To reach its projected sales level, BTIG said Puttery’s food and beverage program must mix around 40 percent and that alcohol should account for half of that total. In the first location thus far, gameplay accounts for 40 percent of sales, while food and beverage mixes 60 percent. Within food and beverage sales, 77 percent comes from alcohol.
“We believe this sales mix should be beneficial to venue-level profitability as alcohol and games carry the highest gross margin,” BTIG analyst Peter Saleh said in the note. “Looking ahead, we will be interested to hear about customer repeat visits as the concept settles into a more normalized sales run rate post the honeymoon period and the traction with group events.”
Among Puttery, Drive Shack, and American Golf, Khouri said Puttery will “continue to be the best part of growth” because it allows the company to scale quickly with less capital risk. For instance, Puttery units will be 15,000 to 20,000 square feet, take between six and nine months to build, and require require an investment of $7 million to $11 million. They’re also expected to generate EBITDAs between $2 million and $3 million.
Meanwhile Drive Shack locations will be 50,000 to 60,000 square feet, may cost up to $40 million, take 18 to 24 months to construct, and generate between $4 million to $6 million in EBITDA.
“We believe Puttery is the obvious choice here,” Khouri said during Drive Shack Inc.’s Q2 earnings call in August.
The plan is to build 50 Puttery venues and one Drive Shack location in Manhattan by the end of 2024.
The next Puttery location is on pace to open during Q4 in Charlotte, North Carolina. That will be followed by Washington, D.C. (Q1 2022), Miami (Q3 2022), and Houston (Q3 2022). Two more sites are in or near lease execution.
The company ended Q2 with $81 million in unrestricted cash on hand, giving it plenty of liquidity to fund the development of the first seven Puttery locations. To fund the next 10 venues—estimated to cost $75 million—the company plans to raise additional capital through debt financing later in 2021 or early 2022, according to Saleh.
Drive Shack Inc. has a deal in place with professional golfer Rory McIlroy and his partner group Symphony Ventures to invest at least $10 million in Puttery through 2023. Saleh said he expects Puttery to leverage that relationship either later this year or early in 2022. The $75 million cost is incremental to McIlroy’s investment, the company noted.
As for Drive Shack the brand, all four stores in Orlando, West Palm Beach, Richmond, Virginia, and Raleigh, North Carolina, experienced record-high walk-in revenue in the second quarter, combining for $10.1 million—a 26 percent increase against Q4 2019. The Drive Shack in Manhattan is scheduled to be finished and open by 2023. Another one in New Orleans is currently on hold.
“We view Drive Shack as a company in the early innings of a transition from an owner and operator of traditional golf courses to a golf entertainment brand that seeks to expand its customer base by catering to families and novice golfers rather than the avid golfer,” Saleh said. “While the path to success in the eatertainment segment will come with its set of challenges, ultimately, we believe the company's differentiated concepts will lead to greater profitability than its traditional golf business.”