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

Cautionary Note Regarding Forward-Looking Statements This section warns that forward-looking statements involve substantial risks, and actual results may differ materially Overview of Forward-Looking Statements This section clarifies that forward-looking statements involve substantial risks, advising against reliance as actual results may differ - All statements in this report, other than historical facts, regarding future results, financial condition, business strategy, legal proceedings, competitive advantages, market size, growth opportunities, industry expectations, and management plans are considered forward-looking statements[6] - Readers should not rely on forward-looking statements as predictions of future events, as actual outcomes could differ materially due to various risks and uncertainties[7] Factors Affecting Forward-Looking Statements Numerous factors, including growth, cash, supply, competition, economic conditions, and regulations, could cause actual results to differ - Key factors that could cause actual results to differ include the company's ability to execute growth strategies, manage cash resources, navigate supply disruptions and increased costs, maintain supplier relationships, and compete effectively[8] - External impacts such as weather conditions, economic changes (high interest rates, inflation, recession fears), geopolitical events, and the housing market can significantly affect business outcomes[8] - Operational risks include disruptions in distribution centers, challenges in implementing technology initiatives, management transition plans, regulatory changes, commodity price fluctuations, cyber incidents, and the ability to regain and maintain Nasdaq listing standards[8] PART I - FINANCIAL INFORMATION This section presents the company's unaudited condensed consolidated financial statements and management's discussion Item 1. Financial Statements This section presents Leslie's unaudited condensed consolidated financial statements and detailed notes Condensed Consolidated Balance Sheets This section provides a snapshot of the company's financial position, detailing assets, liabilities, and equity Condensed Consolidated Balance Sheets (Amounts in Thousands) | Metric | June 28, 2025 (Unaudited) | September 28, 2024 (Audited) | June 29, 2024 (Unaudited) | | :-------------------------------- | :-------------------------- | :--------------------------- | :-------------------------- | | Assets | | | | | Cash and cash equivalents | $42,684 | $108,505 | $74,438 | | Total current assets | $385,130 | $422,434 | $457,009 | | Total assets | $989,493 | $1,050,325 | $1,105,188 | | Liabilities and Stockholders' Deficit | | | | | Total current liabilities | $261,971 | $246,919 | $285,881 | | Revolving credit facility | $20,000 | $— | $— | | Long-term debt, net | $751,547 | $769,065 | $768,598 | | Total liabilities | $1,235,660 | $1,227,474 | $1,273,345 | | Total stockholders' deficit | $(246,167) | $(177,149) | $(168,157) | - Total assets decreased from $1,050,325 thousand as of September 28, 2024, to $989,493 thousand as of June 28, 2025[14] - Total stockholders' deficit increased from $(177,149) thousand as of September 28, 2024, to $(246,167) thousand as of June 28, 2025[14] Condensed Consolidated Statements of Operations This section details the company's financial performance, including sales, gross profit, and net income Condensed Consolidated Statements of Operations (Amounts in Thousands, Except Per Share Amounts) | Metric | Three Months Ended June 28, 2025 | Three Months Ended June 29, 2024 | Nine Months Ended June 28, 2025 | Nine Months Ended June 29, 2024 | | :-------------------------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Sales | $500,347 | $569,638 | $852,709 | $932,262 | | Gross profit | $197,890 | $228,840 | $289,553 | $333,576 | | Operating income (loss) | $68,318 | $97,695 | $(19,760) | $30,697 | | Net income (loss) | $21,730 | $60,650 | $(74,154) | $(13,456) | | Basic earnings (loss) per share | $0.12 | $0.33 | $(0.40) | $(0.07) | | Diluted earnings (loss) per share | $0.12 | $0.33 | $(0.40) | $(0.07) | - Sales decreased by 12.2% for the three months ended June 28, 2025, and by 8.5% for the nine months ended June 28, 2025, compared to the prior year periods[17] - Net income for the three months ended June 28, 2025, was $21,730 thousand, a significant decrease from $60,650 thousand in the prior year period. The company reported a net loss of $(74,154) thousand for the nine months ended June 28, 2025, compared to a loss of $(13,456) thousand in the prior year period[17] Condensed Consolidated Statements of Stockholders' Deficit This section outlines changes in the company's equity, including common stock, additional paid-in capital, and retained deficit Changes in Stockholders' Deficit (Amounts in Thousands) | Metric | Balance, March 30, 2025 | Net Income (Loss) | Balance, June 28, 2025 | | :-------------------------------- | :---------------------- | :------------------ | :--------------------- | | Common Stock (Amount) | $185 | $— | $186 | | Additional Paid-in Capital | $110,445 | $1,571 | $112,006 | | Retained Deficit | $(380,089) | $21,730 | $(358,359) | | Total Stockholders' Deficit | $(269,459) | $21,730 | $(246,167) | - The total stockholders' deficit increased from $(168,157) thousand as of June 29, 2024, to $(246,167) thousand as of June 28, 2025[19] Condensed Consolidated Statements of Cash Flows This section presents the cash inflows and outflows from operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows (Amounts in Thousands) | Activity | 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 | - Net cash used in operating activities was $(39,398) thousand for the nine months ended June 28, 2025, a significant decrease from $60,410 thousand provided in the prior year period[22] - Cash and cash equivalents decreased by $65,821 thousand, ending at $42,684 thousand as of June 28, 2025, compared to $74,438 thousand in the prior year[22] Notes to the Unaudited Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures for the unaudited condensed consolidated financial statements Note 1—Business and Operations This note describes Leslie's, Inc. as a leading direct-to-consumer pool and spa care brand - Leslie's, Inc. is a leading direct-to-consumer pool and spa care brand, selling maintenance items, equipment, parts, cleaning accessories, and safety/recreational products[24] - The company operates over 1,000 company-operated locations in 39 states and through e-commerce websites[24] Note 2—Summary of Significant Accounting Policies This note outlines the key accounting principles and methods used in preparing the financial statements - The interim condensed consolidated financial statements are prepared following GAAP and include all normal and recurring adjustments for fair presentation[25] - The company's business is highly seasonal, with sales and earnings highest during the third and fourth fiscal quarters (April through September), corresponding to peak swimming pool use[30] - Recent accounting pronouncements (ASU 2025-01, 2024-03, 2023-09, 2023-07) are being evaluated, but no material impact on disclosures is expected[32][33][34][35] Note 3 —Goodwill and Other Intangibles, Net This note details the company's goodwill and other intangible assets, including impairment evaluations Goodwill (in thousands) | Metric | June 28, 2025 | September 28, 2024 | June 29, 2024 | | :----------------------- | :------------ | :----------------- | :------------ | | Balance at end of period | $180,698 | $180,698 | $180,698 | - Management identified indicators (decline in market capitalization, reduced operating performance) requiring an interim goodwill and indefinite-lived intangible asset impairment evaluation during the three months ended June 28, 2025[37] - Based on quantitative impairment tests using discounted cash flow and market approaches, the fair value of the reporting unit and indefinite-lived intangibles exceeded their carrying amounts, resulting in no impairment loss recognized[38][40] Other Intangible Assets (Net Carrying Amount in thousands) | Category | June 28, 2025 | September 28, 2024 | June 29, 2024 | | :-------------------------------- | :------------ | :----------------- | :------------ | | Trade name and trademarks (finite life) | $15,266 | $16,745 | $17,239 | | Trade name and trademarks (indefinite life) | $9,350 | $9,350 | $9,350 | | Non-compete agreements | $737 | $892 | $943 | | Consumer relationships | $6,303 | $7,362 | $7,715 | | Other intangibles | $53 | $80 | $96 | | Total | $31,709 | $34,429 | $35,343 | Note 4—Accounts and Other Receivables, Net This note provides a breakdown of accounts and other receivables, net Accounts and Other Receivables, Net (in thousands) | Category | June 28, 2025 | September 28, 2024 | June 29, 2024 | | :----------------------------- | :------------ | :----------------- | :------------ | | Vendor and other rebates receivable | $13,527 | $24,713 | $20,393 | | Customer receivables | $20,287 | $18,262 | $21,592 | | Other receivables | $3,210 | $4,723 | $6,031 | | Allowance for credit losses | $(2,230) | $(2,231) | $(2,199) | | Total | $34,794 | $45,467 | $45,817 | - Total accounts and other receivables, net, decreased from $45,467 thousand as of September 28, 2024, to $34,794 thousand as of June 28, 2025, primarily due to a decrease in vendor and other rebates receivable[43] Note 5—Inventories This note details the company's inventory composition, including raw materials and finished goods Inventories (in thousands) | Category | June 28, 2025 | September 28, 2024 | June 29, 2024 | | :------------- | :------------ | :----------------- | :------------ | | Raw materials | $3,038 | $3,381 | $4,787 | | Finished goods | $270,154 | $230,902 | $297,422 | | Total | $273,192 | $234,283 | $302,209 | - Total inventories increased from $234,283 thousand as of September 28, 2024, to $273,192 thousand as of June 28, 2025, driven by an increase in finished goods[44] Note 6—Prepaid Expenses and Other Current Assets This note outlines the company's prepaid expenses and other current assets Prepaid Expenses and Other Current Assets (in thousands) | Category | June 28, 2025 | September 28, 2024 | June 29, 2024 | | :------------------------------ | :------------ | :----------------- | :------------ | | Prepaid insurance | $3,164 | $1,120 | $3,449 | | Prepaid occupancy costs | $2,280 | $2,132 | $2,173 | | Prepaid sales tax | $6,734 | $3,719 | $6,788 | | Prepaid maintenance | $5,140 | $4,388 | $5,038 | | Prepaid other | $4,209 | $13,380 | $5,626 | | Other current assets | $12,933 | $9,440 | $11,471 | | Total | $34,460 | $34,179 | $34,545 | - Prepaid expenses and other current assets remained relatively stable, with a slight increase from $34,179 thousand as of September 28, 2024, to $34,460 thousand as of June 28, 2025[45] Note 7—Accrued Expenses and Other Current Liabilities This note details the company's accrued expenses and other current liabilities Accrued Expenses and Other Current Liabilities (in thousands) | Category | June 28, 2025 | September 28, 2024 | June 29, 2024 | | :-------------------------------- | :------------ | :----------------- | :------------ | | Accrued payroll and employee benefits | $18,780 | $20,813 | $12,484 | | Customer deposits | $5,807 | $5,289 | $5,428 | | Interest | $4,888 | $5,545 | $555 | | Inventory related accruals | $13,001 | $13,586 | $14,323 | | Loyalty and deferred revenue | $7,919 | $6,269 | $6,685 | | Sales tax | $13,916 | $8,282 | $15,442 | | Self-insurance reserves | $11,666 | $9,287 | $11,228 | | Other accrued liabilities | $28,652 | $37,642 | $41,063 | | Total | $104,629 | $106,713 | $107,208 | - Total accrued expenses and other current liabilities decreased from $106,713 thousand as of September 28, 2024, to $104,629 thousand as of June 28, 2025[46] Note 8—Long-Term Debt, Net This note provides details on the company's long-term debt, including the Term Loan and Revolving Credit Facility Long-Term Debt, Net (in thousands) | Category | June 28, 2025 | September 28, 2024 | June 29, 2024 | | :-------------------------- | :------------ | :----------------- | :------------ | | Term Loan | $756,650 | $783,675 | $783,675 | | Revolving Credit Facility | $20,000 | $— | $— | | Total long-term debt | $776,650 | $783,675 | $783,675 | | Total long-term debt, net | $751,547 | $769,065 | $768,598 | - The Term Loan has a maturity date of March 9, 2028, and carries interest at a specified margin over Term SOFR[51] - The Revolving Credit Facility was amended on April 3, 2024, extending its maturity date to April 3, 2029, and revising applicable margins[54] - As of June 28, 2025, $20.0 million was outstanding on the Revolving Credit Facility, which was paid off subsequent to quarter end[55] Note 9—Income Taxes This note discusses the company's income tax provisions and effective tax rates - The effective income tax rate was (10.4)% for the nine months ended June 28, 2025, compared to a benefit of 40.7% for the nine months ended June 29, 2024, primarily due to state taxes and changes in valuation allowance[59] - The company uses the discrete effective tax rate method for interim income tax provision due to the sensitivity of tax adjustments to marginal pre-tax book profitability[60] - The recently signed One Big Beautiful Bill Act (OBBBA) is being assessed for potential impacts, but no material impact on 2025 financial results is currently expected[61] Note 10—Commitments & Contingencies This note outlines the company's legal proceedings and vendor agreement amendments - A class action complaint for federal securities law violations was dismissed on July 14, 2025, with leave for the plaintiff to file a second amended complaint by August 13, 2025[63] - Derivative actions against officers and directors are stayed pending the outcome of the securities class action[64] - An amended vendor agreement in August 2024, which included a warranty guarantee and additional rebates, was further amended in November 2024 to eliminate the guarantee and reduce future rebates[66][68] Note 11—Share Repurchase Program This note describes the company's expired share repurchase program and reports no repurchases - The board authorized a $300 million share repurchase program on December 3, 2021, which expired on December 31, 2024[70] - No shares were repurchased during the three and nine months ended June 28, 2025, or June 29, 2024[72] Note 12—Equity-Based Compensation This note details the company's equity-based compensation plan and recognized expenses - As of June 28, 2025, 12.3 million shares were available for future grants under the 2020 Omnibus Incentive Plan[73] - The aggregate unamortized value of outstanding equity-based compensation awards was $10.6 million, expected to be recognized over a weighted average period of 2.2 years[74] Equity-Based Compensation Expense (in thousands) | Period | Equity-Based Compensation Expense | | :-------------------------------- | :-------------------------------- | | Three months ended June 28, 2025 | $1,600 | | Three months ended June 29, 2024 | $2,200 | | Nine months ended June 28, 2025 | $5,200 | | Nine months ended June 29, 2024 | $7,600 | Note 13—Earnings (Loss) Per Share This note presents the basic and diluted earnings (loss) per share Earnings (Loss) Per Share | Metric | Three Months Ended June 28, 2025 | Three Months Ended June 29, 2024 | Nine Months Ended June 28, 2025 | Nine Months Ended June 29, 2024 | | :-------------------------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Basic earnings (loss) per share | $0.12 | $0.33 | $(0.40) | $(0.07) | | Diluted earnings (loss) per share | $0.12 | $0.33 | $(0.40) | $(0.07) | - Diluted earnings per share decreased from $0.33 in the prior year period to $0.12 for the three months ended June 28, 2025. Diluted loss per share increased from $(0.07) to $(0.40) for the nine months ended June 28, 2025[81] Weighted-Average Potentially Dilutive Shares Excluded (in thousands) | Category | Three Months Ended June 28, 2025 | Three Months Ended June 29, 2024 | Nine Months Ended June 28, 2025 | Nine Months Ended June 29, 2024 | | :----------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Stock Options | 818 | 2,253 | 1,112 | 2,780 | | RSUs | 4,756 | 2,351 | 3,552 | 1,459 | | Total | 5,574 | 4,604 | 4,664 | 4,239 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Leslie's financial condition and operations, analyzing key performance measures, sales, gross profit, net income, Adjusted EBITDA, seasonality, and liquidity Our Company This section introduces Leslie's as the largest direct-to-consumer pool and spa care brand - Leslie's is the largest direct-to-consumer brand in the $15 billion U.S. pool and spa care industry, with over 1,000 branded locations and a robust digital platform[85] - The company holds approximately 15% market share of residential aftermarket product spend as of 2023 and offers a wide range of non-discretionary products and essential services[85][86] - Leslie's provides complimentary in-store water testing via its proprietary AccuBlue® system, in-store equipment repair, and has pioneered the industry's first loyalty program[86][87] Key Factors and Measures We Use to Evaluate Our Business This section outlines the GAAP and non-GAAP financial metrics used to assess performance - Key GAAP measures include sales, gross profit and gross margin, selling, general and administrative expenses (SG&A), and operating income (loss)[89] - Key non-GAAP measures and other operating measures include comparable sales, comparable sales growth, Adjusted EBITDA, Adjusted net income (loss), and Adjusted diluted earnings (loss) per share[89] - Adjusted EBITDA and Adjusted net income (loss) are used by management and the board to assess financial performance and evaluate business strategies, excluding non-recurring or non-cash items[100][102] Factors Affecting the Comparability of our Results of Operations This section discusses macroeconomic, geopolitical, and consumer behavior factors impacting financial results - Macroeconomic and geopolitical developments, including tariffs, public health crises, global conflicts, supply chain disruptions, labor market constraints, inflation, and interest rates, significantly impact financial performance[106][107] - Consumer purchasing patterns, particularly related to stockpiling of granular chlorine compounds due to unstable supply, can cause unpredictable changes in demand and revenue[108] Results of Operations This section provides a detailed analysis of the company's financial performance Key Components of Results of Operations (in thousands, except per share amounts and percentages) | Metric | Three Months Ended June 28, 2025 | Three Months Ended June 29, 2024 | Nine Months Ended June 28, 2025 | Nine Months Ended June 29, 2024 | | :-------------------------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Sales | $500,347 | $569,638 | $852,709 | $932,262 | | Gross profit | $197,890 | $228,840 | $289,553 | $333,576 | | Operating income (loss) | $68,318 | $97,695 | $(19,760) | $30,697 | | Net income (loss) | $21,730 | $60,650 | $(74,154) | $(13,456) | | Diluted EPS | $0.12 | $0.33 | $(0.40) | $(0.07) | | Comparable sales growth | (12.4)% | (4.0)% | (8.8)% | (4.1)% | | Adjusted EBITDA | $81,570 | $109,469 | $16,193 | $65,771 | | Adjusted diluted EPS | $0.20 | $0.34 | $(0.27) | $(0.03) | - Sales decreased by 12.2% for the three months and 8.5% for the nine months ended June 28, 2025, primarily due to lower transaction volume and product mix[115][116] - Gross margin decreased to 39.6% (from 40.2%) for the three months and 34.0% (from 35.8%) for the nine months ended June 28, 2025, mainly due to higher occupancy and distribution center costs and decreased volume[118][119] - Net income decreased by $38.9 million for the three months ended June 28, 2025, and net loss increased by $60.7 million for the nine months, primarily due to lower sales and increased SG&A[125] Seasonality and Quarterly Fluctuations This section explains the seasonal nature of the business, with peak sales and earnings in warmer months - The business is highly seasonal, with highest sales and earnings in the third and fourth fiscal quarters (April-September) due to peak swimming pool use[131] - First and second fiscal quarters typically generate net losses and negative operating cash flow due to lower sales and ongoing investments[131] - Weather is a principal external factor, with hot weather increasing purchases and unseasonably cool or rainy weather reducing demand[133] Liquidity and Capital Resources This section discusses the company's sources of liquidity, cash flow, and borrowing capacity - Primary liquidity sources are net cash from operating activities and borrowing availability under the Revolving Credit Facility[136] Summary of Cash Flows (in thousands) | Activity | 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 | - Net cash used in operating activities decreased by $99.8 million for the nine months ended June 28, 2025, primarily due to increased product inventories and reduced accrued expenses[144] - The company had $218.2 million of available borrowing capacity under the Revolving Credit Facility as of June 28, 2025, and was in compliance with all debt covenants[141] Critical Accounting Estimates This section highlights key accounting estimates and assumptions, including inventory and goodwill impairment - Management makes significant estimates and assumptions for financial statements, including inventory reserves, lease assumptions, vendor rebate programs, income taxes, and recoverability of intangible assets and goodwill[151] - Goodwill and indefinite-lived intangible assets are reviewed for impairment annually or more frequently if indicators arise, using qualitative or quantitative assessments[153][156] - A quantitative assessment of goodwill and indefinite life intangible assets was performed during Q3 2025, and no impairment was noted[157] Recent Accounting Pronouncements This section refers to Note 2 for information regarding recent accounting pronouncements - For information regarding recent accounting pronouncements, refer to Note 2—Summary of Significant Accounting Policies[159] Item 3. Quantitative and Qualitative Disclosures About Market Risk No material changes in market risk exposures, including interest rate and inflation/deflation impacts, were reported - No material changes in interest rate risk exposures were reported since the last Annual Report on Form 10-K[160] - No material changes in exposure to inflation or deflation were reported since the last Annual Report on Form 10-K[161] Item 4. Controls and Procedures Disclosure controls were ineffective due to un-remediated material weaknesses; a remediation plan is underway - The Chief Executive Officer and Interim Chief Financial Officer concluded that disclosure controls and procedures were ineffective as of June 28, 2025, due to un-remediated material weaknesses in internal control over financial reporting[162] - The company is implementing a remediation plan to address material weaknesses, focusing on enhancing existing inventory controls and designing/executing new controls for vendor rebates[164][165] - All open accounting roles were filled with experienced personnel during the quarter ended June 28, 2025, to complement the existing team and assist with remediation efforts, which are expected to be completed during fiscal year 2025[165][166] PART II - OTHER INFORMATION This section covers other relevant information, including legal proceedings, risk factors, and exhibits Item 1. Legal Proceedings The company faces routine litigation with established reserves; no material changes were reported - The company is involved in routine litigation and claims, with reserves established for probable and estimable liabilities, which are not significant[169] - No material changes to legal proceedings were reported, other than those disclosed in Note 10—Commitments & Contingencies[170] Item 1A. Risk Factors No material changes to risk factors were reported since the last Annual Report - No material changes to risk factors were reported, except as disclosed in the Quarterly Report on Form 10-Q for the quarter ended March 29, 2025[171] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities or issuer purchases were reported - There were no issuer purchases of equity securities[172] - There were no sales of unregistered securities[172] Item 3. Defaults Upon Senior Securities The company reported no defaults on senior securities during the period - No defaults upon senior securities were reported[173] Item 4. Mine Safety Disclosures This item regarding mine safety disclosures is not applicable to the company - Mine Safety Disclosures are not applicable[174] Item 5. Other Information No Form 8-K disclosures, changes to director nominee procedures, or trading arrangements were reported - No information required to be disclosed on Form 8-K[175] - No changes to procedures for recommending director nominees[175] - No director or Section 16 officer adopted or terminated any Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the quarter ended June 28, 2025[176] Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including officer certifications and XBRL documents - Exhibits include certifications of the Principal Executive Officer and Principal Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) and 18 U.S.C. Section 1350[177] - Inline XBRL Instance Document, Taxonomy Schema Document, and Cover Page Interactive Data File are included[177] SIGNATURES This section contains the authorized signatures for the report Signature of Authorized Officer The report is signed by Anthony Iskander, Interim Chief Financial Officer and Treasurer - The report was signed by Anthony Iskander, Interim Chief Financial Officer and Treasurer, on August 7, 2025[183]