Leslie's(LESL) - 2026 Q1 - Quarterly Report

Company Operations - The company operates approximately 950 retail locations across 38 states in the U.S., with a significant market share in the $15 billion pool and spa care industry [88]. - Over 85% of the company's product assortment consists of non-discretionary items essential for pool and spa maintenance, including chemicals and equipment [89]. - The company utilizes its proprietary AccuBlue® system for in-store water testing, enhancing consumer engagement and loyalty, which contributes to higher lifetime value [90]. Financial Performance - Sales for the three months ended January 3, 2026, were $147.1 million, a decrease of $28.1 million or 16.0% compared to $175.2 million in the prior year period [127]. - Gross profit decreased to $27.1 million, down $20.6 million or 43.3%, with a gross margin of 18.4%, a decline of 880 basis points from 27.2% in the prior year [129]. - Selling, general and administrative expenses (SG&A) were $85.7 million, a decrease of $1.7 million or 2.0% compared to $87.4 million in the prior year [130]. - Net loss for the three months ended January 3, 2026, was $83.0 million, an increase of $38.4 million from a net loss of $44.6 million in the prior year [135]. - Diluted loss per share was $8.92 for the three months ended January 3, 2026, compared to $4.82 in the prior year [136]. - Adjusted EBITDA was $(40.3) million, a decrease of $11.0 million from $(29.3) million in the prior year [137]. - Comparable sales decreased by $26.9 million or 15.5% compared to the prior year period [127]. Expenses and Costs - Gross profit is calculated as sales minus the cost of merchandise and services sold, with gross margin being gross profit as a percentage of sales [100][101]. - Selling, General, and Administrative (SG&A) expenses include costs related to retail operations and corporate functions, which generally vary with sales and location changes [103]. - Interest expense decreased to $13.5 million from $15.8 million in the prior year, a reduction of $2.3 million [132]. - Income tax expense increased to $0.7 million from a benefit of $10.9 million in the prior year, an increase of $11.6 million [133]. Cash Flow and Financing - Cash and cash equivalents totaled $3.6 million as of January 3, 2026, down from $11.6 million as of December 28, 2024 [144]. - Outstanding borrowings on the Revolving Credit Facility were $25.0 million as of January 3, 2026, compared to $40.0 million as of December 28, 2024 [144]. - Net cash used in operating activities was $81.1 million for the three months ended January 3, 2026, a decrease of $24.0 million from $105.1 million in the prior year period [150]. - Net cash provided by financing activities increased to $24.7 million for the three months ended January 3, 2026, compared to $12.8 million in the prior year period, an increase of $11.9 million [152]. - The company had $128.3 million of available borrowing capacity under the terms of the Revolving Credit Facility as of January 3, 2026 [148]. - Net cash used in investing activities was $4.3 million for the three months ended January 3, 2026, a slight decrease from $4.6 million in the prior year period [151]. - The company expects to fund capital expenditures from net cash provided by operating activities [146]. - The company believes its cash position and borrowing availability will be adequate to finance working capital requirements and planned capital expenditures over the next 12 months [147]. Market and Economic Conditions - The company has experienced impacts from macroeconomic events, including inflation and supply chain disruptions, which affect consumer purchasing behavior and sales [112]. - A reverse stock split was approved at a ratio of 1-for-20, effective September 29, 2025, impacting the trading of the company's common stock [114]. - The company received a downgraded credit rating from Standard and Poor's to CCC from CCC+ during the quarter ended January 3, 2026 [148]. Impairments and Changes - Non-cash impairment for the three months ended January 3, 2026, was $10.1 million, with no impairment in the prior year [131]. - There have been no material changes to contractual obligations during the three months ended January 3, 2026 [154].