Toll Brothers (NYSE:TOL) executives said the company started fiscal 2026 with first-quarter results that met or exceeded guidance across most measures, supported by stable incentives, a balanced build-to-order and spec strategy, and continued strength in several key regions.
Leadership transition and first-quarter performance
CEO Douglas Yearley opened the call by noting that Karl Mistry will become the company’s third CEO on March 30, when Yearley transitions to executive chairman. Yearley said Mistry has been with Toll Brothers for more than 20 years and currently leads all eastern operations.
Net contracts signed totaled 2,303 for $2.4 billion, flat in units and up 3% in dollars versus the prior-year quarter. The average sales price on contracts signed was $1,033,000, which management attributed largely to mix.
Demand trends, incentives, and product strategy
Management described demand as improving with the normal seasonal pattern. Yearley said traffic and sales increased beginning in mid-January in line with the start of the spring selling season. During Q&A, he added that web traffic, physical traffic, and deposits were all up “modestly” from the same period a year ago, emphasizing it was still early in the season. He also cited weather impacts that slowed activity for roughly one to 10 days in parts of the Carolinas-to-Atlanta corridor, while other Northeast markets recovered quickly.
Toll Brothers maintained incentives at about 8% of sales price, marking the third consecutive quarter with incentives flat on that basis. Yearley said the company leaned more into selling completed spec inventory in the quarter, which required somewhat higher incentives, but that was offset by modestly lower incentives in build-to-order, keeping the overall incentive rate unchanged. In response to questions about what could drive lower incentives, management said that if the market improves, the company would first “lean into pace” (absorptions), with price increases likely to follow as activity builds.
Mistry said the company is operating with an approximately 50/50 mix of homebuilding revenue from spec homes and build-to-order, and that the goal is to sell specs as early in the construction cycle as possible. He said roughly one-third of specs are sold before framing is complete, which management views as closer in risk profile and margin to build-to-order.
Design studio upgrades remained an important part of the strategy. Mistry said design studio upgrades, structural options, and lot premiums averaged $212,000, or 25% of the average base sales price in the quarter. He also said customer spending at the design studio has been “very consistent” over time, while the company has continued to professionalize the studio experience.
Regional and customer mix commentary
Mistry highlighted performance in the Boston-to-South Carolina corridor, Boise, Las Vegas, and Reno, as well as California. He said most of Florida “seems to have found its footing,” while Tampa remains challenged, along with Atlanta, San Antonio, and the Pacific Northwest.
By buyer segment, the company said luxury move-up represented 59% of homebuilding revenue in the quarter, luxury first-time 25%, and luxury move-down 16%. Mistry noted that luxury move-up is the company’s highest-margin segment and said management was pleased it remained the largest contributor.
Management emphasized the financial profile of its buyers, noting that about 24% paid all cash and that mortgage borrowers had a loan-to-value ratio around 70%. The contract cancellation rate was 2.8% of beginning backlog, which management described as low. During Q&A, management also said uncertainty around visa status has created a modest pause among some customers and is something sales teams still hear about, though it was not described as concentrated solely in the Pacific Northwest.
Margins, costs, and other income
CFO Gregg Ziegler reported first-quarter adjusted gross margin of 26.5%, above guidance by 25 basis points, which he attributed primarily to operating efficiency. SG&A was 13.9% of revenue, better than guidance due to leverage from higher-than-expected homebuilding revenue. Ziegler also noted SG&A tends to be higher in the first quarter because it is typically the lowest revenue quarter and includes accelerated stock-based compensation and other compensation expenses that occur in Q1.
Asked about the expected sequential decline in gross margin to 25.5% in the second quarter, management attributed the change to mix, including less contribution from the Pacific region in Q2, with expectations for a higher contribution from North and Pacific later in the year, particularly in Q4. Management said building costs were flat versus the fourth quarter of fiscal 2025, and in Q&A added that while there were small signs of downward pressure in some costs, the company’s projections assume costs remain flat; lumber was described as a “little bit of a headwind.”
Joint venture, land sales, and other income was $72 million in the quarter, compared to $2.5 million in the prior-year quarter. Ziegler said this included a net gain tied to the company substantially completing the previously announced sale of about half of its apartment living portfolio for net cash proceeds of approximately $330 million. The company reiterated its intent to fully exit the multifamily development business over the next several years.
Balance sheet, land position, and guidance
Management described the balance sheet as healthy, with Ziegler reporting liquidity of about $3.4 billion, including $1.2 billion of cash and $2.2 billion available under the revolving credit facility. Net debt to capital was 14.2% at quarter-end, down from 21.1% a year earlier. Ziegler said the company recently extended maturities of its revolving credit facility and most of its term loan facility to February 2031. In Q&A, he said the company views a mid-teens net debt-to-capital ratio as a sensible long-term target and indicated it generally maintains a minimum cash level of “a few hundred million” for operating needs, with cash typically building in the second half of the year.
Toll Brothers ended the quarter owning or controlling about 75,000 lots, with 55% optioned. Ziegler said that netting out backlog, the company has about 2.7 years of owned land, and management reiterated confidence in its land position to support community count growth. The company expects community count to rise to about 455 by the end of the second quarter and is targeting 480 to 490 communities by the end of fiscal 2026, representing 8% to 10% growth.
Guidance provided on the call included:
- Fiscal Q2 2026 deliveries: approximately 2,400 to 2,500 homes
- Fiscal Q2 average delivered price: $975,000 to $985,000
- Full-year fiscal 2026 deliveries: 10,300 to 10,700 homes
- Full-year fiscal 2026 average delivered price: $970,000 to $990,000
- Adjusted gross margin: 25.5% for Q2; 26.0% for the full year
- SG&A as a percentage of home sales revenues: approximately 10.7% for Q2; 10.25% for the full year
- Other income/unconsolidated entities and land sales gross profit: expected to break even in Q2; $130 million for the full year (with $72 million already realized)
- Tax rate: approximately 26% for Q2; 25.5% for the full year
- Share repurchases: targeted $650 million for the full year, with most expected later in the year
In closing remarks, Yearley said the company remains positive on long-term housing fundamentals, citing demographic demand and an undersupplied market, while emphasizing Toll Brothers’ position serving a more affluent customer base in the current affordability environment.
About Toll Brothers (NYSE:TOL)
Toll Brothers, Inc is a publicly traded homebuilding company that focuses on designing and constructing luxury residential properties. The company’s core business encompasses a broad range of housing products, including custom single-family homes, upscale condominium communities and rental apartment ventures. Toll Brothers emphasizes high-end finishes and architectural craftsmanship, positioning itself in the premium segment of the U.S. housing market.
In addition to traditional homebuilding, Toll Brothers operates specialized divisions to address evolving consumer preferences.
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