Release Date: August 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Chemical sales volume is now positive year to date, indicating a recovery in this segment.
- PRO sales improved to down 2% in the quarter from down 8% in the first half, showing sequential improvement.
- Hot tub sales improved to down 4% in the quarter, indicating a recovery in discretionary product sales.
- Customer conversion rates increased, offsetting a majority of the 5% traffic decline in the quarter.
- Inventory levels decreased by 31% year-over-year, reflecting effective inventory management.
Negative Points
- Total fiscal third quarter sales were down 7% year-over-year, indicating a challenging sales environment.
- Gross margin decreased by 101 basis points year-over-year, impacted by chemical price actions and occupancy deleverage.
- Average order value was down 5% year-over-year, consistent with the first two fiscal quarters of this year.
- Equipment sales were down 15% in the quarter, reflecting cautious consumer behavior in big-ticket purchases.
- SG&A expenses were down only 3% year-over-year, indicating limited progress in cost management.
Q & A Highlights
Q: Can you help us bridge the gap in the shortfall for Q3 versus your prior guidance?
A: Our Q3 guide was flat for sales, but we came in at down 7%. The miss was driven by lower sales of equipment and high-ticket discretionary products, and a 6-point miss in transactions due to lower traffic. We believe the decrease in traffic was due to a combination of weather, cautious consumer behavior, and ongoing pool industry normalization. Despite these challenges, we do not believe we are losing market share.
Q: Can you explain the difference in performance between PRO and hot tub versus residential pool?
A: The PRO business is less impacted by weather as professionals maintain pools regardless of conditions. The hot tub business improved as weather dried out, allowing installations to proceed. The residential pool business is highly correlated to weather, with cool and wet conditions reducing pool usage and chemical consumption.
Q: How do you view the impact of unregistered chlorine imports on the market?
A: Amazon has been a good partner in cleaning up the marketplace from unregistered chlorine providers. We see less impact from these imports compared to prior years, and it is not a significant headwind this pool season.
Q: What are your thoughts on the long-term guidance for location growth versus paying down debt?
A: Our first priority is paying down debt. While we plan to grow the business with new stores, it will be at a more moderate pace until we reach a leverage ratio closer to 3 times.
Q: Can you discuss the trends in chemical sales and pricing?
A: Chemical volume was up for the quarter and strongly in June. We expect stable and rational pricing for chemicals going forward, with no significant price actions or concessions anticipated. We believe the industry will focus on recapturing some of the margin lost in 2023.
Q: What are your expectations for early buy programs and pricing for equipment?
A: We expect typical price increases for equipment each season, but there is a heightened sense of not hurting demand with too high pricing. We are pleased with our inventory management and feel good about where we will end the year.
Q: Can you provide more detail on the performance of your loyalty program?
A: Pool perks members consistently outperform non-members, typically doing about twice the volume. Loyalty customers account for about 75% of our transaction total, and we are focused on growing this file given the returns we get from these members.
Q: How do you view the current industry dynamics and your market share?
A: We believe we are not losing market share based on credit card data, digital traffic reporting, and vendor discussions. The industry is down, but our performance is in line with other pool industry public companies.
Q: What are your thoughts on the bottom of the normalization process for the pool industry?
A: While we are reluctant to call the bottom, there are indicators such as chemical sales volume, equipment unit volumes, and discretionary product sales that suggest we might be at a new base for the industry.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
