Residential swimming pool manufacturer Latham (NASDAQ:SWIM) reported Q1 CY2024 results topping analysts' expectations, with revenue down 19.7% year on year to $110.6 million. The company expects the full year's revenue to be around $505 million, in line with analysts' estimates. It made a GAAP loss of $0.07 per share, improving from its loss of $0.13 per share in the same quarter last year.

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Commenting on the results, Scott Rajeski, President and CEO, said, “Our first quarter results represented a good start to 2024 and reflected the benefits of Latham’s strong execution, cost savings, and lean and value engineering initiatives.

Started as a family business, Latham (NASDAQ:SWIM) is a global designer and manufacturer of in-ground residential swimming pools and related products.

Leisure Products

Leisure products cover a wide range of goods in the consumer discretionary sector. Maintaining a strong brand is key to success, and those who differentiate themselves will enjoy customer loyalty and pricing power while those who don’t may find themselves in precarious positions due to the non-essential nature of their offerings.

Sales Growth

A company’s long-term performance can give signals about its business quality. Even a bad business can shine for one or two quarters, but a top-tier one may grow for years. Latham's annualized revenue growth rate of 2.5% over the last three years was weak for a consumer discretionary business. Within consumer discretionary, product cycles are short and revenue can be hit-driven due to rapidly changing trends. That's why we also follow short-term performance. Latham's recent history shows a reversal from its already weak three-year trend as its revenue has shown annualized declines of 10.5% over the last two years.

This quarter, Latham's revenue fell 19.7% year on year to $110.6 million but beat Wall Street's estimates by 8.8%. Looking ahead, Wall Street expects revenue to decline 5.2% over the next 12 months.

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Cash Is King

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can't use accounting profits to pay the bills.

Over the last two years, Latham has shown mediocre cash profitability, putting it in a pinch as it gives the company limited opportunities to reinvest, pay down debt, or return capital to shareholders. Its free cash flow margin has averaged 8.5%, subpar for a consumer discretionary business.

Latham burned through $39.86 million of cash in Q1, equivalent to a negative 36% margin, reducing its cash burn by 63.2% year on year. Over the next year, analysts predict Latham's cash profitability will fall. Their consensus estimates imply its LTM free cash flow margin of 12.6% will decrease to 2.5%.

Key Takeaways from Latham's Q1 Results

We were impressed by how significantly Latham blew past analysts' adjusted EBITDA and EPS expectations this quarter. Zooming out, we think this was a great quarter that shareholders will appreciate. The stock is flat after reporting and currently trades at $2.99 per share.

So should you invest in Latham right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.