Leslie's, Inc. Q2 FY2025 earnings call

• Strategic initiatives centered around customer centricity, convenience, and asset utilization:
  • Optimizing inventory and utilizing LFCs: All 26 LFCs announced last quarter are operational, completed on time and under budget, supporting precision inventory and improving in-stock levels. Achieved over 99% in-stock levels in never out SKUs, reduced inventory by 12% with 8% improvement in inventory turns.
  • Grow in Pro: Pro sales improved 700 basis points year over year, driven by focus on ProShare and new partner contracts, with plans to further capitalize on share opportunity.
  • Optimizing DIY omnichannel to build loyalty: Upgraded website and mobile app with enhanced service scheduling, integrated platform, and hands-free voice search.
  • New transform initiatives: Building Leslie's brand with more efficient marketing programs like 'We Are Pool People' campaign. Launching enhanced pool perks loyalty program with loyalty tiers and personalization. Adding same-day delivery capabilities via agreement with Uber.

Sales for the second quarter were $177.1 million, down 6% year over year compared to $188.7 million in the prior year's second quarter. Pro Pool sales were down 2% year over year, Residential pool sales declined 9%, and hot tub sales increased 4% year over year. Adjusted EBITDA was a loss of $36 million, which represents approximately 13% of annual sales. Gross profit was $43.9 million compared with $54.3 million in the prior year, with gross margin at 24.8% vs. 28.8% prior year. SG&A was $92.3 million compared with $84.9 million in the prior year's second quarter, at 52.1% of net sales.

• Reaffirmed full-year guidance ranges, not providing quarterly guidance. Back half of the year expected to have continued mix shift and higher labor-related expenses, with fourth quarter 2024 rebate headwind being a tailwind this year. Reduced full-year capital expenditure expectations by $5 million to $30 to $35 million.

• Weather-related factors can impact foot traffic and sales. Tariff exposure, with an annualized estimate of $10 million to $12 million in product costs, though inventory optimization efforts aim to mitigate this.

Q: Jonathan Matuszewski asked about this quarter's comp sales performance versus pool supply retail peers and market share.

A: Jason McDonald said Pro sales are gaining share due to focus on pro contracts, assortment adjustment, in-stocks, and LFCs. For DIY/residential, there are initiatives to drive change.

Q: Jonathan Matuszewski followed up on pricing, asking about strategic price increases.

A: Tony Iskander said they will only take pricing to offset tariff-impacted products, with tariffs being less than 1% of total sales.

Q: Lauren Ng asked about comp sales weakness aside from weather and underlying business fundamentals.

A: Jason McDonald mentioned conversion rate improvements due to in-stocks and team expertise, with Never Out program driving in-stocks and water test conversions.

Q: Lauren Ng followed up on inventory purchases and planning for depressed trends.

A: Jason McDonald talked about precision inventory mindset and asset utilization, while Tony Iskander added inventory optimization helps mitigate tariff impact.

Q: Steve Forbes asked about the cost optimization pillar and expense ratio framing.

A: Tony Iskander said cost optimization focuses on $5 to $10 million in indirect spend, looking at the entire asset base for continuous improvement.

Q: Steve Forbes followed up on channel mix changes.

A: Jason McDonald said it's an omnichannel mindset, leveraging stores, ecommerce, and same-day delivery.

Q: David Bellinger asked about in-stocks not reflecting in comp sales and early tests.

A: Jason McDonald said conversion rate improvements are sustainable, with LFCs providing benefits like completing sales that would have been challenging historically.

Q: David Bellinger asked about partnering with Uber and its importance.

A: Jason McDonald said it's about customer centricity and convenience, providing speed and cost savings, important for both pro and DIY.

Q: Justin Kleber asked about topline guidance and implied second half gross margin inflection.

A: Jason McDonald talked about team focus and new initiatives, while Tony Iskander mentioned rebate tailwind and key pillars contributing to confidence in achieving guidance