Is Chapter 11 Next for Leslie’s, America’s Largest Pool Supply Chain?

Less than two months ago, it looked as though Leslie’s (NASDAQ: LESL) might finally be turning a corner.

After reporting fiscal second-quarter earnings that weren’t nearly as bad as analysts had expected, the company’s stock staged an impressive comeback. Sales came in better than forecast, management pointed to gains from its value pricing strategy, and investors responded with renewed optimism that the retailer’s turnaround efforts might finally be taking hold.

“Compared to last year, in the second quarter, we delivered overall revenue growth of 4.3%, a comparable sales increase of 6.6%, improved year-over-year adjusted EBITDA by 26% and registered total customer count growth of 8%,” said CEO Jason McDonell.

The rally based on that news was dramatic.

On June 29, Leslie’s shares climbed as high as $10.76, giving investors hope that the company’s long slide might finally be over.

That optimism didn’t last.

A difficult summer selling season, continued pressure on the business, and renewed concerns about the company’s financial health quickly reversed the gains. Today, Leslie’s stock has fallen back to around $1.24 per share, wiping out nearly all of the momentum generated after its second-quarter earnings report.

The latest blow came after Bloomberg reported that Leslie’s has been evaluating a range of strategic alternatives to address its debt burden, including the possibility of filing for Chapter 11 bankruptcy protection. According to people familiar with the discussions, the company has been negotiating privately with creditors in an effort to extend its debt obligations, although no final decision has reportedly been made.

It’s important to emphasize that, at this point, a bankruptcy filing remains only one of several options reportedly under consideration. Leslie’s has not announced plans to seek Chapter 11 protection, and the Bloomberg report indicates discussions with lenders are ongoing.

A Difficult Road to Recovery

Still, for a company that has spent the better part of two years fighting declining sales, shrinking margins, and mounting debt, the report reignited concerns that investors hoped had begun to subside.

Earlier this year, Leslie’s closed approximately 80 underperforming stores and one distribution center as part of an effort to streamline operations and reduce costs. Those closures followed another difficult fiscal first quarter marked by declining sales and continued losses, forcing management to accelerate its turnaround efforts.

The second quarter offered a measure of encouragement. Revenue exceeded Wall Street expectations, and management’s pricing initiatives appeared to be attracting customers back into stores. Investors interpreted the results as evidence that the turnaround strategy might finally be gaining traction.

But the broader operating environment hasn’t become any easier.

The pool industry continues to work through a post-pandemic normalization cycle after several years of unprecedented demand. Higher interest rates, persistent inflation, softer consumer discretionary spending, and unfavorable weather across several key markets have all weighed on pool construction, renovation activity, and retail sales. Those pressures have affected much of the industry, though companies with significant debt loads have faced an especially difficult balancing act.

Leslie’s isn’t the only brick-and-mortar retailer feeling the heat. Chains across a wide range of industries have struggled in recent years as consumers shifted more spending online, inflation squeezed discretionary purchases, and higher operating costs eroded margins. Those pressures have contributed to a growing list of high-profile retail bankruptcies, with Leslie’s now facing similar questions about its own future.

Chapter 11, should it ultimately become necessary, is designed to allow companies to restructure while continuing normal operations. Many retailers have emerged from the process with healthier balance sheets after reducing debt and renegotiating obligations. Industry observers have also noted that Leslie’s still possesses significant brand recognition, a nationwide retail footprint, and one of the largest customer databases in the swimming pool industry—assets that continue to hold value regardless of near-term financial challenges.

For investors, however, the lesson from this year’s dramatic rally may be a familiar one.

A sharp rebound in a heavily shorted stock can happen quickly when expectations become excessively pessimistic. Sustaining those gains requires evidence that the underlying business has fundamentally improved.

What Comes Next for Leslie’s

That remains the question facing Leslie’s.

When Pool Magazine covered the company’s reverse stock split last year, we noted that the move addressed Nasdaq’s listing requirements but did little to solve the operational issues driving the company’s decline. The challenges facing Leslie’s today suggest those concerns have not gone away.

The company’s struggles also reflect a much longer story. As Inc. recently detailed in its examination of Leslie’s rise and decline, years of private equity ownership, acquisitions, and a growing debt load left the retailer carrying significant financial obligations just as the post-pandemic pool boom began to cool. Those pressures have only intensified as consumers pulled back on discretionary spending and the industry returned to more normalized demand.

Whether Leslie’s ultimately restructures its balance sheet through negotiations with creditors, secures additional financing, or pursues Chapter 11 protection remains to be seen. For now, bankruptcy remains only one of several options reportedly under consideration.

What happens next won’t just matter to shareholders. As the nation’s largest dedicated pool retailer, Leslie’s future carries implications for manufacturers, distributors, service professionals, and consumers across the pool industry.

For a company that has served pool owners for more than six decades, the coming months may prove to be the most consequential in its history.