Q2 2025 Pinstripes Holdings Inc Earnings Call
Speaker Change: Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Pinstripe Pulling Inc. 2020, I'm sorry, second quarter, fiscal 2025 earnings conference call. At this time, all participants have been placed in a listen-only mode, and the lines will be open for your questions following the presentation.
Speaker Change: Please note that this conference is being recorded today, November 26, 2024.
Speaker Change: During management's presentation and in response to your questions, they'll be making forward-looking statements about the company's business outlook and expectations, including in respect of guidance for fiscal 2025.
Speaker Change: These forward-looking statements and all other statements that are not historical facts and reflect management's beliefs and predictions as of today and therefore are subject to risk and uncertainties as described in the company's quarterly report on Form 10-K for fiscal 2024 and subsequent SEC filings.
Speaker Change: Management will also discuss non-GAAP financial measures as part of today's conference call. These non-GAAP measures are not prepared in accordance with the generally accepted accounting principles, but are intended to illustrate alternative measures of the company's operating performance that may be useful.
Speaker Change: Reconciliations of these non-GAAP financial measures to the most direct comparable GAAP measures can be found in the earnings release.
Speaker Change: The company has posted its second quarter 2025 earnings release and an earnings presentation on its website at www.pinstripes.com under the investor relations section.
Speaker Change: And now, I'd like to turn the conference to Prince George's founder and CEO, Dale Schwartz. Thank you. You may begin.
Dale Schwartz: Good afternoon everyone and thank you for joining our call today. Over the last few months we have been focused on three main initiatives.
Dale Schwartz: One, improving our top-line sales comp growth trajectory, two, driving improved profitability at both the venue level and corporate level, and three, opening high-quality locations within our current funding capacity.
Dale Schwartz: Let me speak to each of these areas, starting with improving our top line crop growth.
Dale Schwartz: As most of you are aware, consumer wallets remain pressured, and we are seeing this most pronounced in our open play business, which was down approximately 13% year over year in Q2, while our event business was only down approximately 6%.
Dale Schwartz: For our open play business, we are focused on ensuring we have the right level of value for our guests through programs such as Happy Hour Gaming Promotion, where you can enjoy a lane and bowl for 50% off during certain hours, as well as our daily specials and weekend brunch offerings.
Dale Schwartz: In addition, our local store marketing campaigns have seen exciting success as we have introduced activities � � � � � � � � � � � � � � � � � � � � �
Dale Schwartz: such as kids clubs, comedy nights, line dancing, yoga classes, trivia nights, and many other community activities that complement our F&B and gaming offerings.
Dale Schwartz: As we entered the fiscal third quarter, we continue to test programs that we believe are right for our brand and our guests while being quick to discontinue those that did not perform to expectation.
Dale Schwartz: We believe we found the right balance as demonstrated by the substantial improvement in our comp performance in recent weeks compared to the second quarter.
Dale Schwartz: On the event side of the business, our third quarter is seasonally strongest and our teams are working hard to drive as many events as possible for Pinstripes through the holiday season.
Dale Schwartz: We are encouraged by the fact that we are seeing strong lead generation and booking performance on the event side of the business in recent weeks. And our continued investment in the tourism and convention segment of our event business is showing very promising bookings and sales results.
Dale Schwartz: With respect to profitability, our team has successfully removed the annualized $10 million in cost savings we spoke to last quarter.
Dale Schwartz: This is most evident in our mature store base with margin leverage in cost of sales, labor, and operating expenses despite our current short-term comp growth headwinds.
Dale Schwartz: These savings range from strategic hourly and salaried labor savings, a more favorable credit card processing agreement, the more intense negotiations with our various vendor partners leveraging our growing scale and brand.
Dale Schwartz: The second quarter saw substantially all of these savings implemented and we expect a full run rate benefit going forward.
Dale Schwartz: In addition, we are a target in removing approximately $4 million of additional annualized savings in our SG&A with the majority of these savings yet to fully flow through our financials.
Dale Schwartz: These cost savings range from negotiations with agency partners to strategic corporate headcount reduction and a renewed focus on marketing efficiency.
Dale Schwartz: Following the completion of our cost reduction efforts at the venue level and ongoing work on corporate level costs,
Dale Schwartz: We believe we are on track towards the appropriate cost structure to drive long-term top-line performance through same-store sales growth as well as new unit openings while ensuring we are maintaining sufficient corporate-level profitability.
Dale Schwartz: Turning to new unit development, on November 15th, we opened our 18th location in Walnut Creek, California at Broadway Plaza, marking our second location in the San Francisco area in close proximity to our location in San Mateo.
This new two-story Walnut Creek venue.
Dale Schwartz: It features 25,000 square feet across two levels with eight bowling lanes, two indoor bocce courts, and private event space for groups of up to 1,500.
Dale Schwartz: Our opening to date has been very promising, and our initial private event bookings have been very strong, complementing the continued success of our San Mateo location.
Finally, I want to touch on our liquidity.
Dale Schwartz: As of October 13th, we had $3.2 million in cash and cash equivalents.
Dale Schwartz: While we anticipate significant positive cash flow in the third fiscal quarter as holiday sales volumes increase substantially,
Dale Schwartz: We are also evaluating and seeking to raise additional external capital which could include funding from new outside sources as well as additional funds from our existing lenders.
Dale Schwartz: We will continue to balance our unit growth pipeline with the capital available to us as we scale our business nationwide.
Dale Schwartz: In summary, despite challenging results for the second quarter, we are encouraged by what we are seeing in recent weeks as trends have improved substantially.
Dale Schwartz: The holiday event period for pinstripes is a significant source of EBITDA and we are optimistic about our potential in the fiscal third quarter.
Dale Schwartz: <unk>, an eight 6% increase in food and beverage revenues and three 6% increase in recreation reminisce.
Dale Schwartz: The increase in total revenue was primarily due to having four new stores opened in the second quarter of fiscal 2025 for the full period compared to the second quarter fiscal 2024.
Dale Schwartz: Partially offset by modest decreases in volume at our 13 legacy locations.
Dale Schwartz: Turning to expenses cost of food and beverage as a percentage of total revenue increased 10 basis points to 17, 5%.
Primarily due to cost efficiencies offsetting changes in product mix.
Dale Schwartz: Labor and benefits as a percentage of total revenue increased 100 basis points to 38, 9% primarily due to the addition of four new stores contributing to higher store labor and benefit costs exclude.
Dale Schwartz: Excluding the addition of four new stores store labor and benefit costs were down approximately 30 basis points.
Dale Schwartz: Occupancy cost as a percentage of total revenue were 18, 6%.
Dale Schwartz: Other operating expenses as a percentage of total revenue decreased 100 basis points to 19, 9%, primarily due to decreases in repairs and maintenance activities credit card fees in technology offset by an increase in insurance costs and janitorial Bosch.
Dale Schwartz: Benny level EBITDA as a percentage of total revenue decreased 160 basis points to 5% driven by modest negative store contribution from some of our new locations that opened in fiscal 'twenty 'twenty four as these stores continue to progress through the maturation curve with the profitability of this group continuing to improve please refer to our earnings release.
Dale Schwartz: For a reconciliation of non-GAAP measures.
Dale Schwartz: Our mature stores those opened more than 24 months generated average contribution margins of eight 3%, representing a 50 basis point increase year over year, driven primarily by cost efficiency improvements that we've previously discussed.
Dale Schwartz: General and administrative expenses increased to $5 1 million compared to $3 8 million in the same period last year.
Dale Schwartz: Turning to liquidity as of October 13th 'twenty 'twenty, four we had $3 2 million in cash and cash equivalents and $114 million of debt outstanding.
Dale Schwartz: For the third fiscal quarter, we anticipate positive cash flow and continue to evaluate additional liquidity options, including but not limited to raising additional capital and receiving additional funding from our existing lenders.
Dale Schwartz: What's that and little of annual guidance, you want to provide an update on our quarter to date results.
Dale Schwartz: Third quarter to date through November 'twenty, four 'twenty 'twenty four.
Dale Schwartz: Same store sales decreased eight 1%, but the last two weeks up 10, 1%.
Dale Schwartz: We opened one new venue in Walnut Creek, California on November 15th and do not anticipate opening any additional venues during the quarter.
Dale Schwartz: And we expect overall venue level EBITDA to be meaningfully higher than prior year and adjusted EBITDA to be positive in Q3 and above prior year.
Dale Schwartz: We'd like to thank you again for your interest in pinstripes.
Speaker Change: Bill and I are now happy to answer any questions that you may have operator, please open the lines for questions.
Thank you at this time, we will be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad.
Speaker Change: Confirmation tone will indicate your line is in the question queue.
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Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star.
Speaker Change: One moment, please can we poll for questions.
Speaker Change: First question here is from Brian Bittner from Oppenheimer. Please go ahead.
Thank you.
Speaker Change: Just a question on the same store sales I understand the last couple of weeks have improved but still quarter to date.
Speaker Change: Is pretty down meaningfully after after down 9% and in the second quarter. So can you just outline what you believe the pressures are maybe dig a little deeper into that how much is macro versus maybe what you can control.
Speaker Change: Yeah, Hey, Brian it's Tony.
Speaker Change: Yeah, I'd say, if I wanted to unpack kind of the Q2 comp I'd say half of it is macro.
Speaker Change: And I'm using the events business is kind of our proxy there and then relative to that open play business.
Speaker Change: Yeah, we control our destiny, a little bit more on the event side and so you can see the macro pressure.
Speaker Change: Kind of making up half of that 9% and then the <unk>.
Speaker Change: I'd say is look we we we did some aggressive promotional activity.
Speaker Change: On the gaming side of the business and we we changed some things from a marketing perspective, which we have since of course corrected and we're seeing the results you know in the last couple of weeks, which is why we called it out specifically.
Speaker Change: In our prepared remarks.
Speaker Change: Okay, and just a follow up question is on margins.
Speaker Change: I know, we're talking about EBIT for the third quarter and is there any.
Speaker Change: Outlook, you can give us on restaurant level margins, just you know considering the previous disclosure.
Speaker Change: On guidance, how are you thinking about restaurant level margins in the second half I mean.
Speaker Change: Obviously, if you look at just Q2.
Speaker Change: In spite of some pretty you know negative sales leverage we still increased margin. So you know we don't expect that that much negative sales leverage to be in the second half that are meaningfully better I think just based on what we're seeing in the last couple of weeks.
Speaker Change: Hum.
Speaker Change: But still given the volatility or we're not going to call out a specific number and then your level margins, but it's very obvious you can just look at just.
Speaker Change: Just the last quarter and say look at.
Speaker Change: Sales are are meaningfully better which were thinking they are youre going to see that flow through a pretty high rate.
Speaker Change: Hum.
Speaker Change: So that's that's what we're saying.
Speaker Change: Okay. Thank you.
Speaker Change: As a reminder, it is star one to join the question queue.
Speaker Change: Next question here is from Matt Curtis from William Blair. Please go ahead.
Matt Curtis: Hi, good afternoon.
Matt Curtis: So that's and.
Speaker Change: For positive operating cash flow in the third quarter, but looking beyond that can you give us a sense of how far your current liquidity can take you before you need to raise more capital before it becomes a.
Speaker Change: Really something you have to do.
Speaker Change: Yeah, Hey, Matt its Tony Yeah. So we we we believe our current liquidity situation given the build in cash that we'll see here as we work through the holiday season, plus you know the cost out and we've completed we should be able to get through most of calendar 'twenty five.
Speaker Change: Now with our current liquidity situation and that service. We have said look we're looking at at raising additional capital somewhere we're not being shy about that but you know we we we do have a you know with the holiday season, and what we're seeing.
Speaker Change: On the outlook.
Speaker Change: Enough liquidity to get well into next year.
Speaker Change: Okay great.
Speaker Change: And then unquote cables it sounds like that's being pushed out into fiscal 'twenty six disappoints could you give us a better idea on the timing around that.
Speaker Change: Oh, we didn't say it's pushed out in the fiscal 'twenty six just not in Q3, so likely in Q4.
Speaker Change: Fiscal 'twenty five corrugate.
Speaker Change: Coral gables old okay.
Speaker Change: Okay, I understand and then I guess one on marketing.
Could you talk about maybe what a misfire on marketing and maybe if you could describe what a course correction measures.
Got it.
Speaker Change: Sure it scale.
Speaker Change: Well one of the main elements, which we have a quite substantial paid digital spend not just Google AD word, but Facebook another and we did it a reevaluation of that spend we decreased it a bit.
Speaker Change: And I'll call. It the early period of Q2.
Speaker Change: To get a beta testing to see what the flow through it affects our and we did see some diminishing in sales by pulling back the span and we very quickly course suggested and stuff like that that's what you were hearing Tony mostly referred to.
Speaker Change: Okay I understood thanks very much.
Speaker Change: Next question from Peter Cella from BTG. Please go ahead.
Speaker Change: I'm sorry, Peter your line might be needed by accident.
Speaker Change: Can you guys hear me all right.
Speaker Change: Yes, okay.
Okay, great sorry about that so just a question on the most recent comp trajectory that you've seen improvement can you just talk about is that I don't know if I missed it is that from mostly from open play events.
Speaker Change: Just any color around that and then also.
Speaker Change: As is typical for your your business that have this much volatility in same store sales or.
Speaker Change: Just trying to understand why so volatile and the most recent weeks.
Speaker Change: Yeah, So look a little color on the quarterly comp primarily driven by the events business.
Speaker Change: And and there is a little bit of volatility in that so it can be or I should say more lumpy.
Speaker Change: Which as you know drive some of that.
Speaker Change: In terms of is our business normally this volatile I'd say look this is a macro environment that we haven't seen in some time and so that's probably amplifying a bit you know what.
Otherwise as you know.
Speaker Change: Lapping some some pretty big comps you know over the last couple of years.
Speaker Change: Got it and can you guys provide a little bit of color on just the breakdown maybe in the quarterly comp and maybe going forward in terms of how much pricing or check you expect and the go forward comps versus traffic.
Speaker Change: So in Q2.
Speaker Change: We had an effective 2% what I'll call menu price increase on a business that was completely offset by promotional.
Speaker Change: Promotional pricing in gaming so.
Speaker Change: The nine 4% as essentially traffic.
Speaker Change: And then how the comp broke down you know in the quarter.
Speaker Change: You know that mid July to mid August period, you know, we were down about 8% and then it.
Speaker Change: We saw significant change kind of in mid August to mid September and then back to.
Speaker Change: About 8% down in mid September to the end of the quarter in middle of October.
Speaker Change: So so it really it was that kind of the middle four weeks that really drove us down further than I would've expected.
Speaker Change: Got it understood. Thank you very much.
Speaker Change: Thanks Pete.
Speaker Change: This concludes the question and answer session I'd like to turn the floor back of Dr. Schwartz for any closing comments.
Speaker Change: I.
Dale Schwartz: I wanted to thank everyone again for joining us this afternoon and your interest in Pennsylvania, We wish everyone, a happy Thanksgiving and holidays and hope to see you all in any of our 18 locations across the country and experienced the magic with us. Thank you.
Speaker Change: This concludes the conference today you may disconnect your lines at this time. Thank you again for your participation.
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