8-K: Leslie's Q3 Results Miss, Citing Weather & Pricing

Leslie's, Inc. announced third quarter fiscal 2025 financial results significantly below expectations, driven by challenging weather and competitive pricing dynamics.

Summary

• Sales for the third quarter of fiscal 2025 decreased by 12.2% to $500.3 million, down from $569.6 million in the prior year period.
• Comparable sales saw a significant decrease of 12.4%.
• Net income plummeted to $21.7 million from $60.7 million in the prior year period.
• Diluted earnings per share fell to $0.12 from $0.33 in the prior year period.
• Adjusted EBITDA decreased to $81.6 million from $109.5 million in the prior year period.
• Net cash used in operating activities for the nine months ended June 28, 2025, was $(39.4) million, a substantial shift from net cash provided of $60.4 million in the prior year period.
• Full-year fiscal 2025 expectations were updated, projecting sales between $1,210 million and $1,235 million, a net loss of $57 million to $65 million, and Adjusted EBITDA of $50 million to $60 million.

Sentiment

Score: 2

Explanation: The sentiment is highly negative due to significant declines across all key financial metrics, including sales, net income, and Adjusted EBITDA. Management explicitly stated results were 'below expectations' and cited 'challenging backdrop,' 'significant headwinds from weather,' and 'competitive pricing dynamics.' The updated full-year outlook projects a net loss, and cash flow from operations turned negative, indicating severe operational challenges and a need for urgent strategic change.

Positives

• Selling, general and administrative expenses (SG&A) slightly decreased to $129.6 million from $131.1 million in the prior year period, indicating some cost mitigation efforts.
• Interest expense decreased to $15.8 million from $18.2 million in the prior year period.
• Inventories decreased by $29.0 million, or 9.6%, to $273.2 million as of June 28, 2025, compared to the prior year, suggesting inventory management.
• Capital expenditures decreased to $19.1 million in the nine months ended June 28, 2025, from $34.3 million in the prior year period.

Negatives

• Sales decreased by 12.2% to $500.3 million in Q3 FY25 compared to $569.6 million in Q3 FY24.
• Comparable sales decreased by 12.4% in Q3 FY25.
• Gross profit decreased by 13.5% to $197.9 million in Q3 FY25 compared to $228.8 million in Q3 FY24.
• Gross margin declined to 39.6% from 40.2% in the prior year period.
• Operating income decreased to $68.3 million in Q3 FY25 compared to $97.7 million in Q3 FY24.
• Net income significantly dropped to $21.7 million in Q3 FY25 from $60.7 million in Q3 FY24.
• Diluted earnings per share decreased to $0.12 in Q3 FY25 from $0.33 in Q3 FY24.
• Adjusted EBITDA decreased to $81.6 million in Q3 FY25 compared to $109.5 million in Q3 FY24.
• Cash and cash equivalents decreased by $31.8 million to $42.7 million as of June 28, 2025, compared to $74.4 million as of June 29, 2024.
• Net cash used in operating activities for the nine months ended June 28, 2025, was $(39.4) million, a substantial decline from net cash provided of $60.4 million in the prior year period.
• The company updated its full-year fiscal 2025 outlook to a net loss of $57 million to $65 million and an adjusted net loss of $31 million to $39 million, a significant downgrade from previous expectations.

Risks

• Ability to execute on growth strategies.
• Supply disruptions or increased costs, including from trade policies.
• Ability to maintain favorable relationships with suppliers and manufacturers.
• Competition from mass merchants and specialty retailers.
• Impacts on business from sensitivity to weather conditions.
• Changes in the economy, including high interest rates, recession fears, inflationary pressures, and changes in trade policies.
• Geopolitical events or conflicts.
• Impacts from the housing market.
• Disruptions in the operations of distribution centers.
• Ability to implement technology initiatives without disrupting operations.
• Ability to execute management transition plans and attract/retain senior management and qualified personnel.
• Regulatory changes and developments affecting products, including evolving ESG standards.
• Ability to obtain additional capital to finance operations.
• Commodity price inflation and deflation.
• Impacts from epidemics, pandemics, or natural disasters.
• Impacts from cyber incidents and other security threats or disruptions.
• Ability to regain and maintain compliance with Nasdaq listing standards.
• Ability to implement a proposed reverse stock split in a timely manner, if at all, and its anticipated effects.
• Ability to remediate material weaknesses or other deficiencies in internal control over financial reporting.

Future Outlook

The company has updated its full-year fiscal 2025 expectations, projecting sales between $1,210 million and $1,235 million, a net loss of $57 million to $65 million, and an adjusted net loss of $31 million to $39 million. Adjusted EBITDA is expected to be between $50 million and $60 million. Management is actively engaged in a strategic and operational review to stabilize the business and position it for long-term growth, with a commitment to accelerate key initiatives for improved profitability.

Management Comments

• Jason McDonell, CEO: "Our results were below expectations in the fiscal third quarter. Against a challenging backdrop in what is normally our peak selling season of the year, we faced significant headwinds from weather in addition to competitive pricing dynamics that were magnified in a compressed demand period."
• Jason McDonell, CEO: "Our team worked diligently to mitigate costs amongst the challenging sales backdrop in the quarter, including reducing labor hours to better align with the softer demand and reduced traffic in our stores."
• Jason McDonell, CEO: "With a commitment to accelerate key initiatives to drive improved profitability, we brought on additional resources in the quarter to help provide expert support to identify and accelerate the execution of our strategic priorities."
• Jason McDonell, CEO: "Further, our team continues the strategic and operational review to help stabilize and position us for long-term growth. The team is working diligently to deliver meaningful progress and we look forward to sharing additional information on the work that is underway. We recognize the urgency with which we must drive change and improve our trajectory to drive sustainable value for all stockholders."
• Tony Iskander, Interim CFO and Treasurer: "As a reminder, we began 2025 with $109 million of cash on hand. During the nine months ended June 28, 2025 we repaid approximately $27 million on our Term Loan."
• Tony Iskander, Interim CFO and Treasurer: "Through the utilization of cash on hand, combined with additional cash generated from operations during our fourth quarter, we believe we have sufficient coverage for our liability obligations."

Industry Context

The pool and spa care industry is highly seasonal, with the third fiscal quarter typically being the peak selling season. Leslie's results indicate a challenging period marked by adverse weather conditions, which directly impacts consumer demand for pool and spa products, and intensified competitive pricing. These factors suggest a broader industry slowdown or increased competitive pressure, particularly magnified during a compressed demand period.

Comparison to Industry Standards

• The filing does not provide specific comparable companies, projects, or results to assess performance against global benchmarks.

Management Changes

Stakeholder Impact

• Shareholders: Significant negative impact due to substantial declines in sales, profitability, and earnings per share, leading to a downgraded full-year outlook and potential stock price pressure.
• Employees: Labor hours were reduced to align with softer demand, potentially impacting employee morale and stability.
• Customers: Competitive pricing dynamics suggest potential benefits for customers through lower prices, but also indicate a challenging market for the company.
• Creditors: Repayment of $27 million on the Term Loan indicates ongoing debt management, but negative cash flow from operations and a projected net loss could raise concerns about future debt servicing capacity, despite management's confidence in sufficient coverage.

Next Steps

• Continue the strategic and operational review to stabilize the business and position for long-term growth.
• Accelerate the execution of strategic priorities to drive improved profitability.
• Host a conference call on August 6, 2025, at 5:00 p.m. Eastern time to discuss financial results and strategic transformation initiatives.
• Share additional information on the strategic review work underway.

Key Dates

Recommendation

The company's third-quarter results are significantly worse than expected, with substantial declines in sales, net income, and Adjusted EBITDA. The shift to negative cash flow from operations for the nine-month period is a major red flag, indicating a deterioration in core business performance. The updated full-year guidance projects a net loss, signaling continued headwinds. While management is undertaking a strategic review, the immediate financial performance and outlook are highly concerning, suggesting further downside risk for the stock. The challenges from weather and competitive pricing are significant and may persist, making a 'strong sell' recommendation appropriate for investors.

Keywords

Pool and spa care, Retail, Specialty retail, Home improvement, Seasonal business, Consumer discretionary, Water treatment, Outdoor living, E-commerce