Investment Thesis
Floor & Decor exhibits fundamental operational weakness despite revenue growth, with net income increasing only 1.3% against 5.1% revenue growth, signaling margin compression. Critically low returns on equity (1.6%) and assets (0.7%) indicate severe capital inefficiency, while the 0.33x quick ratio combined with 4.5% operating margins creates vulnerability to working capital stress.
Strengths
- Low leverage with 0.08x debt-to-equity ratio providing financial flexibility for growth investment
- Positive free cash flow generation of $45.8M with 4.0% FCF margin offsetting thin net margins
- 44% gross margin demonstrates reasonable pricing power and product mix efficiency in building materials retail
Risks
- Severely depressed ROE of 1.6% and ROA of 0.7% indicate fundamental capital misallocation and poor operational returns
- Net income growth of 1.3% YoY significantly lags revenue growth of 5.1%, suggesting operational deleverage and uncontrolled cost structure
- Quick ratio of 0.33x combined with 1.15x current ratio and 4.5% operating margin creates acute vulnerability to inventory/working capital stress
Key Metrics to Watch
- Operating expense ratio trend (SG&A as % of revenue) to diagnose margin compression source
- Return on Equity trajectory and quarterly profit growth acceleration
- Inventory turnover and days payable outstanding to assess working capital management
Financial Metrics
Revenue
1.2B
Net Income
39.7M
EPS (Diluted)
$0.37
Free Cash Flow
45.8M
Total Assets
5.6B
Cash
293.6M
Profitability Ratios
Gross Margin
44.0%
Operating Margin
4.5%
Net Margin
3.4%
ROE
1.6%
ROA
0.7%
FCF Margin
4.0%
Balance Sheet & Liquidity
Current Ratio
1.15x
Quick Ratio
0.33x
Debt/Equity
0.08x
Debt/Assets
55.9%
Interest Coverage
20.01x
Long-term Debt
196.1M
Disclaimer: This analysis is generated by AI based on publicly available SEC EDGAR filings.
It does not include stock price data and should not be considered financial advice.
All fundamental data is sourced from SEC public domain filings.
Always conduct your own research before making investment decisions.
Data Source: SEC EDGAR |
Analysis Date: 2026-05-06T17:38:53.374101 |
Data as of: 2026-03-26 |
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