Leslie’s Reportedly Prepares Chapter 11 Filing as Lenders May Take Control

Key Facts

The Wall Street Journal reported on September 24, 2026, that pool supplies retailer Leslie’s was preparing to seek Chapter 11 protection in Houston as soon as the following week. Leslie’s had $786.7 million in borrowings on July 4, 2026, and its LESL shares closed at $0.339 on September 24, according to EL7 data. The newspaper said lenders were expected to take control under a possible restructuring, citing people familiar with the matter. The value left for existing shareholders would depend on the terms of any agreement or court plan. The report therefore puts the treatment of the company’s debt, and the residual value of its equity, at the center of the investment case.

The share price shows investors’ concern, but it does not establish what shareholders would recover in a restructuring. LESL closed at $0.4185 on September 23, 2026, after trading between $0.4111 and $0.44 that day, according to EL7 data. On September 24, it traded between $0.2667 and $0.428 before closing at $0.339. The two closing prices imply a decline of about 19%. Investors need to distinguish a trading price, which reflects expectations and risk appetite, from a reorganization plan that would specify the rights of the existing shares.

The balance sheet explains why a potential transfer of control matters so much to the stock. Leslie’s reported $786.7 million in borrowings on July 4, 2026, against $45.9 million in cash and equivalents on the same date. The company put its total liquidity, combining cash and available borrowing capacity, at $207.1 million; that measure is broader than cash already held. Its term loan matures on March 9, 2028, although Leslie’s said it expected to address the debt earlier through refinancing, restructuring, an extension or, if needed, relief under reorganization laws. The fewer workable options it has for the debt, the more equity value depends on terms negotiated with lenders.

Results for the fiscal quarter ended July 4, 2026, show that debt was only part of the pressure. Sales fell 8.4% to $458.5 million from $500.3 million a year earlier, while comparable sales declined 6.2%. The company attributed weaker revenue to a slow summer pool season and lost sales from closing underperforming stores. Gross margin fell to 36.5% from 39.6%, affected by fewer sales of higher-margin products and weaker volume. That combination matters to creditors and shareholders alike because a smaller gross-profit pool leaves less room to cover operating costs and service debt.

The quarter’s higher net profit does not, by itself, resolve that pressure. Leslie’s reported net income of $47.8 million, up from $21.7 million a year earlier, but selling and administrative costs benefited from a one-time $17.5 million settlement gain after legal fees. Adjusted earnings before interest, taxes, depreciation and amortization fell to $55.7 million from $81.6 million over the same comparison. The figures separate the effect of an exceptional gain on reported profit from the deterioration in a measure the company uses to assess operations. For shareholders, stronger quarterly accounting profit therefore offers limited assurance about the recurring earnings available to support a large debt load.

The nine months ended July 4, 2026, present a weaker picture than the single profitable quarter. Sales declined to $790.4 million from $852.7 million a year earlier, and the net loss widened to $87.7 million from $74.2 million. Adjusted earnings before interest, taxes, depreciation and amortization swung to a loss of $11.4 million from a profit of $16.2 million. Leslie’s also closed 80 underperforming stores and one distribution center, recording $8.3 million in noncash asset impairment. Those figures show the scale of the operating reset: cost reductions can take time to pay off while lower sales continue to weigh on the business.

Leslie’s had already warned in its August 2026 filing of substantial doubt about its ability to continue as a going concern. It said management’s plans, including cost cuts and talks with lenders, did not remove that doubt over the period it assessed. The company also withdrew its fiscal 2026 outlook, citing a soft economy and uncertainty about customer behavior. It disclosed a review of strategic alternatives with financial stakeholders that could include a debt-reduction transaction alongside new financing. Those disclosures provide context for the Chapter 11 report, while leaving the eventual route and timing subject to negotiation.

The order of claims explains why a plan giving lenders control could hit LESL shareholders particularly hard. Chapter 11 can allow a company to operate while it negotiates a reorganization plan, but the plan must specify the treatment of creditors and shareholders and proceed through the court. Creditors stand ahead of common shareholders in the claim on value; existing shares may be heavily diluted or cancelled under a plan. Leslie’s itself warned that a debt-reduction transaction would likely substantially dilute or eliminate the value of its current common stock. For someone buying or holding the shares, the prospective value of the reorganized business after debt claims matters more than the stock’s low nominal price.

Leslie’s seasonal business makes liquidity harder to judge from a single date. The company says sales and cash generation normally peak in its third and fourth fiscal quarters, encompassing the April-to-September pool-use season. It builds inventory ahead of that period and pays suppliers later, tying cash needs to the timing of sales and payments. Its filing warned that publicity around strategic alternatives could lead suppliers to shorten payment terms or demand cash in advance. If that happens, the flexibility represented by its cash and credit facility could narrow well before the 2028 term-loan maturity.

The next test is whether a court petition appears in the week following the Wall Street Journal report. If Leslie’s files, court papers and lender agreements should show how much debt is addressed, how operations would be financed and how existing shares would be treated. If it reaches an out-of-court deal instead, the terms of debt reduction and any new financing would still determine the effect on shareholders. Leslie’s said it had set no timetable for finishing its review of strategic alternatives, leaving the outcome open. Either way, the case for LESL turns on cash generation and the terms of a deal, rather than the expected change of control alone.