Leslie's, Inc. (LESL) - 10-Q Summary
Business Context and Reporting Period
This filing is a Quarterly Report on Form 10-Q for the period ended July 4, 2026. Leslie's, Inc. is the leading direct-to-consumer pool and spa care brand, operating 943 company-operated locations in 38 states. The company operates as a single segment and is highly seasonal, with peak sales occurring in the third and fourth fiscal quarters.
Going Concern Warning: The company has concluded that management's plans do not alleviate substantial doubt about its ability to continue as a going concern for at least one year from the date of issuance. This is due to a challenging retail environment, reduced consumer spending, and the need to refinance a Term Loan maturing in March 2028.
Key Financial Metrics
| Metric | Three Months Ended July 4, 2026 | Nine Months Ended July 4, 2026 |
|---|---|---|
| Sales | $458.5 million | $790.4 million |
| Gross Profit | $167.1 million | $247.5 million |
| Gross Margin | 36.5% | 31.3% |
| Operating Income (Loss) | $61.5 million | $(45.0) million |
| Net Income (Loss) | $47.8 million | $(87.7) million |
| Diluted EPS | $5.01 | $(9.40) |
| Adjusted EBITDA | $55.7 million | $(11.4) million |
| Cash and Equivalents | $45.9 million (as of July 4, 2026) | N/A |
| Total Debt | $786.7 million | N/A |
Liquidity: As of July 4, 2026, the company had $45.9 million in cash and $30.0 million outstanding on its Revolving Credit Facility. Total availability from cash and borrowing capacity was approximately $207.1 million.
Material Changes vs. Prior Period
- Sales Decline: Sales decreased 8.4% year-over-year for the quarter and 7.3% for the nine-month period. Comparable sales declined 6.2% (quarter) and 5.5% (nine months), driven by a slower summer pool season and the closure of underperforming stores.
- Margin Compression: Gross margin decreased to 36.5% (quarter) and 31.3% (nine months) compared to 39.6% and 34.0% in the prior year. This was driven by lower volume of high-margin products, mix shifts, and increased distribution/manufacturing costs.
- One-Time Gain: Operating results for the quarter were significantly boosted by a $17.5 million gain from a credit card interchange fee litigation settlement. Without this gain, the quarter would have shown a significantly lower operating income.
- Store Closures: The company closed 80 underperforming stores and one distribution center in the first quarter of 2026. This resulted in $17.9 million in charges over the nine-month period, including inventory impairments and lease impairments.
- Net Income Volatility: While the quarter showed a net income of $47.8 million (up from $21.7 million prior year), the nine-month period resulted in a net loss of $87.7 million (worsening from a $74.2 million loss prior year).
Guidance, Outlook, and Risks
- Guidance Withdrawn: The company has withdrawn its prior full-year fiscal 2026 outlook and is not providing updated guidance due to macroeconomic softness and uncertainty.
- Strategic Alternatives: Management is actively exploring strategic alternatives to satisfy debt obligations, which may include a deleveraging transaction, refinancing, restructuring, or seeking relief under reorganization laws prior to the Term Loan maturity in March 2028.
- Internal Controls: The company disclosed that material weaknesses in internal control over financial reporting (related to inventory validation and asset impairments) identified in the prior year have not yet been remediated as of July 4, 2026.
- Legal Proceedings: A securities class action lawsuit remains pending, with a motion to dismiss currently before the court. Three derivative actions are stayed pending the outcome of the class action.
- Stock Split: A 1-for-20 reverse stock split was effective in September 2025; all share and per-share data in this filing are retroactively adjusted.
Investor Verification Checklist
- Debt Maturity: Verify the status of refinancing discussions for the $756.7 million Term Loan maturing March 9, 2028, given the "substantial doubt" going concern warning.
- Settlement Impact: Assess the sustainability of the Q3 2026 profitability, which was heavily influenced by the one-time $17.5 million legal settlement gain.
- Comparable Sales Trend: Monitor the continued decline in comparable sales (-6.2% QoQ) to gauge the effectiveness of customer reactivation strategies.
- Internal Control Remediation: Track progress on remediating material weaknesses in inventory and impairment controls to ensure future financial reporting reliability.
- Store Closure Costs: Confirm that the $17.9 million in closure-related charges are fully recognized and that no significant additional exit costs are anticipated.