Fill the kiddie pool with water.

Dump the magnetic letters into the pool.

Have the kids take a magnetic fishing pole and fish for a letter.

When they catch a letter have them pull it off the magnet and identify the letter plus make the letter sound depending upon ability.

Throw it back in and go fishing again!

Another option is to use a scoop to scoop the letters up and do the same letter recognition and sound practice with the letters they scoop up!