Softer Demand For Chemicals Hurts Leslie's Amid Macro Woes, Analyst Lowers Price Target

Telsey Advisory Group analyst Dana Telsey reiterated a Market Perform rating on Leslie's, Inc. LESL, lowering the price target to $8.50 from $11.

LESL reported preliminary results for the third quarter of fiscal 2023, where the company forecasts sales of $611 million, including a comparable sales decline of 12%. 

Leslie's now expects FY23 adjusted EPS of $0.28-$0.32, down from $0.78-$0.86 previously, vs. Telsey's estimate of $0.78. 

Gross profit is expected to be $249 million-$251 million, and gross margin is expected to be approximately 41%. 

The analyst notes that the company experienced negative comp trends (traffic down low double digits) in both discretionary and non-discretionary categories in 3Q.

Telsey thinks LESL is bearing the brunt of unfavorable weather, greater price sensitivity due to a challenging economic environment, and softer demand for chemicals, which weighed on results.

Furthermore, higher product costs, elevated distribution expenses (partly due to the storage cost of high inventory), and deleverage of fixed costs hurt profits.

In response to softer business trends, Leslie’s is proactively adjusting its cost structure, including reducing headcount by ~20%, cutting distribution costs (especially third-party warehouse costs, following lower inventory), and slowing M&A.

For 3Q, the analyst lowered the EPS estimate to $0.41 from $0.72, with a sales decline of 9.3% to $611 million vs. $707 million.

For FY23, the analyst now expects EPS of $0.30, down from $0.78 previously, with a sales decline of 7.8% to $1.44 billion vs. $1.6 billion

previously.

Price Action: LESL shares are trading lower by 32% to $6.43 on the last check Friday.