Q3 2021 Dave & Buster's Entertainment Inc Earnings Call
Good afternoon, everyone and welcome to the Dave <unk> Buster's Entertainment incorporated third quarter 2021 earnings results Conference call Today's conference is being recorded.
Now I would like to turn the conference over to Scott Bowman, Chief Financial Officer for opening remarks. Please go ahead.
Thank you Keith and thank you all for joining US today joining me on today's call are Kevin Sheehan interim Chief Executive Officer, and Margo Manning Chief operating officer. After our prepared comments, we'll be happy to take your questions. This call is being recorded on behalf of Dave <unk> Buster's Entertainment incorporated and is copyrighted.
Before we begin our discussion on the company results I'd like to call your attention to the fact that in our remarks and our responses to questions certain items may be discussed which are not entirely based on historical facts.
Many of these items should be considered forward looking statements related to future events within the meaning of the private Securities Litigation Reform Act of 1990 thought at.
All such forward looking statements are subject to risks and uncertainties, which could cause actual results to differ from those anticipated informing.
Information on the various risk factors and uncertainties have been published in our filings with the SEC, which are available on our website.
In addition, our remarks today will include references to financial measures that are not defined under generally accepted accounting principles.
You should review the reconciliation of each non-GAAP measure to the comparable GAAP results contained in our earnings announcement released this afternoon, which is also available on our website now I'll turn the call over to Kevin.
Yeah.
Thanks, Scott Good morning, everyone I'm.
I'm very excited to be in this new role here at Dave <unk> Buster's at the seminal point in our story.
We have an exceptional business model strong assets and a talented group of team members, who are delivering outstanding service and experiences to our guests.
We continue to add talented individuals to our organization as announced in a separate press release, we are welcoming Antonio east to our management team to fill the newly created role of SVP and head of International development brings outstanding experience and an impressive track record of growth.
<unk> businesses internationally, and we believe Antonio is the right person to take stages clusters to international markets.
Also stay tuned for news pending announcement on Scott's replacement.
Scott has been the consummate CFO and his efforts will be greatly.
I want to thank him on behalf of the board and the D&B team for his outstanding service.
As you know we have made great progress in reopening is building back sales, but we also know there is a lot more to do to unlock the substantial potential of this business.
I said in our press release, we are beginning a new phase of innovation growth and value creation here at Dave <unk> Buster's, Let me share with you what I mean.
We have a great brand with significant scale.
<unk> fleet of stores.
Stores in high traffic high volume destination trade areas.
Our intent is to optimize our current stores full potential and accelerate innovation to drive incremental traffic to our brands.
In order to accomplish this goal we are laser focused on organic growth.
This will be accomplished by optimizing the performance of our existing stores, while continuing to achieve best in class returns on our new stores.
With respect to organic growth, we will broaden our entertainment offerings to include more immersive sports viewing experiences, including improvements to the Watson environment and the addition of fantasy sports and E sports betting option as permitted.
We also see significant opportunity to drive traffic.
Off peak days and day parts, and we are evaluating a variety of initiatives to extract more value out of our existing stores. Finally, we will amplify our best in class arcade with this summer games rollout supported by a significant marketing campaign.
To help fuel organic growth, we will accelerate our refresh remodel program that will give our existing stores a fresh look and we are also evaluating relocation opportunities in some of our legacy markets, where we can open new more efficient stores and capitalize on higher.
Central locations.
Think of 175000 square foot store built 30 years ago. It is part of town that has become less optimal and replacing that store nearing the end of its lease term with possibly two strategically located new stores and more relevant parts of town that accelerate.
Gross broke in that market.
One plus one equals three.
Finally, we will continue to refine our store layouts sizes to optimize the market potential we are making significant progress in this area and recent results is showing much higher returns than anticipated. This will meaningfully expand our brands potential in coming years.
Excited about the future of this company, we have meaningful upside and as you can see from our third quarter results. We are in our way to realizing that potential at this time, Scott is going to cover our third quarter results and share some thoughts on our expectations for the fourth quarter after that our CFO.
<unk> will update you on our operations Scott.
Thanks, Kevin our third quarter results demonstrated our ability to drive significant improvement in profitability.
Relatively flat comp store sales compared with 2019.
Despite the COVID-19 related headwinds adjusted EBITDA increased 47% compared with the same period in 2019, which eclipses a 39% increase we experienced in the second quarter.
Obviously benefit from a higher mix of amusement leaner operating model and lower preopening expenses due to fewer new store openings.
Even with the headwinds from wage and commodity inflation, we have continued to grow margins.
Have offset these impacts through a more efficient labor model enabled by technology.
Menu price adjustments and more effective marketing investment.
Looking forward, we are poised for a store should return to a new level benefiting from the removal of Covid restrictions.
Total special events and the efforts of recent initiatives.
Our third quarter sales, we experienced a one 1% comp excluding the seven comp stores located in markets that had back seen mandates during the quarter.
Including all stores, we experienced a negative 0.4% comp and total growth at six 2% compared with 2019, reflecting softness due to the delta variant and associated masking vaccine mandates.
Our walk in sales continued to post strong comps at 6%, although our special events business continued to lag at negative 64% compared with 2019, which has been more significantly impacted by fewer corporate events.
By month, our overall comps were negative one 2% in August two 9% in September and two 2% in October excluding the southern comp stores located in markets that have vaccine mandates during the quarter we.
Regarding sales mix amusements, and other had a positive 12% comp and was 66% of our overall mix compared with 58% of our mix in 2019.
This was mainly due to the minimal discounting and a continued shift to higher denomination powered cars.
Food and beverage had a negative comp of 17% compared with 2019.
A portion of which was due to the special events business.
Adjusted EBITDA for the quarter was $68 2 million or 47% higher than the same period in 2019.
This reflects a 21, 5% adjusted EBITDA margin, which was nearly 600 basis points higher compared with the same period in 2019.
The improved performance was primarily driven by higher amusement snacks leverage on labor due to a more efficient model and lower marketing costs.
Net income of $10 6 million increased $10 1 million in the quarter compared to the 2019, resulting in EPS of 21 per diluted share.
These results generated positive operating cash flow in the quarter. Despite the semiannual interest payment on our senior secured notes.
You need a significant win redemption merchandise and the payout of our first half bonus plan, which as we explained previously was done because of the uncertain environment for this year.
We ended the quarter with $27 million in cash and zero outstanding on our revolving credit facility.
Total long term debt was $495 million at the end of the quarter consisting of our senior secured notes maturing in 2025.
During the quarter, we redeemed $55 million of our senior secured notes, which resulted in a $1 7 million expense to redeem the notes, but we'll save $4 2 million in annualized interest.
Subsequent to the end of the third quarter, we redeemed another 10% tranche of notes, bringing our balance of $440 million.
The second redemption will resolve and the same $1 7 million expense and $4 2 million annualized interest savings.
Turning to capital spending we invested a total of $23 million capital additions net of tenant allowances and opened one new store during the quarter.
In the fourth quarter, we plan to open one additional new store in Brooklyn, New York and relocate an existing store to finish the year with four new openings and one relocation.
Which will bring us to a 144 stores by the end of the fiscal year.
We are very pleased with third quarter results and the sound financial footing and we have established going into the final quarter of the year.
Turning to our outlook I would like to offer some insights for the fourth quarter of fiscal 2021.
Regarding sales trends our comp sales for the first five weeks have been three 5% compared with 2019, which continues to be negatively impacted by our special events business.
I'll walk in business is up 14% on the quarter to date basis, and we are encouraged by the strong start.
We expect continued softness in our special events business for the remainder of the quarter, which will be more impactful in December when we typically have a much higher penetration due to holiday parties.
Additionally, we will experience a negative impact due to a calendar shift and a key holiday period.
This year, both the Christmas and new year's holidays fall on a Friday Saturday compared with Tuesday Wednesday in 2019.
We estimate that this will result in a negative revenue impact of approximately $9 $5 million in the fourth quarter.
Including these impacts we expect fourth quarter comp sales to be slightly positive.
From an expense standpoint will have a higher investment in marketing as we invest more heavily in the holiday time period.
That commodity and wage inflation to be at or slightly above current levels.
We're all we expect adjusted EBITDA margin to increase by approximately 200 basis points compared with the same period in 2019.
From a capex perspective, we expect to invest approximately $100 million in 2021 net of tenant allowances with approximately 43% dedicated to new stores and improvements to existing stores, 14% for games and 43% for infrastructure upgrades and replacements.
In summary, our team continues to execute on our initiatives to drive organic growth improve profitability and produce significant cash flow from the business. We are pleased with our progress and are well positioned as we finish the year and look forward to 2022.
Now before I turn it over to Margo I'd, just like to say that it's been my pleasure and honor to work with Dave and Busters for the past two and a half years and I will take away. Many good memories and friendships for my time here.
The company has a truly outstanding team, which is at the heart of what makes it successful.
And with the plans in place I'm confident that the company will continue to be successful and I would like to wish the entire Dave investors team and the board of directors all the best in the future.
With that I'll turn it over to Marty thank.
Thank you Scott and good afternoon, everyone.
Can you provide some insights into the third quarter operating results and give you an update on our key initiatives we.
We continue to be laser focused on simplifying store operations executing at that rate.
Food offerings.
Our entertainment and refining our service model to drive sales and profitability.
Regarding our food offering we are excited by our seasonal differentiated limited time offers or winter limited time offer introducing new menu or are there certain sectors Black-and-blue flatbread kingdom barbecue shrimp, butternut squash ravioli and as Richard Applecart Olive garden to celebrate the holidays.
Okay.
Turning to our beverage menu, we are featuring limited time offers such as our peanut butter old fashion and Charles our packs and have refined our overall beverage offering with targeted enhancement that expand our menus rates and appeal will.
We will be launching a highly curated beverage venue this quarter that elevates the experience actually flavor profiles and improved relevancy in an effort to drive beverage sales.
Thank you, Sir and Q3 remarks, several paths to determine the entertainment FPL as programming.
He successfully Hartford, James Trivia night with great food drink and have expanded the test to a dozen or more markets.
We also set out to amplify because E&P profile experience.
With interactive hosted events regarding food entertaining gas before the game journey commercial break and at half time.
Activities and price giveaways have created a ton of energy in our test stores that has resonated with our guests.
Our Q2, and Q3 cash and returns that our guests have an appetite for new entertainment offerings. So we will continue to fine tune. These offerings with the goal of giving our guests more reasons to visit.
Progress Andrew past include twist murder mystery parties Bingo game says standup and Rob Knight and competitive karaoke nights.
Moving to our Q4 marketing campaign, we are very excited about our everyone's aware sweepstake promotion that began on November 15th this promotion gift gas you enter 100% chance of winning a prize.
The chance to win $250000.
Our free game play for life.
Guests are welcome to come back every day, beginning November 15th through January this summer and winter pricing once per day during this period.
During the first two weeks of the campaign, we've seen an encouraging result, with over 120000, new email address caster.
And maybe Andy rewards program, which is linked to the Dnb App launched on November eight and incentivize gas Hurricanes played similar to airline, Colorado that incentivized for miles flown that three tier status.
By playing games, well, if instead of unique rewards and benefits that deepen our connection with our brands.
It is early our loyalty guests have quickly embraced the concept of tackling and sort of challenges and we have already seen some promising guest engagement.
On the people front.
The labor market remains difficult and we have seen staffing challenges and a handful of our markets.
However, the third quarter typically brain seasonally low volume. So we saw less overall pressure in our store with regards to staffing.
We have ramped up our hiring efforts to attract the talented team members that we made for the busy holiday season.
The brand wide rollout of our new service model is complete and provides a more integrated and store guest experience.
Food service model combines tablets and mobile web platform to enable a completely contactless order pay experience. We are now leveraging insights from our guest feedback tool modality, yet to identify how we can further refine our service model. So that we continuously drive an improved guest experience.
To wrap up we recently completed our first employee engagement survey and over 18 months and I am pleased to report that according to Gallup our engagement levels are 24% higher than the current average for the U S workforce.
Our team is responsible for bringing the brand to life every day in our stores and we are proud at their high level of engagement.
Lastly, I want to thank the entire D. In the family for their commitment to our guest experience.
Our passion for the brand makes a meaningful difference.
Now, Kevin I'll hand, the call back over to you.
Thanks Margo.
As you have heard we are pleased with the results we delivered in the third quarter. Despite numerous headwinds, including vaccine mandates may ask requirements wage and labor pressures supply chain challenges still lagging special events business, we look forward to seeing a more normalized post COVID-19 environment.
Future SCE.
Each of these headwinds will become tailwind helping to further fuel our business.
As I said earlier, we have an exceptional business model strong assets and a talented team there is meaningful upside potential for this company and we are laser focused on driving that to reality R. A T.
<unk> is extremely excited about the prospects for 2022, and 2023 and well beyond.
Now, let's take your questions.
Ladies and gentlemen, if <unk> like to ask a question on the phone you may do so by pressing star one on your telephone keypad, if you're using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment.
Star one for questions, we'll pause a moment to assemble the phone queue.
Okay.
Our first question from Andy Barish with Jefferies. Please go ahead.
Hey, everyone. Good afternoon, let me get one in for Kevin and then maybe one for Brian Real quick just Kevin on beef.
Being involved in the business obviously closer.
Day in and day out what are you seeing that kind of gives you confidence from the.
The programs that we're putting in place.
Under the prior CEO and.
I assume international is going to be a focus going forward given the announcement today, but any other areas, we should be thinking about as you.
You occupy the interim CEO role.
Sure.
Let me start by saying Thanks for that question enables me to actually expand a little bit here.
As most of you know and let me start by saying this is my strength.
Going in and taking a fresh look at everything in determining the yard of the possible.
I'll just give you a perspective.
Perspective, so some of my past experiences. So I came to avis rent a car when it was employee <unk> business, we converted that and turned it into a very successful IPO and then a return years later to buy a second car rental brand budget and optimize that test result to our best result of leveraged.
One commercial brand with a leisure brand and as you can imagine taking advantage of all of the opportunities.
That transaction.
And another was Norwegian cruise line, where they wanted that brings of bankruptcy and we went onto the best in class.
Most recently at scientific games.
Overwhelmed with acquisitions and losing side of its core values.
His responsibilities to our shareholders to their shareholders towards driving operational improvement and market share improvement in realizing the substantial opportunity that was there.
Each experienced significantly increased organic growth improve margins and return on invested capital.
And outsized valuation improvements by the way.
We have a very similar situation here actually as you said expect having gone through a few years of having a very difficult time with organic growth and then moving into this period of Covid.
We need to spring back into action and boldly lead our brand.
To the optimal position so as you could imagine having been the chairman here I was able to glean and understanding a lot of what was going on and I saw what I believed were opportunities having been here for a couple of months. It's enabled me to clearly see.
The enormous opportunities that lie ahead.
And job one is the organic growth.
<unk> growth is job one is critical it's what we need to do each and every day and we have enormous number of opportunities.
And Mark mentioned a few.
In her part of the call on the broadening of the experience during the evening hours, but we also have huge opportunities. When you look at each and every day and every day part so we'll be focused on all of those opportunities.
As we talked about we also are going to benefit from the refresh and remodel I talked about some of these relocations, where we could take these big stores that are in parts of town that might've been optimal 30, 35 years ago, but maybe it is not the same today.
And taking that opportunity and moving it into a couple of different stores and more.
More prominent parts of town so.
Those are some of the opportunities, but when you get to.
Some of the bigger things that we alluded to sports viewing and we're working very hard on getting to.
An agreement on sports betting fantasy sports and to me there is a great opportunity there first because.
The economics that go along with that agreement, but the other parts of it and that's where the art is to make sure. We get the best result is in the promotional activities that we can create with the partner that we have.
In that agreement. So that's the second step and then the biggest part of this opportunity is if we are successful with that initiative, you're going to bring more people into the stores you will increased frequency and where you're really going to get the icing on the cake as Pete.
We will stay longer.
Additional beverage those maybe have another appetizer or some other food offering so.
I think about all of this so benefits that go along with that also other day parts just as examples late evening lounge.
So we have a good group of people that come in the evening time, having them stay a little bit longer maybe introducing a DJ or something to expand their experiences drive more traffic as people know about that opportunity we're looking at.
Thursday nights very seriously as our.
Our opportunity to get people starting to think about the weekends.
How we can get more traffic into the stores well on those on that evening, so lots of things going on and.
Just stay tuned for what we come out with is as the coming quarters come together.
Thanks, Kevin that's awesome I look forward to seeing a lot of that getting brought to life.
And then Brian just real quick on the on the margin guide for the <unk>. It's in line with.
You know kind of the the long term.
You know improvements that you've talked about.
Coming through the labor efficiencies and things like that but how are you.
Are you willing to share with us just how much you think the the.
Softness in special events, and just the holiday shift of nearly $10 billion in revenue as is impacting the margin.
Yes.
Certainly impacting comp store sales.
Softness in special events.
It's especially hard in the fourth quarter. The penetration is about double that of the other three quarters in general So it's about 15% of our total sales historically in 2019.
Three quarters, seven or 8%. So it does impact us more it is improving but it's just slower to improve than the walk in business. So we are encouraged.
With the walk in business and we do think that there's some kind of more informal get togethers that are coming in from a walk in the standpoint that is bolstering that business and so we are seeing that in our stores.
From a margin standpoint, as you look at the fourth quarter, a couple of things to think about there.
Don't expect us to expand the margin as much in Q4, yes part of it is the weakness in the special events business, but.
But also from a marketing standpoint, we are much more heavier and marketing in Q4 than Q3.
About $3 million more so that does have an impact and then when you think about just labor in general.
We'll be a little bit more fully staffed wage inflation will be slightly higher we think and then commodity cost, we think will impact that margin a bit as well in the fourth quarter relative to Q3.
The other thing I would just point out and as I alluded to this in the commentary, but you guys should think about the enormous benefit here that we're riding through this fourth quarter and we're going to have a solid quarter, but as you get into 2022 and.
As Scott mentioned were down 64% and special events and that's about just under 10% of our business.
Figure that growing back to its normalized size and that was 2019 levels. So that's the best of this provide a very nice opportunity for us if we if we do our job correctly in 2022, which we will.
Thanks, guys.
Okay.
Thanks, Andy.
Take our next question from Jake Bartlett with Truth Securities. Please go ahead.
Great. Thanks for taking the question.
My first one was just a clarification that I think I'm clear I just wanted to double check, but the guidance for slightly positive same store sales in the fourth quarter that includes the negative impact from the holiday shift the $9 5 million. So it truly would be reported as is slightly positive correct.
That's right Jay right, that's the power of what's really happening here.
Great and then and then the other question is just the visibility you have on the fourth quarter.
I know a lot of the business obviously comes during the holiday season.
You know I think 15% of the fourth quarter comp sales were in special events in 19.
And then so I presume a much larger percent maybe if you could share you know what what percentage of that is in let's.
See December but how much visibility do you have on that business you expect it to be down, but do you have visibility that you might not be down so much. It does seem like a lot to really make up from the Milwaukee inside the business. So any any clarity on what.
What you have in terms of visibility there would be helpful.
Sure Jay first off in the month of December special events typically based on 2019 numbers is about 20% of the business you've had.
And then from a visibility standpoint, we do have a fair amount of visibility as we see the bookings come in for that business.
And so as we look at our forecast we will look at those booking numbers and see how they are trending in that shapes the forecast that we have.
Okay. Okay, and then if you could go over some of the what is going to be driving the sales in the fourth quarter, maybe what you have now and what what's coming.
I think in terms of the new use minutes. Thank you.
We're planning the Transformers VR I'm not sure if that's still on track.
And then also.
The new kind of approach with marketing is much more.
Targeted windows during peak times, so when does the marketing window in the fourth quarter and how does the marketing waiting.
Fourth quarter of 'twenty, one compared to 19.
Yeah. So.
I'll start off with the marketing piece.
We started our marketing campaign in mid November.
And so that'll last you know towards the end of December and I think the takeaway here is you know.
Our our marketing windows are somewhat shorter than what we had in 2019, because 2019 was almost an always on scenario and we weren't able to go deep enough to really get that reach that we needed to and so what we're seeing by having any shorter windows is that we are able to increase our reach and we're seeing that effect.
Our results and so we're really encouraged on what we're seeing so far.
And we have a better marketing strategy and very creative and we see that coming through and so every campaign that we run and this is really only the second major campaign with new strategy.
We have takeaways and learnings that are really helping us and will continue to help us as we shape that that marketing strategies for next year.
Great and then my last question sorry.
I was just going to follow up on your questions about amusement.
And so amusement as we will have new.
A call a summer of games, you know kind of you.
For next year similar to what we did this year, where we'll roll out several new games.
A couple of VR titles, so transformers wont be out until the March timeframe, so it'll be ready for spring break.
And then we've talked about in the past our top gun VR attractions, which we're looking forward to with the delay of the movie we tap we've had to delay that that attraction.
It appears that the movie is on track to launch over the Memorial day weekend, and so we will time the roll out of our VR attractions.
Shortly after that movie so those those two VR attractions as well as several new games.
We're excited about will be part of the summer of games, and we think that that will give us some.
Some nice traction on our amusement and will be supported by some marketing as well.
Okay and then last question is really on the comments around Remodels and that's that's great. So we've rebuilt first of all on the Remodels.
Do you play in that to be I know you went through a pretty extensive.
Process I think it was from about 11 to 15 is that the kind of depth of the remodel that you expect going forward or is it much much less than that and trying to figure out how much how incremental you think it could be two to sales and then the question about the scrapes and I think the guidance for next year for 'twenty two is six to eight openings.
Or do those include some scraped and rebuilt so I guess I'm trying to make sure I understand what the net growth would be and you know it would be that we should expect in 'twenty two.
Sure.
From a from a remodel standpoint.
And so the.
The cost and the scope of those Remodels can vary you know we have what's called a refresh which is kind of a mini remodel, which you know refreshed with certain aspects of that of that building and then there's a more formal kind of a full remodel and yet the full remodel you know it could be $2 million plus and the refresh maybe a half a million.
And so as we look at our store base.
Our plan is no longer term even beyond 2022.
Is to think about that strategy more from a programmatic approach. So we have our 143 stores and you know we'll start to prioritize those stores in terms of what they need.
Refresh or a full remodel and what years is most.
Food and for each of those stores to fall into and so you know this this next year will be kind of the first year of that approach.
After we do a few of those Remodels will have a better sense of what that needs to be long term and what tweaks, we need to make to it.
But I think that is kind of the key things that you know you take away here is that it'll be a programmatic approach and we're going to start.
That journey next year and continue to remodel those stores and need.
Yes.
And then in terms of a number of them.
I was just going to add that that broker rheumatic approach is critically important and it's easy to fall away from some companies, but you have to stick to that and we said refresh stores every six to seven years, otherwise they start to age and I and I suspect. If you went through this a few.
Stores in our group that are not to the level that we need to be I know this will be the first ones to be attended to.
Great. Thanks, a lot.
Thank you we'll take our next question from Nicole Miller with Piper Sandler. Please go ahead.
Thank you good afternoon.
First question.
Food inflation are you seeing and are you able to use the menu you talked about today.
Example, as a way to optimize our or offset some of the commodity inflation.
Sure Nicole so right now we're seeing commodity inflation in the high single digits.
And so as we rolled out the new menu.
We are seeing some benefit of the new menu in terms of its structure and on cost.
So that is helping to offset that.
But we don't want to change the menu just because of commodity costs by themselves. We think we have a good menu. We're getting good response from our menu from our guests and so we're going to.
Any changes that we make to the menu would be the limited time offers.
The decrease driven by feedback from our guests.
But overall, we've been able to key commodity inflation and labor inflation.
We offset by work we've done on our D. In our operating model and you know some of the technology that we put in our stores to improve efficiencies.
Was there a menu price increase associated with the seasonal menu and how much prices in the system currently.
Not necessarily with the seasonal menu.
Did take some price.
You know kind of across the board for our menu up about 5%.
But seasonal items it is more of a.
You know a variety versus menu pricing.
<unk>.
And then just the last question on the special events space.
It's clear, it's a drag and we appreciate that.
It's obviously also the in versus its rebounding and so is it the local gas.
Gas is coming back or something on the business side and as you think about the opportunity to remodel is there something different you would do with that space over time.
So Nicole it's Margo so in terms of what we're seeing come back we certainly saw the special business come back earlier.
But the team is indicating through the holiday season that we're seeing activity on the corporate side as well.
And I think what you'll see in the upcoming year as our sales team that has been for an airframe positioned to go after corporate.
Corporate sales and.
Great thoughtful way so were very excited about the opportunity to bring this back falling ex here because we think it's gonna be.
Can be a strong addition.
And for Us.
And in terms of looking at the special in that space. It's interesting that you bring that up.
We have had conversations about how we kind of look at that space and how that may more flexible, particularly as we start to build out the program in the arm of what we're doing and so I don't have anything to share with you right now, but it is it is a thought that we are entertaining as it relates to how we can make that space being at ally.
<unk> more frequently and in a more broad way.
Yeah, I think the important thing there is it's not necessarily an either or.
Being flexible like Margo mentioned, we can still use it for special events, but when we're not using it for special events that opens up the opportunity for other uses.
Thanks again.
Sure.
We will take our next question from Brian Mullan with Deutsche Bank. Please go ahead.
Okay. Thank you.
And I'm, hoping you could provide some of your thoughts on the long term unit growth opportunity domestically you know on whether youre, taking a fresh look at that with you taking over I mean do you have a sense today of how many stores do you think the U S can support over the long term, maybe what's the right pace of growth that the organization can handle in a normalized environment, whilst while still driving.
You know consistent same store sales at the existing base of stores Yeah. There's a few pieces to that question. So let me let me cover the ones and then maybe Margo will jump in but you know as.
As we as we find yes these new.
Slightly smaller stores or significantly better returns and have a more optimal use of space you didn't say that.
New concept opens up a lot more markets for us to expand the brands. So we have plenty of room to grow for years and years to come.
The other part of the conversation that I think is hopefully everybody is focused on is these are big big unwieldy.
Aneel the locations that have been historically, you really good but has waned over time because of the locations and maybe the traffic patterns in the.
The market has changed where this center.
Attention is so taking some of those big stores and converting them into a couple of stores also expands the footprint. So there's plenty of opportunity I think we need to be thoughtful here, though.
And Scott talked a little bit about the opportunities that we have to re look at the the stores and the exciting factory in each and every store that we have across the system to make sure that when a guest comes back to a store that they feel they're refreshing experience that there's something new to make them.
This deal so we have a big opportunity that we're working on with the arrival experience.
Immerse them immediately into the experience something that I think is the big opportunity that is coming so so just stay tuned on that but.
But also the investment in the existing stores enables us to have a huge.
The increase.
Increase in if you look at it as these stores come back almost like new.
New and get a lot of people to come in and try it again and if we do it right.
Experienced good traffic and the demand in those markets. So that's all so I think we want to be balanced because.
I feel strongly that we need to make sure the existing stores are the right experience for our guests, but also keeping it since we generate so much cash flow, we still have the ability to build a number of stores each year that we have to be attentive to doing in balancing all of the cash.
Capital allocation across.
All the uses of cash to make sure we're being as thoughtful to our shareholders as possible.
And then the last part as you alluded to.
And it's a frustration that I don't want to blame anybody, but I think as an organization. We missed the point on this and we never put the right person or person in charge of it and when you don't have an owner you're never going to get anywhere and I think we overly complex complicated the way we were going to market in the USA.
It's a very seamless way is getting this gone with franchise models as stated franchise agreements.
And I think when we get this running it'll it'll be very very successful if I get calls and a lot of us are getting calls about hey, we need a store here or we need a store. They are all around the globe and you can think of the markets that make a lot of sense, so getting our footprint in Nash and getting that sorry, it's not going to turn into economics in 2022.
<unk> or even into 2023, but if he comes to see that we plan for 'twenty four 'twenty five and on and on and then when you look at that out 45678 years. It starts to incrementally help our topline growth rate and can be you know a few percent of growth.
On the top line so you know.
When you look at our business you have to look at the 20 different opportunities to grow our revenue.
Revenue and it's not only you know organic or just not only new stores, but it's doing a better job in each and every opportunity.
Hope I answered that okay.
Yeah.
Yes that was great color. Thank you and then just as a follow up you know it was it was encouraging to see the share repurchase authorization can you just talk about how you plan to approach deploying that do you expect to be more programmatic in nature, perhaps more opportunistic.
Is there a target leverage ratio investors should be mindful of is as you think about managing your capital allocation from here.
Yeah, Let me, let me start that and Scott I'm sure has some points of view on that so you know.
Our leverage where we finish the year as you know.
It's almost a hedge mark.
I think its one times, so where does that the long end and what is we have a responsibility to our shareholders to drive value to them and that is what I want to make sure each node and what I'm doing actually making sure each and every one of our leaders understand until we come to the office every day trying to create value.
Two two for the reasons that we have the benefit of having jobs. It's our responsibility. So when you look at the allocation of cash and as we talked about the number of stores that we're building and I think that's a full complement in 2022, and we talked about the investment in the.
Existing stores.
He is investing in new games, and the maintenance et cetera, we still have an enormous amount of cash is going to sit on our balance sheet and what do you do earn two basis points in the bank or do you do something smart for our shareholders and when you have a investment sentiment right now and I'm sure for a variety of reason.
Including where managed <unk> looked at in the in the pecking order of industries, we're trading at a very low multiple and it's incumbent on us to to return the appropriate.
Balance of capital back to our shareholders as the business allows so I mean, we're not going to be reckless here, we're going to be prudent we want to be able to see a lot more visibility in the marketplace and how the environment improves but once we have some confidence in that it makes sense for us to be thoughtful about buying shares for our shareholders.
And brings down our share count.
Yeah. So we will continue to.
Monitor trends and you know we want to be opportunistic you know what we think that we are undervalued.
We.
That's pretty close to the business and we you know we think that's the case and so.
We wanted to have that flexibility you know to get back into the market at some point when the time is right.
As far as the leverage ratio and we don't have a specific target right. Now we are very happy with the lower leverage ratio, we've been able to attain.
But longer term it really depends on the opportunities in front of US you know whether that be internal investments, whether that'd be buybacks and things like that we'll balance those needs in those opportunities.
Against our leverage.
And that will that will help US you know kind of formed more of a definite leverage target.
In the future.
Okay. Thank you both.
Sure.
We will take our next question from Jeff Farmer with Gordon Haskett. Please go ahead.
Great. Thank you.
You guys were to theoretically pursue a sports betting partnership.
What would the next steps include a what would you guys ended up testing this in a few markets for several quarters.
Basically the question is how quickly could you move forward with sports betting if you decided to pull that trigger.
I think oh.
What's your answers to that question because you wanted to make sure that we develop the right relationship and we're talking to a couple of a prominent.
The players in that in that field and when we get that deal done you want to make sure. This is a deep partnership because we can both benefit by having a deep relationship. So that's part of the process that we're going through currently and then once you get that that fuel done then you start to roll it out.
And as you're right you're going to focus more on the states with sports betting already in place and test the concepts and constructs over a course of a couple of quarters and then I see is quickly moving out across the brands at least with the sports fantasy any opportunities to.
To talk about what our capabilities are.
Okay, and then unrelated just in terms of what you've seen as a as a concept over the last several quarters going back to 2020 in terms of rising and falling Covid case numbers and even Covid case headlines.
What does that impact then on your customer traffic trends sort of where we've gotten to know when people are some of your customers Redeveloped omicron or see headlines about omicron.
What's been the impact on traffic for your business.
We haven't really seen a big impact to our traffic with the omicron variance at this point.
You know as I've mentioned at the outset, our walk in business continues to be very strong.
And so we haven't really seen a big impact there I think our special events business with or without <unk>, we expected that to be softer for the fourth quarter.
But we're very encouraged by the strength of the walk in business.
Okay and then just final question along those lines, a nice sequential improvement quarter Q4 quarter to date in terms of the same store sales performance versus 2019 is there any specific driver initiative that you'd point to in terms of what drove that sequential improvement.
I would point to a couple of things you know, we rolled out our new loyalty program and our marketing campaign. So our marketing campaign started in the mid November timeframe and similar to the summer marketing campaign, we've seen some lift in our business.
We.
We think that at least part of that is due to the market based on some of the testing that we've done and some of the analysis that we've done.
I hesitate to say that it's all due to that because of our many variables, but we're seeing some good trends here.
This cut.
Condensed marketing period with more heavy heavier waiting and so we think that is definitely playing a part here and we look forward to continuing to refine refine that strategy.
Alright, thank you.
Sure.
We will take our next question from Andrew <unk>.
With BMO. Please go ahead.
Great. Thanks for taking the question my first one Kevin in excuse.
Excuse me the first answer in the Q&A that you gave when you went through some of your prior experience as you mentioned.
Private times, when you've grown the sales and margins and obviously, there's been a lot of focus on the topline side. So far in terms of the strategy, but I'm curious on the margin potential and how you're thinking about the margin potential of the business. Obviously, Scott has outlined 200 basis points or so of structural improvement, but do you think that there is over time.
You know more upside there and there's some of that can be tied to the sales volumes as well, but just separate of that I'm. Just curious how you're thinking about the margin potential of the business going forward.
Yes, I think a little bit of that is it's a good question a little bit of that though is going to be subject to market conditions.
We get a little bit of an improvement back from the labor situation.
The commodity costs come back a little bit is it to reality.
So much noise says, you know and getting goods and services.
Services today, I do think things stabilize at some point next year.
That coupled with I think part of the thing from.
From my experience is when you have a fresh look at things you do step back in and we've got the initiatives that we're looking at right now.
How are we doing it.
We lean in the way we were doing it or are we going to market as smart as possible.
The team has done a tremendous job Margo and her team of upbringing technology.
Acknowledging solutions too.
Bringing efficiencies to the head count and the labor cost so I think a continuation of that.
If we are successful on the organic initiatives I see that the margin should be at least as good as it is and maybe we start to benefit as we get some future.
From the market.
Normalizing and from all the initiatives that we're working on behind the scenes.
Okay.
Okay. That's helpful. And then obviously the 14% I believe it was.
Comp growth on the walk inside I know those are quarter to date number. So maybe you don't want to speak to that but just more broadly.
I remember you were seeing pretty significant check growth and so I'm curious how that has continued to evolve and how much do you think could be sustainable or you would hang onto kind of as we roll forward into next year.
We're still seeing significant growth in check, especially in amusement.
Talked on prior calls that our per cap on amusement has been close to 30% and it's been very consistent it it's still in that range and so.
We feel like there is staying power you know with that that higher ticket, especially in EMEA.
For the remainder of the quarter and then we'll see and kind of reassess as we get into 2022.
Okay and then my last question is just on G&A, which was a bit higher than we anticipated for the quarter was there anything there.
In there to kind of call out or is that a reasonable kind of run rate for <unk> and moving forward just curious for any color on that would be great. Thanks.
Sure. There is a couple of things to note and in our G&A costs. One is that there was about $2 7 million in additional severance costs.
We had.
About one 4 million additional in bonus and about two.
2 million additional and in stock based comps, so that really kind of bridges the gap between this year and in 2019.
Yeah.
Perfect. Thank you very much and Scott just wanted to wish you all the best in your next chapter.
I appreciate it thank you.
Yeah.
And we'll take our last question of the day from Alex <unk> with William Blair. Please go ahead.
Hey, guys. Thanks for taking the questions.
Just start with one quick one thanks for the color on the on the monthly comps in the quarter could you maybe talk about per account per card spend and how that has held up.
Probe card spend has held up very nicely for us.
Still is about 30% higher than 2019, and so we're very encouraged by the consistency that we've seen there and yes.
That does give us some confidence that we feel it has some staying power for the remainder of the quarter.
Yeah.
Okay, great. Thanks, and then.
On the recent announcement with Antonio taking over our international how are you guys planning to frame up that opportunity there maybe in size. If you can and then how quickly do you guys expect to reach any partner agreements there.
Yeah. So it's a little early it doesn't start until January one, but he say.
He said go get our.
That was one of the things that attracted me to him.
He is going to like a fuller as China's shopping and getting stuff done, which I think we need to do in getting this off the ground, but to be realistic you know 20.
<unk> 22, and 'twenty three are investment years in getting the context, starting to develop the relationships getting agreements in place and are selecting.
Selecting.
Partners et cetera, so youre not going to see EBITDA from that until 'twenty five and then it starts to ramp up from 25 to say 2030 to the point where its the.
Good sized number.
And when I look at it based on my experience I see it as being in it.
<unk> business model and.
We're gonna be aggressively moving on that once he starts in January.
Alright, great. Thanks, I appreciate that.
Ladies and gentlemen, this does conclude today's question and answer session I would like to turn the conference back to your speakers for any additional or closing remarks.
Hey, guys. Just thanks, everybody for taking the time to listen to us and and I. Just ask you to stay tuned we've got less happening. We're really excited we got a huge opportunity here and just.
Just.
Stay tuned thanks, so much for the call and happy holidays everybody.
Ladies and gentlemen. This concludes today's conference. We appreciate your participation you may now disconnect.
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