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 March 31, 2007

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 May 14, 2007 was 100 shares.

LESLIE’S POOLMART, INC.

AND SUBSIDIARIES

(A Wholly-Owned Subsidiary of Leslie’s Holdings, Inc.)

FORM 10-Q

For the Quarterly Period Ended March 31, 2007

INDEX

		Page
Part I. Financial Information
Item 1. Financial Statements
	Consolidated Balance Sheets as of March 31, 2007 (unaudited) and September 30, 2006	3
	Consolidated Statements of Operations for the 13 weeks and 26 weeks ended March 31, 2007 (unaudited) and April 1, 2006 (unaudited)	4
	Consolidated Statements of Cash Flows for the 26 weeks ended March 31, 2007 (unaudited) and April 1, 2006 (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		11
Item 4. Controls and Procedures		11
Part II. Other Information
Item 1. Legal Proceedings		12
Item 1A. Risk Factors		12
Item 2. Unregistered Sales of Securities and Use of Proceeds		12
Item 5. Other Information		12
Item 6. Exhibits		12
Signatures		13

2

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

Leslie’s Poolmart, Inc.

(A Wholly-Owned Subsidiary of Leslie’s Holdings, Inc.)

Consolidated Balance Sheets

(Amounts in thousands, except share information)

	March 31, 2007			September 30, 2006
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	7,056		$	39,004
Accounts and other receivables, net		7,836			7,315
Inventories		95,991			64,544
Prepaid expenses and other current assets		3,302			2,522
Deferred tax assets		15,593			8,329
Total current assets		129,778			121,714
Property, plant and equipment, net		37,468			38,136
Intangible assets		8,044			8,072
Deferred financing costs, net		5,660			6,168
Deferred tax assets		4,445			4,445
Other assets		343			320
Total assets	$	185,738		$	178,855
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable	$	61,508		$	31,473
Accrued expenses		30,245			35,860
Income taxes payable		—			11,040
Deferred tax liabilities		128			128
Total current liabilities		91,881			78,501
Revolving commitments		4,000			—
Other long term liabilities		5,039			12,632
Redeemable preferred stock, $0.001 par value; authorized 1,000,000 shares, issued and outstanding no shares at March 31, 2007 and 41,000 shares of Series A at September 30, 2006		—			41,000
Senior notes, net		169,011			168,946
Total liabilities		269,931			301,079
Commitments and contingencies
Stockholders’ deficit:
Common stock, $0.001 par value, authorized 50,000,000 shares, issued and outstanding 100 shares at March 31, 2007 and 40,045,000 shares at September 30, 2006		—			40
Paid-in deficit		(91,984	)		(144,081	)
Treasury stock, no shares at March 31, 2007 and 90,000 shares at September 30, 2006		—			(332	)
Retained earnings		7,791			22,149
Total stockholders’ deficit		(84,193	)		(122,224	)
Total liabilities and stockholders’ deficit	$	185,738		$	178,855

See accompanying notes to consolidated financial statements.

3

Leslie’s Poolmart, Inc.

Consolidated Statements of Operations (unaudited)

(A Wholly-Owned Subsidiary of Leslie’s Holdings, Inc.)

(Amounts in thousands)

	13 Weeks Ended						26 Weeks Ended
	March 31, 2007			April 1, 2006			March 31, 2007			April 1, 2006
	(unaudited)			(unaudited)			(unaudited)			(unaudited)
Sales	$	57,393		$	48,352		$	110,088		$	96,497
Cost of merchandise sold and services sold, including warehousing and transportation expenses		27,587			22,879			54,829			48,270
Gross profit		29,806			25,473			55,259			48,227
Selling, general and administrative expenses		36,940			33,821			70,867			65,580
Operating loss		(7,134	)		(8,348	)		(15,608	)		(17,353	)
Other expenses/(income):
Interest expense		4,417			5,334			9,278			10,246
Interest income		(60	)		(1	)		(343	)		(73	)
Other expense		50			—			85			193
Total other expense		4,407			5,333			9,020			10,366
Loss before income taxes		(11,541	)		(13,681	)		(24,628	)		(27,719	)
Income tax benefit		(4,440	)		(7,971	)		(10,270	)		(13,167	)
Net loss	$	(7,101	)	$	(5,710	)	$	(14,358	)	$	(14,552	)

See accompanying notes to consolidated financial statements.

4

Leslie’s Poolmart, Inc.

Consolidated Statements of Cash Flows (unaudited)

(A Wholly-Owned Subsidiary of Leslie’s Holdings, Inc.)

(Amounts in thousands)

	26 Weeks Ended
	March 31, 2007			April 1, 2006
	(unaudited)			(unaudited)
Operating activities:
Net loss	$	(14,358	)	$	(14,552	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		6,144			5,612
Preferred stock dividend and accretion		1,886			2,221
Amortization of loan fees and discounts		573			587
Allowance for doubtful accounts		167			48
Loss on disposition of assets		85			193
Deferred income taxes		(7,264	)		(7,899	)
Changes in operating assets and liabilities:
Accounts and other receivables		(688	)		4,481
Inventories		(31,447	)		(34,731	)
Prepaid expenses and other current assets		(780	)		(1,165	)
Other assets		(23	)		6
Accounts payable and accrued expenses		24,246			25,491
Income taxes payable		(11,040	)		(7,739	)
Net cash used in operating activities		(32,499	)		(27,447	)
Investing activities:
Purchase of property, equipment and intangibles		(5,543	)		(2,811	)
Proceeds from dispositions of property		10			—
Net cash used in investing activities		(5,533	)		(2,811	)
Financing activities:
Net line of credit borrowings		4,000			31,687
Excess tax benefits from stock-based compensation		2,084			—
Proceeds from issuance of common and treasury stock, net of fees		—			200
Purchase of treasury stock		—			(40	)
Net cash provided by financing activities		6,084			31,847
Net increase (decrease) in cash and cash equivalents		(31,948	)		1,589
Cash and cash equivalents at beginning of period		39,004			2,172
Cash and cash equivalents at end of period	$	7,056		$	3,761

See accompanying notes to consolidated financial statements.

5

Leslie’s Poolmart, Inc.

(A Wholly-Owned Subsidiary of Leslie’s Holdings, 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 26-week periods ended March 31, 2007 are not necessarily indicative of the results that may be expected for the year ending September 29, 2007.

The balance sheet at September 30, 2006 has been derived from the audited 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 Notes thereto included in Leslie’s Poolmart, Inc.’s Annual Report on Form 10-K for the year ended September 30, 2006.

(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 559 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.

The Company became a subsidiary of Leslie’s Holdings, Inc (“Holdings”) during February 2007, in conjunction with a tax-free reorganization to the Company’s stockholders. As a result of the reorganization, each share of outstanding common stock of the Company was exchanged for one share of common stock of Holdings, and each share of outstanding 10% senior redeemable exchangeable cumulative preferred stock of the Company was exchanged for one share of 10% senior redeemable exchangeable cumulative preferred stock of Holdings with the same rights, privileges, and preferences, including as to liquidation. The exchange of the 10% senior redeemable exchangeable cumulative preferred stock of the Company for similar stock of Holdings was accounted for as contributed capital to the Company, given that the assumption of the obligation by Holdings without recourse to the Company had the effect of extinguishing the rights of the preferred stockholders and the resulting obligation.

(3) Stock-based Compensation

Effective October 1, 2006, the Company adopted SFAS No. 123 (revised 2004), “Share-Based Payment” (“SFAS No. 123R”), which replaces SFAS 123, “Accounting for Stock-Based Compensation” and supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees”. SFAS 123R requires all share-based payments, including grants of employee stock options and nonvested shares, to be recognized in the financial statements based on their fair values at date of grant. Under SFAS No. 123R, companies are required to measure the cost of services received in exchange for stock options and similar awards based on the grant-date fair value of the award and to recognize this cost in the income statement over the period during which an award recipient is required to provide service in exchange for the award. The pro forma disclosures previously permitted under SFAS No. 123 are no longer an alternative to financial statement recognition.

As the Company is a nonpublic company under the provisions of SFAS No. 123R, we were required to adopt SFAS No. 123R using the prospective method which requires the Company to apply the provisions of SFAS No. 123R prospectively to new awards and to awards modified, repurchased or cancelled after September 30, 2006. Awards granted after September 30, 2006 (of which there have been none to date) are valued at fair value in accordance with the provisions of SFAS No. 123R and recognized on a straight line basis over the service periods of each award. Compensation cost for the unvested portion of awards outstanding is recognized as the requisite service is rendered.

6

Leslie’s Poolmart, Inc.

(A Wholly-Owned Subsidiary of Leslie’s Holdings, Inc.)

Notes to Consolidated Financial Statements (unaudited)

As of the reorganization, all contractual rights and obligations relating to the Leslie’s 2005 Stock Option Plan and related Option Agreements and Notices of Option Grants were adopted by Holdings and deemed to apply to Holdings common stock. During the second quarter of 2007, Holdings’ Board of Directors accelerated the vesting of all outstanding stock options to purchase shares of common stock of Holdings. The fair value of the awards immediately before the modification of the vesting was the same value as the fair value after the modification took effect. Accordingly, no compensation expense was recorded under SFAS No. 123R for the three and six months ended March 31, 2007. All of the options were exercised in February of 2007 after the transfer to Holdings which gave rise to a tax benefit of approximately $2.1 million attributed to the Company. To the extent the tax benefit meets the realization criteria of SFAS 123(R), the benefit will be recorded as a credit to equity since the entire benefit exceeded the recorded expense of zero. The Company did not otherwise grant or modify any share-based compensation during the 26 weeks ended March 31, 2007. As of March 31, 2007 the Company has no outstanding equity awards to its employees either directly or through grants by Holdings that would be attributable to the Company’s employees and thereby accounted for as an expense of the Company.

(4) Taxation of the Company and Holdings

The Company and its subsidiaries may be included in the consolidated Federal income tax return and certain state income tax returns of Holdings. The Company’s financial statements recognize the current and deferred income tax consequences that result from the Company’s activities during the current and preceding periods pursuant to the provisions of SFAS 109, as if the Company were a separate taxpayer rather than a member of Holding’s consolidated income tax return group.

(5) Inventories

Inventories consist of the following:

Amounts in thousands	March 31, 2007		September 30 2006
Raw materials and supplies	$	1,448	$	1,116
Finished goods		94,543		63,428
Total Inventories	$	95,991	$	64,544

(6) Recently Issued Accounting Pronouncements

In June 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”). 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.

In September 2006, the SEC released Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” (“SAB 108”). SAB 108 provides interpretive guidance on the SEC’s views regarding the process of quantifying materiality of financial statement misstatements. SAB 108 is effective for fiscal years ending after November 15, 2006, with early application for the first interim period ending after November 15, 2006. We do not believe that the application of SAB 108 will have a material effect on our results of operations or financial position.

In May 2005, the FASB issued FASB Statement No. 154, “Accounting Changes and Error Corrections, a replacement of APB Opinion No. 20, Accounting Changes and FASB Statement No. 3, Reporting Accounting Changes in Interim Financial Statements” (“FAS 154”). FAS 154 provides guidance on the accounting for and reporting of accounting changes and error corrections. It establishes, unless impracticable, retrospective application as the required method for reporting a change in accounting principle in the absence of explicit transition requirements specific to the newly adopted accounting principle. FAS 154 also provides guidance for determining whether retrospective application of a change in accounting principle is impracticable and for reporting a change when retrospective application is impracticable. The provisions of FAS 154 are effective for accounting changes and corrections of errors made in fiscal periods beginning after December 15, 2005. The adoption of the provisions of FAS 154 is not expected to have a material impact on the Company’s financial position or results of operations.

7

Leslie’s Poolmart, Inc.

(A Wholly-Owned Subsidiary of Leslie’s Holdings, 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 September 30, 2006.

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 559 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 and became a wholly-owned subsidiary of Leslie’s Holdings Inc. in February 2007 through a reorganization. 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.

(A Wholly-Owned Subsidiary of Leslie’s Holdings, Inc.)

Results of Operations

Net Sales. Net sales for the 13 weeks ended March 31, 2007 were $57.4 million compared to $48.4 million for the 13 weeks ended April 1, 2006. The 18.7% increase was due to improved comparable store sales coupled with an increase in store count, with 559 stores in fiscal 2007 versus 526 stores in fiscal 2006. During the quarter, the Company opened 19 new stores. Net sales for the 26 weeks ended March 31, 2007 increased 14.1% as compared to the 26 weeks ended April 1, 2006.

Comparable store sales for the 13 weeks ended March 31, 2007 increased 14.1% as compared to the 13 weeks ended April 1, 2006. The comparable store sales increase was primarily due to favorable weather conditions in most of the Company’s markets. Comparable store sales for the 26 weeks ended March 31, 2007 increased 8.8% as compared to the 26 weeks ended April 1, 2006. 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 March 31, 2007 was $29.8 million compared to $25.5 million for the 13 weeks ended April 1, 2006. As a percentage of sales, gross profit was 51.9% for the second quarter of fiscal 2007 compared to 52.7% for the second quarter of fiscal 2006. Gross profit dollars improved primarily due to the increase in sales and increased store count. For the 26 weeks ended March 31, 2007, gross profit was $55.3 million compared to $48.2 million for the 26 weeks ended April 1, 2006. As a percentage of sales, gross profit for the 26 weeks was 50.2% for the second quarter of fiscal 2007 compared to 50.0% for the second quarter of fiscal 2006.

Operating and Administrative Expense. Operating and administrative expenses for the 13 weeks ended March 31, 2007, were $36.9 million compared to $33.8 million for the 13 weeks ended April 1, 2006. Operating expense dollars increased during the second quarter of 2007 due primarily to increases in occupancy and other related costs associated with the increased store count as compared to the second quarter of 2006. For the 26 weeks ended March 31, 2007, operating expenses were $70.9 million, as compared to $65.6 million in the prior year.

Operating loss. Operating loss for the 13 weeks ended March 31, 2007 improved by $1.2 million, from $8.3 million during the 13 weeks ended April 1, 2006 to $7.1 million for the 13 weeks ended March 31, 2007. Operating results improved due to the increases in sales and related gross profit achieved during the quarter. The operating loss for the 26 weeks ended March 31, 2007 improved by $1.8 million, from a loss of $17.4 million during the 26 weeks ended April 1, 2006 to an operating loss of $15.6 million for the 26 weeks ended March 31, 2007.

Other Income and Expense. Net interest expense was $4.4 million for the 13 weeks ended March 31, 2007 compared to $5.3 million for the 13 weeks ended April 1, 2006. The decrease in interest expense was due to the decrease in average debt balances in the year to date and the elimination of interest on the Company’s preferred stock which was assumed by Holdings. For the 26 weeks ended March 31, 2007, the net interest expense was $8.9 million versus $10.2 million in the prior year.

Income Taxes. The Company’s income tax benefit for the 13 weeks ended March 31, 2007 was $4.4 million, or an effective rate of 38.5%, as compared to a $8.0 million benefit, or an effective rate of 58.3% for the 13 weeks ended April 1, 2006. The effective rate of the income tax benefit is higher in second quarter 2007 due to an adjustment to reflect a quarterly provision in line with the Company’s estimated annual effective rate. For the 26 weeks ended March 31, 2007, the income tax benefit was $10.3 million, or an effective rate of 41.7 % versus $13.2 million, or an effective rate of 47.5 % in the prior year. The Company’s effective tax rate for 2007 exceeds the expected statutory rates due to the nondeductibility of certain elements of the Company’s interest expense.

Adjusted EBITDA. The Adjusted EBITDA loss for the 13 weeks ended March 31, 2007 was $3.8 million compared to an Adjusted EBITDA loss of $5.6 million for the 13 weeks ended April 1, 2006. For the 26 weeks ended March 31, 2007, Adjusted EBITDA loss was $9.2 million compared to an Adjusted EBITDA loss of $11.7 million for the 26 weeks ended April 1, 2006.

The improvement in Adjusted EBITDA was primarily due to the increases in sales and related gross profit achieved during the quarter.

9

Leslie’s Poolmart, Inc.

(A Wholly-Owned Subsidiary of Leslie’s Holdings, Inc.)

Adjusted EBITDA is determined as follows (1):

	13 Weeks Ended						26 Weeks Ended
Amounts in thousands	March 31, 2007			April 1, 2006			March 31, 2007			April 1, 2006
Net loss as reported	$	(7,101	)	$	(5,710	)	$	(14,358	)	$	(14,552	)
Depreciation		3,099			2,767			6,144			5,612
Interest expense, net		4,357			5,333			8,935			10,173
Loss on disposition of assets		50			—			85			193
Income tax benefit		(4,440	)		(7,971	)		(10,270	)		(13,167	)
Unusual charges		246			—			305			—
Adjusted EBITDA loss	$	(3,789	)	$	(5,581	)	$	(9,159	)	$	(11,741	)

(1) Adjusted EBITDA is 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 26 weeks between October 1, 2006 and March 31, 2007, total current assets increased by $8.1 million. Inventories increased by $31.4 million during the period as the Company opened a new store and accelerated its purchases of certain products for the upcoming peak-selling season to take advantage of available discounting, offset by a reduction in cash.

During the same period, current liabilities increased by $13.4 million due primarily to the increase in accounts payable of $30.0 million during the period, offset by lower income taxes payable and a reduction in accrued expenses.

Liquidity and Capital Resources.

Net cash used in operating activities was $32.5 million for the 26 weeks ended March 31, 2007 compared to net cash used in operating activities of $27.4 million for the same 26 week period in the prior year, primarily due to a lower balance for income taxes payable.

Capital expenditures for the 26 weeks ended March 31, 2007 were $5.5 million. The Company expects to incur capital expenditures between $12.5 and $13.5 million in fiscal 2007, primarily for the purpose of opening new stores. It is anticipated that the balance of 2007 capital expenditures will be funded out of cash provided by operations with some possible temporary borrowings from the Company’s revolving credit facility.

10

Leslie’s Poolmart, Inc.

(A Wholly-Owned Subsidiary of Leslie’s Holdings, Inc.)

The Company had $6.1 million in cash provided by financing activities for the 26 weeks ended March 31, 2007, compared to $31.8 million in cash provided by financing activities in the prior year. The decrease was due to lower borrowings drawn against the Company’s revolving credit facility as compared to the prior year. 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

In June 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”). 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.

In September 2006, the SEC released Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” (“SAB 108”). SAB 108 provides interpretive guidance on the SEC’s views regarding the process of quantifying materiality of financial statement misstatements. SAB 108 is effective for fiscal years ending after November 15, 2006, with early application for the first interim period ending after November 15, 2006. We do not believe that the application of SAB 108 will have a material effect on our results of operations or financial position.

In May 2005, the FASB issued FASB Statement No. 154, “Accounting Changes and Error Corrections, a replacement of APB Opinion No. 20, Accounting Changes and FASB Statement No. 3, Reporting Accounting Changes in Interim Financial Statements” (“FAS 154”). FAS 154 provides guidance on the accounting for and reporting of accounting changes and error corrections. It establishes, unless impracticable, retrospective application as the required method for reporting a change in accounting principle in the absence of explicit transition requirements specific to the newly adopted accounting principle. FAS 154 also provides guidance for determining whether retrospective application of a change in accounting principle is impracticable and for reporting a change when retrospective application is impracticable. The provisions of FAS 154 are effective for accounting changes and corrections of errors made in fiscal periods beginning after December 15, 2005. The adoption of the provisions of FAS 154 is not expected to have a material impact on the Company’s financial position or results of operations.

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 September 30, 2006. 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 March 31, 2007, $4.0 million 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 March 31, 2007 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.

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Leslie’s Poolmart, Inc.

(A Wholly-Owned Subsidiary of Leslie’s Holdings, Inc.)

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

The Company is routinely involved in legal proceedings involving claims related to the ordinary course of its business. The Company is currently not party to any legal proceedings that it considers to be material.

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 September 30, 2006.

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.

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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
	Chief Executive Officer
	Date: May 14, 2007
	/s/ Steven L. Ortega
	Steven L. Ortega
	Chief Financial Officer
	Date: May 14, 2007

13

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: May 14, 2007

/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: May 14, 2007

/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 March 31, 2007 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: May 14, 2007

By:	/s/ Lawrence H. Hayward
Name:	Lawrence H. Hayward
Title:	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 March 31, 2007 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: May 14, 2007

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