Leslie’s Inc (LESL) Q1 Fiscal 2026 Earnings Transcript

Call Participants

The key participants in this earnings discussion included Jason McDonell, serving as the Chief Executive Officer, and Jeffrey White, acting as the Chief Financial Officer. Their insights provided a comprehensive overview of the company’s performance and strategic direction during the first quarter of fiscal 2026.

Key Financial Highlights

In the first quarter of fiscal 2026, Leslie’s recorded net sales amounting to $147,100,000. This figure marked a notable 16% reduction when compared to the corresponding quarter in the previous year. The decline in comparable sales stood at 15.5%, with the majority of product categories experiencing downturns that aligned closely with this overall metric. Gross profit margin came in at 18.4%, a significant drop from the 27.2% achieved in the prior-year period. Inventory levels at the end of the quarter totaled $210,000,000, reflecting a substantial 23% decrease from the $271,000,000 reported a year earlier. This improvement stemmed from deliberate optimization efforts and the closure of certain stores.

Selling, general, and administrative expenses, known as SG&A, reached $85,700,000, which was a reduction of $1,700,000 or 2% from the previous year. Factors contributing to this decrease included lower store labor costs, reduced corporate payroll, and various other operating expense savings. The adjusted net loss for the quarter was $48,700,000, wider than the $40,700,000 recorded in the same period last year. Adjusted EBITDA posted a negative $40,300,000, compared to a negative $29,300,000 in the prior year. Additionally, a noncash impairment charge of $10,100,000 was recognized, associated with the closure of 80 stores and one distribution center, hitting the midpoint of previously guided expectations.

Customer dynamics showed challenges, with a net loss of 160,000 residential customers during fiscal 2025, primarily due to churn. Despite these headwinds, management reaffirmed the full-year guidance, projecting net sales between $1,100,000,000 and $1,250,000,000, alongside adjusted EBITDA ranging from $55,000,000 to $75,000,000. A new pricing initiative involving a national rollout of lower prices on essential value items is anticipated to compress annual gross profit margins by 100 to 150 basis points. The closure of 80 underperforming stores is expected to diminish annual sales by $25,000,000 to $35,000,000 but enhance annualized net EBITDA by $4,000,000 to $10,000,000.

Further optimizations include the closure of the Illinois distribution center, projected to yield $500,000 to $1,000,000 in yearly savings and additional inventory reductions across the system. Over 2,000 SKUs have been eliminated, aiming for $4,000,000 to $5,000,000 in annualized EBITDA gains. Capital expenditures for the quarter were $4,300,000, down slightly from $4,700,000 the year before, with spending directed toward store and distribution center maintenance. Liquidity remained solid, featuring $25,000,000 in borrowings on the line of credit, $752,000,000 in long-term debt, and $128,000,000 available from cash and bank lines at quarter’s end. Management highlighted the seasonal nature of the business, expecting the bulk of sales and earnings in the latter half of the year.

Transformation and Operational Updates

Progress on the transformation plan has been substantial, with store closures and network reorganizations largely finalized—80% of closures were completed within a week of the announcement. Digital and delivery enhancements include a nationwide Uber delivery rollout, building on successful implementations in Arizona and California, to boost same-day convenience for customers. The field organization has shifted to a market leadership model, unifying store, service, and trade operations under localized management incentivized by ZIP code performance metrics.

Risk Factors

Several risks impacted the quarter, including the gross profit margin contraction to 18.4% from 27.2%, with roughly 430 basis points linked to a noncash inventory impairment from store closures. Comparable sales fell 15.5%, influenced by macroeconomic pressures, the absence of prior hurricane-related boosts, unfavorable year-over-year calendar comparisons, and effects from closed locations. The net loss expanded to $83,000,000 from $44,600,000, while the adjusted net loss grew to $48,700,000 from $40,700,000, driven by transformation costs and revenue challenges. Customer churn led to the net decline of 160,000 residential accounts in the previous fiscal year.

Executive Overview by Jason McDonell

Thank you all for participating in today’s discussion on our first quarter fiscal 2026 results. As we kick off 2026, our steadfast dedication to establishing Leslie’s as America’s premier destination for all pool care needs is guiding every decision and initiative. This commitment is propelling us toward sustainable, profitable growth. We identify substantial opportunities through the diligent execution of our broad transformation strategy. Our efforts are intensely focused on revitalizing the business, enhancing our customer value proposition, and appropriately scaling our operations via cost efficiencies and superior asset management.

Prior to delving into details, please refer to our earnings press release where we have confirmed our full-year guidance: net sales projected at $1,100,000,000 to $1,250,000,000 and adjusted EBITDA between $55,000,000 and $75,000,000. Entering the second quarter, we are observing promising trends, including positive comparable store sales in January. This positive shift, combined with advancements in our transformation projects, bolsters our assurance in the team’s capacity to fulfill our objectives during the forthcoming pool season.

As we approach the 2026 pool season, a key pricing transformation is underway—a deliberate choice to offer more competitive pricing on critical items for our customers. Analysis revealed that our previous pricing was frequently misaligned with market standards, contributing to the net loss of 160,000 residential customers in the last fiscal year. Off-season price testing across diverse customer segments yielded encouraging results, paving the way for immediate nationwide deployment. Supporting this shift is a robust integrated marketing campaign themed around new low prices with unchanged high quality, set to launch this season.

This pricing approach is crafted to boost foot traffic, elevate conversion rates, and foster enduring customer loyalty. Our field teams are poised to leverage this by emphasizing growth in average basket sizes. Enhanced pricing on high-value items, paired with our exclusive 10-point water testing system and personalized in-store consultations, will drive this. Collaborating closely with vendors, we have invested heavily in training programs for associates to sharpen their skills in customer interactions, crucial for effective upselling and long-term relationship building.

The new low prices, same great quality initiative will be amplified through a multifaceted marketing strategy blending digital channels with precisely targeted communications. Personalized notifications about our pricing updates will reach both current and former customers. This leverages our Pool Perks loyalty database, which captures data from more than 85% of transactions. Extensive testing has refined this method, and we will persist in using marketing mix modeling to maximize effectiveness and investment returns.

Delving further into customer acquisition and retention, the net loss of 160,000 customers in 2025 was predominantly driven by churn. Addressing this, we are deploying a refreshed pricing model, revitalized targeted marketing, and store-level expertise in pool care to expand our active customer base in 2026 and subsequent years. While opportunities exist for new customers, reactivating lapsed ones presents the most immediate growth potential. This involves optimizing marketing budgets toward mid- and lower-funnel tactics with precise targeting.

Regarding store optimization, announced last quarter, a thorough evaluation of our asset portfolio prompted the closure of 80 underperforming sites. Remarkably, our teams executed about 80% of these closures within seven days of the public announcement. This rapid pace resulted from thorough preparation, seamless cross-functional teamwork, and the commitment of field personnel who handled the logistics without compromising customer service.

Such swift action limited operational disruptions and expedited cost savings realization, delivering prompt financial advantages. As noted in our Q4 discussion, while these closures will reduce annual sales by $25,000,000 to $35,000,000, the net effect is an annualized EBITDA uplift of $4,000,000 to $10,000,000 upon full implementation in 2026. To preserve customer ties amid closures, we enacted a detailed transition plan. Through Pool Perks, we issued tailored marketing to impacted customers, offering incentives to visit proximate stores and highlighting our comprehensive online and app-based offerings.

Expanding on this, localized marketing via digital platforms, direct mail, and calls ensures customers know nearby locations can fulfill their pool care requirements. Engagement with former store customers will persist through the pool season. Paralleling store efforts, we refined our distribution network for greater efficiency and reduced costs. Last year’s Q3 closure of the Denver warehouse successfully redirected volume to other centers, cutting annual expenses by around $500,000 without service lapses.

Transitioning to a streamlined five-distribution-center setup in 2026, the Illinois facility closure remains on schedule, promising $500,000 to $1,000,000 in yearly savings and lower overall inventory while upholding robust in-stock positions. Primarily serving e-commerce, the Illinois site will be replaced by regional fulfillment from other DCs and store-level BOPUS, cutting shipping expenses and accelerating delivery times digitally.

Enhancing convenience, our Uber partnership expansion continues. Rollouts in Arizona and California are complete, with national deployment preceding the pool season. Uber-enabled same-day delivery marks the next evolution in customer ease. Aligned with efficiency goals, SKU optimization progresses apace. As previewed in Q4, we will enter the 2026 season having culled over 2,000 SKUs, targeting low-volume e-commerce and marketplace items handled by distribution centers.

This refocus on top-performing inventory simplifies operations, sharpens go-to-market strategies, and delivers the forecasted $4,000,000 to $5,000,000 annualized EBITDA boost. Concluding operational shifts, our Q4-announced field reorganization dismantled silos separating stores, services, commercial, and trade functions. The new market leadership model unifies these under local oversight, assigning managers responsibility for defined ZIP codes to deepen multichannel customer bonds.

ZIP code-based incentives motivate managers to expand business and relationships locally, promoting transaction volume and higher order values while upholding consultative sales. This empowers data-driven, localized growth among myriad pool owners. In summation for Q1, transformation milestones were met decisively. We are instituting core operational and customer service evolutions to deliver superior value, leveraging our market dominance.

Initiatives advance purposefully; we are enthusiastic about pricing and marketing, with cost and asset measures on timeline. Transparent updates underscore our path to profitability and stakeholder trust via execution. Q1 results aligned with internal sales and EBITDA projections. Net sales hit $147,000,000, contextualized by last year’s hurricane uplift, the 52- vs. 53-week shift, and 80 store closures. Profitability exceeded plans through cost discipline and initiative efficiency.

We reaffirm full-year guidance, rooted in strategic conviction and transformation momentum. I now pass to Jeffrey White for financial details.

Financial Review by Jeffrey White

Thank you, Jason. My comments will cover Q1 fiscal results, liquidity and capital plans, and our 2026 outlook. First-quarter net sales totaled $147,100,000, matching internal expectations and supporting our annual guide. This represents a 16% drop from $175,200,000 last year. Breaking down the year-over-year decline, we lapped a $4,000,000 hurricane sales boost expected as a Q1 headwind. The 53rd-week shift added about $10,000,000 to the decline, and closed stores subtracted roughly $1,000,000.

Comparable sales declined 15.5% versus fiscal 2025’s Q1, with categories tracking this trend. The noted headwinds explained around 850 basis points of the comp drop. Gross margin was 18.4%, versus 27.2% prior year. About 430 basis points of contraction arose from noncash inventory impairment in closed stores. Remaining margin erosion stemmed from core chemical profitability dips, amplified by low Q1 volumes, partly mitigated by cost cuts.

Confidence in pricing persists into pool season; we guide for 100-150 basis point annual gross margin hit from these investments in fiscal 2026. SG&A fell $1,700,000 or 2% to $85,700,000 from $87,400,000, thanks to store labor, payroll, and other savings. Cost vigilance continues for fixed and variable reductions amid optimization focus. The $10,100,000 noncash charge for 80 stores and one DC fell at guidance midpoint.

Net loss was $83,000,000, up from $44,600,000 last Q1. Adjusted net loss was $48,700,000 versus $40,700,000, per internal plans. Adjusted EBITDA was negative $40,300,000, from negative $29,300,000. Ending inventory was $210,000,000, down 23% from $271,000,000, via optimizations and closures. Inventory productivity, in-stocks, and seasonal/regional flows are priorities.

CapEx was $4,300,000, versus $4,700,000 last year, for store/DC upkeep. Liquidity ended with $25,000,000 line borrowings (down from $40,000,000), $752,000,000 long-term debt, and $128,000,000 availability from cash/lines. Strategic initiatives’ 2026 impacts are reiterated. Core chemical pricing adjustments with suppliers ensure competitiveness, hitting margins 100-150 basis points annually.

Store closures of 80 sites imply $25,000,000-$35,000,000 sales loss but $4,000,000-$10,000,000 net EBITDA gain yearly. Late 2025 expense reductions—vendor/landlord renegotiations, noncore asset reviews—target $7,000,000-$12,000,000 annualized savings from 2026, fueling traffic via pricing and expertise. DC optimization via Illinois Q2 closure saves $500,000-$1,000,000 annually.

Inventory clearance of underperforming categories trims annualized margins 100-200 basis points one-time, mainly Q3/Q4. SKU cuts exceeding 2,000 yield $4,000,000-$5,000,000 savings via assortment focus. Combined, initiatives net $5,000,000-$10,000,000 EBITDA in 2026. Traffic/sales confidence persists via optimal product/pricing delivery.

Cost opportunities fortify finances. Seasonality drives H2 sales/earnings. For 52-week 2026 (vs. 53-week 2025), sales guide $1,100,000,000-$1,250,000,000, EBITDA $55,000,000-$75,000,000. CapEx $20,000,000-$25,000,000 emphasizes maintenance/productivity for positive free cash flow. Capital structure reviews with lenders/third parties explore growth acceleration. Liquidity positions us for pool season.

In closing, strategic sales/profitability/balance sheet actions position us for value creation. Back to Jason.

Closing Remarks by Jason McDonell

Transformation progress is tangible, initiatives urgent. Excitement surrounds pricing/marketing, cost measures on track. We are restoring Leslie’s to profitability through disciplined execution.

Industry Terms Glossary

• SKUs: Stock Keeping Units, distinct identifiers for products aiding inventory control and assortment refinement.
• BOPUS: Buy Online, Pick Up in Store, a seamless omnichannel method for digital orders collected at stores.
• Pool Perks: Leslie’s proprietary loyalty program tracking over 85% of transactions for tailored marketing.
• EDLP: Everyday Low Price strategy featuring steady low prices over promotions.
• UPT: Units Per Transaction, metric for average items bought per visit.
• AOV: Average Order Value, indicator of spend per transaction.