Leslie’s Pool Supply is in hot water with its shareholders.
A new lawsuit has been filed against the individual directors and officers of the swimming pool supply company, Leslie’s Inc. The lawsuit, which was filed in March, accuses the officers of Leslie’s of breaching their financial duties by making false and misleading statements or omissions from February 2022 through July 2023.
The lawsuit was filed against 11 individual directors or officers of Leslie’s and alleges that the individuals misled their shareholders about the health of the company in the years following the onset of the COVID-19 pandemic, the resulting supply chain crisis, and the August 2020 fire at the Lake Charles, Louisiana, Biolab facility.
Those in the pool industry will recall that these years were characterized by an unprecedented boom in new pool and spa construction that dovetailed with a devastating chemical shortage, which doubled and then tripled the price of chlorine specifically, and raised prices across the board for all other pool-related products and chemicals.
The lawsuit alleges that in early 2022, Leslie’s directors artificially created some of the chlorine shortage by sending out letters to a sizable portion of its customers telling them that “Leslie’s could not ‘guarantee product availability’ and that customers should purchase products while Leslie’s had them in stock. Based on these representations, many of Leslie’s customers purchased excessive amounts of pool chemical products in stockpile fashion to avoid the chance of facing unavailability of chemical products in the future,” the lawsuit states.
At the same time that these letters went out, Leslie’s officers were telling its shareholders that the company was enjoying a “very durable” and “recurring demand” for its products. Leslie’s directors told shareholders that Leslie’s success was due to “our ability to both serve our existing consumers as well as a significant number of new consumers we are acquiring with our growth strategies,” the lawsuit states.
According to the suit, from 2021 through 2023, Leslie’s officers continued to repeat the narrative about “durable demand” driven by “strategic growth initiatives” in press releases and earnings calls. And when sales dipped in 2023, the officers attributed the decrease to poor weather but maintained their positive financial guidance for the entirety of the 2023 fiscal year.
During those years, the company’s officers failed to disclose the real reasons for Leslie’s growth so that when the predictable slowdown occurred, shareholders were unprepared, the suit alleges.
According to the lawsuit, Leslie’s officers failed to tell its shareholders that: “(1) Leslie’s customers feared a pool chemical product shortage due in part to a chemical-availability warning letter sent by the Company; (2) Leslie’s customers purchased more pool chemicals than needed during and after the COVID-19 pandemic at inflated rates; (3) as a result, Leslie’s product sales growth was caused by artificial demand from a feared product shortage;” The company concealed the true cause of its growth by telling investors Leslie’s spurred the growth organically from its corporate efforts and as a result, the company’s public statements depicting Leslie’s growth as “durable,” “show[ing] no signs of slowing,” and being based upon “healthy ongoing consumer demand,” were false and misleading, the lawsuit states.
Stockholders said they learned the truth about Leslie’s through a July 13, 2023, press release, which announced significant reductions in the estimated sales and profits.
This news caused the company’s stock prices to plummet 29 percent on the day following the press release, and another 18 percent by July 17.
The lawsuit was filed on March 12 in the United States District Court in Arizona. It was filed by John Clemens, derivatively on behalf of Leslie’s Inc. (A derivative lawsuit is a legal claim filed on behalf of a business by one or more of its shareholders against third parties who have caused harm to the business. Because a derivative action involves a wrong against the corporation and not individual shareholders, any damages awarded go not to the shareholders, but to the corporation itself.)
A class action lawsuit was also filed by shareholders in September, 2023. That lawsuit alleges identical business misconduct and seeks damages for class members.
Both suits demand a jury trial.
