Q2 2019 Earnings Call
Please standby.
Good afternoon, everyone welcome to be Dave and Busters Entertainment incorporated second quarter 2019 earnings results call.
Today's call is being hosted by Brian Jenkins, Chief Executive Officer, I'd like to remind everyone that this call is being recorded and will be available for replay beginning later today.
Now I would like to turn the conference over to Arvind Bhatia Senior director of Investor Relations for opening remarks.
Thank you Lisa. Thank you all for joining us on the call today are blind Jenkins, Chief Executive Officer, and Scott Bowman, Chief Financial Officer.
That's the comments from Mr. Jenkins said, Mr. Bowman, we will be happy to take your questions.
This call is being recorded on behalf of Dave <unk> Busters Entertainment incorporated and is copyrighted.
Before we begin our discussion of the Companys results I'd like to call your attention to the fact.
Got it all remarks, and our responses to your questions.
Certain items may be discussed, which are not based entirely on historical facts.
Any such items should be considered forward looking statements that relate into.
Future events within the meaning of the private Securities Litigation Reform Act of 1995.
All such forward looking statements are subject to risks and uncertainties, which could cause actual results to differ from those anticipated.
Information on the various risk factors and uncertainties has been published in our filings with the FCC, which are available on our website at www Dot, Dave and Busters Dot com under the Investor Relations section.
In addition, our remarks today will include references to EBITDA adjusted EBITDA and store operating income before depreciation and amortization, which are 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.
Now I will turn the call over to Brian .
Thank you Arvind good afternoon, everyone and thank you for joining our call today to discuss second quarter results and our outlook for the business for the quarter. We reported record result, increasing revenue by 8%, yes by 7% and EBITDA by 5%.
We have built a high margin business that generates strong free cash flow, which when combined with our strong balance sheet has enabled us to return more than $200 million in share repurchases and dividends.
And reduce our flow by almost 13% hazard end of the second quarter.
While we continue to profitably grow our business and return significant capital to shareholders.
Our comp sales results came in below expectations.
As of last year. So we are more difficult to match and our promotions were not as effective as we had anticipated.
We also faced headwinds from adverse weather and the continued impact of competitive intrusion and cannibalization later, Scott will provide more details on these factors and additional highlights on the quarter and his prepared remarks, but first let me share with you what we're seeing in the market and our approach to managing the business to maximize value for shareholders.
There is no question that we are in an attractive and growing category as consumers continue to increase spending on experiences.
As a leading brand that delivers immersive experiences we are in a great position to capitalize on this favorable secular trends.
At the same time this trend and our success has attracted many more players in the space and the overall market today is quite fragmented and competitive.
Over the past 18 months, we've made important progress on several calls including enhancements to our food and beverage offerings and the introduction of more immersive games.
Including our industry, leading the arc platform.
As part of our focus on operational excellence. We've also improved our service that's reflected in our consistently higher guest satisfaction scores.
While we've accomplished a lot.
We see great opportunities for continued improvement and recognize we have a lot more to do.
As I've mentioned on previous calls, we see immense opportunity to drive traffic by increasing guest frequency and improving FNB attachment once guests are in the door.
With an annual frequency of less than two times and SMB attach rate up approximately 50%.
Driving deeper guest engagement to improve these metrics is our biggest opportunity to reignite same store sales growth.
In the near term our goal is to execute on five priorities that we've identified to maximize shareholder value.
First the revitalization of our existing stores, which in the near term includes reenergizing the dining area and many of our stores to drive food and beverage attachment and also includes continued food beverage and amusement innovation to augment our offering.
All of which is a part of introducing new while experiences.
Second we are focused on building deeper guest engagement, which includes the nationwide launch of our new mobile App in October . It also includes increasing investment in digital media to more effectively reach our guest.
Sure.
We are you willing growth investments by surgically reducing costs in other areas.
Through the realization of operational efficiencies both in our stores and corporate office, we expect to fund our growth initiatives organically by redirecting resources into our PML.
For fourth we are enhancing rigor on capital and resource allocation to invest in the highest returning opportunities for the overall dnbi system.
This includes optimizing store formats to match market sales potential and managing the pace of new store growth to maximize returns and sufficiently focused our development team and store level managers on advancing our store rebalancing effort.
And fifth.
Returning significant capital to shareholders in the form of share repurchases and dividends.
I went through those pretty quickly so let me spend some time on each of these five priorities, particularly the first.
Our number one priority is store revitalization to reignite comparable store sales growth.
Our focus on this initiative begins this quarter with our Wow walls to Reenergize, our dining rooms for those of you who have been to our Dallas store.
No we have been testing this idea since late last year, a cutting edge digital display technology using a nearly 50 foot LCD screen that can be customized by location. We are very pleased with the lift we have seen in Dallas, particularly in SMB and plan to roll out for a while while technology and 35 additional stores by the end of October as the football season gets underway.
Over time, we also plan to extend that led technology to our sports lounges to seen in our position as one of the best and most innovative sports doing destinations in the country to drive reach frequency and FNB penetration.
Wow wall and expanding the use of L. unique technology are only some of the improvements we're making to our stores.
In addition, Weve Reengaged Jackman reinvents to take a comprehensive look at our store portfolio and offerings to assist with our brand revitalization and strategic refresh.
As the foremost customer experience reinvention company and an organization that we have worked with to great effect in the past. We believe this highly successful partnership will continue to be instrumental in enhancing our integrated experience across all customer touch points. We are committed to our store revitalization efforts and are excited about the opportunities in front of us.
In addition, as we look to keep our games and attractions refresh we are excited to launch Terminator VR, which will be the company's proprietary title in RV Our library.
The launch will coincide with the release of the new Terminator movie in mid November .
We're excited to continue to leverage our leadership in the industry to be the go to place for cutting edge Entertainment.
Making sure we had a strong pipeline of games and other initiatives to Wow, our guests and drive comparable store sales will continue to be a top focus for our team.
With all of the projects underway and as the new strategy to merge from our engagement with Jackson, we will maintain new store development flexibility and optionality not only for our store revitalization efforts, but also to execute new initiatives.
Our second near term priority, which goes hand in hand with the first is building deeper guest engagement.
We have already discussed the large and untapped opportunity time left unlocked guest frequency and SMB penetration, our new mobile App rolling out nationally later this quarter is an important tool that will help us exploit this opportunity.
The App allows guests to use their phones to quickly purchase and recharge digital power card Tappin play games and earn valuable loyalty points will also allow us to connect directly with guest and deliver targeted personalized offers whether they're in store for out of store.
The new App allows us to capture powerful actionable guest data and in a way that is highly differentiated in our industry.
Yes, we'll be promoted on TV and through digital media and our 12000 guest facing employees will also play a key role in increasing awareness and use of the app.
We look forward to updating you on our progress in the future.
Now I'll turn to our third priority, which is to surgically reduce costs and redeploy those realized savings to fuel investments and organic growth opportunities.
As you know we enjoy industry, leading margins as a result of significant margin expansion over the past decade. In fact since 2006, we have nearly doubled our EBITDA margins.
We have achieved these results by delivering revenue growth, while maintaining disciplined cost management. This prudent discipline continues to service while today.
Our preliminary estimate before onetime costs and reinvestment that we can achieve approximately 15 million in annualized cost savings from near term initiatives, including off peak labor optimization.
Further centralizing our special events team, some DNA streamlining and modest changes to recipes and gaming mix.
We made these changes thoughtfully in order not to impact the quality or the guest experience, we intend to reinvest most of our realized savings back into new initiatives to fuel organic growth.
And speaking of new growth investments, we are investing and building a dedicated team to support the increasing digital presence.
And capabilities, we anticipate.
We have added resources to our technology group and an engaged third parties to collect anonymized privacy protected data on our guest at a macro level data that will complement what we are learning directly via that we are still hiring in this area with a few positions currently open to round out our consumer and data insights team.
As we build a more robust database and gain valuable consumer insights overtime, we will have actionable intelligence to make our digital media promotions and offers more relevant targeted and customize for our guests.
We are optimistic about the potential to drive better guest engagement by the investments we are making in our team our technology and digital presence and look forward to reporting on our progress.
To provide a little more context here I want to emphasize our balanced strategy, we're not simply cutting costs to temporarily boost margins. Instead, we are highly reallocating resource.
Alright resources to the highest return opportunities mainly in the areas of deeper guest engagement digital marketing and consumer intelligence capabilities, we are improving our operational efficiencies, while maintaining and building on the company's strong market position and competitive differentiators.
Turning to our fourth priority I mentioned earlier, we have a rigorous approach to deploying our capital to the highest return opportunities.
In addition to some of the exciting organic initiatives I've described opening the stores.
In an attractive location also remains an important part of our growth strategy backdrop is that during the past 18 months competitive store openings have accelerated presented at a major headwind to the entire industry.
I know there are differing views among investors regarding our unit expansion strategy. So I want to take a moment to clarify our process for investing in new stores, particularly as compared to other capital allocation priorities.
We know our stores deliver a strong value proposition.
It is reflected in what we believe are best in class 80, these margins and store level returns.
We only pursue new your new unit growth when the incremental unit deliveries and compelling return on capital both on a standalone basis, and when considering its impact on our entire system.
Since 2011, the 29, new stores that have been opened for at least three years have average annualized returns of 45% over their first three years.
Looking at a more recent cohort such as our 2016 class. This group has also average annualized returns of 45% in its first two years, realizing less than three year payback on a stand alone business represents a compelling opportunity for an opening new stores.
In addition to strong return on capital there are and so our long term benefits to opening multiple stores and the market. The additional stores deliver strong returns increase store density provide leverage on DNA in marketing and talent retention that help us forecast the market for the long term.
While we're pleased with our success in the past.
We're also excited to introduce more productive and higher return prototype as we increasingly enter smaller markets.
Take for example, our 17 K. format Corpus Christi store, which opened in late 2018 and is on track to generate year, one sales of over $8 million.
In line with the targeted volume for our 30 K. box stores expected to achieve approximately 35% store level margins and a 50% cash on cash return in its first year.
Well, we're not suggesting all 17 k. format stores will generate this level of performance Corpus Christi demonstrate potential efficiency and returns at a smaller 17 k. format store.
With such attractive opportunities are available it makes compelling financial sense to pursue them.
As we continue to identify high value opportunities and revitalizing existing stores.
We believe it's prudent to balance the demands that store openings place on our corporate infrastructure development team and in store count.
As a part of our ongoing review process, we are carefully considering the pace of new unit growth.
Consistent with our top priority of revitalizing our existing stores, we are preserving our optionality on new store openings in the back half of 2020 and in 2021.
While it's too soon to announce any changes at this time, we are evaluating our options and we will pursue the path that we believe will create the most value to shareholders.
In the meantime, continuing to open high return new stores is the right strategy from a competitive perspective, but also in terms of maximizing return on investment.
Our investment philosophy will continue to rebalance and opening new stores will continue to be just one aspect of our overall capital spending plan.
As I've mentioned in the near term Reenergizing, our existing stores to drive frequency and improving comps will be our top priority.
And finally, our fifth near term prior to create long term shareholder value is returning capital to our shareholders beyond investing in our business. We have been using our strong free cash flows and balance sheet flexibility to opportunistically buyback, our stock and pay a healthy dividend to shareholders.
Reflecting confidence in our long term potential and the current valuation of our shares the board recently increased our share repurchase authorization, another 200 million to $800 million and as you heard me say at the beginning of the call. We have been quite active on the capital return. We believe that capital return will continue to be an important contributor to our.
Story going forward.
To wrap up we expect to generate an improved comps and operational efficiencies achieving higher eyes from new stores and returning capital to shareholders are not mutually exclusive.
And we'll all be important contributors to value creation that Dave and Busters.
We have the talent resources and a long track record of success that shows we can effectively and simultaneously execute on our plans.
Importantly, I would like to stress that we will continue to maintain a strong pipeline of additional high return ideas that we actively evaluate to supplement the initiatives already underway. We are conducting a thorough review of all aspects of our business and operations as a part of our annual strategic planning process.
We will adjust our strategic plan in response to our business review competitive dynamic market conditions and other factors. We are nimble experienced team taking decisive action in the face of recent performance and acting with appropriate urgency to extend Dave and Busters long track record of delivering outperformance and superior returns.
With that I'll turn it over to Scott to discuss the quarter's highlights our financial performance and updated 2019 guide.
Thank you, Brian and good afternoon, everyone.
I'll begin by spending a few minutes discussing the highlights of the second quarter, followed by a financial performance and then finish with our full year guidance.
First our key achievements in the second quarter and amusements, we strengthened our VR library with a launch of a fourth proprietary idle men in black collective getaway.
In addition, during the summer, we launched several exciting gains, including Centipede Sunday ticket linked up and basketball growth.
These titles have all tested well with our guest and initial read on their performance has been positive.
Within FNB. This summer we introduced a Hawaiian themed limited time offer we call island, but that included capable entrees like Smoky barbecue Bacon, Hawaiian Aloha, Ginger salmon, and Christy Hawaiian chicken sliders or upcoming October menu, we will introduce new items include the grilled chicken avocado sandwich and broken New York strip, while removing a few slower moving items.
We will continue to enhance an innovative offerings in SMB as we know this will be an important contributor to our go forward success.
In terms of our marketing campaigns. During Q2, we continue to run the ultimate wings, an unlimited video games promotion on Thursdays as we did in Q1.
In addition, we tested two promotions highlighting food and gain combo.
Favorable combos, which he ran for four weeks followed by an unlimited play combo.
Collectively these value oriented campaign did not resonate with our guests as well as the anticipated.
Going forward, we will continue to test new promotions to bring value to our guests and increasing our leverage digital marketing that communicate our message.
For Q3, we will also brought back in 1999 and limited range from low per game days during the football season.
This promotion now include a $10 power card instead of a litany of game play, which we believe will help improve per capital spend in Houston.
With respect to new stores, we opened three new locations in the quarter and have opened two additional stores since quarter end.
Year to date, we have opened 12, new stores and we continue to expect opening 15 to 16, new locations for the full year.
The store openings for the full year will skew towards large format stores in new markets.
Looking ahead, we still have a significant white space opportunity. We have a 132 locations currently and continue to believe our long term opportunity is 230 to 250 locations in the us and Canada alone.
We will continue to be prudent and disciplined as we expand our footprint, ensuring we invest in the highest return opportunities while returning excess capital in the form of dividends and share repurchases.
And now let me turn to our financial highlights during the second quarter total revenues increased 8% driven by strong contribution from our 31 non comparable stores, partially offset by 1.8% decrease in our comparable stores.
As Brian mentioned, our top sales results came in below expectations.
As last year's VR launch prove difficult to match value promotions were not as effective as we had anticipated.
In addition, weather had an unfavorable impact of approximately 80 basis points on comps and commended competitive intrusion and cannibalization remains stiff headwinds during the quarter.
Looking at overall sales by category amusement and other grew 9.4%.
And FNB grew 5.9%.
This has been another represented 60% of total revenues during the quarter, an increase of 80 basis points in mix from the prior year period.
Breaking down the comp sales or walk in sales were down 2% of special events were up slightly.
In terms of category comp sales amusement and other was down 0.8% well FNB was down 3.2%.
Within SMB food was down 3.8% in the bar business was down 1.6%.
Total cost of sales was 59.6 million in the quarter and improved 10 basis points as a percent of sales.
This was due to an improvement in Musa margins higher mix in a new resident revenue, partially offset by lower can be margins.
Food and beverage costs as a percentage of sales was 70 basis points unfavorable compared to last year, primarily driven by the impact of our limited lease promotion higher avocado prices and costs related to our shift to pressed juices within our bar offerings.
This decline was partially offset by the positive impact of 1.7% in food pricing and 1.9% in beverage pricing.
Cost of amusement and other as a percentage of sales was 40 basis points favorable compared to last year.
Mutant margins benefited from our pricing initiatives and the continued shift towards virtual reality and other simulation games, partially offset by higher costs associated with the new RF I'd power card.
Operating payroll and benefits expense was 23.5% of sales or 40 basis points higher year over year due to the unfavorable impact of nearly 5% wage inflation.
The leverage on comp store sales and the impact of non comp stores.
This was partially offset by the rollover of higher labor cost last year associated with the VR loan.
Other store operating expenses were up 60 basis points year over year, largely driven by higher occupancy expenses.
But nearly at the Noncomp stores, partially offset by leverage on a marketing costs.
DNA expenses of 16 million were up 8% from the prior year, reflecting increases to support a growing store base.
And higher technology and stock based compensation expense as a percent of sales DNA was flat.
EBITDA increased 5.3% to $79 million and was 22.9% of sales, reflecting a reduction of 60 basis points versus the prior year.
Adjusted EBITDA of $86 million up 4.4% on diluted EPS of 90 cents was up 7% versus the prior year.
Shifting to the balance sheet, we had approximately $560 million of outstanding debt at quarter end, resulting in leverage of approximately two times EBITDA up from 1.6 times at the end of Q1 and 1.4 times at the end of last year.
The increase was mainly due to additional share repurchases during the quarter and we feel comfortable with our leverage ratio at these levels.
As Brian mentioned, we are driving value by returning excess capital to shareholders and we have been quite active on that front during the second quarter aboard increased the share repurchase authorization by another $200 million to a total of 800 million.
We repurchased approximately 2.4 million shares in the second quarter were $137 million and had approximately $270 million remaining maybe existing authorization at the end of the quarter.
We also paid a fourth quarterly cash dividend of 15 cents per share during the quarter.
Turning now to guidance based on recent trends, we are revising our fiscal year 2018 guidance as follows.
Total revenues are expected to be in the range of $1.338 billion to 1.59 billion versus prior guidance of 1.365 billion to 1.39 billion, reflecting growth of 6% to 7% versus the prior year.
Based on July and August comp trends, which were down approximately 4.5%.
Outlook for the balance of the year, we expect full year tough to be in the range of negative 3.5% to negative 2%.
This compares to previous guidance of negative 1.5% to positive 0.5%.
We are projecting net income to be in the range of 91 million to $100 million, which is why the guidance of 203 million to $113 million.
Guidance is based on an effective tax rate of 22% to 22.5% which is unchanged.
Finally, EBITDA is expected to be in the range of 272 million to 282 million.
Excluding one time charges, we expect EBITDA to be in the range of $274 million to 284 million.
This compared to prior guidance of 282 million to 295 million.
In terms of quarterly phasing Q3 includes an estimated 2 million in one time charges related to our cost saving initiatives as well as increased marketing to promote a wall and mobile apps initiatives.
Also keep in mind that in Q2 last year, we recognized $2.2 million.
Business interruption insurance recoveries, but had a favorable impact on EBITDA.
Thank you for your interest in Dave and Busters, now I will turn the call back over to Brian .
Thank you Scott.
Our decision to reset guidance was not taken lightly and was taken in context of what we've seen in the marketplace since our last earnings call.
And the recent comp trends Scott mentioned, we have many reasons to be encouraged for the back half of the year, but at the same time, we are cognizant of recent volatility and potential risks.
As such the midpoint of our revised guidance assumes no near term improvement from current trend.
And the upper end of that our guidance assumes modest impact of initiatives starting in Q4.
I'd like to close by thanking our team for their dedication and hard work as we focus on our five near term priorities, namely revitalizing. This system stores building deeper guest engagement managing costs to fuel organic growth investing in high return opportunities and returning capital to shareholders.
As always we appreciate our shareholders for your continued support and interest in Dave and Busters.
Now we'd be happy to answer your questions during Q on a Lisa please open the line.
Thank you.
I would like to ask a question on the phone lines. Please press star one on your telephone keypad.
Your phone please make sure your mute options turned off to allow your signal our equipment. Once again that is star one.
Well take our first question from Andy Barish with Jefferies.
Hey, guys.
Just wondering if you could give us a little bit more color on sort of the non impacted stores and maybe an update on the percentage of the system. You think has impacted our a. The question is.
Are you seeing deterioration kind of in that.
In the core of that hadn't been impacted by.
By competition, which which is leading to some of the other the other changes that you discussed today.
Well I'll answer that first question got impacted stores the base of stores impacted by either competition or cannibalization did grow in the quarter Andy from.
40% in the in Q1 to 45% of our store base comp base and Q2. So we did see an acceleration of impacted stores.
But thats not the only factor here in the second quarter, we we mentioned on the call the rollover of VR.
It wasn't significant pack across that lapping of that platform was launched last year with Jurassic World We.
Underestimated the impact on traffic and our view.
And you know weather was not particularly great for us in the quarter, we estimate about 80 bips.
Oh pressure in the quarter, and we mentioned that a little bit.
Actually on the Q1 call as we.
Started off in May we had some difficult weather around Memorial day weekend, and then we had some weeks in July . So there are a number of factors, but definitely the competitive landscape is something that continues to accelerate in our view.
Thank you.
Our next question comes from Sharon Zackfia with William Blair.
Hi, Good afternoon, I guess I'd be interested in hearing more about the walls and if you could quantify any kind of lift.
You saw there in Dallas weather related traffic or food and beverage attach and.
Maybe compare contrast.
That initiative versus prior.
Remodeling initiatives, you did around Dnbi sports and so on.
Well, we're we're very excited about the well wall.
We.
As you know began that test and.
Late.
2018 in our Dallas store.
A 50 foot LCD screen.
Really reenergized is brings a whole new energy.
To that space.
Very contemporary look.
Latest and greatest technology LCD panels.
Hi resolution. So we're we're combining that while wall kind of technology with some improvements.
In furniture flooring and other elements to really revitalize the dining experience and our view is that as one of the great path towards FNB further SMB penetration.
Drive people into that space that is today highly underutilized our dining rooms today. It brings a whole new experience and we have seen outsized performance.
Really want to get into the specifics of Dallas here, but it is one of our top performing stores right in the top.
A couple of stores in terms of performance in our system and SMB in particular is performing very well. So we like the look and we like what it does to the energy of our brand and we like what we see.
With this investment.
Hey can I just ask a follow up and then is it fair to think that those comps are positive and Dallas and then when you complete allow I mean is there a big initial lift or is it something that mill.
Well they are definitely positive.
It's it's one of our top two to Threex performing stores in the system. So it is a highly positive store in our system.
And we did this we made this improvement than I think it was December of of 18.
Initially, we really didnt advertise that it will build over time building awareness. So it did take a little time to be noticed for what we had invested there but it's impressive.
And the difference here is we are going to invest in our third quarter digital media too.
Drive awareness this offerings, so we will be investing to build that.
Where.
But I do think it does take time I as I mentioned, our frequency is fairly low as a brand less than two times. So I think it does build overtime.
But we feel very confident and what this is going to do and add to the brand experience.
Thank you.
Our next question comes from Joshua long with Piper Jaffray.
Great. Thanks for taking my question I wanted to circle back to the VR usage, you mentioned a couple times the difficulty in lapping last year's rollout. Some curious how you're thinking about VR and fit the function of awareness or if its content or yeah, what you're learning about how the consumer is engaging with that VR platform. And then also wanted to see if you might be able to provide an update in terms of pricing I know, we had talked about some optionality in terms of higher pricing indoor bundling offers with the VR and any sort of latest updates in terms of what you learned there.
Thanks for the question.
Well clearly we learned a few things as we as we lap that introduction of a platform.
In many ways.
We introduced a rollercoaster last year with both platform and a very popular title in Jurassic World.
And that proved to be difficult to match enroll over you know the.
The trials that per capita lift that we saw on with that launch was was impressive and rollover was difficult.
We will begin to move away from some of that Allfast performance as we get farther away from the summer.
But we still have great.
Aspirations for that that platform. It is.
A platform that allows us to introduce.
New content proprietary content, new movie so to speak new experiences and were excited about the launch of Terminator Genisys.
An IP that we secure its going to launch.
In and around the time of the launch of the movie in November .
We really like what this game is going to deliver.
And as you as you asked you know that the notion of bundling is something that we expect to.
Pivot into as we.
Had been for this launch a terminator we have built at this 0.5.
Really great experiences and our.
Media campaign, as we launched Terminator is going to.
Not only.
<unk> launch and feature Terminator, but we are going to.
Tie in the breadth of experiences that we've built in the slide right.
Yeah.
We'll take our next question from Jeff Farmer with Gordon Haskett.
Great. Thank you.
Yeah I appreciate the comments on lapping the VR launch, but can you provide a little bit more color on that day part wheat for trends any type of customer demographic factors that might also be weighing on sales for you guys.
[laughter] similar [laughter].
What we have seen.
You know over the last well more and more than four orders you know are our strongest daypart was earlier in the in the lunch day part or over the course of the quarter and we continue to.
How hard toughest daypart and late night.
[noise].
Okay, and then in terms of the incremental costs associated with.
The mobile App introduction I'm, just curious how much of those costs are already flowing through the income statement or if there are more to come.
Well.
They are they are flowing through our both our capital guidance well add some incremental expense associated with our technology team that they aren't reflected our efforts as it relates to 20.
20 and team are flat so you are not.
Good.
Yeah, one thing I'll add to that most of that is flowing through I think what you'll see as I mentioned in Q3 that yeah from a marketing standpoint, we will kind of over index on marketing in Q3 to promote the rollout of the mobile app as well as.
Continued roll out of this so well.
All right and just one final follow up here I think the news in same store sales number came up but did you guys for sure the level of menu price you know pricing that was captured within not amusement same store sales number.
Yeah, So a major pricing was up about 2% for the quarter.
All right. Thank you.
Your next question comes from Jake Bartlett with Suntrust.
Great. Thanks for taking the question I had my first question was about on the engagement with that Mike when it written this down wrong, but Jack Jack then entertainment or or Jackman and you referred to it as a strategic refresh and so I'm just I'm trying to understand what what that might mean for forget screw your mix of of games or just maybe maybe a little detail on what what that's going to entail.
Well, we're very excited about working with the Japanese team again, we are really taking a comprehensive look at our portfolio our offering as we think about our brand and revitalizing the brand we had a very very successful partnership with Jackman and his team.
Dating back between the years of really 2010 in 2014.
And they were very instrumental in the success that we had in revitalizing the brand and some of the outperformance that you know we had you know in the years in 2014 and beyond so we're really excited about working with them again, a they're a very bright team there in my view better today than they were a decade ago and we're really optimistic about some of the initiatives that are going to come out of that work. This is not a thing that happens overnight. We worked with this group for three to four years.
And but it did result in new offerings, new approaches to our business and that's what this process is about and we are we are early on here, but really excited about this this this document.
Got it and then you mentioned that the Terminator VR on release in November I'd be interested to hear what else is on the on the docket, especially the kind of the important holiday season, and whether we should expect him a similar cadence from last year with Dragon Trust being watched it will be before the holidays, but also just to get a larger question about content and I'm wondering whether the the kind of the more exclusive focus on VR for for the last.
A year and a half months since Halo, Yeah, we said at the detriment of some of the of the of the games that you're more your core consumer you know appreciates.
[noise].
Okay. That's a great question. Thank God. We are you know we are focused on delivering a balance of titles clearly with the launch of the platform.
The VR platform does offer us a great opportunity to introduce proprietary titles and we have leaned then on that obviously over since we introduced the platform mid last year.
So we're still looking at the cadence of how many we obviously did three this year.
But we were evaluating that cadence, but it is not at the detriment of introducing other highly popular titles. We introduced by I think Scott in his remarks I mentioned some of the titles that we introduced over the course of this summer.
That are very popular and you have that resonate well with guests that bring new experiences. So we're not solely focused on the RF a piece of the introduction of games, but it does one that <unk> is able to command a pretty good spot on our TV campaign, and our intermediate message so, but it's not we're not we're not abandoning all games here we are.
Working to deliver multiple game.
Got it got it and then last question.
The unlimited [noise] wings, and then now the $10 power card and that's that's a little different than last year with the unlimited game play and you didn't see much risk around that or is that something I believe it's something you've done both before but I. Just wanted to gauge you know it any level of risk around kind of making that making that switch.
Well that's another great question, we see that we continue to work on our promotional tool kit.
Really kind of test and learn approach here.
We we did make the pivot here to a 10 dollar card. That's the way this offering started back when we initially introduced it we have optionality to think about it differently, but.
Based on some of the per cap impacts related to the unlimited video. We we are going to open. This opened the year with what we feel like is it was very compelling offer on the heels of unlimited lean offer combined with a power card and we're excited to start the year with it as you recall last year.
We we didnt have the wing promotion unlimited wing promotion running in the first half of the football season, or so so you know this year will be will be starting with that in combination with this while small investment in a large nucleus of stores and we think that's going to make for a powerful combination.
Got it and they actually have done one other quick question I apologize for that but it sounds like there's some variability about development and on the back end 20 into 2021 your comments about the store size, though should we expect in just the success of the 17 K. format stores should we expect a greater mix of smaller stores is that kind of a little more certain and then maybe how many weeks you do in the year.
Well I'll take the first question or two left for their questions first around store format size.
You know we the 17 cater the Corp. For example is really yeah. We're really excited about what that store is able to produce in terms of volumes margins and returns so.
We have discussed the fact that we are beginning to enter into smaller became a smaller market sizes. So we have always been looking for.
Flexible format and one that can deliver great returns so.
We like this format because as we think about some of these smaller markets, where we may have thought about putting a 30 k. bought fan.
And you can look at our model our target out there for our 30 okay.
Putting in a 19 K they can do 8 million.
You know soon deliver superior returns. So we're excited about what that means as we get really more into our 2021 class and beyond.
Not able to impact too much in our 20 twond to become an underwritten for quite some time. So we like the format, we like what it shows and what it means for.
Enhancing our margins.
As we think about it.
Finish out our addressable market continue to March down that road.
As it relates to flexibility.
We're heavily focused on revitalizing the stores, we have 130 plus store chain right now and we are highly focused on investing reinvesting or not.
Starting with this while wall. So we are trying to maintain some flexibility and then on when I say that I'm really talking about our late 2020 openings going into 2021 to give us a flexibility in terms of the pace.
As we are.
Look at that revitalization effort and what that means in terms of demands on the team.
Just to remind everyone. Please limit yourself to one question and you may requeue for additional questions well take our next question from John Keller with Wells Fargo.
Awesome, Thanks, and I appreciate all the color around the near term.
Initiatives and particularly around the unit growth side, but I was hoping to focus a little bit on the sales drivers in existing store base.
Two things and if they're kinda related first in a while walls can you discuss what you kind of envision for these walls overtime I know it sounds like it will be trying to drive more traffic to the dining room area around sporting events, but could it also be used for gaming events in stores and other initiatives that you might be able to do and then separately, but somewhat related you know a larger bar and grill competitor that's focused on the sports viewing space I announced a initiative into sports betting during a that was actually on Friday. So I'm curious given the fact that your your reengaging with the Jackman team are you considering that or would you even put that on the table as an option in the future. If you know the relationship or their consultancy with Jack been Kinda point you in that direction. Thank you.
Thanks, John .
As it relates to the first good while wall and really this is a sports betting question. They kind of go in some ways a little hand in hand.
I our view is.
That are dining rooms based on the square foot that weve allocated to those spaces and the utilization rate that we get today.
And it speaks to.
A need to revitalize the area so.
Wow law is our answer to that we are looking to bring a whole new energy to the space.
These are very very large screens, we have an ability capital allocation ability to scale. This.
It's going to be combined with improving some as I mentioned some of the flooring that and some of the furniture to create a really a new experience bring energy to an area that lacks that today. So we're excited about what that means and how we might as you say leverage that and use that in other ways than just sports.
We have been.
Working and testing a number of things around E sports or did a few events in the months of May in June with a partner. So we think as we improve this offering it will bode well for how we might be able to leverage that both in our.
He sports.
Leanings as well as what it may mean in terms of our positioning with partners and the sports betting arena and we're open minded to that were open to mind that the partnerships were aware of the B Wild announcement here and we think that could represent an attractive opportunity down the road right now that we're focused on the five priorities I mentioned today.
Well take our next question from Andrew Strelzik with BMO capital markets.
Hey, good afternoon, and my first question as you kind of reflect on some of the missteps on the food side some of the.
Whether its promotional constructs are valued and maybe have resonated as much as you would have expected what did you learn from that and how are you kind of changing your approach going forward and more broadly what is your work.
Your your kind of consumer insights suggest drives the SMB decision for your gas what I guess, what I'm trying to get at is longer term beyond the well was kind of what structurally change is the performance of the SMB business longer term.
[noise] that's a great question I know you know right now I I mentioned, a statistic in my prepared remarks that.
You know we are attaching are penetrated about 50, 50% of our gas turbine a food and beverage item in our stores. So it does this does represent a great opportunity for us we have a lot of square foot dedicated to this area in my view.
It could be utilized better I, you know, we're committed to improving our FNB comps here and that does mean to us.
Continuing to create a fresh and new menu you know we've talked about our simplification efforts and you know so we're going to continue to look at that and further refine our menu. We've introduced a number of LTL moves to create a new experience in our guest sat scores have improved both from a food quality perspective, as well as speed of service.
The awareness.
[noise] challenge still exist so in our view one of our biggest near term opportunities right now is to drive guest in the door and drive SNB penetration by having an area that is immersive and that is why we are right now heavily focused on them, while the physical plant nature of our dining rooms by bringing in an experiential element I'm really pleased with what we've seen in the Dallas lift. This doesn't mean, we're not going to continue to.
Look at our SMB offering overtime, we certainly will but we believe investing in the dining room physical plant right now as we continue to work our menu is the biggest near term opportunity we have.
Well take our next question from Stephen Anderson with Maxim Group.
As you look back at your recent results Oh, certainly there is some <unk> Yep press talking about you know increase.
The consumer is perhaps getting a bit less topic from a higher level, what you I see what's your read on the guest right now versus what you are really wasnt, maybe three or six months ago.
Thank you.
Yeah waking up he was asking about the consumer that's the question.
Yes.
[noise] now whether the whether you sense of the consumer has a maybe a little bit less confidence or Uh huh.
That and what you've seen maybe in the last three to six months.
Well I think the consumer is overall still very healthy I know, there's been some movement around with some of the tariffs a noise in some of that stuff, but we still feel like we have a very healthy consumer unemployment is still very low and we have a lot of confidence in our ability to.
[noise] reach more of them through the things that we're doing and drive more frequency at the same time so.
[noise], Yeah, and I'll just tag on to that yet I think overall the consumer is in pretty good shape from an economic standpoint, I think you know some of these uncertainties. You know came away from time to time, but I think the outlook is fairly good, especially with the other player picture.
Some wage growth.
I think we're doing pretty well yeah. There's there's some headwinds on the expense side, but I think you know the uncertainty in the environment, what kind of ebb and flow, but we feel like you know the.
Economic health of the customer is really good.
Yeah.
Well take our next question from Joshua long with Piper Jaffray.
Great. Thanks wanted to follow up just as a clarification you mentioned a couple times about the I guess the Optionality in your real estate pipeline and then I think later it is a response to someone's question you said that that doesn't in terms of say the 17000 square foot stores, there's really not an opportunity to layer more of those in earlier, that's really kind of a 2020 or 2021 opportunity is that the right way to think about it Brian .
Oh [laughter], we actually have a I know a couple of units that were in our pipeline in 2020 in the 19 K format. So we we have a couple in our in that 2020 classes that were already planned.
The the pending that we see potential for really is a it's a 2021. There are a couple of those that we are reevaluating right now in terms of what the proper sizes and then obviously as we began to underwrite into 2022. This will be a key part of our decision, making as we again.
Optimize the size of the store to our market sales potential because.
We just really like what we see in corpus and its ability to generate some really big numbers.
At a very low with a very efficient box much smaller back of house. So.
You know.
That's kind of where we stand on that.
Well take our next question from Brian Vaccaro with Raymond James.
Hi, Thanks, and good evening I just wanted to circle back on the recent comp trends and I. I think you said July and August down a 4.5% and just trying to get a better understanding of what you think might be driving that incremental weakness is there anything and as you look beneath the surface anything to add a amusement versus SMB segment comps day of the week, maybe geographic or mall versus non mall or you know that that might help explain some of the incremental softness.
Well, Brian July and August were.
Most of them are down in the mid 4% range, we can to.
The comments that I made about difficulties and Q2, which relates to the VR rollover continued into August so that that is definitely a part of that and weather played a part as well we saw weakness up the mid Atlantic in eastern Seaboard and the competition continues to to grow I mentioned that we are expecting right now.
You know 80 units this year on a.
Names that were tracking and that's up from 60 or maybe I didn't mention this that's up from 60.
Last year, so not as a headwind that is continuing to grow you know I said, we're we're optimistic about what we're doing in our pipeline to work to offset that and that's related to our efforts and a heavy focus on revitalizing our existing stores and are working on building better guest engagement.
Which is a big opportunity from the frame right now.
And this does conclude the question and answer session I would like to turn the call back over to Brian Jenkins for any additional or closing remarks.
Well. Thank you for your time. This afternoon, we look forward to reviewing our third quarter results with you in December .
Thank you.
And that does conclude today's presentation. Thank you for your participation you may now disconnect.