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.