Amid many builders talking about the 2011 spring selling season that wasn't, M/I Homes CEO Robert Schottenstein had a different takeaway. Despite the company's widening losses for the quarter, compared with the same quarter of 2010, he said he'd give this year's season a B-, calling it "clearly not great but far from poor." (Click here to read full quarterly results.)
Although sales were down 15% year over year, due in part to tougher comps attributable to the federal home buyer tax credit, Schottenstein appeared rather encouraged about the company's performance sequentially. Sales were up 42% from 4Q2010, as markets such as Chicago, Raleigh, and Washington, D.C., continued to perform well for the company.
The company also continued to transition out of its legacy communities, with executives remaining content with new community performance both in terms of sales and margins. The company opened 12 new communities during the quarter while closing out of 11 existing communities. Roughly 55% of the company's communities are classified as new communities, 2009 vintage or newer, and 45% of deliveries are coming out of its new communities. With 111 communities on its books, management said it aimed to grow community count by 15% by year's end.
Helping the company achieve that goal is the company's April purchase of TriStone Homes, which gives the company a running start in five communities in the San Antonio market. Schottenstein said he expected the acquisition to start contributing to the company's operations next quarter.
Getting access to new lots in new communities is a key goal for M/I Homes management. The company spent $19 million on land and $8 million on land development during the quarter. Going forward, management expected 70% of its land spend to go toward tying up new lots and 30% to go toward developing unfinished lots. Executives said typically the management team aims for 70% of its land purchases to be finished, bulk lot deals, 15% to be raw land, and 15% to be finished lot, pick-up options.
Moreover, executives appeared open to additional acquisitions in the future. When asked if he would consider more M&A activity in the future, Schottenstein said, "The short answer is yes. It's about when and how. We're just getting started in Houston and establishing building in San Antonio. ... The likelihood is we'll open up in at least another market in Texas. ... Beyond that, I don't think I should say anything more."