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Leslie's, Inc. (LESL)·Q2 2024 Earnings Summary

Executive Summary

  • Q2 2024 was “largely in-line” with profit expectations, but topline declined 11.4% to $188.7M amid unusually cool/wet weather and continued normalization in discretionary spending; diluted EPS was $(0.19) and adjusted EPS $(0.17) .
  • Comparable sales fell 12.1% YoY; traffic down ~10%, transactions down 6%, and AOV down 5%, partially offset by improved conversion from healthy in-stocks and competitive pricing across channels .
  • Gross margin compressed to 28.8% (−464 bps YoY) on chemical price reductions taken in June 2023 and occupancy deleverage tied to lower sales; SG&A fell 11.9% YoY, reflecting disciplined expense management .
  • Guidance was reaffirmed for FY2024 at the time of Q2: Sales $1.41–$1.47B, adjusted EBITDA $170–$190M, adjusted EPS $0.25–$0.33; management emphasized back-half margin expansion as price actions lap and rebate timing normalizes .
  • Near-term catalysts: normalization of weather (management cited a “material improvement” in early Q3 trends), ongoing inventory reductions (down 23% YoY), and growth initiatives (AccuBlue Home, PRO partner expansion) .

What Went Well and What Went Wrong

What Went Well

  • Improved conversion despite traffic pressure, supported by healthy in-stock levels and competitive pricing: “We saw improved conversion from healthy in stock levels and competitive price positioning across our channels” (CEO) .
  • SG&A discipline: SG&A fell 12% YoY in Q2 due to lower merchant fees, payroll, and executive transition costs; management is “ahead of the progress” originally planned (CFO) .
  • Strategic initiatives: AccuBlue Home gaining traction (members spend >$1,000/year) and PRO partner program expanding (4,088 PRO contracts; 102 PRO locations vs. 3,300 and 98 YoY) .

What Went Wrong

  • Weather-driven demand softness: significantly fewer consecutive days above 70°F in key markets; pool openings down 19% YoY in seasonal markets; traffic down ~10% and transactions down 6% .
  • Margin pressure: gross margin down 464 bps YoY on chemical price actions and occupancy deleverage; promotional investments in Q2 could not offset weather-related traffic issues—“you can’t promote your way through tough weather” (CEO) .
  • Discretionary categories remained weak: hot tubs and certain equipment (e.g., salt systems, APCs) underperformed; nondiscretionary chemical sales down 11% with 575 bps pricing headwind offsetting stable unit volumes .

Financial Results

MetricQ4 2023Q1 2024Q2 2024
Revenue ($USD Millions)$432.4 $174.0 $188.7
Diluted EPS ($)$0.09 $(0.21) $(0.19)
Adjusted Diluted EPS ($)$0.14 $(0.20) $(0.17)
Gross Margin (%)37.0% 29.0% 28.8%
Adjusted EBITDA ($USD Millions)$59.5 $(24.4) $(19.3)

Notes:

  • Versus prior year Q2 2023: revenue $212.8M, diluted EPS $(0.17), gross margin 33.4% .
  • Versus Sell-Side Estimates: S&P Global consensus data was unavailable at time of preparation due to API limit; comparisons to estimates could not be completed.

Segment and Category Trends (YoY change)

Segment/CategoryQ1 2024 YoYQ2 2024 YoY
Residential Pool Sales−10% −12%
PRO Pool Sales−8% −9%
Residential Hot Tub Sales−18% −14%
Equipment Sales−18% −10%
Discretionary Product Sales−19% −13%
Total Chemical Sales−3% −11% (pricing −575 bps; cal hypo/trichlor units −1%)

Selected KPIs

KPIQ1 2024Q2 2024
Comparable Sales (%)−11.7% −12.1%
Traffic (YoY)Down mid-single digits −10%
Transactions (YoY)−6% −6%
Average Order Value (YoY)−5% −5%
Inventory ($)$334.0M (−22.2% YoY) $379.1M (−23% YoY)
Funded Debt ($)$825.7M $882.7M
Revolver Outstanding ($)$38.0M $97.0M
PRO Contracts / Locations4,000 / 98 4,088 / 102
AccuBlue Home Member Spend>$1,000/year >$1,000/year

Guidance Changes

MetricPeriodPrevious GuidanceCurrent Guidance (Q2)Change
SalesFY2024$1,410–$1,470M $1,410–$1,470M Maintained
Gross ProfitFY2024$550–$573M $550–$573M Maintained
Net IncomeFY2024$32–$46M $32–$46M Maintained
Adjusted Net IncomeFY2024$46–$60M $46–$60M Maintained
Adjusted EBITDAFY2024$170–$190M $170–$190M Maintained
Adjusted Diluted EPSFY2024$0.25–$0.33 $0.25–$0.33 Maintained
Diluted Wtd Avg SharesFY2024185M 185M Maintained

Management also reiterated back-half margin expansion expectations as price actions lap in June and rebate normalization, with Q4 margin stronger than Q3 .

Earnings Call Themes & Trends

TopicQ4 2023 (Q-2)Q1 2024 (Q-1)Q2 2024 (Current)Trend
Weather ImpactFY2023 pressured; seasonality abnormal Weather a 3% tailwind; sequential improvement thru quarter Cool/wet weather, fewer >70°F days; pool openings −19% YoY Deteriorated in Q2; improving early Q3
Pricing & PromotionsChemical pricing reduced in June 2023 impacted margins Industry pricing stabilized; mitigated margin headwinds via other categories Retail chemical pricing stable; promos less effective in bad weather Stable pricing; more surgical promos
Gross Margin OutlookSignificant compression from price actions & DC costs Q2 slightly better than Q1; 100 bps FY improvement targeted Back-half expansion; Q4 > Q3 as price actions lap and rebates normalize Improving in 2H
Supply Chain/InventoryElevated DC costs; inventory actions at FY end Inventory −22% YoY; new planning systems (Blue Yonder) Peak inventory reduced >$100M; year-end −$50M target; strong in-stocks Improved execution
PRO InitiativeOngoing expansion 4,000 contracts; PRO Partner wallet share ~2x non-partner 4,088 contracts; 102 locations; PRO sales −9% (partners −7%) Growing network; mixed sales
AccuBlue Home (Tech)Launched in 2023 Members spend >$1,000/yr; 4.8/5 reviews; ramping production “Gamechanger” feedback; on-track inventory for season Momentum building
Competitive LandscapeMargin/price impacts; industry normalization Monitoring share; value messaging Home Depot/SRS seen focused on PRO builder; limited change in pool DIY landscape Stable

Management Commentary

  • “Our second quarter financial performance was largely in-line with our profit expectations. Top line sales were impacted by cool and wet weather… and a pool and spa consumer that continues to normalize their post pandemic spending… We saw improved conversion from healthy in-stock levels and competitive price positioning…” (CEO) .
  • “Gross margin decreased 464 basis points, driven primarily by the impact of the chemical price reductions… and occupancy deleverage” (CEO) .
  • “We believe we are set up to win in pool season… focused on superior execution and remain confident in our long-term prospects for growth and profitability” (CEO) .
  • “We achieved our goal of reducing our peak inventory by more than $100 million and remain on track to reduce year-end inventory by more than $50 million…” (CEO) .
  • “We learned… you can’t promote your way through tough weather. You can’t promote your way through a pool that’s not open yet” (CEO) .

Q&A Highlights

  • Near-term trends improving as weather normalizes; management described a “material improvement” in early Q3 weeks (Baird) .
  • SG&A control ahead of plan; store labor adjusted to shoulder-season traffic while maintaining service levels (Baird) .
  • No evidence of chemical stockpiling heading into pool season based on February survey (Baird) .
  • Equipment: heaters improving; robotics better within APCs; variable-speed pumps stable; salt systems challenged (Jefferies) .
  • Gross margin bridge: chemical pricing headwind in Q2 not offset like Q1; occupancy deleverage the largest contributor; back-half rebate lift expected (BofA) .
  • Hot tubs: low cancellation rates; weather delayed installs; order book supportive of discretionary being down no more than ~10% for the year (BofA) .
  • Market share: credit card data suggests underperformance vs. industry, but vendor/manager/SimilarWeb checks and online share gains indicate a disconnect; focus on recapturing share in pool season (GS) .
  • Calendar shift: lost two higher-volume spring days and gained two lower-volume winter days, 180 bps revenue impact ($4M) (CFO) .

Estimates Context

  • Attempted to retrieve S&P Global consensus for Q2 2024 EPS and revenue; data unavailable due to service limit. As a result, explicit beat/miss vs. consensus cannot be determined at this time.
  • Given management’s reaffirmed FY2024 guidance at Q2 and expected back-half margin expansion as price actions lap and rebates normalize, analysts may revisit back-half gross margin and EPS cadence assumptions consistent with management commentary .

Key Takeaways for Investors

  • Weather was the primary drag in Q2, compressing traffic and delaying pool openings; sequential improvement emerged as conditions normalized in early Q3, supporting a potential sales recovery into peak season .
  • Margin pressure should ease in 2H as chemical price actions lap and rebates normalize; management expects Q4 gross margin above Q3—watch for execution and occupancy leverage with volume .
  • SG&A discipline is tracking ahead of plan; store labor flexing to traffic without sacrificing service—a key offset to margin headwinds .
  • Inventory reduction targets (> $100M peak, ~$50M year-end) achieved/on track while maintaining in-stock service—a positive for working capital and DC cost leverage .
  • Structural growth levers remain intact: AccuBlue Home monetization (> $1,000/year/member), expanding PRO partner base (wallet share ~2x vs. non-partner), and measured new store openings (15 in FY2024) .
  • Competitive positioning stable; Home Depot/SRS transaction viewed as focused on PRO builder distribution, with limited direct impact on Leslie’s DIY pool market presence .
  • Trading lens: Short term, stock sensitivity to weather updates and weekly traffic during peak season; medium term, watch gross margin uplift trajectory, discretionary demand recovery, and share trends vs. specialty/mass channels per management’s value/pricing stance .