10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Quarterly Period Ended July 1, 2006

or

¨ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from                          to                         

Commission File Number 0-18741

LESLIE’S POOLMART, INC.

(Exact name of registrant as specified in its charter)

Delaware	95-4620298
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

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 a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  ¨                Accelerated filer  ¨                Non-accelerated filer  x

Indicate by check mark whether the registrant is a shell company (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 August 10, 2006 was 40,075,000 shares.

LESLIE’S POOLMART, INC.

AND SUBSIDIARIES

FORM 10-Q

For the Quarterly Period Ended July 1, 2006

INDEX

		Page
Part I. Financial Information
Item 1.	Financial Statements
	Consolidated Balance Sheets as of July 1, 2006 (unaudited) and October 1, 2005	3
	Consolidated Statements of Operations for the 13 weeks and 39 weeks ended July 1, 2006 (unaudited) and July 2, 2005 (unaudited)	4
	Consolidated Statements of Cash Flows for the 39 weeks ended July 1, 2006 (unaudited) and July 2, 2005 (unaudited)	5
	Notes to Consolidated Financial Statements (unaudited)	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	8
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	13
Item 4.	Controls and Procedures	13
Part II. Other Information
Item 1.	Legal Proceedings	14
Item 1A.	Risk Factors	14
Item 2.	Unregistered Sales of Securities and Use of Proceeds	14
Item 5.	Other Information	14
Item 6.	Exhibits	14
Signatures		15

2

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

Leslie’s Poolmart, Inc.

Consolidated Balance Sheets

(Amounts in thousands, except share information)

	July 1, 2006			October 1, 2005
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	33,742		$	2,172
Accounts and other receivables, net		10,188			11,691
Inventories		83,526			60,925
Prepaid expenses and other current assets		3,639			2,058
Deferred tax assets		6,875			7,618
Total current assets		137,970			84,464
Property, plant and equipment, net		38,834			39,596
Intangibles, net		8,020			8,051
Deferred financing costs, net		6,422			7,184
Deferred tax assets		2,610			2,598
Other assets		363			512
Total assets	$	194,219		$	142,405
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable	$	55,832		$	21,321
Accrued expenses		39,775			31,637
Income taxes payable		11,930			7,739
Deferred tax liabilities		110			110
Total current liabilities		107,647			60,807
Revolving commitment		—			7,104
Other long term liabilities		10,731			7,201
Redeemable preferred stock, $0.001 par value; authorized 1,000,000 shares, issued and outstanding 41,000 Series A at July 1, 2006 and at October 1, 2005		41,000			41,000
Senior notes		168,914			168,850
Total liabilities		328,292			284,962
Commitments and contingencies
Stockholder’s deficit:
Common stock, $0.001 par value, authorized 50,000,000 shares, issued and outstanding 40,075,000 shares at July 1, 2006 and 39,975,000 at October 1, 2005		40			40
Paid-in capital		(144,081	)		(144,216	)
Treasury stock, 60,000 shares at cost at July 1, 2006 and 25,000 shares at cost at October 1, 2005		(189	)		(25	)
Retained earnings		10,157			1,644
Total stockholders’ deficit		(134,073	)		(142,557	)
Total liabilities and stockholders’ deficit	$	194,219		$	142,405

See accompanying notes to consolidated financial statements.

3

Leslie’s Poolmart, Inc.

Consolidated Statements of Operations (unaudited)

(Amounts in thousands)

	13 Weeks Ended					39 Weeks Ended
	July 1, 2006			July 2, 2005		July 1, 2006			July 2, 2005
Sales	$	198,114		$	173,343	$	294,611		$	259,117
Cost of merchandise sold and services sold, including warehousing and transportation expenses		99,678			87,425		147,948			131,997
Gross profit		98,436			85,918		146,663			127,120
Selling, general and administrative expenses		49,801			44,916		115,381			105,610
Unusual charges		—			1,117		—			17,988
Operating income		48,635			39,885		31,282			3,522
Other expenses/(income):
Interest expense		4,970			5,285		15,216			13,860
Interest income		(66	)		—		(139	)		(4	)
Other expense/(gains)		(203	)		11		(10	)		34
Unusual charges		—			—		—			8,881
Total other expense		4,701			5,296		15,067			22,771
Earnings/(loss) before income taxes		43,934			34,589		16,215			(19,249	)
Income tax expense/(benefit)		20,869			14,353		7,702			(6,002	)
Net income/(loss)	$	23,065		$	20,236	$	8,513		$	(13,247	)

See accompanying notes to consolidated financial statements.

4

Leslie’s Poolmart, Inc.

Consolidated Statements of Cash Flows (unaudited)

(Amounts in thousands)

	39 Weeks Ended
	July 1, 2006			July 2, 2005
Operating activities:
Net income/(loss)	$	8,513		$	(13,247	)
Adjustments to reconcile net income/(loss) to net cash used in operating activities:
Depreciation and amortization		8,976			8,802
Preferred stock dividend and accretion		3,373			4,272
Amortization of loan fees and discounts		826			2,385
Allowance for doubtful accounts		149			387
Loss/(gain) on disposition of assets		(10	)		34
Deferred income taxes		731			(1,965	)
Changes in operating assets and liabilities:
Accounts and other receivables		1,354			(4,793	)
Inventories		(22,601	)		(34,222	)
Prepaid expenses and other current assets		(1,581	)		(1,088	)
Other assets		149			(36	)
Accounts payable and accrued expenses		42,806			50,179
Income taxes payable		4,191			(8,250	)
Net cash provided by operating activities		46,876			2,458
Investing activities:
Purchase of property, plant and equipment		(8,402	)		(9,491	)
Proceeds from disposition of property		229			10
Net cash used in investing activities		(8,173	)		(9,481	)
Financing activities:
Net line of credit borrowings		(7,104	)		11,502
Preferred stock premium and discount		—			1,041
Stock option compensation		—			16,070
Proceeds from warrants and options exercised		—			4,067
Purchase of common and treasury stock		(229	)		(158,984	)
Proceeds from issuance of common and treasury stock, net of fees		200			39,828
Payments of deferred financing cost		—			(7,910	)
Payment of long term debt		—			(55,495	)
Sale of senior notes		—			168,742
Preferred stock payment		—			(64,506	)
Refinance preferred stock		—			41,000
Net cash used in financing activities		(7,133	)		(4,645	)
Net increase/(decrease) in cash and cash equivalents		31,570			(11,668	)
Cash and cash equivalents at beginning of period		2,172			16,767
Cash and cash equivalents at end of period	$	33,742		$	5,099

See accompanying notes to consolidated financial statements.

5

Leslie’s Poolmart, Inc.

Notes to Consolidated Financial Statements (unaudited)

(1) Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in conformity with United States generally accepted accounting principles applicable to 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 13-week and 39-week periods ended July 1, 2006 are not necessarily indicative of the results that may be expected for the year ended September 30, 2006.

The balance sheet at July 1, 2006 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. Certain amounts related to income taxes have been reclassified on the October 1, 2005 balance sheet. This reclassification had no effect on net income or cash flow as previously reported.

For further information, refer to the Consolidated Financial Statements and Notes thereto included in Leslie’s Poolmart, Inc.’s Annual Report on Form 10-K for the year ended October 1, 2005.

(2) Organization and Operation

Leslie’s Poolmart, Inc., which is sometimes referred to as the “Company” or “Leslie’s” in this report, 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 537 stores in 35 states, a nationwide mail order catalog, and web store. The Company also operates five distribution facilities and 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 third and fourth fiscal quarters.

(3) Stock Based Compensation

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”.

For the purpose of Statement 123(R) “Share Based Payment”, the Company is considered a “non-public entity” since it does not have equity securities trading in a public market. For “non-public entities” the effective date to adopt the complete provisions of Statement 123(R) is for fiscal years beginning after December 15, 2005. Statement 123(R) will be effective for the Company beginning October 1, 2006.

The Company has adopted the disclosure only provision of SFAS No. 123 and accordingly recognizes no compensation expense upon grant for employee stock option grants. Had compensation expense for these plans been determined consistent with SFAS No. 123, the Company’s net income/(loss) would have been decreased by $9,000 and $0 for the 13 weeks ended July 1, 2006 and July 2, 2005, respectively, and by $24,000 and $50,000 for the 39 weeks ended July 1, 2006 and July 2, 2005, respectively.

(4) Inventories

Inventories consist of the following:

Amounts in thousands	July 1, 2006		October 1, 2005
Raw materials and supplies	$	1,573	$	520
Finished goods		81,953		60,405
Total Inventories	$	83,526	$	60,925

6

Leslie’s Poolmart, Inc.

(5) Recently Issued Accounting Pronouncements

On December 16, 2004, the Financial Accounting Standards Board (FASB) issued FASB Statement No. 123; (Revised 2004) (Statement 123(R)) “Share-Based Payment”, which is a revision of FASB Statement No. 123, “Accounting for Stock-Based Compensation”. Statement 123(R) supersedes APB opinion 25, “Accounting for Stock Issued to Employees” and amends FASB Statement No. 95, “Statement of Cash Flows”. Statement 123(R) requires all share-based payments to employees to be recognized in the financial statements based on their fair market values. For the purpose of Statement 123(R), the Company is considered a “non-public entity” since it does not have equity securities trading in a public market. For “non-public entities” the effective date to adopt the complete provisions of Statement 123(R) is for fiscal years beginning after December 15, 2005. Statement 123(R) will be effective for the Company beginning October 1, 2006.

As permitted by Statement 123, the Company currently accounts for share-based payments to employees using APB Opinion 25’s intrinsic value method and, as such, generally recognizes no compensation cost for employee stock options. Accordingly, the adoption of Statement 123(R)’s fair value method could have a significant impact on the Company’s results of operations, although it will have no impact on the Company’s overall cash position. The impact of adoption of Statement 123(R) cannot be predicted at this time because it will depend on levels of share-based payments granted in the future. However, had the Company adopted Statement 123(R) in prior periods, the impact of that standard would have approximated the impact of Statement 123 as described in the disclosure of pro forma net income in Note 3. Statement 123(R) also requires the benefits of tax deductions in excess of recognized compensation cost to be reported as a financing cash flow, rather than as an operating cash flow as required under current literature.

In June 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 48 (FIN 48), “Accounting for Uncertainty in Income Taxes”. FIN 48 is an interpretation of FASB Statement No. 109 “Accounting for Income Taxes” and must be adopted by the Company no later than September 30, 2007. FIN 48 prescribes a comprehensive model for recognizing, measuring, presenting, and disclosing in the financial statements uncertain tax positions that the company has taken or expects to take in its tax returns. The Company has not evaluated the impact of adopting FIN 48, but presently anticipates that its adoption will not have a material effect on the Company’s financial statements.

7

Leslie’s Poolmart, Inc.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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, seasonal effects, 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 the Company’s financial condition and results of operations should be read in conjunction with its 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 the Company’s Annual Report on Form 10-K for the year ended October 1, 2005.

General

Leslie’s Poolmart, Inc. (the “Company” or “Leslie’s”) is the leading specialty retailer of swimming pool supplies and related products in the United States. The Company markets its products through 537 Company-owned stores in 35 states; a nationwide mail order catalog; and the Internet. Leslie’s is vertically integrated, operating a chemical repackaging facility in Ontario, California and a specialty chemical repackaging facility in Hebron, Kentucky. The Company supplies its retail stores from distribution facilities located in Ontario, California; Dallas, Texas; Swedesboro, New Jersey; Hebron, Kentucky; and Orlando, Florida.

The Company was incorporated as a Delaware corporation in 1997. The Company’s principal executive offices are located at 3925 E. Broadway Road, Suite 100, Phoenix, Arizona 85040, and the telephone number at that address is (602) 366-3999. Leslie’s corporate website address is www.lesliespool.com.

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 quarters that end in June and September which represent the peak months of swimming pool use. Sales are substantially lower during the quarters that end in December and March when the Company typically incurs net losses. The principal external factor affecting the Company’s business is weather. Hot weather and the higher frequency of pool usage in such weather create a need for more pool chemicals and supplies. Unseasonably early or late warming trends can increase or decrease the length of the pool season. In addition, unseasonably cool weather and/or extraordinary amounts of rainfall in the peak season will tend to decrease swimming pool use. The likelihood that unusual weather patterns will severely impact the Company’s results is lessened by the geographical diversification of the Company’s store locations.

The Company also 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 attempts to open its new stores primarily in the quarter ending March in order to position itself for the following peak season.

8

Leslie’s Poolmart, Inc.

Results of Operations

Net Sales. Net sales for the 13 weeks ended July 1, 2006 were $198.1 million compared to $173.3 million for the 13 weeks ended July 2, 2005. The 14.3% increase was due to improved comparable store sales coupled with an increase in store count, with 537 stores in 2006 versus 514 stores in 2005. During the quarter, the Company opened 15 new stores and closed 2 stores. Comparable store sales for the 13 weeks ended July 1, 2006 increased 10.7% as compared to the 13 weeks ended July 2, 2005. Comparable store sales for the 39 weeks ended July 1, 2006 increased 9.2% as compared to the 39 weeks ended July 2, 2005. The comparable store sales increase was primarily due to favorable weather conditions in most of the Company’s markets. 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 recognized measure of financial performance under accounting principles generally accepted in the United States (“GAAP”). Comparable store 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 July 1, 2006 was $98.4 million compared to $85.9 million for the 13 weeks ended July 2, 2005. As a percentage of sales, gross profit was 49.7% for the third quarter of fiscal 2006 compared to 49.6% for the third quarter of fiscal 2005. Gross profit dollars improved primarily due to the increase in sales associated with the increased store count and expanded margins on inventory that had been purchased earlier in the year in anticipation of market increases. For the 39 weeks ended July 1, 2006, gross profit was $146.7 million compared to $127.1 million for the 39 weeks ended July 2, 2005. As a percentage of sales, gross profit for the 39 weeks of fiscal 2006 was 49.8%, compared to 49.1% for the 39 weeks of fiscal 2005.

Operating and Administrative Expense. Operating and administrative expense for the 13 weeks ended July 1, 2006, was $49.8 million compared to $46.0 million for the 13 weeks ended July 2, 2005. Operating expense dollars increased during the third quarter of 2006 due primarily to increases in occupancy and other related costs associated with the increased store count as compared to the third quarter of 2005. For the 39 weeks ended July 1, 2006, operating expenses were $115.4 million, as compared to $123.6 million in the prior year. Operating expense dollars decreased during the 39 weeks of 2006 primarily due to a $18.0 million unusual charge for merger expenses which was recorded in the 39 week period ended July 2, 2005.

Operating Income. Operating income for the 13 weeks ended July 1, 2006 improved by $8.8 million, from $39.9 million during the 13 weeks ended July 2, 2005 to $48.6 million for the 13 weeks ended July 1, 2006. The operating income for the 39 weeks ended July 1, 2006 improved by $27.8 million, from $3.5 million during the 39 weeks ended July 2, 2005 to $31.3 million for the 39 weeks ended July 1, 2006. Operating results for the 13 weeks ended July 1, 2006 and for the 39 weeks ended July 1, 2006 improved from the respective periods of fiscal 2005 primarily due to the increases in sales and related gross profit achieved during the quarter as well as a favorable comparison to the unusual charge for merger expenses recorded in 2005.

Other Income and Expense. Net interest expense was $4.9 million for the 13 weeks ended July 1, 2006 compared to $5.3 million for the 13 weeks ended July 2, 2005. For the 39 weeks ended July 1, 2006, the net interest expense was $15.1 million versus $13.9 million in the prior year. The increase in interest expense was due to the increase in average debt balances in the year to date.

Unusual Charge. During fiscal 2005, the Company recorded an unusual non-operating charge of $8.9 million for expenses related to a merger transaction. For further information, refer to the Consolidated Financial Statements and Notes thereto included in Leslie’s Poolmart, Inc.’s Annual Report on Form 10-K for the year ended October 1, 2005.

Income Taxes. The Company’s income tax expense for the 13 weeks ended July 1, 2006 was $20.9 million, or an effective rate of 47.5%, as compared to a $14.4 million expense, or an effective rate of 41.5% for the 13 weeks ended July 2, 2005. The effective rate of the income tax provision is higher in fiscal 2006 due to an adjustment to reflect a quarterly provision in line with the Company’s estimated annual effective rate. For the 39 weeks ended July 1, 2006, the income tax expense was $7.7 million, or an effective rate of 47.5 % versus a benefit of $6.0 million, or an effective rate of 31.2 % in the prior year. The Company estimates that its effective rate for the fiscal year ending September 30, 2006 will be 47.5%, consistent with the effective rate for the 39 weeks ended July 1, 2006.

Adjusted EBITDA. The Adjusted EBITDA for the 13 weeks ended July 1, 2006 was $52.0 million compared to an Adjusted EBITDA of $43.9 million for the 13 weeks ended July 2, 2005. For the 39 weeks ended July 1, 2006, Adjusted EBITDA was $40.3 million compared to an Adjusted EBITDA of $30.3 million for the 39 weeks ended July 2, 2005. The increase in Adjusted EBITDA was primarily due to the increases in sales and related gross profit achieved during the quarter as well as a favorable comparison to the unusual charge for merger expenses recorded in 2005.

9

Leslie’s Poolmart, Inc.

Adjusted EBITDA is determined as follows (1):

	13 Weeks Ended					39 Weeks Ended
Amounts in thousands	July 1, 2006			July 2, 2005		July 1, 2006			July 2, 2005
Net income/(loss) as reported	$	23,065		$	20,236	$	8,513		$	(13,247	)
Depreciation and amortization		3,364			2,873		8,976			8,802
Interest expense, net		4,904			5,285		15,077			13,856
Loss/(gain) on disposition of assets		(203	)		11		(10	)		34
Income tax expense/(benefit)		20,869			14,353		7,702			(6,002	)
Unusual charges		—			1,117		—			26,869
Adjusted EBITDA	$	51,999		$	43,875	$	40,258		$	30,312

(1) Adjusted EBITDA is defined as earnings before interest (including amortization of debt costs), taxes, depreciation, amortization, loss/(gain) on disposition of fixed assets, and unusual charges. Adjusted EBITDA is not a recognized measure of financial performance under GAAP, but is used by some investors to determine a company’s ability to service or incur indebtedness. Adjusted EBITDA 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. Adjusted EBITDA should not be construed as an indicator of a company’s operating performance or liquidity, and should not be considered in isolation from or as a substitute for net income (loss), cash flows from operations or cash flow data all of which are prepared in accordance with GAAP. The Company has presented Adjusted EBITDA solely as supplemental disclosure because the Company believes it allows for a more complete analysis of results of operations and may present a better measure of liquidity for those charges that are not anticipated to be incurred in the future. Adjusted EBITDA is not intended to represent and should not be considered more meaningful than, or as an alternative to, measures of operating performance as determined in accordance with GAAP.

Financial Condition, Liquidity and Capital Resources

Changes in Financial Condition. During the 39 weeks between October 1, 2005 and July 1, 2006, total current assets increased by $53.5 million. Inventories increased by $22.6 million during the period as the Company opened new stores and required the inventory support during its peak-selling season. The remaining increases were in the Company’s cash accounts which increased by $31.6 million, principally due to higher net income and lower requirements for working capital.

During the same period, current liabilities increased by $46.8 million due primarily to the increase in accounts payable of $34.5 million, as a result of the additional purchases of inventory. Current liabilities also increased due to higher accrued expenses of $8.1 related to increases in the Company’s insurance programs, sales taxes, and interest payable. Income taxes payable increased by $4.2 million during the period due to higher taxable income.

Liquidity and Capital Resources. On January 25, 2005, the Company amended its existing credit facility with a financial institution to provide for the extension by the lender of revolving loans and other financial accommodations in an aggregate principal amount of $75.0 million. The Company’s obligations under the amended credit facility are secured by a lien on substantially all of the Company’s assets. At the lender’s discretion, an over-advance facility of $10.0 million may be available to the Company from September 30, 2006 through March 31, 2007. 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. As of July 1, 2006, no balance was outstanding on this facility.

10

Leslie’s Poolmart, Inc.

Net cash provided by operating activities was $46.9 million for the 39 weeks ended July 1, 2006 compared to net cash provided by operating activities of $2.5 million for the same 39 week period in the prior year principally due to higher net income results and lower requirements for working capital.

Capital expenditures for the 39 weeks ended July 1, 2006 were $8.4 million. The Company expects to incur capital expenditures between $11.0 and $12.0 million in fiscal 2006, primarily for the purpose of opening new stores. It is anticipated that the balance of 2006 capital expenditures will be funded out of cash provided by operations.

Net cash used in financing activities for the 39 weeks ended July 1, 2006 was $7.1 million compared to $4.6 million in the prior year. The increase was due to payments for borrowings drawn against the Company’s revolving credit facility as compared to the prior year, offset by the effects of the merger transaction which occurred in January 2005.

The Company believes its internally generated funds, as well as its borrowing capacity, are adequate to meet its working capital needs, maturing obligations and capital expenditure requirements, including those relating to the opening of new stores.

Recently Issued Accounting Pronouncements

On December 16, 2004, the Financial Accounting Standards Board (FASB) issued FASB Statement No. 123; (Revised 2004) (Statement 123(R)) “Share-Based Payment”, which is a revision of FASB Statement No. 123, “Accounting for Stock-Based Compensation”. Statement 123(R) supersedes APB opinion 25, “Accounting for Stock Issued to Employees” and amends FASB Statement No. 95, “Statement of Cash Flows”. Statement 123(R) requires all share-based payments to employees to be recognized in the financial statements based on their fair market values. The Company will adopt Statement 123(R) beginning October 1, 2006. As permitted by Statement 123, the Company currently accounts for share-based payments to employees using APB Opinion 25’s intrinsic value method and, as such, generally recognizes no compensation cost for employee stock options. Accordingly, the adoption of Statement 123(R)’s fair value method could have a significant impact on the Company’s results of operations, although it will have no impact on the Company’s overall cash position.

The impact of adoption of Statement 123(R) cannot be predicted at this time because it will depend on levels of share-based payments granted in the future. However, had the Company adopted Statement 123(R) in prior periods, the impact of that standard would have approximated the impact of Statement 123 as described in the disclosure of pro forma net income in Note 3 to the Company’s consolidated financial statements. Statement 123(R) also requires the benefits of tax deductions in excess of recognized compensation cost to be reported as a financing cash flow, rather than as an operating cash flow as required under current literature.

In June 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 48 (FIN 48), “Accounting for Uncertainty in Income Taxes”. FIN 48 is an interpretation of FASB Statement No. 109 “Accounting for Income Taxes” and must be adopted by the Company no later than September 30, 2007. FIN 48 prescribes a comprehensive model for recognizing, measuring, presenting, and disclosing in the financial statements uncertain tax positions that the company has taken or expects to take in its tax returns. The Company has not evaluated the impact of adopting FIN 48, but presently anticipates that its adoption will not have a material effect on the Company’s financial statements.

11

Leslie’s Poolmart, Inc.

Critical Accounting Policies and Estimates

The Company’s consolidated financial statements have been prepared in accordance with GAAP 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 Recognition

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 “free on board” 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

Inventories are stated at the lower of cost or market. The Company values inventory using the weighted average cost method. Included in cost of sales are the costs of services and purchased goods, chemical repackaging costs and related distribution costs. The Company establishes a reserve for inventory obsolescence and shrinkage, which is analyzed and reviewed periodically and may require adjustments based on physical inventory counts, the relationship and fluctuation of historical product sales versus inventory on hand and changes in customer preferences. The reserve is intended to reflect the value of inventory in excess of expected realizable value.

Vendor Rebates

The Company accounts for vendor rebates in accordance with Emerging Issues Task Force Issue 02-16, “Accounting by a Customer (Including a Reseller) for Certain Consideration Received from a Vendor”. The Company recognizes consideration received from vendors at the time its obligations to purchase products or perform services have been completed. These items are recorded as a reduction of inventory until the Company sells the product, at which time such rebates reduce cost of goods sold in the statement of operations.

Income Taxes

The Company records deferred tax assets or liabilities based on differences between financial reporting and tax basis of assets and liabilities using currently enacted rates and laws that will be in effect when the Company expects the differences to reverse. Due to changing tax laws and state income tax rates, judgment is required to estimate the effective tax rate expected to apply to tax differences which are expected to reverse in future periods.

Self Insurance

The Company retains self insurance risks for workers compensation, general liability, property and health insurance programs. The Company has limited its exposure by maintaining excess and aggregate liability coverage. The Company establishes self insurance reserves based on claims filed and estimates of claims incurred but not reported. The estimates are based upon information provided to the Company by the claims administrators and are periodically revised to reflect changes in loss trends.

12

Leslie’s Poolmart, Inc.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company’s Amended Loan and Security Agreement carries interest rate risk as described in the Notes to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended October 1, 2005. Amounts borrowed under this Agreement bear interest at either LIBOR plus 1.75%, 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. As of July 1, 2006, no balance was outstanding under this facility.

Item 4. Controls and Procedures

Under the supervision and with the participation of the Company’s management, including the Company’s principal executive officer and principal financial officer, the Company conducted an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, as of the end of the period covered by this report (the “Evaluation Date”). Based on this evaluation, the Company’s principal executive officer and principal financial officer concluded as of the Evaluation Date that the Company’s disclosure controls and procedures were effective such that the material information relating to Leslie’s, including the Company’s consolidated subsidiaries, required to be disclosed in the Company’s Securities and Exchange Commission (“SEC”) reports is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and was made known to the Company’s principal executive officer and principal accounting officer during the period when this report was being prepared to allow timely decisions regarding required disclosure.

In addition, there were no changes in the Company’s internal control over financial reporting during the quarter ended July 1, 2006 or in other factors that has materially affected, or is likely to materially affect the Company’s internal control over financial reporting. The Company has not identified any significant deficiencies or material weaknesses in the Company’s internal control over financial reporting, and therefore there were no corrective actions taken.

13

Leslie’s Poolmart, Inc.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

The Company is routinely involved in legal proceedings related to the ordinary course of its business; however, it is currently not a party to any material legal proceedings. Management does not believe any current legal proceedings will have a material adverse effect on the Company.

Item 1A. Risk Factors

Certain factors exist which may affect Leslie’s business and could cause actual results to differ materially from those expressed in any forward-looking statements. The Company has not experienced any material changes from those risk factors as previously disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended October 1, 2005.

Item 2. Unregistered Sales of Securities and Use of Proceeds

None.

Item 5. Other Information

None.

Item 6. Exhibits

Exhibit Number	Description
31.1	Certificate of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certificate of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certificate of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

14

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.

LESLIE’S POOLMART, INC.
By:	/s/ Lawrence H. Hayward
	Lawrence H. Hayward
	President and Chief Executive Officer
Date: August 14, 2006
By:	/s/ Steven L. Ortega
	Steven L. Ortega
	Executive Vice-President and Chief Financial Officer
Date: August 14, 2006

15

EX-31.1

Exhibit 31.1

CERTIFICATIONS

I, Lawrence H. Hayward, certify that:

1. I have reviewed this quarterly report on Form 10-Q, of Leslie’s Poolmart, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances, under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision; to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 14, 2006

/s/ LAWRENCE H. HAYWARD

Lawrence H. Hayward

Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATIONS

I, Steven L. Ortega certify that:

1. I have reviewed this quarterly report on Form 10-Q, of Leslie’s Poolmart, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances, under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision; to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 14, 2006

/s/ Steven L. Ortega

Steven L. Ortega

Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Lawrence H. Hayward, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of Leslie’s Poolmart, Inc. on Form 10-Q for the fiscal quarter ended July 1, 2006 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report on Form 10-Q fairly presents in all material respects the financial condition and results of operations of Leslie’s Poolmart, Inc.

Dated: August 14, 2006

By:	/s/ Lawrence H. Hayward
Name:	Lawrence H. Hayward
Title:	President and Chief Executive Officer

I, Steven L. Ortega, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of Leslie’s Poolmart, Inc. on Form 10-Q for the fiscal quarter ended July 1, 2006 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report on Form 10-Q fairly presents in all material respects the financial condition and results of operations of Leslie’s Poolmart, Inc.

Dated: August 14, 2006

By:	/s/ Steven L. Ortega
Name:	Steven L. Ortega
Title:	Executive Vice-President and Chief Financial Officer