Dave & Buster's Sales are Down, but Optimism Persists

It’s been almost a year and a half since Dave & Buster’s announced its move to buy Main Event for $835 million. As CEO Chris Morris steps back and reflects on where the company currently stands, he remains confident. But sales are still catching up to that optimism.

Systemwide comps dropped 6.3 percent in the second quarter. When comparing against 2019, same-store sales rose 5.8 percent, but that’s down from 10.3 percent in Q1, 14.1 percent in Q4 2022, and 17.5 percent in Q3 2022. Morris emphasized nothing unusual happened in the quarter. It’s just Dave & Buster’s lapped last year’s post-COVID surge. Food and beverage is still mixing a third while amusements take up the rest.

Despite the sequentially lower same-store sales figure, Morris said he was pleased with the number.

“As we always do, we’ve analyzed the heck out of our business, slicing and dicing it every single way,” Morris said during the company’s Q2 earnings call. “What I’ll tell you is, there was nothing meaningful that came out of that. We think that it was just overall relative to [2022], there was just a decline. So there’s not one thing that we could really point to that would suggest that it’s related to a shift in consumer behavior in terms of how they’re trading at Dave & Buster’s or anything along those lines.”

Dave & Buster’s has six key growth initiatives—first announced during Investor Day in June—to get business back on track.

The first is improved guest communications. The chain completed an investment in its marketing technology infrastructure and is in the process of building a digital marketing engine that should start to see results in the early part of 2024. This will create a more personalized approach for a loyalty base that features 5.2 million users, up from 4.8 million in Q1. Rewards customers visit roughly 50 percent more frequently and spend roughly 15 percent more when they visit. Additionally, Dave & Buster’s plans to leverage its sports-watching capabilities to draw in more customers, along with value-based promotions, like an everyday $5 Bites Menu and all-you-can-eat wings on Mondays and Thursdays.

Another is strategic game pricing. The brand recently switched the prices of its Power Card from $15, $25, $35, and $45, to $20, $30, $40, and $50. The other unlock is altering pricing between geographic areas, similar to food and beverages. These market-based prices will start going into test within the next couple of weeks. The moves come in response to the new leadership team uncovering that Dave & Buster’s had no detailed pricing strategy and that it was significantly discounted compared to competitors. Power Card prices haven’t risen in 20 years.

The third pillar is an improved food and beverage package. Dave & Buster’s believes there’s room to enhance attachment rates and overall revenue and profits from the menu through simplification, better quality, and upgrades around speed of service. During a 10-store test, restaurants saw a low-single-digit increase in sales, a 170-basis-point rise in food costs, improved labor expenses, faster service, and higher OSAT scores. The new menu should be launched systemwide by the end of September. More innovation will be added to locations nationwide in February.

“Our approach to delivering on those outcomes is a multi-phase approach,” Morris said. “What we tested, and we tested it in 10 locations, was the second phase of this multi-phased approach. But through this phase, it’s been highly impactful and done by design.”

The fourth matter touches on modernized store remodels that are laid out to increase traffic and productivity. These new locations also have the technology to support guest engagement and introduce new entertainment offerings to fuel walk-in and special event business. The first 12-unit pilot went live in mid-August. Although it’s only been a few weeks, Morris said the restaurants are being well-received by customers and performing above expectations of a double-digit improvement in comp sales. Eight more remodels will come online before the end of 2023 and another three will open in 2024. Dave & Buster’s plans to release a comprehensive financial analysis of the remodels once all the tests are finished.

The next one is special events, an area that took a big hit during COVID. The channel continues to recover, with revenue up 15.6 percent in Q2 year-over-year. The business is close to flat versus 2019 levels on a combined basis, but Dave & Buster’s alone is still meaningfully below pre-COVID levels. To drum up momentum, the company added sales managers to market special events. At the stores where this change has taken place, advance group bookings for Q3 and Q4 have more than doubled on average compared to the rest of the system. The sixth and final part of Dave & Buster’s growth plan is technology enablement. The brand is updating its service model and IT infrastructure at the store level, such as implementing a server tablet solution, selecting a POS of the future, and installing new kiosks.

“In aggregate, we are confident our organic growth initiatives will create significant shareholder value over the long-term, and our operational achievements in the quarter are indicative of the progress we’re making towards our goal,” Morris said.

Alongside these initiatives is P&L management. Thanks to cost savings, Dave & Buster’s expanded margins by 120 basis points versus 2022 and 230 basis points versus 2019. The brand expects to have an annualized run rate of $40 million to $60 million in savings after mitigating costs of goods sold, labor, store operating expenses, and G&A.

The company has a long-term goal of $1 billion in adjusted EBITDA.

“There’s clearly a path towards $1 billion in EBITDA over the medium term,” Morris said. “We haven’t shifted at all our thinking on delivering on the outcome of that plan. But we really want to stay away from putting a fixed timeline on it. It was merely just simply saying, look, there’s incredible opportunity in this business. We feel confident that we can deliver on that in the medium-term. In terms that might shift a month or two or six months or two, or even a year or two, depending on things that are happening in the external environment. But make no mistake, the opportunity is there.”

There were 155 Dave & Buster’s and 58 Main Event locations at the end of Q2. For all of 2023, the company projects 16 combined openings.