new stores in the month of September. Moreover, we are excited about our plan to open four new stores in new markets in the third quarter, including Buffalo, Rochester, and Albany, New York, and Minneapolis, Minnesota.

Among the 32 warehouse format stores we intend to open in fiscal 2023, 59% will be in existing and 41% in new markets. As a reminder, we consider any market where our stores have been open less than three years to be a new market. Looking beyond 2023, we expect construction delays to ease and anticipate a more balanced quarterly store opening cadence, which will lead to more warehouse store operating weeks. Turning to our pro business, our fiscal 2023 second quarter total sales to pros increased by 8.3% and accounted for 43% of total sales. Pro comparable store sales declined 1.1% from last year, driven by a decline in transactions.

While second quarter comparable store sales to pros declined slightly from last year, we are pleased with our engagement metrics, where our top pros continue to spend more with us compared with last year, resulting in a growing wallet share. Furthermore, we are pleased that our pros continue demonstrating a strong appreciation for the value of our industry-leading Pro Premier Rewards loyalty program. Over 80% of our pro sales are from PPR members, and second quarter PPR points redeemed increased by 73% from last year. We continue to grow our pro contacts and are excited about the refinements we are making in our customer relationship management or CRM dashboard tools, which will further allow us to optimize and enhance our lead capabilities and drive engagement.

We also build sticky relationships and lifetime value with pros through education and training about flooring products, installation, and design solutions. As discussed in prior earnings call, we aim to be the premier destination for our pro education by expanding our industry partnerships. In the second quarter of 2023, we hosted 27 educational workshops, training over 500 pros. We have 121 pro educational workshop events planned for the year, compared to 71 in 2022. We believe these investments are working, as those trained pros have significantly increased their spending with us from last year. Turning to our e-commerce business. Our e-commerce team continues to focus on executing strategies to drive traffic, and optimizing our customers' digital experience. In the second quarter, we drove 20 million clicks to our website.

Our fiscal 2023 second quarter e-commerce sales increased 12.6% from last year and accounted for 19.1% of our sales, compared to 17.5% in the previous year and 18% in the first quarter of 2023. Importantly, our digital and physical assets are working together. 79% of customers who purchased in store say they have been to our website. Importantly, about 80% of our online sales are picked up in store. From a merchandising perspective, we continue to be focused on current trends, adding inspirational and user-generated content and expanding into new categories. Moving on to our design services. We believe our design services strategies are working. We're driving an elevated level of service versus our competition from trained designers capable of managing any size project with any customer.

We now have about five designers per store, which gives us coverage for all days and hours of business. We have equipped designers with hardware and design software, which allows us to give customers a better and more consistent experience. Our in-home design test is now in six markets, and we are pleased with the results. The in-home design allows us to work with the project space, including reviewing samples, taking measurements, and defining the customer's style. This experience also allows us to produce better visualization tools to help customers make the buying decision. In the second quarter of 2023, our design sales penetration increased 335 basis points from last year. We now have about 930 designers working in our stores, with plans to have over 1,000 designers by the end of the year.

Moving on to commercial flooring business. Spartan Surfaces reported another strong quarter, further reaffirming that our strategies to grow our commercial market share are working. Spartan's fiscal 2023 second quarter total sales increased by 40.5% from last year. We are pleased that Spartan's gross margin and EBITDA margin rate continues to be better than expected, which was partially offset by transaction costs from Salesmaster in the quarter. We are equally pleased with the regional account managers or our RAMs, that work with our stores and that are not included in Spartan's financial results. Our RAMs second quarter total sales increased 39% from last year. In June, we took another step towards growing our commercial business when Spartan Surfaces acquired Salesmaster Flooring Solutions, a top distributor of commercial flooring in the New York City market.

The acquisition significantly expands and deepens our presence in the large and highly fragmented New York City and New England markets. We're excited about leveraging Salesmaster's strong contractor relationships in their core markets, large sundries offerings, delivery and logistics network, and great customer service. As we expand in the Northeast, we believe these attributes will result in higher win rates. We expect Salesmaster to benefit from increased purchasing power, better inventory levels and logistics, enhancing the value they deliver to their customers. As discussed in prior earnings calls, we remain excited about the commercial market opportunity and our strategies. Finally, we are operating from a position of strength and are excited about the opportunity to continue to grow our market share in fiscal 2023 and beyond. We are confident that we have the right people, strategies, and business model to continue navigating this challenging macroeconomic environment successfully.

I will now turn the call over to Brian, to discuss our fiscal 2023 second quarter financial results in more detail, and to share our outlook for the remainder of the year.

Brian Langley (EVP and CFO)

Thank you, Tom and Trevor. I want to begin by thanking all of our associates and vendor partners for their hard work and dedication to serving our customers every day. I'm particularly proud of our fiscal 2023 second quarter financial results, as they demonstrate how we can grow our market share and manage our profitability during a period of industry contraction. We are executing our new store growth and gross margin recapture plans and effectively managing our expenses. Importantly, we successfully managed our inventory and other working capital, which led to a $469 million positive swing in operating cash flow from the same period last year. We accomplished these results despite rising mortgage rates during the quarter, leading to existing home sales that took a step back from where they were at the end of the first quarter of 2023 to near record lows.

Let me turn my discussion to some of the changes among the significant line items in our second quarter income statement, balance sheet, and statement of cash flows. I will discuss our outlook for the remainder of the year. We are successfully executing our plans to grow our gross margin rate. Second quarter gross margin rate grew sequentially and year-over-year. Our second quarter gross margin rate increased approximately 220 basis points to 42.2% from 40.0% last year, exceeding our expectations and sequentially improving from 41.8% in the first quarter of fiscal 2023. The increase in gross margin rate is primarily due to retail price increases we took last year to mitigate higher year-over-year supply chain and product costs.

As a reminder, we are in the weighted-average cost method of accounting, and as such, the supply chain cost reductions we started to experience late last year and into this year are still working their way through our income statement and will continue to benefit the back half of 2023. Second quarter selling and store operating expenses increased 16.1% to $311.4 million, in line with our expectations. The growth is primarily attributable to higher occupancy costs related to 29 additional warehouse stores operating since June 30, 2022, wage rate increases and higher credit card transaction processing fees. As a percentage of sales, selling and store operating expenses increased approximately 290 basis points to 27.4% from last year.

The 290 basis points increase was modestly above our expectations, primarily due to deleverage in occupancy and other fixed costs from the decline in our comparable store sales. Second quarter general administrative expenses increased by 19.2% from last year, modestly above our expectations. The growth is due to investments to support our store growth, including increased store support staff, higher depreciation related to technology and other store support center investments, and operating expenses related to our Spartan Surfaces subsidiary, including approximately $900,000 of transaction costs associated with the acquisition of Salesmaster. As a percentage of sales, general and administrative expenses deleveraged 60 basis points to 5.5% from 4.9% last year, primarily due to the decline in our comparable store sales.

Pre-opening expenses increased by 16.5% to $10.0 million from last year, in line with our expectations. The increase primarily resulted from an increase in the number of future stores we were preparing to open compared to the prior year. Second quarter net interest expense increased to $2.9 million from $1.7 million in the same period last year. The $1.2 million increase in interest expense is primarily due to an increase in average borrowings outstanding under our ABL facility and interest rate increases on outstanding debt, partially offset by increases in capitalized interest and interest income from our interest rate cap derivative contracts. Our second quarter income tax expense was $20.6 million, compared to $22.9 million in the same period last year.

The effective tax rate increased by 50 basis points to 22.4% from 21.9% the previous year, primarily due to 162(m) limitations. Excluding the impact of excess tax benefits, our second quarter tax rate was approximately 24.5% compared to 23.9% in the same period last year. While second quarter sales were modestly below our expectations, we demonstrated that we can effectively manage our profitability as industry growth contracts. Second quarter Adjusted EBITDA grew 1.7% to $152.8 million, and diluted earnings per share of $0.66, which exceeded our expectations. In today's earnings press release, you can find a complete reconciliation of our GAAP to non-GAAP earnings.

Moving on to our balance sheet and cash flow, we are pleased that our inventory as of June 29, 2023, decreased by 12.8% to $1.2 billion from last year, and decreased by 9.3% from the end of fiscal 2022. The decline in inventory, coupled with an increase in trade accounts payable, along with other working capital initiatives, enabled us to report a $468.8 million positive swing in year-over-year operating cash flow, and a significant year-over-year increase in free cash flow. The improvement in our cash flow allowed us to reduce borrowings under our ABL facility, which in turn enabled us to reduce our debt by $35.2 million to $238.4 million from the same period last year.

Consequently, we have an even stronger balance sheet, which will be a benefit to us as we weather the industry's contraction and make strategic investments like our recent acquisition of Salesmaster. We ended the second quarter with $703.3 million of unrestricted liquidity, consisting of $4.2 million in cash and cash equivalents and $699.1 million available for borrowing under the ABL facility. Let me now turn my comments to how we are thinking about the second half of 2023, and how this compares with our previous expectations. First, the Federal Reserve has continued tightening financial conditions by raising the federal funds rate to 5.25%-5.5% in July, and continues shrinking its balance sheet to bring inflation under control to achieve its 2% inflation rate objective over time.

These ongoing monetary policy decisions led to mortgage interest rates rising to over 7% in the second quarter and 7.34% in July, which led to existing home sales slipping back to 4.16 million units in June from their prior recent peak of 4.55 million units in February and 4.43 million units in March, when we reported our fiscal 2023 first quarter. As we think about the long and variable lagged impact of these ongoing monetary policy actions and the likelihood that mortgage rates are now less likely to fall to 5%-6% over the next 5 months, we now prudently expect existing home sales to exit 2023 around 4.1 million-4.3 million units and remain near record lows.

This unit level is below our previous 2023 exit rate assumption of 4.7 million-4.9 million units annualized, as we discussed in the first quarter. Second, while home price appreciation has moderated, they remain elevated from previous years, which, coupled with rising mortgage rates, makes housing affordability challenging. According to NAR, the median price of an existing single-family home was $416,000 in June 2023, up 39% from $300,000 in 2020. A monthly payment is now 26.7% of income, compared with 14.7% in 2020. Taking these intermediate term headwinds and our recent sales trends into consideration, we prudently revised our fiscal 2023 sales and earnings guidance lower to reflect these ongoing headwinds.

While the macroeconomic environment does present some near-term challenges, we believe the long-term secular trends that underpin growth in home improvement spending and our potential market share and 500 store opportunity in the U.S. remain as relevant as ever. We remain committed to making the investments that we believe will further expand our competitive moat and drive market share gains during this downturn to better position ourselves for when the existing home sales cycle turns. The well-established factors supporting long-term home improvement spending include significant home equity, a historically low inventory of new and existing homes for sale, and an aging housing stock, where over 80% of homes are 20-plus years old. Furthermore, as more millennials enter their prime home buying years, we are well-positioned to capitalize on this growing market. Now I'll provide some more detail pertaining to our updated fiscal 2023 full year outlook.

Net sales of approximately $4.46 billion-$4.53 billion, compared with our prior guidance of $4.61 billion-$4.75 billion. Comparable store sales decline of approximately 7%-5.5%, compared with our prior guidance of down 3% to flat. We expect Q3 to be the lowest comp of the year. As a reminder, we are lapping a 10.4% decline in transactions in Q4 of 2022, versus a 6.7% decline in transactions in Q3 of 2022. The earnings flow-through impact from a 1 percentage point change in comp is approximately $0.10 per share for the full year and approximately $0.05 for each comp point for the remaining two quarters of the year.

Diluted earnings per share of approximately $2.30-$2.50, compared with our prior guidance of $2.55-$2.85. We expect Q4 earnings to be the lowest of the year. Adjusted EBITDA of approximately $570 million-$595 million, compared with our prior guidance of $605 million-$650 million. Depreciation and amortization expense of approximately $200 million, compared with our prior guidance of $190 million. Net interest expense of approximately $16 million-$17 million, compared with our prior guidance of $17 million-$18 million. Tax rate of approximately 22%, compared with our prior guidance of 23%. Diluted weighted-average shares outstanding of approximately 108 million, unchanged from our prior guidance.

Opened 32 new warehouse format stores from our prior guidance of 32-35 stores. Capital expenditures of approximately $590 million-$630 million, compared with our prior guidance of $620 million-$675 million. Let me now pass the call back to Tom for some closing remarks.

Tom Taylor (CEO)

Thanks, Brian. These are challenging times for everyone in our segment of the home improvement industry, but we believe we have a proven, differentiated business model and the right talent to execute our growth strategies to continue to grow our market share. We believe our ability to continue to make strategic investments in a year marked by sales contraction in the industry, will enable us to accelerate our market share in 2023 and beyond, particularly among pros. We expect 2023 could be particularly difficult for independents to manage pricing, inventory, and marketing in a contracting sales period when compared to our larger scale direct sourcing business model. We believe we are managing our business to accelerate our market share and deliver significant earnings power when the industry returns to growth. We believe our long-term earnings growth algorithm remains intact.

I want to thank all of our associates and vendor partners for their hard work and dedication to serving our customers every day. Operator, we would now like to take questions.

Operator (participant)

Thank you. We will 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 if you would like 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 pull for your questions. Our first questions come from the line of Michael Lasser with UBS. Please proceed with your questions.

Michael Lasser (Equity Research Analyst)

Good evening. Thanks a lot for taking my question. What are the trends at your most mature stores? The reason why I ask is because there's a debate about the degree to which Floor & Decor might have been overearning for the last few years because of things like whole house renovations, all the, the excessive money that's been flowing to the consumers. The key is: what is the realistic level of sales productivity for your most mature stores?

Trevor Lang (President)

Hey, Michael, this is Trevor. I'll take a crack at that, and Brian may weigh in as well. I think our mature stores are maybe 200 basis points below our total comp that we reported there. You know, as to how much was overearned during the COVID period, I mean, there's something to that. I don't know that we can specifically know what that number is, but obviously, you know, we went through that back then. People were stuck at home, and they couldn't travel, and they invested in their home because they were working from home. There's probably some truth to that, but I'm not sure we can tell you exactly how much of that was part of our...

You know, when we had those strong results in 2020 and 2021, and the first half of 2022.

Brian Langley (EVP and CFO)

Yeah. Hey, Michael, I'll jump in. I'll kind of unbundle the comp a little bit and then talk a little bit about the mature stores as well. If you think about it or if you follow the story, we were down 3.3% in Q1, down 6% in Q2. What Trevor said on the call is we're down 8.4% now. That would imply that the back half on the high end is around 6.3%, and the back half on the low end is at 9.3%. The reason that we believe Q4 will improve from Q3 is we're stacking against our weakest transactions. In Q4, if you remember, they were down 10.4%, and in Q3, they were down 6.7%.

The other reason really is that we also opened 13 over 32 stores or 40%, were in Q4 of last year, so all of those are going to start to enter into the comp base in Q4 as well. To, to piggyback on Trevor's point, embedded in this guide is high single-digit to low double-digit decline for mature stores. That's embedded within kind of the numbers that we gave you. Our new store classes are still comping positive to Trevor's point. They're, you know, our new stores are a little bit lower than, than what we guided to.

Trevor Lang (President)

our mature stores.

Michael Lasser (Equity Research Analyst)

When, so Brian, when the dust settles, what do you think your mature stores on average are going to be doing from a sales per store heading into 2024? Then as you think about 2024, is, is your change to the guidance just simply pushing off the time of the recovery? Or is this more of a, an acknowledgment that our stores were overearning and they're gonna it's gonna take some time for them to find a sustainable level? Thank you so much.

Trevor Lang (President)

Yeah, it's more of a pushoff, we would say. We don't think that they've come down any, any reason. Obviously, they're negative comping this year, but there's no reason they wouldn't earn back to where they were. We don't believe they overachieved to their long-term goals.

Tom Taylor (CEO)

Right. As long as existing home sales are staying at this level, it's, it, it, but it gives us some, some challenge, and we've got to continue to fight to take market share during this time. This is just a push out to when things would get better.

Michael Lasser (Equity Research Analyst)

All right. Thank you very much, and good luck.

Tom Taylor (CEO)

Thanks, Michael.

Michael Lasser (Equity Research Analyst)

Yeah.

Operator (participant)

Thank you. Our next question has come from the line of Steven Zaccone with Citi. Please proceed with your questions.

Steven Zaccone (Senior Equity Research Analyst)

Great. Good afternoon. Thanks for taking my question. I wanted to ask about the market growth rate. You know, with your guidance calling for, you know, down mid-singles to down 7, how do you expect the market overall is performing? Then when you think about the change in guidance, you know, across DIY versus Pro and maybe product categories and then even the size of the project, what do you think is really coming in weaker than expected by the biggest magnitude?

Tom Taylor (CEO)

I'll take the first part, and then, Trevor Lang, you can take the second part. This is Tom Taylor. I, I would say, the market is growing at a slower pace than we are. We're still growing. I mean, we have a negative comp environment, but as we open stores, our We're still growing. You know, our, our, in the quarter, we were up 4%, and, and year to date, I think we're up somewhere around 6%. We're, we're growing. When you just look at people that we compete with that are publicly are publicly traded, their growth is significant. You know, The Tile Shop reported today, they were a -8.4. Lumber in the first period, in the first quarter was -15. Mohawk reported North America was down 9%.

We're growing. We believe we're taking market share at a pretty, at a pretty good clip, and the market is absolutely in much worse condition than we are.

Trevor Lang (President)

If I understand the second question, you know, our pro business continues to do well relative to the rest of the business. We, we talked about our commercial, small, but, you know, our commercial business continues to do incredibly well, both on the Spartan side and, and our regional account managers on the retail side. The consumer, the, the DIY, that's, that's the part that's struggling, and, you know, we, we measure that closely. That's the part of the business that's least of us the ability to control. As Tom mentioned, you know, you've had, call it, 5.5 million-6 million existing home sales turnover for much of the last 50 years. You're now at 4 million, and this cycle is now 22 months into it, and, you know, it hasn't gotten any better.

Interest rates are back-- or mortgage rates are back above 7%. It's just a, it's a time of compression, on the, on the, just the housing cycle. We feel as good as ever about our, our medium and long-term outlooks. We just need to get past this cycle.

Steven Zaccone (Senior Equity Research Analyst)

Okay, great. The follow-up I had was on just the competitive dynamics that you're seeing in the market right now. You know, given your comments about value and savings, how do you feel about your price gaps? Do you see the competitive dynamic changing as we get into the back half of the year and into next year?

Tom Taylor (CEO)

I'll take that. This is Tom. I, I feel good about our price gaps versus our competition. We, we monitor those on a, on a feels like a daily basis, but we monitor them on a weekly basis, and we feel as good as ever about how we're competing in the marketplace. You know, as I look forward, do I think it's going to get worse? Do I think it's going to get more challenging? I mean, as Trevor said, this is the 22nd consecutive month of negative existing home sales. This has been a tough market for people who sell our category for a while. So, you know, we're going to continue to monitor that. We're going to continue to protect our moat.

We know we're getting new customers, every day that are looking for value in this type of environment. We feel good about our price gaps, and, we'll continue to make sure that they stay, they stay good.

Steven Zaccone (Senior Equity Research Analyst)

Thanks for taking my questions.

Operator (participant)

Thank you. Our next question has come from the line of Steven Forbes with Guggenheim. Please proceed with your questions.

Steven Forbes (Senior Managing Director Equity Research)

Good evening, Tom, Trevor, Brian. I wanted to focus on the updated capital spending plan. I guess first, just wanted to confirm that the reduction for the year is, is solely tied to the three stores that were pulled out. I'm curious if you can maybe give us a preview on, on how you're thinking about 2024 in terms of the store pipeline and/or what level of capital spending you're sort of comfortable planning for as we think through the free cash flow implications of the guidance revision?

Brian Langley (EVP and CFO)

Yeah. Hey, Steven, I'll, I'll start, and then Tom and Trevor will jump in. In the very first question, the reduction is actually more tied to fewer land purchases that we had contemplated in the original guide, and then a little bit for the spend of 2024. Those three stores we're still spending on. They're, they're really just kind of pushing into next year. It's not that we've cut that or anything else. It's truly tied to more just spending for the future class of 2024 and, and land purchase that we have. We're still looking to own probably 5%-10% of any given class, so it's just a little bit less than we had kind of predicted in the beginning of the year.

Tom Taylor (CEO)

That's right. I'll take the second part of the question. As we said through our script.

...In the last couple of calls, we know this is a cycle. Things will be difficult. We're running the business to the best of our ability, but we're trying to gain market share, and, and we know that, you know, nothing's changed in our 500 store algorithm. We plan to open at least 35 stores next year. As we sit here today, that's how we see the world, is that we plan to open at least 35 stores next year. We may update that, as we get into the next quarter, but, you know, our class of 2024 pipeline is terrific. We've got, you know, we've got a store in Brooklyn that we're gonna open up, more stores in the Northeast, stores in our good markets.

Trevor Lang (President)

We're excited about that pipeline and going to continue down that path.

Steven Forbes (Senior Managing Director Equity Research)

Thank you. Maybe just a quick follow-up for Brian. As we think back to sort of the selling store operating expense deleverage you've experienced, revenues experienced year to date, can you help break that down into comparable store deleverage versus the weight of the new growth?

Brian Langley (EVP and CFO)

Yeah, Hey, Steven. Yeah, the majority of it is gonna be in the mature stores. When you think about it, what I said in the prepared remarks, we have seen wage rate increases, higher credit card transaction processing fees, and so the new stores are still layering in the same way that they have. We've been able to combat kind of that inflation. The cost on a like-for-like store is almost equal from where it was last year. The deleverage is almost all due to just the decrease in sales. It's all because we're negatively comping at those stores. We've been able to kind of hold costs flat, even with inflation coming in by flexing our store hours and cutting discretionary spend.

Steven Forbes (Senior Managing Director Equity Research)

Thank you.

Operator (participant)

Thank you. Our next question has come from the line of Chuck Grom with Gordon Haskett. Please proceed with your questions.

Chuck Grom (Managing Director)

Hey, thanks very much. Hope you guys are doing well. My question is on the recent uptick in rates and if that's having any impact on what you're hearing from the pros and current plans for projects over the next, you know, call it six to nine months?

Trevor Lang (President)

You know, we have talked to a lot of pros over the last several months. They still have decent backlogs, is what they tell us. We're talking hundreds and hundreds of pros across the United States. They still have decent backlogs, it has slowed a little bit. You know, when you're turning over 5.5 million-6 million homes, there's a lot bigger projects that are being done, right? When someone's gonna sell a home, they may have to invest in multiple bedrooms and bathrooms and kitchens. Now that existing home sales is bumping along at 4.1 million, which again, is one of the lowest we've seen in the last 50 years, people are just doing much smaller projects.

You know, as opposed to doing a whole floor, maybe they just do a bathroom or a kitchen. They've also said the size of their projects has come down, too. That's probably the biggest thing that's changed for us relative to when we started the year. You know, our transactions are pretty close to what we thought. The ticket's pretty close to what we thought, but some of the square footage size of the jobs has come down, and I don't know that we would have, you know, thought to think that was gonna happen. That's probably the biggest change, is people are just doing smaller jobs as a lot less houses are turning over.

Chuck Grom (Managing Director)

Okay, great. Thank you. Then my second question is just on, on new store productivity. You know, you opened nine stores. I think you said three within each month of, of each month of the quarter, and I think there's one store that you opened up on the last day. But the NSP is, is much lower than it's been, we're calculated around 61%. Is there anything going on there that, that would drive that lower?

Trevor Lang (President)

You know, the way I always think about that is we, we disclosed in our 10-K. We, we think our new stores, you know, should do anywhere from $14.5 million-$16.5 million in sales in the 1st year, and we sort of build our portfolio of stores around those metrics. When things were incredible, we were doing, you know, $16.5 million as you look at the class of 2019, 2020, and 2021. The class of 2022 and early in 2023, that number is probably more around $14.5 million in sales. As you've seen our same store sales come down, just because there's less people in the market, you've seen our new store sales productivity come down.

You know, do I think that number is gonna go back up to 15, 15.5, 16? I think as the economy recovers, it will. Those stores are, you know, those stores were making probably over $3 million-- they were making over $3 million in four-wall EBITDA in year 1, now that you're gonna do $1 million or so less, maybe a little bit more than $1 million or so less than that in this current environment, you know, you can pull that through kind of in the mid- to high-30s, they're gonna make still a really good, you know, just under $2 million or just over, just under $3 million, maybe $2.5 million.

They're still very productive stores, and they're gonna give us a return on invested capital well above our cost of capital.

Brian Langley (EVP and CFO)

This is Brian. It gives us more of a maturation curve as well as they, as they mature.

Trevor Lang (President)

Yeah, because they're gonna ultimately get to the.

Brian Langley (EVP and CFO)

Yeah, they're gonna ultimately get to the same.

Trevor Lang (President)

Good point.

Chuck Grom (Managing Director)

Right. Yep, exactly. Thank you.

Operator (participant)

Thank you. Our next question has come from the line of Simeon Gutman with Morgan Stanley. Please proceed with your questions.

Simeon Gutman (Equity Research Analyst)

Good afternoon, everyone. I want to ask first about gross margins. They're still benefiting, and I think you mentioned there's still a little bit of a benefit through the back half of the year. Does it flip to a headwind? I think part of the question is, you know, what happens with price? You mentioned there was some selective, you know, I guess, taking price down, but curious how it wraps into 2024. I know it's early to talk about it, but curious if it does flip over.

Trevor Lang (President)

Yeah, it's, it is early to talk about 2024. We're, our margin... I've been very pleased with our ability to protect our value, pass some price along, back to our professional customers who saw us taking price up, and continuing to improve margin, like, as I said in the script, and we've been able to do it sequentially and then, and then year-over-year. And I think that goes into 2024. I do believe that we have the ability to continue to improve our margin rates. We're gonna, we're, you know, we're watching where we have taken price down, and measuring unit elasticity, seeing if we're gonna benefit. It's inconclusive now, but, you know, we're watching it.

I think between our own initiatives of selling better and best products and, and design initiatives, and continuing to watch our supply chain do a great job of getting costs down, our merchants buying better, I think we have the ability to exceed our historical gross margin rates. How quick that comes, you know, well, that's yet to be determined. We'll talk about 2024 as we get closer to it, but I do think we'll have improvement.

Simeon Gutman (Equity Research Analyst)

Yep. Then it's, it's, it's actually, it's another 2024. I'm hesitant to talk about it. I want, but it's more about the housing market, 'cause like Trevor mentioned, that the consumer just spending a little bit less. You know, there was a debate in this industry that this, the wealth and homeowners, this, the lock in or stay in effect, would, would continue to drive the industry, not necessarily support it, but, you know, not, not create, you know, not avoid negative comps. It looks like, you know, let's say existing home sales don't grow in 2024, which some are forecasting. You know, like, how do you? I, I know it's early again, but how do you think about, you know, this wealth effect? Is there enough for this business or the industry to grow, or it could be a longer transition period?

Trevor Lang (President)

I mean, I think that's difficult to answer. I'll take a stab. We're all kind of looking at each other, who's gonna answer that one? I would say, I mean, as I look into next year, even if we just need, you know, existing home sales have been running in the negative 20% range. If we get to, as we start lapping, as we get into the fourth quarter, you know, if they stay at this 4.1, 4.2, like we think we're gonna exit the year, then they're not negative 20%. They're flat or slightly up, as we go into next year, we think that could get better. If existing home sales are better than they were year-over-year, we think that benefits us. Now, I also think there's gonna be some pent-up demand.

With this amount of slowdown in the business as you get to next year, I think people will become more impatient and they will may take on more projects. Our consumers are, they slant to a little higher end. Their balance sheets look pretty good. We do think that, you know, hopefully that will, as time goes on and people are gonna say, "You know what? I've waited long enough. I'm gonna redo that bathroom. I'm gonna redo that kitchen." I think between existing home sales, probably slight, you know, maybe low, but they're not gonna be 20% year-over-year low. Then I think, as time goes on, I do think people will take on more because the value of their homes is pretty good.

Brian Langley (EVP and CFO)

Look, this is Brian. I mean, if, if the duration lasts longer, as, as you're alluding to, if it, if it does, it's gonna put a lot more pressure on our independent competitors, which could also allow us to gain even more market share. Just one way to think through it.

Trevor Lang (President)

That's true. That's a good point.

Simeon Gutman (Equity Research Analyst)

Yep. Thanks, guys.

Operator (participant)

Thank you. Our next questions come from the line of Zach Fadem, with Wells Fargo. Please proceed with your questions.

Zach Fadem (Managing Director and Senior Equity Analyst)

Hey, good afternoon. I wanna follow up a bit on that last question, maybe you could talk about the historical correlation between your business and existing home sales and how that relationship has held up or changed over the years. Then just considering the current dynamics around rates and home prices and all the folks who've locked in low mortgage rates, I mean, is there any reason to believe that the historical correlation still the right way to think about modeling your business, or could that actually change?

Trevor Lang (President)

I do think that's been the highest macroeconomic factor that correlates to our business. You go back and look at, you know, kind of late 2017, 2018 or 2018 and 2019 when existing home sales slowed, when interest rates went up and our business decelerated some. Obviously, you've seen that same thing happen, starting last year in July, existing home sales fell a lot, anywhere from 20%-35% per month for as we said, the last 12 months. You saw our business slow down and actually turn negative for the first time. Yeah, I think that's right. I think as Tom mentioned, though, I don't, it doesn't feel like we're gonna go way below 4 million existing home sales. If you look over the last 50 years, I think that's only happened once.

We just need them to quit being so negative. And I think, you know, then we can, we can grow, we can grow from there, is our view. I mean, when we look at our model and what we're doing versus the competition, we're continuing to make huge strides forward. I think we feel as good about our people, our turnover is low, our customer service scores are high, our innovation and the assortment is fantastic. I, yeah, I, I, that's my best answer. Yeah. No, mine too. I wouldn't say, I mean, much different. I, I don't think that there's anything that's happened in the last year or two that's gonna change, that existing home sales aren't good for us. You know, if existing home sales are positive year-over-year, that's a good thing for Form to grow.

Zach Fadem (Managing Director and Senior Equity Analyst)

Got it. I appreciate the color. Then I think you made a change to your private label credit card. Curious if you've seen any impact from the change or the tightening credit terms as a whole, specifically on that card, as well as for, for your, your customers in general, as well as the pro?

Trevor Lang (President)

Very perceptive. We did make a change in May. We went with a bigger vendor that we felt was more aligned with us. Early reads, it looks like their approval rate is slightly better than the previous provider. We feel good about them. They're a big partner. I think they're the largest private label credit card company in the United States, that they're a good partner with us, and we're optimistic about it.

Zach Fadem (Managing Director and Senior Equity Analyst)

Got it. Appreciate the time, guys.

Trevor Lang (President)

Thank you.

Brian Langley (EVP and CFO)

Thanks, Zach.

Operator (participant)

Thank you. In the interest of our remaining time to get, to get to as many questions as possible, we ask that you please limit yourself to one question. Our next question comes from the line of Seth Sigman with Barclays. Please proceed with your question.

Seth Sigman (Managing Director and Senior Equity Research Analyst)

Okay, great. Thanks. Hey, everybody. A lot of the slowdown here is happening through average ticket. I guess we're all trying to figure out where that settles. Your average ticket is up, let's say, 25% versus 2019. It seems like a portion of that was same SKU price increases, maybe a bigger piece of that was the impact from larger projects and mix. I was hoping you could maybe break that down for us a little bit more. How much upside to ticket came from that increase in average square footage per project? How do you think about where that normalizes? Does it go back to 2019 levels? Does it go lower based on EHS? How do you think about that?

Trevor Lang (President)

... I think our ticket will bounce around out what it's going to be this year, and then, you know, I think it's going to grow in the future because our e-commerce business is our highest ticket, and, you know, that will hopefully continue to grow at a faster rate than sales, like it has for the last 12 years. Our pro ticket is higher than our homeowner business that we're hopeful will continue to grow. Our design ticket is higher. Design is a big focus for us. As Tom mentioned, that's up 330 basis points. I think we just got to kind of level out and see what this year is. Our RAM sales, which really, most of those get tendered through the stores. Those are big commercial sales. Those are all higher tickets.

My expectation is once we get through this, you know, arguably one of the worst housing markets we've seen in the last 50 years, those strategic initiatives that we're focused on will drive ticket growth. The final thing I'll mention is, you know, our merchants continue to do a great job. People are doing less square footage, but they're still continuing to focus on better and best. Our pricing, generally speaking, when you look at our pricing versus better and best, we're not competing as much with the home centers there. We're competing against the independents, and our value equation goes up a lot. That's why that part of our business continues to take market share, is because our better and best assortment is incredible, and our pricing differential versus our competition is also very high.

Tom Taylor (CEO)

Then the last thing I would say, along with all those benefits, is once existing home sales go positive, then people start doing. They get back to doing, as Travis, we mentioned earlier in the call, in one of the questions, you know, people will do more rooms in their house. When people move into a house, it's, you know, they do more rooms, and today, when they're staying in the same house, they're doing a room at a time. When that gets back into the blend of the average ticket, that's a good thing.

Operator (participant)

Thank you. Our next question comes from the line of Jonathan Matuszewski with Jefferies. Please proceed with your question.

Jonathan Matuszewski (SVP of Equity Research)

Hey, good afternoon. My question has two parts. Strong gross margin result this quarter, it exceeded what we had been thinking for, for late 2023. As such, how should we be thinking about 3Q and 4Q gross margin? Should we be planning for sequential improvements from, from recent levels? Then relatedly, for gross margin, Tom, you mentioned that the pricing rollbacks have been inconclusive. Can you just share any more detail, maybe where you've seen success, maybe where you haven't? Thanks so much.

Brian Langley (EVP and CFO)

Hey, Jonathan, this is Brian. I'll start it and then pass it over to Tom. For the gross margin, Q1, we were at 41.8%, Q2, we're at 42.2%, so obviously we did exceed our own internal expectations as well. We do think the back half is going to be at, if not slightly better than that 42.2%. For the full year, we should be around kind of that 42.2% on a full year basis, which tells you the back half should be slightly better than where we just exited.

Tom Taylor (CEO)

Yeah, I think. Then just the, the, what I mentioned earlier, that our test results are inconclusive. I would say that remains the case. They are inconclusive. It's very hard. Some, some appear to have worked well, some appear to have, have not made a difference. It's hard to ascertain if we've just shifted a customer within our own store to a different SKU, because our assortments are so broad, they come in and we've affected the price on one thing, and it takes them from one SKU to another. There's some difficulty. We do see some benefit to certain departments that we see more benefit than others, and we're going to continue to lean on that learning and apply that as we think about more price reductions in the future.

Operator (participant)

Thank you. Our next question comes from the line of Karen Short with Credit Suisse. Please proceed with your question.

Karen Short (Managing Director of Equity Research)

Hi, thanks very much. 2 questions. First is, when we think about comp deleverage as it relates to EBIT deleverage, can you remind me what the actual relationship is on that? Like, if you have X 1% comp down, what, what that would mean for EBIT?

Trevor Lang (President)

This year, every comp point is worth about $40 million. When you flow that through, it's usually in the mid-30s. For each comp point flex, that's where we get that $0.10 in EPS that we flow for the full year. For the back half, every comp point change is worth about $0.05. It'll be about half of that, so it's worth $20 million in the back half.

Operator (participant)

Thank you. Our next question comes from the line of Chris Bottiglieri with BNP Paribas. Please proceed with your question.

Chris Bottiglieri (Senior Equity Research Analyst)

Hey, thanks for taking the question. I've read that Spartan's creating a new home construction division. I guess, why now? I mean, historically, what have been some of the constraints that prevented Floor & Decor itself from entering this end market or Spartan, for that matter? Thank you.

Tom Taylor (CEO)

I didn't get the question.

Trevor Lang (President)

I didn't get the question. You talking about the new builder?

Tom Taylor (CEO)

Yeah, he's talking about commercial, or excuse me, the new builder within Spartan.

Trevor Lang (President)

Yeah.

Tom Taylor (CEO)

The person we hired.

Trevor Lang (President)

Yeah, Salesmaster.

Tom Taylor (CEO)

Yeah.

Trevor Lang (President)

Oh, no.

Chris Bottiglieri (Senior Equity Research Analyst)

Yeah, I saw a press release that Spartan was getting into the new home construction channel. I don't know if that's accurate.

Trevor Lang (President)

Okay. Yeah. Yes, we, Spartan did a press release on someone that they've hired that's going to help them with. Sorry, we're, we weren't sure if it was a Salesmaster question or a recent hire question. Sorry about that. Yes, Spartan recently did a press release on a person that we've hired that's helping us think about our new construction opportunities. It is a segment that Spartan has not really focused on historically. We do a good job at Floor & Decor through our RAMs with custom home builders, but we really don't do much on the new construction side. We wanted to get some horsepower in there to help us. We think it's a big opportunity.

We, you know, we've got a board member, from PulteGroup, Inc., who's helped us think about that business differently and help us educate us about that business differently. We think it's a big opportunity. If you look at what's going on with new home sales today, as the existing home inventory is so low, that's a, that's a sector that's doing well, and we think we can provide good opportunities there. We want to make it a more meaningful part of our business in the future, thus, we hired someone really good.

Operator (participant)

Thank you. Our next question comes from the line of Seth Basham with Wedbush Securities. Please proceed with your question.

Seth Basham (Managing Director and Director of Research)

Good afternoon. I just wanted to follow up on a couple of your comments regarding increased focus on value by consumers, but you're still seeing a mix shift to better and best. First of all, is that accurate? Can you square that away? Second of all, as you move forward, are you adding more merchandise to service that opening price point?

Trevor Lang (President)

When, when we talk about value, I'll, I'll start with the, my first kind of feelings about it. When a customer elects to do the job in their house, they're still electing to buy the best product that we have in the store, the better and best product. The value is still important to them and the value proposition on our better and best products, because mainly we compete with the independents on that, the spread is really significant. We think when someone's going to do the job, they're still going to be looking for, they want to gonna want the better and best products in their stores, and we think, in their homes, and we think that our, our competitive moat around those products is better.

We are paying attention to opening price point. We always do. We know that's very important, first, particularly in the flipper business. We know that that's significant. We pay attention. Our merchants do a good job of always updating our opening price points. I wouldn't say we've added to our opening price points. I'd say it's pretty much consistent to what we've historically done.

Operator (participant)

Thank you. Our next question comes from the line of Justin Kleber with Baird. Please proceed with your question.

Justin Kleber (Senior Research Analyst)

Yeah, good afternoon, everyone. Thanks for taking the question. Can you guys just talk about what's driving the deceleration in comps quarter to date? Is it transactions taking a step back, or is it related to ticket? Then, kind of, part of that question on the sequential improvement you've seen in transactions here in 2Q. Did, did you comment on Pro specifically? I'm, I'm curious how that trended relative to 1Q. Thank you.

Brian Langley (EVP and CFO)

Hey, Justin, I'll take the first part of it, maybe Trevor can jump in on the Pro side. The number 1 thing that led to the deceleration is around transactions. It's all tied to the existing home sales step down that we're kind of seeing. If you remember, existing home sales in January were $4 million. They stepped up to $4.6 million in February, $4.4 million in March, then started to decline back down to $4.3 million in April, $4.3 million in May, then down to $4.2 million in June. That's really around transactions that are leading to that -8.4%, more so. The average ticket is actually in line with our expectations.

Trevor Lang (President)

On the Pro side, it has decelerated as well, but it's still outperforming the homeowner or the DIY business.

Operator (participant)

Thank you. Our next question comes from the line of Keith Hughes with Truist Securities. Please proceed with your question.

Keith Hughes (Managing Director of Sell Side Equity Research)

Yeah, this is building on the last question. In the guidance in the second half, is ticket an add, a subtraction? What kind of numbers are we looking at and are you expecting?

Brian Langley (EVP and CFO)

Ticket in the back half will actually be negative, and so it's been sequentially declining, as we expected, kind of throughout the year. You have that kind of inflection or crossover point. Transactions will get better, but really, they're less worse, so they'll stay down as well, but ticket will cross over and cut into negative for the back half of the year.

Operator (participant)

Thank you. Our final question comes from the line of Greg Melich with Evercore. Please proceed with your question.

Greg Melich (Senior Managing Director of Equities)

Thanks. I'd love to follow up, and if you already answered this, please just tell me. I dropped off there in the middle. On category mix, just because it's changed so much over the years, I'd love to get an update on how the mix is really driven between categories. I think you said you're still seeing trade up, but I'd love to know what it's doing, you know, laminates versus wood, and what that does to your gross margins.

Trevor Lang (President)

Yeah. We do see the, what I'm going to call the man-made products, continue to outperform the natural products. On the wood-look side of the business, laminate and rigid core vinyl are taking share from wood. On the, on the, call it the tile side of the business, the mostly porcelain tile, but porcelain or ceramic tile versus the natural stone businesses are continuing to perform better than the stone businesses. The answer is, the man-made products are better in, in almost all regards. Same thing is going on in deco. The margin profile for those categories in the man-made products are better than the natural products.

The ticket's lower, but the, but the margin profile and the GM ROI is higher for the natural products, I'm sorry, for the, for the man-made products.

Brian Langley (EVP and CFO)

This is Brian. Before the call ended, I just want to jump in and kind of help you guys a little bit with the modeling. Couldn't find a natural way to make it transition in. Just, I know it's not the question that was asked, but the original guide had store and selling or selling and store operating expenses at 27% of sales. We now feel like that's going to be 27.5%-28% for the year. General administrative was 5% of sales in the original guide. That's going to be closer to 5.6%-5.7% for the year. Pre-opening expenses will still be maintaining around that 1%. I just wanted you guys to have that as well, just to kind of help with the modeling.

Trevor Lang (President)

That concludes our question-and-answer portion of the call. I appreciate everyone's interest in our second quarter earnings and our outlook for the year. We appreciate everything that everyone's doing. This is we feel like we're doing everything we can to balance our profitability while at the same time taking market share and ready for the other side of a down cycle. Look forward to updating you on the next call.

Operator (participant)

Goodbye.

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation. Enjoy the rest of your evening.