Leslie's, Inc.

Good afternoon and welcome to the first quarter of fiscal 2024 conference call for Lesley's Inc. At this time, all participants are in a 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, please press star zero on your telephone keypad. As a reminder, this conference call is being recorded and will be available for replay later today on the company's website. I will now turn the call over to Caitlin Churchill, Investor Relations.

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 Lesley's website at ir.lesleypool.com. On the call today from Lesley are Mike Ejek, Chief Executive Officer, and Scott Bowman, Chief Financial Officer. With that, I will turn the call over to Mike. Mike?

Thanks, Kaitlin, and thank you all for joining us this afternoon. Please note that we have posted our Q1 2024 earnings deck to the Lesley's IR website, and we will be referring to certain pages in that deck during our call. I'd like to remind everyone that our first quarter is historically our smallest sales quarter of the year, during which we make investments and incur costs to position the company for the upcoming peak pool season. The start of our 2024 fiscal year played out as we anticipated, and our financial results for the quarter were in line with or ahead of our expectations. Total first quarter sales were $174 million, down 11% year over year. Residential pool was down 10%, pro pool was down 8%, and residential hot tub was down 18%. Comp sales were down 12% year over year, and non-comp sales contributed $3 million in sales for the quarter. Both sales and comp sales performance improved through the quarter after a soft start in October. Weather in that quarter was a 3% tailwind versus the prior year, in line with our expectations for more normalized weather in fiscal 2024, which helped traffic recover sequentially from down high single digits in Q4 to down mid-single digits in Q1. Total transactions were down 6% year-over-year, and average order value was down 5% year-over-year. Average order value continues to be affected by sales of equipment and high-ticket discretionary products, including hot tubs. Total chemical sales improved to down 3%, and we saw a sequential improvement in chemical unit volume each month during the quarter. Equipment sales continued to be soft, down 18%. In total, non-discretionary product sales were down 50% versus a year ago. Discretionary product sales were down 19% and contributed about 40% of the quarter's total sales decline. Approximately three quarters of our discretionary product sales come from our residential hot tub business, which was up against a 35% sales increase in Q1 of 2023. We are encouraged by the renewed interest we are seeing in hot tubs and face easier comparisons over the next three quarters. Our analysis of credit card data indicate that our sales underperformed the industry by approximately 578 basis points in the quarter, of which 250 basis points is attributable to our June 2023 chemical price changes. As Q1 is historically our smallest quarter, we believe it is too early to draw conclusions from these numbers. In addition, other data points we look at, including vendor discussions, store management discussions, and similar web traffic data, are not indicating our performance lag that of the specialty industry. Regardless, to further improve consumers' perception of our value price relationship, we are taking several actions, which include showcasing smaller sizes of chemicals and lower price point products at the front of stores, implementing an item of the month strategy, increasing messaging of our pool perks loyalty program benefits and price match guarantee, and increasing messaging around our omnichannel capabilities. With respect to profitability, gross margin decreased 450 basis points driven primarily by rebate timing, the expensing of previously capitalized DC costs, and occupancy deleverage, each of which we discussed last quarter. Gross margin was in line with our expectations. Adjusted EBITDA for the quarter was negative 24 million, and adjusted diluted earnings per share was negative 20 cents. We are encouraged that the industry retail pricing appears to have stabilized. Promotional activity appears to be consistent with seasonality, and that industry supply chains are operating well. In addition, we believe that the secular tailwinds that drive industry demand remain intact, and we expect these tailwinds to continue to underpin our long-term growth opportunities. Leslie's remains the leading direct-to-consumer pool and spa retailer with unmatched scale, capabilities, and brand awareness. After a year of abnormal industry conditions, our team is energized and focused on executing the strategic initiatives that underpin those competitive advantages. As industry conditions continue to normalize, we are executing our strategic growth initiatives to return Leslie's to delivering sustainable, top-line growth and profitability. Turning to those initiatives, first, our customer file was down 8% in the quarter, driven primarily by traffic. Second, average revenue per customer was down 3% in the quarter, driven primarily by decreases in big ticket items, specifically hot tubs, heaters, and above ground pools. With regard to our pro initiative, we ended the quarter with 4,000 pro contracts in place and 98 pro locations. This compares to 2,850 pro contracts and 80 pro locations versus the first quarter of last year. Pro sales were down 8% for the quarter. Pro partner sales were up double digits, offset by non-partner pro sales, which declined double digits, reinforcing the value pros are seeing in our partner program. Chemical pricing in the distributor channel remains very competitive, but appears to have stabilized. M&A and new store growth remain important initiatives for Lesley's, and we remain confident in our long-term store expansion opportunities. For fiscal 2024, we remain on track to open 15 new stores. From an innovation standpoint, our AccuBlue Home smart tech device continues to increasingly resonate with our rising member base. Member spend continues to average $1,000 per year, and member reviews continue to average 4.8 out of 5 stars. While still in the early days after the launch last May, we continue to expect a strong growth curve as customers realize its benefits and value proposition. Our vendor partner is ramping up device production for the season, and we are currently on track to achieve our 2024 pool season device inventory plan. While we remain focused on prudently executing our strategic initiatives to capture the long-term opportunities in front of us and extend our industry leadership, we continue to take actions to drive near-term performance. Number one, we are pricing at our relative historical price position and expect to hold this position for 2024. Number two, we are managing inventory and are on track to reduce our 2024 peak and year-end inventory by approximately $100 million and $50 million, respectively. Accordingly, Q1 inventory was down 22% or $95 million versus the prior year, while we still maintained high in-stock levels and strong service metrics. Number three, we are managing costs throughout the P&L. Scott will discuss this later in the call, but SGA in the quarter was down 6% versus a year ago. Number four, we continue to evaluate, develop, and elevate our people and processes to improve efficiency. The investments we have made in our supply chain talent Most notably, the decision to put supply chain leadership under our Chief Merchandising Officer, Moyo Labode, in conjunction with our new inventory and merchandising systems, are driving benefits across the organization. And number five, we are utilizing consumer insight surveys to further improve our understanding of evolving consumer purchasing behavior, and we expect our pre-season pool survey to be in the market this month. I'll now hand it over to Scott to discuss our results and outlook in more detail. Scott?