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

I'm Simeon Gutman, Morgan Stanley's hardline, broadline and food retail analyst. And it is my pleasure to welcome you to this fireside chat with the management team of Floor & Decor, represented by CEO, Tom Taylor; President; Lisa Laube, at least through April of next year; Trevor Lang, EVP and CFO; Wayne Hood is on, VP of IR. And I think Matt McConnell is out there, Senior Manager of IR. I have a disclosure to read, then I'm going to turn it to Wayne to read the disclosure, and then we'll get into Q&A. My disclosure. For important disclosures, please see the Morgan Stanley research disclosure website at www.morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales rep. Wayne?

Yes. Thanks, Simeon, and hello, everyone, and thanks for hosting us today, Simeon. Much like Simeon, let me give you our safe harbor statement. Before we get started, I'd 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 the Private Litigation Securities Act of 1995 throughout the course of our presentation today. So Simeon, I'll turn it back to you.

Thanks, Wayne. First, thanks for being here. Floor & Decor has been a staple at this event for probably 5 to 7 years now. Tom, welcome. This is, I think, your first time at this event. I would make an introduction on stage, so I'll make a quick one here, and I'll be very informal. This is an awesome company. I think the market knows this business at this point. It is a category killer unlike any category killer because they're like a snowplow cleaning up share in this industry. Great sourcing, great product, great service, in a category where they really zoomed in on and done an outstanding job merchandising and delivering value to the segment. They're venturing into the commercial space, increasing their TAM. So it's really just a matter of how big this company gets over time, which will be part of the discussion. So that's how we feel about it. And FYI, we've never had a buy on the stock, so shame on us, but fantastic company.

So maybe to start, I want to ask this digestion versus growing question for 2022. And I don't know who wants to handle it, but a lot of questions over durable spend. We've seen this mammoth growth over the last couple of years in this COVID environment. So how do you think about home improvement and flooring growth as we go into 2022 and beyond?

I'll start and Trevor can weigh in too. I think from the macro standpoint, we still feel pretty good, right? So it's existing home sales or they're hanging in there. They're up slightly from October to September by 0.8%. There were 6.34 million homes sold during the course of the month. Household appreciation has continued to go to be really good. When the houses go up, people invest in those homes. Our consumers tend to be a little bit more on the higher end. Our -- the majority of our consumers that buy from Floor & Decor, their household incomes over $120,000. So they're a little bit less affected by the lapsing stimulus or by rising energy costs. So we feel good about that. We're taking some price. That should help on the top line as well for next year. So overall, while interest rates are ticking up, they're still relatively low, and we still feel pretty good about the macro. I think the only other thing, Simeon, that I would add to is that I said this on kind of the earnings call, I think as long as there's supply chain -- the supply chain challenges or there's one side of it that's cost, and there's one side that's just true access to inventory. And I think when you look at Floor & Decor, if you've been in our stores and you see kind of the way we do things, that broad in-stock assortment across every category we sell, helps us in the time when others may not be able to access inventory, we've got stuff, right? If we're out of tenant SKUs a tile, we still have $240 to offer our customers. And we think so on top of the macro, we're feeling okay for next year, we should be able to take share at a quicker rate as long as the supply chain challenges affect the independents.

Do you -- there's been some chatter of over consumption during COVID, especially on durable goods, and we are probably all guilty of some of that. Why doesn't that apply to the home improvement or flooring category? Could have there been this pull forward? Or is just housing related and as long as the housing machine keeps rolling social...

I think it's a little bit -- I think it's a couple of things. I do think that one, as COVID has come and people are sheltering at home more, whether now people are starting to get out, some people are coming back to work. But as people spend time at home, I think they looked across their home and they're like, "Mn I'm tired of that kitchen or I'm tired of that floor." And I think so home improvement in general across the house. I think the more people sat and looked at it, they're like, "Hey, we can do more." And so I think there's been a lot of that. And I think as they've done -- the one thing with home improvement, at least in my experience, if you start one household project, you're typically onto the next one pretty soon. Like it's not just you do one and stop. So I think that momentum should be pretty good for our business. And so -- And I also think that as we go through and democratize the category, we make it so that people that did a project, they should be able to come in and do the next project, and we think we'll see some of that as well.

If we talk -- if we think about market share, I know we chatted a little bit about this earlier in a breakout. Can you talk about where you think the market share of the business can go? And any relevant examples in markets today where that market share is in some of the best...

Yes. I mean I think certainly, when you look at best-in-class retailers, that are true category killers, they can achieve market shares in the mid-30s. And so we feel certainly that we are a best-in-class category killer that we're doing something unique and that we have aspirations to get our market share to over 30%. And how can it go higher than that? I think it really depends. I mean, if you looked at -- if you -- we talked in the breakout, if you just looked at Home Depot and Lowe's as a combination, my guess is they're controlling 45% of the market and -- but they're 2 very similar box operations. And with Floor & Decor, there's really nothing like us. We're -- there may be people that do what we do within a single category, but across all our surface categories under one roof, there's no one like us. So today, we've got pretty high aspirations on what our market share could be.

Tom, do you think that because you have scale and you have the best assortment, is that the ticket to just continue taking the market share? Or do you have to source your own product? I mean, in which -- does it have to meet someone else's -- but can it be your own product? Or can you get to that number by selling other people's products?

I mean today, we're mainly a private label house, right? With the exception of the installation accessories department, most of the product is working through our 200 suppliers in over 20 countries, working directly with them, accessing unique product and putting it into our stores. And I think we'll get there by doing that. I think our suppliers, they invest side-by-side with us so they can handle their growth. But most of the suppliers have been with us since Lisa, Trevor and I got here and started opening 20% unit growth. So they clearly understand where we're going and how they need to invest side-by-side to keep up with us. So we're going to buy from wherever we can get the best price and the best quality. So we'll buy from anyone, but I think we're pretty confident we can get to what our goals are with the suppliers we use today.

So maybe 2 topics: merchandising and supply chain. State of the union as far as where the -- what are the trends, what are customers buying? Has the supply chain been an impediment to get the product in those key categories? And where are we going, call it, over the next, I don't know if there's any new trends that are emerging?

Yes. So I'm going to chime in. I'll let Lisa chime in on this one too, and I'll try not to say everything, so she's stuck with nothing to say. But I do think what we are seeing across the store, we've seen it for a while, is that as our merchants and suppliers have done a good job in creating innovation in 2 ways, right? So one of the innovations is within fashion, right? So when you look at today, like exotic porcelain, marble-looking tile, that innovation in fashion has just been pretty phenomenal, and we're seeing customers gravitate to that. And they're going into it in larger sizes. So our merchants are working side-by-side to create that. And I think what we've seen across the store is they're going to the higher-end products more so today than they ever have. And I think our stores are doing a pretty good job of explaining that, hey, look, if you can put in a 12x24 tile or you can spend more and get this 24x48 tile and it may be a little bit more for your room, but it's not life-changing, right? It's only a -- it's a $1 more a foot or whatever the case it is. So I think we're seeing that. And then the other part of this is just in durability. Our merchants and suppliers have done a good job of creating waterproof product within the laminate and vinyl side of the business, damp resistant product on that side of the business, and thin tile and the tile side of the business, just innovations and durability that make the product better. And I think people are seeing that innovation saying, "Hey, I can change the floor this time, and I won't have to mess with it again." So I know, Lisa, I know I kind of rambled a lot there and probably didn't leave you a lot, but where we're going? Maybe talk a little bit about how we do PLRs and maybe what's on the horizon?

Yes. Certainly, COVID has made this much more challenging because we have not been able to travel internationally. Our merchants used to go to every show in the world for hard surface flooring as well as meeting all of our vendors around the world multiple times a year. So the last couple of years has been challenging, but they have continued to do PLR virtually. So we are finding new ways to do this. We will continue to do that until we can get back out there. But the merchants do a great job working with our vendors, establishing not just buying what is in their line, but I mean, as Tom mentioned, on the large format tile, we're not -- a vendor didn't come up with that and show us. We came up with the idea to do an exotic marble line in tile. We went to the design houses in Italy. We worked with them when they art work, and then we go find the tile manufacturer that we would like to have manufactured that tile. So we are way back in the supply chain -- or in the -- I guess in the supply chain even before the manufacturing to establish those trends and decide what the product development is going to look like. So to your question earlier, we don't -- we're not -- we buy from very few middle men, only if they really add some unique value. But we are -- our merchants are way back in the design phase, working on brand-new products. So specifically, I don't think we will call out things that we see that are coming, but I think that Tom hit it on the head, which is certainly, anything from a trend and fashion perspective, really leaning hard on better and best in anything from a durability standpoint, both of those will continue to really drive the business.

If I may, 2 follow-ups for you, Lisa. I was going to ask the mix of good, better, best, and it sounds like you're leaning towards better, best. And that makes sense given if you're creating the innovation, given that's -- it seems like the right move. But if you can give us some perspective on the mix of how that plays out in the store and where could that go? And then connected, this is actually a question from the webcast. I think it's connected to you to your world, Lisa. As you evaluate product adjacencies to expand into, will you continue to look at products where you have a cost advantage because of importing? Or do you consider categories that are made domestically?

So 2 different things. On the first question -- or I'll get to the second question first, I guess. On the second question, the adjacent categories that we carry really are an answer to what our customers have asked for. So customers have asked for project completers. They said, "I'm doing my powder room. I'm coming in to get my tile from you. Can I just go ahead and get the vanity can't I go ahead and get the shower door on taking out my cabin or placing it with a shower door." So in that case, I think that, that is how we think about what those adjacencies could be. All the ones that we brought in so far have done very well. We've got 2 more that we're testing in the spring, and we expect that those will do well. So for us, it's more of a convenience than it will be a destination business, I believe. Over time, we could be a destination for those, but I think it's more about the designers being able to work with the customers to complete that project. We do source it both internationally and domestically. So we are a bit agnostic as to where we get the product for us, it is where -- what vendor can support us from the standpoint of having the inventory when we need it with the right quality at the right price. And so if that's in the U.S., then we're happy to buy from here. If that's in another country, we are happy to source it from there. So I'm sorry, go back to the -- what was the first question, again?

Good, better, best and the mix? Yes.

We have not given out those numbers, but I will tell you the significant portion of what we are selling today is better and best, and that has continued to go up in percentage every year for the last 4 or 5 years. So we'll continue to push that. We've started with products that we thought this was as high as we could go and the customer respond so well to it that we will bring in something higher. And then the customer responds to all to that. So I don't even think we know yet what the ceiling is going to be. There is the value equation for us from a pricing perspective on the better and best is significant. On a good or an opening price point-type product, we may be a few cents under a big box. But once we get up to that best category where we're competing with the independents, we could be 25% less, it can be half the price. So the value is much more significant and the customers are really responding to that. So as long as the customers continue to love that, we will keep innovating and keep bringing it in.

Great. Tom, maybe going back to you for a second. If we think about your original vision for store count, for your footprint. And whatever assumption of market share that Floor & Decor would eventually own. Is the idea or the number of stores changing in your mind of how you can take that market share? Do you need the same number? Do you need more? Do you mix up type of format? Has that thought process evolved?

Well, when I joined the company, and I think we told the world we could have 300 -- or at least when I joined internally, we talked about 300 stores. And there was lots of folks that help us get to that number from consulting groups and real estate firms that helped us with our site selection. And then as times evolved, we took that number up to 400 stores. And we're still looking at that. And we'll have a -- we have our analyst meeting coming up, and I think it's coming up in March. And when we come up that we'll talk a little bit more about that and give a little bit more color on it. I've said all along that we need to get more stores in the really densely populated markets to understand how many stores we'll need in the market because the north -- I'll use the northeast as an example, it's different. The traffic patterns are different. It takes longer to get to stores. People's tolerance to drive certain lengths is it takes -- it's different. So as we fill that market out, I think we get a better understanding of that. And then I still think we've got some work to do around rural America where we can put stores into smaller markets. And like I said, we'll share more color on that. So as of today, we're saying 400 stores, but we'll talk more about that when we get to the Analyst Day.

Okay. Great. Maybe one more in the sort of competitive positioning topic area around the commercial business, you made the acquisition about 8 months ago or so, 9 months ago now, of Spartan. You're tapping into a segment that you weren't playing in before. It seems like you found someone who you respect as much as the way you operate your business. And it seems like the opportunity is about. So can you frame maybe the TAM increase as well as all the different paths or the lights that are going on in your head about how much can be pursued here.

Yes. So the commercial space in our category represents about $13 billion, and that includes a couple of billion installation accessories. And a few years back, we put in regional account managers to start going after that commercial space. And we -- as we looked at it, and we had great success with the regional account managers, and we were penetrating really large customers with it. But we knew there was still about $6 billion that the ramp could access, but $7 billion that they were going to have a hard time getting to it. And that's the business that's done by specifiers. And so we spend time looking at it and trying to find the right specifier that was -- we don't want to get something too big. We wanted to get something small and something culturally that behave like we did, and we found Spartan. And it's been incredible. I lived through an acquisition strategy at my background in Home Depot when we started acquiring supply companies, and that didn't always go all that well. So I've always been cautious of us doing an acquisition. And -- but once we did, it's been -- I'm glad we did it. I think that the benefits that we provide to the consumer, to the retail consumer, our supply chain advantages our trend forward product, our broad assortments, our big warehouses and lots of inventory in it, that makes us -- helps us dominate or take share at a fast pace on the home improvement side of the box, the retail market, all those advantages exist on the commercial side. So I've been -- we're excited about what it's doing. I've got a CEO at that company that is very aggressive that would like us to go faster. But we've got to make sure that the honeymoon that's been going great so far turns into a good marriage, and we're happy with the performance, and we'll go at the right case that we think makes sense. I will say that by buying the company, the other thing that's exciting in my mind is, it's I think the commercial world is noticing that we're entering that space. And so we're getting people knocking on our door interested to join us in this venture, whether that's someone who wants to come in as a RAM or a company that would like to partner with Spartan, it's kind of good to see. And it will be an exciting part of our growth story as we get to kind of the next chapter of our story.

Do you think you'll end up buying more companies in that space to grow a little quicker?

It's too early to tell. I wouldn't rule it out of the question. We've had a great experience with the first one, it had -- and we -- the performance of the company has been solid, and we really haven't done much except have starting to help them out on the supply chain side. So over time, when we give them access to more products, we think it will be even better. Because it's been not much of a distraction, we built a good team within that company, and we're having a good experience so far. It's possible. But we haven't made that decision yet. We'll certainly be thoughtful in our approach to it. I know it's a big opportunity, and we're in the middle of determining how fast we want to go and then how much of that is greenfield versus potential acquisitions.

Okay. Transitioning back to the core business for a second, and it's somewhat theoretical on market share. You've taken a lot of market share, and you've taken it at an accelerated rate during COVID, and that makes sense. You had more resources, more capabilities, more inventory. The fact that maybe there are fewer competitors. I'm making an assumption that some people have left the market. Does that enable you to grow quicker? Or does that is slower because you've taken out the low -- like the soft underbelly, if you will?

I don't think it changes our approach to growth. I do think we've taken share in an accelerated rate as we've exited COVID for a lot of the reasons that you mentioned. It doesn't change the algo of how we think about how many stores that we're going to open within a given year. But there's still plenty of independents. We -- some independents have gone away, but we haven't really had -- our convenience is a big factor in buying hard surface flooring as well, and we just haven't had enough stores in given markets to really understand how will affect that base of competition. But now we're starting to get there. We're starting to fill out some of our markets in a more meaningful way. And will we take -- I think we'll continue to take share in accelerated rate. I think our growth will be similar to what it's been.

A couple of financial questions. The -- during the course of the year, you telegraphed some gross margin pressures that would likely occur in the back half of the year, and those pressures accelerated and magnified. And last call, it was a pretty big announcement, gross margin is going to be down a lot, but the algorithm of our P&L may look different, too. We're going to have a lot more inflation. So can we just have that just level set what was that message? And what does that mean? Are we going to see same growth, different complexion of margin, less growth? And what does it all mean?

Sure. Trevor, do you want to walk through what you said on the fourth quarter call about the complexion of the P&L?

Sure. You summarized it right, Simeon. We cut into the chase. We said our gross margin rate we thought would be 39% to 40%. That's off of last year on an adjusted basis. Our gross margin was 42.5%. So if you just pick the midpoint, that's kind of I think 300 basis points roughly of lower gross margin, entirely driven by higher costs. And even within the cost, it's driven almost entirely by higher supply chain costs. We called out international container costs are double what they were. Our domestic transportation costs are up 25%, and our tariffs are up. Tariffs were reinstituted on about 14% of our sales in the late part of 2020, and that really started impacting the back half of our sales this year. And what we've always managed to because we've been dealing with tariffs now since 2019 in this inflationary environment is we try to manage the gross profit dollars. And so as we see retail -- or cost increases, we try to raise our retails by the same amount. Mathematically, when you do that, it brings down the rate, but you still get to a good gross profit goal. So you guys have probably heard me quote over the years, if we were buying a SKU for dollar and we were selling it for $2, if the cost of that SKU now goes to $1.03 or $1.05 in this inflationary environment, we would raise the retails to $2.03 or $2.05 in that simple equation. In that equation, your gross margin rate comes down, but you still get to the same gross profit dollar. If anything, you hope to get a little bit more SG&A leverage because you're not raising your SG&A quite as much. And so that's the environment we're in. We also mentioned on the call that costs were still increasing as we were coming into the call. It's not a static environment. As a matter of fact, it's the exact opposite. It's a very dynamic environment. We felt like we were hopefully seeing the top of the cost increases. It looks like there has been some good news. I know you guys probably watch some of the same stuff we do where recently, container costs have abated a little bit and come down a little bit. So that obviously a breath of fresh share that we're all happy to see. But I think we're going to be in an elevated environment for a while. And if you kind of just play that forward to 2022, January 1 is not that far along -- far away. And if we're going to have a gross margin rate of 39% to 40%, well, that's where we're going to start early next year. As we start to anniversary this higher cost increase as we get to Q3 and especially in Q4, and if we're optimistic or if anyone is optimistic that a lot of the supply chain costs are going to, that they are transitory and they're going to go away, or they're going to come down some, then you can be in an environment where possibly again a big assumption that some of these costs go down, then you're going against lower gross margins, and you could see maybe some upside as you think about gross margin in the back half of next year just because we're up against lower gross margins this year. So we'll see. I think most importantly, for us, when we look competitively, we feel as strong as we've ever felt about our business, even though our costs are going up and therefore our retails are going up, we don't feel like we're losing competitively on the pricing gap that we have versus our competitors, and the assortment is incredible. We're increasing our inventory in stocks, what we're doing with design and Pro, aesthetics of the store, e-commerce, our commercial business. All of those things tell us that as long as the macro holds in there, which we see no reason that that shouldn't be -- that 2022 should be a good year.

Can I ask on that and without being specific around 2022, which I want to respect, the -- managing to a gross profit dollar number. I was just -- I went into the model while you were giving the answer. I mean the average of the business is north of 20%. It's actually 30% if you take in the extreme years. But is there an algo that you're going to try to manage to? Or does it become, hey, we're trying to adjust prices and the gross profit dollar growth just becomes an outcome, not an algo that you're trying to get to?

Yes. I mean let me explain the way I think about it. And if I mightn't answer your question, we can take another run at it. But we build our long-term planning session such that we can achieve at least 25% net income growth over 3 years. Historically, that has been 20% unit growth, mid- to upper-single-digit comp, get a little leverage out of mostly gross margin, but a little bit out of SG&A, hopefully, gets you above 25% growth. And I just went back and looked, we went public in 2017. If you go back and look, the year before we went public, we did just over $1 billion in sales, and our EPS was $0.45. And I think The Street is mid-$2.45 and around $3.4 billion in sales. So if you look at the 6 years that we've performed, our top line has grown at almost 27% and our EPS is growing at about 41%. So that's worked well. I think what's going to be different about the next at least immediate term, maybe even longer than slightly more than the immediate term is that algorithm will be more top line driven because we are raising cost, gross margin rate, therefore, operating margin can be down, at least for the first half of 2022. And so you'll get more of it from a top line perspective. I think eventually, I'm not knowledgeable enough to know when. But eventually, I would imagine that international container cost will come back down, domestic transportation costs will come back down, then you'll sort of have the inverse of this, where your gross margin rate will grow higher, your operating margin rate will grow higher, but your sales will come down, your comps will come down. There's definitely nothing fundamentally that we think can take us off our game from a 20% unit growth. The fact that we're doing great from an assortment, all those strategies around Pro and commercial and e-commerce and marketing and merchandising. So I think it will be lumpier and different, but measuring us on a 3-year basis, where we can get to 25% net income growth, we still feel good about that, assuming the macro is good.

Is there a debate or has there been much debate around holding price even lower and accelerating share? And then maybe to that question, how well is the -- how well do you understand the elasticity of demand in a short period of time? Is that even worth a decision?

Yes. I mean we've certainly -- We talk a lot about our pricing strategy. As I said, I believe this is an opportune time to take share. So it's not like we're taking price down. Our prices are going up, but we're trying to maintain the spread that we've historically had. We feel like if there's supply chain constraints and people are going to struggle to get product, they're going to come into our stores, and we want them to be overwhelmed with the assortment, the in stock and the price. We know that that's a winning model. So as we sell more better and best, is there an opportunity to go much higher on the better and best? Because when we're selling the better, best, as Lisa said earlier in her comments, we're really competing with the independents and the spread can be pretty significant, not across all of them, but across many of them. So we have that debate, what's the right price to charge for that. And over time, we'll take price up. But this is an environment where our ability to take share is the most important that we're focused on.

And maybe one more financial and then -- we're about 6 minutes, so I'll ask this. And then if there are no other audience questions, I'll talk about -- I'll ask about initiatives. The last one on the financial side is just long-term EBIT margin. Is that the right way to think about how you think about the business? Or is it more about growth and we should stop thinking about margin?

I do think if we get back to some sense of -- get at the sort of inflationary environment, we've got a lot of upside on our -- both our EBITDA and EBIT margins. And I'll just give you a couple numbers. I said this a few years ago, but it's worth -- I think I said at your conference a few years ago. It's worth reiterating again. So we said on the last call, our stores over 5 years old are doing $26 million in sales and their 4-wall EBITDA is just right around 25%. Back off our supply chain cost, call it, 250 basis points or so, you're getting to an EBITDA margin fully burden for the supply chain kind of in the low 22s -- 22% range. The corporate costs, which we break out on our SEC filings, if you look at that from an EBITDA perspective, there's plenty of depreciation there for IT projects and things like that. But if you look at that corporate cost, which runs around 6%, it's more like 4 just under 4.5% on an EBITDA basis. So today, if we only had our mature stores, you'd be talking about an 18% EBITDA margin. And frankly, a lot of that corporate cost is to support 20% unit growth, right? So in theory, you're going to get more leverage out of that corporate cost as you get bigger. Back off, call it, 300 or 350 basis points of depreciation and you get to a mid-EBIT margin. And so I do think a lot -- that's really changed when we went public, and we thought the EBITDA margin was kind of maybe 14% to 15% and then 300 basis points off of that for depreciation. So yes, I think that if we get back to some sense of normalcy on the inflationary environment and once we get to our store count being fully grown out, which that's a long time from now, we currently had 153 stores so we had a long time to get to at least 400 stores. I think this thing settles out at an upper teen EBITDA margin and a mid-teen, maybe slightly below a mid-teen operating margin.

Can I -- I mislead you. I wanted to ask you one more financial question. Because of the changing complexion of the P&L, and it could be a short-term thing, it could be more than 12 months. We don't know, as you said. Does that make you approach the way you guide, even more conservative? I know we're in a fluid moment. I'm not sure if you have enough of an indication even in the fourth quarter to be able to feel confident about how you guide, and I know you do guide. So how do you think about it?

We -- it's a very unique environment. We pulled guidance in Q1 of 2020 when we shut down our stores because that was such a unique time. And then we got a little bit more conviction and confidence. Our business obviously was very strong in the back half of last year. We were comping -- our same-store sales were up about 6% before we closed down for COVID, and then our same-store sales averaged 20% in the second half of last year, and that has accelerated into this year. We then thought comps would decelerate because we were up against such massive numbers. And as you heard us say on the last call that the exact opposite has happened, our business actually accelerated in Q4. So I don't know. It's a difficult environment. I do -- we did start giving some parameters of how we were thinking about things because we are intra-quarter obviously. I think we'll probably be doing something like that. I don't think we will be giving as specific guidance that we did pre-Covid, but I'm optimistic we'll give kind of ranges based on what we're seeing in the business as we think about '22 when we had that call, and I think it's either late February or early March. But what -- we've said this before, but I think it's worth reiterating again, we feel the uniqueness of the business and the difference we have put into the business to make us more unique. If you want to measure us over any 3-year period of time, we think 25% net income growth is very achievable.

So we have 2 minutes. I won't get into all the initiatives. Maybe I'll just ask about the in-home design center. I saw and that was not open yet on the side of the road, and I think there's one in Texas, if I'm not mistaken. Can you talk about the business model behind it? Is it a brand enhancer? What's the intended result? Or what do you think you'll get out of it?

Yes, it's early, it's early in the time. We do have one open in Dallas. There's actually one in New Orleans, it's a kind of a legacy store that the founder opened before we got here. We always knew that there was a concept there, but it was, again, like kind of like commercial is like when is the time that you start thinking about it. We'll open up another one in Houston, another one in Miami, and then we've got one attached to our store that we opened in Leesburg and there'll be a couple more to come. And then we'll learn and develop. The intent of the store was really to go in and there are certain markets that have design center type areas. The one that's -- our store in Dallas is in the middle of a design center, not just a flooring design center, but plumbing, tapestry, rugs, appliances, whatever, it's got all of those stores kind of in one central area, and it's an area that pros use, that high-end customer builders use that higher end customers will go into. And so that was our original approach was to try that and because you couldn't get a big box in an area like that. And there's a bunch of those around the country where that store would make sense. It really gears towards 2 things: it geared towards a bit higher end of a customer, and it appeals to -- it's really good for pros that want a private space with their customers to come in and work with. And so far, we've seen really good results out of our Dallas location. The way that the store works, it carries everything that's carried within a market in that one particular design studio. The fixturing is different. It's more -- it just feels like a little step up above our kind of core stores and we pull the inventory out of the stores that are within the market to get for the customer when they place the order. So we like it so far. We will talk more about that we get the Analyst Day too and give a little bit deeper of a presentation, but it's really geared to customers that aren't really coming into a Floor & Decor today, whether it's because of where the store is going to sit and it also appeals a little bit to a higher-end customer.

With that, thank you, Tom. I know we're out of time. So thanks to you, Tom, Lisa, Trevor, Wayne, Matt. Appreciate you being at the event.

Yes. Thanks for having us.

Happy holidays. Good luck for the rest of the year and into '22.

All right. Thanks. Appreciate it. Thank you.

Thank you, Simeon.