LESL — Leslie's, Inc.

Summary of Leslie's Q1 2026 Earnings Call

1. Key Financial Results and Metrics

• Net Sales: $147.1 million, a 16% decline from $175.2 million in Q1 2025, attributed to a $4 million hurricane-related sales benefit last year, a shift from a 53-week to a 52-week year, and the impact of 80 store closures.
• Comparable Sales: Decreased by 15.5%, with headwinds accounting for approximately 850 basis points of the decline.
• Gross Profit Margin: 18.4%, down from 27.2% in the prior year, primarily due to a noncash impairment charge related to closed stores and lower margins on core chemicals.
• Net Loss: $83 million, compared to a net loss of $44.6 million in Q1 2025. Adjusted net loss was $48.7 million versus $40.7 million in the prior year.
• Adjusted EBITDA: Negative $40.3 million, worsening from negative $29.3 million in Q1 2025.
• Inventory: Reduced to $210 million, a 23% decrease year-over-year, due to optimization initiatives.
• Liquidity: $25 million in outstanding borrowings on the line of credit, with $128 million in available liquidity.

2. Strategic Updates and Business Highlights

• Transformation Plan: Focused on becoming a one-stop shop for pool care, with initiatives aimed at customer value, cost optimization, and asset utilization.
• Pricing Strategy: Implementing a national pricing transformation to improve competitiveness and customer loyalty, following a loss of 160,000 residential customers in 2025.
• Store Optimization: Closure of 80 underperforming stores, expected to yield annualized net EBITDA improvement of $4 million to $10 million despite an anticipated sales decline of $25 million to $35 million.
• Distribution Network: Streamlining to five distribution centers, with closures expected to save $500,000 to $1 million annually.
• SKU Rationalization: Reducing SKU count by over 2,000 to enhance inventory efficiency and expected to generate $4 million to $5 million in EBITDA savings.

3. Forward Guidance and Outlook

• Full Year Guidance: Reaffirmed net sales of $1.1 billion to $1.25 billion and adjusted EBITDA of $55 million to $75 million for fiscal 2026.
• CapEx: Expected to be between $20 million and $25 million, focusing on maintenance and productivity investments.
• Seasonal Performance: Anticipates generating the majority of sales and earnings in the second half of the year, aligned with the seasonal nature of the business.

4. Bad News, Challenges, or Points of Concern

• Customer Loss: Significant loss of residential customers due to pricing misalignment and churn.
• Declining Metrics: Notable declines in net sales, gross profit margin, and adjusted EBITDA raise concerns about operational efficiency and market competitiveness.
• Store Closures: While necessary, the closures may impact customer accessibility and brand presence in certain markets.
• Market Conditions: Variability in weather and economic conditions could affect sales performance, particularly in the early months of the pool season.

5. Notable Q&A Insights

• Pricing Strategy: Management emphasized a shift to everyday low pricing (EDLP) to enhance competitiveness and customer loyalty, with expected gross margin impacts of 100 to 150 basis points.
• Customer Engagement: Positive momentum in January was noted, with management optimistic about the upcoming pool season and the effectiveness of the new pricing strategy.
• Store Footprint: Future considerations for store closures and openings will be based on sales transfer rates and customer accessibility, with potential for expansion in underserved markets.
• Operational Efficiency: Management remains focused on cost-cutting measures and improving customer engagement through enhanced training and marketing initiatives.

Overall, Leslie's is navigating a challenging environment with a comprehensive transformation plan aimed at restoring profitability and customer loyalty while addressing significant operational hurdles.