Life Storage, Inc.

Good day and welcome to the Life Storage Inc. second quarter 2020 earnings call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touch-tone phone. To withdraw your question, please press star then two. And now I'd like to turn the conference over to David Dodman, Senior Vice President of Investor Relations. Please go ahead.

Good morning, and welcome to our second quarter 2020 earnings conference call. Leading today's discussion will be Joe Sapphire, Chief Executive Officer of Life Storage, and Andy Gregory, Chief Financial Officer. As a reminder, the following discussion and answers to your questions contain forward-looking statements. Our actual results may differ from those projected due to the risks and uncertainties with the company's business. Additional information regarding these factors can be found in the company's SEC filings. A copy of our press release and quarterly supplement may be found on the investor relations page at lifestorage.com. As a reminder, during today's question and answer session, we ask that you please limit yourself to two questions to allow time for everyone who wishes to participate. Please re-queue with any follow-up questions thereafter. At this time, I'll turn the call over to Joe.

Good morning, and thank you for joining us. I hope that you and your families are all safe and healthy. Although the second quarter's results were not as we planned earlier this year, I can say that I feel more confident today as compared to late March and early April. As an essential business, we were extremely proactive ensuring our stores remained open and our employees and customers felt safe conducting business during these difficult times. Our strategic focus on enabling customers to self-serve with rent now has been a key differentiator for us during the past couple of years, and I believe that is evident in our results. Move-ins during April, the height of the stay-at-home orders across the country, were only down 15% year-over-year, which compared favorably across our sector. And from a financial perspective, same-store payroll and benefits were down 7.3% for the quarter, our seventh straight quarter of year-over-year decline. Rent now hasn't been the only reason for that trend, as we have had several efficiency initiatives underway to improve our store operating margin, but it has clearly been an important contributor. Rent now seems to have settled in at around 30% to 35% of rentals after spiking to 50% in April. It is clear to us that customers continue to embrace this new platform and will continue to do so at a much higher rate than pre-COVID days. I am also pleased that self-storage is once again proving to be resilient in a very difficult macroeconomic environment. We have remained hopeful that there would be pent-up demand, and July activity was indeed strong, with same-store move-ins up 16.5% for the month. Furthermore, in June, we resumed both our auction processes and our ECRI program after pausing both early in the second quarter. And both of those initiatives have accelerated through July, with only limited exceptions in certain states. Since asking rate pressures remains, occupancy is an important lever for us, and we grew same-store occupancy 170 basis points year over year, to 93% as of the end of July. Even after adjusting for auctions that could not be performed, we estimate occupancy as of July 31 to be at 92.3%, which is 100 basis points over July 2019. Considering we were 50 basis points lower in year-over-year occupancy as of March 31 of this year, we have many more customers on our platform relative to both the start of the pandemic and also this time last year which will serve us well going forward. This is an outstanding accomplishment by our team. And lastly, although much more is clear to us today as compared to spring when we pulled our 2020 guidance, uncertainties remain and continue to make it difficult to restore reliable and precise guidance. With that said, based on what we know today with regards to the recent momentum, current market trends, and demonstrated cost control, We anticipate that the second half of 2020 will be stronger than the same period last year as it relates to adjusted funds from operations per share. And I'll turn it over to Andy to walk through the details of the quarter.

Thanks, Joe. Last night, we reported adjusted quarterly funds from operations of $1.42 per share for the second quarter, equal to the same period last year, despite the challenging macroeconomic environment and COVID-related disruptions. Same-store revenue declined 2%, while same-store NOI was lowered by 2.5%. Revenue was impacted by lower move-ins, lower street rates, higher free rent, and significant curtailment of rent increases to existing customers. We believe the resiliency of our platforms is evident in the fact that same-store move-ins were only lowered by 3.4% for the quarter, despite broad stay-at-home orders across the country for much of that time. Partially offsetting that lower same-store revenue was our third straight comparative quarter of declining same-store operating expenses, which were down 1.2% overall and lower by 5.3% excluding property taxes. Once again, every expense line item was lower except for property taxes and digital marketing. As Joe mentioned, our efficiency initiatives remained firmly on track despite the COVID-related market disruptions. Same-store property taxes were up 5.8%, and same-store total marketing increased 27.6% for the quarter compared to the same period last year. Importantly, our balance sheet and liquidity remained strong. At quarter end, we had cash on hand of $9.5 million and $341.9 million available on our line of credit. We also have an accordion feature available on our line that would add an additional $300 million of available credit should we exercise that option. Our net debt to recurring EBITDA ratio was six times, and our debt service coverage was a healthy 4.4 times at June 30th. We have no debt maturities until August of 2021 with $100 million due, and then not again until 2023 with roughly $165 million due. Our average debt maturity was 6.3 years, and the percent of our total debt at its fixed rate was 92% at June 30th. We continue to monitor receivables very closely, and although our accounts receivable over 90 days remains elevated since the onset of the pandemic, we collected 99% of rental income in the second quarter of 2020 as compared to pre-COVID-19 levels. We have resumed auction activity in the vast majority of our markets, and believe that we have adequately reserved for elevating accounts receivable. As a result, bad debt expense for the quarter was approximately $1 million higher than historical levels, which has reduced net revenues as presented in our quarterly financial statements. We remain extremely diligent managing our liquidity. Our capital commitments are almost completely discretionary, and we only make such commitments when we are comfortable with funding availability and our ability to maintain a strong balance sheet. We believe we have adequate liquidity to manage through a sustained period of disruption. And with that, operator, we will now open the call for questions.

And we will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. And our first question today will come from Aloua Astarko-Beck with Bank of America. Go ahead.

Hi, everyone. Thank you for taking the questions today. So I just had a few quick questions about the new tiered pricing system. Do you guys have more data around now what the preference from customers is for the certain tiers? And then is there a certain, like, rule of thumb for the pricing, like in terms of maybe standard is more in line with street rates and premium is 20% to 30% more, something like that?

Yeah, hi, Al. That's Joe. Thanks for the question. It's still too early to really provide any sort of details as to customer behavior. But, you know, I think the real goal of it was to provide, you know, a better, you know, offering to our customers. We saw that right now was picking up, and this really takes it to the next level. We ultimately believe this is what customers want. They want more choice. They want to be able to choose. have a little bit more control over the type of space they're getting. So we don't yet have that detail, but we watch it closely, and we're pretty much adjusting some of the pricing differentials between the three options as we learn more about customer behavior and what their preferences are. But you're right, the standard rate is pretty much the street rate, and we'll give a slight discount, you know, 5-plus percent for a value spot, if it's a spot we're trying to move that's been hard to rent. And then obviously there's the premium spot, which we believe is great because there's a lot of customers who will just take the convenient spot. Those who are getting a space because of their business, pharmaceutical rep and so forth, and they're not as price conscious and they want that great location. So thanks for the question, but right now it's still a little early to kind of give you any sort of ideas to the customer behaviors

Got it. Okay, thank you. And then just quickly on the units up for auction, are there certain markets that those are concentrated in?

Yeah, there are, Elva. There's New York, California, Nevada, Austin, Texas. There's some certain areas where the auction process could not begin. So those are the ones that are driving it.

And we have started the process for some of those. I think New York and California are we've gotten the okay to go ahead and start the process, which can be quite lengthy, but at least it's a good sign that, you know, we're able to start moving on those markets as well.

Got it.

Thank you, guys. And the next question will come from Fabian Rose with Citi.

Please go ahead.

Spades, we can't hear you. Operator?

Pardon me, Spades. Your line might be muted. Hearing no response, moving to the next question, and that will come from Todd Thomas with KeyBank Capital Markets.

Please go ahead. Hi, thanks. Good morning. Andy, thanks for the detail on the bad debt expense in the quarter. Are you expecting any additional reserves in the third quarter, or should that normalize going forward?

You know, Todd, there will be additional reserves. If you think about those customers that should have been auctioned, right, they should have been auctioned at the end of June or July. They're still with us in August, so another month's rent post, so we'll reserve for that. But no additional pre-current month reserves. So we've reserved everything through June 30th that we thought was uncollectible. Most of it did relate to those greater than 90 days. The under 60 days has been pretty typical, gone back to typical levels. But the above 90 days, those spaces that should have been auctioned, that will continue to grow. So we'll have to continue to grow the reserve. So in effect, we're not recording that revenue each month that person, each additional month they're with us that they're not paying us. We just reserve that additional month.

Just so I understand, the million dollars of above average reserves that you recorded in the second quarter, will that continue to increase into the third quarter or it will actually begin to normalize more in the third quarter?

It should normalize as we go through all the auctions process. We had normal auctions in June. We started those. We did a great job. Our teams did get those done. July, we did auctions, typical. So we've got to get through some of these states. We'll go all the way through October. So California and New York will go through October. Most of the other states should be done by September 30th. So if the auctions are completed, that customer should be gone and the reserve related to that customer should go away as well.

Okay, got it. And then? I was wondering if you can comment at all on August. We're a full week in here. Has the pent-up demand that you saw that you described in July, has that continued into August, and can you comment on August activity at all?

Yeah. July actually obviously was a great month. It started to slow a little bit towards the end of July, but actually the early part of August, we've seen the calls come in, the volumes. So, yeah, it's been – I still believe there's some demand out there, pent-up demand, better than last year. Maybe not yet to the extent of July. Early July was incredible, the July 4th weekend, but it's still up. We're very pleased. You know, the call volume, you know, the call center has been very busy, the web traffic. So, yeah, we're seeing some nice, you know, continued momentum, pent-up demand. You know, I think this – Todd, I think there's just a lot of new demand because of COVID-19. You know, new reasons to use storage. There's a lot of people doing, you know, remodeling of their homes, you know, kitchens because everyone's cooking, or home offices, they're trying to make rooms. So there's a lot of interesting things going on, and that might be, you know, a longer customer as well. It'll be interesting to see how long this new demand sticks.

Okay, and August has typically been, I think, a net move-out month. You know, are you under the impression that, you know, this peak leasing season could be a little bit more elongated and that, you know, we might see, you know, a little bit of a stronger, I guess, like seasonal, you know, leasing environment for an extended period of time?

Yeah, it's interesting, Todd. You know, that's why it's making it so difficult to try to provide reinstate guidance, just so many unknowns, you know, things happening this time of year are so unusual. Unchartered waters, you know, we're doing rate increases more so in August than we had in previous years. So, you know, it's really hard to gauge. Look at the college students. Are they going back to school? Are they not going back to school? Are they vacating? So there's a lot of moving parts, which is making it hard to, you know, gauge what will happen. But I think just given the last few months, that move-outs will probably be better than last year, and move-ins hopefully will also be better. So not positive, but, again, it's hard to predict. But, you know, we're not complaining. We're in a good spot with demand coming back and, you know, all of the ones who reported, you know, occupancy looks good. So it's a good sign for our sector.

Okay.

Thank you.

Thank you, Todd.

And the next question will come from Spencer Allen with Green Street Advisors. Please go ahead.

Thank you. You mentioned in your prepared remarks you've been able to accelerate rate increases in July. Can you just comment on how the magnitude of these increases compares to rates you would have sent out pre-COVID?

Yeah. So it's, you know, we... Like I said, the earlier question to Todd, you know, it is uncharted waters. We're doing these rate increases at an unusual time of year. You typically want to do these when, you know, it's the beginning of the peak season and, you know, you're not so worried about move outs because the phones are ringing more. But, you know, the demand has been strong and obviously we're doing our best to catch up on that lost revenue. You know, I think we've, in terms of volume, I have it here. You got it, Andy?

Yeah, I do. Spencer, in July, we did one and a half times what we did last July for rent increases to existing customers. So volume-wise, we did one and a half. It's about the same rate, high eights, just about 9% rate increase to that customer, but we did send out one and a half times the letters this July versus last July.

And for August as well, you know, August, you know, we did more volume this year in August, more than two times the amount of volume in August as well. And we've already put in letters for September increases. So all three months, much higher than last year. And, you know, I think hopefully we can achieve at least 85% of the volume that we did last year by the end of the third quarter.

Okay, great. Thanks for the call, Eric.

Thanks, Spencer.

And the next question will come from Spadys Rose with Citi. Please go ahead.

Sorry about that earlier. Technical difficulty there. I was just hoping maybe you could comment a little bit about what, if anything, you've seen on supply in your portfolio, if it's moved at all in terms of prior pre-COVID expectations and sort of on that front as well, if you're seeing anything, any sort of changes on the potential acquisition side in terms of pricing, things becoming more interesting or people holding pretty fast?

Yeah, nice to meet you. So, yeah, supply, you know, we felt last year was the peak for our markets and our stores. You know, obviously our two largest markets, Chicago and Houston, had probably the, I think they were number 29 and 30, the top 30 markets of new supply coming on. And that's what we've experienced. I think in the last 12 months, from June 2019 to June 2020, we had about 65 stores open within a three-mile radius. That compares to about 144 from 2018 to 2019. So that's encouraging. And in fact, for the first part of this year, we were just talking about it, you know, what's open this year, probably because of COVID, et cetera. We only have in our top 10 markets, you know, maybe a dozen or so stores. So that bodes well for new supply markets. So we're encouraged by that. You know, we felt coming into 2020 that we were in a good spot with new supply. Obviously, we're still, you know, dealing with all of the supply that's been built up over the last several years. But it is a good sign for us, you know, and you're starting to see some of the occupancy improve, and hopefully rates will now follow. So we're encouraged by that. In terms of acquisitions, you know, obviously things kind of, quieted down, uh, during the, uh, uh, especially April and May, uh, with uncertainty on the markets, uncertainty on how you're even going to do due diligence. So some deals that were being marketed were pulled, um, sellers were not willing to sell. It was quite difficult to, you know, what's the new norm and how do you, how do you, uh, do your pro formas? Uh, I think it's going to start picking up again. I think, um, clearly there's a little bit more visibility into the sector and what's going on. Street rates may not be where they're being, but I think activity should pick up. We haven't seen any sort of distressed assets on the lease-up side, but we're in a great position to take advantage of any opportunities. So we'll see what happens, but I would expect the second half of the year things to pick up.

Okay, thank you.

Thanks Mitch.

And once again, if any analysts would like to ask a question, please press stars and one. And this will, we have a followup question from Todd Thomas with Kiva and Capital Markets. Please go ahead.

Yeah. Hi, thanks. Um, You mentioned the, you know, we've talked about the increase in leasing that you saw from students back in March, and you mentioned, you know, some of the uncertainty around schools. Would it be, you know, good or bad for self-storage for your customer stays if the schools don't open? You know, do you start to see move-out activity from that, or does that just lengthen their stay?

Yeah, it's like, you know, it's already a longer stay than normal, Todd. You know, it's a positive. Clearly, when COVID was hitting, it was nice to get that supply. It's not that significant, and there's smaller spaces typically for us. But, you know, to have that customer, you know, a little bit longer than normal, maybe even be eligible for a price increase, not that that's something that we would focus on. But, you know, they could stay an extra month or two. It wouldn't hurt. Again, they're smaller spaces, which are typically harder to rent anyway.

Okay. And then I don't know if you mentioned this at all, but can you talk about where move-in rates were throughout the quarter and in July, and then with where rates are today, what the spread is between move-out and move-in rates for customers?

So, Todd, our street rates in this quarter were down 18% on average. They started the quarter down like 19.5%, ended the quarter down 16.5% or so. July was down 13%. So it's moving in the right direction. We like the trend we're seeing even a little bit better in August. It actually moved into single digits, but still down. So we're in good shape which way rates are going.

And what about the spread relative to customers moving out?

During the quarter, our rent roll-down was 8.1%, meaning our move-ins were paying 8.1% less than our move-outs. That improved to 5.5% or so in July, meaning down 5.5% in July. So not significant, but more roll-down than we've seen historically.

Okay. And just one last question. Joe, the language that was put in the press release, and you talked about the second half, where you're expecting adjusted FFO growth to be above that of the second half of 2019. You know, we're seeing trends improve, but there's still a lot of uncertainty around, you know, the virus, but also stimulus and fundamentals, which you've noted, you know, sort of the elevated uncertainty, right? So I'm just curious if you can walk through that decision. you know, and how confident you are in the outlook and whether there's something that you think that, you know, the investment community or, you know, the market's missing a little bit, you know, with LSI.

Yeah, obviously, Todd, you know, we're making that statement based on, you know, how the economy is doing today. You know, it doesn't take into account if there's a major second shelter in place or a pullback. I don't think that could happen, but, you know, I think We'll see. But it really takes, you know, a look at where we are today and what we know today. We know a lot more today than we did, you know, in our last earnings call. You know, last earnings call, we didn't know what collections were going to be. Were they going to get continually worse? We didn't know if there was going to be any demand. You know, there was a lot of uncertainty. We didn't know if we could do auctions. We didn't know if we could do rate increases. So a lot of that, you know, we do know today. So we're trying to give some sort of, you know, goalpost in a way, even if it's just, you know, a floor. as to what we should expect in the second half of the year. We finished July. We've got five more months to go. The start of August looks pretty good. So we feel pretty confident to at least put that in there. We're putting rate increases in. We started those in June. We've done July. We've started August. So we have a view on where move-outs are going. Again, there's some risk. We don't know how... Move-outs will react this time of year. It's a different year. It's uncharted waters, so it's difficult to give full guidance because we could see move-outs pick up. Again, we're typically going into a slower part of the season, so there's a little risk there, but we are doing our best to try to recapture some of that lost revenue. Then there's the expense controls. We feel very comfortable with what we have budgeted for expenses. And, you know, we've gotten through the second quarter and through July. And, you know, we've done a very good job with expense control. And so that's a big part of, you know, where we feel we can end the year. So taking that all into consideration, you know, we are trying to provide a little transparency to our investors. It's not full guidance, but it's a little something which we hope is appreciated and And, you know, obviously if things continue to improve and, you know, at the end of the quarter we're in a different position, we would try to reinstate. You know, we just, we don't know. But clearly things are a little, obviously a lot better in terms of what we see compared to, you know, late March.

Okay. That's helpful. Thank you.

Thanks, Todd.

And the next question will come from John Peterson with Jeffrey. Please go ahead.

Great. Just a couple questions for me. So on the Rent Now business, I think you mentioned that it made up 50% of your leases in April. It looks like it kind of pulled back a little bit as the quarter went on. But I guess I'm just trying to – you guys have obviously been at the forefront of this contactless leasing before contactless was a thing. Can you give us any more quantitative, I guess, understanding of how much of a differentiator that was for you in the second quarter and whether it was higher rents or upselling or anything like that you've been able to do with that product?

Well, you know, listen, we're very proud of it. And thanks for the question. You know, we've had it launch for almost two years. And, John, it's, you know, the team was comfortable with it. We weren't scrambling at the last minute to try to figure out how to, you know, promote contact less. The team was trained, and many other storage providers did a great job of providing that sort of option for customers, but we weren't rushed to do it. We had our processes in place. We figured out our areas to improve over the last 18 months or so, and then obviously we fast-forwarded and rolled out quicker than we expected the RentNow 2.0, the value option of various spaces options. You know, we did a great job with that. Did it help us? Maybe. You know, I think obviously our move-ins in May, I think we're leading in the sector. You know, we did a great job, so maybe we got more than our fair share of move-ins. And our occupancy has really improved. And I think that's been a part of it, the rent now. Our close rate is improving. So there's a number of factors. It's not all rent now, but clearly I think it put us in a great position You know, as the phones were ringing and starting to re-ring to get more customers, and you saw how our occupancy has improved through the end of July, even without, you know, even if we discount the auction piece of it where we can't do the auctions, our occupancy is still much better today than we had anticipated pre-COVID for this year. So we're very pleased with that, and I'm very proud of the team and very proud of what we've done with Ren now. And we continue to look for ways to make it a better platform for our customers. So thanks for the question.

That's great. If I understand Rent Now 2.0 correctly, I think it's about, you know, allowing customers to kind of choose their facility. And, I mean, there's obviously an upsell component there, right, be closer to the elevator, be, you know, be wherever they want to be. I mean, can you give us a sense of what percent of customers, you know, ended up choosing a higher-priced unit, you know, after initially signing up?

Yeah, John, you know, the question was asked earlier. It is still a little early to try to, you know, provide sort of, you know, customer behavior. It's an unusual period of time, even with COVID. But, no, we don't have it. I can tell you, though, that customers are choosing all three options. And it's, you know, obviously, you know, it's going to be what's available because you may not have a – we may not have a value spot available. It's really going to depend on inventory. that's how fluid the offering is. So if there are no premium spaces, that option doesn't show up for their customers. But it's something we're monitoring and we'll continue to monitor it and we'll adjust pricing if needed to see how it goes. But it's still early to say, but at least we're providing our customers options. They're not just stuck with one particular unit where they don't know where it is. And like I said earlier, in particular for those who want a premium space and they're not price sensitive, they'll have that option.

Okay. All right. That's helpful. And then just one last question. I think you guys mentioned kind of third-party management a little bit, but I guess how do you anticipate over the next few quarters, you know, that business changing? Are there more opportunities? Are there less opportunities, you know, given the COVID environment and the recession?

Yeah, we're very bullish on third-party management. Obviously, you know, the REITs do a great job of managing. It's becoming more difficult for smaller operators to compete, given things like RedNow and, you know, our revenue management platforms, our SEO experience, expertise, and so forth. So it is getting harder. I think that will mean that more stabilized stores may turn to third-party management. Typically, it's been a lot of the new construction. You know, typically that's, you know, 80%, 70%, 80% of your new contracts. That may shift. Our pipeline has never been better. I'm very excited about the rest of the year. We clearly have some visibility as to which stores will be coming online, the new construction piece. We're very optimistic about 2020. We'll for sure hit our goal. Obviously, our name is getting out there. Our performance has been stellar in terms of You know, that's what owners look at. How do you perform in the market? So we have that behind us. And RedNow has been a great marketing tool for us. So we feel very good about our platform and the prospects for the rest of the year and beyond.

Okay, that's great. All right, thanks.

And the next question will come from Steve Sackwell with Evercore. Please go ahead.

Thanks. Just two questions, and if you answer them, I apologize. On just Warehouse Anywhere, any kind of updates on that or any kind of new trends that you're seeing in that business as a result of the pandemic?

Yeah, hi, Steve. Yeah, thanks for asking. You know, we love this business. You know, obviously, it's an important tool for us to capture that business customer. No one else has it. And we think with COVID, more and more businesses are going to be looking for more storage. So we're excited to have this tool. We did buy out our, as you may know, we had a minority, two partners in that business. We bought them out during the quarter, which we're very excited about. We own 100% of the technology now. We're excited about that. So every dollar of investment that we put into it is for us. The pipeline is very good. You know, COVID, you know, kind of had some hiccups in trying to get the pilot programs conducted. So we're kind of delayed a couple months to what we expected this year. But we're very excited about it. And, again, I think storage is going to continue to play a role in, you know, the last mile delivery and logistics. And with COVID, I think it's even more so. So we're very excited that we own 100% of the business now and look forward to growing it.

Could you just tell us what that buyout cost was of your partners? I assume it's not material, but any central dollar amounts?

Yeah, it was not material. $2 million is what the agreement was, and it was very amicable. There was an opportunity at the end of this year to have a formal process to buy them out, and we have a very great relationship with our partners. One is continuing on as an employee and a contributor to the business. And the other one who retired earlier this year is looking for ways to do more work with us in accessing the network. So we've got a very good relationship with both the partners, and there was an opportunity for that to liquidate. And for us, it's an opportunity to put it into third gear.

Okay, and then with, I guess, with the rent now 2.0, and I think you said about a third or so of the rentals are now kind of online, which is probably freeing up your managers and on-site folks to do other things. I know that payroll and benefits were down in the quarter. How do you just sort of think about sort of on-site personnel and just what you need to spend and the amount of people at the sites? What sort of efficiencies – uh, do you get by, you know, moving a third and possibly higher over time?

Yeah. I mean, that's, you know, it's one of the silver linings of COVID Steve is, is, is where right now, um, has ended up, you know, it was, it was kind of slowly creeping up from 8% to 9% to 10%, maybe 11, 12% by the end of the year and to jump to 30, 35%. And we think that's going to be the new norm is incredible. Um, And, you know, it definitely is helping our payroll. We're going to continue to look for ways to, you know, leverage that. You know, obviously you have store teams spending now a third less time at the counter. That's a lot of time. If you think about how much time, you know, one rental takes at the counter, it could be 30, 45 minutes to an hour by the time you're there showing where the space is, et cetera. So it's a lot of time. We've already, you know, found ways to reduce costs early on and will continue to do so. So we're constantly looking at ways to make the stores more efficient to reduce costs, and this is a big part of it. So obviously we're not looking to go 100% without any person at the stores. There's a lot that needs to be done, but we're excited about it and we'll continue to look at ways to leverage that.

Great, thanks. That's it for me. Thanks, Steve.

And this will conclude the question and answer session. I'd like to turn the conference back over to Joe for any closing remarks.

Well, everyone, thank you so much for joining the call this morning. I continue to wish everyone safekeeping and be well. Enjoy the rest of the summer, and we look forward to talking again soon. Thank you.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect your lines at this time.