Leslie's, Inc. Q4 FY2025 earnings call

• Store Optimization: Announced closure of 80 to 90 underperforming stores, expected to generate annual net EBITDA improvement of $4 million to $10 million. Closed Denver warehouse in Q3 and plans to transition to a 5 DC network in 2026, including closing Illinois facility in January.
• Inventory and SKU Rationalization: Reduced inventory by $26 million in Q4 2025, exceeding the Q3 commitment of $20 million. Targeting further inventory rationalization of $20 million to $40 million in fiscal 2026. Streamlining SKUs by reducing over 2,000 SKUs, focusing on high-value items.
• Pricing and Marketing: Adjusting pricing strategy on core chemical products to be everyday value priced, starting Q2 2026. Utilizing targeted marketing via customer data file to reach lapsed customers and build basket size.
• Field Team Restructuring: Restructuring field teams around a market leadership approach to integrate silos and strengthen customer relationships.

In the fourth quarter of Fiscal 2025, net sales were $389.2 million, with same-store sales decreasing 6.8% on a 13-week basis. Comparable sales for chemicals were down ~7.1% and equipment down ~7.6%. For the full year 2025, sales were approximately $1.24 billion. Inventory was reduced by $26 million in the fourth quarter to $208 million, and year-over-year, inventory decreased by over $100 million. Gross margin for the fourth quarter increased to 38.6% due to favorable vendor rebates and freight costs.

• Adjusted to provide annual net sales and adjusted EBITDA guidance, updating quarterly. Expect sales for 2026 to be $1.1 billion to $1.25 billion and adjusted EBITDA $55 million to $75 million. Store closures will impact sales (~$25M to $35M annual) and EBITDA positively. Pricing adjustments expected to impact gross margins by 100-150 basis points starting Q2 2026. CapEx expected to be $20 million to $25 million in 2026.
• Focus on longer-term measures to stabilize the business and return to efficient operations, with a focus on cost structure optimization and balance sheet strengthening.

• Macroeconomic conditions: Uncertainty in consumer spending due to macroeconomic environment could impact sales. - Weather impacts: Past weather events affected sales, and future weather could again impact performance. - Execution risks: Risks associated with successfully implementing store closures, pricing adjustments, and inventory/SKU rationalization to achieve expected financial improvements.

Q: Justin Kleber asked about supplier support and product allocation.

A: Jason McDonell responded that vendor partners have been great, and SKU optimization helps provide better forecasts to vendors. Jeff White added that SKU rationalization helps in better planning with vendors.

Q: Jonathan Matuszewski asked about pricing opportunity and EBITDA margin guidance.

A: Jason McDonell said pricing focus is on key value items in chemicals, aiming to be comparable to specialty retailers and slightly ahead of big box. Jeff White explained that EBITDA margin expansion is a mix of gross margin impact from pricing and SG&A optimization.

Q: David Bellinger asked about store closures and lost customers.

A: Jeffrey White said store closures target unprofitable stores on a 4-wall basis. Jason McDonell mentioned lost customers were switchers, known via Pool Perks, and targeted marketing is efficient with existing spend redeployment.

Q: Lauren Ng asked about competitive dynamics and strategic pillars.

A: Jason McDonell discussed competitive dynamics in Q4 and the importance of the strategic pillars in unifying the team and focusing on customer value to regain market share.