8-K: Leslie's Inc. Switches Auditors, Cites Control Weaknesses

Leslie's Inc. has appointed Grant Thornton LLP as its new independent auditor, replacing Ernst & Young LLP, following reported material weaknesses in internal financial controls.

Summary

• Leslie's, Inc. (the Company) has appointed Grant Thornton LLP as its new independent registered public accounting firm for the fiscal year ending October 3, 2026.
• Ernst & Young LLP (EY) has been dismissed as the Company's independent registered public accounting firm, effective upon the completion of EY's interim review of the Company's financial statements for the quarter ended January 3, 2026.
• EY's reports on the Company's consolidated financial statements for the fiscal years ended October 4, 2025, and September 28, 2024, did not contain adverse opinions or disclaimers.
• However, EY's reports on the Company's internal control over financial reporting for both fiscal years ended October 4, 2025, and September 28, 2024, contained adverse opinions.
• Material weaknesses in internal control over financial reporting were identified related to inventory and asset impairment processes for fiscal year 2025, and vendor rebate and inventory processes for fiscal year 2024.
• There were no disagreements with EY on accounting principles, financial statement disclosure, or auditing scope/procedure that would have caused EY to modify its reports on the financial statements.
• Neither the Company nor anyone acting on its behalf consulted with Grant Thornton LLP regarding specific accounting principles or audit opinions prior to their appointment.

Sentiment

Score: 4

Explanation: StockSavvy.ai views this as a negative development due to persistent material weaknesses in internal controls, which are critical for reliable financial reporting, despite the change in auditors. The adverse opinions for two consecutive years indicate a systemic issue that requires significant remediation.

Positives

• EY's reports on the Company's consolidated financial statements for the fiscal years ended October 4, 2025, and September 28, 2024, did not contain an adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope, or accounting principles.
• The Audit Committee has taken action to appoint a new independent auditor, signaling an intent to address the identified internal control weaknesses.

Negatives

• EY issued adverse opinions on the Company's internal control over financial reporting for two consecutive fiscal years (ended October 4, 2025, and September 28, 2024).
• Material weaknesses were identified in inventory and asset impairment processes for fiscal year 2025.
• Material weaknesses were identified in vendor rebate and inventory processes for fiscal year 2024.

Risks

• The existence of material weaknesses in internal control over financial reporting increases the risk of financial misstatements and operational inefficiencies.
• Transitioning to a new independent auditor may involve a period of adjustment and potential challenges in ensuring a smooth audit process.
• Continued adverse opinions on internal controls could impact investor confidence and potentially lead to regulatory scrutiny.

Future Outlook

The filing does not provide explicit forward-looking statements or guidance on financial performance. The focus is on the change in auditors and the ongoing efforts to remediate previously identified material weaknesses in internal control over financial reporting.

Industry Context

StockSavvy.ai notes that auditor changes, especially following adverse opinions on internal controls, are significant events that can signal a company's commitment to improving financial reporting integrity or, conversely, highlight ongoing challenges. Such changes are closely watched by investors for potential implications on financial statement reliability and the company's ability to prevent future misstatements. The retail sector, in particular, relies heavily on robust inventory and asset management controls, making these specific weaknesses critical.

Comparison to Industry Standards

• StockSavvy.ai notes that adverse opinions on internal controls are generally considered a red flag compared to industry peers who maintain effective internal controls.
• Companies like Home Depot or Lowe's, while in a different retail segment, typically demonstrate robust internal control environments, particularly concerning inventory management and asset impairment, which are critical for any retail business.
• The specific weaknesses in inventory and asset impairment suggest Leslie's may lag behind best practices in these areas compared to larger, more established retail operations.

Corporate Governance

Stakeholder Impact

• Shareholders: Potential concerns about the reliability of financial reporting and the effectiveness of internal controls, which could impact stock valuation.
• Management: Increased focus and resources will be required to remediate the identified material weaknesses and work with the new auditor.
• Regulators: Continued scrutiny from the SEC due to the adverse opinions on internal controls and the auditor change.
• Employees: Potential impact on accounting and finance teams as they work to implement improved controls and adapt to new audit procedures.

Next Steps

• EY will complete its interim review of the Company's financial statements for the quarter ended January 3, 2026.
• Grant Thornton LLP will serve as the independent registered public accounting firm for the fiscal year ending October 3, 2026.
• The Company is expected to continue its efforts to remediate the identified material weaknesses in internal control over financial reporting.

Key Dates

Recommendation

While the company's financial statements themselves were not qualified, the persistent material weaknesses in internal controls over two fiscal years are a significant concern. The change in auditors to Grant Thornton LLP is a step towards addressing this, but investors should hold and monitor the effectiveness of the remediation efforts and the new auditor's findings in future reports before making further investment decisions. The adverse opinions signal underlying operational and financial reporting risks.

Keywords

Leslie's Inc., LESL, 8-K, SEC filing, auditor change, independent registered public accounting firm, Grant Thornton LLP, Ernst & Young LLP, internal control over financial reporting, material weaknesses, inventory, asset impairment, vendor rebate, corporate governance, audit committee