Leslie’s Earnings Call: Turnaround Progress Amid Weak Q1

Leslie’s, Inc. ((LESL)) has held its Q1 earnings call. Read on for the main highlights of the call.

Leslie’s latest earnings call painted a cautious but constructive picture for investors. Management acknowledged a very weak first quarter, with steep sales declines, margin compression and a wider loss, yet emphasized rapid execution on a broad turnaround plan and reaffirmed full-year guidance, arguing the worst numbers should be short term as operational fixes take hold.

Reaffirmed Full-Year Guidance

Leslie’s stuck to its fiscal 2026 outlook despite the rough start, projecting net sales between $1.1 billion and $1.25 billion. The company also reiterated its adjusted EBITDA target of $55 million to $75 million, signaling confidence that cost actions and strategic changes can offset margin pressure and demand softness.

Rapid Store Optimization Drive

The retailer moved quickly on store rationalization, closing 80 underperforming locations with roughly 80% of closures completed in under a week. Management expects these shutdowns to trim annual sales by $25 million to $35 million but to add an annualized $4 million to $10 million in net EBITDA once fully reflected in results.

SKU Cuts and Distribution Center Reset

Leslie’s has streamlined its assortment by eliminating more than 2,000 SKUs ahead of the 2026 pool season to sharpen focus on higher-turn products. The company is also shifting to a five-DC network, with the already completed Denver closure saving about $0.5 million annually and the planned Illinois DC exit expected to add another $0.5 million to $1 million in yearly savings.

Expense Reductions and Transformation Savings

Beyond stores and inventory, management outlined a broad cost program targeting vendor renegotiations and non-core assets. These efforts are projected to deliver $7 million to $12 million of annualized savings, contributing to an expected net EBITDA benefit of roughly $5 million to $10 million in fiscal 2026 when combined with other initiatives.

Early Seasonal Momentum and Pricing Strategy

The company pointed to positive comparable sales in January as an encouraging early-season sign. Off-season price tests showed higher units per transaction and better conversion, giving Leslie’s enough conviction to launch a national everyday-value pricing campaign under the theme of new low prices with the same product quality.

Inventory and Working Capital Tightening

Inventory at quarter end fell to $210 million from $271 million a year earlier, a 23% year-over-year reduction. Management said this drop came from targeted inventory optimization and store closures, which should improve working capital efficiency and keep stock more aligned with seasonal demand.

Operating Discipline and Organizational Shifts

Leslie’s has reworked its field structure into market-based leadership with tighter ZIP-code accountability to improve local execution. Training investments and data-driven marketing tied to its Pool Perks program, which touches more than 85% of transactions, are aimed at boosting baskets and winning back lapsed customers.

Liquidity and Balance Sheet Position

Despite losses, the company ended the quarter with roughly $128 million of available liquidity from cash and its revolver. Letters-of-credit borrowings were trimmed to $25 million from $40 million a year ago, and capital expenditures were kept low at $4.3 million in the quarter to preserve cash.

Omnichannel and Same-Day Delivery Expansion

Leslie’s is leaning into convenience with omnichannel upgrades, including expanded buy-online, pick-up-in-store options. It has rolled out Uber same-day delivery in Arizona and California and plans to take that service nationwide ahead of the key pool season, supported by more localized e-commerce fulfillment from its optimized DC network.

Q1 Revenue Slide and One-Time Pressures

First-quarter net sales dropped to $147.1 million from $175.2 million a year earlier, a 16% decline. Comparable sales fell 15.5%, with management estimating that about 850 basis points of that comp drop was tied to prior-year hurricane-related demand, a 53rd week shift and the impact of closed stores.

Severe Gross Margin Compression

Gross margin plunged to 18.4% from 27.2% in the prior-year quarter, an almost 880-basis-point contraction. Roughly 430 basis points of that decline stemmed from a noncash inventory impairment tied to closures, while the balance came largely from weaker margins on core chemicals due to low volumes.

Wider Net Loss and Weaker Adjusted EBITDA

Leslie’s reported a net loss of $83.0 million versus a $44.6 million loss a year ago, pressured by lower sales and impairment charges. On an adjusted basis, the net loss widened to $48.7 million and adjusted EBITDA deteriorated to negative $40.3 million, about $11 million worse than last year.

Noncash Impairment and One-Time Charges

The company booked a $10.1 million noncash impairment charge related to the closure of 80 stores and one distribution center. While this weighed heavily on reported profitability, management framed the charge as a necessary accounting step tied to the broader structural reset.

Customer Attrition and Re-Engagement Focus

Leslie’s disclosed that it lost a net 160,000 residential customers in the prior fiscal year, identifying churn as a major drag on the business. Executives highlighted re-engaging lapsed shoppers through loyalty, marketing and service as the single biggest near-term sales opportunity.

Planned Margin Headwinds from Strategic Actions

Management cautioned that its pricing investments are expected to reduce annual product gross margins by about 100 to 150 basis points. Clearing slow-moving inventory as part of its optimization plan should also produce a one-time 100 to 200 basis point hit to annualized gross margins, likely most evident in the third and fourth quarters.

Sales Impact from Store Closures

The aggressive store optimization program carries a clear top-line cost, with annual revenue expected to fall by $25 million to $35 million from shuttered locations. However, management believes the improved profitability profile and stronger remaining fleet will more than justify the move over time.

Seasonality and Second-Half Weighting

Leslie’s reminded investors that its business is sharply seasonal, with most sales and earnings arriving in the back half of the fiscal year. That structure leaves the first half, and especially the first quarter, more exposed to macro noise, operational disruptions and one-time items that can exaggerate volatility.

Outlook and Forward Guidance

Looking ahead, management reiterated fiscal 2026 guidance for $1.1 billion to $1.25 billion of net sales and adjusted EBITDA of $55 million to $75 million, while targeting positive free cash flow on CapEx of $20 million to $25 million. They expect pricing and inventory steps to weigh on gross margins but are counting on SKU cuts, store and DC closures and broader cost savings to deliver a $5 million to $10 million net EBITDA boost, with results heavily back-half loaded.

Leslie’s earnings call underscored a company in the middle of a painful but deliberate reset. Financial results are weak today, yet management is moving quickly to streamline the footprint, simplify the assortment and cut costs while investing in pricing and omnichannel to re-energize demand, leaving investors to weigh near-term pain against the promise of a leaner, more focused business.