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Edited Transcript of FND.N earnings conference call or presentation 21-Feb-19 2:00pm GMT

Q4 2018 Floor & Decor Holdings Inc Earnings Call

SMYRNA Mar 1, 2019 (Thomson StreetEvents) -- Edited Transcript of Floor & Decor Holdings Inc earnings conference call or presentation Thursday, February 21, 2019 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Lisa G. Laube

Floor & Decor Holdings, Inc. - Executive VP & Chief Merchandising Officer

* Thomas V. Taylor

Floor & Decor Holdings, Inc. - CEO & Director

* Trevor S. Lang

Floor & Decor Holdings, Inc. - Executive VP & CFO

* Wayne Hood

Floor & Decor Holdings, Inc. - VP of IR

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Conference Call Participants

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* Charles P. Grom

Gordon Haskett Research Advisors - MD & Senior Analyst of Retail

* Christopher Michael Horvers

JP Morgan Chase & Co, Research Division - Senior Analyst

* Elizabeth Lane Suzuki

BofA Merrill Lynch, Research Division - VP

* Jonathan Richard Matuszewski

Jefferies LLC, Research Division - Equity Analyst

* Matthew J. McClintock

Barclays Bank PLC, Research Division - Senior Analyst

* Michael Lasser

UBS Investment Bank, Research Division - MD and Equity Research Analyst of Consumer Hardlines

* Peter Jacob Keith

Piper Jaffray Companies, Research Division - Principal and Senior Research Analyst

* Seth Mckain Basham

Wedbush Securities Inc., Research Division - SVP of Equity Research

* Simeon Ari Gutman

Morgan Stanley, Research Division - Executive Director

* Steven Paul Forbes

Guggenheim Securities, LLC, Research Division - Analyst

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Presentation

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Operator [1]

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Greetings, and welcome to the Floor & Decor Holdings Fourth Quarter Earnings Call. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Wayne Hood, Vice President of Investor Relations. Please go ahead, sir.

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Wayne Hood, Floor & Decor Holdings, Inc. - VP of IR [2]

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Thank you, and good morning, everyone. Joining me on our call today are Tom Taylor, Chief Executive Officer; and Trevor Lang, Executive Vice President and Chief Financial Officer. Also in the room is Lisa Laube, Executive Vice President and Chief Merchandising Officer, who will join us for the Q&A session.

Before we get started, I would like to remind you of the company's safe harbor language. Comments made during this conference call and webcast contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and are subject to risk and uncertainties. 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. The company's actual future results could differ materially from those expressed in such forward-looking statements for any reason, including those listed in its 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 may discuss non-GAAP financial measures as defined by SEC Regulation G. A reconciliation of each of these non-GAAP measures to the most directly comparable GAAP financial measure can be found in the earnings press release which is available on our Investor Relations website, ir.flooranddecor.com. A recorded replay of this call, together with related materials, will be available on our Investor Relations website, again, ir.flooranddecor.com.

With that, let me turn the call over to Tom Taylor. Thanks, Tom.

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Thomas V. Taylor, Floor & Decor Holdings, Inc. - CEO & Director [3]

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Thank you, Wayne, and thanks to everyone for joining our fourth quarter 2018 earnings conference call. We are very pleased to review our fourth quarter and full year 2018 results as well as discuss our plans for fiscal 2019.

Total fourth quarter sales grew 12.1% to $436.7 million from $389.5 million last year and was at the high end of our guidance of $429 million to $437 million provided on our third quarter 2018 earnings conference call. Adjusted diluted earnings per share for the fourth quarter were $0.20 per share, exceeding the high end of our guidance of $0.16 to $0.19. We are pleased with our results considering some of the unique challenges we faced and overcame in the fourth quarter of 2018.

First, as many of you know, we were lapping a strong 24.4% growth in comparable store sales in last year's fourth quarter driven partly by the Houston market due to the benefit from Hurricane Harvey last year. Despite these difficult sales comparisons and forecasting challenges following the hurricane, our comparable store sales grew at 0.5%, in line with our expectations. Our comparable store sales excluding Houston remained strong, up 8.7% from the fourth quarter last year and in line with our long-term expectations of mid- to high single-digit growth.

Second, our merchandising team successfully mitigated the cost pressures from the 10% tariffs, and we have solid plans in place to further diversify our countries of origin by year-end. Third, we successfully opened 5 new stores in the fourth quarter versus 3 new stores in the fourth quarter last year, including the opening of our 100th store in Burlingame, California. And finally, we successfully managed through a decelerating housing market with strong results that demonstrate the relative strength of our business model and our market share growth. I would like to thank all of our associates for their continued hard work and dedication to serving all of our customers.

Moving on to full 2018 results. Comparable store sales grew 9.2%, excluding the Houston market, which is lapping historic flooding due to Hurricane Harvey, our comparable store sales increased 10%. This is our tenth consecutive year of double-digit comparable store -- same-store sales growth when excluding the Houston market.

Our 2018 total sales grew 23.5%, reaching a record $1.71 billion, almost triple 2014 sales of $584.6 million and at the upper end of our guidance of $1.702 billion to $1.710 billion provided on our third quarter earnings conference call. Since 2014, we have doubled our store base, averaged 14.7% comp store sales growth and grown our market share to an estimated 8% of the addressable $21 billion flooring market. As Trevor will discuss in more detail, our 2018 adjusted earnings per share grew 40.6% to $0.97 from $0.69 last year on 23.5% sales growth while making significant important investments to support our future growth.

As we have discussed in the past, the core pillars to achieving our long-term sales and earnings growth targets and growing our market share will come from, one, opening new stores; two, growing comparable store sales through our broad, innovative, trend-right, localized assortments, in-stock inventory at low prices; three, expanding and improving our connected customer experience; and four, improving the Pro customer experience.

I will now spend a few minutes discussing each of these and the ongoing unique opportunities that they each present as we move into 2019 and beyond and how they will contribute to driving long-term shareholder returns.

New stores. As you saw in the press release, we successfully opened 17 new stores in 2018. 2018 marks our sixth year of at least 20% unit store growth. While it's still early, it appears the class of 2018 will be in line with our expectations. Some of these stores were in new, large, densely populated markets, including our first stores in Boston, Long Island, Seattle and the San Francisco Bay Area. While there is higher upfront cost to enter these markets, as we've discussed over the last year, we firmly believe these stores will be higher-volume, solidly profitable stores due to our value proposition as well as the density of population and high-income levels in these markets. As Trevor will discuss, the improving sales and 4-wall returns that we are seeing relative to our pro forma new-store model from our 2017, 2016 and 2015 new-store vintages gives us added confidence that we're making the correct investments in the new stores and supporting distribution capacity.

While we are excited about our 2018 market openings, we are equally excited about our expected 20 2019 new-store openings. This class is expected to have a higher percentage of new stores in existing markets, currently estimated to be about 65% versus 35% in 2018. Since our new stores in existing markets generally outperformed in sales and operating profit in their first year due to higher brand awareness and more knowledgeable employees, we expect this to result in a potentially faster ramp in sales and profitability from our 2019 class of new stores relative to the class of 2018. The 20 new locations in 2019 will represent 20% growth in units, our seventh year in a row of at least 20% unit growth and is consistent with our annual long-term growth target.

Finally, we continue to see an opportunity to open at least 400 locations in the U.S. and have a strong pipeline of stores teed up ahead of us in 2020 with the plan to have those stores open more evenly throughout the year.

To support our new-store growth, in January, we announced plans to open our fourth distribution center at Tradepoint Atlantic in Baltimore, Maryland, joining FedEx Ground and Amazon.com, who already operate large warehouses at the port. This is a 1.5 million square foot facility that is expected to be operational in the fourth quarter of 2019 and will support our growth into the Northeast and create about 150 new full-time jobs by the end of 2023. Trevor will discuss in a moment how this facility will lower our logistics supply chain costs over the long term.

Moving to our second pillar of growth: comparable store sales. As I mentioned, fiscal 2018 represented another strong year of sales growth with comparable store sales growing 9.2% compared with 16.6% growth in 2017. In the fourth quarter, our comparable store sales increased 0.5% against 2017's 24.4% increase and was in line with our guidance of flat to up 2%. Excluding the Houston market, our comparable store sales in the fourth quarter of 2018 increased 8.7%. On the 2-year stack basis, our fourth quarter comparable store sales were up 24.9%, which was in line with the 24.6% growth in the third quarter of 2018.

Transactions, one measure of market share growth, remained the primary driver of growth in the fourth quarter and full year comparable store sales growth. Comparable store transactions increased 2.6% in the fourth quarter of 2018 and were up 7.7%, excluding Houston. For the full year, comparable store transactions increased 10% and were up 9.7%, excluding Houston.

Average ticket declined slightly for the year but was up 0.3%, excluding Houston. The decline in average ticket continues to reflect the decline in wood and stone categories as customers currently prefer innovative products in tile, water-resistant laminate, rigid core vinyl and decorative accessories.

From a product standpoint, laminate and vinyl continued to experience the strongest results in the quarter and for the year due to robust growth from our water-resistant laminate as well as our water-proof rigid core vinyl brands. This is the third year in a row that this category has meaningfully outperformed other categories, growing 52% in fiscal 2018 alone.

We have shown over the last 10 years that we can grow at above-market rates regardless what trend is driving growth. As long as hard surface flooring is growing, we believe we will continue to take market share.

As we think about 2019 and beyond, we believe we'll continue to take market share in the hard-surface flooring market through ongoing innovation strategies and by offering consumers easy, affordable and updated stylish flooring solutions. To help our customers through the purchase journey, we're making investments in our designers and our design centers, where over 1,000 vignettes were refreshed in 2018 with the intent of engaging with customers more often about their entire project.

We know that when one of our designers becomes involved with a project, the average ticket can be 4x larger than the ones where they are not involved. To improve the experience, we have given designers tools like online appointment scheduler, access and reporting on key metrics as well as tablets that allow them to be mobile in our stores to help build customers' orders as they peruse our aisles together.

Importantly, when a designer is involved, we see improved customer satisfaction scores and favorable customer reviews on social media. In 2019, we will also build on our strategies to drive higher basket selling by making sure our Pros and customers leave our stores with all the installation materials that they will need for their project, like mortar, grout, glues, underlayment tools and sealing products. Remember, every product we sell requires installation materials to be installed, and we plan to drive higher attachment rates. Our stores will be reset to better guide this process, and in some cases, categories expanded so the customers have more options and can easily find the installation materials they will need to finish their project.

We have also taken this into account on our website, where we have added Finish My Project functionality. We have tied a portion of our store management incentive compensation to selling these necessary installation products.

We are investing heavily in new-store-level training and human resources technology to help our associates be more consultative in selling to our customers as well as new labor scheduling tools to better align when our associates should be scheduled.

Expanding the connected customer is our third pillar of growth. We have been very pleased with our connected customer strategy and expect to build on the success in 2019 and beyond. Specifically, our e-commerce sales continue to grow at a much faster rate than our total sales and, in 2018, accounted for about 8% of sales tender. Approximately 77% of our e-commerce customers pick up in store, which demonstrates the synergy between our physical footprint and our e-commerce business.

In 2018, we experienced an increase in traffic as well as improvement in desktop and mobile conversion. Order volume, order value and attachment rates were all higher year-over-year, and we expect to build on this momentum in 2019. We continue investing in new technologies, merchants and associates training that will offer an integrated shopping experience to make it easier to buy from us.

We have a number of great new initiatives planned in 2019 that are designed to drive engagement through better customer relationship management analytics and initiatives, which will further improve the connected customer experience. Throughout 2018, we've built tools that allow orders to be built online or in the store, named for specific customer project and saved on or e-mailed to the customer so that they can evaluate, change and transact on our website in the convenience of their home or on their mobile device.

We launched a redesign of our mobile website and enhanced tool called Finish My Project. Our Finish My Project tool allows associates and customers to simplify the process of adding necessary installation materials. We believe our tools and trainings can help demystify and build confidence in which installation accessories are needed to complete a customer's project.

We estimate 72% of customers who ultimately buy from us will visit our website during their buying process, though, it is critical that our site is informative, inspirational and offers customers the ability to shop Floor & Decor however and whenever it's convenient for them. Collectively, our connected customer initiatives give us added confidence that we can sustain strong e-commerce growth.

Invest in the Pro is our fourth pillar of growth. We see continued opportunities to increase our share of wallet with existing Pros as well as engage with Pros that do not currently shop with us. To that end, we rolled out PRO Premier Rewards in the third quarter of 2018. This loyalty program rewards our Pros, the more they spend with Floor & Decor, the more points they earn, which can be redeemed for all kinds of awards like trips, events, electronics and much more.

This program also includes an umbrella of 14 offerings to help these small businesses run their businesses more effectively. Examples include payroll processing services, uniforms, e-mail marketing tools as well as access to health insurance, all at a low cost.

We already have over 50,000 members in our PRO Premier Rewards program. As engagement continues to grow, we expect loyalty and share of wallet to also improve. A major focus in 2019 will be growing this program, which is integrated into our CRM database. In addition, in 2018, we launched our Pro Premier app and currently have approximately 4,000 active users, growing each day.

Pros have access to increased functionality in the app, including keeping track of their orders, looking up SKU inventory, scheduling pickup and so much more. We expect our active users to continue to grow as we have many future enhancements coming to further improve the shopping experience for our professional customers, including allowing Pros to build quotes and order product directly through the app and integrating in the SKU barcode scan-ability. We're excited about the potential, growth and loyalty that will come from these initiatives as we build awareness about the very specific services we can offer in 2019 and beyond.

I'll now turn the call over to Trevor to discuss our fourth quarter 2018 results and our 2019 outlook.

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Trevor S. Lang, Floor & Decor Holdings, Inc. - Executive VP & CFO [4]

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Thanks, Tom. I'm going to concentrate my comments on some of the changes among the major items in our income statement, balance sheet and cash flow statements and then discuss our 2019 earnings release growth outlook.

Tom already discussed our fourth quarter and full year 2018 sales results, so I will start with our fourth quarter gross margin rate where we experienced a 30 basis points year-over-year decline to 41.4%. The gross margin rate decline was better than we expected due to favorable cost-out negotiations and rebates with our vendors as well as targeted retail changes, which were somewhat offset by higher year-over-year inventory shrink and inventory reserves.

Moving on to expenses. Our store SG&A expenses grew 16.5% and deleveraged 110 basis points to 27.3% from 26.2% last year. Recall, we are comparing against a 70 basis point leverage last year that came from the 24.4% growth in our comparable store sales, making for difficult comparisons.

The majority of the store SG&A deleverage was due to opening 12 of the 17 stores in the second half of 2018. Our new stores have much higher SG&A in the first half of their operations versus the back half, and we had a very heavy concentration of new-store SG&A in the fourth quarter of 2018.

Store preopening expenses totaled $8,300,000 compared to $2,700,000 last year, which was modestly above the $7.5 million we guided to in our third quarter conference call. This increase reflects 5 new-store openings that opened late in the quarter versus 3 stores last year and some new-store expenses for our planned first quarter of 2019 openings that shifted into the quarter.

Our fourth quarter corporate SG&A expense totaled $30,300,000, an increase of 20.9% from last year, and deleveraged 40 basis points to 6.9% from 6.5% last year. Included in our corporate SG&A is a charge for $5,800,000 related to the lease impairment for our recently exited distribution center in Miami, Florida.

The Miami lease impairment charge is not a normal part of our operations, and if you exclude this charge, our corporate SG&A actually leveraged 80 basis points to 5.6%. We exclude the Miami distribution center charge of $5,800,000 from our adjusted earnings per share discussed in more detail below.

Excluding the Miami distribution center lease impairment charge, our total SG&A expense rate would have deleveraged 140 basis points to 34.8%, driven entirely by the timing of our preopening expenses. Taken together with the 30 basis point decline in gross margin rate, our fourth quarter EBIT margin contracted 300 basis points to 5.3% from 8.3% last year.

Excluding the Miami distribution center charge and new-store preopening expenses, our operating margins declined 40 basis points, which is due to the formerly mentioned 30 basis points lower gross margin, the higher amount of new stores operating in more expensive markets as well as an extremely strong fourth quarter 2017 results also already discussed.

Before I discuss 2018 net income, adjusted EBITDA and 2019 guidance, please note that I will discuss both GAAP and non-GAAP measures. As described in our earnings release, we believe non-GAAP disclosures enable investors to better understand our core operating performance on a comparable basis between periods. A reconciliation of these non-GAAP metrics to their most directly comparable GAAP financial measures can be found in our earnings release issued in connection with this call.

Fourth quarter adjusted net income increased 5% to $20,800,000 from $19,900,000 last year. As Tom mentioned, our fourth quarter adjusted earnings per share increased 5% to $0.20 per share from $0.19 last year, which was $0.01 above the high end of our guidance. Our full year adjusted earnings per share grew 41% to $0.97 from $0.69 last year on 23.5% sales growth despite significant investments we are making to support our future growth.

Fourth quarter adjusted EBITDA totaled $44.5 million, up 2% from last year's $43.5 million and was above the high end of our guidance of $44,200,000 that we provided on our third quarter earnings conference call. Our adjusted EBITDA margin rate contracted 100 basis points to 10.2% from 11.2% last year, driven by higher new-store preopening expenses.

Moving on to our balance sheet. We're coming into 2019 having further improved our strong financial position to support our future growth. We have about $290 million in available liquidity. And our total bank debt declined 23% or $44.5 million to $149 million from $193.5 million in 2017. Our total inventory grew 10%, which was in line with our expectations. Gross capital expenditures totaled $151,400,000 compared to $102,300,000 last year.

As we turn the page on 2018's strong sales and adjusted earnings growth and look to 2019, I will cover some broad themes on how we are planning 2019. First, as it relates to comparable store sales increases for fiscal 2019 due to the Houston negative comp abating as we move past the first half of 2019, the likely increase in retail pricing due to 25% tariffs scheduled to go in place in early March 2019 as well as having a concentration of -- a higher concentration of new stores entering the comp base in the second half of 2019, we expect our comparable store sales to sequentially accelerate throughout 2019.

Second, any pricing actions we may take related to tariffs will be to only cover the additional cost of tariffs after considering vendor cost-out negotiation as well as moving our sourcing away from China. We've built our 2019 financial plan assuming the current tariff regime stays in place, including the 25% tariffs beginning in early March. If the Chinese tariffs currently enacted are retracted, we will update you on our first quarter call, but we would see this as a net positive for the consumer and a net positive for our business as well.

Third, as Tom walked you through, we're making important strategic investments that we believe will further enhance our strategic positioning in areas like e-commerce, technology, talent, CRM, loyalty, training and other priorities like a new Northeast distribution center and relocating our new -- to a new larger corporate office. We are confident these investments are necessary to support our growth and will yield a return, much as they've done over the last 6 years. We have identified at least $0.04 in 2019 EPS tied to our new distribution center and lease accounting that I will discuss further.

We are moving into a new store support center in the late third quarter 2019 and completing our move in the fourth quarter of that same year. We will take on additional expenses during this transition for items like dual rent, accelerated depreciation of the leasehold improvements of our current store support center as well as onetime move costs to our new-store support center.

Since these are unique to the store support center move, we intend to call these cost-outs each quarter and remove them from adjusted net income, earnings per share and EBITDA and have called out these estimates in our press release today.

Finally, as Tom mentioned, we are planning to open a new 1.5 million square foot distribution center in Baltimore, Maryland, in the fourth quarter of 2019. And we'll be taking on cost of approximately $4 million to $5 million in the fourth quarter. This needed expansion will support our growth in the Northeast and Midwest for years to come.

We estimate that for every 75,000 square foot store we open, we need an additional 15,000 to 20,000 square feet of distribution center capacity to support that store. We could've expanded our distribution center capacity to -- in Savannah to support that growth, but our analysis demonstrated that, over the long run, our domestic freight cost into the Northeast and the Midwest would be lower using this port rather than expanding our distribution center in Savannah.

In the short term, the upfront lease and labor cost to operate this facility to build inbound freight in preparation for outbound shipments to our stores in 2020 will create a short-term drag on fourth quarter gross profit between $4 million to $5 million or approximately $0.03 per share. We expect lower domestic freight costs to begin to emerge in the first half of 2020 when this facility is fully operational. Over a 3-year period, we expect the facility could save us about $11 million due to lower domestic freight costs rather than expanding our operations in Savannah, where we'd have longer stem miles to our Northeast and Midwest stores.

Taking these factors into consideration, we expect our first quarter 2019 net sales to be in the range of $474 million to $482 million, an increase of 18% to 20% versus the first quarter of 2018. This growth outlook is based on the comparable store sales growth of 2% to 4%. Excluding the Houston market, we would expect our comparable store sales in the first quarter to be in the range of 6.5% to 8.5%. Excluding the cost associated with our new-store support center relocation, we expect our first quarter operating margins to be in the range of 8% to 8.5%.

Adjusted diluted earnings per share for the first quarter is expected to be $0.26 to $0.28 per share. We're assuming about $104 million weighted average diluted shares outstanding for the first quarter of 2019. We expect our adjusted EBITDA for the first quarter of 2019 to be $56 million to $59 million, an increase of 17% to 23% over the first quarter of 2018.

Turning to our full year outlook. We expect net sales for fiscal 2019 to be in the range of $2,060,000,000 to $2,094,000,000, an increase of 20.5% to 22.4% versus fiscal 2018. This net sales growth outlook is based on 20 new warehouse store openings and comparable store sales increases of 6% to 8%. Excluding the impact of Houston, we are planning on fiscal 2019 comparable store sales to increase 8% to 10%. We expect the net impact from tariffs on our product cost to place more sequential pressure on gross margin rate as we move throughout 2019 due to our inventory turning just over 2x per year and our average cost method of accounting for inventory.

While we plan on first quarter 2019 gross margins increasing approximately 70 to 80 basis points, we're planning on fiscal 2019 gross margins declining 40 to 50 basis points. As previously mentioned, we plan to open our new distribution center in Baltimore in the fourth quarter of 2019. And this is estimated to cost us $4 million to $5 million in the fourth quarter of 2019, thereby, lowering our fourth quarter 2019 gross margins the most relative to fiscal 2018. If tariffs are not enacted, we would expect a modest increase in gross margins in 2019 versus 2018.

Moving on to full year SG&A expense. We expect total SG&A to slightly deleverage or be flat as a percentage of sales. Adjusted diluted earnings per share for fiscal 2019 is expected to be $1.07 to $1.12. Diluted weighted average shares outstanding is expected to be $104,500,000. And our fiscal 2019 tax rate is estimated to be 23.1%.

As a reminder, this guidance does not take into consideration the tax benefit due to the impact of stock option exercises that may occur in fiscal 2019. We expect fiscal 2019 adjusted EBITDA to be in the range of $234 million to $241 million, an increase of 22% to 26% over fiscal 2018.

Due to the adoption of the new lease accounting and no longer amortizing tenant improvement allowance into rent expense, we estimate our 2019 adjusted EBITDA will be higher by about $5 million. This $5 million benefit only affects adjusted EBITDA and does not affect operating income or net income. Also due to new lease accounting rules, we are expensing an estimated $1 million in previously capitalized new-store legal and due diligence costs that, under the previous GAAP, we capitalized into the cost of the new stores. When combining this additional expense due to the new lease accounting, along with the costs to open our new Baltimore DC in the fourth quarter, it is negatively impacting our 2019 adjusted earnings per share by about $0.04 per share.

We are planning on gross capital spending to increase to $220 million to $230 million in 2019, comprised of approximately $146 million to $153 million for new stores that will open in 2019 and some that will open in 2020, about $39 million to $41 million for existing stores and distribution centers, and $35 million to $36 million in store support center capital.

Just isolating our class of 2019 new-store CapEx versus our class of 2018 new-store CapEx, we are expecting the cost of these new stores to grow about 19%, in line with our 20% planned unit growth. A larger increase in 2019 CapEx versus 2018 is driven by 3 items.

First, we are taking on an estimated $26 million to $28 million higher CapEx for the next year of new stores, the class of 2020 versus the same time last year. There are 2 reasons for this increase. First, we plan to open more new stores earlier in 2020 versus 2019. In 2019, we estimate opening 15 of our 20 stores or 75% in the second half of 2019. We are planning to open a more balanced cadence of openings in 2020. And since we incur our capital expenditures on average up to 6 months in advance, we are incurring more CapEx for the class of 2020 in 2019 relative to the same time last year.

In addition, we are taking on more construction cost for the class of 2020, which will materially lower our per-unit lease cost and provide a good return on this upfront investment. The second driver of our increased CapEx is we plan on spending about $9 million in CapEx for our new distribution center in Baltimore. Third, we plan on spending about $14 million in CapEx for our new-store support center.

If we exclude the roughly $50 million related to the incremental class of 2020 new stores, our new Northeast DC and our new-store support center, our CapEx growth would be about 20%. And we expect our growth in CapEx in 2020 to be much lower than 2019.

Last item I -- was noted in our press release. We plan to report in our Form 10-K a material weakness in internal controls related to information technology general controls in the area of user access and program change management over certain IT systems that the company's financial reporting processes. I can tell you, there have been no misstatements identified in the financial statements as a result of these efficiencies. And we expect to file our 10-K in a timely manner.

Remediation efforts have begun, but the material weakness will not be considered remediated until the applicable controls operate for a sufficient period of time and we can conclude through testing that the controls are operating effectively. We expect the remediation to be completed prior to the end of fiscal 2019.

With that, I'll turn the call back over to Tom for a few closing remarks.

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Thomas V. Taylor, Floor & Decor Holdings, Inc. - CEO & Director [5]

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Thanks, Trevor. I'm proud of our team's execution and performance of the business, even with some housing headwinds we faced in 2018. We're excited about the opportunities entering 2019, and we firmly believe our best days are ahead of us. We would now like to take your questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from the line of Michael Lasser with UBS.

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Michael Lasser, UBS Investment Bank, Research Division - MD and Equity Research Analyst of Consumer Hardlines [2]

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I'm sure you don't want to provide a ton of detail on how tariffs are influencing the P&L for this year. But can you give us a sense for how much price you're going to take in response to a 25% tariff? And if we assume your gross margin's up a little bit rather than down 40% like you guided to, that would add anywhere from $0.05 to $0.07 EPS. So is that how we should think about the contribution to your P&L if the 25% does not go through? And then I have a follow-up.

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Trevor S. Lang, Floor & Decor Holdings, Inc. - Executive VP & CFO [3]

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Michael, this is Trevor. Thank you for that. You're correct. Our comps do accept -- or assume that 25% tariffs are going into effect. We didn't want to give an exact number on that just for competitive reasons. And I think you -- as you said correctly that our margins we do plan would go up if we weren't -- if we don't have the tariffs go into place. Although, because the tariffs are implicit in our sales, right, there may be some sales difference in some of those assumptions, but yes, we do believe if the tariffs don't go into place, that'll be a net positive for the consumer as well as a net positive for Floor & Decor.

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Thomas V. Taylor, Floor & Decor Holdings, Inc. - CEO & Director [4]

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Yes, we plan these price as the last resort. I mean, we're in -- we're working hard on diversifying where we've got the product from. Lisa and her team have done a really terrific job in negotiating with our suppliers to get cost out. And we've got a good plan in place in the effect that they do go through.

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Michael Lasser, UBS Investment Bank, Research Division - MD and Equity Research Analyst of Consumer Hardlines [5]

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And my follow-up question is, if we back out some of the hurricane impacts over the last couple of quarters, looks like you're guiding at the midpoint to a 7% comp, ex hurricanes. That would be a bit of a slowdown from the 8.7% that you reported in the fourth quarter. So can you give us a sense for what you're seeing so far to start the year? Has it -- is the slowdown in housing starting to impact your -- or further impacting your trends? Or is it weather or something else going on?

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Trevor S. Lang, Floor & Decor Holdings, Inc. - Executive VP & CFO [6]

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Yes, I think, first off, a little bit on macro. I'm getting an echo.

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Thomas V. Taylor, Floor & Decor Holdings, Inc. - CEO & Director [7]

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I'll touch a little bit on macro. And then I'll talk a little bit about the sales. But I -- now look, we're not economists. We see the same stuff that you do and that our competitors see. Housing turnover declines have continued for almost all of 2018. Household affordability is a bit challenged. Household values -- the increase in household values are predicted to be slowing, but the data we see about the recovering model industry, it may be slowing, but it's not falling off a cliff. We still think consumer is healthy. We believe we're proposing upper single-digit comps in that type of environment. That's really good. So our guidance reflects what we've always said in our long-term plans: mid- to upper single digits. That's how we plan the business. That's how we think about the business. In the fourth quarter, if you think about it, our total sales were still in line with the high end of our guidance. We -- an 8.7% comp in this type of environment is very good. And if you go back -- in the second quarter, 8.6% comp. Third quarter's a bit of an anomaly because of all the storm effects, in the fourth quarter posted 8.7%. We're really pleased with the way we're operating the business.

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Trevor S. Lang, Floor & Decor Holdings, Inc. - Executive VP & CFO [8]

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Michael, one thing I just want to follow up on because I know we threw a lot of numbers at you guys, but our comps for the full year, excluding Houston -- and we think Houston's probably a 200 to 250 basis point drag on this year, would be closer to 8% to 10%. So very healthy growth in the environment we're operating in and we think well above industry standards.

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Operator [9]

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Our next question comes from the line of Chris Horvers with JPMorgan.

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Christopher Michael Horvers, JP Morgan Chase & Co, Research Division - Senior Analyst [10]

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I just want to follow up on that last question. So I mean, you are assuming the core comp does decelerate in the first quarter. So just is this conservativism you tend to like to being raised? You did a great job on that in the fourth quarter. Is it somehow you're seeing a change in the consumer in terms of the breadth of the projects that they're taking on in the amount of ticket? Clearly, that's a focus for 2019 for you. So just further follow-up on why you're assuming the core comp, ex weather, ticks down.

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Trevor S. Lang, Floor & Decor Holdings, Inc. - Executive VP & CFO [11]

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Yes, I think Houston's probably is what's driving us the most complexity there. If you look at our Q1 comps, excluding Houston, they're assuming a mid-8% comp. And that's essentially what we've posted in Q4. And I commented in Q2 as well. So the business has been fairly consistent. And we expect that to continue through the first quarter of this year. And as I mentioned in my prepared comments because of tariffs, because of higher concentration of new stores opening in the back part of the year as well as Houston abating, we expect our comps to accelerate throughout the rest of the year.

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Thomas V. Taylor, Floor & Decor Holdings, Inc. - CEO & Director [12]

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Yes, and I think that what we're seeing what the consumers are buying in the stores, we're seeing average unit retail as a good thing. Customers, we're not seeing them step down to lower price point items. We're still seeing step-up to better and best. So, we still think the consumer's in a pretty good place.

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Christopher Michael Horvers, JP Morgan Chase & Co, Research Division - Senior Analyst [13]

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Understood. And then as a follow-up, can you talk about sort of what's the embedded comp that you get from new-store maturation? How's that evolving this year? You have a -- like a high penetration of stores outside -- that opened in the past couple years outside the core market. So is that a net benefit for this year? And then as you go forward, given there's going to be more stores opening in market -- existing markets this year, how do you think about that, that waterfall benefit as you look out to 2020?

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Trevor S. Lang, Floor & Decor Holdings, Inc. - Executive VP & CFO [14]

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Chris, this is Trevor. We looked at this in detail again at the end of the fourth quarter. And when we went public, we publicly disclosed about 400 basis points of lift because of our new stores comping at a much higher rate than our more mature stores. We looked at that again for the year of fiscal 2018 as well as the fourth quarter. And it's still running about 400 basis points, which is quite impressive considering the overall first year volumes have gone up pretty substantially in the class of '16 and '17, and the class of '18 will be a good class of stores as well. So as we look to the -- as we look to 2019, we have planned that to be a little bit more conservative just because our new stores have performed better. Hopefully, we're wrong again, and it continues to perform at that same rate. But it's been about 400 basis points, and it's been pretty consistent. So that's how we answer that.

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Operator [15]

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Our next question comes from the line of Simeon Gutman with Morgan Stanley.

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Simeon Ari Gutman, Morgan Stanley, Research Division - Executive Director [16]

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My first one, I want to hit on the macro one more time. So when we saw you at ICR, your commentary felt reassuring -- that's more my words than yours, in that you described the -- 2018 is somewhat decelerating but that you were seeing signs of stabilization. Is there anything different from what you were seeing at that point, which I assume reflected more of the fourth quarter than how the beginning of the year has played out? Any variability? Tom, you mentioned you're not really seeing anybody trade down. So I just want to probe how you felt then versus what you're seeing to start the year.

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Thomas V. Taylor, Floor & Decor Holdings, Inc. - CEO & Director [17]

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Thanks. Yes, I don't feel much different. What I said at ICR is consistent to what we see today. It's still -- the consumer is still healthy. Customers are still buying up the line. The market is maybe not as great as it was 2, 3 years ago. And -- but we still feel it's a good market to participate in. And when you think about the company, and I've said it before is we are still -- we have 10% unaided awareness. People don't know who we are. They're still finding us. We've got almost 50% of our stores are less than 3 years old. We're continuing to take share at a pretty high rate. There's still a secular shift from carpet into hard surface [slum.] We just have a lot of factors that help us no matter what happens within the economy.

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Simeon Ari Gutman, Morgan Stanley, Research Division - Executive Director [18]

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Okay. My follow-up is on EBIT margin. It looks like the implied range broadly for next year is somewhere between 7% and 8% on EBIT. And I wanted to ask, thinking about it over time, will more of the leverage in the margin come from just fixed costs in terms of expense leverage or growth through direct sourcing and supply chain. And then can you just clarify -- Trevor, you mentioned one item that's an add back adjusted EBITDA. Can you just give us what other items are within the guide for 2019 that are in adjusted EBITDA?

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Trevor S. Lang, Floor & Decor Holdings, Inc. - Executive VP & CFO [19]

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Yes. So I think your assumptions on our EBIT margins are in the ballpark once you -- on an adjusted basis, really, the big adjustment, we'll have this coming year for adjusted EBIT will be that relocation of our store support center. And then for the fiscal year '19, all of our adjustments will be similar. We will have an addback. The only new addback, I think, we'll have will be the corporate office relocation, and it's really the only new addback, I think, we're going to have on a go-forward basis.

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Simeon Ari Gutman, Morgan Stanley, Research Division - Executive Director [20]

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And then long term as far as the leverage in the model?

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Trevor S. Lang, Floor & Decor Holdings, Inc. - Executive VP & CFO [21]

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Yes, thank you. So I think our view is that we want to get a little bit of leverage out of both. We want to continue to be the low-price leader. We're confident our prices are low. We watch that very closely every week. And so -- but we do think there's -- hopefully get some leverage out of distribution centers and shrink and things of that nature. So we do think there's a modest amount of gross margin opportunity for us as we look to the future. And then on operating expenses, we -- as we've said in -- for '18 and some of that into '19, it took us some portion of $10 million to step into these more expensive markets. Those will get completely embedded into the total basis. We get 12 months of operating expenses in 2019. So we would expect to get SG&A leverage. So our current expectation as we look out long term is hopefully a little bit from margin and a little bit from SG&A.

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Operator [22]

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Our next question comes from the line of Chuck Grom with Gordon Haskett.

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Charles P. Grom, Gordon Haskett Research Advisors - MD & Senior Analyst of Retail [23]

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Guys, can you just walk through the shift in the gross margin complexion from the fourth quarter which was down about -- I think you guys said down 30 basis points to the expectation for it to be up 70 to 80. If you could just maybe just walk through mix, transportation, anything on supply chain shrink.

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Trevor S. Lang, Floor & Decor Holdings, Inc. - Executive VP & CFO [24]

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Yes, this is Trevor. Most of what happened in the fourth quarter, obviously, was a lot happened late with the tariffs going into effect on September 24. Tom kind of mentioned this on the last call. Lisa talked about it. Most of that beat was the merchandising team hustled and went out and got accommodations and rebates and better costing than we had planned for. Shrink was a little bit actually below our plan or worse than our plan. And we actually donate a little bit more inventory to habitat at the end of the year as well. But the majority of that beat was the merchandising team doing a good job in getting cost out.

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Charles P. Grom, Gordon Haskett Research Advisors - MD & Senior Analyst of Retail [25]

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And then just your expectations for it to be up in the first quarter, so much like what's shifting?

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Trevor S. Lang, Floor & Decor Holdings, Inc. - Executive VP & CFO [26]

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So the biggest driver of what's driving Q1 gross margin being higher is we added a substantial amount of distribution and capacity in late 2017. And therefore, in Q1, it was all new 2018. Now that we're a year beyond that, it really -- we really didn't add any distribution center capacity in 2018. We're going to get a fair amount of leverage. The majority of that gross margin beat is in distribution center leverage for Q1. And then the remaining piece is our product margins are just performing a bit stronger as well.

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Charles P. Grom, Gordon Haskett Research Advisors - MD & Senior Analyst of Retail [27]

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Okay, that's helpful. And then second question will be just in light of the 10% increase that took place in the fall. I'm curious what you're seeing from some independents and how they've reacted and if that's been an opportunity, near term, for you to take market share.

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Lisa G. Laube, Floor & Decor Holdings, Inc. - Executive VP & Chief Merchandising Officer [28]

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This is Lisa. The -- we've seen a few of the independents start to take price up. I think it may be a little bit more challenging for some of them just having distributors and the way that they source products for us. We go direct to the stores so we have the ear of the person that really makes those decisions. And so we've been very fortunate that we've had very good luck getting cost out working with our vendors. So we have seen a little from the independents and would expect to continue to see that.

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Operator [29]

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Our next question comes from the line of Matt McClintock with Barclays.

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Matthew J. McClintock, Barclays Bank PLC, Research Division - Senior Analyst [30]

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Tom, I wanted to talk about the accessory attach rate. It seems like you're really focused on that as a huge opportunity. In terms of putting that in the incentive comp plan for the year for the stores, is that something that's new for the first time in 2019? And then Trevor, are you embedding any gross margin improvement or sequential improvement from selling more accessories this year in 2019?

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Thomas V. Taylor, Floor & Decor Holdings, Inc. - CEO & Director [31]

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Yes. So that is a -- it's something that -- we've been talking about it all through -- so the whole time I've been here, we've talked about attachment selling and selling total project. Based on oftentimes the customers leave our stores, and they don't have all the accessories that they need to install the project, and that frustrates us. And we've talked and talked and talked. And we thought -- we found during the middle part of the year, we really started putting the pressure on rigid core vinyl to make sure that we were putting stuff [with that bit]. As we were measuring it more, talking about it more, we started to see a benefit. And we saw a better attachment rate. And as we thought about next year, our store manager's plans and our department managers' bonus plans are -- they were pretty simplistic in their approach. And we said let's -- we have been talking for years of what other metric can we put in there to get them to focus on it. And we said attachment selling in my minds is 2 things. It really -- it improves customer service. So it's such a benefit for the customer, for our associates do a good job of saying, hey, don't leave here without buying vapor barrier. If you're buying rigid vinyl core, make sure -- or sell that quarter round molding. It's really good for the customers, so they don't have to make a second trip. And then it's also really good for us because we saw gross margins. So this is a brand-new thing for us. We just got out of our store managers meeting that we did in January, sold it to the group. As I've toured the stores, we've seen a lot of excitement within the stores. It's a pretty good way for them to make an easy part of their bonus. So new and more excited about what it can contribute.

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Trevor S. Lang, Floor & Decor Holdings, Inc. - Executive VP & CFO [32]

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And Matt, this is Trevor. We did not plan a lot of gross margin appreciation because of this. That is a higher-margin gross product. So if we have as much success as we're hopeful to, we'll talk about that over the coming quarters.

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Matthew J. McClintock, Barclays Bank PLC, Research Division - Senior Analyst [33]

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Perfect. And then just as my second follow-up. Tom, and both, Trevor, you're experiencing a lot of deleverage on SG&A from opening stores later in the year. I know this question's been asked before, but as we get into 2020, 2021 and beyond, at what point will you be able to simplify the store opening schedule so that you start to get those opened earlier in the year?

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Trevor S. Lang, Floor & Decor Holdings, Inc. - Executive VP & CFO [34]

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One thing I just -- I will mention, we are opening 3 stores in Q1 of this year versus only opening 1 store last year. So that has definitely put some SG&A leverage. Our new stores have incredible return, but their upfront SG&A is incredibly high because we spend a lot of time training our employees, a lot of advertising, brand awareness and those kind of things. So that did just put some downward pressure on SG&A in Q1. As we also mentioned, as we think about 2020, we're certainly just finishing up our 2019 plan, but as we do think about 2020, we are finally, after Tom and I have been here for 8 years, we do plan on having -- we're going to have a more balanced cadence of new-store openings as opposed to this year, where 75% of our stores were open in the back half of the year. And so there might be a little bit of pressure in early 2020 just because we're going to have to open those stores earlier. But we know when we open our stores earlier, the overall profit for the year is much higher. And so I think 2020 will be a little bit -- we won't have as much leverage in the first half of 2020 as we will on the back half of 2020, again, only because we're going finally open the cadence of stores more equally throughout the year versus being so back-end loaded.

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Thomas V. Taylor, Floor & Decor Holdings, Inc. - CEO & Director [35]

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And I would say our real estate pipeline is the best that it's been since I've been here.

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Operator [36]

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(Operator Instructions) Our next question comes from the line of Seth Basham with Wedbush Securities.

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Seth Mckain Basham, Wedbush Securities Inc., Research Division - SVP of Equity Research [37]

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My question is around the fourth quarter comp. In terms of retail performance, is there any color that you can share outside of Houston?

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Trevor S. Lang, Floor & Decor Holdings, Inc. - Executive VP & CFO [38]

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As I said in my opening comments, look, there's always different operating areas that we want to push to get better. But if -- but overall, I'm pleased with the performance around the country. We saw pretty consistent performance across everywhere. So no real comments to add.

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Seth Mckain Basham, Wedbush Securities Inc., Research Division - SVP of Equity Research [39]

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And my follow-up, Lisa, is in regards to the pricing competitive environment. You mentioned there have been some moves by independents, but what about the big-box competitors? How have they reacted in terms of pricing for some of the Chinese-imported products that are affected by tariffs? And how have you guys responded?

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Lisa G. Laube, Floor & Decor Holdings, Inc. - Executive VP & Chief Merchandising Officer [40]

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It's -- I would not say that we've seen anything dramatically different from our big-box competitors. It's the same as it's been since I've been here. And we have prices up a day and down a day. And so it's a constant game. And so I have not -- I wouldn't say there's anything dramatically different there.

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Operator [41]

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Our next question comes from the line of Liz Suzuki with Bank of America.

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Elizabeth Lane Suzuki, BofA Merrill Lynch, Research Division - VP [42]

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This is on store growth. You've maintained a pretty great pace of new-store growth. Have you had any difficulty in finding qualified managers to run your new stores or in getting the right mix of locally tailored products when you're opening so many new stores a year? And at what point do you think it does get difficult to continue the 20% pace?

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Trevor S. Lang, Floor & Decor Holdings, Inc. - Executive VP & CFO [43]

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I think we've done -- I'll hit on both. I think from the store manager perspective, we're in better shape today than we were when we first started opening 20% new units. We've built out a training department. We built our curriculum. We've been able to recruit fairly well. I mean, there's not many retailers that have the type of growth that we have. We give our managers equity. So people want to come and be part of this growth. So we've had a good balance of getting good recruits and a good balance of developing our own people. And we feel good about the pipeline of talent that we have. So I don't see any pressure in that as of today. I feel it's almost like the real estate pipeline. I feel really good with our talent pipeline. Very similar what I feel on that. On getting the stores assorted right, now we're in most major places. There's not -- we talked about the new openings for next year, the amount of new markets we're doing will be the least that it's been since I've been here. 65% of the stores next year are fill-in stores. And we've gotten really good at getting what the mix is. We have dedicated teams that help us get the assortment right to begin with. And we've been pretty good at not missing the mark. So I also think we've got good process in place. We have a good way to navigate as we go into new markets. I'd -- I like the way that our densely populated big markets have started off. We've sorted those stores very well. So I feel like we've got the process down. And after 7 years of opening 20% unit growth, which I've not figured out.

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Operator [44]

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Our next question comes from the line of Peter Keith with Piper Jaffray.

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Peter Jacob Keith, Piper Jaffray Companies, Research Division - Principal and Senior Research Analyst [45]

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I just wanted to dig back in on gross margin for the fourth quarter and looking forward. So looks like there was quite a bit of upside from the rebates and cost out. And I was wondering if that's a bit more of a structural change that will continue to flow into 2019. And then secondarily, interesting, you did not call out supply chain, which has been a big headwind. So Trevor, I know you've talked about the majority of your transportations in-house where for the lower fuel rates now start to become a benefit for you.

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Trevor S. Lang, Floor & Decor Holdings, Inc. - Executive VP & CFO [46]

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Yes, I think you summarized it well, Peter. This is Trevor. You're right. The merchandising team, they hustled and did some great work for us, and margins were better. And you're right, we called that out as being secondary to the distribution center benefit we're getting in Q1 of 2019. But we do -- we are seeing higher planned margins, and that's been reflected in the plans. On the supply chain side of things, you're right. Things have calmed down a bit. And we've done a good job of managing. Our team is incredibly flexible. We have done a great job with our asset-backed carriers as well as our dedicated fleet to negotiate good long-term contracts. And so we feel much better about where that is today. And your final comment's correct that we won't -- we don't expect to have the same kind of fuel surcharges. If fuel stays where it is today, as we get to the back half of 2019, it's still, I think, slightly above where it was in the first part of '18. But our supply chain team feels much better and more stable versus the increasing costs that we saw throughout most of 2018.

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Operator [47]

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Our next question comes from the line of Steve Forbes with Guggenheim.

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Steven Paul Forbes, Guggenheim Securities, LLC, Research Division - Analyst [48]

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Maybe just a 2-part question on comps. So the first part being on the first quarter. Any color on whether the polar vortex impacted the guidance range? Or you're seeing anything from that cold weather? And then the second part just being the 200 basis point drag from Houston that you called out for the full year, I think it's 450, right, in the first quarter. Maybe just some color on the cadence of that drag as we move throughout the whole year.

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Thomas V. Taylor, Floor & Decor Holdings, Inc. - CEO & Director [49]

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Yes, I'll take the first part and Trevor can talk a little bit about Houston. But I -- polar vortexes aren't fun, right. So you definitely see an impact of how a consumer behaves when it's negative 30 degrees in the market. And we have stores that are in some of those markets. But hard surface flooring, it's not like if you have a really wet winter -- or it's -- the category, it's just a delay in purchase. So we typically see, as weather hits, if it affects a given month, we get it back within the next month. Historically, our categories rebounded pretty well. So we don't like it. We wished weather didn't play, but we don't allow ourselves to talk about it, and we tell our teams if we take a hit because it's negative 55, when it gets to be positive 55, we'll make it up.

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Trevor S. Lang, Floor & Decor Holdings, Inc. - Executive VP & CFO [50]

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Steve, this is Trevor. For the Houston negative impact, we do think it's some portion of 450 basis points for Q1 is how we're forecasting it. Q2 gets a little bit better, maybe 200 to 250 basis points headwind. And then for both of Q3 and Q4, we expect 100 to 150 basis of headwind. And then for the year, that would work out to be about 200 to 250 basis points of headwind because of Houston. And then as we get into 2020, hopefully, never talk about it again.

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Operator [51]

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Our last question comes from the line of Jonathan Matuszewski with Jefferies.

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Jonathan Richard Matuszewski, Jefferies LLC, Research Division - Equity Analyst [52]

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First one just on the supply chain. You mentioned plans to diversify country of origin throughout this year. Could you just give a little bit more detail on the time line, the cadence for that diversification, where you are moving imports from, et cetera? And then I have a follow-up.

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Lisa G. Laube, Floor & Decor Holdings, Inc. - Executive VP & Chief Merchandising Officer [53]

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Sure, this is Lisa. So we're working on some of those things now. And we have targets by department where we're trying to leave China. It also somewhat depends on if the 25% tariffs go through, if the 10% stays, what -- kind of depends on what happens as to what our plans will be exactly. As we are planning right now, the 25% could go through. We will begin moving product as early as the next month or 2, and that will continue throughout the year, depending on the vendors' ability to get going with us. And so in some cases, there are factories that we work within China that are moving to the countries, and we're moving with them. And there are other times where we are going and getting new vendors or increasing our purchases from existing vendors in countries outside of China. So kind of a long way around to say it will start within the next month or 2 and continue through the year.

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Jonathan Richard Matuszewski, Jefferies LLC, Research Division - Equity Analyst [54]

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Great, that's helpful. And then just a follow-up. I think you guys mentioned labor specialization pilot last quarter. Could you just refresh us on the progress there in terms of I guess specializing labor for merchandising versus selling and versus stocking? And any expectation for rolling that out to a larger percentage of the fleet?

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Thomas V. Taylor, Floor & Decor Holdings, Inc. - CEO & Director [55]

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Yes. So we definitely -- we have more than one labor pilot. But the big labor pilot that we have is in -- now it's in multiple stores, in multiple parts of the country. And we are very pleased with the results that we're seeing from it. It really takes and makes -- kind of puts the designer-type capabilities of associates within the whole store. So instead of having a specialist in stone and a specialist in wood, we have people who can sell total projects around the store. We're very pleased with the result. It's rolling into some -- because we've done it a lot in new stores to start. And now we're rolling it back into existing stores within the quarter that we're in now. And as it progresses and we continue to see positive results, we'll look at increasing the speed of the rollout if we were to continue to see what we've been seeing. It's going good.

Okay, well listen, I appreciate everyone joining our call today. I want to thank all of our associates again for all the hard work. We look forward to updating you on the first quarter call. Thank you.

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Operator [56]

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This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.