Dave & Buster's Entertainment, Inc. (NASDAQ: PLAY) Q1 2025 Earnings Call | 06/13/2025

Here's a summary of the Dave & Buster's First Quarter 2024 Earnings Conference Call:

Key Highlights of Q1 Fiscal 2024 (Ending April 30, 2024):

• Revenue: $588 million
• Adjusted EBITDA: $159 million (27.1% margin, a 200 basis point expansion vs. 2019)
• Net Income: $41 million ($0.99 per diluted share)
• Adjusted Net Income: $46 million ($1.12 per adjusted diluted share)
• Comparable Store Sales: Decreased 5.6% on a same-week basis.
• Operating Cash Flow: $109 million.
• Liquidity: $516 million ($32 million cash + $484 million available on credit facility).
• Net Leverage Ratio: 2.3 times.
• Share Repurchase: $50 million spent repurchasing nearly 1 million shares; $150 million remaining on authorization.
• New Store Openings: Opened 3 new Dave & Buster's and 1 new Main Event in Q1. Expected to open 15 new stores across both brands in FY24.
• Remodels: 9 existing remodels, with 8 more coming online in Q2, aiming for 45 by end of FY24.
• Incremental Costs: $11 million in incremental labor and marketing costs in Q1, primarily due to new menu/service model rollout, system deployments, and an unsuccessful marketing campaign test. These are not expected to repeat.

Strategic Growth Initiatives Update (One Year Post-Investor Day):

Dave & Buster's is making "material progress" on its strategic initiatives, with many still in early stages, contributing to the confidence in achieving a $1 billion Adjusted EBITDA target in the coming years.

1. Marketing Optimization:

   • Hired new CMO (Megan).
   • Engaged a new creative agency.
   • Grew loyalty program membership by 23% (members spend more and visit 2.5x more often).
   • Website visitors up 49%, social media engagement up multi-fold.
   • Testing targeted promotions (e.g., midweek "half-off food" for loyalty members) to drive off-peak traffic, showing encouraging sales trends.
   • Future: New partnerships for summer movie season, fall/winter sports seasons.

2. Strategic Game Pricing:

   • First increase in chip prices in over 20 years in Q1, with a game system overhaul allowing differentiated regional pricing.
   • Stores with the highest price increases saw the biggest improvement in amusement same-store sales (turning positive).
   • Customer satisfaction scores increased despite price changes.
   • Future: Continue optimizing prices, linking price increases to inflation, and implementing yield management strategies to drive check during peak and traffic during off-peak periods.

3. Improved Food & Beverage (F&B):

   • Implemented a new service model and rolled out multiple phases of a new menu in Q1/Q2.
   • Improved F&B guest satisfaction, attachment, check size, sales trends, and gross margins.
   • Identified significant opportunity in "realized check" compared to peers (D&B 6% vs. peers 22% since 2019), due to fewer price increases and a 2021 menu change that incentivized trade-downs. Initial tests to close this gap are encouraging.
   • Future: Next menu evolution (August) focusing on beverage and special event menus.

4. Remodels:

   • Fully programmed remodels are outperforming, showing double-digit growth in both sales and traffic relative to the prior year.
   • Accelerating remodel plans to lean into this success with a strict 20% ROI target.
   • Goal: 35% of fleet complete by 2024, 68% by 2025, 100% by 2026. (8 weeks of construction downtime expected per remodel, with some negative impact on comps).

5. Special Events:

   • Strategically reinserted 20 sales managers into stores in H2 2023 (compensation tied to performance).
   • Stores with sales managers significantly outperformed the system (prior year and 2019 levels).
   • Added 30+ more sales managers in FY24. Expect significant positive impact on event business recovery.

6. Tech Enablement:

   • Upgrading IT infrastructure (Wi-Fi, upgraded payment processors), over 50% complete.
   • Rolled out server tablets system-wide.
   • Future: Complete IT integration, implement new POS systems to optimize workflow.

7. New Units:

   • Domestic: 15 new stores opened in last 12 months with 40%+ ROIs. Plans for 10 more in 2024, 16 annually in 2025+. Long-term potential of 550 stores (estimated $150-$225 million EBITDA opportunity).
   • International: Signed 7 new franchise units (total pipeline of 38 locations). First international locations expected to open in coming months.

8. Cost Savings:

   • Realized all $25 million of targeted synergies from Main Event merger.
   • Making progress on incremental $40-$60 million outlined at Investor Day.
   • Identified an additional $10-$20 million in potential cost savings.

Confidence & Shareholder Value:

• Management is encouraged by improving top and bottom line trends in May and early June as initiatives scale.
• Believes the stock is "materially undervalued" given strong business model and growth opportunities.
• Continues to opportunistically repurchase shares with excess free cash flow.

Q&A Insights:

• Traffic: While not disclosing exact traffic/check breakdown, management acknowledges a complex macro environment creating headwinds. However, they are encouraged by improving trends as initiatives (pricing, F&B, remodels) gain traction. Fully programmed remodels are seeing double-digit traffic growth.
• Recent Improvement Drivers: Rollout of new menu and service model, successful midweek promotions (e.g., all-you-can-eat wings, half-price games, loyalty food offers).
• Customer Behavior: Saw continued weakness in lower-income consumers but noted successful efforts to recapture them through midweek promotions and loyalty program enrollment.
• Marketing Spend: Q1 had higher marketing spend due to three large events, including an unsuccessful Spring Break Pass test (designed poorly, high price point, short period, $6M spend, yielded little). Future marketing spend expected to be more normalized.
• Labor: A temporary blip in Q1 due to new rollouts/systems, but stabilized quickly.