KB Home Q4 2025 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: John Lovallo - UBS AG - Analyst : 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 guy, that, maybe wasn't always the case. So 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? 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 in in 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 cost. And as we've reacted to the market we're lowering our costs on new deliveries, but we have to clear these older older specs that have a higher cost basis so it is impacting the margin and it's a short-term thing, but it's something we have to power through. 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, 11 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 if you got any other color Rob, you want to.

Question: John Lovallo - UBS AG - Analyst : Okay, yeah, that, that's really helpful and maybe sticking on a similar topic, I don't recall you guys ever giving an adjusted EPS number before, and I'm curious kind of 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's 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.

Question: Stephen Kim - Evercore ISI - Analyst : Yeah, thanks a lot guys. Just to start off with, if we could we get the, spec numbers, the finished and the under construction, specs at the end of the quarter, and also a clarification on your community count comment. I think you said 2Q is going to be the high water mark. I just want to make sure that we're clear that you're saying that the community count will actually be the highest in 2 q and then it will descend from there. In the comm com cadence and.

Question: Stephen Kim - Evercore ISI - Analyst : Okay, that's a, that's total, right? Total inventory, not necessarily finished inventory, is that right? It like just trying to get a sense how much is finished and how much is under construction.

Question: Stephen Kim - Evercore ISI - Analyst : Okay, got you that's helpful, and then a general question about your community I'm sorry, your shift to BTO, what you're describing is that you know you have a number of new communities that are going to be opening up and that will really facilitate your transition to more BTO sales which are also higher margin. And I guess it would be helpful for me to understand what is it about a new community that necessarily makes it easier for you to make a shift in your BTO strategy, because to a degree I would think that most of your, pretty much all of your communities were initially designed around the BTO concept and Sort of market reality sort of kind of pushed you to do a little bit more spec than you would normally like. So that's my perception. Is that an incorrect perception? Do you actually have communities that you know you kind of just earmarked to be kind of spec communities and you're just not doing any of those as we go forward if you can help me understand how the transition is facilitated by a new community opening up per se.

Question: Alan Ratner - Zelman & Associates LLC - Analyst : Hey guys, good afternoon. Thanks for all the details so far. I was hoping to get an update on kind of your pricing strategy shift. I know you're obviously focusing on increasing the BTO mix and I guess part of that, or in addition to that, I know a few quarters ago you mentioned kind of the push to get towards more of a base price model as opposed to the kind of the kitchen sink incentive model that a lot of your competitors are operating with and. It seems like since then if anything the incentive environment has gotten even more competitive. I mean we're seeing rate buy downs advertised on a lot of builder websites, 2%, 3%. So I'm just curious, a, how has it been competing in this environment with your new strategy, and B do you have an update on kind of what the actual base price adjustments that you've seen, up to this point and what the expectation is going forward? Thank you.

Question: Alan Ratner - Zelman & Associates LLC - Analyst : Got it. Well, that was kind of the second question I was going to ask on that, improvement or increase in BTO you've seen. Is there something you can attribute, the increase you've seen recently too, is that a function of maybe the overall inventory environment kind of improving across the industry? We've heard from a lot of your spec focused peers like they pulled back a lot on starts over the last handful of months. So are you actually seeing a little bit of relief on the spec competition side, or is it more, something you're doing internally that's driven that recent mix shift? Alan, 11 of the things that got blurred with what Rob walked through on the supply chain crunch and then the inventory that we put in and others put in is, you lose sight of the value in the built to order approach and, don't underestimate the benefit of many of our divisions now building in less than 100 days. So what would you rather have a completed spec with a lot of incentives to move it, or do you want to build your own home and create your own value and close 30 days later or 45 days later, so what what we're seeing is with with our build times coming down. The the value proposition of the personalized home at an attractive price is more compelling, so we don't think that our customers are competing with the the specs we focus on resale and we offer a a brand new home that's within range of the resale medium, and they really value the personalization so it's naturally coming back to us because we're prioritizing it and, focusing on much better than we did the last couple of years. LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies. DECEMBER 18, 2025 / 10:00PM, KBH.N - Q4 2025 KB Home Earnings Call

Question: Rafe Jadrosich - BofA Securities - Analyst : Hi, good evening. Thanks for taking my question. I just wanted to, kind of, follow-up on some of the comments on the BTO makes. I think you said 57% of deliveries were BTO in the fourth quarter. How are you, what are you expecting for the fiscal first quarter? And then what would that be for the full year, kind of at the midpoint of guidance, wondering sort of where the exit rate will be for the year compared to that 70% target you have.

Question: Rafe Jadrosich - BofA Securities - Analyst : Great so similar mix in fiscal 1st quarter versus the fourth quarter.

Question: Rafe Jadrosich - BofA Securities - Analyst : Right. And then just the fiscal, the, first quarter gross margin, the quarter to quarter decline you spoke about the fixed cost, the leverage, and the, amount that you're getting pressured there, but the decline is sort of greater than that. But what are the other pieces to sort of bridge us to the first quarter decline?

Question: Trevor Allinson - Wolfe Research LLC - Analyst : Hi, good evening. Thank you for taking my questions. First question on the ASP and implied by the midpoint of your 2026 revenue deliveries guidance site. I believe the midpoint in 206 is above your 4Q25 ASP is the expectation to be able to increase prices in fiscal 26, or are there mixed impacts driving that? Just trying to understand why should the base case be for pricing move higher versus where it was in 4Q. And, Trevor, we're not assuming price that is totally mixed. We have some very high end communities and very good locations in California that are opening soon. In fact, one's already open, and they'll be delivering a pretty sizable number of homes in the 3rd and 4th quarter. So our mix shift is going to trigger a higher ASP as these higher price communities hit volume. Okay, makes sense. And then the second one is on returning cash to shareholders in fiscal '26. You gave the guide for one que typically it's a smaller quarter for you guys. So should we think that you continue to return capital to shareholders at a similar 50 million to 100 million rate post one queue, or how are you thinking about that beyond the first quarter? Thanks.

Question: Jay Ramani - KBW - Analyst : Thank you very much. You mentioned transparency on price and emphasizing pricing over incentives. Are you seeing other builders follow suit in cutting price, and are you worried at all that this could lead to price wars in, many locations?

Question: Jay Ramani - KBW - Analyst : And then on the option walkaway charges, have you identified a pool of communities that you may not exercise additional options, and do you anticipate further charges through this year, 2026?

Question: Sam Reid - Wells Fargo Securities LLC - Analyst : Yeah, thanks so much. Just curious where incentive loads landed in the fourth quarter as a percent of revenues and any sense as to what's embedded in the 1st quarter and then kind of a knock on to that is talk through how you're incentivizing. Some of this aged inventory that you're selling through. LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies. DECEMBER 18, 2025 / 10:00PM, KBH.N - Q4 2025 KB Home Earnings Call

Question: Sam Reid - Wells Fargo Securities LLC - Analyst : That helps. And then this is perhaps more of a follow-up to some of the prior questions, but when you look at your range of delivery volume outcomes in '26, it's pretty wide. The question really is there a different assumption per spec versus build to order embedded at the high end of that delivery volume range versus the low end? And then, I mean, would it be fair to assume that the low end of that range is just a scenario where build to order doesn't come in as planned? We just love some context on that.

Question: Andrew Rozzi - JP Morgan - Analyst : Hi guys, you have, Andrew Rozzi here on for Mike. Just wanted to drill down, I believe you guys said traffic was relatively stable within the quarter. Was there any meaningful difference in sales trends month to month, or was it more of the same?

Question: Andrew Rozzi - JP Morgan - Analyst : Saw.

Question: Andrew Rozzi - JP Morgan - Analyst : Okay, I appreciate that. And then, maybe within one queue's gross margin and even, as we go throughout the year, what are kind of your assumptions for construction costs and lot costs, within your guide and one que and maybe your outlook for the year?