Latham Group, Inc. (NASDAQ:SWIM): The Pool Company Driving Fiberglass Penetration and Automatic Safety Cover Adoption

Published on March 17, 2025 | Ticker: SWIM

Business Overview

Latham Group, Inc. (NASDAQ:SWIM) is the largest designer, manufacturer, and marketer of in-ground residential swimming pools in North America, Australia, and New Zealand. With over 65 years of operating history, the company has established itself as the most sought-after brand in the pool industry, offering the broadest portfolio of pools and related products.

Latham Group was founded in 1956 and has since grown to become the industry leader in every product category in which it competes. The company conducts its business as one operating and reportable segment that designs, manufactures, and markets in-ground swimming pools, pool covers, and pool liners. Latham operates approximately 1.8K employees across about 30 locations, allowing it to service customers on short lead times and deliver products in a cost-effective manner.

The company's mission is to design and manufacture high-quality pool products with the homeowner in mind and to be a value-added partner to its dealer network. Latham has pioneered a direct-to-homeowner digital and social marketing strategy that has transformed the pool buying journey, allowing it to create demand for its products and provide high-quality, purchase-ready consumer leads to its dealer partners.

Latham's product portfolio includes fiberglass pools, custom vinyl pools, liners, all-season covers, and automatic safety covers. Fiberglass pools represent the company's core offering, accounting for 75% of in-ground pool sales in 2024, up from 73% in 2023. Fiberglass pools offer numerous advantages over traditional concrete pools, including lower upfront and lifecycle costs, faster installation, easier maintenance, and a more eco-friendly profile.

In addition to its core pool products, Latham has also expanded into automatic safety covers, which provide increased safety, convenience, and cost savings for pool owners. The company's acquisition of CoverStar Central in 2024 vertically integrated this product line, enhancing the company's margin profile.

Latham has enjoyed long-tenured relationships with its dealer network, averaging over 14 years. The company supports its dealers with business development tools, co-branded marketing programs, and in-house training. This dedication to its dealers has helped Latham maintain its industry-leading position.

Throughout its history, Latham has faced various challenges related to economic downturns that diminished consumer discretionary spending and access to credit. The company has also had to address product quality issues, warranty claims, and installation or safety concerns due to the failure of third-party installers to follow product installation instructions and specifications.

Financial Performance

Latham Group reported net sales of $508.5 million for the full year 2024, down 10% from $566.5 million in 2023. This decline was primarily driven by lower sales volumes due to industry softness, with in-ground pool sales decreasing 13% year-over-year to $259 million. However, the company was able to outperform the overall in-ground pool market, which saw an estimated 15% decline in 2024.

Despite the revenue decline, Latham was able to expand its gross margin by 320 basis points to 30.2% in 2024, driven by production efficiencies from lean manufacturing and value engineering initiatives, improved procurement, and modest deflation. The company's adjusted EBITDA margin also increased 30 basis points to 15.8% in 2024, with adjusted EBITDA reaching $80.2 million.

For the fourth quarter of 2024, Latham reported net sales of $87.3 million, down 4% year-over-year. This decrease was driven by lower sales volumes due to continued industry softness. Gross margin in Q4 2024 was 25%, up 130 basis points from the prior year period. Adjusted EBITDA in Q4 2024 was $3.6 million, or 4.2% of net sales, compared to $10 million, or 10.9% of net sales, in Q4 2023. Net income for Q4 2024 was -$29.2 million, a decline from the previous year due to higher SG&A expenses related to sales and marketing initiatives and increased performance-based compensation.

Breaking down the company's product portfolio for 2024:

Fiberglass pools accounted for $259.2 million, or 51% of total net sales.
Custom vinyl pools represented $118 million, or 23% of net sales.
Automatic safety covers generated $131.3 million, or 26% of net sales.
Vinyl liners contributed $118 million, or 23% of net sales.

Liquidity

The company ended 2024 with a strong financial position, including $56.4 million in cash and $282.1 million in net debt, representing a net debt leverage ratio of 2.8x. Latham generated $61.3 million in operating cash flow for the full year 2024.

Latham's liquidity position is further supported by a $75 million revolving credit facility. The company's current ratio stands at 2.51, while its quick ratio is 1.43, indicating a healthy short-term liquidity position.

Growth Strategies

Latham is focused on several key growth strategies to drive future success:

1. Accelerating Fiberglass Penetration: The company is actively working to drive further material conversion from concrete to fiberglass pools, which currently make up 24% of the U.S. pool market, up from 23% in 2023. Latham is positioning fiberglass as the superior choice for consumers due to its lower upfront and lifetime costs, faster installation, and eco-friendly attributes.

2. Expanding in the Sand States: The sand states, defined as Florida, Texas, Arizona, and California, account for approximately two-thirds of U.S. pool starts. In 2024, Latham's fiberglass pool sales in these states represented 17% of its total fiberglass pool sales, and the company is focused on rapidly expanding its dealer network, targeting master-planned communities, aligning its product offerings, and executing targeted marketing campaigns to capture a greater share of this high-growth market.

3. Driving Automatic Safety Cover Adoption: Latham's automatic safety covers offer significant safety, convenience, and cost-saving benefits for pool owners. The company is leveraging its acquisition of CoverStar Central to accelerate the adoption of this product line, especially in the sand states where it sees substantial growth potential.

4. Pursuing Strategic Acquisitions: Latham has demonstrated its ability to successfully integrate strategic acquisitions, such as the CoverStar Central deal in 2024, to expand its geographic reach, enhance its product portfolio, and drive operational efficiencies. The company will continue to evaluate accretive acquisition opportunities that complement its existing offerings.

Risks and Challenges

Latham Group faces several risks and challenges that could impact its future performance:

1. Macroeconomic Conditions: The company's business is closely tied to consumer discretionary spending, which can be influenced by factors such as interest rates, housing affordability, and overall economic conditions. A prolonged downturn in the housing market or a recession could adversely affect demand for Latham's products.

2. Supply Chain and Cost Pressures: Latham relies on a global network of third-party suppliers for raw materials and components. Disruptions in the supply chain, as well as volatility in commodity prices, could increase the company's costs and impact its ability to meet customer demand.

3. Competition: Latham faces competition from regional and local manufacturers on the basis of brand recognition, quality, performance, product characteristics, marketing, and price. The company's ability to maintain its market-leading position depends on its continued innovation and ability to provide a differentiated value proposition to customers.

4. Regulatory and Legal Risks: Latham's operations are subject to various environmental, health, and safety regulations, as well as potential litigation related to product quality, warranty claims, and other matters. Failure to comply with these regulations or successfully defend against legal claims could result in significant costs and reputational damage.

Outlook

For the full year 2025, Latham Group is guiding for net sales between $535 million and $565 million, representing year-over-year growth of approximately 8% at the midpoint. The company expects adjusted EBITDA to be in the range of $90 million to $100 million, an increase of 19% year-over-year at the midpoint.

This growth is expected to be driven by continued gains in fiberglass pool market share, especially in the sand states, the benefits of the CoverStar Central, CoverStar New York, and CoverStar Tennessee acquisitions, and increased adoption of automatic safety covers. Latham also plans to invest in new fiberglass pool models tailored to the sand states market, as well as expand production capacity at its Florida and Oklahoma facilities to support its growth initiatives.

The company anticipates similar new U.S. pool starts in 2025 compared to 2024 levels, with some potential upside if consumer confidence improves. Latham plans capital expenditures of $27 million to $33 million in 2025, with about $10 million allocated to developing new fiberglass pool models for the sand states market and expanding production capacity in Florida and Oklahoma.

Despite the challenging industry conditions in 2024, Latham has demonstrated its ability to navigate the downturn and emerge in a stronger competitive position. The company's focus on product innovation, operational excellence, and strategic acquisitions positions it well to capitalize on the long-term trends driving growth in the residential pool market.

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