Smaller stores will allow the entertainment-driven brand to enter new markets around the country.

Dave & Buster’s could be coming to a small market near you. The entertainment-driven chain announced this week that it plans to start opening smaller-format stores, with the first debuting in Rogers, Arkansas, early in 2018. Dave & Buster’s said during a conference call that the unit will be 15,000–20,000 square feet, with anticipated average unit volumes of $4–$5 million.

In the long term, chief executive officer Steve King said Dave & Buster’s sees the potential for 20–40 of these new locations. The Dallas-based brand has attempted to trim down its massive stores in the past, but without much success. This model will be a much different experience.

The first time around, Dave & Buster’s simply “took everything and proportionately shrunk it,” King said. There was a special event space; a dining room; and the arcade dropped down to 5,500 square feet. It was like a miniature version of the traditional big-box space. The new restaurant, however, will feature an arcade that’s 10,000 square feet, or essentially the same size as the current restaurants. And instead of having a separate dining room and special events space, Dave & Buster’s will showcase a straight sports theme King called “D&B Sports.”

“We will have some dining oriented toward the arcade like we have in most of our stores. But we’re really going to focus on D&B Sports attached to a 10,000-square-foot midway,” King said. “We just think it’s going to be a much better and more effective way for us to try to tackle those smaller markets.”

Dave & Buster’s plans to open two of these in 2018—the Arkansas store and one other—so the unit can be properly vetted and the returns and volumes measured.

What’s also notable about the model is the notion it will allow Dave & Buster’s to enter markets it couldn’t before. The idea, King said, will be to open in 20–40 completely new markets once deemed too small for the brand’s current small format, which is 25,000–30,000 square feet. King added that the new format could fit in markets with populations of 200,000–500,000. “We look at a number of different factors to try to determine where we thought we could get that $4 million to $4.5 million of sales,” he said.”

Dave & Buster’s opened 14 restaurants in 2017, which represented about 15 percent unit growth. Six of those stores were in markets where the company already has stores. From a size perspective, Dave & Buster’s is expecting to open 10 large stores in 2018, including eight that are about 40,000 square feet, two between 30,000–40,000, and four at 30,000 square feet or less. There are currently 11 stores under construction and a total of 27 signed leases. Overall, Dave & Buster’s has 105 locations in 36 states and Canada.

The news highlighted what was a muted, but expected, third-quarter earnings report.

Dave & Buster’s comparable same-store sales dropped 1.3 percent, year-over-year—the first time they’ve gone negative since the brand went public in 2014. Total revenues increased 9.3 percent to $250 million from $228.7 million versus the prior-year period.

Sales in amusements increased 1.1 percent, while food and beverage fell 4.2 percent.

Dave & Buster’s said hurricane activity affected total revenue and EBITDA about 50 basis points, $2 million and $0.7 million, respectively. Wildfires also hurt sales in California, the company said.

Still, Dave & Buster’s stock traded as much as 9 percent higher on Tuesday in after-hours and rallied the following day. Optimism could have been buoyed by the small-format news as well as the company’s slightly better-than-expected earnings.

King began the call by talking about Dave & Buster’s four strategic priorities.

He said the company’s 2018 games lineup is shaping up to be its best yet. The brand’s Summer of Games lineup focused on highly recognizable products, such as Spider-Man, and Despicable Me. In October, Dave & Buster’s launched its Injustice Arcade on an exclusive basis ahead of the release of Justice League.

As for the future lineup, King said it includes “a proprietary virtual reality platform that will enable us to rotate content and capitalize on this emerging opportunity for several years.”

He added that Dave & Buster’s has figured out a multiplayer platform for virtual reality that could fix some of the prior concerns. Mainly, VR bogging down the arcade.

“I would think about it as more of an attraction-oriented piece, although it will be interactive in the sense of a game, but it’s more like a simulator than it is like our redemption kind of game,” King said, adding the Dave & Buster’s will reveal more closer to launch.

Secondly, Dave & Buster’s is trying to reignite the momentum in its food and beverage business by improving product alignment and speed of service, King said. The company also wants to “remove friction in the guest experience,” and, bolstered by strong new store returns, drive unit growth for the company in the long term.

Dave & Buster’s plans to emphasize its Eat & Play combo, which was advertised on TV during the quarter. A menu redesign and simplification in the kitchen will boost speed.

Also, technology, such as pay-at-the-table and mobile pay, are being tested.

Kings said Dave & Buster’s is looking at offering a quick casual alterative delivery mechanism inside restaurants as well. The company will begin testing the platform in 2018.

“We want to implement solutions including leveraging technology that enable our guests to better control the flow of their visit and frees up our staff to have more personalized and meaningful touch points with our guest,” he said.

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