Welcome to the Dave & Buster's of the Future

Menu innovations and tech changes are blasting the category pioneer out of COVID-19's depths.

June 11, 2021 Ben Coley

It’s no secret COVID-19 has been especially hard on Dave & Buster’s.

Governmental restrictions tanked business, which relies heavily on entertainment, foot traffic, and the social experience. In Q2 2020, same-store sales plummeted 87 percent. In September, the chain gave notice it was laying off more than 1,350 employees and warned a potential bankruptcy could be on the horizon if it didn’t strike a deal with lenders.

But that’s the old Dave & Buster’s—a version company leaders are more than willing to leave in COVID-19's wake. With vaccinations increasing, case rates declining, and restrictions lessening, Dave & Buster's is now operating in an environment in which it can flex a host of new operational fixes, as well as historic strengths.

As proof, Dave & Buster’s began its first quarter with 107 open stores, or 76 percent of its footprint. By the end of the period (May 2), the company reopened 138 of its 141 restaurants. The brand generated $265 million in total sales in Q1, which surpassed the top end of its expected range, and established what CEO Brian Jenkins called “a new high watermark in our post-COVID sales recovery.” Same-store sales in April decreased just 12 percent compared to 2019, with half of comp stores experiencing positive growth.

Through the first five weeks of Q2, comps are down just 4 percent and total sales are running slightly ahead of pre-pandemic levels. The top quartile of units are growing 20 percent while the lowest quartile are declining about 25 percent. All stores are now back on line except two Canadian locations, and those are scheduled to reopen in a few months.

THE COVID-19 ROAD FOR DAVE & BUSTER'S SO FAR:

Dave & Buster's Enters the World of NFTs

Dave & Buster’s Restaurant Fleet is Coming Back to Life

The Game is About to Change at Dave & Buster’s

Dave & Buster’s Continues to Weather a Tough Winter

Things Will Get Worse for Dave & Buster’s Before They Get Better

Top Dave & Buster’s Stores Inch Closer to Regular Sales Levels

Dave & Buster’s Warns of Potential Bankruptcy

Dave & Buster’s is Reawakening as a Better Brand

Dave & Buster’s Takes $43 Million Virus Hit, Looks to Future

Dave & Buster’s Strikes $100 Million Agreement, Could Still End Up in Chapter 11

Dave & Buster’s to Sell Up to $75 million in Shares

Dave & Buster's Considers Selling Stake as Stores Shut Down

The sales rebound, combined with a lean operating model, drove high profit flow-through in the quarter, the company reported. Eighty-four percent of stores posted positive EBITDA across Q1 and 90 percent did so in April. Dave & Buster's as a whole returned to profitability for the first time since the onset of the pandemic with net income of $19.6 million, or 40 cents per diluted share.

“Clearly, we've come a long way over the past year. We are optimistic about our future as we implement strategic initiatives to modernize and enhance our food and beverage menu, service model, entertainment offerings, and guest engagement,” Jenkins said during the brand’s Q1 review. “With these initiatives and the steps that we took during 2020 to bolster our financial foundation, we are now a more competitive, more guest-centric company and positioned to be a more profitable business as our sales fully recover.”

Simply put, a new era is dawning for the industry, and the same can be said for Dave & Buster’s. COO Margo Manning reported the chain completed its transition to an elevated menu, with its new food identity, “Inspired American Kitchen” at the forefront. The updated menu offers 28 items, or a 33 percent decrease compared to pre-COVID. So far, items like the IPA Fish and Chips, Hawaiian Chicken Sandwich, and Mushroom Stout Burger are “big sellers on the menu” and “clearly resonating” with customers, Manning said. She further shared the next goal is to launch a freshly curated beverage menu early in Q4 to improve relevance and attachment.

Innovation is a major part of the strategy, beginning with the LTO summer beverage lineup featuring Elderflower tonics and Bomb Pop margaritas. And in September, Dave & Buster’s will offer a “heartier selection” of food and drink LTOs that pair well with football and Oktoberfest. Supporting this new menu is the completed rollout of high-speed ovens and an upgraded kitchen management system. The equipment simplifies operations by reducing cook times some 40 percent and by facilitating a seamless flow in the kitchen.

“We expect our new menu to drive an improved guest experience and increased food attachment rate, all aimed toward increasing food and beverage sales," Manning said.

Dave & Buster's

Dave & Buster’s rolling four-week average for mobile ordering adoption is more than 40 percent.

In addition to menu improvements, Dave & Buster’s met the call for convenience by giving customers added control over the in-store experience. This means a new service model, tablets, and a mobile web platform that allows for contactless payment. More than half of the chain’s system is leveraging the new service setup to expand the size of server sections and reduce staffing levels. A systemwide deployment is planned for July. To drive higher guest engagement, Dave & Buster’s will launch a new loyalty program in late Q3 that features “robust targeting and personalization capabilities” to bring attention to the mobile app.

Dave & Buster’s rolling four-week average for mobile ordering adoption is more than 40 percent, the company said. Because of this strong response, it's testing a completely self-serve, web-enabled experience in two stores in Dallas and Times Square.

“So in this environment, it's technically not really a server role,” said Jenkins, describing the pilot. “So we've defined roles, scripted roles, to drive engagement and enhance the guest experience. So moved transactions over, reimagined the roles of our team members. So it's been a lot of work and it's evolving. Our technology team along with our operations team, they have really done some great work here and we'll see where it goes. I am excited, but I think it could be very transformative for our brand.”

Dave & Buster's amusement business is getting a jolt as well. Earlier in the week, the chain announced that it’s entering the NFT business and will be one of the first restaurant and entertainment venues to offer NFT/digital collectible coins and cards that can be claimed as prizes. To start the Digital Collectibles Prize program, Dave & Buster’s will auction off an “uber-rare” NFT D&B Game Coin, with proceeds benefiting Make-A-Wish Foundation. The auction is open to the public, and bidding will start June 23 at daveandbusters.com/NFT.

Dave & Buster’s is also rolling seven new games for the summer, including a life-size version of Hungry Hungry Hippos, Minecraft Dungeons Arcade, and new virtual reality experiences like Terminator: Guardian of Fate Special Edition and Vader Immortal: Lightsaber Dojo.

Dave & Buster's

The chain has earmarked roughly $5 million in Q2 for hiring programs and retention initiatives.

To improve the environment further, Jenkins said the company is “broadening our entertainment offering through the production of high-energy interactive events.” That began with a live music test in Tampa with dueling piano band Howl at the Moon. In preparation for football season, Dave & Buster’s is planning proprietary video content, live entertainment, engaging contests, and potentially something with sports betting as negotiations come to a close.

“It is truly an exciting time at Dave & Buster's as the strategy, the planning, and the preparation that occurred during the pandemic are now coming together to accelerate our recovery,” Jenkins said.

As Dave & Buster’s moves into its jam-packed summer, it’s making investments to ensure staffing can meet demand. The chain earmarked roughly $5 million in Q2 for hiring programs and retention initiatives. The company has a little less than 12,000 employees on payroll, compared to roughly 14,000 pre-pandemic. Manning said with markets pulling back on stimulus, Dave & Buster’s is seeing a significant increase in application flow and individuals accepting offers and showing up to work. The impact of the brand’s referral program is starting to take hold, too.

Plus, the new service model lightens the labor pressure.

“The new technology that we're rolling out and the new service model has been really powerful for us,” Manning said. “It's allowing us to operate more efficiently. ... The teams like it, the technology is pretty easy for the guests to acclimate to. So we're really encouraged about the combination of all of those things coming together to help make this staffing situation better for us in the upcoming months.”

In Q1, EBITDA totaled $72.1 million, or 27.2 percent of revenues, compared with EBITDA loss of $26.1 million in Q1 2020 and EBITDA of $88.9 million, or 24.4 percent of revenues, in Q1 2019. Store-level operating income before depreciation and amortization was positive in 119 stores during the first quarter and in 127 stores for the month ending May 2. Dave & Buster’s generated $77 million in operating cash flow in the quarter, and used $60 million to completely pay down its revolving credit facility.