Analysis
Floor & Decor (FND) has been significantly affected by the 2025 tariffs, particularly due to its historical reliance on imported hard surface flooring. In response, the company has aggressively diversified its supply chain to mitigate financial and operational risks. By the end of fiscal 2025, receipts from China dropped to just 3%, a drastic reduction from approximately 50% in 2018 and 18% in 2024. The United States has emerged as the company's largest sourcing country, accounting for 27% of products sold in fiscal 2024. FND now sources from 26 countries and manages over 240 vendors to maintain flexibility.
The financial impact of reciprocal tariffs in fiscal 2025 was described by management as minimal, as the company's inventory turn rate—approximately twice per year—and proactive purchasing before tariff implementation delayed the realization of higher costs. Although higher duties began to impact the company in the fourth quarter of 2025, FND successfully expanded its full-year gross margin to 43.6%, up 30 basis points from 2024. This was achieved through vendor negotiations, favorable product mix, and lower supply chain costs, which more than offset both tariff headwinds and a 70-basis point headwind from distribution center expansions.
Looking ahead to fiscal 2026, FND expects a more substantial, though still "modest," cost impact from tariffs as they become fully embedded in the second half of the year. The company's 2026 gross margin guidance of 43.5% to 43.8% assumes these cost increases will be largely offset by strategic retail pricing actions and continued supply chain productivity. Management maintains that its scale and direct-sourcing model provide a competitive advantage over independent retailers, who may struggle to absorb or mitigate similar tariff-driven cost increases.
To manage ongoing volatility, the company established a Tariff Steering Committee to oversee mitigation efforts, including sourcing shifts and balanced portfolio pricing. While the company is prepared to raise prices to protect margins, it remains cautious about potential category demand destruction if broader inflationary pressures dampen consumer confidence in large-scale home improvement projects. FND's strategy continues to prioritize market share gains through price leadership and assortment innovation, even in a higher-tariff environment.
Data
Sourcing Mix and Margin Trends
FND has drastically reduced its dependency on China since the initial 2018 tariffs, transitioning to a more globally diverse sourcing model.
| Metric | FY18 | FY23 | FY24 | 4Q24 | 4Q25 |
|---|---|---|---|---|---|
| China Receipts (%) | 50% | 25% | 18% | 16% | 3% |
Source: Company filings, Marvin Labs
Note: FY26E reflects the midpoint of company guidance (43.5%–43.8%). Sourcing percentages for China are based on product receipts.
Source: Annual Report FY-2025, Transcript FY-2025, Transcript 1Q-2025
Sources
Our fiscal year 2026 outlook assumes modest cost increases due to tariffs... we were able to kind of mitigate, you know, a lot of that exposure.
The tariff impact was actually minimal [in FY-2025]... as we get into 2026... it really will impact 2026 a lot more heavily than 2025.
We are prepared to take modest retail pricing actions to help offset the expected impact of tariffs and to manage both margin rate and dollars.