Q2 2022 Dave & Buster's Entertainment Inc Earnings Call
Good afternoon, and welcome to Dave and Busters second quarter 2022 earnings Conference call.
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After todays presentation, there will be an opportunity to ask questions.
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I would now like to turn the conference over to Michael Core Terry. Please go ahead.
Thank you Andrea and thank you all for joining US today joining me on today's call is Chris Morris Chief Executive Officer.
After our prepared comments, we will 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's results I'd like to call to 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.
Any of these items should be considered forward looking statements relating to future events within the meaning of the private Securities Litigation Reform Act of $19 95.
All such forward looking statements are subject to risks and uncertainties, which could cause actual results to differ from those anticipated.
Information on 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.
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.
Also pro forma financials, including main event for the prior fiscal year and the current six months ended July 31, 2022 is available on form 8-K filed with the SEC and available on our website now I'll turn the call over to Chris.
Okay. Thank you Mike good morning, everyone or good afternoon, rather we are pleased to report solid financial results as well as strong operational progress during the quarter as we brought together the Dave <unk> Busters that main event organizations.
As noted in our press release, we reported record quarter revenue and record second quarter. Adjusted EBITDA. This period, we experienced strong guest visitation and spending across both brands. This quarter. Our teams continued to deliver high levels of service to our guests while simultaneously beginning the process of the integration into one company.
I want to recognize the efforts of our combined team as we work to capture the synergies from our combination and adopt best practices across our brands.
While we saw a substantial headwinds during the quarter from wage and commodity inflation. We remained focused on driving revenue and strong cash flow, while aggressively working to mitigate inflationary pressures with operational efficiencies and appropriate pricing actions.
We have significant upside potential and with our continued focus on innovation growth and value creation, we are determined to deliver on that potential.
We are excited about the future of this new organization and look forward to sharing our progress in the coming quarters.
Okay now let me share with you my impressions from the first 60 days as CEO of the company.
My thoughts on the current environment and a few of our near term strategic priorities Mike.
My primary focus so far has been centered on three near term priorities first performing a deep dive into our store operations second getting in and understanding of our guests and third driving the integration of our combined companies to establish a winning culture.
Tony <unk>, our Chief operating officer, and I, just completed our field listening tour, we held meetings with over 300 team members met with every general manager and sales manager within the data investors brand and visited over 30 stores.
This tour enabled us to gain a hands on understanding of our operations and to hear directly from our front lines about our challenges and more importantly, our opportunities.
I'm delighted to report that we have a passionate group of team members, who are dedicated and eager to serve our guests and propel our leadership position in our category.
We are working diligently to gain insights into our guest supported by data and analytics to understand their desires and expectations to better align our product offerings and enhance our position in the market for both Dave and Busters and main event.
Our merger integration is off to a terrific start.
We are ahead of schedule on our key timelines, we've already implemented over $11 5 million of annualized synergies to date and increased our target from 20 million to $25 million.
We have combined our corporate offices under one roof and the team is aligned and focused on delivering exceptional results.
As our teams continue to come together and gel we are capturing synergy opportunities implementing best in class operating initiatives and leveraging the scale of our combined operations.
As we look further into the future the senior leadership team will be taking the next few months to build our long term strategic plan based on the output of our in depth work.
After our board approves our mid range plan, we plan to host an investor and analyst day in Dallas likely in late Q1 next year, where you'll have a chance to meet the entire senior leadership team and hear more about our plans to grow this business.
Now, let me touch upon recent trends and near term operating initiatives.
Our second quarter results clearly demonstrate the guests continue to visit and spend at a higher level than previously seen in either 2021 and 2019.
While our special events business has yet to fully recover to pre COVID-19 levels, we are seeing meaningful improvement in booking trends and im optimistic optimistic that the comparisons will turn positive in the back half of this year.
We are confident that gas will continue to visit our stores as we improve our offerings.
Increases the level of service and refresh our physical footprint where needed.
While we still expect to see higher levels of inflation over the next few quarters. We have worked and will continue to work on offsetting these additional cost pressures, primarily in labor and commodities as well as with synergies from the acquisition and other cost savings initiatives.
In the near term we are focused on a number of key initiatives.
First we are gearing up for a strong holiday banquet season in the fourth quarter. Our special event sales teams are focused and our operators are ready to execute.
Second today, we launched our National where winter is watch football campaign, featuring Kansas City Chiefs, Great Travis Kelsey.
This national Media campaign includes a national partnership with ESPN and include spots airing on Espn's Sunday NFL Countdown NFL Live College Gameday College football games.
<unk> center and more.
The campaign also includes a digital and social platforms like CTV Youtube tick Tock and Twitter ended and is designed to drive awareness of Dave <unk> Buster's as a great football viewing destination.
We are also taking steps to strengthen our brand identities and on honing, our customer communications and value propositions.
An example of this would be our D&B rewards program, which continues to grow now surpassing 4 million members since its launch in November 2021.
Year to date loyalty accounts for higher visitations.
Loyalty loyalty members visit two times per card non loyalty members visit one three per card.
And they have a higher average guest check 33% higher than non members.
Our loyalty members make up 5% of sales year to date and we are just getting started.
Equally exciting is that our guests love using the D&B rewards.
As you can see we have significant upside potential and with our continued focus on innovation growth and value creation, we can deliver on that potential.
It should come as no surprise that I'm extremely excited about the future of this company. We are optimistic about the state of our business and look forward to sharing our ongoing progress in the coming quarters.
At this time, Mike is going to cover our second quarter results. After that I will return with some concluding comments Mike.
As Chris noted, we delivered record revenue and adjusted EBITDA in the second quarter. Despite continued headwinds in the economy.
We continue to benefit from a higher mix of amusement and a leaner operating model.
While we are still experiencing pressures from wage and commodity inflation. We are working to offset these cost pressures through operational efficiencies continued emphasis on achieving our synergy target and thoughtful pricing actions.
We reported record quarterly revenue of $468 4 million, an increase of 35, 9% from the second quarter of 2019, and an increase of 24% from the second quarter of 2021.
Main event branded stores contributed $51 4 million of revenue during the quarter.
<unk> store sales that Dave and Busters branded stores increased nine 6% compared to the second quarter of 2019.
Walk in comparable store sales at Dave <unk>, Buster's increased 13%, while the special event comparable store sales declined 23, 1% compared with the same period in 2019.
But on a quarter sequential basis improved 11, five percentage points compared to Q1 of 2022.
Comparable store sales at main event branded stores for the period from June 29 2022.
Through the end of the second quarter.
Increased 29, 7% compared to the same period in 2019.
<unk> comparable store sales at main event increased 34, 9%, while special event comparable store sales declined one 4% compared to the same period in 2019.
Operating income totaled $56 5 million or 12, 1% of revenue compared with operating income of $79 2 million or 21% of revenue in the second quarter of 'twenty, one and operating income of $46 2 million or 13, 4% of revenue.
In the second quarter of 90.
Operating income during the second quarter of 2002 was negatively impacted by transaction costs related to the acquisition of main event.
Increases in Preopening and stock based compensation expenses.
And an impairment charge related to the closure of the main event corporate office in conjunction with our office consolidation.
These increases as compared with the second quarter of 'twenty. One total of $19 5 million all of which is included as an add back to our adjusted EBITDA.
Net income totaled $29 1 million or <unk> 59 per diluted share compared with net income of $52 8 million or $1 seven per diluted share in the second quarter of 'twenty, one and net income of $32 4 million or <unk> 90 per diluted share in the.
Second quarter of 19.
We reported second quarter, adjusted EBITDA of $119 6 million or 25, 5% of revenue.
Which is an increase of 39% versus the second quarter of 19, and a slight increase from the second quarter of 'twenty one.
Adjusted EBITDA in the second quarter of 2019 was $86 million or 25% of revenue and.
And adjusted EBITDA in the second quarter of 'twenty, one was $119 2 million or 31, 6% of revenue.
We generated $84 5 million in operating cash flow during the second quarter.
We ended the quarter with $591 8 million of liquidity, which consisted of a $100 4 million of cash and a 100 or sorry, $491 4 million of availability under our new $500 million revolving credit facility.
During the second quarter of 'twenty, two we repurchased 764988 shares for a total of $25 million under our board authorized $100 million repurchase program.
Turning to capital spending we invested a total of $59 9 million in capital additions net of tenant allowances and opened four new stores during the quarter.
Three Dave and Busters, and Brooklyn, New York, Modesto, California, and Augusta, Georgia, and one main event in Brownsville, Texas.
We plan to open four additional new Dave <unk> Busters branded stores and two main event branded stores in the back half of fiscal 'twenty two.
Looking ahead to fiscal 'twenty three we plan to open 15 to 17, new stores, including 11% to 12, Dave and Busters and 4% to five main events.
Finally, let me update you on our comparable store sales for the first five weeks of the third quarter.
Consolidated comparable store sales have increased 22, 1% compared to the same period in 2019 with increases at Dave <unk> Busters branded stores at 17, 6%.
42, 3% at main event branded stores.
Consolidated walk in comparable store sales increased 24, 7%, while special event comparable store sales declined four 2% for the five week period compared to 2019.
As Dave and Busters branded stores.
<unk> comparable store sales increased 20%, while special event comparable store sales declined 11, 9% for the five week period compared to 2019.
At main event branded stores walk in comparable store sales increased 49, or sorry 48, 9%.
While the special event comparable store sales increased nine 3% for the five week period compared to 2019.
I'll conclude by saying that we remain optimistic about our business, we recognize the macroeconomic factors facing everyone today.
We remain focused on our continuous improvement philosophy.
Closely watching costs and capital spending to ensure we deliver the highest returns possible for our shareholders.
In summary, our team continues to execute on our initiatives to drive organic growth.
Improved profitability integrate our operations and produce significant cash flow from the business. We are pleased with our progress and are well positioned to deliver improved financial results for the remainder of fiscal year 2022 and beyond.
With that I'll turn it back to Chris.
Okay. Thank you Mike.
We are excited to have Dave and busters and manner of that operating under one company umbrella. The combination of these industry, leading brand brings together two exceptional business models strong assets and talented teams.
This strategic fit presents our company with exceptional growth opportunities, which will benefit all stakeholders.
There's a lot happening a Dave and Busters and we are excited about the meaningful upside potential for this company and our stakeholders. We look forward to keeping you apprised of our strong momentum and progress against our long term initiatives.
With that we now open it up to Q&A.
We will now begin the question and answer session.
To ask a question you May Press Star then one on your touch.
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To withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
And our first question will come from Jake Bartlett of Cowen Securities. Please go ahead.
Great. Thanks for taking the questions.
My first question and congratulations on it is the acceleration of same store sales quarter to date are really strong.
Long acceleration there versus what you had in the second quarter and so my question is what do you think is driving that is there anything.
But you're doing it either the brands at both the brands that is driving that acceleration.
Or is it something that youre seeing with the consumer or just help us understand maybe maybe it was a mismatch of marketing dollars or specific promotions just anything to help us understand really what is driving that that strong acceleration here.
Yes.
Jay Thank you very much for the question this is Chris.
Yes listen the first thing I will tell you is we're incredibly enthused.
Enthusiastic about the momentum that we're seeing in both businesses and really the strength of that momentum over a long period of time.
So we're very optimistic about the direction of those brands.
The acceleration in the comp store sales going from Q2 to Q3 that there is really not one single thing that we can point to what I would tell you is we're seeing that lift that acceleration across the entire portfolio. So it's not centered in one particular region of the country. There is there's not one particular marketing initiative. There is no mismatch that's really driving that is just.
<unk> an acceleration.
Across both brands that we're feeling at this point in time.
Great Great. That's helpful and just a question of of check and you talked about kind of Intel.
<unk> intelligent pricing actions to defend margins here, but can you talk about how much of the quarter to date, maybe just to kind of frame that.
Year to date results and how much is driven by check versus 19, I assume that traffic is still negative on that and then Dave <unk> Busters side, but yes, I think theres certainly some some uncertainty about whether that check can be sustained at this higher level than 2019, and if you could maybe talk about your confidence that it can or cant.
Yes, it's Mike here so.
Given where we are we really don't have a very solid measure of traffic. So we've kind of refrain from having any type of detailed discussions between traffic versus check, but the trends that we've seen in the past have continued we are still seeing that a higher than normal.
It's become a new normal.
Because it occurred just right after the reopening with the pandemic with the higher than normal.
Power card purchases that we've seen so other than that.
Business is just up across the board I think we're really pleased to see that but we also want to be cautious about what we're seeing going forward because it is two days after labor day, and we've typically seen.
And history show that once we get past Labor day, there is a bit of a slowdown with kids being back in school. So at this point, we're watching that very closely to make sure. We monitor our costs in conjunction with what we're seeing on the comp store sales at this point.
Great and then my last question is just on margins obviously lucky.
To factor in here with me and events or results being folded in but in the past.
Sometimes you've given us a little bit of help in terms of what you expect your margins to be whether it's in the third quarter or maybe the back half of the year higher lower than previous years in any sort of guidance that you're willing to provide just on what we should expect from from.
Maybe its store level margins or most importantly, EBITDA would be helpful.
Yes, I think we will reiterate from an EBIT margin perspective, we had talked previously about a 200 basis point improvement over 19.
Obviously did not see that in this quarter, but we do expect that to return back in Q3 and beyond.
Great. That's helpful. Thank you very much.
Thank you Jay.
The next question comes from Andy Barish of Jefferies. Please go ahead.
Hey, good afternoon guys.
First for me on.
Drilling into intimate event and kind of the labor model.
Dave and Busters made a lot of progress with some technology implementation during the pandemic.
Theres, some things that you're looking at and learning potentially.
In that regard print ads.
As we move forward here.
Inflationary labor environment.
Yeah, Great question Andy.
Yes, the first thing I'll tell you is not.
We are spending a lot of time and we're going to continue to spend a lot of time with our teams on just sharing best practices across both brands so not only labor.
Across all.
All operating expenses and as well as the strategic opportunities, we really think that the big benefit of this merger is being able to take the best of both <unk> and <unk>.
Leverage it in a way a meaningful growing both brands.
As it relates to labor and the.
The technology that Dave and Busters implemented.
Made even.
Implemented a lot of the same tools.
Just the approach was slightly different.
Server tablets every main event server and now have the server tablet, which then allows them to have cover more tables in the dining room.
We're able to get more labor efficiency through that.
And so we're in the process of kind of digging in deep and just seeing what we can share.
I would say that.
Both brands have an opportunity to do a better job embracing guest facing technology to not only improve labor productivity, but also do in a way to elevate the guest experience.
And so our focus as a team is going to be on straddling both sides of that fence and.
<unk> firmly believe that as we do that.
We'll be able to really.
We really have a win win win where we're able to improve labor productivity, we're able to elevate the guest experience we're able to.
Improved chips across our servers, which then of course leads to more sales growth.
Got you and then just.
I know theres a lot of work underway on.
A variety of the sales driving.
Indeed it is.
It sounds like special events.
First and foremost going into the holidays.
And obviously football season is upon us what what would be one or two more of that kind of.
Hum.
To the forefront from your early thinking in and working with your team and the consultants Chris.
Yes.
So right.
Right now we're digging in deep to build our long term strategic plan.
So you heard me say that there are two work streams that we're following one is getting out and spending a lot of time with our operators hearing directly from.
Our teams on where the opportunities are so thats more of a ground up approach and then secondly, or doing a deep dive into the consumer environment, the competitive environment understanding the core brand attributes.
Which is more of a top down approach.
We're about 30 days away from wrapping up that work and then what we will do is will converge those two work streams and say okay team here is areas, where we have the greatest opportunity to grow our business.
Not only now but over the next five years.
So it's going to be very thoughtful very deliberate strategic approach anchored and core brand positioning that we will reinforce over a long period of time.
And so that is very important work that we and thats.
Exactly what we will be presenting.
More than likely in the first quarter, when we host our annual our analyst and Investor day.
In the near term I think where we've been spending time with our operators is on really.
Managing the peaks and so much of our business is done in such a short period of time.
Typically where you can get the greatest.
Traction on.
Sales growth is just improving our focus on those peak times, and addressing bottlenecks and relieve and pinch points, putting labor in the right areas.
It's a managed velocity as well as to manage average guest check and so we've got a number of things that were kind of immediately getting to with our operating teams.
We will.
What we're doing is we're trying to address that near term and then the plan is that our operator conference which is in February .
To really reinforce those opportunities in those behaviors at that operator conference. So then we can really drive it home and that F. 'twenty three year.
So.
Thats kind of where we're focused right now banquets as you said so banquets.
Is the near term priority.
The big driver in the fourth quarter, we feel like that we're going to have.
Theres already we're already seeing signs that we're we're going to there's a very strong chance that we're going to be at or above pre pandemic levels. This banquet season and.
So we're spending time to capitalize on that opportunity. So we've got our entire sales team out.
Completely focused on making this a banner year.
Most of those bookings start to occur in early October .
And so it's really important that we get our team is dialed into that at this point in time.
So we can start signing up those bookings and then getting our operating teams staffed and ready to go to.
Able to execute execute those bookings in the fourth quarter.
Excellent. Thank you very much you bet.
Net.
The next question comes from Jeff Farmer of Gordon Haskett. Please go ahead. Thank you appreciate it really just sort of a collection of follow ups. Here. So you guys did touch on both wage rate and commodity inflation. In Q2. The question is what are your what are your expectations.
Dictations for inflation over the balance of the year do you think we've sort of move through the peak levels of inflation or is this going to get a little bit worse before it gets better.
Well I hope we've hit the peak at this point it seems that would be the case however.
When we look at Q1 versus Q2, the inflation impact was only a couple of additional percentage points. So it seems like it's slowed to a point, where maybe we're at the peak.
But one of the good things that we have going for us is with the combination with main event and our combined purchasing power and what we're seeing the opportunities are on the supply chain aspects of combining the purchase power to go back to suppliers, we feel that we'll be able to offset some of that in the coming quarter, especially within Q3.
And as we go into Q4.
Okay. So I appreciate that but are you able to.
Provide.
The absolute level of inflation just for context relative to what we've been hearing from the rest of the segment in terms of the level of inflation you saw in the Q2.
In Q2 from a commodity perspective, our inflation rate was about 25% and 26% between the two brands and just to give you a perspective versus Q2 of 'twenty. One that was only about 8% at that point in time from a labor perspective, we're still seeing that.
Inflationary percentage being around 22% to 23% on a blended basis between both brands.
Okay and then the last question again, something you sort of touched on but as it relates to Europe .
Your ability to.
Really adjust pricing or a unique model, obviously, theres, a food and beverage side of it but in terms of the amusement and could you just give us a little bit more color on some of your efforts to use pricing as a way to offset some of that inflation.
We really haven't done anything Additionally from the amusement side as you know back in October of last year, we increased the buy in.
Low end of the buy in at the kiosk.
Which allowed us to get about 11% increase in power card.
Purchase on the per transaction basis.
We did take some on the gain which is basically the cost of the number of coins in order to operate the game, we didn't see much of any real impact on that is really that just allowed people to utilize their card.
More quickly, but it didnt really translate into any one coming in and or at least a meaningful number of people going for recharge is at that point.
What we've looked at from a food and beverage perspective, we did take price up 5% on the D&B side.
In mid July and we've seen that hold.
Throughout the period for the last two weeks of July and into August .
Okay I appreciate it thank you.
Got it.
The next question comes from Andrew Charles <unk> of BMO capital markets. Please go ahead.
Hey, good afternoon, thanks for taking the questions.
Wanted to start.
Maybe if you could reflect on some of the initiatives that you guys have put in place over the last couple of quarters.
And I know you've talked about date night, but other things like.
Trivia et cetera.
Is there any color.
Or kind of data points, you can put around that last quarter. You provided some late night I think plus 9% you said just curious any update as to any of those initiatives.
Yes from a late night perspective, that's the one that's probably the most meaningful of all of those initiatives.
As a percentage of overall sales in Q1 late night was about eight 8%, it's improved to nine 7% of our overall sales. So it's a little bit of an improvement.
But we are pleased with that.
The rest of the items such as like date night really hasn't had a material impact.
On the operations because we are just seeing overall traffic up in.
In total.
From another perspective trying to think of anything else. We did launch an open table.
That just gives us an opportunity to reach out to additional people at.
At this point in time, we found about 56000 people.
Have booked on open table that booked directly through the app without typing in Dave and Busters. So we figured that that's 56000 more visitors.
That has come in that maybe have not considered Dave and busters. So we are pleased to see that type of incremental growth in the.
And the visitation for us.
Got it okay. That's helpful.
And then I guess on the on the unit growth side, 15% to 17 for 'twenty, three and I believe that the kind of main event piece is a touch below what you had talked about at the.
On the business update call you had said something like six to eight over the next 12 to 18 months is that a function of timing and is the 15% to 17, the way that youre thinking about kind of a medium term run rate around unit openings beyond 'twenty three.
Yes, I would say the 15% to 17% seems to make sense of what we would have on a near term basis on a year over year basis.
As we look further out beyond 'twenty three.
The main event stores of 4% to five is really around timing as to when we want to execute on those versus Dave <unk> Buster openings.
Okay, and then I guess, just the last piece with.
Yeah.
You talked about.
About with ESPN and maybe some of the other.
Initiatives that you have going on any directional commentary on the marketing spend expectations over the balance of the year would be helpful. Thank you.
Okay.
We would anticipate the marketing spend to be fairly consistent with what we've had in the first half of the year.
It's really going to be centered around two campaigns, one of which being the football watch.
With travelers Kelsey, who happens to be Chris is most favorite players since he is from Kansas City, and a big key span, but beyond that it also we were looking at another promotion around the heat and play combo, which was very successful in Q1.
We are looking to do that again in November we'd have an advertising campaign around that.
Got it perfect. Thank you very much.
Youre welcome.
Our next question comes from Chris <unk> of Stifel. Please go ahead.
Thanks, Good afternoon guys.
Michael I wanted to see if you could clarify your comments about the impact of seasonality. How do you. How did average weekly sales maybe trend last year in the third quarter by period and do you expect to see a similar impact this year or were you, indicating that you expect it to be more pronounced I'm just I'm trying to understand how what we should expect for the third.
Well kind of think of it this way when.
When you look at overall history from Q2 to Q3.
Q3 has always been about 85% of Q2 sales.
And so we went and thats pretty consistent not only with Dave and Busters, but also with main event. So I wouldn't expect that to materially change.
As you look at the results.
From Q2 going forward.
Think that that percentage would probably stay the same on a go forward basis.
Okay.
And then the consolidated store margin was lower than we would've expected this quarter and I know you talked that you called out inflation factors, but was there any one time factors that may have been related to the transaction or integration.
That.
It was not indicative of kind of the underlying cost pressure you're seeing.
Not really I mean, most of that anything that was related to the transaction would have been treated as an add back to EBITDA, which is what I talked about in the prepared remarks, but the one thing I will say is that as you remember back in the first five weeks of Q2.
We said we were running at about 12% up on a comp store basis, and we finished the quarter at nine 6%. So the back seven weeks were slightly lower than the first five.
At the same time, we had launched the great indoors, which was our summer AD campaign.
Which did perform reasonably well, but when you have the increased costs associated with that marketing spend and we made a conscious decision to lean in a little bit heavier on our labor at the store level to support those comp store sales we were seeing.
These combined factors.
It did have a negative impact on our margin this quarter, but since then we've taken the course corrective action on what we've seen from a comp perspective for Q3 to date.
And we've seen that at our August results, where we're back on track to that 200 plus basis point improvement over 2019 that we've discussed previously.
Great. Thanks, guys.
Welcome. Thank you.
The next question comes from Brian Mullan of Deutsche Bank. Please go ahead.
Okay. Thank you just a question on the plan to refresh and remodel the fleet of stores at the core Dave and Buster's brand could you just remind us what the plans are in terms of how many stores do you want to touch over what timeframe anything on the cost per remodel there and then just related what are the characteristics of the sports watching for.
Is it simply the oldest stores are there other factors in terms of size or anything like that.
Yes, so in general we're looking at about 90 stores to touch and it will probably take us the better part of about two to two and a half years to do so because we wanted to be very cautious about how we do and go about deep from a cost perspective, it depending on the level of the refresh it could be anywhere.
We're between $1 million to $3 million in total.
I think for this year we've got.
11 stores planned as each one of those 11 stores represents a different type of prototype of the construction of the stores that are out there that gives us the opportunity to walk the store and see what we agreed to we like what we don't like what we won't change and so we're able to do that before we then launch on that.
Series of prototypes over the next couple of years at the same time as we're doing additional work about really truly deep diving into our customer base and what they're looking for we can make adjustments into that refresh program and build that over the course of the next couple of years.
Okay. Thanks, and then a follow up Chris just a question on the loyalty.
Your thoughts on what that means in the category you gave some stats in the prepared remarks.
ANV programs growing when we compare it to some the sides of it to some pure play restaurant concepts, it's still pretty new pretty small so how do you. How do you see that evolving anything could this be an actual driver of transaction counts at some point for the core brand and then anything that main event you were doing that would be helpful or informative of how you think about it at D&B.
Yes sure.
So absolutely believe that this could be a sales driver for us in many different ways.
The fact that we just launched this in November and the loyalty program already represents 5% of our sales.
That that is a very good sign.
Building, an effective loyalty program and the way, we think about it as more of an engagement platform.
Building, an effective engagement platform and.
Entertainment driven businesses is not it has its own set of challenges just because we're a low frequency occasion, our average frequency is less than two times a year.
But to the extent that we're able to stay engaged with our guests and maintain a dialogue.
And gather insights into their particular behaviors their pattern or behavior is just gives us an enormous opportunity to segment our messages and.
Re target them in different ways and ideally.
Get them too.
Yes to stay more engaged with the brand to increase frequency over time.
And grow check and the process. So we see it as a way of growing both frequency and average guest check. So I think the early signs are very encouraging and we will be spending more and more time on this and see it as a big big driver going forward.
On the maintenance side maintenance that is lagging D&B on this particular platform and so I think this is an area where.
Strategically.
We will be able to get main event, where we want to be faster.
As a result of this this merger integration.
I also think that it's still early but I also believe that there could be.
And having a loyalty platform to wear.
You can.
Re target guests across both brands.
So I think there's quite a bit of a strategic upside here.
Thank you.
Our next question comes from Nicole Miller of Piper Sandler. Please go ahead.
Thank you good afternoon.
Could you please translate the quarter to date comps on D&B, you need event Q a <unk> versus.
Versus the prior year comp.
Comp.
Yes.
Well I should say that information.
Yeah excuse me is in the release itself.
Oh it is okay.
Trying to get to the 18 in the 42, I think I wrote down or versus 2019.
Versus 2021 numbers there are in there.
No we only have it versus the 19 numbers that versus 2021 is a little.
Say misleading because you had some unusual items that were taking place in that period of 'twenty. One as we were still dealing with coming out of the Corona virus.
Recovery and then we were entering into.
The potential for <unk>, so from our perspective, we're filming comparing everything publicly back to 2019 for now.
Can you translate it to average weekly sales I mean, I guess, it's 85% of what Q2 was but I guess is that the right ZIP code is that's the math we do.
Let's take the quarter to date, well I mean, the models are built off of a prior year. So if we can't do that then what we can do is take that 85% convention in that.
I guess I'll ask it this way is that where is that where average weekly sales are now is that comp.
Hi.
Versus the 2019 period because.
Because the 2021 area, there's just all over the board.
So are are the average weekly sales and that go with that com.
Hum.
You had just said that in <unk> seasonally adjusted rate like sequentially would be about 85% of QQ.
So right around are the current trends higher or lower than that or are they kind of right in line with that.
They are pretty much in line with that.
And then the.
The numbers are one month of main event and I think there is a reconciliation again going through all the information of what the top and bottom line would've been for three months total. My second question is is there with store level margin.
Have been materially different.
Main event had been folded in for three months versus one month.
Or can we go off with this one month and kind of.
Be informed from there.
I think you can go after the one month and be informed from there there is not a significant difference between the first two periods of the quarter for main event versus the third period that we picked up in our post acquisition results.
And then just a big picture question can you talk about that Dave and Busters demographic profile today versus maybe what it was previously and then you know I know you've discussed for example, amine event seem indifferent.
Maybe by age for example, but could you go a little deeper on that demographic profile and then how important is it for the B you know different or the same like what aspects are most important to be similar and what aspects are really important that they are different.
Yes, Nicole this is Chris I think what I had.
What I'm going to ask you to do is just.
Hit pause on that question.
And.
You attend our analyst Investor day in Q1, because I think that that will be at a point in time, where we're able to.
Not only answer that question that put it in the context of where we see the big strategic opportunities for both brands as we move forward.
Over a long period of time.
Yes.
With all that said those brands cast a very wide net I think both brands move appeal to very wide audience.
We sell experiences in different ways.
But both brands.
Have a personality.
And.
I think main event the personality of main event is it's typically viewed as a place that's a little more family friendly and the personality of Dave <unk> Buster's is a place that's kind of viewed it a little more friendly for young adult males.
But Dave and Busters gets plenty of family occasions in a manner that gets plenty of adult occasions.
So we see opportunities for sure both of these brands have been in the same markets for many years and both of them have thrived in those markets and so.
We see a lot of growth opportunity for both of these brands.
But when.
And at the Investor Analyst Day will walk you through all the findings from our research.
That's Super Fair I understand that is it fair to say then I mean, there's things that you can move forward with and then there's things that'll be informed by the work that youre doing to inform a longer term strategic plan to maybe so we're just on the same page from that perspective, you know, there's certain comp driver strategy.
I suppose it certainly development right, but absent kind of that.
Do you should we should we think about.
Really the bigger fully formed strategy coming and then you know.
I guess, it's about six months and then taking a course you know taking place over the next one three and five year period something like that.
Well what I'll tell you is our near term focus is just executing the business plan on both brands.
And we're having incredible success at both brands, we just reported a record breaking quarter.
For Dave and Busters, and you look at the comp store sales performance for D&B and main event individually.
There's a lot of momentum in both of these brands and so the business plan is working and.
And the momentum has improved here in the quarter that we're currently sitting in.
So our immediate priority is just to continue to execute the plan.
So I think we're in a perfect position to build upon the momentum that's already been created in both of these businesses, but do it in a way to where we are.
More focused on maximizing shareholder value over a five year period of time.
And as I think through over a five year period of time.
How do we effectively grow both of these businesses to the point, where they are able to reach.
There are potential in a way where we complement each other.
That's where we just need a little bit more time too.
Fine tune our strategies.
Thank you very much.
Beth.
The next question comes from Brian Vaccaro of Raymond James. Please go ahead.
Hi, Thanks, and good evening, just to clarify the quarter to date I'm still a little confused Mike can you just tell us what AWS dollars are for each brand in the first five weeks to make sure. We're all the same page.
Yeah.
Yeah.
Yes.
Unfortunately don't have that piece of the data with us in front of us on this call. So what we would do is just point you guys back to the comp store sales increase we also commented.
If you read the 10-Q about what constitutes non comp sales.
For both brands, so that should be able to give you some help in getting to what youre looking for.
Okay.
The sales over the last few months and even into the quarter to date I'm curious to what degree.
It continues to evolve.
Haps normalize I guess are you seeing more families come back are you starting to see F&B attachment move more positively or kind of holding more stable in the last few months any changes there to note.
No I really it happens to be that it's very stable across the board.
As Chris mentioned before it's not really any one particular initiative that we have that's driving.
The increase in sales.
It is pretty much ratably across the board, we haven't seen any real increase in attachment.
Or check size so from that perspective, it's just an overall lift in the business.
Okay and back to the store margins, if I could sorry, if I missed it but what was marketing spend in your second quarter and then could you also just drilling down a little further than that other opex line I know, it's not apples to apples, but was up nearly 300 million I guess sequentially just trying to.
Understand that more clearly.
Yeah, I would say marketing spend was probably around 15 plus million for total.
During the quarter and as far as the other operating expense. So that's probably the biggest components of that.
It would include.
Security because as you know.
As you get further into late night happy hours and the like.
Cities will or local authorities will require more security at that point.
So we do have a number of off duty police officers that are included in.
In that number as well as some outside services as it relates to janitorial and cleaning aspects as we win.
As we reopen from a pandemic perspective, we used outside services to two.
<unk>.
To handle that portion of the business because it was difficult and hiring individuals are back at that point in time, but those are primarily the two key drivers within that.
That other line item.
Okay. Thank you and last one for me.
You talked about raising our synergy target I think by $5 million, just a little more color on the incremental savings that you've identified thank you.
To date that extra $5 million is really coming through on the cost of goods sold side, whether thats in the food or the beverage aspect of it.
That's the piece that I think we're most pleased with.
In regards to my comments earlier about the.
The increase in inflation, we see the ability to having our two combined companies and thats combined purchasing power being able to help offset that more so than what we would've been able to achieve on our own.
Alright, great I'll pass it along thank you.
Yeah.
Our next question comes from Sharon Zackfia William Blair. Please go ahead.
Hi, good afternoon.
I was hoping you could kind of get a read on what underlying G&A looks like I know you had the main events acquisition integration costs that you detailed.
In the release, but I'm not sure how much of that was actually in the G&A bucket. So could you give us an idea of what kind of core G&A for lack of a better way of phrasing. It might've been in the second quarter and what a good run rate would be for the second half of the year.
Yes, if you look at our G&A costs overall.
Combined was roughly.
We were about $36 million for the combined entity.
Which the.
The transaction cost, which you can see in the EBITDA reconciliation would've been included in G&A as well as net impairment charge of $1 8 million was included in G&A.
The other items called out like stock based comp and Preopening are separate line items.
So we would look at something like a <unk>.
G&A being somewhere around that $30 million Mark is probably a fair number.
On a go forward quarterly basis.
Which also play for that for that 30 million that would also include the stock based compensation about.
Okay. Thanks for that and then just a follow up on some prior questions about margins I mean, obviously your comps are very very good.
So far in the third quarter and it sounds like you're not seeing a lot of price elasticity at different one.
So as we think about unit level margins I mean, I know the third quarter is a seasonally low quarter, but are you targeting getting back to kind of a 30% plus you know a lot about margin by the holiday quarter or would you rather not prices high and go for volume.
I'm trying to figure out your philosophy.
Around the pricing dynamic of the equation.
No.
Speak to if you look at the 30% margin we experienced in Q1 is due to it being the seasonally high quarter that has a tremendous amount of flow through especially when you get to that period around the <unk>.
Spring break period.
When you think about Q4.
The regular seasonal low it really takes place in that October November timeframe.
So there is we won't see that 30 type plus percent EBITDA margin in those periods I think what youll see is something closer to more normalized run rate.
It has been historically around the mid 20 percents for EBITDA during those periods.
Yes, sorry, I was talking about unit level store level not not EBITDA.
Okay.
Typically what we see between those two is probably about.
Call It maybe about a 5% mark between the EBITDA at the consolidated level versus the store level. So you'd assumed at the store level would be closer to that 28% Mark.
Versus what you'd typically see if your overall margin, it's going to be around the $23, 24% Mark.
Okay last question for me is just I appreciate the color on the 200 basis points.
EBITDA margin improvement relative to 2019 and expecting to get that back in the back half of this year. The company had been running ahead of that you know for quite a while.
Above that 200 basis points that you're mentioning is that just a function of really staffing not being up to where you wanted it to be so you were kind of I guess quote unquote over earning I bet.
During the last year.
There's a little bit of that but at the same time as I said earlier when you look at a year ago Q2, our commodity inflation was 8% and it's now over 25% so although the prior management team back right after the.
Paul is the relaunch after the pandemic had put out the 200 basis points. So it's been a real effort on all of our part to continue to keep that 200 basis point improvement. Despite the fact that you have increasing commodity inflation as well as inflation within labor and that all triggers through the rest of the P&L.
Whether thats higher utility costs are.
Higher outside services overall cost increase that we all have to pay and so the company has done a fantastic job.
Fire too.
The main event acquisition and we're going to continue it afterwards of just digging into every line item and making sure that we've got the best possible cost structure, we can in order to keep the margins of where we're at without over increasing.
The pricing on this at the top level, because we do realize that you can only take price up to a certain point before you start hurting the overall growth and health of the company.
Okay. Thank you.
This concludes our question and answer session.
France has now also concluded thank you for attending today's presentation and you may now disconnect.
Okay.
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