LGIH Aug Home Closings Up 19.7%

http://investor.lgihomes.com/releasedetail.cfm?ReleaseID=988…

LGI Homes, Inc. Reports August 2016 Home Closings
THE WOODLANDS, Texas, Sept. 06, 2016 (GLOBE NEWSWIRE) – LGI Homes, Inc. (Nasdaq:LGIH) today announced 383 homes closed in August 2016, up from 320 home closings in August 2015, representing year-over-year growth of 19.7%. The Company ended the first eight months of 2016 with 2,661 home closings, a 23.5% increase over 2,155 home closings during the first eight months of 2015.

As of the end of August 2016, the Company had 59 active selling communities.

Can you say “I smell an uptick”?

Cheers,
Mj

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A third straight month of sub-20% growth. But the real problem will be Q3. They were flat in July, up 20% in August, but expected to somehow grow revenue 24% for the quarter? Seems to me that they’re gonna have to have an incredible September to even approach expectations for Q3.

Bear

Seems to me that they’re gonna have to have an incredible September to even approach expectations for Q3.

Either that or the homes they are selling are going to have to have a somewhat larger profit margin then they had in 2015. It would not surprise me at all if they had…

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They were flat in July, up 20% in August, but expected to somehow grow revenue 24% for the quarter?

Hi Bear, You are forgetting that what you are talking about is number of closings, not revenue. Average revenue per closing was up 6% year over year, and rising. Thus a 20% increase in closings comes to 27.2% more revenue, etc (1.06 times 1.20 = 1.272), so it may not be so undo-able. And they are starting to sell more in the Pacific NW, where prices are $275,000 instead of $195,000. They may grow average selling price by more than 6%.

You need to remember that they predicted average selling price for the year of $195 to $205,000. They were well into August when they said that. Average price last year was $185,000. If they hit an average sale price of $201,000 for the year, just above the midpoint of their projection, average sales price will be up 8.65% year over year.

And let’s look at this quarter: Average sales prices look like this:


**Sept: 186.0**
**Dec:  187.0**
**Mar:  192.5**
**Jun:  197.5**

If you put that together with their estimate (that they just gave) of average sale price for the year $195,000 - $205,000, and with the last two quarters being up at least $5,000 each, you have to assume they are expecting AT LEAST $202.5 this quarter (up another $5,000) to give them the midpoint of their estimate by the end of the year. (With the December up an additional $5,000 to $207,500 it would give them an average of $200,000, which is right in the middle of their estimate).

That $202,500 for this quarter is up 8.9% from the $186,000 last September. SO…if they hit just 15% more closings yoy for the quarter, revenue will be up over 25% for the quarter. If they have a big month and average 16% more closings for the quarter as their new communities get up and running, they will increase revenue by 26.3%. I don’t see revenue up 24% for the quarter as impossible. Do you?

And average sales price will probably be up at least 10% for the December quarter against a price last year of $187,000. Just saying. Don’t give up on them yet.

Saul

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And I see that a half-hour after the open they are up 4.5%

I don’t see revenue up 24% for the quarter as impossible. Do you?

Certainly not impossible, but even to get to your 15% number for the quarter, they’d have to be up about 26% in closings for September, which means they’d need more than 380 closings again (same as August…but in fewer days). As I said, that would be a pretty incredible month. 26% growth in closings after the last three months have been:

June: 7%
July: -2%
Aug: 20%

Bear

And I see that a half-hour after the open they are up 4.5%

Good day to sell some.

Bear

I wrote: That $202,500 average sale price for this quarter is up 8.9% from the $186,000 last September. So if they hit just 15% more closings yoy for the quarter, revenue will be up over 25% for the quarter… I don’t see revenue up 24% for the quarter as impossible. Do you?

You responded: Certainly not impossible, but even to get to your 15% number for the quarter, they’d have to be up about 26% in closings for September, which means they’d need more than 380 closings again (same as August…but in fewer days).

Hey Bear, remember that YOU are talking about revenue up 24%, not the 25% plus that I was saying the 15% more closings would bring.

To get revenue up 24% with a rise of 8.9% in average selling price, you only need closings up 13.9% for the quarter, or up just 24% in September, not 26%. If you don’t think they can do that you certainly shouldn’t invest in the company. You seem very annoyed with them for going up.

Best to you at any rate,

Saul

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i>To get revenue up 24% with a rise of 8.9% in average selling price, you only need closings up 13.9% for the quarter, or up just 24% in September, not 26%.

So they have to sell 375 homes instead of 380 in September. I really still think that’s optimistic, but as you say:

If you don’t think they can do that you certainly shouldn’t invest in the company.

Which of course I don’t, anymore. For the record, this comment seems really snarky:

You seem very annoyed with them for going up.

But the best to you as well. You’ve been right so far, and I’m sure you’re enjoying the gains, as you should.

Bear

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For the record, this comment seems really snarky: You seem very annoyed with them for going up.

Hi Paul, Sorry if I sounded snarky. I didn’t mean to be. I was responding to this:

I had written I see that a half-hour after the open they are up 4.5%, meaning that the market apparently took the August closings as very good news (rather than bad news as you were seeing them), especially to tack on 4.5% to new highs on top of the 100% rise it has already had since the Feb bottom.

You responded Good day to sell some, which did sound (to me) as if you were annoyed, but maybe I misread it. Sorry if I did, and sorry for any misunderstanding. You are a very valued member of the board.

Saul

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Sorry if I did, and sorry for any misunderstanding. You are a very valued member of the board.

Thanks, Saul. No offense taken.

Just another way of looking at the numbers released last night.

LHIH closed 383 homes in August bringing the 8 month closings to 2,661 homes.
2,661/8=332.6 average closings per month in 2016
That means this month came in above average. Not bad at all so we are making headway.

If they maintain this average they will come in slightly below their 4,000 to 4,300 projected homes closed for the year.

332.6*12=3,9991

It looks like they might be tracking slightly below their guidance range for the year.

In order to meet their yearly guidance they need…
Low end 1,339 more homes for the year or an average of 335 per month
Mid point 1,489 more homes for the year or average of 372 per month
High end 1,639 more homes for the year or an average of 410 per month

Analyzing these numbers it looks like they need to pick up their deliveries through the rest of the year. It looks like they have a good shot at beating the low end of their guidance range. Though to meet the high end of the guidance range they will have to really pick it up. An average of 410 homes per month to meet the high end is a very tall order given their previous monthly closes.

Given this news I decided to lighten my holding a bit today. I once had about a 15% position and today I lightened it closer to a 6% or 7% position. Basically I decided to take it from an overweight position to an equal weight position. I just felt it was prudent to take some profits after such a nice run up.

Overall it seems the company is doing well though if they want to be firmly within the midpoint of their guidance they need to pick it up a bit.

Best,
Soth

Long LGIH shares

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In the late 70s I sold real estate here in the Pacific NW. It was crazy, Residential prices were going up on average 1% a month. Closings took 3 months. People were buying homes and selling the contract at a profit before the house closed.

It’s not clear to me exactly how LGIH sells there inventory. The vast majority of homes are listed in the MLS which “standardizes” the commission schedule (in quotes because it was found illegal for the MLS to dictate commissions and splits, so it’s no longer a formal requirement of the MLS to adhere to their “recommendation” in order to be a member, but virtually every member broker plays by the informal rules).

Anyway, I’m not sure LGIH lists their homes in the MLS. They have a unique marketing strategy which is not as easy to emulate as one might think. They may have completely in-house brokerage and sales and no MLS participation. They can put their salespeople on salary plus commission. Even when I sold there were a very few builders who employed this strategy.

If they do not participate in the MLS, they have far more latitude in pricing and bargaining in order to close sales than the average transaction.

In other words it may be easier for them to close more sales if they control the process from empty dirt to closed sale.

I’m long LGIH, I see no immediate reason to sell.

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