D.R. Horton (DHI, Financial) recently reported disappointing earnings for Q2 2025, missing both EPS and revenue expectations. The company also reduced its FY25 outlook and provided a lower revenue guidance of $8.40-$8.90 billion for Q3 2025. Similar to KB Home (KBH, Financial) and Lennar (LEN, Financial), DHI is grappling with a slower spring selling season due to affordability constraints and declining consumer confidence.

The primary challenges for DHI and its competitors remain high mortgage rates and inflation, which are worsening affordability issues. In Q2, net sales orders dropped by 15% to 22,437 homes, compared to a 1% decline last quarter. Previously, DHI's focus on entry-level affordable homes supported strong order volumes, but increasing affordability pressures are now impacting its customer base, which often lacks existing home equity for down payments.

To combat these challenges, homebuilders are increasing incentives to boost sales. DHI has warned of rising incentive costs, which is affecting its margins. The company forecasts a Q3 home sales gross margin of 21.0-21.5%, down from 21.8% in Q2 and 24.6% in Q3 2024. Consequently, Q2 EPS fell by 27% year-over-year to $2.58.

Due to weak results in the first half of 2025 and challenging market conditions, DHI revised its FY25 revenue guidance to $33.3-$34.8 billion, down from $36.0-$37.5 billion. It also lowered its home closings forecast to 85,000-87,000 homes from 90,000-92,000 homes. Without a decrease in interest rates, demand is unlikely to improve in the latter half of FY25.

On a positive note, DHI has increased its share buyback activity as its stock price has declined. In Q2 2025, the company repurchased 9.7 million shares for $1.3 billion, reducing the outstanding share count by 7% year-over-year. Additionally, DHI announced a new share repurchase program of up to $5.0 billion, with plans to repurchase approximately $4.0 billion of common stock this fiscal year, up from previous guidance of $2.6-$2.8 billion.

Amid a slower spring selling season and ongoing affordability challenges, DHI posted weak Q2 results and lowered its FY25 outlook. However, the company is enhancing its capital return strategy by expanding and accelerating share repurchases, which supports EPS during this downturn.