Dave & Buster’s Entertainment (PLAY) Q2 2024 Earnings Call Transcript

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Dave & Buster’s Entertainment (PLAY -0.83%)
Q2 2024 Earnings Call
Sep 10, 2024, 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day and welcome to the Dave & Buster’s second quarter 2024 earnings conference call. All participants will be in listen-only mode. [Operator instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator instructions] Please note this event is being recorded.

I would now like to turn the conference over to Cory Hatton, VP of investor relations. Please go ahead.

Cory Hatton — Vice President, Investor Relations and Treasurer

Thank you, operator, and welcome to everyone on the line. Joining me on today’s call are Chris Morris, our chief executive officer; and Darin 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.

In addition, 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 release this afternoon. And with that, it is my pleasure to turn the call over to Chris.

Chris Morris — President and Chief Executive Officer

All right. Thank you, Cory. 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 are pleased with the progress we’re 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 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 in 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 events 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 and optimization. As a reminder, we believe there is a 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 enable 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 2.5 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 in 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 is 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 toward the historical levels and to drive increased revenue and 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 are significantly elevating our bar experience.

We’ve also created a set of near-term beverage sales initiatives like a reinvigorated happyChris Morris — President and Chief Executive Officer

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.

Brian Vaccaro — Analyst

Comps, 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 F&B or amusements?

Chris Morris — President and Chief Executive Officer

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, 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, what we’re getting on price is not something that we’re going to disclose that we have disclosed.

Operator

This concludes our question-and-answer session. I would like to turn the conference back over to Chris Morris for any closing remarks.

Chris Morris — President and Chief Executive Officer

OK. 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.

Operator

[Operator signoff]

Duration: 0 minutes

Call participants:

Cory Hatton — Vice President, Investor Relations and Treasurer

Chris Morris — President and Chief Executive Officer

Darin Harper — Chief Financial Officer

Jake Bartlett — Analyst

Jeff Farmer — Analyst

Andy Barish — Analyst

Jared Hludzinski — BMO Capital Markets — Analyst

Brian Vaccaro — Analyst

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