Pool (POOL)

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Pool Corporation (NYSE: POOL) is the largest wholesale distributor of swimming pool supplies and equipment worldwide. It's revenue comes from three sources: pool construction materials, pool maintenance and recreational equipment. Pool Corporation's net sales and income took a significant blow in 2007 due in large part to the 2007 Credit Crunch.^[1] As home values fell and credit became harder to secure, it became more difficult to get financing for large home improvements such as building a pool. In addition, unusual weather, such as abnormally long winters in the Northeast and hurricanes in Florida have kept people out of the pools, leading to a decrease in net sales.^[2] Those two factors are mitigated by the fact that Pool Corporation's pool maintenance sales have remained relatively steady and have served to dampen the decreased performance from its pool construction division.

[edit] Business and Financials

Pool Corporation is the largest wholesale distributor of swimming pool supplies and equipment worldwide. Its business focuses on buying products from manufacturers and then selling them to its customers on terms that are more favorable than the customers would have been able to obtain otherwise.^[3] Pool Corporation sells products such as:

• pool maintenance products
• replacement parts
• packaged pool kids
• materials for pool construction and remodeling
• irrigation and landscaping products
• pool toys, games, furniture and grills^[4]

Pool Corporation is divided into 3 networks:^[5]

• the SCP Distributors network--composed of 157 locations, 11 of which are in Europe.
• the Superior Pool Products network--62 locations
• Horizon network--62 locations

The SCP and Superior networks sell pool supplies and equipment. The Horizon network sells irrigation and landscape products.^[6]

^[7]

The housing and credit crises of 2007 caused a decrease in Pool Corporation's net sales and income.^[8] Home values fell and credit became harder to acquire, meaning it was more difficult to get financing for construction. Also, abnormally long winters in the Northeast and wet weather in Texas and Oklahoma adversely affected construction and repair activities.^[9]

Pool Corporation's locations varied very little in fiscal year 2007. Of all its domestic locations, the greatest concentration are found in California, Florida and Texas.^[11] Therefore, factors such as abnormally wet weather in Texas as well as especially damaging hurricanes in Florida will have a much more adverse impact than if it happened in any other state, where the number of Pool Corporation locations is much smaller.

[edit] Trends and Forces

[edit] Pool Use, and thus Pool Corporation's Sales, are Heavily Weather-Dependent

Pool use is usually highest during the summer. However, unusually cold or wet weather can have a negative impact on sales. For example, Texas saw abnormally wet weather during the summer of 2007. Heavy storms kept people in their homes and out of the pool, thereby decreasing their use and adversely affecting pool installation and repair.^[12] Uncooperative weather patterns led to a 3% decline in sales last year.^[13]

[edit] Credit Crises Make it Difficult for Customers to Secure Financing

Consumer demand for pools has remained steady; however, since 2007 it has become harder to secure financing for home improvement.^[14] The credit crunch and housing crisis have made it more difficult for homeowners to find enough money to actually build pools. Thus new pool construction in the first quarter of 2008 decreased 30 to 50% in California, Florida, Arizona and Nevada from 2007^[15] and 60 to 80% from 2006.^[16]

[edit] Decrease in New Pool Construction Mitigated by Revenue from Other Divisions

Florida is one of Pool Corporation's most important markets. 48,000 new pools were constructed in 2005, and only 23,000 were constructed in 2007. This year only 13,000 pools have been built.^[17] In this market Pool Corporation's revenues from pool construction have taken a significant blow, dampened by their other businesses, namely pool maintenance, landscaping and recreational products. Those other businesses let Pool Corporation earn revenues of $800 million despite building fewer new pools.^[18] Arizona, on the other hand, is a younger housing market, and thus Pool Corporation does not have as much of a presence there, meaning it cannot rely on sales from pool maintenance and recreational products to cover losses from a drop in new pool construction.^[19] Thus, in some areas such as Florida, Pool Corporation is insulated from a decrease in new pool construction by its sales in pool maintenance products. However, in other markets where it does not have as much of a presence, the effect of a decrease in new pool construction has a much stronger effect.

[edit] Competition

• The data for Leslie's Poolmart is from 2006. It's the most recent data available.

Leslie's Poolmart is a privately-owned company that is in direct competition with Pool Corporation. They are the only two companies that sell pool products nationwide. The bulk of Pool Corporation's direct competition comes in the form of regional companies. Lowe's Companies (LOW) and Home Depot (HD) also compete with Pool Corporation, insomuch as pool equipment is concerned. They are both large department stores and thus their primary focus is not on pool equipment. However, their larger size gives them more access to money and distribution networks that are unavailable to Pool Corporation.

[edit] References

1. ↑ POOL 2007 10-K. Item 7, Page 16.
2. ↑ POOL 2007 10-K. Item 7, Page 16.
3. ↑ POOL 2007 10-K. Item 1, Page 1.
4. ↑ POOL 2007 10-K. Item 1, Page 3.
5. ↑ POOL 2007 10-K. Item 1, Page 4.
6. ↑ POOL 2007 10-K. Item 1, Page 4.
7. ↑ POOL 2007 10-K. Item 6, Page 15.
8. ↑ POOL 2007 10-K. Item 7, Page 16.
9. ↑ POOL 2007 10-K. Item 7, Page 16.
10. ↑ POOL 2007 10-K. Item 2, Page 10.
11. ↑ POOL 2007 10-K. Item 2, Page 11.
12. ↑ POOl 2007 10-K. Item 7, Page 16.
13. ↑ Pool Corporation Q2 2008 Earnings Call Transcript
14. ↑ "Pool Corporation Q2 2008 Earnings Call Transcript"
15. ↑ "Pool Corporation Q2 2008 Earnings Call Transcript"
16. ↑ "Pool Corporation Q2 2008 Earnings Call Transcript"
17. ↑ "Pool Corporation Q2 2008 Earnings Call Transcript"
18. ↑ "Pool Corporation Q2 2008 Earnings Call Transcript"
19. ↑ "Pool Corporation Q2 2008 Earnings Call Transcript"
20. ↑ Leslie's Poolmart Key Numbers-Hoover's
21. ↑ Leslie's Poolmart, Inc. Products and Operations Archive-Hoover's
22. ↑ POOL 2007 10-K. Item 6, Page 15.
23. ↑ POOL 2007 10-K. Item 2, Page 11
24. ↑ Portions of Lowe's 2007 Annual Report to Shareholders, Page 44
25. ↑ LOW 2007 10-K. Item 1, Page 5
26. ↑ HD 2007 10-K. Item 12, Page 59
27. ↑ HD 2007 10-K. Item 2, Pages 10-11