Latham Group: A Pool of Potential in the Residential Swimming Pool Market

Latham Group Inc. (NASDAQ: SWIM), the largest designer, manufacturer, and marketer of in-ground residential swimming pools in North America, Australia, and New Zealand, has been making waves in the industry with its innovative products and strategic initiatives. The company's focus on fiberglass pools and automatic safety covers has contributed to its outperformance in the U.S. pool market, and its prospects for continued growth in these areas are promising.

Latham Group's in-ground pool sales outperformed the U.S. pool market in 2024, driven by fiberglass share gains and increased adoption of automatic safety covers. Fiberglass pools represented 75% of Latham's in-ground pool sales in 2024, up from 73% in 2023, and gained one percentage point of total in-ground-pool market share, accounting for 24% of all in-ground pools installed in the U.S. last year, up from 23% in 2023. The company's diversified product mix, including pool liners and covers, provides access to the more stable replacement market, further enhancing its ability to outperform new U.S. pool starts.

The company's strong financial position, with operating cash flow exceeding $60 million and a year-end cash balance of $56 million, provides the flexibility to support both organic and acquisitive growth. Latham Group's guidance for 2025 anticipates 8% sales growth, which is composed of approximately 3% from the full-year effect of the Coverstar Central acquisition and two new acquisitions, with the remaining 5% from organic growth. This growth is driven by continued fiberglass penetration and the Sand State strategy, along with increased adoption of automatic covers. Pricing is expected to be sluggish, similar to last year.

Latham Group's margin expansion in 2024 was driven by several specific initiatives, including lean manufacturing and value engineering initiatives, supplier diversification initiatives, and improved procurement. These efforts contributed to a gross margin expansion of over 300 basis points, from 23.3% in the year-ago quarter to 24.6% in the fourth quarter of 2024. The company's adjusted EBITDA margin expanded by 30 basis points, reflecting the higher gross margin more than offsetting the increased spending on growth projects.

Latham Group's strong financial position, combined with its history of strategic acquisitions, positions the company well for both organic and acquisitive growth. The company's focus on expanding market share in the Sand States (Florida, Texas, Arizona, and California), which account for approximately two-thirds of US pool starts, and potentially entering new international markets, along with its interest in complementary products and services, suggests that these areas may be on the horizon for future acquisitions.

In conclusion, Latham Group's focus on fiberglass pools and automatic safety covers, combined with its strong financial position and strategic initiatives, positions the company for continued growth and success in the residential swimming pool market. The company's prospects for organic and acquisitive growth, driven by its strategic focus on the Sand States and potential international expansion, make it an attractive investment opportunity for those looking to capitalize on the growing demand for in-ground residential swimming pools.