Operator
Good afternoon, and welcome to the Fiscal Third Quarter 2026 Earnings Conference Call for Lesley's. All participants are in a listen-only mode. This call will consist of management's prepared remarks. If you require any operator assistance during the conference call, please press star zero on the telephone keypad. As a reminder, this conference call is being recorded and will be available for replay later today on the company's website. 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 to the Investor Relations section of Leslie's website at ir.lesleyspool.com. On the call today is Jason McDonald, Chief Executive Officer, and Jeff White, Chief Financial Officer. With that, I will turn the call over to Jason.
Good afternoon, and thank you for joining us today to discuss our third quarter fiscal 2026 results. First, I want to take a moment to recognize our Leslie's team members across the country. Whether in our stores, our distribution centers, our field organization, or our corporate offices, our people have continued to show up for our customers with care through this pool season. I also want to thank our vendor partners, many of whom have worked closely alongside us on training, product availability, and promotional support this year. We appreciate your continued partnership. During the third quarter, we continued to execute our comprehensive transformation plan in a challenging operating environment, marked by softer consumer demand, heightened promotional activity, and evolving customer purchase behaviors. While these dynamics continue to weigh on our financial performance this quarter, we remain focused on making progress on our strategic initiatives. By continuing to execute our pricing strategy, reactivate customers, enhance our store operations, optimize costs, and improve our asset utilization, we aim to create a more efficient business model to help drive long-term value over time. Before I get into our third quarter results, I want to provide a brief update on our financial position. As we discussed in May, we continue to evaluate opportunities to address our long-term debt obligations and strengthen our balance sheet. As part of that effort, we have begun exploring strategic alternatives with certain of our financial stakeholders to provide the incremental financial flexibility needed to continue delivering on our strategic priorities and drive sustainable growth. Such strategic alternatives may include, but are not limited to, a deleveraging transaction, potentially combined with one or more financing transactions. No determinations have been made at this stage, and there is no assurance any such transaction will result. While this work is underway, we are committed to operating our business effectively and will continue to provide updates as appropriate. Turning to the quarter, sales were $458.5 million and adjusted EBITDA was $55.7 million. Total sales declined 8.4% year-over-year, with comparable sales declining 6.2%, primarily reflecting lower transactions and customer traffic. Unfavorable weather patterns during the quarter had an effect on both demand and traffic in our stores and online, resulting in fewer prescribed pool problems that typically drive traffic and purchases for higher margin specialty chemical offerings. While we saw modest improvements in mid-June, it was not sufficient to overcome the operating leverage headwinds we faced through the balance of the quarter, particularly as competitors reacted with more aggressive inventory-driven pricing actions. Despite these pressures, we maintain disciplined cost management while continuing to invest in the initiatives we believe should help strengthen the business over time. Importantly, we saw operational proof points supporting the strategic actions we are taking, particularly with respect to our ability to redirect customers of our stores that we recently closed to nearby locations and our digital platforms. Our new pricing strategy continued to resonate with customers, and through our research and customer feedback, we believe that our targeted marketing campaigns are reaching our core audiences who are responding positively to our pricing improvements. Notably, we delivered positive comparable sales on Leslie's.com this quarter, where customers most often make direct price comparisons. That said, translating this positive response into consistent store traffic improvement takes longer, and we remain focused on specific targeted marketing and promotional efforts to help drive sustained traffic gains across our physical locations. Despite declines in overall transaction count and overall customer count in the quarter, I am pleased to share that we saw momentum in reactivating customers this quarter, achieving strong growth with customers who did not shop with Leslie's last year, but did shop with us in the period between 2021 and 2024. This is a proof point that our pricing strategy, targeted marketing efforts, and renewed customer value proposition are successfully bringing former Leslie's customers back into our ecosystem. In addition, we continue to strengthen the fundamentals of the business through investments in our people and our store operations. We completed full-scale training across our store organization, continued enhancing the customer experience through improvements in our store operations, and maintained strong in-stock levels across our never-out SKUs, supporting healthy in-store conversion rates and units per transaction growth in the quarter. Taken together, these operational improvements reinforce our confidence in the strategic actions we are taking to reposition Lesley's as America's one-stop for pool care. At the same time, we are continuing to evaluate our cost structure and overall operating model in light of the evolving macro environment in order to realize the benefits of these initiatives and support our long-term growth objectives. while this work is underway we are sharpening our focus on a number of fronts we believe that traffic generation not just pricing or conversion is now the central challenge in front of us and we are taking a hard look at how we drive new and retain customers into our stores and onto our digital channels for new customers this includes a combination of competitive pricing solutions and clearer communication of our expertise and convenient offerings to help us show up and win when customers are actively looking for solutions. In addition, we intend to continue to focus on our core values, providing loyalty, unmatched service, and deep expertise to keep new and existing customers coming back. With that, I will turn the call over to Jeff for a detailed review of our third quarter financial results and additional context on our capital structure.
Thank you, Jason. I'll begin my remarks today with a review of our third quarter financial results, followed by an update on our liquidity and balance sheet and outlook for the remainder of 2026. Sales for the third quarter decreased 8.4% to $458.5 million compared to $500.3 million a year ago, reflecting softer customer demand in our retail business during the quarter, as well as the loss of sales from the closure of 80 underperforming stores as part of our ongoing efforts to improve our cost structure. Excluding those closures, comparable sales decreased 6.2% in the third quarter compared with the same time period in fiscal year 2025. Growth profit margin for the third quarter was 36.5% versus 39.6% in the prior year period, driven by lower sales of higher margin products, a shift in product mix, and higher distribution center and manufacturing costs. We continued to tightly manage controllable expenses during the quarter. SG&A decreased $23.2 million for 17.9% to $106.4 million compared to $129.6 million a year ago, reflecting lower labor and store operating costs as well as a $17.5 million dollar one-time gain related to a credit card interchange fee settlement, partially offset by investments in technology. As a percentage of sales, SG&A improved 270 basis points year-over-year to 23.2%. Compared to the third quarter of the prior year, net income improved by $26.1 million to $47.8 million, and adjusted net income improved by $12.6 million to $37.8 million. Adjusted EBITDA in the third quarter was $55.7 million compared with $81.6 million in the third quarter of 2025. The year-over-year decline was primarily driven by lower sales volume and gross margin pressures during the quarter. Inventory at the end of the quarter was $233.4 million, down 15% compared to $273.2 million at the end of the third quarter of 2025, Reflecting continued progress on our inventory optimization initiatives In part driven by the previous closures of unprofitable stores And continued cleanup of our non-go-forward inventory Notably, even with these reductions in inventory In stocks on key products remain strong during the quarter Capital expenditures as of July 4, 2026 Total $10.5 million Compared to $19.1 million a year ago primarily related to maintenance of our stores and distribution centers. We remain disciplined in our capital allocation and expect full-year fiscal 2026 capital expenditures to come in well below $20 million. Turning to liquidity, we ended the quarter with $30 million outstanding under our revolving credit facility compared to $20 million in the prior year. We also had $753 million of net long-term debt. As of quarter end, we had approximately $207 million of availability, including cash on hand and borrowing capacity under our credit facility. We continue to have meaningful liquidity to operate the business in the normal course as we evaluate opportunities to strengthen our balance sheet and address our long-term As Jason mentioned, we are engaged in constructive discussions with certain of our financial stakeholders as we explore strategic alternatives to provide incremental financial flexibility and de-lever our balance sheet. Throughout this process, we remain focused on maintaining financial discipline while continuing to execute on our comprehensive transformation. Finally, turning to our fiscal 2026 outlook, given the evolving macroeconomic environment and lower than anticipated customer traffic during our peak season, we are withdrawing our previously issued full year sales and adjusted EBITDA guidance and are not providing an updated outlook at this time. With that, I will turn the call back over to the operator.
