Good afternoon, everyone. Welcome to the Dave & Buster's Entertainment, Inc. Q3 2021 earnings results conference call. Today's conference is being recorded. Now, I would like to turn the conference over to Scott Bowman, Chief Financial Officer, for opening remarks. Please go ahead.
Thank you, Steve, and thank you all for joining us today. Joining me on today's call are Kevin Sheehan, Interim Chief Executive Officer, and Margo Manning, Chief Operating Officer. After our prepared comments, we'll be happy to take your questions. This call is being recorded on behalf of Dave & Buster's Entertainment, Inc. and is copyrighted. Before we begin our discussion on the company 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 related to 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 has been published in our filings with the SEC, which are available on our website. In addition, our remarks today will include references to financial measures that are not defined under 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 released this afternoon, which is also available on our website. Now I'll turn the call over to Kevin.
Thanks, Scott. Good morning, everyone. I'm very excited to be in this new role here at Dave & Buster's at this seminal point in our story. We have an exceptional business model, strong assets, and a talented group of team members who are delivering outstanding service and experiences to our guests. We continue to add talented individuals to our organization. As announced in a separate press release, we are welcoming Antonio Bautista to our management team to fill a newly created role of SVP and Head of International Development. He brings outstanding experience and an impressive track record of growing businesses internationally, and we believe Antonio is the right person to take Dave & Buster's to international markets. Also, stay tuned for an impending announcement on Scott's replacement. Scott has been the consummate CFO, and his efforts will be greatly missed.
I want to thank him on behalf of the board and the D&B team for his outstanding service. As you know, we have made great progress in reopening and building back sales, but we also know there is a lot more to do to unlock the substantial potential of this business. As I said in our press release, we are beginning a new phase of innovation, growth, and value creation here at Dave & Buster's. Let me share with you what I mean. We have a great brand with significant scale, a passionate team, and a fleet of stores in high traffic, high volume destination trade areas. Our intent is to optimize our current stores' full potential and accelerate innovation to drive incremental traffic to our brand. In order to accomplish this goal, we are laser focused on organic growth.
This will be accomplished by optimizing the performance of our existing stores while continuing to achieve best-in-class returns on our new stores. With respect to organic growth, we will broaden our entertainment offering to include more immersive sports viewing experiences, including improvements to the watch environment and the addition of fantasy sports and a sports betting option as permitted. We also see significant opportunity to drive traffic in our off-peak days and day parts, and we are evaluating a variety of initiatives to extract more value out of our existing stores. Finally, we will amplify our best-in-class arcade with the Summer Games rollout, supported by a significant marketing campaign. To help fuel organic growth, we will accelerate our refresh remodel program that will give our existing stores a fresh look.
We are also evaluating relocation opportunities in some of our legacy markets, where we can open new, more efficient stores and capitalize on higher potential locations. Think of a 175,000 sq ft store built 30 years ago in a part of town that has become less optimal and replacing that store nearing the end of its lease term with possibly two strategically located new stores in more relevant parts of town that accelerate gross growth in that market. Think one plus one equals three. Finally, we will continue to refine our store layouts and sizes to optimize their market potential. We are making significant progress in this area, and recent results are showing much higher returns than anticipated. This will meaningfully expand our brand's potential in coming years. I'm very excited about the future of this company.
We have meaningful upside, and as you can see from our Q3 results, we are on our way to realizing that potential. At this time, Scott is going to cover our Q3 results and share some thoughts on our expectations for the Q4. After that, our COO, Margo Manning, will update you on our operations. Scott?
Thanks, Kevin. Our Q3 results demonstrated our ability to drive significant improvement in profitability with relatively flat comparable store sales compared with 2019. Despite the COVID-related headwinds, Adjusted EBITDA increased 47% compared with the same period in 2019, which eclipsed the 39% increase we experienced in the Q2. We continue to see benefit from a higher mix of amusements, a linear operating model and lower reopening expenses due to fewer new store openings. Even with the headwinds from wage and commodity inflation, we have continued to grow margins and have offset these impacts through a more efficient labor model enabled by technology, proactive menu price adjustments and more effective marketing investments. Looking forward, we are pleased for our stores to return to new levels, benefiting from the removal of COVID restrictions, the return of special events and the efforts of recent initiatives.
For Q3 sales, we experienced a 1.1% comp, excluding the 7 comp stores located in markets that had vaccine mandates during the quarter. Including all stores, we experienced a -0.4% comp and total growth at 6.2% compared to 2019, reflecting softness due to the Delta variant and associated mask and vaccine mandates. Our walk-in sales continued to post strong comps at 6%, although our special events business continued to lag at -64% compared with 2019, which has been more significantly impacted by fewer corporate events. By month, our overall comps were -1.2% in August, 2.9% in September, and 2.2% in October, excluding the 7 comp stores located in markets that had vaccine mandates during the quarter.
Regarding sales mix, amusements and other had a positive 12% comp and was 66% of our overall mix compared with 58% of our mix in 2019. This was mainly due to minimal discounting and a continued shift to higher denomination Power Cards. Food and beverage had a negative comp of 17% compared to 2019, a substantial portion of which was due to the special events business. Adjusted EBITDA for the quarter were $68.2 million, or 47% higher than the same period in 2019. This reflects a 21.5% adjusted EBITDA margin, which was nearly 600 basis points higher compared with the same period in 2019. The improved performance was primarily driven by higher amusements mix, leverage on labor due to a more efficient model and lower marketing costs.
Net income of $10.6 million increased $10.1 million in the quarter compared to 2019, resulting in EPS of $0.21 per diluted share. These results generated positive operating cash flow in the quarter, despite a semiannual interest payment on our senior secured notes, the receipt of significant win redemption merchandise and the payout of our first half bonus plan, which as we explained previously, was done because of the uncertain environment for this year. We ended the quarter with $27 million in cash and $0 outstandings on our revolving credit facility. Total long-term debt was $495 million at the end of the quarter, consisting of our senior secured notes maturing in 2025.
During the quarter, we redeemed $55 million of our senior secured notes, which resulted in a $1.7 million expense to redeem the notes, but will save $4.2 million in annualized interest. Subsequent to the end of the Q3, we redeemed another 10% tranche of notes, bringing our balance to $440 million. The second redemption will result in the same $1.7 million in expense and $4.2 million annualized interest savings. Turning to capital spending. We invested a total of $23 million in capital additions, net of tenant allowances, and opened one new store during the quarter.
In the Q4, we plan to open one additional new store in Brooklyn, New York, and relocate an existing store to finish the year with 4 new openings and one new location, which will bring us to 144 stores by the end of the fiscal year. Overall, we are very pleased with Q3 results and the sound financial footing we have established going into the final quarter of the year. Turning to our outlook, I'd like to offer some insights for the Q4 of fiscal 2021. Regarding sales trends, our comp sales for the first 5 weeks have been 3.5% compared with 2019, which continues to be negatively impacted by our special events business. Our walk-in business is up 14% on the quarter-to-date basis, and we are encouraged by the strong start.
We expect continued softness in the special events business for the remainder of the quarter, which will be more impactful in December when we typically have a much higher penetration due to holiday parties. Additionally, we will experience a negative impact due to a calendar shift in our key holiday period. This year, both the Christmas and New Year's holidays fall on a Friday, Saturday compared with Tuesday, Wednesday in 2019. We estimate that this will result in a negative revenue impact of approximately $9.5 million in the Q4. Including these impacts, we expect Q4 comp sales to be slightly positive. From an expense standpoint, we'll have a higher investment in marketing as we invest more heavily in the holiday time period and expect commodity and wage inflation to be at or slightly above current levels.
Overall, we expect Adjusted EBITDA margin to increase by approximately 200 basis points compared with the same period in 2019. From a CapEx perspective, we expect to invest approximately $100 million in 2021 net of tenant allowances, with approximately 43% dedicated to new stores and improvements to existing stores, 14% for G&A and 43% for infrastructure upgrades and replacements. In summary, our team continues to execute on our initiatives to drive organic growth, improve profitability and produce significant cash flow from the business. We are pleased with our progress and are well positioned as we finish the year and look forward to 2022.
Now, before I turn it over to Margo, I'd just like to say that it's been my pleasure and honor to work with Dave & Buster's for the past two and a half years, and I will take away many good memories and friendships from my time here. The company has a truly outstanding team, which is at the heart of what makes it successful. With the plans in place, I'm confident that the company will continue to be successful, and I would like to wish the entire Dave & Buster's team and the board of directors all the best in the future. With that, I'll turn it over to Margo.
Thank you, Scott, and good afternoon, everyone. Let me provide some insights into the Q3 operating results and give you an update on our key initiatives. We continue to be laser focused on simplifying store operations, executing new beverage and food offerings, enhancing our entertainment, and refining our service model to drive sales and profitability. Regarding our food offering, we are excited by our seasonal differentiated limited time offers. Our winter limited time offer introduces new menu additions such as Black & Bleu Flatbread, Cajun BBQ Shrimp, Butternut Squash Ravioli, and a delicious Apple Tart a la Mode to celebrate the holiday season. Turning to our beverage menu, we are featuring limited time offers such as a peanut butter old fashioned and Monkey Shoulder Punch, and have refined our overall beverage offering with targeted enhancements that expand our menu's reach and appeal.
We'll be launching a tightly curated beverage menu this quarter that elevates the experience, adds new flavor profiles, and improves relevancy in an effort to drive beverage sales. In Q2 and Q3, we launched several tests to determine the entertainment appeal of programming. We successfully hosted themed trivia nights with Geeks Who Drink and have expanded the test to a dozen more markets. We also set out to amplify the D&B football experience, complete with interactive hosted events with MCs entertaining guests before the game, during commercial breaks, and at half-time. The activities and prize giveaways have created a game energy in our test stores that has resonated with our guests. Our Q2 and Q3 tests indicate that our guests have an appetite for new entertainment offerings, so we will continue to fine-tune these offerings with the goal of giving our guests more reasons to visit.
New programs under test include twists on murder mystery parties, bingo game shows, stand up and improv nights, and competitive karaoke nights. Moving to our Q4 marketing campaign. We are very excited about our Everyone's A Winner sweepstakes promotion that began on November 15. This promotion gives guests who enter 100% chance of winning a prize, including the chance to win $250,000 or free game play for life. Guests are welcome to come back every day beginning November 15 through January 2, and win a prize once per day during this period. Through the first two weeks of the campaign, we've seen an encouraging result with over 120,000 new email address captured.
The new D&B Rewards program, which is linked to the D&B app, launched on November 8, and incentivizes guests for games played similar to airline programs that incentivize for miles flown. The three-tier status earned by playing games will bestow unique rewards and benefits that deepen the member connection with our brand. While it's early, our loyalty guests have quickly embraced the concept of tackling in-store challenges, and we have already seen some promising guest engagement. On the people front, the labor market remains difficult, and we have seen staffing challenges in a handful of our markets. However, the Q3 typically brings seasonally low volumes, so we saw less overall pressure in our stores with regards to staffing. We have ramped up our hiring efforts to attract the talented team members that we need for the busy holiday season.
The brand-wide rollout of our new service model is complete and provides a more integrated in-store guest experience. The new service model combines tablets and a mobile web platform to enable a completely contactless order-pay experience. We are now leveraging insights from our guest feedback tool, Medallia, to identify how we can further refine our service model so that we continuously drive an improved guest experience. To wrap up, we recently completed our first employee engagement survey in over 18 months, and I am pleased to report that according to Gallup, our engagement levels are 24% higher than the current average for the U.S. workforce. Our team is responsible for bringing the fun to life every day in our stores, and we are proud of their high level of engagement. Lastly, I want to thank the entire D&B family for their commitment to our guest experience.
Your passion for the brand makes a meaningful difference. Now, Kevin, I'll hand the call back over to you.
Thanks, Margo. As you have heard, we are pleased with the results we delivered in the Q3, despite numerous headwinds, including vaccine mandates, mask requirements, wage and labor pressures, supply chain challenges, and a lagging Special Events business. We look forward to seeing a more normalized post-COVID environment in the future as each of these headwinds will become tailwinds, helping to further fuel our business. As I said earlier, we have an exceptional business model, strong assets, and a talented team. There's meaningful upside potential for this company, and we are laser focused on driving that to reality. Our team is extremely excited about the prospects for 2022 and 2023 and well beyond. Now, let's take your questions.
Ladies and gentlemen, if you'd like to ask your questions on the phone, you may do so by pressing star one on your telephone keypad. If using a speaker phone, please make sure your mute function is turned off to allow your signal to reach our equipment. Star one for questions. We'll pause a moment to assemble the phone queue. We'll take our first question from Andy Barish with Jefferies. Please go ahead.
Hey, everyone. Good afternoon. Let me get one in for Kevin and then maybe one for Bowman real quick. Just Kevin on being involved in the business, obviously closer, you know, day in and day out. What are you seeing that kind of gives you confidence from, you know, the programs that were put in place, you know, under the prior CEO and I assume international is gonna be a focus going forward given the announcement today, but any other areas we should be thinking about as you occupy the interim CEO role?
Sure. Let me start by saying thanks for that question. It enables me to actually expand on a little bit here. As most of you know, let me start by saying, this is my strength, coming in and taking a fresh look at everything and determining the art of the possible. I'll just give you two perspectives on some of my past experiences. I came to Avis Rent a Car when it was an employee-owned business and converted that and turned it into a very successful IPO. Then I returned years later to buy a second car rental brand, Budget, and optimized that best result to a best result of leveraging one commercial brand with a leisure brand, and as you can imagine, taking advantage of all of the opportunities in that transaction.
Another was Norwegian Cruise Line, where they were on the brink of bankruptcy, and we went on to be best in class. Most recently at Scientific Games, who were overwhelmed with acquisitions and losing sight of its core values and its responsibilities to their shareholders towards driving operational improvement, market share improvement, and realizing the substantial opportunity that was there. Each experienced significantly increased organic growth, improved margins and return on invested capital, and outsized valuation improvements, by the way. We have a very similar situation here, as you could expect, having gone through a few years of having a very difficult time with organic growth and then moving into this period of COVID. We need to spring back into action and boldly lead our brand to the optimal position.
As you can imagine, having been the chairman here, I was able to glean and understand a lot of what was going on, and I saw what I believed were opportunities. Having been here for a couple of months, it's enabled me to clearly see the enormous opportunities that lie ahead. Job one is the organic growth. Organic growth is job one. It's critical. It's what we need to do each and every day. We have an enormous number of opportunities. Margo mentioned a few in her part of the call on the broadening of the experience during the evening hours. We also have huge opportunities when you look at each and every day and every day part. We'll be focused on all of those opportunities.
As we talked about, we also are going to benefit from the refresh and remodel. I talked about some of these relocations where we could take these big stores that are in parts of town that might have been optimal 35 years ago, but maybe is not the same today. Taking that opportunity and moving it into a couple of different stores in more prominent parts of town. Those are some of the opportunities. When you get to, you know, some of the bigger things, and we've alluded to sports viewing, and we're working very hard on getting to an agreement on sports betting and fantasy sports. To me, there's a great opportunity there, first because of the economics that go along with that agreement.
The other parts of it, and that's where the art is to make sure we get the best result, is in the promotional activities that we can create with the partner that we have in that agreement. That's the second step. Then the biggest part of this opportunity is if we are successful with that initiative, you're going to bring more people into the stores, you'll increase frequency, and where you're really gonna get the icing on the cake is people will stay longer. They have an additional beverage. Those maybe have another appetizer or some other food offering. Think about all of the side benefits that go along with that. Also other day parts, just as examples, late evening lounge.
We have a good group of people that come in the evening time, having them stay a little bit longer, maybe introducing a DJ or something to expand that experience and help drive more traffic as people know about that opportunity. We're looking at Thursday nights very seriously as our opportunity to get people starting to think about their weekends and how we can get more traffic in the stores on that evening. Lots of things going on and, you know, just stay tuned for what we come out with as the coming quarters come together.
Thanks, Kevin. That's awesome. I look forward to seeing a lot of that getting brought to life. Bowman, just real quick on the margin guide for Q4. It's in line with you know, kind of the long-term you know, improvements that you've talked about you know, coming through the labor efficiencies and things like that. Are you willing to share with us just how much you think the softness in Special Events and just the holiday shift of nearly $10 million in revenue is impacting the margin?
Yeah. It's certainly, you know, impacting, you know, comparable store sales. Yeah, the softness and special events, you know, hits us especially hard in the Q4. You know, the penetration is about double that of the other three quarters in general, so it's about 15% of our total sales historically in 2019. The other three quarters, 7% or 8%. It does, you know, impact us more. It is improving, but it's just slower to improve than the walk-in business. We are encouraged with the walk-in business, and we do think that, you know, there's some kind of more informal get-togethers that are coming in from a walk-in standpoint that is bolstering that business. We are seeing that in our stores.
From a margin standpoint, you know, as you look at the Q4, a couple things to think about there. You know, I don't expect, you know, us to expand the margin as much in Q4. You know, part of it is, you know, the weakness in the special events business but also from a marketing standpoint, you know, we are, you know, much more heavier in marketing in Q4 than Q3, about $3 million more. That does have an impact. When you think about, you know, just labor in general, we'll be a little bit more fully staffed. Wage inflation, you know, will be slightly higher, we think. Commodity costs, you know, we think will impact that margin a bit as well in the Q4 relative to Q3.
Okay. The other thing I would just point out, and I alluded to this in the commentary, but you guys should just think about the enormous benefit here that we're running through this Q4, and we're going to have a solid quarter. As you get into 2022, and we're, Scott mentioned we're down 64% in special events, and that's about just under 10% of our business. Figure that growing back to its normalized size, and that was 2019 levels. That's gonna provide a very nice opportunity for us if we do our job correctly in 2022, which we will.
Thanks, guys.
Thanks, Andy.
We'll take our next question from Jake Bartlett with Truist Securities. Please go ahead.
Great. Thanks for taking the question. You know, my first one was just a clarification. I think I'm clear. I just wanted to double check. The guidance for a slightly positive same-store sales in the Q4, that includes the negative impact from the holiday shift, the $9.5 million. It truly would be reported as slightly positive, correct?
That's right, Jake. That's the power of what's really happening here.
Great. The other question is just the visibility you have on the Q4. You know, I know a lot of the business obviously comes during the holiday season. You know, I think 15% of the Q4 comp store sales were, you know, special events in 2019. I assume a much larger percent. Maybe if you could share, you know, what percentage of that is, you know, in, say, December. You know, how much visibility do you have on that business? You expect it to be down, but do you have visibility that it might not be down so much? It does seem like a lot to really make up from the walk-in side of the business.
Any clarity on what you have in terms of visibility there would be helpful.
Sure, Jake. First off, in the month of December, special events, typically based on 2019 numbers, is about 20% of the business.
Okay.
From a visibility standpoint, we do have a fair amount of visibility, you know, as we see the bookings, you know, come in for that business. As we look at our forecast, you know, we'll look at those booking numbers and see how they're trending, and that shapes, you know, the forecast that we have.
If you could go over, you know, some of what is gonna be driving the sales in the Q4, maybe what you have now, what's coming. You know, I think in terms of the new amusements, since you're planning the Transformers VR, I'm not sure if that's still on track. And then also, you know, the new kind of approach with marketing of much more, you know, targeted windows during peak times. When is the marketing window in the Q4? And how does the marketing weighting, you know, in the Q4 of 2021, you know, compare to 2019?
I'll start off with the marketing piece. We started our marketing campaign in mid-November, and that'll last, you know, towards the end of December. I think the takeaway here is, you know, our marketing windows are somewhat shorter than what we had in 2019, because 2019 was almost an always on scenario, and we weren't able to go deep enough to really get that reach that we needed to. What we're seeing by having these shorter windows is that we are able to increase our reach and we're seeing that affect our results. We're really encouraged on what we're seeing so far. You know, we have a better marketing strategy and a better creative, and we see that coming through.
Every campaign that we run, and this is really only the second major campaign, you know, with the new strategy, we have takeaways and learnings that are really helping us and will continue to help us as we shape that marketing strategy for next year.
Great. Sorry. Yep.
I was just gonna follow up on, you know, questions about, you know, amusements and so amusements will have, you know, new, a Summer of Games, you know, kind of event for next year, similar to what we did this year, where we'll roll out, you know, several new games, a couple of VR titles. You know, so Transformers won't be out until the March timeframe, so it'll be ready for spring break. Then, you know, we've talked about in the past our Top Gun: Maverick attraction, which we're looking forward to. With the delay of the movie we've had to delay that attraction.
It appears that the movie is on track to launch over the Memorial Day weekend, and so we will time the roll out of our VR attraction shortly after that movie. Those two VR attractions as well as several new games that we're excited about will be, you know, part of, you know, the Summer of Games. We think that will give us, you know, some nice traction on our amusements and will be supported by some marketing as well.
Okay. Last question is really on the comments around remodels and the scrapes and rebuilds. First on the remodels, you know, how extensive do you plan that to be? I know you know, you went through a pretty extensive process. I think it was from about 11 to 15. Is that the kind of depth of the remodel that you expect going forward, or is it much less than that in trying to figure out how much how incremental you think it could be to sales? And then the question about the scrapes. I think the guidance for next year, for 2022 is 6 to 8 openings. You know, do those include some scrapes and rebuilds?
I guess I'm trying to make sure I understand what the net growth would be and, you know, that we should expect in 2022.
Sure. From a remodel standpoint, you know, the cost and the scope of those remodels can vary. You know, we have what's called a refresh, which is, you know, kind of our mini remodel, which refreshes certain aspects of that building. Then there's a more formal kind of full remodel. You know, the full remodel could be $2 million plus, and the refresh may be half a million. As we look at our store base, you know, our plan is, you know, longer term, even beyond 2022, to think about that strategy more from a programmatic approach.
You know, we have our 143 stores and, you know, we'll start to prioritize those stores in terms of what they need. You know, is it a refresh or a full remodel? You know, what year is most prudent for each of those stores to fall into. You know, this next year, you know, will be kind of the first year of that approach. You know, after we do a few of those remodels, you know, we'll have a better sense of, you know, what that needs to be long term and what tweaks we need to make to it.
I think that is kind of the key thing that, you know, you take away here is that it'll be a programmatic approach and, you know, we're going to, you know, start, you know, that journey next year and continue to remodel those stores in need.
[Crosstalk]
I was just gonna add that programmatic approach is critically important and it's easy to fall away from companies, but you have to stick to that and refresh stores every six or seven years. Otherwise they start to age and I suspect, you know, if you went through this, a few stores in our group that are not to the level that we need to be, and those will be the first ones to be attended to.
Great. Thanks a lot.
Thank you.
We'll take our next question from Nicole Miller with Piper Sandler. Please go ahead.
Thank you. Good afternoon. The first question, what kind of food inflation are you seeing, and are you able to use the menu you talked about today, for example, as a way to optimize or offset some of the commodity inflation?
That's true, Nicole. Right now we're seeing commodity inflation in the high single digits. You know, as we rolled out the new menu, we are seeing some benefit of the new menu in terms of its structure and on cost. That is, you know, helping to offset that. You know, we don't want to, you know, change the menu just because of commodity costs by themselves. We think we have a good menu. We're getting good response from our menu from our guests. You know, any changes that we make to the menu would be either limited time offers or driven by feedback from our guests.
Overall we've been able to keep, you know, commodity inflation and labor inflation mostly offset, you know, by, you know, work we've done on, you know, our leaner operating model and, you know, some of the technology that we put in our stores, you know, to improve efficiencies.
Was there a menu price increase associated with the seasonal menu? How much price is in the system currently?
Not necessarily with the seasonal menu. You know, we did take some pricing, you know, kind of, across the board for our menu of about 5%. You know, seasonal items, it is more of, you know, a variety versus a menu pricing action.
Just a last question around the special event space. I mean, it's clear it's a drag and we appreciate that, but it's obviously also the inverse is it's rebounding. Is it the local social guest that's coming back or something on the business side? As you think about the opportunity to remodel, is there something different you would do with that space over time?
Nicole, it's Margo. In terms of what we're seeing come back, we certainly saw the social business come back earlier. The team is indicating through the holiday season that we're seeing activity on the corporate side as well. I think what you'll see in the upcoming year is a sales team that has been sort of repositioned to go after corporate sales in a pretty thoughtful way. We're very excited about the opportunity to bring this back fully next year because we think it's gonna be a strong addition for us.
In terms of looking at the special event space, it's interesting that you bring that up because we have had conversations about how we can look at that space and have it be more flexible, particularly as we start to build out the programming arm of what we're doing. So I don't have anything to share with you right now, but it is a thought that we're entertaining as it relates to how we can make that space be utilized more frequently and in a more broad way.
You know, and I think the important thing there is it's not necessarily an either/or. You know, being flexible, like Margo mentioned, you know, we can still use it for special events, but when we're not using it for special events, it opens up the opportunity for other uses.
Thanks again.
Sure.
We'll take our next question from Brian Mullan with Deutsche Bank. Please go ahead.
Okay, thank you. Kevin, I'm hoping you could provide some of your thoughts on the long-term unit growth opportunity domestically, you know, and whether you're taking a fresh look at that with you taking over. I mean, do you have a sense today of how many stores you think the U.S. can support over the long term? Maybe what's the right pace of growth that the organization can handle in a normalized environment while still driving, you know, consistent same-store sales at the existing base of stores?
Yeah, there's a few pieces to that question. Let me cover the ones, and then maybe Margo or Scott will jump in. You know, as we find out that these new slightly smaller stores have significantly better returns and have a more optimal use of space, that new concept opens up a lot more markets for us to expand the brand. We have plenty of room to grow for years and years to come. The other part of the conversation that I think is hopefully everybody's focused on is these big unyielding locations that have been historically really good but have waned over time because of the locations and maybe the traffic patterns and the market has changed where the center of attention is.
Taking some of those big stores and converting them into a couple stores also expands the footprint. There's plenty of opportunity. I think we need to be thoughtful here, though, and Scott talked a little bit about the opportunity that we have to relook at the stores and the excitement factor in each and every store that we have across the system to make sure that when a guest comes back to a store, that they feel a refreshing experience, that there's something new to make them feel. We have a big opportunity that we're working on with the arrival experience to immerse them immediately into the experience. Something that I think is a big opportunity that is coming. Just stay tuned on that.
also the investment in the existing stores enables us to have a huge increase. If you look at it as these stores come back almost like new and get a lot of people to come in and try it again. If we do it right, that then expands the traffic and the demand in those markets. That's all. I think we wanna be balanced because I feel strongly that we need to make sure the existing stores are the right experience for our guests, but also keeping, and since we generate so much cash flow, we still have the ability to build a number of stores each year.
We have to be attentive to doing it and balancing all of the capital allocation across, you know, all the uses of cash to make sure we're being as thoughtful to our shareholders as possible. Then the last part, as you alluded to, and it's a frustration. Now, I don't want to blame anybody, but I think as an organization, we missed the point on this, and we never put the right person or a key person in charge of it. You know, when you don't have an owner, you're never gonna get anywhere. I think we overly complicated the way we were going to market in this. There's a very seamless way of getting this done with franchise models, a standard franchise agreement. I think when we get this running, it'll be very, very successful.
I get calls, and a lot of us are getting calls about, "Hey, we need a store here or we need a store there," all around the globe. You can think of the markets that make a lot of sense. Getting a footprint in that and getting that started, it's not gonna turn into economics in 2022 or even in 2023, but it becomes the seeds that we plant for 2024, 2025 and on and on. Then when you look at that out 4, 5, 6, 7, 8 years, it starts to incrementally help our top line growth rate and can be, you know, a few % of growth on the top line.
You know, when you look at a business, you have to look at the 20 different opportunities to grow revenue. It's not only, you know, organic or it's not only new stores, but it's doing a better job in each and every opportunity. I hope I answered that okay.
Yes, that was great color. Thank you. Just as a thought, you know, it was encouraging to see the share repurchase authorization. Can you just talk about how you plan to approach deploying that? Do you expect to be more programmatic in nature, perhaps more opportunistic? Is there a target leverage ratio investors should be mindful of as you think about managing your capital allocation from here?
Let me start that, Scott. I'm sure I have some points of view on that. You know, our leverage when we finish the year is almost a hash mark. I think it's one times. You know, where does that belong? What is our responsibility to our shareholders to drive value to them, and that is what I wanna make sure each and every one of our leaders understands that we come to the office every day trying to create value to for the reasons that we have the benefit of having jobs. It's our responsibility.
When you look at the allocation of cash and as we, you know, talked about the number of stores that we're building, and I think that's a full complement in 2022, and we talk about the investment in the existing stores and the investment in new games and the maintenance, et cetera. We still have an enormous amount of cash that's gonna sit on our balance sheet. What do you do? Earn two basis points in the bank, or do you do something smart for our shareholders?
When you have an investment sentiment right now, and I'm sure for a variety of reasons, including where we're managed and looked at in the pecking order of industries, we're trading at a very low multiple, and it's incumbent on us to return the appropriate balance of capital back to our shareholders as the business allows. I mean, we're not gonna be reckless here. We're gonna be prudent. We wanna be able to see a lot more visibility in the marketplace and how the environment improves. Once we have some confidence in that, it makes sense for us to be thoughtful about buying shares for our shareholders and you know, bringing down our share count.
We'll continue to, you know, monitor trends and, you know, we wanna be opportunistic. You know, we think that, you know, we are undervalued and, you know, we are pretty close to the business and we, you know, we think that's the case. You know, we wanna have that flexibility, you know, to get back into the market at some point when the time is right. As far as the leverage ratio, we don't have a specific target right now. We are very happy with, you know, the lower leverage ratio we've been able to attain. You know, longer term, it really depends on the opportunities in front of us.
You know, whether that be internal investments, whether that be buybacks and things like that, we'll balance, you know, those needs and those opportunities, you know, against, you know, our leverage. That will help us, you know, kind of form more of a definite leverage target here in the future.
Okay. Thank you both.
Sure.
We'll take our next question from Jeff Farmer with Gordon Haskett. Please go ahead.
Great. Thank you. If you guys were to theoretically pursue a sports betting partnership, what would the next steps include? Would you guys end up testing this in a few markets for several quarters? Basically the question is how quickly could you move forward with sports betting if you decided to pull that trigger?
I think there's a bunch of answers in that question because you wanna make sure that we develop the right relationship. You know, we're talking to a couple of prominent players in that field. When we get that deal done, you wanna make sure there's a deep partnership because we can both benefit by having a deep relationship. That's part of the process that we're going through currently. Then once you get that deal done, you start to roll it out. You're right. You're gonna focus more on the states with sports betting already in place and test the concepts and constructs over a course of a couple of quarters.
I see it quickly moving out across the brand, at least with the sports fantasy and the opportunities to you know to talk about what our capabilities are.
Okay. Unrelated, just in terms of what you've seen as a concept over the last several quarters, going back to 2020 in terms of rising and falling COVID case numbers and even COVID case headlines, what has that impact been on your customer traffic trends? Sort of where have we gotten to now, when people or some of your customers read about Omicron or see headlines about Omicron, what's been the impact on traffic for your business?
We haven't really seen a big impact to our traffic with the Omicron variant at this point. You know, as I mentioned at the outset, our walk-in business continues to be you know, very strong. You know, we haven't really seen a big impact there. I think our special events business with or without Omicron, you know, we expected that to be softer for the Q4. We're very encouraged, you know, by the strength of the walk-in business.
Okay. Then just final question along those lines. Nice sequential improvement quarter, Q4 quarter to date in terms of the same-store sales performance versus 2019. Is there any specific driver or initiative that you'd point to in terms of what drove that sequential improvement?
You know, I would point to a couple of things. You know, we rolled out our new loyalty program and our marketing campaign. You know, our marketing campaign started in, you know, the mid-November timeframe. Similar to the summer marketing campaign, you know, we've seen some lift in our business. You know, we think that at least part of that is due to the marketing, you know, based on, you know, some of the testing and that we've done and some of the analysis that we've done. You know, I hesitate to say that it's all due to that because there are many variables, but we're seeing some good trends here, with this, you know, kind of condensed marketing period with more heavy, heavier weighting.
We think that is definitely playing a part here and, you know, we look forward to, you know, continuing to refine that strategy.
All right. Thank you.
Sure.
We'll take our next question from Andrew Strelzik with BMO. Please go ahead.
Great. Thanks for taking the question. My first one, Kevin. Excuse me. The first answer in the Q&A that you gave when you went through some of your prior experiences, you mentioned, you know, the prior times when you've grown both sales and margins, and obviously there's been a lot of focus on the top line side so far.
In terms of the strategy and the outlook there. I'm curious on the margin potential and how you think about the margin potential of the business. Obviously, Scott has outlined, you know, 200 basis points or so of structural improvement. Do you think that there's over time, you know, more upside there? I know some of that can be tied to the sales lines as well, but just separate of that, I'm just curious how you're thinking about the margin potential of the business going forward.
Yeah. I think a little bit of that. It's a good question. A little bit of that, though, is gonna be subject to, you know, market conditions. If we get a little bit of an improvement back in the labor situation, if the commodity costs come back a little bit to reality, there's so much noise, as you know, in getting goods and services today. I do think things stabilize at some point next year. That coupled with, I think part of the thing from my experience is when you have a fresh look at things, you do step back and we've got initiatives that we're looking at right now. How are we doing it? Are we lean in the way we're doing it?
Are we going to market as smart as possible? The team has done a tremendous job, Margo and her team, of bringing technology solutions to bring efficiencies to the headcount and the labor costs. I think a continuation of that. If we are successful on the organic initiatives, I see that the margins should be at least as good as it is, and maybe we start to benefit as we get some future wins from the market normalizing and from all the initiatives that we're working on behind the scenes.
Okay. That's helpful. Then obviously the 14%, I believe it was, comp growth on the walk-in side. I know there was a quarter to date number, so maybe you don't wanna speak to that. Just more broadly, I remember you were seeing pretty significant check growth. I'm curious how that's continued to evolve and how much do you think could be sustainable or you would hang on to kind of as we roll forward into next year?
We're still seeing significant growth in check, especially in amusement. You know, we've talked on prior calls that, you know, our per cap on amusements has been close to 30%, and it's been very consistent. It's still in that range. We feel like there is staying power, you know, with that higher ticket, especially in amusement, for the remainder of the quarter. We'll see and kind of reassess as we get into 2022.
Okay. Then, my last question is just on G&A, which was a bit higher than we anticipated for the quarter. Was there anything in there to kind of call out, or is that a reasonable kind of run rate for Q4 and moving forward? Just curious for any color on that would be great. Thanks.
Sure. There's a couple things to note in our G&A costs. You know, one is there's about $2.7 million in additional severance costs. We had about $1.4 million, you know, additional in bonus and about $2 million additional in stock-based comp. That really kind of bridges the gap between this year and 2019.
Perfect. Thank you very much. Scott, just wanna wish you all the best in your next chapter.
Appreciate it. Thank you.
We'll take our last question of the day from Alex Vaste with William Blair. Please go ahead.
Hey, guys. Thanks for taking the questions. Just start with one quick one. Thanks for the color on the monthly comps in the quarter. Could you maybe talk about per card spend and how that has held up?
Yeah. Per-card spend has held up very nicely for us. You know, it still is, you know, about 30% higher than 2019. We're, you know, very encouraged, you know, by, you know, the consistency that we've seen there. You know, that does give us, you know, some confidence that we feel it has some staying power for the remainder of the quarter.
Okay, great. Thanks. Then, on the recent announcement with Antonio taking over international, how are you guys planning to frame up that opportunity there, maybe in size, if you can? Then how quickly do you guys expect to reach any partner agreements there?
Yeah. It's a little early. He doesn't start until January 1, but he's a go-getter. And that was one of the things that attracted me to him, that he's like a bull in a china shop in getting stuff done, which I think we need to do in getting this off the ground. To be realistic, you know, 2022 and 2023 are investment years in getting the contracts, starting to develop the relationships, getting the agreements in place and selecting partners, et cetera. You're not gonna see EBITDA from that until 2025, and then it starts to ramp up from 2025 to say 2030 to the point where it's, you know, a good size number.
You know, when I look at it, based on my experience, I see it as being an achievable business model. He and I are gonna be aggressively moving on that once he starts in January.
All right, great. Thanks. Appreciate that.
Ladies and gentlemen, this does conclude today's question and answer session. I would like to turn the conference back to your speakers for any additional or closing remarks.
Hey, guys, just thanks everybody for taking the time to listen to us. I just ask you to stay tuned. We've got lots happening. We're really excited. We've got a huge opportunity here. Just you know, stay tuned. Thanks so much for the call, and Happy Holiday to everybody.
Ladies and gentlemen, this concludes today's conference. We appreciate your participation. You may now disconnect.