Allan Merrill: Yes, I will. This – it’s a good question, and I’m only chuckling because Dave and I were thinking about, hi, what are the things that are likely going to come up and we talk about the market. So I’ll give you a couple of markets that perform well. I’ll tell you a place or two that I don’t think performed as well. But I have to offer, I’m not a surgeon general, but I want to offer my equivalent of a surgeon general health warning to you. And that is when we feel really good about how a market performed in a period of time, maybe we were just awesome. And conversely, if a market wasn’t quite as strong for us, we maybe need to look in the mirror first. So my comments will talk about what happened to us, but we’re pretty honest with ourselves about, was that a rising tide or did we really outcompete.
And conversely, when things aren’t great, that may have been us. And so please kind of keep that in mind. We try and be really humble about that. We had markets that performed well really across the country geographically. So it wasn’t very narrowly focused. Really pleased with engagement with buyers in California, was engaged in – particularly strong in Las Vegas in the fourth quarter, calendar quarter, first quarter for us. Dallas continues to be a monster market, strong market, great job growth market, and we do very well there. And then on the East Coast, our mid-Atlantic business performed quite nicely. So I would say, across left to right or west to east, those are the markets that performed well. We did really well in Nashville, that continues to be a strong market.
I would tell you we found the going a little tougher in Florida. Now our business is centered in Orlando, found that to be a pretty price competitive market, and it was a little stickier in the first quarter. So that’s one that I would point to. I think the Houston market, which is also pretty price sensitive. It was fine, but it wasn’t as strong as Dallas. And I think we’ve got a big business there. So I feel like our experience was pretty representative. Those would be two places where I think the roll-over in rates will prove to be pretty helpful in ’24.
Alex Rygiel: Very helpful. Thank you very much.
David Goldberg: Thanks, Alex.
Operator: [Operator Instructions] Our next question will come from Jay McCanless with Wedbush. Your line is open.
Jay McCanless: Hi, guys, thanks for taking my questions. So the SG&A guidance for the second quarter looks like it’s about 80 basis points higher than what you guys put up in the second quarter 20 – fiscal second quarter ’23. I guess how much of that is those closings getting pushed to the second quarter versus costs going up for whether it’s co-broker, other things, maybe if you could break that out. And then also, what cost increases are you all seeing on those SG&A lines?
David Goldberg: Well, Jay, a couple of things. It’s Dave. One, it’s not really the commissions that you’re talking about. That’s been pretty steady for the past few quarters. What you’re really seeing on the overhead line, especially next quarter, we’re investing in the business for growth. There are some costs that you obviously have to incur as you expect community growth to expand as we move. And Allan kind of talked about as we move through ’24, the growth that we talked about and then into ’25 and ’26. And certainly as we look at new community openings and getting prepared for that, there’s some incremental overhead. Look, there’s no doubt overheads are higher than we want them to be and they will be as a percentage lower. But it’s all about getting these communities open them really well and then getting some more revenue leverage on the overhead line as we grow the business in the next couple of years.
Jay McCanless: And then can you talk about the reduction in the fiscal ’24 gross margin guide? Is that mix, is that geography? What’s going on with that?
Allan Merrill: Well, I think we went a little deeper in Q1 in order to find the market, and we got a – we’ll close those homes in Q2 and Q3. And as I said to a previous question, we were able to change pricing and incentives as we rolled into January. So I feel pretty good about there’ll be a bottoming out. But the other thing is we’re going to end up with a little higher mix of specs relative to, to be built this year because part of the thing you do when you launch a new community is you seat it with five, six, seven specs. And that won’t be 100% of our closings on a run rate basis won’t be specs, but 100% of the initial closings will be specs. And we generally do several 100 basis points better on to be built than on specs.
And that’s been true as long as I’ve been here. So I think those two things relate. I think the flip side, and Jay, this is – it’s related, and if you’ll humor me for a second, one thing to keep in mind about our margins because we want to think about it relative to our own performance. I also want to put it in a little bit of a market context. Remember, as we deliver these zero energy ready homes, there’s a $5,000 tax credit that we’re eligible for, and we’ll claim that will result in real-time cash tax savings. Now, I know that when we’re talking about the business and gross margins, people’s eyes glaze over a little bit when we talk about tax, but if you think about $5,000, that’s equivalent to a point of margin. Now, the geography on the income statement is in the tax line, not in the gross margin.
