Guidance Assumptions
Q: Is your guidance conservative, and what are your assumptions for discretionary vs. nondiscretionary products?
A: Management acknowledges that their guidance is appropriately conservative due to uncertainties like weather and economic conditions. They expect the 60% of their business tied to maintenance and repair to perform well but anticipate the demand for new pool construction to remain consistent, given high interest rates and economic factors. They don't foresee significant changes until possibly after the election cycle, noting that small interest rate cuts may not spur demand for new pools. "

Operating Margins and SG&A Investments
Q: How are SG&A expenses growing relative to sales, and can you maintain operating margins?
A: Management is investing in technology and new sales centers, causing SG&A to grow at a higher rate than sales in the near term. They stress that these investments are essential for long-term growth. While operating margins may be lower in the short term, they believe that if new pool construction returns to 120,000 units, they can achieve operating margins close to peak levels. " "

Gross Margin and EPS Expectations
Q: What are your expectations for gross margins and EPS contribution in Q1?
A: They expect first-quarter margins to be down by 50 to 60 basis points year-over-year, returning to more seasonal levels compared to 2023. " The first quarter is anticipated to contribute approximately 18% to 20% of the year's top line. With slightly lower margins but well-controlled operating expenses, they expect a consistent contribution to overall EPS for the year. "

Demand for Semi-Discretionary Products
Q: Will deferred purchases of heaters and cleaners rebound this year, and can macro changes drive demand?
A: Management believes that while there was a pull-forward in demand for semi-discretionary products, each month brings them closer to normal replacement cycles. They are starting to see markets where demand is growing again and expect demand to return over time as these products become necessary. Technological improvements are also making these products more desirable, though the exact timing of a rebound is uncertain. "

Competitive Dynamics and Share Gains
Q: How are competitive dynamics impacting you, and can you retain share gains?
A: Despite competitors engaging in unsustainable pricing strategies during slower demand periods, management believes their efficiency and cost position give them an advantage. They focus on being the best provider and are confident they've gained market share again in 2023, based on data available to them. They aim to continue gaining share by investing in customer experience and technology. "

Operating Environment and Weather Impact
Q: How does weather affect your outlook, and what are you assuming for this year?
A: Management is cautious due to weather unpredictability, noting that California has already received over 12 inches of rain early in the year. " " They are not heavily relying on weather recovery in their guidance but acknowledge that favorable weather would benefit the maintenance and repair segment.

Inventory Management
Q: Do you have room to further reduce inventory levels?
A: Inventory management is a continuous improvement process for them. After reducing inventory by 14% or approximately $230 million in 2023, they see more room for optimization. They aim to improve days sales on hand by a couple of days but note that first-quarter inventory increases are typical to prepare for the selling season. "

Backlogs and Demand Trends
Q: What are you seeing in backlogs and demand for new construction versus remodels?
A: Early in the year, during the show season, customers are optimistic but cautious. Management doesn't anticipate significant changes in new pool construction demand until monetary policy shifts and access to affordable lending improves. "