Leslie's, Inc. Material Event - What You Need to Know

Leslie's, Inc., the leading pool supply company, has announced a significant change in its independent auditing firm. This move, detailed in an official SEC filing (known as an 8-K), is crucial for investors to understand due to the reasons behind it.

Event Description

Leslie's dismissed Ernst & Young LLP (EY), its long-standing auditor, and appointed Grant Thornton LLP to take over. This decision followed a competitive selection process. A key factor highlighted in the filing is that EY, for the past two fiscal years (ending October 4, 2025, and September 28, 2024), identified "material weaknesses" in Leslie's internal controls over financial reporting.

These "material weaknesses" refer to significant flaws in the systems and procedures Leslie's uses to ensure accurate financial reporting. Specifically, these deficiencies involved how Leslie's managed:

• Inventory: Tracking, valuing, and reconciling its vast stock of pool supplies.
• Asset Impairment: Properly assessing the value of its long-term assets (like stores and equipment) to prevent overvaluation, particularly concerning valuation methods and processes.
• Vendor Rebates: Accurately accounting for and recognizing money received back from suppliers, including the timing and completeness of these transactions.

While EY's audit reports for these fiscal years did not conclude that Leslie's overall financial statements contained significant errors, these identified weaknesses are a serious concern. They indicate a higher risk of future financial errors or potential fraud if the issues remain unaddressed.

Event Date/Timeline

Leslie's made the decision to change auditors on January 27, 2026, and officially released the 8-K filing on January 30, 2026. EY will complete its review of Leslie's financial statements for the first fiscal quarter, which ended on January 3, 2026. Grant Thornton will then assume responsibility for auditing the company's financial statements for the fiscal year ending October 3, 2026, and all subsequent periods.

Impact Assessment

This news significantly highlights the integrity of Leslie's financial operations and reporting, primarily affecting investors and the company's operational reliability.

• Increased Risk: Material weaknesses in internal controls inherently increase the risk of future financial errors, operational inefficiencies (e.g., inventory issues leading to lost sales or excess costs), and potential regulatory scrutiny.
• Investor Confidence: Such disclosures can make investors nervous, as they suggest underlying operational issues that require robust solutions. This creates uncertainty about the reliability of the company's financial health and future performance.
• Company's Reputation: Leslie's reputation for financial reliability is now under increased scrutiny. Its ability to effectively address these issues will be critical for maintaining investor trust.

Leslie's acknowledges these material weaknesses and commits to a comprehensive remediation plan. The company expects to implement significant changes, which typically include:

• Process Enhancements: Overhauling and strengthening existing procedures for inventory management, asset valuation, and vendor rebate accounting.
• Technology Upgrades: Investing in and implementing new software systems or modules to automate control points and improve data accuracy and tracking.
• Personnel Training & Resources: Providing additional training, clear guidelines, and potentially new personnel to staff involved in these critical financial functions.
• Increased Oversight: Grant Thornton, the new auditor, will play a crucial role in independently assessing the effectiveness of these remediation efforts and reporting on the company's internal controls in future filings.

Financial Impact

The 8-K filing did not disclose specific financial impacts from the auditor change or the estimated costs of the remediation plan for the identified material weaknesses. However, the company acknowledges that implementing process enhancements, technology upgrades, and personnel training will require future expenditures. It is important to note that the former auditor's reports did not conclude that Leslie's overall financial statements contained significant errors for the periods reviewed.

Key Takeaways for Investors

This auditor change, driven by persistent internal control issues, is a critical event for Leslie's. Investors should closely follow the company's efforts to rectify these weaknesses and ensure the integrity and reliability of its financial reporting.

• Monitor Stock Performance: The market may react to this news, potentially leading to short-term volatility in Leslie's stock price as investors digest the implications.
• Watch for Updates: Pay close attention to Leslie's future SEC filings, particularly the "Controls and Procedures" section in upcoming annual (10-K) and quarterly (10-Q) reports. These will provide crucial updates on their progress in resolving the material weaknesses, including any specific timelines or milestones.
• Evaluate Management's Response: Assess how effectively Leslie's management communicates and executes its remediation plan. A clear, decisive response, backed by concrete actions, is essential for rebuilding and maintaining investor confidence.
• Long-Term View: Consider whether this development fundamentally alters your long-term investment thesis for Leslie's. While concerning, successful and timely remediation could ultimately strengthen the company's financial foundation and operational efficiency.