Good afternoon, everyone. Welcome to the Dave and Buster's Entertainment Incorporated Second Quarter 2020 Earnings Results Conference. Today's call is being hosted by Brian Jenkins, Chief Executive Officer. I'd like to remind everyone that this call is being recorded and will be available for replay beginning later today. Now I would like to turn things over to Scott Bowman, Chief Financial Officer.
Please go ahead, sir.
Thank you, and thank you for all joining us today. Also on today's call, we have Brian Jenkins, Chief Executive Officer. After comments from Mr. Jenkins and myself, we will 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 could be considered forward looking statements related to future events within the meaning of the Private Securities Litigation Reform Act of 1995. All such forward looking statements are subject to risks and uncertainties, which could cause actual results to differ from those anticipated. Information on the various risk factors and uncertainties have been published in our filings with the SEC, which are available on our website at www.daveinvestors.com under Investor Relations section. In addition, our remarks today will conclude references to EBITDA, adjusted EBITDA and store operating income depreciation and amortization, which are all 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 announcements released this afternoon, which is also available on our website. Now I'll turn the call over to Brian. Good afternoon and thank you for joining our call today. On behalf of the entire Dave and Buster's team, we hope you and your families are remaining healthy and safe. Since our last conference call in early June, the COVID pandemic has continued to present challenging business conditions for our company, our industry and the entire U.
S. Economy. I am proud of our team members for their tremendous agility, their resilience and commitment to succeeding under extremely difficult circumstances. During our June conference call, we detailed the temporary changes we've made to our operating model. We also covered the decisive steps we had taken to secure additional capital and to reduce operating expenses and capital spending in order to extend our liquidity horizon while preserving critical store reopening capabilities.
Also in June, we detailed our focus on 2 near term priorities: 1st, reopening our stores safely and efficiently as soon as possible and 2, investing in and accelerating change in our service model, our menu, our programming and our marketing. I'll speak to the first of those near term priorities now and provide an update on the second after Scott had a chance to review Q2 results. During the Q2, our team made steady progress, reopening stores and driving improved operational results. Over the course of the quarter, we reopened 81 stores, ending the quarter with 84 stores opened. Recall that our goal was to get 90 to 95 stores opened barring a COVID resurgence, which in fact did occur, forcing us to close or reclose 9 stores.
During the quarter, we also made the difficult decision to permanently close one store in downtown Chicago. Since the end of the second quarter, we have opened an additional 5 net stores, including a brand new store in Manchester, New Hampshire, bringing us up to 89 stores open and approximately 65% of our total store base as of today. We also made the decision to permanently close one additional store in our Houston market. Over the quarter, we made significant progress in rebuilding our revenue. At the beginning of the quarter, in the 1st week of that quarter, we had just 10 stores reopened, indexing at 11% of 2019 revenues.
While we did face some mid quarter headwinds following the COVID resurgence in late June and the first half of July, by the end of the quarter, the 68 comparable stores in our base of 80 4 reopened stores were generating revenues at nearly 40% of prior year levels, and our recovery has continued to accelerate in the Q3. Over the past 2 weeks, those same 68 comp stores indexed at 58%, their highest levels to date. And within that, the top quartile comp stores indexed at 76%. While we are encouraged by our pace of recovery, we do believe a portion of this recent strong performance reflects some tailwind from the variation in school calendars caused by COVID. We are also maximizing sales by continuing to refine our lean operating model.
We believe those efforts have lowered our near term EBITDA breakeven sales index benchmark to the 50% to 55% range compared to the 60% index we initially communicated back in June. In fact, 61 of our 84 Realty stores generated positive store level EBITDA for the month of August. Keep in mind that some portion of our current lean expense saving initiatives will naturally dissipate as revenues recover more fully and we reinstitute certain labor, operational and marketing elements of our business. In terms of future store reopenings, we are now forecasting we will reopen all of our remaining stores before the end of December, barring any additional delays due to COVID-nineteen resurgence, although state and local reopening timelines are inherently uncertain. As for the cadence of those remaining reopenings, we continue to expect our 11 New York and 16 California stores to be among the last to reopen.
These 27 stores represent over half of our remaining openings and about 20% of our total store count. Combined, they have historically generated approximately 25% of our system wide sales and includes several of our top quartile stores in terms of historical store level profitability. So obviously, these stores are very important to reopen in order for us to fully rebuild our business to pre COVID levels over the longer term. These results and our expectations demonstrate several things. 1st, customers have a strong appetite for our resilient brand and are anxious to inject fun back into their lives.
2nd, absent COVID resurgence, our stores are on a clear maturation curve showing sequential cost sales improvement as each week passes. And finally, we continue to reopen our stores and efficiently rebuild the business. We see an encouraging return to profitability. At this point, I'm going to ask Scott to quickly review our operating results for the Q2 and our current liquidity position. Here's Scott.
Thanks, Ryan. I'll spend the next few minutes summarizing our performance for the Q2 as well as our current liquidity position. For the Q2, revenues decreased 85% compared with the prior year period, including an 87% decrease in comparable store sales. This included 26 total stores at the end of May, 66 stores open at the end of June and 84 stores open at the end of July. As Brian explained, we were encouraged by the improvement in our sales index to nearly 40% of prior year levels by the end of the quarter and further improvement since the end of the quarter to 58% for the most recent 2 week period.
At the same time, we have taken an aggressive approach to reducing operating expenses. This includes efforts to reengineer our labor model to accommodate the current store volumes and taking a zero based approach to evaluating spending in stores and G and A. As a result of these efforts and stores contributing increasing variable profit, our average weekly cash burn, excluding the effects of our May equity offering, was approximately $3,300,000 over the 2nd quarter. Turning to the balance of the P and L, total cost of sales was $8,700,000 in the quarter, an improvement of 20 basis points as a percent of sales. The improvement was primarily due to a higher mix of amusement sales, partially offset by food and beverage spoilage that was expensed as stores reopened.
Operating payroll and benefits expense was $13,800,000 a decrease of 83% from the prior year period, primarily due to furloughs and the introduction of a leaner labor model at reopened stores. Other store operating expenses were $62,700,000 an improvement of 40% from the prior year period due to lower sales volumes and tight controls over discretionary spending. G and A expenses of $9,300,000 decreased 42% from the prior year, mainly due to reduced compensation expense and lower consulting expenses. 2nd quarter EBITDA loss was $46,000,000 which included a loss of $8,600,000 in the month of July, again reflecting the improved trends in our business. 2nd quarter adjusted EBITDA loss was $38,500,000 which excludes EBITDA from EBITDA, dollars 2,700,000 in share based compensation, dollars 2,400,000 in preopening costs and the $2,200,000 impairment charge on long lived assets.
Turning to the balance sheet, we ended the quarter with $224,000,000 in cash compared to $157,000,000 at the end of the Q1. This included the $111,000,000 of proceeds from our second equity raise, which closed in May. Additionally, we had approximately $35,000,000 in deferred vendor payables and expect to pay down most of this balance over the next two quarters. We will continue to defer a portion of our rent through December and are scheduled to begin paying back the majority of rent deferrals starting in January over a 12 to 18 month time period. Turning to capital spending, we plan to resume construction on 5 stores that are near completion and currently expect to complete and open these stores at the end of fiscal 2020.
This is in addition to the store we recently opened in Manchester, New Hampshire at the end of August. Including the cost to complete these stores, we expect to spend approximately $60,000,000 in CapEx for fiscal 2020, of which $47,000,000 was already incurred in the 1st 2 quarters, leaving $13,000,000 for the back half of the year. In addition, there are 11 stores that are early in the stages of permitting and construction, which will remain on hold pending further analysis and visibility into the ramp up of our existing stores. To wrap up, I'd also like to thank the entire team for their perseverance and ability to adapt and evolve the business to meet the challenges we faced over the past 6 months, as well as those that may lie ahead. Together, we've reframed the operating model, minimized our cash burn and pivoted our business to emerge from the pandemic on the strong trajectory.
With that, I'll turn it back over to Brian. Well, thanks, Scott. Well, hopefully that gives you a good recap of the financial results for the Q2 and how we are setting ourselves up for further improvement as the second half of the year unfolds. I want to spend the next few minutes providing an update on the second of our 2 near term priorities, and that is investing and accelerating change in our service model, our menu, our programming and our marketing. Our focus on these four areas is clear evidence that our thinking is not stuck in recent history or in the near term realities of the COVID pandemic, whether our team is leaning in to creating a new future for the Dave and Buster's brand, formulating a very focused plan designed to broaden our relevance and enhance guest engagement, while at the same time becoming more efficient as a business.
The objectives behind our service model investments are 3 fold. 1st, to improve food and beverage attachment by making it accessible anywhere in the store, to enhance guest satisfaction by increasing speed of service and refocusing our team members to deliver memorable experiences, and at the same time, deliver those capabilities more efficiently. To that end, our corporate technology team is working closely with our operating teams to rapidly develop enabling technologies to enhance the guest experience through a mobile self-service order and pay platform. Additionally, we are also testing a snackable menu that is accessible in the arcade via a mobile device or a kiosk and available for pickup at a central location. We are encouraged by the results we've seen so far in our Dallas test store with over 55% of our F and B revenue coming through the mobile channel, showing great promise for guest adoption.
We'll have more to share as we refine the work and evaluate potential of scaling further across our stores. The second area in which we are investing and accelerating changes is our menu. After we complete the reopening process and traffic has recovered to an appropriate degree, we will launch a new stronger food identity that resonates with our guests and is a differentiator for the Dave and Buster's brand. This new strategy informed by first and third party data will enhance our ingredient quality, our relevance amongst the millennial audience and our operational execution. One key element of this strategy focuses on menu composition and what we are calling a core and explorer approach.
The pillar of our strategy will allow us to achieve the broad reach that is necessary for an entertainment driven business through our core American classics, while simultaneously boosting frequency and differentiation through newer, more innovative culinary applications. Our new strategic approach to food and beverage will begin rolling in Q1 of 2021 and will continue to evolve through a test and learn process throughout the year. In coordination with our new direction in marketing, this new approach to culinary will enable us to introduce limited time offers focused on driving traffic during key media windows in 2021. The 3rd area where we are investing and accelerating changes in developing a stronger programming strategy around our Wow Walls and other watch assets. Our entertainment team is currently implementing a foundational cloud based platform that can stream linear video content, live digital signage, sponsored content and entertainment programming such as sports scores and trivia to our Wow Walls and other screens at each store.
This new platform will enable us to manage content selection and delivery via a centralized programming team, while working collaboratively with each store manager to refine the content and timing for local relevance. We will begin this journey with all sports with virtually all teams limiting fans in stadiums. We aim to be the premier sports watching destination, thanks to our investment in Wild Walls and other technologies that support that shared live sports experience. Select stores will also offer guests in store premium experiences, some giveaways and some sweepstakes. In addition, we are in the process of launching an all new branded radio station, Gabe and Buster's Live, which will be heard in all stores and will be streamed live on our website and through our app.
DME Live! Will incorporate dedicated radio personalities and curated music, enhancing the in store vibe and providing another channel to engage with our guests when they are in our stores as well as when they are going about their daily lives in between visits. The 4th and final area in which we are investing and accelerating changes in our marketing. Since we began reopening stores, we've been executing local awareness driving tactic to aid in our recovery, while also actively developing a more holistic approach to our brand messaging, media channel mix and audience enrollment. Under the leadership of our new CMO, Brandon Coleman, we have developed a national brand campaign with our new creative agency, Mother of New York City.
This new campaign, which launched nationally just last week, is the first step in creating singularity around a powerful and emotional brand promise that only Dave and Buster's can deliver. As we move through the balance of the year, you will see this new direction continue to evolve as it is integrated across all of our guest touch points. In tandem with our new messaging, we will be launching an intelligent approach to media by blending local TV, advanced TV, digital radio, out of home and programmatic social buys with specific guest insights that match today's investors' customer journey. As our guests move through the journey, our new customer relationship management and customer data platform systems will be ready to enroll audiences with messaging tailored to their behaviors. And as our understanding of guest motivations grow, we will automate messaging across the journey to optimize engagement and drive visitation.
With our Reawakened brand, new media mix and intelligent guest enrollment, we will enter 2021 with a powerful new marketing function aimed at increasing visit frequency through a strategic local and digital tentpole messaging approach. So let me sum up. We are making steady progress in reopening stores, driving encouraging week to week improvements in store revenue, improving our cash flow, reducing our expense burn and repositioning the company for long term success. I am very proud of our team members for their tremendous agility, their resilience, their commitment to developing and implementing initiatives that are driving our business recovery. They are the power behind our great brands and are delivering for our customers each and every day.
And for any of our team members listening out there, this is a heartfelt public thank you to each of you. Well done. Our brand is strong. Our execution is solid. Our people are committed.
All of those things give us confidence in our plan and optimism about our ability to emerge in an even stronger competitive position to deliver fun to our guests and value to our shareholders. Now we'd like to open the call to your questions. Kelly Ann, please open the line.
We'll hear first today from Jake Bartlett with Truist Securities.
Great. Thanks for taking the questions and thanks for all the hard work I know you guys are doing out there. The first is I wanted to make sure I understood the comments about current sales trends at reopened stores and then the comments in the press release about same store sales in the 68 comparable stores that look to be reopened. I think you said in the press release that they were down 71%. I think what I just heard was that you're down 42% in the last week.
So just can you help me understand the difference there?
Yes, Jake, this is Scott. The negative 71%, that's for all stores in our chain, whether they're open or not. And the latter number was the
metric just for open stores.
Okay. And so why are there only 68 stores in the comparable base if that's the case? I think it was 116 last quarter.
Well, we have 84 stores open at the end of the quarter, 68 of which are comp stores. So when we're talking about our COP Recovery Index, we're talking about the comp store performance for stores that are open. So when I talk about a 58% index, that's only for the 68 stores that are open. Okay. So overall, overall comp for us is driven by 2 things, Dave.
It's going to be driven by getting the chain open and today we're 65% open and it's about getting our top recovery index, which ran, as I said, 58% over the last 2 weeks, getting that back up to 2019 level. So the 2 together result in our overall comp because our entire comp set is not open today.
Great. That's very helpful. Could you share also last quarter you shared that stores that had reopened were reopening at I think it was roughly down 18% of prior year levels, but then steadily improving. Can you give us any more color around the performance of the stores that have reopened? And just hopefully the kind of the consistent improvement that you're seeing there or maybe not?
Yes. I mean, I think last time we I think we were open, what, 5 weeks at that time and we talked about how the stores are open at that point in time, how their index, I believe it was around 17% or 18% in their 1st week of operation. That is a grown to, I want to say it was like 46%, if I remember right. But so yes, we have a lot more stores now that have been developing out and figuring out on this kind of recovery ramp for as far as we get away and the longer they're open, we've had it they tend to improve. And so those metrics today look a little bit like this, Jacob.
If you take all of our cost stores that 68 spoke of and you look at their 1st week of operation, all of those that whole group, we indexed at about 22%. So a bit better than the numbers we talked about 3 quarters, 3 months ago. We now have stores that have developed out 18 weeks because we opened our 1st stores really in the first I think we had a couple at the very end of April, but most of them were in the 1st week of the quarter in early May. So we have 18 weeks of operation and those stores that are in that class that have that kind of maturity are operating at around 70%.
Great. That's very helpful. And I just had one last question on the cash burn. Scott, you mentioned on the call and in the release that the cash burn was 3,300,000 dollars per week right now. I think before it was $7,200,000 including interest service or debt service as well as rent that was deferred.
But I just want to make sure I understand what's included in the $3,300,000 of cash burn currently?
Yes. So that cash burn includes all of our cash out the door with the exception of any equity raises that we've done. Okay. So
is that comparable because I think before it was roughly, if I'm remembering right, it was $3,500,000 in cash and then it was $3,000,000 in change on rent that was being deferred. So has the underlying cash burn changed much? It seems like it's improved, but maybe not by very much.
It hasn't changed that much if you consider that we're deferring rent. So that's really the biggest component there. And so I think the way to think about it is, as we continue to go forward, we're going to continue to see improvement from on our cash burn rate as we continue to reopen stores and generate that variable profit. But to your point, keep in mind that we will continue to defer a portion of our rent going forward by working with our landlords. But as we'll see as we saw partially in Q2 and we'll see more of this in Q3, we do have some deferred tables that we will be paying down, okay.
And so that will be kind of a drag on cash in Q3 as we pay that balance down. And then the deferred rent that we have, we'll start paying that back starting in January of 2021, over about a 12 to 18 month time period. So those are 2 important things to know kind of looking ahead on our cash burn.
Okay. Thank you very much. I appreciate it.
Thank you, Jay.
We'll hear next from Chris O'Cull with Stifel.
Hey, Chris, you're on mute maybe.
Sorry, guys. I was on mute.
That was an awesome question. Next question.
It was an easy one. Just
a follow-up on that last line
of questioning. Scott, what is the monthly rental payment amount that you're anticipating starting in January when the company starts to pay back the deferrals?
Well, what I will give you is, at the end of the second quarter, we had deferred around $40,000,000 in rent. So we had about $40,000,000 in deferrals on our balance sheet at the end of the second quarter, okay. So looking forward through December, we'll continue to defer a portion of our rent, not to the extent that we've seen in prior months. So we'll continue to defer through December. So that'll build that balance a bit and then we'll start to pay that down fairly ratably starting in January over that 12 to 18 month time period.
Okay. And then, you mentioned in the prepared remarks a certain number of your open stores were positive EBITDA in August. Do you have a sense of what the ramp typically looks like? And has it shortened at all? I mean, does the store need to
be open for 4 weeks before becoming positive or more? No, I think, well, first of all, we're really happy that we've been able to our operating team has just done a fantastic job. Margaret Manning and our 2 VPs, Brian McCleary and Ed Forler, really operating these stores in a very, very efficient manner. We're in a place right now where that group of stores that I mentioned, 61 stores, we were we ran about a 52% index in those stores and generated not breakeven, we generated profit. So we're really happy with what we're doing in terms of taking dollars to the bottom line.
But it is in terms of what stores get there quicker and stuff, a little bit market by market. We've seen it's difficult to pin one label on the entire base here. But overall, we are seeing that as stores mature out and have longer longevity of being open that our recovery pattern has improved as I just mentioned to Jake. So and that is one of our challenges, the awareness level that we have of our reopening as we were pretty short on marketing dollars. That's changing here as we speak right now, but we definitely seen the track improve over the last 18 weeks.
We'll hear now from Jeff Farmer with Gordon Haskett.
Great. Thank you. For those stores that anchor a mall or in a mall development, what's the relationship between that mall traffic recovery that you're seeing and Dave and Buster's traffic recovery for any given mall location?
Well, I think the mall situation is a bit tough, candidly, Jeff. It's our mall stores, if you look at the numbers I mentioned a while ago on our comp index for open stores, our mall locations are about 7 percentage points lower than non mall stores. So we're definitely seeing a slower recovery, which I think is telling the mall recovery somewhat. So that's what we're seeing right now.
All right. That's helpful. And then you did touch on this, but how should we be thinking about the fixed versus variable cost nature of G and A? I know you touched on it on the labor line with some
of the staffing, but if
we think about it on the corporate or the enterprise level, what is the size and sustainability of any type of corporate cost control? And do you expect that to roll into calendar 20
21? Yes, we I mean, we continue to very tightly manage our G and A expenses as well as our stores. And we have really looked at our G and A costs from the bottom up, kind of more of a zero based kind of view of that. And so in this type of environment, it does make us look at it a little bit differently. So we have scaled back G and A and according to the situation in our stores.
As we continue to open stores, we'll continue to evaluate that. But we take a hard look at G and A and make reductions there just like we do at our stores. And we'll continue to do that and continue to assess the situation as we go forward.
That's helpful. And just one last question. So for some of these restaurants or stores that have been open at this point, 10, 15 weeks, are there days of the week or hours of the day for some of these stores that have been open for a while that are capacity constrained? And if so, how are you guys sort of taking advantage of that or addressing it and sort of spreading out these customers?
I think we talked about this on the last call. This is one time where having large square footage stores is helpful as it relates to social distancing. We have a lot of capacity. And as we've said in the past, our utilization rate of the box is lower than we would like it to be. And that's why we are as we think about future store development have been discussing sizing down our stores.
But we have the portfolio we have. So by and large, the capacity constraints that we see aren't causing huge headwinds for us, with the exception, I think, of some of our stores, I think, in Illinois, where they have some fairly low capacity limit. So it's at the indexes we're running at the moment. And we have some stores with our top stores in the last 2 weeks did 90% of their 2019 level, one of our top performing stores. So we're just we're not physically constrained at the moment.
Okay. Thank you. Yes. Thank you, Jeff.
And from Piper Sandler, we'll move on to Nicole Miller.
Thank you. Good afternoon. Can you talk about the profile of the returning customer? Gender, income, age would be obvious metrics, but perhaps there's others? Thank you.
Yes. Good question, Nicole. We are looking at some data coming out of the marketing group through some of their sources. And I think the good news for us is with our improvement results, it's clear that guests are number 1 welcoming the opportunity to come back and enjoy some fun with us. And our guest profile has skewed a bit at this point, a little bit younger and skewed a little bit more male.
And it looks to be a little bit lower income. So that's what I can share at the moment.
Thank you. And when you think about the attributes that led to the Chicago and Houston store closures, could you speak to those? I would just be curious, are they the same, different? And then, of course, are there others under consideration?
Well, the Houston store closure has been a store that first of all, it's a profitable store for us. And so and it's a store that is actually the 3rd store in the chain. We closed store 12 a few years back that were Dallas based stores. So Houston 3 is what we call it, was oldest store in the chain. And while it was profitable, we have a sister store that was acquired as a part of the Jillian's acquisition prior to my time here is 4, 5 miles away from it.
So our analytics and we've looked at this before, but we're coming to the end of that lease. We believe it will be accretive to just not reopen the store and have sales transfer. And we've seen that in other cases, Dallas is a good example of that. So we made the decision to just not reopen it.
And how about Chicago?
That's another case of an older store that is where the location at one time was probably a great location, but today is not
it was
profitable, not a great store for us. We in that store were coming to the end of that lease as well. We had actually pre COVID made the decision not to do that lease. That we were already had that line of sight to close that store when we came to the end of the lease. But at this point, there's no there was no point for us to reopen that and bring people back just to close it short time later.
So not expected to be any kind of big impact negatively on us. Okay.
So it sounds like very opportunistic and not any shift in anything strategic. Yes. Last one, my goodness, I can't believe I'm going to ask about cash burn, because I appreciate covering the topic at this point. But I had made a note all the way back in the Q4 of 2019 of $6,500,000 a week prior to debt service. So I guess that's essentially at the enterprise level.
And it sounds like that does more or less stand. Is it okay to look at it that way too?
Yes. I think the best way to look at it with where we are right now. So we have 84 stores open at the end of the quarter. And so the actual pure expenses of the stores has gone up naturally as we open new stores. We do have an offset with some profitability.
And so if you net out that the expense burn is not that much different than what we saw earlier. So I think the way to think about it is, right now it's more of a pure cash burn number with where we are right now, taking into account all cash off the door, including operating and that service and capital spending as well. And so like I said before, we will see some variation in that number as we pay down some of our deferred payables and then starting in January when we start to pay back some of our deferred ramp.
All right. We'll keep working through that. Thank you very much. Thanks for taking my questions this afternoon.
We'll hear next from Andy Barish with Jefferies.
Hey, guys. Good to hear from you. Can you provide us just the total August same store sales number, including all stores?
All in for stores open or for total comp for the whole base?
Yes, all in for open and the stores that are currently closed.
I don't have that number handy in.
And then just trying to think on the programming side, do you think, I guess, kind of through the end of the year with football kicking NFL kicking off tonight and some college football, although limited, is sports kind of a net positive even though the schedules may be reduced? Obviously, nobody is going to the actual game. So how are you guys thinking about that push? And how are you going to market the watch component of your business?
Look, the reality is, Andy, we really don't know what demand is going to look like for kind of in store watch experience, obviously. I think society and people in general have gotten pretty used to being at home and doing things at home from eating to doing projects on their houses and every other thing. So whether we're going to be able to drive people in to watch sports on our great assets is a question mark, just to be candid here. That said, we have built a great asset that we're going to lean into several things, and this is one of them. It's nothing other than to continue to move the needle and improve kind of our approach of how we deliver an experience or watch experience.
So there are some fundamental things, I'll call them foundational things that we want to be better at, somewhat simple things like developing a consistent playbook to make sure the right games are on the right big screen for the right audience. And that sounds like that should be simple, but that's something we can be better at. So we are deploying that in an organized, consistent manner. We believe there are some experiential things that we can do to be additive to the watch experience. And so we are investing in a cloud based content platform that I mentioned, where we can deliver content, a ton of different content as sort of talks into the live game to interact and engage with our guests.
And we're going to deal with launch a radio station, really try to amp up the vibe of the store. And then when you get when we talk about programming, there are some things we can do with people, specifically DJs, if you will, to energize the crowd, have giveaways and some sweet steaks and we're also going to have some ambassadors. We're working with partners that are going to help us in this regard. So whether we'll get a fruit from it this year, question mark. Whether it will we learn some things and get better at it and build on it, we're not going to lose the season to try to make some inroads in this regard, and we're going to want to build on it over time.
Hey, Andy, this is Scott. Our comp store sales for August was negative 75%. Okay. Appreciate the data and the color. Thanks, guys.
Thank you.
We'll move next to Andrew Strelzik with BMO Capital Markets.
Hey, guys. This is actually Dan on for Andrew today. Hope you
guys are well and thanks for taking the questions.
Just two quick ones for me. First, you'd previously highlighted that you'd begun to potentially some easing of competitive headwinds within the space, more specifically from competitors maybe not opening as any new stores than they were before. So I'm just curious if that's persisted or if you've begun to observe any sort of uptick or acceleration in competitive closures and a broader view on the competitive landscape has evolved at all over the last several months?
It has quite a bit. I mean, when we talked before, we didn't have that many stores open and nor did our competitors. So, flat forward 3 months here, we have seen some concepts, actually 2 of our largest competitors that are close to fully open at this point. There are another subset of groups that are lagging in terms of either half their stores are less and some hardly any. So it is a mixed bag right now.
Our expectation is still that I think there are going to be some winners and losers here ultimately. I think there are going to be pressures on not just us, but others to rethink their growth plans, store growth plans. That means evaluate the pipeline that they had on the table pre COVID, their liquidity situation like we did, These are the same decisions that we're thinking through. And also, what the changing real estate environment might look like going forward. So we tend to think that there will be a slowdown for near term at least in terms of the pace at which we saw the competitors kind of flooding into the market.
But I think it's going to take a little while to shake out. I think being open doesn't necessarily translate into being highly profitable and ultimately successful at the end of the day. And I think what I will say is our brand pre COVID, industry leading AUVs, industry leading margins and profitability And the bulk from what we know, the bulk of those competitive set, I'm not sure they could make that same claim. So I just think we're in a really good position to emerge in a better spot. Thanks.
Yes, that makes a lot of sense. And then, I appreciate all
the color on the comp that you've given so far. And you maybe sort of touched on this a little, but the stores that are open, are there any regional differences in comp performance you can give us just in terms of different parts of the country, anything worth noting there?
Yes, good question. We definitely do have differences within the chain and a couple I think probably 3 factors that I think that kind of separate stores a little bit and has over the last 3 months. Markets where we see lower COVID case counts tend to perform better. We have tended to perform better in stores that are in tourist markets or in coastal areas. A lot of folks are sort of flocking to those areas.
And then as I mentioned to, forgot who I was answering the question to Jay, stores that are farther into their maturity curve, they're open the longest, we tend to be in a better spot with. So our strongest areas right now is Florida, South Carolina, Maryland, Arizona, Tennessee. And then we have some lower quartile stores that are up in Illinois, Canada and New Jersey. So we definitely see some geographical differences right now.
Great. I appreciate all the color. Thanks guys.
You bet.
We'll move now to Matt Curtis with William Blair.
Hi, thanks for taking the question. Getting back to an earlier question on G and A maybe. Obviously, G and A has come down a ton in the second quarter. So heading into the second half of the year, could you give us any sense of what run rate
on G and A might look like? No, I don't think we can't really give specific guidance on G and A going forward. But what I can say is that we'll continue to be very prudent on G and A and we'll be very, very cautious
on all discretionary cost. And at the
same time, we will make some investments based on the key priorities that Brian mentioned. If there's some component there that we need to spend, we'll do that to fuel those initiatives. But other than that, I mean, we're going be very prudent on other kind of what we call nonessential costs, at least for right now until we get in a little better spot with more store openings.
Okay, understood. And then on the pressure you saw in the second quarter on food and beverage costs. Maybe I missed this in your commentary, but what were the factors that drove that pressure? And then also what are your expectations in the second half?
So the main factor that drove that pressure was just some spoilage that we inevitably see on our food and beverage as we reopen stores. That is part of the reopening process is to go through all of the food and beverage inventory and clear out any any spoilage that we have there, so we can start with fresh product. And so that's what we've seen so far and we expect that we will see that as we continue to open new stores. Okay. All right, great.
Thanks a lot and good luck going forward.
Thank
you. From Raymond James, we'll hear from Brian Vaccaro.
Thanks and good to hear from you guys. I wanted to clarify the comments you made on some of the recent sales trends. I'm still a little confused. So it comes to the recent week down 71% and that's burdened, I think you said with closed units, but that's capturing 75% to 80% of your reopened units at this time. And I guess I've been keeping a close eye on average weekly sales as a measure of reopened units.
So does that translate into sort of year on year sales change for all reopened units that are down somewhere in the mid-50s? And then that subset of 68, that's down 42% like you mentioned. Am I interpreting that correctly?
Yes. So, yes, the way to think about that is the subset of 68 stores that currently open, they were down 42% over the last couple of weeks time period. Our total comp sales that were down 87%, that's for our total comp store base.
Right. I guess I was trying to hone in on the quarter to date piece. And we can take it offline, that's fine. But they're down 71 and down 42 is difficult to break. Yes.
So And I think it's that incremental piece.
The down 71 is the comp store sales for all stores in the comp base and the down 42 is just for those stores that are currently open in the comp base.
In the comp base. So then we've got another 20%, 25% that
we need to capture. And it looks like just based on that that they're down
something more than 42,
just how the math works. Is that right? Yes. We just yes, when we talk about store index, we just the open stores that are in the comp base, so you get a better comparison. And those stores that are outside of the comp base, the prior year number isn't as comparable in most cases.
And so we focus that index percentage on the stores in the comp base. Okay. Okay. Directionally, Brian, you should be able to this is close, this is close. If you have 50% of the stores that are open performing at a 50% index, your comp overall comp index inclusive of all stores is going to be about 25%, because you only have half of the Zane Open performing at a 50% index on average.
Yes. All right. Yes. We need both. Okay.
We'll circle back offline. Chain open, we need both things. We need to get our chain open. We need New York and California to open up so that we can get closer to 100, not the 65. And we need our 58% kind of index that we've run the last 2 weeks to continue marching towards some of these stores that are matured out now up in the 70s and have had moved that number north.
Yes, understood. And on that point, the reopening pipeline, I know you said December, and I know it's subject to change. But could you give us a sense of how many you expect to have reopened by the end of this month and by the end of October?
We have based off of looking at the jurisdictions, but there's a ton of uncertainty here. I would just say that right now, we're pinpointing New York and California really not to be until near the end of that time period. So we're expecting that some of these other jurisdictions will open up in a few here and there. But the big markets we have closer to the end here of that time period. I'm talking about New York, California now.
Just today or I guess it was yesterday, Cuomo opened up store dining, which is a good thing. But what we do know is what has happened is our use, which is arcade, has trailed virtually all the time in store dining. So and we really need both to be have an ability to recover in a meaningful way. So and we believe New York will actually open up before California right now. Okay.
That's useful color. Thank you. All right. Thank you, Brian.
We'll take a follow-up question from Jake Bartlett with Truist Securities.
Great. Thanks for the follow-up. My first is really on that last question on New York. And I believe, and maybe it was even yesterday or the day before that the store in Long Island reopened in, Islamia. And so as I look at the stores in New York, the 11 stores, a couple are in the boroughs, but most seem to be in areas that you could reopen.
Am I wrong about that? What's the delay in getting the New York stores that makes you think it's going to be more like a December timeframe?
Well, we've opened Ylandia for food and beverage only. And we have a couple other stores, we opened Hawaii that way to see what would happen if we just had the food and beverage element. In general, Jake, with 60% plus of our revenue comes from the arcade, The food and beverage business alone, that is a struggle for us. So we're doing it in Orlandia. We have brought back a number of our leadership members in New York as well as all our unclosed stores right now to protect our ability to reopen because these stores will reopen and it's imperative that we have a leadership team that's ready to go.
So we're doing it very nimbly in Inlandia. We have one other one in Concord. We're doing right now in North Carolina. So but I don't we don't view that as a meaningful opportunity for us to get to a good place without the arcade. So we really need the full expression of Frank to Got it.
That makes sense. I didn't know those were just the food and beverage. My other question is really about the operating efficiencies that you're finding now. I know it's very early, but give a sense as to whether when you regain the unit volumes that you had before, how much you think margins might be improved? And that's really just to ask how much of the efficiencies you're finding now in G and A as well as in the store do you think are sustainable?
Yes, I can start off on that. Certainly, we've learned a lot as we reopen these stores and scale down our labor model and our cost structure and everything else. And so as we continue to increase volumes and open more stores, I mean, we'll take that knowledge and ultimately we think that there's going to be some benefit there. It's hard to tell exactly how much benefits there will be, but as you just think about things like the smaller menu, I mean, that's really helped our efficiency quite a bit just from a labor standpoint and just getting through after the guests quickly. So it's a good learning, but we're going to make some adjustments.
So our long term plan is not to have a 15 item menu. It's going to be somewhere north of that and we're working on that right now. So it's not going to be big as we had it before. It'll be somewhere in between. But and the reason for that is, is we want to give the guests some variety, but also maintain some of that efficiency that we've seen so far.
Also from a technology standpoint, that's one of the reasons that we're kind of doubling down on that right now and focusing on that because we see a big opportunity there, not only from a guest experience, but from an efficiency standpoint. And so, still early days on that, but we think that there's some efficiencies to be had there longer term. And then really the last thing that I would mention is just kind of the zero based approach that we took. I mean, we learned some things on some of our expenses and in some cases negotiated some prices down a bit and work with our vendors to suspend some services and contracts that were needed when stores were closed. So that is partially the reason why we've been able to lower expenses so much.
It's a piece of it. So as we ramp up and we learn some things where we can cut back on some of that and still really not affect the guest experience. So it's really hard to put a number on exactly how much that will be, but we feel that there'll be some benefit there at the stores, but then also as we really cut back on G and A as well, we'll build that back on kind of an as needed basis. And so that's the general thought process overall is that as we do add back, there needs to be a good reason for it. And it needs to be something that's going to drive the business that we really need.
And so that gives us a chance to evaluate those expenses before we increase any of those in the future.
Great. Thanks a lot. I appreciate it.
We'll hear next from Jon Tower with Wells Fargo.
Great. Thanks for taking the question. Most
of my questions have been answered, but I did have a question. Kind of following up to what Jake was just talking about. And Brian, you mentioned this earlier, you have industry leading store level margins coming into the crisis. And I'm just curious to have you talked through your thoughts around balancing store level traffic against those margins? Would you be willing to perhaps sacrifice some of those margins that you had previously in order to drive more consistent traffic to the box over time?
And maybe that comes in the form of higher discounting on food, maybe some amusement. If you wouldn't mind just walking through that a
little bit, that would be great. Yes. I don't think we want to save our way for no revenue. So that's not what we're trying to do here at all. So As Scott said, I think we've learned a lot.
We've identified some areas that we think will carry through into 2021, where we can be more nimble in terms of our team and our approach to the business. But I we're going to invest in areas that we think have near term revenue generating capability and or that help us drive efficiency. So it comes on just we are assessed and best to deliver that. So, we're not looking to burn the furniture to damage sales here. So that is why we'll lean in, in some areas as we rebuild the business.
Okay. And then just I know this one might be a little bit more difficult to think about some of the current challenges facing your company. But I know over time,
or at least previously, there was this long term total addressable market of about 2 50 stores in North America. So
is that even part of the conversation anymore?
Is that still the
long term opportunity you see ahead? Or given the competitive dynamics that play shifting, is there more In
terms In terms of our focus on development right now, we've actually probably been going the other way, Jake. I'm sorry, John, in terms of really looking at sites that we could rethink and discontinue and fight another day at maybe a better rental rate and particularly size down the store as we had discussed recently with you guys. So, I don't first of all, I think as I said, I don't think we're going to see at least near term quite as much investment in growth and the competitive set being quite as aggressive at least for a little bit of time, I could be wrong. But I don't know that I see the addressable market materially different one way or the other right now. I don't think we know enough.
And we in the near term will not be as aggressive with building stores for obvious reasons. We need to focus on the core. We need to get this business back on its feet. We need to be have a team that's pretty nimble. We're going to be very disciplined about how we add things back.
Thing ideas and expenses, they're going to have to earn their way back and deliver for us. So that's where our focus is really right now, build the core back first. We will have some stores because we had a very, very strong pipeline coming into this. So we have some that we have sort of out there into 2021, 2022 that will allow us to continue to grow some, but it's that's not our immediate term focus here right now.
Thank you. Appreciate the time.
Yes.
And gentlemen, I'd like to turn things back to you all for closing remarks.
All right. Well, listen, thank you for joining our call today. We look forward to updating you on our continued progress when this next December here. We also want to wish each of you a safe and healthy fall season and look forward to seeing you at one of our reopened D and D locations very soon. Have a great night everybody.
And that does conclude today's conference. Again, thank you all for