Gross margin pressure from spec homes
“However, we’ve taken a step back in 2015. On the right-hand side of the slide, you can see that we reported a 16.1% gross margin for the second quarter, 410 basis points less than last year’s second quarter. As we discussed last quarter, we expected the second quarter gross margin to be weak because of offering more incentives and concessions on started, unsold homes, commonly referred to as spec homes.”
We’re not the only ones who felt pressure
“We’re not the only homebuilder that recently felt pressure on its gross margin. On slide five, we show all nine of the public builders that reported March quarter end results, all of them had year-over-year declines in gross margin. Five of them had margin declines in excess of 200 basis points and one was similar to our decline. ”
We were too aggressive with specs
“As we explained during our analyst call last quarter, we believe we were too aggressive in our spec starts, especially in certain geographies and communities. We took action to reduce our specs with special incentives and concessions. Unfortunately, as you would expect, that took a toll on our margins. However, we made progress on our goal of reduction.”
Unmothballing communities
“Assuming current market conditions remain steady, we continue to anticipate un-mothballing approximately 900 lots in fiscal 2015 in two locations, one in Natomas, California, and the other along the Hudson River Waterfront in New Jersey. As the housing market improves, additional communities will be un-mothballed in future periods.”
A little disappointed with demand trends
” we really thought kind of leading into January, sales all the way through January, monthly year-over-year net contracts per community had shown a positive trend for four or five months in a row, and that gave us great optimism that the spring selling season would continue that kind of a pattern. So we were disappointed when February showed a decline. I think we talked about that a little bit during last quarter’s conference call. March, that decline didn’t surprise us quite as much, but our expectations, being optimists, probably were still that even March would show at least even if not a slight improvement year-over-year. So, I don’t know if that is responsive enough to your question but that’s kind of my macro view of it.”
April and May are better
“the good news is unlike last quarter where we began with a negative month, this time we ended the quarter in April positively and we began with a very strong May.
So, we’re optimistic that this is more of a trend in the positive direction. However, as you can obviously see, for us, we’ve seen the market being choppy overall in our markets. We’re hoping some of that choppiness ends, but it’s hard to tell. We didn’t expect it in February and March to the extent that we have the downward comparisons, but we’re pleased that April and May are up strongly’
Hasn’t been much change in competitiveness of land deals
“I can’t say there’s been any great change in competitiveness on the land deals. As you could see, we really have to do our due diligence, you saw on one of the slides many of our initial options don’t withstand the due diligence process. You have to be extremely careful in this environment.
And we’re remaining true to our discipline and trying to be very analytical in our new acquisitions, which are critical. But on the whole, I’d say the market is balanced. We’re finding opportunities as we need them. 2016 is basically all purchased or at least optioned and controlled and in contract.”
DC and Northeast haven’t recovered as quickly as other markets have
“The D.C. market, overall, has been sluggish compared to where we’d expect it to be at this time in the cycle. Clearly, sequestering is taking its toll and employment has not been as vigorous as it used to be. So that is not giving us the punch that we normally have. In the Northeast, that market has just not recovered as vigorously as other markets have.’