Alan Ratner: Got it, that’s very helpful, Sheryl. Thanks a lot guys, appreciate it.
Operator: Thank you. Our next question is from Dan Oppenheim from Credit Suisse. Dan, please go ahead.
Dan Oppenheim: Thanks very much. Was wondering if–with some of the commentary on the first-time buyers with the financing issues, as you think about communities closing out over the course of ’23, so talk about what you’re doing with opening new communities and getting them to models built and such, in terms of tactical changes, is there anything you’re doing in terms of a bit of a shift to more move-up communities opening up, or what is it overall, if there are any changes in terms of community opening plans?
Sheryl Palmer: No, I don’t think you’ll see a significant shift in our consumer groups or if I look at the portfolio of communities. If I were to talk about a shift in the overall portfolio, I think it would be about the continued presence that we’re seeing of the millennials. Nearly half of our sales in the quarter were from millennials, and when I look at the financial stability of that consumer, it’s actually stronger than the consumer at large. It’s an interesting group – like I said, about 50% of our borrowers within our finance services company were millennials. Many of them are buying their second home, so they’re not really first-time buyers but in some communities, they may look like first-time buyers. They have extremely strong credit profiles with average credit scores in the mid-700s.
As I mentioned before, they’re also a little bit more racially diverse than our which is another reason why you’ve seen us so committed to the initiatives that I shared in my comments. But I think except for that slight pivot within our consumer groups, I would say the share of just total cohorts, I don’t think you’ll see significant shifts in.
Dan Oppenheim: Great. Then in terms of the capital allocation, I think you’ve done a great job with the share repurchase over the last year. Given where the shares were repurchased in fourth quarter, 25 and change, versus where the stock is now, substantially higher, wondering how you look at that given that the stock is still well below book value here and thinking about some priorities for the year.
Lou Steffens: Yes, that’s a great question, Dan. As we balance all of the allocation priorities, first we want to first invest in the business. We feel our balance sheet is in a really good place, and we were really pleased to be able to buy so many of our share last year at such a big discount to book, but we’re going to be opportunistic on the share repurchase front. We’re not going to generally just buy a ton of shares to buy them but be very opportunistic when the opportunities present themselves.
Dan Oppenheim: Great, thank you.
Operator: Thank you. Our next question is from Ken Zenner from Keybanc. Ken, please go ahead.
Ken Zenner: Good morning everybody. Congrats on the Phoenix open – lots of fun. Two questions, what percent–given your comment on the first six weeks, generally speaking what percent of the quarter’s orders is that? I know Super Bowl weekend, which just happened in Phoenix as well, can really distort that. I’m just trying to get a sense if it’s half the quarter, two-thirds of the quarter, is my first question.
Sheryl Palmer: I just want to make sure I understood that. What percentage of what for the quarter?
Ken Zenner: I think you commented on the order pace. Is that usually half the quarter or a third of the quarter, or less?
Erik Heuser: Maybe just to give you some color, Ken, is usually January is a little slower for us and then February and March ramp up slightly month over month, so historically over a many year average, usually January is a little slower and then we pick up through the rest of the quarter.
Sheryl Palmer: So fairly typical. Like I said in the prepared remarks, we don’t know what normal was like because it’s been so long since we’ve seen it, but it’s as normal as we’ve seen but probably greater momentum. And thanks for the comment on the open – we actually were really pleased. We got just tremendous visibility and new leads within our business – I mean, thousands and thousands. It was a good show.
Ken Zenner: Yes, it was a busy weekend there. Again for the inventory units, could you restate that number? I think you said 7,700, but my question is–
Erik Heuser: Yes, it was units.
Ken Zenner: Okay, great. Do you think, given your closing forecast and your start schedule, do you expect those units to be up year-over-year by the time we get to the fourth quarter? Just trying to think about how you’ll measure the–or how committed you’ll be, I guess, to the start pace, because whatever you start, I assume you’re going to sell. That’s just what I’m trying to get a handle on. Thank you very much.
Erik Heuser: No, it’s a great question, Ken. I really think it has a lot to do with what we see with cycle times going forward. If we were to go to our long term average in cycle times, we could carry 30% less inventory and still get to the same number of closings. I would say if we continue to see, as we’re seeing right now, the front end is improving slightly, the back end is still very challenging, but if we can start trending down in our cycle times, then most likely we won’t need to carry as many units, even if we project growth year-over-year.
Sheryl Palmer: Yes, it’s really going to be interesting to see what the start is.
Ken Zenner: Thank you very much.
Erik Heuser: No problem, take care Ken.
Operator: Thank you. Our final question is from Alex Barron with Housing Research Center. Alex, please go ahead.
Alex Barron: Yes, thank you. I thought your guidance on first quarter margins was interesting because it’s basically flat quarter-over-quarter, and most other builders I guess indicated their margins would be trending lower, so I’m curious if you guys–you know, as you look at the rest of the year, if you think this might be the low point given the current sales and incentive activity you’re seeing year to date.
Sheryl Palmer: Sequentially and up year-over-year, right, so yes, we’re pleased with that.
Lou Steffens: Yes Alex, as you know, we’re only guiding through Q1 right now, but as we entered the year with a strong backlog that was sold earlier during the year, I think we feel good about what the future holds for us this year.
Alex Barron: Okay, great. I was curious if you guys could comment on how you guys are thinking about starting specs versus a year ago, how much has that shifted. I realize almost everybody was starting fewer homes when the sales were lower in fourth quarter, but since it seems a lot of consumers are looking for fast close houses, how has that shifted your approach to starting specs going forward?
Lou Steffens: As we mentioned earlier, Alex, we’re definitely starting a lot more specs than we have historically. Our spec sales in Q4 were the highest we’ve seen so far over the last several years, so we’re good with continuing to start specs, especially as we’re able to sell them before they complete. The real question is will there be a big ramp-up in starts in Q1 with all the builders and will inventory start to build up, so we’re keeping an eye on each individual market we’re in and making those decisions market by market. But we have had really good success in selling specs, so–
