Q4 2024 Leslie's Inc Earnings Call
Speaker Change: [music].
Okay.
Speaker Change: Good afternoon, and welcome to the fourth fiscal fourth quarter and full year 'twenty 'twenty four earnings conference call for Leslie.
Speaker Change: This time, all participants are in a listen only mode.
Following their prepared remarks management will conduct a question and answer session. If you require any operator system. During the conference call. Please press star zero on your telephone keypad.
Speaker Change: As a reminder, this conference call is being recorded and will be available for replay later later today on the company's website I will now turn the call over to Matt Kelly, Vice President of Investor Relations.
Speaker Change: Okay.
Matt Kelly: 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 as circumstances change. Please review the.
Matt Kelly: Scenario 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 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 less lease web site at IR Dot Leslie spool dotcom for this quarter, we have opted not.
Speaker Change: <unk> posted an earnings presentation as we continue to refine our materials under our new Chief Executive Officer on the call today are Jason Mcdonald, Chief Executive Officer, and Scott Bowman, Chief Financial Officer, with that I will turn the call over to Jason.
Thanks, Matt and thank you all for joining us this afternoon.
Jason Mcdonald: I'd like to take this opportunity to share how appreciative I am to serve these customers team members and shareholders as our new CEO.
Jason Mcdonald: I'm not only a longtime admirer of the 60 year legacy of the lessees brand, but I'm also a long time customer.
Jason Mcdonald: And I'd like to thank the Leslie frontline team, our corporate team members and our board of directors for the warm welcome I've received.
Also to our shareholders.
Jason Mcdonald: I want to make it clear that shareholder value creation is top of mind as I answered the rule.
I believe less lease has a strong set of near term and long term opportunities.
Jason Mcdonald: The team and I are very motivated to build on the legacy of Leslie.
Jason Mcdonald: To ensure that we perform well we transform.
Understanding the needs of our customers and our employees who serve them is critically important to me and I plan on putting the customer at the center of everything we do.
Jason Mcdonald: Since joining the Leslie seen in September I've had the pleasure of visiting over 40 stores multiple distribution centers and regional commercial service centers across more than half a dozen states, including California, Texas, Florida, Arizona, Colorado, and North Carolina.
While I am less than 80 days in my role I've captured a lot of learnings in that short period of time.
Jason Mcdonald: And while I'm spending time in the market I've been really pleased to witness the pride and expertise with which our team members' care for the customer.
Jason Mcdonald: When I step back and put my customer hat on one thing really resonates with me.
Jason Mcdonald: We do a lot more than just sell pull supplies.
And Leslie <unk>, our purpose is to enable joy through customized pool care solutions.
Jason Mcdonald: And when you're in our stores you can see and feel the passion of our purpose with our frontline team members.
Jason Mcdonald: They take pride in serving customers and I've seen this exemplified with Clara in Texas Dawn in Florida, and Scott in Arizona.
Jason Mcdonald: I saw this firsthand when a customer came into our store.
Jason Mcdonald: And called our general manager by their first name.
That relationship mindset, whether it's assisting our residential or as I call. It a DIY customer with our best in class Accu Blue water testing technology, helping.
Jason Mcdonald: Helping our local pros with liquid chlorine so they can get on their way.
Jason Mcdonald: Or helping our retail customers within equipment repair.
Jason Mcdonald: Our employees commitment to serve is unwavering.
Jason Mcdonald: Leslie is represents an empowered team that provides trusted care for DIY and pro customers with customized pool and Spa care solutions.
Jason Mcdonald: I've also had the opportunity to connect with many of our vendor partners and each conversation has deepened my appreciation for this industry.
Jason Mcdonald: The pool industry has experienced one of the most dynamic five year periods in its history, which of course Leslie has experienced as well.
Jason Mcdonald: We believe our industry has been and will remain advantaged for the long term.
Jason Mcdonald: The installed base of pools, and spas that over 14 million bodies of water with a total addressable market of approximately $15 billion.
Jason Mcdonald: Typically grows 1% to 2% every year.
Jason Mcdonald: And those pools needs to be maintained.
Jason Mcdonald: As we turn the page to the next chapter of less these history.
Jason Mcdonald: One observation has been abundantly clear.
Jason Mcdonald: Sharpen our focus on the fundamentals of retailing presents a compelling opportunity and that's just what we planned to do.
So what does that mean, it's about getting back to basics blocking and tackling retail 101.
Jason Mcdonald: And lastly, we remain the only national large scale omnichannel player in aftermarket pool and Spa cure that serves both DIY and pro customers.
Jason Mcdonald: In addition, we are closest to the pools.
Jason Mcdonald: In fact, our 1000 plus store network is within 20 miles of 80% of the pools in the United States.
Jason Mcdonald: In the sunbelt, where even closer with almost 88% of our pools within 10 miles of a Leslie store our footprint remains a major competitive advantage that we plan to leverage to deliver more value to our DIY and pro customers through our Omnichannel approach.
Jason Mcdonald: In addition to our proximity advantage Leslie has a well known pool expertise and capabilities that are key to a personalized customer care.
Our brand strength and M. P. S scores are strong driven by our ability to serve the DIY and pro customers quickly and efficiently.
Jason Mcdonald: So we believe our industry and our company remains advantaged.
Jason Mcdonald: The next logical question is.
How do we leverage those advantages even better going forward.
Jason Mcdonald: What you can expect from less lease is a clear focus on fundamentals and that we plan to leverage our competitive advantages to drive long term profitable growth.
Jason Mcdonald: It starts with three strategic themes.
Jason Mcdonald: Customer centricity convenience.
Jason Mcdonald: And asset utilization.
Each team has a set of related priorities and defined initiatives intended to deliver sustainable profitable growth and fuel long term shareholder value.
Jason Mcdonald: I will speak to these three themes today and plan to expand on them each quarter in fiscal 2025.
Jason Mcdonald: Our first strategic theme is customer centricity.
As I noted we are putting the customer at the center of everything we do.
Jason Mcdonald: Since 1963, the less these brand has been synonymous with trust and expert care.
Jason Mcdonald: While our marketing research still indicates these words are associated with our brand I believe we can take these to the next level in the future.
Continuing to elevate our customer care through pool expertise for the Diyer and the pro will make it even more rewarding to shop with us.
Jason Mcdonald: As we look to the future we can elevate this experience with a more personalized approach.
Jason Mcdonald: The customers, who choose to take care of their pool no the value of lessees.
Jason Mcdonald: In fact over eight out of 10 DIY customers are members of our loyalty program.
Speaker Change: That is extremely powerful.
Speaker Change: We know a lot about them and their pool, including location size of their pool, whether it is a solitaire chlorine pool equipment preferences, the health of their pool, following a water test and even their last purchase of an inflatable for their family.
Speaker Change: This wealth of information allows us to know our customer more deeply offer more personalized solutions and inform us on what winning in service can be having had experience and loyalty programs I believe that we have an ability to elevate our loyalty program even further for both the retail customer.
Speaker Change: And the pro.
Speaker Change: Our primary goals will be to increase the awareness of the program to attract new loyalty members and enhance its value proposition to the loyalty member and for less lease.
Speaker Change: Lastly in.
Speaker Change: And this customer Centricity theme I believe we can build traffic by increasing awareness around our best in class water testing, our differentiated expertise localized for the customer's neighborhood, our product availability and by customized services leveraging our omni channel approach.
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Speaker Change: Our second strategic theme is convenience.
Speaker Change: We believe this theme is core to us winning within the DIY and pro customer.
Speaker Change: Being closest to the pools with a best in class footprint is a key competitive advantage to helping customers with their pool needs.
Speaker Change: Whether it's a part of pro needs to make their customers' equipment work specialty chemicals for a DIY or to balance their pool to be clean safe and beautiful.
Speaker Change: Or that special pool toy to brighten a child's day.
Speaker Change: We want to be able to satisfy any pool need quickly conveniences.
Convenience is such an important aspect of being a trusted total solution provider.
Speaker Change: Time to solve a customer's problem, often determines who wins the sale.
Speaker Change: And who is key to delivering on our customers' expectations.
Speaker Change: Major element of enabling this through inventory and store assortment.
Speaker Change: With our solution orientation, we're reframing availability with a customer centric and convenience approach in terms of minutes.
Speaker Change: Hours and days.
Speaker Change: In our portfolio some products have customer availability expectation of minutes.
They have a need.
Speaker Change: And time is of the essence.
Speaker Change: Included as part of that thinking is our new inventory segmentation I like to call never outs.
For these items, we measure in minutes.
Speaker Change: And we have to have the best in stock performance and we can never be out.
Speaker Change: To complement to this line of thinking we are evolving Leslie is focused towards localized assortment.
Speaker Change: There are regional and local differences in the pool market and we need to have the right inventory in the right place at the right time.
Speaker Change: It's about being able to get to the place of precision inventory in our local markets.
Speaker Change: This precision inventory approach will better leverage our existing advantaged footprint.
It can also speed up reverse logistics lower inventory adjustment expense and reduce shrink.
Speaker Change: To reiterate this is about convenience as a competitive advantage and we expect improving inventory management will help accelerate our time to serve.
Speaker Change: Our third and final strategic theme is asset utilization.
Speaker Change: The areas of focus in improving asset utilization include our physical assets, our technology and data assets.
Speaker Change: And our human capital.
Speaker Change: First on improving our physical asset utilization.
I've already discussed our best in class footprint, including our 1000 plus stores.
Speaker Change: But our physical assets also include our strategic network of distribution centers.
Speaker Change: And commercial service centers.
Speaker Change: In fiscal 2025, we expect to add approximately three stores to our footprint.
Speaker Change: That said.
Speaker Change: The majority of our attention will be getting more out of our combination of assets to drive higher organic sales.
Speaker Change: Expanding average sales per store will drive comp growth fueling positive leverage through the P&L.
Speaker Change: Internally the company has made significant investments over the past couple of years to enhance our technical capabilities.
Speaker Change: Such as adding the blue Yonder tool.
Speaker Change: And I believe we can do more to maximize the value that these strategic investments can bring to our processes and our operations.
Speaker Change: We will plan to also prioritize incremental investments that enhance our ability to serve the customer as we pursue our strategic objectives for the coming year.
Speaker Change: Finally in the area of human capital. We believe we can use our national scale and local community presence to make a stronger positive impact in the communities we serve.
Speaker Change: As the industry's market leader less these workforce is dedicated to making human capital a positive differentiator through the expertise, we provide our pool and spa customers and the care they entrust us to keep their pool clean safe and beautiful.
Speaker Change: These three strategic themes customer centricity convenience and asset utilization will be supported by empowering our teams to drive a continuous improvement culture.
Speaker Change: At <unk>, we will focus on the customer and the fundamentals.
Speaker Change: And prioritize what helps achieve our objectives and D prioritize what does not.
Speaker Change: Turning to our results for the fourth quarter and for fiscal 'twenty 'twenty four.
Speaker Change: Sales for the fiscal fourth quarter were $398 million down, 8%, which was in line with our revised guidance from July.
Speaker Change: Sales for fiscal 2024, where 1.33 billion down 8% also in line with our expectations.
Speaker Change: Adjusted earnings per share were two cents for the fourth quarter and a loss of one cents for the year.
Speaker Change: Adjusted EBITDA in the fourth quarter was $43 million. It was 109 million for the full year.
Speaker Change: Consistent with our primary capital allocation priority of reducing debt, we expect to pay down approximately $25 million of our debt balance during the current quarter.
Speaker Change: Scott will detail further our financial performance for the fourth quarter and full year during his prepared remarks.
During the first seven weeks of the fiscal year trends were in line with our expectations. We had some positive demand activity from post storm cleanup in Florida and throughout southeast how.
Speaker Change: However, as I mentioned earlier, the macro environment continues to be dynamic and we're in the process of orienting our business around our three key strategic themes and related initiatives.
Speaker Change: Given these factors at this time, we're only providing financial guidance for the first quarter of 2025, which includes topline sales expected in a range of down 3% to up 1% year over year.
Speaker Change: We continue to form our thoughts on the year ahead and expect to update the market with some of that thinking on our next earnings call.
Speaker Change: I'll now turn it over to Scott to give his remarks, Scott. Thank you, Jason and good afternoon, everyone I would like to remind everyone that my comments on our quarterly and annual performance are on a year over year basis, unless otherwise indicated.
Scott Bowman: On the topline we finished fiscal fourth quarter and year in line with our revised guidance we communicated in July.
Scott Bowman: Our profitability was mainly impacted by items that we expect to be onetime in nature, which I will address in my prepared remarks, I will also provide commentary on how we see the start to the year, including our first quarter fiscal 2025 guidance, but first I'll take you through our fourth quarter and annual performance for fiscal 2024.
Scott Bowman: For the fiscal fourth quarter, we reported total sales of $398 million a decrease of 8% driven primarily by a continued softness in traffic and larger ticket and discretionary products comparable sales decreased eight 3% and non comparable sales contributed $1 5 million in the quarter.
Scott Bowman: With respect to sales trends by consumer group residential pool declined 10% pro pool declined 1% and residential hot tub declined 5%.
Scott Bowman: We're encouraged to see relative strength in our pro pool consumer group, which outperformed with a low single digit sales decline through the second half of the fiscal year, which is our peak pool season that compares to a total company sales decline of just over 7%. During the same period. This consumer group has proven to be resilient during a very dynamic season, and we see more opportunity.
Scott Bowman: For this group going forward.
Scott Bowman: Gross profit was $143 million compared to $160 million in the same period last year and gross margin rate decreased 105 basis points to 36%.
The decline in rate was largely due to 77 basis points of deleverage on occupancy expense and to a lesser extent deleverage on D C costs.
Scott Bowman: Additionally, we had a one time item of approximately $5 million in the quarter related to rebates and warranties on a vendor contract. This contract has since been revised to eliminate this issue for 2025 and going forward.
Scott Bowman: Excluding this one time item gross margin would have been 37, 3% an increase of 20 basis points versus the prior year.
Scott Bowman: SG&A was $117 million for the quarter declined 4% or $5 million and represented 29% of sales.
Scott Bowman: We continue to make solid progress on our cost management initiatives, which we expect to help fuel our operating leverage when we return to positive sales growth.
Fourth quarter, adjusted EBITDA was $43 million compared to 59 million in the same period last year.
Scott Bowman: Was primarily impacted by softer sales and a one time gross margin item, partially offset by lower SG&A expense.
Scott Bowman: Interest expense was $17 million in the quarter approximately flat compared to the same period last year.
Scott Bowman: Adjusted net income was 4 million compared to 26 million in the same period last year and adjusted diluted earnings per share was <unk> <unk> compared to <unk> 14 cents in the same period last year.
Scott Bowman: Diluted weighted average shares outstanding were $185 million.
Now turning to our fiscal full year results.
Scott Bowman: For fiscal 2024 total sales were 1.33 billion, a decrease of 8% compared to the prior year with comparable sales down eight 8% non.
Scott Bowman: Non comparable sales totaled $8 million for the year.
Scott Bowman: As mentioned earlier, our total sales were in line with our revised guidance communicated in our July release.
Scott Bowman: With respect to trends by consumer group sales for residential pool declined 9% pro pool declined 4% and residential hot tub declined 9%.
Scott Bowman: While we experienced another year of softness in our core residential category. We were encouraged by sequential improvement in our pro pool and hot tub consumer groups.
Scott Bowman: We expect further improvement across our consumer groups in fiscal 2025 as industry conditions continued to normalize.
So as Jason noted the macroeconomic environment remains dynamic.
Scott Bowman: Gross profit was $477 million compared to $548 million in 2023, and gross margin rate decreased 193 basis points to 35, 9%.
Scott Bowman: The year over year decline was primarily due to headwinds from the June 2023, chemical price actions. The expensing of previously capitalized D C cost and deleverage on occupancy costs.
Scott Bowman: These were partially offset by favorability in inventory adjustments and DC costs.
Scott Bowman: Full year, SG&A was $420 million down 26 million from year ago, and represented 31, 6% of sales.
Scott Bowman: We continue to look for further opportunities to optimize our cost structure as we focus on increasing asset utilization across the company.
Yeah.
Scott Bowman: Fiscal 2024, adjusted EBITDA was $109 million compared to $168 million in the prior year and adjusted net income was a loss of $1 million compared to income of $51 million in the prior year.
Scott Bowman: Adjusted EBITDA was impacted primarily by lower sales, partially offset by favorability in SG&A expense.
Scott Bowman: Interest expense was $70 million for fiscal 2024, an increase of $5 million compared to the prior year, which was primarily due to higher interest rates.
Adjusted diluted earnings per share was a loss of one cent in fiscal 2024 compared to income of 28 in the same period last year.
Scott Bowman: Diluted weighted average shares outstanding were $185 million.
Scott Bowman: Related to income tax expense, we established a valuation allowance of approximately $11 million in the quarter in order to provide an offset to our deferred tax assets.
Scott Bowman: This balance is subject to change at the realization that future deferred tax assets changes over time.
Scott Bowman: Moving to the balance sheet, we ended fiscal 2024 with cash and cash equivalents of $109 million compared to 55 million in fiscal 2023.
Scott Bowman: The increase was primarily due to significant efforts by the team to reduce inventory through improved analytics and operational efficiencies.
Scott Bowman: Inventory ended the year at $234 million, a decrease of $78 million or 25% compared to the prior year, even as our in stock position service metrics and net promoter scores all remain very strong.
Scott Bowman: At the end of fiscal 'twenty 'twenty four we had 784 million outstanding on our secured term loan and no amounts outstanding on our revolving credit facility.
Scott Bowman: This compares to $790 million on our term loan and a zero balance on our revolver at the end of fiscal 2023.
Scott Bowman: Overall, our debt levels were $6 million lower than a year ago and our leverage ratio was six two times.
Scott Bowman: The effective interest rate on our term loan was eight 1% for fiscal 2024 compared to eight 2% in the prior year.
Scott Bowman: With that I'd like to turn to our first quarter of fiscal 2025 outlook.
Considering our recent CEO transition, we are providing our outlook for only the first quarter of fiscal 2025 at this time.
Scott Bowman: Our first quarter outlook reflects expectations for continued softness in larger ticket and discretionary categories and a balanced view of year to date company performance in the current macroeconomic environment.
Speaker Change: As Jason that wind earlier, we believe we have a great opportunity to improve how we serve the customer leveraging our themes of customer centricity convenience and asset utilization.
Speaker Change: We expect these strategic themes and resulting initiatives to help drive sales and market share growth introduce incremental efficiencies in working capital and capital spending.
Speaker Change: All combined we are working to maximize free cash flow generation to serve our number one capital allocation priority the reduction of debt and a corresponding leverage levels.
Speaker Change: Well, we won't see these initiatives contribute meaningfully to our first quarter results, we expect them to begin contributing to our performance later in fiscal 2025.
Speaker Change: For the first quarter of fiscal 2025, we expect the following.
Speaker Change: Sales of $169 million to $176 million adjust.
Speaker Change: Adjusted EBITDA of negative $29 million to negative $27 million.
Speaker Change: Adjusted net loss of 39 million to $37 million.
Speaker Change: Just a diluted EPS of a loss of 21 to 20.
Speaker Change: And target debt pay down of $25 million in the quarter.
Speaker Change: After the first seven weeks of the year, we are trending broadly in line with our expectations and slightly above when accounting for hurricane related demand incurred during this time period.
Speaker Change: We are seeing strong results in our pro and ecommerce channels with other channels showing sequential improvement from the fourth quarter.
Speaker Change: Although we are very early in the fiscal year. These are encouraging signs as we continue to position ourselves to win pool season in 2025 and to generate long term sustainable growth I.
I would like to remind everyone that the first two quarters of our fiscal year, our historically smaller in volume and thus have an inherently higher degree of operating leverage embedded within them.
Speaker Change: From a balance sheet perspective, we continue to improve our cash position in order to enhance liquidity and pay down debt.
Speaker Change: With $109 million in cash to start the fiscal year. We believe we have the ability to pay down debt and execute on our strategic priorities.
Speaker Change: We expect the magnitude and timing of future debt reduction to be determined by general business trends.
Speaker Change: Need to build inventory in the first half of the year.
Speaker Change: In the amount of excess cash generated in the back half of the year during pool season.
Speaker Change: Moving to capital allocation, we plan to pay down debt by $25 million in the current quarter with further guidance on pay down to be communicated during our February call.
As a result, we expect to limit new store openings and M&A activity to focus on our debt Paydown priority.
Speaker Change: I will now turn it back over to Jason for closing remarks.
Jason Mcdonald: As we move forward in fiscal 2025, I believe there is strong value creation potential for less lease and all of our stakeholders.
Jason Mcdonald: We believe we have when every successful retailer needs to win with the customer we.
Jason Mcdonald: We believe less lease is in an advantage industry has key competitive advantages differentiated omnichannel solutions and a great team to serve our DIY and pro customers.
Jason Mcdonald: Our three strategic themes of customer Centricity convenience and asset utilization will drive our key initiatives and be fueled by the pride of our employees.
Jason Mcdonald: We believe that their pursuit of excellence in execution provides a value proposition that our customers are going to embrace.
Jason Mcdonald: As we left the Leslie Pride Shine through we are going to ensure we have a clear focus on the fundamentals.
Jason Mcdonald: Over the coming weeks and months I look forward to continuing my conversations with our stakeholders to frame our opportunity set solicit their valuable feedback and then go and win with our team.
Speaker Change: I will now turn it back over to the operator for Q&A.
Speaker Change: Please proceed.
Speaker Change: Thank you, we'll now be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if you'd like to remove your question from the queue for participants using speaker equipment and may be necessary to pick up your handset before pressing the star keys one moment. Please.
Speaker Change: While we poll for questions.
Speaker Change: Thank you. Our first question is from Kate Mcshane with Goldman Sachs. Please proceed with your question.
Speaker Change: Hi, good afternoon, thanks for taking our question.
Speaker Change: Jason I wanted to ask a little bit more about the strategic focus for Leslie.
Speaker Change: Which one of those strategic deals do you think will make the largest impact in <unk>.
Near to medium term.
Speaker Change: Thanks, Jay Thanks for the question.
Speaker Change: Firstly when I look at the strategic themes for me what I love about those themes is that they are strategic themes that are developed by the team members and as a result of listening and learning through the early days.
Speaker Change: CEO here at Lowe's lease and helps shape. Our go forward plan. The other pieces and focus is on the comp sales side, if the growth and also making sure that we have focused on driving improved efficiency to drive leverage through the P&L.
Speaker Change: So on your question specifically around impact.
Speaker Change: Having that as a backdrop asset utilization.
Speaker Change: The one area in the one theme that I think does the best job of the actions that helps us focus on optimization, but it also helps in regards to how we improve same store sales.
Speaker Change: So early on and when looking at <unk> prior to starting and then often when I came in and spending time looking at the stores and Dcs.
Speaker Change: And if I add that this is this is an area with the team that we should have as a critical focus so as I broke that out between physical assets technology and data assets, and then obviously people and human capital.
Speaker Change: There is an opportunity here for less lease.
Speaker Change: Our proximity advantage is there a proximity of assets really demonstrates that we are structurally advantaged add leslie and with that with combination with our supply chain.
Speaker Change: Our supply chain in our Dcs as well as our customer service centers and where our proximity of stores or is one thing that we can really leverage and I think that that's an area of focus that I want to make sure. We as a company have to make sure that we're delivering on our customer needs going forward.
Speaker Change: Another piece of the physical assets is it inventory.
Speaker Change: I'm pleased with how the team has reduced inventory in 'twenty four.
Speaker Change: That said I think from visiting stores et cetera in D. C. I think there's also an opportunity to drive some optimization optimization, meaning further reduction over time, but also this concept of <unk>.
Precision inventory, which I mentioned in my opening remarks, the precision inventory for us it's about how do we make sure we have the right product at the right place at the right time and not every part of the country is equal in terms of our assortment that needs to be there on the tech side, we have a tool that's going to help us with that we have in inventory.
Speaker Change: <unk> tool that enables us to to really bring precision there and really drive the precision around the depth and the breadth of the inventory that we have so in that combination I think we have opportunities both in breadth and also depth and want to make sure. We have the right depth in things as I mentioned around.
<unk> the most important skus for our company.
Speaker Change: Another piece on the tech side for <unk>.
Asset utilization is.
Speaker Change: One item around first party data, we have a lot of information regarding our customers and.
Speaker Change: How they how they thought about their pool and how they operate and what they are and.
Speaker Change: And how their day to day operations of the cooler and how we can best serve them.
This is an opportunity for us to even get more personalized and we have that personalized ability through our water tests, where people come in and get their water tested.
Speaker Change: And we can provide that level of technology and trust for them.
So feel great about that I got to see this firsthand in California.
Speaker Change: And when I was standing there I saw Qatar command customer came in and Jim leaned over to me and said.
Speaker Change: This Lady comes in every week and I shouldn't really every week. So yes. She just wants to see what our score was so she was excited when she got over an 80% underscore and I asked her I said.
Speaker Change: So you come in every week. She goes yes, I just love the ladies here.
Speaker Change: So that showed me a real key area around the other part of leveraging our assets, which is literally our human capital and our people on the frontline of grades and they haven't really opportunity to share their expertise and build confidence.
Speaker Change: So in a nutshell I think its asset utilization to answer your question and I firmly believe it's the balance that.
Really a clear focus here for comp sales growth and then driving efficiency to drive letters to the P&L and then as Scott mentioned continuously paid down the debt.
Speaker Change: Thank you and I just wonder if I could follow up with a second question just wondered if you could talk a little bit more as to why you're seeing the relative strength in the pro business versus the rest of the business and what you think is driving that.
Speaker Change: Yes, I'll take that one.
Speaker Change: Thanks for the question, Yes, a couple of good things going on in the pro business.
Speaker Change: Dave Casper leadership, he is really engaged the team.
Speaker Change: Driving sales and so.
Speaker Change: And knowing what's important to them right and so we've done several flash sales that we've done in the past and we've kind of reinvigorated those.
And <unk> seen really good response and so.
Speaker Change: It's really more targeted promotional activity around more kind of an event for flash sale play.
Speaker Change: Played out well.
Speaker Change: Continue to add more pro partners. So we have 4400 pro partners today, it's about 14% higher than last year and so.
Speaker Change: Those pro partners spend in excess of $10000 a year at Leslie so.
Speaker Change: Another positive and then just really dialing into pricing.
Speaker Change: And all of the key skus to understand where the market is and where we need.
Speaker Change: Our pricing to be the most competitive and that's paid big dividends.
Speaker Change: Because as you probably know the pros are very price sensitive they want to shop at Leslie, but we have to be competitive we priced and so that's another another area, where I think we're doing better and getting more refined data.
Speaker Change: It's paying off with a price.
Speaker Change: Thank you.
Thank you. Our next question is from Simeon Gutman with Morgan Stanley. Please proceed with your question.
Alright. Thank you so much for taking our question I guess the first question is just on comps of negative $8 three for the quarter. Just curious if you can break that out between ticket and traffic was this driven on one more so over the other thank you.
Speaker Change: It was great it was.
Driven more by traffic so very similar to what we've seen in recent quarters.
Speaker Change: Traffic has been the main driver of our call.
Speaker Change: And so.
Speaker Change: Yes, Jason talks about some of the initiatives.
Speaker Change: Really laser focused on driving that top line.
Speaker Change: And really leveraging our competitive advantages.
Speaker Change: In our stores and in other channels and so that's that's one of our main focuses right now to drive traffic.
Speaker Change: Okay, Great. That's helpful and I guess a follow up is just on the unit growth. So your current focus is to focus on the current assets you have and you talked about opening three stores for fiscal 'twenty. Five can you talk about how this maybe changes your long term unit growth outlook. The 2%, 3% is that still something we can get to and in the media.
Speaker Change: Term thank you.
Speaker Change: I think so I think at some point, our near term priority is to pay down debt and so we generated.
Speaker Change: Lot of cash last year and ended the year with about $108 million on the balance sheet puts us in a good position to start executing that pay down on debt and that will remain our key priority for the near term from a capital allocation standpoint.
Speaker Change: As we think about future growth, whether it be a buy or build situation.
Speaker Change: There is still plenty of opportunities out there and so.
Speaker Change: When we get to a point, where we're comfortable with adequate pay down the debt. We will start engaged on new store builds in.
Speaker Change: In a bigger way and more M&A activity.
Speaker Change: But that being said the other reason is just we want to focus on the core Brian we want to really focus in on our initiatives improve the core.
Speaker Change: Profitability and top line and then after we get some traction with that will be in a better position to reengage on gross.
Speaker Change: And just to build on that.
Speaker Change: I think the biggest piece of us from a focus standpoint on growth and I'm glad you asked that question because it is a crystal area, Okay Crystal clear area of focus for us.
Speaker Change: In terms of baseline growth and really it has to do with <unk>.
Speaker Change: Going deep with our customer we.
Speaker Change: We believe that we have some really strong competitive advantages in the marketplace around proximity obviously the quality of the product portfolio. The expertise that we have in our stores.
Speaker Change: <unk>.
Speaker Change: The water testing the technology that we have an omnichannel approach that we need to continue to work to bring more awareness to <unk>.
Speaker Change: And that can help us drive some traffic in addition to that when we are driving that level of awareness.
Speaker Change: And people are visiting less leaves us to then continue to bolster our loyalty program.
Speaker Change: Strong level of personalized data today that that gives us information about our customer, but I think we have the opportunity to even go further with that both of those are going to allow us to build plans to drive long term sustainable growth at Leslie.
Speaker Change: Great. Thank you.
Speaker Change: Thank you. Our next question is from Ryan Merkel with William Blair. Please proceed with your question.
Speaker Change: Great. Thanks for taking the questions I wanted to start off on gross margins, which had been sort of a disappointment and bore again this quarter. So what are some of the strategies you're thinking about to improve gross margins and are you thinking you need to have more cost takeout from here or is your focus on more improving the topline.
Speaker Change: Yeah. Good question, Ryan I think.
Speaker Change: Well first off I think it's more topline focus okay and so.
Speaker Change: This past quarter, we had a little bit higher.
Yes inventory and scrap entries.
Speaker Change: Some of that was kind of weighted towards the back half of the year.
Speaker Change: So, we'll always have that probably a little bit of room to reduce that.
Speaker Change: But by and large I mean, I think we control our.
Speaker Change: <unk> expenses pretty well and it's all about driving that top line. So we can get leverage right. So.
Speaker Change: Our deleverage on occupancy alone was almost 80 basis points last quarter.
Speaker Change: We had more deleverage on DC costs as well.
Speaker Change: As we look at it we'll continue to refine kind of did the DC operations and inventory adjustments and so forth.
Speaker Change: So some marginal improvements there to be had but it's really about driving top line. So we can leverage the fixed cost and so.
Speaker Change: It really comes back to what Jason is talking about and kind of those key initiatives that we see that we can start to engage on to to drive the topline and pro and other categories.
Okay. That's helpful.
Speaker Change: And then a question on inventory do you feel like you're right sized here or do you have to talk more.
Speaker Change: And I think you mentioned the localized assortments and the precision inventories. So just how do we balance all those things.
Speaker Change: Yeah. Good question, we as we look at it there is still some room to take out inventory not nearly as much as we saw this past year.
Speaker Change: But as Jason has walked a lot of stores and distribution centers.
Speaker Change: And commercial centers, there's a lot of inventory out there that is kind of stuck right and so.
Speaker Change: From an allocation standpoint, there is a pretty nice opportunity to consolidate some of that inventory and get it back to our warehouses.
Speaker Change: And really just tightened up our allocation strategy, especially on the high ticket items.
Speaker Change: So that initiative will help us free up dollars to put more dollars into those specific items that was never outs that are so important.
Speaker Change: Our customers and our froze.
Speaker Change: Thank you think were the big word I used in discussion discussing this with the team and is proceeding as this word. Thank you as you mentioned precision.
Speaker Change: And it is about making sure we have the benefit of having stores. So close to all the pools across America that we can build a efficient assortment.
Speaker Change: Because we can be very tailored to the pools in those neighborhoods and I think that that's a significant opportunity for us and then at the same time you lever some of the technology, we've had and we have and further utilize it even better to then really manage the breadth and the depth of what we're talking about from an inventory standpoint. So we can do the level of utilization and almost and.
Speaker Change: PNC that we need for inventory.
Speaker Change: Which is what Scott mentioned.
Speaker Change: Alright, Thanks, I'll pass it on.
Speaker Change: Thank you. Our next question is from Jonathan Matt Lucey with Jefferies. Please proceed with your question.
Speaker Change: Great. Good afternoon hygiene Tonight's Scott. Thanks for taking my question. The first one was just on 2025 without formal guidance for the year, maybe you could just share some high level qualitative views in terms of some of the underlying.
Speaker Change: Trends that you expect maybe.
Speaker Change: Any nuances in terms of how youre thinking about chemical demand versus equipment.
Speaker Change: Or b versus traffic.
Speaker Change: I know this past year it was a big theme between discretionary versus non discretionary.
So any high level views.
Speaker Change: It would be helpful. Thanks.
Speaker Change: Yes sure.
Speaker Change: Yeah. So so a lot there I think I think for us from an equipment standpoint, still down 15% or so we are seeing some bright spots in that category and.
Speaker Change: Some of the promotions that we ran targeting equipment free installs and things like that has resonated quite well and so I think there are some learnings.
Speaker Change: That we've taken from the last quarter that we can.
Speaker Change: Further deploy this year to try to push that business, but at the end of the day a lot of it this is going to come down to consumer behavior.
Speaker Change: And just how willing they are to spend those dollars on the more discretionary items.
That being said we have made some improvements in our hot tub business. So we were down five for the quarter down.
Speaker Change: Down 9% for the year and that is really a function of the team really engaging more with the leads that we generate and having better tools to execute against those leads.
Speaker Change: And then be more creative having more hot tub events.
Speaker Change: <unk> and other areas has really paid big dividends for us and so part of it is on US just to.
Speaker Change: Really spur that demand.
Speaker Change: Kind of targeted events.
Speaker Change: And promos.
Speaker Change: And part of it is external but the way that we think about it is.
Speaker Change: How can we improve what we do too.
Speaker Change: Yes.
Speaker Change: And I'll make sure that our pricing is right make sure. The awareness is there to make sure. The marketing is targeted to draw those customers in and then just leverage our competitive advantages we have so many advantages.
Speaker Change: We think there is still more to do there to take full advantage.
Speaker Change: Okay. That's really helpful. Thank you and then just my follow up question was on E Commerce.
Speaker Change: I think it annualizing around or in excess of 20% of total sales, but just wanted to understand the opportunity there.
Speaker Change: Thank historically Leslie this has been a large chunk of Amazon Poland.
Our pool and Spa care business.
Speaker Change: Where does that business stand today, and and if they are incremental growth there. Thanks.
Speaker Change: Yes.
Speaker Change: It's kind of two sides of the business really.
Speaker Change: Our marketplace business and yes.
Speaker Change: Somewhat in the swim business is much more price sensitive and especially Amazon to get that buybacks, you've got to have your pricing sharp.
And so thats a piece of it that we continue to get better with.
Speaker Change: And the other part is just making sure the availability is there.
Speaker Change: And that that prime we're hitting all the targets to make sure that we're on prime. So it's really just making sure. We have the right products are in we're competitively priced and we make adjustments almost on a daily basis.
Speaker Change: Leslie proprietary site.
Speaker Change: Little bit different story, I mean, Leslie proprietary site was actually positive in the quarter.
And yes, certainly there are some synergies there.
Speaker Change: <unk> to our store with that site.
Speaker Change: We can offer you know promos on equipment offer free installs on that site and it gives us a big advantage and so there is some threads there that we're going to continue to work on that can leverage that site.
Speaker Change: More than the other two.
And just to build on that.
Speaker Change: <unk>.
Speaker Change: What's your sense here is that the opportunity for us is really about taking a omnichannel approach going forward as well and so.
Speaker Change: Looking at the digital side, which is not only the ecommerce site, but it's also the effectiveness of our mobile App, how do we connect both to digital.
As a way of doing business with our brick and mortar and finding the best ways to serve our customers by making sure that we meet them, where they are and Thats. One of the pieces that we're very focused on is how do we leverage some of the successes that we've had around ecommerce as Scott just mentioned on some of those but do so in an integrated way to best serve that.
Speaker Change: Customers needs and it's really about us spending a lot of time going deep on each of the customer journeys candidly for growth DIY and pro.
Speaker Change: And meeting them and providing them with the solutions.
Speaker Change: That they want going forward.
Speaker Change: Thanks for that best of luck.
Speaker Change: Thank you.
Speaker Change: Thank you. Our next question is from Steven Forbes with Guggenheim Securities. Please proceed with your question.
Speaker Change: Good evening. This is Rene Marion on for Steve Forbes, Jason Scott can you just expand on the $5 million contractual gross margin headwind I guess was it volume related and then as you think about your sourcing agreements across all product categories are there any other risks we should be aware of as we reframe the out your gross margin profile.
Speaker Change: Yeah first off we don't really see any any additional risks so.
Speaker Change: As far as kind of the vendor contract language. What happened there is late late in the year, we renegotiated one of our supplier contracts and.
Speaker Change: What it involved was.
On some responsibility for warranties in exchange for higher volume based rebates.
Speaker Change: And so.
Speaker Change: And doing that we had a fixed rebate that we had had over the years that was actually taken out of that contract as well and so it was kind of a total recast of that agreement.
Speaker Change: What what we saw was that the warranty costs were.
Speaker Change: Escalating and much higher than what we thought they would be and so we quickly.
Speaker Change: Re negotiated with that vendor and talk through a scenario that could work for both of US and ultimately came up to an agreement that.
Speaker Change: No longer had us liable for those warranties.
Speaker Change: The first day of this fiscal year, Okay, and so I think it was an anomaly where we saw those escalating.
Speaker Change: Warranty costs, we reacted with a vendor pretty quickly I've got a new contract in place and so that won't be an issue going forward.
Speaker Change: Got it and then as a follow up can you break down or provide any additional color on the <unk> gross margin pressures as implied by the guidance into various factors.
Speaker Change: Yeah sure.
Speaker Change: First off.
Speaker Change: Based on the old contract with that supplier I just talked about we did have some fixed rebates that hit in the first quarter.
Speaker Change: And that will cause about 75 basis points of pressure there.
Speaker Change: Without that without that are kind of our product margin will actually be slightly favorable.
Speaker Change: Which is a function of some lower cost.
We also will see a little bit higher cost in some DC cost in some inventory adjustments and that's really a function of doing things like cycle counts on a more regular basis.
Speaker Change: Instead of kind of wait until a physical inventory and we've done that in the past but.
Speaker Change: Based on some of the adjustments we saw in fourth quarter tells us that we need to do more cycle count on a regular basis and kind of spread out.
Speaker Change: The cost of those inventory adjustments.
Speaker Change: And keep track of it.
Speaker Change: And other than that the main drag as occupancy so occupancy will be about 100 basis points of drag in the quarter.
Speaker Change: Got it thank you.
Speaker Change: Sure.
Speaker Change: Thank you. Our next question is from David Bellinger with Mizuho Securities. Please proceed with your question.
Hey, guys. Thanks for the time here I appreciate all the prepared remarks from from Jason Arco.
Speaker Change: Our question just on the some of the internal initiatives you guys laid out and maybe some of the retail fundamentals, maybe not where they should be at this point could.
Speaker Change: Could you talk about any potential reinvestment that's needed and I know you talked about building awareness.
Speaker Change: Is there a certain level of dollars that have to go back in.
Speaker Change: To get awareness, where it should be and get Leslie that could be on top of the mindset of consumer and then anything that wages to should we expect some kind of increase in wages to get that no that asset leverage out of the store base that you're talking about.
Speaker Change: Yeah. Thanks for the thanks for the question.
Speaker Change: I think firstly, we are at the early stages of the development of the team is going through.
Speaker Change: As I mentioned the collaboratively around the focus of our clear priority is around those three initiatives and then they are building the plan around this.
Speaker Change: FX around those initiatives.
Speaker Change: And I'll be able to discuss that more.
Speaker Change: From quarter to quarter as we go throughout the year and I will make sure to do that.
Speaker Change: Maybe to answer the second part of your question regarding maybe just investments.
Speaker Change: In this period in a spirit of.
Speaker Change: Delivering and driving traffic.
Speaker Change: For me, it's not determined yet in terms of additional funding that is required I sort of look at two things when thinking about driving critical traffic for for Leslie is going forward.
Speaker Change: The first is is that I want to make sure that we look at it I guess, maybe the art and the science of that being an answer the RFP, what's the key messaging and the communication that we need to do to our customers so that.
Yeah did you persuade them to obviously come to lessees and and drive traffic. So I think the foundation of the competitive advantages we have around obviously being the proximity around being in their local neighborhoods to our I'm sorry.
Speaker Change: Sorry to our deepwater testing capability, we have the expertise we have in stores. These are all things that we can then communicate to our customers and make sure we do so.
Speaker Change: <unk> part of this and that would be the yard the science to me as I've spent a lot of time in my career as early as maybe 2006 on marketing mix modeling.
Speaker Change: And when looking at marketing mix modeling.
Speaker Change: It doesn't necessarily to build awareness you need to just add marketing spending you can reallocate your current marketing spending to areas that drive efficiency and drive the best performance based off of good modeling and leveraging data and analytics to see what kind of best return, we can get from the investments, we make and choose the mediums appropriately.
Speaker Change: So I plan on doing both with the team is defining the best message and obviously the best in supporting our initiatives.
Speaker Change: That then doing so the right way with a prudent approach on how do I leverage the kit the consistent spend we have today and do it as the most efficient as possible.
Speaker Change: Great. Thanks for that and then my second question it looks like you're essentially pausing new store growth.
Speaker Change: Pausing some of that tuck in M&A activity.
Speaker Change: Sure.
Speaker Change: We think about 2025, the vast majority of free cash flow going to debt pay down is there any way to frame up just how much that could be in addition to that to the 25 million you'd mentioned in Q1.
Speaker Change: Yes, good question.
Speaker Change: And it's hard to frame up the exact dollar amount for the remainder of the year, but.
Speaker Change: I think the point here and the message here is that we are committed to that priority. It will remain our number one priority to pay down debt for the foreseeable future.
Speaker Change: Store growth and M&A is important to us and the long term you know it plays a big role in our growth and so in the meantime, we will continue to build the pipeline and to fine tune, where those next stores will be.
Speaker Change: Do you have a pretty robust pipeline of M&A.
<unk> will continue to build on that.
So when we're ready to Reengage, we can shorten the time window.
Speaker Change: It's going to take.
Speaker Change: I appreciate all the detail thank you sure.
Speaker Change: Yeah.
Speaker Change: Thank you. Our next question is from Justin Kleber with Baird. Please proceed with your question.
Speaker Change: Hey, good afternoon, guys. Thanks for taking the questions first one was just on.
I wanted to ask about chemical AUR trends, we noticed.
Speaker Change: You've been highlighting a new low price on shock.
Speaker Change: Curious if that's you being proactive in passing through lower product costs or are you following others in the industry that are taking price lower and then just how do we think about any sales or margin impact from this change compared.
Compared to some of the broader chemical price reductions you took in June 23.
Speaker Change: Sure.
Speaker Change: Yes, so first off it's not near the magnitude and really not comparable to June 2023.
Speaker Change: I would say is we're being kind of targeted on.
Speaker Change: Pricing and it's particularly in the pro area I mentioned earlier that we.
Speaker Change: You need to be more competitive on pricing and we're doing that and it is showing some good topline results and so that's that's where were kind of placing our chips right now is in the pro area.
Speaker Change: And the kind of the residential customer pricing is pretty stable and so we haven't really had to move.
Too much at retail.
Speaker Change: Customer level.
Speaker Change: In order to fund kind of lower pricing on pro.
Speaker Change: We have had some better pricing come through on our key chemicals and so that is basically covering most if not all of that reduced price.
Speaker Change: Got it great. Thanks for that color Scott and then just a follow up to <unk>.
Speaker Change: David's question regarding investments can you just talk conceptually about the SG&A line.
Speaker Change: It states that you operate and continue to raise minimum wages. So just the question is can you continue to reduce SG&A dollars on.
Speaker Change: On a year over year basis like you did this past year, while simultaneously, making these investments.
Speaker Change: That are needed to turn the traffic and the topline yeah. Good question. Yeah, I think it's I think it's more difficult for sure because we have made some pretty significant reductions in SG&A.
Speaker Change: And we want to be thoughtful about that right. We want to make sure that we have the structure to support the business and the growth of the business and so really our mentality on SG&A is that we will continue to invest in that area, but we want to follow the growth right and so we want to start to see that growth first and then we'll follow with.
The SG&A growth behind that.
Speaker Change: I think one thing to keep in mind as we move forward here.
Speaker Change: The incentive compensation thats been quite low in the last two years and so I think one thing to think about.
Speaker Change: When things do pick up a little bit you know that.
Speaker Change: Incentive compensation will will move higher as that happens.
Speaker Change: But all the other areas in SG&A I think we have a really good handle on and we have good control over and we're very mindful on spending additional G&A and we will do that.
Speaker Change: You know to take care of our teams and to make sure we're funding the growth.
Speaker Change: Yeah.
Speaker Change: I appreciate the color, thanks, and best of luck.
Speaker Change: Okay.
Speaker Change: Thank you that's all the time, we have for Q&A today. Thank you for joining the call you may now disconnect.
Speaker Change: Okay.