KB Home (NYSE:KBH) executives said the homebuilder’s fiscal first-quarter results landed within guidance ranges, but the company lowered its full-year outlook amid softer-than-expected orders and heightened consumer uncertainty following a conflict in the Middle East that began in late February.
Management also emphasized a strategic “reset” back toward a predominantly built-to-order (BTO) sales mix, which leaders said should lift margins, improve predictability, and build backlog in the second half of fiscal 2026.
Quarterly results and operational trends
Average selling price fell 10% year over year to $452,000, which the company attributed to regional and product mix and broader market conditions. Housing gross profit margin was 15.3%, while adjusted housing gross profit margin—excluding $2.2 million of inventory-related charges—was 15.5%. Dillard said adjusted margin was 480 basis points lower than a year ago, primarily due to pricing pressure, higher relative land costs, regional mix, and lower operating leverage.
On costs, Dillard said KB Home achieved an 8% reduction in total direct construction costs per unit. SG&A as a percentage of housing revenue rose to 12.2% amid weaker operating leverage, though SG&A expense declined 14% year over year due to lower selling expenses and fixed-cost controls. The quarter also benefited from an $8 million insurance recovery, which Dillard noted was larger than usual.
Shift back to built-to-order strategy
CEO Rob McGibney, who assumed the role March 1 as part of a succession plan that moved Mezger to Executive Chairman, said KB Home is returning to a core built-to-order operating model. McGibney described the change as more than a mix shift, calling it a move intended to reduce volatility, lower exposure to pricing swings, and better align sales, starts, and deliveries.
Management reiterated that BTO homes typically generate 300 to 500 basis points of incremental gross margin compared with inventory homes. McGibney said the company’s BTO sales mix improved steadily during the quarter: BTO represented 44% of net orders in October, rose each month through the first quarter, exited February at 68%, and was above 70% in early March. He added that KB Home expects to deliver at least 70% BTO homes in the second half of the year.
McGibney said the BTO focus will create a “temporary trough” in deliveries in the first half because of the lag between sale and delivery, and because KB Home has “intentionally slowed” inventory starts. However, he said the approach should build a sold backlog that improves visibility and supports more efficient production planning and trade-partner scheduling.
During the Q&A, executives said the company expects backlog turnover of roughly 60% to 70% under the BTO approach, and also argued that BTO can be better for cash management than carrying a large number of speculative inventory homes.
Community count, build times, and market conditions
McGibney said KB Home ended the quarter with 276 active communities, up 8% year over year and the highest count “in many years.” The company opened 37 communities in the quarter and projected another 30 to 35 in the second quarter, with community count expected to peak during the spring selling season before stepping down in the second half depending on sellouts.
The company also highlighted continued improvements in cycle times. McGibney said build-to-order start-to-completion time improved to 108 days in the first quarter, down sequentially from 120 days in the fourth quarter of fiscal 2025. He said shorter build times expand the BTO selling window for same-year delivery and help buyers with mortgage-rate locks.
On demand, executives described consumer confidence as “tepid,” with elevated mortgage rates and affordability pressures weighing on demand. McGibney said first-quarter traffic was healthy, conversion was steady, and cancellation rates were the lowest in four years, contributing to a 3% year-over-year increase in net orders to 2,846. Absorption averaged 3.5 net orders per month per community, slightly lower year over year, with a long-term annual target of four.
However, management said orders were below internal expectations and below the level needed to maintain prior delivery guidance. McGibney also told analysts that March sales softened in recent weeks after a stronger first week, with the company citing uncertainty tied to the Middle East conflict.
Guidance reduced; margin improvement expected later in year
Dillard said second-quarter housing revenue is expected between $1.05 billion and $1.15 billion on deliveries of 2,250 to 2,450 homes. Housing gross margin (assuming no inventory-related charges) is expected between 15.0% and 15.6%, with price cited as the primary source of margin pressure as the company balances price and pace. Second-quarter SG&A ratio is expected between 12.4% and 13.0%, and the effective tax rate is expected to be about 19%.
For the full year, KB Home now expects housing revenue of $4.8 billion to $5.5 billion on 10,000 to 11,500 deliveries, reflecting what management described as reduced visibility and continued affordability and geopolitical concerns.
Executives said they expect margins to improve in the second half, driven by a higher mix of BTO deliveries, typical seasonal operating leverage, continued cost actions, and a more favorable regional mix—particularly higher-priced Northern California communities. During Q&A, management said the BTO mix shift alone could provide roughly 50 basis points of margin uplift as the company approaches targeted BTO levels, and said regional mix could be “meaningful,” noting that some higher-margin communities can differ by as much as 1,000 basis points in gross profit versus others. Mezger and McGibney highlighted Northern California communities with average selling prices described as ranging from $1.2 million to over $2 million, which they expect to weigh more heavily in back-half deliveries.
The company said it plans to provide margin guidance with its fiscal second-quarter earnings announcement in June, after the spring selling season offers more clarity.
Capital allocation, balance sheet, and land position
Mezger said KB Home remains balanced in its capital allocation, investing for growth while returning capital to shareholders. In the first quarter, the company repurchased 843,000 shares for $50 million and paid $17 million in dividends, returning nearly $70 million in total. Dillard said the company ended the quarter with $850 million available under its repurchase authorization and expects $50 million to $100 million of repurchases in the second quarter.
Book value per share increased to over $61, according to Mezger. The company ended the quarter owning or controlling more than 63,000 lots, with 41% controlled, and inventories of over $5.7 billion. Dillard said KB Home invested $567 million in land and development in the quarter and abandoned contracts to purchase 3,400 lots at a cost of $2.2 million, describing the move as part of a rigorous underwriting process aimed at improving future profitability.
Liquidity totaled $1.2 billion, including $201 million in cash and $1 billion available under the revolving credit facility. Dillard said revolver usage was seasonal and that KB Home has no debt maturities until June 2027. The company’s debt-to-capital ratio was 32.9%, and management reiterated a target “in the neighborhood of 30%.”
McGibney also said KB Home reduced headcount by 10% year over year as it aligned overhead with expected delivery volumes, with management expecting the SG&A ratio to be lower in the second half of fiscal 2026.
About KB Home (NYSE:KBH)
KB Home is an American homebuilding company headquartered in Los Angeles, California. Founded in 1957, it was among the first homebuilders to go public, offering investors access to one of the nation’s largest residential construction platforms. The company is structured to serve a broad spectrum of homebuyers, with a particular focus on first-time, first move-up and active adult segments. As a public company trading on the New York Stock Exchange under the symbol KBH, KB Home draws on decades of experience in land acquisition, construction and community planning.
At its core, KB Home designs and constructs single-family detached and attached homes, townhomes and condominium units.
