Floor & Decor Holdings, Inc. (FND) Earnings Call Transcript & Summary

Great. Thank you, everyone, for joining day 2 of the BofA Consumer Retail and Technology Conference and for tuning in for our fireside chat with Floor & Decor. I'm Liz Suzuki. I'm the hardline retail senior analyst here at Bank of America, and I'm joined by Trevor Lang, Executive Vice President and CFO of Floor & Decor. And I have to give a big thank you also to Wayne Hood and Matt McConnell from the Floor & Decor team for helping with all of the set up today. So first, I'll turn it over to Wayne to give some disclosures, and then we'll go into the Q&A.

Yes. Thank you, Liz for guiding us today. I just have to make some safe harbor comments before I turn it back to Liz and Trevor to begin. Before we get started, I just would like to refer you to the standard safe harbor language included in our press releases as we may make forward-looking statements within the meaning of Private Litigation Securities Act of 1995 throughout the course of our presentation today. So I'll turn it back to you, Liz, with your questions, and to Trevor.

Great. Thanks. So first, to set the stage, Trevor. I mean, understanding that there's a lot of uncertainty, and it's hard to predict what 2021 is going to look like after an unprecedented year in 2020. Can you just go through any areas of guidance or disclosure given in terms of your outlook for the year and just ways that we can frame the way that this year may play out?

Yes. And I also just want to say thank you very much, Liz, for having us. Bank of America is a great partner of ours, and we're pleased to be a part of this conference again this year. So thank you. Thank you for having us. Like many companies, we did decide not to give guidance. We are frankly forecasting the business on a more granular and detailed level than we ever have, but the most difficult item for us to think about is sales and then even more specifically sales in the back half of the year just with all the uncertainty going on -- going out there. I think if you think about our business, we've been a 20% unit growth last year, but for most of our time, we've executed a 20% unit growth. We have discussed kind of what that cost structure looks like, meaning, we want the sales to be $12 million to $15 million in sales the first year for our new stores. We think they can get into the $2.5 million for EBITDA during that first period. You can look at our gross margin and our SG&A rates and some of the language we've set around there. So I think really smart people can model the cost side of the business kind of know, okay, if you're adding 20% resource, they've also said the cadence of new store opening is going to be more balanced this year, meaning, hopefully, close to 25% new stores. We've set the plan to get leverage on existing store, SG&A have come to nice. And certainly, the first half of the year is going to be very strong for us. So I think on the cost side, people can look at our history and what we said and build the cost side of the structure fairly not easily, but they can -- we can work through that. The reason we didn't give guidance, as I said, is the sell-side of it. And so we just -- we're not smart enough to know, there are just so many announcements we didn't feel comfortable technically -- specifically the second half of the year. I think if you take a view that the stimulus, it looks like it's going to the President for signature later this week, the macro backdrop is incredibly strong. Even though interest rates and mortgage rates are higher now, they're still at historic lows. People's wealth is as high as I think it has ever been. We serve a higher income demographic. We estimate a $100,000 to $125,000, I think [indiscernible] something like $1.5 trillion, maybe $2 trillion of cash sitting with people's secondary accounts that didn't exist. It's not that long ago. The household values as of last reported were of 9%. So my house is now worth more. I've got more liquidity in my home. I can stillg et cash and number one is that my portfolio is worth more and we serve the higher income customer. And so if you take all that together, it feels like we're in a good backdrop. And so the other thing simply about our business, we don't have a commercial business, meaning ourselves are pretty consistent throughout the year. Q2 is a little bit higher volume, and Q1 and Q3 are about the same, and Q4 is just a little bit lower because of the holidays. But if you take the view of -- if you just take kind of average weekly sales or monthly sales today you can see, if you play those 4 and just kind of keep them consistent, the sales levels and then add in the new stores, we're going to have an incredibly strong year, very strong. But if you take the position there, people are going to start traveling more, they're going to start going out to eat more, they're going to start going for ballgames. And therefore, the average weekly sales is going to come down a modest amount, we will certainly have a good year. If you take the view, which I don't think, I was far too -- if you take the view that people will stop spending on house renewal, spend a lot money on travel, then we won't have as good as a year. But that's why we didn't give guidance. So I think for -- I think it's just a matter of what we think people are going to stand in the back half of the year is the complexity that we have and those things that I just said won't be said on another call, but I hope to be that the average spending stays kind consistent with the average sales per month, per week, kind of hopefully stays where it is today. And as I said, we'll have a very good year if that stays anywhere near the sales per week we're doing today.

Great. Yes. And I guess that's a very reasonable assumption to make on just that range of potential outcomes. I guess as key markets like Florida and Texas have started to reopen, have you been experiencing any deceleration in demand in those markets? Or have there been a shift in terms of what types of projects people are doing?

No. Those are 2 of our biggest markets. I think they are our 2 biggest markets. And so as you guys heard us say on the call a couple of weeks ago, our sales were up 24%, and that includes Texas, which got shut down for some portion of a week because of the storm. So those markets -- as those 2 markets kind of go our total sales because they're such a huge component of our sales. So those markets are doing fantastically right. They are a little further along and they're opening up. Texas, as you might expect, is probably going to be even -- maybe a little bit better over the next few months just because of the damage, we would expect to come to us. I don't think it will be like working hard, but we expect that there could be some good business because of frozen pipes, and you probably read the same thing, I read in the journal everyday about it being the 10th largest insurance claim in the history. So there's definitely some damage to be fixed and Texas is 16% of our sales. If you look at ourselves in the fourth quarter and you look at our sales in -- as of a couple of weeks ago when we gave that 24% same-store sales increase, it's been consistent across the 31 states we operate in. They've all been kind of north of 20%. The only stores that we see that aren't performing at that higher level are the stores that we've intentionally cannibalized. And also from a category perspective, with the exception of natural wood, which has been a declining category in the industry for a long period of time because of the strength of rigid core vinyl and water-resistent laminate, those also have been closely clustered round about 24% comp. So we're very fortunate that the strength of the business is per basis across most of the 31 states we perform in. And it's fairly strongly clustered around all of the categories, our tile, our natural stone, our rigid core vinyl and water-resistant laminate. And so the answer is yes to Ford in Texas, but even more so than that, it's been fairly strong across all of our categories and all of the areas we're operating in.

Great. And you kind of touched on this a little bit. I'm just curious how you factor rising rates into your outlook or planning assumptions to 2021? I guess it depends on how quickly they go up and how the consumer responds. Arguably, you could see people jumping into get mortgages now if they start to see that trend picking back up or they could just get kind of scared off by. How have you seen your business react to the rising rates in the past?

Yes. I would say every cycle is different. And this one is going to be different too. There's really 2 things that go into housing affordability, right? It's the cost of the home and the cost of the mortgage. And we have seen both of those go up recently, right. As of the last reporting, average home prices are up about 9% and we now know mortgage rates have moved up. And that has been measured and what period you're measure it, 30, 40, 50 basis points to kind of get in the low 3% range. And so historically, if you've seen the affordability to go up at an average rate above income levels, you see existing home sales turn negative, right? And so my guess is that's what would possibly happen if mortgage rates keep going up. They're still at very historic lows if you look over the last 40, 30, 10 years. And so I think it just depends, right? If your mortgage rates keep coming up, then yes, I would expect history to repeat itself and you'd see a decline in existing home sales. Historically, we would say that was the tightest correlation we could have back to our business is that as existing home sales improved, our business got better; as existing homes slowed, our business would decelerate, always probably positive during that period of time. But I think things decoupled in COVID. And they may be coupled. And what I mean by that is existing home sales through Q4, in Q2 and Q3, and our business was incredibly strong as soon as we opened up our business. And I think the other dynamic that we talked about -- that we just talked about is, there's over 120 million house -- homes in America. The homes are getting old. 80% of those are over 20 years old. And the wealth effect, again people have record levels of cash sitting in their bank accounts, the value of their house is worth a lot more than it was and the equity that they own in stocks and bonds and other real estate or other investments is high as well. So they have the ability to spend in ways that they didn't in the past. And so a simple example is that most people are going to move to that next home because their kids are getting older, or possibly they can't [indiscernible] afford to because the mortgage rates are going up and the cost of their house is going up. Maybe they'll use that cash and just make their existing home better. So hard to say for sure, but I do think there's other macroeconomic factors that would help even if existing home sales turned down with just the wealth effect that's occurred because of all the government help that they've given.

Right. Sure. And presumably, the reason why rates are going up is because the economy is generally strengthening, and I would think that, that would be a more important factor than rates alone, but...

Yes. Very true. Matt, just one last for Matt and our team gave me a good stat very -- if you look since 2016, I think mortgage rates have averaged 3.8%. And during that same period of time, our same-store sales have averaged 11%. So we're nowhere near 3.8% today, but we tend to perform even well in a higher rate than where we're operating in today.

Yes. That makes sense. What do you think was the most challenging phase of the pandemic for Floor & Decor? And what are the most valuable lessons that you've kind of come out of it with?

I think by far, the most challenging thing we had to deal with is when we partnered ways with 2,000 part-timers. At the depth of the crisis, we just didn't have the level of demand because we weren't letting customers into our stores, and that was tough. We had to cut back hours on even our full-timers. I think the thing that's been the most beneficial that we've learned is just coming together better as an organization, as a team and really rallying around each other and focusing. I think we just -- we feel a lot closer. We have better collegiality and understand how we can execute better. And then I think we've learned things about technology that we knew were going on that are accelerating. Our web business, for example, I think, was maybe 11.5% of our sales before COVID, but because we've made those investments for many, many years, the peak went up to 60% of our sales, we're getting intended to the website. And now I think as of the last quarter, it's up to 16%. But I think that obviously accelerated the trend that was already in existence. And we're smart and lucky at the same time that we've invested heavily in our website and investing heavily in our technology team. And so when those sales surged up to 60%, and we had no issues, but when the website number went down, we underwent problems. We've always been, buy online, pick up in store. So we don't have like a big fulfillment center that can get backed up. And so I think that's -- those are some of the learnings that really accelerated some of the technology and other things we quickly pivot to online virtual design. We figured out how to get inventory process back faster. So maybe those probably are the way that you would add to, but those are few of the things I would call out.

Yes. And so one of the key competitive advantages of Floor & Decor has always been value as you've been able to price comparable products below your peers due to direct sourcing. I mean, what is the average price differential between yourselves and maybe your big box competitors or versus specialty, like if there are any metrics you can give around that advantage, that would be great?

Yes. I think we just insert the size. We think the home centers may be just around 28% of the market today. We think we're going to be 9% in the market. And the rest of the market would be the independents, distributors, other regional players that are much smaller than us. I think our pricing against the -- we saw -- so the kind of basic part of our core commodity businesses, that's where the Home Centers must compete in paying. So if you're talking about an opening price point that people don't put a lot of -- we're going to be just a few percentage below them generally speaking. As you look at the features and the attributes of the products, that's where the prices can be more material and different. And as we said on the call last week, we feel like our prices are as good as they've ever been as you move up the value, features and attributes to get to home centers. Against the independents, I think our value has been as good, something as good as that, we would say would probably be at least 10% to 20% below on most SKUs. And as you, again, go up the futures and the attributes of the product is people select those better and the best. In many cases, a lot of that product doesn't exist in the home centers. They just don't have the space to carry it, and our stores average 77,000 square feet versus we estimate to have 3,000 to 5,000 square feet dedicated to home surface model. They carry the assortment, we can't. But the independents will have something, hopefully, in that better invest category and that's really where our pricing demonstrably becomes below. I was looking at some decorative products the other day in our stores. I was in our stores on Wednesday, and we were starting to sell stuff like [indiscernible] above. And when you go look at some of our independent competitors, our prices will be half what they will be in some of that higher in decorative product. So I guess the simple answer is our pricing difference versus our competitor view as good as we've seen in the last 5 years.

Yes. And what percentage of your product is private label today? And how has that changed over time? And do you see that evolving to an even higher private label penetration going forward?

Most of what we sell is private label. Installation accessories, which for us is about 17% of our sales that will be brought into matter there because those will trust a [indiscernible] or a thin set or type of a [indiscernible]. But that's 17% of our sales. And the other 83% of our sales are not branded. They are products that either we've come up with or manufacturer has come with.

And I mean, how has that evolved over time? Was it ever below that? Or has that always really been the key factor for Floor & Decor was to have this directly sourced product, and so that hasn't really changed?

I think it really -- so the percentages haven't changed, but the strategy in which we executed on has changed materially. Lisa just got -- just clipped her ninth year with Floor & Decor and what her and Tom and really the rest of us have supported them doing is really bringing technology in our brands to the category. So I'll just give you an example. The rigid core vinyl is a really hot product. It's been very strong for going on 5 years now. It looks like wood, it sounds like wood, but it's very easy to install and it's completely waterproof. We have probably in that type of product, depending on how you measure it, if you include water-resistant laminate in that category, you'll get 6 or 7 brands that we've completely created and built with unique features and attributes and warranties that we think outperformed. We didn't have those kind of brands 5 years ago. And in tile, our biggest category, we've got clarity of why you would pay more for different prices. It's not so much a brand, but we have a very good signage and selling attributes as to why we will pay more from one product versus another product. So I would say, while it's not branded per se, especially in certain categories with features and attributes like bridging core model would matter, we had the ability to create brands with our manufacturing partners that we can clearly articulate the thickness of the product is better or to click technologies easier to install or the warranty is longer. And that has resonated as people do a little bit of comparison shopping with us and our competitors.

And I guess following up on the topic of pricing. With inflation likely on the rise is the key area of focus for a lot of investors. And then you've got cost centers like transportation, hourly wages and benefits and raw materials going up. How sensitive have you found your customers to be to price in the past? And just how successfully have you been able to raise prices? Do you need to take a portfolio approach where you see price rise on one category and you raised price on another where the demand is a little less elastic. Just what is your approach to when you have to raise price due to rising costs?

Yes. I think you summarized it well, actually. We -- with the 2 big cost increases that we believe will occur, we talked about on the call last week, we learned -- and they really affect everybody. It's not just a centric and before the core obviously as you talk about commodities. But you will recall in August of last year, USTR reimplemented 25% tariffs on rigid core vialing and a number of other smaller level SKUs. That for us is about 13% of our sales. Not knowing how that was going to play out. We bought a lot of inventory in anticipation of that. But obviously, Home Center hindsight was a pretty smart move. But eventually, we're going to sell through that inventory, and we're going to be having to pay the same 25% that other people pay. We estimate we'll start paying those higher costs in Q2, and it will start impacting our cost of sales in Q3 and Q4. So that's a cost -- 13% of our sales. We're now paying 25% more. So that's going to have a higher increase in cost. But again, that's -- most of that product is still sourced out of China. So we and everybody else will be paying that higher cost. And the other one that you mentioned that's really come up in the last few months is international container costs, especially out of China, but even more recently out of Europe are going up and domestic trucking costs. There's just more demand than there is supply. There's not enough trucks and chassis just to support that demand. And so we're going to see an increase of those contracts come up for us. Fortunately, we have longer-term contracts for both domestic and international. And so as those contracts come up in May and the back half of the year, and we have to reset those, that those will be set at market rates, and we would expect to have higher costs. I think the benefit we have, as you mentioned, we're the low price leader even versus some of our larger competitors, we're the low price leader. And so I think we have more ability to raise prices just because our prices are beneath our competition. And I do think that because there aren't branded products in our categories we talked about before, we have the ability where we have a lot of SKUs that other people don't sell that we can't take a portfolio approach. So even though you might have a higher cost because of transportation, you can raise prices somewhere else where you have something unique and different, and our merchants are really good at that. And we feel like we've got a good list of things that we hate to do it. We turn inventory a little bit slower. So we'll get to watch what others do before we have to do it, but our expectation is that we have raised retails. And just the final thought about that is the way we've managed it in the past is we're trying to achieve a gross profit dollar and operating profit dollar growth as we specifically called out in our call. And so if a cost that used to cost me $1 and now -- and I used to sell it for $2, in a simple example, if I'm now paying $1.15, I would likely raise my retail to $2.15 and that example as taken for the same growth profit dollar as the same operating profit dollar, my sales are obviously higher, but by rate is lower in that math, but I still can achieve my profit goals in that scenario. And again, I'd rather be the low-cost leader, having earnings prices would be in the middle price or the upper price.

So -- and we should definitely all be buying our large-format Carrara Marble tile now than to get in on that price before you have to raise it on that specialized product. So the company's ability to transition product out of China once those tariffs were enacted, was pretty impressive, I have to say the least. I mean, what was the process like when suddenly you have a very significant percentage of your products that needed to be produced elsewhere and needed to make that rapid shift? I mean, I'm curious what the process was like first? And also what percentage of product is still coming out of China today?

Yes. We were fortunate. We've got a global procurer of product for really even before. I got you. Obviously, our founder built the business. The numbers haven't changed a ton. We're, I think, sourcing from 240 vendors in 24 countries. The way Lisa has explained it to us is when we were buying 50% of our products from China, the 20% of that we have in the [indiscernible] your question, we're now down to 30% of our products were procured from China specifically. The 20% that we couldn't, we didn't. There are great tile manufacturers in other parts of the world, including the United States. There are some wood manufacturing here in the United States. In some cases, we've had manufacturers actually move to the United States, which has been good. But we've also moved a lot to Europe. And so the 20% that we moved, we felt like was movable. And during that same period of time, our gross margins also increased. So not only did we move from a low cost manufacturing country like China, we did it in such a way that our product margins actually increased, which is a testament to our merchandising team and supply chain teams and what they've accomplished. The remaining 30% today is still cheaper for us to buy that, pay 25% tariffs and source that in China. I think as we look to the next 2 or 3 years, it's probably one of the few things that are -- Democrats and Republicans agree on is we're going to [indiscernible] in China, so we're not expecting it to get into easier. We could see that number maybe get down to the mid 20s and as you get further down, maybe in the low 20s, and we're working with our manufacturing partners today to see how they can built some of that technology. But the 30% that remains, we think, not just for us but for everyone that it's still cheaper to pay the 25% tariff than it is to move. So it probably will come down off 30% as we look towards the end of this year and the next year, but it will be a little bit slower than the 20% in volume loads.

Okay. And in terms of what your actual -- how much you're paying in tariffs in dollars, think about if tariffs were to go away tomorrow, how much of a benefit that would be? I know that's not in your current guidance that we were thinking just -- as we think about what a potential upside scenario would be the margin if tariffs sort of go away. How do you -- how should we think about that?

Yes. I don't have a specific number, but I think if you look at our pure product cost of our cost of sales, I think it's about half of our sales. It is just a pure product cost, and we're buying 30% of that from China. So we could work through that math, it would be very meaningful. And we saw a little bit of that in 2019. In November of 2019, the USTR removed 25% tariffs on rigid core vial, and we have -- we will be back with a lot of adjusted earnings because we didn't think like it was fair. But if you look at our GAAP-based earnings and our GAAP-based gross margins, it was fairly substantial in Q4 of 2019 and Q1 of 2020 as we still -- retails didn't rise as fast as costs came down. So the answer is it would be much more meaningful than that. I like your thinking, but I don't think it's going to happen. But yes, it would be very, very materially positive for a short term. Over time, we would bring down retails, others would bring down retail. So I think it would just benefit the consumer over time as we know this will bring down retails. But short term, maybe be fairly substantially positive for us.

Yes. All right. Well, we can dream. So I guess as we think about some of the puts and takes of the cost structure in 2021, I mean, what are some of the costs that are likely not going to repeat this year, new costs that are coming in? And how should we think about maintenance CapEx or a bare minimum level of investment, if there were no new stores being added? I know you're growing at least 20% pace. So just thinking about if there were no new stores, no significant technology improvement, just what that maintenance level of CapEx would be? And then kind of the puts and takes on a year-over-year basis from a cost standpoint?

Yes. I mean, you're just talking about [indiscernible] or HVAC goes out, that kind of stuff. That's probably $100,000 or $150,000 of CapEx per store that levels break. We've got potholes create over time with forklifts and things like that. So that's probably a base CapEx. I think on a year where our business is performing well, we will still spend more than that. We are diligent about investing in the aesthetic look of the store. So we're always -- over a 2- year period, we can till be -- stop at the design centers. We get that cost down pretty low now. But we're also building displays all the time as new products come in, we paint the storage. So in a draconian year, I would say, it's 100-ish, maybe it's $150,000. In a normalized year, it maybe probably still over $200,000. And I think our stores are spitting off over $5 million in EBITDA. So it's relatively small in the context of what the source of profitability is. But that would be the bare minimum I would suggest.

Okay. Yes. And then in terms of costs that you had last year, I mean, COVID-related costs, how are we thinking about what the year-over-year comparison is there? And also anything that are -- the new cost coming in for stores, and I know there's some more even cadence this year. So it's more split out between the quarters. Just how should we think about how those costs are coming out and going in?

Yes. Last year, we called out $3.6 million for the year as COVID-related costs. But in Q4, that was only $80,000. So it's still very small. I don't think it's going to be $80,000 per quarter for this year. But I think it will be below what we said last year, especially in Q2 when we and every other company had to scramble and put up Plexiglass and buy all the safety PPE for our associates. That happened fast. Now we've got a lot more thought to way of handling that. So my guess is it will be below what we spent, maybe about $3.8 million. We intend -- I think like most companies, we intend to continue to call that out so that investors have clarity around it. That was probably the only big severance and some other small things. But unfortunately, we had to part ways with some of our associates, but those are pretty small. We've had some -- we are like most retailers, if someone is not feeling well or if they go out and they got COVID, we take care of them and pay for a long period of time. That could be a net benefit to us over time just as we don't have some of that pay that we're paying people to get well and to take care of themselves. That could be a bit of a benefit for us over time. Not in that way, I don't think there's a lot other than the piece we called out and in fact, we do have some COVID pay that we're paying our associates to get well. I guess, maybe the last one I'd call out as we did call on our earnings release. In the fourth quarter of last year, we spent $2.5 million to try to help our associates with some of the lost compensation in Q2. We just had such a great back half of the year. We thought we wanted to get back. We don't plan on incentive. So we don't think we'll have to repeat that $2.5 million. So that was a bit you need into Q4. I'm not sure if I'm now going need anything much else.

Okay. And I guess once Floor & Decor is a mature retailer, fully stored, I mean, what do you think is an achievable level of comp growth and operating margin that we should think about for a long-term growth algorithm?

Yes. Good question. So if I look at our stores over 5 and 10 years today, we're doing $22 million to $23 million in sales. They're around 25% of Floor Wall EBITDA margins. Back off maybe 250 to 300 basis points for distribution and supply chain costs. So now you're kind of in the low 20% EBITDA margins, fully burdened with the supply chain. To date, our corporate EBITDA runs around 400 basis points. I think as we get bigger, we'd obviously have to scale that and get more not only just on the supply chain side things but get more scale out of the corporate segment. So when we're at 400 stores, if that's the right long-term number, and if we were operating at today's profitability, which I would hope that we would get better as we get a lot bigger, you could see this being above maybe certainly mid-teens, maybe even above mid-teens EBITDA margin. Today, our depreciation, if you look at our SEC filings, it runs at about 400 basis points, but we're obviously investing heavily in DCs and corporate offices and new stores that aren't up the maturation process. So I could see that number coming down, hopefully closer to 300 basis points. So that leads you to a -- possibly a 15-ish percent, maybe a little bit below 15% operating EBIT margin. And that's in today's environment. Again, hopefully, we're going to be smarter as we get bigger. And I think we'll see if we have success, but we're starting to have some moderate success with the commercial side. And the commercial gets to lean off of all the investments, meaning I don't have big infrastructure investments as I hire commercial sales associates. So I think they are accretive to EBIT and operating margins because I don't actually spend a lot of CapEx like I do in a retail business. I don't have to buy a lot of inventory, don't have to do a retail business because it's all bought spec to order. So those are a bit of aspirational goals. Last year, our operating margins were, I think, close to 9%. So as we -- there's a long way between now and then. But I think as you would expect for really good niche specialty retailers, those are achievable goals for us.

Yes. Okay. And we touched on this a little bit. I want to go back to omnichannel because this past year has certainly demonstrated the importance of having an omnichannel offering. So I'm thinking about what was Floor & Decor's online penetration pre-pandemic? What is it now? And then how do you expect that to continue to grow now that most of the U.S. population has grown pretty accustomed to buying product online?

Yes. And again, Lisa gets a lot of credit for the investment with the team she's done, what we've done there. So we've got a really good infrastructure partner that we've invested with and someone that does a lot of specialty retail websites. They've been able to scale and grow. It's a SaaS-type model. So as they make enhancements we get them immediately. And so -- as I mentioned before, when our sales more than double or maybe even triple because we went from 3 total, we are running 11.5% of sales, I believe, we're -- 11.5% of our sales pre-COVID were being tendered through the website. That went up to 60%, I think, in Q2. And now I think we're selling in around 16%. Because we have a really good team and we have a scalable infrastructure, it can continue to go up. It has actually come down a little bit, 16%, I think it was 18% in Q3 and 16% in Q4. So it has come back a little bit. But for us -- the other thing about us is we don't -- there's not a lot of -- there's not a difference in profitability between our web sales and our store sales. And the reason that is, is most retailers, when they store, they have a centralized fulfillment, location, somewhere in the middle of the United States or throughout the United States. We've always been buy online, pick up in-store or buy online and ship from store. And so for us, it's really almost like a tendering mechanism. And so if you come in and swept the credit card in the store, that's a tender, if you pay online, that's a tender, but there's not a big difference in the product margin or cost structure for sales. So I don't want to say we're agnostic to it, but it doesn't affect our profitability much if you either decide to buy in-store or tender online.

Right. And generally with those, if people want to buy online and have it shipped to them at home because it's pretty heavy products, they're typically paying for the shipping, right? So I guess that even a buy online, ship to home order is probably still very profitable for you. I guess just thinking about the -- I guess, given that it doesn't have that much of an impact then on the margin, if you move more online, what do you think are the key advantages versus those investments that you've made in your website versus what some competitors are doing? Where do you see really big differences in the value offer for customers?

I think if you break our market apart, if you think about the Home Centers, we estimate the Home Centers to have maybe 28% of the hard surface flooring, they have phenomenal websites and they have very good tools, and they're obviously incredibly well-run businesses. And so I think the only benefit we may have is that it's so specialty in niche versus they're selling 24 other major categories, so it may be a little bit harder to find what you're looking for in there just because they have such a broad assortment of things outside of [indiscernible]. If you look at our smaller competitors to kind of the other 60% of the industry, I think we have massive advantages. We -- again, we have one of the best -- we have a big team and we have people that do nothing to think about how do I merchandise the site, how do I do A/B testing to understand what things work better, how do I allow them to tender products more efficiently, how do I merchandise the site in such a way that it helps people. Lisa, as she explained it to us, is the website is about education and inspiration. So we're really focused in. We have a great visualizer now that we think is one of the best in the industry. So we want to see how products could look in a bathroom or a house with lots of visual inspiration, so you can go see 10 or 20 or 30 bathrooms or kitchens or basements. We can give you training on if you want to do installs of the product so that you can maybe even want to possibly tackle that backslash [indiscernible] tackle that basement with cook technology that's not that hard to install. And then the final piece is ease of transaction. So most of our sales, like it's 80% are both visiting online and going to the store because it's not a commodity product, you don't see it and feel it and make sure it's going to work in your environment. You can come into a store, you can work with one of our sales associates, you build up this core with 20 or 30 SKUs, we try the kitchen, you can it get it e-mailed to you. You share it with your contractor, share it with your spouse, share it with friends. And then you also made the decision, but there's no need to go back into the store because you've got to work with it, and you picked it up. You tendered it online and work on a Tuesday morning and your pro goes and picks it up the next Thursday. So those are all the things that the website facilitates that we've invested in. As we get bigger, we're going to be even better on how we get people in out of the back of the store. So for example, you bought something, retailor's going to come pick it on Thursday at 10:00 or having the pro come pick it up Thursday at 10:00. We're going to have the ability in the not too distant future to have that product pulled and ready. So when the pro gets there, he's doesn't have to wait 10, 20, 30 minutes. It's ready and he's out of there in 5 minutes. So those are all the kind of things that the web will enable us to make the process more efficient and scalable for professional and home models.

Great. And I guess since we kind of running low on time. I definitely want to ask one last one, just on long-term market share opportunity in the categories that the company offers today and ways in which the addressable market could grow as you get into some ancillary categories or just adjacencies on top of what you're doing already?

Yes. Today, we estimate we have about 9% of the addressable market that we see. We are growing that addressable market as we add commercial businesses that could add to the TAM. We'll -- you guys probably heard us say, we doubled the amount of regional account managers to sell in the commercial market last year, we'll add another 10 or 11 in the coming year, we want those folks just to give some simple economics like we do in the stores. When we hire less people, we think they can give may be $0.5 million to $700,000 in sales for the first year by the time they get up to speed and in year 3, we want to see doing $2.5 million, even $3 million in sales. The addressable market for vanity, fabricated custom kitchen countertops, sinks, bathroom accessories, shower doors, those addressable markets as we've placed them are meaningfully higher than the hard-surface flooring market that we quoted $22 million or $23 billion. That being said, we don't -- that's not a -- it's a focus for us, but it's only a focus for us to the extent it's adjacent to a flooring install. So there are other things we have ideas that we will hopefully roll out over the coming years. And again, those addressable markets is in general role when they'll be additive to what we, but if you just looked at the market share, market sizing, again vanities, and fabricated custom kitchen countertops, bathroom accessories, those in themselves are bigger than the $22 billion to $23 billion market we saw in Florida.

And I mean how much of a percent of sales are those categories today that you've added, say, in the last 5 years?

Yes. One -- I think it's now up to 1%. We've also quoted -- I think I said earlier, our stores were doing $22 billion to $23 billion or more mature stores. We're doing that level of sales. And I think as we've analyzed the category, we don't see why we couldn't do maybe 5% of our sales, right? So that's an extra $1 million to $1.2 million per store that if we have success in there, we see a path to getting me have to do 5% of our sales over the coming years.

Great. And it looks like I have one more minute. So I'm going to squeeze one more in. I'm just thinking about how the pandemic may have changed your Floor & Decor's investment cadence or priorities for cash or just any ways that you're thinking about investment differently than you were before?

Yes. We -- because we slowed our store growth, most of those who followed us, we really haven't had a lot of cash because we've been investing that all back in the business. But instead of working in 24 stores, we only opened 13 stores this last year. So that really built up our cash. Now we have well more cash than we can get. So the priority of that investment will be back to 20% unit growth. I think investors might have been a little bit surprised. We're doubling our store count, and therefore, we're doubling our CapEx next year. So the prior year that will be to invest back in the business, and we gave a range, I think, 400 -- the midpoint is $450 million in CapEx, we're convinced that, that CapEx will give us double the rate of our weighted average cost of capital when you look at in that distribution somewhere in the 27 new stores. We're doing 2 remodels. We're opening 2 design studios versus one last year. All of those things, we think, are going to be very accretive to our cost of capital. So that's the priority, investing back in new stores, into the supply chain, into the website and to renovating some of our older stores that need some investment in and again, those will give us a very good return on capital. Second will be sort of adjacent areas that we have a high level of confidence. So for example, design studios. We've got the small test in Dallas. We're going to open 2 more of those, 1 in Miami and 1 in Houston. We feel that, that's going to give us a good return on invested capital. Commercial. There's not really a lot of capital to invest in commercial, but that's another category that over time, we'll invest in and then eventually, we're not that far away from where we've got that nice high end problem with most retailers, where we're supposed to build free cash flow, especially when we take our total 20% unit growth and then we're doing a lot of analysis around that right now with our Board, but we'll be in a position where we're going to have to buy back software to do this. Now that's a few years away. But that will be the last alternative. We certainly understand our responsibility to steward capital. We take all of those -- that sort of waterfall that I just went through, it's going to provide a very good return on capital as we think about the next 3 to 5 years.

Perfect. We'll stop there since we're running over time. So thank you so much. We really appreciate having you here at the conference today, and thank you all who tuned in today. Appreciate it.

Thank you, Liz.

Thank you, Liz.