Chit Chat Stocks - Floor & Decor (Ticker: FND) with Drew Cohen

Episode Date: September 28, 2023

Floor & Decor Holdings, Inc. (FND) is a specialty retailer of hard surface flooring and related accessories, known for its extensive product selection and value-focused approach, while also navigating competitive dynamics in the home improvement industry. Listen as Brett and Ryan ask questions about the company, its business model, and valuation. Enjoy the show! ***************************** Want updates on future shows and projects? Follow us on Twitter: https://twitter.com/chitchatmoney  Subscribe to our Substack to receive free show notes and charts that go along with every episode: https://chitchatmoney.substack.com/ Interested to see more of Drew's work? Find his website here: https://speedwellresearch.com/ Contact us: [e-mail] Timestamps Floor & Decor | (2:06) Competitive Advantage | (7:01) Real Estate | (21:35) Disclosure: Chit Chat Money hosts and guests are not financial advisors, and nothing they say on this show is formal advice or a recommendation. Brett Schafer and Ryan Henderson are general partners and portfolio managers at Arch Capital. Arch Capital and its partners may hold securities discussed on this show. Learn more about your ad choices. Visit megaphone.fm/adchoices

Welcome to Chit Chat Money. This is our Thursday deep dive episode where we interview an analyst to discuss a single stock or industry. And today we are talking with Drew Cohen of Speedwell Research about floor and decor. I got to say, this was a really fun episode. This is our first time talking with Drew, but he is an excellent analyst. He has very thorough research on his website. And when I came across this, I was really glad that he said he would be willing to speak to us. So we're talking about Flooring Decor, kind of a specialty retailer in the, as you might imagine, flooring space. They also compete with Home Depot and Lowe's, but I'll leave it there because Drew does a really good job covering everything. So without further ado, here's our

interview with Drew Cohen. Welcome to Chit Chat Money. On this show, hosts Ryan Henderson and Brett Schaefer interview industry experts and riff on the world of investing. As a quick reminder, Chit Chat Money is a CCM Media Group podcast. Ryan and Brett are also general partners at Arch Capital, and Arch Capital may have positions in the securities discussed in this podcast. Anything discussed on Chit Chat Money by Ryan or Brett or any other podcast guest is not formal advice or recommendation. Now, please enjoy this episode. All right. Welcome in. Today, we are joined by first-time guest, Drew Cohen of Speedwell Research. I'm going to start this interview by giving a huge shout out to Speedwell Research.

There's a lot of good, free, and paid content on there. We actually came across it through the Coupang Deep Dive, which some of our listeners probably follow Coupang as well. So if you like his stuff, go ahead, check it out. There's tons of good content on there. But Drew, I guess for first-time guests, welcome to the show. Thank you. Thank you for having me. We are talking about Florin Decor today, which is maybe more of a household name than some other stocks we've discussed on the show. But I guess I'm always curious how people end up coming across the stocks that they research. So for you, how'd you come across Florin Decor? Was it kind of

you encountered the business first or did it just kind of pop up as a potential investment yeah i wish i could uh wax poetics about how i found this but a friend told me to actually look into it you know some of the best some of the best investments are made that way yeah you just see a random tweet and you go oh that's an interesting ticker uh let's pile it away for later and someone's like how'd you find this one it's like all right yeah someone tweeted it and Yeah. I got lucky on this one. Buffett does own it though. So I'm guessing that's how some people found it as well. Okay. Well, we'll talk about that here in a second, but why don't we start with kind of the basics here in the Speedwell report for Florinda Core? You mentioned that

it's kind of a, not these exact terms, but you said it's kind of a combination of a Sherwin Williams and a Costco. So can you explain that a little more and just maybe give the basics of what floor and decor does. Yeah. And whenever you have to put something out there, you try to frame it in a certain way that relates to businesses people already understand. But without going crazy into the metaphor, the idea is basically Costco practices everyday low prices. The idea is that they're not going to promote to try to get people in the store. They're going to use a direct sourcing model to try to cut out all the middlemen they can and offer the lowest prices to consumers possible. And then there's also this idea of economies of scale shared,

the whole Nick Sleep idea. Whereas any sort of cost savings we get, we're going to pass off to our consumers. And that's the Costco angle there, floor and decor. They also have a direct sourcing model. They also practice everyday low pricing. They're also similarly in a warehouse. So that's a couple of the similarities there. And then on the Sherwin-Williams side, Sherwin-Williams, for those that don't know, paint company. But they're not only a specialty retailer focused in the home sector, similar to Floor & Decor, but they also have a big pro business, which is similar to F&D. That's the stock ticker, Floor & Decor. And similarly, they go out and do a lot, offer a lot of tools for pros, offer many services that are very

specifically aimed at getting the pros. And then in turn, they use pros as a customer acquisition engine for their paint, which is what Floor & Decor does too. Okay. And I think it's in the name. So a lot of people get the hint there, but what exactly are they selling? What makes them different than Costco, Sherwin-Williams, et cetera? Yeah. Yeah, you're right. It is in the name. Floor & Decor, more than half their business is flooring. The decor side is very tiny. It's just a couple percent of revenue. So on the flooring side, they sell hard surface flooring and specific. So no carpet at all. If you think about your two main options for flooring,

you're either going to go for carpet or hard surface flooring. Now, hard surface flooring has been gaining market share on carpet for the past decade, roughly, because of a lot of new advents in different forms of flooring. And so in specific, about a quarter of the revenues come from something called LVP and laminate flooring. Now LVP stands for luxury vinyl planks. And these are basically synthetic wood looking flooring. And laminate is somewhat similar, usually a little higher quality, but not as waterproof. And so it's these synthetic materials that are very cheap to make, but look pretty good. And the quality is pretty high nowadays. That's about a quarter of their business. And then the rest is all tile flooring, other flooring factors, as well as

tiles that could go on walls, decorative tiles, that sort of stuff. So it's all flooring though, different variations of it. Generally speaking, what's happened in the past, call it half a century, is that if you had an apartment building or you bought a new home, you wanted to lay something down that was new. And so most people would go to carpet. It was easy to install. it was pretty cheap and it was good enough. With the advents of these new form factors and specific LVP laminate, that's what people are opting for. They prefer that look. It's easier to clean. It doesn't get dirty. And if you do want the rug look, you could always lay a rug on top of the hard surface flooring. Oh, right. Yeah. Sounds like there is

a long-term industry tale when I didn't really know about that, but I guess it makes sense just given the anecdotes. You didn't know about the battle between carpet and hard surface flooring? yeah i had thought about that it uh deeply but i i guess i have noticed that most things are moving from carpet to hardwood floor don't you wish you could just hit skip on the worst parts of your life you know the same way you can skip an ad i get it i'm ciaya and i live in ice cove i've made some questionable decisions that didn't end up the way i planned and today i'm still figuring it out Somehow things usually get worse before they get better. Apparently, that's how I roll.

So bundle up and come along for the bumpy ride. Stream a new episode of North of North Tuesdays on CBC Gem. But speaking specifically with F&D, what advantages do they have over the big retailers, specifically Home Depot and Lowe's, that has enabled them to grow so quickly? So why is someone shopping there instead of just doing everything at Home Depot? Yeah, that's a good question. And so in terms of

competitors, I would say the Home Improvement Centers, which are Home Depot and Lowe's, as you mentioned, those are about a third of their competitive set. Then there's these other specialty chains, that's another third. And then there's these small mom and pop players that are another third. And so we can talk specifically about what they do differently versus the Home improvement centers. And so Home Depot actually sells more than twice as much flooring as Floor and Decor. Right now, Floor and Decor is going to do about $4.5 billion for this year. And Home Depot is closer to $10. Lowe's is also right in the same vicinity of Floor and Decor. They might be a little bit higher now. And so in terms of what they went on, let's frame it like this.

Let's start with Floor and Decor's warehouse model. Okay. So when you have a warehouse model, and it is entirely devoted to flooring, that allows you to have much more selection versus anyone else. And so that's the first piece. They have three to four times as much selection as a home improvement center. The second piece of it is in-stock inventory. If you walk into a floor and decor, you'll see flooring samples, which you're able to pull out. And right behind it are pallets of flooring. And that's really important because it shows people they have the in-stock inventory, which the pros really care about it. If you're a professional flooring installer, you want to know that you could go pick up the

flooring and do the job today. Or you know that as soon as I schedule it, I'll pick up the supplies in the morning and I'll be done with it. If you have to wait for a flooring shipment, like Home Depot will commonly tell you, four to seven days, we did our channel checks. We asked all sorts of Home Depots how long to get different SKUs. That's roughly the most common answer, then they can't go and do their job. They can't schedule it. And so that's why in-stock inventory is very important on the pro side. So you have selection, you have in-stock inventory, and then you also have pricing. On the pricing side, I mentioned this earlier in the intro, they do direct sourcing. And so this is something everyone always tries to throw out

there. Well, why don't you just cut out the middleman, save pricing, and then you're going to boost volumes. You use that volumes to go back to the manufacturer to get a bigger discount on pricing, the classic flywheel thing. In practice, this is much harder to do. They have 240 suppliers across 24 countries, could be more countries now. And this is something even Home Depot does not do currently. They still use some middlemen. Shaw and Mohawk are wholesalers. And Lowe's actually had this program where they tried to do more direct sourcing. And basically, it didn't work out the way they thought it would because it was much harder than they expected.

And so you have the direct sourcing, which allows them to actually get very quality products at good pricing. You're cutting out the middleman supplier there. Since you have a warehouse model, you're able to house all that inventory very cheaply. You're not spending money on making the front of house look really nice. You're meshing basically what would be the storage room, the back of house with the front of house. And that's also further saving costs because you're utilizing your square footage more efficiently. And then there's the selection piece I manage as well as the in-stock inventory.

Those are the big overwhelming factors, I would say. But they have a couple other things going for them as well. They also now have in-store designers, which will help you pick out what flooring you want. They have a very professional employee base that understands flooring very well, can tell you how to install it. They sell all the installation materials as well. About 15% of the business is DIY. That's people that are going out there buying the flooring and doing it themselves. 40% is the pros. They have their own pro help desk centers and a lot of other stuff they're doing just to serving the pros, including a loyalty program. They'll do curbside pickup for them. They'll help them with different tools, software tools for the business, booking

tools. And so all of that is just to cater to the pros. And then the other portion of the business, the last 45% is DIY, buy it yourself. And this is people who go there usually on a recommendation of a pro, they buy it, and then they have the installer do it for them. And that's just some of the big picture factors there. So in terms, if you're looking at a Home Depot, what they do very well is people trust Home Depot, right? They know what it is. They can go in there. If there's an issue, they're pretty confident that they'll be able to return it. Home Depot has about a quarter as many SKUs as Floor & Decor does, which for most people is going to be good enough. Maybe they're not that picky. In terms of pricing, Floor & Decor has more better, best,

and better quality selections. But in terms of pricing, it's pretty similar. On a couple of SKUs, floor and decor is better. And if you ask floor and decor to price match, they absolutely will. Some of the managers we spoke to talked about how they will not be beat on price. They were emphatic about that. And so pricing is pretty similar, though. It's really mostly going to be about the in-stock inventory and the selection. If you go to a Home Depot, it's laid out very differently. In our report, we did store checks and we show how it looks all different. In Home Depot, it's like these tight aisles with these small little flooring samples. And then the stock that they do have is way up high and you need help

to get it. Whereas in Floor & Decor, it's these massive samples and there's thousands of them throughout the store. And so if you want to in one-stop shop, really see what all your options are, that's floor and decor. If you go to Home Depot, maybe you're left wondering what else is there out there. But they do have twice as much sales in the flooring segment as floor and decor does. So they're still doing fine. It's just that most people, they are going to value that in stock inventory. They are going to value that selection and then also the pricing aspect as well as the help and in-store designers. Why is Home Depot able to generate so much flooring sales? Is it just a larger store base? Yeah, a larger store base. Everyone knows Home

Depot. If you're thinking home improvement, they're top of mind for almost everything. And so you're probably visiting them first. And if you like what they have, then that's it. You're done. That's the end of your discussion. There's also the fact that if you're doing multiple home improvement projects, you can couple all your purchasing together and just do it at that one store. And so that's important for some people. Contractors and stuff, they'll buy other tools there. And if you could just pick up the flooring there, then that's easy. But on most SKUs, they do not have the in-stock flooring. So for professional installers, they'll still preference floor and decor. How many stores does F&D have?

I guess, is it concentrated to any particular part of the country? Nick Neuman They're national now. They right now have a little over 200 stores and their plan is to get to 500. And so it's really just been a long march of building out more stores. Their growing store count about 20% a year, adding 30 to 40 stores annually. And so they're targeting 500. And at that point, we'll see what happens afterwards. Robert Leonard Let's maybe back up for a second. Can we go through some of the history on floor and decor? When was this concept started? When did it really start to take off? I guess I'm curious about

how it's been able to kind of steal so much share or grow so quickly. Yeah. So it started in Atlanta, Georgia in 2000 and founded by George Vincent West. And as the story goes, his wife was looking for some flooring in their bathroom. And he couldn't find the right flooring. And he goes to all these different stores. And he doesn't like the selection, thinks the prices are too high. And so long story short, he says, I'm going to open a flooring store, which is slightly less random given his family did own building material stores. They owned a few of them in Georgia. And so he wanted a store just to specialize in flooring. Two years later, though, he sold it to an investor group.

And then it traded hands again to a private equity company several years later. And then in 2012, Tom Taylor was installed as their CEO, who is now their current CEO as well. And a lot of the current management team comes from that time. And then in 2017, they went public. But you're looking at roughly a 20-year period where they've gone from one to 205 stores about. Okay. Yeah. That makes sense because I'm thinking they've grown pretty quickly and if they've only been around for 23 years, that makes sense. I guess let's talk about the economics. How much does it cost to get a store, a floor and decor store up and running? And then what kind of returns do they see? Yeah. And right before we get into that,

I want to mention that the floor and decor annual report, this is going to be a really nerdy thing, but I think your audience will buy it. The Floor & Decor Annual Report is one of the best annual reports I've ever read, because they lay everything out so clearly. They lay out what the business is, the thesis, the investment opportunity, as well as the unit economics. And so they actually talk about all these store level unit economics, which in a lot of cases, you have to do this back of the envelope math to try to back into it. And so we can be a little more direct here. And so the numbers they've given us is that it costs about $8 million to $10 million to open a store.

This is a little higher than it was previously because they've continued to make the stores larger. And they've added some other features like the in-store designers, which come with these what they call vignettes, which are basically samples of what a room could look like with their flooring. And so $8 million to $10 million to build out a store. These stores are about 80,000 square feet. From that, they'll also say that on year three, they're getting about a 50% cash on cash return. However, it looks like they're using EBITDA for that. And so if you wanted to use NOPAT, we calculate that they'll get that 50% return by about year five to year six. Either way, it's about a two and a half to three year payback period on their money.

And if you're going to do an IRR, it's about a 30% IRR. And that's our calculation, not their number. All right. Yeah, that's great. I love when they actually give you numbers that you care about. It's not just a bunch of lawyer speak and the SEC filings that just put you to sleep. But back to the store base. Now, you said that they think they can get to 500 stores. I'm curious what you think after you guys did all your research here. What are your thoughts on the greenfield opportunity? Maybe that could be just in the United States, North America. But what are your thoughts on the store expansion? Yeah. So a bit of history on that number. Before when they originally IPO'd, they were gearing for 400. And then what they noticed was that cannibalization wasn't as bad as what they expected when they're opening up stores near other stores. And so what happens generally in the first year to three years is an existing store gets cannibalized a little bit when another store opens nearby. But then thereafter, they both start growing again. And they'll grow even beyond what it was prior. And so there is also something to the fact that having multiple

stores in an area can actually help build a network, especially if you're a professional. You can imagine having multiple jobs in different areas. Once you know floor and decor, once you're in their loyalty program, you're going to just look for the local floor and decor. And now maybe you're using them even more. So they upped that number to 500 a few years ago. And it was funny. They're like, we had these consultants look through it and they redid the MSAs. And now we think our target market is this instead of that. So I say that because there's always a little bit of... You got to be a little bit skeptical when they do put out these long-term targets because no one really knows until it's actually done. But you do see that the business has continued

to perform very well. Mature stores are now earning much more today than they did in the past. Now, a mature store is earning about $28 million. Whereas a decade ago, it was about half of that. A new store opening now is making $15 million. And that continues to ramp up. And so it's a little bit like playing Minesweeper, where you have a board, right? and it's all hidden. And then you're probing that board to see whether or not there's a bomb nearby. And I think of that as being the mental model of when you're opening up a store. You drop a store in a geographical location, and you're probing to see whether or not the demand is going to be there. Was there really latent demand for a specialty flooring retailer in that

segment or not? And then you drop a store and boom, you figure that out. So until you actually click into it, you're never totally sure. But what would give me confidence is ultimately the value prop. You can do the back of the envelope math as to how many homes exist in the US. What is the average duration of flooring? Do the Fermi problem on that. And we know what the TAM is and all that. And I do think people are going to still be replacing their hard surface flooring every call it 20 years at minimum. And so if you're doing that math, and you believe they're much better positioned than their competitors. We just talked about the home improvement centers, but a lot of the other competitors they compete against are much worse positioned,

then it's fair to say that they're going to gain that share and I think achieve that target. Okay. One question that's kind of come to mind is, you mentioned some of the... They kind of have shared industry tailwinds with the big home improvement centers where it's like the average, the housing stock in America is growing, whatever, 1% to 2% a year. And the age of the housing stock is kind of rising over time as well. However, that kind of makes me think too, is there big ties to kind of the real estate market for floor and decor? Like if we see transactions slow, like we kind of have, I know it's affected Lowe's and Home Depot on the do it yourself side. Does Floor & Decor see a lot of that as well? Yeah, they've definitely been

wrapped up in all that. It's not on new home sales, but on existing home sales. And so you can imagine probably one of the bigger reasons why you would replace your flooring is you just bought a new house and you're looking around and you don't like the flooring, you want to replace it. And so that's a big purchase event or trigger, if you will. And so that's definitely impacted on Same store sales are down about 6% within mature stores. It's, I think, 200 to 300 bps higher. So it's definitely been a factor. But the other side of that is it's been a weird past couple years where demand has been very strong too. And at the end of the day, floors do not last forever and you're going to need to replace them.

And when you replace them, I think you're going to want the highest quality one with the lowest price. And so it's like the whole Jeff Bezos thing where he wants to focus on the things that aren't going to change in the future. And he'll say, in the future, people are going to still want lower prices, more selection, and faster delivery. The flooring version of that is what I just said. Yeah, they're still going to want floors in the future. That makes sense. I guess, what do you think of the management team here? We haven't discussed them in too much detail. Just overall thoughts. Yeah, yeah. So Tom Taylor, who became CEO a little over a decade ago now and has overseen

most of the growth of the company. He's very impressive in that he started at Home Depot when he was 16, became the youngest store manager there when he was 22, and then continued to progress up the ladder, worked at a private equity company for a little bit. And then he joined Floor & Decor. So he definitely is someone I would think very highly of. And you could just look at what he's been able to do with the company in the past decade. And some of the other management team uh trevor lang uh brian langley uh they all come uh come around that era too so that they have a pretty seasoned uh management team all right we haven't talked valuation yet but i think we have enough context now let's go through some of those numbers

uh if we look at their i think i had the pe up here it could be p might be the wrong way to look at it but just for context for listeners if i just look at y charge pe is about 26 but But talk to us how you think about valuation. How are you guys looking at it? I hear that they have really high returns on invested capital, but I don't want to spoil anything. So the floor is yours. Yeah. So on the return ROIC, right? So we talked about the store level unit economics. If you actually look at the company as a whole, it doesn't look that great. You're only going to probably get about a 10% ROIC. And that's because they continue to add new stores. They have pre-opening expenses. And before the store ramps up, you're not really getting that high ROIC.

And so right now, basically, the store base is more new than aged. And so that's part of the reason why it doesn't look so high. But if you strip out those pre-opening costs, and you assume that they do hit the same sort of sales trajectory as other stores, you get that mature sales figure and you get your mature margins, which they've said like high teens EBITDA will estimate an EBIT margin of about 15%, then you will see closer to 20%-ish ROIC, which is quite strong. And so then on the valuation question, I always like to just invert the question. It's much easier that way where you could just say, what are you paying for today? And then you could look at the assumptions and see the associated return. And then it's on you whether or not you like that

return. And so we talked about 500 stores. We said a mature store average is about 28. They have some that are doing 30. Let's just call it 30 million a store for even numbers. And this is what they put out too for their long-term guide. So you multiply those two, you're getting about 15 billion in revenues. There is another aspect of revenue, the commercial opportunity. We could touch on that in a second. It's relatively small compared to their 500 stores though. And then you apply your 15% mature margin framework, you tax it, you're getting about $1.7, $1.8 billion in NOPAT. They've put a timeline of about 8 to 10 years, I believe, for them to get to their store figure. It's actually funny though, because they also put

out a market share assumption. And then they also said what they believe the TAM was today, as well as a growth rate. So I think they unwittingly implied a shorter timeframe than they meant to. And so we back into that timeframe of being only five years. But you get your figure, you get your NOPAT number, you put whatever multiple you want on it, and then you could just discount it back to today. And that's your associated return. So market cap of about $10 billion today. Yeah. I was about to say that context for listeners, market cap slightly under $10 billion, which that's an important number. It is. Yeah. All right. Let's talk about the commercial, I guess, maybe just because you hit on it there.

What's the opportunity there? Is this a long-term growth opportunity? What have they said about this? Yeah. So it gets slightly confusing and I don't know how into the weeds we want to get with your audience on the flooring market, but they have something called Rams at every store. These are regional account managers. And these are basically like a Salesforce at the stores that go out and try to sell more flooring. This is usually not considered the commercial market, but it can kind of overlap. And then they have a separate acquisition they've done called Spartan. And this is more specifically to target architectural and design firms and builders. And this is really more a bid-based business. And so the difference between the Rams and this

spartan business is basically what's called soft spec versus hard spec and spec is short for specification and so soft spec is basically you don't really know exactly what hard surface flooring you want you know you want you know something that's waterproof and maybe roughly a light wood color and so you go to your ram and they show you the options and they help push you to a floor and decor product. Whereas on the commercial side, it's all very specific what they want. And so they'll say, I want a three and a quarter inch knoll wood maple plank that's this wide. And give me exactly that. Give me a bid for it. And they usually go around and collect bids. And so it's a different business. But I guess the idea there is, and they haven't said this exactly,

is that floor and decor is going to... Since they have the direct sourcing model, and they have all these volumes, they'll probably be able to win in those bids and push them to a floor and decor product. My understanding is that they do still also wholesale, perhaps products that aren't sold in the floor and decor stores as well. But they think that that's about a billion and a half revenue opportunity. And I believe on the last call, they said it's growing like 40%. So it's a small business now, but it is growing pretty well. And that's a potential where they could upgrade that, not upgrade, they could up those estimates longer term, but we don't necessarily explicitly value that. Okay. You mentioned earlier in the episode

that this is, I don't know if it's Buffett anymore, but it's a Berkshire holding. It's a small holding for Berkshire, but a decent chunk of Florinda Core's ownership. I think it's four and a half, 5% of floor and decor. Do you think it's relevant at all? Do you think they have any sort of, I guess, bearings on the thesis? Well, I mean, I think on one sense, it's a potential risk, right? Because you have to wonder whether or not he's going to buy the whole company out and then buy it out at not a great price for the current investor. So that's one way of thinking about it, but I don't know. You can never draw too much into it, exactly what they're thinking and all that. Because the flip side of that is if you're

relying on his investment acumen to buy a stock, then when he sells it, you're stuck also selling it. And so I think we saw that actually with RH because that's another stock I've talked about a bit. And they owned it for a while and then they sold it. And so then people would ask me, oh, so now are you going to sell it? And you have to have your investment thesis be totally separate from that. It's fine if you're using 13Fs and stuff to try to vet stocks. But if you're holding it just because someone else is, one, the volatility of the market is probably going to take you out of it because you're going to be constantly wondering whether or not they still believe what they believed back then. And so it has to ultimately be your own

judgment and your own analysis. Yeah, that's a great lesson for the listeners. Now, we're going to have our closing question, but I wanted one follow-up on the market share stuff because I think it's really interesting. And maybe just correct me if I'm wrong here, because I think the way to sum it up is they have three different ways to grow. One, the greenfield opportunity with the industry tailwind. Two, stealing market share from these mom and pops that they have a big advantage over. And then three, which is probably the hardest one and the most difficult from a competition

perspective is the big box retailers, Lowe's, Home Depot, maybe a few others. Is that the way you're looking at it? And do you think they can succeed and have they succeeded in stealing market share from both those competitors? I would reframe it slightly. Not that what you said was wrong, but I would think of it more as one, being new store growth, two, being growth of the mature stores, and then three, you could layer in the commercial opportunity. Okay. Totally makes sense. Yeah. It seems like, I mean, you don't want to... TAM is a dangerous thing to do, but it seems like there's a big opportunity here. And I guess that leads into the final question we ask every interview.

What could go wrong here? What's the pre-mortem here? If you were looking out five years into the future, why do you think floor decor would be an underperforming investment for you? Yeah. So a couple of risks I could think of is Home Depot gets a lot better with shipping from their warehousing to their stores. And so I mentioned the in-stock delivery, the in-stock inventory being a big factor for professionals. And so if they are able to speed up their delivery speeds, they did open more distribution centers recently. And so if they could quickly get that inventory to the end professional, then that's a risk for floor and decor. I mean, they'll still have those other factors that will keep pros and the selection and all

that, but it definitely could weigh on their growth opportunity if Home Depot or Lowe's could get much more rapid shipping. That's one. The other is just changing preferences or taste. If for whatever reason, people do prefer carpet again in the future, then in the past, floor and decor doesn't sell carpet. So that's not good for them. Or if there's some other flooring material that they don't carry, that becomes very popular. That also wouldn't be good for them. If Buffett decides to buy the stock and not pay a premium, that wouldn't be great. So those are a couple of things I could think of.

Also, management leaving is always an issue. It's not impossible that they open up their 300th store and they start saying, crap, cannibalization is actually much worse than we expected. That would also be a problem. So there are several things that could go wrong. All right. Well, I think that's all the questions we have. Drew, for listeners that want to keep up with you or see more of your work, what's the best

place to do that? Yeah, they could check out speedwellresearch.com. We also have a sub stack, which is called Speedwell Snippets. And we actually just launched our own podcast recently called The Synopsis. And in that, they're very long episodes, like two hours, highly detailed information of our reports that we write. And so the first episode we did was on meta. We talked for a couple hours about the 160-page research report. We wrote on that, go really in-depth into history, ad tech, demand-side platform versus sell-side platform, different risk, how advertisers think about return on ad spend, all that goodness. All right. I'm about to go follow it. I think you just won two new listeners to that show. So beautiful. I think if people like our short, they're not as long, maybe 45 minute, you know, research episodes, you're going to love those as well. So, all right. Thank you. Yeah. Thanks

for joining us, Drew. Yeah. Thank you for having me. This was fun. All right. Before we sign off, I do want to throw a disclosure on this. I want to remind listeners that Brett and I are not financial advisors. Anything we say or discuss here on Chit Chat Money is not formal advice or recommendation. We are, however, general partners at Arch Capital, so clients may have positions in the securities discussed in this podcast. Thank you all for listening and tuning in. Thank you, Drew, again, for coming on the show.

We'll see you all next time.