LESL - Earnings call transcript Q3 2022

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Operator

Good morning, and welcome to the Fiscal 2022 Third Quarter Conference Call for Leslie's, Inc. At this time all participants are in a listen-only mode.

Following the prepared remarks, management will conduct a question-and-answer session. [Operator Instructions] 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 Caitlin Churchill with Investor Relations. ahead. go Please

Caitlin Churchill

and cause good that and which would to current that like subject differ results Thank from materially made morning. today everyone management's could uncertainties and comments expectations. significant earnings factors change. statements, company's filings not the Please recent may remind updated These cautionary actual to to you, of press contained the in statements will speak and risks as risk I in review company's the future the include are release statements and SEC. the today be forward-looking if with circumstances

earnings During A release to furnished SEC will reconciliation management financial Leslie's which refer today measures. GAAP the to the ir.lesliespool.com. at and the of non-GAAP company's and section non-GAAP financial found the Investor press call between website be Relations measures was to today, can posted certain the in

Leslie's, Officer; I Chief Mike call is Egeck, today the turn the Executive will Officer. from Financial Mike call over Chief Egeck. On to Weddell, Mike? Inc. With Steve and that,

Michael Egeck

joining in our financial margin impacted increased quarter. that change QX full and our and for Thank results three, our to on challenges of and and Leslie's for and our three number which chain number the discuss primary one correct site steps of good drivers; will that, everyone. going promotions, two, year Steve please also QX sales things have taken and I'm And execution supply a in distribution centers to you discussion. morning, the the IR industry that all to number we today: issue; deck review After one, supplement the the Caitlin, detail posted was our driver note the Thanks, results in the we guidance. shortfall, us. results overview underlying performance of have challenges

our expectations. QX streak it fell performance of but of our results, short internal Our continued record

this is quarter. that hyper-focused organization, accountability that is significant outcome of serve the and sense fully missed a the strength necessary grew for actions card X% sustainably Despite utilizes hot heightened increased industry. market quarter, and our to our organization understand by opportunity year underperforming consumer our year-to-date XX There we we sales pool broad-based to our year-over-year and to and a X% and the not our the in Our deck share team of leadership quarter rapidly compare in credit XX% tub million across residential improve urgency the quarter illustrates stack performance acceptable, aftermarket groups. our customers expectations, pool increased our in comp for more quarter disappointment growth XX%. Page for the data serving continued are XX% XX%. and advantages our competitive competition. the our supplemental two performance driven across execution. and to grew Comp three by pool PRO Sales quarter, $XXX the for Residential grew sales our versus with was third-party the on

quarter the continue from chart, Gross for $XXX gain see can you we a was share. As profit the record to million.

business the for points $XXX record quarter. rate margin was EBITDA mix, driven decreased XXX Adjusted headwinds a by basis expense. DC million margin However, and product

remain the continued to The strong in secular the intact. tub and to Moving and industry pool hot the driving demand trends backdrop. industry quarter, consumer benefit demand from that

and First, in their backyards. consumers investing homes

a outdoor for lifestyle. healthy Second, the desire

product a X% the was regard cost safety to And Fourth, heightened to the quarter. inflation, schedules. approximately Sun and hybrid Belt. migration Third, sanitization. work-from-home inflation and finally, of in With sense

digits. retail For to we offset And the manage to QX, are in we suggested continue inflation our costs. the planning now be product to single prices cost increased will high

please ask deck. of the you would supplemental turn page that seven I to Now

expectations quarter we've quarter, this our the third results performance help moving our parts. to in noise actual the a between and Given our included explain bridge

than of our the New Jersey region. DC. the and As the DC result demand see, shipped for and underperformance. third of sales about of margin our miss The the our facilities' significant out fulfills store contributed centers was significant New impacted challenges of Northeast in confluence Jersey and serve also resulted XX% digital Jersey A to DC digital the total, driver We New the in fewer which stocks planned the demand operate units and in you store throughout to a at factors can quarter, Northeast, ability in six region. distribution

disruptions resulted experienced level. the at Northeast Concurrently, the late resulted quite factors. concentrated to shipments, in and simply, which cold demand season, First, staffing and start wet we into April supply which support plan receiving. pool and unforeseen this moderated, a May, of And of in June unprecedented and the have vendor through place DC weather in combination didn't to chain an and levels

significantly As a customers. faced volume result to of ability challenges and operating that impacted we our concentrated this demand of unprecedented serve receipts,

adding with relative the see, our a highly facility expectations, increasing of increasing back can headcount year, $XX and inefficient. you quarter. By the sales work shifts. was the the temporary million is in this second DC margin our was challenges $XX headcount the As July, in reacted by New situation We that shipping of twice the in to of but and the by to Jersey operating by plan, impacted total to week million it prior facility quickly headcount quickly

was $X planned underperformed the The additional approximately added a additional As have we and an $X both facility million for QX. in cost. and QX, million result, expense

future. this pool through for all to implement of we the potential plan action shift balance internal two other by are model XXXX points the operating DCs, like [XPL] (ph) the note $XX ensure our add the in including in can have headwinds expectations impact seven. that of a bridges the million. the will on outperformed the a specific capacity additional start on week, and navigate taking seven Two DC, potential in our day to We to season, we areas, ensure like the that the partners of trading we approximately Outside additional to This the the Prior to Northeast. manage business page this future. of sales issues

First, that The receipts margin million decrease quarter. decreases two Supply impacted planned increase vendor required of season and factors. in in product margin higher cost consisted primarily by consumer $X in from to an industry in rate promotions. shortages demand the substitutes serve

in $X in past, sales an we've margin in performance the in lower mix hot current strong with for reduction been drove challenging. and But And during not gross the is million more our we tub operating The headwind our future account able gives environment resulted us performance historical to would quarter. it macroeconomic of Second, and margin in the times of growth prefer mix performance. while margin PRO a our unfavorable certainly each backdrop, an new. our confidence that challenging This businesses businesses. is favorable

on can page the deck. in XX you see As summarized

Leslie's decades, been contraction, two and profitably growing last inflation, new sales rising the reduced industry of consumer Over rates slowdowns, has declines in of spending GDP in periods rates, in pool successful housing interest builds.

history. are we our than six grow Connect, macroeconomic in in With capabilities, to the Leslie's our addition and and conditions talent focus strategic investments we challenging profitably our time equipped today better growth initiatives any other in of believe the on

supplemental is in our six nine year-to-date performance also of Now on the The let's quarter. deck. page initiatives strategic each the summarized contribution growth review of initiative the of

for growth our minus file is for a to in file the Adjusted driven last The chorine file. coverage distorted quarter. was target shortage. The XX% two was pervasive media outsized by growth First, year X.X% QX event, was that by file unadjusted quarter. growth consumer XXXX comparison Total the the year of X.X%. stack

Next, relationship to our we with our consumers. deepen continue

Our file The to rate consumer revenue the XX.X% a exceeded an free inflation, growing X% grew year-over-year. reward earn with XX.X% in reflects the our in growth of the and consumer our revenue resonate Average shipping share. X% Pool and program's consumers. members average per key grew impact The has wallet Perks for quarter, continue now quarter. loyalty per and benefits, more

are initiatives results. driving PRO strong our Third,

and residential PRO converting stores. the quarter, to we finished five stores new our During PRO XX format, building

are stores. total operating We XX now PRO

have locations, X,XXX Leslie's quarter. expanding affiliate grow to quarter. We in PRO continues helped program scale. PRO XX% agreements pool e-commerce program PRO dedicated in place, our PRO and to XX% newly grew sales our the in Our the PRO site PRO partner our and now affiliate The converted affiliate over

Dance, Moving end operates of the closed to M&A. operates Houston In four pool the the Spring hot retail the six Greater on quarter, which after residential Greater which tub we the the on locations in of locations quarter, acquisition acquisition we Texsun, Shortly closed area. area. of in Philadelphia also the

our to address XX a our have successfully space the expect underserved locations, to acquisition see of and opened two fiscal new to additional wealth industry, have store with into we total by We the we of digital opportunities of in Year-to-date, initiative. end to attractive continue With and a LOIs markets year. that regard marketing. we targeted entered close we continue white

store current is the recently acquired including Our XXX. locations, Texsun count,

Finally, AccuBlue Home.

to scheduled interface receive app X.X X,XXX testing. These of and of the units refinement this use will consumer just for be primarily over devices devices are version year. our We incremental additional

planning initiative not this are We any for in from XXXX. significant sales

financial share results to our guidance. on it fiscal Now QX to I'll over and detail more revised turn Steve XXXX

Steven Weddell

everyone. good you, morning, and Thank Mike,

remains demand now solid, As discrete these which as by behind year-over-year for distribution execution outlook delivering third are as was against impacted comparisons our within and we Mike core Despite our are nondiscretionary on discussed, year. our well our the challenges for quarter challenges, updated product performance difficult network, focused us.

review our performance. outlook, our third fiscal I year-to-date and will discuss XXXX I Before quarter

million to XXXX. the million, third sales the record an quarter, of For we $XX.X of compared XX.X% $XXX.X third when increase of quarter or reported fiscal

$XX.X Our basis calendar-adjusted XXXX, increased a growth the is our of growth on quarter increase represents sales of sales or comparable third XX.X%. fiscal year top in of on XX.X% This comparable million. two and stack sales comparable of X.X%

acquisitions Our driven last store in increased new noncomparable and the million $XX.X year. four XX completed sales by openings by

increased PRO comparable growth from performance quarter our tub. points by compared was X.X% to PRO million and see broad-based tub. the a pool, sales of On decreased profit neutral calendar-adjusted but residential the continue residential we consumer the basis XX% for slightly cadence the residential and gross to basis, for as the start across strength XXXX, generated the Northeast. generated or to basis hot when comparable a and prior for Weather quarter quarter fiscal the XX.X% full in the for our sales for $XX.X pool, groups XXX three in on margin two we XX% of for positive, of growth XX% to XX% residential to of X% stack XX.X% Gross season for impacted in pool rate XX% third year hot We year. pool

incremental distribution from to were headwinds margin margins product continued there rate, product main and gross and expenses. two related lower quarter, the promotions During mix, impact costs, to business

as mix noted PRO by First, primarily third the mix lower driven of decline gross tub hot is which at prior In the gross in faster quarters, accounted we've the business quarter, residential in business in growth impact margins. operated points margin. businesses, basis of and XXX for our pool

promotions level a normalized supply the in the and strategic a season of third margin. the our points from in associated expect end product costs an residential continue of to higher to higher-than-expected Also, product gross to compared product the decline prior promotional of additional shortages fiscal procure basis accounted We Second, in believe costs, quarter XXX efforts to pool led year. through the existing offset represents to disruptions more in for higher business and cadence this cadence with chain we the when vendors supply year. promotional

current the compared distribution the totaled issues year due incurred incremental margin million gross million Total by impacted head during estimate we the costs $X expenses at count when additional our Jersey The $X compensation to related we approximately basis mainly costs distribution higher to and additional to Third, the distribution quarter, points. by New costs. during XX period, increased negatively prior expense center the quarter. and

quarters, that is the We occupancy New center leverage In the gross by now current impacted And additional to margin. to during but in will XX the noted favorably the Jersey distribution of occupancy through margin quarter as shipping we've leverage incur we remainder the continue pleased prior improved basis points. plan. gross costs are quarter, fiscal year

in drivers margin our So quarter in expectations margins the compared higher when change internal performance product our were the and to expenses. distribution to summarize, and changes current the two key recent during

and XX SG&A. turn by million when percentage the $XX.X SG&A XX.X% Now basis decreased quarter to or to of fiscal I'll points. XXXX, compared third a increased as of sales

of generated XXXX. record acquired environment execution XXXX we in during considering systems the heightened our We million quarter the year We in to additional Adjusted compared spend. net $XXX.X $X.XX adjusted increased While to very the quarter XXXX income $XXX.X and in and also estimate $XXX.X challenges the net continue has compared growth, payroll million invest million management expense prior third we our associated third to with in adjusted to of of in million, EBITDA $XXX.X technology inflation-impacted fiscal SG&A by of noncomparable million period. to period. disciplined compared primarily was with quarter diluted related current to merchandising the year prior information of SG&A share million quarter. and $X.XX approximately $X quarter inflationary of marketing were an year earnings to fiscal per income the $XX in the third fiscal support The And digital businesses.

to Now year-to-date I'll results. turn

Following few highlights. on our

year $XXX.X $X.X compared prior sales reported or For months the million billion, of first an when nine we increase the XXXX, XX.X% period. to fiscal of of

of improved fiscal year net in months the prior increased our calendar-adjusted and prior $XXX.X months year year top of stack Adjusted XX.X%. points period. million was by EBITDA first XXX million of income rate on is sales $XXX.X year of sales period, period. million represents to or prior first adjusted the the $XXX.X comparable XX.X% to comparable margin in compared sales This million Non-comparable in and million. of earnings the of And from in sales compared growth diluted year two of the the Our million decreased income nine on to fiscal Gross in months XXXX prior XX.X% the $XXX basis $X.XX was XXXX $X.X from Adjusted profit prior adjusted period. XX.X% growth the net $XX.X in per nine share comparable million XX.X% XX.X% and or increase in period. fiscal by nine XXXX, $XXX.X increased million. increased $XX.X year when $X.XX first to gross basis a

and finished compared and balance repurchases, investments Moving activity. the equivalents the higher million cash reduction in to share was $XXX in The end the the primarily sheet. to cash cash quarter of fiscal of On fiscal of due M&A inventory quarter million third equivalents $XXX in of We at third XXXX with to and XXXX. cash $XXX quarter fiscal to in million compared to is inventory of with the and XX% at primarily are inventory, million third year risk. technology we or product increase categories ended and end the or fashion The up subject the related chemicals. to equipment XXXX of nature, $XXX million, prior nondiscretionary $XXX not quarter. Both are

significant recent We a supply we chain improvements have seen in products some availability as during of backordered quarter. amount third the received

However, we would as still characterize the current mixed. environment

quarter outstanding million during basis the points. the LIBOR third compared we was end million of for $XXX term current loan given inventory balance XXXX. rate as fiscal secured on facility of year, of the position XXX the of had XXXX, our fiscal at On the on and the debt, appropriate a our at loan supply As result, end prior our of period. the to applicable uncertainty the The year quarter view term into $XXX we plus

in was our Our at revising $XXX outlook, rate XXXX. matures effective March in XXXX. year regard the XXXX of are third which included the quarter our earnings fiscal our X.XX%, of of cash Funded of Today, are the debt release. facility the interest totaled fiscal end details less With press million to outlook. full we and

since include be the X%. growth year, metric implied may to we have growth context quarter range XX% more X% comparable XX% outlook. quarter fourth As with in the of Fiscal in will be our to our discussing only fiscal two of sales outlook one the items. left quarter sales of Changes in each fourth will to I

environment. more second, currently expectations for fourth us XX% sales given line the two don't with generated We M&A range $XX First, catalyst reflects of quarter our million comfort completed third a we accelerate fourth comparable related comparable quarter sales rate to And we than increased in performance to the transactions. quarter, quarter performance by uncertain lowered In faster we to quarter, XX% reflect quarter. third on XX% in at the trends. macro $XX to fourth million growth stack And a basis. year by the a our the see outlook of growth to third sales give a

Our XX.X% results includes margin to At fourth points, compared third of gross in quarter. consistent range XX.X% to in which margin outlook XX.X% the is quarter our prior a gross expectations year a period. midpoint, assume our of basis the the XXX with decrease

includes outlook and continued costs. center headwinds mix, product Our additional to margin related business distribution margins

continued leverage quarter. Our outlook factors occupancy in the in fourth also

$XXX be EBITDA share million, quarter We fourth per be and $X.XX. expect earnings to quarter to to diluted expect $X.XX $XX million to adjusted adjusted fourth we

outlook is does and the the diluted the And increase $X is of any expense fourth assume our approximately third current encouraged a rates disciplined This we $X repurchases. outlook. capital floating outstanding note with important for weighted reflects Our preliminary are debt. with July to not on quarter On It million. than our interest approach, remain in share our our higher we shares and quarter, priorities average million includes line performance, incremental which is balanced rate that our and follows. as have finally, allocation,

Our priority is capital first structure.

is nine million M&A. and fiscal both In capital first growth Our expenditures capital invest $XX expenditures. months in million acquisitions, in the XXXX, second we towards priority through and of we invested to deployed $XX

pace year, continues to M&A, pipeline last our Over and opportunities accelerated M&A the we've grow. of the of

cash to totaling $XXX our we months we In and share $XXX remaining final shareholders. million first the shares nine authorization. priority million, have existing under Our return XXXX, to repurchased is excess fiscal repurchase of

our you, based it Thank conditions. shares I'll on And investment hand you. that, over position, repurchase to to Mike. We evaluate drive to opportunities growth, market with back will and continue financial opportunities to

Michael Egeck

we want by that reflect been manage third to wrap to our acknowledge I better. executional saying we up Steve. should have challenges that quarter results, able Thanks,

For that our communicate acceptable. important we and leadership said, organization want being be to three will never team, that With points.

happened have The understand fix it. first the our we to is with and New what taken we actions Jersey that DC,

plans implemented also our have support chain and We supply of ability growth. improve entirety the to its future to our

year-over-year operating that, pool the the that second our share gains The competitive growth are the the drivers and of is durable of effectiveness of remain Leslie's our strategic intact. fundamental and the market results model evidence advantages initiatives industry,

long growth are a Q&A. equipped we that and continue success, that profitable than all been of that, market. The kinds the we the for to it hand operator we of better that headwinds third to have successful the and have macroeconomic of history face in With is today and in win back ever I'll

Operator

At be question-and-answer you. session. our proceed you. time, question Baird. with a this from Thank Peter with conducting Instructions] Please we'll first questions. is Thank [Operator your And Benedict

Peter Benedict

Hi, questions. the guys. Thanks taking for

the First, to But the Mike, just activity. mentioned increased -- that of I in you sales has the do back demand. follow-up levels how that suggests least does about of about over relative think kind industry around think promotional lifted And inventory the Trichlor that you pricing Steve, area, is, seeing normalized of related We're more you to that curious make stickiness it's or you levels. of how think the the those last kind are promos years? at couple healthy in here that the then levels industry. across

Trichlor. So and then future help promotions, us understand on around stickiness color price Thank your the little just a you. of thoughts the

Michael Egeck

question. the for Thanks Peter. Yeah,

documented. me of worked is through pretty how well Let walk been kind QX

a At wet West year on the was industry industry. for cold and chlorine strong increased some and the markets, time from macro was and prior season, time, the going that what comping at was sensitivity. the QX in the saw intensified two particularly shortage key same This the to news was we it think start I Coast. a the same price consumer the the and for pressures relatively Northeast

the in which coming price-sensitive got So, saw we comp year, some retailers more the industry and, from the start chlorine a they customer to a off cold in you've of yeah, trying season, spike we see more the promoting prior participated. to

positioning. We hold marketplace to position that price price in we have the a and want

way to we this measure in was are promotions and of important, inventory our across costs It's promotions chemicals particularly, distressed being prior else, a across not versus us for of broad look have was in I your the to shortages entirety way the tend because level characterize are at it's driver not related our much, think XXX the and to Trichlor. is and of our supply are, said, actually effective promotions would do too, inventory. us industry the our between to make share of the for where in better points, to That the is of on they very this but distinction and I get industry more revenue the and And say, markdowns. the basis normalized Trichlor year. traffic industry. Promotions is and year last everyone the than because most much for they focus elevated was for industry on I It's would increased it discounting. question at there product promotion, QX very, little a which, the lot use chemicals, traffic.

Peter Benedict

to I back for past helpful. type said Mike, just that think inflation in be you Thank year How more portfolio unlikely think of should here? my and inflation rethinking the Trichlor come about you've you. that you across the broadly are Trichlor product months? that the XX guess, the down. next That's Are you think the thing, price next levels those for would and and inflation as levels about -- the we follow-up,

Michael Egeck

North speak lot I'll to across in Yeah. on manufacturing particularly Trichlor think the the there's We pressure America. still a Trichlor cost specifically. base, of

preliminary for results most down. the through the has Steve That July in promotional the normalized mentioned, what level Day that QX. in has got traditionally we our don't And which established we industry, X. point saw we So, is but believe as expect promotional quarter in. as down, really coming come we a the I'll make been would new what rate, QX the is of retail the see more prices Memorial we've too month promotional July

expect to pricing QX think think would I costing. somewhat don't I significant any to going based be that, similar. year, And see hold. we're decrease in will I Trichlor on Next the industry

Peter Benedict

so Thanks Got much. it.

Michael Egeck

Thank you.

Operator

Our comes question your the next proceed Please Blair. with line questions. Ryan William of Merkel from with

Ryan Merkel

guys. morning. Hey, Good

Michael Egeck

Good morning.

Steven Weddell

Good morning.

Ryan Merkel

were product impact that of Steve, higher mentioned rest to you going year. costs the the

I be just us factor. be those you of a think when you you to those Can said walk also And through think uncertain was to issues? again? going clear going supply maybe do you're

Steven Weddell

again, Happy to. a Yeah. the And Sure. very Thanks, of was environment. Ryan. mixed part commentary

and well. our even related to sure When our those that have well traditional not had stayed vendor in equipment, some we network talked And different pressures about So, of does provide inventory are own not perspective, we you the think When going be is as chemicals. across to through some contracts kind kind distribution you we an the Trichlor some in but of sources shortages as making equipment, working serve talked of challenges the really inventory not are as straight year-on-year our Northeast it product elevated or about in product, through cases, from from most network, as and other to non-Trichlor our in cases look the And replenished our we receipts. going customers, all of DC, at if pricing. to growth in-season comes traditional equipment. about procure when DSD you we a going we stores,

do of kind We necessarily into an with. stores Day. all from basis products our we're on So, post-Memorial of we spend our to consolidate saw get expedited who really pay to that going not premium happen those vendors a

basis talked it they've as the about, look in like to costs product promotions, you Product stay when like the in elevated points pressure, year. the quarter, you a Mike moderated. If talked product feel of most stay we feels through related about as but of QX characterize some little will that margin that, just at it cost, XXX as promotions, stock I'd rest

if normalized think as product about I guidance issues and longer-term look costing, promotional when of next similar that we're we over And ensure moderate. again, into for not and, to will season, with but have the kind at think we as the do next that current did should couple we And next environment, levels, today, we so, And the of you working inventory work year providing opportunities through quarters. outages. at we don't this year prepare should

Ryan Merkel

Got it. That's helpful.

my question extrapolating XQ what sounds a is in on little conservative. I XQ. you It it. then second be sounds like so just And understand it Okay. saw like you're It might just the guide

We have an macro. uncertain

You saw July, sounds pretty that decent.

You said promotions getting are not worse.

the is is and not promotions underlying that slowing demand the industry So, good here behind read you? industry that's right you stores that pretty is down think still outlook dramatically,

Michael Egeck

think of in industry our if one. I when it Ryan. And Yeah, us I'll see July. take points that were had we do issue comp you promotions the described residential you business. you correctly. with at basis We our in stabilize to pleased -- look demand, cost DC XXX about

have would comp. we comp, run X% a a running XX% of instead So,

and and The we think, industry the is before, as season was, not the really that given one last comping the and reacted media So, very a recovery typically described It's blinked QX consumer and and We the saw change sensitivity to price was year, industry. alive demand, the slow start promotional-driven that industry in with to from promotions. some think much don't there shortage coverage stable. in and we I it some we chlorine little, become we a July. saw expect

Ryan Merkel

Thanks. Perfect.

Operator

from is with Kate your line McShane questions. question Goldman next the Please Sachs. of proceed Our with

Kate McShane

discussed, temporary around incremental Hi. the ask you I some distribution costs about headcount seem Good issues. of a that backup to be know question. morning. that chain, is the wanted into that with our particularly to of taking being the that the fourth mostly now are quickly persisting center somewhat the in Thanks And I given some regards this for supply Is quarter. is headcount or base? situation related? considered to more

Steven Weddell

morning. and Kate, good Good Yeah. question,

as quarter way both individuals the that is demand. digital the related is, think to as capacity to the well as well right it get we QX, headcount and for have for for QX as need stores to more I about serve we think as it primarily payroll,

different need where with As kind Mike about we week, Northeast market seven the like third particularly in double assist setting a get into volume. talked of the a up days parties to year, a you next approach, shifts,

characterize the not being levels headwind reallocated spend going current necessarily the most spend stays isn't we a But to a I would be So, if we again, serve this year, incremental margin that it as did that rate go perspective. likely with as from at demand forward.

from be going exact, too higher serve early perspective, spend expected be a to incremental say good into to will think it I previously So, dollar the it than will but again, but demand. quarter,

Kate McShane

you. of And second then is, during quarter ticket drove my it how question talk traffic versus terms thank in can you comp? the Okay, the to

Michael Egeck

answer at were Yeah, Put comp down get value, X.X%, our DC The average XXX of if just over I'll morning. comp. cost one. And the transactions Kate. you us about those the our to X%. comp ticket -- there. order X% just about residential up was you business, note I'll again, Good that about X%, together points basis look and

growth. big to order business, plus So, quarter the transaction get XX%. value was and the XX% our Those average combined impact. that sales was the count in was a X% us total Across the two

Kate McShane

you. Thank

Operator

of questions. America. question your with next Suzuki from of comes Liz with the Please Our Bank proceed line

Liz Suzuki

you. Thank Great.

had Just market serve? have share you you of could think does hadn't curious percentage stores gained And issues your with DC? the if what DC you how much that Northeast the then

Michael Egeck

would a we share in to because slow with that is concentrated this best way the characterize very million, Northeast the amount. comp our outsized by and page on so I points more it's XX of QX of year think residential of was in Yeah. start. about business season the an we XXX have as portion That our in basis years, -- is it $XX And increased show the had the business

Liz Suzuki

just I'm founded the obviously Northeastern warmed And was you. DC think Thank Why has spring. around had a wasn't first off-guard you time Great. increase for by you've weather was caught a curious, this in as while, Leslie's this cold do the so the up? been the company 'XXs, in demand

Michael Egeck

Memorial but We the were more to a question okay, little well a that's got a I'm ourselves we've weekend positioned normal, The say, a it's internally. going question the stores That's start. the inventory a with season. to -- Yeah. start well, in We than that -- and to okay. promotional lot Day was, late start season great asked a

The for some That's ours. of had first DC weekend, not shipping a -- the DC following unusual in week shipping Day issues. Memorial replenishment

We a lot all weeks. this manage the problems They have DCs have combination add up. performance did, staffing situation we and very environment. challenges June. tough getting of caught -- shifts the to people talent to way case, those supervisory deteriorated get run And tend rectify bad we to it, additional you when saw the right of into in quickly And to it's and the in a which reverse And you the shifts. a in through

it clear, better. managed to -- So, not process. inefficient was It's very But it be we just disappointing a and highly have was should it us for a have that we should have it managed internally better seen to coming.

Liz Suzuki

Okay. Thank you.

Operator

you. Thank

Please Jefferies. of the line Jonathan your proceed with from Our with next Matuszewski question comes questions.

Jonathan Matuszewski

Steve. for Thanks Mike. Hey, taking questions. Hey, my Great.

on gross First one margin.

sales? shortfall higher margin can in gross the those just high lower industry end or think what's for this of guess, the in of you XQ? the and end impact terms but forecast here? it maybe are end the With implied maybe does help beyond low July, the end stabilized embedded of guidance? promotions planning in quarter, low about each promotionality what sounds us in I high like imply So, incremental Thanks. in and of in from you the any your It

Michael Egeck

the the morning, part We've promotions you think can got Jonathan. take down. blocks Yeah. on We about I'll weekend settled of Day Labor Steve, and, talk coming have up. building Good margin. the promos

fairly to to next We year. it normalized be expect

come Trichlor earlier, acid, product is challenge, it Steve to our consumer shape. higher The market on vendors to inventory algicides, But from and shock, at good chlorine, And in day-to-day. vendors much mentioned inventory this and that's to those Equipment supply though, -- completely in to it's shipments dry products. the year. Last I'll some that note last shape. the ship open We're and unexpected liquid XX% year, short is on the from short is for that demand, we of things has Trichlor XX% some purchase we've a good margin focused chemicals. different gone situation. than got part very on second proven most in been specialty managing like and meet of a equipment. cost. active shortages part were particularly challenges And the That's

we see So, that the and product factor. stabilize margin. pressure of continuing become a of into as think, QX part Promotions, we less will

Steven Weddell

strength the point from change the impact about our with less as you is in to decline, than relative a of given QX in play existing mix about when will of product in Mike hot business Yeah. implied comment just a -- XXX I on in Jonathan, little product little vendors. think tub QX. walked kind that to more still dependent mix impactful, And Again, like And respect ability then it a but to really midpoint QX margin made and had a QX, different through, get with from QX. And higher costs, perspective, we product which consistent promotionally, what bit how incremental feel the in little business out QX basis it's of rate of our kind last M&A year. related it's think the margin some to

-- newfound new or have we So, we existing have replenish vendors we partially product or uncertainty range if when to network. into why if the from on to rely we have those get is more of the to some drive partners or existing the our relationships of or

Jonathan Matuszewski

terms engage that of customer to looking from just maintenance like seeing advantage? house That's homeowners tighten then the more you're PRO mix, to anything any expenditure. maybe partners, in presumably Difficulty] their of whether in their pools my helpful. And store of they Are that your hearing Curious DIY it associates, indications looks follow-up PRO as you question, [Technical like work

Michael Egeck

past would challenges that Yeah. Jersey has that an New DIY with uptick associated quarter the slowdowns, believe maintenance DC. I without been the from I Jonathan, in residential macroeconomic there seen have this would we pool say consumers. in

On the the a PRO that of that business in much side, to we haven't total, really all seen got was any slowdown business And so to in lots We're room positive. grow. very that we've player smaller business.

had we're there PRO to supply did very similar periodic shortages how have we some was service to challenge But working the mentioning. initiative of what was trying Affiliate PRO only pleased is business. the program and We the the Steve think that, outside of with I overall.

Operator

Thank you.

with Our Andrew proceed question. next question from the Carter of comes Stifel. your with Please line

Andrew Carter

was I on Sorry, mute.

want make confused Just because little and here. -- a I'm to sure

to late the adverse early alluded was which weather, So, start. in commentary the June, you

been positive have neutral to impact. suggested then would You that a

have be there to I So, of kind understand And the a DC deficiencies? correctly, change end you next I'll to that just how market all of remainder of if the in kind investment, fully with locations? was this capitalize didn't I of were fix in risk stepped kind issue any this to clear, be abrupt? viewing end, year And favorability. whatever, at wasn't if And SG&A, kind you other issues would the DC there appreciate that known ask the network, finally, Thanks. allow of this up any the of kind demand on that could can there you CapEx, to but a other your assess one. that

Michael Egeck

-- of not store of to The of but speaking -- the at they when And it have like Day stores shipping. particular, thanks was like for I'd DC business. that unusual momentum lot week week a our had that said earlier, terrible. Andrew, not time was trouble seen situation in And June the fulfilling was the It June. Northeast we'd of before, the first fleet. shipments a like Memorial we we've in the and Yeah. investors, the of when The we had we replenishment DCs but slow, serve they region, outperforming with I week poor weekend, to come were at to question. one started of rest promotional, into -- first said the we've our the for more

were got overly for there a the not worse So, recovery situation several weeks. was from wasn't concerned, we and and that concerned. but The challenge worse

on the perspective to to us situation our XX%-plus. in through our a evaluating grown better. We've put Jersey to have big the DCs. in with our hit by In So, two DCs. in us can see should as that's to high And And learnings surprise, has invested last the balance have continue us invest We DCs, not alert sure. years should from New need network, -- the been we'll it was of for surprise, in a the to have caught regards grown manage caught able we've in the quarter. it by results, you

Steven Weddell

And Andrew, Steve. this is

with QX most Northeast, of it even think I have end of you of change, the think other the into really a from as early a thing to June peeking about kind kind the to in cadence volume does May, from normalized QX acute perspective. go

normal. we've operate challenges, a kind same the in back pick at a where seen facilities. and but have or of have two continue don't there's well volume you facilities up operate changes other to said, as week as those So, acute and But themselves Mike certainly day may or they

elevated Mike part our the distribution season. given full well. we've across about It's with as we kind have an pace been that investments from sales to chain. and fact year opportunities talked perspective of And So, all to for and said, and distribution of is we've opportunity revisit of investments the what a continue network, lot as in an it talking the us supply about in efficiencies centers even line to six volume, supplement growth

Andrew Carter

on. Thanks. it I'll pass

Operator

the with Please next Our question your from questions. with is of Piper proceed Peter Keith line Sandler.

Peter Keith

morning, Hi. Thanks. Good everyone.

like million, DC at the it on outlook wanted resolved. now your Just sales said the issue fourth quarter. you've to is prior $XX by outlook get clarity but time, for reduced the sounds you same the believe I

the did you aware same we're but comment time, you've macroeconomic of business at of, being non-discretionary. challenges, also the You the which, XX% on about talked obviously, -- past in

sales that reduced we help is going me there outlook just bit about little and forward? about So, concerned better something understand a be should

Steven Weddell

Go Mike. question. Good ahead, Yeah.

Michael Egeck

Go ahead.

Steven Weddell

XX%, perspective, Good comp outlook Keith. we're so basic Yeah, of X% at from XX% kind growth X%. a to morning, looking an of to of

If you consistent QX. midpoint were X%, where of with outlook QX, think basically about is we at that

But, uncertainty, good. our which as the like and of, given with behind I of to top comp pleased pace point, growth is DC out, the basically doesn't of current the pointed in this Northeast shipping outlook, the July kind now folks it, the plan, again, think time feel XX%. for in XX% you it which comfortable to and to to about, is As line year right us expectations is talked accelerate We're X% overall call feel we at QX. with but is macroeconomic XX%

Peter Keith

gross and XXX.So the Okay. QX at promos as think at And the yourself said you're have the gross on the the are same it down Because to seems the cost? give look it's down the I product margin, at mix sequentially so a you But if pressure? with midpoint, abating. time, just Are amount margins just also less I you promos, issue elevated similar here this then like some QX. cover trying should

Steven Weddell

It's different pressure. Yeah.

but quarter it more business feels the right headwind with at So, to product QX, way less to and about headwind last midpoint. right mix the like probably about likely promotions you talked costs headwind in it, more be place think is the is consistent

Peter Keith

Thank Okay. you.

Operator

Great. comes guys. Stanley. questions. The with Please - your proceed the our Michael from Michael adding with on is Simeon. Thanks Kessler Hey, Morgan for This Q next questions. line Kessler of for Gutman Simeon question

which country was a time hoping issues to Jersey relative plan? were same to more coming also you the I from like DC, your performance the had can region the just supply regions, country there widespread? moderating I help chain rest distinguish also could in of you Northeast issues, the relatedly, relative, guess, speak New more, versus vendors at I other the shipment then Thanks. across And guess, sales to between and you the had bit First, maybe the weather that challenges with

Michael Egeck

vendors it through New a a Sure. but were from of the receiving it of season, in really significant wasn't Jersey DCs. Yeah. And but the combined in with all start peak all late to able the to expected, DC. impacted manage combination we The

supply the amplified a that we had those size that was of it by had DC terms And was at that serves The network the it strong seven any So start, DC. made Jersey demand. our comps performance very in same region took the a season a up quickly has concentrated similar same the with particularly the Jersey New a happens in out in really we comp. the we time, Northeast vendors crowded and don't and peak And it challenge, of the in replenishment, problematic only very New -- region. there seems receipts, was it slow -- say, but network, for there. I would region, and of But pressures, on that as chain, caught at time Steve And explained across in most regions with very that our region. the negative a of region specifically, in impact very, break like

Michael Kessler

it. Got

helpful. to for That's A Okay. normalized year, margins, thinking a little follow-up page just on margins about next business. to bit and the starting turn the

pieces potentially costs DCs. higher maybe moving in some some there's So now with

rate. [indiscernible] to as to maybe mix the shift the have annualized grow, promotions You lower a at be have

going where standpoint, all are year So guess, than see where of normalizing were tailwind we're offset the a calibrate any talk of can trying -- where are off as about, from you that relative kind -- to other guess, you I you this at to just do on that side, in margins I been pre-COVID.

Steven Weddell

changing Yes. guidance not and algorithm Mike. this, our today, Good providing question. I'll long-term We're we're take for not growth XXXX either.

as industry business drive But of new we about you industry product we develop to the there unique is relationships, the pool step fundamentals longer headwinds. So it, through our and which margins our We channels. we each in new do that We businesses. in be relationships continue generally of consumers vendor competition. most relative director higher with to aftermarket about algorithm the think have mix It's will when went when intact. and you public. been about back how the think It since we term, our talked remain

then Our proprietary to continue around distribution our about to manufacturing. brand that strategies, And expand our in integration and area. ability vertical we've again, talked

And -- then over efficiencies continued So term. business of those leverage. across provide again, expect the and year occupancy long should the kind leverage

-- gross drivers kind think continue in to of continue So core future. we those drive the that to to margin the are are going

providing we over as through noise we think and we next quarters, have get forward to look the some do I guidance few QX.

Michael Egeck

is only quarter. growth better, that that which factors Steve more that to our happen fourth add a with stabilized degradation and situation, can and though by normalized. in can got product margin to The be in the I led margins. thing quarter, getting stabilized manage some And situation, We I that's you a supply Yes. algorithm. and it's the We manage margins this We reset long-term we've would promotion surprised will and saw. really mixed, think seen still described,

Operator

Thank you.

proceed the question Shmois with your questions. of next with Capital. Garik Our Loop from is Please line

Garik Shmois

taking question. thanks Hi, my for

the of new openings Just conversion, wondering more the your store just acquisitions, of how you're viewing growth initiatives, some given uncertain the PRO macro. pace

Michael Egeck

we larger say about good the higher shock. Like comp I some been for would would quarter without very particularly Yes. PRO sizes Garik, initiative. XX% feel the have said, of periodic product, shortages I of

So feeling very confident there.

to growth to performing opportunities. On are well, as to accelerate the that M&A had marketing stores about look moderate. The side, opening, we continue the stores, is see underserved to to starting file We residential lots our talked digital areas. of that. We're efforts new are marketing we going --

But plus the feel in for look with year. regard of XX XX, good you consumer stacks the unusual noise extraordinary the that, two year that point chlorine between last I impacted really coverage quarter. year chlorine very freeze, year -- media in a and our the acquisition. events which plus put Texas of the quarter, year shortage a two saw we the industry, You was lot entire that this the about the that out year, this if to also and at

we'll in points. the at growth, on to So the consumer basis XXX XXX us, file ride bumpy basis growth events those a file steady back to level. said lower with points but a We've behind believe get

next think where year. I see that's you'll us

Garik Shmois

Got it.

follow New more one to the wanted on time Just up Jersey DC.

you mentioned shift network? day compare a model. is you're just how shifting that across kind to model does curious, a I'm universal a week how day think And to that seven I to of your before?

Michael Egeck

with the with a but New place right we DCs running shifts over were like the across we're of Yes. X.X most operating week in problem the going say large We're a second acute capacity all to Well, DC, We week. at day is a e-commerce an We the norm. for max of to model have, our in the the I'm DCs six business currently we a of Jersey had had network. season. run days that's Seven put about going the season. course to

supervision, was it can is really this is really the in around -- then shift temporary week. in season specific the DC DCs to a is seven can their year-round. going a tasks will However, And in up and season. they just weekend that season. second challenge not put during will shift for you the add day will really challenge staff, here And you we place investment them supervision What and they we're the and have a learned train make

Garik Shmois

it. Thanks Got for that.

Operator

you. Thank

line is question The line the comes Telsey Please with next today question final Telsey from Dana questions. Advisory. Telsey. the with Our Dana proceed from of of your

Your line questions. is live for

Dana Telsey

Hi, everyone.

As much how of versus or that you much inventory think of about happened continues given then at And business we seeing you that's end that procurement the levels, DC, New continues Thank Mike, in is to New much of quarter? costs operate? So the and the continue what how perhaps going should be you. mentioned, inventory levels in way variable? And how product much forward? permanent how DC Jersey the changes the fourth is Jersey the the sticky,

Steven Weddell

the Good on of Yeah. first take inventory. Dana, part I'll that morning,

As On is numbers, increase the two elevated. was to primary were of to which by. the but we for remain more think about guide going more Trichlor QX increase difficult inventory to year-end, year, specific I'm year-on-year to come depressed, not Again, last equipment. Trichlor, we to relative and expect areas

better try all supply produced is and DCs around And of our chain equipment a about where as resulted of so our It choice is from the the uncertainty the obsolescence other our the to stores. moderating. When it think feel in When you we're better same to little in into network, level supply end think the inventory, It to many much product. does it a take a materials, run the has And the better. lot a leaner. elevated in position and start in of retailers. nature is getting levels. have our across both year at good is of off And the in stages, next that like of position equipment, had receipt. you This -- level bit a we've inventory Trichlor is higher raw today, perspective going a versus area year doesn't if timing goods, of of

take current the in will former environment. the We

So year-end levels these manage in it's something current through into environment, the appropriate permanent view as we expect level year, don't to But of actively and I necessarily inventory. next increases. the it's

Michael Egeck

standard it I be I permanent. Good give operate it question. we expense part basis, had the but also be up, -- leverage the of morning. the trouble expensive the should growth DC the way us how will be through answer DC would The apologize. able to elevated of the just hearing our expense the the Dana, around we will increased and it more capacity goes I was some that DC DCs profile. is, a on would I gain as in to go-forward much need, second believe on

Dana Telsey

Thank you.

Operator

concludes remarks. question-and-answer to session. the our management floor closing turn I'll for back That

Michael Egeck

the Leslie's. We interest continued operator, you, today. for you appreciate and in Thank all joining of thank us

Operator

This will conclude conference. today's

time. your day. lines You a thank for and wonderful We have this participation, disconnect you may at your

Leslie's (LESL) 6 Aug 222022 Q3 Earnings call transcript