LGI Homes, Inc. (NASDAQ:LGIH), a leading homebuilder focused on affordable, entry-level single-family homes, reported strong financial results for the second quarter of 2024, showcasing its ability to navigate the current housing market landscape.

Financials

The company's revenue for the quarter came in at $602.5 million, a 6.6% decrease from the $645.3 million reported in the same period last year. This decline was primarily driven by a 10.7% decrease in home closings, partially offset by a 4.6% increase in the average sales price per home closed. For the first half of 2024, the company reported revenue of $993.3 million, a 12.3% decrease from the $1.13 billion generated in the first half of 2023.

Despite the revenue decline, LGI Homes delivered impressive profitability metrics. Gross margin for the quarter expanded to 25.0%, up from 22.0% in the prior-year period, while adjusted gross margin increased to 27.0% from 23.8%. This significant improvement in margins was attributed to the company's ability to raise prices in its higher-performing communities and offset the impact of mortgage buydown incentives and cost inflation.

For the first half of 2024, gross margin stood at 24.4%, up from 21.3% in the same period of 2023, while adjusted gross margin increased to 26.3% from 23.1%. The company's focus on developing its own communities and capturing the associated developer profits has been a key driver of its strong margin performance.

Net income for the second quarter came in at $58.6 million, a 10.2% increase from the $53.1 million reported in the same quarter last year. Earnings per share (EPS) for the quarter were $2.48, up from $2.25 in the prior-year period, representing a 10.2% year-over-year increase. For the first half of 2024, net income was $75.6 million, a 5.6% decrease from the $80.1 million generated in the first half of 2023.

The company's selling, general, and administrative (SG&A) expenses as a percentage of revenue increased to 13.8% in the second quarter, compared to 11.9% in the same period last year. This increase was primarily driven by higher advertising and personnel costs associated with the company's community count expansion.

Liquidity

LGI Homes' balance sheet and liquidity position remained strong, with $51.1 million in cash and cash equivalents as of June 30, 2024. The company had $1.5 billion in total debt outstanding, including $819.7 million drawn on its $1.2 billion revolving credit facility. The company's debt-to-capital ratio stood at 43.8%, with a net debt-to-capital ratio of 43.0%.

During the quarter, the company repurchased 83,763 shares of its common stock for $8.0 million, leaving $193.5 million remaining under its current $550 million share repurchase authorization.

Geographical Performance

Geographically, LGI Homes' performance was mixed. The Central and Florida reportable segments experienced declines in revenue and profitability, while the Southeast, Northwest, and West segments reported improvements. The company's ability to adapt its pricing and product offerings to local market conditions has been a key factor in its success.

Outlook

Looking ahead, LGI Homes has updated its full-year 2024 guidance. The company now expects to close between 6,400 and 7,200 homes, up from its previous guidance of 6,200 to 7,000 homes. The company also raised its average sales price guidance to a range of $360,000 to $370,000, up from the previous range of $350,000 to $360,000.

Regarding gross margins, the company increased its guidance to a range of 23.5% to 24.5% for GAAP gross margin and 25.5% to 26.5% for adjusted gross margin, up from the previous ranges of 22.5% to 23.5% and 24.5% to 25.5%, respectively.

Risks and Challenges

The company acknowledges that affordability remains the primary challenge for its customers, with rising land, input, and financing costs compounding the issue. LGI Homes is working to address these challenges by offering a mix of incentives and product offerings that provide the most attainable monthly payment for its buyers.

Conclusion

The company's strong performance in the first half of 2024, coupled with its updated guidance, demonstrates its ability to navigate the current housing market challenges. LGI Homes' focus on affordable, entry-level homes, its disciplined land acquisition and development strategies, and its operational efficiency have been key drivers of its success.

Overall, LGI Homes' solid second-quarter results and raised guidance showcase the company's resilience and its ability to adapt to the evolving housing market conditions. As the company continues to execute on its strategy and capitalize on the long-term fundamentals of the entry-level housing market, investors will be closely watching its performance in the coming quarters.