LGIH · 10-Q · 2026Q1 · Full report
Gross Margin Drivers
LGI Homes, Inc. · 2026-04-28 · Importance 61 · Surprise 58
Cost of sales for Q1 2026 was $259.8 million, down 6.4% from $277.7 million in Q1 2025, reflecting fewer homes closed. Gross margin fell to $59.9 million (18.7% of home sales revenues) in Q1 2026 from $73.7 million (21.0%) in Q1 2025, an 18.7% decline in absolute gross margin dollars and a 230 bps decline in margin percentage. Management attributes the margin decline primarily to inventory-related impairment charges, price discounts on older completed inventory, higher capitalized interest, and higher indirect overhead costs, partially offset by lower wholesale volume and lower house costs as a percentage of revenue. Adjusted gross margin (excluding inventory impairment, capitalized interest and purchase accounting) was $75.0 million (23.4%) in Q1 2026 versus $82.8 million (23.6%) in Q1 2025.
Key facts
- Gross margin for the three months ended March 31, 2026 was $59.929 million, a decrease of $13.784 million, or 18.7%, from $73.713 million for the three months ended March 31, 2025.
- Gross margin as a percentage of home sales revenues decreased to 18.7% for the three months ended March 31, 2026 from 21.0% for the three months ended March 31, 2025.
- The decrease in gross margin percentage was primarily due to inventory-related impairment charges, price discounts on older inventory, higher capitalized interest, and higher indirect overhead costs, partially offset by a lower volume of wholesale home closings and lower house costs as a percentage of revenue.
- Total cost of sales for the three months ended March 31, 2026 was $259.807 million, a decrease of $17.900 million, or 6.4%, from $277.707 million for the three months ended March 31, 2025.
- Adjusted gross margin (non-GAAP) for the three months ended March 31, 2026 was $74.975 million and was $82.789 million for the three months ended March 31, 2025.
- Adjusted gross margin (non-GAAP) as a percentage of home sales revenues decreased to 23.4% for the three months ended March 31, 2026 from 23.6% for the three months ended March 31, 2025.
- Capitalized interest charged to cost of sales for the three months ended March 31, 2026 was $9.976 million and was $8.267 million for the three months ended March 31, 2025.
- Average sales price increases were primarily due to geographic mix and a decrease in sales incentives, partially offset by discounted older inventory for the three months ended March 31, 2026.
Impact estimates
| metric | direction | stage | expected | basis |
|---|---|---|---|---|
| operating_income | positive | realized | +5.1% | Total cost of sales for the three months ended March 31, 2026 was $259.807 million, a decrease of $17.900 million, or 6.4%, from $277.707… |
| operating_income | negative | realized | -3.9% | Gross margin for the three months ended March 31, 2026 was $59.929 million, a decrease of $13.784 million, or 18.7%, from $73.713 million… |
| margin | negative | realized | -2.3% | Gross margin as a percentage of home sales revenues decreased to 18.7% for the three months ended March 31, 2026 from 21.0% for the three… |
| operating_income | negative | realized | -2.2% | Adjusted gross margin (non-GAAP) for the three months ended March 31, 2026 was $74.975 million and was $82.789 million for the three… |
| operating_income | negative | realized | -0.5% | Capitalized interest charged to cost of sales for the three months ended March 31, 2026 was $9.976 million and was $8.267 million for the… |
| margin | negative | realized | -0.2% | Adjusted gross margin (non-GAAP) as a percentage of home sales revenues decreased to 23.4% for the three months ended March 31, 2026 from… |
| margin | negative | realized | — | The decrease in gross margin percentage was primarily due to inventory-related impairment charges, price discounts on older inventory,… |