Champion Homes, Inc. (SKY) - Q1 2026 10-Q Summary
Business Context and Reporting Period
This report covers the quarterly period ended June 28, 2025 (First Quarter of Fiscal 2026). Champion Homes, Inc. is a leading producer of factory-built housing in the U.S. and Canada, operating 42 manufacturing facilities in the U.S. and 4 in Canada, alongside 82 retail sales centers. The company recently acquired Iseman Homes, Inc. in May 2025 to expand its retail footprint in the North Central U.S.
Key Financial Metrics
| Metric | Q1 2026 (Ended June 28, 2025) | Q1 2025 (Ended June 29, 2024) |
|---|---|---|
| Net Sales | $701.3 million | $627.8 million |
| Gross Profit | $189.8 million (27.1% margin) | $164.2 million (26.2% margin) |
| Operating Income | $78.5 million (11.2% margin) | $55.4 million (8.8% margin) |
| Net Income (Attributable to CH) | $64.7 million | $45.8 million |
| Diluted EPS | $1.13 | $0.79 |
| Adjusted EBITDA | $94.2 million | $75.0 million |
| Cash from Operations | $75.3 million | $84.6 million |
| Cash and Equivalents | $605.3 million | $548.9 million |
| Total Debt (Long-term + Floor Plan) | $127.8 million | $130.9 million |
Material Changes vs. Prior Period
- Revenue Growth: Net sales increased 11.7% year-over-year, driven by a 6.5% increase in U.S. homes sold and a 3.6% increase in average selling price. Canadian sales surged 44.8% due to higher volume.
- Profitability: Gross margin expanded to 27.1% from 26.2%, aided by higher retail pricing and reduced purchase accounting impacts from prior acquisitions. Operating income rose 41.8%.
- Acquisition: The company acquired Iseman Homes for approximately $26.9 million, adding 10 retail centers. This contributed to segment growth but incurred transaction costs.
- Plant Consolidation: The company idled the Bartow, Florida facility and announced the closure of the Kelowna, British Columbia facility, incurring $3.9 million in closure costs.
- Backlog: Manufacturing backlog decreased to $302.5 million from $404.8 million due to lower customer orders and higher production rates.
Outlook, Risks, and Unusual Items
- Share Repurchases: The company repurchased $50.0 million of common stock during the quarter. The Board authorized an additional $50.0 million in July 2025, bringing the total program authorization to $150.0 million.
- Product Liability (Water Intrusion): A significant contingent liability exists regarding water intrusion in homes built prior to fiscal 2022. The company recorded a $34.5 million charge in the prior year. The estimated loss range is now $34.5 million to $77.5 million. The company expects to recover some costs from material suppliers but cannot record an offset yet.
- Internal Controls: Management identified a material weakness in internal controls related to the retail operations of Regional Homes (acquired in 2023), specifically regarding manual controls and financial review. Remediation is underway.
- Tax Legislation: The "One Big Beautiful Bill Act" (OBBBA) was signed July 4, 2025. The company is assessing its impact, which could be material to future tax provisions.
- Liquidity: The company maintains a $200 million revolving credit facility with $172.5 million available as of June 28, 2025. A new credit agreement extending maturity to 2030 was signed in July 2025.
Investor Verification Checklist
- Backlog Trend: Verify the sustainability of sales given the 25% decline in manufacturing backlog compared to the prior year.
- Water Intrusion Liability: Monitor updates on the remediation plan and the potential for cost recovery from suppliers, as the liability range remains wide ($34.5M - $77.5M).
- Internal Control Remediation: Track progress on fixing the material weakness in Regional Homes' retail accounting to ensure future financial statement reliability.
- Plant Closure Execution: Confirm the timeline and final costs associated with the Kelowna, BC facility closure planned for Q2 2026.
- Interest Rate Sensitivity: Assess the impact of the high cash balance ($605M) and floor plan payables ($103.7M) on net interest income as rates fluctuate.