Leslie’s, Inc. — FY2022 Form 10-K
Reporting period: Fiscal year ended October 1, 2022 (52 weeks), compared primarily with the 52-week year ended October 2, 2021. This filing reports annual results; it does not provide a clear standalone fiscal Q4 income statement. Leslie’s operates a single reportable segment, selling pool and spa products and services through 990 locations in 39 states and digital channels. Management describes about 80% of its assortment as essential and recurring.
Financial performance
| Metric | FY2022 | FY2021 | Change / context |
|---|---|---|---|
| Sales | $1,562.1 million | $1,342.9 million | Up 16.3%; comparable sales grew 10.6% |
| Gross profit / margin | $673.7 million / 43.1% | $595.2 million / 44.3% | Profit up 13.2%; margin down 120 basis points |
| SG&A | $435.0 million | $386.1 million | Up 12.7% |
| Operating income / margin | $238.8 million / 15.3% | $209.1 million / 15.6% | Income up 14.2%; margin down 30 basis points |
| Net income / diluted EPS | $159.0 million / $0.85 | $126.6 million / $0.67 | Net income up 25.6% |
| Adjusted EBITDA | $292.3 million | $270.6 million | Up 8.0%; margin was 18.7%, versus 20.2% |
| Operating cash flow | $66.6 million | $169.3 million | Down $102.7 million |
Interest expense was $30.2 million, versus $34.4 million. Cash and cash equivalents were $112.3 million at year-end, down from $343.5 million. Inventory increased to $361.7 million from $198.8 million; management attributed lower operating cash flow primarily to working-capital changes, acquisitions, and strategic inventory investment. Capital expenditures were $31.7 million. Investing cash outflow was $139.0 million, including $107.7 million for acquisitions.
Long-term debt principal was $797.9 million, all under a variable-rate term loan due in 2028; no revolving-credit borrowings were outstanding. The company reported $190.0 million of available revolver capacity after borrowing-base restrictions and letters of credit, and stated it was compliant with debt covenants. A 1 percentage-point interest-rate move was estimated to change annual interest cost by about $8.0 million. Current assets were $542.4 million and current liabilities were $348.0 million.
Material changes versus the prior year
- Sales growth was supported by $143.1 million of comparable-sales growth and $76.1 million of non-comparable sales, including acquisitions and newer locations.
- Gross margin declined as business mix shifted and product margins were pressured by promotions and higher product costs; distribution and occupancy leverage partly offset the pressure.
- Adjusted EBITDA grew more slowly than sales, and its margin declined 150 basis points.
- Cash generation weakened as inventory and other working-capital needs increased. Financing activities included $152.1 million of share repurchases and $8.1 million of net debt repayment.
- Six fiscal 2022 acquisitions cost $107.7 million and added 27 locations; the company ended the year with 990 locations, up from 952.
Outlook, risks and unusual items
- No quantified fiscal 2023 revenue or earnings guidance is provided in the filing. Management stated that cash, operating cash flow and revolver availability were expected to be adequate for working capital, planned capital spending, strategic acquisitions, share repurchases and debt service over the next 12 months, while noting external financing might be needed if those resources prove insufficient.
- The business is highly seasonal: about 75% of FY2022 sales and 95% of Adjusted EBITDA occurred in the third and fourth fiscal quarters. Weather can materially affect peak-season demand and timing.
- Management cited inflation, supply-chain disruption, labor constraints, economic uncertainty, competition, and variable interest rates as risks. It noted that passing higher costs through to customers may be limited by competition.
- The company identified a material weakness in IT general controls over user access to certain financial-reporting systems, with dependent business controls also deemed ineffective. Management reported no resulting financial-statement misstatements and planned remediation during fiscal 2023; the independent auditor issued an adverse opinion on internal control effectiveness. The auditor’s opinion on the financial statements was unqualified.
- Management reported no material loss contingencies and no material impairment of goodwill or intangible assets. An $8.4 million indefinite-lived trade name was reclassified as finite-lived and will be amortized over 10 years.
Important facts for investors to verify
- Whether remediation of the material weakness is completed and independently validated, and whether any additional control deficiencies emerge.
- Whether elevated inventory converts to sales and cash, and how operating cash flow and working capital develop through the seasonal cycle.
- Whether gross-margin pressure persists amid promotions, product costs, and inflation, and whether EBITDA margins stabilize.
- Debt balance, variable-rate borrowing costs, covenant compliance, and actual borrowing capacity under the revolver.
- Returns and integration progress from the six acquisitions, and the pace and funding of further acquisitions and share repurchases.