SWIM Q2 Deep Dive: Margin Expansion and Sand State Push Offset Revenue Shortfall

Residential swimming pool manufacturer Latham (NASDAQ:SWIM) missed Wall Street’s revenue expectations in Q2 CY2025, but sales rose 7.8% year on year to $172.6 million. On the other hand, the company’s full-year revenue guidance of $550 million at the midpoint came in 1.1% above analysts’ estimates. Its non-GAAP profit of $0.12 per share was in line with analysts’ consensus estimates.

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StockStory’s Take

Latham’s second quarter saw sales increase nearly 8% year-over-year despite falling short of market revenue expectations, a result that was met with a significant positive reaction from investors. Management credited this growth to the strong performance of autocovers, which benefited from both acquisitions and organic adoption, as well as expanding lead generation from digital marketing efforts. CEO Scott Rajeski emphasized, “Our diversified portfolio and leadership in fiberglass pools and autocovers allowed us to deliver sales growth and margin expansion in a challenging industry environment.”

Looking ahead, Latham’s guidance for the remainder of the year is shaped by continued investment in its Sand State strategy, which targets underpenetrated markets like Florida and Texas. Management believes that expanding dealer networks and increasing consumer awareness in these regions will support revenue growth as the broader pool market stabilizes. CFO Oliver Gloe noted, “We remain focused on executing our strategic growth initiatives, particularly in the Sand States, and expect our lean manufacturing and recent acquisitions to drive further margin improvement as conditions normalize.”

Key Insights from Management’s Remarks

Management attributed the quarter’s margin gains and sales progress to product mix shifts, operational improvements, and targeted market expansion efforts, especially in autocovers and fiberglass pools.

• Autocover outperformance: The autocover segment was a key driver of growth, with both organic gains and contributions from recent dealer acquisitions. Management highlighted the impact of changing pool safety regulations, which have increased autocover adoption by allowing them to replace fencing in many states, expanding the addressable market.
• Sand State strategy acceleration: Latham’s entry into Florida and Texas, part of its Sand State strategy, resulted in increased dealer recruitment and rising consumer leads. CEO Scott Rajeski described strong progress, noting Florida lead generation “turned positive significantly,” with Texas following in recent weeks despite weather disruptions.
• Operational efficiency gains: Lean manufacturing initiatives and value engineering were cited as primary contributors to year-over-year gross margin improvement. CFO Oliver Gloe stated that both acquisition-related synergies and internal cost controls helped drive margin expansion, with no material one-time benefits.
• AI-driven product adoption: The proprietary Measure by Latham AI tool, used for pool liner and cover measurement, increased dealer efficiency and contributed to share gains in liner sales. Management reported that 25% of new tool purchasers were new to Latham, supporting network growth.
• Labor and dealer conversions: Persistent labor shortages in pool construction have bolstered the appeal of fiberglass pools, which require fewer installation resources. Management noted that this dynamic is prompting some concrete pool builders to switch to Latham’s fiberglass offerings, exemplified by the recent onboarding of Shasta Pools in Arizona.

Drivers of Future Performance

Latham expects future performance to be shaped by continued Sand State expansion, product innovation, and efficiency initiatives, while navigating lingering macro headwinds.

• Sand State market opportunity: Management is prioritizing growth in Florida and Texas, aiming to increase market share through dealer expansion and targeted marketing. The company believes these efforts will help drive revenue growth as pool demand in these regions recovers.
• Product and operational leverage: Further adoption of autocovers and the Measure by Latham tool are expected to support sales and improve margins. Management anticipates that lean manufacturing and value engineering will deliver ongoing operating leverage, particularly as industry volumes normalize.
• Macro and regulatory headwinds: Management acknowledged that persistent softness in new pool starts and consumer confidence represent ongoing risks. Tariff changes and weather-related disruptions were discussed, though supply chain adjustments and pricing actions are expected to keep margins stable.

Catalysts in Upcoming Quarters

In the coming quarters, the StockStory team will monitor (1) the pace of dealer expansion and sales growth in key Sand State markets, (2) continued margin improvements from lean manufacturing and value engineering, and (3) the impact of regulatory changes and marketing programs on autocover adoption. Execution against these milestones will be crucial as Latham aims to outpace broader pool market trends.

Latham currently trades at $7.21, up from $6.84 just before the earnings. Is there an opportunity in the stock?See for yourself in our full research report (it’s free).

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