Latham Group, the pool industry giant, just released their Q1 2024 earnings, and while the headline numbers might seem dreary, there's a subtle shift buried within the transcript that suggests a potential turnaround – one that seems to have flown under the radar of most analysts.

It's no secret that the pool industry has been weathering a storm. Sky-high interest rates have put a damper on consumer spending, especially for big-ticket items like pools. Latham, known for their fiberglass pools, liners, and covers, has felt the pinch. Their 2024 guidance reflects this reality, projecting a 15% decline in new pool starts.

But amidst the cautious forecasts, a glimmer of hope emerges. While Latham's management acknowledged the challenging environment, their language subtly shifted when discussing their performance in Q1. They highlighted a "significant pickup in orders starting in mid-March," allowing them to maintain incredibly short lead times of just 3 to 5 days for fiberglass pools.

This operational agility is no accident. It's the result of strategic cost-cutting measures implemented in 2023. Latham closed facilities, streamlined operations, and embraced lean manufacturing principles. These weren't temporary bandages but structural changes designed to create a leaner, more responsive company.

Now, here's the hidden gem: Latham's Q1 outperformance wasn't simply a result of catching a lucky break with the weather. It was a demonstration of their newfound operational efficiency. They were able to capitalize on a sudden surge in demand, proving their ability to rapidly scale production and deliver with unmatched speed.

Consider this: If Latham was able to outperform in Q1 with short-cycle orders, imagine their potential when the market truly rebounds. Their current cash position of $43.8 million (even after debt repayment) provides them with the financial firepower to navigate any remaining softness and seize growth opportunities.

Let's look at the numbers. While Q1 sales declined 19.7% year-over-year, the company saw a significant improvement in gross margin, up 350 basis points to 27.7%. This was driven by lower raw material costs, but more importantly, by the ongoing benefits of their lean manufacturing efforts.

It's crucial to remember that Latham's Q1 performance isn't a one-off event. They're making strategic investments for the future, including the rollout of Measure by Latham, an AI-powered tool that streamlines the measurement and quoting process for liners and covers, promising efficiency gains and potentially, market share expansion.

The company also continues to champion fiberglass conversion, emphasizing its cost advantages and sustainability benefits over concrete pools. Their success in adding new fiberglass dealers, even in a down market, underscores the growing appeal of this product category.

Hypothesis:

Latham's Q1 2024 performance signals a turning point in their operational efficiency, potentially foreshadowing a stronger-than-expected recovery. The company's ability to rapidly scale production and maintain industry-leading lead times, coupled with strategic investments for future growth, positions them to outperform as the pool market recovers.

Supporting Data:

Q1 Gross Margin: Increased 350 basis points to 27.7%, driven by lower material costs and lean manufacturing initiatives. Fiberglass Pool Lead Times: Maintained at 3 to 5 days, demonstrating rapid production capabilities. Cash Position: $43.8 million after debt repayment, providing financial flexibility. Fiberglass Dealer Growth: Successfully added new dealers, indicating the growing appeal of fiberglass pools.

Financial Performance Analysis

Let's take a closer look at the financial performance of Latham Group based on the provided data:

Revenue Trend

The following table showcases the revenue trend for Latham Group, highlighting the decline in Q1 2024:

Reference: https://seekingalpha.com/symbol/SWIM

Gross Margin Improvement

Reference: https://seekingalpha.com/symbol/SWIM

Latham's success isn't just about selling pools; it's about creating backyard dreams. From their humble beginnings in 1956 to their current status as a global leader, they've helped millions of families experience the joy of pool ownership. And now, armed with newfound efficiency and a keen eye on the future, Latham may be poised to make a bigger splash than ever before.

"Fun Fact: Fiberglass pools are incredibly durable and require less maintenance than concrete pools. They are also resistant to algae growth, making them a more environmentally friendly option."