Leslie’s Q3 Earnings Call Highlights

Leslie’s (NASDAQ:LESL) reported lower third-quarter sales and adjusted EBITDA as softer consumer demand, unfavorable weather and heightened promotional competition pressured customer traffic during the peak pool season. The company also withdrew its fiscal 2026 sales and adjusted EBITDA guidance, citing lower-than-anticipated traffic and an evolving macroeconomic environment.

Third-quarter sales declined 8.4% to $458.5 million from $500.3 million a year earlier. Comparable sales, excluding the impact of 80 store closures, fell 6.2% from the prior-year period.

Chief Executive Officer Jason McDonell said weather patterns reduced demand and store and online traffic, resulting in fewer pool issues that typically generate purchases of higher-margin specialty chemical products. He said the company saw modest improvement in mid-June, but it was not enough to offset pressure during the remainder of the quarter as competitors adopted more aggressive, inventory-driven pricing actions.

Margin Pressure Accompanied Sales Decline

Gross margin fell to 36.5% in the third quarter from 39.6% a year earlier. Chief Financial Officer Jeff White attributed the decline to lower sales of higher-margin products, changes in product mix, and higher distribution-center and manufacturing costs.

Adjusted EBITDA declined to $55.7 million from $81.6 million in the third quarter of fiscal 2025, primarily reflecting lower sales volume and gross-margin pressure.

Leslie’s reported net income of $47.8 million, an improvement of $26.1 million from the prior-year quarter. Adjusted net income rose by $12.6 million to $37.8 million, according to White.

Selling, general and administrative expenses decreased 17.9% to $106.4 million from $129.6 million a year earlier. The reduction reflected lower labor and store operating costs, as well as a $17.5 million one-time gain tied to a credit card interchange fee settlement. Those benefits were partly offset by technology investments. SG&A as a percentage of sales improved by 270 basis points to 23.2%.

Company Cites Progress on Transformation Efforts

McDonell said the company continued executing its transformation plan, including pricing actions, customer reactivation initiatives, store-operating improvements, cost optimization and efforts to improve asset utilization.

The CEO said Leslie’s generated positive comparable sales at leslies.com during the quarter, where customers frequently make direct price comparisons. He said research and customer feedback indicate that the company’s revised pricing strategy and targeted marketing are resonating with core customers, though translating that response into sustained store traffic gains is taking longer.

While overall transaction count and customer count declined, McDonell said the company experienced strong growth in customers who did not shop at Leslie’s in the prior year but had made purchases between 2021 and 2024. He characterized the trend as evidence that pricing, marketing and the company’s customer value proposition are bringing former customers back.

Leslie’s also completed full-scale training across its store organization and said it maintained strong in-stock levels for its “never out” stock-keeping units. The company said those efforts supported healthy in-store conversion rates and growth in units per transaction.

The company has closed 80 underperforming stores as part of efforts to improve its cost structure. McDonell said the company has seen evidence that it can redirect customers from closed locations to nearby stores and digital channels.

Inventory Falls; Debt Discussions Continue

Inventory stood at $233.4 million at the end of the quarter, down 15% from $273.2 million a year earlier. White said the decline reflected inventory optimization efforts, the prior store closures and continued cleanup of non-go-forward inventory. The company said key-product in-stock levels remained strong despite the reduction.

Capital expenditures totaled $10.5 million as of July 4, compared with $19.1 million a year earlier. Spending was primarily related to maintenance of stores and distribution centers. Leslie’s expects full-year fiscal 2026 capital expenditures to be well below $20 million.

The company ended the quarter with $30 million outstanding under its revolving credit facility, compared with $20 million in the prior-year period, and had $753 million of net long-term debt. Leslie’s said it had approximately $207 million of availability, including cash on hand and borrowing capacity under its credit facility.

Management said it is exploring strategic alternatives with certain financial stakeholders to gain additional financial flexibility and address long-term debt obligations. Potential actions could include a deleveraging transaction, potentially combined with one or more financing transactions. The company said no determinations have been made and there is no assurance that any transaction will result.

Outlook Withdrawn

White said Leslie’s withdrew its previously issued fiscal 2026 sales and adjusted EBITDA guidance and will not provide an updated outlook at this time. The decision followed lower-than-expected customer traffic during the company’s peak season and continued uncertainty in the macroeconomic environment.

McDonell said traffic generation is now the company’s central challenge, alongside maintaining competitive pricing, communicating its pool-care expertise and convenience, and retaining both new and existing customers.

About Leslie’s (NASDAQ:LESL)

Leslie’s, Inc (NASDAQ: LESL) is the largest direct-to-consumer retailer of swimming pool supplies and related equipment in the United States. Through a network of more than 900 company-operated stores and a robust e-commerce platform, the company offers a comprehensive range of pool chemicals, cleaning tools, pumps, filters, heaters and pool accessories. In addition to product retailing, Leslie’s provides in-store and in-home water testing services, equipment installation, repair and ongoing maintenance programs designed to support both residential and commercial pool owners.

Founded in 1963 in North Miami Beach, Florida, Leslie’s has grown from a single neighborhood pool-supply shop into a national specialty retailer.