Leslie’s Earnings Preview: Can This Pool Supply Giant Swim Against the Tide?

The stock market loves a comeback story, but Leslie’s (LESL) has been swimming upstream for years. After a brutal 2024 that saw its shares plummet from over $15 to near pennystock levels, the company now faces a critical test: its upcoming Q2 earnings report. Let’s dive into what investors should expect—and why this could be the moment Leslie’s either sinks or swims.

The Backstory: A Rocky Road to Q2

Leslie’s, the nation’s largest pool-supply retailer, reported Q1 2025 results in February that were a mixed bag. Revenue rose 0.7% to $175.2 million, barely above its own guidance but $9.3 million below analyst estimates. More concerning: its adjusted EBITDA worsened to -$29.3 million, with net debt still towering at $796.7 million. The stock cratered 26.8% the day of the report, but it’s since clawed back some ground—rising 15.8% in April—despite trading at just $0.70, far below its $2.12 consensus price target.

What’s at Stake in Q2?

The company’s Q2 results, due out tomorrow, will test whether its customer-centric transformation plan—focused on inventory optimization, convenience, and operational efficiency—is working. Here’s what to watch:

1. Revenue Growth: Can It Keep Floating?

Analysts expect Q2 sales of $185.1 million, at the midpoint of management’s guided range of $179–$189 million. After Q1’s modest 0.2% same-store sales gain—the first in two years—investors will demand evidence of sustained momentum. Pool season typically drives 70% of annual sales, so Q2 is a prelude to the critical summer quarters.

2. Margin Recovery: The Deep End of the Problem

Q1’s gross margin collapsed 180 basis points to 27.2%, hit by inventory write-downs and rising occupancy costs. Management called these “transformational expenses,” but investors want to see progress. Q2’s adjusted EBITDA is projected to narrow to -$35.5 million—still negative, but better than Q1’s -$29.3 million. A miss here could drown hopes of a turnaround.

3. Debt and Liquidity: Staying Afloat

Leslie’s net debt-to-EBITDA ratio remains a staggering 10×, and Q1’s operating cash flow burned $105.1 million. While inventory was slashed 18.8% year-on-year, the company’s ability to manage seasonal cash flow without defaulting on debt is existential.

4. Strategic Execution: Swimming Against the Tide

CEO Jason McDonell’s initiatives—like improving digital engagement and store layouts—are still unproven. The stock’s valuation hinges on whether these steps can permanently reverse same-store sales declines and stabilize margins.

The Bulls’ Case: Why Hope Springs Eternal

• Niche Dominance: Leslie’s controls 20% of the pool-supply market, with 600+ stores. Competitors like Tractor Supply (TSCO) and Walgreens (WBA) have struggled in their own Q1s, leaving Leslie’s as the “least worst” play in the sector.
• Inventory Turnaround: The 18.8% inventory reduction shows discipline. If management can avoid overstocking ahead of peak season, margins might finally improve.
• Valuation Discounts: At a forward P/E of 10.3×, the stock is dirt-cheap—if profitability returns.

The Bears’ Case: Why the Tide Might Still Turn Against You

• Debt Time Bomb: With $796 million in funded debt and interest costs rising, even a small revenue miss could trigger a liquidity crisis.
• Weak Earnings Momentum: Analysts have slashed full-year 2025 EPS estimates to -$0.01 from +$0.04 over the past quarter.
• Analyst Skepticism: StockStory’s “Underperform” rating cites “weak sales growth and deteriorating margins,” while GuruFocus flags 8 warning signs, including debt and operational risks.

The Bottom Line: A High-Risk Gamble

Leslie’s is a high-beta play—a stock that could soar if Q2 results beat estimates or crater if they miss. Here’s how to navigate this:

1. Look for Margin Improvements: A narrower EBITDA loss than guided would signal execution progress.
2. Watch Debt Management: Any reduction in net debt or improved liquidity metrics would be a win.
3. Same-Store Sales Trends: Sustained gains above 0.2% could quiet skeptics.

Final Take: At $0.70, Leslie’s is a penny stock with a catalyst—but it’s not for the faint of heart. Bulls bet on a margin recovery and inventory discipline; bears see a debt-ridden company drowning in red ink. If management delivers on Q2’s modest targets, the stock could rally toward $2.12. Miss, and it might sink to the $0.55 low some analysts predict.

Action Item: This is a “sell the news” situation. If Q2 surprises to the upside, take profits; if it falters, run.

Final Verdict: Leslie’s is a speculative play with a narrow path to success. Investors must decide: is this a turnaround opportunity or a sinking ship? The market will decide tomorrow.

Disclosure: This analysis is for informational purposes only and not financial advice. Always consult a financial advisor before making investment decisions.