8-K: Leslie's Inc. Reports Q3 Fiscal 2024 Results: Sales Dip Amidst Weather and Economic Headwinds

Leslie's Inc. announced its third quarter fiscal 2024 financial results, showing a decrease in sales and net income due to a cold and wet start to the pool season and continued weakness in discretionary spending.

Summary

• Leslie's Inc. reported a 6.8% decrease in sales for the third quarter of fiscal year 2024, totaling $569.6 million compared to $610.9 million in the same period last year.
• Comparable sales decreased by 7.0%, while non-comparable sales from acquisitions and new stores contributed $2.6 million.
• Gross profit decreased by 9.0% to $228.8 million, with a gross margin of 40.2%, down from 41.2% in the prior year.
• Net income was $60.7 million, a decrease from $72.5 million in the prior year, and diluted earnings per share were $0.33, down from $0.39.
• Adjusted EBITDA was $109.5 million, compared to $129.0 million in the prior year.
• The company's cash and cash equivalents increased to $74.4 million, and inventories decreased by 30.8% to $302.2 million.
• The company reaffirmed its full-year fiscal 2024 outlook, projecting sales between $1,321 and $1,347 million, and net income between a loss of $5 million and a profit of $6 million.

Sentiment

Score: 4

Explanation: The sentiment is moderately negative due to the reported decreases in sales, profit, and earnings, although there are some positive signs of market share gains and improved cash flow. The reaffirmed outlook provides some stability, but the overall tone is cautious.

Positives

• The company saw positive trends in total sales, chemical sales, and Pro and Hot Tub sales as weather improved in June.
• Third-party credit card data suggests that Leslie's sales performance was better than the industry for the quarter, and they gained market share in June.
• Cash and cash equivalents increased significantly to $74.4 million.
• Inventories were reduced by 30.8% to $302.2 million.
• Net cash provided by operating activities was $60.4 million, a significant improvement from the prior year's net cash used in operating activities of $74.8 million.

Negatives

• Sales decreased by 6.8% compared to the same quarter last year.
• Comparable sales decreased by 7.0%.
• Gross profit decreased by 9.0% compared to the prior year period.
• Net income decreased to $60.7 million from $72.5 million in the prior year.
• Adjusted EBITDA decreased to $109.5 million from $129.0 million in the prior year.
• Diluted earnings per share decreased to $0.33 from $0.39 in the prior year.

Risks

• The company's performance was impacted by a cold and wet start to the pool season.
• Continued weakness in discretionary product sales due to persistent inflation and high interest rates affected results.
• The company faces risks related to supply disruptions and maintaining favorable relationships with suppliers.
• Competition from mass merchants and specialty retailers poses a challenge.
• The business is sensitive to weather conditions, changes in the economy, and the housing market.
• There are risks associated with implementing technology initiatives and attracting and retaining qualified personnel.
• Regulatory changes and evolving legal standards concerning ESG matters could impact the company.
• The company's ability to obtain additional capital to finance operations is a risk.
• Commodity price inflation and deflation could affect the business.
• Cyber incidents and other security threats pose a risk to operations.

Future Outlook

The company has reaffirmed its full-year fiscal 2024 outlook, projecting sales between $1,321 and $1,347 million, gross profit between $483 and $499 million, net income between a loss of $5 million and a profit of $6 million, adjusted net income between $5 and $16 million, adjusted EBITDA between $117 and $131 million, and adjusted diluted earnings per share between $0.03 and $0.09.

Management Comments

• Mike Egeck, Chief Executive Officer, stated that the fiscal third quarter results were impacted by a cold and wet start to the pool season and continued weakness in discretionary product sales.
• Mr. Egeck noted positive trends in sales as weather improved in June and that the company gained market share in June.
• Mr. Egeck expressed confidence in the company's actions to drive long-term market share gains and increased profitability when industry conditions normalize.

Industry Context

The results reflect the challenges faced by the pool and spa care industry due to weather conditions and economic factors such as inflation and high interest rates, impacting consumer discretionary spending. The company's performance relative to the industry suggests a competitive advantage in a difficult market.

Comparison to Industry Standards

• While specific competitor data is not provided in this document, the company states that third-party credit card data indicates that their sales performance was better than the industry average for the quarter.
• The company also claims to have gained market share in June, suggesting a stronger performance compared to its peers during that period.
• The document does not provide specific comparisons to companies like Pool Corporation (POOL) or other major players in the pool supply industry, making a detailed benchmark comparison difficult.

Stakeholder Impact

• Shareholders may be concerned about the decrease in sales and profitability, but encouraged by the market share gains and improved cash flow.
• Employees may be affected by the company's cost-cutting measures and restructuring activities.
• Customers may experience changes in product availability and pricing due to supply chain and economic factors.
• Suppliers may be impacted by the company's efforts to manage inventory and costs.
• Creditors may be concerned about the company's debt levels and profitability.

Next Steps

• The company will host a conference call on August 7, 2024, to discuss the financial results.
• The company will continue to focus on margin, cost, and inventory improvement initiatives.
• The company will continue to monitor industry conditions and work to position itself for long-term success.

Key Dates

Keywords

pool care, spa care, retail, financial results, sales, EBITDA, net income, earnings per share, market share, inventory, consumer discretionary