KB Home continued to pivot toward a more historic level of built-to-order (BTO) homes in the fiscal first quarter, a shift the company believes will provide greater precision, less volatility, and stronger alignment between sales, starts, and deliveries.
“[A greater BTO mix] reduces the need for speculative inventory, lowers our exposure to pricing swings, and supports more disciplined capital deployment,” Robert McGibney, president and CEO of KB Home, explained during the company’s earnings call. “Over time, we believe this will translate into a more durable and differentiated business, one that is better positioned to generate sustainable margins and returns across cycles.”
KB Home is targeting a return to 70% BTO deliveries by the second half of 2026. BTO sales represented 44% of net orders as recently as October 2025, but have grown each month through the first quarter. McGibney noted 68% of net orders in February were on BTO homes.
“Built-to-order homes typically generate between 300 and 500 basis points of incremental gross margins compared to inventory homes and, as a result, having a greater percentage of BTO deliveries will drive higher margins,” McGibney said.
Executive chairman Jeff Mezger said the lag between sale and delivery for built-to-order homes will help KB Home continue growing its backlog. A larger backlog, Mezger said, will provide greater predictability in deliveries and higher gross margins than the company achieved on inventory sales. KB Home achieved a 3% increase in net orders in the quarter to 2,846 homes and it’s ending backlog was 3,604 homes, compared to 4,436 homes a year ago.
Monthly net orders per community in the quarter ran at a rate of 3.5, marginally down compared to 3.6 in the first quarter of 2025. The cancellation as a percentage of gross orders was 12%, an improvement from 16% in the same period a year ago.
“The meaningful improvement in cancellations reflects high-quality committed buyers who are ready and able to purchase a home and also supported net orders at an average absorption pace of 3.5 per month per community,” McGibney said. “We remain focused on our long-standing annual average target of four net orders per community to optimize our assets.”
As KB Home recalibrates its order mix toward BTO homes, McGibney noted there may be a temporary trough in deliveries in the first half of 2026. The higher level of BTO homes sold early in the year will begin benefiting third and fourth quarter delivery numbers reported by KB Home. While this reset is occurring, KB Home is intentionally slowing its inventory starts.
McGibney said KB Home has also improved its cycle times, which will further benefit the company as it leans more heavily on BTO homes. Shorter build times will allow buyers to lock in mortgage rates more easily and will help KB Home expand its selling window within the year.
“We had already achieved our company-wide target of 120 days from home start to completion on built-to-order homes in the fourth quarter of fiscal 2025, yet we further improved in this critical area in the first quarter, with a sequential decrease to 108 days,” McGibney said. “This is an important factor in the value proposition of a BTO home from a customer standpoint relative to the time it takes to purchase a resale or an inventory home.”
First Quarter By the Numbers
KB Home reported home deliveries in the first quarter declined 14% year over year to 2,370, while revenues fell 23% to $1.08 billion. The average selling price for the quarter declined to $453,100 compared to $500,700 in the same period a year ago.
KB Home’s average community count in the quarter grew 7% to 274 and the builder’s ending community count was up 8% at 276.
“Our teams continue to execute well, particularly in the critical areas of new community openings and build times,” McGibney said. “We expect to reach our peak community count for the year within the second quarter at the height of the spring selling season, which enhances our ability to drive net orders.”
KB Home reported a profit of $33.4 million, or $0.52 per share, down from $109.6 million, or $1.49 per share, from the same period a year ago.
The company invested $567.2 million in land and land development in the period and ended the first quarter with 63,257 owned or controlled lots, down 2% from the first quarter of 2025. Approximately 59% of the company’s lots were owned while the remaining 41% were under contract.
“Concerns surrounding the conflict in the Middle East have introduced an additional layer of uncertainty for consumers who were already working through numerous challenges,” Mezger said. “Still, we believe we are well positioned to navigate the current environment, with the distinct personalized home building experience we offer, strong financial flexibility, and a disciplined, balanced approach to capital allocation.”
