Leslie’s provides pool supplies and related equipment to residential and professional customers. Approximately 80% of the Company’s offerings are products essential to the care of pools and spas, such as chemicals, equipment, cleaning accessories, and parts.
Throughout the Class Period, Leslie’s customers were purchasing more chemicals than necessary, at significantly inflated prices. Rather than disclose that its impressive sales growth was based on artificial demand, the Company claimed its growth initiatives drove its financial results and produced “healthy ongoing consumer demand” that was “durable” and “showed no signs of slowing.” As the Company itself was encouraging its customers to stockpile pool chemicals, Defendants were telling investors they “just haven’t seen any indication of any meaningful pull-forward” customer purchasing.
The Class Action alleges that, during the Class Period, Defendants misled investors and/or failed to disclose that (1) the Company’s growth was caused by customers over purchasing products; (2) such sales inflated revenues and earnings and were not indicative of durable and sustainable demand or financial growth; (3) the Company prolonged the inflated customer demand by warning customers that Leslie’s could not “guarantee availability” of chemicals in the future; and (4) any slowdown in sales was not a normalization of past seasonality, but was due to the prior excess stockpiling. As a result, Defendants’ positive statements about the Company’s financial guidance, business, operations, and prospects were materially false and misleading and/or lacked a reasonable basis at all relevant times.
On July 13, 2023, Leslie’s issued a press release announcing disappointing preliminary results for its fiscal third quarter of 2023 ended on July 1, 2023, including a 9% year-over-year sales decline and a cut to the Company’s fiscal 2023 guidance. The press release quoted Defendant Egeck, revealing that “consumers entered the pool season with a greater than normal amount of chemicals left[ ]over from last year.” In addition, the Company announced that its Chief Financial Officer would depart the following month. These revelations shocked analysts, resulting in several downgrades, with one firm concluding that “pretty much everything in the company’s preliminary earnings release was more negative than we could have anticipated. In response to this news, the price of Leslie’s common stock declined more than 29%, from a closing price of $9.52 per share on July 13, 2023, to a closing price of $6.70 per share on July 14, 2023. Leslie’s common stock price continued to fall another $1.24 per share the following trading day, or over 18%, closing at $5.46 per share on July 17, 2023.