Leslie’s Out to Win Pool Gear War : Competition: The Chatsworth company ignores an ex-owner’s criticism and plans an aggressive expansion.
Among the investors who bought stock in Leslie’s Poolmart when the Chatsworth-based company went public in April was Phil Leslie, its co-founder. He plunked down $11 and bought a single share.
A month later, Leslie’s Poolmart, the nation’s biggest specialty retailer of swimming-pool supplies with 104 stores in 23 states, jolted Wall Street by reporting a first-quarter loss of $2.7 million and also saying its second-quarter performance would be below expectations. The company’s brand-new stock plunged 25%, and it hasn’t done much since, closing Monday at $8.25 a share.
So Phil Leslie’s modest investment is already under water. And he couldn’t be happier.
It was three years ago that Leslie, who co-founded Leslie’s Poolmart in 1963 and built it into the nation’s premier pool-supplies chain, was ousted as the company’s chief executive during a bitter takeover fight that nearly split the company and its employees apart.
Leslie has sought revenge ever since. He bought into a small rival company called Sandy’s Pool Supply Inc., a North Hollywood-based chain that he has rapidly expanded, and he has repeatedly criticized Leslie’s Poolmart’s new management while making it clear that he’d love to run his old company into the ground.
Leslie’s Poolmart, which had $73.7 million in sales last year, “is eroding because of the nonexistence of top management,” Phil Leslie asserted in an interview. “And wherever we’re close to them, we’re taking market share.”
Phil Leslie bought half of Sandy’s for $500,000, became its president and lured away about 40 of Leslie Poolmart’s employees to join Sandy’s. They quickly expanded Sandy’s to 21 stores from only two, and started a mail-order business to vie with Leslie’s mail-order unit. A “non-compete” agreement that Phil Leslie signed with his old company was fairly lax, and he put some Sandy’s stores within a short drive of Leslie’s outlets.
Phil Leslie’s main criticism of Leslie’s Poolmart’s new management is that it lacks experience and depth, in large part because so many people fled to Sandy’s with him. Leslie’s Poolmart’s new executives have generally kept quiet in the face of his denunciations. Until now.
“Phil would lead you to believe that it really is a big advantage for you to be a career swimming-pool-supplies person,” Leslie’s President Brian P. McDermott said in an interview. “Obviously there’s a benefit to experience. But it’s a simple and straightforward enough business that, with our group coming in, we felt we would supplement quite a bit of that loss.”
McDermott also challenged Phil Leslie’s claim that Sandy’s is taking market share from Leslie’s Poolmart. “There’s no indication in our store sales that he’s taken business away from us,” McDermott said.
Others find that hard to believe. Jules Field, publisher of Pool & Spa News magazine in Los Angeles, said that although he has no specific market-share figures, “you can’t have two major merchandisers in our industry and expect that they don’t have an effect on one another. That’s not realistic.”
Whatever the case, Phil Leslie might be in for some disappointment. Despite the slow sales start this spring, Leslie’s Poolmart has an aggressive expansion plan that calls for the chain to open an additional 25 to 30 stores during the next year.
Also, the $19.5 million in proceeds from the company’s stock offering in April enabled Leslie’s Poolmart to pay off all of its long-term bank debt. The high interest costs on the debt left Leslie’s with combined losses of $6.5 million in 1988-89, and a paltry $35,000 profit last year.
But with the debt gone, much of the cash from Leslie’s operations that formerly went to pay debt interest--it totaled $3.2 million last year--”will now come down” to the bottom line, McDermott said.
McDermott said the soft conditions in the second quarter, which prompted the May announcement that unsettled Wall Street, were related to unexpectedly cold and rainy weather in the West and elsewhere in the nation during April and early May.
The weather conditions obviously were not included in the prospectus for Leslie’s initial stock offering April 18, McDermott said. But because that time period marked the start of Leslie’s busiest season, those factors had a serious impact on the company, he said.
Phil Leslie still can make an impact on his former company as well. Last month, Robert Cheadle, an analyst with Montgomery Securities in San Francisco--which managed Leslie’s Poolmart’s initial public stock offering--used unusually stark language to describe Phil Leslie and Sandy’s Pool Supply.
Cheadle wrote in a research report that Phil Leslie has “conducted a vendetta” and a “hate campaign” against Leslie’s Poolmart with “unmitigated wrath.” He added that “while one would like to dismiss him as eccentric, that is not possible . . . yet.”
Even McDermott said, “we do not use that kind of language about Phil Leslie, or the Sandy’s operation or any competitor. As far as we’re concerned, we think Phil and the Sandy’s organization clearly is an experienced and knowledgeable competitor.”
Cheadle declined further comment on Phil Leslie. But he defended his estimate that, with Leslie’s bank debt gone, the company should enjoy annual sales growth of 10% to 15%, both because of its store expansion and a 5%-8% growth of its “same-store” sales, that is, sales from stores open at least a year.
Leslie’s Poolmart’s debt was incurred when Hancock Park Associates, an investor group, bought the company from Phil Leslie and its other 50% owner, Raymond Cesmat, in 1988 for about $17.5 million. Leslie was reluctant to sell, but Cesmat--who was going through a divorce and wanted to sell--got court approval to dissolve the company, which is allowed under an obscure California law affecting 50% owners.
Then in May, 1988, Cesmat and a court-appointed director fired Phil Leslie on grounds that he was intentionally interfering with the buyout. Chaos ensued at Leslie’s. Many of its employees, siding with Leslie, did not show up for work and picketed some sites, forcing most of Leslie’s stores to close for several weeks.
Eventually, the Hancock Park group pulled the company back together as Phil Leslie moved to Sandy’s.
Because Sandy’s is privately owned, specific financial figures aren’t publicly available. Leslie said Sandy’s sales will climb to nearly $18 million this year from $13.5 million in 1990. He also said the company has been losing money because of its expansion costs, but that it expects to break even this year.
In any case, Phil Leslie has scaled back Sandy’s ambitions. A year ago he talked of Sandy’s annual sales eventually reaching $100 million, but he hasn’t opened any new stores during the past 12 months. Now, his strategy involves having a “smaller but much more profitable company” with a schedule of “carefully opening stores” in strong locations, he said.
He also wants to expand Sandy’s “vertical integration,” a fancy business term that means Sandy’s would make more of the products it sells, such as plastic pool covers and floats. That’s supposed to keep its prices down without sacrificing profit margins, and Leslie’s Poolmart is trying to do the same.
Even so, Phil Leslie will be hard-pressed to keep up with Leslie’s Poolmart. The pool supplies market--excluding the mass merchandisers such as K mart that sell pool supplies--is largely filled with small regional chains and single mom-and-pop operations. McDermott sees that as ripe ground for Leslie’s Poolmart’s expansion plans.
As the biggest player, “we’re the people in a position to take that fragmented market and realize significant gains in market share,” McDermott said.
Phil Leslie won’t have to wait long to see if McDermott’s plan works. Leslie said he bought his single share of Leslie’s Poolmart simply to get the periodic financial reports that publicly held companies send to their stockholders.
“I want to see what’s going on,” he said.
