Q2 2024 Leslie's Inc Earnings Call

Operator: Good afternoon, and welcome to the second quarter of fiscal 2024 conference call for Lesley. 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 call, please press star zero on your telephone keypad. As a reminder, this conference call is being recorded and will be available for replay later today on the company's website. I will now turn the call over to Matt Skelly, Vice President of Investor Relations.

Good afternoon, and welcome to the second quarter of fiscal 'twenty 'twenty four conference call for Leslie.

Matt Skelly: 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 call. Please press star zero on your telephone keypad. As a reminder, this conference call is being recorded and will be available for replay later today on the company's website I will now turn the call over to Matt Skelly, Vice President of Investor Relations.

Matt Skelly: Thank you and good afternoon. I would like to remind everyone that comments made today may include forward-looking statements that are subject to significant risks and uncertainties that could cause the company's actual results to differ materially from management's current expectations. These statements speak as of today and will not be updated in the future if circumstances change. Please review the cautionary statements and risk factors contained in the company's earnings press release and recent filings with the SEC.

Matt Skelly: 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.

Stances change please.

Please review the cautionary statements and risk factors contained in the company's earnings press release, and recent filings with the SEC during the call today management will refer to certain non-GAAP financial measures a reconciliation between the GAAP and non-GAAP financial measures can be found in the company's earnings press release, which was firm.

Matt Skelly: 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 Lesley's website at ir.lesleyspool.com. We have also posted our Q2 2024 earnings presentation on our IR website, and we'll be making references to it in our prepared remarks. On the call today are Mike Egeck, Chief Executive Officer, and Scott Bowman, Chief Financial Officer. With that, I will turn the call over to Mike.

As to the SEC today and posted to the Investor Relations section of Leslie <unk> Web site at IR Dot less lease pool dotcom we.

We have also posted our Q2 2024 earnings presentation to our IR website and will be making references to it in our prepared remarks.

On the call today is Mike <unk>, Chief Executive Officer.

Scott Bowman, Chief Financial Officer, with that I'll turn the call over to Mike.

Michael R. Egeck: Thanks, Matt, and thank you all for joining us this afternoon. Our bottom-line financial performance in the second quarter was largely in line with our expectations. Top-line sales were impacted by cool and wet weather in our seasonal and non-seasonal markets, as well as a pool and spa consumer that continues to normalize their post-pandemic spending pattern. However, I am pleased with the team's performance in the quarter as we executed well against the factors within our control.

Mike: Thanks, Matt and thank you all for joining us this afternoon.

Mike: Bottom line financial performance in the second quarter was largely in line with our expectations.

Top line sales were impacted by cool and wet weather in our seasonal and non seasonal markets as well as a pool and spa consumer that continues to normalize their post pandemic spending patterns.

I am pleased with the team's performance in the quarter as we executed well against the factors within our control.

Michael R. Egeck: We saw improved conversion from healthy in-stock levels and competitive price positioning across our channels, and we delivered on our inventory goals while providing superior customer service and disciplined expense management. Since it's been nearly six months since we provided our planning assumptions for the year, I want to remind everyone how we are thinking about our annual guidance. At the midpoint, we plan the following for the year.

Mike: We saw improved conversion from healthy in stock levels and competitive price positioning across our channels and we delivered on our inventory goals, while providing superior customer service and disciplined expense management.

Speaker Change: Since it's been nearly six months since we provided our planning assumptions for the year I want to remind everyone. How we're thinking about our annual guidance at the midpoint, we plan to following for the year.

Michael R. Egeck: Discretionary product sales were down 10%, equipment sales were down 10%, and nondiscretionary product sales were up one and a half percent. AOV is down 4% driven by mix and the cycling of our June 2023 chemical price adjustments, and transactions are up 3% driven by normal weather. You will hear from us today that the majority of these factors are performing in line with expectations, with the exception of weather and the associated impact on traffic and transactions. During the quarter, the weather was much cooler across key non-seasonal markets, including Texas, Southern California, Arizona, and Florida.

Discretionary product sales down 10% equipment.

Equipment sales down 10% non discretionary product sales up one 5%.

<unk> be down, 4% driven by mix and the cycling of our June 2023 chemical price adjustments.

Speaker Change: And transactions up 3% driven by normal weather.

Speaker Change: You will hear from us today that the majority of these factors are performing in line with expectations with the exception of weather and the associated impact on traffic and transactions.

Speaker Change: During the quarter the weather was much cooler across key non seasonal markets, including Texas, Southern California, Arizona and Florida.

This resulted in significantly fewer consecutive days above the critical 70 degree threshold versus the same period in the prior year and or the 10 year averages for these markets.

Michael R. Egeck: Whether it was also a factor in our seasonal markets with pool openings down 19% year over year, driven by a cool and wet spring.

Michael R. Egeck: This resulted in significantly fewer consecutive days above the critical 70-degree threshold versus the same period in the prior year and or the 10-year averages for these markets. Weather was also a factor in our seasonal markets, with pool openings down 19% year-over-year driven by a cool and wet spring. Turning to our financial results for the quarter, total second quarter sales were $189 million, down 11% year over year. This includes an approximately 440 basis point impact from our June 2023 chemical price actions and the Q2 calendar shift that Scott will detail later in the call.

Turning to our financial results for the quarter total second quarter sales were $189 million down 11% year over year.

Speaker Change: This includes an approximately 440 basis point impact from our June 2023, chemical price actions in the Q2 calendar shift that Scott will detail later in the call.

Michael R. Egeck: Residential pool was down 12%, pro pool was down 9%, and residential hot tub was down 14%. Comp sales were down 12%. Given the weather I just discussed, traffic was down 10% in the quarter. Total transactions were down 6% year-over-year.

Speaker Change: Residential pool was down 12% pro pool was down 9% and residential hot tub was down 14%.

Speaker Change: <unk> sales were down 12%.

Speaker Change: Given the weather I, just discussed traffic was down 10% in the quarter.

Total transactions were down 6% year over year, our focus on customer service product availability competitive pricing compelling assortments and value messaging drove increases in customer conversion that offset a significant portion of the traffic declines.

Michael R. Egeck: Our focus on customer service, product availability, competitive pricing, compelling assortments, and value messaging drove increases in customer conversion that offset a significant portion of the traffic decline. However, average order value was down 5% year-over-year. Average order value continues to be affected by sales of high-ticket discretionary products, including hot tubs, above-ground pools, and heaters, as well as our June 2023 chemical price changes. Non-discretionary product sales were down 11% versus a year ago. Total chemical sales decreased 11%, inclusive of a negative 575 basis point impact from our June 2023 price adjustment.

Speaker Change: Average order value was down 5% year over year average order value continues to be affected by sales of high ticket discretionary products, including hot tubs above ground pools and heaters as well as our June 2023 chemical price changes.

Michael R. Egeck: Non discretionary product sales were down 11% versus a year ago.

Mike: Total chemical sales decreased 11% inclusive of a negative 575 basis point impact from our June 2023 price adjustments.

Michael R. Egeck: However, the volume of cal hypo and trichlor was down only 1%, and we were encouraged by the sequential improvement in key chemical volumes each month during the quarter. However, sales of equipment were down 10%, an improvement of 800 basis points from Q1, inconsistent with our expectations at the midpoint of our full-year guide. Discretionary product sales were down 13%, an improvement of 600 basis points from Q1, and contributed about 24% of the quarter's total sales decline. Of note, rain and or snow across many of our seasonal markets prevent installation crews from delivering and installing hot tubs and swim spas.

Mike: However, volume of Cal Hypo, and Tricolore was down only 1% and we are encouraged by the sequential improvement in key chemical volumes each month during the quarter.

Michael R. Egeck: Sales of equipment were down 10% an improvement of 800 basis points from Q1, and consistent with our expectations at the midpoint of our full year guide.

Mike: Discretionary product sales were down 13% an improvement of 600 basis points from Q1 and contributed about 24% of the quarter's total sales decline.

Mike: Of note, bringing in our snow across many of our seasonal markets prevented installation crews from delivering and installing hot tubs and swim spas.

Michael R. Egeck: Cancellation rates remain very low, and our order book at the end of the quarter is supportive of the midpoint of our full-year guide. As you can see on page 11 of our earnings presentation, our regular analysis of select credit card data indicates that our sales underperform the industry by approximately 850 basis points in the quarter, of which approximately 380 basis points is attributable to our June 2023 chemical price changes and the calendar shift.

Mike: Cancellation rates remain very low and our order book at the end of the quarter is supportive of the midpoint of our full year guide.

Mike: As you can see on page 11 of our earnings presentation. Our regular analysis of select credit card data indicates that our sales underperformed the industry by approximately 850 basis points in the quarter of which approximately 380 basis points is attributable to our June 2023 chemical price changes.

Mike: The calendar shift.

Michael R. Egeck: However, our vendor discussions, district and store manager discussions, customer exit interviews, and data from SimilarWeb for our digital businesses all indicate our Q2 performance is broadly in line with the industry x the chemical price chain. Looking across a longer time horizon, the credit card data indicates that specialty pool sales were down in eight of the last ten quarters. Over those 10 quarters, we have grown sales faster than the industry by an average of approximately 380 basis points, with respect to profitability.

Mike: However, our vendor discussions district in store manager discussions customer exit interviews and data from similar web for our digital businesses. All indicate our Q2 performance is broadly in line with the industry ex the chemical price change.

Mike: Looking across a longer time horizon, the credit card data indicates that specialty pool sales were down in eight of the last 10 quarters.

Michael R. Egeck: Over those 10 quarters, we have grown sales faster than the industry by an average of approximately 380 basis points.

Mike: With respect to profitability.

Michael R. Egeck: Gross margin decreased 464 basis points, driven primarily by the impact of the chemical price reductions we implemented in June 2023 and occupancy deleverage. Gross margin was largely in line with our expectations, with the exception of the incremental occupancy deleverage associated with lower than expected sales. Adjusted EBITDA for the quarter was negative 19 million, and adjusted diluted earnings per share was negative 17 cents.

Michael R. Egeck: Gross margin decreased 464 basis points, driven primarily by impacted the chemical price reductions we implemented in June 2023, and occupancy deleverage gross.

Michael R. Egeck: Gross margin was largely in line with our expectations with the exception of the incremental occupancy deleverage associated with lower than expected sales.

Mike: Adjusted EBITDA for the quarter was negative $19 million and adjusted diluted earnings per share was negative 17.

Michael R. Egeck: As a reminder, our fiscal second quarter, like our first fiscal quarter, is historically a relatively small sales quarter during which we make investments and incur costs to position the company for the peak pool season in our fiscal second half. As such, we expect no profit contribution in these quarters, and our performance this year was consistent with these expectations. With regard to the industry backdrop, certain categories and channels have seen some instances of deflation near to date, but overall industry retail pricing is largely stable, and we remain competitively priced across our omnichannel platform.

Mike: As a reminder, our fiscal second quarter like our first fiscal quarter is historically, a relatively small sales quarter during which we make investments and incur cost to position the company for the peak pool season in our fiscal second half.

Mike: As such we expect no profit contribution in these quarters and our performance. This year was consistent with these expectations.

Michael R. Egeck: With regard to the industry backdrop certain categories and channels have seen some instances of deflation year to date, but overall industry retail pricing is largely stable and we remain competitively priced across our omnichannel platform.

Michael R. Egeck: Industry promotional activity continues to be consistent with historic seasonality, and we are using advanced analytics to be more surgical about when and where to promote most effectively. Supply chains are operating normally, and inventory levels are seasonally appropriate.

Mike: Industry promotional activity continues to be consistent with historic seasonality and we are using advanced analytics to be more surgical on when and where to promote most effectively.

Mike: Supply chains are operating normally and inventory levels are seasonally appropriate.

Michael R. Egeck: The slow start to this year's pool season notwithstanding, we believe that the long-term pool industry fundamentals and secular tailwinds that drive industry demand remain intact, and we expect both of these factors to continue to underpin our long-term growth opportunity. Leslie's remains the leading direct-to-consumer pool and spa retailer with unmatched scale, capabilities, and brand awareness.

Mike: The slow start to this year's pool season, notwithstanding we believe that the long term pool industry fundamentals and secular tailwind that drive industry demand remain intact.

Mike: And we expect both of these factors to continue to underpin our long term growth opportunity.

Mike: <unk> remains the leading direct to consumer pool, and spa retailer with unmatched scale capabilities and brand awareness.

Michael R. Egeck: As we have positioned ourselves to win during pool season, we also remain focused on executing our strategic growth initiatives, which we expect to drive long-term, sustainable, top-line growth and profitability, share gains, and operational efficiency. Turning to those initiatives, First, our customer file improved from down 8% in fiscal Q1 to down 3% in fiscal Q2. We believe that our customer file continues to normalize from the pandemic spike, and we expect to return to growth in the second half of the year. Second, average revenue per customer was down 8% in the quarter, driven primarily by decreases in big-ticket items such as hot tubs, swim spas, above-ground pools, and automatic pool cleaners.

Mike: As we are positioning ourselves to win during pool season. We also remain focused on executing our strategic growth initiatives, which we expect to drive long term sustainable topline growth and profitability share gains in operational efficiency.

Mike: Turning to those initiatives.

Mike: First our customer file improved from down 8% in fiscal Q1 to down 3% in fiscal Q2.

Mike: We believe that our customer file continues to normalize from the pandemic Spike and we expect to return to growth in the second half of the year.

Mike: Second average revenue per customer was down 8% in the quarter driven primarily by decreases in big ticket items, such as hot tubs swim spas above ground pools and automatic pool cleaners.

Michael R. Egeck: Average revenue per customer for our loyalty customers outperformed by 4% in the quarter. Third, with regard to our pro-initiative, we ended the quarter with 4,088 pro-contracts in place and 102 pro-locations. This compares to 3,300 pro-contracts and 98 pro-locations at the end of the second quarter of last year. Pro sales were down 9% for the quarter. Pro partner sales were down 7%, offset by non partner pro sales, which declined 26%.

Mike: Average revenue per customer for our loyalty customers outperformed at down 4% in the quarter.

Mike: Third with regard to our pro initiatives, we ended the quarter with 4088 pro contracts in place and 102 Pro locations. This compares to 3300 pro contracts and 98 pro locations at the end of the second quarter of last year.

Mike: <unk> sales were down 9% for the quarter Pro partner sales were down 7% offset by non partner pro sales, which declined 26% highlighting the importance and effectiveness of our partner program.

Michael R. Egeck: Fourth, M&A and new store growth continue to be important initiatives for Leslie'S, and we are confident in our long-term store expansion opportunities. For Fiscal 2024, we remain on track to open 15 new stores.

Mike: Fourth M&A and new store growth continue to be important initiatives for less lease and we are confident in our long term store expansion opportunities.

Mike: For fiscal 2024, we remain on track to open 15, new stores.

Michael R. Egeck: Finally, our AccuBlue Home smart tech water testing device and membership program continues to gain momentum and is responding strongly with customers. Our manufacturing partner is delivering product on time, and we are on track to meet our inventory targets for pool season. Our members continue to give us feedback that our proprietary software is a game-changer and continue to respond with very positive online reviews. As you will recall, our AccuBlue Home Membership consists of a free device and a $50 per month membership subscription, which is offset by $50 per month of purchase credits that can be used online or in-store.

Mike: Finally, our accu Blue homes Smart Tech water testing device and membership program continues to gain momentum and is resonating strongly with customers.

Mike: Our manufacturing partners delivering product on time, and we are on track to meet our inventory targets for pool season.

Mike: Our members continue to give us feedback that our proprietary software is a game changer and continue to respond with very positive online reviews.

Mike: As you will recall, our accu Blue home membership consists of a free device in a $50 per month membership subscription, which is offset by $50 per month or purchase credits that can be used online or in store.

Michael R. Egeck: Our members have been spending at a rate of more than $1,000 per year. We remain focused on executing our strategic initiatives to capture long-term opportunities and extend our industry leadership. In addition, we continue to take actions to improve the trajectory of the balance of the year. Number one, we are using our analytical tools and insights to drive efficiency in pricing and promotions with a focus on growing gross margin dollars.

Michael R. Egeck: Our members have been spending at a rate of more than $1000 per year.

Michael R. Egeck: We remain focused on executing our strategic initiatives to capture the long term opportunities and extend our industry leadership.

Mike: In addition, we continue to take actions to improve the trajectory of the balance of the year.

Mike: Number one we are using our analytical tools and insights to drive efficiency and pricing and promotions with a focus on growing gross margin dollars.

Michael R. Egeck: Second, we achieved our goal of reducing our peak inventory by more than 100 million and remain on track to reduce year-end inventory by more than 50 million while maintaining strong in-stock levels and service metrics and high NPS scores. We will keep a laser focus on SG&A efficiency. Scott will address this later in the call, but SG&A in the second quarter was down 12% versus the same period a year ago. Number four, we continue investing in our people, fostering and promoting top talent within the organization while adding outside talent with deep experience and fresh eyes to continuously improve how we operate.

Michael R. Egeck: Number two we achieved our goal of reducing our peak inventory by more than $100 million and remain on track to reduce year end inventory by more than 50 million, while maintaining strong in stock levels and service metrics and high NPS scores.

Mike: We will keep a laser focus on SG&A efficiency Scott.

Mike: Scott will address this later in the call, but SG&A in the second quarter was down 12% versus the same period a year ago.

Mike: Number four we continue investing in our people fostering of promoting top talent within the organization, while adding outside talent with deep experience in fresh eyes to continuously improve how we operate.

Michael R. Egeck: Five, we are leveraging our omnichannel platform to connect with consumers more frequently, including through surveys, exit interviews, research, and other feedback to give us a detailed view of the specialty pool and spa consumer. And six, we continue to invest in marketing to drive long-term brand awareness, customer file growth, Pool Perks members, and sales. I will now hand it over to Scott to discuss our results and outlook in more detail.

Mike: Five we are leveraging our omni channel platform to connect with consumers more frequently including through surveys exit interviews research and other feedback to give us a detailed view into the specialty pool and spa consumer.

Mike: And six we continue to invest in marketing to drive long term brand awareness customer file growth pool perks members and sales.

Mike: I will now hand, it over to Scott to discuss our results and outlook in more detail Scott.

Scott Justin Bowman: Good afternoon, everyone. And thank you, Mike.

Scott Justin Bowman: Good afternoon, everyone and thank you Mike.

Scott Justin Bowman: Results for the quarter were largely in line with our expectations, while unfavorable weather contributed to lower traffic and a late start to the pool season in our main market. For the second quarter, we reported total sales of 189 million, a decrease of 11% compared to the second quarter of fiscal 2023. The second quarter this year ended on March 30th versus April 1st last year.

Scott Justin Bowman: Results for the quarter were largely in line with our expectations, while unfavorable weather contributed to lower traffic and a late start to the pool season in our main markets.

Scott Justin Bowman: For the second quarter, we reported total sales of 189 million a decrease of 11% compared to the second quarter of fiscal 2023.

Scott Justin Bowman: Due to this calendar shift, we lost two early spring higher volume selling days and gained two lower volume winter selling days. The negative impact of this shift was approximately 4 million, or 180 basis points, in the quarter. Comparable sales decreased 12%, driven primarily by transaction count and spending on larger ticket items. Comparable sales decreased 26% on a two-year basis. Non-comparable sales contributed $1.5 million in the quarter, driven by acquisitions and new store growth.

Scott Justin Bowman: Second quarter. This year ended on March 30th versus April 1st last year.

Scott Justin Bowman: Due to this calendar shift we lost two early spring higher volume selling days and gained two lower volume winter selling days the negative impact of this shift was approximately $4 million.

Scott Justin Bowman: Or 180 basis points in the quarter.

Scott Justin Bowman: Comparable sales decreased 12% driven primarily by transaction count and spending on larger ticket items.

Scott Justin Bowman: Comparable sales decreased 26% on a two year stack basis.

Scott Justin Bowman: Non comparable sales contributed $1 5 million in the quarter, driven by acquisitions and new store growth.

Scott Justin Bowman: With respect to trends by consumer group, comparable sales for residential pools declined 12%, ProPool declined 9%, and Residential Hot Tubs declined 14% compared to the prior year period. Sales declines are driven by unfavorable weather, softer sales, and discretionary items in the June 2023 price action. In these shoulder seasons, weather and the timing of pool openings can cause significant sales variances due to smaller sales.

Scott Justin Bowman: With respect to trends by consumer group comparable sales for residential pool declined 12% pro pool declined 9% and residential hot tub declined 14% compared to the prior year period.

Scott Justin Bowman: Sales declines were driven by unfavorable weather software sales and discretionary items.

Scott Justin Bowman: In the June 2023 price actions.

Scott Justin Bowman: In the shoulder seasons, whether in the timing of pool openings can cause significant sales variances due to the smaller sales pace.

Scott Justin Bowman: Gross profit was $54 million compared to $71 million in the second quarter of fiscal 2023, and the Gross Margin Rate declined 464 basis points to 28.8%, which was slightly below expectations mainly due to incremental occupancy deleverage from Lower Than Expected Sales. We continue to expect meaningful back half margin expansion versus the first half of the fiscal year, most notably in the fourth quarter as we cycle the June 2023 chemical price decreases and higher inventory adjustments and distribution costs that pressured second half 2023 profitability. Page nine of our earnings presentation illustrates our Q2 gross margin rate bridge in more detail.

Scott Justin Bowman: Gross profit was $54 million compared to $71 million in the second quarter of fiscal 2023.

Scott Justin Bowman: And gross margin rate declined 464 basis points to 28, 8%, which was slightly below expectations, mainly due to incremental occupancy deleverage.

Scott Justin Bowman: From lower than expected sales.

Scott Justin Bowman: We continue to expect meaningful back half margin expansion versus the first half of the fiscal year, most notably in the fourth quarter as we cycle. The June 2023, chemical price decreases and higher inventory adjustments and distribution costs that pressured second half 2023 profitability.

Scott Justin Bowman: Page nine of our earnings presentation illustrates our Q2 gross margin rate bridge in more detail.

Scott Justin Bowman: During the quarter, gross margin was affected mainly by lower selling prices and deleverage and occupancy costs due to lower sales. SG&A was $85 million, a reduction of 12% or $11.5 million compared to the second quarter of fiscal 2023. The reduction was primarily due to declines in merchant fees, lower payroll and executive transition costs, and lower store expenses.

Scott Justin Bowman: During the quarter gross margin was affected mainly by lower selling prices and deleverage in occupancy cost due to lower sales.

Scott Justin Bowman: SG&A was 85 million a.

Scott Justin Bowman: A reduction of 12% or $11 5 million compared to the second quarter of fiscal 2023.

Scott Justin Bowman: The reduction was primarily due to declines in merchant fees, lower payroll and executive transition costs and lower store expenses.

Scott Justin Bowman: Justin Eberda was negative 19 million compared to negative 8 million in the second quarter of fiscal 2023. An adjusted net loss was $32 million compared to a loss of $26 million in the second quarter of fiscal 2023. Interest expense increased to $18 million during the quarter from $17 million in the same period last year, primarily due to higher interest rates. And our effective tax rate increased to 29% compared to 25.7% in the second quarter of fiscal 2020.

Scott Justin Bowman: Adjusted EBITDA was negative $19 million compared to negative $8 million in the second quarter of fiscal 2023 and.

Scott Justin Bowman: And adjusted net loss was $32 million compared to a loss of $26 million in the second quarter of fiscal 2023.

Scott Justin Bowman: Adjusted diluted earnings per share was negative $0.17 compared to negative $0.14 in the second quarter of fiscal 2023. Diluted Weighted Average Shares Outstanding were 185 million. Moving to the balance sheet, we ended the quarter with $786 million outstanding on our secured term loan facility and $97 million on our revolving credit facility. This compares to $794 million and $172 million, respectively, in the prior year quarter. Our debt levels were lowered by $83 million compared to a year ago, and our leverage ratio was 6.0 times.

Scott Justin Bowman: Interest expense increased to $18 million during the quarter from 17 million in the same period last year due primarily to higher interest rates.

Scott Justin Bowman: Our effective tax rate increased to 29% compared to 25, 7% in the second quarter of fiscal 2023.

Scott Justin Bowman: Adjusted diluted earnings per share was negative <unk> 17.

Scott Justin Bowman: Compared to negative 14 cents in the second quarter of fiscal 2023.

Scott Justin Bowman: Diluted weighted average shares outstanding were $185 million.

Scott Justin Bowman: Moving to the balance sheet, we ended the quarter with 786 million outstanding on our secured term loan facility and $97 million on our revolving credit facility.

Scott Justin Bowman: This compares to $794 million and $172 million, respectively in the prior year quarter.

Scott Justin Bowman: Our debt levels were lower by $83 million versus a year ago, and our leverage ratio was six point out times.

Scott Justin Bowman: Availability on the revolver was $142 million at the end of the quarter. As a reminder, this is our peak debt quarter before we generate all of our profitability and free cash flow in the seasonally important second half of our fiscal year. The applicable rate on its term loan was SOFR plus 275 basis points in the second quarter, and its effective interest rate was 8.2% compared to 7.3% in the prior year quarter.

Scott Justin Bowman: Availability on the revolver was $142 million at the end of the quarter.

Scott Justin Bowman: As a reminder, this is our peak debt quarter before we generate all of our profitability and free cash flow in the seasonally important second half of our fiscal year.

Scott Justin Bowman: The applicable rate on our term loan with silver plus 275 basis points in the second quarter and our effective interest rate was eight 2% compared to seven 3% in the prior year quarter.

Scott Justin Bowman: Our total cost of debt for the quarter was 8.1% compared to 7.2% in the second quarter of last year. Additionally, last month, we successfully extended the maturity date of our revolving credit facility to April 2029. Cash and cash equivalents were $8 million at the end of the quarter compared to $9 million for the same period last year. Inventory ended the quarter at $379 million, a decrease of $113 million or 23% compared to the prior year quarter, while our in-stock position, service metrics, and net promoter scores remained very strong. Our stores are well stocked with the full assortment for the pool owner and pro as we gear up for the peak pool season.

Scott Justin Bowman: Our total cost of debt for the quarter was eight 1% compared to seven 2% in the second quarter of last year.

Scott Justin Bowman: Additionally, last month, we successfully extended the maturity date of our revolving credit facility to April 2029, cash and cash equivalents were <unk> 8 million at the end of the quarter compared to 9 million for the same period last year inventory ended the quarter at $379 million, a decrease of $113 million or 23% comp.

Scott Justin Bowman: Third to the prior year quarter, while our in stock position service metrics and net promoter scores remain very strong.

Scott Justin Bowman: Our stores are well stocked with a full assortment for the pool owner in pro as we gear up for the peak pool season.

Scott Justin Bowman: And now turning to our fiscal 2024 outlook. After a first quarter that was consistent with expectations, our second quarter was below our top-line expectations mainly due to unfavorable weather that resulted in a slower start to the pool season. We are now five weeks into our third quarter, and during the first three weeks, weather continued to be a challenge.

Scott Justin Bowman: And now turning to our fiscal 2024 outlet.

Scott Justin Bowman: After a first quarter that was consistent with expectations. Our second quarter was below our topline expectations, mainly due to unfavorable weather that resulted in a slower start to the pool season.

Scott Justin Bowman: However, over the last two weeks, we've seen improved trends with improved weather. Ultimately, our biggest volume weeks lie ahead, and with our consistent, seasonable weather, we believe we are on track to deliver a year within our outlook range. Moving to capital allocation, our first priority continues to be the paydown of debt with the goal of achieving a leverage ratio of 3.5 to 3.7 times in fiscal 2024 and a longer-term goal of reaching a leverage ratio of three times or less.

Scott Justin Bowman: We are now five weeks into our third quarter.

Scott Justin Bowman: During the first three weeks weather continued to be a challenge however over the last two weeks, we've seen improved trends with improved weather.

Scott Justin Bowman: Ultimately our biggest volume weeks lie ahead, and with our consistent seasonable weather. We believe we are on track to deliver a year within our outlook ranges.

Scott Justin Bowman: Moving to capital allocation, our first priority continues to be the pay down of debt with the goal of achieving a leverage ratio of three five to three seven times in fiscal 2024, and our longer term goal of reaching a leverage ratio of three times or less.

Scott Justin Bowman: Regarding our footprint, 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 peak pool season. We also plan to convert six residential stores to our pro format this year. At this time, we are not including any sales or EBITDA contribution from M&A activity in our full year guidance. And with that, I'll hand it back over to Mike for closing remarks.

Scott Justin Bowman: Regarding our footprint, we're planning 15, new store openings in fiscal 2024 with the majority of these stores expected to open prior to Memorial day ahead of the peak pool season, We also plan to convert six residential stores to our pro format. This year.

Scott Justin Bowman: At this time, we are not including any sales or EBITDA contribution from M&A activity and our full year guidance.

Scott Justin Bowman: And with that I'll hand, it back over to Mike for closing remarks. Thank.

Michael R. Egeck: Thank you, Scott. To conclude, results this quarter continue the recent trend of softer sales for Leslie's and the industry due to persistent unfavorable weather and normalizing cool and spa consumer behavior following a period of significant growth. In light of that, we continue to aggressively manage SG&A and inventory while focusing on customer service. We believe we are set up to win in the pool season. Our employees are excited and engaged. Our stores in DC are well stocked and ready to go.

Mike: Thank you Scott to conclude results. This quarter continued the recent trend of softer sales for Leslie and the industry from persistent unfavorable weather and normalizing pool and spa consumer behavior from a period of significant growth.

Mike: In light of that we continue to aggressively manage SG&A and inventory, while focusing on customer service.

Mike: We believe we are set up to win in pool season, our employees are excited and engaged our stores and Dcs are well stocked and ready to go our omnichannel presence has us positioned to service residential and pro customers and the way that they choose and our pro partner in pool Perks loyalty program are leaders in the industry.

Michael R. Egeck: Our omnichannel presence has this position to service residential and pro customers in the way that they choose. And our pro partners and Pool Perks Loyalty Program are leaders in the industry. We have an unmapped set of capabilities to serve our customers, and with AccuBlue Home, a clean, safe, and beautiful pool has never been easier to achieve. With the majority of our sales and all of our profitability still to be achieved in the back half of the year, we are focused on superior execution, and we remain confident in our long-term prospects for growth and profitability. With that, I will hand it back to the operator for Q&A.

Mike: We have an unmatched set of capabilities to serve our customers and with <unk> Blue home, a clean safe and beautiful pool has never been easier to achieve.

Michael R. Egeck: With the majority of our sales in all of our profitability still to be achieved in the back half of the year. We are focused on superior execution, and we remain confident in our long term prospects for growth and profitability.

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

Operator: Thank you. We will now be conducting a question and answer session. 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. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the start button. The first question comes from Justin Kleber with Bayer. Please go ahead.

Speaker Change: Thank you we will now be conducting a question and answer session.

Justin E. Kleber: I'd like to ask a question. Please press star one on your telephone keypad.

Justin E. Kleber: A confirmation tone will indicate your line is open question.

Speaker Change: You May press Star two if you would like to remove your question from me.

Speaker Change: For participants using speaker equipment, it may be necessary.

Justin E. Kleber: Before pressing with Barclays.

Speaker Change: Our next question comes from Jonathan <unk> with Baird. Please go ahead.

Justin E. Kleber: Yeah, good afternoon, everyone. Thanks for taking the questions. Just to follow up on near-term trends. And I mean, can you give us a sense of just how you're tracking? You know, five weeks into the quarter relative to the comp that you put up in fiscal 2Q. That's just my first question.

Jonathan: Yes. Good afternoon, everyone. Thanks for thanks for taking my questions just a follow up.

Jonathan: On near term trends I mean can you give us a sense just how youre tracking.

Justin E. Kleber: The top five weekend of the quarter relative to the comp that you put up within fiscal <unk>.

Speaker Change: My first question.

Michael R. Egeck: Yeah, Justin, I think the best way to characterize the last couple weeks of the quarter is a material improvement in the trend.

Speaker Change: Yes, Justin I think the best way to.

Speaker Change: Characterize the last couple of weeks of the quarter.

Speaker Change: A material improvement in the trend.

Michael R. Egeck: Okay, okay, got it. And that's just what it is, just as weather has normalized.

Justin: Okay. Okay got it and that's just that's just as weather has normalized.

Michael R. Egeck: Yeah, exactly. We finally are seeing some, you know, consistently warm weather in our major markets, and that's making a material difference.

Justin: Yes, exactly we are finally, seeing some consistently warm weather in our major markets and that.

Speaker Change: Making a material difference.

Scott Justin Bowman: Got it. Good to hear. Secondly, maybe on the SG&A front, Scott, you were previously talking about a slight decline in dollars, year on year. It seems like you're tracking well ahead of that target, at least through the fiscal first half. So just wondering if your guidance implicitly is implying a lower SG&A dollar figure. You know, maybe relative to when you gave the initial outline.

Speaker Change: Got it good to hear.

Speaker Change: Secondly, maybe on the SG&A front, Scott you were previously talking about a slight decline in dollars.

Scott Justin Bowman: Year on year. It seems like you are tracking.

Scott Justin Bowman: Well ahead of that target at least through the first fiscal first half. So just wondering if your guidance implicitly is implying a lower SG&A dollar figure.

Speaker Change: Yes, maybe relative to when you gave the initial outlook.

Scott Justin Bowman: Yeah, Justin, I think the whole team is doing a really good job. And I would say that, you know, we're probably ahead of, you know, the kind of progress that we thought we'd be making at this point in time. You know, as the back half goes on, we'll see if anything changes. I don't expect, you know, major changes in the back half.

Scott Justin Bowman: Yes, Jeff I think the whole team is doing a really good job and I would say that we're probably.

Scott Justin Bowman: Ahead of kind of the progress that we thought we'd be making at this point in time.

Scott Justin Bowman: The back half.

Scott Justin Bowman: Sean.

Sean: We'll see.

Sean: Thanks James.

Scott Justin Bowman: No major changes in the back half, but what I do see is that we've improved a little bit faster than I thought.

Scott Justin Bowman: On many different fronts, so naturally merch merchant fees and things like that come down with sales.

Unknown Speaker: But what I do see is that, you know, we've improved a little bit faster than I thought. And that's on many different fronts. You know, so naturally, merchant fees, you know, things like that come down with sales, but really good control on labor, but still, you know, you know, having a high level of service. And a lot of that is store labor. And what we're doing is we're just taking advantage of this shoulder season, when the traffic is very low.

Scott Justin Bowman: It just really good control on labor, but still.

Unknown Speaker: Having a high level of service.

Scott Justin Bowman: And a lot of that is store labor and what we're doing is we're just taking advantage of this shoulder season.

Scott Justin Bowman: However, due to traffic is very low and so we.

Scott Justin Bowman: Just.

Scott Justin Bowman: Adjusted our hours according to kind of the customer traffic now as we get into the busy season will be more fully staffed okay and so you may not see as big.

Unknown Speaker: And so we've just adjusted, you know, our hours according to the kind of customer traffic. Now, as we get into the busy season, we'll be more fully staffed. Okay, and so you may not see, you know, as big of a decline there because, you know, we fully intend to be fully. But just other store expenses, you know, everybody in the stores is incorporating, you know, just watching expenses and controlling those very well. And then we just have less advects, you know, executive transition costs.

Scott Justin Bowman: Of a decline there because.

Scott Justin Bowman: We fully intend to be fully staffed.

Scott Justin Bowman: Other store expenses.

Scott Justin Bowman: Everybody.

Scott Justin Bowman: And the stores incorporate just watching expenses and controlling that very well and then we just have less add backs executive transition cost.

Scott Justin Bowman: And strategic projects things like that.

Unknown Speaker: We had last year some of those are more favorable this year as well.

Unknown Speaker: All right, that's good to hear. And if I could just sneak one more in, just as we enter the pool season, do you guys have a sense as to, I guess, the magnitude of chemical, you know, carryover? That still needs to be worked through, or is that not really part of the story this year as we enter the pool season? Thank you so much.

Speaker Change: Alright, thats good to hear and if I can sneak one more in just as we enter the fall season do you guys have a sense.

Speaker Change: As to.

Speaker Change: I guess the magnitude of chemical.

Speaker Change: Carryover.

Scott Justin Bowman: That still needs to be worked through or is that not really part of the story. This year as we enter pool season. Thank you so much.

Unknown Speaker: Yeah, Justin, good question. We put out another pool owner survey in February, so pretty recent information. And based on the results of that survey, we don't think there will be any challenges around consumer stockpiling this season.

Unknown Speaker: Yeah, Justin, good question. We put out a

Speaker Change: Yes, Justin Good question, we put out a another pool pool owner survey in February.

Unknown Speaker: Some pretty recent information and based off the results from that survey, we don't think theres any challenges around consumer stockpiling. This season.

Jonathan Richard Matuszewski: Next question: Jonathan Matuszewski with Jefferies, please go ahead.

Speaker Change: The next question Jonathan.

Jefferies: Jefferies. Please go ahead.

Jonathan Richard Matuszewski: Great, good afternoon, and thanks for taking my questions. The first one was on equipment. Wanted to kind of dig in on that category a little bit. So, you know, down 10% this quarter. But can you provide any color on some of the moving pieces there? I think, you know, historically, or at least last quarter, heaters and automatic pool cleaners were underperforming. I think variable speed pumps were relatively more healthy. Has there been any change there that would lead you to believe that, you know, maybe the higher end or the lower end of that, you know, midpoint you shared for the year could be realized? Thanks.

Jonathan: Great Good afternoon, and thanks for taking my question.

Jonathan: First one was on equipment.

Jonathan: I wanted to kind of dig in on that category a little bit.

Jefferies: <unk> down 10% this quarter, but can you provide any color on some of the moving pieces there I think.

Jefferies: Historically, our grief last quarter heaters and automatic pool cleaners were underperforming I think variable speed pumps were relatively more healthy has there been any change there that would lead you to believe that maybe the higher end or the lower end of that.

Jefferies: Midpoint, you shared for the year could be realized thanks.

Michael R. Egeck: Yeah, thanks for the question, Jonathan. Look, the first thing I'll do is point out things like I did in the prepared remarks.

Speaker Change: Yes. Thanks for the question Jonathan first thing I'll do is point out look a like I did in <unk>.

Michael R. Egeck: We're really pleased to see the 800 basis improvement from down 18 to down 10. And we saw improvement across most categories. I would say heaters have actually improved materially, and we think that's a really good sign. And more in line with what I would call pre-pandemic seasonality. As the pool season starts to approach, people start thinking about heating their pools. If they turn on their pool heater for the first time and it doesn't work, they either replace it or fix it.

Michael R. Egeck: Yes.

Speaker Change: In the prepared remarks, we're really pleased to see the 800 basis improvement from down 18 to downturn.

Michael R. Egeck: And we saw improvement across most all of the categories.

Michael R. Egeck: I would say heaters has actually improved materially and we think that's a really good sign.

Scott Justin Bowman: And more in line with what I would call pre pandemic seasonality right as the pool season starts to approach people start thinking about hitting your pools. They turn on their pool heater for the first time that doesn't work data replace it or or fix it. So we consider that a good sign.

Michael R. Egeck: So we consider that a good sign. APCs are still a little challenged, though robotics have been performing better. And salt systems are a little challenging for us. So a little bit of change in the mix, heaters a little better, robotics a little better, and variable speed pumps continue to be a nice stable business.

Scott Justin Bowman: Apc's are still a little challenged.

Scott Justin Bowman: Robotics has been performing better.

Scott Justin Bowman: And so all systems are a little challenged for us so a little bit of change in the mix.

Scott Justin Bowman: Here's a little better robotics, a little better variable speed pumps continue to be.

Scott Justin Bowman: A nice stable business.

Unknown Speaker: That's helpful. And then, you know, my second question is about pricing. I think heading into this year, the plan was for chemical pricing to be down low single digits year over year. Equipment pricing, I think, was planned to be in maybe that three to 5% range that some of the vendors were talking about. You know, recognizing that the first six months are, you know, light in terms of contribution for the year. But is the midpoint of those ranges still relevant?

Speaker Change: That's helpful. And then my second question is on pricing I think heading into this year.

Speaker Change: Our plan was for chemical pricing to be down low single digit year over year.

Speaker Change: Equipment pricing I think with planned to be and maybe that 3% to 5% range that some of the vendors were talking about.

Unknown Speaker: Recognizing the first six months are light in terms of contribution for the year, our the midpoint of those ranges still relevant.

Unknown Speaker: And, you know, as we're tracking pricing going into pool season, is there anything, you know, we should be aware of in terms of the pricing strategy and any volatility? Or are the prices we're seeing from a consumer perspective generally where we would expect the pool season to play out?

Speaker Change: As we're tracking pricing going into pool season is there anything we should be aware of in terms of the pricing strategy in any volatility or are the prices, we're seeing from a consumer perspective.

Unknown Speaker: Thanks so much.

Speaker Change: Generally where we would expect that the pool season to play out thanks, so much.

Michael R. Egeck: Yeah, Jonathan, we're pleased to see retail, particularly retail pricing for chemicals, to be quite stable. And I'm going to say stable from when we made our price action adjustments in June 23. Since that time, it's been quite stable. And even with a slow start to the season and what I'm going to call very unfavorable weather, we haven't seen people breaking prices in the residential market.

Speaker Change: Yes, Jonathan I think the.

Speaker Change: We were pleased to see retail, particularly specialty retail pricing for <unk>.

Speaker Change: Chemicals to be quite stable.

Speaker Change: And I'm going to stay stable from when we made our.

Speaker Change: Price action adjustments in June of 'twenty, three since that time has been being quite stable and even with a slow start to the season.

Speaker Change: Im going to call very unfavorable weather, we haven't seen people breaking price.

Michael R. Egeck: I will say there's been a little bit more pressure on the professional side of the business, but we're still within that low single-digit range for chemicals overall. So we think we're well within our guide on chemical pricing to be at our midpoint. And similar with equipment.

Michael R. Egeck: Residential market I will say theres been a little bit more pressure on the pro side of the business, but we're still within that low single digit.

Speaker Change: Range for chemicals overall, so we think we're well within our guide on chemical pricing to be at our mid point and similar with equipment.

Michael R. Egeck: I think you quoted three to five. I think we quoted maybe two to five. But yeah, the midpoint of that is well within the range. The softness we're seeing in chemicals and equipment is really based on volume. And right now, we're tying that volume very much to traffic, and we're tying traffic very much to weather. We just, in the second quarter, hadn't really seen the season kick off. And I tell you, it's gratifying to see the last couple of weeks, with some consistent warm weather, start to move like we would expect it.

Speaker Change: Thank you quoted three to five I think we quoted maybe two to five but yes mid point of that is well within within range.

Michael R. Egeck: The softness we're seeing in chemicals and equipment.

Michael R. Egeck: Based on volume.

Unknown Speaker: Very helpful. Best of luck.

Speaker Change: Right now, we're tying that volume very much to traffic and were try carrying traffic very much to weather we just.

Unknown Speaker: In the second quarter hadn't really seen hunting season kickoff.

Speaker Change: And I would tell you we are it's gratifying to see the last couple of weeks with some consistent warm weather start to move that start to move like we would expect it to.

Speaker Change: Very helpful Best of luck.

Speaker Change: Thank you.

Unknown Speaker: Next question, Sean Calman with Bank of America, please go ahead. Unknown Speaker.

Speaker Change: Next question Shaun Kelley with Bank of America. Please go ahead.

Unknown Speaker: Hi guys, thank you for taking my question. I'll just follow up on the chemical pricing first. So last quarter, you were able to offset the pressure and gross margin. And then this quarter was a headwind of about 130 basis points. So are you seeing higher promotional activity? Is this what you're just talking about on the pro side, kind of what's driving the downside year over year in the second quarter versus the first quarter?

Shaun Kelley: Hi, guys. Thank you for taking my question.

Shaun Kelley: Just first following up on the chemical pricing. So last quarter, you were able to offset the pressure in gross margin and then this quarter. It was under about a 130 basis points.

Shaun Kelley: Are you seeing higher promotional activity.

Shaun Kelley: You were just talking about on the pro side kind of what's driving the downside year over year in the second quarter versus the first quarter.

Scott Justin Bowman: Yeah, I'll take that one. Basically, what we're seeing is that we did have some chemical price impact in the first quarter, but the difference was that we were able to offset that with pricing actions in other categories. Okay, and so.

Speaker Change: Yes, I'll take that one.

Speaker Change: Basically what we're seeing is as we did have.

Speaker Change: And chemical price impact in the first quarter and the difference was that we were able to offset that with pricing actions and other categories.

Speaker Change: Okay and so.

Scott Justin Bowman: And so for Q2, we didn't have those, you know, additional price actions that we were able to offset. I think the other thing to think about is that our mix has changed as well. And so, you know, with equipment, you know, getting better, and chemicals, you know, off a little bit more than Q1, there's a mix effect there. That's a bit

Speaker Change: And so for Q2, we didn't have those additional price actions that we were able to offset I think the other thing to think about is is that our mix has changed as well and so.

Speaker Change: With equipment, getting better and chemicals off a little bit more than Q1, there is a mix effect there.

Speaker Change: A bit unfavorable.

Unknown Speaker: Okay, got it. And then the second one just on the order book comments you made last quarter, I believe you guys said that orders were flat year over year on hot tubs, and then hot tub sales came down 14% year-over-year. Can you just talk about how the orders flow through over time?

Speaker Change: Okay got it and then the second one just on.

Speaker Change: The order book comments, you made last quarter I believe you guys said that orders were flat year over year on Hot tubs and then.

Speaker Change: Hot tub sales came down 14% year over year. So can you just talk about how the orders flow through over time.

Michael R. Egeck: Yeah, Sean, it's a, you know, the average price of the hot tubs we sell is about $10,000, and they are predominantly custom orders. So, the customer places an order, the tub is built, and then it is scheduled for delivery. And the challenge we ran into in the second quarter and in the first quarter as well was that particularly wet weather in our hot tub markets was just keeping people from, keeping us from being able to, you know, pour pads, install the hot tub, hook up the electricity.

Speaker Change: Yes, Sean it's a.

Speaker Change: The average price of the hot tubs, we sell is about $10000 and they are predominantly custom ordered.

Speaker Change: So customer places an order.

Speaker Change: Build.

Speaker Change: And then it is scheduled for delivery.

Speaker Change: The challenge, we ran into in second quarter, and first quarter as well.

Speaker Change: Particularly wet weather.

Speaker Change: Our hot tub markets was just keeping people from.

Speaker Change: Keeping us from being able to pour pads install the hot tub hooked up electricity, we had people pushing out their appointments.

Michael R. Egeck: We had people pushing out their appointments for reasons such as rain and even snow. So, what we consider good news is very low cancellation rates. People still want their tub, and now that we've seen the weather break, they will. And, you know, particularly like we own Valley Pool and Spa in the Pittsburgh area, and we were in Pittsburgh last month with a group of executives, and it was hailstorms, tornado warning, 52 degrees, and rain. And it was pretty clear why we weren't delivering tubs.

Speaker Change: For reasons remain uneven snow so we.

Michael R. Egeck: We will be considered good news.

Speaker Change: Very low cancellation rates people still want their tubs.

Speaker Change: Now that we've seen the weather break.

Speaker Change: And particularly like we own valley pool, and Spa in the Pittsburgh area.

Michael R. Egeck: We are in Pittsburgh last month, the group of executives than it was.

Speaker Change: Hailstorms tornado warning 52 degrees.

Michael R. Egeck: Rain.

Speaker Change: And it was pretty clear why we werent delivering tubs now that we've seen the weather break there and we've been in the rather consistently in the 70% or low eighty's.

Michael R. Egeck: Now that we've seen the weather break there, and we've been in the rather consistently in the 70s or low 80s, you know, we're starting to see that order book come to fruition with deliveries. So we consider that a positive sign. And I would say that our order book is very supportive of the discretionary business, being down no more than 10%.

Michael R. Egeck: Starting to see that that order book come to fruition with deliveries so we consider that.

Speaker Change: A positive sign and I would say that our order book.

Speaker Change:

Speaker Change: It is very supportive.

Speaker Change: Of the <unk>.

Speaker Change: Discretionary business.

Speaker Change: Being down no more than 10%.

Unknown Speaker: Okay, got it. So would you say that there is potential for hot tub sales to be up year over year in the second half?

Speaker Change: Okay got it so would you say that there is potential for.

Speaker Change: Auto sales to be up year over year in the second half.

Speaker Change: Okay.

Speaker Change: Yes.

Michael R. Egeck: Look, we have a very good trend. We have an order book that is in better shape than our midyear guidance, but there's still a lot of volume to be done. So it's too early to speak to Upside. Okay, thank you. Yes. Next question, Caitlin McShane with Goldman Sachs, please go ahead.

Unknown Speaker: We have a very good trend we have a order book.

Speaker Change: That is in better shape than our mid year guidance, but theres still a lot of volume to be done. So it's too early to speak.

Speaker Change: Speak to upside.

Speaker Change: Okay. Thank you.

Michael R. Egeck: Yes.

Unknown Speaker: Next question, Kate McShane with Goldman Sachs. Please go ahead. Hi, good afternoon. Thanks for taking our question.

Speaker Change: Next question, Kate Mcshane with Goldman Sachs. Please go ahead.

Katharine Amanda McShane: Hi, good afternoon, thanks for taking our question.

Katharine Amanda McShane: We wanted to ask about <unk>.

Katharine Amanda McShane: Market share is still seeing that.

Katharine Amanda McShane: You're underperforming the industry based on what you put in the slides for today and it might be widening can you speak to that at all in terms of what happened during the second quarter.

Michael R. Egeck: Yeah, Kate, thanks for the question. You know, we said in the first quarter that we were surprised by what the credit card information was saying. I'm going to say we were a little bit surprised this time as well. Look, we think that's good and it's important data. And we certainly, we certainly pay attention to it. You know, last time on the last call, we talked about some of the changes in our assortment and value messaging that we had done in the stores to try to drive greater conversion.

Katharine Amanda McShane: Yes.

Speaker Change: Thanks for the question, we said in the first quarter we were.

Speaker Change: Surprised by what the credit card information was saying I'm going to say, we're a little bit surprised this time as well and.

Michael R. Egeck: Look we think that is good and it's important data and we certainly.

Speaker Change: We certainly pay attention to it.

Michael R. Egeck: Last time.

Speaker Change: On the last call, we had talked about some of the changes in our assortment and value messaging.

Speaker Change: We had done in the stores to try to drive greater conversion.

Michael R. Egeck: And we were really pleased this quarter to see that conversion increase materially. But the traffic was really the challenge this quarter, and traffic we really do connect to weather. And it's, it's surprising to us that our performance would be below that of the industry, given, given the weather impact. And then the second thing is, as I said in my prepared remarks, we've talked to our vendors regularly, we talked to our store managers, we talked to our district managers.

Speaker Change: And we're really pleased this quarter to see that conversion increase materially but the traffic was really the challenge this quarter and traffic we really.

Speaker Change: We really connect the weather.

Speaker Change: And it's it's surprising to us that our performance would be under that of the industry given given the weather impact.

Michael R. Egeck: This last quarter, we did comprehensive exit interviews for non-purchasers to see if we were missing something. And we got all of that data. In addition to similar web data, which tracks, you know, our proprietary online businesses, that data actually showed that our market share increased 200 basis points online in the quarter. So there seems to be a disconnect between the two. We're taking it seriously. And, you know, if we have given back some share, you know, we'll be focused on winning it back in pool season proper.

Speaker Change: And then the second thing.

Speaker Change: I said in the prepared remarks, we've talked to our vendors regularly we talked to our store managers, we talk to our district managers.

Michael R. Egeck: This last quarter, we did comprehensive exit interviews.

Speaker Change: For non purchasers to see if we're missing something and.

Michael R. Egeck: All of that data.

Michael R. Egeck: In addition to similar web data, which tracks our proprietary online businesses.

Speaker Change: That data actually show that our market share increased to 200 basis points online in the quarter. So it seems to be a disconnect between the two.

Michael R. Egeck: We're taking it seriously and.

Speaker Change: If we have if we have given back some share will be focused on when I went back in and we'll see some proper.

Speaker Change: Okay. Thank you.

Unknown Speaker: Next question, David Belanger with Mizzou Health Security. Please go ahead.

Michael R. Egeck: Next question, David Bellinger with Mizuho Securities. Please go ahead.

Unknown Speaker: Hey guys, thanks for the question. Another one on this material improvement and trend over the last couple weeks. Has that been broad-based across geographies, and, just recognizing this is an incredibly short period of time, just two weeks, if that trend were to continue through the balance of the quarter, could you potentially see a positive overall comp within the Q3 period?

David Belanger: Hey, guys. Thanks for the question.

David Bellinger: One on this material improvement in trends over the last couple of weeks.

Has that been broad based across geographies and just recognizing this is an incredibly short period of time, just two weeks if that trend were to continue through the balance of the quarter could you potentially see a positive overall comp within the Q3 period.

Michael R. Egeck: Yeah, look, we're not gonna give Q3 guidance like that. But I will say this: it was mostly broad-based in its recovery. One of the things we find positive is we've got material improvement, despite what is it 50 million people in the US being under severe weather alerts right now and flooding in Houston. And Houston is our single largest metro market.

Speaker Change: Yes look we're not going to we're not going to give Q3 guidance like that.

Speaker Change: I'll say this it was.

Speaker Change: Mostly broad based.

Michael R. Egeck: Recovery.

Speaker Change: One of the things we find positive is we've got material improvement.

Michael R. Egeck: Despite what is it 50 million people in the U S being under severe weather alerts right now.

Michael R. Egeck: And the flooding in Houston.

Michael R. Egeck: And Houston is our single <unk> single largest metro market. So despite those two very adverse weather conditions, we saw.

Michael R. Egeck: So, despite those two, you know, very adverse weather conditions we saw, a really nice improvement. And we saw the business respond as we would expect it to with appropriate weather. And that's that's all we're going to say about that. Thank you.

Speaker Change: Really nice improvement and we saw the business respond as we would expect it to with appropriate weather.

Michael R. Egeck: And that's that's as much as we're going to say about that.

Unknown Speaker: Fair enough. And this is my second one on the inventory being down more than 20% year over year. Maybe just help us unpack that a little. Could you talk about units versus price?

Speaker Change: Fair enough.

Michael R. Egeck: And this is my second one on that.

Speaker Change: Inventory being down more than 20% year over year.

Speaker Change: Maybe just help us unpack that a little could you talk about units versus price.

Unknown Speaker: There are certain categories that are down more than others in terms of units.

Scott Justin Bowman: Yeah, I can take one. I can take that one,

Speaker Change: Yes, I can take one I can take that one.

Scott Justin Bowman: You know, there is always a bit of a mixed effect, but units are actually down a little bit more than dollars. And, you know, I think it's the effort that the planning team has put forth using our Blue Yonder tool to really start off on the right foot, you know, on the front end with a much better plan. And, you know, executing that plan very well.

Speaker Change: There is.

Speaker Change: A bit of a mix effect, but.

Scott Justin Bowman: Units units are actually down a little bit more than $10.

Speaker Change: And I think it's it's the effort that the.

Scott Justin Bowman: And also, you know, from our suppliers as well, I mean, the lead times are fairly short on most of our items. And so that, you know, that helps, you know, as well. And so, you know, as you kind of look across the categories, I mean, they're showing some, you know, very large decreases in some of our chemical categories and, you know, equipment, cleaning, and maintenance categories.

Scott Justin Bowman: The planning team as it put forth using.

Speaker Change: Moving onto tool to really start off on the right foot and on the front end with a much better plan.

Scott Justin Bowman: And executing that plan very well.

Scott Justin Bowman: Also from our suppliers as well I mean, the lead times are fairly short on most of our items and so that that helps as well.

Speaker Change: So as you kind of look across the categories. I mean, there is showing some very large decreases in.

Scott Justin Bowman: And some of our chemical categories.

Scott Justin Bowman: And so, if you look at the terms, you know, profile, there was definitely room to do that. And so, we continue to find more efficiencies, but we're really concerned also with in-stocks and service level. And, you know, fortunately for us, we've executed to the point where the service levels and in-stocks are much better than they were last year. So, we're really pleased with the performance overall.

Scott Justin Bowman: Equipment cleaning and maintenance categories.

Scott Justin Bowman: So.

Scott Justin Bowman: Which if you look at the turns in a profile there is definitely room to do that so.

Scott Justin Bowman: We continue to.

Scott Justin Bowman: Find more efficiencies, but also we're really concerned also with in stocks and service level.

Scott Justin Bowman: Fortunately for US we've executed to the point, where those service levels and in stocks are much better than they were last year. So we're really pleased with the performance overall.

Unknown Speaker: Very good. Thank you both.

Speaker Change: Very good thank you both.

Unknown Speaker: Sure.

Unknown Speaker: Next question, please, is for Liz Bogenheim, "Secure."

Speaker Change: Next question, please before with Guggenheim.

Unknown Speaker: Good afternoon, Mike Scott.

Elizabeth Lane Suzuki: Good afternoon, Mike Scott.

Unknown Speaker: Michael. All right.

Elizabeth Lane Suzuki: Hi, Kevin.

Michael R. Egeck: I was curious, maybe if you could take a step back and maybe just talk about the customer file, if there's any green shoots that you're seeing, whether, you know, it's your most loyal customers. I think you mentioned loyalty member trends, right, better than the file as a whole, but like, what are you seeing within the file that gives you confidence to reiterate the guide for the back half today? Like, are there any green shoots?

Elizabeth Lane Suzuki: I was curious maybe if you could you could take a step back in.

Michael R. Egeck: Maybe just talk about the customer file if there's any green shoots that you're seeing whether it's your most loyal customers I think you mentioned.

Michael R. Egeck: Loyalty members trends are better than the files of haul, but like what are you seeing within the file.

Michael R. Egeck: Is your confidence to reiterate the guide for the back half today like are there any green shoots.

Michael R. Egeck: And can you help us better understand what you're referencing in terms of file growth expectations for the back half? And what you're sort of implying in terms of improvement in spending trends within the file as well?

Michael R. Egeck: And can you can you help us better understand what you are what you are referencing in terms of file growth expectations for the back half.

Michael R. Egeck: And what you're sort of implying in terms of improvement in spending trends within the file as well.

Michael R. Egeck: Yeah, a few questions in there. I think what we're not, I think what's going on with the file is we added a lot of, I'm going to call them, one and done customers during the height of the pandemic, 21 particularly, also into 22. And we identified this cohort of customers that came in and basically bought TAP. And that was it.

Michael R. Egeck: Yes.

Michael R. Egeck: Few questions in there I think what was going on I think what's going on with the file.

Michael R. Egeck: And we threw a lot of retention and reactivation tactics at those customers, but not nearly the results we would typically see. And the file degradation that we've seen kind of since midpoint at 22 is just those customers kind of working their way out of the file. And with the file down, you know, 3%, quarter over quarter, again, in Q2, we feel we're basically through with that cleansing, if you will, of one and done customers, which outside of that, the reason the green shoot that we see is outside of those customers peeling off adjusted, then yes, we're seeing the file stabilized and starting to show some growth.

Michael R. Egeck: As we added a lot of I'm going to call them, one and done customers during the height of the pandemic.

Michael R. Egeck: 'twenty, one, particularly also into 'twenty, two and we identified this cohort of customers that came in and basically bought taps.

Michael R. Egeck: And that with that and we threw a lot of retention and reactivation tactics sent those customers but.

Michael R. Egeck: Not nearly the results we would we would typically see and the file degradation that we've seen kind of a sense.

Michael R. Egeck: Midpoint at 22 is just those customers kind of working their way out of the file.

Michael R. Egeck: And with the file down 3% quarter over quarter at the end of Q2, we feel we're.

Michael R. Egeck: We're basically through with that cleansing, if you will.

Michael R. Egeck: One and done customers.

Michael R. Egeck: Which outside of that the reason the green shoot that we see is outside of those customers peeling off.

Michael R. Egeck: Adjusted then yes, we're seeding the file stabilize.

Michael R. Egeck: Starting to show some some growth.

Michael R. Egeck: And we're not going to go into what kind of growth we expect in the second half, but, you know, we expect the business to be positive in the second half, and we expect a positive customer file to support that.

Michael R. Egeck: And we're not going to go into what kind of growth, we expect in the second half but.

Michael R. Egeck: We expect the we expect the business to be positive in the second half and we expect positive customer file to support that.

Unknown Speaker: Thanks, Mike. And maybe just a follow-up on I think Sean's comment or question from before on sort of the chemical pricing, right net net of the offsets that occurred in the first quarter, because it does seem like there was a more challenging second quarter dynamic here. Any help on framing like what you sort of expect the product margin to be in the back half, right? I think in the reiterated gross margin guidance. Is it? Are we still looking at stability to expansion and product margin? Or is there something within the bridge that's changing?

Speaker Change: Thanks, Mike maybe just a follow up on it I think sean's comment or question from before on sort of the chemical pricing right net net of the offsets that occurred in the first quarter.

Unknown Speaker: Because it does seem like there was a more challenging second quarter dynamic here any help on framing like what you sort of expect product margin.

Unknown Speaker: To be in the back half right I think in the reiterated gross margin guidance.

Unknown Speaker: Are we still looking at stability to expansion in product margin or is there something within the bridge that's changing.

Unknown Speaker: Unknown Speaker Yeah, yeah, I can, I can take that one. I think there's potential for merchant margin expansion in the back half. And the main reason for that is, you know, when the June pricing actions when once we overlap that in, in June, you know, then that basically eliminates the biggest end with that we have, you know, on project margins. And so I think I think that'll be a big benefit for us.

Unknown Speaker: Yes.

Speaker Change: Yes, I can take that one.

Speaker Change: No I think there is potential for.

Unknown Speaker: Margin expansion in the back half.

Unknown Speaker: And the main reason for that is when the June pricing.

Unknown Speaker: Actions once we overlap that in in June.

Unknown Speaker: And also, you know, rebates should help us more in the back half. We are kind of getting past some timing differences that we had in the first half, but the back half, specifically the fourth quarter, should give us better margins from rebates.

Unknown Speaker: <unk>.

Unknown Speaker: Basically eliminates the biggest headwind that we have on our project margins and so I think I think that will be a big benefit for us and.

Unknown Speaker: So rebate should help us more in the back half we are kind of getting past some timing differences that we had in the first half but.

Unknown Speaker: The back half specifically that the fourth quarter should give us better.

Unknown Speaker: Margin lift from from rebates and merch margin.

Michael R. Egeck: Thank you. Steven, I'll add one point to that, you know, on the earnings deck on page nine, we've got the gross margin bridge. We'll get a little color on that.

Speaker Change: Thank you.

Unknown Speaker: Stephen I'll add one point to that.

Steven: On the earnings deck on page nine we've got the gross margin bridge.

Michael R. Egeck: There are 91 basis points in their other product, right? More than half of that is some promotional dollars that we invested in the quarter trying to drive increased traffic. Right, we just we just didn't sit there sit here and let weak traffic numbers impact the business without trying some different tactics. But I think what we discovered there is very clearly that you can't promote your way through tough weather. You can't promote your way through a pool that's not open yet, so we learned a lot. We're going to implement those learnings in the second half, but that's more than half of what you see on the other product ratings.

Steven: I will give a little color on it there is 91 basis points in their other product right.

Unknown Speaker: helpful. Thank you.

Michael R. Egeck: More than half of that.

Unknown Speaker: As some promotional dollars that we invested in the quarter trying to drive increased traffic.

Unknown Speaker: We just we just didn't sit there sit here and let led to weak traffic numbers impacted business without trying some different tactics.

Unknown Speaker: But I think what we've discovered there.

Unknown Speaker: Very clearly you can't promote your way through tough weather you cant promote your way through a pool, that's not not opened yet so.

Unknown Speaker: Earned a lot we're going to.

Unknown Speaker: Incremental learnings in the second half, but that's.

Unknown Speaker: That's more than half of what you see there on the other product line.

Unknown Speaker: Helpful. Thank you.

Ryan James Merkel: Next question: Ryan Merkel with William Blair. Please go ahead.

Unknown Speaker: Yes.

Unknown Speaker: Next question, Ryan Merkel with William Blair. Please go ahead.

Unknown Speaker: Hey, everyone. Thanks.

Ryan James Merkel: Hey, everyone. Thanks.

Ryan James Merkel: Mike I wanted to ask on the not the non discretionary sales down 11% in the quarter is that all weather and chemical price deflation I just asked because the consumer there's some weakness there is that showing up at all.

Michael R. Egeck: Hey, Mike, I wanted to ask about the nondiscretionary sales down 11% in the quarter. Is that all weather and chemical price deflation? I just ask because the consumer, there's some weakness there. Is that showing up at all?

Ryan James Merkel: Yeah, I don't we don't.

Ryan James Merkel: Think it's consumer weakness per se Ryan.

Michael R. Egeck: Yeah, I don't we don't think it's consumer weakness per se, Ryan, the The chemical volume overall in chemicals was down 4%. You know, trichlor and cal hypo were down one; we had some softness and other chemicals.

Michael R. Egeck: Yes.

Mike: Look chemicals volume overall in chemicals was down 4%.

Speaker Change: Tricor and Cal Hypo were down one we had some softness in other chemicals, so pricing was down seven.

Michael R. Egeck: So pricing was down seven. And of that down 7, 575 basis points for that, most of it is tied to the June 23 Price Act. The balance, I would characterize as a combination of mix and a little bit more price pressure on the

Michael R. Egeck: And of that down seven 575 basis points of that most of it is tied to the June 23 price actions.

Michael R. Egeck: Balance I would characterize as a combination of mix.

Michael R. Egeck: And a little bit more price pressure on the pro side and chemicals.

Unknown Speaker: Got it. Okay, that's helpful. Yeah, we don't have a weak consumer per se; we're not seeing a consumer.

Ryan: Got it okay. That's helpful. Yes.

Unknown Speaker: I have bought weak consumer per se, we're not seeing a consumer.

Unknown Speaker: Okay.

Unknown Speaker: You know, with the weather we saw, it was a matter of footsteps through the doors and eyeballs at the sights.

Unknown Speaker: With the weather we saw it was it was.

Unknown Speaker: Our footsteps through the doors and eyeballs on the sites.

Unknown Speaker: Got it. Okay. Yeah, that makes sense. And then I had a question on gross margin too, you sort of answered it with the last one, but should we be expecting gross margins to be higher in the fourth quarter than in the third quarter? That's what I had in my notes, just wanted to clarify that.

Speaker Change: Got it okay, yes that makes sense and then I had a question on gross margin can you sort of answered it with the last one but should we be expecting gross margins to be higher in the fourth quarter than in the third quarter. That's.

Unknown Speaker: That's what I had in my notes I just wanted to clarify that.

Scott Justin Bowman: Yeah, Scott. You want to take it? Yeah. Yeah.

Speaker Change: Yes, Scott I'll take that.

Scott Justin Bowman: Yeah, I have that one. So yeah, it's a good question, and the answer is yes.

Unknown Speaker: Yes, I have that one so yeah. It's a good question and answers yet and the main reason for that is we will have kind of a full quarter's worth of being beyond the June pricing actions.

Scott Justin Bowman: And the main reason for that is, you know, we'll have kind of a full quarter's worth of being beyond June, and pricing actions that will help rebates will help a little bit as well as those normalized. But also of note is the inventory adjustments in DC costs that were really heavy last year. Because of all the outside warehouses and all the movement of goods, we should show significant favorability against those two lines as well.

Scott Justin Bowman: That will help rebates will help a little bit as well as those normalized.

Scott Justin Bowman: But also of note is the inventory adjustments in DC costs that were really heavy last year because of all the outside warehouses and all the movement of goods, we should show significant favorability against those two lines as well.

Unknown Speaker: Got it. Thanks for that. That's the one.

Speaker Change: Got it thanks for that best of luck.

Simeon Ari Gutman: Next question: Simeon Gutman with Morgan Stanley. Please go ahead.

Speaker Change: Thanks Ryan.

Unknown Speaker: Simeon Gutman with Morgan Stanley. Please go ahead.

Unknown Speaker: Hi guys. Mike, I wanted to ask about pent-up demand and, you know, the history of this business when we have tough weather. In the beginning, you know, are there parts of the season we don't catch up on?

Simeon Ari Gutman: Hi, guys, Mike I wanted to ask about pent up demand and the history of this business when we have tough weather.

Michael R. Egeck: And this goes back to that order book that you mentioned, because I would think you'd be, you know, well ahead of where you should be tracking now given pent-up demand, and all the companies in our space that have had weather impacts are recovering normally. So I think it's, you know, very valid. But you do sell a higher-priced item or a lot of higher-priced items, maintenance, and repair, and even some of the discretionary.

Simeon Ari Gutman: And the beginnings are there parts of the season, we don't catch up and this goes back to the that order book that you mentioned, because I would think you'd be well ahead of.

Michael R. Egeck: Where you should be tracking now given pent up demand and all the companies in our space out of head weather impacts are recovering normally so I think it's very valid, but you do sell a higher priced item or a lot of higher priced items maintenance and repair and even some of the discretionary. So how do you think about that pent up demand. How do you think about in the context of where the consumer is.

Michael R. Egeck: And then.

Michael R. Egeck: I'm trying to get at is there any way. This is a head fake in your industry, how you're contemplating that just trying to look at both sides.

Michael R. Egeck: So how do you think about that pent-up demand? How do you think about it in the context of where the consumer is? And then, you know, I'm trying to get at, you know, is there any way this is a head fake in your industry? How are you contemplating that? Just trying to look at both sides.

Michael R. Egeck: Yes in terms of pent up demand for.

Michael R. Egeck: Yeah, in terms of pent-up demand for Hot Tub specifically, where we've got a forward order book. Yeah, I would definitively say we have pent-up demand there. And we feel good about the direction of that part of the business.

Michael R. Egeck: Hot Tubs, specifically, where we've got a forward order book.

Michael R. Egeck: Yes, I would say definitively we have pent up demand there and we feel good about the direction of that part of the business.

Michael R. Egeck: The, In terms of equipment, and well, let me answer it this way: it differs between seasonal and non-seasonal markets. In the seasonal market, You know, I mentioned that pool openings were down 19%. Now, pool openings themselves generate volume, but what they really are is an indicator of the start of the season. And, you know, by our estimation, we're several weeks behind the start of the season. Now, historically.

Michael R. Egeck: In terms of equipment and well, let me answer it this way because the difference between seasonal and non seasonal markets.

Michael R. Egeck: In the seasonal markets.

Michael R. Egeck: I mentioned that pool openings were down 19% now.

Michael R. Egeck: Pool openings themselves generate volume, but what they really are is an indicator of the start to the season.

Michael R. Egeck: And by our by our estimation, we are several weeks behind the started the season now historically.

Michael R. Egeck: As we've looked at weather this year I think we're closer maybe to 2018.

Michael R. Egeck: And originally we had thought we were closer to 2022, but as we look at weather.

Michael R. Egeck: And as we've looked at the weather this year, I think we're, we're closer maybe to 2018. Um, and originally, we thought we were closer to 2022, but as we look at the weather. Yes, when when the pools open in the northeast, Long Island, in particular, it's a really significant ramp.

Michael R. Egeck: Yes, when when the pools opened in the northeast.

Michael R. Egeck: Long island in particular related to really significant ramp.

Michael R. Egeck: However.

Michael R. Egeck: You.

Michael R. Egeck: However, you potentially have fewer pool days. It's all going to depend now on how the pool season ends in the shoulder season. You know, if it ends on its normal cadence and we started late, yeah, we'll lose some days in the seasonal markets just from the pools not being open. In the non-seasonal markets, I think it is more about pent-up demand, you know; people want to use their pools when the weather is correct, and they'll tend to use the pool more when the weather encourages them to do so.

Michael R. Egeck: Potentially have fewer pool days, it's all going to depend now on how the pool season ends in the shoulder season.

Michael R. Egeck: If it ends on its normal cadence and we started late yes, we will lose some days in the seasonal markets just from the pools not being open.

Michael R. Egeck: In the non seasonal markets I think it is more about pent up demand people want to use their pools when the when the weather is correct.

Michael R. Egeck: They'll tend to use the pool more.

Michael R. Egeck: When the weather when weather encourage them to do so.

Unknown Speaker: Okay, and then can I ask the follow-up on the share, which market share, and you? I know you provide a lot of data here, which is not a lot of information. So you're going to get a lot of questions. When you are lower priced, then Yeah, it's a good question.

Speaker Change: Okay, and then can I ask a follow up back on the share which market share and I know you've provided a lot of data here, which is not a lot of information so youre going to get a lot of questions.

Unknown Speaker: When you lowered price the.

Unknown Speaker: The chemical prices a year ago remind us it was the industry had lowered it before you, meaning why shouldn't that lowered price leading to be lead to more share gain at this point and are you seeing that share gain comeback in chemicals.

Unknown Speaker: Yeah, it's a good question. We, you know what? There were two things that spurred us on the chemical price adjustments in June. One was that we had gotten outside of our historical price positioning, which is above mass and at or below specialty; we had gotten ourselves up and over specialty. The second thing, and just important to us, was our regular Consumer Insight work; we were starting to get, you know, feedback that we weren't representing a good balance.

Speaker Change: Yes, it's good question.

Unknown Speaker: There was two things that spurred us on the chemical price adjustments in June one was we had gotten outside of our historical price positioning which is above mass.

Unknown Speaker: And at or below specialty we had gotten ourselves up a number of specialty.

Unknown Speaker: The second thing just important to us was our regular.

Unknown Speaker: Consumer insight work, we were starting to get feedback that we werent representing a good value.

Unknown Speaker: And it was showing up in our NPS scores. So just our prices down to where we thought they should be. We, you know, the third quarter of last year and the fourth quarter of last year. We feel we did pull back some, some share versus leaving the prices where they're at and the last two quarters.

Unknown Speaker: And it was showing up in our NPS scores. So just your prices down to where.

Unknown Speaker: We thought they should be.

Unknown Speaker: <unk>.

Unknown Speaker: The third quarter of last year.

Unknown Speaker: And in the fourth quarter of last year.

Unknown Speaker: We did we did pull back some some share.

Unknown Speaker: Versus leaving the prices where they are at.

Unknown Speaker: And the last two quarters.

Michael R. Egeck: You know, like we said, we're surprised by the credit card data, but we take it seriously. And we're, you know, working to make the most of the traffic that we're getting. And I don't know what to make of the credit card deal.

Unknown Speaker: We said we were surprised by the by the credit card data.

Michael R. Egeck: We take it seriously and we're working to make sure we make the most of the traffic that we're getting.

Michael R. Egeck: I don't know what to make it the credit card data actually it.

Michael R. Egeck: Actually, it's a little concerning, for sure, but more importantly to us, it's not really aligning with all of our other channel checks. So it's not something we're ignoring. But it doesn't change how we operate. We think we're very competitively priced right now. And this idea of value, and, you know, our consumers seeing the value not only in our product but in our capabilities, like the AccuBlue water testing in the stores, we think all that's showing up through, you know, it was a really nice conversion. That's one of the things we feel most positive about the business. When the traffic's there, we're converting at higher levels than we have in the past. And that's a good sign for the pool season.

Michael R. Egeck: It is a little concerning for sure.

Michael R. Egeck: More importantly to us it's not really aligning with all of our other channel checks so not something we're ignoring.

Michael R. Egeck: But it doesn't change how we operate we think we're very competitively priced right now and this idea of value and our consumers seeing.

Michael R. Egeck: The value not only in product, but our capabilities like Jackie blue water testing in the stores, we think all of that showing up through.

Michael R. Egeck: It was a really nice conversion lift.

Michael R. Egeck: That's one of the things we feel most positive about the business when the traffic's there were converting at higher levels than we have in the past and that's that's a good sign for the pool season.

Speaker Change: Thank you good luck.

Michael R. Egeck: Thanks.

Garik Simha Shmois: Next question, Garik Shmois with Loop Capital Markets, please go ahead.

Michael R. Egeck: Next question Garik <unk> with loop capital markets. Please go ahead.

Unknown Speaker: Oh, hi, thanks. And just to follow up on that point, just go on to see if you could provide a little more context on how traffic was in the quarter and in non-weather-hit markets, and if there was anything to read into trends in places where weather hasn't been an issue.

Garik Simha Shmois: Oh, hi, Thanks, just to follow up on that point just to see if you could provide a little bit more contracts somehow traffic was in the quarter and non weather hit markets and if there is anything to read into trends in places where weather hasnt been an issue.

Michael R. Egeck: Yes, I mean, that's one of the challenges with this quarter. Typically, we have some regions where we've got normal weather that we can point to as a control group, if you would, and we just didn't have that. I have the name for the seasonal markets, as I talked about, and as evidenced by the pool openings, you know, just a very combination of cooler and wet. And when the weather got a little warmer, it was still very wet.

Speaker Change: Yes, I mean thats one of the challenges with the with this quarter typically we have some regions, where we've got normal weather.

Michael R. Egeck: Two is the control group if you would.

Michael R. Egeck: And we just we didn't have that.

Michael R. Egeck: But anyway, the seasonal markets as I talked about and as evidenced by the pool openings.

Michael R. Egeck: Just very.

Michael R. Egeck: Combination of cooler and wet and when the weather got a little warmer it was still very wet.

Michael R. Egeck: And the number of consecutive days over 70 degrees, which we found is highly correlated with traffic in our business, in our major markets, Texas, Florida, Arizona, you know, that was down anywhere from 18% to 64%. And in California, which was our best performing market. There were zero consecutive days over 70, but there were also 69% more rainy days than a 10 year average. So we actually couldn't point to any of our major markets and say we had, based on data, a normal quarter.

Michael R. Egeck: And the number of consecutive days over 70 degrees, which we.

Michael R. Egeck: Found us.

Michael R. Egeck: Highly correlated.

Michael R. Egeck: With traffic in our business and our major markets, Texas, Florida, Arizona.

Michael R. Egeck: That was down anywhere from 18% to 64%.

Michael R. Egeck: And in California, which was our best performing market.

Michael R. Egeck: There was zero consecutive days over 70.

Michael R. Egeck: But there was also 69% more rainy days than a 10 year average so.

Michael R. Egeck: We actually couldn't point to any of our major markets and say we had based.

Michael R. Egeck: Based on data on a normal quarter.

Unknown Speaker: Okay, no, that that's helpful. Um, just my follow-up questions on gross margins, just to put a bit of a finer point on the guide. I think, coming into the year, you're expecting about 100 basis points of gross margin improvement. This year, you know, correct me if I'm wrong on that. And, you know, if that was the case, do you think that's still reasonable, given, you know, we're heading into the peak season now? Do you think there's, you know, there are enough opportunities in front of you to reach that prior guide?

Speaker Change: Okay. That's helpful.

Unknown Speaker: Just a follow up question is on gross margins just to kind.

Unknown Speaker: A bit of a finer point on the guide I think coming into the year you were expecting about 100 basis points in gross margin improvement.

Unknown Speaker: This year.

Unknown Speaker: Correct me, if I'm wrong on that.

Unknown Speaker: If that was the case do you think that's still reasonable given where we are heading into the peak season now.

Unknown Speaker: Do you think there is.

Unknown Speaker: There is enough opportunities in front of us to reach that prior guidance.

Scott Justin Bowman: I think there is, you know, just because, you know, as we gain volume, you get a direct impact on leverage, you know, with occupancy, and in our margin miss, you know, for this past quarter, that was the biggest contributor, you know, to the margin miss was just the de-leverage on occupancy. So as we add volume, as we get past the chemical price, you know, actions, and, you know, with some of the promos that we've run, we have learned some things about what's working really well and some things that are not working so well.

Unknown Speaker: I think there is just because as we gain volume.

Scott Justin Bowman: You get a direct impact.

Scott Justin Bowman: Impact on leverage with occupancy in.

Scott Justin Bowman: Margin Miss.

Scott Justin Bowman: For this past quarter was.

Scott Justin Bowman: That was the biggest contributor.

Scott Justin Bowman: The deleverage on occupancy so as we add volume that as we get past the chemical price actions.

Scott Justin Bowman: And with some of the promos that we've run.

Scott Justin Bowman: We have learned some things working really well and some things that are not working so well. So I think we'll be a little bit more efficient.

Scott Justin Bowman: So I think we'll be a little bit more efficient in the use of promos and discounting, both on the types of promos we run and the magnitude of the discounts. And so I think we've gotten a little sharper there, you know, which would help us out, you know, as we get into people.

Scott Justin Bowman: The use of promos and discounting.

Scott Justin Bowman: On the types of promos, we run the.

Scott Justin Bowman: The magnitude of the discount and so I think we've gotten a little sharper, there, which which should help us out.

Scott Justin Bowman: As we get into peak season.

Unknown Speaker: Okay, sounds good. Thank you.

Speaker Change: Okay sounds good thank you.

William Andrew Carter: Next question is Andrew Carter with Sequel. Please go ahead.

Unknown Speaker: Next question, Andrew Carter with Stifel. Please go ahead.

Unknown Speaker: Hey, thank you very much. The first question I wanted to ask, and just to put a fine tune on pricing, first one, just kind of housekeeping. How much of a headwind is it in the comp because it's – you don't anniversary it until June 1? And then the second point about your ability to potentially take further pricing, how fast can you see it? Last year was a little bit of a waiting game, waiting for people to take the pricing.

William Andrew Carter: Hey, Thank you very much first question I wanted to ask and just to put a fine tuned on pricing first one just kind of a housekeeping how much of a headwind is it in the comp because it's you don't anniversary until June 1st and then the second point about your ability to potentially take further pricing how fast can you can you see it last year was a little bit of a <unk>.

Speaker Change: And game waiting people for people to take pricing this year you'd actually be looking for direct action and then I'd also ask that question and I'll finish this one off.

Unknown Speaker: So this year you'd actually be looking for direct action. And then I'd also ask that question, and I'll finish this one off. How much autonomy do kind of local managers have to do their own pricing and move, or do they have to follow kind of the national average?

Unknown Speaker: How much autonomy do kind of local managers have to do their own pricing and move or do they have to follow kind of kind of the national thanks.

Unknown Speaker: Thanks.

Speaker Change: Yeah, Andrew So couple of questions in there I'll start and I may need you to remind me in a couple of them but.

Michael R. Egeck: Yeah, Andrew. So there are a couple questions in there. I'll start, and I may need you to remind me of a couple of them.

Unknown Speaker: First of all on the impact of the price actions.

Speaker Change: On total sales is 260 basis points and there is only $1 million half of non comp in the quarter. So it's basically a 260 basis point for comps.

Speaker Change: <unk> headwind as well.

Michael R. Egeck: But first of all, the impact of the price actions on total sales is 260 basis points, and there's only a million and a half of non-comp in the quarter. So it's basically a 260 basis point headwind for comps as well. The second question was, you know, when would we decide to take price action? You know, we look at our competitive pricing report every week; it's a combination of third-party services and regular checking of local competitors by our district managers. We also do web scraping.

Michael R. Egeck: <unk>.

Speaker Change: I think the second question was on.

Michael R. Egeck: When would we decided to do price actions, we look at.

Michael R. Egeck: Our competitive pricing report.

Michael R. Egeck: Very weak it's a combination of third party services.

Michael R. Egeck: And regular checking out of local competitors by our district managers.

Michael R. Egeck: We also do web scraping so we're going to we will react quickly if we see ourselves getting out of.

Michael R. Egeck: So you know, we're going to, we will react quickly if we see ourselves getting out of our historical and what is also our current price position. And in terms of price actions from individual stores, you know, we have National Pricing. We also have, and have had for a number of years, a price match guarantee. And the price match guarantee, you know, when you go on our website, you can see kind of what the guidelines are around it. But our store managers and store associates have the authority to price match if a consumer can show us a competitive price that's lower for a comparable product.

Michael R. Egeck: Our historical and what is also our current price positioning.

Michael R. Egeck: And in terms of price actions from individual stores.

Michael R. Egeck: We have.

Michael R. Egeck: National pricing.

Michael R. Egeck: We also have and have had for.

Michael R. Egeck: A number of years, a price match guarantee and the price match guarantee you're going to our website you can see kind of what the guidelines are around it but our store managers.

Michael R. Egeck: And store associates have the authority to price match.

Michael R. Egeck: Consumer can show us.

Michael R. Egeck: A competitive price that's lower for a comparable product.

Unknown Speaker: Thank you for that. Second question, just kind of the bigger picture, Home Depot obviously made the decision to, it's signed an agreement to acquire SRS, which owns Heritage, the number two pool distributor in the category. Could you give any perspective on, you know, whether you kind of see that as a threat, particularly Home Depot's ability for kind of a deeper integration between the two to go after DIY or cash carry?

Speaker Change: Thank you for that second question, just kind of bigger picture home depot, obviously made the soil.

Unknown Speaker: Signed an agreement to acquire Srs.

Unknown Speaker: Which is owns heritage the number to call distributor in the in the category.

Unknown Speaker: Give any perspective on whether you kind of see that as a threat, particularly home depot's ability for kind of a deeper integration between the two to go after DIY or cash carry pro business as well as just kind of what that can mean, putting those together with with online and remind us how much the home centers really kind of compete in the cabin category.

Unknown Speaker: As it stands today against you specifically.

Michael R. Egeck: Yeah, yeah, thanks for this question. You know, in our view, we think Home Depot has made it pretty clear that the acquisition of SRS Heritage is really about growing your pro builder business. As opposed to a new focus on pool, you know, they said those businesses would run as separate businesses, current management. Heritage is only about 15% of the SRS business. So that seems clear to us, and we haven't seen any evidence to suggest that Home Depot would increase aisle space to accommodate pool SKUs at the expense of existing SKUs. That's a pretty high opportunity cost. So, given those two dynamics, we don't really think it changes the competitive landscape for Leslie's. We've competed against, you know, the home centers. They do, too.

Speaker Change: Yes, yes. Thanks for this question.

Michael R. Egeck: In our view, we think home depot has made it pretty clear that the acquisition of <unk>.

Michael R. Egeck: Our S heritage, it's really about growing their probe builder business.

Michael R. Egeck: As opposed to the new focus on pool, they said those businesses they run as separate businesses current management.

Michael R. Egeck: Heritage is only about 15% of the Srs business, so that seems clear to us and we haven't seen any evidence to suggest that home depot with increased IL space to pool, our skus at the expense of existing Skus.

Michael R. Egeck: It's a pretty high opportunity cost.

Michael R. Egeck: So given those two dynamics, we don't really think it changes the competitive landscape for less lease we've competed against.

Michael R. Egeck: AUM centers, they do Andrew about 15, or 16% of the pool business have for a number of years I think that shares held.

Michael R. Egeck: Pretty steady so current competitors.

Michael R. Egeck: Definitely keep an eye on them.

Michael R. Egeck: We don't think.

Speaker Change: This particular acquisition really changes the competitive landscape for us.

Speaker Change: Thanks ill pass it on.

Unknown Speaker: Thank you. I would like to turn the floor over to Michael Egeck for closing remarks.

Michael R. Egeck: Thank you I would like to turn the floor over to Mike Jackson for closing remarks.

Michael R. Egeck: Thanks, Stacy. And thank you all for joining us this afternoon and for your continued interest in Leslie'S.

Michael R. Egeck: Thanks, Stacey and thank you all for joining US this afternoon and for your continued interest and less lease.

Operator: This concludes today's teleconference. You may disconnect your lines at this time, and thank you.

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Speaker Change: This concludes today's teleconference. You may disconnect your lines at this time and thank you for your participation.

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