Good afternoon, ladies and gentlemen. This is Floor & Decor's Third Quarter 2017 Earnings Call. At this time, all participants are in a listen-only mode. As a reminder, this conference call is being recorded today, Thursday, November 2, 2017. I will now turn the call over to Matt McConnell, Manager of Investor Relations at Floor & Decor.

Thank you, Derrick, and good afternoon, everyone. I am Matt McConnell, Manager of Investor Relations. Joining me on the call today are Tom Taylor, Chief Executive Officer; and Trevor Lang, Executive Vice President and Chief Financial Officer. Also in the room is, Lisa Laube, Executive Vice President and Chief Merchandising Officer who will join us for the Q&A session. Before we get started, I'd like to remind you 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 statement for any reason including those listed in the 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 may discuss non-GAAP financial measures as defined by SEC Regulation G. 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 ir.flooranddecor.com. A recorded replay of this call together with related materials will be available on our Investor Relations website ir.flooranddecor.com. Now, let me turn the call over to Tom.

Thank you, Matt, and thank you to everyone joining us on our third quarter earnings call. I’ll begin today's call by discussing the highlights of our third-quarter results, then discuss the impact from hurricanes and update you on the progress we're making against our key growth initiatives. Trevor will then review our financial results and outlook in more detail. We are very pleased with our top and bottom-line third quarter financial results which exceeded our outlook despite hurricane-related headwinds in the month of September. This performance once again demonstrates the strength and uniqueness of the Floor & Décor business model within the highly fragmented hard surface flooring industry. Our better than expected results were driven by strong new store performance, our comp store sales increase of 13.5% which when combined with gross margin expansion and expense leverage resulted in adjusted diluted earnings per share growth of 42% or $0.17. Before discussing our third-quarter results in more detail, I want to take a minute to say our thoughts remain with everyone affected by the hurricanes that occurred over the past few months. We are grateful to first responders and everybody who helped affected communities prepare for these damaging storms and the cover post-storm. As many of you know we have three distribution centers and 24 stores that were impacted areas. We're fortunate that all of our associates were safe. We can't thank them enough for all their hard work to support their community and their dedication during a difficult time getting our stores up and running so we were able to quickly reach the needs for our customers. In terms of the business impact from the hurricanes, we were negatively impacted in the third quarter but we've seen a lift in the business in the fourth quarter in all areas affected,…

Thanks Tom, and good afternoon everyone. I will review our third quarter 2017 results, provide some color on the impact from the recent hurricanes on our business, and then discuss our outlook for the remainder of fiscal year 2017. As Tom touched on our focus on innovative, high-quality hard surface flooring at everyday low prices, great customer service, offerings unique to Floor & Decor along with continued investment in our supply chain marketing, connected customer, Pro and storage strategies led to record results in the third quarter and fiscal year 2017. Net sales in the third quarter of 2017 increased 26.8% to 343,900,000 from 271,300,000 in the third quarter of 2016. We ended the quarter with 80 total warehouse stores, an increase of 13 stores or 19.4% versus the 67 stores at the end of the prior year period. During the quarter we opened seven stores which as Tom mentioned is the highest number of new stores we have opened in Floor & Decor history. Our third quarter comparable store sales increase of 13.5% was above our outlook despite the hurricane headwinds and came on top of the 19.3% comp store sales increase in the prior year period. September 2017 was our 103rd month of comparable store sales increases. We are in what should be our ninth consecutive year of double-digit comp store sales growth. For the first two months of the quarter, our comparable store sales increased accelerated from the 14% comps we were running in the first six months of fiscal 2017 to 16%. Due to the 150 closed or partially closed store days and the [indiscernible] storms of our 24 of our high volume stores which were roughly one-third of our comp base, our company decelerated just under 10% in September. We believe our comparable store sales…

[Operator Instructions] And we'll take our first question from Matt McClintock with Barclays. Please go ahead.

Two questions, I guess the first one Trevor just on the guidance 17 and 19 4Q that's almost double what you guided originally for 3Q, is that strength entirely hurricane related, is anything else going there. I know you exited September even at a lower run rate there and just can you kind of update us on your philosophy related to guidance I believe historically you’ve tried to guide more in line with your expense plan, is that kind of your expense plan is gone up so that's why you're guiding more aggressively. Just kind of walk us through that level of guidance? Thank you.

Matt this is Tom, I will take the first stab of your question then I'll let Trevor talk about guidance philosophy. As we mentioned going into the storm, our business was continuing to do very well. I mean going into the storm we were comping right around 16%. So that is stronger than we thought the business would be. We’re seeing good strength all around the country and then you’re going to get some benefit of the affected areas going forward. So as we think about guidance for the fourth quarter, we look at how the business is going within this quarter kind of the rebound how it went and how it was going before the storms hit and that's why we took the guidance up. Trevor you want to talk philosophy.

We have shortly guided more conservative out but as Tom mentioned we have great systems. We're looking at the business everyday so we took that into consideration as we gave this guidance. And then I think the other large increase is because of the storm affected stores are performing higher, so that kind of pulled as up. As we mentioned in the prepared comments, we were comping about 16% before the storms hit and then when you add the benefit of what the storms look like, they may participate and they might get you up to that 17% to 19% that we’re guiding to.

And then Tom if I could just talk about the new store openings this quarter, seven stores pretty impressive I think that's what almost 10% on the quarter itself. Any lessons from those stores that you've seen or anything that you do differently or anything that's kind of stood out for you as maybe unique or challenged in terms of the store opening itself or the aftermath of the response from consumers?

I think that look - we would we will get better but we want better cadence in our store openings to open seven in quarter as a lot. We've opened - this is our fifth year of 20% plus unit growth so we opened lots of stores. We're very good, I mean I feel like we’re very good at it but we got teams in place, resources in place to be able to execute upon that plan. We'd like a little bit more spread out but there is no learnings or missteps in performance of the stores. They came out great. We were fortunate that we had talent lined up where at a time right to be able to go and run these stores we’re not easy to run. We have a very unique culture there is a lot decision-making at the store level. So we spend a lot of time training ahead of time to make sure that people are ready and they were and they’ve done great and we’re pleased with the opening so the learning is - we’re going to keep pushing our teams and our landlords and developers to work on better cadence of our stores and we think we’ll get there. So what was the second part of the question Matt?

No that’s it just like any - the aftermath of those stores is there anything that kind of stood out for you as may be you could have done better maybe consumers there was just less response or more of a response to a particular store location et cetera?

Yes, we’re pleased. We continue to learn as we open stores – we’ve opened a lot of them now in the last five years so I think we know kind of how we want the stores to be, how we them to look and I think we do well. There is no - we’re never satisfied we always want the stores to do better and we will push our teams to try to get better but look I couldn’t be more thrilled. When you just put this quarter into perspective with what we have to deal with the hurricanes across good portion of the company and having that prepared affecting our distribution centers and still been able to get the stores open on time good and good openings, good attendant programs. I couldn’t be more pleased with the efforts of our teams.

Your next question comes from Matt Fassler with Goldman Sachs. Please go ahead.

My first question relates to the sales that you're generating in storm related or storm impacted markets. What’s the gross margin profile of that business does it differ at all from the business that you’ve been doing kind of more broadly?

Our gross margins closer to our ports are generally higher and so the margins are a little bit higher in those markets, but it's not material and it's contemplated in the guidance we gave.

So that's really a function of kind of region rather than mix of the kind of product that you might be replacing?

Yes, that’s pretty much that’s the biggest driver of it. There will be a little bit more calm of on those markets but for the most part it has to do with just lower domestic transportation cost.

But the mix within the stores that are affected has remained consistent pre-and post line.

That’s right.

Understood. So it's not as if to replace floor is destroyed through flooding for example there is a tilt one way or the other that wouldn’t impact the margin rate?

Matt it’s not like you’d see like okay well, customer had a lot of wood flooring ruined at least from flooding so they decided to go with tile. The mix within the stores has kind of stayed consistent after the storm as it was before the storm so they’re replacing whatever they had with whatever they had and on those basis.

And my second question, as you talk to customers, I know there's often an insurance cycle in terms of time to market for replacements. To the extent you can get a sense of how people are proceeding here. Is this is moving faster or slower than others storm given their flooring probably really isn’t at the focal point. And how would you expect recovery from this storm I know you talked about the duration and the curve et cetera. But if you think about this versus other storms in terms of the reimbursement dynamic and also the magnitude of damage and the kind of damage that was done, is this a typical storm in terms of recovery longer duration, slower duration what's your short duration that is what’s your read on that?

I think - my sense and I’ve been to the market a few times and in between engaging the customers and driving neighborhoods and reading as we mentioned. I think the business demand should be good through the third quarter of next year. I think as we get to the sort of quarter now we have a lot to learn. It's really early in the recovery we've got - we’ll monitor, provide more information as we get more information on kind how long we think the demand is less but my early indications are I mean if there was an article out this week that Moody's talked about the amount of damage that was done, it’s a storm that’s different than other storms that we dealt with before. And they’re still saying there is a lots of people who aren’t back in their homes there is still lots of construction to be done. So I think it's going to sustain for a while and our job is to be there to provide great flooring and great prices for the customers that need to rebuild.

Next up we have Chris Horvers with JPMorgan. Please go ahead.

Want to ask another follow-up on hurricane side, so the 35% to 40% of stores is that Houston and South Florida and broadly is the rough math that you're seeing a 15% increase in store logging post hurricane?

So it includes the Houston stores all of our Florida stores because Irma came up through all that and our Savannah store are the stores that were impacted by. We would not going to get into all that detail quite yet, we just want to continue watch and see how it plays out. Those storm was unique to us I think what we just to stick to what we said in the comments that the business was performing at a 16% comp before the storms and after the storms it elevated to what we said that 17% to 19%.

And what it means is - you can meet the headlines right there is severe flooding in Houston Florida has some damage so.

How do you think about sort of lag impact in Houston versus in the Florida Stores?

Florida was different, Florida really wasn't didn't have had some flooding in some pockets but not a lot, it was much more damaged and kind of the business kind of paused in Florida as people prepared for the storm and then cleanup after the storm as I said there is certain pockets of Florida which have damage which will have rebuild but that's more wind damage and wind damage by in our category and there is lag to that right. So you got to rebuilt before you commence. Flood damage there is a different degrees of flooding throughout Houston so different areas of Houston are performing they’re coming quicker because they ready to put flooring in, in other areas were flood up to the chest level and they got to replace insulation drywall other parts of the home before they’re going to get to the floor. So that’s how we think it’s a sustained - should be sustainable for the next at least couple of quarters maybe three and that’s how we see it.

And then as a follow on you seen Depot and Lowe's step up some marketing and promotions around luxury vinyl planks how do you think about the competitive environment in that category?

I think flooring remains a very good home-improvement category across the country and I think that all the competitors to a certain extent continue to market the category aggressively, but can’t say much on the fact.

Yes, I think our view always say properly to people are bringing awareness to the category that’s a good thing for us because this is a generally a fairly well shop category. So as long as people bring awareness for the category we’re okay with that.

Our next question comes from Michael Lasser with UBS. Please go ahead.

With storm comping negative despite the whole store up in the low to mid teens, you’re seeing a pretty sizable change in the mix. So would you shift some space allocation or we think about shifting space allocation within your store over time?

Sure, I’ll let Lisa is here we’ll let her tackle that.

Yes, we are always looking at that that’s one of dealing of our business model that we carry wood, stone, tile, laminate, LVP so whatever the customers are most interested in we can easily flex our space to that given the way that we rack our stores. So yes, as stone has over the last few years really kind of heeded some ground to tile just because Injet technology has made that tile so much better looking and very affordable so we have seen that over the last few years and yes we have started reducing some face in stone to give that face to other things.

And Tom, Trevor, Lisa if any of you could give a shot that will be great but if could kind of breakdown your comp between the innovation, the contribution from new stores and the brand awareness and contribution from the growing brand awareness. How would you break down your comp according to those different areas along with just the growth with categories.

That would be a neat trick - that’s kind of tough to break down I would tell you I think it is a little bit of all of that right, so if you look at I mentioned that before I mean if you just look at the innovation across hard surface flooring between fashion and durability that is certain drive that certainly driving customers to step up and change when they take carpet out to go in there. Certainly as we've seen, we mentioned it a couple times in the script we’ve seen this we’ve opened stores in existing markets particularly when we're opening up out in the West and along the West Coast and the Northeast where our awareness, so those who got the more stores that awareness I am sure is driving some of the performance as well. So then you have new stores that our model this is the way the new stores tend to do well in the second and third year. So all those three backers are benefiting I really can’t break it apart.

One thing we did mention in the S1 is our new store are contributing probably 400 to 600 basis points to our comp, and I think you think that's probably still about the same. So if you go back and look at that, that’s one you'll see some of that documentation and so we can't say the new stores are get to sort of less than three years old probably some portion to 400 to 600 basis points lift in our comps.

My last question is, as you’ve enjoyed this great success and done so in a very public way or more public than it's been. Has there been any change in pricing from some of mom and pops through the regional players that are trying to emulate your strategy in a way?

I mean look this has been a competitive category as long as I have been here. I have the seen the competitors react to us as we've opened stores in new markets, independence as we come into markets they’ve tried to react to what we do. We’ll continue to see that. I won't say it’s all dramatically different since we went public, we certainly - we pay attention to that, we have a lot of respect for what our competitors do. We pay attention we try to learn what we can learn, but at the end of the day we think our total value proposition is what wins the game our models just different. We have big stores everything is in stock, we’ve priced aggressively and we display the product differently than others can and a good focus on training the content or the content knowledge. So it just we think the model is better overall and that's what we do with you.

Our next question comes from Peter Keith with Piper Jaffray.

I was just going to add on one more question about competition we’re getting a lot of investor questions on this topic because two publicly traded competitors have mentioned it stepped up competitive environment may be a little bit change in consumer buying behavior focus on lower price points. Clearly results are being impacted but have you noticed any change in overall consumer interest with categories or price points?

The second part of this probably easier no, not in price point but we have seen no difference in what our customer demands are across the board in categories. I think what’s driving demand changes within our stores has much more to do about innovation within the categories. So its durability customers like the durability of water resistant product and water approved products and that drives them into that side of the store and they love the fashion component that we’ve done and then our merchants have done a good job and better best. So between across everything we do we think we're seeing the benefit of that. So long way around I don’t know there's anything competitively that’s shifting demand one way or the other.

A follow-on an unrelated question, just with the strong store growth profile and what seems to be pretty tight labor environment, how is it going with tracking talent and hiring people are you still getting strong application pool to choose from and maybe just give us a bit of feedback on the type of people you’re the recruiting?

Yes I think we are - I think we’re able - we’re certainly able to get our stores staff which is inspiring me as they were able to do it in new markets for knowing us who we are. As we’re going into existing markets people tend to know who we are and we’re able to attract and get people easier but we had no problem in staffing the new stores as well. I think we provide something very unique for our associates to come to work for Floor & Decor. We're growth retailer, there's just not a lot of them so you we’re promoting we tried 75% of our - the people that run our stores we try to promote from the inside, we try to - all the department heads get promoted from inside all the ADMs get promoted from inside. So, we really sell on the dream and we can bring people in and they achieve things that they didn't were possible in their lives. So because of that we’re able to recruit good people so we’re not having problems staffing our store and our turnover is actually down when you look at the store turnover of associate turnover year-over-year we're actually down this year so all those things point to pretty good story for us.

And our next question comes from Dan Binder with Jefferies. Please go ahead.

Couple of questions, first on just flow through. I know historically you thought about or given some indication that the flow through should run about 20%. If I just look at your reported sales and adjusted EBITDA versus the guidance its looks its probably close to 50%. Just wondering if there was any shift in expenses or if you changed the way you think about that flow-through going forward?

We were fortunate in the margin profile, most of that flow through from margin level and as the storms were hitting us, we can't hit the brakes on spending right, because we didn’t knew how bad it was going to be at the time. And so traditionally, like we mentioned in the fourth quarter the business is strong we’ll pull an investments and that’s kind of how you get that flow through to be in that low 20s. And so just because we didn't again how big those storms are going to be we slowed that down. Had we not had the storms, we probably would have that flow through to be able to lower.

We were busy getting our stores closed and open.

You talked a little bit about the category performance, I think hard flooring had been softer in some prior quarters, you didn’t call it out as negative this quarter just curious how that performed and if there's any changes happening with trends there.

Yes, we brought in quite a lot of new products that seems to be resonating well with the consumer. It's not comping at the same level, it's in our other category where it is positive. So bamboo, we have a water resistant bamboo program that is doing well with engineers and several other programs that resonated well with our consumer.

And next we’ll hear from Zack Standum with Wells Fargo.

This is actually [indiscernible] on for Zack Standum. Thanks for taking my question. I was hoping you guys could update on some of the adjacent categories you’ve been testing and rolling out. So how things like shower doors, mobile candle tops have been performing versus your plan. And then where we are in the roll-out and if there is any other category we should keep an eye out in the inclusion in the stores. Thanks

So I'll take that first and Lisa can add on. We are pleased with the progress in both frameless shower doors are doing well. They are in how much Lisa?

We are in 60 and we will be in all stores at the end of the year.

So by the end of this year they will be in all the stores. From a candle top perspective we are pleased with our slab candle top program. It continues to do well. It's in less than 20 of our stores today. It will go into more stores next year. It takes some space so we’ve got to be thoughtful on where that goes. But we are pleased with it. As for additional adjacent categories, we now take the approach we'll let our customers dictate that. If our customers have - they are looking to get - it’s like two ways. If they are looking to and its part of the project like from a calendar things we offer, we know that when people are doing bathrooms, if they are tiling their bathroom as they go to need their frameless shower goes, that’s a natural category and the same thing with candle tops lot of times you’re picking towel for your kitchen, you’re going to start to look at cenacle top looks like. So those are natural extensions and there is others that make the same sense and at times we’ll look at that, we are not going to lose our focus from hard surface volume, that’s who we are, that’s what we do but there will be more categories to come and as we get thing under pilot, we’ll share with you.

And we have no further questions in the queue at this time.

Okay. Listen, I appreciate everyone joining the call. Thank you for the questions. Thank you for your interest in our business. And we’ll talk to you in the next call.