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spk07: Good afternoon, everyone. Welcome to the Dave & Buster's Entertainment Incorporated Fourth Quarter 2020 Earnings Results Conference Call. Today's call is being hosted by Brian Jenkins, Chief Executive Officer. You'll be joined on the call by Scott Bowman, Chief Financial Officer, and Margo Manning, Chief Operating Officer. I'd like to remind everyone that this call is being recorded and will be available for replay beginning later today. Now I'd like to turn the conference over to Scott Bowman for opening remarks. Thank you, James, and thank you to all of you for joining us today. Before we begin our discussion on the company's results, I'd like to call your attention to the fact that in our remarks and our responses to questions, certain items may be discussed which are not entirely based on historical facts. Any of these items should be considered forward-looking statements related to future events within the meaning of the Private Securities Litigation Reform Act of 1995. All such forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ from those anticipated. Information on the various risk factors and uncertainties have been published in our filings with the SEC, which are available on our website at www.daveinvestors.com under the Investor Relations section. In addition, our remarks today will include references to EBITDA, adjusted EBITDA, and store operating income before depreciation and immunization, which are financial measures that are not defined under generally accepted accounting principles. Investors should review the reconciliation of these non-YET measures to the comparable GAAP results contained in the earnings announcements released this afternoon, which is also available on our website. Now we'll turn the call over to Brian. Well, thank you, Scott. Good afternoon, everyone, and thank you for joining our call today. As we close out a challenging 2020 fiscal year, I am pleased to report today that our business is on a clear path to recover. Our stores are reopening. Cost sales trends are improving. Our financial performance is rebounding, and our liquidity remains strong. As I reflect back on the agility, the resilience, and resolve that our team has demonstrated over the past year, I am extremely proud of what they have accomplished. Dave & Buster's is a stronger company today because of the outstanding effort of our team, and for that, I am grateful. Following a temporary setback caused by the COVID resurgence over the holidays, our business recovery regained solid momentum. We concluded our fiscal year in January with 107 re-open stores. Our fully operational re-open comp stores generated January sales at 67% of 2019 levels, representing our strongest COVID impacted month in fiscal 2020. In January, 85 stores, representing approximately 80% of our re-open stores, achieved positive store-level EBITDA, enabling us to post our first month of positive enterprise-level EBITDA since the shutdown of our entire store base just over one year ago. Our operating and corporate teams continue to execute a lean operating model as our stores rebuild their business, When our revenues return to 2019 levels, we estimate the operational improvements we've implemented will drive approximately 200 basis points of incremental EBITDA margin over the rate we achieved in 2019, excluding the impact of cost pressures that may emerge over time. With improving COVID trends, higher seasonal sales, and stimulus-related demand, our recovery has continued during the first eight weeks of fiscal 2021, Sales at our fully operational comp stores have achieved 74% of 2019 levels. Total sales reached approximately $150 million. And we posted our second consecutive month of positive enterprise level EBIT in February, the first full month of fiscal 2021. Also encouraging, the recent reopening of limited capacity dining and arcade operations at our 11 New York stores. and limited to athlete dining at seven of our 16 California stores brings us very close to the complete reopening of our 141 store base. In time, these positive developments give us confidence that we will achieve enterprise-level EBITDA profitability for the first quarter of fiscal year 2021, a significant achievement for our team and our company. Our accelerated recovery illustrates the resilience of the Dave & Buster's brand and the important role that good, clean farming plays in the lives of our guests. It also validates the changes we've made to our business model that have not only enabled us to navigate the challenges of the past year, but to emerge with a stronger, more competitive, and more profitable business. Our team is prepared. They're excited and fully engaged, and we are optimistic about what the future holds in 2021 and beyond. At this time, I'm going to ask our CFO, Scott Bowman, to cover the results of the fourth quarter and to share some insights on our expectations for the first quarter. After that, our COO, Margaret Manning, will join me to provide an update on our 2021 strategic plan. Scott? Thanks, Ryan. I'll first spend some time summarizing our fourth quarter performance in our liquidity position. and then provide some insights on the first quarter and fiscal of 2021. For the fourth quarter, total revenues of $117 million reflected a 70% decline in comparable store sales. We ended the year with 107 open stores, including three new stores open during the quarter. By month, overall comparable store sales were negative 69% in November, negative 70% in December, and negative 59% in January. January performance improved mainly due to the benefit from the COVID stimulus and the reopening of 14 comparable stores compared with December. Turning to the balance of the P&L, gross margin declined 11 basis points to 82.7% in the quarter, primarily due to inventory write-offs related to closed stores, which was substantially offset by a higher mix of amusement sales. Operating payroll and benefits expense was 27.6% of sales compared to 23.9% last year. This is mainly due to deleverage in management labor due to lower sales and your decision to recall a core group of managers in New York and California to help ensure effective restart capabilities. Understore operating expense was 50.3% of sales compared to 31.2% last year. Most of the deleverage was due to occupancy costs and lower sales, along with deleverage in areas such as utilities and repairing maintenance expense. Throughout the quarter, we continued to ramp up repair and maintenance expense to prepare a store for reopening and expectation of higher sales across the chain. DNA expense of $11.6 billion decreased 43% from prior year, primarily due to savings related to staffing reduction as well as lower consulting expense. Fourth quarter EBITDA loss was $20.1 million. That said, we were pleased to achieve positive enterprise level you got in January, driven by improving sales trends and additional story opens. Turning to the balance sheet, we ended the quarter with $12 million in cash and $280 million of availability under a revolving credit facility, net of $150 million minimum liquidity covenant and $10 million in letters of credit. Total long-term debt stood at $610 million at the end of the quarter, consisting of $550 million in senior secured notes, and $60 million outstanding on our revolver. Additionally, at the end of the quarter, we had approximately $5 million in deferred vendor payables, which compares with approximately $17 million at the end of the third quarter. We plan to repay most of this deferred balance by the end of the second quarter of fiscal 2021. Excluding revolver draws and repayments, cash burn rate averaged $2.3 million per week during the fourth quarter. The third grant totaled approximately $52 million at the end of the fourth quarter, compared with approximately $48 million at the end of the third quarter. As a result of our continued negotiations with our landlords, we have further extended rent deferrals, resulting in expected paybacks of approximately $20 million in fiscal 2021, $25 million in fiscal 2022, and $7 million thereafter. In addition, we expect to receive a tax refund of approximately $11 million either late in the first quarter or early in the second quarter of 2021, resulting from CARES Act legislation. We also expect to receive a tax refund of approximately $50 million late in the fourth quarter or early in the first quarter of 2022 related to the carryback of fiscal 2020 losses. Turning to capital spending, we completed construction and opened three new stores in the fourth quarter. Overall, we have $64 million in capital additions for 2020 and $51 million net of tenant allowances. In summary, our operating results for the fourth quarter reflected encouraging sales recovery trends at reopened stores, and we were very pleased to achieve the enterprise-level EBITDA profitability for the first month of January. Now, turning to our Outlook for fiscal 2021, we will not be providing detailed full-year guidance at this time due to continued uncertainty in the operating environment. However, I would like to offer some insights for the first quarter of fiscal year 2021. For the first eight weeks of the first quarter, we've seen continued improvement in sales trends with total revenue of approximately $150 million and comp sales down 47% compared to 2019. As a housekeeping note, we will continue to report comp sales for 2021 against 2019 results, and we believe this is a more meaningful comparison versus the COVID-affected 2020 results. For the first quarter, we expect total revenues to be in the range of $210 million to $220 million, which assumes that the month of April will continue to be a seasonally low-volume month as it has been historically. And fourthly, as Brian noted earlier, we're also experiencing some meaningful improvement in profitability and expect to achieve enterprise-level EBITDA profitability for the full quarter, reflecting another significant milestone in our recovery. Regarding liquidity, We had approximately $309 million of available liquidity under our revolving credit agreement as of the end of the first eight weeks of the first quarter, net of $850 million minimum liquidity covenant, and $10 million in letters of credit. From a CapEx perspective, we will continue to invest in the business in fiscal 2021 to further strengthen our brand, concentrating on our strategic initiatives that Brian and Margo will discuss next, as well as a limited number of new store openings. We plan on being conservative on new store openings for the near term while our business continues to recover, but we will retain some flexibility to be able to begin construction on additional stores should the business improve more quickly than anticipated. Overall, we currently have 10 new store commitments in our new store pipeline, of which we plan to open four in fiscal 2021, along with a relocation of one additional store. We opened the first of those new stores in early February. In total, we plan to invest $65 to $70 million in CapEx in fiscal 2021, net attendant allowances, while maintaining adequate liquidity to meet our operating needs and to position us to lower our debt profile over time. Finally, I'd like to provide some insight on the Operational Improvements and Business Model Initiative, which we estimate will drive approximately 200 basis points of EBITDA margin improvement as we return to 2019 revenue levels. First, we expect to see leverage from hourly labor as we continue to invest in technology to improve efficiency. The main main boards of this deployment will be tablets for our servers, mobile ordering by our guests, and more effective scheduling of hourly staff based on anticipated day part traffic. We also expect to realize leverage for management labor as we adjust scheduling for peak and off-peak hours and utilize key hourly team members to provide coverage in certain situations. For G&A, we have scaled down the organization to be more nimble and will benefit from process improvements identified during the past year. From a marketing standpoint, we're planning on fewer, more strategically placed promos, targeting our spend into key windows during the year. And finally, we will achieve savings from other P&L line items from opportunities realized through our zero-based budgeting approach as we continue to cautiously add back expenses at a slower rate than our sales recovery. While this model does not reflect the impact of cost inflation or other cost pressures that may emerge over time, we believe these initiatives will drive approximately $30 million of EBITDA improvement as we return to 2019 sales levels. With that, I'll turn it back over to Brian and Margo to discuss our strategic initiatives. Thanks, Scott. We're very encouraged by the first quarter momentum that Scott just described to you and are confidently implementing our 2021 strategic plan. It's built around four key pillars that really define the Dave & Buster's brand. The first is to offer novel food and drink to bring people together. The second is to offer the latest entertainment to enjoy together. is to deliver an integrated guest experience with an aligned team. And the fourth is to drive deeper guest engagement. Our COO, Margo, shared early details of the first and third pillars during the last quarter's call. She will bring you up to date on our more recent progress, and then I'll follow up with an update on the second and the fourth pillars. Margo?
spk00: Thank you, Brian. I appreciate the opportunity to give an update on the progress we have made on our key initiatives. First, however, I do want to recognize our operating team. They are dedicated to bringing our stores up quickly and possibly. Successfully relaunching these stores takes great effort. They continue to deliver strong performance, and I'm incredibly proud of this team. As Brian shared, our team has been implementing and refining a number of initiatives under each of the strategic pillars that Brian just discussed. Under the first pillar, offering novel food and drinks to bring people together. our teams have been working to establish a stronger, differentiated food identity for the Dave & Buster's brand, exploring virtual kitchen concepts, optimizing back-of-the-house operations, and enhancing our bar menu. Our new food identity, Inspired American Kitchen, is rooted in enhanced flavor and quality ingredients across a condensed number of menu items that we have priced to maintain our historic close margins. This is the most extensive update to our food offering in more than 10 years, and it allows our guests to explore new flavors while offering a sour selection of familiar dishes. Our stores have just completed the second phase of our menu initiative, taking our menu from 17 items to 22. Completion of the third phase of our menu by late May will bring us up to our final target of 28 items. This represents 33% fewer items than were on our pre-COVID menu. We expect our new menu to drive an improved guest experience and increased food attachment rates, all aimed towards increasing food and beverage sales. By the end of April, we'll have completed the rollout of high-speed ovens at all stores, reducing cook times by more than 40% on approximately one-third of our menus. Additionally, we anticipate having the upgrade to our kitchen management system implemented in all stores by June, which will enable a more seamless flow of food and help reduce overall kitchen ticket time. Combined, our new menu, high-speed ovens, and new kitchen management system will enable our teams to deliver dishes to our guests hot and fast. To complement these operational improvements, our marketing department has designed a comprehensive internal and external marketing strategy to tell our guests about the new menu and to drive trials. Throughout our building, from the dining room to our wow walls and video walls to our midway, guests will see mouth-watering pictures of awesome dishes from our new menu. Guests will also experience a new digital menu that is visually appealing and easy for them to navigate. Our external advertising plan is equally compelling and for the first time allocates a majority of our spend towards digital channels to communicate with existing and with first-time guests. I'm particularly excited to see us partner with special influencers to help promote this new menu in a fun and relevant way. To further expand our reach and to leverage our kitchen capabilities, We have tested two ghost kitchen concepts that highlight specific food categories from our new menu. We have focused on concepts that can be rolled out nationally or regionally. Our most recent ghost kitchen test is a concept called Wings Out. It offers a narrow menu of wings and tenders with a variety of loves and interesting sauces to select from. We are excited about ghost kitchens as a new revenue stream. As we consider their potential impact, particularly in the context of our historically category-leading 10 million AUDs and a smaller store count than many of our competitors, we do understand that they will be a relatively small contributor to total sales. Our Go kitchens, combined with our core D&D to Go offerings, are currently generating approximately $50,000 per store. However, we are just beginning this journey. the next steps evaluating additional ghost kitchen concepts, and third-party providers beyond DoorDash and UberEats, as well as working to optimize our promotional strategy to fully capture the revenue potential for these concepts. The third of our four strategic pillars, delivering an integrated guest experience with an aligned team, includes evolving our service model to give guests more control over their in-store experience. growing our culture of social fun by freeing up our team members to engage more frequently to enhance the guest experience, and opening new stores with the new service model capabilities from the outset. This involves deploying a combination of a new service model, tablets, and a mobile web platform to enable a completely contactless order pay experience. In our test stores, we've seen an encouraging improvement in check terms. we have also been able to expand the size of server sections and reduce our staffing levels to be more efficient. We have implemented this new model in our reopened New York stores and are proceeding with a staggered deployment plan across the brand, targeting full deployments by late summer. Lastly, as Scott mentioned, we have analyzed our lean operating model and identified where we can capture operating cost leverage. We're confident that our team will continue to apply the learning from this past year to be an even better operating team in 2021. In summary, let me be clear. The overarching objective of our food and service model strategic initiative is to efficiently drive increased sales, improve the guest experience, and enhance our long-term possibility. Now I'm going to turn the call back to Brian to talk about the two remaining strategic pillars. offering the latest entertainment to enjoy together, and deepening guest engagement. Brian?
spk07: Thanks, Margo, and thank you for your leadership and your team's incredible commitment and dedication to this company. The two strategic pillars that round out our 2021 strategic plan are also central to enhancing the guest experience. The first is offering the latest entertainment to enjoy together, Over the past 12 months, our entertainment team has been working on several fronts to support this pillar, starting with six new games that will launch exclusively at Data Busters this summer. This exciting lineup of new games includes titles such as Minecraft Dungeons Arcade, a four-player cooperative game based on the best-selling video game of all time, Hatchet Hero, which brings the excitement of competitive axe throwing to Dave and Buster's guests in a fun, safe, fast-paced arcade format. Then there's Hungry Hungry Hippos, which brings a life-size version of the classic board game for up to four players. And we'll add a brand-new VR attraction to our proprietary platform with the launch of Top Gun VR Arcade just prior to the release of the new Top Gun movie this summer. We also continue to explore a sports betting partnership to bring sports wagering and daily fantasy sports to DMV where allowed by law. We believe this could represent a mean accelerator to our appeal as a sports watching destination and better leverage our watch assets. We expect to bring our negotiations to a conclusion over the next several months. Finally, we are committed to broadening our entertainment offering by building a programming capability. We are investing in a dedicated entertainment programming function focused on creating compelling content-based events to drive broader reach and increase visit frequency. The fourth and the final pillar of our 2021 plan is to drive deeper guest engagement to fuel our sales recovery and growth. We look to drive seasonal traffic by focusing our marketing into key media windows, highlighting new product news, limited time offers, with a message that connects with our guests on an emotional level. Following the year of limited media spin, we have two campaigns planned for the remainder of 2021. The first campaign this summer will feature our new menu items, new limited time drinks, and our exciting lineup of new games. The second campaign, still under development, will target the November-December timeframe around the holidays. In response to changes in the media landscape that were accelerated during 2020, our plan also includes modernizing our media mix to reach guests where and how they consume content. This includes shifting a meaningful portion of our media spend from traditional cable to a more flexible mix that leverages advanced TV, digital, audio, and social channels. This new visual approach provides us with the ability to flex spending up or down, market by market, depending on your real-time results. Finally, even during COVID, our marketing and IT teams were pushing forward to complete the implementation of a new marketing technology stack. These investments now position us to deliver more personalized, targeted marketing messages, through a wider variety of digital channels as we return to full operation. Before I close, I want to take a moment to thank retiring Board Chair Steve King for his vision and leadership over the past 15 years at Dave & Buster's. It has been an honor working alongside Steve over the years. He has been a great mentor and friend to me and to many other members of the D&E family. His influence will be long-lasting and he will be gracing us. So I want to congratulate Steve and his family on his well-deserved retirement. Steve will sort out the remainder of his term that ends this June with our annual meeting. At the same time, I want to congratulate Kevin Sheehan, who has been elected as the new chair of our board. As a member of the board over the past 10 years, Kevin has been instrumental in shaping our success and I will look forward to his continued guidance. He will be working closely with Steve to execute a smooth transition between now and the June annual meeting. I'll close today by reiterating how encouraged we are by the momentum we've seen during these early months of 2021. We've achieved enterprise-level EBITDA profitability for two consecutive months, in January and February, and believe we'll do so for the first quarter of 2021. a significant milestone in our recovery. We are laser-focused on our strategic plan and the execution of enhanced business model with the potential to generate approximately $30 million of incremental EBITDA as annual revenues recover to 2019 levels. We are optimistic that these efforts, along with the reigning COVID challenges, will drive the D&D brand to new heights over time And I am extremely proud of every member of the D&D team for their tenacity and their creativity that they've displayed over the past year through an unprecedented challenge. We are moving forward together confidently, excited to reopen the remainder of our stores, and to thrive once again as a leader in the combined dining and entertainment space. Now we'd like to open the call to your questions. James, you can open it up.
spk02: Thank you.
spk05: If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow you to signal to reach our equipment. We ask that you limit yourself to one question and one follow-up initially, then you may respond for additional questions if time permits. Again, press star 1 to ask a question.
spk07: We'll take our first question today from Jake Bartlett with Truist Securities.
spk06: Ray, thanks for taking the question and congrats on the improvement in the results here. I'm excited that we're getting beyond this. Brian or Scott, my first question is just on the trajectory of sales and the improvement. I think you said January was down 59% versus 2019, down 47% in the first eight weeks. But how do those eight weeks look? Has it been a continual or sharp improvement month to month or week to week? What is the trajectory of the business?
spk07: Jake, I hope you're doing well. Thanks for the question. Well, first of all, you know, we're super pleased with the recovery that we've seen here as we got into the month of January. You know, November and December were sort of tough months for us with the resurgence and a lot of volatility there. But since then, we've seen a very strong rebound, really. In January, as I mentioned, we hit a high watermark in terms of our comp sales index at 67% at our We open fully operational stores, so that was really, as I said, on March the best month we've seen in 2020. We do think that the stimulus, economic stimulus that hit early in January was kind of rough, but if the four-week period was impactful, and you probably heard that from others. But we're really impressed about how we've kicked off the new year. Through the first eight weeks, you know, we've achieved a 74% index for 2019. Cost sales were down 47%. Again, now new highs for us. And those numbers have been a bit higher in March. We think that, you know, we've seen some bolstered demand around the next and the second, you know, wave of economic stimulus, sparking demand a bit. You know, the trends in COVID continue to be better, although it's leveled off here in the last week or so. and I think we're seeing a little bit of pent-up demand. And, you know, March is a higher seasonal sales period for us, and we do have some spring breaks that have shifted a little bit into March. So March has been a bit better than we saw in the month of February. I'll just add on to that. Just one quick comment, Jake. You know, if you look at weeks, the last couple of weeks, it was good timing, you know, with the stimulus checks coming out. Starting in week seven and continuing into week eight, we had a fair amount of spring break activity in those two weeks as well, and so that just seemed to amplify that, and so it was good timing from that standpoint.
spk06: Great. I think one of the really interesting charts you guys put out was, I think it was in October, but it was the trajectory in various stores in different states and how long they've been open for. Can you give us an update on how, for instance, your stores are performing in States like Florida or maybe the southeast, at the time they had been pretty close or at flat to 19. What is the state of the sales in those markets now?
spk07: Another great question. First of all, we're seeing pretty good strength right now in the first eight weeks. It's a bit stronger in the southern states, southeast in particular, Florida, if you really want to dive into it. It's performing really well for us. a little less strength than some of the northern states and some of the upper Midwest stores. I think some of the pandemic restrictions or lack thereof in some cases are playing a bit of a factor in that. But, you know, we're seeing, when I mentioned that we were at 7.4% as an overall brand in the comp set, the top core calls at 91%. So it's pretty broad. Our second core call is down 78%. And our lowest percent, Our bottom core cost is running about 47%. So we're pretty encouraged about where we sit right now. You know, we just opened up our New York stores here. Life right in the spring break week up in the northeast. So, you know, we're pleased with what we're seeing here early on. It's obviously early days, but we're very encouraged about what we're seeing in terms of performance across this chain right now.
spk06: Great. I appreciate it.
spk07: You bet. Next, we'll hear from Jeff Farmer with Gordon Haskett.
spk04: Great. Thanks, and good afternoon. I know you guys are reluctant to provide too much detailed guidance on 2021, but I did want to drill down a little bit on G&A. It looks like your G&A dollars were down somewhere around 30% in 2020 versus 2021. So from a big picture perspective, how should we be thinking about G&A in 2021 for the company?
spk07: Yes, it's a good question. As you think about TMA, we have made some pretty significant reductions, you know, in 2020 with COVID. And so I think the way to think about it going forward is, you know, we will, you know, add back, you know, some G&A, but we'll be very prudent in doing so. You know, for example, you know, as we talk about, you know, new programming initiatives that we want to do and, you know, some of the things to support our new initiatives, you know, for technology and so forth, We want to, you know, very prudently add, you know, some headcount to support those initiatives, but we still want to retain, you know, most of, you know, the savings that, you know, we achieved in 2020. And so I think the overriding theme there is that we'll be, you know, very careful as we add, you know, expense, you know, back, you know, to G&A. from a headcount standpoint, but also from other areas, you know, like consulting. You know, so, you know, we plan on spending, you know, less consulting, you know, this year, especially than we did, you know, back in 2019, you know, because we really have, you know, the plan in front of us right now. And, you know, we have the initiatives, you know, we have, you know, the plan to move forward. And so... We'll need a little bit less of the consulting expenses here in the near term. It's more about executing the plan that we have in front of us.
spk04: Just as a quick follow-up on that, and I did want to ask just one more quick question, but incentive comp, stock-based comp, anything from a true-up perspective that could potentially happen in 2021 that we need to be aware of for G&A? Yeah.
spk07: Just depending on results always can vary with results. And so I think that has the opportunity to be a little bit higher. And so that goes hand-in-hand with our performance.
spk04: Okay. And then final question, and I might have missed this. I apologize for that. But in terms of that $210 million to $220 million revenue guidance, I wasn't quite sure what that implied or factored in terms of a Salesforce sales level versus the 2019 level. for the quarter and the number of stores that you'd expect to have open on average for the quarter. So those are two big drivers of that revenue number. I'm just curious if you can provide a little bit more detail.
spk07: Sure. I think the way to think about that is we'll open just a few more stores. We're getting close to the end on store opening, so there won't be a dramatic difference there. As you think about the remainder of the quarter, really there's two main things that you need to think about. Number one, April is a much slower sales volume month historically than either February or March. Just to give you a little perspective, March in 2019 was the highest volume month from an average weekly sales standpoint. And then February was the third highest. And as you look at April, it's towards the bottom in terms of average weekly sales historically. And so a lot of it is just the seasonality impact. And then the other, you know, factor that, you know, I would consider was is the effective stimulus. You know, so we mentioned that stimulus had a pretty large effect, you know, especially in the last couple weeks, week seven and eight. They'll still have some feasibility probably in the next couple of weeks and but it won't be to the extent that we saw in the first couple of weeks. So those will be the key, you know, drivers as we kind of think about the revenue, you know, for the rest of the quarter. Thank you. Jeff, just one, you asked about what is it about stores. You know, obviously, the big base of stores that we have left down from right now are California. We've got, as we sit here today, we've got a 130 stores of our 141 that are open. This is obviously up from where we were at the end of the fiscal year. It was around 107. Nine of the 130 are restricted. When I say restricted, in this sense, I'm saying restricted from arcade use. In California, the stores are out in California. We can't operate arcade in New Orleans and other countries. So, We've got about 121 stores out of 141 are fully operational today. We expect that to move to 138 total stores next week, so another eight are going to come online, and those are primarily California stores. And we are not projecting to have California fully operational with our paid use in the quarter. And as you might expect, that makes it really hard to generate for us significant revenues. All right.
spk04: That's very helpful. Appreciate it. Thank you very much.
spk02: Next, we'll hear from Andy Barish with Jefferies. Hey, guys. Hope you're doing well. I wanted to kind of dive into sort of the marketing side of things. I think on previous calls you highlighted sort of the summer was going to be more brand relaunch related. Is there a shift going on now to kind of focus more on the specific new food and game offerings?
spk07: Good question, Andy. Not really a shift. I think we have, along with our new creative agency, We've really been working on a creative that will really bring our brand to life in the eyes of our guests and create an emotional connection with the guests. I think we're going to be able to do that by actually featuring some of our great new games and some of our new food items. As I said on the last call, we plan to try to get out big here. We've been... relatively silent for 12 months. And we feel like summer's the right time to strike pretty hard. We're going to have, you know, 22 new food items. We're going to have six new games. This is going to be one of the bigger spins. We've also had a whole lot of games in the last 12 months. So we have some great content. Of course, we're going to want to use that in our creative. And so, you know, we will be featuring some of that. We're not going to be particularly, and Scott mentioned this, you know, we found that we're creating quite a bit of demand and recovery without discounting. So, you know, it's not really our intent to discount as heavily and as frequently as we have in the past. I'm not going to say we won't do that some, but we are going to be, you know, talking about our brand with a larger voice, you know, starting around June. And it will have as a part of that content and that message and feature some of the new game and some of the food. So we're really excited about what we have in store here as we hit this June window, late May, June.
spk02: Thank you. And then let me follow up with I appreciate the drivers behind the 200 basis points of EBITDA margins. you know, associated with the revenue recovery, is there an expectation that, you know, is starting to get built in that 22 can be sort of a full revenue recovery year to look, you know, look close to 2019? Or how are you guys kind of thinking about the, you know, the ramp, obviously, given a lot of potential unknowns out there?
spk07: Yeah, I guess I'll answer it this way. You know, we're in some ways taking it a little bit quarter by quarter. You know, we're giving you what we think we're going to see this quarter, and we're lucky, actually, to guide full-year sales. Number one, we still have to get stores open. You know, we're extremely optimistic about the recovery. But, you know, I think it's really difficult, Andy, to predict when we achieve 2019 levels. Again, we're fighting the battle quarter by quarter. We've got plans that I think are going to set us up really well in 2021. We're not planning to get back to a 2019 run rate in this year. Could happen, but we're not projecting that right now. So I'm not looking to project 2022 either.
spk02: Fair enough. Thanks, guys.
spk06: We now hear from Andrew Strzelczyk with BMO.
spk03: Great, thanks. Good afternoon, everyone. Obviously, the amusement side of the business has been quite strong relative to the F&B business here recently, but there's a lot that you're going to be working on on F&B, it sounds like, going forward. So I guess with respect to how you expect to exit the pandemic kind of longer term, do you think that the mix of the business will look different than it did pre-pandemic? And have you contemplated any of that in the EBITDA margin target that you've given?
spk07: So, I'll answer the first part of that and flip it over to Scott. But in terms of the mix, we feel like the mix we're seeing with some doctors who have shifted even further into amusement is, you know, likely to continue over the near term. If you think about our brand, We know people, our guests, choose us, and the primary driver for that visit to Dave and Buster's is their name. So I don't think it's too surprising that we're seeing a bit of a mixed shift here as people want to get back out to their lives and look for an entertainment or experience. So I think we're going to see that mix be more heavily weighted for some period of time. That doesn't mean that, you know, the incredible efforts by Art Carl and Brandon Coleman that have been working so hard on our menu isn't going to pay some dividends over time, but I think in the near term we're going to see a pretty significant and consistent shift in the investments for the foreseeable future here. And as you think about, you know, the 200 basis points of improvement that, you know, that we talked about, I did not include that. any favorability from that in that estimate. And, you know, the thinking behind that is, you know, we'll likely see, you know, other cost pressures along the way or inflation. And, you know, so that, you know, could help offset that, but I did not. And that's one of the main reasons I didn't include it in the 200 basis points.
spk03: Okay, so that's helpful. And then my other question is, is going to be around a competitive environment. And, you know, if you have any updates there, I know it's kind of difficult to ascertain broadly what's been going on with closures and things like that. But just any kind of the internal intel you've been able to gather would be helpful. Thank you.
spk07: Another good question. I don't know if anything's really changed mature since we spoke in December. You know, clearly, you know, we've seen a lot of competition. Massive competitive ahead with a lot of new names and accelerating store growth across that universe. But, you know, if you sit here today, you know, I think a lot of our competitors have clearly had to shift their attention as we have to the core business and managing through whatever liquidity pressures they have. And in the face of, you know, store closures in some cases and certain softer demand that we're seeing and they are as well, I'm sure. So it's a bit of a mixed bag. You know, you can go out to the website to see that our major competitors, you know, Top Call, InnoVent, they're essentially fully open right now. How they're performing, not sure. They have, particularly InnoVent, has a pretty diverse product offering that requires, you know, has a more heavy labor-intensive profile to it. But I think what we're going to see is a bit of a lull here. you know, as people get their core business back on its feet. And, you know, we can go out to websites and see who's got coming soon. But, you know, how quickly those stores actually come back up and actually are built I think remains to be seen a bit here. You know, what we're going to do is concentrate on what we do best, and that's running our stores, getting them back on finance. I think we're doing an incredible job right now. We have – a lot of liquidity. We have demonstrated, in my view, a clear path to profitability. We hit that point. We had an extremely attractive financial model pre-COVID, and in my view, much more so than a competitive set. I feel really confident about our ability to compete with a great team. We're prepared for this post-COVID world whenever it happens, but we feel really good about where this brand stands.
spk03: Great. Thanks for the follow-up, and congrats on the progress that you're seeing. Thank you.
spk07: Sharon Zagfia with William Blair has our next question.
spk01: Hi. Good afternoon. Yes, Brian, I wanted to follow up on the competitive price. I wanted to follow up on a competitive question because you are obviously going to see a lot of fallout in this space, and you'll be a survivor. I mean, that's clear. I guess instead of kind of taking these savings and flowing them through the bottom line, have you thought about, you know, reinvesting more in the business to really extend a competitive moat coming out the other side? Because we all know competitive environments don't stay benign forever.
spk07: I mean, that's a really great question. You know, if you think back to 2019, we had talked about some savings we had identified and said exactly what you just indicated, that our intent was to reinvest in the business. So we are making reinvestments in the business right now around, you know, a programming engine, around some of our technology that Margo described a bit, around the service model. We're really trying to rethink how we deliver the experience in our stores. So, you know, we are thinking forward here, and, you know, we've got some meaningful capital in our budget to make progress in that regard. So, you know, we're going to be very selective and focused on where we make those investments. But I totally agree. We agree as a company that we need to, you know, invest in the future here, and that's our intent.
spk01: If I could speak in another question, I'm really intrigued by the sports setting, but the parental side of me just wonders how do you balance that with being a family-friendly environment at the same time?
spk07: Another really good question. Obviously, we will venture into this over time. Today, we feel like sports betting could represent a meaningful opportunity for this brand. This is a wave that's really just kind of beginning. We think states are going to expand the legalization of that over time. We think it could be very complementary to our business. You know, our core target is adults 21 and up. So we are actively looking to pursue that, and we're in negotiations. That said, as you look at the landscape today, we estimate we could offer online sports betting in about 13 locations of three states. You know, there are five or so other states that have made an allowance for mobile sports betting, but presents some liquor licensee challenges that we would have to work through. So this is going to be a bit of a journey. And we see this market in the near term could be more like 27, 30 stores out of our chain. So we're going to see how it works. But we think it's something that could be very complementary to what we do. And so we are pursuing it.
spk02: Thank you.
spk06: Next, we'll hear from Chris O'Cole with Stifel.
spk07: Yeah, thanks. Good afternoon, guys.
spk05: Scott, I apologize if I miss this, but how much of the operational improvements that are expected to improve the EBITDA margin by 200 basis points are already in place today?
spk07: Yeah, good question, Chris. I'll give you this one. This may help. If you look at the key drivers here, there's really three main drivers that drive almost 75% of these savings. You know, the first one is hourly labor. And, you know, we talked about some of the technology, you know, that we're rolling out with tablets and mobile order and pay, upgrading our kitchen management system, high-speed kitchen equipment. So really investing in that area to try to make, you know, or back of house, in front of house, more efficient. Also looking at, you know, scheduling improvements and off-peak, you know, day parts. And so, you know, hourly labor is a big component, you know, of what we're talking about and the service model surrounding that. Also, from a management labor standpoint, we will have a reduction in the number of managers in our stores. In some cases, we'll augment with some hourly team members or key hourly team members. The G&A extends that that I mentioned as well. Yeah, GMA expense, you know, as you compare it to 2019, it's more of a like-for-like comparison. We'll see a, you know, a fairly nice, you know, reduction, you know, from 2019, you know, from the headcount standpoint and, you know, consulting. And you roll all those three together and you get, you know, about three-quarters of the savings. Aside from that, there's other things, other line items that add up the remainder that we've identified and we feel comfortable about. I think if you just think about it this way, if we were to come back to our 2019 annual volume tomorrow, which we won't, but if we did, I feel very comfortable that we would achieve these savings because they really already have been identified and most of the structure has already been changed to accommodate these savings. we feel comfortable about the structural changes that we've made. Great.
spk05: And then my other question just relates to labor.
spk07: I was hoping you could help us understand how labor will be impacted now that the New York stores are open and whether or not you have a sense where we could settle out on the intermediate term once they fully reopen, potentially conditioned on, I guess, a few levels of different index sales performance. Yeah, it's another big question. So, you know, New York and then when California opens as well, I mean, they'll, you know, definitely raise the average, you know, on hourly labor. So it'll definitely, you know, come up from where it is. And, you know, we'll start to normalize, you know, as we get all of our stores open and fully operational. You know, so we got, you know, a little bit of runway before that happens. But, you know, as that happens, you know, we will settle out definitely at a higher level than we are today. Okay, but, you know, during that timeframe, we'll also have, you know, some of this new technology and service model that will help us sustain a lower level of value for us in percent of sales than we saw in 2019, but it will definitely be higher than it is today because of that. Okay, great. Thanks, guys. Thank you.
spk06: Brian Vaccaro with Raymond James has our next question.
spk02: Hi, thanks, and good evening. I want to circle back on the quarter to date, and I think you said $150 million in sales over the eight weeks. Could you give us how many operating weeks are reflected in that, or maybe just help us level where weekly sales dollars are on the fully operational units in February versus March, just to make sure we're all on the same page?
spk07: Okay. Okay. You're asking about the total number of operating store weeks?
spk02: Yes, yes, because the definition gets a little confusing. The store is open, the store is closed. Obviously, California is open, but the sales are down. So I was just trying to level set kind of average weekly sales trends that's reflected in the 150-quarter-day chart.
spk07: Brian, I'm not sure we have the store weeks here to share with you. I don't have that stat right now. Honestly, we've averaged collectively about $18 million or so a week, but I don't have the store weeks here to provide to you. Okay.
spk02: All right. Maybe we can circle back after offline. But I also wanted to clarify the quartile stats that you gave, Brian.
spk07: I think earlier in the Q&A, the 91% top quartile, 78% I think it was for second quartile, et cetera. Was that a quarter to date? That's over the full eight weeks quarter to date period?
spk02: That's right. That's correct. All right. Okay, great. And then just to shift gears a little bit to the margin recovery framework you provided, the $30 million in savings, the buckets there, does that include marketing efficiencies as well? Or maybe you could just the $30 million, we've got labor, other objects, and marketing, maybe just ballpark, kind of how you expect that to fall over the different platforms.
spk07: Yeah, from a marketing standpoint, really the two main things that, you know, we see in marketing is, you know, number one, you know, we're planning on doing fewer promotional discounts. And it's really a change in thought and strategy, you know, to do more, you know, limited-type offers versus kind of a lead-on, you know, type of promotional discounts. And so... That, you know, that will save us, you know, some money. And that's one of the things that we've learned over the last few months is that we've done significantly, you know, less, you know, discounting. And, you know, it's still, you know, we still see the sales come in, especially on the amusement side. We haven't really seen an impact there. Another smaller item, you know, with the new menus, it's kind of a one-page, you know, paper-based type of menu. So it will save, you know, a lot of money, you know, there. So the overall savings in marketing won't be, you know, the bulk of it, but that will help us. A couple other areas that, you know, I mentioned, you know, on our special events team, we've really kind of rethought the organizational structure of our special events team, and we've invested in some technology there as well to make, you know, make ourselves more efficient and thinking more from a kind of centralized approach. I'm using more tools to make this more efficient for that, you know, what will help us as well. So there's a couple other areas, but, you know, the other three areas that I mentioned, you know, the state courts are the same, you know, the G&A, our labor, and management labor. Yeah, okay.
spk02: And on the management labor side, I think pre-COVID you had the general manager, and then I think the average store had eight managers per school.
spk07: Where do you see that settling out in the post-COVID world on average? Yeah, so, you know, on average, you know, it will settle out about between, you know, seven and a half and eight or so.
spk02: Okay. Okay. And that includes the GM? Correct. Okay. Great. And then lastly, can you just expand on what you said about the virtual brand? How many concepts are you currently running? I think I heard the wing concept, but is there another one or perhaps that you're testing? And then what level of sales per week are you currently generating from the virtual brands? You may have said it on the call, but I missed it. Thank you.
spk00: Hi, Marco. We have two ghost kitchen concepts right now, the wings out that we have testing in seven of our stores. And then we have a concept which is Buster's American Kitchen, which is basically the Dave and Buster's menu under Buster's American Kitchen concepts. So we have two ghost kitchen concepts right now, and we have one that we have planned to test in September. And I don't have the weekly sales number right now, but what we have given is the three concepts combined, so the Dave & Buster's to go, the Wings Out, and then also the Buster's American Kitchen. We see that averaging at about $50,000 per store in the Wednesday.
spk07: Danielized.
spk00: Danielized, yeah.
spk07: And as Margaret said, we're early on here. We're getting our sea legs around promotional strategy. I think we've done three. And when we do that, promotional windows, and we're seeing a pretty good kick up for the three concepts when we've done that. So in our view, like Margaret said, we view this as highly incremental here. But, you know, we have 140 store chain. We don't have 1,000. And, you know, our volume is, you know, actually heavily mixed towards entertainment. So the impact that it can have on us versus, you know, traditional casual finance just, you know, it doesn't have the same kind of potential to move the needle for us.
spk02: Yeah, that makes sense. Okay, thank you. I'll pass it along.
spk06: We now hear from Brian Mullen with Deutsche Bank.
spk07: Hey, thanks. Just a question on development. It sounds like there's 10 stores that are in some form of planning now, but looking out beyond that big picture, do you expect game investors to be a consistent unit growth concept once again? And if you do, could you just talk about the longer-term opportunity? Would you do smaller formats than prior? Would you go slower than prior? Just maybe none of that, but how are you thinking about this topic? Yeah, I mean, good question. You know, even pre-COVID, we've communicated that we were looking to moderate our pace of store growth to, you know, pivot our attention, more attention towards the core brand, you know, in the face of the competition we've seen. So, you know, as we sit here today, you know, our challenge is to get our solar stores reopened and to rebuild that core business, in our view. That is the clearest and quickest path to recovery, you know, for our company, financial health. Not to mention, and this is a real issue, new unit growth at a rapid pace puts a lot of pressure on our store leadership who are, you know, under a lot of pressure right now in the stores. We're not as steep as we once were. So near term, next year, 2021, You know, we're going to be really measured. We're going to be conservative on new store development. You know, as Scott mentioned, we had planned to do four stores. We've opened one of them already. That's one of our kind of new small format stores in Gainesville. Doing very well. We've got three more on tap. And that cadence for 2021 is going to be pretty equally weighted. In that mix, there's something too large, kind of 35,000-ish square foot. Again, Gainesville, it's less than 20,000 square feet. And then one that's sort of that medium, 30,000 square feet. So, you know, it's going to be measured in 2021. We've got a pipeline of about 10 attractive stores that we have right now. And we're going to be pretty flexible on how we think about those 10, you know, depending on how we recover. And our people pipeline, you know, we'd like to leave flexibility to flex up and or down. depending on how our business recovers. You know, my feeling right now is that there's going to be a time and place for us to really start to accelerate again on units. You know, we feel very, you know, confident in our potential at that 230 to 250 kind of North American potential. But that's a much more likely consideration as we head into 2022 and beyond. We're going to work hard to get this core business back online and performing well. That's our top priority. Okay, thanks. And then just a follow-up. Scott, I think you mentioned earlier you don't expect sales recapture to 2019 at any point this year. But if you were to somehow be surprised by that this summer, you know, this roaring 20 is real or anything like that, consumer demand, is there a scenario where you could exceed 200 basis points of margin expansion if the revenue recapture is actually greater than 100%, so if it's 105%, 106% this summer or even next year, or would there be costs that come back associated with that? Yeah, I think the way to think about it is, you know, if we were, you know, all of a sudden, you know, to get back to 2019 levels of revenue, you know, much more quickly than we anticipated, you know, I kind of pointed this a little bit before. The changes that are required to get these savings have mostly been made. And so we've thought about the structure that is needed to achieve these savings. And in large part, we've already made those changes. And so it's really a matter of the revenue to increase to show the leverage against that new structure. And so for us, you know, if we saw that happen sooner than later, then, you know, I think we would see the savings come through sooner as well because, you know, most of the work has already been done.
spk06: Okay.
spk07: Thank you. Thank you.
spk05: We'll now hear from Joshua Long with Piper Sandler. Great. Thank you for taking the question. When thinking about marketing and the shift to more digital, is that more of a strategic pivot here over the near term? As I think about the story over the last several years, incremental weeks and diving deeper into some of these different channels, whether it's Nickelodeon or other things in the TV category, has been a meaningful driver of sales. And so just curious on how to contextualize the commentary around moving a significant piece of those dollars into digital markets. And if we should think about that as just a near-term pivot, given that there's a little bit of a lead time in getting back into TV, or this is more of a structural shift longer term into, you know, really prioritizing the digital channel?
spk07: Well, I think 2020 kind of accelerated our plans. Obviously, you know, when we hit COVID, we shut down every element of our media spend we could. you know, as our stores were shut down and, you know, canceled whatever we could out of our upfront buy cable. And we had a little bit of media running for us in the third quarter. But, you know, in this kind of environment, number one, we locking into, you know, a more fixed, you know, cable buy is, you know, not something we're really wanting to do. Number one, we want to be pretty flexible with the media plan. And then secondly, you know, as I look at how our stores are recovering right now with limited media, you know, we're super encouraged by that. You know, we have a sort of always-on strategy. We've gotten ourselves, as you point out, to being on TV on some channel virtually every week of the year. And so, you know, strategy this year as we come out of this COVID situation, and we're going to learn some things by it. is to pivot more heavily into digital channels. You know, we spent a significant amount of effort during the COVID shutdown on developing out our marketing tech stack and our attempt to utilize that to really reach our guests where they are, and that's not always on broadcast TV. So, you know, we're going to lean into that much more heavily than we – as anticipated pre-COVID. Number one, it gives us a lot of flexibility to cut it on and cut it off, and we're going to use this time. When you have disruption, you can use the time to think definitely about a lot of things, so we're going to do that here, and we're going to see what we can deliver.
spk05: That makes sense. I appreciate that color. Then secondarily, thinking about guest engagement and really leaning into digital services, Can you talk about where you are on that journey in terms of understanding and developing more of that conversation or that one-to-one marketing opportunity with your guest set, either through your digital app or maybe with some of the forthcoming plans on investing in the digital channel?
spk07: Well, as I mentioned, you know, 2020 and really early into 2021, we, you know, worked hard to put in place a number of new tools within our tech that one was a new CDP system where we really can collect and organize as you might imagine our customer data into profiles which gives us an ability to create targeting lookalike audiences and that sort of thing and help our reduce our media cost and improve our efficacy here and that's something we're looking to unlock We've invested in a Salesforce marketing cloud and CRM system. That's big for us. We did that in the teeth of COVID in July of 2020, and we're really looking to integrate that with our CDP. So that was a heavy, heavy lift for us in 2020. And there's another whole slew of other tools, two other key ones. But I think our marketing team is really armed right now with the tools they need to really engage with our guests more on a one-on-one level as opposed to what is historically said, you know, broadcast TV as the only real play in our playbook.
spk02: Thank you.
spk06: Our final question will come from John Tower with Wells Fargo.
spk05: All righty then. Well, I will not take much time. Most of the questions have been answered, but I was curious, if you guys have had any chance to reach out to a number of your core customers that haven't been able to visit your establishment during the pandemic, first, what they've been doing to entertain themselves during the crisis, meaning have they decided to pick up their gaming elsewhere? Have they not really engaged in any sort of amusements the way that you guys offer them in your stores?
spk07: And then, frankly, anything in the stores that you have reopened, what are you seeing with respect to amusement use within the stores, meaning are consumers staying away from
spk05: highly contacting, like pop a shot, or are you moving back to that as quickly as you would have anticipated?
spk00: So I'll take the latter part of the question and just let you know that the guests have been coming back. It's been great to see the store, you know, fill up with guests that are excited to be back at Dave Investors and for us to welcome back to the fund. But what we've seen is the guests have been – really embracing just coming back and having the day the best experience the way they'd like to have it. We have done social distancing not only in our dining rooms but also in our midways, and we have put a tremendous amount of effort into ensuring that we have sanitation stations and really on every shift, constant cleaning that's going on through the stores, including the midway and including our games. And so what we found is the guest is coming back and enjoying all of the games. And we're thrilled by that, and we're thrilled to be able to provide the funds, but we haven't seen any modification in their behavior in the midway.
spk07: And I guess the first part of that question, which is maybe more around, you know, how we're staying in touch with the guests and getting feedback. The reality of this was, you know, in 2020 when we were – looking to make significant, significant reductions to our cost structure. You know, we just continued, well, a lot of things, and one of which was some of our get surveys and all those sorts of things. So, you know, just recently, I want to say recently, you know, I'm talking about last month and where it's ongoing right now, the implementation. We've reactivated with a new partner, a customer feedback and collection system that we actually feel a lot better about than what we had pre-COVID. But to say we haven't commissioned, John, significant work and research and or our normal survey type activity since COVID started and, you know, we're really just right now starting to reinvest in that. We think it's important and we're spending money on that. But, you know, most of the stuff that we've been looking at over the last year are, you know, commission-type research by other third parties and not ourselves. Got it. Thank you, and that's a lot. Thanks, John.
spk06: And that will conclude today's question and answer session. I'm going to turn the conference over to Brian Jenkins for any additional closing remarks.
spk07: All right. Well, thank you for joining our call today. Sorry we ran a little long. We wish you and your families a safe spring. Hope you have a great one. And I hope you'll come out to one of our Dave and Buster's locations really soon. They're going to be open really soon. We've got a few left, but please come out and see us. Have a great night.
spk06: This concludes today's call. Thank you for your participation. You may now disconnect.
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