Q2 2025 Leslie's Inc Earnings Call
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Speaker Change: Good afternoon and welcome to the Fiscal Second Quarter 2025 Earnings Conference call for
At this time, all participants or any listen-only mode
Speaker Change: Following the prepared remarks, management will conduct a question and answer session.
Speaker Change: If you require any operator assistance during the conference call, please press star zero on the telephone keypad. As a reminder, this conference call is being recorded and will be available for replay later today on the company's investor relations website.
Speaker Change: I will now turn the call over to Elizabeth, Ice Laban, Senior Vice President, Investor and Public Relations.
Speaker Change: Good afternoon, and thank you for joining us today to discuss our fiscal second quarter that ended March 29th, and the progress we're making across our strategic initiative.
Speaker Change: I'm joined today by Jason McDonell, our chief executive officer and Tonya Scander, our interim chief financial officer and treasurer.
Speaker Change: Following their prepared remarks, we will open a call to address your questions unless otherwise stated all references to quarterly or annual performance refer to our physical reporting period and all references to comparisons made our versus the prior fiscal year reporting period.
Speaker Change: I'd like to remind everyone that comments made today may include forward-looking statements which are subject to risks and uncertainties that could cause actual results to differ materially from those projected or implied by the forward-looking statements.
Speaker Change: All statements other than statements of historical facts are forward-looking statements, including, but not limited to, estimate, may, could, will, believe, expect, would, consider, should, anticipate, project, plan, intend, or similar words.
Speaker Change: Additional information about factors that could cause actual results to differ can be found under the caption, forward-looking statements, and risk factors in our most recent annual report on form 10K and subsequent filings made with the commission.
Speaker Change: In addition, during our call today, management will refer to certain non-GAAP financial measures.
Speaker Change: A reconciliation between the GAP and non-GAAP financial measures is included in our press release, which was furnished to the Securities Exchange Commission today and posted to our Investor Relations website. Now, I'd like to turn the call over to Jason.
Jason Mcdonell: Thanks, Elizabeth. I'm excited to have you on the team. I want to begin by thanking the entire Leslie's team for the urgency, resilience, and customer first mindset they demonstrated in our second quarter.
Jason Mcdonell: We recognize that much of the progress we're making will take time to become fully evident in our results.
Jason Mcdonell: The amount of change we're driving across the business is significant and would not be possible without the unwavering dedication across every team in our organization.
Jason Mcdonell: As we prepare for peak pool season, we are executing against our key initiatives that we believe will enable the successful transformation of our business.
Jason Mcdonell: Our diligence in executing strategic initiatives is beginning to yield earlier improvements across the business.
Jason Mcdonell: The team is energized as we came together to deliver bottom-line results consistent with our expectations laid out last quarter, despite a softer than planned top line in the quarter.
Speaker Change: Before I turn the second quarter performance and update on our transformation, I want to welcome Tony
Speaker Change: Tony began working with Leslie's in late 2024 as a senior finance and accounting consultant before being appointed our interim CFO .
Speaker Change: We recognize we are at a critical time in this transformation journey and Tony will be invaluable as we deliver against our top capital priority of death reduction and position the company for long term value creation.
Speaker Change: We're grateful for the swift improvements Tony's driving across the organization.
Speaker Change: Keeping with the Perform, Lylee Transform Mindset that you've heard about on our prior calls. Today I will discuss how we performed in the second quarter, including an update on how our strategic initiatives are progressing.
Speaker Change: Then, turning to Transform, I will share our next set of strategic initiatives under the three pillars we've previously outlined, including customer centricity, convenience and asset utilization.
Speaker Change: I will then turn the call over to Tony to dive deeper into our financial performance and reaffirmed expectations for the balance of the year.
Speaker Change: Finally, Tony will introduce a fourth pillar of cost optimization, which is all about continuous improvement in driving accelerated
Speaker Change: Starting with the second quarter performance, sales were softer than expected with weaker foot traffic in February driven by significantly cooler temperatures than usual, resulting in a decline of 6% year over year.
Speaker Change: Looking at sales by our business units on a year-over-year basis, pro-pool sales continue to outpace total company sales, and we're down 2%.
Speaker Change: Residential pool sales declined 9% and hot tub sales increased 4% year-over-year.
Speaker Change: With that said, by leveraging the expertise of our store team in enhanced reliability, we continued to deliver positive growth on conversion rate, which improved 174 basis points versus prior year.
Speaker Change: Importantly, looking at performance after water test is performed with our proprietary acu-blue technology, we increase total conversion by over 450 basis points.
Speaker Change: We believe our strategic conditions, including in-stock rate improvements, are showing early signs of contributions to our conversion rate, which I'll touch on in a bit.
Speaker Change: Turning to our adjusted EBITDA performance in the quarter, I am pleased with the team's ability to take action and control costs, delivering that Justin EBITDA within our guide at a loss of 36 million dollars.
Speaker Change: As a reminder, the second quarter only represents approximately 13% of our annual sales.
Speaker Change: Our ability to achieve adjusted EBITDA guidance, even with some top line softness, is a proof point of the early progress we're making as a team.
Speaker Change: Moving to our strategic initiatives, which remain centered around customer centricity, convenience and asset utilization.
Speaker Change: I want to provide updates on one, optimizing inventory and utilizing local fulfillment centers or LSCs.
Speaker Change: two, Winning and Pro, and three, optimizing DIY on the channel to build loyalty.
Thank you.
Speaker Change: Starting first with optimizing inventory and utilizing the LFCs, I'm thrilled to share that all 26 LFCs we announced last quarter are operational and were completed on time, under budget and are already having a positive impact on our customers.
Speaker Change: Importantly, by utilizing existing locations, these strategic assets required minimal capital investment, as you'll hear from Tony shortly.
David Bellinger.
Speaker Change: Serving as many hubs, our LFCs support our focus on precision inventory in helping to improve
Speaker Change: A component of optimizing inventory includes our focus on our never-out skews.
Speaker Change: that are most critical for serving both residential and professional customers.
Speaker Change: In the second quarter, we achieved more than 99% in stock levels in these never-outscues.
Speaker Change: This is a 170 basis point improvement compared to the end of the first quarter in an impressive 600 and 20 basis point improvement since the beginning of the year.
Speaker Change: This is a key factor in our ability to improve conversion rate.
Speaker Change: Importantly, while improving in stock rates, we continued to reduce inventory by 12%. An inventory returns improved 8% versus prior year.
Speaker Change: By operating with a precision inventory mindset, we believe we can extend this momentum to peak pool season.
David Bellinger, David Bellinger,
Speaker Change: As we look to the future, we believe there are additional opportunities to further optimize our inventory, which will improve cash flow and support our top capital priority of reducing debt.
Speaker Change: Furthermore, we also expect our LSEs will allow us to enhance and optimize our go-to-market strategy in the future, inclusive of our op-on-the-channel approach, store footprint and distribution centers.
Speaker Change: Moving to our second initiative, Groan Pro, our momentum is building as evidenced in year-over-year improvement in pro-sales in our second quarter, which delivered a 700 basis point improvement from the 9% decline in the second quarter of the prior year.
Speaker Change: A key driver to this improvement is our team's focus on growing pro-share and establishing new partner contracts across our entire footprint.
Speaker Change: We believe we will further capitalize on the significant share opportunity across our more than 1000 stores as we improve speed, convenience and inventory availability for Pro Customers.
Speaker Change: Through the rule out of personalized strategic communications to the PRO, coupled with our refreshed marketing initiatives, we believe we're taking the right steps to grow PRO heading into the
Speaker Change: Our third strategic initiative, as we discussed last quarter, is optimizing DIY on the channel to build loyalty.
Speaker Change: We added new functionality and capabilities to Leslie's website and our mobile app in the second quarter, which are significantly improving the user experience.
Speaker Change: In February , we launched enhanced service scheduling capabilities, enabling both store-team members and customers to see estimated costs and reduce processing time, which together resulted in a large increase in online service appointments.
David Bellinger, David Bellinger,
Speaker Change: Pacific to the redesigned app. It now provides an integrated platform with best-in-class search and shopping options.
Speaker Change: In addition, with improved speed for the customer, they are utilizing new features such as hands-free voice search to easily order pull supplies.
Speaker Change: We believe these enhancements began to have an immediate impact on the DIY customer experience and strengthen Leslie's position as a trusted expert in pool care.
Speaker Change: Now, as we look forward to the balance of 2025 and strengthening our foundation for future success, I want to introduce a new set of
One, Building Leslie's Brandt,
Speaker Change: 2. Launching our enhanced pool perks loathe program, as well as improved personalization. And 3. Adding same-day delivery capabilities.
Speaker Change: First, our team is focused on building Leslie's brand through more efficient marketing programs to help drive traffic and improve marketing spend effects on this.
Speaker Change: Specifically, we are leveraging marketing mix modeling to ensure we optimize our investment as we reduce costs in this critical area with more efficient and higher returning marketing initiatives.
Speaker Change: With this approach, we recently launched We Are Pool People, a new marketing campaign which has been rolled out nationwide and features some of our own expert team members.
Speaker Change: We look forward to building on the strength of this campaign to increase brand awareness during our highest volume quarters.
Speaker Change: Our second new initiative is the launch of our enhanced pool perks loyalty program.
Speaker Change: As the first nationwide retail pool loyalty program in America, our program is well known among pool owners, with more than 80% of our DIY transactions are with pool perks members.
Speaker Change: However, this program has had minimal updates since its initial launch years ago, and provides a great opportunity for us to grow with and reward our most loyal customers with enhanced benefits.
Speaker Change: We launched the New Pool Perks Program in April , introducing loyalty tiers for the first time and is now integrated for customers within our mobile app.
Speaker Change: As customers grow within our loyalty tiers, they can now earn additional benefits as they increase their spend with Leslie's and trust us with a higher share of their pull care solutions.
Speaker Change: Moving from a perks member to a perks elite, or our highest here, the perks MVP, allows customers to earn rewards faster while providing unique and curated offers.
Speaker Change: Importantly, through the introduction of loyalty tears, we are also able to deliver cross-savings [inaudible]
Speaker Change: To further support our new pool parks program, we're now leveraging both zero and first party data to introduce personalization within our marketing efforts.
Speaker Change: This allows us to better serve customers by communicating more precisely.
Speaker Change: We can target DIY customers with what they need when they need it.
A great example of this is water chesting.
Speaker Change: with our proprietary AccuBlue system. We're giving customers a personalized report based on the size and composition of their pool.
Speaker Change: Utilizing their latest water test, we're able to give the customer a chemical prescription for exactly what their pool needs.
Speaker Change: This offering allows the customer to complete their basket with a total solution, helping to drive increased UPT through product bundles that include specialty and base chemicals often needed together.
Speaker Change: Through new marketing capabilities, we can now also provide offers on products we know are needed for the pool conditions, yet they have not purchased at Leslie's recently.
David Bellinger, David Bellinger, David Bellinger, David Bellinger,
Speaker Change: Building on our proprietary AccuBlue technology, our AccuBlue home system is another example of how we're delivering convenience to our customers.
Speaker Change: Since launching in May 2023, this in-home technology was previously only available to purchase online, resulting in an opportunity to build awareness and expand penetration.
Speaker Change: In the second quarter, we started the role of, in our now featuring, Accu Blue Home, in approximately 100 stores, with plans to expand nationwide.
Speaker Change: This product allows customers to see firsthand how easy it is to achieve the benefits of a clean, safe, and beautiful pool with accurate water testing capabilities from the comfort of their own home.
Speaker Change: Ultimately, this system drives customer convenience while increasing their loyalty and total spend with
Speaker Change: Finally, our third initiative is another great example of our commitment to customer convenience.
Speaker Change: With this focus, I want to highlight the addition of same-day delivery capabilities which we believe will improve asset utilization and enhance our ability to serve customers faster.
Speaker Change: Knowing our proximity to pools is a great competitive advantage, we first began to improve our competitive position through the addition of strategically located LFCs.
Speaker Change: These have allowed us to improve our inventory availability and speed to serve the customer.
Speaker Change: I'm pleased to announce that we've recently signed an agreement with Uber to launch same-day delivery services across our store network for pro and DIY customers.
I'm excited to launch Simeon Day delivery with Uber this summer.
Speaker Change: As it will further bolster our focus on customer centricity, convenience, and asset utilization with an omnichannel total solution approach, and further differentiating Leslie's in the market while driving cost optimization.
Speaker Change: As we move forward, we are reimagining Leslie's core value proposition.
Speaker Change: We aren't just looking at Leslie's as a thousand stores and a network of distribution centers.
Speaker Change: Rather, Leslie's is a dynamic network that can respond quickly to any customer need by leveraging our differentiated assets, and we believe we can do this better than anyone in the industry.
Speaker Change: I am committed to optimizing our entire assets footprint to ensure we're strengthening
Speaker Change: I will now turn it over to Tony to discuss performance in the quarter, provide our outlook for the second half of the year, and introduce our cost optimization pillar. Tony?
Tony Iskander: Thank you, Jason and Good afternoon. I'm excited to be part of the team reshaping our operational efficiency to deliver improved financial performance. I've had the pleasure of getting to know the Leslie's team and have been impressed by their dedication and commitment towards improving our financial future.
Tony Iskander: Turning now to financial performance in our second quarter, sales were 177.1 million dollars compared to 188.7 million dollars in the second quarter of the prior year, which was primarily driven by weaker foot traffic as Jason discussed.
David Bellinger, David Bellinger, David Bellinger,
Tony Iskander: First profit was $43.9 million compared with $54.3 million in the prior year. Chris Margin was 24.8% compared with 28.8% in the prior year.
Tony Iskander: Approximately half of the decline in rate was driven by an increase in DC and occupancy costs.
Tony Iskander: The balance of the decline was driven by mix, rebate overlap, and lower volume.
Tony Iskander: As a reminder, the rebate overlap is versus the prior year quarter, which we expect to be a benefit in the fourth quarter.
Tony Iskander: FGNA was $92.3 million compared to $84.9 million in the second quarter of the prior year and as a percent of that sales was 52.1%
Tony Iskander: The increase in both dollars in rate was primarily the result of increased labor cost, inclusive of executive transition expenses and professional fees.
Tony Iskander: As part of our commitment to pay down debt, we are focused on working capital and increasing cash generation.
Tony Iskander: As Jason mentions, inventory optimizations is a key priority to improve working capital.
Tony Iskander: Leveraging improved analytics and our inventory management tool, we once again reduced inventory compared to prior year and ended the quarter at $335.1 million, approximately 12% lower compared with the same quarter last year.
Tony Iskander: Importantly, we expect to reduce inventory by at least $15 million at the end of 2025, versus prior year with further optimization in 2026.
Tony Iskander: Our team is working diligently on detailed plans to significantly reduce inventory which directly supports our top capital priority of debt reduction and we expect to share more with you in the future.
Tony Iskander: Here today we reduce borrowings on our secured term loan by $27 million to $756.7 million.
Tony Iskander: We had $101.5 million outstanding on our revolving credit facility at the end of the second quarter, which we expect to repay in full during our third quarter.
Tony Iskander: At this kind of cloud quarter, the majority of our products are sourced domestically, limiting our tariff exposure.
Tony Iskander: Based on what we know today on an annualized basis, we estimate our total tariff exposure to be approximately 10 to $12 million in product cost.
Tony Iskander: As part of our inventory optimization efforts, we believe we will mitigate a large portion of this impact in 2025 by utilizing inventory on hand.
Tony Iskander: We expect a fully offset any impact in the current year through strategic pricing actions to maintain margin rate.
Tony Iskander: As we begin peak full season, we remain confident in our team's ability to deliver against our previously provided guidance ranges, which we reaffirm today.
Tony Iskander: While we are not providing quarterly guidance, I want to provide some color as it relates to the back half of the year.
Tony Iskander: As we saw in the second quarter, we expect continued impacts from mixed shift as well as higher labor-related expenses year-over-year.
Tony Iskander: Additionally, the headlands we faced in the fourth quarter 2024 related to rebates will be a tailwind in the fourth quarter of this year.
Tony Iskander: Finally, we are reducing our previously communicated full-year capital expenditure expectations by $5 million, and now expect to spend $30 to $35 million.
Tony Iskander: This reduction is a result of lower than planned investments required to complete our first 26 LFCs, as well as detailed capital project reviews that prioritize the highest return initiatives.
Tony Iskander: Reducing debt and improving our working capital continues to be one of our highest priorities, and I want to provide more details on the fourth pillar of transformation that Jason introduced earlier regarding cost optimization.
OK.
Tony Iskander: Through our cost optimization pillar, we are driving efficiency across the organization with a continuous improvement mindset to deliver accelerated EBITDA.
This includes a comprehensive review of our cost structure.
Tony Iskander: We have already identified areas within the business of annualized cost savings of approximately $5 to $10 million, primarily within indirect procurement costs. We expect the bulk of the savings in 2026.
Tony Iskander: with an unrelenting focus on improving the fundamentals of the business. We see potential to optimize through the continued evaluation of all core and non-core assets.
Tony Iskander: We believe this allows us to improve the underlying business performance and deliver against our top capital priority of paying down debt.
Tony Iskander: In summary, we recognize the critical point we are at today. I want to reinforce our commitment to delivering continuous improvement in our business to drive EBITDA growth.
Tony Iskander: as well as improved cash flow to pay down debt and help position Leslie for a stronger financial future.
With that, I will turn the call back to Jason.
Jason: Thanks Tony. As you can see, Leslie's continues to move forward on our transformation journey while putting the customer at the center of everything we do.
Jason: We recognize the importance of focusing on the fundamentals of retail, while executing our key initiatives to deliver incremental improvement every day.
Jason: Our team remains committed to driving accelerated EBITDA growth and working capital improvement to support our top capital priority of fan down the debt.
Jason: I'm proud of how our team is working together to lead this positive change and we look forward to sharing further updates on the progress we're making. With that, we will open up the call to address your questions.
Operator?
Speaker Change: At this time, if you would like to ask a question, please press star one now on your telephone
Jason: to withdraw yourself from the queue you may press star two. Again, to ask a question that is star one on your telephone keypad. We ask that you please limit yourself to one question and one follow-up.
Thank you.
Speaker Change: Our first question is coming from Jonathan Matuszewski of Jeffries. Your line is open.
Jonathan Matyszewski: Great good afternoon and thanks for taking my question. My first one was just on the competitive landscape. You know Jason maybe you could kind of put this quarters. [inaudible] I'm sorry. I'm sorry. I'm sorry. I'm sorry. I'm sorry.
Speaker Change: Comfell's performance into context, first is Simeon Gutman, Pool Supply, Retail Peers.
Speaker Change: I imagine the broader landscape was impacted by weather, just like Leslie's, but any more data points you can share in terms of kind of your performance versus the industry and any comments on market share. Thanks so much.
Jonathan Matyszewski: Yeah, thanks for the question, Jonathan. Well, specifically I'd say from a total business standpoint.
Jonathan Matyszewski: is, you know, our PR quarter from a top line standpoint was, that was obviously impacted by whether specifically in January , February , we saw it come back there in March, you know, specific to a, to a share number, I don't.
Jonathan Matyszewski: We don't quite have that as a specific sheer calculation as the categories splits across our competitive competition is that unique.
Jonathan Matyszewski: You know, it's sort of a different competition in chemicals than we do in parts versus equipment versus seasonal items such as flotation items for your pool. That said to give you perspective on how I think we're doing in the marketplace competitively, I would say, let me break it out between Pro and DIY.
Jonathan Matyszewski: You know, I feel very good about progress or making him pro. You know, we talked about the strong pro performance in the quarter one.
Jonathan Matyszewski: that continued versus our average in quarter two, and I feel like we're in a gaining share position there, you know, and that is attributed to the clear focus that our team is having across the network from a pro standpoint.
Jonathan Matyszewski: If you remember from the last call, we talked about Leslie's pro stores and we had a hundred and we said no we're going to change the mindset here at Leslie's and we are going to make sure that all thousand stores are thinking about the pro customer.
Jonathan Matyszewski: and that's what I feel is taking place here, Leslie. Not only are we adding pro contracts, but also we've adjusted the assortment in our stores to make sure it fits both pro-NDIY.
Jonathan Matyszewski: We are also making sure that we're delivering on the in-stocks because I know from my past is that when winning with a pro really talks about speed and reliability matters the most.
Jonathan Matyszewski: and then we're putting specific marketing investments, and then the addition of LFCs gives our customers a reliable place to know that within a district they have a place they can go to that act like that.
Jonathan Matyszewski: Subhi, the first comment, they're Jonathan. The second part would be when we look at more like a DIY or residential, I would say that that's worked that we are focused on.
Jonathan Matyszewski: and we have an opportunity there. And that's why we have put together a variety of initiatives to drive that change and that trajectory change on the business and improvement in DIY or residential.
Jonathan Matyszewski: So we've had a variety of initiatives that we have brought forward.
Jonathan Matyszewski: some that we can build on from last time, which are around.
Jonathan Matyszewski: in stocks, as well as around some of the changes and upgrades we're making to our mobile app in our website. But then we have the exciting new additions we're bringing to the line-up for Leslie's that's to engage your customer. Whether that be the marketing program, the new marketing program we have in the Marketplace,
Jonathan Matyszewski: Whether it be the fact that we made the marketing more efficient from the standpoint of the leveraging marketing mix modeling to connect, our announcement of the new loyalty program with a personalization engine, where we can really bring personalized offers to customers.
Jonathan Matyszewski: We've taken past innovation like Accu Blue home and now we're getting expanded and obviously push it through the stores and then the recent announcement that we just made on this call around the addition of Uber and same day delivery options for this summer. So, you know, I feel like.
Jonathan Matyszewski: You know, we're transforming in the right direction and I feel like we have definitely opportunities for growth.
Jonathan Matyszewski: that's really helpful. And just a quick follow-up on pricing, Tony, I think you referenced some strategic pricing increases ahead, was hoping if you could just expand a little bit more there, whether that's across chemicals and equipment, whether that's just kind of tariff impact.
Jonathan Matyszewski: Impacted SKUs and any idea in terms of kind of the blended price hike that you're planning that's embedded in guidance. Thanks so much.
Tony Iskander: Yeah, thanks for the question, Jonathan. The real simple answer is we're only going to take pricing to offset any impacted products by tariffs.
Tony Iskander: and as a reminder, the tariffs on an annualized basis is less than 1% of our total sales, so we don't expect that we're going to take pricing or need to take significant pricing.
Thank you.
Simeon Gutmann: Thank you. Our next question is coming from Simeon Gutman of Morgan Stanley . Your line is open.
Speaker Change: Hi, this is Laurening on for Simeon. We wanted to first ask about the the completeness in Q2, you know, aside from the weather impacts and traffic, is there anything else about maybe the underlying fundamentals of the business that are relating to this completeness? Thank you.
Speaker Change: Hey, thanks for the question. I greatly appreciate that. We've done some work from an analytics standpoint on leveraging data tools on the weather trends that took place in January , February . We would
Speaker Change: You know, we looked at it and said, it actually would show that if the weather wasn't as the impact, we would have...
Speaker Change: We hit the center of the guide in terms of what we had in top line. So that was that's one piece of information. The other piece of information that makes me feel good about where we're headed both in the future, but also its impact in the quarter is the work that I'm seeing as a team on conversion rate.
Speaker Change: and the work on conversion where we consistently seen improvement on that.
Speaker Change: So, from a conversion rate standpoint, we mentioned in the quarter that we were up 174 basis points in conversion rate and I would say that that's directly attributable to some of the early actions that I wanted to put in place at the start.
which was making sure that we improved our instructs.
Speaker Change: So, we developed a program called the Never Out program and then Never Out really drove focus on our most important views.
Speaker Change: which were now at well over 99% and Candleley were at over 600 basis points higher from the start of that year, so that's impacting our conversion rate. The other part is the quality of our team members when it comes to expertise.
Speaker Change: We're seeing conversion rates also strong there as well, especially after a water test.
Speaker Change: We're seeing a massive increase of well over 600 basis points.
and conversion rate. [inaudible]
Speaker Change: So, you know, from an underlying mechanics, I would say I really pleased with where the team is going. And this area around focus on fundamentals, which is something I've shared in the prior call is really the standard that we're setting the team to as well as how and also how they're delivering. Thanks for the question.
Speaker Change: Thank you, and my follow-up is just on the inventory purchases.
Speaker Change: Curious if you're acting more defensive for the second half of 25? You know, over the last few years, the slow start to spring did not result in
Well, thanks for the question. One of the, um, women, uh, I guess...
Tony Iskander: for the last two quarters, I've shared three key pillars that were very key to what we were talking about. And then Tony's added one here in terms of today and in terms of cost optimization. They were an R customer's interestity, convenience and asset utilization.
Tony Iskander: and the prior calls, I mentioned this concept of asset utilization, and it was around a precision inventory mindset.
Tony Iskander: and it was so we feel good that the same time that we can improve the in-stocks.
Tony Iskander: and get the results that I just mentioned in the prior question. With the same time, we feel like there's an opportunity to drive continuous improvement by leveraging some of the technology and assets that we have around how to even get more efficient by reducing or optimizing that level of investment and working capital.
Tony Iskander: So it's a combination of being focused on the fundamentals of excellence.
Tony Iskander: as well as driving inventory optimization. And really it's because we're focused on working capital. And we want to make sure that we're driving improvement in working capital so that we can use those dollars to pay down the debt.
Thank you for watching. Bye. Bye.
Speaker Change: Let me add one thing to that. One of the things that we have the benefit of is we have, as we continue with this inventory optimization, that's going to actually allow us to mitigate a lot of the impact from tariffs this year, as we continue to work down existing inventory that we already have on him.
Thank you.
Great. Thank you.
Speaker Change: Aaron, next question is coming from Steve Forbes of Guggenheim. Your line is open.
Good afternoon, Jason, Tony.
Steve Forbes: Tony, I wanted to start with the cost optimization pillar and appreciate the guidance around indirect spend, but we often get asked sort of about the expense ratio itself. [inaudible] I'm sorry, I'm sorry, I'm sorry
How it's evolved over the past 10, 20 years?
Steve Forbes: Inargably, what's the right way to think about reframing the opportunity?
Speaker Change: as you guys go about at this cost of optimization pillar or so. I don't expect you to maybe give us other buckets of opportunity, but like any way to help frame how you guys see the progression of the expense ratio in the most optimal state over the next couple of years here.
Speaker Change: Yeah, thanks to you. Appreciate questions. So a couple things. So I'm still fairly new in role, although I've been on ground for some time. And as I've gotten into the financials, we've identified this cost optimization pillar where we know we can find $5 to $10 million and it's predominantly indirect spend.
Speaker Change: We're going to continue to focus on other areas as we really dive into asset utilization.
like you mentioned in our prepared remarks.
Speaker Change: as well as other areas that this is where we can take out the excess cost. But right now, this is where we are headed, this is our newest initiative of filler, and we feel confident in delivering that to you next year.
and building on that, the...
Speaker Change: The part that I think is also to you ask the question around how to frame, and I would say we're looking across the entire asset base.
Speaker Change: in terms of how we're looking for optimization. One of the things that I'm pleased with, that the team did extremely well with the implementation of our local fulfillment centers or LFCs. We put those in the marketplace quickly for a couple of reasons.
Speaker Change: One is because it's the right thing to do by the customer, right, to make sure that we can backstop and make sure that we have the the in stocks ready from a customer standpoint. So to meet their needs, especially in peak pool season.
Speaker Change: The other part that it does is it allows us to drive cost efficiency because from an inventory standpoint we can start to pull inventory out of the stores at the same time it allows us to look at our entire network.
Speaker Change: and then try to find optimization. So, I think my comments here would be, the frame would be in direct costs like Tony mentioned, as well as we'll look at the entire asset base and see if there's a further optimization and continuous improvement that we can bring to Leslie's to accelerate EVA.
Speaker Change: Going forward. Yes, Steve, we look forward to sharing more in the future. What we know is we can't cut our way to savings and growth. We are going to continue to do this in a very methodical and strategically. Thank you very much.
Thank you.
Speaker Change: I appreciate that and look forward to, I guess, each of your updates, and then maybe just a quick follow-up on-
Speaker Change: Yeah, the business has its stands. I think another question we sort of feel is sort of on channel mix changes.
Speaker Change: It's been a while since we've got an update on channel mix, and the reason I ask is it sort of has implications maybe on what buckets you go after in the costume of the decision plan, so is channel mix something e-commerce, first brick and mortar something that you guys can provide us or reframe for us as well?
and Scott Bowman. Thank you. Thank you.
Speaker Change: Yeah, I think the first thing that I would say would maybe I'll share with you building up to the prior question you asked about the framing of how maybe how we think about it and I'll build that into this one.
Speaker Change: is for me, I look at, from a total channel standpoint, I look at as an omnichannel mindset. It's sort of how we're approaching this.
Speaker Change: So, for me, the concept of asset utilization across this network is really about how do I, how do I, in the team, use an on-the-channel mindset when it comes to leveraging our stores, which is why we just announced the integration of Uber and same-day delivery, as well as how do we use e-commerce as a really efficient fulfillment location at the store level. So we're thinking about this from a total network standpoint across the piece, across the channels.
Speaker Change: You know, we're going to, therefore, leveraging e-commerce and omnichannel with our residential business is key, and then how do we use those assets to win in Probe as an opportunity for us. So, you know, obviously we're trying to grow all those channels in terms of our business portfolio.
Thank you.
Speaker Change: And, once again, to ask a question, please press star one now on your telephone keypad. We'll move next to David Bellinger of Mizzouho, Carolina's Open.
Speaker Change: Hey guys, good afternoon, thanks for the question. First one on the Instax, being up materially.
Speaker Change: It seemed like that did not get reflected in the comp sales number for two, two. So is that something that...
Speaker Change: Coming, something that we should see and to go forward results. And do you have any details you can share on? Maybe some of the early tests with the LFC, some of those markets that went live. If there was a commensurate pickup in sales growth.
David Bellinger, David Bellinger,
Speaker Change: from a traffic stand, we're really weather related, so I'll go back to that. The linkage to human stocks improvement is that you can see it in conversion rate.
Speaker Change: So when you, when you may have the products available, it's just the opportunity to convert those shoppers both online because you have it in stock and also in stores because you have it in stock. And I know and I know that the pro is really critical for this.
Speaker Change: and that's why the connection point to the LFCs is so key. On the second question you have asked because from an LFC standpoint you get when you are more reliable and you have the Instaq potential you can capitalize more business, especially on the pro side.
Speaker Change: It's really stages on the LFC side in terms of specifically quating the fails. We knew that when the LFCs were being put in place.
Speaker Change: I was, you know, we were going to have an opportunity to see that mostly get its impact in the peak season because that's when we were going to see potential constraints because of the size of the peak through the summer months. That being said, you know, I was in an LFC.
Speaker Change: Last week and the example I would give you would be the LFC is doing what it's supposed to be doing.
Speaker Change: which is when I talked to NG in the store and we had a conversation about the impact that an LSE can have on a market, so just as a refresher, these LSEs are act like mini hubs.
Speaker Change: They set, they surround 20 other stores that are sort of kindred stores to then connected to those to that LSE. So there was a store not far away that they had an order for three pumps and that store didn't have three pumps.
But Angie and the LSD.
Speaker Change: Had the extra pumps, so we were able to complete that sail on that day.
Historically, that might have been a challenge for Leslie.
but not on that day for Angie.
Speaker Change: So that's the type of benefit that we expect to see going forward and we're looking forward to see those results through the summer and the peak summer months, especially engaging our DIY customer but especially our probe.
Speaker Change: Got it, that's very helpful. And then just to follow up on one of the prior questions, just on the e-commerce percentage of the business and the digitally initiated sales.
Speaker Change: So you're now partnering with Uber. What puts you to make that move? Is that something that consumers are asking for? Is this equally as important on the pro side as the DIY side?
Any other great questions? Thank you for that.
When?
Speaker Change: I left a couple quarters. We talked about the first two pillars. The first two pillars are customer centricity and convenience.
We've really learned what is the pool.
Speaker Change: The need is to keep your tool operational, and when you're dealing with a customer and a need, the importance of speed and convenience becomes paramount.
Speaker Change: And it's why we put customer centricity and convenience as the top two pillars there is because we knew we needed to deliver the customer and we're putting the customer at the center of everything we do
Speaker Change: So for me, I want to move our company from fulfilling customer's needs, not in days. I want to convert it to minutes and hours.
Speaker Change: So that's a critical item for us, and that's why we pushed to have Uber same day.
at the same time.
Speaker Change: The other part of it, it has another benefit in addition. It is instead of shipping products across the country to fulfill an e-commerce order, we can do it locally.
Speaker Change: and if we do lack locally, we can also drive additional cost savings.
Speaker Change: into the system. So not only do we provide the benefits to the customer in regards to speed,
Speaker Change: to solve that need. But we also have found a way through this fulfillment mechanism to also save cost, which also fits in the cost optimization pillar that Tony mentioned earlier.
Speaker Change: Bergett, thanks for the thorough responses, Jason. Appreciate it. Yeah, thank you.
Speaker Change: Aaron, next question is coming from Justin Kleber of Beard. Your line is open.
Speaker Change: Hey guys, this is Zach Beckon for Justin. Thank you for taking our questions. First one, maybe on top line guidance. I'm just curious what you guys are seeing so far in Q3 that gives you the confidence to reiterate your full year sales outlook. And then maybe how are you thinking about. [inaudible]
Speaker Change: Revenue seasonality in a second half of the year. Any color on Q3 versus Q4? Recognize my Q4 benefits from the extra week.
Speaker Change: Yeah, thanks for that question. Before addressing the, you know, the quarter-to-date number, I think it's important for me to describe the uniqueness of this quarter.
Speaker Change: We are about 50% through this entire quarter in days, okay? And what's unique about this quarter in terms of the pool business in the pool business at Leslie's when I look at the past two years of performance?
Speaker Change: We still have well over 70% of our sales still to come, an expected point.
Speaker Change: So, for me to give a early look at, you know, the core performance is a bit premature because there's so much sales still to come, but also we still have a lot of our sales, balance of years still to come.
Speaker Change: Our first two quarters in first half of the year only represented just over 25% of our entire sales. So, we still have a lot of sales yet to come.
Speaker Change: That said on your question, I would say, you know, I'm really pleased with the team in terms of their focus and efforts. I've talked about the conversion rate improvements that I believe are sustainable on the business.
Speaker Change: because of our Instaq performance as well as the quality and care that our team members provide in the field.
Speaker Change: It's all we've also been making sure that we're set up for pool season by green a variety of initiatives.
Speaker Change: to the forefront so that we can connect with our customers.
Speaker Change: I'm looking forward to seeing the impact of our new DIY loyalty program.
Speaker Change: That loyalty program was just brought forward, and we are now tearing that program to engage people more throughout the tiers, and we also built a personalization engine, where we're sending them notes.
Speaker Change: on not only to push them up through the tiers, that'll help our Leslie's loyalty, but also we're going to give them personalized messages around things that they should buy or maybe they haven't bought at Leslie's.
Speaker Change: So it's really leveraging the data, the zero party data they've given us, as well as let us see some first party for us to win. So looking forward to seeing what the future holds here in our peak season as we set up for a strong season and Leslie's.
David Bellinger, Justin Kleber, Steven Forbes, Shaun Calnan, Michael Egeck,
Great, thanks, Jason. Maybe one more on the implied.
Second half, Gross Margin, Infliction Ben.
Speaker Change: I know you guys mentioned that Q4, Kale Rand, related to the timing of rebates, but-
Speaker Change: I guess how much is dependent on hitting a top line guide you guys out there versus maybe cycling some of your recent temporal pressures? Thank you.
Speaker Change: primarily seen as the decline from what I call two main buckets. One is really driven by the mix of lower volume.
Speaker Change: and then which is inclusive of that rebate, Edwin, that we mentioned in our prepared remarks. That was approximately 100 basis points. That will come back in the fourth quarter.
Jason Mcdonell: and so we feel comfortable with that. The other was, that gives us confidence is just what Jason mentioned earlier around a lot of our key pillars around customer
Jason Mcdonell: So while we are still focused and we do believe we are going to achieve our guide, we are focusing on delivering on that commitment
Jason Mcdonell: and the only other piece I would add to that would be I'm really proud of the team in terms of our quarter two performance.
Jason Mcdonell: You know, we experienced the softness and weather and with that the team was team banded together around the focus to ensure that we are delivering our commitment and our guide in the second quarter as we did as we delivered our even dog guide.
David Bellinger, David Bellinger, David Bellinger,
All right, thanks Taz. I'll pass it on.
Speaker Change: All right. Thank you all for joining us today. That's all the questions we have, but you've heard a lot of updates. We're really excited about what's going on at Leslie's, and we look forward to continuing to increase transparency and take you along this journey with us. So thank you for your time today. Look forward to talking soon.
Speaker Change: This does conclude today's conference. You may now disconnect your lines and everyone have a great day.
David Bellinger, Justin Kleber, Steven Forbes, Shaun Calnan, Michael Egeck, Jason McDonell,