Pool Corporation (POOL) — Q4 2025 Earnings Call Transcript

Welcome, everyone, to our fourth quarter and year-end 2025 earnings conference call. During today's call, our discussion, comments and responses to questions may include forward-looking statements, including management's outlook for 2026 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 are discussed in our 10-K. In addition, we may make references to non-GAAP financial measures in our comments. A description and reconciliation of any non-GAAP financial measures included in our press release will be posted to our corporate website in the Investor Relations section. Additionally, we have provided a presentation summarizing key points from our press release and today's call, which can also be found on our Investor Relations website. Peter Arvan, our President and CEO, will begin our call today. Pete?

Good morning, everyone, and thank you for joining us. Let me begin with a look back at 2025. This was a year of continued industry developments, shifting demand patterns, persistent customer uncertainty, and evolving customer expectations. We stayed true to our long-term strategy, investing in new capabilities, expanding our exclusive brands, and advancing our digital and distribution platforms. These efforts allowed us to address current market pressures while maintaining a strong foundation for future growth. One important industry theme this year was the ongoing decline in general construction activity, including new pool construction. It's important to note that this trend is not unique to our business, but is felt across the broader construction sector. In 2025, we estimate that just under 60,000 new pools were built in the U.S., a mid-single-digit decline from last year. This is about half of what we saw at the height of the pandemic and 40% lower than in 2022. Even in this environment, we maintained our position and gained share in several important areas, driven by our differentiated offering and commitment to service. While new pool construction remains down, maintenance spending proved resilient. Also, we see the likelihood of pent-up demand in the pool industry, although it's difficult to predict the timing, we do believe that as consumer confidence returns, deferred pool projects and upgrades will come back to the market. This opportunity encourages us even though it remains difficult to put a timeline on it. Operationally, we took a disciplined approach to 2025. While the broader industry continued to add capacity, we slowed our own facility expansion and focused instead on driving more value from our existing network. While early, we are seeing measurable benefits from our strategic investments, including increased efficiency from our technology upgrades, improved customer experiences through digital platforms, and enhanced profitability from our supply chain initiatives. The progress underscores the effectiveness of our approach, and we expect these gains to become even more significant in 2026 as our initiatives continue to scale and evolve. Moving to financial performance. Our annual revenue was $5.3 billion, holding steady year-over-year. This stability was supported by steady maintenance demand with early indications of improvements in some discretionary categories, even with lower new pool starts. In the fourth quarter, our sales totaled $982 million, just 1% below last year's level, a period that, as a reminder, benefited from significant hurricane-related repairs in Florida and thus was a particularly tough comparison. We delivered strong gross margin performance in 2025, reaching 29.7% for the year, up 20 basis points from the prior year when adjusted for one-time items. This reflects the strength of our market leadership, disciplined pricing strategies, and operational excellence through our supply chain. In the fourth quarter, gross margins rose to 30.1%, an improvement of 70 basis points year-over-year. We delivered our commitment to shareholder returns, distributing $530 million in cash this year, a 10% increase over last year. This includes $341 million in share repurchases and a 4% increase in our quarterly dividend, underscoring our confidence in the business and our disciplined capital allocation. Inventory, as we have done successfully in the past, we acted opportunistically to secure pre-price increase purchases. This proactive investment positions us to protect and expand our gross margins, and we expect to sell through this inventory in the normal course of business. When we look at our performance by region, Florida sales declined 2% for the year and 9% in the fourth quarter, reflecting last year's post-storm activity. However, on a 2-year basis, fourth quarter sales in Florida were still up 2%. Texas showed early signs of recovery late in the year. Sales grew 1% in the fourth quarter, which helped offset a 3% decline for the full year. California declined 3% for the full year and 4% for the fourth quarter. Arizona was flat for the full year and down slightly in the fourth quarter. Elsewhere, Horizon sales declined 2% for the year. In Europe, we posted local currency growth for the first time in 3 years, including a 4% increase in the fourth quarter. If we look at our results by product category, chemicals were down 1% for the year, mostly due to price, and 3% in the fourth quarter driven by tough comps with post-hurricane cleanup. Building materials finished flat for the year and were up 4% in the fourth quarter, driven by demand for our national pool trend products and our differentiated customer experience. Equipment sales, excluding cleaners, were flat year-over-year and down 3% in the fourth quarter, cycling against prior year hurricane recovery comps. Commercial pool products rose 3% for the year. Now let me highlight performance in 2 important channels: independent retail and Pinch A Penny franchise network. Sales to our independent retail customers decreased 3% for the year and 4% in the fourth quarter. This reflects softer retail demand compared to the hurricane-driven surge we saw late in 2024, which created a high benchmark for year-over-year comparisons. Additionally, we did see pressure on chemical pricing, which is why the team is focused on proprietary product differentiation. For Pinch A Penny, sales from franchisees to their end customers declined 2% for the full year and 9% in the fourth quarter. It's important to remember most Pinch A Penny stores are in Florida, and last year's fourth quarter saw a 15% jump in franchise sales due to hurricane activity. At year-end, our Pinch A Penny network grew to just over 300 locations after adding 10 new stores during the year, including 5 in Texas and 1 each in Arizona and North Carolina. Our franchisees continue to provide essential services to customers and remain a key growth driver for our business. Turning to the digital side, we continue to make investments in technology; the launch of POOL360 unlocked new artificial intelligence features, expanded customer access to our products, and improved their experience across our network. Digital sales reached 13.5% of total revenue in the fourth quarter, up from 12.5% last year and peaked at a record 17% during the pool season. For the full year, we finished at 15% of sales, which is an all-time high, and we believe this will continue to grow. We also expanded our physical footprint, opening 8 new locations and acquiring 3, bringing our total to 456 sales centers at the end of the year. Between these investments in digital and our distribution network, we remain well positioned to support both the professional and the DIY end markets moving forward. Looking ahead to 2026, we anticipate net sales will grow in the low single-digit range. This outlook assumes new pool construction will stay close to the 60,000 units we saw in 2025. Maintenance revenues should remain resilient, and we expect to continue to capture share through exclusive brands, enhanced technology, and differentiated services. We expect our work to drive greater efficiency, especially the network optimization and operational improvements launched at the end of 2025 will produce more meaningful gains in 2026 as those initiatives scale. We will continue our disciplined approach to capital allocation, focusing on investment opportunities with the highest returns. With all these factors in mind, our diluted EPS range for 2026 is $10.85 to $11.15. Melanie will provide further details on our financial outlook in just a moment. To summarize, our focus in 2026 will have 3 priorities that guide us as we move forward. First, delivering an unmatched customer experience through exceptional service, tailored solutions, and the reliability our customers count on. By raising the bar on customer engagement and satisfaction, we reinforce our position as the partner of choice in the industry. Second, expanding our exclusive brands and deepening our OEM relationships to offer innovative, differentiated products that set us apart in the market. And third, fully leveraging our technology and network investments from POOL360 to our distribution platform, driving greater efficiency, reach, and agility across our business. We will continue to exercise strict discipline in execution and investment, ensuring we generate strong returns and stay nimble as the market conditions evolve. Feedback on our new products and digital tools has been very encouraging. We look forward to providing more detail on our strategic roadmap and innovation plans at our upcoming Investor Day. Investing in our people remains fundamental to our long-term strategy and culture of excellence. We are relentless in attracting, developing, and retaining top talent, empowering our team members to lead, innovate, and drive meaningful results. Their expertise and commitment not only fuel our current success but also ensure we are well positioned to seize future opportunities and shape the next phase of our growth. Before I conclude, I would like to thank our employees, our vendor partners, and our customers for their ongoing commitment and trust. Through another demanding year, we delivered solid results and laid the groundwork for further progress. I am confident that together, we are well positioned to drive continued leadership and value creation in the years ahead. I will now turn the call over to Melanie Hart, our Senior Vice President and Chief Financial Officer for her commentary.

Thank you, Pete, and thanks to everyone for joining us on today's call. I'll begin with a summary of our fourth quarter results, discuss our full year 2025 achievements, and then look ahead to 2026 expectations. For the fourth quarter, sales decreased by 1% compared to the prior year. The prior year's fourth quarter included a 2% benefit from increased maintenance activity and weather from hurricane recovery efforts, primarily in the Florida market. We continue to see an effect from lower discretionary spending which had a drag on sales of 2% this quarter, including the results from Horizon. However, the impact has continued to moderate throughout the year as we have seen permit declines across most of our markets begin to improve. Net pricing benefit for the quarter was approximately 2%. Fourth quarter gross margin was 30.1% and reflects a 70 basis point improvement over the prior year's margin of 29.4%. The improvements to gross margin were a result of pricing, supply chain benefits, expanded private label sales activity, and a favorable product mix. The favorable product mix includes the fact that the prior year's weather impact led to increased equipment sales, which generally have lower margins than our overall product mix. Operating expenses in the fourth quarter increased by $14 million or 6% compared to the prior year. This year-over-year expense increase is higher than the trend to date, primarily due to incremental technology investments made in the fourth quarter to ensure that POOL360 unlocked, as Pete outlined, was ready and available for use across the network. In addition, we have our new sales center openings and sales transformation expenses. We also saw self-insured medical costs continue to rise significantly, outpacing the general inflation rate. We reported operating income for the quarter of $52 million compared to $61 million in the prior year and diluted earnings per share of $0.85 as compared to $0.98 in the fourth quarter of 2024. For the full year of 2025, we maintained sales of $5.3 billion, consistent with the prior year despite having 1 less selling day. Discretionary activity related to remodels continues to make progress with new pool construction remaining a challenge, resulting in approximately 2% to 3% lower sales for the full year. We have successfully implemented both pool season and mid-season price increases while effectively managing evolving market pricing for chemicals, resulting in a 2% net pricing benefit. Maintenance activity overall for the year was positive. In 2025, we estimate that maintenance items accounted for roughly 64% of our pool product sales, while renovation and remodel projects made up 22%, and new pool construction contributed 14%. These are consistent with our 2024 estimate. Our sales of products primarily used in new pool construction and remodel finished the year flat, which was better than the overall new build market, estimated to be down 3% to 5%. Gross margin for 2025 was 29.7%, up 20 basis points compared to the prior year reported margin, which was also 29.7%, but included a 20 basis point benefit from import taxes. This improvement reflects effective supply chain management and disciplined pricing practices. These results were achieved through a consistent focus on operational execution and proactive engagement with customers. Regarding product mix, building materials accounted for 12% of sales in 2025 and 2024. Operating expenses increased $34 million, bringing the total to $992 million. Key investments this year included in the 3.5% expense increase are approximately 1% for incremental costs related to the 8 new greenfield locations and 1% in incremental technology spend. These increases were partially offset by ongoing improvement from our capacity creation efforts, which helped mitigate the impact of broader cost inflation. For the year, operating income reached $580 million compared to the $617 million in the previous year. Interest expense decreased by $3 million year-over-year, benefiting from lower overall rates, including benefits from refinancings during the year. We have continued to benefit from our treasury management efforts and mix of fixed and variable rate debt. The effective tax rate was 23.8%, slightly higher than last year's 23.4% with ASU benefit. On a full year basis, and excluding the impact of ASU, the tax rate was 24.7%. Diluted earnings per share of $10.85 compares to $11.30 in the previous year and includes an ASU benefit of $0.12 per diluted share for the full year versus $0.23 in 2024. Adjusted diluted EPS was $10.73 compared to $11.07 last year, representing a 3% decrease. The $11.07 includes the $0.25 import tax benefit. Moving to our balance sheet and cash flow. Inventory at year-end was $1.45 billion, an increase of $165 million or 13% from last year's balance of $1.29 billion. In anticipation of estimated cost increases for certain products for the 2026 season, we evaluated early buy opportunities and made strategic purchases. We expect normal inventory seasonality for 2026 with a peak in March ahead of the season and lower inventory levels by the end of the third quarter. This is an area where our team has proven to excel, and we are comfortable with the lift in the inventory that is focused on our faster-moving product line. Total debt increased $249 million to $1.2 billion at year-end. Debt balances were primarily used to fund incremental working capital and share repurchases. Our year-end leverage ratio was 1.67, consistent with our target range of 1.5 to 2x. As expected, our cash flow from operating activities was $366 million, representing 90% of net income of $406 million. Cash flow in 2025 was reduced by the $69 million in deferred tax payments made in the first quarter of 2025 related to those impacted by the hurricanes in 2024. Cash flow from operating activities in 2025 would have been 107% of net income without the deferred tax payment. We finished 2025 with solid earnings performance. We continue to invest forward into the business with 8 new greenfield locations, 3 acquired sales centers, 10 new Pinch A Penny franchise stores, including 2 new states and enhanced capabilities within our POOL360 ecosystem. We have invested capital in inventory, dividends, and increased share repurchases to benefit the business and the shareholders. Next, we'll move on to our discussion of 2026. Heading into 2025, we faced a challenging macro environment, including higher than historical interest rates, increased costs, continued inflation, impacts from tariffs, and uncertainty around when consumers will return to more typical discretionary spending in the pool and irrigation market. While we saw some improvements in the comparative trends, we are still awaiting more positive consumer spending. Our focus has been on improving the business outside of the macro trend, and we accomplished that in 2025 as we were able to realize benefits from pricing and maintenance activity that offset the decline in discretionary spending. In 2026, we expect our maintenance business to remain resilient, supported by the addition of approximately 60,000 new pools built in 2025. We also anticipate vendor cost increases and corresponding pricing pass-throughs to result in a 1% to 2% pricing benefit. Given that we have not yet observed a positive inflection in discretionary spending trends, we will continue to monitor these dynamics before projecting the timing of any significant recovery. Overall, we expect 2026 to continue to be a challenging market. However, we anticipate our market position and execution will allow us to achieve low single-digit sales growth. In 2026, we will have the same number of selling days each quarter and for the full year compared to 2025. Our gross margin for 2026 is projected to be consistent with 2025. We expect ongoing positive contributions from effective supply chain, pricing strategies, and increased private label sales, offsetting continued shift to larger customers. At this time, we do not anticipate a significant increase in new pool construction or remodel activity, so product mix is not expected to have a material positive impact on 2026 gross margin. For 2026, we estimate we will incur approximately $5 million in additional costs to open 5 to 8 new sales centers. As part of our commitment to being an employer of choice, we also plan to increase employee rewards in line with higher earnings. This means that assuming we achieve low single-digit growth revenue, incentive-based compensation expenses are projected to rise by $10 million to $15 million. As we have proven over the last several years, this incentive compensation reload only occurs in line with improved results and has not yet been normalized through 2025. The management team remains confident in our ability to generate returns from recent investments in technology and infrastructure. These investments have positioned us to proactively manage staffing and facility needs more efficiently across our network. With low single-digit sales growth, we expect operating margin to improve in 2026, although this improvement will be partially offset by the one-time increase in incentive compensation. We are also seeing positive momentum at the more than 50 new greenfield locations we've opened since 2021. The operating costs associated with new locations added in 2025 will result in higher year-over-year expenses in the first quarter. However, we expect expense growth to moderate as these sites reach scale and efficiency gains are realized throughout the year. Our continued focus on operational excellence and process optimization provides us with confidence that we can leverage our growing platform, drive productivity, and achieve further cost efficiencies as the year progresses. We expect interest expense to approximate $50 million in 2026 based on the current rate. Interest expense is typically higher in the first and second quarters due to inventory buildup for the swimming pool season. For depreciation and amortization, we have included estimates of $55 million to $57 million. In 2026, we do not anticipate any significant changes to our capital allocation. It would include reinvesting roughly 1% to 1.5% of net sales back into the business, and we plan to allocate between $25 million and $50 million toward acquisitions. Subject to approval, dividend payments are expected to use around $200 million in cash, and we intend to continue repurchasing shares on an opportunistic basis. We project that cash flow for 2026 will be aligned with our goal of achieving 100% of net income. The annual tax rate is estimated to be approximately 25% excluding the impacts of ASU. This rate typically runs closer to 25.5% in the first, second, and fourth quarters, and lower in the third quarter. We do not expect to see a significant benefit from ASU in the first quarter when restricted shares vest and stock options expire and, therefore, have no projected ASU benefit in our 2026 guidance. We estimate approximately 36.8 million weighted average shares outstanding at the end of the first quarter and 36.9 million for the remainder of the year. Our guidance for 2026 is a diluted EPS range of $10.85 to $11.15 with no ASU tax benefit. The improvement in earnings at the midpoint would be approximately 2% to 3%. Looking ahead, we remain confident in our strategy to drive performance through steady maintenance activity, disciplined pricing, and ongoing operational improvements. While we continue to monitor broader macroeconomic conditions for signs of sustained recovery in discretionary markets, our strong balance sheet positions us well to capitalize on future opportunities. We remain committed to delivering exceptional cash returns to shareholders through a balanced and disciplined approach.

First question on SG&A. Melanie, you pointed out that the low single-digit growth rate that you're guiding to is enough to trigger the incentive comp reset. So I assume 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 what 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?

It's definitely a sliding scale. So within kind of that range of low single digits, we would expect different points of recovery. 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.

Additionally, if aftermarket sales continue to lag and overall sales remain flat, we would take other measures to align our costs with the market.

Okay. Yes. Regarding gross margin, you're indicating it will remain flat. As you go through scenario planning and setting your budgets, what factors do you consider that might result in it being above or below flat in 2025? What are the key aspects you're taking into account?

That's a good question. It's a broad topic. When I consider the factors influencing gross margin, customer mix and product mix certainly play a role. Our ongoing efforts in pricing optimization are also contributing positively. I was particularly pleased with the gross margin expansion in the fourth quarter, which I believe was influenced by several factors. The great efforts of our supply chain teams contributed significantly, along with the pricing strategies being implemented by the field. Regarding product mix, if renovation and remodeling continue to outpace new pool construction, we could see an uplift from that. Additionally, our exclusive and proprietary brands, which we have been developing over the years, will serve as tailwinds to drive our numbers. However, in our current market, we also face competitive pressures. I don't expect these pressures to change significantly from 2025 to 2026. As reflected in our results, our business has effectively managed to counterbalance these pressures. While they are present, they do not dictate our actions. We have noticed some deflation in chemicals, which is why we are focusing on our exclusive and proprietary products that aren't experiencing the same headwinds. Overall, I believe the team performed well in 2025 regarding gross margin, and we have similar, if not more, opportunities to enhance this in 2026.

Thanks for your insights on 2026. I would also like to inquire about SG&A. When I input some of the parameters you provided, I estimate around 1.5% SG&A growth for 2026. Considering the aspects you mentioned regarding employee rewards and new sales centers, am I in the right range?

Yes. So I would say, if you're thinking about sales growth and expense growth and trying to match those, we would expect that the expense growth would come in slightly less than the sales growth to give us a similar operating income margin, maybe slight leverage for next year. So we're going to 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 made here 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. And so our actions in 2026 will primarily be focused on starting to further enhance the generation of returns that we have on those investments.

Ryan, I have a few thoughts on this topic. We are particularly focused on the selling, general and administrative expenses of the business because, over the past couple of years, we made necessary investments to maintain our market leadership in capabilities and customer experience. At the same time, as Melanie mentioned, we see opportunities from our capacity absorption efforts. We have made some investments, and we are starting to see positive results from those investments. I believe that as our new facilities continue to develop, with strong focus from the management team, our operating leverage will keep improving. Our operating margins across the fleet show that most of our facilities are in excellent condition and performing well. While we added new facilities that may dilute our overall average, we are applying the same successful strategy that elevated the fleet’s performance to the new facilities we've added over the years. Additionally, we are concentrating on our lower-performing locations, which are receiving heightened attention right now. When considering SG&A, if the market improves, then managing SG&A will become easier percentage-wise. If the market does not improve, we will need to take further actions to remain aligned with market expectations. However, we are comfortable with this approach as we believe the investments made over the last couple of years do not need to be duplicated, and we should begin to reap the benefits.

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 just 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?

I'll address the first question regarding the performance in the first quarter. As you know, the first quarter is our least significant quarter, but that doesn't undermine its contribution to the business. Currently, we are about halfway through the quarter, and March typically outperforms January. At this point, I feel encouraged by what we've observed so far. It's too early to predict whether we will exceed expectations for the first quarter, but if March and the rest of the month follow a normal weather pattern, I believe our expectations will align with performance for the quarter. Regarding your second question about chemicals, it's also too early to provide a definitive answer. The first quarter often presents some fluctuations in chemical pricing. I want to emphasize that I'm not particularly worried about deflation in chemical prices at this moment; things appear stable. I'm not currently concerned that chemical prices will decline further. Our focus is on introducing customers to our proprietary chemicals, which offer a unique value proposition and make us less vulnerable to market fluctuations, other than those involving generic commodities.

Yes. I guess just a question on store ops. And what's the opportunity? You made passing reference a moment ago to the focus list, but just what is the opportunity to improve the profitability of 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 4-wall economics?

Yes. I'll take that, and then Melanie can chime in. So 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 leverage that you have there are a couple. One, obviously, the biggest lever that you have is sales growth. 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 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 of markets where I would say, as we have expanded our capabilities in some areas, we may have opportunities to consolidate some of those, if we don't see a particular market continuing to grow and expand. Those would be ones where we look at 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. 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 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 the 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 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.

Got it. My second question is really just with respect to kind of the longer-term growth algorithm, and 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?

Yes. I think part of it is there is still plenty of opportunity. When I look at our market share across the fleet, we have plenty of markets that are still below the median. So I think just improving our customer engagement, frankly, our customer experience and our operational efficiency helps. I also think that there is an opportunity from a demand creation perspective because, 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 total addressable market, 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.

My first question is on the gross margin. Just thinking about the path for that as we look over the year. Can you talk about what that inventory build 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 1 to 2 points this year?

Yes. 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 the 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 4, there were some benefits from that mid-season price increase, which at this point in time, we wouldn't anticipate would occur again in 2026. So I would say that we would see slightly better margins in the first quarter. The remaining of the quarters would be relatively comparable with fourth quarter because 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 consolidated wise, we don't think that will have a significant impact on margins overall.

Susan, 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 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, that we will burn through most of that benefit by mid-season, and then, 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.

Yes. Okay. And then I wanted 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 to 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? Just any thoughts around that and what that would mean for capital allocation?

From an organic growth perspective, we are confident in our long-term growth potential because the industry we serve and the products we primarily sell, whether through new pool construction or renovation, remain highly desirable. Although there was a slight decrease in new pool construction in 2025, I believe this was influenced more by geographical factors and the housing market rather than a significant shift in consumer sentiment. Looking at our growth opportunities and market share on a regional basis, we see potential to continue expanding even if the market remains subdued. There are several elements that will benefit us, particularly regarding equipment. With the transition from single-speed motors to variable speed motors, we are approaching a point where many of the single-speed pumps we sold will soon be due for replacement. Additionally, there's a considerable opportunity to modernize existing installations. Based on our conversations with many customers, we notice that many backyards are now equipped with the latest technology, indicating we are entering a replacement phase. However, we still see significant potential in modernizing equipment with new innovations. Part of this demand generation relies on our efforts to educate service providers and spread awareness through marketing initiatives in collaboration with our OEM partners, helping them enhance customer experiences by adopting new products rather than merely replacing old ones. The installed base will continue to grow, and there is considerable pent-up demand for renovations, as shown by increased sales of building materials and our market share gains in new construction as well. Finally, regarding inorganic growth, there are still opportunities in that area, and our team remains focused on it as a key long-term growth strategy. I believe POOLCORP is well-situated to capitalize on these opportunities.

It's Daniel on for Scott. Could you please discuss the key factors that would put you at the low end versus the high end of the EPS guidance range?

Yes, the range is primarily going to vary depending upon overall market conditions and the resulting sales growth from that standpoint.

Got it. Regarding the expectations for new pool sales to remain steady year-on-year and for renovations and remodels to hold flat or see slight growth, could you share what feedback you are receiving from your customers about the backlog and your level of confidence in those projections?

We just came out of our show season, and during January and early February, we spent a lot of time with dealers. The level of optimism from customers is fairly good. Many customers have indicated that they plan to build as many pools as they did last year, and we're seeing strong interest. While this doesn’t match the peak levels, the general sentiment about new pool construction from the dealers we've spoken to is positive. It's not a dire situation; many believe they will construct at least as many pools as last year, with some feeling optimistic. However, there is a difference between expressing optimism in February and actually translating that into contracts during the season. Nonetheless, it’s reassuring that dealers are saying they plan to build at least last year’s numbers, and many are reporting an optimistic outlook. As always, there are extremes: some high-end dealers report strong business, even turning customers away, while some at the low end are struggling. Overall, I would say that industry confidence is more encouraging than not.

Melanie, this is Ethan on for Trey. I wanted to dive deeper, maybe 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, maybe 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.

The information from Florida is still positive. Even with the storm challenges, housing prices and costs have shown resilience. Over a two-year comparison, they were up 2% in the fourth quarter, which is very encouraging. Builders in Florida believe market conditions vary by location. For example, South Florida, particularly Miami, is seeing a lot of movement and has a strong market. However, conditions differ across the state. Overall, Florida remains a key market for us and is likely to become our largest market in terms of installed base, continuing to attract homeowners. On the other hand, Texas has shown some surprising slowdowns. This slowdown isn't uniform; for instance, areas like DFW, Austin, San Antonio, and Houston are developing at different paces. We're noticing improvement in Dallas and Austin, while Houston is a bit slower, though there is newfound optimism about new builds there. As for Arizona, the market has stabilized after a significant drop during tougher times. California is stable but I don't anticipate major changes there. It seems to focus more on renovations than new pool construction.

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?

Yes. Regarding the number of locations, Melanie provided a range of 5 to 8. I don't foresee it exceeding 8, though it is a possibility, but that seems unlikely given our current capacity investments and existing footprint. This year, our priority is more about executing effectively and driving growth within our current facilities. We have a disciplined approach for each new facility we open, complete with a pro forma and budget that are consistently maintained. The facilities opened in the last few years have operating expectations and budgets that remain unchanged. We realized that our expectations for new pool construction growth in 2022 were perhaps overly ambitious. Essentially, the figures from recent years stand as they are. The team is concentrating on execution and fulfilling the commitments outlined in our financial projections. Looking ahead to potential new openings this year, we have refined our expectations regarding return on investment. We will certainly open new branches in 2026, but not in the same volume as before. There will be significant focus on the branches we've opened recently to ensure we are gaining benefits from those investments. Consequently, the level of scrutiny on new locations is and should be quite high.

Okay. That makes sense. Thanks for helping with that. And follow-up question is just on Horizon. It's a smaller part of your business now, but just curious as to the deceleration in growth or the negative 5 in Q4? And also, what are you assuming for 2026?

Yes. The Horizon business is primarily linked to new construction. Our main product line in this segment is irrigation, which is typically installed during house construction. There are some installations related to significant renovations and a commercial aspect as well. Looking at the annual results, I would say they are not bad. However, they did not experience the same price increases as other parts of the business. Our presence in this market is somewhat limited, but there is potential for improvement in our execution with Horizon. We have a specific focus list for Horizon that is similar to what we have for our other operations. Therefore, I do not expect to see exceptional growth from Horizon. Their execution and return on capital are held to the same expectations and scrutiny as the rest of the company in terms of performance. The irrigation market is not thriving at the moment. The maintenance side of the business is performing well, comparable to what we see in the pool segment. Over the past few years, the business has been directing more attention toward maintenance rather than solely focusing on new construction.

Just like to thank you all for your interest in POOLCORP, and we look forward to updating you on April 23 when we will announce our first quarter 2026 results. Have a fantastic day.