Leslie's (LESL) Q2 2026 Earnings Transcript

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DATE

Wednesday, May 13, 2026 at 5 p.m. ET

CALL PARTICIPANTS

• Chief Executive Officer — Jason McDonell
• Chief Financial Officer — Jeffrey Justin White

TAKEAWAYS

• Revenue -- $184.7 million, an increase of 4.3%, driven by retail store strength, notably in residential and pro segments.
• Comparable Sales -- Up 6.6%, removing closed stores from the metric, reflecting gains across both new and retained customers.
• Adjusted EBITDA -- Improved to negative $26.8 million from negative $36.1 million, primarily due to higher sales volumes, improved pricing, and cost control.
• Gross Profit Margin -- Rose to 28.9% from 24.8%, with management attributing the improvement mainly to higher sales volumes, favorable occupancy and distribution costs, and reduced inventory reserves.
• SG&A -- Decreased $100,000, totaling $92.2 million, with cost savings in labor and store expenses offset by increased investment in technology and marketing for strategic initiatives.
• Net Loss -- Widened to $52.5 million versus $51.3 million; adjusted net loss was $50.0 million compared to $48.3 million.
• Total Customer Count -- Increased by 8%, with reactivated customer growth exceeding 25% and double-digit growth in both new and retained customers.
• Pro Business -- Sales rose approximately 5% as commercial customers responded positively to improved value offerings and streamlined program enrollment.
• Inventory -- Ended at $262.4 million, down from $335.1 million, a reduction of 22%, while maintaining record in-stock rates on key products.
• Store Closures and Network Optimization -- Closed 80 stores, expecting $4 million to $10 million in annualized net EBITDA benefit despite a projected $25 million to $35 million sales impact, with favorable customer transfer rates to remaining channels.
• Capital Expenditures -- Spent $9.5 million, primarily on store and distribution center maintenance, down from $11.2 million.
• Guidance -- Sales guidance of $1.1 billion to $1.25 billion and adjusted EBITDA of $55 million to $75 million reaffirmed for fiscal 2026; CapEx expected at $20 million to $25 million.
• Liquidity -- $99.0 million in outstanding borrowings, $753.0 million of long-term debt, and $97.1 million available from cash and credit facility at period end.
• Price Drop Initiative -- Launched in March, yielded positive customer feedback, double-digit transaction growth, and over a 350 basis point improvement in conversion rate in Sunbelt markets.
• SKU Rationalization -- Removed 2,000 long-tail SKUs, targeting $4 million to $5 million annualized EBITDA improvement and enhanced assortment profitability.

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RISKS

• Net loss for the second quarter was $52.5 million compared with a net loss of $51.3 million in the second quarter of the prior year, indicating ongoing losses despite operational improvements.
• Management expects its inventory optimization strategy to result in a one-time reduction of approximately 100 to 200 basis points to annualized gross margins, with this impact anticipated in Q3 and Q4, signaling near-term margin pressure in upcoming quarters.
• Management expects its store optimization strategy to have an annual net sales impact of $25 million to $35 million, reflecting revenue headwinds from closures even as EBITDA benefits are anticipated.

SUMMARY

Leslie's (NASDAQ:LESL) reported revenue growth, improved adjusted EBITDA, and meaningful customer count gains as transformation initiatives—including the March price drop campaign and enhanced multichannel outreach—began to materialize. Margin expansion was achieved through higher sales volume, cost optimization, and targeted inventory reductions, while greater than 25% growth in reactivated customers and mid single digit growth in new customers underscored early traction of customer reacquisition strategies. Management closed 80 stores and finalized network optimization, driving annualized cost benefits but acknowledging expected sales impact and near-term margin pressures from ongoing inventory actions. Guidance for fiscal 2026 revenue and adjusted EBITDA remains unchanged, reflecting confidence in the underlying transformation plan while cautioning on sequential margin impacts due to inventory optimization in the back half of the year.

• Management identified core categories like chemicals as key growth drivers amid continued MAP pricing constraints on equipment lines.
• A new field organization model integrates service, trade, and retail under unified local management, paired with revised compensation plans focused on sales growth within assigned ZIP codes.
• CEO McDonell stated, "We are fundamentally reimagining how Leslie serves our customers and communities. Creating a more efficient business model in the process."
• The digital and Uber-enabled same-day delivery channels are fully deployed nationally, contributing to broader convenience and engagement strategies entering peak season.
• Planned capital expenditures remain centered on maintenance and productivity, with ongoing evaluation of financing options for future growth investments as fiscal discipline continues.

INDUSTRY GLOSSARY

• BOPIS: Acronym for “Buy Online, Pickup In Store,” a service model enabling online purchase and subsequent in-person collection at retail locations.
• SKU Rationalization: The strategic process of optimizing the product assortment by eliminating low-performing or redundant stock-keeping units to improve inventory efficiency and profitability.
• MAP Protection: Minimum Advertised Price policy set by vendors, restricting retailers from advertising products below agreed-upon prices, thus limiting discounting strategies in certain categories.
• Zero Party Data: Customer information explicitly shared and collected with consent, leveraged for targeted marketing and personalized engagement.

Full Conference Call Transcript

Jason McDonell: Good afternoon, and welcome to the fiscal second quarter 26 Earnings Conference Call for Leslie's. As a reminder, this conference call is being recorded and will be available for replay later today on the company's website. I would like to remind everyone that comments made today may include forward looking statements which are subject to significant risks and uncertainties that could cause the company's actual results to differ materially from management's current expectations. These statements speak as of today and will not be updated in the future if circumstances change. Please review the cautionary statements and risk factors contained in the company's earnings press release, and recent filings with the SEC.

During the call today, management will refer to certain non-GAAP financial measures. A reconciliation between the GAAP and non GAAP financial measures can be found in the company's earnings press release which was furnished to the SEC today and posted to the Investor Relations section of Leslie's website at ir.lesleyspool.com. On the call today is Jason McDonell, chief executive officer, and Jeffrey Justin White, Chief Financial Officer. With that, I will turn the call over to Jason. Good afternoon. And thank you for joining us today to discuss our second quarter fiscal 26 results. I am pleased to report that our comprehensive transformation plan, to position Leslie's for sustainable, profitable growth, delivered results.

In our Q2 performance, demonstrates that the strategic actions we have implemented worked on multiple levels. Compared to last year, in the second quarter, we delivered overall revenue growth of 4.3%. A comparable sales increase of 6.6% improved year over year adjusted EBITDA by 26% and registered total customer count growth of 8%. We have strong conviction in our long term business model and the strategic initiatives we have underway. From executing our pricing strategy, reactivating customers, enhancing our store operations, continuing our cost optimization, and improving our asset utilization. All of which we believe will drive meaningful margin expansion, sustainable revenue growth, and enhanced shareholder value over time. We enter 2026 with a clear goal to reduce customer churn.

Which was a significant driver of a net loss of residential customers in 2025. I am pleased to say we are off to a great start with broad based customer growth in the second quarter. what is particularly encouraging is the mid single digit growth we are seeing across both new and retained customers. And greater than 25% growth in reactivated customers. Who are those that did not shop with Leslie's last year, but did shop with us in the periods between 2021 and 2024. These customer statistics became even more pronounced as we capitalized on favorable weather with the launch of our price drop initiative in the Sunbelt markets in March.

While we have many critical weeks ahead, as the peak pool selling season kicks into high gear, I am very pleased with the customer feedback on our price drop initiative, our strong Q2 revenue, and gross margin improvement and our team's relentless focus on cost optimization to fund these customer facing investments. We are fundamentally reimagining how Leslie serves our customers and communities. Creating a more efficient business model in the process. As we have mentioned for multiple quarters, customer centricity, convenience, asset utilization, and cost optimization are the core strategic pillars supporting our comprehensive transformation plan. We are rebuilding Leslie's as America's 1-stop for pool care.

Leveraging our competitive advantages, and taking decisive action in areas where performance has fallen short. We are focused on improving Q2 as we launched price drop in March. The response from customers was positive. Our retail stores experienced double-digit increase in transactions and more than a 350 basis point improvement in our overall conversion rate. Customers also leveraged our proprietary AccuBlue water testing system with double-digit growth in water tests conducted in Q2 compared to a year ago. We are supporting the price drop launch with a comprehensive integrated marketing campaign. This campaign leverages our zero party data to target core Leslie's customers and bring back those that have lapsed. Leveraging marketing mix analytics.

We then strategically prioritize the marketing mediums from digital media to targeted direct mail, to engage our customer base and drive the best return on investment. Adding to our targeted marketing, we also elevated the in store value messaging and refreshed our category navigation signage for greater ease of shopping. The elevated value messaging includes prominent price drop signage strategically placed throughout the store to ensure customers immediately recognize the value we are delivering. While the refreshed category navigation signage showcases our broad assortment. To further expand our value proposition, beyond improved pricing on core chemicals, we have developed an exciting seasonal product line, anchored on opening value price points.

Launched late in Q2, this tiered value priced assortment across a broad range of our discretionary seasonal products is resonating strongly with customers and will help us build baskets throughout the pool season. To support our price investment and integrated marketing plan, we are pleased to share that our restructured field organization is now operational. This is a market leadership model integrating stores, service, commercial, and trade operations under a unified local management. We also changed our compensation structure at the store level. This new monthly compensation plan is focused on their sales growth and incentivizes the team to take ownership of their ZIP code on sales. Across service, pro trade, commercial, and retail stores.

The restructuring also accelerates our customer centric strategy by combining our customer data with local market leadership, giving managers the tools and authority to capture growth opportunities among thousands of pool owners. To further support the field organization, we have also implemented extensive training to strengthen customer engagement and organization success. In partnership with select vendors, we have rolled out localized in person training programs across key markets. Elevating product expertise and enabling more effective consultative selling experience. In Q2, we continued to see strong NPS scores as our store associates are supporting and representing the compelling customer value proposition at Leslie's.

This new program is designed to build local customer relationships, drive transaction growth while maintaining our consultative selling approach. Going into peak season, our field teams are aligned accountable, and ready to continue to help customers with all their pool care needs. As part of our integrated customer centric approach, we continue to focus on convenience. At Leslie's, we offer buy online, pickup in store, or BOPIS, and same day delivery. through Uber. We are seeing strong growth in adoption of our BOPIS service, which serves as a key traffic driver to our stores and creates a valuable opportunity to engage with our customers.

In quarter 2, we also completed the nationwide rollout of our Uber delivery platform, providing same day delivery on a wide range of products. We are pleased with the initial results and look forward to being more convenient for customers this pool season. In addition to our residential customers, we are also seeing success growing our pro business. Which increased approximately 5% during the quarter. Our Pro customers are responding to our improved value offerings on core items as well as the availability of the products they need. In Q2, we simplified our trade program, by refining pricing across all categories, and streamlining enrollment, which is improving the pro customer experience.

In parallel, we enhanced our internal processes and targeted outreach to drive improved customer engagement with our pro customers. Now an update on our network optimization initiatives. We remain confident in the annualized net EBITDA benefit of $4 million to $10 million despite an annual sales impact of approximately $25 million to $35 million from the 80 stores that we have closed in fiscal 26. what is particularly encouraging is the favorable customer transfer rates we are seeing to both existing stores and our digital channels, which are exceeding our expectations. We had valuable zero party data with over 85% of our customers' information.

That has enabled us to reach out to customers of closed stores and invite them to visit another nearby store or our digital assets. We are leveraging precision marketing to reengage lapsed customers and deepen loyalty with our core base, while educating both of them on the full breadth of our product and our service portfolio available through leslie's.com, and our mobile app. This local multichannel outreach spanning digital marketing, direct mail, and outbound calling ensures customers remain connected to our brand, and aware that nearby stores stand ready to meet all their pool care needs. Turning to our distribution network.

We have largely ceased operations at our Illinois facility and have successfully transitioned to a 5 distribution center network for the 2026 pool season. We now operate distribution centers in Texas, Florida, Kentucky, California, and New Jersey. Our network optimization is yielding annualized savings inventory efficiencies, and we will continue evaluating future opportunities to drive further network improvements. As mentioned, we have continued our focus on inventory optimization and improving inventory turns. In Q2, we reduced inventory by greater than 20% in the quarter, and are still delivering above target in stock performance overall and on our never out SKUs.

In another part of our focus on asset utilization, our SKU rationalization strategy is on track and goes beyond simple SKU elimination. We are strategically reshaping our assortment to maximize profitability and customer value. By removing 2,000 long tail SKUs from our ecommerce and marketplace offerings fulfilled through our distribution centers, we are confident we can deliver approximately $4 million to $5 million in annualized EBITDA improvement, while simultaneously strengthening our product portfolio. In summary, our Q2 results demonstrate the strategic actions we are taking are working on multiple levels. Revenue growth, EBITDA improvement, and broad based customer growth. By delivering greater value while managing cost-effectively, we believe we are fundamentally transforming Leslie's operations for long term profitable growth.

Grounded in our 4 strategic pillars, customer centricity, convenience, asset utilization, and cost optimization, we are restoring Leslie's as America's trusted 1-stop destination for pool care. With that, I will turn it to Jeffrey for a more detailed review of our second quarter results. Jeffrey?

Jeffrey Justin White: Thank you, Jason. I will begin my remarks today with a review of our second quarter financial results then move to our liquidity and capital allocation plans, and finally, review our outlook for 2026. Net sales for the second quarter increased 4.3% to $184.7 million compared to $177.1 million the second quarter of the prior year. And ahead of our expectations. Sales for our retail stores were strong with notable strength in residential and pro, especially in March and across the Western United States. Comparable total company sales, which removes closed stores, increased 6.6% in the second quarter compared with the same time period of fiscal year 25.

We saw strength in sanitizers and shock and specialty chemicals in conjunction with the launch of our price drop campaign slightly offset by softness in equipment, cleaning, and maintenance. We also saw expected softness in safety in solar as we anniversaried a clearance event in the second quarter of last year. Gross profit margin for the second quarter was 28.9% versus 24.8% in the prior year period driven by leverage of higher sales volumes. Margin expansion was also supported by favorable distribution and occupancy costs as well as reductions in inventory reserves reflecting continued improvement in overall inventory health.

SG&A for the second quarter decreased $100 thousand or 0.1%, to $92.2 million compared to $92.3 million in the second quarter of the prior year, due to lower labor costs and store costs partially offset by higher technology and marketing spend as we invested incremental dollars on a year over year basis in conjunction with the launch of our price drop campaign. While the year over year difference is small, this represents an over 22 basis point improvement as a percentage of sales. Net loss for the second quarter was $52.5 million compared with a net loss of $51.3 million in the second quarter of the prior year.

Adjusted net loss in the second quarter was $50.0 million compared with an adjusted net loss of $48.3 million in the second quarter of the prior year. Adjusted EBITDA for the second quarter improved $9.2 million to negative $26.8 million compared with negative $36.1 million of 2025. This improvement was driven primarily by higher sales volumes and improved pricing during the quarter, as well as lower distribution and occupancy costs and lower SG&A expenses. Inventory at the end of the quarter was $262.4 million compared to $335.1 million at the end of 2025. Due to inventory optimization initiatives and store closures.

Despite a favorable year over year inventory reduction of 22%, in stocks on key products remain at all time highs. Capital expenditures for the second quarter were $9.5 million compared to $11.2 million in the second quarter of the prior year primarily relating to maintenance of our stores and distribution centers. Regarding liquidity, we ended the quarter with $99.0 million of outstanding borrowings on our line of credit versus $101.5 million in the prior year.

We also had $753.0 million of long term debt As of quarter end, we had approximately $97.1 million of availability from cash on hand and borrowings available under our line of credit facility. remain focused on executing and delivering on our initiatives and continue to expect our pricing strategy to impact annual gross margins by 100 to 150 basis points, our store optimization strategy to have an annual net sales impact of $25 million to $35 million and generate a net EBITDA improvement of $4 million to $10 million annually. As of note, we have completed our store closure plans for the year and do not anticipate any additional closures for the balance of fiscal 26.

We continue to expect our expense reduction initiative to drive $7 million to $12 million of annualized savings with benefits starting to be realized in 2026. Furthermore, we anticipate our inventory optimization strategy to result in a 1-time reduction of approximately 100 to 200 basis points to annualized gross margins. We expect this impact to occur in our Q3 and Q4 periods. And finally, our SKU rationalization initiative to generate $4 million to $5 million in EBITDA savings by optimizing our product assortment over time. Combined, these initiatives should drive $5 million to $10 million to EBITDA in fiscal 26 as we reinvest some of the savings back into our price drop strategy.

We remain confident in our ability to drive sales and traffic by delivering the right product in the right place at the right time and at the right price for our customers. We have identified significant cost savings opportunities across our operations that will strengthen our financial position. Consistent with our historical performance, we expect to generate the large majority of our sales and earnings in the second half of the year due to the seasonal nature of the business. In fiscal 26, which is a 52-week year compared to a 53-week year in fiscal 25, we are reiterating our guidance of sales of $1.1 billion to $1.25 billion and adjusted EBITDA of $55 million to $75 million.

We continue to expect CapEx to be in the range of $20 million to $25 million in 2026 as we focus on maintenance and productivity investments as well as providing positive free cash flow for fiscal year 26. We continue to evaluate capital structure opportunities and are actively working with our incumbent lenders as well as third party capital providers to finance a series of incremental initiatives that could further accelerate our growth and shorten the path to profitability. The company has ample liquidity and is well positioned to capitalize on the 2020 pool season. In closing, we are executing with focus, growing sales, driving transaction volume, expanding profitability, preserving financial flexibility.

Our priorities are clear, and we believe these actions will support shareholder value over the long term. I will now turn the call back over to Jason for closing remarks.

Jason McDonell: Thanks, Jeffrey. Our comprehensive transformation plan is delivering measurable results. Q2 performance demonstrates that our strategic actions are working. We delivered revenue growth, significantly improved adjusted EBITDA, and achieved total customer count growth with particularly strong momentum in reactivated customers. Our strategic initiatives advance with both urgency and discipline. In Q2, the price drop initiative launch drove traffic and customer growth. Along with improved gross profit performance. While our cost optimization and asset utilization actions continue on schedule. We have completed our store optimization, optimized our DC network, and our SKU rationalization is strengthening both profitability and inventory productivity.

Most importantly, we are rebuilding customer relationships through improved value, enhanced convenience, and the consultative expertise that has always been Leslie's competitive advantage. While we have many critical weeks ahead, as peak season accelerates, the early Q2 success of our customer facing investments funded by operational efficiencies, validates our strategic direction. We remain committed to transparent communication as we execute Leslie's transformation, restore sustainable profitable growth, and rebuild stakeholder confidence through disciplined execution and measurable results. Before we open the call to your questions, I want to express my sincere appreciation to our Leslie team members across the country for their outstanding commitment during this transformational period. Your adaptability and determination in executing our strategic initiatives have been exceptional.

The progress we are making from the successful launch of our price drop initiative to the completion of our store optimization program is a direct result of your hard work and dedication to serving our customers. I also want to thank our vendor partners for their continued collaboration and support as we strengthen Leslie's competitive position. Finally, to all our stakeholders, thank you for your ongoing support and confidence in our team's ability to execute this transformation. Together, we are building a stronger, more customer focused Leslie's. Positioned for sustainable growth. Operator, we are now ready to open the lines for questions.

Operator: We ask that participants limit themselves to 1 question and re-queue for additional questions. 1 moment please while we poll. Our first question is from Jonathan Matuszewski with Jefferies.

Jonathan Matuszewski: Good afternoon, Jason and Jeffrey, and thanks for the update and nice to see the comp inflection. I guess my question is on gross margin. So this result puts you at the highest gross margin for second quarter since 2023, I believe, which is impressive. Can you talk to the sustainability of some of these drivers like savings and occupancy and DC costs? And then know, the inventory reserve adjustment. Know, a lot of moving pieces here.

So as we put them all together, just hoping for a clearer view of how you see gross margin trending in the second half And I guess looking beyond the second half, maybe if you could just talk to some of the levers for gross margin expansion into 2027 that you are excited about beyond potential leverage from higher sales volume? Thanks so much.

Jeffrey Justin White: Jonathan, this is Jeffrey. I will take that. So it is a good question. As we look at what really contributed to gross margin, I would say 1 of the largest drivers was the improvement in occupancy costs. So as I think about that, that is something that we can continue to leverage and make sure that helps gross margin going forward. We did have some, you know, 1-time adjustments, the difference in the inventory reserve that as we continue to get healthier and more productive with our inventory, those types of adjustments are going to be 1-timers.

So we will not tremendously material for the quarter, it is something that contributed Overall, we did see overall improvement, though, in our product margin. And those as we think about some of the cost initiatives that we undertook going through the direct cost process, making sure that we are really working with our vendors to optimize our cost. Portfolio there as we continue to work through the flow of goods and on an average cost basis, we see those efforts flow through, there is room for continued as we move through 2026 and continue to move into 2027. Thank you.

Operator: Our next question is from David Bellinger with Mizuho Securities. Hey, everyone.

David Bellinger: Thank you for the question. I apologize if I missed this earlier, but maybe 2 questions together. Can you talk about the price drops? I think you marked about $25 million for price investment earlier in the year. Is there any thinking of increasing that number just given the performance you have seen to date And then second, is there any way you talk about the equipment category with the price drops there? Is that a business that is ticked up post some of these storms that affected parts of the South and Southeast? Thank you.

Jason McDonell: Yeah, great question. As we think about the price drop, we are going to continue to look at areas of opportunity for us to expand the everyday value pricing and what categories we can move that into. As we rolled it out in March, it was heavily primarily focused on our core chemicals and our chemical categories, which is where we saw really good strength. As we continue to move through and find opportunities, depending on market conditions, we will look at other areas of opportunity. In terms of equipment, the 1 thing I will note there is a lot of that product is map protected.

So it is hard to move on price there because you do have that map protection and ultimately, the price in the market is set by the vendor. So we will look for areas of opportunities in other parts of the business where we can be competitive but still be margin accretive as we further progress down the path on our price drop initiative.

David Bellinger: Great. Thank you.

Operator: Thank you. This does conclude our question-and-answer session, as well as today's conference. We thank you again for your participation, and you may now disconnect your lines.

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