Melanie M. Hart
Senior Vice President, Chief Financial Officer and Treasurer at Pool
Thank you, Pete. I'll start with a quick recap of our fourth quarter results, highlight our 2024 accomplishments and then discuss our plans for 2025 based on today's environment. Sales, reflecting a 2% year over year decrease for the fourth quarter continued to show an improving trend from the beginning of the year where we were down 7% in first quarter, 5% in second and 3% in the third quarter. Fourth quarter included an additional selling day which fell into December, therefore having little impact on the overall results for the quarter. Pete commented on the outperformance we saw in Florida, primarily weather driven, which had an approximately 1% benefit in quarterly sales similar to the second and third quarters.
We estimate a net 1% inflation benefit. Positive realized pricing was offset by lower selling prices for chemicals and commodities over the same quarter last year. Sales continued to be impacted by the lower levels of new pool construction and repair and remodel activity, which contributed to an estimated 5% comparative decrease in sales mitigated by positive volumes in maintenance products.
Gross margin of 29.4% was consistent with prior year fourth quarter of 29.3%. Product mix related to lower sales of building materials continued to dilute margin similar to what we have seen throughout the year and were balanced by year over year improvements from pricing and supply chain actions.
Fourth quarter operating expenses increased by $15 million or 7% over last year, including certain timing shifts of costs from the third quarter of 2024, the 10 new sales centers opened during the year and our incremental technology investments operating income of $61 million compares to prior year operating income of 79 million. Operating margin was 6.1% in the quarter compared to 7.9%
In the prior year. Diluted earnings per share for the fourth quarter was $0.98 compared to $1.32
In the fourth quarter of 2023. We are pleased with the outcome of Our full year 2024 results and the way that we have managed the business in a year with continued macroeconomic pressures and lower levels of consumer discretionary spending, we maintained our significantly stepped up 2020 operating margin compared to historical results. Even with sales contracting and our commitments to expanding our footprint and technology services to our customers.
This was accomplished by continuing to make the right choices to focus on the long term growth and profitability of the company. Solid earnings combined with excellent working capital management including a $76 million reduction in inventory, propelled our operating cash flow generation to almost $660 million. Our capital allocation for the year included 10 greenfield sales centers and two acquirer sales centers 11 new pinch of penny franchisee stores increased capabilities in our Pool 360 ecosystem, $103 million reduction in debt outstanding and $483 million returned to shareholders through dividends and share repurchases.
Net sales of $5.3 billion continues to represent our leadership position in the outdoor living space. The 4% sales decrease was primarily driven by the approximately 15% decrease in new pool construction units and over 10% estimated decrease in full renovation and remodel spend.
Collectively, these impacted top line sales by around 5%. Maintenance held up very well overall with volume improvement ahead of the growth in the installed base of pools and realizing about 2% pricing from pass through of vendor product cost increases. Chemical and commodity pricing have offset the positive pricing impacts by 1% for an overall 1% net pricing benefit.
Unfavorable weather during the first part of the year has an offset in the fourth quarter for an overall impact of less than 1% for the full year. Lower sales at Horizon in Europe resulted in an additional 1% decrease. We estimate that our 2024 pool product sales were around 64% in maintenance items, 22% used for renovation and remodel and 14% for new pool construction projects.
This compares to 2023 where the breakout was closer to 62% maintenance products, 24% renovation and remodel and 14% for new full construction. Our sales for products we track for use in new full construction and remodel saw less of a decrease in the overall market as our building materials product finished the year down 10%. Even including negative impacts of pricing, we continue to believe that our long term gross margin target of approximately 30% is achievable in a normalized industry growth environment and would expect that to vary seasonally.
We achieved a Gross margin of 29.7% for 2024 compared to the 30% realized in the prior year. In 2024.
Product mix mostly related to lower levels of new construction and customer mix where our larger customers fared better overall than our smaller customers, negatively impacted gross margin. These fluctuations were offset by positive contribution realized from the reversal of previously recorded import taxes, pricing benefits, increased private label chemical sales and a return to normal for purchase related volume incentives specific to product mix changes. Our building materials as a percentage of sales represented 12% of sales in 2024 compared to 13% in 2023.
Our operating margin at 11.6% was consistent with our 2020 operating margin of 11.8%. This includes the incremental investment in technology or 18 basis points impact to 2024.
The comparison here is important in that we have maintained profitability after a period of sales contraction while managing through much higher levels of cost inflation. Our operating expenses increased 5% or $45 million to $958 million. Included in the increase was approximately $32 million of future growth levers comprised of the $20 million related to technology and $12 million for the addition of the 10 new greenfield sales centers.
The remaining 12 million or around 1.5% increase represent significant capacity creation efforts where we were able to control volume related expenses, utilize our footprint gain operating efficiencies and control the increase in total operating expenses to a much lower rate than the inflationary cost impacts of the business. We had an asu benefit of 8.8
Million or $0.23 per diluted share for the full year of which $0.01 was added in the fourth quarter.
Excluding ASU, our full year tax rate was 25%. We finished the year with earnings per share of $11.30 for 2024 which was 15% lower than prior year reported EPS of $13.35
Including the ASU benefit. Our EPS of 1107 was a decrease of 16% compared to $13.18. Coming off of a record cash flow from operating activities of 888 million in 2023, we achieved 2024 cash flows of 152% of net income.
We reduced inventory a larger percentage than the sales decrease even while providing stock for our 10 new locations. Cash flow in 2024 includes 68.5 million of deferred tax payments for those impacted by Hurricane Francine which will be paid in the first quarter of 2025 and lower the cash flow for that period.
Even without the tax timing benefit, cash flow from operations exceeded net income by 36%. Next I'll recap key areas on our balance sheet. Dave's Sales outstanding of 26.3
Days was favorable when compared to 2023 DSO of 26.8 days. Year end accounts receivable of 315 million compared favorably by 28 million or 8% from prior year.
Our inventory balance of 1.3 billion was 76 million less than the prior year balance of 1.4 billion.
The 6% reduction exceeded sales changes as our efforts related to supply chain initiatives continued to add value. Days in inventory was 1. 29, a decrease of 6 days from prior year.
Total debt outstanding was reduced by 103 million from 1.05 billion to 950 million. The debt reduction was funded by operating cash flows and was achieved Even with over $59 million of capital purchases for new and existing locations, funding of our technology initiatives, acquisitions, a 9% increase in the quarterly dividend and $304 million in share repurchases.
We finished the year with a leverage ratio of 1.4, slightly below our target leverage range of 1 1/2 to 2 times. We completed total share repurchases of 304 million, including $144 million in the fourth quarter, contributing to a 2% reduction in weighted average shares outstanding compared to 2023 year end.
The total amounts returned to shareholders for the full year, including dividends and share repurchases was $483 million, second only to 2022. Despite a challenged business environment and pressured earnings, we have returned almost $1 billion to shareholders through dividends and share repurchases in the past two years. Turning to our outlook for 2025 at this time we are not anticipating a quick recovery in sales trends from a macroeconomic standpoint.
We are entering 2025 with higher than historical interest rates, possibilities of increased cost and continued inflation impacts. The unclear path for consumers to return to more normalized levels of discretionary spending in the pool and irrigation space as proven in 2024, our steady maintenance business will continue to benefit from new pools added during the prior year even without a meaningful improvement in new construction and repair and remodel activities. Pricing based on pool season updates from vendors across our product portfolio is expected to have a blended 1 to 2% benefit with some continued drag in first quarter.
For chemicals and commodities, our sales outlook range for 2025 is flat to a low single digit increase as we do not have a significant amount of direct imports. We do not anticipate that the currently enacted additional tariffs from China will have a material impact on sales for 2025. The vast majority of our products are purchased domestically, however may include some portion of goods that could see cost increases if further tariffs from Mexico or Canada were to be passed.
We will include any estimated impact of future tariffs in our guidance when we receive cost increases from our vendors and can reasonably estimate the potential effects as we have historically, we would expect to pass these cost increases through as additional selling price. Our gross margin for 2025 is expected to be within the range of our 2024 gross margin and our long term guidance target of 30% on a comparative basis in 2025. Contributions from our success in supply chain management pricing and increased private label sales are expected to offset the positive import tax included in 2024.
Based on trends as we exited the year, we are not anticipating a significant increase in new pool construction and remodel activity. Thus, product mix is not expected to have a significant positive benefit to 2025 gross margins. On the expense side, we continue to see higher than normal growth in wages, rent and other operating costs that the management team will continue to focus on to offset these cost increases with improved productivity.
The stepped up level of focused investment in technology will continue in 2025 at a similar level as 2024 and is considered a core part of our customer value creation efforts. We expect an incremental $10 million of cost associated with new sales center expansion in 2025 as we continue to add to our distribution network. As we start to see market recovery in top line growth, we expect some incremental incentive based compensation where a low single digit top line would result in around $15 million of incremental compensation expense.
We expect that interest expense will range from 40 to 45 million based on current rates and excluding any share repurchases. Interest expense is typically higher in quarters one and two as we build inventory to support the swimming pool season. The improvement from 2024 is primarily driven by lower expected average debt levels estimated at current interest rates.
We have included around 50 to 55 million for our depreciation and amortization estimates. Capital allocation plans include use of cash of around one to one and a half percent of net sales on capital reinvestments into the business, including new sales center openings. We Plan for between 25 to 50 million on acquisitions.
Once approved, our dividends will utilize cash of around 200 million as we would expect to continue to repurchase shares opportunistically. Cash flow in 2025 is expected to be between 90 and 100% of net income and will be impacted by the 68.5 million deferred tax payment made in the first quarter 2025.
Related to 2024, our annual tax rate is estimated to be approximately 25% excluding ASU. This rate typically runs closer to 25 and a half during quarters 1, 2 and 4 and lower in Q3. We are projecting an 8% benefit from ASU in the first quarter for the expected impact of restricted share vesting and stock options expiring in 2025.
We expect approximately 38 million weighted average shares outstanding that will be applied to net income attributable to common shareholders at the end of the first quarter and 38.1 million shares for the remaining quarters before consideration of any additional share buybacks. Our guidance for 2025 is a dilated EPS range of $11.08
To $11.58 including an estimated 8 cent ASU tax benefit. From an operational standpoint, excluding the benefit of the $12.6
Million import tax on the 2024 results, the improved earnings at the midpoint would be around 4%. First quarter 2025 will include one less selling day than prior year for a total of one less selling day for full year 2025 compared to 2024. From a seasonality standpoint, with Easter falling later in the year, this typically would shift pool openings from first quarter to second quarter in some markets.
Last year, first quarter included the $12.6 million of benefit to gross margin related to import taxes. This will provide a negative comparison for 2025 as we would expect a normal seasonal gross margin for Q1.
As we look forward to the 2025 season, our team is prepared to capitalize on the stable maintenance portion of our business, continue to capture incremental market share and adjust the business and economic changes that will position us to outperform the market. When new construction and remodel activity return to more normalized historical levels, we will be ready as we have made the investments necessary to continue to grow faster than the overall market. I appreciate all of you participating in today's call.
We will now open the line for questions.
