• Revenue: $175 million, up 0.7% compared to the first fiscal quarter of 2024.
• Pro Pool Sales: Increased 9% year over year.
• Residential Pool Sales: Declined 1% year over year.
• Residential Hot Tub Sales: Declined 5% year over year.
• Adjusted EBITDA: Loss of $29 million.
• Gross Margin: Decreased 180 basis points to 27.2%.
• Inventory Reduction: Decreased by $63 million or 19% compared to the prior year quarter.
• Adjusted Net Loss: $41 million, compared to a loss of $37 million in the same period last year.
• Adjusted Diluted Loss Per Share: $0.22, compared to a loss of $0.20 in the same period last year.
• Cash and Cash Equivalents: $12 million at the end of the first quarter.
• Debt Reduction: Paid down $27 million of debt in the quarter.
• Store Openings: Plan to open three new stores in fiscal 2025.

• Warning! GuruFocus has detected 8 Warning Signs with LESL.

Release Date: February 06, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Leslies Inc (NASDAQ:LESL) reported revenue at the top end of guidance with sales of $175 million, marking a 0.7% increase compared to the first fiscal quarter of 2024.
• Pro pool sales grew by 9%, driven by better in-stock positions and a double-digit increase in pro partner contracts.
• The company achieved a 300 basis point improvement in in-stock levels for key categories, enhancing customer conversion rates.
• Leslies Inc (NASDAQ:LESL) successfully reduced overall inventory by $63 million or 19% year-over-year, improving working capital and enabling debt reduction.
• The company is establishing local fulfillment centers (LFCS) to improve inventory management and customer service, leveraging existing store networks with minimal capital expenditure.

Negative Points

• Adjusted EBITDA was at the bottom end of guidance, with a loss of $29 million, impacted by inventory optimization decisions and additional professional fees.
• Residential pool sales declined by 1% and residential hot tub sales declined by 5%, indicating challenges in these segments.
• Gross margin rate decreased by 180 basis points to 27.2%, primarily due to increased inventory adjustments and deleverage on occupancy and distribution costs.
• The company reported an adjusted net loss of $41 million, compared to a loss of $37 million in the same period last year.
• Leslies Inc (NASDAQ:LESL) faces challenges in improving DIY customer traffic, despite a 160 basis point increase in conversion rates.

Q & A Highlights

Q: Can you share any early signs of progress from the transformation initiatives? A: Jason McDonell, Chief Executive Officer, mentioned that they are seeing progress in asset utilization and convenience. Local fulfillment centers (LFCs) are helping adjust inventory levels, improving working capital, and reducing store inventory. This initiative is already showing benefits in inventory efficiency and in-stock reliability, crucial for customer trust.

Q: How significant is the issue of out-of-stocks, and do you plan to expand the number of LFCs? A: Jason McDonell emphasized the importance of inventory availability for customer trust. They have improved in-stock positions by 300 basis points. Currently, 26 LFCs are planned, each serving about 20 stores. They will evaluate the performance of these centers before considering further expansion.

Q: What are the assumptions behind your revenue outlook, and how do tariffs impact your chemical sales? A: Scott Bowman, Chief Financial Officer, explained that the revenue outlook is cautious due to the uncertain timing and magnitude of benefits from new initiatives. They are not expecting significant tariff impacts as their chemical sourcing is primarily domestic.

Q: Can you explain the factors affecting gross margins and the outlook for improvement? A: Scott Bowman noted that gross margins were impacted by inventory adjustments and fixed cost deleverage. They expect margin improvement in the second half of the year due to better inventory management and timing of rebates, which should normalize costs.

Q: What drove the 9% growth in the pro segment, and how will you serve both DIY and pro customers? A: The growth was mainly due to increased transactions. Leslie's plans to leverage its entire store network to serve pro customers, focusing on inventory availability and operational hours. They expect these initiatives to benefit the business in the third and fourth quarters.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.