Release Date: January 30, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Q: How should we think about the drivers of the gross margin trajectory, particularly regarding incentives and other factors like locked costs or construction costs? A: Hilla Sferruzza, CFO, explained that the gross margin trajectory is primarily influenced by incentives. The current market conditions are modeled, and any improvement in volume or reduction in financing incentives could positively impact margins.
Q: With a softer start to the year, are there other measures needed to hit the full-year closings guidance? A: Phillippe Lord, CEO, expressed confidence in meeting the full-year closing guidance based on current market conditions. He noted that while January started slow, the spring selling season is expected to be healthy, and the company is prepared to adjust incentives if necessary.
Q: Is there a level where the focus on volume shifts, and would you be willing to take margins lower to achieve volume targets? A: Phillippe Lord stated that the company aims to maintain a balance between volume and margins. If interest rates improve, they might pursue more volume aggressively. However, if rates worsen, they would increase incentives to maintain volume, while still optimizing margins.
Q: How does Meritage Homes plan to achieve 20,000 closings by 2027, and is M&A part of this strategy? A: Phillippe Lord confirmed that the company has the market platform and land needed to reach 20,000 units through organic growth, without relying on major M&A. The recent acquisition of Elliott Homes and expansion into Huntsville support this growth strategy.
Q: How are you thinking about SG&A leverage with the projected sales growth? A: Phillippe Lord mentioned that the long-term goal is to achieve SG&A as a percentage of home closing revenue at 9.5% or better as they grow to 20,000 units. The company is investing in infrastructure and technology to support this target.
Q: What is your view on completed inventory levels and the potential risk of price discounting in a slower market? A: Phillippe Lord believes that demand still outpaces supply, and Meritage's strategy of offering only completed inventory reduces the need for discounting. The company does not offer build-to-order homes, which helps maintain pricing stability.
Q: Can you provide an update on your longer-term land strategy and any innovative approaches being considered? A: Hilla Sferruzza discussed a new joint venture structure for financing land, particularly in California, which allows for more efficient land development. This approach could be expanded to other markets if successful.
Q: How do you manage starts versus incentives versus sales pace, especially if the market isn't achieving targeted sales? A: Phillippe Lord emphasized that the goal is to achieve four sales per month per subdivision. If this target isn't met, incentives are adjusted to reach it, and starts are aligned with sales pace to maintain balance.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
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