Latham Group's Q3 2025: Contradictions Emerge on Tariff Mitigation, Marketing Spend, and Fiberglass Market Share Growth

Business Commentary:

* Revenue and Market Outperformance: - Latham Group reported net sales of $162 million for Q3 2025, a 7.6% year-on-year increase. - The company outperformed the U.S. in-ground pool market, which was flat to slightly below 2024 levels. - Growth was driven by strategic investments in fiberglass pool adoption, auto covers, and in-ground pool liners, as well as traction in the Sand States.

• Product Line Growth:
• Latham's in-ground pool sales increased under 1%, with fiberglass pool sales accounting for approximately 75% of full-year 2025 sales.
• Pool cover sales increased 15%, driven by higher adoption of auto covers and revenue synergies from the Coverstar acquisitions.
• Liner sales rose 13% due to industry-leading lead times and the successful integration of the Measure by Latham tool.

• Operating Margin Expansion:
• Gross margin rose to 35.4%, up 300 basis points year-on-year, and adjusted EBITDA margin increased to 23.7%, a 390 basis point improvement.

• Margin expansion was achieved through accretive benefits from Coverstar acquisitions, lean manufacturing initiatives, and production efficiencies.

• Florida Market Expansion:

• Florida sales increased at a high single-digit rate year-to-date, with Latham gaining traction in master planned communities and strategic partnerships with custom homebuilders.
• This progress was supported by dealer conversions, especially from concrete to fiberglass pools, and increased brand awareness in the region.
  

Contradiction Point 1

Tariff Exposure Mitigation and Price Increase

It involves how the company has managed tariff exposure and implemented price increases, which are crucial for financial stability and cost control.

What was the pricing outcome for the quarter, and how are tariffs impacting costs? - Michael Francis (William Blair)

20251105-2025 Q3: Oliver Gloe: We do expect that the $10 million tariff exposure is covered by the June price increase that we just implemented. - [Oliver Gloe](CFO)

How should we expect SG&A expenses in Q4 and next year with a stable market? - Bobby Schultz (Baird)

2025Q3: Oliver Gloe: We have a $10 million exposure that we are working through, and we've done some price increases to offset that, but that is on a go-forward basis. - [Oliver Gloe](CFO)

Contradiction Point 2

Marketing Spend and Strategic Investments

It involves changes in marketing spend and strategic investments, which are critical for business growth and market penetration.

Did you reduce marketing spend in SG&A this quarter compared to last year? - Shaun Calnan (Bank of America)

20251105-2025 Q3: Oliver Gloe: No change in seasonal marketing spend. The difference is due to timing of stepped-up investments in sand states and previous acquisitions in the base. SG&A remains consistent seasonally. - [Oliver Gloe](CFO)

Did you reduce marketing spending in SG&A this quarter compared to last year? - Shaun Calnan (Bank of America)

2025Q3: Oliver Gloe: No, we didn't slow marketing spend. The differing year-over-year growth is due to prior strategic investments in the sand states and acquisitions. - [Oliver Gloe](CFO)

Contradiction Point 3

Fiberglass Pools Market Share and Growth

It involves differing views on the potential acceleration of fiberglass pool market share growth, which is a key strategy for Latham Group and influences investor expectations.

Is there potential for a 1% increase in fiberglass market share to accelerate in the coming years? - Bobby Schultz (Baird)

20251105-2025 Q3: The 100 basis point annual increase is embedded in our long-term outlook. The sand states' growth opportunity could lead to acceleration if the lower end of the market picks up. - [Scott Rajeski](CEO)

Can you provide an update on the Sand State strategy, including progress in Florida and your community goals? - William Andrew Carter (Stifel, Nicolaus & Company, Incorporated)

2025Q2: The 100 basis point annual increase is embedded in our long-term outlook. The sand states' growth opportunity could lead to acceleration if the lower end of the market picks up. - [Scott Rajeski](CEO)

Contradiction Point 4

Tariff Exposure and Cost Mitigation

It involves the company's strategy to mitigate tariff costs, which directly affects operational expenses and profitability.

What were pricing levels in the quarter, and what is the current status of tariffs and their costs? - Michael Francis (William Blair)

20251105-2025 Q3: Tariff exposure has been mitigated through supply chain adjustments and a price increase in June. The $10 million tariff exposure is covered by the June price increase. - [Oliver Gloe](CFO)

What was the impact of tariffs in 1Q, and what's the outlook? - Chuck Norris (D.A. Davidson)

2025Q1: We were able to mitigate the $10 million tariff exposure through a price increase implemented in June. - [Oliver Gloe](CFO)

Contradiction Point 5

Marketing Spend and Strategic Investments

It involves the company's approach to marketing spend and strategic investments, which impact brand awareness and sales growth.

Have you resumed shipping from the Kingston facility after the tariff changes? - Shaun Calnan (Bank of America)

20251105-2025 Q3: We never stopped shipping from Kingston as our fiberglass pools are USMTA compliant and not subject to tariffs. Production in Kingston continues. - [Oliver Gloe](CFO)

What was last year's marketing spend and how does it compare to this year? - Elizabeth Langan (Barclays)

2025Q1: During the year, we continued our strategic investment efforts to support growth in the sand states as well as in Canada. - [Oliver Gloe](CFO)