Q2 2021 Leslie's Inc Earnings Call
[music].
Good afternoon, and welcome to the second quarter of fiscal 2021 conference call for less lease Inc. At this time all participants are in listen only mode. Following the prepared remarks management will conduct a question and answer session to join the question queue. You May Press Star then one on your telephone keypad should you.
Require any operator assistance during the conference call. Please press star and zero on your telephone keypad. As a reminder, this conference call is being recorded and will be available for replay later today on the company's website I will now turn the call over to Caitlin Churchill.
Investor Relations. Please go ahead.
Thank you and good afternoon, I would like to remind everyone that comments made today may include forward looking statements, which are subject to significant risks and uncertainties that could cause the company's actual results to differ materially from management's current expectations. These statements speak as of today and will not be updated and the fee.
Future circumstances change. Please review the cautionary statement and risk factors contained in the company's earnings press release, and recent filings with the SEC during the call today management will refer to certain non-GAAP financial measures a reconciliation between the GAAP and non-GAAP financial measure can be found and the company's earnings press release, which.
It was furnished to the SEC today and posted to the Investor Relations section of <unk> website at IR Dot Leslie pool Dot com.
On the call today from Leslie zinc is Mike Eject, Chief Executive Officer, and Steve Wardell, Chief Financial Officer with that I will turn the call over to Mike.
Thank you Caitlin and good afternoon, everyone.
Thank you all for joining us today.
I am pleased to report that our performance in Q2 exceeded our internal expectations and produced record results for the quarter.
Those results include sales of $192 4 million.
Our comp sales increase of 51, 3% on a reported basis.
And 35, 5% on a calendar adjusted basis.
Comps accelerated each month of the quarter year over year and on a two year stack. This.
This quarter represents our eighth straight quarter of sequential improvement and positive comps.
Gross margin rate for the quarter expanded by 576 basis points and adjusted EBITDA grew by $17 6 million.
Our record sales and profit for the quarter continued to be driven by the three pillars that make our business so compelling.
First the predictable recurring and non discretionary nature of demand and our industry.
The industry was further advantage and the second quarter by the continuation of several key macro trends.
We saw consumers continue to focus time and investment on their homes pursue healthy outdoor lifestyles.
Great to the suburbs, and Exurbs and have and elevated attention to safety and sanitation.
And continuation of these macro trends resulted in elevated levels of coal usage.
Interest and pool ownership and pool ownership.
New pool permits and pool construction backlogs.
Second the competitive advantage derived from our integrated system of physical and digital assets.
In the quarter, we successfully completed our rollout of omni channel capabilities.
Ship from store ship to store and Boris these.
These new capabilities significantly strengthen our ecosystem and enable our consumers to shop less leased whenever wherever and however, they choose.
And the first six weeks since go live 30% of our less lease E. Commerce transactions have been enabled by our new omnichannel capabilities.
Yes.
Third the.
The significant and tangible growth opportunities available to us as the market leader.
We continue to make great progress on the key drivers of our growth strategy, including consumer file growth.
Continue to grow our consumer file driven by new consumer acquisition.
Total target file growth was 12% and the quarter new consumers grew 35%.
During the quarter, we shifted marketing spend away from our lower margin sites and increased spend to our targeted higher margin sites and higher value consumers.
We continue to generate high levels of ROI with our marketing spend and we will continue to invest in our targeted marketing tactics to capture share.
Driving growth and our loyalty program and.
And Q2, we grew our total loyalty members by 10% year over year, driven by a strong increase and new members and the number of new members added in Q2 of this year increased 44% versus number of new members added in Q2 of last year.
And our new loyalty program to point out, which we have named pool parks and then final testing and we look forward to launch and this exciting and important initiatives. This pool season.
We believe our consumers will love the new program benefits and experience and we look forward to accelerated growth and value of our member file with its launch.
The pro market.
We have completed the rented.
Excuse me, we have completed the conversion of our first 10 residential locations to pro locations and and the first eight weeks post conversion and they are outperforming our pro forma expectations.
In addition, three new build pro stores remain on track to open and the third quarter.
We also launched our pro affiliate program and have already signed up affiliate partners and several hundred of our locations.
These new affiliates are spending 80% more Leslie is after signing up for the program and we are continuing to add new affiliates across our locations.
The last component of our pro initiatives.
<unk> E Commerce site is still in beta testing.
And testing we received some very valuable feedback from our protesters and are fine tuning the site from mobile optimization and search.
We are still on track from a full launch this season and feel we have materially improved the product with this process.
With regard to our residential white space opportunity we.
We have opened three new stores year to date and plan.
And to open up to seven additional stores this fiscal year.
Also and importantly, accu Blue home are connected cool technology solution and subscription service remains on track from limited launch of version one point out during the third quarter.
On the M&A front.
Closed on the acquisition of International Hot Tub and the quarter IHT operates four retail locations and the greater Denver, Colorado area and we welcome the newest member of our Hot tub business.
With the acquisition, we now have a total of 943 physical locations and in Colorado, and our 38 state of operations.
We continue to see an abundance of acquisition opportunities across the highly fragmented cool and hot tub industry, and we are managing and active pipeline of targets.
Accordingly, we have entered into an LOI with and additional tuck in opportunity, which we expect to close on the third quarter.
With regard to corporate governance, I would like to note that in the quarter, Brad Gasaway, Our chief legal officer, Chuck on the executive leadership of our ESG initiatives.
Also in the quarter, we hired a director of ESG and formed a sustainability working group comprised of internal resources and external advisors.
This group will work at the direction of the board and management to assess material ESG factors and develop our novel ESG disclosure framework and report.
We will keep you updated on our progress on this important initiative and.
Future calls.
Finally, I'd like to comment on two extraordinary industry dynamics and the quarter.
First Korean supply remains constrained for the industry and is driving driving higher average retail pricing.
Current residential chlorine pricing is approximately 40% higher than a year ago.
As we discussed last call, we remain confident on our supply chain and and our ability to serve both our existing consumers as well as the new consumers, we are acquiring with our growth initiatives.
With regard to supply and cost we remain in good shape.
With regard to retail pricing, we are continuing to see increases across the industry and.
And the second quarter, Corey and retail inflation accounted for approximately 300 basis points of our reported sales growth.
We continue to monitor acquiring product pricing across online and physical competitors and modify our prices as appropriate.
Although it remains to be seen what prices will do as we get further into the pool season.
And now expect Korean supply to continue to be constrained and chlorine price inflation to be more durable than we had anticipated on our last call.
The second extraordinary event and the quarter was the decrease weather conditions, and Texas and the South Central U S.
And this was an unprecedented event and unlike anything even our most tenured associates had experience.
The events significantly increased our service volume and equipment sales and the region and drove total equipment sales up approximately 85% and the period.
For the quarter, we estimate that the free these accounted for approximately $10 million of incremental sales and it's clear.
And we will continue to have opportunities to help consumers with damaged equipment and water sanitation needs into the third quarter.
To wrap up we.
We are very pleased with our record results for the quarter.
More importantly, we are both gaining traction and our growth initiatives and feel we are very well prepared for what we see as a strong 2021 pool season, and the back half of our year.
With confidence on our team continuing to execute at a high level.
Detailed preparations for the season and the continuation of our favorable industry backdrop, we have and you've seen and their press release revised our guidance for the year upward.
With that I'll hand, it over to Steve to discuss the quarter and outlook in more detail.
Steve.
Thank you, Mike and good afternoon, everyone. The strong start to our fiscal year continued and the second quarter. As we remained focused on our growth initiatives and preparing for season, we generated record second quarter results that exceeded our expectations and we're proud of all of our associates as they continue to deliver against our strategic priorities and generate the.
It's we're reporting today.
Today, We will review our second quarter of fiscal 2021 performance and our upward revision to our full year fiscal 2021 guidance before I get started just a reminder, on the calendar. This year as a result of fiscal 2020, having 53 weeks there are calendar shifts and fiscal 2021 that impact our quarterly comparisons.
On a year over year basis, and the second quarter of fiscal 2020. One we replaced a lower volume week at the end of December with a higher volume week at the end of March this shift impacted sales by approximately $15 million during the second quarter.
So onto our second quarter results. Our second quarter included 13 weeks and ended on April three 2021.
We delivered strong results for the second quarter with momentum throughout our business and our P&L.
Total sales for the 13 week period increased 52, 3% to $192 $4 million from $126 $4 million and the second quarter of fiscal 2020.
Our comparable sales on a reported or unshifted basis increased 51, 3%.
Due to the 50 <unk> week in fiscal 2020, our comparable sales growth and 2021 is impacted by a one week shift.
Using our realigned period and 2020 for comparability, our comparable sales on a shifted basis for the second quarter of 2021 increased 35, 5%.
This represents an acceleration of growth following the comparable sales growth of 25, 7% that we reported on a shifted basis and the first quarter of fiscal 2020, one and 23, 3% increase that we reported and the fourth quarter of fiscal 2020.
On a two year stack calendar basis, our comparable sales grew 49, 1% during the second quarter of fiscal 2021.
We generated strong results across consumer types product categories geographies and as Mike mentioned during each period and the quarter. We also continued to see higher than expected retail price inflation, primarily related to chemical products channel management by major equipment manufacturers higher input costs and <unk>.
Less discounting across product categories.
Our gross profit increased 79, 6% to $71 $7 million from $39 $9 million and the second quarter of fiscal 2020.
Gross margin rate increased by 567 basis points to 37, 2% from 31, 6% and the prior year, primarily due to occupancy leverage product margin improvements and partially offset by business mix.
SG&A increased by $14 4 million to $74 million from $56.0 million in the second quarter of fiscal 2020.
The increase in SG&A was driven primarily by the sales increases and investments to support our growth.
Higher compensation accruals and increased and noncash equity based compensation were also drivers of the increase.
As a percentage of sales total SG&A decreased 778 basis points to 36, 6% and the second quarter of fiscal 2021, compared to 44, 4% and the prior year period.
It is important to note that during the current year quarter. We also absorbed new public company costs and our reported results.
Adjusted EBITDA improved by $17 $6 million to positive $9 $5 million from a loss of $8 $1 million and the second quarter of fiscal 2020.
During the current year quarter, we converted the increase in sales at a higher gross margin and leveraged our cost even as we invested against our key strategic priorities. As a result, we generated a positive EBITDA quarter. When the second quarter has historically represented approximately negative 5% of annual EBITDA.
Adjusted net loss was negative $2 $8 million compared to a loss of negative $28 $8 million and the prior year and improvement of $26.0 million. The improvement was due to a $17 $4 million increase and operating income of $14 6 million dollar reduction in interest.
Expense and was partially offset by a $5 $9 million reduction and income tax benefit or.
Our lower interest expense when compared to the prior year period was a result of a repayment of outstanding senior unsecured notes in November of 2020.
Lower LIBOR on our floating rate debt and no borrowings on our revolver and the current year period.
Diluted adjusted loss per share improved by 17 cents per share to a loss of one cents per share and and the second quarter of fiscal 2020, one compared to a loss of 18 cents and the second quarter of fiscal 2020.
Now I will turn briefly to year to date results. Following are a few highlights total sales for the 26 week period increased 35, 3% to $337 $4 million from $249 $4 million on the prior year and increase of $88.0 million.
Our comparable sales on a reported or unshifted basis increased 33, 7%.
On a shifted basis, the fact that factor in the one week calendar shift.
Our comparable sales grew by approximately the same amount at a total of 31, 1%.
This compares to comparable sales growth of eight 4% and the first half of fiscal 2020 and represents comparable sales growth on a two year stacked basis of 39, 5%.
Gross profit increased 52.4% or $42 $4 million to $123 $4 million from $81.1 million and the second quarter of fiscal 2020.
Gross margin rate increased by 490 basis points to 36, 6% from 32, 5% and the prior year.
And adjusted EBITDA improved by $26 $4 million to a positive $9 $3 million from a loss of negative $17 $1 million and the first half of fiscal 2020.
Diluted adjusted loss per share improved by 27 cents per share to a positive seven cents and the first half of fiscal 2021 compared to a loss of 34 cents and the first half of fiscal 2020.
Moving now on to the balance sheet, we finished the quarter of fiscal 2021 with cash and cash equivalents of $93 million excuse me finished the second quarter of fiscal 2020, one with cash and cash equivalents of $93 million and we had no borrowings on our revolver compared to cash and cash equivalents on <unk>.
$11 9 million and borrowings on our revolver of $50 million at the end of the second quarter of fiscal 2020 cash.
Cash and cash equivalents net of revolver borrowings on a year over year basis improved by $128 $4 million.
On inventory, we finished the quarter with $277 $9 million compared to $244 $7 million at the prior year quarter, and an increase of $33 $2 million.
As a reminder, at the end of our first quarter total inventory was $10 $6 million lower than the prior year we.
We have proactively worked with existing and new vendors globally to identify opportunities to strategically invest and inventory, we're pleased with our higher inventory position when compared to the prior year and the current environment of heightened consumer demand and especially in light of the tight industry supply situation across multiple product areas that our teams have been working.
Hard to navigate.
<unk> on inventory, we continue to work closely with our vendor partners to maintain the efficient flow of products to prepare for season.
With regard to debt at the end of the second quarter of fiscal 2020. One total funded debt was $810 million compared to 1 billion and 207 million at the end of the second quarter of fiscal 2020.
The $397 million reduction was due to the repayment of our senior unsecured notes and quarterly amortization payments on our outstanding term loans.
During the second quarter.
And our fiscal 2021, we amended our $810 million term loan agreement and a couple of key highlights first we extended the maturity to March of 2020 eight from August of 2020 three.
And second we lowered our interest of LIBOR plus 275.
With a 50 basis point floor, where previously interests was LIBOR plus 350 and no floor.
In addition, after the end of the second quarter of fiscal 2021, we amended our $200 million ABL credit facility to reduce our rate to LIBOR plus a range from 125 to 175 basis points based on percentage utilization previously our rate was LIBOR plus a range from 175 to two <unk>.
On a basis points.
We also reduced our unused fee from 37 five basis points to 25 basis points and the maturity on our revolver remains August of 2020 five no amounts were outstanding on our ABL credit facility as of April 3rd of 2021.
Next I'd like to turn to our outlook today, we're raising our full year fiscal 2021 guidance to reflect the first half beat our internal expectations progress against our growth initiatives.
Our view that inflation will be higher than previously expected for the full year and take into consideration and the additional service volume and equipment sales and Texas and South Central U S, resulting from the winter freeze on.
Our fiscal 2020, one and includes 52 weeks and ends on October <unk> 2021 for the year, we're providing the following guidance first sales of $1 $250 million.
And $1.270 billion, which is an increase of $75 million at the midpoint for a year on year increase from the mid teens range, excluding the impact of the 50 <unk> week and the prior year.
This compares to our prior expectation of high single digit growth on the same basis.
As we look at the second half of fiscal 'twenty, 'twenty, one and our guidance reflects confidence that our comparable sales growth on a two year stack calendar basis will remain above 30%.
Second adjusted EBITDA of 225 million to $235 million and increase of $25 million at the midpoint for a 33% increase year over year, excluding the impact of the 50, <unk> week, and 2020 and adjusting for public company costs. The high end of our range represents a 36% increase over the.
Prior year on the same basis. This compares to our prior expectation of high teens growth.
Next diluted adjusted net income of $125 million to $135 million and increase of 19 million and at the midpoint.
And finally diluted adjusted net income per share of 65 to 70 cents.
For an increase of 10 cents at the midpoint.
In summary, the second quarter of fiscal 2020, one was a record quarter with $192 million and total sales and we drove strong financial results throughout our P&L are.
And our entire organization continued to execute against our growth initiatives as we prepare for pool season in 2020, one and this environment of heightened consumer demand and finally, we will continue on a relentless focus on enhancing consumers experience and executing our initiatives to continue to drive growth and market share gains and with it.
That and I'll hand, it over to the operator to open the lines for Q&A. Thank you.
We will now begin the question and answer session to join the question queue. You May Press Star then one on your telephone keypad, you'll hear atone acknowledging your request if youre using a speakerphone. Please pick up your handset before pressing any teeth to it.
Your question. Please press Star then two we will pause for a moment as callers.
On the Q.
Our first question comes from Ryan Merkel of William Blair. Please go ahead.
Hey, guys congrats on another big quarter.
Alright, thanks, Thank you.
So first off full year guidance still feels a little conservative to me I realize the season is just starting but where could there be some upside.
Sure why don't I kick that off Mike and you can follow on and so when you think about guidance similar kind of process. We went through and then first quarter Ryan.
About two thirds of the guidance raise was kind of flow through from the second quarter outperformance, which means the remaining one third or about $25 million is related to kind of our current view on on inflationary.
Opportunities is as well as just recent trends and so when you think about the first quarter, we had a $10 million flow through from from a beating and inter.
Internal expectations and another $10 million from kind of inflation as well. So we continue to be very optimistic about our opportunities are as you said. It is still is kind of early from a season perspective and based on on current trends certainly have some opportunities to the upside, but feel very confident and the guidance that we provided today and and.
Our release.
Okay. That's helpful. And then Mike you mentioned that 30% of transactions were enabled by Omni channel I think can you just expand on this a little bit more.
Yeah. It means that through the fulfillment right. It was either ship to store ship from store.
Or bolus.
And I think the other way to look at that is 13% of it was shipped from store.
And the way we have the.
Omnichannel.
Filter set up those are all incremental sales.
So we're looking at it as a very encouraging start.
<unk> faster than we anticipated and the ship from store or incremental part is higher than we anticipated, but I need to wrap around all of that it's very early days right really just six weeks into it but.
Working as designed and scaling faster than we anticipated so we're happy.
It's great to hear and pass it on.
Thanks Ryan.
Our next question comes from Peter Benedict of Baird. Please go ahead.
Oh, Hey, guys. Thanks for the question so.
So maybe trying to think a little further down the road here can you give us any perspective on how retail prices tend to adjust.
And the sector as.
And as commodity costs come back down after a steep run up on.
Obviously, there have been moving higher here, but.
And what does history tell us about what happens when inevitably the commodity cost start to come down and whenever that's going to be.
Steve you want and take that one to start or you want me to.
Sure happy to so I think time will tell obviously I think when you think about day you know.
And what's out there and the current public markets are the duration of the supply disruptions are going to continue for quite a while here.
With potentially some normalization as we get late into the season next year, but again too many unknowns to know at this point I think when we look at our pricing a little bit further back I have not seen material reductions and and pricing from a competitive position, but I do I think we believe that.
Current current pricing likely won't be sustained once and <unk>.
Once full supply comes back on line, but I think as we think about the opportunity in front of US today. It really is about our opportunity to engage with existing and new consumers and we're seeing based on some of the recent news around shortages that we were attracting a lot of first time consumers to Leslie and to get and introduce the experience and.
What we have and offer so the durability of the opportunity for US is really wrapping our arms around those consumers and and showing them more than just the supply of chlorine and and the current season.
Yeah.
Good day here, Thanks for that Yeah, sorry go ahead Mike.
Yeah, I would just add.
It's a tough question to answer because it's really and unprecedented disruption and run up.
And the industry for years has not been very inflationary and chemicals. So.
We believe it'll be somewhat sticky in terms of what the industry is able to hang on to but.
Steve the other point, it's still unclear when production levels for the industry will return to normal.
Two big unknown and the timing of production catch up.
And also on unprecedented run up and how consumers will react to that on a go forward basis.
Yeah, No I think everyone appreciates that and.
That makes sense. So I appreciate the color you guys. Just gave there on my next my follow up question would just be around.
On the initial pro affiliated customers that youre that youre, signing up here and any color on information on them how do they look maybe relative to what you think your traditional pro customers were the same and.
And the 80% increase and spend I mean, what is that on how does the baskets look just any other color I know, it's early but just wanted to see what you can share on that thank you so much.
Yes sure Peter.
Due to your last comment it's still really early right. So we're not drawing conclusions, but similar to the Omnichannel go live implementation approach Eliot program and we're very pleased with the start.
We have signed up about 20% of our goal for the year to date. So we're ahead of plan there.
And the basket size as well.
Much higher than they were spending with us pre joining the program and I said that's about 80%.
It is.
As you might expect right now driven by chemicals and equipment, there and high demand, but we're just getting very variable very favorable feedback.
From the affiliate members, who are signing up and we continue to add.
New partners and at a good clip so.
Very early but all good news there.
Okay terrific. Thanks, so much and good luck.
Thanks.
Our next question comes from Jonathan.
Of Jefferies. Please go ahead.
Hey, guys. Thanks for taking my questions and great quarter first one was just on the cadence throughout the quarter you.
You mentioned and strengthening trends, obviously, a unique quarter with the inclement weather.
And in the South Central I'm, just curious if you could help us frame, maybe how how comps trended on a monthly basis.
Yeah. Thank you for the questions and certainly appreciate that Jonathan I'd characterize it as a consistently improving right. So it wasn't a it wasn't a midpoint and February from a weather perspective that we saw a spike as Mike mentioned about $10 million of incremental sales from.
The weather event, and and that's on a $190 million and and overall sales.
In addition, as we talked about you know kind of chemical inflation chemical inflation was a few hundred basis points.
Which was you know kind of mid single digits from billions of dollars of increase so on.
The core driver of of of the performance for the quarter was really throughout our product categories throughout our regions throughout our businesses are that really drove the beat so and and again very pleased on a both the current year as well as a two year stack basis to see that improvement in January and February and then in March.
Got you that's helpful.
And then a follow up question just on kind of on new customer acquisition and impressive numbers that you stated is there a way to frame how much of the new customers.
<unk> acquired were influenced by and better in stock position than you had presumably relative to peers and and and you know and second question kind of related to that with the cut.
Customers, who came in and and maybe thought chlorine from you guys for the first time and anything you've seen in terms of repeat purchases do you have kind of indication that.
And they're kind of showing loyalty after their first purchase.
Yeah, Jonathan and honest answer that and a couple of ways first first of all I'd say I was little surprised that.
We werent, adding more new customers strictly on Corey.
The flooring purchases from new customers was very much in line with the balance.
And of our file so it was not the not the driver that we anticipate it's really coming down to digital spend as you.
You said I would say better in stock positions across our categories and some of our competitors.
And also you know we noted that loyalty programs growing at the same time, which we find very encouraging because as you know we're launching what we believe is a much improved growth program. So to get that kind of growth from the existing program really driven by sign ups in store.
That we consider a very positive trend.
Yes.
When you think about the file growth that we had it was led by new customers, but we had increases across new customers reactivated customers and retain customers.
So we're quite we're quite happy with that trifecta and the trends across those.
And portions of the file.
Really helpful. Thanks for the color and best of luck.
Thanks, Thank you.
Our next question comes from Peter Keith of Piper Sandler. Please go ahead.
Hi, Thanks, Good afternoon, great results guys.
On the one number that really jumped out to us was the inventory growth and because we do hear about all these shortages.
And then the context of chlorine shortages do you guys feel like Youre going to have enough to last the season and therefore, maybe enhancing your competitive position as me as we go forward or do you think everyone's going to start running out at some point.
Yeah, well we.
Peter Thanks for the question.
Likewise said and my and my remarks, we feel confident and our inventory levels.
And I will say this this last week.
We set an all time record for chemical sales.
As Im sure everybody noticed right there was a number of news articles.
And you're about a shortage and that certainly despite demand really spiked demand, we considered kind of a.
A temporary spike if you will and.
And.
And right now, though we're at a bit of a low point and chlorine and we have.
Lots of supply and the pipeline and we do think we are in an advantaged position versus competition. When we get further in and season, we'll find out but we're very focused on using our in stock positions across across categories to continue to add new customers.
And Peter I'd add onto that because we have more chlorine this year and we are.
Had and prior year, so again I'll participate opportunistically going out and procuring supply from our global network has put us and a great position.
That being said with the overall industry shortages certainly it will be a have a lot of attention on availability I would like to remind you as well that when you talk about alternatives, whether it's a salt cory and generators or liquid bleach or other alternative sanitizers. We provide the total solution and we can install equipment on the backyard when it comes to salt.
Corey and generators and we sell alternative Sanitizers and our stores every day. So chlorine is isn't on and an important part of the senators and send it to sanitation products for the industry, but theres certainly a lot of alternatives that will continue to help consumers to keep a clean and St Pauls.
Okay that sounds interesting and.
On the inventory availability, if I could pivot away from chlorine and maybe towards.
Pool equipment pool parts. There is chatter that there's also some inventory constraints and these areas because of the demand surge in Texas.
Are these I guess on these rumors true how do you guys feel about your competitive positioning and the and the pool parts categories.
Yeah, I would characterize it as a tight supply situation I think that's correct.
As you know the the.
Major equipment suppliers are reporting are starting to report.
And they are reporting really strong numbers and.
That's not unexpected from us.
Because we know what we're buying from them.
And what we feel good about is we very early in.
And the year increase season.
Got aggressive with forward looking projections for equipment and chemicals.
And we.
Our sales.
With the major vendors are outpacing their sales so we feel good in that sense that we're getting.
Increased market share if you would.
Their production and that should treat as well and as we get further and Susan.
Okay sounds good guys. Thanks, a lot and good luck.
Our next question comes from Steven Forbes of Guggenheim Securities. Please go ahead.
Hi, Good evening I wanted to follow up on the pro.
So Mike or Steve and you can't discuss how pro sales growth compared to the average during the quarter any sort of context right ratio or however, you want to reference it and then and then and what are the pipeline right. Both in terms of new stores and the conversion and how far out are you sort of planning the pipeline right as we think back to sort of just the.
The expectation on on an annual basis for the number of openings has that changed given the strength that you're seeing.
Yeah, I will say that and in terms of our wholesale business growth.
It grew about twice our average.
Price of the company's total I should say, so really strong growth there.
And he can.
Converted stores and we're very pleased with initial results.
It's early days there eight weeks.
We have a second tranche of stores identified.
About 25, but.
But we are going to wait to see how those stores perform as we get deeper into the season boost before we started and additional conversions.
Helpful. And then maybe just a quick follow up since you mentioned and the closing of the acquisition and on the new LOI.
Curious if you can just comment in general right as it pertains to the M&A pipeline and the general appetite for deals and the marketplace given the supply challenges that are out there.
And how if the supply challenges have sort of <unk>.
Created this elongated pipeline for you guys.
Yeah, I think it's a combination of having to deal with the pandemic and and having to deal with tight supply and of course the related I mean, there is a.
Theres, just a dynamic and the industry or a lot of smaller operators.
Or are looking to monetize.
And looking to exit its been a very.
Our to US if you would.
14, 15 months now and and.
And that's driving some of the some of the pipeline for sure and.
Most of our pipeline as we've mentioned before.
It's really incoming and.
And we're seeing a lot of a lot of interest.
Thank you yeah, that's right from an inventory perspective, I'd just make the comment that look these are our tuck in acquisitions, we've done and.
And so can handle from an inventory flow perspective and in other cases. It certainly are making sure we have conversations with the supplier base, Oh and connection with our with the discussions around M&A. So I think you're right to be focused on it and and one that we don't think we'll be in and an inhibitor for our ability to close on deals.
Thanks, Dave Best of luck.
Our next question comes from Elizabeth Suzuki of Bank of America. Please go ahead.
Great. Thank you.
I think anything and southern markets and in particular, where pools may be opening up that would indicate an earlier start to the season than last year, particularly given the more favorable weather this year.
Yeah, just one comment on weather to start the.
Outside of Texas.
Wasn't actually.
Favorable quarter.
Now there were pockets of favorable weather.
And the earlier question about pool openings, we're running about.
About 20, 30% ahead of last year.
So it is it is true that people are looking to get their pools opening earlier dark giant.
Great and and are there any industry that you can point to in terms of the sustainability of demand for new pools like permit applications and the backlog I know that that had been running pretty hot I mean is that still the case or as you know as markets are opening up and people can differ yeah monies go on to travel and things away from the hallway starting.
And see that tailing off at all.
No actually actually the data we're seeing is that.
Projections of increase permit activity closer to last year's level and this year's level through 2025 now.
And now those are forecasts, but there are industry forecasts and we.
We certainly haven't seen anything in terms of velocity or interest or demand that would.
That would tell us different.
And that's a great tailwind and thank you and others, who have reported Liz and they they've talked about the supply and the backlog going well through the end of the season and into next season as well.
At Newport builds at higher levels, and we've talked about on the past. So it certainly feels like there's continued momentum and and no slowdown and as we've talked about that.
Greatly and an indicator as we get to take care of those pools and maintenance needs for the next 30 years or so.
Great. Thanks, so much.
Yeah.
Our next question comes from Dana Telsey of Telsey.
Telsey.
Advisory Group. Please go ahead.
Hello, everyone and congratulations on the terrific reported just digging more into loyalty given that loyalty was up around 10%. What is the profile of these new customers and how is the sales penetration of those loyalty members year over year, and then I have a follow up.
Yeah. The loyalty members that are that are coming in our and <unk>.
Dominantly the same demographic profiles.
The existing loyalty base and we're not seeing anything there.
And would be a dramatic shift and age or income.
Or even geography.
And it's a little bit the story there is a little bit more on the same.
We are seeing increased.
Penetration of loyalty into our total sales base.
It had been running about 70% and last quarter.
Kicked up to nearly 80%.
So we consider that a good sign and and again really looking forward to launching the new loyalty program and.
And we think we can.
And accelerate the growth from what we saw last quarter to share.
Got it and then when you think about the pro program on the pro affiliate problem.
Affiliate program, a tongue twister, the pro affiliates spending 80% more after joining the program. What are you noticing there what are they spending on is that a flywheel to attracting more pros.
Yeah, we believe it is.
We knew we had a lot of pro customers.
And had talked about that before where we had was very small share of wallet from them. So we anticipated and actually our agreement with them has spend minimums in it.
But they're going through those minimums pretty quickly.
And we just feel really good about.
What is his wallet share that we're taking from and.
And it's working for the reasons, we laid out when we started right. The most important one is convenience.
Or smaller pros and.
And their sole operators and a lot of instances their time is literally their money and they are out of pool with a customer and need something and our stores are on almost always by definition the closest stores that convenience plus the pricing, we give them plus and increased.
<unk> pro specific products and then the referrals and that's just that's proving to be a very powerful combination and attracting pros and to the affiliate program and then.
Increasing and wallet share there.
Achieving from them.
Thank you.
Our next question comes from David Bellinger of Wolfe Research. Please go ahead.
Hey, Hey, guys and thanks for taking my question and great quarter here the.
First one just on the southern markets being elevated following the Texas storms.
Net tailwind expected to continue into Q3 are there any historical precedent and you can reference in terms of the cash.
How long and procure and sales gains glass and also any any comment on how much stronger and this outlook and Q2 versus other parts of the country.
Yeah, I'll address that first part we are seeing continued high.
High levels of demand from Texas, and the South Central region into Q3 to date.
And there is a lot of I'm going to say, it's different forecasts and speculation on how long this will last but I know that the equipment manufacturers and parts manufacturers in particular are producing product as fast as they can and it's being absorbed into the market. There was a lot of repair work done.
Early on in the freeze that.
Was not complete meaning it was there was a lot of work around due to parts of our equipment shortage and.
And so a lot of that work has.
Ben been done, but now there's going to be a second wave or people, who are going to want to go in and.
And AD and the new parts that may not have been available earlier.
And I'd add on to that and make sure that the.
Timing of when that occurred in February not not core pool season, and so as water temperatures heat up on.
And that market's gonna experienced significant issues with respect to allergies and other other balloons and so to Mike's point may have had some workarounds early on but we'll need the full solution on the equipment pad.
You know as we kind of get into season here. So I think the only thing I would point to from a parallel perspective, and we talked a lot about.
This being a severe weather event kind of like a hurricane.
Where you have a little bit of a slowdown during the actual event as people focus on on their safety and then they quickly returned to them you know take care of their property and they can.
It can last for a quarter. So certainly as we stated had a had an impact in Q2 and and anticipate that to continue through Q3 and and likely through the rest of the year.
Okay and David.
And then just tell me sorry go ahead and like.
And I'd be able to give you just a couple of bug.
Points on that.
When we when we saw what was going on and we increased our service team personnel by 70% and Texas.
And we transferred about that equivalency and additional inventory into the area.
And we're still sitting on a backlog of service requests.
<unk> normal.
At this moment, we continue to see a lot of demand.
Got it thanks, Thanks for all the detail there and then and then just.
Thirdly on the outlook for gross margins and the back half of the year.
How sustainable is the margin expansion here in Q2 on the heels and another nice improvement coming off and in Q1.
And how much of that can continue into the back half.
Yeah, as we look at the back half of the year and again don't provide specific guidance on gross margins, but we're confident that our margins are going to be higher from a growth rate perspective, and our long term growth algorithm right. We talked about flat to 25 basis points up on a year on year and you're out basis, we will certainly be elevated from there.
And think about the 567 basis points are fairly fixed occupancy when you think about our current our current fleet and current footprint and so.
And so we did see quite a bit of leverage coming through from occupancy in Q2, and obviously as you get a 50% beta plus on the top line going to see some very strong leverage so certainly expect a moderation, but overall very positive story.
We are continuing to see leverage throughout the <unk>.
Most aspects of our business.
Thank you.
Our next question comes from Garik <unk> of loop capital. Please go ahead.
Thank you and congratulations on the quarter just wanted to follow up on the topic of alternatives to Corey and you touched on this a little bit but are you actually starting to see pool owners aggressively seeking out these alternatives and I guess, if so would there be any impact.
Whether it's a sales or margin just from a shift and mix at all.
Yeah, Gary it's a it's a very interesting question, we were seeing and increase in sales of salt sales.
And the neighborhood of 30%.
Alternative sanitizers combined other than salt sales were actually flat. So we have not seen.
A big shift.
And.
And we're prepared for it.
The margin profiles are similar and we can be very agnostic as to what.
What chemicals or what methods one of our consumers wants to use the sanitizer pools, but we have not we have not seen a big shift yet.
Great that's helpful.
A follow up question is just around the back half outlook.
You stated in the past about 45% of your full year sales are on three key or about 35%.
And <unk>, obviously, it's going to be a little bit skewed. This year, just given how strong the first half as bad, but just kind of wondering if there's anything from a high level to call out regarding there that's the cadence and the <unk>.
And second half of the year relative to your guidance.
Yeah. That's a good question Garik and and when you think about day, you know historically its been kind of 10% to 12% for each of the first and second quarters kind of got us to about a 20% for the first half.
And when you look at the back half of the year based on the guidance. We've effectively said that about 26 percentage of total sales will be and in the back half of the year. So definitely skewed more a little higher percentage in AR and the back half of the year for or sorry, 26% and the first half of this year. So about 74% will come on the back half of the year low.
Skewed more towards the front half of the year, just given the growth rates, but I think as you think about Q3 versus Q4 I don't have any reason to believe that the flow where trend should be different between the two quarters and the second half.
Okay. Thank you very much.
Our next question comes from Alex.
And of Bamberg. Please go ahead.
Hi, Good afternoon, guys. My first question is on the pro store rollout what have you learned operationally with these first few store openings and how can it improve some of the new greenfield or converted locations going forward.
Yeah.
Learned a couple of things one is the.
The increased assortment.
Is driving about.
A third of the lift that we're seeing.
Extended store hours.
Driving close to another third.
And then the other fair and I think as.
I'm going to say.
Stores that now say language pros.
And the pro affiliate program.
Just lifting the.
Lifting the awareness of our pro program in the trading region.
Okay understood.
And then secondly, I'm sure your team wasn't anticipating a clearer and shortage during the accu blue rollout and <unk>.
Order rollout be impacted at all by pricing pressures or inventory constraints.
Well you know, we've said that we're going to limit. This initial version one point on and a pretty significant way.
And in some ways, it's like a a broader beta tests and we're going to focus it on our loyalty customers and in terms of our modeling from a supply that actually blue home customers will need.
We'll be in good shape.
It will be fine.
And two point O, which we anticipate we will be scaling to a more significant volume.
And is scheduled for the second half of next year and.
And.
And as near as we can tell at this moment.
Chlorine supply should be more normalized at that point.
Okay that makes sense to me.
No.
Yes.
This concludes today's question and answer session I would like to turn the conference back over to management for any closing remarks.
I'd like to thank everybody for joining us today.
It was a good quarter and we look forward to presenting Q3 and Q4, when we get to those points. Thank you very much.
This concludes today's conference call you may disconnect your lines.
And for participating and have a pleasant day.
Yeah.
[music].
Okay.
And then.
[music].
Yeah.