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LGI Homes, Inc. (LGIH)·Q2 2025 Earnings Summary

Executive Summary

  • Q2 2025 delivered revenue of $483.5M and diluted EPS of $1.36; gross margin improved sequentially to 22.9% and adjusted gross margin to 25.5% (+190 bps QoQ), aided by pricing actions, self-developed lots, and cost discipline .
  • Versus consensus, the quarter was a modest beat: EPS $1.36 vs $1.31*, revenue $483.5M vs $478.4M*, and EBITDA beat $41.7M vs $35.0M* .
  • Management withdrew full‑year 2025 guidance, citing spec-driven visibility challenges in 4Q, and provided Q3 2025 guidance calling for lower margins (GM 21.5–22.5%, adj GM 24.0–25.0%) as incentives are used to move aged inventory—an important stock narrative catalyst .
  • Demand was resilient but affordability and macro uncertainty weighed on orders; net orders declined sequentially and the Q2 cancellation rate rose to 32.7%, with wholesale closings rising to 17.9% mix—a headwind to YoY margins .

What Went Well and What Went Wrong

What Went Well

  • Sequential margin improvement: gross margin up to 22.9% and adjusted gross margin to 25.5%, at the high end of prior range; CEO highlighted cost savings and efficiency initiatives .
  • SG&A discipline and advertising optimization: selling expenses fell to 8.6% of revenue vs 8.8% YoY, with combined SG&A at 14.7% of revenue, reflecting more efficient advertising .
  • Balance sheet/liquidity: total liquidity $322.6M; net debt to capitalization 45%; repurchased 367,568 shares for $20.6M, maintaining buyback flexibility .

Quote: “Our gross margin and our adjusted gross margin both increased 190 basis points sequentially to 22.9% and 25.5%… at the high end of the range provided on our last call.” – Eric Lipar, CEO

What Went Wrong

  • Top-line and volume pressure: revenue down 19.8% YoY driven by a 20.1% decline in closings; affordability challenges and economic uncertainty slowed buyer decisions .
  • Elevated cancellations and softer orders: Q2 cancellation rate increased to 32.7% (vs 22.2% YoY) and net orders fell sequentially; one large wholesale contract cancellation inflated the rate .
  • Guidance uncertainty: withdrawal of full-year 2025 guidance due to limited 4Q visibility in spec-driven model; Q3 margin guide lower as incentives are leaned into to clear aged inventory .

Financial Results

Core P&L and Margins

MetricQ2 2024Q1 2025Q2 2025
Revenue ($USD)$602.5M $351.4M $483.5M
Diluted EPS ($)$2.48 $0.17 $1.36
Gross Margin %25.0% 21.0% 22.9%
Adjusted Gross Margin %27.0% 23.6% 25.5%

Notes:

  • YoY revenue decline of 19.8% and closings down 20.1% per CFO commentary .
  • Sequential margin increase of 190 bps to both GM and adj GM per press release .

Versus Wall Street Consensus (S&P Global)

MetricActualConsensus*Surprise
Revenue ($USD)$483.5M $478.4M*+$5.1M
Primary EPS ($)$1.36 $1.31*+$0.05

Values marked with * retrieved from S&P Global.

Segment Breakdown – Q2

Revenues by Segment ($USD thousands)

SegmentQ2 2024Q2 2025
Central$173,434 $112,986
Southeast$135,418 $150,110
Northwest$68,125 $53,487
West$128,155 $100,339
Florida$97,365 $66,563
Total$602,497 $483,485

Closings by Segment (Units)

SegmentQ2 2024Q2 2025
Central535 360
Southeast410 456
Northwest132 100
West308 230
Florida270 177
Total1,655 1,323

ASP by Segment ($)

SegmentQ2 2024Q2 2025
Central$324,176 $313,850
Southeast$330,288 $329,189
Northwest$516,098 $534,870
West$416,088 $436,257
Florida$360,611 $376,062
Total$364,047 $365,446

Average Monthly Absorption Rate (per community per month)

SegmentQ2 2024Q2 2025
Central4.1 2.5
Southeast5.5 4.5
Northwest3.1 2.1
West4.7 3.1
Florida3.9 2.4
Total4.3 3.0

Average and Ending Community Count

MetricQ2 2024Q2 2025
Average Community Count128.3 146.0
Ending Community Count128 146

KPIs and Operating Metrics

KPIQ1 2025Q2 2025
Closings (units)996 1,323
ASP ($)$352,831 $365,446
Active Selling Communities (end of period)146 146
Gross Orders (units)1,716 1,620
Net Orders (units)1,437 1,091
Cancellation Rate (%)16.3% 32.7%
Backlog (homes)1,040 808
Backlog Value ($)$406.2M $322.5M
Owned + Controlled Lots (total)67,792 64,756
Wholesale Closings Mix (%)18.0% 17.9%
July 2025 Closings (units)—381

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Home ClosingsFY 20256,200–7,000 Withdrawn Withdrawn
Active Selling Communities (end)FY 2025160–170 Withdrawn Withdrawn
ASP ($)FY 2025$360k–$370k Withdrawn Withdrawn
Gross Margin %FY 202521.7%–23.2% Withdrawn Withdrawn
Adjusted Gross Margin %FY 202524.0%–25.5% Withdrawn Withdrawn
SG&A % of RevenueFY 202514%–15% Withdrawn Withdrawn
Effective Tax RateFY 2025~24.5% Withdrawn Withdrawn
Home ClosingsQ3 2025n/a1,100–1,300 Introduced
Active Selling Communities (end)Q3 2025n/a~145 Introduced
ASP ($)Q3 2025n/a$360k–$365k Introduced
Gross Margin %Q3 2025n/a21.5%–22.5% Introduced
Adjusted Gross Margin %Q3 2025n/a24.0%–25.0% Introduced
SG&A % of RevenueQ3 2025n/a15%–16% Introduced
Effective Tax RateQ3 2025n/a~24.5% Introduced

Earnings Call Themes & Trends

TopicQ4 2024 (Prior-2)Q1 2025 (Prior-1)Q2 2025 (Current)Trend
Affordability & IncentivesIncentives up vs 2023; entry-level affordability key Running ~5–6% of ASP; buy-downs mid-5% FHA; heavier incentives expected Incentives leaned into to clear aged inventory; Q3 margin guide lower Intensifying incentives; margins pressured near term
Wholesale Mix9.2% FY; 11.3% in Q4 18% of closings; market-specific demand 17.9% of closings vs 7.1% YoY Elevated mix vs prior year
Tariffs/MacroMonitoring input costs; supply chain flexibility Tariff surcharges emerging; trimmed full-year GM guidance Minimal impact in Q2; affordability/macro uncertainty dampened orders Risk watched; impact modest in Q2
Community Count & Openings151 by YE; deepening existing markets 146 at Q1 end; YE goal 160–170 146 at Q2 end; ~145 guided for Q3 Near-term stabilization; timing cautious
Orders/CancellationsFY cancellation 22.8%; Q4 28% Net orders 1,437; cancellation 16.3% Net orders 1,091; cancellation 32.7%; one wholesale cancel Softer Q2; cancellations elevated
Inventory & Starts~4,000 units; starts < closings; reducing inventory 1,176 starts; 1,522 WIP 1,135 starts; 1,512 WIP; targeting 6–7 months supply Moderating starts; rebalance focus
Advertising & LeadsSpending more to drive leads Higher advertising costs; training new hires Optimized advertising lowered selling %; focus on digital leads Efficiency improving
Leverage & BuybacksNet debt/cap ~41%; buybacks ongoing Recast revolver; $177M buyback auth Net debt/cap 45%; $157.3M remaining auth; deleveraging prioritized Balanced capital allocation

Management Commentary

  • Strategy and margins: “We continue to pursue opportunities for cost savings and improved efficiency… focus on driving additional improvement in our profit margins and earnings per share.” – Eric Lipar
  • Demand and affordability: “Affordability challenges tied to interest rates and broader economic uncertainty dampened some buyers’ willingness to transact...” – Eric Lipar
  • Margin mechanics: “Adjusted gross margin was 25.5%… YoY decrease primarily due to higher wholesale closings… higher lot costs… higher capitalized interest… reduced operating leverage.” – Charles Merdian
  • Capital position: “Debt to capital ratio of 45.8 and net debt to capital ratio of 45%… repurchased 367,568 shares for $20.6M.” – Joshua Fattor
  • Outlook posture: “We are withdrawing our full year 2025 guidance and providing guidance only for the third quarter of 2025.” – Eric Lipar

Q&A Highlights

  • Pace vs margin trade-off: Management will “lean into incentives, especially on the older aged inventory,” balancing pace with margin capture from self-developed lots .
  • Sales trends and rates: Late June/July trends improved; combination of rate declines and intensified follow-up on digital leads drove better July orders (382 July closings announced same day) .
  • Cancellations: Q2 rate elevated partly due to a large wholesale contract cancel; normalized would be mid-to-high 20s .
  • SG&A trajectory: Guidance implies 15–16% SG&A in Q3; Q2 combined SG&A was 14.7% .
  • Product/affordability actions: Considering smaller square footage, attached product, and smaller lot sizes to improve affordability over time .

Estimates Context

  • Q2 2025 compared to consensus: EPS beat by $0.05; revenue beat by ~$5.1M; EBITDA also above consensus.
MetricActualConsensus*Surprise
Revenue ($USD)$483.5M $478.4M*+$5.1M
Primary EPS ($)$1.36 $1.31*+$0.05
EBITDA ($USD)$41.7M*$35.0M*+$6.7M

Values marked with * retrieved from S&P Global.

Implications: With Q3 margin guide lower (GM 21.5–22.5%, adj GM 24.0–25.0) and July closings of 381, near-term EPS estimates may need to reflect higher incentives and softer pace; the withdrawal of FY guidance likely drives cautious revisions and narrative sensitivity to monthly closings .

Key Takeaways for Investors

  • Sequential margin improvement to 22.9% GM and 25.5% adj GM was a positive surprise; however, YoY margin compression reflects higher wholesale mix and operating leverage headwinds .
  • Modest beat vs consensus on EPS and revenue; the stock narrative now hinges on monthly closings and Q3 margin execution given guidance reset .
  • Withdrawal of FY 2025 guidance introduces uncertainty; Q3 guidance implies margin pressure as incentives are used to move aged inventory—a key near-term driver .
  • Orders and cancellations deteriorated sequentially (net orders 1,091; cancellation rate 32.7%); watch demand normalization and wholesale contract stability .
  • Capital allocation remains balanced: $157.3M buyback capacity with a stated priority to delever as inventory is right-sized; liquidity $322.6M supports flexibility .
  • Affordability initiatives (rate buy-downs, smaller footprints/attached product, lower lot costs) are medium-term levers to restore pace while preserving margin .
  • Trading lens: Near-term catalysts include monthly closing updates (e.g., July 381), Q3 execution vs margin/SG&A guide, and any reintroduction of annual guidance upon stabilization .