Greetings, and welcome to the Floor & Decor Holdings Second Quarter Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce Wayne Hood.

Thank you, and good afternoon, everyone. Joining me on our call today are Tom Taylor, Chief Executive Officer; 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 would like to remind you that 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 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 call, the company will discuss non-GAAP financial measures as defined by the 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. Now let me turn the call over to Tom.

Thank you, Wayne, and thanks to everyone for joining us on our second quarter 2019 earnings conference call. We are pleased with our second quarter 2019 earnings results as we delivered earnings per share that exceeded the high end of our guidance on robust sales growth from our new stores, solid comparable store sales growth of 3% and favorable expense timing. As we look to the remainder of the year, we believe we are in a strong competitive position to execute our strategies and navigate the unprecedented changes in the hard-surface flooring industry from tariffs and potential antidumping and countervailing duties. Second quarter total sales increased 19.8% to a record $520.3 million from $434.3 million last year. Comparable store sales grew 3% and were up 14.4% on a two-year stack basis. Excluding sales in the Houston market, where we are still cycling past strong prior-period results from Hurricane Harvey, our comparable store sales increased 5.5% and a 14.1% on a two-year stack basis. Moving on to earnings. We reported second quarter diluted earnings per share of $0.42, a 10.5% increase from $0.38 last year. Our adjusted second quarter diluted earnings per share were $0.34 per share, up 25.9% from last year’s $0.27 and $0.03 above the high end of our guidance of $0.29 to $0.31 per share. Let me now discuss some of the drivers of our second quarter 2019 sales and earnings growth, and how we see the balance of the year. The core pillars that we focus on to achieve our long-term sales and earnings growth targets and grow our estimated 8% market share are: one, opening new warehouse format stores in new and existing markets at a 20% annual rate; two, growing our comparable store sales in the mid- to high single-digit range by offering in-stock good,…

Thanks, Tom. I’m going to concentrate my comments on some of the changes among the major line items in our second quarter of 2019 income statement, balance sheet and cash flow statements, and then discuss our outlook for the third quarter of 2019 and the remainder of the year. Tom already discussed our 2019 second quarter sales, so I will start with the second quarter gross margin rate, which increased 100 basis points to 41.9% from last year’s 40.9%, and was modestly above the 70 basis points to 80 basis points increase we had planned for. The increase in gross margin versus last year was primarily due to higher product gross margin. The improved product margins were due to favorable negotiations with our suppliers, improved merchandising strategies, including higher sales from our higher-margin installation accessories and some strategic retail price increases. Let me now discuss some of the various expenses and the variance to last year. Our second quarter selling and store operating expenses increased 24% to $134.6 million from $108.6 million last year and de-leveraged 90 basis points, primarily due to higher store occupancy expense, which was partially offset by leveraging our advertising expense. The 90 basis points of expense de-leverage came entirely from our new stores. Our new stores’ selling and operating expenses as a percentage of sales are approximately 50% more than those opened greater than one year, and this results in near-term operating expenses de-leverage. We continue to leverage our expenses in our existing stores and are gratified in this accomplishment in 2019 considering the headwinds we faced in our Houston market, where we are stuck in large sale increases in 2018 due to Hurricane Harvey. Moving on to our second quarter preopening expenses, which decreased 3.3% to $6.4 million from $6.6 million last year and…

I am proud of how we performed in early 2019, and we are planning for another successful year. We firmly believe our best days lie ahead of us and look forward to updating you after our third quarter results. We’d now like to take your questions.

Thank you. [Operator Instructions] Our first question comes from Simeon Gutman with Morgan Stanley. Please go ahead.

Thanks. Sorry about the noise. First question is, you had taken the comp down by about 300 basis points at the midpoint in Q1 and now you are taking it up by about 100. Just to confirm that solely adjusting for tariffs’ rates. And maybe can you speak to the underlying run rate of the business.

I’ll start. This is Tom, and then Trevor can chime in a little bit. So yes, I mean we – it does. We’re fortunate that there was a shift in the timing of the tariffs that from March to mid-June. It gave us the ability to clear more inventory pre-tariffs, and our vendors did a better job at negotiating than we anticipated. So and then lastly, we have done a better job executing our countries of origins and diversifying that. So equal, that’s not having to raise prices until – or not having to raise as much prices as we thought, and we won’t to have to do it as early as we thought.

Yes. And Simeon, this is Trevor. Just following up on that, that when you look at the full year, we think it’s maybe an 80 basis points to 90 basis points increase in comps we did for the fiscal year, and that elevates closer to 200 basis points to 250 basis points of comps due to tariffs when we get to the fourth quarter. Tom outlined some of the reasons why it wouldn’t be as much already. One other the thing I wanted to point out, when you look at the total sales guidance we gave for the year, we took out the total sales guidance more than the comp piece of it because of the performance of our new stores. Our new stores book the timing if the stores are opening earlier and the performance of the new stores are doing better. So that more than offset may be some of that higher comp that you might have expected to see.

Okay. And Tom, how did you ship supply away from China so quickly without compromising in the quality in this executing? And just a lot of your suppliers have unused capacity overseas?

So I think there was two questions there, Lisa, you can answer them. How did we move the supply so quickly? And I think he sort of…

Did they have excess capacity in other – in Europe?

Sorry. Yes, this is Lisa. So now we’ve known about this since back when we had the border tax days. That discussion, it has been over two years now. So we started that and really looking at trying to diversify outside of China. And as these different actions have taken place, we’ve just been able to accelerate that. Thankfully, we have a very experienced merchandising team. We have a relationship with vendors in 23 countries. And so it’s not so hard for us to move some of our categories. And so as we found out the tariffs were going to, in fact, happen, we decided to go ahead and start making some quick moves. So we’ve already started in some of our categories getting in products from other countries. And as we have said earlier in the year, about 50% of our business will be from China and by the end of the year, we think we’ll be into the mid-30s. So we just – we’ve been working on it a long time.

Thank you.

Our next question comes from John Baugh with Stifel. Please go ahead.

Thank you. Good afternoon. Congratulations on a good quarter. I was wondering if you could discuss the timing of when increased Chinese imports floors for you. Do you have to take a price increase? When that hits your inventory cost? And when we might see the retail adjustments on that? Thank you.

John, this is Trevor. So the 25% tariffs were increased from 10% in mid-June. So that starts going into our costing at that point. We – like everybody, we precleared as much as inventory as we could. So there in mid- to late June is when those cost started going in. We turn our inventory about over a six-month period of time, and we use a weighted average costing method. So you’ll start to slowly see that cost come in over the kind of now through the end of the third quarter and as our inventory turns becomes more material in the fourth quarter. And that’s why I mentioned the increase in the retail, it was pretty small in the third quarter, but could be as much as 200 basis points to 250 basis points of comps as we get into the fourth quarter. And one other point we made this early in the year, just to make it again. The reason our margin rate goes down during that time period, it is because we’re not going to go markup on those tariffs, or just anything we can’t resource, anything we can’t get a better cost out, then we’re going just to pass that bit of increase on to the consumers.

And then as a follow-up to that. The growth, I think you called it LVPs and laminates was impressive at almost 40%. With this pricing that you expect to go through, say, in Q4, do you expect that to change or moderate, I guess, the growth rate of those categories at all, see how other categories performed like just less poorly? Or is that not enough change in price to impact it? Thank you.

I don’t believe it’s enough change in price to impact it. I think that as we continue to evolve our luxury vinyl plank assortments and continue to bring in better features and benefits, better durabilities, I think the consumer is going to still buy it. And I think it’s still – it’s been a terrific category for us, and I think, it’ll continue to be a terrific category for us.

Thank you.

Next question comes from Michael Lasser with UBS. Please go ahead.

Greetings. Thanks a lot of taking my question. As you started out this year, you probably had to make an assumption about the overall market for flooring and your share within that. As you reflect midway through the year, is the market doing better or worse than you thought? And is your share doing better or worse than you thought?

I’ll take a stab at that. I think the market’s probably a little bit worse than we thought. And I think our taking share’s probably better than we thought.

And so now looking forward, have you assumed that the market is going to improve from here? And Tom, I know this is very early in the year and unfair position, but how have you factored in the likelihood that prices of a lot of consumer goods are probably going to go up now in the latter part of the year? And what’s your thought on the effect of flooring interiors being counted out?

Well, as I said in my comments at the end of my prepared remarks, we are cautiously optimistic that that rate cuts are going to help existing home sales and moderate them at best. So we have felt pretty good about – we do feel pretty good about that, nor that we still feel pretty good about that. There’s a bit of our unknown with the tweet that came out a little white ago about tariffs going onto the next batch of products. It doesn’t affect us any differently, but it will affect the consumer differently. But we feel good about our ability to perform in the market.

Yes. And the only thing I would add to that. If the – we finally saw a sliver of hope with pending home sales actually showed an increase, and there’s a high correlation to that turning into actual home sales increasing, that all feels better. Our interest rates are over 100 basis points lower than where they were last year. And so if we do see a pickup in existing home sales turnover, we feel that’s going to lead to some improvement from what we’ve seen for the last 18 months, where existing home sales have been declining.

Yes. I mean, if you look, this is a – it hasn’t been an easy environment. And if you look at the second quarter, we achieved the high end of everything that we thought we would achieve. So it feels pretty good.

And with that being said, what’s implied for the fourth quarter, is it pretty significant ramp in the same-store sales, looks around a 9% comp. Is a lot of that coming from these larger stores in larger market falling into the comp base? Or is there something else going on there?

I’ll start, Trevor, you can weigh in too. But if you look at over the last two years, 70% of our openings have happened in the back half of the year. So our first year comp stores and our second year comp stores generally comp pretty well, historically comp very well. And those entering the comp base should give us a nice tailwind.

Yes. If look at the components of it, as we mentioned, 200 basis points to 250 basis points of that is because the tariffs. We are expecting that the new stores are going to continue to perform at a much higher rate. You guys may remember this from when we disclosed and went public, we see – have historically seen that our new stores contributed about 400 basis points of our total comps, and since as Tom just mentioned, we have a much higher percentage of those come into the comp base later in the year. That’s going to drive it. And then finally, for the noncomp stores – sorry, the stores that are older, we are expecting those stores to get a bit better because we are in an incredibly difficult housing market. And as just Tom just mentioned, once we get to early September, which isn’t not far from now, we’ll be at the second year anniversary of Hurricane Harvey. And so we won’t have much of the headwind from Hurricane Harvey. Those are the main contributors to that much higher comp in the fourth quarter.

Thank you so much and good luck.

Next question comes from Chuck Grom with Gordon Haskett. Please go ahead.

Thank you. Just on the comp again, here. If we look at the comp trend at Houston and stack it in 2Q to 3Q, it’s about a 250 basis point improvement. I was just wondering if you could just maybe unpack, how much is company-specific, how much is new stores versus price? I know you’ve talked about the price impact in the fourth quarter. I was just wondering if you could just hold our hand in the third quarter.

Yes. I don’t – you’re talking from Q1 to Q2?

No, Q2 to Q3.

Q2 to Q3.

Yes. There was some noise in the comp two years ago because of Hurricane Irma in Florida. So we had two hurricanes that year. Hurricane Irma impacted our flooring business negatively in the third quarter, and there really wasn’t a huge pickup because of that. So I think it has much more to do with that we had a bit of a pickup this last year, which was the other side of that because we didn’t have a negative headwind in ‘18 has probably more to do with it than anything.

Okay. And I just – with independents, just wondering if you could speak to what you’re seeing from them, given the increase in prices you think you’ve been able to gain some market share over the past few months?

I think we have gained market share over the last few months, a bit longer than that. Independents are – we’re seeing prices drift up in independents earlier than we are having to do it. So yes, I think that this give us the ability to take share. So yes.

Great. Thank you.

Next question comes from Zach Fadem with Wells Fargo. Please go ahead.

Hey, good morning, guys – afternoon. On the gross margin side, two really strong quarter of expansion here, looks like you are expecting a bit of a step down here in the second half. Can you walk us just through the moving parts? Inventory pull-forward had a tariff’s selling-through now at higher price points. Can you also talk about that in connection with as we move into Q4 with the DC costs in, and how we should expect that cadence to play out?

Yes, Zack. This is Trevor. You’re right. We were up 120 basis points in Q1 and up 100 basis points, as we just said. It’s a combination of things. Lisa and her team have done a great job of sourcing and getting cost out more so than we had expected. We’ve had some mix benefit earlier in the year with both deco and installation accessories. Those are our high-margin categories, more recently with our installation accessory categories. And then we have taken some retails up in certain cases. And that’s what’s been driven that. If you looked at the third and the fourth quarter, specifically, our current expectations in our third quarter gross margins would be kind of flattish. Two things driving that. One is, last year, as soon as the tariffs came into place, again Lisa’s team hustled up and got some vendor accommodations that benefited us. She might remember us talking about that on the last call. We are not going to get that again this year. That was sort of a one-time benefit we got from some of our vendors helping us with the 10% tariffs. And then on top of that, we are going to have a modest headwind in the third quarter because of tariffs. We are now taking a small piece of those 25% tariffs. So that’s why you are not seeing that same 100 basis point increase when you look at Q3 relative to Q2. And then in the fourth quarter, we are expecting gross margins to be down some portion of 120 basis. That $5 million for the Baltimore DC, it’s about 90 basis points. At that time, the tariffs are almost fully baked in. So that’s about 100 basis points, offset by what has been running product margins. And that kind of gets you back down to that 120 basis points. So a lot of moving parts with DCs and tariffs and things like that coming in, but I think that reconciles it for each of the remaining two quarters.

Got it. And then for Tom and Lisa maybe. Could you just talk about, on a bigger picture, the impact of some new initiatives like design services in adjacent categories? What the expectations are for the comp in the back half of the year? How you think that can trend what you have seen so far? And then also on the commercial sales team that you announced, curious if you could just talk a little bit more about that. Thanks.

I think – so I’ll try to – if I remember, you’ve mentioned a lot of them in this. So the first one on the design services, we feel incredibly good about what’s going on with the design services. I think it is – it shows up in our customer service. One is we are doing a lot more design appointments. We’re – the amount we’re doing out of this amount of stores is pretty incredible. When those associates are doing design appointments with customers, they’re doing two things. One, they’re satisfying them incredibly well. Our customer service scores are higher than they have ever been. And so that’s a big part of it too. They’re selling the whole project. We are seeing great results in our installation accessories, and their – the designers are good in attaching that. They’ll let a customer know how important job is to a tile job. So they are doing a good job of selling the whole project. And then three is they’re selling better and best stuff. We look at – when you peel apart our average unit retail, our better and best stuff are out-comping our good stuff. So the designer sell better stuff. So I couldn’t be more please. I do think we’re still in early innings of what that can be. So we’re going to continue to work there. Adjacent categories, forever we’ve talked about that there be a point in time we would get into some adjacent categories. The impact on comp is insignificant. We’re only piloting, as we’ve mentioned in the script we got, we’re piloting vanities, we’re piloting vanity tops, we’re piloting bath hardware. We like the results so far. We are happy about that. And the role over time. And those are things that we’ll continue. We’ve got big stores, and we’ve the ability to flex our space as we see fit. So we’re still a hard-surface flooring retailer, but we’re going to – customers ask for something to go with that project, and we think we can do it well, we will. But so far so good, we’re pleased with the result. And then commercial. We have done well in the commercial space out of our stores. We have started this outside regional sales position which really tackle a lot bigger customers. We are in the very early stages of it. We have got a handful of those guys. We like what we are seeing so far. And because of the results we’re seeing through them, we’ll add more in the future. That just gives us the potential to get some customers that haven’t historically shopped in retail stores or bigger than what we’ve got so with the target where we can visit them, go out there, job-site a bit more, we think that could be a beneficial program.

Got it. I appreciate that color.

Thanks.

Next person comes from Peter Keith with Piper Jaffray. Please go ahead.

Hey guys. Thanks. Good quarter, guys, in what seemed like a tough environment. I was wondering if you could talk about the potential price increases. There does seem to be a consumer land on whether these items are – price increases are accepted by consumers, and particularly for maybe considered purchase where bigger ticket consumers looking at the price for maybe a couple of weeks. Have you done any testing on pricing at this point to see if there is any elasticity or maybe a pause dynamic where consumers hesitate once they see that price go up on an item that they’re focused on?

Yes. I’ll start, Peter, and then Lisa can convey a little bit in that. We’ve talked about on few of these calls that when you look at the flooring purchases in total, the SKU that you’re having to take price up on is only part of that total project cost. So as you look, the installation accessories are not affected by tariffs. Those prices haven’t changed. And then the labor component’s not affected by tariffs, and that’s usually 50% of the total purchases. So it’s a small portion of the total flooring jobs that’s affected when you have to raise price. We have raised price before like every retailer we watch and when we’ve had opportunities, and we can maintain our pricing advantages, we have adjusted price in the consumers. It hasn’t affected unit volume. So we now – as the year goes on, and it depends on the consumer sentiment, and how they feel about the general economy. But so far, where we’ve done it, we felt pretty good about it.

Okay. That’s helpful, Tom. And maybe to the other issue on antidumping that you had addressed earlier in the prepared remarks. So looks like the potential antidumping duties sort of the bigger deal that with a preliminary determination that could come in November. You guys, I’m sure, have researched every single great detail. In some cases, there’s retroactive duties that look back sometimes two months to three months. I think I heard you say, you wouldn’t expect any duties to be acquired until early 2020. So can you confirm that? And can you confirm that there’s no look back that we need to be concerned about as we think about the back half of 2019?

Peter, this is the Trevor. I think your thinking is right. So just to clear. So the countervailing duties around we think we’ll find out the answer on that. That’s the lower of the two. We think we’ll find out that in early September. That rate doesn’t affect them. And then what can happen and later is they can say, okay, we are going to change that rate. So let’s – I’m just picking a number. Let’s say they put in 3% for that. They will finalize that early the next year and then that could be retroactive. And then on antidumping, which you’re right. That one usually is a vendor-specific rate. It’s usually is proposed to be a lot more than that. We will find that out in early November, and then they’ll finalize that early into the next year. And the final piece of your question is you are correct. It is possible that when they put those two rates in, the one in early September, the one in early November, countervailing and antidumping, they can retro it back 90 days. We don’t know but our experts tell us that, that generally unlikely, it doesn’t generally happen. But you’re right, we don’t know until it happens.

And we, for that reason exactly, have really accelerated our shift out of China on those products. The products that would be potentially affected is only 13% of our sales. And thankfully, because of tariffs, we are already moving on the vast majority of that. So this is changing a little faster. So we feel good that we are going to be able to get those items out of China in time.

Okay, that’s great. Maybe just to clarify, so If there is that ruling in early November, assuming you have something factored into guidance. If we do find it at that time, there’s some retroactive dynamic that might be new to the overall guidance outlook. Is that correct?

That is correct. If there is something that goes back 90 days that nobody knows, we can’t forecast that. That’s right.

Yes. Fair enough. Okay. Thanks a lot guys and good luck in back half.

Next question comes from Seth Sigman with Credit Suisse. Please go ahead.

Hey guys. Thanks for taking the question. Tom, early in the call, you mentioned that comps improved sequentially each month in the quarter. Can you just elaborate on that? It seems like some of the kickers that you have for the back half of the year, like pricing and the new stores entering the comp base. It would not have really helped the second quarter. So I’m just curious, what do you think is driving that improvement in the trend?

I think in the first – this – the comparisons in Houston have gotten easier. They’re still tough to lap but they moderate each month. So that gives us the ability to have sequential improvement in the comps. I think you know our continued focus on what we’re doing with installation accessories, and what we’re doing in the design center, and what we’re doing in the floors kind of a lot of things that have helped accelerate those sales. So.

The only thing I would add to that is…

Our comparisons got a little easier relative to the same time last year as well.

That’s exactly right.

Got it. Okay. And just a couple of follow-ups on pricing, I may have missed it. But did you guys quantify if there was any impact this quarter from pricing? And then your expectations for Q3 versus Q4? It sounds like more price increases in Q4, but how do we think about the impact in the third quarter?

So, yes. This is Trevor, again. We already didn’t have any material or significant price increases to speak out, certainly not related to tariffs for the most part because those has been going with – 10% going to 25% tariffs didn’t happen until mid-June. It’s below 1% for the third quarter, and then as we said, probably 200 basis points to 250 basis points of that is reflected in the fourth quarter.

Got it. Okay. Just one quick follow-up on inventory and the position there. Your inventory has been down on a per-store basis the last couple of quarters. I’m just curious in light of all the sourcing changes, how do you feel about your inventory position today? And I guess the ability to support your second half, pretty aggressive store growth in comp acceleration? Thanks.

Yes. Thanks for asking. So you are right, we have done a good job of managing inventory. It’s up some portion of 3%, our stores are up 20% over plus comps on top of that. But we feel good about where we are in stocks. We always got opportunities to have slightly better in-stocks and we’re getting better at that every year, but we feel good about our overall composition and the amount of inventory we have on hand. As we do get to the end of the year, as I laid out in my prepared comments, we’re currently expecting inventory to be as much up as 30% to 35% for all of those reasons. We’re putting a lot of more in inventory in our new Baltimore DC. We’re going to open more stores earlier in 2020. We’ve never really done that. So we’re excited about having a better cadence of store openings but we have to receive that inventory early to get there. We would still be receiving inventory from China, and pay them extra 15% tariffs. And we were always going to shoot for some better in-stocks so you will not see that level of inventory growth. It would be – probably could be as much as 30% or even a little bit above 30% by the time we get to the end of the year.

I would say – I’d a couple of more things on inventory. I do agree with Trevor. I think our in-stock position is terrific. And when we’ve had issues within in-stock. When you have such broad assortment of in-stock product across every category, typically you can give something in the customer’s hand before they leave the building. So we really feel good about that. But the other thing that Lisa and her team has done a much better job. We have very little – our clearance inventory situation is the best it’s been. We are at a really low level which helps our total inventory productivity.

Great. Thanks guys.

Next question comes from Steve Forbes with Guggenheim Securities. Please go ahead.

Greetings. I wanted to start off with cannibalization right. You mentioned the strength of the new stores this year. But how has cannibalization played out this year given the mix right of new versus existing markets, this year versus last? And then can you just talk about what the typical cannibalization impact is for a new store based of its proximity?

Steve, this is Trevor. Our cannibalization is currently, for the first six months of actuals, is slightly above last year. It’s actually slightly below where it was two years ago. We do plan on it becoming higher as we move throughout the year. As you probably heard Tom say, 70% of our stores are opening in the back quarter of this year. And 60% of our new stores are in existing markets. And so we do plan our cannibalization being probably the highest it’s been as we move to the fourth quarter. That’s all known and contemplated in the guidance we gave. And in most cases you guys can follow this well, when we cannibalize the store, 13 months later that store starts comping again. And so we get the best of both worlds where we are really sure it’s comping a much higher rate. That store that was cannibalized for a year than starts comping positive with whatever the reason’s comping and we have seen that over my 8 years here as well. So we feel really good that these new stores are opening at such higher volumes and doing a lot more profit. You guys have heard us say it’s starting really with the class of the 2016 and more than doubled our first year profit. A lot of that is because of the overall sales and gross margins are higher. And the final thing was on cannibalization rate. We studied this in pre-depths and what you normally see is the closer the store is, you might expect this is going to be pretty common sense. But the closer the store is, we could have cannibalization north of 20% for a while. Once you get beyond 30 minutes to 45 minutes away from the store, it steps down and could be a 10%, maybe 15%, and then once you get beyond probably the 45-minute drive time, it’s negligible.

And I just follow-up. Right, you’ve talked – you gave us a lot of color on gross margin. And I guess as you guys are thinking right, considering the fourth quarter gross margin outlook due to both towers in the Baltimore DC. I don’t know if you can just provide a comment on how we should be thinking about the pricing strategy as we start working on models for the first half of 2020 or just 2020 in general? There should be no reason to think that, that sort of dynamic between comping in gross margin will be comping left right versus gross margin get more changed right, as we look out?

Yes. Let me hear it from a really high level, and then I’ll get into a little bit more granularity. Assuming the environment is not materially different than it is today. We thought it would be a little bit better. We are committed to our long-term growth goals, both from a top-line perspective and the mid- to low 20s and in earnings growth rate on our cadence business just staying above that. So we feel really good about that. We just finished our three-year planning process year and feel strongly about where we’re going. And this is as good as we have ever felt about a plan. Specifically, though if you’re talking about early next year, your thinking is correct. We will have more gross margin challenge in the first half of the year because, obviously, Baltimore only exist in the fourth quarter this year whereas it’s going to be here for four quarters next year. To a lesser extent it doesn’t have anything to do with gross margin but with our store support center, we’re picking on a new store support center in the fourth quarter this year, and we’ll have it for all four quarters next year. But as we think about the year, as I mentioned, we’re not ready to give guidance yet. But we feel good about our ability to our – grow both our sales and earnings next year, even though we are going to take on additional costs for that Baltimore DC. And one last thing I would mention about the Baltimore DC that you will hear us reiterate again is there is incremental cost associated with that Baltimore DC because we have employees and lease expense and things like that. But there is also going to be a fairly good reduction in domestic transportation cost because that Baltimore DC is going to be substantially closer to our stores in the mid-Atlantic, in the Northeast, in the Midwest. And so we won’t completely offset the cost of that DC. But we will be able to offset a good portion of that DC through lower domestic transportation cost.

Thank you.

Our final question comes from Seth Basham with the Wedbush Securities. Please go ahead.

Thanks a lot and good afternoon. My first question is just one for clarification. Thinking about the monthly comp trends in the second quarter. Maybe at Houston on two-year stock basis. Can you clarify or confirm whether or not you did see acceleration in the trend through the quarter?

Let’s see. On a two-year, yes. Just looking here. Two-year stack basis, I don’t know if we have that. I think it’s probably closer to flattish on a two-year stack basis.

Got it. Okay. And then secondly, just thinking about the pricing environment. And I’ve got a couple of questions around this. But when you are look at your big box competitors. How do you see them changing the pricing over the last two months? Have you seen them increase the retails? Have you seen those stick? And have you acted accordingly.

We certainly pay attention to the big box retailers. There’s always movement in the price, both up and down. And we watched that and react where we need to react. Our competitive approach hasn’t changed when it comes to pricing. We want to be the value retailer. The fortunate thing is that we don’t play just to be good at the good price point, we play at the better and best price point. And there is a lot stuff that we have that they don’t have where we can continue to be aggressive with. So we’ve watched them. They are tough to deal with but we have a unique value proposition that is just different than what they compete with. Or what they can compete with.

Understood. Thank you very much and good luck.

This concludes today’s teleconference. I’d like to turn the call over to Tom for closing comments.

I appreciate all the questions today. And we appreciate your interest. We look forward to talking next quarter. I just wanted to close with a couple of comments that we do have a lot to feel good about. It’s a tough environment for flooring this year, and if you look for the second quarter, we’re able to achieve all the high-ends of our guidance, what we thought we could achieve to be able to still grow at a 20% total top-line growth have taken end-transactions up within the quarter and avenues stores performing really well. Something that I know we have a lot of our associates who listen to call too. We’re extremely proud of what we’ve accomplished during the quarter. Looking forward to talking to you in the third quarter.

This concludes today’s conference. Thank you for your participation.