Live Earnings Conference Call: Leslie's will host a live Q2 2025 earnings call on May 8, 2025 at 5:30PM ET. Follow this link to get details and listen to Leslie's' Q2 2025 earnings call when it goes live. Get details. NASDAQ:LESL Leslie's Q3 2024 Earnings Report $0.70 +0.04 (+6.56%) Closing price 05/7/2025 04:00 PM EasternExtended Trading$0.68 -0.02 (-2.28%) As of 07:00 AM Eastern Extended trading is trading that happens on electronic markets outside of regular trading hours. This is a fair market value extended hours price provided by Polygon.io. Learn more. Earnings HistoryForecast Leslie's EPS ResultsActual EPS$0.34Consensus EPS $0.31Beat/MissBeat by +$0.03One Year Ago EPS$0.40Leslie's Revenue ResultsActual Revenue$569.64 millionExpected Revenue$569.99 millionBeat/MissMissed by -$350.00 thousandYoY Revenue Growth-6.80%Leslie's Announcement DetailsQuarterQ3 2024Date8/7/2024TimeAfter Market ClosesConference Call DateWednesday, August 7, 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 Q3 2024 Earnings Call TranscriptProvided by QuartrAugust 7, 2024 ShareLink copied to clipboard.There are 9 speakers on the call. Operator00:00:01Good afternoon, and welcome to the Q3 of Fiscal 20 24 Conference Call for Leslie's Inc. Inc. 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. Please go ahead, sir. Speaker 100:00:36Thank 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 100:01:06A 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 at ir. Lesleyspool.com. We have also posted our Q3 2024 earnings presentation to our IR website and will make references to it during this earnings call. On the call today are Mike Ejek, Chief Executive Officer and Scott Bowman, Chief Financial Officer. With that, I will turn the call over to Mike. Speaker 200:01:37Thank you, Matt, and thank you all for joining us this afternoon. Before we address our Q3 results, I'd like to put some context around our current and expected future performance. For more than 50 years prior to the pandemic, Leslie's was a consistent predictable business with mid single digit sales growth and EBITDA margins in the mid to high teens. During the pandemic, the pool industry experienced unprecedented growth in profitability as more consumers installed pools and pool owners invested more time and money in their pools. As the industry leader, Leslie's participated in this outsized period of growth, both gaining market share and reaching record levels of profitability. Speaker 200:02:18Over the course of 2023 and into this year, the pool industry has gone through a challenging period of demand normalization and Leslie's has been part of this as well. In our presentation, we compare 2023 actual and 2024 guided sales for select publicly traded pool industry companies. Although the timing varies by year, over the 2 year period, all of the companies have performed similarly. The correction in demand and sales is representative of industry trends and is not unique to Leslie's. Over the last 2 years of industry correction, our adjusted EBITDA margin has declined through a combination of fixed expense deleverage as well as discrete items, which have negatively impacted gross margin. Speaker 200:03:01During this time period, gross margin has decreased over 300 basis points from deleverage of occupancy and distribution costs as well as the expensing of capitalized DC costs as we reduced inventory. Fixed components of SG and A have also delevered. As industry demand normalizes, returning to our long term margin targets will entail a combination of sales leverage as well as continued progress on cost efficiencies. Our performance over the last 2 years of unprecedented industry challenges is inconsistent with the long term fundamentals of our business and our historical performance and does not diminish our view of the long term potential of our company, which is not reflected in our current share price. When industry demand does normalize, we believe we are well positioned to meet our performance targets, including sales growth in the mid single digits, driven by 2% to 3% comps and 2% to 3% store location growth gross margin of 40%, SG and A of 28%, operating margin of 12% and adjusted EBITDA margin in the mid teens. Speaker 200:04:10Now moving to our results for the Q3. Our Q3 performance met our revised expectations as outlined from our July 17th press release. Versus the prior year quarter, cold and wet weather in April May reduced the number of pool days in non seasonal markets and delayed the start of the pool season in seasonal markets. Sales improved in June with warm and dry weather, but it was not enough to make up for the lost pool days in the 1st 2 months of the quarter. We also continue to see weakness in large ticket categories as a cumulative effect of high inflation and interest rates weighed on household spending. Speaker 200:04:47Later in our call, Scott will provide more detail on the full year outlook from last month's press release. As weather improved in June, we were encouraged by the improvement we saw in certain categories. Total sales improved to down 7% in the 3rd quarter from down 11% in the first half. Within the quarter, sales in June improved to down 2%. Chemical sales improved to down 1% in the quarter and up 5% in June. Speaker 200:05:16Our chemical sales volume is now positive year to date. Pro sales improved to down 2% in the quarter from down 8% in the first half. Hot Tub sales improved to down 4% in the quarter, which drove total discretionary products from down mid teens in the first half to down 10% in the quarter. Traffic improved to down 5% in the quarter, a sequential improvement from down 10% in the 2nd quarter. So while the pool industry continues to deal with unfavorable weather, a challenging macro environment and ongoing post pandemic demand normalization, we are beginning to see encouraging trends in the business. Speaker 200:05:56Moving to our financial results for the quarter. Total fiscal 3rd quarter sales were $570,000,000 down 7% year over year. This includes an approximate 230 basis point headwind from our June 2023 chemical price actions, which did not fully anniversary until the end of the quarter. Residential pool was down 8%, Pro Pool was down 2% and Residential hot tub was down 4%. Total transactions were down 2% year over year. Speaker 200:06:26Our focus on customer service, product availability, competitive pricing, compelling assortments and value messaging drove increases in customer conversion that offset a majority of the 5% traffic decline in the quarter. Average order value was down 5% year over year consistent with the first two fiscal quarters of this year. Non discretionary product sales were down 6% versus a year ago, but improved to down 1% in June. As noted earlier, total Chemical sales were down 1%, inclusive of a 440 basis point headwind from our June 2023 chemical price actions. Equipment sales were down 15% in the quarter. Speaker 200:07:08We believe this was driven by cautious consumers delaying big ticket purchases due to the macro environment. Discretionary product sales were down 10%, an improvement of 300 basis points from Q2. June outperformed and was down 5% versus a year ago. On Page 11 of our deck, you can see that our analysis of 3rd party credit card data shows that Leslie's sales growth in the 3rd quarter was better than that reported by specialty pool retailers and that we outperformed the industry in June. Additionally, our analysis of 3rd party pool industry e commerce traffic indicates that we grew digital traffic share during the quarter. Speaker 200:07:50Moving to Page 12 of the deck, the table presented is a comparison of Leslie sales performance to other select pool industry public companies for 2023 actual results and current 2024 guidance. We believe this comparison highlights 3 important points. First, Leslie's performance over the last 2 years is in line with other pool industry public companies. 2nd, sales performance for pool industry manufacturers, distributors and retailers have all been impacted by some combination of unfavorable weather, a challenging macro and the unwind of the industry demand spike associated with the pandemic. 3rd, although the total performance of all three groups has been similar over a 2 year view, the timing of the impact is reflective of the differences in manufacturing, distribution and retail operating models and their position in the supply chain relative to the end consumer. Speaker 200:08:47Turning to profitability for the quarter. Gross margin was 40%, down 101 basis points year over year, includes a 112 basis point impact from the June 2023 chemical price actions. Occupancy deleverage on lower sales and the expensing of capitalized DC costs. Adjusted EBITDA was $109,000,000 and adjusted diluted earnings per share was $0.34 With regard to the industry backdrop, pricing is largely stable and promotional activity is typical for the season. Chemical prices in both the residential and pro markets held relatively steady throughout the quarter. Speaker 200:09:27Supply chains are operating well and inventory levels are seasonally appropriate. While industry demand continues to normalize post pandemic, Leslie's remains the leading direct to consumer pool and spa retailer with unmatched scale, capabilities and brand awareness. We are leveraging our unique position to further pursue and execute on 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 strategic initiatives. First, we are encouraged that our customer file was flat versus a year ago, and we believe we are now positioned to deliver customer file growth. Speaker 200:10:102nd, average revenue per customer was down 7% in the quarter, driven primarily by decreases in big ticket items such as equipment and above ground pools. Our Pool Perks loyalty customers outperformed with transactions up 2% and average revenue per customer down 4%. 3rd, with regard to our PRO initiative, we ended the quarter with 4,254 PRO contracts and 108 Pro locations. This compares to 3,704 Pro partner contracts and 98 Pro locations at the end of fiscal Q3 last year. Pro sales were down 2% for the quarter, a sequential improvement from down 8% in the first half, driven by the effectiveness of our Pro Partner program. Speaker 200:10:584th, M and A and new store growth continue to be a meaningful component of our long term growth algorithm, and we are confident in our long term store expansion opportunities. Year to date, we have opened 13 new stores and expect to open 2 additional stores in fiscal 2024. While we continue to build the pipeline of store expansion opportunities, our highest capital allocation priority remains strengthening our balance sheet. Finally, we continue to be encouraged by the adoption and positive member response to our Accu Blue Home Smart Tech Water Testing Device. The smart device and associated membership program is resonating strongly with customers as it gives them industry leading testing capabilities and step by step instructions to maintain a clean, safe and beautiful pool without having to leave their home, all powered by the expertise garnered from more than 50,000,000 water tests. Speaker 200:11:52We consistently get 5 star reviews and our members continue to spend at a rate of more than $1,000 per year. Although, Akubu Home is still in its early stages of adoption, we remain excited about its future and continue to scale production. I will now hand it over to Scott to discuss our results and outlook in more detail. Scott? Speaker 300:12:13Thank you, Mike, and good afternoon, everyone. I'd like to remind everyone that my comments on our quarterly performance are on a year over year basis unless otherwise indicated. As Mike mentioned, this has been an unusual year and our performance has been affected by several factors which led to our July 17 revised outlook. For this reason, we add additional bridges in our earnings presentation that we don't normally include to provide more detail on our adjusted EBITDA performance. As you can see in the bridges, our challenge has been volume related. Speaker 300:12:44This was due to traffic challenges by a combination of weather, the macro environment and the ongoing normalization of industry demand. For the fiscal Q3, we reported total sales of $570,000,000 a decrease of 7% driven primarily by unfavorable weather and continued weakness in discretionary product sales. Comparable sales decreased 7% and non comparable sales contributed $2,600,000 in the quarter. With respect to trends by consumer group, sales for residential pool declined 8%, pro pool declined 2% and residential hot tub declined 4%. We were encouraged by the strong sequential improvement in Pro Pool sales and residential hot tub sales in the quarter. Speaker 300:13:30There are two factors to note when looking at our sales for the quarter versus the prior year. First, as previously discussed in our Q2 call, the fiscal Q3 this year ended on June 29 versus July 1 last year. And as a result we lost 2 high volume selling days during the core pool season and gained 2 lower volume selling days at the end of March early April. The resulting negative sales impact of the shift was approximately $7,000,000 or 120 basis points in the quarter. 2nd, our June 2023 chemical price actions were an approximate 230 basis point headwind in the quarter. Speaker 300:14:08Gross profit was $229,000,000 compared to $252,000,000 in the same period last year and gross margin rate declined 101 basis points to 40.2%. Year over year decline was mainly due to 112 basis point headwind from the June 2023 chemical price actions and 85 basis point headwind due to the expensing of previously capitalized DC costs and 46 basis points of deleverage on occupancy costs. This was partially offset by 90 basis points of favorability due to reduction in inventory adjustments and DC costs. This compares to a decline of 464 basis points in the Q2 of fiscal 2024. The sequential improvement from the Q2 decline was mainly due to improvements in inventory adjustments, a favorable mix from a higher percentage of chemical sales, lower deleverage on occupancy costs and the ramp up in shipments of new lower cost inventory. Speaker 300:15:05As we look to the 4th quarter, we expect more favorable comparisons as we continue to ship new lower cost inventory. We have now fully lapped the June 2023 chemical price actions and as we cycle the higher inventory adjustments and distribution costs that impacted last year's 4th quarter profitability. SG and A was $131,000,000 a reduction of 3% or $5,000,000 as we continue to make solid progress on our cost management initiatives. Adjusted EBITDA was $109,000,000 compared to $129,000,000 in the same period last year and adjusted net income was $63,000,000 compared to $76,000,000 in the same period last year. Page 9 of our earnings presentation illustrates our Q3 adjusted EBITDA bridge in more detail. Speaker 300:15:53Interest expense was $18,000,000 in the quarter, approximately flat to the same period last year and our effective tax rate was 23.8% compared to 26.1% in the same period last year. Adjusted diluted earnings per share was $0.34 compared to $0.41 in the same period last year. Diluted weighted average shares outstanding were $185,000,000 Moving to the balance sheet. We ended the quarter with $784,000,000 outstanding on our secured term loan and no amounts outstanding on our revolving credit facility. This compares to $792,000,000 on our term loan and $31,000,000 on our revolver in the prior year quarter. Speaker 300:16:35Overall, our debt levels were dollars lower than a year ago and our leverage ratio was 5.7 times. The effective interest rate on our term loan was 8.2% for the quarter compared to 8% in the prior year quarter. Cash and cash equivalents were $74,000,000 at the end of the quarter compared to $19,000,000 for the same period last year. Inventory ended the quarter at $302,000,000 a decrease of $134,000,000 or 31% compared to the prior year quarter, even as our in stock position, service metrics and net promoter scores remained very strong. Our outlook in today's earnings release remains unchanged from the revised outlook we provided on July 17. Speaker 300:17:18Our 4th quarter sales performance to date is supportive of our revised outlook, inclusive of weather disruptions such as Hurricane Burrell and Tropical Storm Debbie. The midpoint of our 4th quarter outlook assumes an extension of Q3 trends through the quarter with sales at the midpoint down 7% and gross margin at approximately 39% compared to 37% in the prior year period. We expect year over year gross margin improvement due to the cycling of higher DC cost and inventory adjustments in the fiscal Q4 last year and the cycling of the June 2023 chemical price actions. Regarding SG and A, we expect continued year over year improvement in the Q4 as we make improvements in our cost structure. We have reduced expenses every quarter this year and will continue our reduction efforts into fiscal 2025. Speaker 300:18:10We expect 4th quarter adjusted EBITDA to be in the range of $51,000,000 to $65,000,000 and adjusted diluted earnings per share to be in the range of $0.06 to 0 point 12 dollars Regarding our longer term outlook, we have seen some recent positive signs. First, equipment is now back to 2019 unit volumes as we start the 4th quarter. 2nd, chemical volumes were positive in the 3rd quarter and are positive year to date. And third, we have seen sequential improvement in discretionary product sales, specifically in our hot tubs business. Although early, these are encouraging signs as we plan for 2025. Speaker 300:18:50From a balance sheet perspective, we expect to end the year with cash and cash equivalents in the range of $75,000,000 to $80,000,000 compared to $55,000,000 in the prior year period. We continue to prioritize efforts to improve our cash position in the future in order to enhance liquidity and pay down debt and have identified several initiatives to achieve this goal. First, we have significantly reduced inventory through improved tools in management of our supply chain and continue opportunity to make incremental reductions in the future. 2nd, we have made significant improvements in our cost structure, which we believe will enhance our profitability as we grow sales in a more normalized environment. 3rd, we have the ability to manage our capital expenditures, especially our growth CapEx open above our annual maintenance needs of approximately $20,000,000 And finally, we continue to other options to generate additional cash while maintaining our strategic priorities. Speaker 300:19:51Moving to capital allocation. Our first priority continues to be the pay down of debt with a longer term goal of reaching a leverage ratio of 3 times or less. Based on our current outlook, we expect to end fiscal 2024 with a leverage ratio in the range of 5.4 to 6 times. We also continue to invest to support the business in our strategic store opening plans. Regarding new stores, we have opened 13 locations year to date and plan to open 2 additional stores by the end of the year. Speaker 300:20:21We are not planning any M and A activity for the remainder of fiscal 2024. I will now hand it over to Mike for closing remarks. Speaker 200:20:31Thanks, Scott. To sum up the fiscal year through 3 fiscal quarters, it has been anything but normal in the pool industry. It is clear the demand correction from the pandemic spike is taking longer than we anticipated. We underestimated the length and magnitude of the correction, which together with unfavorable weather and a cautious consumer resulted in our July 17th guidance revision. That said, in current industry dynamics notwithstanding, we believe the long term pool industry fundamentals and secular tailwinds that drive industry demand are intact and that the scale, capabilities and brand awareness that has made Leslie's the advantage leader in pool supply retail for the past 60 plus years have only been strengthened. Speaker 200:21:15We expect the pool industry to normalize and while we are not there yet, we are seeing positive signs. In the meantime, our teams remain focused on controlling what we can control, including reducing SG and A. SG and A costs are down 7% year to date. Managing inventory. Inventory is down 31% and inventory adjustments are down 45%. Speaker 200:21:39Improving conversion. Conversion is up across all our channels year to date driven by compelling assortments, competitive pricing, strong in stock positions and Accu Blue water testing. Providing superior customer service, NPS scores remain at all time highs. Continuing to execute our strategic initiatives and improving gross margin through product costing and retail price optimization and the lapping of our June 2023 chemical price actions. Taken together, we anticipate these actions to yield significant long term operating margin expansion and drive shareholder value. Speaker 200:22:18I remain confident that when industry demand patterns normalize, we are well prepared to service that demand and capture an increased share of a growing market with improved profitability. I will now turn it back to the operator to open the line for questions. Operator00:22:35Thank you. We will now be conducting a question and answer Our first question comes from Justin Kleber, Baird. Please proceed with your question. Speaker 400:23:18Yes, thanks. Good afternoon, guys. Appreciate all the incremental disclosures in the deck and script. I thought that was very helpful. First, I'd just like to better understand looking backwards the shortfall in 3Q versus your prior guidance, whether that is by customer type or by product category, can you just help us bridge the gap there? Speaker 200:23:41Yes. Justin, this is Mike. Thanks for the question. It's a good question and it's not something we covered in a deck. Our Q3 guide was flat for sales and we came in at down 7%. Speaker 200:23:53So we're looking at bridging that 7% miss. Underneath that flat guide was our assumption of transactions plus 4 and average order value minus 4%. Actual average order value came in at minus 5%, so that's a one point of the miss driven by lower sales of equipment and high ticket discretionary products. Actual transactions were down 2%, so that's a 6 point miss from our guide and most all of the total miss. The transaction miss was driven entirely by traffic. Speaker 200:24:30Conversion was nicely positive for the quarter. To hit our guide, we need traffic to be up 1%. It came in at minus 5%, which is again the 6% difference we're bridging. We believe the decreases in traffic is some combination of weather, cautious consumer dealing with inflation and high interest rates and ongoing pool industry normalization. And as much as I'd like to not be talking about weather and to be clear, we do not think the challenges we're seeing are all weather, but the difference in year over traffic for April, May June are striking. Speaker 200:25:09April to June traffic improved 1300 basis points. May to June traffic improved 600 basis points and June foot traffic was positive overall. During the quarter when this was all going on, we had no significant changes in assortment, no changes in pricing, promotions, staffing or competition. So the only real change that we saw was a warm and dry June after a cold April and a very wet May. So that's how we're thinking about bridging the Mystic guidance. Speaker 200:25:46I'll add one other comment because the follow-up question we typically get when we talk about traffic is, do you think you're losing share? And I want to be clear, we do not believe we are losing share and we're basing that on the B and A credit card data, the similar web digital traffic reporting, comparing our growth over a 2 year period with pool other pool industry public companies and discussions with our vendors. So sorry, it's kind of a long answer, but it's an important question and I think it needed a fulsome response. So thanks. Speaker 400:26:26That's I appreciate all the color, Mike. Thanks for that. And then a question on gross margin. You mentioned 40% when you were kind of walking through your long term targets. 41 I guess 40% is below where you were pre COVID around 41%. Speaker 400:26:41So I assume occupancy as a percentage of revenue is still below 2019. So I'm trying to understand the headwinds versus 2019 that would prevent the business from returning to 41% over time as opposed to just 40%. Speaker 200:27:01Yes. I'll start with that and Scott you can add on. The answer comes down to mix. With our pro business growing, that business operates structurally at a lower margin than our residential business. Same is true, to a lesser degree with our hot tub business and our digital businesses though on an EBITDA basis are very strong contributors on a gross margin business. Speaker 200:27:31They're slightly underneath our residential businesses as well. So that the difference between 4140 really has to do with the change in business mix since 2019. Speaker 300:27:44Yes, just I'll add on to that, Justin. As we kind of set our size to higher margin targets, some of it we've already seen some improvement. So for example, made some big improvements in inventory adjustments and DC costs. And so that will get a little bit incremental improvement even next year. We have some new lower cost inventory flowing through that'll help us in the future. Speaker 300:28:15And I think the other thing is just we have better tools right now than we had and that's helped lower the DC costs, it's helped lower inventory with those tools, which leads us to a little better margin than what we would have otherwise. They've also just improved some processes in the DC, just handling inventory and scrap made some really good changes there, which will pay dividends in the future. So although the structure is different from a business line of business standpoint. We do have a lot of things in our favor as well. Just the things that I mentioned, the bigger scale that we have, the relationships with our suppliers. Speaker 300:28:58And so as we kind of go through each of those, we definitely see some improvement from where we are today. Speaker 400:29:07Great. Well, I appreciate all that color guys. Thank you and best of luck. Speaker 200:29:11Thanks, Justin. Operator00:29:14Our next question comes from Jonathan Matrzywinski with Jefferies. Please proceed with your question. Speaker 500:29:22Great. Good afternoon, everyone. It looks like your Full Perks loyalty customers outperformed this quarter, transactions up and average revenue per customer not down as much as the active file. So just wanted to zoom out a little bit. Is the spread you're seeing with your loyalty members versus non members consistent with years ago? Speaker 500:29:48I think it used to be around then spending double. And maybe you could just update us on where loyalty penetration is today and the playbook to move that higher? That's my first question. Thanks. Speaker 200:30:02Yes. Thanks for the question, Jonathan. The Pool Perks members have consistently outperformed non Pool Perks members since we introduced the program. Typically, they're doing about twice the volume that had come down a little bit during the kind of spike in industry demand and as we brought new customers on, but it's now settled in in a very similar range. And from a transaction standpoint, loyalty customers are about 75, a little bit more of our transaction total. Speaker 200:30:39But overall, when you look at it, yes, pool perks just like our pro partner partners in the pro business outperform and we're very focused on continuing to add and grow to that file given the returns we get from both the Pool Perks members and the ProPartner members. Speaker 500:31:00That's helpful. Thanks. And then just a follow-up question. I think leading into pool season last year, there was some talk around chlorine import that didn't have EPA approvals. And I think you were encouraging consumers to not buy those on 3rd party seller marketplaces. Speaker 500:31:26Just wanted to get your updates in terms of what you're seeing there in terms of pool season 2020 4 so far, any indications that consumers are increasingly gravitating towards those cheaper alternatives? That'd be helpful. Thanks. Speaker 200:31:44Yes, another good question. I'm going to say that Amazon has been a pretty good partner in helping clean up the marketplace from these unregistered chlorine providers. So we're seeing, I'm going to say, less impact that we saw in the prior years, but certainly something we keep an eye on and a little bit of whack a mole, honestly. They tend to pop up and we point them out to Amazon and they then get them removed. So it's an ongoing process, but we don't see it as any significant headwind in this pool season. Speaker 500:32:24Thanks so much. Operator00:32:27Our next question comes from Kate McShane with Goldman Sachs. Please proceed with your question. Hi, good afternoon. Thanks for taking our questions. Our first question was really just on the performance of pro and hot tub versus residential pool. Operator00:32:46Why is the difference there? And if there was any difference in the product mix between chemicals, equipment and discretionary by the different segments? Speaker 200:32:56Yes, great question, Kate. Thank you. Look, we're really encouraged by the progress we're seeing on hot tubs. As you know, that was really, really a challenge business for us all of last year. And it's still not where we want it to be, but improving nicely. Speaker 200:33:16And I think one of the things we're seeing in hot tubs is low temperatures, unseasonably cool weather, not so much a headwind to hot tubs, wet weather is. And that really kind of hurt the business in May in particular. But in June, when things dried out backyards were in a position, decks were in a position where we could actually get tubs installed. We saw a nice lift in the business. And we're seeing that lift in 2 ways. Speaker 200:33:47We're working off the order book that we had built up while we weren't able to install tubs, but we're also adding to that order book and the demand incoming demand flow is much, much better. So despite some of the macro challenges, we're encouraged by what's going on with hot tubs. For the pro business, I'm going to say the pro business is not as impacted by weather in the Sunbelt in particular. When you think about the pro customer, those are pool professionals going out predominantly cleaning pools on a weekly basis. And consumers pay for that monthly. Speaker 200:34:29And they pay for that whether it's raining outside or whether it's hot or it's cold or whether they are using their pool or not. So there's a little bit of built in buffer, if you would, to absolute weather. The residential business, on the other hand is most highly correlated to weather. And cool weather, people aren't using their pools. When it's raining, they're really not using their pools. Speaker 200:34:59And in addition to that, they're not burning the chemicals they would with warm and dry weather. So part of the make we don't see any shift from like DIY to DIFM. We think that's been pretty steady. It's just a little bit of the nuances in how weather impact each of those categories. Operator00:35:22Okay. Thank you. And any difference in trend between like chemicals and equipment by customer with the pro and residential? Speaker 200:35:31No, the chemical business Go ahead, sorry. Yes, yes. Sorry, I jumped in there. Look, we're really encouraged by chemicals, right? They went plus 5 in the month of June. Speaker 200:35:44Our volume of chemical sales is now positive for the year. We consider that a real inflection point, very pleased to see that. Equipment has continued to be tough. We're down 15% in the quarter. We're down about 15% for the year. Speaker 200:36:02We really think that is indicative of a challenged macro. I mean, we actively see people trying to conserve money on equipment. And where that's manifesting itself is our equipment sales, like I said, are down 15% and they're down across residential and pro. The and where we're seeing that offset is in equipment parts and services, which ran flat for the quarter. So pretty clear to us. Speaker 200:36:36People have a problem with their pump. They're looking first to see if they can fix it before they replace it or upgrade it at the moment. And that's we consider that a bit of a short term situation. And as Scott said, we consider it very encouraging that the equipment unit sales have kind of are back to like 2019 levels, which means the big spike we saw in 2021 and 2022 looks like it has worked its way through the supply chains for the industry and we're at a good solid base to start growing from again. Operator00:37:20Thank you. Our next question comes from Stephen Forbes with Guggenheim Securities. Please proceed with your question. Speaker 600:37:30Good afternoon. Mike, Scott, I wanted to follow-up on the share you're returning to share gains in June commentary. Can you maybe expand on the breadth of the improvement, whether it's customer or category wise you saw in June? Then as you think forward, Greg, given the comments around stable pricing, I just want to gauge your confidence that price adjustments are sort of behind us as it pertains to sort of the industry backdrop as a whole or just where you're sort of thinking about pricing as we look out here over the next 12 to 18 months? Speaker 200:38:06Yes, good question. I'll start with the second part of that on pricing. We have seen there's always some movement in price. And I would say there tends to be more movement in the pro market. But in general, across the 1st three quarters, we've seen what we would consider relatively stable and rational pricing. Speaker 200:38:29And that's not for any lack of product. There's plenty of inventory of chemicals and equipment for that matter out in the market, but we've seen pricing hold up, which is typical of the industry, right, typical of the industry pre pandemic. During the pandemic, there was a lot of movements in price that looks to have all settled down. And so we're encouraged and feel pretty confident. We believe we're beyond having to make any significant price actions or concessions on a go forward basis. Speaker 200:39:03That being said, we monitor websites, we shop competitors every week looking at price and we will continue to sit in our traditional price position, which is we've talked about it's above mass, but right at, if not slightly below specialty. And then in terms of share, we're saying returning the share gains. As we talked about the other quarters, we're always of the opinion that the data wasn't aligning with what we are hearing from vendor partners or our stores. So I'm not so sure as a return as the underlying data now seems to be more reflective of what we were feeling in the business, which was that the industry was down. Foot traffic was down, pool use was down, our foot traffic was down, but we didn't feel like we were losing any share. Speaker 200:40:02And in this quarter, the Bank of America data that underlies the credit card data that we use lined up with what we were experiencing as did similar web data. And then the look at our pool industry public company peers, we think that's a good sign as well that we're not losing share, though it's certainly a challenging market. And in terms of where that share is coming from, it's the same drivers as the top line sales, right? I think the whole industry has a little bit of AOB challenge. Ours might be a little heightened due to the chemical price actions we took last year. Speaker 200:40:47But in terms of traffic, we think the pickup in the chair is just as people are now using their pools and we have weather that's in line. We're getting our kind of normal, if you would, incremental share capture. Speaker 600:41:07And then maybe just a quick follow-up. It might be early. Mike, I know we talked about this when we caught up in July and just the early buy programs, especially around equipment. Given the performance in the Q3, just given the backdrop as it stands today, can you talk about it? Like what do you sort of what do you expect the price increases to be this year or decreases, right? Speaker 600:41:32Or maybe it's stable, as you said, the equipment side? And then what do you really want to hear from the vendor partners as you think about sort of positioning yourself for next year? Or if you don't want to expand on all that, just where do you sort of see inventory ending this year on as? Speaker 200:41:51Well, I think we're quite pleased with our inventory management for Speaker 300:41:56the year and feel really good about Speaker 200:41:58where we're going to end the year. So no concerns there. In terms of working with our vendor partners on equipment, we're all considering the same things, right? There are cost pressure equipment like there are in some other parts of the business. But we all need to be very aware of not hurting demand creation with too high of pricing. Speaker 200:42:29And look, the early buy programs aren't out yet. So I can't speak to those. Typically, prices go up each season with the equipment manufacturers. Haven't heard or seen anything that would say would be different this year. But I do think there's a heightened sense from all of us to make sure that we're not destroying any incremental demand. Operator00:42:56Thank you. Our next question comes from Sean Hillman with Bank of America. Please proceed with your question. Speaker 700:43:07Hi, guys. Thank you for taking my question. Just first on the implied sales growth in the Q4, I think it's about down mid single digits. So can you just talk about some of the trends you're seeing quarter to date and how that compares to kind of what you were seeing in June and then you're lapping the chemical price cuts this quarter. So just what's kind of driving that negative outlook? Speaker 200:43:36Yes. The outlook for Q4 is continuation of the Q3 trends we saw. At the midpoint, it's down 7%. And there are some things going on there. We exited June better than that. Speaker 200:43:54June was 1 month out of the year, very encouraged by what we saw and we've seen some of those encouraging trends continue. But we've also want to be very aware of what is still, I would say, a very cautious consumer, still some unwinding of pandemic demand, which is very hard to size for us. And then weather, so it's much improved, thankfully. We've still got anomalies. We've had 2 hurricanes since the end of Q3. Speaker 200:44:31So it's way we're thinking about our Q4 guide is we gave a fairly wide range given some of the unknowns and some of the shortness of the trend we saw coming out of June. But we haven't seen anything in the quarter performance to date that would tell us we need to do anything with our that we need to change guidance at all. Speaker 700:44:59Okay, got it. And then I think you said on the long term guidance, you're assuming 2% to 3% location growth, which seems pretty aggressive. So how do you think about using capital on store openings near term versus paying down the debt, especially considering the recent downgrade? Speaker 300:45:19Yes, I can cover that one. Our first priority will continue to be paying down debt. We still want to grow the business in new stores, but we're going to be doing that at a more moderate pace. So until we can get that leverage ratio closer to 3, we'll continue that prioritization to make sure that we're using our extra capital cash flow to pay down the debt as the first priority. Speaker 700:45:52Got it. Thanks. Operator00:45:57Our next question is from Simon Gutman with Morgan Stanley. Please proceed with your question. Speaker 800:46:04Good afternoon. It's Simeon. How are you doing? In terms of chemicals, Mike, you mentioned, I think chemical volume is up year to date. I don't think I don't know if it means it's up for the entire quarter. Speaker 800:46:18Can you talk about where chemical pricing is? And broadly, if we ask where prices should be, and I say prices broadly meaning beyond chemicals, but if chemicals is the bulk of it, where is pricing about a year from now? I know it's a guess, but curious where we could be from here? Speaker 200:46:40Yes. Good question, Simeon. The chemical volume was up for the quarter, up strongly in June and has been and trended better sequentially April through May through June, as did traffic with improved weather. So we feel good about where we are with chemicals inflecting, if you would. And we consider chemical volumes being up as a nice data endpoint into share. Speaker 200:47:15Share is dollars, but share is also how much chemicals are we putting into the market. And we have sold more chemicals this year than we did last year despite a challenging top line and despite the chemical price actions. So Speaker 300:47:33we think we're in Speaker 200:47:34a good place with chemicals. The discussions with chemical vendors and suppliers really start about now in preparation for next year. From a commodity standpoint, we've seen chlor alkali, urea, all be pretty stable in terms of inputs. So we're not counting on any price and taking any incremental price next year, but we also don't think that will be any price deflation situation with chemicals. Speaker 800:48:16Okay. And then I don't know if you want to answer this because the business had gotten softer in the Q3. But given the issues that we've seen, it sounds like pricing normalizing volume certainly normalizing. Should this Q3 be the bottom of this normalization? And again, I know you may be hesitant given we've tried to call this a few times and it's been a little early, but I guess how shocked would you be if this isn't the bottom for the peak season quarter going forward? Speaker 200:48:52Yes. Simeon, you're right. I'm a little reluctant to call the bottom. I will say there are some, we think, solid indicators that we might be there. Chemical sales volume, like we talked about, the equipment unit volumes back to kind of pre pandemic levels, we actually consider that a positive. Speaker 200:49:13Improving discretionary product sales looks still down 10% for the quarter, but nice sequential improvement and we feel much better about where that part of our business is. And then a flat customer file. During 2021, 2022, particularly 2021 2022, we had a lot of customers to the file that we ended up calling the 1 and done cohorts. They came in and typically bought chemicals when they may not have been available from other retailers. And that cohort has worked itself through the files. Speaker 200:49:46We feel we're at a nice stable base there with the files. So file, discretionary product sales, equipment unit volumes and chemical unit volumes, all could be indicators, right, of a new base for ourselves and for the industry. And on chemical pricing, just to go back to your question, in 2023, the industry took a lot of chemical cost increases. And we're very challenged as retailers to pass those on to consumers. That's what's triggered our chemical price actions. Speaker 200:50:28We weren't seeing the demand response and we were seeing input from our customers, including our loyalty customers that we were getting outside of our value band. So I would say even if we see some improved costing for next year in chemicals, I believe the industry and ourselves included will be focused on recapturing some of the margin that we lost in 2023 when we weren't able to pass on the increased costs. That's why I don't see it being a situation where we would see actual retail price deflation in chemicals. Operator00:51:16We have reached the end of our allotted time for question and answers. I would now like to turn the floor back over to Mike Ejack for closing comments. Speaker 200:51:26Thank you, Maria. And I'd like to thank everyone for their interest in Lesley's. We look forward talking to you again on our Q4 earnings call. Thanks. Operator00:51:37This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.Read morePowered by Conference Call Audio Live Call not available Earnings Conference CallLeslie's Q3 202400:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsSlide DeckPress Release(8-K)Quarterly report(10-Q) Leslie's Earnings HeadlinesBeyond the Gates Preview: Leslie and Nicole Are Headed for an Explosive Showdown, and ‘Honey, You Ain't Seen Nothing Yet'May 8 at 5:00 AM | msn.comLeslies Inc Ordinary SharesMay 7 at 12:52 AM | morningstar.comNew breed of trader (Wall Street hates us?)Wall Street big wigs and old-money bankers can’t touch this 1 type of stock. And that opens the door for traders like you and me. They couldn’t touch this tech stock that ran from $1.50 to $98.40 in a week. Great – more for us. They wouldn’t touch this little-known imaging company. That’s fine – my friends and I were happy to ride it from $6 to $35 over breakfast.May 8, 2025 | Timothy Sykes (Ad)Leslie's to Release Fiscal 2025 Second Quarter Financial Results on May 8, 2025April 30, 2025 | globenewswire.comMusic 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.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 Disney Stock Jumps on Earnings—Is the Magic Sustainable?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? 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There are 9 speakers on the call. Operator00:00:01Good afternoon, and welcome to the Q3 of Fiscal 20 24 Conference Call for Leslie's Inc. Inc. 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. Please go ahead, sir. Speaker 100:00:36Thank 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 100:01:06A 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 at ir. Lesleyspool.com. We have also posted our Q3 2024 earnings presentation to our IR website and will make references to it during this earnings call. On the call today are Mike Ejek, Chief Executive Officer and Scott Bowman, Chief Financial Officer. With that, I will turn the call over to Mike. Speaker 200:01:37Thank you, Matt, and thank you all for joining us this afternoon. Before we address our Q3 results, I'd like to put some context around our current and expected future performance. For more than 50 years prior to the pandemic, Leslie's was a consistent predictable business with mid single digit sales growth and EBITDA margins in the mid to high teens. During the pandemic, the pool industry experienced unprecedented growth in profitability as more consumers installed pools and pool owners invested more time and money in their pools. As the industry leader, Leslie's participated in this outsized period of growth, both gaining market share and reaching record levels of profitability. Speaker 200:02:18Over the course of 2023 and into this year, the pool industry has gone through a challenging period of demand normalization and Leslie's has been part of this as well. In our presentation, we compare 2023 actual and 2024 guided sales for select publicly traded pool industry companies. Although the timing varies by year, over the 2 year period, all of the companies have performed similarly. The correction in demand and sales is representative of industry trends and is not unique to Leslie's. Over the last 2 years of industry correction, our adjusted EBITDA margin has declined through a combination of fixed expense deleverage as well as discrete items, which have negatively impacted gross margin. Speaker 200:03:01During this time period, gross margin has decreased over 300 basis points from deleverage of occupancy and distribution costs as well as the expensing of capitalized DC costs as we reduced inventory. Fixed components of SG and A have also delevered. As industry demand normalizes, returning to our long term margin targets will entail a combination of sales leverage as well as continued progress on cost efficiencies. Our performance over the last 2 years of unprecedented industry challenges is inconsistent with the long term fundamentals of our business and our historical performance and does not diminish our view of the long term potential of our company, which is not reflected in our current share price. When industry demand does normalize, we believe we are well positioned to meet our performance targets, including sales growth in the mid single digits, driven by 2% to 3% comps and 2% to 3% store location growth gross margin of 40%, SG and A of 28%, operating margin of 12% and adjusted EBITDA margin in the mid teens. Speaker 200:04:10Now moving to our results for the Q3. Our Q3 performance met our revised expectations as outlined from our July 17th press release. Versus the prior year quarter, cold and wet weather in April May reduced the number of pool days in non seasonal markets and delayed the start of the pool season in seasonal markets. Sales improved in June with warm and dry weather, but it was not enough to make up for the lost pool days in the 1st 2 months of the quarter. We also continue to see weakness in large ticket categories as a cumulative effect of high inflation and interest rates weighed on household spending. Speaker 200:04:47Later in our call, Scott will provide more detail on the full year outlook from last month's press release. As weather improved in June, we were encouraged by the improvement we saw in certain categories. Total sales improved to down 7% in the 3rd quarter from down 11% in the first half. Within the quarter, sales in June improved to down 2%. Chemical sales improved to down 1% in the quarter and up 5% in June. Speaker 200:05:16Our chemical sales volume is now positive year to date. Pro sales improved to down 2% in the quarter from down 8% in the first half. Hot Tub sales improved to down 4% in the quarter, which drove total discretionary products from down mid teens in the first half to down 10% in the quarter. Traffic improved to down 5% in the quarter, a sequential improvement from down 10% in the 2nd quarter. So while the pool industry continues to deal with unfavorable weather, a challenging macro environment and ongoing post pandemic demand normalization, we are beginning to see encouraging trends in the business. Speaker 200:05:56Moving to our financial results for the quarter. Total fiscal 3rd quarter sales were $570,000,000 down 7% year over year. This includes an approximate 230 basis point headwind from our June 2023 chemical price actions, which did not fully anniversary until the end of the quarter. Residential pool was down 8%, Pro Pool was down 2% and Residential hot tub was down 4%. Total transactions were down 2% year over year. Speaker 200:06:26Our focus on customer service, product availability, competitive pricing, compelling assortments and value messaging drove increases in customer conversion that offset a majority of the 5% traffic decline in the quarter. Average order value was down 5% year over year consistent with the first two fiscal quarters of this year. Non discretionary product sales were down 6% versus a year ago, but improved to down 1% in June. As noted earlier, total Chemical sales were down 1%, inclusive of a 440 basis point headwind from our June 2023 chemical price actions. Equipment sales were down 15% in the quarter. Speaker 200:07:08We believe this was driven by cautious consumers delaying big ticket purchases due to the macro environment. Discretionary product sales were down 10%, an improvement of 300 basis points from Q2. June outperformed and was down 5% versus a year ago. On Page 11 of our deck, you can see that our analysis of 3rd party credit card data shows that Leslie's sales growth in the 3rd quarter was better than that reported by specialty pool retailers and that we outperformed the industry in June. Additionally, our analysis of 3rd party pool industry e commerce traffic indicates that we grew digital traffic share during the quarter. Speaker 200:07:50Moving to Page 12 of the deck, the table presented is a comparison of Leslie sales performance to other select pool industry public companies for 2023 actual results and current 2024 guidance. We believe this comparison highlights 3 important points. First, Leslie's performance over the last 2 years is in line with other pool industry public companies. 2nd, sales performance for pool industry manufacturers, distributors and retailers have all been impacted by some combination of unfavorable weather, a challenging macro and the unwind of the industry demand spike associated with the pandemic. 3rd, although the total performance of all three groups has been similar over a 2 year view, the timing of the impact is reflective of the differences in manufacturing, distribution and retail operating models and their position in the supply chain relative to the end consumer. Speaker 200:08:47Turning to profitability for the quarter. Gross margin was 40%, down 101 basis points year over year, includes a 112 basis point impact from the June 2023 chemical price actions. Occupancy deleverage on lower sales and the expensing of capitalized DC costs. Adjusted EBITDA was $109,000,000 and adjusted diluted earnings per share was $0.34 With regard to the industry backdrop, pricing is largely stable and promotional activity is typical for the season. Chemical prices in both the residential and pro markets held relatively steady throughout the quarter. Speaker 200:09:27Supply chains are operating well and inventory levels are seasonally appropriate. While industry demand continues to normalize post pandemic, Leslie's remains the leading direct to consumer pool and spa retailer with unmatched scale, capabilities and brand awareness. We are leveraging our unique position to further pursue and execute on 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 strategic initiatives. First, we are encouraged that our customer file was flat versus a year ago, and we believe we are now positioned to deliver customer file growth. Speaker 200:10:102nd, average revenue per customer was down 7% in the quarter, driven primarily by decreases in big ticket items such as equipment and above ground pools. Our Pool Perks loyalty customers outperformed with transactions up 2% and average revenue per customer down 4%. 3rd, with regard to our PRO initiative, we ended the quarter with 4,254 PRO contracts and 108 Pro locations. This compares to 3,704 Pro partner contracts and 98 Pro locations at the end of fiscal Q3 last year. Pro sales were down 2% for the quarter, a sequential improvement from down 8% in the first half, driven by the effectiveness of our Pro Partner program. Speaker 200:10:584th, M and A and new store growth continue to be a meaningful component of our long term growth algorithm, and we are confident in our long term store expansion opportunities. Year to date, we have opened 13 new stores and expect to open 2 additional stores in fiscal 2024. While we continue to build the pipeline of store expansion opportunities, our highest capital allocation priority remains strengthening our balance sheet. Finally, we continue to be encouraged by the adoption and positive member response to our Accu Blue Home Smart Tech Water Testing Device. The smart device and associated membership program is resonating strongly with customers as it gives them industry leading testing capabilities and step by step instructions to maintain a clean, safe and beautiful pool without having to leave their home, all powered by the expertise garnered from more than 50,000,000 water tests. Speaker 200:11:52We consistently get 5 star reviews and our members continue to spend at a rate of more than $1,000 per year. Although, Akubu Home is still in its early stages of adoption, we remain excited about its future and continue to scale production. I will now hand it over to Scott to discuss our results and outlook in more detail. Scott? Speaker 300:12:13Thank you, Mike, and good afternoon, everyone. I'd like to remind everyone that my comments on our quarterly performance are on a year over year basis unless otherwise indicated. As Mike mentioned, this has been an unusual year and our performance has been affected by several factors which led to our July 17 revised outlook. For this reason, we add additional bridges in our earnings presentation that we don't normally include to provide more detail on our adjusted EBITDA performance. As you can see in the bridges, our challenge has been volume related. Speaker 300:12:44This was due to traffic challenges by a combination of weather, the macro environment and the ongoing normalization of industry demand. For the fiscal Q3, we reported total sales of $570,000,000 a decrease of 7% driven primarily by unfavorable weather and continued weakness in discretionary product sales. Comparable sales decreased 7% and non comparable sales contributed $2,600,000 in the quarter. With respect to trends by consumer group, sales for residential pool declined 8%, pro pool declined 2% and residential hot tub declined 4%. We were encouraged by the strong sequential improvement in Pro Pool sales and residential hot tub sales in the quarter. Speaker 300:13:30There are two factors to note when looking at our sales for the quarter versus the prior year. First, as previously discussed in our Q2 call, the fiscal Q3 this year ended on June 29 versus July 1 last year. And as a result we lost 2 high volume selling days during the core pool season and gained 2 lower volume selling days at the end of March early April. The resulting negative sales impact of the shift was approximately $7,000,000 or 120 basis points in the quarter. 2nd, our June 2023 chemical price actions were an approximate 230 basis point headwind in the quarter. Speaker 300:14:08Gross profit was $229,000,000 compared to $252,000,000 in the same period last year and gross margin rate declined 101 basis points to 40.2%. Year over year decline was mainly due to 112 basis point headwind from the June 2023 chemical price actions and 85 basis point headwind due to the expensing of previously capitalized DC costs and 46 basis points of deleverage on occupancy costs. This was partially offset by 90 basis points of favorability due to reduction in inventory adjustments and DC costs. This compares to a decline of 464 basis points in the Q2 of fiscal 2024. The sequential improvement from the Q2 decline was mainly due to improvements in inventory adjustments, a favorable mix from a higher percentage of chemical sales, lower deleverage on occupancy costs and the ramp up in shipments of new lower cost inventory. Speaker 300:15:05As we look to the 4th quarter, we expect more favorable comparisons as we continue to ship new lower cost inventory. We have now fully lapped the June 2023 chemical price actions and as we cycle the higher inventory adjustments and distribution costs that impacted last year's 4th quarter profitability. SG and A was $131,000,000 a reduction of 3% or $5,000,000 as we continue to make solid progress on our cost management initiatives. Adjusted EBITDA was $109,000,000 compared to $129,000,000 in the same period last year and adjusted net income was $63,000,000 compared to $76,000,000 in the same period last year. Page 9 of our earnings presentation illustrates our Q3 adjusted EBITDA bridge in more detail. Speaker 300:15:53Interest expense was $18,000,000 in the quarter, approximately flat to the same period last year and our effective tax rate was 23.8% compared to 26.1% in the same period last year. Adjusted diluted earnings per share was $0.34 compared to $0.41 in the same period last year. Diluted weighted average shares outstanding were $185,000,000 Moving to the balance sheet. We ended the quarter with $784,000,000 outstanding on our secured term loan and no amounts outstanding on our revolving credit facility. This compares to $792,000,000 on our term loan and $31,000,000 on our revolver in the prior year quarter. Speaker 300:16:35Overall, our debt levels were dollars lower than a year ago and our leverage ratio was 5.7 times. The effective interest rate on our term loan was 8.2% for the quarter compared to 8% in the prior year quarter. Cash and cash equivalents were $74,000,000 at the end of the quarter compared to $19,000,000 for the same period last year. Inventory ended the quarter at $302,000,000 a decrease of $134,000,000 or 31% compared to the prior year quarter, even as our in stock position, service metrics and net promoter scores remained very strong. Our outlook in today's earnings release remains unchanged from the revised outlook we provided on July 17. Speaker 300:17:18Our 4th quarter sales performance to date is supportive of our revised outlook, inclusive of weather disruptions such as Hurricane Burrell and Tropical Storm Debbie. The midpoint of our 4th quarter outlook assumes an extension of Q3 trends through the quarter with sales at the midpoint down 7% and gross margin at approximately 39% compared to 37% in the prior year period. We expect year over year gross margin improvement due to the cycling of higher DC cost and inventory adjustments in the fiscal Q4 last year and the cycling of the June 2023 chemical price actions. Regarding SG and A, we expect continued year over year improvement in the Q4 as we make improvements in our cost structure. We have reduced expenses every quarter this year and will continue our reduction efforts into fiscal 2025. Speaker 300:18:10We expect 4th quarter adjusted EBITDA to be in the range of $51,000,000 to $65,000,000 and adjusted diluted earnings per share to be in the range of $0.06 to 0 point 12 dollars Regarding our longer term outlook, we have seen some recent positive signs. First, equipment is now back to 2019 unit volumes as we start the 4th quarter. 2nd, chemical volumes were positive in the 3rd quarter and are positive year to date. And third, we have seen sequential improvement in discretionary product sales, specifically in our hot tubs business. Although early, these are encouraging signs as we plan for 2025. Speaker 300:18:50From a balance sheet perspective, we expect to end the year with cash and cash equivalents in the range of $75,000,000 to $80,000,000 compared to $55,000,000 in the prior year period. We continue to prioritize efforts to improve our cash position in the future in order to enhance liquidity and pay down debt and have identified several initiatives to achieve this goal. First, we have significantly reduced inventory through improved tools in management of our supply chain and continue opportunity to make incremental reductions in the future. 2nd, we have made significant improvements in our cost structure, which we believe will enhance our profitability as we grow sales in a more normalized environment. 3rd, we have the ability to manage our capital expenditures, especially our growth CapEx open above our annual maintenance needs of approximately $20,000,000 And finally, we continue to other options to generate additional cash while maintaining our strategic priorities. Speaker 300:19:51Moving to capital allocation. Our first priority continues to be the pay down of debt with a longer term goal of reaching a leverage ratio of 3 times or less. Based on our current outlook, we expect to end fiscal 2024 with a leverage ratio in the range of 5.4 to 6 times. We also continue to invest to support the business in our strategic store opening plans. Regarding new stores, we have opened 13 locations year to date and plan to open 2 additional stores by the end of the year. Speaker 300:20:21We are not planning any M and A activity for the remainder of fiscal 2024. I will now hand it over to Mike for closing remarks. Speaker 200:20:31Thanks, Scott. To sum up the fiscal year through 3 fiscal quarters, it has been anything but normal in the pool industry. It is clear the demand correction from the pandemic spike is taking longer than we anticipated. We underestimated the length and magnitude of the correction, which together with unfavorable weather and a cautious consumer resulted in our July 17th guidance revision. That said, in current industry dynamics notwithstanding, we believe the long term pool industry fundamentals and secular tailwinds that drive industry demand are intact and that the scale, capabilities and brand awareness that has made Leslie's the advantage leader in pool supply retail for the past 60 plus years have only been strengthened. Speaker 200:21:15We expect the pool industry to normalize and while we are not there yet, we are seeing positive signs. In the meantime, our teams remain focused on controlling what we can control, including reducing SG and A. SG and A costs are down 7% year to date. Managing inventory. Inventory is down 31% and inventory adjustments are down 45%. Speaker 200:21:39Improving conversion. Conversion is up across all our channels year to date driven by compelling assortments, competitive pricing, strong in stock positions and Accu Blue water testing. Providing superior customer service, NPS scores remain at all time highs. Continuing to execute our strategic initiatives and improving gross margin through product costing and retail price optimization and the lapping of our June 2023 chemical price actions. Taken together, we anticipate these actions to yield significant long term operating margin expansion and drive shareholder value. Speaker 200:22:18I remain confident that when industry demand patterns normalize, we are well prepared to service that demand and capture an increased share of a growing market with improved profitability. I will now turn it back to the operator to open the line for questions. Operator00:22:35Thank you. We will now be conducting a question and answer Our first question comes from Justin Kleber, Baird. Please proceed with your question. Speaker 400:23:18Yes, thanks. Good afternoon, guys. Appreciate all the incremental disclosures in the deck and script. I thought that was very helpful. First, I'd just like to better understand looking backwards the shortfall in 3Q versus your prior guidance, whether that is by customer type or by product category, can you just help us bridge the gap there? Speaker 200:23:41Yes. Justin, this is Mike. Thanks for the question. It's a good question and it's not something we covered in a deck. Our Q3 guide was flat for sales and we came in at down 7%. Speaker 200:23:53So we're looking at bridging that 7% miss. Underneath that flat guide was our assumption of transactions plus 4 and average order value minus 4%. Actual average order value came in at minus 5%, so that's a one point of the miss driven by lower sales of equipment and high ticket discretionary products. Actual transactions were down 2%, so that's a 6 point miss from our guide and most all of the total miss. The transaction miss was driven entirely by traffic. Speaker 200:24:30Conversion was nicely positive for the quarter. To hit our guide, we need traffic to be up 1%. It came in at minus 5%, which is again the 6% difference we're bridging. We believe the decreases in traffic is some combination of weather, cautious consumer dealing with inflation and high interest rates and ongoing pool industry normalization. And as much as I'd like to not be talking about weather and to be clear, we do not think the challenges we're seeing are all weather, but the difference in year over traffic for April, May June are striking. Speaker 200:25:09April to June traffic improved 1300 basis points. May to June traffic improved 600 basis points and June foot traffic was positive overall. During the quarter when this was all going on, we had no significant changes in assortment, no changes in pricing, promotions, staffing or competition. So the only real change that we saw was a warm and dry June after a cold April and a very wet May. So that's how we're thinking about bridging the Mystic guidance. Speaker 200:25:46I'll add one other comment because the follow-up question we typically get when we talk about traffic is, do you think you're losing share? And I want to be clear, we do not believe we are losing share and we're basing that on the B and A credit card data, the similar web digital traffic reporting, comparing our growth over a 2 year period with pool other pool industry public companies and discussions with our vendors. So sorry, it's kind of a long answer, but it's an important question and I think it needed a fulsome response. So thanks. Speaker 400:26:26That's I appreciate all the color, Mike. Thanks for that. And then a question on gross margin. You mentioned 40% when you were kind of walking through your long term targets. 41 I guess 40% is below where you were pre COVID around 41%. Speaker 400:26:41So I assume occupancy as a percentage of revenue is still below 2019. So I'm trying to understand the headwinds versus 2019 that would prevent the business from returning to 41% over time as opposed to just 40%. Speaker 200:27:01Yes. I'll start with that and Scott you can add on. The answer comes down to mix. With our pro business growing, that business operates structurally at a lower margin than our residential business. Same is true, to a lesser degree with our hot tub business and our digital businesses though on an EBITDA basis are very strong contributors on a gross margin business. Speaker 200:27:31They're slightly underneath our residential businesses as well. So that the difference between 4140 really has to do with the change in business mix since 2019. Speaker 300:27:44Yes, just I'll add on to that, Justin. As we kind of set our size to higher margin targets, some of it we've already seen some improvement. So for example, made some big improvements in inventory adjustments and DC costs. And so that will get a little bit incremental improvement even next year. We have some new lower cost inventory flowing through that'll help us in the future. Speaker 300:28:15And I think the other thing is just we have better tools right now than we had and that's helped lower the DC costs, it's helped lower inventory with those tools, which leads us to a little better margin than what we would have otherwise. They've also just improved some processes in the DC, just handling inventory and scrap made some really good changes there, which will pay dividends in the future. So although the structure is different from a business line of business standpoint. We do have a lot of things in our favor as well. Just the things that I mentioned, the bigger scale that we have, the relationships with our suppliers. Speaker 300:28:58And so as we kind of go through each of those, we definitely see some improvement from where we are today. Speaker 400:29:07Great. Well, I appreciate all that color guys. Thank you and best of luck. Speaker 200:29:11Thanks, Justin. Operator00:29:14Our next question comes from Jonathan Matrzywinski with Jefferies. Please proceed with your question. Speaker 500:29:22Great. Good afternoon, everyone. It looks like your Full Perks loyalty customers outperformed this quarter, transactions up and average revenue per customer not down as much as the active file. So just wanted to zoom out a little bit. Is the spread you're seeing with your loyalty members versus non members consistent with years ago? Speaker 500:29:48I think it used to be around then spending double. And maybe you could just update us on where loyalty penetration is today and the playbook to move that higher? That's my first question. Thanks. Speaker 200:30:02Yes. Thanks for the question, Jonathan. The Pool Perks members have consistently outperformed non Pool Perks members since we introduced the program. Typically, they're doing about twice the volume that had come down a little bit during the kind of spike in industry demand and as we brought new customers on, but it's now settled in in a very similar range. And from a transaction standpoint, loyalty customers are about 75, a little bit more of our transaction total. Speaker 200:30:39But overall, when you look at it, yes, pool perks just like our pro partner partners in the pro business outperform and we're very focused on continuing to add and grow to that file given the returns we get from both the Pool Perks members and the ProPartner members. Speaker 500:31:00That's helpful. Thanks. And then just a follow-up question. I think leading into pool season last year, there was some talk around chlorine import that didn't have EPA approvals. And I think you were encouraging consumers to not buy those on 3rd party seller marketplaces. Speaker 500:31:26Just wanted to get your updates in terms of what you're seeing there in terms of pool season 2020 4 so far, any indications that consumers are increasingly gravitating towards those cheaper alternatives? That'd be helpful. Thanks. Speaker 200:31:44Yes, another good question. I'm going to say that Amazon has been a pretty good partner in helping clean up the marketplace from these unregistered chlorine providers. So we're seeing, I'm going to say, less impact that we saw in the prior years, but certainly something we keep an eye on and a little bit of whack a mole, honestly. They tend to pop up and we point them out to Amazon and they then get them removed. So it's an ongoing process, but we don't see it as any significant headwind in this pool season. Speaker 500:32:24Thanks so much. Operator00:32:27Our next question comes from Kate McShane with Goldman Sachs. Please proceed with your question. Hi, good afternoon. Thanks for taking our questions. Our first question was really just on the performance of pro and hot tub versus residential pool. Operator00:32:46Why is the difference there? And if there was any difference in the product mix between chemicals, equipment and discretionary by the different segments? Speaker 200:32:56Yes, great question, Kate. Thank you. Look, we're really encouraged by the progress we're seeing on hot tubs. As you know, that was really, really a challenge business for us all of last year. And it's still not where we want it to be, but improving nicely. Speaker 200:33:16And I think one of the things we're seeing in hot tubs is low temperatures, unseasonably cool weather, not so much a headwind to hot tubs, wet weather is. And that really kind of hurt the business in May in particular. But in June, when things dried out backyards were in a position, decks were in a position where we could actually get tubs installed. We saw a nice lift in the business. And we're seeing that lift in 2 ways. Speaker 200:33:47We're working off the order book that we had built up while we weren't able to install tubs, but we're also adding to that order book and the demand incoming demand flow is much, much better. So despite some of the macro challenges, we're encouraged by what's going on with hot tubs. For the pro business, I'm going to say the pro business is not as impacted by weather in the Sunbelt in particular. When you think about the pro customer, those are pool professionals going out predominantly cleaning pools on a weekly basis. And consumers pay for that monthly. Speaker 200:34:29And they pay for that whether it's raining outside or whether it's hot or it's cold or whether they are using their pool or not. So there's a little bit of built in buffer, if you would, to absolute weather. The residential business, on the other hand is most highly correlated to weather. And cool weather, people aren't using their pools. When it's raining, they're really not using their pools. Speaker 200:34:59And in addition to that, they're not burning the chemicals they would with warm and dry weather. So part of the make we don't see any shift from like DIY to DIFM. We think that's been pretty steady. It's just a little bit of the nuances in how weather impact each of those categories. Operator00:35:22Okay. Thank you. And any difference in trend between like chemicals and equipment by customer with the pro and residential? Speaker 200:35:31No, the chemical business Go ahead, sorry. Yes, yes. Sorry, I jumped in there. Look, we're really encouraged by chemicals, right? They went plus 5 in the month of June. Speaker 200:35:44Our volume of chemical sales is now positive for the year. We consider that a real inflection point, very pleased to see that. Equipment has continued to be tough. We're down 15% in the quarter. We're down about 15% for the year. Speaker 200:36:02We really think that is indicative of a challenged macro. I mean, we actively see people trying to conserve money on equipment. And where that's manifesting itself is our equipment sales, like I said, are down 15% and they're down across residential and pro. The and where we're seeing that offset is in equipment parts and services, which ran flat for the quarter. So pretty clear to us. Speaker 200:36:36People have a problem with their pump. They're looking first to see if they can fix it before they replace it or upgrade it at the moment. And that's we consider that a bit of a short term situation. And as Scott said, we consider it very encouraging that the equipment unit sales have kind of are back to like 2019 levels, which means the big spike we saw in 2021 and 2022 looks like it has worked its way through the supply chains for the industry and we're at a good solid base to start growing from again. Operator00:37:20Thank you. Our next question comes from Stephen Forbes with Guggenheim Securities. Please proceed with your question. Speaker 600:37:30Good afternoon. Mike, Scott, I wanted to follow-up on the share you're returning to share gains in June commentary. Can you maybe expand on the breadth of the improvement, whether it's customer or category wise you saw in June? Then as you think forward, Greg, given the comments around stable pricing, I just want to gauge your confidence that price adjustments are sort of behind us as it pertains to sort of the industry backdrop as a whole or just where you're sort of thinking about pricing as we look out here over the next 12 to 18 months? Speaker 200:38:06Yes, good question. I'll start with the second part of that on pricing. We have seen there's always some movement in price. And I would say there tends to be more movement in the pro market. But in general, across the 1st three quarters, we've seen what we would consider relatively stable and rational pricing. Speaker 200:38:29And that's not for any lack of product. There's plenty of inventory of chemicals and equipment for that matter out in the market, but we've seen pricing hold up, which is typical of the industry, right, typical of the industry pre pandemic. During the pandemic, there was a lot of movements in price that looks to have all settled down. And so we're encouraged and feel pretty confident. We believe we're beyond having to make any significant price actions or concessions on a go forward basis. Speaker 200:39:03That being said, we monitor websites, we shop competitors every week looking at price and we will continue to sit in our traditional price position, which is we've talked about it's above mass, but right at, if not slightly below specialty. And then in terms of share, we're saying returning the share gains. As we talked about the other quarters, we're always of the opinion that the data wasn't aligning with what we are hearing from vendor partners or our stores. So I'm not so sure as a return as the underlying data now seems to be more reflective of what we were feeling in the business, which was that the industry was down. Foot traffic was down, pool use was down, our foot traffic was down, but we didn't feel like we were losing any share. Speaker 200:40:02And in this quarter, the Bank of America data that underlies the credit card data that we use lined up with what we were experiencing as did similar web data. And then the look at our pool industry public company peers, we think that's a good sign as well that we're not losing share, though it's certainly a challenging market. And in terms of where that share is coming from, it's the same drivers as the top line sales, right? I think the whole industry has a little bit of AOB challenge. Ours might be a little heightened due to the chemical price actions we took last year. Speaker 200:40:47But in terms of traffic, we think the pickup in the chair is just as people are now using their pools and we have weather that's in line. We're getting our kind of normal, if you would, incremental share capture. Speaker 600:41:07And then maybe just a quick follow-up. It might be early. Mike, I know we talked about this when we caught up in July and just the early buy programs, especially around equipment. Given the performance in the Q3, just given the backdrop as it stands today, can you talk about it? Like what do you sort of what do you expect the price increases to be this year or decreases, right? Speaker 600:41:32Or maybe it's stable, as you said, the equipment side? And then what do you really want to hear from the vendor partners as you think about sort of positioning yourself for next year? Or if you don't want to expand on all that, just where do you sort of see inventory ending this year on as? Speaker 200:41:51Well, I think we're quite pleased with our inventory management for Speaker 300:41:56the year and feel really good about Speaker 200:41:58where we're going to end the year. So no concerns there. In terms of working with our vendor partners on equipment, we're all considering the same things, right? There are cost pressure equipment like there are in some other parts of the business. But we all need to be very aware of not hurting demand creation with too high of pricing. Speaker 200:42:29And look, the early buy programs aren't out yet. So I can't speak to those. Typically, prices go up each season with the equipment manufacturers. Haven't heard or seen anything that would say would be different this year. But I do think there's a heightened sense from all of us to make sure that we're not destroying any incremental demand. Operator00:42:56Thank you. Our next question comes from Sean Hillman with Bank of America. Please proceed with your question. Speaker 700:43:07Hi, guys. Thank you for taking my question. Just first on the implied sales growth in the Q4, I think it's about down mid single digits. So can you just talk about some of the trends you're seeing quarter to date and how that compares to kind of what you were seeing in June and then you're lapping the chemical price cuts this quarter. So just what's kind of driving that negative outlook? Speaker 200:43:36Yes. The outlook for Q4 is continuation of the Q3 trends we saw. At the midpoint, it's down 7%. And there are some things going on there. We exited June better than that. Speaker 200:43:54June was 1 month out of the year, very encouraged by what we saw and we've seen some of those encouraging trends continue. But we've also want to be very aware of what is still, I would say, a very cautious consumer, still some unwinding of pandemic demand, which is very hard to size for us. And then weather, so it's much improved, thankfully. We've still got anomalies. We've had 2 hurricanes since the end of Q3. Speaker 200:44:31So it's way we're thinking about our Q4 guide is we gave a fairly wide range given some of the unknowns and some of the shortness of the trend we saw coming out of June. But we haven't seen anything in the quarter performance to date that would tell us we need to do anything with our that we need to change guidance at all. Speaker 700:44:59Okay, got it. And then I think you said on the long term guidance, you're assuming 2% to 3% location growth, which seems pretty aggressive. So how do you think about using capital on store openings near term versus paying down the debt, especially considering the recent downgrade? Speaker 300:45:19Yes, I can cover that one. Our first priority will continue to be paying down debt. We still want to grow the business in new stores, but we're going to be doing that at a more moderate pace. So until we can get that leverage ratio closer to 3, we'll continue that prioritization to make sure that we're using our extra capital cash flow to pay down the debt as the first priority. Speaker 700:45:52Got it. Thanks. Operator00:45:57Our next question is from Simon Gutman with Morgan Stanley. Please proceed with your question. Speaker 800:46:04Good afternoon. It's Simeon. How are you doing? In terms of chemicals, Mike, you mentioned, I think chemical volume is up year to date. I don't think I don't know if it means it's up for the entire quarter. Speaker 800:46:18Can you talk about where chemical pricing is? And broadly, if we ask where prices should be, and I say prices broadly meaning beyond chemicals, but if chemicals is the bulk of it, where is pricing about a year from now? I know it's a guess, but curious where we could be from here? Speaker 200:46:40Yes. Good question, Simeon. The chemical volume was up for the quarter, up strongly in June and has been and trended better sequentially April through May through June, as did traffic with improved weather. So we feel good about where we are with chemicals inflecting, if you would. And we consider chemical volumes being up as a nice data endpoint into share. Speaker 200:47:15Share is dollars, but share is also how much chemicals are we putting into the market. And we have sold more chemicals this year than we did last year despite a challenging top line and despite the chemical price actions. So Speaker 300:47:33we think we're in Speaker 200:47:34a good place with chemicals. The discussions with chemical vendors and suppliers really start about now in preparation for next year. From a commodity standpoint, we've seen chlor alkali, urea, all be pretty stable in terms of inputs. So we're not counting on any price and taking any incremental price next year, but we also don't think that will be any price deflation situation with chemicals. Speaker 800:48:16Okay. And then I don't know if you want to answer this because the business had gotten softer in the Q3. But given the issues that we've seen, it sounds like pricing normalizing volume certainly normalizing. Should this Q3 be the bottom of this normalization? And again, I know you may be hesitant given we've tried to call this a few times and it's been a little early, but I guess how shocked would you be if this isn't the bottom for the peak season quarter going forward? Speaker 200:48:52Yes. Simeon, you're right. I'm a little reluctant to call the bottom. I will say there are some, we think, solid indicators that we might be there. Chemical sales volume, like we talked about, the equipment unit volumes back to kind of pre pandemic levels, we actually consider that a positive. Speaker 200:49:13Improving discretionary product sales looks still down 10% for the quarter, but nice sequential improvement and we feel much better about where that part of our business is. And then a flat customer file. During 2021, 2022, particularly 2021 2022, we had a lot of customers to the file that we ended up calling the 1 and done cohorts. They came in and typically bought chemicals when they may not have been available from other retailers. And that cohort has worked itself through the files. Speaker 200:49:46We feel we're at a nice stable base there with the files. So file, discretionary product sales, equipment unit volumes and chemical unit volumes, all could be indicators, right, of a new base for ourselves and for the industry. And on chemical pricing, just to go back to your question, in 2023, the industry took a lot of chemical cost increases. And we're very challenged as retailers to pass those on to consumers. That's what's triggered our chemical price actions. Speaker 200:50:28We weren't seeing the demand response and we were seeing input from our customers, including our loyalty customers that we were getting outside of our value band. So I would say even if we see some improved costing for next year in chemicals, I believe the industry and ourselves included will be focused on recapturing some of the margin that we lost in 2023 when we weren't able to pass on the increased costs. That's why I don't see it being a situation where we would see actual retail price deflation in chemicals. Operator00:51:16We have reached the end of our allotted time for question and answers. I would now like to turn the floor back over to Mike Ejack for closing comments. Speaker 200:51:26Thank you, Maria. And I'd like to thank everyone for their interest in Lesley's. We look forward talking to you again on our Q4 earnings call. Thanks. Operator00:51:37This concludes today's teleconference. You may disconnect your lines at this time. 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