LGIH announced closings

LGI Homes (LGIH), Inc. (Nasdaq:LGIH) today announced 351 homes closed in October 2016, up from 264 home closings in October 2015, representing year-over-year growth of 33.0%. The Company ended the first ten months of 2016 with 3,375 home closings, a 24.0% increase over 2,722 home closings during the first ten months of 2015.

Well they are up about 7% as I write. Well, Duh…, anyone following this board should have known they’d have good closings. Was that a surprise!? I guess so, as they had sold off with all the pedestrian home builders.



At one time I sold residential real estate (long ago when my last professional rock band broke up and I needed a job - the transition from R&R musician to actual real work is not easy, RE sales seemed like a good choice, independent contractor, pay for performance, etc). Anyway, as such I actually know something about residential RE sales, although it’s rather dated.

I’ve got a pretty sizable % in LGIH. They have a couple of communities here in the Seattle area where I live. I have wanted to go look at their homes, but just haven’t gotten around to it yet.

At first I was skeptical of this company. And I still worry some. They really have no moat. There is nothing stopping a boatload of builders from jumping into their space, but it doesn’t seem to be happening. I don’t know why. The builder’s sale price formula when I sold RE was 1/3 land, 1/3 construction, 1/3 profit before loan interest and sundry other expenses. I don’t know if that’s still true. That applied to mostly small local builders, maybe 100 homes/year or less.

Saul, you are the one who brought this company to the board (I think). Do you see a moat? What protects these guys from the competition?

Dear Saul,

What kind of projections LGIH has for this quarter? Are the winter quarter be good for home builders? Where do you expect LIGH in next 5 years?


What kind of projections LGIH has for this quarter? Are the winter quarter be good for home builders? Where do you expect LIGH in next 5 years?

Hi Goran, The conference call where they announce such things are available to everyone. You can read it just like me. It’s important to do so. Here’s what they said:

We believe we will close about the same number of homes in November as in October

Sequentially our average sales price increased over 4%. We believe it will continue to increase for the rest of the year.

We expect our adjusted gross margin will continue to be strong.

We continue to believe basic earnings per share will be in the range of $3.20 to $3.70 for the year.

We believe LGI will one day have a presence in the majority of the top 50 markets in the US. As we progress toward achieving this goal, I’m excited to announce that we’ve our first project under contract in Minneapolis. The test marketing results are looking great. We plan to continue to look at acquisitions in this market and we anticipate our first home closing in late 2017 or early 2018. In addition, we are actively looking for opportunities to begin operations in the Las Vegas market in 2017 as well.

We expect to increase our community count by at least 20% during 2017. Our gross margin, overall absorptions, and SG&A as a percent of revenue will generally remain consistent into the next year.

We do not believe that competition is going to have an effect on LGI operationally. We won’t be changing our closing forecast or absorption pace based on increased competition because we think it’s very favorable market out there. So it’s all positive for us.

We closed just 249 last November which is going to make for a very easy comp this month. December which was the best month we ever had at 433 is going to be tougher comp. January and February closings will be substantially lower compared to the other because closings in Jan and Feb are is based on sales that were made between November 15 and Jan 15, which includes a lot of holidays (T’Giving, Xmas, New Years). So historically December is very strong for us and then January and February are weaker as far as closings go.

As far as where they’ll be in five years, I truly haven’t a clue. I suspect that they’ll be a lot larger than now, but home building is an industry that depends on the economy, and I don’t know where the economy will be in 5 years.