Gross Margin Outlook
Q: Can you provide confidence about gross margin trends?
A: Management acknowledged that gross margins faced pressure due to a worse-than-expected mix in building materials and some preseason competitive pricing, but they expect improvements as declines in new construction moderate to around down 10%, leading to better product mix. They also mentioned initiatives like pricing optimization and shifts toward higher-margin products to enhance gross margins over time.

Sales Expectations and Weather Impact
Q: How do you expect sales to improve in the second quarter?
A: Sales are expected to improve with the return to normal seasonal buying patterns as supply chains have normalized and demand increases during pool opening season. April demand was close to expectations where weather was favorable, indicating stronger sales in the second quarter. However, any weather-related recovery might occur later in the year.

Competition and Industry Consolidation
Q: How does the acquisition of your competitor by a larger company affect you?
A: Management does not anticipate significant changes from the acquisition of the number two industry player by Home Depot. They believe competitive dynamics will remain consistent, and they see themselves as the employer of choice in the industry, focusing on talent retention and offering a superior value proposition.

Market Outlook for New Construction and Renovation
Q: What gives you confidence in new construction and renovation markets?
A: Positive trends in building permits in key markets like Arizona, Nevada, and Florida, which turned positive in March, provide encouragement. Increased interest in renovation projects is also noted, with consumers showing more engagement despite shopping around more due to economic conditions.

Balance Sheet and M&A Capacity
Q: How far would you leverage the balance sheet for acquisitions?
A: With a strong balance sheet at 1.4x debt-to-EBITDA, management is mindful of responsible capital allocation. Their conservative philosophy targets 1.5 to 2x, but they have capacity up to 3.25x under debt arrangements, giving them substantial flexibility for strategic acquisitions.

Share Gains and Stickiness
Q: Can you discuss your share gains and their stickiness?
A: Share gains contribute around 1% annually to long-term growth. Management believes these gains are maintained and continue to grow, aided by initiatives like the POOL360 ecosystem and an expanded footprint, which enhance convenience and efficiency for customers.

New Branches and Investments
Q: Are new branches meeting your expectations?
A: Management is pleased with the performance of new branches, especially those focused on maintenance rather than new construction. Thorough planning and strategic location selection have resulted in satisfactory results despite challenges in certain markets.

SG&A Spending and Guidance
Q: How is your SG&A spending progressing relative to guidance?
A: SG&A spending is progressing as expected. Performance-based compensation is recorded pro rata based on actual results, slightly less in the first quarter due to performance. Costs related to new sales centers are being realized mainly in the first and early second quarters, and technology initiative spending is ramping up as planned.

Average Cost of Pool Projects
Q: Has the average cost of pool projects changed significantly?
A: The cost of pools has escalated to all-time highs, which can limit customer affordability. Builders are adjusting by offering more entry-level options or phasing projects to lower initial costs and attract more customers.

Weather Impact on Guidance
Q: Is weather recovery included in your sales guidance?
A: The original guidance included a 1% to 2% benefit from normalized weather, but management now expects any such recovery to occur later in the year, potentially in the third or fourth quarter.