NASDAQ:LESL Leslie's Q2 2024 Earnings Report $0.71 +0.05 (+7.95%) As of 12:09 PM Eastern This is a fair market value price provided by Polygon.io. Learn more. Earnings HistoryForecast Leslie's EPS ResultsActual EPS-$0.18Consensus EPS -$0.18Beat/MissMet ExpectationsOne Year Ago EPSN/ALeslie's Revenue ResultsActual Revenue$188.66 millionExpected Revenue$202.69 millionBeat/MissMissed by -$14.03 millionYoY Revenue GrowthN/ALeslie's Announcement DetailsQuarterQ2 2024Date5/8/2024TimeN/AConference Call DateWednesday, May 8, 2024Conference Call Time4:30PM ETUpcoming EarningsLeslie's' Q2 2025 earnings is scheduled for Thursday, May 8, 2025, with a conference call scheduled at 5:30 PM ET. Check back for transcripts, audio, and key financial metrics as they become available.Q2 2025 Earnings ReportConference Call ResourcesConference Call AudioConference Call TranscriptSlide DeckPress Release (8-K)Quarterly Report (10-Q)Earnings HistoryCompany ProfileSlide DeckFull Screen Slide DeckPowered by Leslie's Q2 2024 Earnings Call TranscriptProvided by QuartrMay 8, 2024 ShareLink copied to clipboard.There are 15 speakers on the call. Operator00:00:01Good afternoon, and welcome to the Second Quarter of Fiscal 20 24 Conference Call for Leslie's. 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. I will now turn the call over to Matt Skelly, Vice President of Investor Relations. Speaker 100:00:35Thank 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. Speaker 100:01:10A 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 Lesley's website atir.lesleyspool.com. We have also posted our Q2 2024 earnings presentation to our IR website and we'll be making references to it in our prepared remarks. On the call today is Mike Ezeck, Chief Executive Officer and Scott Bowman, Chief Financial Officer. With that, I will turn the call over to Mike. Thanks, Matt, and thank you all for joining us this afternoon. Speaker 200:01:49Our bottom line financial performance in the Q2 was largely in line with our expectations. Top line sales were impacted by cool and wet weather in our seasonal and non seasonal markets, as well as a pool and spa consumer that continues to normalize their post pandemic spending patterns. I am pleased with the team's performance in the quarter as we executed well against the factors within our control. We saw improved conversion from healthy in stock levels and competitive price positioning across our channels and we delivered on our inventory goals while providing superior customer service and disciplined expense management. Since it's been nearly 6 months since we provided our planning assumptions for the year, I want to remind everyone how we are thinking about our annual guidance. Speaker 200:02:35At the midpoint, we plan the following for the year: discretionary product sales down 10% equipment sales down 10% nondiscretionary product sales up 1.5% AOV down 4% driven by mix and the cycling of our June 2023 chemical price adjustments and transactions up 3% driven by normal weather. You will hear from us today that the majority of these factors are performing in line with expectations with the exception of weather and the associated impact on traffic and transactions. During the quarter, the weather was much cooler across key non seasonal markets including Texas, Southern California, Arizona and Florida. This resulted in significantly fewer consecutive days above the critical seventy degree threshold versus the same period in the prior year and or the 10 year averages for these markets. Weather was also a factor in our seasonal markets with pool openings down 19% year over year driven by a cool and wet spring. Speaker 200:03:42Turning to our financial results for the quarter. Total second quarter sales were $189,000,000 down 11% year over year. This includes an approximately 4.40 basis point impact from our June 2023 chemical price actions and the Q2 calendar shift that Scott will detail later in the call. Residential pool was down 12%, Pro Pool was down 9% and Residential hot tub was down 14%. Comp sales were down 12%. Speaker 200:04:14Given the weather I just discussed, traffic was down 10% in the quarter. Total transactions were down 6% year over year. Our focus on customer service, product availability, competitive pricing, compelling assortments and value messaging drove increases in customer conversion that offset a significant portion of the traffic declines. Average order value was down 5% year over year. Average order value continues to be affected by sales of high ticket discretionary products, including hot tubs, above ground pools and heaters, as well as our June 2023 chemical price changes. Speaker 200:04:54Non discretionary product sales were down 11% versus a year ago. Total chemical sales decreased 11%, inclusive of a negative 5.75 basis point impact from our June 2023 price adjustments. However, volume of Cal Hypo and Trichlor was down only 1% and we were encouraged by the sequential improvement in key chemical volumes each month during the quarter. Sales of equipment were down 10%, an improvement of 800 basis points from Q1 and consistent with our expectations at the midpoint of our full year guide. Discretionary product sales were down 13%, an improvement of 600 basis points from Q1 and contributed about 24% of the quarter's total sales decline. Speaker 200:05:41Of note, rain and or snow across many of our seasonal markets prevented installation crews from delivering and installing hot tubs and swim spas. Cancellation rates remain very low and our order book at the end of the quarter is supportive of the midpoint of our full year guide. As you can see on Page 11 of our earnings presentation, our regular analysis of select credit card data indicates that our sales underperformed the industry by approximately 850 basis points in the quarter, of which approximately 380 basis points is attributable to our June 2023 chemical price changes and the calendar shift. However, our vendor discussions, district and store manager discussions, customer exit interviews and data from SimilarWeb for our digital businesses, all indicate our Q2 performance is broadly in line with the industry ex the chemical price change. Looking across a longer time horizon, the credit card data indicates that specialty pool sales were down in 8 of the last 10 quarters. Speaker 200:06:47Over those 10 quarters, we have grown sales faster than the industry by an average of approximately 3 80 basis points. With respect to profitability, gross margin decreased 4.64 basis points, driven primarily by the impact of the price reductions we implemented in June 2023 and occupancy deleverage. Gross margin was largely in line with our expectations with the exception of the incremental occupancy deleverage associated with lower than expected sales. Adjusted EBITDA for the quarter was negative $19,000,000 and adjusted diluted earnings per share was negative $0.17 As a reminder, our fiscal 2nd quarter, like our 1st fiscal quarter, is historically a relatively small sales quarter during which we make investments and incur costs to position the company for the peak pool season in our fiscal second half. As such, we expect no profit contribution in these quarters and our performance this year was consistent with these expectations. Speaker 200:07:55With regard to the industry backdrop, certain categories and channels have seen some instances of deflation year to date, but overall industry retail pricing is largely stable and we remain competitively priced across our omni channel platform. Industry promotional activity continues to be consistent with historic seasonality and we are using advanced analytics to be more surgical on when and where to promote most effectively. Supply chains are operating normally and inventory levels are seasonally appropriate. The slow start to this year's pool season notwithstanding, we believe that the long term pool industry fundamentals and secular tailwinds that drive industry demand remain intact. And we expect both of these factors to continue to underpin our long term growth opportunity. Speaker 200:08:44Leslie's remains the leading direct to consumer pool and spa retailer with unmatched scale, capabilities and brand awareness. As we have positioned ourselves to win during pool season, we also remain focused on executing our strategic growth initiatives, which we expect to drive long term sustainable top line growth and profitability, share gains and operational efficiency. Turning to those initiatives. First, our customer profile improved from down 8% in fiscal Q1 to down 3% in fiscal Q2. We believe that our customer file continues to normalize from the pandemic spike and we expect to return to growth in the second half of the year. Speaker 200:09:282nd, average revenue per customer was down 8% in the quarter, driven primarily by decreases in big ticket items such as hot tubs, swim spas, above ground pools and automatic pool cleaners. Average revenue per customer for our loyalty customers outperformed at down 4% in the quarter. 3rd, with regard to our PRO initiative, we ended the quarter with 4,088 PRO contracts in place and 102 PRO locations. This compares to 3,300 Pro contracts and 98 Pro locations at the end of the Q2 of last year. Pro sales were down 9% for the quarter. Speaker 200:10:09Pro Partner sales were down 7%, offset by non partner Pro sales, which declined 26%, highlighting the importance and effectiveness of our partner program. 4th, M and A and new store growth continue to be important initiatives for Leslie's, and we are confident in our long term store expansion opportunities. For fiscal 2024, we remain on track to open 15 new stores. Finally, our AccuBlue Home Smart Tech Water Testing Device and Membership Program continues to gain momentum and is resonating strongly with customers. Our manufacturing partner is delivering product on time and we are on track to meet our inventory targets for pool season. Speaker 200:10:53Our members continue to give us feedback that our proprietary software is a game changer and continue to respond with very positive online reviews. As you will recall, our AcuBlue home membership consists of a free device and a $50 per month membership subscription, which is offset by $50 per month of purchase credits that can be used online or in store. Our members have been spending at a rate of more than $1,000 per year. We remain focused on executing our strategic initiatives to capture the long term opportunities and extend our industry leadership. In addition, we continue actions to improve the trajectory of the balance of the year. Speaker 200:11:38Number 1, we are using our analytical tools and insights to drive efficiency in pricing and promotions with a focus on growing gross margin dollars. Number 2, we achieved our goal of reducing our peak inventory by more than $100,000,000 and remain on track to reduce year end inventory by more than $50,000,000 while maintaining strong in stock levels and service metrics and high NPS scores. We will keep a laser focus on SG and A efficiency. Scott will address this later in the call, but SG and A in the 2nd quarter was down 12% versus the same period a year ago. Number 4, we continue investing in our people, fostering and promoting top talent within the organization, while adding outside talent with deep experience and fresh eyes to continuously improve how we operate. Speaker 200:12:295, we are leveraging our omni channel platform to connect with consumers more frequently, including through surveys, exit interviews, research and other feedback to give us a detailed view into the specialty pool and spa consumer. And 6th, we continue to invest in marketing to drive long term brand awareness, customer file growth, Pool Perks members and sales. I will now hand it over to Scott to discuss our results and outlook in more detail. Scott? Speaker 300:13:02Good afternoon, everyone, and thank you, Mike. Our results for the quarter were largely in line with our expectations, while unfavorable weather contributed to lower traffic in the late start to the pool season in our main markets. For the 2nd quarter, we reported total sales of $189,000,000 a decrease of 11% compared to the Q2 of fiscal 2023. The Q2 of this year ended on March 30 versus April 1 last year. Due to this calendar shift, we lost 2 early spring higher volume selling days and gained 2 lower volume winter selling days. Speaker 300:13:37The negative impact of this shift was approximately 4,000,000 dollars or 180 basis points in the quarter. Comparable sales decreased 12%, driven primarily by transaction count and spending on larger ticket items. Comparable sales decreased 26% on a 2 year stack basis. Non comparable sales contributed $1,500,000 in the quarter, driven by acquisitions and new store growth. With respect to trends by consumer group, comparable sales for residential pool declined 12%, pro pool declined 9% and residential hot tub declined 14% compared to the prior year period. Speaker 300:14:16Sales declines are driven by unfavorable weather, softer sales and discretionary items in the June 2023 price actions. In these shoulder seasons, weather and the timing of pool openings can cause significant sales variances due to the smaller sales base. Gross profit was $54,000,000 compared to $71,000,000 in the Q2 of fiscal 2023 and gross margin rate declined 4 64 basis points to 28.8 percent, which was slightly below expectations mainly due to incremental occupancy deleverage from lower than expected sales. We continue to expect meaningful back half margin expansion versus the first half of the fiscal year, most notably in the Q4 as we cycle the June 2023 chemical price decreases and higher inventory adjustments and distribution costs that pressured second half twenty twenty three profitability. Page 9 of our earnings presentation illustrates our Q2 gross margin rate bridge in more detail. Speaker 300:15:17During the quarter, gross margin was affected mainly by lower selling prices and deleverage in occupancy costs due to lower sales. SG and A was $85,000,000 a reduction of 12% or $11,500,000 compared to the Q2 of fiscal 2023. The reduction was primarily due to declines in merchant fees, lower payroll and executive transition costs and lower store expenses. Adjusted EBITDA was negative $19,000,000 compared to negative $8,000,000 in the Q2 of fiscal 2023 and adjusted net loss was $32,000,000 compared to a loss of $26,000,000 in the Q2 of fiscal 2023. Interest expense increased to $18,000,000 during the quarter from $17,000,000 in the same period last year due primarily to higher interest rates and our effective tax rate increased to 29% compared to 25.7% in the Q2 of fiscal 2023. Speaker 300:16:16Adjusted diluted earnings per share was negative $0.17 compared to negative $0.14 in the Q2 of fiscal 2023. Diluted weighted average shares outstanding were 185,000,000 Moving to the balance sheet. We ended the quarter with $786,000,000 outstanding on our secured term loan facility and $97,000,000 on our revolving credit facility. This compares to $794,000,000 $172,000,000 respectively in the prior year quarter. Our debt levels were lower by $83,000,000 versus a year ago and our leverage ratio was 6.0 times. Speaker 300:16:55Availability on the revolver was $142,000,000 at the end of the quarter. As a reminder, this is our peak debt quarter before we generate all of our profitability and free cash flow in the seasonally important second half of our fiscal year. The applicable rate on our term loan was SOFR plus 2 75 basis points in the 2nd quarter and our effective interest rate was 8.2% compared to 7.3% in the prior year quarter. Our total cost of debt for the quarter was 8.1% compared to 7.2% in the Q2 of last year. Additionally, last month we successfully extended the maturity date of our revolving credit facility to April of 2029. Speaker 300:17:37Cash and cash equivalents were $8,000,000 at the end of the quarter compared to $9,000,000 for the same period last year. Inventory ended the quarter at $379,000,000 a decrease of $113,000,000 or 23% compared to the prior year quarter, while our in stock position, service metrics and net promoter scores remain very strong. Our stores are well stocked with the full assortment for the pool owner and pro as we gear up for the peak pool season. And now turning to our fiscal 2024 outlook. After a Q1 that was consistent with expectations, our Q2 was below our top line expectations, mainly due to unfavorable weather that resulted in a slower start to the pool season. Speaker 300:18:20We are now 5 weeks into our Q3. During the 1st 3 weeks, weather continued to be a challenge. However, over the last 2 weeks, we've seen improved trends with improved weather. Ultimately, our biggest volume weeks lie ahead and with our consistent seasonable weather, we believe we are on track to deliver a year within our outlook ranges. Moving to capital allocation, our first priority continues to be the pay down of debt with the goal of achieving a leverage ratio of 3.5 to 3.7 times in fiscal 2024 and a longer term goal of reaching a leverage ratio of 3 times or less. Speaker 300:18:58Regarding our footprint, we are planning 15 new store openings in fiscal 2024 with the majority of these stores expected to open prior to Memorial Day ahead of the peak pool season. We also plan to convert 6 residential stores to our pro format this year. At this time, we are not including any sales or EBITDA contribution from M and A activity in our full year guidance. And with that, I'll hand it back over to Mike for closing remarks. Speaker 200:19:26Thank you, Scott. To conclude, results this quarter continued the recent trend of softer sales for Leslie's and the industry from persistent unfavorable weather and normalizing cool and spa consumer behavior from a period of significant growth. In light of that, we continue to aggressively manage SG and A and inventory, while focusing on customer service. We believe we are set up to win in pool season. Our employees are excited and engaged. Speaker 200:19:54Our stores and DCs are well stocked and ready to go. Our omni channel presence has us positioned to service residential and pro customers in the way that they choose and our pro partner and Poolparks loyalty program are leaders in the industry. We have an unmatched set of capabilities to serve our customers and with Accu Blue Home, a clean, safe and beautiful pool has never been easier to achieve. With the majority of our sales and all of our profitability still to be achieved in the back half of the year, we are focused on superior execution and we remain confident in our long term prospects for growth and profitability. With that, I will hand it back to the operator for Q and A. Operator00:20:37Thank you. We will now be conducting a question and answer First question comes from Justin Kleber with Baird. Please go ahead. Speaker 400:21:10Yes, good afternoon, everyone. Thanks for taking the questions. Just a follow-up on near term trends. I mean, can you give us a sense just how you're tracking 5 weeks into the quarter relative to the comp that you put up within fiscal 2Q? That's just my first question. Speaker 500:21:30Yes. Justin, I think the best way to characterize the last couple of weeks of the quarter is a material improvement in the trend. Speaker 400:21:43Okay, okay, got it. And that's just as weather has Speaker 500:21:48exactly. We finally are seeing some consistently warm weather in our major markets and that's making a material difference. Speaker 400:21:57Got it. Good to hear. Secondly, maybe on the SG and A front, Scott, you were previously talking about slight decline in dollars year on year. It seems like you're tracking well ahead of that target, at least through the fiscal first half. So just wondering if your guidance implicitly is applying a lower SG and A dollar figure maybe relative to when you gave the initial outlook? Speaker 600:22:21Yes, Justin. I think the whole team is doing a really good job. And I would say that we're probably ahead of kind of the progress that we thought we'd be making at this point in time. As the back half goes on, we'll see if if anything changes. I don't expect major changes in the back half, but what I do see is that we've improved a bit faster than I thought. Speaker 600:22:47And that's on many different fronts. So naturally merchant fees and things like that come down with sales. But just really good control on labor, but still having a high level of service. And a lot of that is store labor. And what we're doing is we're just taking advantage of the shelter season, where traffic is very low. Speaker 600:23:08And so we just adjusted our hours according to kind of the customer traffic. Now as we get into busy season, we'll be more fully staffed, okay. And so you may not see as big of a decline there because we fully intend to be fully staffed. But just other store expenses, everybody in the stores incorporate and just watching expenses and controlling those very well. And then we just have less add backs, executive transition costs and strategic projects, things like that, that we had last year, some of those are more favorable this year as well. Speaker 500:23:46All right. That's good to hear. And if I could Speaker 400:23:48just sneak one more in, just as we enter the pool season, do you guys have a sense as to, I guess, the magnitude of chemical carryover that still needs to be worked through? Or is that not really part of the story this year as we enter pool season? Thank you so much. Speaker 500:24:06Yes, Justin, good question. We put out another pool owner survey in February, so pretty recent information. And based off the results from that survey, we don't think there's any, challenges around consumer stockpiling this season. Operator00:24:28Next question, Jonathan Zlotsky with Jefferies. Please go ahead. Speaker 700:24:33Great. Good afternoon and thanks for taking my questions. The first one was on equipment. I wanted to kind dig in on that category a little bit. So down 10% this quarter, but can you provide any color on some of the moving pieces there? Speaker 700:24:48I think historically or at least last quarter, heaters and automatic pool cleaners were underperforming. I think variable speed pumps were midpoint you shared for the year could be realized? Thanks. Speaker 500:25:13Yes. Thanks for the question, Jonathan. Look, first thing I'll do is point out Speaker 700:25:17like I Speaker 500:25:17did in the prepared remarks, we're really pleased to see the 800 basis improvement from down 18 to down 10. And we saw improvement across most all the categories. I would say, heaters has actually improved materially and we think that's a really good sign and more in line with what I would call pre pandemic seasonality, right? As the pool season starts to approach, people start thinking about heating their pools. They turn on their pool, heat it for the first time, that doesn't work. Speaker 500:25:49They either replace it or fix it. So we consider that a good sign. APCs are still a little challenged, though robotics have been performing better and salt systems are a little challenge for us. So a little bit of change in the mix. Heater is a little better, robotics a little better, variable speed to pumps continue to be a nice stable business. Speaker 700:26:17That's helpful. And then my second question is on pricing. I think heading into this year, the plan was for chemical pricing to be down low single digits year over year. Equipment pricing, I think was planned to be in maybe that 3% to 5% range that some of the vendors were talking about. Recognizing the 1st 6 months are light in terms of contribution for the year. Speaker 700:26:42Are the midpoint of those ranges still relevant? And as we're tracking pricing going into pool season, is there anything we should be aware of in terms of the pricing strategy and any volatility or are the prices we're seeing from a consumer perspective generally where we would expect the pull season to play out? Thanks so much. Speaker 500:27:05Yes, Jonathan. I think the I mean, we're pleased to see retail, particularly specialty retail pricing for chemicals to be quite stable. And I'm going to say stable from when we made our price action adjustments in June of 2023. Since that time, it's been quite stable. And even with a slow start to the season and what I'm going to call very unfavorable weather, we haven't seen people breaking price in the residential market. Speaker 500:27:35I will say there's been a little bit more pressure on the pro side of the business, but we're still within that low single digit range for chemicals overall. So we think we're well within our guide on chemical pricing to be at our midpoint. And similar with equipment, I think you quoted 3 to 5, I think we quoted maybe 2 to 5, but yes, midpoint of that is well within range. The softness we're seeing in chemicals and equipment is really based on volume. And right now, we're tying that volume very much to traffic and we're trying to tie in traffic very much to weather. Speaker 500:28:18We just in the Q2 hadn't really seen hadn't seen the season kick off. And I tell you, it's gratifying to see the last couple of weeks with some consistent warm weather start to move like we would expect it to. Speaker 700:28:35Very helpful. Best of luck. Speaker 500:28:38Thank you. Operator00:28:39Next question, Sean Kallman with Bank of America. Please go ahead. Speaker 500:28:45Hi, guys. Thank you for taking my question. Just first following up on the chemical pricing. So last quarter you were able to offset the pressure in gross margin and then this quarter was a headwind of about 130 basis points. So are you seeing higher promotional activity? Speaker 500:29:02Is this what you're just talking about on the pro side, kind of what's driving the downside year over year in Speaker 800:29:08the Q2 versus the Q1? Speaker 600:29:13Yes, I'll take that one. Basically what we're seeing is we did have some chemical price impact in the Q1. And the difference was as we were able to offset that with pricing actions in other categories. Okay. And so for Q2, we didn't have those additional price actions that we were able to offset. Speaker 600:29:37I think the other thing to think about is that our mix has changed as well. And so with equipment getting better and chemicals off a little bit more than Q1, there's a mix effect there that's a bit unfavorable. Speaker 500:29:55Okay, got it. And then the second one just on the order book comments you made last quarter. I believe you guys said that orders were flat year over year on hot tubs and then the hot tub sales came down 14% year over year. Can you just talk about how the orders flow through over time? Yes, Sean. Speaker 500:30:17It's a the average price of the hot tubs we sell is about $10,000 and they are predominantly custom ordered. So customer places an order, the tub is built and then it is scheduled for delivery. And the challenge we ran into in Q2 and in Q1 as well is particularly wet weather in our hot tub markets was just keeping people from keeping us from being able to pour pads, install the hot tub, hook up electricity. We had people pushing out their appointments for reasons, rain and even snow. So what we consider good news is very low cancellation rates, People still want their tubs. Speaker 500:31:08And now that we've seen the weather break and particularly like we own Valley Pool and Spa in the Pittsburgh area And we were in Pittsburgh last month, a group of executives and it was hailstorms, tornado warning, 52 degrees, rain, and I was pretty clear why we weren't delivering tubs. Now that we've seen the weather break there and we've been in the the rather consistently in the 70s or low 80s, we're starting to see that order book come to fruition with deliveries. So we consider that a positive sign. And I would say that our order book is very supportive of the discretionary business being down no more than 10%. Okay, got it. Speaker 500:32:00So would you say that there's potential for hot tub sales to be up year over year in the second half? Yes, I don't look, we have a very good trend. We have a order book that is in better shape than our mid year guidance, but there's still a lot of volume to be done. So it's too early to speak to upside. Okay. Speaker 500:32:28Thank you. Yes. Operator00:32:31Next question, Haight McShane with Goldman Sachs. Please go ahead. Speaker 900:32:35Hi, good afternoon. Thanks for taking our question. We wanted to ask about market share. It still seems that you're underperforming the industry based on what you put in the slides for today and it might be widening. Can you speak to that at all in terms of what happened during the Q2? Speaker 500:32:57Yes, Kate, thanks for the question. We said in the Q1, we were surprised by what the credit card information was saying. I'm going to say we're a little bit surprised this time as well. And look, we think that's good and it's important data and we certainly pay attention to it. Last time on the last call, we had talked about some of the changes in our assortment and value messaging that we had done in the stores to try to drive greater conversion. Speaker 500:33:28And we're really pleased this quarter to see that conversion increase materially. But the traffic was really the challenge this quarter and traffic we really connect to weather and it's surprising to us that our performance would be under that of the industry given the weather impact. And then the second thing is, I said in the prepared remarks, we've talked to our vendors regularly. We talked to our store managers. We talked to our district managers. Speaker 500:34:03This last quarter, we did comprehensive exit interviews for non purchasers to see if we were missing something. And all of that data in addition to similar web data, which tracks our proprietary online businesses, that data actually showed that our market share increased 200 basis points online in the quarter. So it seems to be a disconnect between the 2. We're taking it seriously. And if we have given back some share, we'll be focused on winning it back in pool season proper. Operator00:34:44Okay. Thank you. Next question, David Bellinger with Mizuho Securities. Please go ahead. Speaker 1000:34:52Hey guys, thanks for the question. Another one on this material improvement in trend over the last couple of weeks. So has that been broad based across geographies? And just recognizing this is an incredibly short period of time, just 2 weeks, if that trend were to continue through the balance of the quarter, could you potentially see a positive overall comp within the Q3 period? Speaker 500:35:16Yes. Look, we're not going to give Q3 guidance like that. I will say this, it was mostly broad based in its recovery. One of the things we find positive is we've got material improvement despite, what is it, 50,000,000 people in the U. S. Speaker 500:35:36Being under severe weather alerts right now and the flooding in Houston. And Houston is our single largest metro market. So despite those two very adverse weather conditions, we saw really nice improvement and we saw the business respond as we would expect it to with appropriate weather. And that's as much as we're going to say about that. Speaker 1000:36:04Fair enough. And this is my second one on the inventory being down more than 20% year over year. Maybe just help us unpack that a little. Could you talk about units versus price? And are there certain categories that are down more than others in terms of units? Speaker 600:36:24Yes, I can take one. I can take that one. There is always a bit of a mix effect, but units are actually down a little bit more than dollars. And I think it's the effort that the planning team has put forth using our BlueLinx tool to really start off on the right foot on the front end with a much better plan and executing that plan very well. And also from our suppliers as well, I mean the lead times are fairly short on most of our items And so that helps as well. Speaker 600:37:04And so as you kind of look across the categories, I mean, they're showing some fairly large decreases in some of our chemical categories and equipment, cleaning and maintenance categories. And so which if you look at the turns profile, there was definitely room to do that. And so, we continue to find more efficiencies, but also we're really concerned also with in stocks and service level. And fortunately for us, we've executed to the point where the service levels and in stocks are much better than they were last year. So we're really pleased with the performance overall. Speaker 1000:37:47Very good. Thank you both. Speaker 600:37:49Sure. Operator00:37:50Next question from Steve Stifor with Scotiabank with Keyur. Speaker 1100:37:55Good afternoon, Mike, Scott. Speaker 500:37:58Hey, good afternoon. Speaker 1100:37:59I was curious maybe if you could we could take a step back and maybe just talk about the customer file, if there's any green shoots that you're seeing, whether it's your most loyal customers. I think you mentioned loyalty members trends, right, better than the file as a whole. But like what are you seeing within the file that gives you confidence to reiterate the guide for the back half today? Like are there any green shoots? And can you help us better understand what you're referencing in terms of file growth expectations for the back half and what you're sort of implying in terms of improvement in spending trends within the file as well? Speaker 500:38:42Yes. A few questions in there. I think what we're well, not I think, what's going on with the file is we added a lot of, I'm going to call them 1 and done customers during the height of the pandemic, 2021 particularly also into 2022. And we identified this cohort of customers and came in and basically bought tabs and that was it. And we threw a lot of retention and reactivation tactics at those customers, but not nearly the results we would typically see. Speaker 500:39:21And the file degradation that we've seen kind of since midpoint of 2022 is just those customers kind of working their way out of the file. And with the file down 3% quarter over quarter at the end of Q2, we feel we're basically through with that cleansing, if you will, of 1 and done customers, which outside of that, the reason the green chute that we see is outside of those customers peeling off, adjusted. Then yes, we're seeing the file stabilize and starting to show some growth. And we're not going to go into what kind of growth we expect in the second half, but we expect the business to be positive in the second half and we expect positive customer file to support that. Speaker 1100:40:17Thanks, Mike. And maybe just a follow-up on I think Sean's comment or question from before on sort of the chemical pricing, right, net of the offsets that occurred in the Q1 because it does seem like there was a more challenging second quarter dynamic here. Any help on framing like what you sort of expect the product margin to be in the back half, right? I think in the reiterated gross margin guidance, is it are we still looking at stability to expansion in product margin? Or is there something within the bridge that's changing? Speaker 500:40:50Yes, Scott, you want to take that? Speaker 600:40:51Yes, yes, I can take that one. I think there's potential for gross margin expansion in the back half. And the main reason for that is when the June pricing actions, once we overlap that in June, then that basically eliminates the biggest headwind that we have on our project margins. And so I think that will be a big benefit for us. And also, rebate should help us more in the back half. Speaker 600:41:26We are kind of getting past some timing differences that we had in the first half. But the back half, specifically the 4th quarter should give us better margin lift from rebates and recargent. Speaker 500:41:41Thank you. Stephen, I'll add one point to that. On the earnings deck on Page 9, we've got the gross margin bridge. But we'll give a little color on it. There's 91 basis points in there of other product rate. Speaker 500:41:58More than half of that is some promotional dollars that we invested in the quarter trying to drive increased traffic, right? We just didn't sit here and let the weak traffic numbers impact the business without trying some different tactics. But I think what we discovered there is very clearly you can't promote your way through tough weather. You can't promote your way through a pool that's not open yet. So we learned a lot. Speaker 500:42:29We're going to implement those learnings in the second half, but that's more than half of what you see there on the other product rate line. Speaker 800:42:40Helpful. Thank you. Operator00:42:43Next question, Ryan Merkel with William Blair. Please go ahead. Speaker 800:42:48Hey, everyone. Thanks. Hey, Mike, I wanted to ask on the non discretionary sales down 11% in the quarter. Is that all weather and chemical price deflation? I just asked because the consumer, there's some weakness there. Speaker 800:43:01Is that showing up at all? Speaker 500:43:05Yes, I don't we don't think it's consumer weakness per se, Ryan. The look, chemicals volume overall in chemicals was down 4%. Trichlor and calypo were down 1. We had some softness in other chemicals. So pricing was down 7. Speaker 500:43:23And of that down 7, 5.75 basis points of that, most of it is tied to the June 23 price actions. The balance I would characterize as a combination of mix and a little bit more price pressure on the pro side in chemicals. Speaker 800:43:45Got it. Okay, that's helpful. Speaker 500:43:47Yes. We're not a weak consumer per se, we're not seeing a consumer. With the weather we saw, it was really a pattern of footsteps through the doors and eyeballs on the sites. Speaker 800:44:02Got it. Okay. Yes, that makes sense. And then I had a question on gross margin too. You sort of answered it with the last one. Speaker 800:44:08But should we be expecting gross margins to be higher in the Q4 than in the Q3? That's what I had in my notes. Just wanted to clarify that. Speaker 500:44:18Yes, Scott, you want to take that? Speaker 600:44:19Yes, I have that one. So yes, it's a good question. And the answer is yes. And the main reason for that is we'll have kind of a full quarter's worth of being beyond the June pricing actions. That will help, rebates will help a little bit as well as those normalize. Speaker 600:44:38But also of note is the inventory adjustments in DC costs that were really heavy last year because of all the outside warehouses and all the movement of goods, we should show significant favorability against those two lines as well. Speaker 800:44:54Got it. Thanks for that. That's a lot. Speaker 200:44:57Thanks, Ryan. Operator00:44:58Next question from Simeon Gutman with Morgan Stanley. Please go ahead. Speaker 1200:45:03Hi, guys. Mike, I wanted to ask about pent up demand and the history of this business when we have tough weather in the beginning, other parts of the season we don't catch up. And this goes back to that order book that you mentioned, because I would think you'd be well ahead of where you should be tracking now given pent up demand. And all the companies in our space that had weather impacts are recovering normally. So I think it's very valid, but you do sell a higher priced item or a lot of higher priced items, maintenance and repair and even some of the discretionary. Speaker 1200:45:38So how do you think about that pent up demand? How do you think about in the context of where the consumer is? And then I'm trying to get at, is there any way this is a head fake in your industry? How are you contemplating that? Just trying to look at both sides. Speaker 500:45:51Yes. In terms of pent up demand for hot tubs specifically, where we've got a forward order book, yes, I would say definitively we have pent up demand there and we feel good about the direction of that part of the business. In terms of equipment and well, let me answer it this way, because the difference between seasonal and non seasonal markets. In the seasonal markets, I mentioned that pool openings were down 19%. Now pool openings themselves generate volume, but what they really are is an indicator of the start to the season. Speaker 500:46:35And by our estimation, we're several weeks behind the start of the season. Now historically, and as we've looked at weather this year, I think we're closer maybe to the 2018. And originally we had thought we were closer to 2022. But as we look at weather, yes, when the pools open in the Northeast, Long Island in particular, it's a really significant ramp. However, you potentially have fewer pool days. Speaker 500:47:09It's all going to depend now on how the pool season ends in the shoulder season. If it ends on its normal cadence and we started late, yes, we'll lose some days in the seasonal markets just from the pools not being open. In the non seasonal markets, I think it is more about pent up demand. People want to use their pools when the weather is correct and they'll tend to use the pool more when the weather encourages them to do so. Speaker 1200:47:41Okay. And then can I ask a follow-up back on the share, which Speaker 400:47:45I have Speaker 1200:47:45market share and I know you provide a lot of data here, which is not a lot of information? So you're going to get a lot of questions. Speaker 500:47:52When you lowered Speaker 1200:47:54price, the chemical prices a year ago, remind us it was the industry had lowered it before you, meaning why shouldn't that lowered price leading to more share gain at this point? And are you seeing that share gain come back in chemicals? Speaker 500:48:11Yes, it's a good question. There was 2 things that spurred us on the chemical price adjustments in June. One was we had gotten outside of our historical price positioning, which is above mass and at or below specialty. We had gotten ourselves up and over specialty. The second thing and just we were starting to get feedback that we weren't representing a good value and it was showing up in our NPS scores. Speaker 500:48:43So just our prices down to where we thought they should be, we in the Q3 of last year and in the Q4 of last year, we feel we did pull back some share versus leaving the prices where they're at. And the last two quarters, like we said, we're surprised by the credit card data, but we take it seriously and we're working to make sure we make the most of the traffic that we're getting. I don't know what to make of the credit card data actually. It's a little concerning for sure. More importantly to us, it's not really aligning with all of our other channel checks. Speaker 500:49:33So not something we're ignoring, but it doesn't change how we operate. We think we're very competitively priced right now. And this idea of value and our consumers seeing the value not only in our product, but our capabilities like the Accu Blue water testing in the stores, we think all that's showing up through what was a really nice conversion lift. That's one of the things we feel most positive about the business. When the traffic is there, we're converting at higher levels than we had in the past. Speaker 500:50:06And that's a good sign for the pool season. Speaker 1200:50:11Thank you. Good luck. Speaker 500:50:12Thanks. Operator00:50:15Next question, Garik Shmois with Loop Capital Markets. Please go ahead. Speaker 1300:50:20Hi, thanks. Just a follow-up on that point. Just go on to see if you could provide a little bit more context on how traffic was in the quarter and non weather hit markets and if there was anything to read into trends in places where weather hasn't been an issue. Speaker 500:50:38Yes, I mean, that's one of the challenges with this quarter. Typically, we have some regions where we've got normal weather that we can point to as a control group, if you would. And we just we didn't have that. We didn't have that anywhere. The seasonal markets, as I talked about and is evidenced by the pool openings, just very combination of cooler and wet. Speaker 500:51:02And when the weather got a little warmer, it was still very wet. And the number of consecutive days over 70 degrees, which we found is highly correlated with traffic in our business. In our major markets, Texas, Florida, Arizona, that was down anywhere from 18% to 64%. And in California, which was our best performing market, there was 0 consecutive days over 70. But there was also 69% more rainy days than a 10 year average. Speaker 500:51:40So we actually couldn't point to any of our major markets and say we had based on data a normal quarter. Speaker 1300:51:52Okay. No, that's helpful. Just my follow-up questions on gross margins, just to put a bit of a finer point on the guide. I think coming into the year, you're expecting about 100 basis points in gross margin improvement this year. Correct me if I'm wrong on that. Speaker 1300:52:09And if that was the case, do you think that's still reasonable given we're heading into the peak season now? Do you think there's enough opportunities in front of you to reach that prior guidance? Speaker 600:52:23I think there is, just because as we gain volume, you get a direct impact on leverage with occupancy and our margin miss for this past quarter was, that was the biggest contributor, was just the deleverage on occupancy. So as we add volume, as we get past the chemical price actions, and with some of the promos that we've run, we have learned some things of what's working really well and some things that are not working so well. So I think we'll be a little bit more efficient on the use of promos and discounting, both on the types of promos we run, the magnitude of the discounts. And so I think we've gotten a little sharper there, which should help us out as we get into peak pool season. Speaker 1300:53:16Okay. Sounds good. Thank you. Operator00:53:19Next question, Andrew Carter with Stifel. Please go ahead. Speaker 1400:53:23Hey, thank you very much. First question I wanted to ask and just to put a fine tune on pricing. First one, just kind of a housekeeping. How much of a headwind is in the comp because it's you don't anniversary it till June 1? And then the second point about your ability to potentially take further pricing, How fast can you see it? Speaker 1400:53:42Last year was a little bit of a waiting game, waiting for people to take pricing. This year, you'd actually be looking for direct action. And then I'd also ask to that question and I'll finish this one off. How much autonomy do kind of local managers have to do their own pricing and move or do they have to follow kind of the national? Thanks. Speaker 500:54:06Yes, Andrew. So couple of questions in there. I'll start and I may need you to remind me on a couple of them. But first of all, on the impact of the price actions, on total sales is 2 60 basis points. And there's only 1,500,000 of non comp in the quarter. Speaker 500:54:25So it's basically a 2 60 basis point per comp headwind as well. I think the second question was on when would we decide to do price actions. We look at our competitive pricing report every week. It's a combination of third party services and regular checking of local competitors by our district managers. We also do web scraping. Speaker 500:54:57So we're going to we will react quickly if we see ourselves getting out of our historical and what is also our current price positioning. And in terms of price actions from individual stores, we have national pricing. We also have and have had for a number of years a price match guarantee. And the price match guarantee, you go into our website, you can see kind of what the guidelines are around it. But our store managers and store associates have the authority to price match if a consumer can show us a competitive price that's lower for a comparable product. Speaker 1400:55:45Thank you for that. 2nd question, just kind of bigger picture. Home Depot obviously made the well, it's signed an agreement to acquire SRS, which owns Heritage, the number 2 pool distributor in the category. Could you give any perspective on whether you kind of see that as a threat, particularly Home Depot's ability for kind of a deeper integration between the 2 to go after DIY or Cash Carry Pro Business as well as just kind of what that can mean putting those together with online? And remind us how much the home centers really kind of compete in the category as it stands today against you specifically? Speaker 500:56:25Yes. Thanks for this question. In our view, we think Home Depot has made it pretty clear that the acquisition of SRS Heritage, it's really about growing their ProBuilder business as opposed to a new focus on pool. They said those businesses will run as separate businesses, current management. Heritage is only about 15% of the SRS business. Speaker 500:56:49So that seems clear to us. And we haven't seen any evidence to suggest that Home Depot would increase aisle space to pool SKUs at the expense of existing SKUs. That's a pretty high opportunity cost. So given those two dynamics, we don't really think it changes competitive landscape for Leslie's. We've competed against the home centers. Speaker 500:57:15They do, Andrew, about 15% or 16% of the pool business, have for a number of years. I think that shares held pretty steady. So current competitors, we definitely keep an eye on them. We don't think this particular acquisition really changes the competitive landscape for us. Thanks. Speaker 500:57:37I'll pass it on. Operator00:57:40Thank you. I would now like to turn the floor over to Mike Ejek for closing remarks. Speaker 500:57:46Thanks, Stacey, and thank you all for joining us this afternoon and for your continued interest in Leslie's. Operator00:57:55This concludes today's teleconference. You may disconnect your lines at this time and thank you for your participation.Read morePowered by Conference Call Audio Live Call not available Earnings Conference CallLeslie's Q2 202400:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsSlide DeckPress Release(8-K)Quarterly report(10-Q) Leslie's Earnings HeadlinesLeslies Inc Ordinary SharesMay 7 at 12:52 AM | morningstar.comLeslie's to Release Fiscal 2025 Second Quarter Financial Results on May 8, 2025April 30, 2025 | globenewswire.comTrump wipes out trillions overnight…Is there anybody more powerful than Donald Trump right now? In a single tariff announcement, he wiped out nearly $5 trillion in wealth from the S&P 500 and $6.4 trillion from the Dow Jones… Not to mention the countless trillions of dollars lost in every market around the world… leaving the major political powers scrambling in fear of Trump’s next move.May 7, 2025 | Porter & Company (Ad)Music Industry Moves: Nashville Vet Leslie Fram Launches FEMco Consulting; Joshua Simons, Dave Lory and Dick Wingate Announce Worldwide Entertainment GroupApril 29, 2025 | msn.comThe Daily Y.A.P.P For Beyond the Gates, April 28th: Leslie's hidden agendaApril 29, 2025 | msn.comLeslie LeeApril 28, 2025 | forbes.comSee More Leslie's Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like Leslie's? Sign up for Earnings360's daily newsletter to receive timely earnings updates on Leslie's and other key companies, straight to your email. Email Address About Leslie'sLeslie's (NASDAQ:LESL) operates as a direct-to-consumer pool and spa care brand in the United States. The company markets and sells pool and spa supplies and related products and services. It also offers various pool and spa maintenance items, such as chemicals, equipment and parts, cleaning and maintenance equipment, safety, recreational, and fitness related products. In addition, the company provides installation and repair services for pool and spa equipment. It also sells its products through e-commerce websites and third-party marketplaces. The company offers complimentary, commercial-grade in-store, water testing, and analysis services. It serves the residential, professional, and commercial consumers. Leslie's, Inc. was founded in 1963 and is based in Phoenix, Arizona.View Leslie's ProfileRead more More Earnings Resources from MarketBeat Earnings Tools Today's Earnings Tomorrow's Earnings Next Week's Earnings Upcoming Earnings Calls Earnings Newsletter Earnings Call Transcripts Earnings Beats & Misses Corporate Guidance Earnings Screener Earnings By Country U.S. Earnings Reports Canadian Earnings Reports U.K. Earnings Reports Latest Articles Archer Stock Eyes Q1 Earnings After UAE UpdatesFord Motor Stock Rises After Earnings, But Momentum May Not Last Broadcom Stock Gets a Lift on Hyperscaler Earnings & CapEx BoostPalantir Stock Drops Despite Stellar Earnings: What's Next?Is Eli Lilly a Buy After Weak Earnings and CVS-Novo Partnership?Is Reddit Stock a Buy, Sell, or Hold After Earnings Release?Warning or Opportunity After Super Micro Computer's Earnings Upcoming Earnings Monster Beverage (5/8/2025)Coinbase Global (5/8/2025)Brookfield (5/8/2025)Anheuser-Busch InBev SA/NV (5/8/2025)ConocoPhillips (5/8/2025)Shopify (5/8/2025)Cheniere Energy (5/8/2025)McKesson (5/8/2025)Enbridge (5/9/2025)Petróleo Brasileiro S.A. - Petrobras (5/12/2025) Get 30 Days of MarketBeat All Access for Free Sign up for MarketBeat All Access to gain access to MarketBeat's full suite of research tools. Start Your 30-Day Trial MarketBeat All Access Features Best-in-Class Portfolio Monitoring Get personalized stock ideas. Compare portfolio to indices. Check stock news, ratings, SEC filings, and more. Stock Ideas and Recommendations See daily stock ideas from top analysts. Receive short-term trading ideas from MarketBeat. Identify trending stocks on social media. Advanced Stock Screeners and Research Tools Use our seven stock screeners to find suitable stocks. Stay informed with MarketBeat's real-time news. Export data to Excel for personal analysis. Sign in to your free account to enjoy these benefits In-depth profiles and analysis for 20,000 public companies. Real-time analyst ratings, insider transactions, earnings data, and more. Our daily ratings and market update email newsletter. Sign in to your free account to enjoy all that MarketBeat has to offer. Sign In Create Account Your Email Address: Email Address Required Your Password: Password Required Log In or Sign in with Facebook Sign in with Google Forgot your password? Your Email Address: Please enter your email address. Please enter a valid email address Choose a Password: Please enter your password. Your password must be at least 8 characters long and contain at least 1 number, 1 letter, and 1 special character. Create My Account (Free) or Sign in with Facebook Sign in with Google By creating a free account, you agree to our terms of service. This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.
There are 15 speakers on the call. Operator00:00:01Good afternoon, and welcome to the Second Quarter of Fiscal 20 24 Conference Call for Leslie's. 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. I will now turn the call over to Matt Skelly, Vice President of Investor Relations. Speaker 100:00:35Thank 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. Speaker 100:01:10A 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 Lesley's website atir.lesleyspool.com. We have also posted our Q2 2024 earnings presentation to our IR website and we'll be making references to it in our prepared remarks. On the call today is Mike Ezeck, Chief Executive Officer and Scott Bowman, Chief Financial Officer. With that, I will turn the call over to Mike. Thanks, Matt, and thank you all for joining us this afternoon. Speaker 200:01:49Our bottom line financial performance in the Q2 was largely in line with our expectations. Top line sales were impacted by cool and wet weather in our seasonal and non seasonal markets, as well as a pool and spa consumer that continues to normalize their post pandemic spending patterns. I am pleased with the team's performance in the quarter as we executed well against the factors within our control. We saw improved conversion from healthy in stock levels and competitive price positioning across our channels and we delivered on our inventory goals while providing superior customer service and disciplined expense management. Since it's been nearly 6 months since we provided our planning assumptions for the year, I want to remind everyone how we are thinking about our annual guidance. Speaker 200:02:35At the midpoint, we plan the following for the year: discretionary product sales down 10% equipment sales down 10% nondiscretionary product sales up 1.5% AOV down 4% driven by mix and the cycling of our June 2023 chemical price adjustments and transactions up 3% driven by normal weather. You will hear from us today that the majority of these factors are performing in line with expectations with the exception of weather and the associated impact on traffic and transactions. During the quarter, the weather was much cooler across key non seasonal markets including Texas, Southern California, Arizona and Florida. This resulted in significantly fewer consecutive days above the critical seventy degree threshold versus the same period in the prior year and or the 10 year averages for these markets. Weather was also a factor in our seasonal markets with pool openings down 19% year over year driven by a cool and wet spring. Speaker 200:03:42Turning to our financial results for the quarter. Total second quarter sales were $189,000,000 down 11% year over year. This includes an approximately 4.40 basis point impact from our June 2023 chemical price actions and the Q2 calendar shift that Scott will detail later in the call. Residential pool was down 12%, Pro Pool was down 9% and Residential hot tub was down 14%. Comp sales were down 12%. Speaker 200:04:14Given the weather I just discussed, traffic was down 10% in the quarter. Total transactions were down 6% year over year. Our focus on customer service, product availability, competitive pricing, compelling assortments and value messaging drove increases in customer conversion that offset a significant portion of the traffic declines. Average order value was down 5% year over year. Average order value continues to be affected by sales of high ticket discretionary products, including hot tubs, above ground pools and heaters, as well as our June 2023 chemical price changes. Speaker 200:04:54Non discretionary product sales were down 11% versus a year ago. Total chemical sales decreased 11%, inclusive of a negative 5.75 basis point impact from our June 2023 price adjustments. However, volume of Cal Hypo and Trichlor was down only 1% and we were encouraged by the sequential improvement in key chemical volumes each month during the quarter. Sales of equipment were down 10%, an improvement of 800 basis points from Q1 and consistent with our expectations at the midpoint of our full year guide. Discretionary product sales were down 13%, an improvement of 600 basis points from Q1 and contributed about 24% of the quarter's total sales decline. Speaker 200:05:41Of note, rain and or snow across many of our seasonal markets prevented installation crews from delivering and installing hot tubs and swim spas. Cancellation rates remain very low and our order book at the end of the quarter is supportive of the midpoint of our full year guide. As you can see on Page 11 of our earnings presentation, our regular analysis of select credit card data indicates that our sales underperformed the industry by approximately 850 basis points in the quarter, of which approximately 380 basis points is attributable to our June 2023 chemical price changes and the calendar shift. However, our vendor discussions, district and store manager discussions, customer exit interviews and data from SimilarWeb for our digital businesses, all indicate our Q2 performance is broadly in line with the industry ex the chemical price change. Looking across a longer time horizon, the credit card data indicates that specialty pool sales were down in 8 of the last 10 quarters. Speaker 200:06:47Over those 10 quarters, we have grown sales faster than the industry by an average of approximately 3 80 basis points. With respect to profitability, gross margin decreased 4.64 basis points, driven primarily by the impact of the price reductions we implemented in June 2023 and occupancy deleverage. Gross margin was largely in line with our expectations with the exception of the incremental occupancy deleverage associated with lower than expected sales. Adjusted EBITDA for the quarter was negative $19,000,000 and adjusted diluted earnings per share was negative $0.17 As a reminder, our fiscal 2nd quarter, like our 1st fiscal quarter, is historically a relatively small sales quarter during which we make investments and incur costs to position the company for the peak pool season in our fiscal second half. As such, we expect no profit contribution in these quarters and our performance this year was consistent with these expectations. Speaker 200:07:55With regard to the industry backdrop, certain categories and channels have seen some instances of deflation year to date, but overall industry retail pricing is largely stable and we remain competitively priced across our omni channel platform. Industry promotional activity continues to be consistent with historic seasonality and we are using advanced analytics to be more surgical on when and where to promote most effectively. Supply chains are operating normally and inventory levels are seasonally appropriate. The slow start to this year's pool season notwithstanding, we believe that the long term pool industry fundamentals and secular tailwinds that drive industry demand remain intact. And we expect both of these factors to continue to underpin our long term growth opportunity. Speaker 200:08:44Leslie's remains the leading direct to consumer pool and spa retailer with unmatched scale, capabilities and brand awareness. As we have positioned ourselves to win during pool season, we also remain focused on executing our strategic growth initiatives, which we expect to drive long term sustainable top line growth and profitability, share gains and operational efficiency. Turning to those initiatives. First, our customer profile improved from down 8% in fiscal Q1 to down 3% in fiscal Q2. We believe that our customer file continues to normalize from the pandemic spike and we expect to return to growth in the second half of the year. Speaker 200:09:282nd, average revenue per customer was down 8% in the quarter, driven primarily by decreases in big ticket items such as hot tubs, swim spas, above ground pools and automatic pool cleaners. Average revenue per customer for our loyalty customers outperformed at down 4% in the quarter. 3rd, with regard to our PRO initiative, we ended the quarter with 4,088 PRO contracts in place and 102 PRO locations. This compares to 3,300 Pro contracts and 98 Pro locations at the end of the Q2 of last year. Pro sales were down 9% for the quarter. Speaker 200:10:09Pro Partner sales were down 7%, offset by non partner Pro sales, which declined 26%, highlighting the importance and effectiveness of our partner program. 4th, M and A and new store growth continue to be important initiatives for Leslie's, and we are confident in our long term store expansion opportunities. For fiscal 2024, we remain on track to open 15 new stores. Finally, our AccuBlue Home Smart Tech Water Testing Device and Membership Program continues to gain momentum and is resonating strongly with customers. Our manufacturing partner is delivering product on time and we are on track to meet our inventory targets for pool season. Speaker 200:10:53Our members continue to give us feedback that our proprietary software is a game changer and continue to respond with very positive online reviews. As you will recall, our AcuBlue home membership consists of a free device and a $50 per month membership subscription, which is offset by $50 per month of purchase credits that can be used online or in store. Our members have been spending at a rate of more than $1,000 per year. We remain focused on executing our strategic initiatives to capture the long term opportunities and extend our industry leadership. In addition, we continue actions to improve the trajectory of the balance of the year. Speaker 200:11:38Number 1, we are using our analytical tools and insights to drive efficiency in pricing and promotions with a focus on growing gross margin dollars. Number 2, we achieved our goal of reducing our peak inventory by more than $100,000,000 and remain on track to reduce year end inventory by more than $50,000,000 while maintaining strong in stock levels and service metrics and high NPS scores. We will keep a laser focus on SG and A efficiency. Scott will address this later in the call, but SG and A in the 2nd quarter was down 12% versus the same period a year ago. Number 4, we continue investing in our people, fostering and promoting top talent within the organization, while adding outside talent with deep experience and fresh eyes to continuously improve how we operate. Speaker 200:12:295, we are leveraging our omni channel platform to connect with consumers more frequently, including through surveys, exit interviews, research and other feedback to give us a detailed view into the specialty pool and spa consumer. And 6th, we continue to invest in marketing to drive long term brand awareness, customer file growth, Pool Perks members and sales. I will now hand it over to Scott to discuss our results and outlook in more detail. Scott? Speaker 300:13:02Good afternoon, everyone, and thank you, Mike. Our results for the quarter were largely in line with our expectations, while unfavorable weather contributed to lower traffic in the late start to the pool season in our main markets. For the 2nd quarter, we reported total sales of $189,000,000 a decrease of 11% compared to the Q2 of fiscal 2023. The Q2 of this year ended on March 30 versus April 1 last year. Due to this calendar shift, we lost 2 early spring higher volume selling days and gained 2 lower volume winter selling days. Speaker 300:13:37The negative impact of this shift was approximately 4,000,000 dollars or 180 basis points in the quarter. Comparable sales decreased 12%, driven primarily by transaction count and spending on larger ticket items. Comparable sales decreased 26% on a 2 year stack basis. Non comparable sales contributed $1,500,000 in the quarter, driven by acquisitions and new store growth. With respect to trends by consumer group, comparable sales for residential pool declined 12%, pro pool declined 9% and residential hot tub declined 14% compared to the prior year period. Speaker 300:14:16Sales declines are driven by unfavorable weather, softer sales and discretionary items in the June 2023 price actions. In these shoulder seasons, weather and the timing of pool openings can cause significant sales variances due to the smaller sales base. Gross profit was $54,000,000 compared to $71,000,000 in the Q2 of fiscal 2023 and gross margin rate declined 4 64 basis points to 28.8 percent, which was slightly below expectations mainly due to incremental occupancy deleverage from lower than expected sales. We continue to expect meaningful back half margin expansion versus the first half of the fiscal year, most notably in the Q4 as we cycle the June 2023 chemical price decreases and higher inventory adjustments and distribution costs that pressured second half twenty twenty three profitability. Page 9 of our earnings presentation illustrates our Q2 gross margin rate bridge in more detail. Speaker 300:15:17During the quarter, gross margin was affected mainly by lower selling prices and deleverage in occupancy costs due to lower sales. SG and A was $85,000,000 a reduction of 12% or $11,500,000 compared to the Q2 of fiscal 2023. The reduction was primarily due to declines in merchant fees, lower payroll and executive transition costs and lower store expenses. Adjusted EBITDA was negative $19,000,000 compared to negative $8,000,000 in the Q2 of fiscal 2023 and adjusted net loss was $32,000,000 compared to a loss of $26,000,000 in the Q2 of fiscal 2023. Interest expense increased to $18,000,000 during the quarter from $17,000,000 in the same period last year due primarily to higher interest rates and our effective tax rate increased to 29% compared to 25.7% in the Q2 of fiscal 2023. Speaker 300:16:16Adjusted diluted earnings per share was negative $0.17 compared to negative $0.14 in the Q2 of fiscal 2023. Diluted weighted average shares outstanding were 185,000,000 Moving to the balance sheet. We ended the quarter with $786,000,000 outstanding on our secured term loan facility and $97,000,000 on our revolving credit facility. This compares to $794,000,000 $172,000,000 respectively in the prior year quarter. Our debt levels were lower by $83,000,000 versus a year ago and our leverage ratio was 6.0 times. Speaker 300:16:55Availability on the revolver was $142,000,000 at the end of the quarter. As a reminder, this is our peak debt quarter before we generate all of our profitability and free cash flow in the seasonally important second half of our fiscal year. The applicable rate on our term loan was SOFR plus 2 75 basis points in the 2nd quarter and our effective interest rate was 8.2% compared to 7.3% in the prior year quarter. Our total cost of debt for the quarter was 8.1% compared to 7.2% in the Q2 of last year. Additionally, last month we successfully extended the maturity date of our revolving credit facility to April of 2029. Speaker 300:17:37Cash and cash equivalents were $8,000,000 at the end of the quarter compared to $9,000,000 for the same period last year. Inventory ended the quarter at $379,000,000 a decrease of $113,000,000 or 23% compared to the prior year quarter, while our in stock position, service metrics and net promoter scores remain very strong. Our stores are well stocked with the full assortment for the pool owner and pro as we gear up for the peak pool season. And now turning to our fiscal 2024 outlook. After a Q1 that was consistent with expectations, our Q2 was below our top line expectations, mainly due to unfavorable weather that resulted in a slower start to the pool season. Speaker 300:18:20We are now 5 weeks into our Q3. During the 1st 3 weeks, weather continued to be a challenge. However, over the last 2 weeks, we've seen improved trends with improved weather. Ultimately, our biggest volume weeks lie ahead and with our consistent seasonable weather, we believe we are on track to deliver a year within our outlook ranges. Moving to capital allocation, our first priority continues to be the pay down of debt with the goal of achieving a leverage ratio of 3.5 to 3.7 times in fiscal 2024 and a longer term goal of reaching a leverage ratio of 3 times or less. Speaker 300:18:58Regarding our footprint, we are planning 15 new store openings in fiscal 2024 with the majority of these stores expected to open prior to Memorial Day ahead of the peak pool season. We also plan to convert 6 residential stores to our pro format this year. At this time, we are not including any sales or EBITDA contribution from M and A activity in our full year guidance. And with that, I'll hand it back over to Mike for closing remarks. Speaker 200:19:26Thank you, Scott. To conclude, results this quarter continued the recent trend of softer sales for Leslie's and the industry from persistent unfavorable weather and normalizing cool and spa consumer behavior from a period of significant growth. In light of that, we continue to aggressively manage SG and A and inventory, while focusing on customer service. We believe we are set up to win in pool season. Our employees are excited and engaged. Speaker 200:19:54Our stores and DCs are well stocked and ready to go. Our omni channel presence has us positioned to service residential and pro customers in the way that they choose and our pro partner and Poolparks loyalty program are leaders in the industry. We have an unmatched set of capabilities to serve our customers and with Accu Blue Home, a clean, safe and beautiful pool has never been easier to achieve. With the majority of our sales and all of our profitability still to be achieved in the back half of the year, we are focused on superior execution and we remain confident in our long term prospects for growth and profitability. With that, I will hand it back to the operator for Q and A. Operator00:20:37Thank you. We will now be conducting a question and answer First question comes from Justin Kleber with Baird. Please go ahead. Speaker 400:21:10Yes, good afternoon, everyone. Thanks for taking the questions. Just a follow-up on near term trends. I mean, can you give us a sense just how you're tracking 5 weeks into the quarter relative to the comp that you put up within fiscal 2Q? That's just my first question. Speaker 500:21:30Yes. Justin, I think the best way to characterize the last couple of weeks of the quarter is a material improvement in the trend. Speaker 400:21:43Okay, okay, got it. And that's just as weather has Speaker 500:21:48exactly. We finally are seeing some consistently warm weather in our major markets and that's making a material difference. Speaker 400:21:57Got it. Good to hear. Secondly, maybe on the SG and A front, Scott, you were previously talking about slight decline in dollars year on year. It seems like you're tracking well ahead of that target, at least through the fiscal first half. So just wondering if your guidance implicitly is applying a lower SG and A dollar figure maybe relative to when you gave the initial outlook? Speaker 600:22:21Yes, Justin. I think the whole team is doing a really good job. And I would say that we're probably ahead of kind of the progress that we thought we'd be making at this point in time. As the back half goes on, we'll see if if anything changes. I don't expect major changes in the back half, but what I do see is that we've improved a bit faster than I thought. Speaker 600:22:47And that's on many different fronts. So naturally merchant fees and things like that come down with sales. But just really good control on labor, but still having a high level of service. And a lot of that is store labor. And what we're doing is we're just taking advantage of the shelter season, where traffic is very low. Speaker 600:23:08And so we just adjusted our hours according to kind of the customer traffic. Now as we get into busy season, we'll be more fully staffed, okay. And so you may not see as big of a decline there because we fully intend to be fully staffed. But just other store expenses, everybody in the stores incorporate and just watching expenses and controlling those very well. And then we just have less add backs, executive transition costs and strategic projects, things like that, that we had last year, some of those are more favorable this year as well. Speaker 500:23:46All right. That's good to hear. And if I could Speaker 400:23:48just sneak one more in, just as we enter the pool season, do you guys have a sense as to, I guess, the magnitude of chemical carryover that still needs to be worked through? Or is that not really part of the story this year as we enter pool season? Thank you so much. Speaker 500:24:06Yes, Justin, good question. We put out another pool owner survey in February, so pretty recent information. And based off the results from that survey, we don't think there's any, challenges around consumer stockpiling this season. Operator00:24:28Next question, Jonathan Zlotsky with Jefferies. Please go ahead. Speaker 700:24:33Great. Good afternoon and thanks for taking my questions. The first one was on equipment. I wanted to kind dig in on that category a little bit. So down 10% this quarter, but can you provide any color on some of the moving pieces there? Speaker 700:24:48I think historically or at least last quarter, heaters and automatic pool cleaners were underperforming. I think variable speed pumps were midpoint you shared for the year could be realized? Thanks. Speaker 500:25:13Yes. Thanks for the question, Jonathan. Look, first thing I'll do is point out Speaker 700:25:17like I Speaker 500:25:17did in the prepared remarks, we're really pleased to see the 800 basis improvement from down 18 to down 10. And we saw improvement across most all the categories. I would say, heaters has actually improved materially and we think that's a really good sign and more in line with what I would call pre pandemic seasonality, right? As the pool season starts to approach, people start thinking about heating their pools. They turn on their pool, heat it for the first time, that doesn't work. Speaker 500:25:49They either replace it or fix it. So we consider that a good sign. APCs are still a little challenged, though robotics have been performing better and salt systems are a little challenge for us. So a little bit of change in the mix. Heater is a little better, robotics a little better, variable speed to pumps continue to be a nice stable business. Speaker 700:26:17That's helpful. And then my second question is on pricing. I think heading into this year, the plan was for chemical pricing to be down low single digits year over year. Equipment pricing, I think was planned to be in maybe that 3% to 5% range that some of the vendors were talking about. Recognizing the 1st 6 months are light in terms of contribution for the year. Speaker 700:26:42Are the midpoint of those ranges still relevant? And as we're tracking pricing going into pool season, is there anything we should be aware of in terms of the pricing strategy and any volatility or are the prices we're seeing from a consumer perspective generally where we would expect the pull season to play out? Thanks so much. Speaker 500:27:05Yes, Jonathan. I think the I mean, we're pleased to see retail, particularly specialty retail pricing for chemicals to be quite stable. And I'm going to say stable from when we made our price action adjustments in June of 2023. Since that time, it's been quite stable. And even with a slow start to the season and what I'm going to call very unfavorable weather, we haven't seen people breaking price in the residential market. Speaker 500:27:35I will say there's been a little bit more pressure on the pro side of the business, but we're still within that low single digit range for chemicals overall. So we think we're well within our guide on chemical pricing to be at our midpoint. And similar with equipment, I think you quoted 3 to 5, I think we quoted maybe 2 to 5, but yes, midpoint of that is well within range. The softness we're seeing in chemicals and equipment is really based on volume. And right now, we're tying that volume very much to traffic and we're trying to tie in traffic very much to weather. Speaker 500:28:18We just in the Q2 hadn't really seen hadn't seen the season kick off. And I tell you, it's gratifying to see the last couple of weeks with some consistent warm weather start to move like we would expect it to. Speaker 700:28:35Very helpful. Best of luck. Speaker 500:28:38Thank you. Operator00:28:39Next question, Sean Kallman with Bank of America. Please go ahead. Speaker 500:28:45Hi, guys. Thank you for taking my question. Just first following up on the chemical pricing. So last quarter you were able to offset the pressure in gross margin and then this quarter was a headwind of about 130 basis points. So are you seeing higher promotional activity? Speaker 500:29:02Is this what you're just talking about on the pro side, kind of what's driving the downside year over year in Speaker 800:29:08the Q2 versus the Q1? Speaker 600:29:13Yes, I'll take that one. Basically what we're seeing is we did have some chemical price impact in the Q1. And the difference was as we were able to offset that with pricing actions in other categories. Okay. And so for Q2, we didn't have those additional price actions that we were able to offset. Speaker 600:29:37I think the other thing to think about is that our mix has changed as well. And so with equipment getting better and chemicals off a little bit more than Q1, there's a mix effect there that's a bit unfavorable. Speaker 500:29:55Okay, got it. And then the second one just on the order book comments you made last quarter. I believe you guys said that orders were flat year over year on hot tubs and then the hot tub sales came down 14% year over year. Can you just talk about how the orders flow through over time? Yes, Sean. Speaker 500:30:17It's a the average price of the hot tubs we sell is about $10,000 and they are predominantly custom ordered. So customer places an order, the tub is built and then it is scheduled for delivery. And the challenge we ran into in Q2 and in Q1 as well is particularly wet weather in our hot tub markets was just keeping people from keeping us from being able to pour pads, install the hot tub, hook up electricity. We had people pushing out their appointments for reasons, rain and even snow. So what we consider good news is very low cancellation rates, People still want their tubs. Speaker 500:31:08And now that we've seen the weather break and particularly like we own Valley Pool and Spa in the Pittsburgh area And we were in Pittsburgh last month, a group of executives and it was hailstorms, tornado warning, 52 degrees, rain, and I was pretty clear why we weren't delivering tubs. Now that we've seen the weather break there and we've been in the the rather consistently in the 70s or low 80s, we're starting to see that order book come to fruition with deliveries. So we consider that a positive sign. And I would say that our order book is very supportive of the discretionary business being down no more than 10%. Okay, got it. Speaker 500:32:00So would you say that there's potential for hot tub sales to be up year over year in the second half? Yes, I don't look, we have a very good trend. We have a order book that is in better shape than our mid year guidance, but there's still a lot of volume to be done. So it's too early to speak to upside. Okay. Speaker 500:32:28Thank you. Yes. Operator00:32:31Next question, Haight McShane with Goldman Sachs. Please go ahead. Speaker 900:32:35Hi, good afternoon. Thanks for taking our question. We wanted to ask about market share. It still seems that you're underperforming the industry based on what you put in the slides for today and it might be widening. Can you speak to that at all in terms of what happened during the Q2? Speaker 500:32:57Yes, Kate, thanks for the question. We said in the Q1, we were surprised by what the credit card information was saying. I'm going to say we're a little bit surprised this time as well. And look, we think that's good and it's important data and we certainly pay attention to it. Last time on the last call, we had talked about some of the changes in our assortment and value messaging that we had done in the stores to try to drive greater conversion. Speaker 500:33:28And we're really pleased this quarter to see that conversion increase materially. But the traffic was really the challenge this quarter and traffic we really connect to weather and it's surprising to us that our performance would be under that of the industry given the weather impact. And then the second thing is, I said in the prepared remarks, we've talked to our vendors regularly. We talked to our store managers. We talked to our district managers. Speaker 500:34:03This last quarter, we did comprehensive exit interviews for non purchasers to see if we were missing something. And all of that data in addition to similar web data, which tracks our proprietary online businesses, that data actually showed that our market share increased 200 basis points online in the quarter. So it seems to be a disconnect between the 2. We're taking it seriously. And if we have given back some share, we'll be focused on winning it back in pool season proper. Operator00:34:44Okay. Thank you. Next question, David Bellinger with Mizuho Securities. Please go ahead. Speaker 1000:34:52Hey guys, thanks for the question. Another one on this material improvement in trend over the last couple of weeks. So has that been broad based across geographies? And just recognizing this is an incredibly short period of time, just 2 weeks, if that trend were to continue through the balance of the quarter, could you potentially see a positive overall comp within the Q3 period? Speaker 500:35:16Yes. Look, we're not going to give Q3 guidance like that. I will say this, it was mostly broad based in its recovery. One of the things we find positive is we've got material improvement despite, what is it, 50,000,000 people in the U. S. Speaker 500:35:36Being under severe weather alerts right now and the flooding in Houston. And Houston is our single largest metro market. So despite those two very adverse weather conditions, we saw really nice improvement and we saw the business respond as we would expect it to with appropriate weather. And that's as much as we're going to say about that. Speaker 1000:36:04Fair enough. And this is my second one on the inventory being down more than 20% year over year. Maybe just help us unpack that a little. Could you talk about units versus price? And are there certain categories that are down more than others in terms of units? Speaker 600:36:24Yes, I can take one. I can take that one. There is always a bit of a mix effect, but units are actually down a little bit more than dollars. And I think it's the effort that the planning team has put forth using our BlueLinx tool to really start off on the right foot on the front end with a much better plan and executing that plan very well. And also from our suppliers as well, I mean the lead times are fairly short on most of our items And so that helps as well. Speaker 600:37:04And so as you kind of look across the categories, I mean, they're showing some fairly large decreases in some of our chemical categories and equipment, cleaning and maintenance categories. And so which if you look at the turns profile, there was definitely room to do that. And so, we continue to find more efficiencies, but also we're really concerned also with in stocks and service level. And fortunately for us, we've executed to the point where the service levels and in stocks are much better than they were last year. So we're really pleased with the performance overall. Speaker 1000:37:47Very good. Thank you both. Speaker 600:37:49Sure. Operator00:37:50Next question from Steve Stifor with Scotiabank with Keyur. Speaker 1100:37:55Good afternoon, Mike, Scott. Speaker 500:37:58Hey, good afternoon. Speaker 1100:37:59I was curious maybe if you could we could take a step back and maybe just talk about the customer file, if there's any green shoots that you're seeing, whether it's your most loyal customers. I think you mentioned loyalty members trends, right, better than the file as a whole. But like what are you seeing within the file that gives you confidence to reiterate the guide for the back half today? Like are there any green shoots? And can you help us better understand what you're referencing in terms of file growth expectations for the back half and what you're sort of implying in terms of improvement in spending trends within the file as well? Speaker 500:38:42Yes. A few questions in there. I think what we're well, not I think, what's going on with the file is we added a lot of, I'm going to call them 1 and done customers during the height of the pandemic, 2021 particularly also into 2022. And we identified this cohort of customers and came in and basically bought tabs and that was it. And we threw a lot of retention and reactivation tactics at those customers, but not nearly the results we would typically see. Speaker 500:39:21And the file degradation that we've seen kind of since midpoint of 2022 is just those customers kind of working their way out of the file. And with the file down 3% quarter over quarter at the end of Q2, we feel we're basically through with that cleansing, if you will, of 1 and done customers, which outside of that, the reason the green chute that we see is outside of those customers peeling off, adjusted. Then yes, we're seeing the file stabilize and starting to show some growth. And we're not going to go into what kind of growth we expect in the second half, but we expect the business to be positive in the second half and we expect positive customer file to support that. Speaker 1100:40:17Thanks, Mike. And maybe just a follow-up on I think Sean's comment or question from before on sort of the chemical pricing, right, net of the offsets that occurred in the Q1 because it does seem like there was a more challenging second quarter dynamic here. Any help on framing like what you sort of expect the product margin to be in the back half, right? I think in the reiterated gross margin guidance, is it are we still looking at stability to expansion in product margin? Or is there something within the bridge that's changing? Speaker 500:40:50Yes, Scott, you want to take that? Speaker 600:40:51Yes, yes, I can take that one. I think there's potential for gross margin expansion in the back half. And the main reason for that is when the June pricing actions, once we overlap that in June, then that basically eliminates the biggest headwind that we have on our project margins. And so I think that will be a big benefit for us. And also, rebate should help us more in the back half. Speaker 600:41:26We are kind of getting past some timing differences that we had in the first half. But the back half, specifically the 4th quarter should give us better margin lift from rebates and recargent. Speaker 500:41:41Thank you. Stephen, I'll add one point to that. On the earnings deck on Page 9, we've got the gross margin bridge. But we'll give a little color on it. There's 91 basis points in there of other product rate. Speaker 500:41:58More than half of that is some promotional dollars that we invested in the quarter trying to drive increased traffic, right? We just didn't sit here and let the weak traffic numbers impact the business without trying some different tactics. But I think what we discovered there is very clearly you can't promote your way through tough weather. You can't promote your way through a pool that's not open yet. So we learned a lot. Speaker 500:42:29We're going to implement those learnings in the second half, but that's more than half of what you see there on the other product rate line. Speaker 800:42:40Helpful. Thank you. Operator00:42:43Next question, Ryan Merkel with William Blair. Please go ahead. Speaker 800:42:48Hey, everyone. Thanks. Hey, Mike, I wanted to ask on the non discretionary sales down 11% in the quarter. Is that all weather and chemical price deflation? I just asked because the consumer, there's some weakness there. Speaker 800:43:01Is that showing up at all? Speaker 500:43:05Yes, I don't we don't think it's consumer weakness per se, Ryan. The look, chemicals volume overall in chemicals was down 4%. Trichlor and calypo were down 1. We had some softness in other chemicals. So pricing was down 7. Speaker 500:43:23And of that down 7, 5.75 basis points of that, most of it is tied to the June 23 price actions. The balance I would characterize as a combination of mix and a little bit more price pressure on the pro side in chemicals. Speaker 800:43:45Got it. Okay, that's helpful. Speaker 500:43:47Yes. We're not a weak consumer per se, we're not seeing a consumer. With the weather we saw, it was really a pattern of footsteps through the doors and eyeballs on the sites. Speaker 800:44:02Got it. Okay. Yes, that makes sense. And then I had a question on gross margin too. You sort of answered it with the last one. Speaker 800:44:08But should we be expecting gross margins to be higher in the Q4 than in the Q3? That's what I had in my notes. Just wanted to clarify that. Speaker 500:44:18Yes, Scott, you want to take that? Speaker 600:44:19Yes, I have that one. So yes, it's a good question. And the answer is yes. And the main reason for that is we'll have kind of a full quarter's worth of being beyond the June pricing actions. That will help, rebates will help a little bit as well as those normalize. Speaker 600:44:38But also of note is the inventory adjustments in DC costs that were really heavy last year because of all the outside warehouses and all the movement of goods, we should show significant favorability against those two lines as well. Speaker 800:44:54Got it. Thanks for that. That's a lot. Speaker 200:44:57Thanks, Ryan. Operator00:44:58Next question from Simeon Gutman with Morgan Stanley. Please go ahead. Speaker 1200:45:03Hi, guys. Mike, I wanted to ask about pent up demand and the history of this business when we have tough weather in the beginning, other parts of the season we don't catch up. And this goes back to that order book that you mentioned, because I would think you'd be well ahead of where you should be tracking now given pent up demand. And all the companies in our space that had weather impacts are recovering normally. So I think it's very valid, but you do sell a higher priced item or a lot of higher priced items, maintenance and repair and even some of the discretionary. Speaker 1200:45:38So how do you think about that pent up demand? How do you think about in the context of where the consumer is? And then I'm trying to get at, is there any way this is a head fake in your industry? How are you contemplating that? Just trying to look at both sides. Speaker 500:45:51Yes. In terms of pent up demand for hot tubs specifically, where we've got a forward order book, yes, I would say definitively we have pent up demand there and we feel good about the direction of that part of the business. In terms of equipment and well, let me answer it this way, because the difference between seasonal and non seasonal markets. In the seasonal markets, I mentioned that pool openings were down 19%. Now pool openings themselves generate volume, but what they really are is an indicator of the start to the season. Speaker 500:46:35And by our estimation, we're several weeks behind the start of the season. Now historically, and as we've looked at weather this year, I think we're closer maybe to the 2018. And originally we had thought we were closer to 2022. But as we look at weather, yes, when the pools open in the Northeast, Long Island in particular, it's a really significant ramp. However, you potentially have fewer pool days. Speaker 500:47:09It's all going to depend now on how the pool season ends in the shoulder season. If it ends on its normal cadence and we started late, yes, we'll lose some days in the seasonal markets just from the pools not being open. In the non seasonal markets, I think it is more about pent up demand. People want to use their pools when the weather is correct and they'll tend to use the pool more when the weather encourages them to do so. Speaker 1200:47:41Okay. And then can I ask a follow-up back on the share, which Speaker 400:47:45I have Speaker 1200:47:45market share and I know you provide a lot of data here, which is not a lot of information? So you're going to get a lot of questions. Speaker 500:47:52When you lowered Speaker 1200:47:54price, the chemical prices a year ago, remind us it was the industry had lowered it before you, meaning why shouldn't that lowered price leading to more share gain at this point? And are you seeing that share gain come back in chemicals? Speaker 500:48:11Yes, it's a good question. There was 2 things that spurred us on the chemical price adjustments in June. One was we had gotten outside of our historical price positioning, which is above mass and at or below specialty. We had gotten ourselves up and over specialty. The second thing and just we were starting to get feedback that we weren't representing a good value and it was showing up in our NPS scores. Speaker 500:48:43So just our prices down to where we thought they should be, we in the Q3 of last year and in the Q4 of last year, we feel we did pull back some share versus leaving the prices where they're at. And the last two quarters, like we said, we're surprised by the credit card data, but we take it seriously and we're working to make sure we make the most of the traffic that we're getting. I don't know what to make of the credit card data actually. It's a little concerning for sure. More importantly to us, it's not really aligning with all of our other channel checks. Speaker 500:49:33So not something we're ignoring, but it doesn't change how we operate. We think we're very competitively priced right now. And this idea of value and our consumers seeing the value not only in our product, but our capabilities like the Accu Blue water testing in the stores, we think all that's showing up through what was a really nice conversion lift. That's one of the things we feel most positive about the business. When the traffic is there, we're converting at higher levels than we had in the past. Speaker 500:50:06And that's a good sign for the pool season. Speaker 1200:50:11Thank you. Good luck. Speaker 500:50:12Thanks. Operator00:50:15Next question, Garik Shmois with Loop Capital Markets. Please go ahead. Speaker 1300:50:20Hi, thanks. Just a follow-up on that point. Just go on to see if you could provide a little bit more context on how traffic was in the quarter and non weather hit markets and if there was anything to read into trends in places where weather hasn't been an issue. Speaker 500:50:38Yes, I mean, that's one of the challenges with this quarter. Typically, we have some regions where we've got normal weather that we can point to as a control group, if you would. And we just we didn't have that. We didn't have that anywhere. The seasonal markets, as I talked about and is evidenced by the pool openings, just very combination of cooler and wet. Speaker 500:51:02And when the weather got a little warmer, it was still very wet. And the number of consecutive days over 70 degrees, which we found is highly correlated with traffic in our business. In our major markets, Texas, Florida, Arizona, that was down anywhere from 18% to 64%. And in California, which was our best performing market, there was 0 consecutive days over 70. But there was also 69% more rainy days than a 10 year average. Speaker 500:51:40So we actually couldn't point to any of our major markets and say we had based on data a normal quarter. Speaker 1300:51:52Okay. No, that's helpful. Just my follow-up questions on gross margins, just to put a bit of a finer point on the guide. I think coming into the year, you're expecting about 100 basis points in gross margin improvement this year. Correct me if I'm wrong on that. Speaker 1300:52:09And if that was the case, do you think that's still reasonable given we're heading into the peak season now? Do you think there's enough opportunities in front of you to reach that prior guidance? Speaker 600:52:23I think there is, just because as we gain volume, you get a direct impact on leverage with occupancy and our margin miss for this past quarter was, that was the biggest contributor, was just the deleverage on occupancy. So as we add volume, as we get past the chemical price actions, and with some of the promos that we've run, we have learned some things of what's working really well and some things that are not working so well. So I think we'll be a little bit more efficient on the use of promos and discounting, both on the types of promos we run, the magnitude of the discounts. And so I think we've gotten a little sharper there, which should help us out as we get into peak pool season. Speaker 1300:53:16Okay. Sounds good. Thank you. Operator00:53:19Next question, Andrew Carter with Stifel. Please go ahead. Speaker 1400:53:23Hey, thank you very much. First question I wanted to ask and just to put a fine tune on pricing. First one, just kind of a housekeeping. How much of a headwind is in the comp because it's you don't anniversary it till June 1? And then the second point about your ability to potentially take further pricing, How fast can you see it? Speaker 1400:53:42Last year was a little bit of a waiting game, waiting for people to take pricing. This year, you'd actually be looking for direct action. And then I'd also ask to that question and I'll finish this one off. How much autonomy do kind of local managers have to do their own pricing and move or do they have to follow kind of the national? Thanks. Speaker 500:54:06Yes, Andrew. So couple of questions in there. I'll start and I may need you to remind me on a couple of them. But first of all, on the impact of the price actions, on total sales is 2 60 basis points. And there's only 1,500,000 of non comp in the quarter. Speaker 500:54:25So it's basically a 2 60 basis point per comp headwind as well. I think the second question was on when would we decide to do price actions. We look at our competitive pricing report every week. It's a combination of third party services and regular checking of local competitors by our district managers. We also do web scraping. Speaker 500:54:57So we're going to we will react quickly if we see ourselves getting out of our historical and what is also our current price positioning. And in terms of price actions from individual stores, we have national pricing. We also have and have had for a number of years a price match guarantee. And the price match guarantee, you go into our website, you can see kind of what the guidelines are around it. But our store managers and store associates have the authority to price match if a consumer can show us a competitive price that's lower for a comparable product. Speaker 1400:55:45Thank you for that. 2nd question, just kind of bigger picture. Home Depot obviously made the well, it's signed an agreement to acquire SRS, which owns Heritage, the number 2 pool distributor in the category. Could you give any perspective on whether you kind of see that as a threat, particularly Home Depot's ability for kind of a deeper integration between the 2 to go after DIY or Cash Carry Pro Business as well as just kind of what that can mean putting those together with online? And remind us how much the home centers really kind of compete in the category as it stands today against you specifically? Speaker 500:56:25Yes. Thanks for this question. In our view, we think Home Depot has made it pretty clear that the acquisition of SRS Heritage, it's really about growing their ProBuilder business as opposed to a new focus on pool. They said those businesses will run as separate businesses, current management. Heritage is only about 15% of the SRS business. Speaker 500:56:49So that seems clear to us. And we haven't seen any evidence to suggest that Home Depot would increase aisle space to pool SKUs at the expense of existing SKUs. That's a pretty high opportunity cost. So given those two dynamics, we don't really think it changes competitive landscape for Leslie's. We've competed against the home centers. Speaker 500:57:15They do, Andrew, about 15% or 16% of the pool business, have for a number of years. I think that shares held pretty steady. So current competitors, we definitely keep an eye on them. We don't think this particular acquisition really changes the competitive landscape for us. Thanks. Speaker 500:57:37I'll pass it on. Operator00:57:40Thank you. I would now like to turn the floor over to Mike Ejek for closing remarks. Speaker 500:57:46Thanks, Stacey, and thank you all for joining us this afternoon and for your continued interest in Leslie's. Operator00:57:55This concludes today's teleconference. You may disconnect your lines at this time and thank you for your participation.Read morePowered by