Leslie’s, Inc. — FY2023 Form 10-K
Reporting period: Fiscal year ended September 30, 2023 (52 weeks). Although the request refers to 2023 Q4, this filing reports annual results, not standalone fourth-quarter results.
Business context
Leslie’s sells pool and spa supplies and services through 1,008 locations in 39 states and digital channels. It describes itself as the largest direct-to-consumer U.S. pool and spa care brand. More than 80% of its assortment is characterized as essential and recurring; proprietary brands represent more than 55% of sales.
Financial performance
| Metric | FY2023 | FY2022 | Change |
|---|---|---|---|
| Sales | $1,451.2 million | $1,562.1 million | Down 7.1% |
| Comparable sales | Down 11.0% | Up 10.6% | Traffic decline was the primary FY2023 driver |
| Gross profit / margin | $548.2 million / 37.8% | $673.7 million / 43.1% | Down $125.5 million / 530 basis points |
| SG&A | $446.0 million | $435.0 million | Up 2.5% |
| Operating income / margin | $102.2 million / 7.0% | $238.8 million / 15.3% | Down $136.6 million |
| Interest expense | $65.4 million | $30.2 million | Up $35.2 million |
| Net income / diluted EPS | $27.2 million / $0.15 | $159.0 million / $0.85 | Down $131.8 million / $0.70 |
| Adjusted EBITDA | $168.1 million | $292.3 million | Down $124.2 million; margin 11.6% vs. 18.7% |
| Operating cash flow | $6.5 million | $66.6 million | Down $60.2 million |
FY2023 gross-margin pressure reflected retail chemical price reductions, year-end physical inventory adjustments, lower equipment-related vendor rebates, and occupancy deleverage as comparable sales fell. SG&A included executive transition and severance costs and $6.3 million related to discontinued software subscriptions. Adjusted EBITDA and adjusted net income are non-GAAP measures.
Cash, debt and liquidity
- Cash and cash equivalents were $55.4 million at year-end, down from $112.3 million a year earlier.
- Long-term debt was $789.8 million gross ($773.3 million net of current maturities, discount, and financing costs); the Term Loan’s effective rate was 8.20%. No Revolving Credit Facility borrowings were outstanding.
- Available revolver capacity was $238.6 million after borrowing-base restrictions and $11.4 million of standby letters of credit. The company reported covenant compliance at year-end.
- Capital expenditures were $38.6 million; acquisitions used $15.5 million. The company said cash, operating cash flow, and revolver availability should fund needs, planned capital expenditures, acquisitions, repurchases, and debt service for the next 12 months.
- Scheduled debt maturities include $757.4 million in 2028. A 1-percentage-point interest-rate change was estimated to affect the next 12 months’ interest cost by approximately $7.9 million.
Changes, outlook and risks
Compared with FY2022, sales and comparable sales declined, while gross and operating margins, net income, adjusted EBITDA, and operating cash flow contracted materially. Higher interest rates and increased revolver use during the year contributed to the increase in interest expense. The company completed five acquisitions adding 12 locations in FY2023, versus six acquisitions in FY2022. It made no share repurchases in FY2023; approximately $147.7 million remained under its $300 million authorization.
The filing provides no quantitative FY2024 earnings or sales guidance. Management’s stated priorities include acquiring and retaining consumers, growing professional-market sales, expanding locations and digital offerings, and continuing product and service innovation, including AccuBlue Home. Management cautions that results are highly seasonal: sales and earnings peak in April–September, while the first half typically has lower sales, net losses, and negative operating cash flows. Weather, economic conditions, competition, supply disruptions, and consumer chemical stockpiling may affect demand and results; management believes stockpiling may have adversely affected FY2023.
Controls and contingencies: Management and the auditor concluded internal control over financial reporting was ineffective at September 30, 2023 due to material weaknesses in physical inventory and inventory-costing controls and vendor-rebate accounting. The earlier IT general-controls weakness was reported remediated. No material financial-statement misstatement was identified; remediation of the remaining weaknesses was anticipated during FY2024. A securities class action filed in September 2023 alleges misleading statements about guidance, operations, and prospects; the company disputes the allegations and says potential loss cannot yet be reasonably estimated.
Important facts for investors to verify
- Whether inventory and vendor-rebate control weaknesses were remediated and tested effectively, and whether subsequent filings report any adjustments.
- Whether sales, traffic, chemical pricing, and gross margins stabilize after FY2023’s comparable-sales decline and margin contraction.
- Cash generation, seasonal working-capital needs, revolver availability, and the capacity to service substantial variable-rate debt.
- Developments in the securities class action and any change in the company’s loss assessment.
- Assumptions behind adjusted results, including the nature and recurrence of excluded costs, and progress against the company’s growth initiatives.