Greetings, ladies and gentlemen, and welcome to the Floor & Decor Holdings First Quarter of 2023 Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to Mr. Wayne Hood, Vice President of Investor Relations.

Thank you, operator, and good afternoon, everyone. Welcome to Floor & Décor’s fiscal 2023 first quarter 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 the 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 2023 first quarter earnings conference call. During today’s call, Trevor and I will discuss some of our fiscal 2023 first quarter earnings highlights. Then Bryan will provide a more in-depth review of our first quarter performance and share our thoughts about the remainder of fiscal 2023. In the first quarter of fiscal 2023, we delivered diluted earnings per share of $0.66 in line with our expectations and flat versus the previous year. We take pride in these earnings results as we believe they demonstrate the continued strong execution of our key long-term growth strategies and our remarkable agility and adapting to significant year-over-year declines in existing home sales amidst the broader macroeconomic challenges we continue to face in 2023. As we look forward, we expect existing home sales to remain challenging in 2023 and customers to increasingly prioritize value and savings seeking out those retailers that best meet these needs. We believe we are well-positioned to navigate these headwinds and grow our market share even as the flooring industry contracts in 2023. Because we source our products from 24 countries and over 240 suppliers, we are able to deliver low product prices and compelling value options across a broad range of products. Our broad assortments feature an exceptional range of price points and features and benefits for consumers looking to install any hard surface flooring. Furthermore, we are building on our value proposition in 2023 by passing along some favorable supply chain costs to our customers by selectively lowering prices on specific SKUs. We intend to maintain or widen our product price gaps with our competition and are monitoring unit price elasticity to enable us to drive incremental growth. We have introduced new lower price signage in our stores and website further reinforcing our strong value message. Additionally, we are leading the – with compelling value options at the front of our stores and on our merchandising end caps. While maintaining our price leadership position, we are also focused on winning by driving newness and innovation through exciting new programs and initiatives in 2023. Finally, we are intently focused on driving further engagement with our homeowner and pro customers in 2023. Before I turn the call over to Trevor, I would like to say how inspiring it was to see our store managers leave our March Annual Meeting excited about developing market specific plans to grow their market share in this challenging period and embrace the new store growth opportunities ahead of us. Let me now turn the call to Trevor to discuss our first quarter sales and growth pillars.

Thanks, Tom. We are incredibly pleased with the energy in our stores and how they’re executing our strategies to grow our market share during this challenging macroeconomic period. We are further emphasizing our everyday low prices, trend-forward assortments, of in-stock job lot quantities and leading customer service provided by our store associates. We have made significant investments in our associate training and wages over the past few years leading to improved customer service and essential attribute in this challenging period. We are not playing catch up with associate wages and [indiscernible] investments are paying off. For each of the last two quarters, we have seen a year-over-year improvement in turnover. Our fiscal 2023 first quarter key customer Net Promoter Score increased by approximately 500 basis points from the first quarter of 2022. We are delighted to see that associate helpfulness ranked the highest among customer satisfaction attributes. Recently, it was announced by Yelp that Floor & Decor was the top ranked non-food retailer by customers and their most loved brands ranking. Having knowledgeable store associates is extremely important in the customer flooring purchase journey ranking above low prices, and we are proud to be leading the competition on this important attribute. In 2023, our store managers are focused on having the best sales associates on the floor at the right time to drive conversion, engaging with homeowners as well as our pros. We’ve also made important improvements for our stores to better follow-up on our quotes to drive better conversion. We are finding ways to manage our non-customer facing expenses better and tactically manage our payroll hours without sacrificing our customer service. Let me now turn my comments to our fiscal 2023 first quarter total sales. Total first quarter sales increased 9.1% to $1.100 billion and comparable store sales declined…

Thank you, Tom and Trevor. Our first quarter financial performance is once again a testament to the strength of our business model. Despite the significant year-over-year declines in existing home sales and their adverse impact on our business, we were able to effectively manage our profitability by successfully executing our gross margin rate recapture plans, and manage our expenses efficiently. As a result, we delivered 2023 first quarter diluted earnings per share of $0.66 cents in line with our expectations and flat to 2022. Let me now turn my discussion to some changes among the significant line items in our first quarter income statement, balance sheet, and statement of cash flows. Then I’ll discuss our outlook for the remainder of the year. We are pleased that our fiscal 2023 first quarter gross margin rate increased 210 basis points to 41.8%, primarily from our decision to raise retail prices last year to offset higher supply chain and product cost. These results increase our confidence in achieving our 2023 gross margin exit rate target of 42%. As a reminder, we are now able to selectively lower retail prices while simultaneously recapturing gross margin rate as lower supply chain costs move through our income statement in fiscal 2023. We expect this to result in a substantial year-over-year increase in gross margin rate in fiscal 2023 with most of the expansion in the first half of fiscal 2023. Our fiscal 2023 first quarter selling and store operating expenses increased to $303.7 million or 21.7% from the same period last year. As a percentage of sales, selling and store operating expenses increased 280 basis points to 27.1% compared to last year in line with our expectations. The cost increase was primarily attributable to 28 additional warehouse stores operating since March 31, 2022. Wage rate increases,…

Thanks, Bryan. In closing, we believe our ability to continue to make strategic investments in a year marked by a contraction in the industry growth will enable us to accelerate our market share in 2023 and beyond, particularly among Pros. As a reminder, we increased our market share by 200 basis points to approximately 10% in 2022, and we are thrilled that the early first quarter 2023 market share data points to another strong year. We expect 2023 could be particularly difficult for independence to manage pricing, inventory and marketing during a contracting sales period when compared to our larger scale direct sourcing business model. We remain committed to investing in our associates, opening 32 to 35 new warehouse format stores, remodeling existing stores, and enhancing our technology in e-commerce platform to improve the customer experience. While 2023 will be a challenging year, we are intent on further widening our competitive moat, managing our profitability, and laying the foundation for accelerated earnings growth into 2024 and beyond. In closing, we owe our success to our associates hard work and dedication who serve our customers with excellence every day. Operator, we would now like to take questions.

Thank you very much, sir. We will now be conducting a question-and-answer session. [Operator Instructions] The first question comes from Steven Zaccone of Citi.

Thanks for taking my question. Bryan, I wanted to follow-up on the same-store sales guidance for the balance of the year. Thanks for the detail on the cadence. But specifically on the second quarter, when you say the largest decline, should we assume this quarter to date trend kind of holds and you’ll probably be in a down mid single digit range. And then if that’s the case, how do you see the building blocks to achieve the high end of the full year range? Just seems to have bet a pretty big acceleration in the back half, so how do we think through that?

Yes. Thanks for the question. Look, I think you’ve kind of nailed a little bit there, so as we think about it, Q2 will be down. I think the way that – we don’t really give the quarterly guidance, but we’ve said that that will be the largest decline. We do think it should get slightly better from where it’s today as you think about it. And then as we think about the second half, we’ll expect sequential improvement with growth in the fourth quarter, obviously, to achieve the high end, you’d have to have a decent amount of growth in that fourth quarter to offset the three-three that we had in Q1 where we are today should see slight improvement from there, but then as it grows throughout the fourth quarter. But there’s a couple of things there. Transactions are in line with that, so transactions are expected to be in the high single digit negative for the first half and it’s sequentially improved to growth in the fourth quarter as well. So there’s a couple of reasons why. One, we’re against easier compares. So remember Q2 and Q3 were high single digit declines in 2022 and then Q4 was down 10.4%. So part of the story is what we’re lapping against. We also expect transaction improvements from the pricing actions that we’ve taken. And then third, we also expect sequential improvement in existing home sales throughout the year have seen in both February and March, they’re up from that trough of 4 million units. So we think as that continues to improve throughout the year. So just think about the assumptions embedded within our plan, we’ve got existing home sales sequentially improving from the lower mortgage rates off the peak of 7% in October 2022. And so as I just mentioned, we’re encouraged by what we’ve seen in February and March and the improvement existing home sales.

Great, that’s helpful. And then, I mean, just to follow-up on the April deceleration, it doesn’t seem that big from March, but it’s still a step down and I think people are trying to grapple with how much is weather and other data points out there on the consumer. Is there anything you are seeing in the month of April that’s a notable change in trend, whether it’s Pro or DIY or just traffic trends? It’d be helpful to get some color.

This is Tom. I’ll start and if Trevor, Bryan want to add feel free. I think the only thing with April that’s – is a little bit tricky is Easter fell in April, spring break was in April and as we’ve experienced coming out of COVID holiday weeks have had a lot more travel in it, a lot more consumer spend going to leisure and entertainment than before. So I think that’s part of April. We’ve seen a little bit of good improvement in the month of May. So we’re encouraged by that. But I think the more than anything – weather doesn’t impact us all that much. It may shift business a little bit and there was some adverse weather, but I believe it ties much more into how the consumers spent their time and their money during the month of April.

Okay, thanks for all the detail.

Thank you. The next question comes from Zach Fadem of Wells Fargo.

Hey, good afternoon. Could you talk to the performance of your mature store comps in the quarter relative to the newer stores in the comp base? And maybe help us bridge the gap between the two along with the impact of cannibalization to get to your down free comp. And is there any reason to believe that the new store maturity curve for the newer stores in the comp base could change in this tougher backdrop?

So I answered the last part first, Zach. I don’t think it’s going to change the actual curve itself. I think what you’re doing is you’re starting with just a little bit lower of a base is the way that I would think about the new stores, but we are still seeing – we’re seeing significant growth in those the same way we have, we start at 60% productivity and work our way up through the first five years kind of getting to the mature base. And then of the three-three I don’t think there’s any disproportionate amount of gap between what we’ve seen historically from the mature performance versus our kind of new store ramp up there. I think cannibalization was slightly higher. We never really give that number, but it was just slightly higher in Q1 just due to the 13 stores that we opened in Q4. So I do think you saw a little bit more of an impact there, but nothing really to call out.

Okay. And then the additional color you provided on the comp and EPS cadence from Q2 to Q4, could you talk about specifically what you’re seeing in the business or the macro today to suggest that Q2 will be the trough. And then given that you didn’t provide the cadence initially, could you talk about what’s changed here versus your initial expectations provided a quarter ago?

Yes. I mean, look, we were in line in Q1, so I don’t know that a lot has really changed other than Q2. I mean look, it’s – we talked about existing home sales, right? That’s our highest correlated metric and again, we’ve seen improvement in February and both March and so we know there’s a bit of a lag there. And so as we think about the back half gives us a little bit more confidence and what we see today, because we were at 4 million then I think it went to four seven and back down to four four, so both February and March were above kind of that 4 million trough that we saw exiting Q4 and into January. So I think that gives us a little bit more conviction about where we’ll be in the back half and that growth that we’re expecting to get. So just where we see it today, we think Q2 kind of will be the trial. I don’t know if you guys have any extra. Does that make sense, Zach or anything else?

All good. Appreciate the time.

Yes sir.

Thank you. The next question comes Simeon Gutman of Morgan Stanley.

Good afternoon, everyone. The quarter to date step down and apologies to harp on this. It sounded the way Tom described it, were transactions if people were taking time off, et cetera. Or are you also seeing a further step down in footage purchase? That’s my first question.

Little bit of both. So we have seen square footage slow from what it’s been historically. So but it’s much more, it’s much more the foot traffic problem during the month of April. But as I said, April, I told you what I think my reasons are around April and we’re seeing some improvement as we get to the month of May.

I think – this is Trevor. One thing just worth mentioning as we forecast the business, you’re doing it at a fairly granular level. We take the current trends that we’re seeing in the business and then we make an assumption on what’s going to happen for the rest of the year is we said we expect existing home sales to – as we exit the year, hopefully get closer to 4.7, 4.8, maybe 4.9. And we think the combination of the fact that we’re going up against easier comparisons as well as the macro getting better that that’s going to be the driver. I mean, the Fed seems like they’re going to be pausing rates. Most of the banks that we’ve talked to see mortgage rates getting certainly below 6%, some haven’t been as low as 5%. So I think the combination of our current trends plus what we’re seeing in the macro is what gives us some confidence going up against easier comparisons that our business will continue to accelerate. And we’re five weeks into the quarter, so that doesn’t make the whole year, but we’re doing really well against that forecast.

And quick follow-up on gross margin, you’re getting pretty close to that 42 already. I think it was said – it’ll be up substantially in the first half. So if freight comes down, it feels like you kind of passed that 42 mark. I think that’s been asked prior. And then I was – maybe a little confused, it sounded like you’re investing in price, but you’re content with gaps. So are you actually maintaining price gaps or are you widening them?

Yes, this is Tom, I’ll go first. So yes, we’re pleased with our mortgage – our margin recapture. We did that or we’ve been accomplishing that while taking price at the same time. So supply chain costs continue to come down. Our team’s done an excellent job in managing that. We’re passing some along. We like the optionality, I mean, we’re going to continue to watch what happens to the elasticity of the SKUs as we adjust price and monitor that. And if we see that that’s going to be beneficial to transactions or if we’re going to get more square footage, then we’ll be a little more aggressive. But it’s possible that we could keep a lot of that margin and our margin rates would exit higher than we anticipated.

Hey, Simeon, on the other question, yes, I mean, we watch our prices versus the competition very closely and we feel great about where our pricing is versus the competition. And our merchants have done a fantastic job on some of these price reductions being very thoughtful about, where in the assortment we can make those improvements. And it’s early, but as Tom mentioned, the elasticity that we’re seeing is encouraging. So as those supply chain costs continue to come down, which we expect that it will, we’ll balance that growth of – a goal of growing the gross margin, but also making strategic investments in price that we think will drive incremental volume.

And it gives us optionality to manage P&L too, because changing complexions through payroll and other things like that, gross margins, that lever that we have. So it’s good to have that optionality.

Thank you. The next question comes from Steven Forbes of Guggenheim Partners.

Good afternoon, Tom, Trevor and Bryan. I wanted to start with homeowner trends. I think it was Trevor gave us the breakdown of Pro comps by ticket first transaction. I was wondering if you could do that for homeowner and DIY. And then just comment on how you sort of expect the strategic price investments to impact trends within the homeowner base into the back half here.

Yes. I don’t know if we have the homeowner trends at our fingertips, but obviously they’re below where the Pro is. And then on the expectation, I mean, the pricing, we feel – like we invested it in areas that matter the most and what we’re going to have the biggest impact. And there – and some of those SKUs include SKUs that really matter to the Pro. So again, I think we’ve been strategic on where we’re going to take those price reductions and just reiterate for last time, the earlier reads on elasticity are positive.

The math doesn’t – you can’t just add two together. But I mean, our segmentation series Pro or homeowner, so if we were down three-three and we know we were up six, seven and Pro, you can just literally do the university be down about 10% roughly on the homeowner’s side.

And I think the price, the kind of the – as we look at pricing is where we’ve adjusted it. It hasn’t been all that much, but where we have, it is going to benefit, you think the Pro who’s in our store, much more frequently they’ll see it and we want them to see it and we think it’ll benefit that.

And then maybe just a quick follow-up on the Pro, you think about awareness. I don’t know if you can sort of frame for us where awareness sits with the Pro in both new and existing markets. And then the opportunity right to grow the Pro member base this year. And just given the value proposition, some of these investments, et cetera. Maybe comment on, if there are any sort of targeted or planned initiatives that you have in the pipeline here to really press the awareness factor.

Yes, I mean, our Pro awareness is high. I think it’s in the 80% for the vast majority of our markets. Maybe some of the new markets might be a little bit lower than, but we have very good hated brand awareness with our Pros. And our business well – I think we’re – it’s a mosaic of things that we’re doing to service that Pro. It starts with great customer service. It starts with great assortment that’s curated for the market. It’s – prices that matter and SKUs they care about. It’s a dedicated team to take care of them. A great loyalty program, we’re testing this tiered based program that we’re excited about. Our in-stocks are better than they were last year. We see our in-stocks continuing to improve even from the good rate we’re at. I mean, I think all those things together work in concert that we think will continue to take market share. We also have great CRM tools that allow us to follow-up with those Pros. I’ll speak to just a couple of things that we’re doing to increase awareness as well or that should help awareness. One recently we put in a feature where our stores when someone comes in and works with a designer and we don’t know the Pro or the Pros not in our system now, our teams can follow-up. We weren’t capturing that information historically. Same thing goes, if a Pro picks up product and they’re not in our database we now can contact them, that’s new relatively new. We’ve had it for a little bit of time, but that should help us get to Pros who may not be familiar with us. Two, we’re back out on the street. After COVID, our Pro team stayed in the store more. We were trying to keep up with the business and now we have the ability to get back out and go find new Pros in the stores and our stores are out doing that pounding the pavement. And then third, and it was mentioned in the – it’s been mentioned in our scripts over the last few scripts, we’re doing an excellent job of getting Pros and doing training across we – whether it’s our vendors or NTCA, we’re doing classes and we’re impacting more Pros. All those things should help continue to build our brand awareness.

Thank you. The next question comes from Michael Lasser of UBS.

Good evening. Thanks a lot for taking my question. Tom, the skeptics are arguing, the Floor & Decor has assumed in its guidance that trends are going to get better based on the macro and easy comparisons and haven’t factored in the prospect of a recession that could not only impact consumer spending, but also the prospect of the ability for the consumer to buy a home, which in turn would negatively impact housing turnover and that’s going to cause downside risk to not only this year, but also next year from Floor & Decor. Why is that wrong?

I mean, I think we believe that as existing home sales turn positive towards the end of the year that, that we’ll see benefit from that. Historically, we’ve got a great correlation with the existing home sales. We think that number as we said on the previous two calls, we don’t believe that number goes below $4 million. If that number stays, we’ll start having an increase as we get to the back half of the year. We’re taking share, Michael, at a really good rate. Our indications are that in this market that’s contracting, we’re taking share quicker this year than we did last year. So I think from a share perspective, existing home sales turning positive I think those things will benefit us.

Yes. I mean, Michael, if you think about it’s [indiscernible] of year-over-year declines that we’ve had an existing home sales. I mean, at some point you think that’s got to – it’s got to come out. Again, we have our house view. We’ve kind given you guys that as well that every comp point’s worth $0.10 of EPS, yes.

Our – we believe our category has been in a recession. It’s there like it that, so as we get to where things get positive towards back half of the year, we think that gets a little bit better.

Okay. My follow-up question is how much do you think the independence and other players in the industry have already reduced price? And how much do you think they will reduce price in the event that demand drops further than here?

Yes, this is Trevor. I mean, we are fortunate, we have merchants to live in all of our 12 regions, 13 regions, and we do detailed price shops every week. And as we said earlier, when we look at our pricing, not just against our larger competitors but even our smaller competitors, we think our price gaps are at or as good as they’ve ever been.

They have say look, it’s – we have seen price come down, others are passing on supply chain savings as well. But our – as Trevor said earlier, we’re confident in our spread versus them, we’re not seeing irrational behavior within the marketplace. And so we feel good about that part over the boat.

And I think you most everybody prognosis, but maybe just in case there’s new people on the phone, when you look at our pricing versus the independence, it’s demonstrably below. We’re not talking 5% or 10%, in many cases it could be 20%, 30%, some cases 50%, 100% below or their price might be a 100% above ours. And so even if they were to lower their prices more than we are, which we haven’t seen, our prices are so much below the independence that that I – we don’t think that that’s going to put pressure on us.

Thank you. [Operator Instructions] Thank you. The next question comes from Chuck Grom of Gordon Haskett.

For doing this timing there, so I’m going to try to sneaking too. Wondering if you could share transactions by month during the quarter for us and also quarter to date. And then wondering if there’s any performance differences by region, particularly in some of these parts of the country warehousing has seen more price compression over the past several months.

I’ll take the first part while Bryan is looking the transaction part up. So yes, we’re seeing more pressure on the West, which is where the housing challenges the more significant we’re seeing the same challenges. I think the good news for us is we’re less mature in the West. Our – we’ve got a good density in the West, but the stores tend to be a little bit younger, so they’re still gaining awareness and gaining market share. So hopefully that helps offset a little bit of that softness. But there’s definitely been a change in trajectory in the West over the last six months.

Yes. And if you’re thinking about the trend, so the quarter was nine, nine down negative transaction comp, it was eight, seven down in January, 10, 8 down in February and 10, 1 down in March. So really didn’t deviate that much kind of as we moved throughout. So to Tom’s point, the average ticket change was due to us lapping higher retail from last year, as well as square footage being down just a little bit per transaction.

Thank you. The next question comes from Karen Short on Credit Suisse.

Hey, thanks very much. Just a quick couple, two questions. So with respect to the Pros, I think you made a comment that you thought that the Pro backlog had actually deteriorated. So I wanted to just clarify that. And then the second question I just had is, I think you talked about in prior quarters when commodity prices come – kind of come down, you’re more likely to actually bring down prices. And it seems like that’s maybe not what you’re saying today, so I just wanted to clarify that.

Yes, I’ll take a stab at that and then Tom and Bryan can weigh in as well. On the Pros, yes, I think we are seeing backlogs sort of revert back to the mean, they were so high and so strong for such a long period of time after we back opened up in the second half of 2020. And this is a bit of a generalized statement, but generally if you want a Pro to come to your house to do a measurement, give you a quote, you can have them in there within a week, and then they’re going to have that quote assuming you agree to them once you agree with them within two or three weeks after that, you can have that installed. We spent a lot of time with a substantial amount of our Pros. In total, we probably talked to close to 1,000 of our Pros over the last several months. And what they’re telling us is they’re busy. They’ve got plenty every remodels, they’re doing construction, they’re taking on new kinds of work. The biggest piece of the business that has slowed and it makes sense when you look at existing home sales being down 20%, 25%, 30% is the house flipper piece. That’s the big piece of the Pro business that I think has slowed is just not as many house flipping items going on. And on the pricing front I would say again, as we’ve said a couple times, I mean our prices are as good as they’ve been versus the competition. We have lowered prices this year and we have seen competition lower prices this year. But I think we’ve been thoughtful in maintaining or in some cases improving our prices versus our competition and we have lowered prices.

Thank you. The next question comes from Seth Sigman of Barclays.

Hey guys, I wanted to focus a little bit on SG&A specifically store OpEx, which I think was up about 3% per average store. I’m pretty sure that’s above what you had implied in the full year guidance. Is there anything one off or timing related that we should be thinking about? And just how should we build out for the rest of the year? If I recall you had also planned for lower volume in your expense outlook, so just how do we think about the levers if comps do stay at this level?

Yes.

Yes. Hey, this is Bryan. I’ll go ahead and take that. So we came in at 27.1% of sales. I think we got it to 27% for the year. And so as you think about that going across it’s going to be 27% – our expectation is 27% for the year and pretty steady kind of throughout each quarter. So that’s best way that I can help you kind of model that. And that’s what we guided too. Yes. And on a per store basis, just to kind of clarify that as well. So versus last year, it is up just slightly and majority of that is due to depreciation.

Thank you. The next question comes from Kate McShane of Goldman Sachs.

Hi, good afternoon. Thanks for taking our question. I wondered if you could dimensionalize the share gains you’re seeing any further. I know you mentioned you expect accelerating trends this year, Tom, but what are you comparing it to? I just would imagine that things were from a competitive standpoint, given the supply chain and challenges and inventory disruption, that there was probably some good share gain taken last year. But just how should – what should we assume for share gain this year versus what you saw in 2022?

I mean, I’ll start modestly better. I think we’re taking a good amount of share. I think the independence have a difficult time navigating in this environment. I think people are looking for value. We are the low cost leader. Our prices are the best. And I think that’s bringing people that are doing flooring jobs into our stores. So I just think because of the nature of this macro environment that our ability to take share versus independence is pretty significant and it’s what we’re – it’s kind of what we’re seeing. And if you look, when Mohawk did their call, and Mohawk talked about North American sales, their North American sales were down a little over 11% in their call, now there’s some soft surface in that. So it’s not all hard surface, but our total sales were up 9% in a quarter.

Yes. If you look at our market share versus the growth in the industry, when you look at market insights and some of the other people that provide that, that they’re not showing the market growing at the same rate we are. And we had one of the largest credit card issuers at least for their business, which they own a substantial portion of the U.S. credit card business show that, that since 2020, we’d had over 500 basis points of market share gain relative to what they saw from their other people buying from specialty flooring as well. So the three – the ways we triangulate it shows in all cases, we’re gaining market share in this environment.

Thank you. The next question comes from Jonathan Matuszewski of Jefferies.

Great. Good afternoon. Thanks for taking my question. So trade up to better invest SKUs has been helping gross margin for a while now sounds like that continued in 1Q. Is this dynamic anticipated to continue as we move throughout the year? And basically is this dynamic factored into the gross margin guidance? Thanks so much.

Hi, this is Ersan. Our [indiscernible] based penetration continue to improve year-over-year. And we – even when we did the retail reductions, we took the approach of the balanced portfolio approach so that we can have a better shopping experience for our customers at this point. We see the trend going to better ambitious as we continue.

I think when if a consumer is going to do the job in their home, they’re going to buy what they want. So the less consumers are coming in and opting to buy, but I think if they’re doing the job, they’re going to buy what they want and that they tend to gravitate towards the better and best. Our merchants have done an outstanding job continuing to go. We never stop doing product line reviews. We never stop bringing in new products that we’re playing for the long game, this is a moment in time, this is a difficult macro, but we know on the other side of this we’ll be ready for it. So I expect those trends to continue and to – and those should continue to help margin and that’s into our assumptions.

Thank you. The next question comes from Justin Kleber of Baird.

Yes. Good afternoon, everyone. Thanks for taking the question. Just another follow-up here on the price reductions. How much have you rolled back prices? And it wasn’t clear to me, are you already seeing customers respond to lower prices or are you just expecting that to happen? Because I think you said, Tom, that transactions decelerated in April from the March, right? So just want some clarification there. Thank you.

Transactions were flat in April to – so in line with our expectations. It’s too early to understand elasticity and the price changes we’ve taken. If you go into the stores, you’ll see there’s signing in the stores where we’ve taken the prices down. And our expectation – as I mentioned on the previous call, I mean, part of that is we want to stay to the low cost leader. We took price for the first time since I’ve been here. We took prices, supply chain costs were coming down. We felt that we need to pass some of that back to our professional customers. The supply chain costs have gone the other way to we’re their partners and we want to be their partners in the long run. So we felt it was prudent. It’s too early to tell the benefits of it. We’ve maintained our spread while taking the prices down. But as I said earlier, we’re going to watch elasticity and we’ll be thoughtful in what we pass along for the remainder of the year.

Thank you. The next question comes from Seth Basham of Wedbush Securities.

Hi there, this is Nathan Friedman on for Seth. Thanks for taking our questions and I’ll try to squeeze two in here. First, as you start to renew some of your freight vendor contracts, should we be contemplating some gross margin benefits now that freight costs have come down significantly? Or is this not as material of a benefit in times past? And then secondly, it may not be as large of an issue as it was in the past given some navigation out of Asia, but we’ve read about regulatory changes regarding imports from Asia being interrupted with the U.S. requiring proof of supply chain compliance as part of a Forced Labor Protection Act. So my question there is just curious if you – if there’s any impact you’re seeing that we should be contemplating or considering or if this is further helping some share gains as others struggle. Thank you very much.

So I’ll try to answer both of those for you real quick. This is Bryan. So from a cost perspective, just keep in mind that we’re on a weighted average costing system. So all of that favorable supply chain impact that we’ve gotten from a cash basis or from a contract basis in Q4 and early here in Q1 will bleed in throughout the year, so those have been contemplated kind of throughout the year and that’s part of what allows us to have the optionality to give some of that back to our consumers. So that is contemplated in there and we do expect to continue to receive savings throughout the year. With that and as far as your second question for the Uyghur compliance stuff to date, there have been no action that have impacted our business. And so just to expand on that little bit, we’re focused on working with our suppliers prevent disruptions by continuing to map their supply chains, monitor their material sourcing and being prepared to respond to U.S. customs if or when needed.

Thank you. The next question comes from Chris Horvers of JP Morgan.

Thanks. Good evening, guys. My only question is as you think about the average footage increase that you’ve seen maybe since 2019, how did you think about that in terms of laying the guidance out? If we went back down to more of a pre-COVID size average project, what would that represent from a comp headwind perspective?

Yes, I’m not sure. I mean, we’re looking at each other, Chris, that’s a really question to understand. I think that our average square foot pre-COVID was probably better than it is today. I don’t have that date in front of me, but I would say there’s a pre-COVID number.

It’s slightly, but I wouldn’t say that it’s materially different, Chris, the way that I would say it is down slightly as we talk about our square foot per transaction is a little bit less. But it’s tough when you think about projects because do they come in 2 times, 3 times, 4 times. Or do they come in once and kind of bundle that together? So square foot for us, we tend to look at it on a project basis as well as on a per transaction. And so I see on a project basis it is down a little bit from pre-COVID, but I wouldn’t say that it’s materially less.

And there’s other complexities in that too. Our Pro business was probably 30% of our sales back then. Now it’s over 40% at least the Pro tendering it, our design business was much less material than it is now. We know when our designers are involved, the project size goes up as well. So it’s just a – it’s a fairly different business now than it was back then.

Thank you. Your final question comes from the line of Liz Suzuki of Bank of America.

Great. Thank you for squeezing me in. So I just had a question about the inventory, you mentioned that it was down in the quarter and from fourth quarter and I’m just wondering what that looked like in units and whether there was some intentional destocking there based on what you’re seeing in demand.

Yes. I mean, look, units were down from year-end because you’re talking about from December 2022, we were down 8.6%. So yes, I mean some of that was us putting suppression on orders, just getting it in line. But you will see that grow year-over-year as we exit the year, it’s just going to grow at a slower rate, modestly slower rate than we will for sales. But there were units down. I mean that was…

And I would just say that our – but our in-stocks terrific.

But our in-stocks exactly.

Our in-stocks are terrific and they’re a lot better than there were a year ago.

And most of our stores are going to open in the back half. So 65% are opening in the back half and that’s part of the inventory build as well is as we get into the back half and as we open more stores early in 2024, you’re going to see some of that build up.

So I appreciate everyone joining the call. Thanks for your questions. I’m going to look forward to updating you on the next quarter. Thank you.

Goodbye.

Thank you, sir. Ladies and gentlemen, that does conclude today’s teleconference. Thank you for attending and you may now disconnect your lines.