• Home Sales Revenue: $1.84 billion from 1,991 homes delivered at an average price of $925,000.
• Adjusted Gross Margin: 26.9%, 65 basis points above guidance.
• SG&A Expense: 13.1% of home sales revenue, 40 basis points above guidance.
• Net Income: $177.7 million or $1.75 per share diluted.
• Net Contracts Signed: 2,307 contracts for $2.3 billion, up 13% in units and 12% in dollars year-over-year.
• Average Sales Price of Orders: Approximately $1 million, unchanged from the previous quarter.
• Spec Homes: Represented 55% of sales and 52% of deliveries, with 3,200 spec homes in inventory at quarter end.
• Community Count: Operating from 406 communities, targeting 8% to 10% growth to reach 440-450 communities by fiscal year end.
• Liquidity: Over $2.3 billion, including $575 million in cash and $1.8 billion in revolving credit facility availability.
• Net Debt to Capital Ratio: 21.1% at quarter end.
• Share Repurchases: Targeting $500 million for the full year.

• Warning! GuruFocus has detected 6 Warning Sign with LZB.

Release Date: February 19, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Toll Brothers Inc (NYSE:TOL) reported first-quarter deliveries of 1,991 homes at an average price of $925,000, generating home sales revenues of $1.84 billion.
• The company achieved an adjusted gross margin of 26.9%, which was 65 basis points better than guidance.
• Net contracts signed in the first quarter were up 13% in units and 12% in dollars compared to the previous year.
• The company maintained a low contract cancellation rate of 2.4%, indicating strong buyer commitment.
• Toll Brothers Inc (NYSE:TOL) has a healthy balance sheet with increased liquidity, low net debt, and no significant debt maturities this fiscal year.

Negative Points

• Net income and earnings per share came in below expectations due to impairments and a delay in the sale of a stabilized apartment property.
• SG&A expenses as a percentage of home sales revenue were 13.1%, 40 basis points above guidance.
• The company experienced mixed results in the spring selling season, with affordability constraints and growing inventories pressuring sales in certain markets.
• There was a significant rise in inventory, particularly in construction in progress, raising concerns about potential oversupply.
• The average price of homes delivered was at the low end of the range due to a mix of more homes delivered in the mountain region and fewer in the North and Pacific regions.

Q & A Highlights

Q: Can you explain the significant rise in inventory, particularly in construction in progress? A: Martin Connor, CFO: We have more specs under construction at a further stage of completion than in prior years. This is to ensure we have the inventory to meet our delivery guidance of 11,400 homes for the year.

Q: How are you managing your spec inventory in light of the mixed spring selling season? A: Douglas Yearley, CEO: We are strategically timing our spec inventory to align with seasonality, focusing on the summer months when demand is higher. We have 3,200 spec homes at various stages of construction and are managing starts based on market conditions.

Q: What is your approach if the spring selling season remains mixed? A: Douglas Yearley, CEO: If the mixed market continues, we will reduce overall land spend and be more conservative in certain markets. We have a strong pipeline of owned and optioned land, allowing us to be selective in new acquisitions.

Q: How are you handling incentives in your gross margin forecast? A: Douglas Yearley, CEO: We expect higher margins due to more luxury and spec homes in our mix. Incentives have decreased from $68,000 in Q4 2024 to $55,000 at the start of Q2 2025, but we may adjust them based on market conditions.

Q: Are you seeing any impact on demand in Southern California and Washington DC due to external factors like wildfires or employment uncertainty? A: Douglas Yearley, CEO: No, both Southern California and Washington DC markets remain strong.

Q: How are you addressing the mixed demand trends and their impact on your production pipeline? A: Douglas Yearley, CEO: We are balancing pace and price, with a focus on maintaining our gross margin guidance. We are confident in our backlog and the ability to manage incentives to achieve our targets.

Q: What is your outlook on land cost inflation and its impact on your operations? A: Douglas Yearley, CEO: Land cost inflation is modest, in the low to mid-single digits. We are finding unique opportunities, such as converting suburban office spaces to residential, which offer good margins.

Q: How are you managing SG&A expenses given the current market conditions? A: Douglas Yearley, CEO: SG&A leverage will improve in the second half of the year due to higher revenue. We expect SG&A as a percentage of revenue to be in the low 8s for the second half of 2025.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.