Good afternoon, everyone. Welcome to the Dave and Buster's Entertainment Incorporated Third Quarter 2020 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. Please go ahead.
Thank you, and thank you for joining us today. 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 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 risk factors and uncertainties have been published in our filings with the SEC, which are available on our website at www.daveandbuster.com under the Investor Relations section.
In addition, our remarks today will include references to EBITDA, adjusted EBITDA and store operating income before depreciation and amortization, which are 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. Well, thank you, Scott. Good afternoon, everyone, and we appreciate you joining our call today.
On behalf of the entire DNB team, we hope you and your families are remaining healthy and safe during what continues to be a challenging time in our nation's history. I continue to be extremely proud of our team for their tremendous agility, their resilience and commitment to succeeding under extremely difficult circumstances. As we have discussed on previous calls, our 2 key near term priorities are to: number 1, we open and operate our stores safely and efficiently as quickly as possible and 2, to thoughtfully accelerate change in our service model, menu, programming and marketing. We believe our focus on those two priorities will position our business to thrive in a future beyond COVID. And on both of those fronts, we had a very successful Q3.
Speak to the first of those priorities now, and then Margo and I will provide an update on the second after Scott has had a chance to review our Q3 results and also our expectations for the Q4. During the Q3, we made significant progress reopening stores and driving improved operating performance. We began the quarter with 84 open stores and finished with 104, representing 75% of our total store base. This included the opening of 2 brand new stores, 1 in Manchester, New Hampshire and one in Lehigh Valley, Pennsylvania and the permanent closure of 1 store in Houston, Texas. Over the quarter, we also made progress rebuilding our revenue with an average of 74 reopened fully operational comp stores, generating revenues at 57% of 2019 levels.
That's up from 35% in the 2nd quarter when we had an average of 39 fully operational comp stores. Comp sales at our reopened stores improved as the quarter progressed, peaking in late October at a 68% index to 2019 levels with the top quartile reaching a combined index of 91%. Four stores generated sales above their 2019 sales for that same week. With improving sales over the course of the quarter and continued discipline around the lean operating model, we drove meaningful improvement in our EBITDA trend relative to the 2nd quarter and reduced our cash burn rate as well. In fact, 68 of our 104 reopened stores achieved positive store level EBITDA during the Q3 and 80 stores did so in the month of October, bringing us to within a few $1,000,000 of breakeven on an enterprise level for that month, even with all of our California and New York stores still closed.
We believe the strong sales recovery for the Q3 and return to store level profitability at the majority of our open stores clearly illustrates the resilience of the Dave and Buster's brand and validates our game plan for navigating through this unique COVID environment. Also during the Q3, we solidified our balance sheet and significantly enhanced our liquidity by successfully issuing 5 $50,000,000 of senior secured notes due in November of 2025. We used the proceeds along with available cash to completely pay off our term loan and to pay down our revolving credit facility. As a result, our total available liquidity under our revolver stood at $314,000,000 at the end of the quarter, significantly extending our liquidity horizon. In conjunction with the bond offering, we also secured modifications to certain pet covenants through 2022 and a 2 year term extension on our credit facility, resulting in no debt maturities until August of 2024.
On the whole, we are very pleased with our performance and accomplishments during the Q3. Now as you are all aware, the resurgence of COVID infections around the country is causing states and local jurisdictions to place renewed restrictions on restaurants and arcade operations and has led to store re closings in the month of November. As a result, the pace of our overall sales recovery moderated over the 1st 5 weeks of the Q4, causing a sequentially higher EBITDA loss in November, and we expect these pressures to intensify over the remainder of the quarter. Despite this recent turn of events, we are well positioned with an exceptional team, a strong plan, significant liquidity and a resilient brand. And I view this as a temporary setback, and we are extremely optimistic about our ability to navigate through another COVID resurgence period and really come out on the other side of this even stronger when this wave passes.
At this time, I'm going to ask our CFO, Scott Bowman, to touch on the financial highlights of the Q3 and provide some broad insights on how we're managing through the 4th quarter in the midst of renewed COVID limitations. Scott? Thanks, Brian, and thanks to everyone on the call for joining us today. I'll first spend some time summarizing our Q3 performance and our current liquidity position, and then I'll provide some expectations for the Q4. The 3rd quarter total revenues of $109,000,000 decreased 64% compared with the prior year period, reflecting a 66% decrease in comparable store sales.
By month, comparable store sales were negative 75% in August, negative 62% in September, negative 59% in October. For our comparable stores that were open and fully operational for these periods, I would also like to provide some performance details by month compared with the same period last year. For August, our 68 open comparable stores produced a sales index of 46%. For September, 76 open comparable stores posted a sales index of 65%, and for October, our 77 open comparable stores produced a sales index of 61% compared to the prior year. As for sales mix, amusements and other continued to outperform food and beverage, accounting for 65% of total sales compared to 58% last year.
Turning to the balance of the P and L. Gross margin improved 101 basis points to 83.6% in the quarter, primarily due to higher mix of amusement sales, partially offset by food and beverage spoilage that was expensed as stores reopened. Operating favorable benefits expense was 27,700,000 dollars a decrease of 64% from the prior year, primarily due to fewer open stores and continued execution of a leaner labor model. Despite the lower sales base, we succeeded in managing these expenses to 25.4% of sales, equal to the same period last year. Other store operating expense was $70,800,000 a decline of 36% from the prior year, primarily due to lower variable costs, compounded by savings in marketing, repair and maintenance and rent abatements.
As a percent of sales, other store operating expense was 64.9% of sales versus 37.1% last year. The higher percentage was mainly due to the deleveraging effect of lower sales on occupancy expense. G and A expense of $11,700,000 decreased 28% from the prior year, mainly due to savings in compensation expense, consulting expense and legal fees. Consulting expense declined $2,600,000 partially due to a $1,500,000 accrual reversal related to outside advisory fees. As a percent of sales, G and A expense was 10.8% compared to 5.4% for the same period last year, mainly due to the deleveraging effect of lower sales.
3rd quarter EBITDA loss was $21,700,000 reflecting an average EBITDA burn rate of $1,700,000 per week, which compares to a burn rate of $3,500,000 per week in the 2nd quarter. Adjusted EBITDA loss was $16,000,000 for the quarter. Turning to the balance sheet. We ended the quarter with $8,000,000 in cash $314,000,000 of availability under our revolving credit facility, which was net of our $150,000,000 minimum liquidity covenant. Total long term debt stood at $576,000,000 at the end of the quarter, consisting of $550,000,000 in recently issued senior secured notes and $26,000,000 outstanding on our revolver.
Additionally, at the end of the quarter, we had approximately $17,000,000 in deferred vendor payables, which compares to approximately $35,000,000 at the end of the second quarter. We plan to have approximately $6,000,000 of deferred payables remaining at the end of the fiscal year. Rent totaled approximately $48,000,000 at the end of the 3rd quarter compared with approximately $40,000,000 at the end of the second quarter. We continue to negotiate with landlords for further rent deferrals, but expect to begin some level of repayment beginning in January and extending over 12 to 18 months time period. Also during the Q3, we received a 2019 tax refund of approximately $10,000,000 related to the CARES Act and expect additional refunds of approximately $11,000,000 over the next 4 quarters.
Excluding financing activities, our weekly cash burn rate improved to $2,400,000 primarily due to an improved EBITDA burn rate. When netted together, the temporary working capital adjustments related to deferred payables and deferred rent offset by the CARES Act tax refund had an overall de minimis effect on our weekly cash burn rate. Turning to capital spending. We recently completed construction and opened 2 new stores in Greenwood, Indiana and Gloucester, New Jersey and plan on opening 1 additional store by the end of fiscal 2020. Additionally, we plan on accelerating 2 capital projects in the 4th quarter, which have contributed to efficiency gains in our stores.
These projects include investments in tablets to improve our service model efficiency and in high speed kitchen equipment to gain efficiency for certain menu items. Including these investments, we expect to spend approximately $60,000,000 to $65,000,000 in CapEx for fiscal 2020 net attendant allowances. In summary, our operating results for the Q3 reflected encouraging sales trends that reopened stores and validated our lean operating model. Additionally, as a result of the improved liquidity position and the company's projected cash flows from operations, the company believes it has alleviated the substantial doubt about the company's ability to continue as a growing concern and the company has sufficient liquidity to satisfy its obligations over the next 12 month period. We are very encouraged by recent performance, COVID resurgence around the country has resulted in new operating limitations, store reclosures and further delays in the company's ability to reopen stores.
This has naturally had a negative impact on our performance during the 1st 5 weeks of the Q4. After ending the Q3 with 104 open stores, we now have 90 open stores or 65% on the chain and have experienced overall comparable store sales of negative 71% for the 1st 5 weeks of the quarter. For an average of 71 fully operational comp stores, we have experienced an index of approximately 49% compared to last year, which has been mainly due to heightened COVID concerns and mandated reductions in operating hours. For the month of November, the slowdown resulted in $32,600,000 in sales at a negative 69% comp and an EBITDA loss of $11,000,000 resulting in an EBITDA a weekly EBITDA burn rate of $2,700,000 We currently anticipate that the trend of COVID cases and resulting actions by local jurisdictions will intensify over the balance of the Q4 and that reopening of our California and New York stores will likely be delayed until early 2021. These conditions will be especially impactful to our December sales and profitability, a month in which we have historically benefited from high foot traffic and a robust special events business.
Given these expectations, coupled with anticipated cost pressures, we expect further erosion in our 4th quarter comparable store sales and EBITDA. 1 of the primary expected cost pressures during the Q4 is for labor, reflecting our decision to recall key store leadership positions to maintain talent and to ensure store restart capabilities. We also plan to incur increased repair and maintenance costs to ensure stores are up to standard, above normal spoilage costs due to prolonged closures, reduction of rent abatements due to the expiration of landlord agreements and the G and A as we recall select provisions based on need. While this temporary setback will impact our results in the near term, we have the playbook to navigate through this resurgence and feel confident that demand will return once the resurgence subsides. With that, I'll turn it back over to Brian.
Thanks, Scott. Despite the recent temporary setback in our business, we're very encouraged about our future potential due to the resilience demonstrated in our Q3 sales trends and our enhanced liquidity. Another reason we feel very confident is that even before COVID arrived, we were developing and preparing to implement strategic initiatives to accelerate change in our menu, service model, programming and marketing. Over the past 9 months, our team has worked to create a new future for Dave and Buster's beyond COVID with a plan designed to broaden our relevance and enhance guest engagement, while at the same time, enabling us to operate more efficiently. As we've reopened and welcomed guests back to our stores, we've been confident in each element of that plan.
Much of the execution of our reopening game plan and implementation of our FutureForward strategic initiatives is being driven by our Chief Operating Officer, Margo Manning. Margo is a 29 year veteran of Dave and Buster's and has been in her current role for the past 4 years. And she and her team, together with our store managers, have led our store level COVID response with incredible professionalism, teamwork and discipline. I'll ask Margo to join us today to share more information about the investments we're making in our service model and menu initiatives, which we believe will help put us in a very strong competitive position when we begin to emerge from the current COVID limitations. Here's Margo.
Thank you, Brian, for this opportunity to highlight the exceptional job our operating teams have done reopening our stores. As each market has been cleared for reopening, our team has demonstrated their ability to get stores up and headed back towards store level profitability quickly. This takes enormous effort, and I'm extremely proud of the team's performance through these unprecedented conditions. The best part about reopening our stores is bringing back the staff. To date, we've been able to recall approximately 8,000 team members, almost half of the number we were forced to furlough at the outset of the pandemic.
And it's been great seeing them welcome our guests back for good clean time. As Brian said, our team has been implementing and a number of service model and menu initiatives that we had already developed before COVID arrived and were originally planning to roll out in 2020. The primary objective of our menu initiative is to establish a stronger differentiated food identity for the Dave and Buster's brand. After extensive research, we have landed on inspired American Kitchen as that identity and we have built a plan to bring it to life in 2021. Our new food identity is rooted in enhanced flavors and quality ingredients across a condensed number of menu items priced to maintain off the store gross margin.
It enables our guests to explore new flavors, while also offering them a balanced selection of familiar dishes. Designed to simplify operational execution, this new menu sets our staff up to deliver dishes to our guests hot and fast. Taken together, we expect our new menu to drive an improved guest experience, to increase our food attachment rate and to accelerate table turn, all aimed towards increasing food and beverage sales. Our new menu is supported with a dedicated training program that educates our kitchen and wait staff on everything from flavor profiles to cooking techniques. Additionally, we're in the process of rolling out a new piece of kitchen equipment to every store that will speed up cooking times.
And we are also upgrading our kitchen management system to facilitate a seamless flow of food, both meaningful operational improvements that will be completed in the first half of twenty twenty one. In mid November, we began the transition to our new menu from the temporary 15 item menu that we implemented as stores begin to reopen last spring. We are now offering 17 items and currently plan to add 6 more dishes in early March and expand to 28 amazing items by late April. This represents 33% fewer items than the 42 items on our pre coated menu. Of course, we're prepared to remain flexible in terms of these menu expansion timeline, and we will adjust accordingly based on the status of the pandemic.
Turning to the service model initiative. The primary goal here are to enable guests to control more of their in store experience and to free up our team members to focus on cross selling and up selling. We believe this increased interaction with our guests will enhance their overall experience. The nucleus of this effort consists of deploying a combination of tablets, kiosk and mobile web to enable a completely contracted order pay experience. Our 5 newest stores were launched on this platform and it's been well received by our guests, most of whom have adopted a hybrid approach initially utilizing both the new technology and a Waystack team member.
As we continue to refine the technology and service model, we are evaluating the potential to expand this platform to all of our stores during 2021. Another completely new element of our service model initiative involves the November launch of 3rd party delivery partnership with DoorDash and Uber Eats at 105 of our stores, essentially all of the stores that we have reopened during the Q3. Our plan is to add the remaining stores, primarily our California and New York locations, once we are able to open them for on-site dining. And finally, to further expand our reach and leverage our kitchen capabilities, we are beginning to test several Ghost Kitchen concepts, highlighting specific food categories from our new menu. We're exploring concepts that could be rolled out nationally, regionally or offered in specific markets or offered seasonally or even offered around specific major events.
An overarching objective of our menu and service model initiative is to enhance our long term profitability by driving increased sales more efficiently. Obviously, many aspects of the lean operating model that we've adopted for the past 9 months will not be fully sustainable as we move back towards a full operating posture. However, we have learned a lot and are confident that our post COVID fully operational service model and menu will produce some degree of sustainable leverage across our major cost levers. Now, I'll turn the call back to Brian for his closing remarks and we'll remain on the call to answer any questions.
Thanks, Margo, and thank you so much for your leadership and your team's ongoing commitment and dedication to this company that we both love so much. So thank you for that. As Margo indicated, we have been working on our service model initiative even in the midst of COVID limitation. We've also refined our menu during this period and are poised to fully execute the next two phases of expansion as market conditions improve to a level that will support our success. In addition to those investments, we use some of our reopened stores to test new programming strategies that we believe will drive relevance and recovery as we are able to return to full operations.
For example, we launched a system wide in store radio station, DNB Live, and deployed a cloud based digital video system that enables us to centrally manage programming on our Wow! Walls and other high visibility screens in each store. We also experimented this fall with sports programming to see how our guests respond to a more immersive watch experience, featuring live DJs and engaging events like vendor managed beverage tastings at select stores. We're taking the learnings from these tests and refining our programming and event strategies to be in a position to expand them as COVID restrictions ease. Additionally, during the Q3, we launched our exclusive Star Wars Lightsaber Dojo VR game that quickly established itself as our top earning single player non redemption game.
In Q1, we'll test multiple game titles to determine the extent of our 2021 game buy and we'll watch the pace of business recovery to time their broad rollout. We also launched our new National Brand Marketing campaign in September. Initial response to the campaign has been encouraging, and we will continue to leverage our relationship with our new creative agency to expand the platform along with our reimagined promotions and events calendar as market conditions recover. We currently anticipate rolling out our game programming and marketing initiatives more broadly in late spring to early summer time frame depending on COVID trends. I'll close today by reiterating the themes we've been focused on for the past 9 months.
As difficult as those months have been, we are confident that our team, our plan, our liquidity and our brand put us in a strong competitive position to bounce back quickly when the threat of COVID begins to subside. Our team is far more experienced and prepared for this current resurgence than we were back in March. We have confidence in our COVID game plan and in our team's ability to execute it nimbly as market conditions allow. We have a vastly improved liquidity horizon, extending beyond the projected threat of COVID with the promise of 1 or more vaccines expected to become widely available in 2021. And we validated that our store reopening process and lean operating model can produce positive enterprise EBITDA at sales index of 50% to 55% of 2019 levels.
And finally, and perhaps most important, we've demonstrated the resilience of the D and D brand and the pent up demand that exists among our guests to return to Dave and Buster's unique venues. When they do, they'll be greeted by an inspired team, a fresh new menu, a more customer centric experience and the good clean fun they've come to expect from Dave and Buster's. I continue to be very proud of and inspired by our team for their commitment and teamwork in the face of difficult and ever fluctuating conditions. Each member of the D and DNB team is contributing their unique skills to drive our success while setting us up for a better future. And for that, I am extremely grateful.
We will get through this together. We're going to come out on the other side, and we will thrive again in 2021. Now Ali, we'd like to open up the call for questions.
Of course. Thank you. And we'll go ahead and take our first question from Jake Bartlett from Trulis Securities. Please go ahead.
Great. Thanks for taking the question. Brian, my first is
on the deceleration of the same store sales. We're actually really focusing on the stores that remain open in the comp base, the deceleration in the quarter to date from late October. Can you disaggregate what the impact has been on stores that have not had any change in restrictions? I'm trying to it seems mathematical, obviously, if there's restrictions being reimposed. But in the stores that have not, for instance, stores in Florida, and you gave us such great detail in the depth from mid October, have markets that have not been directly affected by re closures, have those also decelerated fairly meaningfully?
Yes. That is a really good question, Jake. Hope you're doing well by the way. You as well. Yes.
Thank you. The deceleration we've seen in November has been broad. So restrictions themselves, if we're still allowed to open, have not really created a big headwind in performance, operating hours a little bit, capacity restrictions, those sorts of things really don't impact us like they would a casual diner because we have big facilities and a lot of capacity and a lot of it's unused certainly over the week and many operating hours. So that's not particularly the headwind there. So the decline that we have seen in November have been in virtually every market.
So there's definitely a COVID overhang now. In most markets, even Florida, if you look at the data we've put out on the website and showing returns by state, virtually every state is declining in November. So I think you're seeing some reluctance I think by guests to get out really nationally right now. Great. Okay.
That makes
a lot of sense.
And my next question is just on the work that
you're doing with your initiatives around the menu and around some of the operational improvements. When you look out into the future, maybe it's a a year, a couple of years, if you were to when you regain your sales, how much more efficient do you think you'd be? And I'm not sure how you know what the best way to frame that is. Some companies have talked about we would need 90% of our sales to achieve the same level of profitability or something like that. So is there a way you can frame how we should think about these more efficient model coming out of COVID just really to
the extent that it's going to be more efficient? Yes. I mean, as Margaret said, we've learned a lot of things. We've been really scrappy over the last month in terms of labor. And in some ways, a lot of initiatives we're talking about tablets and what we're trying to do with self-service are never really driving what's happening today.
I mean, we're this is just grit and on the part of our operators and they're doing a fantastic job and being very nimble in terms of how we're scheduling up and down the P and L and particularly labor. So we are definitely getting some efficiencies by our operating calendar. We're not operating 95 hours a week. So some of the periods where we know are less efficient with less revenue, that's helpful right now. And we're going to continue to look at that, our operating calendar as we move forward because it has been helpful.
And the initiatives we're talking about, Margo is talking about are really more forward looking and we have some of that stuff and test. We think it could be very helpful to us. But I think we've learned some things. We don't anticipate that we're going to go back to a full par level on our management team. To the extent when we get back to our normal sales level, I think some of this stuff is going to stick, it's not all going to stick.
And in terms of hourly labor, we're going to see some pressure on that as we get north New York and California. And those are higher cost states for us. And they're not open right now. But you want to add anything, Morgan?
I think you did that one. Okay.
Okay. And just lastly, very helpful to see what the kind of the EBITDA burn rate is in November. Things are going to change here in December as you talked about kind of on a year over year basis being much lower just because of high volume weeks months. Can you help us out on really from a free cash flow level and that's kind of including your deferrals, interest expense, what you think the EBITDA might be, but just trying to understand how what kind of cash burn you expect in the Q4? Maybe it's a wide range, but just trying to
get a better idea of that. Yes, Jake. This is Scott. I'll give you a little bit of color as we saw, because of the November numbers come in with EBITDA about $11,000,000 off. So, yes, as we start to look at that month, feel our cash burn was between $3,500,000 $4,000,000 And so we do expect naturally to have a little bit higher cash burn.
And I think a couple of things to think about is our rent deferrals that we have out there. So that will be a little bit of a drag on cash. But the other thing is we're really having some pretty good success of paying down our deferred payables outside of rent. I mentioned that we should have around $6,000,000 remaining at the end of this year. And then also the potential of another $1,000,000 or $11,000,000 or so from the CARES Act.
So I think keep those things in mind that just from an operational standpoint. Depending on what's your estimate of EBITDA is, take that kind of example from November and hopefully that kind of helps you kind of model out what we may see in the future. Great. That's very helpful. I appreciate it.
We'll take our next question from Jeff Farmer from Gordon Haskett. Please go ahead.
Thank you very much. I'm just curious if you guys can provide some color on the impact that what looks like a pretty significant drop in special event and large party bookings will have on your fiscal Q4 same store sales?
Well, it's going to as Scott said in his prepared remarks, and I did too really, it's going to have a pretty significant impact. December special events represents 15% of our overall sales in the month of December. And that business early on, we were actually booking some events. We geared up a small team to and some of the fantastic thoughts that things would be a little bit better. We kind of lost that bet a bit.
And so we're not expecting that with particularly big special events calendar year over the course of the holidays. And so that's a pretty big headwind. And as you know, our overall party business for the full year is around 10% of overall sales. So even the indexes that we're talking about and we're disclosing pretty transparently here, those are we're generating those numbers in the face of special events business that's in the high single digits in terms of mix with really no business. That headwind is going to get a little bit bigger here as we hit December.
Okay. That's helpful. And then you also, I believe, mentioned sort of the early entry into 3rd party delivery. Anything you can share with us in terms of how impactful that's been, delivery sales mix in the stores that offer delivery?
Hi, this is Margo. So I'll take this one. So just starting with, we are an entertainment brand part. But in terms of 3rd party delivery, it's low cost, low risk. And so it makes complete sense for us to enter into this space.
And for us, we view it as being incremental. We're early days into it. And so we rolled it out in November. We're talking literally being live on it for about 2.5 weeks. We're working on additional dose concepts because we do feel like there's going to be an opportunity for us to expand this in addition to experimenting with promotion and marketing because again, it's going to be sort of the space for us.
But it's early for us to really comment on its impact, but just recognize the fact that for us, we're an experiential brand and that's what the consumer is going to be looking for us. So this is incremental, but probably not a game changing initiative for us.
Okay. I appreciate that. And just one final question, and I believe you guys sort of the math works out to 15 stores that have been closed in recent weeks. And obviously, you've outlined an expectation for potentially some additional stores to close with some of the intensifying mitigation efforts. But the question is, where would you theoretically expect those closures to take place from a state perspective?
Well, we got a couple today.
Yes, they're kind of coming certainly rollbacks in terms of hours or even limited service we're seeing coming at us.
We had a few in Maryland today. I think Northeast, Mid Atlantic, we just had some fall and we have been eyeing some stores in the Midwest that actually we were expecting to fall earlier than they haven't yet. But this is really hard to say. I think we feel like it's going to get a little worse before it gets better and we're going to lose some more stores. The $90 we have today will cost $2 today.
So we're going to see a further buyback here, I suspect. That said, again, I'm not trying to minimize it, but I do view this as a temporary setback here. And we're just I think the line of sight for us is much better today than when we were facing rollbacks and shutdowns of the entire brand back in March. I mean, there's a lot of optimism around a vaccine that's on the horizon here. I don't think it's going to be an immediate thing and nobody really does, but there's a brighter future in 2021 and I think a way forward to get our store base open.
And in my view, when we get these open the next time, some of this stop and start close activity that we've seen and been dealing with over 2020, which has been very difficult, I think we're pretty optimistic that when we get these tools open again, we have a pretty good shot that they're going to stay open and we're on a path to just better days. And what we're so encouraged about is even with COVID still running all around the country, we hit our peak in October, at the top quartile, as I said, at 90%. That's very encouraging. And we're really confident this time that we're going to bounce back. We just got to get these stores open.
We got to weather the winter here we're really, like I said, we're very hopeful for next year.
I appreciate that. Thank you, guys.
We'll take our next question from Andrew Strelzik from BMO. Please go ahead.
Hi, thanks for taking the question and hope everyone's doing well.
I'm curious about I'm curious
what you're seeing in some of the stores that were farthest along in the sales recovery. So whether that's the 15% or 20% or so from the deck that you provided in mid October about that were at 100% or close or maybe the top quartile that were at 90% sales index. If you could just kind of compare and contrast how the business looked versus a year ago before the pandemic, where were the margins relative to a year ago for those stores? What did the demographics look like? What did the business mix look like?
And any other color or nuances that you can share would be helpful.
A lot of questions.
Just one overarching question.
So, in terms of the stores that were performing the best over the course of COVID, was
I'm sorry,
Florida and the Southeast were the states that were really performing the best for us. And those are the ones that are really getting close to 100% if you look at that out on our website. So with what we had done in terms of the lean operating model, some of those stores were actually performing better than they were in 2019. So that's sort of the good news. In terms of what's happened recently with this resurgence, really all boats are declining here or dropping all sales levels across those states, so California or Florida, South Carolina, some of those locations, Georgia that were performing so well, they've dialed back quite a bit now.
And again, we think it's temporary. It will be temporary, but they're softening right now. And then what the other questions were. That was pretty much. Demographics are, I think we're, Marco, you're here, we're still seeing a little more adult, a little more male, I think, but
And then the families start to come back after the stores have been opened for a while, we start seeing them sort of settle back to the pre COVID sort of guest base. But initially when they open, it does look a little different.
Okay, great. That's very helpful. And then the competitive environment, competitive intrusion had before COVID been very key key for the business. And you think that kind of how that could change moving forward. I'm just curious, have you been able to kind of re quantify or dig in on kind of what you've seen so far from a closure perspective or how you expect that to evolve as we move forward over the next couple of years?
So your I apologize, the difference was on closures here? Competitive closures. Competitive closures. Yes. We're tracking kind of the competitive set right now.
I think you are and many others in terms of what we're seeing. There's a mixed bag right now in terms of the competitive set we have. Some of the ones that we talked about in recent years, Main Event and Topgolf in particular that are largely open right now. And then there are others where some of them are largely closed down. So it's definitely a mixed bag.
My feeling is that we're all grappling with store closures, softer demand, dealing with liquidity issues. And so my feeling is that we're going to see and we definitely saw a rollback and a decrease in store openings. Certainly, we did that. Others did that as well. I think we're going to see a bit of a slowdown as people are really trying to concentrate on their core business.
That's definitely what we're going to do. We are going to concentrate our best path to recovering as a brand is getting our existing store base reopened and driving profitability in the business. And so that's what our focus is. And I would expect that that's going to be a bit of a focus here for some of these other brands. And I do think there's going to be a shakeout of a few.
And we've already seen some of that with a couple of our competitors. And I do think with this resurgence, some of the coming soon signs you might see on the websites, I wouldn't be surprised to see some delays in those in that pipeline. We're going to be very we're internally going to be very measured about our store development pipeline, again concentrating on getting our store base up and that's the clearest path for recovery for us. And I think we and I've said this before on this call, guys, I'm very confident that we have one of the best operating models out there in this competitive space in terms of AUVs, margins, returns on a pre COVID basis. And I think that's serving us really well right now.
And we're doing it, I think, better than we ever have in terms of being nimble. And I'm not sure the entire competitive set has that same situation because most of those models, I don't think we're as strong and as solid as ours coming into COVID. So we're going to concentrate on what we're doing and we're going to do it the best we can do and I think that's going to position us really well.
Great. Thank you very much.
We'll now take our next question from Andrew Barish from Jefferies. Please go ahead.
Hey, thanks guys. Happy holidays. I hope you get a little break there coming up. A couple of quick ones on just actually looking back and trying to understand a little bit of the ramp in the 3Q. There was a big jump in the store sales index September from August like 20 points.
So I was just trying to get a sense of what was going on there. Is it the changes in schools or was it just kind of the momentum of adding some more stores and having having additional ones open? It just seemed like a big jump.
Well, we I mean, we were seeing I mean, if you kind of roll back the tape and I think we have all that paid out there, right? We showed you the replay or just in short months. But we with the resurgence that happened in June July, we dialed back pretty quickly and sharply there. And then it was a pretty steady progression through the month of August moving up. And then in September, we were back on air and on TV growth for the first time in a long time.
So we came out with a new brand campaign, launched that in September. We were on air, I want to say 5 weeks. It was a meaningful investment. These were some dollars that we were unable to cancel. And it actually was a perfect timing for us because some of the fears were subsiding at that time, the consumer appetite was improving and we had more stores opening.
It was sort of a perfect combination in September, more stores open and we had dollars and we put them to work. Right now, we're not we actually delayed and canceled some plans that we had for media here over the holiday season. Really looking to sort of save that powder for time when COVID fears are actually waning, not increasing and the appetite for guests to get out is not something we're swimming upstream on, which I think is what's happening right now. But I think that was helpful for us in September.
Yes, that's helpful in understanding that as well. And then secondly, on the programming side of things, as obviously it's been difficult for fans to get out to sporting events, have you seen kind of noticeable increases on those weekend sports, football games, etcetera? And how are you thinking about the Wow Wall rollout in light of that as you look out to 'twenty one?
Yes. I mean, we performed well on those days. Thursdays has been a little tougher for us because we have wings working for us in the prior year, took a little bit differently read for us and we're not really discounting materially right now. We don't have plans at this point to further rollout Wow! Walls.
We just got 50 of them out now. Our view at the moment, number 1, we're going to be very conservative and cautious with the capital in this environment. But we've got to go to work on building a programming muscle in this company. We have a lot of assets here. We have big facilities.
Sports could be we can improve on our sports offering and what we're doing around that from an experience standpoint. And we're going to be focused on that and we're looking to see what other things we can do to drive frequency and a reason to visit within our stores. So the programming engine is, I'd say we're running on a few cylinders right now. It's a muscle that we're trying to develop and get at. But I think as an entertainment brand that is trying to get beyond an arcade, this was a natural fit for us.
Just like sports was a natural fit for us. Just thinking about how we can create events and a reason to visit over the course of a calendar and the course of the month and year. So our VP of Entertainment, Kevin Bachus, is leading that charge. And I'd say we're pretty early innings and we're focused on sports here, obviously, and the football season, tough read here. 2020 is the year I want to get out of and be done with.
But a little really tough to read kind of what that's going to look like. Okay. Thanks for the color. Thank you, Andy. Be safe.
We'll now take our next question from Chris O'Cull from Stifel. Please go ahead.
Hi, good afternoon, guys. Brian, given you guys have seen stores go through 1 or 2 cycles of closing and reopening, what factors do you think influence the strength of sales recovery when a store reopens?
Well, I think some of it's fundamentally the market itself. I mean, we've definitely seen a stronger appetite for our experience in the Southeast. Their stores developed out quickly, pretty quickly and maybe the stores in Southeast got and some of them actually were surpassing prior year over the course of not recent weeks, but so and I think some of the northern states and Midwest states have been a little more difficult for us. So I think some of the underpinnings of COVID fears in the particular market, we're really not running really a different playbook when we open. So it's not necessarily something we're doing differently in different markets, a little more about consumer appetite, I think.
And I think the good news is when you look at the comp recovery curve that we saw on the West side and the And we feel very confident that we're going to be able to get all of our states when we get past this thing back to a really good place. Some of them may get there quicker, but we're pretty darn confident. A good example of that is when we opened California, we weren't open there for more than 3 weeks, but they opened and shut. Those stores opened up at a 30% index in their 1st week of operation. That's actually one of the highest opening week indexes we had in any study.
So we're really optimistic that people want to get back to their early pay life and actually we think that's going to happen everywhere eventually.
You guys mentioned increased labor costs in the 4th quarter to recall some key store leadership positions. I'm trying to understand the sales level you're anticipating and when you expect to see that sales level to determine how many of those employees to recall?
Yes, let me explain that a little bit here. We it's really 2 pieces of this. In a month or 2 ago, October, end of October? Yes. In September, actually.
Early October, we made the decision to bring back our core leadership team in our New York and California stores. Those stores represent 25% of our overall sale base. They represent about 20% of our units and those stores are going on 6, 7 months of being closed. And there is nothing more important for us right now than being able to reopen our stores quickly and effectively. So we brought back a small team in each of those stores to make sure we could preserve our ability to reopen and not when you're closed that long, if you have to start with a brand new leadership team, you're in trouble.
And that's this is a win the battle and lose the war kind of thing. And we weren't going to do it when that we weren't going to try to win the labor battle and lose the war on being able to reopen. So we brought those folks back, a team of folks. And then as we close the 15 net stores that Scott mentioned, we are not planning to course correct and have a significant furlough at this time. We think this is temporary and we need to make sure that when the time comes to reopen, which we think we're going to get some of these stores back open after the holidays.
And then California, New York, we think it's going to take longer into really our Q1 of next year, early next year. We have to have our eye on that. That's really important. It's imperative, really, where we don't bounce back, we don't recover. And we're not going to save our way to profitability here.
We've got to have sales. We've got to get these stores up.
I agree. And then one last one, just with the addition of those positions being filled and ramping operations back up during the quarter and some of the other investments you mentioned. Did you guys provide an update to your EBITDA breakeven target at the enterprise level? I think previously you mentioned something like sales being at 45%, 50% was breakeven. Is there any new updates to that?
No, we would I would yes, I sort of confirmed it in my prepared remarks today, I reaffirmed it. We have if you look at October, we were pretty close to breakeven in the month of October. Just we were in an EBITDA loss and it was just out of $3,000,000 and you could calculate that if you look at what we've disclosed out there. So no new news here. So we were really close in the month of October.
As I mentioned, our copper covered index was we had a 68% index for the late in the quarter and had about 75% of the chain open. So we feel really confident that when we get to 50% to 55%, we're going to be in that enterprise level breakeven ahead and then to profit. I apologize. And that's
for the Q4 as well?
I'm sorry.
I meant for future for the upcoming quarter, not the 3rd.
No, we're not. No, we're as we said, we were close to it. So we're confirming that when we get to fifty-fifty 5, we think we'll be profitable. That's not going to happen in Q4. As Scott said, we're seeing rollbacks.
We were staring in October. We're seeing rollbacks in November. So the top recovery index is going the wrong way on us and more of the chain is being more of our store base is being shut down right now. So we're going in the wrong direction. Scott, what's the comp for November to share that?
Yes, for November, it's negative 69%. Yes. So we've got an index that's not close to getting to 55% of 2019. So we've got a ways to go. Okay.
Thank you. I think one of the ways to think about it, Chris, is as we do get the ability to start reopening stores again, I mean, we'll have some of this infrastructure and some of these people in place already. And so it won't be kind of as much variable cost adding on because we are taking care of some of the repair and maintenance and things like that. And with the store leadership being here, at least on that back, but we have a pretty good base to build from.
And we'll go ahead and take our next question from Brian Mullen from Deutsche Bank. Please go ahead.
Hey, guys. Thanks. You touched on sports as an opportunity earlier, but I was curious, does the legalization of sports betting across the country, does that offer any opportunities to drive increased traffic to the stores over the long term? Are you devoting any time or resources to exploring that opportunity right now? Is there an opportunity?
Yes. Short answer is, there is an opportunity and we are devoting resources to explore that. Kevin Bachus, who is our SVP of Entertainment, is in discussions with a potential partner. We're deep into those discussions and we think it is a potential fit for us and I don't have any more to report on that right now. But hopefully, as we get our next call, we'll have a little bit more to report out on that.
Okay, great. Thanks. And then earlier, you touched a bit on the competitive environment, some of your competitors, but just in terms of your own unit growth coming out of the pandemic, are you same kind of question, are you devoting resources or time to thinking about what the pipeline could look like for the investors? Big picture, do you anticipate being a net unit grower concept once again when we get out of this time frame?
Short answer, eventually. As we look at this year, we're going to open 6 stores. We were well on our way with virtually every one of those stores. So it makes sense to wrap those up, limited capital remaining and we have one left, Green Bay here in the Q4 and I'll take it to 6. As I look at 2021 and what our team has on the plate, our top priority is not the opening of new stores, it's the reopening of a significant portion of the chain.
And as I said before, my view is that is the clearest, the quickest path to the financial health and recovery of the B&D brand. So we will be prioritizing new store growth in 2021 and we must prioritize the recovery and the reopening of the brand. And that's not a as long as some of these stores have been down, particularly California and New York, we're coming up on a year. It feels a lot like a reopening, right, Margo?
Yes, it does.
And that is why we're bringing back a small core leadership team to make sure we preserve that ability. But there's still a lot of lifting to get hourly team members that are calling to do other things, rebuild those stores. So that is our top priority. Our view also is, as we have gotten stores back up in a really lean way, our pinch strength is not what it once was. We're operating stores right now at a fraction of the prior team, typically 9 to 10 folks and we're in the average of around 5 right now.
So our bench strength actually is finding new stores. It has been hurt by this right now. And then we're going to watch liquidity. We want to see a better line of sight as more of the store base back open and we're back on a comp recovery path that is healthy like what we were seeing prior to this recent resurgence. So there'll be a time for acceleration.
I don't view that as 2021. We have a good solid pipeline right now. In 2021, we have about 12 locations that we have under lease that we're working with our landlords in terms of the timing of those. So we still view the U. S.
As a great market for us. There's a lot of potential. We have some in our pipeline. We think there'll be possibly a lot coming up too in the current real estate environment. So we will pivot at some point.
It's not going to be able to pivot here early into 2021. Thank you. You bet.
We'll now take our next question from Joshua Long from Piper Sandler. Please go ahead.
Great. Thanks for taking my question. Hope everyone's doing well. Wanted just more
of a point of clarification, understand that some of the stores are closing back due to the restrictions. Curious on what the opportunity is or if there is a need to revisit the idea of which of those closures would be not temporary, but permanent in terms of
just optimizing the overall portfolio? Josh, good question. The good news for us, and I think we're maybe one of few brands that could probably say this, we had a very healthy filler base overall prior to COVID, all our stores EBITDA positive. And we have in this environment, we have close 2 stores, one of them in Chicago, one in Houston. We had made the Chicago call prior to COVID, an older store, markets moved away from the location.
It was profitable, but we had made that decision. We just elected not to reopen it. And then we closed Houston, which is our oldest store right now or was our oldest store in the fleet. But we had a sister store 5 miles away close to the Annapolis. It just made sense.
We expect it to be accretive because of the transfer to the sister store. So, at this point, we I don't plan to make any long term closure decisions based on short term results and the disruption that we're seeing. I think we're going to want to see how these stores recover. And so we don't have plans to close any other stores at this time.
Understood. And then my follow-up question would be lots of interesting opportunities and initiatives about extending the brand into some new channels, whether that's through the
3rd party delivery, virtual brands.
And then it also sounds like Kevin and his team are quite busy on some different pieces as well. But curious on if we think about work from home being a larger piece incrementally or relative to how consumers spent time pre pandemic? Is there an opportunity to extend the gaming piece that you guys have leadership in as a category into mobile or into the home as well? Is that something that makes sense? And how do you think about kind of engaging with guests on that core brand equity if we're all going to be spending time and have our consumer travel patterns a bit disrupted versus 3 pandemic opportunity?
It's a really good question. Today, our focus is in store experiential and I think we have a lot of opportunities to improve our lives there right now and that is where we're focused. So I can't say we're actively looking at that at this point. So I just think we have a lot of heavy lifting around the in store experience right now and that's where the team is focused. And I will say this, we have a lot on our plates right now and a small team and I think we're focused on the right things.
When you look at how people have responded in these markets, how much they want to get back out of their house and not be in their home sitting in a room, I think that's where we're going to focus our attention. That makes sense. Thank you.
We'll take our next question from Brian Vaccaro from Raymond James. Please go ahead.
Thank you and good evening. Good to catch up with everyone. Hope everyone's doing well.
I wanted to ask a question on the changes you're making to the menu. And I understand you're adding the items back. And I think you said you expect it to settle with around a third fewer items. But can you help us understand where some of the more meaningful reductions have been? Were there specific categories that were removed?
Or will it be more sprinkled sort of throughout the menu? Just trying to understand how you view sort of that food and bev experience and how that looks post COVID versus where you were in 2018 or 2019?
Hi, this is Marco. So I'll start and then Brian can chime in. For us, when we did the research, one of the things that came out was, again, just a strong interest in appetizers. So in the new menu, you will see that we have done some significant work with the new items along the category of appetizers. But every aspect of the menu has been touched.
And really what the objective was is to get to very few, very good items that we could execute well and out to the guests quickly. And so at the end of the full rollout when we hit 28 items, we've distilled it down so that there is enough variety that you don't have a veto vote, but that it is really tightly curated to enable superb operational execution. Brian, do you think you want to
add that?
Okay. That's helpful. And I guess shifting gears
a little bit, but trying
to think about the more efficient labor model in a post COVID world. Can you maybe expand and perhaps quantify some of the benefits you expect from the streamlined menu in the back of the house, things like prep and that sort of thing? Also the kiosks and the server handhelds, how that will impact the front of house labor model?
Yes, I think we're still working through that, Brian. If you look at kind of the numbers that we've put up and the architects right across Amargo in terms of what the operators have been able to accomplish right now in terms of managing labor, it's quite remarkable that we're having the kind of declines in sales, which would typically result in a significant deleveraging event and hours of labor. It's not all variable. We have a store within a store and when we have Game Tech, there's a semi fixed to fixed element some of that. And we're running that very efficiently right now.
Hours of labor sort of flattish, if I recall, for the Q3. So that's a really good outcome. And some of the things that we're talking about, some of the technology, kiosk and mobile devices will be helpful. But I think some of that stuff is going to be a lot more helpful in terms of speed and execution for the guys and a little less necessarily about efficiency. I think where we're winning the battle right now is we're just being very thoughtful and we're not going to be able to keep all this on how we're scheduling off peak and it's up and down essentially every job code within our hourly neighborhood from front of house, back of house to front desk to win, gain tax and being very nimble and off peak.
So we're going to try to carry as much of that that we feel is appropriate that doesn't damage the guest experience. And I think we're going to add some stuff back eventually for sure. But I think we're and I'm going to stop because we're not going to give any sort of guidance on how many bps we think we're going to get in 2020, 2021 right now or any of that stuff.
And are you thinking about on the manager side, correct me if I'm wrong, but I think the historical structure was the general manager and maybe 10 ish managers throughout the unit on average. Please correct me
if that's not right. But I know it
will be fluid, but what might that structure look like? Are you thinking about changing the mix of salary versus hourly managers, maybe team leader type positions? Just trying to get a sense of how you think that might settle out in a post COVID world whenever sales recover towards a normal level?
Hi, this is Margot. I'll just jump in on this one. So one of the things about this COVID world is it has presented the opportunity for us to look at every single thing that we do. And so when you look at the savings, the savings have not happened by accident. We have literally looked at every single spend in the store and evaluated whether or not we will keep it or whether or not we will permanently eliminate it.
And so you will definitely see us look at the management structure. Just as we are every single line item that is going on in the store. And so when we talk about sustaining some of the improvement in 2021, it's impossible to take the learnings that we've had this year and not keep some of them because you learn. And so what we're doing is trying to make sure that we are selecting efficiencies that are truly good efficiencies without diminishing any aspects of the guest experience. So in terms of the management structure, of course, we'll be looking at that.
Just as we're looking at the hourly and we'll put some both through the same lens to ensure that we can get the experience that our guests need and that we're doing it thoughtfully and efficiently. So that's what you can expect in 2021.
All right. That's really helpful. Last one just for me. Thinking about the sales index in the next couple of months, can you remind us in a normal year, how much higher our sales volumes or average weekly sales in December versus the shoulder months? And I'll pass it along.
Thank you.
I don't have that at the end. It's much higher versus by far our largest. Versus kind of an average weekly sales across the entire year, it runs about 15% higher than that.
Okay, great. Thank you.
And we have no further questions. And I will pass it back over to our speakers for any additional or closing remarks.
Okay. Thank you, Ali. Well, guys, thank you for joining our call today. We wish you and your families a safe and a healthy holiday season and we look forward to seeing you at the D and D location really soon in here. So have a great night.
And with that, that does conclude today's call. Thank you for your participation. You may now disconnect.