Hovnanian Enterprises Inc. (HOV) stock plummeted 5.04% on Friday, as the homebuilder reported a decline in gross margins for its fiscal fourth quarter ended October 31, 2024, due to its focus on driving sales pace rather than pricing.

In its earnings call, the company revealed that it had consciously shifted its strategy to prioritize pace over price, leading to increased use of incentives such as mortgage rate buydowns and a greater emphasis on quick move-in (QMI) homes. This strategy resulted in a lower gross margin for the fourth quarter and an expected further decline in the first quarter of fiscal 2025.

However, the company believes that the improved sales pace and the corresponding growth in revenues will result in continued industry-leading inventory turns, EBIT return on investment (ROI), and return on equity (ROE) over the coming year. Despite the margin pressure, Hovnanian Enterprises remains optimistic about its growth prospects, forecasting delivery growth in excess of 10% annually over the next few years.