Prepared remarks
Good morning, ladies and gentlemen, and welcome to the M/I Homes Fourth Quarter and Year End Earnings Conference Call. At this time, all lines are muted. Following the presentation, we will conduct a question and answer session. If at any time during this call you need assistance, please press 0 for the operator. This call is being recorded on Wednesday, 01/28/2026. I would now like to turn the conference over to Phil Creek. Please go ahead.
Thank you, and thank you for joining us today. On the call with me is Bob Schottenstein, our CEO and president, and Derek Klutch, president of our mortgage company. First, to address regulation fair disclosure, we encourage you to ask any questions regarding issues that you consider material during this call. Because we are prohibited from discussing significant nonpublic items with you directly. And as to forward-looking statements, I want to remind everyone that the cautionary language about forward-looking statements contained in today's press release also applies to any comments made during this call. Also, be advised that the company undertakes no obligation to update any forward-looking statements made during this call. With that, I'll turn it over to Bob.
Thanks, Phil, and good morning, and thank you for joining us today. As I begin, I'd like to take a brief moment to acknowledge an important milestone for M/I Homes. 2026 marks our fiftieth year in business. Over the past five decades, our company has grown to become one of the nation's largest and most respected homebuilders. Looking back, we've been through a lot. We've experienced disciplined growth and certainly our fair share of successes navigating through multiple housing cycles. Through it all, we have maintained an unwavering focus on quality, customer service, and operating at a high standard. As we look ahead to celebrating this milestone, we're proud to report that we are in the best financial condition in our history, have a group of leadership teams that are as strong as we've ever had, and that we are well positioned in our 17 markets. With that, we'll turn to our 2025 performance. Our full year 2025 results reflect the economic conditions that we and, frankly, our entire industry experienced throughout the year. Despite choppy demand, affordability challenges, economic uncertainty, and other macroeconomic pressures, our performance remained very solid. Though new contracts were down slightly for the full year, we were pleased that our monthly new contracts during the fourth quarter showed a 9% year-over-year increase and that we successfully increased our 2025 average community count by 6% versus our guide of about 5%. In 2025, we delivered 8,921 homes, recorded revenue of $4.4 billion, and excluding charges of $59 million related to inventory and warranty items, we generated pretax income of nearly $590 million, which was down 20% compared to last year's record $734 million. Our pretax income percentage was a very solid 13% before the charges, and 12% after all charges. Our financial services segment had a record capture rate of 93%, record volume levels, and a very strong year achieving pretax income for the year of $56 million. Our full year gross margins excluding the above-mentioned inventory and warranty charges were 24.4%, 220 basis points lower than 2024, and down primarily due to higher incentives and higher lot costs versus the same period a year ago. As you all know, our primary incentives were and continue to be mortgage rate buy down. And we will continue to use these incentives as necessary on a community-by-community basis. Our net income was $403 million or $14.74 per share, but a very strong return on equity of 13.1%. Our shareholders' equity increased 8% year-over-year and reached an all-time record of $3.2 billion with a record book value per share of $123. The quality of our buyers in terms of creditworthiness continues to be strong with average credit scores of 747 and average down payments of almost 17% or just over $90,000 per home. Our Smart Series, which is our most affordably priced product, continues to have a very positive and meaningful impact not just on our sales, but our overall performance. Smart Series sales comprised 49% of total company sales in the fourth quarter compared to 52% a year ago. And as I previously noted, we ended the year with community count growth with 232 active communities, which was an increase of 5% compared to the prior year, and on average, an increase of 6%. In terms of our various markets, our division income contributions in 2025 were led by Columbus, Dallas, Chicago, Orlando, and Minneapolis. Our new contracts for the fourth quarter in our southern region increased by 13% year-over-year and by 4% in the northern region. For the year, new contracts decreased 1% in the southern region and 9% in our northern region. Deliveries increased 1% over last year's fourth quarter and made up 57% of the company-wide total. The northern region contributed 981 deliveries, which was a decrease of 8% over last year's fourth quarter. For the year, homes delivered slightly increased in the southern region but decreased slightly in the northern region. Our owned and controlled lot position in the southern region decreased by 11% compared to a year ago, while it increased by 9% compared to a year ago in the northern region. We have a tremendous land position. Company-wide, we own approximately 26,000 lots, which is slightly less than a three-year supply. Of this total, 30% of our owned lots are in the northern region, with the balance of 70% in the southern region. On top of the lots that we own, we control via option contracts an additional 24,000 lots. So in total, we own and control approximately 50,000 single-family lots, which is down 2,000 lots from a year ago, and this equates to roughly a five to six-year supply. Most importantly, 49% of our lots are controlled pursuant to option contracts, which gives us continued important flexibility to react to changes in demand or individual market conditions. With respect to our balance sheet, we ended the year in excellent condition. With cash of $689 million and zero borrowings under our $900 million unsecured revolving credit facility. This resulted in a very strong debt to capital ratio of 18% and a net debt to capital ratio of zero. Before I conclude, let me again state that we are in the best financial condition in our fifty-year history. Despite the current challenging conditions, we feel very good about our business, remain very confident in the long-term fundamentals of our industry, and are well positioned as we begin 2026. I'll now turn it over to Phil to provide more specifics on our results.
Thanks, Bob. Our new contracts were up 18% in October, up 6% in November, and up 4% in December, for a 9% improvement in the quarter compared to last year's fourth quarter. Our sales pace was 2.8 in the fourth quarter, compared to 2.7 in last year's fourth quarter. And our cancellation rate for the fourth quarter was 10%. As to our buyer profile, 48% of our fourth quarter sales were to first-time buyers, compared to 50% a year ago. In addition, 79% of our fourth quarter sales were inventory homes, compared to 67% in last year's fourth quarter. Our community count was 232 at the end of 2025, compared to 220 at the end of last year. During the quarter, we opened 17 new communities while closing 18. And for the year, we opened 81 new communities. We currently estimate that our average 2026 community count will be about 5% higher than 2025. We delivered 2,301 homes in the fourth quarter, and about 40% of our quarter deliveries came from inventory homes that were both sold and delivered within the quarter. As of December 31, we had 4,500 homes in the field, versus 4,700 homes in the field a year ago. Revenue decreased 5% in 2025 to $1.1 billion, and our average closing price for the fourth quarter was $484,000, a 1% decrease when compared to last year's fourth quarter average closing price of $490,000. Our gross margin was 18.1% for the quarter, including $51 million of charges, which consisted of $40 million of inventory charges and $11 million of warranty charges. Excluding these charges, our gross margin was 22.6%. The breakdown of the inventory charges is $30 million of impairments and $10 million of lot deposit due diligence costs written off. The majority of our impairments in the quarter were in entry-level communities, with average selling prices below $375,000. And the warranty charges were due to two communities in our Florida market. For the full year, our gross margins were 23%. Excluding our $59 million of charges, our full year gross margin was 24.4%. And our fourth quarter SG&A expenses were flat compared to a year ago, and were 11.6% of revenue compared to 11% last year. Interest income, net of interest expense for the quarter was $6 million. Our interest incurred was $9.5 million. We had solid returns given the challenges facing our industry. Our pretax income was 12% for the year, and our return on equity was 13%. During the fourth quarter, we generated $129 million of EBITDA, and for the full year, we generated $608 million of EBITDA. Our effective tax rate was 21% in the fourth quarter, compared to 22% in last year's fourth quarter, and our annual effective rate for this year was 23.5%. We expect the 2026 effective tax rate to be around 23.5%. Our earnings per diluted share for the quarter decreased to $2.39 per share from $4.71 per share in last year's fourth quarter and decreased 25% for the year to $14.74 per share from $19.71 per share last year. During the fourth quarter, we spent $50 million repurchasing our shares, and for the year, we spent $200 million. We currently have $220 million available under our repurchase authority, and in the last three years, we have purchased 13% of our outstanding shares. Now Derek Klutch will address our mortgage company results.
Thanks, Phil. In the fourth quarter, our mortgage and title operations achieved pretax income of $8.5 million, down $1.6 million from 2024. Revenue was $27.8 million, down 2% from last year, primarily as a result of lower margins on loans closed and sold and partially offset by higher average loan amounts and more loans closed. For the year, pretax income was $56 million and revenue was $126 million. The loan to value on our first mortgages for the quarter was 83% in 2025 compared to 82% in 2024's fourth quarter. 65% of the loans closed in the quarter were conventional, and 35% were FHA or VA. Compared to 59% and 41%, respectively, for the same period last year. Our average mortgage amount increased to $414,000 in 2025's fourth quarter compared to $409,000 in 2024. Loans originated in the quarter increased 1% from 1,862 to 1,874, and the volume of loans sold decreased by 1%. Our mortgage operation captured 94% of our business in the quarter, an increase from 91% in 2024's fourth quarter.
Thanks, Derek. As far as the balance sheet, we ended the fourth quarter with a cash balance of $689 million and no borrowings under our unsecured credit facility. We continue to have one of the lowest debt levels of the public homebuilders and are well positioned with our maturities. Our bank loan matures in 2030 and our public debt matures in 2028 and 2030. Total homebuilding inventory at year-end was $3.4 billion, an increase of 9% from prior year levels. During 2025, we spent $524 million on land purchases and $646 million on land development, for a total spend of $1.2 billion. This was up from $1.1 billion in 2024. At 12/31/2025, we had $900 million of raw land, land under development, and $1.1 billion of finished unsold lots. We own 10,500 unsold finished lots. And at the end of the year, we had 1,030 completed inventory homes, about four per community, and 2,779 total inventory homes. Of the total inventory, 1,116 are in the Northern Region and 1,663 in the Southern Region. At December 31, 2024, we had 706 completed inventory homes and 2,502 total inventory homes. This completes our presentation. We'll now open the call for any questions or comments.
Questions and answers
Thank you. Ladies and gentlemen, we will now begin the question and answer session. You will hear a prompt that your hand has been raised. If you wish to decline from the polling process, please press star followed by 2. And if you are using a speakerphone, please lift the handset before pressing any keys. First question comes from Ken Zener at Seaport Research Partners. Please go ahead.
Good morning, everybody. Positive order growth. Pretty impressive. And can you address the 13% growth you had in the South? Can you bifurcate that into Texas and Florida? Because I think, Ted, last time, you found that Texas is a little bit more of the volume. We've been seeing that Florida is actually doing a little better than Texas. Could you address the split in that region? You know, in general, we had pretty solid sales everywhere. Our Carolina markets, Charlotte and Raleigh have done very well. You know, in Florida, our Orlando market has actually held up pretty well. And Tampa also has improved as we've gone through the quarter. When you look at Texas, you know, Dallas is still pretty solid for us along with Houston. Weaker markets have been Austin and San Antonio. So we've been spread around a little bit. But like you say, we were very pleased that our southern region was up 13%. And our northern region was also up 4%. You know, the only other thing I'll mention, Ken, and it's a good call out, just to build on what Phil said, as we're gaining traction in our newer markets in the southern region, specifically Nashville and Fort Myers Naples. That will slightly skew upwards some of the percentages. But we felt very good about our fourth quarter sales. And I would simply add that as we begin 2026, you know, we certainly have seen and I think some of it's clearly seasonal. We're beginning a selling season right now as opposed to leaving the slowest time of the year in the fourth quarter. But we've certainly seen an important improvement in traffic.
I appreciate those comments. And they are reported too today, and it's our margins are under pressure. The demand seems to be there. Could you comment, given the intra-quarter orders and closing, could you comment on the margin differential between your intra-quarter closings and your backlog or spread, if you will, as well as are the majority of those quarter closings, I assume they're coming from the lower-priced Smart Series. If you could address those two questions.
Very much.
Well, I'm not sure I completely understood the question. And you may have to ask it again.
Orders and closings per unit that were intra-quarter. So what I call spec. How are those margins compared to the homes that came out of backlog? And I'm assuming most of those intra-quarter orders, which were closings, were the Smart Series.
Well, yes and no. The Smart Series point. The one thing I'll say is over the last twelve to twenty-four months, our business has changed quite noticeably. In terms of the significant contribution of spec sales month in, month out. About, you know, two-thirds to three-fourths of our sales are now coming from specs. And if you go back five years ago, that would have been less than 50%. In some cases, less than 40%. So that's been a pretty significant change. And it's likely here to stay. As long as we're in this situation where we're needing to use rate buy downs to promote sales because as you well know, the ability to provide a favorable rate buy down at any kind of a reasonable or at least acceptable cost is one of the conditions is that you can get the home closed within sixty to ninety days of the purchase of the buy down money, which means that only really works for specs. So having said all that, the majority of, you know, 60 to 75% of the closings quarter to quarter are all coming from spec sales.
Bill, don't know if you want to add anything to that. Yeah. I mean, you know, our closing gross profits in the fourth quarter were 22.6%, forgetting the charges. We were, you know, pretty pleased with that. Are there continued pressures? Yes. We do feel good that our construction costs last year came down about 2%. We were also pleased last year that our cycle time improved by about 5%. So we're making some progress on some of those key areas. Spec margins in general are lower than to-be-built homes. But the last couple of months, we have seen a slight pickup in our to-be-built business. But, you know, we just continue focusing, you know, every day on everything we can do to hold those sales prices stable or increase them.
Thank you very much.
Thank you. The next question comes from Alan Ratner at Zelman. Please go ahead.
Hey, Bob. Hey, Phil. Good morning. Nice quarter and happy fiftieth anniversary. Good morning. Happy New Year.
Yep. We don't feel that old.
I hear you. Well, it's very impressive, and I'm sure we got 50 more out ahead of us. So looking forward to it. My first question is on the order strength in the quarter. I was looking and your fourth quarter, obviously, up year over year, but your fourth quarter orders were actually sequential basis as well, which, as far as I can tell, that's the first time that's happened since 2001. So I was hoping you could just talk a little bit about, you know, kind of your incentive and pricing strategy through the quarter. Would you say that order strength, at least kind of seasonally, is a reflection of improving demand? Or was it more of a concerted effort by you guys to kind of clear through some inventory ahead of year-end, maybe with some higher incentives?
Well, that's a great question. It's actually probably one of the most important questions that we look week to week in terms of our sales activity. I feel like it's a little bit of both. I think we wanted to push to get as many completed specs off to the buyers as we could. I feel like demand is slightly picking up. I felt like, you know, not every market, but in many of our markets, we were somewhat pleased with the level of traffic through the fourth quarter. And that is continuing. I think it's too early to make a call. But we've been hearing about all the pent-up demand and underperformance of housing, and articles have been written about that almost more than anything other than affordability. It feels like we may be starting to see a slight improvement in demand. I also think, and we'll know when we know, we expect our margins to drop at least 200 basis points last year. And, of course, they did that and then some. The margins are likely to remain under pressure, but it's not clear to me at this point that the pressure in 2026 will be as much as it was in 2025. So hopefully, things are starting to level off a bit. Again, we'll know when we know. But, all things considered, you know, pre-charges, we made almost $590 million last year, bringing 13% to the bottom line. By historical standards, that's pretty good performance. Putting things in context, we've all seen a whole lot worse. I think I'm optimistic about the first four or five months of this year in terms of demand and the selling season.
Alan, one thing I'll add is that we talked about the impairments coming primarily from entry-level communities with an ASP under $375,000. It was led by our more challenging markets in Austin and San Antonio. In general, we've seen a little more pressure on prices and margins on the real entry-level lower price for us. Hopefully, that is going to get a little bit better. We tend to play at a little higher price point, but that's just kind of where things are.
Got it. I appreciate all that detail. And Phil, you kind of touched on the second question I had, which was on those impairments. I guess the first one is a little bit of an accounting nuance, but I'm just curious. If I look at historically when you've taken charges, they're almost entirely in your fourth quarters. I mean, you may have some minimal charges for the year, but it looks like fourth quarter is kind of where you generally take larger charges. So I'm curious if there's any accounting reason why that is, at least compared to other builders. And b, I don't know if you disclosed like a watch list of communities that maybe have potential indicators of impairments, but is there any indication that impairment should continue here over the next handful of quarters just based on where some of your margins are trending in your lower price point communities?
Yeah. Alan, I appreciate that. And I'll try to get all those points. You know, to us, it's a business issue. If you look at our business goals, you know, we're in the subdivision. That's what really matters to us. That's how we operate the business. And if we're not getting acceptable pace over a certain period of time, we make a business decision oftentimes to go to price. The way accounting rules are based is that once you get down to about a 10% gross profit, you kind of get to the point where carry costs and disposal costs exceed that. So the accounting rules, you know, kind of force you to do an impairment. But, again, to us, it's a business decision. We do look harder at things toward the end of the year for sure. That's why the majority of those charges in the past have been that way. Although this year, we did have a small impairment also, I think it was in the third quarter. But, you know, if you look at us today, you know, we own about 25,000 unsold lots. You always have a couple of problem subdivisions. Our impairment covered about a thousand lots. So about a thousand of the 25 lots. Again, it was in the most affordable stuff. We could have continued grinding through these communities. It may be one or one and a half to two a month. Maybe at 10% or 12% margins. But, our view is when you look at the landscape of the business and the difficulty at those lower price points, we decided to go to that last lever of dropping price. Again, we think that's a really good business decision. We expect that pace to pick up. We expect the margin to get back to closer to normal levels. That's why we did it. The other thing I'll say is that I've been through the Great Recession, where every quarter you held your breath as builders reported because many more impairments were coming. I felt like there was more coming back then. This is very different. I'm not saying there's no more coming because no one knows. But, as we got towards the end of last year, it was sort of, let's start 2026 with all cylinders as strong as they can possibly be. Whatever thing we think might be a problem, let's deal with it now, and let's end 2026 with as many items controlled and behind us as possible.
And Alan, really appreciate that detail. Thank you.
10 million was a combination of lot deposit write-offs, prepaid due diligence write-offs on deals we're not pursuing anymore. Because we think to do those deals, it would take a pretty significant cost reduction or other changes in terms. So we walked away from those deals. But, again, you know, on average, when you take a $30 million charge on a thousand lots, you're looking at $30,000 per lot, which is pretty significant. Hopefully, that's going to increase our pace and margins as we go into this year.
Makes sense. Thanks a lot.
Thank you. The next question comes from Buck Horne at Raymond James. Please go ahead.
Congrats on navigating a challenging environment and appreciate the color on all the charges as well.
Thanks, buddy. I was also curious about the acceleration in land purchase activity and some of the lot development spend in the fourth quarter. It was up both sequentially and year-over-year. I guess, first, I’m kind of wondering if any particular markets or regions are getting the bulk of that new spend that you're targeting? And should we read into that acceleration as an indication of your confidence levels regarding the demand that's out there and your growth trajectory? Or how should we interpret that pickup in the land spend?
No, nothing really special. Again, some of our markets are impacted by weather when we get blacktopping done and those types of things. I mean, we own about 25,000 lots, as Bob said. We try to have about a one-year supply of finished lots. That way, we don't go dark, etc. We ended the year with a little over 10,000 finished lots. With our current run rate at 9,000, we feel good about that. So, no, nothing really special. We're continuing to do a lot of land development. We self-develop about 80% of our own land. As far as any strategy or direction, that just kind of was the way the dollars were. We did spend a little bit more money last year toward the end, but that's just the way it kind of fell.
Okay. That's helpful. Always curious about your Florida trends in particular. I was just wondering because we've seen some signs that resale inventory to start the year in Florida seems to have flipped negative year-over-year. I think you mentioned that Tampa started to improve a little bit. Orlando seems to be steady. Are you sensing that there may be signs of improving traffic demand? Any indications that stabilization of the resale inventory is helping?
When we look at the four Florida markets that we operate in, Orlando, Tampa, Sarasota, and Fort Myers Naples, Fort Myers Naples is really new for us. We're very bullish about it, and we had significant growth because we went from almost zero to over 100 units last year. We're expecting pretty meaningful growth there over the next several years. As far as the other three where we've been a while, Orlando has clearly held up the best. Over the last I would say 30 to 150 days, demand in Orlando has been stronger than Tampa and Sarasota. Tampa was the toughest market for a while; it has probably, for whatever reason, been the hardest hit for us in Florida. The Tampa business has picked up, but it’s not as strong as Orlando at this point. We're encouraged by what we're seeing, that's for sure. Sarasota is just sort of, you know, so-so. I think that market is a very good market, but it's trending along and maybe a C+ or B- kind of thing. So look, we’re very invested in Florida, very committed to Florida; it's a huge part of our business. Candidly, we have some of the best leadership teams in our company. In Florida, we’ve been there a long time, since 1981 in Tampa and 1985 in Orlando.
Outstanding. That's great to hear. Last one, if I can sneak one in. I was curious about just how you're structuring the mortgage rate buy-downs right now in terms of what type of program or structure seems to be resonating in getting consumers over the hump. Is there kind of a sweet spot target mortgage rate that seems to work best with those buy-downs?
I guess, this is Derek. We've been going with a four and seven-eighths thirty-year fix. We think getting a sub-five is the key, and that’s what really seems to attract the buyers. On top of that, in some divisions, we offer a temporary buy-down so we can get buyers with the first-year payment in the 2.875 range. We've run that for quite a while; that seems to be successful for us. Just that sub-5% note rate has clearly been our most successful recently.
To Derek's point, what seems to work best for us is the very straightforward thirty-year fixed four and seven-eighths FHA, VA, or conventional. In many instances, it's supplemented with the two-one buy-down that Derek mentioned. One thing I'll stress is that our mortgage and title operations is very important to us. They only serve our M/I Homes customers. We're able to deal individually with customers, and depending on if it's a first-time buyer, there may be a real big need for closing cost assistance. There are some people out there that do want to build homes. They do want a longer-term rate program, so we're able to customize whatever we need to do with an individual customer as opposed to throwing a lot of money at every customer that may or may not need that. Being able to individually deal with customers, we think it's very important to our business.
Awesome. Very helpful color. Appreciate it, guys. Good luck.
Thanks.
Thanks.
Thank you. The next question comes from Alex Barron at Housing Research Center. Please go ahead.
Hey. Good morning, guys. I wanted to I wasn’t sure if I missed it, but did you guys give any guidance or outlook for margins for next quarter? Do you feel like they're going to go down sequentially, or are these impairments you took this quarter going to help stabilize margins?
Alex, you know us. We don’t give guidance on things like that. We were pretty pleased with our margins in the fourth quarter. We did deal with problem communities that we thought we needed to with the impairments. We don’t give any guidance. We are working hard on construction costs and cycle time and all those things. We are opening a number of new stores this year. We did give guidance. We expect average community count to be up 5% this year. But, no. We did not give any guidance as far as margins.
Okay. Did your incentive levels or go up in the quarter versus the previous quarter? For new orders?
I mean, our margins were down a little bit. So, you know, are we doing a little bit more on closings in the fourth quarter? Yes. We did. Again, that's reflected in our margins. Trying to do the best job we can opening all these new stores. We opened 80 stores last year, and anticipate opening more than that this year. So that's a big opportunity for us. Hopefully, the spring selling season will be a little better than it has been.
Okay. And also, any shift in your strategy as far as what percentage of spec homes you guys are starting versus going back towards build-to-order?
No. It'll likely remain about what it's been, which is, like I said earlier, about two-thirds to three-fourths of our business. Our spec sales. I don’t see things changing there or on the rate buy-down side to incentivize sales. I don’t see any of that changing anytime soon. Obviously, you know, we're all reacting to what's happening in the market. We did mention we've been encouraged by early traffic improvements here that we’ve seen through the latter part of the fourth quarter and certainly as we begin 2026.
Alright, guys. Well, best of luck. Thank you.
Thanks.
Thanks a lot.
Thank you. And the next question comes from Jay McCanless at Citizens. Please go ahead.
Hey. Good morning, everyone. Just to kind of follow on that point, Bob. Jay, congratulations on your new position.
Thank you, sir. I really appreciate it. Appreciate y'all's time this morning as well.
Just to kind of follow on what you were saying there, Bob, are you all seeing similar traffic pickup in both the North and the South, or is it stronger in one region versus the other?
In general, I would not say it's particularly regional. It’s not every single one of our 17 markets, but certainly in most. The last five days, things aren't very good anywhere because most people are frozen solid or they're snowed in, including, you know, here in Columbus; it's been pretty rough. But in general, we've seen traffic start to pick up. It always does this time of year. Feels a little better than even a year ago, though, to me.
Okay. That's great. And then, could you talk about in the fourth quarter, your ending gross margin in the backlog, and how that compares to what you reported for closings in the fourth quarter?
You know, right now, what we're doing, as Phil said, 75-80% specs. In general, the margins in the backlog are higher than specs. Are the margins that you're referencing a little higher than a year ago? The answer is yes. That's about a 100 basis points difference. But, hopefully, we're getting a little better. We continue to focus on improving the margins on the specs. So, we're doing all we can. You know, we did deliver 22.6% margins in the fourth quarter, so we're hoping margins hold up pretty good.
That's great. And then the next question I had, just thinking about the sales pace for these newer communities you're opening. Are you all trying to push a similar sales pace as what you got in '25? Or are you trying to be a little more cautious and not wanting to give away too much margin at the beginning of these communities?
We always try to focus on getting that pace at 30%. But, you know, again, you gotta be a little more careful opening new stores, as far as if you’re super aggressive on price and margin, you can feel that benefit for a while. There is a lot of opportunity with these new stores. Hopefully, we've got the right product and the right price to move through there. But, you know, we are focusing on trying to keep this pace at hopefully around three or a little better.
That's great. And then the last one for me. And thank you for the detail on the specs. I guess, how are you feeling about MHO's inventory right now and maybe some broader commentary on what you're seeing in the industry? Does it feel like some of the excess spec inventory is being drawn down? Or what are you hearing from the divisions on that?
I think we feel really good about where we are. Not to be silly. I mean, if we didn’t, we'd change. But going into this year, again, a lot of it's community-specific. We want to be very aggressive in making sure that we have the standing inventory in the field, the inventory if you will, so that we can take advantage of what should be a hopefully decent selling environment here over the next three to four or five months. So I think we feel our strategy is the right strategy. We don't feel we need to make any significant shifts. Other than community-specific items, I think we're very well positioned.
Absolutely. And any industry commentary you've been hearing from the field relating to inventory? Specifically, are people deeply discounting just to move specs or have discounts slowed down? Or are more incentives being paid to third-party realtors?
You hear a crazy story now and then about once every two days. I don’t think that’s anything new. People do what they need to do. Look, knowing the flat performance of 2025, if you just said to me, we’re going to bring 12 to 13% to the bottom line for the full year, I’d say I’ll take it. Well, that’s what we did.
Understood. Were we paying a lot of attention to our inventory levels? We do have about a thousand finished specs, which is a little higher than last year's 800. We do have 5% more stores. We have a few fewer houses in the field today than we did a year ago. But again, we benefit from better cycle times. We're just trying to be very focused. A lot of times, execution doesn’t get discussed. But now execution really matters. We're trying to be careful not to put too much inventory in the field, or too many finished specs. Again, depending on whether it’s an attached townhouse community or a higher-priced community, every community is a little different. Again, we're doing 70-75% specs. We rely on sales every week, every month, and that's what we have to stay focused on. We were very pleased that last year, we closed almost the same number of houses that we did the year before, which was our record of 9,000 homes. Our hopes and plans are to close a few more houses this year than last year. We have more stores. But again, we’re staying focused. We try to run a conservative business. We’re not trying to put inventory out there too far ahead of ourselves. But again, we feel pretty good about our results.
And just can you talk about what the margins on new community profit margins on new communities look like? As far as what the margins are on new communities we're opening versus older communities?
That’s really a hard question. Last year, we opened 80 stores. I would say in general, they're pretty close. We have some new stores that are doing really well and some that aren't doing so hot. It’s an individual situation. Overall, we feel pretty good about the new stores we’re opening. We’re trying to ensure we have the right product and price to move through there.
Understood. Well, thank you guys for all the time. That's all the questions I have.
Thanks, Jay.
Thank you. The next question is a follow-up from Ken Zener at Seaport Research Partners. Please go ahead.
Hello again. Thank you. I wonder if you could comment on the flexibility of the business. Obviously, mortgage buy-downs for, let's say, two-thirds of the communities. You have product; you're trying to protect the community, price voids, etc. But for new communities, given that communities opened last year and conversely are opening this year, how much of a change to the product type or how you open it up, at what price points? Can you talk to the dynamics that you employ when making those choices on new communities in terms of resetting the, let’s say, home size or the specs that you’re building? I don’t want to use the word de-spec, but you know they’re more simpler in terms of price points. How much flexibility do you really have there when you're coming into opening a community six to nine months out vis-à-vis the product structure?
I think a lot more flexibility than most people might realize. Look, so much of it’s determined by zoning. You have to stay within the confines of the zoning parameters. Having said that, usually those parameters give you a fair amount of flexibility. The amount of internal debate, discussion, analysis, strategy, if you will, that goes into each community planning from the very earliest stages when we think there’s a site. I'll use this as an example, in Charlotte, that we’re looking to tie up from the moment that we think that site might be available. The debate occurs within the division and sometimes springs all the way up to corporate conversations about what we're going to do with that if we get that deal done. What is that store going to look like? What are we going to merchandise in that store? What is the buyer? That’s a lot more art than science. I’m not saying it’s rocket science, but it is art. There is a fair amount of tinkering that takes place. We have projects coming on this year that when we first started planning them, we might have planned to do larger homes, and now we’re looking to do smaller homes. That's a very simple example. We may be replanning in a way that the density stays neutral but we're now developing it with smaller size lots, or perhaps the opposite, larger-sized lots to take advantage of maybe lot premiums. That’s a huge part of what goes on. And every new land deal must get approved at the corporate level through our land committee evaluation process, which is a discussion involving the specific division and a few of us here at the corporate. After it has been batted back and forth at the division level, we may have two or three land committee calls along the way. What are we thinking? How does it look now? Let’s reconvene in 90 days. So there’s a whole lot that goes into that. We are as good as our stores. We’re a retailer. We’re a very unusual retailer because we reinvent ourselves every three years. The stores we have today will look completely different in three years. Because we’ll sell through and replace them with new. As Phil mentioned, we’re poised to open a whole lot of new stores this year, and we’ll be closing a number of them too. What those stores look like and what we choose to sell, hopefully meeting the market where it is, who is the buyer, what are we targeting, that's a huge part of the business that doesn’t often get a lot of conversation, but it’s a terrific question.
Thank you. There are no further questions at this time. I will turn the call back over to Phil Creek for closing comments.
Thank you for joining us. We look forward to talking to you next quarter.
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