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Edited Transcript of PLAY earnings conference call or presentation 11-Jun-20 9:00pm GMT

Q1 2020 Dave & Buster's Entertainment Inc Earnings Call

DALLAS Jul 2, 2020 (Thomson StreetEvents) -- Edited Transcript of Dave & Buster's Entertainment Inc earnings conference call or presentation Thursday, June 11, 2020 at 9:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Brian A. Jenkins

Dave & Buster's Entertainment, Inc. - CEO & Director

* Scott Justin Bowman

Dave & Buster's Entertainment, Inc. - Senior VP & CFO

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Conference Call Participants

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* Andrew Strelzik

BMO Capital Markets Equity Research - Restaurants Analyst

* Andrew Marc Barish

Jefferies LLC, Research Division - MD and Senior Equity Research Analyst

* Brian M. Vaccaro

Raymond James & Associates, Inc., Research Division - VP

* Christopher Thomas O'Cull

Stifel, Nicolaus & Company, Incorporated, Research Division - MD & Senior Analyst

* Jake Rowland Bartlett

SunTrust Robinson Humphrey, Inc., Research Division - Analyst

* Jon Michael Tower

Wells Fargo Securities, LLC, Research Division - Senior Analyst

* Nicole Miller Regan

Piper Sandler & Co., Research Division - MD & Senior Research Analyst

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Presentation

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Operator [1]

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Good afternoon, everyone, and welcome to the Dave & Buster's Entertainment, Inc. First Quarter 2020 Earnings Results Conference Call. Today's call is being hosted by Brian Jenkins, Chief Executive Officer. I'd like to remind everyone that this call is being recorded and will be available for replay beginning later today.

Now I'd like to turn the conference over to Scott Bowman, Chief Financial Officer, for opening remarks. Please go ahead, sir.

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Scott Justin Bowman, Dave & Buster's Entertainment, Inc. - Senior VP & CFO [2]

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Thank you, Eduardo, and thank you all for joining us today. After comments from Mr. Jenkins and myself, we'll be happy to take your questions. Just as a reminder, this call is being recorded on behalf of Dave & Buster's Entertainment, Inc. and is copyrighted.

Before we begin our discussion on the company's results, I'd like to call your attention to the fact that in our remarks and our responses to questions, certain items may be discussed, which are not entirely based on historical fact. Any of these items should be considered forward-looking statements relating to the future events within the meaning of the Private Securities Litigation Reform Act of 1995. All such forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ from those anticipated.

Information on the various risk factors and uncertainties have been published in our filings with the SEC, which are available on our website at www.daveandbusters.com under the Investor Relations section.

In addition, our remarks today will include references to EBITDA, adjusted EBITDA, store operating income before depreciation and amortization, which are financial measures that are not defined in the generally accepted accounting principles.

Investors should review the reconciliation of these non-GAAP measures to the comparable GAAP results contained in our earnings announcement we released this afternoon, which is also available on our website.

Now I'll turn the call over to Brian.

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Brian A. Jenkins, Dave & Buster's Entertainment, Inc. - CEO & Director [3]

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Good afternoon, and thank you for joining our call today. On behalf of the entire Dave & Buster's team, we hope you and your families are remaining healthy and safe. Since our last conference call in early April, the COVID-19 pandemic has continued to take an unprecedented toll on our company, our industry and the entire U.S. economy. We shutdown all 137 of our stores as of March 20, and only began to reopen some in May as certain states began lifting restrictions. As of last week, we had opened 28 stores. And by the end of this week, we'll have 48 stores opened in 15 states. While none of us anticipated this unprecedented crisis, I'm very proud of how our team has responded to the challenge it posed. Tough times often bring out the best in people, and that is the case here at D&B. Our team has demonstrated passion and commitment to the D&B brand, and we are fighting every day to rebuild the business and ultimately to emerge from this crisis and return our company to its leadership position in our category. I'm extremely grateful for their tireless efforts and honored to work alongside them.

As we said back in April, our singular goal has been to weather the shutdown period and reopen our stores as soon as we safely 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.

Our initial responses during the first several weeks of the crisis were thoughtful and decisive, and we implemented them effectively. First, in the face of the store closures, we immediately took extremely difficult but necessary steps to significantly reduce our cash burn rate. This involved dramatically curtailing operating expenses, extending net payments, temporarily halting all capital spendings and suspending our dividend and share repurchase programs. At the same time we were reducing our cash burn, we were also taking steps to extend our liquidity. This included fully drawing our credit facility, securing covenant relief on our credit agreement until the fourth quarter of fiscal 2020 and raising an additional $186 million in equity capital.

As a result of these efforts, we currently have over $255 million of cash on hand to fund our liquidity needs going forward. Out of necessity, much of our efforts over the past 3 months were defensive in nature. But now as states reopen and relax restrictions on dine-in and entertainment venues, we have pivoted toward implementing a series of proactive initiatives, positioning the company to reopen stores, reengage guests and rebuild our business. Accordingly, we have adopted 2 main principles as we emerge from this crisis. Number one, establish a deliberate and measured approach to reopen our stores. And number two, recalibrate our strategic initiatives to emphasize the return to profitability as soon as possible while positioning ourselves to capitalize on future opportunities.

Relating to the store -- opening of stores, a key priority is providing a safe, clean environment for our team members and guests. We put intense emphasis on sanitation and distancing protocols to ensure our stores adhere to the highest standards. At the same time as we reopen stores, we have been mindful of the opportunities to redesign our operating model to serve guests more efficiently, and to take advantage of evolving technology, which is the win on every front.

At this point, I'm going to ask Scott to quickly review our operating results for the first quarter and current liquidity position. After that, I'll dive deeper into our store reopening process and our recalibrated near-term initiatives. I'll also share some of the earlier results we're seeing at our reopened stores, which has become our primary focus in the second quarter.

Here's Scott.

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Scott Justin Bowman, Dave & Buster's Entertainment, Inc. - Senior VP & CFO [4]

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Before I walk through our first quarter results, let me remind everyone that all of our 137 stores were closed from March 20 through the end of the quarter, ending on May 3. In addition, during the 3 weeks to leading up to the March 20 closures, we had already experienced significant designs in traffic as consumers proactively started avoiding restaurants and group entertainment venues.

Our first quarter results clearly reflect that sudden change in our business. For the first quarter, revenues decreased 56% compared with the prior year period, including a 59% decrease in comparable store sales. Total cost of sales was $28.1 million in the quarter, an increase of 59 basis points as a percent of sales. The increase was mainly due to the write-off of perishable inventory associated with the shutdown of our stores. Operating payroll and benefits expense was $43.7 million, a decline of 47% from the prior year period mainly due to furlough associated with the shutdown.

Other store operating expenses were $95.7 million, a decline of 10% from the prior year period. Expenses were reduced during the shutdown, although we incurred $11.5 million in charges during the quarter related to the impairment of 3 of our existing stores, the write-down effect development costs related to our pipeline stores and a termination of leases for 3 of our pipeline stores.

G&A expenses at $14.6 million, declined 13.6% from the prior year. Compensation and incentive costs were down $5.1 million offset by an increase of $3.1 million in professional fees.

Professional fees increased mainly due to advisory and legal costs related to raising additional capital and to assist with the lease negotiations.

For the month of April, all of our stores were shutdown. And the weekly expense burn rate was consistent with our previous estimate of $6.5 million per week. Our debt service cost of $700,000 per week also remained consistent with prior expectations.

EBITDA for the quarter was negative $26.1 million, which was slightly less than initial expectations due to noncash write time.

From a balance sheet standpoint, our main focus was to preserve financial liquidity while maintaining critical store restart capabilities. To that end, we drew down the remainder of our revolving credit line, curtailed its capital spending and significantly reduced operating expenses. Additionally, we opened negotiations with our landlords on rent deferrals and abatement and aggressively managed our working capital position.

We also reviewed our feature store pipeline and made adjustments given the current environment. After careful review, we made the decision to complete construction on 6 stores that were near completion prior to the shutdown, and we will review construction as we gain further clarity on market conditions and business recovery.

The net capital investment needed to complete these stores is approximately $3 million. Including these new stores, we now expect to spend approximately $68 million in CapEx for fiscal 2020. An additional 11 stores were in earlier stages of permitting reconstruction at the time of the shutdown, and are currently on hold pending further analysis and visibility into the ramp-up of our existing stores.

And finally, we terminated 9 leases, which were stores slated for 2021 or beyond.

Having taken those difficult steps related to our operations, we acted quickly and thoughtfully to pursue additional sources of capital to improve our liquidity position in anticipation of the prolonged shutdown and extended business recovery.

After careful consideration with a wide variety of financing options to improve our liquidity in a highly uncertain environment, we executed the following actions to improve our liquidity position. First, we executed a $75 million aftermarket equity offering of 6.1 million shares at an average price of $12.20 per share completed on April 14. And then subsequent to the end of the quarter, we completed $100 million private placement of 9.6 million shares at a price of $10.44 per share followed by a $10.6 million Over-Allotment option of just over 1 million shares at a price of $10.44 per share.

Additionally, in conjunction with our $75 million equity raise on April 14, our credit agreement was amended with the following changes. The total leverage ratio and fixed charge coverage ratio will not be tested until our financial statements are required to be delivered for the fiscal quarter ending on January 31, 2021. A minimum liquidity of $30 million is to be maintained, which is to include unrestricted cash and cash equivalents. In addition to these recent financing actions, we are pursuing tax savings and deferrals up into the CARES Act, but have not -- chosen not to participate in the PPP program. We will continue to evaluate all government programs and other viable financing options as we navigate through this uncertain time.

At the end of the quarter, we had $157 million in cash and cash equivalents on the balance sheet, which was an increase of $132 million compared to the end of the last fiscal year. This is mainly due to the draw-down of our revolver, net proceeds from the first equity raise and deferral of the repayments, which was partially offset by capital spending for prior construction work on new stores. Currently, including $111 million in proceeds from a second equity raise, we have over $255 million in cash and total debt of $750 million.

We continue to aggressively manage our working capital position and prioritize all spendings, and are grateful to all our vendors and landlords that continue to support us through this reopening and rebuilding phase. To date, we have successfully negotiated rent deferrals and/or abatements on over 80% of our stores. Payback of most of these deferrals is scheduled to begin in January 2021, and is expected to be completed over a 12 to 18 months time period. Keep in mind that our previously communicated expense burn rate does not include reducing our working capital deficit, which we began to manage more aggressively by seeking extended terms and other accommodations.

As stores have begun to reopen and generate sales in variable profit, we began to direct a portion of this available cash towards gradually normalizing our working capital deficit. This could cause our near-term burn rate to temporarily increase and totally get a larger portion of our stores reopened.

With that, I'll turn it back over to Brian.

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Brian A. Jenkins, Dave & Buster's Entertainment, Inc. - CEO & Director [5]

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Well, thank you, Scott. With new capital secured, credit terms amended and tight controls on our cash spending, we've significantly extended our liquidity horizon. That has enabled the management team to focus our attention on 2 near-term priorities as we rebuild the business and emerge from the crisis. I want to take just a few minutes to unpack each of these near-term priorities in more detail.

First, reopening our stores. Our store reopening process starts with a careful evaluation of state and local restrictions as it relates to guest capacity and hours of operations. And based on a scaled down operating model, a store must have the initial potential to generate between 10% to 20% of its 2019 revenues in order to generate a variable profit. We set hours of operation for each store based on pre-COVID high volume days and dayparts in tandem with state-mandated limitations. And for those stores that are open as of this week, we are currently operating at an average of 60 hours a week or roughly 65% of our pre-COVID average weekly operating hours. More importantly, those 60 hours generated about 90% of our pre-COVID revenue. So we are deliberately focusing operations in our most productive times.

Now once we've made the decision to reopen the store, staffing is the next critical step in executing that store reopening. For all of us, next to welcoming back our guests into the stores, the most gratifying part of reopening has been the opportunity to welcome back some of our valued team members who were furloughed in March. We're deeply appreciative of their policy and the enthusiasm and expertise they bring to the team.

As we reengage our team, our staffing model anticipates a gradual ramp in sales, currently with reduced hours and a narrowed menu. Our reopened stores are able to operate with a smaller staff compared to our pre-COVID labor model. And then once the store is reopened, we are adjusting our staffing as sales levels dictate.

The next major step in preparing each store to reopen is physically in considering the space to promote and enable social distancing. Our large dining and bar footprint enable us to reconfigure the space to support social distancing guidelines and still maintain seating capacity of about 50% of our pre-COVID levels. We've also reconfigured our arcade areas to promote 6-foot spacing by taking some of our games off-line. In doing so, we've been able to maintain approximately 75% of our player positions and an even higher percentage of unique titles available for play. So given the size of our stores, we are still in a really good position to generate meaningful revenue, even with capacity limitations and social distancing.

As we reopen our stores, sanitation and safety protocol to ensure the health and safety of our team members and guests is of paramount importance. We have always prided ourselves on maintaining sanitation protocols that meet or exceed local health standards, and that remains our philosophy today. More recently, we've implemented additional protocols to reduce risk of COVID transmission in our stores. We are also enabling and encouraging guests to participate in maintaining a clean and safe environment for themselves and their fellow guests.

I'll call out 2 other important changes that we consider to be temporary or transitional, if you will, during our reopening phase. First, based on our historical data and insights from our culinary leadership, each temporarily narrowed our menu to 15 items from more than 40 items, pre-COVID. This narrowed menu provides a good variety for guests to choose from and an efficient assortment to execute with a limited kitchen staff. We are able to fulfill orders faster, and it also fits well with the new curbside order and delivery option that we are experimenting with in some markets. The second temporary or transitional change during our reopening process is in our marketing message and media execution. Recall that as a part of our cost-saving strategy during the shutdown, we significantly reduced our marketing spend.

Now our team is focused on a local approach to marketing that utilizes traditional and digital media to drive awareness and accelerate recovery. These integrated plants are leveraging local TV, out-of-home, social advertising and digital radio to saturate our target market. Two of the 3 markets currently using this approach are leading our brand in recovery in terms of revenue. And this early success has given us the confidence to expand to additional markets in coming weeks. This approach as well as traditional outreach methods, such as our loyalty database, suggests that our efforts are working.

During the past week, our reopened comp stores have generated sales at an index of 37% compared to the 2019 levels. For the top quartile of those stores, we are running at a 55% index. And for the bottom quartile, we're running at about 18% index at this point. We are also encouraged by a steady week-to-week recovery. We're seeing ramping from an average of 17% index in the first week to an average of 46% of those stores that have been reopened for 5 weeks, and that's the limit of our history at this point. It's also important to note here that all 28 of our reopened stores are producing variable profits.

As we look forward, based on current information from each state, our projected reopening schedule anticipates having about 90 to 95 stores opened by the end of July, and all stores reopened by September, barring any delays due to COVID-19 resurgence or changes in state for local guidelines. We also anticipate some of our stores in the Northeast and the West Coast will be among the last to reopen.

As I mentioned previously, we currently estimate that stores can cover their variable cost at 10% to 20% of 2019 sales levels. At approximately 60% of 2019 sales levels, we achieved EBITDA profitability at an enterprise level under normal operating conditions. This enterprise-level breakeven point will be a bit higher in 2020 due to additional costs and charges related to the shutdown in our financing effort.

Next, I want to turn to our second near-term priority, recalibrating and reprioritizing our strategic initiatives. As we look to rebuild our business, our team has rallied around the philosophy that late disruptions can also lead to great opportunities to think differently. And our focus for the near term will be to invest and accelerate change in the following key areas: our service model, our menu, our programming and our marketing. Regarding changes to our service model, our Corporate Technology team has been working night and day and tirelessly with our store teams to rapidly develop an exciting new technology to enhance guest service through a self-service, contactless order and pay platform. This technology is going to enable our guest to access the menu, order their food and beverage items, pay for their selections using their mobile device. Enabling our guests to control the experience on their terms will free our team members to focus on interacting guests in more ways then enhance the overall experience.

We're currently piloting the technology in 2 stores as an optional experience for our guests. In July, we will launch in 1 store as the primary way to order and pay. And we'll then take those learnings to evaluate a larger scale rollout.

Another area we are investing and accelerate change is with our menu. After we complete the reopening process across the country and traffic has recovered to an appropriate degree, we plan to expand the temporary 15-item menu. 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. Our ultimate goal is to create new, stronger food identity that resonates with the best, and is the differentiator of the D&B brand.

The third area where we're investing and accelerate change is developing a strong programming strategy around our Wow Walls and other Watch assets. Live sports broadcast will return at some point. However, it seems likely that those first games are, in some cases, entire seasons, will be played in empty stadiums. We believe this creates a unique opportunity for us. And our team is developing strategies to leverage and amplify our unique Wow Walls and other extensive Watch assets. And 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. We'll have more to share on that as our plans come together over the next few months.

Another area where we're investing and accelerating change is in our marketing. We had already begun to rethink our marketing strategy before COVID. And in March, we welcomed Brandon Coleman as our new CMO to inject new leadership and perspective into our marketing strategy. We had also initiated an agency review process prior to COVID, with the original intent to relaunch a new brand campaign in May. That process, while delayed, continued throughout the shutdown and culminated in the selection of Mother New York as our new creative agency. By fall, assuming we have successfully reopened all or most of our stores, our temporary marketing efforts will pivot to a new national brand campaign developed with Mother under Brandon's leadership. Our new campaign will amplify Dave & Buster's strong brand and unique assets through activations aligned with several key events-driven windows, all of which will contribute through engaging our guests on a more emotional level.

To conclude, although the operating environment continues to be very fluid and uncertain, we are confident in our plan and optimistic about our ability to recover and emerge in a stronger competitive position. Our team is wholly focused on reopening our stores, reengaging our guests and rebuilding our business. And we're using this opportunity to invest and accelerate change across key areas of the business, all of the goals of enhancing focused speed and magnitude of our business recovery, none of what we have been able to accomplish over the past 90 days but what we have set our sights on achieving looking forward wouldn't be possible without our dedicated team members. I want to extend a special heartfelt thanks to our team members across the country who are working tirelessly for Dave & Buster's as well as those who remain at furlough. Your passion for the company personifies this great brand and will be a key intangible ingredient as we work together to rebuild our business.

Now Eduardo, why don't we open the call to questions?

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Questions and Answers

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Operator [1]

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(Operator Instructions) Now we'll take our first question from Andy Barish at Jefferies.

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Andrew Marc Barish, Jefferies LLC, Research Division - MD and Senior Equity Research Analyst [2]

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I guess first question, have you done any consumer work? I know it's early on, on returning to the locations and just kind of the feeling around cleaning procedures and social distancing that we may be able to learn something from.

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Brian A. Jenkins, Dave & Buster's Entertainment, Inc. - CEO & Director [3]

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Yes. Andy, it's good to talk to you. I hope your family is all right as well. So we are -- as we reopen the stores, clearly, external factors like the health of the economy, fears of around -- the pandemic fears make it somewhat difficult to predict how our business is going to recover. That said, I fundamentally believe that people are social by nature and want to get back to living life. And I think we're seeing that in our numbers. We're really encouraged by what we've seen in the stores we've opened, with our comp stores producing 37% here with a very limited amount of weeks of operation, and we've got some of our top-tier stores, top quartile, as I said, at 55%.

Some of those stores are actually in the 60% range, and that's moved up here this week as well. And the recovery ramp is also encouraging. So we're really optimistic about our ability to claw back. As consumers have come in our stores and guests that come back into our stores, the feedback that we're getting right now is that, in general and somewhat overwhelmingly, we're getting positive feedback on what we're doing as it relates to our sanitation efforts, all right? We have a pretty comprehensive program that we've put in place and extremely serious about this. So feedback has been good.

And we have admittedly reduced some of our offering with our guests with our limited menu and removing some of the games, and we really haven't got a lot of negative feedback on that. And I think, in general, guests have seemed very happy that we're opened. They're chipping really well, which is obviously great for our teams. And our team has done just a fantastic job of getting these stores back on and welcoming our guest. And so I'm extremely pleased with where we sit right now.

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Andrew Marc Barish, Jefferies LLC, Research Division - MD and Senior Equity Research Analyst [4]

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Yes. Nice to hear. And then I'm just pivoting, but Scott, what is your definition of variable profit, just to level set?

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Scott Justin Bowman, Dave & Buster's Entertainment, Inc. - Senior VP & CFO [5]

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Yes. Sure. So what we did, Andy, is we calculated what the kind of the burn rate is -- expense burn rate when our stores are closed, okay? And so the variable profit is those additional expenses needed to open, what is needed to cover that additional expense to open the doors. So once we're able to cover those additional expenses to open the doors, we call that variable profit.

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Brian A. Jenkins, Dave & Buster's Entertainment, Inc. - CEO & Director [6]

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And Andy, one last thing that I actually meant to mention in response to your question. Though, one of the other encouraging thing, again, it's not like we have a lot of weeks here, 5 weeks, but what we are seeing is that the stores that are coming on later in the cycle, stores opened last week and the ones that are open up for this week are coming on at a higher index out of the gate. So I think that's -- we view that as very good news. As a partner, we get away from the original onset of this factoring in March, and some of these spaces that are opened up a little later, we're coming out of the gate a little bit with higher performance. So…

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Operator [7]

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We'll now take our next question from Nicole Miller at Piper Sandler.

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Nicole Miller Regan, Piper Sandler & Co., Research Division - MD & Senior Research Analyst [8]

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And we're very happy to have you and the team back and the stores opening. I wanted to ask about the employees. I was thinking back to the IPO and how you introduced us to what I would call Dave & Buster's career-level labor. And obviously, you've communicated with them really well during this crisis. So as you get the stores back online, how many are -- what you would call this career individuals? Are they less than half of the vast majority? And I'm asking that question because it seems like you could get up and running a whole lot faster, probably some best practice leverage there. And then in addition to that, when you can operate at that 90% of revenue, what labor are you running? Is that less than 90% or at that equivalent 90% or more than that?

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Brian A. Jenkins, Dave & Buster's Entertainment, Inc. - CEO & Director [9]

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Okay. Nicole, it's good to talk to you, and I hope you're doing well also. You're right. The D&B brand, our company has an incredible team that are extremely committed to the company. And so as we have begun to reopen the stores, we've had a lot of success in bringing back the skilled management team to reopen these stores. And we're extremely pleased with that. We're glad to have them back. I appreciate the loyalty that they've shown to come back after the furlough period of time. And we're coming back with a much smaller team. We're opening these stores kind of week 1 with 2 to 3 managers. That's to compare closer to 10 in a normal situation. So we have some very committed people that just are extremely happy to get back get back to work and help rebuild the business. So I'm extremely grateful, and has a lot to do with the culture in this company. And our COO, Margo Manning, and our regional VPs that have been with this company a very long time, and they've stayed in touch with the team. And so I don't think that's paying us dividends right now. And that's allowing us, as you said, to get on pretty quickly here.

We're -- I'll say, we and Margo and the team are getting stores up within 7 days. We've done a couple faster than that. Once we make an internal decision to move forward, we're getting these set up really quickly. So I'm very pleased about that. And we're being -- we're aggressive. Once we make the decision and the mandates allow, we're going to move forward. We're going to give our team members a chance to get these stores up and rebuild this business as soon as we possibly can. I think the other question you asked was about what labor we'll have at 90%. We are working on a labor model that would allow us to operate at a lower index than that as it relates to team members. Sometime (inaudible), I talked about, we're looking at more -- a potential for technology-enabled to take some of the transaction-oriented elements of the guest interactions out of the service hands, so they can focus on the experience with our guests. So it remains to be seen how that's going to work out, but we are definitely going to come up in a nimble way. Because at this point, it's imperative that we do that.

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Nicole Miller Regan, Piper Sandler & Co., Research Division - MD & Senior Research Analyst [10]

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So both of those sound very promising. I'll just ask the last question. We've been doing a lot of survey data. And honestly, I don't know how much it matters because consumers say they're going to do one thing and they might do something different, especially in this situation. Just by observation only, we're not going to hold you to it, but just by observation, and if you look at demographics or look at behaviors in these 28 stores that are open, are they more individual or bigger group size, smaller group size? How much is eating? How much is in the midway? Did it stay longer? Did it leave earlier? Just what are you observing in general?

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Brian A. Jenkins, Dave & Buster's Entertainment, Inc. - CEO & Director [11]

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Early on, we have, what I call our 4 box that was putting together on some stores, they don't think that try to -- given an understanding of what kind of guest profile we see as we reopen, it's skewing a little less family and a little more adult right now, and I think some of that makes sense to us. So we have seen that. And we are seeing Amusement -- the mix has increased on the Amusement side. And they're running about 5 percentage points higher in terms of sales mix as these stores open up. And so it's coming out of the Food side. Our Beverage mix is about the same. So we're seeing more play, people coming back to play. It's attracting them. That is the primary reason to visit these games. It's really always been that way, and that's what we're seeing as we get these stores ramped up.

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Operator [12]

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We'll take our next question from Jake Bartlett at SunTrust.

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Jake Rowland Bartlett, SunTrust Robinson Humphrey, Inc., Research Division - Analyst [13]

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And also congrats on all the hard work in getting the business back up and running. Brian, my question was about -- it was really encouraging to hear that you expect to have stores open 90% to 95% by the end of July. How should we think of the trajectory as we get there? Maybe any indication at the end of June, for instance or is it really just some laggards, as you mentioned, in the Northeast that are going to be later in July? Just trying to understand how that progresses over the next 2 months.

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Brian A. Jenkins, Dave & Buster's Entertainment, Inc. - CEO & Director [14]

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Well, here -- we're sitting here in June right now. I don't know that I want to point at the June end and the July end. And so July is the 90% to 95%. And we're essentially saying a month or so later, the rest of them are done. So I think that's pretty -- feels pretty precise to me. And we are -- right now, we're expecting our California stores to be -- some of our California stores to be among the last opened. So that would imply that sort of late August or early September, and then New York would be -- got pegged. Obviously, those 2 markets are huge for us in terms of store counts. About 20% of our store count are in those 2 states. So we're estimating California, really more at the end of July, early part of August. Some big good news on that part, really this week. And in California, we actually are going to be opening up 3 stores in California, 2 in the San Diego market, and actually in Ontario, our Ontario store. So we've got a crack into some of these West Coast Northeast markets. We've got a couple of Connecticut stores also. So that's encouraging to see, and we hope we'll see more coming, Jake. But it's really hard to predict, Jake, exactly what we -- these are estimates and likely will be wrong on these a bit. So we meet twice a week to review the mandates with a small team. And -- so those are our best estimates right now.

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Jake Rowland Bartlett, SunTrust Robinson Humphrey, Inc., Research Division - Analyst [15]

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Got it. And then just digging into the performance at the stores that have been opened. I think it’s encouraging at this point that the range and especially some of those at the higher end of the range. But what is it -- versus the 18% to the 55%, what is the common denominator? Is that just the length that they've been open? Or is it a very different consumer behavior in different markets?

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Brian A. Jenkins, Dave & Buster's Entertainment, Inc. - CEO & Director [16]

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It's some of all of what you said. As I mentioned in my response to Andy a minute ago, we're seeing some of the stores that are opening later. The first store opened really at the tail end of April, 1st of May, I think it was 1 day in April, but it was a single store. So we don't have a long history, but the stores that are coming in now, the stores that we opened last week, are coming in at a higher end, and that's the outset. So that's encouraging. And we are seeing steady development, improvement really in all the, I'm not calling week classes. We have certain stores that open each week, but we're seeing steady movement up in each class. And the class that is most developed right now is at 46%. So we have a number of stores that have been over 5 weeks, sustain at 46% right now. And as I mentioned, we have some stores that are actually doing quite a bit better than that.

So -- and there are some geographical differences. We attribute, as we've done some progression work on, again, limited days. So I take it for what it's worth and similarly expect. We're seeing markets where they have a lower incidence of COVID cases that tend to have stronger performance. And we're seeing stores that, or have a tourist top spend, some of the coastal areas, in particular, seem to be performing better. So I think it's -- there's some unique market elements, and I also think there's timing within the opening cycle here.

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Jake Rowland Bartlett, SunTrust Robinson Humphrey, Inc., Research Division - Analyst [17]

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Got it. And then my last question, perhaps for Scott. You mentioned that I think it was sales at 60% at prior levels. So your initial sales are down 40% that you'd be EBITDA breakeven. Can you help us break that down or what that looks like for G&A versus store level profits? Just to kind of help us -- a lot of moving pieces, hard to gauge. So any help on what that would mean for profit margins versus what you're expecting for kind of the absolute level of G&A?

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Scott Justin Bowman, Dave & Buster's Entertainment, Inc. - Senior VP & CFO [18]

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Yes. So maybe this will help just to break it down kind of at enterprise level and just at the store level. So if you just think about the store level kind of furlough profitability, we need to get back to about 50% index from over -- this past year to get to profitability at the store level. And then as you think of the enterprise, you have to get closer to that 50% kind of index level to be profitable, covering G&A and all those extra costs.

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Brian A. Jenkins, Dave & Buster's Entertainment, Inc. - CEO & Director [19]

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Jake, I'm thinking about that a little bit. If you think about the 10% to 20% to get to variable profit, meaning covering as they have a cost to reopen, we're achieving that. If you look at our first week of operation while averaging 17%, that's well within that variable profit range of 10% to 20%. And really, all of our stores are -- generally they're at the top of that thread. And right now, the development curve in the 50% -- stands at just shy of 50%. So we're working our way up the curve here. So we're encouraged by it.

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Operator [20]

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We'll now take our next question from Chris O'Cull at Stifel.

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Christopher Thomas O'Cull, Stifel, Nicolaus & Company, Incorporated, Research Division - MD & Senior Analyst [21]

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The company has always had really high Amusement margin because of the minimal attendant requirements of those games. Do you expect this is going to change or will need to change with new operating and safety standards?

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Brian A. Jenkins, Dave & Buster's Entertainment, Inc. - CEO & Director [22]

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Yes. I can start on that. And so we talked about kind of the work we're doing in each of our stores to make sure it's a safe environment for our team members and guests. And so obviously, that takes some labor, it takes a lot of cleaning materials and masks and gloves and everything. So we have invested in all of that, and we're doing a very diligent job of keeping our stores clean and making sure that everyone feels safe. And so that's going to cost -- it's on pace of about a $7 million number or so to do that activity kind of at the current pace. And so I think time will tell how much that cost may vary or potentially decline as time goes on. But we think that, although it is a fairly heavy cost, it's really well (inaudible) and really a requirement for us in our mind to be able to provide that environment as they ramp up.

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Christopher Thomas O'Cull, Stifel, Nicolaus & Company, Incorporated, Research Division - MD & Senior Analyst [23]

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And then I know the company -- I mean the company was looking at some new gaming technology prior to the crisis. And I'm just wondering how you're thinking around multiplayer games? Or how you are thinking about gaming in the future for Dave & Buster's under this new situation and this new environment?

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Brian A. Jenkins, Dave & Buster's Entertainment, Inc. - CEO & Director [24]

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That is -- thanks for the question here. I mentioned in my prepared remarks what we're really focused on right now, around service model menu, programming and marketing. Those are our -- what we're leaning into as we ultimately reopen the stores in an environment where we have some capital constraints, and we also have resourcing constraints from the human side. So we have -- we had worked on our strategy with cash plan really in the whole back of last year and are still very committed to all the things that we were working on. But we are taking a pause on a number of things that get our stores back open, and game purchases, physical games, multiplayer games, we had a couple of VR games on path. We're taking a pause on that right now. Our focus is getting the stores back open. And our belief is that, and I said it before, I think people want to fundamentally socialize. This is definitely a crack in that for a period of time, and we're going to have to wait and see how consumer preferences change before we lean in, in a huge way on the game front. We have some great assets on the floor already, and that is not a near-term focus for us.

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Operator [25]

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We'll take our next question from Andrew Strelzik with BMO Capital Markets.

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Andrew Strelzik, BMO Capital Markets Equity Research - Restaurants Analyst [26]

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Now my question -- you described a number of the steps that you've taken, whether it was the menu or maybe more sell kind of labor model, those types of things, you describe them as transitional. Is there anything that you've learned from what you've done that could become maybe more permanent or why or why not?

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Brian A. Jenkins, Dave & Buster's Entertainment, Inc. - CEO & Director [27]

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Hey, when you get in -- Andrew, when you get in a situation like this where you've essentially been forced to shutter your entire company, there's no question this creates an opportunity to think differently. So we are operating in a completely different way, both in the field and certainly here in our corporate office. People are working from home, and we've been very productive with the extremely smart teams getting these stores built back up. So I expect that we will make changes. And the majority of those in the areas that I talked about, around our service model and how we engage our guests in that experience and leveraging technology, the menu, which is something that we were aggressively working on. We lost some time in the shutdown, but we are gearing that back up. And so -- and marketing is an area that we have had to run the same playbook for a long time. And under Brandon's leadership, we're excited to have him on our team. We're going to show up differently real soon. And so we're excited to show our brand in the different light. We have a lot of Brandon fans, and we're going to look to take advantage of that. So I think we've got some good things that we're trying to lean into. I -- but we're going to need to be focused here. And we are pausing some things at least for a period of time. And so probably get it back.

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Andrew Strelzik, BMO Capital Markets Equity Research - Restaurants Analyst [28]

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Very helpful. And if I kind of think about in numbers, you mentioned the nonusage (inaudible) it's early to think about it, but actually, if we assume that there's going to be a slower pace of reopening kind of in the coming years, you had previously talked about that potential medias as early as '21. Is that the right way to think about it? Or is it maybe too early to think about it that way?

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Brian A. Jenkins, Dave & Buster's Entertainment, Inc. - CEO & Director [29]

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Andrew, you were garbled, at least on our line here, maybe not for anybody else, but I'm not sure I got that question. Can you give us a (inaudible) one more time? I apologize. We were on our line that got garbled.

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Andrew Strelzik, BMO Capital Markets Equity Research - Restaurants Analyst [30]

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Okay. Can you hear me right now?

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Brian A. Jenkins, Dave & Buster's Entertainment, Inc. - CEO & Director [31]

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Not really.

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Andrew Strelzik, BMO Capital Markets Equity Research - Restaurants Analyst [32]

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All right. But early on -- I was just trying to figure out if given the termination is something at least we should be anticipating in (inaudible).

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Brian A. Jenkins, Dave & Buster's Entertainment, Inc. - CEO & Director [33]

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It's still a little bit garbled. Andrew, are you referring to just that new store openings as we look into next year?

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Andrew Strelzik, BMO Capital Markets Equity Research - Restaurants Analyst [34]

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Yes. Next year and beyond, yes.

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Brian A. Jenkins, Dave & Buster's Entertainment, Inc. - CEO & Director [35]

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Yes. Okay. Yes. So what we've done so far, Andrew, is we -- as I kind of mentioned in some of my remarks, we took a pretty hard look at our fill pipeline in light of the current situation. And so we did decide to move forward on some stores that were nearly complete that makes sense for us. But the other stores that were in the pipeline, some did terminate already. But we still have some showed in the pipeline that really are just on hold right now. I said very wealthy stores in 2021, but we're kind of in a wait-and-see approach right now. And so they're on hold until we get a little bit further down the road and really understand kind of what the new normal may look like in play. And so we don't know exactly today what that will look like, maybe a little bit more time. But we should have some more details to share on our next call.

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Operator [36]

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We'll now take our next question from Brian Vaccaro at Raymond James.

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Brian M. Vaccaro, Raymond James & Associates, Inc., Research Division - VP [37]

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Just on that last point, when do you expect to open the 6 that you're finishing construction on? And how many signed leases do you currently have?

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Brian A. Jenkins, Dave & Buster's Entertainment, Inc. - CEO & Director [38]

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Scott, you had in your prepared remarks. But we're -- we have a limited amount of net dollar outlay on the 6 we have remaining for this year. But we're going to look for more clarity and more business recovery before moving again on those stores. So while it's a fairly small net number, we're looking for a little more clarity and visibility before we start them again.

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Scott Justin Bowman, Dave & Buster's Entertainment, Inc. - Senior VP & CFO [39]

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Yes. So likely, it would be in the back half. Not entirely sure right now, but that's our expectation right now at least subject to changes in the back half.

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Brian M. Vaccaro, Raymond James & Associates, Inc., Research Division - VP [40]

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Okay. And then, Brian, I wanted to get your perspective on the competitive landscape as well. Because obviously a growing headwind to the business for several years pre-COVID. But what have you seen in terms of permanent closures and the like? And how do you see that playing out in a post-COVID world?

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Brian A. Jenkins, Dave & Buster's Entertainment, Inc. - CEO & Director [41]

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Thanks for (inaudible) Brian. First of all, I guess I'll say this, but if you think about COVID-19, it's clearly devastating to a number of business -- many businesses, particularly as you think about consumer-facing brands, restaurants, entertainment, and not to mention and understate all the people that have been impacted, the loss of job and (inaudible) right now. So nothing positive about that (inaudible) really. It's really tragic in my view. That said, as we think about what we have been facing, particularly over the last 3 to 4 years, we've seen a rapid growth in the number of brands coming into this space -- into our space and the speed at which they were developing new stores.

So clearly, we've had a lot of hot headwind for a long time. And I think it's going to take a little bit of time for some of the dust to settle, at least on some of these companies, some of our competitors. But I do think there is a pretty good chance, the odds are that there will be 1 or 2 things, either a number of the names that don't reopen or at least aren't growing at the same pace in terms of rate of growth for some period of time. So as I think about us, we're -- we define the space as a leader in this space. And I think we're well positioned to emerge and even a better competitive position post-COVID, I really do. And we've seen some of our competitors that haven't opened any stores right now. So -- or some that I don't think they're a few. So I can't speculate on what that means about. Most of the companies are private, what's that going to end up meaning. And -- but I think we're going to see less competitive headwind here on the other side.

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Brian M. Vaccaro, Raymond James & Associates, Inc., Research Division - VP [42]

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All right. That's helpful. And then last one for me. I just wanted to circle back on the streamlined menu and labor model you talked about. Can you provide more color on each of those sort of compared to pre-COVID level maybe the amount that you streamlined the menu? And just how you plan to manage each as sales volumes build? How you're managing, particularly the labor fill there?

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Brian A. Jenkins, Dave & Buster's Entertainment, Inc. - CEO & Director [43]

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Okay. Thanks, Brian. So I guess let's talk about the menu first. As we began to think about the reemergence, except we were shutting down. Again, had a very small team. Our culinary team working on that and our -- Carl, our VP in that area. So we took the items on our existing menu, our 40-item menu, that were the most popular generated -- the 15 items we selected generate a significant portion of our food revenue. So -- and obviously, with an eye towards getting a good selection and having some breadth. And that can be a little bit of a challenge with 15 items. So it wasn't driven by supply chain, it was driven by our desire to have a menu that we could execute, our team could execute, in a good way when we're coming up with, in some ways, a skeletal improve.

We were opening stores initially with extremely small teams. And demand -- and then balance it as we grow, and we're being very nimble about that. So we start with a fairly small team and then we'd scale up. And we've done -- the operating team has done a fantastic job in doing that. And it's not -- it's in heavy lifting to get your team members back right now, particularly on the hourly front, believe it or not. So that's easier said than done. So we're really efficient. When we -- Brian, when you think about doing 10% to 20% of our overall sales volumes and then covering their cost, that's averaging AUVs. That's -- it's a pretty low growth number. So we've developed a pretty nimble model to get these stores on (inaudible). I want to get these stores open as soon as we can, get our team engaged and get them back. And then we build from there, and that's where we're going.

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Operator [44]

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We'll now take our last question from Jon Tower at Wells Fargo.

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Jon Michael Tower, Wells Fargo Securities, LLC, Research Division - Senior Analyst [45]

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I was curious maybe if you could provide us a little bit of information on the burn rate. I know, obviously, last time you had updated us, you talked about a $6.5 million metric, plus the $700,000 in debt expense or interest expense to cover. Do you have an equivalent for now and how the business is running right now?

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Scott Justin Bowman, Dave & Buster's Entertainment, Inc. - Senior VP & CFO [46]

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Yes. Let me just comment on that. So it's a little better. So as we look at the month of May, at the end of May, we had about 26 stores opened. We opened our first store on April 30, okay, to ramp up during that month. But as I looked at those stores for the month of May, they contributed about $300,000 a week towards net overall burn rate. So that gives you some indication and an understanding that they were ramping up and opening throughout the month. I guess, at least some perspective on how things may go in the future. So we are pleased with those stores, and hopefully, that will continue. But we're pleased with those results in May, for the entire month is about $1.2 million contribution to that overall burn rate.

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Jon Michael Tower, Wells Fargo Securities, LLC, Research Division - Senior Analyst [47]

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Okay. And, sorry, just to make sure I understand that completely, you mean contribution on the positive side, not the negative side?

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Scott Justin Bowman, Dave & Buster's Entertainment, Inc. - Senior VP & CFO [48]

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That's correct.

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Jon Michael Tower, Wells Fargo Securities, LLC, Research Division - Senior Analyst [49]

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Okay. Great. Perfect. And obviously, quite a few moving pieces in your business right now. I am curious, in stores themselves, as you're reopening, obviously, some amusements in part of the stores is being restricted, either as the amusement to the dining side. But I am curious, how are you dealing with the amusements that are -- that require more customer engagement and, frankly, even team member engagement like VR or even things like Pop-A-Shot, like how do you see these coming back online? And when do you see that happening?

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Brian A. Jenkins, Dave & Buster's Entertainment, Inc. - CEO & Director [50]

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I guess I'll address VR first. We have had guest requests for VR, but we have not opened up our stores with the VR game in operation. We may test a location where we have some stores that are doing huge volumes right now. But -- and in some way, our VR games are probably the cleanest games in the store because we're -- we have a practice of wiping and cleaning those after every use. It's just part of the normal protocol here. So -- but that hasn't -- reintroducing VR is not at the top of my list right now. We're -- it's a great attraction. It's a piece of what we do, but it's not the driver to our success to get these stores back open and the wheels moving.

As it relates to Pop-A-Shot or actually any of our, let's call it, multiplayer games, what we're tending to do here is deactivate some of the games because most of these have multiple player positions. So we are deactivating some of those to create the separation at this point.

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Jon Michael Tower, Wells Fargo Securities, LLC, Research Division - Senior Analyst [51]

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Okay. And then just last one for me. I'm curious, just on the menu piece of it all, getting down to the 15 items from more than 40 prior to the crisis, I think you alluded to it earlier, the idea that's potentially altering how the menu looks as you emerge from the crisis. I'm just curious, how much of a streamlined menu were you thinking about? Is it 15 items? Obviously, right now, the highest profit, highest turning ones. Can you envision a period where it's only 20 items over time and much more streamlined? And perhaps you even shrink the footprint of the dining room? Or do you plan to return to somewhere near where you were close to 40? I'm just curious to get your thinking around that.

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Brian A. Jenkins, Dave & Buster's Entertainment, Inc. - CEO & Director [52]

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Thanks for the question. Obviously, that's something we were in the midst of that work prior to COVID. We had partnered with a third-party consulting firm to set us with some of that thinking. And I do not expect that we will go back to the 40-item menu. I think when you get thrown into a disruption of this magnitude, it does give you a really good environment to learn some things. And by necessity, we dropped the menu back to 15 items. Again, popular items generate allowing share of our food revenue, these items that we kept still keeping breadth. So it will help inform actually the number that we come back with at some point in time here. And I don't expect it to be over 40. I expect it will be south of that. I think it will be above 15. I think it's going to be somewhere in between, but that's something we're working on now.

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Operator [53]

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That is all the time we have for questions. Mr. Jenkins, Mr. Bowman, at this time, I'd like to turn the conference back to you for any additional or closing remarks. Please go ahead.

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Brian A. Jenkins, Dave & Buster's Entertainment, Inc. - CEO & Director [54]

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All right. Well, thank you. Well, thank you, guys, for joining our call today. We'll look forward to updating you on our progress in September. Also, want to wish you a safe and a happy summer, and look forward to seeing you at one of our reopened Dave & Buster's locations very soon. Have a great night.

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Operator [55]

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This concludes today's call. Thank you for your participation. You may now disconnect.