Pinstripes Holdings Inc

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Pinstripe Holding Inc. 2020, I'm sorry, second quarter fiscal 2025 earnings conference call. At this time, all participants have been placed in a listen-only mode, and the lines will be open for your questions following the presentation. Please note that this conference is being recorded today, November 26, 2024. During management's presentation and in response to your questions, they will be making forward-looking statements about the company's business outlook and expectations including in respect of guidance for fiscal 2025. These forward-looking statements and all other statements that are not historical facts and reflect management's beliefs and predictions as of today, and therefore are subject to risks and uncertainties as described in the company's quarterly report on Form 10-K for fiscal 2024 and subsequent SEC filings. Management will also discuss non-GAAP financial measures as part of today's conference call. These non-GAAP measures are not prepared in accordance with the generally accepted accounting principles but are intended to illustrate alternative measures of the company's operating performance that may be useful. Reconciliations of these non-GAAP financial measures to the most direct comparable GAAP measures can be found in the earnings release. The company has posted its second quarter 2025 earnings release and an earnings presentation on its website at www.pinstripes.com under the investor relations section. And now I'd like to turn the conference to Pinstripes founder and CEO Dale Schwartz. Thank you. You may begin.

Good afternoon, everyone, and thank you for joining our call today. Over the last few months, we have been focused on three main initiatives. One, improving our top line sales comp growth trajectory. Two, driving improved profitability at both the venue level and corporate level. And three, opening high quality locations within our current funding capacity. Let me speak to each of these areas, starting with improving our top line comp growth. As most of you are aware, consumer wallets remain pressure, and we are seeing this most pronounced in our open play business, which was down approximately 13% year over year in Q2, while our event business was only down approximately 6%. For our open play business, We are focused on ensuring we have the right level of value for our guests through programs such as Happy Hour Gaming Promotion, where you can enjoy a lane and bowl for 50% off during certain hours, as well as our daily specials and weekend brunch offerings. In addition, our local store marketing campaigns have seen exciting success as we have introduced activities such as kids clubs, comedy nights, line dancing, yoga classes, trivia nights, and many other community activities that complement our F&B and gaming offering. As we entered the fiscal third quarter, we continue to test programs that we believe are right for our brand and our guests while being quick to discontinue those that did not perform to expectation. We believe we found the right balance as demonstrated by the substantial improvement in our comp performance in recent weeks compared to the second quarter. On the event side of the business, our third quarter is seasonally strongest, and our teams are working hard to drive as many events as possible or pinstripes through the holiday season. We are encouraged by the fact that we are seeing strong lead generation and booking performance on the event side of the business in recent weeks. And our continued investment in the tourism and convention segment of our event business is showing very promising bookings and sales results. With respect to profitability, our team has successfully removed the annualized $10 million in cost savings we spoke to last quarter. This is most evident in our mature store base, with margin leverage in cost of sales, labor, and operating expenses, despite our current short-term comp growth headlamps. These savings range from strategic hourly and salaried labor savings, a more favorable credit card processing agreement, to more intense negotiations with our various vendor partners, leveraging our growing scale and brand. The second quarter saw substantially all of these savings implemented, and we expect a full run rate benefit going forward. In addition, we are a target in removing approximately $4 million of additional annualized savings in our SG&A, with the majority of these savings yet to fully flow through our financials. These cost savings range from negotiations with agency partners to strategic corporate headcount reductions and a renewed focus on marketing efficiency. Following the completion of our cost reduction efforts at the venue level and ongoing work on corporate-level costs, we believe we are on track towards the appropriate cost structure to drive long-term top-line performance through same-store sales growth as well as new unit openings while ensuring we are maintaining sufficient corporate-level profitability. Turning to new unit development, on November 15th, we opened our 18th location in Walnut Creek, California at Broadway Plaza, marking our second location in the San Francisco area in close proximity to our location in San Mateo. This new two-story Walnut Creek venue features 25,000 square feet across two levels, with eight bowling lanes, two indoor bocce courts, and private event space for groups of up to 1,500. Our opening to date has been very promising, and our initial private event bookings have been very strong, complementing the continued success of our San Mateo location. Finally, I want to touch on our liquidity. As of October 13th, we had $3.2 million in cash and cash equivalents, While we anticipate significant positive cash flow in the third fiscal quarter, as holiday sales volumes increase substantially, we are also evaluating and seeking to raise additional external capital, which could include funding from new outside sources, as well as additional funds from our existing lenders. We will continue to balance our unit growth pipeline with the capital available to us as we scale our business nationwide. In summary, despite challenging results for the second quarter, we are encouraged by what we are seeing in recent weeks as trends have improved substantially. The holiday event period for Pinstripes is a significant source of EBITDA, and we are optimistic about our potential in the fiscal third quarter. We continue to believe that our high-quality, connection-oriented dining, entertainment, and event spaces but it's in a strong position to drive long-term shareholder value. Of course, none of this would be possible without the passion and dedication of our more than 2,000 team members as they continue to provide our guests with those magical moments they've come to expect from Pinstripe. With that, let me now turn the call over to our CFO, Tony, to discuss our fiscal second quarter results in greater detail.

Thank you, Dale, and good afternoon, everyone. For fiscal second quarter, total revenue increased 7.5% to $26.5 million, compared to $24.6 million in the same quarter last year, including an 8.6% increase in food and beverage revenues and 3.6% increase in recreation revenues. The increase in total revenue was primarily due to having four new stores open in the second quarter of fiscal 2025 for the full period compared to the second quarter of fiscal 2024. partially offset by modest decreases in volume at our 13 legacy locations. Turning to expenses, cost of food and beverage as a percentage of total revenue increased 10 basis points to 17.5%, primarily due to cost efficiencies offsetting changes in product mix. Labor and benefits as a percentage of total revenue increased 100 basis points to 38.9%, primarily due to the addition of four new stores contributing to higher store labor and benefit costs. Excluding the addition of four new stores, store labor and benefit costs were down approximately 30 basis points. Occupancy costs as a percentage of total revenue were 18.6%. Other operating costs Expenses as a percentage of total revenue decreased 100 basis points to 19.9%, primarily due to decreases in repairs and maintenance activities, credit card fees and technology, offset by an increase in insurance costs and janitorial costs. Venue-level EBITDA as a percentage of total revenue decreased 160 basis points to 5%, driven by modest negative store contribution from some of our new locations that opened in fiscal 2024, As these stores continue to progress through the maturation curve with the profitability of this group continuing to improve, please refer to our earnings release for reconciliation of non-GAAP measures. Our mature stores, those open more than 24 months, generated average contribution margins of 8.3%, representing a 50 basis point increase year over year driven primarily by cost efficiency improvements that we've previously discussed. General and administrative expenses increased to $5.1 million compared to $3.8 million in the same period last year. Turning to liquidity, as of October 13, 2024, we had $3.2 million in cash and cash equivalents and $114 million of debt outstanding. For the third fiscal quarter, we anticipate positive cash flow and continue to evaluate additional liquidity options, including but not limited to raising additional capital and receiving additional funding from our existing lenders. With that, in lieu of annual guidance, we want to provide an update on our quarter-to-date results. Third quarter-to-date through November 24, 2024, same-store sales decreased 8.1%, with the last two weeks up 10.1%. We opened one new venue in Walnut Creek, California on November 15, and do not anticipate opening any additional venues during the quarter. And we expect overall venue level EBITDA to be meaningfully higher than prior year and adjusted EBITDA to be positive in Q3 and above prior year. We'd like to thank you again for your interest in pinstripes. Dale and I are now happy to answer any questions that you may have. Operator, please open the line for questions.

Thank you. At this time, we will be conducting a question and answer session. If you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press Start 2 to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the Start key. One moment, please, while we poll for questions. First question here is from Brian Brittner from Oppenheimer. Please go ahead.

Thank you. Just a question on the same-store sales. I understand the last couple weeks have improved, but still quarter to date is pretty down meaningfully after down 9% in the second quarter. So can you just outline what you believe the pressures are? Maybe dig a little deeper into that. How much is macro versus maybe what you can control?

Yeah. Hey, Brian. It's Tony. Yeah, I'd say if I wanted to unpack kind of the Q2 comp, I'd say half of it is macro. And I'm using the events business as kind of our proxy there. And then relative to the event open play business, you know, we control our destiny a little bit more on the event side. And so you can see the macro pressure kind of making up half that 9%. And then the rest I'd say is, look, we did some aggressive promotional activity, particularly on the gaming side of the business. And we changed some things from a marketing perspective, which we've since course corrected, and we're seeing the results, you know, in the last couple weeks, which is why we called it out specifically in our prepared remarks.

Okay. And just a follow-up question is on margins. I know we're talking about EBITDA for the third quarter, and is there any outlook you can give us on restaurant-level margins, just, you know, considering the previous disclosure? on guidance, how are you thinking about restaurant-level margins in the second half?

I mean, so obviously, if you look at just Q2, in spite of some pretty, you know, negative sales leverage, we still increased margins. So, you know, we don't expect that much negative sales leverage to be in the second half. That, you know, meaningfully better, I think, just based on what we're seeing in the last couple weeks. look but still given the volatility we're we're not going to call out a specific number on venue level margins but it's very obvious you can just look at you know just the last quarter and say look if if sales are are meaningfully better which we're thinking they are um you're going to see that flow through a pretty high rate um so that's that's what we're saying okay thank you

As a reminder, it is star one to join the question queue. Next question here is from Matt Curtis and William Blair. Please go ahead.

Hi, good afternoon. So I understand you're looking for positive operating cash flow in the third quarter, but looking beyond that, can you give us a sense of how far your current liquidity can take you before you need to raise more capital for it becomes really something you have to do?

Yeah, we, hey Matt, it's Tony. Yeah, so we believe our current liquidity situation, given the build and cash that we'll see here as we work through the holiday season, plus, you know, the cost out that we've completed, we should be able to get through most of calendar 25, you know, with our current liquidity situation and debt service. We have to look, we're looking at it raising additional capital, so we're not being shy about that. But, you know, we do have, you know, with the holiday season and what we're seeing kind of on the outlook, enough liquidity to get well into next year.

Okay, great. And then on Coral Gables, it sounds like that's being pushed out into fiscal 26 at this point. Could you give us a better idea on the timing around that?

We didn't say it's pushed out in the fiscal 26, just not in Q3. likely in Q4 of fiscal 25, Coral Gables will open.

Okay, I understood. And then I guess on marketing, could you talk about maybe what misfired on marketing and maybe if you could describe what course correction measures you've implemented?

Sure, it's Gail. One of the main elements, we have a quite substantial paid digital spend, not just Google AdWords, but Facebook and other. And we did a reevaluation of that spend. We decreased it a bit in, I'll call it the early period of Q2. To get a beat is testing to see what the flow through and effects are. And we did see some diminution in sales by pulling back the spend. and we very quickly course adjusted. And so that's what you were hearing Tony mostly referred to.

Okay, I understood that. Thanks very much.

Next question is from Peter Sella from BTIG. Please go ahead. Yeah, I'm sorry, Peter, your line is live and might be muted by accident.

Can you guys hear me all right? Hey, Pete. Yes. Hey, okay, great. Sorry about that. So just a question on the most recent comp trajectory that you've seen improvement. Could you just talk about, I don't know if I missed it, is that mostly from open play events? Just any color around that? And then also, is this typical for your business to have this much volatility in same-store sales? Just trying to understand why it's so volatile in the most recent weeks.

Yeah, so look, a little color on the quarterly comp, primarily driven by the events business. And there is a little bit of volatility in that. So it can be, or I should say more lumpy, which is, you know, drives some of that. In terms of is our business normally this volatile, I'd say, look, this is a macro environment that we haven't seen in some time. And so that's probably amplifying a bit of, you know, what is otherwise us, you know, lapping some pretty big comps, you know, over the last couple years.

Got it. And can you guys provide a little bit of color on just the breakdown maybe in the quarterly comp and maybe go forward in terms of how much pricing or check you expect in the go forward comps versus traffics?

So in Q2, you know, we had an effective 2%, what I'll call menu price increase on the business that was completely offset by promotional pricing and gaming. So the 9.4% is essentially traffic. And then how the comp broke down, you know, in the quarter, you know, that mid-July to mid-August period, you know, we were down about 8%. And then it We saw significant change kind of in mid-August to mid-September, and then back to about 8% down in mid-September to the end of the quarter in middle October. So really, it was that kind of the middle four weeks that really drove us down further than I would have expected.

Got it. Understood. Thank you very much.

Thanks, Pete. This concludes the question and answer session. I'd like to turn it forward back to Dale Schwartz for any closing comments.

I want to just thank everyone again for joining us this afternoon and your interest in pinstripes. We wish everyone a happy Thanksgiving and holidays and hope to see you all at any of our 18 locations across the country and experience the magic with us. Thank you.

This concludes the conference today. You may disconnect your lines at this time. Thank you again for your participation.