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LGI Homes Inc (NASDAQ:LGIH)
Q1 2019 Earnings Call
May. 7, 2019, 12:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Welcome to the LGI Homes First Quarter 2019 Conference Call. Today's call is being recorded and a replay will be available on the company's website later today at www.LGIHomes.com. We have allocated an hour for prepared remarks and Q&A. (Operator Instructions) At this time, I will turn the call over to Rachel Eaton, Chief Marketing Officer at LGI Homes. Mrs. Eaton, you may begin.

Rachel Lyons Eaton -- Chief Marketing Officer

Thank you. Welcome to the LGI Homes conference call discussing our results for the first quarter of 2019. Today's conference call will contain forward-looking statements that include among other things statements regarding LGI business strategy, outlook, plan, objectives and confirmation of 2019 guidance. All such statements reflect current expectations, however, they do involve assumptions, estimates and other risks and uncertainties that could cause our expectations to prove to be incorrect.

You should review our filings with the SEC, including our risk factors and cautionary statement about forward-looking statements section for discussion of the risks, uncertainties and other factors that could cause our actual results to differ materially from those anticipated any forward-looking statements. These forward looking statements are not guarantees of future performance. You should consider these forward-looking statements in light of the related risks and you should not place undue reliance on these forward-looking statements which seek only as the date of this conference call.

Additionally, adjusted gross margin, a non-GAAP financial measure will be discussed on this call. The presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. A reconciliation of adjusted gross margin to gross margin, the most comparable measure prepared in accordance with GAAP is included in the earnings press release that we issued this morning and in our quarterly report on Form 10-Q for the quarter ended March 31, 2019, that we expect to file with the SEC later today. This filing will be accessible on the SEC's website and in the Investor section of our website at lgihomes.com.

Joining me today are, Eric Lipar, LGI Homes, Chief Executive Officer and Charles Merdian, the Company's Chief Financial Officer. With that, I'll now turn the call over to Eric.

Eric Lipar -- Chief Executive Officer & Chairman of the Board

Thank you, Rachel and welcome everyone on this call. We appreciate your continued interest in LGI Homes. During today's call, I'll summarize the highlights and results from the first quarter of 2019. Then Charles will follow up to discuss our financial results in more detail. After he is done, we will conclude with comments and open the call for questions.

For the first quarter, we closed 1,228 homes, generating approximately $288 million in home sales revenue, which represented a 3.1% increase over the first quarter of 2018. Throughout the first quarter, we saw continued demand for affordable homes coupled with a positive response from buyers to lower interest rates. First quarter net orders were 1,948, an 8% increase over the first quarter of last year. While January and February were down year-over-year at 3% and 10% respectively, March saw a very positive response from buyers resulting in a 32% increase in orders for the month. April continued this trend with net orders exceeding 30% year-over-year reaffirming our optimistic outlook on the remainder of the second quarter.

For the first quarter, we averaged 4.9 closings per community per month companywide absorption for the quarter was highlighted by performance in our Las Vegas, Sacramento and Dallas-Fort Worth markets. For the quarter, our top market on a closing per community basis was Las Vegas averaging 11.8 closings per community per month, followed by Sacramento at 7.2 closings per community per month and DFW at 7.1. Companywide, we ended the first quarter with 87 active communities, more than a 10% increase over the 79 active communities that we had at the end of Q1 last year. The first quarter reflects investments in upfront costs related to our first quarter community count growth and our anticipated community count growth for the remainder of this year.

During the first quarter, we incurred 100% of the start-up expenses related to the geographic and community count expansion that will be additive to active community count in the second quarter of this year such as increased construction overhead, costs associated with new office setup, training pay for new sales employees and marketing expenses, which led to 10 community grand openings that we held in March. All 10 of these communities will deliver closings in the second quarter.

Second quarter costs will be more of the same as we continue to incur start-up costs to support additional communities that will realize closings in Q3. From an operations standpoint nothing is different than before. The impact of these expenses is just more pronounced due to the lower closing volume from the first quarter and elevated community count increase. We are investing heavily in the first and second quarters of this year to hit our timelines to open each of these new communities. In April, we increased by 5 to 92 active communities, up 16.5% year-over-year. We expect to be at 100 plus communities by the end of July and believe that we will have a positive impact on closings during the second half of the year.

In addition to the stated increases in marketing spend related to new communities, for the first quarter, we increased marketing spend on existing communities to offset the potential impact of a rising rate environments based on the results of the fourth quarter. As previously reported, orders during the fourth quarter of 2018 and the first two months of 2019 were not as strong. Therefore, we took a more cautious approach to price increases for the first quarter and did not raise prices as much as we have in the past. Another factor impacting our pricing strategy was the anticipated rollout of a new interior fit and finish initiative, which we will speak about later on this call.

With that I like to turn the call over to Charles Merdian, our Chief Financial Officer for more in depth review of our financial results.

Charles Merdian -- Chief Financial Officer & Treasurer

Thanks, Eric. As mentioned earlier, home sales revenues for the quarter were $287.6 million based on 1,228 homes closed, a 3.1% increase over the first quarter of 2018. Sales prices realized from homes closed during the first quarter ranged from the $140,000 (ph) to over $500,000 and averaged $234,197, a 4.4% year-over-year increase. This increase in the average sales price per home was primarily due to changes in product mix, higher price points in certain new markets such as the addition of Sacramento and Las Vegas and to a lesser extent increases in sales prices in existing communities. In the first quarter by division, approximate average sales prices were $215,000 in central, $366,000 in the Northwest, $228,000 in the Southeast, $204,000 in Florida and $256,000 in the West, which was up from $206,000 for the first quarter of 2018.

Gross margin as a percentage of sales was 23.1% this quarter compared to 24.8% for the same quarter last year, a decrease of 170 basis points. During the quarter, we closed 58 homes generating approximately $17 million in revenue related to homes acquired in the Wynn acquisition. In addition to purchase accounting, gross margins realized on these homes were below our company average. This had a 40 basis point impact to our overall margins compared to the prior year. We also saw a 50 basis point decrease in gross margin associated with an increase in construction overhead as a result of our geographic expansion and lower closings per community in our Florida and Northwest divisions. Gross margins were also impacted due to an increase in overall construction costs, lot costs as a percentage of revenues and a more cautious pricing as Eric mentioned earlier.

Our adjusted gross margin was 25.1% this quarter compared to 26.4% for the first quarter of 2018, 130 basis point decrease. Adjusted gross margin excludes approximately $5.4 million of capitalized interest charged to cost of sales during the quarter, representing 188 basis points, approximately 30 basis points higher than the same quarter last year, primarily due to an overall increase in the average cost of debt with the issuance of $300 million in our senior notes in 2018 and a slight increase in LIBOR year-over-year. Adjusted gross margin also accounts for $630,000 of step up associated with the Wynn Homes acquisition.

We currently expect our gross margin to slightly increase in the second quarter and end the year within our previously stated guidance. Combined selling general and administrative expenses for the first quarter were 15.7% of home sales revenue compared to 13.8% in the prior year and 16.8% for the first quarter 2017.

Selling expenses for the quarter were $26.8 million or 9.3% of home sales revenue compared to $22.9 million or 8.2% of home sales revenue for the first quarter of 2018, a 110 basis point increase. The increase in selling expense as a percentage of home sales revenue reflects additional operating expenses associated with personnel and advertising.

We spent an additional $1.7 million in the first quarter this year compared to the first quarter of 2018 in advertising expense comprising of additional costs due to community count growth and increased spend in our existing communities. We also added additional sales staff related to community count growth and incurred costs associated with the opening of new offices. General and administrative expenses were $18.4 million or 6.4% of home sales revenue compared to 5.5% for the first quarter of 2018, a 90 basis point increase. Increase in general administrative expenses as a percentage of home sales revenue reflects the additional overhead associated with the increase in community count both realized and expected for the remainder of the year.

We believe that SG&A will vary quarter to quarter based on home sales revenue and for the full year, we expect combined SG&A as a percentage of revenue to be 20 basis points to 50 basis points higher compared to our 2018 full year results, driven primarily by increases in selling expenses related to advertising and new community openings.

Pre-tax income from the for the quarter was $21.7 million or 7.5% of home sales revenue. For the first quarter, our effective tax rate of 15.5% is lower than our annual expected effective tax rate primarily due to the result of deductions in excess of compensation costs or windfalls for share-based payments. We would expect that the second through fourth quarter effective tax rate range between 23.5% and 24.5%.

We generated net income in the quarter of $18.3 million or 6.4% of home sales revenue, which represents earnings per share of $0.81 per basic share and $0.73 per diluted share. First quarter gross orders were 2,359 and net orders were 1,948, an 8% increase over the prior year first quarter. Ending backlog for the first quarter was 1,344 homes compared to 1,370 last year and the cancellation rate for the third (ph) quarter of 2019 was 17.4%. We ended the first quarter with a portfolio of 50,700 owned and controlled lots and as of March 31, 29,978 or 59% of these were owned. And of this amount, 8,600 were finished vacant lots, 18,087 were either raw or under development and 3,291 were either completed homes information centers or homes in process.

Weighted shares outstanding for calculating diluted earnings per share are impacted by our outstanding convertible notes. And in the first quarter of 2019, our average stock price was approximately $58, resulting in approximately 2 million share increase to the weighted average shares outstanding for the diluted EPS calculation for the quarter.

As of March 31, we had approximately $35 million in cash, approximately $1.3 billion of real estate inventory and total assets of over $1.4 billion. Also at the end of March, we had $685 million in total debt outstanding under our revolving credit facility, convertible notes and senior notes. Our available borrowing capacity was approximately $75 million. Our gross debt to capitalization was approximately 50.4% and net debt to capitalization was 48.6%.

Yesterday, on May 6, we entered into our fourth amended and restated credit agreement, which provides for a $550 million revolving credit facility, which can be increased at the request of the company by up to $100 million subject to the terms and conditions of the credit agreement. This recent amendment has substantially similar terms and includes the removal of the security trigger and increases our available borrowing base as of March from approximately $75 million to $116.5 million on a pro forma basis. At this point, I'd like to turn the call back over to Eric.

Eric Lipar -- Chief Executive Officer & Chairman of the Board

Thanks, Charles. Let me provide some guidance and thoughts on what we are seeing thus far in the second quarter and looking ahead into the remainder of the year. The second quarter is off to a great start with 612 closings in April, up slightly from the 606 closings in April of last year. The 612 closings came from 92 active communities resulted in a very solid absorption pace averaging 6.7 closings per community per month.

As I mentioned early on this call, we'll be rolling out a new interior fit and finish, the introduction of Complete Home is our 2019 initiative to make our product more consistent on a national basis and include the most desired new home features all while providing the greatest value to a homebuyers at affordable price. All new communities opening in 2019 and all new starts in our existing communities from the beginning of the second quarter forward will include a complete home interior fit and finish package. The complete home showcases enhancements such as upgrade appliances, hard surface countertops, garage door openers, ceiling fans, USB plugs and more. All of these features will become standard in our new inventory offering our homeowners greater value for their dollar.

Home buyer response to the new complete home fit and finished package has been positive and since we have begun selling this new inventory in select communities, sales have been robust. We believe one of the factors contributing to the increase in March and April sales is the roll-out of the complete home. Very few of the closings in the first quarter included this package.

We expect a larger percentage in the second quarter and by the third quarter, the majority of our inventory and closings will include the new complete home package. Construction of the new complete home package is currently under way in all communities nationwide. We are planning a press release later this month rolling out this new product to the public which we believe will maintain positive sales momentum.

Looking at the rest of the year, we believe throughout 2019 we will continue to grow our community count and end the year between 105 and 115 active selling communities. In addition, we believe our average sales price for the year will continue to increase ending 2019 with an overall average sales price between $235,000 and $245,000.

We maintain our gross margin guidance for the year in the range of 23.5% and 25.5%. We expect adjusted gross margin, which excludes the effects of interest in purchase accounting will continue to be in line with previous expectations ending the year between 25.5% and 27.5%.

Given our reaffirmed guidance of average sales price, gross margins and community count, we continue to believe our full year basic earnings per share will be between $7 and $8 per share. Now we'll be happy to take your questions.

Questions and Answers:

Operator

Ladies and gentlemen if you have a question (Operator Instructions). Our first question comes from the line of Michael Rehaut with J.P. Morgan Chase. Your line is open.

Michael Jason Rehaut -- JP Morgan Chase -- Analyst

Thanks. Good afternoon everyone. The first question I had was on the fit and finish initiative and it sounds interesting. I was curious you had mentioned that you had received or as a result of where communities that you rolled out that it kind of supported some better monthly results in March, April, I was curious if you could give us a sense of -- if you've observed like a difference in sales pace in those communities perhaps before and after or do you have any sense, I don't know if these are new communities where you can't really get a feel for what they were selling at before if they started off the go with the fit and finish. But if you give us any kind of sense for what it does from a sales pitch standpoint that would be helpful.

Eric Lipar -- Chief Executive Officer & Chairman of the Board

Yes Mike, this is Eric. Great question. We're excited about the new fit and finish initiative called the complete home package and I think that's one of the reasons that sales have been so strong in March and April. It's all the new communities that we've rolled out and all the grand openings we've had that fit and finish and I know I've been out in the field with our teams and with the sales people and listening to the customers reaction and it's been perceived very positively. It gives us the consistency that we're looking for, I also think that the value to the customer as we put a nicer product out there with a little bit more upgrade fit and finish and our average sales price now consistently over $200,000 and shows the value through the customers, especially the more qualified customers and gives us a lot of consistency across the country.

In the existing communities, we've been cautious not to promote the new package too much because we do want to sell out of our existing inventory but we are starting to see results where the communities that are selling both of the packages certainly the customers are willing to pay a premium price which is going to help our margins to have that upgraded fit and finish.

Michael Jason Rehaut -- JP Morgan Chase -- Analyst

Thank you for that Eric. I guess, secondly, on the quarterly results, I think you kind of called out some of the drivers to the higher SG&A as a percent of sales and obviously that was one of the big differences from -- in terms of your actual results versus our estimate probably street expectations as well, you said that you would expect if I heard it right, a similar type of dynamic, I don't know if that means a similar type of year-over-year discrepancy or it was up about 200 basis points year-over-year, so just trying to get a sense when you talk about getting to a full-year that would still be up 20 bips to 50 bips. As part of that cadence you're looking for kind of a similar year-over-year increase in the second quarter and then some leverage in the back half or how should we think about the cadence there?

Charles Merdian -- Chief Financial Officer & Treasurer

Yes, Mike, this is Charles I can take it first. I think what we're saying on certainly on the selling side is that the second quarter year-over-year comparisons should be similar to what we saw in year-over-year comparisons for the first quarter. On the G&A side, I think if you look back and look at the cadence of G&A spend throughout 2018 is that we would expect that to taper in terms of the year-over-year comps, June of 2018 was $18.3 million in G&A costs compared to the $18.4 million that we reported for this quarter. So we would see that the G&A side not see as much of an increase on the year over comps for the rest of the year, selling primarily more in the second quarter and then like you mentioned seeing some of that leverage pay off in the third and fourth quarters as these communities open and start to generate closings.

Michael Jason Rehaut -- JP Morgan Chase -- Analyst

Great. And one last one if I could sneak it in, on the gross margin, I just didn't hear one of the drivers you said in terms of the first quarter performance was you'd mentioned 50 -- 40 bips impact from purchase accounting and then a 50 bip impact from -- and I missed that if you could repeat that. And then when you talk about the second quarter, your expectations for a slight increase, I just wanted to clarify if you meant sequentially or year-over-year?

Charles Merdian -- Chief Financial Officer & Treasurer

Yes, so on the 50 bips was related to construction overhead. So although our revenues were similar nationwide, we had lower closings per community in our Florida and Northwest divisions, which were made up in the West primarily and also in the central. So what that meant is we incurred similar construction overhead related costs in those two divisions with lower revenues that the overall impact on our construction overhead, what flows through gross margin was about 50 basis points. In terms of the gross margin expectations that's sequentially, so typically construction overhead has its largest impact in the first quarter just because of overall closings per community. So we would expect to see a little bit of pickup if nothing else from that the impact of when we'll be marginalized slightly as well and then just going to normal operations from there. So we would expect it to be up sequentially.

Michael Jason Rehaut -- JP Morgan Chase -- Analyst

And then with further improvement in the back half I presume or..?

Charles Merdian -- Chief Financial Officer & Treasurer

Correct.

Michael Jason Rehaut -- JP Morgan Chase -- Analyst

Great. Thanks so much.

Operator

Thank you. And our next question comes from the line of Nishu Sood with Deutsche Bank. Your line is open.

Nishu Sood -- Deutsche Bank -- Analyst

Thank you. I wanted to start off on the gross margins as well. The first quarter obviously the demand trends coming into the air were pretty widely affected across the market. So the not increasing prices at the usual cadence to go along with construction costs makes sense. Did that include any price reductions or was it merely not increasing and also actually about a pause there and I wanted to follow up on that.

Eric Lipar -- Chief Executive Officer & Chairman of the Board

Yes, Nishu Sood this is Eric. We did have some decreases, some specials if you would to close out, some older communities that's pretty consistent how we do it. We don't negotiate on prices but when we're closing out a community we will run some discounts to get rid of older inventory. But generally, that wasn't the primary driver. Primary driver was just we didn't raise prices going into that tougher environments. Anticipated higher interest rates in the first quarter, which unfortunately didn't happen, so more and the cost kept increasing. So we're still seeing increased costs and when we don't have the price increases as aggressively as we once did had a negative impact on margins for the quarter.

Nishu Sood -- Deutsche Bank -- Analyst

Got it. Now, demand sounds like you know from the 30% plus year-over-year pace in March and April sounds like it has picked up a lot obviously reflecting the fit and finish program and the lower rates perhaps. So with demand returning, should we think about the delays and the lack of price increases in 1Q as a one-time adjustment to a new environment or is there the potential to kind of catch up and to kind of drive gross margins back up to where they have been in recent years ?

Eric Lipar -- Chief Executive Officer & Chairman of the Board

Yes, that would be the optimistic side of the equation is, the demand is very strong, March and April very strong months, we look at our leads, you mentioned the word traffic how we look at it as in the first quarter we had over 100,000 inquiries into home ownership. So the demand is still there and it's a lot stronger demand and a lot stronger pull through to contract and closings than we saw in the fourth quarter and the beginning of the year. So it's trending in the right direction and your assumption is correct.

If sales remain strong, obviously we'll be increasing prices to offset the costs but also increasing prices because of the demand is there and it's a great environment to increase pricing. So hopefully that's the case through the rest of the year. We anticipate that happening and demand remaining strong. And if it does happen that way which we expect it to then gross margins will continue to increase every quarter like Charles talked about with Mike.

Nishu Sood -- Deutsche Bank -- Analyst

Got it. And that fit and finish program sounds really exciting to have a national standard for the fit and finish, there are obviously I can see some of those things that you described increasing costs but on the other hand if there is a consistent standard maybe there's some incremental purchase synergies. So, how should we think about the impact of the fit and finish on your profitability longer term. And where would it be I would imagine it would be mostly in gross margins but if you could just walk us through that as well please.

Eric Lipar -- Chief Executive Officer & Chairman of the Board

Yes, great question and just to go a little bit more specific on that. When we were looking at our fit and finish across the country, we start with we want more consistency. Also we had taken some thin finishes out of the house that we weren't sure was a great decision and put some of that back in. Hard surface countertops or granite countertops is an easy one to use as an example. Probably 80% of our communities offered granite or hard surface countertops and 20% was at a formica stage just focused on affordability.

And really when we delve into it and looked all the advantage about adding granite in those communities that had formica and the additional cost of anywhere from $800 to $1500 per house and per plan. We thought that was really great value and then it gives us the tool from a marketing standpoint and consistency and pictures, that every house nationwide started up by LGI in the second quarter forwards going to have hard surface countertops. A lot of our communities already had hard service countertops. So we're adding items like a ceiling fan and a garage door opener.

So, we think that creates the value in only a few hundred dollars in cost. But I would say on the average we probably added a thousand or two thousand dollars per cost every LGI home. And we think we can get $3000 to $5000 more in revenue per home. So that's going to increase margins and also increase the absolute dollars and overall average sales price. And we think it's also going to increase sales.

Nishu Sood -- Deutsche Bank -- Analyst

Got it. So just to close that out then, the revenue benefit or the sales price benefit is still to come? Or was it incorporated into each of these communities as you're revamping them or rolling out new ones under the new fit and finish standards.

Eric Lipar -- Chief Executive Officer & Chairman of the Board

Well it's still to come from a closing standpoint. Of our first quarter closings, only 70 of the closings in the first quarter, which I believe is around 6% of our closings in the first quarter had the new fit and finish package, complete home package.

Nishu Sood -- Deutsche Bank -- Analyst

Got it. Okay great. Thank you.

Eric Lipar -- Chief Executive Officer & Chairman of the Board

You're welcome.

Operator

Thank you. Our next question is from Stephen East with Wells Fargo. Your line is open.

Stephen East -- Wells Fargo -- Analyst

Thank you and good morning guys. Eric, maybe could you just one more gross margin question. You have mentioned lot costs and higher construction costs. Just any color on those two metrics and what you're seeing there?

Charles Merdian -- Chief Financial Officer & Treasurer

Hey Steve, it's Charles. So we accounted for 90 basis points between the Wynn closings and the 50 basis points on construction overhead. The majority of the difference of the 170 basis points change year-over-year is related to increased house costs. Lot costs were up about 20 basis points up to 18.8% of our average sales price, but again that goes back to the cautious pricing, messaging meaning that we normally would have just translated that in pushing through on average sales prices.

Stephen East -- Wells Fargo -- Analyst

Sure. I've got you. And then FHA the manual underwriting what percent in your business would be affected by that and are you seeing any rejections yet from FHA is it affecting your overall demand. Just any color there.

Eric Lipar -- Chief Executive Officer & Chairman of the Board

It's not affecting demand. Demand has been strong. You know FHA is a big part of our business. It's still running about 70% of our customers choose FHA as their vehicle for financing and their mortgage. We really haven't seen the negative impacts of the tightening Stephen. We assume it somewhat there getting really into the weeds but customers that have higher ratio, they need to pay down debt or save up more money for down payment. We assume some of that's happening in the field but based on where we see closing, based on our pull through, overseas contracts it doesn't seem to be having at least a material impact on our business in the field.

Stephen East -- Wells Fargo -- Analyst

Okay. I got you. About what percentage of your customers do you think fall into that manual underwriting?

Eric Lipar -- Chief Executive Officer & Chairman of the Board

We're not sure as we don't measure that. I mean we do know our average customer has a 650 credit score and our average debt to income ratio always runs in the low 40s. So math would say that a lot of customers fall into that buckets but it doesn't seem to be getting them declined for a loan. It's not they're declined it's just the underwriting as you take a little closer look at the file but we haven't seen a lot of cancellations. There are other customers that are in that bucket.

Stephen East -- Wells Fargo -- Analyst

Okay. Alright. One quick question. You talked about your absorptions being better than your legacy on your fit and finish. What type of difference are you seeing between your legacy and the fit and finish?

Eric Lipar -- Chief Executive Officer & Chairman of the Board

I don't think we have that information, Steven, the metrics that we calculate, primarily because the communities that have the complete home fit and finish are really the March grand openings that we just have that are now just starting to have closings. So with only 70 closings a true absorption pace really hasn't been measured yet, but from a order or a sales standpoint it just seems to be really positive what's happening and you could see it in our orders and in March and April.

Stephen East -- Wells Fargo -- Analyst

Yes. Okay thanks a lot.

Eric Lipar -- Chief Executive Officer & Chairman of the Board

You're welcome.

Operator

And our next question is from the line of Jay McCanless with Wedbush. Your line is open.

Jay McCanless -- Wedbush -- Analyst

Thanks for taking my questions, so the first one I had with the ASP guidance given relative to this new information on complete home and then some of the older legacy neighborhoods that you need to sell through. Should we think about keeping our ASP assumptions maybe toward the lower end of the guidance, as you all discount and clear through some of the older homes to get yourself in position to open these newer communities with complete home?

Eric Lipar -- Chief Executive Officer & Chairman of the Board

That sounds reasonable to us Jay. I mean we were at the low end or just below the low end of our guidance for the first quarter. So I think Charles and I would think the average sales price is probably increasing, as we raise prices throughout the year. The fit and finish is going to increase the overall cost on the exactly the same floor plan by a few thousand dollars by the customers. There'll be selective in their floor plans and qualifications and we'll see what rates do and what floor plan is selected.

So there's a lot of a lot of mix and a lot of geography and our average sales price. But I think that'll be a good way to look at it. I think.

Jay McCanless -- Wedbush -- Analyst

All right. Thank you. The second question I had and apologies if you already mentioned it. What were your wholesale sales in the quarter? And are you guys still thinking that the total percentage of wholesale this year maybe a little less than what you did in 2018.

Charles Merdian -- Chief Financial Officer & Treasurer

Yes Jay, This is Charles and in the first quarter of this year we had 30 wholesale closings and that compares to 31 in the first quarter of 2018. So very similar.

Eric Lipar -- Chief Executive Officer & Chairman of the Board

And for the year, we're still expecting about 5% of our businesses comes from the wholesale business.

Jay McCanless -- Wedbush -- Analyst

And then just the last question I had, In terms of pricing power, I mean what what percentage of your communities now do you feel like you have pricing power and how does that compare maybe to the beginning of the year?

Eric Lipar -- Chief Executive Officer & Chairman of the Board

Yes, I think it's substantially more from beginning of the year. I mean it's robust, as sales (inaudible) and then the excitement around our complete home package and where our rates are and the demand that we're seeing, I think we're going to expect to raise prices and you know 80%-90% of our communities plus over the near-term.

Jay McCanless -- Wedbush -- Analyst

Sounds great. Thanks for taking my questions.

Eric Lipar -- Chief Executive Officer & Chairman of the Board

You are welcome.

Operator

And our next question comes from the line of Carl Reichardt with BTIG. Your line is open.

Carl Reichardt -- BTIG -- Analyst

Thanks. Hi guys. I was asking about the community count, the guide for the year. As you're sort of looking at that are there particular regions where you've got some more flex built into that community count and then there cadence for the year that you're kind of looking for there. That's the -- it's 10 communities you know time had that process your absorptions so a lot of deliveries that could come from more of your communities. So, I am trying to get a sense of how we should think about that?

Eric Lipar -- Chief Executive Officer & Chairman of the Board

Yes, we just had a good bump up in April, we're up to 92 communities coming off are January training class and opening up with ten grand openings in March and then the next big point was we just had our largest training class in history and the April training class we have about 12 communities gearing up for grand openings. So like I said on the call, lot of expense in the second quarter gearing up for these grand openings but it's gonna be a big payoff in July when we push north of one hundred active communities for the month and then probably equally weighted so that from July on to get to 105 to 115 for the year.

Carl Reichardt -- BTIG -- Analyst

And the regional focus Eric is like all markets are growing.

Eric Lipar -- Chief Executive Officer & Chairman of the Board

Yeah. Right. Relatively going deeper in the existing markets, a lot of growth in the Southeast as far as (inaudible) goes with the acquisition of Wynn Homes that's really driving a lot of our community count going into Columbia further into Alabama. Also the Mid Atlantic, opening our first community in Virginia, Florida was down, two (ph) active communities in the first quarter. So we're getting that back, up and going plus adding more communities in the state of Florida. So I could give you some color into that.

Carl Reichardt -- BTIG -- Analyst

Okay thanks. And then just back to the complete home and you talked a little bit about the potential impact on margins per house. That was very helpful. I'm thinking in terms of the decision making process. When did you sort of decide that this was a move that you wanted to make nationwide? Was this in part a function of the move of some of your peers toward a lower price points or was this sort of something you saw in terms of competition with resale that helped you? And then I think Nishu asked this or someone did about sort of the impact on vendors if there was national purchasing leverage that you could get here that was greater than the package you were offering prior?

Eric Lipar -- Chief Executive Officer & Chairman of the Board

Yes, I think the decision to go into this interior package was really more focused on internal and getting out and looking at our product for our executive team and feedback we're getting from division presidents and also talking with our customers and seeing the results of pull through and our percentages of writing contracts with customers and looking at everything. Because a couple of years ago we really had initiative to really value engineer everything and take fit and finish out of the house and make it as affordable as possible and we did a really good job at that. And probably too good of job in some cases and when you go to a Houston community and you see a community that's got a lot of fit and finish is taken out, it's got (ph) Formica cabinets , then you go the next one that has granite, it just didn't make a lot of sense to us.

Let's have consistent product. I know we had at our Annual Shareholders Meeting last week the supplier that supplied this granite countertops and he supplied this granite countertops in every single Houston community. And that's going to result in better pricing. So we do think there's leverage there at a regional and even a national level. I mean the Whirlpool appliance package that we're buying from Whirlpool is now 100% consistent. We are always using Whirlpool but the package was not consistent nationwide. Now every LGI Home in the nation is going to have exactly the same stove in it.

Carl Reichardt -- BTIG -- Analyst

Thanks for all the detail guys. I appreciate it.

Eric Lipar -- Chief Executive Officer & Chairman of the Board

You're welcome.

Operator

(Operator Instructions) Our next question comes from the line of Alex Barron with Housing Research Center. Your line is open.

Alex Barron -- Housing Research Center -- Analyst

Yes. Thank you. So just to compare a home that is a complete package versus one that has the Formica how much extra would it cost the buyer to buy this home and what's the difference in your margin on the same home. Just from the upgrade.

Eric Lipar -- Chief Executive Officer & Chairman of the Board

For a community that had Formica countertops to start and we're adding -- we're going to a hard surface countertop or adding a ceiling fan right adding a garage door opener, 36-inch upper cabinets, they're probably an upgrade on their appliance package, the cost to the borrower is approximately $3,000. And that's about $20 to $25 a month in monthly payment.

Alex Barron -- Housing Research Center -- Analyst

Okay. And -- but is there an incremental margin to you guys or it just pretty much passing it along with cost?

Eric Lipar -- Chief Executive Officer & Chairman of the Board

No, there'll be incremental margin to us meeting, we'll price on it at least a 30% gross margin above our costs. So we're making margin, so it won't be a negative to the the overall company margin, I think when we look at the complete home as being at our historical levels, margins on our existing inventory, that's where we've taken a margin hit if you will and that's been as aggressive on raising prices.

Alex Barron -- Housing Research Center -- Analyst

Got it. And then, can you comment on now that there's been more I guess builders kind of realizing that there's good demand at the entry level, what's happened to land prices, I guess for the last several years you guys were one of the few that was down about taking advantage of the entry level demand while other builders hadn't really realized that, that was a good segment to be in, but has that affected your land costs. What's your outlook there.?

Eric Lipar -- Chief Executive Officer & Chairman of the Board

Yes, I think land prices over the last few years have always went up and we predict they're going to continue to go up. There's certainly a lot of other builders talking, about buying entry level land. So I think that's driving prices. We certainly haven't seen price discounts in land. We think there's enough demand for all of us to have success in the entry level market and we're confident in the buy that we've made.

We have a little bit larger land supply than most builders at 50,000 owned or controlled lots or really in good position for our land. So we don't have to make stretch decisions or we'll stick to our discipline in underwriting and acquisitions, but we do anticipate land prices continue to go up.

Alex Barron -- Housing Research Center -- Analyst

Okay. And are there any new markets on the horizon that you plan on entering?

Eric Lipar -- Chief Executive Officer & Chairman of the Board

Well, I think the focus right now is primarily on the markets we've already invested the capital in and going deeper in those markets. We just had our first closing in the mid Atlantic market which is the Washington D.C. area. So that's exciting starting to see results from the investment we spent out there. Columbia, South Carolina is on the radar, Richmond Virginia is on the radar. And then just going a lot deeper into the Sacramentos and the Las Vegas' another world deeper we have some new markets, treasury markets if you will in Florida, that'll be coming online this year. So a lot of growth across the country.

Alex Barron -- Housing Research Center -- Analyst

All right. Best of luck. Thank you.

Eric Lipar -- Chief Executive Officer & Chairman of the Board

Nice. Thanks Alex.

Alex Barron -- Housing Research Center -- Analyst

You're welcome.

Operator

Thank you and I'm not showing any further questions. I'll now turn the call back over to Mr. Eric Lipar for closing remarks.

Eric Lipar -- Chief Executive Officer & Chairman of the Board

Thank you Bridger (ph) everyone for participating on today's call and for your continued interest in LGI homes. Have a great day.

Operator

Ladies and gentlemen this does conclude the program, you may now disconnect.

Duration: 45 minutes

Call participants:

Rachel Lyons Eaton -- Chief Marketing Officer

Eric Lipar -- Chief Executive Officer & Chairman of the Board

Charles Merdian -- Chief Financial Officer & Treasurer

Michael Jason Rehaut -- JP Morgan Chase -- Analyst

Nishu Sood -- Deutsche Bank -- Analyst

Stephen East -- Wells Fargo -- Analyst

Jay McCanless -- Wedbush -- Analyst

Carl Reichardt -- BTIG -- Analyst

Alex Barron -- Housing Research Center -- Analyst

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