Leslie's, Inc.

Good afternoon and welcome to the fiscal first quarter 2025 earnings conference call for Leslie's. At this time, all participants are in a listen-only mode. Following the prepared remarks, management will conduct a question and answer session. If you 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 Matt Skelly. Vice President of 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 Leslie's website at ir.lesliespool.com. On the call today are Jason McDonald, Chief Executive Officer, and Scott Bowman, Chief Financial Officer. With that, I will turn the call over to Jason.

Thanks, Matt. And thank you for joining us this afternoon. Before we begin, there are many people I want to thank since I joined Leslie's in September. From our frontline field leaders providing me thoughtful feedback when I'm out in the field, to our corporate team members being all in, and to our board of directors for their level of partnership, perspective, and support. I say thank you. As I mentioned during my first quarterly call last November, as soon as I joined the company, I embarked on a listening and learning tour. I spent time in stores listening to our valued customers, team members, and suppliers. After reporting year-end fiscal 2024 results, I spent time with fellow shareholders and analysts, and they shared thoughtful questions, perspectives, and feedback. I've continued my tour over the past couple of months, bringing my stores visited to over 65 across nine states. This has been a critical part of my time spent at Leslie's. My listening and learning tour also took me to the recent pool and spa show in Atlantic City, where I met with suppliers and customers. My experience there reinforced my confidence in the pool and spa industry and its future potential. These experiences have also helped us confirm our strategic themes, and prioritize this resulting set of initiatives that I will outline for you today. I mentioned during the last earnings call that our team is going to be laser-focused on the fundamentals, putting the customer at the center of everything we do. And as I mentioned, we intend to perform while we transform. Before I review some initiatives on how Lesley's will transform, I will give you a high-level summary of our performance from the first quarter of our fiscal year. Our revenue came in at the top end of our guidance with sales of $175 million, up 0.7% compared to the first fiscal quarter of 2024. Even excluding a few million dollars of sales we estimate from the serious storms in Florida in the quarter, our results still would have fallen within the guidance range. Across our consumer groups on a year-over-year basis, pro pool sales grew 9%, residential pool sales declined 1%, and residential hot tub sales declined 5%. Our adjusted EBITDA was at the bottom end of our guide at a loss of $29 million. We would have been at the middle of the guide, but we made additional inventory optimization decisions and incurred additional professional fees to support the transformation. as we lay the foundation for growth in the pool season. As a reminder, Q1 and Q2 are seasonably small quarters for us, where we typically produce losses. Digging deeper into our sales results, we saw improvement in a number of key areas. This past quarter, we produced sales growth for the first time in two years. That said, this is early days. and we are on a continued journey of transformation at Lesley's. Traffic at Lesley's improved to flat compared to down mid single digits both a year ago and to the fourth quarter of 2024. Conversion was up in the first quarter by over 160 basis points versus the year ago period. This is driven by the great work from our team members to ensure we meet the needs of our customers every day. Helping our conversion rate You may recall from our last earnings call, we have challenged our team members to be more focused on the fundamentals of retailing, and they are answering the challenge. Most notably, a key initiative was driving precision inventory to improve our in-stock position on our top 600 items, which include our newly defined never outs or critical skews. I'm pleased to share that we've already seen significant improvement in in-stock levels, with most categories up over 300 basis points since the end of fiscal 2024. This improvement is helping us convert more customers. I'm also pleased to report that even with increased in-stocks, we've lowered our overall inventory by $63 million, or 19% versus a year ago. This is due to a sharp focus on inventory improvement throughout the year as we look to improve our working capital and pay down our debt with excess free cash flow. Turning to our core categories, our core chemical sales were positive in both dollars and volume versus the same period a year ago. The same was true for our specialty chemicals. Equipment sales are stabilizing versus a year ago and sequentially versus last quarter. equipment sales were down 4% compared to down 18% a year ago and down 15% last quarter. Excluding post-storm demand in Florida, equipment sales still showed an improving trend in both cases. Lastly, we were pleased with our pro results at 9% growth. The results were driven by our better in-stock positions and our double-digit increase in pro partner contracts. In summary, our team remained focused to start fiscal 2025. I would like to credit the whole Lesley's team for their performance this quarter, which I'm pleased with, considering we are executing on a transformational change at Lesley's. Now that we've covered perform, I would now like to update you on the transform part of our efforts. When it comes to Lesley's transformation, it starts with a principle appreciation of the Lesley's legacy. Since 1963, Our company has had a strong history of market leadership stemming from a simple notion, leveraging our pool and water expertise through elevated care for our customers to help them achieve a clean, safe, and beautiful pool. As I mentioned last quarter, Lesley's does a lot more than just sell pool supplies. We provide customized pool solutions to a broad range of DIY and pro customers on a national scale. Our scale and footprint are unmatched by any other provider in the United States. We are also closest to the pools. This means we're able to serve a customer, DIY or pro, more conveniently and quicker than anyone else. A great differentiator for Lesley's is our potential to leverage our national omni-channel capabilities. We expect to continue to expand these capabilities and drive same-store sales growth with our leading product portfolio and best-in-class service and installation, expert advice, and a personalized relationship with our customers. Our goal is to not just win the customer during that visit, but to win them for life of their pool and spa care needs. With that backdrop, I want to remind you from last quarter that our transformation initiatives are going to be pursued with three key strategic themes in mind. Customer centricity, convenience, and asset utilization. I mentioned that I would update you with a set of initiatives to begin our transformation. I shared one of these last quarter, which had to do with our focus on inventory optimization, including reducing overall inventory while also getting to a place of precision inventory. This includes introducing our new never-outs category, or critical SKUs, that we expect to always have in stock. We have had strong improvement already on in-stocks and with continued reduction in inventory levels. Now, I will detail the next set of initiatives that are currently underway. The first initiative I would like to share with you is that we are establishing local fulfillment centers, known as LFCs. In some retail subsectors, this is also known as a hub network. There are two main goals of LFCs. One, consolidate additional quantities of key SKUs in our hub or LFC locations. And two, leverage our inventory in a market and the store network to better serve our customers. Our initial plan entails enhancing 12 commercial service centers and 14 stores from our existing footprint to also make them local fulfillment centers. We believe our store network and our proximity to pools are a key competitive advantage for Lesley's to serve our DIY and pro customers. This further enhances this advantage. I'll share an anecdote on why this is important. Early on, I visited a store on the west side of Phoenix that was out of a key product in our portfolio. That same day, I visited a store in the east side of Phoenix that had plenty of the same key product. Why wait for the next shipment from a DC? Let's solve this locally. It is clear we need a more flexible network to overcome this challenge. This is a clear opportunity for us, and local fulfillment centers will help us capture it. For decades, Leslie's has operated under a traditional model of using distribution centers to send large trucks to different regions of the country to supply our stores. This can be inefficient, and sometimes, in between shipments, we risk being caught out of stock on items that can impact winning the sale with our DIY or pro customers. This is especially true when our business significantly increases during our peak pool season. In peak season, it is critical that we have a localized solution to ensure our stores are in stock all the time. With LFCs in key markets, we can serve DIY and pro customers better by being in stock more consistently. We expect this to improve customer frequency and in turn help traffic to our stores and improve conversion rates. This initiative of establishing local fulfillment centers, or LFCs, touches on all of our three strategic themes. The solution makes it possible to better serve our customer, be more convenient for the DIY or the pro, and as you will hear, is a good example of asset utilization. Specific to asset utilization, we believe this initiative will help us move some of the stock depth in slower turning and higher ticket inventory from our stores to the LFCs. To be perfectly clear, we are not adding new locations for our LFCs or reducing selling square footage or adding net inventory overall. These locations will also continue as a commercial service center or retail store, and they serve dual purposes as an LFC. We are utilizing our existing footprint to leverage proximity to better serve our customers with little capital expenditure required. We also do not expect it to materially impact our SG&A. Through better asset utilization, we will use our store and supply chain network more efficiently and better serve our customers. The initial markets we've chosen for LFCs are high volume markets that will benefit most from this initiative. I am pleased that we have already completed many of the changes necessary to enable these capabilities and look forward to having all 26 locations open in advance of pool season. We will also be looking at other locations in the future to further add LFCs where needed. We expect the use of LFCs to be a key initiative to meet the needs of our customers over time. Our next initiative supports a strategic growth area for us, winning with the pro customer. In connecting with our team members and talking to pool owners about their customer journey, it is clear that the customer chooses how they are going to keep their pool clean, safe, and beautiful. They choose to do it themselves because they have the capability or want to save money. Others are looking to have weekly pro service for their pool as they may not have the time or the experience to get the job done right. We need to be focused on serving the DIYer or the pro in any way they like. As mentioned last quarter, we have the largest footprint and our stores are within 20 miles of 80% of the pools in America. That means we believe we have the ability to win a larger portion of the pro business as we meet their needs. Over the past number of years, we have converted some stores to Lesley's Pro stores. In my travels, I've observed that these conversions really meant opening these stores a bit earlier, and we added a pro sign to the Lesley's logo on the front of the store to send a message in the market that we were in the pro business. It is clear to me, we have the capability to cater to pros, not just in our Lesley's pro stores, but in our entire thousand store footprint. Today, The majority of our stores have some pro customers, whether it has a Leslie's Pro sign out front or not. With a customer-centric approach and a focus on enhanced omnichannel capabilities, we aim to make it clear that we are open for business with all pools across America, whether serviced by a pro or a DIYer. In essence, we have shifted our mindset from our previously defined 100-plus Pro stores to now leveraging our entire 1,000-store footprint to serve Pros. Our year-to-date performance in Pro has been strong, and we want to continue that momentum. As a part of this initiative, we have already put a focus on Pro assortment with a customized list of never-out Pro SKUs, and we're looking to expand our assortment further to fill in any remaining gaps. by leveraging our new LFC network. As you can see, similar to our introduction of LFCs, our rethinking of our pro business covers all three of our strategic themes as well. We're increasing our customer centricity for the pro, adding a higher level of convenience with store level assortment changes, and leveraging our footprint more effectively to drive same store sales. In addition, Our LFC initiative also provides a valuable local resource for our pros so we can better meet their needs. We're excited to deploy this new holistic way of thinking about serving our pro customers in advance of the pool season. Our next initiative is focusing on winning in DIY by building DIY omnichannel loyalty. To accomplish this, we've enhanced our Lesley's mobile app. We believe this is a key area to build stronger relationships with our DIY customers. We saw strong growth and performance in mobile app purchases in fiscal year 2024, and our conversion rate on this platform was over 30% higher than the website alone. Our latest update on our mobile app has added multiple benefits for our DIY customers, including new and improved search and shopping with a recommendation engine, New voice search to find products faster and get order status updates. Easier access on the home page to see Pool Pork's rewards, including personal barcodes for quicker checkout in store. And better base technology upgrades to improve the experience and reduce load times. In addition to the mobile app upgrades to help drive DIY loyalty, we are looking to continue to connect with our DIY customer and build future technology enhancements to better meet their needs at Lesley's. To enable this, we have refreshed a couple of key senior executives to help bring this to life. Scott Davis, our new senior vice president of marketing and e-commerce, and Mary Ann Burdick, our new senior vice president of technology. In addition to heading their respective departments, they will oversee additional DIY-focused initiatives and we will share additional information about those initiatives in the future. In conclusion, I mentioned last quarter that there were three strategic themes that were going to be key focus areas for our team. Customer centricity, convenience, and asset utilization. Inside those strategic themes are key initiatives that I've just outlined. In summary, they include precision inventory with never outs, launching local fulfillment centers, growing pro, and building DIY omnichannel loyalty. With these initiatives, we expect to deliver on our vision of Lesley's being the number one choice for customized pool care solutions for the DIY and the pro customer. We expect these initiatives to contribute to our results this year. While we are not going to quantify the impacts of these initiatives in these early days, We will provide progress updates and proof points of those benefits as we move forward. Our team is laying the foundation for future benefit during this smaller volume quarter, and we expect the fruits of our labor to be more visible when higher volumes materialize during the peak second half of our fiscal year. Our financial focus is crystal clear. Continue executing against strategic initiatives that support sustainable revenue growth and margin dollar expansion to drive incremental cash flow to strengthen our balance sheet. I will now turn it over to Scott for his prepared remarks.