As devastating as COVID-19 has been on restaurants of all stripes, it was always going to batter social brands like Dave & Buster’s harder than most. On March 20, the eatertainment chain shuttered all 137 of its restaurants. And they remained dark throughout the rest of Q1, which ended May 3.
Compounding this, Dave & Buster’s slogged through a three-week period leading up to the juncture where sales and traffic were already severely distressed. People were avoiding restaurants and group entertainment venues well before they were mandated to do so.
So the results were never going to be pretty. Dave & Buster’s, which has had an eventful few weeks raising capital, shared Q1 figures Thursday afternoon.
The company reported a quarterly loss of $43.5 million compared to net income of $42.4 million in the year-ago period. Revenue tumbled 56 percent to $159.8 million from $363.6 million.
Same-store sales declined 58.6 percent, year-over-year, as EBITDA loss totaled $26.1 million compared with EBITDA of $88.9 million in Q1 2019.
In April, with all of Dave & Buster’s stores shut down, the company burned through $6.5 million in cash each week.
Today, Dave & Buster’s has more than $225 million on hand and total debt of $750 million.
Subsequent to the end of Q1, on May 6, Dave & Buster’s completed a $100 million private placement of 9.6 million shares at a price of $10.44 per share. This was followed by a $10.6 million over-allotment option competed May 20 of a million shares at the same figure. In total, the brand has raised an additional $186 million in equity capital.
Dave & Buster’s shares have declined 64 percent this year on the stock market.
“As we said back in April, our singular goal has been to weather the shutdown period and reopen our stores as soon as we can so that we can welcome back our furlough team members, turn our game back on and bring fun back into the communities we serve, fun that we believe will be a very important part of the healing process as the country emerges from the shutdown,” CEO Brian Jenkins told investors Thursday afternoon.
The category juggernaut has started to get back on its feet in recent weeks. It began to reopen restaurants in May and, as of last week, had 28 locations up and running. By Sunday, the number was expected to jump to 48 across 15 states. Dave & Buster’s anticipates 90–95 reopened locations by August.
In terms of performance, it’s run the gamut a bit. The most recent class, Jenkins said, generated comp sales at an index of 37 percent compared to 2019 levels. For the top quartile of those stores, however, Dave & Buster’s is running at 55 percent of pre-COVID business. The bottom quartile closer to 18 percent.
Jenkins said the recovery process has been gradual, with steady week-to-week gains. They’ve seen a ramp up from 17 percent in the first week to an average of 46 percent for those spots reopened for five weeks.
That’s the limit of Dave & Buster’s history so far. “We’re really optimistic about our ability to claw back,” Jenkins said.
He said units can cover their variable cost at 10–20 percent of 2019 sales levels. And at about 60 percent of 2019 numbers, the brand reaches EBITDA profitability at an enterprise level under normal operating conditions.
With reopenings, Dave & Buster’s is giving the green light when a restaurant shows initial potential to generate between 10–20 percent of 2019 revenues.
The company sets operating hours for each location based on pre-coronavirus high-volume days and dayparts. Current reopened units opening at an average of 60 hours per week, or roughly 65 percent of past average weekly operating hours. But Dave & Buster’s picked the same 60 hours that generated close to 90 percent of revenue before the crisis.
In other terms, the chain is focusing operations in its historically productive times.
Restaurants are getting back on line with two to three managers. It was close to 10 before.
Jenkins said staffing levels will adjust as sales figures dictate.
Inside Dave & Buster’s, which are generally massive boxes, about 40,000 square feet on the typical side, the chain is maintaining seating capacity at 50 percent in dining and bar areas. It reconfigured arcades to promote 6-foot spacing by taking some games off-line. Reopened stores feature about 75 percent of past player positions, with a heavy focus on unique titles. New game development has been paused.
One expense: Dave & Buster’s previous model always enjoyed high amusement margins because of the minimal attendant requirements on games. But enhanced cleaning protocols, PPE, and other COVID-19 investments are on pace to cost the company roughly $7 million, Jenkins said.
Heavy price tag or not, it’s “really a requirement for us in our mind to provide that environment as they ramp up,” he added.
New protocols include:
- Multiple Hand sanitizer stations
- Disinfectant wipes available to wipe down games and tables
- Dedicated staff to sanitize tables and games regularly
- Limit the number of guests allowed for social distancing
- Staff wearing masks and gloves
- Employee health/temperature check prior to starting shifts
- Masks and gloves available for guests
- One-time use disposable menus
There are two other key changes Dave & Buster’s considers to be temporary or transitional. Firstly, it narrowed its menu to 15 items from more than 40 to aid a limited kitchen staff and control inventory. Jenkins said a pared-down offering could become permanent, but it’s likely to sit somewhere between those extremes.
“The expansion will not simply be a matter of reactivating our pre-COVID menu. Rather, we will leverage our earlier work with the assistance of a third-party consulting firm to inform these changes and target a new engineered menu by fall of this year,” he said.
The other change concerns marketing message and media execution. Dave & Buster’s shifted in recent days to a local approach that deploys traditional and digital media to get the recovery word out. TV, out-of-home, social advertising, and digital radio to saturate a target audience.
Jenkins said two of Dave & Buster’s three markets currently using this approach are leading the brand in terms of revenue.
The chain could emerge with some new tech and operations as well. Dave & Buster’s has been working on a new platform to enhance guest service through a self-service, contactless order and pay platform. Guests will be able to access the menu, order food and beverage items, and pay from mobile devices.
Jenkins said they’re piloting the tech in two stores as an optional experience for guests. In July, it will launch in one location as the primary way to order and pay. “And we’ll then take those learnings to evaluate a larger-scale rollout,” he said.
Another opportunity to emerge could involve the 43-foot “Wow Wall” LED TV screens Dave & Buster’s was rolling out pre-COVID-19. The feature can show up to six games at once and was designed with stadium sound equipped for viewing parties and other special events, like esports.
The previous goal: Become a premier sports viewing destination and drive guest frequency and F&B attachment into a lagging part of the company’s business.
Jenkins believes Dave & Buster’s can slot into a need in the future as live sports return. If early games, or entire seasons, are played in front of empty stadiums, he said, the chain will have a unique chance to deliver an engaging experience.
“We plan to promote our stores as venues where fans can enjoy a unique fan experience and a safe fun environment with great access to food and beverage and other great forms of gaming and entertainment,” he said.
On the other side of reopenings, Dave & Buster’s has a new national brand campaign coming, too. The company recently tapped Mother New York as its new creative agency and brought on former Del Frisco’s president Brandon Coleman III as SVP and CMO in February.
“Our new campaign will amplify Dave & Buster’s strong brand and unique assets through activations aligned with several key event-driven windows, all of which will contribute through engaging our guests on a more emotional level,” Jenkins said.