Residential swimming pool manufacturer Latham (NASDAQ:SWIM) reported Q4 FY2023 results topping analysts' expectations, with revenue down 15.8% year on year to $90.87 million. On the other hand, the company's full-year revenue guidance of $505 million at the midpoint came in 6.9% below analysts' estimates.
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Latham (SWIM) Q4 FY2023 Highlights:
- Revenue: $90.87 million vs analyst estimates of $86.95 million (4.5% beat)
- EPS: $0 vs analyst estimates of -$0.12 ($0.12 beat)
- Management's revenue guidance for the upcoming financial year 2024 is $505 million at the midpoint, missing analyst estimates by 6.9% and implying -10.9% growth (vs -18.3% in FY2023)
- Gross Margin (GAAP): 23.3%, up from 17.9% in the same quarter last year
- Market Capitalization: $378.7 million
Started as a family business, Latham (NASDAQ:SWIM) is a global designer and manufacturer of in-ground residential swimming pools and related products.
Leisure ProductsLeisure products cover a wide range of goods in the consumer discretionary sector. Maintaining a strong brand is key to success, and those who differentiate themselves will enjoy customer loyalty and pricing power while those who don’t may find themselves in precarious positions due to the non-essential nature of their offerings.
Sales GrowthExamining a company's long-term performance can provide clues about its business quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Latham's annualized revenue growth rate of 12% over the last three years was mediocre for a consumer discretionary business. Within consumer discretionary, product cycles are short and revenue can be hit-driven due to rapidly changing trends. That's why we also follow short-term performance. Latham's recent history shows a reversal from its already weak three-year trend as its revenue has shown annualized declines of 5.2% over the last two years.
This quarter, Latham's revenue fell 15.8% year on year to $90.87 million but beat Wall Street's estimates by 4.5%. Looking ahead, Wall Street expects revenue to decline 4.1% over the next 12 months.
Operating MarginOperating margin is a key measure of profitability. Think of it as net income–the bottom line–excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.
Latham was profitable over the last two years but held back by its large expense base. Its average operating margin of 3.7% has been paltry for a consumer discretionary business. In Q4, Latham generated an operating profit margin of negative 9.9%, up 9 percentage points year on year.
Over the next 12 months, Wall Street expects Latham to maintain its LTM operating margin of 2.8%.Key Takeaways from Latham's Q4 Results We were impressed by how significantly Latham blew past analysts' operating margin and EPS expectations this quarter. On the other hand, its full-year revenue and EBITDA guidance missed estimates as the company expects more industry softness in 2024, projecting a ~15% decline in new pool installations in its markets. Despite the weakness, management noted it gained market share in 2023, especially with its fiberglass pools (fiberglass products accounted for ~73% of the company's in-ground pool sales in 2023). Zooming out, we think this was still a decent, albeit mixed, quarter, showing that the company is staying on track. The market was likely frightened by Latham's outlook, and the stock is down 12.3% after reporting, trading at $2.88 per share.
