Greetings, and welcome to the Floor & Decor Holdings, Inc. Fourth Quarter 2022 Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce to your host, Wayne Hood, Vice President of Investor Relations. Thank you, Wayne. You may begin.

Thank you, operator, and good afternoon, everyone. Welcome to Floor & Decor's fourth quarter and fiscal '22 earnings conference call. Joining me on our call today are Tom Taylor, Chief Executive Officer; Trevor Lang, President; and Bryan Langley, Executive Vice President and Chief Financial Officer. Before we start, I want to remind everyone of the company's safe harbor language. Comments made during this conference call and webcast contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and are subject to risks and uncertainties. Any statement that refers to expectations, projections or other characterizations of future events, including financial projections or future market conditions is a forward-looking statement. The company's actual future results could differ materially from those expressed in such forward-looking statements for any reason, including those listed in its SEC filings. Floor & Decor assumes no obligation to update any such forward-looking statements. Please also note that past performance or market information is not a guarantee of future results. During this conference call, the company will discuss non-GAAP financial measures as defined by SEC Regulation G. We believe non-GAAP disclosures enable investors to better understand our core operating performance on a comparable basis between periods. A reconciliation of each of these non-GAAP measures to the most directly comparable GAAP financial measures can be found in our earnings press release, which is available on our Investor Relations website at ir.flooranddecor.com. A 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 everyone, for joining us on our fiscal 2022 fourth quarter earnings conference call. During today's call, Trevor and I will discuss some of the highlights of our fiscal 2022 fourth quarter earnings. Then Bryan will provide a more in-depth review of our fourth quarter performance and share our thoughts about fiscal 2023. We are pleased to announce that our 2022 fourth quarter adjusted diluted earnings per share increased by 45.5% to $0.64 from $0.44 last year, exceeding the $0.53 to $0.63 per share guidance range that we provided on our 2022 third quarter earnings conference call. Our full year 2022 adjusted diluted earnings per share increased by 13.1% to $2.76 from $2.44 in 2021. Notably, our full year 2022 adjusted diluted earnings per share are slightly above the low end of our guidance range of $2.75 to $3 per share that we provided at the beginning of fiscal 2022, which did not contemplate the economic and geopolitical headwinds we faced during the year that were unknown at the time. We are particularly pleased to achieve these financial results considering the challenging macroeconomic environment, including steep mortgage rate increases and moderating growth in home prices. These factors contributed to significant year-over-year declines in existing home sales in 2022, particularly in October, November and December when they declined 28.4%, 35.5% and 34%, respectively. Despite these significant headwinds, we continued to grow our market share by remaining agile, executing our key growth strategies and investing in initiatives that further widened our competitive moat. We continue to deliver on our gross margin rate recapture plans by executing our pricing strategies and from favorable supply chain costs, which contributed to our better-than-expected fourth quarter earnings results. Ocean freight rates have declined significantly due to lower global market demand and the easing…

Thanks, Tom. Before I get started, I would like to express my deepest appreciation to all of our associates and vendor partners for their invaluable contributions to our financial success in 2022. In my role as President, I'm spending more time in stores and gaining even more appreciation of the associates for their dedication and hard work that goes into achieving these results. Thank you for all your unwavering commitment to our company. Let me now discuss our fiscal 2022 fourth quarter and full year sales. Fourth quarter sales increased 14.6% to $1,048,100,000 from $914,300,000 last year. Approximately in line with the midpoint of our guidance provided during our fiscal 2022 third quarter earnings conference call. Our fiscal 2022 full year sales increased 24.2% to a record $4.3 billion, which represents a more than doubling of our sales over a three year period. Our fourth quarter comparable store sales growth was at the low end of our expectations, increasing 2.5% from the same period last year, including 5.6% in October, 1.3% in November and 0.6% in December. We estimate Hurricane Ian positively impacted our fourth quarter comparable store sales growth by approximately 100 basis points. The closed door effect from Winter Storm Elliott did not have a material impact on our comparable store sales growth for the quarter. During the fourth quarter, laminate and vinyl tile installation materials and adjacent categories were the strongest performing product categories, surpassing the company's overall average sales growth. Our fiscal 2022 full year comparable store sales increased by 9.2% from last year at the low end of our guidance of 9% to 10% growth provided on our fiscal 2022 third quarter earnings conference call. Our fiscal 2023 first quarter to-date comparable store sales are down 2.3% from the same period last year, which is…

Thank you, Tom and Trevor. I'm excited to represent such a resilient company with so many great associates. Over the years, we have proven that we can navigate unexpected economic events outside of our control, including significant tariffs, antidumping and countervailing duties on our products, which caused us to continue our successful sourcing diversification efforts while expanding gross margin. The COVID-19 pandemic caused us to close our stores for some time, forcing us to develop alternative solutions to serve our customers. Most recently, we successfully navigated significant declines in existing home sales, global supply chain constraints and considerable cost inflation, all while recording record sales and profit. We manage these headwinds in 2022 and that allowed us to report fiscal 2022 adjusted diluted earnings per share that were still within the range of $2.75 to $3 per share we provided at the beginning of 2022, validating the strength of our teams and the agility and durability of our business model. Let me now discuss some of the changes among the significant line items in our fiscal 2022 fourth quarter income statement, balance sheet and statement of cash flows and then discuss how we were thinking about 2023. Turning to our fourth quarter gross margin. We are pleased that our merchandising, supply chain and store teams continued to deliver on our gross margin recapture plan. Our fourth quarter gross margin rate increased 280 basis points to 41.6% from 38.8% in the same period last year, exceeding our expectations of 41%. The better-than-expected improvement is primarily due to higher product margins from lower freight costs, favorable inventory shrink and damage and lower distribution center costs. Moving on to our fourth quarter expenses. Our fourth quarter selling and store operating expenses increased by 18.8% to $280.0 million from $235.7 million in the same…

[Operator Instructions] We have our first question from the line of Simeon Gutman with Morgan Stanley. Please go ahead.

Hi guys, good afternoon. I wanted to ask about the forward curve on housing. We have existing home sales down a lot. You mentioned the numbers yet comps were positive. They just turned negative, I guess. So does your view that we have a stronger, I guess, back half? Does that mean existing home sales don't get worse? Does it factor in anything around pricing or that maybe it is just this time is different, and that will allow the comp to reaccelerate in the second half?

Yes, Simeon, this is Trevor. Our view is - first off, I'd say we're not economists, but our sales range are flat to down 3%, assumes existing home sales trough at about 4 million units in 2023, which is where they are today, placing them back against the most recent trough of 4 million in May 2020. As we think about pricing, we would expect that the pricing continues to probably decelerate with interest rates being high and likely to go higher as we think about the rest of the year. I think if we're wrong and existing home sales continue to sequentially decline from 4 million units and move towards a historical low of 3.5 million existing home sales, then there could be risk to our plan. And one other thing, because I know you guys follow a lot of companies that I think is worth contemplating as we've given this guidance. This model assumes - so this forecast assumes our mature stores will be down more than the 3% - negative 3% to flat that we've given guidance for. But we get the benefit of all those new stores because we've opened 20% stores it takes all your stores years to mature. That, that's what brings it back up to that flat to 3%.

And Simeon, as you think about it, too, you've heard us state this before, but as a reminder, every comp point is worth about $41 million in sales at about $0.10 in EPS. So that equates to about 20 basis points of operating margin just as you guys may flex up or down differently than we do.

Got it, okay. Non-macro, the way you measure sales and your market share, I'm guessing your denominator as a data set, we don't see. Are you seeing your core business market share so non-commercial stable, accelerating? Can you give us some color there?

This is Tom. I'll give that a shot. We believe our market share continues to increase. Things that we read from Catalina indicate that. And then when you just look at kind of our total sales. Total sales in 2022 grew 24.2%. We were able to post a pretty decent comp for the year. And when you look around the competitive landscape reports on our category, they don't seem to be too close to what - how our performance is. So yes, I - from everything that we see, we're taking share in a pretty meaningful way.

Thanks guys, good luck.

Thank you. We'll take next question from the line of Karen Short with Credit Suisse. Please go ahead.

Hi, thanks very much. Good to talk to you again. So a couple of questions just with respect to your margin assumptions on EBIT, there are a lot of companies that are looking to have kind of flattish margins relative to pre-pandemic and you're obviously guiding to significantly higher margins, kind of 8.8% relative to 2019. So I wanted to parse that out a little bit? And then I just wanted to ask about new store productivity in terms of how we should think about that. I obviously realize there is timing and back-end loaded with respect to this current year, but looking at new store productivity, how we should think about that?

Karen, are you talking about gross margin or operating margin, just to be specific on your margin?

Operating margin.

I'll go first, this is Trevor. I mean, our volumes are just higher than they were at that time, and we've hopefully been efficient and thoughtful about where we've made investments. Our stores over five years old are getting close to $29 million in sales and close to $7 million in four-wall EBITDA. And so as those volumes have come up in the last three years, we've leveraged components of our P&L.

Yes, I mean as you think about Karen as well, we've talked about the complexity of the P&L changing a little bit. So we do have - we have had significant gross margin recapture, and we plan on gross margin sequentially increasing every quarter throughout 2023, so you will see a slight increase due to new stores kind of in our SG&A. But as you think about it, it's offset by our gross margin recapture throughout 2023.

Thanks got it. And then just how to think about new store productivity just going forward in general in '23 and '24?

Yes. Today, just like we said at the Analyst Day and our 10-K, you probably haven't read yet all 100 pages, but we still believe that new stores will do $14 million to $16 million in first year sales. We think we can get those stores to do around $3 million of four-wall EBITDA. And as I just mentioned, they run up that maturation curve and hopefully, they get to $28 million, $29 million and get close to $7 million in four-wall EBITDA. As I studied the class of '23 and what we know so far about '24, they pick a good class of stores. And we think there's going to be those metrics that I've just mentioned. We're optimistic that we're going to hit those even though the environment is not nearly as good as it was in the second half of '20 - all of '21 in the first part of '22.

Right, they started about 60% productivity. So we should see pretty meaningful gains from that 2024 with the late store openings this year.

Okay, great thank you.

Thank you. We'll take the next question from the line of Zach Fadem with Wells Fargo. Please go ahead.

Hi, good afternoon guys. Could you walk us through your expectations for category growth relative to your flat to down 3% comp guide? And as you think about the macro and housing indicators out there today, what factors do you need to see to give you confidence that 2023 will be the trough year, for you in the category as opposed to seeing the pressures linger into '24.

Yes, I think for us - when we look at our own specific numbers, they get easier, obviously, as we move through the year. Our transactions were down around 7% for Q2 and Q3 then they were down just over 10%. If we make it to the summer with continued negative existing home sales, which seems like for sure, that's going to happen. That's going to be two full years of negative existing home sales. And from what I read, I know inflation has been a little bit pesky. But it does feel like that the Fed is going to sort of be done with what they need to do on interest rates, either in the summer or the spring time. And hopefully, mortgage rates even start to come down in the back part of the year and then we're going up against easier compares as well and then you start to see a rebound. And then as we all know, there's just a very aged housing stock that is going to be in need of investment. So - and I think on the category perspective, you can see some of this in our filings, but our tile business is strong right now. Our installation categories are strong right now. People are resonating with what we're doing in those categories. Our rigid core vinyl was strong in the fourth quarter as well. And so those big categories that you've historically seen us do well in, I would expect that those are what's going to drive the business as we continue into 2023.

And just as a reminder, that we'll flex our stores to whatever is so. So, if you target our growth out of vinyl then we'll expand more in the vinyl section, and tile continues to do well. We'll continue to expand on that. We have the flexibility because we're in all categories.

Got it. And on that note, you were able to hold your store expense line flat sequentially in Q4 despite opening 13 new stores, which I think is the first for you, excluding the pandemic. So when you say you're operating your stores to reflect the current economic environment, can you talk a little bit more about what exactly that means? And how should we think about just the cadence of deleverage on that line as we move through '23?

Yes, I mean, at the end of - when you compare Q4 to Q3, we have - from a labor perspective, is generally our biggest opportunity or we can flex up or flex down. We've tried to sort of simplify that and just give the hours a similar amount of hours throughout the year. And so, we don't see massive increases or decreases in labor and operating costs sort of quarter-over-quarter. As we think about where we are going in 2023, we have assumed a continued increase in labor, right? We've seen that happen. We and every other retailer have invested in the labor. We think that's been a good payoff. We've recently seen both our full time and our part-time turnover come down pretty meaningful. So we feel like we've made the right balance of investment in labor to lower that turnover. We are going to see a pretty big increase in tender costs, credit card fees this year. We're switching to a provider mid-year. And just with LIBOR up, those costs will go up or I should say so for those costs are going up. But we think we can offset that with marketing and some other components of the operating expenses as we look to 2023.

Yes. Zach, just to call it out, we actually saw 110 basis points increase from Q3 to Q4 in our store expenses. So when you look at that, as you exit Q4, which has a much higher because we opened 13 new stores, you'll start to see that as actually kind of the complexion that we'll see similar into 2023 because we'll average about 27% at the midpoint. So what you see in Q4 is kind of similar as that -- as new stores start to come into the class as well in 2023.

Got it. Thanks for the time guys.

Thank you. We take the next question from the line of Michael Lasser with UBS. Please go ahead.

Good evening. Thanks a lot for taking my questions. So two debate card, number one, how bad is this you're going to be, how roughly is it going to be? And two, what does next year look like? So on the first question, if you roll out these negative transactions like you had indicated through this year, where is that going to put your volumes -- your store volumes just on a unit basis this year versus where it was in 2019, especially in some of your mature stores? And then I have one follow-up.

Yes. I mean, we'll still be higher than 2019, pretty materially. So in the year we just finished those stores over five years old, doing close to $29 million. I don't have what we did in 2019. I had to go back and look at that, but it was probably in -- it was below $25 million I'm pretty confident back then. And so if we're going to have a flat comp, I don't know that the complexion of that is going to change all that much.

And then my follow-up question is how negative would your comp need to be this year in order for you to pull back on your store growth in 2024? Is there any condition under which you would moderate your store opening plans?

I'll answer that. At this point, no, Michael, I -- our plans are to continue to run the business effectively. I think we've demonstrated our ability to be agile and execute on kind of -- on what we say that we're going to deliver, we'll be smart in the way we run our business. We -- this is a marathon not a sprint, and we're playing for the long game. Things would have to be turned significantly worse for us to consider lowering our store count. We had 32 to 35 this year. We haven't given a number for next year, but I feel pretty confident that, that will be around that number.

I think the only thing we've said historically, Michael, there's only two things that would inhibit us, which is, one, if things got tied from a liquidity perspective for whatever reason, right, we might be a little cautious there. We don't see that happening. And then if we saw a material decline in the return on invested capital. Our cost of capital is probably somewhere between high-single digits, low-double digits, depending on what factors you put in there. And even with a slightly higher cost because there is inflation to open new stores, even with a higher cost, we still think we're getting a return in the high 20s from a return on invested capital. So I don't envision either having a liquidity issue or the return on that invested capital changing much. And so yes, we're going to -- just like we've done for the last decade, we're going to invest through cycles.

Right. And just to close that comment with what Trevor said earlier, too, Class '22 looks to be a very good class in our -- what we're looking at for opening '23 and '24 looks to be really good.

Thanks a lot and good luck.

Thank you.

Thank you.

Thank you. We take our next question from the line of Chuck Grom with Gordon Haskett. Please go ahead.

Hi, thanks. Good afternoon, and congrats on a really good year. Really helping you guys provide the monthly comp gain. So I was wondering if you could provide transactions by five months in the fourth quarter and also what transactions are doing so far year-to-date in January and February?

Yes, sure. Look, I can give you the monthly cadence and transactions. So for us, in Q4 transactions were down 9.3 in October, 11.4 in November and 10.5 for December. So pretty consistent throughout the quarter.

Okay. And any color in January and February so far?

Yes, cost very consistent with Q4.

How we exited that -- that's kind of finish range have been fairly consistent.

Okay. And any color on transactions in markets where housing turnover has slowed more than the rest of the country? Is there any delineation that you could provide?

I would say the West is performing a little bit softer than the rest of the country, and that seems to tie into existing home sales under a little bit more pressure. So that's what we see.

Okay. Great. And then one last one for me, just a follow-up on Karen's question on new store productivity. Over the past couple of years, you've had great NSP that's averaged close to 90%. This quarter was in the low 60s, at least on our math and model. Just curious if there was anything timing that led to that or anything else you guys could point to?

Yes. I would say the timing of when we opened those stores in the fourth quarter was late. And then also, we don't have a real seasonal business. But in Q4, our -- the week of Thanksgiving, the weeks around Christmas are pretty low volume. And so that may have the appearance of low NSD, but it's just really more from the timing of those or...

Exactly. We opened 13 of our 32 stores in the full. And remember, we're going to have 55% of our openings in the back half of this year, too.

Yes. And I think that's why you're expecting that speed to be a little bit weaker as well. Okay.

That's why sales growth on a flat to negative 3% comp, we would have an 8% to 11% sales growth. So that tells you right there. Normally, that's in the 15% to 16%.

Okay. Thanks very much. Appreciate it.

Thank you. [Operator Instructions] We take next question from the line of Steven Forbes with Guggenheim Securities. Please go ahead.

Good evening, guys. I wanted to focus, Tom. I think you briefly talked about the FIT rollout. I was curious if you could maybe expand on that initiative in terms of sort of the size of the program today, supporting members? And what do you expect it to scale to, how we should think about the net cost of the initiative? And then what are you hearing from the stores in terms of the excitement about what they can do to alleviate some of the tasking responsibilities?

Yes. So the 15 we put in, it's really in an effort to continue to improve customer service within our stores. So anything we can do to take the tasks away from associates during the day so that they can focus on just taking care of the professional customers and do-it-yourself customers to come into the store. That's our whole goal. So we started playing around with the pilot a while ago in one market. We really like what we saw. The feedback from the stores was terrific. So we're in six markets as we exit this year, and then we're going to open up 12 as we get into next year. And again, all of the effort is we think the presentation within the store gets a little bit better, and we think that the customer service of the stores will get a little bit better.

And then just in terms of like investment into the program on whether it's gross or net terms?

It funds -- it funds it. It's got a little bit of cost, but the majority of the hours come from within the stores and are just pulled into a centralized team that's managed a little bit differently.

Exciting. Thank you.

Thank you. We take the next question from the line of Steven Zaccone with Citi. Please go ahead.

Great. Good afternoon. Thanks for taking my questions. I wanted to ask about the decision to implement the strategic price reductions for this year. Is that purely due to costs coming down? Or is there something you're seeing in the competitive landscape with your price gaps? And then can tickets still be positive this year despite the strategic price reductions?

So I'll -- this is Tom. I'll start on the price. First, as we stated in our scripts. We plan to continue to recapture margin all as the year goes. We do think our supply chain costs are going to continue to give us the ability to take our prices down where we need to be. It is not a reaction to anything going on in the competitive marketplace. It is to widen the moat of our cash flows, to give us the ability to take share at a quicker basis. And the last thing I would say is just we have a heavy Pro influence in our business. They saw prices go up pretty significantly last year for the first time in my 10 years here. And as supply chain costs come down that our partners, we're going to give some of that back.

Yes. And then on the second part of the question, yes, I mean, look, if the strategic price reductions could have us be at a negative comp, but it would be a very, very low negative comp in the back half if that was the case. But keep in my to, we're also lapping the highest increases that we had in average ticket in Q3 and Q4 of 2022. So it's a much harder compare.

Okay. Great. Thanks for that. The follow-up I had was just on gross margin. So thanks for the detail on '23. But if you look over the medium term, do you see potential for gross margin rate to go back above that prior peak that the business had a 2.5. What are the drivers to see gross margin rate go back above that prior peak besides just recouping some of the supply chain costs?

I do think you can go above the prior peak. This is Tom. And I think it's for a few reasons. One, within the store, we've made tremendous progress, as you heard when Trevor was speaking, we've got over 900 designers in our stores. So they are a design initiative has taken an improved service within our store, and we know when the designer is related, we intend to sell a bit of a higher-margin basket. Two, the supply house strategy, what we've done with the installation accessories department, the categories we've added, they're helping us from a margin perspective. They're getting more frequency within the professional business, and I think that could help. And then lastly, selling better and better and best products, we make more margin on. They continue to do better in our stores, even in light of the macro environment, the customers are still buying those better and best products. So as I look at all of that and understand what's happening within the dynamic of our supply chain costs, I do believe now that we will be able to exceed. It's a question of time, but I believe we'll be able to exceed that high end margin rate that we had.

Yes. Look, just to piggyback on the top of that, we're going to be methodical about our gross margin as the complexion of the P&L changes we may need to strive from a little bit higher, as Tom mentioned, on that, just to achieve our long-term higher-teen EBITDA margin rate. So we're being kind of methodical and strategic about that as well.

Thank you. We take next question from the line of Kate McShane with Goldman Sachs. Please go ahead.

Hi, thanks. Good afternoon. Without kind of beating a dead horse, I just wondered if you could maybe talk through the circumstances in which you would expect to do better than your guide or maybe at the high end of your guide versus the low end of your guide? And then we were just wondering if there were any updates with regards to sourcing, if there were any changes in the sourcing environment that may be different in '23 than 2022?

Yes, I'll take a stab at this and then Tom and Bryan may weigh in. I mean, I think if the Fed was to lower rates for any reason and that drove existing home sales being higher. I think if the consumer is less focused on services, right, you can read any report you want that the consumer is spending a lot more on services than they are on hard goods because they spend so much on hard goods for the three years of COVID. Those two things can be net positives for us. I think we're certainly super pleased with our competitive standpoint when we look around at who we're competing with. We feel great about where we are from that perspective. So those may be the upside I would call out.

I'd agree.

What was -- what's the second part of the question?

I just was wondering about any kind of change in the sourcing environment in '23 versus what was experienced in '22.

No. I mean we're always trying to find the lowest cost provider, no matter what country it's in. As you know, we have over 225 suppliers in over 20 countries. Those countries are constantly changing our penetration. Per country are constantly changing wherever we can get the best product. I don't anticipate 2023 to be significantly different than any of the last couple of years.

Thank you. We take the next question from the line of Liz Suzuki with Bank of America. Please go ahead.

Hi, this is Sarah Park on for Liz Suzuki. I was wondering if you can speak to how you're thinking about private label mix in the current environment when the consumer is getting more price sensitive.

So I'll take a stab at that. We are -- the majority of what we do is private label. All of our level 1 SKUs across hard surface long categories are generally our own brands. The only place where brand is relevance is in installation accessories where we carry name brands that the professionals want to use. I don't anticipating any change in our strategy in private label. But I think what we're doing works well.

We'll take our next question from the line of Greg Melich with Evercore ISI. Please go ahead.

I wanted to ask about Pro outpacing DIY. It seems like pro traffic is still up and all the decline is on the DIY side. Any sign of that starting to shift? Or do you -- would you expect DIY to improve by the end of '23 in your guidance?

Greg, this is Trevor. I think you're exactly right. Our Pro business is performing well. We did a pretty deep dive with our Pros towards the end of the year, early this year. And what we hear from them is their business is strong across the country. They probably are not at their historic backlogs, but their backlogs are still strong. They feel like they've got plenty of business and don't feel concerned about their business and it's strong. I think on the homeowner side, man, it certainly feels like that's going to have to change. And whether that's going to be something with mortgage rates or existing home sales changing, but it does feel like at some point, that's going to change because we're now rounding out 1.5 years maybe close to two where Pro has been much stronger than homeowner.

Thank you. We'll take your next question from the line of Justin Kleber with Baird. Please go ahead.

Hi, good afternoon, everyone. On the gross margin guide, is the starting point for 1Q effectively, the 41.6 you exited the year at? And have you contemplated any trade down from better, best into your planning assumptions or do you not see that as much of a risk?

Yes, I'll take the first part of it and then kind of head it off. So yes, I mean, you're spot on. So the starting point is really exiting Q4 and then we expect sequential improvement kind of from there. So that's the right thought and then I'll let.

Yes, we don't expect to have too much trade and we haven't seen that. Even as of today, as we look into the month of January and as we look into the fourth quarter, customers that are electing to still do hard surface flooring jobs are still electing to use better and best products. And so, I think that if they make the decision and they can afford to do the flooring project that they're willing to spend what they want to get the floor they need. So we're not seeing the trade down as of today. And this is - we're in the middle of this, and we haven't seen it yet. So I don't foresee that change.

That's right. Yes, we've got a sophisticated merchandising team that they're sharp on their line structure. So we haven't seen a trade down.

Thank you. We'll take the next question from the line of Jonathan Matuszewski with Jefferies. Please go ahead.

Hi, good evening. Thanks for squeezing me in. Just one question on pricing, it sounds like you're not going to be taking down prices as much as your supply chain costs are coming down. I guess my question is, is that how you think the industry, your competitors are going to react as well? And I guess, if not, I suppose you'd be planning for your price gap to narrow a bit in 2023. Just how should we think about, I guess, your overall price gap that's contemplated in 2023 versus your competitors? Thanks.

I'll start with - we feel good about our competitive price gap that we're managing with today. And you're correct that we're not anticipating on dollar for dollar flowing back into price, all of the savings in supply chain. As Bryan mentioned earlier, some of the complexities within the P&L change, and we've got long-term EBIT margins that we want to hit. So that will change a little bit. But our spread in the market is good. We anticipate it to continue to be good. So I am not - I don't have a - we will watch it and react accordingly if we see it, what we're seeing within the marketplace today. We're very confident in what we're doing.

Thank you. We'll take the next question from the line of Seth Sigman with Barclays. Please go ahead.

Great, thanks for taking the question. I wanted to follow-up on the competition question to some extent. It sounds like pricing is still rational, but I'm curious, what are you seeing in terms of inventory across the channel right now? And maybe if you could just frame your own inventory position, how much of the growth that we're seeing year-over-year is inflation versus units? And then I have one pricing follow-up? Thank you.

I'll start - this is Tom. I'll start with the pricing part and Trevor or Ersan, if you want to hit kind of what you're seeing from an inventory level standpoint. I think from a pricing standpoint, we're seeing seems like the big box competition is always aggressive price movement in price. We certainly have to pay attention to them, which we'll continue to do. From an independent channel, we haven't seen much in pricing. We have - I think they have learned from previous recessions and they're being cautious in eroding their margins to a significant extent. So that's why I feel like our spread is probably better than it's been against the independent channel than it's historically been. So we hope that, that stays rationale from an inventory level standpoint.

Okay. And this is Ersan. Inventory levels close to competition seems to be high and seem to be in good shape at this point for them.

I don't know that they're high. I mean they're in stock. We went from a lot of last - sure they didn't have inventory as everyone was chasing everything. But in general, we're - that's what we see. It's hard to tell for sure.

And on the inflation piece, I mean, inflation was a big reason why our inventory grew at a faster pace than sales, just to tie that in as well.

Thank you. We'll take the next question from the line of David Bellinger with ROTH MKM. Please go ahead.

Hi, thanks for the question. So you mentioned earlier the benefit of, newer stores maturing in the sales were flowing through the comps, that helps you to get you to the full year guide. So first, can you size the comp lift you're planning from that subset of maturing stores? And two, it seems like at this point, you're not contemplating some type of slower ramp in those units because of the macro environment. So is that a correct assumption? Thank you.

Yes, so your question, yes, so we believe that it adds about three to four comp point is what our new stores kind of add to that. So said another way, our mature stores will really be down three to six is kind of the way to think about it.

And we haven't given the number just be completely transparent on that, though, but that number is somewhat offset by cannibalization, right? Roughly 65% of our stores are in existing markets. And so that isn't all flowing through because obviously the math wouldn't work either. So, there is some cannibalization as - oh sorry about 50% of our stores are going into, an existing markets.

And I think the second part of your question, it would be tampered just a little bit by the macroeconomic environment, but not that much.

Thank you. We'll take the final question from the line of Dean Rosenblum with Bernstein. Please go ahead.

Hi guys, thanks for taking my call. We've talked a lot about the potential impact of existing home sales on the outlook for the business. And I was wondering if you could talk explicitly about the mix of your business as you see it, that is actually project business driven by I just bought a home or I am selling my home and getting it ready versus I'm in my house and I need to do a floor or kitchen or other hard surface. And then I have one follow-up on the mix of Pro versus DIY?

I'll start and Trevor can add [ph]. I don't think we exactly know the - how much of the business is driven by housing and someone saying, hey, I'm going to sell my house, let me change my floors before I sell it. Or I just bought a house, let me change my floors because I just bought it, and I don't like the carpet in the bedrooms. But I do know this, while I don't know what percentage of the business it is, I know that it doesn't hurt when housing turns over? There's, a percentage of those customers that are absolutely redoing their flooring. So I can't say for Floor & Decor exactly what that number is, how many of our transactions go to that. But when existing home sales are positive, we have wind to our backs. And when existing home sales are negative, it's wind in our base. So that's what we have to deal with. I don't know, Trevor, if there's anything to back side of the question.

That's right. I mean, I've been here 12 years. We've had three downturns in existing home sales. And every time we've seen our comps slow.

Got it. And then the follow-up is in terms of the growth of Pro versus the growth of DIY. Is it possible that as you increase your penetration of Pro customers that you're seeing Pro customers purchasing for DIYs because they're essentially purchasing the materials for jobs that the Pros already had. And essentially, the Pros are bringing in DIY customers that are showing up through the Pro desk on sales?

I mean, listen, it's possible. I don't know we have any Intel that says that. And I don't think when you look broadly across retail, some of our larger competitors have called out that their Pro businesses are strong as well. So we're certainly doing an incredible job. It's up from a year and a half ago, is in the low 30s now we're in the low 40s. But I'm not sure that I can point to that they're spending more on behalf of the consumer.

I think, we have reached the end of this call. Yes, please go ahead.

So I think that concludes the questions. There's, no more questions, right?

No more questions. I was just handing over for your closing comments, over to you, sir.

Good, so my closing comments. Thank you very much. So look, I would just like to say that I feel really good about the way we executed it in a very difficult 2022. As I said in my script, if you think about it, for us to be at the low end of our '22 guidance, given that we gave guidance the day that Ukraine war started, and we had -- we weren't anticipating the Feds to be as aggressive as they were going to be in raising interest rates. And I don't think we anticipated the Ukraine war and its effect on natural gas pricing and what that would do. And press kind of at the low end was something to be very proud of. Our service scores have never been better, our turnover across our part-time and full-time associates continue to come down. We were able to open 32 stores in one of the most difficult opening store environments that I faced in my 10 years here. So I'm really proud of our teams and the way they executed. And we just say that - we're running a marathon, not a sprint. This is a valley, this is a cycle. It will improve [indiscernible] will be in a better place on the other side of it. We're going to continue to invest to widen the moat around our competition, and we're excited about what this year can bring for us. So I appreciate everyone's interest, and I appreciate everyone joining the call. Thank you.

Thank you. Ladies and gentlemen, this concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.