Leslie's(LESL) - 2025 Q3 - Quarterly Results

Executive Summary This section provides an overview of Leslie's, Inc.'s third quarter fiscal 2025 performance, highlighting key financial results and management's strategic response to challenging market conditions Third Quarter Fiscal 2025 Performance Highlights Leslie's, Inc. reported financial results for the third quarter of fiscal 2025 below expectations, primarily due to challenging weather conditions and competitive pricing dynamics during its peak selling season, experiencing significant declines across key financial metrics compared to the prior year period Third Quarter Fiscal 2025 Performance (Millions) | Metric | Q3 FY2025 (Millions) | Q3 FY2024 (Millions) | Change (%) | | :--------------------------- | :------------------- | :------------------- | :--------- | | Sales | $500.3 | $569.6 | -12.2% | | Comparable Sales | - | - | -12.4% | | Gross Profit | $197.9 | $228.8 | -13.5% | | Gross Margin | 39.6% | 40.2% | -0.6 pp | | Operating Income | $68.3 | $97.7 | -30.1% | | Net Income | $21.7 | $60.7 | -64.2% | | Adjusted Net Income | $37.9 | $63.3 | -40.1% | | Diluted EPS | $0.12 | $0.33 | -63.6% | | Adjusted Diluted EPS | $0.20 | $0.34 | -41.2% | | Adjusted EBITDA | $81.6 | $109.5 | -25.5% | Management Commentary and Strategic Outlook CEO Jason McDonell acknowledged the challenging quarter, citing weather and competitive pricing, with the company actively mitigating costs and bringing in additional resources to accelerate strategic initiatives aimed at improving profitability and driving long-term growth through an ongoing strategic and operational review - Faced significant headwinds from weather and competitive pricing dynamics in a compressed demand period[2] - Implemented cost mitigation efforts, including reducing labor hours to align with softer demand and reduced store traffic[2] - Engaged additional resources to accelerate key initiatives, identify, and execute strategic priorities for improved profitability and long-term growth[2][3] Company Information This section details Leslie's, Inc.'s identity as the leading direct-to-customer brand in the U.S. pool and spa care industry, outlining its market position and operational model About Leslie's Leslie's, Inc., founded in 1963, is the largest direct-to-customer brand in the U.S. pool and spa care industry, serving both residential and professional customers with an extensive and largely exclusive assortment of essential products through an integrated ecosystem of over 1,000 physical locations and a robust digital platform - Largest and most trusted direct-to-customer brand in the U.S. pool and spa care industry[8] - Serves residential customers and pool professionals nationwide with essential and largely exclusive pool and spa care products[8] - Operates an integrated ecosystem of over 1,000 physical locations and a robust digital platform[8] Financial Performance - Third Quarter Fiscal 2025 This section presents a detailed analysis of Leslie's, Inc.'s financial results for the third quarter of fiscal 2025, including sales, profitability, and adjusted financial measures Key Financial Results The third quarter of fiscal 2025 saw a significant decline in sales and profitability compared to the prior year, with sales decreasing by 12.2%, leading to a 13.5% drop in gross profit and a 30.1% reduction in operating income, while net income and diluted EPS also fell sharply Key Financial Results (Millions) | Metric | Q3 FY2025 (Millions) | Q3 FY2024 (Millions) | Change (%) | | :--------------------------- | :------------------- | :------------------- | :--------- | | Sales | $500.3 | $569.6 | -12.2% | | Comparable Sales | - | - | -12.4% | | Gross Profit | $197.9 | $228.8 | -13.5% | | Gross Margin | 39.6% | 40.2% | -0.6 pp | | Selling, General & Admin. Expenses | $129.6 | $131.1 | -1.1% | | Operating Income | $68.3 | $97.7 | -30.1% | | Interest Expense | $15.8 | $18.2 | -13.2% | | Net Income | $21.7 | $60.7 | -64.2% | | Diluted EPS | $0.12 | $0.33 | -63.6% | | Adjusted Net Income | $37.9 | $63.3 | -40.1% | | Adjusted Diluted EPS | $0.20 | $0.34 | -41.2% | | Adjusted EBITDA | $81.6 | $109.5 | -25.5% | | Cash & Cash Equivalents (period end) | $42.7 | $74.4 | -42.6% | | Inventories (period end) | $273.2 | $302.2 | -9.6% | Condensed Consolidated Statements of Operations (Q3) The condensed consolidated statements of operations for the three months ended June 28, 2025, show a decrease in sales to $500.3 million from $569.6 million in the prior year, leading to a net income of $21.7 million, significantly lower than $60.7 million in the comparable period of the prior fiscal year Condensed Consolidated Statements of Operations (Thousands) | Metric (Thousands) | Three Months Ended June 28, 2025 | Three Months Ended June 29, 2024 | | :--------------------------------- | :------------------------------- | :------------------------------- | | Sales | $500,347 | $569,638 | | Cost of merchandise and services sold | $302,457 | $340,798 | | Gross profit | $197,890 | $228,840 | | Selling, general and administrative expenses | $129,572 | $131,145 | | Operating income (loss) | $68,318 | $97,695 | | Interest expense | $15,764 | $18,156 | | Net income (loss) before taxes | $52,554 | $79,539 | | Income tax expense (benefit) | $30,824 | $18,889 | | Net income (loss) | $21,730 | $60,650 | | Basic EPS | $0.12 | $0.33 | | Diluted EPS | $0.12 | $0.33 | | Basic Weighted average shares outstanding | 185,490 | 184,834 | | Diluted Weighted average shares outstanding | 185,490 | 184,861 | Adjusted Financial Measures (Q3) For the third quarter, Adjusted EBITDA decreased by 25.5% to $81.6 million, and Adjusted net income fell by 40.1% to $37.9 million, reflecting the overall decline in profitability when excluding certain non-recurring or non-cash items Adjusted Financial Measures (Thousands) | Metric (Thousands) | Three Months Ended June 28, 2025 | Three Months Ended June 29, 2024 | | :--------------------------- | :------------------------------- | :------------------------------- | | Adjusted EBITDA | $81,570 | $109,469 | | Adjusted net income (loss) | $37,937 | $63,297 | | Adjusted diluted earnings per share | $0.20 | $0.34 | Financial Performance - Nine Months Ended June 28, 2025 This section provides a comprehensive review of Leslie's, Inc.'s financial performance for the nine-month period ending June 28, 2025, covering statements of operations, balance sheets, and cash flows Condensed Consolidated Statements of Operations (9 Months) For the nine months ended June 28, 2025, Leslie's reported a net loss of $74.2 million, a significant increase from the $13.5 million net loss in the prior year period, with sales also decreasing to $852.7 million from $932.3 million Condensed Consolidated Statements of Operations (Thousands) | Metric (Thousands) | Nine Months Ended June 28, 2025 | Nine Months Ended June 29, 2024 | | :--------------------------------- | :------------------------------ | :------------------------------ | | Sales | $852,709 | $932,262 | | Cost of merchandise and services sold | $563,156 | $598,686 | | Gross profit | $289,553 | $333,576 | | Selling, general and administrative expenses | $309,313 | $302,879 | | Operating income (loss) | $(19,760) | $30,697 | | Interest expense | $47,425 | $53,380 | | Net income (loss) before taxes | $(67,185) | $(22,683) | | Income tax expense (benefit) | $6,969 | $(9,227) | | Net income (loss) | $(74,154) | $(13,456) | | Basic EPS | $(0.40) | $(0.07) | | Diluted EPS | $(0.40) | $(0.07) | | Basic Weighted average shares outstanding | 185,256 | 184,614 | | Diluted Weighted average shares outstanding | 185,256 | 184,614 | Adjusted Financial Measures (9 Months) For the nine-month period, Adjusted EBITDA significantly decreased to $16.2 million from $65.8 million in the prior year, and the Adjusted net loss also widened to $49.9 million from $5.5 million, indicating a substantial deterioration in adjusted profitability Adjusted Financial Measures (Thousands) | Metric (Thousands) | Nine Months Ended June 28, 2025 | Nine Months Ended June 29, 2024 | | :--------------------------- | :------------------------------ | :------------------------------ | | Adjusted EBITDA | $16,193 | $65,771 | | Adjusted net income (loss) | $(49,877) | $(5,465) | | Adjusted diluted earnings per share | $(0.27) | $(0.03) | Condensed Consolidated Balance Sheets As of June 28, 2025, total assets decreased to $989.5 million from $1,105.2 million a year prior, with cash and cash equivalents seeing a notable decline, inventories reduced, total liabilities decreased, but stockholders' deficit widened Condensed Consolidated Balance Sheets (Thousands) | Metric (Thousands) | June 28, 2025 | June 29, 2024 | | :--------------------------------- | :------------ | :------------ | | Cash and cash equivalents | $42,684 | $74,438 | | Inventories | $273,192 | $302,209 | | Total current assets | $385,130 | $457,009 | | Total assets | $989,493 | $1,105,188 | | Accounts payable | $91,587 | $108,935 | | Total current liabilities | $261,971 | $285,881 | | Long-term debt, net | $751,547 | $768,598 | | Total liabilities | $1,235,660 | $1,273,345 | | Total stockholders' deficit | $(246,167) | $(168,157) | Condensed Consolidated Statements of Cash Flows For the nine months ended June 28, 2025, the company reported net cash used in operating activities of $39.4 million, a significant shift from net cash provided by operating activities of $60.4 million in the prior year, with investing activities also using cash, while financing activities saw net cash used of $7.5 million Condensed Consolidated Statements of Cash Flows (Thousands) | Activity (Thousands) | Nine Months Ended June 28, 2025 | Nine Months Ended June 29, 2024 | | :--------------------------------- | :------------------------------ | :------------------------------ | | Net cash (used in) provided by operating activities | $(39,398) | $60,410 | | Net cash used in investing activities | $(18,947) | $(34,247) | | Net cash used in financing activities | $(7,476) | $(7,145) | | Net (decrease) increase in cash and cash equivalents | $(65,821) | $19,018 | | Cash and cash equivalents, end of period | $42,684 | $74,438 | - Repaid approximately $27 million on Term Loan during the nine months ended June 28, 2025[5][29] Fiscal Year 2025 Outlook This section outlines Leslie's, Inc.'s updated financial projections and expectations for the full fiscal year 2025, including sales, net loss, and Adjusted EBITDA guidance Updated Full Year Fiscal 2025 Expectations Leslie's updated its full-year fiscal 2025 expectations, projecting sales between $1,210 million and $1,235 million, anticipating a net loss of $57 million to $65 million and an Adjusted net loss of $31 million to $39 million, with Adjusted EBITDA expected to be between $50 million and $60 million Fiscal Year 2025 Guidance | Metric | FY2025 Guidance | | :---------------- | :------------------------------ | | Sales | $1,210 million to $1,235 million | | Net Loss | $57 million to $65 million | | Adjusted net loss | $31 million to $39 million | | Adjusted EBITDA | $50 million to $60 million | - The company believes it has sufficient coverage for liability obligations through cash on hand and additional cash generated from operations in Q4[5] Non-GAAP Financial Measures Explanation This section defines and explains the non-GAAP financial measures used by Leslie's, Inc., such as Adjusted EBITDA and Adjusted Net Income, and provides their reconciliation to GAAP equivalents Explanation of Non-GAAP Measures Leslie's uses non-GAAP financial measures like comparable sales growth, Adjusted EBITDA, Adjusted net income (loss), and Adjusted diluted earnings per share to evaluate business strategies, make budgeting decisions, and compare performance, noting these measures are supplementary to GAAP results and not intended as substitutes - Non-GAAP measures are used to evaluate business strategies, make budgeting decisions, and compare performance against peers[9] - These measures should not be considered in isolation or as substitutes for GAAP results and may not be comparable to similarly titled measures of other companies[9] Comparable Sales Growth Definition Comparable sales growth measures the increase or decrease in sales from the comparable base (including locations, e-commerce, and third-party marketplaces) in a reporting period versus the prior period, serving as a key metric for management and the board to assess financial performance - Defined as the increase or decrease in sales recorded by the comparable base (locations, e-commerce, third-party marketplaces) in any reporting period compared to the prior period[10] - A key measure used by management and the board of directors to assess financial performance[10] Adjusted EBITDA Definition Adjusted EBITDA is defined as earnings before interest, taxes, depreciation, amortization, equity-based compensation, executive transition costs, severance, strategic project costs, M&A costs, and other non-recurring items, serving as a key management and board measure, also used by analysts and investors, to evaluate business strategies and compare performance, but it is not a GAAP measure - Defined as earnings before interest, taxes, depreciation and amortization, equity-based compensation, executive transition costs, severance, strategic project costs, merger and acquisition costs, and other non-recurring, non-cash or discrete items[11] - Used by management, board, analysts, and investors to assess financial performance and evaluate business strategies[11] - Not a recognized GAAP measure and should not be construed as an indicator of operating performance in isolation from, or as a substitute for, net income or cash flows from operations[12] Adjusted Net Income (Loss) and Adjusted Diluted Earnings (Loss) per Share Definition Adjusted net income (loss) excludes equity-based compensation, executive transition costs, severance, strategic project costs, M&A costs, change in valuation allowance for deferred taxes, and other non-recurring items, with Adjusted diluted earnings per share calculated by dividing Adjusted net income (loss) by the diluted weighted average shares outstanding, both being key measures for management, the board, and external parties - Adjusted net income (loss) excludes equity-based compensation, executive transition costs, severance, strategic project costs, merger and acquisition costs, change in valuation allowance for deferred taxes, and other non-recurring items[14] - Adjusted diluted earnings per share is Adjusted net income (loss) divided by the diluted weighted average number of common shares outstanding[14] - These are key measures used by management, the board, analysts, and investors to assess financial performance[13] GAAP to Non-GAAP Reconciliation The reconciliation tables provide a detailed breakdown of adjustments made to GAAP net income (loss) to arrive at Adjusted EBITDA and Adjusted net income (loss) for both the three and nine months ended June 28, 2025, and June 29, 2024, with key adjustments including depreciation and amortization, equity-based compensation, strategic project costs, executive transition costs, and changes in valuation allowance for deferred taxes GAAP to Non-GAAP Reconciliation (Thousands) | Metric (Thousands) | Three Months Ended June 28, 2025 | Three Months Ended June 29, 2024 | Nine Months Ended June 28, 2025 | Nine Months Ended June 29, 2024 | | :--------------------------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Net income (loss) | $21,730 | $60,650 | $(74,154) | $(13,456) | | Interest expense | $15,764 | $18,156 | $47,425 | $53,380 | | Income tax expense (benefit) | $30,824 | $18,889 | $6,969 | $(9,227) | | Depreciation and amortization expense | $8,572 | $8,246 | $25,080 | $24,419 | | Equity-based compensation expense | $1,581 | $2,246 | $5,242 | $7,683 | | Strategic project costs | $1,056 | $395 | $1,836 | $1,058 | | Executive transition costs and other | $2,043 | $887 | $3,795 | $1,914 | | Adjusted EBITDA | $81,570 | $109,469 | $16,193 | $65,771 | | Net income (loss) | $21,730 | $60,650 | $(74,154) | $(13,456) | | Equity-based compensation expense | $1,581 | $2,246 | $5,242 | $7,683 | | Strategic project costs | $1,056 | $395 | $1,836 | $1,058 | | Executive transition costs and other | $2,043 | $887 | $3,795 | $1,914 | | Change in valuation allowance | $16,930 | — | $21,496 | — | | Tax effects of these adjustments | $(5,403) | $(881) | $(8,092) | $(2,664) | | Adjusted net income (loss) | $37,937 | $63,297 | $(49,877) | $(5,465) | | Diluted earnings per share | $0.12 | $0.33 | $(0.40) | $(0.07) | | Adjusted diluted earnings per share | $0.20 | $0.34 | $(0.27) | $(0.03) | Forward-Looking Statements This press release contains forward-looking statements subject to substantial risks and uncertainties, which could cause actual results to differ materially from those indicated, as these statements are based on current expectations and projections, but new risks can emerge, and investors are cautioned not to unduly rely on these statements, as the company undertakes no obligation to update them - All statements other than historical facts are forward-looking and involve substantial risks and uncertainties[15] - Actual results could differ materially due to various factors, including execution of growth strategies, cash resources, supply disruptions, competition, weather sensitivity, economic changes, and regulatory developments[16][17] - The company does not undertake any obligation to update forward-looking statements to reflect events or circumstances after the date of the press release, except as required by law[19] Investor Information This section provides essential details for investors, including information on upcoming conference calls and contact details for investor and public relations inquiries Conference Call Details Leslie's, Inc. will host a conference call on August 6, 2025, at 5:00 p.m. Eastern time to discuss Q3 FY2025 financial results and strategic transformation initiatives, with a live audio webcast and replay available on the company's Investor Relations website - Conference call to discuss Q3 FY2025 financial results and strategic transformation initiatives on August 6, 2025, at 5:00 p.m. Eastern time[6] - Live audio webcast available online at https://ir.lesliespool.com/[6](index=6&type=chunk) - Replay of the conference call will be available on the Investor Relations website for 180 days[7] Contact Information For investor and public relations inquiries, Elisabeth Eisleben, Senior Vice President, Investor & Public Relations, can be contacted via email - Contact: Elisabeth Eisleben, Senior Vice President, Investor & Public Relations[20] - Email: investorrelations@lesl.com[20]