Earnings call transcript Q3 2023

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Operator

Good afternoon and welcome to the Third Quarter of Fiscal 2023 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, 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 afternoon. 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 may 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 and Chief Financial Egeck, call Mike Chief today the Officer Designate. Officer; Financial and from Officer; Executive On Chief are Scott Weddell, Steve Bowman,

over will With that, the Mike? to turn Mike. I call

Mike Egeck

to that that good will Caitlin the for note Please Leslie’s us. deck posted Thank site XXXX we everyone. deck have IR during and Thanks our joining that a referring to in you be QX afternoon certain and pages earnings we call.

in a comparable decline. sales XX% ago, shared it a double-digit in resulted total was our sales weeks we pre-release three Low decline As declines a difficult traffic quarter. X% and

deleverage associated margins that cost gross cost these significantly fixed product expenses increases unexpected the to addition distribution season quarter. for we higher In with sales, faced and in impacted

traffic our and three to points primary ongoing Our of drivers QX sales results. analysis

First is weather.

was the service, quarter. sales year-over-year Planalytics, to X% reporting a weather calculated that weather Our in

mid-teens Florida relatively quarter California, our and significantly our all in outperformed the held and across year-to-date. been year, in digits in normal in Texas, was plus the plus business and were Florida significantly in high the in is were in single headwinds of store as quarter has Sales Arizona. year-to-date. quarter The weather it and Weather base are most most Florida

increased was willing years driver absorb the price three second price not during price were quarter. inflation, increases consumer After to sensitivity. significant The of consumers

us prevented and us our from on product core prevented margins actions as pre-June taking maintain to required increased This also Xst from maintaining costs pricing pricing the chemicals.

have third we just our a and below aim we discussed price June that for before, price out-of-balance quarter, As actions. is relative addressed we position generally That relative which with mass weeks Xst to in was specialty. some point above maintain price

flat at higher year chemical third amount costs. of driver left than despite normal year. last chemicals had our the a Those actions year over in greater pricing of essentially from And was resulted a over portion customers,

two consumer one on was driver consumer our partners. surveys, of This of This the another seen and chemicals. was chemical separate by behalf on one was before and something conducted that surprising and life behalf, useful these is behavior hazardous nature not our validated have conducted given of we

traffic decline were sales that Average solid The X% broad down and XX%. non-discretionary were sales value down double was in were and the down discretionary traffic reflecting and Transactions offset increased the quarter, both conversion quarter, products digit based discretionary impacted rates. order For declines non-discretionary X%. XX%

sales as sales primarily quarter, decrease XX% increases Hypo specialty quarter the in Trichlor driven down a Total down in volume. for were chemical select were chemicals offset X% by the Equipment partially in and X% Cal sales.

these impact demand by decrease macro for factors sales The highly driven pools, in and items. was product tubs ground high-ticket discretionary continue above discretionary as hot

we are Non-comp topline suggests analyze plus issue. trends sales quarter, builds. wide the store The seeing industry the X% we new driven contributed to and acquisitions an data that by

quarter. sales ex-Leslie’s QX. than Based the the seven on were indicates for the company Aggregated for our more total that on category supplies down retail for industry data category sales, points slide pool the XXX credit X.X% declines card basis were

pool does card category than two for comparable performed sales we for Leslie’s That credit industry. categories data aggregated when the the out not from supplies a or include said, our adjust more those retail marketplaces. slightly review, hot And better tubs

We are years strong clearly season of growth. highly experiencing a pool following unusual three

fundamental pool However, advantages the long-term industry of same. remain the the

pools New of to continue installed growing build need maintained. and to be base the pools be

slide our than of you track Leslie’s consistent competitors on scale, has can see the with long faster We record has the spa have. not consistently retailer leading remain do capabilities, growth brand awareness direct-to-consumer the industry As that and a industry. eight, pool grown and

while current initiatives strategic our we competitive focused on drive will advantages to long-term continue success industry team executing So, conditions headwind, industry navigates that that underpin our key remain normalize. as also our the the and

strategic to initiatives. Turning our growth

First, given year’s the customer in challenges was quarter, prior X% the our the traffic down filed quarter. versus

ground the down average driven big tubs above in X% Second, customer revenue per pools. ticket decreases hot quarter, was and primarily items, specifically by in

sales loyalty outperform. down X% member Our to quarter. were continue the pool members Loyalty purchase in

to currently our our quarter we than start by business. PRO and factors residential the as same the We PRO contracts declined operate XX in locations. comps our the PRO of of the XX% season. our sales place X,XXX quarter conversion impacted PRO with with Group prior regard sales overall With as comp Consumer down the stores more X% were to ended completed XX initiative, to in the PRO PRO format

In channel the performance. our margin addition, has outsized Trichlor been to gross compared an PRO more headwind side and to contributed overall residential pricing the on as pressured

remainder the no assumes Our year guidance for from current levels. the change pricing of

with will near for balance it initiative as in we M&A priorities. Leslie’s the new we be an capital against this allocation our other important and term store growth of initiative prudent the pace remain though

to non-comp in new sales $XX quarter. and million stores M&A drove the

quarter locations have closed have also We acquisition that acquisitions another under locations, that XX on the added and completed in the Year-to-date, two Sunbelt. we five in five LOI. acquisitions added we

XXX long-term densification. expansion XX. Leslie’s available opportunities date the to we the opened total to over bringing stored stores year opportunity quarter, over the In for identified have seven new to and

to and seen have launch continue pleased were to to very the May date. in address and we will been We have demand the program consumer pleased with We response

marketing. nominal All despite

While demand chain for and topline in guidance supply has ramp we experienced assumes as Our to constraints strong, trends are we we up, no we the QX. are QX working improvement facing with been

gross be margin, have levels. QX to the of associated expect For on we price peak costs impact our a offset distribution quarter Xst, chemical inventory took will with full winddown by we actions the which from June partially

quarter. initiated some We the versus SG&A aggressively coupled management $XX to that in approximately million year should actions lower $XX result have weak also being comparisons QX million SG&A cost with prior

confidence industry the on for outlook and industry, strategic the in long-term executing us initiatives our front In capture we focused the in remain and summary, have opportunities leadership. our we continue further of prudently to to

At same to on focused immediate time, the actions our improve are taking we performance.

me Let the reiterate actions are we actions.

price Number reflect below mass and relevant one, at historical slightly to or home specialty conditions and above adjusted now retailers. marketing current are improvement which we our have slightly position, is pricing at and

Number ROI through two, the on P&L receipt Number are aggressively strict are our reductions. discipline investments, focused we three, cost utilizing including on marketing criteria. inventory managing we the management throughout

consumer efforts continue number five, to elevate we evaluate, and evolving behavior. our are insight and understanding people of Number consumer we further enhancing and four, improve our processes develop, to

Xth. company outlook, results effective public Scott’s his to as and Bowman financial our want our discusses partnership, depth Scott August will the commitment and our return and huge be asset as leadership operational Steve to acknowledge Steve as transition. would welcome as I’m both transition. new I areas CFO breadth growth. ensuring experience a like to very well CFO, to business of I and Before spans and thank we also his to smooth a for pleased

over I’ll turn to say Scott a few it to words.

Scott Bowman

and my areas in observations, I help see initial Mike. out carved has on plenty where admirable Thank industry attractive leverage based leadership can you, drive experience Leslie’s Leslie’s of priorities. position strategic my I to an an

speed continuous business. to into As to deliver margin I help in look supply management, improvement the such capital business, and I forward areas allocation continue digging on to product the getting chain, as forecasting, up

look of all to team the you growth exciting It’s months. time forward to drive chapter with speaking we an the coming the company’s of join and the next I weeks as in

more and Now, I’ll Steve detail turn the over financial to outlook. share results on it to QX

Steve Weddell

and over the in ensuring forward hands thank I team smooth good and look and everyone Mike the to next leaving Scott. transition months. few afternoon, Good know a I’m I you,

As Mike noted, it was a quarter. challenging

in While starts season to weather we to performance has prior pool due years historically, have Memorial around Day. seen conditions, unfavorable slow improved

our consumer purchasing third quarter along part was This due behavior. year, by to atypical headwinds unfavorable industry-wide continued in with performance weather impacted

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

or Our million. $XX comparable sales XX% decreased

stack three-year decreased Our and XX%. comparable a stack a sales basis X% on basis grew two-year on

as XXXX, of second driven fiscal sales third XX totaled million XX nine store added which the as since stores, openings the of $XX of that completed net non-comparable end the quarter in well XXXX. new fiscal by Our acquisitions quarter was

With comparable Tub. and Residential for to comparable to basis, increased Consumer Pool, declined trends Hot X% PRO XX% PRO for respect for Pool, and for Residential by Pool Residential two-year for XX% stack declined for On sales Pool, Tub. sales XX% a X% Hot Group, Residential declined to X%

year they fiscal While period. from were XXX margin compared was XX% to points XX.X% down decreased declines XXXX, sales profit third gross to with quarter in $XX unprecedented, in and quarter trends. or the of were Gross our the line million prior XX.X% third rate industry basis

of supplemental illustrates margin deck our bridge in rate XX Page detail. gross quarter more third our

impacted the primary factors. by During margins gross quarter, four were

lowered related Approximately distribution rate labor, fixed points. from off-site costs, due transportation to of costs to incremental deleverage XXX was capitalized distribution gross investments comparable basis storage points and expenses costs sales. lower and by of margin including this in basis First, decline XX those distribution

we as up inventory. recognize costs Regarding those some sold distribution prior of this inventory we quarter, we capitalized in as capitalized costs, costs periods, hired more and through during built the

our service also to smoothly distribution invest to higher in-stock better across have with network support it ensure to significantly capacities our improved at in businesses. We positions levels continued operated

We expect margin expenses in smaller the quarter. gross fourth from distribution the headwind

XXX product margins the quarter. higher had in a impact basis point on gross Second, costs

we in product largest categories. While categories, impact higher chemicals the experienced was costs across our

the our those at successfully selling pricing the start higher of We unable but season, we increased levels. maintain to prices initially were chemicals

prices And as Mike June discussed, Xst. we reduced on

the experience full a price quarter We rate as in margin we quarter of impact pressure changes. expect Xth greater those product

in XX comparable Third, occupancy to decline sales. the due points deleveraged costs by and other predominantly basis

continued expect related rate comparable our deleverage in sales fourth given quarter We expectations. occupancy and other to the costs pressure

XX XX points, completed primarily finally, margins last mix during the M&A due business gross to And basis impacted months. by

We business the from expect quarter. fourth a on smaller impact rate mix in

deleverage Looking compression and to due in fixed lower remaining at impacted basis a margin rate XXX costs, distribution with different points of margin, quarter, by product in costs the margin mix. XXX the of the way, points numbers gross basis business higher

Now I’ll SG&A. turn to

or $X,XXX,XXX quarter of to X% increased Now, we’ll SG&A compared the turn to SG&A. fiscal XXXX. third

We driving the focus business on in managing continue savings generating to optimization. cost costs organizational and ongoing

costs, to During new like in for like million acquired reductions stores, year. and businesses last and investments with associates nonrecurring expense $X compared our

have actions and quarter We reduce taken SG&A additional our in fiscal XXXX. the to fourth into

expense $XXX in Interest Adjusted the million million the in million EBITDA million increased $XXX increased year, compared from XX.X% year. effective to XX.X% year. the $X rate in $XX was tax prior to and the prior prior to quarter to our compared during

And net share of in was of both prior to the earnings in average compared fiscal XXXX third prior per quarter quarter weighted XXXX to compared the year. million $X.XX shares Adjusted million income $X.XX was XXXX. quarter Diluted in in in income of the adjusted net were $XXX outstanding year. adjusted and fiscal $XX third third the $XXX fiscal million XXXX of the diluted fiscal

to fiscal I’ll billion $X.XXX decreased billion in of months first turn $X.XXX date sales million to the year. the from Total prior X% year XXXX or $XX results. for nine to

XX% Our or comparable sales decreased $XXX million.

months two our Gross were decreased and profit in prior $XXX XXXX million XX% $XX from XX%, three-year nine the of year. comparable first up a million basis, stack million the to flat and or sales $XXX for fiscal On respectively.

nine months Gross margin points comparable prior to in X.XX was decreased growth basis from of negative rate by year, of the due the fiscal which XX.X% XXXX. XXX XX.X% sales in basis to first points

months was EBITDA fiscal expense nine nine to the compared XXXX $XXX XXXX of $XX million Adjusted in of prior the in months prior year. to first million from $XXX fiscal million increased $XX year. the during in million Interest first the

first prior the fiscal $X.XX months diluted was nine earnings $XX in in XXXX, the per net $X.XX nine prior XXXX, income the to compared adjusted share of first fiscal in $XXX,XXX,XXX Adjusted of compared to year. And was year. months in million

compares $XX fiscal Moving million amounts million ABL the million to to sheet, end the ABL. cash fiscal at had and third finished third cash of of XXXX. outstanding on balance the XXXX our quarter we of of quarter This no we on of and with outstanding our $XX $XXX

was to do M&A activity and any investments The net outstanding primarily availability past months. higher ABL approximately XX and Currently, we our in during cash in reduction million. due inventory on of we have have the amount not $XXX

of increase sequential to an XXXX fiscal We fiscal of quarter $XXX of a third compared the the compared decrease second to $XX of with million $XX million third of quarter the ended and inventory, XXXX of million XXXX. fiscal quarter

The inventory. increase our reduce levels in commentary period compared we look year sanitizers. continue core Consistent our related to prior have to and further primarily inventory peaked for was with inventory to last opportunities the quarter, to

receipts. have, During we so the purchase third quarter quarter, will we and and to in manage aggressively and the continue orders fourth far

end fiscal less XXXX we inventory fiscal XXXX. had the of at end to expect We than with

of XXXX, rate in end compared of plus rate LIBOR compared million interest to outstanding term basis an The was of loan loan our in X.X% points effective million rate the effective had X% end to on term period. our third our the we year. applicable fiscal quarter prior at $XXX on our of the $XXX prior year interest and At facility XXX increased third the quarter secured the the

XXXX, the as replace existing June unchanged, the an March facility Other date our In loan to rate rate LIBOR-based we remain SOFR-based benchmark. material credit a including with rate of amended terms interest maturity of term agreement term substantially XXXX. the

not have covenants. financial loan term maintenance and ABL Our do agreements quarterly

shared the of XXth, details unchanged on revised press today’s in outlook July remains Our earnings which are we from outlook release. the

quarter will be the outlook. left in As the we more each discussing of our have year, in one fourth only fiscal I metric context quarter implied

assumes range sales the of outlook quarter to a in with XX% X% fourth declines of XX%. decline to comparable XX% Our sales

XX.X% XX. margin to also period. of the compared prior to X% Our assumes outlook range a gross year XX.X%

distribution deleverage, expect mix product lower what business quarter, we rate fourth compared the to continued impact quarter. pressure costs from cost the a third we additional from impact from In costs, occupancy in experienced and

to in the to million be $X.XX We the to range. earnings expect EBITDA and quarter be range, share adjusted diluted in million $XX $X.XX fourth adjusted to per $XX

average of includes expense $XX Our fourth our outstanding shares not share the outlook assume quarter does and for interest incremental repurchases. weighted million, any diluted

On has changed. capital our prioritization allocation, not

Our first priority is and structure. has been our capital

of ratio three turns. We are targeting approximately a leverage

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

pursuit Mike continue noted M&A we will to be prudent opportunities. our of in

Our disciplined the focus remains pool retailers in will purchase attractive on acquiring high-quality Sunbelt and acquiring we around at multiples. supply be businesses

priority excess return to cash is to final Our shareholders.

shares evaluate repurchase on financial our do repurchase our and authorization not available under market priorities, in we other opportunities to near-term expect conditions. will focus existing the our While to opportunities, as continue to we based we investment on shares position,

will I that, with it And Mike. to hand Thank over you.

Mike Egeck

pool categories, be and spa most this the has the time over we season, to proven record of Despite gains, products headwinds one and in aftermarket and long-term We durable long you, of of and we growth are consumer industry unusual in highly the industry. remain a Steve. laser-focused returns. the the navigating initiatives, track growth advantaged Thank profitable challenging execution pool our share market on shareholder have

operator With it that, back Q&A. for to will the hand I

Operator

you. Thank

question-and-answer We session. will Instructions] a now conducting [Operator be

with go Gutman Simeon question from ahead. first Morgan our And comes Stanley. Please

Simeon Gutman

My data. market everyone that. Thanks share you afternoon don’t see from that first some We Good for Mike, card question, data. mentioned credit

related your my higher. price, much first to So, costs said product that adjusted price so Xst you you June and is is your question are

is the for weren’t margin down that a Does you’ve getting because try -- product chemicals? You mean industry a accepting price the lower sell-through. of or much you just lot selling that taken

out, to then were take is And that which growing parse maybe then you you related it if why scenario, or even in even the price? down holding share can

Mike Egeck

questions Simeon, for the Yes, questions. thanks good and

at see do feel that specifically we First, say a on in and in would still on extraordinary narrowed some, can product that core retail. active we that higher to specialty pretty comfortable do from prices XXXX had advantage cost the they gap that cost when margins, back than say, to as that, I with do. margins we And retailers, some operate specialty we and we’re XXXX we Though chemicals. we M&A need versus have has advantaged

share, regards market America. ways. we at card market is look data to With couple in share we of aggregated credit use of a The Bank

quarter. As industry basically the were in that the you on the we can to shows see slide, flat

also our industry We to to and very in pool their specialty retail distributor XX%. pool showed carefully the minus peers listened at sell-in largest the

growth would to, rate based So, share and also comparison. flat flat I that market say, a comparison on a flat

that’s consistently we we’re eight quarters, quarter. the market are from for look, the for that’s in situation pleased so the not with had deceleration a But we’ve share Now, the gains that. last

Simeon Gutman

then and And I of, It margin guess, quick sales. margin. a like our on more you in XX% million $XXX EBIT had follow-up now and years have is a pre-COVID we a looks model Pre-COVID, history. couple of

why had -- even there of it So, the base, should any this higher higher, hard I this business clearing know the you’ve is but to sales is where to than there reason XX% least on is is. be I shouldn’t reason at deceleration, commit it be? assume that Or any and margin XX%? a it’s its

Mike Egeck

levels. those that got it’s abate year gross we were we this clear Well, to But the and levels, margins, pre-pandemic to to path we’ve in headwinds particularly this look, talk operating I early like and recover we’ve our in feel do pretty XXXX. our and at feel with a terms think got margins about where of least we quarter, those

Simeon Gutman

you. okay. Thank Right.

Operator

Steven ahead. Guggenheim Our Please next go question with comes Securities. Forbes from

Steven Forbes

customer in expand question, Steve, Mike, dynamic. I maybe but focus on to on Simeon’s particular, evening, the Scott. file Good wanted

from on learnings quarter to just maybe as pertains your Mike, the file customer expand down X%. you So, it the could

driving maybe to or expect looking file we legacy it migrating specifically to into outlets? provider growth? insight what’s mass? that consumer Is And Is also, positive for its Leslie’s should disruption? reduction. marketplace when any is the Is really to back And the return on it

Mike Egeck

Yes, Steven, thanks for the question.

think the We’ve left the in consumers’ with lot which I product of inventory hands. growth, that showed a thinking in garage to shed ran, surveys a we do the calling file we’re or way shrinking two of and lack has industry file the internally. the amount X%, in about turned the larger-than-normal over the the file it

on own we with a were one through size remarkably And we and surveys had one conducted one and up results. similar similar we come by our those partners our a third-party, contacted who a of run similar survey of after prelease, chemical of

some number came we a ways, in now. the they again, size So, of idea quite have terms impact the is at what that in of similar. final though is headwind And different

there’s So, on. that of definitely some going

nondiscretionary predominantly you how is, need-based X%. was when be And that’s for nondiscretionary industry, down, nondiscretionary and think The question spend spend. down about spend well, right, quarter can the

impacted, While things it’s in need the impacted and only down quarter. need two is if

It’s years Coldest XX Planalytics. The in June, in weather season according Trends International. pool from in weather. decade of first to Weather weather was coldest a the the start

impacts means for file people need because our needing in weather and purchase, that members. to come colder active means our is less and So less file sanitizers,

some coming our from we’ve to stores. were customers to highly to unprecedented with were hearing look And were first got tests. water found experience, our unusual, as then purchase. left our that is, surveys got they over They in and particularly regards some also -- We’ve inventory, that at feedback that you say going of which all, when in, need I’m from the conducted the decreases

And we already the but they tests ran those water the were from the year’s lower. in hearing Even of chemicals. were we had quarter, more when people tests prior what it hearing that a stores questioned than was we was conversion those period down that

those So, mention they there consumers what will the highly season. supplies that think be. last was no self-reporting surveys, in would that had their it’s past a I from of both unusual might when situation say duration of that we the

years people three this So, to occurrence unstable stockpile. supply we price highly on and a one-season inflation, leading based of believe is

Now, able to the be know is won’t truth for we sure. that

size them our Our that the consumers’ of that We’ll we’ll by surveys. out with start do to season. be of that And this next be inventory way pool and which additional the what extra will way of consumer before that season, will the hands is season. we them end confirming of do next believe, at

Steve Weddell

add on as well, question material answered I’ll a as And items, traffic. well, overall regard decline to given had non-discretionary impact on with you discretionary the the

that’s So, customer look count. you outside in of if the and decline product get the total contributor nondiscretionary at the another

Mike Egeck

that’s a point. Yes, good

Steven Forbes

helps seeing quick PRO X%. down specifically we transpiring chemical contracts are basis, Thanks from a you on explain Is PRO PRO, But growth color in think on partner contracts? anything mix think segment? helpful. sort Steve. that affiliate stores in your to PRO PRO within -- the the some on Any just you the we Maybe a just of the about note question, or follow-up right, engagement as about what’s segment similar that a growth year-over-year would are less be and seeing

Mike Egeck

I business become more Well, has say the would PRO competitive.

have others reported. some And

We to and Trichlor headwind was category, in the a have seen in pretty and the quarter significant business that PRO year-to-date. that deflation

Steven Forbes

Thank you.

Operator

from William ahead. comes question Ryan Blair. with Please go next Our Merkel

Ryan Merkel

was Mike, prices you I you seen risk in address prices you when chemical could that the competitors June? have afternoon. Thanks. falling. cut Good hoping And cut keep

Mike Egeck

ourselves Ryan, for on list with we’ve get the specialty lower, retail take question. seen prices. think it’s that, haven’t from I were that since specialty to important reaction retail. prices Yes, level Yes, X/X thanks took to we understand And the we any actions to done price

we haven’t And any in the outsized seen activity promotional business. in addition,

a stable and the environment now, pool right pricing a looks promotional we like residential have stable So, space. it in situation

Ryan Merkel

then SG&A cost COGS, with savings to reduction, cost follow-up, that for have do good can And That’s you goals you and hear. savings and any us? my Okay. inventory share

Mike Egeck

any sharing specific we’re not goals Yes, at inventory this moment.

script, his we As we said as be we year. Steve than will were in last said, lower

as we -- on haven’t can, to comment are. as internal our not low working going obviously we’re but number down work what targets We’re to we that

as the million look million as year rate a we $XX about path SG&A into regards With working pretty reducing good there cost prior this well. we , talked we run QX we be we as SG&A in And year, my go comments diligently also in XXXX. the script, to lower to have in versus think to on $XX

inventory the the with supply associated fourth our and storage levels Those labor, buildup Obviously, up should of quarter and given will to the inventory rather were additional took costs end start in offsite Those a now. margin. ensure are It be the costs also by extraordinary and we flexed transportation. that increased we’re unwinding completed the those in year.

Ryan Merkel

That’s of luck. helpful. Best

Mike Egeck

Thanks.

Operator

Our next Telsey ahead. Please from Advisory with question comes go Dana Group. Telsey

Dana Telsey

afternoon everyone. Hi, good

X% gross next you into there reassorting market the nondiscretionary? you’re about plan the and how around fiscal erosion and in stores takes sales you go working it’s demand? about think to going drive planning and thinking it the this and of to traffic, discretionary, you’re through demand minimize about i.e., puts year, As of Thank as seeing you. the or you quarter transaction how cadence whether or you’re think decline whether How the how and are we any margin order business it’s to

Mike Egeck

consumer with basis, weather through out in well. That do be that. going year for was least a us Look, question. This we for bit the We be neutral a as a tailwind the of planning same each aberration that inventory. be believe year gets an a worked be to at The That of weather thanks should should year. Dana, in channel. comparable start normal. Yes, tailwind should next clearly

of quarter. The lane terms we of sales normal headwinds our a is -- into year into pricing in in little going next terms out the got of

done above and We’re so those think up to had this bit from We’ve prices and mass. will that able a That follow. good happen our position little historical especially and past a others to specially that’s price come learning I we above price didn’t keep up. been us equal the move below year, just and or just We’ve in retail. in have

marketing in we share the then It weather comes a the Need is next gains. and And as install doesn’t in base. excess and with with year, think the puts of getting need. that we back marketing headwinds to our a with our year ROI high high haven’t spend and invest ROI as market normalize then get at should we challenge about weren’t at We the ability therefore typical is market gains. marketing consumer drive to share been channel, the this additional think next on would track The some drive from drive us expect in aggressive. sorry, market need-based and takes way about marketing, year industry, it does on inventory a we’ve had spend marketing, in should

Dana Telsey

change it. of as you this quarter, cadence then any finished the Got And progression the quarterly out just the was quarter? or there in

Mike Egeck

a International in was QX coldest June Planet years. XX very in as weather Trends Weather had overall quarter June toughest quoted tough in in And for Olympics from us. decade. I terms of that it the was it the

we on going more store that’s And price it and to over in no came Memorial and see we reaction the we do, managers to into directly And customers to Day So what X-X. always we what actions that started the as was see well business. just district the kind was speaking our about both waiting started disappointing of as to get we take lift very when season as the did weekend. surveying on owners

So the challenging traffic quarter. of entirety the it a was situation for

Dana Telsey

it. you. Got Thank

Operator

Suzuki Please ahead. Our next from question comes of America. go Bank with Elizabeth

Elizabeth Suzuki

Great. much. Thank you very

the factors stored about seeing to PRO you’re as mean, doing experience you mentioned the can anything retail the chemicals do pros the are chemicals? business. year? too? last impacting business folks does they’re And is that from same some you of if that, guess I I include using using might there that up issues they the they expired then, educate pantry I customer mean, So, loading of behavior

Mike Egeck

behavior Good not thanks. the questions. Liz, on see Yes, We pro that side. did

Now our but residential side. I to pro just survey we’re consumers, the believe on was don’t seeing that

they I went into that down, come Trichlor and believing the season should correct. were pros pricing think the

where availability and of up would consumers Was Sorry. stockpiling there to on a they two residential experienced. last based the year price think came that be had years where I and ended second out question? part prior wondering your

Elizabeth Suzuki

older the no, if do Oh, using educating these you about they’re from about get happen across? and that a if to chemicals of just what can kind customer message marketing could there’s standpoint anything

Mike Egeck

are Yes, a if that yes, lose within look, Trichlor Trichlor in this to store. we’re our And loses on unprecedented. why And its these not you very blogs so temperature it, is chemicals It’s efficacy And point. and and stored year want and Cal doing good will it’s that’s ventilation. not, and predominantly Hypo. depending properly not

it Hypo dramatic granular Cal little has more because And to and the combustible properties. also solid turns is a

So consumers them and not not seen we’ve should the be past. something that something in storing store

Elizabeth Suzuki

Great. Thank you.

Operator

next question from Capital Please Loop Shmois with go Garik Markets. comes ahead. Our

Garik Shmois

Hi. Thanks.

on into touched on just moving if at in fourth that we’re wondering as the XXXX. taking million you you’re steps the expecting this in fiscal compared reductions SG&A how point quarter, lower I’m the $XX closer could costs SG&A the color provide to some you’re viewing you’re maybe prior period. more You year and that

Steve Weddell

Yes, good question. Garik,

in the experienced against to quarter. SG&A We’re, I look, it the addressing we can our this SG&A up QX and in into P&L. overall quarter year, into to we’re are the specifically thinking in rate some is that areas and of we you terms XXXX fourth And shocks the tell P&L down about next in is reduce going our make way more help durable we’re it run of both

consumer I QX little the that expect has Marketing about but can’t when year, come that down spoke naturally year recover and the the our in when expect the Marketing get inventory we we on next absent. would investments. QX earlier and down is in a for to ROI marketing. comes we bit

down by hours labor and out it as traffic inventory, weather the consumer much accordingly. taken With we’ve has, being as driven in stores

In performance efficient, are terms not it push like finally, chunk being big or efficiency, travel, de-layering associates. just is be compensation. will of organization, our a And more a year is those ourselves we optimization, more we paying little then our things supplies, then all-out and corporate categories. of more where across This

Garik Shmois

or M&A right on view Understood. to your store the I now Does new expansion? change environment wanted growth. follow-up either inorganic on challenging

Mike Egeck

we it’s consumers sheds they inventory over normalize doesn’t it and or in that’s their it and for tends is all Inventory and years is availability spotty price, weather unusual available, if and have catalyst very No and the is it situation three available readily as do because think unusual readily a which catalyst garages gone. appears sizes. of to across inventory that time very increasing

So And challenges the the we this that specialty is quarter year, facing so retail. transitory in well. to that and would expect as be we’re

that distributors’ in you think see I of some results. can the

to it over the the in the said But given that as execute the initiative attractive of remarks, and quarter about terms against. outlook Leslie’s more makes for actually important be able in for M&A our our So, of in results year, we’re to this but M&A, multiples prepared an we we’re prudent it watch we’re going pace the think to long-term. and going still it’s we

Garik Shmois

understood. again. Thanks Okay,

Operator

from Matuszewski go comes Jefferies. ahead. with question next Please Our Jonathan

Jonathan Matuszewski

Hey, good afternoon. for Thanks questions. taking my

no to change assumes that current try way you think transactions you traffic on guess Thanks. or anything first Mike, the decline? the Is excess from guidance further pricing softer, if mentioned would asking, transaction there is pricing of reduce one pricing? you in another to stem I pricing. The deviate would lead and actions. was I

Mike Egeck

no said seen we Trichlor when in up. I specifically Cal remarks, a Pro, pricing in come Offset was prepared Hypo down. for by Yes, that change little which bit the current some is have where pricing

In terms this I we currently as in inelastic. the view at of the residential, think fairly demand moment industry

we traffic and believe the about those we being we are need declines, Now are to out. price weather we transitory, which being consumer inventory, when think wait so and think we by they’re to need sensitivity, traffic by the don’t what’s driven driven driving declines

specialty we we that gotten, as that because position actions we I was a had not and in. that’s not our retail mentioned, seeing above price used and be us took to are one in want The consumers to

let lined took regular want this be and we to be weather need are consumer to out, play our normalize, standpoint, actions industry, the our growth. a back on So, of price the should we now we with normalize, and cadence we year up inventory where to we we X-X, from

Jonathan Matuszewski

helpful. spend on sensitivity. think this upgrades of And it year related that you to That’s insights the Thanks. and Curious equipment it. picked half like what sounds just some materialize second the next work up Got potentially year? extent could revenue then follow-up, my didn’t price in customer benefit

Mike Egeck

question. good also It’s Yes. a

situation, the we and think years. year pressures. I still look, Just that price In to, macroeconomic we very awful think access sensitivity general over an it three price the industry that took did, And of lot had customer is specifically there cost of I just last one industries. across the survey mentioned the the also was customers. that, entire by And

demand take, got opportunity don’t industry thoughtful to create very we be but want So much to to how there’s has we any and about take price think mindful destruction. I some price, the because certainly

down reported at I Poolcorp break-fix heightened yes, sensitivity I sense X% certainly was as continuing well. some the you but that, with of durable X%, equipment and at That’s look down read on a think think I think on. price the predominantly was And delaying volume theirs be we business, moment. that reported is might business, upgraded the ours when people certain purchases, that is the

Jonathan Matuszewski

Best luck. of

Mike Egeck

Thanks.

Operator

Carter next ahead. comes Please Andrew Stifel. from Our go question with

Andrew Carter

thank you. Hey, Yes.

So ask a really wanted the into couple I to business. questions about are visibility

quickly price that, they channel cheaper good checks, how in pricing, they street, DIYer know retail. feedback? I skis specialty to relative you you to is and getting of to of kind your respond insights mean, do like it’s can that but the terms is, are second I a hey, into say, to your how over your real-time levels? listened know out get down if First do

pounds the aside, And locations what and would door a years, share work, like how you four consumer a kind many market a point, look the last just Thanks. then give kind chemicals the work land? reversion the of where at you considering looked to went out over from to could gains, have survey mean considering sense putting various just you of of second of all

Mike Egeck

Andrew. thanks, Yes,

I’ll we the XXXX XX, into few in came kind say price. and there. about We had talk I price, how us. market price, market. about the pre-season, questions and pricing visibility and in think -- a May first we price taking So, residential follow of the April, in period, were pushing would able We influence to

our the and pricing. quarter into into When year, QX coming this our we year the pricing went was in

the intent prior of and Day a actions. we balance our So Memorial specialty was year. that on pricing meet We And took that our to to come price did little was up not. us. knew our was pricing after it X-X this buff. hold They for that that specialty, we might thought

that fairly a DMs mean, into scraping, we was. ability our have we We and and we what we’d thought and out stores, use of with have mom-and-pop store competitors over to. thousand And visibility we move a be I track dynamic and able good as a understood to We pricing. managers, to price up, well. able there, weren’t web fulsome combination

at then about question last are I analysis, on think the the And pounds we looking that.

growth the think know, I both but crop a to specific how you more is also we that’s excess of component for surveys our an think we did combination headwind gains, when there not because is Leslie’s. this important inventory become and typical market created channel. the of and think about year, We as in were year, we difficult share growth, a the

Andrew Carter

to. ahead on I’ll since asked I and it go pass Thanks.

Operator

with Peter Benedict ahead. Robert next comes Baird. from W. Our question Please go

Justin Kleber

think Do to just pressure, Just industry through to linger the costs these understand, Justin Yes, curious, move to still Mike, policies. good can’t higher next costing with the non-discretionary just particularly my like pass XXXX I in first Pete. here for your question? you’re having any It’s you vendors regarding backdrop what are sitting trying it Kleber just look guys. on on wanted could going price you this year? more product that’s if ask, the products? today today, I does imagine product afternoon, discussions I’m margin

Mike Egeck

the It’s discussions for us about I with our Yes, not early started now. takes that vendors to yet. too really place appreciate from have that talk days XX Typically to price we question. XX

important it’s that wraps and how think see. down understand about I of both sit their through then a further we QX kind we the will and season the talk for sides little QX up dynamics and our to

have there’s think of a lot There’s more a and doors inflation, cost price I three customers. coming consumers some from we of our XX,XXX there’s certainly mean, absorbing day after stores. through our pressure, some consumers but definitely also sensitivity years I

than for in has message We it are think on I consumers. their say, been would first appetite pretty been the a ground, to little has ears line is the price increases nuanced the And hearing I continuous from that, the clear past. more

Justin Kleber

it. Got

Okay.

mentioned on unrelated Steve that follow-up Now makes then times And the an target. three leverage, sense.

starts M&A as that deploying more and Just in natural and store are the recovers the get there, terms term opportunities down? pay or into to is and debt near to in some deleverage of path again, about capital foregoing grow growth EBITDA you

Steve Weddell

Yes, thanks question, the for Justin.

reduce a down. cash there’s think leverage naturally, debt the it. couple I some just allocate growth pay ways to about would in think different towards by We of to combination so a and expect potentially business,

think cash you impacted been about this primarily. year, for capital flow by If it’s working

with total year. line at might about shy CapEx, sales. you a this in of X% of little look talked a that come We kind how it’s If of in talked I kind our we it. of about

dollar’s slower From continue businesses a modest pace that acquire an attractive to certainly to deals Expect through a well as multiples. do great clip. this QX but M&A and at perspective, perspective, continue year at from

lower performance getting payable of capital accounts cadence into season, and year-end, but accrueds and And so point, expenses bringing a working when in the to the late ended year. paid off some it talked aggressively inventory accrued have incentives. for we’ll We as from led comes buying XXXX, a up down XXXX. last accounts certainly quarter to we’ve first result, down inventory the were of think other this about lot At about payable pretty that in

deploy could pay So, which as in a big expect and cash debt stores do towards invest flow to to see capital M&A. don’t lead opportunity in XXXX, as for XXXX, improvement in continue year but down, us well

big a Last make new think And store comment on fairly pros. you capital M&A a locations, of not a as drain about current requirements location in the smaller modest we’re as cash that, convert from Sunbelt, retailers you conversion, the executing I’d environment, look growth, it’s at the perspective. new stores M&A we store a for to specialty that if in or lot an

to look years. has it than to couple little towards but opportunity clear a of will it deploy But probably growth, continue capital a last the different

Justin Kleber

for And Thanks best of luck, that, Steve. guys. right. All

Operator

no time. management like to Please turn back floor the are ahead. closing There I further comments. at to go for over the questions this would

Mike Egeck

for like Thanks. results. joining I’d forward to us interest to look QX we continued near-end thank in And everybody Yes, our and Leslie’s. sharing today your

Operator

concludes This call. conference today’s

a day. You may at Thank lines and good your you have disconnect participation, your for time. this

Leslie's (LESL) 2 Aug 232023 Q3 Earnings call transcript