{ "docId": "019dd923-622c-750b-8b99-8a089025bb07", "docSlug": "75aa3b2bd0fb", "documentTitle": "Floor & Decor Holdings, Inc. (FND)", "authorId": "54_Spruce_Point_Capital", "authorName": "Spruce Point Capital Management", "documentKindSlug": "activist-deck", "documentKindLabel": "Activist deck", "sourceTypeSlug": "short_seller", "sourceTypeLabel": "Short seller", "presentationDate": "2024-07-01 00:00:00", "orientation": "landscape", "aspectRatio": 1.3333334, "pageNumber": 103, "pageCount": 125, "prevPage": 102, "nextPage": 104, "slideType": "expose_contradiction", "function": "expose_contradiction", "density": "overcrowded", "nDataPoints": 2, "notes": "The slide highlights a specific change in accounting policy language between the IPO-2019 period and 2020-Today, suggesting it was done to artificially inflate margins.", "elementsJson": [ "headline_text", "callout_box", "paragraph", "footnote" ], "metadataConfidence": 1, "imagePath": null, "slideHref": "/slides/019dd923-622c-750b-8b99-8a089025bb07/103", "deckHref": "/decks/019dd923-622c-750b-8b99-8a089025bb07", "deckJsonHref": "/decks/019dd923-622c-750b-8b99-8a089025bb07.json", "deckAnchorHref": "/decks/019dd923-622c-750b-8b99-8a089025bb07#slide-103", "components": [ { "bbox": { "h": 0.12, "w": 0.9, "x": 0.05, "y": 0.16 }, "kind": "callout", "text": "FND made some noteworthy changes to its inventory valuation description coincident with a Material Weakness in late 2018 and the Company's adoption of a Clawback Policy for fraud on May 2, 2019. It now says it uses a \"moving weighted average cost method\" and no longer considers the \"rate of sell through\" when recording reserves. Our suspicion is that these changes enable gross margins to be artificially inflated.", "attrs": null, "subkind": "primary", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "87542f87-616b-4c35-8dcd-368f6c5a645c", "frameworkName": null, "frameworkSlug": null }, { "bbox": null, "kind": "callout", "text": "FND made some noteworthy changes to its inventory valuation description coincident with a Material Weakness in late 2018 and the Company's adoption of a Clawback Policy for fraud on May 2, 2019.", "attrs": null, "subkind": null, "toolName": "Visual emphasis", "toolSlug": "visual-emphasis", "confidence": null, "componentId": "019dd953-0f1e-7015-901b-987365df8b5b", "frameworkName": null, "frameworkSlug": null }, { "bbox": null, "kind": "metric", "text": "inventory reserves: $6.5 million", "attrs": null, "subkind": "primary", "toolName": "Quantification", "toolSlug": "quantification", "confidence": null, "componentId": "019dd953-0f1e-7015-901b-9fcb75641bcc", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.03, "w": 0.76, "x": 0.12, "y": 0.31 }, "kind": "paragraph", "text": "Inventory Valuation and Shrinkage (2020 - Today)", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "3185dfbc-074b-49cc-82eb-a6627d4d36d6", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.25, "w": 0.76, "x": 0.12, "y": 0.64 }, "kind": "paragraph", "text": "Inventories consist of merchandise held for sale and are stated at the lower of cost or net realizable value. When evidence exists that the net realizable value of inventory is lower than its cost, the difference is recorded in cost of sales in the consolidated statement of income as a loss in the period in which it occurs. We determine inventory costs using the weighted average cost method. We capitalize transportation, duties and other costs to get product to our retail locations. We provide provisions for losses related to shrinkage and other amounts that are otherwise not expected to be fully recoverable. These provisions are calculated based on historical shrinkage, selling price, margin and current business trends. The estimates have calculations that require management to make assumptions based on the current rate of sales, age, salability and profitability of inventory, historical percentages that can be affected by changes in our merchandising mix, customer preferences, rates of sell through and changes in actual shrinkage trends. We do not believe there is a reasonable likelihood that there will be a material change in the assumptions we use to calculate our inventory provisions. However, if actual results are not consistent with our estimates and assumptions, we may be exposed to losses or gains that could be material.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "386af442-4f5e-4b52-a6ad-b62ee1ee991c", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.25, "w": 0.76, "x": 0.12, "y": 0.34 }, "kind": "paragraph", "text": "Inventories consist of merchandise held for sale and are stated at the lower of cost or net realizable value. When evidence exists that the net realizable value of inventory is lower than its cost, the difference is recorded in cost of sales in the Consolidated Statements of Operations and Comprehensive Income in the period in which it occurs. The Company determines inventory costs using the moving weighted average cost method. The Company capitalizes transportation, duties, and other costs to get product to its retail locations. The Company records reserves for estimated losses related to shrinkage and other amounts that are otherwise not expected to be fully recoverable. These reserves are calculated based on historical shrinkage, selling price, margin, and current business trends. The estimates have calculations that require management to make assumptions based on the current rate of sales, age, salability, and profitability of inventory, historical percentages that can be affected by changes in the Company's merchandising mix, customer preferences, and changes in actual shrinkage trends. These reserves totaled $6.5 million and $8.7 million as of December 28, 2023 and December 29, 2022, respectively.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "583d6bf4-d866-41ce-a8b2-c5ac87864810", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.03, "w": 0.76, "x": 0.12, "y": 0.61 }, "kind": "paragraph", "text": "Inventory Valuation and Shrinkage (IPO - 2019)", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "f0eb1cab-8eb2-478f-9f1c-cd8da3f9d9ee", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.03, "w": 0.7, "x": 0.05, "y": 0.97 }, "kind": "source-note", "text": "Source: 2018 (filed Feb 2019) and 2019 (filed Feb 2020) 10-K Company filings and 2020 Proxy Statement (Clawback adoption)", "attrs": null, "subkind": null, "toolName": null, "toolSlug": null, "confidence": null, "componentId": "a539d5f6-8952-46d3-9c3e-133d51d277ef", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.05, "w": 0.35, "x": 0.325, "y": 0.05 }, "kind": "title", "text": "Changes To Inventory Valuation", "attrs": null, "subkind": "headline", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "ab99c72a-b9be-4488-925f-0eacceb592ba", "frameworkName": null, "frameworkSlug": null } ], "metrics": [], "tools": [], "frameworks": [], "arcBeats": [], "loops": [], "imagePathAlt": null, "thumbSrc": null, "thumbSrcAlt": null, "locked": true }