8-K: Leslie's Inc. Reports First Quarter Fiscal 2024 Results: Sales Down, Net Loss Widens

Leslie's Inc. announced its first quarter fiscal 2024 results, showing a decrease in sales and a widened net loss, while reaffirming its full-year outlook.

Summary

• Leslie's Inc. reported a first quarter fiscal 2024 sales of $174.0 million, a 10.8% decrease compared to the prior year period.
• Comparable sales decreased by 11.7%, but non-comparable sales from acquisitions and new stores contributed $2.6 million.
• The company experienced a gross profit of $50.4 million, a 22.8% decrease, with a gross margin of 29.0%, down from 33.5% in the prior year.
• Selling, general, and administrative expenses (SG&A) decreased by 5.9% to $86.9 million.
• The operating loss was $36.5 million, compared to a $27.0 million loss in the prior year.
• Interest expense increased by $3.7 million to $17.1 million.
• The net loss was $39.6 million, compared to a $30.3 million loss in the prior year.
• Adjusted EBITDA was $(24.4) million, compared to $(11.9) million in the prior year.
• Diluted earnings per share was $(0.21), and adjusted diluted earnings per share was $(0.20).
• Cash and cash equivalents increased to $8.4 million, while inventories decreased by $95.5 million to $334.0 million.
• Funded debt decreased to $825.7 million, and $38.0 million was outstanding on the revolving credit facility.
• The company reaffirmed its fiscal 2024 outlook, projecting sales between $1,410 and $1,470 million, net income between $32 and $46 million, and adjusted EBITDA between $170 and $190 million.

Sentiment

Score: 4

Explanation: The sentiment is negative due to the decrease in sales, gross profit, and the widened net loss, although the company reaffirmed its full-year outlook and is taking steps to improve performance.

Positives

• Non-comparable sales from acquisitions and new stores contributed $2.6 million.
• Selling, general, and administrative expenses (SG&A) decreased by 5.9% to $86.9 million.
• Cash and cash equivalents increased to $8.4 million from $2.7 million at the end of the prior year.
• Inventories decreased by $95.5 million or 22.2% to $334.0 million.
• Funded debt decreased to $825.7 million from $886.8 million.
• Net cash used in operating activities improved to $71.9 million from $184.4 million in the prior year.
• The company has $147.7 million remaining available for future share repurchases.

Negatives

• Sales decreased by 10.8% to $174.0 million compared to the prior year.
• Comparable sales decreased by 11.7%.
• Gross profit decreased by 22.8% to $50.4 million.
• Gross margin decreased to 29.0% from 33.5% in the prior year.
• Operating loss widened to $36.5 million from $27.0 million in the prior year.
• Net loss increased to $39.6 million from $30.3 million in the prior year.
• Adjusted EBITDA decreased to $(24.4) million from $(11.9) million in the prior year.
• Diluted earnings per share was $(0.21), down from $(0.16) in the prior year.
• Adjusted diluted earnings per share was $(0.20), down from $(0.14) in the prior year.
• Interest expense increased by $3.7 million to $17.1 million.

Risks

• The company faces risks related to executing growth strategies, supply disruptions, and maintaining supplier relationships.
• Competition from mass merchants and specialty retailers poses a threat.
• The business is sensitive to weather conditions, economic changes, and the housing market.
• Disruptions in distribution centers and technology implementation could impact operations.
• The company needs to attract and retain qualified personnel.
• Regulatory changes and evolving ESG standards could affect the business.
• The company faces risks related to obtaining additional capital, commodity price fluctuations, and cyber incidents.
• There are risks associated with remediating material weaknesses in internal controls.

Future Outlook

The company reaffirmed its fiscal 2024 outlook, projecting sales between $1,410 and $1,470 million, net income between $32 and $46 million, and adjusted EBITDA between $170 and $190 million.

Management Comments

• Mike Egeck, Chief Executive Officer, said, 'Our first quarter results were in line with or ahead of our expectations and topline performance showed sequential improvement each month throughout the quarter, supported by more normalized weather.'
• Management is enhancing marketing and merchandising tactics to highlight their value proposition.
• The team is focused on executing strategic initiatives to drive growth and market share.

Industry Context

The results reflect challenges in the pool and spa care industry, potentially due to pricing actions and weather impacts, while the company is working to improve its market position ahead of the peak season.

Comparison to Industry Standards

• The decrease in sales and gross profit is concerning, as it indicates a potential loss of market share or pricing power compared to competitors such as Pool Corporation (POOL) and Hayward Holdings (HAYW).
• The negative EBITDA and net loss are also below industry standards, as many companies in this sector aim for positive profitability.
• The company's inventory reduction is a positive sign, but it needs to be balanced with maintaining sufficient stock to meet demand during the peak season.
• The reaffirmed full-year outlook suggests management believes they can recover from the weak first quarter, but this will need to be closely monitored against industry benchmarks.

Stakeholder Impact

• Shareholders will be concerned about the decreased sales, widened net loss, and negative EBITDA.
• Employees may be affected by the company's restructuring and cost-cutting measures.
• Customers may experience changes in pricing and product availability.
• Suppliers may be impacted by the company's inventory reduction efforts.
• Creditors will be monitoring the company's debt levels and financial performance.

Next Steps

• The company will hold a conference call to discuss the financial results on February 1, 2024.
• Management will focus on executing strategic initiatives to drive growth and market share.
• The company will continue to enhance marketing and merchandising tactics.

Key Dates

Keywords

pool supplies, spa care, retail, financial results, sales, EBITDA, net loss, earnings per share, inventory, debt