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What changed in Leslie's, Inc.'s 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of Leslie's, Inc.'s 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+249 added−243 removedSource: 10-K (2024-11-27) vs 10-K (2023-11-29)

Top changes in Leslie's, Inc.'s 2024 10-K

249 paragraphs added · 243 removed · 204 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

60 edited+17 added−6 removed47 unchanged
Biggest changeThis group generally offers limited product assortment, often on a seasonal basis, and does not offer services or pool and spa care expertise; and • Wholesale Distributors . Includes large wholesalers, such as Heritage Pool Supply Group and Pool Corp.
Biggest changeIncludes larger, scaled players, such as Walmart, and Costco, as well as smaller online retailers that market their products to consumers through scaled marketplace platforms such as Amazon, eBay, and Walmart. The mass-market group generally offers limited product assortment, often on a seasonal basis, and does not offer services or pool and spa care expertise.
Our research suggests that small and mid-size pool professionals value convenience and referrals, both of which we are uniquely positioned to offer given our over 1,000 locations and the industry’s largest consumer file. We plan to expand our physical network of PRO locations, which specifically cater to pool professionals, by opening new locations and selectively remodeling existing residential locations.
Our research suggests that small and mid-size pool professionals value convenience and referrals, both of which we are uniquely positioned to offer given our over 1,000 locations and the industry’s largest consumer file. We plan to expand our physical network of PRO locations, which specifically cater to pool professionals, by selectively opening new locations and selectively remodeling existing residential locations.
Including the $1.7 billion market for new spas, residential spa represents a total addressable market of approximately $2.6 billion. • Professional Pool . The professional pool market consists of pool service professionals and professional pool operators. Pool service professionals specialize in maintenance and equipment repair for DIFM homeowners, businesses, and government entities.
Including the approximately $1.7 billion market for new spas, residential spa represents a total addressable market of approximately $2.6 billion. • Professional Pool . The professional pool market consists of pool service professionals and professional pool operators. Pool service professionals specialize in maintenance and equipment repair for DIFM homeowners, businesses, and government entities.
As the trusted one-stop destination for all aftermarket pool and spa needs, we provide an extensive and highly differentiated product offering. We aim to fulfill the needs of our residential and professional consumers with our comprehensive assortment, in-stock inventory, and product selection across a broad range of premium third-party and proprietary brands.
As the trusted one-stop destination for all aftermarket pool and spa needs, we provide an extensive and highly differentiated product offering. We aim to fulfill the needs of our residential and professional consumers with our comprehensive assortment, in-stock inventory, and product selection across a broad range of premium proprietary and third-party brands.
These proprietary brands and custom-formulated products are only available through our integrated platform and offer professional-grade quality to our consumers, while allowing us to achieve higher gross margins relative to sales of third-party products. In addition to our comprehensive product assortment, we offer critical services, such as complimentary water testing and in-store equipment repair.
These proprietary brands and custom-formulated products are only available through our integrated platform and offer professional-grade quality to our consumers, while allowing us to achieve higher gross margins relative to sales of third-party products. In addition to our comprehensive product assortment, we offer critical services, such as complimentary, commercial grade water testing and in-store equipment repair.
Our Marketing Strategy We believe there is significant potential to drive increased share of wallet among our existing consumers through strategic initiatives, such as our loyalty membership program and dynamic promotions. Due to the highly recurring, replenishment nature of our product mix and long-term consumer relationships, we believe that our investments in consumer acquisition marketing generate highly attractive returns.
Our Marketing Strategy We believe there is significant potential to drive increased share of wallet among our existing consumers through strategic initiatives, such as our loyalty membership program and dynamic promotions. Due to the highly recurring, replenishment driven nature of our product mix and long-term consumer relationships, we believe that our investments in consumer acquisition marketing generate highly attractive returns.
Our well-balanced executive leadership team is comprised of leaders with decades of experience in the pool and spa care industry as well as recently-hired executives who bring new expertise and capabilities to Leslie’s from outside industries. Our leadership team is uniquely capable of executing upon our strategic vision and successfully continuing to create long-term shareholder value.
Our well-balanced executive leadership team is comprised of leaders with experience in the pool and spa care industry as well as recently hired executives who bring new expertise and capabilities to Leslie’s from outside industries. Our leadership team is uniquely capable of executing upon our strategic vision and successfully continuing to create long-term shareholder value.
This includes original equipment manufacturers, regional and local retailers, home improvement retailers, mass-market retailers, and specialty e-commerce operators. Key competitive groups include: • Regional and Local Independent Retailers. Estimated to include more than 8,000 smaller, local independent competitors, which offer the convenience of proximity.
This includes original equipment manufacturers, regional and local retailers, home improvement retailers, mass-market and club retailers, and specialty e-commerce operators. Key competitive groups include: • Regional and Local Independent Retailers. Estimated to include more than 8,000 smaller, local independent competitors, which offer the convenience of proximity.
The residential pool market consists of 8.8 million pools representing a total aftermarket sales opportunity of $8.4 billion. Within this market, the DIY aftermarket spend represents roughly 70% of total spend while DIFM services represent approximately 30% of total spend.
The residential pool market consists of approximately 8.8 million pools representing a total aftermarket sales opportunity of approximately $8.4 billion. Within this market, the DIY aftermarket spend represents approximately 70% of total spend while DIFM services represent approximately 30% of total spend.
For 60 years, we have been dedicated to addressing our consumers’ pool needs so that they can spend less time maintaining and more time enjoying their pools.
For over 60 years, we have been dedicated to addressing our consumers’ pool needs so that they can spend less time maintaining and more time enjoying their pools.
We believe these third-party reports to be reputable, but have not independently verified the underlying data sources, methodologies, or assumptions. Information that is based on estimates, forecasts, projections, market research, or similar methodologies is inherently subject to uncertainties, and actual events or circumstances may differ materially from events and circumstances reflected in this information. 8 Table of Contents
We believe these third-party reports to be reputable, but have not independently verified the underlying data sources, methodologies, or assumptions. Information that is based on estimates, forecasts, projections, market research, or similar methodologies is inherently subject to uncertainties, and actual events or circumstances may differ materially from events and circumstances reflected in this information. 10 Table of Contents
Many of our residential pool consumers visit our locations on a regular basis to conduct water testing, seek expert pool advice, and purchase products as well as utilize our integrated digital platforms. • Residential Spa . The residential spa market consists of nearly 5.5 million spas or hot tubs representing a $0.9 billion aftermarket sales opportunity for chemicals and equipment.
Many of our residential pool consumers visit our locations on a regular basis to conduct water testing, seek expert pool advice, and purchase products as well as utilize our integrated digital platforms. • Residential Spa . The residential spa market consists of approximately 5.5 million spas or hot tubs representing approximately $0.9 billion aftermarket sales opportunity for chemicals and equipment.
Professional pool operators manage approximately 250,000 pools across hotels, motels, apartment complexes, and water parks. This market represents a total aftermarket sales opportunity of $4.4 billion. Our Product and Service Offering We offer a comprehensive assortment of more than 30,000 products across chemicals, equipment and parts, cleaning and maintenance equipment, and safety, recreational, and fitness related products.
Professional pool operators manage approximately 300,000 pools across hotels, motels, apartment complexes, and water parks. This market represents a total aftermarket sales opportunity of approximately $4.4 billion. Our Product and Service Offering We offer a comprehensive assortment of more than 30,000 products across chemicals, equipment and parts, cleaning and maintenance equipment, and safety, recreational, and fitness related products.
The AccuBlue ® testing device screens for nine distinct water quality criteria. Our in-store experts leverage our proprietary AccuBlue ® water diagnostics software engine to offer our consumers a customized prescription and treatment plan using our comprehensive range of exclusive products, walking them through product use sequencing step-by-step.
The AccuBlue ® testing device screens for 10 distinct water quality criteria. Our in-store experts leverage our proprietary AccuBlue ® water diagnostics software engine to offer our consumers a customized prescription and treatment plan using our comprehensive range of exclusive products, walking them through product use sequencing step-by-step.
We plan to assess each market independently and determine the most capital efficient way to serve these trade areas using digital assets, new locations, or acquired locations. Continue to introduce disruptive innovation. Leslie’s has a legacy of disruptive innovation in the pool and spa care industry.
We plan to assess each market and the potential locations within each market independently and determine the most capital efficient way to serve these trade areas using digital assets and new or acquired locations. Continue to introduce disruptive innovation. Leslie’s has a legacy of disruptive innovation in the pool and spa care industry.
Founded in 1963, we are the only direct-to-consumer pool and spa care brand with national scale, operating an integrated marketing and distribution ecosystem powered by a physical network of over 1,000 branded locations and a robust digital platform.
Founded in 1963, we are the only direct-to-consumer pool and spa care brand with national scale, operating an integrated marketing and distribution ecosystem powered by a physical network of over 1,000 branded locations and a robust digital and e-commerce platform.
We have a market-leading share of approximately 15% of residential aftermarket product spend as of 2022, our physical network is larger than the sum of our 20 largest competitors and our digital sales are estimated to be greater than five times as large as that of our largest digital competitor.
We have a market-leading share of approximately 15% of residential aftermarket product spend as of 2023, our physical network is larger than the sum of our 20 largest competitors and our digital sales are estimated to be greater than five times as large as that of our largest digital competitor.
Since our inception in 1963, we have offered a portfolio of owned and exclusive brands. We continue to expand our selection of exclusive offerings through innovation. Our exclusive brands and products account for more than 55% of total sales and 80% of chemical sales.
Since our inception in 1963, we have offered a portfolio of owned and exclusive brands. We continue to expand our selection of exclusive offerings through innovation and product development. Our exclusive brands and products account for more than 55% of total sales and 80% of chemical sales.
Historically, more than 80% of our assortment has been comprised of essential and non-discretionary products that are needed by residential and professional consumers to care for pools and spas. The vast majority of our assortment features non-discretionary products that are shelf-stable and generally not prone to either obsolescence or shrinkage, which could occur from changing technology or consumer buying habits.
Historically, approximately 80% of our assortment has been comprised of essential and non-discretionary products that are needed by residential and professional consumers to care for pools and spas. The vast majority of our assortment features non-discretionary products that are shelf-stable and generally not prone to either obsolescence or shrinkage, which could occur from changing technology or consumer buying habits.
Through these strategies, we plan to increase brand awareness and continue profitably acquiring new consumers. Our Competition The United States aftermarket pool and spa care industry is fragmented and competitive. We compete against a wide range of manufacturers, retailers, distributors, and service providers in the residential and professional pool and spa care market.
Through these strategies, we plan to increase brand awareness and continue profitably acquiring new consumers. 8 Table of Contents Our Competition The United States aftermarket pool and spa care industry is fragmented and competitive. We compete against a wide range of manufacturers, retailers, distributors, and service providers in the residential and professional pool and spa care market.
We pioneered the complimentary in-store water test and resulting pool or spa water prescription, which has driven consumer traffic and loyalty, and has created a “pharmacist-like” relationship with our consumers. We recently developed and introduced significant upgrades to our water testing capabilities with the launch of our AccuBlue ® platform.
We pioneered the complimentary in-store water test and resulting proprietary pool or spa water prescription, which has driven consumer traffic and loyalty, and has created a “pharmacist-like” relationship with our consumers. We have developed and introduced significant upgrades to our water testing capabilities with the launch of our AccuBlue ® platform.
While we benefit from the growth in the installed base, our business is not dependent on new pool construction activity and can generate strong growth from a fixed installed base through increased pool usage, more frequent sanitization, and recurring maintenance needs. Seasonality Our business is highly seasonal.
While we benefit from the growth in the installed base, our business is not dependent on new pool construction activity and can generate strong growth from a fixed installed base through increased pool usage, more frequent sanitization, and recurring maintenance needs.
At these locations, we offer an expanded assortment of merchandise and services specifically catering to current and prospective spa owners. 6 Table of Contents Our Vertically Integrated Model We operate a vertically integrated supply chain, packaging, and distribution model, which represents a significant competitive advantage.
At these locations, we offer an expanded assortment of merchandise and services specifically catering to current and prospective spa owners. Our Vertically Integrated Model We operate a vertically integrated supply chain, packaging, and distribution model, which represents a significant competitive advantage.
Our complementary platform of branded proprietary e-commerce websites and marketplace storefronts allows us to seamlessly serve the needs of all digital consumers through curated pricing and targeted merchandising strategies. Our portfolio of proprietary e-commerce websites includes Leslie’s and In the Swim .
Our complementary platform of branded proprietary e-commerce websites and marketplace storefronts allows us to seamlessly serve the needs of all digital consumers through curated pricing and targeted merchandising strategies. Our portfolio of proprietary e-commerce websites includes Leslie’s (lesliespool.com) and In the Swim (intheswim.com) .
Our Integrated Platform We operate an integrated platform consisting of locations, distribution centers, and proprietary e-commerce websites. • Residential Locations . We serve our residential consumers through locations that are strategically spread across 39 states. We offer a range of differentiated and innovative in-store and on-site service offerings including our in-store water test.
Our Integrated Platform We operate an integrated platform consisting of physical locations, distribution centers, and proprietary e-commerce websites. 7 Table of Contents • Residential Locations . We serve our residential consumers through physical locations that are strategically spread across 39 states. We offer a range of differentiated and innovative in-store and on-site service offerings including our in-store water test.
In addition to operating two manufacturing facilities, we operate a national network of company-operated distribution centers as well as utilize third-party distribution centers. Our company-operated distribution centers and our third-party logistics partners have the capacity to carry a broad breadth of our products in significant quantities and are capable of replenishing inventory throughout our physical network.
In addition to operating two manufacturing facilities, we operate a national network of company-operated distribution centers in addition to utilizing third-party distribution centers. Our company-operated distribution centers and our third-party logistics partners have the capacity to carry a broad breadth of our products in significant quantities and are capable of replenishing inventory throughout our physical network.
We have identified more than 800 markets in the continental United States that we can address through our store densification strategy. With our omni-channel capabilities, successful track record of new location openings, location acquisitions, and targeted digital marketing tactics, we believe we are well positioned to capitalize on this meaningful whitespace opportunity.
We have identified more than 800 locations in the continental United States that we can selectively address through our store expansion strategy. With our omni-channel capabilities, successful track record of new location openings, location acquisitions, and targeted digital marketing tactics, we believe we are well positioned to capitalize on this meaningful whitespace opportunity.
Accordingly, in fiscal 2023 we completed the commercial launch of our AccuBlue Home ® program, a subscription-based offering that enables pool and spa owners to confidently test and treat their pools and spas without ever having to leave their backyard.
Accordingly, in fiscal 2023 we completed the commercial launch of our AccuBlue Home ® program, which we continue to expand in fiscal 2024, a subscription-based offering that enables pool and spa owners to confidently test and treat their pools and spas without ever having to leave their backyard.
We source a variety of raw materials and chemicals directly from a diversified supplier base; we maintain strong relationships with these suppliers. As of September 30, 2023, we had one supplier that represented more than 10% of our annual purchases.
We source a variety of raw materials and chemicals directly from a diversified supplier base; and maintain strong relationships with these suppliers. As of September 28, 2024, we had one supplier that represented more than 10% of our annual purchases.
The unprecedented scale of our integrated marketing and distribution ecosystem, which is powered by our direct-to-consumer network, uniquely enables us to efficiently reach and service every pool and spa in the continental United States.
The considerable scale of our integrated marketing and distribution ecosystem, which is powered by our direct-to-consumer network, uniquely enables us to efficiently reach and service every pool and spas in the continental United States.
We distinguish the products produced in our chemical repackaging operation or by third-party repackagers at our direction through the use of the Leslie’s brand name and logo and the trademarks and trade names of the individual items, none of which is patented, licensed, or otherwise restricted to or by us.
We distinguish the products produced in our chemical repackaging operation or by our third-party repacking partners through the use of the Leslie’s brand name and logo and the trademarks and trade names of the individual items, none of which is patented, licensed, or otherwise restricted to or by us.
We have pioneered complimentary in-store water testing, offered complimentary in-store equipment repair services, introduced the industry’s first loyalty program, and developed an expansive platform of owned and exclusive brands.
Over the course of our history, we have pioneered complimentary in-store water testing, offered complimentary in-store equipment repair services, introduced the industry’s first loyalty program, and developed an expansive platform of owned and exclusive brands.
We perceive this as an opportunity to introduce a full service, connected home solution that effectively automates pool maintenance, including actively monitoring our consumers’ water, diagnosing, developing, and prescribing a treatment plan, and delivering to their home the assortment of products needed to maintain a clear, safe, beautiful pool.
We believe there is an opportunity to introduce a full service, connected home solution that effectively automates pool maintenance, including actively monitoring our consumers’ water, diagnosing, developing, and prescribing a treatment plan, and delivering to their home the assortment of products needed to maintain a clear, safe, and beautiful pool.
We intend to bolster consumer file growth by deploying targeted marketing tactics to win an outsized share of new pool and spa owners. Increase share of wallet among existing consumers. We believe we have a significant opportunity to increase spend from existing consumers and drive higher lifetime value.
We intend to bolster consumer file growth by deploying targeted marketing tactics to win an outsized share of new pool and spa owners as the installed base of pools grows. Increase share of wallet among existing consumers. We believe we have a significant opportunity to increase spend from existing consumers and drive higher lifetime value.
Our water treatment expertise is powered by data and intelligence accumulated from the millions of water tests we have performed over the years, positioning us as the most trusted water treatment service provider in the industry.
Our water treatment expertise is powered by data and intelligence accumulated from the millions of water tests we have performed over the years, positioning us as the most trusted water treatment service provider in the industry. We have a legacy of leadership and disruptive innovation.
We believe we have a significant opportunity to grow our sales with pool care professionals, who individually spend more than 25x as much as residential consumers on pool supplies and equipment.
We believe we have a significant opportunity to grow our sales with pool care professionals, who individually can spend significantly more than residential consumers on pool supplies and equipment.
In addition, due to the seasonality of the aftermarket pool and spa care industry, several competitors only stock related products during the summer months, and their product assortment tends to be limited to basic offerings. Human Capital Resources As of September 30, 2023, we employed approximately 4,100 employees.
In addition, due to the seasonality of the aftermarket pool and spa care industry, several competitors only stock related products during the summer months, and their product assortment tends to be limited to basic offerings. Human Capital Resources As of September 28, 2024, we employed approximately 3,850 employees.
Within the Leslie’s mobile app, consumers can review their prescription, order the products they need, and have them delivered right to their door or arrange for a same-day pick-up at their local Leslie’s location. We plan to introduce enhancements and expand the program.
Seamlessly within the Leslie’s mobile app, consumers can review their prescription, order the products they need, and have them delivered right to their door or arrange for a same-day pick-up at their local Leslie’s location.
Using the new, industry-leading AccuBlue Home ® connected device and the Leslie’s mobile app, program members can test all critical aspects of their water chemistry with ease and generate a custom treatment plan tailored to the specifications of their pool or spa.
Using the new, industry-leading AccuBlue Home ® connected device combined with the Leslie’s mobile app, program members can utilize commercial grade water testing in the convenience of their home and can test all critical aspects of their water chemistry with ease, generating a custom treatment plan tailored to the specifications of their pool or spa.
Our strategic vision and culture are directed by our executive leadership team under the leadership of our Chief Executive Officer, Michael R. Egeck, and our Chief Financial Officer, Scott Bowman.
Our strategic vision and culture are directed by our executive leadership team under the leadership of our Chief Executive Officer, Jason McDonell, and our Chief Financial Officer, Scott Bowman.
Sales and earnings are highest during our third and fourth fiscal quarters, being April through September, and represent the peak months of swimming pool use.
Sales and earnings are highest during our third and fourth fiscal quarters, which include April through September, and represent the peak months of swimming pool use. Sales are substantially lower during our first and second fiscal quarters.
This group generally employs a seasonal strategy, offering limited product assortment during select spring and summer months, does not offer services, and typically does not employ associates with the pool and spa care expertise; • Mass-Market Retailers . Includes larger, scaled players, such as Amazon, Walmart, and Costco.
This group generally employs a seasonal strategy, offering limited product assortment during select spring and summer months, does not offer services, and typically does not employ associates with the pool and spa care expertise; • Mass-Market, Club and Marketplace Retailers .
We plan to accelerate our acquisition of these potential new or reactivated consumers and, at the same time, manage consumer acquisition cost by shifting our marketing mix toward more efficient digital and social channels. • Capture outsized share of new pool and spa consumers.
We plan to pursue our acquisition of these potential new or reactivated consumers and, at the same time, manage consumer acquisition cost by shifting our marketing mix toward more efficient digital and social channels with increasing focus on advanced analytics and return-on-investment focused marketing spend. • Capture outsized share of new pool and spa consumers.
Our residential locations are supported by a team of associates, including pool and spa care experts and experienced service technicians, who are committed to decoding pool care for consumers and performing on-site installation and repair services. Our residential locations have service counters through which we also provide products and services to professional consumers. • Digital Network .
Our residential locations are supported by a team of associates, including pool and spa care experts and experienced service technicians, who are committed to educating and providing best-in-class pool care advice for consumers and performing on-site installation and repair services. • Digital Network .
Consumer-centric connected ecosystem for all pool and spa owners and the professionals who serve them using proprietary, leading brands across all channels. We have built the most extensive and geographically diverse pool and spa care network in the United States. Our locations are strategically located in densely populated areas mainly throughout the Sunbelt, including California, Arizona, Texas, and Florida.
We have built the most extensive and geographically diverse pool and spa care network in the United States. Our locations are strategically located in densely populated areas mainly throughout the Sunbelt, including California, Arizona, Texas, and Florida.
The remainder of the industry is highly fragmented across both offline and online providers. 2 Table of Contents Direct relationships with more than 12 million pool and spa owners and professionals, generating durable, annuity-like economics. We are the largest national pool and spa care brand with a direct relationship with pool and spa owners and the professionals who serve them.
The remainder of the industry is highly fragmented across both offline and online providers. Direct relationships with pool and spa owners and professionals, driving strong Company loyalty programs. We are the largest national pool and spa care brand with a direct relationship with pool and spa owners and the professionals who serve them.
We experience greater brick-and-mortar competition in the states with the largest installed pool bases, including California, Texas, Florida, and Arizona. While some of our competitors also market and sell online, there are various challenges to serving consumers in the aftermarket pool and spa care industry via e-commerce.
While some of our competitors also market and sell online, there are various challenges to serving consumers in the aftermarket pool and spa care industry via e-commerce.
Trademarks and Other Intellectual Property In the course of our business, we employ various trademarks, trade names and service marks, including Leslie’s ® , AccuBlue ® , AccuBlue Home ® , Pool Perks ® , and our logo, in packaging and advertising our products.
Note: None of our employees are covered by collective bargaining agreements. 9 Table of Contents Trademarks and Other Intellectual Property We employ various trademarks, trade names and service marks, including Leslie’s ® , AccuBlue ® , AccuBlue Home ® , Pool Perks ® , and our logo, in our product packaging and advertising our products.
Consumers receive the benefit of extended vendor warranties on products purchased through our locations and on on-site installations or repairs by our certified in-field technicians. We offer complimentary, commercial-grade in-store water testing and analysis via our proprietary AccuBlue ® system, which increases consumer engagement, conversion, basket size, and loyalty, resulting in higher lifetime value.
We offer complimentary, commercial-grade in-store water testing and analysis via our proprietary AccuBlue ® system, which increases consumer engagement, conversion, basket size, and loyalty, resulting in higher lifetime value.
We historically have had strong sales growth, demonstrating our ability to deliver strong financial results through all economic cycles. Our growth has been broad-based across residential pool, residential spa, and professional pool consumers and has been driven by strong retention and profitable acquisition of sticky, long-term consumer relationships.
Our growth has been broad-based across residential pool, residential spa, and professional pool consumers and has been driven by strong retention and profitable acquisition of sticky, long-term consumer relationships. Due to our scale, vertical integration, and operational excellence, we maintain a high ability to generate profitability.
Across our integrated platform, we have more than 12 million consumers who rely on us for their ongoing pool and spa care needs. Through our team of highly trained pool and spa experts, we offer sophisticated product recommendations and other expert advice, which cultivates long-standing relationships with our consumers.
Across our integrated platform, we have more than 12 million consumers who rely on us for their ongoing pool and spa care needs.
We believe that this initiative represents a natural adjacency and will resonate with existing residential consumers as well as help attract new residential consumers. 4 Table of Contents Utilize strategic M&A to consolidate share and further enhance capabilities. The aftermarket pool and spa industry is highly fragmented, which offers attractive opportunities to utilize strategic M&A to drive consolidation.
This website provides all of the online tools needed for professionals to serve their respective 5 Table of Contents communities and grow their pool care businesses. We believe that this initiative represents a natural adjacency and will resonate with existing residential consumers as well as help attract new residential consumers. Utilize strategic M&A to consolidate share and further enhance capabilities.
This group generally does not directly serve the end-consumer, but rather serves as an intermediary that supplies product to retailers as well as the professional channel. 7 Table of Contents Our competitors offer pool care products and services of varied quality and across a wide range of retail price points.
Includes large wholesalers, such as Heritage Pool Supply Group, owned by Home Depot, and Pool Corporation This group generally does not directly serve the end-consumer, but rather serves as an intermediary that supplies product to retailers as well as the professional channel.
As a result of our attractive financial profile, we have significant flexibility with respect to capital allocation, giving us the ability to drive long-term shareholder value through various operating, investing, and financial strategies. 3 Table of Contents Highly experienced and visionary leadership team that combines deep industry expertise and advanced direct-to-consumer capabilities.
Due to our low maintenance capital intensity, we maintain the ability to be flexible with investments and growth through the entire economic cycle. 4 Table of Contents Highly experienced and visionary leadership team that combines deep industry expertise and advanced direct-to-consumer capabilities.
We have historically used, and plan to continue to use, strategic acquisitions to obtain consumers and capabilities in both new and existing markets. We completed six acquisitions during fiscal 2022 and five acquisitions during fiscal 2023, and continue to look for opportunities that will strategically benefit our business.
We completed five acquisitions during fiscal 2023 and no acquisitions during fiscal 2024, but continued to build our pipeline of future opportunities. We expect to continue to look for opportunities that will strategically benefit our business and contribute to future growth.
The comprehensive nature of our product and service offering eliminates the need for consumers to leave the Leslie’s ecosystem, driving exceptional retention with annuity-like economics. We define “direct relationships” as the number of unique customers for whom we have a mailing address, a phone number, or an email address.
The comprehensive nature of our product and service offering eliminates the need for consumers to leave the Leslie’s ecosystem. Leslie’s loyalty program drives exceptional retention with a higher per transaction spend versus non-loyalty members.
We also employ the industry’s largest network of in-field technicians who perform on-site evaluations, installation, and repair services for residential consumers and professional pool operators. Attractive financial profile characterized by consistent, profitable growth, and strong cash flow conversion offering multiple levers to drive shareholder value.
In 2023, we introduced this same proprietary, commercial grade technology for consumers that can be done in the comfort and convenience of their own home with AccuBlue Home ® . We also employ the industry’s largest network of in-field technicians who perform on-site evaluations, installation, and repair services for residential consumers and professional pool operators.
Over the last three years, approximately 80% of our retail and corporate management openings have been filled by existing employees. We are also committed to developing and fostering a culture of diversity and inclusion and know that a company’s ultimate success is directly linked to its ability to identify and hire talented individuals from all backgrounds and perspectives.
We are also deeply committed to promoting a culture of diversity and inclusion, understanding that our success is intrinsically linked to our ability to recruit, develop, and support talented individuals from diverse backgrounds and perspectives.
We believe there is significant whitespace opportunity to operate more than 350 PRO locations, inclusive of new store openings and conversions, across the United States. We continue to assemble an affiliated network of qualified pool professionals through our PRO Partner program, extending the Leslie’s name into water maintenance.
We continue to assemble an affiliated network of qualified pool professionals through our PRO Partner program, further expanding the Leslie’s name into the professional channel. To better attract pool care professionals, we also have a dedicated Leslie’s PRO e-commerce website.
Of these employees, approximately 3,200 work in our physical network, approximately 250 work as in-field service technicians, approximately 360 work in our corporate office, and approximately 275 work in our distribution centers. We believe that we have good relations with our employees. None of our employees are currently covered under any collective bargaining agreements.
Of these, approximately 3,010 work within our physical network, 250 work as in-field service technicians, 340 work in our corporate office, and 250 work in our distribution centers. Our voluntary turnover rate over the past twelve months was 32%, with retail turnover at 36% and distribution center turnover at 16%.
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Due to the non-discretionary nature of our products and services, our business has historically delivered strong, growth and profitability in challenging market environments, including through the Great Recession and the COVID-19 pandemic. We have a legacy of leadership and disruptive innovation.
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Through our best-in-class proprietary water testing and backed by our team of highly trained pool and spa experts, we offer sophisticated product recommendations and other expert advice, which cultivates long-standing relationships with our consumers and 3 Table of Contents drives our leading loyalty programs, including Pool Perks ® , our retail loyalty program, as well as our PRO Partner loyalty program for service professionals.
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Due to our scale, vertical integration, and operational excellence, we maintain high profitability. Due to our low maintenance capital intensity, we generate strong cash flows.
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We define “direct relationships” as the number of unique customers for whom we have a mailing address, a phone number, or an email address, and many of which are loyalty members of Leslie’s. Consumer-centric connected ecosystem for all pool and spa owners and the professionals who serve them using proprietary, leading brands across all channels.
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To further benefit pool care professionals, we also have a dedicated Leslie’s PRO e-commerce website. This website provides all of the online tools needed for professionals to serve their respective communities and grow their pool care businesses.
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Historically attractive financial profile characterized by consistent, profitable growth, and strong cash flow conversion offering multiple levers to drive shareholder value. We historically have had strong sales growth, demonstrating our ability to deliver strong financial results through all economic cycles.
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We estimate the average in-ground pool owner spends $900 each year on the chemicals, equipment, parts, and accessories needed to maintain their pool. Neglecting pool maintenance is not a viable option, as it can result in equipment failure, structural damage, or other costly issues.
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The aftermarket pool and spa industry is highly fragmented, which offers attractive opportunities to utilize strategic M&A to drive consolidation. We have historically used, and plan to continue to use, strategic acquisitions to obtain consumers and capabilities in both new and existing markets.
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Sales are substantially lower during our first and second fiscal quarters when we typically generate net losses and we realized negative operating cash flows. 5 Table of Contents Our Consumers We strategically serve all consumers within the aftermarket pool and spa care industry including Residential Pool, Residential Spa, and Professional Pool consumers. • Residential Pool .
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Increasing our customer file and growing our loyalty membership should also have a positive effect on our growth from a fixed installed base which is not dependent on new pool construction. Seasonality Our business is highly seasonal.
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We consider our employees to be the foundation for our growth and success. As such, our future success depends in large part on our ability to attract, train, retain, and motivate qualified personnel. The growth and development of our workforce is an integral part of our success. We place a priority on promoting from within.
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We have a long track record of investing in our business throughout the year, including in operating expenses, working capital, and capital expenditures related to new locations and other growth initiatives.
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While these investments drive performance during the 6 Table of Contents primary selling season in our third and fourth fiscal quarters, they have a negative impact on our earnings and cash flow during our first and second quarters.
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We typically experience a build-up of inventory and accounts payable during the first and second fiscal quarters in anticipation of the peak swimming pool supply selling season. We negotiate extended payment terms with certain of our primary suppliers as we receive merchandise in December through March, and we pay for merchandise in April through July.
Added
The principal external factor affecting our business is weather. Hot weather can increase purchases of chemicals and other non-discretionary products as well as purchases of discretionary products and can drive increased purchases of installation and repair services.
Added
Unseasonably cool weather or significant amounts of rainfall during the peak pool sales season can reduce chemical consumption in pools and spas and decrease consumer purchases of our products and services.
Added
In addition, unseasonably early or late warming trends can increase or decrease the length of the pool season and impact time around pool openings and closings, and therefore, our total sales and timing of our sales. We generally open new locations before our peak selling season begins and close locations after our peak selling season ends.
Added
We expect that our quarterly results of operations will fluctuate depending on the timing and amount of sales contributed by new locations. Our Consumers We strategically serve all consumers within the aftermarket pool and spa care industry including Residential Pool, Residential Spa, and Professional Pool consumers. • Residential Pool .
Added
The marketplace retailers sell a wide range of pool supplies under a number of brands that are available for sale year-round, however they do not offer services or pool and spa care expertise; and • Wholesale Distributors .
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Our competitors offer pool care products and services of varied quality and across a wide range of retail price points. We experience greater brick-and-mortar competition in the states with the largest installed pool bases, including California, Texas, Florida, and Arizona.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

69 edited+6 added−15 removed173 unchanged
Biggest changeDuring fiscal 2023, we completed remediation measures related to the material weakness associated with our ITGCs and concluded the corresponding ITGCs were operating effectively as of September 30, 2023. 25 Table of Contents In connection with our year-end assessment of internal control over financial reporting as part of this Annual Report on Form 10-K, we determined that, as of September 30, 2023, we did not maintain effective internal control over financial reporting because of material weaknesses related to the design and/or operation of controls that were not performed at a sufficient level of precision with respect to (i) the performance of physical inventories and the validation of data utilized in inventory costing for a subset of our inventory and (ii) the accounting for vendor rebates receivable and related income earned and recognized.
Biggest changeIn connection with our year-end assessment of internal control over financial reporting as part of this Annual Report on Form 10-K as of September 28, 2024, we did not maintain effective internal control over financial reporting because of material weaknesses related to the design and/or operation of controls that were not performed at a sufficient level of precision with respect to (i) the performance of physical inventories for a subset of our inventory, the validation of data utilized in inventory costing and reserves, the capitalization adjustment of price variances to reasonably approximate costs, and appropriate cutoff and (ii) the accounting for completeness and accuracy of the rights and obligations related to vendor agreements, including the earning of rebates receivable and related income recognized.
Risks Related to Our Indebtedness • Our substantial indebtedness could materially adversely affect our financial condition and our ability to operate our business. • Our ability to generate sufficient cash depends on numerous factors beyond our control, and we may be unable to generate sufficient cash flow to service our debt obligations. • Restrictive covenants in the agreements governing our Credit Facilities may restrict our ability to pursue our business strategies, and failure to comply with these restrictions could result in acceleration of our debt. • Incurrence of substantially more debt could further exacerbate the risks associated with our substantial leverage.
Risks Related to Our Indebtedness • Our substantial indebtedness could materially adversely affect our financial condition and our ability to operate our business. • Our ability to generate sufficient cash depends on numerous factors beyond our control, and we may be unable to generate sufficient cash flow to service our debt obligations. • Restrictive covenants in the agreements governing our Credit Facilities may restrict our ability to pursue our business strategies, and failure to comply with these restrictions could result in acceleration of our debt obligations. • Incurrence of substantially more debt could further exacerbate the risks associated with our substantial leverage.
Risks Related to the Nature of Our Business Our success depends on our ability to maintain or increase comparable sales, and if we are unable to achieve comparable sales growth, our profitability and performance could be materially adversely impacted. Our success depends on increasing comparable sales through our merchandising strategy and ability to increase sales and profits.
Risks Related to the Nature of Our Business Our success depends on our ability to maintain or increase comparable sales, and if we are unable to achieve comparable sales growth, our profitability and performance could be materially adversely impacted. Our success depends on increasing comparable sales through our merchandising strategy and on our ability to increase sales and profits.
Risks Related to Government Regulation The nature of our business subjects us to compliance with employment, environmental, health, transportation, safety, and other governmental regulations.
Risks Related to Government Regulation The nature of our business subjects us to compliance with employment, environmental, health, transportation, safety, and other governmental regulations.
These factors may cause our comparable sales results to be materially lower than in recent periods, which could harm our profitability and business. Past growth may not be indicative of future growth. Historically, we have experienced substantial sales growth through organic market share gains, new location openings, and acquisitions that have increased our size, scope, and geographic footprint.
These factors may cause our comparable sales results to be materially lower than in recent periods, which could harm our profitability and business. Past growth may not be indicative of future growth. Historically, we have experienced sales growth through organic market share gains, new location openings, and acquisitions that have increased our size, scope, and geographic footprint.
Risks Related to Ownership of Our Common Stock • Our stock price may be volatile, resulting in substantial losses for investors. • An active trading market for our common stock may not be sustained. 10 Table of Contents • Future sales of common stock by existing stockholders could cause our stock price to decline. • Transactions engaged in by our principal stockholders, our officers or directors involving our common stock may have an adverse effect on the price of our stock. • We do not intend to pay dividends for the foreseeable future. • Anti-takeover provisions in our charter documents and under Delaware law could limit certain stockholder actions. • Certain provisions of our sixth amended and restated certificate of incorporation may have the effect of discouraging lawsuits against our directors and officers. • We will continue to incur increased costs as a result of being a public company. • We have identified material weaknesses in our internal control over financial reporting.
Risks Related to Ownership of Our Common Stock • Our stock price may be volatile, resulting in substantial losses for investors. • An active trading market for our common stock may not be sustained. • Future sales of common stock by existing stockholders could cause our stock price to decline. 12 Table of Contents • Transactions engaged in by our principal stockholders, our officers or directors involving our common stock may have an adverse effect on the price of our stock. • We do not intend to pay dividends for the foreseeable future. • Anti-takeover provisions in our charter documents and under Delaware law could limit certain stockholder actions. • Certain provisions of our sixth amended and restated certificate of incorporation may have the effect of discouraging lawsuits against our directors and officers. • We will continue to incur increased costs as a result of being a public company. • We have identified material weaknesses in our internal control over financial reporting.
The market price of our common stock may fluctuate significantly in response to numerous factors, many of which are beyond our control, including: • actual or anticipated fluctuations in our results of operations; • the financial projections we may provide to the public, any changes in these projections, or our failure to meet these projections; • failure of securities analysts to initiate or maintain coverage of us, changes in financial estimates or ratings or negative reports by any securities analysts who follow us or our failure to meet these estimates or the expectations of investors; • announcements by us or our competitors of significant technical innovations, acquisitions, strategic partnerships, joint ventures, results of operations, or capital commitments; 22 Table of Contents • changes in operating performance and stock market valuations of other retail companies generally, or those in our industry in particular; • price and volume fluctuations in the overall stock market, including as a result of trends in the economy as a whole; • changes in our board of directors or management; • sales of large blocks of our common stock, including sales by our executive officers or directors; • lawsuits threatened or filed against us; • changes in laws or regulations applicable to our business; • changes in our capital structure, such as future issuances of debt or equity securities; • short sales, hedging, and other derivative transactions involving our capital stock; • the inability to execute on our share repurchase program as planned, including failure to meet internal or external expectations around the timing or price of share repurchases, and any reductions or discontinuances of repurchases thereunder; • our performance with respect to ESG and other issues impacting our reputation; • general economic conditions in the United States, including rising interest rates, inflationary pressures, and recession fears (including as a result of recent liquidity and financial stability concerns with respect to banks and financial institutions); • other events or factors, including those resulting from war, incidents of terrorism, pandemics, or other public health emergencies or responses to these events; and • other factors described in this section and “Cautionary Note Regarding Forward-Looking Statements.” An active trading market for our common stock may not be sustained.
The market price of our common stock may fluctuate significantly in response to numerous factors, many of which are beyond our control, including: • actual or anticipated fluctuations in our results of operations; • the financial projections we may provide to the public, any changes in these projections, or our failure to meet these projections; • failure of securities analysts to initiate or maintain coverage of us, changes in financial estimates or ratings or negative reports by any securities analysts who follow us or our failure to meet these estimates or the expectations of investors; • announcements by us or our competitors of significant technical innovations, acquisitions, strategic partnerships, joint ventures, results of operations, or capital commitments; • changes in operating performance and stock market valuations of other retail companies generally, or those in our industry in particular; • price and volume fluctuations in the overall stock market, including as a result of trends in the economy as a whole; • changes in our board of directors or management; • sales of large blocks of our common stock, including sales by our executive officers or directors; • lawsuits threatened or filed against us; • changes in laws or regulations applicable to our business; • changes in our capital structure, such as future issuances of debt or equity securities; • short sales, hedging, and other derivative transactions involving our capital stock; • the inability to execute on our share repurchase program as planned, including failure to meet internal or external expectations around the timing or price of share repurchases, and any reductions or discontinuances of repurchases thereunder; 24 Table of Contents • our performance with respect to ESG and other issues impacting our reputation; • general economic conditions in the United States, including high interest rates, inflationary pressures, and recession fears (including as a result of recent liquidity and financial stability concerns with respect to banks and financial institutions); • other events or factors, including those resulting from war, incidents of terrorism, pandemics, or other public health emergencies or responses to these events; and • other factors described in this section and “Cautionary Note Regarding Forward-Looking Statements.” An active trading market for our common stock may not be sustained.
Additionally, macroeconomic and geopolitical developments, including public health crises, escalating global conflicts, supply chain disruptions, labor market constraints, rising rates of inflation and rising interest rates may amplify many of the risks discussed below to which we are subject.
Additionally, macroeconomic and geopolitical developments, including public health crises, escalating global conflicts, supply chain disruptions, labor market constraints, rising rates of inflation and high interest rates may amplify many of the risks discussed below to which we are subject.
The potential for natural or man-made disasters or extreme weather, geopolitical events and conflicts, labor or trade disputes, macroeconomic crises, and similar events could create these types of uncertainties and negatively impact our business for the short- or long-term in ways that cannot presently be predicted. 12 Table of Contents Risks Related to Our Industry and the Broader Economy We face competition by manufacturers, retailers, distributors, and service providers in the residential and professional pool and spa care market.
The potential for natural or man-made disasters or extreme weather, geopolitical events and conflicts, labor or trade disputes, macroeconomic crises, and similar events could create these types of uncertainties and negatively impact our business for the short- or long-term in ways that cannot presently be predicted. 14 Table of Contents Risks Related to Our Industry and the Broader Economy We face competition by manufacturers, retailers, distributors, and service providers in the residential and professional pool and spa care market.
Technology and Privacy Related Risks • If our online systems do not function effectively, our operating results could be adversely affected. • Any limitation or restriction to sell on online platforms could harm our profitability. 9 Table of Contents • A significant disturbance or breach of our technological infrastructure could adversely affect our financial condition and results of operations. • Improper activities by third parties and other events or developments may result in future intrusions into or compromise of our networks, payment card terminals, or other payment systems .
Technology and Privacy Related Risks • If our online systems do not function effectively, our operating results could be adversely affected. • Any limitation or restriction to sell on online platforms could harm our profitability. • A significant disturbance or breach of our technological infrastructure could adversely affect our financial condition and results of operations. 11 Table of Contents • Improper activities by third parties and other events or developments may result in future intrusions into or compromise of our networks, payment card terminals, or other payment systems .
As a result, these provisions may adversely affect the market price and market for our common stock if they are viewed as limiting the liquidity of our stock or as discouraging takeover attempts in the future. 24 Table of Contents The provision of our sixth amended and restated certificate of incorporation, requiring exclusive forum in certain courts in the State of Delaware or the federal district court for the District of Delaware for certain types of lawsuits, may have the effect of discouraging lawsuits against our directors and officers.
As a result, these provisions may adversely affect the market price and market for our common stock if they are viewed as limiting the liquidity of our stock or as discouraging takeover attempts in the future. 26 Table of Contents The provision of our sixth amended and restated certificate of incorporation, requiring exclusive forum in certain courts in the State of Delaware or the federal district court for the District of Delaware for certain types of lawsuits, may have the effect of discouraging lawsuits against our directors and officers.
Risks Related to Our Industry and the Broader Economy • We face competition by manufacturers, retailers, distributors, and service providers in the residential and professional pool and spa care market. • The demand for our swimming pool and spa related products and services may be adversely affected by unfavorable economic conditions. • The COVID-19 pandemic could adversely impact our business and results of operations. • The demand for pool chemicals may be affected by consumer attitudes towards products for environmental or safety reasons. • Our results of operations may fluctuate from quarter to quarter for many reasons, including seasonality. • Adverse developments affecting the financial services industry, such as actual events or concerns involving liquidity, defaults, or non-performance by financial institutions or transactional counterparties, could adversely affect our current and projected business operations and our financial condition and results of operations. • We maintain our cash at financial institutions in balances that may exceed federally insured limits. • We are susceptible to adverse weather conditions.
Risks Related to Our Industry and the Broader Economy • We face competition by manufacturers, retailers, distributors, and service providers in the residential and professional pool and spa care market. • The demand for our swimming pool and spa related products and services may be adversely affected by unfavorable economic conditions. • The demand for pool chemicals may be affected by consumer attitudes towards products for environmental or safety reasons. • Our results of operations may fluctuate from quarter to quarter for many reasons, including seasonality. • Adverse developments affecting the financial services industry, such as actual events or concerns involving liquidity, defaults, or non-performance by financial institutions or transactional counterparties, could adversely affect our current and projected business operations and our financial condition and results of operations. • We maintain our cash at financial institutions in balances that may exceed federally insured limits. • We are susceptible to adverse weather conditions.
These states encompass our largest markets and entry of significant new competitors into them could have a substantial impact on our total sales. The demand for our swimming pool and spa related products and services may be adversely affected by unfavorable economic conditions.
These states encompass our largest markets and entry of significant new competitors into them could have a substantial impact on our total sales. The demand for our swimming pool and spa related products and services can be adversely affected by unfavorable economic conditions.
Consumer discretionary spending affects our sales and is impacted by factors outside of our control, including general economic conditions, the residential housing market, unemployment rates and wage levels, rising interest rates, inflation, disposable income levels, consumer confidence, recession fears, and access to credit.
Consumer discretionary spending affects our sales and is impacted by factors outside of our control, including general economic conditions, the residential housing market, unemployment rates and wage levels, high interest rates, inflation, disposable income levels, consumer confidence, recession fears, and access to credit.
Our results of operations may fluctuate from quarter to quarter for many reasons, including seasonality. Our sales are highly seasonal and we experience fluctuations in quarterly results as a result of many factors, many of which are outside of our control and/or difficult to predict.
Our results of operations can fluctuate from quarter to quarter for many reasons, including seasonality. Our sales are highly seasonal and we experience fluctuations in quarterly results as a result of many factors, many of which are outside of our control and/or difficult to predict.
Such agreements limit our ability, among other things, to: • incur additional debt or issue certain preferred shares; • pay dividends on or make distributions in respect of our common stock or make other restricted payments; • make certain investments; • sell certain assets; • create liens; • consolidate, merge, sell, or otherwise dispose of our assets; • make certain payments in respect of certain debt obligations; • enter into certain transactions with our affiliates; and • designate our subsidiaries as unrestricted subsidiaries.
Such agreements limit our ability, among other things, to: • incur additional debt or issue certain preferred shares; • pay dividends on or make distributions in respect of our common stock or make other restricted payments; • make certain investments; • sell certain assets; • create liens; • consolidate, merge, sell, or otherwise dispose of our assets; • make certain payments in respect of certain debt obligations; 23 Table of Contents • enter into certain transactions with our affiliates; and • designate our subsidiaries as unrestricted subsidiaries.
Our comparable sales growth could be lower than our historical average or our future target for many reasons, including general economic conditions, operational performance, price inflation or deflation, rising interest rates, recession fears, industry competition, new competitive entrants near our locations, price changes in response to competitive factors, the impact of new locations entering the comparable base, cycling against any year or quarter of above-average sales results, unfavorable weather conditions, supply shortages or other operational disruptions, the number and dollar amount of consumer transactions in our locations, our ability to provide product or service offerings that generate new and repeat visits to our locations, and the level of consumer engagement that we provide in our locations.
Our comparable sales growth could be, and been in the past, lower than our historical average or our target for many reasons, including general economic conditions, operational performance, price inflation or deflation, high interest rates, recession fears, industry competition, new competitive entrants near our locations, price changes in response to competitive factors, the impact of new locations entering the comparable base, cycling against any year or quarter of above-average sales results, unfavorable weather conditions, supply shortages or other operational disruptions, the number and dollar amount of consumer transactions in our locations, our ability to provide product or service offerings that generate new and repeat visits to our locations, and the level of consumer engagement that we provide in our locations.
Failure to do so can harm our profitability and long-term growth prospects. 18 Table of Contents Any significant interruption to the operations of our distribution centers could affect our ability to distribute our products in a timely manner, which could adversely impact our business and financial condition.
Failure to do so can harm our profitability and long-term growth prospects. Any significant interruption to the operations of our distribution centers could affect our ability to distribute our products in a timely manner, which could adversely impact our business and financial condition.
Notwithstanding our internal training curriculum and compliance programs, we cannot guarantee that our employees will follow the applicable operating procedures and regulations, or that no accidents or incidents will arise that could expose us to liability and have a negative impact on our operations and results. 17 Table of Contents Product supply disruptions may have an adverse effect on our profitability and operating results.
Notwithstanding our internal training curriculum and compliance programs, we cannot guarantee that our employees will follow the applicable operating procedures and regulations, or that no accidents or incidents will arise that could expose us to liability and have a negative impact on our operations and results. Product supply disruptions may have an adverse effect on our profitability and operating results.
Our inability to successfully remediate our existing or any future material weaknesses or other deficiencies in our internal control over financial reporting or any failure to implement required new or improved controls, or difficulties encountered in the implementation or operation of these controls, could harm our operating results and cause us to fail to meet our financial reporting obligations or result in material misstatements in our financial statements, which could limit our liquidity and access to capital markets, adversely affect our business and investor confidence in us, and reduce our stock price. 26 Table of Contents Item 1B.
Our inability to successfully remediate our existing or any future material weaknesses or other deficiencies in our internal control over financial reporting or any failure to implement required new or improved controls, or difficulties encountered in the implementation or operation of these controls, could harm our operating results and cause us to fail to meet our financial reporting obligations or result in material misstatements in our financial statements, which could limit our liquidity and access to capital markets, adversely affect our business and investor confidence in us, and reduce our stock price. 28 Table of Contents Item 1B Unresolved Staff Comments None.
Risks Related to Our Business Strategy • We may acquire other companies or technologies, which could fail to result in a commercial product and otherwise disrupt our business. • Our operating results will be harmed if we are unable to effectively manage and sustain our future growth or scale our operations. • Our aspirations and disclosures related to environmental, social, and governance (“ESG”) matters expose us to risks that could adversely affect our reputation and performance.
Risks Related to Our Business Strategy • We may acquire other companies or technologies, which could fail to result in a commercial product and otherwise disrupt our business. • Our operating results will be harmed if we are unable to effectively manage and sustain our future growth or scale our operations. • Our aspirations and disclosures related to ESG matters expose us to risks that could adversely affect our reputation and performance.
As of November 20, 2023, our total borrowings under our Amended and Restated Term Loan Credit Agreement (the “Term Loan”) and our credit facility, as amended from time-to-time, among Leslie’s Poolmart, Inc., the subsidiary borrowers, Leslie’s, Inc., each lender party thereto, Bank of America, N.A., as Administrative Agent, and U.S.
As of November 26, 2024, our total borrowings under our Amended and Restated Term Loan Credit Agreement (the “Term Loan”) and our credit facility, as amended from time-to-time, among Leslie’s Poolmart, Inc., the subsidiary borrowers, Leslie’s, Inc., each lender party thereto, Bank of America, N.A., as Administrative Agent, and U.S.
As a result, management believes that period-to-period comparisons of results of operations are not necessarily meaningful and should not be relied upon as any indication of future performance or results.
As a result, management believes that period-to-period comparisons of results of operations are not necessarily 15 Table of Contents meaningful and should not be relied upon as any indication of future performance or results.
In addition, unseasonably early or late warming trends can increase or decrease the length of the pool season and impact timing around pool openings and closings and, therefore, our total sales and timing of our sales.
In addition, unseasonably early or late warming trends have in the past and can in the future increase or decrease the length of the pool season and impact timing around pool openings and closings and, therefore, our total sales and timing of our sales.
We intend to remediate these material weaknesses, but we cannot be certain as to when remediation will be complete. Further, remediation efforts may place a significant burden on management and add increased pressure to our financial and IT resources and processes.
We intend to remediate these material weaknesses, but we cannot be certain as to when remediation will be complete. Further, remediation efforts may place a significant burden on management and add increased pressure to our financial and 27 Table of Contents IT resources and processes.
These suppliers (and those they depend upon for materials and services) are subject to risks, including from natural or man-made disasters or extreme weather (including as a result of climate change), public health and safety issues, geopolitical events and conflicts (including terrorist attacks and armed hostilities), power outages, labor or trade disputes, union organizing activities, financial liquidity problems, and similar events, as well as supply constraints and general economic, social, and political conditions that can limit their ability to provide us (or our suppliers) with quality products and services in a timely manner.
These suppliers (and those they depend upon for materials and services) are subject to risks, including from natural or man-made disasters or extreme weather (including as a result of climate change), public health and safety issues, geopolitical events and conflicts (including terrorist attacks and armed hostilities), power outages, labor or trade disputes, union organizing activities, disruption to transportation routes, changes in tariffs or duties imposed on imported products or raw materials, financial liquidity problems, and similar events, as well as supply constraints and general economic, social, and political conditions that can limit their ability to provide us (or our suppliers) with quality products and services in a timely manner.
While we contemplate continued growth through internal expansion and acquisitions, we may not be able to: • acquire new consumers, retain existing consumers, and grow our share of the market; • penetrate new markets; • provide a relevant omni-channel experience to rapidly evolving consumer expectations through our proprietary mobile app and e-commerce websites; • generate sufficient cash flows or obtain sufficient financing to support expansion plans and general operating activities; • identify suitable acquisition candidates and successfully integrate acquired businesses; • maintain favorable supplier arrangements and relationships; and • identify and divest assets that do not continue to create value consistent with our objectives. 11 Table of Contents If we do not manage these factors successfully, our operating results could be adversely affected.
While we contemplate continued growth through internal expansion and acquisitions, we may not be able to: • acquire new consumers, retain existing consumers, and grow our share of the market; • penetrate new markets; • provide a relevant omni-channel experience to rapidly evolving consumer expectations through our proprietary mobile app and e-commerce websites; • generate sufficient cash flows or obtain sufficient financing to support expansion plans and general operating activities; • identify suitable acquisition candidates and successfully integrate acquired businesses; • maintain favorable supplier arrangements and relationships; and • identify and divest assets that do not continue to create value consistent with our objectives.
Any material loss or delayed receipt of cash that we may experience in the future could have an adverse effect on our ability to pay our operational expenses or make other payments and may require us to move our accounts to other banks, which could cause a temporary delay in making payments to our suppliers, vendors, and employees, and cause other operational challenges. 14 Table of Contents We are susceptible to adverse weather conditions.
Any material loss or delayed receipt of cash that we may experience in the future could have an adverse effect on our ability to pay our operational expenses or make other payments and may require us to move our accounts to other banks, which could cause a temporary delay in making payments to our suppliers, vendors, and employees, and cause other operational challenges.
Such weaknesses led to a determination that our internal control over financial reporting and disclosure controls and procedures were not effective as of September 30, 2023.
Such weaknesses led to a determination that our internal control over financial reporting and disclosure controls and procedures were not effective as of September 28, 2024.
We have generally passed through chlorine price increases to our consumers. The price of granular chlorine compounds may increase in the future and we may not be able to pass on any such increase to our consumers. We purchase granular chlorine compounds primarily from the nation’s largest suppliers.
The price of granular chlorine compounds may increase in the future and we may not be able to pass on any such increase to our consumers. We purchase granular chlorine compounds primarily from the nation’s largest suppliers.
Future sales of common stock by existing stockholders could cause our stock price to decline. If our existing stockholders sell, or indicate an intention to sell, substantial amounts of our common stock in the public market the trading price of our common stock could be adversely impacted. As of November 20, 2023, we had 184,333,670 shares of common stock outstanding.
Future sales of common stock by existing stockholders could cause our stock price to decline. If our existing stockholders sell, or indicate an intention to sell, substantial amounts of our common stock in the public market the trading price of our common stock could be adversely impacted. As of November 26, 2024, we had 184,969,296 shares of common stock outstanding.
At times, we may be unable to manage our inventory efficiently, keep inventory within expected budget goals, keep our work-in-process inventory on hand or manage it efficiently, control expired product, or keep sufficient product on hand to meet demand. We may not be able to keep inventory costs within our target levels.
We have in the past and may in the future be unable to manage our inventory efficiently, keep inventory within expected budget goals, keep our work-in-process inventory on hand or manage it efficiently, control expired product, or keep sufficient product on hand to meet demand. We may not be able to keep inventory costs within our target levels.
These sales will be publicly disclosed in filings made with the SEC. In the future, our directors and executive officers may sell a significant number of shares for a variety of reasons unrelated to the performance of our business.
From time-to-time, our directors and executive officers may sell shares of our common stock on the open market. These sales will be publicly disclosed in filings made with the SEC. In the future, our directors and executive officers may sell a significant number of shares for a variety of reasons unrelated to the performance of our business.
Product and service quality issues could negatively impact consumer confidence in our brands and our business. If our product and service offerings do not meet applicable safety standards or our consumers’ expectations regarding safety or quality, we could experience lost sales and increased costs and be exposed to legal, financial, and reputational risks, as well as governmental enforcement actions.
If our product and service offerings do not meet applicable safety standards or our consumers’ expectations regarding safety or quality, we could experience lost sales and increased costs and be exposed to legal, financial, and reputational risks, as well as governmental enforcement actions.
Patent infringement lawsuits can take years to settle. If we are not successful in our defense of or are not successful in obtaining dismissals of any such lawsuit, legal fees or settlement costs could have a material adverse effect on our results of operations and financial position.
If we are not successful in our defense of or are not successful in obtaining dismissals of any such lawsuit, legal fees or settlement costs could have a material adverse effect on our results of operations and financial position.
Bank National Association, as Co-Collateral Agent (the “Revolving Credit Facility,” together, the “Credit Facilities”) was $789.8 million. Subject to restrictions in the agreements governing our debt, we may incur additional debt.
Bank 22 Table of Contents National Association, as Co-Collateral Agent (the “Revolving Credit Facility,” together, the “Credit Facilities”) was $781.7 million. Subject to restrictions in the agreements governing our debt, we may incur additional debt.
We may not be able to successfully manage our inventory to match consumer demand, which could have a material adverse effect on our business, financial condition, and results of operations. We base our inventory purchases, in part, on our sales forecasts.
If we do not manage these factors successfully, our operating results could be adversely affected. 13 Table of Contents We may not be able to successfully manage our inventory to match consumer demand, which could have a material adverse effect on our business, financial condition, and results of operations. We base our inventory purchases, in part, on our sales forecasts.
Although we did not have any cash or cash equivalent balances on deposit with Silicon Valley Bank or Signature Bank, investor concerns regarding the U.S. or international financial systems could result in less favorable commercial financing terms, including higher interest rates or costs and tighter financial and operating covenants, or systemic limitations on access to credit and liquidity sources, thereby making it more difficult for us to acquire financing on acceptable terms or at all.
Investor concerns regarding the U.S. or international financial systems could result in less favorable commercial financing terms, including higher interest rates or costs and tighter financial and operating covenants, or systemic limitations on access to credit and liquidity sources, thereby making it more difficult for us to acquire financing on acceptable terms or at all.
Work stoppages, labor shortages, operations below historical efficiency levels, supply chain disruptions, inclement weather, or other unforeseen events in the areas or regions in which these distribution centers operate could impair our ability to adequately stock our stores, ship products to our e-commerce customers, process returns of products, and may adversely affect our sales and profitability.
Work stoppages, labor shortages, operations below historical efficiency levels, supply chain disruptions, inclement weather, or other unforeseen events in the areas or regions in which these distribution centers operate could impair our ability to adequately stock our stores, ship products to our e-commerce customers, process returns of products, and may adversely affect our sales and profitability. 20 Table of Contents If we do not continue to obtain favorable purchase terms with manufacturers, it could adversely affect our operating results.
In addition, actual or anticipated downward pressure on our stock price due to actual or anticipated sales of stock by our directors or officers could cause other institutions or individuals to engage in short sales of our common stock, which may further cause the price of our stock to decline. 23 Table of Contents From time-to-time, our directors and executive officers may sell shares of our common stock on the open market.
In addition, actual or anticipated downward pressure on our stock price due to actual or anticipated sales of stock by our directors or officers could cause other institutions or individuals to engage in short sales of our common stock, which may further cause the price of our stock to decline.
In addition, we sell algaecides and related products that are regulated under the Federal Insecticide, Fungicide and Rodenticide Act, and various state pesticide laws.
In addition, we sell algaecides and related products that are regulated under the Federal Insecticide, Fungicide and Rodenticide Act, and various state pesticide laws. These laws primarily relate to labeling, annual registration, and licensing.
These laws primarily relate to labeling, annual registration, and licensing. 19 Table of Contents Compliance with new and proposed ESG disclosure requirements, including the climate change disclosure requirements of the SEC and the State of California, could require significant effort and divert management’s attention and resources, which could adversely affect our operating results.
Compliance with new and proposed ESG disclosure requirements, including the climate change disclosure requirements of the SEC and the State of California, could require significant effort and divert management’s attention and resources, which could adversely affect our operating results.
In addition, the terms of our existing or future debt agreements may restrict us from pursuing any of these alternatives. 21 Table of Contents Restrictive covenants in the agreements governing our Credit Facilities may restrict our ability to pursue our business strategies, and failure to comply with any of these restrictions could result in acceleration of our debt.
Restrictive covenants in the agreements governing our Credit Facilities may restrict our ability to pursue our business strategies, and failure to comply with any of these restrictions could result in acceleration of our debt.
Given the nature of our business, weather is one of the principal external factors affecting our business. Unseasonably cool weather or significant amounts of rainfall during the peak sales season can reduce chemical consumption in pools and spas and decrease consumer purchases of our products and services.
Unseasonably cool weather or significant amounts of rainfall during the peak sales season have in the past and can in the future reduce chemical consumption in pools and spas and decrease consumer purchases of our products and services.
We may not be able to effect any of these actions on a timely basis, on commercially reasonable terms or at all, and these actions may not be sufficient to meet our capital requirements.
We may not be able to effect any of these actions on a timely basis, on commercially reasonable terms or at all, and these actions may not be sufficient to meet our capital requirements. In addition, the terms of our existing or future debt agreements may restrict us from pursuing any of these alternatives.
The demand for pool chemicals may be affected by consumer attitudes towards products for environmental or safety reasons. We could be adversely affected if consumers lose confidence in the safety and quality of our products.
Tightening consumer credit could prevent consumers from obtaining financing for pool and spa projects, which could negatively impact our sales of products and services. The demand for pool chemicals may be affected by consumer attitudes towards products for environmental or safety reasons. We could be adversely affected if consumers lose confidence in the safety and quality of our products.
Our ability to achieve any ESG objective is subject to numerous risks, many of which are outside of our control. Additionally, standards for tracking and reporting ESG matters continue to evolve. Our selection of voluntary disclosure frameworks and standards, and the interpretation or application of those frameworks and standards, may change from time-to-time or differ from those of others.
Additionally, standards for tracking and reporting ESG matters continue to evolve. Our selection of voluntary disclosure frameworks and standards, and the interpretation or application of those frameworks and standards, may change from time-to-time or differ from those of others.
Product quality, warranty claims, or safety concerns could negatively impact our sales and expose us to litigation. We rely on manufacturers and other suppliers to provide us with the products we sell. As we increase the number of branded products we sell, our exposure to potential liability claims may increase.
We rely on manufacturers and other suppliers to provide us with the products we sell. As we increase the number of branded products we sell, our exposure to potential liability claims may increase. Product and service quality issues could negatively impact consumer confidence in our brands and our business.
Our failure to accomplish or accurately track and report on these goals on a timely basis, or at all, could adversely affect our reputation, financial performance, and growth, and expose us to increased scrutiny from the investment community as well as enforcement authorities.
Our failure to accomplish or accurately track and report on these goals on a timely basis, or at all, could adversely affect our reputation, financial performance, and growth, and expose us to increased scrutiny from the investment community as well as enforcement authorities. 18 Table of Contents Our ability to achieve any ESG objective is subject to numerous risks, many of which are outside of our control.
Although we presently do not expect to incur any capital or other expenditures relating to regulatory matters in amounts that may be material to us, we may be required to make such expenditures in the future. These laws and regulations have changed substantially and rapidly in recent years, and we anticipate that there will be continuing changes.
Although we presently do not expect to incur any capital or other expenditures relating to regulatory matters in amounts that may be material to us, we may be required to make such expenditures in the future.
Anti-takeover provisions in our charter documents and under Delaware law could make an acquisition of us more difficult, limit attempts by our stockholders to replace or remove our current management, and limit the market price of our common stock.
As a result, stockholders must rely on sales of their common stock after price appreciation as the only way to realize any future gains on their investment. 25 Table of Contents Anti-takeover provisions in our charter documents and under Delaware law could make an acquisition of us more difficult, limit attempts by our stockholders to replace or remove our current management, and limit the market price of our common stock.
If we do not continue to obtain favorable purchase terms with manufacturers, it could adversely affect our operating results. Most raw materials and those products not repackaged by us are purchased directly from manufacturers. It is common in the swimming pool supply industry for certain manufacturers to offer extended payment terms on certain products to quantity purchasers such as us.
Most raw materials and those products not repackaged by us are purchased directly from manufacturers. It is common in the swimming pool supply industry for certain manufacturers to offer extended payment terms on certain products to quantity purchasers such as us. These payment terms typically include favorable pricing and are available to us for pre-season or early season purchases.
These payment terms typically include favorable pricing and are available to us for pre-season or early season purchases. If we do not continue to maintain such favorable purchase terms with manufacturers, it could adversely affect our operating results. We depend on a network of suppliers to source our products, including our own branded products.
If we do not continue to maintain such favorable purchase terms with manufacturers, it could adversely affect our operating results. We depend on a network of suppliers to source our products, including our own branded products. Product quality, warranty claims, or safety concerns could negatively impact our sales and expose us to litigation.
We estimate our exposure to these legal proceedings and establish reserves for the probable and reasonably estimated liabilities. Assessing and predicting the outcome of these matters involves substantial uncertainties. Although not currently anticipated by management, unexpected outcomes in these legal proceedings or changes in management’s forecast assumptions or predictions could have a material adverse impact on our results of operations.
Although not currently anticipated by management, unexpected outcomes in these legal proceedings or changes in management’s forecast assumptions or predictions could have a material adverse impact on our results of operations.
Exposure to various types of cyberattacks such as malware, computer viruses, worms, social engineering attacks, or other malicious acts, as well as human error and technological malfunction, could also potentially disrupt our operations or result in a significant interruption in the delivery of our goods and services. 15 Table of Contents We also may experience occasional system interruptions and delays, as a result of routine maintenance, periodic updates, or other factors, that make our information systems unavailable or slow to respond, including the interaction of our information systems with those of third parties.
Exposure to various types of cyberattacks such as malware, computer viruses, worms, social engineering attacks, or other malicious acts, as well as human error and technological malfunction, could also potentially disrupt our operations or result in a significant interruption in the delivery of our goods and services.
Our aspirations and disclosures related to ESG matters expose us to risks that could adversely affect our reputation and performance. We have established and publicly announced ESG goals, including our commitments to diversity and inclusion. These statements reflect our current plans and aspirations and are not guarantees that we will be able to achieve them.
Further, we may not be able to obtain additional financing on acceptable terms, if at all. Our aspirations and disclosures related to ESG matters expose us to risks that could adversely affect our reputation and performance. We have established and publicly announced ESG goals, including our commitments to diversity and inclusion.
For further discussion of the material weaknesses identified and our remedial efforts, see Item 9A, Controls and Procedures of this Annual Report. Completion of remediation does not provide assurance that our remediation or other controls will continue to operate properly.
For further discussion of the material weaknesses identified and our remedial efforts, see Item 9A, Controls and Procedures of this Annual Report.
The occurrence of these or other unexpected events can cause us to suffer significant product inventory losses and significant lost revenue.
The occurrence of these or other unexpected events can cause us to suffer significant product inventory losses and significant lost revenue. 19 Table of Contents The cost of raw materials could increase our cost of goods sold and cause our results of operations and financial condition to suffer.
Technology and Privacy Related Risks If the technology-based systems that give our consumers the ability to shop with us online do not function effectively, our operating results, as well as our ability to grow our e-commerce business globally, could be materially adversely affected.
As a consequence of these or other catastrophic or uncharacteristic events, we may experience interruption to our operations, increased costs or loss of property, equipment or inventory, which would adversely affect our revenue and profitability. 16 Table of Contents Technology and Privacy Related Risks If the technology-based systems that give our consumers the ability to shop with us online do not function effectively, our operating results, as well as our ability to grow our e-commerce business globally, could be materially adversely affected.
We currently intend to retain any future earnings to finance the operation and expansion of our business and we do not expect to declare or pay any dividends in the foreseeable future. As a result, stockholders must rely on sales of their common stock after price appreciation as the only way to realize any future gains on their investment.
We currently intend to retain any future earnings to finance the operation and expansion of our business and we do not expect to declare or pay any dividends in the foreseeable future.
The clear trend in environmental, health, transportation, and safety regulations is to place more restrictions and limitations on activities that impact the environment, such as the use and handling of chemicals.
These laws and regulations have changed substantially and rapidly in recent years, and we anticipate that there will be continuing changes. 21 Table of Contents The current trend in environmental, health, transportation, and safety regulations is to place more restrictions and limitations on activities that impact the environment, such as the use and handling of chemicals.
Acquisitions could also result in dilutive issuances of equity securities, the use of our available cash, or the incurrence of debt, which could harm our operating results.
Acquisitions could also result in dilutive issuances of equity securities, the use of our available cash, or the incurrence of debt, which could harm our operating results. In addition, if an acquired business fails to meet our expectations, our business, financial condition, and results of operations may be negatively affected.
The cost of raw materials could increase our cost of goods sold and cause our results of operations and financial condition to suffer. Our principal chemical raw materials are granular chlorine compounds, which are commodity materials. The prices of granular chlorine compounds are a function of, among other things, manufacturing capacity and demand.
Our principal chemical raw materials are granular chlorine compounds, which are commodity materials. The prices of granular chlorine compounds are a function of, among other things, manufacturing capacity and demand. We have generally passed through chlorine price increases to our consumers.
If we fail to obtain a required license or are unable to design around another company’s patent, we may be unable to make use of some of the affected products, which would reduce our revenues. 20 Table of Contents The defense costs and settlements for patent infringement lawsuits are not covered by insurance.
In addition, a required license may be non-exclusive, and therefore our competitors may have access to the same technology licensed to us. If we fail to obtain a required license or are unable to design around another company’s patent, we may be unable to make use of some of the affected products, which would reduce our revenues.
Improper activities by third parties, exploitation of encryption technology, new data-hacking tools and discoveries, and other events or developments may result in future intrusions into or compromise of our networks, payment card terminals, or other payment systems.
Such a breach could result in damage to our reputation and subject us to potential litigation, liability, fines, and penalties, resulting in a possible material adverse impact on our financial condition and results of operations. 17 Table of Contents Improper activities by third parties, exploitation of encryption technology, new data-hacking tools and discoveries, and other events or developments may result in future intrusions into or compromise of our networks, payment card terminals, or other payment systems.
If we are unable to scale our operations efficiently or maintain pricing without significant discounting, we may fail to achieve expected operating margins, which would have a material and adverse effect on our operating results. Growth may also stress our ability to adequately manage our operations, quality of products, safety, and regulatory compliance.
The current declines in our revenue and operating margins means our revenue and margin growth may be less than expected. If we are unable to scale our operations efficiently or maintain pricing power, we may fail to achieve expected operating margins, which would have a material and adverse effect on our operating results.
If growth significantly decreases, it will negatively impact our cash reserves, and it may be necessary to obtain additional financing, which will increase indebtedness or result in dilution to shareholders. Further, we may not be able to obtain additional financing on acceptable terms, if at all.
Diminished growth may also stress our ability to adequately manage our operations, quality of products, safety, and regulatory compliance. If growth significantly decreases, it could negatively impact our cash reserves, and it may be necessary to obtain additional financing, which could increase indebtedness or result in dilution to shareholders.
In addition, there are an increasing number of cases being filed against companies generally, including class-action allegations under federal and state wage and hour laws. We could be exposed to legal proceedings arising out of the COVID-19 pandemic, including wrongful death actions brought on behalf of employees who contracted COVID-19 while performing their employment-related duties.
In addition, there are an increasing number of cases being filed against companies generally, including class-action allegations under federal and state wage and hour laws. We estimate our exposure to these legal proceedings and establish reserves for the probable and reasonably estimated liabilities. Assessing and predicting the outcome of these matters involves substantial uncertainties.
In addition, if an acquired business fails to meet our expectations, our business, financial condition, and results of operations may be negatively affected. 16 Table of Contents Our operating results will be harmed if we are unable to effectively manage and sustain our future growth or scale our operations.
Our operating results will be harmed if we are unable to effectively manage and sustain our future growth or scale our operations. We experienced a decline in sales, and thus profitability, between the Fiscal Year ending September 23, 2023, and the Fiscal Year ending September 28, 2024.
Removed
Tightening consumer credit could prevent consumers from obtaining financing for pool and spa projects, which could negatively impact our sales of products and services. The COVID-19 pandemic and associated responses could adversely impact our business and results of operations. The COVID-19 pandemic has significantly impacted economic activity and markets throughout the world.
Added
We are susceptible to adverse weather conditions. Given the nature of our business, weather is one of the principal external factors affecting our business.
Removed
In response, governmental authorities have periodically imposed, and others in the future may impose, stay-at-home orders, shelter-in-place orders, quarantines, executive orders, and similar government orders and restrictions to control the spread of COVID-19.
Added
We also may experience occasional system interruptions and delays, as a result of routine maintenance, periodic updates, or other factors, that make our information systems unavailable or slow to respond, including the interaction of our information systems with those of third parties.
Removed
Such orders or restrictions have resulted in temporary location closures, limitation of location hours, limitations on the number of people in locations or in warehouses, enhanced requirements on sanitation, social distancing practices, and travel restrictions, among other effects.
Added
These statements reflect our current plans and aspirations and are not guarantees that we will be able to achieve them.
Removed
Historically, we were able to continue to operate as an essential business under substantially all relevant state and local regulations, and if this changes under future government orders and restrictions, it will adversely impact our financial condition and operating results. 13 Table of Contents The long-term impact of the COVID-19 pandemic on our financial condition or results of operations remains uncertain, in particular, due to external factors related to the pandemic and as COVID-19 cases (including the spread of variants or mutant strains) continue to surge in certain parts of the world.
Added
The defense costs and settlements for patent infringement lawsuits are not covered by insurance. Patent infringement lawsuits can take years to settle.
Removed
In particular, COVID-19 could have significant disruption to our supply chain for products we sell, which could have a material impact on our sales and earnings. Accordingly, COVID-19 may have negative impacts on our business in the future, and any future adverse impacts on our business may be worse than we anticipate.
Added
Further, for the fiscal year ended September 30, 2023, we did not maintin effective internal control over financial reporting because of material weknesses related to the design and/or operation of controls that were not performed at a sufficient level of precision with respect to (i) the performance of physical inventories and the validation of data utilized in inventory costing for a subset of our inventory and (ii) the accounting for vendor rebates receivable and related income earned and recognized.
Removed
The ultimate impact will depend on the severity and duration of the COVID-19 pandemic and future resurgences and actions taken by governmental authorities and other third parties in response, each of which is uncertain, rapidly changing, and difficult to predict. Our growth rates during the COVID-19 pandemic may not be sustainable and may not be indicative of future growth.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeOur current physical network of locations is summarized in the chart below: State Number of Locations Alabama 8 Arizona 98 Arkansas 3 California 169 Colorado 4 Connecticut 16 Delaware 4 Florida 93 Georgia 34 Illinois 10 Indiana 11 Iowa 1 Kansas 6 Kentucky 6 Louisiana 17 Maryland 11 Massachusetts 11 Michigan 6 Mississippi 4 Missouri 13 Nebraska 2 Nevada 26 New Hampshire 3 New Jersey 34 New Mexico 3 New York 34 North Carolina 14 Ohio 17 Oklahoma 22 Oregon 8 Pennsylvania 46 Rhode Island 2 South Carolina 9 Tennessee 13 Texas 215 Utah 3 Virginia 18 Washington 12 Wisconsin 2 Total Locations 1,008 27 Table of Contents Our corporate offices are located in Phoenix, Arizona.
Biggest changeOur current physical network of locations is summarized in the chart below: State Number of Locations Alabama 8 Arizona 98 Arkansas 3 California 171 Colorado 4 Connecticut 16 Delaware 4 Florida 94 Georgia 34 Illinois 10 Indiana 11 Iowa 1 Kansas 6 Kentucky 6 Louisiana 17 Maryland 11 Massachusetts 11 Michigan 6 Mississippi 4 Missouri 13 Nebraska 2 Nevada 28 New Hampshire 3 New Jersey 34 New Mexico 3 New York 35 North Carolina 14 Ohio 17 Oklahoma 22 Oregon 8 Pennsylvania 46 Rhode Island 2 South Carolina 9 Tennessee 13 Texas 222 Utah 3 Virginia 18 Washington 12 Wisconsin 2 Total Locations 1,021 Our corporate offices are located in Phoenix, Arizona.
Item 2. Pr operties. Properties As of September 30, 2023, we had over 1,000 locations in 39 states, two manufacturing facilities, and six distribution centers supporting our residential locations. In addition, we contract with third-party logistic providers under short-term agreements for additional capacity as needed.
Item 2. Properties Properties As of September 28, 2024 we had over 1,000 locations in 39 states, two manufacturing facilities, and six distribution centers supporting our residential locations. In addition, we contract with third-party logistic providers under short-term agreements for additional capacity as needed.
The 92,669 square foot office building has a current lease term through February 28, 2027, with our ability to exercise two five-year renewal options.
The 92,669 square foot office building has a current lease term through February 28, 2027, with our ability to exercise two five-year renewal options. 30 Table of Contents

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeWe dispute the allegations of wrongdoing and intend to defend ourselves vigorously in this matter. We are subject to other litigation, claims, and other proceedings that arise from time-to-time in the ordinary course of business. We believe these actions are routine and incidental to the business.
Biggest changeWe are subject to other litigation, claims, and other proceedings that arise from time-to-time in the ordinary course of business. We believe these actions are routine and incidental to the business. As of September 28, 2024, we had established reserves for claims that are probable and estimable and such reserves were not significant.
Item 3. Legal Proceedings. On September 8, 2023, a class action complaint for violation of federal securities laws was filed by West Palm Beach Police Pension Fund in the U.S. District Court for the District of Arizona against us, our Chief Executive Officer and our former Chief Financial Officer.
Item 3. Legal Proceedings. On September 8, 2023, a class action complaint for violation of federal securities laws was filed by West Palm Beach Police Pension Fund in the U.S. District Court for the District of Arizona against us, our former Chief Executive Officer and our former Chief Financial Officer.
While we cannot feasibly predict the outcome of these matters with certainty, we believe, based on examination of these matters, experience to date and discussions with counsel, that the ultimate liability, individually or in the aggregate, will not have a material adverse effect on our business, financial position, results of operations, or cash flows. Item 4. Mine Saf ety Disclosures.
While we cannot feasibly predict the outcome of these matters with certainty, we believe, based on examination of these matters, experience to date and discussions with counsel, that the ultimate liability, individually or in the aggregate, will not have a material adverse effect on our business, financial position, results of operations, or cash flows. Item 4. Mine Safety Disclosures.
Not applicable. 28 Table of Contents PART II
Not applicable. 31 Table of Contents PART II
The complaint alleges that we violated federal securities laws by issuing materially false and misleading statements that failed to disclose adverse facts about our financial guidance, business operations and prospects, and seeks class certification, damages, interest, attorneys’ fees, and other relief. Due to the early stage of this proceeding, we cannot reasonably estimate the potential range of loss, if any.
The amended and consolidated complaint alleges that we violated federal securities laws by issuing materially false and misleading statements that failed to disclose adverse facts about our financial guidance, business operations and prospects, and seeks class certification, damages, interest, attorneys’ fees, and other relief.
Removed
As of September 30, 2023, we had established reserves for claims that are probable and estimable and such reserves were not significant.
Added
On December 1, 2023, the court appointed a lead plaintiff, and on February 20, 2024, the lead plaintiff filed an amended and consolidated complaint.
Added
Due to the early stage of this proceeding, we cannot reasonably estimate the potential range of loss, if any. We dispute the allegations of wrongdoing and intend to defend ourselves vigorously in this matter. On March 13, 2024 and March 14, 2024, derivative actions were separately filed in the U.S.
Added
District Court for the District of Arizona and Delaware by John Clemens and Sally Flynn, respectively, on behalf of the Company, against our officers and directors.
Added
Both complaints include substantially the same allegations as those in the securities class action, and allege that the defendant directors and officers harmed the Company by either making false or misleading statements, or allowing false or misleading statements to be made. The complaints seek the award of damages, costs and attorneys’ fees, and other declaratory relief.
Added
The parties in both the Arizona and Delaware derivative actions have filed stipulations to stay the actions pending resolution of the securities class action. Due to the early stage of these proceedings, we cannot reasonably estimate the potential range of loss, if any. We dispute the allegations of wrongdoing and intend to defend ourselves vigorously in these matters.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeDuring the quarter ended September 30, 2023, there were no repurchases under our program and as of September 30, 2023, approximately $147.7 million remained available for future purchases under our share repurchase program. Item 6. [Reserved]. 30 Table of Contents
Biggest changeDuring the year ended September 28, 2024, there were no repurchases under our program and as of September 28, 2024, approximately $147.7 million remained available for future purchases under our share repurchase program.
As of November 20, 2023, there were three stockholders of record, although there is a much larger number of beneficial holders. The actual number of stockholders is greater than the number of record holders stated above, and includes stockholders who are beneficial owners, but whose shares are held in “street name” by brokers and other nominees.
As of November 26, 2024, there were three stockholders of record, although there is a much larger number of beneficial holders. The actual number of stockholders is greater than the number of record holders stated above, and includes stockholders who are beneficial owners, but whose shares are held in “street name” by brokers and other nominees.
We are not obligated to pay dividends on our common stock. 29 Table of Contents Recent Sales of Unregistered Securities None.
We are not obligated to pay dividends on our common stock. 32 Table of Contents Recent Sales of Unregistered Securities None.
The graph assumes $100 was invested at the market close on October 29, 2020, which was the first day our common stock began trading and its relative performance is tracked through September 30, 2023. Data for the Nasdaq Global Composite Index, S&P 500 Index, and S&P SmallCap 600 Index assume reinvestment of dividends.
The graph assumes $100 was invested at the market close on October 29, 2020, which was the first day our common stock began trading and its relative performance is tracked through September 28, 2024. Data for the Nasdaq Global Composite Index, and S&P SmallCap 600 Index assume reinvestment of dividends.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest change(2) See the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Factors and Measures We Use to Evaluate Our Business.” (3) The tables below provide a reconciliation from our net income to Adjusted EBITDA and net income to Adjusted net income for fiscal 2023, 2022, and 2021 (in thousands). 35 Table of Contents Year Ended September 30, 2023 October 1, 2022 October 2, 2021 Net income $ 27,242 $ 159,029 $ 126,634 Interest expense 65,438 30,240 34,410 Income tax expense 9,499 49,088 36,495 Depreciation and amortization expense (1) 34,142 30,769 26,553 Management fees (2) — — 382 Equity-based compensation expense (3) 12,067 11,922 25,621 Loss on debt extinguishment (4) — — 9,169 Loss (gain) on asset and contract dispositions (5) 6,379 426 (1,643 ) Executive transition costs (6) 6,160 883 — Costs related to equity offerings (7) — 550 10,444 Strategic project costs (8) 3,004 4,960 — Other non-recurring costs (9) 4,218 4,409 2,548 Adjusted EBITDA $ 168,149 $ 292,276 $ 270,613 Year Ended September 30, 2023 October 1, 2022 October 2, 2021 Net income $ 27,242 $ 159,029 $ 126,634 Management fees (2) — — 382 Equity-based compensation expense (3) 12,067 11,922 25,621 Loss on debt extinguishment (4) — — 9,169 Loss (gain) on asset and contract dispositions (5) 6,379 426 (1,643 ) Executive transition costs (6) 6,160 883 — Costs related to equity offerings (7) — 550 10,444 Strategic project costs (8) 3,004 4,960 — Other non-recurring costs (9) 4,218 4,409 2,548 Tax effects of these adjustments (10) (7,957 ) (5,788 ) (11,677 ) Adjusted net income $ 51,113 $ 176,391 $ 161,478 (1) Includes depreciation related to our distribution centers and locations, which is reported in cost of merchandise and services sold in our consolidated statements of operations.
Biggest change(2) See the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Factors and Measures We Use to Evaluate Our Business.” (3) The tables below provide a reconciliation from our net (loss) income to Adjusted EBITDA and net (loss) income to Adjusted net income for fiscal 2024, 2023, and 2022 (in thousands). 38 Table of Contents Year Ended September 28, 2024 September 30, 2023 October 1, 2022 Net (loss) income $ (23,379 ) $ 27,242 $ 159,029 Interest expense 70,395 65,438 30,240 Income tax expense 10,101 9,499 49,088 Depreciation and amortization expense (1) 33,078 34,142 30,769 Equity-based compensation expense (2) 8,650 12,067 11,922 Strategic project costs (3) 2,083 3,004 4,960 Executive transition costs and other (4) 7,816 16,757 6,268 Adjusted EBITDA $ 108,744 $ 168,149 $ 292,276 Year Ended September 28, 2024 September 30, 2023 October 1, 2022 Net (loss) income $ (23,379 ) $ 27,242 $ 159,029 Equity-based compensation expense (2) 8,650 12,067 11,922 Strategic project costs (3) 2,083 3,004 4,960 Executive transition costs and other (4) 7,816 16,757 6,268 Changes in valuation allowance (5) 11,177 — — Tax effects of these adjustments (6) (7,432 ) (7,957 ) (5,788 ) Adjusted net (loss) income $ (1,085 ) $ 51,113 $ 176,391 (1) Includes depreciation related to our distribution centers and store locations, which is reported in cost of merchandise and services sold and selling, general and administrative in our consolidated statements of operations.
We evaluate new opportunities in new and existing markets based on the number of pools and spas in the market, competition, our existing locations, availability and cost of real estate, and distribution and operating costs of our locations. We review performance of our locations on a regular basis and evaluate opportunities to strategically close locations to improve our profitability.
We evaluate new opportunities in new and existing markets based on the number of pools and spas in the market, competition, our existing locations, availability and cost of real estate, and distribution and operating costs of our locations. We review the performance of our locations on a regular basis and evaluate opportunities to strategically close locations to improve our profitability.
The decrease in gross margin was primarily driven by a decrease in retail chemical pricing retail in June 2023, adjustments associated with year-end physical inventory results, adjustments to product rebates based on reduced equipment purchases, and occupancy deleverage associated with the decrease in comparable sales.
The decrease in gross margin was primarily driven by a decrease in retail chemical pricing in June 2023, adjustments associated with year-end physical inventory results, adjustments to product rebates based on reduced equipment purchases, and occupancy deleverage associated with the decrease in comparable sales.
This increase in SG&A was primarily related to a $5.5 million increase in executive transition and other costs related to severance payments associated with the elimination of non-customer facing positions and a $6.1 million increase in connection with the costs incurred from the discontinued use of certain software product subscriptions.
This increase in SG&A was primarily related to $5.5 million increase in executive transition and other costs related to severance payments associated with the elimination of non-customer facing positions and a $6.1 million increase in connection with the costs incurred from the discontinued use of certain software product subscriptions.
Based on our growth plans, we believe our cash and cash equivalents position, net cash provided by operating activities and borrowing availability under our Revolving Credit Facility will be adequate to finance our working capital requirements, planned capital expenditures, strategic acquisitions, share repurchases, and debt service over the next 12 months.
Based on our growth plans, we believe our cash and cash equivalents position, net cash provided by operating activities and borrowing availability under our Revolving Credit Facility will be adequate to finance our working capital requirements, planned capital expenditures, strategic acquisitions, share repurchases, and debt service over the next 12 months and thereafter.
Adjusted net income (loss) and Adjusted earnings per share are also frequently used by analysts, investors, and other interested parties to evaluate companies in our industry, when considered alongside other GAAP measures.
Adjusted net income (loss) and Adjusted diluted earnings per share are also frequently used by analysts, investors, and other interested parties to evaluate companies in our industry, when considered alongside other GAAP measures.
We do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions used to calculate the values of our acquired intangible assets contingent considerations liabilities. 41 Table of Contents Recent Accounting Pronouncements For information regarding recent accounting pronouncements, see Note 2—Summary of Significant Accounting Policies to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
We do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions used to calculate the values of our acquired intangible assets contingent considerations liabilities. 44 Table of Contents Recent Accounting Pronouncements For information regarding recent accounting pronouncements, see Note 2—Summary of Significant Accounting Policies to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
Certain leases are renewable at our option typically for periods of five or more years and some require payments upon early termination. 40 Table of Contents Critical Accounting Estimates The preparation of our consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of sales and expenses during the reported periods.
Certain leases are renewable at our option typically for periods of five or more years and some require payments upon early termination. 43 Table of Contents Critical Accounting Estimates The preparation of our consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of sales and expenses during the reported periods.
Income Taxes Income tax expense decreased to $9.5 million in fiscal 2023 compared to $49.1 million in fiscal 2022, a decrease of $39.6 million. This decrease was primarily attributable to lower pretax income. Our effective tax rate was 25.9% for fiscal 2023 compared to 23.6% for fiscal 2022.
Income Taxes Income tax expense decreased to $9.5 million in fiscal 2023 compared to $49.1 million in fiscal 2022, a decrease of $39.6 million. The decrease was primarily attributable to lower pretax income. Our effective tax rate was 25.9% for fiscal 2023 compared to 23.6% for fiscal 2022.
The direct and indirect impact COVID-19 has had on our financial and operating performance since 2020 has made period-to-period analysis and accurate forecasting difficult. Due to the non-discretionary nature of our products and services, our business delivered strong growth and profitability throughout the pandemic, despite restrictions on the operation of our locations and distribution facilities.
The direct and indirect impact COVID-19 has had on our financial and operating performance since 2020 has made period-to-period analysis and accurate forecasting difficult. Due to the non-discretionary nature of our products and services, our business delivered strong growth and profitability throughout the pandemic, in spite of restrictions on the operation of our locations and distribution facilities.
Selling, General and Administrative Expenses SG&A increased to $446.0 million in fiscal 2023 compared to $435.0 million in fiscal 2022, an increase of $11.0 million or 2.5%.
Selling, General and Administrative Expenses SG&A increased to $446.0 million in fiscal 2023 from $435.0 million in fiscal 2022, an increase of $11.0 million or 2.5%.
Actual results or outcomes may differ materially from those anticipated in these forward-looking statements, which are subject to risks, uncertainties, and other factors, including those described in Part I, Item 1A, “Risk Factors” of this Annual Report on Form 10-K for the fiscal year ended September 30, 2023.
Actual results or outcomes may differ materially from those anticipated in these forward-looking statements, which are subject to risks, uncertainties, and other factors, including those described in Part I, Item 1A, “Risk Factors” of this Annual Report on Form 10-K for the fiscal year ended September 28, 2024.
These costs are significant and are expected to continue to increase proportionate to our growth. 32 Table of Contents Gross margin is gross profit as a percentage of our sales. Gross margin is impacted by merchandise costs, pricing and promotions, product mix and availability, inflation, and service costs, which can vary.
These costs are significant and are expected to continue to increase proportionate to our growth. Gross margin is gross profit as a percentage of our sales. Gross margin is impacted by merchandise costs, pricing and promotions, product mix and availability, inflation, and service costs, which can vary.
The number of new locations reflects the number of locations opened during a particular reporting period. New locations require an initial capital investment in location buildouts, fixtures, and equipment, which we amortize over time as well as cash required for inventory. As of September 30, 2023, we operated over 1,000 locations in 39 states across the United States.
The number of new locations reflects the number of locations opened during a particular reporting period. New locations require an initial capital investment in location buildouts, fixtures, and equipment, which we amortize over time as well as cash required for inventory. As of September 28, 2024, we operated over 1,000 locations in 39 states across the United States.
Business Acquisitions See Note 3—Business Combinations to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for information regarding our business acquisitions. 34 Table of Contents Results of Operations We derived our consolidated statements of operations for fiscal 2023, 2022, and 2021 from our consolidated financial statements.
Business Acquisitions See Note 3—Business Combinations to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for information regarding our business acquisitions. 37 Table of Contents Results of Operations We derived our consolidated statements of operations for fiscal 2024, 2023, and 2022 from our consolidated financial statements.
We do not believe there is a reasonable likelihood there will be a material change in the future estimates or assumptions we use to calculate our reduction of inventory. Inventories Inventories are stated at the lower of cost or market or net realizable value. We value inventory using the weighted-average cost method.
We do not believe there is a reasonable likelihood there will be a material change in the future estimates or assumptions we use to calculate our reduction of inventory. Inventories Inventories are stated at the lower of cost or market or net realizable value.
Our offering of proprietary, owned, and third-party brands across diverse product categories drives sales growth by attracting new consumers and encouraging repeat visits from our existing consumers.
Our offering of proprietary, owned, and third-party brands across diverse product categories drives sales growth by attracting new consumers 34 Table of Contents and encouraging repeat visits from our existing consumers.
Based on this definition, we have identified the critical accounting policies and judgments, which are disclosed in this Annual Report on Form 10-K for the fiscal year ended September 30, 2023.
Based on this definition, we have identified the critical accounting policies and judgments, which are disclosed in this Annual Report on Form 10-K for the fiscal year ended September 28, 2024.
Our water treatment expertise is powered by data and intelligence accumulated from the millions of water tests we have performed over the years, positioning us as the most trusted water treatment service provider in the industry.
Our water treatment expertise is powered by data and intelligence accumulated from the millions of water tests we have performed over the years, positioning us as the most trusted water treatment service provider in the industry. We have a legacy of leadership and disruptive innovation.
Sales are impacted by product mix and availability, as well as promotional and competitive activities and the spending habits of our consumers. Growth of our sales is primarily driven by comparable sales growth and expansion of our locations in existing and new markets.
Sales are impacted by weather, seasonality, product mix and availability, as well as promotional and competitive activities and the spending habits of our consumers, as well as inflation and interest rates. Growth of our sales is primarily driven by comparable sales growth and expansion of our locations in existing and new markets.
(3) Represents charges related to equity-based compensation and the related Company payroll tax expense, which are reported in SG&A in our consolidated statements of operations.
(2) Represents charges related to equity-based compensation and our related payroll tax expense, which are reported in SG&A in our consolidated statements of operations.
As of September 30, 2023, approximately $147.7 million remained available for future purchases under our share repurchase program (see Note 16—Share Repurchase Program to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K).
As of September 28, 2024, approximately $147.7 million remained available for future purchases under our share repurchase program (see Note 15—Share Repurchase Program to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K).
References to fiscal 2023, 2022, and 2021 refer to the fiscal years ended September 30, 2023, October 1, 2022, and October 2, 2021, respectively. Fiscal 2023, 2022, and 2021 included 52 weeks of operations.
References to fiscal 2024, 2023, and 2022 refer to the fiscal years ended September 28, 2024, September 30, 2023, and October 1, 2022, respectively. Fiscal 2024, 2023, and 2022 included 52 weeks of operations.
As of September 30, 2023, outstanding standby letters of credit totaled $11.4 million, and after considering borrowing base restrictions, we had $238.6 million of available borrowing capacity under the terms of the Revolving Credit Facility. As of September 30, 2023, we were in compliance with the covenants under the Revolving Credit Facility and our Term Loan agreements.
As of September 28, 2024, outstanding standby letters of credit totaled $10.4 million, and after considering borrowing base restrictions, we had $239.6 million of available borrowing capacity under the terms of the Revolving Credit Facility. As of September 28, 2024, we were in compliance with the covenants under the Revolving Credit Facility and our Term Loan agreements.
When an inventory item is sold or disposed, the associated reserve is released at that time. We do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions used to calculate our inventory reserve. Business Combinations We account for business combinations using the acquisition method of accounting.
We do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions used to calculate our inventory reserve. Business Combinations We account for business combinations using the acquisition method of accounting.
Due to the highly unstable supply of granular chlorine compounds, we believe some customers stockpile chemicals, resulting in unexpected changes in demand. As a result of such behavior, our revenue is higher than normal during the periods of stockpiling and lower than normal during period after stockpiling has occurred.
Due to the highly unstable supply of granular chlorine compounds over the last three years, we believe some customers stockpiled chemicals, resulting in unexpected changes in demand. As a result of such behavior, our revenue may be higher than normal during the periods of stockpiling and may be lower than normal during the periods after stockpiling has occurred.
Cash (Used in) Provided by Financing Activities Net cash used in financing activities was $10.8 million in fiscal 2023 compared to $158.9 million in fiscal 2022. This decrease was primarily driven by repurchases and retirement of common stock that occurred in fiscal 2022.
This decrease was primarily driven by lower payments of employee tax withholding related to restricted stock vesting. Net cash used in financing activities was $10.8 million in fiscal 2023 compared to $158.9 million in fiscal 2022. This decrease was primarily driven by repurchases and retirement of common stock that occurred in fiscal 2022.
Comparable sales decreased $170.5 million, or 11.0%, compared to fiscal 2022, primarily driven by traffic declines. Non-comparable sales including acquisitions and new stores were $59.6 million compared to the prior year period. Gross Profit and Gross Margin Gross profit decreased to $548.2 million in fiscal 2023 compared to $673.7 million in fiscal 2022, a decrease of $125.5 million or 18.6%.
Non-comparable sales including acquisitions and new stores were $59.6 million compared to the prior year period. 40 Table of Contents Gross Profit and Gross Margin Gross profit decreased to $548.2 million in fiscal 2023 from $673.7 million in fiscal 2022, a decrease of $125.5 million or 18.6%.
Significant disruption to our supply chain for products we sell, as a result of COVID-19, geopolitical conflict or otherwise, can also have a material impact on our sales and earnings and cause unpredictable changes in results. An additional uncertainty that can impact our results of operation is consumer purchasing patterns.
Significant disruption to our supply chain for products we sell, as a result of geopolitical conflict or otherwise, can also have a material impact on our sales and earnings and cause unpredictable changes in results.
Summary of Cash Flows A summary of our cash flows from operating, investing, and financing activities is presented in the following table (in thousands): Year Ended September 30, 2023 October 1, 2022 October 2, 2021 Net cash provided by operating activities $ 6,470 $ 66,644 $ 169,272 Net cash used in investing activities (52,539 ) (138,981 ) (35,355 ) Net cash (used in) provided by financing activities (10,804 ) (158,868 ) 53,780 Net (decrease) increase in cash and cash equivalents $ (56,873 ) $ (231,205 ) $ 187,697 39 Table of Contents Cash Provided by Operating Activities Net cash provided by operating activities was $6.5 million in fiscal 2023 compared to $66.6 million in fiscal 2022.
Summary of Cash Flows A summary of our cash flows from operating, investing, and financing activities is presented in the following table (in thousands): Year Ended September 28, 2024 September 30, 2023 October 1, 2022 Net cash provided by operating activities $ 107,466 $ 6,470 $ 66,644 Net cash used in investing activities (47,163 ) (52,539 ) (138,981 ) Net cash used in financing activities (7,218 ) (10,804 ) (158,868 ) Net increase (decrease) in cash and cash equivalents $ 53,085 $ (56,873 ) $ (231,205 ) 42 Table of Contents Cash Provided by Operating Activities Net cash provided by operating activities was $107.5 million in fiscal 2024 compared to $6.5 million in fiscal 2023.
Adjusted EBITDA Adjusted EBITDA decreased to $168.1 million in fiscal 2023 compared to $292.3 million in fiscal 2022, a decrease of $124.2 million. This decrease was primarily due to the decrease in gross profit.
Adjusted EBITDA Adjusted EBITDA decreased to $168.1 million in fiscal 2023 compared to $292.3 million fiscal 2022, a decrease of $124.2 million. This decrease was primarily due to the decrease in gross profit. Seasonality and Quarterly Fluctuations Our business is highly seasonal.
Cash and cash equivalents totaled $55.4 million and $112.3 million as of September 30, 2023 and October 1, 2022, respectively. As of September 30, 2023 and October 1, 2022, we did not have any outstanding borrowings under our Revolving Credit Facility.
Cash and cash equivalents totaled $108.5 million and $55.4 million as of September 28, 2024 and September 30, 2023, respectively. As of September 28, 2024 and September 30, 2023, we did not have any outstanding borrowings under our Revolving Credit Facility.
The following table summarizes key components of our results of operations for the periods indicated, both in dollars and as a percentage of our sales (in thousands, except per share amounts): Year Ended Statements of Operations Data: September 30, 2023 October 1, 2022 October 2, 2021 Sales $ 1,451,209 $ 1,562,120 $ 1,342,917 Cost of merchandise and services sold 902,986 888,379 747,757 Gross profit 548,223 673,741 595,160 Selling, general and administrative expenses 446,044 434,987 386,075 Operating income 102,179 238,754 209,085 Other expense: Interest expense 65,438 30,240 34,410 Loss on debt extinguishment — — 9,169 Other expenses, net — 397 2,377 Total other expense 65,438 30,637 45,956 Income before taxes 36,741 208,117 163,129 Income tax expense 9,499 49,088 36,495 Net income $ 27,242 $ 159,029 $ 126,634 Earnings per share Basic $ 0.15 $ 0.86 $ 0.68 Diluted $ 0.15 $ 0.85 $ 0.67 Weighted average shares outstanding Basic 183,839 184,347 185,412 Diluted 184,716 186,148 190,009 Percentage of Sales (1) (%) (%) (%) Sales 100.0 100.0 100.0 Cost of merchandise and services sold 62.2 56.9 55.7 Gross margin 37.8 43.1 44.3 Selling, general and administrative expenses 30.7 27.8 28.7 Operating income 7.0 15.3 15.6 Other expense: Interest expense 4.5 1.9 2.6 Loss on debt extinguishment — — 0.7 Other expenses, net — 0.1 0.2 Total other expense 4.5 2.0 3.4 Income before taxes 2.5 13.3 12.1 Income tax expense 0.7 3.1 2.7 Net income 1.9 10.2 9.4 Other Financial and Operations Data: Number of new and acquired locations, net 18 38 16 Number of locations open at end of period 1,008 990 952 Comparable sales growth (2) (11.0 )% 10.6 % 21.5 % Adjusted EBITDA (3) $ 168,149 $ 292,276 $ 270,613 Adjusted EBITDA as a percentage of sales (3) 11.6 % 18.7 % 20.2 % Adjusted net income (3) $ 51,113 $ 176,391 $ 161,478 Adjusted diluted earnings per share $ 0.28 $ 0.95 $ 0.85 (1) Components may not add to totals due to rounding.
The following table summarizes key components of our results of operations for the periods indicated, both in dollars and as a percentage of our sales (in thousands, except per share amounts): Year Ended Statements of Operations Data: September 28, 2024 September 30, 2023 October 1, 2022 Sales $ 1,330,121 $ 1,451,209 $ 1,562,120 Cost of merchandise and services sold 853,331 902,986 888,379 Gross profit 476,790 548,223 673,741 Selling, general and administrative expenses 419,673 446,044 434,987 Operating income 57,117 102,179 238,754 Other expense: Interest expense 70,395 65,438 30,240 Other expenses, net — — 397 Total other expense 70,395 65,438 30,637 (Loss) income before taxes (13,278 ) 36,741 208,117 Income tax (benefit) expense 10,101 9,499 49,088 Net (loss) income $ (23,379 ) $ 27,242 $ 159,029 Earnings per share Basic $ (0.13 ) $ 0.15 $ 0.86 Diluted $ (0.13 ) $ 0.15 $ 0.85 Weighted average shares outstanding Basic 184,694 183,839 184,347 Diluted 184,694 184,716 186,148 Percentage of Sales (1) (%) (%) (%) Sales 100.0 100.0 100.0 Cost of merchandise and services sold 64.2 62.2 56.9 Gross margin 35.8 37.8 43.1 Selling, general and administrative expenses 31.6 30.7 28.7 Operating income 4.3 7.0 15.3 Other expense: Interest expense 5.3 4.5 1.9 Other expenses, net — - 0.1 Total other expense 5.3 4.5 2.0 Income before taxes (1.0 ) 2.5 13.3 Income tax (benefit) expense 0.8 0.7 3.1 Net (loss) income (1.8 ) 1.9 10.2 Other Financial and Operations Data: Number of new and acquired locations, net 13 18 38 Number of locations open at end of period 1,021 1,008 990 Comparable sales growth (2) (8.8 )% (11.0 )% 1.6 % Adjusted EBITDA (3) $ 108,744 $ 168,149 $ 292,276 Adjusted EBITDA as a percentage of sales (3) 8.2 % 11.6 % 18.7 % Adjusted net (loss) income (3) $ (1,085 ) $ 51,113 $ 176,391 Adjusted diluted earnings per share $ (0.01 ) $ 0.28 $ 0.95 (1) Components may not add to totals due to rounding.
Amounts are reported in income tax expense in our consolidated statements of operations. 36 Table of Contents Comparison of Fiscal 2023 and 2022 Sales Sales decreased to $1,451.2 million in fiscal 2023 compared to $1,562.1 million in fiscal 2022, a decrease of $110.9 million, or 7.1%.
Amounts are reported in income tax (benefit) expense in our consolidated statements of operations. 39 Table of Contents Comparison of Fiscal 2024 and 2023 Sales Sales decreased to $1,330.1 million in fiscal 2024 compared to $1,451.2 million in fiscal 2023, a decrease of $121.1 million, or 8.3%.
Hot weather can increase purchases of chemicals and other non-discretionary products as well as purchases of discretionary products and can drive increased purchases of installation and repair services. Unseasonably cool weather or significant amounts of rainfall during the peak sales season can reduce chemical consumption in pools and spas and decrease consumer purchases of our products and services.
Unseasonably cool weather or significant amounts of rainfall during the peak pool sales season can reduce chemical consumption in pools and spas and decrease consumer purchases of our products and services.
Impact of Macroeconomic Events and Uncertainties Our financial performance and condition may be impacted to varying extents from period to period by macroeconomic and geopolitical developments, including public health crises, escalating global conflicts, supply chain disruptions, labor market constraints, rising rates of inflation, rising interest rates, general economic slowdown, and potential failures among financial institutions.
Factors Affecting the Comparability of our Results of Operations Our reported results have been affected by, among other events, the following events, which must be understood in order to assess the comparability of our period-to-period financial performance and condition. 36 Table of Contents Impact of Macroeconomic Events and Uncertainties Our financial performance and condition may be impacted to varying extents from period to period by macroeconomic and geopolitical developments, including public health crises, escalating global conflicts, supply chain disruptions, labor market constraints, high rates of inflation, rising interest rates, general economic slowdown, and potential failures among financial institutions.
The components of our cost of merchandise and services sold may not be comparable to the components of cost of sales or similar measures of other companies. As a result, our gross profit and gross margin may not be comparable to similar data made available by other companies.
The components of our cost of merchandise and services sold may not be comparable to the components of cost of sales or similar measures of other companies.
Vendor Rebates Many of our vendor arrangements provide for us to receive specified amounts of consideration when we achieve various measures. These measures generally relate to the volume level of purchases.
Vendor Rebates Many of our vendor arrangements provide for us to receive specified amounts of consideration meet the criteria defined in the agreement. Generally, the criteria relate to the volume level of purchases.
These differentiated capabilities allow us to meet the needs of any pool and spa owner, whether they care for their pool or spa themselves or rely on a professional, whenever, wherever, and however they choose to engage with us. 31 Table of Contents Key Factors and Measures We Use to Evaluate Our Business We consider a variety of financial and operating measures in assessing the performance of our business.
These differentiated capabilities allow us to meet the needs of any pool and spa owner, whether they care for their pool or spa themselves or rely on a professional, whenever, wherever, and however they choose to engage with us.
In addition, unseasonably early or late warming trends can increase or decrease the length of the pool season and impact timing around pool openings and closings and, therefore, our total sales and timing of our sales. We generally open new locations before our peak selling season begins and we generally close locations after our peak selling season ends.
In addition, unseasonably early or late warming trends 41 Table of Contents can increase or decrease the length of the pool season and impact timing around pool openings and closings and, therefore, our total sales and timing of our sales.
Selling, General and Administrative Expenses Our SG&A includes selling and operating expenses across our retail locations and digital platform, and our corporate-level general and administrative expenses. Selling and operating expenses at retail locations include payroll, bonus and benefit costs for personnel, supplies, and credit and debit card processing costs.
Selling and operating expenses at retail locations include payroll, bonus and benefit costs for personnel, supplies, and credit and debit card processing costs.
This decrease was driven by lower investments for business acquisitions. Net cash used in investing activities was $139.0 million in fiscal 2022 compared to $35.4 million in fiscal 2021. This increase was primarily driven by higher investments for business acquisitions.
Net cash used in investing activities was $52.5 million in fiscal 2023 compared to $139.0 million in fiscal 2022. This increase was primarily driven by higher investments for business acquisitions. Cash Used in Financing Activities Net cash used in financing activities was $7.2 million in fiscal 2024 compared to $10.8 million in fiscal 2023.
These increases in total other expense were primarily related to the increase in interest expense of $35.2 million for fiscal 2023 compared to fiscal 2022, due to higher interest rates on our Term Loan and Revolving Credit Facility and increased borrowings on our Revolving Credit Facility.
Interest Expense Interest expenses increased to a $65.4 million in fiscal 2023 from $30.2 million in fiscal 2022, an increase of $35.2 million. The increase in interest expense was primarily related to higher interest rates on our Term Loan and Revolving Credit Facility and increased borrowings on our Revolving Credit Facility.
Sales are substantially lower during our first and second fiscal quarters when we typically generate net losses and we realize negative operating cash flows. We have a long track record of investing in our business throughout the year, including in operating expenses, working capital, and capital expenditures related to new locations and other growth initiatives.
We have a long track record of investing in our business throughout the year, including in operating expenses, working capital, and capital expenditures related to new locations and other growth initiatives.
We typically experience a build-up of inventory and accounts payable during the first and second fiscal quarters in anticipation of the peak swimming pool supply selling season.
We typically experience a build-up of inventory and accounts payable during the first and second fiscal quarters in anticipation of the peak swimming pool supply selling season. We negotiate extended payment terms with certain of our primary suppliers as we receive merchandise in December through March, and we pay for merchandise in April through July.
We expect that our quarterly results of operations will fluctuate depending on the timing and amount of sales contributed by new locations. Liquidity and Capital Resources Overview Our primary sources of liquidity are net cash provided by operating activities and borrowing availability under our Revolving Credit Facility.
Liquidity and Capital Resources Overview Our primary sources of liquidity are net cash provided by operating activities and borrowing availability under our Revolving Credit Facility.
The key measures we use under United States generally accepted accounting principles (“GAAP”) are sales, gross profit and gross margin, selling, general, and administrative expenses (“SG&A”), and operating income (loss). The key non-GAAP measures and other operating measures we use are comparable sales, comparable sales growth, Adjusted EBITDA, Adjusted net income (loss), and Adjusted earnings per share.
The key non-GAAP measures and other operating measures we use are comparable sales, comparable sales growth, Adjusted EBITDA, Adjusted net income (loss), and Adjusted diluted earnings per share.
Our presentation of Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by these items. 33 Table of Contents Adjusted Net Income (Loss) and Adjusted Earnings per Share Adjusted net income (loss) and Adjusted earnings per share are additional key measures used by management and our board of directors to assess our financial performance.
Adjusted Net Income (Loss) and Adjusted Diluted Earnings per Share Adjusted net income (loss) and Adjusted diluted earnings per share are additional key measures used by management and our board of directors to assess our financial performance.
In the future, we may incur expenses or charges such as those added back to calculate Adjusted EBITDA.
In the future, we may incur expenses or charges such as those added back to calculate Adjusted EBITDA. Our presentation of Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by these items.
Contractual Obligations and Other Commitments The following table summarizes our contractual cash obligations as of September 30, 2023 (in thousands): Payments Due By Period Total 2024 2025 2026 2027 2028 Thereafter Long-term debt, net (1) $ 789,750 $ 6,075 $ 10,125 $ 8,100 $ 8,100 $ 757,350 $ — Purchase commitments (2) 174,018 79,941 78,327 7,838 5,705 2,207 — Operating lease obligations (3) 306,281 76,361 70,356 61,616 41,139 22,036 34,773 Total $ 1,270,049 $ 162,377 $ 158,808 $ 77,554 $ 54,944 $ 781,593 $ 34,773 (1) We are required to pay a commitment fee of 0.25% based on the unused portion of the Revolving Credit Facility, which is not included in the table above due to the unknown nature of future borrowings.
Contractual Obligations and Other Commitments The following table summarizes our contractual cash obligations as of September 28, 2024 (in thousands): Payments Due By Period Total 2025 2026 2027 2028 2029 Thereafter Long-term debt, net (1) $ 783,675 $ 10,125 $ 8,100 $ 8,100 $ 757,350 $ — $ — Purchase commitments (2) 97,644 79,191 8,334 5,996 2,177 1,946 — Operating lease obligations (3) 331,784 78,328 83,619 61,402 39,471 24,282 44,682 Total $ 1,213,103 $ 167,644 $ 100,053 $ 75,498 $ 798,998 $ 26,228 $ 44,682 (1) We are required to pay a commitment fee of 0.25% based on the unused portion of the Revolving Credit Facility, which is not included in the table above due to the unknown nature of future borrowings.
(5) Includes losses (gains) on asset and contract dispositions, which are reported in SG&A in our consolidated statements of operations. (6) Includes executive transition costs and severance associated with corporate restructuring, which are reported in SG&A in our consolidated statements of operations.
These items are reported in SG&A in our consolidated statements of operations. (4) Includes certain senior executive transition costs and severance associated with completed corporate restructuring activities across the organization, losses (gains) on asset dispositions, merger and acquisition costs, and other non-recurring, non-cash, or discrete items as determined by management.
Selling, General and Administrative Expenses SG&A increased to $435.0 million in fiscal 2022 from $386.1 million in fiscal 2021, an increase of $48.9 million or 12.7%.
Selling, General and Administrative Expenses SG&A decreased to $419.7 million in fiscal 2024 compared to $446.0 million in fiscal 2023, a decrease of $26.3 million or 5.9%.
This increase was due primarily to the increase in comparable sales and gross profit. Seasonality and Quarterly Fluctuations Our business is highly seasonal. Sales and earnings are highest during the third and fourth fiscal quarters, which include April through September, and represent the peak months of swimming pool use.
Sales and earnings are highest during the third and fourth fiscal quarters, which include April through September, and represent the peak months of swimming pool use. Sales are substantially lower during our first and second fiscal quarters when we typically generate net losses and we realize negative operating cash flows.
This decrease was primarily driven by lower net income in the current year and changes in working capital. Net cash provided by operating activities decreased to $66.6 million in fiscal 2022 compared to $169.3 million in fiscal 2021.
This increase was primarily driven by changes in working capital related to reductions in inventories of $85.9 million, increases in accounts payable and accrued expenses of $6.7 million, partially offset by an increase in accounts receivable of $18.7 million. Net cash provided by operating activities was $6.5 million in fiscal 2023 compared to $66.6 million in fiscal 2022.
This decrease was primarily driven by changes in working capital related to business acquisitions and strategic investment in product inventories to meet heightened customer demand across product categories. Cash Used in Investing Activities Net cash used in investing activities was $52.5 million in fiscal 2023 compared to $139.0 million in fiscal 2022.
This decrease was primarily driven by lower net income in fiscal 2023. Cash Used in Investing Activities Net cash used in investing activities was $47.2 million in fiscal 2024 compared to $52.5 million in fiscal 2023. This decrease was driven by lower investments for business acquisitions, partially offset by increased purchases of property and equipment.
We evaluate inventory for excess and obsolescence and record necessary reserves. We provide provisions for losses related to inventories based on management’s judgement regarding historical purchase cost, selling price, margin, and current business trends. If actual demand or market conditions are different than those projected by management, future margins may be unfavorably or favorably affected by adjustments to these estimates.
We value inventory using the average cost method which includes costs incurred to deliver inventory to our distribution centers including trasportation, warehousing and distribution costs. We evaluate inventory for excess and obsolescence and record necessary reserves. We provide provisions for losses related to inventories based on management’s judgment regarding historical purchase cost, selling price, margin, and current business trends.
(9) Includes merger and acquisition costs, and other non-recurring, non-cash, or discrete items as determined by management, which are reported in SG&A in our consolidated statements of operations. (10) Represents the tax effect of the total adjustments based on our combined U.S. federal and state statutory tax rates.
(6) Represents the tax effect of the total adjustments based on our combined U.S. federal and state statutory tax rates.
Comparison of Fiscal 2022 and 2021 Sales Sales increased to $1,562.1 million in fiscal 2022 from $1,342.9 million in fiscal 2021, an increase of $219.2 million or 16.3%.
Comparison of Fiscal 2023 and 2022 Sales Sales decreased to $1,451.2 million in fiscal 2023 from $1,562.1 million in fiscal 2022, a decrease of $110.9 million or 7.1%. Comparable sales decreased $170.5 million, or 11%, compared to fiscal 2022, primarily driven by traffic declines.
Net Income and Earnings per Share Net income increased to $159.0 million in fiscal 2022 from $126.6 million in fiscal 2021, an increase of $32.4 million. Diluted earnings per share increased to $0.85 in fiscal 2022 from $0.67 in fiscal 2021.
Net (Loss) Income and Diluted Earnings per Share Net loss was $23.4 million in fiscal 2024 compared to net income of $27.2 million in fiscal 2023, a change of $50.6 million. Diluted earnings per share decreased to $(0.13) in fiscal 2024 compared to $0.15 in fiscal 2023.
Total Other Expense Total other expense increased to $65.4 million in fiscal 2023 compared to $30.6 million in fiscal 2022, an increase of $34.8 million.
Income Taxes Income tax expense was $10.1 million in fiscal 2024 compared to $9.5 million in fiscal 2023, an increase of $0.6 million.
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Due to the non-discretionary nature of our products and services, our business has historically delivered strong, uninterrupted growth and profitability in all market environments, including through the Great Recession and the COVID-19 pandemic. We have a legacy of leadership and disruptive innovation.
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Key Factors and Measures We Use to Evaluate Our Business We consider a variety of financial and operating measures in assessing the performance of our business. The key measures we use under United States generally accepted accounting principles (“GAAP”) are sales, gross profit and gross margin, selling, general, and administrative expenses (“SG&A”), and operating income (loss).
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Factors Affecting the Comparability of our Results of Operations Our reported results have been affected by, among other events, the following events, which must be understood in order to assess the comparability of our period-to-period financial performance and condition.
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As a result, our gross profit and gross margin may not be comparable to similar data made available by other companies. 35 Table of Contents Selling, General and Administrative Expenses Our SG&A includes selling and operating expenses across our retail locations and digital platform, and our corporate-level general and administrative expenses.
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We believe that consumer stockpiling of chemicals may have negatively impacted our results of operations in fiscal 2023 and may impact us in future periods.
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In addition, we believe adverse macroeconomic trends and uncertainties including inflation and varying interest rates also increase consumers’ sensitivity to price and result in cost-conscious behavior inclusive of high ticket items, which can result in corresponding declines in sales and/or gross profit. An additional uncertainty that can impact our results of operations is consumer purchasing patterns.
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(2) Represents amounts paid or accrued in connection with our management services agreement, which was terminated upon the completion of our IPO in November 2020 and are reported in SG&A in our consolidated statements of operations.
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(3) Represents non-recurring costs, such as third-party consulting costs related to first-generation technology initiatives, replacement of systems that have been no longer supported by our vendors, investment in and development of new products outside of the course of continuing operations, or other discrete strategic projects that are infrequent or unusual in nature and potentially distortive to continuing operations.
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(4) Represents non-cash expense due to the write-off of deferred financing costs related to our Term Loan modification and the repayment of our senior unsecured notes in fiscal 2021 and are reported in loss on debt extinguishment in our consolidated statements of operations.
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Amounts are reported in SG&A in our consolidated statements of operations. (5) Represents a non-cash change in valuation allowance for deferred taxes that management does not believe are indicative of our ongoing operations. This item is reported in income tax (benefit) expense in our consolidated statements of operations and we note they may reoccur in the future.
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(7) Includes costs incurred for follow-on equity offerings, which are reported in other (income) expenses, net in our consolidated statements of operations. (8) Represents non-recurring costs, such as third-party consulting costs, which are not part of our ongoing operations and are incurred to execute differentiated, strategic projects, and are reported in SG&A in our consolidated statements of operations.
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Comparable sales decreased $127.4 million, or 8.8%, compared to fiscal 2023, primarily driven by declines in traffic and average order value. Non-comparable sales including acquisitions and new stores were $7.9 million. Gross Profit and Gross Margin Gross profit decreased to $476.8 million in fiscal 2024 compared to $548.2 million in fiscal 2023, a decrease of $71.4 million or 13.0%.
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The increase was primarily driven by comparable sales growth of $143.1 million, or 10.6%, in fiscal 2022 as well as non-comparable sales of $76.1 million, driven by acquisitions and new locations open for less than 52 weeks. 37 Table of Contents Gross Profit and Gross Margin Gross profit increased to $673.7 million in fiscal 2022 from $595.2 million in fiscal 2021, an increase of $78.5 million or 13.2%.
Added
Gross margin decreased to 35.8% compared to 37.8% in fiscal 2023, a decrease of 200 basis points.
Removed
Gross margin decreased to 43.1% compared to 44.3% in fiscal 2021, a decrease of 120 basis points. The increase in gross profit was primarily due to increased sales. The decrease in gross margin was primarily due to shifts in business mix, decreased product margin related to promotions and higher product cost, partially offset by distribution and occupancy leverage.
Added
The decrease in gross margin was primarily driven by negative impacts of 121 basis points product rate, 94 basis points from deleverage on occupancy costs and 50 basis points from the expensing of previously capitalized distribution center costs due to significant reductions in inventory during the current year period.
Removed
This increase in SG&A was primarily related to a $57.0 million increase associated with higher sales, inflationary costs associated with payroll and digital marketing expenses and non-comparable SG&A associated with our acquisitions; a $5.0 million increase related to strategic project costs incurred during fiscal 2022; a $4.9 million increase associated with executive transition costs, losses (gains) on disposition of fixed assets, merger and acquisition costs and other non-recurring, non-cash or discrete items; and a $3.9 million increase associated with higher depreciation and amortization expense.
Added
Additionally, there was a one-time item of approximately $5.0 million related to rebates and warranties on a contract that has subsequently been revised. The impacts discussed above were partially offset by a 72 basis point reduction related to inventory adjustments and distribution costs.
Removed
These increases were offset by lower non-cash equity-based compensation expense of $13.7 million compared to fiscal 2021 and certain one-time payments of contractual amounts of $8.2 million made in fiscal 2021, both of which were primarily incurred in connection with our IPO.
Added
This decrease in SG&A was primarily related to a decrease merchant fees of $6.0 million associated with lower sales, a decrease in payroll costs of $4.0 million mainly due to lower headcount, a decrease in asset write offs of $5.9 million, a decrease in equity compensation of $3.4 million, a decrease in bonus and commissions of $1.9 million, and a decrease in marketing expenses of $1.6 million.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeSee Note 10—Long-Term Debt, Net to our consolidated financial statements for additional information. Accordingly, we are subject to interest rate risk in connection with borrowings under our Revolving Credit Facility and Term Loan, both of which bear interest at variable rates. As of September 30, 2023, we had $789.8 million outstanding on our Term Loan.
Biggest changeSee Note 10—Long-Term Debt, Net to our consolidated financial statements for additional information. Accordingly, we are subject to interest rate risk in connection with borrowings under our Revolving Credit Facility and Term Loan, both of which bear interest at variable rates. As of September 28, 2024, we had $783.7 million outstanding on our Term Loan.
Although we may experience periodic effects on sales, gross profit, gross margins, and cash flows as a result of changing prices, we do not expect the effect of inflation or deflation to have a material impact on our ability to execute our long-term business strategy. We currently do not use derivative instruments to manage these risks. 42 Table of Contents
Although we may experience periodic effects on sales, gross profit, gross margins, and cash flows as a result of changing prices, we do not expect the effect of inflation or deflation to have a material impact on our ability to execute our long-term business strategy. We currently do not use derivative instruments to manage these risks. 45 Table of Contents
No amounts were outstanding on our Revolving Credit Facility as of such date. The impact of a 1.0% rate change on our outstanding balance less contractual amortization would total approximately $7.9 million over the next 12 months. Impact of Inflation and Deflation We experience inflation and deflation related to our purchase of certain products.
No amounts were outstanding on our Revolving Credit Facility as of such date. The impact of a 1.0% rate change on our outstanding balance less contractual amortization would total approximately $8.0 million over the next 12 months. Impact of Inflation and Deflation We experience inflation and deflation related to our purchase of certain products.

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