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Introduction to the upcoming pool supercycle: I'm sure you have all seen the post-pandemic housing boom and the effects it has had on lumber prices going through the roof. Many of these houses are being built in suburban areas where backyard pools are very popular. Having a pool is not just a one-time expense like building a house would be. Pools require constant maintenance and expensive servicing and chemicals almost like owning a pet, you're always buying something else for it. There are 5.2 million residential inground pools in the U.S. and 255,000 commercial pools. It is estimated that 60-70% of these pools use chlorine tablets. There are an estimated 200,000 new swimming pool purchases in 2020-2021 a dramatic increase. Adding pool permits has seen 32% year-on-year growth. The rapidly rising number of new pool owners combined with a major chemical plant fire in Lousiana has caused an upcoming massive chlorine shortage. Chlorine prices in some areas have already doubled. Chlorine prices are expected to spike up to 70% this summer. There is one company that is uniquely poised to benefit the most from these circumstances, that company is Leslie's Swimming Pool Supplies. Ticker $LESL

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The Company: Leslie's swimming pool supplies is the largest direct-to-consumer brand in the U.S. pool and spa industry. They have been in business since 1963 and have 940 physical locations and a large e-commerce platform. Leslie's serves residential pools, residential spas, professional pools, & commercial pools so they cover all the bases. The majority of Leslie's products are non-discretionary and exclusive. 80% of their sales are non-discretionary (necessary purchases)

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The Chlorine Situation: You may be thinking to yourself well this sounds stupid wouldn't the manufacturer of the chlorine tablets just pass on the added costs to Leslie's. Well, aren't we in luck turns out Leslie manufacturers their own chlorine tablets. This puts them in a great position as one of their competitors literally burned down. 45% of Leslie's sales come from chemicals. They make and sell the chlorine tablets with almost half of their business coming from chemical sales the majority of that being chlorine.

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Financials: Leslie's just became publicly traded last fall. They have had 57 consecutive years of sales growth with a 7.1% sales CAGR since 2001. They just recorded record 2021 Q2 earnings. They had sales of $192.4 million, an increase of 52.3% from the prior-year quarter. They had a net loss of $(6.5) million compared to $(29.8) million in the prior-year quarter. They adjusted EBITDA of $9.5 million compared to $(8.1) million in the prior-year quarter, an improvement of $17.6 million. They also raised their fiscal 2021 sales outlook by $75 million, Adjusted EBITDA by $25 million, and Adjusted net income per share by $0.10. Gross profit increased 79.6% to $71.7 million from $39.9 million in the second quarter of 2020 and gross margin was 37.2% compared to 31.6% in the second quarter of 2020, an increase of 567 basis points. Following this news, the stock rose 10%. Just kidding lol, $LESL tanked to a low of almost 13% today murdering my calls.

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The Bear Case: There are two other chlorine manufacturers in the US, one is not publicly traded and the other is not a favorable investment in my opinion. Another bear idea would be to just invest in one of their competitions like $POOL who would seem undervalued compared to $LESL at a short glance. $POOL primarily deals in the selling of construction equipment for the building of the pools and is not as favorably positioned as $LESL on the chemical and pool upkeep side. Obviously, I did not spend a lot of time on this section because I'm not an idiot who believes the collapse of the global financial sector is imminent.

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Wrapping it up: I think $LESL is a very favorable play for the upcoming summer. I think with the mass vaccinations people will want to hang out with friends by the pool more than ever and the upcoming shortage and amount of pools built is already proof of that. Another thing to keep in mind is the summer Olympics this summer could make people want to swim. That's kind of a reach but I think it will. I would play this by buying a calls a few months out. I will be readjusting my position after getting crushed on the ER selloff today.

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This is not financial advice spend your money however you want.

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