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

Greetings, and welcome to the Floor & Decor Holdings Second Quarter 2026 Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce Wayne Hood, Senior Vice President of Investor Relations. Please go ahead.

Thank you, operator, and good afternoon, everyone. Welcome to Floor & Decor's Fiscal 2026 Second Quarter Earnings Conference Call. Joining me today are Brad Paulsen, Chief Executive Officer; and Bryan Langley, Executive Vice President and Chief Financial Officer. Before we begin, I want to remind everyone of the company's safe harbor language. Comments made during this call contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Any statement that refers to expectations, projections or other characterizations of future events, including financial projections or future market conditions is a forward-looking statement. These statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in these forward-looking statements for any reason, including those listed at the end of the earnings release and in the company's SEC filings. Floor & Decor assumes no obligation to update any such forward-looking statements. Please also note that past performance or market information is not a guarantee of future results. During this conference call, the company will discuss certain non-GAAP financial measures. We believe these measures enable investors to better understand our core operating performance on a comparable basis between periods. A reconciliation of each of these non-GAAP measures to the most directly comparable GAAP financial measures can be found in the earnings press release, which is available on our Investor Relations website at ir.flooranddecor.com. A recorded replay of this call and related materials will be available on our Investor Relations website. Let me now turn the call over to Brad.

Thank you, Wayne, and thanks to everyone for joining us on our Fiscal 2026 Second Quarter Earnings Call. I'll start by reviewing our second quarter performance and the key drivers behind our results. After that, Bryan will share our perspective on the remainder of 2026, including how we're navigating the current environment while continuing to invest in our strategic priorities and long-term growth opportunities. Turning to our fiscal 2026 second quarter results. We are pleased to have delivered adjusted diluted earnings per share of $0.58, unchanged from the prior year period despite a 2.1% decline in comparable store sales driven by continued softness in large discretionary foreign projects. I was pleased with how our team stayed focused on the factors within our control, delivering compelling value to our Pros and homeowners, providing an exceptional customer experience, executing our merchandising and operational initiatives and maintaining disciplined expense management. Those efforts enabled us to maintain earnings per share in line with the prior year while generating strong free cash flow, which provides the flexibility to repurchase $65.7 million in common stock during the quarter. I want to thank our approximately 14,000 associates for their commitment and hard work throughout the quarter. Their focus and disciplined execution demonstrated the resilience of our operating model and position us to continue creating long-term value for our shareholders. Now let's take a deeper look at our second quarter results. Total sales increased 3% to $1,250.3 million compared to $1,214.2 million in the prior year period. Sales to Pros continued to outperform the company and grew approximately 4% from the same period last year, accounting for about 55% of sales. Comparable store sales declined 2.1%, an improvement from the 3.7% decline reported in the first quarter, reflecting steady sequential improvement throughout the quarter. Comparable store sales declined 5.1% in April, declined 1.3% in May and declined 0.3% in June. The improvement in comparable store sales reflected improving trends across several key metrics. First, our Net Promoter Scores remained high, driving a sequential improvement in customer conversion. This is one proof point in how our store associates are highly engaged in this environment to win every sale. Second, comparable transactions also improved, declining 2.9% compared with a 5.5% decline in the first quarter. Lastly, average ticket grew 0.8% year-over-year despite lapping last year's strongest quarterly growth rate of 3.8%. Both ticket and transactions were aided by a sequential improvement in comparable square footage sales from the first quarter. We exited the second quarter with encouraging momentum, but demand softened around the 4th of July holiday period, while the housing market remained constrained by subdued existing home sales activity. As a result, third quarter-to-date comparable store sales declined 2.2%. Encouragingly, sales trends improved in late fiscal July and early fiscal August. Geographically, our comparable store sales improvement broadened during the second quarter. Our West region continued to outperform the company and delivered positive comparable store sales, excluding cannibalization. And encouragingly, our East region also turned positive on that basis. Furthermore, among our 16 districts, 8 reported positive comparable store sales, excluding cannibalization. From a merchandising category perspective, 3 departments outperformed the company's comparable store sales performance during the quarter, installation materials, tile and wood. Installation materials continued to deliver strong year-over-year growth as we expanded our share of wallet with Pros and further strengthened our position in the market. As we continue to execute our supply house strategies and expand our store base, we believe we are becoming an increasingly convenient and reliable destination for Pros to purchase installation materials. Tile remained a standout performer, supported by the continued success of key initiatives, including the Vetta Elements collection, which continues to resonate with both Pro and homeowner customers. Growth in the wood category was driven by market share gains in engineered and unfinished wood, acoustic wall panels and the success of our bulk-out strategies. We expect to build on this momentum in the second half of 2026 with new SKUs and opportunity buys. In the vinyl flooring category, comparable store sales and comparable square footage sales sequentially improved during the quarter, supported by a combination of merchandising, pricing and value-focused initiatives that we will continue to build on in the second half of 2026. The combination of slowing demand for vinyl and excess industry supply continues to put pressure on the category, which could continue into 2027. Importantly, sales penetration of our better and best offerings increased both sequentially and year-over-year, reflecting sustained customer adoption of our higher-value offerings and reinforcing the effectiveness and resilience of our strategy despite ongoing macroeconomic pressures. In June, we are excited to launch NatureMatch, a new private label collection that brings the authentic look and feel of natural wood and stone consumers at a more accessible price point, spanning nearly 100 SKUs across porcelain tile, luxury vinyl plank and waterproof laminate. NatureMatch reflects our ongoing commitment to technology, product innovation and value. In a challenging home improvement market, differentiated collections such as NatureMatch continue to drive customer engagement, support conversion and create incremental cross-category selling opportunities. By combining premium design, strong performance and a compelling value proposition, we are expanding our appeal across customer segments while continuing to gain market share. As we look to drive sales in what we expect will remain a challenging demand environment through the second half of 2026, our marketing strategy is focused on reaching high-intent customers at key decision points in their purchase journey through more targeted higher return tactics. Furthermore, we are aligning our marketing efforts across stores and digital channels. Let me turn to our new warehouse store expansion. Through the first half of fiscal 2026, we opened 11 new warehouse format stores, including 5 in the second quarter. Syracuse, New York; Portland, Oregon; Mount Vernon, New York; Houston, Texas; and Schererville, Indiana. With approximately 55% of our planned 2026 locations now open compared with 35% in the prior year period. The front-loaded cadence we outlined at the start of the year is progressing in line with our expectations. These locations extend our presence in Tier 1 and Tier 2 markets where household units, population density and home improvement activity support the long-term demand profile we target in site selection. We continue to expect the class of 2026 new stores to average approximately 55,000 square feet, a format that, while smaller than our legacy footprint, allows us to enter higher density markets without sacrificing sales productivity. We expect the balance of our 2026 store openings to be weighted through the fourth quarter. Let me spend a moment on our omnichannel strategy and the digital capabilities we're building to support it. In the second quarter, online sales penetration reached 20.3% of total sales, up from 18.6% in the prior year period and up 110 basis points from the first quarter. This continued improvement reflects the progress we're making to enhance the customer experience across both digital and store channels. We believe delivering a best-in-class omnichannel experience represents one of our largest opportunities to accelerate growth, gain market share and achieve our long-term sales objectives. As customer expectations have evolved, particularly around digital engagement and convenience, we've recognized the need to strengthen our capabilities and are taking action. We have launched a comprehensive 18 to 24-month transformation to enhance the customer experience, modernize our digital capabilities and create a more seamless connection between our online and in-store experiences. Through targeted investments in talent, technology and operating capabilities, we are building a stronger foundation for long-term growth. Importantly, our strategy is centered on the distinct needs of our 2 core customer segments, Pros and homeowners. For homeowners, flooring is a highly research and project-driven purchase. Our research shows that about 70% to 80% of customers search online before visiting stores. Customers seek inspiration, education, project guidance and confidence before making a buying decision. Our objective is to support them throughout that journey from initial project discovery to final installation. For Pros, the priorities are different. They value speed, convenience, pricing, transparency, inventory visibility and tools that help them manage their businesses more efficiently. Our focus is on creating a seamless experience across every touch point, making it easier for Pros to do business with us, whether they are planning a project, purchasing materials, managing rewards or picking up an order. A key component of that strategy will be the launch of our new Pro app next year, which will serve as the connective tissue across our Pro ecosystem. By bringing together purchasing, loyalty, rewards, pricing and project management capabilities in one place, we are building a differentiated Pro value proposition, particularly when compared with independent flooring retailers. While there is meaningful work ahead, we are encouraged by the progress we are seeing. We believe a stronger digital foundation and a more seamless omnichannel experience will increasingly drive customer acquisition, engagement, conversion, market share gains and ultimately, long-term shareholder value creation. Let me spend a moment on our Regional Commercial Account Managers or RAMs, who operate in partnership with our warehouse stores. We continue to see meaningful opportunities to drive growth and have expanded our team of RAMs to 80 associates, significantly increasing our ability to serve customers, develop relationships and pursue nonspecified commercial product growth opportunities. As we look at the remainder of the year, our focus will now shift from adding RAMs to increasing productivity. We plan to further strengthen the infrastructure, training, analytics and operating processes needed to support long-term scalable growth. Our objective is to build a commercial organization that is increasingly productive, repeatable and scalable. While we remain early in these initiatives, we are encouraged by the progress we are seeing. Turning to Spartan Surfaces. The second quarter represented an early inflection point for the business with results improving sequentially from the first quarter and momentum building throughout the period. Second quarter sales increased 2% year-over-year, driven by strong shipment activity from the conversion of backlog in the revenue. June was one of the strongest months for written sales in the company's history. While commercial end markets remain mixed, particularly in multifamily housing, customer backlogs are beginning to recover from the lows experienced in the second half of 2025. Encouragingly, sampling activity improved late in the quarter, average quoted project value increased, leading to a very strong project backlog at the end of the second quarter. Taken together, these indicators provide visibility and support our expectation for continued improvement through the second half of the year. As we turn the page on the first half of 2026, we remain focused on driving sales, managing expenses and delivering value to our customers. We believe these actions are resonating with customers and position us well when demand conditions improve. I continue to believe that this environment creates an opportunity for us to accelerate our market share gains through world-class leadership and disciplined execution. With that, I'll turn the call over to Bryan.

Thanks, Brad. Before turning to our financial results, I'd like to add my thanks to our associates across the organization. As I reflect on the second quarter, what stands out most is our ability to stay focused on the factors within our control. The quarter reinforced one of the strength of our company, our ability to execute consistently across a range of operating environments. We managed expenses prudently, advanced key merchandising and operational initiatives and maintained a strong focus on free cash flow and capital allocation. These efforts enabled us to deliver adjusted diluted earnings per share of $0.58, which was above our expectations, generate strong free cash flow and returned $65.7 million to our shareholders through the repurchase of common stock during the quarter. Before moving to our underlying operating performance, let me discuss 2 items affecting comparability during the second quarter. First, we recognized a $45.2 million net pretax benefit related to the IEEPA tariff refunds, which affected gross margin, SG&A and interest income. Second, we recognized a $1.3 million pretax loss on debt extinguishment associated with the refinancing of our credit facilities. Collectively, these items resulted in a net after-tax benefit of $32.9 million, contributing $0.31 to diluted earnings per share. Our second quarter GAAP diluted earnings per share was $0.89 and excluding these items, adjusted diluted earnings per share was $0.58, flat to the prior year period. A reconciliation of our non-GAAP financial measures to the most directly comparable GAAP measures is included in today's earnings release and additional information regarding these items is provided in our Form 10-Q. Turning to our underlying operating performance. Our gross profit increased $70.4 million or 13.2% compared to the same period last year, driven primarily by a $56 million onetime benefit from IEEPA tariff refunds related to inventory we have previously sold through. The remaining amount of tariff refunds was recognized as a reduction in inventories net related to previously capitalized amounts and will be recognized as we sell through the inventory. Excluding the IEEPA tariff refunds benefit, adjusted gross profit increased $14.3 million or 2.7% compared to the same period last year. Adjusted gross margin for the quarter was 43.7%, a decrease of 20 basis points year-over-year, which was within our range of expected outcomes. SG&A expenses increased $28.3 million or 6.3% in the second quarter, compared with the prior year period. The increase was driven primarily by the 24 stores opened since the second quarter of fiscal 2025 as well as higher incentive compensation related to the recognition of IEEPA tariff refunds. SG&A for noncomparable stores increased $26.7 million, while SG&A for comparable stores declined $13.7 million, reflecting our ongoing focus on expense management and productivity initiatives. As a percentage of sales, SG&A deleveraged 120 basis points to 38.3% from 37.1% in the prior year period. The onetime expenses related to IEEPA tariff refunds contributed approximately 110 basis points of the deleverage in the second quarter. Adjusted EBITDA increased 1.2% to $152.0 million from the same period last year. Our second quarter adjusted EBITDA margin was 12.2% compared with 12.4% in the prior year period. Our second quarter net interest income was $2.3 million compared to net interest expense of $1.1 million in the same period last year. The year-over-year change was primarily driven by a onetime benefit of approximately $2.8 million in statutory interest on our IEEPA refunds, along with higher interest income from larger cash balances. Additionally, we incurred $1.3 million of debt extinguishment costs associated with the refinancing of our credit facilities. Our second quarter income tax expense was $29.1 million compared to $17.6 million during the same period last year. The effective tax rate was 23.3%, up from 21.8% in the same period last year, primarily due to a decrease in federal tax credits. Excluding the tax impacts related to the IEEPA tariff refunds and the loss on extinguishment of debt, our effective tax rate was 22.3% for the second quarter of 2026. Let me turn to our balance sheet and free cash flow, both of which remain strong. During the second quarter, we completed a comprehensive refinancing of our credit facilities that further strengthened our balance sheet and enhanced our financial flexibility. We entered into a new $200 million term loan facility maturing June 2033 and used the proceeds to repay the remaining $197.1 million outstanding under our prior facility, that was scheduled to mature February 2027. In addition, we entered into a new $800 million ABL Facility maturing June 2031, replacing the current facility that was scheduled to mature August 2027. Collectively, these transactions extend our debt maturity profile, preserve ample borrowing base capacity and further enhance the flexibility of our capital structure. We ended the quarter with $942.4 million of unrestricted liquidity, consisting of $320.6 million in cash and cash equivalents and $621.8 million of available capacity under our ABL Facility. During the 26 weeks ended June 25, 2026, we generated $278.4 million of cash provided by operating activities compared with $155.3 million in the prior year period. We continue to make progress on our working capital and inventory productivity initiatives as evidenced by total inventory increasing only 0.7% to $1.1 billion compared with December 25, 2025. Our net cash used in investing activities was $136.7 million, leading to significant excess free cash flow. Supported by our free cash flow and financial position, we began executing against the $400 million share repurchase authorization announced on our first quarter earnings call. During the second quarter, we repurchased 1.3 million shares of common stock and returned $65.7 million to our shareholders and ended the quarter with $334.3 million remaining under the share repurchase authorization. Let me now turn to the macroeconomic considerations informing our outlook for the remainder of fiscal 2026. The demand environment for large discretionary home improvement flooring projects remains choppy, consistent with what we're seeing in housing market activity and broader macroeconomic conditions. Although existing home sales improved modestly during the spring selling season, the recovery has yet to gain meaningful traction with June activity remaining near historically low levels of approximately 4 million annualized units. In addition, housing affordability continues to be challenged and persistent inflationary pressures as well as potential changes in tariffs continue to influence consumer behavior. As a result, our outlook assumes that consumers will remain cautious and project demand will continue to be influenced by the pace and sustainability of any improvement in housing market activity. Following our better-than-expected second quarter earnings and the anticipated greater impact from the repurchase of common stock, we have increased our fiscal 2026 earnings per share outlook. As a reminder, fiscal 2026 includes a 53rd week, which will be reported in the fourth quarter. I will highlight the expected contribution from the 53rd week as a part of our guidance. Sales are expected to be in the range of $4.770 billion to $4.990 billion or increase by 1.8% to 6.5% from fiscal 2025. The 53rd week is expected to contribute approximately $65 million to sales. Comparable store sales are estimated to be flat to down 4%. Comp average ticket is estimated to be flat to up low single digits and comp transactions is estimated to be down low to mid-single digits. Adjusted gross margin is expected to be approximately 43.6% to 43.8%. The first quarter gross margin of 44.0% is likely to represent the high point for the year. SG&A as a percentage of sales is estimated to be approximately 38%. From a quarterly perspective, the first and fourth quarters will be the most pressured from new stores if you exclude the onetime cost associated with IEEPA tariff refunds in the second quarter. Interest income expense net is expected to be approximately 0. This includes approximately $2.8 million of statutory interest benefit from tariff refunds. Tax rate is expected to be approximately 23%. Depreciation and amortization expense is expected to be approximately $250 million. Adjusted EBITDA is expected to be approximately $550 million to $585 million. The 53rd week is expected to contribute approximately $11 million to adjusted EBITDA. Diluted earnings per share is estimated to be approximately $2.20 to $2.45. Adjusted diluted earnings per share is estimated to be approximately $1.88 to $2.13. The 53rd week is expected to contribute approximately $0.08 to adjusted diluted EPS, which implies our 52-week adjusted diluted EPS to be $1.80 to $2.05. Diluted weighted average shares outstanding are estimated to be approximately 107 million shares. CapEx is estimated to be approximately $240 million to $275 million. Operator, we would like to now take questions.

[Operator Instructions] Our first question is from Seth Sigman with Barclays.

Nice progress in the quarter. I wanted to start with the tariff refunds. So you had this $45 million net benefit this quarter. What's that number on a full year basis? What's embedded here? And then can you talk a little bit about how you've started to deploy those dollars, I guess, either in Q2 or in Q3? And to what extent do you think that has contributed to the improvement that you saw in June?

Hi, Seth. And thanks for the question. We assumed that was going to be the first question. Now I want to just start off and say, really from the onset of tariffs last year through the refund, our team has executed at a really high level. Obviously, we've got multiple years of experience with this. And I would consider an established capability at this point. What Bryan and I thought we would do, we're going to hand it over to him. He can unpack all things tariff for the folks on the call, and then I'll have a comment or 2 at the end to wrap it up. So Bryan, why don't you walk them through it?

Yes. Thanks, Brad. So from the mechanics of it, you'll see in the 10-Q today, you've got a little bit more detail there as well, if you want to refer to that. But we filed for $87 million in total IEEPA tariff refunds, and we've received substantially all of it subsequent to the end of the quarter. So we've got all of the cash in at this point. We recorded a $56 million onetime benefit in gross profit related to inventory that we have previously sold through. We recorded a $28 million reduction to inventory for product that was still on hand at that point in time. We'll recognize the benefit of that $28 million as we sell through the inventory, which I would anticipate the majority of that will be recognized in the back half given that we turn slightly over 2x per year. In Q2, the benefit that we recorded from that $28 million was approximately $6 million that we saw in Q2 in the gross profit from the sell-through of that reduced inventory.

So I think it's important for us to point out for that $6 million that Bryan just referenced for the second quarter, we obviously assumed some inflationary headwinds coming into the business. We had a set of actions that we were prepared to deploy. Once we knew that we were getting the tariff refund, we elected not to deploy those actions instead use the tariff refunds to offset that inflation. As we pivot into the second half of the year, obviously, a number of different things that we can do with the refund money. I think there are 3 big buckets that I would share with all of you. The first one, I just talked about it with the second quarter, we'll continue to use those funds to offset the inflationary impacts from both oil and supply chain. Number two, where it makes sense and making sense means where we see elasticity, we'll selectively invest in price to drive market share gains. And then number three, we're going to execute our capital allocation framework. Big buckets on that are invest in stores, other growth initiatives, I think commercial and other things like that. And third would be any type of excess cash that we would have, we would send back to our owner or -- excuse me, our investors through a share repurchase program.

Okay. Very helpful.

Seth, just to clarify the difference in the $56 million and the $45 million that you see in the adjusted EBITDA add-back or the net income add-back is we had $2.7 million of statutory interest that we also received. You'll see that, that's part of the add-back. And the rest of it really is just costs associated with the IEEPA tariffs, as it rolls through kind of SG&A through incentive comp and other things.

Okay. Got it. And then I was just going to follow up and ask about the comp guidance for the rest of the year in that context. So it implies a pretty wide range, down 5% to up 3%. You're running better than that at the low end right now comparisons get easier. So can you maybe talk about some of the scenarios to consider here? And then in that context, you also mentioned the broadening of performance that you've seen across regions and so maybe tie that in.

So Bryan and I'll tag team this question as well. I'll start out with the second quarter. Definitely pleased with the sequential improvement that we saw through the quarter. A couple of key drivers, there are 3 drivers that I'll talk about. First was in the script, service continues to be really, really high. Every month, we set record levels. And I think that's a reflection one of the culture that we have in the team that we have in the field. Second, just all things Pro. Pro continues to outpace the performance of the rest of the business. A lot of inputs into that Pro performance. We talked about installation materials. We talked about the performance in tile and certainly getting some improvement in laminate and vinyl, which is something that we talked about in our first quarter call. And the other piece is we're starting to see some nice traction from our digital business, still very much early in that process, but starting to see some real, real benefit from that team. Now we talked about July. July was a really interesting month, the start of the month was really, really choppy around the 4th of July, had some pretty ugly days that we haven't seen in a while. But as we said in the prepared remarks, really, really pleased with how we ended the month and certainly how that has continued into August. And I'd say more in line with the run rate that we saw in both May and June, which is certainly encouraging. The one piece that I'll say and underlying Bryan will probably do the same when I turn over to him, still feel really good about our guidance. In the first quarter, we said, hey, we're going to go a little bit wider than normal given the uncertainty that's in the market. So we went flat to minus 4% on the sales guidance. Had some conversations about changing that coming into this call, but still feel like there's too much uncertainty out there. So feel good with the flat to minus 4%, but do have a level of confidence, high level of confidence that we're on track to hit the midpoint of that sales guidance.

Yes. I think that's spot on, Brad. We would have liked to have tightened the range, but we intentionally left it a little wider just because of the uncertainty. But I think when you're thinking about just the cadence in the back half, a 2-year stack gets noisy because of all of the Hurricane Helene and Milton benefits and everything associated with the storms. So if you just look at it on a 3-year stack comp, just to help you guys model, we would expect the high end and the midpoint to increase sequentially from Q2. And then at the low end, there would be a slight decrease sequentially from Q2 just to kind of get those. So it is a little bit wider of a range than we would typically do at the end of Q2. But to Brad's point, there's still a lot of uncertainty in the macro environment that we see today. But we feel really good about the midpoint, and that is our guidance philosophy, too. And you guys will always see that with us, if things continue on the path that they are right now and the macro environment stays where it is today, we have great visibility to kind of achieving at the midpoint.

Our next question is from Simeon Gutman with Morgan Stanley.

One quick follow-up on the tariff, so the $28 million, I think I got that number right, that's like unrecognized that will happen as you sell the inventory. I guess it's not huge on a basis point basis. I haven't done the math, but you held or you're basically not changing your gross margin guide. So -- and sorry for naivety, does this mean that when you sell through that product, there should be a higher gross margin on it going forward? And is that in the guidance, did that help you keep the gross margin guide? Or does that provide an upside lever, if I understood it right?

Yes. So we put $28 million back into inventory for items that we still have on hand. Of that $28 million, $6 million flowed through in Q2 to help offset some of the inflationary measures that we were seeing with higher oil costs. We're now starting to see higher domestic supply chain costs due to trucking capacity issues that we see across the industry. We're fine from a capacity standpoint, but we're starting to see some rate changes as well as reinvesting into select pricing changes as well. And what Brad talked about with laminate, vinyl and a couple of other select pricing changes that we may try to go after and be more aggressive in market share. So all of that said, our adjusted gross margin guidance of 43.6% to 43.8% incorporates the back half being benefited. Like I said, the majority of the residual $22 million within that $28 million will flow through, but it allows us, again, in this environment to be a little more aggressive and not have to take further actions. But as we exit '26 into 2027, we've got a lot of things that we can do as a company. So again, we have a lot more to talk about whenever we think about 2027, we're not going to give you guys any clarity on that today. But we'll better comment, we can do as a company when these tariff benefits do subside. So again, it just gives us a lot of flexibility and optionality in '26 to be able to take more market share.

Okay. And then one follow-up on the sales environment, more to Brad and related to the last comment. So we've had a couple of -- I don't want to say false starts, but early reads of industry bottoming, especially your business. It sounds like we're going through another one, and it felt a little more emphatic and I thought the language this time. So anything you can point to that this is demand stabilizing, turning more from replacement demand outside of your initiatives? Or how do you assess like could this be another false start?

Yes, I'm going to be really careful here because I don't want to be the initiator of a false start, but I'll give you my perspective. Like I certainly pleased with the sequential improvement through the quarter. One of the things that we called out in the script is if you look at our business ex cannibalization, we had 2 regions, 2 of our 3 regions deliver positive comp, which to me is a really, really strong story. We saw some improved traction on our commercial business. All that being said, where you sense the more emphatic approach from us is we've said that we came into 2026 saying that we need to assume the environment is going to look a lot like 2025 and that we are going to build a stack of initiatives that we felt like could deliver accelerated market share gains. So we do have a level of confidence around the execution of our initiatives and feel like that's paying off. Probably at least from my perspective, amateur perspective, too early to tell if things are truly bottoming. We're going to assume that's going to continue to be the case and do everything we can to deliver a great customer experience and take as much share as possible.

Our next question is from Steven Zaccone with Citigroup.

Can we talk a little bit about the laminate and vinyl category? It sounds like you're expecting that weakness to continue into '27. That sounds like a new comment. Maybe what are you seeing there? And then elaborate a little bit more on the pricing environment in that category as well.

Sure. And I'll rewind the tape a little bit with my answer. So laminate and vinyls are our second largest category. It's the only category that we sell where we're seeing any type of downward pressure. And we believe that downward pressure is a result of excess supply in the market. And the term that Ersan and I have used is the category has been devalued. And what we mean by that is a SKU that used to be considered a better and a good better, best lineup is now considered and priced as a good SKU. So that obviously puts pressure on all parts of that category. And it is the vinyl part of laminate and vinyl. We are really clear in our first quarter call to say we're going to play offense. We're going to be thoughtful around pricing. We're going to have aggressive opportunity buys, and we're going to add new SKUs to our assortment to make sure we're hitting the mark with the customers that are interested in that category. We did see improvement, and we're going to continue to push for more improvement for the remainder of the year. But when we say, hey, we think that pressure is going to bleed over into 2027, that's consistent with what we talked about at the first quarter. We're just trying to get a sense of how quickly this excess inventory will dissipate. Tough thing to tell. I trust Ersan, he's been in the business a long time. And our sense is it's going to run through at least the first half of next year. But again, our perspective is it's an opportunity for us to take share and make that comp performance better, certainly than it was in the first quarter.

Okay. Understood. And then the follow-up I had, bearing in mind some of the tariff commentary and then in this category in particular, how do you think about the pricing environment and expectations and comps for the second half of the year? Has that changed versus your original thinking?

I'll go first, Bryan, if you want to add anything, feel free. But the term that I have used pretty consistently since the start of tariff is the market has been rational. I'll add a few more words on that is I'm not seeing anything disruptive from a pricing perspective outside of what I just explained on laminate and vinyl. We've got 2 sets of -- really kind of 2 sets of competitors. You have independents who do a terrific job around service, really thoughtful pricing approach and have a sticky relationship with that Pro customer. And then you've got big box. And for us, as a reminder, big box, we compete on opening price point in good and a good, better, best in installation materials. And we haven't seen anything that would say that the environment is becoming overly aggressive or overly promotional. We've been really consistent in saying that we will continue to take modest increases. But the nature of our business is we do have a really unique pricing model. There's always a little bit of up and a little bit of down, but it will net out to a modest increase across our categories.

And this is Bryan. Our guidance from last quarter to this quarter is the same with average ticket expected to be kind of flat to up low single digits. The pressure in laminate and vinyl does put pressure on our average ticket because it's a much bigger project when somebody decides to take that on. So just overall, it's putting pressure on average ticket. But no change from last quarter and what we think is going to be embedded for the guide or assumed in the guide.

Our next question is from Michael Lasser with UBS.

Do you think the industry saw the same inflection that Floor & Decor had seen over the last few months? Or has your initiatives kicked in such that your market share has accelerated? And just as a part of that, why is there such a divergence between your Pro performance in the quarter versus your DIY performance in the quarter?

So the second 2 questions are a lot easier to answer than the first. I think we're going to know more as some of our public competitors and manufacturers report their results. Obviously, it's a tough question to answer just because by our measure, 60% of our space is still independents, all private, really hard to get a gauge on how they're performing. Ersan does a nice job of kind of triangulating through conversations with both manufacturers and our supplier partners. Our sense is, and I'll get into your second question, is our initiatives are paying off. We feel like we're focused on the right things. Some initiatives are a little bit further down the path and make more sense in this environment, and that is the Pro piece. Again, going back to this idea that as a team, we said '26 is going to look a lot like '25. In order for us to deliver positive comp sales, we knew we had to do that through increased share of wallet gains through the Pro customer. Why is that important? That customer is in our store every single day. We reported in the second quarter, that customer is 55% of our sales. We think they influence up to 20% of the remaining 45% of sales. So a really, really important customer. And the thing, Michael, that I would point out, really pleased with installation materials. That is a driver of footsteps. So the opportunity that we have and why we're excited about the Pro initiative is we clearly have a hook when it comes to installation materials. Now we have a great opportunity to sell the rest of the categories that we sell. And one other thing that's really important as we continue to open new stores and become even more convenient for our Pro customers, I think we're going to drive traffic there. So really excited, again, and feel good about our initiatives, still somewhat early in the process, but already seeing some dividends from them.