Floor & Decor: Raising the Floor - [Business Breakdowns, EP. 87]

This is Matt Reustle, and today we are breaking down the specialty retailer, Floor & Decor. Now prior to this Breakdown, I cannot say that I thought much about Floor & Decor. It felt like the stereotypical specialty store that sat somewhere between a mom-and-pop shop and a home improvement giant. Little did I know....Floor & Decor had compounded revenue at nearly 30% over the past decade, and it was another business driven by the things you "don't see," like an inventory and logistics strategy that feels proper for a brick-and-mortar business in the 21st century. To break down Floor & Decor, I am joined by Drew Cohen of Speedwell Research. I hope you enjoy the episode. For the full show notes, transcript, and links to the best content to learn more, check out the episode page here.   -----   Business Breakdowns is a property of Colossus, LLC. For more episodes of Business Breakdowns, visit joincolossus.com/episodes.   Stay up to date on all our podcasts by signing up to Colossus Weekly, our quick dive every Sunday highlighting the top business and investing concepts from our podcasts and the best of what we read that week. Sign up here.   Follow us on Twitter: @JoinColossus | @patrick_oshag | @jspujji | @zbfuss | @ReustleMatt   Show Notes [00:02:54] - [First question] - The origin story of Floor & Decor  [00:04:41] - Size of the flooring market and the ongoing battle between hard surface and carpet flooring [00:07:26] - A shift in ownership in 2009 and how much that changed the business [00:08:08] - High level overview of the business today writ large [00:09:30] - Independent players and their competitive landscape  [00:12:34] - Unique differentiators that give them a competitive advantage  [00:15:42] - Their customer split between pros and DIY consumers [00:16:30] - Key drivers that allow them to leverage their position with inventory providers [00:18:46] - Whether or not they’ve considered doing private label or in house products [00:19:45] - Their store model from top to bottom and the economics involved  [00:22:03] - What their maturity looks like and what metrics they’re watching  [00:22:46] - Existing commercial opportunities for Floor and Decor [00:26:04] - Overview of their earnings profile from a bottom line perspective  [00:27:05] - The Home Depot: The Pro Builder’s Choice; Drivers of their 500 basis point differential in terms of their mature margin profile [00:29:17] - Nick Sleep’s 2005 Letter; Considerations about franchising  [00:29:48] - How he thinks about growth beyond their existing footprint and potential growth impacts from the economy  [00:32:06] - The level of revenue generated from the Decor side of their business [00:33:02] - How ecommerce might impact their growth, if at all  [00:35:44] - Overview of their good, better, best pricing strategy  [00:37:56] - Variance of store level performance from region to region  [00:39:20] - The chemistry of all their strategies that contribute to sustained growth  [00:41:37] - The general investment sentiment around their brand   [00:44:37] - Other potential risks to Floor and Decor  [00:45:48] - The Secret of our Success [00:47:24] - Key lessons for investors when studying Floor and Decor