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

Okay, fine. We're a minute early, but that time the music stopped perfectly. Hi, everyone. Good morning today. Welcome to day 2 of our Global Consumer and Retail Conference. I'm Simeon Gutman, Morgan Stanley's Hardline, Broadline and Food Retail Analyst. It's my pleasure to welcome back Floor & Decor to this event. I think in all my years, you're the most consistent company in our coverage. I think you've been here 7 or 8 straight years and even virtually during COVID, so thank you. Represented by newly promoted President, Trevor Lang, former CFO; and EVP and CFO, Bryan Langley. I'm going to read a quick disclosure, take a seat, turn it to Trevor for a quick safe harbor, and then we'll get underway. 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 representative.

All right. Before we get started, I'd like to refer you to our 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.

Thank you. Good morning. Thanks for being here. I was joking, but maybe I'll make it serious that instead of asking a full question, I would just say the word macro. I think that's what's on everyone's mind. We had a competitor guide next year with a base case of something down in the base case. So I'll leave it open ended. I'll say the word macro and maybe back and forth on that.

Yes. Well, thanks again for having us. This is a fantastic event. Your team does a great job, and we're pleased to be here again. I would start by saying, my crystal ball is no better than anybody else's. Obviously, we all read a lot of the same materials, mortgage rates more than double what they were over a year ago. That's led to now 14, I guess, 15 months of existing home sales decline, more rapid declines here recently last quarter and into this year. You've seen home price appreciation still up over last year but declined in each of the last 3 or 4 months relative to the previous month. And those are really the biggest macro things that I think affect us. People have mortgage rates that are going up, that house prices are still high relative to where they were. And so home prices are -- the combination of those 2 just makes it difficult for people to move into new homes, and that's why you have existing home sales declining. I think what's a little different about this cycle is the positive side of it is just the tremendous wealth that's been created in the housing since 2019. On the last call, we quoted there's something like $4 trillion of value, almost 50% more value in home prices since 2019. And so the question is, if you had to pick a number, $300,000 house, and it's now worth $450,000. If that house goes down to $425,000 or something, are you really going to pull back on your spending? And if you have a growing family, and you were going to normally move to a bigger home, but now you feel like you can't afford to because the mortgage rate is so much higher and the price of the homes are so much higher, maybe you're going to stay in your existing home, maybe you're going to invest in that home. And so I think unlike the last 40 years where you have substantial increase in mortgage rates and a big decline in existing home sales and a big decline in values, I think this cycle is different, in the sense that there's a lot of wealth in homeowners. And I also think, unlike the last cycle, serious cycle we had in 2007, '08 and '09, I think something like over 90% of the mortgages are fixed rate mortgage below 3.5%. So there's that piece of the macro that I think is going to help buttress this economy. And so what does 2023 hold? Again, we're sort of finishing up our plans now. We were asked on the last call if we thought we'd comp down 5% for the year, and that's not how we're thinking about it. We're thinking that business wouldn't be down that much. That would be a pretty big decline from where we've seen historically. But it's definitely going to be a bit tougher before it gets better, and we'll probably lay out a couple of scenarios and plans just so people can think about that. I think the final thing for us just as people are thinking about their modeling is we said when we exit this year, we expect our transactions to be down in the high single digits to low double digits, but our ticket is up substantially. We can talk about why that is, if you like. My guess is when January 1 rolls around, it will be similar to that where our transactions will be down, but we'll somewhat offset that by ticket. But we've been in this period where transactions have been declining now for a little over a year. I don't think that stops early next year. I think what's interesting, maybe optimism is as we get to the second half of next year, if the Fed starts to see what they want to see with inflation and mortgage rates start to come down a little bit, then we start going up against much higher negative transactions, especially in the fourth quarter. That leads me to believe that hopefully as we get to the back half of next year, that we've got the opportunity to start driving transactions again. Again, all contingent on how the macro plays out.

So a few follow-ups, and thanks for setting the stage. You said a phrase, and I don't want to quote but it's something about -- it could be different this time. And our strategist, our housing strategist is expecting home prices to fall 4%. We debated that yesterday with economists. That already implies something is different in that we don't have forced foreclosures and more mortgage rates are fixed, so people don't have to sell in distress. I don't know if you have a house view on what prices do. But default of down 4%, given where we are today and given where they look like they're going is already a different view. Do you subscribe to the more benign pricing argument?

I do. I think based on what we're seeing today, you're starting to see that now. Again, if you look month over month each for the last 3 months, you've seen existing home values decline slightly, just a little bit. They're still up 8% over last year, but they're declining month on month. And it seems like to me that they're just going to kind of continue to see this a bit of a slide. Until the Fed is done with their raising rates and their quantitative tightening, and again, I have no idea, but if they're going to -- I think they stated publicly, they believe they're going from 4% to 5%. So we've got 100 basis points-ish left of them doing that. Hopefully, that's done in the March, April time frame. And then people will see that rates are going to stay there. There'll be a less risk premium put in by the agencies. And then you can see mortgage rates start to decline and then people start to pick up from there. So yes, my -- again, I'm not sure that I know any better than those economists. But yes, I would describe that there's going to be some modest value disruption in home values next year.

And setting the record straight. Do you care more about home prices or the turnover?

Both. I would say, if you look at our business, the 12 years I've been here, we probably have a higher correlation to existing home sales when existing home sales slow. You saw in the previous administration, when interest rates went up really fast in late 2017, home values started to decline and the existing home sales started to decline. And that was like the first time we saw a deceleration in our comps. I just remember it clearly, it was Q2 of 2018. I think we saw a 300 basis point deceleration in our comps from kind of mid-double digits to high single digits or -- yes, we came into high single digits. And same thing this time, right? If you look at our transaction, the first time we saw a decline in transactions was in Q4, and that's when existing home sales started to decline as well. So I think we're a little more tied to existing home sales, but a close second is the value of the home. Obviously, 128 million homes, 96% of them are going to turn over. And those people that have a good value in the home, they're going to need to make investments. As you know, a lot of the other things that are really interesting about this category longer term is 128 million homes, the average age is 40 years old, 80% of them are over 20 years old. We're not building nearly enough new homes or something like 3 million deficit. We're currently obviously building a lot of new homes. We create 1 million to 1.5 million households every year, so we're perpetuating this problem, which is why the values keep going up, by the way. So I think longer term, even medium term, this is a great sector to be in because the value of the homes is likely to continue to appreciate longer term, because there's just not enough homes and homes being created for the amount of household formation that's occurring.

You mentioned transactions were down, and I want to get into ticket after. Coming into '22, you could have assumed that we'd see some digestion or reversion in units, and we did. And maybe there was elasticity to price as well given the prices were going up. Is reversion -- is that unit transaction, is it done? Does it complete itself? Now we do have a different variable with housing prices, but should that have been largely complete, whatever -- if there was excess of consumption during the pandemic period, would we have normalized that out this year? Or is that a multiyear process?

Again, I'm not sure where my crystal ball is on this, but my view is that as we get to the midpoint of next year, and again, assuming the Fed sort of gets down what they -- like they need to get down on inflation and mortgage rates are no longer rising, I think some of that reversion or that difficulty will still be in there in the first half of next year. But as we get to the second half of the year, again, assuming mortgage rates aren't continuing to go up and the Fed is not aggressively pursuing quantitative tightening, my expectation is that all that will be worked out of its system by the mid part of the year.

And can you set the -- frame the ticket versus the transactions, we talked about ticket or ticket being up. So how high are they? And is your surprise that, that minus 5 scenario, was that partly because there's just so much ticket inflation that would be inconceivable to be that weak?

I think that's right. And again, I'm talking about the year, not any individual quarter. As I said, I think the first half of next year will be tougher than the back half of next year. But that's right. If we exit this year -- let me back up. So our ticket was up 19.5% in Q3. And if you look at the first half of the year, just to set the stage, when our ticket was up kind of in the high single, low double digits, most of that was things that were centric to Floor & Decor. So we -- our Pro business is strong. That's a much higher ticket. Our e-commerce business is strong. That's a much higher ticket. We've been investing in design when the designers are involved. That's one of the highest tickets we have. We've done a great job on the assortment on rigid core vinyl. That's the highest ticket we have from a category perspective. And consumers even today are still choosing better and best, and those all drive tickets. So for the first half of the year, that ticket was being driven more by things that we were driving that I just mentioned and less by retail increases. As we get to the back half of this year, again, our ticket was up 19.5% in the third quarter, that flipped where the retail increases because of the inflationary supply chain cost increases was driving more of that ticket, and we still are having those other phenomenons. So as we exit this year and going to next year, yes, my expectation is that, that trend will continue. Now we're going to be up against ticket going up last year. So I think our ticket piece will start to come down. The transactions, if we're right, and we're down in the high single digits to low double digits. That's why that comp will compress as we get into next year and almost like we talked about in the fourth quarter where our comps went from 11.6% down to 5%, you can see that start to compress as you walk into the first part of next year.

Cost of product, how is that changing? I think the freight and moving the product probably eases at some point? But how does the cost of product evolve?

Yes. I think for us, a lot of what was causing the cost increases was primarily on the supply chain side, especially international container costs. We had a lot of demerge and detention where the containers were getting caught up in the port and we couldn't get them in and out fast enough. But those costs have come down meaningfully in the last 3 to 4 months. And our supply chain team has done a good job. We've been fortunate. We've always had kind of a rolling contract process with our container companies, and we set some long-term contracts out before all the difficulties started of late '21 and early '22. And so as those costs have come -- so we have better contracted rates. And now as the spot market has come down you've seen our supply chain costs come down a lot here recently. We talked -- part of the reason that we had a very modest lowering of sales in the fourth quarter is we just didn't need the same level of retail increases we thought when we gave the guidance in Q3 because our gross margin continues to perform above plan. And so again, my expectation is that as we walk into next year, because we've seen a substantial decrease in -- especially out of Asia on the container cost, that we won't have to have the same level of retail increases, but we'll have a better gross margin. So I don't know if I answered your question extensively. But yes, I think the supply chain cost of the -- part of the equation, which is benefiting our gross margin, will continue to help us as we walk into next year.

And in terms of price, it should be -- it sounds more disinflation as opposed to you're not expecting pricing I guess, to fall or deflate relative to where you were this year?

I think we'll see. There's the possibility that retail start to go down as we walk into next year. But I think the benefit of that for us and most retailers is the gross margin can kind of more than offset that because you may be taking your retails down to make sure you're staying competitive because we have a certain kind of gross margin range we want to hit at. But obviously, if your gross margin is expanding at a higher rate, you get that benefit across all sales, not just the lost sales because of the ticket. So -- and usually, the retail coming down will come down at a slower rate than the cost come down, so there's a bit of a gross margin benefit in that as well. So our view is we'd love to see those supply chain costs continue to come down. That allows us to lower our retails. Certainly, there's some comp compression on that. But you -- in our view, you're going to have really good gross margin rate in that environment because you're not going to lower retails at the same rate.

And this is a macro question also tied to gross margin. Home improvement as a category has pretty low volatility or variability in gross margin, not much seasonal or clearance. It's pretty maintenance repair, failure. How does that play out to the flooring category? And if there is a situation where the macro trapdoor falls out from underneath, how bad could that be for gross margin?

Yes. I think that's right. We worked in other retail industries where there are a lot more promotional and stuff. And we're an everyday low price retailer. If you back out our new stores, our sales are almost 25% a quarter. And we've typically not had a lot of variability in our gross margins, and I think that's right. If our sales were lower than planned, there is a little bit of deleveraging there because we have our supply chain costs, our fixed cost component there that can deleverage a little bit. So there could be some deleveraging if our sales are below our plan. My expectation is if there is that type of a difficulty and unforeseen consequence, that will be difficult for us, like it will for some of our larger competitors. But 60% of who we compete with are smaller players, right? The home centers are kind of 28-ish percent of the hard surface flooring. We think we're kind of 8% to 10%, and that means everybody else is the much smaller players. And my guess is that they're already struggling. If you look at one of our smaller publicly traded companies that disclose their transactions on a 2-year basis, they were down 45%. And so while it would be painful to go through that type of a huge negative cycle, which I don't think anybody believes is going to happen, on the other side of that, that would be good for us because there's going to be a lot less competition in that environment because a lot of those small players won't be able to hang on through there. And part of the reason our business was so strong, right, as we all got here, was that there was something like 22,000 independents that went down to like 16,000 independents from 2007 to 2009. And so as the housing market started getting better in kind of 2008, '09, '10 and '11, there was a lot less competition to be there. And people need their flooring, they delayed it longer than they like. So certainly, I don't want that to happen. But if it does happen, that will be incredibly good for us medium and long term.

You mentioned some of the channels or the players in the channels. I was going to transition to competitive landscape. First blanket question, competition increasing, same or decreasing?

I would say that we're not seeing any increase in competition, and I gave a lot of credit to our merchandising and store teams. I think the uniqueness of which our assortment is today is one of the best it's been. So if we were walking a store right now, and I was walking you through Optimax, Nucore, AquaGuard and our rigid core vinyl, our biggest category, those are all proprietary brands, hard to get and really good technology relative to the competition. And it's getting bigger, right? Taller planks, wider planks, and hard for our competitors to show that. I think when you look at tile, you sort of see some of the same things where bigger tile is a trend that's continuing and our smaller competitors -- even our large competitor because they don't have the same square footage, really have trouble showing that type of product. And so that's a bigger competitive moat around our business. And as we focus more on that better and best, we've taken our consumer increases, now -- our average consumer comes now close to $100,000. So to answer it slightly differently, I think the competitive moat around us today because of what we've done with the assortment, what we're doing with design services, in-stock inventory levels, Pro, we haven't spent much time on that. But all the things we're doing on the Pro side of the business, where that business is incredibly strong, design is free, service is -- we feel great about our competitive moat relative to competition. So we don't see growing competitive threats out there.

The home centers, are they staying in their lane in terms of their assortment?

We get that question a lot. And I would say, we've got tremendous of respect for the home centers. They're incredibly well-run companies, and we admire what they've done. But when you look at our space, they've only got maybe 3,000 to 5,000 square feet dedicated out of that 100,000, 110,000 square foot box, whereas our average stores are 78,000 square feet. And so every year, they get better. They're obviously paying very close attention to us, and they're incredible merchants. And they're getting better every year, but so do we. And when you talk -- when I talked about some of those trends that we've seen earlier, it's just hard for them to have that level of merchandising. And the other thing I'd say is that an average Floor & Decor has about 50 to 60 employees that understand hard surface flooring. It's a complex job. You need 10 to 15 installation categories, you have to think about it, is it above grade, below grade, what's the sound suppression, all those complexities lead to you need some help. And if you need help, you're going to be -- our view is that you're going to be much better served at Floor & Decor because, again, we have so many more employees dedicated to the category because service is a big component of this as well. And then our prices are still the lowest in the industry. And if you walk into a competitor and you see 250 square feet of tile, that's not enough to do much. And so having that in-stock quantity really matters, especially if you're a professional customer. So all those things that have allowed us to have tremendous success over the last decade, they're accentuated now more than they ever have just because we've been doing this for a long time.

Hypothetical question. During the pandemic, the market share for Floor & Decor went up fast. You had an inherent competitive advantage and the many things I just mentioned, I don't want to repeat. If we go through a short housing recession, does that pressure exert? Or these independents have been battle tested or they're weak and the market share can actually look better than what happened during the pandemic?

I think it's probably a mix of both. If you look at the -- over the last 15 years of what happened to the independents, again, there was something 21,000, 22,000 of them back in 2007 before the teeth of the Great Recession hit. And now there's something like 13,500 of them left. And so the ones that are left are the better-run businesses, right? All that washout that happened over the last decade, all the poor-run companies have gone. The ones that are left are better operators. Many of them have diversified. They're doing cabinets or they're doing install or they're doing some other component of their business that's outside of just flooring. And so I think if it's sort of a garden-variety recession where it's not too painful, I wouldn't see a lot more washout. I think if it's a deeper recession, then the answer is yes, you're going to start to see a lot of these folks struggle to hang on because a lot of what we hear from those is they'll just flip and do a lot more of the installation because we don't do installation. But if the installation business is isn't there either, then they have nothing left to hang on to. So I think it just depends on how deep the cycle is as to what will happen with our smaller competitors.

One more on the TAM and then we'll get out of macro and TAM unless the audience wants to ask about it. At the last Investor Day, you made a bridge to this expanding TAM through commercial expansion, adjacent categories. Can you walk us through maybe set the table there, how do you think about these opportunities in commercial or vis-à-vis Spartan?

Yes. I think if you think about that at its core, the commercial business is about 2/3 of the size of the residential market. And the residential market is huge. And if you simplify our business, we're really good at buying really great-looking product. We source from 240 vendors in 24 countries. We have an incredible supply chain that allows us to bring in, we believe, one of the lowest costs of any retailer. We're a top 100 importer into the United States. And so all those huge investments we've made to support the retail business, great product, get it in here at a low cost, in-stock inventory levels, it's just as much accentuated on the commercial side, right? They need LVT, they need tile, they need backsplashes and shower walls. And so because we've made this huge investments on the residential side of the business, we're just leveraging that for the commercial side. And so we'll have close to 100 sales reps, both between Spartan and us next year. A little bit simplification, but you hire a sales rep, they do anywhere from $0.5 million to maybe $1 million in sales in their first year. And by the time they're doing a great job, they're hopefully doing $3 million, maybe as much as $4 million in sales. And so we're ramping that business up fast. I think Tom talked about last few quarters, our RAM business, our regional account managers, that's our Floor & Decor sales reps that we hired before we bought Spartan, their business is up well over 50% and growing operating profit. And on the Spartan business, I think we specifically called them out as their sales being up over 40% and their EBIT being up over 60%. And again, because we get to leverage off that massive supply chain that we built off on the residential business. So we're very excited about that business. We're going to continue to invest in it. We've done 3 small tack-on acquisitions that have been good for the Spartan team. And so yes, that's going to be a high-growth driver. Now it's hard to see because the retail business is growing so fast. It's growing at a much faster rate, but from a lower base. And so yes, we're super excited about that business. We acquired a wonderful management team and a great partner in Spartan. And we're going to continue to see that business grow for a while.

If I'm a commercial entity and I need to replace the floors maybe of this whole hotel, besides it maybe you're not selling carpeting. What would be the advantage of not -- am I buying direct from a manufacturer, and that's where there's a cost advantage? Why aren't you not the lowest cost provider in that channel? Why shouldn't you be?

I think we are. Yes, I think -- just look on the retail side, I think we will be. So that industry, as we've researched it, about 60% of that industry is owned by the large domestic manufacturers: Shaw, Mohawk, Tarkett, Mannington. And again, those are very well-run companies that have good products. But at their core, right, they've got a manufacturing base that they can put this line together. And I'm going to have this assortment for a couple 2 or 3 years because that's the assortment I've built. Whereas Floor & Decor as a retailer, we're much more nimble: 240 vendors, over 6,000 SKUs. As trends change, we can move manufacturers, we can move bases, whereas, again, the manufacturers have to run that line. And so I think it allows us to be a lot more nimble on the assortment. And as trends change, we can quit buying this product from XYZ vendor in Asia and start buying this product out of XY vendor in Europe or America. And so at our core, that's what's been great. And if you talk to the Spartan team, I think you guys probably met with them when we had our Investor Day, that was what was so appealing to them about us is they have done a good job, but they had a very small manufacturing base they could buy from. Now their aperture's like this and they can order everything. And so like they didn't sell tile, for example, tile is a huge category for us. So now they're starting to sell tile. They had a very limited rigid core vinyl products that they could sell. Now they've got access to all of our rigid core vinyl. So the answer is our view is simple, that we will be the -- we'll have the most assortment, the best-looking product at the lowest cost. And so yes, we think we'll compete very well in that space. And as I mentioned, based on -- that business will be as big as the total business it was when I got here 12 years ago in the next year or so. So it's growing fast and it's accretive operating margin. It's a lower gross margin business, but it's accretive to operating margins, and we're going to continue to grow that business.

There's under 11 minutes, and we haven't covered a lot. You mentioned Pro, I haven't mentioned Pro, but I don't want to go there yet. If you have questions, just start waving and then 1 or 2 from now will go. But if you have, let us know, so we can plan. Backlogs. I don't know, do we talk a lot about that on your call? It certainly comes up with the home centers. Is it measurable? Is it anecdotal? Anything you can share on that.

We don't install. So it's a little bit harder for us to measure than it is the home centers. We view that as competing against our best customers. What we can tell you though is we have a wonderful partner, a company called Installation Made Easy. They have 4 to 5 installers in every single store. So if you're new to town, you didn't have a way to get an install done. You didn't know your neighbors. You wanted an install, you might call Installation Made Easy or go to their website. And they're really one well-run company that have great technology. So we meet with them throughout the year many times. What they've told us -- and so they're maybe a good representative sample because they're in all of our stores, they have 4, 5 Pros. Those are some of our largest volume pros in our stores. So they're a fairly good representative sample. What they've told us is their leads, right? So when -- they'll come out to your house and do a measurement before they do an install. That lead process is down kind of mid-teens is what they've seen. But much like our business, because the retails are up, they're getting a higher retail per square foot and they're converting better. So instead of maybe converting at 75%, they're now converting at 85%. And so their overall sales are doing great. So it feels like to me that they're getting less leads, but they're converting at a higher rate and their retail per square foot is up. So just like us, they're going to have the best sales and profit year in their history is what they're telling us. But there's definitely less people asking them to come to their house. And my guess is that's a fairly reasonable expectation for broadly what you're seeing out there. But there's -- again, they're busy, they're going to have their best year on record.

Trends and innovation. LTV was transformative or still is. Is there any -- is there a next LTV? What's hot right now?

I think that's one of the great things about Floor & Decor. Our founder was a merchant. Lisa, you know well, our previously retired President was a merchant. Tom was a merchant for a big time of his career. We don't call our store managers, we call them Chief Executive Merchants for a reason because they have to have a passion for products, certainly a passion for people as well. And so the answer is yes. There's always new innovation coming on. I think we're at the forefront of that, right? You've seen rigid core vinyl in my 12 years here, it was 12% of sales. Now I think it's getting close to 27%, 28% of sales. So it's been a great category. It's a man-made product. So your imagination is really your limit. And so we've really increased that assortment there. Our next biggest business is our tile business. As I mentioned, you're starting to see bigger tile. That is now all run through porcelain -- almost all through porcelain and it's an inkjet process. So again, your imagination as far as it can go. You're seeing lots of innovation on the adjacent categories. Not so much adjacent, but I mean the decorative products, so things like shower walls, backsplashes in kitchen, things like that, that's an area where we shine. I think again, our merchants have done a fantastic job of bringing in very unique product at substantially lower costs than our competitors. Especially in that category, that's where you're competing more with the independents and our prices are usually less than half of what you see out there. And I think the way the merchants do a fantastic job of bringing the assortment together so that if you want a white-looking porcelain tile for the floor, you can have all kind of adjacent categories and decorative products that go with that so that the assortment comes together. The prices are low in-stock levels. So the answer is yes, I think there's definitely innovation in the category and our merchants are at the forefront of that.

Good. I'm just looking out to the audience in case there are any questions. Strategic priorities. And I was trying to do the catchall here with Pro, micro-merchandising, I don't know if that's a priority, unit growth. But I was going to open it -- make it an open-ended question on key strategic priorities, and then we'll go into each one of them.

Yes. For us, we've got, I think, 5 or 6 pillars we talk about consistently. Growing new stores is our #1 source of focus. We'll invest $10 million, maybe a little bit more than that when you include inventory and working capital, and we think we'll get a 25%, maybe a 30% return on invested capital on those new stores. So that's our biggest priorities. We've been a 20% unit grower for about a decade other than the COVID year. Next year, we slowed that just a little bit to 17%, 18% -- 16%, 17%, 18% growth, depending on how many stores we open next year. So that's our biggest priority. As a retailer, we're always thinking about same-store sales and what are we doing to drive incremental volumes. Obviously, we're in a difficult macro. But over the medium term and long term, we feel like there's lots of opportunities to continue to grow in-store. And there's a whole bunch of initiatives we talked about back in March to drive that. E-commerce for us is a big business. That business will be approaching $1 billion next year. And so we've got a great team that continually thinks about how do we inspire, educate, ease of transacting. That's what the website does a great job for us. So that's a huge priority for us. Commercial has been a -- as we mentioned, a very fast growing business for us. We've built all this infrastructure. So now it's about hiring and retaining the best salespeople. And then on the Pro part of our business, we're now where the Pro actually pays for it, it's over 40% of our sales. 1.5 years ago, that number was closer to 32%, 33%. So we've made a lot of progress on serving that Pro. We have a dedicated Pro desk that just takes care of those Pro teams. The assortment has gotten better. So that kind of exclusivity helps us. The loyalty program has been a big part of it. We don't charge restocking fees, which most of our competitors do. And so all of those things are endearing us with the Pros. I don't know if I missed design. Yes, design. That's a good one you have. We're really the only retailer I'm aware of where you can have free design services. We have almost 5 designers per store that we think is a competitive benefit to us. I think those are probably the big ones.

I skipped over something in the beginning. I wanted to ask you as President, is there increased responsibility? Is it different? Or you were partly making decisions before? And then if there is increased responsibility, is there one of these priorities or commercial side where you're going to lean in?

Yes. And I feel bad for Bryan, we haven't let him weigh in yet. So I should just introduce Bryan as our CFO. He's been with us for a long time, 8 years, I believe he's been with us. He's done a fantastic job, and he's earned the right to take this job. And I'm confident he's going to do a fantastic job for us in this role. So I am handing off the CFO responsibilities. Fortunately, he's been with us a long time. So he knows exactly what we do to run a high-quality finance shop. So as I sort of delegate those to him, the answer is yes. So I'm now going to be responsible for all of our store operations, and I'm going to be responsible for marketing, e-commerce and technology. I won't have supply chain. I won't have the commercial business any longer. I used to have the commercial business, now that's going to be headed by our Head of Business Development and Supply Chain. And I think the way Tom has always run this organization, he's super collaborative -- excuse me, there's something in my throat. He's been a super collaborative leader. And so yes, I've always been in the heart of operations, so has our Head of Supply Chain, so has our General Counsel. And so now I just get to focus all my time on that versus some small percentage of our time. And I think the other thing that any great organization, and Floor & Decor falls in that realm, is we have fantastic leaders already. I don't need to come and sort of like redo the operations or redo marketing or redo what we're doing in e-commerce. We've got fantastic leaders that know exactly what they're doing. What I'll hopefully be able to do is align those organizations, help us focus on priorities, bringing a level of rigor and review that hopefully will improve over time. But there's no core wholesale changes that have to be done. It's like any great organization. We've got a great business, we know what we need to improve upon, and we just need to execute those as we think about the next 5 to 10 years.

I'll ask a 2-part last question unless anyone's waving. Market share and long-term margins. You said 8% to 10% was roughly your part of the market today. I think the home centers combined in their world have close to 50% of the market.

That's right.

Is that the right way to think about Floor & Decor over time? And then the second question on margin is your margin suffers from immature stores and this opening cadence. And I think we've talked over time that there's several hundred basis points of unlocked, if and whenever that pipeline flows. I think we like the growth in place of not growing. But does that mean that long-term margin here is still mid-teens or so wherever that margin gravitates to over time?

Yes. I think the answer to both is -- well, let me just hand the first one, our math suggests -- give you simple math, let's say we get to $30 million per store, 500 stores. That's a $15 billion business. And then commercial and other things hopefully gets us closer to $17 billion. At that level, assuming the market kind of grows in the 2% to 4% range for all those demographic reasons, I think it will grow at least that rate over the longer term, we sort of come up with kind of a low 30% market share is sort of how our math works out on that. And I think you're right. It's possible it could be higher than that, right? Maybe we'll figure out how to go into some of those smaller markets. Today, we only are focused on the top, I think, 150 MSAs in the United States. But yes, our math would say that we have kind of high 20s, low 30s market share. Over time, we'll see if we can go higher than that, but we're focused on the 500 stores now. What was the second part of the question?

Long-term EBIT margin.

Yes, long term, yes. I think last year, now it was obviously an incredible strong year, but I think we were just below 15% EBITDA margins and kind of low double-digit operating margins. And you're right, if you sort of bifurcated our P&L into the stores that are greater than 5 years old and stores that are less than 5 years old, what you'd see is we're above a 15% EBITDA margin today, call it, 300 to 350 basis points of depreciation, that will come down over time, right? You won't have as much depreciation in the out years. And so yes, I think long term, we're sort of mid to upper double-digit EBITDA margins. And then somewhere below 15% operating margins. I don't know if it's 12%, 13% exactly, depends on a lot of things. But yes, I think this is a high-quality business. But because we're adding 20% of new stores, our new stores is only 60% as productive as our mature stores, it's harder for investors to see that. But yes, if we stop growing today or if we bifurcated our P&L, you'd see a very profitable business. And yes, I think those are the right long-term financial targets for us.

So we'll close it at a very profitable business. I appreciate you both being here, Trevor and Bryan. Congratulations on your success. Happy holidays. Good luck next year.

Thanks for having us.

Thank you.