Leslie’s, Inc. — FY2021 Form 10-K Summary
Reporting period: Fiscal year ended October 2, 2021 (52 weeks). The filing is an annual report, not a standalone fourth-quarter report; it does not provide a clear standalone Q4 income statement or cash flow.
Business context
Leslie’s sells pool and spa products and services through 952 locations in 38 states and digital channels. It reports one operating segment. Management estimates that about 80% of its assortment is essential and recurring; proprietary and exclusive products represented approximately 55% of sales. The business is highly seasonal, with 75% of FY2021 sales and 97% of Adjusted EBITDA generated in the third and fourth fiscal quarters.
Financial highlights
| Metric | FY2021 | FY2020 |
|---|---|---|
| Sales | $1,342.9 million | $1,112.2 million |
| Comparable sales growth | 21.5% | 18.0% |
| Gross profit / gross margin | $595.2 million / 44.3% | $460.7 million / 41.4% |
| Operating income / margin | $209.1 million / 15.6% | $146.4 million / 13.2% |
| Net income | $126.6 million | $58.6 million |
| Diluted EPS | $0.67 | $0.37 |
| Adjusted EBITDA / margin | $270.6 million / 20.2% | $182.8 million / 16.4% |
| Adjusted net income / diluted EPS | $161.5 million / $0.85 | $65.0 million / $0.42 |
FY2021 net cash provided by operating activities was $169.6 million, capital expenditures were $28.9 million, and net cash used in investing activities was $35.4 million. Cash and cash equivalents were $345.1 million at year-end, versus $157.1 million a year earlier. Inventory increased to $198.8 million from $149.0 million, reflecting strategic inventory investment amid heightened demand and supply considerations.
Long-term debt was $806.0 million gross, including $8.1 million due within a year; the balance-sheet carrying amount, net of discount and financing costs, was $786.1 million. No ABL borrowings were outstanding; reported available capacity was $190.8 million after borrowing-base restrictions and letters of credit. Debt is variable-rate and secured by substantially all assets. A 1 percentage-point rate change was estimated to affect annual interest cost by approximately $8.1 million. Operating lease obligations totaled $245.0 million undiscounted.
Changes versus the prior comparable period
- Sales rose 20.7%; management attributed comparable sales growth primarily to increased consumer demand and retail price inflation in sanitizer and equipment categories. Fiscal 2020 included an extra week, which added an estimated $18.0 million in sales, $1.5 million in net income, and $3.0 million in Adjusted EBITDA.
- Gross margin expanded 290 basis points, driven mainly by product margin improvements and occupancy leverage, partly offset by business mix. SG&A increased 22.8% and rose 40 basis points as a share of sales, reflecting growth investments and IPO-related equity compensation and costs.
- Interest expense declined by $49.7 million, mainly because of lower rates and repayment of senior unsecured notes using IPO proceeds. The company repaid the $390.0 million notes in November 2020 and amended its term loan in March 2021; a $9.2 million debt-extinguishment loss was recorded.
- Operating cash flow increased 64.0%. The company completed three bolt-on acquisitions, which management said did not materially affect results.
Outlook, commentary, risks, and unusual items
- No quantified FY2022 guidance is provided in the filing. Management said it expects pandemic-related changes in consumer behavior to continue for the foreseeable future, while acknowledging that the duration and effects of COVID-19 are uncertain and recent growth may not be sustainable.
- Growth priorities include customer acquisition and retention, expanding professional-market locations and services, underserved-market expansion, digital and technology initiatives, and strategic acquisitions. An AccuBlue Home subscription pilot launched in FY2021; expansion and enhancements were planned.
- Key risks include weather and seasonality, a possible normalization of pandemic-driven demand, supply disruption and raw-material inflation, competition and pricing pressure, inventory forecasting, cyber and technology incidents, chemical handling and product liability, and substantial variable-rate debt.
- Unusual FY2021 items include $25.6 million of equity-based compensation expense, $10.4 million of equity-offering costs included in Adjusted EBITDA reconciliation, and the $9.2 million debt-extinguishment loss. Adjusted EBITDA and adjusted earnings are non-GAAP measures and exclude specified costs.
- Legal matters were described as ordinary-course; reserves for probable and estimable claims were not significant, and management did not expect a material outcome. The auditor identified valuation of the workers’ compensation self-insurance reserve as a critical audit matter. The auditor opined that the financial statements were fairly presented; it was not engaged to audit internal-control effectiveness. Management reported effective disclosure controls and internal control over financial reporting.
- Subsequent event: on December 3, 2021, the board authorized repurchases of up to $300 million of common stock over three years, subject to management discretion and market conditions.
Important facts for investors to verify
- Whether sales and margins remain resilient as elevated pandemic-era demand and price inflation normalize, and how comparable sales develop against difficult prior-year comparisons.
- Inventory quality, availability, and working-capital needs, including whether the FY2021 inventory build converts to sales without markdowns or cash-flow strain.
- Debt reduction plans, variable-rate exposure, covenant terms, and the practical liquidity available under the ABL facility.
- The sustainability of reported earnings after IPO-related costs and equity compensation, and the reconciliation of non-GAAP measures to GAAP results.
- Execution and returns on expansion, acquisitions, digital programs, and the $300 million repurchase authorization; the filing provides no quantified forward guidance.