Peter Arvan: Yes, certainly. The great part about this business is that, most of the spend is non-discretionary. So when the weather cooperates and it is hot and people are using their pools then the demand for maintenance items such as chemical and parts and service is good. So when things heated up, we are encouraged by the uptick in sales. However, one thing I got to point out though is we have very stiff comps in the third quarter, too. The third quarter is by no means a layup given the growth that we saw in the third quarter of last year. The comps really don’t moderate until the fourth quarter. So business is good. The sales centers are busy. But when we look at the comps that we have from last year, which was – weather was good, sales centers were busy and consumers were certainly a bit more confident and new pool construction was stronger. We have to take that into consideration.
Ryan Merkel: Makes sense. I’ll pass it on. Thank you.
Peter Arvan: Thank you.
Operator: Our next question comes from Susan Maklari of Goldman Sachs. Go ahead.
Susan Maklari: Thank you. Good morning.
Peter Arvan: Good morning.
Susan Maklari: My first question is, Pete, can you just expand a bit on consumer sentiment. And what you’re hearing from some of your larger customers? It sounds like there’s, to some extent, a mix shift that’s happening with the higher end versus the lower end consumer. Is that fair? And then what do you think it’s going to take from a macro perspective to get some of these consumers back into the market on the discretionary or the semi-discretionary side?
Peter Arvan: So I think your sentiment on – your observation on mix shift is accurate. We – when I talk to our dealers, I talked to a lot of dealers across the country from very, very large dealers to small dealers. What we’re hearing is that at the higher end, and we have some customers that frankly specialize in very large projects. They’re actually doing quite well. I believe it or not, I’ve had a couple tell me that they’re sold out for this year and into next year, but they are the very high-end specialty builders. As you work down the chain from very high end to more entry-level pools, there is a phenomenon that happens and that is – has to do with how that pool is paid for. The very high-end pools are typically purchased by more affluent families and the percentage of those that have really any concern about financing cost is actually very low.
The flip side to that is if you go to the opposite end of the spectrum, the entry-level pools, which is what we think drove a lot of the new pool – the increase in new pool activity through the pandemic, there was a lot more entry-level pools built. So I think the mix of pools was skewed towards the entry-level pools. And the reason is because financing cost was actually quite low. And if you talk to the dealers, what they would tell you is that many of those conversations, many of the closes happened at the kitchen table. And they were basically – they were selling a – they were selling a backyard resort, but they were basically selling that as a monthly payment. And monthly payments when the interest rates and finance rates and HELOCs were very low and lending was free flowing, monthly payments for those projects and the fact that a few years ago, you had less inflation.
So the overall price of the pool was lower. They were selling that based on – some of those were $700 to $750 a month payments. That was a very achievable number for folks that wanted a pool and decided to invest and become pool owners. As interest rates have come up as inflation has worked its way through the system, as labor rates have come up – that same payment, in many cases, dealers are telling me is now $1,200 to $1,400, which simply puts it out of the range for many of the families that would be stretching at frankly, a $700 to $750 level. So if you ask me what I think it’s going to take to change that, I really think it would be – it would have to be one of two things or a combination. One is if interest rates were to moderate, it’s just math that brings down the price of the, the financing costs and brings down the monthly payment.
That would make pools more affordable for those folks that are sitting on the sidelines waiting for that to happen. The other thing that happens over time is the memory of 2% interest and 3% interest fades in people’s mind and they become more accustomed to, well, okay, if I’m going to do a HELOC, it’s going to cost me 6% or 7% or 8%. And as wages continue to catch up to inflation, then it becomes more acceptable. And I think you’ll see some more pools at the entry level start to come back in. I think your follow-on question was – or the second part of the question had to do with consumer sentiment. And I think I briefly mentioned that with Ryan’s question. What dealers are telling us is that certainly, break-fix things, it is – if the pump isn’t working, if the filter is leaking, if the salt cells stopped working.
If – in some cases, if the light stopped working, it’s going to get fixed. Consumers really don’t have a choice because remember, with the pool, you have to move the water, filter the water and treat the water in order to make sure that it doesn’t turn green. So that’s a given. I think over the last couple of years, we’ve seen people trade up in terms of technology. They’ve gone from pressure cleaners and suction cleaners, which were once the industry standard. Now we’ve seen people move towards the, the higher-end product, the robotic cleaners and such and higher levels of automation. I think in many of those cases, consumers are saying, well, I’d like a new robot, but given the macroeconomic conditions, inflation of everything from groceries, perhaps additional leisure travel being done and general household expense increase, they’re saying, I’ll probably going to wait and I’ll get the new cleaner next year as opposed to this year and we’ll live with the pressure cleaner or suction cleaner one more year.
I just think it’s a matter of just kind of how the consumer is feeling about everyday spending.
Susan Maklari: Yes. Okay. That’s very helpful color. And then just following up, you mentioned that there was some increased competition earlier in the season as things were slow to get started in some parts of the country. As things have picked up in the summer, are you seeing that, that competition is eased? And how are you thinking about your ability to hold the market share gains that you’ve realized in the last couple of years against that? And I guess, finally, with that, any thoughts on or updates to your inflation expectations for this year?
