Q3 2020 Dave & Buster's Entertainment Inc Earnings Call
Thank you for standing by we will begin momentarily again, thank you for standing by.
[music].
Please stand by.
Good afternoon, everyone welcome to the Dave and Busters Entertainment incorporated third quarter 2020 earnings results Conference call.
Today's call is being hosted by Brian Jenkins, Chief Executive Officer.
We'll be joined on the call by Scott Bowman, Chief Financial Officer from Margo Manning Chief operating officer.
I'd like to remind everyone that this call is being recorded.
Well be of variable for replay beginning later today.
Now I would like kind of a couple of over to Scott Bowman for opening remarks. Please go ahead.
Thank you and thank you for joining us today before we begin our discussion on the topic of results I'd like to call. Your attention to the fact of an already March in our responses to questions certain items, maybe discuss what from not entirely based on historical.
Any of these ideas of should be considered forward looking statements related to future events within the meaning of the private Securities Litigation Reform Act of 99.
All such forward looking statements are subject to risks and uncertainties.
Which could cause actual results to differ from both of them.
It's a mix of on the risk factors and uncertainties has been published in our filings with the FCC, which are available on our website at www Dot, Dave and Busters Dot com under the Investor Relations section. In addition, our remarks today will include references to EBITDA, adjusted EBITDA and store operating income before depreciation and amortization.
On the trip I need from measures that are not defined under generally accepted accounting principles.
Investors should review the reconciliation of these non-GAAP measures to the comparable GAAP results contained in our earnings announcement released this afternoon, which is also available on our website.
Now I will turn the call over to Brian.
Thank you Scott good.
Good afternoon, everyone on and we appreciate you joining our call today on behalf of the entire the it'd be King We hope you and your families are remaining healthy and safe during what continues to be close of challenging time in our nation's history.
I continue to be extremely proud of our team for their tremendous agility resilience and commit net.
To succeeding on dirt extremely difficult circumstances.
As we have discussed on previous calls our true King near term priorities are to number one we all from an operator stores safely and efficiently.
As quickly as possible that's true.
Accelerate change in our service model menu programming and marketing.
We believe our focus on those two priorities will position our business to twice that of future Bianco that add on both of those funds, we had a very successful third quarter.
Moving to the first of those parties now the embargo on on I will provide an update on the success of.
Scott has had a chance to review our Q3 results from but also on the patients for the for fourth quarter.
During the third quarter, we make significant progress we opened in stores.
Moving improved operating performance, we began the quarter with any form of stores and finished with 104, representing 75% of our total store day. That's included the opening of two brand of stores, one in Manchester, New Hampshire, and one in Lehigh Valley, Pennsylvania, and the permanent closure.
Her of one store in Houston, Texas.
Over the quarter. We also made progress rebuilding our revenue with an average of 74, we opened fully operational comp stores generating revenues of 57% of 2019 levels. That's up from 35% in the second quarter. When we had an average of $30 per fully operational cost on.
Yes.
Comp sales that are re opened stores of crude as the quarter progressed, peaking in late October out of 68% index, that's coming about king level with the top quartile of reaching a combined index of 91 per se.
More stores generated sales of above their 2019 sales for that same week.
With a proven itself over the course of the quarter and continued discipline around a lean operating model, we drove a meaningful improvement in our EBITDA trend relative to the second quarter and reduced our cash burn rate as well in fact 68 of our 104, we opened stores achieved Pos.
It is store level of EBITDA during the third quarter and 80 stores that so in the month of October bringing us to within a few million dollars of breakeven on an enterprise level of that Mark even with all of our California, and New York stores still close.
We believe the strong sales recovery took a third quarter and return to store level profitability at the majority of our opened stores clearly illustrates the resilience of the Dave and Busters brand and validate our game plan for navigating through this unique coated.
And Bob.
Also during the third quarter, we solidified our balance sheet and significantly enhanced our liquidity by successfully of saying $550 million of senior secured notes due in November of 2025.
We used the proceeds along with available cash flow.
Completely pay off our term loan and to pay down our revolving credit facility.
As a result, our total available liquidity under our revolver stood at $314 million at the end of the quarter significantly extending our liquidity Horizon, Inc.
In conjunction with the bond offering we also secured modifications to certain debt covenants through 2022 at a two year term extension on our credit facility, resulting in no debt maturities until August of 2024.
On the whole we are very pleased with our performance.
On a couple of Smith <unk> during the third quarter.
Now as Youre, all aware the resurgence of co that infections around the country, that's causing a state and local jurisdictions to place renewed restrictions on the restaurants at of arcade operations and has led to story closings in the month of November.
As a result, the pace of of our overall sales recovery moderated over the first five weeks of the fourth quarter, causing a sequentially higher EBITDA loss in November and we expect these pressures to intensify over the remainder of the quarter.
Despite the lease of turnover that we are well positioned with an exceptional team.
Strong plan.
Yes, it kind of liquidity.
On a resilient, Brad and I view this as a temporary setback.
We are extremely optimistic about our ability to navigate through an another tobin good circuits period, and really come out on the other side of it even stronger when this way of passes.
Just on asked our CFO Scott element of touch on the financial highlights of the third quarter and provide some broad encyclopedia, but we're managing through the fourth quarter in the midst of renewed co that limitation stuff.
Thanks, Brian Thanks, everyone on the call for joining us today of course, and sometimes summarizing our third quarter performance and our current liquidity position and then I'll provide some expectations from the fourth quarter.
The third quarter total revenues of $109 million decreased 64% compared with the prior year period.
On a 66% decrease of comparable store sales by month comparable store sales were negative 75% and August negative 62% of September negative 59% in October.
On a comparable stores that were opened and fully operational for these periods I would also like to provide some performance details by month compared with the same period last year.
For August our 68 opened comparable stores produced of sales index of 46%.
As of September 76 opened comparable stores close of the sale of index of 65% in force.
For October of seven seven opened comparable stores produced of sales index of 61 per cent compared to the price.
As for sales mix amusements on other continued to outperform food and beverage accounted for 65% of total sales compared to 58% last year.
Turning to the balance of the piano gross margin improved 101 basis points to 83.6% in the quarter, primarily due to a higher mix of amusement sales, partially offset of food and beverage spoilage that was expensed of stores, we opened up.
Operating payroll and benefits expense was 27.7 million a decrease of 64% from the prior year, primarily due to fewer opened stores and continued execution of the lead on labor model. Despite the lower sales base. We succeeded in managing these expenses of 25.4 percentage of sales equal to the same period last year.
Of the store operating expense was 70.8 million a decline of 36% from the prior year, primarily due to lower variable cost compounded by savings in marketing it's on maintenance.
In one of the basins.
As a percentage of sales of the store operating expenses, 64.9% of sales versus 37.1% last year.
A higher percentage was mainly due to the de leveraging effect of lower sales on <unk>.
Defense of expenses.
<unk> expenses of 11.7 million decreased 28% from the prior year, mainly due to savings in compensation expense consulting expense and legal fees.
On top of the expense declined 2.6 million, partially due to work on point Fivemillion accrual reversal related to outside of advisory fees.
As a percentage of sales DNA expense was 10.8% compared to 5.4% for the same period last year, mainly due to the de leveraging effect of lower sales.
Third quarter EBITDA loss was 21.7 million, reflecting on average EBITDA burn rate of 1.7 million per week, which compares to a burn rate of 2.5 million per week in the second quarter.
Adjusted EBITDA loss was 16 million for the number.
Turning to the balance sheet, we ended the quarter with 8 million cash on 314 volume of availability under our revolving credit facility, which was net of a 159 minimum liquidity of.
Total long term debt stood at 576 million up into the quarter.
15 of $550 million in recently issued senior secured notes and 26 million outstanding on our revolver.
Additionally, at the end of the quarter, we had approximately 17 million of deferred vendor payables, which compares to of approximately 35 million at the end of the second quarter.
We planned to have approximately 6 million of the per payables remaining at the end of the fiscal year.
Deferred rent totaled approximately $48 million at the end of the third quarter compared with approximately $40 million at the end of the second quarter.
We continue to negotiate with landlord for per bed deferrals, but expect to begin some level of repayment beginning of January and extended over a 12 to 18 months of pipe.
Also during the third quarter, we received a 2019 actually from of approximately $10 million related to the care of that and expect additional refunds of approximately 11 million over the next couple of quarters.
Excluding financing activities are weekly cash burn rate improved to 2.4 million due primarily due to an improved EBITDA burn rate when netted together a temporary working capital adjustments related to the per payables and deferred revenue offset by the Cures Act tax refund had an overall de minimis.
In fact on a weekly cash burn rate.
Turning to capital spending we recently completed construction of opened two stores in Greenwood, Indiana in Gloucester, New Jersey and plan on opening one additional stores by the end of fiscal 2000 twice a.
Additionally, we plan on accelerating to capital projects in the fourth quarter, which has contributed to efficiency gains in our stores. These projects include investments in tablet to improve our service model efficiency in high speed kitchen equipment to gain efficiency for certain menu items.
Including these investments we expect to spend approximately 60 to 65 million of Capex for fiscal 2020.
A tenant allowances.
In summary, our operating results from the third quarter reflected encouraging sales trends that we opened stores and validated our lean operating model.
Additionally, as a result of the improved liquidity position in the couple of projected cash flows from operations. The company believes it has that alleviated the substantial doubt about the company's ability to continue as a going concern and the company has sufficient liquidity to satisfy its obligations over the next 12 month period.
Well, we are very encouraged by recent performance covertly surgeons around the country has resulted in the operating limitations story closures and further delays in the cup visibility to your opened stores. This of naturally had a negative impact on our performance during the first five weeks of the fourth quarter.
After ending the third quarter with 104 opened stores. We now have 90 opened stores or 65% of the chain and have experienced overall comparable store sale of negative 71% for the first part of each of the quarter.
Or average of 71 fully operational comp stores, we have experienced since index of approximately 49% compared to last year, which of the mainly due to heightened cobot concerns mandated reductions in operating hours.
For the month of November the slowdown resulted in 32.6 million sales at a negative 69% comp and an EBITDA loss of 11 million, resulting in an E. But a weekly EBITDA burn rate of 2.7 million.
We currently anticipate that the trend of Cobra cases of resulting actions by local jurisdictions will intensify over the balance of the fourth quarter.
The opening of our California, New York stores, the likely be delayed until early 2021.
These conditions will be especially impactful to our December sales of profitability.
And one third of which we have historically benefited from hype of traffic and a robust special events business.
Given these expectations coupled with anticipated cost pressures, we expect further erosion in our fourth quarter comparable store sales and EBITDA.
One of the primary expected after during the fourth quarter is for Labor day.
No decisions that we call he store leadership positions to maintain talent and to ensure store restart capabilities.
We also plan to incur increased repair and maintenance costs to ensure of stores of up to standard above normal spoilage costs due to prolonged closures reduction of rent abatements due to the expiration of landlord agreements and the gionee as we recall so lets positions based on me.
Well this temporary setback impact on results in the near term we have the playbook to navigate through this we sort of and I feel confident that demand on return once resurgence of sites.
With that I'll turn it back over to Brian.
Thanks Scott.
Despite the reset.
Temporary setback on our business, we're very encouraged about our future potential due to the resilience of demonstrated and of third quarter sales trends.
And our enhanced recorded another reason, we feel very confident is that even before total that arrive we were developing and the parent implemented strategic initiatives to accelerate change on our menu service model programming and marketing.
Over the past nine months, our team has worked to create a new future for Dave and Busters Bianco of it with a plan designed to broaden our relevance and enhance guest engagement while at the same time, enabling us to operate more efficiently.
Weve reopened and welcome gas back to our stores, we think confident in each element of that plan.
Much of the execution of our reopening game plan and implementation of our future forward strategic initiatives.
Being driven by our Chief operating Officer, Margo Manning Margo.
Margo is a 20 year on year veteran of Dave and Busters.
And their current role for the past four years and she and her team together with our store managers have led our store level coverage response with incredible of professionalism teamwork and discipline.
That's margo to join us today to share more information about the investments, we're making in our service model and menu initiatives, which we believe will help put us in a very strong competitive position. When we began to emerge from the current coded limitation of chairs Margo.
Thank you Brian for this opportunity to highlight the exceptional job operating handset Dan reopening our stores.
Each market has been cleared for reopening our king has demonstrated their ability to get stores up and headed back towards store level profitability of quickly.
Just take enormous effort and I'm extremely proud of the team's performance really unprecedented conditions.
The best part about reopening our stores is bringing back of staff to day, we've been able to recall approximately 8000 team members almost half of the number of we were forced to sort of while at the outset and out of it and it's been right, saying that well from our guests that circuit claims on.
As Brian said, our team has been implementing and refining and number of service model on many initiatives that we had already developed before closing of arrived and more of originally planning for fall out in 20 Twond.
The primary objective of our menu initiative is to establish a stores are differentiated food identity for the Dave investors Brian.
After extensive research we have landed on inspired America kitchen of the identity and we have Gulf of plan to bring it to life in 2021.
On leases identity is rating on <unk> flavors of quality and traded at a price I think that number of no I am price to maintain a historic last March.
It enables our GAAP to explore new flavor well also operating on balance the lesson of sunlight adjusted.
If I can simplify operational execution on display many that are back on to deliver 52 aren't that hard and fast.
Thank you all together.
That are moving to July on a price gap there.
Like free RC to top of right and to accelerate payables time, Oh on towards increasing the average.
Average sale.
Hi, My name is supportive of the dedicated training clock on that educate our kitchen and bath on everything kind of flavor profiles testing technique.
Additionally.
The process of rolling out on this piece of equipment to every store that.
15 times and we are also upgrading our total management system to facilitate a seamless flow of both meaningful on her.
Right. So in play from that that will be completed the first half of 2021.
In mid November we began the transition to our new menu from.
The temporary 15 item many that we implemented a stores began several of them.
[music].
Moving on now offering Stephen King item and currently finance to at six more decisive and part of their lives and expense of 28 of Amazing IR Finally April.
This represents 33% fewer items from the 42 items on our Creek I think linear.
Of course, we're prepared to remain profitable in terms of the menu expansion timeline and we will adjust accordingly based on the status of depends on that.
Turning to the start of capital on most of that the primary goal here are on.
April GAAP to control more of their in store experience and to free up our team member of focused on cross selling and up selling well.
We believe the increased interaction with our GAAP well enhancer over all of their.
The nucleus of this effort consists of deploying a combination of tablet kiosk and double that to enable a completely kind of classic order pace.
Our five new stores were locked on this platform on it's been well received by our GAAP most of them have adopted a hybrid price initially utilizing both of these technologies and on like a clean number.
We continue to the final technology and service model, we are evaluating the potential to expand on the platform to all of our stores during 2021.
Another completely on an element of our service model and most of it involved in November of blocks, a third party delivery partnership with door down and you've heard me at 100 inside of our stores, especially all of the stores that we have free opened during the third quarter on.
The plan is to add the remaining stores, primarily our California, and what that pricing. Once we are able to opened them for on site dining.
And finally.
Further expand our reach and leverage our kitchen capability, we're beginning to past several of those kitchen concept highlighting a specific category from army menu, whereas.
Whereas why success that can be built out from actually regionally were offered in specific markets or offer seasonally or even offer around specific major event.
And as our King a second on many of his service model initiative is to enhance our walks on profitability by driving increased sales more efficiently.
Obviously, many aspects of the lean operating model that we've adopted for the past nine months well not equally sustainable as we move back towards the whole operating posture.
However, we have learned a lot and are confident that our first cut of that fully operational service model and menu will produce some degree of the sample of leverage across our major crops that are now I'll turn the call back to Brian for closing remarks, and will remain on the call to answer any questions.
We'll take some of cargo and thanks, so much for your leadership and your team's ongoing commitment and dedication to.
This company that we that we both work from US so thank you for that.
Margo indicated we had been working on our service model initiative, even in the best of co. There's limitations Weve also refined our menu of during this period and are poised to fully execute the next two phases of expansion as market conditions improve to a level that will support our six.
So.
In addition of those investments we use some of our re opened stores to test new programming strategies that we believe will drive relevance on recovery as we are able to return to full operations.
Example of we launched a system wide in store radio station.
On the life and deployed a cloud based digital video system that enables us to centrally managed programming on our while wall and other high visibility the visibility of screens and 80 stores.
We also experimented this fall of sports programming to see how our guests respond to a more immersive watch experience featuring live de Jay Z and engaging events like vendor managed beverage tastings at select stores.
We're taking the learnings from these past and refining our programming and events strategies to be in a position to expand them as co head restrictions. These.
Additionally, during the third quarter, we launched our exclusive Star Wars Lightsaber dojo.
VR game that quickly established itself as our top earning single player non redemption game in.
In Q1, we will test multiple game titles to determine the extent of our 2021 game by and we'll watch the pace of business recovery to time their broad rollout.
We also launched our new National brand can't marketing campaign in September initial response from the campaign has been encouraging.
And we will continue to leverage our relationship with our new creative agency to expand the platform along with a re of managers promotions on events calendar calendar as market conditions recover.
We currently anticipate rolling out our game programming and marketing initiatives more broadly and late spring to early summer timeframe, depending on total good trends.
I'll close today by free Iterating the themes, we've been focused on for the past nine months.
You know as difficult as those month event, we are confident that our team our plan our liquidity and our brand put us on a strong competitive position to bounce back quickly when the threat of co that begins to subside.
Team is far more experience from prepared for this current surge of than we were back in March.
We have confidence in our code of game plan and in our teams ability to execute it nimbly as market conditions allow.
We have a vastly improved liquidity of rising extending beyond the projected threat of coated with the promise of one or more of vaccines expected to become widely available and 2021.
And we validated that our store of reopening process and lean operating model can produce positive enterprise of EBITDA at sales of index of 50% to 55% of 29 King levels.
And finally, and perhaps most important we demonstrated the resilience of the B of the brand and the pent up demand that it exists among our gas sort of.
Return to Dave and Busters unique venues.
When they do.
They'll be greeted by on inspire team.
Of fresh new menu, a more customer centric experience and the good clean fun that come to expect from Dave and Busters.
I continue to be very proud of and inspired by our team for their commitment and teamwork in the face of difficult and ever fluctuating condition. Each member of the Dnbi. The team is contributing their unique skills.
To drive our success, while setting us up for a better future and for that I am extremely grateful.
We will get through this together, we're going to come out on the other side and we will thrive again in 2021.
No actually we'd like to open up of the call for questions.
Of course, thank you.
If you would like to ask a question. Please signal by pressing star of one on your telephone keypad, if you're using a speaker phone net things to make share on mute function is turned off kind of like your signal to reach our equipment.
Again, it is star one if you would like to ask a question.
If your question has been answered please press star two.
And we'll go ahead and take our first question.
From Jake Bartlett from Cialis Securities. Please go ahead.
Great. Thanks for taking the question on your body.
Hi, My first is on the celebration of of the same stores sales snort actually really focusing in on the on the stores of the ER remain opened in the comp base on the deceleration of quarter to date from late October.
Just aggregate what the impact has been from on your on stores that have not.
Had any change in restrictions.
I'm trying to you know just seems mathematical obviously per subscription to reimpose, but within the stores that have not thinking stores and in Florida, and you gave us such great detail I'm doing the debt from mid October you have markets that you know that have not been directly affected by it because of those also decelerated fairly meaningfully.
Yes, there is a relative question Jay hope, you're doing well by the way.
He was really on the yeah.
Thank you.
The deceleration we've seen in November is that broad. So you know restrictions themselves. If we're still out but you know have not really of created a big headwind and performance.
Operating hours a little bit.
Half of your sections of sorts of things.
Usually don't impact us the life and work on the casual diners, because we have big facilities.
On a lot of capacity and a lot of us on used selling certainly over the weekend and many operating hours. So that's not particularly the headwind there. So the decline that we have seen in November.
I have been in virtually every market. So there's definitely of co that overhang now you know in most markets from Florida as if you look of the data we put out on the web site.
I'm showing.
Several of the trends by stake virtually every space defining and in November. So I think got it you know you're still you're seeing you're seeing some reluctance or I guess to to get out really nationally right now.
Great, Okay, but that that makes less sense.
My next question is just on on the work of you're doing with your initiatives around the menu and around some of the operational improvements when you. When you look out into the future of maybe to a year a couple of years a few of the when you regain your sales channel.
More efficient do you think you'd be and I'm not sure. How you know what the best way to frame that is some some piece of talked about.
We would need 90% of our sales through to achieve the same level of profitability or something something like that so it was on what you can frame.
How how we should think about these the more efficient model coming out of Kobe, just it's really the extent of it's going to be more efficient.
Yeah, I mean have August we've learned a lot of things you know we've been really scrappy over the last months in terms of labor and in some ways of lot of initiatives. We're talking about you know tablets and what we're trying to do with self service or I never really driving what's happening today I mean were.
This is just.
Great and on the part of our operators and they're doing a fantastic job and being very nimble in terms of how we're scheduling.
Up and down the you know look little the PML and particularly later so.
<unk>.
We are definitely you know getting some efficiencies by buyer.
Our operating calendar you know, we're not operating on five hours a week. So some of the on some.
Some of the periods, where are we know our lack sufficient sort of left less revenue you know thats helpful. Right now and we're going to continue to look at that our operating calendar as we move forward because it has been helpful and.
You know the initiatives, we're talking about at Margo is talking about are really more forward looking and are we you know we have sort of stuck on task. It make it would be very helpful to us but.
You know I think we've learned some things we don't anticipate that we're going to go back to of full par level on our management team yeah, exactly when we get back to our normal on sales level I think we.
From.
Of this stuff is going to stick if not all of them to stick.
And then it turns hourly labor you know, we're going to see some pressure on that.
As we get not nor any of the New York and California within those are higher cost of space for all.
And they're.
They're not on right now, but you know I.
Want to add anything Marta.
Okay.
Okay.
Okay, and just just lastly, I'm very helpful to see what the kind of the EBITDA of burn rate is on it.
November you know things are going to change your hearing in December as you talked about kind of on your view of basis being much lower just because of high volume weeks and months, but can you help us out on you.
Really from a free cash flow.
Total and that's kind of including your deferrals interest expense of what do you think but the EBITDA of might be but just trying to understand how you.
What kind of cash burn you expect in the fourth quarter, maybe it's a wide range, but I'm just just trying to get a better idea of that.
[laughter] Yeah, Jay this is Scott of.
I'll give you a little bit of color, yes, as we saw 'cause as of November numbers come in you know with EBITDA up you know.
GAAP revenue in dollar off so yes, as we kind of look of to pick out from a feel on our cash burn was you know the king three and a half from 4 million.
And you know so.
Yeah, We do expect you know natural to have a little bit higher cash burn and yeah. I think a couple of things to think about is you know our rent deferrals that we have out there.
You know so that will be a little bit of a drag on cash but the other thing is yeah, we're really having some pretty good success of paying down on deferred payables outside of rent you know I mentioned that you know that we should have of on 6 million of lane at the end of this year in day and I'm also the potential of another million dollars or 11.
On $1 of so from the of the Cures Act. So I think keep those things in mind, but just from an operational standpoint, and depending on what share you estimate of of of EBITDA is you know take that you know kind of example from November and I'm, hoping that kind of helps you kind of model of what we may see in the future.
Great. That's very helpful. I appreciate it.
Well take our next question from Jeff Farmer from on Gordon Haskett. Please go ahead.
Thank you very much I'm just curious if you guys can provide some color on the impact that what looks like a pretty significant drop in special event of large party bookings will have on your fiscal fourth quarter of sensor sales.
Well, it's kind of not as Scott said on his prepared remarks of Americans to really opened its going to you know it's going to have a pretty significant impact is getting out of December special events represent so a lot of 15% of our overall sales in the month of December that day.
As of.
Early on we will actually booking some events, we did a small team too.
And some of those like happy process things will be a little bit better with all of that benefit and you know so we're not we're not expecting out of a particular, Dave you know specials that are now under here over the course of of the holidays and.
So that's a that's a pretty big type on them as you as you know our overall.
Part of business for the full years around 10% of overall sales. So we're going to you know the indexes of we're talking about and we're disclosing pretty transparently here.
Those are generating those numbers in the face of space.
Special of the business isn't it because of the high single digits in terms of mix with really no business that headwind is going to get a little bit of fit with your customer.
Okay. That's helpful. And then you also I believe mentioned sort of the early entry into a third party delivery anything you can share with us in terms of how impactful that spend delivery sales mix and the stores on offer delivery.
Hi, this is margot.
Okay. That's why on so just starting with US we are an entertainment brands are but in terms of third party delivery. It's asking there was less off by graft and so it makes complete sense per active to enter into this inc.
Hey, and free we view it as being incremental work early day anyway, and so we've rolled it out in the number of we're talking of a better way of being library of write off of it we are.
We're working on additional gross concept because of the you feel like there's going to be an opportunity for active and that's in addition to expanding with promotion and marketing because you know again, it's going to be sort of need space where on it.
It's early for EPS are really comment on <unk> impact, but just recognize the fact that current for an experiential brands and now with his family and investing.
One of her after this is that incremental but probably not a game changing.
And then it at that.
Okay I appreciate it on just one final question and I believe you guys sort of the math works out to 15 stores out of enclosed in recent weeks and obviously you've outlined an expectation for potentially on some additional stores to close or with some of the intensifying mitigation efforts, but on the question is from where would you theoretically expense.
Those closures to take place from of state perspective.
Well, we have a couple of today and [laughter]. So.
Yeah, they're they're kind of funny.
You know certainly is all of that in terms of hours or even limited service, where they were coming.
Coming out of that.
Oh, Yes, we had a few of the airline.
There was a day now.
I think from northeast of mid Atlantic You know, we just know that fall and.
We have been buying from stores in the Midwest, but actually we are expecting to fall earlier and they haven't yet, but you know.
This is really hard to say you know I'm sure you know I, you know, where we feel like it's going to get a little worse.
It gets better and we're going to lose more stores.
Finally, we have today was on the cost to today. So yeah. We're.
We're going to see a third of doll back here.
I suspected [noise], you know that said I I.
You know again I'm not trying to minimize it but I do view this as a.
As you.
You know a temporary setback here and we're just I think the line of sight of for US is much better today.
Then you know when we were facing a roll back from shutdowns of the entire Brian back in March I mean.
You know there from.
A lot of optimism around of vaccine that's on the on the horizon here I don't think whats going on immediate immediate bang on nobody really does but you know, there's a brighter future and 2021.
I think a way forward to get our store base opened.
And in my view on.
You know when we get these on from the next time some of this stop start close activity that we've seen in dealing with over 2020 of which has been very difficult on I think we're pretty optimistic that you know when we get these stores opened again, we have of put a gift shop that they're going to stay on.
On and we're on a path to you know just a better days of what were sort of occurred just about as you know even with coated.
Still you know running color on the comfort that we hit or weaken up.
On total you know at.
The top quartile of as I said of 90% of that you know that's very unheard of Uh huh.
Really top of the stuff, we're going to bounce back of started at these stores opened yet to weather the winter here.
And.
And we're like I said, we're very hopeful for next year I appreciate that thank you guys.
Well take our next question of from.
Andrew Strelzik from BMO. Please go ahead.
Hi, Thanks for taking my question is on baboons doing well I'm curious about.
I'm curious what you're seeing in some of the stores there were farthest along in the sales recovery. So whether that's you know the 15 or 20 or so from the deck that you provided in mid October about you know, where you are 100% or close or maybe you know that the top Cortile day. We're at a 90 per cent sales index. If you could just kind of compare and contrast out of business law.
This is bill you know a year ago before the pandemic, where where the margins relative to year ago for those stores what did the demographics look like on what.
On the base business mix look like in any other color of nuances you can share would be helpful.
Wow, that's a lot of cost.
[laughter] is one of the over arching question [laughter].
[laughter] show you, though in terms of the stores that were performing.
Performing the best either of.
Over the course of pay that.
Okay.
This growth was.
It was.
On part [noise].
Florida on the southeast you never the space or form of the best for US you know on there those are the ones or get really getting close to 100% of what if you looked at on a website. So you know with what we had on in terms of the lean operating model.
So some of those stores are actually performing better than the word on 19, so yeah, that's sort of the good news.
In terms of what's happened recently with this resurgence.
All those are climbing here are dropping all sales levels across you know those day, it sort of health or of Florida.
South Carolina so.
Some of those locations, Georgia that were on the performance of well they dial back quite a bit of that and again, we think it's kept or it will be temporary but you know they're suffering right now.
And number of the other questions were.
Yeah that was most of them Oh, okay.
Demographics are you know where I think were most of your here you know what we're still seeing a little more of all little more mail. Thanks.
And then the family of start coming back of the stores opened for a lot on starting and then sort of settle back to upgrade their net free cash that Ford has got day initially when they opened it does look a little bit Brian.
Okay, Great. That's that's very helpful and then.
You know that the competitive environment competitive intrusion had had before Covidien you know very keep the growth for the business and.
You think of that kind of how that could change moving forward I'm, just curious of you've been able to kind of quantify.
Quantify or began on on kind of what you've seen so far from a closure perspective or how do you expect that to evolve as you kind of before it over the next couple of years.
[noise], so you're you're quite apologize if this was on closures here compared to GAAP.
It was.
Yes, we were tracking there are kind of the competitive set right now I think you are and many others in terms of what we're saying there's a mixed bag right now in terms of the competitive set we have you know some of the ones that weve talked about in recent years name of that and.
Cost of particular that are largely opened right now or.
And then there are others, where you know some of them are lots of close down so is that on a mixed bag.
You know my feeling is that you were all grappling with.
You know.
Store closures softer demand.
Dealing with liquidity issues and so might.
My feeling is that we're going to see yeah, we definitely saw a roll back on a decrease in the store openings certainly we did that others to that as well and I I think we're going to see a bit of of slowdown as people are really trying to concentrate on the core business. That's definitely what we're gonna do a we're going to concentrate our.
I have two recovering as a brand is getting our existing store, Dave we opened and driving profitability on the business and so that's what our focus is and I would expect but that's kind of be a bit of the focus here for some of these some of these other brands and I do think there's going to be.
On a shake out of a few and we've already seen some of that with a couple of our competitors and I do think its resurgence.
Research shows some of the coming soon signs you might see on the website I wouldn't be surprised to see on some delays and those in the pipeline.
You know, we're going to be very were in terms of going to be very measured about our store development pipeline. You had talk again concentrating on getting their store base of them, that's the clearest path or recover for us and.
I I I think we and I've said this before on these calls so.
You know on air Talkative of they have one of the best of operating models out there in this competitive space in terms of where you'd be margins. The terms on a free type of basis from.
I think that's every day really well right now.
During the day, I think better than we ever have in terms of being nimble and I'm not sure.
The entire competitive set you know has that same situation because of.
Most of those models I don't think were.
On a strong and that's all of those are committed to come of it. So you.
You know.
We're going to we're going to concentrate on what we're doing and we're going to do it. The best we can do on I think that's kind of position us really well.
Great. Thank you very much.
Well now take our next question from Andrew Bearish on premise of Jefferies. Please go ahead.
Hey, Thanks, guys I'm happy holidays.
So a little break they're coming up.
A couple of quick ones on just actually looking back on trying to understand a little bit of the ramp.
Yeah in that lead to that was a big on.
In the in the store sales index you know September.
From August 20 points on just trying to get a sense of on.
What was going on there is of the chain bids and in schools or was it just kind of a momentum of adding some more stores and having having additional ones opened it just seemed like a big jump.
Well I mean, we were saying I mean, if you just kind of rolled back to take from I think we have all that data out there, which I believe you.
Sure of ones, but.
We you know we would of the resurgence of happened in June and July you know, we bounced back pretty quickly on sharply there and then it was a pretty steady progression through the month of August you know moving on and then instead of tender we were back on air and on TV growth of first time.
Long time. So you know we came out with a new brand campaign launched that in September we were on air on say five weeks you know it was a meaningful investment. These were some some dollars that we were unable to cancel and it it actually was a perfect time for us because some of the fears of course of sizing up.
That time.
You know consumer appetite was improving and we have more stores opened it was sort of the perfect perfect combination of September more stores opened.
And we have dollars on put them to work you.
Right now were not yeah, we actually delayed and cancelled some plans we have for media here.
For the holiday season.
I'm really I'm looking to sort of say that powder for time, when you net kobe fears or actually on waning not increasing.
On their appetite for guests to get out is not something of swimming upstream on which I guess, what's happening right now but.
I think that was helpful Force in September.
Yeah, that's helpful on understanding that as well and then.
Secondly on the on the programming side of things.
As obviously, it's been difficult for fans to get out of the sporting events <unk> have you seen kind.
Kind of noticeable increases you know on those weekend sports football games et cetera, and how you're thinking about the Wow wall rollout in light of that as you look out of 21.
Yeah, I mean, we we performed well on those Dave you know Thursday's is going to go couple of horses of headwinds working for some of the prior year talk a little bit different way of re share often we're not we're not really discounting materially right now.
You know we don't have plans at this point to a further rollout you know why was that we get that that's what 50 of them Oh on out now you know our view of the Mona number one we're going to be a very conservative.
Conservative and cautious with capital in this environment.
We've got to go to work on building of programming muscle that's coming from you know, we we have a lot of assets here, yeah big facilities sports could be you know if we can improve on our sports offering of what we're doing around that from an experience standpoint, and you know we're going to be focused on that and then were looking.
To see what other things, we can do to drive frequency and the reason to visit within our stores of the programming engine is you know I'd say, we're running on you know a few still under current analysis of muscle that were kind of develop and get out but I think you know as an entertainment brand that is they're trying to get me on.
An arcade. This is a this is a natural fit for US you know just of sports on the natural fit for us.
Just thinking about how we can create offense.
And the reason to visit over the course of a calendar of course of them up from here. So yeah. Our SVP of entertainment kind of baucus is of that leading that charge.
They were in pretty early innings. There we're focused we're focused on sports here obviously.
The football season is tough lead here.
2020 is this the year I want to get out of the governor of but a little goes up the rate of.
But that's kind of look like.
[laughter].
Okay. Thanks of the a mix of the Coke.
Thank you Andy be safe.
Well now take our next question from Matt Chris All flow from Stifel. Please go ahead.
Hi, Good afternoon, guys Brian.
Brian, giving you guys have.
Seen stores go through one or two cycles of closing on reopening what factors do you think influence the strength of sales recovery when a story of things.
Well you know.
I think some of it fundamentally the market itself I mean, there there we are.
Yeah, we've definitely seen of stronger appetite for.
You know for our experience in the South East you know they of stores developed out basically pretty quickly and you know many of the sourcing stuff. He's got some of them actually works of passing prior year.
Of course a of I'm.
On that recent weeks, but so.
And I think some of the of some of the northern States and Midwest space has been a little more difficult for us.
I think from most of the underpinnings of of you know pay with fears and the particular market because we're really not running.
Maybe a different playbook when we opened so it's not on that so something we're doing differently in different markets a little more about you never consumer appetite I think and.
I think the good news is when you look at you know the cost recovery curve is out on the website at maturity for you from buying.
By and large the good news is they all have an upward trajectory of and you know we feel very confident that we're going to be able to get all of our space. When we get past the same back to a really good place some of them make of their quicker, but we're we're.
We're pretty darn off of that you know good example of that as well.
We opened California, we run up in there for more than three weeks, but yeah. They opened a shop those stores opened at a 30% index in the first week of operation that that's actually one of the highest opening week index as we had on any studies. So you know, we're we're really optimistic that people want to go.
Get back to where they pay a lot of that actually and we think that's going to happen everywhere potentially.
You guys mentioned increased labor costs in the fourth quarter to recall some key store leadership positions I'm trying to understand the sales level, you're anticipating and when do you expect to see that sales level to determine how many of those employees to recall.
Yeah, the only explain that a little bit of here you know we.
Really two pieces of this you know and.
A month or two ago with numbers.
Our total and of our because of.
In September actually early October we made the decision to bringing back.
Or.
<unk> core leadership team and our New York from California stores.
Those stores workers net 25% of our overall, so basically represent about 20% of our of our units and those.
First of all going on you know six seven months of being close and there's nothing more important for us right now than before.
Being able to ramp in our stores quickly and effectively.
So we bought back day, a small team in each of those stores to make sure. We put preserve our ability to reopen and walk you know when you're close of that long if.
If you have to start with a brand new leader 15, you in trouble.
That you know this is a win win the battle and lose the war kind of thing and we work on a day when that we work on a sort of in the Labour Bell and lose the war on being able to be opened so we brought those folks that a team of of those and then as we close.
15, net stores that Scott mentioned that but we are not planning to.
Of course, correct and to have a significant furlough at this time, we think this is temporary and we need to make sure that when the time comes the reality of which we think you know we're going to get some of these stores back on them. After the holidays and then you know, California, New York, we think of take longer until yeah.
One of our first quarter of next year early next year, we have to have on on that that's really important is imperative relative or we don't bounce back we don't recover and we're not going to save our way of profitability here. We've got a we've got out of sales you're going to be stores on.
I agree and then just one last one just with the addition of those positions being filled and ramping operations back up during the quarter and some of the investments you mentioned did you kind of provide an update to your EBITDA breakeven target at the enterprise level I think previously mentioned something like sales being out of.
When you 50, 45 50 per se it was breakeven so any new updates to that.
No we would with Robert from <unk>.
Sort of confirmed that in my prepared remarks today, our reaffirmed that you know we we have you know.
If you looked at October did on the we were pretty close to breakeven in the month of October just you know we were you got on EBITDA loss and sort of about $3 million and you can calculate that the look of what we've disposed of out there. So no new news here. So we were really.
Close in the month of October as I mentioned, you know a couple of cover index was you know we have of 68%.
Index for the in the late in the quarter and had about 75% of the chain opened.
So we feel really confident that when we get from 50 to 55, we're going to be on that you know of.
Enterprise level breakeven ahead of a member of profit of that.
I apologize index for the fourth quarter as well.
I'm sorry.
So I'm I'm in for future for the upcoming quarter not the third well is that we're not so no. We're as we said to you know we were close to it. So we're confirming that when we get the 50 55, we think would be profitable that's not going to happen in Q4, you know were Scott's ever.
We're seeing role that we were free we're scared and on October Onest.
We're seeing rollbacks and November so the topic of covered index going the wrong way on us and.
And more of the changes being more of the art store base is being shutdown right. Now. So we're we're going the wrong direction, it's got well with the copper from November through that.
Yeah for November is a figure of 69%, yes. So we've got an index of that.
But not close to getting to 55% of from [noise].
Ah 2019, so we got away from ago.
Oh, Okay. Thank you guys.
That's it.
I think one of the one of the way to think about expenses you know as you.
You know as we do get the ability to start reopening stores again I mean, we'll have you know some of this infrastructure on some of these people in place already in so it won't be you know kind of variable costs, adding on because we are you know taking care of some of the.
On some of the repair and maintenance and things like that and when a customer leadership being being here at least on that back but you know we have a pretty good base to build from.
And of all go ahead and take our next question from Brian Martin from Deutsche Bank. Please go ahead.
Hi, guys. Thanks, I know you touched on sports as an opportunity earlier, but I was curious does the legalization of sports betting across the country does that offer any opportunities to drive increased traffic to the stores over the long term or are you devoting any time or resources to exploring that.
Opportunity right now is it is there enough to.
Yeah short answer is no.
There is an opportunity and we are devoting resources to explore that where you are.
Kind of Baucus, who are sq feet of entertainment.
You know it is in discussions with a potential partner, we're deep into those discussions and.
You know we think it is a potential that for us on but I'll have any more to report on that right now, but hopefully as we hit our next call well out of a little bit more of a report out on that.
Okay, great. Thanks, and then earlier you you touched a bit on the competitive environment. Some of your competitors, but just in terms of your own unit growth coming out of the pandemic or use of same same kind of pushing devoting resources from the time that thinking about what the pipeline could look like for Dave and Busters.
Big Picture do you anticipate being a net unit grower on said once again when we when we get out of this time period.
You know sort of answer eventually.
You know because we you know if you look at this year you know we're gonna opened six stores, we were well on our way with virtually every one of those stores. So.
It makes sense that.
Wrap those up than many of capital remaining and we have one lot Green day.
Here in the fourth quarter, and I will take a subset.
You know as I look at 2021, and I don't know what our team has on the plate.
Our top priority is not be.
Opening new stores of the reopening of a significant portion of the chain and that's a sort of four Oh My view is that as you know the clearest quickest.
On a path to financial health and recover of for the Indian brand. So we you know we will be on de prioritizing new store growth and 2021, and we must prioritize.
The recovery on the reopening of the Brandon.
A lot of you know as long as some of these stores have been down.
Particularly California, New York, you know, we're coming up on a year. It feels a lot of like are we opened the right part of it.
You know on that is why we're bringing back a small core leadership team to make sure we preserve that ability, but there's still a lot of lifting to get hourly team members. There on up to do other things you have to rebuild of rebuild of stores. So that is our top priority.
Our view also is.
You know as we have gotten these stores backup and on really leading the way our bench strength is not what it once was.
We're operating stores right now.
A fraction of the prior team you know typically nine to 10 folks on where the average around five right now so our bench strength of actually from new stores.
As you.
You know been hurt by this right now and then we're going to watch liquidity you know, we want to see of better line of sight of.
On a of more of the store base of back on that on and we're back on a cost recovery path that is and a healthy like what we were seeing prior to this recent resurgence of.
It will be of time for acceleration.
I don't view that as 2021, you know we have a good solid pipeline right now in 2021 thing I read about flow locations that we.
We have under lease that we're working with our landlords on terms of the timing of those but so we you know we still view.
Of the U.S. of the great market for us of lot of potential we have some of our pipeline, but then there'll be possibly on a lot of coming up to in the current real estate environment. So you know we will pivot at some point of its not going to be the of it here early in the 21.
Thank you.
You bet.
Well now take our next question from Joshua long from type of Sandler. Please go ahead.
Great. Thanks for taking my question with everyone's doing well one of this more of a point of clarification I understand that some of the stores are closing back due to the restriction curious on what the opportunity is where if there is a need to revisit the idea of whats which of those closures would be not temporary but permanent in terms of just optimizing.
The overall portfolio.
Not for the good question.
I think the good news for us and I think.
We're maybe one of the few brands of I always say this you know we had.
A very healthy store base overall prior to kind of in our stores EBITDA positive.
And you know we have.
This environment, we now close two stores one of 'em in Chicago, one of Houston, We've made the Chicago call prior to kind of it you know older stores markets moved away from the location. It was profitable, but we have made up of surgery, just elected not to reopen it and then we closed Houston, which is our oldest store right.
Now or what are the stewards of fleet Oh, we got sister store five miles away closely now we'll use it just made sense, we expect it to be accretive.
Accretive because of transfer to other sister stores. So.
At this point you know we don't plan.
Kind of make maybe long term closure decisions on based on.
Short term results and the disruption that we're seeing and I think we're going to want to see how these stores recover and so we don't we don't rely.
We don't have plans to close any other stores at this time.
Understood and then my follow up question would be lots of interesting opportunities and initiatives about extending the brand into new channels, whether that's even third party delivery virtual brands and then about from some of that Kevin and his team are are quite busy on some different pieces of well as well, but curious on.
If you think about work from home being of a larger piece incrementally or relative to how consumers spent time pre pandemic is there an opportunity to extend the gaming piece that you guys have the leadership in as a category into mobile or into the home as well.
Is that something that makes sense and how do you think about you're kind of engaging with.
GAAP net core brand equity yeah, we're all going to be spending time and have our consumer.
Travel patterns of bit disrupted nursing endemic opportunity.
It's a it's a really good question you know are today, our focus is yeah.
In store experience show and I think we on a lot of opportunities to improve our lie there right now and that is where we're focused on so I can't say, we're actively looking at that at this point.
So I just think we have a lot of heavy lifting around.
On the the in store experience right now and Ah, that's where the team is focused on.
I will say that we have a lot on our plate right now and on a small team and I think we're I think we're focused on the right thing when you look at how people have responded of these markets how much they want to get back out of their house and not be in their home setting on around I think that's where we're going to focus our 10th.
Sure.
That makes sense. Thank you.
Well take our next question comes from Brian Vaccaro from Raymond James. Please go ahead.
Thank you and good evening because of the catch up with every one of the other was doing well.
I wanted to ask a question on the changes you're making to the net you and I understand you're adding the items that I think you said you expected to settle with around a third fewer items, but can you help us understand where some of the more meaningful reductions have Ben were there specific categories that were removed or will it be more sprinkled sort of throughout the net.
You just trying to understand how you view sort of that food and beverage experience and how that looks post coated versus where you were in 18 or 19.
Hi, This is mark so I'll start with Brian from Simon per absolutely, yes. The restarts one of the things that came out last day again, just day from Intrexon half of 570 menu you will see that we have down from.
Significant work with I mean, I know of on the category I kind of it every day and many of hacking attacks and really what the what the objective was to get him very feel very good that anything [laughter] well out of the GAAP, but.
Good day.
And so if he ft and at the flow roll out when we hit 28, either on we could still get down on that Eric I'm not from writing the income he has vote on that that is really tightly curated to from enable.
In April.
Our operational execution.
Brian you thinking okay.
Good.
Okay. That's helpful and on I guess shifting gears, a little bit, but trying to think about the more efficient labor model in a post close of world can you can you maybe expand and perhaps quantify some of the benefits you expect from the streamlined menu in the back of the house things like Pratt the net sort of thing also the kiosk.
And the server handheld how that'll impact the son of a house labor model.
Yeah, I think there's no we're still we're still working on working through that Brian I. You know if you look at kind of the numbers that weve put up and you know.
Architects of right across from me or Margo in terms of what the operators of but able to accomplish right now in terms of managing labor.
It's quite remarkable that you know we are having that kind of declines in sales, which will typically result on a second.
Significant de leveraging event and hours of labor that's not all variable. We have you know stores at a store and when we got gain tax free you know there's a.
Semi fixed of fixed element of some of that and you know we're running that very efficiently right now hourly labor you know sort of flattish if I recall sort of third quarter. So you know that's a really good outcome and you know.
Some of the things we're talking about of.
Some of the technology kiosk and mobile devices.
It will be helpful. But I think some of that stuff is going to be a lot more helpful and in terms of speed and execution for from against you know.
On a little less necessarily about you know efficiency I think where we're winning the battle right now as you know, we're just being very.
Total and were not going to be able to keep all of this on how we're scheduling of peak ER and it's up and down essentially every job code.
Within our other day for from front of house back of house to front desk of win.
Gain tax and being very nimble and off peak.
So you know we're going to try to carry on because much of that that we feel is appropriate that doesn't.
Day.
Damage to the guest experience and you know I think we're going to add from stuff back eventually for sure. It but you know I think you know, we're and I'm I'm I'm going to stop because were not going on we're not going to get it sort of guidance on you know how many bips, we think we're going to get from 2020.
On a 21 right now on or any of that stuff to share it on her.
And are you thinking about on the on the manager side correct me, if I'm wrong, but I think the historical structure was a general manager and maybe 10 two ish.
Managers throughout the year net on average.
Please correct me if that's not right.
It'll be silly, but what might that structure look like are you thinking about changing the mix of salaried versus hourly managers, maybe team leader type positions. Just just trying to get a sense of how you think that might that set of that in a postcode world whatever sales recovered towards.
A normal level.
Hi, This is mark out of it sounds like on my friend. So one of the one of the things happen as anywhere out in <unk> and <unk>.
It is pretty sad to see opportunity per active does that every single thing that we have.
And so when you look at the savings the savings of not happened on that.
We haven't they really like it.
Great. Thanks.
And that store and evaluated whether or not we will keep it on whether or not we will permanently eliminated and so you will definitely see that at the management Dr. Jay.
Certainly our everything all of you know why not on that is going on in the door and so when we talk about [laughter].
Saying from any and frankly in 2020 weren't it's impossible to take the learnings that we had this year and not just from us on because you learn and so what we're doing is trying to make sure that we are lapping the efficiencies that are truly said, he's just sort of be without diminishing any.
I think I think Dan.
In terms of the newness net structure of course, we'll be investing on.
Yes, if we're lucky that day hourly animal [laughter].
Hey, good thing when to make sure that behavior of the areas that are against me and net worth giving it away and I think.
So that's what you can expect that is financing.
All right. That's really helpful. Last one just from me I'm thinking about the sales index and the next couple of months kit can you remind us in a normal year, how much higher our sales volume on your average weekly sales in December of versus the shoulder months and I'll pass it along thank you.
I don't have weighted I don't have that yeah, then and then if you had much higher by far our largest yeah. It's a good question Brian view on on the sender in March of really our two biggest mountain.
If you look at December I mean versus kind of an average weekly sales across the entire year.
Dave runs about 50% higher than that.
Okay, great. Thank you.
So.
And we have no further questions and I will pass it back over to our speakers for any additional of closing remark.
Okay. Thank you Alex.
Well guys. Thank you for joining our call day, we wish you on your families are safe and healthy holiday season, and we look forward to see any of that it'd be the patient really standard here so have a great night.
And with that that does conclude today's call. Thank you for your participation you may now disconnect.
[laughter].
[noise].