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.
• Comparable Sales: Decreased by 15.5% year-over-year, impacted by a $4 million hurricane-related benefit in the prior year and the closure of 80 stores.
• Gross Profit Margin: 18.4%, down from 27.2% in the prior year, primarily due to a $10.1 million noncash impairment charge related to store closures 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.
• Adjusted EBITDA: Negative $40.3 million, worse than negative $29.3 million in the previous year.
• Inventory: Reduced by 23% year-over-year to $210 million due to optimization initiatives.

2. Strategic Updates and Business Highlights:

• Transformation Plan: Focused on becoming a one-stop shop for pool care, emphasizing customer value and operational efficiency.
• Store Closures: 80 underperforming stores closed, expected to yield annualized EBITDA improvement of $4 million to $10 million despite an anticipated sales impact of $25 million to $35 million.
• Pricing Strategy: Implementing a new pricing initiative to enhance competitiveness and customer loyalty, with expectations of a 100-150 basis point decline in gross margins for the year.
• Distribution Optimization: Closure of the Illinois distribution center planned, expected to save $500,000 to $1 million annually.
• SKU Rationalization: Over 2,000 SKUs to be eliminated to focus on high-value inventory, projected to generate $4 million to $5 million in EBITDA savings.

3. Forward Guidance and Outlook:

• Full-Year Guidance: Reaffirmed net sales expectations of $1.1 billion to $1.25 billion and adjusted EBITDA of $55 million to $75 million.
• CapEx: Expected to be between $20 million to $25 million, focusing on maintenance and productivity.
• Seasonal Performance: Anticipation of stronger sales and earnings in the second half of the fiscal year, consistent with historical trends.

4. Bad News, Challenges, or Points of Concern:

• Customer Loss: A net loss of 160,000 residential customers in 2025, primarily due to customer churn.
• Declining Metrics: Significant declines in sales and gross profit margin raise concerns about the effectiveness of current strategies.
• Market Conditions: Competitive pressures and the need to adjust pricing could impact profitability.
• Operational Risks: Store closures and restructuring may disrupt customer relationships and service levels.

5. Notable Q&A Insights:

• Pricing Strategy: Management clarified that the new pricing initiative is designed to enhance everyday value and improve customer traffic, with a focus on basket-building strategies.
• Sales Momentum: Positive comparable store sales were noted in January, but February performance was mixed due to varying weather conditions across regions.
• Future Store Footprint: Discussions on optimizing store locations and potential for future expansion in underserved markets were highlighted, indicating a strategic approach to balancing closures with growth opportunities.

Overall, Leslie's is navigating a challenging environment with a comprehensive transformation plan aimed at restoring profitability and enhancing customer relationships, while also managing significant operational changes and market pressures.