Retail Stock Under Pressure: KB Home (NYSE: KBH)

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KB Home (NYSE: KBH) stock fell over 4.9% on 25th March, 2021 (as of 09:36:54 UTC-4; Source: Google finance) after the company posted mixed results for the first quarter of FY 21.

For the quarter through February, the company’s signed purchase contracts rose 23% from a year earlier to 4,292, while the average estimate of analysts surveyed by Bloomberg was 4,110. Ending backlog rose 59% to 9,238 homes, leading to a 74% increase in ending backlog value to $3.69 billion. Each of the Company’s four regions posted sizable increases in backlog value, ranging from 47% in the Southwest region to 99% in the West Coast region. While KB Home sold more homes, its average community count for the quarter fell 11% to 223. The company will need more communities for a steady stream of growth.

The builders face higher expenses for land and labor and can only increase home prices so much. Buyers will be limited in how much they can spend as borrowing costs rise. KB Home’s average selling price in the quarter grew by just 2% to $397,100. Homes delivered increased 4% to 2,864, their highest first-quarter level since 2008. Homebuilding operating income increased by 90% to $114.1 million, from $60.2 million. The homebuilding operating income margin expanded 440 basis points to 10.0% and the housing gross profit margin expanded 320 basis points to 21.1%. The housing gross profit margin improvement mainly on the back of a favorable pricing environment due to the strength of housing market demand, increased operating leverage due to higher revenues, and lower amortization of previously capitalized interest.

Moreover, the Company’s financial services operations posted pretax income of $8.5 million, which increased 46% mainly due to higher income from its mortgage banking joint venture, KBHS Home Loans, LLC. Overall, the company reported net income of $97.1 million in the first quarter, increased 62%, compared to net income of $59.7 million. Cash and cash equivalents were of total $569.8 million at the end of February, compared to $681.2 million at the end of November 2020. The Company had total liquidity of $1.36 billion that includes the cash and cash equivalents and $787.6 million of available capacity under its unsecured revolving credit facility.

KBH in the first quarter of FY 21 has reported the adjusted earnings per share of $1.02, while reported the adjusted revenue growth of 6 percent to $1.14 billion in the first quarter of FY 21, missing the analysts’ estimates for revenue by 5.29%.

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