Leslie's, Inc. (LESL) on Q1 2021 Results - Earnings Call Transcript
Operator: Good afternoon, and welcome to the First Quarter 2021 Conference Call for Leslie's, Inc. At this time, all participants are in a listen-only mode. Following the prepared remarks, management will conduct a question-and-answer session. As a reminder, this conference call is being recorded and will be available for replay later today on the Company's website. Caitlin Churchill: Thank you, and good afternoon. I would like to remind everyone that comments made today may include forward-looking statements, which are subject to significant risks and uncertainties, that could cause the Company's actual results to differ materially from management's current expectations. These statements speak as of today and will not be updated in the future if circumstances change. Please review the cautionary statements and risk factors contained in the Company's earnings press release and recent filings with the SEC. During the call today, management will refer to certain non-GAAP financial measures. A reconciliation between the GAAP and non-GAAP financial measures can be found in the Company's earnings press release, which was furnished to the SEC today and posted to the Investor Relations section of Leslie's website at ir.lesliespool.com. On the call today from Leslie's, Inc. is Mike Egeck, Chief Executive Officer; and Steve Weddell, Chief Financial Officer. With that, I will turn the call over to Mike. Michael Egeck: Thanks, Caitlin, and good afternoon, everyone. Thank you all for joining us. So today happens to be my one-year anniversary with Leslie's. Even though I don't spend a lot of time looking backwards, I have to say, it's been quite a year. Pandemic, IPO, record 2020 results, and now, thanks to our team continuing to perform at a high level, executing against our growth initiatives, we are pleased to report a record start to our 2021 fiscal year. Our performance in Q1 exceeded our internal expectations and produced exceptional results for the quarter, including sales of $145 million, a comp sales increase of 25.7% on a calendar basis, and adjusted EBITDA growth of $8.8 million. I would also like to highlight that the Q4 gross margin pressure associated with our decision to clear inventory and to accelerate the launch of new proprietary product, was, as we had discussed in our December call, an isolated event. In Q1, we delivered 225 basis points of gross margin expansion. Our record sales and profit were driven by the three pillars that make our business so compelling. First, we operate in one of the most advantaged and attractive consumer products industries, an industry that benefits from predictable, recurring, and non-discretionary demand. In Q1, we benefited from a strong industry backdrop as the acceleration in key macro trends continued unabated. We saw consumers continue to focus time and investment on their homes, pursue healthy outdoor lifestyles, migrate to the suburbs and exurbs, and have an elevated attention to safety and sanitization. Steven Weddell: Thank you, Mike, and good afternoon, everyone. As Mike said, our first quarter results exceeded our expectations as we generated record sales of $145 million, and our associates continued to deliver against our strategic initiatives. Today, we'll review our first quarter of fiscal 2021 performance and our upward guidance revision to our full-year fiscal 2021. Before I get started, two reminders. First, as a result of fiscal 2020 having 53 weeks, there are calendar shifts that will take place in fiscal 2021 that will impact our quarterly comparisons on a year-over-year basis. In the first quarter of fiscal 2021, we replaced a higher-volume week toward the end of season that is the last week of September, with a low-volume week at the end of our first quarter. That's the last week of December. I'll discuss the impact in a few minutes. Second, I want to remind everyone of the natural seasonality of our business. Our first and second quarters combined typically account for approximately 20% of our annual sales, and we have historically generated losses in both quarters. The third quarter represents approximately 45% of annual sales and the fourth quarter, approximately 35%. We generated all of our full-year profits in the second half of our fiscal year. While we are pleased with our strong start to the fiscal year, we are firmly focused on our initiatives in preparation for season. So let's dive into our first quarter results. We delivered a strong performance in the first quarter with momentum throughout our business and our P&L. Total sales for the 13-week period increased 17.9% to $145.0 million from $123.0 million in the first quarter of fiscal 2020. Our comparable sales on a reported or unshifted basis increased 15.7%. Due to the 53rd week in fiscal 2020, our comparable sales growth was impacted by the one-week shift. Using a realigned period in 2020 for comparability, our comparable sales growth on a shifted basis increased 25.7%. This growth of 25.7% follows the comparable sales growth of 23.3% that we reported in the fourth quarter of fiscal 2020. We generated strong results across consumer types, product categories and geographies. We also continued to benefit from the rollout of our AccuBlue water test process as we completed the rollout across our business in the first quarter. In the first quarter, we also saw higher-than-expected retail price inflation, primarily related to chemicals, channel management by major equipment manufacturers and less discounting across our product categories. Operator: Thank you. At this time, we will be conducting our question-and-answer session. Our first question comes from Ryan Merkel with William Blair. Please state your question. Ryan Merkel: Hey. Thanks, and congrats on the quarters, guys. Michael Egeck: Thanks, Ryan. Steven Weddell: Thank you, Ryan. Ryan Merkel: So first off, business is clearly really strong. As it relates to chemical pricing, I understand taking a cautious approach, but what are you assuming in guidance for chlorine price inflation? And then tell us how does that compare to what you saw in the current quarter? Michael Egeck: Yes. Ryan, we are not going to get into the specifics of our cost or the inflation we saw in the quarter. And I think the way to think about it is we have seen prices up. We're being, as we said, we believe to be prudently cautious about the durability of that. And we have taken about half of our upward guidance is related to chlorine pricing, so that's how we are thinking of it at this moment. Ryan Merkel: Okay. Fair enough. Yes. And then how much growth in the quarter can you attribute to the AccuBlue in-store water testing, if that's something you have? And have you continued to see customers testing more because of the technology? Michael Egeck: Yes. It's a good question. We saw as we implemented AccuBlue across the physical locations last year about a 400 basis point in lift. And we are continuing to see that in the new locations that we opened in Q1. I can't really speak to the overlap yet, the comp-on-comp because last year, we had roughly only 50 of the devices in stores. So it's a very small subset, not big enough to draw conclusions from. But I can say that we've seen a pretty consistent performance across the fleet as we've put the devices in, and we haven't seen anything that would tell us we should not expect to comp the comps we saw. Ryan Merkel: Got it. Okay. Thank you. I'll pass it on. Operator: Our next question comes from Simeon Gutman with Morgan Stanley. Please state your question. Simeon Gutman: Hey, everyone. Nice quarter. Happy anniversary, Mike. My first question is on your approach to guidance. Can you tell us – you had, right, this outperformance in the first quarter. Without trying to match it up to what you're flowing through versus not, can you just tell us what your approach was? You did a little bit better on sales. Are you flowing that through for the rest of the year? And then same on profits. Steven Weddell: Yes. And I'll take that, Simeon. So yes, so sales up by $20 million, adjusted EBITDA by $10 million, adjusted net income per share up by $0.05. So we did start by looking at the beat against the internal expectations for the first quarter, flowed that through completely, looking at kind of the macro trends and the enduring trends that we're seeing today and some of the heightened inflation. And again, it's beyond just chlorine, it's looking at some of the equipment and the management of pricing across channels. It's the fact that we have less discounts in the current environment as well. It gives us confidence to flow through some of what we saw in Q1. I'm not going to give a percentage that we've kind of expected for the full-year, but as Mike stated, fairly conservative at this point. Simeon Gutman: Right. Okay. Yes. That sounds right. So it sounds like you're confident about it, but you were just more careful in how you floated through, especially to the profit side of the guidance. Steven Weddell: That's correct. Simeon Gutman: Okay. And then can I ask on this quarter's gross margin? I'm trying to think about the run rate, and I guess, every quarter is a little different given seasonality, but can you tell us this quarter what was incremental? And how much if there was a benefit from some of the markdowns that were taken last quarter? Steven Weddell: Yes. As we look at it, like I was saying in the prepared remarks, it's a fairly consistent formula, right. We are going to see occupancy leverage. We are going to see continued increase in rate across our businesses. And some of that's going to be offset by business mix, right, as we grow some areas of the business that may have slightly lower gross margin levels. Reminder, right, as you get down to those contribution levels, those businesses generate very nice contributions relative to overall performance. So as we think about Q1 and the results we saw, very consistent. Saw some good occupancy leverage, saw good increases across the business on a rate basis across the businesses, again saw continued headwinds when it comes from a business mix perspective. Reminder, as we talked about the algorithm, right, the algorithm is kind of flat to positive 25 basis points on a gross margin. Delivering a 225 basis point increase in Q1 feels pretty good. Simeon Gutman: Got it. If I can sneak in one last one, the increased marketing effectiveness that you mentioned, is that reflected in your sales guidance? Michael Egeck: It is, yes. Simeon Gutman: Okay. Thanks, guys. Good luck. Michael Egeck: Thank you. Steven Weddell: Thank you, Simeon. Operator: Our next question comes from Steven Forbes with Guggenheim Securities. Please state your question. Steven Forbes: Good afternoon, and again, congrats on the anniversary. Mike, you mentioned that most of the 1Q sales growth was attributable to customer file growth. So can you update us on where the active customer base sits today and then maybe comment, right, on how the loyalty member spend during the first quarter compared to last year? Are we seeing growth in that loyalty member spend average? Michael Egeck: Yes, good questions. We're not going to give specific numbers on the consumer file growth, but it was double-digit growth. And combined with that, we also saw growth in the average revenue per consumer. So for us, that's the combination we like to see, more consumers buying more product. We saw the same dynamic in the loyalty file, just at elevated levels from the total file. So I mean, I couldn't be more pleased with the way the consumer's responding to our product, our marketing, and our service, more customers and more product across the whole file and at elevated levels in the loyalty file. Steven Forbes: And maybe just sticking with that topic because I think as we spoke to the revenue outlook for the business, when you think about that 6% to 9% revenue growth profile, maybe can you remind us what was the expectation, right, for growth in the customer file base and then also the expectation for the growth in average revenue per customer? Because I would imagine both of those are sort of outstripping the original expectations. I don't know if you can sort of confirm that or speak to it. Michael Egeck: Yes. I'll answer that like this. When we laid out in the IPO, we had six growth levers, one of them being AccuBlue Home, which we said, look, don't plan any revenue in. It's advanced our D&D. We are pleased that we're on track to launch. So there's nothing there for this year in our guidance. The balance file, we all size between 100 and 300 basis points of growth. So if you took loyalty and the consumer file growth together, that would be 200 to 600 basis points of growth over the course of the year. This quarter, they outperformed that. The other initiatives, Pro, residential whitespace, M&A, all those initiatives are work in process, as we spoke to in the prepared remarks. So right now, the bulk of the growth is being driven by the consumer file and the loyalty file. Steven Forbes: Thank you. Best of luck. Michael Egeck: Thanks. Operator: Our next question comes from Jonathan Matuszewski with Jefferies. Please state your question. Jonathan Matuszewski: Thanks for taking my question and nice quarter guys. The first one that I had, it was just on growth by product category. It sounds like sales growth was pretty broad-based. But are you willing to be more specific across core sanitizers, chemicals, parts, and other? Michael Egeck: Yes. Jonathan. Thanks for the question. The sales by category range from mid-single digits to mid-20%. And we characterized the growth in the last quarter for the year, excuse me, six to 36 if I remember correctly. Similar, we didn't have quite the outlier on the top side. But similar to the last year in the quarter, we saw the big categories all performed similarly and all in like the 20% range. Jonathan Matuszewski: Great. That's helpful. And then it sounds like AccuBlue Home is progressing well with the beta test. Just curious if you could share kind of any feedback you're hearing from your kind of customer panel, how you're integrating that in terms of the upcoming launch with the device and the subscription. And any color you have in terms of how you're thinking about fulfillment for AccuBlue Home. You obviously have kind of that advantageous store base to leverage. But how will your associates be involved, if at all, in terms of delivery? Or will it just be shipped from store? Or are you considering third-party delivery services for the last mile? Any color there would be helpful. Thanks. Michael Egeck: Yes. Good question. And as we've discussed, we're in a learning phase with AccuBlue Home. I'm going to say that the beta test panel, consumer panel, very, very encouraged by their feedback on the device for the reasons that we expected, right? We test 10 parameters. Most devices test four, right? We're able to give specific numeric readout where other devices are not. And from the beginning, we've said our big advantage in addressing this space, this whitespace is the fact that we can do it end-to-end. We can test the water, we can show the prescription, and then we can fulfill it. And to your point, the stores, 936 stores, will be key in that. We expect most of the fulfillment to be shipped from store, and we are looking at some last-mile alternatives. Haven't landed on any. But to get the product to the customers as quickly as possible, we would expect to ship from store in most instances. Jonathan Matuszewski: That's really helpful. Thanks for the color and best of luck for the year. Michael Egeck: Thanks, Jonathan. Operator: Our next question comes from Kate McShane with Goldman Sachs. Please state your question. Katharine McShane: Hi. Thanks. Good afternoon. I wondered if there was any more color around the locations of the pro stores. Are they located in markets near existing pro stores? Are you trying to enter in new markets with the conversion of some of the residential stores to pro? Michael Egeck: Yes, Kate, good question. They are predominantly in new markets. Katharine McShane: Okay. Thank you. Steven Weddell: Yes. And let me add to that. New pro markets existing in Leslie's locations, right? So again, part of the benefit of our pro strategy is that hub and spoke. So we open or convert a store into a pro that not only drives more sales through that existing box but also lifts the surrounding stores from a pro sales perspective. So it will be new markets outside of existing pro stores but in existing Leslie's markets. Michael Egeck: Yes. Kate, use Steve's answer. That was much better than what I articulated. Katharine McShane: Thank you. Operator: Thank you. Our next question comes from Elizabeth Suzuki with Bank of America. Please state your question. Elizabeth Suzuki: Great. Thanks. Can you give us a sense of how much of the 2020 growth in sales that you saw might not repeat? And really, I guess I'm trying to parse out big-ticket items like aboveground pools, hot tubs, products that are durable and won't need to be purchased again by those same customers in 2021 compared to chemicals, cleaning products, and other maintenance items that would need to be bought again and again. Michael Egeck: Yes, Liz, good question. I'll speak to aboveground pools and hot tubs. Last year, the industry was sold out rather early. We saw really nice increases in both of those businesses, though they're not a big part of our business. And we've said in the past, they're about 2.5%. We have actually seen an acceleration in hot tub and aboveground pools in the first quarter of 2021. So quite literally, no slowdown. We have had some manufacturers – we have seen some manufacturers communicate in both categories to their partners that they expect to be sold out again. We very early and very aggressively purchased additional inventory in both categories. So we feel good about how we're set up. But, yes, no slowdown there. None at all. Elizabeth Suzuki: Great. And I guess on categories in general, where you're seeing shortages and that includes chlorine, I mean, how much of an advantage are you seeing in terms of a procurement side like just being able to get the product in-house versus some of your smaller competitors? Are you seeing any smaller competitors that are struggling in this environment, or just like not able to keep up on an inventory standpoint? Michael Egeck: Well, I tend not to speak to our competitors, but this is just a situation where our scale and reach, combined with long-standing supply relationships and long-term contracts, that trifecta, if you will, yes, it puts us in a very advantaged position with purchasing and with supply. And we got, like I said, pretty aggressive with that in the categories of where we anticipated growth. So we're feeling, yes, we're feeling good. Steve said it in his prepared remarks, right? We're constantly managing our supply chain, both for efficiency and quantity. So we're certainly not just sitting here not looking at it closely, but we feel very good about where we're at. Steven Weddell: Yes. And the second piece of that as well is the vertical integration, right? You think about our distribution and manufacturing capabilities. So we are writing some of the largest POs in the industry, but we can direct that product to where the consumer demand is on kind of a real-time basis. So we are investing heavily in inventory naturally from a seasonality perspective in the first and second quarter, preparing for season. So that inventory is coming in right now. We can position that efficiently across our network to serve kind of the digital, as well as physical locations. And from a manufacturing perspective, it gives us a lot of flexibility, if not necessarily being reliant on others to really get some solid throughput from a manufacturing perspective. So relative to others, we do have a pretty unique competitive advantage because of that vertical integration. And that will certainly help in a time where we will continue to work closely with our vendors to manage the elevated demand. Michael Egeck: Yes, Liz, if I may, I'll just add one last part to your question and our answer. I think something that's sometimes overlooked is we will have supply of products that other retailers don't, aboveground pools, hot tubs, and probably specifically chlorine. And we look at that in two ways. It allows us to capture a sale, but more importantly, it's allowing us to capture new customers. And with the emphasis we put on consumer file growth, keeping customers with our loyalty program, wrapping our arms around them once we've got them in our system, we see this, this industry shortage situation, not just as us getting immediate sale, but as getting a new customer, which is much more durable. Elizabeth Suzuki: Great. Thanks so much. Operator: Our next question comes from Garik Shmois with Loop Capital Markets. Please state your question. Garik Shmois: Great. Thanks and congrats on the quarter. First question is just on the guidance raise, the $20 million in higher sales, and the drop-down of $10 million on EBITDA. It's a little bit higher than how we tend to think of incrementals. So you talked about some of the drivers here, but do you think that there's been a change in how we should think about the drop-down moving forward? Steven Weddell: It's a good question, Garik. And I think you understood how we flowed through guidance, right, so it's the beat in Q1. And Q1, good top-line sales, 225 basis point of gross margin improvement, kind of good cost management on the SG&A side, if you look on an adjusted basis, that drop through quite nicely. So certainly, that's having an impact. As you think about kind of the inflation side of the equation and the increased view there as well, while we have gone out proactively and procured more supply, and some of that has come at a higher cost, overall, we're in a very advantaged position from a costing perspective. And so that flowthrough from an inflation perspective is flowing through at a much higher rate. So I think definitely unique this year relative to what we've seen in past years and certainly something that we would expect to continue to kind of update on over the course of the next few months. Garik Shmois: Okay. Thanks. I'm sorry if I might have missed it earlier, did you call out how much inflation did benefit the quarter versus how much like-for-like volume contributed? Steven Weddell: Yes. I don't know, Mike, if you – go ahead. Michael Egeck: Yes. We did not is the answer. We saw it higher than we had modeled, but our plan is not to break out how much of it was inflation. And look, we saw some elevated retail prices. Some of it was MSRP-based and industry-driven but also, almost equally, was less discounting as we saw demand for our products remain at high levels. So we haven't broken out those two components. Garik Shmois: Okay. Understood. Thanks, guys. Operator: Our next question comes from Peter Benedict with Baird. Please state your question. Peter Benedict: Hi, guys. Thanks for taking the question. Just circling back up to gross margin. I think you mentioned loyalty 2.0 coming around Memorial Day. Is there anything from a margin perspective we should be thinking about once that starts to work its way into the business? That's my first question. Michael Egeck: Yes. Peter, the way we're thinking about loyalty is that there will be additional cost connected to a higher earn rate. And we haven't said yet what that higher earn rate will be, but it will be part of the package. However, that will be a trade-off with less promotions to our non-loyalty customers. So right now, we're seeing that as a wash. And that's how we're modeling it. The idea is we take are what would be normal promotional cadence and decrease that to non-loyalty customers, increase it to loyalty, and make loyalty that more advantaged. Now at some point, with loyalty growth, that won't be net-net. But when we get to that point, that would be a very high-quality problem. Peter Benedict: Yes. No, for sure. Thank you. And then I guess my next question is just around the – some of the pro initiatives. You have got the affiliate program getting set here, and you've got the pro website, I guess, tested well. Just any more color as what exactly you're doing with that website and maybe what some of the feedback was and what makes you be optimistic that that's going to be a contributing factor to growing share in that segment as we look forward. Michael Egeck: Yes. On the website, we've got a handful of kind of our best pro customers just running through it and testing it out with us, right, like real classical, I'm going to say, beta testing. And we're getting real nice feedback about features, about site merchandising. And I'm going to say it's all been very, very positive. So I'm quite pleased with how that's going. Similar to the affiliate program, we have a focused group of pro customers that we're working with and running different baskets of benefits past them, different ways to think about partnership, what the co-branded uniforms might look like. One of our underlying principles is really good things happen when you listen to your customers. And it's not just our residential customers we're listening to, we're listening to our pro customers as well. And, yes, I'm very pleased with how all of that is going. Peter Benedict: Great. Sounds like a smart strategy. Thank you. Operator: Our next question comes from Joe Feldman with Telsey Advisory Group. Please state your question. Joseph Feldman: Hey guys. Thanks for taking the question. So I wanted to ask from a competitive standpoint. I think you said you didn't have to cut prices at all. I think that was one of the drivers of the gross margin, so presumably, it's been a benign competitive environment. So I guess I'm wondering where you guys think you're taking share from. Is it just the smaller mom-and-pops out there? Is it any bigger players or were the big-box guys that we've talked about in the past? Michael Egeck: Yes. I'll give you my view on that. Steve, you can add in. I think predominantly, our share growth is coming from smaller regional mom-and-pop-type stores. As the consumer expects things like probably developed e-commerce sites, buy online, pick up in store, AccuBlue water testing, we just have a basket of benefits to offer a consumer that are – we do it really and getting more compelling. And then if you add on to that, the fact that we are not seeing shortages in key categories, that just accelerates. And then it goes to my earlier point. There's two parts about our advantaged supply situation right now. One, we're getting the immediate sale, but we're also attracting and acquiring more customers. Steven Weddell: And I'll add on as well. When you think about the competitive environment in this quarter, generally, less volumes. And so it's the time when some of these competitors kind of slow down or even close their doors for a portion of the winter. When you think of some of the seasonal categories within home or mass, shelves are not stocked with pool supplies as well. So one of the points Mike made in his prepared remarks is around the mass, home and club strategy for season will be not just on pricing, but access and availability to product and what they will actually carry this season. So those are items that could be advantageous from our perspective, given the tightness in supply. We know we have our season bought, and we've certainly got opportunities to buy more. But as you think about others, where this isn't their day job, it's not what they're exclusively focused on, maybe a harder year for folks to compete in the current environment. Joseph Feldman: Got it. That's helpful. And then actually, Steve, while I have you, anything to call out from the next few quarters just given the 53-week shift and the weekly shift that we're going to see? Anything that you would note or highlight to us that we should just watch for, like, hey, the third quarter looks kind of funky because of – we pick up an extra week or lose a week or something? Steven Weddell: Yes. No, absolutely. So when you think about how our quarters flow, our fiscal performance in Q1 and Q4 are generally below calendar. Our fiscal quarters in Q2 and Q3 are generally higher than calendar. So it almost works out where the first half is contained, and the second half is contained. But that's why when you think of the first quarter, up 15.7% on a reported basis, but up 25.7% on a calendar basis, it's a big pickup in Q1. We will give some of that back in Q2 on a calendar comp – from a calendar comp perspective. And then again, we will take a hit in Q3 calendar and then have a pickup in Q4. So absolutely important to understand how the year will play out because of that 53rd week last year. But again, the key is, as you look at underlying operational performance, you go back and look at the third quarter of last year, fourth quarter of last year at that 23.3%, then a 25.7% this first quarter, good momentum kind of carrying us as we prepare for season. Joseph Feldman: That's helpful. Thanks, guys, and good luck with this quarter. Michael Egeck: Thank you. Operator: Thank you. Our next question comes from Peter Keith with Piper Sandler. Please state your question. Peter Keith: Hi, thanks. Good afternoon, everyone. Maybe to follow up from the last question. I did want to understand how you guys are thinking about weather in the coming months here because reflecting back, that you think the spring was fairly favorable. And I think you've called out in the past. So is there a particular month that we should be thinking about, where maybe weather is a modest headwind? Understanding that maybe weather won't really matter with the momentum you have, but any characterization would be helpful. Steven Weddell: Yes, sure. Let me take a shot at that, Mike? Michael Egeck: Yes, go ahead. Steven Weddell: Yes. So when you think about what we talked about last year and kind of the spring, it was better weather than the prior year, right? So that certainly helped from last year from a performance perspective. But I think, overall, probably we would characterize kind of the start of season as fairly normal, fairly average, if you will. If you remember back to some of the weather in the Midwest and Northeast, even up in through Memorial Day, it was pretty poor. So because we're national, right, 37 states, we have the ability to kind of offset poor conditions in one part of the country with other – performance in other parts of the country. So I think as we go into season, this is a time where we do start looking at some of the weather trends and to really plan for, kind of on a year-to-year basis, kind of average conditions. And again, based on our national footprint, we've got the ability to manage inventory and resources across the organization to meet the demand and make sure that we are efficient with our capital. So at this point, no particular call-outs on weather trends for the year but kind of expecting kind of a normal year. Peter Keith: Okay. Very helpful. And maybe secondly, for Mike, I want to just understand the affiliate program, which, I think in the past, you said it was launched in February, so maybe it's imminent. But is that something that you would expect will ramp very quickly? Or is it going to have a longer tail lift because there will be a recruiting effort that maybe takes a year or two to really take hold? Michael Egeck: Yes, Peter, you remember correctly. We had talked about November or second quarter, and that's on track, right? We're still on track. It would be either later this month, maybe early March. And it's also correct to characterize it as it will take a while to ramp up, right? This is a kind of pro-by-pro selling proposition, both through our wholesale channels, but most specifically through our residential stores. So where we're at right now is we're, like I said, working with a group of pros to determine and finalize the basket of benefits, how they want to think about everything, from health insurance to uniform colors and co-branding. And then when we roll it out, it's going to be very much a store trading area by store trading area. And the reason for that, and you'll remember, one of the big draws to the pro for our program is the referrals. And we are finalizing our referral program and automating it so that we're able to track the number of referrals and also be able to follow-up and make sure that our partners are giving Leslie's level of service. So everything is on track. I feel real good about the process, real good about where we're at. But, yes, that will be more of a slow build over the second and third and fourth quarters. Peter Keith: Okay. Very helpful. Thanks, guys. Operator: Thank you. There are no further questions at this time. I'll turn it back to management for closing remarks. Michael Egeck: Yes. Again, I would like to thank everyone for joining us today. I hope your takeaway was we're quite pleased with how the first quarter came together. And we continue to see nice favorable tailwinds for the business. And we're very, very pleased on our team's execution of the growth initiatives. Thank you. Operator: Thank you. This concludes today's conference. All parties may disconnect. Have a great day.
Mizuho Slashes Leslie’s Price Target to $1, Shares Drops 4%
Mizuho lowered its price target on Leslie's (NASDAQ:LESL) to $1 from $3 while maintaining a Neutral rating, citing persistent top-line headwinds and deteriorating margins that have prompted downward revisions to earnings forecasts. As a result, the company’s shares fell over 4% intra-day today.
The analysts reduced Leslie’s 2025 adjusted EBITDA estimate to $98 million from $108 million, aligning it closer to company guidance of $96–$116 million. For 2026, the estimate was cut sharply to $122 million from $167 million, reflecting heightened concerns about the company’s ability to regain momentum.
Given Leslie’s elevated leverage of around 6x net debt/EBITDA at the end of Q2, Mizuho switched its valuation methodology from an EPS-based multiple to EV/EBITDA, setting the new $1 price target at around 8x 2026 adjusted EBITDA. This multiple mirrors forward valuations seen among struggling retail peers such as Target, Albertsons, and Best Buy.
Mizuho’s cautious stance reflects skepticism over Leslie’s ability to navigate current challenges, warning that prolonged sales and margin pressures could weigh heavily on both earnings and balance sheet flexibility.
Leslie's, Inc. (NASDAQ: LESL) Earnings Miss Amidst Competitive Pressures
- Leslie's, Inc. (NASDAQ:LESL) reported an earnings per share (EPS) of -$0.05, missing the estimated EPS of $0.11, marking a significant downturn in performance.
- Despite the earnings miss, LESL generated a revenue of approximately $397.9 million, surpassing the estimated $178.6 million but still reflecting challenges in maintaining growth.
- The company's financial metrics, including a negative price-to-earnings (P/E) ratio of -27.76 and a debt-to-equity ratio of -1.58, highlight ongoing financial challenges.
Leslie's, Inc. (NASDAQ:LESL) is a prominent player in the U.S. pool and spa care industry, known for its direct-to-consumer approach. The company offers a wide range of products and services, catering to pool owners and professionals. Despite its strong market presence, LESL faces competition from other consumer product companies within the Zacks Consumer Products - Staples industry.
On November 25, 2024, LESL reported an earnings per share (EPS) of -$0.05, missing the estimated EPS of $0.11. This represents a significant earnings miss, as highlighted by Zacks, with a negative surprise of 81.82%. The company had previously reported a positive earnings surprise of 6.25% in the prior quarter, indicating a downturn in performance.
Despite the earnings shortfall, LESL generated a revenue of approximately $397.9 million, surpassing the estimated $178.6 million. However, this revenue figure still fell short of the Zacks Consensus Estimate by 1.81%. Compared to the same period last year, revenue decreased from $432.37 million, reflecting challenges in maintaining growth.
The company's financial metrics reveal its current struggles. LESL has a negative price-to-earnings (P/E) ratio of -27.76, indicating ongoing losses. The price-to-sales ratio of 0.49 suggests the stock is valued at less than half of its sales per share. Additionally, the enterprise value to sales ratio is 0.62, reflecting the company's total valuation relative to its sales.
LESL's liquidity position appears stable, with a current ratio of 1.71, indicating the ability to cover short-term obligations. However, the debt-to-equity ratio of -1.58 suggests more liabilities than equity, highlighting financial challenges. Despite these hurdles, CEO Jason McDonell noted strong performance in the Pro segment, although store traffic and larger-ticket categories remain soft.
Leslie's, Inc. (NASDAQ: LESL) Earnings Miss Amidst Competitive Pressures
- Leslie's, Inc. (NASDAQ:LESL) reported an earnings per share (EPS) of -$0.05, missing the estimated EPS of $0.11, marking a significant downturn in performance.
- Despite the earnings miss, LESL generated a revenue of approximately $397.9 million, surpassing the estimated $178.6 million but still reflecting challenges in maintaining growth.
- The company's financial metrics, including a negative price-to-earnings (P/E) ratio of -27.76 and a debt-to-equity ratio of -1.58, highlight ongoing financial challenges.
Leslie's, Inc. (NASDAQ:LESL) is a prominent player in the U.S. pool and spa care industry, known for its direct-to-consumer approach. The company offers a wide range of products and services, catering to pool owners and professionals. Despite its strong market presence, LESL faces competition from other consumer product companies within the Zacks Consumer Products - Staples industry.
On November 25, 2024, LESL reported an earnings per share (EPS) of -$0.05, missing the estimated EPS of $0.11. This represents a significant earnings miss, as highlighted by Zacks, with a negative surprise of 81.82%. The company had previously reported a positive earnings surprise of 6.25% in the prior quarter, indicating a downturn in performance.
Despite the earnings shortfall, LESL generated a revenue of approximately $397.9 million, surpassing the estimated $178.6 million. However, this revenue figure still fell short of the Zacks Consensus Estimate by 1.81%. Compared to the same period last year, revenue decreased from $432.37 million, reflecting challenges in maintaining growth.
The company's financial metrics reveal its current struggles. LESL has a negative price-to-earnings (P/E) ratio of -27.76, indicating ongoing losses. The price-to-sales ratio of 0.49 suggests the stock is valued at less than half of its sales per share. Additionally, the enterprise value to sales ratio is 0.62, reflecting the company's total valuation relative to its sales.
LESL's liquidity position appears stable, with a current ratio of 1.71, indicating the ability to cover short-term obligations. However, the debt-to-equity ratio of -1.58 suggests more liabilities than equity, highlighting financial challenges. Despite these hurdles, CEO Jason McDonell noted strong performance in the Pro segment, although store traffic and larger-ticket categories remain soft.
Loop Capital Cuts Leslie’s Price Target to $3 Amid Negative Q3 Pre-Announcement, Shares Plunge 30%
Loop Capital analysts reduced the price target on Leslie's (NASDAQ:LESL) to $3 from $6 while keeping a Hold rating on the stock.
The analysts remarked that Leslie's issued a negative pre-announcement ahead of its third-quarter 2024 results, primarily attributing the downturn to poor weather and ongoing softness in big-ticket repairs and replacements (R&R) sales. As a result, shares plunged more than 30% yesterday.
The analysts noted that Pool Corporation had similarly pre-announced negative results about three weeks prior, and channel checks earlier in the quarter had indicated ongoing challenges, making it reasonable to expect a pre-announcement from Leslie's as well. However, the extent of the guidance reduction for both the quarter and the full year was more severe than anticipated.
The company's implied fourth-quarter guidance suggests that sales softness will continue, regardless of weather conditions, and there will be limited gross margin recovery despite the favorable comparison to the previous year's inventory de-stocking period. The analysts pointed out that visibility into a return to normal growth remains limited due to persistent underlying challenges following the pandemic's substantial pull-forward effects. Additionally, Leslie's faces an unusually high leverage ratio.
Loop Capital Cuts Leslie’s Price Target to $3 Amid Negative Q3 Pre-Announcement, Shares Plunge 30%
Loop Capital analysts reduced the price target on Leslie's (NASDAQ:LESL) to $3 from $6 while keeping a Hold rating on the stock.
The analysts remarked that Leslie's issued a negative pre-announcement ahead of its third-quarter 2024 results, primarily attributing the downturn to poor weather and ongoing softness in big-ticket repairs and replacements (R&R) sales. As a result, shares plunged more than 30% yesterday.
The analysts noted that Pool Corporation had similarly pre-announced negative results about three weeks prior, and channel checks earlier in the quarter had indicated ongoing challenges, making it reasonable to expect a pre-announcement from Leslie's as well. However, the extent of the guidance reduction for both the quarter and the full year was more severe than anticipated.
The company's implied fourth-quarter guidance suggests that sales softness will continue, regardless of weather conditions, and there will be limited gross margin recovery despite the favorable comparison to the previous year's inventory de-stocking period. The analysts pointed out that visibility into a return to normal growth remains limited due to persistent underlying challenges following the pandemic's substantial pull-forward effects. Additionally, Leslie's faces an unusually high leverage ratio.
Leslie's, Inc. Upgraded to Buy From Hold at Berenberg Bank
Berenberg Bank upgraded Leslie's, Inc. (NASDAQ:LESL) to buy from hold and increased its price target on the company’s shares to $30 from $28, as it believes the recent pullback in the company’s stock price since early May presents a strong buying opportunity.
According to the analysts at Berenberg Bank, margin pressures and a recently announced secondary offering boosted the investors’ concerns, but they think industry tailwinds and the positive effect of the company’s growth strategies will allow it to strongly take advantage of industry tailwinds. While they previously rated the company a Hold as they were having difficulties to find valuation upside, they now think the shares offer an attractive entry point.
Leslie's, Inc. Upgraded to Buy From Hold at Berenberg Bank
Berenberg Bank upgraded Leslie's, Inc. (NASDAQ:LESL) to buy from hold and increased its price target on the company’s shares to $30 from $28, as it believes the recent pullback in the company’s stock price since early May presents a strong buying opportunity.
According to the analysts at Berenberg Bank, margin pressures and a recently announced secondary offering boosted the investors’ concerns, but they think industry tailwinds and the positive effect of the company’s growth strategies will allow it to strongly take advantage of industry tailwinds. While they previously rated the company a Hold as they were having difficulties to find valuation upside, they now think the shares offer an attractive entry point.
