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Pool (POOL -6%) sinks to 52-week lows today after slashing its FY24 guidance, creating a ripple effect across the industry as peers Latham Group (SWIM) and Leslie's (LESL) turn lower. The pool supplies and equipment maker operates in a highly discretionary and seasonal field, forming a drought since demand spiked during the pandemic. Most markets where POOL operates, including North America and Europe, experience annual weather unfit for swimming, eliminating many households from ever discussing the desire to add or purchase a home with a pool. At the same time, pools command significant upkeep and maintenance throughout the year, making them much more of a headache during an inflationary environment.

Meanwhile, the housing market continues to be bogged down by elevated interest rates. POOL mentioned in late April that interest rates have weighed heavily on new pool starts, reflected by a 15-20% drop in permits yr/yr in Q1, more than management expected. These headwinds have generated choppy waters for POOL. After enjoying a powerful rally in November underpinned by the enthusiasm surrounding interest rate cuts in 2024, shares of POOL have declined as rapidly as they rose, giving up around 30% since late March highs.

• POOL's reduced guidance is particularly frustrating today, given its remarks from late April when management expressed confidence that easier yr/yr comps and early signs of a bottom materializing across several of its markets would lead to FY24 construction levels in line with its initial outlook of flat to down 10%. POOL further added that consumer interest had already rebounded in key markets.
• However, new pool construction and remodel activity failed to trend as management had anticipated, driving its slashed guidance. The company now expects FY24 EPS of $11.04-11.44, down from its previously raised guidance of $13.19-14.19 and below its initial $13.00-14.00 outlook from February. Furthermore, POOL believes new pool units could plunge by 15-20% yr/yr in FY24, far worse than the possibly flat outlook previously issued.
• On a lighter note, POOL commented that non-discretionary and recurring pool maintenance demand remains steady. While this is not much of a silver lining, it is uplifting that consumers continue to choose POOL for maintenance as it helps drive further organic market share capture.
• Management also remarked that despite the numerous economic headwinds, it is confident that the appetite for swimming pools and outdoor living projects remains strong, leading to an eventual uptick in overall industry growth.

POOL may be right about a more substantial base of consumer demand for swimming pools. The pandemic sparked a migration to the suburbs, prompting a renewed desire for swimming pools. Like other outdoor lifestyles, such as camping and skiing, COVID likely produced a secular tailwind, permanently shifting demand. However, macroeconomic conditions since the pandemic have deteriorated, dampening the short-term lust for these highly discretionary outdoor activities. As such, while POOL's recent sell-off offers a compelling entry point for the long run, short-run challenges paint a cloudy picture, which could throw several obstacles in POOL's path in turning around its business.