America’s pandemic pool boom is over

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Nobody wants to tread water for too long. In late 2020, Arizona-based pool equipment retailer Leslie’s listed its shares. The timing was auspicious. Americans were spending freely on household upgrades, including pools. The chemicals needed for pool upkeep are generally considered a compulsory, ongoing, expense.

But cost-conscious pool owners willing to skimp on hygiene have left Leslie’s soaking wet. Its shares are down nearly 80 per cent from their peak in 2021. In the last fiscal year, interest expense doubled while ebitda was nearly cut in half at the private-equity backed group. Market capitalisation has dwindled to $1bn, roughly the quantum of its debt.

Leslie’s says long-term trends remain favourable. But the housing and home equity boom of the pandemic is long gone. The company is left with the tricky tasks of managing its inventory and balance sheet.

It has told Wall Street that falling revenue in 2023 could be partially attributed to customers hoarding chemicals following supply chain shocks in recent years. Big ticket discretionary products including hot tubs sold more poorly as wallets were hit hard by inflation. At the same time, the company took one-time hits on chemicals pricing and inventory restructurings.

But a broader decline is also under way. In the years before the financial crisis, the US installed 200,000 new swimming pools a year on average. Even in the 2021 boom, the figure was only half of this early 2000s peak. 

This is not expected to recover. In 2024, Leslie’s forecasts that sales will remain flat. However, it believes profits could rebound with a reset in its cost base. Debt to ebitda, now well above four times, is forecast to fall by as much as one turn. There may be enough profits left over for share buybacks.

Even a modest snap back in profits would send the company’s shares back up given the amount of financial leverage. Still, Leslie’s moment in the sun was a one-off.