Release Date: June 12, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Dave & Buster's Entertainment Inc (PLAY, Financial) reported first quarter revenue of $588 million and adjusted EBITDA of $159 million.
- The company saw a 200 basis point margin expansion versus 2019, achieving an adjusted EBITDA margin of 27.1%.
- Significant progress was made in growing the loyalty database, enhancing food and beverage offerings, and refining game pricing strategies.
- The company opened new stores with highly attractive returns and continued to return capital to shareholders via a share repurchase program.
- The remodel initiative showed clear outperformance, with fully programmed remodels delivering double-digit growth in sales and traffic.
Negative Points
- Comparable store sales decreased by 5.6% on a same-week basis in the first quarter versus the prior year period.
- The company incurred $11 million of incremental costs related to labor and marketing, which negatively impacted adjusted EBITDA.
- Lower income consumers showed more weakness, impacting overall traffic and sales trends.
- The spring break promotional campaign was unsuccessful, resulting in a $6 million spend with minimal returns.
- The macroeconomic environment remains complex and challenging, creating headwinds for the business.
Q & A Highlights
Q: My question was about the traffic. I assume that your pricing increase in your food and beverage and your home game price initiatives should have driven check up and price up. So to me, it looks like just on traffic has decelerated. So the question is what is driving that deceleration? I imagine it's macro pressures, but I'd like to hear from you. It sounds like your initiatives, you're encouraged by your initiatives yet it does look like traffic is decelerating at this point. So any comment there would be helpful.
A: Yes, sure, Jake. Well, the first thing I'll tell you is we don't disclose the breakdown between check and traffic. And that's something that we've we haven't done for a very long period of time, and that's just simply a function of on traffic is just an estimate in the business. It's not an actual precise number just given how our stores are constructed and how people use our stores. But with that said, and I mean clearly macro trends. It's a complex macro environment and it's been challenging. But as we said in our prepared remarks, we do we are encouraged by the fact that throughout the quarter, we've seen trends improve and as our initiatives have started to take hold and those initiatives are a combination of both price and traffic. And as our initiatives are starting to take hold. We have seen some improvement in the business and that gives us a lot of confidence as we move forward, knowing that many of the initiatives are just now starting to take hold. And I'd also point you to remodels, we are we're very excited about what we're seeing on our fully program remodels and the remodel is really the best representation of our strategic vision of the future because it's everything that we're doing all wrapped into one along with a brand new product offering and a new look and feel for our stores. And as you heard us say, we're seeing very significant improvement in our reach on our fully program remodel stores. We're seeing double-digit sales lift and double digit traffic growth in those stores. So and things are improving. It's a complex macro environment. And so that's creating a little bit of headwinds, but we're very encouraged by where things are going.
Q: You mentioned the improvement in the last five weeks, I think particularly last several weeks. What do you think is driving that improvement? Are there specific initiatives that are reaching scale?
A: Yes, sure. During the quarter, we rolled out our brand new menu. At the same time, we rolled out a brand-new service model, both of those are designed in a way to elevate the guest experience, very much focused on setting our operators up for success to drive more throughput in our stores as well as to grow F&B attach. So still very early in, but all signs are looking very good. Keep in mind that these are initiatives that we've tested and I think by now, I think we've proven that. We mean what we say this is a management team that is very measured, very deliberate. And we test, you know, we test, we learn refine and then we roll. And so some of the new menu and the new service model are working the way that they were designed and are matching what we saw during the test. And so we're encouraged by that, but it's still very much in the early innings, but we fully expect that those initiatives are going to continue to drive incremental sales. On our half off promotion, you saw we've had a number of initiatives that we've been fine-tuning on the marketing side of things to stimulate some demand off-peak Monday through Thursday and so we have all-you-can-eat wings on Mondays and Thursdays. We have the long-standing evergreen value of half-price games on Wednesdays. And then we wrap that with a half-price food offer through and loyalty member engagement and the combination of all of those, we're very pleased with what we're seeing midweek and so that helped as well. So we've just got we've got a number of different things, as I said, both on pricing and on traffic that are all working at different levels. And as we move forward, we'll continue just to pick up more momentum more and more momentum from here.
Q: I had some questions around the kind of full remodels. When we think about that and the ramp you're having, could you talk about kind of the downtime that you see are the inefficiencies while you're doing the remodels? And then how quickly kind of the labor normalizes once the remodel is complete?
A: In terms of the construction periods, I'd say it's about eight weeks where the units have some negative pressure, but we keep the units open. Our teams have a world-class construction development team that's been doing this for a very long period of time, and they are very skilled at going through a remodel in a way that's less intrusive on the guests. So it allows us to stay open, but we do see somewhat of a negative impact on comps for about eight weeks. As we start to do more and more remodels, we will start to quantify that to the extent that we feel it's necessary to understand our comp performance. I do think it's important to note when we refer to the lift that we're seeing in sales, we are excluding that construction period. So the lift that we see in remodels is a pure lift. As it relates to the labor optimization, now that we have the service model out there, the teams are getting very efficient. We've been working on this for a very long period of time. So we don't expect there to be any inefficiency from a labor standpoint post remodel. Our expectation is we're at the optimal level day one.
Q: Could you provide some more color on the comps that you saw moving through the first quarter and how the quarter to date is trending or what a reasonable expectation would be as it relates to the second quarter? Could we see comps get back to flat, if not positive?
A: When you think about what we were experiencing coming into the beginning of the calendar year, January and February were tougher comps on a year-over-year basis. You had the weather that we saw in January. So the beginning of the calendar year started off slow for us and everybody else. As we got into January and February, we kept seeing that lower income, that $75,000 and below customers still be challenged. That's not news to anybody. You've heard that on the news more for the last three to four months. Sales in that period from January, February, and March were choppy as we said on the call. Spring break this year was a much smaller, shorter period. So it did cause a little bit of a block of either mismatch or just a shorter period, which meant it was more condensed. So we didn't get a real benefit of a prolonged spring break where more activities would have taken place over that more prolonged period. But as we've moved out of that and got into the end of April and the May timeframe, we've seen considerable improvement in the traffic numbers. The promotions like what we talked about, half-price food has helped drive in the largest increase from a cohort perspective, came in from that under $75,000 a year consumer. So
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
