Latham Group (SWIM): A Resilient Pool Leader Navigating Choppy Waters

Published on September 24, 2024 | Ticker: SWIM

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 an impressive operating history spanning over 65 years, the company has established itself as a leading player in the industry, known for its innovative product portfolio, strong brand recognition, and deep relationships with its dealer network.

Business Overview

Latham Group's business model is centered around its strong partnership with a network of dealers, who sell the company's products directly to consumers. The company's extensive product portfolio includes in-ground swimming pools, pool liners, and pool covers, catering to a diverse customer base. Notably, fiberglass pools continue to account for the majority of Latham's in-ground pool sales, demonstrating the strong demand for this product category.

Financials

Despite the challenging macroeconomic environment that has impacted the pool industry, Latham Group has demonstrated its resilience and ability to execute effectively. In the fiscal year 2023, the company reported annual net income of -$2.4 million, annual revenue of $566.5 million, annual operating cash flow of $116.4 million, and annual free cash flow of $83.2 million.

In the first quarter of fiscal 2024, Latham Group's performance exceeded expectations, with net sales of $110.6 million and a net loss of $7.9 million. The company's gross margin increased by 350 basis points to 27.7%, driven by cost reduction actions, lower raw material costs, and lean manufacturing initiatives. Adjusted EBITDA for the quarter was $12.3 million, up 11.4% from the prior year period.

Product Mix and Geographic Footprint

Latham Group's geographic footprint spans North America, Australia, and New Zealand, with the majority of its revenue generated in the United States. The company's product mix includes in-ground swimming pools (54% of Q1 2024 revenue), pool covers (24% of Q1 2024 revenue), and pool liners (22% of Q1 2024 revenue). During the first quarter of fiscal 2024, the company experienced a 23.9% decline in in-ground pool sales, a 17.9% decline in cover sales, and a 9.2% decline in liner sales, primarily due to lower demand for packaged pool products.

Recent Developments

One of Latham Group's key priorities for 2024 is to drive the adoption and awareness of both fiberglass and automatic safety covers. The company has made significant progress in this area, launching new product lines, such as the Enchantment plunge pool series and the Providence and Tuscan series, which have been well-received by the market. Additionally, the company is focused on expanding its automatic safety cover offerings, which provide both safety and cost-saving benefits for pool owners.

Another important initiative for Latham Group is its ongoing efforts to improve operational efficiency through value engineering and lean manufacturing. These initiatives have already yielded tangible results, with the company's largest liner and cover manufacturing plant achieving an 8% improvement in labor efficiency, a 20% increase in throughput, and overall improvements in employee health and safety. These structural cost benefits are expected to have a long-term positive impact on Latham's margin profile.

Liquidity

Latham Group's strong financial position, with $43.8 million in cash and a net debt leverage ratio of 2.7x as of the end of the first quarter of fiscal 2024, provides the company with the flexibility to navigate the current market environment and invest in future growth opportunities. The company's conservative capital allocation strategy, including a $100 million share repurchase program, further demonstrates its commitment to enhancing shareholder value.

Outlook

Looking ahead, Latham Group has provided guidance for the full year 2024, which implies a decrease in net sales and Adjusted EBITDA compared to the prior year. The company expects new pool starts to be down approximately 15% compared to 2023, reflecting the broader macroeconomic challenges facing the industry. However, Latham's focus on cost savings, operational efficiency, and strategic investments positions it well to emerge from this downturn as an even stronger market leader.

Risks and Challenges

Despite the near-term headwinds, Latham Group's long-term growth prospects remain promising. The company's strong brand recognition, innovative product pipeline, and focus on operational excellence position it well to capitalize on the eventual recovery in the pool industry. Furthermore, the company's strategic investments in digital transformation and lean manufacturing initiatives are expected to enhance its competitive advantage and drive sustainable profitability.

Conclusion

In conclusion, Latham Group is a well-established player in the residential pool market, navigating the current challenges with resilience and a clear strategic vision. The company's focus on cost savings, product innovation, and operational efficiency, coupled with its strong financial position, make it a compelling investment opportunity for those seeking exposure to the pool industry. As the market environment improves, Latham Group is poised to emerge as an even stronger market leader, delivering long-term value for its shareholders.

Leslie's, Inc. (LESL): Transforming the Pool and Spa Care Landscape

Leslie's, Inc. (LESL) is the largest and most trusted direct-to-consumer brand in the $15 billion U.S. pool and spa care industry, serving both residential customers and pool professionals nationwide. Founded in 1963, the company has established itself as the industry leader, operating an integrated marketing and distribution ecosystem powered by a physical network of over 1,000 branded locations and a robust digital and e-commerce platform.

Marine Products Corporation (MPX): A Steady Hand in Choppy Waters

Marine Products Corporation (MPX) has navigated the tumultuous waters of the recreational boating industry with a steady hand, showcasing its resilience and commitment to its shareholders. As a leading manufacturer of fiberglass boats, Marine Products has weathered the ebbs and flows of consumer demand, emerging as a reliable player in the market.

Massimo Group's Powersports and Marine Divisions Navigate Shifting Industry Tides

Massimo Group (MAMO) is a diversified manufacturer and distributor of powersports vehicles and pontoon boats, with a portfolio spanning UTVs, ATVs, e-bikes, and luxury watercraft. Founded in 2009, the company has established a strong foothold in the North American market, catering to both recreational enthusiasts and commercial users.

Pool Corporation (NASDAQ:POOL): Navigating Challenges with Strategic Growth

Pool Corporation, the world's largest wholesale distributor of swimming pool supplies, equipment, and related leisure products, has demonstrated its resilience in the face of a challenging macroeconomic environment. The company's strategic initiatives, coupled with its focus on customer experience and operational efficiency, have enabled it to maintain a strong market position and deliver solid financial results, even as the industry grappled with fluctuations in consumer demand.

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

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.