Toll Brothers Inc. shares rose the most since June after the luxury homebuilder said its affluent customer base remains financially resilient and has helped bolster the company's business even in a challenging environment for the US housing market.
For the three months through July, Toll reported a 5% increase in signed contracts from the same period a year earlier and reaffirmed all of its guidance for the company's full fiscal year. The adjusted home sales gross margin was 25.6% for the quarter, beating analysts' expectations and driven by sales of more expensive homes and building costs that held steady.
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Toll shares rose as much as 7.9%, the biggest intraday gain since June 24, and were up 6.3% to $151.88 at 12:59 a.m. New York time. Other homebuilder stocks climbed as Treasury yields dropped, easing pressure on borrowing costs.
Elevated mortgage rates and consumers' uncertainty about the economy are weighing on housing demand in the US as a whole, but wealthier buyers have been cushioned by higher incomes, home equity and well-performing stock portfolios. Many of Toll's customers are able to plow profits from the sale of a previous home into their new purchase, and they tend to be less sensitive to fluctuations in mortgage rates. About a quarter of Toll's buyers in the period paid cash.
Buyers who traded up to a new luxury property accounted for 61% of Toll's home-sales revenue in the quarter. The average house in that segment sells for about $1.35 million, Executive Chairman Doug Yearley said.
"It is really an exciting time, not for today selling the house necessarily, but for where we are headed and how we are positioned," Yearley said on a call with analysts Wednesday. "I am not here to call a bottom, but I am really proud of the returns we are generating in a tough market."
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The company said it plans to expand its community count by 8% to 10% into fiscal 2027, with more openings skewing toward higher-end luxury.
Toll raised prices in about 30% of its communities. Markets such as Florida; Denver; Boise, Idaho; and Las Vegas and Reno in Nevada were especially strong.
"The company continues to prioritize price over pace to maintain its above peer-average margin," Bloomberg Intelligence analyst Drew Reading said in a note.
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Chief Executive Officer Karl Mistry said the usual pop in demand for July was more muted than the company expected, citing higher mortgage rates, weaker consumer confidence and renewed geopolitical uncertainty. Atlanta, Seattle, San Francisco and Texas are among more challenging markets, he said.
