Floor & Decor Holdings Inc

NYSE:FND

Earnings Call Analysis

Connected Customer and Pro Sales Fuel Growth

The company ended the year with a solid performance, showcasing a 7.6% rise in connected customer sales, increasing market penetration to 18.7%. They plan to enhance consumer experience both in-store and online, aiming for growth in the seamless integration of these channels. The Pro segment also performed strongly, with sales now representing 45% of total revenue, an increase from the previous year, and further growth is expected by fostering deeper relationships with these customers. Warehouse store expansion remains a priority, with 30 to 35 new openings planned for fiscal 2024, of which up to 30% could be smaller format stores. Spartan Surfaces surpassed expectations, and efforts to grow its national presence and market share with proprietary brands will continue. Overall, sales grew by 3.5%, generating notable operating and free cash flow, which puts the company in a strong position to further increase market share through strategic initiatives.

Strengthening Connected Customer Relations Amidst Declining Market Interest

Despite a downturn in search interest within the flooring category, the company's connected customer strategies successfully boosted sales by 7.6% in the fourth quarter, resulting in a sales penetration increase from 17.1% to 18.7%. The year witnessed even greater success with an increase of 9.7% in connected customer sales, making up 18.7% of total fiscal 2023 sales. The company acknowledges the substantial spend by customers engaging across both in-store and online channels and intends to further augment these experiences. Initiatives for 2024 aim to organically grow the website and refine the online customer journey, asserting an expectation for enhanced user experience and increased personalization through data-driven strategies.

Investments in Design Services and Store Expansion to Fuel Growth

The company's complimentary design service has achieved high customer satisfaction, leading to notable gains in sales and market share. With 904 designers employed, including in-home designers in select markets, the company is set on expanding this offering in 2024. Planned enhancements in tooling and technology for designers are expected to drive sales, productivity, and customer engagement. The vision extends to warehouse expansion, with 14 new stores launched in the fourth quarter and a total of 31 in fiscal 2023. With the long-term goal of reaching 500 warehouse stores in the U.S., the company reaffirms its guidance to open 30 to 35 new warehouse stores in the fiscal year 2024, aiming for both large and small formats to adapt to ongoing construction delays while maintaining hopes for profitability akin to existing stores.

Focused Pro Segment Strategies Spearhead Sales

Pro segments played a pivotal role, accounting for 45% of sales in the fourth quarter, witnessing growth from the previous year's 44%. Similar growth is witnessed for the full year, with a 45% contribution in 2023 against 42% in the previous year. The growth of Pro sales outstripped that of homeowner sales, with plans to keep this momentum through 2024 by leveraging CRM and analytics tools for targeted engagement and conversions. The company places emphasis on the importance of educational events, with 33 held in the fourth quarter and 123 throughout the year, addressing the complexities in the flooring installation processes. The events correlate with a boost in Pro segment sales, with further expansion of these events to about 145 in 2024 being planned. Lastly, the company notes the doubling count of Regional Account Managers (RAMs) which underscores the strong growth trajectory in Pro-related sales and services.

Achieving Operational Resilience and Financial Stability

The CFO highlights the team's astute navigation through macroeconomic challenges that resulted in the sustainment and growth of market share without compromising profitability or financial health. This resulted in a 3.5% increase in sales and an impressive $803.6 million in operating cash flow, after capital investments of $565.0 million, yielding a healthy $238.6 million in free cash flow. With fiscal 2024 on the horizon, the company positions itself from a stance of strength, poised to execute on strategic initiatives to further entrench market share, aided by its sturdy fiscal foundation and prudent financial management.

Earnings Call Transcript 2023-Q4

[Operator]

Hello, and welcome to the Floor & Decor Holdings, Inc. Fourth Quarter 2023 Conference Call. [Operator Instructions].

It's now my pleasure to turn the conference over to Wayne Hood, Vice President, Investor Relations. Please go ahead, Wayne.

[Wayne Hood, executive]

Thank you, operator, and good afternoon, everyone. Welcome to Floor & Decor's Fiscal 2023 Fourth Quarter Earnings Conference Call. Joining me on our call today are Tom Taylor, Chief Executive Officer; Trevor Lang, President; and Bryan Langley, Executive Vice President and Chief Financial Officer.

Before we get started, I want to remind everyone 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 risks 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 has 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 non-GAAP financial measures as defined by SEC Regulation G. We believe non-GAAP disclosures 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 measure 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 Tom.

[Thomas Taylor, executive]

Thank you, Wayne, and everyone, for joining us on our fiscal 2023 Fourth Quarter earnings conference call. During today's call, Trevor and I will discuss some of our fiscal 2023 fourth quarter and full year earnings highlights, then Bryan will provide a more in-depth review of our fourth quarter and full year financial performance and share our thoughts about some of our financial projections for fiscal 2024.

We are pleased to deliver better-than-expected fiscal 2023 Fourth Quarter diluted earnings per share of $0.34, primarily due to total and comparable store sales that exceeded our updated expectations we communicated on our third quarter earnings call.

For the fiscal 2023 year, we delivered diluted earnings per share of $2.28, exceeding our updated guidance of $2.14 to $2.24 per share. Throughout the year, we are proud to have grown our market share and effectively managed our profitability, balance sheet, inventory and cash flow while continuing to make significant long-term growth investments towards our goal of operating 500 warehouse stores in the United States over time.

As Bryan will discuss in more detail, we generated $238.6 million in free cash flow in fiscal 2023. We achieved these fiscal 2023 results despite the headwinds caused by existing home sales declining to a seasonally adjusted annualized rate of 3.8 million units in December, a decade low as 30-year mortgage rates spiked higher to 8% in October and personal consumer consumption expenditures continue to normalize to services and away from large ticket discretionary goods.

Against this backdrop, we executed what we can control in 2023 by opening 31 new stores, successfully executing our sales-driving initiatives, strategically growing our gross margin rate by 160 basis points year-over-year, maintaining our competitive price gaps, continuing to deliver exciting innovation and newness in merchandising assortments and further diversifying our countries of origin to reduce cost and mitigate risks.

Importantly, we are prudently managing expenses without sacrificing the customer experience. We are thrilled that our customer service scores remain near record high levels and are building on our excellent service scores in early 2024. We are particularly pleased to receive high scores for service, selection and professional staff. These attributes are essential when consumer spending and the category slows, resulting in declining transactions.

We find that typically an assisted customers average ticket is significantly higher than unassisted customers. Achieving and building on these results over any housing-related spending cycle requires us to make ongoing commitments to investing in our associates, finding ways to simplify store processes and deploying technology in-store and online to provide a seamless customer experience.

We proudly promoted approximately 1,550 associates and created 2,000 new jobs in 2023. Our commitment to our associates resulted in notably higher associate retention in 2023, which we believe will help us control costs and support our growth for years to come. We believe that by making these long-term investments, we will further build our competitive moat and grow our market share.

As we look to fiscal 2024 and beyond, we remain focused on executing our key growth strategies. We are fortunate that the strength of our business model, balance sheet and cash flow allows us to prudently invest in new and existing stores, merchandising growth initiatives, technology and our commercial business in the face of challenging industry fundamentals.

As Bryan will discuss in more detail, we are approaching fiscal 2024 with continued rigor in our expense and inventory management and prudent discipline in our growth investments in capital spending as we navigate industry headwinds.

We have a long history of overcoming challenges with a strong and agile execution, and we believe this period just represents another challenge to overcome in our journey to 500 stores. We will continue to make prudent investments that we believe will well position us for accelerated sales, market share and strong earnings growth when industry fundamentals improve.

Let me now turn the call over to Trevor.

[Trevor Lang, executive]

Thanks, Tom. I also want to express my appreciation to all of our associates for their unwavering dedication and collaboration towards serving our customers and executing our key growth initiatives.

Our fiscal 2023 total fourth quarter sales of $1,048.1 million were flat compared to the fourth quarter of fiscal 2022.

Comparable store sales decline at better-than-expected 9.4%, primarily from the successful execution of our sales driving initiatives and cycling past easier sales comparisons. Monthly comparable stores sales sequentially improved declining 11.6% in October, 10% in November and 6.7% in December.

Regionally, our fourth quarter comparable store sales in the East were the strongest with the decline in the West division improving from the third quarter.

Fourth quarter comparable store sales in tile, wood, installation materials and adjacent categories were better than the 9.4% overall comp store sales decline. Within our merchandise assortments, we continue to see ongoing customer preferences towards our better and best price point products where we offer industry-leading innovation, trends and styles at an everyday low price.

On an annual basis, our fiscal 2023 total sales increased 3.5% to a record $4,413.9 million primarily from opening of 31 new warehouse format stores and growth in our commercial business.

Our fiscal 2023 comparable store sales declined 7.1% from fiscal 2022, which is modestly better than our expectations of a 7.8% to an 8.5% comparable store sales decline. As a reminder, we are comparing against fiscal 2022 comparable store sales growth of 9.2% when monthly annualized existing home sales averaged 5.1 million units and 30-year mortgage rates averaged 5.5%.

I will now discuss our fiscal 2023 transactions and average ticket. Fiscal 2023 comparable store transactions declined 9.9% in the first quarter, 7.1% in the second quarter, 6.8% in the third quarter and a better-than-expected 4.9% in the fourth quarter.

For the fiscal 2023 year, our comparable store transaction declined 7.2% compared to a 6.6% decline in fiscal 2022. Our fiscal 2023 fourth quarter comparable store average ticket remained under pressure. After growing 7.3% in the first quarter and 1.1% in the second quarter, our average ticket declined by 2.8% in the third and 4.7% in the fourth quarter.

The deteriorating sequential trends reflect the macroeconomic housing headwinds, which created an ongoing drag from customers purchasing less square footage, second class retail price increases in fiscal 2022 and the impact of our strategic decision to selectively lower retail prices on specific SKUs. For the fiscal year 2023, our comparable store average ticket increased 0.2%.

Turning to our early fiscal 2024 sales trends. Our fiscal 2024 first quarter-to-date comparable store sales are down 12.8%, in line with the 2024 sales and earnings guidance we provided in today's press release. Our comparable to our store sales declined 14.7% in January but have improved to a 10.9% decline in February month-to-date.

As discussed in prior earnings conference calls, we expect the first half of 2024 to represent our most challenging sales period as existing home sales could remain below 4 million units, and we faced our most difficult sales comparisons of the year.

Additionally, inclement weather caused us to reduce store hours in many of our stores in January and high wind and rain storms impacted our California stores in early February.

Turning my comments to our connected customer pillar growth. We are pleased that our connected customer strategies resonate with our customers when search interest in the flooring category is down from last year. Our 2023 Fourth Quarter connected customer sales increased 7.6% from last year. As a result, the fourth quarter sales penetration increased approximately 160 basis points to 18.7% from 17.1% last year.

For the year, connected customer sales increased 9.7% from last year, accounting for 18.7% of our fiscal 2023 sales compared with 17.4% in 2022. We are successfully integrating our processes and technology solutions towards seamless in-store and online experience.

We see customers who visit our stores and interact with our website spend substantially more than single channel customers, and we plan to continue to enhance these strategies.

As we look to 2024 and beyond, we have initiatives intended to drive organic growth to our website and further optimize the customer search experience. These include further improving our website speed and the quality of our website search, adding content to drive inspiration and refining our online merchandising process to drive efficiency. Over time, we will enrich search results by infusing customer shopping behavior to inform personalized results.

We continue to be pleased with our design services offering. This free service to our homeowners and Pros exemplifies how we can drive exceptional customer service through engagement, engagement leads to high customer satisfaction scores, positive social media comments, meaningfully higher average ticket and adjacent category sales, margin and market share with homeowner and Pro customers.

We ended fiscal 2023 with 904 designers, including in-home designers in select markets. We have plans to continue to grow this theme in 2024, and we believe there is a further opportunity for collaboration between our designers and Pro partners to drive sales.

Furthermore, we are streamlining our processes and performance reporting toward team performance to drive additional sales, productivity and conversion. Our design teams are focused on leveraging the power of our CRM solution where they can prioritize high-value sales opportunities from key My Project quotes to ensure we have consistent, timely and thorough follow-up.

Additionally, we are adding installation estimating tools with our partner Installation Made Easy, [indiscernible] tool to deliver a complete project summary and are making enhancements to our design scheduler.

Finally, we are reducing friction in the customer tender process by adding point-of-sale registers and a hotline to our designed guests.

Moving on to our warehouse store format pillar growth. We remain excited about the long-term opportunity to operate 500 warehouse stores in the United States. We are fortunate that our strong balance sheet and cash flow enabled us to prudently invest in new store growth during an industry downturn. We opened 14 new warehouse format stores in the fourth quarter and 31 in fiscal 2023, ending fiscal 2023 operating 221 warehouse stores and 5 design studios across 36 states.

On December 29, 2023, 1 day after the end of fiscal 2023, we opened our Mansfield, Texas Warehouse store. Due to permitting delays, the Mansfield store opening slipped out of fiscal 2023 Fourth Quarter ended, for fiscal 2024's First Quarter. We expect to open 30 to 35 new warehouse stores in fiscal 2024, unchanged from our prior guidance.

Most of our fiscal 2024 warehouse store openings will be in large existing markets in the east and the south where we continue to solidify and grow our market share. In fiscal 2024, we anticipate about 30% of our new warehouse store openings will be in the first half of the year, and most of those openings will be in April and May. We expect the remaining 70% of our fiscal 2024 new warehouse store openings will be in the second half of the year as we continue to face ongoing industry-wide construction delays.

Because we are not fully built out in the United States, we believe we can navigate these ongoing construction delays with a flexible range of market openings and store sizes from 55,000 to 80,000 square feet. We expect about 25% to 30% of our planned 2024 new warehouse store openings could be in smaller format stores. While these smaller format stores will naturally have lower first year pro forma sales than the larger store cohort in larger markets, we believe their operating margins can be as profitable as our existing stores due to their lower costs.

Turning my comments to Pro. We proudly continue growing our market share with our Pros by embracing a supply house mindset. We believe embodying this mindset with specific strategies contributed to comparable store sales and the installation materials growing throughout 2023.

In the fourth quarter of fiscal 2023 Pro tendered sales accounted for approximately 45% of our sales compared with approximately 44% in fiscal 2022. For fiscal 2023, Pro tendered sales accounted for approximately 45% of our sales compared with approximately 42% in fiscal 2022. Pro sales growth continued to outpace our homeowner sales in the fourth quarter and the full year of fiscal 2024 (sic) [ 2023 ]. In fiscal 2024, we expect to continue growing our market share with flooring Pros by leveraging our Pro dashboards and CRM tools to drive engagement with new inactive and active Pros.

We are continuing to build long-term relationships and to accomplish this we are focused on having our Pro services managers or PSMs, spend most of their time in the field with a comprehensive measurable plan to drive Pro contacts and conversion. To better measure the effective of our PSM's contact journey, we are now providing them with enhanced reporting that will enable them and field leadership to better understand the effectiveness of their contact and close journey and adjust tactics where necessary. We are also excited about continuing to deepen our relationship with Pro customers by continuing to partner with trade associations to host educational events.

We believe providing educational events is increasingly important to Pros as the flooring installation process in certain categories is new and more complex. We see a significant lift in sales from Pros attending these events and have plans to expand these events in 2024.

In the fourth quarter of fiscal 2023, we hosted 33 educational events and trained approximately 530 Pros. We have 123 educational events in the entire year compared with 71 in 2022. We look forward to hosting about 145 educational events in 2024. We are continuing to find new solutions to identify pros that may not have shopped with us and are focused on introducing them to our brand.

We continue to be pleased with the strong sales growth from our regional account managers or RAMs. As a reminder, regional account managers serve customers who require specialized account and project management that can be supported by our stores. For that reason, their sales are included within our warehouse store sales. We ended fiscal 2023 with 60 RAMs, almost double our fiscal 2021 RAM count of 32.

Let me now discuss our commercial sales. We are incredibly pleased with Spartan Surfaces fiscal 2023 Fourth Quarter and full year sales and earnings results, which exceeded our expectations and were accretive to earnings. The leadership team continued to build its national presence by adding 23 incremental A&D and contractor reps including those from June -- from the June 2023 Salesmaster acquisition ending the year with 86 reps.

In 2024, we plan to continue to drive sales and market share growth through opportunistic acquisitions, organic rep growth and boosting rep productivity. We are excited to see Spartan's awareness growing, thereby enabling them to attract stronger talent.

We also have plans to further integrate Salesmaster to drive synergies and penetrate top MSAs, particularly in New York City. Additionally, we are excited to enhance Spartan's core further with the proprietary brands, including Community, Cobalt and Umore. We believe these proprietary brands will help grow their market share in healthcare, education, hospitality, homebuilders and the multifamily commercial segments.

These proprietary brands exemplify how Spartan is leveraging Floor & Decor merchants and supply chain teams to design and curate exclusive flooring and wall-top products for commercial specifiers supported by a deep nationally available inventory.

Our strategic growth plans for Spartan will continue to index them to more economically attractive, less cyclical and price-sensitive healthcare and education commercial segments. As discussed in prior earnings calls, we remain excited about the long-term commercial market opportunity and our strategies.

We remain confident that we have the right people, strategies and business model to continue successfully navigating this challenging macroeconomic environment.

I will now turn the call over to Bryan to discuss our fiscal 2023 Fourth Quarter financial results in more detail and share our outlook for fiscal 2024.

[Bryan Langley, executive]

Thank you, Tom and Trevor. As CFO, I take immense pride in how our teams continue navigating the macroeconomic challenges that throws headwinds to our business. Their focused efforts enabled us to sustain market share growth and effectively manage our profitability, balance sheet, inventory and cash flow throughout fiscal 2023 despite contraction in the flooring industry year-over-year.

We achieved a 3.5% increase in sales and generated $803.6 million of operating cash flow while investing $565.0 million in capital, generating $238.6 million in free cash flow.

As we embark on fiscal 2024, we do so from a position of strength, and we believe we will continue to grow our market share by executing what we can control.

Now let's discuss some of the changes among the significant line items in our fiscal 2023 Fourth Quarter and full year income statement, balance sheet and statement of cash flows as well as our outlook for 2024. I'll begin my discussion with gross profit.

As discussed in prior earnings calls, we are strategically managing our profitability by focusing on growing our gross margin rate. Fiscal 2023 fourth quarter gross profit increased by 1.4% on flat sales from the same period last year, driven by a 60 basis point rise and our gross margin rate to 42.2%. The increase was primarily attributed to favorable product margins from lower supply chain costs.

Fiscal 2023 full year gross profit grew 7.6% on sales growth of 3.5% from the same period last year, driven by a year-over-year increase of 160 basis points in our gross margin rate. The increase in gross margin rate can be largely attributed to lower supply chain costs that started in late 2022 and are expected to continue to benefit us into fiscal 2024.

Turning to our selling and store operating expenses. Our selling and store operating expenses for fiscal 2023 fourth quarter of $315.6 million increased by 12.7% from the same period last year. This growth is primarily attributed to higher occupancy and store expenses stemming from operating 30 additional warehouse stores versus the same period last year, offset by expense reductions in our comp stores of $4.6 million as we continue to manage expenses.

As a percentage of sales, selling and store operating expenses deleveraged by 340 basis points to 30.1% from the same period last year. This increase is primarily due to operating 30 additional warehouse stores and deleverage in occupancy and other fixed costs as well as store labor resulting from a 9.4% decrease in our comparable store sales.

For fiscal 2023 full year, selling and store operating expenses increased by $160.8 million or 14.9% from the same period last year.

The increase in selling and store expenses was driven by $154.9 million for new stores and $8.9 million at Spartan, partially offset by a decrease of $3.0 million in our comparable store expenses.

As a percentage of sales, selling and store operating expenses deleveraged by approximately 280 basis points to 28.1% from the same period last year. This increase was primarily attributable to deleverage from a decrease in comparable store sales and new stores.

Turning to general & administrative expenses. Our fiscal 2023 Fourth Quarter general & administrative expenses of $67.7 million increased by 31.6% from the same period last year. This growth is attributed to investments to support our store growth including increased store supports under staff and investments as well as additional administrative costs, including higher incentive and equity compensation compared to the same period last year. As a percentage of sales, general & administrative expenses deleveraged 160 basis points to 6.5%, primarily due to deleverage caused by the decline in our comparable store sales.

Fiscal 2023 full year general & administrative expenses increased 18.2% from the same period last year. The increase was primarily comprised of cost to support store growth, including approximately $23.3 million for additional staff and $11.8 million in other administrative costs.

Our general & administrative expenses as a percentage of sales delevered by approximately 70 basis points to 5.7% from 5.0% in the same period last year. The increase as a percentage of sales was primarily driven by the deleverage from a decrease in comparable store sales.

Moving to pre-opening expenses, our fiscal 2023 fourth quarter pre-opening expenses of $12.8 million increased 30.8% from the same period last year, resulting in a deleverage of 30 basis points year-over-year. This increase primarily stemmed from the increase in the number of new store openings, future stores we were preparing to open, and rent and labor expenses incurred related to delays in getting our stores open compared to the same period last year.

Moving to interest expense. Our fiscal 2023 Fourth Quarter net interest expense of $0.9 million decreased $4.4 million from $5.3 million in the same period last year. The reduction in interest expense is primarily due to lower borrowings under our ABL facility and higher interest income from our interest rate cap derivative contracts.

Turning to taxes. Our fiscal 2023 Fourth Quarter effective tax rate decreased by 450 basis points to 18.1% from 22.6% in the same period last year, primarily due to increased tax benefits related to stock-based compensation awards.

Moving to adjusted EBITDA. Our fiscal 2023 Fourth Quarter adjusted EBITDA of $107.8 million decreased by 24.7% from the same period last year, primarily due to expense deleverage from the decline in our comparable store sales. Consequently, fourth quarter net income declined by 46.4% to $37.1 million and diluted earnings per share of $0.34 fell 46.9% from the same period last year.

Moving on to our balance sheet and cash flow. We maintain a strong balance sheet that we believe allows us to prudently grow within our existing capital structure even during a period of industry contraction. We are particularly pleased with our working capital and inventory management.

As of the end of fiscal 2023, inventory of $1.1 billion decreased by 14.4% from the same period last year, generating a positive year-over-year swing in operating cash flow of $478.3 million. In fiscal 2023, our capital expenditures including capital expenditures accrued at the end of the period totaled $566.3 million compared with $486.0 million during the same period last year and within our most recent guidance range of $550 million to $575 million.

Consequently, we are pleased to have delivered $238.6 million in free cash flow and had no borrowings under our ABL facility at the end of fiscal 2023. We believe this leaves us well positioned for 2024.

We ended 2023 with $752.8 million of unrestricted liquidity, consisting of $34.4 million in cash and cash equivalents and $718.4 million available for borrowing under the ABL facility.

As Tom mentioned, we have continued diversifying our countries of origin to reduce our inventory cost and mitigate risk. In 2023, we successfully sourced products from 26 countries compared to 24 countries in 2022. Importantly, in fiscal 2023, approximately 25% of the products we sold were produced in China compared with approximately 50% in 2018.

We now proudly source approximately 23% of our sales from products that are produced in the United States. We anticipate our continuing diversification strategies to provide a tailwind to our gross margin rate in 2024 and beyond.

Relatedly, we don't believe the attacks on cargo ships moving through the Red Sea will have a material impact on the flow of our international shipments or ocean shipping costs in the United States. Fortunately, only a few of our international shipments are routed through the Red Sea. For shipments that can bypass the Red Sea, we increased the lead times from these origins to account for the added transit times around the Cape of Good Hope Africa.

Additionally, we have multiyear contracts with some of the world's largest shippers with staggered contract end dates to manage our cost and mitigate risk. We are not experiencing capacity issues or facing any material cost increases at this time.

Global demand is weaker and ocean carrier capacity is larger than during the COVID-19 pandemic period, further reducing the risk of supply chain impacts. As a reminder, our business is not highly influenced by seasonality or subject to promotional sales, and we are in a very good inventory and cost position.

Let me now discuss some of the assumptions behind our fiscal 2024 sales and earnings outlook. There remains considerable uncertainty and debate about when existing home sales and hard surface flooring spending will return to year-over-year growth. The discussion largely hinges on the direction and absolute level of 30-year mortgage interest rates, housing affordability and spending on large ticket discretionary durable goods.

While we are pleased that 30-year mortgage interest rates have moved lower from our most recent peak of around 8% in October of 2023, they remain elevated. Moreover, it now appears that the pace of potential interest rate cuts in 2024 could be slower and more second half weighted than forecasters previously expected following the recent CPI and PPI report.

Therefore, we are prudently planning for continuing headwinds in existing home sales, repair and remodel spending and industry growth that is likely to put continued pressure on our business. Taking all of these considerations into account, we provided a slightly wider range of potential earnings outcomes in fiscal 2024. As a reminder, every 100 basis points change in comparable store sales compared with our plan impacts earnings by about $0.10 per share.

Over the long run, we remain excited about the well-documented structural opportunities in repair and remodel and flooring spend, including housing demand that exceeds supply in an aging housing stock. We still see a path to achieving our long-term goal of mid- to high teens adjusted EBITDA margin.

Turning to our fiscal 2024 outlook. Our fiscal 2024 sales are expected to be in the range of $4.6 billion to $4.770 billion, an increase by approximately 4% to 8% from fiscal 2023.

For fiscal 2024, our comparable store sales are estimated to decline 2% to 5.5% (sic) [5.5% to 2%]. We expect our comparable store sales to be the most challenged in the first half of fiscal 2024 with the first quarter comparable store sales likely to decline in low double digits. We expect to be flat or return to growth in our comparable store sales in the fourth quarter of 2024.

We were using the assumption that existing home sales sequentially improved throughout the year and exit at approximately 4.3 million units in the fourth quarter of 2024 and our high-end outlook and remaining around approximately 4 million units and our low-end outlook.

For fiscal 2024, we estimate our comparable average ticket to decline low single digits and estimate our comparable transaction to decline mid- to low single digits. We expect sequential improvement in both comparable average ticket and comparable transactions throughout the year.

We expect our fiscal 2024 sales to continue to be impacted by lower new store productivity due to the environment and a back-end loaded store opening cadence. We expect continued sequential year-over-year gross margin rate expansion throughout 2024 from the fourth quarter of fiscal 2023. We estimate the first quarter of fiscal 2024 to have the largest sequential and year-over-year gross margin rate increase. We anticipate our full year fiscal 2024 gross margin rate could approximate 42.6% to 42.8%.

In fiscal 2024, we expect our selling and store operating expenses to approximate 30% of sales at the midpoint of our 2024 outlook. The year-over-year deleverage in expenses from 2023 is primarily attributed to the decline in our comparable store sales. We expect the first quarter to be pressured due to the new store openings late in 2023 as well as the declining comparable store sales. Additionally, the fourth quarter will be pressured due to most of our new store openings falling late in the third quarter and fourth quarter of 2024.

We estimate fiscal 2024 General & Administrative expenses to be approximately 6% of sales, slightly above 2023. The expense deleverage is caused by the decline in our comparable store sales and incentive and equity compensation recapture.

Fiscal 2024 pre-opening expenses are estimated to be approximately 1% of sales and flat to 2023. Fiscal 2024 interest expense is expected to be approximately $12 million to $14 million. The increase over 2023 is primarily due to an increase in borrowings under our ABL facility and interest rate increases.

We estimate our fiscal 2024 adjusted EBITDA approximately decline by 5% or grow by 2% to approximately $520 million to $569 million. Our adjusted EBITDA margin rate is expected to be approximately 11.3% to 11.7%.

For fiscal 2024, diluted earnings per share are estimated to be in the range of $1.75 to $2.05. Diluted weighted average shares outstanding is estimated to be approximately 109 million shares.

Moving on to capital expenditures. Our fiscal 2024 capital expenditures are planned to be in the range of $400 million to $475 million compared with $566.3 million, including capital expenditures accrued at the end of the period in fiscal 2023 and to be funded primarily by cash flow from operations and borrowings under our ABL facility.

More specifically, we intend to make the following capital expenditures in fiscal 2024. We intend to open 30 to 35 warehouse format stores, relocate 2 stores and begin construction on stores opening in fiscal 2025. Collectively, these investments are expected to require $315 million to $365 million. We plan to invest in existing store modeling projects and distribution centers using approximately $60 million to $75 million.

And finally, we plan to continue to invest in information technology infrastructure, e-commerce and other store support center initiatives using approximately $25 million to $35 million.

In closing, the resiliency of our business model has demonstrated our ability to grow our market share in the face of uncertainty during a period of industry contraction.

On behalf of the entire executive team, I want to express our gratitude and extend a personal thank you to our associates.

Operator, we would now like to take questions.

[Operator]

[Operator Instructions] Our first question is coming from Michael Lasser from UBS.

[Michael Lasser, analyst]

One of the pieces of feedback that we've been hearing is that Floor & Decor had been overly optimistic about the depth of the downturn that the flooring category was going to experience heading into 2023. So what did you learn? And why is it different that you're not being overly optimistic this time to expect that your comps are going to flatten out or turn positive by the fourth quarter of this year?

[Trevor Lang, executive]

Michael, this is Trevor. I would say we certainly are not pressured. We take in all the data we can with our own internal resources and then we also look at the economists. And last year, around the same time, people were expecting interest rates to go down and existing home sales to increase and that is expected to happen again and it started to happen a little bit on the mortgage rate side. And I guess we had a slight bit of good news on existing home sales today coming in at $4 million versus $3.7 million, but that didn't happen last year. Things just kept getting worse. The Fed was more aggressive and mortgage rates kept going up and existing home sales just kept getting worse. So that's the big difference from last year.

This year, we'll see if those macroeconomic factors are correct. But assuming mortgage rates do continue to come down a little bit, they were 8% not that long ago. I think they're just under 7 today. And again, it's only 1-month, but we had an improvement in existing home sales that got published today. If that continues to happen, we think that will give us a better backdrop.

When we -- the final thing I'll say is when we compare our performance versus others in the flooring sector, even though our earnings were down about 18%, they appear to be materially better than anybody else we perform. So in a difficult environment, I think we performed well.

[Thomas Taylor, executive]

I would say the only thing I'd add is that I think we're being a little bit more conservative than we were last year in our approach in existing home sales. So we're still expecting them to get a little bit better by the time we ended the year as an evidence and Bryan Langley's prepared comments.

But I think last year, we were more optimistic that the interest rates were coming and it would be better. And we're not anticipating that as much this year.

[Michael Lasser, analyst]

Got you. And my follow-up question is on Floor & Decor's market share, especially in more mature markets or more mature locations. What evidence you have to point to Floor & Decors' market share trends? I think there's some debate about what's happening within those markets and how that is influencing the productivity of some of the more mature Floor & Decor location?

[Bryan Langley, executive]

Michael, this is Bryan. I'll jump in first. So we believe that we're still taking accelerated market share, the same way we were in 2022. Historically, we were taking about 1 point of market share across the industry. And so in the past 2-years, we think we've taken anywhere from 150 to 200 basis points of market share. I mean we feel really confident and really good about our mature markets that we're in today, and we're still gaining share with Pros and still getting share of wallet there. So we're still getting traction in even our most mature markets versus our new ones.

[Trevor Lang, executive]

The only thing I would add, if you look at our larger competitors that are 30% of the industry, from what we can tell, we're meaningfully outperforming them. And when you look at the 3 or so public companies that are also selling flooring, we're meaningfully outperforming them. And so from everything we can tell, we're growing at a much faster rate on the residential side. And then on the commercial side, which is small for us, but still on the commercial side, we're growing that business pretty fast right now.

[Operator]

Our next question is coming from Simeon Gutman from Morgan Stanley.

[Simeon Gutman, analyst]

I wanted to ask an oldie but goodie decremental margin question. Bryan, you said, I think you said $0.10 for every point of sale, we were getting a little bit less, meaning we're getting like 25% on the way down. Curious if that's about right. And then -- and if that's right, it may be because you're getting good gross margin expansion, and does that mean the incrementals on the other way actually could be bigger what they've been historically?

[Bryan Langley, executive]

I think within the guidance range, it's pretty close to that $0.10. I think it just depends on how far you are outside the range, which would dictate that because then, obviously, your incentive compensation and other things tend to slope differently, so really depends on how far you are from the plan that will drive that. So I think last year, we were just so far from the original plan that the flow-through was a little bit different.

This year, as we look at -- as we set the plan, that's why I say it's versus kind of the way we plan it, we feel pretty good about that $0.10 on the up and downside. But once you get outside of normal range, then it does start to deviate a little bit from there. It can move anywhere from $0.10 to $0.12 to $0.13, but it sound like it moves to $0.20. See right, you can have margins up or down anywhere from $0.35 flow-through to kind of $0.30.

[Simeon Gutman, analyst]

Okay. And then a follow-up is on the CapEx. The number is a bit lower on roughly the same store, number of stores, it was much higher, I think, $400 million to $475 million versus the $560 million last year. So my question is, first, getting to the $500 million, did that always like have an astrict for maybe smaller stores? Or does the smaller store gets you to even a bigger number now?

[Thomas Taylor, executive]

No, we always had -- I'll take a stab at that. We always had in our plans that there would be 3 different store sizes. We've got to, and we already operate today. We have stores that operate under all of those sizes today. So it was always in our assumption that in some of the single markets that we have -- the single store markets we operate in, stores could tend to be smaller. And then there's places where you can only fit a small store. So we prefer the bigger ones. But if we're going into intercity places and sometimes it's harder to get, so smaller stores have always been in that assumption of 500 stores.

[Bryan Langley, executive]

And then, Simeon, I'll just jump in and tell you a little bit on the CapEx guide. Majority of the reduction is actually spent for the future class. There is a little bit tied to the type of store we're opening as well. We have our ground-up leases versus our second-use facilities.

This year, we've got a little bit more second-use facility. I think it's about 60%, whereas last year, we were 60% ground up. so that's a little bit of a change as well. So it's a little bit of the class of '25 spend that will happen this year versus what we've done in the past as well as kind of the type of facility.

Another thing that I want to talk about as well is we had communicated previously that we would have spend for our Northwest Seattle Distribution center. We've been able to actually push that out without any sort of effect to our operation. So you'll see just a little bit of spend this year, where we had previously communicated you would see spend for a distribution center as well.

[Operator]

Next question is coming from Zack Fadem from Wells Fargo.

[Zachary Fadem, analyst]

So first one for me on store OpEx because I think you said a quarter ago that a small percent of your stores were on minimum hours. And I'm curious, first of all, where are you with that today? And then for 2024, is the game plan more about managing the stores to maintain a level of profitability? Or do you balance that with keeping the store staffed to drive growth when the category inflects?

[Trevor Lang, executive]

Yes. I think we're still about 1/4 of our stores today are at minimum hours in this environment. And we've obviously evaluated that and done some changes to what the minimum hours are this year.

I think on the -- let me say it this way. I think at minimum hours for the store, the volumes the stores are doing, we think that's the appropriate amount of hours. And we don't, we really try not to go below that minimum. Just when you think about the number of hours we're open and the type of product we're receiving it and getting it to the floor, so we can sell it. So for those stores, if God forbid, they were to go lower in volumes, we probably would not change their hours because there's just a minimum number of hours it takes to operate a store.

[Zachary Fadem, analyst]

Got it. And then with existing home sales hovering around this $4 million level today, you mentioned the levels embedded in the 2024 outlook. But curious at what level you would need to see for the business to step back into positive comp territory and to sustain positive comps?

[Thomas Taylor, executive]

So I'll take a stab, Bryan, you can fill in after the end. I said on previous calls that I felt like existing home sales would have to turn positive year-over-year. And I think when they do that, for a sustained amount of time that, that gives us a much better shot of posting positive same-store sales growth. So when they turn positive, there's a bit of lag, it doesn't come instantaneously, customers -- but there's within a 3-month window, we feel like that those comps could turn positive.

[Bryan Langley, executive]

Yes. If you look at NAR's data, we were below 4 million units starting in September 2023, so to tell us why there's a little bit of lag built in. But if 4 million units or above start to happen around that September timeframe, you build in a little bit of lag for 2 to 3-months, that's when we should be able to start to see positive comps on the business, which is why you heard me in the prepared remarks is we think we'll start from where we are today -- or from where we are today, you're probably going to be in the low double digits in Q1 and then turning flat to positive in Q4. That's kind of what's embedded time.

[Trevor Lang, executive]

I think just longer term, Zack, the high we get on existing home sales is $6.5 million. We're now at a 40-year low of 3.78%. I think the median is probably 5% to 5.5%. So I just think we've got aged houses. We got a lot of millennials and Gen X that are going -- or Gen Z that are going to come in and need homes. And so as we get past this time, assuming mortgage rates continue to come down, this is going to be a really good sector long-term.

[Operator]

[Operator Instructions]

Our next question is coming from Steven Forbes from Guggenheim Securities.

[Steven Forbes, analyst]

Trevor, maybe I'll just focus on a follow-up to your response right there. A lot of sort of just debate about what the sort of post-recovery comp profile looks like inclusive of cannibalization and also just your relative strength in the end market. So any way to help frame like what you think the comp profile should or could return to if we get back to a more normalized macro with $5.5 million existing home sales?

Is this still based on your relative positioning in the business -- in the industry like a mid- to high single-digit comp story? Or has something's changed? I would love to just hear how you guys are thinking about the next 3 to 5 years here.

[Trevor Lang, executive]

Yes. I think if we go back to 5.5%, depending on how fast we got there, I mean that would be a pretty big lift to us. Obviously, that would be fantastic. We would love that.

I think the things we've done throughout the last, certainly, 13 years that I've been here have positioned ourselves to be even better. And again, when we compare ourselves -- just financially comparing ourselves to our peers, our performance pretty meaningfully outperforms.

What Ersan and team have done with the assortment and Steve on the operations team, marketing, the way we handle our website, I mean, all of those things, as you heard in my prepared comments, we continue to invest in this cycle.

So I think our competitive position is as good as it's ever been as a category killer. And when it turns, we're in great shape. But I think the other thing, short term, when it actually turns, we're in the best in-stock levels we've ever been in. So we've seen that happen in my 13 years here, when business gets strong and we have really good in-stocks and a really good curated assortment at local at the store level, then we'll take off like a rocket. We just -- we need something to happen in the macro to help stir those consumers to come in and buy from us.

[Thomas Taylor, executive]

I would say the only thing I'd add -- I agree with everything you said. I think the only thing I'd add is we've also -- because we've stayed on track with our strategy and continue to open stores during a really difficult market that we've got a batch of new stores that should give us a really nice lift that they -- as the market recovers because they started off slow, we should get an incremental lift from those stores.

[Operator]

Next question is coming from Steven Zaccone from Citi.

[Steven Zaccone, analyst]

I wanted to ask about unit opening plans for 2025. So I think last time you guys spoke to us, it's tough to make changes to '24 in a short timeframe. But as you think to beyond the next 12-months, if we're in an environment where rates maybe stay a little bit elevated, is that a concern that maybe you should pull back on some unit openings?

[Thomas Taylor, executive]

So I will take that question. 2025 is a long ways away. So were not quite prepared to talk about our store opening plans then. But I would just say that it's going to depend on -- a lot will depend on the macro environment and where existing home sales are falling. And if we're seeing an increase year-over-year in existing home sales, we remain confident in opening our stores as long as the return on investment continues to look like it has historically.

So we'll watch how this year goes. Today was an encouraging sign with the existing home sales in the release. It was encouraging. We hope that, that continues. And as we get to the middle part of the year. We will have plenty of time to look at our store count as we get to the middle part of this year, and we'll know more then.

[Trevor Lang, executive]

The only thing I'd add to, Tom, this year, I think close to 75% of our stores are in existing markets. And as we grow, we're going to have more of that because there just won't be as many new markets. And we have a much better understanding and conviction on what our return on invested capital and our returns are in our existing markets just because when you open your seventh store in a market or your 10th store in a market, there's much less guessing versus when you have to go to a new market. And so we would obviously take that into consideration.

If indeed, things aren't as good and it's more difficult the places we would consider possibly paring back, which is, again, that would be very unusual for the last 100 years of housing in America. But if that was true, that's probably where we pare back, it's probably more of the new markets because we still get good returns in existing markets, and that's where the majority of our stores are going.

[Thomas Taylor, executive]

And the final comment on new store openings is all of this, nothing changes our view that there'll be, that we can have 500 stores. So it's just a question of timing.

[Operator]

Your next question is coming from Seth Sigman from Barclays.

[Seth Sigman, analyst]

I wanted to focus on pricing. It does seem like there is a little bit more noise in the industry around discounts and maybe prices starting to come down. I'm curious what you're seeing your strategy is going to be here? And maybe just put it in the context of some of the price changes that you've been testing through the year. Where does that stand today?

[Ersan Sayman, executive]

This is Ersan. The changes we see in the market are not irrational in some cases, when there is a promotional activity that's a lower quality or any clearance item could be there, too. I mean we see some price reductions and increase at home centers, but independence did not change much.

I mean, we tested, we've been testing the retail changes since last February. And as we mentioned in the last quarter, certain products that are served mainly to Pros had some return. Good return on some others, it was inconclusive. We continue to look at our balanced portfolio and then try to adjust retails as needed. And we feel like our gap against the competition is still good, and we intend to keep it that way.

[Operator]

Your next question is coming from Chuck Grom from Gordon Haskett.

[Unknown Analyst]

This is Eric on for Chuck. I had a question on gross margin, which you're expecting a nice incremental improvement this year. So what are the additional drivers driving expansion?

And also just given that the topline has been soft, why not reinvest some of that in the price to drive incremental volume, I guess, what have you seen on the price elasticity of those products in which you have lowered prices?

[Thomas Taylor, executive]

So I'll take some of that, and maybe Ersan can jump in at the end. So yes, we -- as we've guided, we believe that we can continue to see benefits in gross margin, some of that will come from continued decreased supply chain costs, which burn in over time.

Our merchants have also done an outstanding job of negotiating costs. It's a tough market right now. So the vendors want to sell product and our merchants are very good at asking for price and they're doing a good job to get it. And as we've diversified outside of China and found new countries of origin, we've been able to do that at a better gross margin rate.

So between that and then the last thing I would say is that the consumer is still leaning towards better and best products in our store with blend at a higher margin, and our designers are impacting more and more of our sales, which end up impacting our margin. All of that turns into we think the margin rates can continue to go down without having to take price. So we feel good about that.

We do invest back into price. As Ersan mentioned, we've piloted multiple areas of the store where we've taken price down to see what happens with the unit movement and when we have conclusive results where it works, we continue to do that, and we'll continue to focus on that.

[Operator]

Your next question is coming from Greg Melich from Evercore.

[Gregory Melich, analyst]

I wanted to follow up on the ticket progression, maybe it ties in with the pricing and mix question. But if we think about that comp improvement you talked about through the year, it sounds like it's pretty much all transactions and traffic getting better. Would you expect the ticket to sort of be steady through the year? Or would that also have a similar progression as you go through your guidance?

[Trevor Lang, executive]

Let me just weigh in first and if Bryan has got something he wants to say too. When you look at what's going on with our ticket right now, being down in the mid-single digits, it's really driven by our laminate business, which last year was our largest category...

[Thomas Taylor, executive]

The Vinyl.

[Trevor Lang, executive]

And that's really -- yes, laminate and vinyl, those are together. That's really driven by people are doing much smaller projects and you have a lot less house flipping, right? When we were at 5 million, 6 million existing home sales, there was a lot of investment that we need to go into those homes, and you would do full homes or full floors or things like that.

Now what you see as our square footage has come down pretty meaningfully in the double digits because people are doing either their main bathroom or powder baths or things like that. That's part of the reason our tile business is doing well, and our installation business is doing well relative.

So, that's probably the biggest driver. That is, by far, the biggest driver of our ticket is that laminate and LVT. And so when existing home sales go back up, which we're optimistic they will and they have for the last 40 years, we would expect that ticket to go back up because hopefully people are flipping houses, and they're working on bigger rooms as well.

[Bryan Langley, executive]

Yes. I mean, look, I would just add. You are right. So from the ticket perspective, that's going to drive, but you're right, the majority of the change in our comp is going to be led by transactions. And so that's also on the back of existing home sales. So as those start to lap weaker numbers in the back half, it will be a transaction-led story, but also ticket will improve throughout the year as well.

[Operator]

Our next question is coming from Robby Ohmes from Bank of America.

[Robert Ohmes, analyst]

I was curious how you're taking the inventory down so much. What the secret sauce is there. Are you guys reducing SKUs? Are you bringing in a lot less? Are you spreading inventory from existing stores into the new stores you can bring in a lot less, is that helping the freight cost situation as well? How are you doing to bring the inventory down?

[Trevor Lang, executive]

We had year-over-year, I think we're high single digit, low double digits in SKUs, [indiscernible] that were down versus last year. But probably more important than that is again, we weren't pressured, but we saw late last year that the trends, in fact, they were going to improve, and we felt like we could take some actions in late 2022 and then early into 2023. We were fortunately right on that, and we're able to bring it down.

As I mentioned, our inventory replenishment team and our merchandising team have done a fantastic job, even though our inventory is down 14%. Our in-stocks are probably the best I can remember in a long time. And so yes, our team has jointly managed that this year and we think when the customer is ready, they're going to be very pleased to come in when we get more traffic.

[Operator]

Next question is coming from Justin Kleber from Robert W. Baird.

[Justin Kleber, analyst]

Just as it relates to the smaller format stores as we think about modeling new store contribution in '24, any color just how we should think about the year 1 sales of those smaller stores relative to that $14 million to $16 million benchmark you typically talk about, I guess, for an average store?

[Trevor Lang, executive]

They're lower. I mean sure, not always, they're lower, but then we've got stores like we've said we're going to open a store in Brooklyn, right? And that's obviously going to be -- we believe a lot higher. We work towards opening that balanced portfolio of stores to get those numbers around $14 million to $16 million is our goal.

You guys will notice when you read our 10-K, we'll just say it now and Bryan and I said it both last quarter as well. We're slightly below that goal for the class of '22, pretty close to the low end of that goal for the class of '22. We opened almost half of our class of '23, so it's probably too early to say for the class of '23, but we would expect because of the macro environment to be below the low end of those goals at this point. And then again, when the macro comes back, we expect those numbers to get much better.

[Thomas Taylor, executive]

Yes. The only thing I'd add is that in a single store market, the smaller stores, will be less volume. But if the smaller stores is in a normal sized market, then the volumes very close to what a normal store would be.

[Bryan Langley, executive]

And as Trevor alluded to in the call, the operating margins can be just as good as the large stores. And so the profitability is going to be there because a lot of those will have lower cost structures. So your op margin can be just as good.

[Trevor Lang, executive]

Yes. We were looking at a couple of stores in Knoxville and Sarasota and a couple of other markets that are pretty small square footage stores but do 50% above average store volumes. And so we can operate a very productive, profitable store -- small store that is, and again, in this case, these stores are much smaller, but they do way better than the average store. So we're thoughtful and smart about it.

[Operator]

Our final question today is coming from Jonathan Matuszewski from Jefferies.

[Jonathan Matuszewski, analyst]

Great. Just a follow-up on the store opening plan. I know it's early for '25, but I just want to understand again that the smaller store penetration in 2024, is that specific to this kind of macro housing backdrop? Or should we expect 25% to 30% of new warehouse openings going forward being in that smaller format? Just wanted clarification there.

[Trevor Lang, executive]

I guess I'd say two things. One, I think we're, Bryan, maybe in the 10-K, we say we're around 77,000 square feet, our average store. I think the class of this year, I think it's not that far off of that. So I don't want to make too much of that. We're just trying to be transparent that we are going to be opening more smaller stores, then we have a very big store that we're opening in New York that's somewhat offsetting it.

So I think as we look forward, I don't know that we're going to have a meaningful change because, again, we're trying to hit that blended average of those new store economics that I mentioned earlier.

[Thomas Taylor, executive]

Okay. So that brings us to the end of the call. I'd like to thank everyone for joining us today.

I do have, I want to take a minute. It's a bitter sweet day at Floor & Decor. We have one of our long-term executives, our Executive Vice President of Strategic Business Development and Supply Chain, Brian Robbins has -- and we announced this a while back that Brian is going to move on to the next chapter of his professional life and personal life.

And Brian's been here for 13-years or almost -- it feels like 13-years, not quite, but Brian has been here, he joined right after I did. He's built up an incredible supply chain function at Floor & Decor, built an incredible team. He's led our real estate team in development over the last few years, and he was behind our first acquisition that has turned out to be a huge success for us.

So, Brian is a friend, and Brian is going to always be part of the Floor & Decor family, but we wanted to take a minute and wish him well. So Brian, we wish you well. I know you'll miss these, but we're appreciative of all your contributions to the company.

I'd like to thank all the associates who are listening to the call. Thank all the analysts for your interest in our business. We look forward to updating you on the second quarter call -- on the first quarter call. Thank you.

[Operator]

Thank you. That does conclude today's teleconference and webcast. You may disconnect your lines at this time and have a wonderful day. We thank you for your participation today.