Good afternoon, everyone. Welcome to the Dave and Buster's Entertainment Incorporated Second Quarter 2021 Earnings Results Conference Call. Today's call is being hosted by Brian Jenkins, Chief Executive Officer. He will be joined on the call by Scott Bowman, Chief Financial Officer and Margo Manning, Chief Operating Officer. I'd like to remind everyone that this call is being recorded and will be available for replay beginning later today.
Now, I would like to turn the conference over to Scott Bowman for opening remarks.
Thank you, Christy, and thank you all for joining us today. In addition to Brian and Marco, we also have Brandon Coleman, our Chief Marketing Officer joining us today. After our prepared comments, we'll be happy to take your questions. This call is being recorded on behalf of Dave and Buster's Entertainment Incorporated 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 facts.
Any of these items should be considered forward looking statements relating 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 have 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 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 will turn the call over to Brian. Thanks, Scott, and thank Thank you everyone for joining us this afternoon. Over the past 18 months, our team has successfully navigated COVID challenges, While at the same time accelerated our strategic initiatives, we have had a single goal, to emerge as a stronger, more competitive company. I am pleased to report today that we have accomplished that goal, our brand is back, And we are stronger than ever. The 2nd quarter results we announced earlier today are compelling proof that this team's extraordinary efforts have succeeded.
We achieved record setting financial performance, reaching new high watermarks on virtually all financial metrics. 2nd quarter revenue of $378,000,000 was an all time quarterly high for us, surpassing 2019 by $33,000,000 Our success was fueled by the return to positive comp sales of 3.6% over Q2 2019 levels. Even more impressive was our strong EBITDA performance. We blew by the $100,000,000 mark for the first time in any quarter in our history, Achieving $114,000,000 in EBITDA, up $36,000,000 or 44% from Q2 of 2019. Our operations team did an outstanding job leveraging new order and pay technologies, adapting our service model and optimizing costs to deliver our first ever EBITDA margin to crest 30%, exceeding the 2019 Q2 compare by over 700 basis points.
During the quarter, we were also able to bring our 2 stores in Canada back online, marking the complete reopening of our store base, an important milestone for our company. Last year, When liquidity was our imperative, we successfully rebuilt a strong capital structure bolstered by equity infusion, a new bond offering and amended credit facility. We now have a significant flexibility to run our business and invest in our future. With the record setting operating cash flow generated in Q2, we reduced our net debt outstanding by nearly $90,000,000 providing us with over $440,000,000 in available liquidity at the end of the quarter. As further evidence of our confidence in the business, We recently announced that we intend to redeem 10% or $55,000,000 of our outstanding bonds using available cash.
We have come a very long way in just over a year. These strong results were made possible by an Unwavering focus over the past year and a half to accelerate initiatives to make us a stronger company. In our Q2, we introduced an entirely new menu that broadens our appeal and is easier for our stores to execute. Over the summer, we made a meaningful investment in our entertainment offering with the introduction of 7 new games. We also took steps to widen our entertainment plans by offering programmed events in select markets.
While early on, We are confident these efforts will broaden our reach and increase visit frequency and we are accelerating our investment in our entertainment We leapfrog traditional order and pay platforms with the system wide rollout of our new mobile web enabled platform. Mobile web adoption has been extremely strong, significantly exceeding our expectations. The majority of our guests now use the technology, And our success on this front has been crucial in facilitating a more efficient operation while also allowing us to deliver a great D and D To solidify our team in a challenging labor environment, we provided temporary pay incentives to our team members this quarter and succeeded in attracting the talent necessary to deliver an outstanding quarter. Under the leadership of CMO, Brandon Coleman, who you will hear from in a moment, we onboarded new creatives and media buying agencies and revamped our brand message and media strategy. These changes culminated with a concentrated media investment this summer to relaunch our brand with a new voice, Featuring our new menu and games, this was part of our new marketing strategy to shift spending from the shoulder periods to increase focus on windows that would have the most impact and those changes were meaningful.
Comp sales were up 7% In the final 8 weeks of Q2, a marked improvement from the 1st 5 weeks of the quarter that was down 4%. And despite a few headwinds, we are encouraged that our comp sales For the 1st 5 weeks of Q3, including Labor Day, are still up versus 2019, reflecting the strength and the resiliency of our brands. With dramatic improvement in our financial foundation in the first half of this year, We've also begun to rebuild our new store pipeline. With the recent opening of our store in Bellevue, Washington and one store in Brooklyn, New York planned for Q4, We expect to open 4 stores in 2021. We plan to open between 6 to 8 stores next year, representing a meaningful acceleration compared to 2021.
As we have discussed in the past, rightsizing the store format for the market And sales potential is a priority for us. We are extremely pleased with the performance of our most recent new 18 ks small format store that opened at the beginning of this year. Our Gainesville, Florida store is the 1st freestanding Small format unit that we have built from the ground up, generating nearly $6,000,000 in revenue during the first half of twenty twenty alone, Absolutely crushing our expectations for revenue, EBITDA and return on investment. We are encouraged about the efficiency and throughput of this new format and the potential to leverage it in new markets. This quarter's performance proves that our brand is resilient and resonate with guests of all ages.
We are thrilled with our record setting performance and excited about continuing that momentum in the back half of the year. At this time, I'm going to ask Scott to cover our 2nd quarter results in a little bit more detail and share some insights on our expectations for the remainder of the year. After that, our COO, Marco Canning and CMO, Brandon Coleman, will cover in more detail the operating and marketing innovations We've implemented this summer as well as what we have planned for the second half. Scott? Thanks, Brian.
Our second quarter results reflect a significant acceleration in Sales and profitability for Dave and Buster's, which generated impressive cash flow for the business. We ended the quarter with all 140 Two stores opened, including 1 new store that opened during the quarter. With all of our stores opened, we are seeing strong demand for our brand, including rapid sales growth in our California stores as they ramped up during the quarter. With record sales and strong execution of our margin enhancing initiatives, we were able to produce record profitability for the quarter. Total revenues of $378,000,000 were an all time record and included a 3.6 percent increase in comparable store sales compared with the Q2 of 2019.
Average weekly sales were $208,000 per week for the quarter versus $206,000 for the Q2 of 2019. In terms of category sales, amusements were up 17% comp, while the F and B business was down 17% compared with 2019. For amusements, the increase was driven mostly by an increase in per cap spending. For F and B, the decline was mainly due to a decline in units sold, partially offset by a slight increase in per cap spending. Sequentially, units versus 2019 improved significantly for both F and B and amusements compared with the Q1.
Comparable store sales showed acceleration during the quarter compared to 2019 with comps of negative 4% was partially driven by more effective marketing and the ramping up of our California stores. Regarding sales mix, amusements and other was 67% of total sales for the quarter versus 60% in the Q2 of 2019, driven by fuel discounts and a shift to higher denomination power cars. EBITDA for the quarter was an all time record of $114,000,000 or 30.2 percent of sales and represented a 729 basis improvement compared with the same period in 2019. The improved performance was driven by a higher amusements mix, leverage on labor costs due to lower staffing levels Adjusted EBITDA for the quarter was $119,000,000 or 31.6 percent of sales, representing a 6.60 basis improvement compared with the same period in 2019. Net income increased 63% from 2019 to $53,000,000 in the quarter, resulting in a 19% increase in EPS to $1.07 per diluted share.
These improved operating results produced 121,000,000 and operating cash flow during the quarter, and we ended the quarter with $108,000,000 in cash and 0 outstanding on our revolving credit facility. Total long term debt stood at $550,000,000 at the end of the quarter, consisting of our senior secured notes maturing in 2025. As part of our capital allocation strategy and to capitalize on our current cash position, we recently made the decision to redeem $55,000,000 of our senior secured notes using a redemption option in our indenture agreement. As background, we may redeem up to 10% of the notes at a redemption price of 103% of the principal amount during the 1st 12 months after issue. We may redeem another 10% of the notes during the 2nd 12 months after issuance, which begins at the end of October.
By executing the 10% redemption, we will pay a $1,700,000 premium over the principal amount to redeem the notes, We will save $4,200,000 in annualized interest. Additionally, at the end of the quarter, we had approximately 41,000,000 We have negotiated rent deferrals on the balance sheet. We expect to pay back approximately $14,000,000 of deferred rent throughout the remainder of fiscal 2021, $22,000,000 in fiscal 2022 and the remainder thereafter. Regarding tax refunds, due to current IRS backlogs, we now expect delay in receiving approximately $60,000,000 in refunds from CARES Act legislation and the carryback of 2020 losses. We now expect to receive these refunds in mid to late 2022.
Turning to capital spending, we opened 1 new store in the 2nd quarter and adjusted a total of $39,000,000 in capital additions net of tenant allowances. Subsequent to the end of the quarter, we opened 1 additional store at the end of August. In the Q4, we plan to open one additional new store and relocate an existing store to finish the year with 4 new openings and one relocation, which will bring us to 144 stores by the end of the fiscal year. Overall, we are very pleased with the second quarter results and the sound financial footing we have established going into the back half of the year. Turning to our outlook, I would like to offer some insights for the Q3 of fiscal 2021.
As a housekeeping note, I would like to provide some details on reporting and guidance going forward. Regarding our profitability metrics, We will place more emphasis on adjusted EBITDA versus EBITDA going forward. This is to be responsive to investors who prefer this metric It better represents the true normalized earnings power of the business. Regarding guidance, as the business continues to normalize, we will be reverting back to annual guidance starting in 2022 with updates provided quarterly. Regarding recent trends, Comp sales for the 1st 5 weeks, including Labor Day, have been over 1% compared to 2019, reflecting broad based strength despite negative impacts due to changes in calendars, unfavorable weather and COVID resurgence in our Southeast markets.
Based on these current trends, we expect total third quarter comparable store sales to be approximately in line with the quarter to date trend compared with the Q3 in 2019. We expect 3rd quarter EBITDA to be significantly higher than Q3 20 but with some slight moderation compared with a percentage increase in the 2nd quarter. This reflects margin improvement that exceeds Our 200 basis points target, which is driven by improvements in gross margin, payroll and benefits and preopening expenses. Keep in mind that the level of these benefits may change over time as we continue to work towards more normalized operations. From a CapEx perspective, we are updating our guidance and plan to invest $95,000,000 to $100,000,000 in 2021, which compares to prior guidance of $65,000,000 to 70,000,000 Based on our current financial position, we are taking the opportunity to invest an additional $14,000,000 in our stores to accelerate the rollout of new technology, upgrade our Wi Fi capability and upgrade equipment in select stores.
These upgrades will improve the guest experience and will accelerate our technology deployment to further drive strong returns. Additionally, we are taking the opportunity to accelerate development on several of our pipeline stores help maximize their impact in 2022. In summary, our team has done an outstanding job during the first half, We're reopening all of our stores while implementing a number of impactful initiatives that have enhanced profitability and cash flow. We're well positioned for the second half and are positioning the company for further growth in 2022, while closely managing the ongoing effects of the pandemic. With that, I'll turn it over to Margo.
Thank you, Scott. I echo the appreciation for our team's tremendous second quarter efforts. We believe the new menu, games and service model initiatives that we've been implementing over the past 9 months And the concentrated focus that we have put against streamlining store execution is helping to drive our strong sales and enhance profitability. Let's start by talking about our menu initiative. Its design simplifies operational execution and provides our guests with quality ingredients and enhanced Flavor profiles.
Since deployment in May, half of our top 10 best sellers are either new or refreshed options. In addition, we conducted an extensive menu pricing test that gave us confidence to take a price increase effective late August to offset inflation pressure. Based on our guest visitation rate, we'll continue to watch the menu performance to gain a full understanding of its impact on sales and the guest experience over a longer timeframe. On the beverage front, we completed our beverage analysis and are now using the resource to evolve our beverage offering. The good news here is that the research data indicates our beverage menu is attractive to our guests and simply needs some targeted refinements to expand its appeal and reach.
Our goal is to launch a freshly curated beverage menu in Q4 to improve relevance and attachment in order to drive beverage sales. Next, I want to talk about our entertainment initiatives, which is among some of the most important work we are doing. In Q2, we launched several tests to determine the entertainment appeal of programming. We successfully hosted themed trivia nights with Geek 2 Drinks. These events are easy to execute and they're also easy to market to our guests.
We intend to rapidly expand these tests to more markets this fall based on its early success. Additionally, we continue to refine our live music These are highly engaging events. They're held during the week and they bring guests into our stores to have fun during what is typically considered off peak times. This fall, we'll introduce additional entertainment formats incorporating music, Film content and live interaction. And of course, it would not be fall without talking about fall football.
This year we'll be amplifying the D and B football experience. From an entertainment standpoint, we'll lean heavily into our custom video content with new proprietary video elements to help our guests pre game before kickoff with an added integration to DNB's live radio format. In key markets, we'll introduce live host to amplify select football games. These performers will engage guests before, during and after the football game with activities and prize giveaways. Our intention is to use this program model throughout the year and expand it further in 2022 as we continue to look for ways to give the guests more reasons to come visit D and B.
Now let's turn to staffing. The labor market continues to be challenging. In Q2, we made a temporary investment in hiring programs and retention incentives and we gained significant staffing traction, which bolstered our staffing levels for what was a very busy summer. Q3 will bring a seasonal drop that combined with our new technology tools will put less pressure on staffing. This will give us time to lift our sights to the holiday season.
Our intention is to selectively extend Aspects of the staffing programs as we need to ensure that we have the team in place to bring in the critical Q4 holiday season. Our brand wide rollout of the new service model has been completed and it 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. From full deployment to date, over 50% of our guest chats are utilizing this mobile channel. This technology will help transform our business model and it allows us to operate more efficiently.
Due to the strong adoption by our guests, We are continuing our test of a completely self serve mobile web enabled guest experience in 2 of our stores. On our prior earnings call, Brian mentioned that we implemented a new guest feedback tool Medallia. It's a comprehensive tool that gathers in store and social feedback to identify trends to improve the offering and the execution. Given the challenging environment, We're really pleased with the summer results and we'll use these guest insights to continuously improve our in store experience. To wrap up, I want to recognize and thank our entire team for the exceptional performance this quarter.
During my store visit, I see team members working hard to deliver a fun experience to the guests. And here at our home office, this team has worked to provide the critical support needed to set our stores up for a great summer. We're energized by our record setting results this quarter and we look to carry this momentum forward. And with that, I'll turn the call over to you, Brandon.
Thank you, Margo. Today, I have some exciting news to share as we have completed our first campaign under our new marketing strategy. I'd like to begin today by reviewing the campaign performance and then look ahead to our future marketing plans and our new loyalty program. The summer campaign, which ran from mid June to early July, employed our new window based media approach that concentrates marketing dollars in periods where Dave and Buster's is most relevant. This change in strategy provides focus and depth in our marketing communication and prioritizes incremental visitation over general brand awareness.
We also dramatically changed our media mix during the summer campaign by shifting the majority of our spend to digital media. This shift has enabled us to be more surgical with our audience target, while maintaining high levels of video impressions as a percentage of total media. For this campaign, we also leveraged 1st party and third party data to improve the conversion rates across media channels. This more intelligent approach to audience targeting was punctuated by fresh creative, highlighting an intentional shift in our brand Communications from discount driven value messages to an emotional brand connection that drive visitation. The new creative captures the shared winning experience in a simple yet powerful visual and auditory brand expression, We were also able to codify learnings for the back half of twenty twenty one.
For Q3 and Q4 this year, we will focus on 2 media windows, our fall football and winter brand campaign. The fall football media will support selected stores, which over index for sports watching audiences, reaching about half our system. This media spend will be lower than the summer campaign. In addition to the media push, we will also be bolstering the brand's sports credibility In driving buzz among sports fans through a partnership with Part In My Take, whose audience and satirical approach to sports talk match well with the Dave and Buster's brand. In November, we will launch a new winter campaign that follows the framework of the summer campaign as they return to higher media spend and more diverse array of activations across channels.
The media targeting for this campaign will again leverage our consumer data to improve conversion. This campaign also has a data collection component to drive enrollment in our new loyalty program. That's right, after several iterations in consumer testing, We have developed an engaging new D and B Rewards program. The new D and B Rewards program will elevate our loyal guests from transactional rebates to aspirational status achievement. The program which launches in early Q4 incentivizes guests for games play Similar to airline programs that incentivize for miles alone, the new DMV Rewards will also introduce a functionality called Challenges where guests can complete unique combinations of activities to earn both digital and physical rewards.
Finally, This program will be inextricably linked to the DNB app, adding incremental functionality and further improving the apps relevance for our growing user base. From loyalty to media to insights, our marketing team is always learning and optimizing to meet the changing consumer landscape. We are focused on increasing our known guest database to drive more profitable sales, increase personalization and ultimately connect more deeply with our guests. This constant informed evolution will enable Dave and Buster's to outmaneuver competitors and build brand relevance for years to come. Now I'll hand the call back to Brian for his closing remarks.
Well, thanks, Brandon. We are extremely gratified to see how enthusiastically guests around the country have returned Good day, investors. We feel more confident than ever about the unique position we've built over the past 40 years and the innovations that we've implemented over the past 18 months to enhance the guest experience in every facet of our business. We're focused on fully implementing the remaining elements of our new beverage menu, service model, programming and marketing initiatives and to fully staff our stores. Our record setting 2nd quarter performance proves the resilience of our brand and the tenacity of our team.
I want to thank them again for their dedication And their passion and for everything they do every day to help our guests turn an ordinary day into an extraordinary entertainment experience. Now, we'd like to open the call to your questions. Operator?
We'll go first to Andy Barish from Jefferies. Your line is open.
Hey, guys. Amazing results over the summer. Congrats.
I think you were expecting or starting to maybe hope for a little bit more shift to Food and beverage sales with the rollout of new menu and that really didn't noticeably happen during the quarter. Is there anything Kind of to add on that note or is it just an effort that's going to take a little bit of time given customer patterns?
It's a really great question, Andy. Look, we were extremely pleased with the Traffic moves that we had in both amusements and food for the quarter. By the end of the quarter, when we hit the month of July, our amusement traffic was back in positive territory. We're up close to 2% As measured by Power Cards and our food traffic is measured by obviously food counts was down a little bit, down about 3% By the end of the quarter, so sequential improvement of significance versus the Q1. So Look, we're extremely pleased with getting the business back into positive comp territory for the first time in quite some time and with Both the traffic moves we've seen and as Scott mentioned in his prepared remarks, we continue to see significant Per cap lift in the amusements piece of the business.
So we're getting very high buy ins. We're not discounting. So I don't think it's surprising that we're seeing amusements outperform here.
Got it. Understood. And then a quick follow-up as long as we have Brandon on the line On rewards, as you look out to 2022, does this drive Frequency more so of existing customers or spend and then any explicit costs To roll out the program or discounting commentary when customers are at Points where they can redeem rewards and things like that.
Absolutely. Great question, Andy, and thank you. First, I'll address the intention of the program. It's intended to drive both frequency and spend. The Points for games played incentivizes guests to do what they love to do at Dave and Buster's, which is play games.
So that can be achieved through more visitation or increased spend per visit. There are 3 levels to this program The member progresses from player to icon to legend and there will be significant rewards in each step of that Progression, there will also be micro rewards in between based on behaviors and activities. These rewards range from digital badges to free advertisers to bonus play chips. But we're seeing about an 8% cost on that as a percentage of total loyalty spend.
And next we'll go to Jake Bartlett from Truist Securities. Your line is open.
Great. Thanks for taking the question and also congrats on these amazing Turn to above 2019 levels so quickly. My question was just on just trying to understand some of the drivers. It There is volatility in the same store sales trends. The deceleration over the last 5 weeks, it's great to see it's still positive.
But Could you point to the major factors there, whether it's the they're focused on The peak periods for your advertising, so maybe you pulled back a lot obviously that's after the window. But anything there that's driving the deceleration or I think Big question on one question on investors' mind is the delta impact and how you're kind of gauging whether that's really the primary driver to the deceleration here? And I have a follow-up.
Yes, good question. Nice to hear from you, Jake. First of all, as I said in my remarks, Super, super encouraged by the strong recovery we saw over the course of the Q2. Again, really nice to get back In the positive comp territory, obviously, we discussed on some of the prior calls that we were looking towards This summer window is really the appropriate time to get back out with a media voice, With new games in combination with the new menu and go big and really concentrate some investment during that time. And I think That was obviously very impactful and we saw a pretty nice trajectory change in the back part of Q2.
So Super pleased with the results, a lot of hard work on the part of our team and our operators did just a phenomenal job entertaining our guests this summer. So super happy about that. As we hit this August period and enter Into our Q3, look, I'm super pleased to be nose up as a brand, being positive comps. Right now, as we enter into the Q3, we're encouraged by that as well. Yes, it is a slight Some declined from our Q2 results, but there have been a number of factors.
There are some pockets of some of the markets where school calendars have shifted. There are some headwinds and some places around some of the Hurricane activity that popped up all the way through the country really with Ida and Henry. And then, look, We do have some markets where COVID cases have resurged and we have seen some regional softening from that. But this in my view is a bump in the road. Last year was a crater, I would call it.
This year is a bump and We're going to get through this and we're fine. We're super encouraged with where this business sits right now.
Great. Thanks. And then the follow-up is just really on your entertainment content and I think in Watch. And For a while now, we've been kind of waiting to see what you're going to do with sports betting, any sort of arrangements there. And I noticed your Press release related to Barstools this morning, so or Barstool Sports.
So any update there? Maybe some of the puts and takes, Maybe kind of why we haven't seen the agreement yet or maybe switching an agreement is off the table at this point? Any update would be helpful.
I'm going to let Marco talk a little bit about the broader entertainment. We're actively or aggressively pursuing programming and we're I'll get to the sports betting here in a second. We're super pleased with the lineup of new games we launched this summer. First, I mean a significant investment, 7 titles, biggest introduction we've had in 2 years. So it's nice to put some new content out for our guests.
We have some exciting titles planned for the balance of the year. Specifically, We plan to launch a Transformers VR title here as we hit our 4th quarter window. And that is one of the highest grossing film franchises of all time, so excited about that. We mentioned last quarter we delayed the top funds, VR title that we have under development and that is going to get delayed again because of the film getting pushed into the next summer. So, but we're ready with that title, but we will be pushing that.
I'm going to let Margo talk a little bit about programming, but as it relates to your question around sports betting, we continue to explore sports betting partnership. We do believe that we will represent a meaningful enhancement to our appeal as a sports watching destination. We're working on that. We're in Active discussion. And when we finalize that agreement, we'll have more to share and I don't really have anything else to share on that right now.
Yes.
So I'll just add a little bit more color about programming. We had mentioned that we hired a new programming leader and we're just really excited about the impact and actually are looking to not only expand the number of stores that we're doing, but we're also going to be testing doing the trivia weekly because we've had such great demand for that. So you'll hear us talk more about that as we refine that format and as we start taking the test to the broader Stores put throughout the brand to just get a sense of what is the right amount or frequency and content that we want to deploy there. The live format of entertainment has also been something that we're refining and we're encouraged by. Additionally, when we talk about fall football And trying to incorporate some video elements, some live host, it's important for us that we really identify The scale and style that is right for us, because we're looking to take this to market in 2022 in a lot of different ways, BlueView Premier, TV Premier, the ability to take that into lots of different content is what is most exciting about us.
So you'll be hearing about programming from us in the future as we really get more in-depth
Next, we'll go to Jeff Farmer from Gordon Haskett. Your line is open.
Thank you. You guys did touch on menu pricing, but can you quantify any pricing actions you've taken across the food and beverage segments or amusement segment side of the business, over the summer and again any insight into what you might be planning to do with the potential August Price increases.
Yes. So we talked about the menu price increase kind of mid single digits. We haven't done anything proactively on the amusement side, but keep in mind that in effect we do have an effective price increase On the amusements side, similar to what we talked about last time and that's due to really very little discounting in the amusements area. With the demand that we've seen lately in amusements, we haven't really been doing much of any discounting, But we're still seeing the demand there. And so when you think about the per cap increase that we're seeing in the amusements business, close to 30%, We measure about 40% of that or estimate about 40% is just really due to Not doing the discounting that we've done in the past.
So that has been the favorability for us without Taking specific pricing actions, just pulling back on the discounting. So that is helping us. The food pricing that we thought It was warranted. It's been about 2 years since we've done any kind of pricing activity on food and beverage. And That will help offset some of the other inflationary pressures that we see in the business.
Okay. And then, Noah, could you clarify that the mid single digit food increase that we're talking about is really just a recent event here, August 30, is that correct? Yes. That's right. Yes.
Just to clarify.
Okay. That's helpful. And then similar topic, you had also mentioned or touched At least wage rate inflation. So question is, I guess, what are you currently seeing in the wage rate inflation environment? And I'm not referring to overtime and things like that, but just pure wage rate inflation for your hourly employees.
And in terms of what you saw, I would say, in the second quarter And then your expectation for the Q3, are things going to get much more challenging? Or are we seeing things get About as challenging as they're going to get and then it sort of moderates as we get into 2022. Any sort of insight there would be helpful.
Sure. As we look at wage inflation, so we've seen that pressure just like many others in the industry. And Our estimation is that we're seeing kind of a mid single digit increase annualized versus 2019. And we do expect that to continue for the back half of the year. We think that there will be a continuing high demand for labor and The labor market will continue to be tight.
That's kind of our view. A couple of things to think about in the back half That could change things one way or the other with unemployment benefits going away here very soon and then potentially more people returning To work, that could be a dynamic that alters that estimate, but we do feel like there'll be You know, a similar level of inflation for the remainder of the year. Thank you. I mean, the good thing here is that despite some of the wage pressures, The efforts of our operators in terms of implementing and rolling out some of the new technology around Mobile web and our POS handheld has really helped us in a big way. Margo and her team has done a phenomenal job Working through that, that's helped mitigate some of that wage pressure that we're seeing, just in terms of how efficient the teams have become With that tool.
And we're still early days, right, Margo? Yes. Thank you again. Yes.
And next we'll go to Brian Mullen from Deutsche Bank. Your line is open.
Hey, thank you. If we look at your EBITDA margins for the first half of this year, they appear to be up about 450 basis points versus the first half of twenty nineteen, which is obviously very strong. Scott, I'm wondering if there might be any updates to your Prior EBITDA margin expansion framework, even if there's some moderation from here, the EBITDA margin expansion Sure. Just to kind of go back, the original commitment was 200 basis points of improvement once we hit 2019 AUVs. And that was an analysis that was done on the 2019 cost structure.
And there's other things that can help That number going forward with inflationary pressures or benefits with improved gross margins and lower preopening expenses and things like that. But the 200 basis points is really meant to be in comparison of the 2019 cost structure and the things that we were proactively doing that would reduce No cost in that area. So, as you know, we've done better than that. And so as we look forward And we see the improvement in our gross margin mainly due to a higher amusement mix. That alone we We'll be somewhat sustainable for the near term.
And so with that Kind of in our forecast, we do feel confident that we can achieve at least that 200 basis points at 2019 AUV. As we think about the most recent Q2, we did overachieve quite a bit. And just to give you a little bit of color on that, as you think about a positive comp, That by itself helped our margins with the strong flow through that we're seeing on those comp store sales. No, gross margin was well above last year as well, most of that was due to amusement mix. Pre opening expenses were down quite a bit.
That's just the nature of building fewer stores. So those things, the gross margin and pre Especially are two examples that what really contemplated in that 200 basis points of improvement Because we were more focused on kind of the structural side of the business and so we excluded those two items Yes, knowing that those could happen slow. And so, as it turns out, they've been favorable for us. And so we've enjoyed that favorability. And then on the favorable and benefits side, we've seen a little more favorability there as well.
Brian mentioned the Roll out of technology, so that certainly has helped us, but we're still trying to staff up too. So we're making progress there, but Still trying to increase staffing. And so as we do that and get closer to kind of more normalized staffing, then that benefit We'll come down a little bit. But all that being said, I mean, we're really excited about what we're seeing and the paper billing that we're seeing and More than ever focused on maintaining that commitment that we made and as we grow sales that We'll surely benefit us on the bottom line. Okay, great.
Thank you for all that. That's great color. And then on the development pipeline, Encouraging to see you're expecting 6 to 8 new units in 2022. My question is, as you look out to 2023 beyond, What is the right pace of unit growth for this business? Is 6 to 8 units going to be the sweet spot for you?
Or are there scenarios where maybe You could open more than that, just any color on your current thinking. Well, as I mentioned in my remarks, put the Financial Foundation really just in a really, really strong place right now. We're flowing a lot of cash. We're More profitable than we've ever been in our history. We're just in a really good place right now.
And So development team, which is in my view the best in this business is very active right now Working our pipeline, obviously, in 2020, we stood down on a lot and protected The mode, if you will, but right now we're aggressively pursuing units. And as I mentioned, We have 868 on target for next year. We feel very good about Our ability to hit those numbers, we actually have 9 properties under lease right now that are in our pipeline. And then we've got 9 additional locations, and it's growing as we look towards our 2023 Pottery Barn and Beyond. So we're actively working 2023 2024 right now.
I don't really want to step out and pick a number right this moment. We do still have work to do to Build our leadership bench strength, 2020 was tough on our business, tough on our team. So we have some work to do to rebuild the bench strength to be able to accelerate End of 2023, but we're very optimistic about where we stand and we're active in that, but I don't want to pick
And next we'll go to Nicole Miller from Piper Sandler. Your line is open.
Thank you for the update and congrats on the performance. Two questions. The first is, it's helpful to get the currently the land. Could you translate that comp 3Q to date into AUV or share the 2021 versus 2020 comparison, so we get really I'm thinking about the Seasonality right? And also the same for EBITDA.
Can you revisit, what you said about EBITDA? I couldn't write that down quite quickly enough. And if possible, translate that to dollars as well. Thank you.
So which part would you like To repeat on EBITDA?
I'm sorry. I missed you said 3Q should be higher, but then you said something else. I just didn't catch that, I'm sorry. In relation to 2Q.
Okay. So Yes. As we think about 3rd quarter EBITDA, we think it will significantly The 2019 numbers from a dollar standpoint, what I was trying to convey was if you look at The percentage fee that we saw in Q2, we don't think it will be As much as Q2 from a percentage standpoint versus 2019, but based on current trend, we See Q3 EBITDA significantly beating Q3 of 2019.
Okay. And then the 1.3% comp, what is that on an AUV basis? Or just underlying that, I know It's a hot, crazy percentage number, but what does it translate to a 2021 versus 2020 comp? Either way, we'll
fill the gap.
Yes. So, we've kind of been in the practice of giving the comp versus 2019. And so, Yes, I think if you think about the comp, the AUVs should really kind of mirror That comp in our U. V. In 2019 was it's about $10,500,000 or so per store.
So it would just be Yes, just slightly higher than that, given the 1.3% comp.
Okay. That will work. And then, on the pipeline, it was helpful to hear about like going forward, and maybe we could just talk about the reacceleration to get to the going forward. So For 2022, 6 to 8, it sounds like those almost be LOIs or signed leases, but I just wanted to confirm. And are these new stores to the pipeline or were they there prior?
And kind of where are they opening? And sorry, last part. I remember international back in the day and I thought maybe I should just pick your brain on that because you're in a really good position and maybe that's something that comes back as an opportunity. So Thanks again for taking my questions.
You bet. Nice to hear from you. Look, the 6 to 8 that we are talking about for 2022 were all in our Pre COVID pipeline, so this is a reactivation of stores that we had on tap previously. They lean a little bit more towards existing markets for us. There's a couple in New York, couple of California in this mix.
So, and then we've got a couple Of the small format stores as well in new markets, so there's a couple of 2 or so of the sort of 20,000 and lower. So as I mentioned, We're really excited about that format, what it could mean for us and mean for our total addressable market. We're reevaluating that right now In terms of how deep we think we can go given the strength of that box. And so but yes, all 8 of those are at Top end were in our pipeline before. As are the current additional 9 that we are working, many of those were in our pre COVID pipeline as well that we paused on and so a lot of those were in the mix prior.
And as I mentioned, we're continuing to look at not only new properties that weren't in that mix, but some additional Sites that we had on our radar pre COVID. So very active now, it's a lot better position to be in We've been dealing with lease negotiations that we were in for most of 2020 and our development team is always just focused now on building the pipeline back. So Very encouraged. As it relates to international, that is something that pre COVID that we deemphasized As we sought to really focus our attention on the core domestic opportunity and business And but that is something that we are revisiting right now. I don't have anything really to report on that, but that is something that We are, as I said, revisiting right now.
Thanks again. Appreciate it.
Thank you, Nicole.
And next we'll go to Andrew Strelzik from BMO. Your line is open.
All right, great. Thanks for taking the questions. A couple of quick ones for me. I'd love to hear a little bit more about what you're learning and maybe Any surprises or anything that's been different with the rollout of the web platform and the tablet that you have going on there? I don't know If there's check implications or consumer behavior implications or you've mentioned efficiencies a couple of times, if there's margin Implications there, anything on that would be great to hear.
Hi, it's Marco. So In the difficult staffing environment, one of the most powerful things about this has just been the ability to help offset staffing challenges. It also has really enabled us to think through the guest experience and what are the touch points that we want our team to really focus on. To your point, we are seeing some impact. It is early days, so
I don't want to go into
a great deal of detail, but we have been able to expand server sections and we have been able to reduce server hours. And again, when I talk with you about it being early days, one of the things that we Believe over time is as we get our guests more comfortable with it, as we get our team more comfortable with it And as we learn the best way to refine it, that it will become just more powerful over time. So we're very encouraged with the short time horizon. It's really too early to comment on Exactly where we think it will end up, but we'll definitely share that with you as we continue the journey. And I guess when you go to Surprise?
The question on your surprise. I have to tell you, I was definitely surprised about the guest level of adoption. So to have over 50% of our guests take us up on using this has been a really positive surprise for us.
Okay. That's great to hear. I wanted to ask also on marketing. I know there's been a lot of Changes in terms of the channels and the levels, etcetera. I guess I'm just trying to frame up as I think about the margin profile going forward.
Is this kind of does it
end up being a larger than normal marketing year, a normal marketing year? Are you still trying to Dial in kind of what that's going to look like based on the learnings from this year, any help on how the trajectory that looks over time would be helpful as well.
Yes, absolutely. We're still gaining learnings as we come through each marketing promotion. But right now for the full year, we anticipate spending to be slightly Over $30,000,000 and that's versus $21,000,000 last year and $45,000,000 in 2019. Due to our window based approach, approximately about 2 thirds of that will be spend will be concentrated in Q2 and Q4. A lot of that concentration comes from consolidating the media spend within a quarter, not necessarily pulling from other quarters.
But Does that answer your question, Andrew?
Yes. That's exactly what I was looking for. Thank you. And just one last quick one for me. Just in terms of the capital allocation philosophy, if Dave and Buster's is not going to be I know you're not guiding, but if it's not going to be a 10% plus unit grower kind of going forward, obviously, the performance is very strong, the cash flow It's very strong as well.
I'm just curious how you're thinking about allocating that, whether it's a dividend or going back in that direction or It seems like there's a lot of opportunity there. So just curious for your perspective. Thanks.
Sure, Andrew. So from a big picture standpoint, we do want to maintain our flexibility here. And Near term, our intent is to delever the business over time and we'll balance that against the broader capital The key priorities for us will be new store openings. So we are starting to ramp up some there. We've seen great returns on our stores.
We have some revised more efficient formats that could help us Even bigger returns, especially on the small store format. So we want to make sure that that is kind of at the top But we also want to invest in our core business. We've done some investment in our core business with our technology, but More recently, we're spending more dollars to upgrade our equipment, our AV equipment to make it kind of a best in class for that watch customer and we want to make sure that our stores are in good shape. And after that, Returning cash to shareholders through share buybacks and dividends, they'll have lower priority at least in the near term. And that may change over time, but for right now, we're most interested in growing the business and delevering the balance sheet.
And next we'll go to Chris O'Cull from Stifel. Your line is open.
Hi. Thanks guys for taking the question. I had a follow-up question regarding the development. It sounds like you're hoping to get back to like a 2019 development pace, maybe within the next 2 to 3 years given the type of growth you're talking about. Is that a reasonable assumption or am I hearing you right?
I don't think I picked the 23 number. Look, we're 2022 is what we're targeting on right now, which is Meaningful acceleration of 1 to 8 from 4 this year. We're pleased with that kind of pacing. I think it's what we can digest. It's really all we can get done for 2022.
I do think over time we'll be able to See some acceleration, but again, I'm going to stop short of picking exact numbers for 2023 and 2024 right now. But we have some lifting to do with the leadership team and the bench strength to be able to open our stores well. I think pre COVID, we did that better than anybody in this business. And we had a really, really strong track record. We've got to build the muscle back a little bit here.
But yes, I think we can work our way towards some acceleration. I don't want to pick a number.
And Brian, before the pandemic, I know the company was Brand study to identify opportunities to improve the brand's relevance and compete better. And I'm just wondering, do you still believe there's a need to complete, I don't want to say major, but a remodel program within the system?
I think it's really important that you reinvest obviously back into the core business and whether that's Look and feel investment and or content, whether that be games, whether that be Broadening our entertainment lens through programming, we do feel we need to be an innovative company. I mean, we're the leader in the space for a reason. And we have a lot of folks that are entering the space, Many of them chasing our AUVs, our returns. And so we need to continue to Anything. So yes, I think it's really important and that will involve some investment in the core business And involves touching our stores with some kind of cadence.
I think it's actually really important.
My last one is in, should we expect the CapEx spending to continue to rise from this $95,000,000 to $100,000,000 in 'twenty two Or should it stay at this level?
Yes. We're I mean, we're not really giving guidance yet on that, but what I can say is that In all likelihood, they will increase. And just for the simple reason that we want to build more stores, That will cause an increase and then what Brian is saying as well. So we've been spending Left on store maintenance and things like that because of the need during the time. So We're slowly ramping that back up and we will continue to do that next year.
Looking at refreshes and remodels that is In that consideration set as we look at capital plans for next year.
Great. Thanks guys.
Thank you.
And next we'll go to Brian Vaccaro from Raymond James. Your line is open.
Hi, thanks and good evening. Just following up on seasonality and just to make sure we're all on the same page. I believe August is an average month So maybe around $200 that we're thinking about if we're thinking about August of 2019. Scott, can you confirm that's accurate? And then just also remind us how that Monthly sales seasonality sort of moves through the rest of 3Q?
Sure. What I would say, Brian, is, as you get into August, the 1st couple of weeks are fairly normal and then it starts to drop off in the back half of August. And then through kind of like the back half of August September October is when we see our seasonal dip, Which is on average about 85% of kind of the average For the whole chain for the year in terms of average weekly sales.
Okay, great. So that's up 1.3 that you did quarter to date, That quarter to date average weekly sales is in that ballpark of around $200,000 then?
So for the 1st 5 weeks of the 3rd quarter, the average weekly sales was 187 For those 1st 5 weeks.
Okay, great. Great. And on the small store format, I'm glad to hear Gainesville is off to such a strong start. Can you remind us what the expected cash investment is on that smaller prototype?
Yes. So for that type of prototype Brian, I mean the average is an 18,000 square foot store. So it's between 6,000,000 and $6,500,000
Okay, great. And then just last one back to capital allocation and thinking about the balance sheet. What's the right level of debt for the business in your view in a post COVID world? And are there any targets on net debt to EBITDA or
Yes, good question. So we don't have a hard leverage target yet. For us, we'll need a little bit more time to establish kind of new normal for cash flow and understand our CapEx needs that we need to grow the business. And so as that picture becomes a little bit more clear And as we're also able to continue to delever the business a bit, we'll take that all into account. But 1st and foremost, we want to make sure that we have the dollars available to invest back into the business, whether that be existing stores or new stores or other things.
But also the leftover cash to the extent there is some, we would like So as things start to normalize a little bit more, we'll probably Be able to talk more about a leverage target, but that's our general thoughts for right now. All right. I appreciate that context. Thank you. Sure.
And next we'll go to Sharon Zackfia from William Blair. Your line is open.
Hey, it's Matt Curtis on for Sharon. Thanks for taking the question. I just had a question on per card spend levels. I apologize if I missed this during your comments, but have you seen any moderation in per card Spend so far in the Q3?
Not really. Yes, for power charge, no, it continues to be very So we haven't seen any meaningful drop off.
Okay, thanks. And then just a quick question on labor. I understand or at least it sounds like you feel comfortable basically on your staffing levels. But I'm wondering if you could tell us Anything about what your staffing levels are like now versus 2019?
Yes. So I can start off. So sapping levels still are less than in 2019. So there's still a little ways to go to kind of get to ultimately where we want to be, but we're making progress. And I think the other thing to keep in mind is The technology that we put in the store with our mobile order and pay functionality as well as our tablets is really helping.
And keep in mind that we just finished the rollout that technology towards the end of July. And in some cases, stores are kind of still learning and getting efficient with that technology. But we think that will It surely helps us continue as we continue to move forward. So still making progress, but still a little ways to go and We will keep the updates coming as we move forward.
Okay, got it. And then last one for me. Could you talk a little bit about the private party business and how that's been trending? And then how are you thinking about that business Heading into the holiday season given that this one is going to be relatively normalized compared to last year obviously.
Yes, really good question. I guess first and foremost, As we report the numbers for the 2nd quarter, super pleased with the recovery in our walk in business. I mean, we were Up double digits in walk in sales for the Q2, so really strong recovery. Our Special Events business is clearly lag walking so far. While we did see and are seeing Sequential improvement in bookings relative to 2019 as we head towards our Q4.
It's not in the same place today As our walk in. And so if we think about kind of heading towards the Q4, which is obviously a big quarter for special events for us, We typically see bookings start to pick up in late September, big time in October into November for all important It's really, in my view, pretty hard to predict how corporate SE demand is going to play out right now. We do feel like The booking window may be a little bit more delayed and actually maybe a little more compressed than a typical year in the face of some of the So the good news is, look, we've got a lot of runway left here in front of us as we head towards, Again, a big Q4 typically for us and our team is working really hard to maximize the FE potential as we head towards that.
The other thing I'd add to that Brian is that we are being proactive about driving the business and we have several key initiatives that we're launching Here at the beginning of Q3 to go out and get that business and not just wait for it to come to us.
And we'll take our last question from Jon Tower at Wells Fargo. Your line is open.
Great. Awesome. Thanks for squeezing me in. I appreciate it. I was curious, Clearly, customers are using your business a little bit differently than, say, the same period in 2019, given the higher mix of amusement versus the food and beverage.
But I was wondering if you could talk a little bit about How the customers are using you outside of that? Maybe it's weekday versus weekend. And even within the day, are you seeing Perhaps an earlier start to the day, at least maybe during the Q2 with more kids around and out of school. And What are you seeing with respect to your larger family visits? Are those still depressed versus, say, the individuals coming in versus 2019 levels?
A lot of questions in there. I wouldn't say our mix by day of week is Look, we're definitely our late night business is not as strong. We have our constraints. So, our Friday Saturday nights are not as strong as they were Pre COVID right now. So it's quite remarkable really that we're putting up the kind of numbers we are There's some constraints around the late, late night.
So we're super pleased with the mix Business right now, as we think about moving forward, a lot of the initiatives that we're working on are trying to drive utilization and frequency, Particularly in some of these off peak days, weekdays and some of the things Margo was talking about that we're doing from a Program perspective are laser focused on those windows to try to drive a Tuesday or a Thursday to a Higher placed than we have historically. Clearly, Wednesdays is kind of a hero day of week during the weekdays for us. It's discount driven. It's really our only discount right now that we have out there. So we're looking to really try to drive compelling reasons to visit We're a broader spectrum of days than we have historically and that's why you see us focused on that.
We have a lot of capacity Because when you're underutilized and that's a focus for
us. Got it. And on Friday Saturday nights, are you still Constrained on your hours, meaning into this fiscal Q3?
We've expanded the hours in fall, obviously, because But we don't necessarily have all the stores staying open as late as they did. But we have expanded those hours with the Q3 in order to accommodate the programming associated with multiple.
Got it. And then the
last one for me.
I know this was mentioned a few calls ago, but I am curious if there's any updates to be had on the virtual brand testing That you had done in a couple of markets?
Wings.
I'm sorry, kitchen. I'm sorry. So we continue to offer our Busters American Kitchen as well as Data Busters virtually. And that actually continues to be delivering the same amount of sales that I think that I probably first offered. We were Really excited about our Wings Out Virtual Kitchen and due to really just Supply chain issues walked away from that.
If that stabilizes, we have started a plan to talk through rolling that out. What we want to do is make Sure that we can take care of the demand that we have in our stores because we tend to get a heightened focus during Also, we want to make sure that we're stabilized there, but then we have an interest in taking wings out throughout the brand because that test was the most encouraging
Thank you, John.
And we have no further questions. I'll turn it back to you for closing remarks.
Well, thank you. Well, look, thank you for joining our call today. We wish you and your families a safe and active fall season And look forward to seeing you all at a D and B location very soon. Have a great night folks.
And that does conclude our call for today. Thank you for your participation. You may now disconnect.