Please note this conference is being recorded. I will now turn the call over to Chris Hibbetts, Vice President of Finance and Investor Relations for Forestar.
Thank you, Paul. Good morning, and welcome to our call to discuss Forestar's second quarter results. Before we get started, I want to remind everyone that today's call includes forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995.
Although Forestar believes any such statements are based on reasonable assumptions, there is no assurance that actual outcomes will not be materially different. All forward-looking statements are based upon information available to Forestar on the date of this conference call, and we do not undertake any obligation to update or revise any forward-looking statements publicly.
Additional information about factors that could lead to material changes in performance is contained in Forestar's annual report on Form 10-K and its most recent quarterly report on Form 10-Q, both of which are filed with the Securities and Exchange Commission.
Our earnings release is on our website at investor.forestar.com, and we plan to file our 10-Q later this week. After this call, we will post an updated investor presentation to our investor relations site under Events and Presentation for your reference. Now, I will turn the call over to Andy Oxley, our President and CEO.
Thanks, Chris. Good morning, everyone. I'm also joined on the call today by Jim Allen, our Chief Financial Officer, and Mark Walker, our Chief Operating Officer. Forestar team achieved solid second quarter results, generating revenues of $374.3 million, a 7% increase from the prior year quarter on 2,938 lots sold.
Our pre-tax income increased 8% from the prior year quarter to $43.9 million. Our book value per share increased 10% from a year ago to $35.66, and our contracted backlog remains strong, with visibility towards $2.2 billion of future revenue.
Persistent affordability constraints and cautious consumer sentiment continue to impact the pace of new home sales. In response, we are managing our inventory investments with discipline and flexibility, which allowed us to end the quarter with more than $1 billion of liquidity.
We remain focused on turning our inventory, maximizing returns, and consolidating market share in the highly fragmented lot development industry. Our unique combination of financial strength, operating expertise, and a diverse national footprint enables us to consistently provide essential finished lots to home builders and navigate current market conditions effectively. We will now discuss our second quarter financial results in more detail. Jim?
Thank you, Andy. In the second quarter, net income attributable to Forestar increased 2% to $32.1 million, or $0.63 per diluted share, compared to $31.6 million or $0.62 per diluted share in the prior year quarter.
Our pre-tax income increased 8% to $43.9 million, compared to $40.7 million in the second quarter of last year, and our pre-tax profit margin this quarter was 11.7% compared to 11.6% in the prior year quarter.
Revenues for the second quarter increased 7% to $374.3 million, compared to $351 million in the prior year quarter. The current quarter includes $42.9 million in tract sales and other revenue, which was primarily from sales of residential and commercial tracts, and to a lesser extent, our second sale of a multi-family site. Mark?
We sold 2,938 lots in the quarter, with an average sale price of $112,800. We expect continued quarterly fluctuations in our average sales price based on the geographic and lot size mix of our deliveries.
Our gross profit margin for the quarter was 21.4%, compared to 22.6% for the same quarter last year. The current quarter margin includes $6.3 million of land option charges related to deposits and pre-acquisition cost write-offs, compared to $900,000 in the prior year quarter. Excluding the effect of the net change in write-offs, our current quarter gross margin would have been approximately 22.9%. Chris?
In the second quarter, SG&A expense declined 1% to $37.9 million, or 10.1% as a percentage of revenues, compared to $38.4 million or 10.9% in the prior quarter. Our head count decreased 8% from a year ago as we remain focused on efficiently managing SG&A while maintaining our strong operational teams across our national footprint to support future growth. We expect our head count to remain relatively flat for the remainder of the year. Jim?
D.R. Horton is our largest and most important customer. 14% of the homes D.R. Horton started in the past 12 months were on a Forestar-developed lot. With a mutually stated goal of 1/3 of the homes D.R. Horton sells to be on a lot developed by Forestar, we have significant opportunity to grow our market share within D.R. Horton.
We also continue to expand our relationships with other home builders. 17% of our second quarter deliveries, or 488 lots, were sold to other customers. We sold lots to 12 other home builders this quarter, including 3 new customers. Mark?
Our lot position at March 31st was 94,400 lots, of which 63,500 or 67% was owned and 30,900 or 33% were controlled through purchase contracts. 9,300 of our own lots were finished at quarter end, and the majority are under contract to sell.
Consistent with our focus on capital efficiency, we target owning a 3- to 4-year supply of land and lots and manage development in phases to deliver finished lots at the pace that matches demand.
At quarter end, 24,100, or 38% of our own lots were under contract to sell. $209 million of hard earnest money deposits secure these contracts, which are expected to generate approximately $2.2 billion of future revenue.
Our contracted backlog is a strong indicator of our ability to continue gaining market share in the highly fragmented lot development industry. Another 29% of our own lots are subject to a right of first offer to D.R. Horton based on executed purchase and sale agreements. Chris?
Forestar's underwriting criteria for new development projects remains unchanged at a minimum 15% pretax return on average inventory and a return of our initial cash investment within 36 months. During the second quarter, we invested approximately $279 million in land acquisition and land development.
Roughly 80% of our investment was for land development and 20% was for land acquisition. Although we have moderated our land acquisition investment over the last year, our team remains disciplined, flexible and opportunistic when pursuing new land acquisition opportunities.
Our current land and lot position will allow us to return to strong volume growth in future periods, and we still expect to invest approximately $1.4 billion in land acquisition and development in fiscal 2026, subject to market conditions. Jim?
We have significant liquidity and are using modest leverage to keep our balance sheet strong and support our growth objectives. We ended the quarter with more than $1 billion of liquidity, including an unrestricted cash balance of $362 million and $672 million of available capacity on our undrawn revolving credit facility.
During the quarter, we increased the capacity of our senior unsecured revolving credit facility by $50 million. In addition, we collected $130.9 million of reimbursements related to infrastructure costs in utility and improvement districts.
Total debt at March 31st was $793.5 million, with no senior note maturities in the next 12 months, and our net debt to capital ratio was 19.2%. We ended the quarter with $1.8 billion of stockholders' equity, and our book value per share increased 10% from a year ago to $35.66.
Forestar's capital structure is one of our biggest competitive advantages, and it sets us apart from other land developers. Project-level land acquisition and development loans are less available and have become more expensive in recent years, impacting most of our competitors.
Other developers generally use project-level development loans, which are typically more restrictive at floating rates and create administrative complexity, especially in a volatile rate environment.
Our capital structure provides us with operational flexibility while our strong liquidity positions us to take advantage of attractive opportunities as they arise. Andy, I will hand it back to you for closing remarks.
Thanks, Jim. The Forestar team remained focused on execution in the second quarter, delivering higher revenues and profits and a stronger balance sheet. As outlined in our press release, we are updating our fiscal 2026 lot delivery guidance to 14,000-14,500 lots while maintaining our revenue guidance of $1.6 billion-$1.7 billion.
Our teams have a proven track record of adjusting quickly to changing market conditions. We are closely monitoring each of our markets as we strive to balance pace and price to maximize returns for each project. Our national footprint and more than 200 active projects represent a strategic advantage, providing flexibility to allocate capital based on local market conditions.
While home affordability constraints and cautious homebuyers are expected to remain near-term headwinds for home demand, we are confident in the long-term demand for finished lots and our ability to gain market share in the highly fragmented lot development industry.
Consistent execution of our strategic and operational plans, combined with a constrained supply of finished lots across much of our diverse national footprint, positions us well for further success. With a clear strategy, a strong team, and solid operational and financial foundation, we are optimistic about Forestar's future. Paul, at this time, we will open the line for questions.
Thank you. At this time, we'll be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue.
You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. The first question today will be from Ryan Gilbert from BTIG. Ryan, your line is live.
Thanks. Hi. Good morning, guys. I was hoping you could talk a little bit more about your goals for market share in the context of the reduction that we've seen in controlled lots, I guess this quarter, but then also the last couple of quarters as well?
Good morning. What we've encountered is with a lot of lots in the home builders' portfolio that they gradually work through in Q4 and Q1, now accelerating starts and sales in Q2, we anticipate going back to a more robust lot closing pattern in the second half of fiscal 2026.
Okay, got it. I was hoping you could expand a bit on the land option charges that you incurred in the quarter. Was that concentrated in a single community or a handful of communities? Was it more widespread? I guess, how are you thinking about that line going forward?
Yeah, it was in a handful of communities. The team remains focused and disciplined on our approach to land acquisition. If a project falls outside our underwriting standards, the team works to bring that project back in line, or we just simply move on from the project.
As we evaluate these month to month, quarter to quarter, the team tries to work them back into the queue, but our pipeline remains very robust, so we don't have to go through and purchase assets that don't meet our standards.
Okay, got it. Last one for me, just on, given the cash position and where the stock is trading, what's your appetite or how are you thinking about share repurchases here?
Well, we still continue to believe that our best use of cash is investing for future growth of the business. However, maintaining strong liquidity gives us flexibility to respond to further changes in market conditions as well as the ability to take advantage of opportunities as they arise.
Okay. Thanks very much.
Thank you. Once again, that will be star one on your phone at this time if you wish to ask a question on today's call. The next question is coming from Trevor Allinson from Wolfe Research. Trevor, your line is live.
Hi. Good morning. Thank you for taking my questions. First question's on demand trends you've seen from other builders other than D.R. Horton. I believe your sales to those builders were down close to 50% year- over- year, and if I recall correctly, last quarter they were up. Can you just talk about more generally the trends there? Is that just a comp issue due to sales to a lot banker? Any color on demand from those other customers would be helpful.
Yeah, we're still seeing and hearing strong demand from our other customer base. That remains strong. I think to Andy's point earlier, the industry just continues to work down inventory levels. I really think it's just based off the cadence on when those communities are coming online.
Yeah, to your point, last year we did have 362 lots that were sold to a lot banker, so that influenced the number from last year, so.
Okay. Gotcha. Makes sense. The next question on fuel prices obviously moving higher across the country. Can you just remind us what portion of development costs fuel account for? Are you able to pass those along to your customers? Are there any concerns about gross margins as we get into the back half of this year and to early next year from higher fuel costs? Thanks.
Yeah. As of today, we're not seeing cost increases due to fuel charges, but we're closely monitoring it. Contractor availability continues to free up, which is contributing to cost and time improvements.
Okay. All right. Thank you for all the color, and good luck moving forward.
Thank you.
Thank you. There were no other questions at this time. I would now like to hand the call back to Andy Oxley for any closing remarks.
Thank you, Paul, and thank you to everyone on the Forestar team for your focus and hard work. Stay disciplined, flexible, and opportunistic as we continue to consolidate market share. We appreciate everyone's time on the call today and look forward to speaking with you again to share our third quarter results on Tuesday, July 21st.
Thank you. This does conclude today's conference, and you may disconnect your lines at this time. Thank you for your participation.