管理層發言
Good day, and thank you for joining us. Welcome to the Legacy Housing Corporation Third Quarter 2025 Earnings Conference Call. Please note that today's conference is being recorded. I will now turn the call over to Curt Hodgson, Co-Founder and Executive Chairman of the Board. Please proceed.
Good morning. This is Curt Hodgson. I'm here with Kenny Shipley, my legacy Co-Founder and our interim CEO. Thanks for joining our third quarter 2025 conference call. Ron Arrington, our Interim Chief Financial Officer, will read the safe harbor disclosure before we get started.
Before we begin, I'm reminding our listeners that management's prepared remarks today will contain forward-looking statements, which are subject to risks and uncertainties, and management may make additional forward-looking statements in response to your questions. Therefore, the company claims the protection of the safe harbor for forward-looking statements that is contained in the Private Securities Litigation Reform Act of 1995. Actual results may differ from management's current expectations. Therefore, we refer you to a more detailed discussion of the risks and uncertainties in the company's annual report filed with the Securities and Exchange Commission. In addition, any projections as to the company's future performance represent management's estimates as of today's call. Legacy Housing assumes no obligation to update these projections in the future unless it is required by applicable law.
Thanks, Ron. As you can tell from the word interim, appearing in two of our titles, we've had some senior turnover recently. Our prior CEO, CFO, and General Counsel departed last month. Fortunately, Kenny and I have remained active in the business through these years and are excited to re-engage in the day-to-day operations of profitably manufacturing and selling mobile homes. Ron Arrington previously served as our CFO and has led our development team recently. So we haven't skipped a beat in that section. I'm going to turn the call over to Ron now for a review of our third quarter performance, after which I will speak briefly with our thoughts and some additional corporate updates, and then we'll open the call up for questions. Ron?
Thanks, Curt. Let's dive into the numbers. Home sales fell by $1.4 million or 4.8% in the three months ending September 30, 2025, compared to the same period last year. This decline was mainly due to a drop in sales to mobile home park customers using Legacy's commercial loan program and a decrease in sales to independent dealers in Legacy's inventory finance program. These declines were largely balanced out by an increase in direct sales to customers and revenue from Legacy's company-owned heritage outlets. Net revenue per unit rose by about 8% to $68,500 from $63,500 year-over-year. In the second quarter of 2025, Legacy raised prices to offset the effects of rising raw material costs and tariffs on Chinese goods. Curt will later discuss other measures Legacy is taking to tackle these issues. Year-to-date product sales were relatively stable in 2025 compared to 2024, with a slight decline of $1.2 million or 1.3%.
The sales mix changed, with lower direct sales and mobile home park sales being countered by increased sales from company-owned retail stores and the New York inventory finance program. This shift in mix, along with the price increase, explains the 13% rise in Legacy's net revenue per unit to $68,600. Consumer MHP and dealer loan interest income grew to $10.9 million, up 5.4% in the third quarter compared to the previous year, primarily driven by an expansion in the consumer loan portfolio and higher interest rates on MHP loans that converted to variable rates according to their loan agreements. For the nine months ending September 2025, consumer NPH and dealer loan interest increased to $32.4 million, representing a 5.3% rise from 2024. Over the last year, Legacy's consumer loan portfolio expanded by $21.4 million to reach $188.1 million, a 12.8% growth. Meanwhile, the MHP note portfolio held steady at $201.5 million.
Dealer inventory finance loans saw a decrease of $1.4 million to $30.3 million, down 4.4%. Other revenue mainly consists of contract deposit foreclosures, forfeitures, dealer consignment sales, commercial lease rents, portfolio service revenue, and land sales revenue, which fell by $3 million or 79% in the third quarter of 2025 compared to the same quarter in 2024. This was largely due to a significant land sale in the third quarter of 2024, along with a decline in portfolio service revenue between the comparison periods. For the nine-month comparison from the third quarter of 2025 to the third quarter of 2024, other revenues dropped by $4.1 million or 63.1%, influenced by the aforementioned land sale and a notable drop in 2025 forfeiture income on MHP deposits from canceled contracts. The cost of product sales rose by $1.6 million or 7.5% for the three months ended September 2025 compared to the same timeframe in 2024.
During this same period, product sales decreased by $1.4 million or 4.6%. The rise in product sales cost is mainly due to increased raw material costs and tariffs, partially offset by reduced delivery, shipping, and setup costs as a result of fewer units being shipped. Tariffs are particularly noteworthy, adding around $1,200 to the cost of a standard floor plan. The product gross margin was 20.28% for the third quarter of 2025, down from 29.2% for the third quarter of 2024. The cost of product sales for the nine months ending September 2025 rose by $2.7 million or 4.3% compared to 2024. During this same timeframe, product revenue declined by $1.2 million or 1.3%. The increase in product sales costs is primarily linked to rising raw material costs, tariffs, and delivery, shipping, and setup costs, while labor and factory overhead costs saw a decrease. The product gross margin was 27.7% for the nine months ending September 2025 versus 31.6% in 2024.
Selling, general, and administrative expenses rose by $1.3 million or 20.6% for the three months ending September 2025 compared to 2024, due to a $900,000 increase in legal fees, a $500,000 rise in loan portfolio loss expenses, and a $500,000 jump in professional and consulting fees, partially mitigated by a $600,000 reduction in the company's self-insured health benefit program. SG&A grew by $2.7 million or 15.5% for the nine months ending September 2025 compared with 2024, primarily due to a $1.7 million uptick in loan portfolio expenses, an $800,000 rise in legal costs, a $700,000 increase in service and warranty expenses, and a $400,000 rise in professional and consulting fees, offset by a $700,000 reduction in self-insured health benefit expenses and a $400,000 decrease in corporate and general payroll expenses. Other non-operating income fell by $6.9 million or 72.3% over the nine-month comparison ending September 2025 relative to September 2024, largely due to a significant one-time transaction in the 2024 period.
The two main contributors were a $4.9 million fair market value adjustment in loan restructuring gains and a $2 million liability accrual reversal tied to various completed MHP contracts. That summarizes a challenging quarter; net income decreased by $7.2 million or 45.3% to $8.6 million compared to $15.8 million in the third quarter of 2024. The net income margin was 21.4%, down from 35.7% for the same quarter in 2024. Over the nine months ending September 2025 compared to 2024, net income fell by $13 million or 28.7% to $33.6 million from $47.1 million, with a net income margin of 26.6% for the nine months ending September 2025 compared to 36.3% in 2024. We had $13.6 million in cash at the end of the third quarter of 2025. In July 2023, we secured a new revolving credit facility with Prosperity Bank for $15 million with a $25 million accordion feature. This facility is backed by our consumer loan portfolio and currently has a zero balance.
As of September 2024, we had around $570,000 in cash and equivalents, along with a balance of $2.6 million on our line of credit. Thus, despite the decrease in sales and net margin, we have continued to bolster our balance sheet. Legacy has achieved a 9.5% return on shareholders' equity over the last four quarters ending September 2025. Additionally, at the end of the third quarter, Legacy's book value per basic share stood at $21.85, marking an increase of $1.90 since the same period in 2024.
Thanks, Ron. Let's discuss the market briefly, then review our financial performance and updates on key issues and strategic initiatives. Recent data indicates a continued slowdown in the industry, with the Texas Manufactured Housing Association reporting a seasonally adjusted decline of 3.8% in August and a raw total decrease of 6.1% from September 2024. The ongoing housing affordability challenges in our markets, along with macroeconomic pressures like declining consumer confidence and significant tariff increases prompting price hikes, are hindering growth. However, we held a very successful annual show in September in Fort Worth, which promises to boost production rates in the fourth quarter compared to the third quarter and into the first quarter of 2026. Orders from dealers and park customers at our Fall show reflect this. Our recent performance is disappointing, which likely explains the management changes from last month.
Sales on the retail and dealer fronts have been declining for over a year, while our community park sales have also dipped. Heritage, our retail segment, experienced sales growth, and our finance division remains profitable, albeit with some rising charge-offs due to increased foreclosures and lower resale prices. As of September 30, approximately 99% of our mobile home notes and 97.5% of our consumer loans are performing as expected, meaning they are within 30 days of being current. We track these metrics monthly and are confident in the strength of our portfolios. We've started feeling the impact of ICE enforcement on our labor force, customer demand, and the performance of our retail portfolio. While the effect is not significant, we are sensing a decline in Hispanic customers, especially in Texas and the Southeast. We have started hiring for key positions after a period of inactivity.
Previous management did not make significant hires. We have already brought on a new General Manager for Fort Worth, and with Norman Newton no longer with the company, we are actively seeking a new CEO with industry experience. In recent weeks, our focus has been on bringing in quality personnel. Our working capital is currently too high, which I've observed in our financials for a while. We are holding an excessive amount of raw materials, likely double what is necessary, and our finished inventory is also elevated. We often have around 200 houses available, which is about twice the ideal amount. At the end of the quarter, our finished goods inventory, including work in progress, stood at $24 million, likely double what it should be. Reducing our working capital, specifically our unproductive working capital, could free up $10 million to $20 million for reinvestment. We are in a solid cash position and can complete the AmeriCasa acquisition without taking on debt.
On a positive note, regarding Texas, I want to highlight that data centers are being developed, and we expect to create at least 5,000 housing units in the next 24 months to meet housing demands, nearly all sourced from over 30 manufacturing facilities in Texas, which includes ours. Thus, our business in Texas looks promising for the upcoming year or two. I'd like to discuss a little bit about the AmeriCasa acquisition. We've known this partnership between Jeff Gainsborough and Norman Newton for at least a decade. They've been a customer of ours. They've had a portfolio with us the whole way. We're basically buying them out of everything they have in the mobile home business and Norman Newton has agreed to come to work as a Director of Revenue for the company. He has particular expertise in passively or should I say, absentee managing dealerships, which has really been a real challenge for us.
He has a vibrant dealership that we're acquiring in Houston and it doesn't have an owner on the premises, and he's proven that his model works pretty well, and we hope to be able to use his model over our 12 other locations that we have at the retail level. We are acquiring some other things in this process. It's kind of a hodgepodge of things. The net result is about $9 million or $10 million will be allocated among the retailorship that we're acquiring in Houston, the nearshoring that we're affiliating with in Colombia, which I visited myself, and what we call the Home FX model, which is Norm's proprietary system, including software for managing retail locations remotely. So we're looking forward to that, integrating that with our system so that we can do more retailing at our company stores. I think that the likelihood of that is extremely high. We continue to deliver strong operating margins and consistent profitability.
In fact, we've never had a quarterly loss in our entire history, not just from the six years plus that we've been public, but for the actually 40-plus years that Kenny and I have maintained our partnership. The loan portfolios are on track to deliver about $40 million straight to the bottom line this year. As far as valuation, Kenny and I started this company in '97 with about $700,000. We took in about $60 million of outside money when we went public and the combination of that has now grown to $522 million over the 20-plus years that we've done this, and we'll continue to grow that book value. That's pretty much after taxes. We make it. We say that we invested it, and that's what we've always done, and that's the basic value that we'll be getting back to. I think we got a little distracted over the last couple of years, and we intend to get back to doing what we do, which is selling a good product for a fair price, financing, and distributing it in a variety of ways.
Our book bag consists mostly of finance notes, realize that, that book value wasn't ever in place at any given time. It's what we evolve to. We basically finance notes to enhance our own yields, but we like to finance business from a return on investment point of view too. The Norm portfolio that we're acquiring, which is a little over $10 million in notes, carries interest at over 16%. We have experience with his portfolios because we have one in common with them. It's always performed very well, and we expect that portfolio we're acquiring from Norm will perform well and make everybody money. We published our book value per share each quarter. As Ron mentioned, as of September 30, our book value is $21.85 per share. We've also bought back through time. Ron might be able to quantify this; I don't know, but I want to say that it's somewhere in the neighborhood of $20 million or more of stock, which sits on our balance sheet as treasury stock.
With our stock trading close to the same price, we see this leadership transition as a chance to rejuvenate our growth and innovation, which should enhance profit margins and create a stock premium. Conversely, if the stock continues to trade near book value, we will use our liquidity, as we typically do, to repurchase shares. I believe the bottom is reasonably protected, within our daily purchase limits. Additionally, due to the new buyback laws, we are subject to a 1% federal tax each time we repurchase shares. I am confident we can continue to build shareholder equity even in this challenging high-interest, slowing growth economy, and that our share price will eventually reflect this. Once we move past the current uncertainty, I expect to see a return to a reasonable price-to-earnings ratio. Any strategic initiatives will just be an added benefit; right now is an excellent time to be invested in a legacy company, especially at today’s price, given our history of never incurring a loss in any year since inception.
Concerning affordability, this issue is now at the forefront of the U.S. housing market. We are in a prime position to offer affordable housing options to thousands of families in the coming years. For those unfamiliar with Texas, it's currently a favorable area with a robust economy and no significant economic disruptions. I want to respond to some recent questions sent to me via email. We hold considerable real estate assets. The Austin project is progressing, albeit more slowly than we would prefer. We face several challenges before becoming operational, including the installation of the wastewater treatment facility, which is projected for the second quarter of 2026. We're also working on securing access from adjacent state highways. The infrastructure on the site is developing well and will be adequately advanced by the time we address the other two issues. We are in talks with the school board to potentially include a school as the primary amenity on the site.
Regarding our other real estate holdings, we currently do not have any active projects elsewhere; all are designated to be mobile home sites. The situation becomes complicated when property values increase significantly; for example, buying land at $10,000 an acre to develop into mobile home parks now valued at $40,000 or $50,000 per acre alters our perspective, leading us to consider selling these properties. I estimate that of the 6 or 7 remaining properties aside from faster accounting, we could realize around $4 million to $5 million in gains if we decided to liquidate, and that figure might actually be on the conservative side. I was asked about the long-term margin targets for the industry. I think a lot of companies have been absorbing the increase in costs caused by tariffs and other factors. I think when they start looking at their financial statements like we just did ours, we'll probably all be in likestep with each other to slowly increase prices for the products that we're marketing.
Right now it has been pretty cutthroat from one manufacturer to the other. And I'm hoping that when people realize that the tariffs are not temporary, the labor increases that we've paid, labor wage increases that we're paying are not temporary. I think we probably need to reevaluate the operating margins in the industry as a whole. That's pretty much it. I can probably turn it over to questions and answers or questions.
分析師問答
Our first question comes from Daniel Moore with CJS Securities.
I appreciate the color and thanks for taking questions. Maybe start with the AmeriCasa asset purchase. Just talk to their revenue model, what are the features of the FutureHomeX platform? And how is their software expected to enhance sales growth?
Well, we weren't really looking at their financials on the purchase. We were intrigued by the HomeX product. We've experimented a little bit with it; several of our dealers are using it. They pay a royalty to use it. If we can find a way to manage these locations remotely, whether it be from Dallas, Houston, or Bogota, then we will solve a lot of the mystery. Our manufacturing peer group all maintain their own retail locations, and they struggled with how to get volumes up as well. Industry-wide, I would guess that the average retail location that is affiliated with the manufacturer sells two, three, or four mobile homes per month. Two is maybe breakeven, three is profitable, and four is highly profitable. So basically, we're just trying to get our sales up on a location basis. The primary reason we made a deal with Norm was to have access to that remote management technology. And I think that's it.
As far as there's one lot in Houston, it shines; he sells roughly 10, 12 homes a month, every month, which is more than double what we sell at our locations and Kenny and I have both visited it. It's pretty impressive in that front. I mean, are we paying a little bit of a premium? It kind of depends on what the management system is worth. If it is worth say $5 million, which is what I kind of put on, I would look at it as though we paid a fair market value for all the assets we're acquiring from the AmeriCasa investment. Of course, we won't know until we integrate it with our own model to see what it is, but I'm very optimistic that that acquisition is going to help us sell more directly to retail consumers.
Really helpful. And just making sure I heard correctly, the size of the chattel mortgage loan portfolio that you're acquiring, I heard the 16%. Was it $30 million? Or was that off, I'm sorry.
The deal involves acquiring all current loans in the portfolio, defined as those within 30 days of being current. We estimate the value of this part of the transaction will be around $10.8 million, give or take a few hundred thousand. The effective interest rate on this portfolio is slightly above 16%, which is very similar to our existing portfolios. This piece aligns well with our financial strategy, and I believe we can easily absorb it, which I am confident will contribute positively to our financials.
Got it. And then you mentioned in the press release you expect normal production out of the Texas manufacturing facilities through year-end. Obviously, great to hear the encouraging show that you had at the end of September in Fort Worth. What does kind of normal mean maybe relative to Q4 last year, and just talk about what your expectations are from the Georgia plant as well over the next quarter or two?
I don't have Q4 in front of me from last year, but I think we'll be through most of Q4, which now, of course, we're a month into. I think we'll average six to seven in Texas per day and probably two to three in Georgia. So let's call it company-wide eight to ten. I don't really know; I'd have to dig out to see how we did in Q4 last year. Eight to ten is profitable, so one shareholder elegantly pointed out, it doesn't look like the production of sales of mobile homes made money in Q3, and that is correct. But in Q4, that part of the business should contribute pretty nicely to our earnings, and the first quarter looks even better than that.
Perfect. And then lastly, you mentioned that the industry pricing; have you taken or plan to take additional price increases? I know it's a tough environment, but to offset some of the increase in raw material costs and tariffs over the next one, two, three quarters? And I'll jump back in queue.
Well, we went first. We had announced a price increase in June, and I think we were the first in the industry to do it. And it may have dissuaded some of our regular buyers from buying. But since then, our competitors have joined into slight price increases; we're talking overall, probably 3% to 4% has been the price increases. But again, we're all trying to use up excess capacity; 34 plants operating in the State of Texas, probably only three or four of them are operating at capacity. So we do get out on pricing and financing features and all sorts of things. I mean, I heard recently of a manufacturer that was offering one year free flooring to dealers if they buy a house; we're concerned about profitability. We were able to make hay while the sun shone during COVID, but we don't intend to give it back by building them all a home unless we can make a margin on it. It's tempting to say, okay, let's just keep the factory running or whatnot, but we're not going to be giving back this tangible book value we have. I don't see the market declining, especially in Texas with the data center workforce housing lift that we're going to be having in the next 24 months. I am a little more concerned about Georgia and where its unit sales are going to come from in the Southeast.
Our next question comes from the line of Alex Rygiel with Texas Capital Securities.
A couple of quick questions here. So are you looking at other acquisitions at this time? And can you talk a bit about expanding your company-owned retail stores?
Well, I mean, I would say that if we do any acquisitions, it will dovetail well with the one we just did. And the one we just did is designed to increase our ability to profitably distribute through company stores. So I think you hit the nail on the head, Alex, that there is an acquisition that would probably be retail centers in our market areas. The independent dealers are getting difficult to make money on. And besides that, a lot of them are aging out. There are very few retail centers independent retailers owned by anybody under 50 years old. So that presents competitors and then may be more of a push to Internet sales; we may be emphasizing used sales. But yes, we want to be more in the retail business than we have in the past; a very small percentage of revenue has been from our own retail centers, and I would hope to grow that to maybe as much as 50% by the end of next year.
Very helpful. And then secondly, can you talk a little bit more about your kind of consumer loan portfolio and how it's performed kind of more recently, how the trends have been playing out over the last few months, and if there's been any kind of notable change there?
We don't have much notable change, but there is anecdotal evidence. We had the benefit of everything that was on our books pre-COVID, was at prices substantially below current prices. So every mobile home loan on our books that was pre-COVID had the benefit of being right side up, so to speak, from a consumer's perspective. So every time one did repo, we actually made money on it. I mean if the guy owed $30,000 on his mobile home and turned it back to us, we sold it for $40,000. So for years, when we did repo one, it was actually kind of a windfall. But since COVID, those notes that have been created in the last four years don't have a corresponding benefit from price increases. So now when we repo a note that was made, say, in 2022, when we go to sell it, if they owe us $40,000, maybe we can only sell it for $35,000, and we have a little bit of impairment to take on it. So the recovery rate on the repos is not as good as it once was.
But let's just say my opinion is more realistic that if that one-time nearly doubling of prices that we had during COVID kept us from having any losses when we repossessed something. And now as far as the percentage that are in trouble, and this is kind of the good news is we just don't have more than a couple of percent at the retail level that are problematic, which is still historically a low amount. Anecdotally, we're in Texas; I live here. Kenny lives here. And we all know somebody now that's subject to deportation or a relative that is subject to deportation. A lot of our notes and a lot of our basic demand comes from and for lack of a better word, an immigrant market. So we're kind of expecting some difficulty there, but it hasn't shown up in the numbers yet.
That's good to hear. And then circling back to capital allocation. Through the years, like you mentioned, you have been a buyer of stock. Can you talk about that a little bit more? And also, have there been any insider repurchases? Or has there been an open period for insider purchases at all?
I haven't purchased any shares, and I don't believe Kenny has either. Unfortunately, from an insider perspective, that's pretty much all the insight we have from our Form 4s. However, I do know of at least one entity outside our insider circle that has made significant purchases in recent months. No one within my circle has sold shares at these levels since around December 2024, and I am not aware of anyone considering selling that I can influence. As for the levels we would protect, those decisions are not individually made by Kenny or me, but we do collaborate on those discussions. We have the authority to make decisions, but the company is currently in a blackout period, which means we cannot buy shares today. We could potentially make purchases later this week, but it is somewhat discretionary regarding the timing. When we are not in a blackout, you can assume we'll invest whenever we see it as a good opportunity, utilizing our cash resources.
We not only have cash available but also have a $50 million unused loan that remains solid in terms of price parity. Our improvements in Bastrop County have been entirely funded by our free cash flow, totaling around $30 million so far. I estimate that we will invest another $20 million to $30 million into Bastrop County, allowing for the accommodation of 1,100 mobile homes, which will be quite impressive. We are likely to keep a couple of days each month active in one of our factories to meet the demand from that property.
Sorry. And one last question as it relates to Bastrop County. What's your best guess right now as to when you might start to sell homes?
We have 110 lots that were designed to be three simple lots that we would begin marketing as soon as we solve just one piece of the puzzle, and that's connecting to state highways on one side or the other. They would go under market. The beauty part about that is when we did this, we thought we'd be selling those things for $70,000 or $80,000 a piece. The current value of those lots is retail is probably more like $120,000 or maybe even $130,000. So in a way, not selling them for $80,000 has yielded us an above-average rate of return just by not selling them. But anybody has a lot, a 0.75-acre lot in this market is getting well over $100,000 for a place to put a mobile home, sometimes $130,000. We're kind of expecting now to get $115,000, $120,000 when we go to market on those. And we'd like to get that going, if nothing else, to fill it up with Legacy that we build at our two plants in Texas.
Our next question comes from the line of Mark Smith with Lake Street.
First question for me. I just wanted to ask; you talked quite a bit about demand and production in Texas. Curious if you can just give us your thoughts around kind of Georgia and the Southeast, how that market is doing and kind of how things are running at the plant?
Like you probably got this, Mark, from my mood when you say just a minute ago or my tone of voice. I am not that confident in the Southeast. I know that we can carry on at two or three a day, but that's a very large manufacturing facility and doesn't really make sense at two or three a day. So we've got to find a way to develop distribution in that market. The mobile home park model is not as good as it was. People now are paying a lot more for the house. They're paying a lot more for the home, they're paying a lot more to set it up, they're paying more to hook up the utilities. And unfortunately, the rents that they typically get when they put one of their mobile home parks haven't increased accordingly. So the model is not as solid as it was, say, five years ago, which was a big part of what we built in the market when everybody built filling up a bunch of mobile home parks in a model that did make sense when all those prices were down and the rents were pretty much the same as they are today.
So the underlying demand in the Southeast has got to be to the guy who's going to live in rural America or some sort of opportunistic disaster housing, which is oftentimes happened in that market that we participated in. If you assume that park sales are going to be much lower than historically than it has been historically, demand has to come from direct consumer sales for privately owned land or from some sort of disaster relief. So if you can tell me how many hurricanes there will be in the Southeast next year, I could probably give you a pretty good feel for how good the markets are going to be. But that's really kind of the demand there. As you know, the Southeast doesn't have the tailwinds that Texas has but it has better tailwinds than many parts of the country. So the demographics in all those states that we serve in the Southeast are still positive. And we know it's not because of birth rate; it's positive because people are still moving to Georgia, and they're still moving to North Carolina, and they're still moving to Florida.
So there's an immigration from one part of the United States to another that goes on in that market. So we get some positive demographics there. And we sell to operators that are taking advantage of that. I talk to them all the time; they're struggling to make the economics work. Now if interest rates come down a little bit and there are models instead of being, say, at a 6% cap rate or at a 5% cap rate, then they can make more sense out of it. We had a nice reduction in as it relates over the last month or so; they actually punished mobile home stocks because they thought that would make site-built housing more attractive. Maybe it does, but it sure helps communities that are trying to make sense out of community-owned rentals and community-owned mobile homes. When their borrowing rate goes down a point, it really helps their model quite a bit. So I know this didn't address the answer that you want or a specific answer, but I think I made it clear that there's only two ways to really do well in the Southeast, the community model and disaster relief housing, as the likelihood that all those plants in the Southeast, which there's roughly 20 operating in that market that we compete against, there's not enough demand at the retail level to keep 20 factories working. So I can see the industry as a whole making some difficult decisions in the Southeast absent getting some disasters next year that they give us more tailwinds.
Okay. And then I did want to ask about gross profit margin. I know you don't give guidance, but just kind of any insight you can give us on the outlook there, maybe where the pressures are coming? I know you discussed tariffs, but I guess maybe two things here. Do you think that you've seen kind of topped out the inflationary pressure, whether it's from tariffs or anything else? And then two, do you think that you've taken ample price to cover the pressure that you've seen or could see?
I believe that the price increase we implemented will address the effects of tariffs specifically. The general perception is that tariffs represent a temporary inflationary impact. If that holds true, then the price hikes may be finished. Additionally, we've raised our line workers' wages by 10% this year. Currently, Chinese imports have transitioned from a 25% tariff to a 45% tariff as of this morning, but that rate may change later today. The recent reduction in the tariff from 55% to 45% will lead to a decrease in our cost of goods sold by approximately $1 million. I view inflation as a constant presence rather than a binary existence; it's been around for decades. I remember when stamps cost four cents and gasoline was twenty-nine cents. Inflation is unavoidable, and the only variable we might debate is its rate. I estimate our average wholesale price is currently around $60,000 per floor, and I anticipate that in two years, it could be closer to $70,000.
The breakdown of margins is quite straightforward despite what financial statements may suggest. You have a selling price, materials, labor, and allocable overhead. Most factories' materials costs are quite similar, with around 80% of capacity purchasing materials within few percentage points of each other. However, labor costs can vary significantly based on product complexity. Simple products may incur labor costs as low as $4 or $5 per square foot, while complex products range from $10 to $15 per square foot. More consistent production increases assembly line efficiency. Regarding allocable overhead, GAAP regulations dictate what can be allocated; purchasing agents can be included, but a CEO cannot. While we may experience a slight decline in gross margin over the next year, our net margin should improve as we focus on managing or reducing SG&A expenses. During the founders' absence, SG&A increased up to 15% or 16% while sales declined, but I expect to see a reversal of that trend soon, particularly in the fourth quarter, followed by a noticeable reduction in SG&A as a percentage of sales in the first quarter. I hope this gives you a clearer understanding of your question.
That's helpful. If I can squeeze in one more. Just I don't know if you're able to talk at all about kind of numbers behind the acquisition and potential impact on the balance sheet just as far as the size of this acquisition?
It's straightforward. We're having a public call and I didn't share much detail about Friday's announcement, but I'm happy to do so now. The deal is approximately $22 million, with around half involving retail paper and the other half consisting of the assets I've mentioned. We wouldn't proceed if we didn't believe it would positively impact the company. I estimate that our retail sales, currently at about 250 to 300 units a year, could be 50% to 60% higher in 2026 compared to 2025. If that projection doesn't hold true, then the purpose of the acquisition hasn't been achieved. That's the key point. Most of the other assets we acquired were on a one-off basis. We hold a 28% interest in the mobile home park, which is worth over $1 million to us due to our understanding of that market. Much of what we acquired represented hard asset value, with the main uncertainty being our ability to integrate the Colombia presence and the HomeX model into our retail system.
If the integration goes as I anticipate, our retail sales should increase by at least 50%, and potentially double in 2026 compared to 2025. We earn significantly more from retail sales than from wholesale transactions priced at $60,000. The margin in this industry typically ranges from 40% to 50%. For instance, if we build a unit for $60,000 and sell it for $90,000, maximizing retail sales is crucial. Ron mentioned that a key reason our average price per home increased is that we retailed a higher percentage of what we built in 2025 compared to 2024. However, that was modest compared to the substantial growth we anticipate from this acquisition. The focus of this acquisition is primarily on how we can enhance our retail operations to address gaps caused by the issues in the parks that I noted earlier. Yes, we probably have around 300 in retail right now, and I estimate the Houston location could add 100 in the future.
Additionally, integrating the systems into our existing retail operations might add another 100, and potentially even up to 200 on a good day. This means we could see a 60% increase in the number of units we retail in 2026 compared to 2025, with the possibility of it reaching 100%. This adds a bit more context beyond your original question, especially since the press release on the acquisition wasn't very clear. We haven't closed the deal yet, but it's a binding contract and the contingencies are being finalized. We expect to complete the closing before Thanksgiving.
This concludes the question-and-answer session. I would now like to hand the call back over to Curt Hodgson for closing remarks.
Well, it's a much longer call than I expected. I had to have a bunch of it, but I think I did a reasonably good job. I'd like to thank everybody who joined in today's earnings call. We appreciate your interest in our company and look forward to delivering you better results in the future than we did in this last quarter.
This concludes today's conference. Thank you for your participation. You may now disconnect.