Quarter 1
Q1 2026 Earnings Call — April 23, 2026
Analyst Susan McLaurie (Goldman Sachs): Thank you. Good morning, everyone. My first question is on your ability to realize the return on investments that you talked about coming into this year. As the pool season starts to come together, can you talk about your competitive positioning, what you're hearing from the sales centers and your customers in there, and just how you're thinking about that overall positioning as we move into the spring-summer?
Executive Pete (Title): Sure. You know, when we think about getting ready for the season, we think about making sure that we have all of the sales centers ready for the surge of business that happens during the second and third quarter. That means that having the right inventory in the right location, having a staff that is fully trained and frankly excited about the season, having all of our new products ready to be introduced to customers, working really hard to on early buys to make sure that we have the product out in the field at our customers' locations, ready to sell, making sure that we have explained all of the new product offerings that are available to our customers so that they can help grow their business, and that our marketing programs are finely tuned to kick off the demand creation efforts that we do that are very unique in the industry. And then it's a matter of making sure that in the sales centers that our teams are ready for the surge of business and that we've taken advantage of the investments that we've made in capacity creation so that we get better every year.
We have a performance-based culture, and every year there is a drive to make sure that whatever we did last year that we do better this year, whether it is our productivity levels in the sales centers, whether it is our efficiency in serving customers and how quickly we get them in and out the door. All of those things are part of the overall customer experience that we focus on. And especially with the newer locations that we opened up in the last couple of years, the newer ones are the ones that we pay the most attention to to make sure that they're ready to start without missing a beat.
Okay, that's helpful. And then I guess, you know, given the geopolitical environment and the moves that we're hearing in consumer sentiment, what are you hearing from your customers on the ground? Has there been any change in how they're thinking about their backlogs or consumers' willingness? And what are you seeing on those discretionary side of the business?
Executive Pete (Title): You know, I think that we continue to watch the health of the consumer. We watch housing turnover. You know, frankly, the age of the install base all matter. It's early in the year to look at permit data and try and draw any conclusion for where we'll end up because first quarter is just so small relative to that. So there's a lot of, you know, first quarter is really kind of selling season and now the builders are trying to lock down contracts. So I can tell you that I've heard everything from very optimistic and I'm sold out to, you know, other areas where, you know, they're still trying to pursue contracts to make sure that they can lock up the season. So on balance, I would say, you know, relatively unchanged with some green shoots, I would say.
Analyst David Manthe (Bayard): Thank you. Good morning. Pete, as you mentioned, I realize the first quarter is seasonally volatile, but we saw a couple of decent sized changes in some of the supplementary information you provided. So, chemicals staged quite a turnaround here. Florida, I guess it had been growing a little bit. Now it's down 1%, and California and Texas are booming. I'm just wondering if you can talk about those to the extent there's any signal there versus noise in the first quarter.
Executive Pete (Title): Yeah, I'd be careful about drawing huge conclusions on first quarter, but I'll give you just a couple of things to think through. In terms of chemicals, first quarter is actually one of the quarters that So when you're trying to sell a program to a dealer, dealers typically don't convert during the season. They convert after the season, and then they would load their inventory into the stores for the upcoming season. So as you know, with our private label chemicals, our Regal and Easy Chlor lines, which we believe are best in class, especially when paired with the technology tools and the water testing apps that we have and water testing strips, everything for the integrated systems, I think we saw good traction from the dealers and specifically on the retail side that has helped our traction that we're seeing on the chemical side. And frankly, the teams are out hunting that business because I think we've got a great value proposition. When I look at California and Texas, California, I think, benefited a little bit from weather. California was pretty hot in earlier in the first quarter, which is atypical. So that weather pattern helped.
And I think the same was true for a bit of Texas. But again, it's so small and relative to the grand scheme of things that I don't know that I would draw a whole lot of conclusions from that. But I can tell you the team did a very good job of explaining the value proposition and winning share at the dealers in the first quarter. And I think that's just a result of conveying a very strong message of the best value proposition in the industry.
Yeah. And second, you've talked about growth in OPEX expected to slow through the remainder of the year. And Melanie mentioned that. Could you tell us, does that still kind of anticipate that full-year OPEX will be in that 60% to 80% range relative to gross margin or sales dollar growth?
Executive Pete (Title): So that is the long-term target, but you should remember for 2026, we do also have that incentive comp reload. So where we do expect to get some leverage for the year, some of that natural leverage will be offset by that rebuild on the compensation side. So it'll be a little bit lower than our normal long-term algorithm. And that comp reset was, I think you talked about $15 million. Is that still the case?
Executive Pete (Title): Yes, at the low single-digit growth. Got it. What we're counting on, Dave, though, is the absorption, you know, as the new sales centers that we've opened last year and the year before, as they continue to gain traction, then the absorption rate on that cost improves. And when you couple that with slowing of adding new investments to the business, because I think we're adequately invested in most areas right now, I think the results for the back half of the year are encouraging.
Analyst Ryan Merkle (William Blair): Hey, everyone. Thanks for the question. Wanted to start with gross margin. Peter, Melanie, can you quantify the impact to gross margin from the customer pre-buy and then also the higher equipment mix? And the reason I ask is I think last quarter you guided gross margin slightly up year over year in the first quarter. So curious what was different versus what you thought.
Executive Pete (Title): Yeah, so, you know, we're not going to provide a kind of detailed quantification of that. But if you think about, you know, what we have talked in kind of relative margins, so we generally will talk about kind of building materials, having the best margin, and then after that would be chemicals, and then after that would be equipment. So with the equipment being the higher portion of the first quarter sales and really kind of outgrowing our expectation, that's really where we saw some dilution of the consolidated margins.
Got it. So in my own words, it sounds like the equipment growth surprised you in one cue versus what you thought. It was a very pleasant surprise.
Executive Pete (Title): Okay. Got it. All right. That's good to hear. And then second question is, can you just comment on what you're seeing so far in April and how does that compare to March? And I'm just curious if March had a weather boost and trying to figure out if that's continuing into the second quarter.
Executive Pete (Title): Yeah, I think, you know, we're, I don't know, most of the way through April, and I guess I would characterize April as expected. So it's for what we have contemplated within our guidance and with the plan, I mean, April is going as expected.
Analyst David McGregor (Longbow Research): Good morning. Thanks for taking my question. I guess I wanted to just ask about pricing and inflation and demand elasticity. And I guess in the past, where within the mix have you seen this sort of first appear? And do you feel your private label offering is sufficient breadth to maybe offset by capturing the down market shift? And would that downshift be margin accretive?
Executive Pete (Title): Yeah, I'll take that one, David. It's the way I would, I wouldn't want anybody to position our private label as a down price offering. You know, we look at our private label and have intentionally focused on making sure that it is a very high quality product. So we're not actually selling it saying, hey, we're trying to make, you know, we're trying to have a cheaper offering. We're trying to have an offering that has tremendous value and is very high quality. I think, you know, when it comes to the inflation, where we have seen it, and I've commented on this before, obviously inflation drives the most prevalent in discretionary when you get into the cost of a new pool. And then when you get into on the maintenance side, there's some parts of maintenance that we would call semi-discretionary. You know, a pump and a filter, non-discretionary. If those need to be replaced or repaired, they have to be replaced or repaired. But you get into, you know, heaters and or lights, something like that. If somebody doesn't want to fix that, if there's one that needs to be replaced, you don't actually have to have that to continue to safely operate the pool. So in some areas, that's where we have seen some changes. decline in demand. But I would tell you that that's already in and baked in. So we're not seeing that either change materially from what we've seen over the last couple of years.
Analyst David McGregor (Longbow Research): Okay. Okay. Got it. And thanks for the clarification on the private label. I guess second question is just on equipment sales, which obviously look encouraging, I guess, at this point, which you saw this quarter. Any sense of how much deferred investment may be in the market there? And just, I guess, given the rate of catch-up following prior downturns, what could that contribute to growth over the next year or two? Can you clarify your question? I just want to make sure I answer the right question on your comment on deferred.
Executive Pete (Title): Well, I'm getting the sense that equipment sales, there's been some deferral with the downturn. And so now it looks like we're starting to see people spending money on equipment again. And so I'm just trying to get a sense of how much deferred spending may have occurred there.
Executive Pete (Title): Yeah, I think there is, as a couple pieces of equipment transition to longer life items. So like when the industry moved from single speed pumps to variable speed pumps, by their very nature, variable speed pumps last longer, sometimes up to two times longer than a single speed pump. So if you go back to 2018, when that regulation went into effect, and you just do the, you extend out the life of a variable speed versus single speed, those variable speed pumps that were installed very early on in the transition that would have gone well past the normal life of a single speed pump, those will now start coming into the replacement cycle. We believe that. And the same thing as it relates to, you know, like incandescent lights, which were much shorter life than the LEDs that replaced them. And those two, you know, as we work through that cycle, you'll start to see more replacement for that. So that's all encouraging for us for the future.
Analyst Scott Schneeberger (Oppenheimer): Thanks very much. I'm going to focus a bit on pricing. I guess, Melanie, for you, you know, you discussed that we're going to be lapping the tariff pricing that started in April last year. I'm just curious how we should think about that. Did that ramp much in the second quarter? Will we see that as a comp in the second quarter?
Executive Melanie (Title): Not really until we get to the back half. Just curious how we should think about the cadence and the impact of that since it's a full point in the guidance calculation. Thanks.
Executive Melanie (Title): Yeah, so when you look at full year pricing, we are at the one to two, which is based on the current year increases. And so in the first quarter, we had that incremental one that was really the tariff price increases that we saw last year. In second quarter of last year, we did have some benefit from those price increases, so we will be lapping that. So at this point, for the remainder of the year, we would expect pricing to be more in that one to two, just reflecting the current year cost increases.
Analyst Scott Schneeberger (Oppenheimer): Thanks. And then with this really solid move in the first quarter in chemical, and I think one of you mentioned that there was some good private label, which is higher margin activity there. Could we see upside this year, just a little bit behind the strength there and the possibility for persistence in it and also the margin element of the private label with the chemical impact?
Executive Melanie (Title): Yeah, we're very encouraged by chemicals in the first quarter because that's the, you know, the non-discretionary part of the business. And it really goes in two channels, right? It goes to the pro channel, which is, you know, that's your day in, day out foot traffic into the branches, which is very encouraging. And that's, you know, that's driven by the value proposition that we have. That's the 40-year relationships. That's the expertise in the branch. You know, that's the footprint. That's the customer experience they get there, the tech platform. and, frankly, the quality of the private label product that we're selling. Then the other side of that is going to be the independent retail taking that product on and putting it on their shelves and that being their go-to brand for the season. So we're encouraged by the results in the first quarter, and we think that as the season progresses, that will be just a good tailwind for us.
Analyst Garrick Schmoys (Loop Capital): Oh, hi. Thank you. Just on the expectation that you have for operating expense growth to moderate, you mentioned improved operating leverage on recent green fields. I'm wondering if there's anything else besides that in the calculation. Are you expecting certain cost actions in addition to better operating leverage?
Executive Pete (Title): Yeah, so, you know, we are focused on ensuring that the greenfields that we put into place, that we're continuing to get those up to fleet average. So there's our concentrated effort on that, which does drive operating leverage at those locations. And then along with that, you know, we are, you know, constantly kind of evaluating, you know, from both a seasonal standpoint and a market standpoint, you know, ensuring that we're operating, you know, effectively within our capacity creation efforts. So, you know, we've talked about utilizing the benefits of Pool 360. So, you know, looking at as we continue to increase our sales through Pool 360 at each location, you know, that gives us the opportunity to evaluate our operating model in those locations.
Analyst Garrick Schmoys (Loop Capital): Thank you. A follow-up question is just on chemical prices. There's a comment. They're going to prepare remarks that they moderated in the quarter, but you're not seeing an impact of sales. Just wondering if you can, you know, assess if there's going to be a risk that it becomes a bigger headwind in future quarters at all.
Executive Pete (Title): Yeah, I don't know. From where we sit right now, our view is that capital prices are fairly stable. So I don't... I mean, that could change, but from where we sit right now, I don't see that in any meaningful way. I mean, it could happen market to market. Somebody, you know, a competitor could do something in a market, but I don't see anything structural where there's a setup for that to change.
Analyst Sam Reed (Wells Fargo): Awesome. Thanks so much. Just wanted to quickly dive into the inventory comment around new product introductions. Specific examples, but also, you know, are you doing any more say around like white label China import product? I just want to better understand some of the nuances there on the inventory line.
Executive Pete (Title): Yeah, you know, our job as a distributor is to make sure that we have the best product offering for our customers, no matter where it comes from. So I wouldn't say that there is a – if you look at our private label products, much of that product is domestically produced, and there's some of it that comes in from import, and that's frankly always been the case. But our view on new products is not new products for the sake of lower cost, what we look for is new products that have new technology that help us expand the market. So we look for highest quality features and benefits that our customers and their customers would want to drive demand. So, I mean, in no way, shape, or form do we go out and look for, hey, I just want to find the cheapest pump, the cheapest filter. You know, if that was our goal, our product mix would be very different than it is today. We focus on having best product, highest quality, professional grade products that will help our customers grow their business.
All helpful, Pete. And maybe just a quick one on the pre-buy activity during the quarter. I mean, you did break out the pre-buy contribution in your bridge. I'm just curious though, roughly, what is the gross margin for a customer that pre-buys a product versus, say, a non-pre-bought product?
Executive Pete (Title): Yeah, we typically don't break that out. I mean, because there is no one answer. It varies, right? It varies by customer. It varies by the products, you know, that it varies by the products that they buy. And so the overall mix. So unfortunately, I can't give you an answer that says, hey, it's this many BIPs for that type of customer versus a customer that buys normally because it depends on when they buy, how much they buy, what they buy, and how large of a customer they are for us.
Analyst Colin Barron (Deutsche Bank): Good morning. Thank you for taking my question. I just want to follow up on the equipment and the replacement cycle. Can you just put some numbers around what the useful life of the equipment is now? And just given that useful life, do you see a replacement cycle in the next couple of years just because we're coming up to five or six years post-COVID when there was a lot of demand?
Executive Pete (Title): Yeah, let me characterize it like this. The life of, expected life of equipment varies tremendously based on what the product is and the operating conditions that it's used, whether it's in a seasonal market or whether it's in a year-round market and whether the product is properly maintained or not and with weather events. In general, you know, part of the value proposition of a variable speed pump is that it runs instead of at full rate under full load all the time, it runs at a lower load, which extends the life. You know, it could extend the life by 30%, 40%, 50%. It really depends on many, many other factors. But in general, it has extended the lifespan of pumps. It doesn't really have much of an impact on, you know, on filters or anything like that. Heaters, you know, it's really a function of water quality more than anything else. If you maintain great water chemistry, that can extend the life. You could have a brand-new product with lousy water chemistry and destroy it very quickly. So, but in general, you know, we look at two categories for life expectancy changes that were by design, if you will. One is the variable speed pump.
Certainly lasts longer than the single speed pump in the range of what I just discussed. And then if you look at LED light bulbs for the pool, you know, those certainly on an apples to apples basis are going to outlast an incandescent. So, since the time that both of those products were introduced, we see that they should be opportunity for that replacement market coming up.
Analyst Jeff Hammond (KeyBank Capital Markets): Hi. Good morning. Just want to come back on inventories, you know, 14% growth. I think you mentioned that the broader product range and service levels, but just, you know, maybe how would you characterize inventories where you want them to be? And then just back on that, broadening the product range, can you talk, give us some examples about, you know, the new tech or expanding the market, you know, type products that you mentioned in the prior comments?
Executive Pete (Title): Yeah, so in terms of the inventory, If I look at the – certainly the level of inventory is up. If I look at the profile, the profile is what I would characterize as extremely healthy. We're actually very astute buyers when it comes to buying inventory. So if I look at the dollars and where those are, they're not sitting in a significant amount in a bunch of new products that don't have any sales history. They're sitting in, you know, very high-moving items. So, you know, I really – From an inventory perspective, I spend very little time worrying about the inventory levels because I think the team does an amazing job controlling inventory, and we generally do what we say every time. When I think about new products, I'll give you an example. So on our private label line, we have a regular chlorine tablet, which has been around forever in the pool industry, and now we also have a proprietary product, which is an Xtreme tab. The Extreme tab has additives in the tablet that distinguish it from a standard tablet. It has more additives in it that produce a better quality pool. It has stain inhibitors. It has algaecides in it.
It has clarifiers and other products that distinctly differentiate that product. And our customers and their customers see a big benefit from that. So that tab or that product is growing nicely. Another example would be something in our filter cartridges. So we have a proprietary bandless antimicrobial cartridge filter, which is much faster to service and has a very low micron filtration rate, which again helps produce a clearer pool. And that's especially important when you think about LED lights, which are getting brighter and brighter, So anytime somebody upgrades their lights, if the water quality isn't really good, you'll start to see those suspended particles. So, you know, great filtration to complement lights matters a lot. And we're right there for the customers to provide those products.
Analyst Scott Schneeberger (Oppenheimer): Okay, thanks. Those are great examples. Just on pricing, I think you mentioned, you know, you expect it to moderate. I'm just wondering if you're hearing of any, you know, potential follow-on price increases, whether it's, you know, great inflation from higher gas or oil-based products. I think we heard about some pricing actions in salt chlorinators, Section 232 kind of tariff update. Any chatter of any follow-ons coming?
Executive Pete (Title): Yeah, there has been some chatter. I would tell you when we look across our product category from where we kind of stood this time last year, you know, last year when we talked about the impact from the tariffs, You know, we did have an incremental 1% that we added to pricing for the forecast for the year. At this point, some of it's noise. You know, we've gotten some notices from vendors, but I would say it's not as widespread as, you know, we were at about 30% of our cost of products this time last year where we had announced price increases per se, and we're just not at that level at this point. So, you know, we don't have as much of an impact expected. So we're still kind of waiting to hear from, you know, if other vendors have reactions to what's going on in the market.
Analyst Jake Neva (Guggenheim): Hey, guys. Good morning. This is Jake Neva, Sean for Steve. Just one for me. I wanted to dig into Pool 360 a little bit. So, you know, it's nice to see that penetration levels continue to increase, you know, as seen from this quarter from the prior year period. And, you know, just curious what the expectation is, you know, for the year for this platform, I guess, from a penetration standpoint. And, you know, I guess as a follow-up, you know, I'm curious about what the customer retention looks like utilizing this platform. You know, were you seeing, you know, when perhaps some of the newer branches, perhaps they're, you know, utilizing that a little bit more than, you know, some of the older vintages? Or is it, you know, the dynamic not really related to that? Just, you know, any sort of, you know, update here would be great.
Executive Pete (Title): Yeah, we're actually very encouraged by pool 360. We think it is a structural differentiator for, uh, for pool. Both in, in customer experience and certainly from a, from a cost to serve perspective, which is why, um, we've had, uh, so much focus on it. What's interesting is, is that there are some regional differences in the adoption rate. There are some, we have some, uh, very high, very high utilization well over 30% in the tool, and we have some that are lower. So some of that is just some what seem to be regional differences, and some of it is just opportunity on our part. So we continue to focus on improving the quality of the tool. Every day people wake up and say, how do we make it better? How do we make it better? How do we make it better? What new features do we have to add? How do we communicate those? And how do we train the customers and our branch teams on those features? So there's a... There's a range. So I don't think we're anywhere near as a company near entitlement of our penetration. As last year, we ended for the total year at 17%. And as I mentioned, we have some branches that are well over 30.
So for me, you know, I don't see any reason why the company couldn't ultimately exceed 25% target and maybe higher in the future. It all depends. So it's important that we remain flexible with our customers, though, and not try and force them into using it. We do business with our customers the way they want to do business with us. Some of them embrace the digital tools. Some people like the face-to-face.
Analyst Sean Kalman (Bank of America): Hi, guys. Thank you for taking my questions. Just first, can you talk about what you think drove the better early buy this year? Do you think customers are more worried about potential price increases, or do you think this is like a view that they're more optimistic on 2026?
Executive Pete (Title): Yeah, I don't know that it was a fear of price increase. I think it's I think it's a couple of things. I think that early on in the year, there is always a fair amount of optimism because customers don't know what they don't know. And by nature, our customers tend to be fairly optimistic. So that's a portion of it. I think to scale it, when you look at some of these early buys, I don't know that there's any risk for any of the customers with an early buy. It's not like they're buying a year's worth of inventory. So they're buying some inventory to start the season. So I don't know that anybody is betting the farm on what they buy. So I would say it's a function of our sales efforts, the quality of our products, and how well we serve the customer more than anything.
Analyst Sean Kalman (Bank of America): Okay, got it. And just as a follow-up, you had mentioned being able to get some discounted equipment last quarter. Did you pass that discount along to your customers? And was there any change in the structure of your early buy discounts?
Executive Pete (Title): I assume you're referring to early buys. And early buys are just part of the normal course of business. And I think we had a question earlier about pricing on early buys. And again, the answer is it just depends on the customer, the product mix they're buying, how much they're buying, and things like that. There is no formulaic that says, this means that as it relates to the price increases.
Executive Pete (Title): Thank you all for attending today's call. We look forward to you joining us or joining our Investor Day webcast on May 12th, when our executive leadership team covers strategic initiatives and our long-term financial outlook in more detail, and on July 23rd, when we announce our second quarter 2026 results. Have a wonderful day.
Quarter 2
Q4 2025 Earnings Call — February 19, 2026
Analyst David Manthe (Baird): Thank you. Good morning, everyone. First question on SG&A. Melanie, you pointed out that the low single-digit growth rate that you were guiding to is enough to trigger the incentive comp reset. So I assume that that, whatever that is, 25 or 30 basis points of a drag is factored into your earnings guidance. The question is, if revenue were to come in flat, let's say, unexpectedly, would that imply that you would not trigger the incentive comp reset? I'm trying to get an idea. Is this a sliding scale? Is it binary? How should we think about how that layers in or doesn't layer in, given various ranges of revenues?
Management: It's definitely a sliding scale. So, you know, within kind of that range of low single digits, we would expect different points of recovery. You know, with flat sales, the way that our incentive programs are structured, we would not see any change to the overall incentive compensation from 25 to 26. And good morning, Dave. And what I would say is that, additionally, if sales, if the market lags, even more, and sales do come in flat, then frankly, from a cost perspective, we would do other things to be in line with the market.
Analyst David Manthe (Baird): Yeah. Thanks, Pete. And then on gross margin, you're guiding that flat. As you're going through scenario planning and setting your budgets, what are some factors that you think about where that could come in above or below flat with 2025, some of the key things that you're considering?
Management: That's a good question. It's a broad topic, as you know. So, when I think about, you know, the drivers of gross margin, certainly customer mix and product mix are part of that. Our work in pricing optimization, which continues to improve factors into that, I was particularly encouraged with the fourth quarter gross margin expansion. I think that was driven by a couple of things. It was driven by a great effort by our supply chain teams. I think it was partially driven by the pricing work that the field is doing. I look at a product mix. Now, on one hand, I would say if renovation and remodel, which continues to outpace new pool construction, frankly, if that continues on the same path that it's on, that will create some lift for us from a product mix perspective. And then I look at the proprietary or exclusive brands that we have been building over the years and our continued work in those areas as I would say tailwinds that would help drive the number. The other side of that is that in a market like we are in, there's always competitive pressures, which, again, I don't really get too concerned about because we have them.
I don't expect the competitive pressures to be, frankly, any different in 2026 as they were in 2025. And as you can see by the numbers, you know, I think the business did a very good job of more than offsetting that. So, yes, they're there, but does it really drive our behavior? No. I mean, we did see some deflation on chemicals, but again, in my comment I mentioned, You know, that's why we're kind of focused on the chemical side, that we have some products that are exclusive and proprietary, you know, where we don't see that type of headwind that we are also leaning into. So, you know, overall, when I look at gross margin, you know, I think the team did a very good job in 25, and I also think we have the same levers plus more to pull in 2026, which will help us out in that area.
Analyst Ryan Merkel (William Blair): Hey, everyone. Thanks for all the thoughts on 26. I also wanted to ask on SG&A, when I plug in some of the parameters that you gave, I'm coming up with like one and a half percent SG&A growth for 26. Just given some of the things you talked about with the employer rewards and new sales centers, is that, am I in the right ballpark there?
Management: So, I would say if you're thinking about, you know, sales growth and expense growth and trying to match those, we would expect that the expense growth would come in, you know, slightly less than the sales growth to give us, you know, a similar operating income margin, maybe slight leverage for next year. So, we're going to, you know, be looking to offset some of that incentive comp recovery overall by looking at utilizing the capacity that we have put into the market. So the term that you may hear for 2026 will be capacity absorption. As we've talked about the investments that we've made in technology and the investments that we've made in building out our footprint on the greenfield side, we feel very well positioned with what we've done to date.
Management: Hey, Ryan, good morning. I'll give you a couple of thoughts in this area. So I think we are particularly focused on the SG&A of the business because I think in the last couple of years, rightfully so, we invested in order to make sure that we maintained our market leadership position in terms of capabilities, customer experience. At the same time, we also have opportunities from, as Melanie mentioned now, from a capacity absorption perspective. We made some investments. We're starting to see positive traction on those investments, and I believe that the new facilities, as they continue to mature with a great degree of focus from the management team, that our operating leverage on those facilities, you know, will continue to improve. I mean, if you look at our operating margins across the fleet, if you will, we have, you know, most of our facilities, frankly, are in fantastic shape. They're doing well. We added new, which mixes us down, but it's the same formula that propelled, you know, the fleet to a high average is now being applied to the 50-some-odd new facilities that we've added over the years.
And a focus on our lower performing locations, which you've been covering us for a long time, implies our focus list. They're getting a particularly high level of attention right now. So when I look at SG&A and I say, well, you know, will we be in line with the market from the top line perspective if the market improves, then SG&A will be easier to deal with from a percentage basis. If the market doesn't improve, then we're going to have to do other things to make sure that we stay in line. But we're okay with that because we believe that the investments that we've made over the last couple of years don't need to be repeated, and we should start to harvest the benefit.
Analyst Ryan Merkel (William Blair): Got it. Okay. That's very helpful. My second question is just on 1Q. Are you assuming the first quarter is also up low single digits like the full year? Just want to see if there's any cadence things we should be thinking of. And there is a bit of weather in 1Q. I'm not sure if that had an impact or not. And then could you also comment on chemical prices? Will those be down in the first quarter?
Management: So I'll take the first one on how 1Q is performing. I think the, So as you know, 1Q is our least significant quarter. That's not to diminish the contribution to the business. I mean, when I look at first quarter, we're basically halfway through it. But March is bigger than January, obviously. So at this point, I would tell you that I am encouraged with what we've seen. Too soon for me to tell you that, hey, we're going to blow the doors off of first quarter. But what I will say is that if we have a normal weather pattern for March and the rest of this month, then I think our expectations for the first quarter will be in line. And then your second question about chemicals, a little too soon to tell, because remember, first quarter, this is when there's some noise in the system with chemical pricing. I can tell you I'm not particularly concerned about deflation at this point on chemicals. I think things are fairly steady. So I'm not at this point spending a lot of time thinking that chem prices are going to get worse. But what we are focused on is getting customers introduced to and using the proprietary chemicals where we have a differentiated value proposition, which makes us less susceptible to swings in the market on anything but pure commodities.
Analyst David McGregor (Longbow Research): Yeah, good morning, and thanks for taking my questions. I guess just a question on store ops, and, you know, what's the opportunity? You made passing reference a moment ago to the focus list, but, you know, just what is the opportunity to improve the profitability at the bottom performing quintile stores, and what are some of the actions that you're taking there? Maybe you could talk about that, and I guess related to that, just given the near-term market outlook, does it make sense to begin consolidating some of these locations and just achieve better four-wall economics?
Management: Yeah, I'll take that, and then Melanie can chime in. So, you know, part of our work at the focus list level, which is our bottom performing branches – And this is nothing new for PoolCorp, but the branches that fall into the focus list, which I would argue what is a focus list branch for us would be considered by most others to be a very well-performing branch because our standard is pretty high on what we consider a focus branch. I mean, the levers that you have there are a couple. One, you know, obviously the biggest lever that you have is sales growth. Are we growing sales? Are we becoming more important, more relevant to the customers? And that's done with creating a best-in-class customer experience. And frankly, customer engagement. So from a lever perspective, the biggest one we have for the focus branches is just that. Then there's the operational execution side of that. So the teams are focused on exactly what we do, how we do it, how efficient we are in doing that, and making sure that we're utilizing all of the competitive advantages that we have to give us the most efficient cost to serve those customers.
Your last comment as it relates to, you know, is there some opportunity for consolidation? And the answer is maybe. So when we look at each individual market, we look at our footprint, and there are a couple markets where I would say, you know, as we have expanded our capabilities in some areas, we may have opportunities to consolidate some of those if we don't see the market, an individual particular market, continuing to grow and expand, those would be ones where we look at, all right, how else can we most efficiently serve the market without letting down our customers and ceding any share? So, I mean, you've known us for a while, so this is nothing new. This is what we do. We've been focused the last couple of years on continuing to build out the network and making sure we were where the pools were going to be built and where our customers were needed us to be. We've added capabilities as it relates to technology and supply chain, which allow us to be, frankly, more efficient.
And now we're starting to see the gains from that. To put an opportunity to size it, if you will, I mean, when I look at our focus list branches, I would just say that when I look at the overall operating margin improvement, I think there's plenty of opportunity to work there to achieve our goals, really kind of independent of the market improving. So when I look at our operating margin, you know, improvement and expansion, yes, would the industry growing make that easier? Yes, but it still wouldn't mean that we wouldn't do what we're doing on focus list branches to make them more profitable and contribute more to the business.
Analyst David McGregor (Longbow Research): Got it. Thank you for that detailed answer. My second question really just with respect to kind of the longer-term growth algorithm, and, you know, you've included within that growth of 2% to 3% above the market, mostly through store openings and private label, I guess a little bit of acquisitions. I guess how are you thinking about your ability to achieve that above-market growth in 2026?
Management: Yeah, I think part of it is there is still plenty of opportunity when I look at our market share across the fleets. You know, we have plenty of markets that are still below the median. So I think, you know, just improving our customer engagement, frankly, our customer experience and our operational efficiency helps. I also think that, you know, there is an opportunity from a demand creation perspective because, you know, pragmatically when I look at the market overall and the products that are still being sold into the market, there is still a more than significant opportunity to expand the TAM, if you will, by selling the more technologically advanced products, which are ultimately very, very good for the homeowner. And I think our job is to help expand the adoption of those.
So you're going to see at the Investor Day presentation something we call the ProZone, which is designed to do just that. to teach the builders and the service professionals when they come into the branch to be able to see the full range of products, to be able to see the benefits from the more innovative and technologically advanced products that have more full feature automation and are frankly more efficient for the homeowner. So rather than take a more passive approach on that, we're going to take a much more active approach on that in the showrooms to make sure that our customers understand all of those new products and what benefits they provide either them as a servicer or for hopefully or so that they can explain to the homeowner, I should say.
Analyst Susan McCleary (Goldman Sachs): Thank you. Good morning, everyone. My first question is on the gross margin. You're thinking about the path for that as we look over the year. Can you talk about what that inventory bill that you made in the fourth quarter will mean for profitability and how we should be thinking about that relative to the guide for the pricing to be up one to two points this year?
Management: Yep. So one thing, so we do expect that we will see some continued pricing benefits from the investments that we've made in inventory. We would expect that certainly we would see that in first quarter.
As a reminder, when you look back from a comparable standpoint for 2025, we did have that mid-season price increase in 2025.
So starting kind of May forward, you know, there were some benefits from that mid-season price increase, which at this point in time, you know, we wouldn't anticipate would occur again in 2026. So I would say that we would see, you know, slightly better margins in first quarter, The remaining of the quarters would be, you know, relatively comparable, you know, with fourth quarter because it's so, it's a smaller portion of the year. We may not see as many benefits. The only thing that we've seen to date is we have seen a second wave of price increases on certain products for salt cells, but when we look at it kind of consolidated-wise, we don't think that will have a significant impact on margins overall.
Management: Hey, Susan, good morning. This is Pete. Let me add just a little bit to that, if I could. I think the team did a very good job of exercising good financial judgment with the investment in inventory. And I think they were very surgical about it. So, you know, when we allocate capital to something, one of the things that is a hallmark of the company is that we have been very judicious allocators of capital, whether that is investment in long term or whether that is investment in working capital. So I think the team did a very good job and was very surgical about making investments in areas that will help us through the 2026 season. Now, obviously, given the amount of inventory that we have and what our cogs are on a full-year basis, you know, that, you know, we will burn through most of that benefit, you know, by mid-season, and then, you know, of course, we will be reordering. But I think we feel very good about realizing benefits, but they'll be more weighted to the beginning of the year than the end of the year, subject to what happens in the industry from a pricing perspective.
Analyst Susan McCleary (Goldman Sachs): Yes. Okay. Thank you for that. And then I want to go back to thinking about the growth for the business over time. Can you talk about how you're thinking of organic growth given the investments that you've made in the last several years relative to the inorganic growth opportunity that's out there? Are we really sort of shifting now through this period where it's going to be driven by your initiative, a lot of these efforts that you've implemented in the business, whereas the inorganic piece will just inherently become just a smaller and smaller part of that algorithm? Any thoughts around that and what that would mean for capital allocation?
Management: Sure. You know, I would tell you that from an organic growth perspective and what gives us confidence in the long-term growth algorithm for the business is that We believe that the product that the industry that we serve and the product that we primarily, you know, sell either, you know, through new pool construction or remodel and renovation is still highly desirable. And, you know, we've been talking about, you know, we're kind of bumping along the bottom. There was a slight drop in new pool construction in 2025. I can't tell you that I think that that was driven by any wild change in consumer sentiment. I think it's more a function of certain geographies and the housing market per se. So when I look at our opportunity to grow and I look at our market share and I look at that on a market by market basis, I would tell you that we have opportunity to continue to grow even if the market continues to stay towards the bottom. I would also tell you that there's a couple of things that are going to, we're going to start to see benefit from as it relates to equipment.
So, you know, when the industry switched to from single speed motors to variable speed motors they inherently lasted longer but now we're starting to get close to the period where from when we started selling a lot of single speed motors or single speed pumps to variable speed pumps that they will start coming into their replacement cycle, number one. Number two, I still believe that there is a significant opportunity to modernize the pad. You know, if I looked across the – you know, we talk to many, many customers. We talk about what they're seeing in the backyards when they go into these backyards and they look. You know, if what we were seeing over and over again was, you know, ultra-modern pads, fully adopted, everything that is available to the consumer, I would say, okay, so now we're more in a replacement cycle. But today, what I would say is there is still an outsized opportunity to modernize the pads with the new equipment.
Now, part of this demand creation is incumbent upon us, I believe, in order to teach the servicers and get word out, so to speak, through marketing programs and demand creation in conjunction with our OEMs that says, hey, you can improve your customer experience in the backyard if you adopt and use these new products versus just replacing what's there. So I think there is still an opportunity. The install base is going to continue to grow. I think that, you know, there is pent-up demand on renovation and remodeling. We're starting to see some of that realized as evidenced by the building material sales increasing and the fact that we have, I believe we've taken share in the new construction area for those as well. And then lastly, your question on inorganic growth. I think that there are still opportunities for inorganic growth out there. I think the team is very focused in that area as well as just one of our long-term growth levers. And I don't know that anybody in the industry is any better positioned to do that than PoolCorp.
Analyst Scott Schneeberger (Oppenheimer): Hi, guys. It's Daniel for Scott. Thank you for taking our question. Could you please discuss the key factors that would put you at the low end versus the high end of the EPS guidance range? Thank you.
Management: Yeah, the range is primarily going to vary depending upon overall market conditions and the resulting sales growth from that standpoint.
Analyst Daniel (Oppenheimer): Got it. And as far as the assumptions on new pool to be flat year-on-year as well as renovation and remodel slightly up, could you speak to what you're hearing from your customers regarding backlog and how confident you are in those projections? Thank you.
Management: Yeah, I'll take that. We've just come out of our show season, so January, there's a lot of shows, so we spend a lot of time with dealers in January and, frankly, early February, even as recent as this week. So I will tell you that the level of optimism from the customers right now is pretty good. I don't know that – I've talked to many customers that say, we're going to build just as many pools as we built last year, and the phones are ringing, so we feel comfortable in that assessment. Is that as many pools as they built during the peak? Absolutely not. But I would tell you that the general sentiment on new pool construction is that, you know, based on the dealers we have spoken to, which is a sample size of the total – is actually pretty good. So it's not a doom and gloom. The phone's not ringing. It's basically, yeah, I think we'll build at least as many pools as we built last year with many dealers saying that, hey, you know what, we're actually optimistic.
But saying that they're optimistic in February and actually having those contracts come to realization is during the season are two different things, but I will tell you it feels much better to me that the dealers are saying, hey, I'm going to build at least as many pools as I built last year, and there's many of them that are optimistic. And then, like every sample, right, you have opposite ends of the spectrum. You have people at the high end that they would tell you, hey, business is great. You know, I'm turning customers away. I'm going to build as many pools as I can this year, and I'm taking orders into next year. And at the low end, you have people that would be struggling. But by and large, I would say the industry confidence level is more encouraging than not.
Analyst Trey Grooms (Stevens): Yeah. Hi, Peter and Melanie. This is Ethan on for Trey. Thanks for taking the question. I wanted to dive deeper, maybe in digging into more of a market-by-market look. So directionally, what are you seeing on the new pool or broader discretionary side? From a market-by-market standpoint, some of these more challenged markets on the new residential construction side, like Florida and Texas, may be starting to show signs of a potential trend improvement. I know you called out in the prepared remarks, improving trends in Texas in the back half of 2025. Obviously, these are important markets on the new pool side, so any more color on market specifics would be really helpful. Thanks.
Management: Sure. The information coming out of Florida right now is still encouraging. As I mentioned, even with the storm issues that we had in Florida and, you know, we're housing prices and insurance and costs and everything else in Florida. If you do a two-year stack on Florida, in the fourth quarter, they were still up 2%. So, again, very encouraging for me. Builders in Florida, I really think it depends on where you are. So, for instance, if you're in, you know, there's a lot of people moving into South Florida, into Miami. Miami is a, that market is very good. you know, but it runs the spectrum, if you will. But overall, Florida is a cornerstone market for us. I think very soon will be the largest market that we have in terms of the installed base, and it's still a destination for homeowners. So, you know, I'm encouraged with that. Texas is the one that was, I think, surprising for a lot of people. The slowdown that we saw in Texas but it's also a bit bifurcated too, because it didn't, it wasn't universal in, you know, let's call it DFW and Austin, San Antonio and Houston. They all moved kind of at different rates.
We're starting to see, you know, the Dallas market, the Dallas market improved, the Austin market improved. Houston lags a little bit, but the near-term commentary out of Houston is that, you know, that there's some optimism on the new build side. Arizona and California, Arizona was encouraging. And if you remember, when pools really started to die off, Arizona was one of the first ones to drop. They seem to have firmed up. And California is okay. I don't look for a big change in California. In my mind, California is much more of a renovation market than it is going to be a new pool construction market.
Analyst Trey Grooms (Stevens): Got it. That's super helpful, Culler. So thank you for that. And second question, just putting a finer point on an earlier question on the top line cadence. It sounds like 1Q training pretty well, but it's still early. But just wanted to clarify, was hurricane repair activity still a major contributor to the 1Q25, perhaps to a lesser degree than the 4Q, but perhaps still enough to call out? Because if 1Q is training well in spite of this comp dynamic, obviously that would be a positive. And then maybe any thoughts on a first half or second half weighted top line profile relative to, you know, broader new res expectations, which at this point appear to be skewed more towards a modest second half uptick.
Management: Yeah, you're correct in your assumption that fourth quarter was a bigger, was a bigger lift fourth quarter of 24 storm related. They were still working. They were still working into first. So there was still some work that, most of which has been finished. The only exception to that would be the areas where, you know, the houses were completely destroyed and they had to get permitted to build a new house and the pools come last. So, you know, there's still some of that. But by and large, I would say the storm work or anything but complete destruction, you know, is certainly done by now. Most of it was done in the fourth quarter and some lagging. So when I look at, you know, when I look at first quarter, it's not like we had a huge comp to overcome. There are some, but again, that makes our results even more encouraging from a firmness of the market perspective. And then, you know, your comment on second half, first half, second half, it's really, frankly, it's just too early to say. There's so many, you know, there's so many factors in there that can affect the discretionary. So I'm talking about new pool construction and renovation and remodel, but rest assured that the majority of our business is driven from the maintenance and repair, and I think that there is more than ample opportunity, and quite frankly, I think the business performs well in that area, and we've also added capabilities which should allow us to continue to take share.
Analyst Garik Shamoy (Loop Capital): Thanks for taking my question. I'm wondering if you could update us on what you're assuming for new sales center openings in 2026, and just given the more muted demand environment, have your expectations on the ROI on the new sales centers changed at all versus more normalized demand periods?
Management: Yeah. So when I look at the number of locations, I mean, Melanie gave a range of five to eight. You know, I would tell you, I don't know that it'll be more than eight. I mean, there could be a scenario, I guess, where it could be, but it's highly unlikely at this point based on the capacity investments that we have already made and the footprint that we have. I think our focus is more about execution this year and driving growth in the facilities that we have. As you know, we have a very disciplined process that goes with every new facility open. There is a pro forma, there's a budget. That pro forma and budget are carried forward. So the facility that we've opened in the last couple of years, the operating expectations and budgets associated with them were not adjusted. You know, I looked at some of the facilities that we would have opened in 2022 when things were, when there was a lot more new pool construction. You know, if I look at some of those, we had to go back and say, well, maybe our expectation on new pool construction growth was a little bit too aggressive.
But basically anything in the last couple of years, you know, the number, you know, the number is the number. So I think the team is really focused on execution and realizing what the commitments were in the pro formas that were submitted to fund those. And when I look at new ones, so I look at anything that we may do this year, I mean, we, as I mentioned in my comments, I think we've kind of sharpened our expectations on return on investment and making sure that when we go out and do a branch, I mean, we're going to open new branches again in 2026, without a doubt. Are we going to open as many? No, we're not going to open as many. Will there be a lot of attention paid to the ones that we opened, you know, for the last couple of years to make sure that we're realizing benefit on those? Absolutely. So the amount of attention and scrutiny on new locations right now is and should be pretty high.