Leslie's (LESL)

Pool products retailer Leslie’s (NASDAQ:LESL) missed Wall Street’s revenue expectations in Q2 CY2025, with sales falling 12.2% year on year to $500.3 million. The company’s full-year revenue guidance of $1.22 billion at the midpoint came in 1.7% below analysts’ estimates. Its non-GAAP profit of $0.20 per share was in line with analysts’ consensus estimates.

Company Overview

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.

Competitors that sell pool and spa supplies include Pool Corporation (NASDAQ:POOL) and Hayward Holdings (NYSE:HAYW), although these companies sell more to professionals than DIY homeowners.

A company’s long-term performance is an indicator of its overall quality. Any business can have short-term success, but a top-tier one grows for years.

With $1.25 billion in revenue over the past 12 months, Leslie's is a small retailer, which sometimes brings disadvantages compared to larger competitors benefiting from economies of scale and negotiating leverage with suppliers.

As you can see below, Leslie’s sales grew at a tepid 5.4% compounded annual growth rate over the last six years (we compare to 2019 to normalize for COVID-19 impacts) as it didn’t open many new stores.

This quarter, Leslie's missed Wall Street’s estimates and reported a rather uninspiring 12.2% year-on-year revenue decline, generating $500.3 million of revenue.

Looking ahead, sell-side analysts expect revenue to grow 3.5% over the next 12 months, a slight deceleration versus the last six years. Despite the slowdown, this projection is above the sector average and suggests the market is forecasting some success for its newer products.

Number of Stores

A retailer’s store count often determines how much revenue it can generate.

Leslie's operated 1,000 locations in the latest quarter, and over the last two years, has kept its store count flat while other consumer retail businesses have opted for growth.

When a retailer keeps its store footprint steady, it usually means demand is stable and it’s focusing on operational efficiency to increase profitability.

Same-Store Sales

A company's store base only paints one part of the picture. When demand is high, it makes sense to open more. But when demand is low, it’s prudent to close some locations and use the money in other ways. Same-store sales provides a deeper understanding of this issue because it measures organic growth at brick-and-mortar shops for at least a year.

Leslie’s demand has been shrinking over the last two years as its same-store sales have averaged 8.6% annual declines. This performance isn’t ideal, and we’d be concerned if Leslie's starts opening new stores to artificially boost revenue growth.

In the latest quarter, Leslie’s same-store sales fell by 12.4% year on year. This decrease represents a further deceleration from its historical levels. We hope the business can get back on track.

We prefer higher gross margins because they not only make it easier to generate more operating profits but also indicate product differentiation, negotiating leverage, and pricing power.

Leslie’s unit economics are higher than the typical retailer, giving it the flexibility to invest in areas such as marketing and talent to reach more consumers. As you can see below, it averaged a decent 35.4% gross margin over the last two years. Said differently, Leslie's paid its suppliers $64.57 for every $100 in revenue.

Leslie’s gross profit margin came in at 39.6% this quarter, in line with the same quarter last year and exceeding analysts’ estimates by 0.6%. On a wider time horizon, Leslie’s full-year margin has been trending down over the past 12 months, decreasing by 1.6 percentage points. If this move continues, it could suggest a more competitive environment with some pressure to discount products and higher input costs (such as labor and freight expenses to transport goods).

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

Leslie's was profitable over the last two years but held back by its large cost base. Its average operating margin of 2.9% was weak for a consumer retail business.

Analyzing the trend in its profitability, Leslie’s operating margin decreased by 4.5 percentage points over the last year. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability. Leslie’s performance was poor no matter how you look at it - it shows that costs were rising and it couldn’t pass them onto its customers.

In Q2, Leslie's generated an operating margin profit margin of 13.7%, down 3.5 percentage points year on year. Since Leslie’s operating margin decreased more than its gross margin, we can assume it was less efficient because expenses such as marketing, and administrative overhead increased.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Leslie’s full-year EPS turned negative over the last four years. In a mature sector such as consumer retail, we tend to steer our readers away from companies with falling EPS because it could imply changing secular trends and preferences. If the tide turns unexpectedly, Leslie’s low margin of safety could leave its stock price susceptible to large downswings.

In Q2, Leslie's reported adjusted EPS at $0.20, down from $0.34 in the same quarter last year. This print slightly missed analysts’ estimates. Over the next 12 months, Wall Street is optimistic. Analysts forecast Leslie’s full-year EPS of negative $0.25 will reach break even.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Leslie's has shown decent cash profitability, giving it some flexibility to reinvest or return capital to investors. The company’s free cash flow margin averaged 2.7% over the last two years, slightly better than the broader consumer retail sector.

Taking a step back, we can see that Leslie’s margin dropped by 8.9 percentage points over the last year. This decrease warrants extra caution because Leslie's failed to grow its same-store sales. Its cash profitability could decay further if it tries to reignite growth by opening new stores.

Leslie’s free cash flow clocked in at $107.1 million in Q2, equivalent to a 21.4% margin. The company’s cash profitability regressed as it was 7.6 percentage points lower than in the same quarter last year, but it’s still above its two-year average. We wouldn’t read too much into this quarter’s decline because capital expenditures can be seasonal and companies often stockpile inventory in anticipation of higher demand, leading to short-term swings. Long-term trends carry greater meaning.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Leslie’s management team makes decent investment decisions and generates value for shareholders. Its five-year average ROIC was 17.7%, slightly better than typical consumer retail business.

As long-term investors, the risk we care about most is the permanent loss of capital, which can happen when a company goes bankrupt or raises money from a disadvantaged position. This is separate from short-term stock price volatility, something we are much less bothered by.

Leslie's burned through $24.33 million of cash over the last year, and its $817.3 million of debt exceeds the $42.68 million of cash on its balance sheet. This is a deal breaker for us because indebted loss-making companies spell trouble.

Unless the Leslie’s fundamentals change quickly, it might find itself in a position where it must raise capital from investors to continue operating. Whether that would be favorable is unclear because dilution is a headwind for shareholder returns.

We remain cautious of Leslie's until it generates consistent free cash flow or any of its announced financing plans materialize on its balance sheet.

It was good to see Leslie's narrowly top analysts’ gross margin expectations this quarter. We were also happy its EBITDA narrowly outperformed Wall Street’s estimates. On the other hand, its full-year EBITDA guidance missed and its revenue fell short of Wall Street’s estimates. Overall, this was a softer quarter. The stock traded down 4.3% to $0.35 immediately following the results.

Updated: November 14, 2025 at 9:55 PM EST

Before investing in or passing on Leslie's, we urge you to understand the company’s business quality (or lack thereof), valuation, and the latest quarterly results - in that order.

Leslie's doesn’t pass our quality test. First off, its revenue growth was a little slower over the last six years, and analysts expect its demand to deteriorate over the next 12 months. And while its projected EPS for the next year implies the company’s fundamentals will improve, the downside is its shrinking same-store sales tell us it will need to change its strategy to succeed. On top of that, its brand caters to a niche market.

Leslie’s EV-to-EBITDA ratio based on the next 12 months is 0.4x. While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are better investments elsewhere.

Wall Street analysts have a consensus one-year price target of $9.34 on the company (compared to the current share price of $3.00).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.