Toll Brothers Earnings: Shift to Affordable Luxury and Speculative Building Should Fuel Growth

Homeownership affordability challenges mounted in 2023 as the average 30-year fixed mortgage rate soared to nearly 8% (from a low of 6.09% in early February). Nevertheless, Toll Brothers delivered good financial performance in fiscal 2023 (ended Oct. 31). While full-year home deliveries declined nearly 9% year over year (to 9,597), revenue only declined 3% (to $10 billion), home sales gross margin (including inventory charges and interest) expanded 140 basis points to 26.9%, and operating cash flow increased over 30% to approximately $1.3 billion. One reason for Toll’s success this year is its more affluent customer base that can afford higher-price homes and generally make larger down payments. But Toll has also adjusted its strategy to serve less affluent buyers (with its “affordable luxury” homes) and better compete with the resale market by building more spec homes.