What's In The Cards For Floor & Decor In Q3? Analyst Sees Pressured Operating Margins Amid Weak Housing Market

Telsey Advisory Group analyst Joseph Feldman reiterated the Market Perform rating on Floor & Decor Holdings, Inc. FND, lowering the price target to $90 from $105.

Floor & Decor will report 3Q23 earnings on Thursday, November 2. 

The analyst expects 3Q23 sales to increase 3% YoY to $1.1 billion, on a lower comp of (9.0%) vs. (8.5%) previously. 

As of August 3, Floor & Decor's 3Q23-to-date comp was (8.4%) vs. a tough comparison of 13% through August 4, 2022.

The analyst adds that sales likely remained challenged through the balance of 3Q23, going against comps of 14% and 10% in August and September 2022, respectively. 

In the near term, Floor & Decor's business is likely to remain under pressure from the weak housing market trends and lapping the solid pandemic-related gains, according to the analyst.

The housing market has remained weak as existing home sales declined 16% in 3Q23, the analyst adds.

Feldman now projects a 3Q23 operating margin contraction of ~210 bps to 7.2% vs. 7.4% previously, reflecting inflation and higher store operating expenses.

The analyst expects gross margin expansion of 160 bps to 42.4%, driven by higher product margins on lower freight rates.

Feldman now forecasts SG&A expense ratio deleverage of ~360 bps to 35.1% vs. 35.0% previously, given the softer sales forecast and new store openings.

The analyst lowered the 2023 EPS estimate to $2.39 from $2.45.

Price Action: FND shares are trading lower by 2.26% to $78.93 on the last check Wednesday.