Q1 2021 Leslie's Inc Earnings Call
Good afternoon, and welcome to the first quarter 2021 conference call for Leslie has incorporated at this time all participants are in a listen only mode. Following the prepared remarks match book management will conduct a question and answer session.
If you should require any operator assistance during the conference call. Please press star zero on your telephone keypad. As a reminder, this conference call is being recorded and will be available for replay later today on the company's website I will now turn the call over to Caitlin Churchill Investor Relations.
Thank you and good afternoon, 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 on the company's earnings press release, which was furnished to the SEC today and posted to the Investor Relations section a blessing for web site at IR Dot Leslie pool dotcom on.
On the call today from Leslie think is Mike <unk>, Chief Executive Officer, and Steve Wardell, Chief Financial Officer with that I will turn the call over to Mike.
Thanks, Caitlin and good afternoon, everyone. Thank you all for joining us.
So today happens to be my one year anniversary.
Even though I don't spend a lot of time looking backwards I have to say, it's been quite a year.
And yes, I mean I.
<unk> record 2020 results.
And now thanks to our team continuing to perform at a high level of executing against our growth initiatives.
We are pleased to reported a record start to our 2021 fiscal year.
Our performance in Q1 exceeded our internal expectations and produced exceptional results for the quarter, including sales of 145 million.
Our comp sales increase of 25, 7% on a calendar basis, and adjusted EBITDA growth of $8 8 million.
I would also like to highlight that the Q4 gross margin pressure associated with our decision to clear inventory and to accelerate the launch of new proprietary product was.
We had discussed in our December call an isolated event in.
In Q1, we delivered 225 basis points on gross margin expansion.
Our record sales and profit were driven by the three pillars that make our business so compelling.
First we operate in one of the most advantaged and attractive consumer products industry, an industry that benefits from predictable recurring and non discretionary demand.
In Q1, we benefited from a strong industry backdrop is the acceleration in key macro trends continued unabated.
We saw consumers continue to focus time and investment on their homes pursue healthy outdoor lifestyles migrate to the suburbs and Exurbs and have an elevated attention to safety and standardization.
We believe these trends are secular in nature and will create enduring tailwind for our business.
As evidence of this we continue to see pool usage interest in pool ownership.
New pool permits and pool construction backlogs all remain at elevated levels.
Second our integrated ecosystem of physical and digital assets.
And our total solution based approach to pool care that enables us an unmatched competitive advantage.
We believe this advantage will only get stronger with the launch of our omni channel capabilities later this year.
Third despite being the largest direct to consumer brand in our industry, we have tremendous growth opportunities available to us.
We have $10 billion of white space in our markets and we have developed a specific multi pronged growth strategy, along with tangible supporting initiatives to address the opportunity.
Key drivers of our growth strategy include.
Consumer file growth.
We continue to see good results from our work to acquire and reactivate consumers on and off.
Optimized marketing strategy.
The ongoing shift of our media spend from direct mail to digital and social is a key driver of this success and we can attribute the majority of our Q1 sales increase directly to consumer file growth.
We are generating high levels of all align with our marketing spend and we will continue to invest in our targeted marketing tactics to capture share.
Driving growth on our loyalty program is another attractive opportunity for Leslie.
In Q1, we grew new loyalty members by more than 50% year over year.
We generated this growth by leveraging the reach and scale of our physical and digital assets and focusing our physical and digital teams on new member sign on.
Our new loyalty program 2.0, with enhanced features and benefits is on track to launch by the end of May and we feel very good about our ability to continue our loyalty pilot growth hit in the second half of the year.
The pro market.
We are pleased to share that part one of our pro strategy, our new qualified access website for the pro consumer.
Is now in beta test with a select number of CRO partners.
Part two of our pro strategy for launch of our affiliate program also remains on track.
And as the start for the third part of our pro strategy. We identified have identified 10 residential locations that we will convert to pearl locations as well as three brand new co locations on.
All 13 are slated to open for pools use in 'twenty 'twenty one.
While on the topic of additional locations, we continue to have very attractive residential white space opportunities in the 700 underserved markets we have identified.
We now have a total of 936 locations and are on track to open at least seven new residential locations this fiscal year.
In addition, our omni fulfillment capabilities are on track for rollout prior to pool season with Boris now active in both of his ship to store and ship from store coming on line in the next 60 days.
Also and importantly, accu Blue home Ah connected pool technology solution and subscription service has successfully completed beta testing with our consumer panel and remains on track for a limited launch of version one point O around Memorial day.
Okay.
On the M&A front, we continue to see abundance of acquisition opportunities across the highly fragmented pool on hot tub industry.
Yeah on managing an active pipeline of candidates.
We have a long history of programmatic M&A with smaller bolt on businesses as our targets.
In line with our recent M&A history, we have executed an LOI for one such targets and we'll have more to share once the agreement is definitive.
With regard to corporate governance, I would like to note that we cease to be a controlled company in November 2020, you're following our IPO.
Also our board recently reconstituted our nominating and governance committees to be majority independent inline with our compensation Committee.
Our audit committee continues to be fully independent.
Finally.
I'd like to comment on chlorine supply and retail pricing.
Despite widespread industry shortages, we are confident in our ability to both serve our existing consumers as well as the significant number of new consumers, we are acquiring with our growth strategies.
We have a 30 year relationship and a history of superior performance with our primary supplier.
And we have a contract in place that secures both volume and cost through 2025.
We also have a well developed relationships with a global network of additional partners that give us supply flexibility.
So with regard to supply and cost we're in good shape.
With regard to retail pricing. It is the fact that we are seeing increases across the industry.
The question is whether this level of retail pricing will be maintained.
And are planning on guidance, we are taking a conservative approach for three reasons.
First the October through December quarter is the smallest of the year for Leslie and the industry.
It is not necessarily a reliable indicator of peak pool season trends.
Second everyone in the industry, including us are investing alternative sanitizers.
And third it is unclear what the mass home for club strategies will be.
Your takeaway regarding chlorine should be that we feel very good about our supply cost situation and that we are being prudently cautious about the durability of current retail pricing.
To wrap up my remarks, it is gratifying to see such a strong start to the year, but our entire organization remains firmly focused on gearing up for success in the 'twenty 'twenty one pool season.
Balancing over performance on our seasonally smallest quarter.
With confidence on our team executing our growth initiatives.
Favorable industry backdrop, and overall business momentum.
We have as you've seen on the press release revise our guidance for the year upward.
With that I will hand, it over to Steve to discuss the quarter on outlook in more detail.
Steve.
Thank you, Mike and good afternoon, everyone as Mike said, our first quarter results exceeded our in.
Expectations as we generated record sales of $145 million and our associates continue to deliver against our strategic initiatives. Today, We will review our first quarter of fiscal 'twenty, one performance and our upward guidance revision to our full year fiscal 2021.
Before I get started two reminders first as a result for fiscal 'twenty 'twenty, having 53 weeks, they're a calendar shifts that will take place in fiscal 2021.
It will impact our quarterly comparisons on a year over year basis.
In the first quarter of fiscal 'twenty 'twenty, one we replaced a higher volume week towards the end of season that is the last week of September with a low volume week at the end of our first quarter. That's the last week of December I'll discuss the impact in a few minutes.
Second I want to remind everyone of the natural seasonality of our business, our first and second quarters combined typically account for approximately 20% of our annual sales and we have historically generated losses in both quarters.
Third quarter represents approximately 45 per cent of annual sales in the fourth quarter approximately 35% we.
We generate all of our full year profits in the second half of our fiscal year.
While we're pleased with our strong start for the fiscal year, we are firmly focused on our initiatives and preparation for season.
Let's dive into our first quarter results.
We delivered a strong performance in the first quarter with momentum throughout our business and our P&L.
Total sales for the 13 week period increased 17, 9% to $1 45.0 million from 123.0 million in the first quarter of fiscal 2020.
Our comparable sales on a reported or unshifted basis increased 15, 7%.
Due to the 50 <unk> week in fiscal 2020, our comparable sales growth was impacted by the one we checked.
Using a realigned period in 2020 for comparability, our comparable sales growth on a shifted basis increased 25, 7%.
This growth of 25.7% followed for comparable sales growth of 23 three per cent that we reported in the fourth quarter of fiscal 2020.
We generated strong results across consumer types price categories and geographies.
We also continued to benefit from the rollout of our accu Blue water test process as we completed the rollout across our business on the first quarter.
In the first quarter, we also saw higher than expected retail price inflation per.
Related to chemicals channel management by major equipment manufacturers and less discounting across our product categories.
Gross profit increased 25, 9% to $51 7 million for.
From $41 1 million in the first quarter of fiscal 2020.
Our gross margin rate increased by 225 basis points to 35, 7% from $33 four per cent and the prior year.
This was primarily due to occupancy deleverage product margin improvements and partially offset by business mix consistent with the results and performance we saw in full year 2020.
SG&A increased to $77 5 million from $59 7 million in the first quarter of fiscal 2020.
The increase in SG&A was driven by an increase in noncash equity based compensation, which increased by $11 6 million.
That's from 0.6 million on the first quarter of fiscal 'twenty, 'twenty $212 2 million in the current year quarter.
Of the total equity compensation expense reported in the first quarter of fiscal 2021 of $12 2 million approximately 1.4 million is recurring.
And $10 8 million is nonrecurring as it related to the accelerated vesting of incentive units at a time of our IPO.
SG&A also increased due to one time payments of contractual amounts of $8 2 million incurred in connection with our initial public offering and the increase in SG&A was partially upset by expenses related to the strategic consolidation of certain locations incurred during the first quarter of fiscal 2000 $24 million.
We did not incur similar expenses in the first quarter of fiscal 'twenty and 'twenty one.
Excluding items not indicative of our core operating performance, including the items above as well as gain or loss on sale of assets and sponsor management fees SG&A increased by $5 $1 million and as a percentage of sales SG&A decreased to 44 per cent and the first quarter of fiscal 'twenty and 'twenty one.
Compared to $43 four per cent and the prior year period. This is a decrease of 305 basis points.
And finally, it's important to note that during the current year quarter, we absorb new public company costs in our reported results.
For the remainder of my comments will reference adjusted metrics. Please refer to our press release for a reconciliation of these adjusted metrics to the corresponding GAAP numbers.
Adjusted EBITDA improved by $8 8 million to a loss of 0.2 million from a loss of 9.0 million in the first quarter of fiscal 2020.
During the <unk>.
Current year quarter, we converted the increase in sales at a higher gross margin and manage our costs, even as we invested against our key strategic priorities as.
As a result, we generated a near breakeven quarter. When historically the first quarter has represented approximately negative 5% of total annual EBITDA.
Adjusted net loss declined to $10 6 million from a loss of $24 3 million in the prior year.
In addition to the strong operating performance of our business interest expense was lower by $10 9 million during the first quarter of fiscal 'twenty and 'twenty, one primarily as a result of our repayment of outstanding senior unsecured notes totaling $390 million in November of 2020.
Diluted adjusted loss per share was six cents in the first quarter of fiscal 2021 compared to a loss of <unk> 16 cents in the first quarter of fiscal 2020, an improvement of 10 cents per share.
Moving now to the balance sheet, we finished the quarter of fiscal 'twenty 'twenty, one with cash of 100 and for point 1 million and we had no borrowings on our revolver compared to cash and cash equivalents of $1 9 million and borrowings on our revolver of $6 3 million at the end of the first quarter of fiscal 2020.
On inventory, we finished the first quarter with $174 5 million compared to $185 1 million at the prior year quarter end.
We're pleased with our current inventory position and we continue to closely coordinate with our vendor partners to maintain the efficient flow of products to prepare for season and to meet the demand from consumers.
With regard to debt at the end of the first quarter of fiscal 'twenty and 'twenty. One total funded debt was $809 million compared to 1200 10 million at the end of the first quarter of fiscal 2020.
The 401 million dollar reduction was due to the repayment of our senior unsecured notes and quarterly amortization payments on our outstanding term loan.
Next I'd like to turn to our outlook today, we are raising our full year fiscal 'twenty 'twenty, one guidance to reflect the first quarter beat to our internal expectations and our view that inflation will be higher than previously expected for the full year.
Our fiscal 2021 includes 52 weeks and ends on October 2nd 'twenty 'twenty one.
For the year, we're providing the following guidance.
Sales of 1170 $5 million to 1190 5 million, an increase of $20 million at the midpoint.
A year over year increase on the high single digit range, excluding the impact of the 50 <unk> week in 2020, and this compares to our prior expectation of mid single digit growth on the same basis.
Adjusted EBITDA of 202 million to $208 million, an increase of $10 million at the midpoint, we're a high teens increase year over year, excluding the impact of the 50 <unk> week in 2020, and adjusting for public company costs.
This compares for our prior expectation of low double digit growth on the same basis.
Diluted adjusted net income of $106 million to $116 million, an increase of $10 million at the midpoint.
And diluted adjusted net income per share of 55 to 60 cents.
An increase of five cents at the midpoint.
So in summary, the first quarter of fiscal 'twenty and 'twenty, one was a record quarter with $145 million in total sales and we drove strong financial results throughout our P&L are.
Our entire organization continued to execute against our initiatives as we prepare for pool season in 'twenty 'twenty one in this environment of heightened consumer demand.
And finally, we will continue our relentless focus on enhancing consumers experience and executing our initiatives to continue to drive growth and market share gains.
And with that I'll hand, it over to the operator to open the lines for Q&A. Thank you.
Thank you.
At this time, we'll be conducting a question and answer session.
If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate that your line is in the question queue.
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Our first question comes from Ryan Merkel with William Blair. Please state your question.
Hey, Thanks, and congrats on the quarters guys.
Thanks, Ryan thank.
Thank you Ryan go first.
First off.
On businesses clearly really strong.
As it relates to chemical pricing I understand taking a cautious approach, but what are you assuming in guidance for chlorine price inflation, and then tell us how does that compare to what you saw on the current quarter.
Yeah, Ryan, we're not going to get into the specifics of our call.
Cost.
Or the inflation, we saw in the quarter.
No I think the way to think about it is we we have seen prices up.
We're being as we said.
We believe to be prudently cautious about the durability of that.
And we have taken.
About about half of our upward guidance.
Is related to chlorine pricing.
That's how we're thinking of it at this moment.
Okay fair enough yeah.
And then how much growth in the quarter can you attribute to the accu blue installed water testing. If that's something you have and have you continued to see customers testing more because of the technology.
Yes, it's a good question.
We saw as we implemented accu blue across the physical locations last year about a 400 basis point in lift.
And we're continuing to see that in the new locations that we opened in Q1.
I can't really speak to the overlap yet the comp on comp because last year, we had roughly only 50 other devices and stores.
So it's a very small subset.
Not big enough to draw conclusions from but I can say that we've seen pretty consistent performance across the fleet as we've put the devices in and we haven't seen anything that would tell us we should not expect to comp the comp is comp the comps we saw.
Got it okay. Thank you pass it on.
Our next question comes from Simeon Gutman with Morgan Stanley. Please state your question.
Hey, everyone nice quarter happy anniversary, Mike. My first question is on your approach to guidance.
Can you tell US are you had this outperformance in the first quarter.
Trying to match it up to what you're flowing through versus not can you just tell us. What your approach was you know you did a little bit better on sales are you flowing that through for the rest of the year and then same on profit.
Yeah, and I'll I'll take that semi and see as the sales up by $20 million adjusted EBITDA by 10, our adjusted net income per share up by five cents. So we did start by looking at the other beat against our internal expectations for for the first quarter flow that through completely looking at kind of the macro trends and the enduring trends that we're seeing today.
And some other heightened and inflation and again, it's beyond just chlorine its looking at some of the equipment and the management of pricing across channels.
It's the fact that our we have less discounts and in the current environment as well it gives us confidence to flow through some of what we saw in Q1 are not going to give a percentage I did that that we've kind of expected for the full year, but as Mike stated on a fairly conservative at this point.
Right, Okay, yeah that sounds right. So it sounds like you're confident about it but you were just more careful in how you floated through especially to the profit side of the guidance.
That's correct.
Okay, and then can I ask on this quarter's gross margin trying to think about the run rate and I guess every quarter is a little different given seasonality, but can you tell us this quarter, what was incremental and how much. If there was a benefit from some of the markdowns that were taken last quarter.
Yeah, we we we as we look at it it's a like I was saying in prepared remarks, it's a fairly consistent formula right. We were gonna see occupancy leverage we're going to see continued increase in rate across our businesses and some of that is going to be offset by business mix right is as we grow.
Some areas of the business that that may have a slightly lower gross margin levels. A reminder, right as you get down to those contribution levels are those businesses generate very nice contributions relative to overall performance.
So I as we think about Q1 and the results. We saw very consistent saw some good occupancy leverage saw good increases across the business on a rate basis across the businesses and saw continued headwinds when it comes to from a business mix perspective.
Reminder, as we talked about the algorithm right. The algorithm is kind of flat to positive 25 basis points on gross margin.
On a 225 basis point increase from Q1's feels pretty good.
Got it.
Cause sneak in one last one on the increased marketing effectiveness that you mentioned is that reflected in your sales guidance.
It is yes.
Okay.
Thanks, guys. Good luck.
Thank you ma'am.
Our next question comes from Steven Forbes with Guggenheim Securities. Please state your question.
Good afternoon.
And again congrats on the on the anniversary.
Mike You mentioned that most of the <unk> sales growth was attributable to customer file growth. So can you update us on where the active customer base sits today and then maybe comment right on how the loyalty members spend during the first quarter compared.
Last year, we are we seeing growth in that that loyalty member spend average.
Yeah. Good question, you know, we're not going to give specific numbers on the consumer file growth, but it was a double digit growth.
And combined with that we also saw growth in the average revenue per consumer.
So for us that's the.
That's the combination we'd like to see more and more consumers buying more product.
We saw the same dynamic in the loyalty file.
At elevated levels from the total file.
So I.
I mean I couldn't be more pleased with the way the consumers responding to our product our marketing and our service.
More customers on.
And more product across.
Across the whole file and at elevated levels from loyalty file.
And maybe just sticking with that topic, because I think as we.
You spoke to the revenue outlook for the business or do you think about that 6% to 9%.
Our revenue growth profile, maybe can you remind us what would be the expectation right for growth.
In the customer file base and then and then also the expectation for the growth in average revenue per customer because I would imagine both of those are sort of out stripping.
The original expectations on other if you can sort of confirm that or or speak to it.
Yeah, I'll answer that like like this you know when we laid out.
In the IPO, we had six growth levers.
One of them being accurate home, which we said look don't don't plan any revenue in its.
It's advanced our D&B.
We're pleased that we're on track to launch so there's nothing there for for this year in our guidance.
Balance five we all size between 103 hundred basis points of growth.
So if you took loyalty and the consumer funnel growth together that'd be 200 to 600 basis points of growth over the course of the year.
This quarter day outperformed that.
The other initiatives CRO.
Residential white space.
M&A.
You know all those initiatives are a work in process.
We spoke to in the prepared remarks, so right now.
The bulk of the growth is being driven by the consumer pharma loyalty file.
Thank you best of luck.
Thanks.
Our next question comes from Jonathan Matuszewski with Jefferies. Please state your question.
Great. Thanks for taking my question and nice quarter guys.
First quarter I had.
Let's just on growth by product category sounds like sales growth was pretty broad based but are you willing to be more specific across our core sanitizers chemicals parts and and other.
Yeah, Jonathan Thanks for the question the.
The the sales by category ranged from mid single digits to mid 20 percents.
And we characterize the growth last quarter for.
For the year excuse me, 6% to 36, if I remember correctly.
Similar we didn't have quite the outlier on the top side.
But similar to the last year in the quarter, we saw the big categories.
All performed similarly, and all in like the 20 per cent range.
Great. That's that's helpful. And then it sounds like Accu Blue home is is progressing well with the beta test.
Just curious if you could share kind of any feedback you're hearing from your kind of customer panel on how you're integrating that in terms of debt the upcoming launch with the device and the subscription.
And any color you have in terms of how you're thinking about fulfillment for accu Blue home, you, obviously have kind of debt that advantageous store base to leverage but you know how old you are so you'd be involved if at all in terms of the delivery.
Delivery or will it just be ship from store or are you considering third party delivery services for the last mile any color there would be helpful. Thanks.
Okay.
Yeah. Good question and you know as we've as we've discussed we're in a learning phase for vacuum Blue home.
I'm going to say that the beta test panel consumer panel.
I'm very very encouraged by their feedback on the device for the reasons that we expected right. We test 10 parameters most devices test for.
We were able to give a specific.
Numeric readout, where other devices or not.
And you know from the beginning we've said our big advantage in addressing this space. This white space is the fact that we can do it end to end we can test the water. We can show the prescription and then we can fulfill it.
And to your point the stores 936 stores will be key on that we we expect most of the fulfillment to be shipped from store and we are looking at some last mile alternatives at Atlanta on any but.
Get the product to the customers as quickly as possible, we would expect to ship from store in most instances.
That's really helpful. Thanks for the color and best of luck for the year.
Thanks, Jonathan.
Our next.
<unk> comes from Kate Mcshane with Goldman Sachs. Please state your question.
Hi, Thanks, Good afternoon, I wondered if there was any more color around the locations of the pro stores are they located in markets near existing per stores are you trying to enter in new markets for the conversion of some of the residential starts to prowl.
Yeah, Hey, good good question the Ah they are predominantly in our new markets.
Yeah.
Okay. Thank you, yeah, and let me add to that a new pro markets our existing loves these locations right. So again part of the benefit of our pro strategy is that hub and spoke.
So you open or convert a store into a pro that not only drives more sales for that existing box, but also lifts the surrounding stores from a pro sales perspective, so I will be will be new markets outside of existing pro stores, but are in existing loves these markets.
Yeah, Kate you see is the answer that was much better than.
What I articulated thanks.
Thank you.
Yeah.
Thank you. Our next question comes from Elizabeth Suzuki with Bank of America. Please state your question.
Great. Thanks, and can you give us a sense of how much of the 2020 growth in sales that you saw on might not repeat and really I guess I'm trying to parse out big ticket items like above ground pools Hot tubs products that are durable and won't need to be purchased again by those same customers from 'twenty 'twenty, one compared to chemicals.
Leaning products and other maintenance items that would need to be bought again and again.
Yeah. Liz good. Good question, you know I'll speak to above ground pools and hot tubs.
Last year the <unk>.
Industry was sold out rather early we saw really nice increases in both of those businesses, though they're not they're not a big part of our business. You know we've said in the past there are about two five per cent.
We have actually seen an acceleration in hot tub and above ground pools in the first quarter of 2021.
So quite literally no slowdown.
We have had some manufacturers community we've seen some manufacturers communicate in both categories.
To their partners.
They expect to be sold out again.
We very early and very aggressively purchased additional inventory in both categories. So feel good about how we're set up but yeah no no slowdown there none at all.
Great and I guess on on on categories in general, where you're seeing shortages and that now includes chlorine I mean, how much of an advantage or are you seeing in terms of a procurement side like this being able to get the product.
In house versus some of your smaller competitors are you seeing any smaller competitors that are struggling in this environment are just not able to keep harping on inventories stand point.
Well you know what.
Cannot to speak to our competitors, but this is just a situation where our scale and reach combined with long standing supplier relationships and long term contracts.
That trifecta, if you will yes, it puts us in a very advantaged position with.
With purchasing and with supply.
And we've got like I said pretty aggressive with that in the categories, where we anticipated growth. So we're feeling.
Yep.
Feeling good Steve said it in his prepared remarks, right, we're constantly constantly managing our supply chain both for efficiency and quantity.
So we're certainly not just.
Sitting here.
Not looking at it closely but we feel very good where we're at.
Yeah on the second piece of that as well as the vertical integration right, you think about our distribution and manufacturing capabilities. So.
We have we are right and so on the largest peers in the industry, but we can direct for that product to where the consumer demand is on kind of a real time basis. So we are investing heavily in inventory I naturally naturally from a seasonality perspective are in in a in the first and second quarter preparing for season, so that inventory.
He is coming in right now we can position that are efficiently across our network to serve kind of the the digital as well as our physical locations I and from a manufacturing perspective gets us. So it gives us a lot of flexibility if not necessarily being a reliance on others to really get some solid throughput from a manufacturing perspective so.
I you know relative to other as we do have a pretty unique competitive advantage because of that vertical integration and that will certainly help and are in a time, where we've continued to work closely with our vendors to manage the elevated demand.
Yeah, Liz if I may I'll, just add one last part to that.
For your question and our answer I think something that's sometimes overlooked is we will have supply of products that other retailers don't above ground pools Hot tubs.
And probably specifically Corey.
We look at that in two ways. It allows us to capture a sale.
But more importantly, it's allowing us to capture new customers.
And with the with the emphasis we put on consumer file growth.
Keeping customers with our loyalty program wrapping our arms around it once we've got them in our system. We see this this industry shortage situation not just as us getting immediate sale, but that's getting a new customer which is much more durable.
Great. Thanks, so much.
Our next question comes from Garik <unk> with loop capital markets. Please state your question.
Great. Thanks, and congrats on the quarter first question is just on the guidance range. The 20 million on higher sales and the dropdown under 10 million on EBITDA, so a little bit higher than how we kind of pick on incrementals.
So just you know you talked about some other drivers here, but do you think that Theres a.
There's been a change in how we should think about the dropdown on moving forward.
Yeah. It's a good question Garrett and I think our you know the the is he understood how we flow through guidance right. So it's the the beat in Q1 and Q1, good topline sales a 225 basis point of gross margin improvement kind of good cost management on the SG&A side. When you look at on an adjusted basis on that.
That drop through quite nicely. So certainly that's having an impact as you think about kind of the inflation side of the equation and the increase view there as well Oh, well, we have gone out proactively and procured more and more supply in and some of that has come on at a higher cost overall, we were in a very advantaged position from a from a costing perspective in <unk>.
All that flow through from an inflation perspective, it is flowing through at a much higher rate. So I think I definitely unique this year relative to what we've seen in past years, and certainly something that we would expect to continue to kind of update on over the course for the next the next few months. Okay. Thanks, I'm, sorry, if I might've missed it earlier.
You call out how much inflation.
Did benefit.
The quarter versus how much like for like volume contributed.
Yeah, I don't know Mike If you go ahead.
Yeah, we did not as is the answer.
We saw it higher than we had modeled but for.
Our plan is not to break out how much book was inflation.
And look we saw some elevated retail prices some of it was MSR P based and industry driven but also almost equally was less discounting as we saw demand for our products.
It remains at high levels.
We haven't we haven't broken out those two components.
Okay understood. Thanks, though.
Yeah.
Our next question comes from Peter Benedict with Baird. Please state your question.
Okay.
Oh, Hey, guys. Thanks for taking the question.
Just circling back up the gross margin I think you mentioned loyalty as you pointed out coming around Memorial day is there anything from a margin perspective, we should be thinking about once that starts to work its way into the <unk>.
Into the business. That's my first question.
Yeah, Peter the way, we're thinking about loyalty is that.
You know there will be.
Additional cost connect.
Connected to a higher earn rate and we haven't said yet what that hiring rate will be but it'll be part of the package. However, that'll be a trade off with.
Less promotions to our non loyalty customers.
So right now we're seeing that as a wash and that that's how we're modeling it the idea is we take.
What would be normal promotional cadence.
And decrease that day non loyalty customers increase it to loyalty and make loyalty that more advantage now at some point with loyalty growth that are won't be net net but when we get to that point that would be a very a high quality problem.
Yeah.
Yeah No for sure. Thank you and then I guess my next question is just around the some of the pro initiatives they've got the affiliate program.
Getting set here and you've got the per website I guess tested.
<unk> tested well just any any more colors as what exactly youre doing with that website, maybe what some other feedback was that what makes you optimistic that that's going to be a contributing factor to growing share in that segment.
We look forward.
On the website you know we've got a handful of cash.
One of our best pro customers, just running through it and testing it out with us right.
Real classical I'm going to say beta testing and we're getting real nice feedback about features about site merchandising and I'm going to say, it's all been it's all been very very positive. So I'm quite pleased with how that's going on.
Similar to the affiliate program, we have a focus group of pro consume pro customers that we're working with and you know running different baskets of benefits past them.
Different ways to think about partnership partnership.
What the co branded uniforms might look like.
Yeah.
One of our underlying principles is really good things happen when you listen to your customers and it's not just our residential customers were listening to we're listening to our customers as well and I'm.
I'm very pleased with how all of that is going.
Great sounds like a smart strategy. Thank you.
Okay.
Yeah.
Our next question comes from Joe Feldman with Telsey Advisory Group. Please state your question.
Yeah, Hey, guys. Thanks for taking the question so we're on.
From a competitive standpoint, I think you said you use you didn't have to cut prices at all on things that was one of the drivers of the gross margin. So presumably it's been a benign competitive environment. So I guess I'm wondering where you guys think you're taking share from is it just the smaller mom and pops out there or is it any bigger players or for.
For the Big box guys that we've talked about in the past.
Yeah I'll I'll.
Well I'll give you my view on that and Steve you can add and I think predominantly our share growth is coming from smaller regional mom and pop type stores.
As the consumer expects things like.
But we developed E commerce sites buy online pick up in store.
Accurate blue water testing, we just have a basket of benefits to offer consumer debt.
Debt are we believe really well and.
And getting more compelling.
And then if you add onto that.
We are not seeing shortages.
In key categories that just accelerates and then it goes to my earlier point there. There's there's two parts about our advantaged supply situation right now at one we're getting the immediate sale for.
We're also attracting on acquiring more customers.
Okay.
And I'd add on as well when you think about the competitive environment and in this quarter I generally less volumes in and so it's a time when somebody's a.
Competitors kind of slow down or even close their doors for a portion of the winter. When you think of some of the seasonal categories within home or mass.
Shelf for or are not not stocked with pull suppliers as well so on one of the points Mike made in his prepared remarks was around the mass home in club strategy for season will be not just on pricing, but access and availability on our product and and what they'll actually carry this season. So.
Those are items that are could be advantageous to us.
From our perspective, given the tightness in supply are we know we have our season bought and we've certainly got opportunities to buy more but I think as you think about others, where this isn't their day job. It's not what they were explicitly focused on maybe a harder year for for folks to competing in the current environment.
Okay. That's helpful and then actually Steve.
Anything to call out you know from the the next few quarters from this given the 53 week shift in the week, we shipped that were gonna see you know.
Anything that you would note or highlight to us that that we should just watch for like Hey, the third quarter looks kind of funky because of we pick up on extra week or lose a week or something yeah. No absolutely. So when you think about how our our.
Our quarter's flow I, our fiscal performance in Q1, and Q4 are generally below calendar or fiscal quarters in Q2, and three year generally higher than calendar. So it almost works out where the first half is contained in the second half is contained but that's why when you when you think of the first quarter.
15, seven on a reported basis, but up 25 seven on on a calendar basis. Its a big pick up in in in Q1, we will give some of that back in Q2 on a calendar comp for my counter comp perspective.
And then again, we will we will take a hit in Q3 calendar and then have a pick up in AR in Q4, so absolutely important to understand and how.
How how the year will play out because of that 50, <unk> week last year, but again. The key is as you look at underlying operational performance. You you go back and look at the third quarter of last year, our fourth quarter of last year I you know at that 23, three and then a 25 seven this this first quarter good good momentum kind of carrying us as we prepare for season.
Got it that's helpful. Thanks, guys and good luck with this quarter.
Thank you.
Thank you and just a reminder to ask a question press star one on your phone.
Our next question comes from Peter Keith with Piper Sandler. Please state your question.
Hi, Thanks, Good afternoon, everyone maybe to follow up on that last question I did want to understand how you guys are thinking about whether in the coming months here, because reflecting back or do you think the spring was a.
Fairly favorable and I think you've called out in the past. So is there a particular bunce debt that we should be thinking about where maybe weather was a modest headwind on understanding that maybe weather well, what really matter for the momentum yet, but any characterization would be helpful.
Yeah.
Yeah sure.
Let me take a shot at that Mike. Yeah. Go ahead, yeah. So when you think about what we talked about last year and in kind of the spring it was better weather than the prior year right. So that that certainly helped us from last year from them from a performance perspective, but I think overall, probably would characterize kind of the start of season is fairly normal for the average if you will if you remember back to.
Some other weather in the Midwest and northeast, even up and through Memorial day. It was it was pretty poor so because word I national right 37 States, we get I, we have the ability to kind of offset I you know port poor conditions in one part of the country with other performance in other parts of the country. So.
I think as we go into season. This is a time, where we do start to looking at some on some of the weather trends and and typically plan for kind of on a year to year basis kind of average conditions I and again based on our national footprint and we've got the ability to manage inventory in and resources across the organization to meet the demand.
And make sure that are we on our efficient with our capital.
So at this point no no particular callouts on on weather trends for the ear, but can be expecting kind of a normal year.
Okay, Alright helpful and maybe secondly for Mike I wanted to just understand that affiliate program, which I am I think in the past you've said is launched in February. So maybe it's imminent, but is that something that you would expect will ramp very quickly or is it going to have a longer tail.
Lift because there'll be recruiting effort that maybe it takes a year or two to really take hold.
Yeah, Peter you remember correctly, we had talked about a.
November.
Or second quarter.
And and that's on track.
Alright, whereas we're still on track it would be either later this month maybe early March.
And it's also correct to characterize it adds it will take a while to ramp up right. This is a kind of.
Pro by pro selling proposition.
Both through our.
Wholesale channels, but most specifically through our residential stores.
So where we're at right now is where like I said working with a group of of of pros to the turbine and finalize the basket of benefits how.
How they want to think about everything from.
Health insurance to uniform colors and co branding.
And then and then when we roll it out it's going to be very much a you know store trading area by store trading area and the reason for that and you'll remember one of the big draws to the Pearl.
Two the pro for our program is the referrals.
And we are finalizing our referral program and automating it so that we're able to track the number of referrals and also be able to follow up and make sure that our partners are giving us.
Leslie is level service, so everything's on track I feel real good about the process real good about where we're at but yeah that would be that it would be more of a slow slow build over the second and third and fourth quarters.
Okay very helpful. Thanks, guys.
Thank you there are no further questions at this time I will turn it back to management for closing remarks.
Yeah.
Yeah, again, I'd like to thank everyone for joining us today it's.
I Hope your takeaway was we're quite pleased with how the first quarter came.
It came together.
And we continue to see nice favorable tailwind for the business.
And we're very very pleased on our team's execution of the growth initiatives.
Thank you. Thank you.
This concludes today's conference all parties may disconnect have a great day.