We came across a bearish thesis on Floor & Decor Holdings, Inc. (FND) on wallstreetbets Subreddit Page by Traditional-Year3847. In this article, we will summarize the bears’ thesis on FND. Floor & Decor Holdings, Inc. (FND)'s share was trading at $71.44 as of April 30th. FND’s trailing and forward P/E were 37.60 and 34.25 respectively according to Yahoo Finance.
A person standing in a showroom admiring the range of laminate flooring.
At $72 per share, Floor & Decor (FND) may appear to be a high-growth retail success story, but beneath the showroom polish lies a dangerously fragile foundation. With a realistic price target of $45—implying a 37% downside—the company's aggressive lease-based expansion model, deteriorating fundamentals, and questionable accounting practices reveal a business that more closely resembles a ticking time bomb than a thriving enterprise. The company’s strategy revolves around opening dozens of stores annually under long-term leases, with no ownership of the underlying properties. This off-balance-sheet liability structure—reminiscent of WeWork—obscures the true extent of the company's leverage. More than 80% of revenues are tied to leased stores, and the fair value of lease obligations now exceeds 50% of annual revenue. On top of that, FND has signed another $450 million worth of lease agreements not yet on the balance sheet, further inflating its hidden debt profile. Analysts appear to overlook the full leverage implications, creating a distorted view of financial health and stability. The company’s reliance on reverse factoring and supply chain finance (SCF), which has grown 47% year-over-year, further muddies the picture, artificially inflating operating cash flow and reducing transparency into real liquidity.
Operationally, things are unraveling. Same-store sales have declined for two consecutive years, and management’s promise of a second-half 2025 recovery rings hollow amid high interest rates, declining home affordability, and weakening consumer spending. The company is now pivoting toward lower-margin categories like tools and installation materials, signaling declining pricing power. Meanwhile, capex and opex continue to rise despite the revenue stagnation, putting additional pressure on margins. What makes this more concerning is the company’s refusal to disclose any financials by segment—an odd and suspicious choice for a retailer with both commercial and consumer-facing operations. The recent acquisition of Spartan, a commercial segment that contributes over $200 million in revenue, is also reported as a “non-reporting segment,” with no transparency on performance metrics or returns. This lack of disclosure, paired with reliance on unverifiable fair value assumptions, raises the risk of future write-downs.
Management’s credibility is under further strain. The company’s president, formerly CFO, comes from Blockbuster and Carter’s, bringing with him a legacy of financial engineering rather than operational excellence. Under his leadership, stock-based compensation has doubled in two years—outpacing revenue and net income growth—while management performance metrics remain skewed toward operating margin manipulation rather than true business growth. Unlike peers such as Home Depot and Lowe’s, where performance pay is tied to both revenue and margin, FND’s incentives are misaligned, encouraging cost suppression over topline expansion. The result? Declining EBIT and net income—from $298 million in FY22 to $206 million in FY24—while insiders continue to cash out. The latest pre-scheduled insider trading plan, the third of its kind, allows up to 100,000 shares to be sold between February and August 2025—conveniently timed just as EPS hits a three-year low and leasing costs peak. The lack of insider buying further suggests that confidence in a turnaround is minimal.
Even more concerning are FND’s shifting accounting policies and disclosure practices. Over the past five years, the company has made frequent changes to how it reports on leases, assets, gift card liabilities, SCF, and segment data—all “legal,” but indicative of a company trying to obfuscate rather than clarify its operations. These practices have created a financial black box, where core risks are increasingly difficult to assess. The aggressive expansion plan—25 more stores planned for 2025—comes despite signs of saturation, store cannibalization, and weakening traffic, further supported by debt rather than organic cash flow. With total capital expenditures crossing $1 billion over the last two years, the business appears to be chasing top-line growth while ignoring long-term viability.
Altogether, Floor & Decor isn’t just a risky investment—it’s a retail house of cards. Whether viewed through the lens of excessive off-balance-sheet debt, deteriorating operating performance, opaque disclosures, or management’s increasingly self-serving behavior, the stock offers a textbook example of how financial engineering can mask a business in decline. While analysts continue to treat FND like a high-growth specialty retailer, the company’s fundamentals tell a far darker story—one that, if left unchecked, could end not in turnaround, but in restructuring. With Q1 earnings due on May 1, 2025, the next catalyst could expose these fractures further. Until then, FND stands as a strong short case—mispriced, misrepresented, and dangerously misunderstood.
Floor & Decor Holdings, Inc. (FND) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 34 hedge fund portfolios held FND at the end of the fourth quarter which was 23 in the previous quarter. While we acknowledge the risk and potential of FND as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than FND but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
