Rising Suburban Incomes And Warming Climates Will Fuel Pool Upgrades

Key Takeaways

• Inventory optimization, omnichannel fulfillment, and expanded PRO offerings position Leslie's for substantial margin gains and revenue growth beyond current market expectations.
  
• Structural shifts in pool usage, climate trends, and consumer focus on outdoor living underpin recurring sales and reinforce Leslie's market dominance and customer loyalty.
  
• Leslie's faces mounting pressure from digital disruption, weather volatility, fierce competition, high debt, and industry headwinds that threaten growth, margins, and long-term relevance.

Catalysts

Operates as a direct-to-consumer pool and spa care brand in the United States.

• Analyst consensus acknowledges Leslie's Local Fulfillment Centers (LFCs) and inventory optimization will improve working capital and net margins, but this actually understates the potential-Leslie's is now achieving over 99% in-stock rates on top SKUs and expects to drive tens of millions more in inventory reductions, setting up a step-change in cash flow and margin structure as efficiency initiatives scale and free up capital for growth.
  
• While analysts broadly agree the PRO customer push will drive share gains, the true upside lies in mobilizing the entire 1,000-store network-Leslie's has already grown PRO contracts 12% year-over-year, and with digital targeting, LFC-backed fulfillment, and customized offers, there is an opportunity for outsized revenue growth and margin expansion as PRO penetration rises far beyond current forecasts.
  
• The coming years will see a structurally higher baseline for pool usage and chemical demand across Leslie's network as climate patterns produce extended swimming seasons and higher temperatures, which will translate directly into robust, recurring revenue growth and reinforce Leslie's category dominance.
  
• Leslie's tech-enabled omnichannel model, including recent accelerations like same-day delivery via Uber and a revamped, tiered Pool Perks loyalty program that already covers 85% of transactions, is set to drive meaningfully higher customer retention, transaction frequency, and average ticket size, supporting outperformance on top-line revenue and customer lifetime value.
  
• With rising U.S. disposable incomes, continued suburban expansion, and a growing societal focus on outdoor living and home improvement investments, Leslie's unique scale, private label expansion, and comprehensive assortment position it to gain disproportionate share of the growing premium pool products market, delivering above-industry growth in revenue and sustained margin improvement as the long-term wave of pool ownership and upgrades accelerates.

Leslie's Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Leslie's compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Leslie's's revenue will grow by 4.1% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from -6.7% today to 0.4% in 3 years time.
• The bullish analysts expect earnings to reach $5.2 million (and earnings per share of $-0.02) by about August 2028, up from $-84.1 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 50.7x on those 2028 earnings, up from -0.8x today. This future PE is greater than the current PE for the US Specialty Retail industry at 18.8x.
• Analysts expect the number of shares outstanding to grow by 0.35% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 12.32%, as per the Simply Wall St company report.

Leslie's Future Earnings Per Share Growth

Risks

• Ongoing shift toward e-commerce and digital-first retailing continues to threaten Leslie's brick-and-mortar store model, as highlighted by significant declines in residential store traffic of nearly 11 percent and a lack of material digital sales growth, which could pressure long-term revenues and gross margins.
  
• Persistent weather volatility, including cooler temperatures and increased precipitation in core regions, is disrupting peak pool season sales, evidenced by a 12 percent quarterly sales drop and steep chemical category declines, which exposes Leslie's to ongoing revenue unpredictability and operating margin compression due to seasonal and climate risks.
  
• Highly competitive market dynamics and aggressive price cuts by rivals, largely in response to industry over-inventory, are forcing Leslie's to lower prices and make mid-single-digit investments in pricing, creating ongoing downward pressure on gross margins and potentially eroding future earnings.
  
• Elevated debt levels and a stated focus on deleveraging limit Leslie's ability to reinvest aggressively in digital infrastructure and strategic store growth, which may hinder the company's ability to adapt to longer-term secular changes and affect future net income and financial flexibility.
  
• Secular industry trends such as reduced new pool installations due to water scarcity concerns, demographic headwinds affecting household formation, and greater consumer reliance on tech-enabled DIY pool care threaten to slow the expansion of Leslie's addressable market, potentially resulting in long-term stagnation or decline in revenue growth.

Valuation

• The assumed bullish price target for Leslie's is $1.0, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Leslie's's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $1.0, and the most bearish reporting a price target of just $0.33.
  
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $1.4 billion, earnings will come to $5.2 million, and it would be trading on a PE ratio of 50.7x, assuming you use a discount rate of 12.3%.
  
• Given the current share price of $0.35, the bullish analyst price target of $1.0 is 64.9% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.