Latham Group (SWIM) Q3 2025: Gross Margin Expands 300bps as Fiberglass Penetration Hits 75%
Latham outpaced a flat U.S. pool market with broad-based growth and substantial margin expansion, powered by fiberglass adoption and operational leverage. Tariff mitigation and proprietary digital tools drove further resilience, as the company sharpened its focus on Sand State expansion and disciplined capital allocation. Guidance signals confidence in outperformance despite industry headwinds.
Summary
- Fiberglass Pool Penetration Accelerates: Latham’s fiberglass pools now drive 75% of in-ground sales, fueling share gains.
- Margin Structure Strengthens: Lean manufacturing and value engineering delivered a 300bps gross margin expansion.
- Sand State Expansion Gains Traction: Dealer conversions and new builder partnerships lay groundwork for multi-year growth.
Performance Analysis
Latham delivered 7.6% revenue growth and 28.5% adjusted EBITDA growth, decisively outperforming a U.S. in-ground pool market that remains flat to slightly down. All three product lines—fiberglass pools, covers, and liners—grew year-over-year, with covers up 15% and liners up 13%. Notably, fiberglass pools now represent approximately 75% of in-ground pool sales, up from prior years, and are estimated to reach 24% of total U.S. in-ground pool sales in 2025. This shift reflects both consumer preference for ease of installation and dealer labor constraints.
Gross margin expanded by 300 basis points to 35.4%, driven by the accretive impact of CoverStar acquisitions, operational efficiencies, and successful tariff mitigation. Adjusted EBITDA margin rose to 23.7%, up 390bps, supported by disciplined SG&A and robust cash generation. SG&A remained stable despite increased investments in marketing and ERP infrastructure, demonstrating cost control even as Latham invests for future growth. The company ended the quarter with $71 million in cash and a net leverage ratio of 2.3, targeting a further reduction to 2.0 by year-end.
- Product Mix Shift: Fiberglass pools’ share of sales now materially outweighs vinyl, positioning Latham for higher-margin growth.
- Digital Tool Adoption: The proprietary Measure Pro and Measure Go apps are driving liner and safety cover share gains, with 25% of tool buyers new to Latham.
- Geographic Diversification: Strong sales in Florida and other Sand States offset softness in Texas and California, with new builder partnerships expanding reach.
Operational leverage and a diversified portfolio enabled Latham to outperform both macro and industry-specific headwinds, while investments in digital tools and Sand State market penetration set the stage for continued share gains.
Executive Commentary
"This was another strong quarter for Latham. Net sales were up 7.6% year-on-year, significantly outpacing the U.S. in-ground pool market, which we expect will be flat to slightly below 2024 levels... These results highlight Latham's competitive strengths, our diversified product portfolio, and the actions we have taken to position the company for continued growth."
Scott Rajewski, President and Chief Executive Officer
"Gross margin expanded by 300 basis points to 35.4% in the third quarter, primarily due to the accretive benefit of the three cover stack positions and the continued success of our lean manufacturing and value engineering initiatives in driving production efficiencies."
Oliver Glow, Chief Financial Officer
Strategic Positioning
1. Fiberglass Pool Leadership and Labor Arbitrage
Fiberglass pools, pre-fabricated in-ground pools, now comprise 75% of Latham’s in-ground pool sales, up from prior years, as installers increasingly favor faster, less labor-intensive installations. Latham’s broad product range and cost/maintenance advantages are resonating with both dealers and consumers, particularly as labor shortages persist. The company’s marketing highlights that fiberglass pools can be installed with two-thirds fewer workers and in a fraction of the time compared to concrete.
2. Digital Tools Driving Share Gains
Measure Pro and Measure Go, proprietary AI-powered measurement apps, are accelerating share gains in liners and safety covers. These tools cut installer measurement time from hours to minutes and are fully integrated into Latham’s order system, streamlining the customer experience. 25% of tool buyers were new to Latham this year, indicating the technology’s role in winning new business and supporting higher-margin product lines.
3. Sand State Market Expansion
Sand States, U.S. sunbelt regions with high pool demand, remain a multi-year growth priority. Latham reported high single-digit sales growth in Florida, driven by master-planned community (MPC) penetration and partnerships with custom home builders. Dealer conversions from concrete to fiberglass are accelerating, and the company is building brand presence through local events and direct engagement.
4. Tariff Mitigation and Pricing Discipline
Tariff exposure, primarily from imported components, was neutralized through a combination of supply chain mitigation and a targeted price increase, preserving margins despite ongoing trade uncertainty. Management expects to return to a normal cadence of annual price increases if the tariff environment stabilizes.
5. Capital Allocation and Balance Sheet Strength
Disciplined capital allocation, including opportunistic M&A, organic growth investments, and debt reduction, remains a core pillar. The company’s net leverage ratio is set to reach 2.0 by year-end, providing flexibility for further acquisitions or strategic investments.
Key Considerations
This quarter reinforces Latham’s structural advantages in a challenging market, with operational discipline and innovation supporting both top-line and margin expansion.
Key Considerations:
- Fiberglass Penetration: Ongoing dealer conversions and consumer adoption signal further upside for high-margin fiberglass pools.
- Digital Differentiation: Proprietary measurement tools are unlocking share gains and efficiency in liners and covers.
- Geographic Opportunity: Sand State growth, especially in Florida, is still in early innings and could accelerate as more builders convert.
- Margin Durability: Lean manufacturing and value engineering are embedding structural cost advantages, not just temporary gains.
- Resilient Cash Generation: Strong cash flow and a reduced leverage ratio enhance optionality for future M&A or organic investment.
Risks
Macro uncertainty, including interest rates and consumer confidence, could delay pool purchase decisions despite strong lead generation. Tariff volatility remains a persistent risk, though recent mitigation actions have stabilized exposure. Geographic concentration in Sand States introduces weather and regulatory risk, and softness in Texas and California could offset gains elsewhere. Dealer and installer labor shortages could constrain growth if not managed through continued product innovation.
Forward Outlook
For Q4 2025, Latham guided to:
- Net sales between $540 million and $550 million (7% YoY growth at midpoint)
- Adjusted EBITDA between $92 million and $98 million (19% YoY growth at midpoint)
For full-year 2025, management maintained guidance:
- CapEx revised to $22 million to $24 million
Management highlighted:
- Confidence in outperformance versus a flat to down market, driven by fiberglass and auto cover adoption
- Structural margin gains expected to persist as pool starts recover to historic levels
Takeaways
Latham’s outperformance is rooted in structural shifts—fiberglass share gains, digital tool adoption, and margin expansion—not just cyclical tailwinds.
- Margin Expansion: Operational leverage and cost initiatives are embedding higher profitability, not just benefiting from temporary price actions.
- Strategic Market Entry: Sand State progress, especially dealer conversions and builder partnerships, is setting up multi-year growth.
- Watch for Acceleration: As pool starts normalize and Sand State penetration deepens, Latham’s margin and share gains could compound further.
Conclusion
Latham’s Q3 results validate its strategy of margin-focused growth, digital innovation, and disciplined expansion in high-potential regions. The company’s ability to outperform a stagnant market underscores its competitive moat and sets a strong foundation for future upside as macro conditions improve.
Industry Read-Through
Latham’s results highlight the growing dominance of fiberglass pools as labor shortages and installation speed become decisive in the U.S. pool market. Digital tool adoption is accelerating share shifts in traditionally fragmented segments like liners and covers, signaling a broader industry trend toward tech-enabled efficiency. Margin expansion through lean manufacturing and value engineering is increasingly a differentiator, not just for Latham but for all building products companies facing cost and tariff volatility. Sand State market penetration remains a key battleground, with success hinging on dealer conversion and local builder partnerships—an approach other industry players may need to emulate to capture growth in a flat demand environment.