8-K: Leslie's Inc. Announces Preliminary Q3 Fiscal 2024 Results and Updates Full-Year Outlook

Leslie's Inc. reported preliminary third-quarter results impacted by unfavorable weather and updated its full-year fiscal 2024 outlook due to continued weakness in discretionary spending.

Summary

• Leslie's Inc. announced preliminary financial results for the third quarter of fiscal year 2024, which ended on June 29, 2024.
• The company experienced a delayed start to the pool season due to unfavorable weather in April and May, impacting sales.
• Preliminary sales for the third quarter are estimated to be approximately $570 million, with a gross profit of $228 to $229 million and a gross margin of about 40%.
• Net income for the quarter is expected to be between $56 and $58 million, while adjusted EBITDA is projected to be $108 to $109 million.
• Adjusted net income is estimated at $59 to $60 million, and adjusted diluted earnings per share are expected to be $0.32 to $0.33.
• Due to the year-to-date performance and current trends, the company has revised its full-year fiscal 2024 outlook.
• Full-year sales are now expected to be between $1,321 and $1,347 million, with a gross profit of $483 to $499 million.
• The company anticipates a net income (loss) of ($5) to $6 million for the full year, with adjusted EBITDA between $117 and $131 million.
• Adjusted net income for the full year is expected to be $5 to $16 million, and adjusted diluted earnings per share are projected to be $0.03 to $0.09.
• Leslie's expects to end the fiscal year with approximately 20% less inventory than the previous year and more cash on hand.

Sentiment

Score: 4

Explanation: The sentiment is negative due to the downward revision of the full-year outlook and the impact of weather and economic factors on sales. However, there are some positive notes regarding operational improvements and future potential.

Positives

• The company experienced improved sales trends in June after a slow start to the quarter.
• Chemical sales showed mid-single digit positive growth in June.
• The customer file was flat for the quarter, showing sequential improvement in each quarter of this fiscal year.
• The company has made significant operational improvements to drive efficiency and reduce costs.
• Leslie's anticipates these actions will help drive significant operating margin expansion when demand patterns normalize.
• The company expects to have more cash on hand at the end of the fiscal year compared to the end of fiscal 2023.

Negatives

• Unfavorable weather in April and May delayed the start of the pool season, negatively impacting sales.
• The company experienced continued weakness in discretionary product categories due to inflation and high interest rates.
• Residential sales decreased approximately 8% during the quarter.
• Equipment sales were down mid-teens for the quarter.
• Discretionary product sales were down 9% for the quarter.
• Total transactions were down 2% during the quarter.
• Average order value was down 5% during the quarter.
• The company has revised its full-year outlook downwards.

Risks

• The preliminary financial results are subject to adjustments and may differ from the final results.
• The company's performance is sensitive to weather conditions, which can impact the pool season.
• Continued inflation and high interest rates may further weaken discretionary spending.
• The company faces competition from mass merchants and specialty retailers.
• Supply disruptions could impact the company's ability to meet customer demand.
• The company's ability to execute its growth strategies is subject to various risks and uncertainties.
• The company's performance is subject to risks related to the economy, geopolitical events, and the housing market.

Future Outlook

The company has revised its full-year fiscal 2024 outlook, expecting sales of $1,321 to $1,347 million, gross profit of $483 to $499 million, and a net income (loss) of ($5) to $6 million. Adjusted EBITDA is expected to be $117 to $131 million, adjusted net income is expected to be $5 to $16 million, and adjusted diluted earnings per share are expected to be $0.03 to $0.09.

Management Comments

• Mike Egeck, Chief Executive Officer, stated that the cold and wet spring weather extended through May, reducing pool days and delaying the start of the pool season.
• He also noted continued weakness in large ticket discretionary categories due to inflation and high interest rates.
• Mr. Egeck mentioned that while sales improved in June, the April and May revenue impact created negative operating leverage and gross margin headwinds.
• He also stated that the company has made significant operational improvements to drive efficiency and reduce costs.
• Mr. Egeck believes the company is well prepared to meet customer demand and capture an increased share of a growing market with improved profitability.

Industry Context

The announcement reflects the challenges faced by the pool and spa industry due to weather-related delays and economic pressures impacting consumer spending on discretionary items. The company's performance is also affected by the unwinding of pandemic spending patterns.

Comparison to Industry Standards

• The company's performance is being impacted by similar factors affecting other retailers in the discretionary spending sector, such as Home Depot and Lowes, who have also reported slower sales in certain categories due to inflation and interest rates.
• The company's focus on operational improvements and cost reduction is a common strategy among retailers facing economic headwinds, similar to actions taken by companies like Walmart and Target.
• The company's expectation of reduced inventory levels is in line with industry trends as retailers try to manage inventory more efficiently in a volatile market, similar to actions taken by companies like Bed Bath & Beyond before their bankruptcy.
• The company's focus on an omnichannel platform is a common strategy among retailers to meet customer demand, similar to companies like Amazon and Wayfair.

Stakeholder Impact

• Shareholders may be concerned about the revised full-year outlook and the potential for a net loss.
• Employees may be affected by the company's cost reduction efforts.
• Customers may experience changes in product availability due to inventory reductions.
• Suppliers may be impacted by the company's efforts to manage inventory more efficiently.
• Creditors may be concerned about the company's financial performance and its ability to meet its obligations.

Next Steps

• The company will hold a conference call on August 7, 2024, to discuss the financial results.
• The company will continue to focus on operational improvements and cost reduction.
• The company will continue to monitor market conditions and adjust its strategies as needed.

Key Dates

Keywords

pool supplies, spa care, retail, financial results, sales, EBITDA, net income, weather impact, discretionary spending, inventory, outlook