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spk00: Good day and welcome to the Dave & Buster's second quarter 2024 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your questions, please press Start and Choose. Please note, this event is being recorded. I would now like to turn the conference over to Corey Haddam, VP of Ambassador Relations. Please go ahead.
spk05: Thank you, Operator, and welcome to everyone on the line. Joining me on today's call are Chris Morris, our Chief Executive Officer, and Darren Harper, our Chief Financial Officer. After our prepared remarks, we will be happy to take your questions. This call is being recorded on behalf of Dave & Buster's Entertainment Incorporated and is copyrighted. Before we begin the discussion on our company's second quarter 2024 results, I'd like to call your attention to the fact that in our prepared remarks and responses to questions, certain items may be discussed which are not entirely based on historical fact. Any of these items should be considered forward-looking statements relating 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 these risks and uncertainties have been published in our filings with the SEC, which are available on our website. Our remarks today will include references to financial measures that are not defined under generally accepted accounting principles. Investors should review the reconciliation of these non-GAAP measures to the comparable GAAP measure contained in our earnings released this afternoon. And with that, it is my pleasure to turn the call over to Chris.
spk07: All right. Thank you, Corey. Good afternoon, everyone. Thank you for joining our call today. In our second quarter of fiscal 24, we generated revenue of $557 million and adjusted EBITDA of $152 million. We were pleased with the progress we were making on our strategic initiatives and on the strong financial results achieved during the quarter. During the quarter, we grew revenue and adjusted EBITDA, expanded our adjusted EBITDA margins, and generated strong operating cash flow, which allowed us to invest in the business and return cash to shareholders. We've also continued to make significant progress toward our strategic goals. Our initial fully-programmed remodels continue to perform well, and we are excited about the remodels that have recently opened and will open throughout the remainder of fiscal 24 and beyond. Our new menu continues to be well-received by our guests, as indicated by our improving F&B performance and guest satisfaction scores. We continue to refine our menu and are excited about the next phase of our menu rollout that just occurred in August. We've also continued to test our games and F&B pricing levels, which we have benefited our top line and margins, and which we expect to bear more fruit going forward as we optimize our pricing strategies. Additionally, we have seen material improvement in our special event business with substantial growth in same-store sales in the quarter and year-to-date and with the forward bookings for fiscal 24 currently significantly above the prior year period. Further, we have continued to open new domestic stores which have consistently performed in line with or above our expectations. We've also managed our cost structure well, which has enabled us to expand our adjusted EBITDA margins while still delivering a high-quality experience to our guests. While we are disappointed with our same-store sales performance during the quarter in this complex and challenging environment, We are laser-focused on our medium-term goals and encouraged by the progress we are making on each of the initiatives. We fully expect the impact of our initiatives to lead to growth in same-store sales, revenue, EBITDA, and cash flow in the coming quarters. I will now give you a brief update on the progress of each of our strategic initiatives starting with our six key organic revenue growth initiatives. First, marketing optimization. As a reminder, we believe there's huge opportunity to improve both conversion and guest frequency with the right marketing approach. We've made a material shift to digital marketing and away from linear TV over the past few years, which allows us to move quickly on campaigns and rapidly address specific business needs while localizing and personalizing our messaging. The data we glean from this digital approach are immense and constantly fueling our marketing engine to progress forward with more actionable insights. These digital channels also allow us to be particularly nimble with our spend and enables us to quickly pivot when we are not achieving the desired results. Leveraging our learnings over the past few quarters, we are beginning to more strategically target our growing loyalty database with creative and compelling tailored messaging to drive visit frequency and spend. We now have nearly 7 million loyalty members in our database, and active members have grown over 25% on a year-over-year basis. As a reminder, these loyalty guests visit us two and a half times more frequently on average and spend 15% more per visit than non-loyalty members. As we have discussed, we've been focused on a test and learn approach to our marketing. Due to a number of tests we have run across our portfolio over the last several weeks, we are excited for what we have to offer our guests for the fall season. In addition to our new food menu, our new beverage menu, our selection of new games and new experiences, in particular in our remodeled stores, which are rapidly increasing as a percentage of our portfolio, we also have a number of local store activations and compelling value-driven promotions tied to the fall football season that we expect to drive continued improvement and top-line trends at Dave & Buster's. On the main event side, we are applying many of the learnings we have gleaned from Dave & Buster's and are excited about some recent strategies we have executed to drive awareness, excitement, and attachment to our full product assortment. We are also laying the foundation of our plan to launch a loyalty program at Main Event in early 2025 that we think can emulate the success of the Dave & Buster's database. We will continue to optimize our media mix, messaging, and better leverage our scale and presence to drive traffic. We also are evaluating numerous partnerships that we expect will help improve traffic and sales trends later this year. We're particularly excited about a number of these big-name partnerships with the buzz we generated during the summer movie season with the box office success of Deadpool versus Wolverine and our exclusive crane experience. Second, strategic game pricing. We continue to believe there's a significant amount of upside on game pricing, and we've been particularly methodical in the current consumer environment while we continue to gain insights from our various iterations of regional and game-specific tests constantly running within our gaming ecosystem. We have driven clear uplifts with our multi-tiered approach to regional pricing with the highest tier significantly outperforming the other tiers, and we are constantly evaluating performance to make changes on an individual store basis. a technical ability that was unlocked with the recent enhancements to our gaming system. We are also increasingly applying these learnings from the Dave & Buster's brand to the main event brand. Third, improved food and beverage. As a reminder, we see a tremendous opportunity to improve the overall quality and service model of our F&B offering in order to bring attachment back towards the historical levels and to drive increased revenue in EBITDA. As a reminder, earlier this year, we successfully implemented a new service model, which has been focused on enhancing efficiency while improving the guest experience and the quality of our food offering through a new menu. We are pleased with the initial success in this area as we've seen improvement in trends on the food side of our business, both during Q2 and subsequent to the quarter. As we mentioned on our last call, in August, we launched our Phase 4 menu, which is primarily focused on beverage innovation and special events. On the beverage side, as part of this new menu, we've introduced 13 new and 12 revised beverages, including premium drink offerings, that is significantly elevating our bar experience. We've also created a set of near-term beverage sales initiatives, like a reinvigorated happy hour and improved salesmanship strategies for our bartenders to drive beverage-attached based on our ongoing research findings from guest feedback. We believe that this focus on improvement in beverage, in addition to continued momentum in food, will set up the F&B side of our business for success in the coming quarters. With respect to the special event side of Phase 4, our new banquet menu features eight new menu items and significant plating and menu revisions, creating additional opportunities for salesmanship on our special events team. We're excited for the opportunity that these new items give us to further add to the momentum we are seeing in special events in which we will detail later. Fourth, remodels. Our fully programmed remodels continue to perform well with positive sales trends on both a year-over-year basis and on a pre-post net of control basis. This sustained positive performance has solidified our confidence that product news and innovation are a proven lever to ignite our momentum. We're pleased to report that our first fully-programmed remodel in Friendswood, Texas, just outside of Houston, has lapped the anniversary of the remodel completion. And thus far, in its second year, it is still comping up relative to prior year, which is a true testament to not only the success and healthy return profile of the remodel program, but most importantly, of staying power as a complete strategic reset and new platform for sustainable growth. During the quarter, we remodeled nine existing stores as our development team has gone into overdrive to accelerate the exciting investments we were making into Dave & Buster stores, stores of the future across the system. Interestingly, while we have not yet fully reintroduced our newest remodels in their respective markets with the same pre-opening and marketing push we've done for our first batch of fully programmed remodels, we've still seen strong performance with aggregate year-over-year growth on both a pre-post and year-over-year basis over the last few weeks across these nine remodels. All told, we have opened 18 remodels and are on pace to have 29 remodels completed by the end of the third quarter and 44 remodels completed by the end of this fiscal year. Fifth, special events. We continue to make considerable strides reinvigorating our special event business by repositioning the team with a more local, hands-on approach and equipping them with enhanced training and tools to win in this area. Beginning in the back half of last year, we reinserted sales managers into several of our Dave & Buster stores as a test. The idea was that more dedicated on-premise sales managers would be able to tailor the guest experience at the individual store level and that aiming this team with more product news, like the innovation of our Phase 4 banquet menu and increasingly our remodels, would further allow them to drive success for this business. We've also mentioned that due to the strong performance that we saw in those stores, that we would be reinserting sales managers into a significant number of additional stores. As of today, we now have over 70 on-premise sales managers inserted into the Dave & Buster's portfolio. We're pleased to report that this strategy has been working well, driving high single-digit year-over-year growth and special event sales across the entire Dave & Buster system during the second quarter, with continued strong momentum in the third quarter. Additionally, as mentioned earlier, forward bookings for the third and fourth quarter are meaningfully above where they were a year ago, which gives us confidence and excitement about our strategy and momentum ahead of the peak special event holiday season in the fourth quarter. Six, tech enablement. As a reminder, we are powering the growth of all strategic initiatives through an optimized service model, enterprise gaming ecosystem, new store IT infrastructure, and improved data and analytics. Thus far in 2024, we have completed major IT enhancements to the whole Dave & Buster system, which updated connectivity and all server infrastructure. This was paramount to support our new service model because it heavily relies on wireless connectivity and stable computing power for all points of sale in PCs along with our handheld server tablets. We've also completed the back office modernization of our service center, and this is the first quarter we've seamlessly closed the books in our new ERP system. New store monitoring technology has been installed in most of Dave & Buster's locations, and we are working diligently to embed these new property-level insights into our strategic analysis. Our mission of driving further innovation in our mobile app will continue throughout the balance of 2024 with the integration of additional features and games to better engage with our guests before, during, and after each visit. We are still just scratching the surface of what we can do with our growing loyalty database from a data, analytics, and product offering perspective, which we are excited to unveil to you in the coming quarters and are confident it will drive meaningful relevance and repeat visitation for our brands. We are proud of the achievements and long overdue investments we are making in this area, which will enable us to lead the industry in a far more seamless and desirable guest experience. To summarize, our organic growth initiative update We remain convinced that we are putting our focus, resources, and investments in the right opportunities to grow the top line. And in doing so, that will drive meaningful shareholder return along the way. I had the pleasure of spending significant time with our store general managers this quarter. And with each interaction, I come away feeling more energized and passionate about our culture and the team members who are part of this great company. Their commitment to the cause of enhancing the guest experience and competitive spirits to win are remarkable. There is a positive ripple effect in the way that we treat our team members to how they treat each other, to how they serve the guests, to how that environment manifests in our stores, making them an enjoyable place for friends and families to create memorable experiences. We see this hospitality loud and clear in the guest satisfaction metrics that we meticulously track with our combined OSAT, speed of service, overall cleanliness, and the fully independent OSAT social media scores all up materially on a year-over-year basis, and this improvement is even more pronounced when we compare our cohort of remodel stores to the balance of the system. We are very confident that these results are not coincidental and that the enhancements we are making to our service model, coupled with the investments we are making in our remodels, are driving these strong leading indicators of success. In addition to our organic revenue growth initiatives, as we have discussed, we have also maintained a focus on managing our cost structure. Due to our always rigorous focus on managing expenses, we grew adjusted EBITDA on $11 million, or 8%, and expanded our adjusted EBITDA margins 130 basis points in the second quarter. It's important to note that while we are very focused on managing costs and enhancing margins, we've also strive to do that while ensuring we continue to deliver a high-quality experience to our guests. We are proud that we've been able to cut costs and improve margins while simultaneously improving our guest satisfaction metrics, which is not always an easy balance to strike. With respect to new domestic units, during the second quarter, we opened two new Dave & Buster stores in Port St. Lucie, Florida, and Johnson City, New York, Both are performing in line with our historically high ROIs. In the third quarter, we've already opened a new Dave & Buster's in Barbersville, West Virginia, and a new main event in Grand Rapids, Michigan. We continue to expect to open a total of 15 stores during fiscal 2024. On the international development front, we expect to open four to five stores in the next 12 months with our respective franchise partners across the globe. as the commitment to develop a current total of 38 sites and counting comes to fruition. We expect the first of these international sites to open before the end of the year. Our business is in an enviable position with strong operating cash flow that it consistently generates to continue to grow, invest, and return capital to shareholders in tandem while we execute on the sizable upside potential of these two brands And we look forward to continuing to update you on our progress as we find better and more efficient paths to unlock the value for all of us. Finally, before I turn the call over to Darren, I would like to take a minute to introduce our new CFO, Darren Harper. Darren and I have worked together during transformative moments at multiple companies throughout our respective careers, and I cannot be more excited to publicly welcome him on board. With his vast experience and intimate knowledge of the location-based entertainment space, he has hit the ground running overseeing the financial elements of the numerous initiatives we have going for us, and I have a tremendous amount of confidence he will be a significant asset to our companies. So with that, Darren, please walk us through a more detailed review of our Q2 results.
spk06: Thanks, Chris, and good afternoon, everyone. Let me first start by saying how excited I am to be here and working alongside Chris again. It's truly an honor to represent this great company and to work with the fantastic team that we've got here. So turning to the results for the second quarter, ComStore sales decreased 6.3% on a calendar basis in the second quarter versus 2023. We generated second quarter revenue of $557 million, which reflects year-over-year growth of $15 million, or 3%, and adjusted EBITDA of $152 million, which reflects year-over-year growth of $11 million, or 8%, and an adjusted EBITDA margin of 27.2%, which is 130 basis point margin expansion versus the prior year and a 360 basis point margin expansion versus the same period in 2019. Net income in the second quarter totaled $40 million or $0.99 per diluted share. We reported $46 million of adjusted net income or $1.12 of adjusted earnings per diluted share. And reconciliations of all non-GAAP financial measures can be found in the press release from earlier today. We generated $102 million in operating cash flow during the second quarter, ended the quarter with a net cash balance of $13 million for a total liquidity of $494 million when combined with the $481 million available on our $500 million revolving credit facility, nets of outstanding letters of credit. We ended the quarter with a net total leverage ratio of 2.3 times as defined under our credit agreement. Our decisive plans for the Dave & Buster store remodel program are progressing at an impressive cadence under the leadership of our best-in-class development team. We now have 18 completed remodels under our belt with 26 additional scheduled for the completion and the balance of fiscal 2024 as we approach critical mass of the system in fiscal 2025. The results that we have seen remain very encouraging with the earliest fully programmed remodeled units continuing to significantly outperform the balance of the system. Our first remodel of this program in Friendswood, Texas, completed its construction in August of 2023, and as Chris mentioned, it's a testament to the effectiveness, staying power, and potential upside of this remodel program. that the Friendswood store is comping up in the early innings of its second year post-remodel. As a small update and reminder on sale leaseback opportunities, we closed on the previously announced sale of two Dave & Buster's properties in July, generating $45 million in proceeds. We have five owned and operating real estate assets today, with one more wholly owned property scheduled to open later this year. We are being methodical in how and when we decide to monetize these assets, and we expect these assets, when monetized, to command a premium price in the market versus other comparable real estate given our superior unit economics, strong credit, attractive brand attributes, and commitment to being a long-term tenant of the space. Turning to capital spending, we invested a total of $112 million in capital additions during the second quarter, opening two Dave & Buster's in Port St. Lucie, Florida, and Johnson City, New York. We have already opened one new Dave & Buster's and one new main event during the third quarter thus far in Barbersville, West Virginia, and Grand Rapids, Michigan, respectively. We continue to expect to open a total of 15 new stores across both brands during fiscal 24, with eight already open to date. We have $140 million remaining on our board-approved share repurchase authorization to opportunistically repurchase our shares. As you know, we and our board are maniacally focused on driving shareholder value. We will use our significant excess cash flow to invest in our accelerated remodel program, new units, which continue to generate sizable cash-on-cash returns, make accretive investments to support our organic growth initiatives, and opportunistically return capital to shareholders. Our team has a lot to be proud of in the second quarter results. We grew adjusted EBITDA, continue to expand our industry-leading adjusted EBITDA margins, progressed organic growth journey through strategic investments in our remodels and other initiatives, and bought back additional shares outstanding, all of which will benefit our shareholders over the long run. We also have a growing pipeline of attractive international frontiers with our many franchise partners with four to five anticipated open in the next 12 months. I'm excited to be back at the financial helm of this great company, particularly since it's well positioned for growth. And I have a significant amount of confidence that the work we are putting into these two great brands will provide material upside for all of our stakeholders. Now with that, operator, please open the line for questions.
spk00: Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the key. If at any time your question has been addressed and you'd like to withdraw your question, please press star then 2. At this time, we'll pause momentarily to assemble our roster. The first question comes from Jake Bartlett with Trust Security. Please, go ahead.
spk04: Great. Thank you so much for taking the question. My first was on the top line. So far, you have your initiatives in place. It seems like you're feeling very confident in them. Things for sales have decelerated, though, so it looks like macro headwinds are offsetting it. The question is, you expressed confidence in accelerating same for sales in coming quarters and that your initiatives are going to do that. I guess, how can you feel so confident given the macro headwinds? Maybe in that answer, you can talk about whether you see the macro headwinds building or decreasing or just staying consistent, as well as whether you're seeing kind of improved or increased contribution from your initiatives in the last few months.
spk07: Yeah. Hey, Jake, great question. Yeah, the first thing I'll say is we continue to be very bullish about the long-term prospects of our initiatives, and I think that's what you're hearing from us. The initiatives that we're focused on, we've shared with all of you the math and the upside, and there's still a tremendous opportunity to add incredible value to this organization through executing on those initiatives. And as we've always said, the one thing we can't control is the macro environment. But make no mistake, there's real value creation opportunity on these initiatives. And, you know, our stance really hasn't changed. It is a tough kind of consumer environment. It's complicated. And there are headwinds in this business, and we felt those headwinds in the second quarter. And they're still there. I think what has us excited as we move forward, more of our initiatives are starting to come online. And when we look forward, we really like what we're seeing on our remodel program. And the remodel program is, you know, you've heard us talk about it as a strategic reset. It's the culmination of everything we're doing all wrapped up into one. And we continue to see very nice improvement on the remodels. And so we've got the nine that we just opened this quarter. They open towards the end of the quarter. But now we have 11 in Q3 and then 15 in Q4. And so, you know, those remodels, you know, at this point in time, you know, we continue to believe that they're going to continue to see the same results that we've seen in previous remodels. And so that, you know, that gives us a lot of optimism. In addition to that, you know, the other initiatives we're focused on, you know, that I outlined with special events and the banquet season coming up and so on and so forth. So... I think that's what you're hearing from us is just, you know, confidence and the things that we're working on.
spk04: Got it. And, you know, just building on the commentary around the remodels, last quarter and I think prior quarters, you've been a little more specific. You said double digits sales lift for the, you know, fully loaded remodels. Is that true? I'm wondering, you know, whether the omission is conspicuous or not or whether it's just kind of the message remains the same. But anything change there in terms of what kind of lift you're getting from the remodels?
spk07: No, no, no. Nothing has changed. We're still seeing a double-digit increase in those first four fully programmed remodels. And the nine that just came on, as I said, it's still very early. They're towards the end of the quarter. But at this point in time, we're seeing a nice lift there, and there's no reason to believe that they're performing in line with what we would expect. And I think, you know, on those in particular, we're seeing nice separation in sales, and we haven't even fully put, you know, our marketing muscle behind those yet. And so that's, you know, and as we start getting more critical mass, you know, there will just be more we can do from a marketing standpoint to get out and tell the story of the future. So, and then, you know, the last thing, you know, the one thing that has changed is, We now have Friendswood in year two. And, you know, that's always been, we've been very open about that, that we don't, you know, time will tell, you know, what this looks like in year two. And so far, you know, Friendswood is green on green. So that's very encouraging as well. And, you know, it just speaks to the staying power of what we're doing.
spk04: Okay, great. And last question for me. You know, a pretty, you know, interesting, you know, impressive feat to grow margins as you did, you know, 170 basis points at the store level with such negative same-store sales. So the question, I just want to make sure there's nothing in there that's abnormal, you know, that's not maybe, you know, enough non-recurring to be backed out, but just that will not, you know, happen or benefit you in the future or coming quarters. Anything in there that we should be wary about? And I guess the idea, the real question is, Can you drive, if we expect negative same-store sales for the next quarter or two, is it feasible to continue to drive restaurant-level or store-level margin expansion?
spk07: Yeah, I'm going to answer the first part of that, and I'll turn it over to Darren to kind of comment on the second part. I mean, we're very proud of the work that's going into managing our bottom line, given the uncertain top-line environment, and that's really – It's so important that we do that as we're starting to continue to execute these initiatives in a period of time where the consumer environment is challenging. And the team really stepped up and delivered. And we've implemented a number of cost-cutting initiatives that are coming through the P&L that we expect will continue to benefit the rest of this year. We're managing our You know, all the things within our control, the team is just doing an outstanding job managing those things. But we've seen very significant improvement in cost of sales. We're tightly managing labor in all areas. It's wage rates are flat to down on a year-over-year basis. Our productivity has improved. And we're doing all that at the same time. our guest experience metrics are improving. And as I said in my prepared remarks, that's not easy to do. And the team is doing it just through managing the details every single week and just being absolutely maniacal about protecting the bottom line. And then we've been able to capture some considerable G&A savings. And so there's real margin improvement in the numbers that will that's not going away. And that's going to put us in the best possible position to navigate a challenging top line environment. And with respect to other items, I'll let Darren kind of jump in on that.
spk06: Yeah, yeah. Just to echo what Chris said, yeah, we feel like we have a number of levers here. And I think the brand has demonstrated that. in being able to manage margins despite some sales headwinds. And every quarter, there's noise in the prior year, and there's always certain adjustments in the current year and the prior year that frequently just have an offsetting impact as we go along. So I wouldn't raise anything of note that is reflected in this quarter that we don't think is reflective of our ongoing trends of the business.
spk04: Great. I really appreciate it. Thank you. Thank you.
spk00: The next question comes with Jack Farmer with Gordon Haskett. Please go ahead.
spk08: Thank you. A little specific here, but I think on the last call you presented that presentation that showed that I think you had 33 of the 165 stores running at that highest price increase tier as of Q1. I'm just curious where that stands as of Q2 or currently in terms of the number of stores running at that highest pricing increase tier.
spk07: We've made no material changes to the tiers. We feel like we're in a really good spot right now. As you know, we've gone through an extensive testing and learning process, and we feel like that we've got the right formula. It's an area that we're going to continue to evaluate, and we now feel like that's a lever that we're going to be able to adjust or pull as we move forward. And so as we start planning for next year, there could be potentially some changes, but As of right now, we feel like that we're in a good spot and don't anticipate – there haven't been any material changes, and we don't anticipate any material changes for the rest of this year.
spk08: Okay. Unrelated, just in terms of trying to understand whether or not the demand headwinds are sort of further mounting or you're seeing some stability, at the beginning – actually, when you reported the Q1, you pointed to low single-digit same-store sales declines through the first – I think it was four or five weeks of Q2 – You finished the quarter down six. The math implies sort of mid to high single-digit same-store sales declines over the balance of the quarter. So can you help us sort of reconcile what went on there? It sounds like you have more initiatives that were kicking in, but the comps got softer. So was it the demand headwinds that mounted? Just any color there would be helpful.
spk07: Sure. Yeah, I mean, June and July were tougher months. And so the summer months were just a little more challenging than where we started the quarter. And, you know, we're not alone. Many others felt that same pressure. We saw equally, you know, Main Event and Dave & Buster's, the two brands, have really been moving in lockstep, which is just another data point that we're dealing with something that's a little more macro. And so it was a challenging summer. which is, again, you know, all the more reason why, you know, our team really hunkered down and, you know, managed the bottom line and did all the great things that we did to control costs just to, you know, give ourselves breathing room to continue to execute these initiatives.
spk08: Okay. Thank you. Yep.
spk00: The next question comes with Andy Barish from Jefferies. Please go ahead.
spk02: Hey, guys. Just wanted to dig into, you know, the highest price tier that's, you know, kind of performing well. I mean, does that show that that's a demographic that's also maybe a little higher than, you know, a broad cross-section and that demo's, you know, kind of hanging in there better than, you know, what we've heard from, you know, pressures being seen at the lower end? Just trying to, you know, sort of tease that one point out as an opener.
spk07: Well, the higher price tier certainly is reflective of, you know, higher cost of living. You know, what we've talked about, you know, before we started enacting all these changes, we had the same price. There's a price in Times Square and there's a price in Overland Park, Kansas, and they're exactly the same. And so, you know, the higher price tier is reflective of, you know, more of cost of living adjustments. We did play around with demographic profiles on household income and things of that nature. But for the most part, generally speaking, our tiers are more in line with traditional pricing tiers that have to do with cost of living.
spk02: Okay. And then just checking in, on the rest of the remodels this year, are a majority or all of those going to be fully programmed at this point?
spk07: The vast majority of them will. We'll have three or four that won't have the arena attraction. They'll have everything else but the arena. And that's just simply because we don't have the space in those stores. But based on everything that we've seen to date suggests that there's real value in a fully programmed entertainment offering. And so the plan is to continue to move forward with that that type of offering. But we will continue to evaluate it, as we always do, and to make sure that we hold ourselves to a strict return on investment threshold. And, you know, we always leave room for adjustments if necessary. But at this point in time, that's the plan.
spk02: Got it. And then just finally on food costs, you know, it's – You said you were managing. I assume there's still some of the 50% off, you know, kind of promotion discounting on food that you've used. How are you kind of measuring the returns on that? Is it, you know, is it driving some of the incremental traffic you expected? And then, you know, does that kind of continue, you know, as we move forward, do you use it, you know, for certain times of, you know, of the quarter or things like that, kind of like a boost when needed?
spk07: Yeah. So we've talked a lot about just this approach of testing and learning and putting different things in the market and having, you know, not be moving away from just one big campaign. And instead of that, having an arsenal of tools that we can use to stimulate traffic. And so I would put half-off food in that category. It's a tool that will be in our arsenal that we might use in the future from time to time, depending on what we see. When we look back on it, it broke even. And so we spent a lot of time making sure that we designed the economics in a way to where it would break even. It's half-off food, but that represents about 20% of our sales, and so it was something that we could achieve economically, and we did. And so we felt great about that. It was loyalty-fenced, so you had to sign up for the loyalty program, so that helped mitigate the risk of cannibalization, and it also drove loyalty sign-ups that we were then able to use to engage. And so half-off food is just an example of – it's more of an example of the approach that you should start to see from us is testing and learning. And when we find a product, when we find an offer that works, we go deep with it, but constantly pulsing in what we think is necessary. Does that make sense?
spk02: It does. It does. And then just finally, I know quarter to date, basically August, I mean, industry numbers got better. You know, are you willing to kind of comment on how you started the 3Q?
spk07: Yeah, and Andy, as you know, we don't quantify intra-quarter results. You know, I'll say that it's just one period. We just wrapped up our first period of the quarter. That one period, the sales performance was better than the previous two periods, but it's just one quarter. We still have, you know, two periods left of this quarter. And so, you know, our focus is on, you know, our focus is on the initiatives and continue to execute at a high level, managing the bottom line and, you know, putting ourselves in a position to, you know, to really get the most out of our remodels as they start to come online.
spk02: Thanks, guys. Thank you.
spk00: The next question comes with Andrew Strozik with BMO Capital Markets. Please go ahead.
spk01: Hey, this is Jared Lozinski on for Andrew Strelzyk. Thank you for taking the question. So you discussed the opportunity to accelerate the pace of remodels, but I'm wondering if there's an opportunity to improve returns based on what you've learned from existing remodels. And if you could provide any color on how the company is prioritizing remodels through 2026 and whether that's based on store tenure, geography, or some other factor. Thank you.
spk07: So we are We're in the process of building out our plans for 25, our fiscal 25 year, and that's something that obviously we work in close partnership with our board, and the board ultimately approves the capital outlay for 2025. And so what we're doing internally is we're making sure that we can, to the extent that there's data there that suggests that from a capital allocation standpoint, it makes sense to move even faster, that we have the ability to do that. And so Our development team is hard at work at building out all the plans to ramp up as quickly as possible. But this is a team that is just very disciplined around ensuring that we're using our capital judiciously and we're looking for every opportunity to maximize return on investment. So stay tuned on what our plans are for the future. Obviously, what you're hearing from us is that we like what we see and we want to do more of it, but we need to go through the planning process for next year. The team is spending a lot of time on continuing to look for value engineering opportunities. We've already had quite a bit of success at doing that, but we're always challenging ourselves to try to get more. And we're also spending a lot of time just going through working closely with our operators to understand what's working and what's not and, you know, what could we do to further drive the revenue opportunity with these remodels. And I'm convinced that, I mean, we're very happy with what we're seeing. I'm convinced that we can even get more out of it. And so we're going to, you know, we're spending a lot of time on it to optimize it.
spk01: Great. Thank you. And then I just wanted to get an update on how you're tracking against the marketing optimization initiative relative to your expectation and any learnings that you can share with us. And then on loyalty, what would you attribute to the continued strength in membership growth? I believe you said it was up 25% this quarter. What gives you confidence that this growth is sustainable going forward? Thank you.
spk07: Yep. So, first starting with, I mean, we're in the very early stages of marketing optimization and last quarter we provided an update on our investor day presentation and we provided our rating and we indicated then that, you know, we're still very much in the early stages. Uh, so, um, this is, you know, there's, there's a lot that goes into it. You've got to build the technology, then you got to build the capabilities and then, you know, there's the whole testing and learning process. And so we're, I would say we're just now getting really started to where we want to be. So that's, you know, we're pushing ourselves to move faster there. On loyalty, you know, I think we're doing, you know, the team is just really making that a priority and looking for two opportunities, one to, you know, to encourage the sign-ups, but then once you have the sign-ups to stay engaged with the guests. And I think we're doing a much better job on both. the way we get more out of it is doing things like the loyalty fencing on half-off food. So we had a very compelling offer. It helped drive more awareness to the great F&B offering as we rolled out the new menu. And we really drove sign-ups, and then we were able to stay engaged with those guests and keep them engaged better than we ever have in the past. Another testament to all of this coming together is in our remodel stores, we're seeing a very significant increase in frequency for loyalty members in a remodel versus a non-remodel. And that just goes to show that when you combine the right product offering and the right execution with the right level of engagement, these tools really can pay off. And so that's just another, you know, point of validation that, you know, we think that we're onto something here. In terms of, you know, I think, you know, I think the more, the 20, we're very pleased with the 25% growth. I'm not going to put a number out there on expectations going forward, but I can tell you that we have pretty high expectations. And I just think that it's all about the way we engage, and it's all about being very personalized in the way we do it. and earning the right to have a conversation with the guest and then delivering the right content to that guest. And that's an area that we're just going to continue to strengthen that muscle. And so, as I said at the very beginning, we're just now getting started.
spk01: Great. Thank you very much. Thank you.
spk00: The next question comes with Brian Vaccaro with Raymond James. Please go ahead.
spk03: Hi, thanks, and good evening. I wanted to ask a question just on the other operating cost line and obviously leverage that line despite the negative comps. And I noted in the 10-Q that it disclosed a gain on some transactions. Could you quantify that and then maybe more broadly talk about other sources of year-on-year favorability you saw within that line?
spk06: I'll let Darren answer that. Go ahead, Darren. Yeah, one of the items in that line was a $4 million gain related to a termination of one of our leases in New York. That line is excluded from our adjusted EBITDA measure. But that was a big item that was in there. You know, really the most... You know, the most notable just in terms of flagging a one-off benefit for the period is the additional two operating days that we had in quarter two, which added about a couple million dollars of EBITDA. And then you just have, you know, routine... you know, adjustments that come throughout the year as well. But that gain is the most notable.
spk03: Yeah, I was going to ask you about that too, Darren. The extra sales on those two days is ballpark, say, maybe $12, $13 million. I guess sales days can change depending on seasonality and whatnot. And just how to think about the flow through on those sales because a lot of costs are accrued for either weekly or monthly. Are you able to tighten Any of that math up on the two extra days?
spk06: Yeah, no. They were low sales volume days. It was a Monday and a Tuesday. So it's about $4 million in incremental sales with about a 50% flow through. So it's about a $2 million EBITDA impact.
spk03: I know it's tough to measure traffic, but could you just maybe give us a sense of how much price you'd estimate is reflected in your Q2 year-on-year comps and just kind of level set what your latest thinking is on potentially taking additional pricing in the second half, either S&B or amusements?
spk07: At this point in time, we don't have plans to adjust price in a meaningful way for the second half of the year. As I said a minute ago, we're just now in the process of building out our plans for 2025. And so, you know, we will certainly go through and have a pricing optimization plan for 2025. But we feel like we're in a good spot for the rest of this year. We don't get in, we don't disclose the granularity of all of our different initiatives. And so, you know, what we're getting on prices is not something that we're going to disclose, that we have disclosed.
spk00: This concludes our question and answer session. I would like to turn the conference back over to Chris Morris for any closing remarks.
spk07: Okay. Well, thank you so much for the participation today. We look forward to speaking to you and continue to give you an update on all of our initiatives. Thank you. Have a great day.
spk00: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
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