Key Points:
- Not unexpectedly, Leslie’s FQ3 results (the last of the Pentair negative pre-announcement puzzle) showed soft top-line results, sales (-8.4%) and comps (-6.2%), and revealed drastic measures to preserve cash.
- Historically, the next two quarters are seasonal lows for the industry and cash sinks / burns for Leslie’s business. Quarterly interest expense is $14M (on debt of $783M), setting up for a dicey winter.
Leslie’s observed traffic (per-location-average) really began to falter going into the seasonal ramp starting in May. (How much did they cut marketing?) The decline led to drastic measures to preserve cash, such as taking few deliveries from Pentair and working inventory down. The nadir in traffic occurred at the mid-point of FQ3.
Leslie’s FQ3 (April 4th – July 4th) comp-sales declined -6.2%, total sales declined more (-8.4%) as it shuttered 10% of its stores over the past year, COGS fell -$11M, and inventory fell -$30M QoQ. That resulted in fewer deliveries from Pentair. However, Q2 Pentair Pool segment revenue declined far more than -$41M, falling from $427M LY to $247M, or -$180M. As such, the excess channel inventory issue for Pentair was far broader than just Leslie’s.
On traffic, Leslie’s CEO Jason McDonell said, “While we saw modest improvements in mid-June, it was not sufficient to overcome the operating leverage headwinds we faced through the balance of the quarter, particularly as competitors reacted with more aggressive inventory-driven pricing actions.” (See Pentair’s broader problems.)
As shown, drop-off in activity at Pentair’s Pool segment’s facilities starting mid-May was drastic, -40% at its nadir. Despite the curtailment of activity, inventories still climbed. Company-wide inventory climbed +$24M vs declining $12M in Q2’25; given the decline in sales and COGS, inventory turns deteriorated by a quarter (4.3X ->3.3X), and as previously reported, its CFO was “out.“
Leslie’s results also show other examples of “drastic.” For example, SG&A expense declined -$40m relative to a base level of $130M, i.e. a -30% cut. Additionally, cap-ex was halved. On its earnings call, the CFO said, “Given the evolving macroeconomic environment and lower than anticipated customer traffic during our peak season, we are withdrawing our previously issued full-year sales and adjusted EBITDA guidance and are not providing an updated outlook at this time.” There weren’t any analyst questions on the call; LESL has a market cap of only $7M (yes, $7M) and all its equity investors have “exited the pool.”
On liquidity, McDonell said, “We have begun exploring strategic alternatives with certain of our financial stakeholders to provide the incremental financial flexibility needed to continue delivering on our strategic priorities and drive sustainable growth. Such strategic alternatives may include, but are not limited to, a deleveraging transaction, potentially combined with one or more financing transactions. No determinations have been made at this stage, and there is no assurance any such transaction will result.”
See our earlier story here.
