10-Q: Leslies Inc. Reports Q1 2025 Results: Sales Slightly Up, Net Loss Widens Amid Inventory Adjustments

Leslies Inc. reports a slight increase in sales but a widening net loss for the first quarter of fiscal year 2025, impacted by inventory adjustments and occupancy cost deleverage.

Summary

• Leslies, Inc. reported its financial results for the first quarter of fiscal year 2025, which ended on December 28, 2024.
• Sales increased slightly to $175.2 million, up from $173.96 million in the same period last year.
• The company experienced a net loss of $44.564 million, compared to a net loss of $39.553 million in the prior year.
• The increase in net loss was primarily due to a decrease in gross profit and a slight increase in selling, general, and administrative expenses.
• Gross profit decreased to $47.7 million from $50.4 million, with gross margin declining to 27.2% from 29.0%.
• The decline in gross margin was attributed to increased inventory adjustments and deleverage on occupancy and distribution center costs.
• Selling, general, and administrative expenses increased slightly to $87.4 million from $86.9 million.
• Comparable sales increased by 0.2% compared to a decrease of 11.7% in the prior year period.
• The company's effective income tax rate was 19.7% compared to 26.1% in the prior year.
• Adjusted EBITDA decreased to $(29.3) million from $(24.4) million in the prior year.
• The company had $40.0 million outstanding on its Revolving Credit Facility as of December 28, 2024.
• The company is still working to remediate material weaknesses in internal control over financial reporting.

Sentiment

Score: 4

Explanation: The document presents mixed signals, with a slight increase in sales but a widening net loss. The ongoing remediation of material weaknesses in internal control adds to the negative sentiment. Overall, the sentiment is cautiously negative.

Positives

• Sales increased slightly compared to the same quarter last year.
• Comparable sales showed a positive increase of 0.2%, a significant improvement from the prior year's decrease.
• The company prepaid $25.0 million on its Term Loan during the quarter.
• The company is actively working to remediate material weaknesses in internal control over financial reporting.

Negatives

• Net loss widened compared to the same quarter last year.
• Gross margin decreased due to inventory adjustments and occupancy cost deleverage.
• Adjusted EBITDA decreased compared to the prior year.
• The company is still working to remediate material weaknesses in internal control over financial reporting.

Risks

• The company's business is highly seasonal, with sales and earnings concentrated in the third and fourth fiscal quarters.
• The company's financial performance is subject to macroeconomic events and uncertainties, including inflation and interest rate fluctuations.
• The company is exposed to weather-related risks, which can impact sales of pool and spa products.
• The company is still working to remediate material weaknesses in internal control over financial reporting.
• The company is involved in legal proceedings, including a securities class action and derivative actions.

Future Outlook

The company believes that its cash and cash equivalents position, net cash provided by operating activities, and borrowing availability under its Revolving Credit Facility will be adequate to finance its working capital requirements, planned capital expenditures, strategic acquisitions, share repurchases, and debt service over the next 12 months and thereafter.

Management Comments

• The company is focused on addressing material weaknesses in internal control over financial reporting and expects to complete remediation activities during fiscal year 2025.

Industry Context

The company operates in the $15 billion United States pool and spa care industry, with a market-leading share of approximately 15% of residential aftermarket product spend as of 2023.

Comparison to Industry Standards

• The document states that Leslies' physical network is larger than the sum of its 20 largest competitors, and its digital sales are estimated to be greater than five times as large as that of its largest digital competitor.
• No specific comparable companies or projects are mentioned in the document to benchmark the financial results against industry standards.

Legal Proceedings

• The company is a defendant in a securities class action lawsuit filed in the U.S. District Court for the District of Arizona.
• The company is also a defendant in three derivative actions filed in the U.S. District Courts for the Districts of Arizona and Delaware.

Stakeholder Impact

• Shareholders may be concerned about the widening net loss and the ongoing remediation of material weaknesses in internal control.
• Employees may be affected by the company's cost-cutting measures and restructuring activities.
• Customers may be impacted by changes in product availability and pricing.
• Suppliers may be affected by changes in the company's purchasing patterns and payment terms.
• Creditors may be concerned about the company's ability to meet its debt obligations.

Next Steps

• The company intends to remediate the material weaknesses in internal control over financial reporting as soon as possible and believes the measures described will help remediate the material weakness and strengthen internal control over financial reporting.
• The company anticipates that its remediation activities will be completed during fiscal year 2025.

Key Dates