<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended April 3, 1999.
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________________________ to
____________________________
Commission file number 0-18741
Leslie's Poolmart, Inc.
(Exact name of registrant as specified in its charter)
Delaware 95-4620298
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
20630 Plummer Street, Chatsworth, California 91311
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (818) 993-4212
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock
(Title of Class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
----- -----
Applicable only to issuers involved in bankruptcy proceedings during the
preceding five years:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a
plan confirmed by a court. Yes No
----- -----
APPLICABLE ONLY TO CORPORATE REGISTRANTS:
As of April 1, 1999 the number of outstanding shares of the Registrant's common
stock was 1,433,643.
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<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LESLIE'S POOLMART, INC.
-----------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
April 3, October 3,
1999 1998
----------- -----------
ASSETS (UNAUDITED)
- -------------------------------------------------
<S> <C> <C>
CASH $ 189 $ 9,564
RECEIVABLES, NET 2,868 5,270
INVENTORIES, NET 73,161 47,440
PREPAID EXPENSES 3,380 1,583
DEFERRED TAX ASSETS 4,271 4,271
DEFERRED INCOME TAX CHARGE 9,154 --
----------- -----------
TOTAL CURRENT ASSETS 93,023 68,128
PROPERTY, PLANT AND EQUIPMENT, NET 46,353 39,842
GOODWILL, NET 8,560 8,699
NON-COMPETE COVENANT 859 1,091
DEFERRED FINANCING COSTS 2,734 3,007
OTHER ASSETS 637 519
----------- -----------
$152,166 $121,286
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
- -------------------------------------------------
ACCOUNTS PAYABLE $ 44,132 $ 14,692
ACCRUED LIABILITIES 13,273 12,559
CURRENT PORTION OF LONG-TERM DEBT 94 94
INCOME TAXES -- 4,681
----------- -----------
TOTAL CURRENT LIABILITIES 57,499 32,026
DEFERRED TAX LIABLITIES 3,619 3,619
LINE-OF-CREDIT BORROWINGS 22,768 --
LONG-TERM DEBT, NET OF CURRENT PORTION 1,185 1,195
SENIOR NOTES 90,000 90,000
PREFERRED STOCK 31,241 29,361
SHAREHOLDERS' EQUITY (DEFICIT)
- -------------------------------------------------
COMMON STOCK (45,701) (45,701)
RETAINED EARNINGS (8,445) 10,786
----------- -----------
TOTAL SHAREHOLDERS' DEFICIT (54,146) (34,915)
----------- -----------
$152,166 $121,286
=========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONDENSED CONSOLIDATED BALANCE SHEETS
2
<PAGE>
LESLIE'S POOLMART, INC.
-----------------------
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended
--------------------
April 3, March 28,
1999 1998
-------- ---------
<S> <C> <C>
SALES $33,389 $24,403
COST OF SALES 24,897 18,667
-------- ---------
GROSS PROFIT 8,492 5,736
SELLING, GENERAL & ADMINISTRATIVE EXPENSES 22,655 17,880
AMORTIZATION OF ACQUISITION COSTS 185 136
LOSS ON DISPOSITION OF FIXED ASSETS 44 --
-------- ---------
LOSS FROM OPERATIONS (14,392) (12,280)
INTEREST EXPENSE 3,052 2,767
-------- ---------
LOSS BEFORE INCOME TAX BENEFIT (17,444) (15,047)
INCOME TAX BENEFIT 7,763 6,543
-------- ---------
NET LOSS (9,681) (8,504)
-------- ---------
SERIES A PREFERRED STOCK DIVIDENDS
AND ACCRETION 957 861
LOSS APPLICABLE TO COMMON SHAREHOLDERS $(10,638) $(9,365)
======== =========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3
<PAGE>
LESLIE'S POOLMART, INC.
-----------------------
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Six Months Ended
----------------
April 3, March 28,
1999 1998
--------- ---------
<S> <C> <C>
SALES $59,521 $48,641
COST OF SALES 44,783 36,179
--------- ---------
GROSS PROFIT 14,738 12,462
SELLING, GENERAL & ADMINISTRATIVE EXPENSES 39,756 31,203
AMORTIZATION OF ACQUISITION COSTS 371 200
LOSS ON DISPOSITION OF FIXED ASSETS 171 106
--------- ---------
LOSS FROM OPERATIONS (25,560) (19,047)
INTEREST EXPENSE 5,694 5,196
--------- ---------
LOSS BEFORE INCOME TAX BENEFIT (31,254) (24,243)
INCOME TAX BENEFIT 13,908 10,357
--------- ---------
NET LOSS (17,346) (13,886)
--------- ---------
SERIES A PREFERRED STOCK DIVIDENDS
AND ACCRETION 1,880 1,700
LOSS APPLICABLE TO COMMON SHAREHOLDERS $(19,226) $(15,586)
========= =========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
4
<PAGE>
LESLIE'S POOLMART, INC.
-----------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Six Months Ended
-----------------------
April 3, March 28,
1999 1998
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
- ------------------------------------
NET LOSS $(17,346) $(13,886)
ADJUSTMENTS TO RECONCILE NET LOSS TO
NET CASH USED IN OPERATING ACTIVITIES:
DEPRECIATION AND AMORTIZATION 4,022 3,280
LOSS ON DISPOSITION OF FIXED ASSETS 172 106
INCOME TAX BENEFIT (13,908) (10,357)
NET CHANGE IN RECEIVABLES,
INVENTORY AND PAYABLES 6,908 6,263
OTHER, NET (1,920) (902)
-------- --------
NET CASH USED IN OPERATING ACTIVITIES (22,072) (15,496)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
- ------------------------------------
PURCHASE OF PROPERTY, PLANT AND EQUIPMENT (10,061) (7,160)
BUSINESS ACQUISITIONS -- (2,196)
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (10,061) (9,356)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
- ------------------------------------
NET LINE-OF-CREDIT BORROWINGS 22,768 10,179
PAYMENTS OF LONG-TERM DEBT (10) (7)
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 22,758 10,172
-------- --------
NET DECREASE IN CASH (9,375) (14,680)
CASH AT BEGINNING OF PERIOD 9,564 14,829
-------- --------
CASH AT END OF PERIOD $ 189 $ 149
======== ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
5
<PAGE>
LESLIE'S POOLMART, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
April 3, 1999
(Unaudited)
(1) Presentation of Financial Information
The financial statements included herein have been prepared by Leslie's
Poolmart, Inc. (the "Company"), without audit, and include all adjustments
of a normal recurring nature which are, in the opinion of management,
necessary for a fair presentation of the results of operations for the
three and six month periods ended April 3, 1999 and March 28, 1998
pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such
rules and regulations, although the Company believes the disclosures in
these financial statements are adequate to make the information presented
not misleading.
The following material under the heading "Management's Discussion and
Analysis of Financial Condition and Results of Operations" is written with
the presumption that the users of the interim financial statements have
read or have access to the Company's 1998 Annual Report on Form 10-K filed
with the Securities and Exchange Commission on December 22, 1998. This
document contains the latest audited financial statements and notes
thereto, together with Management's Discussion and Analysis of Financial
Condition and Results of Operations as of October 3, 1998 and for the year
then ended. The results of operations for the three and six months ended
April 3, 1999 and March 28, 1998 are not indicative of the results for a
full year.
(2) Organization and Operations
Leslie's Poolmart, Inc. is a specialty retailer of swimming pool supplies
and related products. The Company markets its products under the trade
name Leslie's Swimming Pool Supplies through 350 retail stores in 29
states and through mail order catalogs sent to selected swimming pool
owners. The Company also repackages certain bulk chemical products for
retail sale. The Company's business is highly seasonal as the majority of
its sales and all of its operating profits are generated in the quarters
ending June and September.
(3) Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
April 3, March 28,
1999 1998
------------ -----------
<S> <C> <C>
Raw materials and supplies $ 1,049,000 $ 1,091,000
Finished goods 72,112,000 61,755,000
----------- -----------
Total Inventories $73,161,000 $62,846,000
=========== ===========
</TABLE>
(4) Fiscal Periods
In 1997, the Company changed its fiscal year end from the Saturday closest
to December 31 to the Saturday closest to September 30. The 1998 fiscal
year ended on October 3, 1998 and included 53 weeks. The 1996 fiscal year
ended on December 28, 1996 included 52 weeks while the nine month
transition period ended September 27, 1997 included 39 weeks. Each fiscal
quarter will have 13 weeks and will close on the Saturday closest to
December 31, March 31 and June 30.
6
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
Leslie's Poolmart, Inc. is the leading specialty retailer of swimming pool
supplies and related products in the United States. The Company currently
markets its products through 350 Company-owned retail stores in 29 states
and through a nationwide mail order catalog. Leslie's is vertically
integrated, operating a chemical repackaging facility in Ontario,
California. It supplies its retail stores from distribution facilities
located in Ontario, California; Dallas, Texas; Bridgeport, New Jersey and
Covington, Kentucky.
SEASONALITY AND QUARTERLY FLUCTUATIONS
The Company's business exhibits substantial seasonality which the Company
believes is typical of the swimming pool supply industry. In general,
sales and net income are highest during the fiscal quarters ending in June
and September, which represent the peak months of swimming pool use. Sales
are substantially lower during the quarters ending December and March when
the Company will typically incur operating losses.
The Company expects that its quarterly results of operations will
fluctuate depending on the timing and amount of revenue contributed by new
stores and, to a lesser degree, the timing of costs associated with the
opening of new stores. The Company generally attempts to open its new
stores in the quarter ending in March in order to position itself for the
following peak season.
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
Summary
---------------------------------------------
(In thousands)
Three Months Ended Six Months Ended
--------------------- --------------------
April 3, March 28, April 3, March 28,
1999 1998 1999 1998
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
Sales $ 33,389 $ 24,403 $ 59,521 $ 48,641
Loss from Operations (14,392) (12,280) (25,560) (19,047)
Depreciation 1,789 1,435 3,377 2,807
Amortization 185 136 371 200
Loss on Asset Dispositions 45 -- 172 106
-------- -------- -------- ---------
EBITDA Loss $(12,373) $(10,709) $(21,640) ($15,934)
</TABLE>
In the second quarter ended April 3, 1999, the Company reported an EBITDA
loss of $12,373,000, as compared to an EBITDA loss of $10,709,000 for the
second quarter of 1998. EBITDA represents earnings before interest, taxes,
depreciation, amortization and loss or gain on fixed asset dispositions.
During the quarter, 32 new stores were opened and 1 store was closed,
bringing the total store count to 350 on April 3, 1999, up from 313 on
March 28, 1998. The Company historically incurs an operating loss in the
quarters ending in December and March and expects such losses to grow as
new stores continue to be added at a significant rate.
7
<PAGE>
<TABLE>
<CAPTION>
Sales
-------------------------------------------
(In thousands)
Three Months Ended Six Months Ended
-------------------- --------------------
April 3, March 28, April 3, March 28,
1999 1998 1999 1998
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
Retail Stores $32,826 $23,573 $58,372 $46,270
Mail Order 563 743 1,149 1,492
Service Departments -- 87 -- 879
------- ------- ------- -------
Total Sales $33,389 $24,403 $59,521 $48,641
</TABLE>
Total sales for the second quarter increased 36.8% and are up 22.4% in the
fiscal year-to-date. Fiscal 1998 was a 53 week year, and as a result, the
fiscal quarter-to-quarter comparisons do not include the same 13 weeks. On
a same week basis, sales grew 14.0% in the quarter and 16.5% year-to-date.
Retail store sales for the quarter grew 39.3% over prior year, resulting
in a year-to-date sales growth of 26.2%. On a same week basis, store
sales grew 15.8% in the quarter and 19.8% year-to-date. Sales grew as a
result of an increase in the total number of stores in operation in 1999
versus 1998 as well as comparable store sales increases (over the same 13
and 26 weeks) of 9.1% in the second quarter and 12.5% year-to-date. The
increase in comparable store sales is primarily the result of the maturing
of the new stores opened over the last several years, the continued growth
in commercial sales, and the rapid growth of the store-based service
operations.
Mail order catalog sales declined 23.0% year-to-date compared to prior
year, due to continued cannibalization from new store openings. Service
Department sales declined versus prior years reflecting the final
transition to the store-based service operations in 1998.
Gross profit for the three months ended April 3, 1999 equaled $8,492,000
or 25.4% of sales, 1.9% of sales higher than was reported in the same
quarter of the prior year. This brings the year-to-date gross margin to
24.8%, .8% lower than the prior year. In the second quarter, the higher
gross margin is primarily due to reduced rent expense as a percentage of
sales. Rent declined as a percentage of sales due to the strong sales
growth in the quarter compared to the prior year, partly resulting from
the 1998 53-week year and its impact on the fiscal quarter-to-quarter
comparisons described above. Year-to-date, gross margins are down
somewhat due to both slightly lower product gross margins and slightly
higher rent expenses as a percentage of sales.
In the second quarter of 1999, selling, general and administrative expense
equaled $22,655,000, an increase of 26.7% versus the same period of last
year. This increase is largely the result of higher store expenses,
distribution center costs and increased overhead costs associated with the
continued growth in the number of stores. In January 1999, the Company
opened its fourth distribution center in Covington, Kentucky to support
the store expansion program. In addition, this year the Company changed
its' store manager compensation plan to better tie the manager
compensation to the performance and profitability of the stores. An
additional element of the plan was the partial leveling out of the
managers' income over the 12 months of the year. As a result, store
manager compensation increased in the quarter and year to date periods
ending April 3, 1999 more than it would under the old compensation plan,
with a corresponding decrease expected in the third and fourth quarters of
the year.
Interest expense equaled $3,052,000 in the second quarter, up slightly
from the same period of last year. Increased line-of-credit borrowings
produced the higher interest expense in 1999.
8
<PAGE>
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Changes in Financial Condition
Between October 3, 1998 and April 3,1999, total current assets increased
$24,895,000, principally the result of inventories which increased
$25,721,000 during the period. The inventory increase results from the
seasonal nature of the Company's business and the new stores opened in
1999.
During the same period, current liabilities increased $25,473,000 due to a
$29,440,000 increase in accounts payable. The increase in accounts payable
relates primarily to favorable dating terms on trade payables extended by
vendors to support the seasonal inventory buildup.
Liquidity and Capital Resources
In the six months ended April 3, 1999, net cash used in operating
activities was $22,072,000 compared with $15,496,000 in the same period of
the prior year. During these six months, cash is typically used to
finance the operating losses experienced outside of the Company's peak
selling season. In the first six months, cash used in investing
activities as $10,061,000, up from $9,356,000 in the same period of the
prior year. This increase resulted primarily from higher capital
expenditures associated with new store openings and the purchase of new
corporate computer software which is Year 2000 compliant.
Cash provided by financing activities was $22,758,000 in the six months of
fiscal 1999. Line-of-credit borrowings increased primarily to finance the
usual first and second quarter operating losses and capital expenditures
associated with the continued new store openings.
The Company believes that its internally generated funds, as well as its
borrowing capacity, are adequate to meet its working capital needs,
maturing obligations and capital expenditure requirements, including those
relating to the opening of new stores.
PART II. OTHER INFORMATION
ITEM 5: OTHER INFORMATION
ITEM 6: Exhibits and Reports on Form 8-A
(a) Exhibits
27. Financial Data Schedule
(b) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LESLIE'S POOLMART
Date: May 4, 1999 /s/ Robert D. Olsen
--------------------------------
Robert D. Olsen
Chief Financial Officer
9
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
ACCOMPANYING CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-02-1999
<PERIOD-START> OCT-04-1998
<PERIOD-END> APR-03-1999
<CASH> 189
<SECURITIES> 0
<RECEIVABLES> 2,868
<ALLOWANCES> 0
<INVENTORY> 73,161
<CURRENT-ASSETS> 93,023
<PP&E> 46,353
<DEPRECIATION> 0
<TOTAL-ASSETS> 152,166
<CURRENT-LIABILITIES> 57,499
<BONDS> 0
31,241
0
<COMMON> (45,701)
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 152,166
<SALES> 0
<TOTAL-REVENUES> 59,521
<CGS> 0
<TOTAL-COSTS> 44,783
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,694
<INCOME-PRETAX> (31,254)
<INCOME-TAX> (13,908)
<INCOME-CONTINUING> (17,346)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (17,346)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
