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Operator
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.
Caitlin Churchill
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
Mike
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.
Triclor
Thank you, Mike, and good afternoon, everyone. As Mike mentioned, our first quarter results were in line with our expectations and we reported record sales for the quarter. We're grateful for our team as they continue to execute against our initiatives and prepare for pool season in 2023. For the first quarter, we reported record sales of 195 million, an increase of 6% or 10 million when compared to the first quarter of fiscal 2022. Our comparable sales decreased 4% or 7 million. This decrease is on top of our comparable sales growth of 21% in the first quarter of fiscal 2022 and calendar adjusted comparable sales growth of 26% in the first quarter of fiscal 2021. Our comparable sales growth on a two-year stack basis was 17% and on a three-year stack basis was 42%. Our non-comparable sales totaled 17 million in the first quarter of fiscal 2023 which was driven by seven completed acquisitions that added 32 locations, as well as eight net new store openings since the end of fiscal 2021. Our comparable sales decreased by 4% for residential pool, 4% for pro pool, and 2% for residential hot tub. On a two year stack basis, we generated comparable sales growth of 14% for residential pool, 36% for pro pool, and 4% for residential hot tub. Unfavorable weather had a 5% impact on sales growth during the first quarter, with the Texas market experiencing the largest impact. Gross profit decreased 3%, or $2 million, when compared to the first quarter of fiscal 2022, and gross margin rate, which decreased in line with expectations, was down 290 basis points to 33.5% from 36.4% in the prior year. On page six of our supplemental deck, I'll review our Q1 gross margin rate bridge in more detail. During the quarter, gross margins were impacted by the following. First, business mix lowered gross margins by 130 basis points, primarily related to M&A completed during the last 12 months. Second, lower product margins had a 40 basis point impact as a result of higher input costs. During the quarter, promotional activity was flat to slightly down and did not have a material impact on our gross margins. Third, occupancy costs deleveraged by 85 basis points due to rent increases and negative comparable sales growth. And finally, incremental distribution expenses lowered gross margin by 35 basis points. Distribution expenses were elevated as we executed on our plans to receive in and distribute more product to our store network earlier than last year in preparation for the coming pool season. Now we'll turn to SG&A. SG&A increased 16% or $12 million when compared to the first quarter of fiscal 2022. We estimate inflation during the quarter increased SG&A by approximately $5 million, primarily related to payroll and digital marketing spend. The current year quarter also has an additional $4 million of non-comparable SG&A associated with acquired businesses. Adjusted EBITDA was negative 12 million for the first quarter of fiscal 2023, which was slightly ahead of internal expectations. Adjusted net loss was 25 million in the first quarter of fiscal 2023 compared to a loss of 11 million in the first quarter of fiscal 2022. Interest expense increased to 13 million during the quarter from 7 million in the first quarter of fiscal 2022, and our effective tax rate remained consistent at 25%. Adjusted diluted earnings per share was negative 14 cents in the first quarter of fiscal 2023 compared to negative 6 cents in the prior year. And basic and diluted weighted average shares outstanding were 184 million in the first quarter of fiscal 2023 compared to 189 million shares in the first quarter of fiscal 2022. Moving to the balance sheet. We finished the first quarter of fiscal 2023 with cash of $3 million and we had $91 million outstanding on our revolver compared to cash of $53 million and no borrowings on our revolver at the end of the first quarter of fiscal 2022. The reduction in net cash was primarily due to investments in inventory and higher M&A activity during the past 12 months. At the end of the first quarter of fiscal 2023, we had $99 million available on our revolver. We ended the first quarter of fiscal 2023 with $430 million of inventory, an increase of $185 million, or 76%, compared to $245 million at the end of the first quarter of fiscal 2022. The increase in inventory is primarily related to equipment, chemicals, and M&A activity. Both the equipment and chemical product categories are nondiscretionary in nature and are not subject to technology or fashion risk. And as previously stated, Our first priority is to put the company in a position to meet consumer demand for the season. In furtherance of that objective, we continue to view our current elevated inventory position as appropriate and sensible given the uncertainty of supply. We also have the ability to use our balance sheet as a competitive advantage and invest in higher inventory levels in both our stores and our distribution centers. When we believe we have sufficient inventory to meet consumer demand through season, and after we see supply chains across the industry become more predictable, then we will strategically manage inventory levels down. On debt, at the end of the first quarter of fiscal 2023, we had $796 million outstanding on our secured term loan facility compared to $804 million at the end of the first quarter of fiscal 2022. The applicable rate on our term loan during the first quarter was LIBOR plus 250 basis points, and our effective interest rate was 6.1%, compared to an effective interest rate of 3% during the first quarter of fiscal 2022. Before I wrap up our first quarter performance, I'd like to share an update on our supply chain readiness. In November, we discussed specific actions we were taking to improve our supply chain across three key areas. First, expand capacity by implementing a two-shift, seven-day-a-week model during pool season for our distribution centers and by adding additional three PLs to our network. stock more inventory across our network. And third, diversify our supply base. I'm pleased to report that we have made significant progress against all three of these areas, and our team is focused on meeting consumer demand across our entire network during the upcoming pool season. Now let me turn to our outlook for fiscal 2023. Our performance in the first quarter of fiscal 2023 was in line with expectations, and today we are reaffirming the outlook we issued at the end of November. As we discussed a couple months ago, we're expecting a more uncertain macroeconomic environment in fiscal 2023, up to and including a recession that will pressure industry sales, margins, and earnings growth. Approximately 80% of our sales are non-discretionary products and services, which will mitigate but not eliminate a recessionary impact on our business. For fiscal 2023, we continue to expect sales of $1.56 billion to $1.64 billion gross profit of $667 million to $708 million, adjusted EBITDA of $280 million to $310 million, net income of $131 million to $146 million, adjusted net income of $145 million to $160 million, and diluted adjusted earnings per share of $0.78 to $0.86. and diluted share count of 185 million shares to 187 million shares. Finally, on our outlook, I want to remind everyone of the natural seasonality within our business. Our primary selling season occurs during our fiscal third and fourth quarters, which span April through September. We invest in our business throughout the year, including in operating expenses, working capital, and capital expenditures related to our growth initiatives. While these investments drive performance during our primary selling season, they reduce our earnings and cash flow during the first half of our fiscal year. Consistent with our commentary in November, in fiscal 2023, we expect negative comparable sales growth and significant gross margin declines in the first half of the fiscal year, given the strength of the comparable periods in fiscal 2022 and fixed cost deleverage. We also expect to generate all of our adjusted EBITDA and earnings in the second half of the fiscal year. In summary, during the first quarter of fiscal 2023, we generated record sales and performed in line with our expectations. We're grateful for the contributions of our entire team as they continue to execute against our initiatives and prepare for the 2023 pool season. And we will continue our relentless focus on enhancing our customers' experience and executing our initiatives to drive growth and market share gains. And with that, I will hand it back over to Mike. Thank you.
Mike
Thanks, Steve. The pool and spa industry has proven over time to be one of the most durable and advantaged consumer products categories. But it does have some sensitivity to macroeconomic conditions. In addition, during periods that are not prime pool season, consumers can take some shortcuts in maintenance with less danger of lost swimming days safety concerns, and equipment damage from poor water care and maintenance. In the first quarter, we did see some indications of reduced confidence and demand from pool and spa owners, especially for discretionary products. This reduced confidence combined with some very unfavorable weather made for a challenging industry backdrop. Against that backdrop, we feel good about meeting our internal profit expectations and growing our top line 6%. These results are a testament to our teams performing at a high level and to the ability of our diversified strategic initiatives to drive growth in adverse macro conditions. And importantly, we feel very good about the progress we made against our plans to de-risk our supply chain and ensure that we are in position to win big during the 2023 pool season. With that, I will hand it back to the operator for Q&A.
Operator
Thank you. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. And for a participant choosing speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question is from Simeon Gutman with Morgan Stanley. Please proceed.
Simeon Gutman
Hey, good afternoon, everyone. Hope you're good. I think you've talked about this in the past. I wanted to ask what recession could look like for you. And I think there's a lot of puts and takes and who knows how the consumer will spend on travel and maybe it comes back into this category. But if there is a history lesson, and just to clarify, minus five to flat, is that bracketing a potential recession or that is a non-recession scenario?
Mike
Yeah, thanks for the question, Simeon. The full year guidance, does include challenging macro conditions up to including a recession. So that does bracket it, to answer your question. And you're right, there's a lot of puts and takes in there. A recession could slow down spend on travel and could keep more people at home. It could also look for people to just try to skip some steps in pool maintenance, but they can only do that for a period of time, as you know. Yeah, we're comfortable that our full year guidance sufficiently brackets economic conditions up to and including a recession.
Simeon Gutman
Okay. And then a quick follow-up. How are, I don't know if it's deflation or disinflation or price tracking relative to expectations and then demand for durables. You mentioned you're starting to see some pockets or not durables, but I guess units per se. How are units tracking versus how you thought, and how is price tracking versus how you thought?
Mike
Yeah, to start with price, inflation was a little higher than we anticipated in the quarter, but came down across all of our product categories. So definitely heading in the direction we anticipate. Doesn't change our outlook for 5% for the full year. In terms of durables, or if you would, big ticket items, We have seen some weakness in equipment. At the same time, our equipment repair and parts businesses have picked up. So there's a little bit of a signal that some people are looking to repair versus replace or upgrade right now. But I think we've got to keep in mind that this is a very small quarter for us. And it's not – we internally – Try very specifically not to take the trends we see in Q1 and apply them to the balance of the year. Such a small quarter that, you know, a little bit of changes in consumer behavior or, in this case, you know, really challenging weather have an outsized impact on the quarter that just don't impact the full year. Okay.
Simeon Gutman
Thanks, Mike. Good luck.
Mike
Yep.
Simeon Gutman
Thank you.
Operator
Our next question is from Stephen Forbes with Guggenheim Partners. Please proceed.
Stephen Forbes
Hey, this is Rene Marin on for Stephen Forbes. I wanted to touch on the pro side of the business. Can you discuss any incremental learnings from this customer? Additionally, can you discuss any notable trends with pricing in this segment? Thank you.
Mike
Rene, that was specific to the pro consumer, is that correct? Yep, yep. Yeah, you know, our pro businesses run through our residential stores predominantly. And so in the pro business, you know, we saw a similar impact as we did in residential due to the weather. You know, so comps were down 4%. We looked very closely to see if we saw any signs of an increase in DIY behavior among our consumers and maybe some reduction in their use of pros. And we did not see anything of that nature in the data that we got. So I think, you know, for us, focused on smaller pros and servicing them through our own retail stores. The pro conversation is very similar to the residential conversation. We did see some of the pros buying some smaller quantities of sanitizers. I think there's a feeling in the pro market that chemical prices could come down. And I think they're trying to wait it out, frankly, a little bit. But we have not seen any indication of any deflation in chemicals at this point.
Stephen Forbes
Got it.
Operator
Thank you.
Mike
Yep.
Operator
Our next question is from Ryan Merkle with William Blair. Please proceed.
Ryan Merkle
Hey, guys. Thanks for taking the question. Can we start with inventory? Mike, the inventory kind of pops off the page and up a bit sequentially. How much is safety stock and when do you see inventory normalizing?
Triclor
Yeah, that's a great question, Ryan. Thank you for that. And as we think about our inventory growth, I mean, there's two key reasons that inventory is up. One is sales growth over the last year, last few years. And then importantly, this decision that we made to intentionally pull forward 2023 receipts in advance of season. We believe that pull forward is appropriate. When you look at the last two years, the industry has had a number of supply chain challenges, and we've had far too many out of stocks on key products, and we're unable to serve consumers. So the pull forward allows us to load our stores with more product and facilitate the replenishment cycle during the early part of our season. And it's also one of the reasons that you saw some of the distribution costs be a little bit higher in the last quarter as well. But again, the inventory that we're procuring today is for this season. And it's inventory that is being brought in earlier in preparation for season. It's not stocking up for kind of longer-term needs.
Ryan Merkle
Okay. So, you know, very much on purpose. And I know some M&A is in there, too.
Mike
Yep, exactly. Yeah, very purposeful. And the only thing I would add, Ryan, is with our omni-channel capabilities, the ability to load up the stores – kind of maximum capacity early, and then to keep it there year-round allows us to take advantage of ship-from-store. Okay.
Ryan Merkle
And then my second question, I wanted to dig in on the discretionary sales. I think you mentioned down 11%. Can you just unpack some of the weaker categories? And I know you mentioned equipment, but what else is in there?
Mike
Yeah, we consider most all equipment non-discretionary, right? Heaters is probably – the one we've talked about in the past, that you don't have to have a heater to keep a pool maintained. And we did see heater sales down very much in line with what we saw in Q4 as well. In terms of other discretionary categories, as you might imagine, we've seen the above-ground pool business be very weak. Prices have come down considerably. There's a lot of excess inventory in the market. We're not We're not playing a price game on that. So we've seen our sales come down as well. And then recreation products in general, floats and noodles and things like that have, you know, are down considerably as we anticipated. And above ground pools is as we anticipated as well. We saw that, you know, start to occur very, actually in the fourth quarter and then also very early in Q1.
Ryan Merkle
Got it. Yeah, those categories make sense. Thanks. Thank you.
Operator
Our next question is from David Bellinger with MKM Partners. Please proceed.
David Bellinger
Hey, guys. Thanks for taking the question. First one on gross margins, those seem to be back at Q1 of 2020 levels, even though sales were almost 40% lower back then. So, How should we think about the mix impact going forward? Is that the largest headwind we should keep in mind as we update our models here? And is that discretionary piece also playing into that as well?
Triclor
Yeah. Do you want me to take that, Mike? Yeah, go ahead, Steve. Yeah, so remember back, our guide in November was flat to negative 35 basis points for the year. So we do anticipate a reduction in gross margins for the year. We talked about the first half being lower or down significantly, I should say, with some improvement in the back half. So the core question that you're getting at is, will the current quarter impacts persist? And if not, why might they change as we work through the year? And so let me kind of walk through each of the individual line items. But business mix, number one, related to M&A that we completed primarily in the back half of last year. As we work through this full year, it'll be much less impactful on $1.6 billion of sales versus the first quarter sales of $195 million. When you think about product costs, we're in the off season. Our expectation is that by the time that pool season starts, industry retail pricing will have caught up with industry cost increases. Maybe have seen somewhat of a slow adoption of some of those higher costs in the current environment, but absolutely expect that to occur. And then DC expenses in the first quarter, those expenses will moderate as we get into the full year as well. We talked a lot about the challenges we had in our New Jersey, DC inventor delivery cadence last year. And since we've brought forward some of the inventory receipts and movement of that inventory around our network, we've also pulled forward some of those expenses as well. And then again, as we look to the second half and better comps, we're going to see occupancy normalized as well. So no change to overall outlook that we provided back in November. Again, the 290 basis point declined this quarter in line with our expectations and see a path to what we previously provided.
David Bellinger
Got it. That's very helpful. This is my follow-up here on Mike, some of your ending comments and the prepared remarks just on the indications of reduced confidence in the category of So are you hearing that from your pro customers as well, some of the larger pros particularly? And I'm just curious, if we were to see a wider slowdown across pool, would you see that more pronounced from the pro or the DIY customer at first? Maybe just give us some thoughts there.
Mike
Yeah. Look, I think the way to think about demand is to keep in mind it's a very small quarter. right, for the whole industry. And I know we've said that a lot, but again, trying to extrapolate trends from this first quarter, which is A, small, and B, had a really outsized weather impact, I just think that's tricky. And internally, we're trying not to do that. You know, in terms of DIY versus pro, as I said in the earlier question, Very similar behavior that we saw in both channels. And we looked really hard for any indication that there might be some switch from pro to DIY, and we did not see that. So we expect the pro business to play out for the year, as anticipated when we put out our guide, and we expect the residential business to do the same.
David Bellinger
Got it. Thank you.
Operator
Our next question is from Garrick Schmoys with Loop Capital Markets. Please proceed.
Gary
Oh, hi. Thank you. I'm just wondering if you could speak on the impact of Tricor. Obviously, it's held in here, and you've said in the past you plan to hold on to it as much as you possibly can. But just given the big delta between how resilient pricing has been so far versus what's in your guidance, I was wondering if you could maybe provide some perspective on You know, if you would anticipate pricing to come down, when might that be, or if there's any signs of weakness that you're seeing at this point at all?
Mike
Yeah, Gary, thanks for the question. You know, the pricing for pool season really gets set Memorial Day weekend. You know, we've talked about that a little bit before at some conferences as well as calls. That's when I would say the industry settles in on price. for the balance of the pool season. So up until that point, you know, we try not to make any assumptions. We talked about at our investor day that there's a case for price deflation in trichlor. We have not seen any evidence of that. We know that trichlor costing is up. I think that is now set in the industry and it would be unusual for the industry to discount off of that. But there's a lot of chatter about that potential outcome. So we're not discounting it, which is why we have it in our guide as a possibility. But to date, we haven't seen any inclination of price deflation in pro or residential. And just to reiterate, there's plenty of inventory in the channel. I would say everybody is fully inventoried in Triclure.
Gary
Got it. That's helpful. The follow-up question is just, you spoke to the weather impacts on the quarter. It sounds like most of that was on the non-discretionary side, but I'm just wondering if there might possibly be any kind of demand from any purchases that might have been pushed out due to the weather, or should we assume that those sales were effectively lost with the poor weather in the quarter?
Mike
Yeah, I think it would be interesting to see. I think chemicals, right, that sales opportunity has probably passed. I think it remains to be seen on equipment because, you know, with the weather being as challenging as it was, It impacted store traffic, site traffic. You know, pools were not on people's mind. So I think there's an opportunity to recover that. And, again, super small quarter, outsized weather impact. We're being very careful not to draw any trends for the full year from it. And we didn't see anything despite those two factors that would tell us we need to. Got it.
Triclor
Yeah, I'd add to it, Derek, that I think the lost sanitization days in the calendar fourth quarter are de minimis, right? So I think Mike's right. It's more along the lines of traffic, and could that have deferred some purchases around sanitizers? Sure. But lost sanitization days, just not meaningful.
Gary
Okay. Great. Thanks for that. Best of luck.
Operator
Our next question is from Peter Keith with Piper Sandler. Please proceed.
Peter Keith
Hey, good afternoon, everyone. I want to follow up a little bit on the prior question around Tricor. Like you noted, there's a lot of Tricor inventory in the industry. So we'll see what happens with pricing. I guess in the event there is some price cuts as we get close to Memorial Day, how would that impact your product margins? Are you guys You already kind of bought up on a lot of the Triclor inventory and sort of stuck with your costs. How should we think about that flow through if deflation comes to be?
Mike
Yeah, I believe our costs are set for Triclor. And I would say the industry costs are set. So if we see price deflation from this point, retail price deflation, that would be an impact on margins. It's also the reason we don't think we're going to see it in the industry I don't believe there's a need for any price deflation. And in our mind, inventory, demand, supply, both domestic and import, has all kind of settled in at a specific price and a specific volume. And we consider the category healthy at the moment.
Peter Keith
Okay. And then maybe just on that same topic, It seems to be some concern or some speculation that you and others in the industry are sitting on elevated chemical or trichlor margins versus historic margins. Where are you relative to like a 2019 level? Are you in line or above on trichlor? What does that margin profile look like?
Mike
Yeah, Peter, I'm sorry. I'm going to have to pull the competitive information on that one. We, you know, we have... Grown margins throughout the quarters, though, as David brought up earlier on a question, we're closer to 2019 currently overall. But we expect to end the year in a better position than we were in 2019. And so margins are up overall for the business. And I would say our tricolor margins are higher, but to go into specifics, I'm going to have to decline that one.
Peter Keith
Okay. Fair enough. I appreciate that. Thanks for the insights.
Operator
Yep. Our next question is from Andrew Carter with Stateful. Please proceed. Thank you very much. Good evening.
Andrew Carter
What I wanted to ask is, you mentioned the smaller pack sizes are something you're seeing as a potential sign of consumer weaknesses. I guess, how do you compare those, that percentage of the volume versus, say, before the big trichlor disruption where there was a 35-pound bucket of tabs and people thought they couldn't get anything, they'd grab it. Second thing I'd ask is, wouldn't the smaller pack size be accretive to you from a product margin standpoint? And finally, depending on how you extrapolate that, is it an easy switch if you're over-inventoried at the store of big pack sizes to make that correction given pack sizes, or are you stuck with it? Anything you can help out with there? Thanks.
Mike
Yeah, thanks, Andrew, for the question. The smaller sizes are a little more profitable for us. We do, particularly now that we do the bulk of our own tablating, have the ability to switch between bucket sizes during the season. The advantage we have this season is we're just fully inventoried across all sizes. But the behavior we're seeing in going to smaller sizes And this is, I'm going to say this is anecdotal from our stores, but we have a lot of stores and it's a fairly common explanation when we ask our general managers what's going on. That people seem to be coming in with a monthly budget, if you would, for their pool. And so they seem to be, you can't manage sanitizers down because your pool size doesn't change. What you can do is spread sanitizer purchases out by buying smaller buckets at a time. We think that's what we're seeing right now. But again, it's small quarter weather, trying not to draw any trends from it.
Andrew Carter
Appreciate that. Second question I would ask you, and this kind of goes back to where you've kind of consistently shown that you've outperformed the industry. I know you said costs are set for you on trichlor, costs are set for the industry. How do you think of the risk of your competitors sitting on too much inventory and that really being the leg down in deflation? And what's your visibility into that to be able to react quickly and be preemptive or whatever on that? Thanks.
Mike
Yeah, I can only speculate about the level of competitors' inventory. What we do know is that industry is fully inventoried. So in that case, there is an opportunity for some irrational behavior. Like I said, we haven't seen that. I don't think we expect to see it. However, as we set out our investor day when we laid out our full year guidance, we're more than prepared to compete if we need to. What we're not going to do is lose market share in sanitizers. And we believe that we have a cost structure where we are more than able to do that. Thanks, I'll pass it on. Thanks, Angie.
Operator
Our next question is from Jonathan Matuszewski with Jefferies. Please proceed.
Jonathan Matuszewski
Great. Good afternoon and thanks for taking my question. My first question was just to follow up on inventory. I'm curious if you could just break out, Steve, maybe just the increase in units versus price. I'm not sure if you could get as granular as the trichlor units versus price, but that would be helpful. And then just a second piece of that first question is how you're thinking about the rate of inventory growth in fiscal 2Q, right? So I think overall inventory balances were up around 74% this quarter. I'm just thinking, you know, how should we expect that rate of growth in fiscal 2Q? That's my first question. Thanks.
Triclor
Yeah, both good questions. I certainly expect inventory to be up again in Q2. We typically will peak in our inventory the last couple weeks of March, first couple weeks of April, and then we start getting into kind of replenishment cycle as season starts to kick off. So I would expect inventory to be up again in Q2, less so than in Q1, but still a dollar increase. When you think about inflation, I guess if I expand out and I talk through a fourth factor factor, It's equipment, it's chemicals, it's M&A, and it's inflationary. And inflation was a top four contributor to the increase year on year. Definitely have a larger increase from a unit perspective than from a cost perspective, but certainly have seen those costs flow through to the inventory balances as well. We feel good about the inventory that we have in our facilities and in our stores. Again, when you think about that composition or product that we're bringing in early, it's high-turn product top SKUs that we know we need for pool season, and where last year we talked a lot about kind of getting behind the curve and the replenishment cycle, we have more inventory available to distribute out to whether e-commerce customers or to our retail locations to serve those consumers as season really gets kicked off. And again, consistent with prior years, I can't tell you the day or the week that season will really kick off, but it will be typically in the month of May. So I'll feel good with the position we have in inventory today.
Jonathan Matuszewski
That's super helpful. And then just a follow-up question on trichlor. Mike, I think you mentioned you weren't seeing any evidence of price deflation. I think we've seen some online retailers maybe cutting price in January. Not sure if that's just a seasonal kind of promotion that they typically do, but any commentary on that would be helpful. Thanks.
Mike
Yeah, there's a little bit of import. I'm going to actually call it questionable import chlorine running through Amazon at the moment. But it's quite small, and it's literally small buckets. And there was something similar last year for a short period of time, and then it disappeared. And I think we're probably in a similar situation. There's always some competition around the edges. But in terms of our retail price competitors and our scale digital competitors, I think the trichlor pricing is acting pretty rationally.
Jonathan Matuszewski
That's great. Thanks for clearing that up.
Operator
As a reminder, just star 1 on your telephone keypad if you would like to ask a question. Our next question is from Peter Benedict with Baird. Please proceed.
Peter Benedict
Hey, Mike, Steve. Just a couple questions. First, just on the sector supply chain, maybe just help us. What's still not operating efficiently? You're bringing a lot of inventory in. I'm just curious, what areas of the business are you still kind of concerned about or maybe aren't operating, I guess, fluidly at this point? That's my first question.
Mike
Yeah, you know, Peter, you'll remember in Q3 and Q4 last year, we had some challenges with specialty chemicals in particular. And we said we would address that in two ways. We'd buy more earlier, which we've done, and we'd also diversify our vendors there, which we've done as well. So if I was to point to one area, that would be probably predominant. In terms of equipment, the equipment vendors, you know, have done a nice job getting themselves back on schedule fairly recent. And we have taken in a lot of equipment inventory purposely so that, you know, we won't won't be looking necessarily to reorder in season. We're purposely trying to buy it up front, which I think we've successfully done with all except maybe one vendor. And then in Tricor, that's, you know, that's really us. And we control most of that supply chain now, particularly with our, particularly with our investment in Stellar for tableting. So we feel, we feel good about where we are with Tricor, but we've also, we've also bulked up the inventory there as well. with the idea that we're going to pre-position a much higher percentage of it into the stores themselves. And the only other area that's been a little bit challenging but is coming along nicely now is CalHypo, kind of the second largest sanitizer in the industry. That was in rather short supply in Q4 and is just really now in December and January coming online in the volumes we'd like.
Peter Benedict
All right, that's very helpful. Thanks, Mike. And then just on the loyalty file, I think you said it was up 15%. I think that's an improvement in the rate of growth relative to how it was running kind of last year. Maybe talk about what's driving that and maybe the complexion of who you're bringing into the loyalty file.
Mike
Thank you. Yeah, we're really pleased with how loyalty file is performing. It's now up to about 75% of our total sales. Membership continues to grow and the members are continuing to get more productive for us. But probably what's most encouraging for us is, you know, as we look at the different cohorts in our file, we have a, I'm going to say, a limited number of loyalty members who are in our top cohort, despite in total accounting for 75% sales. And the way we look at that is a really significant opportunity. to continue to trade people up through those cohorts. So a lot of the loyalty growth is coming from reactivations, right? Customers who were in a loyalty program maybe much earlier, several years ago, and have come back in as we've upped the marketing of it. And also we're signing up at a nice rate new loyalty members from our existing base. That's predominantly in stores. and then also digitally, and those are predominantly brand-new customers to Leslie's. So good. We feel really good about the loyalty file, not just for this quarter, but long-term as we continue to build its productivity.
Peter Benedict
Terrific. Thanks. Good luck, guys. Thank you.
Operator
We have reached the end of our question-and-answer session. I would like to turn the conference back over to Mike for closing comments.
Mike
Thank you, operator, and thank you all for joining us this afternoon. For those of you with pools, I would suggest you start thinking about pool season because, as I believe we made clear at our call today, we certainly are preparing for it and looking forward to it. Thank you.
Operator
Thank you. This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.
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