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Smith Douglas grows orders and closings as gross margin slips

Q2 gross margin fell to 17.6%, and the company guided Q3 margin to 16.0% to 16.5% while average incentives rose to 7.8% of base value.

Reported · Written up by our desk · Residential

Smith Douglas Homes reported Q2 growth alongside weakening profitability, with home closings up 25% year over year and net new home orders rising 32%. HousingWire said closing revenue increased 22% and backlog homes were up 17%, signaling momentum in the builder’s pace of sales.

The tradeoff was margin pressure. HousingWire reported Smith Douglas’ gross profit margin dropped 560 basis points to 17.6%, average incentives averaged 7.8% of base value, and the average sales price fell 3% to $325,000.

Executives said they are sticking with a long-term strategy of prioritizing pace over price despite a tougher demand environment. HousingWire noted the company expects Q3 gross margin in a range of 16.0% to 16.5%.

HousingWire also reported that the builder’s entry-level positioning makes it sensitive to affordability pressures and rising mortgage rates, which has led the company to use incentives and discounts to support sales pace. Smith Douglas CFO Russell Devendorf reiterated that the company is focused on maintaining absorption and inventory turns even if it means short-term margin pressure.

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