Jay McCanless: Right. And I guess from a competitive standpoint, saw a lot of your larger competitors pretty aggressive on both base price discounts and incentives during the calendar fourth quarter of ’23. I guess, what are you seeing now relative to what was going on a month ago? And do you feel like the pace of incentives may have to start picking up again if mortgage rates don’t start coming down?
Bob Schottenstein: Well, I actually have a slightly contrary view on that. I think first of all, it’s very market specific. I mean, it’s cliche, but every market is different. I think that in a number of instances, we’re starting to see incentives line, ours have. And the slight decline in mortgage rates that we’ve seen over the last 90 days, it’s made it so that you don’t have to spend as much where needed to provide a rate in either the low 6s or the high 5s. And you’d rather not spend anything on that, but that’s what we have been doing and the net-net of that has resulted in our 25.3% gross margins. If demand continues to stay like it does, like it is now, I’d like to think that builder behavior will respond accordingly and not see as much of a need for incentivizing. That’s sort of how we are thinking about it.
Phillip Creek: Jay, also as Bob mentioned, every subdivision is a little different, because we’re definitely in the subdivision business. If you look at the 213 communities we have going into this year, like we said, 76 of them opened in ’23 and over 100 of them opened in ’22. So, how you open, what model you have, what the specification level is of those houses, all those things, how many specs do you want? No again, I mean, we’re not driven solely by volume. Obviously, we want to continue to grow and think we are positioned to grow. But again, when you have $3 billion, $4 billion, $5 billion of revenue, 15 basis points, 25 basis points mean a whole lot. So, we really try to focus on every subdivision, not get too far ahead of ourselves, make sure we’re focused on who the buyer is.
So, every subdivisions really are a little different. We don’t do blanket things like, let’s do interest rate buy downs everywhere. And some customers need an interest rate buy down for the payment help. Some customers need closing cost help. So, again, we try to deal with it more on a rifle approach as opposed to just a shotgun across the board.
Jay McCanless: Sure. Any notion of what you’re going to spend on land acquisition and development this year?
Phillip Creek: Well, we definitely expect to spend more. We did spend a little more in ’23 than ’22. And the majority is continuing to be land development. Land development costs, as Bob says, it’s not going up the way it was. The good news is it’s kind of stabilizing. But we do want to continue to grow, have more stores. So, we do expect to be spending more on land this year.
Bob Schottenstein: Look, I think we’ve said this before. Our goal is to grow the business. We are very bullish about housing and we are really bullish about our business. And our growth goals, 5% to 10% per year, hopefully closer to 10%, and that remains our strategic outlook.
Jay McCanless: Got you. And then, just one other question because we’ve heard some builders talking about it, and this is kind of relative to what you said, Bob, about gross margins being flat at this 25-ish level. And land prices we’ve heard have been going up for some of the builders. Labor prices seem to be going up. I guess, what are the levers you’re going to have to pull? Is it going to be maybe reduction in the other input costs that are coming in that keep your gross margin flat around this 25 level, Bob, especially with land prices seeming to move up, I guess, kind of what are the levers you’re going to have to push and pull to hold up these levels, especially if you don’t think you’re going to get much pricing power this year, what are the things you’re going to have to do to maintain it at this 25% level?
Bob Schottenstein: Continue to produce really high quality affordable product, whether it’s attached or detached and well-located communities, you probably would like a more magical answer, but I think that’s what it goes back to. Well-located communities will sell, and they will sell at really good margins. And if the majority of our communities check the box of being exceptionally well-located, we think they do, we think we can maintain our margins that way. That’s what happened in 2023. We expect it to happen in 2024.
Phillip Creek: And that’s, I mean, definitely, we’re all focused on that. A couple of little details with that Jay, specifications of the product to make sure we’re putting things in the homes that people really want, that they need, and they’ll pay for, not overbuilding. That’s very important to us.
Bob Schottenstein: As we increase the mix of attached product in our company, probably approaching somewhere around 20% company-wide, we get higher density and that brings, even though the land may cost more, all those things hunt back into the average selling price. I mean, if I don’t want to sound like a broken record, but if someone would have said a year ago, your average price is going to come down, will your margin stay the same? You might have go, I don’t think so. But that’s what happened. And we may still see a slight relative reduction in average price because of the continued leaning into of slightly more attached product as well as, we’ve just had home run success with our Smart Series. And it’s over half of our business and it will continue to be.
