托尔兄弟 (TOL) 2026财年第三季度业绩电话会议：利润率、订单与业绩指引

核心要点

• Toll Brothers在2026财年第三季度交付了2662套住宅，实现住房销售收入26.5亿美元。净利润为2.801亿美元，即稀释后每股收益2.97美元。
• 得益于地理区域与买家结构的优化以及运营效率的提升，调整后住房销售毛利率达到25.6%，超出公司指引35个基点。
• 净签合同套数同比增长5%至2508套，合同金额增长4%至25亿美元。在售社区数量由去年同期的420个扩大至471个。
• 改善型豪宅占本季度住房销售收入的61%，仍是公司毛利率最高的买家细分市场。约25%的买家全款购房。
• 管理层重申了2026财年全年26.1%的调整后毛利率指引，并预计住房销售收入约为105亿美元。预计股票回购规模由6.5亿美元上调至7亿美元。
• 受消费者信心低迷和房贷利率居高不下影响，需求依然疲软。管理层表示，截至第四财季前2.5周，市场状况依然充满挑战。

核心财务数据

业务与运营表现

截至本季度末，Toll Brothers拥有471个在售社区，而2025财年第三季度为420个。管理层继续预计财年底社区数量将达到480至490个，增幅为8%至10%。公司表示，其土地储备也能支撑2027财年及以后的类似社区数量增长。

改善型豪宅约占住房销售收入的61%。首套豪宅和减小住房面积的豪宅分别约占23%和16%。管理层表示，改善型豪宅业务的毛利率最高，且得益于高房价下购房优惠占售价比例较低。

净签合同的购房优惠平均约占毛售价的7.5%，较上一年的约8%有所下降。装修改进、结构选配和地块溢价平均为20.7万美元，相当于平均基础售价的24%。

完工现房库存降至每个社区平均1.9套，低于第二财季末的2.0套以及2026财年初的2.8套。管理层表示，在施工阶段早期出售现房通常能支持更高的毛利率，并给买家提供更多个性化定制房屋的机会。

约25%的买家全款购房。在按揭贷款买家中，平均贷款价值比约为69%。按需定制住宅的建筑周期保持稳定，约为9个月，而现房通常少用约1个月。

佛罗里达州、波士顿至卡罗来纳通道、博伊西、拉斯维加斯、雷诺和丹佛属于表现较强劲的市场。亚特兰大、西雅图、波特兰、旧金山和德克萨斯州则被认为更具挑战性。

截至季度末，Toll Brothers拥有或控制着约75,500块地块，其中58%通过期权锁定。本季度土地购置支出总计约4.52亿美元。尽管木材成本上涨，整体建筑成本保持相对平稳。

管理层指引

与此前指引相比，调高的全年平均售价预期范围预计将为住房销售收入增加约5300万美元。

管理层将2026财年股票回购预测从6.5亿美元提高至7亿美元。截至第三财季，公司已完成4.33亿美元的回购。预计财年底社区数量将达到480至490个。

风险与关注事项

管理层称住房需求环境充满挑战。消费者信心低迷、房贷利率高企以及地缘政治不确定性重现压制了需求，而通常在7月4日独立日假期后出现的改善态势弱于预期。

公司继续将价格和毛利率置于销售速度之上。相对于历史常态，购房优惠仍处于高位，且每个社区的去化率仍低于历史水平。

区域表现参差不齐，亚特兰大、西雅图、波特兰、旧金山和德克萨斯州表现较为疲软。管理层还提醒称，仅凭第四财季前2.5周的数据得出广泛结论还为时过早。

前瞻性指引对经济状况、住房和金融市场、利率、全球事件、劳动力与材料供应情况以及通胀等因素依然敏感。

分析师问答要点

• 第四财季交付可见度：管理层表示，在预计交付的中点3500套住宅中，约有2700套已在积压订单中。其余800套预计主要来自约900套完工现房以及近100套可在本季度内完成过户的额外住宅。
• 社区增长：公司不认为当前市场的疲软会改变其计划中8%至10%的社区数量增长。许多未来的社区已在开发中，多个地点的样板房正在建造中。
• 2027财年产品结构：管理层预计南部和山区将有更多新社区开盘，其中改善型豪宅社区所占份额更大。管理层还表示，2027财年的平均交付价格可能会上升，不过尚未提供正式指引。
• 长期毛利率框架：管理层表示，Toll Brothers的经营架构使其能在正常运营环境下产生26%至28%的毛利率，但拒绝提供2027财年的具体毛利率指引。
• 土地策略：扣除积压订单后拥有的自有土地约相当于1.5至2年的供应量。土地银行和卖家融资提高了通过期权控制地块的比例，并提升了资本效率。
• 资本配置：管理层的首要任务依然是盈利性增长，其次是保持资产负债表稳健，并通过股票回购和股息回馈资本。

业绩电话会议完整文字实录

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完整财报电话会议逐字稿

管理层陈述

Operator

Good morning, and welcome to the Toll Brothers Third Quarter Fiscal Year 2026 Conference Call. [Operator Instructions] The company is planning to end the call at 9:30 when the markets open. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Doug Yearley, Executive Chairman. Please go ahead.

Douglas Yearley

Thank you, Betsy. Good morning. Welcome, and thank you all for joining us. With me today are Karl Mistry, Chief Executive Officer; Gregg Ziegler, Chief Financial Officer; and Seth Ring, President and Chief Operating Officer. During today's call, I will provide a brief overview of our third quarter results and current market conditions. Karl will discuss our operating performance and trends across our markets, and Gregg will review our financial results and our outlook.

Before we begin, please note that many statements on this call are forward-looking based on assumptions about the economy, world events, housing and financial markets, interest rates, the availability of labor and materials inflation and many other factors beyond our control that could significantly affect future results. Please read our statement on forward-looking information in our earnings release of last night and on our website to better understand the risks associated with our forward-looking statements.

We are pleased with our third quarter performance. In a challenging housing market, we continue to produce solid results. We delivered 2,662 homes and generated $2.6 billion of home sales revenue, exceeding the midpoint of our guidance in both units and dollars. Adjusted gross margin was 25.6% or 35 basis points better than guidance, and we generated $280.1 million of earnings or $2.97 per diluted share, which also beat guidance.

Net signed contracts increased 5% compared to the third quarter of last year. Demand from luxury buyers remained relatively resilient, and we continue to benefit from the expansion of our community count. While orders improved, the overall sales environment remained subdued with low consumer confidence and elevated mortgage rates continuing to weigh on demand.

Consistent with our long-standing approach, we continue to prioritize price discipline and margin performance over sales pace, a strategy that we believe is particularly important in the current environment. We also remain focused on our luxury move-up customer and build-to-order business, whereas the nation's leading builder of luxury homes, we are uniquely positioned to serve affluent buyers across a wide range of markets and product offerings.

Over our nearly 60-year history, we have built a tremendous brand and a differentiated business model with advantages that include highly desirable community locations, distinctive home designs, extensive personalization opportunities and exceptional customer experiences. These strengths have helped us attract a customer base with greater financial resilience, one that is less affected by affordability challenges due to higher income levels, substantial existing home equity and sizable stock portfolios.

Our third quarter results further demonstrate the strength of our business model. Our strategy is durable precisely because it is built on differentiated capabilities that enable us to create value even when market conditions are less favorable. And while we remain focused on executing in the current environment, we are well positioned to accelerate growth, margins and returns when market conditions eventually improve.

During the quarter, we returned approximately $231 million to stockholders through dividends and share repurchases, while continuing to invest in the growth of our business through disciplined investments in new land. We continue to project significant operating cash flow in 2026 and are increasing our projected stock repurchases for the year to $700 million, up from our previous projection of $650 million.

We remain on track to deliver 8% to 10% community count growth in fiscal 2026, which will be our third consecutive year of 8% to 10% growth. Our existing land position supports similar community count growth in fiscal '27 and beyond.

Finally, I'd note that our balance sheet remains very strong with ample liquidity, low leverage and substantial operating cash flows. Our financial strength will enable us to continue investing in growth while returning capital to our stockholders.

With that, I will turn the call over to Karl.

Karl Mistry

Thank you, Doug, and good morning, everyone. As Doug mentioned, our third quarter results were solid. We beat on both the top and bottom lines and position the company to deliver another year of healthy profitability and returns in fiscal 2026. Our adjusted gross margin was 25.6% in the quarter, or 35 basis points better than guidance, reflecting the disciplined execution of our sales strategy and our more efficient operations. We signed 2,508 net agreements in the quarter for $2.5 billion, up 5% in units and 4% in dollars. This increase was once again driven by the successful execution of our growth strategy. At quarter end, we were selling from 471 communities versus 420 at the end of the third quarter of fiscal 2025.

We remain focused on opening new communities across the country and continue to expect to end the year with 480 to 490 selling communities.

Based on our strong year-to-date performance and our outlook for the fourth quarter, we are reaffirming all of our full year guidance metrics, including an adjusted gross margin of 26.1% and home sales revenues of approximately $10.5 billion. In addition, we now expect our average delivery price to be between $995,000 and $1 million for the full year. At the midpoint of our settlements guidance, this increase is expected to generate approximately $53 million of additional revenue over prior guidance.

Turning to market trends. As Doug mentioned, the demand environment remained challenging in the third quarter. These conditions have continued through the first 2.5 weeks of our fourth quarter. Against this backdrop, we are pleased that we were able to increase sales by 5% year-over-year, modestly reduced incentives and maintain our margins in the quarter. Geographically, stronger markets included Florida, Boston through the Carolinas, Boise, Idaho, Las Vegas and Reno in Nevada, and Denver, Colorado, were challenging markets included Atlanta, Seattle, Portland, San Francisco and Texas.

Among our buyer segments, our luxury move-up business continued to perform the best. And as Doug mentioned, we are leaning into this core segment where we see great deal flow that meets our high underwriting standards. Our move-up business accounted for approximately 61% of home sales revenues in our third quarter, while our luxury first time and move-down businesses represented approximately 23% and 16%, respectively. Not only does our luxury move-up business remain the largest contributor to revenues, but it also generates the highest margin among our buyer segments. Importantly, in this market, the higher the price of our homes, the lower the incentive as a percentage of sales price. The continued strength of our luxury business reflects the resiliency of our affluent customer base, the desirability of our communities and product offerings and the appeal of the Toll Brothers brand.

We also continue to carefully manage spec starts to align with demand on a community-by-community basis while actively managing the composition of our spec inventory. During the third quarter, we continued to reduce our inventory of spec homes. At quarter end, finished specs averaged 1.9 homes per community, down from 2 at the end of the second quarter and 2.8 at the start of fiscal year 2026. As a reminder, the margin profile of spec homes sold before framing is completed is significantly higher than the margin on finished specs. Our objective is to sell spec homes as early as possible in the construction cycle when incentives are typically lower and customers have greater opportunities to personalize their homes at our design studios.

Personalization remains an important competitive advantage for Toll Brothers as design citio upgrades are highly accretive to margins. Overall, upgrades, structural options and lot premiums averaged $207,000 or 24% of our average base sales price in the quarter.

As Doug mentioned, during the quarter, we continued to carefully balance sales pace, pricing and incentives to drive sales while maximizing returns. Incentives on our net signed contracts averaged approximately 7.5% of gross sales price in the quarter, down modestly from approximately 8% over the past year and consistent with our strategy of selling specs earlier in the construction cycle when buyers can still personalize their homes in our design studios. Approximately 25% of our buyers paid all cash in the quarter. Among buyers who financed their purchase, the average loan to value was approximately 69%, highlighting the financial strength of our customer base.

In the third quarter, we continued to realize the benefits of production improvements, and our cycle time for built-to-order homes remained stable at approximately 9 months. Cycle time for our spec homes is generally about 1 month shorter than build-to-order homes.

Overall, our building costs remained relatively flat in the quarter, even as the cost of the lumber rose during the period.

Turning to land. At third quarter end, we owned or controlled approximately 75,500 lots, 58% of which were optioned. We spent approximately $452 million on land acquisition in the quarter. We remain focused on securing high-quality land at attractive returns with a continued emphasis on capital efficiency and rigorous underwriting standards.

With that, I'll turn it over to Gregg.

Gregg Ziegler

Thanks, Karl. As mentioned in the third quarter, we delivered 2,662 homes and generated home sales revenue of $2.65 billion. We earned 374.8 million before taxes and $280.1 million after, or $2.97 per diluted share. The average delivered price of homes in the quarter was approximately $996,000, above the high end of our guidance range and driven primarily by mix, including a greater-than-expected proportion of luxury move-up and Pacific deliveries.

We signed 2,508 net agreements for $2.5 billion in the quarter, up 5% in units and 4% in dollars compared to the third quarter of fiscal 2025. The average price of contracts signed in the quarter was approximately [ $1.3 million ] versus [ $1.10 ] million in the third quarter of fiscal 2025. Our third quarter adjusted gross margin was 25.6% or 35 basis points better than our guidance of 25.25%. The outperformance was also driven by mix as well as continued benefits from improved operating efficiencies across the business.

Write-offs in our home sales gross margin totaled $17.7 million in the quarter, approximately $5 million of these related to predevelopment costs and option write-offs on deals we dropped that no longer met our underwriting standards.

SG&A as a percentage of revenue was 10.0% in the third quarter, in line with our guidance. Joint venture, land sales and other income was $6 million in the third quarter compared to $15 million in the third quarter of last year, and our guidance of $5 million. Our cancellation rate was 2.6% of beginning quarter backlog as compared to 3.2% in the prior year period. As a percentage of signed contracts in the third quarter, cancellation rate was 5.4% versus 7.5% in last year's third quarter. We are pleased with our industry low cancellation rate. It highlights the attachment our buyers develop while personalizing their new home [indiscernible] design studios, as well as the financial commitment they make in the form of a significant down payment.

Our tax rate in the third quarter was 25.3% compared to guidance of 26.0%.

We ended the third quarter with approximately $3.3 billion of liquidity, including $1.1 billion of cash and $2.2 billion of availability under our revolving bank credit facility. Our net debt to capital ratio was 15.6% at third quarter end compared to 19.3% 1 year ago.

Turning to our guidance. I will remind you that our projections are subject to all of the caveats regarding forward-looking statements included in our earnings release. We are projecting fiscal 2026 fourth quarter deliveries of 3,450 to 3,550 homes with an average delivered price between $995,000 and [ $1.005 million ]. For the full year, we are narrowing our settlement range of increasing our average delivered price range. We now project between 10,500 and and 10,600 delivered homes at an average price between $995,000 and $1 million, which equates to an approximate $53 million increase in our full year home sales revenue guidance. We continue to expect a full year adjusted gross margin of 26.1% and project a fourth quarter margin of 26.0%. We expect interest and cost of sales to be approximately 1.1% in the fourth quarter and for the full year. We project fourth quarter SG&A as a percentage of home sale revenues to be approximately 8.1%.

For the full year, we continue to project an SG&A margin of 10.1%.

Other income, income from unconsolidated entities and land sales gross profit in the fourth quarter is expected to be approximately $30 million and approximately $120 million for the full year. We project the fourth quarter tax rate to be approximately 26.0% and the full year rate to be approximately 25.2%. We expect our community count to be between 480 and 490 at fiscal year-end, an 8% to 10% increase versus the 446 at fiscal year-end 2025.

Our weighted average share count is expected to be approximately 94 million for the fourth quarter and 95 million for the full year. These amounts reflect our increased projection of $700 million of share repurchases and for the full year. Through the end of our third quarter, we have already completed $433 million of share repurchases.

Now let me turn the call back to Karl.

Karl Mistry

Thank you, Gregg. And before I open it up for questions, last month, we marked an exciting milestone for Toll Brothers, celebrating our 40th anniversary as a publicly traded company on the New York Stock Exchange. I'd like to thank all of our Toll employees for their contributions over the years. It is their passion for our business, dedication to our luxury brand and commitment to our customers that will ensure our continued success.

Betsy, I think with that, we can open it up to questions.

Operator

[Operator Instructions] As a reminder, the company is planning to end the call at 9:30 when the market opens. [Operator Instructions] The first question today comes from John Lovallo with UBS.

分析师问答

John Lovallo

The first one is, your outlook implies a 30% plus quarter-over-quarter increase in deliveries at the midpoint and that's going to drive about a 40-basis-point increase in gross margin sequentially. Now understanding that you've exceeded your gross margin outlook in 15 consecutive quarters by an average of 65 basis points on average, I mean how much conservatism is baked in here given just the uncertainty in the macro?

Karl Mistry

John, it's Karl. Let us talk a little bit about -- you mentioned Q4 and how we're going to get to the number. I'll let Gregg talk about the margin. 2,700 of our projected 3,500 homes for the midpoint of the quarter will come from backlog. So those are scheduled and already in our backlog, which leaves 800 homes that need to sell and settle within the quarter. We have about 900 finished specs. Many of those will be part of that 800 million, and then nearly 100 behind those that are at a stage of construction where they can also close by the end of Q4. So we feel great about the 3,500 number. Gregg, do you want to talk about the margin?

Gregg Ziegler

Yes, John, thanks for asking about Q4 gross margin. The dynamics at play there that we think we're going to have a little positive mix coming out of certain regions to be specific, are north and our Pacific region and the buyer segment side, it looks like we'll have a little bit more luxury move-up settlements. Also, we talked about this last quarter, but the specs that are going to deliver in Q4, we sold them at an earlier stage of construction. And as Karl mentioned in his prepared remarks, that is helpful to gross margin. So those are the dynamics at play for Q4.

John Lovallo

Okay. Understood. And then on the 8% to 10% community count growth expected in this year, but also now into fiscal year '27 and beyond. I mean, I guess the question is, what would sort of derail this expected growth? I mean in other words, if the market were to remain soft next year, which is not our expectation, would you pull back on community count growth at all? Or is that plan pretty much in place?

Karl Mistry

No, John. We feel very good about the 8% to 10%. Many of those communities are well underway, in a lot of cases, model homes under construction. The current market environment would not lead us to modify that even a softening market. We're committed to getting these communities open.

Operator

The next question comes from Stephen Kim with Evercore.

Stephen Kim

Yes. Appreciate all the color so far. I guess my first question relates to your land supply. Your owned lot count has continued its steady decline on a year-over-year basis even as your community count has continued to grow. I'm curious how much lower do you think you can take that owned lot count given your continued growth plans?

Karl Mistry

Thanks for the question, Steve. Yes, we're happy with the progress that we moved that back. Our own land after backlog is sort of in this 1.5 to 2-year range. And I think the reason we've been able to execute this way is a couple of things. We have been land banking now for a few years, still carefully and modestly. But as you know, that contributes to more in the option and control bucket versus owned. And then [indiscernible], we are oftentimes at a less competitive table acquiring land, we're able to get seller financing and that has also contributed to us being able to be more efficient with all of our land acquisitions. So it's both of those factors.

Stephen Kim

Yes. That's great. So in other words, I assume you're saying basically, you think you can continue to take it down. I just want to be clear on an absolute lot basis.

Karl Mistry

Yes, I think that's right. As the company grows on an absolute lot basis, it may turn the other way, but the 1.5 to 2-year range of owned we feel good about.

Operator

The next question comes from Alan Ratner with Zelman.

Alan Ratner

So obviously, given your commentary, it sounds like luxury move-up is still an outperformer for you guys. The last month or 2, it seems like there's been a few headlines out there suggesting the K-shape economy might be coming to an end and and talking to some move-up builders, anecdotally, we're hearing a little bit more chatter about buyers either having difficulty selling an existing house or just concerns about equity embedded in their your existing home. So I'm just curious, over the last month or 2, have you seen any even incremental shifts suggesting that outperformance we've been seeing for the last several years that luxury might be coming to an end or at least softening a little bit?

Karl Mistry

Thanks, Alan, it's Karl again. The short answer is no, we haven't seen any sort of material change as we outlined 25% of the buyers still paying cash, 70% loan to value is extremely sticky. We've actually been able to -- about 30% of our communities were able to raise prices in the quarter. So we feel really good about where we are. We've worked hard to build an infrastructure here so we can build in these unique locations and the rest of the things we outlined in our script around choice and architecture and the customer experience give us that differentiated edge even over the custom builder community. So our buyer is holding in there.

Alan Ratner

That's great to hear. And can you just refresh my memory how you guys handle contingent sales? So if a buyer has an existing home to sell, how you treat that, both from an accounting standpoint and whether you refund deposits if they ultimately can't sell their house?

Karl Mistry

Yes. We do not offer the traditional home sale contingencies you're referencing. We don't do that at all. So if we have a finished spec and a customer puts money down on a home that might close in 30 days, internally, we look at that as a contingency even though that money is not refundable. But it's -- from an accounting perspective, it is not an agreement in our system until that until that home is closed.

Operator

The next question comes from Mike Dahl with RBC Capital Markets.

Michael Dahl

Just delve in a little bit more on the current dynamics. You mentioned the terms and market conditions and the first couple of weeks of the quarter have remained challenging. Can you just give us a flavor for maybe some quantification around that through the quarter and August? And especially the last couple of years, you've had kind of an abnormal sequential uptick in your sales pace in 4Q versus 3Q. And normally, it's down more like low double digit sequentially. So just if you could help us a little bit more on how we're supposed to interpret that, that would be great?

Karl Mistry

Mike, it's Karl again. So I'll give you a little bit on Q3. We saw the typical step up within the quarter. So May to June was better, June to July was better. After the fourth, there's generally a bit of a pop in July. And while there was, it was a little bit more muted. Certainly, the mortgage rates ticking higher in July, consumer confidence going in the other direction and, I'll call it, renewed geopolitical uncertainty. We had greater expectations for July. And that has -- we've sort of continued on so far in Q4. But I'd caution you to draw too much of a conclusion that we're 2, 2.5 weeks into August. And so it's just too early.

Michael Dahl

Okay. Understood. And then just shifting gears to the margin side. I appreciate that the efforts in terms of the mix of specs and then the overall mix dynamics and the incentives seem to be suggesting that there's some momentum there. When you think about kind of the -- I guess, 2 parts, the beat in the quarter and then [indiscernible], it's slightly light of where you previously expected, how much of that is a mix dynamic in terms of kind of pulling forward some stuff into 3Q? And how much is potentially in light of the past month or so maybe a bit more of a reduction in expectations on what those spec margins may provide in fourth quarter?

Gregg Ziegler

Mike, it's Gregg. Thanks for that question. It's the former. It's really just timing of settlements, all the dynamics we laid out for you 90 days ago and how we thought the second half of fiscal 2026 would play out, remain intact. It's just that we had some timing differences in terms of when some of the -- whether it was geographic or buyer segment or spec settlements actually hit in Q3 or now expect to hit in Q4. That's the real reconciliation.

Operator

The next question comes from Rafe Jadrosich with Bank of America.

Rafe Jadrosich

Firstly, can you just talk about the impact from Buffington in the quarter? And what's expected in the fiscal fourth quarter? I think you had some communities that opened. I'm not sure if there were any sales and if there's any impact from absorption from that? And is there any purchase accounting in the gross margin?

Karl Mistry

Rafe, we are super excited about Buffington. They joined our team in May. We've had a typical summer. They have contributed with about half a dozen open communities. I think the guys are confirming, I think it was around 30 sales in the quarter, maybe 25 settlements. I think we're expecting a little bit better than that in Q4.

Gregg Ziegler

Your last point on first accounting, yes, first counting will have that drag on the gross margin.

Karl Mistry

Which is factored...

Gregg Ziegler

Which is factored into the guidance.

Rafe Jadrosich

Okay. That's helpful. And then on the starts outlook, it looked like the fiscal third quarter at least pre footing was up, I think, over 30% year-over-year. This is a pretty big acceleration. Can you just talk about what's driving that, like why you accelerated and then what's expected for the fiscal fourth quarter?

Karl Mistry

Yes. Rafe, as we outlined it, we're still -- we still manage this on a community-by-community basis and week to week. And I think over time, we continue to improve and refine our process here. So we outlined we have reduced finished specs, which were now down at 1.9. We're very happy with that because we're now sort of towards the end of the selling season and the end of the summer. And so you begin building specs again to get ready for spring. As you know, our spring selling season starts in mid-January and it's going to go through Memorial Day. So some of that is timing to meet seasonality of demand.

Operator

The next question comes from Sam Reid with Wells Fargo.

Richard Reid

Wanted to drill down a little bit more on some margin topics. You mentioned that there was a little bit of a pullback. It sounds like in incentives, some of that sounds like it's mix. So could you also talk to perhaps any tweaks in your incentive buckets that might also be influencing that?

Gregg Ziegler

Sam, it's Gregg. No real tweaks in the incentive bucket, meaning our buyers are not taking mortgage buy downs with any greater velocity or anything like that. So there's nothing really that changed there. Sometimes around that overall incentive that appears to us can be around mix of settlements in which home sites were sold with which incentive, but no big shifts there.

Richard Reid

That helps. And then maybe switching gears to lot costs. Just some early perspective on what lot cost could potentially look like into next year? A lot of cost inflation, I guess, I should say. You've got some good visibility based on some of the communities that you're opening, so would just love some perspective on the type of lot inflation we should be potentially on the lookout for?

Karl Mistry

Yes, Sam, I'll give you some detail here to help. About 70% of our land spend so far year-to-date has been in our sort of core luxury segment. And we like there. Those are the deals that are working. The land inflation question is a tough one for us because we don't buy a lot of commoditized land nor do we buy too much land in master planned communities phase after phase after phase where we can point to a prior year or prior years and look at inflation. So hard for us to say partially because we have very low competition for most of our land.

Operator

The next question comes from Trevor Allinson with Wolfe Research.

Trevor Allinson

SG&A has been hovered in the 9% to 10% range for the last several years. It's a bit better than where it was pre-COVID. But you also have some good community count growth coming online next year and then also in your appetite, it sounds like. So how do you expect SG&A to trend over the next couple of years? Is 9% to 10% a good range for you? Or what's the right level of SG&A moving forward?

Karl Mistry

Trevor, yes, we -- I think that's right, 9% to 10%. We built this company to build more homes than we are today with the infrastructure and people we have in place. So the 10 percentage that you see today is in an environment where absorptions are below our historical average. So in a more normal environment, I think we could be squarely in the 9s. But I'm really pleased with the effort the team has put forward to get us to where we are.

Trevor Allinson

Okay. Karl. And then second question on vertical costs. I think the general commentary from most builders have been able to push back on these building products price increases. So maybe excluding lumber, have you also been able to fend off the price increases? And for products that you have, either annual or multiyear contracts for? Is there a risk for a bigger step-up in pricing once those contracts roll over, which potentially could drive some input cost inflation for you guys into 2027?

Unknown Executive

Trevor, this is Seth. Our build costs are flat. Lumber is slightly up in a potential headwind but those cost increases have been offset with other modest reductions. And so far, we've had it off other longer-term cost increases. So those costs are flat is our response there trader.

Operator

Next question comes from Jay McCanless with Citizens.

Jay McCanless

Thinking about community count for next year. Anything from a geographic standpoint worth calling out either a little heavier mix on luxury move up or more focused on the Pacific or the North segment?

Karl Mistry

Yes, Jay, next year, we have more concentration in our community openings in the South and the Mountain regions where we've been investing for some time. We're excited about that. These are markets where people have been moving, where we have great operational performance. And I do think the luxury segment is going to continue to go up sort of our move-up core business as a percentage looks like it's going to climb next year as a percentage of our community openings.

Jay McCanless

Okay. That's great. And then second question I had, just thinking about development costs, higher diesel costs, et cetera. What are you all starting to see there on the horizontal development side, any type of cost increases, fuel surcharge is anything we need to think about from a gross margin perspective?

Karl Mistry

Jay, surprisingly quiet. We have not heard too much about it from our land development teams. I would characterize that as flat as well.

Operator

The next question comes from Ryan Gilbert with BTIG.

Ryan Gilbert

I wanted to ask about spec mix and apologize if I missed this, but I think, generally, you've been targeting around 50-50 spec versus build-to-order, but I heard more of a focus potentially on build-to-order. So should we expect that mix to shift more to build-to-order in the quarters ahead?

Karl Mistry

Ryan, we're about 52% of settlements in the quarter [indiscernible] that represented about 44% of revenues. We've messaged before we're happy with this 50-50 mix. It's going to flex up a few percent in either direction. Again, we build this up at the ground level community by community. So I don't think you can read too much into a longer-term change. We'll manage it week-to-week and quarter-to-quarter.

Ryan Gilbert

Okay. Great. And then order growth in the North has been growing at a pretty substantial pace. It seemed like it decelerated a bit in the third quarter. Anything to call out in terms of why orders would be decelerating there?

Karl Mistry

No, nothing specifically. I think there are a victim of their outperformance over some time. They are still the best absorbing region by far. We're very proud of our footprint here in our backyard and the teams that are building it. So it's still doing great. It's just -- it's their relative performance when it's modestly down.

Operator

The next question comes from Susan Maklari with Goldman Sachs.

Susan Maklari

My first question is on the capital allocation side. It's nice to hear you incrementally raising the guide for the buybacks as we get into the end of this year. Can you just talk generally about how you're thinking of capital allocation and shareholder returns as we start to think about fiscal '27?

Karl Mistry

Sure, Susan. First and foremost for us, we still have the opportunity to grow our business. And that -- you've seen that reflected in our community count growth now for several years and our guidance for next year, and we think beyond. So first and foremost, as we think about capital allocation, it is growth. It's smart growth, it's profitable growth and that will continue to be our focus where we know we have a lot of opportunity. I think after that, we've worked really hard to build a balance sheet we're very proud of. And so our leverage is down materially over the last several years, and we're just in a very good place.

And then with the balance, the cash flow from operations that we generate, we've been able to repurchase shares, and this year, fortunately, we've been able to improve that guidance down to $700 million. And then our dividend, which has now been around for some time is there and continues to grow on an annual basis. So that's how I think about the latter there of capital allocation. But first and foremost, it's smart profitable growth.

Susan Maklari

Okay. That's helpful. And then maybe thinking more broadly, one of the trends that we're seeing within the industry overall is more of your peers are moving into the build-to-order and a relatively higher price point just given the macro and the state of the consumer. Can you talk about how you're able to leverage our established presence in that kind of an operating strategy. And what that means for toll as we think about the evolving landscape?

Douglas Yearley

Susan, this is Doug. I'm going to take this one. I've enjoyed listening to these guys to answer all the questions. And I guess, it's a good one for me to step in on. We've heard this in the past, the other builders that tend to focus on production at a lower price point and really think about merchant homebuilding have on occasion when market conditions suggest they should move up in price. And respectfully to my good friends in the industry over time, the tail goes between the legs and they run back down to entry. It is a very difficult business. We have spent 60 years differentiating ourselves. We have the brand in the industry. We have 45-plus design studios in every market that are spectacular where our clients go and are blown away by all the choices that they have to customize their homes. We know how to buy land at the corner of Main and Main in very special locations. And so I totally understand it. I understand that our buyer is able to weather this more difficult market because of their affluence and their strength, but we have no concerns whatsoever. We will continue to differentiate ourselves and continue doing the business that we have always done and will continue to do.

Operator

The next question comes from Alex Barron with Housing Research Center.

Alex Barrón

Yes, I was hoping you could expand on Buffington and M&A in general. How did you find this opportunity, and how do you think in general about M&A for Toll Brothers going forward?

Karl Mistry

Alex, Buffington, we're -- again, we're super excited. We've got to spend some time there in the spring and understand Northwest Arkansas. I think we were a great fit for that team for a couple of reasons, higher average sales price. It was sort of the luxury segment in the market and that was certainly attractive to us. And so when the introduction was made, it felt right for them as well. We did not have an operation in Arkansas, so we were fortunately able to bring on all of those employees, now our colleagues. And so we like that type of bolt-on M&A, which we have done now for 30 years. I think we're up to 16 of these acquisitions that we've done over 30 years, and we like that size kind of bolt-on. It certainly seems as evidenced by some of the very large transactions and a few of our mid-cap friends moving to the private sector, that consolidation in the industry is here and could continue. We like our playbook of careful bolt-on opportunities with companies that complement our brand and are executing well today. So you shouldn't see any difference from us as it relates to M&A. We like what we've been doing it.

Alex Barrón

Great. And when it comes to the trend for incentives and margins, what's your outlook as you -- I guess as far as your crystal ball can tell you?

Douglas Yearley

It's Doug again. We're running at a 26% margin with an ROE that we're very proud of in what is a tough market. And we're now 4 years in to a tough market. Our incentives at 7.5% or 8% are elevated. Our sales pace per community is below historic norms and below the high 20s, even in the low 30s that we've achieved in the past.

The move-up and build-to-order business is at the moment running at a significantly lower incentive, but not as low as it was in a better market. And so I look at where we're operating today in this difficult market achieving the ROE, we're achieving and achieving the gross margin at [ 26. ] I know we're getting closer to the end of this cycle. I've been doing this for 36 years, and these cycles run and time is on our side because 4 years in is long. I know every cycle has its own dynamics. But as I said to the guide yesterday, that light at the end of the tunnel, I am sure it's not a train coming at us anymore, but it is light. I just can't tell you when we're going to get there. But when we do, and when those incentives come back closer to historic norms and when those sales paces go back up higher to more historic norms. This margin and these returns are going to grow. So we are in a really good position. We have the land to show community count growth. We are operating so efficiently. It is really an exciting time, not for today selling the house necessarily, but for where we are headed and how we are positioned. And so I am not here to call the bottom but I am really proud of the returns we are generating in a tough market and look out when things improve.

Operator

The next question comes from Matthew Bouley with Barclays.

Matthew Bouley

Wanted to ask on the gross margins into '27 to the extent you're willing to outline some expectations. I mean even without a hard guide, just any, I guess, detail on sort of the pluses and minuses across mix that we should consider into '27? I heard you earlier on the spec mix expectations, whether it's regional mix, community mix, land, lot costs and everything you just talked about on incentives, any kind of way to sort of point the direction into early '27?

Karl Mistry

Matt, it's Karl. I don't think we're ready to do any sort of [indiscernible] to '27 just yet. I understand your question. I'd point you to what we've said before, and maybe building on Doug's commentary there. We think, in a normal environment, 26% to 28% gross margin is now how this company is built. We structurally changed how we started our underwriting and new land acquisition over 10 years ago that has now been in place and is contributing to our outperformance today. But as far as giving you specifics for next year, we're not ready to do that.

Matthew Bouley

Okay. Fair enough. And then secondly, just on ASP. Obviously, kind of looking at the backlog where it is and it looked like obviously fairly stable, if not growing order price this quarter. But as you look out into '27, thinking a similar type of question around the mix side of it, communities and regions, et cetera. Is there a view that the order -- or excuse me, the delivered ASP can continue to grow similar to the way it has in 2026?

Karl Mistry

Yes. I think we will share that. I think it builds on what I said earlier about our community openings next year, some of where they're located and with a higher percentage of luxury, we do think that 2027 could be up.

Operator

The next question comes from Jade Romani with KBW.

Unknown Analyst

This is Jason Sabshon on for Jay. So just to get on the 8% to 10% community count growth that you expect to continue into 2027. How much of that would you expect to translate the strong delivery growth should we view them in isolation or as correlated?

Gregg Ziegler

Jason, it's Greg. That one's really hard because we're -- we can't give you guidance on what that throughput per community might look like. It's all back to the comments that Doug and Karl have mentioned on how excited we are for how well positioned the company is and as the market improves over time, then we'll see that through our results.

Unknown Analyst

Great. And then just on mix. As you continue to emphasize luxury move up, it'd be helpful to quantify like the differences in gross margin, the spread between the various segments and luxury move-up the first time and move down?

Karl Mistry

Yes, Jason, I think that's -- we're going to get some homework and get back to you on that. What I will -- what we will say, and I touched on this during the script, as price goes up, our incentive as a percentage of home price goes down. And so we are outperforming from a margin perspective with the business that built this company, which is move-up, core move-up luxury. And so directionally, that we know it will be the case, but we'll have to get back to you if you want to refer the breakdown.

Douglas Yearley

I think it's important to point out, and it goes back to my earlier question about other builders, focusing a little bit more on the move-up business. Our average luxury move-up home is selling for $1.35 million and that's 61% of our business. And that is the business that built this company, and we are seeing more and more land opportunities for that niche, which is so important to us. And more of that, of course, is build-to-order than it is spec. While we do expect some move up, of course, naturally more of the spec occurs at the lower price point. So when the other builders talk about wanting to get into move-up, and I know many of them already do, some move-up, I don't think they have in their minds $1.35 million as their average move up price. And so even as they move up or they want to spend more of the pie in that part of the business, it's really not approaching the land that we are buying, because it really comes down to who are we competing with for the land that we want to buy to grow our business.

And so I think we are -- our move-up is just a different business then the move-up that the others are even contemplating spending more time in. And that business is growing for us. As we see more and more of those land opportunities, it is the highest margin, we are more and more focused on it. There's less competition for that land. Towns want us to build it because of how we operate. So we're a bit more accepted into difficult towns because we are Toll with our brand. And so I just think it's important to clarify that that's a big number, $1.35 million for 60% and a growing part of our business.

Operator

This concludes our question-and-answer session. I would like to turn the conference back over to management for any closing remarks.

Karl Mistry

No, that's it, Betsy. Thank you, everybody, for an interest in our company. Have a great rest of your summer, and we'll talk to you again at the end of the year.

Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.