Matt McConnell - Manager, IR Tom Taylor - CEO Trevor Lang - EVP & CFO Lisa Laube - EVP & Chief Merchandising Officer.

Matt McClintock - Barclays Matt Fassler - Goldman Sachs Chris Horvers - JPMorgan Michael Lasser - UBS Peter Keith - Piper Jaffray Dan Binder - Jefferies.

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

Thank you, Derrick, and good afternoon, everyone. I am Matt McConnell, Manager of Investor Relations. Joining me on the call today are Tom Taylor, Chief Executive Officer; and Trevor Lang, Executive Vice President and Chief Financial Officer.

Also in the room is, Lisa Laube, Executive Vice President and Chief Merchandising Officer who will join us for the Q&A session. Before we get started, I'd like to remind you of the company's Safe Harbor language.

Comments made during this conference call and webcast contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and are subject to risks and uncertainties.

Any statement that refers to expectations, projections or other characterizations of future events including financial projections or future market conditions is a forward-looking statement.

The company's actual future results could differ materially from those expressed in such forward-looking statement for any reason including those listed in the SEC filings. Floor & Decor assumes no obligation to update any such forward-looking statements.

Please also note that past performance or market information is not a guarantee of future results. During this conference call, the company may discuss non-GAAP financial measures as defined by SEC Regulation G.

A reconciliation of each of these non-GAAP measures to the most directly comparable GAAP financial measure can be found in the earnings press release which is available on our Investor Relations website ir.flooranddecor.com.

A recorded replay of this call together with related materials will be available on our Investor Relations website ir.flooranddecor.com. Now, let me turn the call over to Tom..

Thank you, Matt, and thank you to everyone joining us on our third quarter earnings call. I’ll begin today's call by discussing the highlights of our third-quarter results, then discuss the impact from hurricanes and update you on the progress we're making against our key growth initiatives.

Trevor will then review our financial results and outlook in more detail. We are very pleased with our top and bottom-line third quarter financial results which exceeded our outlook despite hurricane-related headwinds in the month of September.

This performance once again demonstrates the strength and uniqueness of the Floor & Décor business model within the highly fragmented hard surface flooring industry.

Our better than expected results were driven by strong new store performance, our comp store sales increase of 13.5% which when combined with gross margin expansion and expense leverage resulted in adjusted diluted earnings per share growth of 42% or $0.17.

Before discussing our third-quarter results in more detail, I want to take a minute to say our thoughts remain with everyone affected by the hurricanes that occurred over the past few months. We are grateful to first responders and everybody who helped affected communities prepare for these damaging storms and the cover post-storm.

As many of you know we have three distribution centers and 24 stores that were impacted areas. We're fortunate that all of our associates were safe.

We can't thank them enough for all their hard work to support their community and their dedication during a difficult time getting our stores up and running so we were able to quickly reach the needs for our customers.

In terms of the business impact from the hurricanes, we were negatively impacted in the third quarter but we've seen a lift in the business in the fourth quarter in all areas affected, the stronger growth in Houston due to severe flooding. Trevor will touch on this in his guidance discussion.

Now turning to our results, net sales for the third quarter increased 26.8% to $344 million from $271 million in the third quarter of fiscal 2016 driven by a 19.4% increase in new units compared to the third quarter of 2016 as well as 13.5% increase in comparable store sales.

Our topline results for the quarter were negatively impacted by over 150 total days of store closures including both full and partial store closures across our 24 stores affected by the hurricanes.

We estimate the hurricanes cost us approximately 6 million to 7 million in sales for the quarter and approximately 2.5 percentage points of comp all of which was realized in the month of September, our third month of the third quarter.

In terms of store growth, we opened seven stores during the third quarter which is the most we have opened in any quarter in Floor & Decor's history and we ended the quarter with a total of 80 stores.

We continue to believe there is a nationwide potential for at least 400 stores providing us with a long runway for growth and supporting our annual unit growth goals of approximately 20% for the foreseeable future.

We've now opened 11 of the planned 14 new stores for 2017 which will mark our fifth year of 20% plus store growth and we’re seeing strong sales and profit performance from our class of 2017.

This comes on top of our record sales and profit performance for the 2016 new store openings which were our strongest new store class ever driven by several homerun openings and very dense markets.

Looking at the composition of our comparable store sales for the quarter, our 13.5% comp was primarily driven by transaction growth with a small increase in average ticket. All six regions achieved positive comparable store sales growth and we saw continued strong performance from our e-commerce business.

We remain encouraged by these metrics which illustrates that our multichannel business with this unmatched breath of hard surface flooring and accessories assortment offers a tremendous value to the customer continues to resonate fueling our continued market share gains.

Our unwavering focus on innovation, as well as goods better and best product offering are all the keys to our success. We continue to upgrade and improve our visual merchandise marketing in stores and online which we believe is inspiring our Pro and Do It Yourself customers.

We’re also enhancing our customers experience by introducing several technology tools online and in-store.

These tools will help facilitate the customer's experience but negative easier to understand their installation accessory needs, new CRM tools to help us understand the market better to our customers, and new Pro tools and solutions that will help our customers be more efficient in running their business.

From a category perspective, we’re pleased with the performance of all categories with laminate and decorative performing above the company average, all other categories of the exception of stone also comp positive. As we mentioned before, innovation in trends change and vary by category.

Our product and category diversity allows us to capitalize on these shifts as we are able to effectively flex our offerings in response to our customer's preferences.

Our differentiated shopping experience combined with a positive secular shift of our surface flooring and a supportive housing market position us well for further share gains as we continue to ex against our key strategic priorities of new store growth, increasing comparable store sales growth, expanding the customer connective experience, continuing to invest in the Pro customer.

We’ll touch on each of those goals. New store growth, as I mentioned we opened seven stores in the quarter, a record number of quarterly openings for Floor & Decor. These openings stand both new and existing markets.

I believe each year our new stores get better than the last year and we continue improving the shopping experience, localized merchandising, back-office and visual merchandising solutions.

We had a significant white space opportunity nationwide that supports a five-fold increase in our store base and the consistently strong customer response to our new stores that reinforces our confidence in the growth potential for our highly differentiated business.

As we continue to open new stores in existing markets, it increases brand awareness, makes shopping and returning easier for all customers, and helps grow the overall market. We are currently finalizing our 2018 new store lineup and we believe our new stores will continue to perform very well.

Our second goal increasing comparable store sales growth, the strength of our 13.5% comp in Q3 despite hurricane headwinds is a result of our consistent comp driving efforts including expanded marketing campaigns, product innovation, localized assortments, visual merchandising enhancements both in-store and online, as well as our strategies to enhance our progress.

As we opened more stores, it increases our brand awareness which helps all other stores in that market.

Our years of investment in building our global supply chain infrastructure combined with some of the most experienced merchants dedicated to our industry enables us to deliver the best products and newest innovations from around the world at everyday low prices.

This is one example of how we differentiate ourselves and what makes our value proposition to our hard surface flooring Pro and Do It Yourself customer different from any other competitor. Innovations and products durability and fashion have been an important factor in our success so far.

Lastly we continue to hire season designer and staff our design centers. These professionals are not just sales people but real design talent which is a great asset to our customers and helps to expand this area of the business for us. Our third goal is expanding the connected customer experience.

This remains an important initiative for us given we know that our customers and potential customers use our website for research, inspiration and education often before ever vesting a store.

Therefore, just as we work to elevate the in-store experience, we're simultaneously improving the functionality and capability of our website to drive an even better more seamless connected customer experience. Soon we'll begin piloting the project estimator.

This online tool will help our associates and customers select installation accessories, explain why they would choose one product versus another and make the shopping experience easier. As we continually add tools like this to our website, we believe this will drive traffic to our website and improve the omni-channel cycle.

Our progress here is evidenced in the over 50% growth rate delivered by our e-commerce business in the third quarter to approximately 6% of total sales.

As a reminder, we believe our expanding store network facilitates our e-commerce sales is approximately 85% of purchases made on our website are picked up in the store through our buy online pickup and store program. Our next goal is continuing to invest in the Pro customer.

The Pro customer remains an extremely important focus for us given their high project frequency and spend as a result invest in our Pro capabilities and the stores level to elevate their shopping experience remains in the form of our initiatives.

This includes capabilities such as a separate in-store product that’s going to fall online with direct access to our protein, training on installation services, free design and storage services and credit offering among others. In the third quarter we made progress on our Pro App that will be piloting soon.

This tool when completed is intended to give our Pro customer everything all in one place to help them manage their Floor & Decor purchases and includes time-saving features such as alerting are stores ahead of time with the Pro's on the way so that we can have the product ready faster, a major service differentiator as Pro's one speed and accuracy.

Our research indicates once the Pro customer visit the Floor & Decor, our assortment, price points and service level draw at 70% conversion rate. So we're focused on doing an even better job of getting Pros to visit our stores for the first time and with traction of our focused marketing.

We're still in the earning innings of maximizing our Pro business and we expect continued strong growth particularly as we build away among growth.

We've always had a philosophy of reinvestment to sustain and grow our competitive advantage here at the Floor & Decor and we continue to make investments across the business in marketing, merchandising stores, websites and supply chain technology and talent.

So in summary, we are very pleased with our third quarter performance and the progress we continue to make against each of our growth strategies. Our strong year-to-date results have continued into the fourth quarter as far as we have benefit from post-hurricanes demand in addition to continue to strengthen in our unimpacted markets.

And as a result we are raising our full-year guidance. I want to thank our teams across the country that executes day-in and day-out and provide the best-in-class service to our customers. They have been critical to our success and together we look forward to building on our market share gains going forward.

I'll now turn the call over to Trevor, our CFO and Head of Professional Services to go over our financial results and guidance..

Thanks Tom, and good afternoon everyone. I will review our third quarter 2017 results, provide some color on the impact from the recent hurricanes on our business, and then discuss our outlook for the remainder of fiscal year 2017.

As Tom touched on our focus on innovative, high-quality hard surface flooring at everyday low prices, great customer service, offerings unique to Floor & Decor along with continued investment in our supply chain marketing, connected customer, Pro and storage strategies led to record results in the third quarter and fiscal year 2017.

Net sales in the third quarter of 2017 increased 26.8% to 343,900,000 from 271,300,000 in the third quarter of 2016. We ended the quarter with 80 total warehouse stores, an increase of 13 stores or 19.4% versus the 67 stores at the end of the prior year period.

During the quarter we opened seven stores which as Tom mentioned is the highest number of new stores we have opened in Floor & Decor history. Our third quarter comparable store sales increase of 13.5% was above our outlook despite the hurricane headwinds and came on top of the 19.3% comp store sales increase in the prior year period.

September 2017 was our 103rd month of comparable store sales increases. We are in what should be our ninth consecutive year of double-digit comp store sales growth. For the first two months of the quarter, our comparable store sales increased accelerated from the 14% comps we were running in the first six months of fiscal 2017 to 16%.

Due to the 150 closed or partially closed store days and the [indiscernible] storms of our 24 of our high volume stores which were roughly one-third of our comp base, our company decelerated just under 10% in September.

We believe our comparable store sales would have continued at the 16% rate in September if not for the hurricanes and we estimate that this cost us approximately $6 million to $7 million in sales in the third quarter. Our comp string was driven primarily by transaction growth as customer awareness of Floor & Decor mall continues to grow.

We believe having high quality hard surface flooring consistently introducing new trend right products for every budget at low prices is why we've been able to drive sales increases to transactions for almost a decade now.

Now into profitability, gross profit increased 28.4% to 142,500,000 in the third quarter from 111,000,000 in the third quarter of fiscal 2016. Gross margin increased by approximately 50 basis points to 41.4% in the third quarter.

Approximately 35 basis point of this increase was driven primarily by a shift in product mix to products that carry a higher gross margin.

Gross margin also increased by approximately 20 basis points due to lower inventory shrinkage and damage partially offset by five basis points of higher distribution center cost and supply chain cost of investments to expand our distribution capacity and increased volumes of inventory to support our sales growth.

As a percentage of sales, total operating expenses increased approximately 130 basis points to 33.1% compared to the third quarter of 2016.

Excluding approximately 500,000,000 in disaster expenses related to the hurricane, 700,000,000 accrued in the third quarter of 2017 for our secondary offering that we completed in July 2017 and 3.5 million related to litigation settlement in the prior year period our operating expenses as a percent of sales decreased 30 basis points to 32.8%.

Our expense leverage on higher sales was mostly offset by seven new stores that opened during the quarter. As a reminder, our new stores operating expenses generally run about 50% higher as a percentage of sales in the first year of operation than mature stores.

And since we’re adding about 20% new stores a year, this mitigates the significant operating expense leverage we are getting from our stores that are more mature. Our strong sales growth, gross margin expansion drove 16.4% increase in operating income during the third quarter 28,600,000 as compared to 24,600,000 in the third quarter of fiscal 2016.

Excluding the charges I just outlined, operating income for the quarter would have increased 41.3% to 29,800,000 as compared to 21,100,000 in the third quarter of fiscal 2016. Our reported tax rate for the quarter was 10.5% compared to 35.9% in the third quarter of 2016.

This decrease in effective tax rate was primarily due to a 6.8 million excess tax benefit related to the stock option exercises in the third quarter 2017 and accordance with the new option accounting rules ASU 2016-09 and to a lesser extent due to lower state income tax rate due to changes in our corporate structure.

We have adjusted the 6.8 million excess tax benefit related to stock option exercises out of our calculation of adjusted diluted earnings per share. Before discussing net income and guidance, please note that I will discuss both GAAP and non-GAAP measures.

As described in our earnings release, we believe non-disclosures enable investors to better understand our core operating performance on a comparable IPO adjusted basis between periods. The reconciliation of these GAAP metrics to the most directly comparable GAAP financial measures can be found release issued in connection with this call.

Adjusted net income and diluted earnings per share which includes the statutory tax rate of approximately 37% was 17,300,000 or $0.17 per adjusted diluted share as compared to 12,200,000 or $0.12 per adjusted diluted share in the third quarter of 2016. This represents an increase in net income of 5,100,000 or 41.8%.

Adjusted EBITDA for the third quarter increased 41% to 39,700,000 compared to adjusted EBITDA of 28,200,000 in the third quarter of 2016. We ended the quarter with $150 million in cash and available liquidity under our revolving credit facility and 187,400,000 outstanding on our borrowings.

At the end of the third quarter our leverage ratio was 1.2 times. Our inventory balance at the end of the third quarter was 395,600,000 up 94 million or 31.2% in the third quarter of fiscal 2016.

The increase was driven by our new store growth as well as planned strategic investments as we prepare for the large Savannah and mining distribution center relocations later this year and into early 2018. Now turning to our fourth quarter and full-year 2017 guidance. We're seeing an increase in sales in the hurricane effective markets.

The stores in these markets now represent 35% to 40% of our comp base and as such we're raising our fourth quarter 2017 comparable store sales guidance. As we have previously mentioned, our comparable store sales accelerated in the third quarter to 16% before the hurricane impact on our sales in September.

Due to continued strength of the business, as well as the faster growth in hurricane affected markets, we've raised our fourth quarter comparable store sales expectations to 17% to 19%. Our experience with prior hurricane and flooding events as well as others in the industry suggest the lift in sales could last three to four quarters.

We do believe we will have an elevated comparable store sales into the first half of 2018 as home and business owners rebuilt from the hurricanes and the associated flooding.

Our expense also suggests this increase will be lower to further we get away from the hurricanes and do not believe the fourth quarter comparable store sales increase is indicative of how to plan for 2018. We are not yet done with our strategic 2018 planning and budgeting processes and we plan to provide fiscal 2018 guidance in March.

We do believe comparable store sales will be higher in the first half of fiscal 2018 due to repair and building that will occur due to the hurricanes and we are committed to our goal of growing our annual earnings 25% for the foreseeable future. As Tom mentioned we are also committed to reinvesting back into business to support our growth.

We are only a fraction of our ultimate size and we believe continued investments in key strategic areas will further differentiate us and allow us to continue market share gains.

For the fourth quarter of fiscal 2017, we expect net sales to be in the range of 362 million to 370 million, an increase of 30% to 33% versus the fourth quarter of fiscal 2016. This growth outlook is based on a comparable store sales increase in the range of 17% to 19%.

Due to the strength of our business, we're making important investments for the future in the fourth quarter.

A few words mentioning include first, we have decided to incrementally invest in additional $2 million in the fourth quarter of 2017 in general and administrative focused on new marketing creative to be used at the end of this year and into 2018 and beyond, as well as a labor study and in-depth customer consulting strategies to help us formulate continued long-term growth.

We're finalizing our customer purchasing path study and have learned some very valuable strategies and we will kick off our labor study here shortly with the goal of more efficiently deploying our labor and consultants of selling.

Second, our distribution center cost are increasing by an estimated $2 million above what we believe will be a normal growth rate due primarily to the plan distribution center expansion to the relocations. As mentioned on previous calls, we are more than doubling our distribution square footage to 2.9 million square feet by the end of fiscal 2017.

We are relocating our current Savannah DC to our new 1,400,000 square feet Savannah DC in the fourth quarter 2017 and in early 2018 we plan to relocate and consolidate our Miami DC to this new constructive 1,400,000 square feet DC in Savannah.

With the added distribution center capacity we believe we will be able to support approximately 110 store before having to open another distribution center.

It's important to note that we are building inventory to support the hurricane driven sales increases, as well as to support the two to three week closure of our Miami DC in early 2018 which we will see reflected in our year-end inventory balance.

Even with these investments, we are planning a modest increase in operating margin and a strong growth in adjusted EBITDA earnings per share for the fourth quarter compared to the same period last year.

GAAP diluted earnings per share for the fourth quarter of 2017 are expected to be in the range of $0.15 to $0.16 and adjusted diluted earnings per share is planned to be in the range of $0.14 to $0.16. Adjusted earnings per share assumes a 37% statutory tax rate, as well as 104,600,000 weighted average diluted shares outstanding.

We expect adjusted EBITDA for the fourth quarter of 2017 to be $36,800,000 to 39,500,000 an increase of 31% to 40.6% over the fourth quarter of fiscal 2016. Turning to our full-year outlook.

Given our strong third quarter results and improved fourth quarter outlook, we now expect sales for fiscal 2017 to be in a range of 1,357,000,000 to 1,365,000,000 an increase of 29.1% to 29.9% versus fiscal 2016. This net sales growth outlook is based on 14 new warehouse format stores openings and a same comparable store increase of 14.5% to 15%.

Given our outperformance year-to-date and our fourth quarter outlook, we now expect a slight improvement in our gross margin despite absorbing expenses associated with expanding our distribution centers by over 100% with a large DC relocations in Los Angeles and Savannah that we expect to complete by the end of the year.

We expect to leverage our operating expenses and therefore an improvement in our operating margin as well as our EBITDA margin.

Diluted earnings per share for fiscal 2017 is now expected to be $0.70 to $0.72 with adjusted diluted earnings per share of $0.64 to $0.65 based on adjusted diluted weighted average shares outstanding of 103,100,000 and statutory tax rate of an estimated 37%.

We expect fiscal 2017 adjusted EBITDA to be in a range of 154,700,000 an increase of 40.2% to 42.7% over fiscal 2016. We anticipate our GAAP tax rate will be approximately 34% for the fourth quarter. Our lower fourth quarter tax rate is due to planned research and development tax credits.

As a reminder this guidance does not consider the tax benefit impact of new stock based compensation accounting standards that may occur after the third quarter 2017.

With respect to capital expenditures in fiscal 2017, we expect to spend about $104 million to $107 million with $53 million to $54 million on this capital budget being spend on the 14 new store openings in 2017, as well as towards constructions that will open in early 2018.

$35 million to $36 million is earmarked for storing malls and the relocation of two of our core distribution centers. The remainder of the CapEx approximately $60 million to $70 million would be directed towards our IT, infrastructure, e-commerce and store supports in our initiatives.

As a reminder our yearend inventory plan to increase approximately 35% over last year. As we discussed briefly we’re making strategic investments to prepare for the large Savannah and Miami distribution center relocations and to improve key in stock position in anticipation of Chinese New Year shutdown.

For all the details related to the results in this guidance please refer to our earnings release. And I think with that operator, we'd like to turn it over to Q&A..

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

Two questions, I guess the first one Trevor just on the guidance 17 and 19 4Q that's almost double what you guided originally for 3Q, is that strength entirely hurricane related, is anything else going there.

I know you exited September even at a lower run rate there and just can you kind of update us on your philosophy related to guidance I believe historically you’ve tried to guide more in line with your expense plan, is that kind of your expense plan is gone up so that's why you're guiding more aggressively.

Just kind of walk us through that level of guidance? Thank you..

Matt this is Tom, I will take the first stab of your question then I'll let Trevor talk about guidance philosophy. As we mentioned going into the storm, our business was continuing to do very well. I mean going into the storm we were comping right around 16%. So that is stronger than we thought the business would be.

We’re seeing good strength all around the country and then you’re going to get some benefit of the affected areas going forward.

So as we think about guidance for the fourth quarter, we look at how the business is going within this quarter kind of the rebound how it went and how it was going before the storms hit and that's why we took the guidance up. Trevor you want to talk philosophy..

We have shortly guided more conservative out but as Tom mentioned we have great systems. We're looking at the business everyday so we took that into consideration as we gave this guidance. And then I think the other large increase is because of the storm affected stores are performing higher, so that kind of pulled as up.

As we mentioned in the prepared comments, we were comping about 16% before the storms hit and then when you add the benefit of what the storms look like, they may participate and they might get you up to that 17% to 19% that we’re guiding to..

And then Tom if I could just talk about the new store openings this quarter, seven stores pretty impressive I think that's what almost 10% on the quarter itself.

Any lessons from those stores that you've seen or anything that you do differently or anything that's kind of stood out for you as maybe unique or challenged in terms of the store opening itself or the aftermath of the response from consumers?.

I think that look - we would we will get better but we want better cadence in our store openings to open seven in quarter as a lot. We've opened - this is our fifth year of 20% plus unit growth so we opened lots of stores.

We're very good, I mean I feel like we’re very good at it but we got teams in place, resources in place to be able to execute upon that plan. We'd like a little bit more spread out but there is no learnings or missteps in performance of the stores. They came out great.

We were fortunate that we had talent lined up where at a time right to be able to go and run these stores we’re not easy to run. We have a very unique culture there is a lot decision-making at the store level.

So we spend a lot of time training ahead of time to make sure that people are ready and they were and they’ve done great and we’re pleased with the opening so the learning is - we’re going to keep pushing our teams and our landlords and developers to work on better cadence of our stores and we think we’ll get there.

So what was the second part of the question Matt?.

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

Yes, we’re pleased. We continue to learn as we open stores – we’ve opened a lot of them now in the last five years so I think we know kind of how we want the stores to be, how we them to look and I think we do well.

There is no - we’re never satisfied we always want the stores to do better and we will push our teams to try to get better but look I couldn’t be more thrilled.

When you just put this quarter into perspective with what we have to deal with the hurricanes across good portion of the company and having that prepared affecting our distribution centers and still been able to get the stores open on time good and good openings, good attendant programs. I couldn’t be more pleased with the efforts of our teams..

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

My first question relates to the sales that you're generating in storm related or storm impacted markets.

What’s the gross margin profile of that business does it differ at all from the business that you’ve been doing kind of more broadly?.

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

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

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

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

That’s right..

Understood.

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

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

And my second question, as you talk to customers, I know there's often an insurance cycle in terms of time to market for replacements. To the extent you can get a sense of how people are proceeding here. Is this is moving faster or slower than others storm given their flooring probably really isn’t at the focal point.

And how would you expect recovery from this storm I know you talked about the duration and the curve et cetera.

But if you think about this versus other storms in terms of the reimbursement dynamic and also the magnitude of damage and the kind of damage that was done, is this a typical storm in terms of recovery longer duration, slower duration what's your short duration that is what’s your read on that?.

I think - my sense and I’ve been to the market a few times and in between engaging the customers and driving neighborhoods and reading as we mentioned. I think the business demand should be good through the third quarter of next year. I think as we get to the sort of quarter now we have a lot to learn.

It's really early in the recovery we've got - we’ll monitor, provide more information as we get more information on kind how long we think the demand is less but my early indications are I mean if there was an article out this week that Moody's talked about the amount of damage that was done, it’s a storm that’s different than other storms that we dealt with before.

And they’re still saying there is a lots of people who aren’t back in their homes there is still lots of construction to be done. So I think it's going to sustain for a while and our job is to be there to provide great flooring and great prices for the customers that need to rebuild..

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

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

So it includes the Houston stores all of our Florida stores because Irma came up through all that and our Savannah store are the stores that were impacted by. We would not going to get into all that detail quite yet, we just want to continue watch and see how it plays out.

Those storm was unique to us I think what we just to stick to what we said in the comments that the business was performing at a 16% comp before the storms and after the storms it elevated to what we said that 17% to 19%..

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

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

Florida was different, Florida really wasn't didn't have had some flooding in some pockets but not a lot, it was much more damaged and kind of the business kind of paused in Florida as people prepared for the storm and then cleanup after the storm as I said there is certain pockets of Florida which have damage which will have rebuild but that's more wind damage and wind damage by in our category and there is lag to that right.

So you got to rebuilt before you commence.

Flood damage there is a different degrees of flooding throughout Houston so different areas of Houston are performing they’re coming quicker because they ready to put flooring in, in other areas were flood up to the chest level and they got to replace insulation drywall other parts of the home before they’re going to get to the floor.

So that’s how we think it’s a sustained - should be sustainable for the next at least couple of quarters maybe three and that’s how we see it..

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

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

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

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

With storm comping negative despite the whole store up in the low to mid teens, you’re seeing a pretty sizable change in the mix.

So would you shift some space allocation or we think about shifting space allocation within your store over time?.

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

Yes, we are always looking at that that’s one of dealing of our business model that we carry wood, stone, tile, laminate, LVP so whatever the customers are most interested in we can easily flex our space to that given the way that we rack our stores.

So yes, as stone has over the last few years really kind of heeded some ground to tile just because Injet technology has made that tile so much better looking and very affordable so we have seen that over the last few years and yes we have started reducing some face in stone to give that face to other things..

And Tom, Trevor, Lisa if any of you could give a shot that will be great but if could kind of breakdown your comp between the innovation, the contribution from new stores and the brand awareness and contribution from the growing brand awareness.

How would you break down your comp according to those different areas along with just the growth with categories..

That would be a neat trick - that’s kind of tough to break down I would tell you I think it is a little bit of all of that right, so if you look at I mentioned that before I mean if you just look at the innovation across hard surface flooring between fashion and durability that is certain drive that certainly driving customers to step up and change when they take carpet out to go in there.

Certainly as we've seen, we mentioned it a couple times in the script we’ve seen this we’ve opened stores in existing markets particularly when we're opening up out in the West and along the West Coast and the Northeast where our awareness, so those who got the more stores that awareness I am sure is driving some of the performance as well.

So then you have new stores that our model this is the way the new stores tend to do well in the second and third year. So all those three backers are benefiting I really can’t break it apart..

One thing we did mention in the S1 is our new store are contributing probably 400 to 600 basis points to our comp, and I think you think that's probably still about the same.

So if you go back and look at that, that’s one you'll see some of that documentation and so we can't say the new stores are get to sort of less than three years old probably some portion to 400 to 600 basis points lift in our comps..

My last question is, as you’ve enjoyed this great success and done so in a very public way or more public than it's been.

Has there been any change in pricing from some of mom and pops through the regional players that are trying to emulate your strategy in a way?.

I mean look this has been a competitive category as long as I have been here. I have the seen the competitors react to us as we've opened stores in new markets, independence as we come into markets they’ve tried to react to what we do. We’ll continue to see that.

I won't say it’s all dramatically different since we went public, we certainly - we pay attention to that, we have a lot of respect for what our competitors do. We pay attention we try to learn what we can learn, but at the end of the day we think our total value proposition is what wins the game our models just different.

We have big stores everything is in stock, we’ve priced aggressively and we display the product differently than others can and a good focus on training the content or the content knowledge. So it just we think the model is better overall and that's what we do with you..

Our next question comes from Peter Keith with Piper Jaffray..

I was just going to add on one more question about competition we’re getting a lot of investor questions on this topic because two publicly traded competitors have mentioned it stepped up competitive environment may be a little bit change in consumer buying behavior focus on lower price points.

Clearly results are being impacted but have you noticed any change in overall consumer interest with categories or price points?.

The second part of this probably easier no, not in price point but we have seen no difference in what our customer demands are across the board in categories. I think what’s driving demand changes within our stores has much more to do about innovation within the categories.

So its durability customers like the durability of water resistant product and water approved products and that drives them into that side of the store and they love the fashion component that we’ve done and then our merchants have done a good job and better best. So between across everything we do we think we're seeing the benefit of that.

So long way around I don’t know there's anything competitively that’s shifting demand one way or the other..

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

Yes I think we are - I think we’re able - we’re certainly able to get our stores staff which is inspiring me as they were able to do it in new markets for knowing us who we are. As we’re going into existing markets people tend to know who we are and we’re able to attract and get people easier but we had no problem in staffing the new stores as well.

I think we provide something very unique for our associates to come to work for Floor & Decor.

We're growth retailer, there's just not a lot of them so you we’re promoting we tried 75% of our - the people that run our stores we try to promote from the inside, we try to - all the department heads get promoted from inside all the ADMs get promoted from inside.

So, we really sell on the dream and we can bring people in and they achieve things that they didn't were possible in their lives.

So because of that we’re able to recruit good people so we’re not having problems staffing our store and our turnover is actually down when you look at the store turnover of associate turnover year-over-year we're actually down this year so all those things point to pretty good story for us..

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

Couple of questions, first on just flow through. I know historically you thought about or given some indication that the flow through should run about 20%. If I just look at your reported sales and adjusted EBITDA versus the guidance its looks its probably close to 50%.

Just wondering if there was any shift in expenses or if you changed the way you think about that flow-through going forward?.

We were fortunate in the margin profile, most of that flow through from margin level and as the storms were hitting us, we can't hit the brakes on spending right, because we didn’t knew how bad it was going to be at the time.

And so traditionally, like we mentioned in the fourth quarter the business is strong we’ll pull an investments and that’s kind of how you get that flow through to be in that low 20s. And so just because we didn't again how big those storms are going to be we slowed that down.

Had we not had the storms, we probably would have that flow through to be able to lower..

We were busy getting our stores closed and open..

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

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

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

This is actually [indiscernible] on for Zack Standum. Thanks for taking my question. I was hoping you guys could update on some of the adjacent categories you’ve been testing and rolling out. So how things like shower doors, mobile candle tops have been performing versus your plan.

And then where we are in the roll-out and if there is any other category we should keep an eye out in the inclusion in the stores. Thanks.

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

They are in how much Lisa?.

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

So by the end of this year they will be in all the stores. From a candle top perspective we are pleased with our slab candle top program. It continues to do well. It's in less than 20 of our stores today. It will go into more stores next year. It takes some space so we’ve got to be thoughtful on where that goes. But we are pleased with it.

As for additional adjacent categories, we now take the approach we'll let our customers dictate that. If our customers have - they are looking to get - it’s like two ways.

If they are looking to and its part of the project like from a calendar things we offer, we know that when people are doing bathrooms, if they are tiling their bathroom as they go to need their frameless shower goes, that’s a natural category and the same thing with candle tops lot of times you’re picking towel for your kitchen, you’re going to start to look at cenacle top looks like.

So those are natural extensions and there is others that make the same sense and at times we’ll look at that, we are not going to lose our focus from hard surface volume, that’s who we are, that’s what we do but there will be more categories to come and as we get thing under pilot, we’ll share with you..

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

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

And once again that does conclude today’s conference call. We thank you for your participation. You may now disconnect..