Executive Summary / Key Takeaways

• Champion Homes, a leading factory-built housing producer in North America, is strategically leveraging its integrated model, including manufacturing, retail, and financing, to capitalize on the persistent demand for affordable housing.
• Fiscal year 2025 demonstrated robust financial performance with net sales increasing 22.7% to $2.5 billion and gross margin expanding to 26.7%, driven by strong demand, strategic acquisitions like Regional Homes, and operational efficiencies, despite some sequential moderation in Q4.
• The company is actively expanding its captive retail footprint and digital capabilities, exemplified by the planned Iseman Homes acquisition and dealer portal launch, enhancing direct-to-consumer engagement and market penetration.
• Technological advantages, such as efficient factory production leading to reduced waste and energy usage, alongside product innovation like Energy Star certified homes and new duplex designs, provide a competitive edge in delivering value and quality.
• While facing near-term headwinds from dynamic tariffs, weather impacts, consumer caution related to the election, and shifts towards lower-cost homes, Champion Homes maintains a strong balance sheet, significant liquidity, and a commitment to strategic investments and shareholder returns, positioning it for long-term growth in a structurally undersupplied market.

Building An Affordable Future Amidst Market Shifts

Champion Homes, Inc. (NYSE: SKY), with a history spanning over 70 years, stands as a prominent force in the North American factory-built housing sector. The company has evolved from a traditional manufacturer into a vertically integrated solutions provider, encompassing manufacturing, a growing network of company-owned retail centers, construction services, and transportation logistics. This strategic transformation is fundamentally driven by the enduring need for affordable housing, a market segment where factory-built homes offer a compelling value proposition, costing up to 50% less per square foot than conventional site-built alternatives. Champion Homes holds a leading position, ranking as the number two manufactured housing producer and the number one modular builder in the U.S. by units in calendar year 2024, alongside a strong presence in Canada and the park model RV market.

The company's strategic response to market dynamics is centered on enhancing operational excellence, expanding customer engagement, and leveraging technology. Its factory-built approach offers inherent technological advantages. Constructing homes in controlled indoor environments using an assembly-line process results in greater efficiency, reduced material waste, and often lower costs compared to traditional site-building. Champion Homes has actively pursued product innovation, designing homes with traditional aesthetics, energy-efficient features (building over 5,500 Energy Star certified homes in fiscal 2025), and specialized offerings like the Genesis brand for builder/developers and a new national duplex series launched in March 2025. These innovations aim to meet diverse consumer needs and expand market appeal. Furthermore, investments in digital tools for online shopping, design, and real-time analytics, alongside production automation, are geared towards improving efficiency, quality, and the overall customer experience.

Champion Homes operates within a highly competitive landscape, facing rivals such as Cavco Industries (CVCO), Legacy Housing Corporation (LEGH), and UMH Properties, Inc. (UMH), as well as traditional site-built builders and other housing alternatives. While precise, directly comparable market share figures across all segments are not always publicly detailed for all competitors, Champion's reported 22.0% U.S. wholesale market share of HUD code homes sold in fiscal 2025 demonstrates its significant scale. Compared to competitors like Cavco, Champion's diversified brand portfolio and expanding captive retail network (72 centers at the end of FY25) offer a broader distribution reach. Champion's integrated services, including construction and transportation, provide a more comprehensive offering than some peers. However, competitors like Cavco may hold advantages in vertical integration leading to potentially lower operating costs, while others like Legacy Housing might exhibit greater agility in certain direct sales segments. Champion's strategic acquisitions, such as Regional Homes and the planned Iseman Homes deal, are aimed at strengthening its distribution and leveraging its manufacturing footprint to enhance its competitive standing, particularly against rivals with strong regional presences.

The company's financial performance in fiscal year 2025 underscores the effectiveness of its strategy amidst a dynamic market. Net sales grew significantly by 22.7% to $2.5 billion, primarily fueled by the full-year inclusion of the Regional Homes acquisition and robust demand across its U.S. segments. U.S. manufacturing and retail sales saw a substantial 25.1% increase, with homes sold rising 20.6% and the average selling price climbing 3.7%, largely due to a favorable mix shift towards higher-value sales through company-owned retail channels. This volume and mix improvement contributed to a notable expansion in the consolidated gross profit margin, increasing to 26.7% in fiscal 2025 from 24.0% in the prior year, also benefiting from lower manufacturing input costs and the absence of a significant product liability charge recorded in fiscal 2024.

Despite the strong top-line and gross profit performance, selling, general, and administrative (SGA) expenses increased by 37.5% in fiscal 2025, outpacing revenue growth. This rise was primarily attributable to the full-year impact of the Regional Homes acquisition, including an $8.6 million charge related to contingent consideration, higher variable compensation tied to increased sales and profitability, and ongoing investments in people and information systems to support future growth initiatives. As a result, SGA as a percentage of net sales increased to 17.2% from 15.3%. Nevertheless, operating income saw a healthy increase, and Adjusted EBITDA grew by 16.2% to $285.1 million. The Canadian segment, however, faced headwinds, with sales declining 13.7% due to slowing demand and unfavorable foreign exchange rates, leading to decreased gross profit and margin contraction in that segment.

Champion Homes maintains a solid financial position, characterized by strong cash generation and a healthy balance sheet. As of March 29, 2025, the company held $610.3 million in cash and cash equivalents, with long-term debt totaling $24.8 million and no scheduled maturities in the next twelve months. The company's $200 million revolving credit facility remained undrawn, providing ample liquidity and financial flexibility, and the company was in compliance with all debt covenants.

Operating cash flow increased to $240.9 million in fiscal 2025, reflecting improved profitability. The company has demonstrated a commitment to returning capital to shareholders, repurchasing $80.0 million of common stock in fiscal 2025 and subsequently increasing its share repurchase authority.

Looking ahead, management anticipates continued demand for affordable housing, although the near-term outlook is influenced by several factors. For the first quarter of fiscal 2026, revenue is projected to be up low single digits year-over-year. Management notes that demand has been less predictable compared to a normal spring selling season, with consumers showing caution potentially influenced by the upcoming election cycle and a discernible shift towards smaller floor plans with fewer options, which impacts average selling prices and near-term gross margins. Near-term gross margins are expected to be in the 25% to 26% range, reflecting these mix shifts and input cost dynamics, though the long-term structural margin expectation remains 26% to 27% based on platform improvements. The company is also navigating a dynamic tariff environment, employing a flexible strategy of price adjustments and sourcing changes to mitigate potential impacts. Operational adjustments, such as idling a Florida plant and consolidating Canadian facilities, are being made to align capacity with regional demand and improve efficiency. While natural disasters like recent hurricanes have caused near-term timing disruptions to production and deliveries, they are expected to stimulate significant demand for rebuilding efforts in affected regions over the medium to long term.

Despite the positive momentum and strategic advancements, Champion Homes faces notable risks. The identified material weakness in internal controls within the acquired Regional Homes retail operations requires diligent remediation efforts to ensure accurate and timely financial reporting. The product liability related to water intrusion claims from homes built prior to fiscal 2022, while having an approved remediation plan, carries an estimated potential loss range significantly higher than the currently accrued liability, and recovery from third parties is uncertain. Fluctuations in raw material costs, labor availability and costs, and the cyclical nature of the housing market remain inherent risks. The availability and terms of consumer and wholesale financing are critical to demand and retailer viability. Furthermore, competition from both factory-built and site-built alternatives, along with potential changes in zoning laws and regulations, could impact market access and demand.

Conclusion

Champion Homes is executing a clear strategy to capitalize on the fundamental need for affordable housing in North America. By integrating its manufacturing, retail, and financing capabilities, the company is enhancing its market reach and customer value proposition. Fiscal 2025 results demonstrate the financial benefits of this approach, particularly the successful integration of strategic acquisitions and the ability to expand margins despite inflationary pressures. While the company navigates near-term uncertainties stemming from macroeconomic factors, consumer behavior shifts, and operational challenges like weather impacts and internal control remediation, its strong liquidity and strategic investments in technology and distribution channels position it favorably for long-term growth. The competitive landscape remains dynamic, but Champion's diversified model and focus on innovation provide key differentiators. Investors should weigh the company's demonstrated ability to grow revenue and expand margins against the execution risks associated with integration, operational efficiency improvements, and external market volatility, while recognizing the significant opportunity presented by the persistent housing affordability gap.