Pool products retailer Leslie’s (NASDAQ:LESL) announced better-than-expected results in Q1 FY2024, with revenue down 10.8% year on year to $174 million. The company expects the full year's revenue to be around $1.44 billion, in line with analysts' estimates. It made a non-GAAP loss of $0.20 per share, down from its loss of $0.14 per share in the same quarter last year.
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Leslie's (LESL) Q1 FY2024 Highlights:
- Revenue: $174 million vs analyst estimates of $169.6 million (2.6% beat)
- EPS (non-GAAP): -$0.20 vs analyst estimates of -$0.21 (2.9% beat)
- The company reconfirmed its revenue guidance for the full year of $1.44 billion at the midpoint
- Free Cash Flow was -$82.61 million compared to -$190.1 million in the same quarter last year
- Gross Margin (GAAP): 29%, down from 33.5% in the same quarter last year
- Same-Store Sales were down 11.7% year on year
- Store Locations: 1,000 at quarter end, increasing by 8 over the last 12 months
- Market Capitalization: $1.24 billion
Mike Egeck, Chief Executive Officer, said, “Our first quarter results were in line with or ahead of our expectations and topline performance showed sequential improvement each month throughout the quarter, supported by more normalized weather. While we continue to work through the impact of the pricing actions we took in June 2023, we are enhancing our marketing and merchandising tactics to more effectively highlight our value proposition as we position the Company ahead of the peak pool season. Our team is energized and focused on executing the strategic initiatives that underpin our competitive advantages to drive growth, long term market share gains, and shareholder value.”
Named after founder Philip Leslie, who established the company in 1963, Leslie’s (NASDAQ:LESL) is a retailer that sells pool and spa supplies, equipment, and maintenance services.
Some retailers try to sell everything under the sun, while others—appropriately called Specialty Retailers—focus on selling a narrow category and aiming to be exceptional at it. Whether it’s eyeglasses, sporting goods, or beauty and cosmetics, these stores win with depth of product in their category as well as in-store expertise and guidance for shoppers who need it. E-commerce competition exists and waning retail foot traffic impacts these retailers, but the magnitude of the headwinds depends on what they sell and what extra value they provide in their stores.
Leslie's is a small retailer, which sometimes brings disadvantages compared to larger competitors that benefit from economies of scale.
As you can see below, the company's annualized revenue growth rate of 11.1% over the last four years (we compare to 2019 to normalize for COVID-19 impacts) was decent as it opened new stores and expanded its reach.
This quarter, Leslie's revenue fell 10.8% year on year to $174 million but beat Wall Street's estimates by 2.6%. Looking ahead, Wall Street expects sales to grow 1.2% over the next 12 months, an acceleration from this quarter.
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Number of Stores
The number of stores a retailer operates is a major determinant of how much it can sell, and its growth is a critical driver of how quickly company-level sales can grow.
When a retailer like Leslie's is opening new stores, it usually means it's investing for growth because demand is greater than supply. As of the most recently reported quarter, Leslie's operated 1,000 total retail locations, in line with its store count a year ago.
Over the last two years, the company has generally opened new stores and averaged 2.8% annual growth in its physical footprint, which is decent and on par with the broader sector. With an expanding store base and demand, revenue growth can come from multiple vectors: sales from new stores, sales from e-commerce, or increased foot traffic and higher sales per customer at existing stores.
Same-store sales growth is a key performance indicator used to measure organic growth and demand for retailers.
Leslie's demand has been shrinking over the last eight quarters, and on average, its same-store sales have declined by 2.6% year on year. This performance is quite concerning and the company should reconsider its strategy before investing its precious capital into new store buildouts.
In the latest quarter, Leslie's same-store sales fell 11.7% year on year. This decrease was a further deceleration from the 4% year-on-year decline it posted 12 months ago.
Key Takeaways from Leslie's Q1 Results
We enjoyed seeing Leslie's exceed analysts' revenue expectations this quarter. We were also glad its full-year earnings guidance exceeded Wall Street's estimates. On the other hand, its gross margin missed analysts' expectations. Overall, this quarter's results seemed fairly positive and shareholders might feel somewhat optimistic. Markets were likely expecting more though, however, and the stock is down 3.1% after reporting, trading at $6.62 per share.
So should you invest in Leslie's right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.
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