Greetings. Welcome to the Floor & Decor Holdings, Inc. Fourth Quarter and Fiscal Year 2020 Conference Call. At this time, all participants are in a listen-only mode, and a question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. I will now turn the call over to your host, Wayne Hood. Please go ahead.

Thank you, operator, and good afternoon, everyone. Joining me on our earnings conference call today are Tom Taylor, Chief Executive Officer; Lisa Laube, President; and Trevor Lang, Executive Vice President and Chief Financial Officer. Before we get started today, I would like 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 risks 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 better understand 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, together with related materials, will be available on our Investor Relations website. Let me now turn the call over to Tom.

Thank you, Wayne, and thanks to everyone for joining us on our fiscal 2020 fourth quarter and full year 2020 earnings conference call. On today's call, I will discuss some of the highlights of our strong fourth quarter and full year fiscal 2020 results as well as the progress we are making on some of our strategic growth initiatives. Trevor will then review our fiscal 2020 fourth quarter and full year financial performance and discuss how we are thinking about fiscal 2021, and then we will open the call for your questions. We delivered exceptional fiscal 2020 fourth quarter earnings results that represented an acceleration of trends we saw in the third quarter of fiscal 2020. Our fiscal 2020 fourth quarter total sales increased 37.3% or $196.7 to $723.7 million from $527 million in the fourth quarter of fiscal 2019, exceeding our expectations. On a 52 to 52-week basis, our fiscal 2020 fourth quarter comparable store sales increased 21.6%, the strongest quarterly growth rate of the year. We experienced robust and consistently strong sales across all months in all nine geographic regions in the quarter. Our fiscal 2020 fourth quarter adjusted EBITDA also exceeded our expectations increasing 65.9% to $97.6 million from $58.8 million in the fourth quarter of fiscal 2019. Our fiscal 2020 adjusted fourth quarter diluted earnings per share increased 80.8% to $0.47 from $0.26 in the fourth quarter of fiscal 2019. We ended fiscal 2020 with no net debt on our balance sheet and remain in our strongest liquidity position in our company's history. Our financial performance and strong balance sheet enable us to continue to make significant investments towards further strengthening our competitive position and growing our market share in 2021 and beyond. Let me now provide an update on our five strategic pillars of growth, beginning with new store growth. We opened five new warehouse stores in the fourth quarter of fiscal 2020, bringing the total number of warehouse stores we operate to 133, plus two design studios in 31 states at the end of fiscal 2020. By month, we opened four new warehouse stores in fiscal November 2020 and one new warehouse store in fiscal December 2020. These openings were a remarkable accomplishment considering the impact COVID-19 had on many elements of new store construction. As we look to fiscal 2021, we intend to return to 20% unit growth and expect to achieve our long desired objective of a more balanced quarterly new warehouse store opening cadence. To that end, we expect to open seven new warehouse stores in the first quarter of fiscal 2021, more than double the three new warehouse stores we opened in the first quarter of fiscal 2020. For the full year, we expect to open 27 new warehouse stores, an increase of 20.3% from 2020. We expect about 60% of our new warehouse store openings will be in new markets, particularly in the northeast and the west coast and 40% in existing successful markets. We are continuing to move forward with our design studio pilot by opening two additional locations in the second half of fiscal 2021. We remain very pleased with the sales waterfall among all of our store vintages, particularly our most mature stores, and believe the classic 2020 and 2021 stores will represent some of our strongest classes of new stores. Moving on to our second pillar of growth, growing our comparable store sales. We are very pleased with the broad-based and consistent strength in our fiscal 2020 fourth quarter comparable store sales and a strong start to fiscal 2021. Our reported fourth quarter comparable store sales increased 21.6% from last year. But if you adjust for the impact of Christmas moving into the 53rd week, which benefited fiscal December 2020, we estimate our fourth quarter comparable store sales would have increased approximately 20.5%. Our comparable store sales were driven by strong 23.1% growth in comparable store customer transactions. This represents the strongest growth rate in customer transactions in fiscal 2020 and exceeded our expectations. On a monthly basis, our comparable store sales increased 20.4% in October, 19.4% in November and 24.9% in December. As I mentioned, the 24.9% increase in December comparable store sales was closer to 21.7% when adjusting for Christmas shifting into the 53rd week. We are very pleased with our December comparable store sales growth exit rate and the strong start to fiscal 2021. Year-to-date, our fiscal 2021 first quarter comparable store sales increased approximately 24% despite severe weather that impacted approximately 20% of our store base over multiple days. From a merchandising perspective, all of our product categories experienced double-digit fourth quarter 2020 comparable store sales growth, excluding our wood category. That said, the changes we have made in our wood assortments are now leading to modestly higher growth in the category. The broad-based strength in our merchandising categories further validates our position as the one-stop solution for all of our customers' hard surface flooring needs. The strength of our merchandising and supply chain teams has enabled us to continue to successfully deliver on our strategy of offering differentiated and innovative trend-right products and job lock quantities at everyday low price. Our third strategic pillar of growth is expanding our connected customer experience. Our fiscal 2020 fourth quarter e-commerce sales remained strong, increasing 93.7% from the fourth quarter of fiscal 2019 and accounting for 15.9% of our sales compared with 11.4% last year. For the full fiscal year, our e-commerce sales increased 120.3% to $461 million and accounted for 18.9% of our sales compared with 10.1% in fiscal 2019. We believe we are now seeing our e-commerce sales penetration rate approaching a more normalized rate following its peak of over 60% in the second quarter of fiscal 2020. We are very pleased with the fiscal 2020 fourth quarter traffic to our website, which increased 53% year-over-year, an improvement in growth from the third quarter of fiscal 2020. We continue to see strong double-digit growth from paid and organic search as well as direct traffic to our website as our customers are choosing to engage with our brand. We are particularly pleased with 92% growth in direct traffic to the website in the fourth quarter, which is the direct result of our growing brand awareness and our team's ability to capitalize on these trends. We will continue to make investments towards delivering an unmatched personalized customer experience with efficient business processes across all our touch points, including our website, mobile app and in-store. For example, in 2021, we are excited about rolling out a notification which offers customers the ability to check in contactless and curbside from their personal devices, making for a better pickup experience. Additionally, later this year, we intend to enable customers to schedule delivery and pickup times. We are also taking additional actions to further optimize the speed of our website and mobile experience, which, in turn, we believe will lead to further improvement in conversion and customer experience. We believe these actions will continue to lead to strong e-commerce performance metrics and growth. That said, our stores remain a critical part of our connected customer experience. In the fourth quarter of fiscal 2020, about 88% of our website orders, excluding sample purchases, were picked up in our stores. Our fourth pillar of growth rests on the successful investments we are making in our pro and commercial customers to grow our market share. We are continuing to make investments in our Pro mobile app and our award-winning Pro Premier Rewards (PPR) program, which drives engagement and loyalty with new and existing Pros. We grew enrollment in the PPR program, 22% in fiscal 2020 despite the headwinds caused by the COVID-19 pandemic. We were encouraged to see our fiscal 2020 fourth quarter monthly PPR enrollment return to pre-COVID-19 levels and accelerate from the third quarter, leaving us optimistic about further strong growth in 2021. We had over 178,000 Pros enrolled in PPR at the end of fiscal 2020, which represents a 73.7% increase from fiscal 2019 and a remarkable accomplishment since its launch in the third quarter of fiscal 2018. As a result, about 77% of our fiscal 2020 Pro sales were from PPR members, up from 67% in fiscal 2019. The increased enrollment is the direct result of our Pro teams engaging with Pros about the benefits and value of the program that now includes over 100,000 reward items, including unique reward experiences and social good offerings. For example, our Pros have redeemed over 1.8 million points to provide clean water to underdeveloped countries, amounting to over 34,000 resi new water. Home Advisers is one of our newest Pro partner additions to PPR offering members savings as well as the option to redeem points directly for credits for lead generation, the lifeblood of any contractor. In fiscal 2020, PPR points earned increased 37% versus 2019, and points redeemed rose 70%, further validating the value of our PPR program and engagement with our Pros. Our PPR program is an important tool for us, and we have found that PPR members spend nearly 3 times more and shop 2.5 times more frequently than non-PPR members. As we move into 2021, we'll further enhance our PPR program and build on our segmentation and personalization efforts to drive engagement and lifetime loyalty, and we intend to reward our Pro customers for using our Pro credit card. We continue to be very pleased with the growth in commercial sales, particularly those sales that are generated by our regional account managers for brands, which are now in most of our major markets. While sales from our 22 regional account managers are small relative to the size of our retail business, we are excited about the opportunity to see sales triple in fiscal 2020, prompting us to further build out this organization with plans to add approximately 12 regional account managers in fiscal 2021. Over time, we expect commercial sales to become a material part of our growth as we leverage key Floor & Decor strengths, merchandising in our direct sourcing model. Let me now discuss the progress we are making with our free design services, the fifth pillar of growth. We are pleased with the momentum in our free design services where our fiscal 2020 fourth quarter sales increased meaningfully from fourth quarter fiscal 2019. Key performance metrics, including appointment conversion rate, average ticket and sales penetration, were the highest of the year as consumers felt safe inside our large stores. Our fiscal 2020 design appointments of 193,000 were a record as we augmented in-person design appointments with virtual ones. Design appointments and product recommendations are very important to homeowners, Pros and our conversion rates. So we were pleased to learn through our design survey that among homeowners and Pros, who had design appointments at Floor & Decor, over 90% were very or somewhat satisfied. We have seen sales tied to a designer more than double since 2018 and have strategies to drive continued strong growth in 2021 and beyond. We are focused on building a consistent, high-touch, best-in-class and seamless design service for our homeowner and Pro customers. To that end, we'll continue to elevate the talent in design services. As we have discussed, when a designer is involved with the project, the average ticket and margin are above the Company average. Let me now turn my comments to what we have learned about our customers following our updated homeowner and pro demographic and customer market segmentation analysis. We now have information on over 2 million customers in our CRM database that we have combined with external research to create strategies for our different types of customers. Within our two homeowner segments, do-it-yourself and buy-it-yourself, we now have further defined them into nine distinct personas. We also have more clarity on the professional side of our business as to what percent of our business comes from a remodeler, flooring specialist, general contractor, property owner, architect and designer. Based on our most recent research, we believe approximately 70% of our sales come from homeowners and 30% from professional customers. More importantly, when looking at who makes the determination of where to shop, we still believe the pro influences about 40% of our sales and homeowners 60%. Additionally, we now estimate that 85% of purchasers involve a professional in their installation. Our strategy has always been to serve both homeowners and professional customers, but this new information and granular level of detail in our CRM database allows us to enhance store, connected customers and marketing strategies to find new customers as well as obtain more wallet share from existing customers. We are now much better informed as to why customers buy from us and why sometimes we don't get the sale. We have begun to refine our targeting strategies through digital advertising and have created more personalized and relevant communications throughout the homeowner and pro shopping journey. We are also building our collaborative strategies between our Pro desk and pre-design services. Finally, we are enhancing our Pro Premier Rewards loyalty program by segmenting our pros by dollar spend, which we expect will allow us to increase engagement and loyalty. Let me close by saying that our strong fiscal 2020 fourth quarter and full year earnings are the direct result of our associates tirelessly serving our customers and each other. In 2020, we learned that we can successfully operate our business under extreme circumstances and unexpected events due to the collaborative strength of our people and culture. Our entire executive leadership team would like to thank them for their hard work and dedication to serving our customers and each other. I'll now turn the call over to Trevor to discuss in more detail our fiscal 2020 fourth quarter and full year financial results.

Thanks, Tom. Our strong fourth quarter and fiscal 2020 earnings results are an exceptional accomplishment considering the unique and challenging operating environment we faced in fiscal 2020. It is a testament to the resiliency of our business model and our associates' tireless effort to serve our customers and each other. We are pleased with two consecutive quarters of double-digit comparable store sales growth driven by transaction growth, which is encouraging as we enter 2021. We are particularly proud of our second half financial performance in fiscal 2020 as it represents the highest operating and EBITDA margin performance in our recent history. Let me now turn my comments to some of the changes among the major line items in our fiscal 2020 fourth quarter income statement, balance sheet and statement of cash flow, and then I'll discuss how we are thinking about fiscal 2021. As a reminder, our fiscal 2020 year, which ended December 31, 2020, is a 53-week period compared with fiscal 2019 52-week period ending December 26, 2019. This means we had 14 weeks of operations in the fourth quarter of 2020 versus 13 weeks of fiscal 2019's fourth quarter. We estimate the additional week added approximately $41.4 million in sales, $8.5 million in operating income, $6.4 million in our net income, $0.06 to our diluted earnings per share and $8.8 million to adjusted EBITDA. My comments from here will be on a 14-week to 13-week basis. Our fiscal 2020 reported fourth quarter gross margin rate contracted to 42.5% from 43.6% in fiscal 2019 due entirely to the 270 basis points or $14 million in Section 301 tariff refund discussed in fiscal 2019 related primarily to rigid core vinyl. Excluding the 270 basis points benefit from last year, our gross margins improved 150 basis points driven by higher product margins due to continued enhancements to our merchandising strategies and improved leverage of our distribution center and supply chain infrastructure on higher sales. Turning to our fiscal 2020 fourth quarter expenses. Our fiscal 2020 fourth quarter selling and store operating expenses increased 29.2% to $191.1 million from $147.9 million in fiscal 2019, leveraging approximately 170 basis points. The year-over-year improvement is the direct result of the expense leverage that comes from the strong 37.3% growth in our total sales. Our staffing levels sequentially improved in the fourth quarter of fiscal 2020 relative to the third quarter of fiscal 2020, but we ran lean in some stores due to COVID-19. Our fiscal 2020 fourth quarter general and administrative expenses increased 20.1% to $40.9 million from $34 million in the fourth quarter of fiscal 2019, leveraging 90 basis points year-over-year. The leverage was due to the increase in sales as well as we incurred $2.4 million in last year's fourth quarter related to the relocation to our new store support center and the exit of our Miami distribution center. Our 2020 fourth quarter preopening expenses increased 26.4% to $7.6 million from $6 million in the same period in the prior year, primarily due to the opening of five new warehouse stores in Q4 2020 and spend for 10 stores expected to open throughout 2021 versus opening seven stores in Q4 2019 and spend for five stores that opened in 2020. We are pleased that our strong second half 2020 results enabled us to pay $2.5 million in spot bonuses to our store associates and reimbursed store support center associates for salary reductions they took in the second quarter of fiscal 2020 due to the COVID-19 pandemic. Fourth quarter net interest expense increased 34.3% to $2.3 million from $1.7 in fiscal 2019, primarily due to higher average total debt outstanding with our term loan when compared to the same period in fiscal 2019. Fourth quarter fiscal 2019 included a benefit of approximately $335,000 related to the Section 301 tariff reforms. Without the benefit, interest expense would have increased 15.9% in the fourth quarter of 2020. Our fiscal 2020 fourth quarter provision for income taxes was $8.6 million or 13.1% of pretax income compared with $5.1 million or 12.6% in fiscal 2019. The lower effective income tax rate when compared to our statutory rate is primarily due to income tax benefits for tax deductions in excess of book expense related to stock option exercises. Turning to our profitability. Our fiscal 2020 fourth quarter adjusted EBITDA margin rate increased 230 basis points to 13.5% from 11.2% in fiscal 2019, primarily due to the 150 basis point improvement in our gross margin rate, which, when coupled with expense leverage, led to our adjusted EBITDA growing 65.9% to $97.6 million from $58.8 million in the same in fiscal 2019. Our fiscal 2020 fourth quarter GAAP net income increased 61.7% to $57.1 million from $35.3 million in the same period in fiscal 2019. Our GAAP diluted earnings per share increased 58.8% to $0.54 from $0.34 per share in the fourth quarter of 2019. Our fiscal 2020 fourth quarter non-GAAP adjusted net income increased 86% to $50.2 million from $27 million in the fourth quarter of fiscal 2019. Our fiscal 2020 fourth quarter adjusted diluted earnings per share increased 80.8% to $0.47 from $0.26 in the same period in fiscal 2019. A reconciliation of our fiscal 2020 fourth quarter earnings to non-GAAP earnings is provided in today's earnings release. Moving on to our fiscal 2020 balance sheet and cash flow. We are pleased that during these unprecedented times we have been able to maintain a strong balance sheet and have the strongest liquidity position in our company's history to support our growth plans. As of December 31, 2020, there was $217,800,000 in gross debt outstanding related to our term loan facility. When considered against the $307,800,000 in cash and cash equivalents on our balance sheet, we had no net debt outstanding as of December 31, 2020. Further, we can access approximately $378,700,000 of unused borrowings available under our $400 million ABL facility. Our fiscal 2020 operating cash flow almost doubled to $406.2 million from $204.7 in fiscal 2019, primarily due to strong growth in our net income and a decrease in working capital. The decline in our working capital was primarily due to 11% growth in new stores in fiscal 2020 compared with our historical 20% growth in new units. Turning to capital expenditures. For fiscal 2020, our total capital expenditures were $212.4 million compared to $196 million for fiscal 2019. While we opened fewer stores in fiscal 2020 and 2019, we intend to open more stores in early 2021 than in 2020, so we had an increase in new store capital spending for future openings. We also spent more on our distribution centers as we bought land and intend to own a new larger distribution center near our current facility outside of Houston, Texas. For fiscal 2020, approximately 66% of our capital expenditures were for new stores, 23% for existing store and distribution center reinvestments, while the remaining spending was associated with information technology, e-commerce and store support center investments to support our growth. Let me now turn my comments to how we're thinking about fiscal 2021. From a macroeconomic perspective, fiscal and monetary policies look to remain very accommodative over the intermediate term, which we believe will continue to provide tailwinds to existing and new home sales. The secular demand for homes continues to exceed available supply, which we believe will continue to lead to moderate growth in home price appreciation and support home reinvestment projects. Indeed, our sales growth has accelerated and has remained robust across geographies and merchandise categories, and the pro backlog remained strong into 2021. While we are optimistic about the prospects of the sustained economic recovery in 2021 and the momentum in our business, we recognize the business risk remains elevated from the COVID-19 pandemic. For that reason, in the interim, we are continuing our practice of not providing specific annual sales and earnings guidance that was established in the second quarter of fiscal 2020. However, we are providing select annual guidance for new store openings and financial measures that we believe can reasonably be forecasted. As business risks improve, we expect to return to annual sales and earnings guidance. While we are not providing specific annual sales and earnings guidance for fiscal 2021, let me provide some context and items to consider. We will be cycling past increasingly difficult comparable store sales comparisons in the second half of fiscal 2021, and we believe measuring our growth on a two- and three-year stack basis in the second half of 2021 is a better analytical way to gauge our underlying trends. As a reminder, our fiscal 2020 third quarter and fourth quarter comparable store sales increased 18.4% and 21.6%, respectively. We are planning on depreciation and amortization to be approximately $116 million to $118 million. We are planning on interest expense to be approximately $5 million. The lower interest expense was due to the recently amended term loan, where we paid down $10 million of the higher cost, $75 million term loan B1 as well as lowering our interest rate by about 300 basis points on the remaining balance. Diluted weighted average shares outstanding is estimated to be approximately $107 million, and our fiscal 2021 tax rate is estimated to be approximately 24%. As a reminder, this guidance does not consider the tax benefit due to the impact of stock option exercises that may occur in fiscal 2021. Our 2021 capital expenditures are expected to accelerate from fiscal 2020 as we return to 20% growth in new warehouse store openings and make other strategic long-term investments. For fiscal 2021, total capital expenditures are planned to be approximately $440 million to $460 million, which will be funded primarily by cash from operations and cash on hand. We intend to open 27 warehouse format stores, two small format design studios and start construction on store openings in fiscal 2022. We expect these warehouse store openings to be equally balanced throughout the quarters in fiscal 2021. We also intend to relocate two existing stores in early 2022 and will have construction costs incurred in fiscal 2021. Collectively, these investments are expected to require $285 million to $295 million in cash in fiscal 2021. Most of the year-over-year increase reflects an acceleration in store openings to 27 new warehouse stores, which is more than double the 13 new warehouse stores opened in fiscal 2020. We plan to relocate our Houston, Texas distribution center to a nearby location in fiscal 2021. We have purchased the land and already started construction on a new 1,500,000 square feet building that we intend to own for the long term. This new distribution center will double our capacity in Houston to 1,500,000 square feet and increase our total distribution center capacity by 17% to 5,500,000 square feet. Additionally, we intend to open a new transload distribution facility in Los Angeles that will allow us to maximize cargo weight leading to fewer containers which will drive ocean freight and drayage savings in fiscal 2022. Collectively, these are expected to use approximately $72 million to $76 million in cash. We will invest in existing store remodeling and expansion projects and existing distribution center using approximately $56 million to $59 million of cash. Finally, we plan to continue to invest in information technology infrastructure, e-commerce and other store support center initiatives using approximately $27 million to $30 million of cash. As we look beyond 2021, our goal is still to achieve $329 million in adjusted EBIT in 2022, as described in our 2020 annual proxy statement. If achieved, this would be quite a feat to double our EBIT over a three-year period in the throes of the worst pandemic in a century. As we look to the next three years, we believe our long-term growth algorithm of 20% unit growth, mid- to high single-digit comparable store sales growth, along with modest gross margin improvement should lead to net income growth of at least 25%. Due to the COVID-19 pandemic, this growth path will not be a straight line. But over the longer term, we believe these goals are achievable. In closing, I would like to say that our entire leadership team is proud of how we performed in 2020, and we remain encouraged by the momentum that has continued into fiscal 2021. We believe our best days and years lie ahead of us. Our entire executive team would like to personally thank all of our associates for the great work they are doing every day to serve our customers.

We will now take your questions.

Can you talk a little bit about the puts and takes of gross margin in 2021 as you think about it? Obviously, there's a lot of press about freight costs and there's tariffs out there. And can you also give some insight around the cadence perhaps of the year, given some of the investments that you make and the comparisons that you face?

Yes. Chris, this is Trevor. We exited the year with a very strong gross margin, as we mentioned in the prepared comments, up nicely if you back up the Section 301 tariffs. A lot of reasons for that, we've talked about over the years, Lisa and her team and the supply chain team, did a fantastic job putting the assortment together, good, better, best. There's a mix benefit with people buying more of our decorative accessories and some of the insulation accessories and just really overall product margins across the board. So we exited the year very strong. As you think about the first half of the year, you will remember at the end of 2019, we put in that Baltimore distribution center, which was a pretty big expense for us at that time. It was a 50% expansion. So we've gotten leverage in the back half of the year. We would expect to continue to get leverage out of that in the first half of this year. So we would expect in the first half maybe moderately better gross margins. As you get to the second half of the year, that 25% tariff is going to start to weigh into our gross margins. We really didn't feel much of that yet because, as we said in the last call, we bought a lot of inventory in anticipation of that. We are certainly seeing the same things that everybody else is seeing with higher international container costs, higher domestic transportation costs. And so we would probably see more cost pressure in the back half of the year. But probably the most important point I want to make is as we look at our business, we look at the uniqueness of our assortment, we look at our pricing power relative to the competition, we feel great about the pricing power we have. And as you know, we believe we're the lowest price leader out there. So to summarize that, I think we probably got a little bit of margin upside in the first half of the year. The back half of the year could be flat to down a bit only because of some of those cost pressures. But as you have now worked with us for many years, we try to maintain that same gross profit dollars. So if we have to raise costs because we see costs going up, we think we have the ability to raise retails to offset that.

That's super helpful. I really appreciate that. And typically, your people don't stop putting in floors because they lost power for a period of time. You talked about heavy exposure, obviously with Texas to the severe weather, and that impacting your business quarter-to-date, but still putting up at 24%. So I guess how much do you think that you left on the table that presumably would get back?

Go ahead.

So yes, I believe that's accurate. Tom mentioned that about 20% of our sales were affected, possibly due to some pipes bursting and issues with flows. We observed this impact more in businesses than in homes. Events like this do occur, so we will have to see how it unfolds. However, there was definitely an effect on the 24 comp. Our comps would have been higher if we had not been affected by those storms.

16% of our store base is in Texas, and we lost five, six, seven days out of that.

Yes. In fact, Tennessee and Alabama a little bit, too.

It seems like the business is accelerating nicely and estimate your belief that 85% of your sales are involving a pro in one way sheet or another. What's your sense of the pipeline for these pro customers? And what would continue to accelerate here? As we get some reopening, customers reshape their house in a way that makes it even more comfortable for them, and they'll have more comfort allowing the pros in their home, why would those be here?

Michael, I had a really hard time understanding all of that question. You're a bit muffled. So can you repeat the question?

I think I got pipeline...

Pipeline.

Yes. From what we are hearing from our professional customers, there is a backlog of four to six weeks, but they have plenty of work. Additionally, people are still engaging in the category. Our website traffic, which indicates when people start their projects, shows that traffic increased by 53% in the fourth quarter and is up 79% year-to-date. This strong website traffic contributes to solid demand, so we are optimistic about the business outlook. We are performing well across all geographies and all categories.

Okay. And Trevor, you mentioned the long-term guidance that you had put out there. It seems like given what's happening with the state of the business, you're going to do much better than that long-term guidance. What factors should we consider that would just allow you to meet that goal and not fast be exceeded the outperformance at this point?

That's a great question, Michael. Your insight is impressive. There are many unknowns at this stage. When we announced the $329 million goal, we were achieving 20% unit growth, which would have translated to 24 new stores in the fiscal year compared to the 13 we opened. In our 10-K, we mentioned that we expect new stores to generate $2.5 million in first-year EBITDA, and we can anticipate they will perform even better in the following years. Unfortunately, we missed out on 11 stores that could have generated over $3 million in profit each, totaling around $30 million in EBIT that we won't realize. However, we believe we can still reach our goal. I hope you're right. Our history shows we're good at making the most of opportunities. Looking at this past quarter, when we compare 13-week periods, our sales increased by 29% and our net income was up 62%. If the market remains strong, we plan to grow our profits at a faster rate than our sales, as we've successfully done in previous years. In the second half of this year, another illustration was that sales rose over 30% while our net income increased by over 100%. We will continue to capitalize on opportunities if sales remain strong.

Thanks for taking my question. Trevor, you had mentioned last quarter about favorable rents that you were seeing, and that's the quality of real estate is still really high. I just wondered, three for months later here, just how you're viewing the opportunities beyond 2021 and how is the real estate pipeline evolved in any way since last speaking?

Yes, the real estate pipeline continues to look promising. We are noticing opportunities that we didn't anticipate. As mentioned in our prepared comments, we are very optimistic about the class of 2021, and we also have a good outlook for the class of 2022. After experiencing eight consecutive years of 20% unit growth, we are beginning to see significant deals materialize over the past few years, and this gives us confidence moving forward.

Yes. To provide some specific figures, Kate, when comparing the class of 2021 to previous classes, we know the details of those stores. Our rent per square foot will be approximately half of what it has been historically; it was around 14 to 16 per square foot, and now we expect it to be in the high single digits. The real estate team has performed exceptionally well, and as Tom mentioned, we are opening more stores in the northeast and California. As expected, rents in those areas are generally higher than those in the south where we initially established ourselves. The latest store openings are going to be outstanding, and the new store return metrics are very positive.

You just talked about CapEx, which is going up pretty meaningfully and understanding that some of the cost of the 2021 stores occurred in 2020. But are there some other factors besides just the larger number of stores going into the CapEx guidance for 2021? It seems like the per-store spend is going up just given the locations being in New York and the West Coast. So just want to think about how that $450 million at the midpoint is likely to be the base level spending off of which 2022 and beyond will grow, or do you think it's going to be a little elevated for 2021?

Yes, 2021 will see an increase in our capital expenditures, rising from just over $200 million to around $250 million at the midpoint. Our capital expenditure per store will increase slightly, but the main factor driving this is the reduced rent we are negotiating by taking on more capital expenditure responsibilities. This year, we plan to own a couple of stores, one in Dallas and one in Connecticut, and we are focusing more on self-development, which involves acquiring land and constructing stores. Consequently, our capital expenditures will be a bit higher due to this strategy, but the increase per store is not significant. Additionally, we will be relocating two stores this year, which represents about $15 million in capital expenditures that we typically would spend. Historically, our relocations have proven successful, leading to significant increases in sales and profits. We will also own a new distribution center in Houston, for which we are investing between $72 to $76 million in capital expenditures. This is unusual, as our distribution center capital expenditures usually amount to less than $1 million. We anticipate not needing to invest at this scale in the near future, likely not for at least another 18 months to two years. We are also seeing growth in our adjacent categories, and as noted in our 10-K, those sales figures are up significantly, prompting us to rearrange store layouts for better customer experience, which will require some capital expenditures. Additionally, we plan to expand a few of our high-volume stores due to their strong performance, which will entail some expenditures. Looking ahead, we project that a capital expenditure of $7 million to $9 million per store may be the right approach going forward, though we might not have as many relocations each year. The major factors influencing future spending will likely revolve around the distribution center and expansion in adjacent categories.

I guess I'd love to be focused on inflation and mix and how that may have been influencing the growth in ticket if there wasn't, because I know what all the tariff in it. So any way to estimate what inflation was in the quarter last year?

I don't think we experienced much inflation. Our sales don’t really fall into that category. Employment may be an issue for some, but not heavily for us. Wood accounted for about 6% to 8% of our sales, so we haven't noticed significant impacts there. Regarding the 25% tariffs, that will likely affect approximately 13% of our sales, leading to some increased costs that will emerge. We anticipate that these higher costs will mainly impact the latter half of fiscal 2021. The more significant concern is the rise in international container costs and domestic trucking costs, both of which we expect to increase. However, I want to emphasize that our competitive position relative to retailers and other competitors is as strong as ever. Smaller competitors represent almost 60% of the industry, with home centers making up about 28% to 29%. Our pricing remains favorable, so as their costs rise, they’ll likely increase their retail prices. We might need to adjust ours too, but I believe the pricing advantage we have is stronger than we've seen in a long time.

Good evening. I wanted to focus on the CRM learnings, maybe a two-part question here. The first one, Tom, you mentioned the gaining learnings, right, or understanding why you don't get the sale during your prepared remarks, so curious, if you could expand on those learnings? And then the second part is just on the pro, a lot of helpful detail there, but curious if you could sort of update us on wallet share capture, right? We could obviously do the math behind the average spend here of a pro, but curious what the CRM is showing you or telling you in terms of wallet share trajectory and maybe where it can go.

Yes. I'll let Lisa take the CRM question. She's leading our CRM effort. So Lisa.

Sure. So some of the learnings that we have gotten as we've dived into our customers is we do start to understand that there's some things that play that are within our control, some longer term. For instance, convenience is a big one. We still only have 135 stores. So we may not be the closest store to someone. So it's possible that we could lose the sales just because we're not close enough. So we do hear that. There's also an essence of familiarity, which I think also comes with being a young brand. And as we continue to get bigger and as we continue to get our message out there, the people that shop us, we have an extremely high conversion rate. So basically, if we can get them in a store, we can sell them. So for us, the goal is really to make sure that people understand the value proposition that we have and why we believe it's the best business model and the best place for them to shop. I'll let Trevor speak to the pro wallet share piece. He's probably a lot closer than that than I am.

Yes, we have seen improvements for much longer than our overall business performance. With the PPR program, our goal was to gather more data on the professionals we work with. We’ve discovered that a small number of high-spending professionals represent a large portion of our market share, with some spending $40,000 to $50,000 annually, and others even reaching six figures. While this group is small, their spending is significant, and we are learning why that is. We plan to leverage these insights for broader growth. There’s also another group of professionals spending between $15,000 and $40,000 a year, which, while still a small fraction of our total professionals, represents a considerable share of our business. Additionally, we serve a substantial number of professionals where our market share is quite limited. With our loyalty program, we aim to develop a tiered structure that includes benefits like credit opportunities and lead generation through HomeAdvisor, ensuring we are attentive to their needs. Over the next year, we will implement CRM and loyalty strategies to help move professionals through these tiers. Many larger companies have successfully executed similar strategies, and we have advisors supporting us in this effort. Overall, we currently possess a minimal percentage of the wallet share within a significant catchment area, which presents us with a major opportunity. We have a dedicated team working both at the corporate level and in our stores to continue expanding that wallet share.

I have a few questions regarding the newer markets. Could you discuss the expense structure in SG&A as a percentage of sales, particularly in denser markets like the Northeast and the West Coast? Additionally, can you provide some insight into what you expect the trends to be for the 2021 vintages?

Yes, this is Trevor. Over the past five to six years, our stores have seen their selling, general and administrative expenses, or SG&A, in the low 20s, with the total at around 27%. Our more established stores are in the low 20s, while our new stores in their first year are about 50% higher, landing in the low to mid-30s for SG&A. To elaborate on your question, our new stores in existing markets generally have lower SG&A due to higher sales volumes, while those in brand-new markets tend to have higher costs. A straightforward way to view it is that new stores' SG&A as a percentage is roughly 50% higher in their first year. Over a five-year span, SG&A typically decreases from the mid- to low 30s down to the low 20s. The second question was...

Waterfall.

Waterfall, yes, I've been pleasantly surprised. I've been here 10 years now, and we've been achieving 300 to 400 basis points of incremental comp from new stores, which was also the case last year. We typically expect this to decrease because trends don't go upwards indefinitely. However, I have been wrong in that expectation, as our new stores continue to comp at a much higher rate, with volumes sometimes reaching $7 million or $8 million. As we mentioned in our 10-K, we're targeting new stores to generate between $13 million to $15 million. Eventually, that waterfall effect will taper off as our new stores are opening at such a higher rate. But to this point, we haven't observed any slowdown in that waterfall.

I wanted to talk a little bit about operating expenses. Can you give us a think how to think about SG&A headwinds or tailwinds in '21 based on what happened in '20? So there was a period where you cut a lot and had limited operations, and then there were some bigger increases in expenses in the back half of the year. I'm not sure where that all net it out, but is there a way to frame SG&A into '21 like you did for gross margin? And help us think about your ability to leverage expenses this year.

It's a tough question because we need sales data to answer it, and we're not comfortable providing those numbers. However, based on what we've just mentioned, with new stores having significantly higher SG&A expenses compared to our established stores and increasing our new store count from 13 to 27, we're not anticipating much leverage in store-level SG&A due to the new stores. Over the past decade, we've successfully achieved leverage, especially in our comparable stores, and we plan to continue that trend. We also believe we'll gain some leverage in our corporate expenses this year, but we expect limited leverage at the store level primarily because of the increase in the number of new stores.

This is John Park on for Chuck. You guys have your second design center now open. Can you guys frame out a little bit how we should think about the sales productivity from adding more of those to a market and how they should ramp over the next few years?

We opened one design studio in Dallas and are preparing to open another, with plans for two more this year. It’s still too early to determine how they will perform as we need to establish a few more to understand their dynamics. We are encouraged by our initial observations, but it's premature to provide detailed insights. As we gather more information and it becomes significant, we will share it.

My question is around gross margin. Just coming back to the quarter, excluding the tariff refund comparison, how much of the improvement you see in gross margins from leveraging supply chain versus other factors such as merchandising, pricing and mix? And how do we expect those factors to play out over the next two quarters before you start hitting the back half comparisons?

Yes. We exited the quarter at 42.5%, which is where we started the year. And I think as we think about this last quarter, the majority of the better gross margin was pure product margins, both from a mix perspective as our decorative business continues to do well. And then also as our consumers are choosing the better and best products, those generally carry a higher gross margin. As we get into next year, again, we would expect that we're going to get a little bit of that in the first half of the year, as I said, we probably expect to get a little bit of margin. A little bit of that would probably come from product margin and some of that would come from the supply chain as well.

This is actually Hanna Pintoff. Thanks for taking the question. My question is on the top line. Obviously, you've seen pretty strong trends so far. In the absence of the sales guide, could you give us some color on how you're thinking about broader home improvement industry trends during the year? And if you could specifically touch on what you're building into your internal planning around housing demand and interest rates and to what extent the top line outcomes are dependent on how COVID progresses and the time you have vaccine the year?

Yes, this is Trevor. I believe the current environment is better than ever. With people spending more time at home, they're having to adapt their spaces for work, play, and exercise. We're seeing 6.7 million existing home sales, which is possibly the highest on record. Although interest rates are currently high and adjusting slightly upward, they remain at record lows. Of the 123 million housing units available, around 80% are over 20 years old. All these factors contribute to a very strong macroeconomic environment, which has historically benefited our business. Was there another part to your question? Sorry.

And the sense of which COVID is going to be a driver and the way you're looking at the timing of vaccine.

I think it's difficult to predict. That's why we are not providing guidance. From what I've seen lately, conditions are improving significantly. People will begin to travel again and attend events, which may lead some discretionary spending to shift back to leisure activities. However, as Tom pointed out, we are currently comping at 24, a figure that would have been higher without the storms in Texas. Overall, the market conditions remain very positive.

I would also like to add that our unaided brand awareness is around 10%, which means people are still discovering who we are. Additionally, 40% of our stores are less than three years old, giving us some advantages from those locations. We are gaining market share and believe our model is superior. Moreover, we have numerous initiatives in place to continue driving our revenue growth.

Thanks for taking the question. Maybe a follow-up on an earlier topic here. But as you look at your most mature stores at this point, where are sales per square foot trending now versus some of the younger stores in the fleet? And what does it inform you about the potential productivity of some of these newer units over the next few years? Is there anything structural on the way those tools reaching that same level of productivity?

Yes. I'm just flipping to try and find some notes here. Our sales productivity for our older stores, 5 and 10 years old, I think they're north of $300 or $328...

$328, you said it today.

Yes. I mean, exactly. So I think it's over $300 in sales per square foot. And I think that does lead us to feel strong about those stores. I mean as you look at our stores, the older they are, generally speaking, the higher volume and the more profitable they get. And so yes, I'm just looking at our stores over 10 years old is well over $300 in sales per square foot. Our newer stores are obviously a lot lower than that. So it is like a fine wine, the older the stores get, the higher the volume and the more profitable they get. And so that does bode well. If you really simplify our business, I gave you the new store economics, right. We want new stores to be $13 million to $15 million in sales in the first year and the $2.5 million in follow EBITDA. Those stores get to 5 and 10 years old, they're going to be closer to $22 million, $23 million, $24 million in sales and getting close to 25% EBITDA margins. So it's a great business. And as Tom said, I have been here for almost 10 years and we've got a substantial amount of initiatives with commercial and design and pro. We still don't have the majority of the wallet share. Our mind share is still low. So as we kind of ended with my comments, our best day lies in the future.

Hi, guys. It's Steve McManus on for Chris. I wanted to circle back to freight. I think last quarter, you guys mentioned you weren't really seeing an uptick from spot rate increases at the time, but we've seen ocean freight rates really step up the last couple of months. So just curious if there was a more meaningful impact that you guys saw in the fourth quarter.

No, we didn't see that in the fourth quarter as we had almost all of our containers contracted out. Our supply chain team has been very strategic, and these contracts come in over time. The first one is due in May, so we haven't had to rely much on the spot market. We do have some engagement there due to higher volumes, but it's not significant. Looking back, we didn't encounter much in the way of increased costs. As I mentioned, when we start transitioning to those new contracts with inventory turning just over twice a year, we likely won't feel much impact in the first half. However, as we move into the second half, we may see higher costs due to the overall market escalating.

Well, I want to thank everyone. I hope everyone is staying safe and healthy, and we thank you all for joining the call. I know a lot of our associates listen in. We appreciate everything that they're doing in these trying times, but thank you for your interest, and we look forward to talking to you in the next quarter. Thanks, everyone.

This concludes today's teleconference. You may disconnect your lines at this time and thank you for your participation.