Leslie's, Inc. (LESL) Q4 2024 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call summary presents a negative outlook with declining sales, gross profit, and adjusted EBITDA, alongside increased interest expenses. Despite some positive elements like PRO business growth and inventory reduction, the overall financial performance and guidance are weak. The Q&A reveals concerns about traffic declines and vague management responses on debt paydown. The company's focus on debt reduction limits growth potential, and the leverage ratio remains high. These factors suggest a likely negative stock price reaction in the short term.
Key Financial Performance
Sales (Q4 2024) $398 million, down 8% year-over-year, driven by continued softness in traffic and larger ticket and discretionary products.
Sales (Fiscal 2024) $1.33 billion, down 8% year-over-year, with comparable sales down 8.8%.
Adjusted Earnings Per Share (Q4 2024) $0.02, down from $0.14 in the same period last year.
Adjusted Earnings Per Share (Fiscal 2024) Loss of $0.01, down from income of $0.28 in the prior year.
Adjusted EBITDA (Q4 2024) $43 million, down from $59 million in the same period last year, primarily impacted by softer sales and a one-time gross margin item.
Adjusted EBITDA (Fiscal 2024) $109 million, down from $168 million in the prior year, primarily impacted by lower sales.
Gross Profit (Q4 2024) $143 million, down from $160 million in the same period last year, with gross margin rate decreasing 105 basis points to 36% due to occupancy expense deleverage.
Gross Profit (Fiscal 2024) $477 million, down from $548 million in 2023, with gross margin rate decreasing 193 basis points to 35.9% due to June 2023 chemical price actions and occupancy cost deleverage.
SG&A (Q4 2024) $117 million, down 4% year-over-year, representing 29% of sales.
SG&A (Fiscal 2024) $420 million, down $26 million from a year ago, representing 31.6% of sales.
Interest Expense (Q4 2024) $17 million, approximately flat compared to the same period last year.
Interest Expense (Fiscal 2024) $70 million, an increase of $5 million compared to the prior year, primarily due to higher interest rates.
Cash Position (End of Fiscal 2024) $109 million, up from $55 million in fiscal 2023, due to efforts to reduce inventory.
Inventory (End of Fiscal 2024) $234 million, a decrease of $78 million or 25% compared to the prior year.
Debt (End of Fiscal 2024) $784 million outstanding on secured term loan, down from $790 million at the end of fiscal 2023.
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Operating Highlights
Market Positioning: Lesley's remains the only national large-scale omnichannel player in aftermarket pool and spa care, serving both DIY and pro customers. The company has a strong competitive advantage with over 1,000 stores located within 20 miles of 80% of pools in the U.S.
Operational Efficiency: Lesley's has reduced inventory by 25% year-over-year, amounting to a decrease of $78 million, while maintaining strong in-stock positions and service metrics.
Store Growth: The company plans to add approximately three stores to its footprint in fiscal 2025, focusing on optimizing existing assets and improving sales per store.
Strategic Focus: Lesley's is focusing on three strategic themes: customer centricity, convenience, and asset utilization to drive long-term profitable growth.
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Risk or Challenges
Sales Decline: Sales for the fiscal fourth quarter were $398 million, down 8%, and sales for fiscal 2024 were $1.33 billion, also down 8%. This decline was attributed to continued softness in traffic and larger ticket discretionary products.
Gross Margin Pressure: Gross margin rate decreased 193 basis points to 35.9% for fiscal 2024, primarily due to headwinds from June 2023 chemical price actions and deleverage on occupancy costs.
Inventory Management Challenges: There is still room to optimize inventory management, with a focus on precision inventory to ensure the right products are available at the right time, which is crucial for meeting customer needs.
Debt Levels: The company plans to prioritize debt reduction, with an expected pay down of approximately $25 million in the current quarter, reflecting a commitment to managing leverage levels.
Competitive Pressures: The pro pool consumer group showed relative strength, but overall sales declines were noted across residential pool and hot tub categories, indicating competitive pressures in the market.
Economic Environment: The macroeconomic environment remains dynamic, impacting consumer spending behavior, particularly in discretionary categories.
Regulatory Issues: There are potential risks associated with rising minimum wages in certain states, which could impact SG&A expenses.
Vendor Contract Risks: A one-time gross margin headwind of approximately $5 million was noted due to escalating warranty costs from a vendor contract, which has since been renegotiated.
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Guidance & Outlook
Strategic Themes: Lesley's will focus on three strategic themes: customer centricity, convenience, and asset utilization to drive long-term profitable growth.
Customer Centricity: Lesley's aims to enhance customer care through personalized solutions and loyalty programs, leveraging data to better understand customer needs.
Convenience: The company plans to improve inventory management and localize product assortments to enhance customer convenience and satisfaction.
Asset Utilization: Lesley's will focus on optimizing physical, technology, and human capital assets to drive higher organic sales and improve operational efficiency.
Fiscal 2025 Sales Guidance: For Q1 FY2025, Lesley's expects sales between $169 million and $176 million, reflecting a year-over-year decline of 3% to an increase of 1%.
Adjusted EBITDA Guidance: For Q1 FY2025, adjusted EBITDA is expected to be between negative $29 million and negative $27 million.
Debt Paydown: Lesley's plans to pay down approximately $25 million of debt in Q1 FY2025.
Long-term Outlook: Management expects to update the market on the full year outlook in the next earnings call, with a focus on improving customer service and leveraging strategic themes.
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Shareholder Return Plan
Debt Paydown: Lesley's plans to pay down approximately $25 million of its debt balance during the current quarter.
Capital Allocation Priority: The primary capital allocation priority is reducing debt.
Free Cash Flow Generation: The company is working to maximize free cash flow generation to serve its number one capital allocation priority, which is debt reduction.
Store Openings: Lesley's expects to add approximately three stores to its footprint in fiscal 2025, but the majority of attention will be on optimizing existing assets.
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Key Q&A
Q:Which one of those strategic themes do you think will make the largest impact in the near to medium term?
A:Asset utilization is the one area that I think does the best job of focusing on optimization and improving same-store sales.
Q:What is driving the relative strength in the pro business versus the rest of the business?
A:Under Dave Casper's leadership, we've engaged the team to drive sales, reinvigorated promotional activities, and added more pro partners.
Q:Can you break down the comps of negative 8.3% for the quarter between ticket and traffic?
A:It was driven more by traffic.
Q:Can you talk about how the current focus on existing assets changes your long-term unit growth outlook?
A:We still believe we can reach our long-term growth outlook of 2% to 3% once we are comfortable with debt paydown.
Q:What are some strategies to improve gross margins?
A:It's more about driving top-line growth to leverage fixed costs.
Q:Do you feel like you're right-sized on inventory, or do you have to cut more?
A:There's still some room to take out inventory, but not nearly as much as last year.
Q:Can you provide any additional color on the 1Q gross margin pressures?
A:We expect about seventy-five basis points of pressure from fixed rebates and higher costs in some DC costs.
Q:Can you talk about any potential reinvestment needed to drive awareness?
A:It's not determined yet how much additional funding is required.
Q:Should we think about 2025 as the vast majority of free cash flow going to debt paydowns?
A:Yes, paying down debt will remain our number one priority.
Q:Can you talk about chemical AUR trends and pricing strategies?
A:We're being targeted on pricing, particularly in the pro area, and it's showing good top-line results.
Q:Can you continue to reduce SG&A dollars while making necessary investments?
A:It will be more difficult, but we want to invest in SG&A as we see growth.
Q:Review of Unclear Management Responses
A:Management avoided giving a direct answer regarding the specific amount of additional funding needed to drive awareness and the exact dollar amount for the remainder of the year for debt paydown.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
CEO
DIY PRO
advantage
area focus
art
asset utilization
center
centricity convenience
class
convenience asset
customer centricity
day
dollar
expertise
footprint
investment
kind
loss
lot
marketing
need
neighborhood
omnichannel approach
paydown
piece
precision inventory
pride
proximity
side
site
solution
spa care
technology
theme customer
warranty
water
way
week
word
LESL Transcript
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The earnings call reveals a mixed picture: improved gross margins and inventory reduction are positive, but significant net losses and a decline in net sales are concerning. The Q&A highlights supportive supplier relations and strategic pricing investments, but lacks clarity on free cash flow and customer regain costs. Overall, the neutral sentiment reflects balanced positive and negative elements, with no clear catalyst for significant stock movement.
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The earnings call reveals several concerning factors: competitive pricing pressures, declining equipment sales, and a forecasted sales decline. While management highlights strategic reviews and cost optimization efforts, these initiatives lack detail and immediacy. The Q&A section shows analysts' concerns about unclear guidance and traffic challenges. Despite some inventory improvements, the overall sentiment is negative due to competitive pressures, traffic issues, and uncertain recovery plans.
Leslie’s, Inc. (NASDAQ:LESL) Q1 2025 Earnings Call Transcript
Unknown2-7
The earnings call reveals mixed financial results with slight revenue growth but increased losses, declining gross margins, and significant debt. The lack of a shareholder return plan and cautious economic outlook further weigh on sentiment. While management highlights progress in asset utilization and inventory management, concerns about competitive pressures, professional fees, and unclear guidance responses persist. The Q&A section does not provide significant positive catalysts, and the cautious revenue outlook suggests potential challenges ahead. Overall, the sentiment leans negative, indicating a likely stock price decline in the near term.
Leslie's, Inc. (LESL) Q4 2024 Earnings Call Transcript
Unknown11-26
The earnings call summary presents a negative outlook with declining sales, gross profit, and adjusted EBITDA, alongside increased interest expenses. Despite some positive elements like PRO business growth and inventory reduction, the overall financial performance and guidance are weak. The Q&A reveals concerns about traffic declines and vague management responses on debt paydown. The company's focus on debt reduction limits growth potential, and the leverage ratio remains high. These factors suggest a likely negative stock price reaction in the short term.
LESL Report
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