LESL Q3 Deep Dive: Strategic Store Closures and Price Adjustments Amid Traffic Declines

Pool products retailer Leslie’s (NASDAQ:LESL) reported Q3 CY2025 results topping the market’s revenue expectations, but sales fell by 2.2% year on year to $389.2 million. On the other hand, the company’s full-year revenue guidance of $1.18 billion at the midpoint came in 4.4% below analysts’ estimates. Its non-GAAP profit of $0.09 per share was 93.1% below analysts’ consensus estimates.

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StockStory’s Take

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.

Looking forward, Leslie's guidance for the upcoming year is shaped by aggressive structural changes and targeted investments in pricing and efficiency. Management plans to close 80 to 90 underperforming stores, implement cost optimization initiatives, and reinvest in price competitiveness on key items. CFO Jeff White cautioned that gross margin will likely decrease as a result of these price investments, but expects operational efficiencies and SG&A discipline to partially offset the impact. Management is focusing on improving the customer value proposition and leveraging targeted marketing, with McDonell stating, “We are building Leslie’s to improve our overall value proposition, be more responsive to local market needs while maintaining the scale advantages that make us the industry leader.”

Key Insights from Management’s Remarks

Management attributed the quarter’s results to customer attrition from uncompetitive pricing, cost optimization efforts, and operational restructuring, alongside investments in value and convenience.

• Customer attrition from pricing gaps: Pricing misalignment on key pool care products led to notable customer losses, as value-focused consumers opted for competitors. Management identified improving price competitiveness as a top priority to address this trend.
• Cost optimization and operational streamlining: Leslie’s launched a broad cost reduction program, including targeted savings in manufacturing, packaging, and distribution, as well as the closure of 80 to 90 underperforming stores and two distribution centers to improve profitability and asset utilization.
• Targeted marketing and loyalty data: The Pool Perks loyalty program now covers over 85% of transactions, enabling precise, personalized marketing to lapsed customers based on their purchase history and location, with the goal of efficiently attracting lost customers back.
• Enhanced in-store experience and basket growth: Store teams focused on increasing units per transaction, aided by technical expertise and personalized water testing, resulting in mid-single-digit growth in basket size for the quarter.
• Omnichannel and service expansion: Leslie’s is scaling same-day delivery partnerships and expanding pool maintenance and repair services in select markets, aiming to boost convenience and deepen customer relationships through a unified, market-based field leadership approach.

Drivers of Future Performance

Leslie’s outlook centers on regaining lost customers, boosting operational efficiency, and optimizing store and product assortments amid heightened competition and macroeconomic uncertainty.

• Aggressive price investments: Management is adjusting pricing on key chemical products to better align with competitors, accepting a reduction in gross margin of 100 to 150 basis points but aiming to regain traffic and market share among value-oriented consumers.
• Store and SKU rationalization: The closure of underperforming locations and reduction of over 2,000 low-performing SKUs are expected to enhance EBITDA and streamline operations, while ongoing reviews of non-core assets may yield further cost benefits.
• Operational and marketing discipline: Leslie's plans to keep marketing spend flat but redeploy it toward targeted, data-driven campaigns. Management is also renegotiating contracts, focusing on inventory optimization, and maintaining a disciplined capital expenditure approach to protect free cash flow.

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 $2.97, down from $3.60 just before the earnings. Is there an opportunity in the stock?Find out in our full research report (it’s free for active Edge members).

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