LESL - Earnings call 4 2023

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Operator

Good afternoon, and welcome to the fourth quarter of fiscal 2023 conference call for Leslie's, Inc. [Operator Instructions] As a reminder, this conference is being recorded and will be available for replay later today on the company's website.I'll now turn the call over to Caitlin Churchill, Investor Relations.

Caitlin Churchill

Thank you, and good afternoon. I would like to remind everyone that comments made today may include forward-looking statements, which are subject to significant risks and uncertainties that could cause the company's actual results to differ materially from management's current expectations. These statements speak as of today and will not be updated in the future if circumstances change. refer statements release factors the and call management cautionary company's in SEC.During the financial today, press non-GAAP earnings recent will review and contained risk the the measures. Please certain to filings with are website A today to can found Egeck, reconciliation Bowman, section the Mike release, was Investor in measures SEC from the Leslie's press be furnished earnings Relations the between to that, Officer; and at company's call today Executive financial call and GAAP Mike. Financial which to Chief the Leslie's I ir.lesliespool.com.On non-GAAP the the turn and will Chief of over posted Scott Officer.With

Michael Egeck

I'd customers all fiscal us Leslie's their to consistently Residential service thank and PRO a highs. associates I everyone good Caitlin, allowed high NPS at like levels hope and of solid.For and Thanks, remains whose my contributions business the throughout level that start, a to appreciation brand efforts, sincere the at all, this year, corresponding express for the Pool, Leslie's Hot awareness, Pool to joining all-time us had serve were our afternoon. in-stock holiday.To you, Residential of our Because foundation Tub Thanksgiving scores XXXX. of

ones success facing pool are broadly results. of as impacted the full we XXXX season.We the to temporary year's same the future card and XXXX grew capabilities Our results for quarter challenges indicates clear the also that our that are increased. long-term X our we largest in financial our opportunities. the the for We data for fiscal fiscal loyalty entered unmatched normalize share were customer again expected growth continues program the remain not industry we our which the what into positioned from specialty year, and year, fiscal lifetime headwinds, heading pool fiscal this credit industry with XXXX.While value fourth industry gained retailer market And in well

our the items; weather; low of discuss that and from margin. detail resulted in after price short retail increased adjustments unfavorable of the and than fell weather our anticipated made quarter performance by by when chemical margin us largely end guidance customer was at fourth delta the originally were spend, it between the supply they of with the and the over quarter at completion entirely years better X actual annual a to was factors Gross latter fourth reason of impacted core gross and adjustments inventory quarter driven of our in in margin our resulting but quarter, physical count.Scott gross that First, uncertainty we and second, the range. stockpiling EPS deliver entire financial macroeconomic for in ticket the came larger-than-expected environment our inventory explain guide our more implied are results, will inventory our helped expectations and revenue expectations, the X finally, discretionary sales our goes inflation.While end pricing high of line on especially high guidance.Profitability sanitizers, implied

comparisons Residential we As were sales expenses performance. fourth X% costs disciplined we as up XX%, tough Residential were the navigated year-over-year up down Pool down XX%. reduced XX%. XX%, on in down with total sales quarter Tub Hot down Residential up Total and We Pool our up up dynamics, when from PRO year's the remain Hot quarter, sales prior and these QX Tub were XX% down X% into quarter planned.Drilling against some PRO with and Residential X%, Pool SG&A Pool

We value XX%. were X% down discretionary in were price were X%. X% of roughly was versus down the order were and retail sales total our sales sales up and Total year. continued half and chemical with quarter. sales XX% product sales had in improvement down decreases down down plus third geographies, weakness remain Florida, of impact full of product in the down quarter. challenged, QX.Equipment in X%.Across of Total was improved traffic down categories, XX% the which to from also the normalized, June As for X%, single-digits chemical transactions a we in Average Discretionary sales weather decline. this the we year. high-ticket X% quarter's high increase quarter's saw quarter sales were we a the Non-discretionary the contributed implemented in saw a down was exception in XX% an

down the shows million, to data card for credit actions, Scott discuss inventory how rebates fiscal quarter, the Sales industry points points of were underperformed basis basis X%, we majority decreased based these of transitory fiscal was in year, inventory share believe fundamentals costs Adjusted these purchases per was were year the on changed. EBITDA We the down the price year.Turning the XXX face outperformed Tub diluted down this will XXX Pool this the DC of year-end the the lower basis headwinds results equipment our retail $XXX.X the $X.XX.In of adjustments, down and June industry have that sales expect occupancy X%. earnings total adjusted by year, the levels, chemical higher decreased and not associated are billion of year. margin significantly headwinds and by sales deleverage. XXXX. comp full X%. to with with of sales for abate the specific $X.XX PRO sales were our analysis industry Non-comp for added to driven were Residential Our X% but points XX%. flat XXX in and Gross a Hot Pool Residential by sales sales

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

investment consistently [ adoption to industry pursuit of remain addition, industry. homes We and increasing tailwinds not do safety believe direct-to-consumer Leslie's scale, with sunbelt the awareness brand In and than to retailer leading backyards, grown the and sanitization the and and has of outdoor track ongoing spa lifestyles, remain new technologies.The ], have. long secular record the migration pool in we that industry pool that drive growth, competitors intact, and the faster our a consistent exerts capabilities including of demand attention and has

navigates we and as strategic competitive current remain on we that rate conditions expect team to to interest then success strategic the underpin headwinds, our our to While our the initiatives focused our advantages, executing continue normalize.Turning growth initiatives. drive

quarter for due First, weather file our full in year the was traffic we X% and experienced. down trends the and customer to the

pools.With primarily PRO the initiative, per was residential solid and Leslie's. gross XX consider overall items, initiatives sales We margin and drove contracts pricing PRO PRO the place format. down. to important year locations.PRO sales in remain more quarter given environment. distributor the which year, prices flat down competition than decreases stabilized.M&A to we in in appears and operate year, Trichlor X,XXX a for XX stores Second, outcome have in was more specifically now headwind regard Trichlor were store growth the overall ticket PRO with average to and we for our revenue new performance our pronounced as the currently for channel conversion a ended the of the company to customer tubs, heaters driven our above-ground by big X% completed X% PRO hot to and pricing

sales. XXXX, in fiscal stores drove and For up new M&A $XX non-comp million

confident now have X,XXX operate new for the XX stores expansion we total year, remain long-term XX and and opportunity XXX over store opened acquired stores in We opportunities the densification. identified locations. During store and

we experience priorities.For pool we of marketing supply. continue overall manufacturing pace will inside to by limited water a member benefits been an as members limited during season response expansion evidenced due We quality be we the at and store greater with Home, demand per X.X is marketing. with buy AccuBlue opportunities program AccuBlue balance our Home these of date, to will in though analysis, insufficient comment address third-party the convenience, spend confidence as our campaign prudent see core They was very program.While of sales, averaging and of were the and we rating our in growth with strong, $X,XXX for capital launching with May and capacity we each that allocation the water seen and X pays launch have with to year, or other even consumer build excited the program we average have pleased review deferred to itself treatment demand and vendor out value of the stars. our believe routine as consumer

are we our demand.We continue of opportunities on and worked above and We pool June to confidence prudently ramp actions with us capture in same have our vendor slightly and industry we off to specialty. time, the initiatives the to market extend are have improve our performance.Number executing focused current outlook industry historical we actions, meet slightly based consumer leadership. our the after or in and long-term to our production near-term one, of position expected during strategic taking below at the price are our season relative front conditions remain on our season to price at mass XXXX At up pricing

respectively.Number surveys And results improve and We strict XXXX. million we and $XX we we managing marketing elevate investments. number expect approximately throughout evolving four, our continue this utilizing people discuss are insight positioning over peak our P&L, to our are behavior.I Scott our to are processes it in criteria and to our to including $XXX two, further now by to hand detail. the million, expect Number inventory and improve outlook three, efficiency. utilizing aggressively more evaluate, to year-end for will and develop Scott? and hold of Number understanding inventory costs consumer on help consumer managing five, to ROI our we reduce XXXX

Scott Bowman

X-year I'll stack our X% net to performance of XX% a during stack stack stack quarter Residential XX% stores, declined flat for decreased sales XX and to acquisitions These XXXX.Turning including X were X% fiscal of comparable and Pool, line Gross the on basis, reported basis openings sales the fourth XX%.Page Pool basis.Non-comparable prior X-year in XXXX. XX and XX% a margin which of and year $XXX million QX supplemental XXXX declined bridge declined Tub. $X fiscal to declines to Hot driven Comparable a on group, increased XX% points everyone, quarter XXXX. results. million store rate margin basis, period.On Comparable in provide We in new recent a our Mike. compared Pool afternoon, XX% of the then and consumer fiscal detail. on fourth comparable new compared approximately our million, details Residential totaled PRO $XXX net by and new assumptions trends of declined XX%. XX a to to and X%, with decrease profit decreased sales Pool gross the fourth in respect expectations our quarter a increased Residential the was fourth quarter PRO quarter, for Good increased With X-year review total fiscal about Hot and our and continuation in was sales illustrates gross for fiscal for of Residential business. you, sales outlook the XXX for million of by rate were deck compared trends sales declined $XXX and X% Tub basis XXXX, X-year more thank

During was the by impacted gross following the margin factors. quarter,

actions basis product XXX primarily rebate. of lower the chemical points our XX was impact to pricing driven a quarter. margin gross negative due and June First, in declined This basis XXXX points by

mainly negatively costs returns.Additionally, quarter. scrap Second, adjustment in movement XXX storage inventory we to unsellable a inventory levels to This that facilities excess of due in the and in shrink point and higher due incurred goods of margin third-party between gross basis was higher higher resulted to locations, XXX incremental was with rate headwind XX increase in sales.SG&A DC was expensing due approximately basis decline $XXX down basis mainly And to costs $XX.X or fiscal XXXX. to compared due associated the finally, quarter of by million the drawdown fourth of X% by the of impacted occupancy points million, costs deleveraged points, the inventory. comparable unexpected capitalized

fourth to basis increased and for XXX was fiscal basis points compared million Diluted the driven XXXX XXXX. XXXX.Moving inventory certain of decrease a actions.Adjusted million XXXX.Adjusted including to increased of fiscal $XX the in $X.XX stack by interest XX year $XXX to $XX supplemental basis SG&A profit XXXX actions for deleverage.SG&A lower were rate and $XXX sales our fourth lower the flat prior down a to the our in rate due was XXXX. stack to million fiscal Total points X% of quarter net million XXXX of year. the to basis in rates management basis, to million Page executive software occupancy and XX% $XXX the results. from totaled million $X.XX prior primarily of shares tax XX.X% compared compared was for million XX% margin Interest on EBITDA fiscal sales year, XX.X%, quarter of incentive share decline costs rate in year fiscal of the was adjustments fiscal shown The $XX to points the sales, was expense gross $XX discontinued chemical XXXX. in restructuring, with $XXX compared subscriptions costs per And increased prior pricing lower was higher to earnings outstanding $XX to fiscal associated Non-comparable was million the the items, and XXX and to decrease and due $XX adjusted of sales fiscal compared both $XXX sales prior the were expense million full XXX to X-year compared increased fourth weighted XXXX $XX in XXXX. was basis year.As were fourth the with million from on in basis. rebates, compensation of stacked and in X-year of decreased DC on points million full Excluding million fiscal quarters the transition deck, Comparable XXX to year. incurred effective in use a fiscal a $XXX $X.XX due quarter XX.X% costs XX%. Gross a XXXX to quarter of fourth to were million billion, average quarter due fiscal diluted income non-recurring comparable compared fourth compared on and

This XX% $XXX or was Excluding fewer DC expense the to quarter the implementation Interest system year. the $XXX was to net in non-recurring our compared compared in compared million of compared had income adjusted And compared $XX in end from the the XXXX reduction was $XXX XXXX, income. or million new fiscal At fiscal and of XXXX XXXX. Adjusted balance fiscal the XXXX on to availability million of a non-comp $X.XX million to fiscal to new decrease million The and $XX of year. our million to $XX XXX $XX a million million year.Adjusted to items strong $XXX we acquisitions prior compared and for management equivalents diluted the EBITDA fiscal prior prior inventory chain third per for the XXXX in XX% earnings $X.XX to ended reduction to million was $XX due prior XXXX. stores, sheet. fiscal compared no of and for decreased cash supply our expense primarily $XXX to outstanding million in decrease of prior cash was was of $XXX sequential year.Moving due net XXXX at and to $XX million, fiscal in XXXX decline million year. SG&A was inventory balances disruptions, revolver possible and execution We fiscal the share for locations. [indiscernible].Year-end compared with

to of to outstanding anticipate fiscal are our XXXX, we the $XXX outlook. on leverage basis million which XXXX customer X.X% high was now of continue but XXXX year term macroenvironment an we expect June XXXX X.Xx. rate the seasonality be easier in year a high and contribution half points and of we seasonality interest standpoint, store the be In and our a to the pricing higher growth achieved XXXX, sales more affecting sales compared to of a the year the during XXXX to comps more fiscal fiscal a support of which The comparable negative to on year, of term weather fiscal than the the maintaining we strong of in-stock due which compared end compares.With fiscal the uncertain more $X of profitability end for the our actions consumer, in million. effective to comparable the assumes an lapping expect in our rate at over applicable sales anomaly secured the assumes the chemical quarter.And fourth the the reflected non-comp outlook level back $X.XX We sales $XXX in scores.At our cost-conscious X%, X.X% loan outlook are Importantly, approximately for categories of our pool prior we positions half of fiscal expect season.We in X%. to was translated growth from XXX in of comparable normal plus while and facility in expect being SOFR this of NPS course $X.XX peak in to ratio positive discretionary our second more low quarter, to planning deliver especially is had assumes XXXX, first of billion sales. of loan our level end year of approximately half approximately and The a all service, into our million billion,

to see that the we items basis the year, of and inventory chain the levels by gross see For the to start of adjustments lower XXXX. these said, until don't efficiency.That margin and reduced QX unusual improved expect lap due improvement supply full to costs to [Technical we impacted expect benefits inventory QX, and compared DC approximately year, we fewer fiscal XXX Difficulty] prior points driven to rate

making to million drive while efficiency $XXX expense expect the in of slight investments the expect half of first SG&A cost adjusted our prudent year.We in year structure the business. as to compared the in in higher million due sales lower decline prior to $XXX deleverage a of we Additionally, we EBITDA impacts expect and

$XX of net than million to interest on earnings $XX to income of adjusted rate million our to and outlook per be an $X.XX.Our assumes $XX million, $XX million $X of debt million higher X.X% approximately net XXXX. expect will interest income average adjusted expense share diluted fiscal and rate We of $X.XX floating

for as tax supplemental an fiscal provided rate effective with assumes diluted outlook QX. includes full repurchases see the approximately also we on of on outlook estimate million no Our XX will which XXX We our XX%. XXXX.Now along of share during shares, deck, have a count Page share guidance, an year you

historical adjusted contribute fiscal practice to fiscal million a adjusted the EBITDA do to in it our the forward dynamics appropriate total guidance, and will believe not of this million trends While been negative to EPS the intend million outlook $XX going view to is negative QX.For given million practice sales to negative $X quarter, of to provide to income unique approximately and to $XX to $XX has $XX comp it we same be to negative QX period comparison will income of provide be XXXX, $X.XX we $XX $XXX to nor $X.XX.Underlying of net of quarterly million. related we million, XXXX that of $XXX expect million, net it the expectation negative QX a million, non-comp is and similar negative sales negative negative our $XX adjusted million of first

driven the to expect expensing we In compared CapEx. of the a decline occupancy margin prior to costs deleverage.Turning addition, and by year capitalized DC significant gross quarter,

manufacturing the is and $XX the remainder of to be include $XX capacity expected distribution other new improve projects our the invested which invested facilities improving to invest in and million existing in approximately in assets, expected business. These investing our IT expect openings, of XXXX, million $XX is be million to We and and growth. fiscal to to store investments in

opening capital significant by our and debt allocation, We and X.Xx conversion to is achieve flow priority income improvement $XX to to goal in stores the of goal priority net be capital XXXX. lower growth. down growth second to expect in plan million.Regarding meaningful Longer fiscal leverage due the a invest new inventories approximately organic expect improvement of higher our is reduce cash This stores will X.Xx.Our ratio to we XX of X in term, working achieving of of free will the and a to to also ratio residential format. the in a first include and PRO leverage to pay with X.X inventory,

activity this not have in return year fiscal is our cash at time.Our any We final included to guidance to M&A excess priority shareholders.

continue want will position not that based evaluate controls performance will this to Form shares weakness I short, weakness controls the and address covered material financial to do identified I it our expect of items database to used repurchase greater over our vendor related we the in X have on that and financial While on inventories. term, in internal detail near reporting. to back we to be turn is market to internal One In of our conditions.Before rebates relates calculate in X we insufficient weaknesses controls to over XX-K. physical Mike, an the other

result, designing I and are Mike. the to you. to control cover that, with to a of weaknesses it and hand and underlying we completed the material enhanced As during Thank over XXXX.And address fiscal expect back be will implementing new processes remediation

Michael Egeck

After Thank to unprecedented we scores, at as headwinds the and to in-stock XXXX. brand industry multiple NPS years in Leslie's impact you, by X levels Scott. exceptional customers headwinds awareness, in our that highs. faced deliver growth, results, all their on are all-time these service continue corresponding transitory evidenced our Despite and pool fiscal of

these together, to a of team serve our Taken members. as and the execution focus testament

from focused our the advantages and scale strategic As continue industry capabilities back operator initiatives leveraging growth and I'll market the for to competitive gains.With we hand that, drive the share continues our remain to it Q&A. to normalize, executing and on to

Operator

[Operator Instructions] Our from Blair. the Ryan of with first Merkel comes question line William

Ryan Merkel

'XX, business the sales pretty about largely some through flat there? just aftermarket. year with of Mike, you a pieces guidance non-discretionary is was can 'XX. guidance at down. it First and in off, I'm a your to wanted weather surprised the for little Because just to ask rough I to had we walk horrible

more growth in a explain why of So 'XX? we're bit not seeing kind

Michael Egeck

Ryan. Yes. Thanks question, the for

sales, have XX% our any is at we sales, sales. And [ we X.X%. definitive in the price our do business, additional June, headwind first in the headwind. of we But down of about the also X have have as actions don't a periods is growing we recovery discretionary of XX%. the year which midpoint Non-discretionary which the guidance, see we through ] plus you chemical The an of are took know, discretionary assumption planned first

So predominantly down, prior discretionary from year. flat which items the have midpoint growth. chemical, sales headwind with points with guidance XXX in of any basically are the high being the about basis the got of -- headwind the there's and ticket we for we've items why to those That's the X

Ryan Merkel

street And traffic then modeling. little sales just in the trends. couple are of of the What's consumer looks bit are XQ with a coming the on seeing It you you months? out also sort What last below Are seeing question slowdown? where there? a like happened was

Michael Egeck

best little saw some The a Yes. was the me of In we traffic. August way let continuation September and trend. back month. some QX, in -- in categories and October, the In out, July was was up. the increases we of some seeing weaker a turnaround all, quarter November, are tough. that played first September of

the improved XX% of the has not in seeing the down change tough ticket a we're discretionary transactions particularly being and But the same But that's items.And discretionary for it's been as order equipment. more equipment to recover. But equipment slow is value trend been been as with by improved has starting weather, business, driven seeing average little quarter, traffic parts down high the the -- a turn has it's APCs challenging. the traffic normalized definitive and now. time, business, -- yet. was and we for has excuse the or turn, a the real are robotic It really me, start So business XX% in business and year, heaters the to equipment a the see at it's

Operator

comes Morgan of question Our the from Simeon line Gutman next Stanley. with

Simeon Gutman

The I guess either question, way. to go it first could

in the you why gave not the the was gap about said Mike, I July? inventory you think biggest Can you observable adjustment. guidance in those that talk were

Scott Bowman

] back issue Mike kind that, to with can issue, the haven't adjustments, [ on and step to if required several inventory a million too product the we reason in can down, returns. it of between main those close at inventory peak tag We facilities past. inventory. with and as more off-site we that of use I start main then lot has but $XXX storage come Simeon, The of it's much third-party than started to had And on look higher needed. movement and just we've facilities. had We sellable and us the some

goods, lot created And a just not of X goods it our so of movement and inside walls.

had that so really thought And of inventory we problems about is so, the just of kind those with get They're improvement. as talked to and and of it, we're we've adjustments the And that problem.And the and in root all of it outside get systemic. kind step about are inside not our X direction was walls. path it out kind first that to on that of the warehouses fixable,

do out facilities. that. the off-sites hard today, we're here really over stand worked those toward And to we've last as so we And additional of several weeks

a that's us. step so And for first great

can goods on of our that It's have had eyes we we inside walls. X the put So the inventory. We movement before. don't

and visibility having just add to excess outsized to of to process.Along just much. And whole reserves us so improve there our just scrap. It's with first some the extra the inventory a do to there's on had that we volume step so with can sheer improve We on controls improvement had we inventory. that, because just obsolete and our that is for

identify we'll early to As put warning more we just processes signs. pretty any we have But kind up now also of build brought and focus it well. that on along actually we that inventory, inventory to down, come some we to should control just be release of monthly major that.And variances before able

that team, we're much down, manage new some DC it a we now in talent, to we we're forward. good feel like back really so And going have a better position

Simeon Gutman

said to a what I components guidance. about last the Or way? then the your of recouping it A around of grower adjustment, some follow-up, weak. the better, thinking Are not assumption happen your the And It's doing units approach right? answer get heard that to back bit a mild very I broader. out could and the that gains. heard this even to what of assumption year, contract, It's gave inventory stays discretionary even it's industry, And the And your you level maybe your you gross prudence? question. margin, then an you're Mike in

given about but a So make this seems argument it? to tough your you but thought it's how conservative, approach miss, curious

Scott Bowman

Yes.

Michael Egeck

Scott. ahead, Go Yes.

Scott Bowman

off side, can I driven by especially a business, that lot And and chime rates discretionary very on gross Interest around still commentary is Mike the Hot still purchases high the of just ticket high, constrained. our start Tub items. can the in on side. Yes. margin sales in

just so ability may That discretionary of really we happen. from yet relief their ratchet the purchases. and seen a consumer side ton And haven't to up

We of haven't yet. meaningful seen signs that

the And through we'll kind have share so that gross look kind knowledge in lion's we're we we today.As saw of with feel margin, of taking the QX. inventory come like it at the adjustments of that recover we we

chemical other which price June, where needed headwinds our that.We it to about we should in pricing kind kind took that If fully in of needed aligned a see be. we benefit. the problem, well. is get have of expect as improvement big see so do QX, And a We've that QX talked kind we to to of couple fix we and of reductions just back was a the

some kind see so New the of that.We as last prices of Year, impacts up some roll into we'll of we year. January in did take And

also But more significant a well. well. will an with kind on of lower have an into even little -- pretty QX be coming QX, that some have impact -- as impact. sales deleverage occupancy So of we'll as will be bit

feel will like we So margin better the the But first the on. as half year constrained. gross get goes the it will of be year, in

Michael Egeck

more Yes. sales guidance. A little on color the

plus are midpoint. We planning at ], the X% positive transactions [

conversion We and our We of the you and seen in a recovery rates, about about business, chemical business, know, trends feel those XX% have we XX%, good is traffic. turned positive. good as our which, feel

by heaters driven and discretionary X% down the and a purchases, mix hot midpoint, yet and robotic We that recently at pools is haven't are, the tubs, APCs. trend however, planning we above-ground more in and really turn seen AOV

how business. think that's we So about the

AOV, traffic, but in in guide. the get we that's pressure recovery how midpoint of the to recovery on transactions, the Our

Operator

the Steven Securities. comes Forbes question Our Guggenheim from of next with line

Steven Forbes

I years. wanted during with to past performance acquired of start the few the assets the maybe

sales Just the trying to profitability? those of and to are how get context just acquired where XXXX? a some how think you you've better right, to much on assets? Any recently seen Or both headwind understanding sales we are assets profitability out to assets of on of look stability the as those more and a sort through if point acquired neutral, newly

Michael Egeck

businesses that Thanks, with Yes. items we've to I'll financed, We long often discretionary good tub about feel EBITDA and year. think comp a challenging. basis XX% levels on first business. a are said, about Steven. as ticket of if those That in the talk about our because, of very businesses, the -- terms on profitability. the drag were for ratios, term. specifically not mix the they business for adjusted And been Well, tub has hot the hot down businesses, we being talked total good on big We still a there's

Steven Forbes

Scott. Mike just or for maybe follow-up a then for And

I think at from peak the Mike of mentioned and it $XX reduction $XXX was million inventory the year-end. million who

sort capital think first think implications quarterly half cash the any help just with through working through free interest basis? the of a flow sort of needs we for As we sort expense on and XXXX, of here, as the of guidance

Scott Bowman

one. can I that sure. take Yes,

just the the start execute to in use our business, as typically given quarter start revolver we we our inventory build. late to usually So seasonality our first of

in And kind year way. see similar we a playing out of so this

get when way build that's the balance sheet.And we few happening we and hit as we the then then And of March when probably kind of this revolver we'll cash end down. peak periods draw that's season months so the pool ramp the the start of year, when a ramp this to inventory into peak, and the similar of kind calendar -- usually of our to up revolver in be the late our year year. our on is It's on May of And last April. we in start early we the as when hits, kind see and so up we it we selling

we're play will into it our on. think our what -- I that benefit planning at peak least inventory,

we close less of we'll be $XXX what this million to kind mentioned, year. As past Mike saw than

of a that's And supply side. come on so we lead new the the some other team plan and times shorter. things good operating, I into in really have planning chain And merchandise we are and of place. But testament is and kind some have of to of normalized, more think tools we season get we our really The how kind it. a have out come

helping that's So us. certainly

more Our efficient. is and DC getting team more

thing like from so working keep This payables. starting payables. that we out.And than the how I And started we mind think feel during so kind of paid had to a of it's XXXX, million capital to We is $XXX million $XXX of play in we year, million one almost in close less standpoint, of when to that's course we're at down XXXX. payables $XX going

of have will ] [ the building for last prior we And end that reduced saw year down.Reason XXXX, paying towards inventory. huge at the we that year we so not and cash the just of end year, that on we green the were is balance payables in inventory that

flow working saw that. we year. That And us will and But so much a higher management income better than puts tight with position better us cash along year. on free much is capital of last generate that the free it cash in to number give flow this cause what net

Steven Forbes

sort And you and that thought sort the quarter guidance as on maybe together quarter given can end for any just of us that give marry -- of a provided XQ? liquidity guidance, of guys you implies first -- what

Scott Bowman

The quarter yes. end XQ,

will quarter. yes, And million close total the to at our end so the $XXX of -- liquidity be

Operator

question next of Our comes Baird. from the Benedict line with Peter

Peter Benedict

maybe inflation. about just first, Well, little talk a bit

don't guess, I the what's outlook -- view think That's 'XX? that's stabilized. my for in first inflation Trichlor heard know I embedded, the just question. I I

Michael Egeck

-- by is into as [ increases It for going X% typical, but the have ] in like with pricing think category corresponding pricing year, X% companies, a on increases prices. the question. product MAP 'XX. price Yes, They're their varies this thanks more Peter, The it the years, 'XX practice. pronounced, does we to equipment we from little most in in

for our have dilutive us. that's And So purchases been it's and made. not well margin planned,

So in single-digit moment we very chemicals. from chemicals, more each we season to see low we that are And and if at follow.In that, at a decrease plan quarter. tailwind. the decline. Chemical easy prices get a of of then low, terms [Audio bit little holding ASP planned the the of We're it's that slight But think during were have pool not they levels in where high, don't guidance, the seeing we fourth of prudent mid a in prices. -- some we Gap] should

the in inflation business, deflation the slight business. equipment So some in chemical

inflation all think we categories, year together pretty the with other it's Taken a flat of overall.

Peter Benedict

look just you're And terms you of I tone. happening what of that, promotional what's also since to several tone, the evolved just thinking that's promotional last kind guess over but out 'XX promotions? here related as your industry, the -- And the in in months? to how

Michael Egeck

in we promotions. pool very were section of Yes. last was season, a terms see the In the Again, business. it Residential pleased of normalized to differs that. business, think We by this

planned as were Our we them. promotions

promos that Residential little which to expect stays a normal including of down, we into we make should PRO promotional plan a items again intact. we've there but price-sensitive.In the that sufficient normal assumed can any or We to believe move move, more weather, more other environment, slightly business are Going need was competition rec also side, on we year terms the price. items for the fiscal that inventory our 'XX, sure

kind domestic As At chemicals, convergence of fair Fiscal the to the Trichlor year of imports of coming in fiscal in XXXX. a there year specifically online. of I time, mentioned production side the on That the same have my back script was in PRO market. looks 'XX amount saw stabilized.

and I quarter, of the good normalization, in now side been and to in the now place. year. would, be think you of set have pricing the for on Prices for demand looks if PRO pretty supply PRO that stable we expect kind next be last to

Peter Benedict

And then maybe for one Scott.

you're here, just kind of And margin line. obviously, so of, profile XX% Just coming the maybe board this on call business. business the EBITDA was on But premature. on pre-COVID it,

year. Any your the back stabilized year kind kind think bit, to on build I are talked the midpoint. think about outlook mean about profitability kind opportunities I maybe the SG&A color term? a of so environment? mid-XXs, your down a view this maybe more dollars being for of little this the at How business of somewhere you I we thinking longer of think, is on margin I in

Scott Bowman

I'll with start Sure. Yes. margin. just product gross the

lately been with the price ] some So made. or has [ changes we've impacted that of

to was and to it positioning. think do and we balanced I price right make that the thing sure volume have

to that do. I think the So was thing definitely right

I you about think will look areas. burden the excess so the the costs, that we is of adjustments couple improve. When a and talked of our opportunity in inventory at inventory DC

that were when match costs down imagine, we that you by to those does okay? the those is, XXXX of flow for so of can the And sheet have income draw that, costs way DC inventory, put balance also works DC impacted about as XXX to of you're as we so our those down. DC basis so on And include bring statement in and we cost.And the points capitalized capitalized you draw inventory, cost over the with goods, to you kind until the expensing it building

tail now down seeing we're And little get inventory expense costs, once going so big down okay?And a headwind off. so those we what down, it draw we're and draw further, as is inventory still headwind to as we a capitalized that will that we

run without are dialing more in and those a is in those key that XXXX. that facilities. just to down that using because talent management costs the is metrics going issue facilities, think expenses better of to way be DC I the and And

the -- full the we has we last Unfortunately, great has that job of those of occupancy yet done efficiency costs.As so is team had deleveraged out DCs. seen in And because effect have sales getting haven't the of a improve points basis capitalized year. XXX burden expensing these over -- of been really deleveraged

from some SG&A natural on a get see occupancy. improving improve, we path leverage sales And on standpoint, as we'll good And G&A. so pretty an then

came this that had go we past in away. So some year. costs Those non-recurring

of ] improve we've way. really items be the will this out And the because the [ next some path so of We've to delayered these organization. SG&A kind gotten of non-recurring year We've for good streamlined.

SG&A so expect And leverage we'll of these of as get we that out some well.

Operator

Our next Sachs. line question Kate Goldman from comes with McShane of the

Katharine McShane

any question, your We if PRO between of chemicals? the in today as could on you're in you market? work the your And commentary share wondered little differences survey what level about second comment versus stockpiling quarter? you demand a could And is bit Residential more a talk you seeing the telling about

Michael Egeck

Residential question, Kate. most PRO, there our was Thanks the versus chemical as terms sales for business really and competition PRO demand, of The is the for In price said, -- dominated part. Yes. we in chemicals heightened by

differential Residential business. So both that That's the business PRO as impaired of did pressure for business PRO in on the the chemical quarter the than for the performance and the on our the a year. side more headwind, predominantly it reason

headwind XX% in X% difference. drove For the the PRO in year, Residential that was really it's the Pool. And comp in that PRO down down Pool, it was chemical

chemicals fewer I'm our and say, definitively also that stockpiling, any We in size last the from Really terms recent between switch in that the decade surveys, of not of in they number results the unfortunately, to consumers can We lot, September over have DIY moved additional to confident that haven't and show we question. the surveys carryover it's that a November. we a out moving most course lot.In going that. excess year. it don't than DIFM. And put we're did prior X hasn't seen good from see a

price haven't XX We're look to for to more could every headwind, a guidance, headwind tailwind test -- of we it We fourth get be doesn't that XXX big smarter place.Look, bridge or we for to But try acting. tailwind, data have to as XX can all are mentioned the the any days, industry now that going that in for share, miss in is the it not I a to reductions we're us. be quarter current we but did have.And good a any chemical consumers able right fast customer basis the stockpiling. in it's so size to a assumed grow possibly of full not of put question chemical prices. we should quarter, with reduced the how continue we as of terms from with our That's points. And about we say the

you through and was our That were not post-purchase thinking expensive positioning. we were those directly signals. One understand brand our the not very So can't volume were that have and consumers a good that's we was on strong from we value, one.The that. that There one's our things second X that surveys, was seeing were too we long-term, chemicals in drop.

it volume, the did the the increase believe but prices thing So make business. we to the brand entirety and We enough right the decision headwind, of the see an to do volume for to not take the up was long-term in down. made

some did it growth in industry the us cost versus QX. sales However,

Operator

Our next with line Shmois of Markets. Capital question the Loop Garik from comes

Garik Shmois

near you bit that a could provided I'm parts, all just more the here on just just visibility little handholding more in wondering quarter, business given little bit the and first if about the in margins maybe term? around a how you gross think moving just to near-term provide given the

Scott Bowman

Yes.

versus year the let of So half kind the this kind of me break first half. it down of back

It January kind first in we actually pressure because back June. items. we more see would prices several the product margin raised impactful on will is did in chemical in I on year what and price be So lap QX, second as of we back some those quarter in gross the changes of that

little first deleverage expensing of as we should see lower the I reduce And mainly so changes, occupancy those then in [ QX.DC mostly on QX capitalized a it will ] inventory. talked will price effect in in in unfavorable those And we be be some to acute quarter. chemical with about, sales, expenses a of still costs more likely but bit little that because

we as the half DC that more should are in QX expensing the much more we much Second DC as movement flattish. moderate adjustments and those well. we back capitalization, facilities to biggest then outside inventory and QX, And quarter, we into goods as get extremely see not as high of probably lower storage improvement lap QX as the costs be saw. deleverage.And the of without year, the start should

Garik Shmois

just about and there, to any It you discretionary on but sales the mean expect 'XX? track, additional like to seeing discretionary you piece. bit where XX% you're how fiscal little maybe talked be color largest in a year. down the kind sales to maybe then the change sounds as incremental buckets of through And the I you're expecting

Michael Egeck

have Garik. have the been and Yes, hot tubs soft higher-priced softer. The hot tubs been

any have or in change through that seen QX. far haven't either so QX We material

some some of at challenging starting other So been discretionary were heaters for the discretionary which down sales change some there, the enough have than the year not versus the we improvement encouraging, is midpoint. was more and started The businesses, of planned out that's QX XX% down XX% relatively sales seen also we but soft. more relatively us plan specifically We're is in equipment APCs. them, to robotic XX% consistent. for one see to in fourth quarter. which is and That have Equipment

Operator

Matuszewski of Jonathan from next line question with comes the Jefferies. Our

Jonathan Matuszewski

First question on the sales was XXXX guidance.

kind the high Residential, in So flat this to mid year single-digits. segment was of past to PRO relative an customer down outperforming

between performance top relative and line So PRO of your terms is in assume what guidance Residential?

Michael Egeck

We've Yes. of as on similarly really Residential increased I for got planned AOV. on the Jonathan, forecast PRO continued and question. with some the about, XXXX, pressure transactions, based talked thanks fairly for

Jonathan Matuszewski

of to for Scott, that opportunity environment? haven't Can the mentioned And that follow-up of areas SG&A the you kind rationalize item haven't terms buckets that -- year. kind in a just a you the you for further next year-over-year. What in on you are I leverage demand then you of used a see yet, pulled? the soft decline just think potentially line slight expand

Scott Bowman

Yes.

done we'll come this I So we've kind of that some of of kind see look year, from a as at up next really and benefits job through. for SG&A labor good tightening so

optimize that. There's some SG&A, bring room continue incentive I dollars that pressure XXXX. a we is that true, Really, as comes be lower continue extremely the Our best marketing to hope compensation. low That a down of to test on little biggest to and uses of kind was little and bit. the kind the this understand year bit will for of marketing in

it if a pressure biggest outside that. we that's incentive to point of come actually the so normalized And payout, of would have back then that more comp

write-offs. have kind benefit call then expenses are and just we'll the about of Our down some million the And added core of of of I severance the some SG&A. non-recurring on $XX costs what would with

lap we than -- will and that prior SG&A as of be kind year. actually unadjusted So lower

Operator

comes line Keith Peter question the Sandler. from of next with Piper Our

Peter Keith

pretty So front just years. been seeing Has you're anything could M&A any you're anticipating the seems it on of on that backdrop? the you But on It like comment M&A it's not like with acquisitions. couple sounds good changed last front? what

Michael Egeck

Peter. question, the for Thanks

Scott Bowman

Thanks -- Yes. Go ahead.

Michael Egeck

Scott. Thanks, I'll start. Yes.

pleased with the debt prices. We're pleased And we're interest follow returns we're current the the rates. with we with Look, on. still can M&A is You very situation getting our and our and think attractive. with in

mentioned, terms to had going of Scott in As our is pay down priority first debt capital allocation. be

year the year's finishing on the In is really pipeline terms to focus M&A, this our building of and be of integration acquisitions. going last

They it's think deals founders owners. still through. opportunity, and time take work the I a going lot building of So and to on some these pipeline a big work with to entrepreneurial-minded

will on and So can ourselves M&A get we back where leverage in get a cycle. debt levels from be that then focus, an the and position

Peter Keith

this hit -- but to size by basis longer multiyear? 'XX. is trying Benedict's the regard referencing might question, guess a if FY Peter were it's I Or seems with of see inventory QX you And with inflection, big like looking to take or XXX then, a guess points I'm It intrigued to adjustment fully recovery when to something full even start opportunity, I'm that that at QX? 'XX up recoup? it recovery with you through I FY we this for is

Scott Bowman

the in would just reason wall we year. saying can was having most that I that inside step take say X that about mainly recoup like our because, we that the can inventory is And I of process. our say biggest question. is this I that Good

of we'll So around. continued we're having There's this avoiding not control not storage, way moving a third-party We're lot long scrap. of on that that storage, inventory and better improvements goes a an do product and outside cost.

coming but go to the so lot, control started ] refinement piece to that.The do, that but back. build really into it unsellable did we -- just now for ton we some And work I this additional big [ didn't have a before returns was one in inventory just returns, of of a

And so returns by were those a little a -- elevated bit -- little that bit.

And to for we as continue all of bit sure products that our returns so making advantage refine new other an either and or us. sell through opportunity taking those going as that's those we're -- a of to outlets, of all opportunity process

if a that the so I And but a the there. spend thing little just portion returns an anomaly, up pick that's don't major wasn't bit. long-term or of did the know

this in of say I over last quarter what saw would XX% are we so what fixable And is XXXX. basically

Peter Keith

recoup These until are that, to And you QX? Scott. don't to recoup verify year, just this it but start

Scott Bowman

Yes.

Peter Keith

an you'll guess recoup basis? quarters annualized on And in then rest the the I following as

Scott Bowman

predominantly, the to for think quarter way it. impact that's about I fourth mean, Yes, a it us. was

quarter, And we we so, benefit. see should fourth this lap as that year

Operator

next with Group. Advisory of the comes Telsey Our Telsey Dana from question line

Dana Telsey

How are what down half and you about thinking you guidance positive in how in equipment it expecting And you're how what the compared infers last sales quarter. you a about picture season to of about about think XXXX, this when AOV made going talked you AOV last components a than are On breaking forward? the Is and big thinking second the then quarter, of are the planning the more the impactful you pool and that season even basis, quarter sales it? pool year?

Michael Egeck

first expect demand X% be and in pool season on bit right flat. what earlier, Yes. items down, boost. at about equipment, the we in deflation of ourselves some fairly the but expect which for I the industry units With it's we some there little a But out Thanks, Scott We're with the midpoint, Likely is the half. to based first quarter the the showing transactions X%. and to transaction big volumes relatively decision from fourth That's of being the year standpoint, we're but think seen we be higher. normal also a to AOV That and in weather, do Again, the about through think those year. traffic recover. of up discretionary down for our mixing And made overall recovery, non-discretionary But and being terms walked now us see pool on we've will adjustments to of a a now season and challenged. seeing half we're the more challenging steady. quarter, internal be second mix be the we we Dana. them giving Like Conversions mentioned we high-ticket the holding season. see will to we as might last equipment are discretionary when discretionary for we has a think chemicals, fairly XXXX Look, planning flat. know flat AOV, from into categories inflation AOV. items price in positive.In more together,

Dana Telsey

on following store or what are of in And from there seeing the just it's front, up competitors? terms store What openings, competitive there? you seeing change pricing your Any you whether closings? are

Michael Egeck

in on new Residential Yes. the that on the competitors have PRO come the been any or There scene side either hasn't scale side.

scale be we different situation and of about year next say the we're side, we've I nice And but be but businesses. be year. still this got in how how business much to then it. Residential challenged them very ] on -- big side, healthy [ competitors thinking continue PRO flattish very to running, to the continue a the that thinking in X not fairly having the sure I'm their little businesses wrong of the to than terms And in one it, reporting, Florida would bit year distributors about seems rest good a [indiscernible] is On for the the expect go can't by competitor and about they're country Florida

Operator

session. Thank And conclude question-and-answer you. teleconference. our with that, will concludes This this today's

disconnect You time. for your you your at lines may now this Thank participation.

Leslie's (LESL) 28 Nov 232023 Q4 Earnings call transcript