Hovnanian Enterprises, Inc. (NYSE:HOV), Red Bank, N.J., on Wednesday reported a net loss of $0.1 million, or $0.00 per common share, in the first quarter of fiscal 2017 ended Jan. 31. The results compare with a net loss of $16.2 million, or $0.11 per common share, during the same quarter a year ago. Analysts were expecting a loss of a penny a share.
Total revenue was $552.0 million in the quarter, a decrease of 4.1% compared with $575.6 million in the first quarter of fiscal 2016. Deliveries, including unconsolidated joint ventures, decreased 4.6% to 1,398 homes compared with 1,466 homes during the first quarter of fiscal 2016. Consolidated deliveries were 1,290 homes for the first quarter of fiscal 2017, a 9.3% decrease compared with 1,422 homes during the same quarter a year ago.
The dollar value of net contracts, including unconsolidated joint ventures, decreased 15.0% to $567.9 million compared with $668.5 million in the prior year’s first quarter. The dollar value of consolidated net contracts decreased 22.4% to $487.6 million for the three months ended January 31, 2017 compared with $628.6 million for the first quarter of fiscal 2016.
The number of net contracts, including unconsolidated joint ventures, decreased 17.6% to 1,312 homes from 1,592 homes for the same quarter last year. The number of consolidated net contracts, during the first quarter of fiscal 2017, decreased 23.4% to 1,173 homes compared with 1,531 homes during the first quarter of 2016.
As of January 31, 2017, the dollar value of contract backlog, including unconsolidated joint ventures, was $1.19 billion, a decrease of 17.1% compared with $1.44 billion as of January 31, 2016. The dollar value of consolidated contract backlog, as of January 31, 2017, decreased 20.8% to $1.02 billion compared with $1.29 billion as of January 31, 2016.
As of January 31, 2017, the number of homes in contract backlog, including unconsolidated joint ventures, decreased 20.8% to 2,563 homes compared with 3,238 homes as of January 31, 2016. The number of homes in consolidated contract backlog, as of January 31, 2017, decreased 24.6% to 2,272 homes compared with 3,014 homes as of the end of the first quarter of fiscal 2016.
The contract cancellation rate, including unconsolidated joint ventures, for the three months ended January 31, 2017 was 20%, compared with 21% in the first quarter of the prior year.
The valuation allowance was $628.1 million as of January 31, 2017. The valuation allowance is a non-cash reserve against the tax assets for GAAP purposes. For tax purposes, the tax deductions associated with the tax assets may be carried forward for 20 years from the date the deductions were incurred.
Total SG&A was $60.1 million, or 10.9% of total revenues, for the first quarter compared with $63.8 million, and 11.1% of total revenues, in last year’s first quarter. Home- building gross margin percentage, before interest expense and land charges included in cost of sales, was 17.2% for the first quarter of fiscal 2017 compared with 16.6% in the prior year’s first quarter.
For February 2017, net contracts per active selling community, including unconsolidated joint ventures, increased to 3.1 net contracts per active selling community compared to 2.7 net contracts per active selling community for the same month one year ago. During February 2017, the number of net contracts, including unconsolidated joint ventures, decreased 6.8% to 562 homes from 603 homes in February 2016 and the dollar value of net contracts, including unconsolidated joint ventures, decreased 10.4% to $235.3 million in February 2017 compared with $262.7 million for February 2016.
“As we began fiscal 2017, we were in a much improved liquidity position with a beginning cash balance of $340 million,” said Ara K. Hovnanian, chairman, CEO and president. “We used $31 million to retire $39 million face value of debt maturing in 2017 and 2019. Furthermore, we spent $190 million on land and land development in the first quarter of fiscal 2017, which was more than we had spent in any quarter last year. As a result, after reporting decreases in owned lots last year, during the first quarter the number of owned lots increased sequentially.”
“While the high yield debt market continues to be challenging for us, we have strong relationships and continue to develop new relationships with alternative capital sources, including land banking, project specific nonrecourse debt, joint ventures and model sale leaseback financings,” Hovnanain said. “Our land acquisition teams remain very busy identifying new land parcels so that we can once again grow our community count, which, assuming no changes in market conditions, should ultimately result in higher levels of deliveries and profitability in the future,”
