Pool Corp (POOL) 2007 Q1 法說會逐字稿

Good morning. My name is Lynn, and I will be your conference operator today. At this time, I would like to welcome everyone to the Pool Corporation first quarter earnings results conference call. OPERATION INSTRUCTIONS I would now like to turn the conference over to Mr. Mark Joslin, Pool Corporation Chief Financial Officer. Please go ahead, Sir.

Thank you, Lynn. Good morning, and welcome everyone. Before I get started this morning, I would like to remind our listeners that our discussions, comments and responses to questions today may include forward-looking statements, including management's outlook for 2007 and future periods. Actual results may differ materially from those discussed today. Information regarding the factors and variables that could cause actual results to differ materially from projected results is discussed in our most recent form 10-K as filed with the SEC. Now I'll turn the call over to our President and CEO, Manny Perez de la Mesa. Manny?

Thank you, Mark. And thank you, all, for joining us our first 2007 results conference call. I would like to start by providing a perspective on sales by month and then touch on-- by each market area.

Ice storms in Texas and Oklahoma and significantly colder temperatures than last year's mild January and February resulted in our base business sales, being essentially flat, versus last year's January and February. As we had warmer temperatures in the second half of March, that enabled us to increase our base business sales in the month of March by approximately 7%. More importantly, in the month of March, our sun belt market sales were up 10%, while snow belt market sales were flat, given the carry-over adverse weather impact from January and February. These results demonstrate once again, that weather is the most significant external factor affecting our business in the short-term.

Our lower complementary product sales in the quarter were the result of several factors. First, a high 36% comp from the first quarter of 2006, reduced pool building as a percentage of our total sales, given the weather and certain local market declines, and third, lower commodity prices affecting product lines, like pipe as an example. Overall, our 4% base business sales growth on top of last year's 15% growth was in line with our own internal expectations and we believe, once again, greater than the overall market performed in the quarter. Our expectations for the year are unchanged from what was communicated in February, based on what we've seen to date including the first couple of weeks of April.

Next, to review gross margins, these were, as anticipated, lower than last year's first quarter due primarily to first, a tough comp given last year's 100 basis point increase versus first quarter of 2005. Second, a reduced early buy and early pay benefits versus what were realized in last year's first quarter. Third, a reduced estimate for gross-to-net cost adjustments and incentive on vendor purchases, given what we saw for all of 2006. We expect that gross margins will be modestly up for the year as these factors work themselves out on a comp basis during the year.

Perhaps the biggest disconnect, with street estimates, lies in where our operating expenses were in the quarter. The increase in expenses are attributable to several key factors. The most significant is the opening of 24 new sales centers in the past 15 months. Most of these openings were evaluated for several years before we made the investment decisions in 2005 and 2006, roughly a year before we actually opened them, and we are confident in that they are yield any long-term financial terms we are accustomed to. Of course, in the short-term the returns are lower, or, in fact, negative in the first year, and certainly a drag from a negative leverage standpoint in the seasonally slower first and fourth quarters. The expansion or relocation of almost 40 sales centers over the last 15 months to enable us to handle growth in the future, which, together with the new sales centers, have added over 1 million square feet of distribution, a greater than 15% increase in our distribution capacity as a second consideration or a second factor that also resulted in higher operating expenses.

And third, the selective addition of resources to help drive our growth initiatives, including complementary products, our Backyard Place retail initiative, new technology to better manage and better serve both our customers and our suppliers, our continued focus on management, training, and development, all of these things are factors that also played into our higher operating expenses. Overall, our expenses were consistent with our own expectations with a logical, again, negative leverage, in the seasonally slower first and fourth quarters. The bottom line from all this, is that we continue to project 15 to 20% earnings per share growth for 2007. Of course, we will take the appropriate actions during 2007 as necessary to ensure that we address short-term inefficiencies without compromising our long-term growth and return.

On the balance sheet side, our accounts receivable inventory where, as we expected, we are poised for the seasonal increase in sales of the second quarter. Debt is higher, given primarily the $170 million in share repurchases of the past year. But we are still under-leveraged and well within my comfort zone from a debt standpoint standpoint.

All in all, we continue to make progress but we still have a long way to go. At this point, the emphasis is on providing exceptional value to our customers and our suppliers in the 2007 season. Simultaneously, we are evaluating and prioritizing the many growth opportunities available to us. Fortunately for us, the opportunity pipeline is robust and our challenge is having the discipline to ensure we execute effectively, while also addressing the prioritized opportunities. Now I'll turn the call over to Mark for his financial commentary. Thank you, Manny. I would like to start off our-- by providing a little color around our balance sheet and cash flow, then updating you on our share repurchase activity. Heading into the heart of the pool season, our two main assets inventory and receivables, remain well controlled. Total receivables of 231 million increase 9% over 2006, reflecting our increase in sales, particularly late in the quarter. The quality of these receivables remain strong with approximately y 90% current, which is consistent with Q1 2006. Our DSO for same basis sales improved to 33.2 days sales outstanding in 2007 from 34.0 days in 2006, as calculated on a trailing 12-month basis.

Looking at inventories, our Q1 2007 inventories of 413 million grew just 2% over 2006 levels, as the Q1 2006 inventory levels was a bit high, reflecting our heavy Q4 2005 early buy. On the liability side of our balance sheet, accounts payable are approximately $60 million higher than 2006 primarily because of the accelerated timing of our payment for early-buy shipments in 2006, compared to a more normalized payment schedule in 2007.

Our debt levels have increased by approximately 120 million over 2006 due primarily to our share repurchase program. As previously announced, we expanded our debt capacity in February, with $100 million private placement. Looking at our cash flow statement, you see that the main change between years is in the accounts payable balance, While this benefited Q1 cash flow, we expect to give some of that back in Q2 as we make our early-buy payments. For the full year we expect to generate operating cash flow of 80 to $90 million excluding any unusual year-end, early-buy activity.

Now let me summarize our share repurchase activity. For the first quarter we repurchased 1.726 million shares at an average price of $35.56 per share, totaling $61.4 million. Since March 31st, we purchased an additional 131 thousand shares for an additional $4.7 million, leaving us with 27 million of available capacity under our current $100 million board authorization. Over the past 12 months, we've repurchased 4.451 million shares of our stock as mentioned by Manny for $170 million, which represents 8.5% of our basic shares we are had outstanding at March 31, 2006. While we believe this repurchase activity adds value to our share holders over the long term and will improve our full year of 2007 EPS. The impact on our seasonally low-profit first quarter was to reduce our EPS by 2 [inaudible] .

At this point, I'll turn the call back over to our operator, Lynn, to begin the question

OPERATOR INSTRUCTIONS

Your first question comes from Anthony Lebiedzinski with Sidoti & Company.

Good morning. In the press release, you mentioned the decline in pool construction in some markets. I was wondering if you could discuss where are the biggest laggerts, and maybe if you could just give a little bit of color, also on the second-quarter trends as well.

Sure, good morning, Anthony. Good morning. In terms of new pool construction, new pool construction is down in certain markets within Florida and then other spot markets in the west as well. New pool construction is up, on the other hand, in most of the southeast and-- and other parts of the country. So overall, what happens here is that the impact to us is really more on the construction product side, and where we have a high percentage of our sales-- or higher percentage of our sales in construction products, like we do in Florida, that's where we have a greater impact.

But overall-- and I think this is an important point to make and reiterate, overall in the month of March, which in the sun belt had more normal weather as compared to most Marches in the course of-- or in this year, in the month of March, our sun belt sales overall were up 10% in the month versus last year's March. So I think that's indicative of, really-- more of the trends overall, and that includes the fact that Florida and a few other markets are down in new pool construction, but maintenance repair/replace is the biggest part of our business and that's fine and steady. Uh-huh, and as far as second quarter, anything you can mention? Second quarter, the sun belt is, again, moving along. I think the biggest impact-- adverse impact in the first two weeks is the adverse weather that you have experienced in New York and the better part of the north. The snow belt still has not gotten off the ground yet, and again, their sales were flat in the month of March, and down versus last year in January and February. So again, weather is a significant factor for us, and-- external factor for us, but I know that you look forward to warmer weather in New York where you are. And so do I. Okay. Now as far as the new sales centers that you have opened, as the year progresses, do you expect that to be less of an earnings drag? Yes, in fact that's-- that's great observation, Anthony. The locations that we opened up last year, and the first year-- there are a drag just about every quarter, but-- and we would expect that the 17 locations that we opened up last year, while they will be a drag in the first and fourth quarter, given the seasonality of our business, they should be break even or slightly positive in the second and third quarter. The seven locations that we booked up so far in 2007, those will be a drag, pretty much throughout the whole year, but that drag will be less than the drag that-- that we had last year when we had 17 locations open in the year. Do you expect to open any additional sales centers this year? Yes, we have several more on track for opening-- our expectations for the year once we-- by the time the year is done we'll have 10 to 12 locations open for the year. Okay. My last question in regards to the base business sales. Was there any impact from inflation within the 4% increase. Negligible impact in the first quarter. Okay. Thank you so much. Thank you.

Your next question comes from Jeff Germanotta with William Blair.

Thank you. My question has been answered.

Your next question comes from David Mann with Johnson Rice.

Yes, good morning Manny and Mark.

Good morning, David.

Good morning David.

My question relates to the complementary products decline. Can you talk a little bit more about that? Do you have a revised plan for the full year? Do you still expect to get to 10% of sales? And also can you elaborate on how that affect of the decline affected your mix and therefore the gross margin?

Well, you through up several angles there David. Yes. Which is typical for you as you think these things through.

I don't-- we are doing better over all and we believe are continuing to gain share with complementary products overall. Specifically construction products as well as with spas and other lines of product. I look at the first quarter as being, in part, an anomaly. I look at that anomaly based on the fact that obviously weather adversely affected us, particularly when you compare it to last year.

Second, the fact that-- it is in fact some of the market where we were doing particularly well in construction products and continue to do, relatively speaking, particularly well with construction products, that is where we saw some of the declines in new pool construction. I don't believe that that impact is a long-term impact. I see that as-- in both cases as blips, and when you look at the overall year, I would certainly expect that our-- our construction product sales will grow at a faster rate than our overall sales, and should get to, if not exactly to 10%, certainly very close to 10% of our overall business. Therefore you wouldn't necessarily expect any real mix shift in the next couple of quarters? Not from the kind of mixed changes that we have been seeing with the growth of construction products and spas and other products as part of our total business over the last several years. Those mild changes taking place gradually over the course of that against the past 3. 4. 5 years, we'll continue to see those changes. Okay. And, in terms of the first quarter-based-business growth, if I understand what you just said correctly, the complementary products performance was perhaps below what you would have expected? So where did you see other growth that helped offset that, that helped make your internal plan. Oh, sure. Across the board. I mean, when you look at our business and you look at our sales for traditional products, we have a number of product categories that grew obviously more than 4% to compensate for our complementary products field being down. That includes everything from chemicals to pumps, to accessories, so there's a broad range of categories that grew at a rate faster than 4% to compensate.

Certainly, the Horizon side of the business also contributed to that, with sprinkler and landscape products growing as well, better than 4%. And Horizon was fully included in the comp for the quarter. Horizon West-- what we call Horizon West, now which was the original Horizon transaction that we made in October of 2005. The Wickham transaction that we did in August of 2006, is the lion's share-- or a significant portion of the-- of the acquired business numbers reflected as an addendum to the press release. One last question, in terms of pool construction trend for the year, would you still expect this year to be relatively flat with last year? I would say that given the lost days of construction in the northern markets, since they are getting off to a slow start, if you assume a-- a normal weather year with a snow storm of some sort beginning to shut things down in the-- you know, varying parts of the fourth quarter, I would expect that this year's new pool construction business would be down, probably 5 to maybe as high as 10%, and again, that's primarily given the lost days of production in February and March. Very good. Thanks, Manny. Thank you.

Your next question comes from Kathryn Thompson with Avondale Partners.

Great. Thanks. First, in your previous conference call you were able to give what your base business growth was in your top four states. I was going to see if you can do that again. And also do you still expect high single-digit based business growth in '07?

I'll give you that in a generic way. California, Arizona, and Texas were all up despite the ice storm that hit Texas in January with spill=over effect in to February. Despite that, California, Arizona, and again, Texas were all up over the 4% company average for the quarter. Florida was modestly less than last year in the quarter. So it was down? I'm sorry? So Florida was down for the quarter. Florida was down in the quarter, yes. Single digits thereabouts? Mid-single digits. Frankly, I don't have that number in front of me, but looking at the monthly numbers it would be somewhere in the single-digit category, yes. Okay. Do you still expect high single-digit growth for base business in '07? Yes, the 7 to 9% that we communicated in February? Yes. Yes with that being weighted more towards the second half of the year and not so much in the first half, given the tougher comps that we have in the first half of the year. With the first quarter, obviously, being the toughest comp for the year. Also do you still expect about a 30-basis point impact on gross margins in the first half of the year because of the vendor pricing carry over? You are talking about an adverse impact from both the benefit that we realized last year, both in terms of early buy as well as early pay? That's correct. As well as the adjustment that we made at year end in the fourth quarter when we trued up the gross to net on-- on incentives and all the various sorts of cost adjustments? Correct. In the past you had expected about a 30 basis point impact on gross margins and this past quarter it was obviously about a 40 basis point impact, and I was just trying to see-- do you still think it will be about a 40 basis point impact in the first half of '07? Approximately, yes. Okay. Due to those two reasons. Okay. Wait-- with recovery in the second half of the year. Yes, okay.

Also earlier in the call-- in your prepared comments, you said that the buyback had a $0.02 negative impact-- did you have a misspeak-- it should be a positive impact? No, it's a negative impact, when you have a seasonal business with very low earnings, or in the case of the fourth quarter or negative number, when you have that kind of scenario, although your denominator for in the calculation decreases a little bit by the share repurchases, the numerator is not significant enough when you factor in the incremental interest expense. So in fact, in the first quarter, we had a little bit-- just over a $0.02 hit because of the share repurchases we have made over the past two months. Okay. If you factor going forward for the year-- and correct me if this logic is off-- but it looks like it could be anywhere from a 3 to $0.05 positive impact for the year, taking in to account your 130 or so million you purchased since March. Are we on the right path on thinking of the overall impact that way? For the shares? Yes, you are. In fact, it's certainly accretive for the year, with the accretion happening in the second and third quarters, and it's dilutive in the first and fourth. But, the overall total net for the year is in the range that you just mentioned. Okay.

And also, just given April's been a little bit tougher start in your northern markets, and we're kind of in the shoulders of the pool season, how do you reconcile a slower start in the northern markets and anticipated overall 5 to 10% decline in pool starts for the year, with your current guidance? Well-- -- a little bit-- where you-- where am I missing where there may be some pockets of strengths. Well, there are pockets of strengths in many areas. First, just to look at a base of reference, and you can get at the answer in many ways, but one way is, you look at our first quarter results. And, you probably couldn't have had a worse weather comparison year-on-year than we had in the first quarter. Last year's first quarter was incredibly mild in the north, and this year was normal, if not worse than normal. In many parts of the mid-west and other markets in the northeast, the extent of the temperature from a cold standpoint, was much worse than normal. So when you look at the comparison from a very very good weather first quarter last year, to a certainly worse-than-average first quarter this year, when you look at that comparison and the fact that we did 4% base business growth on top of last year's 15%, or an aggregate of 19-plus percent over a two-year period, that then is taking one snapshot. And then, you look at last year, and you look at last year's overall year when we had 10% growth, and you look at that 10%, if you take a two-year normal of-- of that we have experienced in the first quarter of 19 and you take 19 minus 10, you get roughly an 8 to 9% type of year-on-year growth. So that's-- that's aspect Number One.

Second aspect is the fact that new pool construction as-- as you know very well is a-- a minority or a smaller component of our total business, and a lot of the lost days, which drives my expectation for the year in terms of new pool construction, a lot of-- of those lost days and-- and decreased levels were in fact realized in the first quarter given the fact that pool building, for example, in many northern markets is behind three, four weeks, where they were last year. So, that-- and that also, by the way, includes decreased in Florida, so you look at those factors in considerations, the a fact that we are where we are is, again, indicative of several factors. One, our broad-based business. The fact that in a number of markets pool construction is up, namely the southeast, and a number of other markets throughout the country; secondly that the lion's share of our business-- and in fact not anywhere tied to new pool construction, but it's really the maintenance, repair/replace aspect of our business where that is a very predictable base of growth, and while certainly weather affects that, in terms of when people open up their pools, in the northern markets,the sun belt markets, which is, again, the most predictable, less seasonable component of our business, March, which we'll call it a clean apples to apples comparison, we were up 10% year-on-year.

So, we expect-- in a nutshell, we expect that there will be some adverse impacts. There will be the adverse impact of the-- the lost production days, year to date. The bad weather, relatively speaking, experienced primarily in the sun belt here to date; the decline in new pool construction in Florida. Those factors are weighted and then you look at them and you say, well, that takes away from a 10 or so percent normal growth, that would bring the number down to 7 to 9% number for the year. Okay. All right. Does that make sense. It helps. Thank you very much. Thank you, Kathryn

Your next question comes from the line of Michael Cox from Piper Jaffray.

Good morning, guys, thanks for taking my call.

Good morning, Mike. My first question is on Horizon. I was wondering if you could touch on maybe a little more granularity as to the performance of Horizon during the quarter and the impact that it had on your base business growth in the quarter? Sure. The business, Horizon in the West, did very, very well. That continues to-- in every facet of the business perform very, very well. The new locations were a drag there, as they were throughout the whole organization. But, when you look at what we're doing and the team== how the team is executing, that is doing very well and, as I referenced earlier, Horizon in the West , their performance from a top-line standpoint, and everything else, was better than the .4% reflected for the company overall.

Horizon in what we call the south, which is really primarily comprised of Texas although we're expanding that geographically, they were adversely affected primarily by adverse weather compared to last year. Two main factors there, one, was certainly the ice storms. Very, very unusual, that really took a hit for a couple of weeks on a lot of business in Texas, affecting both the pool side and the irrigation side, as well as, compared to the last year where there was a relative-- last couple of years-- where there was a relative drought, there was significantly higher levels of rainfall in the state of Texas so that adversely impacted that business as well in that regard. But taking those weather factors aside, that business, from execution standpoint, is doing very well, and certainly a positive-- long-term for Okay.

As I look at the-- in the latter part of your press release, you break out the profitability of acquired and new markets, and it looks like it's about 300 basis points from operating margin prospective, above the base business. . I was just curious if that's a reflection on Wickham and, taking the context of what you just said, it seems like a strong margin performance relative to Sure. Yes. Good solid business that we acquired with a good team of individuals that are working very hard to grow value and grow the business overall. I think that's also, in part, reflective of the fact that it's a sun belt business. If we did our base business in distinguished sun belt versus no belt, you would see in the base business, our sun belt operating profits would far exceed the 5% that's reflected in the acquired business, and if there's a significant loss in the first quarter in the operating level in the northern part of the-- or the snow belt part of our Understood. I was wondering if you could give some detail on the [Tortalin] acquisition that was mentioned in the press release, as well. Sure,Tortalin is a small distributor in the Province of Ontario in Canada. It's a market area-- or market that we were looking to open up a new location in 2008, and the opportunity came up for us to acquire a distributor in that market already with one location, one-- relatively speaking small operation, and so we acquired them instead of opening up our own location next year. My last question is just more of a conceptual. I was wondering if you could talk a little bit about taking on more debt, as you noted being under-leveraged to repurchase a significant amount of shares given your financial flexibility right now? What is the question? Is that on the docket? Sure. I mean, you have seen opportunistically the company repurchase shares-- again, opportunisticly certainly over the past-- well, since our history, over the past 13-plus years, and we have done that more aggressively when the valuation was viewed as even being more attractive. And, we have done that more passively when it hasn't been viewed as being particularly exceptional from a valuation standpoint. And, given our-- the predictability of our cash flow, given the financial markets today and the ability to borrow at very, very low cost, it's certainly very attractive, and we have a lot of room in that regard. Okay. Thank you very much. Thank you, Michael.

Your next question comes from Keith Hughes with Robinson Humphrey.

Just a follow-up on your comments on Horizon. Horizon, when it was broken out,when it was first bought was putting up some better gross margins than the pool business. Has that continued through the first quarter?

Keith, good morning. I was wondering if you could give some detail on the Tortalin acquisition that was mentioned in the press release, as well. The gross margins for Horizon for the course of the year, were very, very similar, and if they were higher they were higher within maybe 100 basis points. Right. So it was not a significant number one way or the other. In the first quarter specifically the Horizon margins were right on top of-- call it the green margins are right on top of the blue margins as we internally refer to them, so-- so there's no significant change one way or the other in that regard. All right. Thank you. Thank you, Keith.

Your next question comes from Perry Vickery with Morgan Keegan.

Yes, good morning. You had said earlier that the inflation impact in the quarter was negligible. I was wondering what your expectations were for the rest of the year on that.

Sure. The expectations for the year are perhaps, maybe, 2% year-on-year. The first quarter is-- given the seasonal nature of our business, is the toughest and from a pricing standpoint, so therefore, generally speaking there is very little to no pricing inflation in the quarter in the year. There's a little bit of price inflation that's able to be passed on in the marketplace given the dynamics of demand and everything else that goes with it. Okay. And then the complementary products you mentioned deflation there. Is that something that you expect to continue? And how big of an impact is that? That was an impact that-- specific to complementary products, was more significant than the overall company, and that primarily comes from polymer-based products, where the cost of natural gas and the spike in the cost of natural gas in the latter part of 2005, early part of 2006, caused a very short squeeze and a spike in pricing for products like pipe and other related products. That kind of phenomenon that was, again, visible in the latter part of '05 and the first part of '06, as you moved in to the spring, it-- of last year-- kind of mitigated and so, therefore, the impact for the rest of the year should be almost negligible if at all. Okay. And then I was wondering if you could perhaps quantify the revenues from the 24 new service centers in the quarter? One second. The aggregate revenues from those were not quite $6 million. Okay. And could you perhaps break down the pool sales center and Horizon sales centers, the numbers at the end of the quarter, for each segment? Sure. Oh, for-- in terms of our total company? Yes, how many were pool-- At the end of the quarter we had 62 green sales centers. That included the 14 that came from Wickham, and 48 that we had on the-- what was-- you know, the original Horizon network, so that is the 62 locations on the Horizon's or green side, and then 220, approximately, on the blue side. Okay.

And then last question, I was just wondering about the timing of the share buyback. Was it spread pretty evenly throughout the quarter or was it concentrated at any particular time? It was pretty even throughout the quarter. Okay. All right. Well, thanks a lot. Thank you.

Your next question comes from David Mann with Johnson Rice.

Yes, thank you. Couple of follow-ups if I could. In terms of some of your pool-builder customers I was just curious-- There was a slight increase in your receivables reserve. Are you still seeing a lot of stress there, and do you expect that to worsen? No, I think-- the overall answer is no.

The-- I think the slight increase in that reserve is just a reflection of our total business. Our overall past-due balances are roughly the same as they were at this time last year, so that's not a major concern. And then in terms of-- Manny, can you just talk about a little bit some of the trends that you saw there? Was their business impacted materially by some of the weather issues you talked about? Yes, there-- first of all the latham business in the first quarter is a very slow part of the total business. Their business is as seasonal as ours is. And to an extent even more so since the weighting there, given the product they manufacture are not as deep from a penetration standpoint in, for example, California, Florida, Texas, and Arizona. So yes, they encountered the same delays, or they were impacted in much the same way as we were, but the delays in the start-up of pool construction, or delayed start-up people opening up their pools in the snow belt markets. Should we see that show up in terms of the second quarter not being as positive as last year? Or is it too early to tell? At this point it would not expect that. I mean it's really a factor-- second quarter would be more of a factor of what happens in the first quarter. Okay. Best of luck in the quarter. Thank you. Thank you.

Your next question comes from Joan Storms with Wedbush Morgan.

Hi, good morning. I'll finish up here. On the gross margin, the benefits that we should begin to see in the second half, I believe it comes from an improved mix and increase in direct imports. Could you, sort of go in to that a little bit about how that should positively impact the second half..

Sure. There's several factors, one is the early buy, early pay incentives and benefits that we realized in 2006, by April/May, they have worked themselves out, so therefore, that results in a better compare-- comparison year on year.

Second factor is that the adjustment that we made at year end in the fourth quarter was retroactive to the year in terms of our gross to net-cost adjustment from our vendors, so that again-- primarily those two are first-half type situations where-- benefited the first half of last year, and this year with-- not seeing that benefit, will kind of wash itself out. The initiatives that we have to enhance and improve our cost position further with strategic sourcing, vendor consolidation, obviously motivating and selling higher margin products, all of that is integral to our business and how we conduct our business. So in a word, that continues to proceed and progress throughout the organization, and I think the reflection of that will be reflected in the second half of the year when you take these other two isolated factors out of the equation. Okay. And then on the-- the new centers, you'll have 10 to 12, do you have a sense of when those will be opening? It will be sort of in Q2 still ahead of the peak season-- Sure. Seven are open already. Right. Right. And then we expect several more to open in the next several months, and then there are a couple that may open in the latter part of '07 or the first quarter of '08. It depends on getting those facilities ready and primed and our ability to move in. Okay. And then also, if you could comment at all, if you can, on how many of those out of any ten to 12 would be in existing markets versus new markets. That one will take me a couple of minutes to figure out, but of the seven so far, more than half are in existing markets. And expect do you expect any international beyond any Ontario-- any European activity this year? No. Excuse me. Take that back, because Canada, I view as an extension of the U.S. market. We did open up a location already-- a second location in Quebec, so-- but in terms of Europe, no. Okay. Thank you very much. Thank you.

Your next question comes from Dan [Leband] with Robert Baird.

Hi, thank you, good morning. I just wanted to see if you could help reconcile in terms of-- you know, kind of business to date in April with kind of the record cold-- we had down in the south back in the first couple of weeks of the quarter. Just talk about how after the pool season is kind of open with the great March weather-- how that affects sales or is it the fact that the pools are already open and you don't really feel the impact of the weather at that point.

The sun belt really-- sun belt-- first of all in the sun belt the majority of pools are open year-round, so what is affected there is when you have unusual rains or ice storms that slows down pool construction. It also affects business in the short-term much like a hurricane does. As time goes on, that kind of works itself out and it's a non-issue. The delayed openings really is more of a phenomenon that affects-- I'll call it the central part of the country north. But once pools are open. Pools are open, so --. . Okay. Great.

And then just to follow up on the question earlier about the guidance. With the share repurchase rate as high as it was during the quarter, since you originally gave the guidance for the year, was the share repurchase quicker than you expected, and if so, if there was some moving piece to where that would tip it up? What changed on the other side to bring the guidance down to where it didn't Sure. When you look at the guidance for the year at the time we provided the guidance, we had already some visibility as to what our share repurchases were likely going to be. So therefore, that's already been factored in overall, and that's why we have the range that we have, as well. Okay. Great. Thanks, manny. Thank you.

[OPERATOR INSTRUCTIONS ]

Your next kept comes from Colin Campbell of Bookside Capital.

Hi, guys thanks for taking my questions. I've got a couple. First, can you give us an update on what percent of revenue comes from products that are going in to or-- or are associated with new pool construction, versus those which are more associated with repairs and maintenance?

Sure. If you look at new pool construction specifically, new pool construction would be somewhere in the neighborhood of 25% of our total sales. And then, there's another 5% or so that we associate with-- call it heavy levels or-- or higher levels of discretion, for example, products like spas, above-ground pools, et cetera, and that gets to a per age of about 30 or so percent that is more what I'll call discretionary than the lion's share of our sales and products that are largely non-discretionary. And the 25%, would that include any portion of complementary products or-- Yes yes. That definitely includes all the pipe and rebar and all the stuff that goes with it. yes. That 30% of sales, does that tend to be higher gross margin than average or lower gross margin than average? Lower gross margin than average. Generally speaking the higher ticket items tend to carry, on average a lower gross margin as a percent than the lower ticket items, particularly the less discretionary, lower ticket items which have percentage-wise the highest margins. Can you break out the-- May's revenue gross figure between the pool business and the irrigation business? We can. We generally have not, and if you look at it overall, as I mentioned earlier, the west was up more than 4%, Horizon West was up more than 4%, as was the overall sun belt for pool on the blue side up more than 4%, with the snow belt being the one that was in fact down for the quarter, flat in March. So in aggregate-- Weather comparisons there. Across the whole country it sounds like Horizon was up more than average more than the 4%, or pool was up more than the 4% or was up less than the 4%? Yes, if you look at it by market-- just to help you there. If you look at it sun belt versus sun belt, the increases are very similar and the real adverse hit is really in the snow belt. It's not product related as much as it is geographically related. And the 7% base business growth in March, do you think any of that was associated with a pent up demand for products given the loss of work days in January and February due to the severely adverse weather. Nope. And the trend in April, you said had been similar to March? Well, no, the first couple of weeks-- first of all, our daily sales rate grows pretty much every day in the first half of the year and then it goes down in the second half of the year. That's the nature of our business. Our daily sales rate certainly in April was higher than it was in March, but it's still growing during the course of the month. In the snow belt, obviously, continues to be affected by the adverse weather that we have seen for the better part of the first quarter, other than a couple of weeks, there was a break in the weather in the-- in the north, but outside of that, that's really the-- the only factor in-- in play. The sun belt is again, the more predictable part of our business, and less seasonally affected, although it is certainly seasonal but nowhere near as seasonal as other markets. My last question, can you clarify for me the way you guys go around classifying the centers between what is in the base calculation and what is not. Today's press release shows 260 sales centers in the base calculation, but if I go back to press releases from a year ago, you guys didn't have that many sales centers you had 252 at March 31st and 246 at December 31st. Just walk me through how I go about getting [inaudible]. Sure. First of all, acquisitions within the past 15 months, which would include Wickham as well as Tortalin, a total of 15 locations are not-- I mean, are part of the acquired side of the equation , that brings you down from a reconciliation standpoint to 267 from And then there are five of the 24 that are new locations in new markets, and that's-- together with the acquired, and then the other 19 that we have opened up in the past 15 months, are new locations in existing markets that we were currently serving. And just to give you the background there, as we have run out of space as we continue to grow on a-- in individual locations, we have really two choices that we-- that we encounter. One choice is to move or expand that facility in the same base location or somewhere nearby to a much larger facility to enable us to continue growing. Or alternatively, stay in the existing facility and open up a satellite facility half an hour away.

When we do that we carve out the customers that are being served closer to that new satellite facility, away from the existing facility. And in those particular cases of 19 of the 24 we opened up in the past year, we not only incur the cost of that second facility in the lease cost with the added space, but we also have to-- although it's a satellite,and there are some shared services, we also have to have a-- almost duplicate structure to get that off the ground. And where that makes sense, we do that, and that's why you have that-- those locations included in the base business. Just to be clear, so the 4% base business growth includes the benefit of some new store openings but in existing markets. Certainly, which-- and by the way, in those cases, the costs of those locations from an incremental standpoint are greater than the incremental gross profits that are generated in the short-term. But long term pay for themselves. So the 4% is not equivalent to like a same exact same-store sales figure? No, but that number still-- again, when you look at the overall number, maybe the four rounds down to three, but I don't see that being significant, particularly on a year standpoint. On the 260, so as of December-- as of March 31st, '06 you had 252 stores open. So where did the other eight come from that are now in the 260 calculation? I'm sorry--

Why can't don't we have Craig give you a call and he can walk you through the math on that.

Great. I appreciate that. Thank you, guys.

Yes.

Ladies and gentlemen, we have reached the end of the allotted time for questions and answers. I will now turn the call back to Mr. Perez de le Mesa for closing remarks.

Thank you, Lynn, and thank you, all again, for participating in our first 2007 results conference call. We look forward to providing you our second quarter results update on Thursday, July 19th. Again, on Thursday July 19th. Thank you. Thank you. This concludes the Pool Corporation first quarter releasing conference call. You may now disconnect.