Release Date: February 18, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Q: Can you elaborate on the factors that could lead to the lower end of your gross margin guidance of 20.5%? A: Glenn Keeler, CFO, explained that the lower end of the gross margin guidance would imply continued elevated incentives similar to those seen in the first quarter. To achieve the higher end of the range, market improvement and lower incentives would be necessary. He also noted that the operating margin of 8.5% is considered low for the long term, as they expect better margins with growth and scale.
Q: What is driving the sequential increase in average sales price (ASP) and do you have pricing power in the current market? A: Douglas Bauer, CEO, stated that the ASP increase was due to mix changes in the fourth quarter. Regarding pricing power, it varies by submarket, ranging from 1% to 5%. He also mentioned that tariffs could affect the latter part of the year, but there is uncertainty around this.
Q: How do you view the current absorption pace compared to last year, and what is your strategy for balancing price and pace? A: Glenn Keeler, CFO, noted that while there has been some improvement in absorption pace from Q4, year-over-year comparisons are tough due to last year's strong performance. Douglas Bauer, CEO, added that the consumer mindset has shifted due to stable mortgage rates and political uncertainties, but he remains bullish on long-term growth. Tom Mitchell, President and COO, mentioned that they are planning for a slightly lower absorption pace this year to focus on enhancing margins.
Q: Can you discuss the impact of completed specs on your gross margin and the spread between to-be-built and spec homes? A: Glenn Keeler, CFO, explained that the number of completed specs is in line with historical norms and not driving the margin decline. The margin difference is due to new communities with different lot costs. Tom Mitchell, President and COO, added that the spread between to-be-built and spec homes has increased to about 4% due to the current interest rate environment.
Q: What is the current mix of first-time buyers in your customer base, and how has it changed? A: Linda Mamet, EVP and CMO, noted a decrease in first-time buyers in their backlog, with more opportunities in the first and second move-up segments. This shift is attributed to the aging millennial demographic and current market conditions.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
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