Good afternoon, and welcome to the Fourth Quarter and Fiscal Year twenty twenty one Conference Call for Leslie’s Inc. At this time, all participants are in a listen-only mode. Following the prepared remarks, management will conduct a question-and-answer session. As a reminder, this conference call is being recorded and will be available for replay later today on the company's website. I will now turn the call over to Caitlin Churchill, Investor Relations.

Thank you, and good afternoon. I would like to remind everyone that comments made today may include forward-looking statements, which are subject to significant risks and uncertainties that could cause the company's actual results to differ materially from management's current expectations. These statements speak as of today and will not be updated in the future if circumstances change. Please review the cautionary statements and risk factors contained in the company's earnings press release and recent filings with the SEC. During the call today, management will refer to certain non-GAAP financial measures. A reconciliation between the GAAP and non-GAAP financial measures can be found in the company's earnings press release, which was furnished to the SEC today and posted on the Investor Relations section of Leslie's website at ir.lesliespool.com. On the call today from Leslie's, Inc. is Mike Egeck, Chief Executive Officer; and Steve Weddell, Chief Financial Officer. With that, I will turn the call over to Mike.

Thanks, Caitlin, and good afternoon, everyone. Thank you all for joining us. The format and cadence for this call will be a bit different than in the past. First, we've posted a brief presentation on the Leslie's Investor Relations site to support our scripted comments, and we'll refer to specific pages during the presentation. I will start by highlighting our key results and performance drivers for the fourth quarter and the full year. Steve will then detail our financial results for both the fourth quarter and the full year, present our share repurchase program, and introduce our initial guidance for fiscal 2022. I will explain how our 2021 results connect to our 2022 guidance and outline why we feel we are uniquely positioned to compete successfully given the industry dynamics expected this year. With that, let's begin. I am pleased to report that our fourth quarter performance resulted in another record quarter and continued the strong results we've achieved throughout the year. Sales for the quarter reached a record 409 million dollars. Comparable sales increased by 16 percent for the quarter on a calendar basis, and the two-year stack comparable sales for the quarter was 40 percent. Gross profit for the quarter was a record 188 million dollars, with a margin rate that expanded by 190 basis points. Adjusted EBITDA for the quarter was a record 82 million dollars. Looking at the full year, fiscal 2021 marked our 58th consecutive year of growth and produced record sales, margin, and EBITDA. Sales for the year grew by 21 percent to a record 1.343 billion dollars. Gross profit for the year increased by 29 percent to a record 595 million dollars, and gross margin improved by 290 basis points. Adjusted EBITDA for the year grew by 51 percent to a record 271 million dollars, with an EBITDA rate increase of 380 basis points to 20 percent. In fiscal 2021, we generated 170 million dollars in operating cash flow, up 64 percent from fiscal 2020, and ended the year with less than two turns of leverage. All this occurred while we increased our investment in CapEx by 40 percent to support growth. Our commitment to disciplined capital allocation that drives total shareholder return, combined with our strong financial position and cash flow generation, supports the 300 million dollar share buyback authorization we are pleased to announce today. Our fourth quarter and full-year results reflect the outstanding performance of our associates and vendor partners in managing constrained supply chains to meet strong consumer demand. This also highlights our organization’s ability to manage margins despite significant cost pressures while executing our growth initiatives effectively, all while operating a direct-to-consumer business during a global pandemic. Our frontline associates have been operating under COVID-19 protocols for more than 18 months. Their disciplined diligence and dedication are vital to our performance. Now a few words on the industry. In 2021, the Leslie’s business and the pool industry benefitted from strong consumer demand driven by macro trends that accelerated with the pandemic, particularly bolstered by work-from-home arrangements, which show no signs of slowing. The numbers for pool construction and remodeling look particularly promising because once a pool is finished, our essential maintenance business begins, creating ongoing demand for the life of the pool. In this context of robust demand, our competitive advantages from our integrated system of physical and digital assets, combined with our strategic growth initiatives, continue to capture market share. Our consumer file shows robust sustained growth, with total target file growth of 15 percent in the quarter and 18 percent for the full year. The fourth quarter marked our eighth consecutive quarter of double-digit file growth driven by our digital marketing capabilities. We continue to achieve high ROI on our marketing expenditure and have raised our budget for 2022 by 30 percent to further propel these initiatives. Consumers have also responded positively to our Leslie’s Connect omni-channel capabilities, such as buy online pick up in store, shipping from store, shipping to store, and buy online return in store. These capabilities allow us to use the inventory in our network effectively to fulfill consumer orders in their preferred manner, enhancing consumer retention. Leslie’s Connect has accounted for more than 30 percent of Leslie’s digital orders since its launch in February 2021. Our loyalty program, Leslie’s Pool Perks, drove loyalty file growth of 14 percent in the fourth quarter and 18 percent for the full year, as consumers are attracted to the key benefits, including a 5 percent rewards earn rate and free shipping. Our PRO initiatives are delivering solid results, with the ten converted and three new PRO locations we launched in 2021 continuing to outperform. We plan to convert 25 locations and build five new ones in 2022. Our PRO affiliate program is growing quickly, surpassing 1,000 PRO affiliate agreements in November and continuing to add new affiliates daily. For the year, sales from our PRO affiliate partners increased by 86 percent. The new and converted PRO locations and our dedicated PRO site contributed to a 42 percent growth in our total PRO business for the quarter and 44 percent for the full year. Our PRO business now comprises about 15 percent of our total sales but remains a small fraction of the approximately 2.4 billion dollar PRO market. Regarding M&A, this year we completed three acquisitions that added eight locations and expanded our operations into 38 states. In October, the first month of our fiscal 2022, we finalized the acquisition of B&L Pools, which operates seven locations in the Greater Phoenix area. We are implementing our integration plan, rebranding the B&L locations as Leslie’s, transitioning our assortments to the Leslie’s model, and installing our proprietary AccuBlue water testing system. We continue to detect numerous acquisition opportunities in the pool and spa industry and have increased our team to enhance our capacity to acquire and integrate businesses in 2022. In terms of residential whitespace, we added 16 new locations in 2021, including residential, PRO, and acquired businesses, closing the year with 952 total locations. Regarding AccuBlue Home, we are encouraged that the initial production of Version 1.0 sold out quickly in the fourth quarter, and Version 2.0 has finished the prototyping stage. However, we are facing intentional delays in crucial components, particularly microchips, impacting our manufacturing capacity. Therefore, we are not planning any significant sales for this initiative in 2022. Concerning corporate governance, we published our first ESG report during the quarter and have begun preparing our 2021 report. I'm pleased to announce that as part of our ESG initiatives and in recognition of our frontline associates’ contributions, we have raised the minimum starting wage for Leslie’s full-time associates to $15 an hour effective December 26, 2021, and initiated a stock grant program for our store managers. Additionally, our range of eco-friendly products now exceeds 1,800, with sales for these items increasing by over 40 percent in 2021. Lastly, I would like you to refer to the presentation posted on Leslie’s IR site. On page six, we illustrate how our 2021 sales growth breaks down and delineate the impact of specific sales drivers. In the first breakdown, we estimate the contribution of total industry growth from new pool constructions at 2 percent. We calculate this based on 110,000 new in-ground pools within a base of 5.5 million. We estimate retail price inflation for the year at about 8 percent. The remaining 11 percent represents the sales growth impact from our strategic growth initiatives. The second breakdown demonstrates the sales growth impact from our residential pool, PRO pool, and residential hot tub consumer segments. You can see we experienced healthy growth across all three groups, including our core residential pool consumers. We've received several inquiries in past calls and meetings regarding the effects of Trichlor, above-ground pools, and hot tubs on our total sales growth. On page six, we've specified the impact for each category by both price and volume. I should also note that all three categories dealt with significant supply chain disruptions that resulted in unmet demand in 2021; we could have sold more. Moving to page seven, we analyze the sales growth impact of each of our six strategic growth initiatives. As mentioned in previous presentations, we indicated each initiative should yield an increase of 100 to 300 basis points of growth per year over time. Our marketing capabilities clearly had a substantial impact on growing our consumer file. Our PRO initiative also exceeded expectations, while deepening relationships, M&A, and residential whitespace performed within our expected range.

This is the operator. Please hang on as we reconnect Michael Egeck’s line. Michael Egeck, your line is now back live.

Thank you. Sorry about that, everyone. I’m not sure why the line dropped. I'm not exactly clear where I stopped. But I'm going to pick up with page seven and my comments on each of the strategic growth initiatives. Clearly, our marketing capabilities resulted in an outsized impact from growing our consumer file. Our PRO initiative also outperformed, while deepen relationships, M&A, and residential whitespace performed within the range we had projected. AccuBlue Home had a successful launch, but has not yet contributed meaningfully to sales. We are very pleased with how the initiatives and the team leading them performed in twenty twenty-one. Now, I'll turn it over to Steve to share more detail on our financial results, our three hundred million dollars share repurchase program, and our twenty twenty two guidance. Steve?

Thank you, Mike, and good afternoon, everyone. As you can see from our earnings release, we reported record results for both the fourth quarter and full year of fiscal twenty twenty-one. We're grateful for the contributions of our entire team as they continue to execute at a high level in the current environment. Before I get started, I'd like to share a few highlights. Momentum continued throughout the fourth quarter, as we generated a calendar comp on a two-year stack basis of forty percent compared to our prior guidance of the low thirties. We again beat guidance across the board and finished the year with sales growth of twenty-one percent, gross margin improvement of two hundred and ninety basis points, and adjusted EBITDA growth of fifty percent, and we ended the year with cash of three hundred and forty-five million dollars. We also initiated guidance for fiscal twenty twenty-two, which reflects double-digit sales and adjusted EBITDA growth, gross margin expansion, and earnings growth in the mid to high-teens. This is consistent with or better than our long term growth algorithm. And finally, we announced today that we are introducing our first share repurchase program, which includes an authorization for up to three hundred million dollars. Our business generates robust cash flows, and even after considering an increase in investment in talent, capital expenditures, and M&A for fiscal twenty twenty-two, we have excess cash to deploy towards share repurchases. I'll discuss our capital allocation priorities in more detail, but the takeaway from this action is that it reflects our confidence in our long term growth prospects. Today, I'll review our fourth quarter fiscal twenty twenty-one performance, our performance for the full year of fiscal twenty twenty-one, our guidance for fiscal twenty twenty-two, and our capital allocation priorities. And before I turn to financial results for the fourth quarter, a quick reminder on the calendar shifts, which is consistent with prior quarter disclosures. In fiscal twenty twenty, the fifty-third week added approximately eighteen million dollars in sales and three million dollars in adjusted EBITDA. As a result of fiscal twenty twenty having fifty-three weeks, there were calendar shifts that impact our quarterly comparisons on a year-over-year basis in fiscal twenty twenty-one. In the fourth quarter of fiscal twenty twenty-one, we replaced a higher volume week at the end of June with a lower volume week at the end of September. The combination of the fifty-third week and the calendar shift negatively impacted fourth quarter comparisons to the prior year by approximately thirty-eight million dollars for sales and approximately eleven million dollars for adjusted EBITDA. I'll discuss the impact of these items on our fourth quarter and full year results as I review comparisons to prior year performance. Our fourth quarter this year included thirteen weeks ended October two, twenty twenty-one. Total reported sales for the thirteen-week period increased six point eight percent from the fourth quarter of fiscal twenty twenty, which included fourteen weeks. Our comparable sales growth on a reported or unshifted basis increased ten percent, using a realigned period for twenty twenty for comparability. Our comparable sales growth on a shifted basis for the fourth quarter of twenty twenty-one increased sixteen point three percent. This increase is on top of comparable sales growth of twenty-three point three percent in the fourth quarter of fiscal twenty twenty and represents comparable sales growth on a two-year stack basis of thirty-nine point six percent. We generated strong results across consumer types and continued to see strong performance in the core sanitizer and equipment product categories during the quarter. Retail price inflation remained elevated and was primarily related to chemical products, channel management by major equipment manufacturers, higher input costs, and promotion management. Gross profit increased eleven point three percent, and gross margin rate increased by one hundred and ninety basis points from forty-six point zero percent to forty-four point one percent in the prior year, primarily due to product margin improvements across our businesses and occupancy leverage and partially offset by business mix. SG&A increased twenty-one point six percent, driven primarily by our sales increase and investments to support our growth. Drivers of the increase over the prior year included higher equity-based compensation, executive transition costs, compensation accruals, and other one-time or non-comparable costs, which include public company costs. These increases were partially offset by lower sponsor management fees. Adjusted EBITDA increased by two point four percent or one point nine million dollars to eighty-two point zero million dollars compared to eighty-point one million dollars in the fourth quarter of fiscal twenty twenty. After factoring in the fifty-third week and the calendar shift, adjusted EBITDA increased by eighteen point three percent or twelve point seven million dollars when compared to fiscal twenty twenty. Adjusted EBITDA on a reported basis as a percentage of sales was twenty point zero percent compared to twenty point nine percent in the prior year period. Adjusted net income increased by fourteen point zero percent or six point two million dollars to fifty point five million dollars compared to forty-four point three million dollars in the prior year period. Now I'll turn to full year results. Total sales for the fifty-two week period increased twenty point seven percent to one point three billion dollars compared to one point one billion dollars in the prior year. Our comparable sales growth on a reported or unshifted basis increased twenty-one point five percent. Using a realigned period in twenty twenty for comparability, our comparable sales growth on a shifted basis for fiscal twenty twenty-one increased twenty-one point two percent. This increase is on top of comparable sales growth of eighteen point zero percent in the prior year and represents comparable sales growth on a two-year stack basis of thirty point one percent. Gross profit increased twenty-nine point two percent to five hundred and ninety-five point two million dollars compared to four hundred and sixty point seven million dollars in the prior year. The gross margin rate increased by two hundred and ninety basis points to forty-four point three percent, primarily due to product margin improvements and occupancy leverage, which were partially offset by business mix. SG&A increased twenty point eight percent to three hundred and eighty-six point one million dollars compared to three hundred and fourteen point three million dollars in fiscal twenty twenty. As we disclosed in our earnings release, the net impact of changes in equity-based compensation, costs related to equity offerings, executive transition and other costs, and the change in management fees increased SG&A by approximately twenty-nine million dollars in fiscal twenty twenty-one compared to the prior year. Excluding these items that are not indicative of our core operating performance, SG&A increased by forty-three million dollars or fourteen percent, and as a percentage of sales, SG&A decreased to twenty-six point zero percent in fiscal twenty twenty-one compared to twenty-seven point five percent in the prior year, a decrease of one hundred and fifty basis points. Adjusted EBITDA increased by forty-eight point zero percent to two hundred and seventy point six million dollars, and adjusted EBITDA as a percentage of sales increased three hundred and eighty basis points to twenty point two percent. After factoring in the fifty-third week, adjusted EBITDA increased by fifty point six percent or ninety-point nine million dollars compared to fiscal twenty twenty. Adjusted diluted net income per share doubled to zero point eighty-five dollars per share compared to zero point forty-two dollars per share in the prior year. Before I move on, I'll comment on the impact of Trichlor, our primary chlorine-based sanitizer. As shown on slide six of the presentation materials, Trichlor sales grew by seventy million dollars in fiscal twenty twenty-one, with approximately sixty percent driven by price and forty percent driven by volume. With a more consistent product supply than others in the industry, we leveraged our inventory position to better serve new and existing customers. It's important to note that as a result of our efforts to procure and convert more pounds of Trichlor during the year, we experienced an increase in costs related to Trichlor. These cost increases were a key driver of the price component of our Trichlor sales growth in fiscal twenty twenty-one. Moving to the balance sheet, we finished fiscal twenty twenty-one with cash and cash equivalents of three hundred and forty-five point one million dollars compared to one hundred and fifty-seven point one million dollars at the end of fiscal twenty twenty, an increase of one hundred and eighty-eight point zero million dollars. We ended the year with inventory of one hundred and ninety-eight point eight million dollars, up thirty-three percent compared to one hundred and forty-nine point zero million dollars at the end of the prior year. We expect inventory conditions in the industry to remain tight throughout fiscal twenty twenty-two, particularly for chemicals and equipment. We have an always-on procurement strategy at Leslie’s, and our team continues to work with our vendor partners to manage the flow of inventory as we continue to identify opportunities to strategically invest in inventory to meet heightened consumer demand. As a result, we anticipate our inventory balances to be higher throughout the coming year. With regard to debt, at the end of fiscal twenty twenty-one, total funded debt was eight hundred and six point zero million dollars compared to one point two billion dollars at the end of fiscal twenty twenty. The three hundred and ninety-five million dollars reduction was due to the repayment of our senior unsecured notes in connection with our IPO and quarterly amortization payments on our outstanding term loan. As of fiscal twenty twenty-one, funded debt divided by adjusted EBITDA totaled three point zero times, and net debt divided by adjusted EBITDA totaled one point seven times. During the fourth quarter, our debt rating was upgraded by S&P to BB- from B++ and by Moody's to Ba3 from B1. Now, let me turn to guidance for fiscal twenty twenty-two. Before I get to the guidance figures, I want to remind everyone of the natural seasonality within our business. Our primary selling season occurs during our fiscal third and fourth quarters, which span April through September. In twenty twenty-one, the first half of the fiscal year accounted for approximately twenty-five percent of our annual sales, while the third quarter represented approximately forty-five percent and the fourth quarter represented approximately thirty percent. We will continue to invest in our business throughout the year, including in operating expenses, working capital, and capital expenditures related to our growth initiatives. While these investments drive performance during our primary selling season, they reduce our earnings and cash flow during the first half of our fiscal year. Fiscal twenty twenty-two ends on October one, twenty twenty-two, and includes fifty-two weeks. For fiscal twenty twenty-two, we're providing the following annual guidance. We expect sales of one thousand four hundred and seventy-five million dollars to one thousand five hundred million dollars, representing an increase of ten percent to twelve percent compared to fiscal twenty twenty-one. This growth rate compares to our long-term growth algorithm of mid to high-single digits. Strong industry fundamentals, expected inflation, and momentum behind our growth initiatives support our sales guidance. Today, we also provided guidance for gross profit. We expect gross profit of six hundred and fifty-five million dollars to six hundred and sixty-five million dollars, which implies a small improvement to gross margins when compared to fiscal twenty twenty-one. This compares to our long-term growth algorithm of a flat deposit of twenty-five basis points per year and follows two hundred and ninety basis points of improvement in gross margins in fiscal twenty twenty-one. We continue to see opportunities to improve margins in each of our businesses as a result of our structural advantages: our relationships with leading industry suppliers, our proprietary brand strategies, and our vertical integration in both manufacturing and distribution. We continue to expect some headwind on margins from business mix related to higher growth in our PRO pool business, and we also expect inflation in the mid-single digits and will continue to pass those cost increases through to consumers. We expect adjusted EBITDA of two hundred and ninety-five million dollars to three hundred and five million dollars, representing an increase of nine percent to thirteen percent compared to fiscal twenty twenty-one. This growth rate compares to our long-term growth algorithm of low-double digits, and it's important to note that we will continue to execute opportunities to leverage our operating costs and reinvest to drive growth in each of our businesses. We expect net income of one hundred and seventy million dollars to one hundred and eighty million dollars and adjusted net income of one hundred and eighty million dollars to one hundred and ninety million dollars. We expect diluted adjusted earnings per share of zero point ninety-four dollars to one dollar, representing an increase of eleven percent to eighteen percent compared to fiscal twenty twenty-one. This compares to our long-term growth algorithm of mid to high-teens earnings growth. We estimated diluted share count of one hundred and ninety million dollars to one hundred and ninety-two million shares, and this range incorporates a reduction of approximately three million dollars related to share repurchases. Finally, I'd like to provide an update on capital allocation. Our capital allocation priorities are as follows. Our first priority is capital structure, and we finished the year in a solid position. We had net debt divided by adjusted EBITDA of one point seven times. We had three hundred and forty-five million dollars cash on hand and a two hundred million dollars revolving credit facility. Also, our first debt maturity is our revolver in twenty twenty-five. Our second priority is to invest in growth, which has two parts. The first is capital expenditures. In fiscal twenty twenty-two, we expect to increase our level of investment by approximately fifty percent over fiscal twenty twenty-one levels. Our investments will focus on new residential and PRO locations, distribution infrastructure, and merchandising and information technology projects. The second part is related to M&A. We plan to continue to focus on acquiring high-quality market-leading businesses to better serve new and existing consumer types. We have a robust pipeline of opportunities, and our sales guidance includes approximately thirty million dollars in sales attributed to M&A. Our final priority is the return of excess cash to shareholders. We're in a unique position: a high-growth company with strong cash flow generation and modest maintenance capital requirements. Today, we announced our first share repurchase program as our Board of Directors approved a three hundred million dollars share repurchase authorization. This action is consistent with our balanced and disciplined approach to capital allocation, our commitment to driving shareholder value, and demonstrates our confidence in our long-term growth prospects. We expect to opportunistically repurchase shares when we believe they are trading at a discount to intrinsic value. In summary, the full year and fourth quarter of fiscal twenty twenty-one were record periods, and we drove strong financial results throughout our P&L. Our entire organization continues to execute against our key growth initiatives with a great partnership with our long-term vendors. We're successfully navigating the tight supply chain in this environment of heightened consumer demand. We will continue our relentless focus on enhancing our consumers' experience and executing our initiatives to continue to drive growth and market share gains.

Thanks, Steve. Let's go to page twelve of the deck. As we think about our twenty twenty-two performances, the first point I want to make is that every piece of data we have tells us that the macro trends driving consumer demand in the pool industry should continue into twenty twenty-two and for the next several years. Pool build and hot tub backlogs driven by ongoing investment in the home and backyard, migration to the Sunbelt, the desire for a healthy outdoor lifestyle, a heightened sense of safety and sanitization, and hybrid and full-time work from home schedules—all these macro trends support a forecast for healthy ongoing consumer demand. Against this favorable industry backdrop, we are confident that we can grow the Leslie’s business faster than the industry, across our consumer types and across our growth initiatives. On page thirteen is the bridge to our twenty twenty-two guidance. We're expecting new pool builds to contribute two percent to our twenty twenty-two growth. We are forecasting inflation at five percent, and we are expecting our strategic growth initiatives to drive an additional five percent of sales growth. We also expect strong growth to continue across all three of our consumer types: residential pool, PRO pool, and residential hot tub. Moving to page fourteen, we are forecasting that each of our strategic growth initiatives, with the exception of AccuBlue Home, will drive one hundred to three hundred basis points of total sales growth, which is in line with our long-term view. Page fifteen of the deck illustrates the primary challenges facing the industry for the twenty twenty-two pool season and, importantly, how Leslie’s is positioned to mitigate and benefit from each of them. Your takeaway should be that we feel confident that we are well positioned to compete and win in this environment. And then on page sixteen, we would be remiss not to take this opportunity to reinforce the Leslie’s value proposition. There are three key pillars that make Leslie’s unique and highlight our compelling competitive position and growth prospects. Number one, we operate in one of the most advantaged consumer products industries. It's large—over eleven billion dollars. It has annuity-like demand because once a pool is built, it has to be maintained—predictable growth. The installed pool base has now grown every year for fifty-one years. Number two, we have built a consumer-centric integrated ecosystem of physical and digital assets that is unmatched in scale and reach that allows us to provide total pool and spa solutions to all consumers, whatever their needs and whenever, however, they want to engage with this. None of our competitors have that capability. Number three, despite being the largest direct-to-consumer brand in the industry, we have significant whitespace opportunities across all the consumer types we serve and all the channels in which we operate. We have new capabilities and talent to address these opportunities and multiple early-stage strategic growth initiatives, and finally, we have a pipeline of disruptive innovation that only Leslie’s can bring to pool and spa consumers. To wrap up, we are pleased with our record results for the quarter and the year, and we are encouraged by the durable demand we are seeing from our consumers, the strength of the macro industry trends supporting that demand, and the momentum we have across our strategic growth initiatives. In a unique and advantaged industry, Leslie’s is uniquely positioned and advantaged to win. We hope that the presentation and expanded datasets for this call help make that point. Our confidence in twenty twenty-two is expressed in our guidance at the high end of our long-term growth algorithm and in our share repurchase program. We look forward to sharing our results throughout the year. With that, I'll hand it back over to the operator for Q&A.

Thank you. We will now begin the question-and-answer session. The first question comes from Ryan Merkel with William Blair. Please go ahead.

Hey, guys. Thanks for taking the questions and all the details in the deck. Very helpful. So, I guess my first half—last quarter, you mentioned select stock-outs of chlorine tabs and equipment. And I guess a two-part question: did that impact the current quarter? And then how are you feeling about inventory of key items as you head into next season? And I think we're all pretty interested in chlorine tabs sort of the pricing and volume commitment? How are you feeling about that?

Yeah. If you'll remember, Ryan, we quoted a comp for tabs in Q3 of one hundred percent. And then said that we wouldn't be able to maintain that Q4 given the scarcity of supply. We did see a deceleration in that comp. The comp on flooring tabs for Q4 was thirty-eight percent, so a deceleration based completely on supply. Despite that, we are very pleased with the sixteen percent comp given the lower rate of sales in chlorine tabs. With regard to next year, we are—as Steve mentioned—we have an always on procurement strategy for key items. We have definitively procured more Trichlor for next year. It is rolling from our manufacturers and tolling operations, and we should be at above last year's levels in the next week or so. And with regard to equipment, I'm going to say that our equipment partners are doing a great job in getting their supply chains back to speed. We feel very good regarding our position in key equipment, SKUs and also in Trichlor tabs. Now, all that being said, demand also remains very strong. So, there's not a lot of slack in supply chains yet, but we are in better shape and we'll be in better shape for the pool season than we were in Q4.

Got it. That's great to hear. And then my second question on the twenty-two outlooks, your sales guide is a little bit above your long-term average, but EBITDA growth is more in line. Is there anything to call out there why you wouldn't see a little bit more fall-through on the higher sales?

Yeah. It has to deal with our growth investments. And Steve might expand on this a little bit more, but we're in a position where—for generally a lot of cash, we have the ability to invest in the business. Those investments are paying off. And as we look into twenty twenty-two, we want to make sure that we're taking the opportunities available to us to set us up not only for growth and profitability in twenty twenty-two but also on a go-forward basis.

No. That's exactly right. I mean, we've managed our expenses very carefully, Ryan, and we have to balance the leverage opportunities against our investment opportunities to drive growth, and that's what you're seeing in twenty twenty-two. Our recognition of momentum against the growth initiatives we have, an opportunity to lean in. So, we're going to do just that in twenty-two.

All right. Makes sense. Thanks. I'll pass it on.

Thanks, Ryan.

Thanks, Ryan.

The next question comes from Simeon Gutman with Morgan Stanley. Please go ahead.

Hey, guys. Thanks for the time. This is actually Hannah Pittock on for Simeon. First, a general question on the competitive landscape. It feels like the industry is consolidating at a somewhat accelerated pace. Is that what you're seeing? And can you comment on the M&A pipeline?

Yeah. There's a fair amount of activity in M&A, I would say, not sure if it's accelerating. We're certainly looking to accelerate our action in the space because it remains still really highly fragmented. As we've quoted before, there are eight thousand independent specialty retailers out there, who, when combined in the space, have just over I would say fifty percent to fifty-five percent share. So, there’s lots of opportunity and some acceleration, and for us, we'll be looking to accelerate more.

Makes sense. And maybe a quick follow-up. Could you walk through the drivers that got you to the two percent sales growth from PRO pools next year, given how much growth you saw this year and where it's currently sitting with sales penetration? Could that be conservative potentially?

Well, look, every time we quote an initial guide, it's going to be a range. And one thing we're committed to is making sure that we deliver on our guidance. That's a long way of saying that we believe there's some conservatism in there. But we also believe it's prudent given we're still operating in a global pandemic, and there are still isolated challenges with the supply chains.

Makes sense. Thank you.

The next question comes from Steven Forbes with Guggenheim Securities. Please go ahead.

Good evening. I want to focus on the outlook for unit growth. If I add up the number of locations—M&A, PRO, residential targets, I think it's per slide fourteen here—I think you're guiding to have fifty net new locations next year or mid-single-digit unit growth. I guess is that correct? Any color on the cadence of openings and then also how the pipeline for each one of those opportunities is expected to sort of evolve as we look out here maybe over a multiyear time period?

Yeah, Steven. I'll start with that and Steve may add on. We've said before, we believe there is an opportunity for stores in two hundred underserved PRO markets. And in the residential space, seven hundred. So, the numbers you're adding up for total new locations are right in the range that we are thinking. There's a lot of opportunity out there. And in terms of pacing, what's important for us is to get new locations that we plan in a year open for the pool season. So, we really target to get those new locations up and running in the March, April timeframe. That being said, the best time to get retail space is when it's available. So, also an always-on strategy in terms of looking for good locations. But in general, we really look to get set up for the season in the March-April timeframe.

The only thing I would add, as you think about for PRO store conversions, the best time to do that is off-season. So right now, it’s a great time to be completing those. And from an M&A perspective, it's opportunistic, right? So, as we get opportunities to close on, we'll do so and not necessarily have a point in time at which we will try to close them by. But as Mike talked about, we typically open those new stores in March or April of each year to hit the season, and obviously, we're looking at long-term locations across the company to serve consumers.

Thank you.

The next question comes from Garik Shmois with Loop Capital. Please go ahead.

Okay. Thanks. Thanks for taking my question and for the detail. The five percent retail inflation outlook, just curious if that assumes new pricing in fiscal twenty-two or is it really a function of carrying over pricing that you secured last year?

Yeah, Garik. I'm going to say it's a combination of both, and clearly, it's a forecast. And I'll note that it's not a cost forecast; it's a retail price forecast. Like anything, we're going to forecast—we're trying to be as accurate as we can, but also certainly a certain amount of conservatism in how we think about pricing going forward. I mean, there's a lot of inflation currently in the market. We did see a slight slowdown in retail price inflation from Q3 into Q4, and five percent is how we're thinking about next year.

Great. Thank you.

The next question comes from Liz Suzuki with Bank of America. Please go ahead.

Great. Thank you. I was hoping you could actually expand on the competitive environment a little bit in residential pool. There's been some recent M&A of one of your larger commercial competitors acquiring a residential pool chain. I mean, do their markets overlap like yours, and does this present any potential margin pressure? And then are some of those thirty-five locations likely to add from bolt-on acquisitions—likely to be more on the residential side or the PRO side?

Yeah, Liz. Good question. We're aware of the acquisition that you're just talking about. We're quite familiar with both companies. The acquired company, really good guys, strong operators. It's a regional business in Florida and has a heavy distribution component, which I think makes sense for the quarter. So, competition is all good. Our business in that region is quite strong. I'm going to assume there is as well. We have not seen any additional franchising activity or any unusual pricing activity since the announcement of the deal. And in terms of new locations, we are going to focus on about five PRO locations and at least ten residential locations for twenty twenty-two.

Yeah, and that's for new store openings. From an M&A perspective, I think the focus is across the board, right? So, we'll look at residential pool stores, we will look at hot tubs, we'll look at PRO opportunities as well. But as Mike talked about, the biggest opportunity out there is the eight thousand single-store operators, if you will, or mom-and-pop. So certainly, a lot of opportunities in the pipeline in that area.

Great. Thank you.

The next question comes from Jonathan Matuszewski with Jefferies. Please go ahead.

Great. Hey, Mike. Hey, Steve. Great quarter and helpful supplemental presentation. My question is a two-part. Is there a specific assumption embedded in your twenty twenty-two sales guidance regarding pool utilization, whether it's flat or up or down relative to twenty twenty-one? Another factor that's going to drive chemical sales is this growing awareness regarding cleanliness and the recognition that backyard pools have been historically under-sanitized. So, is there any data you’re seeing that can frame what percentage of pools are still under-sanitized even after the last two years? Thanks.

Yeah. Thanks, Jonathan. I'll take a crack at the first part of that question, and then we can talk about data on under-sanitized pools. The assumption of our sales guidance is that utilization of pools in twenty twenty-two by PRO customers—meaning the commercial side—and also residential is that it should be similar to twenty twenty-one. Now, we do that because there's a lot of unknowns around the pandemic, but we do feel that people use their pools more in both twenty and twenty-one. We are really glad to see that in twenty-one. I think it speaks to the stickiness of the new behavior as people invest in their homes and their backyard and in hot tubs and pools. So, we're modeling flat. I think that might be a little conservative, but we definitely don't see it reducing.

Yeah. It was more along the commercial lines, and significant levels of under-sanitization. So, one of the opportunities we talked about is getting water tested more frequently, right? Doing a consistent ten-point test. So, the AccuBlue in our stores presents an opportunity with that, keeping homes getting that water tested more frequently because we do believe that many bodies of water are under-sanitized, and it's an education process that our store associates go through with consumers on a regular basis. So, it's the opportunity to kind of sell that in that total solution. But no specific metrics on kind of a quarterly or annual basis that I'm aware of.

Got you. Thanks very much. Helpful.

The next question comes from Andrew Carter with Stifel. Please go ahead.

Hey. Thanks. Good evening. I wanted to just come back to the gross margin guidance, because it seems relatively muted in terms of where you stand. I mean, you're going to have pricing essentially matching what your inflation is, which should be a benefit, and I would assume the private label program would gain additional penetration next year. And if you don't mind, also could you update us where the private label penetration is overall as well as for chemicals? Thanks.

I'll start with the second part of that in terms of private label penetration. We ended twenty with about fifty-five percent. We were looking for growth of one hundred and fifty to two hundred basis points a year, maybe as much as three hundred based on our assortment planning. I would tell you in twenty-one, we did not get there in terms of that kind of lift for the year, and that was really driven by a very strong equipment business, where our actual private label penetration is lower. So still definitely on track for our long-term goal there, which is to get up over seventy percent by say twenty twenty-five. Feel good about that, but this year was a little skewed by equipment sales, and particularly by the situation in Texas.

Yeah. So, it's a great question on margins. And again, the equation that we talked about from a long-term algorithm has a few components, right? So structurally, we have unique advantages in our industry: the size of the relationships that we have with our vendor partners, number one; our ability to grow, as Mike just talked about, from a proprietary brand strategy; and then vertical integration for manufacturing and distribution. When you think about what we saw in twenty twenty-one, we see some continuation of that into twenty-two, which is we will find opportunities to increase rates kind of across our product categories and across our businesses. There may be some margin headwind from a Trichlor perspective as we procure more pounds. Some of those pounds come at higher prices. Those higher-priced pounds are still profitable from a dollar perspective; that may have a rate impact. Overall, we believe rates across the business will be up again. We'll have occupancy leverage, which should be to our benefit.

Thanks. I'll pass it on.

The next question comes from David Bellinger with Wolfe Research. Please go ahead.

Hey, guys. Thanks for taking the question. It's in regard to the three hundred million dollars buyback program announced tonight. You’re clearly seeing continued momentum in the business, much improved cash flows, but we were also dealing with supply chain issues and concerns around inventories and also, you talked about much greater potential for acquisitions next year. So just what now in terms of pulling the trigger on repurchases versus building inventories or growing customer rebates further? And do you expect to be active in the market immediately in Q1 just even where shares are trading today?

I think the way to think about what you described is trade-offs: to reiterate Steve's point, Leslie is a very unique business and therefore both a growth business. We generate significant and strong cash flow. So, we're in the very fortunate position of not having to make trade-offs between investing and growth while potentially returning money to shareholders. So, that's the reason for the share authorization from the Board. When we think about how it will be deployed, as Steve said, we're going to be opportunistic. If the question is, do you think this stock is currently undervalued? I would say, yes, we do. We'll be opportunistic in how we deploy those share purchase moments by looking at the opportunities over time, and we're not looking to do anything within any specific timeframe other than to do it when it has the best return for us.

Great. Thanks for that. Appreciate it.

The next question comes from Rudy Yang with Berenberg Capital Markets. Please go ahead.

Hey, guys. Thanks for taking my question. Just regarding cost inflation for next year and if it possibly grows higher than you’ve anticipated. Can you just comment on how much you believe you can continue to pass on costs before a reduction of demand volumes? Just especially given that your competitors typically offer competitive prices for similar products?

Yeah, Rudy. It's a good question. As we've said before, the pool industry has a long history of passing costs through that continued in twenty twenty-one and you could see it in our margin performance. We believe that is still going to be the case into twenty twenty-two. We haven't seen anything that would tell us differently. But yeah, there's some pretty strong price increases in the market currently. As you can imagine, we watch it every day, but currently, we're not seeing any resistance.

The next question comes from Peter Keith with Piper Sandler. Please go ahead.

Hey. Good afternoon. It's Bobby Friedner on for Peter. Thanks for taking my questions. First, I just wanted to circle back up on gross margin. Steve, you said you expect it to be up for the full year. Just wondering if you could give any color as to the shape of gross margin expansion to progress through the year. Should the year-on-year gains be uniform through the year or is there any first half, second half kind of nuance?

It's a good question. I think when you think about it, we do have seasonality impacts from a margin perspective. As you think about just the leverage on fixed costs in the first half of the year versus the back half beyond that. I mean, the guidance is on an annual basis, and I don't have anything further to define that increases on a quarter-to-quarter basis.

Okay. That makes sense. Just one other separately—I was looking at digital marketing strategies, and the company has placed increased folks on this impact once you—just wondering if you could give any updates on this front and any related KPIs that are trending in the right direction?

I'm not sure Peter we are going to say a lot more than we have; obviously, a very competitive situation. But as I did mention in my remarks, we continue to see really favorable ROIs on our digital spend. Favorable to the point that we want to continue to invest as long as we can maintain those. We've set ourselves up to do that in twenty-two by taking our marketing budget, and specifically, it's the digital marketing budget, which we predominantly use, up thirty percent for the year.

Okay. Sounds good. Thanks, Mike.

Yes.

The next question comes from Dana Telsey with Telsey Advisory Group. Please go ahead.

Thank you. Good afternoon, everyone. As you think about AccuBlue and the Home version, I think which launched in June of twenty twenty-one, nearly a third of the active members or new customers. Can you probably talk about the initial response to that version one? Does it increase your enthusiasm from your launch? Number two, which we understand is delayed by equipment shortages? What's your expectation there? Thank you.

Yeah, Dana. Thanks for this question. We're very encouraged by the response to AccuBlue Home version one. As you said, as we put in the deck, about a third of the customers for at our new two-thirds are obviously already Leslie’s customers. We're just seeing a really nice response, and it's a subscription model as you know, and it's been very, very sticky to date. So very encouraged by that. At the same time, we're leaning in to those first few thousand customers. We've got focus groups in flight. We have a real nice feedback mechanism from the users, and we're continuing to learn and refine both how consumers use the device and how we might remove any pain points that they have in using it. One of the big updates we've done recently is to get the pool score on the app that wasn't available in the first release, and now we’ve updated that app for all the current users. So, all good there. I'm really encouraged by version 2.0 and equally disappointed in the challenges we're having around securing components. So, there's nothing in version one, nothing in version two that would quell our enthusiasm for the potential. We said in earlier calls we didn't think supply chain component delays would impact us, and we were wrong. That's disappointing, but our enthusiasm for the long-term potential of AccuBlue Home is very, very high.

One more if I could add just any comments on the start of this first quarter, anything to keep in mind in framing fiscal twenty-two? Thank you.

Yeah. Thanks, Dana. Not going to comment on performance in the current quarter. We've got a few weeks left in the quarter, and we'll report in the coming months.

Thank you.

The next question comes from Peter Benedict with Baird. Please go ahead.

Hey, guys. Thanks. Good job on that deck; a lot of good information. Just as we think about twenty-two and the outlook, obviously positive on the top line and what providence, but as we think about maybe the cadence, last year in the second quarter, you did have the Texas storm to Steve. I know you're not going to get into specific quarters, but actually, we'd be thinking about that it's a low-volume quarter that was a big event, just the levels of things, assuming there'd be some softer growth rates in that quarter. Just want to give you an opportunity to address that if you want?

Sure. We talked about in Q2 that we thought Texas was approximately a ten million dollars impact overall. When you think about the overall year at that two hundred and thirty million dollars increase in sales, it's a fairly small number. Again, I'm comparing Q2 to the total year. But our first half from an EBITDA perspective, we've talked about historically being roughly kind of flat breakeven if you will. Profits really come in kind of the second half of the fiscal year. So not going to provide any further detail than that typical seasonality that we see. I don't see any reason whether there would be material deviation on a quarter-over-quarter basis.

Got you. Okay. Thank you very much.

This concludes the question-and-answer session. I would like to turn the conference back to Michael Egeck for any closing remarks.

Thank you, operator, and thank you all for joining us today on our Q4 earnings call. Be safe and find time to enjoy with your family and friends during this holiday season. And if you can, preferably, do it with a pool and malls. Thanks very much. Bye.

This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.