Leslie's, Inc. (NASDAQ:LESL): A Detailed Look at the Pool and Spa Care Leader's Performance

Published on September 24, 2024 | Ticker: LESL

Leslie's, Inc. (NASDAQ:LESL) is the largest and most trusted direct-to-consumer brand in the $15 billion United States pool and spa care industry. The company has a market-leading share of approximately 15% of residential aftermarket product spend as of 2022 and operates an integrated marketing and distribution ecosystem powered by a physical network of over 1,000 branded locations and a robust digital platform.

Financials

In its latest fiscal year ended September 30, 2023, Leslie's reported annual revenue of $1,451,209,000 and net income of $27,242,000. The company generated annual operating cash flow of $6,470,000 and annual free cash flow of -$32,107,000. These financial results demonstrate Leslie's strong market position and the resilience of its business model, even in the face of macroeconomic headwinds.

Looking at the company's quarterly performance, in the second quarter of fiscal 2024, Leslie's reported total sales of $189 million, a decrease of 11% compared to the prior year period. Comparable sales decreased 12%, driven primarily by transaction count and spending on larger ticket items. Gross profit was $54 million, down from $71 million in the prior year quarter, and gross margin rate declined 464 basis points to 28.8%.

The company attributed the weaker performance to unfavorable weather conditions in its key markets, which resulted in a delayed start to the pool season. Specifically, the company noted that many of its major markets, including Texas, Southern California, Arizona, and Florida, experienced significantly fewer consecutive days above the critical 70-degree threshold versus the same period in the prior year and/or the 10-year averages for these markets. This led to a 19% year-over-year decline in pool openings in the company's seasonal markets.

Despite the challenging weather, Leslie's was able to partially offset the sales decline through improved conversion from healthy in-stock levels and competitive pricing across its channels. The company also delivered on its inventory goals while providing superior customer service and disciplined expense management. SG&A expenses decreased 12% year-over-year, driven by declines in merchant fees, lower payroll and executive transition costs, and lower store expenses.

Outlook

Looking ahead, Leslie's has updated its full-year fiscal 2024 outlook. The company now expects sales to be in the range of $1,321 million to $1,347 million, with gross profit between $483 million and $499 million. Net income is expected to be in the range of a loss of $5 million to a gain of $6 million. Adjusted EBITDA is projected to be $117 million to $131 million, and adjusted diluted earnings per share are expected to be $0.03 to $0.09.

The company's revised guidance reflects the impact of the unfavorable weather in the first half of the year, as well as continued weakness in discretionary product categories due to persistent inflation and high interest rates. However, Leslie's remains confident in its ability to capture market share and drive profitability as the industry returns to more normalized growth patterns.

Recent Developments

One of the key drivers of Leslie's long-term growth is its focus on strategic initiatives, including customer file growth, expansion of its PRO business, and the continued rollout of its AccuBlue Home smart water testing device and membership program. The company ended the second quarter with 4,088 PRO contracts in place and 102 PRO locations, compared to 3,300 PRO contracts and 98 PRO locations a year ago. The AccuBlue Home program continues to gain momentum, with members spending at a rate of more than $1,000 per year.

In terms of geographic performance, Leslie's does not provide detailed breakdowns, but the company's broad national footprint and diversified customer base help mitigate the impact of regional weather variations. The company's ability to serve both residential and professional customers through its integrated omnichannel platform is a key competitive advantage.

Liquidity

From a liquidity perspective, Leslie's ended the second quarter with $8 million in cash and cash equivalents and $97 million outstanding on its revolving credit facility. The company's debt levels were lower by $83 million versus a year ago, and its leverage ratio was 6.0 times. Leslie's remains focused on reducing its debt, with a goal of achieving a leverage ratio of 3.5x to 3.7x in fiscal 2024 and a longer-term goal of reaching a leverage ratio of 3x or less.

Conclusion

Overall, Leslie's is navigating a challenging macroeconomic environment, but the company's strong market position, diversified product and service offerings, and strategic initiatives position it well for long-term growth and profitability. The company's ability to adapt to changing market conditions and provide exceptional value to its customers will be key to its continued success.

Leslie's, Inc. (LESL): Transforming the Pool and Spa Care Landscape

Leslie's, Inc. (LESL) is the largest and most trusted direct-to-consumer brand in the $15 billion U.S. pool and spa care industry, serving both residential customers and pool professionals nationwide. Founded in 1963, the company has established itself as the industry leader, operating an integrated marketing and distribution ecosystem powered by a physical network of over 1,000 branded locations and a robust digital and e-commerce platform.

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