Q1 2021 Pool Corp Earnings Call
Okay.
Good morning, and welcome to the Pool Corp, first quarter 2021 conference call all participants will be in listen only mode.
Need <expletive>istance, please signal a conference specialist by pressing the star key followed by zero.
After today's presentation there'll be an opportunity to ask questions to ask a question you May Press Star then one. Please note. This event is being recorded I would now like to turn the conference and France, Mark Joslin Senior Vice President and Chief Financial Officer Go ahead Mark.
Thank you good morning, everyone and welcome to our first quarter 2021 and earnings call I'd like to remind our listeners that our discussion comments and responses to questions. Today may include forward looking statements, including managements outlook for the remainder of the year in future periods.
Actual results may differ materially from those discussed today.
Information regarding the factors and variables that could cause actual results to differ materially from projected results just discussed and our 10-K.
In addition, we may make references to non-GAAP financial measures and our comments and description and reconciliation of our non-GAAP financial measures is included in our press release and posted to our corporate website and our Investor Relations section.
I'll turn the call over now to our President and CEO Peter Irving.
Thank you Mark and good morning to everyone on the call.
I simply could not be prouder of our team are more energized by these results as you saw this morning, we announced that our first quarter sales came in at $1 $1 billion, which is the first time and our history that we have crossed the $1 billion Mark in the first quarter. This represents a 57% increase over the same period last.
Last year and was the result of strong demand and strong execution and virtually all our markets and North America, both blue and green and even stronger market conditions and execution and Europe, our dedicated and talented teams have worked very hard to ensure we provide the very best service to our customers, allowing them to help.
Families enjoy the healthy outdoor living lifestyle that we support.
From a geographic perspective, our four largest north American markets were strong, California saw a very robust 30% gain and the quarter.
In Florida, we saw sales grow by 33% and.
In Arizona and sales grew by 29%, while Texas grew by 68% in the quarter.
The February storm, and Texas positively impacted our total sales by approximately 1% to 2% or 15% to $20 million.
Overall these year round markets are experiencing the same elevated demand and saw a 40% increase for the quarter, while seasonal markets sales increased by 66% highlighting the strength and depth of the industry order backlog.
Turning to product sales no surprises here with equipment sales posting gains up 61% driven by strong demand for heaters lighting pumps filters, all used and the maintenance and construction and remodel of swimming pools and this is following the fourth quarter gains of 51%.
Chemical sales were up 18% and the quarter, including the effects of the increased die floor and tricolore product pricing, resulting from the previously discussed industry supply shortages for these products. We are encouraged by this growth given that the installed base grew by approximately 2% overall with highlights greater fool usage by homeowners.
Building materials sales increased 34% and the quarter, reflecting a very healthy demand for construction and remodeling products.
Retail related product sales were up 43% in the quarter, reflecting strong confidence by our dealers and increased early buy activity compared to last year.
We believe that new pool construction was approximately 96000 units in 2020.
And with very strong permit data from our major markets. We are anticipating net 2021, new pool construction will exceed 110000 units for the first time since the great recession, but still well below historical peak levels.
Commercial pool category sales growth turned positive for the first time since the onset of the pandemic posting 3% growth after declining for the past three quarters. This is an encouraging sign when people beginning to travel more we expect this market to continue to strengthen for our perspective. This is a relatively small part of our business.
And is making up only 4% of our total sales.
Our 2020 acquisitions are performing well and as expected contributed significantly to overall growth, adding approximately $45 million and sales or about 4% of total net sales for the quarter.
Now, let me provide some commentary on our European operations, our team and Europe posted some astonishing result, and the first quarter with sales up 115% with the month of March being the largest month ever for the pool Corp team in Europe.
In North America consumers are investing in their backyard and keeping our dealer base extremely busy our team and Europe has done a tremendous job focusing on the customer experience and operating execution, which has enabled share gains and a competitive market.
All countries and our Europe business are experiencing record growth highlighted by particularly strong growth and France, Spain, and Germany, the three largest markets.
I would now like to provide some commentary on horizon.
We could not be happier with the trajectory that this business is on building on a strong fourth quarter horizon posted 24% base business growth in the first quarter and is poised to gain momentum throughout the year. We are confident that this platform will continue to excel with strong execution, our team's intense focus on the customer and and <unk>.
Bust housing market fueling demand.
The team is <expletive>imilating the TWC distributors acquisition that we closed in December expanding our Florida market presence with nine additional sales centers horizon is also expanding its footprint with two new Greenfield locations opening soon in key markets in Florida, and California, We will continue to strategically invest in this.
Business.
Turning to gross margins, we are pleased to see a 40 basis point gain for the quarter, including a 70 basis point growth in the base business and higher volume based purchasing incentives a favorable sales mix and some inflation benefit combined to provide a slight lift year over year.
Switching our discussions of operating expenses, we have a very good story to share in total operating expenses were up 17% net of the impairment expense in Q1 of 2020 and including the impact from our four acquisitions that we closed in 2020, excluding the impairment last year, our base business operating expense.
<unk> only 10% on revenue growth of 51%.
This led to a reduction of our overall opex of 650 basis points as a percentage of sales for the quarter.
Driving this operating leverage improvement are the benefits from our capacity creation leverage improvements are the benefit from our capacity and I'm sorry, driving this operating leverage improvement are the benefits from our capacity creation activities and the tremendous effort and dedication of our teams of note our pool 360 sales accounted for 11%.
Of our total sales, we saw an incredible 90% increase and revenue through the tool compared to the same period last year and a 45% increase in line volume processed.
Wrapping up the P&L brings us to the operating income line for the quarter. We reported operating income of $129 million. This is a 263% increase over last year and brought our first quarter operating margin to 12, 2% compared to five 3% last year at the same time.
This is truly an amazing performance and one that we are all quite proud of once again I would be remiss, if I did not acknowledge the incredible execution and tireless effort that our team displayed to accomplish these amazing results.
Now with the first quarter behind US, let me try and provide some context for how we see the remaining portion of the year shaping up.
First as noted in our previous call our builders.
Ended the year with a considerable backlog and this has continued to grow with homeowners desire for a family friendly outdoor living environment is increasing contractors continue reporting strong leads and contracts deep into the 2021 season with many quoting 2020 'twenty two completions.
The flexibility of the new work from home norm that many professionals have switched to has proven to be a catalyst for investing in home improvement with the backyard being near the top of the list. This along with the continuation of the day urbanization trends and strengthening of the southern migration and more active participation of the millennial population and housing market.
It should be great for our industry.
Second we previously said that inflation would be and the 2% to 3% range, but now believe it will be in the 4% to 5% range with some products into double digits. We don't anticipate any of this getting hung up and the channel. So that will provide a tailwind for the year considering that most of our caught most of the cost of constructing a new pool.
And we will of remodeling and existing pool is tied up and labor, we don't anticipate disinflation, having a meaningful effect on demand.
As it relates to non discretionary products such as chemicals inflation is simply p<expletive> through again with no real effect on demand.
Third with demand being so strong and some manufacturers struggling to keep up we have experienced some product shortages that up to this point have been manageable by utilizing the strength of our network to keep critical product flowing to our dealers and providing alternative options when certain products are in short supply or.
Back orders have certainly increased in most markets, but our team has done a remarkable job taking care of our customers and a very challenging environment.
And fourth labor is in very high demand across all construction segments and this continues to pressurize the industry keeping demand greater than supply, which we have seen for many years crews are working longer and the fair weather has helped expand capacity for the industry, but the labor market tightness is something that we continue to watch.
Finally.
We just announced that we have acquired pool source, a single source a single location and pool distributor in this strategic Nashville, Tennessee market.
We have a robust M&A pipeline that we continue to develop it.
Greenfield activity has picked up as well as we expect to open seven or more new locations on the Blue side. This year. In addition to the horizon locations I mentioned earlier.
Considering all of this and the amazing first quarter.
Our confidence and growth for the season and the rest of the year has improved considerably as a result, we are raising our guidance for the year to $11 85 to $12 60.
Earnings per share from the previous guidance of 912 to $9 62.
I will now turn the call over to Mark Joslin, Senior Vice President and Chief Financial Officer for his commentary and perspective Mark.
Thanks, Dave I'm going to start by commenting on the change and our guidance range for the year, which at the midpoint is up 30% from the guidance. We gave on our yearend call just over two months ago.
So what changed and that relatively short period of time.
The answer is there are a number of reasons for a more optimistic outlook, which I'll describe and order of magnitude.
First is our very strong Q1 results and our short term expert expectations as we move into the second quarter.
Despite relatively average U S weather Q1 market conditions and built on the exceptionally strong 2020 end of year, and we were able to capitalize on that to deliver phenomenal results.
This momentum has continued into the second quarter and taken together is meaningfully better than what we expected in February.
Second we've seen an acceleration and inflationary price increases announced by our vendors over the last couple of months roughly doubling the inflationary impact we expect to see for the year from our earlier guidance of 2% to 3% on average across our product portfolio to 4% to 5% now.
Sure.
And as vendor price increases are primarily p<expletive> throughs and the pool industry. These increases should add to our sales and gross profit opportunity for the year.
Third we have more clarity on positive external factors impacting our business throughout the remainder of the year. These factors include our increased confidence that new normal will be many more people working from home and the future then and in the past with greater focus on home improvement spending the spending will be fueled and the short term by Fay.
<unk> homeowner dynamics, including rising home valuations and low interest rates and a healthy job market government stimulus and greater and millennial participation and the housing market.
As our first quarter demonstrated we generate significant operating leverage.
By effectively managing expense growth and vibrant market conditions, while I expect our operating leverage to decline as we progress through the year it should be better for the year overall than our typical annual target.
Finally, adding to our opportunity since February are slightly larger contributions from 2020 acquisitions and our just completed pool source acquisition and the Nashville market.
Tempering, our enthusiasm to some degree are the strains on our supply chain as many suppliers struggled to maintain product flow in the midst of this vigorous market environment and constraints on customer labor that could impact our ability to fulfill demand.
Our suppliers' ability to maintain adequate product flow, particularly as we head into and through the season will be a challenge, but we believe we have adequately factored this into our projections.
With that color on the conditions have resulted in our guidance change I will comment briefly on our Q1 results.
And for summarizing our expectations for the rest of the year.
As I mentioned on our year and call. It present day, Michael Angelo painting, a picture of a perfect quarter might've painted and our fourth quarter results.
And with our first quarter now behind US, it's clear that our fourth quarter was just a warm up for a true masterpiece.
Every aspect of our first quarter performance was exceptional top to bottom on the P&L with excellent working capital management and cash generation compared to a strong Q1 last year sales were up 57% operating income was more than three five times greater operating margin was more than two times better.
<unk> and return on invested capital was 44% on a trailing four quarter basis.
All record levels of performance.
Obviously, our teams and the field stayed focus on their customers' needs and the face of the many significant challenges facing them each and every day and took advantage of this resources available to them to create capacity and in general were just phenomenal.
Now rather than doing my usual line by line results commentary I believe it would be more helpful to discuss our expectations for the remainder of the year starting with sales.
As mentioned the demand environment is very strong and we don't see any let up here as we head into the heart of the season with acquisitions and inflation and adding to our growth opportunity.
These positives are tempered by potential vendor contractor labor constraints as well as our own increasingly difficult sales comps as the year progresses.
As a reminder, our base business sales growth by quarter last year was 13%, 14%, 27% and 39%.
Capacity and supply constraints potentially become more of an issue and mid season.
But our year over year sales gains should be highest and Q2 with diminished growth as the year progresses.
As usual weather will have an important but as yet unknown impact.
For the full year, we now expect year over year total sales growth to be and the range of 20% plus <expletive>uming.
Supply constraints don't accelerate significantly.
Along with the additional sales volume our gross margin expectations for the year have also improved.
On our year end call I forecast 20 to 40 basis points of margin decline for 2021, I would temper that now with a more modest flat to 20 basis points decline and gross margin with the biggest challenges here coming later in the year.
Very modest operating expense growth in relation to our sales and gross profit growth is characterized our results for the last year.
And that should be the case for the year overall, our operating margin improvement should decline sequentially throughout the year as we lapped favorable comps and Rand up ramp up spending and some discretionary expense categories that benefited our results over the last year.
For the full year I expect our operating margin will improve and excess of 100 and basis points, which would be far more than our typical annual target of 2040 basis points at 20 to 40 basis points. We obviously have a good start on that based on our Q1 results.
Our tax line as an area of continued focus so I have a couple of comments here.
We continue to see a continued to expect our tax rate, excluding the ASU impact to be around 25% as has been the case for the last several years with a lower effective rate and.
And as we book ASU related tax gains on the exercise of stock options and the vesting of restricted stock.
As we mentioned in our release our guidance range doesn't include additional ASU benefit beyond the 10 cents, we realized and the first quarter.
Of note there has obviously been a lot of discussion about raising corporate federal taxes, both by the administration and and Congress with varying varying proposals ranging up to a 7% tax rate increase which most likely would be effective in 2022.
Given the high proportion of our profit earned and the U S. Any rate increase would likely have a direct and proportional increase and our taxes paid and a corresponding reduction in earnings the.
The good news if you can call. It that is that investors seem to have anticipated this and already priced into our stock.
Looking at our share count you'll note that we were able to complete $66 million and share repurchases in the quarter, which resulted in a 198000 shares being repurchased at an average price of $332 a share.
As has been the cases directly we believe share repurchases remain our best use for excess cash balanced with our desire to keep a relatively conservative balance sheet.
So expect more of this economy year ahead.
For share count forecasting purposes, I laid out a detailed forecast on our last call, which I would now reduced by 300000 shares for each remaining quarter and year to date period based on the Q1 repurchases completed.
Finally, as we announced previously I plan to retire later this year with no specific departure date set at this point.
Now and a heart who is our current chief accounting officer has been named as my successor and is preparing to <expletive>ume our CFO responsibilities.
With that I'll turn the call back to our operator to begin our question and answer session.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone. If you are using a speaker phone. Please pick up your headset before pressing the keys to withdraw your question. Please press Star then two at this time, we will pause momentarily to <expletive>emble our.
Roster.
Yeah.
Okay.
The first question comes from Ryan Merkel from William Blair.
Hey, everyone. Congrats on another strong quarter and good morning, Good morning, Ryan and thank you.
So first off typically the first quarter is 11, 13% of EPS for the year.
And I'm wondering well seasonality would be different this year and and was there anything and the first quarter that won't repeat.
Ah well, Brian and I don't know that seasonality will be different per se, obviously, the year started off well and whether it was relatively cooperative.
In terms of not repeating we've lapsed now the expense reductions that we had last.
Last year, which began with a really with the second quarter last year things like travel and meeting expenses.
And.
And some of the restraints on on hiring and advertising expenses. So we won't have those operating expense benefits.
But from a sales standpoint.
Nothing really are.
Different going forward from a seasonality view.
Okay.
That's helpful.
And then you can <unk>.
And chemical chemical business is up 18%, how much of that was price and.
I don't know if prices do they improve per year for chemicals or are we at this higher level now and I'll just stay here.
Yeah.
Prices vary in and buy.
Parts of the country I mean overall I would tell you the price on di floor and try and clear which is the product that was impacted by the shortage.
They are up about 60%.
So if you think about how thats going to shake out for the balance of the year.
Will probably remain at elevated level, because I believe the industry is going to be short.
For the season now and it simply means that people are going to move their method of standardization to another product either a granular product or liquid product, but there is no there is no.
Shortage of ways to sanitize the pool. It just simply means at a certain point people will shift we've also seen certain parts of the country.
Accelerating the use of salt is a method of standardization too.
Right.
Okay, and just lastly, I'll turn it over and you mentioned, Texas I think he said it was maybe $20 million and a quarter, whether it be more for Texas and the second quarter or was that just a one quarter event.
And you're talking about the ASU benefit.
No the Texas storms I thought you mentioned.
And I am sorry.
And that's it.
Yeah, So I, Ryan and I think it's best we can tell it's about halfway done and.
And I think that there was some initial triage and that was done.
And to get to get some water moving but theres still a product shortage on some things so that when products are available and then they'll have to go back. So we think that it's it's about halfway done.
Got it alright, that's helpful. Thanks. Thank you.
The next question comes from David Manthey from Baird.
Okay.
Hi, Good morning, guys good morning.
Under the <expletive>umption that the majority of the overage youre seeing and the in the off season here is.
New pools, and major renovations and the Sun belt as opposed to.
M<expletive>ive influx of just higher pool usage first of all is that how youre thinking about it and.
And then as it relates to the new pools versus major renovations I don't know to the extent you can discern between those or are you seeing trends one way or the other that might give us an indication about how things will play out and the future.
Yeah, let me try and and take a crack at that so.
The if I think about it from a you mentioned in the Sunbelt a lot of construction and remodel.
Absolutely true so the backlogs and the in the Sunbelt for both of those things are very strong the seasonal markets also have a very strong backlog and because of the.
Frankly, I think it was as much because of the backlog because the weather was I would call. It average for our for us.
Because of that I think people kept working and as best they could <unk>.
<unk> started earlier so what we've seen is a a big increase in new pool construction.
And we've also seen a big backlog in.
The remodel now as it relates to usage the only way that we look at that as what what's going on and the maintenance side. So we use chemical usage as a proxy for that and as I mentioned and my comment with the installed base only being up about 2%. The fact that the chemical usage was up and I think 18.
And that leads us to believe that more people are using the pools, which is which is good for the maintenance part of our business does that answer what you're looking for.
It does and the 18 includes price too right now correct.
It does okay. Okay. Thank you for that and.
You discussed some of the supply chain constraints and labor constraints at your customers and your suppliers and.
And.
For your business, it's obviously easier to absorb excess activity and of the system and the fourth quarter and the first quarter than it is and the and the main selling season.
Can you.
Talk about the status of your capacity creation initiatives and how you are positioned to absorb incremental activity and in the second and third quarter of this year and then related those capacity creation.
Initiatives do those potentially soften downside decremental margins if activity levels slow by their nature.
Okay and Thats a lot. So let me see bike and gets you what you're what you're looking for.
As far as the the capacity creation and the run rate that we're seeing you have to consider that you really can't think through that unless you parse it into seasonal markets and year round markets. So the year round markets are very busy right, but they are busy with construction and remodel because in places.
Dallas, Texas, and such there aren't a whole lot of people swimming, yet, but theres a lot of construction going on so we will see an uptick in those areas in the and the products that are used and the maintenance products. If you will so so our chemical spend at the water warms up chemical spend will go up significantly in the in the.
The seasonal markets as people start using the pools more I'm, sorry, and the year round markets. So people. Even this time of year usages is vastly diminished over what it is and the summer months, except for places like South Florida.
So what we'll see is that there'll be continued to be and increase and the capacity creation initiatives that we have and will continue to pay dividends in both those markets because the nature of the business will shift so pool $3 60 for instance.
We'll be we'll continue to be a big part of our productivity results the truck utilization the the velocity slotting all of those things continue to help us they simply add capacity to us and hold the cost levels from increasing nearly as fast as the revenue was our.
And yes in terms of the second part of your question. That's an interesting question. So I guess it was.
There is a recession and let's say and some slack and demand does the capacity creation initiatives result, and less downside.
But I'd have to think about all of that it's interesting I tend to think of.
A little less demand and the fact that we have so much of our business tied to the maintenance.
And as well as the leverage we have in our and our model, which has a fair amount of.
Our incentive compensation that that goes down and it kind of a downside environment.
But I don't know.
Instead of adding a person when demand picks up we don't have that person to let go let's say when the volume drops.
And I don't necessarily see the capacity creation.
Softening.
The downside so.
Okay.
Alright, that's helpful guys. Thank you.
Sure. Thanks.
Yeah.
The next question comes from Anthony Lipids, and ski with Sidoti and company.
Good morning, and thank you for taking the questions. So first mark congratulations on your pending retirement.
So.
And as far as inflation. So I know you mentioned that youre, bringing your forecast of 45 per cent for the year was that where you were in the first quarter and just wanted to just circle back to just to.
From that up.
Yeah, Hey, Thank you Anthony for your kind words.
The first quarter was less so some of the price increases that we've seen is as we said we raised our guidance just in the last two months, so where we're looking at 2% to 3% and kind of across the board are coming.
Coming into the year, which is what I would say our first quarter saw in terms of inflation and then.
Price increases have been announced.
By a fairly wide.
A variety of vendors with some different implementation dates, but generally late first quarter into early second quarter and so as we look at those and the overall impact on the year, we think it's now that 4% to 5% range.
Got it okay. Thanks, and then.
And that's from before that the overall cost of a new pool is and most of that tied to labor.
And he will be a pool builders are your.
You guys work with I mean are they seeing signs of labor and wage inflation, just curious and regards to that and how could that.
Possibly in the future impact demand flow for pools.
Yeah, I think the I think the labor market has been tight for quite some time. So there are certain positions that are in short supply and for virtually every business drivers for instance, and the construction trade, though I mean labor labor has been tight for quite some time, there's certainly been some inflation.
On that side, but I haven't heard of a crazy increases so I don't know that that even the inflation that they're seeing on labor.
Would act as a throttle on demand at this point.
Got it Okay, and then in terms of the product shortages I mean.
So just talk.
And talk about the top areas, where you're seeing or expecting to see some and some product shortages.
Yeah.
Mentioned, certainly chemicals, the the three inch Tricolore and <unk> tabs are probably at the top of the list from a industry wide shortage position.
We if you go into the equipment category. So heat is in very high demand and frankly has been for almost a year now.
But again this is where we really distinguish ourselves for our customers because if many of our competitors may have one or two locations and a market and if they don't have it they simply don't have it but given the density that we have and most of the major markets.
I don't have and in one location chances are and have it in another location or I have another brand so.
And so the dealers are becoming much more brand agnostic for the products that are in the highest shortage position, which has been good for them and good ultimately for the pool owner that wants to use the pool.
Got it okay. Thank you and best of luck.
Thanks.
Yeah.
Our next question comes from Alex <unk> from Baird and Burke.
Good morning, guys. Thanks for taking my questions.
First one and a follow up on the previous question regarding capacity and our company and level given the current ramp and new pool construction. When do you think we get to a point, where you need to expand existing locations and another centralized shipping site or make some other expansion decision to fulfill demand.
And I ask this because I wasn't covering the company back in the early two thousands when new pool construction peaked so I'm just not sure how you manage the capacity.
Back then if there was any different and I'm just trying to figure out if something's changed.
Sure.
And so as I mentioned, new pool construction last year. It was 96000 units.
And it was about a 23% increase I think this year given the strong demand it will be 110000, plus if you think about historically how pool Corp has grown.
We've grown by continuing to expand our network. So we try and add capacity within the four walls and grow the business, which was what creates the operating leverage that we've been able to do but at a certain point as new pool construction continues to grow and the installed base continues to grow proximate.
And our locations to those pools matters. So theres two reasons for us to expand our footprint. One is we are simply out of capacity and then when we look at the geographic circle that and individual branch sales center covers we simply look at and say all right where is the market growing we take a piece of the existing branch that become <unk>.
<unk> business for the new branch and we push it out further and closer to where the pool density is increasing that takes a load off of the existing branch, which allows them to grow again, and then by having a new sales center on the ground in a new air growing area that allows us to growth.
That's extremely helpful. Thank you and.
And then second question's just on the guidance for the rest of the year do you see a possibility for a flat to higher Q4, and now that you've got better visibility into contracted backlogs.
I think Q4 will be a challenge frankly, but flat to positive is certainly not out of the cards I wouldn't.
I wouldn't bet on that but and as possible, but again.
Mentioned and the comps that's a really tough comp we had very favorable weather weather is always an important factor and our business, particularly and the shoulders of the season.
And if we have similar weather and then okay, I would with the inflation and the acquisitions.
That certainly helped.
Helps our optimism about the Q4 performance.
Okay. That's all for me. Thank you. Thank.
Thank you.
Our next question comes from Ken Zenner from Keybanc.
Good morning, everybody. Good morning, good morning, Ken.
Hum.
Wow, Mark Congratulations and now and I'm sure you're listening so congratulations to you Pete.
We thank you. Thank you yeah yeah.
So we're gonna go painting obviously.
Yeah.
And this isn't a roofing.
From your old industry, yet the backstop attraction and pool is that a lot of this is recurring.
Right revenue model in terms of maintenance so.
Just amazing results.
And with the <unk>.
Homeowners have more money there is a lifestyle.
Our doors and our view call. The money is tied to rising homeowners' equity, but can you just walk us through and update us because it is remarkable.
In terms of construction.
Adverse remodeling.
What is the current landscape.
To support what Mark has been talking about on the new construction side, what is generally your impression of how people finance.
Or purchased pool.
As opposed to.
Pairing and remodel, which I <expletive>ume it's strictly out of pocket can you give us a little background on that just so we can have a context.
How this demand is being funded.
Yeah.
That's a good question, Ken and I think it's.
And it varies of course.
Historically.
There is a second mortgage market, which did a lot of the financing for pools that market doesn't exist and the same farm. However.
There's a lot of home equity out there that consumers have tapped into with home equity loans.
And lines of credit and they're using that for expansions of.
The home environment remodeling and additions.
At the same time and the stock market has been healthy as you know and so people have more discretionary.
Spending coming from that they've cut back other discretionary expenses. So I would say in general there is more discretionary funds that people have available but at the same time, they're taking advantage of.
And let's call it easy financing from from home values, which has accelerated significantly over the last several years.
So it's a combination and it's.
Uh huh.
Roughly my guess would be 50% to 60%.
And new pool purchases, which are big spends right. So at the pool itself might be 40 to $50000, and then you throw and landscaping and and patio and maybe some furniture and so.
And could be 800000 dollar spend and.
And for most people that would be some financing involved and getting that getting that has been completed.
And then I appreciate that.
And finally completed my pool here and Keith you guys copious amounts of money.
And during that process, because there are a lot of different.
Skus that are and that process.
Heaters. Thank goodness, they got mine four months ago, and the other backlog and a lot of cases.
How much share do you think youre getting from these smaller distributors, because whereas <unk> and northern California, There's two real competitors for you generally speaking, but I mean, they don't have the product.
But that's not far away that you do so.
How much share gains do you think are embedded in your current 20% guidance. This year, if theres four or five points and price that means the market's 15, I mean, you must be gaining share and how do you think about that how do you measure that operational.
Yeah.
Share as you know because theres not any external reporting that everybody reports and bright.
Similar to other industry. So it's a it's basically and estimate so when every time.
Excuse me update.
Update the market.
And new pool construction and then we basically that starts our work to try and back into what's going on from a share perspective, so what I can tell you.
We're very confident that we are taking share and the reason the reason, we're taking share as I mentioned before it's simply the strength of the network because we have more options for any dealer than anybody else bar none.
And whats difficult, though is to say at this stage how much of it is is is pure share gains. So we're confident confident that we're taking share and a considerable amount I would bet.
But not we're not certain enough for me to blurt out and number two just you're right.
Yes, Kevin and I Couldnt get Scott from other people and so even though you are raising prices.
Yeah.
And.
Operationally because you do have people right out and.
The branch.
And they're very very very very busy and youre doing things like Covid right training and top of all of that stuff.
And pool, 360, and helping efficiencies, but how are you managing.
And the employee.
Base here or are you seeing higher turnover is given how hard.
They're really working and and how much productivity youre getting crude <expletive>istant and how are you really changing and it's since been so you don't bring those people out and thank you very much.
That's a very good question. So we actually part of as you remember I have four operating pillars, right safety growth profitability and employer of choice.
So for your choices, where this activity that youre talking about comes into play. So it starts out with making sure that we have the right resources and frankly that you have a plan.
So the if you look at the depth of our experience bench at the leadership level, whether you're talking about the regional manager and the general managers. These folks have been doing it for a very long time, and even though you're busy.
When youre organized and when your structure and you have a plan. It just works now we're busier certainly no question, but it's about organization and structure and tool. So the efforts that we put on capacity creation, whether it's the velocity slotting and the warehouse for our pool $3 60 training or.
Blue Street, all of those things for instance, we did and what we feel even as busy as we were in the first quarter.
Our first quarter results will pale in comparison to the second quarter. So that's where we had time and even in the fourth quarter to work on some of those things so that they pay dividends for us as we ramp up and get even busier and it's a process we don't take for granted.
The dedication and the hard work of our folks the results that we posted our would be impossible without people working very very hard and very good leadership, but I think our bonus plan and rewards those folks right because it's a total add them up for everybody. So the better the company does and the better and they do so I think it's a lot of things that we.
And that we use to make sure that the team stays energized and equipped.
Thank you and then Mark Youre, 20% growth I think is what you said you did could you.
And just Pete when you said <unk> or <unk> will pale in comparison to <unk> and its kind of.
And kind of and <unk>.
<unk> statement, but the <unk> and you talked 20%. That's your topline sales correct, which includes a four to five points of inflation.
Yes, and I think and.
And what the.
<unk>.
Q1 tailing into comparison to Q2 reported.
But from a sales standpoint, yeah. The 20% is overall for the year, which obviously includes our first quarter, which was very strong and includes and place right patients for the remainder of the year and includes the acquisitions that we are.
That we have completed.
And also the kind of comps that we have as I mentioned last year's growth rate right with <unk> and a flat range.
Yes.
Right.
Amazing Alright ill talk to you guys.
Thank you so much again thank you.
And again, if you have a question. Please press Star then one the next question comes from Garik, She moves from loop capital.
Great. Thanks, and congrats on the results first question is just on the gross margin outlook previously you'd expected margins to be up and the first half down to the second half, maybe a little bit more significantly but now.
The improved gross margin outlook it sounds like you're getting some pricing ahead of inflation here, but should we still think of maybe directionally the kind of the order of magnitude as being consistent with your prior expectations. Yes, Yes, that's correct I mean, it wasn't a big change and outlook I went from 20 to 40 down to flat.
'twenty down so basically it 20 <unk>.
Basis points improvement and expectation and and definitely.
And the trajectory of that would be better.
Earlier and more difficult later, particularly the fourth quarter I think our fourth quarter.
Gross margin improvement was around 160 basis points last year.
And so significant and that would be very surprising to get close to that number this year.
Okay. Thanks.
Second question is just from the revenue outlook just curious how you would answer the question just around with the economy opening up.
It seems like more people are looking to take vacations and.
And the summer.
Would you anticipate more of and under non discretionary piece, just because the new pool construction side, just look strong and backlogs are are full and the.
Work is going to continue through the year, but.
Is there any risk and an air pocket and the.
And the summer months around people, taking vacations for the first time and over a year and they might end up skipping a bit on some of the non discretionary aspects of pool maintenance.
Yeah, I don't think you can especially in the summer months when the water is hot and you simply can't say well I'm not going to.
Going on vacation and so I'm not going to run the pool or I'm not going to put chemicals and the pool you simply can't because it turns green and frankly then becomes.
Very difficult thing to return back to normal so I don't think Thats. The case I guess the way I think about it is the these.
Rejects are long term investments right. It's not a question of whether I want to go on vacation and not which tends to be a shorter term decision.
And that and many of these folks that are about to have their pool started.
Somebody starting year pool today I promise you that that contract was signed a long time before today. So the contracts that are that people are signing are really for future.
For future installation and there. This is typically a large investment so I don't really think that even if people start to travel and say I'm going to jump on a plane and I'm going to go somewhere on vacation.
And we don't really see that altering their plans for and investment project in the backyard.
Great. That's helpful. Last question is just on the commercial business recognizing it's about 4% of revenue, but just curious as to.
Anything about and particular the contributor to the turnaround there.
And.
I think it's fairly broad based and it wasn't like a lot of large projects broke I think you had hotels, which.
And in March last year, we're essentially shuttered.
People are traveling and bodies of water are and use because remember a year ago. There was questions about the safety of the pool and such so I don't think it was any one large thing I just think as the economy is opening up a little bit people are starting to travel more.
There and the public pool have been deemed safe as long as they are treated properly. So I think it is just that.
Great. Thanks, again and best of luck. Thank you. Thank you.
This concludes our question and answer session I would like to turn the conference back over to Peter arguing for any closing remarks.
Great. Thank you and closing I would like to extend my sincere thanks to the entire pool Corp family and to our customers and suppliers because without their combined effort. These extraordinary results would not have been possible. Thank you for joining us on our call today and we look forward to reviewing our second quarter results with you on July two.
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And we hope everybody has a great day. Thank you.
Okay.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.