Peter D. Arvan
President and Chief Executive Officer at Pool
Thank you, Melanie, and good morning, everyone.
As we reported this morning, we generated $1.8 billion in net sales during the second quarter, reflecting a solid performance in the maintenance portion of our business during the busiest time of the year. This performance showcases our crisp execution, progress on strategic initiatives and our ability to continue gaining share by providing an unmatched value proposition.
As we discussed in our June release, the trends we observed in discretionary spending for new pool construction and large renovation projects and some larger discretionary items based continued economic headwinds, while the nondiscretionary demand is solid and in line with our expectations. Our customers who primarily focus on new pool construction and renovation and remodel continue to report lower demand for low to midrange pools, while demand remained solid at the higher end. The trend remains unchanged from recent quarters. A similar pattern is seen in renovations. High-end renovation project interest is reported to be solid, although the summer, when people are using their pool, is the slow season for renovation. Similar to new construction of low-end pools, smaller renovation projects are being deferred frequently in this environment.
Dealers are reporting more inbound calls. However, many consumers remain hesitant to pull the trigger in the current economic cycle. We view this as a positive sign for the future. So far this year, we have made progress in several strategic areas of our business that excite us and drive our ability to capture future industry opportunity and extend our leadership position going forward. We remain deeply focused on our customers and areas of our business where we can position ourselves for sustainable future growth as we leverage the power of our widespread and highly integrated distribution network. We have strengthened our commitment to providing our customers exceptional service and value-added tools to grow their business, while advancing our digital ecosystem development.
Adoption of our POOL360 tool continues to increase. We closed the second quarter with 14.5% of our sales completed on our POOL360 digital platform, which is our highest level to date, as our customers experience next level service and convenience, which ultimately creates capacity not only for POOLCORP, but for our customers as well. Our new digital marketing programs continue to gain traction as our dealers experience unmatched capabilities in driving demand for the brands that they carry and lead generation for their core business function.
We are also increasing utilization rates at our chemical packaging facility. Since we acquired the chemical packaging operation from Porpoise Pool & Patio, we have increased the production at the plant by almost 60%, which gives us, again, unmatched capabilities and drives incremental profitability for our business. We continue to expand our sales center network, adding both convenience and needed capacity to support our growth as the industry's installed base continues to grow, and we continue gaining share. So far this year, we have opened eight new sales centers in line with our strategic plan.
Now moving to our second quarter results. Total sales in the second quarter declined 5%, which is an improved trend compared to the year-over-year changes that we have seen in recent quarters. As we mentioned in our press release, the last week of June showed a notable improvement in the daily sales, which was sparked by favorable weather and strong execution from the team. Our maintenance business is strong. Our software platforms are gaining traction, and our building material products performed better than new pool construction trends and external permit data would suggest. While we take some encouragement from this slightly improved trend, we are maintaining our top line guide along with our year-to-date results sales trend. Once we pass the midpoint of the third quarter and into the fourth quarter, the discretionary portion of our business can have a greater impact on our total sales based on the seasonality of the industry. So we also considered this dynamic in our full year guide.
Our gross margin for the second quarter finished at 30%, down 60 basis points from the prior year. Remember that last year, we were still selling through our strategic excess and lower cost inventory in the second quarter. Lower levels of our higher margin in building material sales also inhibited the gross margin in the quarter. So our ability to deliver 30% gross margin under these circumstances highlights some of the underlying structural improvements on supply chain, value-added pricing and our strategic priorities.
From a profitability standpoint, we produced an operating income of $271.5 million and operating margin of 15.3%. Although down from the 17.6% operating margin from the same period last year, it reflects continued strategic investment in technology, a continuation of planned new sales center openings, acquisitions and further expansion of our Pinch A Penny network. Melanie will give you a more detailed commentary on expenses. While we are without a doubt managing controllable expenses, we also continue to invest in the long-term success of our business, recognizing that we are working through an economic cycle and that the business is getting stronger. We finished the quarter reporting diluted earnings per share, including the $0.01 tax benefit at $4.99 per share.
Looking at sales by geography, Florida saw the strongest performance, with sales being down just 1%. In Texas, sales declined 6% as we observed incredibly wet conditions through May, making construction difficult and impeding maintenance spend. California and Arizona were down 5% and 8%, respectively, with a similar overall trend of solid maintenance and aftermarket sales dragged by lower new construction and remodel. In total, our year-round markets were off 5%, while the seasonal markets were down 6%. Europe was down 11% and remains challenged with a tough consumer sentiment and was further impacted by cold and rainy weather and late pool openings this season. We continue to make operating improvements that will position us well in this area when sentiment improves.
For Horizon, net sales declined 6% compared to the second quarter last year and at the same level of sales decline as we saw in the first quarter. Our irrigation business is more impacted by commodity pricing than the swimming pool business and has seen some irrigation project deferrals in both commercial and residential during the quarter.
Moving to our product and end market details. The 1% increase in chemicals reflects a 3% growth in volume, with a 2% deflationary impact on price, still primarily driven by trichlor. We see the positive effects of our efforts in this area, particularly noting that our private label chemical sales grew at double-digit rates and outpaced the growth of the rest of our chemical portfolio.
On building materials, the 10% quarterly sales decline is better than what we are seeing in overall new pool builds and our remodel expectations. Equipment sales ended flat for the quarter and is an area that we have seen improvement, particularly around lights, pumps, heaters and parts. Remember that our equipment results exclude cleaners, which is a discretionary area that remains challenged. The equipment performance is noteworthy considering the new pool construction trends and the maintenance of our aftermarket business. As an example, we estimate that pumps used for maintenance versus new pool construction is 4:1 [Phonetic]. So we expect our maintenance and repair business on equipment to continue to hold up well.
Price on equipment came in at up 2% to 3%. Related to price in other areas, we did see some pressure during the quarter on certain commodities, like pipes and rebar, which show up in our building materials and irrigation business results and on chemicals, as discussed. Commodity prices moved with the market and represent a relatively small portion of our overall business.
Looking at our end markets and commercial business, sales increased 16%, rising after a flat first quarter and in line with another travel-rich summer and openings of community pools. Sales to independent retail pool customers declined close to 6%, which represents sell-in to those stores. We believe that this is reflective of consumers being more selective on some discretionary purchases and a later start to the season in some markets. Our Pinch A Penny franchisee sales to their end consumers collectively increased 4%, which reflects a high concentration of stores in year-round markets and a strong customer value proposition.
Circling back to POOL360. We are pleased with our progress since launching our POOL360 service platform in February and the POOL360 water test application last summer. As we have discussed, these tools ultimately link into our enhanced B2B POOL360 platform, the foundation for our digital ecosystem. Our POOL360 water test tool provides optimal water chemistry recommendations to ensure safe water and an enhanced swimming environment directly tied to our private label products. To date, we are very pleased with the number of retail stores using the software, which we soft launched after the season began in 2023. Our retail solutions team has been fully engaged with water test in the first half of this year and continues to onboard dealers.
As peak season comes to a close and customers have more time to schedule onboarding, we will again be focused on driving our technology and offering, in conjunction with our 2025 retail and service programs. POOL360 service allows our customers to expand their businesses by automating manual tasks like quotations, scheduling, routing, billing and collections, all while providing direct purchase access to the POOL360 tool. Orders processed through the traditional B2B POOL360 platform increased to 14.5% of total sales this quarter, growing from 13% in the second quarter of last year and 11% in the first quarter of this year. Technology is a key source of differentiation and continues to be an effective tool to grow sales and create stronger partnerships with our customers.
We continue to strategically expand our network, opening another three sales centers in the second quarter and acquiring one. Our second quarter acquisition offers us a premier presence in the Atlanta market with a central location, combined with our established presence in the market, this gives us the greater ability to serve the entire metro to fulfill demand in this major Sunbelt market. These additions bring our global sales center network to 445 locations.
Our Pinch A Penny franchise network added three new stores, each in the strategic Texas market, ending the quarter with a total of 292 franchise stores. Continuing to build on our franchise network, along with expanding support offerings provided to our independent retail dealers, will allow us to expand our reach and continue to capture the do-it-yourself maintenance market.
Taking all of this into consideration, in view of the peak season activities and our current outlook, we are confirming our full year diluted EPS guidance range of $11.05 to $11.45, including an updated $0.20 estimated benefit from ASU. Even under somewhat challenging operating conditions, our strong cash flow allowed us to return a total of $173 million to our shareholders through dividends and share repurchase so far this year. During the quarter, our Board increased our quarterly dividend to 9%, marking the 14th consecutive year of dividend rate increase and increased our repurchase authorization to $600 million, reflecting our commitment to generating returns for our shareholders.
For the remainder of 2024, we plan to center our focus on execution and our strategic growth initiatives. From an industry perspective, pools and expanded outdoor living space remains highly attractive to homeowners. Pools remain one of the most frequently searched terms in the online real estate sites. Home values remain strong. Demographic trends, such as southern migration, the large millennial population we're driving household formation and continued new home builds, all support the long-term industry dynamics even during the period of higher interest rates and suppressed existing home turnover.
As we have seen for well over a year now, high-end consumers appear to be making up a large portion of the new pool build again in 2024. It is unclear when the mix will shift based on the amount and timing of interest rate reductions and the economic indications needed for consumers to feel less pressured. We are best positioned to provide the widest product offering in the industry, support enhanced outdoor living features and aesthetics through our NPT branded products and partner with our vendors to unveil the latest available automation offerings.
We remain ready to serve our customers with everything they need to help them create the outdoor living oasis that people want, while providing the tools and support to grow their business. Although we expect a lower number of new pools to be built this year at roughly 60,000 new units, this still represents a 1% increase in the installed base of pools that will need to be maintained going forward. We remain relentless in expanding our network to best serve the professional and do-it-yourself maintenance customer and improving the customer experience, enhancing our capacity creation and launching our industry-leading digital ecosystem.
I will now turn the call over to Melanie Hart, our Vice President and Chief Financial Officer, for her detailed commentary.
