Pool (NASDAQ:POOL) products retailer Leslie’s (NASDAQ:LESL) announced better-than-expected results in Q4 FY2023, with revenue down 9.1% year on year to $432.4 million. On the other hand, the company's full-year revenue guidance of $1.44 billion at the midpoint came in 4.4% below analysts' estimates. It made a non-GAAP profit of $0.14 per share, down from its profit of $0.31 per share in the same quarter last year.
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Leslie's (LESL) Q4 FY2023 Highlights:
- Revenue: $432.4 million vs analyst estimates of $419.3 million (3.1% beat)
- EPS (non-GAAP): $0.14 vs analyst expectations of $0.17 (16.2% miss)
- Management's revenue guidance for the upcoming financial year 2024 is $1.44 billion at the midpoint, missing analyst estimates by 4.4% and implying -0.8% growth (vs -4.9% in FY2023)
- Free Cash Flow of $69.44 million is up from -$11.81 million in the same quarter last year
- Gross Margin (GAAP): 37%, down from 45.7% in the same quarter last year
- Same-Store Sales were down 11% year on year
- Store Locations: 1,000 at quarter end, increasing by 25 over the last 12 months
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.
Specialty RetailSome 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.
Sales GrowthLeslie'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 9.7% over the last four years (we compare to 2019 to normalize for COVID-19 impacts) was decent as it opened new stores and grew sales at existing, established stores.
This quarter, Leslie's revenue fell 9.1% year on year to $432.4 million but beat Wall Street's estimates by 3.1%. Looking ahead, analysts expect sales to grow 3.2% over the next 12 months.
Number of StoresWhen a retailer like Leslie's is opening new stores, it usually means it's investing for growth because demand is greater than supply. Since last year, Leslie's store count increased by 25 locations, or 2.6%, to 1,000 total retail locations in the most recently reported quarter.
Taking a step back, the company has generally opened new stores over the last eight quarters, averaging 3.2% annual growth in its physical footprint. This is decent store growth and in line with other retailers. 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 Leslie's demand within its existing stores has been relatively stable over the last eight quarters but fallen behind the broader consumer retail sector. On average, the company's same-store sales have grown by 1.4% year on year. With positive same-store sales growth amid an increasing physical footprint of stores, Leslie's is reaching more customers and growing sales.
In the latest quarter, Leslie's same-store sales fell 11% year on year. This decline was a reversal from the 10.2% year-on-year increase it posted 12 months ago. We'll be keeping a close eye on the company to see if this turns into a longer-term trend.
Key Takeaways from Leslie's Q4 Results Although Leslie's, which has a market capitalization of $1.05 billion, has been burning cash over the last 12 months, its more than $55.42 million in cash on hand gives it the flexibility to continue prioritizing growth over profitability.
We were impressed by how significantly Leslie's blew past analysts' revenue expectations this quarter, driven by better-than-expected (but still declining) same-store sales. On the other hand, its profitability took a hit as its gross margin, adjusted EBITDA, and EPS missed Wall Street's expectations. Its full-year 2024 earnings forecast also underwhelmed. Management cited a challenging macro environment - commentary that is consistent with what we've observed in retailers that sell expensive goods whose purchases are non-recurring, like furniture. Overall, the results could have been better. The company is down 12.4% on the results and currently trades at $5.1 per share.
