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Filed Pursuant to Rule 424(b)(4)
Registration No. 333-216000

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PROSPECTUS SUMMARY

    1  

RISK FACTORS

    19  

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

    45  

FISCAL YEAR AND CERTAIN FINANCIAL MEASURES AND TERMS

    47  

MARKET, INDUSTRY AND OTHER DATA

    48  

USE OF PROCEEDS

    49  

DIVIDEND POLICY

    50  

CAPITALIZATION

    51  

DILUTION

    52  

SELECTED CONSOLIDATED FINANCIAL DATA

    54  

UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION

    58  

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

    64  

BUSINESS

    89  

MANAGEMENT

    106  

EXECUTIVE AND DIRECTOR COMPENSATION

    115  

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

    138  

PRINCIPAL STOCKHOLDERS

    140  

DESCRIPTION OF CAPITAL STOCK

    144  

SHARES ELIGIBLE FOR FUTURE SALE

    150  

MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS FOR NON-U.S. HOLDERS OF COMMON STOCK

    152  

UNDERWRITING

    157  

LEGAL MATTERS

    165  

EXPERTS

    165  

WHERE YOU CAN FIND ADDITIONAL INFORMATION

    165  

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

    F-1  



              You should rely only on the information contained in this prospectus or in any free writing prospectus that we authorize to be distributed to you. Neither we nor the underwriters have authorized anyone to provide any information or to make any representations other than those contained in this prospectus or in any free writing prospectuses we have prepared. We and the underwriters take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. This prospectus is an offer to sell only the shares of Class A common stock offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. You should assume that the information appearing in this prospectus is accurate only as of the date on the front cover of this prospectus and the information in any free writing prospectus that we may provide you in connection with this offering is accurate only as of the date of such free writing prospectus.

              Persons who come into possession of this prospectus and any such free writing prospectus in jurisdictions outside the United States are required to inform themselves about and to observe any restrictions as to this offering and the distribution of this prospectus and any such free writing prospectus applicable to that jurisdiction.



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TRADEMARKS AND TRADE NAMES

              This prospectus includes our trademarks and trade names, including Floor & Decor and our logo, which are protected under applicable intellectual property laws and are the property of our wholly owned subsidiary, Floor and Decor Outlets of America, Inc., a Delaware corporation ("F&D"). This prospectus also contains trademarks, service marks, trade names and copyrights of other companies, which are the property of their respective owners. Solely for convenience, trademarks, service marks and trade names referred to in this prospectus may appear without the ® or TM symbols. We do not intend our use or display of other parties' trademarks, service marks or trade names to imply, and such use or display should not be construed to imply, a relationship with, or endorsement or sponsorship of us by, these other parties.

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PROSPECTUS SUMMARY

              This summary highlights the information contained elsewhere in this prospectus. This summary does not contain all of the information that you should consider before investing in our Class A common stock. You should read this entire prospectus carefully, including the sections entitled "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and related notes, before making an investment decision. Some of the statements in this summary constitute forward-looking statements. See "Special Note Regarding Forward-Looking Statements."

              Prior to the effectiveness of the registration statement of which this prospectus is a part, we were renamed Floor & Decor Holdings, Inc. Except where the context suggests otherwise, the terms "Floor & Decor Holdings, Inc.," "Floor & Decor," the "Company," "we," "us," and "our" refer to Floor & Decor Holdings, Inc., a Delaware corporation formerly known as "FDO Holdings, Inc.," together with its consolidated subsidiaries. Because our Class C common stock generally has identical rights to our Class A common stock (except that Class C common stock is non-voting) and converts into our Class A common stock on a one-to-one basis under certain circumstances, we generally refer to our Class A common stock and Class C common stock collectively herein as our "common stock." Unless indicated otherwise, the information in this prospectus (i) has been adjusted to give effect to a 321.820-for-one stock split of our common stock effected on April 24, 2017, (ii) assumes that all shares of our Class B common stock are automatically converted on a one-to-one basis into shares of our Class A common stock upon the consummation of this offering pursuant to our restated certificate of incorporation (our "certificate of incorporation") and (iii) assumes the underwriters will not exercise their option to purchase up to an additional 1,323,525 shares of our Class A common stock.

Our Company

              Founded in 2000, Floor & Decor is a high-growth, differentiated, multi-channel specialty retailer of hard surface flooring and related accessories with 72 warehouse-format stores across 17 states. We believe that we offer the industry's broadest in-stock assortment of tile, wood, laminate and natural stone flooring along with decorative and installation accessories at everyday low prices positioning us as the one-stop destination for our customers' entire hard surface flooring needs.

              We appeal to a variety of customers, including professional installers and commercial businesses ("Pro"), Do it Yourself customers ("DIY") and customers who buy the products for professional installation ("Buy it Yourself" or "BIY"). Our Pro customers are loyal, shop often and help promote our brand. The combination of our category and product breadth, low prices, in-stock inventory in project-ready quantities, proprietary credit offerings, free storage options and dedicated customer service positions us to gain share in the attractive Pro customer segment. We believe our DIY customers spend significant time planning their projects while conducting extensive research in advance. We provide our customers with the education and inspiration they need before making a purchase through our differentiated online and in-store experience.

              Our warehouse-format stores, which average approximately 72,000 square feet, are typically larger than any of our specialty retail flooring competitors' stores. Other large format home improvement retailers only allocate a small percentage of their floor space to hard surface flooring and accessories. When our customers walk into a Floor & Decor store for the first time, we believe they are amazed by our visual presentation, our store size, our everyday low prices and the breadth and depth of our merchandise. Our stores are easy to navigate and designed to interactively showcase the wide array of designs and product styles a customer can create with our flooring and decorative accessories. We engage our customers both through our trained store associates and designers who can assist in narrowing choices and making the process of home renovation easier, as well as our staff dedicated to serving Pro customers. In addition to our stores, our website FloorandDecor.com showcases

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our products, offers informational training and design ideas and has our products available for sale, which a customer can pick up in-store or have delivered. Our ability to purchase directly from manufacturers through our direct sourcing model enables us to be fast to market with a balanced assortment of bestseller and unique, hard to find items that are the latest trend-right products. Based on these characteristics, we believe Floor & Decor is redefining and expanding the addressable market size of the hard surface flooring category and that we have an opportunity to significantly expand our store base to approximately 400 stores nationwide within the next 15 years, as described in more detail below.

              Over the last five years, we have invested significant resources across our business and infrastructure to support innovation and growth. We believe that these investments will continue to strengthen our customer value proposition and further differentiate Floor & Decor from our competition, positioning us for continued market share gains. We have made significant investments in product innovation across all categories, improving our assortment and seeking to provide more value to our Pro, DIY and BIY customers. We have also invested in technology and personnel to support our stores. From fiscal 2011 to fiscal 2014, our general and administrative expenses and capital expenditures grew at a rate exceeding our net sales growth. We believe that these investments have enabled us to drive successful, scalable growth, as demonstrated by the doubling of our average net sales per store between fiscal 2011 and fiscal 2016 (for all stores open prior to fiscal 2011). We believe that our investment in our business will continue to improve our customer value proposition, differentiating us and strengthening our competitive advantage.

              We believe our strong financial results are a reflection of our consistent and disciplined culture of innovation and reinvestment, creating a differentiated business model in the hard surface flooring category, as evidenced by the following:

    eight consecutive years of double digit comparable store sales growth averaging 15.3% per year (and averaging 16.5% per year for fiscal 2012 to fiscal 2016), with a 19.4% increase in fiscal 2016;

    while our newer stores generally have higher comparable store sales growth, our stores opened prior to 2012 averaged comparable store sales growth of 15.5% for fiscal 2016;

    store base expansion from 30 warehouse-format stores at the end of fiscal 2012 to 69 at the end of fiscal 2016, representing a CAGR of 23.1%; we added 12 warehouse-format stores during fiscal 2016, which was a 21.1% growth in units compared to fiscal 2015;

    total net sales growth from $336.7 million to $1,050.8 million from fiscal 2012 to fiscal 2016, representing a CAGR of 32.9%;

    net income growth from $12.8 million to $43.0 million from fiscal 2012 to fiscal 2016, representing a CAGR of 35.3%;

    Adjusted EBITDA growth from $32.6 million to $108.4 million from fiscal 2012 to fiscal 2016, representing a CAGR of 35.1%, which includes significant investments in our sourcing and distribution network, integrated IT systems and corporate overhead to support our future growth. Adjusted EBITDA is a non-GAAP financial measure. For a reconciliation of

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      net income to Adjusted EBITDA, see Note 8 to the information contained in "—Summary Consolidated Financial and Other Data."

Net Sales (in millions)
  Comparable Store Sales Growth

 

 

 
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      Our Competitive Strengths

              We believe our strengths, described below, set us apart from our competitors and are the key drivers of our success.

              Unparalleled Customer Value Proposition.    Our customer value proposition is a critical driver of our business. The key components include:

        Differentiated Assortment Across a Wide Variety of Hard Surface Flooring Categories. Our stores are generally larger than those of our specialty retail flooring competitors, and we allocate substantially more square footage to hard surface flooring and accessories than large home improvement retailers. We believe we have the most comprehensive in-stock, trend-right product assortment in the industry within our categories with on average approximately 3,500 stock keeping units ("SKUs") in each store. Additionally, we customize our product assortment at the store level for the regional preferences of each market. We have an ongoing product line review process across all categories that allows us to identify and interpret emerging trends in hard surface flooring. We work with our suppliers to quickly introduce new products and styles in our stores. We appeal to a wide range of customers through our "good/better/best" merchandise selection, as well as through our broad range of product styles from classic to modern, as well as new trend-right products. We consistently innovate with proprietary brands and products that appeal to certain customers with over 50 proprietary brands, including AquaGuard® and NuCore®.

        Low Prices. We provide everyday low prices in the retail hard surface flooring market. Our merchandising and individual store teams competitively shop each market so that we can offer our flooring products and related accessories at low prices. We also work with our vendors to identify and create new, affordable products in categories traditionally considered high-end to further democratize hard surface flooring by providing a greater number of options to a larger customer base. We believe we are unique in our industry in employing an "everyday low price" strategy, where we strive to offer our products at consistently everyday low prices throughout the year instead of engaging in frequent promotional activities. Our ability to provide these low prices is supported by our direct sourcing model, which strives to eliminate third-party intermediaries and shortens time to market. We believe this strategy creates trust with our Pro, DIY and BIY customers because they consistently receive low prices at Floor & Decor without having to wait for a sale or negotiate to obtain the lowest price.

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        One-Stop Project Destination with Immediate Availability. Our large in-stock assortment, including decorative and installation accessories, differentiates us from our competitors. Our stores stock job-size quantities to immediately fulfill a customer's entire flooring project. On average, each warehouse-format store carries approximately 3,500 SKUs, which equates to 1.3 million square feet of flooring products or $2.5 million of inventory at cost. Customers also have access to all of our inventory for in-store pick up or delivery through FloorandDecor.com.

              Unique and Inspiring Shopping Environment.    Our stores average approximately 72,000 square feet and are typically designed with warehouse features, including high ceilings, clear signage, bright lighting and industrial racking and are staffed with knowledgeable store associates. We offer an easy-to-navigate store layout with clear lines of sight and departments organized by our major product categories of tile, wood, laminate, natural stone, decorative accessories and installation accessories. We believe our unique signage, which clearly displays individual product features and benefits, improves the ease of shopping and facilitates customer decision making. We encourage customers to interact with our merchandise, to experiment with potential designs and to see the actual product they will purchase, an experience that is not possible in flooring stores that do not carry in-stock inventory in project-ready quantities. The majority of our stores have design centers that showcase project ideas to further inspire our customers, and we employ experienced designers in all of our stores to provide free design consulting. Additionally, we provide a robust online experience for potential customers on FloorandDecor.com. We believe inspiring and educating customers within our stores and on our website provides us with a significant competitive advantage in serving our customers.

              Extensive Service Offering to Enhance the Pro Customer Experience.    Our focus on meeting the unique needs of the Pro customer, and by extension the BIY customer, drives our estimated sales mix of approximately 60% Pro and BIY customers, which we believe represents a higher percentage than our competitors. We provide an efficient one-stop shopping experience for our Pro customers, offering low prices on a broad selection of high-quality flooring products, deep inventory levels to support immediate availability of our products, modest financial credit, free storage for purchased inventory, the convenience of early store hours and, in most stores, separate entrances for merchandise pick-up. Additionally, each store has a dedicated Pro sales force with technology to service our Pro customer more efficiently, and we have rolled out Pro Zones, which are areas offering a variety of services to Pro customers, in a majority of our stores. We believe by serving the needs of Pro customers, we drive repeat and high-ticket purchases, customer referrals and brand awareness from this attractive and loyal customer segment.

              Decentralized Culture with an Experienced Store-Level Team and Emphasis on Training.    We have a decentralized culture that empowers managers at the store and regional levels to make key decisions to maximize the customer experience. Our store managers, who carry the title Chief Executive Merchant, have significant flexibility to customize product mix, pricing, marketing, merchandising, visual displays and other elements in consultation with their regional leaders. We tailor the merchandising assortment for each of our stores for local market preferences, which we believe differentiates us from our national competitors that tend to have standard assortments across markets. Throughout the year, we train all of our employees on a variety of topics, including product knowledge, leadership and store operations. We have made important investments in the training and development of our people, including the creation of a full time training department. Approximately 70% of our new store management positions are filled through internal promotions. We also have incentive compensation programs for all employees, regardless of position or title. We believe our decentralized culture and coordinated training foster an organization aligned around providing a superior customer experience, ultimately contributing to higher net sales and profitability.

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              Sophisticated, Global Supply Chain.    Our merchandising team has developed direct sourcing relationships with manufacturers and quarries in over 18 countries. We currently source our products from more than 180 vendors worldwide and have developed long-term relationships with many of them. We often collaborate with our vendors to design and manufacture products for us to address emerging customer preferences that we observe in our stores and markets. We procure the majority of our products directly from the manufacturers, which eliminates additional costs from exporters, importers, wholesalers and distributors. We believe direct sourcing is a key competitive advantage, as many of our specialty retail flooring competitors are too small to have the scale or the resources to work directly with suppliers. Over the past several years, we have established a Global Sourcing and Compliance Department to, among other things, enhance our policies and procedures to address compliance with appropriate regulatory bodies, including compliance with the requirements of the Lacey Act of 1900 (as amended, the "Lacey Act"), the California Air Resources Board ("CARB") and the Environmental Protection Agency ("EPA"). We also utilize third-party consultants for audits, testing and surveillance to ensure product safety and compliance. Additionally, we have invested in technology and personnel to collaborate throughout the entire supply chain process to support our direct sourcing model, which has improved our ability to find, manage and source trend-right merchandise quickly and at lower costs, allowing us to offer products at low prices while maintaining attractive gross margins.

              Highly Experienced Management Team with Proven Track Record.    Led by our Chief Executive Officer, Tom Taylor, our management team brings substantial expertise from leading retailers and other companies across core functions, including store operations, merchandising, marketing, real estate, e-commerce, supply chain management, finance, legal and information technology. Tom Taylor, who joined us in 2012, spent 23 years at The Home Depot, where he most recently served as Executive Vice President of Merchandising and Marketing with responsibility for all stores in the United States and Mexico. Our Executive Vice President and Chief Merchandising Officer, Lisa Laube, has over 30 years of merchandising and leadership experience with leading specialty retailers, including most recently as President of Party City. Our Executive Vice President and Chief Financial Officer, Trevor Lang, brings more than 20 years of accounting and finance experience, including 17 years of Chief Financial Officer and Vice President of Finance experience at public companies, including most recently as the Chief Financial Officer and Chief Administrative Officer of Zumiez Inc.

Our Growth Strategy

              We expect to continue to drive our strong net sales and profit growth through the following strategies:

              Open Stores in New and Existing Markets.    We believe there is an opportunity to significantly expand our store base in the United States from 72 warehouse-format stores currently to approximately 400 stores nationwide over the next 15 years based on our internal research with respect to housing density, demographic data, competitor concentration and other variables in both new and existing markets. We plan to target new store openings in both existing and new, adjacent and underserved markets. We have a disciplined approach to new store development, based on an analytical, research-driven site selection method and a rigorous real estate approval process. We believe our new store model delivers strong financial results and returns on investment, targeting net sales on average of $10 million to $13 million and positive four-wall Adjusted EBITDA (as defined below) in the first year, pre-tax payback (as defined below) in two to three years and cash-on-cash returns (as defined below) of greater than 50% in the third year. On average, our stores opened after 2011 have exceeded this model. Over the past several years, we have made significant investments in personnel, information technology, warehouse infrastructure and connected customer strategies to support our current growth and the expansion of our stores. We intend to grow our store base by approximately 20% annually over the next several years. The performance of our new stores opened over the last three years, the performance of our older stores over that same time frame, our disciplined real estate strategy and the

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track record of our management team in successfully opening retail stores support our belief in the significant store expansion opportunity.

              Increase Comparable Store Sales.    We expect to grow our comparable store sales by continuing to offer our customers a dynamic and expanding selection of compelling, value-priced hard surface flooring and accessories while maintaining strong service standards for our customers. We regularly introduce new products into our assortment through our category product line review process, including collaboration with our vendors to bring to market innovative products such as water-resistant laminates. Because almost half of our stores have been opened for less than three years, we believe they will continue to drive comparable store sales growth as they ramp to maturity. While our newer stores generally have higher comparable store sales growth, our stores opened prior to 2012 averaged comparable store sales growth of 15.5% for fiscal 2016. We believe that we can continue to enhance our customer experience by focusing on service, optimizing sales and marketing strategies, investing in store staff and infrastructure, remodeling existing stores and improving visual merchandising and the overall aesthetic appeal of our stores. We also believe that growing our proprietary credit offering, further integrating connected customer strategies and enhancing other key information technology, will contribute to increased comparable store sales. As we increase awareness of Floor & Decor's brand, we believe there is a significant opportunity to gain additional market share, especially from independent flooring retailers and large format home improvement retailers. We are also adding adjacent categories that align with flooring projects like frameless glass in the bathroom and customized countertops for the kitchen. We believe the combination of these initiatives plus the expected growth of the hard surface flooring category described in more detail under "Our Industry" below will continue to drive strong comparable store sales growth.

              Continue to Invest in the Pro Customer.    We believe our differentiated focus on Pro customers has created a competitive advantage for us and will continue to drive our net sales growth. We will invest in gaining and retaining Pro customers due to their frequent and high-ticket purchases, loyalty and propensity to refer other potential customers. We have made important investments in the Pro services regional team to better recruit and train the Pro services team in each store, new technology such as integrated customer relationship management ("CRM") software to help us further penetrate and grow our Pro business, dedicated phone lines for our Pro customers to call and text, commercial credit and open account terms, jobsite delivery, a dedicated website for Pro customers, training on technical flooring installation solutions, and tools to facilitate large commercial jobs sourced throughout the store. We plan to further invest in initiatives to increase speed of service, improve financing solutions, leverage technology, elevate our Pro branding, dedicate additional store and regional staffing to support Pro customers and enhance the in-store experience for our Pro customers. We have implemented a "Pro Zone" in a majority of our stores that focuses on the specific needs of the Pro customer. Building on our success in serving the Pro customer, in 2016 we entered the adjacent commercial sales channel, thus increasing the size of the addressable market we serve. Our commercial effort, which we have branded F&D Commercial, initially targets corporate customers with large flooring needs across the hospitality, multi-family and retail sectors. We believe Pro customers will continue to be an integral part of our sales growth, and the commercial channel will provide incremental revenue and profit opportunities in the future.

              Expand Our "Connected Customer" Experience.    Floor & Decor's online experience allows our Pro, BIY and DIY customers to explore our product selection and design ideas before and after visiting our stores and offers the convenience of making online purchases for delivery or pick up in-store. We believe our online platform reflects our brand attributes and provides a powerful tool to educate, inspire and engage our consumers, and we view our website and multi-channel strategies as leading our brand. Our research indicates that 71% of our shoppers have visited our website. We continuously invest in our connected customer strategies to improve how our customers experience our brand. For example, we regularly update our website, which provides our customers with inspirational

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vignettes, videos, products and education. Additional initiatives include: (i) implementing our new CRM to obtain a single view of our customers, (ii) developing personalized content based on location, purchase and browsing history, (iii) developing more relevant content and improved search and purchasing tools to help customers add decorative and installation accessories, (iv) creating frequently asked questions to help customers choose the best product for their jobs and (v) implementing online scheduling tools to access our designers. While the hard surface flooring category has a relatively low penetration of e-commerce sales due to the nature of the product, we believe our connected customer presence represents an attractive growth opportunity to drive consumers to Floor & Decor.

              Enhance Margins Through Increased Operating Leverage.    Since 2011, we have invested significantly in our sourcing and distribution network, integrated IT systems and corporate overhead to support our growth. We expect to leverage these investments as we grow our net sales. Additionally, we believe operating margin improvement opportunities will include enhanced product sourcing processes and overall leveraging of our store-level fixed costs, existing infrastructure, supply chain, corporate overhead and other fixed costs resulting from increased sales productivity. We anticipate that the planned expansion of our store base and growth in comparable store sales will also support increasing economies of scale.

Recent Developments

      Preliminary Financial Results as of and for the Thirteen Weeks Ended March 30, 2017

              Our financial results as of and for the thirteen weeks ended March 30, 2017 are preliminary, based upon our current estimates and subject to completion of financial and operating closing procedures as of and for the thirteen weeks ended March 30, 2017.

              We have provided ranges, rather than specific amounts, for certain financial results below, primarily because our financial closing procedures as of and for the thirteen weeks ended March 30, 2017 are not yet complete. As a result, our actual results may vary materially from the estimated preliminary results included herein and will not be publicly available until after the closing of this offering. Accordingly, you should not place undue reliance on these estimates. See "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Special Note Regarding Forward-Looking Statements" for additional information regarding factors that could result in differences between the preliminary estimated ranges of certain financial results presented below and the financial results we will ultimately report as of and for the thirteen weeks ended March 30, 2017. The summary information below is not a comprehensive statement of our financial results for this period.

              The preliminary estimated unaudited financial results included in this prospectus have been prepared by, and are the responsibility of, our management. Our independent registered public accounting firm, Ernst & Young LLP, has not audited, reviewed, compiled or performed any procedures with respect to the preliminary financial results. Accordingly, Ernst & Young LLP does not express an opinion or any other form of assurance with respect thereto. These estimates should not be viewed as a substitute for interim financial statements prepared in accordance with GAAP. In addition, these estimates as of and for the thirteen weeks ended March 30, 2017 are not necessarily indicative of the results to be achieved for the remainder of the 2017 fiscal year or any future period.

              The following are our preliminary estimates as of and for the thirteen weeks ended March 30, 2017:

    Our warehouse-format store count as of March 30, 2017 was 72 compared to 60 as of March 31, 2016. During the thirteen weeks ended March 30, 2017, we opened three new warehouse-format stores and relocated one warehouse-format store.

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    Comparable store sales growth is estimated to be approximately 12.8% compared to comparable store sales growth of 22.4% for the thirteen weeks ended March 31, 2016. See "Summary Historical Consolidated and Other Financial Data" for information on how we calculate our comparable store sales growth.

    Our net sales are estimated to be approximately $305.3 million to $307.3 million, representing an increase of 29.7% to 30.6% compared to $235.3 million for the thirteen weeks ended March 31, 2016, primarily due to comparable store sales growth and new store openings.

    Our operating income is estimated to be approximately $20.7 million to $22.7 million, representing an increase of 47.9% to 62.1% compared to $14.0 million for the thirteen weeks ended March 31, 2016.

              The preliminary estimated unaudited financial results disclosed above reflect management's estimates based solely upon information available as of the date of this prospectus and are not a comprehensive statement of our financial results as of and for the thirteen weeks ended March 30, 2017. The information presented herein should not be considered a substitute for the financial information to be filed with the SEC in our Quarterly Report on Form 10-Q for the thirteen weeks ended March 30, 2017 once it becomes available. We have no intention or obligation to update the preliminary estimated unaudited financial results in this prospectus prior to filing our Quarterly Report on Form 10-Q for the thirteen weeks ended March 30, 2017.

Repricing of Term Loan Facility

              On March 31, 2017, we entered into a repricing amendment to the credit agreement governing our $350.0 million senior secured term loan facility maturing on September 30, 2023 (the "Term Loan Facility"). The amendment reduced the margins applicable to our term loan from 3.25% per annum (subject to a leverage-based step-down to 2.75%) to 2.50% per annum (subject to a leverage-based step-down to 2.00%) in the case of base rate loans, and from 4.25% per annum (subject to a leverage-based step-down to 3.75%) to 3.50% per annum (subject to a leverage-based step-down to 3.00%) in the case of LIBOR loans (subject to a 1.00% floor on LIBOR loans), provided that each of the leverage-based step-downs is contingent upon the consummation of our initial public offering. The amount and terms of the Term Loan Facility were otherwise unchanged.

Selected Risks

              In considering our competitive strengths, our growth strategy and an investment in our common stock, you should carefully consider the risks highlighted in the section entitled "Risk Factors" following this prospectus summary. In particular, we face the following challenges:

    general economic conditions and discretionary spending by our customers are affected by a variety of factors beyond our control;

    the hard surface flooring industry's dependence on home remodeling activity;

    any failures by us to successfully anticipate trends may lead to loss of consumer acceptance of our products, resulting in reduced net sales;

    challenges posed by our planned new store and distribution center growth or unexpected difficulties encountered during our expansion;

    net sales growth could be adversely affected if comparable store sales growth is less than we expect;

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    increased competition in the highly fragmented and competitive hard surface flooring industry, which could cause price declines, decrease demand for our products and decrease our market share;

    the significant capital requirements to fund our expanding business, which may not be available to us on satisfactory terms or at all;

    our dependence on a number of suppliers, any failure by any of them to supply us with quality, regulatory compliant products on terms and prices acceptable to us;

    any failures by us to identify and maintain relationships with a sufficient number of qualified suppliers could harm our ability to obtain products that meet our high quality standards at low prices;

    any failures by us or our suppliers to comply with applicable laws, regulations or our compliance standards;

    changes in trade policy, tax laws and regulations; and

    the continued retention of certain key personnel and our ability to attract, train and retain highly qualified managers and staff.

              For information regarding how our leverage affects our business, financial condition and operating results, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources."

Our Industry

              Floor & Decor operates in the large, growing and highly fragmented $10 billion hard surface flooring market (in manufacturers' dollars), which is part of the larger $20 billion U.S. floor coverings market (in manufacturers' dollars) based on a 2016 study by Catalina Research, Inc., a leading provider of market research for the floor coverings industry (the "Catalina Floor Coverings Report"). We estimate that after the retail markup, we represent only approximately 5% of an estimated $17 billion market. The competitive landscape of the hard surface flooring market includes big-box home improvement centers, national and regional specialty flooring retailers, and independent flooring retailers. We believe we benefit from growth in the overall hard surface flooring market, which, based on the Catalina Floor Coverings Report, grew on average 8% per year from 2012 to 2016 and is estimated to grow on average 5% per year from 2017 through 2021. We believe that growth in the hard surface flooring market has been and will continue to be driven by home remodeling demand drivers such as the aging household inventory, millennials forming households, existing home sales, rising home equity values and the secular shift from carpet to hard surface flooring. In addition, we believe we have an opportunity to increase our market share as our competitors are unable to compete on our combination of price, service and in-stock assortment.

              For more than a decade, hard surface flooring has consistently taken share from carpet as a percentage of the total floor coverings market, increasing from 39% of the market in 2002 to 51% in 2015 based on the Catalina Floor Coverings Report. Historically, mix shift towards hard surface flooring has been driven by product innovation, changing consumer preferences, better hygiene qualities, increasing ease of installation and higher durability. Product innovation, which has been aided by the increasing use of technology such as inkjet tile printing, waterproof wood-look flooring and water-resistant laminates, and non-traditional uses of hard surface flooring including walls, fireplaces and patios have increased the size of the hard surface flooring market and has allowed us to better serve customer needs.

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Concurrent Transactions—Common Stock Changes

              In connection with this offering:

    we effected a 321.820-for-one stock split of all classes of our common stock on April 24, 2017;

    all shares of our Class B common stock (which currently are not entitled to vote and which were issued as a result of the exercise of stock options) will be automatically converted on a one-to-one basis into shares of our Class A common stock (and will then be entitled to one vote per share) upon the consummation of this offering pursuant to our certificate of incorporation; and

    all shares of our Class C common stock (which currently are not entitled to vote and will remain non-voting shares) will remain outstanding and non-voting, but will generally participate equally with our shares of Class A common stock in all other respects following the consummation of this offering.

              We refer to these changes herein as the "Common Stock Changes." All shares of Class A common stock offered to the public pursuant to this prospectus will be entitled to one vote per share and no other class of common stock is entitled to any votes per share. See "Description of Capital Stock" for more information.

Our Sponsors

              Upon the closing of this offering, Ares Corporate Opportunities Fund III, L.P. ("Ares"), a fund affiliated with Ares Management, L.P. ("Ares Management"), will beneficially own, in the aggregate, approximately 61% of our outstanding Class A common stock and FS Equity Partners VI, L.P. and FS Affiliates VI, L.P., funds affiliated with Freeman Spogli Management Co., L.P. (collectively "Freeman Spogli" or "Freeman Spogli & Co." and together with Ares, our "Sponsors"), will beneficially own, in the aggregate, approximately 22% of our outstanding Class A common stock and 100% of our outstanding Class C common stock. These amounts compare to approximately 10% of our outstanding Class A common stock represented by the shares sold by us in this offering, assuming no exercise of the underwriters' option to purchase additional shares. As a result, these stockholders acting together, or Ares or Freeman Spogli acting alone, will be able to exercise significant influence over all matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions, such as a merger or other sale of us or our assets. Also, our Sponsors may acquire or hold interests in businesses that compete directly with us, or may pursue acquisition opportunities that are complementary to our business, making such acquisitions unavailable to us. The Investor Rights Agreement (as defined in "Certain Relationships and Related Party Transactions") also contains agreements among our Sponsors with respect to voting on the election of directors and board committee membership. See "Risk Factors—Risks Related to this Offering and Ownership of Our Common Stock—Our principal stockholders will continue to have substantial control over us after this offering, will be able to influence corporate matters and may take actions that conflict with your interest and have the effect of delaying or preventing changes of control or changes in management, or limiting the ability of other stockholders to approve transactions they deem to be in their best interest."

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Ares Management

              Ares Management is a leading global alternative asset manager with approximately $95.3 billion of assets under management and approximately 930 employees in over 15 offices in the United States, Europe, Asia and Australia as of December 31, 2016. Since its inception in 1997, Ares Management has adhered to a disciplined investment philosophy that focuses on delivering strong risk-adjusted investment returns throughout market cycles. Ares Management believes each of its three distinct but complementary investment groups in Private Equity, Credit and Real Estate is a market leader based on assets under management and investment performance. Ares Management was built upon the fundamental principle that each group benefits from being part of the broader platform.

              The Private Equity Group has approximately $25.0 billion of assets under management as of December 31, 2016, targeting investments in high quality franchises across multiple industries. In the consumer/retail sector, selected current investments include 99 Cents Only Stores LLC, Smart & Final Stores, Inc., Guitar Center Holdings, Inc., Neiman Marcus Group, Inc., Farrow & Ball Ltd., National Veterinary Associates, Inc., Aspen Dental Management, Inc. and the parent company of Serta International and Simmons Bedding Company. Selected prior investments include GNC Holdings, Inc., House of Blues Entertainment, LLC, Maidenform Brands, Inc. and Samsonite Corporation.

Freeman Spogli & Co.

              Freeman Spogli & Co. is a private equity firm dedicated exclusively to investing and partnering with management in consumer and distribution companies in the United States. Since its founding in 1983, Freeman Spogli & Co. has invested $3.8 billion of equity in 56 portfolio companies with aggregate transaction values of $22 billion.

Corporate and Other Information

              On April 14, 2017, we were renamed Floor & Decor Holdings, Inc. Our principal executive offices are located at 2233 Lake Park Drive, Smyrna, GA 30080, and our telephone number is (404) 471-1634. Our website address is www.FloorandDecor.com. The information contained on our website is not incorporated by reference into this prospectus, and you should not consider any information contained on, or that can be accessed through, our website as part of this prospectus or in deciding whether to purchase our common stock.

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The Offering

Class A common stock offered by us

  8,823,500 shares (plus up to an additional 1,323,525 shares of our Class A common stock that we may issue and sell upon the exercise of the underwriters' option to purchase additional shares).

Option to purchase additional shares of Class A common stock

 

The underwriters have the option for 30 days following the date of this prospectus to purchase up to an additional 1,323,525 shares of Class A common stock from us at the initial public offering price less the underwriting discount.

Common stock to be outstanding after this offering

 

92,358,577 shares (including shares of Class C common stock).

Voting rights

 

Each holder of our Class A common stock is entitled to one vote for each share of Class A common stock held on all matters submitted to a vote of stockholders. Holders of our Class C common stock are not entitled to vote on such matters, except as required under Delaware law. Our stockholders do not have cumulative voting rights.

Use of proceeds

 

The net proceeds we will receive from selling common stock in this offering will be approximately $166.3 million, after deducting the underwriting discount and estimated offering expenses payable by us (or, if the underwriters exercise their option to purchase additional shares of Class A common stock in full, approximately $192.2 million, after deducting the underwriting discount and estimated offering expenses payable by us).

 

We intend to use all of the net proceeds of this offering to repay a portion of the amounts outstanding under the Term Loan Facility, including accrued and unpaid interest.

 

Any amounts repaid under the Term Loan Facility will not be available for future borrowing following repayment. See "Use of Proceeds."

Reserved share program

 

The underwriters have reserved up to 2.9% of the shares of Class A common stock being offered by this prospectus for sale, at the initial public offering price, to our directors, officers, employees and other parties related to us. The sales will be made by Merrill Lynch, Pierce, Fenner & Smith Incorporated through a reserved share program. We do not know if these persons will elect to purchase all or any portion of these reserved shares, but any purchases they do make will reduce the number of shares available for sale to the general public. Any reserved shares not purchased will be offered by the underwriters to the general public on the same terms as the other shares of our Class A common stock.

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Dividend policy

 

We currently intend to retain all available funds and any future earnings for use in the operation and growth of our business, and therefore we do not currently expect to pay any cash dividends on our common stock. Any future determination to pay dividends will be at the discretion of our board of directors and will depend on then existing conditions, including our operating results, financial condition, contractual restrictions, capital requirements, business prospects and other factors that our board of directors may deem relevant. In addition, our Credit Facilities (as defined below) contain covenants that restrict our ability to pay cash dividends. See "Dividend Policy."

Risk factors

 

Investing in shares of our common stock involves a high degree of risk. See "Risk Factors" beginning on page 19 and the other information included in this prospectus for a discussion of factors you should carefully consider before deciding to invest in our Class A common stock.

Proposed New York Stock Exchange trading symbol

 

"FND"

              Unless otherwise indicated, all information in this prospectus:

    has been adjusted to give effect to the 321.820-for-one stock split of our common stock effected on April 24, 2017;

    assumes that all shares of our Class B common stock are automatically converted on a one-to-one basis into shares of our Class A common stock upon the consummation of this offering pursuant to our certificate of incorporation; and

    assumes the underwriters will not exercise their option to purchase up to an additional 1,323,525 shares of our Class A common stock.

      The number of shares of common stock to be outstanding after this offering is based on 83,535,077 shares of our common stock outstanding immediately prior to the closing of this offering, and excludes the following:

    11,843,308 shares of common stock issuable upon the exercise of stock options granted under the FDO Holdings, Inc. Amended and Restated 2011 Stock Incentive Plan (as amended, the "2011 Plan") and outstanding immediately prior to the closing of this offering, at a weighted average exercise price of $5.31 per share; and

    5,000,000 shares of common stock reserved for future issuance under Floor & Decor Holdings, Inc. 2017 Stock Incentive Plan (the "2017 Plan" and, together with the 2011 Plan, the "Incentive Plans").

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Summary Consolidated Financial and Other Data

              The following tables summarize our financial data as of the dates and for the periods indicated. We operate on a 52- or 53-week fiscal year ending on the Thursday on or preceding December 31. When a 53-week fiscal year occurs, we report the additional week in the fiscal fourth quarter. Fiscal 2012, fiscal 2013, fiscal 2014 and fiscal 2016 included 52 weeks and ended on December 27, 2012 ("fiscal 2012"), December 26, 2013 ("fiscal 2013"), December 25, 2014 ("fiscal 2014") and December 29, 2016 ("fiscal 2016"), respectively. Fiscal 2015 was comprised of 53 weeks and ended on December 31, 2015 ("fiscal 2015"). Fiscal 2017 will include 52 weeks and will end on December 28, 2017 ("fiscal 2017"). The summary historical consolidated statements of operations data for fiscal 2014, 2015 and 2016 and the related summary balance sheet data as of fiscal 2015 and 2016 year end, have been derived from our audited consolidated financial statements and related notes contained elsewhere in this prospectus. The summary historical consolidated statement of operations data for fiscal 2012 and 2013 and the summary balance sheet data as of fiscal 2012, 2013 and 2014 year end have been derived from our audited consolidated financial statements not included in this prospectus. Historical results are not indicative of the results to be expected in the future.

              You should read the following information together with the more detailed information contained in "Capitalization," "Selected Consolidated Financial Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Unaudited Pro Forma Consolidated Financial Information" and our consolidated financial statements and the accompanying notes appearing elsewhere in this prospectus.

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  Fiscal year ended  
(in thousands, except share and per share amounts)(1)
   
   
   
   
  Actual
  Pro Forma(3)
 
  12/27/2012   12/26/2013   12/25/2014   12/31/2015(2)   12/29/2016   12/29/2016  

Net sales

  $ 336,745   $ 443,995   $ 584,588   $ 784,012   $ 1,050,759   $ 1,050,759  

Cost of sales

    202,651     274,172     355,051     471,390     621,497     621,497  

Gross profit

    134,094     169,823     229,537     312,622     429,262     429,262  

Selling & store operating expenses

    85,932     106,835     146,485     202,637     271,876     271,876  

General & administrative expenses

    20,571     30,530     38,984     49,917     64,025     66,325  

Pre-opening expenses

    1,544     5,196     7,412     7,380     13,732     13,732  

Litigation settlement

                    10,500     10,500  

Executive severance(4)

            2,975     296          

Casualty gain(5)

    (1,421 )                    

Operating income

    27,468     27,262     33,681     52,392     69,129     66,829  

Interest expense

    6,528     7,684     8,949     9,386     12,803     10,962  

Loss on early extinguishment of debt

        1,638             1,813      

Income before income taxes

    20,940     17,940     24,732     43,006     54,513     55,867  

Provision for income taxes

    8,102     6,857     9,634     16,199     11,474     11,984  

Net income

  $ 12,838   $ 11,083   $ 15,098   $ 26,807   $ 43,039   $ 43,883  

Earnings per share:

                                     

Basic

  $ 0.16   $ 0.13   $ 0.18   $ 0.32   $ 0.52   $ 0.48  

Diluted

  $ 0.15   $ 0.13   $ 0.18   $ 0.31   $ 0.49   $ 0.45  

Weighted average shares outstanding:

                                     

Basic

    82,797,849     83,104,222     83,222,330     83,365,218     83,432,157     92,255,657  

Diluted

    82,833,571     83,818,340     85,651,749     86,280,907     88,430,987     97,254,487  

 

 
  Fiscal year ended  
(in thousands)
  12/27/2012   12/26/2013   12/25/2014   12/31/2015(2)   12/29/2016  

Consolidated statement of cash flows data:

                               

Net cash provided by (used in) operating activities

  $ 23,336   $ (15,428 ) $ 43,594   $ 20,380   $ 89,456  

Net cash used in investing activities

    (10,709 )   (25,056 )   (39,069 )   (45,021 )   (74,648 )

Net cash (used in) provided by financing activities

    (15,777 )   40,487     (4,421 )   24,680     (14,675 )

 

 
  As of
December 31,
2015
  As of December 29, 2016  
(in thousands)
  Actual   Actual   Pro forma(3)  

Consolidated balance sheet data:

                   

Cash and cash equivalents

  $ 318   $ 451   $ 451  

Net working capital

    109,565     95,550     94,669  

Total assets

    748,888     831,166     828,601  

Total debt(6)

    177,590     390,743     226,322  

Total stockholders' equity

    312,365     134,283     297,823  

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  Fiscal year ended  
 
  12/27/2012   12/26/2013   12/25/2014   12/31/2015(2)   12/29/2016(2)  

Other financial data:

                               

Comparable store sales growth

    11.7 %   22.1 %   15.8 %   13.5 %   19.4 %

Number of stores open at the end of the period(7)

    31     39     48     58     70  

Adjusted EBITDA (in thousands)(8)

  $ 32,572   $ 36,537   $ 51,208   $ 72,868   $ 108,398  

Adjusted EBITDA margin

    9.7 %   8.2 %   8.8 %   9.3 %   10.3 %

(1)
All of the earnings per share data, share numbers, share prices, and exercise prices have been adjusted on a retroactive basis to reflect the 321.820-for-one stock split effected on April 24, 2017. See Note 12 to the audited consolidated financial statements included elsewhere in this prospectus.

(2)
The 53rd week in fiscal 2015 represented $11.9 million in net sales, an estimated $2.1 million in operating income and an estimated $2.2 million in adjusted EBITDA. When presenting comparable store sales for fiscal 2015 and fiscal 2016, we have excluded the last week of fiscal 2015.

(3)
Pro forma figures give effect to the 2016 Refinancing (as defined below), the repricing of our Term Loan Facility, and this offering, as applicable. See "Unaudited Pro Forma Consolidated Financial Information" for a detailed presentation of the unaudited pro forma information, including a description of the transactions and assumptions underlying the pro forma adjustments.

(4)
Represents costs incurred in connection with separation agreements with former officers.

(5)
Represents casualty gain recorded related to insurance proceeds received as a result of store damage and business interruption for one of our stores.

(6)
Total debt consists of the current and long-term portions of our total debt outstanding, as well as debt discount and debt issuance costs.

(7)
Represents the number of our warehouse-format stores and our one small-format standalone design center.

(8)
EBITDA and Adjusted EBITDA (which are shown in the reconciliations below) have been presented in this prospectus as supplemental measures of financial performance that are not required by, or presented in accordance with, GAAP. We define EBITDA as net income before interest, loss on early extinguishment of debt, taxes, depreciation and amortization. We define Adjusted EBITDA as net income before interest, loss on early extinguishment of debt, taxes, depreciation and amortization, adjusted to eliminate the impact of certain items that we do not consider indicative of our core operating performance. Reconciliations of these measures to the equivalent measures under GAAP are set forth in the table below.



EBITDA and Adjusted EBITDA are key metrics used by management and our board of directors to assess our financial performance and enterprise value. We believe that EBITDA and Adjusted EBITDA are useful measures, as they eliminate certain expenses that are not indicative of our core operating performance and facilitate a comparison of our core operating performance on a consistent basis from period to period. We also use Adjusted EBITDA as a basis to determine covenant compliance with respect to our Credit Facilities, to supplement GAAP measures of performance to evaluate the effectiveness of our business strategies, to make budgeting decisions, and to compare our performance against that of other peer companies using similar measures. EBITDA and Adjusted EBITDA are also used by analysts,

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    investors and other interested parties as performance measures to evaluate companies in our industry.


EBITDA and Adjusted EBITDA are non-GAAP measures of our financial performance and should not be considered as alternatives to net income as a measure of financial performance, or any other performance measure derived in accordance with GAAP and they should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items. Additionally, EBITDA and Adjusted EBITDA are not intended to be measures of liquidity or free cash flow for management's discretionary use. In addition, these non-GAAP measures exclude certain non-recurring and other charges. Each of these non-GAAP measures has its limitations as an analytical tool, and you should not consider them in isolation or as a substitute for analysis of our results as reported under GAAP. In evaluating EBITDA and Adjusted EBITDA, you should be aware that in the future we will incur expenses that are the same as or similar to some of the items eliminated in the adjustments made to determine EBITDA and Adjusted EBITDA, such as stock compensation expense, loss (gain) on asset disposal, executive recruiting/relocation, and other adjustments. Our presentation of EBITDA and Adjusted EBITDA should not be construed to imply that our future results will be unaffected by any such adjustments. Definitions and calculations of EBITDA and Adjusted EBITDA differ among companies in the retail industry, and therefore EBITDA and Adjusted EBITDA disclosed by us may not be comparable to the metrics disclosed by other companies.



The reconciliations of net income to EBITDA and Adjusted EBITDA for the periods noted below are set forth in the table as follows:
 
  Fiscal year ended  
(in thousands)
  12/27/2012   12/26/2013   12/25/2014   12/31/2015(2)   12/29/2016  

Net income

  $ 12,838   $ 11,083   $ 15,098   $ 26,807   $ 43,039  

Depreciation and amortization(a)

    4,641     6,362     11,073     16,794     25,089  

Interest expense

    6,528     7,684     8,949     9,386     12,803  

Loss on early extinguishment of debt(b)

        1,638             1,813  

Income tax expense

    8,102     6,857     9,634     16,199     11,474  

EBITDA

    32,109     33,624     44,754     69,186     94,218  

Stock compensation expense(c)

    978     1,869     2,323     3,258     3,229  

Loss on asset disposal(d)

    157     656     148     128     451  

Executive severance(e)

            2,975     296      

Executive recruiting/relocation(f)

    751     54              

Legal settlement(g)

                    10,500  

Casualty gain(h)

    (1,421 )                

Other(i)

    (2 )   334     1,008          

Adjusted EBITDA

  $ 32,572   $ 36,537   $ 51,208   $ 72,868   $ 108,398  

(a)
Net of amortization of tenant improvement allowances and excludes deferred financing amortization, which is included as a part of interest expense in the table above.

(b)
Loss recorded as a result of the prepayment of our Subordinated Notes in 2013, as well as the non-cash write-off of certain deferred financing fees related to the refinancing of term and revolver borrowings in 2013 and 2016.

(c)
Non-cash charges related to stock-based compensation programs, which vary from period to period depending on timing of awards and forfeitures.

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(d)
For fiscal years ended December 27, 2012, December 25, 2014, December 31, 2015 and December 29, 2016, the losses related primarily to assets retired in connection with significant store remodels. For the fiscal year ended December 26, 2013, the loss was primarily related to the write-off of certain software previously acquired.

(e)
Represents one-time costs incurred in connection with separation agreements with former officers.

(f)
Represents costs incurred to recruit and relocate members of executive management.

(g)
Legal settlement related to classwide settlement to resolve a lawsuit.

(h)
Represents casualty gain recorded related to insurance proceeds received as a result of store damage and business interruption at one of our stores.

(i)
Other adjustments include amounts management does not consider indicative of our core operating performance. Amounts in fiscal 2014 relate primarily to costs in connection with a proposed initial public offering.

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RISK FACTORS

              You should carefully consider the risks described below, together with all of the other information included in this prospectus, including our consolidated financial statements and the related notes thereto, before making an investment decision. The risks and uncertainties set out below are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, financial condition and operating results. If any of the following events occur, our business, financial condition and operating results could be materially and adversely affected. In that case, the trading price of our common stock could decline, and you may lose all or part of your investment.

Risks Related to Our Business

Our business, financial condition and operating results are dependent on general economic conditions and discretionary spending by our customers, which in turn are affected by a variety of factors beyond our control. If such conditions deteriorate, our business, financial condition and operating results may be adversely affected.

              Our business, financial condition and operating results are affected by general economic conditions and discretionary spending by our customers. Such general economic conditions and discretionary spending are beyond our control and are affected by, among other things:

    consumer confidence in the economy;

    unemployment trends;

    consumer debt levels;

    consumer credit availability;

    data security and privacy concerns;

    the housing market, including housing turnover and whether home values are rising or declining;

    energy prices;

    interest rates and inflation;

    price deflation, including due to low-cost imports;

    slower rates of growth in real disposable personal income;

    natural disasters and unpredictable weather;

    national security concerns and other geopolitical risks;

    trade relations and tariffs;

    tax rates and tax policy; and

    other matters that influence consumer confidence and spending.

              If such conditions deteriorate, our business, financial condition and operating results may be adversely affected. In addition, increasing volatility in financial and capital markets may cause some of the above factors to change with a greater degree of frequency and magnitude than in the past.

The hard surface flooring industry depends on home remodeling activity and other important factors.

              The hard surface flooring industry is highly dependent on the remodeling of existing homes, businesses and, to a lesser extent, new home construction. In turn, remodeling and new home construction depend on a number of factors that are beyond our control, including interest rates, tax policy, trade policy, employment levels, consumer confidence, credit availability, real estate prices,

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existing home sales, demographic trends, weather conditions, natural disasters and general economic conditions. In particular:

    the national economy or any regional or local economy where we operate could weaken;

    home-price appreciation could slow or turn negative;

    regions where we have stores could experience unfavorable demographic trends;

    interest rates could rise;

    credit could become less available;

    tax rates and/or health care costs could increase; or

    fuel costs or utility expenses could increase.

              Any one or a combination of these factors could result in decreased demand for our products, reduce spending on homebuilding or remodeling of existing homes or cause purchases of new and existing homes to decline. While the vast majority of our net sales are derived from home remodeling activity as opposed to new home construction, a decrease in any of these areas would adversely affect our business, financial condition and operating results.

Any failure by us to successfully anticipate trends may lead to loss of consumer acceptance of our products, resulting in reduced net sales.

              Each of our stores is stocked with a customized product mix based on consumer demands in a particular market. Our success therefore depends on our ability to anticipate and respond to changing trends and consumer demands in these markets in a timely manner. If we fail to identify and respond to emerging trends, consumer acceptance of our merchandise and our image with current or potential customers may be harmed, which could reduce our net sales. Additionally, if we misjudge market trends, we may significantly overstock unpopular products, incur excess inventory costs and be forced to reduce the sales price of such products or incur inventory write-downs, which would adversely affect our operating results. Conversely, shortages of products that prove popular could also reduce our net sales through missed sales and a loss of customer loyalty.

If we fail to successfully manage the challenges that our planned new store growth poses or encounter unexpected difficulties during our expansion, our operating results and future growth opportunities could be adversely affected.

              We have 72 warehouse-format stores and one small-format standalone design center located throughout the United States as of April 17, 2017. We plan to open an additional 11 stores in 2017 and to increase the number of new stores that we open during each of the next several years thereafter. This growth strategy and the investment associated with the development of each new store may cause our operating results to fluctuate and be unpredictable or decrease our profits. We cannot ensure that store locations will be available to us, or that they will be available on terms acceptable to us. If additional retail store locations are unavailable on acceptable terms, we may not be able to carry out a significant part of our growth strategy or our new stores' profitability may be lower. Our future operating results and ability to grow will depend on various other factors, including our ability to:

    successfully select of new markets and store locations;

    negotiate leases on acceptable terms;

    attract, train and retain highly qualified managers and staff;

    maintain our reputation of providing quality, safe and compliant products; and

    manage store opening costs.

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              In addition, the availability of existing large-format retail and mixed use facilities is lower than it has been over the last five years, and occupancy costs are increasing, as well as the initial term of lease commitments. Further, consumers in new markets may be less familiar with our brand, and we may need to increase brand awareness in such markets through additional investments in advertising or high cost locations with more prominent visibility. Stores opened in new markets may have higher construction, occupancy or operating costs, or may have lower net sales, than stores opened in the past. In addition, laws or regulations in these new markets may make opening new stores more difficult or cause unexpected delays. Newly opened stores may not succeed or may reach profitability more slowly than we expect, and the ramp-up to profitability may become longer in the future as we enter more markets and add stores to markets where we already have a presence. Future markets and stores may not be successful and, even if they are successful, our comparable store sales may not increase at historical rates. To the extent that we are not able to overcome these various challenges, our operating results and future growth opportunities could be adversely affected.

Increased competition could cause price declines, decrease demand for our products and decrease our market share.

              We operate in the hard surface flooring industry, which is highly fragmented and competitive. We face competition from large home improvement centers, national and regional specialty flooring chains, Internet-based companies and independent flooring retailers. Among other things, we compete on the basis of breadth of product assortment, low prices, and the in-store availability of the products we offer in project- ready quantities, as well as the quality of our products and customer service. As we expand into new and unfamiliar markets, we may experience different competitive conditions than in the past.

              Some of our competitors are organizations that are larger, are better capitalized, have existed longer, have product offerings that extend beyond hard surface flooring and related accessories and have a more established market presence with substantially greater financial, marketing, personnel and other resources than we have. In addition, while the hard surface flooring category has a relatively low threat of new internet-only entrants due to the nature of the product, the growth opportunities presented by e-commerce could outweigh these challenges and result in increased competition. Competitors may forecast market developments more accurately than we do, offer similar products at a lower cost or adapt more quickly to new trends and technologies or evolving customer requirements than we do. Further, because the barriers to entry into the hard surface flooring industry are relatively low, manufacturers and suppliers of flooring and related products, including those whose products we currently sell, could enter the market and start directly competing with us. Intense competitive pressures from any of our present or future competitors could cause price declines, decrease demand for our products and decrease our market share. Also, if we continue to grow and become more well-known, other companies may change their strategies to present new competitive challenges. Moreover, in the future, changes in consumer preferences may cause hard surface flooring to become less popular than other types of floor coverings. Such a change in consumer preferences could lead to decreased demand for our products.

              All of these factors may harm us and adversely affect our net sales, market share and operating results.

Any disruption in our distribution capabilities or our related planning and control processes may adversely affect our business, financial condition and operating results.

              Our success is highly dependent on our planning and distribution infrastructure, which includes the ordering, transportation and distribution of products to our stores and the ability of suppliers to meet distribution requirements. We also need to ensure that we continue to identify and improve our processes and supply chain and that our distribution infrastructure and supply chain keep pace with our

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anticipated growth and increased number of stores. The cost of these enhanced processes could be significant and any failure to maintain, grow, or improve them could adversely affect our business, financial condition and operating results. Due to our rapid expansion, we have had to increase the size of our distribution centers. Based on our growth intentions we may need to add additional distribution centers or increase the size of our existing distribution centers in the future. Increasing the size of our distribution centers may decrease the efficiency of our distribution costs.

              We took over management of our four distribution centers in 2014 from independent third-party logistics providers. We have limited experience managing our distribution centers and cannot assure you that we will be successful in doing so.

              In addition, we plan to open a new 1.4 million square foot distribution center near Savannah, Georgia in the fourth quarter of fiscal 2017. The building is currently under construction, and we cannot guarantee that its opening will be on time or on budget. In connection with the opening of that distribution center, we plan to close our existing distribution centers near Savannah, Georgia and Miami, Florida and move those operations to our new facility near Savannah. We expect to close our distribution center near Miami in early 2018. While we complete this transition, we may incur unexpected costs, and our ability to distribute our products may be adversely affected. We recently moved our West Coast distribution center from Carson, California to Moreno Valley, California, incurring related costs of less than $1.0 million in the first quarter of fiscal 2017. Any disruption in the transition to or operation of our distribution centers could have an adverse impact on our business, financial condition and operating results. In addition, our long-term plan expects that we will be able to sublet a portion of our previously occupied distribution centers. Any failure to do so on favorable terms could have a negative impact on our financial condition and operating results.

              Our success is also dependent on our ability to provide timely delivery to our customers. Our business could also be adversely affected if fuel prices increase or there are delays in product shipments due to freight difficulties, inclement weather, strikes by our employees or employees of third-parties involved in our supply chain, or other difficulties. If we are unable to deliver products to our customers on a timely basis, they may decide to purchase products from our competitors instead of from us, which would adversely affect our business, financial condition and operating results.

Our operating results may be adversely affected by fluctuations in material and energy costs.

              Our operating results may be affected by the wholesale prices of hard surface flooring products, setting and installation materials and the related accessories that we sell. These prices may fluctuate based on a number of factors beyond our control, including the price of raw materials used in the manufacture of hard surface flooring, energy costs, changes in supply and demand, general economic conditions, labor costs, competition, import duties, tariffs, currency exchange rates, government regulation, duty and other import costs. In particular, energy costs have fluctuated dramatically in the past and may fluctuate in the future. These fluctuations may result in an increase in our transportation costs for distribution from the manufacturer to our distribution centers and from our distribution centers to our retail stores, utility costs for our distribution centers and retail stores and overall costs to purchase products from our suppliers.

              We may not be able to adjust the prices of our products, especially in the short-term, to recover these cost increases, and a continual rise in such costs could adversely affect consumer spending and demand for our products and increase our operating costs, both of which could adversely affect our business, financial condition and operating results.

Our future success is dependent on our ability to execute our business strategy effectively and deliver value to our customers.

              We believe our future success will depend on our ability to execute our business strategy effectively and deliver value to our customers. We believe that our breadth of product assortment

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across a variety of hard surface flooring categories, low prices, and in-store availability of the products we offer in project-ready quantities, as well as the quality of our products and customer service, are among the key competitive advantages and important elements of our total value proposition. If we are unsuccessful in staying competitive with our current value proposition, the demand for our products would decrease, and customers may decide to purchase products from our competitors instead of us. If this were to occur, our net sales, market share and operating results would be adversely affected.

Our operating results may be adversely affected if we are not successful in managing our inventory.

              We currently maintain a high level of inventory consisting of on average approximately 3,500 SKUs per store and an average inventory per store of approximately $2.5 million at cost in order to have a broad assortment of products across a wide variety of hard surface flooring categories in project-ready quantities. We also carry an additional $84.5 million of inventory outside our stores, primarily at our distribution centers as of December 29, 2016. The investment associated with this high level of inventory is substantial, and efficient inventory management is a key component of our business success and profitability. If we fail to adequately project the amount or mix of our inventory, we may miss sales opportunities or have to take unanticipated markdowns or hold additional clearance events to dispose of excess inventory, which will adversely affect our operating results.

              In the past, we have incurred costs associated with inventory markdowns and obsolescence. Due to the likelihood that we will continue to incur such costs in the future, we generally include an allowance for such costs in our projections. However, the costs that we actually incur may be substantially higher than our estimate and adversely affect our operating results.

              We continue to focus on ways to reduce these risks, but we cannot assure you that we will be successful in our inventory management.

Our operating results may be adversely affected by inventory shrinkage and damage.

              We are subject to the risk of inventory shrinkage and damage, including the damage or destruction of our inventory by natural disasters or other causes. We have experienced charges in the past, and we cannot assure you that the measures we are taking will effectively address the problem of inventory shrinkage and damage in the future. Although some level of inventory shrinkage and damage is an unavoidable cost of doing business, we could experience higher-than-normal rates of inventory shrinkage and damage or incur increased security and other costs to combat inventory theft and damage. If we are not successful in managing our inventory balances, our operating results may be adversely affected.

If we are unable to enter into leases for additional stores on acceptable terms or renew or replace our current store leases, or if one or more of our current leases is terminated prior to expiration of its stated term, and we cannot find suitable alternate locations, our growth and profitability could be adversely affected.

              We currently lease all of our store locations and our store support center. Our growth strategy largely depends on our ability to identify and open future store locations, which can be difficult because our stores generally require at least 50,000 square feet of floor space. Our ability to negotiate acceptable lease terms for these store locations, to re-negotiate acceptable terms on expiring leases or to negotiate acceptable terms for suitable alternate locations could depend on conditions in the real estate market, competition for desirable properties, our relationships with current and prospective landlords, or on other factors that are not within our control. Any or all of these factors and conditions could adversely affect our growth and profitability.

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If we are unable to enter into leases to expand our existing store support center and we cannot find suitable alternate locations at an acceptable cost, our financial results could be adversely affected.

              The lease for our current store support center in Smyrna, Georgia, which serves as our corporate headquarters, only provides sufficient space to support our projected growth through 2018. We are exploring various alternatives, but if we cannot find an acceptable solution, our financial results could be adversely effected.

Our net sales growth could be adversely affected if comparable store sales growth is less than we expect.

              While future net sales growth will depend substantially on our plans for new store openings, our comparable store sales growth is a significant driver of our net sales, profitability and overall business results. Because numerous factors affect our comparable store sales growth, including, among others, economic conditions, the retail sales environment, the home improvement spending environment, housing turnover, housing appreciation, interest rates, the hard surface flooring industry and the impact of competition, the ability of our customers to obtain credit, changes in our product mix, the in-stock availability of products that are in demand, changes in staffing at our stores, cannibalization resulting from the opening of new stores in existing markets, greater cannibalization than we modeled for new stores, lower than expected ramp-up in new store net sales, changes in advertising and other operating costs, weather conditions, retail trends and our overall ability to execute our business strategy and planned growth effectively, it is possible that we will not achieve our targeted comparable store sales growth or that the change in comparable store sales could be negative. If this were to happen, it is likely that overall net sales growth would be adversely affected.

If we fail to identify and maintain relationships with a sufficient number of suppliers, our ability to obtain products that meet our high quality standards at attractive prices could be adversely affected.

              We purchase flooring and other products directly from suppliers located around the world. We do not have long-term contractual supply agreements with our suppliers that obligate them to supply us with products exclusively or at specified quantities or prices. As a result, our current suppliers may decide to sell products to our competitors and may not continue selling products to us. In order to retain the competitive advantage that we believe results from these relationships, we need to continue to identify, develop and maintain relationships with qualified suppliers that can satisfy our high standards for quality and safety and our requirements for delivery of flooring and other products in a timely and efficient manner at attractive prices. The need to develop new relationships will be particularly important as we seek to expand our operations and enhance our product offerings in the future. The loss of one or more of our existing suppliers or our inability to develop relationships with new suppliers could reduce our competitiveness, slow our plans for further expansion and cause our net sales and operating results to be adversely affected.

We will require significant capital to fund our expanding business, which may not be available to us on satisfactory terms or at all. If we are unable to maintain sufficient levels of cash flow or if we do not have sufficient availability under the ABL Facility, we may not meet our growth expectations or we may require additional financing, which could adversely affect our financial health and impose covenants that limit our business activities.

              We plan to continue investing for growth, including opening new stores, remodeling existing stores, adding staff, adding distribution center capacity and upgrading our information technology systems and other infrastructure. These investments will require significant capital, which we plan on funding with cash flow from operations and borrowings under the ABL Facility (as defined below).

              If our business does not generate sufficient cash flow from operations to fund these activities or if these investments do not yield cash flows in line with past performance or our expectations, we may need additional equity or debt financing. If such financing is not available to us, or is not available

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on satisfactory terms, our ability to operate and expand our business or respond to competitive pressures would be curtailed, and we may need to delay, limit or eliminate planned store openings or operations or other elements of our growth strategy. If we raise additional capital by issuing equity securities or securities convertible into equity securities, your ownership would be diluted.

We depend on a number of suppliers, and any failure by any of them to supply us with quality products on attractive terms and prices may adversely affect our business, financial condition and operating results.

              We depend on our suppliers to deliver quality products to us on a timely basis at attractive prices. Additionally, we source the products that we sell from over 180 domestic and international suppliers. However, in the future, we may not be able to acquire desired merchandise in sufficient quantities on terms acceptable to us, which may impair our relationship with our customers, impair our ability to attract new customers, reduce our competitiveness and adversely affect our business, financial condition and operating results.

Changes in tax laws, trade policies and regulations or in our operations may impact our effective tax rate and may adversely affect our business, financial condition and operating results.

              Changes in tax laws in any of the multiple jurisdictions in which we operate, or adverse outcomes from tax audits that we may be subject to in any of the jurisdictions in which we operate, could result in an unfavorable change in our effective tax rate, which could adversely affect our business, financial condition and operating results.

              Additionally, results of the November 2016 United States elections and reform proposals advanced by the U.S. Congress have introduced greater uncertainty with respect to the deductibility of net interest expense, tax and trade policies, tariffs and government regulations affecting trade between the United States and other countries. We import approximately 68% of the products we sell, including a significant amount of product from China. Major developments in tax policy or trade relations, such as the disallowance of tax deductions for imported merchandise or the imposition of unilateral tariffs on imported products, could have a material adverse effect on our business, results of operations and liquidity. If there are any adverse changes in tax laws or trade policies that result in an increase in our costs, we may not be able to adjust the prices of our products, especially in the short-term, to recover such costs, and a rise in such costs could adversely affect our business, financial condition and operating results.

The failure of our suppliers to adhere to the quality standards that we set for our products could lead to investigations, litigation, write-offs, recalls or boycotts of our products, which could damage our reputation and our brand, increase our costs, and otherwise adversely affect our business.

              We do not control the operations of our suppliers. Although we conduct initial due diligence prior to engaging our suppliers and require our suppliers to certify compliance with applicable laws and regulations, we cannot guarantee that our suppliers will comply with applicable laws and regulations or operate in a legal, ethical and responsible manner. Additionally, it is possible that we may not be able to identify noncompliance by our suppliers notwithstanding these precautionary measures. Violation of applicable laws and regulations by our suppliers or their failure to operate in a legal, ethical or responsible manner, could expose us to legal risks, cause us to violate laws and regulations and reduce demand for our products if, as a result of such violation or failure, we attract negative publicity. In addition, the failure of our suppliers to adhere to the quality standards that we set for our products could lead to government investigations, litigation, write-offs and recalls, which could damage our reputation and our brand, increase our costs, and otherwise adversely affect our business.

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We procure the majority of our products from suppliers located outside of the United States, and as a result, we are subject to risks associated with obtaining products from abroad that could adversely affect our business, financial condition and results of operations.

              We procure the majority of our products from suppliers located outside of the United States. As a result, we are subject to risks associated with obtaining products from abroad, including:

    political unrest, acts of war, terrorism and economic instability resulting in the disruption of trade from foreign countries where our products originate;

    currency exchange fluctuations;

    the imposition of new or more stringent laws and regulations, including those relating to environmental, health and safety matters and climate change issues, labor conditions, quality and safety standards, trade restrictions and restrictions on funds transfers;

    the imposition of new or different duties (including antidumping and countervailing duties), tariffs, taxes and/or other charges on exports or imports, including as a result of errors in the classification of products upon entry or changes in the interpretation or application of rates or regulations relating to the import or export of our products;

    the risk that one or more of our suppliers will not adhere to applicable legal requirements, including fair labor standards, the prohibition on child labor, environmental, product safety or manufacturing safety standards, anti-bribery and anti-kickback laws such as the Foreign Corrupt Practices Act (the "FCPA") and sourcing laws such as the Lacey Act;

    disruptions or delays in production, shipments, delivery or processing through ports of entry (including those resulting from strikes, lockouts, work-stoppages or slowdowns, or other forms of labor unrest);

    changes in local economic conditions in countries where our suppliers are located; and

    differences in product standards, acceptable business practice and legal environments.

              Additionally, we import approximately 45% of the products we sell from China. The Chinese government has in the past imposed restrictions on manufacturing facilities, including a shut-down of transportation of materials and power plants to reduce air pollution. If, in the future, restrictions are imposed that include our operations, our suppliers' ability to supply current or new orders would be significantly impacted. These and other factors beyond our control could disrupt the ability of our suppliers to ship certain products to us cost-effectively or at all, expose us to significant operational and legal risk and negatively affect our reputation, any of which could adversely affect our business, financial condition and results of operations.

Our ability to offer compelling products, particularly products made of more exotic species or unique stone, depends on the continued availability of sufficient suitable natural products.

              Our business strategy depends on offering a wide assortment of compelling products to our customers. We sell, among other things, flooring made from various wood species and natural stone from quarries throughout the world. Our ability to obtain an adequate volume and quality of hard-to-find products depends on our suppliers' ability to furnish those products, which, in turn, could be affected by many things, including events such as forest fires, insect infestation, tree diseases, prolonged drought, other adverse weather and climate conditions and the exhaustion of stone quarries. Government regulations relating to forest management practices also affect our suppliers' ability to harvest or export timber and other products, and changes to regulations and forest management policies, or the implementation of new laws or regulations, could impede their ability to do so. If our suppliers cannot deliver sufficient products, and we cannot find replacement suppliers, our net sales and operating results may be adversely affected.

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Our business exposes us to personal injury, product liability and warranty claims and related governmental investigations, which could result in negative publicity, harm our brand and adversely affect our business, financial condition and operating results.

              Our stores and distribution centers are warehouse environments that involve the operation of forklifts and other machinery and the storage and movement of heavy merchandise, all of which are activities that have the inherent danger of injury or death to employees or customers despite safety precautions, training and compliance with federal, state and local health and safety regulations. While we have insurance coverage in place in addition to policies and procedures designed to minimize these risks, we may nonetheless be unable to avoid material liabilities for an injury or death arising out of these activities.

              In addition, we face an inherent risk of exposure to product liability or warranty claims or governmental investigations in the event that the use of our products is alleged to have resulted in economic loss, personal injury or property damage or violated environmental or other laws. If any of our products proves to be defective or otherwise in violation of applicable law, we may be required to recall or redesign such products. Further, in such instances, we may be subject to legal action. We generally seek contractual indemnification from our suppliers. However, such contractual indemnification may not be enforceable against the supplier, particularly because many of our suppliers are located outside of the United States. Any personal injury, product liability or warranty claim made against us, whether or not it has merit, or governmental investigation related to our products, could be time-consuming and costly to defend or respond to, may not be covered by insurance carried by us, could result in negative publicity, could harm our brand and could adversely affect our business, financial condition and operating results. In addition, any negative publicity involving our suppliers, employees, and other parties who are not within our control could adversely affect us.

Unfavorable allegations, government investigations and legal actions surrounding our products and us could harm our reputation, impair our ability to grow or sustain our business, and adversely affect our business, financial condition and operating results.

              We rely on our reputation for offering great value, superior service and a broad assortment of high-quality, safe products. If we become subject to unfavorable allegations, government investigations or legal actions involving our products or us, such circumstances could harm our reputation and our brand and adversely affect our business, financial condition and operating results. If this negative impact is significant, our ability to grow or sustain our business could be jeopardized.

              For example, a 60 Minutes segment that aired on March 1, 2015 alleged that another retailer of home flooring products sold flooring containing unsafe levels of formaldehyde. Flooring products that use formaldehyde resins, including laminate and engineered flooring, are subject to applicable laws and regulations governing formaldehyde emissions. The 60 Minutes segment alleged that the retailer's products were falsely labeled as being compliant with the emissions standards of CARB. The report also suggested that the flooring could cause adverse health effects. The retailer became subject to numerous lawsuits and government investigations, including by the Consumer Products Safety Commission.

              In December 2015, a similar lawsuit was filed as a putative nationwide class action against our subsidiary F&D. The lawsuit alleged that certain Chinese-manufactured laminate flooring products sold by F&D were falsely labeled as compliant with formaldehyde emissions standards established by CARB. In June 2016, management believed a settlement of the case was both probable and estimable and accrued $14 million with respect to such case in the second quarter of fiscal 2016. During the third quarter of fiscal 2016, F&D reached an agreement with one of the manufacturers whose products were involved in the case to cover $3.5 million of our losses related to this lawsuit. We recorded the $3.5 million receivable as an offset to litigation settlement expenses. Legal expenses incurred in connection with the case were recorded in general & administrative expenses during the period in which they were

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incurred. In September 2016, F&D entered into a classwide settlement to resolve the lawsuit. The settlement class was defined as all end users of Chinese-manufactured laminate flooring sold by F&D nationwide between January 1, 2012 and August 1, 2015. As part of the settlement, all settlement class members who did not exclude themselves from the settlement granted F&D a release of all claims arising out of or relating to their purchase of Chinese-manufactured laminate flooring from F&D, with the exception of personal injury claims. The settlement did not involve an admission of liability by F&D. Seven members of the settlement class excluded themselves from the settlement. The settlement was granted final approval by the court on January 10, 2017.

              Although the claims asserted against F&D in the December 2015 lawsuit have been resolved, we cannot predict whether we will face additional lawsuits that are not covered by the settlement or the release. If additional lawsuits are filed, we could incur significant costs, be liable for damages, be subject to fines, penalties, injunctive relief, criminal charges or other legal risks, which could reduce demand for our products and adversely affect our business, financial condition and operating results.

              Negative publicity surrounding such matters, including publicity about other retailers, may harm our reputation and affect the demand for our products. In addition, if more stringent laws or regulations are adopted in the future, we may have difficulty complying with the new requirements imposed by such laws and regulations, and in turn, our business, financial condition and operating results could be adversely affected. Moreover, regardless of whether any such changes are adopted, we may become subject to claims or governmental investigations alleging violations of applicable laws and regulations. Any such matter may subject us to fines, penalties, injunctions, litigation and/or potential criminal violations. Any one of these results could negatively affect our business, financial condition and operating results and impair our ability to grow or sustain our business.

If we violate or are alleged to have violated environmental, health and safety laws and regulations, we could incur significant costs and other negative effects that could reduce demand for our products and adversely affect our business, financial condition and operating results.

              In addition to the applicable laws and regulations discussed above, certain portions of our operations are subject to laws and regulations governing the environmental protection of natural resources and health and safety, including the use, storage, handling, generation, transportation, treatment, emission, release, discharge and disposal of certain hazardous materials and wastes. In addition, certain of our products are subject to laws and regulations relating to the importation, exportation, acquisition or sale of certain plants and plant products, including those illegally harvested, and the emissions of hazardous materials.

              We operate our business in accordance with standards and procedures designed to comply with the applicable laws and regulations in these areas and work closely with our suppliers in order to comply with such laws and regulations. If we violate or are alleged to have violated these laws, we could incur significant costs, be liable for damages, experience delays in shipments of our products, be subject to fines, penalties, criminal charges or other legal risks, or suffer reputational harm, any of which could reduce demand for our products and adversely affect our business, financial condition and operating results. In addition, there can be no assurance that such laws or regulations will not become more stringent in the future or that we will not incur additional costs in the future in order to comply with such laws or regulations.

We are engaged in various legal actions, claims and proceedings arising in the ordinary course of business and, while we cannot predict the outcomes of such proceedings and other contingencies with certainty, this litigation and any potential future litigation could have an adverse impact on us.

              We are engaged in various legal actions, claims and proceedings arising in the ordinary course of business, including claims related to breach of contract, product liabilities, intellectual property matters and employment related matters resulting from our business activities. As with most actions

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such as these, an estimate of any possible and/or ultimate liability cannot always be determined. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources, and other factors. Additionally, we cannot guarantee that we will not become engaged in additional legal actions, claims, proceedings or governmental investigations in the future. Any such action could result in negative publicity, harm to our reputation and adversely affect our business, financial condition and operating results.

Labor activities could cause labor relations difficulties for us.

              Currently none of our employees are represented by a union; however, our employees have the right at any time to form or affiliate with a union. As we continue to grow, enter different regions and operate distribution centers, unions may attempt to organize all or part of our employee base at certain stores or distribution centers within certain regions. We cannot predict the adverse effects that any future organizational activities will have on our business, financial condition and operating results. If we were to become subject to work stoppages, we could experience disruption in our operations and increases in our labor costs, either of which could adversely affect our business, financial condition and operating results.

Federal, state or local laws and regulations, or our failure to comply with such laws and regulations, could increase our expenses, restrict our ability to conduct our business and expose us to legal risks.

              We are subject to a wide range of general and industry-specific laws and regulations imposed by federal, state and local authorities in the countries in which we operate including those related to customs, foreign operations (such as the FCPA), truth-in-advertising, consumer protection (such as the Telephone Consumer Protection Act), privacy, product safety, the environment (such as the Lacey Act), intellectual property infringement, zoning and occupancy matters as well as the operation of retail stores and distribution facilities. In addition, various federal and state laws govern our relationship with, and other matters pertaining to, our employees, including wage and hour laws, laws governing independent contractor classifications, requirements to provide meal and rest periods or other benefits, family leave mandates, requirements regarding working conditions and accommodations to certain employees, citizenship or work authorization and related requirements, insurance and workers' compensation rules and anti-discrimination laws. In recent years, we and other parties in the flooring industry have been or currently are parties to litigation involving claims that allege violations of the foregoing laws, including claims related to product safety and patent claims. See "—Unfavorable allegations, government investigations and legal actions surrounding our products and us could harm our reputation and impair our ability to grow or sustain our business." In addition, there has been an increase in the number of wage and hour class action claims that allege misclassification of overtime eligible workers and/or failure to pay overtime-eligible workers for all hours worked, particularly in the retail industry. Although we believe that we have complied with these laws and regulations, there is nevertheless a risk that we will become subject to claims that allege we have failed to do so. Any claim that alleges a failure by us to comply with any of the foregoing laws and regulations may subject us to fines, penalties, injunctions, litigation and/or potential criminal violations, which could adversely affect our reputation, business, financial condition and operating results.

              Certain of our products may require us to spend significant time and resources in order to comply with applicable advertising, labeling, importation, exportation, environmental, health and safety laws and regulations because if we violate these laws or regulations, we could experience delays in shipments of our goods, be subject to fines or penalties, be liable for costs and damages or suffer reputational harm, any of which could reduce demand for our merchandise and adversely affect our business, financial condition and operating results.

              Any changes to the foregoing laws or regulations or any new laws or regulations that are passed or go into effect may make it more difficult for us to operate our business and in turn adversely affect our operating results.

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              We may also be subject to audits by various taxing authorities. Similarly, changes in tax laws in any of the multiple jurisdictions in which we operate, or adverse outcomes from tax audits that we may be subject to in any of the jurisdictions in which we operate, could result in an unfavorable change in our effective tax rate, which could adversely affect our business, financial condition and operating results. In addition, given the nature of our business, certain of our sales are exempt from state sales taxes. If we are audited and fail to maintain proper documentation, any adjustments resulting from such audits could increase our tax liability, including any interest or penalties.

If our efforts to ensure the privacy and security of information related to our customers, us, our employees, our suppliers and other third parties are not successful, we could become subject to litigation, investigations, liability and negative publicity that could significantly harm our reputation and relationships with our customers and adversely affect our business, financial condition and operating results.

              Our business, like that of most retailers, involves the receipt, storage and transmission of customers' personal information, consumer preferences and payment card data, as well as other confidential information related to us, our employees, our suppliers and other third parties, some of which is entrusted to third-party service providers and vendors that provide us with technology, systems and services that we use in connection with the receipt, storage and transmission of such information. Cyber-attacks designed to gain access to these types of sensitive information by breaching critical systems of large organizations are constantly evolving, and high profile electronic security breaches leading to unauthorized release of sensitive information have occurred in recent years with increasing frequency at a number of major U.S. companies, including several large retailers, notwithstanding widespread recognition of the cyber-attack threat and improved data protection methods.

              Despite our security measures and those of third parties with whom we do business, such as our banks, merchant card processing and other technology vendors, our respective systems and facilities may be vulnerable to criminal cyber-attacks or security incidents due to malfeasance, intentional or inadvertent security breaches by employees, or other vulnerabilities such as defects in design or manufacture. Unauthorized parties may also attempt to gain access to our systems or facilities through fraud, trickery or other forms of deception targeted at our customers, employees, suppliers and service providers. Any such incidents could compromise our networks and the information stored there could be accessed, publicly disclosed, lost or stolen.

              As noted above, the techniques used by criminals to obtain unauthorized access to sensitive data change frequently and often are not recognized until launched against a target; accordingly, we may be unable to anticipate these techniques or implement adequate preventative measures. In addition, advances in computer capabilities, new technological discoveries or other developments may also compromise or result in the obsolescence of the technology used to protect sensitive information. An actual or anticipated attack may cause us to incur additional costs, including costs related to diverting or deploying personnel, implementing preventative measures, training employees and engaging third-party experts and consultants. Further, any security breach could expose us to risks of data loss, regulatory and law enforcement investigations, litigation and liability and could seriously disrupt our operations and any resulting negative publicity could significantly harm our reputation and relationships with our customers and adversely affect our business, financial condition and operating results.

A material disruption in our information systems, including our website and call center, could adversely affect our business or operating results and lead to reduced net sales and reputational damage.

              We rely on our information systems to process transactions, summarize our results of operations and manage our business. In particular, our website and our call center are important parts of our integrated connected customer strategy and customers use these systems as information sources on the range of products available to them and as a way to order our products. Therefore, the reliability and capacity of our information systems is critical to our operations and the implementation

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of our growth initiatives. However, our information systems are subject to damage or interruption from planned upgrades in technology interfaces, power outages, computer and telecommunications failures, computer viruses, cyber-attacks or other security breaches and catastrophic events such as fires, floods, earthquakes, tornadoes, hurricanes, acts of war or terrorism and usage errors by our employees. If our information systems are damaged or cease to function properly, we may have to make a significant investment to fix or replace them, and we may suffer losses of critical data and/or interruptions or delays in our operations. In addition, to keep pace with changing technology, we must continuously implement new information technology systems as well as enhance our existing systems. In particular, in 2017 we intend to implement a new human resources information system, and any disruption in doing so could negatively impact the operation of our business. Moreover, the successful execution of some of our growth strategies, in particular the expansion of our connected customer and online capabilities, is dependent on the design and implementation of new systems and technologies and/or the enhancement of existing systems. Any material disruption in our information systems, or delays or difficulties in implementing or integrating new systems or enhancing or expanding current systems, could have an adverse effect on our business, in particular our call center and online operations, and our operating results and could lead to reduced net sales and reputational damage.

We are subject to payments-related risks that could increase our operating costs, expose us to fraud, subject us to potential liability and potentially disrupt our business.

              We accept payments using a variety of methods, including credit cards, debit cards, gift cards and physical bank checks. These payment options subject us to many compliance requirements, including, but not limited to, compliance with the Payment Card Industry Data Security Standards, which represents a common set of industry tools and measurements to help ensure the safe handling of sensitive information. They also subject us to potential fraud by criminal elements seeking to discover and take advantage of security vulnerabilities that may exist in some of these payment systems. For certain payment methods, including credit cards and debit cards, we pay interchange and other fees, which may increase over time and raise our operating costs and lower profitability. We rely on third parties to provide payment processing services, including the processing of credit cards, debit cards and gift cards, and it could disrupt our business if these companies become unwilling or unable to provide these services to us. We are also subject to payment card association operating rules, including data security rules, certification requirements, and rules governing electronic funds transfers, which could change or be reinterpreted to make it difficult or impossible for us to comply. If we fail to comply with these rules or requirements, or if our data security systems are breached or compromised, there is the potential that parties could seek damages from us, we may be liable for card issuing banks' costs, subject to fines and higher transaction fees, and lose our ability to accept credit cards and debit card payments from our customers, process electronic funds transfers, or facilitate other types of online payments, we could lose the confidence of customers and our business, financial condition and operating results could be adversely affected. We may also need to expend significant management and financial resources to become or remain compliant with relevant standards and requirements, which could divert resources from other initiatives and adversely affect our business, financial condition and operating results.

Our facilities and systems, as well as those of our suppliers, are vulnerable to natural disasters and other unexpected events, and as a result we may lose merchandise and be unable to effectively deliver it to our stores.

              Our retail stores, store support center and distribution centers, as well as the operations of our suppliers from which we receive goods and services, are vulnerable to damage from earthquakes, tornadoes, hurricanes, fires, floods and similar events. If any of these events result in damage to our facilities, systems or equipment, or those of our suppliers, they could adversely affect our ability to stock our stores and deliver products to our customers, and could adversely affect our net sales and

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operating results. In addition, we may incur costs in repairing any damage beyond our applicable insurance coverage. In particular, any disruption to any of our distribution centers could have a material impact on our business.

Material damage to, or interruptions in, our information systems as a result of external factors, staffing shortages and difficulties in updating our existing software or developing or implementing new software could adversely affect our business, financial condition and operating results.

              We depend largely upon our information technology systems in the conduct of all aspects of our operations. Such systems are subject to damage or interruption from power outages, computer and telecommunications failures, computer viruses and security breaches. Damage or interruption to our information systems may require a significant investment to fix or replace them, and we may suffer interruptions in our operations in the interim including issues operating our distribution centers and/or managing our inventory. In addition, costs and potential problems and interruptions associated with the implementation of new or upgraded systems and technology, or with maintenance or adequate support of existing systems, could also disrupt or reduce the efficiency of our operations. Further, the software programs supporting many of our systems were licensed to us by independent software developers. The inability of these developers or us to continue to maintain and upgrade these information systems and software programs would disrupt or reduce the efficiency of our operations if we were unable to convert to alternate systems in an efficient and timely manner and could adversely affect our business, financial condition and operating results. Any material interruptions or failures in our information systems may adversely affect our business, financial condition and operating results.

As we have a high concentration of stores in the southern region of the United States, we are subject to regional risks.

              We have a high concentration of stores in the southern region of the United States. If this market suffers an economic downturn or other significant adverse event, our comparable store sales, net sales, profitability and the ability to implement our planned expansion could be adversely affected. Any natural disaster, extended adverse weather or other serious disruption in this market due to fire, tornado, hurricane, or any other calamity could damage inventory and could result in decreased net sales.

Our success depends substantially upon the continued retention of our key personnel, which we consider to be our executive officers.

              We believe that our success has depended and continues to depend to a significant extent on the efforts and abilities of our key personnel, which we consider to be our executive officers. We have employment agreements with each of our executive officers. See "Executive And Director Compensation—Fiscal 2016 Compensation—Elements of Our Executive Compensation Program—Employment Agreements." Our failure to retain members of that team could impede our ability to build on the efforts they have undertaken with respect to our business.

We do not maintain "key man" life insurance policies on our key personnel.

              We do not have "key man" life insurance policies for any of our key personnel. If we were to obtain "key man" insurance for our key personnel, there can be no assurance that the amounts of such policies would be sufficient to pay losses experienced by us as a result of the loss of any of those personnel.

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Our success depends upon our ability to attract, train and retain highly qualified managers and staff.

              Our success depends in part on our ability to attract, hire, train and retain qualified managers and staff. Purchasing hard surface flooring is an infrequent event for BIY and DIY consumers, and the typical consumer in these groups has little knowledge of the range, characteristics and suitability of the products available before starting the purchasing process. Therefore, consumers in the hard surface flooring market expect to have sales associates serving them who are knowledgeable about the entire assortment of products offered by the retailer and the process of choosing and installing hard surface flooring.

              Each of our stores is managed by a store manager who has the flexibility (with the support of regional managers) to use his or her knowledge of local market dynamics to customize each store in a way that is most likely to increase net sales and profitability. Our store managers are also expected to anticipate, gauge and quickly respond to changing consumer demands in these markets. Further, it generally takes a substantial amount of time for our store managers to develop the entrepreneurial skills that we expect them to have in order to make our stores successful.

              There is a high level of competition for qualified regional managers, store managers and sales associates among home improvement and flooring retailers in local markets, and as a result, we may not succeed in attracting and retaining the personnel we require to conduct our current operations and support our plans for expansion. If our recruiting and retention efforts are not successful, we may have a shortage of qualified employees in future periods. Any such shortage would decrease our ability to effectively serve our customers. Such a shortage would also likely lead to higher wages for employees and a corresponding reduction in our operating results. In addition, as we expand into new markets, we may find it more difficult to hire, develop and retain qualified employees and may experience increased labor costs. Any failure by us to attract, train and retain highly qualified managers and staff could adversely affect our operating results and future growth opportunities.

The effectiveness of our advertising strategy is a driver of our future success.

              We believe that our growth was in part a result of our successful investment in local advertising. As we enter new markets that often have more expensive advertising rates, we may need to increase our advertising expenses to broaden the reach and frequency of our advertising to increase the recognition of our brand. If our advertisements fail to draw customers in the future, or if the cost of advertising or other marketing materials increases significantly, we could experience declines in our net sales and operating results.

Our intellectual property rights are valuable, and any failure to protect them could reduce the value of our products and brand and harm our business.

              We regard our intellectual property as having significant value, and our brand is an important factor in the marketing of our products. However, we cannot assure you that the steps we take to protect our trademarks or intellectual property will be adequate to prevent others from copying or using our trademarks or intellectual property without authorization. If our trademarks or intellectual property are copied or used without authorization, the value of our brand, its reputation, our competitive advantages and our goodwill could be harmed.

We may be involved in disputes from time to time relating to our intellectual property and the intellectual property of third parties.

              We may become parties to disputes from time to time over rights and obligations concerning intellectual property, and we may not prevail in these disputes. Third parties may raise claims against us alleging infringement or violation of the intellectual property of that third-party. Even if we prevail in such disputes, the costs we incur in defending such dispute may be material and costly. Some third-

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party intellectual property rights may be extremely broad, and it may not be possible for us to conduct our operations in such a way as to avoid violating those intellectual property rights. Any such intellectual property claim could subject us to costly litigation and impose a significant strain on our financial resources and management personnel regardless of whether such claim has merit. The liability insurance we maintain may not adequately cover potential claims of this type, and we may be required to pay monetary damages or license fees to third parties, which could have a material adverse effect on our business, financial condition and operating results.

Our ability to control higher health care costs is limited and could adversely affect our business, financial condition and operating results.

              With the passage in 2010 of the U.S. Patient Protection and Affordable Care Act (as amended, the "Affordable Care Act"), we are required to provide affordable coverage, as defined in the Affordable Care Act, to all employees, or otherwise be subject to a payment per employee based on the affordability criteria in the Affordable Care Act. Additionally, some states and localities have passed state and local laws mandating the provision of certain levels of health benefits by some employers. These requirements limit our ability to control employee health care costs.

              Efforts to modify, repeal or otherwise invalidate all, or certain provisions of, the Affordable Care Act and/or adopt a replacement healthcare reform law may impact our employee healthcare costs. At this time, there is uncertainty concerning whether the Affordable Care Act will be repealed or what requirements will be included in a new law, if enacted. If health care costs rise, we may experience increased operating costs, which may adversely affect our business, financial condition and operating results.

We are a holding company with no business operations of our own and depend on cash flow from our subsidiaries to meet our obligations.

              We are a holding company with no business operations of our own or material assets other than the equity of our subsidiaries. All of our operations are conducted by our subsidiaries. As a holding company, we will require dividends and other payments from our subsidiaries to meet cash requirements.

              The terms of our ABL Facility, a $200 million asset-based revolving credit facility, and our Term Loan Facility, a $350 million senior secured term loan facility, restrict our subsidiaries from paying dividends and otherwise transferring cash or other assets to us except in certain limited circumstances. If we become insolvent or there is a liquidation or other reorganization of any of our subsidiaries, our stockholders likely will have no right to proceed against their assets. Creditors of those subsidiaries will be entitled to payment in full from the sale or other disposal of the assets of those subsidiaries before we, as an equity holder, would be entitled to receive any distribution from that sale or disposal. If our subsidiaries are unable to pay dividends or make other payments to us when needed, we will be unable to satisfy our obligations.

We face risks related to our indebtedness.

              As of April 17, 2017, we were highly leveraged and the principal amount of our total indebtedness was approximately $375.3 million (including $348.3 million of indebtedness outstanding under the Term Loan Facility). In addition, as of April 17, 2017, we had the ability to access $160.4 million of unused borrowings then available under the ABL Facility without violating any covenants thereunder and had $12.5 million in outstanding letters of credit.

              As set forth under "Use of Proceeds," after giving effect to our use of the net proceeds from this offering, the principal amount of our total indebtedness would have been approximately $263.9 million as of December 29, 2016.

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              Our indebtedness, combined with our lease and other financial obligations and contractual commitments, could adversely affect our business, financial condition and operating results by:

    making it more difficult for us to satisfy our obligations with respect to our indebtedness, including restrictive covenants and borrowing conditions, which may lead to an event of default under agreements governing our debt;

    making us more vulnerable to adverse changes in general economic, industry and competitive conditions and government regulation;

    requiring us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing the availability of cash flows to fund current operations and future growth;

    exposing us to the risk of increased interest rates as our borrowings under our Credit Facilities are at variable rates;

    restricting us from making strategic acquisitions or causing us to make non-strategic divestitures;

    requiring us to comply with financial and operational covenants, restricting us, among other things, from placing liens on our assets, making investments, incurring debt, making payments to our equity or debt holders and engaging in transactions with affiliates;

    limiting our ability to borrow additional amounts for working capital, capital expenditures, acquisitions, debt service requirements, execution of our business and growth strategies or other purposes; and

    limiting our ability to obtain credit from our suppliers and other financing sources on acceptable terms or at all.

              We may also incur substantial additional indebtedness in the future, subject to the restrictions contained in our Credit Facilities. If such new indebtedness is in an amount greater than our current debt levels, the related risks that we now face could intensify. However, we cannot assure you that any such additional financing will be available to us on acceptable terms or at all.

Significant amounts of cash are required to service our indebtedness and operating lease obligations, and any failure to meet our debt service obligations could adversely affect our business, financial condition and operating results.

              Our ability to pay interest on and principal of our debt obligations will primarily depend upon our future operating performance. As a result, prevailing economic conditions and financial, business and other factors, many of which are beyond our control, will affect our ability to make these payments.

              If we do not generate sufficient cash flow from operations to satisfy our debt service obligations, we may have to undertake alternative financing plans, such as refinancing or restructuring our indebtedness, selling our assets, reducing or delaying capital investments or seeking to raise additional capital. Our ability to restructure or refinance our debt will depend on the condition of the capital markets and our financial condition at such time. Any refinancing of our debt could be at higher interest rates and may require us to comply with more onerous covenants, which could further restrict our business operations. The terms of existing or future debt instruments may restrict us from adopting some of these alternatives. In addition, any failure to make payments of interest and principal on our outstanding indebtedness on a timely basis would likely result in a reduction of our credit rating, which could harm our ability to incur additional indebtedness on acceptable terms.

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See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Our Credit Facilities."

              Our inability to generate sufficient cash flow to satisfy our debt obligations, or to refinance our obligations at all or on acceptable terms, could have an adverse effect on our business, financial condition and operating results.

              We cannot assure you that our business will generate sufficient cash flow from operations or that future borrowings will be available to us in amounts sufficient to enable us to make payments on our indebtedness or to fund our operations.

Our debt agreements contain restrictions that may limit our flexibility in operating our business.

              We are a holding company, and accordingly, substantially all of our operations are conducted through our subsidiaries. The credit agreements governing our Credit Facilities contain, and any future indebtedness would likely contain, a number of restrictive covenants that impose significant operating and financial restrictions, including restrictions on our ability to engage in acts that may be in our best long-term interests. The credit agreements governing our Credit Facilities include covenants that, among other things, restrict our and our subsidiaries' ability to:

    incur additional indebtedness;

    create liens;

    make investments, loans or advances;

    merge or consolidate;

    sell assets, including capital stock of subsidiaries or make acquisitions;

    pay dividends on capital stock or redeem, repurchase or retire capital stock or make other restricted payments;

    enter into transactions with affiliates;

    repurchase certain indebtedness; and

    exceed a certain total net leverage ratio or, in certain cases, maintain less than a certain fixed charge coverage ratio.

              Based on the foregoing factors, the operating and financial restrictions and covenants in our current debt agreements and any future financing agreements could adversely affect our ability to finance future operations or capital needs or to engage in other business activities.

              In addition, a breach of any of the restrictive covenants in our Credit Facilities may constitute an event of default, permitting the lenders to declare all outstanding indebtedness under both our Credit Facilities to be immediately due and payable or to enforce their security interest, which could adversely affect our ability to respond to changes in our business and manage our operations. Upon the occurrence of an event of default under any of the agreements governing our Credit Facilities, the lenders could elect to declare all amounts outstanding to be due and payable and exercise other remedies as set forth in the credit agreements. If any of our indebtedness under either of our Credit Facilities were to be accelerated, there can be no assurance that our assets would be sufficient to repay this indebtedness in full, which could adversely affect our ability to continue to operate as a going concern. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Our Credit Facilities" for more information.

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Our fixed lease obligations could adversely affect our operating results.

              We are required to use a significant portion of cash generated by our operations to satisfy our fixed lease obligations, which could adversely affect our ability to obtain future financing to support our growth or other operational investments. We will require substantial cash flows from operations to make our payments under our operating leases, all of which provide for periodic increases in rent. As of December 29, 2016, our minimum annual rental obligations under long-term operating leases for the fiscal years ending December 28, 2017, December 27, 2018 and December 26, 2019 are approximately $63.3 million, $71.9 million and $73.6 million, respectively. If we are not able to make payments under our operating leases, this could trigger defaults under other leases or, in certain circumstances, under our Credit Facilities, which could cause the counterparties or lenders under those agreements to accelerate the obligations due thereunder.

Changes to accounting rules or regulations could adversely affect our operating results.

              Our consolidated financial statements are prepared in accordance with GAAP. New accounting rules or regulations and changes to existing accounting rules or regulations have occurred and may occur in the future. Future changes to accounting rules or regulations, such as changes to revenue recognition or lease accounting guidance or a requirement to convert to international financial reporting standards, could adversely affect our operating results through increased cost of compliance.

Risks Related to this Offering and Ownership of Our Common Stock

You may not be able to resell your shares at or above the offering price or at all, and our stock price may be volatile, which could result in a significant loss or impairment of your investment.

              Prior to this offering, there has been no public market for our common stock. An active public market for our common stock may not develop or be sustained after this offering, in which case it may be difficult for you to sell your shares of our common stock at a price that is attractive to you or at all. The price of our common stock in any such market may be higher or lower than the price that you pay in this offering. If you purchase shares of our common stock in this offering, you will pay a price that was not established in a competitive market. Rather, you will pay the price that we negotiated with the representatives of the underwriters, which may not be indicative of prices that will prevail in the trading market.

              The trading price of our common stock may be volatile and subject to wide price fluctuations in response to various factors, many of which are beyond our control, including those described above in "—Risks Related to Our Business" and the following:

    actual or anticipated fluctuations in our quarterly or annual financial results;

    the financial guidance we may provide to the public, any changes in such guidance or our failure to meet such guidance;

    failure of industry or securities analysts to maintain coverage of us, changes in financial estimates by any industry or securities analysts that follow us or our failure to meet such estimates;

    downgrades in our credit ratings or the credit ratings of our competitors;

    market factors, including rumors, whether or not correct, involving us or our competitors;

    unfavorable market reactions to allegations regarding the safety of products sold by us or our competitors that are similar to products that we sell and costs or negative publicity arising out of any potential litigation and/or government investigations resulting therefrom;

    fluctuations in stock market prices and trading volumes of securities of similar companies;

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    sales or anticipated sales of large blocks of our stock;

    short selling of our common stock by investors;

    limited "public float" in the hands of a small number of persons whose sales or lack of sales of our common stock could result in positive or negative pricing pressure on the market price for our common stock;

    additions or departures of key personnel;

    announcements of new store openings, commercial relationships, acquisitions or entry into new markets by us or our competitors;

    failure of any of our initiatives, including our growth strategy, to achieve commercial success;

    regulatory or political developments;

    changes in accounting principles or methodologies;

    litigation or governmental investigations;

    negative publicity about us in the media and online; and

    general financial market conditions or events.

              Furthermore, the stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies. These fluctuations sometimes have been unrelated or disproportionate to the operating performance of those companies. These and other factors may cause the market price and demand for our common stock to fluctuate substantially, which may limit or prevent investors from readily selling their shares of common stock and may otherwise adversely affect the price or liquidity of our common stock.

              In addition, in the past, when the market price of a stock has been volatile, holders of that stock have sometimes instituted securities class action litigation against the company that issued the stock. If any of our stockholders were to bring a lawsuit against us, we could incur substantial costs defending it or paying for settlements or damages. Such a lawsuit could also divert the time and attention of our management from our operating business. As a result, such litigation may adversely affect our business, financial condition and operating results.

If securities or industry analysts do not publish or cease publishing research or reports about us, our business, our market, or our competitors, or if they change their recommendations regarding our common stock in a negative way, the price and trading volume of our common stock could decline.

              The trading market for our common stock will be influenced by the research and reports that industry or securities analysts may publish about us, our business, our market, or our competitors. If any of the analysts who cover us change their recommendation regarding our common stock in a negative way, or provide more favorable relative recommendations about our competitors, the price of our common stock would likely decline. If any analyst who covers us were to cease coverage of us or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause our common stock price or trading volume to decline.

The large number of shares eligible for public sale in the future, or the perception of the public that these sales may occur, could depress the market price of our common stock.

              The market price of our common stock could decline as a result of (i) sales of a large number of shares of our common stock in the market after this offering, particularly sales by our directors, employees (including our executive officers) and significant stockholders, and (ii) a large number of shares of our common stock being registered or offered for sale. These sales, or the perception that

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these sales could occur, may depress the market price of our common stock. We will have shares of common stock outstanding after this offering (or shares if the underwriters' exercise their option to purchase additional shares in full). Of these shares, the common stock sold in this offering will be freely tradable.

              Additionally, as of the closing of this offering, 11,843,308 shares of our common stock will be issuable upon exercise of stock options that vest and are exercisable at various dates through September 30, 2026, with an average weighted exercise price of $5.31 per share. Of such options, 7,971,481 are currently exercisable. We have filed a registration statement on Form S-8 under the Securities Act to register shares of our common stock issued or reserved for issuance under the Incentive Plans. The Form S-8 registration statement will become effective immediately upon filing, and shares covered by that registration statement will thereupon be eligible for sale in the public markets, subject to vesting restrictions, the lock-up agreements described below and the limitations of Rule 144 under the Securities Act ("Rule 144") applicable to affiliates.

              We and certain of our stockholders, directors and officers have agreed to a "lock-up," pursuant to which neither we nor they will sell any shares without the prior consent of the representatives of the underwriters for 180 days after the date of this prospectus, subject to certain exceptions and extensions under certain circumstances. Following the expiration of the applicable lock-up period, all of our shares of common stock will be eligible for future sale, subject to the applicable volume, manner of sale, holding period and other limitations of Rule 144. In addition, our Sponsors have certain demand registration rights, and all of our stockholders have "piggy-back" registration rights with respect to the common stock that they will retain following this offering. See "Shares Eligible for Future Sale" and "Description of Capital Stock—Registration Rights" for a discussion of the shares of common stock that may be sold into the public market in the future, including common stock held by Ares and Freeman Spogli.

You will incur immediate and substantial dilution in your investment because our earlier investors paid less than the initial public offering price when they purchased their shares.

              If you purchase shares in this offering, you will incur immediate dilution of $21.42 in net tangible book value per share (or $21.14 if the underwriters exercise their option to purchase additional shares in full), based on the initial public offering price of $21.00 per share, because the price that you pay will be greater than the net tangible book value per share of the shares acquired. This dilution arises because our earlier investors paid less than the initial public offering price when they purchased their shares of our common stock. Furthermore, there will be options to purchase shares of common stock outstanding upon the closing of this offering that have exercise prices below the initial public offering price. To the extent such options are exercised in the future, there may be further dilution to new investors. See "Dilution."

In the future, we expect to issue stock options, restricted stock and/or other forms of stock-based compensation, which have the potential to dilute stockholders' value and cause the price of our common stock to decline.

              In the future, we expect to offer stock options, restricted stock and/or other forms of stock based compensation to our eligible employees, consultants and Compensated Directors (as defined in "Executive and Director Compensation—Compensation of our Directors for Fiscal 2016—Director Compensation"). If we grant more equity awards to attract and retain key personnel, the expenses associated with such additional equity awards could materially adversely affect our results of operations and may also result in additional dilution to our stockholders. If any options that we issue are exercised or any restrictions on restricted stock that we issue lapse and those shares are sold into the public market, the market price of our common stock may decline. In addition, the availability of shares of common stock for award under the Incentive Plans or the grant of stock options, restricted stock or other forms of stock based compensation may adversely affect the market price of our common stock.

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Our dual-class capitalization structure and the conversion features of our Class C common stock may dilute the voting power of the holders of our Class A common stock.

              Following the closing of this offering, we will have a dual-class capitalization structure, which may pose a significant risk of dilution to our Class A common stockholders. The shares of our Class C common stock are automatically converted into shares of our Class A common stock on the basis of one share of Class A common stock for each share of Class C common stock in the event that the holder of such Class C common stock is not Freeman Spogli or any of its affiliates. In addition, Freeman Spogli or any of its affiliates may convert their shares of Class C common stock into shares of our Class A Common Stock, in whole or in part, at any time and from time to time at their option, on the basis of one share of Class A common stock for each share of Class C common stock so long as at such time either Ares and its affiliates or Freeman Spogli and its affiliates do not own more than 24.9% of our Class A common stock after giving effect to any such conversion. Conversion of our Class C common stock into Class A common stock would dilute the voting power of the holders of Class A common stock, including holders of shares purchased in this offering.

Our ability to raise capital in the future may be limited.

              Our business and operations may consume resources faster than we anticipate. In the future, we may need to raise additional funds through the issuance of new equity securities, debt or a combination of both. Additional financing may not be available on favorable terms or at all. If adequate funds are not available on acceptable terms, we may be unable to fund our capital requirements. If we issue new debt securities, the debt holders would have rights senior to holders of our common stock to make claims on our assets and the terms of any debt could restrict our operations, including our ability to pay dividends on our common stock. If we issue additional equity securities or securities convertible into equity securities, existing stockholders will experience dilution and the new equity securities could have rights senior to those of our common stock. Because our decision to issue securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings. Thus, you bear the risk of our future securities offerings reducing the market price of our common stock and diluting their interest.

Our principal stockholders will continue to have substantial control over us after this offering, will be able to influence corporate matters and may take actions that conflict with your interests and have the effect of delaying or preventing changes of control or changes in management, or limiting the ability of other stockholders to approve transactions they deem to be in their best interest.

              Upon the closing of this offering, our directors, executive officers and holders of more than 5% of our Class A common stock, together with their affiliates, will beneficially own, in the aggregate, approximately 87% of our outstanding Class A common stock, assuming no exercise of the underwriters' option to purchase additional shares. Ares will beneficially own, in the aggregate, approximately 61% of our outstanding Class A common stock and Freeman Spogli will beneficially own, in the aggregate, approximately 22% of our outstanding Class A common stock and 100% of our outstanding Class C common stock. These amounts compare to approximately 10% of our outstanding Class A common stock represented by the shares sold by us in this offering, assuming no exercise of the underwriters' option to purchase additional shares. As a result, these stockholders acting together, or Ares or Freeman Spogli acting alone, will be able to exercise significant influence over all matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions, such as a merger or other sale of us or our assets. The Investor Rights Agreement also contains agreements among our Sponsors with respect to voting on the election of directors and board committee membership. See also "—Our dual-class capitalization structure and the conversion features of our Class C common stock may dilute the voting power of the holders of our Class A common

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stock." The interests of Ares or Freeman Spogli could conflict in material respects with yours, and this concentration of ownership could limit your ability to influence corporate matters and may have the effect of delaying or preventing a third-party from acquiring control over us. Mr. Kaplan and Ms. Lee serve as officers and principals of certain Ares affiliated entities. In addition, NAX 18, LLC, a consulting entity controlled by Mr. Axelrod, provides consulting services to certain Ares affiliated entities. Messrs. Brutocao and Roth serve as officers and principals of certain Freeman Spogli affiliated entities. In addition, Peter Starrett Associates, a consulting entity controlled by Mr. Starrett, provides consulting services to certain Freeman Spogli affiliated entities. Our certificate of incorporation provides that no officer or director of ours who is also an officer, director, employee, managing director or other affiliate of our Sponsors will be liable to us or our stockholders for breach of any fiduciary duty by reason of the fact that any such individual directs a corporate opportunity to our Sponsors instead of us, or does not communicate information regarding a corporate opportunity to us that the officer, director, employee, managing director or other affiliate has directed to our Sponsors.

Although we do not expect to rely on the "controlled company" exemption, since we will qualify as a "controlled company" within the meaning of the rules of the New York Stock Exchange upon completion of this offering, we will qualify for exemptions from certain corporate governance requirements.

              Under the rules of the New York Stock Exchange, a company of which more than 50% of the voting power is held by another person or group of persons acting together is a "controlled company" and may elect not to comply with certain rules of the New York Stock Exchange regarding corporate governance, including:

    the requirement that a majority of our board of directors consist of independent directors;

    the requirement that our nominating and corporate governance committee be composed entirely of independent directors with a written charter addressing the committee's purpose and responsibilities; and

    the requirement that our compensation committee be composed entirely of independent directors with a written charter addressing the committee's purpose and responsibilities; and

    the requirement for an annual performance evaluation of the nominating and corporate governance and compensation committees.

              These requirements will not apply to us as long as we remain a "controlled company." Although we will qualify as a "controlled company" upon completion of this offering, we do not expect to rely on this exemption, and we intend to fully comply with all corporate governance requirements under the rules of the New York Stock Exchange. However, if we were to utilize some or all of these exemptions, you may not have the same protections afforded to stockholders of companies that are subject to all of the rules of the New York Stock Exchange regarding corporate governance.

We do not currently expect to pay any cash dividends.

              The continued operation and growth of our business will require substantial funding. Accordingly, we do not currently expect to pay any cash dividends on shares of our common stock. Any determination to pay dividends in the future will be at the discretion of our board of directors and will depend upon our operating results, financial condition, contractual restrictions, restrictions imposed by applicable law and other factors our board of directors deem relevant. Additionally, under our Credit Facilities, our subsidiaries are currently restricted from paying cash dividends except in limited circumstances, and we expect these restrictions to continue in the future. Accordingly, if you purchase shares in this offering, realization of a gain on your investment will depend on the appreciation of the price of our common stock, which may never occur. Investors seeking cash dividends in the foreseeable future should not purchase our common stock. See "Dividend Policy."

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We will incur significant expenses as a result of becoming a public company, which will negatively impact our financial performance and could cause our results of operations or financial condition to suffer.

              As a public company, we will incur significant legal, accounting, insurance and other expenses that we have not incurred as a private company, including costs associated with public company reporting requirements. We also have incurred and will incur costs associated with the Sarbanes-Oxley Act, Dodd-Frank Wall Street Reform and Consumer Protection Act and related rules implemented by the Securities and Exchange Commission ("SEC"). The expenses incurred by public companies generally for reporting and corporate governance purposes have been increasing. We expect these rules and regulations to increase our legal and financial compliance costs and to make some activities more time-consuming and costly, although we are currently unable to estimate these costs with any degree of certainty. In estimating these costs, we took into account expenses related to insurance, legal, accounting, and compliance activities, as well as other expenses not currently incurred. These laws and regulations could also make it more difficult or costly for us to obtain certain types of insurance, including director and officer liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. These laws and regulations could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees or as our executive officers. Furthermore, if we are unable to satisfy our obligations as a public company, we could be subject to delisting of our Class A common stock, fines, sanctions and other regulatory action and potentially civil litigation.

Failure to establish and maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act could have an adverse effect on our business and stock price.

              We are not currently required to comply with the rules of the SEC implementing Section 404 of the Sarbanes-Oxley Act and are therefore not required to make a formal assessment of the effectiveness of our internal controls over financial reporting for that purpose. Upon becoming a public company, we will be required to comply with the SEC's rules implementing Sections 302 and 404 of the Sarbanes-Oxley Act, which will require management to certify financial and other information in our quarterly and annual reports and provide an annual management report on the effectiveness of controls over financial reporting. Though we will be required to disclose changes made in our internal controls and procedures on a quarterly basis, we will not be required to make our first annual assessment of our internal controls over financial reporting pursuant to Section 404 until the year following our first annual report required to be filed with the SEC.

              To comply with the requirements of being a public company, we may need to undertake various actions, such as implementing new internal controls and procedures and hiring additional accounting or internal audit staff. Testing and maintaining internal controls can divert our management's attention from other matters that are important to the operation of our business. In addition, when evaluating our internal controls over financial reporting, we may identify material weaknesses that we may not be able to remediate in time to meet the applicable deadline imposed upon us for compliance with the requirements of Section 404. If we identify material weaknesses in our internal controls over financial reporting or are unable to comply with the requirements of Section 404 in a timely manner or assert that our internal controls over financial reporting are effective, or if our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal controls over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock could be negatively affected, and we could become subject to investigations by the New York Stock Exchange, the SEC or other regulatory authorities, which could require additional financial and management resources.

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Anti-takeover provisions could impair a takeover attempt and adversely affect existing stockholders and the market value of our common stock.

              Certain provisions of our certificate of incorporation and bylaws that will be in effect upon the closing of this offering and applicable provisions of Delaware law may have the effect of rendering more difficult, delaying or preventing an acquisition of our company, even when this would be in the best interest of our stockholders. These provisions include:

    a classified board of directors;

    the sole power of a majority of our board of directors to fix the number of directors;

    the requirement that certain advance notice procedures be followed for our stockholders to submit nominations of candidates for election to our board of directors and to bring other proposals before a meeting of the stockholders;

    the power of our board of directors to amend our bylaws without stockholder approval;

    limitations on the removal of directors nominated by our Sponsors;

    the sole power of the board of directors, or our Sponsors in the case of a vacancy of one of their respective board nominees, to fill any vacancy on the board of directors, whether such vacancy occurs as a result of an increase in the number of directors or otherwise;

    the ability of a majority of our board of directors (even if less than a quorum) to designate one or more series of preferred stock and issue shares of preferred stock without stockholder approval;

    the inability of stockholders to act by written consent if our Sponsors collectively own less than a majority of our outstanding Class A common stock;

    a requirement that, to the fullest extent permitted by law, certain proceedings against or involving us or our directors, officers or employees be brought exclusively in the Court of Chancery in the State of Delaware;

    the lack of cumulative voting rights for the holders of our Class A common stock with respect to the election of directors; and

    the inability of stockholders to call special meetings if our Sponsors collectively own less than a majority of our outstanding Class A common stock.

              Further, Delaware law imposes conditions on the voting of "control shares" and on certain business combination transactions with "interested stockholders."

              Our issuance of shares of preferred stock could delay or prevent a change of control of the Company. Our board of directors has the authority to cause us to issue, without any further vote or action by our stockholders, up to shares of preferred stock, par value $0.001 per share, in one or more series, to designate the number of shares constituting any series and to fix the rights, preferences, privileges and restrictions thereof, including dividend rights, voting rights, rights and terms of redemption, redemption price or prices and liquidation preferences of such series. The issuance of shares of preferred stock may have the effect of delaying, deferring or preventing a change in control of our company without further action by our stockholders, even where stockholders are offered a premium for their shares.

              In addition, the issuance of shares of preferred stock with voting rights may adversely affect the voting power of the holders of our other classes of voting stock either by diluting the voting power of our other classes of voting stock if they vote together as a single class, or by giving the holders of any

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such preferred stock the right to block an action on which they have a separate class vote even if the action were approved by the holders of our other classes of voting stock.

              These provisions could delay or prevent hostile takeovers and changes in control or changes in our management. Also, the issuance of shares of preferred stock with dividend or conversion rights, liquidation preferences or other economic terms favorable to the holders of preferred stock could adversely affect the market price for our common stock by making an investment in our common stock less attractive. For example, a conversion feature could cause the trading price of our common stock to decline to the conversion price of the preferred stock. Any provision of our certificate of incorporation or bylaws or Delaware law that has the effect of delaying or deterring a change in control or otherwise makes an investment in our common stock less attractive could limit the opportunity for our stockholders to receive a premium for their shares of our common stock and could also affect the price that some investors are willing to pay for our common stock. See "Description of Capital Stock."

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

              This prospectus contains forward-looking statements. All statements other than statements of historical fact contained in this prospectus, including statements regarding our future operating results and financial position, business strategy and plans and objectives of management for future operations, are forward-looking statements. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.

              In some cases, you can identify forward-looking statements by terms such as "may," "will," "should," "expects," "intends," "plans," "anticipates," "could," "seeks," "intends," "target," "projects," "contemplates," "believes," "estimates," "predicts," "budget," "potential" or "continue" or the negative of these terms or other similar expressions. The forward-looking statements in this prospectus are only predictions. Although we believe that the expectations reflected in the forward-looking statements in this prospectus are reasonable, we cannot guarantee future events, results, performance or achievements. A number of important factors could cause actual results to differ materially from those indicated by the forward-looking statements in this prospectus, including, without limitation, those factors described in "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." Some of the key factors that could cause actual results to differ from our expectations include the following:

    an overall decline in the health of the economy, the hard surface flooring industry, consumer spending, and the housing market;

    fluctuations in material and energy costs;

    our failure to execute our business strategy effectively and deliver value to our customers;

    competition from other stores and internet-based competition;

    any disruption in our distribution capabilities resulting from our inability to operate our distribution centers going forward;

    our failure to successfully anticipate consumer preferences and demand;

    our inability to manage our growth;

    our inability to maintain sufficient levels of cash flow to meet growth expectations;

    our inability to manage costs and risks relating to new store openings;

    our inability to manage our inventory obsolescence, shrinkage and damage;

    our inability to obtain merchandise on a timely basis at prices acceptable to us;

    our dependence on foreign imports for the products we sell;

    suppliers may sell similar or identical products to our competitors;

    our inability to find, train and retain key personnel;

    violations of laws and regulations applicable to us or our suppliers;

    our vulnerability to natural disasters and other unexpected events;

    our failure to adequately protect against security breaches involving our information technology systems and customer information;

    our inability to find available locations for our stores or our store support center on terms acceptable to us; and

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    restrictions imposed by our indebtedness on our current and future operations.

              Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, you should not rely on these forward-looking statements as predictions of future events. The forward-looking statements contained in this prospectus speak only as of the date hereof. New risks and uncertainties arise over time, and it is not possible for us to predict those events or how they may affect us. If a change to the events and circumstances reflected in our forward-looking statements occurs, our business, financial condition and operating results may vary materially from those expressed in our forward-looking statements. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein after we distribute this prospectus, whether as a result of any new information, future events or otherwise.

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FISCAL YEAR AND CERTAIN FINANCIAL MEASURES AND TERMS

Fiscal Year

              We operate on a 52- or 53-week fiscal year ending on the Thursday on or preceding December 31. When a 53-week fiscal year occurs, we report the additional week at the end of the fiscal fourth quarter. 52-week fiscal years consist of thirteen-week periods in the first, second, third and fourth quarters of the fiscal year. Fiscal 2012, 2013, 2014 and 2016 included 52-weeks and ended on December 27, 2012, December 26, 2013, December 25, 2014 and December 29, 2016, respectively. Fiscal 2015 ended on December 31, 2015 and was comprised of 53-weeks.

Certain Financial Measures and Terms

              In this prospectus, in addition to presenting our financial data in accordance with accounting principles generally accepted in the United States (referred to as "GAAP"), we present certain other financial measures, such as EBITDA, Adjusted EBITDA, Adjusted EBITDA margin, CAGR, comparable store sales and net working capital. We define these terms, other than EBITDA and Adjusted EBITDA, as follows:

      "Adjusted EBITDA margin" means, for any period, the Adjusted EBITDA for that period divided by the net sales for that period.

      "CAGR" means compound annual growth rate.

      "Comparable store sales" include net sales from our stores beginning on the first day of the thirteenth full fiscal month following the store's opening. Because our e-commerce sales are fulfilled by individual stores, they are included in comparable store sales only to the extent such fulfilling store meets the above mentioned store criteria.

      "Net working capital" means, as of any date, current assets (excluding cash and cash equivalents) less current liabilities (excluding the current portion of long-term debt).

              For definitions of EBITDA and Adjusted EBITDA and reconciliations of those measures to the most directly comparable GAAP measures, see "Prospectus Summary—Summary Consolidated Financial and Other Data" and "Selected Consolidated Financial Data." The use of certain of these measures is also discussed under "Management's Discussion and Analysis of Financial Condition and Results of Operations—Key Performance Indicators." These financial measures are intended to provide additional information only and do not have any standard meanings prescribed by GAAP. Use of these terms differs among companies in the retail industry, and therefore measures disclosed by us may not be comparable to measures disclosed by other companies. Each of these financial measures has its limitations as an analytical tool, and you should not consider them in isolation or as a substitute for analysis of our results as reported under GAAP.

              In addition, when used in this prospectus, unless the context otherwise requires:

      "Cash-on-cash returns" means, for any period for a given store, four-wall Adjusted EBITDA for that period for that store, divided by the total initial net cash investment for that store.

      "Four-wall Adjusted EBITDA" means, for any period for a given store, the Adjusted EBITDA for that period before corporate general and administrative and distribution center expenses, which we consider in our evaluation of the ongoing performance of our stores from period to period.

      "Pre-tax payback" means, for a given store, starting with the first day it is open, the date on which cumulative four-wall Adjusted EBITDA for such store equals our total initial net cash investment for such store.

      "Total initial net cash investment" means, for a given store, our initial net cash investment in that store, which consists of initial inventory (net of payables), pre-opening expenses and capital investment (net of tenant improvement allowances).

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MARKET, INDUSTRY AND OTHER DATA

              Unless otherwise indicated, information contained in this prospectus concerning our industry and the markets in which we operate is based on information from independent industry and research organizations, such as Catalina Research, Inc., and other industry publications, surveys and forecasts, and management estimates. Management estimates are derived from publicly available information released by independent industry analysts and other third-party sources, as well as data from our internal research, and are based on assumptions made by us upon reviewing such data and our knowledge of our industry and markets, which we believe to be reasonable. In addition, projections, assumptions and estimates of the future performance of our industry and our future performance are necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those described in "Risk Factors" and "Special Note Regarding Forward-Looking Statements." These and other factors could cause our results to differ materially from those expressed in the estimates made by the independent industry analysts, other third-party sources and us.

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USE OF PROCEEDS

              The net proceeds we will receive from selling common stock in this offering will be approximately $166.3 million, after deducting the underwriting discount and estimated offering expenses payable by us (or, if the underwriters exercise their option to purchase additional shares of Class A common stock in full, approximately $192.2 million, after deducting the underwriting discount and estimated offering expenses payable by us), based on the initial public offering price of $21.00 per share.

              We intend to use all of the net proceeds of this offering to repay a portion of the amounts outstanding under the Term Loan Facility, including accrued and unpaid interest. The proceeds of the Term Loan Facility were used to (i) repay our prior senior secured term loan facility with GCI Capital Markets LLC, dated as of May 1, 2013 (the "GCI Facility"), (ii) repay our prior term loan facility with Wells Fargo Bank, N.A., dated as of May 1, 2013, as amended (the "Prior Term Loan Facility"), (iii) pay the Special Dividend (as defined below), (iv) make certain option adjustment payments and (v) repay a portion of our prior asset-based revolving credit facility (the "Prior ABL Facility"). See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources."

              As of April 17, 2017, we had approximately $348.3 million of indebtedness outstanding under the Term Loan Facility. The interest rate on the Term Loan Facility as of April 17, 2017 was 4.50%. The Term Loan Facility matures on September 30, 2023. Any amounts repaid under the Term Loan Facility will not be available for future borrowing following repayment. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Our Credit Facilities" for more information.

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DIVIDEND POLICY

              We currently intend to retain all available funds and any future earnings for use in the operation and growth of our business, and therefore we do not currently expect to pay any cash dividends on our common stock. Any future determination to pay dividends will be at the discretion of our board of directors and will depend on then existing conditions, including our operating results, financial condition, contractual restrictions, capital requirements, business prospects and other factors that our board of directors may deem relevant. In addition, our Credit Facilities contain covenants that restrict our ability to pay cash dividends.

              In September 2016, in connection with the 2016 Refinancing, we paid our common stockholders a special cash dividend of $202.5 million in the aggregate (the "Special Dividend"). Other than the Special Dividend, we did not declare or pay any cash dividends on our common stock in fiscal 2015 or fiscal 2016.

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CAPITALIZATION

              The following table sets forth our capitalization as of December 29, 2016 on:

    an actual basis (reflecting the 321.820-for-one stock split effected on April 24, 2017) and

    a pro forma basis, giving effect to (i) the 321.820-for-one stock split effected on April 24, 2017 and (ii) the closing of this offering, including the application of the estimated net proceeds from this offering as described under "Use of Proceeds."

              The table below should be read in conjunction with "Use of Proceeds," "Selected Consolidated Financial Data," "Unaudited Pro Forma Consolidated Financial Information," "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Description of Capital Stock," and our consolidated financial statements and the related notes included in this prospectus.

 
  As of December 29,
2016
 
 
  Actual   Pro Forma  
 
  (in thousands,
except share data)

 

Cash and cash equivalents

  $ 451   $ 451  

Debt(1):

             

Term Loan Facility

  $ 350,000   $ 181,112  

ABL Facility

    50,000     50,000  

Unamortized debt discount and debt issuance costs

    (9,257 )   (4,790 )

Total debt

    390,743     226,322  

Stockholders' equity:

             

Undesignated preferred stock, par value $0.001 per share; 10,000,000 shares authorized, no shares issued and outstanding, actual; and 10,000,000 shares authorized, no shares issued and outstanding, pro forma

         

Class A common stock, par value $0.001 per share; 450,000,000 shares authorized, 76,847,116 shares issued and outstanding, actual; and 450,000,000 shares authorized, 86,066,358 shares issued and outstanding, pro forma

    77     86  

Class B common stock, par value $0.001 per share; 10,000,000 shares authorized, 395,742 shares issued and outstanding, actual; and 10,000,000 shares authorized, no shares issued and outstanding, pro forma

         

Class C common stock, par value $0.001 per share; 30,000,000 shares authorized, 6,275,489 shares issued and outstanding, actual; and 30,000,000 shares authorized, 6,275,489 shares issued and outstanding, pro forma

    6     6  

Additional paid-in capital

    117,270     283,584  

Accumulated other comprehensive loss

    176     176  

Retained earnings(2)

    16,754     13,971  

Total stockholders' equity(2)

    134,283     297,823  

Total capitalization(2)

  $ 525,026   $ 524,125  

(1)
The above table reflects debt outstanding as of December 29, 2016 and does not reflect approximately $10.1 million of outstanding letters of credit as of December 29, 2016 that will not be reflected on the balance sheet unless drawn upon. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Our Credit Facilities." As of April 17, 2017, our total debt outstanding was $375.3 million and we had $160.4 million of availability under the ABL Facility.

(2)
Pro forma retained earnings, stockholders equity and total capitalization give effect to the write-off of approximately $4.5 million of unamortized deferred debt issuance costs and original issue discount associated with the repayment of $168.9 million of loans under the Term Loan Facility.

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DILUTION

              If you invest in our common stock, your interest will be immediately diluted to the extent of the difference between the initial public offering price per share of our common stock and the pro forma net tangible book value per share of our common stock immediately after this offering.

              The historical net tangible book value of our common stock as of December 29, 2016 was $(202.6) million, or $(2.43) per share. Historical net tangible book value is the amount of our total tangible assets less our total liabilities. Historical net tangible book value per share is our historical net tangible book value, divided by the number of outstanding shares of common stock, after giving effect to the 321.820-for-one stock split of our common stock effected on April 24, 2017.

              Pro forma net tangible book value gives effect to (i) the 321.820-for-one stock split of our common stock effected on April 24, 2017, (ii) the sale by us of 8,823,500 shares of common stock in this offering at the initial public offering price of $21.00 per share, after deducting the underwriting discount and estimated offering expenses payable by us, and (iii) the repayment of a portion of the Term Loan Facility from the net proceeds of this offering received by us as described under "Use of Proceeds." As of December 29, 2016, our pro forma net tangible book value would have been approximately $(39.0) million, or approximately $(0.42) per share. This represents an immediate increase in pro forma net tangible book value of $2.01 per share to our existing stockholders and an immediate dilution of $21.42 per share to investors purchasing common stock in this offering.

              The following table illustrates this dilution on a per share basis to new investors:

Initial public offering price per share

        $ 21.00  

Historical net tangible book value per share as of December 29, 2016

    (2.43 )      

Increase in pro forma net tangible book value per share attributable to new investors purchasing shares in this offering

    2.01        

Pro forma net tangible book value per share after this offering

          (0.42 )

Dilution per share to new investors purchasing shares in this offering

        $ 21.42  

              The table below summarizes, as of December 29, 2016, on a pro forma basis described above, the number of shares of our common stock, the total consideration and the average price per share (i) paid to us by our existing stockholders and (ii) to be paid by new investors purchasing our common stock in this offering at the initial public offering price of $21.00 per share, before deducting the underwriting discount and estimated offering expenses payable by us.

 
   
   
  Total
Consideration
   
 
 
  Shares Purchased    
 
 
  Average
Price
Per Share
 
 
  Number   Percent   Amount   Percent  

Existing stockholders

    83,518,347     90 % $ 258,264,902     58 % $ 3.09  

New investors

    8,823,500     10 %   185,293,500     42 %   21.00  

Total

    92,341,847     100.0 % $ 443,558,402     100.0 % $ 4.80  

              If the underwriters' option to purchase additional shares in this offering is exercised in full, the percentage of shares of our common stock held by existing stockholders will be reduced to 89% of the total number of shares of our common stock outstanding after this offering, and the number of shares held by new investors will increase to 10,147,025 shares, or 11% of the total number of shares of our common stock outstanding after this offering.

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              The discussion and tables above are based on shares of our common stock outstanding as of December 29, 2016, assuming the 321.820-for-one stock split of our common stock effected on April 24, 2017, and exclude the following:

    11,979,111 shares of common stock issuable upon the exercise of stock options outstanding as of December 29, 2016 at a weighted average exercise price of $5.34 per share; and

    5,000,000 shares of common stock reserved for future issuance under the 2017 Plan.

              If all of these options were exercised, then our existing stockholders, including the holders of these options, would own 92% and our new investors would own 8% of the total number of shares of our common stock outstanding upon the closing of this offering. In such event, the total consideration paid by our existing stockholders, including the holders of these options, would be approximately $322.2 million, or 63%, the total consideration paid by our new investors would be $185.3 million, or 37%, the average price per share paid by our existing stockholders would be $3.37, and the average price per share paid by our new investors would be $21.00.

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SELECTED CONSOLIDATED FINANCIAL DATA

              The following tables set forth our selected consolidated financial data. You should read the following selected consolidated financial data in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Unaudited Pro Forma Consolidated Financial Information" our unaudited consolidated financial statements, and our consolidated financial statements and the related notes thereto and other financial data included elsewhere in this prospectus. We operate on a 52- or 53-week fiscal year ending on the Thursday on or preceding December 31. The data presented contains references to fiscal 2012, fiscal 2013, fiscal 2014, fiscal 2015 and fiscal 2016, which represent our fiscal years ended December 27, 2012, December 26, 2013, December 25, 2014 and December 29, 2016 all of which were 52-week periods, and December 31, 2015, which was a 53-week period.

              We have derived the selected consolidated statement of operations data for fiscal 2014, 2015 and 2016 and the related selected balance sheet data as of fiscal 2015 and 2016 year end from our audited consolidated financial statements, which are included elsewhere in this prospectus. The selected consolidated statement of operations data for fiscal 2012 and 2013 and the selected balance sheet data as of fiscal 2012, 2013, and 2014 year end, have been derived from our audited consolidated financial statements not included in this prospectus. Historical results are not indicative of the results to be expected in the future.

 
  Fiscal year ended  
 
   
   
   
   
  Actual   Pro Forma(3)  
(in thousands, except share and per share amounts)(1)
   
   
   
   
 
  12/27/2012   12/26/2013   12/25/2014   12/31/2015(2)   12/29/2016   12/29/2016  

Net sales

  $ 336,745   $ 443,995   $ 584,588   $ 784,012   $ 1,050,759   $ 1,050,759  

Cost of sales

    202,651     274,172     355,051     471,390     621,497     621,497  

Gross profit

    134,094     169,823     229,537     312,622     429,262     429,262  

Selling & store operating expenses

    85,932     106,835     146,485     202,637     271,876     271,876  

General & administrative expenses

    20,571     30,530     38,984     49,917     64,025     66,325  

Pre-opening expenses

    1,544     5,196     7,412     7,380     13,732     13,732  

Litigation settlement

                    10,500     10,500  

Executive severance(4)

            2,975     296          

Casualty gain(5)

    (1,421 )                    

Operating income

    27,468     27,262     33,681     52,392     69,129     66,829  

Interest expense

    6,528     7,684     8,949     9,386     12,803     10,962  

Loss on early extinguishment of debt

        1,638             1,813      

Income before income taxes

    20,940     17,940     24,732     43,006     54,513     55,867  

Provision for income taxes

    8,102     6,857     9,634     16,199     11,474     11,984  

Net income

  $ 12,838   $ 11,083   $ 15,098   $ 26,807   $ 43,039   $ 43,883  

Earnings per share:

                                     

Basic

  $ 0.16   $ 0.13   $ 0.18   $ 0.32   $ 0.52   $ 0.48  

Diluted

  $ 0.15   $ 0.13   $ 0.18   $ 0.31   $ 0.49   $ 0.45  

Weighted average shares outstanding:

                                     

Basic

    82,797,849     83,104,222     83,222,330     83,365,218     83,432,157     92,255,657  

Diluted

    82,833,571     83,818,340     85,651,749     86,280,907     88,430,987     97,254,487  

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  Fiscal year ended  
(in thousands)
  12/27/2012   12/26/2013   12/25/2014   12/31/2015(2)   12/29/2016  

Consolidated statement of cash flows data:

                               

Net cash provided by (used in) operating activities

  $ 23,336   $ (15,428 ) $ 43,594   $ 20,380   $ 89,456  

Net cash used in investing activities

    (10,709 )   (25,056 )   (39,069 )   (45,021 )   (74,648 )

Net cash (used in) provided by financing activities

    (15,777 )   40,487     (4,421 )   24,680     (14,675 )

 

 
  As of  
 
   
   
   
   
  12/29/2016  
(in thousands)
  12/27/2012   12/26/2013   12/25/2014   12/31/2015   Actual   Pro Forma(3)  

Consolidated balance sheet data:

                                     

Cash and cash equivalents

  $ 172   $ 175   $ 279   $ 318   $ 451   $ 451  

Net working capital

    48,025     89,311     78,577     109,565     95,550     94,669  

Total assets

    480,374     555,093     635,498     748,888     831,166     828,601  

Total debt(6)

    90,543     157,172     152,420     177,590     390,743     226,322  

Total stockholders' equity

    275,186     264,132     282,236     312,365     134,283     297,823  

 

 
  Fiscal year ended  
 
  12/27/2012   12/26/2013   12/25/2014   12/31/2015(2)   12/29/2016(2)  

Other financial data:

                               

Comparable store sales growth

    11.7%     22.1%     15.8%     13.5%     19.4%  

Number of stores open at the end of the period(7)

    31     39     48     58     70  

Adjusted EBITDA (in thousands)(8)

  $ 32,572   $ 36,537   $ 51,208   $ 72,868   $ 108,398  

Adjusted EBITDA margin

    9.7%     8.2%     8.8%     9.3%     10.3%  

(1)
All of the earnings per share data, share numbers, share prices, and exercise prices have been adjusted on a retroactive basis to reflect the 321.820-for-one stock split effected on April 24, 2017. See Note 12 to the audited consolidated financial statements included elsewhere in this prospectus.

(2)
The 53rd week in fiscal 2015 represented $11.9 million in net sales, an estimated $2.1 million in operating income and an estimated $2.2 million in adjusted EBITDA. When presenting comparable store sales for fiscal 2015 and fiscal 2016, we have excluded the last week of fiscal 2015.

(3)
Pro forma figures give effect to the 2016 Refinancing, the repricing of our Term Loan Facility, and this offering. See "Unaudited Pro Forma Consolidated Financial Information" for a detailed presentation of the unaudited pro forma information, including a description of the transactions and assumptions underlying the pro forma adjustments.

(4)
Represents costs incurred in connection with separation agreements with former officers.

(5)
Represents casualty gain recorded related to insurance proceeds received as a result of store damage and business interruption for one of our stores.

(6)
Total debt consists of the current and long-term portions of our Credit Facilities, as well as debt discount and debt issuance costs.

(7)
Represents the number of our warehouse-format stores and our one small-format standalone design center.

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(8)
EBITDA and Adjusted EBITDA (which are shown in the reconciliations below) have been presented in this prospectus as supplemental measures of financial performance that are not required by, or presented in accordance with, GAAP. We define EBITDA as net income before interest, loss on early extinguishment of debt, taxes, depreciation and amortization. We define Adjusted EBITDA as net income before interest, loss on early extinguishment of debt, taxes, depreciation and amortization, adjusted to eliminate the impact of certain items that we do not consider indicative of our core operating performance. Reconciliations of these measures to the equivalent measures under GAAP are set forth in the table below.


EBITDA and Adjusted EBITDA are key metrics used by management and our board of directors to assess our financial performance and enterprise value. We believe that EBITDA and Adjusted EBITDA are useful measures, as they eliminate certain expenses that are not indicative of our core operating performance and facilitate a comparison of our core operating performance on a consistent basis from period to period. We also use Adjusted EBITDA as a basis to determine covenant compliance with respect to our Credit Facilities, to supplement GAAP measures of performance to evaluate the effectiveness of our business strategies, to make budgeting decisions, and to compare our performance against that of other peer companies using similar measures. EBITDA and Adjusted EBITDA are also used by analysts, investors and other interested parties as performance measures to evaluate companies in our industry.


EBITDA and Adjusted EBITDA are non-GAAP measures of our financial performance and should not be considered as alternatives to net income as a measure of financial performance or any other performance measure derived in accordance with GAAP and they should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items. Additionally, EBITDA and Adjusted EBITDA are not intended to be measures of liquidity or free cash flow for management's discretionary use. In addition, these non-GAAP measures exclude certain non-recurring and other charges. Each of these non-GAAP measures has its limitations as an analytical tool, and you should not consider them in isolation or as a substitute for analysis of our results as reported under GAAP. In evaluating EBITDA and Adjusted EBITDA, you should be aware that in the future we will incur expenses that are the same as or similar to some of the items eliminated in the adjustments made to determine EBITDA and Adjusted EBITDA, such as stock compensation expense, loss (gain) on asset disposal, executive recruiting/relocation, and other adjustments. Our presentation of EBITDA and Adjusted EBITDA should not be construed to imply that our future results will be unaffected by any such adjustments. Definitions and calculations of EBITDA and Adjusted EBITDA differ among companies in the retail industry, and therefore EBITDA and Adjusted EBITDA disclosed by us may not be comparable to the metrics disclosed by other companies.

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The reconciliations of net income to EBITDA and Adjusted EBITDA for the periods noted below are set forth in the table as follows:
 
  Fiscal year ended  
(in thousands)
  12/27/2012   12/26/2013   12/25/2014   12/31/2015(2)   12/29/2016  

Net income

  $ 12,838   $ 11,083   $ 15,098   $ 26,807   $ 43,039  

Depreciation and amortization(a)

    4,641     6,362     11,073     16,794     25,089  

Interest expense

    6,528     7,684     8,949     9,386     12,803  

Loss on early extinguishment of debt(b)

        1,638             1,813  

Income tax expense

    8,102     6,857     9,634     16,199     11,474  

EBITDA

    32,109     33,624     44,754     69,186     94,218  

Stock compensation expense(c)

    978     1,869     2,323     3,258     3,229  

Loss on asset disposal(d)

    157     656     148     128     451  

Executive severance(e)

            2,975     296      

Executive recruiting/relocation(f)

    751     54              

Legal settlement(g)

                    10,500  

Casualty gain(h)

    (1,421 )                

Other(i)

    (2 )   334     1,008          

Adjusted EBITDA

  $ 32,572   $ 36,537   $ 51,208   $ 72,868   $ 108,398  

(a)
Net of amortization of tenant improvement allowances and excludes deferred financing amortization, which is included as a part of interest expense in the table above.

(b)
Loss recorded as a result of the prepayment of our Subordinated Notes in 2013, as well as the non-cash write-off of certain deferred financing fees related to the refinancing of term and revolver borrowings in 2013 and 2016.

(c)
Non-cash charges related to stock-based compensation programs, which vary from period to period depending on timing of awards and forfeitures.

(d)
For fiscal years ended December 27, 2012, December 25, 2014, December 31, 2015 and December 29, 2016, the losses related primarily to assets retired in connection with significant store remodels. For the fiscal year ended December 26, 2013, the loss was primarily related to the write-off of certain software previously acquired.

(e)
Represents one-time costs incurred in connection with separation agreements with former officers.

(f)
Represents costs incurred to recruit and relocate members of executive management.

(g)
Legal settlement related to classwide settlement to resolve a lawsuit.

(h)
Represents casualty gain recorded related to insurance proceeds received as a result of store damage and business interruption at one of our stores.

(i)
Other adjustments include amounts management does not consider indicative of our core operating performance. Amounts in fiscal 2014 relate primarily to costs in connection with a proposed initial public offering.

57



UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION

              The following unaudited pro forma consolidated statement of income for the fiscal year ended December 29, 2016 gives effect to (i) Transaction Adjustments (as defined below), and (ii) Offering Adjustments (as defined below), in each case assuming such events occurred on January 1, 2016. The unaudited pro forma consolidated balance sheet as of December 29, 2016 gives effect to Offering Adjustments, assuming such events occurred on December 29, 2016.

              We have derived the unaudited pro forma consolidated statement of income for the fiscal year ended December 29, 2016 and the unaudited pro forma consolidated balance sheet as of December 29, 2016 from the audited consolidated financial statements as of and for the year ended December 29, 2016 set forth elsewhere in this prospectus. The pro forma financial information is qualified in its entirety by reference to, and should be read in conjunction with, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and the related notes included elsewhere in this prospectus.

              All of the earnings per share data, share numbers, share prices and exercise prices have been adjusted on a retroactive basis to reflect the 321.820-for-one stock split effected on April 24, 2017. See Note 12 to the audited consolidated financial statements included elsewhere in this prospectus.

              The pro forma adjustments related to the transactions other than this offering, which we refer to as the "Transaction Adjustments," are described in the notes to the unaudited pro forma consolidated financial information, and principally include the following:

    the 2016 Refinancing (see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources"), and

    the repricing of our Term Loan Facility (see "Prospectus Summary—Recent Developments—Repricing of Term Loan Facility").

              The pro forma adjustments related to this offering, which we refer to as the "Offering Adjustments," are described in the notes to the unaudited pro forma consolidated financial information, and principally include the following:

    the sale by us of 8,823,500 shares of Class A common stock in this offering at the initial public offering price of $21.00 per share, in exchange for net proceeds of approximately $166.3 million after deducting the underwriting discount and estimated offering expenses payable by us,

    the repayment of a portion of the Term Loan Facility from the net proceeds of this offering received by us as described under "Use of Proceeds," and

    the grant of options to purchase shares of Class A common stock under our 2017 Plan in connection with this offering.

              Except as otherwise indicated, the unaudited pro forma consolidated financial information presented assumes the underwriters have not exercised their option to purchase up to an additional 1,323,525 shares of Class A common stock from us at the initial public offering price less the underwriting discount.

              As a public company, we will be implementing additional procedures and processes for the purpose of addressing the standards and requirements applicable to public companies. We expect to incur additional annual expenses related to these steps and, among other things, additional directors' and officers' liability insurance, director fees, reporting requirements of the SEC, transfer agent fees, hiring additional accounting, legal and administrative personnel, increased auditing and legal fees and similar expenses. We have not included any pro forma adjustments relating to these costs.

58


              The pro forma adjustments are based upon available information and methodologies that are factually supportable and directly related to the Transaction Adjustments and Offering Adjustments. The unaudited pro forma consolidated financial information includes various estimates, which are subject to material change and may not be indicative of what our operations or financial position would have been had the Transaction Adjustments and Offering Adjustments taken place on the dates indicated, or that may be expected to occur in the future. For further discussion of these matters, see "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the historical consolidated financial statements and related notes included elsewhere in this prospectus.

59



FDO Holdings, Inc. and Subsidiaries
Unaudited Pro Forma Consolidated Balance Sheet as of December 29, 2016
(In Thousands, Except Share and Per Share Data)

 
  As of December 29, 2016  
 
  Actual   Offering
Adjustments
  Pro forma  

Assets

                   

Current assets:

                   

Cash and cash equivalents

  $ 451         $ 451  

Income taxes receivable

               

Receivables, net

    34,533           34,533  

Inventories, net

    293,702           293,702  

Prepaid expenses and other current assets

    7,529     (2,565 )(1)   4,964  

Total current assets

    336,215     (2,565 )   333,650  

Fixed assets, net

    150,471           150,471  

Intangible assets, net

    109,394           109,394  

Goodwill

    227,447           227,447  

Other assets

    7,639           7,639  

Total long-term assets

    494,951         494,951  

Total assets

  $ 831,166   $ (2,565 ) $ 828,601  

Liabilities and stockholders' equity

   
 
   
 
   
 
 

Current liabilities:

                   

Current portion of term loans

  $ 3,500         $ 3,500  

Trade accounts payable

    158,466           158,466  

Accrued expenses

    61,505           61,505  

Income taxes payable

    5,787     (1,684 )(2)   4,103  

Deferred revenue

    14,456           14,456  

Total current liabilities

    243,714     (1,684 )   242,030  

Term loans

    337,243     (164,421 )(2)(3)   172,822  

Revolving line of credit

    50,000           50,000  

Deferred rent

    16,750           16,750  

Deferred income tax liabilities, net

    28,265           28,265  

Tenant improvement allowances

    20,319           20,319  

Other liabilities

    592           592  

Total long-term liabilities

    453,169     (164,421 )   288,748  

Total liabilities

    696,883     (166,105 )   530,778  

Commitments and contingencies

   
 
   
 
   
 
 

Stockholders' equity

   
 
   
 
   
 
 

Undesignated preferred stock, par value $0.001 per share; 10,000,000 shares authorized, no shares issued and outstanding, actual; and 10,000,000 shares authorized, no shares issued and outstanding, pro forma

               

Class A common stock, par value $0.001 per share; 450,000,000 shares authorized, 76,847,116 shares issued and outstanding, actual; and 450,000,000 shares authorized, 86,066,358 shares issued and outstanding, pro forma

    77     9 (3)   86  

Class B common stock, par value $0.001 per share; 10,000,000 shares authorized, 395,742 shares issued and outstanding, actual; and 10,000,000 shares authorized, no shares issued and outstanding, pro forma

               

Class C common stock, par value $0.001 per share; 30,000,000 shares authorized, 6,275,489 shares issued and outstanding, actual; and 30,000,000 shares authorized, 6,275,489 shares issued and outstanding, pro forma

    6           6  

Additional paid-in capital

    117,270     166,314 (1)(3)   283,584  

Accumulated other comprehensive income, net

    176           176  

Retained earnings

    16,754     (2,783 )(2)   13,971  

Total stockholders' equity

    134,283     163,540     297,823  

Total liabilities and stockholders' equity

  $ 831,166   $ (2,565 ) $ 828,601  

   

See accompanying Notes to Unaudited Pro Forma Consolidated Balance Sheet.

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FDO Holdings, Inc. and Subsidiaries
Notes to Unaudited Pro Forma Consolidated Balance Sheet

(1)
We have deferred certain costs associated with this offering, including certain legal, accounting and other related expenses directly attributable to our initial public offering, which have been recorded in Prepaid expenses and other current assets on our consolidated balance sheet. Upon completion of this offering, these deferred costs will be charged against the proceeds from this offering with a corresponding reduction to additional paid-in capital.

(2)
Write-off of approximately $4.5 million of unamortized deferred debt issuance cost and original issue discount associated with the repayment of a portion of the Term Loan Facility from the net proceeds to us from this offering (see "Use of Proceeds" for additional details).

(3)
The net proceeds to us from this offering, after deducting underwriting discounts and commissions and estimated offering expenses, will be approximately $166.3 million, based on the initial public offering price of $21.00 per share. This amount has been determined based on the assumption that the underwriters' option to purchase additional shares of our Class A common stock is not exercised. A reconciliation of the gross proceeds from this offering to the net cash proceeds is set forth below.

Initial public offering price

  $ 21.00  

Shares of Class A common stock issued in this offering

    8,823,500  

Gross proceeds

    185,293,500  

Less: underwriting discounts and commissions

    12,970,545  

Less: offering expenses (including amounts previously deferred)

    6,000,000  

Net cash proceeds

  $ 166,322,955  

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FDO Holdings, Inc. and Subsidiaries
Unaudited Pro Forma Consolidated Statements of Income Fiscal Year Ended December 29, 2016
(In Thousands, Except Share and Per Share Data)

 
  Fiscal year ended December 29, 2016  
 
  Actual   Transaction
Adjustments
  Pro forma
for Transaction
Adjustments
  Offering
Adjustments
  Pro forma
for Transaction
Adjustments
and Offering
Adjustments
 

Net sales

  $ 1,050,759   $     $ 1,050,759   $     $ 1,050,759  

Cost of sales

    621,497           621,497           621,497  

Gross profit

    429,262           429,262           429,262  

Selling & store operating expenses

    271,876           271,876           271,876  

General & administrative expenses

    64,025           64,025     2,300 (3)   66,325  

Pre-opening expenses

    13,732           13,732           13,732  

Litigation settlement

    10,500           10,500           10,500  

Operating income

    69,129           69,129     (2,300 )   66,829  

Interest expense

    12,803     6,626 (1)   19,429     (8,467 )(4)   10,962  

Loss on early extinguishment of debt

    1,813     (1,813 )(2)            

Income before income taxes

    54,513     (4,813 )   49,700     6,167     55,867  

Provision for income taxes

    11,474     (1,815 )(5)   9,659     2,325 (5)   11,984  

Net income

  $ 43,039   $ (2,998 ) $ 40,041   $ 3,842   $ 43,883  

Earnings per share:

                               

Basic

  $ 0.52                     $ 0.48  

Diluted

  $ 0.49                     $ 0.45  

Weighted average shares outstanding:

   
 
   
 
   
 
   
 
   
 
 

Basic

    83,432,157                       92,255,657  

Diluted

    88,430,987                       97,254,487  

See accompanying Notes to Unaudited Pro Forma Consolidated Statements of Income.

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FDO Holdings, Inc. and Subsidiaries
Notes to Unaudited Pro Forma Consolidated Statements of Income

(1)
Reflects the increase in pro forma net interest of $6.6 million for the following items:

Interest expense decrease associated with terminating the Prior Term Loan Facility and GCI facility and pay down of the Prior ABL Facility(a)

  $ (5,185 )      

Interest expense increase associated with the Term Loan Facility and ABL Facility(b)

    14,347        

Net increase attributable to 2016 Refinancing

          9,162  

Decrease attributable to repricing of the Term Loan Facility(c)

          (2,536 )

Total

        $ 6,626  
    (a)
    The pro forma adjustment of approximately $5.2 million represents (i) the termination of the GCI Facility of $77.6 million on September 30, 2016, which had an interest rate of 7.75%, (ii) the termination of the Prior Term Loan Facility of $19.8 million on September 30, 2016, which had an average interest rate of 3.30% and (iii) the pay down of $13.0 million of the Prior ABL Facility on September 30, 2016, which had an average interest rate of 1.74%. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources" for additional detail.

    (b)
    The pro forma adjustment of approximately $14.3 million represents (i) interest expense associated with nine months of additional pro forma average debt of $359 million associated with the Term Loan Facility and increased borrowings under the ABL Facility due to higher interest payments on the Tern Loan Facility, which combined for a weighted average interest rate of 5.07% and (ii) $0.7 million of incremental amortization of deferred debt issuance cost and original issue discount associated with the Term Loan Facility. A 1/8th variance in the assumed interest rate on the Term Loan Facility and ABL Facility would change annual interest by $2.3 million, subject to our interest rate floor of 1.00% on the Term Loan Facility and 0.00% on the ABL Facility. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources" for additional detail.

    (c)
    Reflects the pro forma adjustment to decrease interest expense due to (i) the repricing of the Term Loan Facility and reduced borrowings under the ABL Facility due to lower interest payments on the Term Loan Facility, which combined for a pro forma average debt of $347 million for fiscal 2016 with an average interest rate reduction of 0.77% and (ii) an offsetting increase in interest expense associated with $0.1 million of incremental amortization of debt issuance costs associated with the Term Loan Facility repricing. In March 2017, we entered into a repricing amendment to the credit agreement governing our $350 million Term Loan Facility to lower our interest rate by 75 basis points to 4.50% (for LIBOR loans based on a margin of 3.50% and a 1.00% floor). See "Prospectus Summary—Recent Developments—Repricing of Term Loan Facility" for additional detail.

(2)
Reflects the pro forma adjustment to remove the one-time nonrecurring write-off of $1.8 million of unamortized deferred debt issuance cost and original issue discount associated with (i) the termination of the GCI Facility, (ii) the termination of the Prior Term Loan Facility and (iii) amending the ABL Facility.

(3)
This adjustment represents the increase in compensation expense we expect to incur following the completion of this offering. We expect to grant approximately 1.3 million stock options to certain employees and 15 thousand restricted stock awards to certain members of our board of directors in connection with this offering. The stock options were calculated assuming an exercise price equal to $21.00 per share, the initial public offering price. We assume the restricted stock awards are granted with a fair value of $21.00 per share, the initial public offering price per share. Based on the assumed exercise price of the stock options and the assumed fair value of the restricted stock awards set forth above, total amount of compensation expense associated with stock options and restricted stock awards we expect to grant in connection with this offering is $11.5 million, which we will recognize over five years for stock options and three years for restricted stock awards, aligning with their respective vesting periods. The grant date fair value of stock options is estimated to be $8.90 and was determined using the Black-Scholes valuation model using the following assumptions:

Risk-free interest rate

    2.12 %

Expected volatility

    39 %

Expected life (in years)

    6.5  

Dividend yield

    0 %
(4)
Reflects the pro forma adjustment to decrease interest expense by approximately $8.5 million due to (i) utilizing net Offering Adjustment proceeds of approximately $169 million to pay down a portion of the Term Loan Facility, and reduced borrowings under the ABL Facility due to lower interest payments on the Term Loan Facility, which combined for a pro forma average debt reduction of $173 million for fiscal 2016 with a weighted average interest rate of 4.49% and (ii) $0.7 million of lower amortization of deferred debt issuance cost and original issue discount associated with the Term Loan Facility pay down. In connection with the Term Loan Facility pay down, we anticipate incurring a one-time nonrecurring debt extinguishment loss reflecting the write-off of $5.1 million of unamortized deferred debt issuance costs and original issue discount associated with the Term Loan Facility. The write-off of $5.1 million has not been included in the calculation of pro forma net income.

(5)
Represents the increase (decrease) in income tax expense for the related pro forma adjustments. For fiscal 2016, we utilized an effective tax rate of 37.7%.

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

              You should read the following discussion and analysis of our financial condition and results of operations together with "Selected Consolidated Financial Data" and our consolidated financial statements and the related notes thereto and other financial information included elsewhere in this prospectus. Some of the information contained in this discussion and analysis or set forth elsewhere in this prospectus includes forward-looking statements that involve risks and uncertainties. You should review the "Special Note Regarding Forward-Looking Statements" and "Risk Factors" sections of this prospectus for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

              We operate on a 52- or 53-week fiscal year ending on the Thursday on or preceding December 31. The following discussion contains references to our fiscal years ended December 25, 2014 and December 29, 2016, which were 52-week periods, and December 31, 2015, which was a 53-week period.

Overview

              Founded in 2000, Floor & Decor is a high-growth, differentiated, multi-channel specialty retailer of hard surface flooring and related accessories with 69 warehouse-format stores across 17 states as of December 29, 2016. We believe that we offer the industry's broadest assortment of tile, wood, laminate and natural stone flooring along with decorative and installation accessories at everyday low prices. We appeal to a variety of customers, including our Pro, DIY and BIY customers. Our warehouse-format stores, which average approximately 72,000 square feet, carry on average approximately 3,500 flooring and decorative and installation accessory SKUs, which equates to 1.3 million square feet of flooring products or $2.5 million of inventory at cost. We believe that our inspiring design centers and creative and informative visual merchandising also greatly enhance our customers' experience. In addition to our stores, our website FloorandDecor.com showcases our products.

              We believe our strong financial results are a reflection of our consistent and disciplined culture of innovation and reinvestment, creating a differentiated business model in the hard surface flooring category. We have had eight consecutive years of double digit comparable store sales growth averaging 15.3% per year, with a 19.4% increase in fiscal 2016. Net sales increased $266.7 million, or 34.0%, from $784.0 million to $1,050.8 million in fiscal 2015 and fiscal 2016, respectively. Our net sales increased from $584.6 million in fiscal 2014 to $1,050.8 million in fiscal 2016, representing a CAGR of 34.1%. We have expanded our store base from 38 warehouse-format stores at the end of fiscal 2013 to 69 at the end of fiscal 2016, representing a CAGR of 22.0%.

              During fiscal 2016, we continued to make long-term key strategic investments, including:

    opened 12 new warehouse-format stores during fiscal 2016 ending with 69 warehouse-format stores, which was a 21.1% growth in units compared to fiscal 2015;

    investing in our connected customer, Pro customer and F&D Commercial strategies;

    increasing proprietary credit offerings;

    augmenting the management team with new hires in store operations, store training, Pro and Commercial sales, e-commerce, supply chain, merchandising, real estate, information technology and inventory management;

    enhancing our product assortment and upgrading our visual merchandising and store training program;

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    adding more resources dedicated to serving our Pro customers;

    investing capital to continue enhancing the in-store shopping experience for our customers; and

    increased marketing to articulate our unique features and benefits in the hard surface flooring market.

              We believe that our compelling business model, plus the projected growth of the large and highly fragmented $10 billion hard surface flooring market (in manufacturers' dollars, an estimated $17 billion after the retail markup), provides us with an opportunity to significantly expand our store base in the U.S. from 69 warehouse-format stores as of December 29, 2016 to approximately 400 stores nationwide within the next 15 years based on our internal research with respect to housing density, demographic data, competitor concentration and other variables in both new and existing markets. Over the next several years, we plan to grow our store base by approximately 20% per year. Our ability to open profitable new stores depends on many factors, including the successful selection of new markets and store locations, our ability to negotiate leases on acceptable terms and our ability to attract highly qualified managers and staff. For further information see "Risk Factors—Risks Related to Our Business."

      Key Performance Indicators

              We consider a variety of performance and financial measures in assessing the performance of our business. The key measures we use to determine how our business is performing are comparable store sales, the number of new store openings, gross profit and gross margin, operating income and EBITDA and Adjusted EBITDA.

      Comparable Store Sales

              Our comparable store sales growth is a significant driver of our net sales, profitability, cash flow and overall business results. We believe that comparable store sales growth is generated by continued focus on providing a dynamic and expanding product assortment in addition to other merchandising initiatives, quality of customer service, enhancing sales and marketing strategies, improving visual merchandising and overall aesthetic appeal of stores and website, effectively serving our Pro customers, continued investment in store staff and infrastructure, growing our proprietary credit offering, and further integrating connected customer strategies and other key information technology enhancements.

              Comparable store sales refer to period-over-period comparisons of our net sales among the comparable store base. A store is included in the comparable store sales calculation on the first day of the thirteenth full fiscal month following a store's opening, which is when we believe comparability has been achieved. Since our e-commerce sales are fulfilled by individual stores, they are included in comparable store sales only to the extent such fulfilling store meets the above mentioned store criteria. Changes in our comparable store sales between two periods are based on net sales for stores that were in operation during both of the two periods. Any change in square footage of an existing comparable store, including remodels and relocations, does not eliminate that store from inclusion in the calculation of comparable store sales. Stores that are closed temporarily and relocated within their primary trade areas are included in same store sales. Additionally, any stores that were closed during the current or prior fiscal year are excluded from the definition of comparable stores.

              Our fiscal 2015 year, which ended December 31, 2015, included a 53rd week. When presenting comparable store sales for fiscal 2015 and fiscal 2016, we have excluded the last week of fiscal 2015.

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              Definitions and calculations of comparable store sales differ among companies in the retail industry, and therefore comparable store metrics disclosed by us may not be comparable to the metrics disclosed by other companies.

              Comparable store sales allow us to evaluate how our retail stores are performing by measuring the change in period-over-period net sales in stores that have been open for thirteen months or more. Various factors affect comparable store sales, including:

    national and regional economic conditions;

    the retail sales environment and other retail trends;

    the home improvement spending environment;

    the hard surface flooring industry trends;

    the impact of competition;

    changes in our product mix;

    changes in staffing at our stores;

    cannibalization resulting from the opening of new stores in existing markets;

    changes in pricing;

    changes in advertising and other operating costs; and

    weather conditions.

      Number of New Stores

              The number and timing of new store openings, and the costs and fixed lease obligations associated therewith, have had, and are expected to continue to have, a significant impact on our results of operations. The number of new stores reflects the number of stores opened during a particular reporting period. Before we open new stores, we incur pre-opening expenses, which are defined below. While net sales at new stores are generally lower than net sales at our stores that have been open for more than one year, our new stores have historically been profitable in their first year. Generally, our newer stores have also averaged higher comparable store sales growth than our total store average.

      Gross Profit and Gross Margin

              Our gross profit is variable in nature and generally follows changes in net sales. Our gross profit and gross margin can also be impacted by changes in our prices, our merchandising assortment, shrink, damage, selling of discontinued products, the cost to transport our products from the manufacturer to our stores and our distribution center costs. With respect to our merchandising assortment, certain of our products tend to generate somewhat higher margins than other products within the same product categories or among different product categories. We have experienced modest inflation increases in certain of our product categories, but historically have been able to source from a different manufacturer or pass increases onto our consumers with modest impact on our gross margin. Our gross profit and gross margin, which reflect our net sales and our cost of sales and any changes to the components thereof, allow us to evaluate our profitability and overall business results.

              Gross profit is calculated as net sales less cost of sales. Gross profit as a percentage of net sales is referred to as gross margin. Cost of sales consists of merchandise costs, as well as capitalized freight costs to transport inventory to our distribution centers and stores, and duty and other costs that are incurred to distribute the merchandise to our stores. Cost of sales also includes shrinkage, damage

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product disposals, distribution, warehousing costs, sourcing and compliance costs. We receive cash consideration from certain vendors related to vendor allowances and volume rebates, which is recorded as a reduction of costs of sales as the inventory is sold or as a reduction of the carrying value of inventory while the inventory is still on hand. Costs associated with arranging and paying for freight to deliver products to customers is included in cost of sales. The components of our cost of sales may not be comparable to the components of cost of sales, or similar measures, of other retailers. As a result, data in this prospectus regarding our gross profit and gross margin may not be comparable to similar data made available by other retailers.

      Operating Income, EBITDA, Adjusted EBITDA

              EBITDA and Adjusted EBITDA are supplemental measures of financial performance that are not required by, or presented in accordance with, GAAP. We define EBITDA as net income before interest, loss on early extinguishment of debt, taxes, depreciation and amortization. We define Adjusted EBITDA as net income before interest, loss on early extinguishment of debt, taxes, depreciation and amortization, adjusted to eliminate the impact of certain items that we do not consider indicative of our core operating performance.

              Operating income, EBITDA and Adjusted EBITDA are key metrics used by management and our board of directors to assess our financial performance and enterprise value. We believe that operating income, EBITDA and Adjusted EBITDA are useful measures, as they eliminate certain expenses that are not indicative of our core operating performance and facilitate a comparison of our core operating performance on a consistent basis from period to period. We also use Adjusted EBITDA as a basis to determine covenant compliance with respect to our Credit Facilities, to supplement GAAP measures of performance to evaluate the effectiveness of our business strategies, to make budgeting decisions and to compare our performance against that of other peer companies using similar measures. Operating income, EBITDA and Adjusted EBITDA are also frequently used by analysts, investors and other interested parties as performance measures to evaluate companies in our industry.

              EBITDA and Adjusted EBITDA are non-GAAP measures of our financial performance and should not be considered as alternatives to net income as a measure of financial performance or any other performance measure derived in accordance with GAAP and they should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items. Additionally, EBITDA and Adjusted EBITDA are not intended to be measures of liquidity or free cash flow for management's discretionary use. In addition, these non-GAAP measures exclude certain non-recurring and other charges. Each of these non-GAAP measures has its limitations as an analytical tool, and you should not consider them in isolation or as a substitute for analysis of our results as reported under GAAP. In evaluating EBITDA and Adjusted EBITDA, you should be aware that in the future we will incur expenses that are the same as or similar to some of the items eliminated in the adjustments made to determine EBITDA and Adjusted EBITDA, such as stock compensation expense, loss (gain) on asset disposal, executive recruiting/relocation, and other adjustments. Our presentation of EBITDA and Adjusted EBITDA should not be construed to imply that our future results will be unaffected by any such adjustments. Definitions and calculations of EBITDA and Adjusted EBITDA differ among companies in the retail industry, and therefore EBITDA and Adjusted EBITDA disclosed by us may not be comparable to the metrics disclosed by other companies.

      Other Key Financial Definitions

      Net Sales

              The retail sector in which we operate is cyclical, and consequently our sales are affected by general economic conditions. Purchases of our products are sensitive to trends in the levels of consumer spending, which are affected by a number of factors such as consumer disposable income,

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housing market conditions, unemployment trends, stock market performance, consumer debt levels and consumer credit availability, interest rates and inflation, tax rates and overall consumer confidence in the economy.

              Net sales reflect our sales of merchandise, less discounts and estimated returns and include our in-store sales and e-commerce sales. In certain cases, we arrange and pay for freight to deliver products to customers and bills the customer for the estimated freight cost, which is also included in net sales. Revenue is recognized when both collection or reasonable assurance of collection of payment and final delivery of the product have occurred. For orders placed through our website and shipped to our customers, revenue is recognized at the time we estimate the customer receives the merchandise, which is typically within a few days of shipment.

      Selling and Store Operating Expenses

              We expect that our selling and store operating expenses will increase in future periods with future growth. Selling and store operating expenses consist primarily of store personnel wages, bonuses and benefits, rent and infrastructure expenses, supplies, depreciation and amortization, training expenses and advertising costs. Credit card fees, insurance, personal property taxes and other miscellaneous operating costs are also included.

              The components of our selling and store operating expenses may not be comparable to the components of similar measures of other retailers.

      General and Administrative Expenses

              We expect that our general and administrative expenses will increase in future periods with future growth and in part due to additional legal, accounting, insurance and other expenses that we expect to incur as a result of being a public company, including compliance with the Sarbanes-Oxley Act. General and administrative expenses include both fixed and variable components, and therefore, are not directly correlated with net sales.

              General and administrative expenses consist primarily of costs incurred outside of our stores and include administrative personnel wages in our store support center and regional offices, bonuses and benefits, supplies, depreciation and amortization, and store support center expenses. Insurance, legal expenses, information technology costs, consulting and other miscellaneous operating costs are also included.

              The components of our general and administrative expenses may not be comparable to the components of similar measures of other retailers.

      Pre-Opening Expenses

              We account for non-capital operating expenditures incurred prior to opening a new store or relocating an existing store as "pre-opening" expenses in its consolidated statements of income. Our pre-opening expenses begin on average three to six months in advance of a store opening or relocating due to, among other things, the amount of time it takes to prepare a store for its grand opening. Pre-opening expenses primarily include the following: rent, advertising, training, staff recruiting, utilities, personnel, and equipment rental. A store is considered to be relocated if it is closed temporarily and re-opened within the same primary trade area.

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Results of Operations

              The following table summarizes key components of our results of operations for the periods indicated, in dollars and as a percentage of net sales:

 
  Fiscal year ended  
(in thousands)
  12/25/2014   12/31/2015(1)   12/29/2016  

Net sales

  $ 584,588   $ 784,012   $ 1,050,759  

Cost of sales

    355,051     471,390     621,497  

Gross profit

    229,537     312,622     429,262  

Selling & store operating expenses

    146,485     202,637     271,876  

General & administrative expenses

    38,984     49,917     64,025  

Pre-opening expenses

    7,412     7,380     13,732  

Litigation settlement

            10,500  

Executive severance

    2,975     296      

Operating income

    33,681     52,392     69,129  

Interest expense

    8,949     9,386     12,803  

Loss on early extinguishment of debt

            1,813  

Income before income taxes

    24,732     43,006     54,513  

Provision for income taxes

    9,634     16,199     11,474  

Net income

  $ 15,098   $ 26,807   $ 43,039  

 

 
  Fiscal year ended  
 
  12/25/2014   12/31/2015(1)   12/29/2016  

Net sales

    100.0 %   100.0 %   100.0 %

Cost of sales

    60.7     60.1     59.1  

Gross profit

    39.3     39.9     40.9  

Selling & store operating expenses

    25.1     25.8     25.9  

General & administrative expenses

    6.6     6.5     6.1  

Pre-opening expenses

    1.3     0.9     1.3  

Litigation settlement

    0.0     0.0     1.0  

Executive severance

    0.5     0.0     0.0  

Operating income

    5.8     6.7     6.6  

Interest expense

    1.6     1.2     1.2  

Loss on early extinguishment of debt

    0.0     0.0     0.2  

Income before income taxes

    4.2     5.5     5.2  

Provision for income taxes

    1.6     2.1     1.1  

Net income

    2.6 %   3.4 %   4.1 %

(1)
The 53rd week in fiscal 2015 represented $11.9 million in net sales and an estimated $2.1 million in operating income.

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Fiscal 2016 Compared to Fiscal Year 2015

      Net Sales

              The following table summarizes our change in net sales for fiscal 2016 compared to fiscal 2015:

 
  Fiscal year ended    
   
 
 
  December 31,
2015
  December 29,
2016
  $ Change   % Change  

Net sales

  $ 784,012   $ 1,050,759   $ 266,747     34.0 %

              Net sales during fiscal 2016 increased $266.7 million, or 34.0%, compared to the corresponding prior year period. All of our product categories experienced comparable store sales increases during the period, driven by increases in laminate/luxury vinyl plank, decorative accessories and tile that were above our company average for fiscal 2016. Our comparable store sales increased 19.4%, or $149.1 million, while our non-comparable store sales contributed $117.6 million. The increase in comparable store sales was driven primarily by an increase in comparable customer transactions of 14.7% and to a lesser extent by comparable average ticket growth of 3.6%. Comparable customer transactions and average ticket are measured at the time of sale, which may be slightly different than our reported sales due to timing of when final delivery of the product has occurred. We believe the increase in net sales, customer transactions and average ticket are due to the execution of our key strategic investments and an improved U.S. flooring market. As described in the "Overview" section above, we have hired key personnel in all departments, implemented connected customer strategies, including an improved website, and made key process and technology investments in merchandising and supply chain leading to better in-stock selection and higher quality products. We have invested in value added strategies targeting Pro customers, including dedicated sales teams. Non-comparable store sales were driven by the opening of 12 new stores during fiscal 2016.

      Gross Profit and Gross Margin

              The following table summarizes our change in gross profit and gross margin for fiscal 2016 compared to fiscal 2015:

 
  Fiscal year ended    
   
 
(in thousands)
  December 31,
2015
  December 29,
2016
  $ Change   % Change  

Gross profit

  $ 312,622   $ 429,262   $ 116,640     37.3 %

Gross margin

    39.9 %   40.9 %            

              Gross profit during fiscal 2016 increased $116.6 million, or 37.3%, compared to fiscal 2015. This increase in gross profit was primarily the result of increased sales volume.

              Gross margin for fiscal 2016 increased approximately 100 basis points compared to fiscal 2015. This increase was primarily driven by approximately 120 basis points of product margin improvement resulting from increased sales of higher quality products that carry a higher gross margin and lower capitalized freight costs, slightly offset by approximately 10 basis points of higher supply chain and global sourcing and compliance costs as well as approximately 10 basis points due to higher inventory damage and shrinkage.

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      Selling and Store Operating Expenses

              The following table summarizes our change in selling and store operating expenses for fiscal 2016 compared to fiscal 2015:

 
  Fiscal year ended    
   
 
(in thousands)
  December 31,
2015
  December 29,
2016
  $ Change   % Change  

Selling and store operating expenses

  $ 202,637   $ 271,876   $ 69,239     34.2 %

Selling and store operating expenses as a % of net sales

    25.8 %   25.9 %            

              Selling and store operating expenses increased $69.2 million, or 34.2%, due primarily to the addition of 12 new stores during fiscal 2016, and increased expenses in our comparable stores, which drove an increase in comparable store sales of 19.4%.

              As a percentage of net sales, our selling and store operating expenses increased approximately 10 basis points to 25.9%. Our comparable store selling and store operating expenses decreased by approximately 130 basis points as a percentage of comparable store sales as we leveraged occupancy, personnel and advertising expenses on higher net sales. Our new stores have lower net sales and higher store operating expenses as a percentage of net sales than do our mature stores.

      General and Administrative Expenses

              The following table summarizes our change in general and administrative expenses for fiscal 2016 compared to fiscal 2015:

 
  Fiscal year ended    
   
 
(in thousands)
  December 31,
2015
  December 29,
2016
  $ Change   % Change  

General and administrative expenses

  $ 49,917   $ 64,025   $ 14,108     28.3 %

General and administrative expenses as a % of net sales

    6.5 %   6.1 %            

              General and administrative expenses, which are typically expenses incurred outside of our stores, increased $14.1 million, or 28.3%, due to investments we made in personnel for our regional and store support functions to support our store growth, higher incentive compensation accruals and higher consulting costs. Our general and administrative expenses as a percentage of net sales decreased by approximately 40 basis points primarily due to leveraging our expenses over increasing net sales.

      Pre-Opening Expenses

              The following table summarizes our change in pre-opening expenses for fiscal 2016 compared to fiscal 2015:

 
  Fiscal year ended    
   
 
(in thousands)
  December 31,
2015
  December 29,
2016
  $ Change   % Change  

Pre-opening expenses

  $ 7,380   $ 13,732   $ 6,352     86.1 %

Pre-opening expenses as a % of net sales

    0.9 %   1.3 %            

              Pre-opening expenses increased $6.4 million, or 86.1%. The increase is primarily due to a greater number of new stores opened or planned to be opened for which pre-opening expenses were incurred and to a lesser extent higher average occupancy and advertising costs per store during fiscal 2016 compared to fiscal 2015. During fiscal 2016, we opened 12 stores and incurred costs for three additional stores planned to open as well as one relocation in 2017 compared to opening ten stores and incurring costs for two additional stores that opened in 2016 during fiscal 2015.

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      Interest Expense

              The following table summarizes our change in interest expense for fiscal 2016 compared to fiscal 2015:

 
  Fiscal year ended    
   
 
(in thousands)
  December 31,
2015
  December 29,
2016
  $ Change   % Change  

Interest expense

  $ 9,386   $ 12,803   $ 3,417     36.4 %

              Interest expense for fiscal 2016 increased $3.4 million compared to fiscal 2015. The increase in interest expense was entirely due to our average total debt increasing $64.4 million to $225.4 million for fiscal 2016 compared to $161.0 million in fiscal 2015. The effective interest rate was 5.7% in fiscal 2016 compared to 5.8% in fiscal 2015.

      Taxes

              The following table summarizes our change in provision for income taxes and our effective tax rates for fiscal 2016 compared to fiscal 2015:

 
  Fiscal year ended    
   
 
(in thousands)
  December 31,
2015
  December 29,
2016
  $ Change   % Change  

Provision for income taxes

  $ 16,199   $ 11,474   $ (4,725 )   (29.2 )%

Effective tax rate

    37.7 %   21.0 %            

              The provision for income taxes decreased $4.7 million, or 29.2%. The decrease in the provision for income taxes for fiscal 2016 compared to fiscal 2015 is attributable to the decrease in the effective tax rate, partially offset by an increase in income before income taxes. The decrease in the fiscal 2016 effective tax rate was due to an $8.5 million state and federal tax benefit related to a dividend equivalent payment to certain option holders.

Fiscal 2015 Compared to Fiscal 2014

      Net Sales

              The following table summarizes our change in net sales for fiscal 2015 compared to fiscal 2014:

 
  Fiscal year ended    
   
 
 
  December 25,
2014
  December 31,
2015
  $ Change   % Change  

Net sales

  $ 584,588   $ 784,012   $ 199,424     34.1 %

              Net sales in fiscal 2015 increased $199.4 million, or 34.1%, compared to fiscal 2014. All of our product categories experienced comparable store sales increases during the period, driven by increases in tile, decorative accessories, and installation materials and tools that were above our average for fiscal 2015. Our comparable store sales increased 13.5%, or $78.8 million, while our non-comparable store sales contributed $120.6 million. The increase in comparable store sales was primarily driven by an increase in comparable customer transactions of 11.7% and to a lesser extent by comparable average ticket growth of 1.4%. Comparable customer transactions and average ticket are measured at the time of sale, which may be slightly different than our reported sales due to timing of when final delivery of the product has occurred. We believe the increase in net sales and average ticket was due to an improved U.S. flooring market and the execution of our key strategic investments, including hiring key personnel in all departments and improving our assortment by buying better products that offer more value, features and benefits. We also took over the management of all our distribution centers, which led to better in-stock selection and faster replenishment. Non-comparable store sales were driven by the opening of ten new stores during fiscal 2015. The 53rd week in fiscal 2015 added approximately $11.9 million in net sales.

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      Gross Profit and Gross Margin

              The following table summarizes our change in gross profit and gross margin for fiscal 2015 and fiscal 2014:

 
  Fiscal year ended    
   
 
(in thousands)
  December 25,
2014
  December 31,
2015
  $ Change   % Change  

Gross profit

  $ 229,537   $ 312,622   $ 83,085     36.2 %

Gross margin

    39.3 %   39.9 %            

              Gross profit for fiscal 2015 increased $83.1 million, or 36.2%, compared to fiscal 2014. This increase in gross profit was primarily the result of increased sales and higher product margins.

              Gross margin for fiscal 2015 increased approximately 60 basis points to 39.9% from 39.3% in fiscal 2014. This increase in gross margin was primarily attributable to higher product margin of approximately 40 basis points and approximately 40 basis points due to lower inventory shrinkage and damage, partially offset by approximately 30 basis points of higher distribution center and supply chain costs.

      Selling and Store Operating Expenses

              The following table summarizes our selling and store operating expenses for fiscal 2015 and fiscal 2014:

 
  Fiscal year ended    
   
 
(in thousands)
  December 25,
2014
  December 31,
2015
  $ Change   % Change  

Selling and store operating expenses

  $ 146,485   $ 202,637   $ 56,152     38.3 %

Selling and store operating expenses as a % of net sales

    25.1 %   25.8 %            

              Selling and store operating expenses in fiscal 2015 increased by $56.2 million, or 38.3% from fiscal 2014, due primarily to the addition of ten new stores in fiscal 2015, and to a lesser extent, increased expenses in our comparable stores, which drove an increase in comparable store sales of 13.5% and were incurred as a result of such increased net sales.

              As a percentage of net sales, our selling and store operating expenses for fiscal 2015 increased approximately 70 basis points to 25.8% from 25.1% in fiscal 2014, due entirely to the addition of ten new stores. This was modestly offset by our comparable store selling and store operating expenses decreasing by 130 basis points as a percentage of comparable store sales. Our new stores have lower net sales and higher store operating expenses as a percentage of net sales than our total store average.

      General and Administrative Expenses

              The following table summarizes our change in general and administrative expenses for fiscal 2015 and fiscal 2014:

 
  Fiscal year ended    
   
 
(in thousands)
  December 25,
2014
  December 31,
2015
  $ Change   % Change  

General and administrative expenses

  $ 38,984   $ 49,917   $ 10,933     28.0 %

General and administrative expenses as a % of net sales

    6.6 %   6.5 %            

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              General and administrative expenses, which are typically expenses incurred outside of our stores, increased $10.9 million, or 28.0%, due to our continued investment in personnel to support store growth as well as higher incentive compensation accruals. Our general and administrative expenses as a percentage of net sales decreased by approximately 10 basis points primarily due to leveraging personnel and operating costs over increasing net sales.

      Pre-Opening Expenses

              The following table summarizes our change in pre-opening expenses for fiscal 2015 and fiscal 2014:

 
  Fiscal year ended    
   
 
(in thousands)
  December 25,
2014
  December 31,
2015
  $ Change   % Change  

Pre-opening expenses

  $ 7,412   $ 7,380   $ (32 )   (0.4 )%

Pre-opening expenses as a % of net sales

    1.3 %   0.9 %            

              Pre-opening expenses in fiscal 2015 were flat compared to fiscal 2014. As a percentage of net sales, pre-opening expenses for fiscal 2015 decreased approximately 40 basis points from fiscal 2014 primarily due to leveraging expenses over increasing net sales. We had a minimal decrease in pre-opening expenses in fiscal 2015 compared to fiscal 2014 due to the timing of store openings. During fiscal 2015, we opened ten stores and incurred costs for two additional stores planned to open in 2016 compared to opening nine stores and incurring costs for one additional store that opened in 2015 during fiscal 2014.

      Interest Expense

              The following table summarizes our change in interest expense for fiscal 2015 and fiscal 2014:

 
  Fiscal year ended    
   
 
(in thousands)
  December 25,
2014
  December 31,
2015
  $ Change   % Change  

Interest expense

  $ 8,949   $ 9,386   $ 437     4.9 %

              Interest expense in fiscal 2015 increased $0.4 million, or 4.9%. The increase in interest expense was due to our average total debt increasing to $161.1 million in fiscal 2015 compared to $147.9 million in fiscal 2014, offset by a reduction in the effective interest rate of 5.8% for fiscal 2015 from 6.1% for fiscal 2014.

      Taxes

              The following table summarizes our change in provision for income taxes and our effective tax rate for fiscal 2015 and fiscal 2014:

 
  Fiscal year ended    
   
 
(in thousands)
  December 25,
2014
  December 31,
2015
  $ Change   % Change  

Provision for income taxes

  $ 9,634   $ 16,199   $ 6,565     68.1 %

Effective tax rate

    39.0 %   37.7 %            

              The provision for income taxes increased $6.6 million, or 68.1%. The increase in the provision for income taxes for fiscal 2015 compared to fiscal 2014 is attributable to the increase in income before

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income taxes. The decrease in the effective tax rate was due to net favorable discrete items for fiscal 2015, primarily related to federal and state provision to return adjustments.

Seasonality

              Historically, our business has had very little seasonality. Our specialty hard surface flooring and decorative home product offering makes us less susceptible to holiday shopping seasonal patterns compared to other retailers. However, we generally conduct a clearance event during our third fiscal quarter followed by a smaller clearance event towards the end of the year. The timing of these clearance events is driven by operational considerations rather than customer demand and could change from year to year.

Interim Results

              The following table sets forth our historical quarterly results of operations as well as certain operating data for each of our most recent 12 fiscal quarters. This unaudited quarterly information has been prepared on the same basis as our annual audited financial statements appearing elsewhere in this document and includes all adjustments, consisting only of normally recurring adjustments, that we consider necessary to present fairly the financial information for the fiscal quarters presented.

              The quarterly data should be read in conjunction with our audited consolidated and unaudited condensed consolidated financial statements and the related notes thereto appearing elsewhere in this prospectus.

 
  Fiscal 2014   Fiscal 2015   Fiscal 2016  
(in thousands, except operating data)
  First
Quarter
  Second
Quarter
  Third
Quarter
  Fourth
Quarter
  First
Quarter
  Second
Quarter
  Third
Quarter
  Fourth
Quarter(1)
  First
Quarter
  Second
Quarter
  Third
Quarter
  Fourth
Quarter(1)
 

Net sales

  $ 127,536   $ 144,540   $ 152,976   $ 159,536   $ 170,552   $ 191,440   $ 199,211   $ 222,809   $ 235,301   $ 265,853   $ 271,311   $ 278,294  

Year-over-year increase

    28.0%     30.1%     31.4%     36.4%     33.7%     32.4%     30.2%     39.7%     38.0%     38.9%     36.2%     24.9%  

Gross profit

  $ 51,508   $ 56,459   $ 58,593   $ 62,977   $ 67,450   $ 75,507   $ 79,295   $ 90,370   $ 93,897   $ 109,652   $ 110,967   $ 114,746  

Year-over-year increase

    32.1%     26.4%     37.3%     44.8%     31.0%     33.7%     35.3%     43.5%     39.2%     45.2%     39.9%     27.0%  

Operating income

  $ 5,811   $ 10,154   $ 8,641   $ 9,075   $ 8,700   $ 13,384   $ 11,633   $ 18,675   $ 13,962   $ 10,628   $ 24,569   $ 19,970  

Net income

  $ 2,188   $ 4,880   $ 4,124   $ 3,906   $ 3,963   $ 6,825   $ 6,052   $ 9,967   $ 7,101   $ 5,012   $ 14,219   $ 16,707  

 

 
  Fiscal 2014   Fiscal 2015   Fiscal 2016  
Other financial data
  First
Quarter
  Second
Quarter
  Third
Quarter
  Fourth
Quarter
  First
Quarter
  Second
Quarter
  Third
Quarter
  Fourth
Quarter(1)
  First
Quarter
  Second
Quarter
  Third
Quarter
  Fourth
Quarter
 

Comparable store sales growth

    11.4%     15.7%     17.0%     18.5%     16.3%     12.9%     10.4%     14.9%     22.4%     22.6%     19.3%     14.0%  

Number of stores open at end of period(2)

    39     41     44     48     51     53     56     58     61     64     68     70  

Adjusted EBITDA (in thousands)(3)

  $ 11,748   $ 13,555   $ 12,467   $ 13,438   $ 13,254   $ 18,644   $ 16,889   $ 24,081   $ 20,101   $ 31,992   $ 28,161   $ 28,144  

Adjusted EBITDA margin

    9.2%     9.4%     8.1%     8.4%     7.8%     9.7%     8.5%     10.8%     8.5%     12.0%     10.4%     10.1%  

(1)
The 53rd week in fiscal 2015, which is included in the fourth quarter, represented $11.9 million in net sales, an estimated $2.1 million in operating income and an estimated $2.2 million in Adjusted EBITDA. When presenting comparable store sales for fiscal 2015 and fiscal 2016, we have excluded the last week of fiscal 2015.

(2)
Represents the number of our warehouse-format stores and our one small-format standalone design center.

(3)
EBITDA and Adjusted EBITDA (which are shown in the reconciliations below) have been presented in this prospectus as supplemental measures of financial performance that are not required by, or presented in accordance with, GAAP. We define EBITDA as net income before interest, loss on early extinguishment of debt, taxes, depreciation and amortization. We define Adjusted EBITDA as net income before interest, loss on early extinguishment of debt, taxes, depreciation and amortization, adjusted to eliminate the impact of certain items that we do not consider indicative of our core operating performance. Reconciliations of these measures to the equivalent measures under GAAP are set forth in the table below.

EBITDA and Adjusted EBITDA are key metrics used by management and our board of directors to assess our financial performance and enterprise value. We believe that EBITDA and Adjusted EBITDA are useful measures, as they eliminate certain expenses that are not indicative of our core operating performance and facilitate a comparison of our core operating performance on a consistent basis from period to period. We also use Adjusted EBITDA as a basis to determine covenant compliance with respect to our Credit Facilities, to supplement GAAP measures of performance to evaluate the effectiveness of our business strategies, to make budgeting decisions, and to compare our performance against that of other peer companies using similar measures. EBITDA and Adjusted EBITDA are also used by analysts, investors and other interested parties as performance measures to evaluate companies in our industry.

EBITDA and Adjusted EBITDA are non-GAAP measures of our financial performance and should not be considered as alternatives to net income as a measure of financial performance or any other performance measure derived in accordance with GAAP and they should not be

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    construed as an inference that our future results will be unaffected by unusual or non-recurring items. Additionally, EBITDA and Adjusted EBITDA are not intended to be measures of liquidity or free cash flow for management's discretionary use. In addition, these non-GAAP measures exclude certain non-recurring and other charges. Each of these non-GAAP measures has its limitations as an analytical tool, and you should not consider them in isolation or as a substitute for analysis of our results as reported under GAAP. In evaluating EBITDA and Adjusted EBITDA, you should be aware that in the future we will incur expenses that are the same as or similar to some of the items eliminated in the adjustments made to determine EBITDA and Adjusted EBITDA, such as stock compensation expense, loss (gain) on asset disposal, executive recruiting/relocation, and other adjustments. Our presentation of EBITDA and Adjusted EBITDA should not be construed to imply that our future results will be unaffected by any such adjustments. Definitions and calculations of EBITDA and Adjusted EBITDA differ among companies in the retail industry, and therefore EBITDA and Adjusted EBITDA disclosed by us may not be comparable to the metrics disclosed by other companies.

      The reconciliations of net income to EBITDA and Adjusted EBITDA for the periods noted below are set forth in the table as follows:

 
  Fiscal 2014   Fiscal 2015   Fiscal 2016  
(in thousands)
  First
Quarter
  Second
Quarter
  Third
Quarter
  Fourth
Quarter
  First
Quarter
  Second
Quarter
  Third
Quarter
  Fourth
Quarter(1)
  First
Quarter
  Second
Quarter
  Third
Quarter
  Fourth
Quarter
 

Net income

  $ 2,188   $ 4,880   $ 4,124   $ 3,906   $ 3,963   $ 6,825   $ 6,052   $ 9,967   $ 7,101   $ 5,012   $ 14,219   $ 16,707  

Depreciation and amortization(a)

    2,440     2,449     2,882     3,302     3,547     4,131     4,421     4,695     5,337     6,447     6,154     7,151  

Interest expense

    2,265     2,346     2,164     2,174     2,279     2,320     2,267     2,520     2,486     2,475     2,401     5,441  

Loss on early extinguishment of debt(b)

                                        153         1,660  

Income tax expense

    1,358     2,928     2,353     2,995     2,458     4,239     3,314     6,188     4,375     2,988     7,949     (3,838 )

EBITDA

    8,251