EVENT

Leslie’s, Inc is a pool supply company that recently got flagged on the Friday Insiderviz update for both a cluster buy as well as a large percentage purchase. This is an interesting signal because Leslie’s hasn’t seen many buys in the past and it appears the insiders now think the stock is undervalued.

BACKGROUND

Leslie’s is a pool and spa supply company founded in 1963, although it just recently became public at the end of 2020. They sell to both residential and professional customers. They operate over 1000 stores in the US, which makes them the largest retailer in the industry. The pool industry experienced unprecedented growth during the pandemic, which has now slowed resulting in a spike of sales which has now come back to normal levels.

LAWSUITS

Leslie’s is currently in a lawsuit in which investors are alleging that Leslie’s was materially misleading during their IPO documentation. Investors claim that Leslie’s took advantage of the artificial sales growth resulting from the pandemic and advertised it as sustainable. Additionally, there was a large fire in a manufacturing facility which disrupted the supply chain in the industry. As a reaction to this, Leslie’s sent out a letter to customers warning of a potential chlorine shortage which caused many to stock up, further inflating sales. These claims do seem to be in line with admissions made by management, from a July 13, 2023 press release:

“Customer surveys conducted towards the end of the quarter also indicated increased price sensitivity and that consumers entered the pool season with a greater than normal amount of chemicals leftover from last year.”

It appears that the sales were increased for multiple reasons around the time of IPO, which have now significantly decreased.

CUSTOMER FEEDBACK

According to anecdotal customer reviews, shopping with the company is not the greatest experience:

“Leslie’s is a horrible place to shop at and prices, even for liquid chlorine have been double compared to anyone else.”

“My favorite Leslie’s experience was once when buying some liquid chlorine (they were out) and the sales rep angrily blurted “why don’t you buy some acid instead!“”

And management seems to have some issues according to people that previously worked at the company:

“They made a lot of bad business decisions over the last couple years… At one point they had ordered a 17 year supply of a Hayward pump model. They averaged 100 units sold between that regions stores, yet they bought 1700. With no room to store it, it sits in offsite facilities waiting for their inevitable loss in profit margins. There are multiple instances of this issue that is going to plague their inventory for years to come.”

SUMMARY

Leslie’s seems to be in a difficult spot right now resulting from industry headwinds. However, insiders seem to think that the company is now undervalued with the first open market purchases in a long period of time. Leslie’s still operates over 1000 stores of the around 5500 pool and supply stores in the US, which gives them a significant market position.