DHI · Earnings call · 2026Q3T · Full report

Gross Margin Drivers

HORTON D R INC /DE/ · 2026-10-29 · Importance 31 · Surprise 32

Fourth-quarter home sales gross margin was 19.5%, down 120 basis points sequentially and below management’s expectations. Challenging market conditions limited the ability to offset higher costs with pricing and accounted for 80 basis points of the decline; above-normal litigation costs accounted for the remainder. Per-square-foot home sales revenue and stick-and-brick costs each rose 1% sequentially, while lot costs rose 4%; for fiscal 2026, home sales revenue fell 2%, stick-and-brick costs fell 4%, and lot costs rose 6%. Management expects first-quarter home sales gross margin of 18% to 18.5%, with elevated fiscal 2027 incentives and lower average selling prices contributing to pressure.

Key facts

• D.R. Horton increased reserves for two litigation cases that it now expects to settle at higher amounts than previously reserved.
• D.R. Horton said its 18% to 18.5% first-quarter gross margin outlook reflects current market conditions and that it sees a long-term opportunity for gross margin above that range.
• D.R. Horton said its typical gross margin impact from warranty and litigation expenses is 40 to 50 basis points; in the fourth quarter, the impact was 80 basis points, about 40 basis points above normal.
• D.R. Horton's fourth-quarter home sales gross profit margin was 19.5%, down 120 basis points sequentially and below expectations.
• D.R. Horton expects continued home sales gross margin pressure in fiscal 2027's first quarter from a lower average sales price and higher incentive costs at current mortgage rates.
• D.R. Horton expects incentive levels to remain elevated in fiscal 2027.
• Challenging market conditions limited D.R. Horton's ability to offset higher costs with pricing, accounting for 80 basis points of its fourth-quarter home sales gross margin decline.
• Above-normal litigation costs accounted for the remainder of D.R. Horton's fourth-quarter home sales gross margin decrease.