Earnings Call Transcript - TOL Q1 2026

Operator, Operator

Good day, and welcome to the Toll Brothers First Quarter Fiscal Year 2026 Conference Call. Please note that today's event is being recorded. I would now like to turn the conference over to Douglas Yearley, CEO. Please go ahead, sir.

Douglas Yearley, CEO

Thank you, Rocco. Good morning. Welcome, and thank you for joining us. With me today are Gregg Ziegler, Chief Financial Officer; Rob Parahus, President and Chief Operating Officer; Wendy Marlett, Chief Marketing Officer; and Karl Mistry, who will be taking over as the third CEO in our company's history on March 30, when I will transition to the Executive Chairman role. Karl is an outstanding leader who has been with Toll Brothers for over 20 years. He has run homebuilding operations in many of our key markets and currently heads all of our Eastern operations. He knows this company inside and out, and I'm very confident he is the right person to lead us through the next phase of growth. During today's call, I will provide a brief overview of our results in the quarter, discuss the market at the macro level and touch on our strategic initiatives. Karl will focus on our operational results and provide a deeper dive on conditions across our markets and product lines. And as usual, Gregg will provide a detailed review of our financial results in the quarter and discuss guidance for the balance of the year. Before we start, however, I need to provide the usual cautionary notice that many statements on this call are forward-looking based on assumptions about the economy, world events, housing and financial markets, interest rates, the availability of labor and materials, inflation, and many other factors beyond our control that could significantly affect future results. Please read our statement on forward-looking information in our earnings release from last night and on our website to better understand the risks associated with our forward-looking statements. I am pleased with our first quarter results as we met or exceeded guidance across nearly all metrics. We delivered 1,899 homes in the quarter and generated $1.85 billion of homebuilding revenue, approximately $24 million above the midpoint of our guidance. Both our adjusted gross margin and SG&A margin were also better than guidance by 25 and 30 points, respectively. We earned $2.19 per diluted share, a 25% increase compared to the $1.75 we earned in last year's first quarter and $0.05 above our implied guidance. We are off to a good start in fiscal 2026. In the quarter, we signed 2,303 net contracts for $2.4 billion, flat in units, but up 3% in dollars compared to last year's first quarter as the average sales price increased to $1,033,000. Since mid-January, we have seen an increase in overall traffic and sales consistent with the start of the spring selling season. While it is early, we are cautiously encouraged by the increase in activity over the past month. Our strategy of balancing price and pace worked well in the first quarter. Our overall incentive remained flat compared to the fourth quarter at 8% of sales price. This is the third consecutive quarter that incentives remained flat on a percentage basis. We are benefiting from a healthy mix of build-to-order and spec homes in our inventory, balancing the higher margin in our build-to-order business with the lower margin but faster turns in our spec business. Impressively, our average adjusted gross margin in our build-to-order business remained above 30% in the first quarter. Overall, as we head into the heart of the spring selling season, we are very comfortable with the level of specs in our inventory and their stage of construction. Consistent with the strategy I discussed during our last call, we increased our spec production in our first quarter in order to have the right amount available for delivery in the summer when many buyers are looking to move into their new homes ahead of the start of the school year. We expect to increase community count in the second quarter from 445 communities at the end of the first quarter to 455 at the end of the second. For the full year, we are targeting another 8% to 10% increase over the 9% we grew last year. We also have enough land under control to continue growing community count at this pace over the next several years. At first quarter end, we owned or controlled approximately 75,000 lots, 55% of which were optioned. Our land is well located in desirable locations, which allows us to be highly selective and disciplined as we evaluate new land opportunities. We also continue to structure land acquisition and development opportunities to be more capital efficient, including through option arrangements, land banks, joint ventures, and similar structures that allow us to defer payments and lot takedowns. I'd also point out that we continue to benefit from our more affluent customer base, which is less sensitive to the affordability pressures that continue to impact the entry-level buyer. Over 70% of our business is luxury move-up and luxury move-down, which serves a wealthy cohort that has benefited from growth in their home equity and stock market appreciation. The remaining 25% to 30% serves the more affluent first-time buyer who is less impacted by affordability pressures. Many of them are older millennials buying their first home later in life when they have higher incomes and are more financially secure. The average delivered price of our first-time buyer was approximately $670,000 in our first quarter. Lastly, I will note that our balance sheet remains very healthy. We have ample liquidity, low net debt, and a strong investment-grade credit rating. We recently extended the maturities of our revolving credit facility and most of our term loan facility to February 2031. We also continue to expect significant cash flow generation from operations this year. All of this enables us to continue investing in the growth of our business while also returning capital to our stockholders. With that, I will turn it over to Karl.

Karl Mistry, CEO transitioning to Executive Chairman

Thank you, Doug. I'm excited for this opportunity and grateful for the trust that you and the Board have placed in me. I very much appreciate our investors and the analyst community, and I look forward to building on the great relationships that you and Bob before you have developed over the years. We started the year off with a solid first quarter. We beat the midpoint of our homebuilding revenue guidance, exceeded margin expectations, and increased our earnings per share by 25% over last year's first quarter. From a demand perspective, we saw the typical seasonal pattern unfold in the first quarter. Based on signed contracts on both an absolute and per community basis, November was the slowest month, followed by December with a market uptick in January. As Doug mentioned, we saw an increase in demand beginning in mid-January that is consistent with the start of the spring selling season. With our broadly diversified portfolio and affluent buyer profile, we are well positioned to capitalize on any further improvement in homebuyer demand. Geographically, the Boston to South Carolina corridor has continued to perform well, as has Boise, Las Vegas, and Reno in our mountain region and all of California. Most of Florida seems to have found its footing, although Tampa remains challenged, along with Atlanta, San Antonio, and the Pacific Northwest. Among our buyer segments, our luxury move-up business also continued to perform well. In the first quarter, luxury move-up accounted for 59% of homebuilding revenues. Luxury first-time was 25%, and luxury move-down was 16%. Our luxury move-up business has the highest margin among our buyer segments, so we are very pleased that it is the largest part of our business. Turning now from buyer segments to our build-to-order and spec home strategy. I will note that we generate about half of our homebuilding revenues from specs and the other half from build-to-order. We believe we have achieved the right balance in our overall business with this healthy 50-50 mix of high-margin build-to-order homes with buyers who want to customize their dream home with specific layouts, designs, and finishes alongside lower margin, but faster turning spec homes that appeal to buyers who want to move into their homes on a quicker schedule. I will also point out that we sell our specs at various stages of construction. Although the mix can change from quarter to quarter, on average, approximately one-third of our specs sell before framing is completed. The risk profile and margin for these homes is not all that different from our build-to-order homes. Our goal is to sell our specs as early in the construction cycle as possible. The earlier we sell our specs, the greater the opportunity for our customers to visit our design studio and personalize their homes with finishes that match their tastes. This ability to customize remains an important competitive advantage for Toll Brothers, and it benefits our margins as design studio upgrades tend to be highly accretive. In the first quarter, design studio upgrades, structural options, and lot premiums averaged $212,000 or 25% of our average base sales price. Doug mentioned the benefits of serving a more affluent customer base. Consistent with the past several quarters, approximately 24% of our buyers paid all cash in the first quarter. And the loan-to-value for buyers who took a mortgage was approximately 70%, also consistent with recent quarters. Our contract cancellation rate in the first quarter remained low at 2.8% of beginning backlog. This industry low cancellation rate speaks to the financial strength of our buyers, as well as the sizable deposits they make and how emotionally invested they become as they personalize their homes at our design studios. We benefited from improved production efficiencies in our construction cycle times in the first quarter. For our build-to-order homes, the cycle time was approximately 9.5 months and was about 1 month shorter for spec homes. Additionally, our build costs in the first quarter were flat compared to the fourth quarter of 2025. With that, I will turn it over to Gregg.

Gregg Ziegler, CFO

Thanks, Karl. In the first quarter, we delivered 1,899 homes at an average price of $977,000 and generated home sales revenues of $1.85 billion. While we exceeded the midpoint of our revenue guidance, the average delivered price was below our guidance due primarily to mix as we delivered more lower-priced finished spec homes in the quarter than projected. As Doug mentioned, we signed 2,303 net agreements for $2.4 billion in the quarter, flat in units, but up 3% in dollars compared to the first quarter of fiscal 2025. The average price of contracts signed in the quarter was approximately $1,033,000, which was up 3% compared to the first quarter of fiscal 2025 and up 6% sequentially. The increase was primarily due to mix as we sold well in the North and Pacific regions, particularly in our luxury move-up business. Our first quarter adjusted gross margin was 26.5%, 25 basis points better than our guidance of 26.25%. Q1 gross margin exceeded our guidance due primarily to operating efficiency. We are maintaining our full year adjusted gross margin guidance of 26.0% and project a second quarter margin of 25.5%. In the second half of the year and especially in the fourth quarter, we expect our adjusted gross margin to rise as our deliveries mix should include a greater contribution from our higher-margin North and Pacific regions. Write-offs in our home sales gross margin totaled $11.7 million in the quarter, approximately $5 million of these related to predevelopment costs and option write-offs with the remainder associated with a handful of operating communities in different markets around the country. SG&A as a percentage of revenue was 13.9% in the first quarter compared to our guidance of 14.2%. The 30 basis point beat relative to our guidance was due primarily to leverage from higher-than-anticipated homebuilding revenues. Note that our SG&A margin in the first quarter is higher as it generally is our lowest revenue quarter, and it includes accelerated employee stock-based compensation expense that only hit in the first quarter. Joint venture, land sales and other income was $72 million in the first quarter compared to $2.5 million in the first quarter of fiscal 2025 and our guidance of $70 million. During the quarter, we substantially completed our previously announced sale of about half of our Apartment Living portfolio for net cash proceeds of approximately $330 million. The $72 million of joint venture, land sales and other income includes the net gain associated with this sale. As we noted on our last call, we intend to fully exit the multifamily development business over the next several years. Our tax rate in the first quarter was 22.9%, 30 basis points better than guidance. We ended the first quarter with approximately $3.4 billion of liquidity, including $1.2 billion of cash and $2.2 billion of availability under our revolving bank credit facility. Our net debt-to-capital ratio was 14.2% at first quarter end compared to 21.1% one year ago. Turning to our guidance. I will remind you that our projections are subject to all the caveats regarding forward-looking statements included in our earnings release. We are projecting fiscal 2026 second quarter deliveries of approximately 2,400 to 2,500 homes with an average delivered price between $975,000 and $985,000. For the full fiscal year 2026, we are maintaining our projected deliveries of between 10,300 and 10,700 homes with an average price between $970,000 and $990,000. As I noted earlier, we expect adjusted gross margin to be 25.5% for the second quarter, and we continue to project 26.0% for the full year. We expect interest and cost of sales to be approximately 1.1% in the second quarter and for the full year. We project second quarter SG&A as a percentage of home sales revenues to be approximately 10.7%. For the full year, we continue to expect it to be 10.25%. Other income, income from unconsolidated entities and land sales gross profit in the second quarter is expected to breakeven. We continue to expect $130 million for the full year, of which we have already realized $72 million. Included in our second half projection is the sale of several stabilized apartment projects. We project the second quarter tax rate to be approximately 26% and for the full year rate to be approximately 25.5%. Based on land we currently own or control, we expect to grow community count by 8% to 10% by the end of fiscal 2026 and are targeting 480 to 490 communities. We expect to be selling from 455 communities at the end of the second quarter. Our weighted average share count is expected to be approximately 96 million for the second quarter and 95 million for the full year. This assumes we repurchase a targeted $650 million of common stock for the full year, with most of that occurring later in the year, aligned with our anticipated higher cash flows. Now, let me turn it back to Doug.

Douglas Yearley, CEO

Thank you, Gregg. We remain positive on the long-term future of the U.S. housing market. Owning a home continues to be a key aspiration for tens of millions of American families. The market is supported by strong demographic tailwinds driven by the millennial generation reaching its peak home buying years and Gen Z following right behind. The baby boomers who have built up enormous wealth over their lifetimes are passing it down in the greatest generational wealth transfer in history. They are also in the market buying homes as they enter the next stage of their lives. Our country has also enjoyed years of stock market success. In addition, the vast majority of the 88 million American households that own a home have participated in significant home price appreciation over the past decade. These are powerful drivers of long-term demand. On the supply side, the market continues to be underserved. Depending on the estimate, the market would need anywhere between an additional 3 million and 7 million new homes to reach an equilibrium based on population growth. So basic economic forces, strong underlying demand and low supply create a solid foundation for the housing market. We believe that over time, affordability pressures will recede and buyers who have been priced out will come back to the market, creating a much healthier housing ecosystem. In the meantime, we are pleased to be serving a more affluent customer in our luxury business. We will continue to navigate this market with the goal of driving strong returns for our stockholders. I would like to thank our Toll Brothers' employees. Their hard work, talent, dedication, and commitment to our customers is the reason we've once again been named the number one homebuilder on Fortune's list of the World's Most Admired Companies. Rocco, let's open it up to questions.

Operator, Operator

Today's first question comes from John Lovallo at UBS.

John Lovallo, Analyst

The first one is you've exceeded your gross margin outlook in each of the past 13 quarters by 65 basis points on average. So sort of with that as a backdrop, what's driving the 100 basis point sequential decline from 26.5% in 1Q to 25.5% in 2Q?

Douglas Yearley, CEO

John, it's mix. Gregg touched on it. We will have less Pacific in the second quarter, which is for us, a very high margin region. That reverses itself as the year progresses, particularly in the fourth quarter when we will have a lot more coming out of both the North and the Pacific, which are our number one and number two margin areas.

John Lovallo, Analyst

Got you. Okay. And then curious on your thoughts of the Sumitomo acquisition of Tri Pointe. I mean, obviously, there's an effort to diversify away from an aging demographic in Japan. But the Japanese in general tend to be pretty big proponents of off-site construction. I mean, do you think that they have a bigger goal in mind here to bring more technology sort of like Toyota did in the 1980s in the automotive industry?

Douglas Yearley, CEO

I don't have an answer to that question. I'm not closely involved. Doug Bauer might be able to provide some insights. I'm sure there have been discussions about how they plan to invest in this impressive company. They've certainly been proactive in entering the U.S. housing market by acquiring several mid-sized builders. There's also the conversation regarding their MDC deal. I’m not certain. The Japanese have always been forward-thinking. As an industry, we've struggled to translate that innovation and technological advancement into more efficient homebuilding practices. I've often mentioned that in my 35.5 years at Toll Brothers, the construction methods have changed very little since Bob Toll sent me into the field with instructions to buy a pair of Timberland boots and work from a trailer. We are all eagerly anticipating more innovation and technology in the industry. Perhaps the Japanese can contribute to that. I'm not sure, but it has been challenging for all of us.

Operator, Operator

And our next question today comes from Stephen Kim at Evercore ISI.

Unknown Analyst, Analyst

This is Randa on for Stephen. First question, I kind of wanted to dig into your spec strategy. Today, you reiterated that you're comfortable with the spec ratio around 50% and that you would like to close your specs early in the construction process. Say that demand is insufficient to maybe support kind of both parts of your spec strategy, which would you prioritize? Would you either slow your spec starts but continue to sell them earlier under the construction process, or maybe sell later, but maintain that 50% spec ratio?

Karl Mistry, CEO transitioning to Executive Chairman

Randa, it's Karl. We are happy now with the 50-50 mix. You'll see that change quarter-to-quarter, may go up and may come down. To your question about a softening, we are very comfortable, and as we outlined, execute well at a high margin on the build-to-order business. So we would pull back if there's more softening. We're not going to blindly build specs into a softening market. And we are working to sell them at an earlier stage. The trick for us is getting our customers into the design studio to make their selections. It's a unique process. We execute well there. So yes, we would lean into build-to-order if the market softened.

Unknown Analyst, Analyst

Got it. That makes sense. And then curious what kind of long-term net debt to cap are you targeting? And how do you think about cash? How much cash do you want to hold going forward?

Gregg Ziegler, CFO

Randa, it's Gregg. Yes, long-term net debt to total cap, we think somewhere in the mid-teens makes a lot of sense for us. And then in terms of what our cash holdings need to be, you'll see they generally accelerate as you move into the second half of the year. But we probably have a minimum holding of a few hundred million just to meet normal operating expenses, including land purchases. But that's kind of the general cash flow cadence that we see throughout the year.

Operator, Operator

And our next question today comes from Sam Reid at Wells Fargo.

Richard Reid, Analyst

Karl, welcome to the call. I wanted to unpack the January to-date comments. And would you just characterize the traffic and sales that you're seeing as better, as potentially good relative to normal seasonality? Or is it just tracking in line with normal seasonality? Maybe just trying to parse through that difference there. And then we've heard some comments from peers that weather has been a little bit of a headwind year-to-date. It doesn't sound like that's been the case for you, but any comments on impacts from weather?

Douglas Yearley, CEO

Sam, it's Doug. I'll address this. We have three data points to consider: web traffic, physical traffic to our communities, and deposits, since agreements typically lag behind deposits by one to three weeks. Looking at last month's figures, the agreement numbers are not very significant. For all three categories — web traffic, physical traffic, and especially deposits — we have seen a modest increase compared to the same time last year. It's a modest rise, so while it's too early to celebrate, we are feeling what the industry refers to as cautious optimism. It’s mid-February, and we’ll see how things develop, but we anticipated an increase as we entered mid-January, which aligns with the start of what we term the spring selling season. Indeed, we saw an increase, but it remains modest compared to a year ago. Still, we’re glad to see it.

Richard Reid, Analyst

Sounds like a plan.

Douglas Yearley, CEO

Weather, I'm sorry. Your question about weather my apologies. North Carolina, Raleigh and Charlotte got slammed. Nashville has been on the news. Kids didn't go to school for a week. Vanderbilt lost half of their beautiful trees, my friends tell me from kids being there. And Atlanta got hit. So that corridor, the Mid-Atlantic from North Carolina down to Georgia definitely had an impact, slowed us down for a week to 10 days. But outside of that, Philly, New York, Boston, Washington recovered pretty quickly. So I think it's just the Carolinas to Atlanta corridor that we felt it.

Richard Reid, Analyst

All helpful color there, Doug. And then maybe switching gears on the P&L to gross margins. You talked a little bit about gross margins improving sequentially in Q3 and Q4. It sounds like Q4 is going to be particularly strong just given the timing of some of those luxury closings. But would just love maybe a little bit more nuance around the cadence of margin in the third and fourth quarters.

Karl Mistry, CEO transitioning to Executive Chairman

Sam, it's Karl. Yes, we expect the back half to be better. It's mix again. It's actually similar to the answer around the second quarter. So in the back half of the year, you'll see more revenue out of the Pacific and the North as well as more of that move-up luxury that I referenced in my remarks. And that's what's contributing to the improvement, and we see more of that even in Q4.

Gregg Ziegler, CFO

That's right. Yes. Karl, I can just add on to it for you, Sam. Yes, Q3 is probably slightly improved over Q2, and then we expect the benefit to accelerate a bit in Q4.

Operator, Operator

And our next question today comes from Mike Dahl at RBC Capital Markets.

Christopher Kalata, Analyst

This is Chris on for Mike. Just a follow-up on that 3Q, 4Q gross margin step-up. Outside of mix, I mean, could you just talk about how you guys are thinking about the pricing incentives, costs, and some of the other financial impacts on gross margin outside of mix?

Karl Mistry, CEO transitioning to Executive Chairman

Yes. Throughout the year, we have kept the incentives at their current levels. There is no expectation that the market will see a significant improvement. Our projections have been made with today's conditions in mind, and that's how we have positioned them.

Douglas Yearley, CEO

And for building costs. Building costs are flat.

Karl Mistry, CEO transitioning to Executive Chairman

And building costs are flat.

Douglas Yearley, CEO

We're beginning to see a little bit of downward pressure, downward movement, downward improvement on building costs, but it's small. Lumber right now is a little bit of a headwind, but there are other costs that are coming down. But in terms of our projections, we're just going into it assuming they'll stay flat.

Christopher Kalata, Analyst

Understood. Appreciate that. And then just maybe if you guys can just touch on what you're seeing in the land market today, the outlook there as you progress through the year and how aggressive you guys plan on being investing in land this year?

Karl Mistry, CEO transitioning to Executive Chairman

Yes. Mike, it's Karl again. I think we're still seeing that low- to mid-single-digit inflation on land.

Operator, Operator

And our next question today comes from Michael Rehaut at JPMorgan.

Michael Rehaut, Analyst

Congratulations, Doug and Karl, on your upcoming transitions. I wanted to explore the comments regarding year-to-date trends further. You mentioned earlier that you are experiencing modest growth compared to a year ago. I was curious if that refers specifically to sales pace or other metrics. Additionally, you noted that your incentives have remained consistent for about three months, which seems to contrast with feedback we've received from other builders who appear to be more oriented toward speculative or first-time buyers. There seems to be a significant shift in incentives across the broader market over the past three months. I would appreciate clarity on what you mean by modest growth compared to the previous year, specifically which metrics you are referring to, and how your incentive strategy differs from the market.

Douglas Yearley, CEO

Sure, I'll take this one. All three metrics I mentioned, web traffic, foot traffic to our communities, and deposits, are all up modestly compared to a year ago. Regarding incentives, we're comfortable with the guidance around 8%. That's where we've been for the last three quarters. In the first quarter, we focused more on our completed specs as we reduced inventory, and we found success in that approach, allowing us to be comfortable with our mix of construction stages for our specs. Some completed specs required a bit more incentive to sell, but this was balanced by a modestly lower incentive in our build-to-order business, which was encouraging. Overall, this resulted in the same 8%. Although we emphasized selling more finished inventory to achieve what we believe are the right percentages, we still managed to exceed margin expectations, which I am proud of in today's environment. We believe we have accurately budgeted and accounted for potential fluctuations in our internal projections concerning the spec business, where incentives can be higher. Thus, we are very comfortable with the 8% figure and believe it will remain stable, and we are also confident in our full-year margin guidance.

Operator, Operator

And our next question today comes from Alan Ratner at Zelman & Associates.

Alan Ratner, Analyst

Nice quarter. And yes, congrats again to both Doug and Karl. I guess, first, I'll add on to the incentive trend. Personally, I think it's encouraging. I guess, I think you said 3 quarters in a row that incentives have been stable at 8% and it doesn't sound like you're expecting much movement from here in the near term. But I'm curious, as we head into the spring, which typically does have a little more pricing power than the winter. What would you need to see to try to take a stab at dialing back some of those incentives? Is it thinking about absorptions on a year-over-year basis? Is it thinking about what mortgage rates do? I'm just curious at what point you might get more aggressive in trying to dial some of those incentives back?

Douglas Yearley, CEO

Yes, that's a great question, Alan. If the market improves, our initial focus will be on increasing our pace. Currently, we're operating at a rate of 24 homes per community each year. We have the capacity and infrastructure to ramp up to the low 30s per community annually. The first change you will notice is an increase in pace. However, as we ramp up, prices are likely to increase as well, since more visitors will come to our sales office, resulting in heightened activity. With urgency building, we will not only see a boost in pace but also in pricing, though our priority will be to first enhance the pace.

Alan Ratner, Analyst

Got it. That makes a lot of sense. You mentioned having the capability to build 30 homes annually in each community. Considering labor and costs, it seems the unexpected positive in 2025 was the cost relief builders experienced despite the tariffs. I'm interested in your perspective on the current labor situation. We've noticed a slight increase in lumber prices at the beginning of the year. What is the current flexibility in the supply chain? If we experience a strong spring, is there a risk that labor might become scarce again and costs could start to rise? I'm curious about your thoughts on this.

Douglas Yearley, CEO

Alan, we are not seeing the impact from tariffs. On the good news, we're seeing plenty of availability of labor, more and more people showing up to the job site that want to work. I think our scale is going to continue to help us with suppliers and so I think it's too early to tell. If there's a really robust spring, which we'd be happy to see, it's hard to see if there's going to be pressure ahead. We'll continue to leverage our scale and the rationalization that we have done with our products over the last several years to minimize those impacts.

Operator, Operator

Our next question comes from Jay McCanless with Citizens.

Jay McCanless, Analyst

Just wanted to focus on the cost side a little bit. It sounds like labor and construction costs are moving in Toll's favor. Are you seeing any opportunities to maybe lean in on land purchases, especially since Toll seems to be doing better than a lot of other builders out there?

Douglas Yearley, CEO

I think we're seeing that because of who we are and what we build, the opportunity to structure land deals with seller financing over time more efficiently has always been part of our strategy. In response to your question, we are noticing a bit more of these opportunities recently, which is encouraging for land acquisitions. Overall, we are facing less competition. There are fewer builders with the capital and interest in constructing luxury homes priced above $1 million, which aligns well with our strengths. We will continue to monitor the situation, and we are identifying some potential for well-structured land deals.

Jay McCanless, Analyst

That's good news. Could you talk about the opportunity to raise prices? It sounds like Pacific and North are doing well, but maybe what percentage of your communities this quarter were you able to raise prices? And how is that outlook going forward?

Douglas Yearley, CEO

30% to 40% of our communities experienced a price increase in the first quarter. You’re correct that the North is performing the strongest, particularly from Boston down to South Carolina, encompassing the entire corridor. It's no longer just Boston to Washington, D.C.; it now includes Raleigh, Charlotte, our four South Carolina markets, and Atlanta. Although Atlanta has been a bit softer recently, we’ve seen our best performance through South Carolina. In the Delray Boca Raton area, we had a community that achieved 10 sales at $1.5 million in the quarter with a gross margin in the mid-30s. Another community in Central New Jersey at the Beach recorded 12 sales in the quarter ranging from $1 million to $1.2 million, with a gross margin over 30%. In Southern California, at the Great Park, known for being right next to Irvine Ranch, we saw 23 sales in the quarter for a community priced between $1.5 million and $3 million. There are still opportunities, and we maintain some pricing power, albeit limited. I believe that 30% to 40% is an accurate reflection of the price increases we've observed. However, I must clarify that the sales figures I provided were not from the entire quarter; they are based on the last 8 weeks, or the past 2 months.

Operator, Operator

And our next question today comes from Paul Przybylski with Wolfe Research.

Paul Przybylski, Analyst

Congratulations, Doug and Karl. I guess to start off, you mentioned your January traffic and deposits were up slightly. Can you add any color on how that breaks out among your consumer groups, especially with how the age targeted is starting off the snowbird season?

Karl Mistry, CEO transitioning to Executive Chairman

Yes, there was consistent activity across our three consumer segments, both in the move up and move down categories. It was also steady between spec and build-to-order. There were no significant variations in sales among those buyer segments, indicating consistency across the business.

Paul Przybylski, Analyst

Okay. It's good to hear. And then you mentioned that the Pacific Northwest was one of your weaker markets. Can you give us any color on how the ethnic homebuyer demand trends have performed since we've had a little bit of settling since the H1B controversy?

Karl Mistry, CEO transitioning to Executive Chairman

Yes, Paul, we are still hearing about it, even outside of the Pacific Northwest. Generally speaking, there is some hesitation among customers nationwide due to uncertainty regarding Visa status. While this impact has been modest and not limited to the Pacific Northwest, it is still noticeable on the sales floor.

Operator, Operator

And our next question today comes from Armando A Barrón with Housing Research Center.

Alex Barrón, Analyst

You probably know me Alex. Anyways, I wanted to ask, so we saw Pulte sold their truss manufacturing plant, but you guys have a very expensive, I mean, not just trusses, but lots of stuff you guys do with those manufacturing plants on the East Coast. I'm just wondering what would it take for you guys to expand those more to, let's say, Texas or Phoenix or some markets where you guys have a bigger scale? Is it a matter of scale? Is it a matter of distance to communities? Like what would it take for you guys to start those types of operations in other markets that are not the East Coast?

Karl Mistry, CEO transitioning to Executive Chairman

Alex, it's Karl again. We like the business, and we like its current footprint. It probably serves 20% to 30% of the revenue for the company nationwide, as you know, predominantly sort of Carolinas North. The limitation with expansion of those facilities is transportation costs are really significant. So it's had a sort of a fixed footprint for a very long time. We like the business. That vertical integration in this corridor has really helped us. But at least in the near term, we don't see a need or desire for expansion.

Operator, Operator

And our next question today comes from Ryan Gilbert of BTIG.

Ryan Gilbert, Analyst

Congratulations to Doug and Karl. I wanted to go back to the North segment, really strong sales, and I understand that demand is strong in this area. I'm just wondering the extent to which there have been any changes in product mix that could be contributing to the improvement in orders and then also how the community pipeline looks and your ability to replace community closeouts given the strength of orders?

Karl Mistry, CEO transitioning to Executive Chairman

Yes, Ryan, that's a great question. We have been strategically shifting our product offerings and land acquisition approach in the Northeast, especially in Pennsylvania, New Jersey, and New York. We are identifying many opportunities for infill development and repurposing older or underutilized office buildings, which are often located in excellent areas with strong school districts. This strategy has helped us achieve faster sales and absorption rates in these markets. Additionally, there is currently less inventory available in this region, as it did not experience the same surge as other markets during the pandemic. Consequently, inventory levels have remained relatively low. We are indeed repositioning our strategy to focus more on attached products, and this approach is consistent on both coasts, including here in the Northeast and parts of California.

Douglas Yearley, CEO

We are seeing significant land opportunities now in the North and the Mid-Atlantic, which is very exciting for us.

Karl Mistry, CEO transitioning to Executive Chairman

Yes, the pipeline in the North region is very strong.

Ryan Gilbert, Analyst

Okay. Great. And then second question on the land bank. You've talked about having the lots controlled to continue growing community count in the years to come, but I think kind of flat to down lots controlled versus growing community count seem a bit at odds. So I'm hoping you can add some detail to what gives you the confidence that you can continue growing your community count given relatively flattish controlled lot count and then where you think your optimal years of land supply sits?

Gregg Ziegler, CFO

Ryan, it's Gregg. We are still very confident because we have around 75,000 lots that we either own or control. The mix remains favorable with 55% of those lots being optioned. After accounting for our backlog, we estimate that we have 2.7 years of owned land, which is an appealing figure. We believe our land bank is well-positioned to support our planned community count growth of about 7% to 10% annually in the future.

Operator, Operator

And our next question today comes from Susan Maklari with Goldman Sachs.

Susan Maklari, Analyst

And I want to add my congrats to Karl and to Doug. My first question is on the design studios. You mentioned that you've still seen some really healthy activity there, especially as you're selling some of those specs a bit earlier. Have there been any notable trends in the spend there? Anything that has changed? And anything that we should be aware of as we're thinking about the outlook for future deliveries and margins?

Karl Mistry, CEO transitioning to Executive Chairman

Yes, Susan, it's remarkable. Over my 20-plus years at Toll Brothers in good markets and bad, the design studio upgrades as sort of a percentage of the home have been really consistent. And so what has improved is I think if you spend time in our studios, we have continued to professionalize them. We'll continue to do that and make the buying experience better and better. The margin has improved over time. But to your question on spend, it has been very consistent.

Susan Maklari, Analyst

Okay. That's helpful. And then you mentioned some of those headcount reductions that you recently implemented. As you're thinking about balancing costs relative to current conditions, but still being able to flex once things do normalize and improve, can you talk a bit about how you're thinking about those two worlds? And what is your ability to eventually ramp the business as conditions improve?

Karl Mistry, CEO transitioning to Executive Chairman

Yes. Susan, we are constantly making sure that the business is structured to be efficient. And we've done that quarter after quarter. If we have a great spring, again, we're hopeful we do, and we see that absorption at 24-year climb. We see that on the front end of the business first. We see it in the sales offices. And we can begin to staff up, particularly with our field personnel, our construction teams, and our sales teams. But our back office, our G&A, those folks are intact. They're here. And as Doug alluded to, we believe have capacity to produce a lot more revenue with the existing team.

Operator, Operator

And that concludes today's question-and-answer session. I'd like to turn the conference back over to Doug Yearley for any closing remarks.

Douglas Yearley, CEO

Rocco, as always, you've been terrific. Thanks, everyone, for all your great questions, your interest and support of our great company. This is an exciting time here at Toll Brothers. And we appreciate all of you very much. And I hope you have a wonderful remaining winter and the spring comes early this year for all of us. Thank you. Take care.

Operator, Operator

Thank you, sir. And we thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day.