Leslie’s shares crash 30% on outlook cut, several analyst downgrades

Leslie’s Inc (NASDAQ:) shares crashed 31% in pre-market Friday after the company announced weaker-than-expected preliminary financial results for the third quarter of fiscal 2023.

Leslie said it expects FQ3 sales of $611 million with comparable sales declining 12% year-over-year. The adjusted earnings per share are seen at $0.40.

Analysts were looking for FQ3 revenue of $703.7 million and adjusted EPS of $0.69.

Mike Egeck, chief executive officer, commented, “Our fiscal third quarter results were well below our expectations as low double digit traffic declines in our Residential and Pro businesses drove negative comps across both discretionary and non-discretionary categories.”

“While abnormal weather continued to pressure traffic levels, customer surveys conducted towards the end of the quarter also indicated increased price sensitivity and that consumers entered the pool season with a greater than normal amount of chemicals leftover from last year.”

As a result, the company now sees FY adjusted EPS at $0.30 on revenue of $1.44B, down from the prior forecast for earnings of $0.82 on revenue of $1.6B. Analysts were looking for EPS of $0.76 on revenue of $1.6B.

“Our third quarter gross margins were down year-over-year due to higher product costs that we could not pass through to consumers, the impact of higher distribution- related expenses and capitalized costs as we reduce inventory from peak levels, and fixed cost deleverage,” Egeck added.

The company also announced that Scott Bowman has been appointed chief financial officer, effective August 7. Steve Weddell, who is stepping down as CFO effective August 7, 2023, will remain an advisor to the company through December 31 to facilitate the transition.

Many analysts downgraded the LESL stock today. Guggenheim analysts cut the rating to Neutral as the reset was “worse than we expected.”

“As previewed earlier this week, we had expected a ~20% “one-time” reset in 2023 EPS as the industry appeared to be “giving back” a solid portion of the trichlor pricing benefit it captured during 2021-2022,” they wrote in a note.

“Given the combined impacts of a) weak traffic trends, b) increased price sensitivity, c) elevated customer “carry-over” inventory levels, and d) an over-supply of inventory throughout the channel, we are meaningfully lowering our 2023-2024 expectations.”

On the other hand, BofA analysts remain Buy-rated as they are “still comfortable with the long-term fundamentals.”

“We continue to view LESL as a retailer with a dominating industry-leading position in pool supplies, which has a sticky and growing customer base. Through both M&A and new store builds (mostly aimed at LESL’s smaller customer base of Pros), we think the company has significant white space for market share expansion.”