Hovnanian Enterprises (NYSE:HOV) reported fiscal 2026 first-quarter results that management said met or exceeded the company’s previously issued guidance across all key metrics, despite what executives described as a challenging housing backdrop marked by affordability pressure and muted consumer confidence.
First-quarter results versus guidance and prior year
Chairman and CEO Ara Hovnanian said first-quarter total revenue was $632 million, near the high end of the company’s guidance range. The company posted an adjusted gross margin of 13.4%, slightly below the midpoint of expectations, while SG&A was 13.3% of revenue, better than the low end of the guidance range. Income from unconsolidated joint ventures was $3 million, slightly below the midpoint of guidance.
Year over year, the company said performance comparisons were complicated by heavier incentive activity and fewer deliveries. Revenue declined 6% from the prior-year quarter, driven primarily by a 12% decline in home deliveries, partially offset by a land sale. Adjusted profitability fell as well: management said profit declined 24% versus the prior-year quarter, largely due to higher incentives.
Incentives, affordability, and the pace-versus-price strategy
Executives repeatedly emphasized that incentives—particularly mortgage rate buydowns—remain central to maintaining sales pace in the current market. Management said incentives represented 12.6% of average sales price in the quarter, with the majority tied to mortgage rate buydowns. That level increased 40 basis points from fiscal 2025’s fourth quarter, was up 290 basis points from a year ago, and was 960 basis points higher than the full fiscal 2022 level, before mortgage rates began pressuring affordability and margins.
On the call, Ara Hovnanian said the company is intentionally prioritizing volume over margin, even as some peers have pursued the opposite approach. Asked whether the company might reduce incentives to lift margins at the cost of slower absorption, he said Hovnanian “would rather focus on pace versus price” and “keep up the incentives” in order to sell through older, lower-margin land that was contracted when the market was different.
Management noted some cost and operational offsets. Base construction and option costs per square foot on delivered homes declined 2% year over year, and cycle times for single-family detached homes improved by 17 days to 133 calendar days.
Sales trends and buyer engagement
Management described the contract environment as pressured but showing some encouraging signs entering the spring selling season. The company said it saw a reduction of only 35 contracts in a slower environment, and suggested the decline would have been larger without incentives.
Traffic trends appeared to improve. Hovnanian reported that monthly traffic per community increased significantly in five of the six months from August through January versus the prior year, with January showing a 40% increase, and said the trend continued into February. Contract activity also improved late in the quarter and into the new period: January contracts were up 11% year over year, and as of “yesterday” on the call, February month-to-date contracts were up 13% versus the prior year.
The company also highlighted that first-quarter contracts per community were roughly steady at about 9.5 over the past three years and above levels management considers “normal” based on 1997–2002 data.
Quick move-in homes, backlog conversion, and margin mix
Hovnanian continued to focus on quick move-in homes (QMIs), which allow buyers to close more quickly and take advantage of incentive offerings. Management said the company ended the quarter with 5.7 QMIs per community, the fourth consecutive quarter of declines, and total QMIs fell 30% year over year to 742 at the end of January 2026 from 1,163 a year earlier.
QMI sales represented 71% of total sales in the quarter, down from a record 79% in prior quarters, but still well above the company’s historical norm of around 40%. Management said the shift was not the result of a deliberate strategy, but rather increased demand for to-be-built homes in its markets. The company said to-be-built sales increased to 29% from 21%, and management expects to-be-built deliveries to represent a higher portion of deliveries in the second half of fiscal 2026 if trends continue.
Management highlighted the profitability implications of that mix. In communities with both delivery types, to-be-built margins were 780 basis points higher than QMI margins in the first quarter. The company also cited strong backlog conversion dynamics from the QMI strategy: 41% of homes delivered were sold and closed within the same quarter—the highest the company has tracked since 2023—driving a backlog conversion ratio of 88% versus a historical first-quarter average of 56% since 1998.
Hovnanian also said it increased net prices in 32% of communities during the quarter, with more than half of those increases in Delaware, Maryland, New Jersey, South Carolina, Virginia, and West Virginia.
Joint ventures, balance sheet, land strategy, and outlook
CFO Brad O’Connor highlighted a notable item in “other income.” During the quarter, Hovnanian took full control of two previously unconsolidated joint ventures—one after partners received final cash distributions, and another after the company acquired a controlling interest in a joint venture in the Kingdom of Saudi Arabia. The company added the ventures’ assets and liabilities at fair value, resulting in a $27 million gain recorded as other income. O’Connor said the company has recorded JV-related other income five times in the last 11 quarters and described it as a normal part of the joint venture life cycle.
On Saudi Arabia, O’Connor said operations there are not expected to contribute materially in the near term, and the company expects approximately 300 deliveries from the Kingdom in fiscal 2026.
Operationally, Hovnanian ended the quarter with 151 communities open for sale, up slightly from a year ago. The company reported $471 million in liquidity at quarter end, which management said was above its target range and increased sequentially despite $181 million in land and land development spending and $9 million of stock repurchases.
The company also discussed progress on its capital structure, noting that following a refinancing completed in the fall, all debt other than the revolving credit facility is now unsecured for the first time since 2008. Management said equity has increased by $1.3 billion and debt has been reduced by $754 million over the past few years, bringing net debt-to-capital to 41.4% from 146.2% at the start of fiscal 2020. The company reiterated a long-term target of 30% net debt-to-capital and said it has $223 million of deferred tax assets, which it expects will shield about $700 million of future pretax earnings from federal income taxes.
On land, Hovnanian ended the quarter with 35,560 domestic-controlled lots (a 6.7-year supply), or 38,764 including joint ventures. Consolidated domestic lots were down 18% year over year, reflecting what management called disciplined underwriting and a willingness to walk away from less attractive opportunities. The company said it is shifting acquisition focus away from lower-margin entry-level homes on the periphery to move-up homes in A and B locations and more active adult communities, while continuing to emphasize its land-light model. Management said 86% of lots are controlled through options.
Looking ahead, management said it is providing guidance only for the second quarter, citing volatility and increased reliance on QMI sales, which makes profit forecasting more difficult. For fiscal 2026’s second quarter, the company guided to:
- Total revenue of $625 million to $725 million
- Adjusted gross margin of 13% to 14%
- SG&A of 12.5% to 13.5% of revenue
- Income from joint ventures ranging from breakeven to $10 million
- Adjusted EBITDA of $30 million to $40 million
- Adjusted pretax income ranging from breakeven to $10 million
The company said second-quarter guidance includes proceeds from a land sale that has already closed. While management characterized the second-quarter profit outlook as “modest,” executives said they expect adjusted pretax income to improve in the latter half of fiscal 2026, supported by improved contract activity in January and February and a greater contribution from newer, higher-margin communities, particularly in the fourth quarter.
About Hovnanian Enterprises (NYSE:HOV)
Hovnanian Enterprises, Inc is a publicly traded homebuilding company primarily engaged in the acquisition, development and construction of residential properties. Headquartered in Red Bank, New Jersey, the company operates through a network of regional homebuilding divisions that design and deliver a range of housing solutions, including single-family detached homes, townhomes and condominiums. Hovnanian combines land development, architectural design and construction services with in-house mortgage and insurance offerings to provide a comprehensive homebuying experience.
The company markets its communities under several branded product lines tailored to different buyer segments and price points.
