Robert Karr (Trades, Portfolio), a former protégé of Tiger Management founder Julian Robertson (Trades, Portfolio), disclosed last week that he had expanded his holding in Floor & Décor Holdings Inc. (FND, Financial) by 238%.
According to Reuters, the Wall Street Journal reported on Jan. 30, 2014 that Karr converted Joho Capital into a family office, citing “draining” travel schedules and the desire to “spend more time with family.”
Transaction details
Karr invested in 3,565,753 shares of Floor & Décor for $25.41 per share, increasing the position to 5,063,434 shares. The investor expanded his portfolio 16.48% with this transaction.
Company background
Atlanta-based Floor & Décor, a multi-channel specialty retailer of hard-surface flooring accessories, offers a broad range of tile, wood, laminate and natural stone flooring through its network of approximately 95 stores across 21 states. The company’s competitive advantages include its warehouse-style stores that feature over 73,000 square feet of “high ceilings, clear signage, bright lighting and industrial racking.” Other key strengths include the wide and differentiated product mix and the offering of products at low prices.
Despite the strong competitive advantages, Floor & Décor faces significant competition from large home improvement stores like Home Depot Inc. (HD, Financial) and Lowe’s Companies Inc. (LOW, Financial), national and regional specialty flooring chains and independent flooring retailers. Key competitive factors include product assortment and innovation, availability of products, customer care, store management and location. Additionally, the retail hard surface flooring market is highly sensitive to changes in the business cycle as demand for rugs and carpets highly depends on the number of home-improvement projects and, to a lesser extent, new home sales.
Company profitability outlook
GuruFocus ranks Floor & Décor’s profitability 8 out of 10 on several positive investing signs, which include a strong Piotroski F-score of 8 and operating margins that increased approximately 3.6% per year over the past five years. Net profit margins of 8.8% are near a 10-year high and are outperforming 86% of global competitors.
CEO Tom Taylor said last week that net sales for the three months ending Sept. 27 increased 26.7% year over year on comparable sales growth of 11.1%, driven by “continued strength of [the company’s] business in the hard surface flooring category.” The retailer launched seven new stores and its Pro Premier Rewards program during the quarter, further expanding its presence in the U.S. Based on the strong results, management increased the full-year net sales and diluted earnings per share guidance: the company expects net sales between $1.702 billion and $1.710 billion and earnings between $1.09 per share and $1.12 per share.
See also
Other gurus with large holdings in Floor & Décor include Frank Sands (Trades, Portfolio), Ron Baron (Trades, Portfolio) and Steven Cohen (Trades, Portfolio).
Disclosure: No positions.
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