2023-07-14 09:49:25 ET
Leslie’s ( NASDAQ: LESL ) plummeted more than 35% on Friday morning after cutting guidance and pre-announcing third-quarter EPS 42% below consensus. The company also named a new chief financial officer.
Analysts downgraded and cut price targets on the pool industry suppliers after the shocking announcements, which included 2023 EBITDA guidance cut by 40%. CFO Steve Weddell will be replaced by Scott Bowman, who recently served as CFO for True Food Kitchen.
“This is much worse than the whispers we had heard,” William Blair analysts wrote in a note. “We are reducing our rating to Market Perform given the lack of visibility into improving sales and margins.”
“The No. 1 issue is that store and website traffic is down double digits for Residential and Pro,” the analysts said. “Key reasons include poor weather (pools opened late and require less chemicals), increased customer price sensitivity, and consumers having leftover chemicals from the prior season.”
“Our recent work suggested this year's guide was too optimistic, but not to this degree,” Roth MKM analyst David Bellinger wrote in a note. We adjust estimates accordingly and take our PT to $6 from $11.
Same store sales decelerated sharply by 12% in Q3 vs. a slightly negative Street estimate, Roth MKM noted. “This follows a soft first half of the year, where comps tracked down (9.4%),” Bellinger said. “Management indicated much slower retail traffic as the primary factor, with pressure from chlorine price deflation, and some variability around weather — rainy FL, TX, and colder CA.”
Internal company surveys also suggest consumers pushed back on price increases and also had enough consumables left over from stockpiling product over the past few years, Roth MKM said, lowering its price target to $6 from $11.
Morgan Stanley lowered its price target to $8 from $13 and stayed Equalweight on the stock.
The firm said it could still get worse: “Reaching a ‘normalized’ level of earnings power doesn't mean trends can't further overshoot to the downside.”
“There are additional risks from trichlor deflation and potential deflation and/or promotional activity in non- commodity categories given weak volume trends,” Morgan Stanley analysts led by Simeon Gutman wrote in a note.
“We think the stock likely treads water for the next several quarters, leaving plenty of time for patient investors to get paid on the upside.”
More on Leslie’s:
- Leslie’s names new CFO, provides preliminary Q3 results; shares fall
- Leslie's, Inc. ( LESL ) Q2 2023 Earnings Call Transcript
- Seeking Alpha’s Quant Ratings on LESL
- Leslie's: Hard To Underwrite H2 2023 Recovery
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Leslie's plummets after massive guidance cut, EPS sorely missing estimates