LGI Homes Inc ((LGIH)) has held its Q4 earnings call. Read on for the main highlights of the call.
LGI Homes, Inc. Reports Balanced Earnings Amidst Growth and Challenges
The recent earnings call for LGI Homes, Inc. presented a balanced sentiment, highlighting significant achievements such as record community count growth and improved margins, while also acknowledging challenges like decreased revenue and the impact of rising mortgage rates. The company demonstrated strong strategic investment and market performance but is facing affordability challenges and increased expenses.
Record Community Count Growth
LGI Homes, Inc. achieved a milestone by opening 80 new communities in 2024, bringing the total to a record-breaking 151 active communities. This represents a year-over-year increase of 29%, showcasing the company’s commitment to expansion and growth.
Improved Gross and Adjusted Margins
The company reported an increase in full-year gross margin by 120 basis points to 24.2%, and adjusted gross margin rose by 160 basis points to 26.3% compared to the previous year. This improvement reflects LGI Homes’ effective cost management and operational efficiency.
Increased Average Sales Price
The full-year average sales price increased by 4.2% to $365,394, indicating a strong market demand and the company’s ability to capture higher value per home.
Successful Strategic Investments
LGI Homes continued to make strategic investments in land, inventory, and operating platforms, supporting both growth and affordability. These investments are pivotal for sustaining the company’s long-term success.
Strong Performance in Key Markets
Key markets such as Charlotte, Las Vegas, Washington DC, Raleigh, and Fort Pierce showed robust closings per community per month, significantly contributing to the company’s overall success.
Healthy Backlog Management
Despite a softer demand environment, LGI Homes ended the year with 599 homes in backlog, valued at $236.5 million, demonstrating effective backlog management.
Decrease in Revenue and Closings
The fourth-quarter revenue saw an 8.4% decrease year over year, primarily due to a 12.8% decline in closings. This reflects the challenges posed by the current market conditions.
Impact of Rising Mortgage Rates
Higher mortgage rates, exceeding 7% in January 2025, affected orders and closings, leading to a subdued trend compared to the previous year. This highlights the sensitivity of the housing market to interest rate fluctuations.
Increased Selling, General, and Administrative Expenses
SG&A expenses increased by 150 basis points to 14.6% of revenue, driven by higher advertising spending and personnel costs, indicating rising operational expenses.
Lower Absorption Rate Guidance
For 2025, LGI Homes anticipates a lower absorption rate of around 3.5 homes per community per month, reflecting a conservative outlook on market conditions.
Slower Start to First Quarter 2025
The first quarter of 2025 began slowly, with both orders and closings down compared to the previous year, influenced by increased mortgage rates.
Forward-Looking Guidance
Looking ahead, LGI Homes, Inc. provided guidance for 2025, projecting full-year closings between 6,200 and 7,000 homes, with an expected average sales price ranging from $360,000 to $370,000. The company aims to end 2025 with 160 to 170 active selling communities, indicating a community count growth of approximately 9% at the midpoint. Despite anticipated cost inflation, LGI Homes expects to maintain strong gross margins and continue offering incentives to address affordability challenges.
In summary, LGI Homes, Inc.’s earnings call reflects a balanced view of achievements and challenges. The company is making significant strides in community growth and margin improvement, yet it faces headwinds from rising mortgage rates and increased expenses. The forward-looking guidance suggests a cautious yet optimistic approach to navigating the current market landscape.