Champion Homes (NYSE:SKY) Q2 2026 Earnings Call November 05, 2025 08:00 AM ET Speaker0Good morning. Thank you for taking the time to join us for today's conference call and review of our business results for the second quarter ended September 27, 2025. Here to review our results are Tim Larson, Champion Homes President and Chief Executive Officer, and Laurie Hough, Executive Vice President, Chief Financial Officer, and Treasurer. Yesterday, after the market closed, we issued our earnings release. As a remin ...

Financial Data and Key Metrics Changes - In Q1 2026, net sales increased by 12% to $701 million, with homes sold rising by 8% to 7,215 homes [8][19] - U.S. factory-built housing revenue increased by 10%, with the average selling price per U.S. home sold rising by 4% to $95,000 [14][19] - Consolidated gross profit increased by 16% to $190 million, with gross margin expanding by 90 basis points to 27.1% [17][19] - Net income attributable to Champion Homes increased by $19 million to $65 million, resulting in earnings of $1.13 per diluted share [19][20] Business Line Data and Key Metrics Changes - Sales to the independent retail channel increased compared to the prior year, driven by digital marketing support and new distribution points [9][10] - Community sales were up in Q1, supported by new products and strong sales team engagement, although moderation is anticipated in the near term [10][41] - Builder developer channel sales grew, with a solid pipeline and increased adoption of off-site construction [11][41] Market Data and Key Metrics Changes - Canadian revenue increased by 50% in the number of homes sold, with a shift towards single-section homes and stronger demand in Alberta [16] - Manufacturing backlog totaled $302 million, down 12% sequentially, with average backlog lead time at seven weeks [9][20] Company Strategy and Development Direction - The company is focused on customer-centric strategies and has added experienced executives to enhance leadership [4][5] - Investments in new product strategies aim to attract new buyers with affordable home styles and floor plans [6][24] - The company is monitoring legislative developments, such as the Road to Housing Act, which supports manufactured housing [7] Management's Comments on Operating Environment and Future Outlook - Management anticipates Q2 revenue to be flat to up low single digits compared to the prior year, with slower order rates observed [23] - The company is encouraged by customer engagement and quoting activity, despite a cautious consumer sentiment [23][24] - Management remains confident in the strategies being executed to deliver value to stakeholders [25] Other Important Information - The company generated $75 million in operating cash flows for the quarter and returned $50 million to shareholders through share repurchases [21][22] - The existing $200 million revolving credit facility was amended and extended through July 20230, providing liquidity for strategic initiatives [22] Q&A Session Summary Question: Commentary on the current market environment and order rates - Management noted stronger community business in Q1 but anticipates moderation in Q2 due to consumer dynamics [29][30] Question: Performance in June compared to expectations - Management highlighted improved community business and pricing in captive retail as key drivers for Q1 performance [32][33] Question: Impact of delayed shipments on revenue - Management acknowledged that delayed shipments contributed to the difference between expectations and actual results [34][35] Question: Community channel moderation and geographic dispersion - Management indicated that moderation is expected across multiple geographies, with community operators balancing projects with consumer demand [40][42] Question: Inventory management in captive retail - Management is actively working through inventory in captive retail stores and expects to provide updates in Q2 [66][68] Question: Gross margin expectations and input costs - Management expects gross margins to remain in the 25% to 26% range, influenced by cautious consumer sentiment and product mix [51][74] Question: Tariff impacts on material costs - Management stated that the unmitigated impact of tariffs is approximately 1% of material costs, which is already considered in the guidance [71][74] Question: Tracking household income of homebuyers - Management is encouraged by attracting first-time homebuyers and is reviewing internal survey data to understand buyer demographics [79][80]

Financial Data and Key Metrics Changes - In fiscal year 2025, the company sold over 26,000 homes, a 19% increase year over year, with revenue growth of 23%, totaling $2.5 billion [5] - Fourth quarter net sales increased 11% to $594 million, with homes sold increasing 6% to 6,171 units [9][17] - Consolidated gross profit rose 55% to $152 million, with gross margin expanding by 740 basis points to 25.6% [20] - Net income for the fourth quarter increased by $33 million to $36 million, or earnings of $0.63 per diluted share [22] Business Line Data and Key Metrics Changes - U.S. factory-built housing revenue increased by 10%, with homes sold rising 5% to 5,941 homes [18] - Canadian revenue was $25 million, representing a 22% increase in homes sold, although the average selling price decreased by 9% to $110,600 [20] - Sales to independent retail channels and captive retail stores both increased compared to the prior year [10] Market Data and Key Metrics Changes - The backlog at the end of the year was $343 million, up 9% from the previous year and 10% sequentially [9] - Average backlog lead time was eight weeks, within the target range of four to twelve weeks [9] Company Strategy and Development Direction - The company is focused on expanding retail capabilities and investing in new products and services, including the acquisition of Eisman Homes [6][15] - The strategy includes navigating market uncertainties while maintaining a focus on customer-centric growth and operational efficiency [8][26] - The company aims to leverage regulatory changes to enhance market opportunities for manufactured housing [46] Management's Comments on Operating Environment and Future Outlook - Management noted that demand has been less predictable compared to a normal spring selling season, with a shift towards smaller floor plans [13] - The company anticipates low single-digit revenue growth for Q1 of fiscal 2026, reflecting mixed consumer sentiment and demand [12][25] - Management remains confident in the long-term outlook, emphasizing the need for affordable housing across the U.S. and Canada [25] Other Important Information - The effective tax rate for the quarter was 17.1%, down from 19.2% in the prior year, primarily due to increased tax credits [21] - The company returned $20 million to shareholders through share repurchases and refreshed its $100 million share repurchase authority [24] Q&A Session Summary Question: Can you elaborate on discussions with customers in retail and community markets? - Management noted mixed in-store traffic but an increase in digital leads, indicating more serious buyers in the market [28][29] Question: What is the impact of SG&A increases despite revenue decline? - Management indicated that the increase was due to cyclical industry shows and would not recur as strongly in the first half of the fiscal year [35] Question: How is the company approaching share repurchases? - Management expressed a balanced capital allocation strategy and indicated they would be opportunistic based on share performance [38][40] Question: Were there any shipping issues due to weather conditions? - Management acknowledged slower markets in Texas and parts of the South, impacting shipping and order fulfillment [42] Question: What are the dynamics of manufactured housing and potential share gains? - Management highlighted the importance of customer experience and regulatory changes that could enhance market opportunities [46][48] Question: What is the outlook for gross margins? - Management expects near-term gross margins in the 25% to 26% range but anticipates structural margins to return to 26% to 27% in the long term [56] Question: How will the removal of the permanent chassis requirement impact costs? - Management indicated it would allow for more flexible designs and potentially lower transport costs, enhancing product offerings [59][60] Question: What is the status of FEMA orders? - Management confirmed no orders from FEMA yet but is prepared for future opportunities [97] Question: How is credit availability for chattel loans? - Management reported stable credit availability, with rates still higher than traditional fixed-rate mortgages [98]