Peter D. Arvan
President and Chief Executive Officer at Pool
Thank you, Melanie, and good morning to everyone on the call. This morning we released our first quarter results which were adversely affected by challenging weather patterns across most of the North American market, and we were up against extremely difficult comparisons from 2022. Despite cooler and extraordinarily wetter weather across many of our year round markets, we posted revenue of $1.2 billion, down 15% for both total and base business revenue when compared to 2022. As a reminder, in the first quarter of 2021, our base business sales grew 51%.
In the first quarter of 2022, we saw sales grow by an additional 26%, which makes a quarter-over-quarter comparison tough in and of itself, but especially when confronted with unprecedented weather some of our major markets. What is encouraging though is that in the areas where the weather was normal, our business performed in line with expectations.
Looking specifically at our year round base business markets, we saw sales decline 9%. California, as you well know, saw historic amounts of rain and cooler temperatures in the quarter, which curtailed both construction and maintenance spending, and led to a sales decline of 24% in this very important market. This compares with the same quarter last year where we saw sales increase by 31%.
In Arizona, we saw sales decline 14% as they too experience above average rain and cooler temperatures as compared to the normal seasonal patterns and what we saw in 2022. Again, by way of comparison, for the same quarter last year, Arizona saw sales increased by 31%. Texas, which experienced a more normal weather pattern, saw sales 6% following a 7% gain for the same period last year, which is in line with expectations set earlier.
Florida, which experienced favorable weather in the quarter, saw sales increase 7% on top of the 30% growth that we saw last year in the same quarter. Our seasonal markets, which include Canada saw sales decrease 23%, but this compares with the 28% growth that we saw in the first quarter of 2022. As has always been true in our industry, the biggest single external variable that can impact our business is the weather. Early in the quarter, we were encouraged by the weather conditions, but that quickly changed to a headwind and became more impactful as the quarter progressed and the sales effects became more meaningful.
All in, we believe that the historic weather pattern that we have seen so far this year, particularly in the Western U.S., negatively impacted revenue by approximately $60 million to $70 million. Typically speaking, adverse weather delays, pool and outdoor living construction, which may be made up on the shoulders of the season if the weather allows. Maintenance and repair spending are mostly lost as the pools go unused during the inclement weather, limiting some equipment usage, which may lower postpone repair spending, and definitely curtails chemical needs.
After assessing initial permit data, demand for new pool construction is clearly down. The decline ranges from a high negative teens percent to over 50% in some markets. In total, we believe the overall pool permit number is down approximately 30% so far. This is worse than we had contemplated in our previous guides, driven mostly by the weather and some additional economic headwinds. However, when comparing 4Q 2022 levels to the first quarter of 2023, we see permits up 4%, which is encouraging. Weather, interest rates, consumer spending and the end of COVID tailwinds all contributed to lower pool construction activity on a year-over-year basis, but we are encouraged that the sequential quarterly permit level is up.
We continue to see lower end pools that typically our finance under the most pressure as consumers grapple with the higher cost of borrowing and higher pool construction costs. We estimate that our sales into the pool construction segment are down 25%, which implies that we continue to take share, which is consistent with our past performance. Our unmatched value proposition and commitment to an unparalleled customer experience continue to make us the supplier of choice for the industry.
For context, new pool construction accounts for approximately 15% of our business. Approximately 60% of the business is driven by maintenance and repair with the remaining 25% being driven by renovation and remodel. As you can see, approximately 85% of our business is driven by pools that already exist. As we had anticipated renovation -- the renovation business appears to be holding up much better than new pool construction. This is based on our estimates that our new pool construction sales are off approximately 25%. However, sales of key construction products that are used only in construction and renovation are down only 3%, which implies that renovation activity is solid.
Turning to end markets; commercial swimming pool product sales, which tend to be less weather dependent, are up 12%. Base business sales to the retail channel were off 16% for the quarter, reflecting a return to more normal buying patterns as supply chains have normalized. We believe normalized supply, cooler weather and a later spring across most of the country also delayed some shipments to the stores to align with a later start to the season and normal material availability.
Pinch A Penny franchisee revenue is our indicator for retail sell through. Here, we saw sales increase 10% in the quarter, which we believe is a good indication of the resilience of demand in markets where the weather is more typical for this time of year. Moving on to specific product categories; it should be no surprise to see that equipment sales were down 14% in the quarter, which is attributable to construction unit volume declines based on lower backlogs, unfavorable weather, and smaller and later customer early buys.
As previously noted, we saw no change in pricing as all the increases in this category are holding and are expected to hold as is normal. Chemical sales in the quarter were down 11%, which is also expected with a cooler and wetter weather. Of note, Florida, which had favorable weather throughout the quarter saw chemical sales increase 12%. Building material sales for the quarter were down 7%, reflecting lower new builds offset somewhat by higher renovation and remodel numbers.
Let me now provide some context on Europe. We continue to see the demand in Europe remains soft. The general economic outlook that -- the effects of the war, and again, the weather have combined to create headwinds that resulted in our sales decline in 25%. For context, last year and the first quarter, sales were up 5% as the effects of the war had yet to begin and the general economic outlook was more stable. For reference, the first quarter of 2021 saw sales increase 115%, so the two year stack is quite difficult.
Turning to Horizon based business results. The first quarter sales decreased 7% with residential activities declining most prevalent in the Western states, offset somewhat by commercial project demand and stronger demand in Florida and Texas. Weather implications are being felt in this business as well, delaying some projects, but we are optimistic that some of this loss can be made up. Moving down the income statement, let me briefly cover gross margin. We are very pleased with the 30.6% that we posted reflecting the work that we have done in this area related to mix, pricing and inventory investments. Melanie will provide additional color in her prepared remarks.
Operating expenses came in at 18.6% of net sales. Although, this is higher than we have seen the previous two years, this is largely attributable to investments that we continue to make towards our long-term growth, inflation and the effects of a softer weather driven revenue quarter. As we have previously discussed, our cost model is somewhat variable, but we do not want to take structural actions that would impede our ability to fulfill future demand.
As you know, the first quarter is our seasonally least significant, especially given the unprecedented weather headwinds. It would be premature to read too much into the quarter. We, however, continue to invest in new sales centers and customer programs that we believe allow us to continue to provide best-in-class service and value for our customers and suppliers.
For the quarter, we added seven new locations, two acquired, and five greenfields. For the balance of the year, we expect to add another five to seven. Additionally, Pinch A Penny welcomed five new franchise new locations in the quarter. With respect to customer tools, POOL360 saw online order activity decreased by only 3%, indicating deeper penetration and increased usage within our customer base.
Completing the income statement, we reported operating income of $146 million, which reflects strong execution in the weather constrained environment. It is noteworthy that although this represents the 38% decline at the shoulders of the season, it is 13% higher than what we posted in the first quarter of 2021 and significantly higher than pre-pandemic levels.
Before I turn the call over to Melanie for her financial commentary, let me address our guidance update. In any given year we face challenges with the weather and uncertainties in the economy and how that can affect customer behavior, labor costs and availability and operating expenses. Competitive pressures and of late geopolitical events can also impact our results. Some of these we can foresee and prepare for while others we cannot, but still have a significant short-term impact on financial results.
In a typical year, it is not uncommon to be impacted by one or more of these conditions. The implications on short-term operating results vary with each, but experience tells us that the more prominent impact are felt with significant changes in the weather, which can produce immediate impacts on operating results that will vary based on the weather event, the market size, where they occur in timing. This is nothing new and we have seen it frequently in the past.
Changes in economic factors can be as significant, but generally the effects are felt more slowly across the business. In 2023, we saw significant weather impacts in two of our largest year round markets, Arizona and California, which were most prevalent later in the quarter where the effects are more pronounced. At the same time, we saw and expected the expiration of COVID tailwinds, which favorably impacted 2020 through the 2022 season results and were contemplated in our previous guidance.
Individually, each will cause notable variances in results on a year-over-year basis. But when they stack up in very large year round markets and are combined with return to normal buying patterns in the rest of the markets, it can meaningful change our operating results in the short-term. We want to remind our investors that the fundamentals of this business remain unchanged over the long-term. Pools and outdoor living remain highly desirable.
The southern migration will continue and the resilience of our industry, which is driven by the install base of pools, is very much -- as true today as it was pre-COVID, just larger and more valuable. Flexible work from home arrangements remained in place for many pool and homeowners. The inflation that has made its way through the channel is here to stay making the size of the industry larger. The install base of products continue to grow and age, and the opportunity to upgrade and modernize existing pools and backyard continues, and our ability to take share based on our unmatched competitive profile gets stronger every year.
Taking a short-term view of the business and reacting to short-term issues like weather with structural changes or deviating from our proven strategic plan would be a disservice to our investors. We remain committed to being the best supplier in the industry. We see the value in investing in our capabilities to broaden our product and service offering that will enable us to continue share gains, while remaining focused on discipline and execution and capital allocation. The weather issues will pass, but their effects on the first quarter results will mostly stay. The economic pressures related to interest rates will affect new pool construction in the short-term, but the desirability of pools and outdoor living will remain strong in the long-term.
Our installed base will continue to grow in size and value. Capacity creation continues. Our investment in our people and our focus on being the employer of choice is ongoing and helping our customers grow and be more efficient is what we focus on each day and gives us the confidence that short-term issues that we see will have no bearing on the continued and long-term success of our business. With this in mind, we have elected to lower our guidance and increase the size of our estimated range for 2023 to $14.62 to $16.12 to account for the recent challenges, but remain incredibly proud of what the team has done and very confident in the future.
I will now turn the call over to Melanie for her financial commentary.
