Leslie’s, Inc. — Q2 FY2024 Form 10-Q
Reporting period: Second quarter and first six months of fiscal 2024, each ended March 30, 2024; comparable periods ended April 1, 2023. Amounts are in U.S. dollars. The company sells pool and spa products and services through more than 1,000 locations and e-commerce. Its business is highly seasonal, with sales and earnings typically strongest in fiscal Q3 and Q4.
Financial results and liquidity
| Metric | Three months ended Mar. 30, 2024 | Six months ended Mar. 30, 2024 |
|---|---|---|
| Sales | $188.7 million | $362.6 million |
| Gross profit / margin | $54.3 million / 28.8% | $104.7 million / 28.9% |
| SG&A | $84.9 million | $171.7 million |
| Operating loss | $(30.5) million | $(67.0) million |
| Interest expense | $18.2 million | $35.2 million |
| Net loss / diluted loss per share | $(34.6) million / $(0.19) | $(74.1) million / $(0.40) |
| Adjusted EBITDA (non-GAAP) | $(19.3) million | $(43.7) million |
For the six months, operating cash flow was $(115.1) million, investing cash flow was $(24.0) million, and financing cash flow was $92.1 million. Cash declined to $8.4 million from $55.4 million at September 30, 2023. Operating cash use was lower than the prior-year period, largely reflecting working-capital changes, including a smaller inventory-related cash outflow.
At March 30, 2024, total borrowings were $882.7 million: $785.7 million under the term loan and $97.0 million under the revolving facility. The term loan’s effective rate was 8.19%. The company reported $142.3 million of available revolver borrowing capacity after borrowing-base restrictions and $10.7 million of standby letters of credit. On April 3, 2024, it amended the revolver to extend maturity to April 3, 2029 and revise applicable margins. Management said cash, operating cash flows, and revolver availability should be adequate for planned needs over the next 12 months, while noting additional financing could be needed if those sources prove insufficient.
Changes versus the prior comparable period
- Quarterly sales fell 11.4%; six-month sales fell 11.1%. Management attributed the declines mainly to lower average order volume, including chemical pricing actions, and fewer transactions.
- Gross margin declined 460 basis points in both the quarter and six-month period. Management cited occupancy-cost deleverage from lower sales and, for the quarter, chemical pricing actions; for the six months, the timing of rebate recognition.
- Quarterly net loss widened by $3.0 million, and six-month net loss widened by $12.3 million, primarily due to lower gross profit. Higher interest expense also weighed on results.
- SG&A decreased year over year, but not enough to offset lower gross profit. Adjusted EBITDA worsened to $(19.3) million for the quarter and $(43.7) million for the six months.
The filing reports comparable-sales growth of (11.7)% in its results table, while the MD&A narrative states comparable sales decreased 12.1% for the quarter and 11.9% for the six months. The difference is not reconciled in the supplied filing text.
Outlook, risks, contingencies, and unusual matters
- No specific sales, earnings, or other numerical guidance is provided in the filing. Management emphasizes seasonality and exposure to weather, consumer demand, pricing, competition, inflation, interest rates, supply disruptions, and geopolitical or public-health events.
- Disclosure controls and procedures were deemed ineffective as of March 30, 2024 because previously reported material weaknesses in internal control over financial reporting had not been remediated. Remediation efforts focus on inventory controls and vendor-rebate calculations and recognition; management says remediation requires sustained effective operation and testing.
- The company faces a securities class action alleging materially false or misleading statements about financial guidance, operations, and prospects, plus two related derivative actions. The company disputes the allegations; due to the early stages, it cannot estimate a potential loss range. No material loss contingencies were recorded.
- The company reported no event of default and compliance with its credit-agreement covenants at March 30, 2024. Substantially all assets secure its indebtedness.
Investor facts to verify
- Whether sales and margins stabilize during the peak swimming season, and the contribution of pricing, transaction volume, weather, and inventory purchasing patterns.
- Available borrowing capacity, seasonal cash requirements, interest costs, and progress in reducing reliance on revolver borrowings.
- Remediation and independent testing of the inventory and vendor-rebate control weaknesses.
- Developments in the securities and derivative litigation and any change in the company’s ability to estimate potential exposure.
- The comparable-sales percentage discrepancy between the results table and MD&A narrative.