Greetings and welcome to the Floor and Decor Holdings 4th Quarter 2025 Conference Call. At this time, 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 conference, please press star zero on your telephone keypad. Please note that this conference is being recorded. I will now turn the conference over to our host, Wayne Hood, Senior Vice President of Investor Relations. Thank you. You may begin.

Thank you, Operator, and good afternoon, everyone. Welcome to Florin Decor's Fiscal 2025 Fourth Quarter and Full Year Earnings Conference Joining me today are Tom Taylor, Executive Chair, Brad Paulson, Chief Executive Officer, and Brian Langley, Executive Vice President and Chief Financial Officer. Before we begin, I want to remind everyone of the company's safe harbor language. Comments made during this call contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. 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. These statements are subject to risk and uncertainties that could cause actual future results to differ materially from those expressed in these forward-looking statements for any reason, including those listed at the ending of the earnings release and in the company's SEC filings. Foreign 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 call, the company will discuss certain non-GAAP financial measures. We believe these measures enable investors to understand better our core operating performance on a comparable basis between periods. The 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.laurendecor.com. The 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.

Thank you, Wayne, and thanks to everyone joining us today for our fiscal 2025 fourth quarter and full year earnings conference call. During today's conference call, Brad, Brian, and I will be walking through the key highlights from the quarter and the full year. Then Brian will share how we're approaching fiscal 2026 and the priorities that are shaping our outlook. We're pleased to deliver fiscal 2025 fourth quarter diluted earnings per share of $0.36, which was in line with the midpoint of our earnings guidance provided on our third quarter earnings conference call. For the full fiscal year, diluted earnings per share was $1.92 compared with $1.90 in the prior year. As a reminder, last year's results include $6.8 million, or $0.05 per share, of net benefit related to the derivative litigation settlement in the fourth quarter of 2024. Our fourth quarter sales increased 2% to $1,130,000, while comparable store sales declined 4.8%. For the full fiscal year, sales grew 5.1% to $4,684 million, and comparable store sales declined 1.8%, which was near the low end of our expectations. I'm incredibly proud of what our teams accomplished in 2025. Despite pressure on comparable store sales driven by softness in existing home sales activities and shift to smaller flooring projects, we expanded our market share, navigated tariff complexities, increased our gross margin rate, opened 20 new stores, and delivered year-over-year earnings growth. This performance reflects our unwavering commitment to disciplined execution and strategic investment in our future. It also reinforces our confidence in our long-term strategy and in the opportunities ahead for our customers, our associates, and our shareholders. With that said, let me now turn the call over to Brad.

Thanks, Tom. I want to begin by also recognizing our more than 13,500 associates across the company. Their customer-focused commitment throughout 2025 enabled us to execute effectively in a complex and challenging environment and deliver an exceptional customer experience. We are proud to have achieved record net promoter scores in 2025, which underscore and validate our associates' efforts. The progress we made by expanding our footprint, strengthening our capabilities, controlling expenses, and gaining market share demonstrates the strength of our operating model and the discipline of our teams. As we enter 2026, we have a clear set of initiatives designed to further grow our market share and drive sales and profitability in any economic environment. Our priorities are aligned with the areas where we see the greatest opportunity. New store productivity will remain a major focus. We opened 20 new warehouse format stores in 2025 and plan to open 20 more in 2026. Ensuring these locations ramp efficiently and deliver stronger early results is a top priority, and I'll speak more about the actions driving that performance in a moment. We are investing in initiatives that deepen customer loyalty and translate directly into greater wallet share with our pro customers. A key priority is accelerating our pro market share by advancing our supply house capabilities in key categories such as installation materials and by relaunching an enhanced pro loyalty offering. In fiscal 2026, we will focus on the design, development, and testing required for a Pro Loyalty 2.0 relaunch in early 2027, which is expected to introduce a differentiated Pro experience with expanded personalization capabilities. To further strengthen our supply house value proposition, we are piloting enhancements to Pro pricing supported by an improved delivery offering for this customer segment. Together, these and other initiatives build long-term capabilities that are expected to significantly increase switching costs and deepen our strategic advantage with pro-customers. Maintaining strong gross margin performance will continue to be a priority in fiscal 2026. We are prepared to take modest retail pricing actions to help offset the expected impact of tariffs and to manage both margin rate and dollars. As a reminder, we have made meaningful progress in diversifying our product sourcing. China represented 3% of our fourth quarter receipts down from 12.5% in the prior year. Our teams have consistently executed well in navigating difficult environments, and we remain confident in our ability to manage through these dynamics with discipline and success. We are building a scalable, strategic account-driven B2B foundation that supports the phase expansion of our regional commercial account managers. This team, which totaled 67 at the end of 2025 and operates outside our stores, enhances our ability to capture additional commercial market share through our stores and key markets. Collectively, we believe these asset-like growth investments will increase engagement, improve retention, and expand lifetime value among our highest value commercial customers. Driving annual supply chain productivity improvement is a top priority over the next few years. We are piloting an initiative over the next several months that is designed to deliver a meaningful reduction in distribution center to store lead times by improving network responsiveness, inventory flow, and store service levels. This work is expected to strengthen our ability to move product through the network more efficiently, support better in-stock performance for our customers, and increase inventory turns. These are just some of the initiatives that give us confidence that we can continue to grow ahead of the market, even in a year when industry demand may face ongoing headwinds.

Our priorities remain clear.

Stay disciplined, invest where we have structural advantages, and execute with even more operational rigor. Let me turn to our new warehouse store expansion. In the fourth quarter of fiscal 2025, we opened eight new warehouse stores. For the full year, we added 20 new locations and closed one, ending the period with 270 stores, an 8% increase from 251 a year ago. We remain on track to open 20 new stores in fiscal 2026, with development primarily concentrated in markets where we already have a presence. Our pipeline reflects a strategic mix of store sizes and market types based on market potential thresholds. In fiscal 2026, we expect the vast majority of openings to be in Tier 1 and Tier 2 markets, which positions the class for a meaningfully stronger first-year volume. For example, we plan to open a store on Staten Island, New York in 2026, which we consider a Tier 1 market, whereas our Fayetteville, North Carolina opening in 2026 would be an example of a Tier 3 market. Additionally, we expect more than half of 2026's openings to occur in the first half of the year compared with 35% last year, providing more operating weeks and further supporting stronger first-year productivity. Looking ahead, we expect to have a footprint in every major U.S. market by the end of the first quarter of fiscal 2027, positioning us for continued share gains and improved operating leverage. We're steadily advancing toward our long-term goal of operating 500 warehouse format stores across the United States and retain the flexibility to adjust our store opening cadence as market conditions change. Relatedly, we are pleased to have made meaningful progress in reducing our overall new store construction costs. Capital spending per store for our 2025 class of new stores was 10.2 million, which is 1.2 million, or 11% lower than our fiscal 2023 class. Our 2026 class of new stores will benefit from our efforts over the past year to reduce costs and optimize the store size and achieve non-customer-facing cost reductions, as well as from a greater number of second-use sites in the pipeline. We are managing these cost diligently while continuing to invest in our stores, store experience, and associates to drive returns as industry conditions improve. Turning to our fiscal 2025 fourth quarter full year and early fiscal 2026 sales performance, comparable store sales declined 4.8 percent in the fourth quarter. For the full year, comparable store sales declined 1.8 percent, which was at the low end of guidance of down 2% to down 1%. As a reminder, our fiscal 2024 fourth quarter benefited by approximately 110 basis points from Hurricanes Helene and Milton, creating a tougher comparison for fiscal 2025. This dynamic was a key driver of the expected decline in fourth quarter comparable store sales. We are pleased to see our better and best categories continue to outperform, reflecting customers' strong appetite for quality, technology, innovation, and trend-forward design. On a monthly basis, comparable store sales decreased 1.5% in October, 6.1% in November, and 6.7% in December. On a two-year stacked basis, the decline in comparable store sales sequentially improved each quarter in 2025, providing some context to the underlying momentum in the business. From a geographic standpoint, our west region continued to outperform the company average for both the quarter and the year, highlighting the continued relative strength and resilience of that region. Turning to early fiscal 2026, we were pleased with the broad-based improvement we saw in January. Comparable store sales increased 0.4%, marking our first January increase since 2022 and reflecting a meaningful step forward in underlying demand, consistent with the gradual improvement we saw in existing home sales in December. That said, early fiscal February sales have been meaningfully impacted by the severity of Winter Storm Fern that disrupted operations across more than half of our stores and our Baltimore Distribution Center. In the markets where weather was not a factor, we continue to see sustained momentum, particularly in the west, underscoring the strength of underlying demand where operating conditions remain stable. We are pleased to now be working our way out of the disruption through the remainder of the first quarter, and the pace of recovery is improving as conditions normalize across the network. That said, the improvement will take time. January existing home sales declined 8.4% sequentially and 4.4% year-over-year to 3.91 million units. And we do not expect to fully recover the sales lost during the storms within the first quarter. Our fiscal 2026 first quarter to date comparable store sales declined 3.5%. Turning back to our fourth quarter performance, comparable store sales reflected a 4.2% decline in transactions and a 0.6% decline in average ticket. Transactions were at the lower end of our expectations, while average ticket finished below our expected range. For the full year, transactions declined 3.5% and average ticket increased 1.8%. By comparison, fiscal 2024 transactions declined 4.7% while average ticket declined 2.5% from the previous year. In the fourth quarter and full year, connected customer sales rose approximately 2% from last year and represented about 18.5% of total sales. Connected customer average ticket continued to grow, while transactions remained under pressure. Fourth quarter sales to pro customers grew slightly year-over-year and 9% for the full year, continuing to represent approximately 50% of total sales. We are pleased to see further evidence that our focus on understanding pro needs is paying off as total and comparable store sales and installation materials, a critical pro category, grew in the fourth quarter and for the full year. This performance reflects the success we are having in expanding pro wallet share in an important category and demonstrates the strength of our supply house strategy with pros. Turning to Tile, where both pros and homeowners look to us for industry-leading elevated aesthetics, we continue to invest in trend-forward designs and more realistic visuals that differentiate our assortment in the market. The successful launch of our USA-made VETA Elements Luxe Collection in 2025 is a strong example of this strategy. VETA is a mix-and-match porcelain system that enables cohesive, high-end designs, cross floors, walls, and outdoor areas. This line is designed to serve homeowners, designers, builders, and commercial customers. We will continue to build on the success of VETA in 2026 with an expanded assortment, which expands the collection with additional color options, two new stone-inspired series, limestone and linear travertine, and new paver options. These innovations enhance finished spaces and help pros deliver more premium outcomes for their customers. Growing our market share with pros remains a top priority, and understanding their evolving needs across categories is essential. While smaller and fewer project types have been the norm for some time, contributing to broader pressure across the vinyl industry, we are seeing a subtle shift toward greater value in the category, even when that means choosing products with lower specifications. We believe this shift towards value reflects rising wages, higher operating costs, and tighter project pipelines that are putting more pressure on certain job level profitability. Not surprisingly, some pros are looking for ways to stretch budgets without compromising project outcomes. We see this as an opportunity to accelerate our market share gains, particularly among independent flooring retailers, by staying ahead of where demand is moving and proactively implementing strategic actions that meet pros' needs. To that end, we are introducing a set of compelling offers, including new SKUs and targeted special buys designed to deliver immediate, meaningful value to our pro customers. By placing these offers in high-visibility, off-shelf locations, we are making it easier for pros to quickly find cost-effective solutions that support the economic pressures they are managing. These initiatives strengthen our ability to deliver the right products at the right price points, ensuring we remain an essential partner as they navigate tighter economics and evolving project requirements. Finally, let me discuss Spartan Surfaces. Despite a volatile operating environment, including significant tariff pressures and continued softness in commercial multifamily housing, Spartan Surfaces delivered strong performance. Fiscal 2025 sales increased approximately 13% to $243 million, surpassing our expectations and reinforcing the strength of the platform and the value it brings to our commercial business. We continue to strengthen our commercial footprint outside our stores through Spartan services, expanding our presence across healthcare, education, hospitality, and senior living commercial segments. These market segments demand highly specialized products and deep partnerships with A&D firms, capabilities that extend well beyond what our stores alone can provide. In these segments, product specification and trusted A&D relationships are essential. and Spartan Services positions us exceptionally well on both fronts. Our strategy is to accelerate growth by expanding our representative headcount, both organically and through targeted acquisitions, to deepen these relationships and broaden our reach nationwide with a particular focus on the Western United States. Let me now turn the call over to Brian.

Thank you, Brad. As we wrap up fiscal 2025, our financial performance underscores the resilience of our business model and the effectiveness of our financial discipline, despite ongoing pressure in the hard surface flooring category. I'm extremely proud of how the entire company continued to effectively manage our profitability, inventory, cash flow, and balance sheet, playing a key role in supporting our financial performance in 2025. Importantly, we were able to maintain this discipline while continuing to invest in expanding our capabilities to support long-term growth. Now let me discuss some of the changes among the significant line items in our fourth quarter and full year financial statements, as well as our outlook for 2026. We continue to be pleased with our gross margin performance. Our fourth quarter gross profit increased by 9.8 million or 2.0 percent compared to the same period last year. Our gross margin of 43.5% was flat year-over-year and up 10 basis points sequentially, landing within our expected range. Gross margin benefited from favorable product margin, inclusive of higher duties and tariffs starting to impact us, offset by the expansion of our distribution center network in Seattle and Baltimore, which, as anticipated, at a gross margin pressure of approximately 90 basis points year over year. These distribution center investments position us to support the next phase of growth with greater speed, efficiency, and reliability. While they create some near-term gross margin pressure, they meaningfully strengthen our long-term operating capabilities and enhance the value we deliver to customers. For the full year, gross profit increased $115.7 million, or 6.0%, driven by 5.1% sales growth and a 30 basis points improvement in gross margin to 43.6% from the same period last year. Our gross margin expansion was driven by a favorable product margin due to lower supply chain costs, partially offset by higher distribution center costs. Our distribution center investments impacted gross margin by approximately 70 basis points, consistent with our expectations. Turning to operating expenses, you'll notice in today's press release and 10K that we've consolidated operating expenses into a single selling, general, and administrative line for the quarter and the year. This allows us to conform to industry peers and reflects the way our business is evolving and the way our leadership team manages performance day to day. As we transition to this new presentation, I will provide both our new and historical breakouts so you can compare our results to prior periods. This bridge is designed to support year-over-year analysis during the changeover and ensure continuity as we move to a consolidated SG&A line going forward. With that context, let me walk you through the fourth quarter in full year SG&A performance. Our fourth quarter selling general and administrative expenses increased by 4.0% to $439.2 million from the same period last year. The increase in SG&A expenses was primarily driven by the eight new stores that we opened during the quarter. SG&A expenses for non-comparable stores increased $24.4 million and for comparable stores decreased $14.2 million. As a percentage of sales, SG&A deleveraged by approximately 80 basis points to 38.9%, primarily due to the addition of new stores and a decline in comparable store sales, partially offset by a decrease in pre-opening expenses. SG&A expenses also included approximately $3 million of expenses related to our ERP implementation. For the full year, selling, general, and administrative expenses increased by 6.1% to $1,773.8 million from the same period last year. The increase in SG&A expenses was primarily driven by the 20 new stores that we opened during the year, which increased compensation costs, occupancy costs, and depreciation and amortization expense. SG&A expenses for non-comparable stores increased $126.8 million, and for comparable stores, decreased $24.8 million. As a percentage of sales, SG&A deleveraged by approximately 30 basis points to 37.8%, primarily due to the addition of new stores and a decline in comparable store sales, partially offset by a decrease in pre-opening expenses. SG&A expenses included approximately $9 million of expenses related to our ERP implementation in line with our expectations. For comparability, here are the historical breakouts of operating expenses. Our fourth quarter selling and store operating expenses increased by 3.8% to $360.7 million from the same period last year. As a percentage of sales, selling and store operating expenses increased by approximately 50 basis points to 31.9% from the same period last year. For the full year, selling and store operating expenses increased by $107.1 million, or 7.9%, to $1,469.5 million compared to last year. As a percentage of sales, selling and store operating expenses deleveraged by approximately 80 basis points to 31.4% from last year. The deleverage of these expenses in the fourth quarter and the full year period is primarily due to the addition of new stores and a decline in comparable store sales. Our fourth quarter general and administrative expenses increased by 10.7% to $70.9 million from the same period last year. As a reminder, 2024 fourth quarter benefited from $6.8 million, or $0.05 per share, related to the derivative litigation settlement. 2025's results include one-time costs associated with our efforts to streamline the organization and enhance long-term operating efficiency. As a percentage of sales, general and administrative expenses deleveraged by approximately 50 basis points to 6.3% compared to the same period last year. For the full year, general and administrative expenses increased by $10.9 million, or 4.1%, to $277.0 million compared to last year, driven primarily by higher personnel expenses in the comparison to the $6.8 million benefit from the derivative litigation settlement in 2024. As a percentage of sales, general and administrative expenses leveraged by approximately 10 basis points to 5.9% from the same period last year. Our fourth quarter pre-opening expenses decreased by 28.6% to $7.6 million from the same period last year. As a percentage of sales, pre-opening expenses leveraged approximately 20 basis points to 0.7% compared to the same period last year. For the full year, pre-opening expenses decreased by $16.3 million or 37.3% to $27.3 million compared to last year. As a percentage of sales, pre-opening expenses leveraged by approximately 40 basis points to 0.5% from the same period last year. The decrease for the fourth quarter and full year is the result of a decline in the number of new stores that we opened compared to the same period last year. Those expense breakouts reflect the historical presentation are intended to support year-over-year comparisons during the transition. Let me now touch on our effective tax rate. Our fourth quarter effective tax rate increased to 24.0 percent from 19.9 percent in the same period last year. Our fiscal 2025 full year effective tax rate increased to 21.8 percent from 18.8 percent in the same period last year. The increase for the fourth quarter and full year was primarily due to a decrease in excess tax benefits related to stock-based compensation awards. The year-over-year effective tax rate change impacted 2025 by $0.08 per share. Turning to the balance sheet and liquidity, our financial position remains a core strength of the company. Net cash provided by operating activities was $381.8 million in 2025 compared with $603.2 million in 2024. The year-over-year decline was driven primarily by changes in trade accounts payable due to the timing of inventory receipts. As of December 25, 2025, inventory totaled $1.1 billion, essentially unchanged from the same period last year. 2025 capital expenditures, including amounts accrued at the end of the period, were $300.4 million, down from $376.3 million in 2024, which was at the high end of our guidance. The decrease from last year reflects fewer new store openings and fewer future construction projects underway. We ended the year with $249.3 million in cash and cash equivalents and $198.2 million in debt associated with our term loan facility. Unrestricted liquidity at year end was $909.8 million, consisting of $249.3 million in cash and cash equivalents and $660.5 million available under our AVL facility. This level of liquidity provides meaningful flexibility to navigate the current environment, support working capital needs, and invest in our growth initiatives. As we look ahead to 2026, we expect the U.S. housing and hard surface flooring markets to continue to be shaped by the same macroeconomic forces that have influenced the industry since late 2022. We are encouraged by the trend towards lower mortgage rates, but housing affordability and economic uncertainty remain key constraints on large discretionary purchases. Compounding this, the severe winter weather in the early first quarter makes it difficult to clearly assess the underlying demand until we are further into spring. As conditions normalize, we expect visibility to improve. Before we discuss our Fiscal 2026 guidance, I want to remind everyone Fiscal 2026 includes a 53rd week, which will be reported at the end of the fiscal fourth quarter. I will highlight the 53rd week contribution we have incorporated into our guidance. Sales are expected to be in the range of $4,880,000 to $5,030,000 or increase by 4% to 7% from Fiscal 2025. The 53rd week is expected to contribute approximately $65 million to sales. Comps are estimated to be down 2% to up 1%. Com average ticket is expected to increase low single digits, and comp transactions is expected to decline mid-single digits to low single digits. Gross margin is expected to be approximately 43.5% to 43.8%. SG&A as a percentage of sales is estimated to be approximately 37.7% to 37.8%, with the first and fourth quarters being the most pressured from new stores. Interest expense net is expected to be approximately $5 million. Tax rate is expected to be approximately 21.5% to 22.0%. Depreciation and amortization expense is expected to be approximately $245 million. Adjusted EBITDA is expected to be approximately $560 million to $590 million. The 53rd week is expected to contribute approximately $11 million to adjusted EBITDA. diluted earnings per share is estimated to be approximately 198 to 218 the 53rd week is expected to contribute approximately eight cents to diluted eps diluted weighted average shares outstanding are estimated to be approximately 109 million shares our fiscal 2025 capital expenditures are planned to be in the range of 250 million to 300 million including capital expenditures accrued. We intend to open 20 warehouse format stores and begin construction on stores opening in fiscal 2027. Collectively, these investments are expected to require $160 million to $190 million. We expect our new store CapEx to be approximately $7 million to $8 million for the class of 2026 compared to $10.2 million for the class of 2025 due to optimizing the size of the stores and utilizing more second-use facilities. We intend to invest approximately $60 million to $70 million in existing stores and existing and new distribution centers. And finally, we plan to continue to invest in information technology infrastructure, e-commerce, and other store support center initiatives using approximately $30 million to $40 million. I'd like to thank our associates for their continued focus and execution. Our 2025 performance is a direct result of their attention to operational detail, productivity, and customer service. That consistency and discipline remain critical to supporting our confidence and the durability of our model and driving our long-term growth. I will now turn the call back to Tom.

Thanks, Brian. Let me offer a few closing remarks before we take your questions. With Brad stepping into the CEO role, he'll now be leading these calls going forward, and I'm excited for you to hear from him in that capacity. As I transition into the executive chair role, I will remain closely involved in the business, focusing on the long-term strategic initiatives Brad and I have been developing to support our growth. I'm energized by the opportunity to concentrate even more on these long-range priorities and the work that will drive our next chapter. Brad and I are fully aligned on our long-term vision, our culture, and the associates who make this company exceptional. Floor and Decor has been a meaningful part of my life, and I look forward to continuing to contribute to the work that will shape our future. Operator, we'll now take questions.

And, ladies and gentlemen, at this time, we will conduct our question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star 2 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. And your first question comes from Peter Keith with Piper Sandler. Please state your question.

All right. Thank you very much. Well, Tom, good luck to you in your new role. You've done a nice job of building a category killer in the space. I did want to pivot the first question over to Brad. So, Brad, as you're moving into the CEO role now and you're in the chair, you mentioned a couple of initiatives around pro-loyalty and supply chain. But I'm curious what you think of some of the biggest areas of opportunity perhaps to drive some acceleration or operational improvement.

Well, thanks for the question. I would say I've been, really over the course of the last 11 months or so, really, really impressed with the operational capabilities and discipline of the team. I think there's no better example of that when you look at the service scores that we were able to deliver in 2025, despite, you know, 30% of our stores being on minimum hours. And that's kind of a one-team effort to make that happen. But you're right. certainly see opportunities, you know, for us as an organization, we are laser focused on getting the core of our business growing again. And a key component to that is improving the store performance. And I know we had a pretty detailed description, our prepared remarks on how we're going to do that. But again, the organization is fully focused on delivering meaningful improvement over what we've seen from a kind of first year sales performance relative to our last three years. I'd say that would be number one. Number two, and I've talked about this in past calls, I think digital experience for us is a real opportunity. At the highest level, we want our customers to have the same great experience on our digital platforms that they have in our stores. And today, you know, that in some cases just doesn't happen. You know, the good news is we've hired a new leader over that part of our business. She's got a compelling vision and a very practical plan on how we're going to make that happen. And you'll certainly hear more about that on future calls. And then supply chain. Supply chain is certainly an opportunity. And the way that I frame that, as an organization, we're at a maturity level now where that's got to be a priority. And the priority is delivering improved productivity across our entire supply chain every year. And the way that I would frame that, it's very much a singles and doubles approach at this point. And I say that because it doesn't require transformational investment. It's really process and people. And just saying that's going to be a priority for our business.

All right. That's great. Thank you very much.

Your next question comes from Zach Fadum with Wells Fargo. Please see your question.

Hey, good afternoon. So let's start with the comp guide. Any thoughts on cadence of the year? You mentioned low visibility in terms of demand right now. I'm just curious what you're embedding in terms of the shape of the year of comps and particularly if there's a Q1 guide that we should anchored to? And then separately, any thoughts on the impact of some of those key markets like Texas and Florida versus other markets and any change in spread between those two?

Sure. And I'll start first and then hand it off to Brian so he can give a little bit more detailed answer. But at the highest level, when we think about our guidance, as you all know, we need to cover a range of outcomes. When we think about our recent performance, You know, Q4, a little bit softer demand environment than we expected. We knew it was going to be a tough quarter for us, but a little bit softer, especially in November and December. Really, really pleased with the performance that we saw in January on the heels of a nice December existing home sales report. I'd say our January performance was really, you know, the last three weeks of the month because the first week of the month was wrapped around the holiday. So those three months were really, really solid. But unfortunately, we hit a buzzsaw with what I consider a two-week weather event in February. And when we kind of dig our way out of a weather event like that, unfortunately, you don't see that demand come back immediately. It takes time, and I know we shared that in the prepared remarks. It's going to take this quarter and more to get that demand to come back into our business. So when we think about the last three years and how we've guided, what we know today, and one piece I left out, But obviously, January's existing home sales was a step back from December. February probably looked very similar to that. So as I was saying, with the information that we know now, I thought it was best to be very prudent and thoughtful and coming up with the guidance that we did. Brian, why don't you go ahead and just kind of walk them through some of the details that he asked for.

You have no good questions, Ag. So 2026, we expect second-half comps to be better than the first half, with Q3 being the time mark for the year. On a three-year stack, that's the way I look at it because it removes the noise from the hurricanes. We expect sequential improvement each quarter on both the low and high end of guide. And then to give a little bit of clarity, as Brad was talking about, the February storms, those storms impacted approximately 55% of our stores and contributed almost 200 to 300 basis points of quarter-to-date pressure on comps or 12 to 18 million. So going into the year, our initial model assumed Q1 comp will be slightly negative prior to those storms happening, just because we are lapping the 100 basis points benefit from hurricanes, Milton and Helene coming into this year. So all of the pressure we've seen early on has really been transaction-based. We feel really good about what's happening with quarter-to-date average ticket.

Got it. And then on the pro strategy, curious to what extent you think the EDLP strategy has been a headwind for your pro business, considering no incremental discounts. And as you think through the next iteration of pro loyalty, curious to what extent you'd consider tweaking the pricing architecture to perhaps better incentivize the pro.

Yeah, great, great question. You know, maybe I start on why the pro is so important for our business. We shared that pro sales are right around 50% of our overall sales. When you think about the remaining 50% of our sales, we think the pro influences, you know, up to 20 points of that 50 points. So there's no customer that we serve that's more influential than the pro customer. You know, we really, really like the pro experience that we have, and I generally divide that into three components, service, assortment, and price. When we think about what we do in-store to support the pro from a pro desk, dedicated pickup location, we'll store the product for up to seven days, feel like we've got a very differentiated offering for that individual. from an assortment perspective. We're very proud of our assortment, particularly when you think about our supply house strategy that we have in installation materials and the ability when a pro comes to our stores, they have a level of confidence that they're going to have the job lot quantities they need to walk out of the store to be able to do the job that they're headed to. You know, the price piece, I think EDP has been obviously very successful for us. We built a multi-billion dollar pro business based on it. But when we look at the competitive landscape on both sides, on big box and the independents, you know, they've got a different pricing strategy where our pros are able to get some form of rebates and discounts. And why that is important is because certain pros, not all pros, but certain pros use that gap between what we call shelf price and the kind of net price as profit for their business. So when you factor in there's a financial switching cost and generally a longstanding personal relationship with independence, it's certainly something that we've looked at for a period of time and said, hey, we need to figure that out at some point in time. You know, we were really intentional in the script saying that we're going to take all of 2026 to develop a plan because it does touch all parts of our business. And the way we view that opportunity, it's a chance for us to develop a deep relationship with that pro across all three of those aspects that I mentioned. So we're excited. We think this is going to be a meaningful step forward for our business, but it's going to require a lot of work, a lot of thought, and a lot of testing before we're ready to go national with it.

Appreciate the thoughts. Thanks for the time.

Your next question comes from Chris Horvers with J.P. Morgan. Please state your question.

Thanks. Good evening, guys. So my first question is a follow-up to the prior question, which is that improvement that you saw in January, was that sort of equally spread across regions? So, So, you know, for example, did California hold, serve, or did that actually accelerate? And then importantly, in those southern markets where home prices are under pressure currently, did you see relief in those markets, and to what extent?

Yeah, you know, the good news is we saw a really broad-based improvement in January in what I like to say all geographies in all categories. You know, the only merchandising category that had a little bit of pressure was laminate and vinyl, and we touched on that in the script. But we were really pleased, you know, outside of a market or two where we had pretty heavy cannibalization, we saw a nice kind of year-over-year improvement.

And then I guess two quick follow-ups. One is, I mean, to be up 0.4 in all in the past three weeks, it would seem like those last three weeks were maybe up low single digit, not trying to parse it too closely. But I think that's interesting. And then on the SG&A side, if you look at your expenses per average store, that number has been coming down for a few years, and it's stepped down again in the fourth quarter. What is driving that? Is it where the opens are? Is it optimizing the labor model? And then as we think about an environment where you start comping positively again, what does SG&A growth or SG&A per average store look like?

Yeah, hey, I'll do my best to kind of answer all of those questions. Look, over the last three years, we've taken almost $67 million out of our comp stores. I think this past year we took out about $24.8 million. You're right. The majority of that is flexing labor with transactions. So it's just simple modeling when it comes to that. We have also put pressure on some of the discretionary spend that we have within the stores, just trying to spend wisely in this environment. So when you think about longer term, when sales start to come back and we see comps start to improve, we don't need to layer in. There's not a significant amount of cost that we have to put back in. They should flow in with the model that we've always said, which in this environment should flow through in the high 30s. So any sort of beat to our model should flow through in the high 30s, just given where our margin rate is and just standard cost increases. So there's not a deferred cost that we've been pushing along and kicking the can. For us, it truly is just optimizing the spend that we have today. And you're right. Look, Brad mentioned it. We were really pleased with January's comps at positive 0.4. When you think about February, we have improved every single week since we've stepped away from the storms a little bit. So when you're trying to think about those and the impact, it has gotten better as we've progressed. And you'll continue to hopefully see that as we move throughout the quarter and exit Q1.

And I know I've said this once already, but I'm going to say it again. I mean, despite all the actions that we've taken, I'm really, really proud of the service scores that the team's been able to deliver.

It makes sense. Thanks so much.

Your next question comes from Michael Lasser with UBS. Please state your question.

Good evening. Thank you so much for taking my question. Tom, if we asked you three years ago whether you thought a three-year downturn would have led to significant market share gains for Flow and Decor, both because of the strategies that have been deployed as well as the prospect of independence and regional players going out of business, you probably would have said your market share gains would accelerate meaningfully over that time period. Yet, as we look at the same store sales performance, the fourth quarter is probably similar, maybe a little bit lower than the performance of the flowing market overall. So why have your share gains not accelerated? And how does that inform how you think about the go forward as the recovery unfolds, especially as you might experience more cannibalization with more of your stores and infill markets? Sorry, that was a long-winded question.

Yeah, I thought I was done with this, Michael. This is, let me try to parse that question out just a little bit. So yes, I believe we have taken share during the last three years. I think we can debate how much share that we've taken, how you want to measure that on total growth versus same store sales. You know, we've continued to grow throughout the downturn through new stores. And so I believe that we've taken it. Should we have taken more? Certainly a good question. I believe that we've executed pretty well the innovations within the store, the innovations within the product, the pricing spreads as we watch it from shelf to shelf have been good, I think a key for us to continue to take share and maybe take it at a faster rate as we look forward is some of the initiatives that Brad's taken on with kind of rethinking about our loyalty program, rethinking about kind of our tier system for our pros and the way that we make them a little bit more sticky. I think the new addition to our team and between Brad and her, I think they're looking at it in a very good way, and I think that benefits over the next few years. So, you know, I'm hoping this long-term – I thought you were going to ask me if I thought three years ago that this downturn would last this long, and my answer has been absolutely not. I didn't think we'd be still kind of hovering around this $4 million and less annualized home sales. So, you know, hopefully that what we saw in December, we see as the weather clears and what we saw in January and our business continues to go. And that's a good indication that we are taking care.

Hey, Michael, one point of clarification. I just want to let you guys know, we do anticipate cannibalization to immediately decrease as we get into 2026. You know, when we were opening 31 or 32 stores a couple of years ago, 30 stores, last year we opened 20. And it's really the cannibalization effect of those 20 stores. So even though we're opening in more infills, you know, as we get into 2026 and beyond, the amount of cannibalization should actually decrease just because the amount of stores that we're opening. So, again, that should help benefit as we move forward.

Okay, very helpful. My follow-up question is there's a lot of moving pieces between your gross margin and your ticket. There was a 90 basis point headwind from the DCs, so your gross margin was flat. So presumably product margins were up around 90 basis points. Perhaps price was a lever that you used to offset some of the cost increases, yet ticket was negative. And then you're also commenting that there is a bit of a price sensitivity that's prevailing in the market. You're trying to appeal to that. How do all of those pieces come together and inform how you're thinking about what's going to happen over the next couple of quarters, not only on ticket but also within product margin?

Yeah, Michael, I'll do my best to answer that. So when you think about 2025, you know, the tariff impact was actually minimal. So when you think about what actually came in, just because we're on moving weighted average cost and our turns are a little bit slower at just over two times, you know, the tariff impact was minimal. And so when you think about it from a gross margin perspective, there was just a little bit of pressure as we were in Q3 and just a little bit in Q4. As we get into 2026, it assumes modest cost increases due to tariffs. Again, we laid it out last year, but because we're merchandising teams' efforts to, one, negotiate with our current vendors, and then, two, to further diversify, you know, it's only a modest amount that it's going to increase. We're able to kind of mitigate, you know, a lot of that exposure. That's going to build as we get throughout the first half, and it should be fully embedded as we get into the second half. So, again, I'm just going to talk about it a couple of ways. So when you think about the second half, our gross margin rate will be under a little bit more pressure than the first half. And so you've got that piece of it. But when you think about average ticket, when you step into Q4, if you remember when we talked about it last year, average ticket benefited the most because of the hurricane impacts of Helene and Milton. So a lot of the pressure that you saw in average ticket in Q4 had to actually do with lapping the hurricane benefit, not necessarily pressuring gross margin. And so those two get decoupled in Q4 because of that a little bit. So, again, as we exit this year and we get into next year, we do think that the first half should outperform a little bit compared to the second half when it comes to gross margin rate. And so, again, just modest price increases, and that's how we think about it from a retail perspective as well, embedded in that average ticket guidance of up low single digits. And that should be kind of consistent as we think about all four quarters, just up low single digits as we move throughout the year in average ticket.

And maybe just a quick thought for me on the pricing sensitivity piece. You know, we've said pretty consistently we feel really good about how we've navigated through the tariff environment. The team's done a nice job of running pricing tests over the years, so we have a pretty good sense of how the line structure works together. You know, we did have a specific call out in the script around some sensitivity in laminate and vinyl. And what you're seeing there is, you know, a portion of that customer base moving down to a certain quality spec and generally a price point below $2. So when we think about our ability to take square footage share, very focused on that. But we do expect that category to be sensitive and pressured in 2026. That being said, when we think about pricing action that we've taken to start the year, we're encouraged. Because as Brian said, we've had to take some modest price increases in certain categories. We've been really surgical. And up to this point, we've had success in passing that price on to customers in those categories.

It's been very helpful. Thank you so much.

Thank you. And, ladies and gentlemen, in order to get through as many questions as we can through the remaining time, please limit yourselves to one question only. Thank you. Your next question comes from Stephen Forrest with Guggenheim Securities. Please state your question.

Good morning, everyone. Brad, just a quick one on commercial. So nice to see the growth at Spartan Surface. I'd be curious if you could just expand on what other drivers there and I guess how the performance of that business has informed your plan to build out the commercial rams, because correct me if I'm wrong here, the number of rams has sort of been stable for quite some time now. So curious on just sort of how you're thinking about the build-out.

Yeah, I should say we continue to be excited about the long-term potential to grow in the commercial space. You know, our relative share there is pretty small relative to what we've done in the retail side of things. our strategy has been really consistent. We've got two prongs. One is Spartan. The second is the Rams. When I think about Spartan, we've been really, really consistent in saying we love the platform. We really like the leadership team. And we feel like we've got the structure there to consistently grow faster than market. At the same time, it's a very fragmented space. So when we think about future M&A, there's certainly an opportunity for that at the right time. On the RAM side, what I shared in really the second half of 2025 is the first step there was to bring in new leaders. So, we brought in two new leaders with really deep commercial selling background. Those two focus on people, process, and technology. And now we're at the point where we're investing in talent. As part of that people, process, and technology, we also scoped the market to identify where the biggest opportunities are. So, you're going to see investment in additional rams through the course of 2026, focus on the big metro areas. And the reason for that, that is where most of the demand sits. And our first two markets will be New York City and Dallas. And we're well underway with our efforts there.

Your next question comes from Simeon Gutman with Morgan Stanley. Please state your question.

Hi, everyone. And Tom, so long. it's been good working with you um questions uh first one on well it'll be it'll be two parts since i only get one mature stores can you talk about the change in their comp as collective versus the spread to immature and then brad you were asked this earlier around pricing i want to just ask it a different way you know the business is running at a peak gross margin i take it that if you would get more volume at a lower gross margin that's a trade-off you might be interested but it just doesn't make sense? Is that a way to think about it?

It's a good question. And when you think about some of the initiatives that we've talked about, certainly around pro pricing, some of the commercial efforts that we have, when we think about the opportunity to grow volume, especially through our stores, if it's a slight headwind of gross margin, but accretive from an EBIT perspective, that's certainly a tradeoff that we'd be willing to take.

And look, on the comp waterfall, obviously our newer stores are still continuing to meaningfully outperform are mature stores from a comp base, so we still see the comp waterfall intact. As I've said over the last kind of 12 to 18 months, it's compressed a little bit just in the environment that we're in. Just as a heads up for you guys, I know I give it on some calls, but our stores greater than five years are still doing approximately $21 million in sales. Last time I quoted that, they were doing about $22 million, but they're still extremely profitable, generating 23% of EBITDA.

Thank you. Your next question comes from Max Ruxlenko with Cowan & Company. Please see your question. Yeah, thanks a lot, guys.

Can you speak to the competitive environment and how your price gaps are trending today versus prior to tariffs peaking in? Just curious if you're seeing any notable changes.

You know, I have described the competitive environment as rational. You know, I would say pricing and promotional activity is in line with expectations. Again, the only exception would be the laminate and vinyl discussion that we've had. And on that, it's really the vinyl part of laminate and vinyl where we're seeing that. Our gaps continue to be, I'd say, in line with historical trends. We've got a range that we like to be in. Every category is a little bit different. But, you know, pricing is an area that Ersan leads for us. We'll continue to invest in people and process there and try to leverage the science of pricing as best we can.

Thank you. And the next question comes from Chuck Grom with Gordon Haskett. Please say your question.

Hey, thanks very much. New store productivity has been a nice bright spot the past couple of quarters. Is that largely just from opening up more stores and existing markets, Or can we just talk about that? I mean, the prior six-quarter average was in the low 50s. So moving from the low 50s to the high 80s is a nice step up. So curious what's driving it and the sustainability.

Hey, Chuck, I think one, it's, you know, the stores we're opening, we have more conviction in today. But I think it's also the amount of stores that we're opening, too. There's been a disproportionate amount of stores that we've opened each quarter. So when you step in and you look at it, I think we opened eight stores in Q4, five, and Q3. Before that, it was only three stores in Q2 and four and Q1. So I think it also is just the cadence of store openings that's going to drive that municipal productivity if you're looking at it from a sales contribution perspective.

Thank you. And the last question comes from the line of Seth Sigmund with Barclays. Please state your question.

Hey, guys. Thanks for squeezing me in. I wanted to ask about the earnings outlook. So to your credit, you were able to hit your numbers, at least the earnings in 2025, and grow earnings year over year, even as sales came in lower than expected throughout the year. I guess just given that the environment is still pretty uncertain, I'm wondering if you have the same flexibility to manage earnings this year. If sales were to come in lower, what would the levers be? Thanks.

Yeah, look, you're absolutely right. There were a ton of levers, and we were trying to optimize the business all the way throughout 2025.

We're not done.

There's still a lot left in 2026 that we can attack. And, you know, as an executive team, you know, we only have 30% of our fleet that are on minimum hours. There's 70% that can still flex with transactions. We'll continue to put pressure on G&A the way that we have. And, you know, we talked about it. We've made a lot of moves kind of later into this year. We'll start to annualize those as we get into 2026. We'll start to see more of the benefits. So there are plenty of levers that we have to, you know, achieve the earnings guidance that we put out there. But, again, we've done a lot throughout this year.

I know script was a little bit long today. Appreciate the patience with that. Thanks for joining the call, and we appreciate your support. I'll turn it back to you. All parties may not disconnect. Have a good day.