Leslie's, Inc. Income Taxes Disclosure
Note 11—Income Taxes
The provision for income taxes consists of the following (in thousands):
|
|
Year Ended |
|
|||||||||
|
|
October 4, 2025 |
|
|
September 28, 2024 |
|
|
September 30, 2023 |
|
|||
Current: |
|
|
|
|
|
|
|
|
|
|||
Federal |
|
$ |
684 |
|
|
$ |
5,517 |
|
|
$ |
13,425 |
|
State |
|
|
(943 |
) |
|
|
1,154 |
|
|
|
2,404 |
|
Total Current |
|
|
(259 |
) |
|
|
6,671 |
|
|
|
15,829 |
|
Deferred: |
|
|
|
|
|
|
|
|
|
|||
Federal |
|
|
1,119 |
|
|
|
2,879 |
|
|
|
(5,608 |
) |
State |
|
|
3,336 |
|
|
|
551 |
|
|
|
(722 |
) |
Total Deferred |
|
|
4,455 |
|
|
|
3,430 |
|
|
|
(6,330 |
) |
Total income tax provision |
|
$ |
4,196 |
|
|
$ |
10,101 |
|
|
$ |
9,499 |
|
A reconciliation of the provision for income taxes to the amount computed at the federal statutory rate is as follows (in thousands):
|
|
Year Ended |
|
|||||||||
|
|
October 4, 2025 |
|
|
September 28, 2024 |
|
|
September 30, 2023 |
|
|||
Federal income tax at statutory rate |
|
$ |
(48,883 |
) |
|
$ |
(2,788 |
) |
|
$ |
7,716 |
|
Equity-based compensation |
|
|
1,409 |
|
|
|
1,430 |
|
|
|
129 |
|
Section 162(m) limitation |
|
|
193 |
|
|
|
651 |
|
|
|
520 |
|
Goodwill impairment |
|
|
13,421 |
|
|
|
— |
|
|
|
— |
|
Permanent differences |
|
|
92 |
|
|
|
87 |
|
|
|
82 |
|
Change in valuation allowance |
|
|
44,998 |
|
|
|
11,177 |
|
|
|
— |
|
State taxes, net of federal benefit |
|
|
(6,949 |
) |
|
|
(82 |
) |
|
|
1,109 |
|
Credits |
|
|
(264 |
) |
|
|
(318 |
) |
|
|
— |
|
Other |
|
|
179 |
|
|
|
(56 |
) |
|
|
(57 |
) |
Total income tax provision |
|
$ |
4,196 |
|
|
$ |
10,101 |
|
|
$ |
9,499 |
|
Our effective income tax rate for fiscal 2025 was (1.8)% as compared to (76.1)% in fiscal 2024.
The tax effects of temporary differences that give rise to significant portions of deferred tax assets and liabilities are summarized below (in thousands):
|
|
October 4, 2025 |
|
|
September 28, 2024 |
|
||
Deferred tax assets: |
|
|
|
|
|
|
||
Compensation accruals |
|
$ |
3,076 |
|
|
$ |
2,063 |
|
Inventories |
|
|
4,553 |
|
|
|
4,564 |
|
Lease liabilities |
|
|
64,063 |
|
|
|
67,046 |
|
Equity-based compensation |
|
|
1,415 |
|
|
|
1,996 |
|
Intangibles |
|
|
20,599 |
|
|
|
— |
|
Reserves and other accruals |
|
|
5,578 |
|
|
|
6,590 |
|
Interest limitation |
|
|
23,621 |
|
|
|
14,858 |
|
Capitalized research expenditures |
|
|
3,447 |
|
|
|
1,646 |
|
Other |
|
|
778 |
|
|
|
— |
|
Total deferred tax assets |
|
|
127,130 |
|
|
|
98,763 |
|
Deferred tax liabilities: |
|
|
|
|
|
|
||
Property, plant, and equipment |
|
|
(5,268 |
) |
|
|
(4,649 |
) |
Intangibles |
|
|
(2,050 |
) |
|
|
(8,299 |
) |
Lease assets |
|
|
(61,496 |
) |
|
|
(65,646 |
) |
Deferred financing cost |
|
|
(202 |
) |
|
|
(218 |
) |
Other |
|
|
(2,226 |
) |
|
|
(4,606 |
) |
Total deferred tax liabilities |
|
|
(71,242 |
) |
|
|
(83,418 |
) |
Valuation allowance |
|
|
(56,175 |
) |
|
|
(11,177 |
) |
Deferred tax assets (liabilities), net |
|
$ |
(287 |
) |
|
$ |
4,168 |
|
Management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to realize the existing deferred tax assets. The interest expense limitation passed in the Tax Cuts and Jobs Act created a deferred tax asset for the year ended September 28, 2024, and we recorded a valuation allowance of $11.2 million. We performed an analysis of the reversal of the deferred tax assets and liabilities, considered the historical earnings and overall business environment, as well as positive and negative evidence of the realizability of deferred tax assets for the year ended October 4, 2025. Based on this analysis, we do not believe it is more likely than not that the net deferred tax assets would be realized, which resulted in a valuation allowance of $56.2 million as of October 4, 2025.
As of October 4, 2025, we had $1.9 million and $12.7 million in net operating losses for federal and state tax return purposes, respectively. The federal and certain state net operating losses can be carried forward indefinitely, while most state net operating losses will expire at various dates beginning in fiscal 2036.
We are subject to United States federal and state taxes in the normal course of business and our income tax returns are subject to examination by the relevant tax authorities. We are no longer subject to United States federal examinations by taxing authorities for fiscal years before 2022, and, with few exceptions, are no longer subject to state examinations for fiscal years before 2021.
Our liability for unrecognized tax benefits is as follows (in thousands):
|
|
October 4, 2025 |
|
|
September 28, 2024 |
|
||
Balance at beginning of period |
|
$ |
392 |
|
|
$ |
— |
|
Gross increases - tax positions in prior period |
|
|
658 |
|
|
|
— |
|
Gross increases - tax positions in current period |
|
|
669 |
|
|
|
392 |
|
Balance at end of period |
|
$ |
1,719 |
|
|
$ |
392 |
|
The total amount of gross unrecognized tax benefits was $1.7 million as of October 4, 2025. The portion of unrecognized tax benefits that if recognized would affect the annual effective tax rate was $1.6 million and $0.3 million as of October 4, 2025 and September 28, 2024, respectively, before consideration of the valuation allowance. The portion of unrecognized tax benefits after consideration of the valuation allowance that if recognized would affect the annual effective tax rate was $1.1 million, and $0.3 million as of October 4, 2025 and September 28, 2024, respectively.
We recognize interest accrued related to unrecognized tax benefits and penalties as income tax expense. No material amounts were recognized during any of the periods presented. We do not expect a significant increase or significant decrease in our liability for unrecognized tax benefits in the next 12 months.
In August 2022, the Inflation Reduction Act of 2022 was signed into law and contains provisions effective January 1, 2023 which were not material to the Company's income tax provision.
On July 4, 2025, the One Big Beautiful Bill Act was signed into law but did not have a material impact on our fiscal 2025 financial results. Among other provisions, this act includes permanently extending and modifying certain expiring provisions of the 2017 Tax Cuts and Jobs Act and immediate expensing of domestic research and development expenses. The benefit resulting from the reinstatement of 100% bonus depreciation on assets placed in service after January 19, 2025, has been reflected in the provision. Due to the effective dates of certain provisions in the bill, the immediate expensing of domestic research and development expenses and the return of the EBITDA threshold in the calculation of the interest limitation will not be applicable until fiscal 2026.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Dec 18, 2025 | Showing above |
| 2024 | Nov 27, 2024 | |
| 2023 | Nov 29, 2023 | |
| 2022 | Nov 30, 2022 | |
| 2021 | Dec 10, 2021 | |
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.