Leslie's(US:LESL)2025-02-06 21:47Market 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].