Leslie's, Inc.

Good afternoon and welcome to the first quarter of fiscal 2023 conference call for Lesley's Incorporated. At this time, all participants are in the listen-only mode. Following the prepared remarks, management will conduct the question and answer session. If you should require any operator assistance during the conference call, please press star zero on your telephone keypad. As a reminder, this conference call is being recorded. and will be available for repay later today on the company's website. I will now turn the call over to Caitlin Churchill, Investor Relations. Thank you. You may begin.

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 if circumstances change. Please review the cautionary statements and risk factors contained in the company's earnings press release and recent filings with the SEC. During the call today, management will refer to certain non-GAAP financial measures. A reconciliation between the GAAP and non-GAAP financial measures can be found in the company's earnings press release, which was furnished to the SEC today and posted to the investor relations section of Leslie's website at ir.lesliespool.com on the call today from leslie's is mike ejek chief executive officer and steve waddell chief financial officer with that i will turn the call over to mike thanks caitlyn and good afternoon everyone thank you for joining us please note that we have posted a short earnings deck to leslie's ir site that we will be referring to certain pages in that deck during our call

I'd like to start by reminding everyone that the first quarter is our smallest quarter of the year, representing only about 12% of total year sales. However, it is an important quarter as we take the actions, incur the expenses, and make the appropriate investments to set ourselves up for the all-important second half of our fiscal year, which is pool season across the country. With that in mind, I'm pleased that we delivered overall Q1 performance that was in line with our expectations despite some very challenging weather in the quarter. Sales with the quarter grew 6% to a record $195 million. Average order value grew 7%, and transactions were down 1%. Average revenue per customer grew 6%, and our customer file was flat. Residential hot tub grew 35% in the quarter, and pro pool grew 11%. Residential pool sales decreased 3% in the quarter. Comp sales decreased 4% for the quarter, which contributed to a two-year stack comp plus 17%. Comp sales for the quarter were negatively impacted by wet and cold weather, particularly in Texas, California, and the Southwest. Sales in Florida benefited from the cleanup associated with Hurricane Ian. In total, our weather service provider calculated that weather was a 5% headwind to comp sales for the quarter. This is the first quarter since the positive impact of the Texas freeze in the second quarter of 2021 that weather has had a significant impact on our overall comp sales. Gross profit for the quarter was 65 million and gross margin rate was down 290 basis points. Please refer to page six of our supplemental deck to review our Q1 margin rate bridge. As you can see, the primary drivers of the change in margin rate are Number one, business mix driven by acquisitions that disproportionately impacted margins in the quarter. Two, incremental product costs and excessive retail price increases. Three, incremental DC expense associated with the execution of our strategy to peak store and DC inventory earlier in preparation for pool season. And four, deleverage of occupancy costs driven by a decrease in comp sales. These factors are all reflected in our full year guidance, and we expect these same factors to impact our Q2 margin rate. To complete our summary of Q1 financial performance, adjusted EBITDA for the quarter was negative 12 million, and adjusted diluted earnings per share were negative 14 cents. Given the seasonality of our business, the loss in the quarter was anticipated and does not change our expectations for the full year. Accordingly, we are reaffirming the full year outlook we provided at our investor day in November. As we noted in November, we expected tougher first half comps this year, and our first quarter results were in line with our internal expectations. However, the makeup of those results did have some differences from our full year outlook. As you can see illustrated in the table on page nine of the deck, Total comp sales of minus 4% was less than our full year guide of minus 2.5%. Comp sales for non-discretionary products ex trichlor were down 3% in the quarter and had a total comp sales contribution of minus 2.5% versus our full year guide of plus 1.3%. Trichlor comp sales grew 8% in the quarter and had a total comp contribution of plus 1% versus our full year guide of minus 1.1%. We saw no price deflation versus the prior year's quarter or the fourth quarter of fiscal 2022. Discretionary product comp sales were down 11% in a quarter and had a total comp contribution of minus 2.5% versus a planned comp contribution of minus 2.7% for the year. Non-com sales in the quarter were plus 9.6% versus our full year guide of plus 5%. In summary, non-discretionary sales ex-Tricor were not as strong as we expected due to adverse weather. Discretionary sales overall performed in line with our expectations, although hot tub sales were somewhat better than we expected. Tricor outperformed as retail prices remained stable. and non-comp sales outperformed driven by acquisitions and new stores. As we look to the second quarter, weather is projected to be less of a headwind, but we do expect our hot tub business to decelerate such that we continue to anticipate first half comps to be as we described at our investor day. Moving to the industry backdrop, the pool and hot tub industry experienced reduced consumer demand in the quarter. As you can see on page 10 of the deck, our specially pooled retail competitors, based on third-party aggregated credit card data, experienced a decline in sales of 7.2% in the quarter. This softening demand has two primary components. First, as we discussed concerning our own results, weather was a significant negative factor year over year for most markets. Second, consumers were less confident based on the challenging macroeconomic backdrop. For our business, we saw this decreased confidence manifested in consumer behavior changes, including purchases of smaller sizes of our two key sanitizers, Triclor and CalHypo, and reduced units per transaction. UPT for the quarter was down 2%. Against this backdrop of reduced demand, The competitive advantages derived from our integrated system of physical and digital assets and our associates' strong execution of our diversified growth initiatives drove continued market share gains. Turning now to the performance of our strategic growth initiatives. First, despite the macroeconomic and weather challenges in the quarter, our consumer file was flat versus the prior year's quarter. and improved 200 basis points from our fiscal Q4 2022. Next, we continue to deepen our relationship with our consumers. Average revenue per consumer grew 6% in the quarter, and the number of loyalty members increased 15% over the prior year's quarter. With regard to our pro initiative, we ended the quarter with 2,850 pro contracts in place, and we are currently operating 80 pro locations. Our plan to convert 15 pro locations and build three new pro locations in 2023 remains on track. And all 18 locations are scheduled to be operating by the start of the pool season. Pro consumer group sales grew 11% in the quarter, with comp sales down 4%. Our pro comps were affected by the same factors we discussed for our overall business, as well as some product availability challenges with one equipment vendor. M&A was the standout contributor to the quarter, accounting for more than $15 million in non-comp sales. Year-to-date, we have closed on two acquisitions that added six locations, and we have another five acquisitions under LOI that would add 13 locations. We expect to close the acquisitions under LOI prior to the start of cool season. The current macroeconomic conditions in the pool and hot tub industry have created additional attractive acquisition opportunities, and we plan to continue accelerating this initiative. Regarding our residential white space initiative, in the quarter we added five locations through acquisitions, opened one new store, and closed two stores for a net increase of four locations. We currently operate more than 990 locations, and we're on track to operate over 1,000 locations by the start of the pool season. For AccuBlue Home, we have finished consumer testing of the version 2.0 device and remain on track to launch this initiative for pool season 2023. With regard to corporate governance, we have published the proxy for our annual shareholding meeting scheduled for March 16th, 2023. In the proxy, we announced that Ms. Jody Kozlak will not be seeking reelection to our board and that Mr. Mark Magliacano of Elkatterton will be resigning from our board, effective with the completion of our annual meeting. We thank Jody and Mark for their service and many contributions to Lesley's. In conjunction with these changes, we also announced that our board will be revised from 10 to eight members. Now we'll turn it over to Steve to share more detail on our Q1 financial results.