{ "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": 7, "pageCount": 125, "prevPage": 6, "nextPage": 8, "slideType": "villain_critique", "function": "name_villain", "density": "dense", "nDataPoints": 5, "notes": "The slide uses a two-section structure to attack both the company's business performance and the integrity of its leadership.", "elementsJson": [ "headline_text", "paragraph" ], "metadataConfidence": 1, "imagePath": null, "slideHref": "/slides/019dd923-622c-750b-8b99-8a089025bb07/7", "deckHref": "/decks/019dd923-622c-750b-8b99-8a089025bb07", "deckJsonHref": "/decks/019dd923-622c-750b-8b99-8a089025bb07.json", "deckAnchorHref": "/decks/019dd923-622c-750b-8b99-8a089025bb07#slide-7", "components": [ { "bbox": null, "kind": "callout", "text": "We believe these results and recent changes by management are to obscure fundamental problems that are not just cyclical, but structural in nature.", "attrs": null, "subkind": null, "toolName": "Visual emphasis", "toolSlug": "visual-emphasis", "confidence": null, "componentId": "019dd953-0f1d-76e6-870f-42537c0ad61f", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.38, "w": 0.98, "x": 0.01, "y": 0.59 }, "kind": "paragraph", "text": "Investors should also be skeptical of management which was embroiled in a product scandal in 2015. A lawsuit alleged it acted unethically in the sale of formaldehyde treated wood. The lawsuit claimed FND mislabeled flooring as complying with formaldehyde limits. An employee whistleblower publicly called out FND's behavior as deceptive. The case was settled in 2016 for $14 million. Management came away from the scandal unscathed, and received pay raises and the CEO a special bonus. FND continues to be led by Thomas Taylor, a former Home Depot executive who we believe makes excessive use of personal travel perks and Trevor Lang who transitioned from CFO to President in November 2022. Mr. Lang worked at Blockbuster (NYSE: BBI) as VP of Operations Finance through early 2003. By 2006 after discussions with the SEC, Blockbuster restated 2003 operating cash flow lower by an astounding -58%. He later worked at Carter's Inc. (NYSE: CRI) from 2003-2007, where as VP of Finance, he was responsible for the corporate accounting function. Carter's later issued a non-reliance opinion on its financials for the period from 2004-2009 and disclosed that the U.S. Attorney's Office was conducting an inquiry into the matter. Like Mr. Lang, FND's current CFO Bryan Langley also claims to be CPA. However, neither executive has an active or current license, which under Georgia Code, is referenced as a false or deceptive practice. In August 2023, Brian Robbins, who joined FND in 2013 and served as EVP, Business Development Strategy since 2018, indicated his intent to leave in March 2024.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "ba0db3dd-3643-4ebf-a1ab-3b2076f04a83", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.34, "w": 0.98, "x": 0.01, "y": 0.2 }, "kind": "paragraph", "text": "Floor & Decor (FND or \"the Company\") operates 225 warehouses (\"stores\") of tile, flooring and accessories across the U.S. FND IPO'ed in 2017 with a goal of expanding its 72,000 sqft. stores to 400 locations. Optimistic that its strategy was working, the Company continued to aggressively expand new stores through 2020 to an average of 78,000 sqft. In February 2022, with the tailwind of unprecedented demand for home remodeling during COVID-19, management increased its store count goal to 500. However, shortly after the goal increase, the Federal Reserve started signaling that it would put the brakes on stimulating the economy. Subsequent periods marked a shift in the quality of FND's financial reporting, including omissions to its customer and total addressable market (TAM) claims, revisions to accounting disclosures, as well as changes its business practices (e.g. making product returns more difficult). At its IPO, FND touted its strong and long-term comparable store sales growth averaging high double digits. However, the post-IPO reality has been much worse. In fact, from 2018-2024E comparable store sales (\"CSS\") average just 6.1%. The dismal performance becomes even more bleak by excluding the COVID-19 benefit experienced in 2021. Absent 2021, CSS averaged just 2.5%. We believe these results and recent changes by management are to obscure fundamental problems that are not just cyclical, but structural in nature.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "d5181aca-174e-4042-a82c-49d539989cef", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.03, "w": 0.98, "x": 0.01, "y": 0.55 }, "kind": "title", "text": "Floor & Decor's Management Has Been Publicly Called Deceptive And Associated With Numerous Accounting Scandals", "attrs": null, "subkind": "headline", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "1706d2fc-5803-42fd-a553-b6d352dd30fb", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.03, "w": 0.98, "x": 0.01, "y": 0.16 }, "kind": "title", "text": "Brief Overview of Floor & Decor's Growth Story", "attrs": null, "subkind": "headline", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "69c3a110-87be-4ddd-b90c-7ab3f93b3297", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.08, "w": 0.65, "x": 0.31, "y": 0.03 }, "kind": "title", "text": "Reasons To Distrust Management And The Growth Story", "attrs": null, "subkind": "headline", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "e78d29f2-00f2-42e1-9eb5-138b2769bffb", "frameworkName": null, "frameworkSlug": null } ], "metrics": [], "tools": [ { "name": "Villain slide", "slug": "villain-slide", "agent": null, "layer": "slide", "matchId": "9f484f5e-7729-4d39-ba81-7ed48f0288b2", "evidence": "Reasons To Distrust Management And The Growth Story", "confidence": 0.8 } ], "frameworks": [ { "name": "antagonist-introduction", "slug": null, "matchId": "6240ca8f-70fc-45f0-82b2-23b45a8a42df", "evidence": "The slide explicitly frames management as deceptive and highlights past scandals to undermine credibility.", "confidence": 0.9 } ], "arcBeats": [ { "to": 10, "from": 1, "beatId": "7b7ddd2f-3f3f-4768-a9ba-c08995b7d1a5", "arcName": "Overcoming the Monster", "arcSlug": "overcoming-monster", "beatName": "The Monster", "beatSlug": "overcoming-monster-the-monster", "evidence": "The document introduces FND as a company with significant problems and risks", "position": 0, "confidence": 0.8, "parentBeatName": "Hook", "parentBeatSlug": "hook" } ], "loops": [], "imagePathAlt": null, "thumbSrc": null, "thumbSrcAlt": null, "locked": true }