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Operator
Good afternoon and welcome to the second quarter of fiscal 2021 conference call for Lesley's Inc. At this time all participants are in listen only mode. Following the prepared remarks management will conduct a question and answer session. To join the question queue you may press star then one on your telephone keypad. Should you require any operator assistance during the conference call please press star and zero on your telephone keypad. As a reminder this conference call is being recorded and will be available for replay later today on the company's website. I will now turn the call over to Caitlin Churchill, Investor Relations. Please go ahead.
Caitlin Churchill
Thank you and good afternoon. I would like to remind everyone that comments made today may include forward-looking statements which are subject to significant risks and uncertainties that could cause the company's actual results to differ materially from management's current expectations. These statements speak as of today and will not be updated in the future if circumstances change. Please review the cautionary statement and risk factors contained in the company's earnings press release and recent filings with the SEC. During the call today, management will refer to certain non-GAAP financial measures. A reconciliation between the GAAP and non-GAAP financial measures can be found in the company's earnings press release, which was furnished to the SEC today and posted to the investor relations section of Lesley's website at ir.lesliespool.com. On the call today from Lesley's Inc. is Mike Ejec, Chief Executive Officer, and Steve Waddell, Chief Financial Officer. With that, I will turn the call over to Mike.
Mike Ejec
Thanks, Kaitlin, and good afternoon, everyone. Thank you all for joining us today. I'm pleased to report that our performance in Q2 exceeded our internal expectations and produced record results for the quarter. Those results include sales of 192.4 million, a comp sales increase of 51.3% on a reported basis and 35.5% on a calendar adjusted basis. Comps accelerated each month of the quarter year over year and on a two year stack. This quarter represents our eighth straight quarter of sequential improvement in positive comps. Gross margin rate for the quarter expanded by 576 basis points and adjusted EBITDA grew by 17.6 million. Our record sales and profit for the quarter continue to be driven by the three pillars that make our business so compelling. First, the predictable, recurring, and non-discretionary nature of demand in our industry. The industry was further advantaged in the second quarter by the continuation of several key macro trends. We saw consumers continue to focus time and investment on their homes, pursue healthy outdoor lifestyles, migrate to the suburbs and exurbs, and have an elevated attention to safety and sanitization. The continuation of these macro trends resulted in elevated levels of pool usage, interest in pool ownership and pool ownership, new pool permits, and pool construction backlogs. Second, the competitive advantage derived from our integrated system of physical and digital assets. In the quarter, we successfully completed our rollout of omnichannel capabilities, Volpus, Ship from Store, Ship to Store, and Boris. These new capabilities significantly strengthen our ecosystem and enable our consumers to shop Leslie's whenever, wherever, and however they choose. In the first six weeks since GoLive, 30% of our Leslie's e-commerce transactions have been enabled by our new omnichannel capabilities. Third, the significant and tangible growth opportunities available to us as the market leader. We continue to make great progress on the key drivers of our growth strategy, including consumer file growth. We continue to grow our consumer file driven by new consumer acquisition. Total target file growth was 12% in the quarter, New consumers grew 35%. During the quarter, we shifted marketing spend away from our lower-margin sites and increased spend to our targeted higher-margin sites and higher-value consumers. We continue to generate high levels of ROI with our marketing spend, and we'll continue to invest in our targeted marketing tactics to capture share. Driving growth in our loyalty program. In Q2, we grew our total loyalty members by 10% year-over-year driven by a strong increase in new members. The number of new members added in Q2 of this year increased 44% versus the number of new members added in Q2 of last year. Our new loyalty program 2.0, which we have named Pool Perks, is in final testing, and we look forward to launching this exciting and important initiative this pool season. We believe our consumers will love the new program benefits and experience, And we look forward to accelerating the growth and value of our member file with its launch. The pro market. We have completed the conversion of our first 10 residential locations to pro locations. And in the first eight weeks post-conversion, they are outperforming our pro format expectations. In addition, three new Biddle Pro stores remain on track to open in the third quarter. We also have launched our pro affiliate program and have already signed up affiliate partners in several hundred of our locations. These new affiliates are spending 80% more with Lesley's after signing up for the program and we are continuing to add new affiliates across our locations. The last component of our pro initiative, our pro e-commerce site, is still in beta testing. During testing, we received some very valuable feedback from our pro testers and are fine-tuning the site for mobile optimization and search. We are still on track for the full launch this season and feel we have materially improved the product with this process. With regard to our residential white space opportunity, we have opened three new stores year to date and plan to open up to seven additional stores this fiscal year. Also, and importantly, AccuBlue Home, our connected pool technology solution and subscription service, remains on track for a limited launch of version 1.0 during the third quarter. On the M&A front, we closed on the acquisition of International Hot Tub in the quarter. IHT operates four retail locations in the greater Denver, Colorado area, and we welcome them as the newest member of our hot tub business. With the acquisition, we now have a total of 943 physical locations and have Colorado as our 38th state of operations. We continue to see an abundance of acquisition opportunities across the highly fragmented pool and hot tub industry, and we are managing an active pipeline of targets. Accordingly, we have entered into an LOI with an additional tuck-in opportunity, which we expect to close in the third quarter. With regard to corporate governance, I'd like to note that in the quarter, Brad Gassaway, our chief legal officer, took on the executive leadership of our ESG initiatives. Also in the quarter, we hired a director of ESG and formed a sustainability working group comprised of internal resources and external advisors. This group will work at the direction of the board and management to assess material ESG factors and develop our novel ESG disclosure framework and report. We will keep you updated on our progress on this important initiative in future calls. Finally, I'd like to comment on two extraordinary industry dynamics in the quarter. First, chlorine supply remains constrained for the industry and is driving higher average retail pricing. Current residential chlorine pricing is approximately 40% higher than a year ago. As we discussed last call, we remain confident in our supply chain and in our ability to serve both our existing consumers as well as the new consumers we are acquiring with our growth initiatives. With regard to supply and cost, we remain in good shape. With regard to retail pricing, we are continuing to see increases across the industry. In the second quarter, chlorine retail inflation accounted for approximately 300 basis points of our reported sales growth. We continue to monitor chlorine product pricing across online physical competitors and modify our prices as appropriate. Although it remains to be seen what prices will do as we get further into the pool season, we now expect chlorine supply to continue to be constrained and chlorine price inflation to be more durable than we had anticipated on our last call. The second extraordinary event in the quarter was the deep freeze weather conditions in Texas and the south central U.S. This was an unprecedented event, and unlike anything even our most tenured associates have experienced. The event significantly increased our service volume and equipment sales in the region and drove total equipment sales up approximately 85% in the period. For the quarter, we estimate that the freeze accounted for approximately $10 million of incremental sales, and it's clear that we will continue to have opportunities to help consumers with damaged equipment and water sanitation needs into the third quarter. To wrap up, We are very pleased with our record results for the quarter. But more importantly, we are both gaining traction in our growth initiatives and feel we are very well prepared for what we see as a strong 2021 pool season in the back half of our year. With confidence in our team continuing to execute at a high level, our detailed preparations for the season, and the continuation of a favorable industry backdrop, we have, as you have seen in the press release, revised our guidance for the year upward. With that, I'll hand it over to Steve to discuss the quarter and outlook in more detail. Steve?
Leslie
Thank you, Mike, and good afternoon, everyone. The strong start to our fiscal year continued in the second quarter as we remained focused on our growth initiatives and preparing for season. We generated record second quarter results that exceeded our expectations, and we're proud of all of our associates as they continued to deliver against our strategic priorities and generate the results we're reporting today. Today, we'll review our second quarter of fiscal 2021 performance and our upward revision to our full year fiscal 2021 guidance. Before I get started, just a reminder on the calendar this year. As a result of fiscal 2020 having 53 weeks, there are calendar shifts in fiscal 2021 that impact our quarterly comparisons on a year over year basis. In the second quarter of fiscal 2021, we replaced a lower volume week at the end of December with a higher volume week at the end of March. This shift impacted sales by approximately $15 million during the second quarter. So onto our second quarter results. Our second quarter included 13 weeks and ended on April 3rd, 2021. We delivered strong results for the second quarter with momentum throughout our business and our P&L. Total sales for the 13 week period increased 52.3% to $192.4 million from $126.4 million in the second quarter of fiscal 2020. our comparable sales on a reported or unshifted basis increased 51.3%. Due to the 53rd week in fiscal 2020, our comparable sales growth in 2021 is impacted by a one-week shift. Using a realigned period in 2020 for comparability, our comparable sales on a shifted basis for the second quarter of 2021 increased 35.5%. This represents an acceleration of growth following the comparable sales growth of 25.7% that we reported on a shifted basis in the first quarter of fiscal 2021 and 23.3% increase that we reported in the fourth quarter of fiscal 2020. On a two-year stack calendar basis, our comparable sales grew 49.1% during the second quarter of fiscal 2021. We generated strong results across consumer types, product categories, geographies, and as Mike mentioned, during each period in the quarter. We also continued to see higher than expected retail price inflation, primarily related to chemical products, channel management by major equipment manufacturers, higher input costs, and less discounting across product categories. Our gross profit increased 79.6% to $71.7 million from $39.9 million in the second quarter of fiscal 2020. Gross margin rate increased by 567 basis points to 37.2% from a 31.6% in the prior year, primarily due to occupancy leverage, product margin improvements, and partially offset by business mix. SG&A increased by $14.4 million to $70.4 million from $56.0 million in the second quarter of fiscal 2020. The increase in SG&A was driven primarily by the sales increases and investments to support our growth. Higher compensation accruals and increase in non-cash equity-based compensation were also drivers of the increase. As a percentage of sales, total SG&A decreased 778 basis points to 36.6% in the second quarter of fiscal 2021, compared to 44.4% in the prior year period. It is important to note that during the current year quarter, we also absorbed new public company costs in our reported results. Adjusted EBITDA improved by $17.6 million to positive $9.5 million from a loss of $8.1 million in the second quarter of fiscal 2020. During the current year quarter, we converted the increase in sales at a higher gross margin and leveraged our costs even as we invested against our key strategic priorities. As a result, we generated a positive EBITDA quarter when the second quarter has historically represented approximately negative 5% of annual EBITDA. Adjusted net loss was negative $2.8 million compared to a loss of negative $28.8 million in the prior year, an improvement of $26.0 million. The improvement was due to a $17.4 million increase in operating income, a $14.6 million reduction in interest expense, and was partially offset by a $5.9 million reduction in income tax benefit. Our lower interest expense when compared to the prior year period was a result of our repayment of outstanding senior unsecured notes in November of 2020, lower LIBOR on our floating rate debt, and no borrowings on our revolver in the current year period. Diluted adjusted loss per share improved by 17 cents per share to a loss of one cent per share in the second quarter of fiscal 2021. compared to a loss of 18 cents in the second quarter of fiscal 2020. Now I'll turn briefly to year-to-date results. Following are a few highlights. Total sales for the 26-week period increased 35.3% to $337.4 million from $249.4 million in the prior year, an increase of $88.0 million. Our comparable sales on a reported or unshifted basis increased 33.7%. On a shifted basis, to factor in the one-week calendar shift, our comparable sales grew by approximately the same amount at a total of 31.1%. This compares to comparable sales growth of 8.4% in the first half of fiscal 2020 and represents comparable sales growth on a two-year stack basis of 39.5%. Gross profit increased 52.4% or $42.4 million to $123.4 million from $81.0 million in the second quarter of fiscal 2020. Gross margin rate increased by 409 basis points to 36.6% from 32.5% in the prior year. And adjusted EBITDA improved by $26.4 million to a positive $9.3 million from a loss of negative $17.1 million in the first half of fiscal 2020. Diluted adjusted loss per share improved by 27 cents per share to positive 7 cents in the first half of fiscal 2021, compared to a loss of 34 cents in the first half of fiscal 2020. Moving now onto the balance sheet. We finished the quarter of fiscal 2021 with cash and cash equivalents of $90.3 million. excuse me, finished the second quarter of fiscal 2021 with cash and cash equivalents of $90.3 million. And we had no borrowings on a revolver compared to cash and cash equivalents of $11.9 million and borrowings on a revolver of $50 million at the end of the second quarter of fiscal 2020. Cash and cash equivalents net of revolver borrowings on a year-over-year basis improved by $128.4 million. On inventory, We finished the quarter with $277.9 million compared to $244.7 million at the prior year quarter end, an increase of $33.2 million. As a reminder, at the end of our first quarter, total inventory was $10.6 million lower than the prior year. We have proactively worked with existing and new vendors globally to identify opportunities to strategically invest in inventory. We're pleased with our higher inventory position when compared to the prior year in the current environment of heightened consumer demand, and especially in light of the tight industry supply situation across multiple product areas that our teams have been working hard to navigate. Finally, on inventory, we continue to work closely with our vendor partners to maintain the efficient flow of products to prepare for season. With regard to debt, at the end of the second quarter of fiscal 2021, Total funded debt was $810 million compared to $1,207,000,000 at the end of the second quarter of fiscal 2020. The $397 million reduction was due to the repayment of our senior unsecured notes and quarterly amortization payments on our outstanding term loan. During the second quarter of fiscal 2021, we amended our $810 million term loan agreement and a couple of key highlights. First, we extended the maturity to March of 2028 from August of 2023. And second, we lowered our interest to LIBOR plus 275 with a 50 basis point floor where previously interest was LIBOR plus 350 and no floor. In addition, after the end of the second quarter of fiscal 2021, we amended our $200 million ABL credit facility to reduce our rate to LIBOR plus a range from 125 to 175 basis points based on percentage utilization. Previously, our rate was LIBOR plus a range from 175 to 200 basis points. We also reduced our unused fee from 37.5 basis points to 25 basis points, and the maturity on our revolver remains August of 2025. No amounts were outstanding on our ABO credit facility as of April 3rd of 2021. Next, I'd like to turn to our outlook. Today we're raising our full year fiscal 2021 guidance to reflect the first half beat to our internal expectations, progress against our growth initiatives, our view that inflation will be higher than previously expected for the full year, and take into consideration the additional service volume and equipment sales in Texas and South Central US resulting from the winter freeze. Our fiscal 2021 includes 52 weeks and ends on October 2nd, 2021. For the year, we're providing the following guidance. First, sales of $1,250,000,000 to $1,270,000,000, which is an increase of $75 million at the midpoint for a year-on-year increase in the mid-teens range, excluding the impact of the 53rd week in the prior year. This compares to our prior expectation of high single-digit growth on the same basis. As we look at the second half of fiscal 2021, our guidance reflects confidence that our comparable sales growth on a two-year stack calendar basis will remain above 30%. Second, adjusted EBITDA of $225 million to $235 million, an increase of $25 million at the midpoint for a 33% increase year-over-year, excluding the impact of the 53rd week in 2020 and adjusting for public company costs. The high end of our range represents a 36% increase over the prior year on the same basis. This compares to our prior expectation of high teens growth. Next, diluted adjusted net income of $125 million to $135 million, an increase of 19 million at the midpoint. And finally, diluted adjusted net income per share of 65 to 70 cents for an increase of 10 cents at the midpoint. In summary, The second quarter of fiscal 2021 was a record quarter with $192 million in total sales. We drove strong financial results throughout our P&L. Our entire organization continued to execute against our growth initiatives as we prepare for pool season in 2021 in this environment of heightened consumer demand. And finally, we will continue our relentless focus on enhancing consumers' experience and executing our initiatives to continue to drive growth and market share gains. And with that, I'll hand it over to the operator to open the lines for Q&A. Thank you.
Operator
Thank you. We will now begin the question and answer session. To join the question queue, you may press star then 1 on your telephone keypad. You will hear a tone acknowledging your request. If you are using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star then 2. We will pause for a moment as callers join the queue. Our first question comes from Ryan Merkel of William Blair. Please go ahead.
Ryan Merkel
Hey, guys. Congrats on another big quarter. Hi, Ryan. Thanks. Thank you. So, first off, full-year guidance still feels a little conservative to me. I realize the season is just starting, but where could there be some upsides?
Leslie
Sure, why don't I kick that off, Mike, and you can follow on. So when you think about guidance, similar kind of process we went through in first quarter, Ryan, about two-thirds of the guidance raised was kind of flow-through from the second quarter outperformance, which means remaining one-third or about $25 million is related to kind of our current view on inflationary opportunities as well as just recent trends. And so when you think about the first quarter, we had a $10 million flow-through from meeting internal expectations and another $10 million from kind of inflation as well. So we continue to be very optimistic about our opportunities. As you said, it still is kind of early from a season perspective, and based on current trends, we certainly have some opportunities to the upside, but feel very confident in the guidance that we've provided today in our release.
Ryan Merkel
Okay, that's helpful. And then, Mike, you mentioned that 30% of transactions were enabled by Omnichannel, I think. Can you just expand on this a little bit more?
Mike Ejec
Yeah, it means that through the fulfillment, right, it was either ship to store, ship from store, or BOPUS. And I think the other way to look at that is 13% of it was ship from store. And the way we have the omnichannel filter set up, those are all incremental sales. So we're looking at it as a very encouraging start. It's scaling faster than we anticipated, and the ship from store or incremental part is higher than we anticipated. But I need to wrap around all of that. It's very early days, right? We're really just six weeks into it. But working as designed and scaling faster than we anticipated. So we're happy. That's great to hear.
Ryan Merkel
Thanks. I'll pass it on.
Operator
Thanks, Ryan. Our next question comes from Peter Benedict of Baird. Please go ahead.
Ryan
Oh, hey, guys. Thanks for the question. So maybe looking, trying to think a little further down the road here, can you give us any perspective on how retail prices tend to adjust in this sector as commodity costs come back down after a steep run-up? Obviously, they're moving higher here, but what does history tell us about what happens when inevitably the commodity costs start to come down whenever that's going to be?
Mike Ejec
Steve, do you want to take that one to start or do you want me to?
Leslie
Sure, happy to. So, look, I think time will tell, obviously. I think when you think about what's out there in the current public markets, the duration of the supply disruptions are going to continue for quite a while here with potentially some normalization as we get late in the season next year. But, again, too many unknowns to know at this point. I think when we look at pricing a little bit further back, I have not seen material reductions in pricing from a competitive position, but I think we believe that current pricing likely won't be sustained once full supply comes back online. But I think as we think about the opportunity in front of us today, it really is about our opportunity to engage with existing and new consumers. We're seeing, based on some of the recent news around shortages, that We're attracting a lot of first-time consumers to Leslie's and get to introduce the experience and what we have to offer. So the durability of the opportunity for us is really wrapping our arms around those consumers and showing them more than just the supply of chlorine in the current season.
Mike Ejec
Yeah, that's great to hear. Thanks for that. Sorry, go ahead, Mike. Yeah, I would just add, you know, it's a tough question to answer because it's really an unprecedented disruption and run-up. You know, the industry for years has not been very inflationary in chemicals. So we believe it'll be somewhat sticky in terms of what the industry is able to hang on to. But to Steve's other point, it's still unclear when production levels for the industry will return to normal. So two big unknowns, the timing of production catch-up and also an unprecedented run-up and how consumers will react to that on a go-forward basis. I think everyone appreciates that, and that makes sense. So appreciate the color you guys just gave there. My follow-up question would just be around the initial pro-affiliate customers that you're signing up here. Any color information on them? How do they look maybe relative to what you think your traditional pro customers were? I mean, they look the same. And the 80% increase in spend, I mean, what is that on? How do the baskets look? Just any other color. I know it's early, but just wanted to see what you can share on that. Thank you so much. Yeah, sure, Peter. Well, look, to your last comment, it's still really early, right? So we're not drawing conclusions. But similar to the Omnichannel Go Live implementation of pro affiliate program, We're very pleased with the start. We have signed up about 20% of our goal for the year to date, so we're ahead of plan there. And the basket size is, well, much higher than they were spending with us pre-joining the program. And I said it's about 80%. It is, as you might expect right now, driven by chemicals and equipment. They're in high demand. But we're just getting very variable, very – favorable feedback from the affiliate members who are signing up. And we continue to add new partners at a good clip. So very early, but all good news there. Okay, terrific. Thanks so much and good luck. Thanks.
Operator
Our next question comes from Jonathan Metazowski of Jefferies. Please go ahead.
Jonathan Metazowski
Hey, guys. Thanks for taking my questions and great quarter. First one was just on the cadence throughout the quarter. You mentioned strengthening trends. Obviously, a unique quarter with the inclement weather in the south central. Just curious if you could help us frame maybe how comps trended on a monthly basis.
Leslie
Yeah, thank you for the question. Certainly appreciate it, Jonathan. I'd characterize it as consistently improving, right? So it wasn't a midpoint in February from a weather perspective that we saw a spike. As Mike mentioned, about $10 million of incremental sales from the weather event, and that's on $190 million in overall sales. In addition, as we talked about kind of chemical inflation, chemical inflation was a few hundred basis points which was kind of mid-single digits from billions of dollars of increase. So the core driver of the performance for the quarter was really throughout our product categories, throughout our regions, throughout our businesses that really drove the beat. And again, very pleased on a both current year as well as a two-year stack basis to see that improvement in January, February, and then in March.
Jonathan Metazowski
Gotcha. That's helpful. And then a follow-up question just on kind of new customer acquisition, impressive numbers that you stated. Is there a way to frame, you know, how much of the new customers acquired were influenced by some better in-stock positions than you had presumably relative to peers? And, you know, a second question kind of related to that was, you know, those customers who came in and maybe – bought chlorine from you guys for the first time. You know, anything you've seen in terms of repeat purchases? Do you have kind of indications that, you know, that they're kind of showing loyalty after their first purchase? Thanks.
Mike Ejec
Yeah, Jonathan, I'll answer that in a couple of ways. First, I'd say I was a little surprised that we weren't adding more new customers strictly on chlorine. Decoring purchases from new customers was very much in line with the balance of our file. So it was not the driver that we anticipated. It's really coming down to digital spend. As you said, I would say better in-stock positions across our categories than some of our competitors. And also, you know, we noted the loyalty programs growing at the same time, which we find very encouraging because As you know, we're launching what we believe is a much improved program. So to get that kind of growth from the existing program, really driven by sign-ups in-store, that we consider a very positive trend. But it's, you know, when you think about the final growth that we had, it was led by new customers, but we had increases across new customers, reactivated customers, and retained customers. So we're quite happy with that trifecta and the trends across those three portions of the file.
Jonathan Metazowski
Really helpful. Thanks for the color and best of luck. Thanks.
Operator
Thank you. Our next question comes from Peter Keith of Piper Sandler. Please go ahead.
Peter Keith
Hi, thanks. Good afternoon. Great results, guys. The one number that really jumped out to us was the inventory growth, because we do hear about all these shortages. In the context of chlorine shortages, do you guys feel like you're going to have enough to last the season, therefore maybe enhancing your competitive position as we go forward, or do you think everyone's going to start running out at some point?
Mike Ejec
Yeah, well, Peter, thanks for the question. We feel like what I said in my remarks. We feel confident in our inventory levels. Now, I will say this last week, we set an all-time record for chemical sales. As I'm sure everybody noticed, right, there was a number of news articles talking about a shortage, and that certainly spiked demand, really spiked demand. We consider it kind of a temporary spike, if you will, And right now, though we're at a bit of a low point in chlorine, we have lots of supply in the pipeline. And we do think we're in an advantage position versus competition. When we get further into the season, we'll find out. But we're very focused on using our in-stock positions across categories to continue to add new customers.
Leslie
And Peter, I'd add on to that. We have more chlorine this year than we had in prior years. So again, opportunistically going out and procuring a supply from a global network has put us in a great position. That being said, with the overall industry shortages, certainly we'll have a lot of attention on availability. I would like to remind you as well that when you talk about alternatives, whether it's salt chlorine generators or liquid bleach or other alternative sanitizers, We provide the total solution, and we can install equipment in the backyard when it comes to salt chlorine generators, and we sell alternative sanitizers in our stores every day. So chlorine is an important part of the sanitation products for the industry, but there's certainly a lot of alternatives that will continue to help consumers to keep clean, safe pools.
Peter Keith
Okay. That sounds interesting. And on the inventory availability, if I could pivot away from chlorine and maybe towards pool equipment, pool parts, there is chatter that there's also some inventory constraints in these areas because of the demand surge in Texas. Are these, I guess, are these rumors true? How do you guys feel about your competitive positioning in the pool parts categories?
Mike Ejec
Yeah, I would characterize it as a tight supply situation. I think that's correct. As you know, the major equipment suppliers are reporting or starting to report. And, you know, they're purporting really strong numbers. And that's not unexpected from us because we know what we're buying from them. And what we feel good about is, you know, we very early in the year, in preseason, got aggressive with forward-looking projections for equipment and chemicals. And, you know, our sales with the major vendors are outpacing their sales. So we feel good in that sense that we're getting increased market share, if you would, of their production, and that should treat us well as we get further in the season.
Peter Keith
Okay. Sounds good, guys. Thanks a lot, and good luck.
Operator
Our next question comes from Stephen Forbes of Guggenheim Securities. Please go ahead.
Ryan
Good evening. I wanted to follow up on the pro. So, Mike or Steve, can you discuss how pro sales growth compared to the average during the quarter, any sort of context, right ratio, or however you want to reference it? And then in regards to the pipeline, right, both in terms of new stores and the conversions, how far out are you sort of planning pipeline, right, as we think back to sort of just the expectation on an annual basis for the number of openings? Has that changed, right, given the strength that you're seeing?
Mike Ejec
Yeah, I will say that, you know, in terms of the wholesale business growth, it grew about twice our average, twice the company total, I should say. So really strong growth there. The Converted stores, we're very pleased with initial results. Again, it's early days there, eight weeks. We have a second tranche of stores identified. It's about 25. But we are going to wait to see how the stores perform as we get deeper into the season before we start any additional conversions.
Ryan
Helpful. And then maybe just a quick follow-up, right, since you mentioned the closing of the acquisition and then the new LOI, I'm curious if you just comment in general, right, as it pertains to the M&A pipeline and the general appetite, right, for deals in the marketplace given the supply challenges that are out there, you know, if the supply challenges have sort of created this elongated pipeline for you guys.
Mike Ejec
Yeah, I think, you know, it's a combination of having to deal with the pandemic and having to deal with, tight supply, and of course, they're related. I mean, there's just a dynamic in the industry where a lot of smaller operators are looking to monetize and looking to exit. It's been a very arduous, if you would, 14, 15 months now. And that's driving some of the pipeline, for sure. And most of our pipeline, as we've mentioned before, It's really incoming, and we're seeing a lot of interest.
Leslie
Thank you. From an inventory perspective, I'd just make the comment that, you know, look, these are tech and acquisitions we've done, and so can handle from an inventory flow perspective. And in other cases, you know, certainly are making sure we have conversations with the supplier base, you know, in connection with the discussions around M&As. I think you're right to be focused on it and one that we don't think will be an inhibitor for our ability to close on deals.
David Bellinger
Thanks, Steve. Best of luck.
Operator
Our next question comes from Elizabeth Suzuki of Bank of America. Please go ahead.
spk01
Great, thank you. Are you seeing anything in southern markets in particular where pools may be opening up that would indicate an earlier start to the season than last year, particularly given some more favorable weather this year?
Mike Ejec
Yeah, just one comment on weather to start with is the outside of Texas, the weather wasn't actually a favorable quarter. Now, there were pockets of favorable weather. But to your earlier question about pool openings, we're running about 20%, 30% ahead of last year. So it is true that people are looking to get their pools open earlier and start enjoying it.
spk01
Great. And are there any industry stats you can point to in terms of the sustainability of demand for new pools, like permanent applications and the backlog? I know that that had been running pretty hot. I mean, is that still the case, or as markets are opening up and people can divert money towards travel and things away from the home, are you starting to see that tailing off at all?
Mike Ejec
No, actually the data we're seeing is that projections of increased permanent activity closer to last year's level and this year's level through 2025 now. Now, those are forecasts, but they're industry forecasts, and we certainly haven't seen anything in terms of velocity or interest or demand that would tell us different.
Leslie
Yeah, it's a great tailwind. Great, thank you. There's been others who have reported, Liz, And they've talked about the supply and the backlog going well through the end of this season and into next season as well at new pool builds at higher levels than we've talked about in the past. So it certainly feels like there's continued momentum and no slowdown. And as we've talked about, that's a great leading indicator as we get to take care of those pools and the maintenance needs for the next 30 years.
Caitlin Churchill
Great. Thanks so much.
Operator
Our next question comes from Dana Telsey of Telsey Advisory Group. Please go ahead.
Dana Telsey
Hello, everyone, and congratulations on the terrific report. Just digging more into loyalty, given that loyalty is up around 10%, what is the profile of these new customers, and how is the sales penetration of those loyalty members year over year? And then I have a follow-up.
Mike Ejec
Yeah, the loyalty members that are coming in are – you know, predominantly the same demographic profiles as the existing loyalty base. And we're not seeing anything there that would be a dramatic shift in age or income or even geography. So it's a little bit, the story there is a little bit more of the same. We are seeing increased penetration of loyalty into our total sales base. it had been running about 70%. And last quarter, it kicked up to nearly 80%. So we consider that a good sign. And again, we're really looking forward to launching the new loyalty program. And we think we can accelerate the growth from what we saw last quarter, for sure.
Dana Telsey
Got it. And then when you think about the pro program on the pro affiliate program, a tongue twister, The pro affiliates spending 80% more after joining the program. What are you noticing there? What are they spending on? Is that a flywheel to attracting more pros?
Mike Ejec
Yeah, we believe it is. You know, we knew we had a lot of pro customers. You know, we had talked about that before. What we had was very small share of wallet from them. So we anticipated that. Um, and actually our agreement with them has spend, um, minimums in it. Uh, but they're going through those minimums pretty quickly and we just feel really good about what is, is wallet share that we're, we're taking from it. And it's working for, for the reasons we laid out when we started, right. The most important one is convenience. Now these are smaller pros and they're, uh, sole operators in a lot of instances, their time is literally their money. and they're at a pool with a customer and need something, and our stores are almost always, by definition, the closest stores. That convenience, plus the pricing we give them, plus an increased assortment of pro-specific products, and then the referrals, that's proving to be a very powerful combination in attracting pros into the affiliate program, and then... increasing the wallet share that we're achieving from them.
Dana Telsey
Thank you.
Operator
Our next question comes from David Bellinger of Wolf Research. Please go ahead.
David Bellinger
Hey, guys. Thanks for taking the question. Greg Corder here. First one, just on the southern markets being elevated following the Texas storms, Is that tailwind expected to continue into Q3? Are there any historical precedents you can reference in terms of just how long these protracted sales gains last? And also any comments on how much stronger, you know, the south was in Q2 versus other parts of the country?
Mike Ejec
Yeah, I'll address that first part. We are seeing continued high levels of demand from Texas and the south central region into Q3 to date. There's a lot of, I'm going to say, different forecasts and speculation on how long this will last. But I know that the equipment manufacturers and parts manufacturers in particular are producing product as fast as they can, and it's being absorbed into the markets. There was a lot of repair work done early on in the freeze that was not complete. meaning there was a lot of workarounds due to parts or equipment shortage. And so a lot of that work has, I think, been done, but now there's going to be a second wave where people are going to want to go in and add in the new parts that may not have been available earlier.
Leslie
Yeah, I'd add on to that. Thanks for that. We forgot the timing. of when that occurred in February, not core pool season. And so as water temperatures heat up, that market's going to experience significant issues with respect to algaes and other blooms. And so to Mike's point, may have had some workarounds early on, but we'll need the full solution on the equipment pad as we kind of get into season here. So I think the only thing I'd point to from a parallel perspective, we talked a lot about this being a significant weather event, kind of like a hurricane. where you have a little bit of a slowdown during the actual event as people focus on their safety, and then they quickly return to taking care of their property, and it can last for quarters. So certainly, as we stated, had an impact in Q2 and anticipate that to continue through Q3 and likely through the rest of the year.
David Bellinger
Okay. And then just tell me – sorry, go ahead, Mike.
Mike Ejec
David, I'll give you just a couple of points on that. When we saw what was going on, we increased our service team personnel by 70% in Texas. And we transferred about that equivalency in additional inventory into the area. And we're still sitting on a backlog of service requests five times normal. So at this moment, we continue to see a lot of demand
David Bellinger
Thanks for all the detail there. And then just separately, on the outlook for gross margins in the back half of the year, so how sustainable is the margin expansion that you saw here in Q2 on the heels of, you know, another nice improvement just coming off of in Q1? How much of that can continue into the back half?
Leslie
Yeah, as we look at the back half of the year, and again, don't provide specific guidance on gross margins, but we're confident that our margins are going to be higher from a growth rate perspective than our long-term growth algorithm. We talked about flat 25 basis points up on a year-in, year-out basis. We will certainly be elevated from there. As you think about the 567 basis points, fairly fixed occupancy when you think about current fleet and current footprint. And so we did see quite a bit of leverage coming through from occupancy in Q2 And obviously as you get 50% beat plus on the top line, you're going to see some very strong leverage. So certainly expect a moderation, but overall a very positive story as we continue to see leverage throughout most aspects of our business.
Ryan Merkel
Thank you.
Operator
Our next question comes from Garrick Schmos of Loop Capital. Please go ahead.
Garrick Schmos
Thank you, and congratulations on the quarter. I just wanted to follow up on the topic of alternatives to chlorine. You touched on this a little bit, but are you actually starting to see pool owners aggressively seeking out these alternatives? I guess if so, would there be any impact, whether to sales or margin, just from a shift in mix at all?
Mike Ejec
Yeah, Gary, it's a very interesting question. We are seeing an increase in sales of salt cells. in the neighborhood of 30%. All alternative sanitizers combined, other than salt cells, were actually flat. So we have not seen a big shift, and we're prepared for it. The margin profiles are similar. We can be very agnostic as to what chemicals or what methods one of our consumers wants to use to sanitize their pools. But we have not seen a big shift yet.
Garrick Schmos
Great. That's helpful. The follow-up question is just around the back half outlook. You know, you've stated in the past about 45% of your full-year sales are in 3Q, about 35%. In 4Q, obviously, it's going to be a little bit skewed this year just given how strong the first half has been, but just kind of wondering if there's anything from a high level to call out. regarding the cadence in the second half of the year relative to your guidance?
Leslie
Yeah, that's a good question, Garrick. And when you think about, you know, historically it's been kind of 10 to 12% for each of the first and second quarters, kind of got us to about a 20% for the first half. And when you look at the back half of the year based on the guidance, we've effectively said that about 26% of total sales will be in the back half of the year. So definitely skewed more, a little higher percentage in the back half of the year for, or sorry, 26% in the first half of this year. So about 74% will come in the back half of the year. A little skewed more towards the front half of the year, just given the growth rates. But I think as you think about Q3 versus Q4, I don't have any reason to believe that the flow or trend should be different between the two quarters in the second half.
Garrick Schmos
Okay. Thank you very much.
Operator
Our next question comes from Alex Marocchia of Barenburg. Please go ahead.
Alex Marocchia
Hi, good afternoon, guys. My first question is on the pro store rollout. What have you learned operationally with these first few store openings, and how can it improve some of the new greenfield or converted locations going forward?
Mike Ejec
Yeah, I learned a couple of things. One is the increased assortment is driving about a third of the lift that we're seeing. Extended store hours are driving close to another third. And then the other third, I think, is I'm going to say stores that now say Lesley's Pros and the Pro Affiliate Program, just lifting the awareness of our program in the trading region.
Alex Marocchia
Okay, understood. And then secondly, I'm sure your team wasn't anticipating a chlorine shortage during the AccuBlue home rollout. Could a wider rollout be impacted at all by pricing pressures or inventory constraints?
Mike Ejec
Well, you know, we've said that we're going to limit this initial version 1.0 in a pretty significant way. In some ways, it's like a broader beta test, and we're going to focus it on our loyalty customers. And in terms of our modeling for the supply that AccuBlue home customers will need, we'll be in good shape. We'll be fine. Version 2.0, which we anticipate we will be scaling to a more significant volume, is scheduled for the second half of next year. And And as near as we can tell at this moment, chlorine supply should be more normalized at that point.
Alex Marocchia
Okay, that makes sense to me. Thank you. Yep.
Operator
This concludes today's question and answer session. I would like to turn the conference back over to management for any closing remarks.
Mike Ejec
I'd like to thank everybody for joining us today. It was a good quarter, and we look forward to presenting Q3 and Q4 when we get to those points. Thank you very much.
Operator
This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.
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