Leslie's(LESL) - 2026 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Net sales for Q1 2026 were $147.1 million, a 16% decline from $175.2 million in Q1 2025, attributed to a $4 million hurricane-related sales benefit last year, a $10 million impact from the shift to a 52-week year, and $1 million from closed stores [16][17] - Gross profit margin decreased to 18.4% from 27.2% in the prior year, with approximately 430 basis points of this decline due to a non-cash impairment charge on inventory from closed stores [18] - Net loss for Q1 2026 was $83 million, compared to a net loss of $44.6 million in Q1 2025, with an adjusted net loss of $48.7 million versus $40.7 million in the prior year [19][20] Business Line Data and Key Metrics Changes - Comparable sales decreased by 15.5% in Q1 2026, with most categories reflecting this decline [17] - The company closed 80 underperforming stores, which is expected to have an annual sales impact of approximately $25 million-$35 million but will yield an annualized net EBITDA improvement of $4 million-$10 million once fully completed [9][22] Market Data and Key Metrics Changes - The company is seeing positive comparable store sales momentum in January 2026, indicating a potential recovery as it approaches the pool season [4][39] - The pricing transformation initiative aims to improve customer pricing on key items, addressing previous misalignments with market pricing [4][5] Company Strategy and Development Direction - The company is committed to becoming America's one-stop shop for pool care, focusing on customer value proposition and operational efficiency through cost optimization and better asset utilization [3][14] - A new integrated marketing campaign, "New Low Prices, Same Great Quality," is set to launch, aimed at driving traffic and increasing customer loyalty [5][28] - The restructuring of the field organization into a market leadership model is intended to enhance customer relationships and drive transaction growth [12][14] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the strategic direction and the progress of transformation initiatives, reaffirming full-year guidance for net sales of $1.1 billion-$1.25 billion and Adjusted EBITDA of $55 million-$75 million [3][25] - The company anticipates generating the majority of sales and earnings in the second half of the year due to the seasonal nature of the business [25] Other Important Information - Inventory at the end of Q1 2026 was $210 million, a 23% reduction year-over-year, due to inventory optimization initiatives and store closures [20][21] - The company is focused on disciplined inventory management and has implemented a SKU rationalization initiative to eliminate over 2,000 SKUs, expected to generate $4 million-$5 million in incremental EBITDA savings [12][24] Q&A Session Summary Question: Pricing actions and their impact on the business - Management explained that the pricing actions are aimed at optimizing regular prices and transitioning to a more consistent pricing strategy centered around everyday value, which is expected to limit gross margin reductions [31][33] Question: Positive momentum in January and its implications - Management noted that while there is a healthier base, the positive comparable store sales in January are encouraging, and they are optimistic about the upcoming pool season [38][39] Question: Insights on basket-building during pricing pilot - Management shared that tests across various regions showed solid increases in units per transaction (UPT) and conversion rates, indicating a positive response to the new pricing strategy [44][45] Question: Long-term store footprint strategy - Management emphasized the importance of optimizing store and distribution center footprints to enhance service to pool owners, while also identifying opportunities for expansion in new markets [49][50]