Pool Corporation (POOL) — Q2 2025 Earnings Call Transcript

Thank you, and welcome to our second quarter 2025 earnings conference call. Our discussion, comments and responses to questions today may include forward-looking statements, including management's outlook for 2025 and future periods. Actual results may differ materially from those discussed today. Information regarding the factors and variables that could cause actual results to differ from projected results is discussed in our 10-K. In addition, we may make references to non-GAAP financial measures in our comments. A description and reconciliation of our non-GAAP financial measures included in our press release are posted on our corporate website in the Investor Relations section. We have included a presentation on our investor website to summarize key points from our press release and call comments. Peter Arvan, our President and CEO, will begin today's call with his comments.

Thank you, Melanie, and good morning, everyone. We were very pleased to see positive sales growth in the second quarter, along with stable gross margins and steady operating margins versus the prior year. Given all the challenges affecting the broader economy and industry dynamics, I consider these results to be very solid. They are a testament to the team and reflect our ability to deliver outstanding value and exceptional service to our customers, further reinforcing POOLCORP's leadership position in the industry. The second quarter started off similar to how we exited the first quarter. We saw encouraging trends in most areas of the business through April and early May; unfavorable weather conditions in certain markets through mid-June tempered demand but turned more favorable towards the end of the quarter, helping us post a modest sales gain. The macro uncertainty and constantly developing policy decisions, combined with no signs of interest rate easing, continue to pressure new pool construction and larger renovation projects. Despite this, our construction-related sales fared better than the permit data would have suggested. As you all know, permit data indicates that new pool construction is down high single digits, but it's still too early to call the year. It is worth noting that the second quarter trends improved from the first quarter but still represent a headwind on a year-over-year basis. The remodel activity we expect will be modestly better than the new construction activity for the balance of the year. The aging installed base necessitates certain remodel and renovation projects each year, creating ongoing demand. We believe that larger renovation projects in the most recent quarters have been split into phases, allowing consumers to reduce their spend per project or spread out the spend over a longer time frame. For the second quarter results, we reported $1.8 billion in net sales, up 1%, reflecting our team's effort in executing on strategic areas of our business. Maintenance products performed well, including strong growth in our private label chemical products. On sales related to new construction and renovation activities, we saw improving trends during the quarter, creating less of a drag on sales than in recent quarters. Tariff-driven price increases had a modest impact on the quarter due to timing and were somewhat offset by deflation in our commodity categories. Regionally, we saw distinct trends across our four major U.S. markets. Florida and Arizona each delivered solid 2% sales growth for the quarter, outperforming national averages. In both states, ongoing population growth and migration and favorable weather patterns fueled continued demand across the maintenance, renovation, and new construction categories. Our strong local presence, robust distribution network, and targeted marketing initiatives have kept us top of mind with pool professionals, allowing us to expand our customer base and capture additional market share. Additionally, franchise growth and emerging builder partnerships in these states further strengthen our position for long-term success. Texas and California continue to experience challenges in new pool construction, with sales down 2% and 3%, respectively, reflecting macroeconomic headwinds and tempered consumer confidence. However, maintenance and aftermarket sales in these markets remained resilient, highlighting the value of our established installed base and trusted service partnerships. Our teams in Texas and California are focused on supporting remodel activity and enhancing customer support to ensure we are well positioned for recovery as local economies and construction activities rebound in the future. We remain confident that our disciplined investment and regionally tailored strategies will enable us to continue outperforming the broader market across all our core geographies. Additionally, we were encouraged by the sequential improvement in permit data for Texas as the quarter developed, although it is still negative. In Europe, net sales increased 2% for the quarter in local currency and 7% in U.S. dollars. We saw sales growth in most European economies, particularly in the southern countries, while France dealt with colder temperatures but showed some improvement in June. We are encouraged that this trend for Europe continued into July. For Horizon, net sales declined 2% in the quarter. Maintenance product sales were solid; however, weakness in larger development-related construction projects muted those gains. Pricing, for the most part, has stabilized in the market, and we are encouraged with the month of July sales trends. Looking to our product sales mix, chemical sales grew 1% despite price deflation and weather headwinds in certain markets, highlighting the power of our brands and expanding offerings for our customers. When combined with our POOL360 WaterTest platform, it is a very strong chemical offering that will continue to take share as our brands grow. Customer feedback is excellent, and our confidence in this area and our entire retail support offering is strong. Building Materials sales declined 1%, a sequential improvement from what we saw in the first quarter and much of last year and better than the underlying trends would suggest. The results highlight the value of our NPT branded offering, including improved trends in our proprietary pool finish and the effectiveness of our consumer-facing showrooms and refreshed dealer showrooms that support our customers and enhance the pool owners' design experience. Equipment sales, which exclude cleaners, increased 1% during the quarter, reflecting modest price realization and stable replacement volumes, mitigating the year-over-year decrease in new construction units. For context, the most recent price increase went into effect late in the quarter. Looking at our end markets, our commercial sales increased 5% in the second quarter, supported by the investments we have made in developing our commercial team, designating commercial warehouses, and expanding start-to-finish project capabilities. Sales to our independent retail customers declined 3% in the quarter, showing a similar cadence during the quarter on what we saw in overall sales but with greater weather-related headwinds on our DIY maintenance in May and early June, considering our retailers' heavy concentration in northern markets. We saw much improved retail sales in these markets in the latter half of June. For our Pinch A Penny franchise group, representing our franchisees' sales to their end customers, sales increased 1% for the quarter, reflecting their best-in-class offering and customer experience, while also noting their Sunbelt concentration with fewer weather headwinds this quarter. Now let me comment on gross margin results. As you saw, the business posted a solid 30% gross margin for the quarter, consistent with the same period last year. I'm pleased with our team's collective effort and focus in this critical area. We have seen historically downward cycles place additional pressure on winning business. Through collaborating with our supply chain teams and pricing specialists and making smart decisions on the ground, we have been able to maintain gross margins in line with the prior year in a very challenging and dynamic environment. Melanie will cover this in more detail in her prepared remarks. Our continued investment in digital innovation is paying off, with POOL360 platform transactions now representing 17% of net sales, up from 14.5% last year, reflecting enthusiastic customer adoption and creating durable competitive advantages that are hard to replicate. We celebrated the opening of our 450th branch during the quarter. Strategic openings in the market with higher pool densities continue to drive further building out of our footprint and position ourselves for further share expansion. We opened two new locations during the quarter and four year-to-date. Our Pinch A Penny franchise network added five new stores in the quarter, including the first new store in North Carolina, increasing the Pinch A Penny locations to 302 franchised stores. As we move through the peak season, we expect sales in the back half of the year to be modestly up, with the full year performance anticipated to be relatively flat. In the absence of an interest rate cut or external catalyst, we are updating our diluted earnings per share guidance for the year to a range of $10.80 to $11.30, which includes a $0.10 realized benefit from ASU year-to-date. We remain highly confident in the long-term fundamentals of our industry with the demographic trends, desirability of at-home leisure, and continued need for maintenance and renovation supporting ongoing demand. We believe that when the macro backdrop improves and housing turnover resumes, new pool construction and renovation activity will accelerate, and POOLCORP will be uniquely positioned to capitalize on that growth. Finally, I want to thank the entire POOLCORP team for your dedication and adaptability. Your commitment enables us to deliver exceptional value and reliability to our customers and partners, and importantly, drive success for our shareholders. We look forward to the opportunities ahead. I will now turn the call over to Melanie Hart, our Senior Vice President and Chief Financial Officer for her detailed commentary.

Thank you, Pete, and good morning again, everyone. We continue to see robust maintenance activity, benefiting from both volume and industry pricing. While new construction permits are improving in several key markets, we have not yet seen consistently positive trends across all regions. We are closely monitoring these variations and remain prepared to capitalize on opportunities as they arise. Both the traditional pool season price increases implemented earlier in the year and the subsequent late April, early May price increases enacted by certain vendors to react to higher expected tariffs have passed through and have been accepted in the marketplace. Although initially up for discussion, there was not a third wave of June price increase that impacted our costs to date. Pricing for the quarter benefited sales 2% to 3%, but continues to be offset by 1% related to chemical and commodity selling prices. Chemicals, specifically trichlor, are seeing selling prices less than what we saw in the second quarter of the prior year. This pricing, although lower than last year, still represents a significant premium over 2020. We saw volume increases, in particular, in our private label chemical sales activity. Negative comparisons from discretionary spend leveled out with just a 2% impact overall on the sales for the quarter. As Pete highlighted, our investments at our NPT showroom continue to pay dividends in showcasing for our builder customers and homeowners the many options where our unique NPT-branded tile, decking, and pool-finished products are available to customize their backyards. Our resulting building material sales decrease of 1% is outpacing the market activity compared to permit trends. I'm very pleased to be reporting a positive comp sales quarter. We continue to showcase our ability to get pricing in the market as a result of both our service levels and our focus on the aftermarket, resulting in a 1% sales benefit. Impacts of discretionary spend in remodel and new pool construction were a 2% headwind, but again improving from a 3% impact in the first quarter. We were encouraged to see the positive results in Europe and better horizon trends. Gross margins of 30% for the quarter remained strong. We continue to see our internal initiatives related to supply chain improvements, private label growth, and effective pricing enabling us to maintain margins even with lower building material product sales and impact from customer mix. We saw normalized second quarter seasonal margin benefits. We reported a 1% increase in operating expenses for the second quarter. Through our earnings release date, we have now opened eight new locations since the same time last year, contributing around 1% to the expense increase, with our disciplined operations offsetting other cost increase drivers. Our volume-related expenses for both compensation and freight remained very well managed. During the quarter, we were able to maintain expenses as a percentage of revenue of 14.7%. We realized operating income of $273 million, an improvement compared to $271 million in the prior year. Interest expense of $12.2 million represented a reduction of $1.8 million, altogether generating diluted earnings per share of $5.17 compared to $4.99, which is up 4% from the second quarter of last year. Summarizing our second quarter results, we are pleased with the positive signs related to discretionary spend in the pool and outdoor living space, and our ability to utilize our technology tools to grow our private label chemical sales while leveraging our network to generate positive income over the prior year. Moving on to our balance sheet. We finished the quarter with inventory balances of $1.3 billion, which is up 3% from the prior year. This increase includes new product offerings and supply chain actions to stock our network location for the season. We expect that our inventory patterns for the rest of the year will follow a typical seasonal pattern with balances drawn down through the third quarter, which will position us to evaluate our needs for the 2026 season during the fall and winter early by offering. Inventory days on hand improved 1.5 days from the prior year second quarter. Our 1.47 leverage ratio remains at the lower end of our targeted leverage range. In early July, we amended and extended our term loan facility to increase capacity, lengthen the maturity, and obtain more favorable borrowing terms. Cash flow for the quarter remains in line with our annual expectation of achieving 90% to 100% of net income and cash flow from operations, weighted more heavily to the second half of the year from a cash generation standpoint. Consistent with first quarter 2025, we increased the pace at which we have completed share repurchases, purchasing $104 million during the quarter, an increase of $36 million in the prior year second quarter. Year-to-date, we have exceeded prior year repurchases by $76 million and have $516 million remaining under our share repurchase authorization. As we look out over the second half of the year, on our first quarter call, we referenced an expected future dated June equipment cost increase. With the changing tariff landscape, we do not actually see an increase in cost with a June effective date. However, there were some additional vendors over the initial group of 20 that did push through May effective price increases. Sales for the full year are now expected to be relatively flat with last year, reflecting some pricing benefit from the April-May price increases but no significant change in discretionary spending from current levels for the rest of the year. Although trends have improved throughout the year, based on the activity to date, we do not anticipate a pace that would provide a significant benefit to 2025. Gross margin rate is also expected to be in line with the prior year full year, which would represent an improvement after considering the nonrecurring positive import tax included in 2024. Execution on the realization of tariff-driven price increases and supply chain improvements are net positives that offset any impact from product and customer mix. As you have come to expect from us, SG&A expenses will continue to reflect productivity to offset inflationary increases and be adjusted real-time based on actual volumes at each sale center location. The year-over-year increases in the back half are expected to be higher than the current quarter, likely ranging from a 2% to 3% increase for the full year, an improvement from the 3% previously estimated and will include the costs spent on the new sales centers we will open this year. We do not have any significant changes to our expectations regarding interest expense and our estimated tax rate. We have included those ranges along with our forecasted share count as part of our quarterly earnings presentation posted to the website. The update on our interest expense range to be $46 million to $47 million includes the incremental share repurchases we have done year-to-date. Having completed our largest quarter of the year, we have updated our expected diluted EPS range to $10.80 to $11.30, including the $0.10 ASU tax benefit recognized year-to-date. We continue to focus on running a strong business through this period of higher interest rates and reduced consumer spending. Our actions on sales that support market share gains and on our gross margins holding up in a slower demand environment suggest strong fundamentals that will support the business as discretionary growth returns. Our capital allocation, expense management, and strategic actions remain focused on long-term profitability. Thanks, everyone, for listening in on today's call. We will now begin our Q&A session.

My first question is, I wanted to get a better sense of how you're thinking about the full year. Appreciating Melanie's comments around some of the dynamics with tariffs and pricing and the implications that will have. But when you think about some of the momentum that you're seeing around some of the company-specific initiatives, how should we think about what that will add to the year, especially given the strength you saw in the second quarter relative to some of those incremental headwinds that may come through as you consider some of the moves in the operating environment and tariffs?

Yes. Good question, Susan. I think the business is performing well with a lot of uncertainty in the market. I think one of the shining stars is the fact that the maintenance and repair business of the growing installed base is still very resilient. So that's good. People still love their pools. People have to repair their pools. That is continuing as we talked about. I would say that the renovation business is different than it was a few years ago. As I mentioned in my comments, we feel like many of the larger renovation projects are being broken up into phases to make them more digestible. And I think that trend is going to continue for the balance of the year, as long as there's no interest rate relief. I believe that on the construction side, the larger builders are the ones that are winning in this environment, more specifically, in larger builders in the highly desirable areas, right? So the southern cities that are still doing well. So from where we are spending our time and effort, we've invested in the NPT centers in the areas where we do see new pool construction growing. We have refreshed our product offering there. We have invested, as you know, with developing our private label chemical brands and we're seeing great traction in those areas. And again, that just ties into the maintenance business and making sure that we are the preferred brand. Our technology is getting good reviews, and we're seeing a nice increase in adoption. And for context, remember, we never said that it was going to rocket straight up. We are looking for consistent progressive growth in our adoption of our tools, and we are certainly seeing that. The feedback on the tools has been good. We continue to invest in those tools to improve the overall customer experience. And I think that's what's driving further adoption. And I guess lastly, we continue to open locations in areas that we see continued growth, both short term and long term. We look at markets like Texas, for instance. In our commentary, we said that construction in Texas has been under pressure, is down, but our view on that is that that's really tied to the greater Texas housing market, which appears to be a little bit overbuilt. Existing inventory continues to climb, so I think this is a short-term problem for Texas. But long term, we believe Texas is a great pool market for us now and in the future, it will be too. So we continue to invest in those markets. Some of our investments are paying off short term. Certainly, our focus on capacity expansion or capacity creation and our focus on customer experience, which is allowing us to win at the dealer level. I think making sure that our value proposition for the customer is unmatched is helping us win at the dealer level. Our demand creation activities from a marketing perspective, again, are helping us win at the dealer level. So I think the company is, given the current environment and where we have placed our investments, highlighted in our results to help drive POOLCORP.

Okay. That's great color. And then maybe following up, when you do think about the pricing that has been passed through to the market this year relative to some of those headwinds that you mentioned around consumers breaking down renovation projects and those types of things. I mean how are you thinking about the elasticity of demand in the industry? Do you think that some of your suppliers are thinking more about price versus volume as they consider the outlook for the macro? And how maybe they'll be approaching that going forward?

I believe the situation can be divided into two kinds of sales: discretionary and nondiscretionary. Some of our product sales are based on necessity while others are not. When it comes to equipment prices, if a pump fails, the price increase—whether it's 2%, 5%, or 10%—is not really a factor; the pump must be replaced. Our dealers are indicating that some consumers are choosing to repair rather than replace pumps. For example, our parts sales are growing faster than total sales in nearly all markets, suggesting consumers are weighing the options of repair against replacement. In nondiscretionary cases, pricing doesn't significantly affect the decision to repair or replace, although high repair costs may lead some to opt for replacement. On the other hand, certain items like pool heaters may be postponed if they're not immediately necessary, falling into the discretionary category. Likewise, new construction is discretionary. Even if construction material prices rise by a few percent, the overall cost of construction remains substantial, so minor changes in specific line items are unlikely to sway consumer decisions significantly. Overall, it depends on individual circumstances and how consumers are making their choices.

Pete, just a first question on the outlook. What's the bottom line on why you lowered EPS guidance for the year? Is it that the first half was just a little bit below what you thought, or is it something else?

No, I think in the first half, we expected some interest rate cuts that didn't occur. Now, I have doubts they will happen in the second half at all, and even if they do, I question whether it will be in time to significantly affect demand. So the adjustment we made was quite minor. The maintenance business is strong, and our installed base is in excellent condition. Given the current weather conditions, which are very hot, that's beneficial for us. However, the outlook for new pool construction relies heavily on whether there will be an interest rate cut to enhance the overall housing market. Without that, it's difficult to predict a rebound in new pool construction this year. If new pool construction doesn't recover, even with some pricing changes in the industry, those two factors will counterbalance each other.

Yes. I agree with that. Okay. That's helpful. And then my second question on gross margin. I was happy to see the Q2 and even the first half results, pretty good in a tough market. I guess my question is on the first quarter call, you talked about more price competition. Has this abated as you've gotten to the need of the season?

Yes. If you remember, we talked about it; we said it's always more pronounced in the first quarter because of the timing of early buy payments, and it's a smaller quarter. So from our perspective at this point, I don't really see anything new going on in that area. We still have seen some deflation on some of the chemicals, but by and large, I would say, I would classify competitive activity as nothing out of the norm.

Pete, just to follow up on your comment on rates. I'm just wondering, are you referring to a cut in the Fed funds rate and how that might impact mortgage rates in the housing market in general? And then second, as it relates to that, the monthly payment buyer down here in Tampa, Florida, the minimum you pay for a pool of $60,000, which is higher than the industry average was back in 2021. So I'm wondering, given the pool content and general inflation we're seeing, is there even an interest rate that pulls that monthly payment buyer back in? So two-part question on rates.

I believe there are a few points to consider, Dave. The interest rate influences housing turnover, not just the situation of people who are already in their homes. While I'm not planning to move, I still need to borrow money for a new home. Although my home equity is currently high, accessing that equity is costly. If the Federal Reserve reduces rates and that change filters through to the lending sector and then to mortgages for families not looking to relocate, it could have some effect on them, although it might not be substantial, as you mentioned. I think a more significant factor is housing turnover since we observe considerable activity related to that. Many people are sitting on a significant amount of equity in their homes, and if they could tap into that during a home transaction, such as moving to a larger, more permanent residence where they may want to build, that's where we could see a difference.

Got it. Okay. Following up on Ryan's question about the outlook, I recall you mentioning in the past that once we pass the midpoint of the third quarter and enter the fourth quarter, the discretionary part of your sales can significantly influence the overall results. However, based on the report, you mentioned an improvement at the end of June and were positive about July trends, yet the guidance decreased. Is the expectation for second half growth in new and R&R lower now compared to 90 days ago, or was there something else affecting this?

Yes, I think that's exactly right, Dave. The expectation for new construction isn't showing any significant improvement in permit data to indicate that new construction and larger renovation projects will increase in the latter half of the year. We're observing the trends from the first half of the year, and they don't seem to be changing much on a month-to-month basis. The maintenance part of the business is performing well, but I don't see anything in the near term suggesting that new pool construction will see a substantial improvement. That's why we made a slight adjustment.

Pete, could you talk about any inventory benefits to the margin in the second quarter? You have supply chain as a benefit in the bridge there, but any more color around that? And then also, as you kind of think about the puts and takes on the gross margin for the balance of the year, either Pete or Melanie, sorry.

Yes. So as it relates to the current quarter, the supply chain benefits are made up of a combination of multiple things that we're working on from a process standpoint and initiatives that we're doing. So we're continuing the throughput that we're getting from our CSLs that helped to lower our overall product cost. We're actually continuing some improvement as well on our freight activity there. So those are helping our product costs. When we look at the incremental margins that we're getting on our private label products, those are also helping us. And then we did get some minor benefit, which would be a little bit more pronounced as we move forward for the rest of the year. From the price increases that went into effect late in the quarter. So as we look out for the balance of the year, we'll see a little bit of margin benefit from some of those incremental prices in the third and fourth quarter. And then we'll also see a little bit of improvement from the year-over-year change in the building materials as that started to moderate when you compare it to prior years.

I understand. That's helpful. To revisit the discretionary aspect, the press release indicated some improving trends here, with a mention of a potential year-over-year increase. From the slides, it seems that while volume is still down, you’re experiencing some pricing benefits that may be slightly more than offsetting that decline. Is that a correct interpretation of your commentary on discretionary?

Yes. The improving trend was really more sequential versus we're not seeing any net positive on the trends on building materials. But even when you look at permits, they're moderating from a decline year-over-year. So they are improving throughout the year. Our actual building materials sales activity is showing much better results than that. So when you looked at building materials specifically, we were down about 5% quarter-over-quarter in the first quarter, and that improved to 1% in the second quarter. The pricing impact on building materials is not significant; they just saw kind of more normalized 1% to 2% as it relates to inflationary pricing benefits.

What I wanted to ask is just stepping back on the questions around new construction. You've talked about the rates on one side and the hope of kind of lower rates to get existing home sales moving. But I guess, with where we are now with dealer capacity and obviously, the dealer profit pool, I would argue, is likely meaningfully expanded from 2019. Do you think they will actually turn their attention to try to grow volumes that's kind of supportive of the mid- to high single digit for your algorithm? Or better said, I guess just step back from all of it, do you think mid-single digit to high single-digit construction is still possible with where pool costs are and where dealer capacity is today?

Very interesting question. And I would say the answer is, I think it really depends on the dealer. I think we have some dealers that are trying to find a way to make the price of a pool more affordable. At the same time, if you survey the dealers, they would tell you that their SG&A, their operating costs, their labor costs, insurance, taxes, and fuel have all increased. So I think there are some folks that are looking at it differently. There are some folks that say, like some of our dealers, are actually doing quite well. So like the folks, again, who concentrate at the high end of the market, that business, as we've said, seems to be strong, was good, and the outlook is still strong. It's really at the lower end. And I don't know that you'll see a material drop in the basic cost of a pool. What I will say is to keep in mind that the average price of a pool has come up from mix as much as anything else. I mean, as Dave mentioned, the basic price for a small pool in Florida is still around $60,000. In other parts of the country, you can get an entry-level pool for that or a little bit less. The average has been pulled up because of the current mix. The reason for that is more about financing. The associated financing costs at the lower end where they're much more highly leveraged versus the cash buyer at the upper end.

Second question I would ask, with all the tariffs impact on supply chains and second-order effect, have you seen anywhere out there where there's any tightness on products? I know you're domestic, but maybe tightness that would hit the lower-end guys. And might as well, while I'm on the topic, anything on the labor front that you've seen out there, obviously, from your contractors, customers, but anything you would obviously consider that would be second-order to you guys?

Yes. We talk to our dealers. We don't get the sense that there's a labor problem. I think everybody has enough labor to do the work that there is today. As far as your other question on second-order effect on tariffs, I'm not quite sure I understand that. Maybe you could expand a little bit, so I make sure I answer the right question.

Yes, I apologize. I meant more regarding any product shortages you may be experiencing. I know that you source domestically, but I was wondering if supply chain disruptions are affecting you.

Yes, nothing out of the ordinary. In any given year, there will be an issue with something, but there's nothing that we can point to that says that, hey, there's a shortage of this material or that material that's affecting everybody. I would say supply chains are generally in very good shape.

I'm curious, you guys mentioned in the inventory. It's a little bit higher year-over-year. You mentioned ensuring customers have good access. But the first list was expanding product offerings. I'm just curious if there's anything we should read into there, if you could elaborate on what that is? And then I have a follow-up.

Yes, there’s really nothing significant to note about that. Every year, manufacturers launch new products, and we need to ensure that those products are available for sale as our sales development efforts progress. So, there’s no major implication there. Additionally, we have no concerns regarding our inventory levels. We are very proficient at managing inventory, so we will be right where we need to be by the end of the year.

All right. As a follow-up, Melanie, I wanted to ask about the recent passage of the One Big Beautiful Bill. Could it have a favorable impact on your cash flow? Have you evaluated how it might affect you? Additionally, do you think it could influence your consumers, and is there a chance we could see a perception of tax benefits this year that might boost discretionary spending?

Yes. So from the company standpoint, our tax team has done a very detailed analysis, and now you're prepping me for my answer to the Board next week. But we see it as some slight benefit. There are a couple of things on the international side that really won't have a material impact on our tax rate overall. But the biggest thing that we expect to see as a benefit is the change in the accelerated depreciation. So that will, for us, be a positive as it relates to the cash flows on the tax side. As for homeowners, I don't know that we'll be able to see any type of quick reaction on that. Most people, I would suspect, are still kind of digesting the impacts, and we really haven't seen any significant changes in consumer confidence or discretionary spending at this point.

I wanted to touch on chemicals and dig deeper on pricing. So it sounds like the price backdrop in chemicals is still negative just based on the commentary, but it also sounds like you're not seeing a change or a deterioration, I should say, in the competitive backdrop. So if things are not getting more competitive, I guess the question is kind of why is pricing still negative here?

Sam, that's a really good question. As we examine the market, there isn't a general situation suggesting that we should be experiencing deflation in chemicals. We are in a busy season, and demand is strong. To summarize, we felt some pressure earlier this year, but currently, things haven't changed much. Therefore, I don't anticipate any worsening in the situation. From the chemical perspective, prices are fairly consistent with what we observed earlier in the year. However, I cannot foresee a scenario that indicates we are likely to see a decline in chemical pricing.

No, that's helpful, Pete. I appreciate it. And then maybe just touching on Q2 sales in the context of some of the tariff noise during the quarter. And just want to maybe put a finer point on this: did any of your customers, as best you can tell, pull forward demand ahead of tariffs? If there was any demand pull forward, what would be the implications for Q3 in that scenario? Just any help on that would be appreciated.

Yes, I can't say that we experienced any significant pull forward. A large part of our business is pickup business, with seventy percent of transactions happening at the counter. Therefore, I don't believe we saw any meaningful shifts in buying patterns. As a result, I don't anticipate any significant changes in the third or fourth quarter. We consider buying patterns to be normal for the season.

First, just hoping you can review the gross margin bridge in a little bit more detail for the back half of the year, just as far as the puts and takes go with respect to the supply chain, the pricing, the mix that you outlined in the slide deck. I'm just wondering which of these categories are getting more favorable to get to gross margin growth in the second half?

Yes. As we look at the second half, we'll see pricing will be a little bit more favorable. And we would expect that product mix, although it would still be a negative year-over-year when you're looking at individual quarters, is trending more positive. So it will be a little bit less negative on the product mix side.

Okay. That's helpful. And a smaller part of your business, but the improvement in Europe was notable. Wondering how much of that is improvement in the underlying market? Or I know the continent had a bit of a heat wave, especially in June. I was wondering if maybe that was a big driver of the growth there.

Yes. As I mentioned, when I consider Europe, our largest market there is France. France didn't contribute much, as it saw a slight decline this quarter, while the more southern countries in Europe were driving growth. I believe the weather has been favorable, and there seems to be more stability in the region. My visit there last quarter left me feeling more optimistic about Europe's outlook, which has faced challenges for several years. The team seems to be more hopeful, and we are noticing improvements in sales, which is encouraging.

In your prepared remarks, you provided some high-level commentary, but can you just provide any more color or put some numbers around how demand trended by month, and how things are tracking thus far in July? Just trying to understand if underlying demand, excluding some of those weather impacts, accelerated throughout the quarter and if volumes could inflect positively at some point in '25 just with the discretionary end market decline shrinking.

Yes, we observed that in the early part of the quarter, the markets in April and May were performing well, stronger than the start of June. June is typically the peak month of the year, and as expected, May or June usually stands out. However, at the start of June, we noticed a slight dip—not a significant slowdown—but it wasn't as favorable as the earlier weeks in the quarter for a couple of weeks. Fortunately, conditions improved in the latter part of June, and I can say that those positive trends have continued into July. We remain optimistic about the short-term outlook.

Okay. Understood. And then just on the pricing dynamics, I understand that one of the manufacturers walked back some of a second price increase here, but I think another large manufacturer is out publicly saying that they might be looking to take further price increases in the market later this year. So can you just talk about what you're seeing and hearing about second half price increases as term suppliers, and what's baked into your guidance currently?

Yes, I don't expect to see any increases except for the usual adjustments that manufacturers typically make at the end of the year. There was some consideration for an additional price increase during the current season before the prebuy or early buy, as well as for next year's pricing, but that seems to have settled down. However, we're starting to receive notifications for price increases for the upcoming season, which will take effect at different times in September or October, depending on the manufacturer. These changes are already factored into our current guidance.

Just first, on the 2% to 3% net price you realized outside of commodities. It looks like the manufacturers were realizing more like mid-single digits. So can you just break out what's included in commodities versus that other 2% to 3% bucket? Is that just equipment, and you guys are kind of getting squeezed a little on price there? Or are there other things we should be thinking about that are included?

Yes. No, the main difference between what we're realizing from a price increase versus the equipment is that only 30% of our product mix overall is equipment. So when you're looking at the higher price realization that the equipment manufacturers are getting, that's only on a portion of our business. So things such as the building materials, those are seeing much more normal increases, 1% to 2%. And so really, the difference there is going to be the product mix overall. As it relates to the commodities, what we have grouped in there is generally going to be chemicals, plumbing, and rebar. To some extent, there is a little bit of decking material as well, some of our decking building materials.

Okay. Great. And then the private label chemicals continue to show good results despite what kind of seemed like a tough backdrop for chemicals for the industry. Can you talk about what's driving that growth? And then where private label sales are as a percentage of total chemical sales today versus the last couple of years?

Yes, I would say the growth is driven by our strong portfolio of brands in the chemical sector. Last year, we refreshed all our brands, completed the product lines, and introduced the POOL360 WaterTest software. Decisions to change chemical brands by major retailers and our dealers are not made quickly; it takes time for them to build confidence in a new brand. We know we have a quality product and a comprehensive value proposition for our chemicals, including the POOL360 WaterTest and the consumer apps that integrate with it. We believe this strong offering will contribute to our ongoing growth, especially when combined with the other services we provide for our dealers.

I just want to thank you all for joining us today. We look forward to our next call, which is on October 23rd, when we will review our third quarter 2025 results. Enjoy the remainder of your summer, and have a great day.