Core Viewpoint - Leslie's, Inc. is undergoing a transformation with significant leadership changes aimed at enhancing long-term value creation and operational efficiency [1][3]. Leadership Changes - Tony Iskander has been appointed as Interim Chief Financial Officer (CFO) and Treasurer, effective March 14, 2025, bringing nearly 30 years of experience in corporate finance and operational leadership [2][5]. - Scott Bowman, the previous CFO since 2023, has left the company concurrently with Iskander's appointment, with no reported disagreements regarding company operations [3][4]. - Naomi Cramer has been promoted to Chief Retail Operations and Talent Officer, leveraging her 28 years of retail experience, including significant roles at Target [4][6]. Strategic Focus - The company emphasizes a commitment to debt reduction and balance sheet optimization as part of its strategic plan, with Iskander playing a critical role in these efforts [3][4]. - The leadership changes are intended to enhance retail execution fundamentals and drive long-term growth [4][6]. Company Background - Founded in 1963, Leslie's is the largest direct-to-customer brand in the U.S. pool and spa care industry, serving both residential customers and pool professionals [10]. - The company operates over 1,000 physical locations and a robust digital platform, providing a wide range of essential pool and spa care products [10].

Financial Data and Key Metrics Changes - Revenue for Q1 2025 was $175 million, an increase of 0.7% compared to Q1 2024, reaching the top end of guidance [10][49] - Adjusted EBITDA was a loss of $29 million, at the bottom end of guidance, compared to a loss of $24 million in the same period last year [11][52] - Gross profit was $48 million, down from $50 million year-over-year, with a gross margin rate decrease of 180 basis points to 27.2% [51] - Adjusted net loss was $41 million, compared to a loss of $37 million in the same period last year, with adjusted diluted loss per share at $0.22 [53] Business Line Data and Key Metrics Changes - Pro Pool sales increased by 9%, while residential pool sales declined by 1% and residential hot tub sales declined by 5% [11][49] - Core chemical sales were up approximately 4%, driven by improved in-stock positions and supply chain focus [50][51] - Equipment sales stabilized, down 4% compared to a decline of 18% a year ago [17] Market Data and Key Metrics Changes - Traffic improved to flat compared to a decline in mid-single digits a year ago [13] - Conversion rate increased by over 160 basis points year-over-year, attributed to improved customer service [14] Company Strategy and Development Direction - The company is focused on three strategic themes: customer centricity, convenience, and asset utilization [22][43] - Initiatives include establishing local fulfillment centers (LFCs) to improve inventory management and customer service [24][30] - The company aims to leverage its national omnichannel capabilities to drive same-store sales growth [21] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the pool and spa industry's future potential and emphasized the importance of inventory reliability [9][80] - The company expects to see the benefits of its initiatives more prominently during the peak pool season in Q3 and Q4 [77][84] - The financial focus remains on executing strategic initiatives to support sustainable revenue growth and margin expansion [62] Other Important Information - The company paid down $27 million of debt in the quarter and ended with cash and cash equivalents of $12 million [54] - Inventory levels decreased by $63 million or 19% year-over-year, while in-stock positions improved significantly [16][55] Q&A Session Summary Question: Early signs of progress from transformation initiatives - Management noted improvements in asset utilization and inventory efficiency, particularly with local fulfillment centers [70][75] Question: Size of out-of-stock issues - Management emphasized the importance of inventory reliability and mentioned that LFCs would help maintain necessary stock levels [80][82] Question: Revenue outlook assumptions - Management provided context on Q2 being a smaller quarter and discussed the cautious approach to forecasting due to the timing of initiatives [88][90] Question: Impact of tariffs on chemicals - Management indicated minimal exposure to tariffs due to domestic sourcing [94] Question: Gross margin outlook - Management acknowledged the challenges in gross margins but expressed optimism for improvement in the second half of the year [101][102] Question: Breakdown of pro business growth - The growth in pro business was primarily driven by an increase in transactions, with a focus on improving inventory availability [120] Question: Transformational expenses impact - Management indicated that transformational expenses would dissipate in the back half of the year, setting a new normal for future EBITDA [123][125] Question: Wage growth considerations - Management noted moderate wage growth and the impact of minimum wage increases in certain states [131] Question: Store closure considerations - Management has not considered a store closure program but is monitoring underperforming locations [132]

Core Viewpoint - Leslie's, Inc. reported a quarterly loss of $0.22 per share, slightly worse than the Zacks Consensus Estimate of a loss of $0.21, and compared to a loss of $0.20 per share a year ago, indicating a negative earnings surprise of -4.76% [1] Financial Performance - The company posted revenues of $175.23 million for the quarter ended December 2024, surpassing the Zacks Consensus Estimate by 1.68%, and showing a year-over-year increase from $173.96 million [2] - Over the last four quarters, Leslie's has only surpassed consensus EPS estimates once [2] Stock Performance and Outlook - Leslie's shares have declined approximately 0.5% since the beginning of the year, while the S&P 500 has gained 3.1% [3] - The current consensus EPS estimate for the upcoming quarter is -$0.17 on revenues of $190.42 million, and for the current fiscal year, it is $0.12 on revenues of $1.37 billion [7] Industry Context - The Consumer Products - Staples industry, to which Leslie's belongs, is currently ranked in the bottom 32% of over 250 Zacks industries, indicating potential underperformance compared to higher-ranked industries [8]

Market Position and Operations - The company holds a market-leading share of approximately 15% in the $15 billion U.S. pool and spa care industry as of 2023[80]. - The company operates over 1,000 locations across 39 states, with a mix of owned and leased properties[89]. - More than 80% of the company's product assortment consists of non-discretionary items essential for pool and spa maintenance[81]. - The company has a significant digital sales presence, estimated to be over five times larger than its largest digital competitor[80]. - Number of locations open at end of period increased to 1,021 compared to 1,007 in the prior year[111]. Financial Performance - Sales increased to $175.2 million for the three months ended December 28, 2024, from $173.9 million in the prior year period, an increase of $1.3 million, or 0.7%[111]. - Gross profit decreased to $47.7 million for the three months ended December 28, 2024, from $50.4 million in the prior year period, a decrease of $2.7 million, or 5.3%[112]. - Gross margin decreased to 27.2% compared to 29.0% in the prior year period, representing a decrease of 180 basis points[112]. - Net loss increased to $44.6 million for the three months ended December 28, 2024, compared to $39.6 million in the prior year period, an increase of $5.0 million[117]. - Adjusted net loss increased to $41.3 million for the three months ended December 28, 2024, compared to $36.8 million in the prior year period, an increase of $4.5 million[118]. - Adjusted EBITDA decreased to $(29.3) million for the three months ended December 28, 2024, compared to $(24.4) million in the prior year period, a decrease of $4.9 million[119]. - Net cash used in operating activities was $105.1 million for the three months ended December 28, 2024, compared to $71.9 million in the prior year period, an increase of $33.2 million[133]. - Interest expense decreased to $15.8 million for the three months ended December 28, 2024, from $17.1 million in the prior year period, a decrease of $1.3 million[114]. - Income tax benefit decreased to $10.9 million for the three months ended December 28, 2024, compared to $14.0 million in the prior year period, a decrease of $3.1 million[115]. - Net cash used in investing activities decreased to $4.6 million for the three months ended December 28, 2024, down from $10.7 million in the prior year, a reduction of $6.1 million[134]. - Net cash provided by financing activities was $12.8 million for the three months ended December 28, 2024, compared to $35.5 million in the prior year, a decrease of $22.7 million[135]. - As of December 28, 2024, approximately $147.7 million remained available for future purchases under the share repurchase program, which had an aggregate authorization of $300 million[136]. Internal Controls and Risk Management - Management's evaluation concluded that the design and operation of disclosure controls and procedures were ineffective as of December 28, 2024, due to unresolved material weaknesses in internal control over financial reporting[147]. - The company is in the process of implementing a plan to address material weaknesses in internal control over financial reporting, with remediation activities anticipated to be completed during fiscal year 2025[150]. - The company is enhancing existing inventory controls and creating new controls regarding vendor rebates[150]. - There have been no material changes in primary risk exposures or management of market risks from those disclosed in the Annual Report for the fiscal year ended September 28, 2024[144]. - The company is committed to improving internal control processes and may take additional measures to address control deficiencies[150]. - There have been no material changes to contractual obligations and other commitments during the three months ended December 28, 2024[138]. - There have been no material changes to critical accounting estimates during the three months ended December 28, 2024[141]. Management and Strategy - The company measures comparable sales growth as the increase or decrease in sales from the same locations in different reporting periods[86]. - Adjusted EBITDA is a key performance measure used by management, reflecting earnings before interest, taxes, depreciation, and other non-recurring items[95]. - The company’s gross margin is influenced by merchandise costs, pricing, product mix, and distribution costs[91]. - The company’s SG&A expenses include costs related to retail operations, corporate functions, and marketing, which generally vary with sales[93]. - The company has a legacy of innovation, having introduced various services and products that enhance customer engagement and loyalty[82]. - The company’s financial performance is impacted by macroeconomic factors such as inflation and consumer purchasing patterns[101].

Sales Performance - Sales for the first quarter of fiscal 2025 were $175.2 million, an increase of 0.7% compared to $174.0 million in the prior year period[4]. - Comparable sales increased by 0.2%, marking the first comparable store sales gain in two years[4]. - Sales for the three months ended December 28, 2024, were $175,228,000, a slight increase from $173,960,000 for the same period in 2023, representing a growth of approximately 0.73%[26]. - The company expects second quarter sales to range from $179 million to $189 million, with a projected net loss of $(47) million to $(44) million[6]. - For the full year fiscal 2025, sales are projected to be between $1,304 million and $1,370 million, with an expected net loss ranging from $(10) million to $5 million[7]. Financial Losses - The net loss for the quarter was $45 million, reflecting typical operational deleverage during the pool offseason[4]. - The net loss for the three months ended December 28, 2024, was $44,564,000, compared to a net loss of $39,553,000 for the same period in 2023, indicating an increase in losses of approximately 12.7%[26]. - The company reported an adjusted net loss of $41,292,000 for the three months ended December 28, 2024, compared to an adjusted net loss of $36,763,000 for the same period in 2023, an increase of about 12.9%[28]. - Basic and diluted earnings per share for the three months ended December 28, 2024, were both $(0.24), compared to $(0.21) for the same period in 2023, indicating a decline of approximately 14.3%[26]. Profitability Metrics - Adjusted EBITDA was $(29) million, at the lower end of guidance, including transformational expenses[4]. - Adjusted EBITDA for the three months ended December 28, 2024, was $(29,319,000), worsening from $(24,420,000) in the same period of 2023, a decline of about 20.5%[28]. - Gross profit for the first quarter was $47.7 million, a decrease of 5.4% compared to $50.4 million in the prior year period, with a gross margin of 27.2%[7]. - Gross profit decreased to $47,717,000 for the three months ended December 28, 2024, down from $50,408,000 in the prior year, reflecting a decline of about 5.4%[26]. Cash Flow and Liquidity - Cash and cash equivalents decreased significantly to $11,615,000 as of December 28, 2024, down from $108,505,000 at the end of the previous quarter, a drop of approximately 89.3%[30]. - The company utilized $105,078,000 in net cash for operating activities during the three months ended December 28, 2024, compared to $71,874,000 for the same period in 2023, an increase of about 46.2%[32]. Inventory and Assets - Inventories decreased by $62.9 million or 18.8% to $271.1 million as of December 28, 2024, compared to $334.0 million as of December 30, 2023[7]. - Total assets decreased to $966,993,000 as of December 28, 2024, compared to $1,050,325,000 at the end of the previous quarter, a reduction of about 7.9%[30]. - Total liabilities were $1,187,031,000 as of December 28, 2024, down from $1,227,474,000 at the end of the previous quarter, reflecting a decrease of approximately 3.3%[30]. Capital Expenditures and Debt - Capital expenditures totaled $4.7 million in the first quarter, down from $10.7 million in the prior year[7]. - The effective rate on the term loan during the first quarter was 7.6%, down from 8.2% in the prior year[7].

Core Insights - Leslie's, Inc. reported financial results for the first quarter of fiscal 2025, highlighting a focus on customer-centric transformation and strategic initiatives aimed at improving performance [2][5][6]. Financial Performance - Sales reached $175 million, an increase of 0.7% compared to $174 million in the prior year [5][6]. - The company experienced a net loss of $44.6 million, compared to a loss of $39.6 million in the prior year [6][25]. - Adjusted EBITDA was $(29.3) million, reflecting transformational expenses and at the lower end of guidance [5][6]. - Diluted earnings per share were $(0.24), compared to $(0.21) in the prior year [6][25]. Operational Highlights - Comparable store sales increased by 0.2%, marking the first gain in two years [2][5]. - Gross profit was $47.7 million, a decrease of 5.4% from $50.4 million in the prior year, with a gross margin of 27.2% [6][25]. - Selling, general and administrative expenses were $87.4 million, slightly up from $86.9 million in the prior year [6][25]. Balance Sheet and Cash Flow - Cash and cash equivalents totaled $11.6 million, an increase of $3.2 million from $8.4 million as of December 30, 2023 [4][11]. - Inventories decreased by 18.8% to $271.1 million compared to $334 million in the prior year [11][29]. - Funded debt was $796.7 million, down from $825.7 million as of December 30, 2023 [11][29]. Future Outlook - For the second quarter of fiscal 2025, the company expects sales between $179 million and $189 million, with a net loss projected between $(47) million and $(44) million [7]. - The full year outlook anticipates sales of $1,304 million to $1,370 million, with an expected net loss ranging from $(10) million to $5 million [8].

Core Viewpoint - Leslie's, Inc. will release its financial results for the first quarter of fiscal 2025 on February 6, 2025, and will host a conference call to discuss these results [1] Group 1: Company Overview - Leslie's, Inc. is the largest and most trusted direct-to-consumer brand in the U.S. pool and spa care industry, serving both residential customers and pool professionals nationwide [3] - The company was founded in 1963 and operates over 1,000 physical locations along with a robust digital platform, providing an extensive assortment of essential pool and spa care products [3] - Leslie's aims to empower consumers with knowledge, products, and solutions necessary for maintaining and enjoying their pools and spas through a dedicated team of associates and service technicians [3] Group 2: Financial Communication - The financial results will be released after market close on February 6, 2025, followed by a conference call at 4:30 p.m. Eastern Time [1] - Investors and analysts can participate in the call by dialing specific numbers provided, and a live audio webcast will be available online [2] - A recorded replay of the conference call will be accessible online for 180 days after the event [2]

Business Risks - The company faces significant risks related to achieving comparable sales growth, which could materially impact profitability and performance [105]. - Past growth may not be indicative of future growth, as various uncertainties could hinder market share gains and expansion efforts [106]. - Legal proceedings could have a material adverse effect on the company, with uncertainties surrounding insurance coverage for potential claims [113]. - Disruptions from natural or man-made disasters, public health issues, and geopolitical events could negatively impact demand for the company's products [114]. - The company competes in a highly fragmented market against various manufacturers, retailers, and service providers, which could affect market positioning [117]. - The company faces potential competition from new entrants in the swimming pool and spa supply retail market, particularly in high-demand states like Arizona, California, Florida, and Texas, which could significantly impact total sales [119]. - Economic conditions, including consumer discretionary spending, unemployment rates, and inflation, adversely affect demand for swimming pool and spa products, potentially leading to declines in sales during downturns [120]. - Access to consumer credit is critical for purchasing pools and related products; unfavorable economic conditions may tighten credit markets, negatively impacting sales [121]. Operational Challenges - The company is significantly dependent on its ability to meet labor needs, with competition for qualified personnel impacting operational success [112]. - The company may experience fluctuations in operating results due to seasonality and economic conditions, affecting financial performance [91]. - Product supply disruptions and rising raw material costs could adversely affect profitability and operating results [96]. - The company's sales are highly seasonal, with a greater percentage of revenues generated from April to September, making it susceptible to adverse events during peak months [123]. - Adverse weather conditions, such as unseasonably cool weather or significant rainfall, can reduce chemical consumption and consumer purchases, impacting total sales [128]. - The company relies on technology for e-commerce; failures in digital platforms could harm sales and growth in the e-commerce sector [132]. - The company must effectively manage product inventory to avoid adverse impacts on profitability [159]. Financial Condition - The company experienced a decline in sales and profitability between the Fiscal Year ending September 23, 2023, and the Fiscal Year ending September 28, 2024, indicating challenges in maintaining growth [143]. - The company faces substantial debt, which may impair its ability to satisfy obligations and obtain additional financing [180]. - A significant portion of cash flow from operations may be dedicated to debt payments, reducing funds available for operations and capital expenditures [180]. - The company is vulnerable to economic downturns and may have limited flexibility to react to changes in the business environment due to high debt levels [180]. - All debt under the Credit Facilities bears interest at variable rates, increasing risks if rates rise significantly [181]. - The company may need to refinance debt, sell assets, or raise additional capital if unable to generate sufficient cash flow [183]. - Restrictive covenants in the Credit Facilities may limit the company's ability to pursue business strategies and incur additional debt [184]. Compliance and Governance - The company has identified material weaknesses in internal control over financial reporting, which could impact results and investor confidence [103]. - Material weaknesses in internal control over financial reporting have been identified, particularly in inventory management and vendor agreements [205][206]. - The company is committed to remediating identified material weaknesses, but the timeline for completion remains uncertain [206][208]. - Compliance with evolving data privacy and cybersecurity laws may increase operational costs for the company [166]. - The company continues to incur increased costs due to public company responsibilities, including compliance with SEC regulations and corporate governance practices [204]. - Compliance with annual internal control report requirements will involve significant expenditures and complexity as the business grows [211]. Market and Environmental Factors - The demand for pool chemicals may be influenced by consumer attitudes towards environmental and safety concerns, impacting sales [91]. - Consumer attitudes towards environmental safety may affect demand for pool chemicals, and the company must adapt to emerging environmentally friendly alternatives [122]. - The company may experience increased operating costs due to compliance with stricter environmental, health, and safety regulations [169]. - Established ESG goals may expose the company to reputational risks if not achieved or reported accurately, potentially affecting financial performance [144]. - The company faces risks related to evolving ESG standards, which may impact its ability to meet investor expectations and could lead to reputational damage [146]. - The cost of raw materials, particularly granular chlorine compounds, is subject to fluctuations that could adversely affect the company's cost of goods sold and overall financial condition [155]. Legal and Regulatory Issues - The company is exposed to potential product liability claims, which could result in significant legal fees and impact financial performance [164]. - Product recalls or market withdrawals could significantly increase costs and damage the company's reputation [158]. - A class action complaint was filed against the company for alleged violations of federal securities laws, with claims of materially false and misleading statements regarding financial guidance and business operations [223]. Shareholder and Stock Information - As of November 26, 2024, the total borrowings under the Credit Facilities amount to $781.7 million [179]. - As of November 26, 2024, there are 184,969,296 shares of common stock outstanding, all eligible for resale in the public market [195]. - The company does not intend to pay dividends for the foreseeable future, relying on stock price appreciation for shareholder returns [198]. - Anti-takeover provisions in the company's charter may limit stockholder attempts to change management or control, potentially affecting stock price [200]. Infrastructure and Operations - The company has over 1,000 locations across 39 states, including 222 in Texas and 171 in California, with a total of 1,021 locations [221]. - The corporate office spans 92,669 square feet in Phoenix, Arizona, with a lease term through February 28, 2027, and two five-year renewal options [221]. - The company utilizes third-party logistics providers under short-term agreements to support its distribution needs [221]. - Cybersecurity risks are actively managed through a robust program overseen by the audit committee, with regular reviews and incident response plans in place [213][215]. - The company has not identified any material cybersecurity threats in the last fiscal year, but ongoing risks remain [218]. - The effectiveness of internal controls is critical for accurate financial reporting, and any failures could adversely affect investor confidence and stock price [209][210].

Group 1 - The core viewpoint is that Leslie's (NASDAQ: LESL) is recommended to hold due to uncertainty about demand outlook and potential to miss FY24 guidance if macro conditions do not improve [1] - The ideal investment is characterized by performing core business in a sector expected to grow structurally above GDP growth over the next 5-10 years, possessing sustainable competitive advantages, and being managed by ethical long-term thinkers [1] - The company should also be valued fairly to be considered an attractive investment opportunity [1]

Financial Data and Key Metrics Changes - For Q4 2024, total sales were $398 million, down 8% year-over-year, consistent with revised guidance [34][38] - Adjusted earnings per share were $0.02 for Q4, compared to $0.14 in the same period last year [45] - Adjusted EBITDA for Q4 was $43 million, down from $59 million year-over-year [44] - For the full year, total sales were $1.33 billion, also down 8% compared to the previous year [46] - Adjusted net income for the full year was a loss of $1 million, compared to income of $51 million in the prior year [50] Business Line Data and Key Metrics Changes - Residential pool sales declined 10% in Q4, while PRO pool sales decreased by 1% [40] - For the full year, residential pool sales were down 9%, PRO pool sales down 4%, and residential hot tub sales down 9% [47] - The PRO consumer group showed relative strength, with a low single-digit sales decline during the peak pool season [41] Market Data and Key Metrics Changes - The installed base of pools and spas in the U.S. is over 14 million, with a total addressable market of approximately $15 billion [14] - The company remains the only national large-scale omnichannel player in aftermarket pool and spa care [16] Company Strategy and Development Direction - The company plans to focus on three strategic themes: customer centricity, convenience, and asset utilization [19][33] - Emphasis on getting back to retail fundamentals to drive long-term profitable growth [15] - The company aims to leverage its competitive advantages, including proximity to customers and strong brand recognition [18][19] Management's Comments on Operating Environment and Future Outlook - Management noted that the macro environment remains dynamic, impacting sales trends [36] - The company expects continued softness in larger ticket and discretionary categories in Q1 2025, with sales guidance of $169 million to $176 million [58][55] - Management is optimistic about improving customer service and leveraging strategic themes to drive growth [56][64] Other Important Information - The company ended Q4 with cash and cash equivalents of $109 million, up from $55 million in the previous year [53] - Inventory decreased by $78 million or 25% year-over-year, indicating improved operational efficiencies [53] Q&A Session Summary Question: Which strategic theme will have the largest impact in the near to medium term? - Management believes asset utilization will have the most significant impact, focusing on optimization and improving same-store sales [70][72] Question: Why is the PRO business showing relative strength? - The PRO business has benefited from targeted promotional activities and an increase in PRO partners, which are now 14% higher than last year [81] Question: Can you break down the negative comps between ticket and traffic? - The decline was primarily driven by traffic, which has been the main driver of comparable sales [86] Question: What is the long-term unit growth outlook? - The company aims to focus on debt paydown before engaging in new store builds or M&A activity, but still sees opportunities for growth in the future [89] Question: What strategies are in place to improve gross margins? - The focus will be on driving top-line growth to leverage fixed costs, rather than solely on cost reductions [95] Question: How is the company addressing inventory management? - There is still room to optimize inventory, particularly through a more precise allocation strategy [99][100] Question: Can you provide insights on the 1Q gross margin pressures? - The first quarter will see pressures from fixed rebates and occupancy costs, but product margins are expected to be slightly favorable [123]