Leslie’s, Inc. (NASDAQ:LESL) Q1 2023 Earnings Call Transcript

Mike Egeck: Yes. Our PRO business is run through our residential stores predominantly. And so, in the PRO business, we saw a similar impact as we did in residential due to the weather. So, comps were down 4%. We looked very closely to see if we saw any signs of an increase in DIY behavior among our consumers, and maybe some reduction in their use of PROs. And we did not see anything of that nature in the data that we got. So, I think for us, focused on smaller PROs and servicing them through our own retail stores, the PRO conversation is very similar to the residential conversation. We did see some of the PROs buying some smaller quantities of sanitizers. I think there’s a feeling in the PRO market that chemical prices could come down. And I think they’re trying to wait it out, frankly, a little bit, but we have not seen any indication of any deflation in chemicals at this point.

Rene Marin: Got it. Thank you.

Operator: Our next question is from Ryan Merkel with William Blair. Please proceed.

Ryan Merkel: Hi guys. Thanks for taking the question. Can we start with inventory, Mike? The inventory kind of pops off the page and pop up a bit sequentially. How much is safety stock? And when do you see inventory normalizing?

Mike Egeck: Yes. It’s a great question, Ryan. Thank you for that. And as we think about our inventory growth, I mean there’s two key reasons that inventory is up, one is sales growth over the last year €“ last few years. And then importantly, the strategic decision that we made to intentionally pull forward 2023 receipts in advance of season. We believe that pull forward is appropriate. When you look at the last two years, the industry has had a number of supply chain challenges and we’ve had far too many out of stocks on key products and we’re not €“ unable to serve consumers. So, the pull forward allows us to load our stores with more product and facilitate the replenishment cycle during the early part of our season. And it’s also one of the reasons that you saw some of the distribution costs be a little bit higher in the last quarter as well.

But again, the inventory that we’re procuring today is for this season. And it’s inventory that is being brought in earlier in preparation for season. It’s not stocking up for longer-term needs.

Ryan Merkel: Okay. So, very much on purpose, and I know some M&A is in there, too.

Mike Egeck: Yes, exactly.

Steve Weddell: Yes, very purposeful. And the only thing I would add, Ryan, is with our omnichannel capabilities, the ability to load up the stores, kind of maximum capacity early and then to keep it there year-round, allows us to take advantage of ship-from-store.

Ryan Merkel: Okay. And then my second question, I wanted to dig in on the discretionary sales, I think you mentioned down 11%. Can you just unpack some of the weaker categories? And I know you mentioned equipment, but what else is in there?