Leslie's, Inc.

Good afternoon and welcome to the fiscal second 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 call, please press star zero on the telephone keypad. As a reminder, this conference call is being recorded and will be available for replay later today on the company's investor relations website. I will now turn the call over to Elizabeth I. Slavin, Senior Vice President, Investor and Public Relations.

Good afternoon and thank you for joining us today to discuss our fiscal second quarter that ended March 29th and the progress we're making across our strategic initiatives. I'm joined today by Jason McDonald, our Chief Executive Officer, and Tony Iskander, our Interim Chief Financial Officer and Treasurer. Following their prepared remarks, we will open the call to address your questions. Unless otherwise stated, all references to quarterly or annual performance refer to our fiscal reporting period and all references to comparisons made are versus the prior fiscal year reporting period. I'd like to remind everyone that comments made today may include forward-looking statements which are subject to risks and uncertainties that could cause actual results to differ materially from those projected or implied by the forward-looking statements. All statements other than statements of historical facts or forward-looking statements including but not limited to estimate, may, could, will, believe, expect, would, consider, should, anticipate, project, plan, intend, or similar words. Additional information about factors that could cause actual results to differ can be found under the caption forward-looking statements and risk factors in our most recent annual report on form 10-K and subsequent filings made with the Commission. In addition, during our call today, management will refer to certain non-GAP financial measures, a reconciliation between the GAP and non-GAP financial measures is included in our press release which was furnished to the Securities Exchange Commission today and posted to our investor relations website. Now I'd like to turn the call over to Jason.

Thanks, Elizabeth. I'm excited to have you on the team. I want to begin by thanking the entire Lesley's team for the urgency, resilience, and customer first mindset they demonstrated in our second quarter. We recognize that much of the progress we're making will take time to become fully evident in our results. The amount of change we're driving across the business is significant and would not be possible without the unwavering dedication across every team in our organization. As we prepare for peak pool season, we are executing against our key initiatives that we believe will enable the successful transformation of our business. Our diligence in executing strategic initiatives is beginning to yield earlier improvements across the business. The team is energized as we came together to deliver bottom line results consistent with our expectations laid out last quarter, despite a softer than planned top line in the quarter. Before I turn to second quarter performance and updates on our transformation, I want to welcome Tony Iskander. Tony began working with Lesley's in late 2024 as a senior finance and accounting consultant before being appointed our interim CFO. We recognize we are at a critical time in this transformation journey and Tony will be invaluable as we deliver against our top capital priority of debt reduction and position the company for long term value creation. We're grateful for the swift improvements Tony's driving across the organization. Keeping with the perform while we transform mindset that you've heard about on our prior calls, today I will discuss how we performed in the second quarter, including an update on how our strategic initiatives are progressing. Then, turning to transform, I will share our next set of strategic initiatives under the three pillars we've previously outlined, including customer centricity, convenience, and asset utilization. I will then turn the call over to Tony to dive deeper into our financial performance and reaffirmed expectations for the balance of the year. Finally, Tony will introduce a fourth pillar of cost optimization, which is all about continuous improvement and driving accelerated EBITDA growth. Starting with the second quarter performance, sales were softer than expected with weaker foot traffic in February driven by significantly colder temperatures than usual, resulting in a decline of 6% year over year. Looking at sales by our business units on a year over year basis, pro pool sales continue to outpace total company sales and were down 2%, residential pool sales declined 9%, and hot tub sales increased 4% year over year. With that said, by leveraging the expertise of our store team and enhanced reliability, we continued to deliver positive growth on conversion rate, which improved 174 basis points versus prior year. Importantly, looking at performance after water test is performed with our proprietary AccuBlue technology, we increased total conversion by over 450 basis points. We believe our strategic initiatives, including in stock rate improvements, are showing early signs of contributions to our conversion rate, which I'll touch on in a bit. Turning to our adjusted EBITDA performance in the quarter, I am pleased with the team's ability to take action and control costs, delivering adjusted EBITDA within our guide at a loss of $36 million. As a reminder, the second quarter only represents approximately 13% of our annual sales. Our ability to achieve adjusted EBITDA guidance, even with some top line softness, is a proof point of the early progress we're making as a team. Moving to our strategic initiatives, which remain centered around customer centricity, convenience, and asset utilization, I want to provide updates on, one, optimizing inventory and utilizing local fulfillment centers, or LFCs. Two, winning in pro, and three, optimizing DIY omni-channel to build loyalty. Starting first with optimizing inventory and utilizing LFCs, I'm thrilled to share that all 26 LFCs we announced last quarter are operational and were completed on time, under budget, and are already having a positive impact on our customers. Importantly, by utilizing existing locations, these strategic assets require minimal capital investment, as you'll hear from Tony shortly. Serving as mini hubs, our LFCs support our focus on precision inventory and helping to improve in-stock levels. A component of optimizing inventory includes our focus on our never-out SKUs that are most critical for serving both residential and professional customers. In the second quarter, we achieve more than 99% in-stock levels in these never-out SKUs. This is a 170 basis point improvement compared to the end of the first quarter, and an impressive 620 basis point improvement since the beginning of the year. This is a key factor in our ability to improve conversion rate. Importantly, while improving in-stock rates, we continued to reduce inventory by 12%, and inventory turns improved 8% versus prior year. By operating with a precision inventory mindset, we believe we can extend this momentum through peak pool season. As we look to the future, we believe there are additional opportunities to further optimize our inventory, which will improve cash flow and support our top capital priority of reducing debt. Furthermore, we also expect our LFCs will allow us to enhance and optimize our -to-market strategy in the future, inclusive of our omni-channel approach, store footprint, and distribution centers. Moving to our second initiative, Grow and Pro, our momentum is building as evidenced in -over-year improvement in Pro sales in our second quarter, which delivered a 700 basis point improvement from the 9% decline in the second quarter of the prior year. A key driver to this improvement is our team's focus on growing Pro share and establishing new partner contracts across our entire footprint. We believe we will further capitalize on the significant share opportunity across our more than 1,000 stores as we improve speed, convenience, and inventory availability for Pro customers. Through the rollout of personalized strategic communications to the Pro, coupled with our refreshed marketing initiatives, we believe we're taking the right steps to grow Pro heading into the pool season. Our third strategic initiative, as we discussed last quarter, is optimizing DIY Omni-channel to build loyalty. We added new functionality and capabilities to Leslie's website and our mobile app in the second quarter, which are significantly improving the user experience. In February, we launched enhanced service scheduling capabilities, enabling both store team members and customers to see estimated costs and reduce processing time, which together resulted in large increase in online service appointments. Specific to the redesigned app, it now provides an integrated platform with -in-class search and shopping options. In addition, with improved speed for the customer, they are utilizing new features such as hands-free voice search to easily order pool supplies. We believe these enhancements began to have an immediate impact on the DIY customer experience and strengthen Leslie's position as a trusted expert in pool care. Now, as we look forward to the balance of 2025 and strengthening our foundation for future success, I want to introduce a new set of transform initiatives that support our strategic pillars of customer centricity, convenience, and asset utilization. 1. Building Leslie's brand 2. Launching our enhanced Pool Perks Loathe program as well as improved personalization 3. Adding same-day delivery capabilities First, our team is focused on building Leslie's brand through more efficient marketing programs to help drive traffic and improve marketing spend effectiveness. Specifically, we are leveraging marketing mix modeling to ensure we optimize our investment as we reduce costs in this critical area with more efficient and higher returning marketing initiatives. With this approach, we recently launched We Are Pool People, a new marketing campaign which has been rolled out nationwide and features some of our own expert team members. We look forward to building on the strength of this campaign to increase brand awareness during our highest volume quarters. Our second new initiative is the launch of our enhanced Pool Perks Loyalty program. As the first nationwide retail pool loyalty program in America, our program is well known amongst pool owners with more than 80% of our DIY transactions are with Pool Perks members. However, this program has had minimal updates since its initial launch years ago and provides a great opportunity for us to grow with and reward our most loyal customers with enhanced benefits. We launched the new Pool Perks program in April, introducing loyalty tiers for the first time and is now integrated for customers within our mobile app. As customers grow within our loyalty tiers, they can now earn additional benefits as they increase their spend with Leslie's and trust us with a higher share of their pool care solutions. Moving from a Perks member to a Perks elite or our highest tier, the Perks MVP, allows customers to earn rewards faster while providing unique and curated offers. Importantly, through the introduction of loyalty tiers, we are also able to deliver cost savings for Leslie's. To further support our new Pool Perks program, we're now leveraging both zero and first party data to introduce personalization within our marketing efforts. This allows us to better serve customers by communicating more precisely. We can target DIY customers with what they need when they need it. A great example of this is water testing. With our proprietary AccuBlue system, we're giving customers a personalized report based on the size and composition of their pool. Utilizing their latest water test, we're able to give the customer a chemical prescription for exactly what their pool needs. This offering allows the customer to complete their basket with a total solution, helping to drive increased UPT through product bundles that include specialty and base chemicals often needed together. Through new marketing capabilities, we can now also provide offers on products we know are needed for the pool conditions, yet they have not purchased at Leslie's recently. Building on our proprietary AccuBlue technology, our AccuBlue Home System is another example of how we're delivering convenience to our customers. Since launching in May 2023, this in-home technology was previously only available to purchase online, resulting in an opportunity to build awareness and expand penetration. In the second quarter, we started the rollout and are now featuring AccuBlue Home in approximately 100 stores, with plans to expand nationwide. This product allows customers to see firsthand how easy it is to achieve the benefits of a clean, safe, and beautiful pool with accurate water testing capabilities from the comfort of their own home. Ultimately, this system drives customer convenience while increasing their loyalty and total spend with Leslie's. Finally, our third initiative is another great example of our commitment to customer convenience. With this focus, I want to highlight the addition of same-day delivery capabilities, which we believe will improve asset utilization and enhance our ability to serve customers faster. Knowing our proximity to pools is a great competitive advantage, we first began to improve our competitive position through the addition of strategically located LSCs. These have allowed us to improve our inventory availability and speed to serve the customer. I'm pleased to announce that we've recently signed an agreement with Uber to launch same-day delivery services across our store network for pro and DIY customers. I'm excited to launch same-day delivery with Uber this summer, as it will further bolster our focus on customer centricity, convenience, and asset utilization with an omni-channel total solution approach and further differentiating Leslie's in the market while driving cost optimization. As we move forward, we are reimagining Leslie's core value proposition. We aren't just looking at Leslie's as a thousand stores in a network of distribution centers. Rather, Leslie's is a dynamic network that can respond quickly to any customer need by leveraging our differentiated assets, and we believe we can do this better than anyone in the industry. I am committed to optimizing our entire asset footprint to ensure we're strengthening Leslie's for the customers today and building the company for long-term profitable growth. I will now turn it over to Tony to discuss performance in the quarter, provide our outlook for the second half of the year, and introduce our cost optimization pillar.

Tony? Thank you, Jason, and good afternoon. I'm excited to be part of the team reshaping our operational efficiency to deliver improved financial performance. I've had the pleasure of getting to know the Leslie's team and have been impressed by their dedication and commitment towards improving our financial future. Turning now to financial performance in our second quarter, sales were $177.1 million compared with $188.7 million in the second quarter of the prior year, which was primarily driven by weaker foot traffic, as Jason discussed. Gross profit was $43.9 million compared with $54.3 million in the prior year. Gross margin was .8% compared with .8% in the prior year. Approximately half of the decline in rate was driven by an increase in DC and occupancy costs. The balance of the decline was driven by mixed, rebate overlap, and lower volume. As a reminder, the rebate overlap is versus the prior year quarter, which we expect to be a benefit in the fourth quarter. SG&A was $92.3 million compared with $84.9 million in the second quarter of the prior year and as a percent of net sales was 52.1%. The increase in both dollars and rate was primarily the result of increased labor costs, inclusive of executive transition expenses and professional fees. As part of our commitment to pay down debt, we are focused on working capital and increasing cash generation. As Jason mentioned, inventory optimization is a key priority to improve working capital. Leveraging improved analytics and our inventory management tool, we once again reduced inventory compared to prior year and end of the quarter at $335.1 million, approximately 12% lower compared with the same quarter last year. Importantly, we expect to reduce inventory by at least $15 million at the end of 2025 versus prior year with further optimization in 2026. Our team is working diligently on detailed plans to significantly reduce inventory, which directly supports our top capital priority of debt reduction and we expect to share more with you in the future. Here today, we reduced borrowings on our secured term loan by $27 million to $756.7 million. We had $101.5 million outstanding on our revolving credit facility at the end of the second quarter, which we expect to repay in full during our third quarter. As discussed last quarter, the majority of our products are sourced domestically, limiting our tariff exposure. Based on what we know today, on an annualized basis, we estimate our total tariff exposure to be approximately $10 to $12 million in product costs. As part of our inventory optimization efforts, we believe we will mitigate a large portion of this impact in 2025 by utilizing inventory on hand. We expect to fully offset any impact in the current year through strategic pricing actions to maintain margin rate. As we begin peak pool season, we remain confident in our team's ability to deliver against our previously provided guidance ranges, which we reaffirm today. While we are not providing quarterly guidance, I want to provide some color as it relates to the back half of the year. As we saw in the second quarter, we expect continued impacts from mix shift as well as higher labor related expenses year over year. Additionally, the headwinds we faced in the fourth quarter 2024, related to rebates, will be a tailwind in the fourth quarter of this year. Finally, we are reducing our previously communicated full year capital expenditure expectations by $5 million and now expect to spend $30 to $35 million. This reduction is a result of lower than planned investments required to complete our first 26 LFCs as well as detailed capital project reviews that prioritize the highest return initiatives. Reducing debt and improving our working capital continues to be one of our highest priorities and I want to provide more details on the fourth pillar of transformation that Jason introduced earlier regarding cost optimization. Through our cost optimization pillar, we are driving efficiency across the organization with a continuous improvement mindset to deliver accelerated EBITDA. This includes a comprehensive review of our cost structure. We have already identified areas within the business of annualized cost savings of approximately $5 to $10 million primarily within indirect procurement costs. We expect a bulk of the savings in 2026. With an unrelenting focus on improving the fundamentals of the business, we see potential to optimize through the continued evaluation of all core and non-core assets. We believe this allows us to improve the underlying business performance and deliver against our top capital priority of paying down debt. In summary, we recognize the critical point we are at today. I want to reinforce our commitment to delivering continuous improvement in our business to drive EBITDA growth as well as improved cash flow to pay down debt and help position Lesley's for a stronger financial future. With that, I will turn the call back to Jason.

Thanks, Tony. As you can see, Lesley's continues to move forward on our transformation journey while putting the customer at the center of everything we do. We recognize the importance of focusing on the fundamentals of retail while executing our key initiatives to deliver incremental improvement every day. Our team remains committed to driving accelerated EBITDA growth and working capital improvement to support our top capital priority of paying down the debt. I'm proud of how our team is working together to lead this positive change and we look forward to sharing further updates on the progress we're making. With that, we will open up the call to address your questions. Operator?

At this time, if you would like to ask a question, please press star one now on your telephone keypad to withdraw yourself from the queue, you may press star two. Again, to ask a question, that is star one on your telephone keypad. We ask that you please limit yourself to one question and one follow-up. Thank you. Our first question is coming from Jonathan Matizeski of Jeffreys. Your line is open.

Oh, great. Good afternoon and thanks for taking my questions. My first one was just on the competitive landscape. Jason, maybe you could kind of put this quarter's comp sales performance into context versus some of your pool supply retail peers. I imagine the broader landscape was impacted by weather, just like Leslie's, but any more data points you can share in terms of kind of your performance versus the industry and any comments on market share? Thanks so much.

Yeah, thanks for the question, Jonathan. Well, specifically I'd say from a total business standpoint is, our quarter from a top line standpoint was obviously impacted by weather, specifically in January, February. We saw a comeback there in March. You know, specific to a share number, we don't quite have that as a specific share calculation. As the category splits across our competitive competition is a bit unique. You know, certainly we have different competition in chemicals that we do in parts versus equipment versus seasonal items such as flotation items for your pool. That said, to give you a perspective on how I think we're doing in the marketplace competitively, I would say let me break it out between pro and DIY. You know, I feel very good about the progress we're making in pro. We talked about the strong pro performance in quarter one, that continued versus our average in quarter two, and I feel like we're in a gaining share position there. And that is attributed to the clear focus that our team is having across the network from a pro standpoint. If you remember from the last call, we talked about Leslie's Pro stores and we had 100. And we said, no, we're going to change the mindset here at Leslie's and we are going to make sure that all 1000 stores are thinking about the pro customer. And that's what I feel has taken place here at Leslie's. Not only are we adding pro contracts, but also we've adjusted the assortment in our stores to make sure it fits both pro and DIY. We are also making sure that we're delivering on the in-stocks because I know from my past is that when winning with a pro really talks about speed and reliability matters the most. And then we're putting specific marketing investments and then the addition of LFCs gives our customers a reliable place to know that within a district they have a place they can go because it acts like a hub. So that would be the first comment there, Jonathan. The second part would be when we look at more of a DIY or residential, I would say that that's work that we are focused on and we have an opportunity there. And that's why we have put together a variety of initiatives to drive that change and that trajectory change on the business and improvement in DIY or residential. So we have a variety of initiatives that we have brought forward, some that we can build on from last time which are around in-stocks as well as around some of the changes and upgrades we're making to our mobile app and our website. But then we have the exciting new additions we're bringing to the lineup for Leslie's that's to engage a customer, whether that be the marketing program, the new marketing program we have in the marketplace, whether it be the fact that we've made the marketing more efficient from the standpoint of leveraging marketing mix modeling to connect, our announcement of the new loyalty program with a personalization engine where we can really bring personalized offers to customers. We've taken past innovation like AccuBlue Home and now we're going to expand it and obviously push it through the stores. And then the recent announcement that we just made on this call around the addition of Uber and same day delivery options for this summer. So I feel like we're transforming in the right direction and I feel like we have definitely opportunities for growth.

That's really helpful. And just a quick follow up on pricing. Tony, I think you referenced some strategic pricing increases ahead. I was hoping if you could just expand a little bit more there, whether that's across chemicals and equipment, whether that's just kind of tariff impacted skews and any idea in terms of kind of the blended price hike that you're planning that's embedded in guidance. Thanks so much.

Yeah, thanks for the question, Jonathan. The real simple answer is we're only going to take pricing to offset any impacted products by tariffs. And as a reminder, the tariffs on an annualized basis is less than 1% of our total sales. So we don't expect that we're going to take pricing or need to take significant pricing.

Thank you. Thank you. Our next question is coming from Simeon Gutman of Morgan Stanley. Your line is open.

Good morning. On for Simeon, we wanted to first ask about the comp weakness in Q2, aside from the weather impact and traffic. Is there anything else about maybe the underlying fundamentals of the business that are relating to this comp weakness? Thank you.

Hey, thanks for the question. I really appreciate that. We've done some work from an analytic standpoint on leveraging data tools on the weather trends that took place in January, and it actually would show that if the weather wasn't as the impact, we would have hit the center of the guide in terms of what we had in top line. So that's one piece of information. The other piece of information that makes me feel good about where we're headed both in the future, but also its impact in the quarter, is the work that I'm seeing out of the team on conversion rate. And the work on conversion rate, we've consistently seen improvement on that. So from a conversion rate standpoint, we mentioned in the quarter that we were up 174 basis points in conversion rate. And I would say that that's directly attributable to some of the early actions that I wanted to put in place at the start, which was making sure that we improved our in-stocks. So we developed a program called the Never Out program, and that Never Out really drove focus on conversion rates. And that's one of our most important skews, which for now at well over 99%, and candidly we're at over 600 basis points higher from the start of that year. So that's impacting our conversion rate. The other part is the quality of our team members when it comes to expertise. We're seeing conversion rates also strong there as well, especially after a water test. We're seeing a massive increase of well over 600 basis points in conversion rate. So from an underlying mechanics, I would say I'm really pleased with where the team is going. And this area around focus on fundamentals, which is something I've shared in the prior call, is really the standard that we're setting the team to as well as how and also how they're delivered. So thanks for the question.

Thank you. And my follow-up is just on the inventory purchases. I'm curious if you're acting more defensive for the second half of 25. You know, over the last few years, the slow start to spring did not result in pent up demand and, you know, a stronger selling season. How do you plan for a scenario in which, you know, trends maybe stay more depressed?

Well, thanks for the question. One of the, I guess, for the last two quarters, I've shared three key pillars that were very important to me. One was the cost optimization. And the key to what we were talking about. And then Tony's added one here in terms of today in terms of cost optimization. They were customer centricity, convenience and asset utilization. And the prior calls, I mentioned this concept of asset utilization. And it was around a precision inventory mindset. And it was, so we feel good that at the same time that we can improve the in-stocks and get the results that I just mentioned in the prior question. At the same time, we feel like there's an opportunity to drive continuous improvement by leveraging some of the technology and assets that we have around how to even get more efficient by reducing or optimizing that level of investment and working capital. So it's sort of, it's a combination of being focused on the fundamentals of excellence as well as driving inventory optimization. And really it's because we're focused on working capital. And we want to make sure that we're driving improvement in working capital so that we can use those dollars to pay down the debt.

Yeah, let me add one thing to that. One of the things that we have the benefit of is we have, as we continue with this inventory optimization, that's going to actually allow us to mitigate a lot of the impact on tariffs this year as we continue to work down existing inventory that we already have on hand.

Great. Thank you.

Our next question is coming from Steve Forbes of Guggenheim. Your line is open.

Good afternoon, Jason and Tony. Tony, I wanted to maybe start with the cost optimization pillar, appreciate the guidance around indirect spend. But we often get asked sort of about the expense ratio itself, how it's evolved over the past 10, 20 years. And arguably, what's the right way to think about reframing the opportunity as you guys go about this cost optimization pillar? So I don't expect you to maybe give us other buckets of opportunity, but like any way to help frame this, how you guys see the progression of the expense ratio in the most optimal state over the next couple of years here?

Yeah, thanks, Steve. Appreciate the question. So a couple of things. I'm still fairly new in role, although I've been on ground for some time. And as I've gotten into the financials, we've identified this cost optimization pillar where we know we can find $5 to $10 million and it's predominantly indirect spend. We're going to continue to focus on other areas as we really dive into asset utilization, like we mentioned in our prepared remarks, as well as other areas of business where we can take out excess cost. But right now, this is where we are headed. This is our newest initiative or pillar, and we feel confident delivering that to you next year.

And building on that, the part that I think is also, if you want to address the question around how to frame, and I would say we're looking across the entire asset base in terms of how we're looking for optimization. One of the things that I'm pleased with that the team did extremely well was the implementation of our local fulfillment centers, or LFCs. We put those in the marketplace quickly for a couple of reasons. One is because it's the right thing to do by the customer, right, to make sure that we can backstop and make sure that we have the in-stocks ready from a customer standpoint so they need to meet their needs, especially in peak pool season. The other part that it does is it allows us to drive cost efficiency because then from an inventory standpoint, we can start to pull inventory out of the stores. At the same time, it allows us to look at our entire network and then try to find the best way to do that. So that's one of the things that we're looking at in terms of optimization. So I think my comments here would be the frame would be indirect costs like Tony mentioned, as well as we'll look at the entire asset base and see if there's further optimization and continuous improvement that we can bring to Leslie's to accelerate EBITDA going forward.

»» Yes, Steve, we look forward to sharing more in the future. What we know is we can't cut our way to savings and growth. We are going to continue to do this in a very methodical and strategic way.

»» I appreciate that and look forward to, I guess, future updates. And then maybe just a quick follow-up on the business as it stands. I think another question we sort of field is sort of on channel mix changes. And it's been a while since we got an update on channel mix. And the reason I ask is it has implications maybe on what buckets you go after in the cost optimization plan. So is channel mix something, e- commerce, first brick and mortar, something that you guys can provide us or reframe for us as well?

»» Yeah, I think the first thing that I would say, maybe I'll share with you building off the prior question you asked about the framing of maybe how we think about it, I'll build that into this one, is for me I look at from a total channel standpoint, I look at it as an omni- channel mindset is sort of how we're approaching this. So for me, the concept of asset utilization across this network is really about how do I, how do us and the team use an omni- channel mindset when it comes to engaging, leveraging our stores, which is why we just announced the integration of Uber and same day delivery, as well as how do we use e-commerce as a really efficient fulfillment location at the store level. So we're thinking about this from a total network standpoint across the piece, across the channels. We're going to, therefore, leveraging e-commerce and omni- channel with our residential business is key and then how do we use those assets to win and pro as an opportunity for us. So obviously we're trying to grow all those channels in terms of our business portfolio.

Thank you. And once again, to ask a question, please press star one now on your telephone keypad. We'll move next to David Bellinger of Mizuho. Your line is open.

Hey guys, good afternoon. Thanks for the question. First one, on the in-stocks being up materially, it seemed like that did not get reflected in the comp sales number for Q2. Is that something that's coming, something that we should see in the go forward results? Do you have any details you can share on maybe some of the early tests with the LFCs, some of those markets that went live if there was a commensurate pickup in sales growth?

Yeah, thanks for the question. I would say on the in-stock performance in terms of its impact, our challenges in terms of sales growth, in terms of sales growth, in terms of and we're really weather related. So I'll go back to that. The linkage to in-stock improvement is I can see it in conversion rate. So when we have the products available, it's just the opportunity to convert those shoppers both online because you have it in stock but also in stores because you have it in stock. And I know the pro is really critical for this. And that's why the connection point to the LFCs is so key on the second question you asked because from an LFC standpoint you get when you are more reliable and you have the in-stock potential, you can capitalize more business, especially on the pro side. It's early stages on the LFC side in terms of specifically creating the sales. We knew that when the LFCs were being put in place, we were going to have an opportunity to see that mostly get its impact in the peak season because that's when we were going to see potential constraints because of the size of the peak through the summer months. That being said, I was in an LFC last week and the example I would give you would be the LFC doing what it's doing. So we had a conversation with Angie in the store and we had a conversation about the impact that an LFC can have on a market. So just as a refresher, these LFCs act like mini hubs. They surround 20 other stores that are kinder stores and connect it to that LFC. So there was a store not far away that they had an order for three pumps and that store didn't have three pumps. But Angie and the LFC had the extra pumps. So we were able to complete that sale on that day. Historically, that might have been a challenge for Leslie, but not on that day for Angie. So that's the type of benefit that we expect to see going forward and we're looking forward to see those results through the summer and the peak summer months, especially engaging our DIY customer, but especially our pro.

Got it. That's very helpful. And then just to follow up on one of the prior questions, just on the e-commerce percentage of the business and the digitally initiated sales. So you're now partnering with Uber. What pushed you to make that move? Is that something that consumers are asking for? And is this equally as important on the pro side as the DIY side?

Great question. Thank you for that. When, the last couple of quarters, we talked about the first two pillars. The first two pillars are customer centricity and convenience. And the reason why those were put at the center there was a reflection on truly understanding the consumer and the customer on what this category and what our business was all about. And for us, the want, we've really learned what is the pool. The need is to keep your pool operational. And when you're dealing with a customer and a need, the importance of speed and convenience becomes paramount. And it's why we put customer centricity and convenience as the top two pillars there is because we knew we needed to deliver the customer and we're putting the customer at the center of everything we do. So for me, I want to move, I want to move our company from fulfilling customers' needs, not in days. I want to convert it to minutes and hours. So that's a critical item for us. And that's why we push to have Uber same day at the same time. The other part of it, it has another benefit in addition. Instead of shipping products across the country to fulfill an e-commerce order, we can do it locally. And if we do that locally, we can also drive additional cost savings into the system. So not only do we provide the benefit to the customer in regards to speed to solve that need, but we also have found a way through this fulfillment mechanism to also save cost, which also fits in the cost optimization pillar that Tony mentioned earlier.

Very good. Thanks for the thorough responses, Jason. Appreciate it.

Yeah, thank you.

Our next question is coming from Justin Kleber of Baird. Your line is open.

Hey, guys. This is Zach back on for Justin. Thank you for taking our questions. First one may be on top line guidance. Just curious what you guys are seeing so far in Q3 that gives you the confidence to reiterate your full year sales outlook. And then maybe how are you thinking about revenue seasonality in the second half of the year? Any color on Q3 versus Q4? Recognizing that Q4 benefits from the extra week.

Yeah, thanks for that question. Before addressing the quarter to date number, I think it's important for me to describe the uniqueness of this quarter. We are about 50% through this entire quarter in days. And what's unique about this quarter in terms of the pool business and the pool business at Lesley is when I look at the past two years of performance, we still have well over 70% of our sales still to come and expected volume. So for me to give an early look at the quarter performance is a bit premature because there's so much sales still to come. But also we still have a lot of our sales balance of year still to come. Our first two quarters in the first half of the year only represented just over 25% of our entire sales year. So we still have a lot of sales yet to come. That said, on your question, I would say, you know, I'm really pleased with the team in terms of their focus and efforts. I've talked about the conversion rate improvements that I believe are sustainable on the business because of our in-stock performance as well as the quality and care that our team members provide in the field. We've also been making sure that we're set up for pool season by bringing a variety of initiatives to the forefront so that we can connect with our customers. I'm looking forward to seeing the impact of our new DIY loyalty program. That loyalty program was just brought forward and we are now tiering that program to engage people more throughout the tiers. And we also built a personalization engine where we're going to send them notes on not only to push them up through the tiers, that will help our Leslie's loyalty, but also we're going to send them personalized messages around things that they should buy or maybe they haven't bought at Leslie's. So it's really leveraging the data, the zero party data they have given us as well as leveraging some first party for us to win. So looking forward to seeing what the future holds here in our peak season as we set up for a strong season at Leslie's.

Great. Thanks, Jason. Maybe one more on the implied second half gross margin inflection. I know you guys mentioned the Q4 tailwind related to the timing of rebates, but I guess how much is dependent on hitting the top line guide you guys have out there versus maybe cycling some of your recent temporal pressures? Thank you.

Yeah, I'll take that. So a couple of things. So this quarter we had primarily seen the decline from what I saw, two main buckets. One is really driven by the mix and lower volume, which is inclusive of that rebate headwind that we mentioned in our prepared remarks. That was approximately 100 basis points. That will come back in the fourth quarter. So we feel confident with that. The other that gives us confidence is just what Jason mentioned earlier around a lot of our key pillars around customer centricity and convenience, a lot of the new initiatives that we've launched. And while it's still early, we do view them as promising. So while we are still focused and we do believe we are going to achieve our guide, we are focusing on delivering on that commitment.

And the only other piece I would add to that would be I'm really proud of the team in terms of our quarter two performance. We experienced the softness in weather and with that the team banded together around a focus to ensure that we are delivering our commitment and our guide in the second quarter as we delivered our EBITDA guide.

Thanks, Taz. I'll pass it on.

All right. Thank you all for joining us today. That's all the questions we have. But you've heard a lot of updates. We're really excited about what's going on at Leslie's and we look forward to continuing to increase transparency and to take you along this journey with us. So thank you for your time today. Look forward to talking soon.

This does conclude today's conference. You may now disconnect your lines and everyone have a great day.