MHO - NYSE

Good morning, ladies and gentlemen, and welcome to the M/I Homes Second Quarter Earnings Conference Call. [Operator Instructions] This call is being recorded on Wednesday July 23, 2025. I would now like to turn the conference over to Phil Creek. Please go ahead.

Thank you. Joining me on the call today is Bob Schottenstein, our CEO and President; and Derek Klutch, President of our mortgage company. First, to address regulation for disclosure we encourage you to ask any questions regarding issues that you consider material during this call because we are prohibited from discussing significant nonpublic items with you directly. And as to forward-looking statements, I want to remind everyone that the cautionary language about forward-looking statements contained in today's press release also applies to any comments made during this call. Also be advised that the company undertakes no obligation to update any forward-looking statements made during this call. With that, I'll turn it over to Bob.

Thanks, Phil. Good morning, and thank you for joining us. As outlined in today's release, M/I Homes had a very solid second quarter, highlighted by record second quarter revenue, record second quarter homes delivered and continued strong returns including 25% gross margins, 14% pretax income and a 17% return on equity. We were very pleased to post these results given the challenging macroeconomic backdrop. When we last spoke on our first quarter earnings call, we commented on the demand challenges we faced during the last half of 2024 as well as during the first quarter of this year. Little has changed as we continue to face challenging and choppy conditions, primarily due to higher interest rates, which has contributed to uncertainty and impacted consumer confidence. Throughout this year, we have strategically and effectively used mortgage rate buydowns to drive traffic and incent sales. Though such buydowns have impacted profitability and margins, they have been most successful as we strive to balance price and pace across our 234 communities. So our second quarter new contracts were down 8% from a year ago, we were pleased to record a monthly sale pace of 3 homes per community. And moreover, we were pleased to see a sequential improvement in new contracts from May to June. We have repeatedly said that long-term fundamentals of our industry are sound and that housing will benefit greatly from the current undersupply of homes and growing household formations, particularly in our markets. There's little doubt that many potential buyers are sitting on the sidelines, waiting for a better rate environment and an improvement in consumer sentiment. As we go forward, we will continue to use rate buydowns to drive traffic, as we manage our operations to meet the demands of the current environment. We feel very good about our business and believe that we can continue to drive performance and produce solid returns and profitability. In the second quarter, we closed a record 2,348 homes, a 6% increase compared to a year ago. Our second quarter total revenue, also a record increased by 5% to $1.2 billion, and pretax income decreased 18% to $160.1 million, largely due to the decline in gross margins to 25%, but still a very good 14% pretax income return. We continue to see quality buyers in terms of creditworthiness with strong average credit scores of 746 and an average down payment of 17%. We ended the second quarter with a record 234 communities and remain on track to grow our community count in the balance of 2025. We believe our 2025 average community count will increase by about 5% from 2024. Our division income contributions in the second quarter were led by Columbus, Dallas, Orlando, Chicago, Minneapolis and Charlotte. New contracts for the second quarter in our Northern region decreased by 13%, while new contracts in our Southern region decreased 4%. Our deliveries in the Southern region increased by 8%. Deliveries in the Northern region increased 2% from a year ago. 59% of our deliveries come out of the Southern region, the other 41% out of the Northern region. We have an excellent land position. Our owned and controlled lot position in the Southern region increased by 7% compared to a year ago and decreased by 7% versus last year in the northern region. 31% of our owned and controlled lots are in the North, the other 69% in the South. Company-wide, we own approximately 24,500 lots which is slightly less than a 3-year supply. In addition, we control via option contracts approximately 26,000 additional lots resulting in a total of 50,500 owned and controlled lots equating to about a 5- to 6-year supply. Our balance sheet is the strongest in company history. We ended the second quarter with an all-time record $3.1 billion of equity, equating to book value per share of $117, which is up 17% from a year ago. We also ended the quarter with 0 borrowings under our $650 million unsecured revolving credit facility and $800 million of cash. This resulted in a debt-to-capital ratio of 18%, down from 20% a year ago and a net debt-to-capital ratio of negative 3%. As I conclude, let me just state that we remain very optimistic about our business. Given the strength of our balance sheet, the quality of our communities, and the tremendous land position that we have, we are well positioned as we begin the third quarter of 2025. And with that, I'll turn it over to Phil.

Thanks, Bob. Our new contracts were down 8% for the quarter when compared to last year. They were down 12% in April, down 12% in May and up 1% in June and our cancellation rate for the quarter was 13%. 51% of our second quarter sales were to first-time buyers and 73% were inventory homes. Our community count was 234 at the end of the second quarter compared to 211 a year ago, and the breakdown by region is 99 in the Northern region and 135 in the Southern region. During the quarter, we opened 23 new communities while closing 15. We currently estimate that our average 2025 community count will be about 5% higher than last year. We delivered 2,348 homes in the second quarter, delivering 82% of our backlog and 36% of our second quarter deliveries came from inventory homes that were sold and delivered in the quarter. As of June 30, we had 5,100 homes in the field versus 5,000 homes in the field a year ago. Our revenue increased 5% in the second quarter, our average closing price for the second quarter was $479,000, a 1% decrease when compared to last year's average closing price of $482,000. Our second quarter gross margin was 24.7%, down 320 basis points year-over-year and down 120 points from our first quarter of 2025. Our cycle time slightly improved in the second quarter compared to last year, and our second quarter SG&A expenses were 11.3% of revenue compared to 11.0% a year ago. Our second quarter expenses increased 7% versus a year ago, and these increased costs were primarily due to our increased community count and additional headcount. Interest income, net of interest expense for the quarter was $4.4 million. Our interest incurred was $8.7 million. We are pleased with our returns for the second quarter given the challenges facing our industry. Our pretax income was 14% and our return on equity was 17%. During the quarter, we generated $169 million of EBITDA compared to $200 million in last year's second quarter and our effective tax rate was 24.3% in the second quarter compared to 24.4% a year ago. Our earnings per diluted share for the quarter decreased to $4.42 per share from $5.12 per share last year, down 14%, and our book value per share is now $117 a $17 per share increase from a year ago. Now Derek Klutch will address our mortgage company results.

Thanks, Phil. Our mortgage and title operations achieved pretax income of $14.5 million, a slight increase from $14.4 million in 2024's second quarter. Revenue increased 2% from last year to a second quarter record $31.5 million due to higher margins on loans sold, a higher average loan amount and an increase in loans originated. Average loan to value on our first mortgages for the second quarter was 83% compared to 81% in 2024's second quarter. We continue to see an increase in the use of government financing, as 51% of the loans closed in the quarter were conventional and 49% FHA or VA compared to 69% and 31%, respectively, for 2024's second quarter. Our average mortgage amount increased to $403,000 in 2025 second quarter compared to $395,000 last year. Loans originated increased to $1,865, which was up 15% from last year, while the volume of loans sold increased by 10%. Finally, our mortgage operation captured 92% of our business in the second quarter, up from 87% last year. Now I'll turn the call back over to Phil.

Thanks, Derek. As to the balance sheet, we ended the second quarter with a cash balance of $800 million and no borrowings under our unsecured revolving credit facility. We continue to have one of the lowest debt levels of the public homebuilders and are well positioned with our maturities. Our bank line matures in late 2026 and our public debt matures in '28 and '30 and as interest rates below 5%. Our unsold land investment at June 30 '25 was $1.7 billion compared to $1.5 billion a year ago. And at June 30, we had $894 million of raw land and land under development and $803 million of finished unsold lots. During 2025 second quarter, we spent $102 million on land purchases and $139 million on land development for a total of $241 million. June 30, we owned 24,500 lots and controlled 50,500 lots. And at the end of the quarter, we had 586 completed inventory homes in 2,726 total inventory homes. And of the total inventory, 1,011 are in the Northern region and 1,715 are in the Southern region. June 30, 2024, we had 372 completed inventory homes and 2,150 total inventory homes. We spent $50 million in the second quarter repurchasing our stock and have $150 million remaining under our current board authorization. Since the start of 2022 we have repurchased 14% of our outstanding shares. This completes our presentation. We'll now open the call for any questions or comments.

[Operator Instructions] The first question comes from Alan Ratner at

Bob, nice job in a tough environment. Congratulations.

Alan, good to hear from you. Thank you.

Nice to hear from you guys as well. Bob, I guess, first question, just kind of more bigger picture, I was hoping you could just provide a little bit more commentary across your footprint and kind of differentiation and the trends you're seeing by price point, by geography, which ones are the relative winners and losers in the current market?

Yes, I'll try to do that. I think that -- there's just a lot of volatility week-to-week within -- inside the month. I think I saw another builder make a comment that one week is good and the next week is actually not so good and it's -- it almost looks like a heart rate monitor. And that's what we've experienced. Having said that, I think in balance, our Midwest markets have outperformed the Carolinas slightly, although I think the Carolinas are still quite good. We're sort of still just getting started in Nashville. So I'm not going to make any comments about that because I don't feel that they're meaningful enough in terms of our performance. Florida is a bit of a mixed bag. Orlando for us, has held up significantly better than Tampa. Sarasota and Tampa are both a little soft, although I think as the quarter progressed conditions in Tampa got a little bit better, and we were very pleased to see that. We've had a lot of delays in bringing communities online in Sarasota and those delays have been more of an impact, I think, on our performance in that particular market than maybe the macro environment. And then Fort Myers and Naples are off to a really good start, but it's still just in its very early stages. Texas, Dallas is clearly softer than it was a year ago when it was one of the strongest, if not the strongest housing markets in the country. So Dallas has softened a bit. It's by no means horrible, but it's not nearly what it once was. Houston is a little softer, too, maybe not quite as soft as Dallas. And I think Austin is crawling its way back. San Antonio is sort of somewhere in the middle there with very, very sensitive to interest rates in terms of the buyer profile there. So in balance, I'd say across all 17 of our markets, I'm glad we're in every single one of them. Columbus, Indianapolis, Chicago, Minneapolis, I think, are performing at a pretty good level right now. So is Charlotte, Raleigh, we're in a bit of a transition with communities coming on, very bullish about all these places. Glad if we weren't in these markets, we would go to them. And I think Florida is in a bit of a reset on particularly the West Coast from our point of view. But I'm really bullish about Florida. I'm not ready to move there personally, but I'm very bullish because I think a whole lot of people are. And I think -- I don't think Florida is going anywhere. I know the weather and hurricanes and those sort of things cause issues from time to time. But -- and I remain very bullish about Texas, too. I think there -- some of the margins that we were posting and I suspect others were as well in Dallas and Houston, not sure how sustainable they were long-term, but they're still excellent, excellent housing markets. What, 15% of the new homes sold in the United States, I think, are sold in the state of Texas. I suspect that will continue. So we love where we are. We think we've got a lot of opportunity I'm glad that we're not just one place or the other. We still have no interest in going any further west than we are. You didn't ask that, but I'll offer that up because we think we can grow a whole lot within the markets that we're in. And we have a leadership position in over half of our markets. By that, I mean we're either the first, second, third or fourth largest builder. So lots of good things. Clearly, a challenging market, as you know, you know as well as anyone, but it's not horrible. I think conditions are about a C to C plus, and they've been that way really for quite some time. But those of us that have been around and M/I Homes will be celebrating its 50th year next year. We know what Ds and Fs look like, and we're by no means close to that. So I mean, the fact that we can post 14% income in this environment, I think, is extraordinary. I think any double-digit pretax. I remember when [ Ivy ] years ago thought any builder that can get double-digit pretax income was hitting on all cylinders. The fact that we can do it right now in 2025, I think is -- we're very proud of that. We've improved our cycle time. Our customer service and home readiness scores are the highest in company history, and they were always high. We hold ourselves to a very high standard when it comes to that. And those are all third-party tabulated scores. So as we look at the business and think about where we are we love our land position. I saw a report that you put out that thought we had too many tertiary communities. I'm not sure I know which ones you're talking about, I'm winking a little as I'm saying that to you. I think our land position is exceptionally well located really excited about that. And we have a lot of communities notwithstanding the current conditions that are performing at a very high level.

Well, I appreciate that big run down. And I think the tertiary community is more a function of the markets you're in as opposed to the submarkets within those markets. I would agree with you on the land position quality, for sure. I guess you kind of brought up some of the normalization in margins in Texas. And just kind of curious, I know you don't guide on margin, but still generating a pretty healthy overall margin, but it is down a couple of hundred basis points year-on-year. I'm just curious as you think about the normalization on margin, what are the headwinds and tailwinds that you're facing today as you look out over the next year or so?

I didn't pick up the first -- the last part of that question, what are the what that we're facing?

The headwinds to margin. So like going forward, what could pressure margin lower? And then what, if anything, could be a tailwind to improve margins?

Yes. And what a great question. I don't know that anybody really knows the answer to that. I think margins are starting to level off for us. They may get a little bit lower. I don't see another 100, 200, 300 basis point drop could happen. I think higher rates are going to be here for a little while. So we're going to continue to cut into margins by buying down mortgages. But I think that we were in the upper 20s, now we're in the mid-20s. I don't think we're going to see them get a whole lot lower. I don't -- they may get down to 24, 23 or something like that. But by the same token, they may level off where they are now. I sort of feel like we've sort of found a space, a place. I don't see rates getting higher over the next number of quarters anytime soon. And in fact, I think at some point, we're likely to see them start to drop. That will help margins a lot. But there's -- I think there's some concern about impact of tariffs. That's a hard one to get your head around. I think we thought it would be worse than it is. So far, there's been little, if any, impact. We get about 20% to 30% of our lumber from Canada sort of depends, and it's not the full package. So how that all plays out, I don't think it's a disaster. It will be what it will be, and we'll figure it out. We'll navigate through it. But I think we're really close to about where we're likely to be here over the next number of quarters.

Great. That's good to hear, encouraging. And if I could just sneak in 1 last one. Just on the order -- the comps by month, thought it was interesting that your orders were down 12% in April and May and actually up 1% in June. I know there's a lot that can go into that with comps and everything. So just curious if you could expand on that for a minute. Did you guys do anything...

It was interesting. There was a noticeable uptick in traffic in June, but it didn't last the whole month. but there was. And there was that period where we all sort of thought rates are starting to drop. And it was interesting how that seemed to impact traffic and buyer sentiment for a few hours. I think I saw where someone else commented on that in the last day or so, I can't remember. But we saw that. And we don't really comment on current conditions, but I think things are settling in a little bit here, and I think it's going to continue to be a fight one buyer at a time. But that's what we've been doing all year. We've been doing that since last year at this time almost. And I think that sometimes comps can be impacted when you open a brand-new series of communities all in 1 month and all of a sudden, it shoots that month up. But period-to-period, I think our sales have held up well, and I believe they'll continue to relative to market conditions.

Appreciate all the color guys. Good luck and talk soon.

Talk to you soon, football season is on, Alan, start getting excited.

The next question comes from Ken

Bob, Phil, everybody. The margin stability you're talking about the interest rates, not -- I don't think I'd be disagreeing with you. But if you could operationally comment on the South, which for you guys include Texas, Florida, a little more Texas than Florida, I think you said before. But the segment margins were -- gross margins were 24% in 1Q. Can you kind of -- and those have fallen sequentially from 4Q, but can you kind of talk about the spread there between the Florida and Texas margins? Give us a little better sense of the business composition.

Well, just a little. Look, a year ago, our margins in Texas were -- let's leave Austin out because it was in a bit of a reset and has been for over a year. But certainly, Dallas and Houston, where we have big operations, they were some of the best margins in the company, better than Florida. They're coming down slightly now. But quite honestly, they're still very good. Otherwise, we wouldn't on average be running nearly 25%. Right now, across the board, margins in Texas are a little better than Florida.

And one of the things that I've been focusing on, which surprises me is do you have a census data saying there's all this new home inventory for sale. You can exclude homes for sale not started, but like to make it comparable to public, are you seeing in your markets the new home inventory as high as the census is suggesting, which is 30-plus percent above long-term averages? Or is it not necessarily the case where you see such nominally high inventory units. It's just more demand that's affecting you guys.

I'll take a crack at that. I'm not sure that I that I'm looking at the same number that you are. But as it relates to the large public builders, all of us are producing a lot more spec homes, which go into that inventory number than we were 2 years ago and maybe even we were a year ago. So that's certainly in there. But because of the rate environment we're in, it's the decision to do more spec homes, at least for us, has been critically important to our performance because the rate buydowns, which are so important in order to get people to buy a home and to get to the closing table, it's very difficult to produce, if not ridiculously expensive, a very long-term rate lock. So the most attractive rate buydowns, the ones that most buyers are taking are available on homes that can close within 60 days. So if we don't have the inventory, we don't have that to offer. On the other hand, the listings, which are up in almost every market that we're in, in some cases, considerably, that includes existing homes, too. And the one tremendous advantage financially that we have and the other builders, new homebuilders have over existing homes, is our ability to offer rate buydowns, which the average seller of an existing home is somewhat powerless to do. They could do it, but it's not -- it's just not as -- they don't have the agility or the internal operation to be able to generate that as quickly as we do. So I don't know if that really answers your question.

No, it does. I guess you ask different builders this, but do you guys respond to the census data requests because I know many of the other public builders actually don't respond to those. Do you guys provide data to the census?

I don't know that we do. If we do, I'm not aware of it. I'll have to check that. I actually don't pay that much attention to a lot of that data because it's so dated, and I'm not sure how reliable it is.

The next question comes from Buck Horne at Raymond James.

Congrats on a great quarter in a difficult environment. I wanted to just go back to the kind of the monthly progression of the order trends you guys were highlighting. Others have kind of commented that incentives increased as the quarter progressed or there was a need to kind of accelerate some incentives, which is kind of going to lead to a little bit of further margin erosion into the third quarter. I'm just kind of wondering, as you guys saw an uptick in your orders in June, was that -- was that due to a more heavy decision on incentives? Or was that more of an organically driven demand lift?

I think the latter. I don't -- look, for all intent, we're not really doing much with incentives, if at all, other than rate buydowns. That's our primarily incentive. And there have been periods week-to-week or every several weeks where the cost to buy the rate down to what we think -- where we think we need to be on both the government and conventional side where it costs a little more, it costs a little less. That may be 100 basis points or 50 plus or minus from time to time. But we didn't -- we -- some builders are maybe more aggressive with their incentives other than rate buydowns, I think most haven't been, which has been good to see, at least from my point of view. There's always someone that may be doing something that maybe we don't think it makes that much sense because you can only sell the house one time and lots are precious commodity if they're well located. But I don't know if you have anything to add.

It's very hard to project what margins are. One of the things I mentioned was that in the second quarter, we had about 36% of our closings that were spec sales that were sold and closed in the quarter. We also have opened in the first half, 50 new stores. So that impacts what we're doing. You only get a chance to open one time the right way and try to be very careful as far as pricing and incentives, especially with new communities. In general, our more expensive houses, higher priced, tend to hold up a little better these days as far as price and margin. Specs, there's an art to selling specs. Today, we're selling about 70% specs. And although in general, specs are at lower margins than to be built, again, there is an art to what house you're specing on which lot -- and how do you manage the incentive on specs. As Bob said, a big part of that is there's a lot more efficiency in buying down rates in a shorter period of time. So it's just very hard to predict what margins are -- but overall, we feel really pretty good about where we are.

That's good. I appreciate the color. And I guess, thinking about the specs and kind of your projected community count growth in the back half on top of the new openings you've already achieved here. So I'm just wondering how you're thinking about the start pace through year-end. Do you need to accelerate more specs to hit your delivery goals? Or do you have enough product in process right now?

We're trying to manage a lot of things. I did mention that at midyear, we had 5,100 homes in the field versus 5,000 a year ago. Our store count is up about 10%. So we do have more stores. We do have more people. We do have higher SG&A. So obviously, we need a certain amount of volume. But having said that, we're not trying to force it land is a very important commodity to us. It takes a long time to get locations and get those zoned, approved get the specs and the models built. So again, we're trying to drive a certain amount of volume, but we're not trying to force volume like certain other builders are.

Bob, I really appreciate the bullishness on Florida in particular. So it's good to hear that Tampa's finally, things to have turned the corner as well.

Yes. I mean I -- look, I don't know that I'd say it's completely turned the corner, but I think the steering wheel is heading in the right direction.

Good news. Appreciate the color.

The next question comes from Jay McCanless at Wedbush.

Bob, I think -- good to talk to you. So I think, Bob, you talked about it in one of -- in answering Alan's question, but at roughly 25% to 30% lumber coming from Canada, have you all tried to plan out or map out what type of gross margin impact that might have if they do knock that tariff rate up to 34%?

Yes. I think I said 20% to 30%. But Phil, I don't I think it's too early to know right now because I don't think we have any division that gets the entire lumber. It's pieces and parts of certain kind of wood to come out of Canada but...

And also certain pieces and parts can be substituted in different ways. So we have not seen anything yet that makes us think there's going to be a significant increase. Overall, our construction cost the last couple of quarters have pretty much been flat. And also even though land costs in general have continued to go up, land development cost has really kind of leveled off some -- so from what we're seeing, we're not anticipating any type of significant increase in the second half of this year. And if anything does start changing like that, we think there's a couple of levers we can pull.

Okay. That's good to know. Because I just -- kind of the second part of that question is what you talked about, Bob, was margins trying to level out. And we've been worried that if lumber prices move up along with what sounds like a more aggressive promotional environment at least for the next few months, that builder gross margin should -- could come under pressure. So just trying to get a sense of where that's going. The second question I had is if you look at the North and Pulte called it out yesterday, you guys called out the Northern market is doing better. Is there any thought to maybe starting to expand again up north, whether through M&A or through adding some communities? How are you guys thinking about that, especially with some of the affordability -- really good affordability in some of those northern markets.

Well, we're glad that we're in really 3 distinct geographies maybe 4 if you count Carolinas and Nashville is sort of somewhere mid. But Midwest, Florida, Texas. I'm like very bullish about all. Right now, I think the Midwest is holding up a little better candidly. We've got a very big operation in Columbus and in Chicago and in Minneapolis and a rapidly growing -- been there a long time, but a rapidly growing operation as well in Indianapolis. Our Cincinnati operation is probably as strong as it's ever been, and we've been there since 1990. We have a lot invested in our Midwest markets. And we're prepared to invest more. Every single one of those markets has a plan to grow over the next 1, 2, 3, 4 years. And we don't think it's irrational. We think it's doable. At varying degrees, every one of the cities has projected household formation growth and right now, I think no different than the rest of the country, a shortage of homes and a lot of buyers on the sidelines. So I don't want to overstate our perceived bullishness, but we just think it's a really good area. And we're going to -- we do a lot of volume in the aggregate in the Midwest and we expect that volume to grow.

If you look at it, Jay, overall, on the 17 markets we're in, we do not have a single division today doing 1,000 units. And we think that we can do that in a few of our divisions. As we look out the next couple of years, again, assuming that things do get a little bit better, which we think they will, worst case, next year, we think we can do 12,000, 13,000, 14,000 houses in our 17 markets. But again, we want profitable growth we'd like to control our most risky asset land. We like to stay within that 2- to 3-year range of what we own. And today, we own about 25,000 lots. I think we continue to conservatively cautiously grow the business. We think we have the leadership teams, and we think we're pretty good at land and product and those type of things. So we are getting to the point where we're starting to get to the scale we need in Fort Myers and Nashville, which we just opened a couple of years ago. But again, there's a number of builders doing 2,000, 3,000 units even in some markets. And again, we're not doing 1,000 in any market yet. So we think we're really positioned to grow a lot, but we want to grow smart, grow profitably and also provide good returns.

Great. And then on SG&A, I know you guys said that SG&A dollars were up because of headcount increases and community count, I guess, are you getting close to maybe what the run rate is going to be at this higher level of operations? Or do you think there might be some more increases in SG&A dollars going forward on a quarterly basis?

I think there'll be some continued increase, Jay. I mean we opened 50 new stores, the first half. Last year, all year, we opened 72, we expect in the second half to open a similar number as the first half. We talked about having community count growth on an average up like 5%. So we're probably going to continue to have higher headcount there are certain costs associated with more stores. So realistically, we do think SG&A dollars will probably continue to go up. As far as volume, again, we do have a few more houses in the field than we had a year ago. Hopefully, our closings will continue to be a pretty strong but that is based on us having to continue selling a lot of specs at reasonable profit levels. So that's kind of what we're focused on.

Okay. Got it. And then the last question I have, I don't know if you guys have looked at this, but a couple of builders have actually disclosed where their average mortgage rate is in the backlog at this point? Could you talk about that and maybe what your gross margin backlogs or the gross margin and backlog looks like?

I mean the margin in the backlog today it's a whole lot different than it was at the end of the first quarter, maybe down 50 or 100 basis points, as Bob said, there continues to be margin pressure. There could be somewhere downward margins, I don't think anything significant. That just kind of depends. As far as the mortgage rates and those type of things, that's not something that we've disclosed in the past. I don't think incentives have changed a whole lot. Most builders these days with the 30-year rate around 7. Most people are 150, 250 basis points below that generate the traffic and the sales we want. So I don't think that's changed a whole lot.

We have no further questions. I will turn the call back over to Phil Creek for closing comments.

Thank you for joining us. Look forward to talking to you next quarter.