디알호튼(DHI) 2026 회계연도 4분기 실적 발표 컨퍼런스 콜: 마진 압박 및 2027 회계연도 가이던스

핵심 요약

• 디알호튼(D.R. Horton)은 2026 회계연도 4분기 연결 매출 94억 달러, 순이익 7억 4,180만 달러, 희석 주당순이익(EPS) 2.67달러를 기록했다고 발표했다. 연결 세전이익률은 10.8%였다.
• 주택 판매 매출은 22,915건의 인도(closings)로 84억 달러를 기록했다. 주택 판매 매출총이익률은 더 어려워진 시장 환경, 원가 상승, 평년 수준을 상회하는 소송 비용을 반영하며 전분기 대비 120bp 하락한 19.5%를 기록했다.
• 순 신규 주택 수주 건수는 전년 동기 대비 7% 감소한 18,619채, 수주 금액은 9% 감소한 66억 달러를 기록했다. 계약 취소율은 전분기 및 전년 동기 20%에서 23%로 상승했다.
• 경영진은 약화된 수요에 재고를 맞추기 위해 4분기 착공 물량을 전분기 대비 45% 줄인 13,100채로 축소했다. 기말 총 주택 재고는 전분기 대비 26% 감소한 28,200채를 기록했다.
• 2027 회계연도에 대해 경영진은 연결 매출 300억~320억 달러, 주택 인도 건수 79,000~84,000채를 전망했다. 또한 영업활동 현금흐름은 약 35억 달러가 될 것으로 예상했다.
• 디알호튼은 2027 회계연도에 약 30억 달러 규모의 자사주 매입과 약 5억 달러 규모의 배당을 계획하고 있다. 이사회는 분기 배당금을 주당 0.50달러로 11% 인상했다.

핵심 재무 데이터

2026 회계연도 전체 연결 매출은 330억 달러, 순이익은 29억 달러, 희석 주당순이익(EPS)은 10.11달러를 기록했다. 세전이익은 총 39억 달러로 세전이익률 11.8%를 기록했다.

영업활동 현금흐름은 35억 달러를 기록했다. 디알호튼은 36억 달러의 자사주 매입과 5억 1,300만 달러의 배당금을 포함해 총 41억 달러를 주주에게 환원했다. 자사주 매입으로 발행주식수는 전년 동기 대비 8% 감소했다.

사업 및 영업 실적

4분기가 진행됨에 따라 신축 주택 수요가 약화되었다. 경영진은 이러한 압박의 원인으로 모기지 금리의 급등, 주택 구매 여력 제한, 신중해진 소비자 심리를 꼽았다. 방문객 수와 판매 활동은 10월까지 평년 계절 수준을 하회했다.

디알호튼은 이번 분기 동안 전분기 대비 45%, 전년 동기 대비 10% 감소한 13,100채의 주택을 착공했다. 2026 회계연도 말 주택 재고는 미분양 주택 17,700채를 포함해 총 28,200채였다. 이 중 8,800채는 완공 상태였으며, 600채는 완공 후 6개월 이상 경과한 상태였다.

회사는 연말 기준 571,000개의 용지를 확보하고 있었으며, 이 중 23%는 직접 소유하고 77%는 매매 계약을 통해 확보한 상태였다. 소유 용지는 전년 동기 대비 11% 감소한 131,000개로, 1.5년 치 공급량에 해당한다. 4분기 주택 인도의 70%는 포레스타(Forestar) 또는 제3자가 개발한 용지에서 이뤄졌으며, 이는 전년 동기 65%에서 상승한 수치다.

임대 사업 부문은 단독주택 임대 509채 및 다세대 임대 2,182가구 매각을 통해 6억 4,700만 달러의 분기 매출을 올렸다. 해당 부문은 완공된 9개 다세대 프로젝트의 손상차손 9,140만 달러를 포함해 2,530만 달러의 세전손실을 기록했다. 경영진은 이 손상차손이 금리 상승에 따른 매각 예상 가격 하락을 반영한 것이라고 밝혔다.

금융 서비스 부문은 4분기 매출 2억 1,900만 달러, 세전이익 7,800만 달러를 기록하며 35.7%의 세전이익률을 달성했다. 포레스타는 분기 매출 5억 8,100만 달러, 세전이익 7,900만 달러, 세전이익률 13.5%를 기록했다.

경영진 전망

2027 회계연도에 대해 경영진은 다음과 같이 전망했다:

• 연결 매출 약 300억~320억 달러.
• 주택 인도 건수 79,000~84,000채.
• 법인세율 약 25.5%.
• 영업활동 현금흐름 약 35억 달러.
• 자사주 매입 약 30억 달러.
• 배당금 지급 약 5억 달러.

2027 회계연도 1분기에 대해 경영진은 다음과 같이 전망했다:

• 연결 매출 59억~64억 달러.
• 주택 인도 건수 15,500~16,500채.
• 주택 판매 매출총이익률 18%~18.5%.
• 연결 세전이익률 7%~8%.
• 법인세율 약 25.5%.

경영진은 모기지 금리, 소비자 심리, 수요 및 전반적인 경제 상황의 불확실성으로 인해 2027 회계연도 전망 범위가 평소보다 넓다고 설명했다. 인센티브 수준은 계속 높은 상태를 유지할 것으로 예상되며, 연간 매출총이익률은 부분적으로 봄철 수요와 모기지 금리 변화에 좌우될 것이다.

리스크 및 주요 관전 포인트

주택 구매 여력(Affordability)이 핵심적인 수요 제약 요인으로 남아 있다. 경영진은 단기적으로 모기지 금리의 의미 있는 하락을 예상하지 않으며, 구매 의향이 지속됨에도 불구하고 매수자들이 신중한 태도를 유지하고 있다고 밝혔다.

제곱피트당 용지 비용은 전분기 대비 4%, 전체 회계연도 기준 6% 상승했다. 경영진은 현재 공급 중인 용지 중 상당수가 이전에 매입 및 개발되었기 때문에 토지 가격 재조정은 일반적으로 천천히 이루어진다고 설명했다.

건설 비용 역시 과거 목재 가격 상승, 완만한 임금 인상, 연료 관련 할증료, 국지적 인력 부족 등으로 인해 압박을 받고 있다. 2027 회계연도 1분기 경영진은 순수 건축비(stick-and-brick costs)와 용지 비용 모두 전분기 대비 보합에서 소폭 상승할 것으로 가정하고 있다.

평균 판매 가격과 물량의 하락은 판매관리비 비중 상승(SG&A deleverage) 부담을 가중할 수 있다. 높아진 금리로 인해 자산 가치 기대치가 계속 낮아질 경우, 특히 다세대 프로젝트를 중심으로 임대 수익성(Rental margins) 또한 하락할 수 있다.

애널리스트 Q&A 주요 내용

경영진은 1분기 18%~18.5%로 예상되는 주택 판매 매출총이익률이 장기적인 이익률 목표라기보다는 현재 시장 상황을 반영한 결과라고 설명했다. 판매를 뒷받침하기 위해 높은 수준의 인센티브와 모기지 금리 할인(buydowns) 제공이 여전히 필요한 상황이다.

디알호튼은 자사의 모기지 금리 할인 폭이 시중 금리보다 약 1.5%포인트 낮은 수준을 유지할 것으로 예상하고 있다. 회사는 모기지 이용 고객 중 80%대 후반에서 90%대 초반이 이러한 금리 할인 혜택을 계속 이용하고 있다고 전했다.

2027 회계연도 매출 전망은 주로 낮아진 예상 평균 판매 가격의 영향을 받았다. 경영진은 실제 실적 결과로 나타나기 전까지는 판매 가격 개선을 전망치에 반영하지 않는다고 밝혔다.

경영진에 따르면 2차 대도시권 및 소규모 시장이 대도시 시장보다 전반적으로 양호한 실적을 보였다. 이들 시장은 재고 누적과 경쟁이 적었으며, 디알호튼이 더 저렴한 가격대의 주택을 제공할 수 있는 경우가 많았다.

회사는 주택 구매 부담을 완화하기 위해 더 작은 면적의 주택과 용지를 계속해서 강조하고 있다. 평균 주택 규모는 5년간 4% 줄어들었으며, 듀플렉스 및 타운하우스 중심의 연립주택(attached homes)은 전년 동기 10%에서 증가해 현재 인도 물량의 약 16%를 차지하고 있다.

경영진은 매출과 이익률이 압박을 받는 상황에서도 공기 단축(faster cycle times)과 주택 재고 축소가 2027 회계연도 현금흐름을 뒷받침할 것이라고 설명했다. 또한 임대 자산 잔액 감소 역시 재무제표 상의 현금을 확보하는 데 기여할 것으로 기대된다.

실적 발표 컨퍼런스 콜 전문

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전체 실적 발표 컨퍼런스 콜 녹취록

경영진 발표

Operator

Good morning, and welcome to the Fourth Quarter 2026 Earnings Conference Call for D.R. Horton, America's Builder. [Operator Instructions] I will now turn the call over to Jessica Hansen, Senior Vice President of Communications for D.R. Horton.

Jessica Hansen

Thank you, and good morning. Welcome to our call to discuss our fourth quarter and fiscal 2026 financial results. Before we get started, today's call includes forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. Although D.R. Horton believes any such statements are based on reasonable assumptions, there is no assurance that actual outcomes will not be materially different.

All forward-looking statements are based upon information available to D.R. Horton on the date of this conference call and Dorton does not undertake any obligation to publicly update or revise any forward-looking statements. Additional information about factors that could lead to material changes in performance is contained in D.R. Horton's annual report on Form 10-K and its most recent quarterly report on Form 10-Q, both of which are filed with the Securities and Exchange Commission.

This morning's earnings release and supplemental data presentation can be found on our website at investor.drhorton.com, and we plan to file our 10-K in about 3 weeks. Please note that we are now posting our supplementary data presentation at the time of our earnings release. After this call, we will also post our updated investor presentation for your reference.

Now I will turn the call over to Paul Romanowski, our President and CEO.

Paul Romanowski

Thank you, Jessica, and good morning. I am pleased to also be joined on this call by Mike Murray, our Chief Operating Officer; and Bill Wheat, our Chief Financial Officer. This year, the D.R. Horton team completed our 25th consecutive year as America's largest builder by volume and had the privilege of providing homeownership to more than 84,000 individuals and families including approximately 43,500 first-time homebuyers. In total, our homebuilding and rental operations provided more than 89,000 families a place to call home during fiscal 2026.

For the fourth quarter, our consolidated pretax income was $1 billion on revenues of $9.4 billion with a pretax profit margin of 10.8%. For the year, our consolidated pretax income was $3.9 billion on revenues of $33 billion, with a pretax profit margin of 11.8%. In fiscal 2026, we generated $3.5 billion of cash from operations and returned $4.1 billion to shareholders through repurchases and dividends. Over the past 5 years, we've generated $14 billion of operating cash flow and returned all of it to shareholders, reflecting consistent execution, operational efficiency and disciplined, balanced capital allocation.

We work every day to leverage our industry-leading platform, unmatched scale efficient operations and experienced teams to bring homeownership opportunities at affordable price points to more Americans. 63% of the D.R. Horton Homes that our mortgage company financed this quarter, were to first-time homebuyers. Our teams continue to manage each community based on local market conditions, adjusting pricing and incentives to meet demand and maximize returns.

New home demand came under increased pressure in the fourth quarter as mortgage rates rose sharply, which further constrained affordability while consumer sentiment remained cautious. Our net sales orders were 7% lower than the prior year quarter our home sales gross margin was below our expectations. In response to the more challenging market conditions, we reduced our starts from the June quarter to better align our inventory with demand.

Our cycle times remain near historical lows, providing us with greater flexibility to respond to changes in demand while operating with fewer homes in inventory. We will continue to manage our inventory levels closely while maintaining enough homes available for sale to meet demand in each of our communities. We are well positioned to drive future growth and stronger returns when market conditions improve. Mike?

Michael Murray

Net income for the quarter was $741.8 million or $2.67 per diluted share on consolidated revenues of $9.4 billion. For the year, net income was $2.9 billion or $10.11 per diluted share on revenues of $33 billion. Home sales revenues in the fourth quarter totaled $8.4 billion, on 22,915 homes closed. Our average closing price for the quarter was $365,600, up 1% sequentially and flat compared to the prior year. Our average closing price was approximately $135,000 or 27% below the average price of a new home in the United States, reflecting our continued focus on affordability. Bill?

Bill Wheat

Net sales orders in the fourth quarter decreased 7% from the prior year quarter to 18,619 homes and order value declined 9% to $6.6 billion. The average price of net sales orders was $356,600, down 2% sequentially and year-over-year. Our cancellation rate for the quarter was 23% compared to 20% sequentially and year-over-year. Our average number of active selling communities increased 2% sequentially and 10% year-over-year. Jessica?

Jessica Hansen

Our gross profit margin on home sales revenue in the fourth quarter was 19.5%, down 120 basis points sequentially from the June quarter and below our expectations. Market conditions became more challenging as the quarter progressed, which limited our ability to offset higher costs with pricing resulting in 80 basis points of the decline, above normal litigation costs accounted for the remainder of the decrease. On a per square foot basis, home sales revenues and stick and brick costs were each up 1% sequentially, while lot costs increased 4%.

For the full fiscal year, home sales revenues declined 2%, stick and brick costs declined 4% and lot cost increased 6%. We expect continued pressure on our home sales gross margin in the first quarter, reflecting a lower average sales price and higher incentive costs at current mortgage rates, and we expect our incentive levels to remain elevated in fiscal 2027. Both incentive levels and our full year home sales gross margin will depend on the strength of demand during the spring, changes in mortgage rates and other market conditions. Bill?

Bill Wheat

Our fourth quarter homebuilding SG&A expenses increased 7% compared to the prior year quarter, and SG&A expense as a percentage of revenues was 8.7%, up 80 basis points. For the year, homebuilding SG&A was 8.9% of revenues, up 60 basis points. Our annual homebuilding SG&A expenses grew 4%, primarily due to the expansion of our operating platform in addition to higher advertising costs and technology investments. We remain focused on managing our cost structure with discipline to gain market share efficiently while preserving the platform we've built.

We expect to return to SG&A operating leverage when revenue growth resumes and our community absorption rates stabilize. Paul?

Paul Romanowski

We started 13,100 homes in the September quarter, down 45% sequentially and 10% from the prior year quarter to align with the current sales environment. We ended the year with 28,200 homes in inventory, down 26% sequentially and 5% from the prior year quarter. Of those homes, 17,700 were unsold at September 30. 8,800 of our unsold homes were completed, including 600 that have been completed for more than 6 months.

For homes we closed in the fourth quarter, our median cycle time, measured from home start to home close increased by roughly 10 days from the third quarter but was down slightly from a year ago. Our cycle times remain near historical lows, enabling us to operate with fewer homes in inventory and turn our housing inventory more efficiently. We will continue to manage our homes and inventory and start pace based on market conditions. Mike?

Michael Murray

Our homebuilding lot position at year-end consisted of 571,000 lots of which 23% were owned and 77% were controlled through purchase contracts. We actively manage our investments in lots, land and development based on market conditions. We remain focused on relationships with land developers across the country so we can build more homes on lots developed by others. This approach enhances our capital efficiency, returns and operational flexibility. Our own lot position of 131,000 lots is down 11% from a year ago and represents a 1.5 year supply.

In the fourth quarter, 70% of the homes we closed were on lots developed by either Forestar or a third party, up from 65% in the prior year quarter. Our fourth quarter homebuilding investments in lots, land and development totaled $2 billion, of which $1.4 billion was for finished lots, $500 million was for land development and $120 million was for land acquisition. For the year, our homebuilding investments in lots, land and development totaled $8.2 billion. Paul?

Paul Romanowski

In the fourth quarter, our rental operations generated $647 million of revenue from the sale of 509 single-family rental homes and 2,182 multifamily rental units. The Rental segment's pretax loss of $25.3 million for the quarter includes $91.4 million of inventory impairment charges related to 9 completed multifamily projects. The impairments primarily reflect our lower sales price expectations due to the recent increases in interest rates.

For the full year, our rental operations earned pretax income of $18.2 million or $110 million, excluding the impairment charges on $1.2 billion of revenues from the sale of 2,073 single-family rental homes and 2,737 multifamily rental units. Our rental property inventory at September 30 was $2.6 billion, down 3% from the prior year and consisted of $291 million of single-family rental properties and $2.3 billion of multifamily rental properties.

We continue working to improve the capital efficiency and returns of our rental operations and expect our rental inventory balance to remain at or below its current level during fiscal 2027. Turning to our financial services operations. Pretax income for the fourth quarter was $78 million on $219 million of revenues resulting in a pretax profit margin of 35.7%. For the year, Financial Services earned $258 million on pretax income on $817 million of revenues with a pretax profit margin of 31.6%. Mike?

Michael Murray

Forestar, our majority-owned residential lot development company reported fourth quarter revenues of $581 million on [ 5000, 4 ] lots sold with pretax income of $79 million and a pretax profit margin of 13.5%. For the full year, Forestar delivered 13,545 lots generating $1.6 billion of revenues and $192 million in pretax income with a pretax profit margin of 11.7%. 66% of Forestar's owned lots are under contract or subject to a right of first offer with D.R. Horton.

During the fourth quarter, we purchased $465 million of finished lots from Forestar. Forestar has a strong, separately capitalized balance sheet with $1.3 billion of liquidity and its national operating platform and lot supply position it well to provide essential finished lots to the homebuilding industry and continue gaining market share over the next several years. Bill?

Bill Wheat

Our capital allocation remains disciplined and balanced supporting an operating platform that consistently generates substantial operating cash flows and attractive returns through market cycles. We maintain a strong balance sheet with low leverage and healthy liquidity and providing significant financial flexibility to adapt to changing market conditions and opportunities. At September 30, we had $7.2 billion of consolidated liquidity consisting of $2.1 billion of cash and $5.1 billion of available capacity on our credit and mortgage repurchase facilities.

Consolidated debt at the end of the quarter totaled $6.1 billion, including $600 million of 1.3% homebuilding senior notes that we repaid at maturity in October. We have no other senior note maturities in fiscal 2027. Our consolidated leverage at fiscal year-end was 20.8%, and we continue to target leverage of around 20% over the long term.

During fiscal 2026, consolidated cash provided by operations was $3.5 billion, representing 11% of consolidated revenues, similar to 10% in fiscal 2025. We distributed $4.1 billion to our shareholders through share repurchases and dividends during fiscal 2026. During the quarter, we repurchased 9.4 million shares of common stock for $1.4 billion. And for the full year, we repurchased 24 million shares for $3.6 billion, which reduced our outstanding share count by 8% from a year ago. We also paid cash dividends of $125 million during the quarter and $513 million during fiscal 2026.

Our fiscal year-end stockholders' equity was $23.1 billion, down $1.1 billion or 4% from a year ago, while book value per share increased 4% to $85.14. In fiscal 2027, we expect to further reduce our outstanding share count through share repurchases, which provides support to our future earnings per share. based on our financial position and cash flow expectations, our Board declared a new quarterly dividend of $0.50 per share, an 11% increase from our prior quarterly dividend making fiscal 2027, our 13th consecutive year of growth in our dividends per share. Jessica?

Jessica Hansen

Looking ahead to fiscal 2027, we expect affordability constraints, higher mortgage rates and cautious consumer sentiment to continue to pressure new home demand. Given the uncertainty in these conditions and the broader economy, our initial fiscal 2027 -- fiscal 2027 guidance reflects wider ranges than usual. As outlined in our press release this morning, for the full year of fiscal 2027, we currently expect to generate consolidated revenues of approximately $30 billion to $32 billion and homes closed by our humbling operations to be in the range of 79,000 to 84,000 homes.

We forecast an income tax rate for fiscal 2027 of approximately 25.5%. We expect to generate approximately $3.5 billion of cash flow from operations in fiscal 2027, and we currently plan to repurchase approximately $3 billion of our common stock in addition to paying dividends of around $500 million.

For our first fiscal quarter ending December 31, we currently expect to generate consolidated revenues in the range of $5.9 billion to $6.4 billion and homes closed for our homebuilding operations to be in the range of 15,500 to 16,500 homes. We expect our home sales gross margin for the first quarter to be in the range of 18% to 18.5% and our consolidated pretax profit margin to be in the range of 7% to 8%. Finally, we expect our income tax rate for the first quarter to be approximately 25.5%. Paul?

Paul Romanowski

In closing, our results and position reflect the strength of our experienced teams, industry-leading market share, broad geographic footprint and focus on delivering quality homes at affordable price points. These key components of our operating platform support our ability to adapt to the current challenging market, gain market share, generate meaningful operating cash flows and consistently return capital to shareholders while being well positioned for future opportunities.

We will stay disciplined as we navigate the current housing market and broader economy and keep our focus on delivering long-term value for both our homebuyers and shareholders. Finally, I want to thank the entire D.R. Horton family, our employees, land developers, trade partners, vendors and real estate agents for your dedication and hard work. Let's continue working to improve our operations and provide homeownership opportunities to more individuals and families. This concludes our prepared remarks. We will now host questions.

Operator

[Operator Instructions] Your first question is coming from Stephen Kim from Evercore ISI.

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Stephen Kim

I appreciate all the color that you've given so far. I guess my question is, let's start with the gross margin guide here, [ 18, 18 ] obviously, materially lower, and you explained all the reasons why, given the market conditions. But as I think way back, once upon a time, I think you all talked about a gross margin of call it, 20% being kind of normal.

And if I recall correctly, you indicated at that time that sort of higher end product that you were building back then be kind of at the higher, let's call it, 22% or something like that in the like lower-end product might be somewhere around 18%. And so as I use that as kind of a backdrop to the 18% to 18.5%.

I'm curious how you think about the gross margin that you're going to experience in the first quarter relative to sort of a longer-term perspective on where you think your profitability is likely to be -- should we think that 18% handle kind of gross margin is kind of appropriate on a longer-term basis, given the fact that your product mix is skewing a little bit more entry level now than maybe it did when you were giving those comments earlier?

Paul Romanowski

No, Steve. I feel that the 18% to 18.5% is more indicative of the current market conditions that we see. -- our incentives remain elevated, well above our historical norm with the rise that we saw in rates throughout the market, the additional pressure that we're seeing from just consumer confidence not being where it is. We still see the buyers out there with a want, just having a hard time moving forward. We've had to incentivize a little more to keep moving homes that we had started in the second and the third quarter. But I do still feel like we have a long-term opportunity to realize a higher than 18% to 18.5% gross margin on a go-forward basis. It's just indicative of what we're seeing in the market today.

Stephen Kim

Yes, that's fair. I guess, -- maybe another way of asking a question around that is what kind of mortgage rate are you anticipating or envisioning in your outlook, not just for the quarter, but also you gave some commentary, particularly around cash flow for the year. What kind of mortgage rate environment are you envisioning?

Paul Romanowski

I think that anticipating it to go down isn't proved at all. So as we look at our guide for the year and expect that we're going to continue to see elevated rates -- we'll see how that progresses through the spring. We'll see what happens as the spring comes about and what happens with consumer confidence. if we see some stability in the geopolitical environment, we see some reduction in gas prices and some other things that bring that back. We think that will help with the market, but not expecting to see much reduction in rates in the near term.

Stephen Kim

Okay. So you are assuming some of those other factors, sort of the psychological factors and so forth sentiment measures might improve, but not necessarily rates. Is that what you're saying?

Paul Romanowski

Correct.

Operator

Your next question is coming from Alan Ratner from Zelman.

Alan Ratner

Thanks for the details so far. -- first question, maybe just touching a little bit on the supply chain and what you're seeing there. I think this is the first quarter in a while where you guys saw an uptick in construction costs as well as an increase in cycle times. So I was hoping you could talk a little bit more about what you're seeing there. Is that a function of some of the labor tightness ice rates we've been hearing about. Is it some other factors in the material supply chain? And where do you see that going in '27?

Michael Murray

I think what we saw in the fourth quarter deliveries on homes with some lumber prices that occurred -- increases that occurred earlier in the year came through the production process and put some upward pressure on our stick and brick cost more broadly, we probably saw a little bit of labor inflation. We have seen where there have been different levels of various regulation and enforcement, a little bit of labor shortage and additional costs to bring that labor to the job site community by community.

Jessica Hansen

So in terms of our first quarter guide, it would assume that our stick and brick costs are flat to slightly up. And we continue to expect our lot cost to be flat to slightly up sequentially and continue to be up on a year-over-year basis for the next couple of quarters.

Alan Ratner

Got it. Very helpful. Second question, just kind of bridge a little bit of your cash flow guide for '27 versus at least the margin commentary for Q1 because if I look at your revenue guide for the year, it's going to be down a little bit. It sounds like margins at least to start the year, are going to be down a couple of hundred basis points year-over-year, yet your cash flow guide for the full year of $3.5 billion is pretty similar to what you've been generating in the last several years.

So is there a positive offset to what's presumed to be pressure on earnings that's allowing you to hold your free cash relatively steady?

Bill Wheat

Yes. We see opportunity to continue to improve the efficiency of our balance sheet. -- as we have improved our cycle times, we are able to operate and turn our inventory more quickly, so we're able to operate with fewer homes in inventory than we have historically. So there is still opportunity to pull some dollars out of the balance sheet there as well as in our rental operations, we expect those asset levels to be a bit lower in the coming year as we continue to improve the efficiency in that business. So that provides additional cash flow sources beyond the P&L in fiscal '27.

Operator

Your next question is coming from John Lovallo from UBS.

John Lovallo

At the midpoint, you're forecasting consolidated revenue to be down about 6% year-over-year with deliveries down about 3%. So just curious what the 3 percentage point delta is. I mean, is that ASP? Is that rental? Is that financial services? Any help there would be appreciated.

Jessica Hansen

Sure, John. It's predominantly being driven by a lower expected ASP. If you look at our sales in the quarter, our ASP was down to $356,600 and we typically wouldn't forecast an improvement in our ASP until we actually see it show up in our results. And so even if you flatline that for the year, our revenues are going to be down.

John Lovallo

Got you. And then, I guess, more broadly, look, I mean, we've had 2 consecutive years of pretty serious exogenous shocks during the spring selling season with Liberation Day on April 2, 2025, the Iran war in February 28, 2026. So I guess, in the absence of a third consecutive shock, it appears to us that the spring selling season is set up at least better than it has been over the prior 2 years. I mean, would you agree with this? I mean, despite your preliminary forecast for volume to be slightly down year-over-year.

Paul Romanowski

Yes. I think, as I've said, we still have buyers out there with a strong interest in moving forward. We see traffic, although traffic is down a little bit. We're not in a situation where we just don't have people in our sales offices and looking for a home today. There's just a lot of noise today out there and consumer sentiment. People are just held back from moving forward. We'll see how the spring comes. It would be nice to go through a spring without an additional shock or something coming out there so that people can settle down and move forward with our own purchase.

Operator

Your next question is coming from Sam Reid from Wells Fargo.

Richard Reid

Specifically Q4 to Q1 bridging. Curious once you're embedding with respect to rate buydown activity, especially as rates picked up in September, are you holding your rate buydowns at a specific level of interest rates? Or are you holding that spread between the prevailing market rate and the buydown. Just curious how you're running that.

Paul Romanowski

As rates moved up through the quarter, we did move the rates that we're offering on a buy down up a little bit, and we'll continue to do that. So we kind of follow the market that timing of that just depends on where we are with our builder forwards and everything else. But yes, we moved the rate up throughout the quarter. We would expect to stay at about 1.5 points below market is kind of where we've been averaging.

Jessica Hansen

And we've continued to see a high 80s to low 90% of our mortgage company buyers get that rate buy down. So I think our anticipation would be it stays in that range as well.

Richard Reid

That's really helpful. And then maybe could we just quickly touch on that comment about traffic being lower. Maybe give us a sense as to how traffic trended during the quarter. I would assume it probably fell off in September, but just curious if you could put a finer point on that. And any comments on traffic and order volumes quarter-to-date?

Paul Romanowski

Demand did weaken as the quarter progressed. Certainly as we saw rates move up. And as we moved into October, we've seen similar to what it was in September. So traffic and sales activity is a little lower than what we would expect on a normal seasonal basis. The traffic we are seeing is somewhat cautious and tentative to with their decision-making process. There's a lot of negativity in the news today that I think is restraining people from actually taking action. So hopefully, we're past some of that at some point, maybe and we see a little more urgency in the buyers' actions.

Operator

Your next question is coming from Matthew Bouley from Barclays.

Matthew Bouley

Question on sort of the old price versus pace. Obviously, in Q4 and the Q1 guide, you've sort of ceded a bit of margin guiding '27 deliveries down. You talked about lower starts, inventories in Q4 are coming down. I mean kind of going forward, is the intention that you may sort of go back to a bias of protecting margin as we kind of move past Q1? In other words, kind of is there an intention of finding a stabilization in the 18s at the expense of volume or at the end of the day, this is just going to be kind of simply market dependent. So how are you kind of thinking about that?

Michael Murray

It will be market dependent at the community level, frankly, Matthew. The way we operate the business is community by community, we focus on finding that right balance of pace and price margin to try to maximize the returns we have in any given community. And that's what all of our operators in the field are trying to do every day, every week as they're called basing their market whether it's a tailwind or a headwind in that given market, they're looking to adjust to maximize the returns.

And so it rolls up to that, and that's what we're kind of seeing going forward in the margin metrics in some of our delivery guidance, but it's going to happen at the community level.

Matthew Bouley

Got it. Okay. Appreciate that. And then secondly, I think you'd already mentioned a little bit on stick and brick, but just another 1 on that. The you reduced starts by quite a bit. Obviously, recall last year where part of the intention around reducing starts like that was to kind of go back to your negotiations with the trade and with suppliers, et cetera. And so I guess, how is that sort of playing out this year? And where do you think you can kind of pull back a little bit more on your direct cost.

Paul Romanowski

We feel that's the same today. In other words, all day, every day, our operators are out working towards the best value we can deliver to our buyers, and that means working with our trades and the reality of what we're seeing in the market today. We did see significant reduction in starts this quarter. And really, that was to balance our inventory with what we're seeing in the market and the fact that we just don't need to carry as many homes in inventory.

So we are continuing to work with all of our trades and with labor source to drive to the best stick and brick value that we can put into our homes to continue to hit the price points that people need out there.

Operator

Your next question is coming from Eric Bosshard from Cleveland Research.

Eric Bosshard

Good morning. In terms of affordability, obviously, or it appears that your assumptions that rates stay elevated with buydowns and incentives you're helping solve it. I'm just curious if there's anything structurally that you're evaluating or implementing into '27 to solve affordability stated more simply, an opportunity to create lower-priced homes to address what the consumer is looking for?

Paul Romanowski

We're always looking to adjust the product that we're offering. We have that flexibility community by community and as we plan for and develop new communities, so continuing to find -- if it is a smaller product and/or a smaller lot that allows us to hit a price point and more importantly, a monthly payment that opens up home ownership, we continue to look at that continuously and consistently. So I would expect that in the current environment, we'll continue to build more of our smaller homes in those communities because it's what gets to the monthly payment that opens up ownership.

Jessica Hansen

To put some numbers around Paul's context, we're down 4% in our average square footage over the last 5 years. And we've also seen an increase in our number of attached closings, so predominantly duplexes and townhomes are now roughly 16% of our mix versus 10% a year ago.

Eric Bosshard

Okay. And then just the 1 follow-up you commented, I think lot price is up 6% and net selling price is down. It seems like at some point, those 2 numbers should go in a similar direction. Curious if on the lot side, there's visibility or progress or traction of creating downward pressure on lot prices to match what's going on with selling prices.

Paul Romanowski

The land market is usually pretty slow to reset and a lot of the lots that we're delivering on now have already been developed. And so the costs are already set on those lots, both the land and the development cost. But with lower activity on those, we would expect to see future development activities come in at better pricing, absent fuel inflation as well as the land residuals resetting a little bit to the current market conditions.

Operator

Your next question is coming from Anthony Pettinari from Citigroup.

Anthony Pettinari

Just following up on Matthew's question on stick and brick. So I guess costs are down 4%. And I'm just wondering if you can maybe disentangle labor versus building materials. And I think you talked about labor costs rising earlier. Just wondering where you're seeing the savings, if it's more on the building products side, just kind of square those 2.

Paul Romanowski

Hard to put exact numbers on that spread. We kind of quarter-to-quarter, month-to-month, see changes in different labor prices and/or materials as we purchase them, have them locked in for a period of time and then they may reset. As Mike mentioned, some of what we're seeing in this quarter's closings was the rise in lumber we saw earlier in the year. So that comes through a little a little more latent, just continuing to work on all of those.

Certainly, increased fuel costs have caused for some short-term surcharges that we've needed to realize and some of that may be what's showing up, but continuing to stay focused on both sides of it, the labor and materials.

Jessica Hansen

So the 4% decline you mentioned is year-over-year. Sequentially, our stick and brick costs were up 1% to Paul's point of some of the more recent challenges.

Anthony Pettinari

Okay. Okay. That's helpful. And then I'm just curious, I mean, you obviously operate in a lot of markets with a lot of competitors. But is it possible to -- how do you see private homebuilders, maybe some of your smaller competitors responding to this environment? Are some of them kind of dropping out of the market? Are there maybe opportunities for consolidation? Do you think you can just kind of hold share even in a kind of a declining market? I'm just kind of curious what the competitive dynamic looks like out there in a tougher demand environment?

Michael Murray

Well, anecdotally, we are seeing that there are more builder opportunities for us to talk with about where they see their business and how they can unlock the value they've created in their companies. A lot of times, that works with us kind of acquiring their homebuilding operations and they've become a lot developer.

That's worked really well for us in a lot of markets across the country, and we continue to work with that program. But we will see more pressure with the rate -- higher rate environments and inflationary cost environment, it is -- does make it more challenging to deliver affordable product to the market today.

Jessica Hansen

And I think even with our full year guide of expecting flat to down closings this fiscal year, we would expect to continue to consolidate share generally weaker market conditions give us an even better opportunity to consolidate share.

Operator

Your next question is coming from Ryan Gilbert from BTIG.

Ryan Gilbert

First 1 is on the first quarter '27 margin guidance. And it looks like the consolidated pretax margin is declining on a sequential basis by a fair amount more than gross margin. Is the difference between the 2, gross margin down a little over 100 basis points, consolidated pretax down 300 basis points plus just SG&A deleverage in the homebuilding business? Or are there other considerations in the other businesses that we should be thinking about?

Bill Wheat

Yes. SG&A deleverage, considering lower ASPs and lower volume is definitely a key factor there as well. And then when we look at the full year and we look at our rental margins right now, we would expect some decline to come from the rental business as well. And that also contributes to the wider range that we're providing because it's a wider range on volume, wider potential range on margins as well as the rental business, the 2 additional factors beyond the homebuilding gross margin.

Ryan Gilbert

Okay. Got it. And then I understand demand weaker in the quarter. I'm wondering just any variations in demand that you saw between your larger, more established markets and the newer markets that you've entered that are -- tend to be smaller that you entered over the last few years.

And I'm wondering if in the larger markets, the affordability issues and challenges were compounded by supply competition, whereas in some of the smaller markets, there might be not as much supply competition. And so you don't necessarily have that same compounding issue. But just wondering what you're seeing just in terms of variations in demand.

Paul Romanowski

Ryan, we have seen that. In the smaller markets and/or the secondary MSAs where there's just been less buildup of inventory and less competition, we enter those markets and tend to offer an affordable option into the market that may have been absent. And so those have held up a little better, and we've seen more consistent sales in line with our expectations and budgets compared to some of the larger markets that have been more challenged, more competition, more inventory that's built up both either on just the new home market and/or on the resale market. When demand is a little lower. It's a little more challenging in some of those markets.

Operator

Your next question is coming from Michael Rehaut from Melius.

Unknown Analyst

Good morning, everyone. I appreciate you taking my questions. I wanted to first just talk about the broader market dynamics and in particular, supply -- resale supply -- it's been pointed out over the last month or so by many competitors, an increase in Texas and Florida.

And obviously, the homebuilders themselves, particularly the production builders are trying to manage spec, reduced starts, et cetera. But it's been pointed out, I think, that the resale market has been a little challenging from the supply standpoint. So I wanted to get your views on that. particularly in Texas and Florida and if there's any other markets that stand out from your view?

Paul Romanowski

We've certainly seen a little more buildup in inventory, and that does create some competition. But still hasn't been a significant drag on our absorptions. I think more so coming from the increase in rates and lack of consumer confidence and hesitancy from the buyers. With the bill of inventory or people staying put in the resale market, it can impact the move up market a little more, and we've seen that as far as home to sell contingency and people unable to move forward. But although we've seen it tick up some, still not to where we're concerned about it.

Ultimately, we need to see that resale market unlock. And as it does that, people start to move. And over time, that's just a normalized market for us, and we're comfortable competing in that environment.

Unknown Analyst

Great. I guess, secondly, certainly, the gross margin outlook near term is a little challenged. I wanted to get your sense in terms of usually, at the end of the year, you're trying to close out volumes and it's an important focal point, and you also want to make sure that you have lighter inventory, if it's a weaker market going into the spring, so you can maybe reduce incentives potentially even in a weak market, if you have that inventory fleshed out.

Do you feel like that's part of the dynamic here in terms of 3Q, 4Q? Or is this more of just a market reset to the current demand backdrop?

Jessica Hansen

It's certainly reflective of the current market. It's not necessarily indicative of us trying to flush inventory in the fourth quarter. We're just continuing to respond to market conditions. The positive is, is that our fiscal Q1 December quarter is always our seasonally slowest time of the year. So just some of Paul's earlier points. I think we are hopeful that as we get into the spring, the setup is a little bit better, at least from a consumer confidence perspective.

Although we expect interest rates to remain high and our incentive levels remain elevated as a result. But it's just a function of current market conditions, and that's what it will continue to be as we move throughout the year as we adjust and addresses incentive levels to continue to drive demand.

Unknown Analyst

Great. Jessica. I didn't mean to imply Horton trying to flush out inventory, I think, is just more sometimes of a year-end dynamic. So I appreciate that.

Operator

Your next question is coming from Rafe Jadrosich from Bank of America.

Rafe Jadrosich

On the delivery guidance, you spoke about how it's a little bit wider range to start the year than normal. Can you just talk about the assumptions, if you at the high end and low end of that range around like absorption-based community count and starts, just like what's sort of embedded in that delivery guidance.

Bill Wheat

Well, we have been consistently growing our communities this quarter sequentially up another 2%. And so our divisions are continuing to position themselves to gain market share. And so from a bottoms-up view of our company, we are positioned to continue to deliver on potential growth. However, the reality of the current environment where rates are and where sentiment is, our absorptions are slower. And so those assumptions for still what we would say, probably below normal absorptions continue into our assumptions for the guide.

And just given where rates are, where sentiment is, where demand and consumer sentiment is right now. That's what's driving our guide to flat to down. But in reality, there's a lot of uncertainty there. And so we're providing a wider range because I think there is definitely a wider range of potential outcomes depending on what market conditions do over the coming months and especially in the spring.

Rafe Jadrosich

That's helpful. And then on the gross margin guidance, I think there was a warranty impact to fiscal 4Q maybe 40 basis points or so can you just sort of bridge us from 4Q what the core gross margin would be to 1Q, you've addressed it in different -- in your answer to different questions. Just sort of like what is the core to core gross margin guidance and sort of what the bridge impact is?

Jessica Hansen

Sure. Thanks for calling that out, Rafe. We've actually had 4 of the last 5 quarters have unusual litigation and/or warranty expenses and actually benefit in some of those quarters. But this quarter, we had above normal litigation, not warranty, above normal litigation costs. We had to increase our reserves for 2 cases that we now believe are going to come in at higher settlements than we previously had reserved for.

Our typical run rate in our gross margin is about 40 to 50 basis points of a negative impact to gross margin for both warranty and litigation. And to your point, this quarter, that was 80 basis points. So it was roughly 40 basis points higher than normal.

Operator

Our next question is coming from Adam Kramer from Morgan Stanley.

Adam Kramer

I wanted to ask a little bit about capital allocation. I think repurchases this year about $3.6 billion. You're guiding to $3 billion next year, which is a bit above us. I'm just wondering sort of how to think about the pace of prioritization of buybacks versus land investments. given sort of the earnings outlook and broader macro outlook?

Bill Wheat

Sure. We set our capital allocation and our repurchases based on our projected cash flows. And so there can be some variability quarter-to-quarter depending on when we expect flows to be delivered. As you saw this past year, our cash flows were a bit late in the year. And so our repurchases were also weighted a bit late in the year. That also coincided with the pullback in our stock, which also contributed -- but in general, we plan for our repurchases to be relatively consistent.

And then we've maintained flexibility to be opportunistic depending on what the stock price does quarter-to-quarter. So no guide specifically as to pacing of repurchases. We're in a position to deliver on $3 billion of repurchases over the course of the year. And really in terms of then our land investments, it's the same thing. We're out in our communities, either developing lots, buying lots as we need them on a consistent basis.

And so there's not necessarily any significant seasonality differences there in terms of the pacing of our land spend. We have a good supply of lots. We're not in a need of either significantly building up our lot supply or reducing our lot supply. So I would expect that to be relatively consistent as well.

Adam Kramer

Great. And then maybe just quickly on sort of -- I noticed the incentive commentary in the release for '27, and that was really helpful. Just thinking about some of the different ways, different incentive forms as well as sort of gross price changes. How are you thinking about each of those? How are you balancing each of those? And -- and I guess sort of what's implied maybe from a '27 commentary given what you said about incentive specifically?

Paul Romanowski

There's a lot that goes into that, and ultimately, that's done at a community level. in some communities that may be more of a focus on rate buy-downs, others, it may be on included features. And in some cases, we need to adjust price. We adjust price, if that's what needs to happen in the market to achieve the returns that we're looking for community by community, we'll do it.

So no real significant shift in the incentives that we expect compared to what we've been seeing just at the continued elevated level like we've seen through the fourth quarter, and we expect to see it remain elevated for the near future.

Operator

Our next question is coming from Mike Dahl from RBC Capital Markets.

Michael Dahl

I wanted to ask first about the about qualifications. Obviously, traffic and demand lower in way what happened. But in terms of traffic coming through the door, getting people qualified. I think in the recent past for your buyer cohorts, at least at the lower end, some challenges even in getting people qualified kind of a little above on rates. And now if you're maintaining a 150 basis point spread, you're talking about kind of 6-ish prevailing rates that you're offering. So how have you seen kind of qualification dynamics play out over the past month or 2?

Jessica Hansen

Certainly, anytime rates move up, that has some part of the buyer cohort that can no longer afford if we're moving our rate up at the same time. But we're continuing to adjust everything we can in our cost structure and our incentive levels to try to get to that price that people can qualify. And we continue to see good quality traffic come through our door in terms of our closings. Our FICO score has remained very high at 72 and continue to have a cumulative loan to value of roughly 90%.

So we always deal with a little bit of fallout when rates are moving up. But at the same time, we have a trade down buyer who thought maybe they can afford x at 1 point, but now they can't and they still need a home, so they're going to come look at D.R. Horton since we are generally the best value proposition in the market.

Michael Dahl

Got it. Okay. My second question, I guess, as a follow-up to a couple of prior questions, but just around the thought process behind the closings guide for the year? And I guess the heart of the question would be, why not even wider or lower? Because if I think about your order trends, if you were down 7% for the quarter and worsened through the quarter, presumably September and then October have been worse than down 7%, your 1Q closing guide even at the high end, below on a year-on-year basis below the declines are greater than the low end of your full year forecasted declines.

So it does seem to imply that things need to get better. And I understand not lying to extract when rates are going up in a straight line, but maybe just a little more a little more elaboration on -- to me, given the recent trends, at the low end of the guide still assume some sort of improvement there.

Jessica Hansen

Well, our community count continues to be up significantly. So we don't actually need an improvement in absorptions. Our guide can actually deal with a slightly lower absorption in fiscal '27 versus fiscal '26 we do believe it's very realistic where we sit today. That being said, we'll adjust as we move throughout the year, like we always do. The last 2 years, we've come in with a guide that we have had to lower because the market wasn't there to support it from a return dynamic we'll do the same thing this year.

But to the flip side, we're positioned to do more than that volume if the market works to recover and be there to support it to that extent as well. So we'll do what we always do and adjust as we move throughout the year based on market conditions.

Operator

Your next question is coming from Paul Prisbilski from Wolf Research.

Unknown Analyst

I guess given Mike's commentary about the land market pricing is sticky. What are you seeing from your developer partners? Or are they kind of halting their development work and just harvesting what they already have in progress? And if that is the case, I guess, how would you alter your land strategy as they kind of deplete their assets?

Paul Romanowski

I think they're definitely adjusting deliveries and future deliveries, and we do a very good job, I believe, of communicating with our third-party development partners to make sure that they're managing their business along with ours so that we don't have too many lots out in front of us or out in front of them. We don't need that pressure until we see an increase in the demand environment. The good news is, we have the ability to increase that -- we have the entitlements in place engineering and place in a lot of those.

So if we see a stronger spring and a pickup in the market, -- we feel good about our lot position and having a lot position in front of us. But that's a daily focus for our teams in the field to work with third-party developers as well as ourselves on future phases to control that a lot of inventory as best as we can.

Unknown Analyst

Okay. And then, I guess, given your geographic expansion over the past 5 years and your market share consolidation commentary this morning. Do you see the current environment as an opportunity to further that geographic expansion into the better-performing secondary markets or would you look more to consolidate your existing platform and lever your costs in those markets?

Paul Romanowski

I think we always look at both of those and always looking to continue to expand our market share in the existing markets that we're in first. And when we see those opportunities and have the teams in place and the people we need to deploy to those new markets as we see opportunities, we'll continue to stay opportunistic in those markets that we're not in.

Operator

Our next question is coming from Susan Maklari from Goldman Sachs.

Susan Maklari

Thank you. Good morning, everyone. My first question is on the SG&A. You've done a nice job at getting leverage there despite all the pressures that you're seeing. Can you just talk about the forward outlook in SG&A and your ability to continue to realize that leverage even as things decelerate?

Bill Wheat

Yes. So it's always an intense focus for our business to be as efficient as we can throughout our SG&A infrastructure. Overall, I believe have -- we've done a good job, but in our culture never good enough. So it's going to continue to be a focus. -- is under a bit of pressure with lower ASPs and with the potential for lower volume, lower absorptions per community. So we're going to continue to manage that.

And a big focus for us is making sure that we do still maintain and preserve the platform so that we can be flexible and take advantage of opportunities when conditions stabilize. And because they will at some point, and we want to make sure that we're in a great position to take advantage of it.

Susan Maklari

Okay. That's great color. And then maybe more broadly, there's been a lot of discussion around affordability in general. And ways to solve for that, including perhaps newer models or strategies around build to own, build to rent, those kinds of things. How do you think about the outlook for that? And where some of those things could potentially fit into homebuilding in general over time?

Michael Murray

I think some of the biggest obstacles to affordability at the local community level and resistance to development of smaller lots and smaller product that the market, frankly, wants but whatever the jurisdiction is, they're not agreeable to allow that product to be built in their jurisdiction. And so it creates challenges that puts unnecessary costs that don't add value into the development of the lots or the building of the homes that are just preventing people from buying houses.

So that's our biggest challenge. We face it, we fight it day by day, community by community around the country of how to get people into homes they can afford is let the market determine what they want, what they can afford and then how we can build it at a return that set is acceptable to our company.

Operator

Our next question is coming from Jay McCanless from Citizen.

Jay McCanless

So my first question, could you talk about this impairment in the rental segment and -- and also maybe kind of talk about why you think returns in rental are going to be lower in '27 than what we saw in '26?

Bill Wheat

Sure, Jay. We have our portfolio. We have a number of projects that -- and our business model, as we merchant build these communities, we lease them up and then we go to the investment community to buy the projects. In the current environment with the spike up in interest rates in this last quarter. That had a negative impact on our expected values on a number of those projects. And so that resulted in us being to scrutinize them for potential impairment and a subset our completed projects wound up tripping the impairment.

With the continued expectation for elevated rates, that does have a dampening effect on the potential margins for forward sales as well into fiscal '27 is particularly in our multifamily portion of the rental segment. And so that has an impact -- a negative impact on the margins there.

Flip side, as we've talked about prior, our single-family rental communities, we have switched our business model there to a full forward sale model where we are basically having an investor in place before we start the project. And so we expect returns on the single-family side of our rental segment to be improving over time.

Jay McCanless

Okay. That's great. And then just 1 more picking on the lot cost question again. I mean is there any potential reason or benefit with if this is going to be another rough year from rates, demand, et cetera, for Horton to lean back into being more of a landowner and doing more self-development to maybe help control what's going on with the gross margin.

Would love to get some discussion on that, especially it sounds like a lot of the small builders and developers are having some cash flow problems right now. So it seems if Horton wanted to get deeper in land development, this would be the time to do it?

Paul Romanowski

With our current lot position, we have that flexibility. And for us today, that's just going to be on a community-by-community, deal-by-deal basis. If if it's a deal that makes more sense for us to self-develop, I think we're always going to maintain that capacity and ability. We have maintained that in each of our divisions. So we have that flexibility, and there are some instances today where we've done that. And as they arise, we'll do that in the future.

But the land market has, especially in the secondary markets, started to realize what's going on in the market. And so we're seeing some opportunities but that is community by community and deal by deal, and we remain flexible in our ability to buy developed lots, to work with third-party developers and/or self-develop if the deal is right for us.

Operator

Our next question is coming from Alex Barron from Housing Research Center.

Alex Barrón

Yes. Thank you for squeezing me in. In some ways, maybe I'm being up on a bit horse here. But when D.R. Horton was with us, he was always focused on growth and on being #1 and et cetera. I think since that time, you guys have been maybe more focused as the way I perceive it on balancing units and margins -- you have another competitor who's focused only on even flow production regardless of margins. So I'm curious as you guys elaborate on your guidance, how do you see things playing out if rates stay high, what's your -- the way you guys are thinking about it?

Michael Murray

Alex, that's a great question. If we look back 12, 13 years, we've been focused on kind of a balancing pace, growth with margins to drive to the returns. And that's been the approach and the focus, and it's really been consistent cash flow generation quarter after quarter, year after year that DR was here unfortunately, passed away a few years ago, but he was here for a large part of that transition, and he was very supportive of it.

And in the meantime, we were able to grow and take advantage of market conditions to aggregate market share when the market was giving it to us and in the tougher times, we probably did a little better at growing market share, even if absolute growth did not occur for the company. But it's been a consistent focus on returns for the past several years, and we're going to maintain that.

Jessica Hansen

D.R. wanted to be #1 at everything, not just volume. He wanted to be the best across any metric we looked at -- we have an internal saying never enough because that's really what he always pushed everyone for.

Operator

Your next question is coming from Buck Horne from Raymond James.

Buck Horne

Appreciate you going into overtime for me.

A quick 1 on external broker commissions. It seems like -- that number has been actually pretty consistent here recently. But out in the field, I mean just seeing some advertisements have looked like some fairly juicy bonus commissions being offered out there. Do you anticipate external broker commissions increasing into fiscal '27 beyond what we've seen recently? Is that part of the embedded gross margin guide?

Paul Romanowski

I think that our overall rate in terms of percentage that we utilize brokers has remained consistent. A big part of our business since the beginning of the company and today is that we sell a lot of our homes with the realtor community. And when the market is a little tougher, we do see some additional incentives or activities, higher level of involvement from them, and we lean on that and we'll continue to. But nothing significantly different or any real difference pretty much flat with what we've seen in terms of our overall realtor expense assumed in our forward guidance.

Jessica Hansen

Yes, we saw a 290 basis point impact this quarter on our gross margin, which was consistent both sequentially and year-over-year.

Buck Horne

Got it. Very helpful. And last 1 for me. Just it looks like you guys are involved in a partnership on this robotics company out in Arizona. Just any comments on kind of the thought on the investment or partnership there and what that may or may not lead to longer term in terms of prefabricated or 3D printed construction or any other objectives you have with that investment?

Michael Murray

We're always looking for better ways to build homes more portly. I think that's a pilot program for us in the Phoenix market, looking at some kind of panelization process. And we're going to watch it really closely, and we're excited for it.

Operator

Thank you. That concludes our Q&A session. I will now hand the conference back to Paul Romanowski for closing remarks. Please go ahead.

Paul Romanowski

Thank you, Matthew. Congratulations to everyone at D.R. Horton on achieving our 25th consecutive year as America's largest builder by volume and thank you for a solid year of execution in fiscal 2026. We are honored to represent you on this call, and we look forward to what we will accomplish together in fiscal 2027.

I'd also like to acknowledge Forestar's recent announcement of the retirement of its Executive Chairman, Don Tomnis. We congratulate, Don on his incredible career at both Forestar and D.R. Horton and we thank him for his many contributions to both companies over the past 40 years. Don service to Forestar over the past 9 years has helped establish a strong foundation for its future as a leading supplier of finished lots to the homebuilding industry.

We appreciate everyone's time on the call today and look forward to speaking with you again to share our first quarter results on Tuesday, January 19.

Operator

Thank you. Everyone, this concludes today's event. You may disconnect at this time, and have a wonderful day. Thank you for your participation.