Peter D. Arvan
President and Chief Executive Officer at Pool
Thank you, Melanie, and good morning to everyone on the call. This morning, following exceptional first half results and up against a very difficult comparison from the third quarter of 2020, the POOLCORP team once again raised the bar to record heights. We proudly posted net sales for the third quarter of 2021 of $1.4 billion, which is a 24% increase over the prior year quarter. Our base business grew 19% in the quarter with acquisitions contributing 5%. Our diluted earnings per share for the quarter were $4.54, which is a 55% increase over the very strong third quarter of 2020. The earnings per share were $4.44, a 64% improvement when excluding the ASU benefit from both periods -- or from the period in both '20 and '21. People's desire to spend more time outside in the comfort and safety of their backyard pool or outdoor living space remains strong. Our builders and remodelers are reporting very solid backlogs going into 2022 and in some cases, through the 2022 season. Our retailers are reporting elevated demand and our service professionals are working long hours just to keep up with service requests. From a supply perspective, lead times for our products are still above normal and, in some cases, well above normal. Component shortages, a tight labor market and the global logistics crisis made keeping up with the elevated demand of the industry a challenge for most of our vendors. Our talented teams have leveraged the unmatched scale of our network and the powerful balance sheet to mitigate supply interruptions by providing more products and options for our customers than is typically available everywhere else. Our teams have worked tirelessly in the most challenging environment of our times to make sure we can provide unparalleled service to our customers. Our network is strong, our people are skilled and creative with a tenacious work ethic.
And this combination has allowed us to once again prove we are the best in the business as we continue to take share from our competitors. In accordance with our strategic plan, we have opened 10 new locations and completed two strategic acquisitions during the year as we relentlessly pursue service excellence and capacity creation. Now let me share the specific results from our four largest markets. Florida and Texas continued to benefit from favorable demographic trends with base business growth of 26% and 25%, respectively. California grew 17% while Arizona grew 18%, a further proof that the industry is seeing strength in all major markets. In total, year-round markets had base business growth of 22% in the quarter, which was slightly better than the 20% growth that we reported for the third quarter of 2020. Seasonal base business markets grew 16%, but this compares to a very strong third quarter of the previous year, where we recorded 33% growth for the same quarter. For context here, weather conditions were generally favorable in most markets for the quarter. Looking at end markets and excluding the impact of acquisitions, I am happy to report that commercial pool product demand has come back to greater than prepandemic levels. For the quarter, commercial product sales increased 25%, bringing the total year-to-date growth rate to 24%. We saw more pools reopen with elevated usage, driving maintenance and repair spend and construction projects are starting to flow again. This is a very encouraging sign as this market was impacted the most during the COVID travel and public gathering restrictions. Retail product sales were encouraging with demand up 16%, which compares to the 28% growth that we reported in this end market for the same quarter of 2020. Chemical shortages have impacted this part of the business more severely than others as it is a key product for a retail-focused customer. From a product perspective, equipment sales growth was strong, posting gains of 23% for the period. This category includes pumps, heaters, lights, filters and automation.
Chemical sales were up 10% for the quarter as the industry grappled with shortages and managed rolling stockouts on key products. As mentioned previously, the reduction in industry capacity after a major fire at the BioLab Plant last year left the industry in a net short position on trichlor and drove significant inflation on available product. Fortunately, there are several ways to sanitize a pool, and the industry has adapted and improvised to keep pools clean and safe. This tightness in chemical supply is likely to continue into next season as BioLab rebuilds its plant. In the meantime, capacity expansion from the remaining players, product substitutions and imports should mitigate the effects albeit at elevated price levels. Lastly, building material demand remains strong in all markets. Sales for this product line grew 24% in the quarter, and this is on top of the 29% growth that we posted in the third quarter of 2020. On a year-to-date basis, we are up 30%, which is driven by a very robust construction and remodel market. Turning to Europe, sales grew 5% in the quarter. But bear in mind, we had a very difficult comp here as last year for the same period, our European sales grew 45%. Like North America, demand remained strong, but cooler and wetter weather and supply shortages had a significant impact on the team in the third quarter. Horizon continues to accelerate, posting overall revenue growth of 25% in the quarter, bringing the year-to-date sales growth to 28%. Base business sales growth was 20% and 22%, respectively, for the quarter-to-date and year-to-date results. We are very pleased with how this business is performing, and we continue to invest in this platform. Like the blue business, supply shortages and extended lead times continue to be a challenge for our team, but their grit, determination and focus on the customer have driven solid share gains in the industry.
Now let me turn to gross margins. For the quarter, our overall gross margin was 31.3%, which is a 240 basis point improvement over 2020. On a year-to-date basis, we are up 170 basis points. Like last year and last quarter, this improvement is driven by supply chain execution, certain volume-related incentives, inflation benefits and product mix. In addition, we have been focused on more strategic and disciplined pricing, which is helping us in the current environment and will continue to help us going forward. Our ability to strategically leverage our balance sheet has been a key factor in our success in both the 2020 and 2021 season. This is a key differentiator for POOLCORP, and it has allowed us to provide industry-leading customer service while capturing greater value and positioning us for a great start to the 2022 season. From an expense perspective, the team again delivered incredible results. Our operating expenses for the quarter were up 13%, which is outstanding given our 24% revenue growth for the quarter. Yet again, the team's focus on execution, hard work and capacity creation initiatives allowed us to achieve record levels of operating leverage. POOL360 continues to be a cornerstone of our business, comprising 12% of our revenue and growing 47% in the quarter. We are excited to announce that beginning in the fourth quarter, we will be rolling out the next generation of this strategic platform that we think will further drive adoption and help our customers be more efficient. Wrapping up the income statement, I could not be more pleased to report that our operating income increased 60% in the quarter to $237.3 million, by any measure a masterful performance and a true reflection of the incredible team and unmatched capabilities at POOLCORP. Finally, with three full quarters behind us and a very favorable outlook for the balance of the year, we are updating our earnings guidance for the full year of 2021 to $14.85 per share to $15.35 per share. Excluding the ASU benefit, the range is $14.46 to $14.96 per share.
Before turning the call over to Melanie, let me offer some closing thoughts. Beginning with the onset of the pandemic in 2020, we saw a change in consumer behavior that created a significant increase in demand for our products as people with pools use them more and those without a pool or outdoor living area began looking for someone to build them their own backyard retreat. We believe that this trend will endure as the flexible work-from-home arrangements continue and people recognize the many benefits of an enjoyable outdoor living lifestyle. When you add this to a healthy housing market where equity levels have increased nicely in the last couple of years and with pools now regarded as a highly desirable feature, according to the National Association of REALTORS, it simply furthers our confidence in the long-term growth prospects for the industry. We believe people will continue to move away from urban and higher cost of living areas to more affordable suburban housing in pool-friendly markets, furthering their desire to invest in the outdoor living lifestyle. We feel that the southern migration will continue for the foreseeable future, giving those people a year-round environment to enjoy pools, patios, hot tubs and outdoor kitchens. Further, we have been encouraged to see industry capacity start to expand as our customers seek to expand their businesses albeit in a very challenging labor environment. From a supply perspective, manufacturers are also adding capacity, which should allow them to capture more of the elevated industry demand. Inflation this year will likely be in the 6% to 7% range, up from our previous estimate of 5% to 6%. And it looks like that will repeat again for next year given the global supply chain issues. To date, this has done little to temper demand, and in time, this inflation passes through the supply chain. All in all, we are positioned incredibly well to continue our tremendous performance. Demand is strong. The team is focused. And by working very closely with our vendors and customers, we bring outdoor living to life. Thank you. I will now turn the call over to Melanie Hart, our Vice President and Chief Financial Officer, for her commentary.
