What happened
Shares of Leslie's (LESL 0.91%), a retailer focused on pool supplies, fell dramatically at the open on Feb. 3, dropping as much as 12% in morning trading. The big news, however, came out on Feb. 2, when the company reported earnings after the close of trading. Investors were clearly less than pleased with the fiscal first-quarter 2023 update.
So what
Leslie's revenue advanced 5.6% year over year in the fiscal first quarter of 2023, hitting a record $195.1 million. That figure was soundly above analyst expectations and the year-ago figure.
This would seemingly be good news, but much of that increase was driven by acquisitions and new store openings. Same-store sales, which measures sales at locations that have been open for at least a year, fell 4%. Management blamed bad weather, but weak same-store sales are normally viewed in a negative light by investors.
On the bottom line, meanwhile, Leslie's reported an adjusted per-share loss of $0.14, compared to a loss of $0.06 in the fiscal first quarter of 2022. The company missed analyst expectations by a penny per share. Investors tend to frown on earnings misses, as well.
Equally troubling, the company's gross margin dropped from 36.4% to 33.5%, which is not a good trend. The company faced increases in operating costs and interest expenses. All in, there was a fair amount of bad news for investors to digest, so the early stock decline makes some sense.
Now what
The red ink in Leslie's fiscal first quarter needs to be taken with a grain of salt, given that the pool-focused retailer's business tends to be seasonal (performance is much better during the summer months). However, the fact that costs are rising, margins are weak, same-store sales didn't hold up, and the loss was greater than Wall Street expected, if only by a small amount, are all good reasons for investors to be concerned. One quarter does not make a trend, but if there's a recession in 2023, as some fear there will be, the operating environment will get harder, not easier.
