Leslie's third quarter was met with a significant negative market reaction, reflecting investor concerns over ongoing sales declines and a sharp miss on non-GAAP profit expectations. Management attributed the underperformance to continued market share losses, primarily driven by a pricing strategy that fell out of alignment with competitors and an increasingly value-focused consumer environment. CEO Jason McDonell noted that unfavorable pricing led to a net loss of over 160,000 residential customers and an 8.6% decline in residential traffic. He also cited softer sales due to weather factors but emphasized the need for immediate action to address the company’s price-value equation.
Is now the time to buy LESL? Find out in our full research report (it’s free for active Edge members).
Leslie's (LESL) Q3 CY2025 Highlights:
- Revenue: $389.2 million vs analyst estimates of $373.5 million (2.2% year-on-year decline, 4.2% beat)
- Adjusted EPS: $0.09 vs analyst expectations of $1.31 (93.1% miss)
- Adjusted EBITDA: $45.16 million vs analyst estimates of $39.36 million (11.6% margin, 14.8% beat)
- EBITDA guidance for the upcoming financial year 2026 is $65 million at the midpoint, below analyst estimates of $71.82 million
- Operating Margin: -38.6%, down from 6.6% in the same quarter last year
- Locations: 1,023 at quarter end, up from 1,020 in the same quarter last year
- Same-Store Sales fell 5.1% year on year (-8.3% in the same quarter last year)
- Market Capitalization: $25.64 million
While we enjoy listening to the management's commentary, our favorite part of earnings calls are the analyst questions. Those are unscripted and can often highlight topics that management teams would rather avoid or topics where the answer is complicated. Here is what has caught our attention.
Our Top 5 Analyst Questions From Leslie's’s Q3 Earnings Call
- Justin Kleber (Baird): Asked whether supplier partners support the turnaround and about expected free cash flow conversion. CEO Jason McDonell confirmed strong vendor partnerships and improved in-stock rates; CFO Jeff White indicated guidance assumes free cash flow positivity at the midpoint.
- Jonathan Matuszewski (Jefferies): Inquired about the focus and impact of price investments. McDonell explained that pricing adjustments are aimed primarily at key chemical items to achieve market parity, with ongoing tests supporting the strategy.
- Jonathan Matuszewski (Jefferies): Asked about the margin framework for the coming year. White clarified that gross margin will fall due to price investments, but SG&A optimization and operational efficiencies are expected to offset the decline, resulting in slight EBITDA margin expansion.
- David Bellinger (Mizuho Securities): Questioned the potential for further store closures and quantifying customer win-back costs. White said current closures target most unprofitable stores, but future closures could occur if sales continue to decline. McDonell emphasized efficient, precision marketing to lost customers using loyalty data, with no increase in marketing budget.
- Lauren Ng (Morgan Stanley): Asked about competitive dynamics and the effectiveness of the strategic pillar framework. McDonell highlighted increased pricing competition in Q3 and Q4, sequential improvement after reacting to price moves, and the need to focus on value and traffic recovery in residential business.
Catalysts in Upcoming Quarters
In the coming quarters, our team will closely monitor (1) the effectiveness of Leslie’s targeted marketing efforts in winning back lapsed residential customers, (2) the impact of store and SKU rationalization on profitability and operational efficiency, and (3) customer traffic trends following price adjustments on key product lines. Execution on omnichannel expansion and continued progress in cost optimization will also be essential indicators of the turnaround’s success.
Leslie's currently trades at $2.75, down from $3.60 just before the earnings. At this price, is it a buy or sell? The answer lies in our full research report (it’s free for active Edge members).
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