It’s the end of an era for Dave & Buster’s. Since going public in 2014, chief executive officer Stephen M. King and chief financial officer Brian Jenkins have been the face of the company for investors. One part of that management team, which doubled the entertainment-dining brand’s store count in the past 12 years, is stepping aside. King, Dave & Buster’s CEO since September 2006, said during a June 11 conference call that he plans to retire, effective August 5. King will continue to serve as chairman and remain on the board of directors, the company said. Jenkins, Dave & Buster’s CFO since December 2006 after a 10-year run at Six Flags, Inc., will become the 115-unit brand’s new CEO.
“As for the timing, it’s just the right time for me personally. One can only see another milestone to be completed and push something like this off into the future. Some of you know that for my first 10 years as CEO of Dave & Buster’s, I commuted from Dallas to New Haven, while my wife was an officer at Yale University. Now that she’s retired, I want to spend more time with her and the rest of my family,” King said. “I continue to have a big emotional and financial stake in the success of Dave & Buster’s.”
King arrived at a transitional period in Dave & Buster’s history. The brand first went public in 1997 and then was taken private nine years later thanks to an investment by Wellspring Capital Partners III L.P. and HBK Main Street Investors L.P. King started as CFO and was soon promoted to the lead role, where he led Dave & Buster’s strong growth and October 2014 reentry into the public markets with a $94.1 million initial offering.
“Over the past 20 years, I’ve developed a passion for the entertainment business,” Jenkins said. “Having spent a decade with Six Flags and now over 11 years here at D&B, entertainment is in my DNA. I’ve always looked at our business through an entertainment lens and believe that our relatively low frequency continues to represent an opportunity for us.”
King shifts from his role at an interesting—and optimistic time—for Dave & Buster’s. The chain had a rough close to fiscal 2017, with same-store sales declines of 5.9 percent triggering a double-digit Wall Street tumble. This fiscal calendar, however, is off to a dramatically different tune.
Despite same-store sales falling 4.9 percent, Dave & Buster’s shares soared as much as 20 percent in late trading Monday as revenue breezed past analyst expectations. The company reported first-quarter net income of $42.2 million, about $1.04 per share, besting FactSet’s call of 94 cents per share. Revenue of $333.2 million topped FactSet’s $321.6 million call and was 9.2 percent higher than the year-ago period.
Dave & Buster’s opened six stores during Q1 as well, and some are delivering the highest volume openings in company history, King said.
At the end of fiscal 2017, King said Dave & Buster’s new amusement offerings proved less compelling than normal. Amusement sales were down 4.2 percent as walk-in sales dipped 6.4 percent. But the downturn was also accompanied by details of Dave & Buster’s impending virtual reality push, which is just about ready for its close-up.
The company is in the midst of nationally rolling out its first proprietary VR title, Jurassic World VR Expedition, which is the biggest single game investment Dave & Buster’s has made to date. While it’s been introduced over the past 10 days or so, Thursday marks the official launch as far as advertising and marketing assets are concerned. A second title is coming toward the end of the calendar year as Dave & Buster’s plans to build a library of proprietary VR content it believes will differentiate the concept not just from other eat-and-play brands, but from console gaming and other competitive entertainment offerings.
“Improving service and reducing friction in the guest experience is also a strategic priority for us, and we’re focusing our attention on pain points at the front desk, at our bars, in the dining room and while purchasing power cards and activating games.” — Stephen M. King, Dave & Buster’s CEO.
Dave & Buster’s is selling VR as an attraction through a VR chip, both at its kiosk and register. Guests can also buy a chip if they come up to the attraction via point-of-sale devices.
Even before this product hits, Dave & Buster’s is already on the upswing. Amusement and other sales lifted 10.4 percent in the first quarter, while food and beverage sales collectively grew 7.7 percent. Amusement and other represented 57.9 percent of total revenues, a 60 basis-point increase from the prior-year period. Walk-in sales dropped 4.8 percent, special events business declined 6.4 percent. In terms of category comps, amusements fell 4 percent, while food and bar dipped 6.7 percent and 5 percent, respectively.
On the culinary side, the chain’s pared-down menu—about a 20 percent cut announced in February—is beginning to help Dave & Buster’s simplify kitchen processes, King added, and speed up service. It also remains on track to test a “quick-casual” offering inside Dave & Buster’s during the back half of the year. King said “we continue to view this as a complementary delivery mechanism to casual dining inside our facilities.”
“Improving service and reducing friction in the guest experience is also a strategic priority for us, and we’re focusing our attention on pain points at the front desk, at our bars, in the dining room and while purchasing power cards and activating games,” he added. “A combination of technology and operating processes, including how we deploy our people, are key elements of this strategy.”
Development of 10 percent or more unit growth annually remains a key driver for Dave & Buster’s. Nine units have opened since 2018 began, and five are under construction. The six stores that opened in Q1 are: Rogers, Arkansas; Memphis, Tennessee; Wayne, New Jersey; Anchorage, Alaska (a new market for the brand); Madison, Wisconsin; and Rosemont, Illinois.
The Rogers store was Dave & Buster’s first in the 17,000 square-foot smaller format it outlined last December. The next is coming to Corpus Christi, Texas, later in the year. Dave & Buster’s expects average-unit volumes of $4–$4.5 million and store-level EBITDA margins of around 25 percent in these restaurants.
So far in the second quarter, Dave & Buster’s has opened in Salt Lake City—another new market; Massapequa, New York; and Torrance, California.
“Our target is to ultimately open or 231 to 251 locations in the U.S. and Canada, including 20 to 40 of the 17,000-square-foot stores,” King said. “We plan to capture market share through unit growth on a consistent measured pace and by driving improvement in our comp store sales.”
“We can win by focusing on enhancing our offering, strengthening our execution inside the box, and ensuring that we’re reaching our audiences effectively,” he added.