I can’t remember if anyone has already posted this, so here are my notes that I took for myself (edited and paraphrased). The couple of little comments in parentheses are my own comments.
Our concentration outside of Texas increased during the quarter making 55% of our closings compared to 48% a year ago. We anticipate it will continue to increase.
Company-wide absorption for the quarter average 7.1 closings per community per month, up from 6.8 closings a year ago.
We’re having a lot of success with what we’re calling our wholesale business. Over the last 12 to 18 months, we’ve seen increased interest from the single-family rental business to purchase homes from LGI.
Our team has been working with these investment groups and identifying communities where it makes sense to deliver homes based on available inventory and our land positions. Through these wholesale agreements, we closed seven homes in the first quarter of 2017 and 65 homes in the second quarter of 2017. The 65 homes closed this quarter were spread across 14 communities and five different states. These closings come at a lower gross margin but similar net margins because of the savings we realized on SG&A expense. Although, this quarter our wholesale business made up a small percentage of our 1,511 closings, we’re excited about the future opportunities that may arise as a result of these relationships.
Our average sales prices by division were $206,000 in Texas, $255,000 in our Southwest, $187,000 in our Southeast, $200,000 in Florida and $323,000 in Northwest.
Gross margin was 26.6% this quarter compared to 26.5% a year ago. Our adjusted gross margin was 28% this quarter compared to 27.8% a year ago. Included in this quarter’s results was a one-time reimbursement associated with the community development (whatever that means?)
Our adjusted EPS was $1.39 per diluted share. Shares outstanding for calculating diluted earnings per share are impacted by our outstanding convertible notes. In this quarter our average stock price exceeded the conversion price and therefore the convertible notes were determined to be dilutive. This resulted in a 1.4 million share increase to the weighted average shares outstanding for the diluted EPS calculation for the quarter. (So the comparison was even better than it seemed. EPS this year would have been even higher if they were calculated on the same number of shares as last year.)
Ending backlog was 1,545 homes compared to 887 last year, and the cancellation rate was 22.8%.
At the end of June, we had about 3,000 homes complete or in progress compared to 1,600 homes at December.
The third quarter is off to a great start with 591 closings in July, up 93% from the 306 closings in July last year. To put this in perspective, in July of 2010, the not so distant past, we closed 18 homes.
I can tell you that the demand is continuing in August. In August we expect to close more than 500 homes. We closed 383 in August last year, so we’re looking at a really strong year-over-year comp as well.
We see that trend easily continuing to more than 5,000 houses. But with the inventory constraints, there still is a finite number of homes that we can close this year. We have some communities that we caught up on inventory and now we’re going to be closed out again before the end of the year this year and we’re going to be waiting for that next section to come on board. So, there is always going to be month-to-month and quarter-to-quarter volatility, but we’re very comfortable at the 5,000 plus number this year.
Our average sales price was nearly flat to the first quarter. We see this continuing in the third and fourth quarters resulting in our average sales price for the year remaining within our previous guidance of $210,000 to $220,000. We expect gross margin for the full year to remain within our historical range of 25% to 27% and adjusted gross margin to be within our historical range of 26.5% to 28.5%.
Given our increased closing guidance, similar average sales prices, gross margins, SG&A and taxes within our expected ranges, we are raising our full year basic earnings per share guidance from $4.00 to $4.50 per share to $4.25 to $4.75 per share.