Leslies Inc

Previous wording

The following discussion and analysis of our financial condition and results of operations should be read together with our condensed consolidated financial statements and related notes, which are included elsewhere in this Quarterly Report on Form 10-Q. This discussion may contain forward-looking statements based upon current expectations that involve risks and uncertainties. Actual results or outcomes may differ materially from those anticipated in these forward-looking statements, which are subject to risks, uncertainties, and other factors, including those described in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended September 28, 2024 and in our other filings with the SEC.

Current wording

The following discussion and analysis of our financial condition and results of operations should be read together with our condensed consolidated financial statements and related notes, which are included elsewhere in this Quarterly Report on Form 10-Q. This discussion may contain forward-looking statements based upon current expectations that involve risks and uncertainties. Actual results or outcomes may differ materially from those anticipated in these forward-looking statements, which are subject to risks, uncertainties, and other factors, including those described in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended September 28, 2024, in Part II, Item 1A, “Risk Factors” of this Quarterly Report on Form 10-Q and in our other filings with the SEC.

Previous wording

We operate on a fiscal calendar that results in a fiscal year consisting of a 52- or 53-week period ending on the Saturday closest to September 30th. In a 52-week fiscal year, each quarter contains 13 weeks of operations; in a 53-week fiscal year, each of the first, second and third quarters includes 13 weeks of operations and the fourth quarter includes 14 weeks of operations. References to the three months ended December 28, 2024 and December 30, 2023 refer to the 13 weeks ended December 28, 2024 and December 30, 2023, respectively.

Current wording

We operate on a fiscal calendar that results in a fiscal year consisting of a 52- or 53-week period ending on the Saturday closest to September 30th. In a 52-week fiscal year, each quarter contains 13 weeks of operations; in a 53-week fiscal year, each of the first, second and third quarters includes 13 weeks of operations and the fourth quarter includes 14 weeks of operations. References to the three months ended March 29, 2025 and March 30, 2024 refer to the 13 weeks ended March 29, 2025 and March 30, 2024, respectively. References to the six months ended March 29, 2025 and March 30, 2024 refer to the 26 weeks ended March 29, 2025 and March 30, 2024, respectively.

Previous wording

We consider a variety of financial and operating measures in assessing the performance of our business. The key measures we use under United States generally accepted accounting principles (“GAAP”) are sales, gross profit and gross margin, selling, general and administrative expenses (“SG&A”), and operating income (loss). The key non-GAAP measures and other operating measures we use are comparable sales, comparable sales growth, Adjusted EBITDA, Adjusted net income (loss), and Adjusted diluted earnings per share.

Current wording

We consider a variety of financial and operating measures in assessing the performance of our business. The key measures we use under United States generally accepted accounting principles (“GAAP”) are sales, gross profit and gross margin, selling, general and administrative expenses (“SG&A”), and operating income (loss). The key non-GAAP measures and other operating measures we use are comparable sales, comparable sales growth, Adjusted EBITDA, Adjusted net income (loss), and Adjusted diluted earnings (loss) per share.

Previous wording

Adjusted net income (loss) and Adjusted diluted earnings per share are additional key measures used by management and our board of directors to assess our financial performance. Adjusted net income (loss) and Adjusted diluted earnings per share are also frequently used by analysts, investors, and other interested parties to evaluate companies in our industry, when considered alongside other GAAP measures.

Current wording

Adjusted net income (loss) and Adjusted diluted earnings (loss) per share are additional key measures used by management and our board of directors to assess our financial performance. Adjusted net income (loss) and Adjusted diluted earnings (loss) per share are also frequently used by analysts, investors, and other interested parties to evaluate companies in our industry, when considered alongside other GAAP measures.

Previous wording

Adjusted net income (loss) is defined as net income (loss) adjusted to exclude equity-based compensation expense, executive transition costs, severance, strategic project costs, merger and acquisition costs, change in valuation allowance for deferred taxes, and other non-recurring, non-cash, or discrete items. Adjusted diluted earnings per share is defined as Adjusted net income (loss) divided by the diluted weighted average number of common shares outstanding.

Current wording

Adjusted net income (loss) is defined as net income (loss) adjusted to exclude equity-based compensation expense, executive transition costs, severance, strategic project costs, merger and acquisition costs, change in valuation allowance for deferred taxes, and other non-recurring, non-cash, or discrete items. Adjusted diluted earnings (loss) per share is defined as Adjusted net income (loss) divided by the diluted weighted average number of common shares outstanding.

Previous wording

Our financial performance and condition may be impacted to varying extents from period to period by macroeconomic and geopolitical developments, including public health crises, escalating global conflicts, supply chain disruptions, labor market constraints, high rates of inflation, rising interest rates, general economic slowdown, and potential failures among financial institutions. The direct and indirect impact COVID-19 has had on our financial and operating performance since 2020 has made period-to-period analysis and accurate forecasting difficult. Due to the non-discretionary nature of our products and services, our business delivered strong growth and profitability throughout the pandemic, in spite of restrictions on the operation of our locations and distribution facilities. Significant disruption to our supply chain for products we sell, as a result of geopolitical conflict or otherwise, can also have a material impact on our sales and earnings and cause unpredictable changes in results. In addition, we believe adverse macroeconomic trends and uncertainties including inflation and varying interest rates also increase consumers’ sensitivity to price and result in cost-conscious behavior inclusive of high ticket items, which can result in corresponding declines in sales and/or gross profit.

Current wording

Our financial performance and condition may be impacted to varying extents from period to period by macroeconomic and geopolitical developments, including tariffs, public health crises, escalating global conflicts, supply chain disruptions, labor market constraints, higher rates of inflation, higher interest rates, general economic slowdown, and potential failures among financial institutions. The direct and indirect impact COVID-19 has had on our financial and operating performance since 2020 has made period-to-period analysis and accurate forecasting difficult. Due to the non-discretionary nature of our products and services, our business delivered strong growth and profitability throughout the pandemic, in spite of restrictions on the operation of our locations and distribution facilities. New or increased tariffs and other barriers to trade, especially in light of recent comments and executive orders made by the U.S. presidential administration, could further impact or exacerbate these conditions. In recent months, the United States has announced tariffs on imports from most countries, including significant tariffs on imports from Canada, Mexico and China. In response to tariffs, other countries have implemented retaliatory tariffs on U.S. goods. There is substantial uncertainty about the duration of existing tariffs and whether additional tariffs may be imposed, modified or suspended, and the impacts of such actions on the Company’s business. Significant disruption to our supply chain for products we sell, as a result of geopolitical conflict, tariffs or trade policies or otherwise, can also have a material impact on our sales and earnings and cause unpredictable changes in results. In addition, we believe adverse macroeconomic trends and uncertainties including inflation and varying interest rates also increase consumers’ sensitivity to price and result in cost-conscious behavior inclusive of high ticket items, which can result in corresponding declines in sales and/or gross profit.

Previous wording

We derived our condensed consolidated statements of operations for the three months ended December 28, 2024 and December 30, 2023 from our condensed consolidated financial statements. Our historical results are not necessarily indicative of the results that may be expected in the future. The following table summarizes key components of our results of operations for the periods indicated, both in dollars and as a percentage of our sales (in thousands, except per share amounts):

Current wording

We derived our condensed consolidated statements of operations for the three and six months ended March 29, 2025 and March 30, 2024 from our condensed consolidated financial statements. Our historical results are not necessarily indicative of the results that may be expected in the future. The following table summarizes key components of our results of operations for the periods indicated, both in dollars and as a percentage of our sales (in thousands, except per share amounts):

Previous wording

The tables below provide a reconciliation from our net (loss) to Adjusted EBITDA and net (loss) to Adjusted net (loss) for the three months ended December 28, 2024 and December 30, 2023 (in thousands).

Current wording

The tables below provide a reconciliation from our net loss to Adjusted EBITDA and net loss to Adjusted net loss for the three and six months ended March 29, 2025 and March 30, 2024 (in thousands).

Previous wording

Represents non-cash change in valuation allowance for deferred taxes that management does not believe are indicative of our ongoing operations. This item is reported in income tax (benefit) expense in our consolidated statements of operations and we note they may reoccur in the future,

Current wording

Represents non-cash change in valuation allowance for deferred taxes that management does not believe are indicative of our ongoing operations. This item is reported in income tax benefit in our condensed consolidated statements of operations and we note they may reoccur in the future.

Previous wording

Represents the tax effect of the total adjustments based on our combined U.S. federal and state statutory tax rates. Amounts are reported in income tax expense (benefit) in our condensed consolidated statements of operations.

Current wording

Represents the tax effect of the total adjustments based on our combined U.S. federal and state statutory tax rates. Amounts are reported in income tax benefit in our condensed consolidated statements of operations.

Previous wording

Sales increased to $175.2 million for the three months ended December 28, 2024, from $174.0 million in the prior year period, an increase of $1.3 million, or 0.7%. The increase was primarily driven by increased transaction volume of 2.0%, partially offset by a reduction in average order value of approximately 1.3% due to the mix of products sold. Comparable sales increased $0.4 million relative to the prior year period. Non-comparable sales, including acquisitions and new stores, contributed $0.9 million in the period.

Current wording

Sales were $177.1 million for the three months ended March 29, 2025 compared to $188.7 million in the prior year period, a decrease of $11.5 million, or 6.1%. The change was primarily driven by lower transaction volume and mix of products sold. Comparable sales were lower by $12.4 million relative to the prior year period. Non-comparable sales, including acquisitions and new stores, contributed $0.9 million in the current year period.

Previous wording

Gross profit decreased to $47.7 million for the three months ended December 28, 2024 from $50.4 million in the prior year period, a decrease of $2.7 million, or 5.3%. Gross margin decreased to 27.2% compared to 29.0% in the prior year period, which represents a decrease of 180 basis points. The decline in rate was mainly due to 95 basis points of increased inventory adjustements as we optimize inventory and 75 basis points of deleverage on occupancy costs and distribution center costs.

Current wording

Gross profit for the three months ended March 29, 2025 was $43.9 million compared to $54.3 million in the prior year period, representing a decrease of $10.4 million, or 19.1%. Gross margin decreased to 24.8% compared to 28.8% in the prior year period. The decline in rate was mainly due to occupancy and distribution center costs (220 basis points) and decrease in volume of products sold and mix (180 basis points).

Previous wording

Income tax benefit decreased to $10.9 million for the three months ended December 28, 2024 compared to $14.0 million in the prior year period, a decrease of $3.1 million. The change in the three months ended December 28, 2024 compared to the prior year period was primarily attributable to the change in valuation allowance related to our interest expense limitation.

Current wording

Income tax benefit for the three months ended March 29, 2025 was $13.0 million compared to $14.1 million in the prior year period, a decrease of $1.2 million. Income tax benefit for the six months ended March 29, 2025 was $23.9 million compared to $28.1 million in the prior year period, a decrease of $4.2 million. The decreases were primarily attributable to the change in valuation allowance related to our interest expense limitation.

Previous wording

The effective income tax rate was 19.7% for the three months ended December 28, 2024, and included net income tax expenses attributable to equity-based compensation awards and the change in valuation allowance related to our interest expense limitation. The effective income tax rate was 26.1% for the three months ended December 30, 2023, and included net income tax expenses attributable to equity-based compensation awards.

Current wording

The effective income tax rate was 20.2% and 19.9% for the three and six months ended March 29, 2025, respectively, and included net income tax expenses attributable to equity-based compensation awards and the change in valuation allowance related to our interest expense limitation. The effective income tax rate was 29.0% and 27.5% for the three and six months ended March 30, 2024, and included net income tax expenses attributable to equity-based compensation awards.

Previous wording

Net Loss and Diluted Earnings per Share

Current wording

Net Loss and Diluted Earnings (Loss) per Share

Previous wording

Net loss increased to $44.6 million for the three months ended December 28, 2024 compared to $39.6 million in the prior year period, an increase of $5.0 million. The change in net loss were primarily due to decreases in gross profit combined with a slight increase in selling, general and administrative expense. Diluted earnings per share was $(0.24) for the three months ended December 28, 2024 compared to $(0.21) in the prior year period.

Current wording

Net loss for the three months ended March 29, 2025 was $51.3 million compared to $34.6 million in the prior year period, an increase of $16.8 million. Net loss for the six months ended March 29, 2025 was $95.9 million compared to $74.1 million in the prior year period, an increase of $21.8 million. The changes in net loss during the three and six months ended March 29, 2025 was primarily due to decreases in gross profit combined with increases in SG&A.

Previous wording

Our primary sources of liquidity are net cash provided by operating activities and borrowing availability under our Revolving Credit Facility. Historically, we have funded working capital requirements, capital expenditures, payments related to acquisitions, debt service requirements, and repurchases of shares of our common stock with internally generated cash on hand and through our Revolving Credit Facility.

Current wording

Our primary sources of liquidity are net cash provided by operating activities and borrowing availability under our Revolving Credit Facility. Historically, we have funded working capital requirements, capital expenditures, payments related to acquisitions, and debt service requirements with internally generated cash on hand and through our Revolving Credit Facility.

Previous wording

Cash and cash equivalents consist primarily of cash on deposit with banks. Cash and cash equivalents totaled $11.6 million and $108.5 million as of December 28, 2024 and September 28, 2024, respectively. As of December 28, 2024, we had $40.0 million outstanding on our Revolving Credit Facility. We had no amounts outstanding on our Revolving Credit Facility as of September 28, 2024.

Current wording

Cash and cash equivalents consist primarily of cash on deposit with banks. Cash and cash equivalents totaled $17.3 million and $108.5 million as of March 29, 2025 and September 28, 2024, respectively. As of March 29, 2025, we had $101.5 million outstanding on our Revolving Credit Facility. We had no amounts outstanding on our Revolving Credit Facility as of September 28, 2024.

Previous wording

Based on our growth plans, we believe our cash and cash equivalents position, net cash provided by operating activities and borrowing availability under our Revolving Credit Facility will be adequate to finance our working capital requirements, planned capital expenditures, strategic acquisitions, share repurchases, and debt service over the next 12 months and thereafter. If cash provided by operating activities and borrowings under our Revolving Credit Facility are not sufficient or available to meet our capital requirements, then we may need to obtain additional equity or debt financing. There can be no assurance that equity or debt financing will be available to us if we need it or, if available, whether the terms will be satisfactory to us.

Current wording

Based on our growth plans, we believe our cash and cash equivalents position, net cash provided by operating activities and borrowing availability under our Revolving Credit Facility will be adequate to finance our working capital requirements, planned capital expenditures, strategic acquisitions, and debt service over the next 12 months and thereafter. If cash provided by operating activities and borrowings under our Revolving Credit Facility are not sufficient or available to meet our capital requirements, then we may need to obtain additional equity or debt financing. There can be no assurance that equity or debt financing will be available to us if we need it or, if available, whether the terms will be satisfactory to us.

Previous wording

As of December 28, 2024, outstanding standby letters of credit totaled $11.9 million and, after considering borrowing base restrictions, we had $198.1 million of available borrowing capacity under the terms of the Revolving Credit Facility. As of December 28, 2024, we were in compliance with the covenants under the Revolving Credit Facility and our Term Loan agreements.

Current wording

As of March 29, 2025, outstanding standby letters of credit totaled $11.9 million and, after considering borrowing base restrictions, we had $136.6 million of available borrowing capacity under the terms of the Revolving Credit Facility. As of March 29, 2025, we were in compliance with the covenants under the Revolving Credit Facility and our Term Loan.

Previous wording

Net cash used in operating activities was $105.1 million for the three months ended December 28, 2024 compared to $71.9 million in the prior year period, an increase of $33.2 million. The increase was primarily driven by changes in working capital related to reductions in accrued expenses of $28.1 million, accounts payable of $11.4 million, combined with increases in product inventories of $38.6 million.

Current wording

Net cash used in operating activities was $154.3 million for the six months ended March 29, 2025 compared to net cash used in operating activities of $115.1 million in the prior year period, an increase of $39.2 million. The increase was primarily driven by changes in working capital related to reduced accrued expenses of $7.6 million, reduced accounts payable of $6.7 million, and increased product inventories of $33.6 million.

Previous wording

Net cash used in investing activities was $4.6 million for the three months ended December 28, 2024 compared to $10.7 million in the prior year period, a decrease of $6.1 million. This decrease was primarily driven by a decrease in purchases of property and equipment during the period.

Current wording

Net cash used in investing activities was $11.1 million for the six months ended March 29, 2025 compared to $24.0 million in the prior year period, a decrease of $12.9 million. This decrease was primarily driven by lower investments in purchases of property and equipment.

Previous wording

Net cash provided by financing activities for the three months ended December 28, 2024 was $12.8 million compared to $35.5 million in the prior year period, a decrease of $22.7 million. This decrease was primarily driven by higher repayment of long-term debt during the period.

Current wording

Net cash provided by financing activities for the six months ended March 29, 2025 was $74.2 million compared to $92.1 million in the prior year period, a decrease of $17.9 million. This decrease was primarily driven by lower borrowings on the Revolving Credit Facility combined with higher repayment of long-term debt.

Previous wording

On December 3, 2021, the board of directors authorized a share repurchase program for up to an aggregate of $300 million of the Company’s outstanding shares of common stock over a period of three years, which expired on December 31, 2024. As of December 28, 2024, approximately $147.7 million remained available for future purchases under our share repurchase program (see Note 11—Share Repurchase Program to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q).

Current wording

On December 3, 2021, the board of directors authorized a share repurchase program for up to an aggregate of $300 million of the Company’s outstanding shares of common stock over a period of three years, which expired on December 31, 2024. (see Note 11—Share Repurchase Program to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q).

Previous wording

There have been no material changes to our contractual obligations and other commitments during the three months ended December 28, 2024 from those disclosed in our Annual Report on Form 10-K for the fiscal year ended September 28, 2024.

Current wording

There have been no material changes to our contractual obligations and other commitments during the six months ended March 29, 2025 from those disclosed in our Annual Report on Form 10-K for the fiscal year ended September 28, 2024.

Previous wording

There have been no material changes to our critical accounting estimates during the three months ended December 28, 2024 from those disclosed in our Annual Report on Form 10-K for the fiscal year ended September 28, 2024.

Current wording

There have been no material changes to our critical accounting estimates during the six months ended March 29, 2025 from those disclosed in our Annual Report on Form 10-K for the fiscal year ended September 28, 2024.