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Leslie's, Inc. (LESL)·Q3 2024 Earnings Summary

Executive Summary

  • Q3 2024 sales were $569.6M, down 6.8% YoY; diluted EPS $0.33 (adjusted $0.34); gross margin 40.2% vs 41.2% LY; adjusted EBITDA $109.5M .
  • Management said results met revised expectations from the July 17 preliminary release, with June trends improving (chemical volume positive; discretionary down 10% in quarter but only 5% in June) .
  • Full-year FY2024 guidance was cut on July 17 and reaffirmed: sales $1.321–$1.347B, adjusted EBITDA $117–$131M, adjusted EPS $0.03–$0.09; prior guide was $1.410–$1.470B sales, adjusted EBITDA $170–$190M, adjusted EPS $0.25–$0.33 .
  • Street consensus from S&P Global was unavailable at the time of analysis; therefore explicit beat/miss vs estimates cannot be quantified. Company-outlined catalysts: improved June demand and cost/inventory actions; plus a CEO transition announced Aug 26 may be a narrative catalyst near-term .

What Went Well and What Went Wrong

What Went Well

  • June inflection: total sales down 2% in June vs down 7% in Q3; chemicals down 1% in Q3 and up mid-single digits in June; chemical volume positive YTD .
  • Cost/inventory discipline: SG&A down 3% YoY in Q3; inventory down 31% YoY to $302M with strong in-stock/service/NPS; cash rose to $74M; no revolver drawn .
  • Strategic initiatives: PRO contracts grew to 4,254 and locations to 108; AccuBlue Home adoption strong with members spending >$1,000/year .

What Went Wrong

  • Weather and macro headwinds: cold/wet April–May delayed season; discretionary weakness from inflation and high rates; traffic down 5% in Q3, transactions down 2% .
  • Gross margin compression: 40.2% vs 41.2% LY due to June 2023 chemical price actions (≈112 bps headwind), occupancy deleverage, and expensing capitalized DC costs; adjusted EBITDA down to $109.5M from $129.0M LY .
  • Equipment softness: equipment sales down 15% as consumers deferred big-ticket purchases; discretionary products down 10% in Q3 .

Financial Results

Quarterly progression (Q1–Q3 FY2024)

MetricQ1 2024Q2 2024Q3 2024
Sales ($USD Millions)$174.0 $188.7 $569.6
Gross Margin (%)29.0% 28.8% 40.2%
Operating Income ($USD Millions)$(36.5) $(30.5) $97.7
Net Income ($USD Millions)$(39.6) $(34.6) $60.7
Diluted EPS ($USD)$(0.21) $(0.19) $0.33
Adjusted EBITDA ($USD Millions)$(24.4) $(19.3) $109.5
Comparable Sales (%)(11.7%) (12.1%) (7.0%)

Year-over-year (Q3 FY2024 vs Q3 FY2023)

MetricQ3 2023Q3 2024YoY Change
Sales ($USD Millions)$610.9 $569.6 (6.8%)
Gross Margin (%)41.2% 40.2% (100 bps)
Operating Income ($USD Millions)$115.8 $97.7 (15.7%)
Net Income ($USD Millions)$72.5 $60.7 (16.3%)
Diluted EPS ($USD)$0.39 $0.33 (15.4%)
Adjusted EBITDA ($USD Millions)$129.0 $109.5 (15.1%)

Segment/Category performance (Q3 FY2024)

Segment/CategoryQ3 YoY Trend
Residential Pool(8%)
PRO Pool(2%)
Residential Hot Tub(4%)
Chemicals (Sales)(1%) Q3; +mid-single digits in June
Equipment(15%)
Discretionary Products(10%) Q3; (5%) in June

KPIs and operating metrics

KPIQ1 2024Q2 2024Q3 2024
Traffic YoYN/A(10%) (5%)
Transactions YoYN/A(6%) (2%)
AOV YoYN/A(5%) (5%)
Customer FileDown 8% (prior commentary); improving Down 3% Flat
PRO ContractsN/A4,088 4,254
PRO LocationsN/A102 108
Cash ($M)$8.4 $8.4 $74.4
Inventory ($M)$334.0 $379.1 $302.2
Funded Debt ($M)$825.7 $882.7 $783.7

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Sales ($USD Millions)FY 2024$1,410–$1,470 $1,321–$1,347 Lowered
Gross Profit ($USD Millions)FY 2024$550–$573 $483–$499 Lowered
Net Income ($USD Millions)FY 2024$32–$46 ($5)–$6 Lowered
Adjusted Net Income ($USD Millions)FY 2024$46–$60 $5–$16 Lowered
Adjusted EBITDA ($USD Millions)FY 2024$170–$190 $117–$131 Lowered
Adjusted Diluted EPS ($USD)FY 2024$0.25–$0.33 $0.03–$0.09 Lowered
Diluted Wtd Avg Shares (M)FY 2024185 185 Maintained

Earnings Call Themes & Trends

TopicQ1 FY2024 (Prior-2)Q2 FY2024 (Prior-1)Q3 FY2024 (Current)Trend
Weather/macro impactsMore normalized weather; reaffirmed outlook; pricing actions from Jun’23 still working through Cold/wet across key markets; traffic down 10%; pool openings down 19% in seasonal markets April–May cold/wet; June improvement; traffic down 5% Q3; transactions down 2% Improving into June
Pricing/chemicalsHighlighting value proposition amid 2023 price actions Chemical pricing stable; Q2 pricing headwind offset lacked; product margin bridges detailed Chemical prices stable; chemical volume positive YTD; June headwind lapped by Q4 Stabilizing
PRO initiativeContinued focus; store conversions planned 4,088 PRO contracts; 102 PRO locations; PRO down 9% 4,254 PRO contracts; 108 PRO locations; PRO down 2% (sequential improvement) Strengthening sequentially
Discretionary/product mixSequential improvement noted Discretionary down 13% (order book intact; installations weather-impacted) Discretionary down 10% Q3; down 5% in June; equipment down 15% Improving, still soft
Inventory/SG&A disciplineSG&A down YoY; inventory reduced SG&A down 12%; inventory down 23% YoY SG&A $131M (down 3%); inventory down 31% YoY; cash up; leverage ~5.7x Improving
Technology (AccuBlue Home)Strategic initiative emphasis Adoption momentum; members spend >$1,000/year Continued strong adoption; scaling production; >$1,000/year spend Positive adoption

Management Commentary

  • “Total sales improved to down 7% in the third quarter from down 11% in the first half… Within the quarter, sales in June improved to down 2%. Chemical sales improved to down 1% in the quarter and up 5% in June.” — CEO Mike Egeck
  • “Gross margin was 40%, down 101 bps YoY… includes a 112 bps impact from the June 2023 chemical price actions, occupancy deleverage… and the expensing of capitalized DC costs.” — CEO Mike Egeck
  • “We ended the quarter with 4,254 PRO contracts and 108 PRO locations… AccuBlue Home… members continue to spend at a rate of more than $1,000 per year.” — CEO Mike Egeck
  • “We expect Q4 adjusted EBITDA to be $51–$65M and adjusted diluted EPS $0.06–$0.12… end FY with cash $75–$80M; leverage ratio 5.4x–6.0x.” — CFO Scott Bowman

Q&A Highlights

  • Bridging the Q3 guide miss: guide assumed transactions +4% and AOV −4%; actual transactions −2% and AOV −5%, with traffic −5% entirely driving the miss (weather/cautious consumer/normalization) .
  • Gross margin path: 40% LT vs 41% pre-COVID due to mix shift (PRO/hot tub/digital) and improving process/tools; expect back-half margin expansion as price actions lap and rebates normalize .
  • Market share and pricing: pricing rational/stable; June credit card and SimilarWeb data suggested share gains vs specialty peers; focus on maintaining price position above mass, at/below specialty .
  • Equipment and hot tubs: equipment down 15% as consumers fix vs replace; hot tub order book healthy and deliveries improved as weather normalized .
  • Capital allocation: prioritize debt paydown before faster store growth; target leverage ≤3x LT; Q3 effective term loan rate 8.2% .

Estimates Context

  • Wall Street consensus (S&P Global) for Q3 2024 EPS and revenue was unavailable at the time of request due to provider limits; explicit beat/miss cannot be quantified. Values retrieved from S&P Global were unavailable.
  • Company emphasized results were in line with revised expectations from the July 17 preliminary release; June momentum supports Q4 outlook ranges .

Key Takeaways for Investors

  • Seasonality reset but June inflection: June demand improved materially, with chemicals positive and discretionary less negative; watch Q4 as price-action headwinds fully lap and new lower-cost inventory flows, supporting margin recovery .
  • Mix matters: PRO growth and digital dilute gross margin vs residential but enhance EBITDA; expect continued mix-driven margin differences vs pre-COVID (40% vs 41%) .
  • Balance sheet progress: inventory down 31% YoY; cash up to $74M; revolver fully undrawn; term loan effective rate 8.2%; leverage ~5.7x—deleveraging remains priority and potential multiple catalyst if execution continues .
  • Discretionary/equipment weakness likely transitory: big-ticket deferrals reflect macro; equipment unit volumes back to 2019 levels, suggesting normalization base for 2025 .
  • Guidance reset: FY2024 guide cut and reaffirmed; set expectations accordingly—focus near term on execution in Q4; LT targets include mid-single-digit sales growth, ~40% gross margin, mid-teens adjusted EBITDA margin when demand normalizes .
  • Strategic moats: AccuBlue Home and Pool Perks loyalty drive higher conversion and spending; PRO partner program expanding; these should support share gains as conditions normalize .
  • Potential narrative catalyst: CEO transition announced Aug 26 may prompt strategic refresh; monitor early signals and any FY2025 framework changes .