Q1 2024 Leslie's Inc Earnings Call

Good afternoon, and welcome to the first quarter of fiscal 2020 for our conference call for <unk>, Inc. At this time all participants are no listen only mode. Following their prepared remarks management will conduct a question and answer session. If you should require operator assistance during the conference.

Operator: Good afternoon, and welcome to the first quarter of fiscal 2024 conference call for Leslie'S. At this time, all participants are in a listen-only mode.

Operator: Following the prepared remarks, management will conduct the 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 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.

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'll 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.

Caitlin Churchill: 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 in its recent silence with the SEC. During the call today, management will refer to certain non-GAAP financial measures. A reconciliation between the GAAP and non-GAAP financial measures can be found in the company's earnings press release, which was furnished to the SEC today and posted to the Investor Relations section of Leslie's website at ir.lesliepool.com. On the call today from Leslie are Mike Ujek, Chief Executive Officer, and Scott Bowman, Chief Financial Officer. With that, I will turn the call over to Mike.

These statements which are.

Subject to significant risks.

And I'm sorry, if.

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.

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Yeah.

During the call today management will refer to certain non-GAAP financial measures a reconciliation between the GAAP and non-GAAP financial measure 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 language website and I are done by the way Paul Dotcom.

On the call today from monthly or my E check Chief Executive Officer, and Scott Bowman, Chief Financial Officer with that I'll turn the call over to Mike Mike.

Mike: Thanks, Caitlin, and thank you all for joining us this afternoon. Please note that we have posted our Q1 2024 earnings deck on the Leslie's IR website, and we will be referring to certain pages in that deck during our call. I'd like to remind everyone that our first quarter is historically our smallest sales quarter of the year, during which we make investments and incur costs to position the company for the upcoming peak pool season. The start of our 2024 fiscal year played out as we anticipated, and our financial results for the quarter were in line with, or ahead of, our expectations. Total first quarter sales were $174 million, down 11% year-over-year.

Thanks, Caitlin and thank you all for joining us this afternoon.

Please note that we have posted our Q1 2024 earnings deck to the Leslie is IR website, and we believe referring to certain pages in that deck during our call.

I'd like to remind everyone that our first quarter is historically, our smallest sales quarter of the year during which we make investments and incur cost to position the company for the upcoming peak pool season.

The startup of 'twenty 'twenty four fiscal year played out as we anticipated.

The actual results for the quarter were in line with or ahead of our expectations.

Total first quarter sales were $174 million down 11% year over year residential pool was down 10% cool pool was down 8% and residential hot job was down 18%.

Mike: Residential pool was down 10%, crow pool was down 8%, and residential hot tub was down 18%. Comm sales were down 12% year-over-year, and non-comm sales contributed $3 million in sales for the quarter. Both sales and comp sales performance improved through the quarter after a soft start in October. Weather in that order was a 3% tailwind versus the prior year, in line with our expectations for more normalized weather in fiscal 2024, which helped traffic recover sequentially from down high single digits in Q4 to down mid-single digits in Q1. Total transactions were down 6% year-over-year, and average order value was down 5% year-over-year. Average order value continues to be affected by sales of equipment and high-ticket discretionary products, including hot tubs. Total chemical sales improved by 3%, and we saw sequential improvement in chemical unit volume each month during the quarter. However, equipment sales continue to be soft, down 18%. In total, non-discretionary product sales were down 50% versus a year ago.

Comp sales were down 12% year over year, and non comp sales contributed $3 million in sales for the quarter.

Both sales and comp sales performance improved through the quarter after a soft start in October.

Whether in that order was a 3% tailwind versus the prior year in line with our expectations for more normalized weather in fiscal 'twenty 'twenty, four which helped traffic recovered sequentially down high single digits in Q4 to down mid single digits in Q1.

Total transactions were down 6% year over year, and average order value was down 5% year over year.

Average order value continues to be affected by sales of equipment and high ticket discretionary products, including hot jobs.

Total chemical sales improved to down 3% and we saw sequential improvement in chemical use of volume each month during the quarter.

Equipment sales continued to be soft down 18%.

In total non discretionary product sales were down 2% versus a year ago.

Discretionary product sales were down 19% and contributed about 40% of the quarter's total sales declining.

Mike: Discretionary product sales were down 19% and contributed about 40% of the quarter's total sales decline. Approximately three-quarters of our discretionary product sales come from our residential hot tub business, which was up against a 35% sales increase in Q1 of 2023. We are encouraged by the renewed interest we are seeing in hot tubs and face easier comparisons over the next three quarters. However, our analysis of credit card data indicates that our sales underperformed the industry by approximately 578 basis points in the quarter, of which 250 basis points is attributable to our June 2023 chemical price changes. As Q1 is historically our smallest quarter, we believe it is too early to draw conclusions from these numbers. In addition, other data points we look at, including vendor discussions, store management discussions, and similar web traffic data, are not indicating our performance lags behind the specialty industry.

Approximately three quarters of our discretionary product sales come from our residential Hudson.

Which was up against a 35% sales increase in Q1 of 2023.

We are encouraged by the renewed interest we are seeing attempts and face easier comparisons over the next three quarters.

Our analysis of credit card data indicates that our sales underperformed the industry by approximately 578 basis points in the quarter.

Of which 250 basis points is attributable to our June 2023, chemical price changes.

As Q1 is historically, our smallest quarter. We believe it is too early to draw conclusions from these numbers.

In addition, other data points, we look at including vendor discussions store management discussions and similar web traffic data are not indicating our performance lagged that of the specialty industry.

Mike: Regardless, to further improve consumers' perception of our value-price relationship, we are taking several actions, which include showcasing smaller sizes of chemicals and lower price point products at the front of stores, implementing an item of the month strategy, increasing messaging of our Pool Perks loyalty program benefits and price match guarantee, and increasing messaging around our omni-channel capabilities. With respect to profitability, gross margin decreased 450 basis points, driven primarily by rebate timing, the expensing of previously capitalized DC costs, and occupancy deleverage, each of which we discussed last quarter.

Regardless to further improve consumers' perception of our value price relationship.

We are taking several actions which include showcasing smaller sizes of chemicals and lower price point products at the front of the stores Inc.

Implementing an item with a month strategy, increasing messaging of our pool perks loyalty program methods and price match guarantee and increasing messaging around our omni channel capabilities.

With respect to profitability.

Margin decreased 450 basis points, driven primarily by rebate timing the expensing of previously capitalized D C cost and occupancy deleverage each of which we discussed last quarter.

Mike: Gross margin was in line with our expectations. Adjusted EBITDA for the quarter was negative 24 million, and adjusted diluted earnings per share was negative 20 cents. We are encouraged that the industry retail pricing appears to have stabilized. Promotional activity appears to be consistent with seasonality, and industry supply chains are operating well. In addition, we believe that the secular tailwinds that drive industry demand remain intact, and we expect these tailwinds to continue to underpin our long-term growth opportunities. Leslie'S remains the leading direct-to-consumer pool and spa retailer, with unmatched scale, capabilities, and brand awareness.

Gross margin was in line with our expectations.

Adjusted EBITDA for the quarter was negative $24 million and adjusted diluted earnings per share was negative 20 cents.

We are encouraged that the industry retail pricing appears to have stabilized promotional activity appears to be consistent with seasonality and that industry supply chains are operating well.

In addition, we believe that the secular tailwind that drive industry demand remain intact and we expect these tailwind to continue to underpin our long term growth opportunity.

But as long as it remains the leading direct to consumer pool, and spa retailer with unmatched scale capabilities and brand awareness.

Mike: After a year of abnormal industry conditions, our team is energized and focused on executing the strategic initiatives that underpin both competitive advantages. As industry conditions continue to normalize, we are executing our strategic growth initiatives to return Leslie'S to delivering sustainable, top-line growth and profitability. Turning to those initiatives, first, our customer file was down 8% in the quarter, driven primarily by traffic. Second, average revenue per customer was down 3% in the quarter, driven primarily by decreases in big ticket items, specifically hot tubs, heaters, and above-ground pools.

After a year of abnormal industry conditions, our team is energized and focused on executing the strategic initiatives that underpin those competitive advantages.

As industry conditions continue to normalize.

Executing our strategic growth initiatives and return was they used to delivering sustainable topline growth and profitability.

Turning to those initiatives.

Our customer file was down 8% in the quarter driven primarily by traffic.

Second average revenue per customer was down 3% in the quarter driven primarily by decreases in big ticket items, specifically hot tubs, cheaters and above ground pools.

Mike: With regard to our PRO initiative, we ended the quarter with 4,000 PRO contracts in place and 98 PRO locations. This compares to 2,850 PRO contracts and 80 PRO locations versus the first quarter of last year. PRO sales were down 8% for the quarter.

With regard to our pro initiative, we ended the quarter with 4000 pro contracts in place and 98 pro locations.

This compares to 2850 pro contracts and 80 per locations versus the first quarter of last year.

Pro sales were down 8% for the quarter.

Mike: Pro partner sales were up double digits, offset by non-partner pro sales, which declined double digits, reinforcing the value pros are seeing in our partner program. Chemical Pricing and the Distributor Channel remains very competitive, but appears to have stabilized. M&A and new store growth remain important initiatives for Leslie'S, and we remain confident in our long-term store expansion opportunities. For Fiscal 2024, we remain on track to open 15 new stores. From an innovation standpoint, our AccuBlue Home smart tech device continues to increasingly resonate with our rising member base. Member spend continues to average $1,000 per year, and member reviews continue to average 4.8 out of 5 stars.

Partner sales were up double digits offset by non partner pro sales, which declined double digits reinforcing the value pros are seen in our partner program.

Chemical pricing in the distributor channel remains very competitive but appears to have stabilized.

M&A and new store growth remain important initiatives for less lease and we remain confident in our long term store expansion opportunities.

For fiscal 'twenty 'twenty four we remain on track to open 15, new stores.

From an innovation standpoint, our accu Blue home Smart Tech device continues to increasingly resonate with our rising member base.

Members spend continues to average $1000 per year and member reviews continue to average 4.8 out of five stars.

Mike: While still in the early days after the launch last May, we continue to expect a strong growth curve as customers realize its benefits and value proposition. Our vendor partner is ramping up device production for the season, and we are currently on track to achieve our 2024 Pool Season Device Inventory Plan. While we remain focused on prudently executing our strategic initiatives to capture the long-term opportunities in front of us and extend our industry leadership, we continue to take actions to drive near-term performance. Number one, we are pricing at our relative historical price position and expect to hold this position for 2024. Number two, we are managing inventory and are on track to reduce our 2024 peak and year-end inventory by approximately $100 million and $50 million, respectively. Accordingly, Q1 inventory was down 22% or $95 million versus the prior year, while we still maintained high in-stock levels and strong service metrics.

While still in the early days after the launch last May we continue to expect a strong growth curve as customers realize the benefits and value proposition.

Our vendor partners ramping up device production for the season and we are currently on track to achieve our 2020 for full season device inventory plan.

While we remain focused on prudently executing our strategic initiatives to capture the long term opportunities in front of us and extend our industry leadership, we continue to take actions to drive near term performance.

Number one we are pricing at a relative historical price position and expect to hold this position for 2024.

Number two we are managing inventory and are on track to reduce our 2020 for peak and year end inventory by approximately $100 million and $50 million respectively.

Accordingly, Q1 inventory was down 22% or $95 million versus the prior year, while we still maintained high in stock levels and strong service metrics.

Mike: Number three, we are managing costs throughout the P&L. Scott will discuss this later in the call, but SGA revenue in the quarter was down 6% versus a year ago. Number four, we continue to evaluate, develop, and elevate our people and processes to improve efficiency. The investments we have made in our supply chain talent, most notably the decision to put supply chain leadership under our chief merchandising officer, Moyo Labode, in conjunction with our new inventory and merchandising systems, are driving benefits across the organization. And number five, we are utilizing consumer insight surveys to further improve our understanding of evolving consumer purchasing behavior, and we expect our preseason pool survey to be in the market this month. I'll now hand it over to Scott to discuss our results and outlook in more detail. Scott. Good afternoon, everyone.

Number three we are managing costs throughout the P&L Scott will discuss this later in the call, but SG&A in the quarter it was down 6% versus a year ago.

Number four we continue to evaluate develop and elevate our people and processes to improve efficiency.

The investments we have made in our supply chain talent, most notably the decision to put supply chain leadership under our Chief merchandising officer Loyola boats in conjunction with our new inventory and merchandising systems are driving benefits across the organization.

And number five we are utilizing consumer insights surveys to further improve our understanding of evolving consumer purchasing behavior and we expect our preseason pool survey to be in the market. This month.

I'll now hand, it over to Scott to discuss our results and outlook in more detail.

Scott.

Afternoon, everyone and thank you Mike before I discuss our results I would like to introduce our new Vice President of Investor Relations, Matt Kelly.

Scott: And thank you, Mike. Before I discuss our results, I would like to introduce our new Vice President of Investor Relations, Matt Scali. Matt is a seasoned finance and investor relations professional with a career that spans over 20 years. We are excited to have him on board and look forward to his leadership of our investor relations effort. Turning to first quarter results, our results for the quarter were in line with or ahead of expectations, and we were pleased to see improving trends as the quarter progressed. We reported total sales of $174 million, a decrease of 11% compared to the first quarter of fiscal 2023. Comparable sales decreased 12%, but we saw sequential comp sales improvement each month throughout the quarter.

Matt is a seasoned finance and Investor relations professional with a career that has spanned over 20 years.

We are excited to have them on board and look forward to his leadership of our Investor Relations efforts.

Turning to first quarter results our results for the quarter were in line with or ahead of expectation and we were pleased to see improving trends as the quarter progressed.

We reported total sales of $174 million.

A decrease of 11% compared to the first quarter of fiscal 2023.

Comparable sales decreased 12%, but we saw sequential comp sales improvement each month throughout the quarter.

Comparable sales decreased 16% on a two year stack basis and increased 4% on a three year stack basis.

Non comparable sales contributed $3 million in the quarter, driven by acquisitions and new store growth.

With respect to trends by consumer group comparable sales for residential pool declined 10%.

<unk> declined 8% residential hot tub declined 20% compared to the prior year period.

Scott: Comparable sales decreased 16% on a two-year stack basis and increased 4% on a three-year stack basis. Non-comparable sales contributed $3 million in the quarter, driven by acquisitions and new store growth. With respect to trends by consumer group, comparable sales for residential pool declined 10%, pro pool declined 8%, and residential hot tub declined 20% compared to the prior year period. On a two-year stack basis, comparable sales declined 15% for residential pool, declined 13% for pro pool, and declined 23% for residential hot tub.

On a two year stack basis comparable sales declined 15% for residential pool declined 13% or pro pool and declined 23% of residential hot tub.

These declines were in line with our expectation given the current macroeconomic environment in a cost conscious consumer.

Gross profit was $50 million compared to 65 million in the first quarter of fiscal 2023.

Margin rate declined 450 basis points to 29%, which was in line with our expectation.

Page 10 of our supplemental deck illustrates our Q1 gross margin rate bridge in more detail.

During the quarter gross margin was affected by four main factors, which we highlighted as anticipated puts and takes during our fiscal fourth quarter of 2023 call.

Scott: These declines were in line with our expectations given the current macroeconomic environment and a cost-conscious consumer. Gross profit was $50 million compared to $65 million in the first quarter of fiscal 2023, and the gross margin rate declined 450 basis points to 29%, which was in line with our expectations. Page 10 of our supplemental deck illustrates our Q1 gross margin rate bridge in more detail. During this quarter, gross margin was affected by four main factors, which we highlighted as anticipated puts and takes during our fiscal fourth quarter 2023 call. First, the product gross margin rate declined 235 basis points driven primarily by the timing of rebates. Second, DC costs were a 125 basis point headwind, comprised of 105 basis points from the expensing of previously capitalized DC costs and 20 basis points of deleverage on lower comparable sales. Third, occupancy costs decreased by 200 basis points, mainly due to the decline in comparable sales.

First product gross margin rate declined 235 basis points, driven primarily by the timing of rebates.

Second D C cost were 125 basis point headwind.

<unk> of 105 basis points from the expensing of previously capitalized costs and 20 basis point that deleverage on lower comparable sales.

Third occupancy costs Deleveraged by 200 basis points, mainly due to the decline in comparable sales.

Finally inventory adjustments resulted in a positive impact of 110 basis point as we improved inventory management.

SG&A was $87 million, a reduction of 6% or $5 4 million compared to the first quarter of 2023.

The reduction was due primarily to declines in merchant fees, lower head count and executive transition costs and lower M&A costs.

Adjusted EBITDA was negative $24 million compared to negative $12 million in the first quarter of fiscal 2023.

And adjusted net loss was $37 million compared to a loss of 25 million in the first quarter of fiscal 2023.

Interest expense increased to $17 million during the quarter from 13 million in the first quarter of fiscal 2023, due primarily to higher interest rates.

Our effective tax rate increased to 26, 1% compared to 25% in the first quarter of 2023.

Scott: Finally, inventory adjustments resulted in a positive impact of 110 basis points as we improved inventory management. SG&A was $87 million, a reduction of 6% or $5.4 million compared to the first quarter of 2023. The reduction was due primarily to declines in merchant fees, lower headcount and executive transition costs, and lower M&A costs. Adjusted EBITDA was negative $24 million compared to negative $12 million in the first quarter of fiscal 2023. And the adjusted net loss was $37 million compared to a loss of $25 million in the first quarter of fiscal 2023. Interest expense increased to $17 million during the quarter from $13 million in the first quarter of fiscal 2023 due primarily to higher interest rates, and our effective tax rate increased to 26.1% compared to 25% in the first quarter of 2023.

Adjusted diluted earnings per share was negative 20.

Compared to negative 14 cents in the first quarter of fiscal 2020 three.

Diluted weighted average shares outstanding were $184 million.

Moving to the balance sheet, we ended the quarter with cash and cash equivalents of $8 million compared to $3 million for the same period last year.

It had $38 million outstanding on our revolver compared to 91 million at the same time last year.

Availability under our revolver was 201 million at the end of the quarter.

Inventory ended the quarter at $334 million.

<unk> of $95 million or 22% compared to the prior year quarter, while our in stock position service metrics and net promoter scores remain very strong.

Regarding our debt level, we had 788 million outstanding under our secured term loan facility at the end of the first quarter compared to 796 million in the prior year quarter and our leverage ratio was five three times.

The applicable rate on our term loan with sopra, plus 275 basis points in the first quarter and our effective interest rate was eight 2% compared to six 1% in the prior year quarter.

Turning to our fiscal 'twenty 'twenty four outlook, we are maintaining our full year guidance.

The first quarter was consistent with expectation and we expect the second quarter to continue to be affected by pressure on discretionary categories in a more cost conscious consumer which is accounted for in our guidance.

Scott: Adjusted diluted earnings per share was negative 20 cents compared to negative 14 cents in the first quarter of fiscal 2023. The diluted weighted average shares outstanding were $184 million. Moving to the balance sheet, we ended the quarter with cash and cash equivalents of $8 million compared to $3 million for the same period last year and had $38 million outstanding on a revolver compared to $91 million at the same time last year. Availability on the revolver was $201 million at the end of the quarter.

We have seen challenging weather for the first four weeks of the second quarter.

Though our weather providers are forecasting a favorable spring in some of our key market.

And as we discussed last quarter, we expect to remain on track to benefit from certain tailwind in the back half of the fiscal year with easier comparable and as we anniversary the June 2023 chemical pricing action.

As a reminder for fiscal 'twenty 'twenty four we expect sales of one point or 1 billion to 1.47 billion adjust.

Scott: Inventory ended the quarter at $334 million, a decrease of $95 million, or 22% compared to the prior year quarter, while our in-stock position, service metrics, and net promoter scores remained very strong. Regarding our debt level, we had $788 million outstanding on our shared term loan facility at the end of the first quarter compared to $796 million in the prior year quarter, and our leverage ratio was 5.3 times. The applicable rate on their term loan was SOFR plus 275 basis points in the first quarter, and their effective interest rate was 8.2% compared to 6.1% in the prior year quarter.

Adjusted EBITDA of 170 million $290 million adjusted net income of 46 million to $60 million and adjusted diluted earnings per share of 25% to 33%.

Consistent with our commentary in November and historical trends, we expect to deliver more than all of our profitability in the second half of the year, which is during peak season.

We expect to see gross margin improvement of approximately 100 basis points compared to the prior year driven by lower D. C car better inventory management and improved supply chain efficiency.

As a reminder, we expect most of this benefit will occur in the fourth quarter.

Additionally, we expect to spend $50 million to $55 million in Capex.

To reduce fiscal yearend inventory levels by approximately $50 million.

Regarding capital allocation, our first priority continues to be the pay down of our existing debt.

With the goal of achieving a leverage ratio of three five to three seven times in fiscal 'twenty 'twenty four.

Scott: Turning to our fiscal 2024 outlook, we are maintaining our full-year guidance. The first quarter was consistent with expectations, and we expect the second quarter to continue to be affected by pressure on discretionary categories and a more cost-conscious consumer, which is accounted for in our guidance. We have seen challenging weather for the first four weeks of the second quarter, although our weather providers are forecasting a favorable spring in some of our key markets.

Our longer term goal of reaching a leverage ratio of three times or less.

From a growth perspective, as Mike outlined we are planning 15, new store openings in fiscal 2024 with the majority of these stores expected to open prior to Memorial day ahead of the key pool season.

We also plan to convert fixed residential stores to our pro format.

At this time, we are not including any M&A activity in our fiscal year guidance.

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

Scott: And, as we discussed last quarter, we expect to remain on track to benefit from certain tailwinds in the back half of the fiscal year with easier comparables and as we anniversary the June 2023 Chemical Pricing Act. As a reminder, for fiscal 2024, we expect sales of $1.41 billion to $1.47 billion, adjusted EBITDA of $170 million to $190 million, adjusted net income of $46 million to $60 million, and adjusted diluted earnings per share of $0.25 to $0.33. Consistent with our commentary in November and historical trends, we expect to deliver more than all of our profitability in the second half of the year, which is during peak pool season. We expect to see gross margin improvement of approximately 100 basis points compared to the prior year, driven by lower DC costs, better inventory management, and improved supply chain efficiency. As a reminder, we expect most of this benefit to occur in the fourth quarter. Additionally, we expect to spend $50 to $55 million on CapEx and to reduce fiscal year and inventory levels by approximately $50 million.

Thank you Scott.

As we wrap up I wanted to cover a few recent developments in our corporate ESG initiatives.

In September we published our third annual ESG report that highlighted our expanded environmental disclosures the formation of four employee resource groups with membership across the organization.

And the improvement of our MSCI ESG rating from a to double that in.

In addition, we were pleased to announce that legislation was recognized by St Jude's Children's Hospital.

Their new corporate partner year.

In December we announced the steep Ortega had decided not to stand for reelection as chairman at our next annual meeting and.

James Raitt Junior had resigned from the board and his position as lead independent director given his recent appointment as CEO for another publicly traded company.

I would like to thank Steven James for their partnership and leadership as members of the board.

On behalf of current and former as Leslie Associates I would also like to thank Steve for his nearly two decades of service to Leslie.

We wish both Steve and James well in their future endeavors.

Scott: Regarding capital allocation, our first priority continues to be the paydown of our existing debt with the goal of achieving a leverage ratio of 3.5 to 3.7 times in fiscal 2024 and the longer-term goal of reaching a leverage ratio of three times or less. From a growth perspective, as Mike outlined, we are planning 15 new store openings in fiscal 2024, with the majority of these stores expected to open prior to Memorial Day ahead of the key pool season. We also plan to convert six residential stores to a professional format. At this time, we are not including any M&A activity in our fiscal year guidance.

We are also pleased to appoint John strain, a 30 year bedroom retail technology and E Commerce space and current board member as lead independent director and chairman elect in advance of our 'twenty 'twenty four annual meeting.

To conclude.

While we still felt the effects of lingering headwinds from 'twenty to 'twenty. Three we delivered results that were in line with or ahead of our expectations.

As we prepare for the 2024 pool season, we remain confident in the durability of our advantaged business model and the ability of our team to leverage the competitive advantages from our scale capabilities and strategic initiatives to drive growth long term market share gains and shareholder value.

Mike: And with that, I will hand it back over to Mike. Thank you. Thank you, Scott. Before we wrap up, I want to cover a few recent developments in our corporate ESG initiative. In September, we published our third annual ESG report that highlighted our expanded environmental disclosures, the formation of four employee resource groups with membership across the organization, and the improvement of our MSTI ESG rating from A to AA. In addition, we were pleased to announce that Leslie'S was recognized by St. Jude's Children's Hospital as their new Corporate Partner of the Year. In December, we announced that Steve Ortega had decided not to stand for re-election as chairman at our next annual meeting and that James Ray Jr. had resigned from the board and his position as lead independent director, given his recent appointment as CEO of another publicly traded company.

With that I will hand, it back to the operator for Q&A.

Thank you if you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question. Kim You May Press Star two if he would like to remove your question from the queue.

For participants using speaker equipment may be necessary to pick up your handset before pressing the star. He is our first question is from Ryan Merkel with William Blair. Please proceed.

Hey, everyone. Thanks for taking the question.

Mike I wanted to start off with inventory it looks like you've made some nice progress. There can you just talk about you know the progress you've made with inventory management and why you're confident you're going to hit your targets for the year.

Mike: I would like to thank Steve and James for their partnership and leadership as members of the board. On behalf of current and former Leslie's Associates, I would also like to thank Steve for his nearly two decades of service to Leslie's. We wish both Steve and James well in their future endeavors. We are also pleased to appoint John Strain, a 30-year veteran of retail technology and the e-commerce space and current board member, as lead independent director and chairman-elect in advance of our 2024 annual meeting.

Yeah, Hi, Ryan Thanks for the question I'll start and then I'll I'll have Scott speak to it.

More specifically.

But I.

I wanted to kind of emphasize the how pleased we are with <unk> leadership.

The leadership of the supply chain in general.

And also with some additional hires we've made all of which happened in March and April of last year and since that time that infusion of talent along with the.

Mike: To conclude... While we still felt the effects of lingering headwinds from 2023, we delivered results that were in line with or ahead of our expectations. As we prepare for the 2024 pool season, we remain confident in the durability of our Advantage business model and the ability of our team to leverage the competitive advantages from our scale, capabilities, and strategic initiatives to drive growth, long-term market share gains, and shareholder value. Thank you. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue.

Go live of our new inventory planning systems, Yeah, we've been really really pleased with the results.

Yeah.

Yeah, and I'll, just I'll just add onto that.

Ryan I think or inventory management has improved significantly starting in the fourth quarter, where we reduced inventory by about $75 million.

And then this quarter another nice reduction for us and so as we reduce inventory, it's mainly two things.

You know, we're having a good tool, which is blue yonder, but also having a good team.

Behind it that enables us to be more precise.

On an ordering product and getting it delivered to stores.

And so.

It's it it's really just great work by the whole team there.

And for US no reducing inventory is very important but also in stock levels and service metrics are also extremely important and so that's the other guardrail that we look at which you know has been extremely high so we're really happy with the overall performance.

Operator: And for participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. Our first question is from Ryan Merkle with William Blair. Please proceed. Hey everyone, thanks for taking the question. Mike, I wanted to start off with inventory. It looks like you've made some nice progress there. Can you just talk about the progress you've made with inventory management and why you're confident you're going to hit your targets for the year? Yeah, hi Ryan.

And as we've kind of indicated earlier, you know, we should be about $100 million less than our peak inventory last year and that happens in late March early April.

And we're still confident that we can finish to the year at about $50 million below the prior year.

Got it.

That's great to hear and then my second question is on chemical prices. Mike I think you said you've seen stabilization can you just talk about how much tricolore prices were down in the quarter and then how does that compare to the guidance for 'twenty four.

Mike: Thanks. Thanks for the question. I'll start and then I'll have Scott speak to it more specifically. But I want to kind of emphasize how pleased we are with Moyo's leadership of the supply chain in general and also with some additional hires we made, all of which happened in March and April of last year. And since that time, that infusion of talent, along with the go-live of our new inventory planning systems, yeah, we've been really, really pleased with the results. Yeah, and I'll just add on to that.

Yeah I think.

Tricolore was down for the quarter, both in volume and in price. It was about a 50 50 split.

But versus the prior year and I'll talk about.

I'm talking about chemical prices in total.

Which was about a 250 basis point headwind to sales and that's predominantly from the price actions that we took in June of last year.

Will we anniversary those though they'll continue to be a headwind, but when you look at chemical.

Scott: Ryan, I think our inventory management has improved significantly, you know, starting in the fourth quarter, when we reduced inventory by about 75 million. And then this quarter, another nice reduction for us. And so as we've reduced inventory, it's mainly two things. It's having a good tool, which is Blue Yonder, but also having a good team behind it that enables us to be more precise in ordering product and getting it delivered. And so. It's really just great work by the whole team there.

Chemical pricing in the industry.

And our pricing since those June 20th reactions, yeah, they've been they've been very stable.

Okay, Great pass it on.

Thanks Ryan.

Our next question is from Jonathan <unk> with Jefferies. Please proceed.

Hey, Thanks for taking my question and welcome Matt Yeah. My first question is on your efforts with the pro right you've been able to build some traction there I think penetration in terms of sales has tripled over the years.

Give us an update on you know wallet share with the pro customers Rite aid, obviously, you've on boarded more pro customers.

Scott: And for us, reducing inventory is very important, but also in-stock levels and service metrics are also extremely important. And so that's the other guardrail that we look at, which has been extremely high. So we're really happy with the overall performance. And as we kind of indicated earlier, you know, we should be about $100 million less than our peak inventory last year. And that happens in late March and early April, and we're still confident that we can finish the year at about $50 million below the prior year. I got it.

And the pro partner program is helping to drive more frequency and purchases.

But just help us understand kind of that evolution in terms of converting pro customers viewing wisely as I.

Our convenient fill and stop.

First as a first stop if that makes sense.

No absolutely Johnson. Thanks for the question you know when we launched our pro partner program and our emphasis on the pro customer.

Mike: Okay, it's great to hear. And then my second question is on chemical prices. Mike, I think you said you've seen stabilization. Can you just talk about how much trichloroprices were down in the quarter, and then how that compares to the guidance for 24? Yeah, I think so.

We believe we had a structural advantage given our thousand plus locations.

And those thousand plus locations give us gives us the advantage of convenience.

Mike: Tricor was down for the quarter, both in volume and in price; it was about a 50-50 split. But versus the prior year, and I'll talk about chemical prices in total, which was about a 250 basis point headwind to sales. And that's predominantly from the price actions that we took in June of last year, until the anniversary, though, so they'll continue to be a headwind. But when you look at chemical pricing in the industry and our pricing since those June 23 actions, yeah, they've been very stable. Okay, great. Pass it on.

Our focus group work prior to initiating in the program.

We talked to a number of pros and they were very consistent.

In wanting reliability of supply at a good price not necessarily the lowest price and then convenience was extremely important to them, particularly to the smaller operators, who don't have any inventory or that what they're carrying in their trucking there Dan.

And you know as you mentioned sales have almost tripled we've been very pleased with the progress we're making there.

And there's a pretty sharp distinction as we sit in the script between the pro partners that we have on contract.

Operator: Thanks, Ryan. Our next question is from Jonathan Matuszewski with Jeffries. Please proceed. Hey, thanks for taking my questions. And welcome, Matt.

Our other other pro customers.

And really the share of wallet is built by getting them into the pro partner contracts and we had good growth in that over the last year.

Jonathan Matuszewski: My first question is about your efforts with the pro, right? You've been able to build some traction there. I think penetration in terms of sales has tripled over the years. Could you just give us an update on, you know, wallet share with these pro customers? Obviously, you've onboarded more pro customers, and the pro partner program is helping to drive more frequency in purchases. But just help us understand kind of that evolution in terms of converting pro customers viewing Leslie's as a convenient fill-in stop versus a first stop, if that makes sense. No, absolutely not, Jonathan.

Intend to keep that pace of growth and the difference between the wallet share in the pro partners and the Nonpro partners is considerable it's it's about two times so.

The emphasis is really going to be on using our structural advantage.

The most locations being closest to the pools, and then really doubling down on signing up pro partners because once we get them in the program.

Performed very consistently.

Alright, great. That's helpful. And then maybe just a follow up for Scott Scott.

Scott.

Historically, you know the revenue split has been you know 75% of sales in the second half.

Mike: Thanks for the question. You know, when we launched our pro partner program and our emphasis on the pro customer, we believed we had a structural advantage given our thousand plus locations; those thousand plus locations give us the advantage of convenience. In our focus group work, prior to initiating the program, we talked to a number of pros, and they were very consistent in wanting reliability of supply, a good price, not necessarily the lowest price, and then convenience was extremely important to them, particularly to the smaller operators who don't have any inventory of what they're carrying in their truck and their van. And as you mentioned, sales have almost tripled. We're very pleased with the progress we're making there, and there's a pretty sharp distinction, as we said in the script, between the pro partners that we have on contract and our other pro customers. And really, the share of wallet is built by getting them into the pro partner contracts.

Of the of.

The fiscal year or are there any nuances to that but before for this year. If you could just kind of walk through.

Why that that split may not hold this year were worth it or is it well thanks.

It should be very close to that split.

I indicated I believe it's on the prior calls at this.

The split that we will have by quarter this year.

Mirrors or the first half second half mirrors very closely what we saw in 2022.

2023, with a little bit of an anomaly about 2022 is probably the best comparison that I think will happen this year in terms of.

He's analogy by half.

Thanks, So much best of luck.

Thank you.

Our next question is from Simeon Gutman with Morgan Stanley. Please proceed.

Hi, everyone. Good afternoon, you mentioned, Mike that pricing I think is where you want it to be I think at the moment.

Can you talk about you know as we get to the peak season do you think you know, especially since it sounds like there's some potential share loss and the number maybe it's obscured not sure how do you read it.

But being at the industry you think that's enough to win back market share. If that's the way that you know if you are indeed, losing its you know do you.

Mike: And we had good growth in that over the last year, and they intend to keep that pace of growth. And the difference between the wallet share in the pro partners and the non-pro partners is considerable. It's about two times.

Do you need to be sharper than that and then I guess another way to ask it.

Yeah. Good question. So I mean look I believe were priced appropriately and we're priced in a historical position right, we're above mass and home and at or just below specialty that's worked for us for a long time.

Scott: So, the emphasis is really going to be on using our structural advantage of having the most locations, being closest to the pools, and then really doubling down on signing up pro partners. Because once we get them in the program, they perform very consistently. All right, great. That's helpful. And then maybe just a follow-up for Scott.

It's where we're at now.

We'll obviously react to the market if the market goes lower but I don't.

See us at this time needing to do that it would be reaction it wouldn't be something we would lead.

To your question on market share, though you know I have to say we were we.

We were expecting a headwind.

Scott: Scott, historically, the revenue split has been 75% of sales in the second half of the fiscal year. Are there any nuances to that split for this year? If you could just kind of walk through why that split may not hold this year or if it will. Thanks.

On the credit card data based on the chemical price changes as you, Matt as you'll remember last quarter.

It had a basis point headwind from the chemicals more than bridged the differential in and Ah in sales right.

Scott: It should be very close to that split. I indicated, I believe it was on the prior call that... The split that we will have by quarter this year mirrors, or the first half, second half mirrors very closely what we saw in 2020. 2023 was a little bit of an anomaly, but 2022 is probably the best comparison that I think we'll have to this year in terms of T-GEN-A-L-I-T-Y. Thanks

We're frankly surprise this quarter.

That it didn't play out the same way.

The.

Chemical price actions explained about 40% of the gap.

It doesn't explain the rest and.

It doesn't line up with our other data checks and by that I mean discussions with their vendors.

With our store managers.

Use similar web for her digital traffic and all.

All of those kind of soft quantitative and some quantitative measures indicate that our current performance is in line with the industry. So we're a little we're a little surprised by that the way we're thinking about it as the first quarter's our smallest quarter. It is we don't think it's a good idea to take that.

Operator: Best of luck. Our next question is from Simeon Gutman with Morgan Stanley. Please proceed. Hi, everyone. Good afternoon.

Simeon Ari Gutman: You mentioned, Mike, that pricing, I think it's where you want it to be, I think, at the moment. Can you talk about, you know, as we get to the peak season, do you think, especially since it sounds like there's some potential share loss in the number, maybe it's obscure, not sure how you read it, but being in the industry, you think that's enough to win back market share? If that's the way that, you know, if you're indeed losing, it's a, you know, do you need to be sharper than that?

The results from Q1 and extrapolate it for the year.

Not necessarily representative of long term trends, we ended fiscal year 'twenty three.

Hundred and 40 basis points versus the industry fiscal year 'twenty two of 690 basis points we.

Mike: I guess another way to ask. Yeah, a good question, Simeon. Look, I believe we're priced appropriately, and we're priced in our historical position, right? We're above mass and home and at or just below specialty. That's worked for us for a long time. We will obviously react to the market if the market goes lower, but I don't see us at this time needing to do that. It would be a reaction. It wouldn't be something we would lead.

We feel quite confident we'll gain share this year as well.

But it didn't play out in the first read from the smallest quarter of the year, regardless of that we take this data very seriously. We think it's important data and we pay attention to it and we're taking some actions like I mentioned in the script. We are we know that we've often been perceived as a prime.

Liam qualities at a fair price before.

Before the chemical price actions of last year that got a little out of whack and.

Mike: To your question on market share, though, you know, I have to say we were expecting a headwind on the credit card data based on the chemical price changes. As you'll remember last quarter, that basis point headwind from the chemicals more than bridged the differential in sales rates. We were frankly surprised this quarter that it didn't play out the same way.

And we continue to be head down analyzing how to improve our perception of value with consumers and we're doing some very specific things you know, we're bringing lower cost products smaller sizes of chemicals from the store for that first price and value perception as you come into the store and we're doubling down on.

Mike: The chemical price action explains about 40% of the gap doesn't explain the rest, and it doesn't line up with our other data checks. And by that, I mean discussions with our vendors, discussions with our store managers. We use similar websites for our digital traffic.

And item of the month strategy, which we found to be quite effective and also the increasing messaging around the other value drivers of our business fiber.

Mike: And all of those kind of soft, qualitative, and some quantitative measures indicate that our current performance is in line with the industry. So we're a little surprised by that. The way we're thinking about it is that the first quarter is our smallest quarter. We don't think it's a good idea to take that result from Q1 and extrapolate it for the year because it is not necessarily representative of long-term trends. You know, we ended fiscal year 23 up 140 basis points versus the industry, and fiscal year 22 up 690 basis points. We feel quite confident we'll gain share this year as well, but it didn't play out in the first read from the smallest quarter of the year. Regardless of that, we take this data very seriously. We think it's important data, and we pay attention to it.

5% of rewards and free shipping with pool perks, our price match guarantee.

Omni channel capabilities.

Those initiatives all we really started we started to emphasize all of them really in the second month of the quarter and we did see improved performance. So we're going to continue with that focus of driving value with consumers because we believe with our current price positioning, but we are a very good and compelling value.

Yeah, Thanks for that something else that we're thinking about the competitive backdrop.

It sounds more stable you talked about chemical pricing and then we talked about your pricing is there any way or how do you think about gauging what youre seeing today is like a precursor for the spring or you can't judge the last couple of months and how the spring will shape up once we get the peak selling season.

Mike: We're taking some actions, like I mentioned in the script. We know that we've often been perceived as premium quality at a fair price before the chemical price actions of last year that got a little out of whack. And we continue to be head down analyzing how to improve our perception of value with consumers. And we're doing some very specific things.

Yeah I think.

It's against the smallest quarter and then January is our smallest months.

So we really need to get into at least February and March when some of the Sun belt markets start to percolate.

Mike: You know, we're bringing lower-cost products, smaller sizes of chemicals out of the store for that first price and value perception as you come into the store. And we're doubling down on an item-of-the-month strategy, which we found to be quite effective, and also increasing messaging around the other value drivers of our business, such as 5% rewards, free shipping with pool perks, our price match guarantee, and also our omni-channel capabilities

We can see them.

First look at the velocity going into the season.

But we're encouraged by that.

All the different weather forecasting we use everything from farmers almanac to W. T. I to know to Planalytics switches are core provider and we're pleased to see that.

For the for the months of March April May really the kickoff of the season.

Mike: Those initiatives, we really started to emphasize all of them really in the second month of the quarter, and we did see improved performance, so we're going to continue with that focus of driving value with consumers because we believe with our current price positioning, we are a very good and compelling value. Yeah, thanks for that. Something else we're thinking about is the competitive backdrop. You know, it sounds more stable.

And into June we're seeing it at least normal if not favorable weather across most of our key markets. So I think it's a pretty good setup for the pool season.

The thing to take into account as you know last year, we saw evidence of people stockpiling, our latest survey, which we talked about last quarter.

Consumers are indicating they're not doing that well.

Have another survey going out this month to confirm that.

Mike: You talked about chemical pricing, and then we talked about your pricing. Is there any way, or how do you think about gauging what you're seeing today as like a precursor for the spring, or can't you judge the last couple of months and how the spring will shape up once we get to peak selling season? Yeah, I think, you know, it's against the smallest quarter.

But I think we see.

No, it's not no stockpiling or significantly less you see a good weather setup.

We're very pleased with where we are with pricing in our in stock levels in our NPS scores are all improving so we feel pretty good about the set up to the season, but to your point it.

It doesn't become theres not a lot of clarity around that I would say till.

Mike: And then January is our smallest month, so we really need to get into at least February and March when some of the Sunbelt markets start to percolate, so we can see, our first look at the velocity going into the season. But we're encouraged, you know, by all the different weather forecasts; we use everything from Farmers Almanac to WTI to NOLA to Plantalytics, which is our core provider. And, you know, we're pleased to see that, for the month of March, April, May, really the kickoff of the season, and into June, we're seeing at least normal, if not favorable weather across most of our key markets. So I think it's a pretty good setup for the pool season.

March April.

Okay. Thanks, good luck.

Thank you.

Our next question is from Steven Forbes with Guggenheim Securities. Please proceed.

Good afternoon Scott.

Mike I was just I was just I was wondering if you could maybe just expand on sort of your outlook for the customer file right.

Is it too early to say.

We get a good read on trend both loyal and non loyal on on when you expect stabilization or are you starting to see.

And then what sort of support the thesis of stabilization at some point this year, but let me just sort of.

Your your most recent thoughts and thinking on the customer file and stability.

Yeah, and I think I think there's some some unwinding still up some of the onetime customers that we picked up during the pandemic.

Mike: You know, the other thing to take into account is, you know, last year, we saw evidence of people stockpiling. In our latest survey, which we talked about last quarter, consumers are indicating they're not doing that. We will have another survey going out this month to confirm that. But I think we will see.

I would expect next quarter's customer file to be down not down as much as it was this quarter and then I would think by the second half, we should flatten out and start to grow again, which as you know rich.

<unk> of our business overall.

Really think that.

Mike: No stockpiling or significantly less. We see a good weather setup. We're very pleased with where we are with pricing and our in-stock levels, and our NPS scores are all improving. So we feel pretty good about the setup to the season. But to your point, it doesn't become There's not a lot of clarity around that.

First quarter and second quarter of this year, we've got both structural headwinds and some I'd say kind of the final unwinding of some of the customer files ever in one time typically in one time as trade Corp. Buyers frankly, and then we get back to those two.

To the core of the file which has been quite healthy and when I think of the court file we're really thinking about our our loyalty customers loyalty members continue to grow they were down 4% in the quarter quite a bit better than the company overall transactions are positive, which we need to see positive transactions.

Operator: I would say till March or April. Okay, thanks. Good luck. Thank you. Our next question is from Steven Forbes with Guggenheim Securities. Please proceed. Good afternoon, Mike Scott.

Steven Paul Forbes: Mike, I was wondering if you could maybe just expand on sort of your outlook for the customer file, right? Like, is it too early to get a good read on trends, both loyal and non-loyal, on when you expect stabilization, or are you starting to see anything that would sort of support the thesis of stabilization at some point this year? We'd love to just sort of hear your most recent thoughts and thinking on Customer File and Stability.

For our guidance to hit and we saw some pressure on <unk>, but that was that was a across the file and very much in line with what we'd seen other places and that's that's really kind of the lack of the high ticket more discretionary equipment items and also the hot tub customers into trial.

Thanks for that and there's just a quick follow up I think.

Pro comps right, we're down 8%, whereas pro traffic trending.

Mike: Yeah, I think there's some unwinding still of some of the one-time customers that we picked up during the pandemic. I would expect next quarter's customer file to be down, but not down as much as it was this quarter. And then I would think by the second half, we should flatten out and start to grow again, which is reflective of our business overall. We really think that, um... First quarter and second quarter of this year, we've got both structural headwinds and some, I'd say, kind of a final unwinding of some of the customer files that were once, typically in one time as Tricor buyers, frankly, and then we get back to the core of And when I think of the core of the file, we're really thinking about our loyalty customers. Loyalty members continue to grow.

And and how you're sort of thinking about pro versus residential sales for the year is it still sort of.

Equivalent or similar or anything changing there.

Yeah, I think pretty similar you know, we can't break out pro traffic specifically.

It's a traffic counters in the stores count customers coming in.

Feedback from our stores and from our pro wholesale represented is that you know pro traffic has been very similar to residential traffic and that would be our history as well.

Traffic was down kind of mid single digits for the quarter.

And the pro sales that you saw were down down 8%.

Again, a pretty big difference between pro partners, who we have contracts with.

Ah I do them similarly to our loyalty customers and or regular file we wrap our arms around them nicely. We do a good job of explaining the benefits of the program.

Mike: They were down 4% in the quarter, quite a bit better than the company overall. However, transactions were positive, which we need to see positive transactions for our guidance to be hit. And we saw some pressure on AOV, but that was across the file and very much in line with what we'd seen other places.

We're very focused on continuing to grow the number of our contract partners. We have pro partners and also the number of loyalty members.

Thank you.

Our next question is from Garik <unk> with loop capital markets. Please proceed.

Alright, Thanks for taking my question I wanted to ask just strong trends in the quarter that just ended you mentioned the improved each months I'm certainly weather played a role I don't know if it's if you're able to parse out how much was the weather and driving the improvement sequentially.

Mike: And that's really kind of the lack of the high ticket, more discretionary equipment items, and also the hot tub customers in our file. Thanks for that. This is a quick follow-up, pro comps, right?

Mike: We're down 8%. Where is professional traffic trending? And how are you sort of thinking about professional versus residential sales for the year? Is it still sort of equivalent or similar or anything changing there? Yeah, I think pretty similar.

Versus you know any maybe underlying improvement in trends.

Yeah. Good question Gary October October was tough I mean that was a it was a tough month in and the challenge for US in Q1 is that.

Mike: You know, we can't break out pro-traffic specifically. Right? The traffic counters in the stores count customers coming in; feedback from our stores and from our pro-wholesale representatives is that pro-traffic has been very similar to residential traffic, and that would be our history as well. Traffic was down kind of mid-single digits for the quarter, and pro-sales, as you saw, were down 8%. Again, a pretty big difference between the pro-partners, who we have the contracts with; they are – I view them similar to our loyalty customers in our regular file. We wrap our arms around them nicely.

Each month of the quarter gets smaller and volume.

So the biggest months November smaller December smaller in January our smallest month of the year Q.

Q2s, the reverse January smallest month of the year.

Really hard to extrapolate anything that happens in January even to the quarter because march is as more than 50% of the entire quarter.

So October weather was not as favorable as it was in November and December about about half is favorable.

And we just saw lower traffic was about similar person so I'm.

I'm not sure everything explain everything that happened in October but it was.

It was a challenging month and we were very pleased to see November improved from there in December improved more.

Mike: We do a good job of explaining the benefits of the program, and we're very focused on continuing to grow the number of contract partners we have, pro-partners, and also the number of loyalty members. Thank you. Our next question is from Garrick Schmoyes with Loop Capital Markets. Please proceed.

Understood. Thanks for that follow up question is just about Hot Cup sales just given.

Given the weakness there for several quarters given the pullback in big ticket discretionary spending you mentioned comps are easing as you move through fiscal 'twenty for <unk>. Just wondering how we should think about maybe the growth rate or the narrowing of the declines in the hot tub as the year progresses.

Operator: Hi, thanks for taking my question. I wanted to ask just around trends in the quarter that just ended. You mentioned they improved each month. Certainly, weather played a role.

Garrick Schmoyes: I don't know if you're able to parse out, you know, how much weather was driving the improvement sequentially versus, you know, any maybe underlying improvement in trends. Thank you. Yeah, good question, Gary.

Yeah, you know we have planned.

The discretionary business for the year down about 10%.

And that that's that's what's built into the midpoint of our guide.

We discussed that at some of the earlier calls.

Mike: October was tough. I mean, it was a tough month, and the challenge for us in Q1 is that each month of the quarter gets smaller in volume. So October is the biggest month, November is the second biggest, December is the third biggest, and January is our smallest month of the year.

And hot tubs are about 75% of discretionary sales. So we need to see hot tubs turn what gives us confidence.

Sparked my comments in the script is hot tub business is the one business, where we have a forward order book.

And at the end of the quarter that order book was basically flat.

Mike: Q2 is the reverse, January's the smallest month of the year, so it's really hard to extrapolate anything that happens in January, even to the quarter because March is more than 50% of the entire quarter. So in October, the weather was not as favorable as it was in November and December, about half as favorable, and we just saw lower traffic with about a similar percent.

And we need that kind of improvement from.

Down 22 flat to get us at.

Or better than that down 10% for the year. So that's why we talk about incur.

Encouraged being encouraged by the hot dip results not for the Q1 results in terms of what was.

Mike: I'm not sure we can explain everything that happened in October, but it was a challenging month, and we were very pleased to see November improve from there and December improve even more. Understandable. No, thanks for that.

<unk> delivered its shipped but for the formation of the order book for the balance of the year.

Yeah.

Understood no thanks for that.

Appreciate it and best of luck.

Mike: Follow-up question is, just on hot tub sales, just, you know, given the weakness there for several quarters, given the pullback and big-ticket discretionary spending, you mentioned comps are easing as you move through fiscal 24. Just wondering how we should think about, you know, maybe the growth rate or kind of the narrowing of the declines in hot tub sales as the year progresses. Yeah, you know, we have planned the discretionary business for the year down about 10%. And that's what's built into the midpoint of our guide. We discussed that on some of the earlier calls. Hot tubs are about 75% of discretionary sales. So we need to see hot tubs turn.

Thanks, Eric.

Our next question is from Andrew Carter with Stifel. Please proceed hey.

Hey, Thank you very much so what I wanted to drill in on is you said that the regarding the product.

Margin was down excuse me, if I say the wrong number to 50 basis points and it was almost entirely related to the timing of volume rebates. So within that I know you took the price reductions on Tricolore are you, saying that kind of like for like your E. You've actually kind of recovered some of the cost from vendors and you're actually cost neutral with the <unk>.

Pricing price decrease therefore, a pretty significant product margin expansion as the year goes by just help me parse it out thanks.

Yeah Andrew.

The headwind from the from the price Kim changes, it's about 195 basis points, it's not in the bridge because we were able to effectively.

Mike: What gives us confidence and triggered my comments in the script is that the hot tub business is the one business where we have a forward order book. And at the end of the quarter, that order book was basically flat. And we need that kind of improvement from, you know, down 20 to flat to get us at, or better than that, down 10% for the year. So that's why we talk about being encouraged by the hot tub results, not for the Q1 results in terms of what was delivered and shipped, but for the formation of the order book for the balance of the year. Understandable. No, thanks for that, and I appreciate it, and best of luck.

Mitigate that.

With other merchandising process price cost actions and not not just in chemicals.

Across the across the Assortments in our different product categories. So we're pretty pleased with those results.

I'm, just going to be an ongoing challenge and in Q2 and into June until we lap those price changes.

But yeah, you're correct, we didn't call them out because we were able to effectively.

And to get the majority of them.

Okay and then the second question I have I mean last year, you got out he got out over your skis on pricing didn't make an adjustment till late season. You also had the added factored contend with AV people had chemical sitting in their garage you think that's unwind. It so I mean regarding kind of getting the messaging out there how long this process.

Mike: Thanks, Eric. Our next question is from Andrew Carter with Stifo. Please proceed. Hey, thank you very much.

Operator: So what I wanted to drill in on is you said that product margin was down, excuse me if I say the wrong number, 250 basis points, and it was almost entirely related to the timing of volume rebates. So within that, I know you took the price reductions on Tricor. Are you saying that, kind of, for like, you've actually kind of recovered some of the cost from vendors and you're actually cost-neutral with the price decrease, therefore a pretty significant product margin expansion as the year goes by? Just help me parse that out. Thanks. Yeah, Andrew, the other...

Is that to get to get the message back to the customers and if you could help us out like how often does kind of a core consumer come into less leases. It twice a season as it once a week just anything you can help us out with there. Thanks.

Yeah on average it's about three times a season.

So we should be you know by the time, we lap those price changes we shall have you should have seen most of all of our account base and then look at just a.

It needs to be a steady drumbeat of messaging reinforcing not just pricing, but also our value I think the.

Most encouraging thing is that.

Andrew Carter: The headwind from the price chem changes is about 195 basis points. It's not in the balance because we were able to effectively mitigate that with other merchandising price-cost actions, and not just in chemicals, you know, across the assortments in our different product categories. So we're pretty pleased with those results. It's going to be an ongoing challenge in Q2 and into June until we get those price changes right. But yeah, you're correct. We didn't call them out because we were able to effectively indicate the majority of. And then the second question I have: I mean, last year, you got out over your skis on pricing and didn't make an adjustment until late season. You also had the added factor to contend with of people having chemicals sitting in their garage.

We decided to take those price actions on chemicals two reasons, one based on what we're seeing for competitive pricing.

Also and importantly, our net promoter scores.

Started to dip and the driver was our price perception, we'd always been viewed as.

Premium product.

The premium quality at a fair price and we started to get feedback that it was overpriced, that's not a position we want to be and the good news and in our minds is the NPS scores on that specific pricing metric had been improving every month since so we think we're in a.

It's one of the reasons when we were talking about pricing earlier in the question from Simeon one of the reasons, we feel we're in a we're in a good spot there, but you know as we've talked about before we're constantly.

Currently you know scraping across the digital sites, we've got shoppers are in market.

Mike: You think that's unwinded, so I mean, regarding kind of getting the messaging out there, how long of a process is that to get the message back to the customers? And if you could help us out, like how often does a core consumer come into Leslie's? Is it twice a season? Is it once a week?

So we're paying we're paying a lot of attention to.

Definitely intend to use your phrase not get out over our skis again.

Thank you very much I'll pass it on.

Thanks, Andrew.

Our next question is from Justin <unk> with Baird. Please proceed.

Yeah. Good evening, everyone is Justin klaver, thanks for taking the question.

Mike: Just anything you can help us out with there. Thanks. Yeah, on average, it's about three times a season.

First one just to clarify Mike the traffic comments, you mentioned an improvement to down mid singles can you just help me reconcile that figure versus the transaction number you have in the deck, which showed a slight D cell.

Mike: So we should be, by the time we lap those price changes, we should have seen most of our account base. And then look, it's just a number. It needs to be a steady drumbeat of messaging, reinforcing not just our pricing but also our value. I think the most encouraging thing is that, you know, we decided to take those price actions on chemicals for two reasons. One was based on what we were seeing for competitive pricing, but also, and importantly, our net promoter scores started to dip, and the driver was price perception. You know, we'd always been viewed as a premium product, premium quality at a fair price. But we started to get feedback that it was overpriced. That's not the position we want to be in.

If traffic is less bad, but actual transactions I guess got a bit worse sequentially. It is conversion.

The missing piece, there are or am I missing something with the numbers and not looking at apples to apples.

Youre looking at it correctly.

I could kind of parse it into the year over year comparison and to the sequential comparison you know.

On a year over year basis, Youre right transactions are down 6% traffic is down in that same range conversion was basically flat.

On a on a sequential basis.

You know for September Q4 into Q1, we tend to have a little less conversion rate overall historically.

Mike: The good news in our minds is the NPS scores on that specific pricing metric have been improving every month since. So we think we're in. One of the reasons when we're talking about pricing earlier in the question from Simeon, one of the reasons we feel we're in a good spot there. But as we've talked about before, we're constantly scraping across the digital sites. We've got shoppers in the market.

That has to do with you know youre starting to wind down out of the out of the peak pool season.

And it's just a just a little bit different kind of shopper coming in so.

Not surprised by that but what you pointed out is is absolutely correct higher conversion in Q4, a little higher can be your converged little lower conversion in Q1, but quarter over.

Mike: So we're paying a lot of attention to it, and definitely intend to, to use your phrase, not get out of our skis. Thank you very much. I'll pass it on.

Quarter.

Uh huh.

Or excuse me year over year for quarter, one conversion was flat.

Andrew Carter: Thanks, Andrew. Our next question is from Justin Kleber with Baird. Please proceed. Good evening, everyone. This is Justin Kleber.

Got it okay. Thanks for that clarification, and then Scott maybe a question for you on gross margin just wanted to walk through that a positive 110 basis point inventory adjustment.

Operator: Thanks for taking the question. First one, just to clarify, Mike, the traffic comments you mentioned an improvement in down mid-singles. Can you help me reconcile that figure versus the transaction numbers you have in the deck, which showed a slight decel? If traffic's less bad, but actual transactions, I guess, got a bit worse sequentially, is conversion... The missing piece there?

I felt we really weren't going to start clawing that back until four Q.

So just any any additional color there and as we think about <unk> just any color on how you envision.

The various margin buckets, playing out even if it's just directional commentary relative to <unk> that would be very helpful.

We've just placed a very high focus on inventory adjustments in general and so I think we're getting better at it. So I think that's one reason why it was a little bit better I think the other thing is we did we spent a lot of time in Q4, just making sure that we had things cleaned up and so there was.

Justin E. Kleber: Or am I missing something with the numbers and not looking at apples to apples? Uh, no, you're, you're, you're looking at it correctly. I'd kind of parse it into the year-over-year comparison and the sequential comparison. You know, on a year-over-year basis, you're right. Transactions are down 6%. Traffic's down in that same range.

A lot of work done, especially with bringing all the inventory in house and so I think that rigor that we had in Q4.

Mike: Conversion was basically flat, on a sequential basis. You know, September Q4 into Q1, we tend to have a little less conversion rate overall, historically, and I think that has to do with, you know, you're starting to wind down out of the peak pool season, and it's just a little bit different kind of shopper coming in.

Paying off a little bit for us as well here in the first quarter.

Now when I look at Q2, you know margin you know kind of.

Compared to Q1, I still see Q2 slightly better than Q1 in large part just because we'll have better leverage on D C costs and occupancy costs with with more sales.

So I think that will help the quarter. We did have some price increases in January of last year that will temper that but even with that I still expect Q2 to be a little better sequentially than Q1.

Mike: So, not surprised by that, but what you pointed out is absolutely correct. Higher conversion in Q4, a little higher conversion, a little lower conversion in Q1, but quarter over quarter, or excuse me, year over year for quarter one, conversion was flat. Okay, thanks for the clarification.

Yeah.

Got it thank you both.

Okay.

This will conclude today's question and answer session I would like to turn the conference back over to Mike for closing remarks.

Scott: And then, Scott, maybe a question for you on gross margin. I just wanted to walk you through that positive 110 basis point inventory adjustment. I thought we really weren't going to start clawing that divot back until 4Q, so just any additional color there. And if we think about 2Q, just any color on how you envision the various margin buckets playing out, even if it's just directional commentary relative to 1Q, that would be very helpful. We've just placed a very high focus on inventory adjustments in general, and so I think we're getting better at it, so I think that's one reason why it was a little bit better. I think the other thing is, we did, we spent a lot of time in Q4 just making sure that we had things cleaned up, and so there was a lot of work done, especially with bringing all of the inventory in-house.

Thank you operator, and thank you all for joining us today and your continued interest in legalese.

Thank you. This will conclude today's conference you may disconnect. Your lines at this time and thank you for your participation.

Yeah.

Okay.

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Yeah.

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Scott: So I think that the rigor that we had in Q4 is paying off a little bit for us as well here in the first. Now, when I look at Q2, you know, margin, you know, kind of compared to Q1, I still see Q2 slightly better than Q1, in large part just because we'll have better leverage on DC costs and occupancy costs with more. So I think that will help the quarter. We did have some price increases in January of last year that will temper that, but even with that, I still expect Q2 to be a little better, sequentially.

Sure.

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Yes.

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Justin E. Kleber: Got it. Thank you both. Best of luck. This will conclude today's question and answer session. I would like to turn the conference back over to Mike for a closing remark. Thank you, operator. And thank you all for joining us today and your continued interest in, Thank you. This will conclude today's conference. You may disconnect your lines at this time and thank you for your participation.

Yeah.

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Okay.

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