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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

For the Quarterly Period Ended March 27, 2004

or

For the transition period from                      to                     

Commission File Number 0-18741

LESLIE’S POOLMART, INC.

(Exact name of registrant as specified in its charter)

3925 E. Broadway Road

Phoenix, Arizona 85040

(Address of principal executive offices)

Registrant’s telephone number, including area code: (602) 366-3999

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to 12(g) of the Act: None

Indicate by check mark whether the registrant (1) has filed all documents and reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x     No ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨     No x

The number of shares of the registrant’s Common Stock outstanding at May 4, 2004 was 7,369,502 shares.

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LESLIE’S POOLMART, INC.

AND SUBSIDIARIES

FORM 10-Q

For the Quarterly Period Ended March 27, 2004

INDEX

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PART I - FINANCIAL INFORMATION

Leslie’s Poolmart, Inc.

Consolidated Balance Sheets

(Dollar amounts in thousands)

See accompanying notes to consolidated financial statements.

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Leslie’s Poolmart, Inc.

Consolidated Statements of Operations

(Dollar amounts in thousands)

See accompanying notes to consolidated financial statements.

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Leslie’s Poolmart, Inc.

Consolidated Statements of Cash Flows

(Dollar amounts in thousands)

See accompanying notes to consolidated financial statements.

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Leslie’s Poolmart, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the 26-week period ended March 27, 2004 are not necessarily indicative of the results that may be expected for the year ended October 2, 2004.

The balance sheet at March 27, 2004 has been derived from the unaudited financial statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements.

For further information, refer to the consolidated financial statements and footnotes thereto included in Leslie’s Poolmart, Inc.’s annual report on Form 10-K for the year ended September 27, 2003.

Leslie’s Poolmart, Inc. is a specialty retailer of swimming pool supplies and related products. The Company markets its products under the trade name Leslie’s Swimming Pool Supplies through 452 retail stores in 36 states; a nationwide mail order catalog; and an Internet E-commerce capability. The Company also repackages certain bulk chemical products for retail sale. The Company’s business is highly seasonal as the majority of its sales and all of its operating profits are generated in the quarters ending in June and September.

Inventories consists of the following:

On October 31, 2003, the Company amended its Loan and Security Agreement (the “Amended Agreement”) with Wells Fargo Retail Finance LLC. The Amended Agreement extends the maturity date to January 15, 2008 and allows the Company to optionally increase its maximum borrowing to $75.0 million. The Amended Agreement contains certain financial covenants that include minimum calculated EBITDA levels, maximum capital expenditure amounts, Fixed Charge Coverage Ratio, and Senior Leverage Ratio. As of March 27, 2004, the Company was in compliance with these covenants.

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The Company has adopted the provisions of SFAS No. 148 “Accounting for Stock-Based Compensation – Transition and Disclosure” which amends SFAS No. 123 “ Accounting for Stock-Based Compensation”. The Company has adopted the disclosure only provision of SFAS No. 123 and accordingly recognizes no compensation expense for employee stock option grants. Had compensation expense for these plans been determined consistent with SFAS No. 123, the Company losses would have increased by $27,000 and $15,000 for the 13 weeks ended March 27, 2004 and March 29, 2003, respectively and $47,000 and $30,000 for the 26 weeks ended March 27, 2004 and March 29, 2003, respectively.

FASB Interpretation No. 46, Consolidation of Variable Interest Entities (FIN 46), was issued in January 2003 and addresses consolidation by business enterprises of variable interest entities. FIN 46 clarifies existing accounting for whether variable interest entities, as defined in FIN 46, should be consolidated in financial statements based upon the investee’s ability to finance activities without additional financial support and whether investors possess characteristics of a controlling financial interest. Fin 46 applies to public entities that have interests in special purpose entities for periods ending after December 15, 2003. Application for all other types of variable interest entities is required in financial statements for periods ending after March 15, 2004. The Company does not have any interests in variable interest entities and therefore this adoption will not have any effect on our results of operations or financial position.

In May 2003, SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity, was issued. SFAS 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity, and is effective for financial instruments entered into or modified after May 31, 2003 and otherwise is effective July 1, 2003. The Company at March 27, 2004 has $46.1 million of mandatorily redeemable preferred stock classified as mezzanine equity on the balance sheet. The effect of SFAS No. 150 will be to reclassify this balance from the mezzanine section of the balance sheet to a liability classification on the balance sheet. In addition, the accretion of the value of the preferred stock will be classified as interest expense instead of increasing retained deficit. In October 2003, the SFAS agreed to defer the effective date of Statement 150 to entities that have issued shares that are mandatorily redeemable on a fixed date at a fixed principal amount to fiscal periods beginning after December 15, 2003. Accordingly, the Company will adopt this standard beginning October 3, 2004. Had the standard been adopted during fiscal 2004, interest expense for the thirteen week periods ended March 27, 2004 and March 29, 2003 would have been increased by $1,756,000 and $1,550,000, respectively and $3,448,000 and $2,981,000 for the 26 week periods ended March 27, 2004 and March 29, 2003. The preferred stock dividends and accretion in the statements of stockholders’ equity (deficit) would have been reduced by the same amount.

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Leslie’s Poolmart, Inc.

The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements. Certain information included in this document (as well as information included in oral statements or other written statements made or to be made by the Company) contains statements that are forward-looking, such as statements relating to plans for future activities. Such forward-looking information involves important risks and uncertainties that could significantly affect anticipated results in the future and, accordingly, such results may differ from those expressed in any forward-looking statements made by or on behalf of the Company. These risks and uncertainties include, but are not limited to, those relating to domestic economic conditions, activities of competitors, seasonality changes in federal or state tax laws and of the administration of such laws and the general condition of the economy.

This discussion and analysis of our financial condition and results of operations, should be read in conjunction with our unaudited consolidated financial statements and disclosures included elsewhere in this report, and management’s discussion and analysis of financial condition and results of operations included as part of Form 10-K for the year 2003.

General

Leslie’s Poolmart, Inc. is the leading specialty retailer of swimming pool supplies and related products in the United States. The Company currently markets its products through 452 Company-owned retail stores in 36 states; a nationwide mail order catalog; and an Internet E-commerce capability. Leslie’s is vertically integrated, operating a chemical repackaging facility in Ontario, California and a specialty chemical repackaging facility in Hebron, Kentucky. It supplies its retail stores from distribution facilities located in Ontario, California; Dallas, Texas; Swedesboro, New Jersey; and Hebron, Kentucky.

Seasonality and Quarterly Fluctuations

The Company’s business exhibits substantial seasonality, which the Company believes is typical of the swimming pool supply industry. In general, sales and net income are highest during the fiscal quarters ending in June and September, which represent the peak months of swimming pool use. Sales are substantially lower during the quarters ending December and March when the Company will typically incur operating losses.

The Company expects that its quarterly results of operations will fluctuate depending on the timing and amount of revenue contributed by new stores and, to a lesser degree, the timing of costs associated with the opening of new stores. The Company generally attempts to open its new stores in the quarter ending in March in order to position itself for the following peak season.

Results of Operations

Net Sales. Net sales for the 13 weeks ended March 27, 2004 were $38.8 million compared to $35.6 million for the 13 weeks ended March 29, 2003. The 9.3% increase was due to comparable store sales increases coupled with the additional store count as compared to the prior year. Year-to-date sales were $79.7 million as compared to $71.5 million in the prior year. Retail comparable store sales for the 13 weeks ended March 27, 2004 increased 4.1% as compared to the prior year. Retail comparable store sales for the 26 weeks ended March 29, 2004 increased 6.7% as compared to the prior year sales. The Company considers a store to be comparable in the first full month after it has completed 52 weeks of sales. Closed stores become non-comparable during their last partial month of operation. Stores that are relocated are considered comparable stores at the time the relocation is completed. Comparable store sales is not a measure of financial performance under accounting principles generally accepted in the United States (GAAP). Comparable store

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sales is not calculated in the same manner by all companies and accordingly is not necessarily comparable to similarly entitled measures of other companies and may not be an appropriate measure for performance relative to other companies.

Gross Profit. Gross profit for the 13 weeks ended March 27, 2004 was $18.7 million compared to $16.3 million for the 13 weeks ended March 29, 2003. As a percentage of sales, gross profit was 48.1% for the second quarter of fiscal 2004 compared to 45.9% for the second quarter of fiscal 2003. Gross profit improved due to the increased sales, reductions in distribution expenses on a dollar and rate basis, and improvements in product acquisition costs. For the 26 weeks ended March 27, 2004, gross profit was $37.1 million as compared to $32.1 million in the prior year. As a percentage of sales, gross profit was 46.6% as compared to 44.9% in the prior year.

Operating and Administrative Expense. Operating and administrative expense for the 13 weeks ended March 27, 2004, were $28.6 million compared to $27.2 million for the 13 weeks ended March 29, 2003. Operating and administrative expenses as a percentage of sales were 73.7% for the 13 weeks ended March 27, 2004 compared to 76.6% for the 13 weeks ended March 29, 2003. Operating expenses increased during the quarter due to the additional store count as compared to the prior year and the expense rate improved due to effective labor scheduling and the leverage of fixed expenses against the improved sales. Operating expenses were $56.4 million compared to $53.7 million for the 26 weeks ended March 29, 2003.

Operating Loss. Operating loss for the 13 weeks ended March 27, 2004 was reduced by $1.0 million from a $10.9 million loss during the 13 weeks ended March 29, 2003 to an operating loss of $9.9 million for the 13 weeks ended March 27, 2004. Operating loss for the 26 weeks ended March 27, 2004 was reduced by $2.4 million as compared to a $21.6 million loss in the first 26 weeks of last year. The operating loss for the 13 weeks improved due to the improved gross margin and effective expense control achieved during the quarter.

Other Income and Expense. Net interest expense was $1.8 million for the 13 weeks ended March 27, 2004 compared to $2.7 million for the 13 weeks ended March 29, 2003. The decrease in interest expense was due primarily to the lower Senior Note debt balance in the quarter as compared to the previous year. For the 26 weeks, the net interest expense was $3.6 million and $5.2 million, respectively.

Income Taxes. The Company’s income tax benefit for the 13 weeks ended March 27, 2004 was $4.5 million, or an effective rate of 39.5% as compared to a $5.4 million benefit, or an effective rate of 39.2% for the 13 weeks ended March 29, 2003. For the 26 weeks ended March 27, 2004, the income tax benefit was $9.0, or an effective rate of 39.5% as compared to $10.6 million benefit, or an effective rate of 39.2% for the prior year. The reduction in the income tax benefit was due primarily to the improved pre-tax loss as compared to the prior year.

Adjusted EBITDA. The adjusted EBITDA loss for the 13 weeks ended March 27, 2004 was $7.4 million versus an adjusted EBITDA loss of $8.6 million, for the 13 weeks ended March 29, 2003. For the 26 weeks ended March 27, 2004, the adjusted EBITDA improved by $2.9 million as compared to an adjusted EBITDA loss of $17.1 million in the prior year.

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Adjusted EBITDA is determined as follows ⁽¹⁾:

Financial Condition, Liquidity and Capital Resources

Changes in Financial Condition. Between September 27 2003 and March 27, 2004, total current assets increased by $32.4 million primarily as the result of a $33.1 million increase in inventory during the period offset by reductions in accounts receivable and cash. Inventory normally increases during this time frame as the Company prepares for its peak selling season.

During the same period, current liabilities increased by $19.7 million due primarily to a $27.6 million increase in accounts payable and accrued expenses partially offset by a $7.8 million reduction in income taxes payable. The change in accounts payable reflects the additional purchases of inventory while the reduced income tax liability is due to the timing differences of tax payments.

Liquidity and Capital Resources. Net cash used in operating activities was $ 25.2 million for the 26 weeks ended March 27, 2004 compared to net cash used in operating activities of $28.1 million for the same period in the prior year. The change in the 26 weeks ended March 27, 2004 compared to the same period in 2003 was due primarily to the reduced net loss.

Capital expenditures for the 26 weeks ended March 27, 2004 were $4.2 million. Capital expenditures are expected to range between $9.0 and $11.0 million for fiscal 2004, primarily for the purpose of opening new stores. It is anticipated the balance of 2004 capital expenditures will be funded out of cash provided by operations and borrowings under the credit facility.

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Net cash provided by financing activities for the 26 weeks ended March 27, 2004 was $24.7 million. Funds borrowed under the revolving credit portion of the Company’s credit facility are restricted to working capital and general corporate purposes, which includes capital expenditures. The level of borrowings under the Company’s credit facility is dependent primarily upon cash flows from operations, the timing of disbursements, long-term borrowing activity and capital expenditure requirements.

Critical Accounting Policies and Estimates

The Company’s consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States which requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, sales and expenses. On an ongoing basis, the Company evaluates its estimates, including those related to inventory reserves, allowance for doubtful accounts, valuation allowance for the net deferred income tax asset, contingencies and litigation liabilities. The Company bases its estimates on historical experience, independent valuations, and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

The Company believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of its consolidated financial statements.

Revenue on retail sales is recognized upon purchase by the customer. Revenue on services, is recognized as services are performed and the fee is fixed or determinable and collection is probable. Terms are customarily FOB shipping point or point of sale, net of related discounts. The Company does not provide an estimated allowance for sales returns as they are deemed to be immaterial.

Inventories are stated at the lower of cost or market. The Company values inventory using the first-in, first-out (FIFO) method. Included in cost of sales are the costs of services and purchased goods, chemical repackaging costs and related distribution costs. The Company recognizes consideration received from vendors at the time our obligations to purchase products or perform services have been completed. These items are recorded as a reduction in cost of goods sold in the statement of operations.

The Company’s Loan and Security Agreement carries interest rate risk. Amounts borrowed under this Agreement bear interest at either LIBOR plus 1.5%, or at the Company’s choice, the lender’s reference rate. Should the lenders’ base rate change, the Company’s interest expense will increase or decrease accordingly. At the end of the current quarter, there was $25.0 million outstanding under this facility.

Our Principal Executive Officer and Principal Accounting Officer reviewed our disclosure controls and procedures during the last 90 days. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective in timely alerting them to material information related to the Company (including our consolidated subsidiaries) that is required to be included in our periodic SEC filings. There were no changes in our internal control over financial reporting during the quarter ended March 27, 2004 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

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PART II. OTHER INFORMATION

We are and may continue to be a party to various lawsuits and arbitrations from time to time. As of March 27, 2004, we were not a party to any legal proceedings that we believe are likely to have a material effect on our business.

(a) Exhibits

(b) Reports on Form 8-K - None

SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

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