The keys to continuing growth in walk-in business, as well as accelerating the recovery of its special events sales, is opening more efficient locations and upgrading the existing fleet, Sheehan said.
To set the scene, he described a hypothetical 75,000-square-foot legacy store built in a trade area that no longer attracts much traffic. The CEO said the better route is to replace that outlet as it nears the end of its lease with two strategically positioned locations in more relevant parts of the market.
“As we find out that these new slightly smaller stores are significantly better returns and have a more optimal use of space, it is that new concept opens up a lot more markets for us to expand the brand,” Sheehan said. “So we have plenty of room to grow for years and years to come.”
The other part of that discussion is reexamining the “exciting factor in each and every store” to make sure when customers return, they feel a “refreshing experience.” To accelerate this, Dave & Buster’s is ramping up a refresh and remodel program that features varying levels of transformation. A more formal, full remodel costs $2 million, and the refresh would be in the $500,000 range.
Long-term, the plan is to look at all 143 locations, determine which option is best, and schedule what year they need it by.
“These stores come back almost like new and get a lot of people to come in and try it again,” Sheehan says. “And if we do it right, that then expands the traffic and the demand in those markets. I think we want to be balanced because I feel strongly that we need to make sure the existing stores are the right experience for our guests, and since we generate so much cash flow, we still have the ability to build a number of stores each year.”
“And we have to be attentive to doing and balancing all of the capital allocation across all the uses of cash to make sure we're being as thoughtful to our shareholders as possible,” he adds.
In terms of macroeconomic headwinds, the chain is seeing commodity inflation in the high-single digits, but the brand has mostly offset those increases with its new menu and service model. Adjusted EBITDA for Q3 was $68.2 million, a 47 percent increase compared to 2019. That’s also up from 39 percent in the second quarter.
Dave & Buster’s earned $318 million in revenue in Q3, versus $109.1 million in 2020 and $299.4 million in 2019. Net income totaled $10.6 million, or $0.21 per diluted share, compared with net loss of $48 million, or $1.01 per share in Q3 2020 and net income of $500,000 or $0.02 per diluted share in Q3 2019.