KB Home Q4 FY2025 earnings call

• Jeff Mezger noted the company helped nearly 13,000 individuals/families achieve homeownership in fiscal 2025, with total revenues over $6.2 billion and net income near $430 million. He expressed optimism about the housing market due to favorable demographics and structural undersupply, but noted constraints like low consumer confidence, affordability concerns, and elevated mortgage rates.
• Rob McGibney discussed division execution in Q4 2025, including high customer satisfaction, improved build times, and lower direct costs. Community count was 271 active in Q4 2025, with plans to hit a high watermark in Q2 2026. The company aimed to return to a higher percentage of built-to-order (BTO) homes (from 57% in Q4 2025 to historical 70%+), with BTO margins 3-5 points higher than inventory sales. Started 1,827 homes in Q4 2025, with direct costs 4% lower q/q and 6% lower y/y.
• Rob Dillard reviewed financials for 2025, noting total revenues of $1.69 billion, housing revenues down 15% to $1.68 billion, average selling price down 7% to $466,000, housing gross profit margin 17%, and SG&A expense at 10% of housing revenues.

In 2025, KB Home had total revenues of $6.24 billion, with housing revenues at $6.21 billion. For the fourth quarter of 2025, total revenues were just under $1.7 billion, and housing revenues were nearly $1.68 billion. Housing gross profit margin was 17%, and adjusted housing gross profit margin (excluding $13.7 million of inventory-related charges) was 17.8%. In 2025, 3,619 homes were delivered, and in the fourth quarter of 2025, 2,414 net orders were produced. Revenue contribution from housing segment was significant, with housing revenues making up the majority of total revenues for the year and quarter.

• Fiscal 2026 deliveries expected to be between 11,000-12,500, with housing revenues ranging from $5.1 billion to $6.1 billion.
• Q1 2026 housing revenues guidance is $1.05 billion to $1.15 billion with deliveries 2,300-2,500. Gross margin for 2026 expected to be 15.4%-16%.
• Q1 2026 SG&A ratio expected to be 12.2%-12.8%. Effective tax rate expected to be 19% in Q1 2026 and 24%-26% for the full year. Plan to repurchase $50 million to $100 million of common stock in Q1 2026.

• Low consumer confidence, affordability concerns, and elevated mortgage rates constraining the pool of actionable buyers.
• Inventory of aged specs with higher direct costs impacting margins.
• Option lot position 27% lower than a year ago due to selective land allocation.
• Potential impairments on communities if profitability trends change.

Q: Guys, thank you for taking my questions tonight. The first one is maybe just a little bit more philosophical. I mean, I understand the changes in the way you're providing the outlook relating to the full year deliveries and the gross margin, but there also seems to be a bit of conservatism, particularly in the gross margin guide, that maybe wasn't always the case. I mean, can you help me understand if there's been some change there and maybe instilling a little bit more conservatism into the outlook? And also, is there a chunk of spec that's going to be delivered in the first quarter that's going to negatively impact that margin?

A: John, I can make a few comments and then pass it over to Rob Dillard. There is still some inventory that we have to clear as part of our transition to more built-to-order sales, and we have factored that into the guidance that we provided. One of the things that we touched on in our comments is that some of this inventory is aged in that it was built at much higher build costs. And as we've reacted to the market, we're lowering our costs on new deliveries, but we have to clear these older specs that have a higher cost basis. So it is impacting the margin. It's a short-term thing, but it's something we have to power through. But within our guide, I would say that it's just a guide. It's not conservative. It's not aggressive. It's just realistic. And if you think about it, one of the real drivers of the lesser margin in the quarter is the lost leverage because our revenue is down. And it's a fairly significant move sequentially from Q4 to Q1 due to the loss in revenue leverage. You got any other color, Rob, you wanna add?

Q: Okay. Yeah. That's really helpful. And maybe sticking to a similar topic, I don't recall you guys ever giving an adjusted EPS number before. And I'm curious about the thought process behind excluding the accelerated stock comp if it's really just timing-related and seemingly future quarters could benefit from less stock comp if the total amount is changing? And also, it seems a little bit unusual to exclude impairments from adjusted EPS. So just maybe your thoughts on that would be very helpful.

A: Yeah, John. We just wanted to give you a like-for-like number because the timing on the equity expense is where it was. It was significant enough that we wanted to give you a like-for-like number that was relevant so that you could make comparisons and so that you could also make a comparison versus our guide.