Latham Group (SWIM) Q2 2025: Cover Sales Surge 46% as Margin Expansion Accelerates
Auto covers and liners drove standout growth for Latham Group in Q2, offsetting softness in in-ground pools and highlighting the company’s ability to expand margins even in a trough pool market. Strategic investments in Sand States and proprietary tools are building a foundation for future share gains as demand conditions normalize. Management reaffirmed full-year guidance, signaling confidence in the structural improvements underpinning profit leverage for the next cycle.
Summary
- Auto Cover Growth Outpaces Market: Organic and acquisition-driven cover sales sharply outperformed, validating Latham’s category focus.
- Margin Expansion Signals Structural Shift: Operational efficiency and value engineering delivered a 400 basis point gross margin jump.
- Sand State Penetration Builds Optionality: Dealer expansion and targeted marketing in Florida and Texas set up future revenue upside.
Performance Analysis
Latham Group delivered a robust quarter with net sales growth of 7.8% year-over-year, propelled by a 46% surge in cover sales and solid 5.8% liner sales growth. Notably, in-ground pool sales declined modestly, reflecting adverse weather and a soft market, but the impact was more pronounced in traditional package pools than fiberglass. Fiberglass pools are now expected to comprise 75% of in-ground pool sales for the year, underscoring the company’s strategic shift toward this higher-growth, lower-labor category.
Gross margin expanded by 400 basis points versus last year, reaching 32.1% for the quarter, driven by volume leverage in covers and liners, ongoing lean manufacturing, and accretive acquisitions. SG&A expenses rose, reflecting increased marketing and personnel investments to support the Sand State strategy and digital initiatives. Adjusted EBITDA margin improved 160 basis points to 23.1%, demonstrating that Latham’s efficiency gains and mix shift are translating into real operating leverage even as the broader pool market remains subdued.
- Cover Sales Acceleration: Recent acquisitions and rising auto cover adoption fueled outsized growth, with covers now a key profit engine.
- AI Tool Adoption Drives Liner Gains: The Measure by Latham tool, an AI-powered measurement and quoting solution, is expanding dealer network and market share in liners and covers.
- Weather and Market Headwinds Persist: In-ground pool sales remain pressured by delayed builds and weak consumer confidence, especially in entry-level segments.
Cash flow and balance sheet strength provide ample flexibility for continued investment and opportunistic M&A, with capex focused on new product models and Sand State manufacturing capacity.
Executive Commentary
"Our lean manufacturing and value engineering initiatives have structurally changed our business model and are an important factor enabling us to achieve significant leverage as industry conditions improve."
Scott Rajesky, President and Chief Executive Officer
"We are very pleased with the organic growth in auto covers, obviously in addition to the impact of the acquisitions. We expect that to continue to benefit. And then, as we said, fiberglass returning to year-over-year growth."
Oliver Glow, Chief Financial Officer
Strategic Positioning
1. Category Leadership and Portfolio Diversification
Latham holds the number one share in every subcategory it competes in, with a diversified product portfolio spanning fiberglass pools, auto covers, and liners. This breadth allows the company to offset cyclical softness in core pool builds with growth in aftermarket and adjacent categories.
2. Sand State Expansion
The “Sand State” initiative targets underpenetrated, high-growth markets in Florida and Texas, where two-thirds of annual US pool starts occur. Latham added dealers, expanded product offerings, and ramped up marketing, driving a 20%+ increase in dealer leads and positioning for market share gains as demand recovers.
3. Technology-Enabled Dealer Network
Measure by Latham, the proprietary AI-driven measurement tool, is attracting new dealers and improving installation efficiency, supporting liner and cover share gains. Integration with order entry and quoting further embeds Latham in dealer workflows, creating a stickier channel and data-driven competitive moat.
4. Operational Excellence and Margin Structure
Lean manufacturing and value engineering have structurally improved Latham’s cost base, allowing for significant margin expansion even at trough volumes. Acquisitions, especially in auto covers, have contributed accretive margins and are now fully integrated.
5. Capital Allocation Discipline
Management prioritizes reinvestment in the business, targeted M&A, and debt reduction, with a strong balance sheet supporting ongoing strategic flexibility. Capex is focused on product innovation and capacity to support Sand State growth.
Key Considerations
Latham’s Q2 showcased the company’s ability to drive profitable growth in non-core categories while laying groundwork for a stronger rebound when the pool cycle turns. The mix shift toward auto covers and liners, combined with operational discipline, is muting the impact of broader market weakness.
Key Considerations:
- Auto Cover Penetration: Regulatory changes allowing auto covers in lieu of fencing are boosting adoption, with penetration still in the low 20% range, leaving ample runway.
- Labor Scarcity Tailwind: Lower labor requirements for fiberglass pools are attracting both consumers and concrete pool builders, especially as labor shortages persist for traditional builds.
- Marketing ROI and Lead Generation: National campaigns and digital engagement are driving a substantial increase in leads and consumer intent, particularly in targeted Sand States.
- Tariff Mitigation: Supply chain actions and selective pricing have largely neutralized tariff headwinds, with margin impacts described as broadly neutral.
- Backlog and Dealer Health: Fiberglass backlog and dealer activity remain stable, with lead times short and dealer network expanding, positioning Latham for share gains as demand returns.
Risks
Persistent demand softness and consumer confidence challenges could prolong the pool market trough, delaying full realization of Latham’s operating leverage. Entry-level pool sales remain weak, and adverse weather or permitting trends in key regions can disrupt seasonal builds. Ongoing tariff volatility requires continued supply chain agility. Competitive dynamics, particularly from alternative pool materials or aggressive pricing, could pressure share gains in core categories.
Forward Outlook
For Q3 2025, Latham guided to:
- Continued organic growth in auto covers and liners, with safety cover season expected to be strong.
- Fiberglass pools returning to year-over-year growth in the back half, supported by increased leads and dealer ramp-up.
For full-year 2025, management reaffirmed guidance:
- 8% net sales growth and 19% adjusted EBITDA growth at the midpoints.
Management highlighted several factors that support guidance:
- Full integration and ongoing contribution from recent Coverstar acquisitions.
- Lean manufacturing and value engineering continuing to drive margin expansion.
Takeaways
Latham’s execution in auto covers and liners is offsetting cyclical pool market weakness, with margin gains validating operational strategy.
- Category Expansion: Auto covers and liners are now key growth and margin drivers, helping Latham outperform the market even as pool starts remain below long-term averages.
- Sand State Progress: Dealer and lead gains in Florida and Texas are building a foundation for future revenue acceleration as market conditions improve.
- Cycle Leverage: Structural cost improvements and category mix position Latham for significant profit expansion when pool demand normalizes, providing asymmetric upside for long-term investors.
Conclusion
Latham’s Q2 results underscore the resilience of its diversified model and the effectiveness of its operational transformation. As the company gains share in high-potential categories and geographies, it is positioned for outsized earnings growth when industry volumes recover.
Industry Read-Through
Latham’s margin expansion and growth in auto covers highlight the importance of category adjacencies and aftermarket products for pool industry players navigating cyclical downturns. The success of digital tools like Measure by Latham signals accelerating dealer digitization and workflow integration trends. Regulatory shifts favoring auto covers over fencing may spur similar adoption and marketing strategies across the industry, while labor constraints continue to drive material shifts toward fiberglass and other lower-labor pool solutions. Competitors should heed the operational leverage and capital discipline demonstrated by Latham as the market awaits a broader demand rebound.