LGI Homes, Inc. (Nasdaq:LGIH), The Woodlands, Texas on Tuesday morning reported net income for the fourth quarter of 2019 ended Dec. 31 was $64.9 million, or $2.69 per basic share and $2.52 per diluted share, an increase of $22.2 million, or 52.1%, from $42.7 million, or $1.89 per basic share and $1.72 per diluted share, for the fourth quarter of 2018. Wall Street was expecting earnings of $2.34 per share.
The increase in net income was primarily attributed to operating leverage realized from the increase in home sales revenues and higher average home sales price, partially offset by lower gross margin percentage and higher capitalized interest costs recognized during the fourth quarter of 2019 as compared to the fourth quarter of 2018.
Home closings during the fourth quarter of 2019 totaled 2,515, an increase of 35.8%, from 1,852 home closings during the fourth quarter of 2018. At the end of the fourth quarter, active selling communities increased to 106, up from 88 communities at the end of the fourth quarter of 2018.
Home sales revenues for the fourth quarter of 2019 were $605.6 million, an increase of $180.5 million, or 42.5%, over the fourth quarter of 2018. The increase in home sales revenues is primarily due to the increase in home closings and an increase in the average home sales price during the fourth quarter of 2019.
The average home sales price for the fourth quarter of 2019 was $240,815, an increase of $11,247, or 4.9%, over the fourth quarter of 2018. The increase in average home sales price was primarily due to changes in product mix, higher price points in certain new markets and a favorable pricing environment.
Gross margin as a percentage of home sales revenues for the fourth quarter of 2019 was 23.5% as compared to 24.4% for the fourth quarter of 2018. Adjusted gross margin (non-GAAP) as a percentage of home sales revenues for the fourth quarter of 2019 was 25.5% as compared to 26.2% for the fourth quarter of 2018. The decreases in gross margin and adjusted gross margin as a percentage of home sales revenues are primarily due to higher lot costs and higher capitalized interest costs recognized for the fourth quarter of 2019 as compared to the fourth quarter of 2018.
Full Year 2019 Results
Home closings for the twelve months ended December 31, 2019 increased 18.1% to 7,690 from 6,512 during the twelve months ended December 31, 2018. The increase in homes closed was largely due to the increase in the number of active selling communities in 2019.
Home sales revenues for the twelve months ended December 31, 2019 increased 22.2% to $1.8 billion compared to the twelve months ended December 31, 2018. The increase in home sales revenues is primarily due to the increase in the number of homes closed and an increase in the average home sales price.
The average home sales price was $239,032 for the twelve months ended December 31, 2019, an increase of $8,012, or 3.5%, over the twelve months ended December 31, 2018. The increase in the average home sales price was primarily due to changes in product mix, higher price points in certain new markets and a favorable pricing environment.
Gross margin as a percentage of home sales revenues for the twelve months ended December 31, 2019 was 23.7% as compared to 25.3% for the twelve months ended December 31, 2018. Adjusted gross margin (non-GAAP) as a percentage of home sales revenues for the twelve months ended December 31, 2019 was 25.8% as compared to 27.0% for the twelve months ended December 31, 2018. The decreases in gross margin and adjusted gross margin as a percentage of home sales revenues are primarily due to higher lot costs and higher capitalized interest costs for the twelve months ended December 31, 2019 as compared to the twelve months ended December 31, 2018 and, to a lesser extent, to 583 wholesale home closings during 2019, compared to 466 wholesale home closings during 2018. Please see “Non-GAAP Measures” for a reconciliation of adjusted gross margin (non-GAAP) to gross margin, the most comparable GAAP measure.
Net income of $178.6 million, or $7.70 per basic share and $7.02 per diluted share, for the twelve months ended December 31, 2019 increased $23.3 million, or 15.0%, from $155.3 million for the twelve months ended December 31, 2018. This increase is primarily attributed to operating leverage realized from the increase in home sales revenues and higher average sales price, offset by lower gross margin percentage during 2019 as compared to 2018.
Outlook
The company believes it will have between 120 and 130 active selling communities at the end of 2020 and close between 8,400 and 9,400 homes in 2020. In addition, it projects 2020 gross margin as a percentage of home sales revenues will be in the range of 22.5% and 24.5% and 2020 adjusted gross margin (non-GAAP) as a percentage of home sales revenues will be in the range of 24.5% and 26.5% with capitalized interest accounting for substantially all of the difference between gross margin and adjusted gross margin. The average home sales price in 2020 will be between $235,000 and $245,000.
“The fourth quarter completes another outstanding year at LGI Homes,” said Eric Lipar, chairman and CEO. “We finished the year with a record-breaking 7,690 home closings, achieved significant growth in home sales revenues generating $1.8 billion, increased community count by 20%, and delivered industry leading absorptions and strong operating margins resulting in $178.6 million in net income.”
