So those are really two main factors, just a mix of the business. And I think the other thing is, we used to have a fairly large mix impact between the fourth quarter and first quarter between West Coast and somebody of the divisions. That’s been moderated a bit, as we’ve been trying to rebalance the business and frankly, some of the margins in the other regions have come up over the years, quite nicely. We’re just not seeing that same type of impact on the first quarter.
Michael Rehaut: Right. Okay. No that’s helpful, Jeff. I appreciate that. I guess secondly on the SG&A guide. Looking forward to be about flattish or maybe up 10 bps year-over-year and that is against the revenue range that is flat-to-up 7%, I’m just kind of curious, let’s, for argument sake, I know the midpoint is obviously maybe up 3%, 3.5% perhaps you just kind of thing relatively modest revenue growth, not a lot of operating leverage, but to the extent that we were to see the higher end of that range up 7%. Would it be fair to assume or expect some level of modest SG&A leverage on that scenario or kind of are there other factors that are kind of depressed that for fiscal 2024?
Jeffrey Mezger: Sure, yes. So for starters we always estimate the leverage impact on both the gross margin, the fixed costs included in the cost of sales and the impact on gross margin as well as our SG&A percentage. we always basically calculate those at the midpoint of the ranges. So as we have been on the top line, you should be incrementally better on those two metrics, which is the case. As far as the uptick like as I mentioned in prepared remarks, we’re in a different situation this year in January than we were last year. We had a — we’re really facing stiff headwinds of these mortgage rate increases. Not quite sure how the year was going to sort out. We did way better than we thought we were going to during the let’s say February-March of last year and where the year ended up and we had a little different approach on expenses, you always get a little more tighter on expenses, you’re a little slower in replacing openings, sometimes you freeze headcount regardless of what’s happening with the underlying positions and this year we’re in more of a growth-minded mindset.
We anticipate growth in community count, we want to go to business and continue to take share. We’re really happy with what we’ve seen on cycle times, and our ability to take customers from order to close in a much shorter period of time. So we’re just in a more optimistic environment internally as we look at the market and we look at the company. And then also, I mean, if you want to grow the business, you have to invest in the business, so we are putting a few more dollars into various areas in order to support that growth. So that’s, I’d say at a high level, those are the drivers. When you really look at it. I mean, a lot of this year almost rounding, it’s 40 basis points. $6 million or something midpoint, so it’s not a, not a huge, huge issue.
Like I said, on a growth mindset, the community count going up or going to spend some money on, particularly, advertising and marketing supporting those new openings in our openings are up significantly as we plan on today. we were up about 50% over the prior year. So we have a lot of work to do and we want to support it with the right level of expense.
Operator: Thank you. And our next question comes from the line of Jay McCanless with Wedbush Securities. Please proceed with your question.
Jay McCanless: Hey, good afternoon, and thanks for taking my question. The first one I had, it seems like you have more tailwinds this year between the cycle time getting better and it sounds like incentives may be coming off a little bit, but could you talk about why you’re not expecting any improvement in the full-year gross margin for 2024 versus 2023?
Jeffrey Mezger: Yes, we like I said, we forecasted based on current cost current conditions, and the current market, even though it’s an improved market, we didn’t look forward and say let’s assume a large increase, a significant increase in margins in the third quarter and fourth quarter reflecting, for example, a reduction in concessions and customer incentives. We didn’t want to take that type of an outlook into the forecast based on a relatively short period of time improvement, we do expect that improvement to happen. We do anticipate that we’ll see that improving market condition, but at this point in time, we just wanted to be a little bit cautious. We’ve taken that in the future guidance numbers and leave it up to you guys.
I mean, if you have a more bullish outlook on the space and you’re ready to make that stand right now then you can adjust as you think appropriate. But right now we’re forecasting based on what we’re seeing in the backlog, what we’re seeing in the current sales rates, the type of incentives that we need today to book our sales, and our visibility is only about 40% of the year right now to what is the backlog. So the spring selling season. It’s also what I mean I think next quarter’s call we’ll be able to dial in on a lot of these metrics more precisely and hopefully, give you a little bit more detail on what’s going on in the markets and what we talked a lot about the improvements that we’re seeing continue as we get through the first quarter and the spring selling season.
