Q2 2020 Dave & Buster's Entertainment Inc Earnings Call
[music].
Good afternoon, everyone welcome to the Dave and Busters Entertainment incorporated second quarter 2020 earnings results Conference today's call is being hosted by Brian Jenkins Chief Executive Officer.
This call is being recorded and will be available for replay beginning later today.
Let's turn things over to Scott Holeman, Chief Financial Officer. Please go ahead Sir.
Thank you and thank you for all joining US today also on today's call, Brian Jenkins, Chief Executive Officer. After comments are Mr. Jenkins myself, well be happy to take the questions. This call is being recorded on behalf of David Butters Entertainment incorporated Endoscopy right before we begin our discussion on the company's results I'd like to call.
Attention to the fact that you know remarks and responses to questions certain items, maybe discuss which are not entirely based on historical facts.
Any of these items could be considered forward looking statements related to future then within the meeting many 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 does anticipate.
Information on the various risk factors and uncertainties had been public <unk> filings with the FCC, which are available on our website www, Dave and Busters Dot Com under Investor Relations section. In addition, our remarks today, we'll conclude references to EBITDA adjusted EBITDA and still operating income before depreciation and amortization, which are opening.
It'll measures that are not defined in the generally accepted accounting principles.
That's or should we view the reconciliation of these non-GAAP measures to comparable GAAP results contained in our earnings announcements released its happening which is also available on our website now I'll turn the call over to Brian.
Good afternoon, and thank you for joining our call today.
On behalf of the entire Dave and Busters team. We hope you send your families are remaining healthy I'd say.
Since our last conference call in early June the Cobot pandemic has continued to present challenging business conditions for a company our industry and the entire U.S. economy.
I am proud of our team members for their tremendous agility their resilient.
And commitment to succeeding under extremely difficult circumstances.
During our two conference call, we detailed the temporary changes we've made to our operating model. We also cover the decisive steps we've taken to secure additional capital and to reduce operating expenses in capital spending in order to extend our liquidity horizon, while preserving critical store reopened.
Capabilities.
So in June we detailed our focus on tier two near term priorities.
First we opened a store safely and efficiently as soon as possible and to investing in an accelerating change in our service model, our menu our programming and our marketing.
I'll speak to the first to those near term priorities now and provide an update on the second after Scott It's had a chance to review Q2 results.
During the second quarter, our team made steady progress, we opening stores and driving improved operational result.
Over the course of the quarter, we reopened the 81 stores.
During the quarter with 84 stores opened.
Recall that our goal was to get 90 to 95 stores open barring a co head of research, it's which in fact did occur, forcing us to close or read close nine stores.
During the quarter. We also made the difficult decision to permanently close one store in downtown Chicago.
Since the end of the second quarter, we have opened the additional five net stores, including a brand new store in Manchester New Hampshire.
I think that's up to 89 stores open and approximately 65% of our total store base as of today.
We also made the decision to permanently close one additional store in our Houston market.
Over the quarter, we made significant progress and rebuilding our revenue.
Beginning of the quarter in the first week of that quarter. He had just 10 stores reopened indexing at 11% of 2019 revenues.
Well, we did face some mid quarter headwinds following the coded resurgence in late June and the first half a July why they ended the quarter. The 68 comparable stores in our base of 84 reopen stores, we're generating revenues at nearly 40% of prior year levels and our recovery has continued to excel.
All right in the third quarter over the past two weeks those things 68 core stores index that 58% their highest level today.
Within that the top quartile comp stores index that 76%.
Well, we are very encouraged by our pace of recovery. We do believe a portion of this recent strong performance reflects some tailwinds from the variation in school calendars caused by Cove it.
We're also maximizing sales by continuing to refine our lean operating model. We believe those efforts have lowered our near term EBITDA breakeven sales and extends far to the 50% to 55% range compared to the 60% index. We initially communicated back then.
In fact 61 of our 84 reopened stores generated positive store level EBITDA for the month of August.
Keep in mind that some portion of our current lean expense saving initiatives.
Will naturally dissipate as revenues recoverable slowly and we reinstituted certain labor operational and marketing elements of our business.
In terms of future store Reopenings, we're now forecasting we will be open all of our remaining stores before the end of December barring any additional delays due to cope with 19 resurgence, although state and local reopening timelines are inherently uncertain.
That's where the cadence of those remaining reopening we continue to expect our 11, New York and 16, California stores to be among the last three open.
These 27 stores represent over half of our remaining openings.
And about 20% of our total store count.
Combined they have historically generated approximately 25% of our system wide sales include several of our top cortile stores in terms of historical store level profitability. So obviously these stores are very important to reopen in order for us to fully rebuild our business too.
Nicole good levels over the longer term.
These results and our expectations demonstrate several things first customers have a strong appetite for our resilient, Brad and are anxious to inject falling back into their lives second absent cobot resurgence our stores are on a clear maturation curve showing sequential cost.
Doesn't prove it as each week passes and finally, we continue to reopen our stores and efficiently rebuild the business, we see an encouraging returned to profitability.
The point I mean, Ascot too quickly review, our operating results for the second quarter and our current liquidity position here Scott. Thanks, Ryan I'll spend the next few minutes summarizing our performance for the second quarter as well as our current liquidity position for the second quarter revenues decreased 85% compared with the prior year period it.
He then 87% decrease in comparable store sales. This included 26 total stores at the end of May 66 stores opened at the end of June and 84 stores opened at the end of July.
As Brian explained we were encouraged by the improvement in our sales index to nearly 40% of prior year levels by the ended the quarter and further improvement since the end of the quarter to 58% for the most recent two week period.
At the same time, we have taken aggressive approach to reducing operating expenses. This includes efforts to reengineer, our labor model to accommodate the current store volumes and taking a zero based approach to evaluating spending in stores in DNA.
As a result of these efforts and stores contributing increasing variable profit our average weekly cash burn excluding the effects of our may equity offering was approximately 3.3 million over the second quarter.
Turning to the balance of the Pinedale total cost to sales was 8.7 million in the quarter, an improvement a 20 basis points as a percent of sales.
It was primarily due to a higher mix of amusement sales, partially offset by food and beverage spoilage that was expensed as stores reopened.
Operating payroll and benefits expense was 13.8 million a decrease of 83% than the prior year period, primarily due to furloughs and the introduction of a leaner labor model that we opened stores.
Other store operating expenses were 62.7 million an improvement of 40% from the prior year period due to lower sales volumes and tight controls over discretionary spending.
<unk> expenses of 9.3 million decreased 42% from the prior year, mainly due to reduced compensation expense and lower consulting expenses.
Second quarter EBITDA loss was 46 million, which included a loss of 8.6 filling in the month of July again, reflecting the improved trends in our business.
Second quarter, adjusted EBITDA loss was 30.5 million, which excludes EBITDA.
From an EBITDA 2.7 million and share based compensation 2.4 million and preopening costs in the 2.2 million impairment charge on long lived asset.
Turning to the balance sheet, we ended the quarter with 224 million in cash compared to 157 million at the ended the first quarter. This included a $111 million proceeds from our second equity raise which closed in that.
Additionally, we had approximately 35 million in deferred vendor payable and expect to pay down most of this balance over the next two quarters.
We will continue to defer a portion of our rent through December and are scheduled to begin paying back the majority of a deferral starting in January over a 12 to 18 month time period.
Turning to capital spending we plan to resume construction on five stores that are near completion and currently expect to complete an open new stores at the end of fiscal 2020.
This is in addition to the story recently opened in Manchester, New Hampshire at the end of August.
Moving the cost to complete these stores, we extend expect to spend approximately 60 million in capex for fiscal 2020 of which 47 million was already incurred in the first two quarters, leaving 13 million for the back half.
In addition, there are 11 stores that are early in the stages of permitting and construction, which will remain on hold any further analysis and visibility into the ramp up over existing stores.
To wrap up I'd also like to thank the entire team for their perseverance and the ability to adapt and evolve the business to meet the challenges we faced over the past six bonds as well as those that May lie ahead.
Together, we framed the operating model minimized our cash burn it is our business to emerge from the pandemic on the strong trajectory.
With that I'll turn it back over to Brian.
Well thanks Scott.
Well hopefully that gives you a good recap of the financial results for the second quarter and how we are setting ourselves up for further improvement as the second half a year unfolds I want to spend the next few minutes, providing an update on the art the second of our to near term part and that isn't that.
Thing and accelerating change in our service model, our menu our programming and our marketing.
Our focus on these four areas is clear evidence that our thinking is not stuck in recent history or in the near term reality is that the Tobin endemic rather our team is leaning in to creating a new future for the Dave and Busters brand formulating a very focused plan designed to broaden our rail.
Then and enhance guest engagement, while at the same time, becoming more efficient as a business.
The objectives behind our service model investments are threefold.
First to improve food and beverage attachment by making that accessible anywhere in the store.
Enhance guest satisfaction by increasing speed of service.
And refocusing our team members to deliver memorable experiences and at the same time deliver those capabilities more efficiently.
To that end, our corporate technology team is working closely with our operating teams to rapidly develop enabling technologies to enhance the guest experience through a mobile self service order and pay platform.
Additionally, we are also testing snackable menu that is accessible and the arcade <unk> via mobile device or a kiosk and available for pickup at a central location.
We are encouraged by the results we've seen so far in our Dallas test store with over 55% of our SMB revenue coming through the mobile channel showing great promise for guess adoption.
Well have more to share a as we refine the work and evaluate potential of scaling a further across our stores.
The second area in which we are investing and accelerating changes our menu.
After we complete the reopening process and traffic has recovered through a joint appropriate degree we will launch a new stronger who'd identity that resonates with our gas and as a differentiator for the Dave and Busters Brad.
This new strategy informed by first and third party data.
Will enhance our ingredient quality.
One key element of this strategy focuses on menu composition.
And what we are calling a core and explore.
Approach.
Pillar of our strategy will allow us to achieve the broad reefs that is necessary for an entertainment driven business through our core American classics, while simultaneously boosting frequency and differentiation through newer more innovative calling area applications.
Our new strategic approach the food and beverage will begin rolling in Q1, 2021, and we'll continue to evolve through a test and learn process throughout the year.
In coordination with our new direction and marketing this new approach to coronary will enable us to introduce limited time offers or offers focused on driving traffic during key media windows and 2021.
The third area, where we are investing and accelerate changes and developing a stronger promote programming strategy around our while wall and other watch Act asset.
Our entertainment team is currently implementing a foundational cloud based platform that can stream linear video content like good like digital signage sponsored content and entertainment programming, such as sports scores and trivia to our while walls and other screen.
At each store.
This new platform will enable us to manage concept selection and delivery.
A centralized programming team all working collaboratively collaboratively with each store manager to refine the content and timing for local relevance.
We will begin this journey with all sports with virtually all teams limiting fans and stadium, we aim to be de Premier sports watching destination, thanks to our investment in while walls and other technologies that support that shared live sports experience.
Select stores will also offer guest in store premium experiences some give away and some sweepstakes.
In addition, we are in the process of launching an all new branded radio station, Dave and Busters life, which will be hurt and all stores and will be streamed live on our website and through our app.
Dnbi live will incorporate dedicated radio personalities and created music enhancing the in store by providing another channel to engage with our gas when they are in our stores as well as when they're going about their daily lives in between visits.
The fourth and final area in which we are investing an accelerating changes in our marketing.
Since we began reopening stores, we've been executing local awareness driving tactic to aid in our recovery.
Also actively developing a more holistic approach to our brand messaging media channel mix and audience enrollment.
Under the leadership of our new CMO branded Coleman, we have developed a national brand campaign with our New Creative Agency mother of New York City. This new campaign, which lost nationally just last week.
The first step in creating similarity around a powerful an emotional brand promise that only Dave and busters can deliver.
As we move through the balance of the year you will see this new directions continue to evolve as it is integrated across all of our guest touch point.
In tandem with our new messaging, we will be launching an intelligent approach to media by blending.
Oh local TV advance TV digital radio at home and programmatic social by with specific guest inside that matches, the Dave and Busters customer journey.
As I guess moves through the journey on new customer relationship management and customer data platform system will be ready to enroll audiences with messaging tailored to their behaviors and as our understanding of Jeff motivations ROE, we will automate messaging across the journey to optimize engagement and.
Dr. visitation.
With our reawaken brand, new media mix and intelligent guest enrollment we will enter 2021 with a powerful new marketing function aimed at increasing visit frequency.
Through a strategic local digital tent pole messaging approach.
So let me sum up.
We are making steady progress and reopening stores driving encouraging week to week improvements in store revenue improving our cash flow.
Reducing our expense burn and rebid repositioning the company for long term success.
I am very proud of our team members for their tremendous agility, there zillions of their commitment to developing and implementing initiatives.
That are driving our business recover they are the power behind our great brand and our delivering for our customers each and every day and for any of our team members listening out. There. This is a heartfelt public. Thank you each of you well done.
Our brand is strong our execution is solid our people are committed all of those things give us confidence in our plan and optimism about our ability to emerge and in an even stronger competitive position to deliver onto our guest and value to our shareholders.
Now we'd like to open the call to your question Kellyanne. Please open the line.
Thank you at this time, if you do have a question that will be star one again for questions Star one at this time.
Well here first today from Jake.
Trust Securities.
Great. Thanks for taking the questions and thanks for all the hard work I know you guys are doing out there.
The first I wanted to make sure I understood.
It's about current.
Sales, saying I'm at Riocan stores, and then the Colombian so in the press release about same store sales and 68 comparable stores. It looked to be reopen it can you you said in the press releases they were down 71%.
I think what I just heard wish that you're down 42% you know in the last week. So so just can you help me understand the difference there.
Yeah, Jay because it's got the negative 71% that's for all stores and our chain you.
You know, whether they're open or not in the latter number was that metric just for open stores.
Okay, and so it was wires or only 68 stores and the comparable basis. If that's the case I I can do is 116 last quarter.
Well, we have 84 stores open ended the quarter 68 of which our comp store. So when we're talking about our caught our copper recovery on that.
We're talking about the comp store performance for stores that are open so when I talk about a 58% index. That's only for the 68 stores that are open.
Okay. So they're just your overall I will hop overall cost for US is driven by suit thing that it's going to be driven by getting the chain open and today, you know were 65% open and it's about getting our copper recovery index, which you know ran as I said 50 acres.
And over the last two weeks getting that back up to a 29 seeing level. So the two together resulted in our overall comp because not <unk>, that's not open to that.
Great. That's the that's very helpful. Can you share also last quarter, you shared that that that stores that had reopen were.
Reopening it I think it was you know roughly down 18% you know of prior year levels been steadily improving can you give us any any more color around the performance of the stores that have reopened and just that's you know hopefully the kind of the consistent improvement that that you're seeing there or maybe not.
Yeah, I mean, I think last time, we think we were opened what five weeks at that time and we've talked about how the stores that are open at that point in time, how their index I believe it was around 17 or 18% in their first week of operation that it had grown to I want to say it was like towards.
6%, if I remember right, but.
So yeah, we have a lot more stores now that have been developing out in the churn out on the recovery ramp her you know.
So far that we get away and no longer their own can we ought to they tend to improve and so those metrics today look a little bit like this day care you take all of our all of our comp stores. The 68 soaked up and you look at their first week of operation.
All of those that whole group, we index at about 22%, so a bit better than the numbers, we talked about you know.
Three quarters three months ago.
We now have stores that have developed out you know 18 weeks because you know we opened our first set of stores really in the first I think when coupled with the very end of April but most of them. We're in the first week of the quarter. A in early may. So we have 18 weeks of operation and those stores.
That are in that class, a that have that kind of maturity or operating at around 70%.
Great. That's very helpful and I I just had one last question on the cash burn Scott you mentioned called in the release that the cash burn was three point threemillion.
Per week right now I think before it was 7.2 million, including interest service or debt service as well as.
Rents that that was deferred but I just want to make sure I understand what's included in that three point Threemillion cash burn currently.
Yeah, so that that cash burn you know includes all of our you know cash out the door.
With the exception of any you know equity raises you know that that we've done.
Okay, So, though so <unk>.
Is that comparable because I think before it was roughly if I'm remembering right was 3.5 million in cash and then it was three in change on.
On the.
That was being deferred so as it has the underlying cash burn changed much.
Seems like it's improved but maybe it up I very much.
Oh, it hasn't it hasn't changed that much if you you know if you.
Consider that we you know we're deferring rent so that's that and that's really the biggest component there and so I think the way to think about it is you know as we continue to go forward you know we're going to continue to see improvement from a on a cash burn rate as we continue to reopen stores in gen.
Great that variable profit.
But you know to your point you know that keep in mind that we will continue to do that for a portion of our rent you know going forward by working with their landlords.
But as you'll see as we saw partially in Q2 and we'll see more of that in Q3. You know we do have you know some deferred cables that we will be you know paying down.
And so that will be you know kind of a drag on cash in Q3 had to pay that balance down and then you know the deferred rent that we have you know will start paying that back starting in January 2021 over about a 12 to 18 month time period. So those are two.
One thing to know kind of looking ahead, you know on our cash burn.
Okay. Thank you very much I appreciate it.
<unk>.
Your next time, Chris So cool with Stifel.
Hey, Chris No new maybe.
Sorry, guys I was on mute.
HM.
And quite next question [laughter] It wasn't easy when <unk> just a follow up last line of questioning. So what is the monthly rental payment amount that you're anticipating starting in January when a company starts to payback the deferrals.
Oh, well, what what I will give you as you know at the end of the second quarter, we had to her around 40 million in rent. So we had about 40 million in deferrals on our balance sheet at the end of the second quarter. Okay. So looking forward you know through December we'll continue to differ.
A portion of Iran. You know not to the extent that we've seen and prior month.
So we'll continue to defer through December so that'll build that balance a bit and then we'll start to pay that down.
Fairly ratably starting in January over that 12 to 18 month time period.
Okay.
And then you mentioned in the prepared remarks, a certain number of your opened stores were positive EBITDA in August do you have a sense of what the ramp typically looks like and and it hasn't shortened it on the to the store need to be open for four weeks before becoming positive for or more.
No I think well first of all we're really happy that weve been able to you know our operating team. It's just kind of fantastic job a marker manning.
And our two bps, Brian Mcclary and at four LER really and.
Operating stores in a very very efficient manner. So.
No. We're we're in a place right now where that group of stores that that I mentioned 61 stores. We were we ran about a 52% index and those stores and generated not breakeven we generated a profit. So you know we're really happy with you know what we're doing in terms of.
Taking dollar stood up to the bottom line, but you know it is in terms of what stores get there quicker and stuff, that's a little bit market by market we've seen.
It's difficult to a pen one label along the entire base here, but no overall.
We are seen as stores mature out and have longer longevity of being open that are when there were ER that our recovery pattern is approved as I've just mentioned to Jay So.
And that is one of our challenge with the awareness level that we have of our reopening a as we were pretty pretty short on marketing dollars.
You know, we're we're that's changing here as we speak right now, but you know we definitely seemed to track or improve over the last 18. It can we.
Great. Thanks, guys.
Thank you.
Well here now from Jeff Farmer, West Gordon Haskett.
Great. Thank you for those stores that anchor a mall or in a mall development, what's the relationship between that and mall traffic recovery that you're seeing and Dave and busters traffic recovery for any given location.
Well I think the mall mall situation as it is a bit candidly stuff. That's a you know our mall stores.
You know if you'd look at.
The numbers I mentioned, a log on our our comp index for opened stores, our mall locations or about seven percentage points lower than non mall store. So we're definitely seeing a slower recovery.
Which I think is telling to mall recovered somewhat so yeah, that's what we're seeing right now.
That's helpful and then.
You did touch on this but how should we be thinking about the fixed versus variable cost nature of of DNA. I know you touched on it on the labor line with some of the staffing, but if we think about it on the corporate or the enterprise level.
What is the size and sustainability of any type of copper corporate cost control and do you expect us to roll into calendar Twentytwenty one.
Yeah, we I mean, we continue to you know very tightly managed their DNA expenses as well as is our stores and so.
Yeah, we have really looked at our DNA cost from the bottom up you know kind of more of the as usual based you know kind of view of that.
And you know so as in this type of environment. You know does you know make it look at it a little bit differently. So yeah. We have scaled back you know DNA and you know according to you know the situation in our stores.
As we continue to opens doors will continue to evaluate that but you know we take a hard look at DNA and make reductions. There you know just like we do it or stores and yeah. We'll continue to do that and you'll continue to assess the situation as we go forward.
That's helpful. Just one last question so for some of these restaurants or stores that have been opened at this point 10 15 weeks.
Are there these are the weaker hours of the day for some of these stores that have been open for a while that our capacity constrained and if so how are you guys sort of taking advantage of that are addressing it is sort of spreading out these customers.
I you know ethically, we've talked about this on the last call. This is you know onetime were having large square footage stores. It is helpful. As it relates to social distancing. We you know we have a lot of capacity.
And you know as we've said in the path.
Our utilization rate of the box is lower than we would likely to be and that's why you know we are as we think about future store development have been discussing a sizing down of stores, but we have the portfolio. We have so by enlarge the capacity constraints that we see aren't causing.
Huge you know headwinds for us with the exception I pick up some of our stores I think in and Illinois, where they have some fairly low capacity limit so but that.
You know at the indexes were running at the moment and you know we have some stores that are top stores than the last who we did 90% of their 2019 level one of our top performing stores. So we're just we're not I'm not particularly constrained at the moment.
Okay. Thank you.
Yes.
Thank you Jeff.
And from Piper Sandler well move onto Nicole Miller.
Thank you good afternoon.
Talk about the profile of the returning customer.
Gender income age would be obvious I'm not sure except perhaps there's others. Thank you.
Yeah. Good question Nicole you know we are looking at some data coming out of the marketing group through some of their their sources.
Yeah, I think the good news for US is with our improving results that you know it's clear that you know guests are number one welcoming the opportunity to come back enjoyed some fun with us and our gas profile has skewed a bit at this point I'm, a little bit younger and skewed a little bit more.
Well and it looks to be a little bit lower lower income.
So.
So that that's what I guess fair development.
Thank you.
When you think about the attributes that led to the Chicago and Houston store closures could you speak to that was I would just be curious how did the same different and then of course are there others under consideration.
Well, the Houston store closures and saw a store that for cause a profitable store for off and.
So and it's a store that was actually the third store.
In the chain you know we closed store one into future years back that were the Dallas based or.
So Houston, a three is what we call. It was our oldest store chain and it that ball was profitable we have a sister store or that was acquired as a part of the Jillions acquisition part of my time here is for five miles away from it so.
Our analytics and we've looked at this before but we're coming to the end of that Lee.
We believe it will be accretive to actually just not reopened the store and have a sales transfer and we've seen that and in other cases Dallas is a good example of that so we made the decision to.
Just not reopen it.
And how about Chicago.
That's another case of and the older store that is.
Where the location at one time, most probably a a great location, but today is not odd it was profitable not a great story for us.
Yeah. It would we and that's where we're coming to the end of that at least as well. It's a store that we had actually pretty Kobe made the decision not to do that Lisa.
But we were already had that has a lot of site that to close that store.
When we came to the end of lease but at this point. There's no. There was no 0.3 open that and bring people back just to close it short time later so.
Not not caught not expected to be a any kind of big impact negatively on us.
Okay. So it sounds like very opportunistic and not any shift yep.
Anything strategic last one my goodness I cant bleed on the asset cash burn because they appreciate covering the topic at this point, but I have made in out all the way back in the fourth quarter of 19 of 6.5 million a week prior to that service I guess, that's essentially enterprise level and it sounds like that does more or less.
And then okay to look at it that way too.
Oh, Yeah, I think though I think the best way to look after with where we are you know right. Now. So we have you know 80 84 stores opened at the ended the quarter and he knows so the actual pure expenses are those stores has gone up naturally as we open new stores, we do have an offset with yeah.
The profitability and so you know if you net out you know that.
You know the expense burn as is not that much different than what we saw.
Earlier.
So I think the way to think about it is right now it's more of a pure cash burn number with where we are right. Now are taking into account you know all you know cashed out the door, including not bringing in that surface and capital spending as well.
And so like I said before we will see you know some variation in that number as you know we pay down some of our deferred payables and then starting in January when we start to pay back some of our deferred rent.
Alright, well keep working through that thank you very much. Thanks for taking my questions. This afternoon.
Well hear next from Andy Barish with Jefferies.
Hey, guys. Good to hear from you on can you provide it's just that the total August same store sales number you know, including all stores.
All in for stores open or for.
Total comp for the whole whole base.
All in.
Or open and and the stores that are currently Glenn close.
I don't I don't have that number or.
Indiana.
[music].
And then.
Just trying to think on that on the programming side.
Do you think.
Yes, you know kind of through the ended the year with football kicking.
NFL kicking off Tonight.
College Football Bowl limited.
It's sports kind of a net positive even though the schedules maybe reduce obviously nobody's nobody is going to be to the actual games. So how are you guys thinking about that that watch and how.
How are you going to market. The watch component of you know of your business.
It.
The reality is when do we really we really don't know what the bands Gonna look like for kind of in store watch experience I obviously.
I think society and people in general gotten.
Pretty used to being at home and doing things at home from eating to doing projects on their houses and every other thing. So I you know, whether we're going to be able to you know drive people and to watch sports on our you know great assets. You know, it's a question Mark or just you can't have.
Sure.
That said you know we have built a great asset that you know we you know we're going to lean into several things a and this is one of them.
Nothing other than to continue to move the needle and and improve kind of our approach.
How we deliver and experience will watch experience. So you know there are some fundamental things I'll call them Foundation, all things that we want to be better at somewhat simple things like developing a consistent playbook or to make sure. The right games are on the right big screen.
For the right audience and that sounds like that should be simple, but you know that's something we can be better Oh, we are deploying that in an organized consistent manner. You know we believe there are some experience all things that we can do to be additive to the watch experience and so.
We are investing a in a cloud based content platform that I mentioned, where we can deliver content a ton of different content as sort of popped into the life gain to interact and engage with our gas.
And you know we're going to deal with the launch a radio station really try to amp up.
Survive at the store and then you know when you get when we talk about programming. There are some things we can do with people are specifically DJ is if you will to.
Energized the crowd or have get away and some sweepstakes and where else can have some ambassadors. We're working with partners that are going to help us in this regard. So you know whether we'll get off fruit from it this year and question Mark whether it will we learn some things and getting better.
Rather than build on it you know, we're not going to lose the season ought to try to to make them in roads and in this regard and we're going to want to build on it overtime.
Hey, Andy this is Scott, our or a comp store sales for August was negative 75%.
Okay.
I appreciate.
The data and the color thanks, guys.
Thank you.
Well move next to Andrew Strelzik, what's being no capital markets.
Hey, guys is actually down on Sandra today will be as well and thanks for taking the questions. Just two quick ones for me.
First you know you'd previously highlighted that you'd be guns potentially season easing of competitive headwinds within the space or more specifically from competitors, maybe not opening is any new stores than they were before it. So I'm just curious if that's persisted or if you have begun to observe any sort of uptick or acceleration in competitive close your isn't much broader view on the competitive landscape.
It has evolved at all over the last several months.
And it has quite a bit I mean, when we've talked before you know we didn't have that means for something in nor does our competitors.
So you know flat for three months here you know we have seen some concept or actually two of our largest competitors that are.
Close to fully open at this point.
There are another.
Subset of groups that are lagging in terms of either half their stores are less and some hardly any so you know it isn't that back right now.
Our expectation is still that you know that I think they're going to be some winners and losers here ultimately.
I think there are going to be pressures on not just us, but others to rethink their growth plan store growth plans.
Nothing's evaluate the pipeline that they had you know on the table pre co that you know their liquidity situation like we do you know.
So the thing decisions that were thinking through and also you know what that you know changing real estate environment might look like.
I'm going forward. So I you know I, we tend to think that there will be a slow down a four for near term at least in terms of the pace at which we saw the competitors flooding into the market, but I you know I think it's gonna take a little while the shake out I think you know being open.
You know it doesn't necessarily translate into being highly profitable and ultimately you know successful it seems a day and I think you know what I will say as.
Our brand a pickup of it you know industrially you'd be industry, leading margins and profitability and you know I.
But the bulk from what we know about the bulk of the competitive that I'm not sure. They can make that same claims I think were at a really good position to emerge in a better spot.
Thanks, Yeah that makes a lot a sense and and then I appreciate all the color on the comp that you're getting so far it and you may be started touched on this a little but in the stores that are open are there any regional differences in comp performance you can give us I'm just in terms of different parts of the country anything worth putting there.
Yes, good question.
Ah, Yes, we definitely do have differences are within within that within the chain and a couple I guess I take probably three factors I think that that.
You know kind of separate stores, a little bit and have you know over the last.
Three months.
Markets, where we where you see lower co. Good taste counts you know tend to performed better we have tended to perform better than stores that are and tourist markets or coastal areas. A lot of folks are sort of flocking to those areas.
And then as I mentioned to I forgot what I was answering the question maybe Jake stores that are farther into their maturity curve are opened the longest.
You know we tend to be in a better spot with so you know our strongest areas right now, Florida, South Carolina, Maryland, Arizona, Tennessee, and then we have some you know lower courthouse stores that are up in Illinois, Canada.
ER and New Jersey, So yeah, we definitely see some geographical differences right now.
Great I appreciate the color thanks, guys.
You bet.
Oh now to Matt Curtis with William Blair.
Hi, Thanks for taking the question.
Back to an earlier question on Gionee, maybe obviously DNA has come down a touch them second quarter. So.
Heading into the second half of that you could you give us any sense of what the run rate on Gionee might look like.
No I don't think we can't really give specific guidance you know on on June eight you know going forward, but you know what I can say is that yeah. We'll continue to be very prudent you know a DNA and you know will.
HM B, you know very very cautious.
You know on all all discretionary cost and.
You know at the same time, and we will make some investments you know based on you know the key priorities that Brian mentioned, you know theres. Some component there that we need to spend we'll do that you know to fuel those initiatives.
You know, but other than that I mean, we're going to be very prudent on the other you know kind of what we call non essential.
You know cost at least for right now you know until we're getting a little better spot you know with a more store openings.
Okay understood and then on the.
He pressure you saw in the second quarter on food and beverage costs, maybe I missed this in your commentary, but what were the factors that drove a that pressure and then also oh what are your expectations in the second half.
And so the main factor that drove that pressure was just some spoilage you know that we and admittedly see you know what our food and beverage as we'd be open stores.
That is part of the reopened processes to go through all of the food and beverage inventory and you know clear out any any spoilage that we have there. So we can start you know with fresh product.
And so that's what we've seen so far and we expect that we'll see you know that as we continue to open new stores.
Okay, great. Thanks, Lucky good luck on food.
Okay.
From Raymond James we'll hear from Brian Vaccaro.
Oh, Thanks, and I couldn't hear from you guys I want to clarify the comments you made on some of the recent sales trend, though still little confused.
It comes in recent weeks that was 71% and that's bird and I think you said with closed units, but that's capturing 75% to 80% of your reopened units at this time and I guess I've been keeping a close eye on average weekly sales as a measure of reopened units so does that translate into sort of.
Year on year sales change for all reopen units that are down somewhere in the mid Fiftys and then that subset of 68, that's down 42% like you mentioned a am I interpreting that correctly.
Yeah. So yeah, that's the way to think about that as you know the.
The subset of 68, you know stores that you know currently open.
You know they they were down you know 40.
42% it over to over the last couple of weeks you know time period, you know our total comp sales that were down 87%. You know that's for you know our total you know comp store base.
Right I guess I was glad to hone in on the quarter to date piece and we can we can take it offline that's fine but that down 71.
And down 42 is it is difficult to Brad So and I said, they data that incremental piece.
The down 71 is as you.
You know the comp store sales for all all stores and account base and the down 42 is just for those stores that are currently open an account base.
In the comp base. So then we've got another 20, 25% that we need to capture and it looks like just based on that but they're down.
Something more than 42, just how the math works is that right.
Yeah, we did yeah. When we talk about Star Index. We just views you know the L. councilor see opened stores that are in account base. You know so you get a better comparison.
And you know those stores that are outside of the cotton based you know the prior year number isn't as comparable in most cases and so we focus that index percentage on the stores in account base.
Okay. Okay. Okay.
I mean, there Directionally, Brian you should you should be able to close this is close if you have.
50% of the stores that are open.
Performing at a 50%.
Index.
Your your cost overall comp index inclusive of all stores is going to be about 25% because you only I'm happy to attain open performing at a 50% index.
Yeah on out yet not.
Yep.
Yeah.
We need both okay. I go back off so you know we got we need both things we need to get our chain open we need New York in California to open up for that we can get closer to 100, not the 65, and we need our 58% Kinda index or were you run the last two weeks to continue marching towards.
Some of these stores that are mature it out now up in the seventies and had moved that number north.
Yes, understood and on that point the reopening pipeline.
December and I know, it's subject to change, but could you give us a sense of how many you'd expect to have reopened by the end of this month and by the end of October.
Well said I'm not that much.
A little bit.
We have [laughter] based off of you know looking at the jurisdictions, but there there's a ton of uncertainty here I was just stayed as you know right now we're we're pinpointing New York in California are really not to be until near near the end of that <unk> time period. So we're expecting that some of these.
Other jurisdictions will open up and you know a few here and there, but the big markets we have.
You know closer to the end here you know that time period.
I'm talking about New York, California, now just today or if it was yesterday you know cuomo.
Opened up and in in store design, which is good.
What we do know is what has happened is are you switches arcade has trailed.
Virtually all the time in store dining so.
And we really need both to be you know have a <unk> ability to recover in a meaningful way so.
And we believe in New York, well actually open up on out before California right now.
<unk>.
Okay, that's usually color. Thank you.
Alright, Thank you Brian.
Well take a follow up question from Jake Bartlett with Trust Securities.
Great. Thanks, Thanks for the fall if you know I. My first is really on that last question on New York and I believe the and maybe it was even yesterday of the day before that that the store in long island reopened and is landy up and so as they look at the stores in New York, The 11 stores Youre, a couple or in the burrows.
Most seem to be in areas that they could reopen it like long about there what's what's the delay in getting to the New York stores that makes you think it's going to be more like a December timeframe.
Well you know we've we've opened a we often islandia for food and beverage only and we you know we have.
You know a couple other stores, we opened Hawaii that way to see you know what would happen. If we just have to food and beverage element.
You know in General Jay you know with you know, 60% plus of our revenue come from the arcade the food and beverage business alone.
That is a struggle for us. So you know we're doing it in Atlanta. The you know we have brought back a number of our leadership members and the New York.
As well as all are unclos stores right now to.
Protect our ability to reopen because these stores will reopen it's imperative that we have a leadership team the I'm ready to go. So you know we're doing a very nimbly, [laughter], you know and and and I've, Andy Oh, we have one other one and Concorde we're doing.
Right now in North Carolina, So, but I don't.
We don't view that as a meaningful.
Opportunity for us to get through a good place without the arcade. So we really need we need to full expression of the brand.
To got it.
That make that makes sense you I didn't I didn't really says we're just supposed beverage.
My My other question is is really about the operating efficiencies that you're finding now and I know, it's very early but give a sense as to whether you know when you. When you regain the unit volumes that you had before <unk>. How much you think margins might be improved and that's really just ask how much of the.
Deficiencies, you're finding now in DNA as well as in the store do you think are sustainable.
Yeah, I can I can start off on that you know certainly we've we've learned a lot you know as Weve you know reopened these stores and you know scale down or labor model in a cost structure and everything else and so you know as as we continue to you know increased volumes note with more stores I mean, well you know.
Right got knowledge and ultimately we think that there's going to be some benefit. There you know it's hard to tell exactly how much benefit there will be but yeah. It's Ed you just think about you know things like that's in the smaller menu I mean, that's that's a really helped our efficiency quite a bit you know just you know from the labor standpoint, and you know just getting too you know out to the guest.
Quickly.
So it's a good learning you know, but we're going to make some adjustments. So you know our long term plan. It is not the habit 15, United many of its going to be no somewhere north of that and we're working on that right. Now so it's not going to be you know as big as we had it before it'll be somewhere in between but.
In the reason for that is as we want to you know give the guests and <unk> variety, but also you know.
Maintained a medefficiency that we've seen you know so far.
You know also from the technology standpoint, you know that that's one of the region's.
That you know, we're kinda doubling down on that you know right now and focusing on that because we see a big opportunity there not only from a guest experience, but from an efficiency standpoint, and so I'm still early days on that but you know we think that there's some efficiencies to be had there you no longer term and then really would be the last thing that was mentioned as you know just kinda there.
Due to a based approach that we took I mean, we learn some things that some of our expenses and in some cases negotiated deals and prices down a bit and.
You know work with our vendors you know to suspend you know some services and you know contracts that were needed when stores are close but that is partial partially the reason why you know we've been able to lower expenses. So much. It's a piece of it and so you know as we ramp up and we learn some things when we can cut back on some of that it's still going on.
That's the guest experience. So it's really hard to put a number on exactly how much that will be but you know we feel that there'll be some.
Benefit there at the store, but then also you know as Weve, you know really cut back on gene as well, yeah, we'll build that back on kind of and as needed basis and so that's the general thought process. Overall is that as we do you know add back you know that need to be a bit regions what in it.
Needs to be you know something that's going to drive the business that nobody really need and so that gives US you know a chance to evaluate the expenses before you know we increase any of the future.
Great. Thanks, a lot I appreciate it.
Well hear next from John Tower with Wells Fargo.
Great. Thanks for taking the questions most of them. Most my questions answered, but I did have a question kind of followed us like Jack was just talking about and Brian you mentioned. This earlier you have industry, leading store level margins coming into the crisis and that's I'm just curious.
Or.
Have you talk through your thoughts around the balancing store level traffic against those margins. We would you be willing to perhaps sacrifice some of those margins that you had previously in order to drive more consistent traffic to the box overtime, maybe that comes in the form of higher or higher.
Counting on food babies got amusement.
You know if you would mind just walking through that a little bit that'd be great.
Yeah, I don't think we want to.
Uh huh.
Save our way to know revenue. So that's not what are what we're trying to do here at all so.
I I I.
I.
As Scott said I think we've learned a lot we've identified some areas that we think will.
You know carry through into 2021, where we can be more nimble and in terms of our team and our approach to the business and but I, but I I. You know we were going to invest in areas that we thing have near term.
Revenue generating capability.
And for that help us drive efficiency. So sometimes you have we are FEP and.
To.
To deliver that so.
And I I would work, we're not looking to burn the third furniture to the damage sales here and so those why we'll we'll lean in some areas as we rebuild the business.
Okay, and then just I know, there's something like me a little bit more difficult to think about under car challenges facing your company, but I do all the time art was previously there was this long term total addressable market about 250 stores in North America herself he.
Is that even.
Part of the conversation anymore is that still the long term opportunity you see ahead or given the competitive dynamic potentially shifting.
You know is there more opportunity now and in your view you're thinking about this business 510 years from now.
That's a great question I.
In terms of our focus on on on you know development right. Now you know, we've actually probably been going the other way Jake.
I'm sorry.
John in terms of I'm really looking at.
You know sites that we could you know rethink and.
And just continue and and fight another day I, maybe a better rental rate and typically sized found that the stores as we had discussed.
Recently with you guys. So you know I don't I first five I think as I said I don't think we're gonna see.
At least near term quite as much investment in growth and competitive but being quite as aggressive at least for a little bit of time I can be wrong. So I don't know that I see the addressable market materially different one where the other right now I don't think we know enough and you know when you get in the near term will not be.
As aggressive with with building stores for obvious reasons, you know we need to focus on the core we need to get the business back on its the <unk>, we need to be a have a team that pretty nimble and we're going to be very disciplined about how we add things back.
Thing ideas and expenses are gonna have to earn their way back and deliver for us. So you know that's where our focus is really right now you know build the core back purse.
We will have some stores because we had a very very strong pipeline are coming into this so no. We have some that we have sort of out there into 2021 2022 that will allow continued to grow some but that's not our.
Immediate term focus here right now.
Thank you appreciate your time.
Yep.
And gentlemen, I'd like to turn things back to you off for closing remarks.
[noise] right well listen thank you for joining our call today, we look forward to updating you on our continued progress. When this next December here well, we also want to which each of you a safe and healthy fall season, and look for seeing you at one of our reopened dnbi.
Okay. She's very soon have a great night everybody.
And that does conclude today's conference again, thank you all for joining us.
[noise].