On Thursday, Baird adjusted its outlook on Leslie's (NASDAQ:LESL) shares, reducing the price target to $4 from the previous $6 while maintaining a Neutral rating on the stock.
The decision came after the company reported softer sales, which fell short by approximately 7%, and a consequential operational leverage issue, leading to a significant miss in both adjusted EBITDA and adjusted EPS for the third fiscal quarter. These metrics underperformed by about 17% and 22%, respectively.
The company did see a slight improvement in sales in June, with a 2% decline compared to the 7% drop experienced in the third fiscal quarter. Nevertheless, Leslie's revised forecast for the full fiscal year 2024 reflects a cautious stance, with expectations for sales, adjusted EBITDA, and adjusted EPS being lowered by around 7%, 30%, and 80%, respectively. This revised outlook assumes that the third quarter's trends will persist through the fourth quarter.
Investors had anticipated some level of shortfall and a downward revision in guidance. However, the extent of the adjusted EBITDA reduction was unexpected, with decremental margins exceeding 50%. Despite these challenges, there were some positive aspects noted, such as stable chemical sales, a leveling off in the customer file, and efforts to reduce inventory.
The company's financial leverage, which is currently around 6 times, coupled with limited profit and loss visibility, has led Baird to maintain its Neutral stance on Leslie's stock. The new price target of $4 reflects the firm's adjusted expectations based on the company's recent performance and future projections.
In other recent news, Leslie's, a leading pool supplies company, has been experiencing significant changes. The company's earnings forecast for the third quarter of fiscal year 2024 came in weaker than expected, leading Telsey Advisory Group to adjust its price target for Leslie's shares to $4.00 from $6.00. Furthermore, Stifel downgraded Leslie's stock from "Hold" to "Sell" following a significant reduction in its FY24 EBITDA forecast.
This financial turbulence is attributed to unfavorable weather conditions and a challenging macroeconomic environment. In addition, Leslie's reported an 11% decrease in total sales from the previous year, standing at $189 million.
Despite these difficulties, the company is implementing strategic initiatives to bolster future growth and reduce debt, including plans to open 15 new stores and convert 6 residential stores to PRO format in fiscal 2024.
A recent leadership shift saw the appointment of Maile (Clark) Naylor to Leslie's Board of Directors, following the resignation of Eric Kufel. Naylor is expected to bring valuable insights to the company, thanks to her extensive experience and background as an analyst and investor. These developments highlight Leslie's commitment to adapt and grow in the challenging pool supply industry.
InvestingPro Insights
As Leslie's (NASDAQ:LESL) navigates a challenging fiscal period, the market has seen the company's stock exhibit significant volatility. According to InvestingPro data, Leslie's has a market capitalization of $753.75 million and is trading at a high earnings multiple with a P/E ratio of 50.95, which adjusts to 36.06 on a last twelve months basis as of Q2 2024. This high valuation comes despite a decline in revenue growth by 9.72% over the last twelve months as of Q2 2024. The stock has experienced a sharp 41.21% drop over the last six months, reflecting investor concerns and the operational issues highlighted by Baird.
InvestingPro Tips for Leslie's suggest that while the stock has seen a significant return over the last week, up 9.09%, it generally trades with high price volatility, which investors should consider when evaluating the stock. Additionally, it's worth noting that analysts predict the company will be profitable this year, and Leslie's has been profitable over the last twelve months. For those interested in deeper analysis, there are additional PRONEWS24 InvestingPro Tips available, providing further insights into the company's performance and outlook.
With the next earnings date on July 31, 2024, and a fair value estimation by analysts at $5, slightly above the previous close of $4.08, investors are closely watching for any signs of recovery or further decline. For those looking to stay ahead of the curve with comprehensive analysis, InvestingPro offers a wealth of data and an additional six tips for Leslie's, which can be accessed with a special offer using the coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription.
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