Saul: In other words they are selling them faster than they can deliver them.
brittlerock: This, I believe is the fundamental problem faced by LGIH.
Why can’t they deliver?
Management directly addressed this issue in the earnings call Q&A.
In short: LGIH management didn’t expect to be quite so successful (my interpretation … actual statement: they didn’t start enough homes). They acknowledged the problem, they accepted the mistakes without hesitation, and they made it clear they are working in improvements moving forward. They also discuss the overall industry labor shortage and gave assurance it won’t be a problem as they have construction planned out to account for the inventory backlog.
Only time will tell how they handle this moving forward but for now I am about as satisfied as is possible with their answers on this topic.
Here is the beginning of the discussion, follow-on questions go deeper into some details.
(side note: I suspect there are some transcript errors)
Thanks. So Eric, you folks have had a month or two even here and there in your history where you’ve had inventory fall a little bit, impact closings and then the issue resolved itself usually pretty quickly. This is the most persistent inventory problem in my recollection that you have had since you’ve been a public company.
What is the real cause of that? I mean, if I look back over time, your discussions of labor are far less frequent, I mean, if at all I think compared to most builders out there, weather has not been a factor and all of a sudden here at the beginning of 1Q, at the beginning of '17 it just seems to have become a persistent problem across more than a quarter.
So, if it’s possible, what is driving that at the end of the day?
Yes, sure. I think this year it was a combination of a few different factors. And you’re correct. And we have room to improve on that. A couple of different things. One is we just flat out did not start enough houses, we dropped the ball, in some cases we just didn’t start enough houses to build up the inventory for the first quarter. Also, construction times we just had the question the construction times.
We got room for improvement nationwide and reducing our construction times. The construction times in some of our newer markets are not where we want them today. And also from a development standpoint, getting plans and cities to approve our plans and getting new development sections on the ground especially in the Dallas Fort Worth market which is where we’re really short of inventory and we closed out two separate communities. That had an influence.
And the obviously we don’t want to not say sales, were an issue either, the inventory was predominant reason we were last year-over-year on closings, but we can only use more sales. I mean, January and we talked about this on last call, January sales were down year-over-year but February, March and April have been like I said over 500 net sales a month.
So, I think is a combination of factors and issue, but anchor inventory is going to be in line and we’re not going to be talking about inventory any more over the next couple of quarters.