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Leslies Inc (LESL) Q2 2024 Earnings Call Transcript Highlights: Navigating Market Challenges ...

GuruFocus Research
·3-min read

  • Total Sales: $189 million, down 11% year-over-year.

  • Gross Margin: Decreased by 464 basis points.

  • Adjusted EBITDA: Negative $19 million.

  • Adjusted Diluted EPS: Negative $0.17.

  • Comp Sales: Down 12%.

  • Total Transactions: Down 6% year-over-year.

  • Average Order Value: Down 5% year-over-year.

  • Pro Sales: Down 9%.

  • Residential Hot Tub Sales: Down 14%.

  • Inventory Levels: Ended the quarter at $379 million, down 23% compared to the prior year.

  • Debt Levels: Total outstanding debt reduced by $83 million compared to the previous year.

  • New Store Openings: On track to open 15 new stores in fiscal 2024.

Release Date: May 08, 2024

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

Positive Points

  • Leslies Inc (NASDAQ:LESL) executed well against controllable factors, improving customer conversion despite decreased traffic.

  • Inventory goals were met, contributing to strong in-stock levels and competitive pricing across channels.

  • Despite a decrease in sales, Leslies Inc (NASDAQ:LESL) maintained disciplined expense management, reducing SG&A by 12% compared to the previous year.

  • The company continues to expand its Pro customer segment, increasing Pro contracts and locations year-over-year.

  • Leslies Inc (NASDAQ:LESL) is on track with its strategic growth initiatives, including new store openings and the development of its smart tech water testing device, which is resonating well with customers.

Negative Points

  • Second quarter sales were down 11% year-over-year, influenced by unfavorable weather and a shift in the consumer spending pattern post-pandemic.

  • Traffic decreased by 10% during the quarter, significantly impacting transaction volumes and sales performance.

  • Average order value declined by 5% year-over-year, affected by lower sales of high-ticket discretionary products and previous price adjustments.

  • Gross margin decreased by 464 basis points, primarily due to chemical price reductions and occupancy deleverage.

  • Adjusted EBITDA and diluted earnings per share were negative, reflecting the challenging operational environment and lower sales.

Q & A Highlights

Q: Can you provide an update on how the quarter is tracking relative to the fiscal 2Q comp? A: Michael Egeck, CEO of Leslie's Inc, noted a material improvement in the trend over the last couple of weeks of the quarter, attributing it to consistently warm weather in major markets.

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Q: How is the SG&A tracking relative to your initial outlook? A: Scott Bowman, CFO of Leslie's Inc, mentioned that the company is ahead of its initial expectations for SG&A, attributing the progress to good control over labor costs and other store expenses, despite lower sales.

Q: Is there any chemical carryover that needs to be worked through as we enter the pool season? A: Michael Egeck clarified that based on a recent pool owner survey, there are no significant challenges related to consumer stockpiling of chemicals this season.

Q: Could you provide more details on the performance of the equipment category, which was down 10% this quarter? A: Michael Egeck explained that there was an 800 basis point improvement in equipment sales from the previous quarter, with heaters showing significant improvement, indicating a return to pre-pandemic seasonality.

Q: What is the current status of market share, especially considering the underperformance indicated in the slides? A: Michael Egeck addressed concerns about market share by emphasizing ongoing efforts to enhance store conversion rates and customer service, despite the challenges posed by weather affecting traffic.

Q: Can you discuss the trends in gross margin and the impact of pricing strategies? A: Scott Bowman discussed the expectation of margin expansion in the latter half of the year, particularly as the company cycles past the June 2023 chemical price decreases and benefits from improved rebate conditions.

These Q&A highlights from Leslie's Inc's earnings call provide insights into the company's operational adjustments, market challenges, and strategic responses to current industry dynamics.

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

This article first appeared on GuruFocus.