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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 January 2, 1999.
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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 February 15, 1999 the number of outstanding shares of
the Registrant's common stock was 1,433,643.
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LESLIE'S POOLMART, INC.
-----------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
January 2, October 3,
1999 1998
----------- -----------
ASSETS (UNAUDITED)
- ------
<S> <C> <C>
CASH $ 169 $ 9,564
RECEIVABLES, NET 2,878 5,270
INVENTORIES, NET 48,347 47,440
PREPAID EXPENSES 1,851 1,583
DEFERRED TAX ASSETS 4,271 4,271
DEFERRED INCOME TAX CHARGE 1,319 --
-------- --------
TOTAL CURRENT ASSETS 58,835 68,128
PROPERTY, PLANT AND EQUIPMENT, NET 41,745 39,842
GOODWILL, NET 8,629 8,699
NON-COMPETE COVENANT 975 1,091
DEFERRED FINANCING COSTS 2,870 3,007
OTHER ASSETS 517 519
-------- --------
$113,571 $121,286
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
- ----------------------------------------------
ACCOUNTS PAYABLE $ 11,551 $ 14,692
ACCRUED LIABILITIES 12,559 12,559
CURRENT PORTION OF LONG-TERM DEBT 94 94
INCOME TAXES -- 4,681
-------- --------
TOTAL CURRENT LIABILITIES 24,204 32,026
DEFERRED TAX LIABLITIES 3,619 3,619
LINE-OF-CREDIT BORROWINGS 7,784 --
LONG-TERM DEBT, NET OF CURRENT PORTION 1,183 1,195
SENIOR NOTES 90,000 90,000
PREFERRED STOCK 30,284 29,361
SHAREHOLDERS' EQUITY (DEFICIT)
- ------------------------------
COMMON STOCK (45,701) (45,701)
RETAINED EARNINGS 2,198 10,786
-------- --------
TOTAL SHAREHOLDERS' DEFICIT (43,503) (34,915)
-------- --------
$113,571 $121,286
======== ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONDENSED CONSOLIDATED BALANCE SHEETS
2
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LESLIE'S POOLMART, INC.
-----------------------
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended
-------------------------
January 2, December 27,
1999 1997
---------- ------------
<S> <C> <C>
SALES $26,132 $24,238
COST OF SALES 19,886 17,512
------ ------
GROSS PROFIT 6,246 6,726
SELLING, GENERAL & ADMINISTRATIVE EXPENSES 17,101 13,323
AMORTIZATION OF ACQUISITION COSTS 186 64
LOSS ON DISPOSITION OF FIXED ASSETS 127 106
------ ------
LOSS FROM OPERATIONS (11,168) (6,767)
INTEREST EXPENSE 2,642 2,429
------ ------
LOSS BEFORE INCOME TAX BENEFIT (13,810) (9,196)
INCOME TAX BENEFIT 6,145 3,814
------ ------
NET LOSS (7,665) (5,382)
------ ------
SERIES A PREFERRED STOCK DIVIDENDS
AND ACCRETION 923 834
LOSS APPLICABLE TO COMMON SHAREHOLDERS $(8,588) $(6,216)
====== ======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3
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LESLIE'S POOLMART, INC.
-----------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended
---------------------------
January 2, December 27,
1999 1997
----------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
- ------------------------------------
NET LOSS $ (7,665) $(5,382)
ADJUSTMENTS TO RECONCILE NET LOSS TO
NET CASH USED IN OPERATING ACTIVITIES:
DEPRECIATION AND AMORTIZATION 1,912 1,562
LOSS ON DISPOSITION OF FIXED ASSETS 127 106
INCOME TAX BENEFIT (6,145) (3,814)
NET CHANGE IN RECEIVABLES,
INVENTORY AND PAYABLES (1,511) 629
OTHER, NET (266) (320)
-------- -------
NET CASH USED IN OPERATING ACTIVITIES (13,548) (7,219)
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
- ------------------------------------
PURCHASE OF PROPERTY, PLANT AND EQUIPMENT (3,619) (2,096)
PROCEEDS FROM DISPOSITIONS OF PROPERTY,
PLANT AND EQUIPMENT -- --
-------- -------
NET CASH USED IN INVESTING ACTIVITIES (3,619) (2,096)
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
- ------------------------------------
NET LINE-OF-CREDIT BORROWINGS 7,784 --
PAYMENTS OF LONG-TERM DEBT (12) (11)
-------- -------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 7,772 (11)
-------- -------
NET DECREASE IN CASH (9,395) (9,326)
CASH AT BEGINNING OF PERIOD 9,564 14,829
-------- -------
CASH AT END OF PERIOD $ 169 $ 5,503
======== =======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
4
<PAGE>
LESLIE'S POOLMART, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 2, 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 month periods ended January 2, 1999 and December 27, 1997 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 months ended January
2, 1999 and December 27, 1997 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 319 retail stores in 28
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>
January 2, December 27,
1999 1997
---------- ------------
<S> <C> <C>
Raw materials and supplies $ 1,122,000 $ 1,403,000
Finished goods 47,225,000 40,264,000
----------- -----------
Total Inventories $48,347,000 $41,667,000
=========== ===========
</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.
5
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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 319 Company-owned retail stores in 28 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; and Bridgeport, New Jersey. In December 1998, the Company opened
its fourth distribution center in 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
-------------------------
January 2, December 27,
1999 1997
--------- ------------
<S> <C> <C>
Sales $ 26,132 $24,238
Loss from Operations (11,168) (6,767)
Depreciation 1,588 1,372
Goodwill Amortization 186 64
Loss on Asset Dispositions 127 106
-------- -------
EBITDA Loss $ (9,267) $(5,225)
</TABLE>
In the first quarter ended January 2, 1999, the Company reported an EBITDA loss
of $9,267,000, as compared to an EBITDA loss of $5,225,000 for the December
quarter of 1997. EBITDA represents earnings before interest, taxes,
depreciation, amortization, loss or gain on fixed asset dispositions, and LIFO
adjustments. During the quarter, 5 new stores were opened and 2 stores were
closed, bringing the total store count to 319 on January 2, 1999, up from 278 in
December of 1997. The Company historically incurs an operating loss in the
quarter of the year ending in December and generally expects such losses to grow
as new stores continue to be added at a significant rate.
6
<PAGE>
<TABLE>
<CAPTION>
Sales
-------------------------
(In thousands)
Three Months Ended
-------------------------
January 2, December 27,
1999 1997
---------- ------------
<S> <C> <C>
Retail Stores $25,546 $22,697
Mail Order 586 749
Service Departments -- 792
------ ------
$26,132 $24,238
</TABLE>
Sales for the first fiscal quarter increased 7.8% over the same fiscal quarter
of 1997 but were up 19.8% on a comparable week basis. Fiscal 1998 was a 53 week
year, and, as a result, the fiscal quarter-to-quarter comparisons do not include
the same 13 weeks. Retail store sales grew 12.6% in the fiscal quarter and 25.4%
over the comparable 13 weeks due to an increase in the total number of stores in
operation in 1998 versus 1997 as well as a comparable store sales increase (over
the comparable 13 weeks) of 17.3%. 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 in the first quarter declined 21.8% compared to the
same quarter of the prior year, and was down 10.5% on a comparable week basis,
due to continued cannabilization from new store openings. Service Department
sales declined versus prior years reflecting the transition to store-based
service operations.
Gross profit for the three months ended January 2, 1999 equaled $6,246,000 or
23.9% of sales, 3.8% of sales lower than was reported in the same quarter of the
prior year. The lower gross margin is primarily due to increased rent expense as
a percentage of sales. Rent increased as a percentage of sales due to the
increased number of new stores opened in 1998 versus 1997 and the lower sales
growth in the fiscal quarter compared to the same fiscal quarter of last year,
resulting from the 1998 53 week year and its impact on the fiscal quarter-to-
quarter comparisons described above.
In the first quarter of 1999, selling, general and administrative expenses
equaled $17,101,000, an increase of 28.4% over the same period of last year.
This increase is largely the result of higher store expenses and increased
overhead costs associated with the continued growth in the number of stores. In
addition, 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 ended January 2, 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 $2,642,000 in the first quarter of 1999, up slightly
from the same period of last year. Increased line-of-credit borrowings produced
the higher interest expense in 1998.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Changes in Financial Condition
Between October 3, 1998 and January 2, 1999, total current assets decreased
$9,293,000 principally the result of lower cash balances which decreased
$9,395,000 during the period. The cash decreased due to the seasonal nature of
the Company's business, specifically; funding the usual December quarter
operating loss.
During the same period, current liabilities decreased $7,822,000, due to a
$3,141,000 decrease in accounts payable and a $4,681,000 decrease in current
income tax liabilities. The reduced income tax liability reflects the accrued
tax benefit associated with the quarterly operating loss.
7
<PAGE>
Liquidity and Capital Resources
In the quarter ended January 2, 1999, net cash used in operating
activities was $13,548,000 compared with $7,219,000 in the December
quarter of the prior year. In the December quarter, cash is typically
used to finance the operating losses experienced outside of the Company's
peak selling season. In the December quarter, cash used in investing
activities was $3,619,000, up from $2,096,000 in the same quarter of the
prior year. This increase resulted 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 $7,772,000 in the quarter,
compared with cash used of $11,000 in the same quarter of 1997. Line-of-
credit borrowings increased primarily to finance the usual December
quarter operating loss whereas, in 1997, no additional borrowings were
needed as the Company had sufficient cash balances available.
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
(a) 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: February 16, 1999 /s/ Robert D. Olsen
---------------------------------
Robert D. Olsen
Chief Financial Officer
8
<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> 3-MOS
<FISCAL-YEAR-END> OCT-02-1999
<PERIOD-START> OCT-04-1998
<PERIOD-END> JAN-02-1999
<CASH> 169
<SECURITIES> 0
<RECEIVABLES> 2,878
<ALLOWANCES> 0
<INVENTORY> 48,347
<CURRENT-ASSETS> 58,835
<PP&E> 41,745
<DEPRECIATION> 0
<TOTAL-ASSETS> 113,571
<CURRENT-LIABILITIES> 24,204
<BONDS> 0
30,284
0
<COMMON> (45,701)
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 113,571
<SALES> 0
<TOTAL-REVENUES> 26,132
<CGS> 0
<TOTAL-COSTS> 19,886
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,642
<INCOME-PRETAX> (13,810)
<INCOME-TAX> (6,145)
<INCOME-CONTINUING> (7,665)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,665)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
