Executive Summary / Key Takeaways

• POOL Corporation, the world's largest wholesale distributor of pool and backyard products, is demonstrating resilience in a challenging market marked by pressured discretionary spending and high interest rates, anchored by its durable maintenance and repair business.
• Strategic investments in its expansive distribution network, proprietary Pool 360 technology ecosystem, and private label offerings are enabling market share gains, particularly in the non-discretionary segments, and enhancing operational efficiency.
• Despite a 4% net sales decline in Q1 2025 driven by discretionary weakness and weather, the company saw sequential improvement in sales trends and maintained gross margins (excluding prior year non-recurring items) through strategic initiatives.
• Management forecasts flat to slightly positive sales growth and stable gross margins for the full year 2025, supported by maintenance volume growth, pricing benefits (including tariffs), and ongoing share capture, while tightly managing operating expenses.
• With a strong balance sheet, ample liquidity, and disciplined capital allocation focused on strategic investments and shareholder returns, POOL is positioning itself for accelerated growth and profitability when macroeconomic conditions and discretionary spending normalize.

The Deep End of the Market: POOL's Enduring Strength

Pool Corporation stands as the undisputed leader in the wholesale distribution of swimming pool and related backyard products, a position cultivated over 60 years through strategic expansion and deep industry relationships. Operating a vast network of nearly 450 sales centers across North America, Europe, and Australia, POOL serves a diverse customer base primarily comprising professional pool contractors, service companies, and independent retailers who cater to the end consumer, including the significant do-it-yourself (DIY) market. This integrated model provides unparalleled reach and logistical capabilities, allowing POOL to deliver a wide array of products, from essential maintenance chemicals and equipment to building materials for new construction and renovation.

The industry itself is underpinned by powerful long-term trends. The enduring appeal of outdoor living, coupled with demographic shifts like southern migration and the home-buying patterns of millennials and Gen Z, continues to drive demand for pools and backyard amenities. While the industry experienced a significant surge during the pandemic, it is currently navigating a period of normalization, characterized by lower discretionary spending on large projects like new pool construction and major renovations, primarily influenced by higher interest rates and macroeconomic uncertainty. Despite this cyclical pressure, the fundamental demand for pool maintenance and repair remains robust, driven by a large and growing installed base of pools that require ongoing care regardless of economic conditions. This non-discretionary segment forms the resilient core of POOL's business.

In this dynamic environment, POOL's strategy is centered on leveraging its scale, enhancing its value proposition through technology and service, expanding its footprint in key markets, and focusing on capturing market share across all segments, particularly in the stable maintenance business.

A critical differentiator for POOL is its investment in and deployment of the Pool 360 ecosystem. This comprehensive digital platform goes beyond a simple B2B ordering system, though its enhanced version is foundational, with orders processed through the platform growing to approximately 13% of total sales in Q1 2025, up from 11% a year prior. The ecosystem includes the Pool 360 Water Test application, designed for retail customers to provide precise water chemistry recommendations, and the Pool 360 Service software, tailored for pool service professionals to streamline operations like scheduling, routing, billing, and procurement. These tools are strategically designed to create capacity and drive productivity for POOL's customers, making it easier to do business with the company.

The tangible benefits of this technology are becoming increasingly evident. The Pool 360 Water Test, for instance, is directly linked to POOL's private label chemical programs (such as Regal, E-Z Clor, and Life), recommending these proprietary products to consumers. This integration is contributing to significant growth in private label chemical sales, which saw double-digit growth in Q1 2025. For pool service companies, the Pool 360 Service software aims to improve operational efficiency, potentially reducing administrative time and optimizing routes, thereby allowing them to service more pools. While specific quantifiable metrics on the efficiency gains for customers or the direct revenue impact of the service software are still emerging as adoption grows, the strategic intent is clear: to embed POOL deeper into its customers' daily operations, creating a sticky relationship and driving sales of POOL's products, including higher-margin private label items. This technological moat enhances POOL's competitive position by offering value-added services that rivals often lack, supporting market share gains even when the overall market is soft.

Navigating Current Currents: Q1 2025 Performance

POOL's performance in the first quarter of 2025 reflected the prevailing market conditions. Net sales decreased 4% year-over-year to $1.07 billion. On a same-selling day basis, sales were down 2%, a sequential improvement from earlier trends in 2024. This decline was primarily attributable to lower sales volumes of discretionary products used in new pool construction and renovation, which continue to feel pressure from the uncertain macroeconomic environment and high interest rates. Unfavorable weather patterns in January and February also negatively impacted early season activity, though sales trends improved in March.

The resilience of the maintenance business provided a crucial offset. Sales of maintenance-related products, which constitute the largest portion of POOL's business, remained consistent, with chemical volumes growing 1% and private-label chemicals achieving double-digit growth. Equipment sales (excluding cleaners), which represent about 34% of net sales and are used in maintenance, renovation, and new construction, declined 4%, partly due to strong repair activity comps in Florida in the prior year. Building materials, tied more directly to new construction and remodeling, saw a 5% decrease, though this represented a sequential improvement from the fourth quarter of 2024. The commercial business, a smaller but growing segment, saw sales increase by 7%.

Gross profit decreased 8% to $312.4 million, resulting in a 100 basis point decline in gross margin to 29.2%. However, this comparison is skewed by a non-recurring 110 basis point benefit from an import tax reversal in Q1 2024. Excluding this item, the Q1 2025 gross margin was 10 basis points higher than the prior year, reflecting the positive impact of strategic pricing and supply chain initiatives. These benefits were partially offset by a less favorable customer mix (larger customers, who typically have lower margins, are capturing more business in the current environment) and a slight drag from lower building material sales. Competitive pricing tactics were noted as more prevalent in the quarter.

Selling and administrative expenses increased by a modest 2% to $234.8 million, reflecting inflationary pressures and costs associated with sales center network expansion, partially mitigated by disciplined management of variable costs. As a percentage of net sales, operating expenses rose to 21.9% from 20.5% due to the lower top line. Operating income consequently decreased 29% to $77.5 million, with operating margin falling to 7.2% (including the prior year import tax benefit). Interest expense decreased due to lower average interest rates on debt. Net income for the quarter was $53.5 million, down from $78.9 million in Q1 2024.

Geographically, performance varied, with Arizona sales up 2%, California flat, Florida down 1%, and Texas down a more significant 11%, impacted by weather. European sales declined 6% in USD, while the Horizon irrigation business saw a 4% decline, partly due to PVC deflation.

Financial Strength and Capital Allocation

POOL maintains a strong financial position, providing flexibility in the current environment. Total net receivables decreased 6% year-over-year at March 31, 2025, reflecting sales trends and effective collections, with days sales outstanding (DSO) improving to 25.9 days from 26.9 days. Inventory levels decreased 2% to $1.46 billion despite thoughtful early buy ordering, indicating improved stocking efficiency. Inventory turns improved slightly to 2.8 times from 2.7 times.

Total debt outstanding stood at $1.0 billion at March 31, 2025, an increase of $45.9 million from the prior year, primarily driven by increased share repurchases. Net cash provided by operating activities in Q1 2025 was $27.2 million, significantly lower than the $145.4 million in Q1 2024, primarily due to a $68.5 million deferred federal tax payment from 2024 and a working capital headwind from higher inventory purchases and related payables timing.

The company has ample liquidity through its credit facilities, including $617.2 million available under its revolving credit facility as of March 31, 2025. POOL remains in compliance with all material financial covenants, with an average total leverage ratio of 1.47 and a fixed charge ratio of 4.89, well within required limits.

POOL's capital allocation strategy prioritizes investing in the business, maintaining a prudent capital structure, and returning cash to shareholders. Projected capital expenditures for 2025 are 1.0% to 1.5% of net sales, focused on sales center maintenance, growth, technology, and vehicles. The company plans $25 million to $50 million for strategic acquisitions and expects to pay around $200 million in dividends. Opportunistic share repurchases continue, with $290.8 million remaining under the current authorization as of late April 2025. Cash flow in 2025 is expected to be 90% to 100% of net income, impacted by the deferred tax payment.

Outlook and Competitive Positioning

Looking ahead, POOL's guidance for the full year 2025 reflects a cautious yet confident outlook. Management expects sales to be flat to slightly positive compared to 2024. This forecast is based on assumptions of continued flat discretionary spending (new construction and renovation), volume growth in the resilient maintenance business, and a net pricing benefit of approximately 2% (including the pass-through of vendor price increases, some related to tariffs). The company anticipates that its strategic initiatives and competitive advantages will enable it to continue gaining market share, outperforming the broader industry trends.

Gross margin is projected to be in line with the 2024 level of 29.7%, with the highest margin expected in the second quarter. This outlook anticipates that benefits from ongoing strategic pricing, supply chain efficiencies, and growth in higher-margin private label products will offset the continued drag from product mix (lower building materials) and customer mix (larger customers), as well as potential pressure from competitive pricing. Operating expenses are expected to increase around 3%, reflecting investments in network expansion and technology, managed with disciplined cost control.

The resulting diluted EPS guidance for 2025 is in the range of $11.10 to $11.60, including a $0.10 year-to-date tax benefit from ASU 2016-9. This guidance implies a stable to slightly improved operational performance year-over-year, excluding the impact of the prior year's non-recurring tax benefit.

In the competitive landscape, POOL's scale and integrated model are significant advantages. While competitors like Latham (SWIM) focus on manufacturing and innovation in specific product areas like fiberglass pools, Emaux on equipment technology, Carvin on cost-effective equipment, and US LBM on broader building materials distribution, POOL's strength lies in its comprehensive distribution network, inventory breadth, and value-added services. Its nearly 450 locations provide unmatched proximity to customers, enabling efficient delivery and strong relationships. The Pool 360 ecosystem provides a technological edge, differentiating its offering beyond just product distribution by helping customers manage their businesses and driving loyalty, particularly through the integration with private label products. While competitive pricing is a factor, especially in a softer market, POOL's focus on value, customer experience, and operational efficiency allows it to defend and gain market share. Its ability to thoughtfully manage inventory and leverage its supply chain, including Central Shipping Locations, further enhances its competitive standing.

Key risks to the outlook include a potential worsening of macroeconomic conditions, sustained high interest rates further impacting discretionary spending, and adverse weather patterns. Competitive pressures on pricing could also intensify. However, POOL's focus on the non-discretionary maintenance segment, its proven operational execution, and its strategic investments are designed to mitigate these risks and position the company for growth when the market eventually normalizes.

Conclusion

Pool Corporation is navigating a challenging market cycle with a clear strategy focused on its core strengths and long-term growth drivers. While macroeconomic headwinds and high interest rates continue to pressure discretionary spending on new pool construction and major renovations, the company's large and growing maintenance and repair business provides a stable foundation. POOL's strategic investments in its expansive distribution network, innovative Pool 360 technology platform, and private label offerings are enabling it to gain market share and enhance operational efficiency, positioning it to outperform the market even in the current environment.

The Q1 2025 results, while reflecting top-line pressure, demonstrated underlying resilience in the maintenance segment and progress on strategic initiatives. The full-year 2025 guidance for flat to slightly positive sales and stable gross margins underscores management's confidence in the durability of the business and the effectiveness of its strategy. With a strong balance sheet and disciplined capital allocation, POOL is well-positioned to continue investing for the future and returning value to shareholders. Investors should monitor trends in consumer discretionary spending, interest rates, and the continued adoption of POOL's technology platform as key indicators of the company's trajectory towards accelerated growth when the industry cycle turns.