Leslie's, Inc. Q1 FY2025 earnings call

Key Points - Jason McDonald emphasized his listening and learning tour, having visited over sixty-five stores across nine states and the pool and spa show. - Revenue was at the top end of guidance, with adjusted EBITDA at the bottom end due to additional inventory optimization decisions and professional fees. - Transformation initiatives are guided by three strategic themes: customer centricity, convenience, and asset utilization. ### Initiatives - Local Fulfillment Centers (LFCs): Establishing LFCs to consolidate key SKUs and better serve customers. Initial markets chosen are high-volume ones, with twenty-six locations to be open in advance of pool season. - Serving Pro Customers: Focus on winning with pro customers, including a focus on pro assortment with never out pro SKUs and leveraging LFC network. - DIY Omnichannel Loyalty: Enhancing the mobile app for DIY customers with features like new search, voice search, and easier access to rewards, with new senior executives overseeing DIY-focused initiatives.

Leslie's, Inc. reported total sales of $175 million for the first fiscal quarter of 2025, which was at the top end of the guidance. This represents a 0.7% increase compared to the first fiscal quarter of 2024. Excluding the impact of serious storms in Florida, results still fell within the guidance range. Across consumer groups, Pro Pool sales grew 9%, residential pool sales declined 1%, and residential hot tub sales declined 5%. Adjusted EBITDA was a loss of $29 million, at the bottom end of the guide. Core chemical sales were positive in both dollars and volume versus the same period a year ago. Equipment sales were stabilizing, with a 4% decline compared to a 18% decline a year ago and a 15% decline last quarter. Pro results showed 9% growth driven by better in-stock positions and a double-digit increase in pro partner contracts.

Second Quarter 2025 - Sales expected to be $179 million to $189 million, implying a range of flat to negative 5% vs prior year. - Gross profit $44 million to $48 million. - Adjusted EBITDA negative $38 million to negative $33 million. ### Full-Year 2025 - Sales expected to be $1.3 billion to $1.37 billion, with revenue range of decline 2% to growth 3% year-over-year (including a fifty-third week impact). - Gross profit $473 million to $505 million. - Adjusted EBITDA $96 million to $116 million. - CapEx $35 million to $40 million. Focus on maximizing free cash flow and reducing debt, with pause on M&A but plan to open three new stores.

• Macroeconomic environment impacts on sales and margins. - Potential tariff effects on chemicals, with minimal exposure as chemicals are domestically sourced. - Challenges in inventory management and achieving desired in-stock levels for key SKUs.

Q: Jonathan Matuszewski asked about early signs of progress from transformation initiatives.

A: Jason mentioned improvements in in-stocks by over 300 basis points since the end of fiscal 2024, and LFCs helping with inventory efficiency and preventing lost sales by having needed items in local centers.

Q: Shaun Calnan asked about chemicals and tariffs.

A: Jason stated that exposure to tariffs is minimal as chemicals are domestically sourced, and they will manage indirect costs.

Q: Ryan Merkel asked about gross margins.

A: Scott explained that margin decline in Q1 was due to inventory adjustments and fixed cost deleverage, with expectations of margin improvement in the second half.

Q: Justin Kleber asked about pro business growth breakdown.

A: Scott said pro growth is predominantly from transactions.

Q: David Bellinger asked about wage growth and store closures.

A: Scott noted moderate wage growth, and Jason said there is no current information on store closure programs.

Q: Lourne Ng asked about comps and DIY vs pro.

A: Scott and Jason discussed green shoots in pro and core chemicals, and plans to improve DIY traffic through marketing and loyalty initiatives like enhancing the mobile app.