Q1 2022 Leslie's Inc Earnings Call

Speaker 1: Good afternoon and welcome to the first quarter of fiscal 2022 conference call for Leslie

Good afternoon, and welcome to the first quarter of fiscal 2022 conference call for Leslie zinc.

Speaker 1: At this time, all participants are in a listen-only mode. Following the prepared remarks, management will conduct a question and answer session.

At this time all participants are in a listen only mode.

Following the prepared remarks management will conduct a question and answer session. If you should require any operator assistance. During the conference. Please press star zero on your telephone keypad. As a reminder, this conference is being recorded and will be available for replay later today on the company's website.

Speaker 1: If you require any operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded and will be available for replay later today on the company's website. It's now my pleasure to turn the call over to Kaitlin Trembl.

My pleasure to turn the call over to Caitlin Churchill Investor Relations Caitlin. Please go ahead.

Speaker 2: 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.

Thank you and good afternoon.

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.

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.

Speaker 2: These review the cautionary statements and risk factors contained in the company's earnings press release and recent violence with the SEC. During the call today, management will refer to certain non-gaft financial measures. A reconciliation between the gap and non-gaft financial measures can be found in the company's earnings press release, which was furnished to the SEC today and posted to be investor release detection of Leslie's website at ir. Leslie's pool.com.

During the call today management will refer to certain non-GAAP financial measures.

Reconciliations 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 <unk> website at IR Dot Leslie for Dot com.

Speaker 2: On the call today from Leslie's Inc. is Mike Ejek, Chief Executive Officer, and Steve Waddell, Chief Financial Officer. With that, I will turn the call over to Mike Ejek. Mike.

On the call today from Leslie Inc. Is Mike <unk>, Chief Executive Officer, and Steve <unk>, Chief Financial Officer, with that I'll turn the call over to Mike.

Nick.

Speaker 3: Thanks, Kaitlyn, and good afternoon, everyone. Thank you all for joining.

Thanks, Caitlin and good afternoon, everyone. Thank you all for joining us.

I'm going to start by highlighting our key results and performance drivers for Q1, and then Steve will walk you through our financial results and increased full year guidance in more detail.

Speaker 3: I'm going to start by highlighting our key results and performance drivers for Q1, and then Steve will walk you through our financial results and increase full year guidance in more detail.

Speaker 3: I'm pleased to report that our Q1 performance continued our streak of record results.

I'm pleased to report that our Q1 performance continued our streak of record results.

Speaker 3: Sales for the quarter were a record $185 million, as all three of our consumer groups responded positively to our product and marketing offers.

Sales for the quarter were a record $185 million is all three of our consumer groups responded positively to our product and marketing offers.

Speaker 3: Residential pool grew 18% for the quarter. Residential hot tub grew 66%. And pro pool grew 40%.

Residential pool grew 18% for the quarter residential hot tub grew 66% and Copel grew 40%.

Speaker 3: Comp sales increased 21% for the quarter, and the two-year stat comp for the quarter was 46%.

Comp sales increased 21% for the quarter and the two year stack comp for the quarter was 46%.

Speaker 3: The comp for the quarter and the two-year stat comp represented an acceleration from our Q4 result.

The comp for the quarter and the two year stack comp represented an acceleration from our Q4 results.

Speaker 3: Gross profit for the quarter was a record 67 million and margin rate expanded 70 basis points.

Gross profit for the quarter was a record $67 million and margin rate expanded 70 basis points.

Speaker 3: And for the first time in our company's history, we generated positive adjusted EBITDA in our first fiscal quarter. Given the seasonality of our business, the first quarter has traditionally been a loss-making quarter.

And for the first time in our company's history, we generated positive adjusted EBITDA in our first fiscal quarter given.

Given the seasonality of our business. The first quarter has traditionally been a loss making quarter.

Speaker 3: During our earnings call in December , we announced that our Board of Directors had authorized a $300 million share buyback program.

During our earnings call in December .

We announced that our board of directors have authorized a 300 million share buyback program.

Speaker 3: During the quarter, we put that authorization to work and bought back 7.5 million shares and average price of $20.25 for a total of $152 million.

During the quarter, we put that authorization to work and bought back seven 5 million shares an average price of $20 25.

A total of $152 million.

Speaker 3: Moving to the industry backdrop, we continue to see the pool and hot tub industry benefit from strong consumer demand in a quarter.

Moving to the industry backdrop, we continue to see the pool industry benefit from strong consumer demand in the quarter.

Speaker 4: This demand is being fueled by a strong housing market, sudden investment in the home and backyard, the desire for a healthy outdoor lifestyle, migration to the Sunbelt, a heightened sense of safety and sanitization, and hybrid and work-from-home schedules. We have seen no evidence of these macro trends evading. Please see the complete disclaimer at once.

This demand is being fueled by the.

A strong housing market and the investment in the home and backyard.

The desire for a healthy outdoor lifestyle.

Migration to the sunbelt.

A heightened sense of safety and standardization and.

In hybrid and work from home schedules.

We have seen no evidence these macro trends abated.

Another trend, we see continuing in the industry is inflation.

Speaker 4: in the quarter, retail price inflation was nearly 12%.

In the quarter retail price inflation was nearly 12%.

Speaker 4: This was a little ahead of our expectations, but we didn't see any associated slowdown in demand.

This was a little ahead of our expectations, but we didn't see any associated slowdown in demand.

Speaker 4: As a reminder, during fiscal 2021, we saw inflation increase throughout the year. This year, we expect inflation to moderate in the coming quarter.

As a reminder, during fiscal 2021, we saw inflation increase throughout the year. This.

This year, we expect inflation to moderate in the coming quarters.

Speaker 4: For the full year, we still expect inflation of approximately 5%, but could certainly move higher.

For the full year, we still expect inflation of approximately 5% that could certainly move higher.

Speaker 4: Against this backdrop of continued robust demand, the competitive advantages derived from Leslie's Connect, our integrated system of physical and digital assets.

Against this backdrop of continued robust demand for <unk>.

Competitive advantages derived from less lease connect our integrated system of physical and digital assets.

Speaker 4: and a strong execution of a growth initiative by our associates drove the acceleration sales week since then the quarter.

And the strong execution of our growth initiatives by our associates.

The acceleration in sales we experienced in the quarter.

Speaker 4: Now we'll walk through the performance of each of our six strategic growth initiatives.

Now I will walk through the performance of each of our six strategic growth initiatives.

Speaker 4: First, our consumer file continues to show strong sustained growth. Total target file growth was 11%

First our consumer funnel continues to show strong sustained growth.

Total target file growth was 11% in the quarter.

Speaker 3: Q1 2022 was our ninth straight quarter of double digit file growth, driven by our digital marketing capabilities and compelling a short.

Q1, 2022 was our ninth straight quarter of double digit file growth driven by our digital marketing capabilities and compelling assortments.

Speaker 4: As we mentioned during our last call, we continue to achieve high ROI of market extent and have increased our marketing budget for 2022 by approximately 30%.

As we mentioned during our last call we continue to achieve high ROI on the marketing spend and have increased our marketing budget for 2022 by approximately 30%.

Consumers are also responding well to our lovely disconnect omnichannel capabilities.

Speaker 4: Consumers are also responding well to our Leslie's Connect on the channel capability.

Speaker 4: Buy online pickup in store, ship from store, ship to store, and buy online return in store.

Online pickup in store ship from store ship to store and buy online return in store.

Speaker 4: These capabilities allow us to utilize inventory in our location network to effectively fulfill consumer orders in whatever manner they choose and to increase consumer retention.

These capabilities allow us to utilize inventory in our location network.

Affectively fulfill consumer orders in whatever manner, they choose and to increase consumer retention.

Speaker 4: Leslie's Connect enabled more than 30% of Leslie's digital orders in the quarter.

But at least connect enabled more than 30% of digital orders in the quarter.

Next we continued to deepen our relationship with our consumers.

Speaker 3: Next, we continue to deepen our relationship with our consumers.

Speaker 4: Our loyalty program, Leslie's Pool Perks drove loyalty file growth of 7% in the quarter as consumers continue to be drawn to the program's key benefits. A 5% rewards earn rate and free shipping. Pool Perks, in conjunction with our targeted and personalized marketing tactics, helped grow average revenue for consumers 14% in the quarter. Third, our pro initiat- Well, ya'll are correct.

Our loyalty program, but this pool parts drove loyalty file growth of 7% in the quarter as consumers continued to be drawn to the program's key benefit.

The 5% rewards earn rate and free shipping pool.

<unk> perks in conjunction with our targeted and personalized marketing tactics helped grow average revenue per consumer 14% in the quarter.

Third our pro initiatives are driving strong results.

Speaker 4: Our plan to convert 25 and build five new pro locations in 2022 remains on track.

Our plan to convert 25% and build five new pro locations in 2022 remains on track.

Speaker 4: All three locations are scheduled to be operating by the start of the pool season.

All three relocations are scheduled to be operating by the start of the pool season.

During our last call.

Speaker 4: During our last call, I noted that we had executed more than 1,000 pro-affiliate agreements and had targeted 1,500 plus for 2022.

Note that we had executed more than 1000 pro affiliate agreements and had targeted 500 plus for 2022.

Speaker 4: I'm encouraged to say that as of last week, we have surpassed that target number and that our pro-affiliate partner sales doubled in the quarter.

I'm encouraged to say that as of last week, we have surpassed that target number and that our pro affiliate partner sales doubled in the quarter.

The new unconverted co locations are.

Speaker 4: our expanding pro-affiliate program, and our dedicated Leslie's Pro e-commerce site helped grow our total pro business 40% in the quarter.

Our expanding close till late program.

And our dedicated Leslie its E Commerce site helped grow our total core business, 40% in the quarter.

Moving to M&A.

In the quarter, we closed on the acquisition of BNS pools, which operates seven locations in the greater Phoenix area.

Speaker 4: In addition, we have entered into an LLI from additional pool and spa retailer. And we expect to close that acquisition this month.

In addition, we have entered into an LOI and additional pool and spa retailer and we expect to close that acquisition. This month.

Speaker 4: We continue to see a wealth of acquisition opportunities in the pool and spa industry. We have staff that's to accelerate our ability to acquire integrate businesses in 2022.

We continue to see a wealth of acquisition opportunities in the pools by industry and we have staffed up to accelerate our ability to acquire integrate businesses in 2022.

With regard to our residential white space new ship.

Speaker 4: We added two new locations in the quarter and remain on track to open at least 10 new residential locations in 2022.

We added two new locations in the quarter and remain on track to open at least 10, new residential locations in 2022.

Finally actually blue home.

Speaker 4: Due to delays and required microchips, the exact number of devices that we will be able to produce for this pool season remains uncertain. However, we have confirmed that we'll have enough version 2.0 production devices to be a small pilot release with a limited number of customers.

Due to delays in required microchips the exact number of devices that we will be able to produce for this pool season remains uncertain.

However, we have confirm that we'll have enough version two point out production devices to do a small pilot release with a limited number of customers.

Speaker 4: At this time, we're still not planning any significant sales for this initiative in 2022.

At this time, we are still not planning any significant sales for this initiative in 2022.

Speaker 4: We are very pleased to have our strategic growth initiative and the teams leading them performed in the quarter. We are very pleased to have our strategic growth initiative and the team leading them

We are very pleased with how our strategic growth initiatives.

And the teams leading them performed in the quarter.

With regard to corporate governance.

Speaker 4: Our novel proxy was published on January 31st, 2022. And we look forward to our novel, Sherhold and Levy on March 17th, 2022. This meeting will be virtual, and you're all welcome to listen in.

Our novel proxy was published on January 31, 2022.

And we look forward to her inaugural shareholder meeting on March 17, 2022.

This meeting will be virtual and you're all welcome to listen in.

Now I will turn it over to Steve share more detail on our Q1 financial results and increased fiscal 2020 guidance Steve.

Speaker 4: Now I'll turn it over to Steve to share more detail on our Q1 financial results and increased fiscal 2022 guidance. Steve?

Thank you Mike and good afternoon, everyone. Today, we're pleased to report record results for the quarter today.

Speaker 3: Thank you, Mike, and good afternoon, everyone. Today, we're pleased to report record results for the quarter. Today, I'll review our first quarter of fiscal 2022 performance and our outlook for full year of fiscal 2022.

Today I'll review, our first quarter of fiscal 2022 performance and our outlook for full year of fiscal 2022.

Speaker 3: Our first quarter results. Our first quarter included 13 weeks and ended on January 1, 2022. Total reported sales increased to $184.8 million, or 27.5%, compared to first quarter of fiscal 2021. Our comparable sales growth increased 20.5%.

Our first quarter results. Our first quarter included 13 weeks ended on January one 2022 total reported sales increased to $184 8 million or 27, 5% compared to first quarter of fiscal 2021 or.

Our comparable sales growth increased 25%.

Speaker 3: This increase is on top of shifted comparable sales growth of 25.7% in the first quarter of fiscal 2021, and represents comparable sales growth on a two-year stack basis of 46.2%.

This increase is on top of shifted comparable sales growth of 25, 7% in the first quarter of fiscal 2021 and represents comparable sales growth on a two year stacked basis of 46, 2%.

Speaker 3: We generated strong results across consumer types with particular strengths with our Pro Pool and Residential Hot Tub Consumer.

We generated strong results across consumer types with particular strength with our pro pool and residential hot tub consumers.

Speaker 3: We also continue to see strong performance in the core sanitizer and equipment product categories during the quarter.

We also continue to see strong performance in our core sanitizer and equipment product categories during the quarter.

Speaker 3: Retail price inflation remained elevated and primarily related to chemical products and equipment.

Retail price inflation remained elevated and primarily related to chemical products and equipment.

Speaker 3: Also, as we mentioned last quarter, we've seen an increase in average cost per pound related to tri-claw. And as a result of our efforts to procure and convert more pounds of tri-claw this year, we've factored these cost increases into our retail pricing for fiscal 2022.

Also as we mentioned last quarter, we've seen an increase in average cost per pound related to tri color.

As a result of our efforts to procure and convert more pounds subtract where this year.

We have factored these cost increases into our retail pricing for fiscal 2022.

Speaker 3: Gross profit increased 30.2% and gross margin rate increased by 70 basis points to 36.4% from 35.7%. In the prior year, primarily due to product margin improvements across our businesses and occupancy leverage.

Gross profit increased 32% and gross margin rate increased by 70 basis points to 36, 4% from 35, 7% in the prior year, primarily due to product margin improvements across our businesses and occupancy leverage.

Speaker 3: Dress margin improvement was partially offset by business mix, including strong growth with both our pro pool and residential hot tub consumers.

Gross margin improvement was partially offset by business mix, including strong growth with both our pro pool and residential hot tub consumers.

Speaker 3: S-GNA increased 3.0 percent over the prior year on a reported basis.

SG&A increased 3.0% over the prior year on a reported basis.

Speaker 3: in the first quarter of fiscal 2021. We reported non-cash equity-based compensation costs of $12.2 million and certain one-time contractual payments totaling $8.2 million.

In the first quarter of fiscal 2021, we reported noncash equity based compensation costs of $12 2 million and certain onetime contractual payments totaling $8 2 million.

Speaker 3: approximately 19 million of these costs were non-recurring and primarily incurred in connection with our IPO.

Approximately $19 million of these costs were nonrecurring and primarily incurred in connection with our IPO.

Speaker 3: Excluding these non-recurring items in fiscal 2021, the year-over-year SG&A increase in the first quarter of fiscal 2022 was driven primarily by our sales increase, investments to support our growth, and expenses associated with acquisitions completed after the end of the first quarter of fiscal 2021.

Excluding these nonrecurring items in fiscal 2021.

Year over year SG&A increase in the first quarter of fiscal 2022 was driven primarily by our sales increase.

Investments to support our growth and.

And expenses associated with acquisitions completed after the end of the first quarter of fiscal 2021.

As a reminder, we continue to invest in the business throughout the year and this does impact flow through in the first half of the fiscal year when SG&A as a percentage of sales is elevated.

Speaker 3: As a reminder, we continue to invest in the business throughout the year, and this does impact flow through in the first half of the fiscal year, when S-GNA as a percentage of sales is elevated.

Speaker 3: Adjust the bidat, improved by 1.3 million, to positive 1.1 million from a loss of 0.2 million in the first quarter of fiscal 2021.

Adjusted EBITDA improved by $1 3 million to positive $1 1 million.

From a loss of 0.2 million in the first quarter of fiscal 2021.

During the current year quarter, we converted the increase in sales at a higher gross margin and invested against our key strategic priorities.

Speaker 3: During the current year quarter, we converted the increase in sales at a higher gross margin and invested against our key strategic priorities.

Speaker 3: we generated a positive EBITDA quarter when historically the first quarter has represented approximately negative 5% of annual EBITDA.

We generated a positive EBITDA quarter when historically the first quarter has represented approximately negative 5% of annual EBITDA.

Speaker 3: Adjusted net loss remained relatively flat at $10.9 million in the first quarter of fiscal 2022, compared to a net loss of $10.6 million in the prior year.

Adjusted net loss remained relatively flat at $10 9 million in the first quarter of fiscal 2022 compared to a net loss of $10 6 million in the prior year.

Speaker 3: Adjusted loss per share with six cents in both the first quarter of fiscal 2022 and in the prior year

Adjusted loss per share was <unk> in both the first quarter of fiscal 2022 and in the prior year.

Speaker 3: Moving to the balance sheet, we finished the first quarter of fiscal 2022 with cash and cash equivalents of 53 million compared to 103 million at the end of the first quarter of fiscal 2021.

Moving to the balance sheet.

We finished the first quarter of fiscal 2022, with cash and cash equivalents of $53 million compared to $103 million at the end of the first quarter of fiscal 2021.

Speaker 3: We did not have any borrowings on a revolver at the end of either quarter.

We did not have any borrowings on our revolver at the end of either quarter.

Speaker 3: We expect inventory conditions in the industry to remain tight throughout fiscal 2022, particularly for chemicals and equipment.

We expect inventory conditions in the industry to remain tight throughout fiscal 2022, particularly for chemicals and equipment.

Speaker 3: As a result of the tireless efforts of our team, we entered the first quarter of fiscal 2022, with inventory of 245 million, a 40% compared to 175 million at the end of the prior year quarter. We have an always on procurement.

As a result of the tireless efforts of our team. We ended the first quarter of fiscal 2022 with inventory of $245 million.

Up 40% compared to $175 million at the end of the prior year quarter.

We are in an always on procurement strategy at Leslie.

Speaker 3: Our team continues to proactively work with our vendor partners to manage the flow of inventory. We continue to identify opportunities who strategically invest in inventory to meet heightened consumer demand and prepare for pool season.

Our team continues to proactively work with our vendor partners to manage the flow of inventory and we continue to identify opportunities to strategically invest in inventory to meet heightened consumer demand and prepare for pool season.

With regard to debt at the end of the first quarter of fiscal 2022 total funded debt was $804 million compared to $809 million at the end of the prior year quarter.

Speaker 3: With regard to debt, at the end of the first quarter of fiscal 2022, total funded debt was $804 million compared to $809 million at the end of the prior year quarter.

During the first quarter of fiscal 2022, we announced our first share repurchase program with a $300 million share repurchase authorization.

Speaker 3: During the first quarter of fiscal 2022, we announced our first share repurchase program with a $300 million share repurchase authorization.

Speaker 3: We're in a unique position, a high growth company with strong and consistent cash flow generation.

We're in a unique position a high growth company with strong and consistent cash flow generation.

Speaker 3: On December 16th, we completed the repurchase of 7.5 million shares for a total of 152 million.

On December 16th we completed the repurchase of seven 5 million shares for a total of $152 million.

Speaker 3: This action is consistent with our balance and discipline approach to capital allocation, our commitment to driving shareholder value, and demonstrates our confidence in our long-term growth prospects.

This action is consistent with our balanced and disciplined approach to capital allocation our.

Our commitment to driving shareholder value and demonstrates our confidence in our long term growth prospects.

Speaker 3: Before I get to our outlook, I want to remind everyone of the natural seasonality of our business. Our primary selling season occurs during our fiscal 3rd and 4th quarters, which span April through September .

Before I get to our outlook I want to remind everyone of the natural seasonality of our business. Our primary selling season occurs during our fiscal third and fourth quarters, which spanned April through September .

Speaker 3: In fiscal 2021, the first half of the year accounted for approximately 25% of our annual sales. While the third quarter represented approximately 45%, and the fourth quarter represented approximately 30%.

In fiscal 2021, the first half of the year accounted for approximately 25% of our annual sales, while the third quarter, representing approximately 45% in the fourth quarter represented approximately 30%.

Speaker 3: We generate substantially all of our full year profits in the second half of our fiscal year.

We generate substantially all of our full year profits in the second half of our fiscal year.

Speaker 3: We are uniquely positioned to invest in our business throughout the year, including in talent, operating expenses, working capital and capital expenditure.

We are uniquely positioned to invest in our business throughout the year, including in talent operating expenses working capital and capital expenditures.

Speaker 3: While these investments drive performance during our primary selling season, they reduce our earnings in cash flow during the first half of our fiscal year.

While these investments drive performance during our primary selling season.

They reduce our earnings and cash flow during the first half of our fiscal year. We're.

Speaker 3: We're pleased with our strong start to the fiscal year. We're firmly focused on driving our initiatives and preparing for pool season 2022.

We're pleased with our strong start to the fiscal year, we're firmly focused on driving our initiatives and preparing for full season 2022.

Speaker 3: with regard to our outlook. Today, we're raising our full year fiscal 2022 outlook to reflect the first quarter beat to our expectations.

With regard to our outlook today, we're raising our full year fiscal 2022 outlook to reflect the first quarter beat to our expectations.

Speaker 3: We expect sales of 1,495 million to 1,520 million representing an increase of 11% to 13% compared to the prior year.

We expect sales of 1490 $5 million to 1500 $20 million, representing an increase of 11% to 13% compared to the prior year.

Speaker 3: This is a $20 million increase compared to our outlook in December , and the growth rate compared to our long-term growth algorithm of mid to high single digits.

This is a $20 million increase compared to our outlook in December and the growth rates compared to our long term growth algorithm of mid to high single digits.

Speaker 3: We expect gross profit of $665 million to $675 million, which implies a small improvement to gross margin compared to the prior year.

We expect gross profit of 665 million to $675 million, which implies a small improvement in gross margin compared to the prior year.

Speaker 3: This is a 10 million increase compared to our outlook in December . And the improvement in gross margin over the prior year is in line with our long-term growth algorithm of flat to positive 25 basis points per year.

This is a 10 million increase compared to our outlook in December .

And the improvement in gross margin over the prior year is in line with our long term growth algorithm of flat to positive 25 basis points per year.

Speaker 3: We expected just to deba-dav 300 million to 310 million representing an increase of 11 to 14 percent compared to the prior year.

We expect adjusted EBITDA of 300 million to $310 million, representing an increase of 11% to 14% compared to the prior year.

Speaker 3: This is a 5 million dollar increase compared to our outlook in December , and the growth rates compared to our long-term growth algorithm of low double digits.

This is a $5 million increase compared to our outlook in December and the growth rates compared to our long term growth algorithm of low double digits.

Speaker 3: We expect net income of 170 million to 180 million and adjust the net income of 183 million to 193 million.

We expect net income of $170 million to $180 million and.

And adjusted net income of $183 million to $193 million.

Speaker 3: We expect diluted adjusted earnings per share of 97 cents to $1.03 representing an increase of 14% to 21% compared to the prior year.

We expect diluted adjusted earnings per share of <unk> 97 to.

Two $1 <unk>, representing an increase of 14% to 21% compared to the prior year.

Speaker 3: This represents a recent increase compared to our outlook in December , and the growth rates compared to our long-term growth algorithm of mid-to-high teens earnings.

This represents a <unk> <unk> increase compared to our outlook in December .

And the growth rates compared to our long term growth algorithm of mid to high teens earnings growth.

Speaker 3: As a result of our cherry purchase completed in the first quarter, we now estimate a deluded share count of 187 million to 189 million shares.

As a result of our share repurchase completed in the first quarter. We now estimate a diluted share count of 187 million to 189 million shares.

Speaker 3: This range does not include the impact of any additional sharey purchases that may be completed during fiscal 2022.

This range does not include the impact of any additional share repurchases that may be completed during fiscal 2022.

Speaker 3: We have a balanced and disciplined approach to capital allocation, and our priorities are as follows. Our first party...

We have a balanced and disciplined approach to capital allocation and our priorities are as follows.

Our first party is capital structure.

Speaker 3: Our second priority is to invest in growth through both capital expenditures and M&A. Our final priority is to return...

Our second priority is to invest in growth through both capital expenditures and M&A.

Our final priority is to return excess cash to shareholders.

Speaker 3: We have 148 million remaining under our share repurchase authorization, and we will continue to evaluate opportunities to repurchase shares based on our financial position, investment opportunities to drive growth, and market conditions.

$148 million remaining under our share repurchase authorization and we will continue to evaluate opportunities to repurchase shares based on our financial position.

Investment opportunities to drive growth and market conditions.

Speaker 3: In summary, during the first quarter of fiscal 2022, we generated record sales, reported positive EBITDA, and continued to see strong results from our growth initiative.

In summary during the first quarter of fiscal 2022, we generated record sales reported positive EBITDA.

To see strong results from our growth initiatives.

Speaker 3: And we're grateful for all the contributions of our entire team as they continue to execute at a high level in this environment of heightened consumer demand. And with that, I'll hand it back over to Mike.

And we're grateful for all the contributions of our entire team as they continue to execute at a high level in this environment of heightened consumer demand.

And with that I'll hand, it back over to Mike. Thank you.

Thanks, Steve.

Speaker 4: Instead is the NSL playoffs season, I'd like to end with a football in the house.

Instead as the NFL playoffs season, I'd like to end with a football analogy.

Speaker 4: The analogy is that, just like the best NFL teams, Leslie's has a strong offense and defense.

The analogy is that just like the best NFL teams Leslie has a strong offense and defense.

Speaker 4: I'll start with our defense and remind you of four key defensive attributes of our business.

I'll start with our defense and remind you of four key defensive attributes of our business.

Speaker 4: One, we are benefiting from strong secular macro trends that are driving durable consumer demand and are showing no signs of slowing.

We are benefiting from strong secular macro trends that are driving durable consumer demand and are showing no signs of slowing.

Speaker 4: Two, we operate in an industry that is able to pass costs through to consumers.

Two we operate in an industry that is able to pass cost through to consumers.

Speaker 4: Three, 80% of our assortment is non-discretionary.

80% of our assortment is non discretionary.

Speaker 4: And for, we have a long history of strong and consistent pre-cash flow generation that enabled both continued investment in our business, as well as opportunistic return of capital shareholders in the form of share by them.

And or we have a long history of strong and consistent free cash flow generation that enables both continued investment in our business as well as opportunistic return of capital to shareholders in the form of share buyback.

Speaker 4: Leslie's also has a high powered off and which has resulted in nine consecutive quarters of record sales in Nibidah. Our affronts also has four

Leslie. It's also has a high powered often which has resulted in nine consecutive quarters of record sales and EBITDA.

Our off an awful has four important components.

Speaker 4: One, we have six tangible strategic growth initiatives that are driving meaningful results and are still early stage in their development.

We have six tangible strategic growth initiatives that are driving meaningful results are still early stage in their development.

Speaker 4: two, a multi-pronged pro-initiative is accelerating rapid.

Two our multi pronged pro initiative is accelerating rapidly.

Speaker 4: Three, we have set ourselves up to capitalize on robust M&A opportunities that we continue to see in the pool and spa industry.

Three we have set ourselves up to capitalize on the robust M&A opportunities that we continue to see in the pool and spa in St.

Speaker 4: and for great execution by our merchandise team, as put as an available and advanced inventory position.

And for great execution by our merchandising team has put us in a favorable and advantaged inventory position.

Speaker 4: We don't have to rely on just the strong offensive defense with both.

We don't have to rely on just the strong offense or defense.

Paul.

Speaker 4: This is why in a unique and advantaged industry, we believe Leadblazer is uniquely positioned and advantaged to continue to win. With that, I'll hand it back to you.

This is why in a unique and advantaged industry. We believe <unk> is uniquely positioned and advantage to continue to win.

With that 100 back to the operator Q&A.

Speaker 1: Thank you. We'll now be conducting your question and answer session. We ask that you please ask one question and one follow up.

Thank you well now be conducting a question and answer session. We ask you. Please ask one question and one follow up and return to the queue, if you'd like to be placed in the question queue. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if you'd like to remove your question from the queue for <unk>.

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Once again, we ask you. Please ask one question one follow up then return to the queue. Our first question today is coming from Steven Forbes from Guggenheim Securities. Your line is now live.

Hi, Steve.

Speaker 5: I want to focus on gross margin if I can. I'm going to use this one for Steve. Can you update us on where activity costs are running on a quarterly basis? Or maybe just tell us first quarter of this?

All of the focus on gross margin if I can.

Christine can you update us on where occupancy costs are running on a quarterly basis or maybe just tell us.

First quarter this year very small.

Speaker 5: And then as we think about the gross margin performance in the quarter and the reiteration,

And then as we think about the gross margin performance in the quarter.

Generation.

The whole year performance, maybe just speak to how the inflationary pressures are flowing through the P&L relative to expectations and just what you're seeing from a competitive standpoint on behaviors right around managing input cost pressures.

Speaker 5: Maybe to speak to how the inflationary pressures are flowing through the P&L relative to expectations and just what you're seeing from a competitive standpoint on behaviors behaviors right around managing and post-cost pressures on an industry basis.

On an industry basis.

Speaker 3: Sure, thanks Stephen, happy to take that. So from an occupancy perspective, running just shy of about $25 million per quarter with some of the M&A addition of new stores, new locations as well as

Sure. Thanks, Stephen happy to take that so from an occupancy perspective, running just shy of around about $25 million per quarter.

With some of the M&A addition of new stores as new locations as well as some of the new locations are going to open. This year that may tick up a little bit, but not materially higher so I think that that addresses the occupancy point and then from an inflation perspective look it's a great question.

Speaker 3: Some of the new locations we're going to open this year that may tick up a little bit, but not not materially higher So I think that that is the I can see a point and then some an inflation for spite to look at great question As we've talked a lot about in our business. We do have that ability to pass on costs

We've talked a lot about in our business, we do have that ability to pass on cost. So the way. It typically plays out as we get notifications from our vendor partners. We obviously have advanced notice if we have costs in the business that are rising as well, we're able to package those increased pricing in the form of average REIT.

Speaker 3: So the way it typically plays out is we get notifications from our vendor partners. We obviously have advanced to notice if we have costs in the business that are rising as well. We're able to package those, increase pricing in the form of average, resell prices to consumers, typically in advance of or in connection with the price increases as they come through. And so at a minimum, we can protect the profit dollars on an overall basis.

Sale prices to consumers typically in advance of or in connection with the price increases as they come through.

So at a minimum we can protect the profit dollars on an overall basis.

Speaker 3: And many times we have an opportunity to actually maintain margin rates as well. So I think it's fairly consistent. When you go back the last couple of years or we've talked through gross margin, we continually talk about our ability to improve margins in each of our businesses. We've done that again in the first quarter of 2022 and certainly have expectation to do that for the remainder of the year.

And many times, we have an opportunity to actually maintain margin rates as well. So I think it's fairly consistent when you go back the last couple of years and we've talked through gross margin are we continually talk about our ability to improve margins in each of our businesses.

We've done that again in the first quarter of 2022, and certainly have expectations that to do that for the remainder of the year we.

Speaker 3: We do expect to continue to get occupancy leverage as well, which we got in Q1 and we've seen over the last couple years as well And then again, we're gonna see some offset with respect to business mix, right? So 66% growth in residential hot tub 40% growth in pro pool Those are areas of the business that typically are a larger percentage of the business in the first half of the year And we saw tremendous growth in both of those

We do expect to continue to get occupancy leverage as well, which we got in Q1 and we've seen over the last couple of years as well.

And then again, we're going to see some offset with respect to business mix right. So <unk>.

66% growth in residential had 40% growth in pro pool. Those are areas of the business that typically are a larger percentage of the business in the first half of the year and we saw tremendous growth in both of those consumers with both of those consumers. So when you think about the mix in Q1, a little outsized of an impact.

Speaker 3: with both of those consumers. So when you think about the mix in Q1, a little out-sized of an impact relative to the full year, but again playing out consistently with how we've seen it play out in the past.

Relative to the full year, but again playing out consistently with how we've seen it play out in the past.

That's super helpful.

Speaker 5: Super helpful. Thanks Dean. And then free to micro or yourself again and a quick follow up on advertising expenses you mentioned up 30%.

And then for either Mike or yourself again, and a quick follow up on advertising expenses, you mentioned up 30%.

Speaker 5: in terms of planning for the year. Any sort of comment or thoughts we should wear has really staked in sub-expend.

In terms of planning for the year, any any sort of comments or thoughts as Europe as it relates to the cadence of that spend.

Speaker 3: Yes, Steven, the 30% increase will be focused in quarters three and four, where our volume is. We're not expecting to do anything out of the ordinary or out of sync with the percent of business in the first half.

Yes, Steven.

The 30% increase will be focused in quarters, three and four where our volume is we're not we're not expecting to do anything.

Out of the ordinary or out of sync with the percent of business in the first half.

Thank you best of luck.

Thanks.

Speaker 1: Thank you. Our next question today is coming from Simeon Gutman from Morgan Stanley . Your line is now live.

Our next question today is coming from Simeon Gutman from Morgan Stanley . Your line is now live.

Speaker 6: Hi, everyone. I want to follow up on the gross margin question for my first question. I think right the occupancy was was helpful, but it seems like gross in general was much better and the implied run rate for the rest of the year is maybe, you know, flattish or up a little like 10 to 20.

Hi, everyone.

And a follow up on the gross margin question for my first question.

I think the occupancy was helpful. But it seems like growth in general was much better and the implied run rate for the rest of the year is maybe flattish or up a little like 10 to 20 bps for the full year.

Speaker 6: side occupancy leverage and I think Stevie just gave a product mix example, it feels like the risk to gross should be to the upside obviously it depends on where sales come in etc.

Besides occupancy leverage and I think Steve you just gave a product mix example.

It feels like the risk to growth should be to the upside I, obviously, it depends on where sales come in et cetera. So it seems like you're getting pricing are there any other big big buckets of offsets because it feels like where the business is running versus where you've guided there is still a pretty big delta.

Speaker 6: It seems like, you know, we're getting pricing. Are there any other big buckets of off-sets because it feels like where the business is running versus where you've guided, there's still a pretty big...

Speaker 3: Yeah, so when you look at the guidance originally back in December , we talked about being up kind of flat to positive 10 basis points. The guidance today is kind of 10 to 15. So it did take it up. When you look at the flow through again, $16 million are increasing gross profit on a $40 million increase in sales, flowing through at a 40% rate when overall gross margin is in the 3637 range.

Yeah. So when you look at the guidance originally back in December we talked about being up kind of flat to positive 10 basis points the guidance today.

Just kind of 10 to 15, so it did tick it up when you look at the flow through again $16 million increase in gross profit on a $40 million increase in sales flowing through at a 40% rate. When overall gross margin is in the 36 37 range. So certainly saw some improvement, but when you think about for the full year some of the areas that we're focused.

Speaker 3: When you think about for the full year, some of the areas that we're focused on is certainly from cost perspective for products. We've talked about tricler, and in fact on Q4 we talked about our ability to procure more.

Stan has certainly from it from a cost perspective for our products, we've talked about Treichler in fact, our on Q4, we talked about our ability to procure more serve more consumers gain market share some of that product would come in at a higher price I certainly haven't seen that in the first quarter and would expect it through the remainder of the year.

Speaker 3: more consumers gain market share. Some of that product would come in at a higher price. Certainly have seen that in the first quarter and would expect it through the remainder of the year. Again, overall, we think we have an ability to protect profit dollar flow through an opportunity potentially go out and get margin consistency. But that's a unique headwind this year relative to last year.

Again overall, we think we have an ability to protect profit dollar flow through an opportunity potentially go out and get margin consistency.

That's a unique headwind this year relative to last year.

Okay, and then a follow up.

Speaker 6: talk about how much Q1 helps you inform the rest of the year granted it's very small.

Can you talk about how much Q1 helps you inform the rest of the year granted it's very small.

Speaker 6: You've cavy-otted that there's a lot left. I don't think you'll talk about January . I don't know if you talk about the next quarter, but there was volatility with retail curious of your sustained that continued stability.

You've caveat it that there's a lot left I don't think Youll talk about January I don't know if you talk about the next quarter, but there was volatility with retail curious if you're seeing that continued stability.

Speaker 6: any measure that you can talk about. But, and yeah, I'll leave it at that. So just, you know, how Q1s couldn't form the rest.

And any measure that you can talk about but and I'll leave it at that so just you.

You know how Q1 should could inform the rest of the year.

Speaker 7: Yes, this is my guitar kit. Looked you one small.

Yes, I mean this is Mike.

Look Q1 small.

Speaker 7: and it's a long ways from the heart of the pool season.

And it's a long ways from the.

The heart of the pool season, So last year, we said that really for us to get a good feel for where we will be both from a pricing situation and our supply situation in the industry, We talked about me and getting closer to the Memorial day weekend. So Q1 is important and we're certainly encouraged by the <unk>.

Speaker 7: So last year we said that really for us to get a good feel for where we will be both from a pricing situation and a supply situation in the industry, we talked about May and getting closer to the Memorial Day weekend. So Q1 is important and we're certainly encouraged by the start and the pricing actions we've taken.

And the pricing actions we've taken.

Speaker 7: have stuck with the consumers. And like we said, we've seen no slowdown in demand, but it's awfully early. It's just awfully early for us to comment. And as you might suspect, we're not gonna comment any on Q2 at this time.

Have stuck with the consumers and like we said we've seen no slowdown in demand but.

It's awfully early.

Awfully early for us to comment and you know as.

As you might suspect, we're not going to not going to comment any on Q2 at this time.

Thank you good luck.

Thanks.

Thank you. Our next question today is coming from Jonathan <unk> from Jefferies. Your line is now live.

Speaker 1: Thank you. And next question today is coming from Jonathan Medizuski from Jeffries, your line is now lost.

Great. Thanks for taking my question nice start to the fiscal year guys. First one is on if you could share some perspective on how the business has performed historically during periods of rising interest rates and I guess relatedly have you been hearing anything.

Speaker 3: Great, thanks for taking my question. I start to the fiscal year, guys. First one is on, if you could share some perspective on how the business has performed historically during periods of rising interest rates, then I guess, relatedly, have you been hearing anything recently from pool builders or your pro customers regarding?

Recently from pool builders.

Or your pro customers regarding.

Speaker 3: you know, higher financing costs maybe negatively impacting their pipeline for pool builds and things like that. That's my first question. Thanks.

Higher financing costs may be negatively impacting their at their pipeline for pool builds and things like that that's my first question. Thanks.

Speaker 7: Yeah, thanks Jonathan. Good question. And I was curious about that myself being newer to the business. So we had the team go back and look at that. And we were founded in 1963. And it's not new news that we've grown every year. But since 1963, there's been nine periods where the federal funds rate has grown in the 40% plus range. So rising interest rates environment.

Yeah. Thanks, Jonathan Good question.

I was curious about that myself being newer to the business. So we have the team go back and look at that and we.

We're founded $19 63, and it's not new news that we've grown every year, but since 1963 theres been nine periods, where the federal funds rate has grown in the 40% plus range, so rising interest rate environment.

Speaker 7: We grew over a year, but we averaged double-digit growth during those periods. And our low-period of growth was high single-digit. So I gave us a lot of comfort that in a high-interest rate environment, the company has historically performed very well. With regard to the interest...

We grew every year, but we averaged double digit growth during those periods and our low period of growth was high single digit.

So it gave us a lot of comfort that in a high interest rate environment. The company has historically performed.

Very well.

With regards to the interest rates on pool builds.

I think in a typical.

Speaker 7: I think in a typical situation, it may slow, could potentially slow pool builds down. But there's still a very healthy backlog of people waiting to have pools.

Situation it may slow could.

Could potentially so pool builds down.

But there is still a very healthy backlog of people waiting to have pools built and theres been some labor constraints on that as you know those seem to be maybe getting a little bit better, but it's still a very healthy backlog and we haven't heard anything from them.

Speaker 7: And there's been some labor constraints on that, as you know. Those seem to be maybe getting a little bit better, but still a very healthy backlog. And we haven't heard anything from builders or consumers about any slowdown associated with rising rates.

From builders or consumers about any slowdown associated with rising rates.

Yeah.

Speaker 3: That's really helpful. And then second question, obviously still have pool season 22 to get through. But big picture, can you help us think about the potential impact of

That's really helpful and then.

<unk> question, obviously still have policies in 'twenty two to get through the Big picture can you help us think about the potential impact of chlorine pricing on the business in fiscal 'twenty three not looking for numerical guidance, but just wanted your view on the likelihood of different.

Speaker 3: chlorine pricing on the business in fiscal 23. You know, not looking for numerical guidance, but just wanted your view on the likelihood of different scenarios playing at. I suppose one could be maybe a minor downward reversion in chlorine pricing from 2022 levels. And another could be maybe a more pronounced reversion.

Scenarios, playing out I suppose one could be maybe a minor downward reversion in chlorine pricing.

From 2022 levels and another could be maybe a more pronounced reversion.

Speaker 3: maybe toward pre-pandemic levels as industry capacity ramps. How are you thinking about the different scenarios that could play out?

Maybe towards pre pandemic levels as industry capacity ramp how are you thinking about kind of the different scenarios that could play out.

Speaker 3: in 23, obviously a wild way out, but, you know, chlorine has been a tailwind for a number of years.

In 23, obviously, a while its way out but.

Korea has been a tailwind for a number of years now.

Speaker 7: Yeah, now I'll keep this in a very macro because we won't talk about our own 23 guidance until December .

Yeah, and I'll keep this very macro because we won't talk about our own 23 guidance until December but.

What will happen is the factory that was taken down by the Hurricane will come back online.

Speaker 7: You know, what will happen is the factory that was taken down by the hurricane will come back online.

Speaker 7: The volume that comes out of that plant will replace the domestic import volume that had come in to make up the gap. It should it'll be at a lower price than the imports. But I think most importantly what the industry has seen is that the current prices on chlorine have not decreased demand.

The volume that comes out of that plant.

We'll replace the domestic import.

Volume that had come in to make up the gap.

It'll be at a lower price than the imports, but I think most importantly, what the industry has seen is that the current prices on chlorine have not decreased demand at all.

Speaker 7: So we're not expecting any kind of reversion to pre-2020 price.

So we're not expecting any kind of a reversion to pre 2020 pricing.

Speaker 7: There's a potential that we might see some.

There is a potential that we.

Might see some.

Yes.

Speaker 7: Some reduction in prices, but I think the most likely scenario is a stabilized price environment for the industry on chlorine at these new higher levels.

Some reduction in prices, but I think the most likely scenario is a stabilized price environment for the industry on chlorine at these new higher levels.

Very helpful. Thank you.

Speaker 1: Thank you. Our next question today is coming from Ryan Merkle from William Blair. Your line is now live.

Thank you. Our next question today is coming from Ryan Merkel from William Blair. Your line is now live.

Speaker 8: Hey guys, great quarter. I want to unpack price a little bit more. So up 12% in a quarter, but you still think you're going to do 5% for the year. So is the one queue that's just timing? And could there be upside-down?

Hey, guys, great quarter, I wanted to unpack price a little bit more so up 12% in the quarter, but you still think you're going to do 5% for the year. So is the <unk> is that just timing and could there be upside anywhere.

Speaker 7: Yeah, Ryan, I'll take that one. Look, we said we were...

Yeah, Ryan I'll take that one look we said we were.

Speaker 7: We were a little bit surprised by inflation in the first quarter. It did run a little hotter than we thought. But if you look back at last year and how we reported inflation, the inflation in Q1 last year was less than half of that for the balance of the three quarters.

We were a little bit surprised by inflation in the first quarter. It did run a little hotter than we thought but if you look back at last year and how we reported inflation the inflation in Q1 last year was.

It was less than half of that for the balance of the three quarters.

Speaker 7: And in the Q4 pricing that is circled around in the Q1, yeah, we expected an increase bigger than the year.

And the court.

Q4 pricing that are circled run into Q1, yes, we expected we expected an increase bigger than a year.

Speaker 7: We did it, you know, ran about 4% last Q1. We said five for the year, ran over nine for the last three quarters.

If you did it ran about 4% last Q1, we said five for the year ran over 9% for the last three quarters.

Speaker 7: You know, you do that correlation and we thought maybe 10 for first quarters. We were surprised of the upside by, you know, one or 200 bases.

That correlation and we thought maybe 10 for first quarter. So we were surprised to the upside by one or 200 basis points.

Speaker 8: Okay, so just, just normalizes the rest of the way. And then, I want to go back to gross margins again. So, nice one queue, but we're expecting sort of flat, slightly up the rest of the way. Steve, maybe what changes in 2, 2, 3, 2, 4 queue versus one queue that would drive the smaller year of year increase? My guess is it's product margins since that's 75% of cost.

Got it okay. So just just normalize as the rest of the way.

And then I want to go back to gross margins again, so nice one queue, but we're expecting sort of flat slightly up the rest of the way Steve maybe what changes in Q2, Q3, Q4, Q versus <unk> that would drive the smaller year over year increase my guess is it's product margins if that sent.

85% of Cogs.

Speaker 3: Yeah, that's exactly right. And again, I think that primary selling season, so from a product perspective for tri-cler, most of that product is gonna get sold in the third and fourth quarter as well. Funny, that'll be part of it. And then again, I think we will expect some of the business mix to kind of level out as we get into three and four. So I would expect that, well, most of our opportunity in...

Yeah, No that's exactly right and again I think the primary selling season, so from a product perspective for <unk>. Most of that product is going to get sold in third and fourth quarter as well. So I think that that'll be part of it and then again I think we will expect some of the business mix to kind of level out as we get into two three and four so I would expect that.

Well most of our opportunity in.

Speaker 3: 3 and 4 to drive incremental margin. Ocument scene won't be as large in 3 and 4 based on the guide from a sales perspective. Again, looking at the overall sales increase at 28% for 2 and 1 certainly helped.

Three in Florida to drive incremental margin occupancy won't be as large and are in three and four based on the guide from a sales perspective again looking at the overall sales increase of 28% for Q1 certainly helped.

Got it alright, thanks, that's it.

Speaker 1: Thank you. Next question today is coming from Peter Benedict from Bearger line is not live.

Thank you. Our next question today is coming from Peter Benedict from Baird. Your line is now live.

Speaker 4: Oh, hey guys, thanks for taking the question. First, just on loyalty, just maybe talk a little more about the growth you're seeing in that I think you should have seven percent. Just the nature of that growth, any progress engaging with some of the larger spend customers. How do you feel about the growth in loyalty, which you're expecting for the year? That's my first question. Thank you.

Okay.

Oh, Hey, guys. Thanks for taking the question first just on loyalty.

Just maybe talk a little bit more about the growth youre seeing in that I think you said up 7%.

Just the nature of that growth any progress engaging with some of the larger spend customers. How do you feel about the growth in loyalty, what's your expectation for the year. That's my first question.

Yeah. Thanks for the question Peter.

Speaker 7: I'm going to say I was a little disappointed by only 7% growth in loyalty. You know, we've been running double digits to low teens there, you know, looking through the data in a very small quarter. I'm going to chalk it up to timing. The growth was pulled down actually by a new customer growth.

To say I'm, a little disappointed by only 7% growth in loyalty, we've been running double digits to low teens there.

Looking through the data and a very small quarter I'm going to chalk it up to timing.

The growth was pulled down actually by new customer growth, but on the flip side of that new customer spend.

Speaker 7: But on the flip side of that, new customer spend was up 30%. So again, I'm trying not to drive too many conclusions from theuphemic

<unk> was up 30%.

So again im trying not to drive to make conclusions from them from them.

Speaker 7: from the smallest quarter of the year, or second smallest quarter of the year for us, but it's, yeah, I would have liked to see it at 10. More encouraged by the growth of the total file, which was up 11%, an average revenue for consumer, which was up 14. Those are both very healthy and in line with what we've been seeing in prior quarters.

From the smallest quarter of the year or second smallest quarter of the year for us but it's.

Yes, I would have liked to seen an intern.

<unk>.

More encouraged by the growth of the total file which was up 11% and average revenue per consumer which was up 14. Those are both very healthy and in line with what we've been seeing in prior quarters.

Yeah.

Speaker 4: Okay, that makes sense. And then I guess the next question, I mean, you've talked about you have not seen really any demand response to the higher prices. I mean, in aggregate, you have it. Are there any pockets of the business where consumers have either, maybe the units haven't changed, but maybe they started to trade down, move to different products, just trying to get a sense for the unit demand response of these as inflation continues, not just in your business, of course, but across most of the market.

Okay.

Makes sense and then I guess the next question I mean, you've talked about you have not seen really any demand response.

So to the higher prices.

I mean in aggregate you have are there any pockets of the business where consumers have either but maybe it's the units havent changed but maybe they've started to trade down.

Move to different products, just trying to get a sense for the unit demand response or disease as inflation continues not just in your business of course, but across across close to the market.

Speaker 7: Yeah, we really haven't seen any drop in demand. In fact, two of the higher inflation categories, equipment and basic sanitizers, showed the strongest.

Yeah, we really haven't seen any any drop in demand in fact, two of the higher inflation categories equipment in basic sanitizers.

Showed the strongest growth.

Speaker 7: So, you know, we're encouraged by what we're seeing.

So.

We're encouraged by what we're seeing.

The kantar.

Speaker 7: continuing very durable demand, I would say. There's a couple interesting things going on in the file dynamics. Our units per transaction are up quite a bit. I believe that's being driven by the AccuBlue water testing. ASP is only up a couple percent, so that would say, you know, with inflation running 12, we're actually trading down in some prices. And we have seen some evidence of people, you know, if they're going to buy a 50-pound tub, they're going to buy a 35 or a...

Continuing very very durable demand I would say, there's a couple of interesting going on in the file dynamics.

Our units per transaction are up quite a bit I believe that's being driven by the actually blue water testing.

Asps is only a couple percent so that would say with inflation running 12.

<unk> trading down in some prices and we have seen some evidence of people.

So in about a 50 pound tubs theyre going to buy a 35 four of 'twenty, but there their need for sand cars youre just going to be the same over a season.

It could potentially being put it into a little smaller purchase at any one time.

Excellent now that makes a lot of sense. Thanks, so much.

Thank you. Our next question today is coming from Liz Suzuki from Bank of America. Your line is now live.

Speaker 1: Thank you. Next question today is coming from Liz Suzuki from Bank of America. Your line is now live.

Okay great.

Speaker 2: Great, thank you. Thanks for all the details on the growth rates between retail pool, hot tub and throw. Did you talk about outperforming and underperforming categories within those channels? And they just mentioned equipment and basic sanitizers that any that were underperforming the average and also any variation by region that's worth highlighting.

Great. Thank you. Thanks for all the details on the grocery retail for Crown.

Could you talk about outperforming and underperforming categories within those channels and then you just mentioned.

Right.

But any that were underperforming the average and also any variation by region that's worth highlighting.

No I would characterize it as.

Speaker 7: kind of standard deviation in our categories in terms of growth. They were all up. All regions were up. I have to say that's probably the most, the most encouraging things about the results for the quarter. And it wasn't weather-driven. Weather was actually a bit of a headwind for the quarter. So very nicely balanced geography and

Kind of a standard deviation of them in our categories in terms of growth they were all up.

All regions were up.

I have to say that's probably the most the most encouraging things about the results for the quarter.

And it wasn't weather driven whether it was actually a bit of a headwind for the quarter, so very nicely balanced.

Geography and category performance.

Speaker 2: Great, and just on on that weather question, I mean, how much of your business is exposed to pulls that are in seasonal markets where the pull itself is actually closed for the winter and open again in the spring versus markets where pulls are open.

Great and just on that weather question I mean, how much of your business is exposed to pools that are in seasonal markets.

It's actually closer to the winter and hoping again in the spring versus markets, where youre thinking about the impact of spring breakup early or late.

Speaker 9: just thinking about the impact of spring breaking early or late and how that could impact.

Okay.

Okay.

Speaker 7: Yeah Liz, I'm gonna have to set, I don't know that exact background of the...

Yes, I'm going to have to said I don't know that.

<unk> background.

Top of my head, Steve I don't know if you do.

Speaker 3: You know, you're thinking about the right way though, it can impact around the margin, right? So maybe in April , they get a little earlier to start to season or in September , October , towards the tail end of the season.

Oh, Hey, Youre thinking about the right way, though there's it can impact around the margin right. So it maybe in April they get a little earlier start to season or in September October towards the tail end of the season, where we've seen the last couple of years and I think I, probably a good indicator from the first quarter as well as our folks are trying to extend the season.

Speaker 3: Well, we've seen last couple years and I think I probably get indicator from the first quarter as well is folks are trying to extend the season, trying to open earlier, trying to close later. You typically see that through uptake of heaters, heat pumps, solar covers, other things to kind of warm that water so that you can have earlier use of the pool or extend the

I'm trying to open earlier trying to close later.

Typically you see that through uptake of heaters heat pumps solar covers other things to kind of warm that water. So that you can have earlier use of of the pool or extend the use of the pool. So its a great question to ask and I don't have the specifics either but it's usually transitory.

Speaker 3: So it's the right question to ask. I don't have the specifics either, but it's usually transitory. And overall, it doesn't have a material impact on performance for the year, but certainly a beneficial trend to get the pools open earlier.

Overall doesn't have a material impact on performance for the year, but certainly a beneficial trend to get pools open earlier and keep them up and longer.

Great. Thank you.

Thank you. Our next question today is coming from Gary Schwab from loop capital. Your line is now live.

Speaker 1: Next question today is coming from Garrett Schmoff from Loop Capital. Your line is now lost.

Speaker 4: Hi, thanks. Sounds like the M&A environment is slowly picking up for you. I'm just curious how we should be thinking about, there's any margin impact as you make and integrate some of these acquisitions and you're recognizing that you're investing and staffing to help with that effort.

Hi, Thanks, it sounds like the M&A environment slowly picking up for you I'm just curious how we should be thinking about if there was any margin impact as you can integrate some of these acquisitions and you're recognizing that youre investing in staffing to help with that.

Speaker 7: Yeah, Gary, the staffing, you know, we've said we were going to add staff there to work on them.

Yes, Gary the staffing.

We've said we were going to.

Add staff there to work on M&A, you know it wasn't a big staff to start with we've gone from what amounts to about two full time equivalent to five.

Speaker 7: You know, it wasn't a big step to start with. We've gone from what amounts to about two full times equivalent to five, and probably add a couple more as we increase the pace. But we've done, you know, since the-

Probably add a couple more as we increase the pace, but we've done since since March of 2021 March 15th we've done four acquisitions like we said we've got an LOI with another we'll look to continue that kind of pace and a little bit depends on what we're buying.

Speaker 7: 2021 March 15th, we've done four acquisitions. Like we said, we've got an L.O.I. with another. We'll look to continue that kind of pace. And a little bit depends on what we're buying.

Speaker 7: You know, as Steve mentioned in the Gross Margin discussion, the hot tub businesses run a little lower margin, though are very, very profitable. And in the pool businesses, we may purchase them at a slightly lower margin, but one of the first things we do is put them on our purchase contracts and get their margins right up with the rest of the chain.

As Steve mentioned in the gross margin discussion the hot tub business is running a little lower margin.

Very very profitable and in the pool businesses, we may purchase them at a slightly lower margin, but one of the first things. We do is put them on our purchase contracts and get their margins right up with the rest of the chain.

Got it.

Speaker 4: Got it. And then just wondering if you could expand a little bit on the performance and the pro business, still pretty healthy growth over 40%. I think that's fairly consistent to what you deliver in the last fiscal year. So kind of curious, if you're seeing any change in trends there, or just kind of city consistent growth.

Just wondering if you could.

And a little bit on the performance in the pro business.

Still pretty healthy growth over 40%.

Fairly consistent.

Two what you deliver.

And the last fiscal year, so kind of curious if youre seeing any any change in trends, there or just kind of steady consistent growth.

Yes, we're seeing we're just seeing really steady consistent growth I mean, it is very we're very very encouraged we had said we wanted to get to the 500 pro Green months.

Speaker 4: Yeah, we're seeing, we're just seeing really steady, consistent growth. I mean, it's very, we're very, very encouraged. You know, we had said we wanted to get to the 1500 Pro agreements in 2022. And we got over that in the first quarter. And I've stopped setting targets for the Pro team. It's an aggressive team. They're on a good role. And I'm confident that they'll go out and optimize the opportunity. But for the quarter, when you look at the pro market,

In 2022.

And we got over that in the first quarter and I'm I've stopped setting targets for the protein.

Aggressive team, they're on a good roll.

I'm confident they'll go out and optimize the opportunity but for the quarter. When you look at the probe market. The pro initiative contribution to total growth. It was about 700 basis points of the 2700.

Speaker 4: pro-initiative contribution to total growth, it was about 700 basis points of the 2700.

Great. Thank you.

Speaker 1: Your next question today is coming from Andrew Carter from Cepul. Your line is now live.

Thank you. Your next question today is coming from Andrew Carter from Stifel. Your line is now live.

Speaker 10: Okay, thank you very much. I wanted to ask about, I think during December , you said a $30 million expectation for M&A. Between that and new store openings, what is that total contribution in your guidance? Thank you.

Hey, Thank you very much I wanted to ask about I think during December you said $30 million expectation for M&A.

I mean that the new store openings, what what is that what is that total contribution in your guidance. Thanks.

Speaker 7: Yeah, we guided M&A as we did all the initiatives to be within, you know, 100 to 300 basis point range.

Yes, we guided M&A as we did all of the initiatives to be within 100 to 300 basis point range.

Early in the year.

Oh.

Speaker 10: Okay. So I can question one asked and I guess that's the hundreds of questions. I'm gross margin. In the quarter, you probably had the worst mixed headwind you're going to have and did 76 spaces points zero over year.

Okay.

Second question I wanted to ask I guess to ask 100 question on gross margin in the quarter, you probably had the worst mixed headwind youre going to have and did 76 basis points year over year.

Speaker 10: balance of years 15 to 25. And I mean, I would expect that over the course, you're still going to win on pricing that a inflation or inflation cost even. Just more to ask about that if there could be some pretty significant upside or you're going to make some extra best of things.

Balance of the year, it's 15% to 25, I mean can you kind of I mean, I would expect that over the course, you're still going to win on pricing net of inflation or inflation costs evening, just wanted to ask about that there could be some pretty significant upside or makes them extra.

Okay.

Yes, that's certainly the goal I think we started off our conversation back in December when we talked about guidance being roughly flat and again that is the algorithm, but what we do every day every period as we look for opportunities to expand margins on both growth as well as get leverage on the SG&A side. So I think as I mentioned earlier, we're going to see some moderation from an occupancy leverage.

Speaker 3: Yeah, that's certainly the goal. I think we started off our conversation back in December when we talked about guidance being roughly flat. And again, that is the algorithm. But what we do every day, every period is we look for opportunities to expand margins on both gross as well as get leverage on the SG&A side.

Speaker 3: So I think as I mentioned earlier, we're gonna see some moderation from an occupancy leverage perspective as the sales dollars get bigger. And as percentage of sales, the occupancy becomes a smaller portion of it. But I think we're in a dynamic environment and when we're gonna continue to manage kind of pricing aggressively and we're very closely with our vendor partners. So I think at this point through the first quarter, I think we're like I said, we're pleased with the start. A lot more year left. And I think as we get into season, we'll provide the updated guidance.

Active is the sales dollars get bigger.

And as a percentage of sales the occupancy becomes a smaller portion of it but I think we're in a dynamic environment and when we're going to continue to manage pricing aggressively.

And work very closely with our vendor partners. So it I think.

At this point through the first quarter I think we're like I said, we're pleased with the start a lot more to your left and I think as we get into season, we will provide updated guidance.

Speaker 11: Thanks all that's known

Thanks, I'll pass it on.

Speaker 1: Thank you. Next question is coming from Peter Kees from Pepper Samler. Your line is not live.

Thank you. Our next question is coming from Peter Keith from Piper Sandler Your line is now live.

Speaker 12: Thanks. Good afternoon. I want to dig a bit more into the pro and Mike specifically around the affiliate program. So you're pretty much running the corner on a full year. Maybe you could look back and talk to us about the ramp that you've seen with affiliates. Does the spend take some time to pick up? Are you still ramping? And similarly, if you're already at 1,500, I assume you're not stopping. Do you think you'll continue to grow that total number?

Hi, Thanks, good afternoon.

To dig a bit more into the pro and Mike specifically around the affiliate program. So youre pretty much ran in the quarter on a full year, maybe you could look back and talk to us about the ramp that you've seen with affiliates does the spend it takes some time to pick up are you still ramping and similarly, if youre already at $50.

I assume youre not stopping do you do you think you will continue to grow that total number.

Speaker 7: Yeah, we're pretty comfortable that we'll continue to grow that total number.

Yeah, we're pretty comfortable that we will continue to grow that total number.

Speaker 3: You know, our pro partners, comps, doubled in the quarter. They've been running the 80% to doubling. So we think we can continue that trend as well. I have to say it's very encouraging the response from our target pro customers, which we've said in the past, or really the sole operators, or perhaps an operator of one or two trucks.

Our pro partners comps doubled in the quarter, they've been running the 80% to.

To doubling so we think we can continue that trend as well I have to say, it's very encouraging the response from our target pro customers, which we've said in the past are really the.

So operators or perhaps an operator of one or two trucks.

Speaker 7: to our value proposition, which is really predominantly on convenience. Our stores are where the pools are, and they work at the pool. So when they need something quick, they can go on their app, go to the pro website, see what stores something's available in, pull up in the front, get in and out very quickly. We've compared it to fast food. And that convenience proposition, there's a lot of value in that. As is the referral process.

Two are our value proposition, which is really predominantly on convenience our stores are where the pools are and they work at the pool. So when they need something quick.

That can go on their App go to the pro website.

What stores Something's available in pull up in the front get in and out very quickly we've compared it to fast food.

That convenience proposition theres a lot of value in that as it is the referral programs.

Speaker 7: And then from a pricing standpoint, we're competitive. You know, we're not competing on price, but we're competitive with price. And that's, yeah, I'm going to say we've been, it's been very gratifying to see the response to that. And we don't see it slowing.

And then from a pricing standpoint, we're competitive we're not competing on price, but we're competitive with price and thats.

Yes, im going to say, we've been it's been very gratifying to see the response to that and we don't see it slowing down.

Speaker 12: Okay, and just to verify you're saying that pro partners comped up 80 percent that's effectively your affiliate dollars

Okay.

Verify you were saying that pro partners Comped up 80% that's effectively your affiliate.

Yeah.

Speaker 7: Yes, that's the comp for pros that have joined the affiliate program pre-affiliate program post-affiliate.

Yes, that's that's the comp for pros that were have joined the affiliate program.

Pre affiliate program post affiliate program, yes.

Speaker 12: yeah and then i guess it's just to understand like the the spending ramp because kind of excited you're going into this new season now with fifteen hundred filiates that eighty percent of that in acceleration from uh... prior quarters

And then I guess just to understand like the the spending ramp because it's kind of exciting youre going into this new season now with 500 affiliates is that 80% is that been an acceleration from prior quarters.

Speaker 7: We've been running about the 80-100%

We've been we've been running in the 80% to 100%.

Speaker 7: pretty, pretty consistently. You know, the agreements we sign have some purchase amounts in them. And those ramp up pretty quickly, and those have seemed to have been received very...

Pretty pretty pretty consistently.

The agreements, we signed have some purchase amounts in them.

And those ramp up pretty quickly and those have seem to have been.

Received very well by the affiliates.

Speaker 13: Okay. Alright. Thanks so much for the feedback. Good luck. Yep. Thanks.

Okay, alright, thanks, so much for the feedback and good luck.

Thanks. Thank.

Speaker 1: Thank you. We reached end of our question and answer session. I'd like to turn the four back over to management for any further clues.

Thank you we reached end of our question and answer session I'd like to turn the floor back over to management for any further closing comments.

Yes.

Speaker 7: Thank you, operator, and thank everybody for joining us for the call today. Um.

Thank you operator, and thank everybody for joining us for the call today.

Speaker 7: This is like the end by saying, stay safe. All of these out there in the storm, land in, it's not, doesn't look pretty, but I will say it's nice here in Arizona if you wanna come visit. And most importantly, we look forward, and I hope you look forward to pool season 2022.

Just like to end by saying stay safe all of US out there in the storm land and it's not doesn't look pretty but I will say, it's nice here in Arizona, If you want to come visit.

Most importantly, we look forward and hope you look forward to pool season in 2022.

Speaker 1: Thank you that does conclude today's teleconference in web test. You may disconnect your line at this time and have a wonderful day.

Thank you that does conclude today's teleconference and webcast you may disconnect. Your lines at this time and have a wonderful day, we thank you for your participation today.

Okay.