Leslie's, Inc. Q3 FY2025 earnings call

Key Points - Jason welcomed Amy College as Chief Merchandising and Supply Chain Officer. - Faced challenges from weather, competition, leading to 12% sales decline. Team offset headwinds via cost control and strategic investment deferral. - Conversion rate improved ~70 basis points, and with AccuBlue water test technology, conversion rate increased by >550 basis points. - Pro segment saw 12% increase in partner contracts in the first 3 quarters. - Omnichannel initiatives: same-day delivery service with Uber test in progress, enhanced Pool Perks loyalty program launched, improving marketing and personalization. - Asset utilization: local fulfillment centers improving in-stock rates, 99% in-stock on top-selling never-out SKUs in stores, inventory reduction target increased to at least $20M y-o-y. - Cost optimization: identified savings in indirect procurement, brought in external resources to assess and remove excess costs.

Net sales for the third quarter were $500 million, down 12.2% versus the prior year period. Gross profit was $197.9 million compared with $228.8 million in the prior year. SG&A was $129.6 million compared with $131.1 million in the third quarter of the prior year. Inventory ended the quarter at $273.2 million, down approximately $29 million or 9.6% year-over-year. Chemical sales, including core and specialty chemicals, were down nearly 15% due to cooler temperatures. The North region, historically a large contributor to third quarter sales, saw sales down approximately 30% around Memorial Day weekend due to below-average temperatures. Revenue contribution percentages weren't explicitly stated for each segment but the impact of weather and competition was detailed across categories and regions.

Forward-Looking - Full year sales expected $1.210 billion to $1.235 billion. - Net loss expected $57 million to $65 million, adjusted net loss $31 million to $39 million, adjusted EBITDA $50 million to $60 million. - Inventory reduction target increased to at least $20 million year-over-year with additional runway into 2026. - Capital spend expected approximately $30 million.

Risks - Macro pressures impacting top and bottom line. - Unusual weather patterns disrupting peak seasons. - Increasingly competitive landscape leading to share loss.

Q: Kate McShane asked about promotions in the third quarter, if Leslie's met the promotional environment when competitors got aggressive and quarter-to-date trends.

A: Jason said in the quarter, there was weather impact and excess inventories. Mid-single digit price investments were made, but aggressive pricing was still in the market. Traffic showed improvement versus quarter 3 but not where needed yet.

Q: Jonathan Matuszewski asked about competitive pressures on the equipment side.

A: Jason said equipment was down in the quarter, core equipment basis down mid-single digits, mainly in automatic pool cleaners.

Q: Steven Forbes asked about field level execution and closing market share gap.

A: Jason said team has good in-stock performance (>99% on never-outs), good conversion rates, and NPS scores. It's a total value proposition needing to convert to increased traffic.

Q: Shaun Calnan asked about market share and buying patterns between DIY and Pro.

A: Jason said no clear migration between DIY and Pro, but Pro business has seen 12% increase in partner contracts, focusing on residential side with Pool Perks program.

Q: Ryan Merkel asked about pool retail industry sales forecast in 2025.

A: Anthony said it's a low to mid-single-digit decline, not 10% or more, based on weather and value proposition.

Q: Lauren Ng asked about leverage and inventory.

A: Anthony said focused on reducing debt via strategic pillars, maintaining sufficient liquidity, repaid $20M revolver, and has full revolver availability. Jason added focus on asset utilization and cost optimization reviews.

Q: Justin Kleber asked about Sunbelt sales and 4Q guide.

A: Jason said Sunbelt had improved performance but not enough to offset North region challenges. Anthony said 4Q is expected to improve versus Q3.

Q: David Bellinger asked about store performance and cost-cutting.

A: Jason said team does detailed store performance analysis, strategic review ongoing, with more details to be shared in November on cost-cutting plans.