Leslie’s, Inc. Earnings Call Signals Fragile Turnaround

Leslie’s, Inc. ((LESL)) has held its Q2 earnings call. Read on for the main highlights of the call.

Leslie’s, Inc. struck a cautiously optimistic tone on its latest earnings call, highlighting solid gains in sales, margins and customer reactivation while acknowledging that losses and leverage remain elevated. Management framed the quarter as tangible progress toward a turnaround, but stressed that profitability is still out of reach and that execution through the key pool season will be critical.

Revenue Growth

Net sales in the second quarter rose 4.3% year over year to $184.7 million, up from $177.1 million. Management credited stronger retail demand, particularly among residential customers and PRO accounts, with March and the Western U.S. leading the growth.

Comparable Sales and Customer Growth

Comparable sales, excluding closed stores, climbed 6.6% versus the prior year, pointing to healthier underlying trends. The total registered customer base expanded 8%, while reactivated customers jumped more than 25%, signaling renewed engagement from lapsed buyers.

Adjusted EBITDA Improvement

Adjusted EBITDA improved by $9.2 million, a 26% betterment, though it remained in the red at negative $26.8 million compared with negative $36.1 million. The company cited higher volumes, better pricing and lower distribution and occupancy costs as key drivers of the improvement.

Gross Margin Expansion

Gross profit margin widened to 28.9% from 24.8% a year earlier, a roughly 410 basis point expansion. Management said stronger volumes, favorable leverage on distribution and occupancy costs, and lower inventory reserves all contributed to the margin lift.

Price Drop Initiative and Transaction Metrics

The March launch of the Price Drop initiative delivered double-digit growth in store transactions and a conversion rate improvement of more than 350 basis points. Proprietary 10-point water tests also grew at a double-digit pace, and management reported positive customer feedback on perceived value.

Inventory and SKU Optimization

Inventory levels fell about 22% year over year to $262.4 million, down from $335.1 million. The company also removed roughly 2,000 long-tail SKUs from its e-commerce assortment, a move expected to generate $4 million to $5 million in annualized EBITDA improvement.

Operational Improvements and Convenience Investments

Leslie’s completed a nationwide rollout of same-day delivery through Uber and continues to see strong adoption of buy online, pick up in store options. The field organization was restructured, a new store compensation plan was introduced, and localized in-person training was deployed to sharpen execution and customer engagement.

PRO Business Growth

The commercial and PRO segment grew about 5% in the quarter, supported by simplified trade program pricing and streamlined enrollment. Management said these changes, along with better product availability, are improving the PRO customer experience and supporting steady growth.

Cost-Savings and Benefit Realization

The company expects store optimization to deliver $4 million to $10 million in annualized benefits despite an estimated $25 million to $35 million annual sales hit from 80 closures. Expense reduction efforts are projected to add another $7 million to $12 million annually, with benefits beginning in the second half of fiscal 2026.

Net Losses Remain Material

Despite operational gains, GAAP net loss widened to $52.5 million from $51.3 million in the prior-year quarter. Adjusted net loss also increased, reaching $50.0 million versus $48.3 million, underscoring that the company is still running at a sizable loss.

Adjusted EBITDA Still Negative

Even with the 26% improvement, adjusted EBITDA remained negative at $26.8 million below breakeven. Management emphasized that the path to profitability will require further execution on sales growth, margin expansion and cost savings initiatives.

Store Closures and Near-Term Drag

Leslie’s completed 80 store closures in fiscal 2026, a move expected to create an annual sales headwind of about $25 million to $35 million. The closures are projected to yield a $4 million to $10 million annualized EBITDA benefit, but management acknowledged the near-term revenue pressure.

One-Time Margin Headwind from Inventory Optimization

Inventory optimization efforts are expected to trim annualized gross margins by about 100 to 200 basis points in the third and fourth quarters. The hit will come as the company marks down inventory to target levels, a trade-off management views as necessary to reset stock and support healthier margins longer term.

Category Softness and Pricing Constraints

Demand remained soft in equipment, cleaning and maintenance categories, while safety and solar were down as the company lapped a prior-year clearance event. Management also noted that minimum advertised price protection limits how far Price Drop discounts can extend into equipment, constraining flexibility in that category.

Leverage and Liquidity Considerations

Long-term debt stood at $753 million, with $99 million drawn on the line of credit and about $97.1 million in total liquidity available. The elevated leverage and modest liquidity buffer constrain financial flexibility as the company funds its turn-around and promotional initiatives.

Forward-Looking Guidance and Outlook

Management reaffirmed fiscal 2026 guidance for net sales between $1.1 billion and $1.25 billion and adjusted EBITDA of $55 million to $75 million, with capital spending of $20 million to $25 million and positive free cash flow expected. The company expects pricing actions to lift annual gross margins by roughly 100 to 150 basis points, partially offset by a one-time 100 to 200 basis point hit from inventory optimization, while store closures, SKU cuts and expense reductions collectively drive a $5 million to $10 million EBITDA uplift after reinvestment.

Leslie’s earnings call painted the picture of a retailer making real progress but still in recovery mode, balancing better sales and margins against persistent losses and heavy debt. Investors will be watching whether the Price Drop strategy, operational upgrades and cost cuts can carry the company to sustained profitability as it navigates peak season and the back half of the year.