Floor & Decor is Monday's IBD Stock Of The Day as the hard-flooring leader settles into tight trade right below a buy point. FND stock is outperforming the S&P 500 as economic data weakens and the Federal Reserve gets ready to hit the pause button on rate hikes.
Existing-Home Sales Are Key
Existing-home sales offer an important economic data point for Floor & Decor's business. Over the past couple of years, existing-home sales have slumped from above a 6-million-unit annual rate in 2021, fueled by a Covid-era housing boom, to a 4 million rate in January.
Floor & Decor management said on the company's Feb. 23 Q4 earnings call that they thought the home sales market had hit bottom, noting the market bottomed at that level in May 2020. Even during the 2007-10 housing crash, existing-home sales only fell below that level for a few months.
But sales remain volatile. February data showed that existing-home sales surged 14.5% to a 4.58-million-unit pace. Wall Street economists expect March existing-home sales, out Thursday at 10 a.m. ET, to show a pullback to a rate of 4.485 million.
The 30-year fixed mortgage rate has pulled back from highs above 7% to around 6.5%, modestly helping affordability. Yet the near-term outlook remains poor, partly because the supply of homes for sales is historically low.
Mortgage rates could go a lot lower, as the economy weakens, inflation diminishes and the Fed eventually starts cutting interest rates. That's why a soft-landing scenario could be a positive one for existing-home sales and FND stock. However, a hard landing would delay a housing recovery.
FND Growing Through Housing Downturn
Floor & Decor management expects comparable-store sales to be flat to down 3% this year. Part of that reflects lower pricing as FND trims prices, passing on some benefits of unwinding supply-chain pressures. Another important factor: Newer stores take a few years to reach maturity, providing several years of accelerated growth.
FND added 32 warehouse stores last year and expects to open another 32 to 35 this year. That means a 17%-18% increase in its number of stores, helping it take market share from the competition. The company sees total revenue rising 8%-11.5%. Adjusted EBITDA should grow 5%-12.7%.
Floor & Decor claims to have unmatched breadth of supply and everyday low prices, which it says has helped it win more professional customers. Contractors accounted for more than 40% of sales last year, up from 35% in 2021.
FND Stock
Floor & Decor stock slipped 1.15% to 97.28 amid light volume in Monday afternoon stock market action. FND stock has a 99.47 cup-with-handle buy point, 10 cents above the April 4 high.
In recent sessions, FND stock has flirted with that buy point, rising as high as 100, but has yet to close above it.
FND stock has rallied about 40% this year, sharply outperforming the S&P 500. After moving above its 50-day line at the start of 2023, FND stock has found support at that level a number of times.
However, FND stock remains about 33% below its all-time high in November 2021.
FND stock is on the watchlist among the IBD Leaderboard portfolio of elite stocks.
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