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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 July 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 August 1, 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>
July 3, October 3,
1999 1998
----------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
- ------
CASH $ 193 $ 9,564
RECEIVABLES, NET 7,163 5,270
INVENTORIES, NET 76,265 47,440
PREPAID EXPENSES 2,432 1,583
DEFERRED TAX ASSETS 4,271 4,271
-------- --------
TOTAL CURRENT ASSETS 90,324 68,128
PROPERTY, PLANT AND EQUIPMENT, NET 48,036 39,842
GOODWILL, NET 8,490 8,699
NON-COMPETE COVENANT 743 1,091
DEFERRED FINANCING COSTS 2,597 3,007
OTHER ASSETS 532 519
-------- --------
$150,722 $121,286
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
- ----------------------------------------------
ACCOUNTS PAYABLE $ 46,709 $ 14,692
ACCRUED LIABILITIES 19,148 12,559
CURRENT PORTION OF LONG-TERM DEBT 94 94
INCOME TAXES 527 4,681
-------- --------
TOTAL CURRENT LIABILITIES 66,478 32,026
DEFERRED TAX LIABLITIES 3,619 3,619
LINE-OF-CREDIT BORROWINGS 98 --
LONG-TERM DEBT, NET OF CURRENT PORTION 1,144 1,195
SENIOR NOTES 90,000 90,000
PREFERRED STOCK 32,215 29,361
SHAREHOLDERS' EQUITY (DEFICIT)
- ------------------------------
COMMON STOCK (45,701) (45,701)
RETAINED EARNINGS 2,869 10,786
-------- --------
TOTAL SHAREHOLDERS' DEFICIT (42,832) (34,915)
-------- --------
$150,722 $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
---------------------
July 3, June 27,
1999 1998
--------- ---------
<S> <C> <C>
SALES $128,875 $110,851
COST OF SALES 71,880 64,542
-------- --------
GROSS PROFIT 56,995 46,309
SELLING, GENERAL & ADMINISTRATIVE EXPENSES 31,610 27,277
AMORTIZATION OF ACQUISITION COSTS 185 185
LOSS ON DISPOSITION OF FIXED ASSETS 115 42
-------- --------
INCOME FROM OPERATIONS 25,085 18,805
INTEREST EXPENSE 2,944 2,689
-------- --------
INCOME BEFORE INCOME TAXES 22,141 16,116
INCOME TAX PROVISION 9,853 7,021
-------- --------
NET INCOME 12,288 9,095
-------- --------
SERIES A PREFERRED STOCK DIVIDENDS
AND ACCRETION 974 885
INCOME APPLICABLE TO COMMON SHAREHOLDERS $ 11,314 $ 8,210
======== ========
</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>
Nine Months Ended
---------------------
July 3, June 27,
1999 1998
--------- ---------
<S> <C> <C>
SALES $188,396 $159,492
COST OF SALES 116,663 100,721
-------- --------
GROSS PROFIT 71,733 58,771
SELLING, GENERAL & ADMINISTRATIVE EXPENSES 71,366 58,480
AMORTIZATION OF ACQUISITION COSTS 556 385
LOSS ON DISPOSITION OF FIXED ASSETS 286 148
-------- --------
LOSS FROM OPERATIONS (475) (242)
INTEREST EXPENSE 8,638 7,885
-------- --------
LOSS BEFORE INCOME TAX BENEFIT (9,113) (8,127)
INCOME TAX BENEFIT 4,055 3,336
-------- --------
NET LOSS (5,058) (4,791)
-------- --------
SERIES A PREFERRED STOCK DIVIDENDS
AND ACCRETION 2,854 2,584
LOSS APPLICABLE TO COMMON SHAREHOLDERS $ (7,912) $ (7,375)
======== ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
4
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LESLIE'S POOLMART, INC.
-----------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Nine Months Ended
-----------------------
July 3, June 27,
1999 1998
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
- ------------------------------------
NET LOSS $ (5,058) $ (4,791)
ADJUSTMENTS TO RECONCILE NET LOSS TO
NET CASH PROVIDED BY OPERATING ACTIVITIES:
DEPRECIATION AND AMORTIZATION 6,108 5,165
LOSS ON DISPOSITION OF FIXED ASSETS 286 148
INCOME TAX BENEFIT (4,055) (3,336)
NET CHANGE IN RECEIVABLES,
INVENTORY AND PAYABLES 7,789 4,849
OTHER, NET (867) (797)
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 4,203 1,238
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
- ------------------------------------
PURCHASE OF PROPERTY, PLANT AND EQUIPMENT (13,831) (9,229)
PROCEEDS FROM DISPOSITIONS OF PROPERTY,
PLANT & EQUIPMENT 210 --
BUSINESS ACQUISITIONS -- (2,396)
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (13,621) (11,625)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
- ------------------------------------
NET LINE-OF-CREDIT BORROWINGS 98 --
PAYMENTS OF LONG-TERM DEBT (51) (47)
PROCEEDS FROM ISSUANCE OF PREFERRED AND
COMMON STOCK, NET -- (84)
-------- --------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES 47 (131)
-------- --------
NET (DECREASE) INCREASE IN CASH (9,371) (10,518)
CASH AT BEGINNING OF PERIOD 9,564 14,829
-------- --------
CASH AT END OF PERIOD $ 193 $ 4,311
======== ========
</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
July 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 nine month periods ended July 3, 1999 and June 27, 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 nine months ended
July 3, 1999 and June 27, 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 365 retail stores in 30
states; a nationwide mail order catalog; and, a new internet E-Commerce
capability. 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>
July 3, June 27,
1999 1998
------- -------
(in thousands)
<S> <C> <C>
Raw materials and supplies $ 1,665 $ 843
Finished goods 74,600 60,699
------- -------
Total Inventories $76,265 $61,542
======= =======
</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 365 Company-owned retail stores
in 30 states; a nationwide mail order catalog; and, a new Internet E-
Commerce capability. 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 Nine Months Ended
-------------------- --------------------
July 3, June 27, July 3, June 27,
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Sales $128,875 $110,851 $188,396 $159,492
Income/(Loss) from Operations 25,085 18,805 (475) (242)
Depreciation 1,764 1,563 5,141 4,370
Amortization 185 185 556 385
Loss on Asset Dispositions 115 42 286 148
-------- -------- -------- --------
EBITDA $ 27,149 $ 20,595 $ 5,508 $ 4,661
</TABLE>
In the third quarter ended July 3, 1999, the Company reported an EBITDA
of $27,149,000, as compared to an EBITDA of $20,595,000 for the third
quarter of 1998. EBITDA represents earnings before interest, taxes,
depreciation, amortization and loss or gain on fixed asset dispositions.
During the quarter, 15 new stores were opened bringing the total store
count to 365 on July 3, 1999, up from 317 on June 27, 1998.
7
<PAGE>
<TABLE>
<CAPTION>
Sales
-----------------------------------------
(In thousands)
Three Months Ended Nine Months Ended
------------------- -------------------
July 3, June 27, July 3, June 27,
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Retail Stores $126,694 $108,415 $185,066 $154,685
Mail Order 2,181 2,419 3,330 3,911
Service Departments -- 17 -- 896
-------- -------- -------- --------
Total Sales $128,875 $110,851 $188,396 $159,492
</TABLE>
Total sales for the third quarter increased 16.3% and are up 18.1% 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 11.6% in the quarter and
13.1% year-to-date.
Retail store sales for the quarter grew 16.9% over prior year, resulting
in a year-to-date sales growth of 19.6%. On a same week basis, store
sales grew 12.2% in the quarter and 14.5% 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 39 weeks) of 4.8% in the third quarter and 7.1% 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 14.9% 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 July 3, 1999 equaled $56,995,000
or 44.2% of sales, 2.4% of sales higher than was reported in the same
quarter of the prior year. This brings the year-to-date gross margin to
38.1%, 1.3% higher than the prior year. The increased gross margin
reflects a combination of some lower product acquisition costs, some
increases in retail pricing, and the addition of some new, higher margin
products to the product mix. Occupancy costs, also a component of the
cost of goods sold, was relatively flat as a percentage of sales both in
the third quarter and year-to-date.
In the third quarter of 1999, selling, general and administrative
expense equaled $31,610,000, an increase of 15.9% versus the same period
of last year. This brings the year-to-date selling, general and
administrative expenses to $71,366,000 an increase of 22.0% over 1998.
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.
Interest expense equaled $2,944,000 in the third quarter, up slightly
from the same period of last year. Increased line-of-credit borrowings
produced the higher interest expense in 1999.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Changes in Financial Condition
Between October 3, 1998 and July 3,1999, total current assets increased
$22,196,000, principally the result of inventories which increased
$28,825,000 during the period. The inventory increase results from the
seasonal nature of the Company's business and the new stores opened in
1999.
8
<PAGE>
During the same period, current liabilities increased $34,452,000 due to
a $32,017,000 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 nine months ended July 3, 1999, net cash provided by operating
activities was $4,203,000 compared with $1,238,000 in the same period of
the prior year. Over the same period, cash used in investing activities
as $13,621,000, up from $11,625,000 in the same period of the prior
year. This increase resulted primarily from higher capital expenditures
associated with increased new store openings and the purchase of new
corporate computer software which is Year 2000 compliant.
In the quarter, the Company modified its existing line of credit
agreement with the Wells Fargo Bank. Previously, the agreement provided
for maximum borrowings of $35,000,000 subject to the requirements that
the levels of outstanding borrowings be limited as a function of
inventory and receivables. Under the revised agreement, maximum
borrowings have been increased to $50,000,000 for the periods December
15 through June 15 of each year, and reduced to $25,000,000 for the
periods June 16 through December 14. Under the revised agreement,
maximum borrowings continue to be limited as a function of inventory and
receivables.
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: August 6, 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> 9-MOS
<FISCAL-YEAR-END> OCT-02-1999
<PERIOD-START> OCT-04-1999
<PERIOD-END> JUL-03-1999
<CASH> 193
<SECURITIES> 0
<RECEIVABLES> 7,163
<ALLOWANCES> 0
<INVENTORY> 76,265
<CURRENT-ASSETS> 90,324
<PP&E> 48,036
<DEPRECIATION> 0
<TOTAL-ASSETS> 150,722
<CURRENT-LIABILITIES> 66,478
<BONDS> 0
32,215
0
<COMMON> (45,701)
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 150,722
<SALES> 0
<TOTAL-REVENUES> 188,396
<CGS> 0
<TOTAL-COSTS> 116,663
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,638
<INCOME-PRETAX> (9,113)
<INCOME-TAX> (4,055)
<INCOME-CONTINUING> (5,058)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,058)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
