8-K: Leslie's Inc. Reports Second Quarter Fiscal 2024 Results Amidst Weather and Spending Normalization

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

Summary

• Leslie's Inc. reported a second quarter fiscal 2024 sales of $188.7 million, which is an 11.4% decrease compared to the same period last year.
• Comparable sales decreased by 12.1%, while non-comparable sales from acquisitions and new stores contributed $1.5 million.
• The company experienced a net loss of $34.6 million, compared to a net loss of $31.5 million in the prior year period.
• Adjusted EBITDA was $(19.3) million, a decrease from $(8.4) million in the prior year period.
• Diluted earnings per share was $(0.19), and adjusted diluted earnings per share was $(0.17).
• The company's gross profit was $54.3 million, a decrease of 23.7% compared to the prior year period, with a gross margin of 28.8%.
• Selling, general, and administrative expenses (SG&A) decreased by 11.9% to $84.9 million.
• Inventories decreased by $113.2 million, or 23%, to $379.1 million.
• Funded debt totaled $882.7 million, down from $965.8 million in the prior year.
• 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 increased net loss. While the company reaffirmed its outlook and reduced inventory, the overall financial performance is concerning.

Positives

• Selling, general, and administrative expenses (SG&A) decreased by 11.9% to $84.9 million.
• Inventories decreased by $113.2 million, or 23%, indicating improved inventory management.
• Funded debt decreased to $882.7 million from $965.8 million in the prior year.
• Net cash used in operating activities improved to $115.1 million from $246.0 million in the prior year period.
• The company reaffirmed its full-year fiscal 2024 outlook.

Negatives

• Sales decreased by 11.4% to $188.7 million.
• Comparable sales declined by 12.1%.
• Gross profit decreased by 23.7% to $54.3 million.
• Gross margin decreased to 28.8% from 33.4% in the prior year period.
• The company reported a net loss of $34.6 million.
• Adjusted EBITDA was $(19.3) million, a decrease from $(8.4) million in the prior year period.
• Diluted earnings per share was $(0.19), and adjusted diluted earnings per share was $(0.17).

Risks

• The company's performance was impacted by cool and wet weather in both seasonal and non-seasonal markets.
• Consumer spending on pool and spa products is normalizing after the pandemic, particularly for high-ticket items.
• The company faces competition from mass merchants and specialty retailers.
• The business is sensitive to weather conditions, economic changes, and the housing market.
• There are risks associated with supply disruptions and maintaining favorable relationships with suppliers.
• The company's ability to implement technology initiatives without disrupting operations is a risk.
• The company faces risks related to attracting and retaining qualified personnel.
• Regulatory changes and evolving legal standards, including ESG matters, pose risks.
• The company's ability to obtain additional capital to finance operations is a risk.
• Commodity price inflation and deflation can impact the business.
• Cyber incidents and other security threats pose risks to the business.

Future Outlook

The company reaffirmed its fiscal 2024 outlook, projecting sales between $1,410 and $1,470 million, gross profit between $550 and $573 million, net income between $32 and $46 million, adjusted net income between $46 and $60 million, adjusted EBITDA between $170 and $190 million, and adjusted diluted earnings per share between $0.25 and $0.33.

Management Comments

• Mike Egeck, Chief Executive Officer, stated that the second quarter financial performance was largely in-line with profit expectations.
• Mr. Egeck noted that top line sales were impacted by cool and wet weather and a normalization of consumer spending.
• Mr. Egeck expressed satisfaction with the team's performance in delivering on inventory goals and providing customer service.
• Management believes they are set up to win in pool season with an unmatched set of capabilities to serve customers.
• Management remains confident in the company's long-term prospects for growth and profitability.

Industry Context

The results reflect a challenging period for the pool and spa industry, with weather impacts and a shift in consumer spending patterns affecting sales. The company's focus on inventory management and expense control is a response to these challenges. The reaffirmation of the full-year outlook suggests confidence in the upcoming peak season.

Comparison to Industry Standards

• The decrease in sales and gross profit is concerning, especially when compared to the prior year period, suggesting that Leslie's is facing headwinds in the current market.
• Companies like Pool Corporation (POOL) and Hayward Holdings (HAYW) are key competitors in the pool and spa industry, and their performance should be compared to Leslie's to assess relative performance.
• Pool Corp, for example, has shown more resilience in recent quarters, suggesting that Leslie's may be facing company-specific challenges in addition to industry-wide issues.
• The decrease in inventory is a positive sign, but it needs to be balanced against the decrease in sales to ensure that the company is not losing market share.
• The reaffirmation of the full-year outlook is a positive sign, but it needs to be monitored closely to see if the company can meet its targets.

Stakeholder Impact

• Shareholders will likely be concerned about the decrease in sales and the net loss.
• Employees may be impacted by the company's cost-cutting measures.
• Customers may experience changes in product availability or pricing.
• Suppliers may be affected by the company's inventory management strategies.
• Creditors will be monitoring the company's debt levels and financial performance.

Next Steps

• The company will hold a conference call on May 8, 2024, to discuss the financial results.
• The company will focus on superior execution to capitalize on the seasonally important second half of the year.

Key Dates

Keywords

pool, spa, retail, financial results, sales, EBITDA, net loss, consumer spending, weather, inventory