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Investing.com -- S&P Global Ratings downgraded Leslie’s Poolmart Inc. to ’CCC+’ from a higher rating on Friday, citing weak consumer demand and high leverage levels.
The pool supply retailer reported a 12% revenue decline in the third quarter as cooler weather delayed pool usage across key regions. Increased promotional activity by competitors in chemicals has driven consumers toward big box and discount retailers, which have been using aggressive pricing to clear excess inventory after a slow start to the pool season.
The sales drop also caused a roughly 300 basis point decline in the company’s adjusted EBITDA margin during the quarter.
S&P now forecasts Leslie’s will maintain adjusted leverage in the high-7x area in fiscal 2025, significantly higher than previously expected. The rating agency expects sales declines and profit compression to continue through fiscal 2026, citing unfavorable weather trends, less rational industry pricing, and tariff-related inflation increasing consumer price sensitivity.
The rating agency has revised Leslie’s business risk assessment from "weak" to "vulnerable" due to increased competition leading to market share losses and higher profit volatility.
S&P projects adjusted EBITDA margins will remain between 10.5% and 12.0% in fiscal years 2025 and 2026, which is 200-300 basis points below their previous forecast. This follows a 200 basis point decline to 13.7% in fiscal 2024.
The company is expected to generate lower free operating cash flow of $15-20 million in fiscal 2025, normalizing to $5-10 million annually thereafter. Despite ongoing profitability pressures, S&P’s forecast includes working capital improvements from tight inventory management and better payables terms.
Leslie’s liquidity position is still considered adequate. Following the third quarter, the company repaid all outstanding amounts under its $250 million asset-based lending facility. The company has more than two years until its debt maturities, with its term loan due March 2028.
The negative outlook reflects the risk of diminishing cash flow and constrained liquidity if consumer demand for pool supply products remains weak longer than anticipated.
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