Leslie's Price Drop Delivers First Comp Inflection, but the Market Remains Cold
Customer growth and margin expansion mark a turning point, yet the stock's continued slide suggests the transformation is far from complete.
LESL · Earnings Call · 2026-05-13
Price Drop Sparks a Customer Inflection
The fiscal second quarter of 2026 may be remembered as the moment Leslie's finally stopped the bleeding. After years of customer churn and sales declines, the pool-care retailer posted a comparable sales increase of 6.6% and overall revenue growth of 4.3% to $184.7 million. The headline driver was the Price Drop initiative launched in March, which aggressively cut prices on core chemicals. The response was immediate: “Our retail stores experienced double-digit increase in transactions and more than a 350 basis point improvement in our overall conversion rate.” — Jason McDonell, CEO · 2026-05-13 Customer counts grew 8% year-over-year, with reactivated customers—those who had lapsed for a year or more—up over 25%. “We delivered overall revenue growth of 4.3%, a comparable sales increase of 6.6%, improved year-over-year adjusted EBITDA by 26% and registered total customer count growth of 8%.” — Jason McDonell, CEO · 2026-05-13 The pivot to everyday low pricing was not a snap decision. In the prior quarter's call, management had already signaled the shift. “We're actually taking the regular price down and also changing the promotional strategy from where we were more high low before to something that's a lot more consistent and competitive in the marketplace that really is centered around everyday value.” — Jason McDonell · 2026-02-17 The strategy is squarely aimed at winning back the price-sensitive DIY customer, a segment that had been ceding share to big-box retailers. The early results in Q2 suggest the medicine is working, but the scale of the turnaround remains daunting.Cost Optimization Funds the Investment
To fund the price cuts without blowing a hole in the P&L, Leslie's has been aggressively pruning costs. The company closed 80 stores in fiscal 2026 and has now completed the program. “We remain confident in an annualized net EBITDA benefit of $4 million to $10 million despite an annual sales impact of approximately $25 million to $35 million from the 80 stores that we have closed in fiscal 2026.” — Jason McDonell, CEO · 2026-05-13 The closures are expected to be more than offset by improved transfer rates to remaining stores and digital channels, aided by the company's extensive zero-party data on customer buying habits. Beyond stores, SKU rationalization is removing 2,000 long-tail items from e-commerce fulfillment, targeting $4–5 million in annualized EBITDA improvement. The distribution network has been cut from six centers to five, with the Illinois facility largely shuttered. Inventory has been slashed 22% year-over-year to $262.4 million, and the company claims in-stock levels on key items remain at all-time highs. The result is a meaningful improvement in gross margin: Gross margin rose to 28.9% from 24.8% a year earlier. CFO Jeff White attributed the gain partly to “the improvement in occupancy costs... something that we can continue to leverage and make sure that helps gross margin going forward.” — Jeffrey White, CFO · 2026-05-13 Still, the company remains deeply unprofitable. Net loss for the quarter was $52.5 million, and adjusted EBITDA was negative $26.8 million—an improvement from negative $36.1 million the prior year, but far from break-even. The balance sheet carries $753 million in long-term debt plus $99 million drawn on its line of credit, leaving roughly $97 million in available liquidity.The Market Remains Unconvinced
Despite the operational progress, investors have not bought the story. The stock has collapsed, losing 99.9% of its value from its January 2021 peak. Over the last 90 trading days, it has fallen another 53.8%, with a drawdown of 94% from a June high of $10.76. The market's skepticism is understandable: the company is burning cash, and its path to sustainable profitability depends on executing a complex transformation while carrying heavy debt. Even as Leslie's celebrates its first comparable-sales inflection, the broader retail tape is fixated on a different set of themes—AI infrastructure, data centers, and high-bandwidth memory—as evidenced by the global keyword and price-mover data. The pool supply space is not attracting any of that enthusiasm. What changed at Leslie's is a genuine strategic pivot, but it is a high-risk one. The customer centricity push and store optimization efforts are not just incremental tweaks; they are a fundamental reshaping of a business model that had become bloated and uncompetitive. The early Q2 results show the plan can move the needle on topline and margin, but the market wants to see sustained, profitable growth—not a quarter of favorable weather and one-time costs.We remain confident in our ability to drive sales and traffic by delivering the right product in the right place at the right time and at the right price for our customers.