Earnings call transcript: Latham Group Q2 2025 sees steady performance

Latham Group Inc. (SWIM) reported Q2 2025 EPS of $0.13, meeting forecasts, with net sales of $173 million slightly missing expectations but growing 7.8% year-over-year. The stock gained 1.34% after-hours, reflecting investor confidence as the company reaffirmed its full-year guidance projecting 8% net sales and 19% adjusted EBITDA growth, despite a projected decline in overall US pool starts. Performance was bolstered by a 400 basis point gross margin expansion, strategic emphasis on fiberglass pools and auto covers, and targeted growth in "Sand States," supported by operational efficiencies and recent acquisitions.

Analysis

Latham Group (SWIM) demonstrated strong operational execution in its Q2 2025 results, navigating a challenging end-market characterized by a projected decline in U.S. pool starts. While net sales of $173 million slightly missed consensus by 0.52%, the figure still represents robust 7.8% year-over-year growth. More significantly, the company showcased impressive operating leverage with a 400 basis point expansion in gross margin to 37.1% and a 15.7% increase in adjusted EBITDA to $39.9 million. These results were driven by the successful execution of strategic initiatives, including a focus on higher-margin fiberglass pools, which are expected to account for 75% of in-ground sales, and strong growth in auto covers, which saw a 46% sales increase aided by recent acquisitions. The reaffirmation of full-year guidance, projecting 8% net sales growth and a 19% rise in adjusted EBITDA, underscores management’s confidence in its ability to gain market share and drive profitability through its 'Sand States' expansion and lean manufacturing programs, outweighing the minor revenue miss and leading to a positive after-hours stock reaction.

Key Decisions for Investors

• Given the reaffirmed full-year guidance and significant 400 basis point gross margin expansion, investors should recognize the company's ability to execute its market share gain strategy effectively, even within a challenging industry.
• Closely monitor the execution of the 'Sand States' growth strategy and lead generation metrics, as these are critical drivers for offsetting the projected slight decline in the overall U.S. new pool market.
• While the stock exhibits high volatility with a beta of 1.72, consider the long-term potential outlined by management, which projects substantial growth in sales and EBITDA upon a normalization of the pool market, suggesting significant operating leverage.
• Factor in that current analysis suggests the stock is fairly valued, which may temper expectations for near-term multiple expansion and places a premium on continued execution against growth and margin targets.