How Pool stacks up to Watsco

MBI and I recorded an episode of Never Sell recently (Big Tech Earnings) (Spotify, Apple, YouTube, RSS feed)

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Having just written up Watsco, I thought I’d offer some thoughts on revisit Pool Corp. given the similarities between the two businesses.

Pool Corp is a distributor of pool supplies and equipment. It sources ~200k SKUs from 2k+ suppliers¹ and sells them to 125k customers, who fall into one of three groups: service professionals, ~80% of Pool’s revenue, consist mostly of small, family-owned operators that maintain, repair, and install residential pools. Retailers make up another 14%, with about two-thirds coming from sales to roughly ~5k specialty pool stores and the the rest tied to Pinch-A-Penny’s 303 franchise locations, which sell products to homeowners and in some cases service their pools as well. Commercial customers – hotels, multifamily developments – represent the remaining 4 percent².

(Pool also distributes irrigation and landscaping supplies through Horizon, which it acquired in 2005, as well as hardscapes and other outdoor living products through NPT. But seeing as North America Pool, including sales to Pinch A Penny, comprise 90% of total revenue, the pool business will remain the focal point of this post).

The market for wholesale pool product distribution is fairly consolidated, with about half the industry’s revenue coming from two players. Pool is the largest by far, with what I estimate to be 35% of a $14bn wholesale market (residential + commercial). Heritage Pool Supply – a subsidiary of SRS, a Home Depot-owned³ rollup of building products distributors that derives ~2/3 of revenue from roofing – is the other relevant national peer. While just ~40% of Pool’s size by branches and 33% by revenue⁴, it appears just as, if not more, ambitious, having opened as many stores as Pool from 2021 to 2024 on a much lower base and acquired a greater number independent distributors to boot. Besides those two giants, there are several regional competitors of note, like Baystate in the Northeast, and Horner and Gorman in the Florida.

As with Watsco, Pool’s scale confers two major advantages. First, its national heft allows it to negotiate more favorable product rebates than smaller competitors and to do so across a broader range of SKUs. Second, its dense Sunbelt branch network⁵ makes it the most convenient and reliably stocked option for pool professionals, who typically operate on a just-in-time basis and will often begin their mornings at a Pool branch to replenish supplies, sometimes even visiting several more times during the day as they uncover unexpected issues from one job to the next.

As well as being close by and deeply stocked with relevant products, Pool’s branches are also staffed by competent folks who understand the products, a critical consideration seeing as 70% of transactions take place inside a branch. Know-how is preserved through unusually long tenures, averaging around 7.8 years across all employees, more like 21 years at the management tier. Given how much speed and availability matter to pool pros, branch-level bonuses are tied to turnaround times at the counter and product stockouts. The combination of store density, volume-driven product rebates, and operational excellence yield excellent returns, with branches typically hitting mid-teens operating margins and ~25% ROICs within four years of opening.

Another noteworthy parallel with Watsco is that Pool doesn’t just supply contractors with product, but increasingly builds the software they use to run their businesses. That effort began in the mid-2010s with POOL360, which let pros search inventory and place orders online. In 2023, Pool expanded the software toolkit with POOL360 WaterTest, which generates water-treatment recommendations from pH, chlorine, alkalinity, and other chemistry readings taken by a technician or retail associate. WaterTest not only provides fast, consistent testing but also pulls through high-margin sales since its recommendations – surprise! – prioritize Pool’s private label chemical lines (Regal, EZ Chlor, Life).

Finally, a year later, Pool launched the most ambitious of its pro-facing tools, POOL360 Service, which is pitched as an “operating system” for pool-service operators, used to dispatch technicians, optimize routes, schedule recurring orders, provide quotes, invoice and collect payments, and so on. The idea is that by embedding itself in a service professional’s daily workflow, Pool reduces the incentive to shop elsewhere and captures a greater share of their supply spend. So, a typical job might look something like this: a service operator receives a request and dispatches a technician through POOL360 Service. At the customer’s home, the technician finds cracked filters and malfunctioning underwater lights. He runs a water test with a handheld photometer and uploads the results to WaterTest, which converts the readings into precise chemical prescriptions and dosages. Still within Service, the technician documents the work, generates an electronic invoice, checks the stock of filters, lights, and chemicals at nearby Pool branches, and places a replenishment order before leaving the property.

But though a dense branch network, skilled store associates, and software tools insulate Pool from competitive inroads, they do no immunize the company from the macro. Although Pool has long pitched itself as a predictable, maintenance-oriented business, with revenue largely sourced from recurring service work, the revenue and margin swings of the past five years offer a reminder that there is more going on beneath the surface. The degree to which Pool’s fortunes track the housing cycle becomes clearer when you look at the mix of work being performed at any given time.

In 2024, Pool’s revenue mix by application was as follows:

Maintenance and repairs – 64% (non-discretionary)

Renovation and remodel – 22% (somewhat discretionary)

New construction – 14% (discretionary)

Maintenance and repairs – the light upkeep required to keep a pool swimmable – is the least economically sensitive source of demand and new construction is the most, while R&R sits somewhere in between. Chemicals – the single largest product line for Pool, accounting for 13% of its revenue – along with filters, repair components, and other small-dollar items fall firmly within the maintenance category. But other products can land in different buckets depending on the reason they’re being bought.