Strong demand and a significant increase in net contracts in the fiscal first quarter is making Toll Brothers more optimistic for the duration of 2024. As a result of its strong first quarter, which ended Jan. 31, the No. 10 company on the 2023 BUILDER 100 list raised its full-year guidance for all key metrics, including projecting full-year deliveries between 10,000 and 10,500 homes and a year-end community count of 410. The guidance reflects growth of 7% and 10%, respectively.
“Since mid-January, we have seen a marked increase in demand coinciding with the start of the spring selling season,” chairman and CEO Douglas Yearley said. “With a healthy job market, improving consumer market, and continued low levels of resale inventory, we are optimistic that demand for new homes will remain strong in 2024.”
Toll Brothers signed 2,042 net contracts in the first quarter for $2.06 billion, up 40% in units and 42% in dollars compared with last year’s first quarter. Home sales revenue increased 10% to a first quarter record of $1.93 billion, and delivered homes increased 6% to 1,927.
Yearley said demand in the quarter followed normal seasonal patterns: December demand was stronger than November, and January demand was “significantly stronger” than December.
Demand was broad-based across the Toll Brothers portfolio, with particular strength in California and Seattle, as well as Las Vegas and Texas. Across product segments, affordable luxury homes accounted for 45% of unit contracts and 34% of contract dollars, luxury homes accounted for 36% of quarterly unit contracts and 49% of dollars, and active-adult homes accounted for 19% and 17%, respectively.
Toll Brothers’ cancellation rate remained consistent with recent quarters at 2% of beginning backlog. Yearley said while mortgage buydown incentives are being “heavily marketed and offered nationwide,” few Toll Brothers buyers are using incentive dollars to buy down rates.
“The vast majority of our customers can qualify for a market-rate mortgage without a buydown, and they prefer to use incentives offered on design studio upgrades or to reduce their closing costs,” he said. “Additionally, consistently with the past couple quarters, approximately 25% of our buyers paid all cash in the first quarter.”
According to Yearley, the company continued to benefit from its strategy of increasing the supply of spec homes. Specs represented 50% of first quarter orders and 40% of deliveries.
“We sell our specs at various stages of construction, from foundation to finished home. This allows many of our spec buyers to visit our design studios and personalize their homes with finishes that match their taste. Choice, a pillar of Toll Brothers, is still part of our spec strategy,” Yearley said.
Toll Brothers recorded a profit of $239.6 million, or $2.25 per share, in the first quarter, compared with $191.5 million, or $1.70 per share, in the first quarter of the 2023 fiscal year. The results beat analyst projections of profits per share by $0.47.
Yearley added Toll Brothers controls “sufficient land” for community count growth in 2024 and beyond. The builder owned or controlled approximately 70,4000 lots, of which 51% were owned. In the quarter, the home builder spent $263.2 million on land to purchase approximately 2,620 lots.
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