Leslie’s, Inc. Earnings Call: Operational Gains Amid Challenges

Leslie’s, Inc. ((LESL)) has held its Q4 earnings call. Read on for the main highlights of the call.

Leslie’s, Inc. Earnings Call Reflects Mixed Sentiments Amid Operational Gains and Customer Challenges

The recent earnings call for Leslie’s, Inc. presented a mixed sentiment, highlighting significant operational improvements such as increased gross margins and successful inventory optimization. However, these positive strides were overshadowed by substantial challenges, including a notable customer loss, impairment charges, and planned store closures. While strategic initiatives are in place to stabilize and enhance business performance, the immediate outlook remains fraught with significant hurdles.

Successful CFO Transition

Jeff White has joined Leslie’s as the new Chief Financial Officer and Treasurer, bringing with him a wealth of financial and operational retail expertise. His appointment is seen as a strategic move to bolster the company’s financial management and operational efficiency.

Improved Gross Margin

Leslie’s reported an increase in gross margin for the fourth quarter, rising to 38.6% from 36% in the previous year. This improvement was driven by favorable vendor rebates and reduced freight costs, marking a positive trend in the company’s financial performance.

Inventory Optimization

The company successfully reduced its inventory by $26 million year-over-year, surpassing its Q3 commitment of $20 million. This reduction also improved in-stock levels by over 400 basis points, reflecting effective inventory management.

Conversion Rate Improvement

Leslie’s saw a 500 basis point year-over-year increase in conversion rates following water tests, which underscores growing customer trust in the company’s technical expertise.

Expansion of Same-Day Delivery

As part of its omnichannel transformation, Leslie’s expanded its same-day delivery service through a partnership with Uber, with plans to scale this service across the United States, enhancing customer convenience and service delivery.

Customer Loss

The company experienced a net loss of over 160,000 residential customers this year, alongside an 8.6% decline in residential traffic projected for 2025. These challenges are primarily attributed to pricing issues affecting customer retention.

Impairment Charges

Leslie’s recorded a $184 million impairment charge related to goodwill and partial charges due to store closures. Further charges are anticipated in the first and second quarters of 2026, reflecting ongoing financial adjustments.

Store Closures

The company plans to close 80 to 90 underperforming stores, which is expected to impact annual sales by $25 million to $35 million. This move is part of a broader strategy to streamline operations and improve profitability.

Negative Net Income

Leslie’s reported a net loss of $162.8 million, or $17.54 per diluted share in the fourth quarter, compared to a net loss of $9.9 million in the prior year, highlighting significant financial challenges.

Pricing Challenges

The company acknowledged the need for price optimization on core items, as current pricing is out of step with competitors, adversely affecting customer retention and sales.

Forward-Looking Guidance

Looking ahead, Leslie’s outlined several strategic actions aimed at transforming its business and returning to profitable growth. Despite a 2.2% decrease in net sales for the fourth quarter, the company plans to close underperforming stores to improve annualized net EBITDA by $4 million to $10 million. Additionally, Leslie’s aims to achieve an adjusted EBITDA of $55 million to $75 million for fiscal 2026, focusing on price optimization, cost structure improvement, and strategic asset utilization. The company is also committed to enhancing customer engagement through targeted marketing and its Pool Perks loyalty program.

In conclusion, Leslie’s earnings call painted a picture of a company navigating through a challenging landscape, with operational improvements being offset by significant customer and financial hurdles. While strategic initiatives are in place to address these challenges, the road to recovery and growth remains complex and demanding.