Leslie's(LESL)2024-08-08 02:25Financial Data and Key Metrics Changes - Total fiscal third quarter sales were $570 million, down 7% year-over-year, impacted by unfavorable weather and continued weakness in discretionary product sales [10][18] - Gross margin was 40%, down 101 basis points year-over-year, primarily due to chemical price actions and occupancy deleverage [13][20] - Adjusted EBITDA was $109 million, compared to $129 million in the same period last year, with adjusted diluted earnings per share at $0.34, down from $0.41 [21][22] Business Line Data and Key Metrics Changes - Residential pool sales declined 8%, PRO pool sales were down 2%, and residential hot tub sales decreased by 4% [18] - Chemical sales improved to down 1% in the quarter, with a positive year-to-date volume, while equipment sales were down 15% [11][25] - Discretionary product sales were down 10%, showing a sequential improvement from the previous quarter [11][25] Market Data and Key Metrics Changes - Total transactions were down 2% year-over-year, with traffic improving to down 5% in the quarter from down 10% in the second quarter [10][9] - The company outperformed specialty pool retailers in sales growth during the third quarter, indicating a gain in market share [11][12] - Digital traffic share grew during the quarter, reflecting an increase in online engagement [11] Company Strategy and Development Direction - The company aims for long-term sales growth in the mid-single digits, targeting a gross margin of 40% and an adjusted EBITDA margin in the mid-teens [7][14] - Strategic initiatives include enhancing customer loyalty programs, expanding PRO contracts, and pursuing store growth while prioritizing debt reduction [15][16][27] - The company is focused on improving operational efficiency and profitability through cost management and inventory reduction [26][29] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the ongoing normalization of industry demand post-pandemic and the impact of weather on sales [4][28] - There are positive signs emerging, such as improved chemical sales and a return to pre-pandemic equipment unit volumes [25][28] - The company remains cautious about consumer spending due to inflation and high interest rates, which may affect future performance [8][28] Other Important Information - The company ended the quarter with $784 million outstanding on its secured term loan, a decrease from the previous year [22] - Cash and cash equivalents increased to $74 million, up from $19 million in the prior year [23] - Inventory levels decreased by 31% year-over-year, indicating improved supply chain management [23] Q&A Session Summary Question: Understanding the shortfall in 3Q versus prior guidance - Management explained that the shortfall was primarily due to lower transactions and average order value, driven by cautious consumer behavior and weather impacts [31][32] Question: Gross margin outlook and headwinds - Management indicated that the difference in gross margin targets is due to changes in business mix, with lower margins in the growing PRO business [34][35] Question: Performance of loyalty customers - Loyalty customers continue to outperform non-members, and management is focused on increasing loyalty penetration [40][41] Question: Chemical pricing and market dynamics - Management noted that chemical pricing has stabilized, and they do not anticipate significant price deflation in the near future [62][63] Question: Fourth quarter sales outlook - The outlook for Q4 reflects continued cautious consumer behavior and potential weather disruptions, with a projected sales decline of around 7% [57][58]