Good afternoon, everyone. Welcome to today's Investors Entertainment Incorporated First Quarter 2020 Earnings Results Conference Call. Today's call is being hosted by Brian Jenkins, Chief Executive Officer. I'd like to remind everyone that this call is being recorded and will be available for a replay beginning later today.
Now I'd like to turn
the conference over to Bob Bowman, Chief Financial Officer, for opening remarks. Please go ahead, sir.
Thank you, Eduardo, and thank you all for joining us today.
At the time, it's from Mr. Jenkins and myself. We'll be
happy to take your questions.
Just a reminder, this call
is being recorded on behalf
of those investors' entertainment, incorporated and is copyrighted. Before we begin our discussion on
the company's results, I'd like to
call your attention to the fact that in our remarks and our responses to questions, certain items may be discussed which are not entirely based on historical facts. Any of these items should be considered forward looking statements relating to future events within the meaning of the
Private Securities Litigation Reform Act of 1995. Such forward looking statements are subject
to risks and uncertainties, which could cause actual results to differ from
those anticipated. Information
on various risk factors and uncertainties have been published in our filings with
the SEC, which are available on our website at www.investu.com
under the Investor Relations section. In addition, my remarks today will include adjusted EBITDA, adjusted EBITDA, still operating income before depreciation and amortization.
Which are financial measures which
are not defined on the January 2nd Chinese entities. Investors should review the reconciliation of these non GAAP measures
to the comparable GAAP results contained in the
earnings announcement 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 Dayton Bluffs team, we hope you and your families are remaining healthy and safe. Since our last conference call in early April, the COVID-nineteen pandemic has continued to take an unprecedented toll on our company, our industry and the entire U.
S. Economy. We shut down all 147 of our stores as of March 20 and only began to reenter some in May as certain states began lifting restrictions. As of last week, we had opened 28 stores. And by the end of this week, we'll have 48 stores opened in 15 states.
While none of us anticipated this unprecedented crisis, I'm very proud of how our team has responded to the challenges posed. We know tough times often bring out the best in people and anticipate here at B and C. Our team has demonstrated passion and commitment to the B and C brand, and we are fighting every day to regrow the business and ultimately to emerge from this crisis and return our company to its leadership position in our category. I'm extremely grateful to their tireless efforts and honored to work alongside them. As we said back in April, our singular goal has been to weather the shutdown period and reopen our stores as soon as we think we can so that we can welcome back our furloughed team members, turn our games back on and bring fun back to the communities we serve, fun that we believe will be a very important part of the healing process as the country emerges from the shutdown.
Our initial responses during the 1st several weeks of
the crisis were thoughtful and
decisive, and we implemented them effectively. First, in the face of the foreclosure, we immediately felt extremely difficult, the necessary steps to significantly reduce our cash burn rate, which involve dramatically continuing operating expenses, extending our payments, temporarily halting all capital spending and suspending our dividend and share repurchase programs. At the same time, we were reducing our cash flow. We were also taking steps to extend our liquidity. This included fully drawing our credit facility, securing covenant relief on our credit agreement until the Q4 of fiscal 2020 and raising an additional $186,000,000 in equity capital.
As a result of these efforts, we currently have over $255,000,000 of cash on hand to fund our liquidity needs going forward. Out of necessity, much of our efforts over the past 3 months is defensive in nature. But now, states reopen and relaxed restrictions on dine in and entertainment venues we have pivoted towards implementing a series of proactive initiatives, positioning the company to reopen stores, reengage guests and rebuild our business. Accordingly, we have adopted 2 main principles as we emerge from this crisis. Number 1, establish a deliberate and measured approach to reopen our stores and number 2, we calibrate our strategic initiatives to emphasize the return to profitability as soon as possible while positioning ourselves to capitalize on future opportunities.
So writing to the store openings of stores, a key priority is providing a safe, clean environment for our team members and guests. We put intense emphasis on sanitation and consistency protocols to ensure our stores adhere to the highest standards. At the same time as we reopen stores, we have been mindful of the opportunity to redesign our operating model to serve guests more efficiently and to take advantage of evolving technology, which is a win in every front. At this point, I'm going to ask Scott to quickly review our operating results for the Q1, the current liquidity position. After that, I'll dive deeper into our store reopening process and our recalibrated near term initiatives, also share some of the early results we're seeing at our reopened stores, which has become our primary focus in the Q2.
Here, Scott. Before I
walk through our Q1 results, let me remind everyone that all of our 137 stores were closed from March 20 through the end of the quarter ending on May 3. In addition, we improved leading up to the March 20 closures. We had already experienced significant declines in traffic as consumers were actively started avoiding restaurants and group entertainment venues. Our Q1 results clearly reflect that sudden change in our business. For the Q1, revenue decreased 56% compared with the prior year period, including a 59% decrease in comparable store sales.
Total cost of sales was $20,100,000 in the quarter, an increase of 59 basis points as a percent of sales. The increase is mainly due to the write off of cash flow inventory associated with the shutdown of our stores. Operating payroll and benefits expense was 33,700,000 an account of 47% from the prior year period, mainly due to further associated with the Shepkin. Other store operating expenses were 95,700,000
dollars at the time of 10% from the prior year period.
Expenses were reduced during the shutdown, although we incurred $11,500,000 in charges during the quarter related to the impairment of 3 of our existing stores, the write down of site development costs related to our pipeline stores and the termination of leases for 3 of our pipeline stores. G and A expenses of $14,600,000 declined 13.6% in the prior year. Compensation and incentive costs were down 5,100,000 dollars offset by an increase of $3,100,000 in professional fees. Professional fees increased mainly due to advisory and maintenance costs related to raising additional capital and to assist with lease negotiations. For the month of April, all of our stores were shut down and the weekly expense burn rate was consistent with our previous estimate of $6,500,000 per week.
Our debt service cost is $700,000 per week, also remained consistent with prior expectations. EBITDA for the quarter was negative $26,100,000 which was slightly less than initial expectations due to non cash breakdown. From a balance sheet standpoint, our main focus is to preserve the financial activity by maintaining critical store resource capabilities. To that end, we drew down the remainder of our revolving credit line, wholesale capital spending and significantly reduced operating expenses. Additionally, we opened negotiations with our landlords on net deferrals and abatement and aggressively managed
our working capital position.
I'll also review our future self pipeline and make adjustments given the current environment. As we carefully review, we made the decision to complete construction on 6 stores that were near completion prior to the shutdown and we will renew construction as we've been further priority to market conditions and business recovery. The net capital investment needed to complete these stores is approximately $3,000,000 Including these new stores, we now expect to spend approximately $58,000,000 in CapEx for this year 2020. Additional 11 stores were in previous figures up permitting their construction at the time of the shutdown and are currently on hold pending further analysis and visibility into the ramp up of our existing stores.
And finally, we terminated 9 leases,
which were stores slated in 2021 or beyond. Having taken those steps related to our operations, we have to continue and properly to pursue additional sources of capital to improve our liquidity position in anticipation
of a long shutdown and extended business recovery.
We offer careful consideration a wide variety of financial options to improve our liquidity in a highly uncertain environment, we executed the following actions to improve our liquidity position. First, we executed a $75,000,000 aftermarket equity offering of 6,100,000 shares at an average price of $4.10 per share completed on April 14. And then subsequent to the end of the quarter, we completed 100,000,000 private placement of 9,600,000 shares at a price of $10.44 per share, followed by a $10.51 over allotment option of just over 1,000,000 shares at a price of $10.44 per share. Additionally, in conjunction with our $75,000,000 equity raise on April 14, our credit agreement amended with the following changes. The credit leverage ratio and fixed charge coverage ratio will not be tested until our financial statements are required to be delivered for the Q2 ending on January 31, 2021.
A minimum liquidity of $30,000,000 that should be maintained which includes unrestricted cash and cash equivalents. In addition to these recent financing actions, we are pursuing tax savings and depruals after the CUPIC CARES Act and have chosen not to participate in the PPP program. We will continue to evaluate our government programs and other viable financing options as we navigate through
this uncertain time. At the end
of the quarter, we had $157,000,000 in cash and cash equivalents on the balance sheet, which was an increase of $132,000,000 compared to the end of the last fiscal year. This is mainly due to the drawdown of our revolver net proceeds from
the 1st equity raise and deferral of
debt payments, which is partially offset by capital spending with higher construction work on these stores. Currently, including the 111,000,000 in the second equity raise, we have over 235,000,000 in cash and total debt of 760,000,000. We continue to aggressively manage our working capital position and prioritize our outstanding and are able to put all of our vendors and landlords to continue to support us through this reopening and rebuilding phase. To date, we have successfully initiated rent accruals and or maintenance on over 80% of our stores. Payback of most of these accruals is scheduled in January 2021 and is expected to be completed over 12 to 18 month time period.
Keep in mind that our previous 14 8 to expense only, we're going to be reaching our working capital deficit, which we began to manage our debt rate placing some extended churns and other accommodations. As Suras have begun to reoccand generate sales and variable profit, we began to direct the portion of this available cash towards gradually memorizing our working capital deficit. This will cause the near term burn rate to temporarily increase until we get a larger portion of our sales development. With that, I'll turn it back over
to Bob. Thank you, Scott. With new capital secured, credit terms amended and tight controls on our cash spending, we significantly extended our liquidity horizon. As a new build, the management team should focus our attention on 2 near term priorities as we rebuild the business and emerge from the crisis. I want to take just a few minutes to unpackage these near term priorities in more detail.
First, reopening our stores. Our store reopening process starts with a careful evaluation of state and local restrictions as it relates to guest capacity and hours of operation. And based on a scaled down operating model, the store must have the initial potential to generate between 10% to 20% of its 2019 revenues in order to generate a variable profit. We set hours of operations each store based on pre COVID high volume days and dayparts in tandem with state mandated limitations. And so those stores that are open as of this week, we are currently operating at an average of 60 hours a week or roughly 65% of our pre check that average weekly operating hours.
More importantly, those 50 hours generated about 90% of our pre COVID revenue. So we are deliberately focusing operations in our most productive times. Now once we've made the decision to reopen the stores, staffing is the next critical step in executing that store reopening. For all of us, next to welcoming back our guests into the stores, the most gratifying part of the opening has been the opportunity to welcome back some of our value team members who were curtailed in March. We're deeply appreciative of their loyalty and the enthusiasm and expertise they bring to the team.
As we reengage our team, our staffing model anticipates a gradual ramp in sales. Currently, with reduced hours on a narrowed menu, our reopening stores are able to operate with a smaller staff compared to our pre COVID labor model. And then once the stores reopening, we are adjusting staffing as sales levels dictate. The next major step in preparing the store to reopen is physically we're comparing the space to promote and enable social distancing. Our large dining and bar footprint enable us to reconfigure the space to support social distancing guidelines and still maintain seating capacity of about 50% of our pre traded levels.
We've also reconfigured our arcade areas to promote 6 foot spacing, taking some of our games offline. In doing so, we've been able to maintain approximately 75% of our player positions and an even higher percentage of unique titles available for clients. So given the size of our stores, we are still in a really good position to generate meaningful revenue even with capacity limitations and social distancing. As we reopen our stores, sanitation and safety protocols to ensure the health and safety of our team members and guests is of paramount importance. We have always prided ourselves on maintaining sanitation protocols that meet or exceed local health standards, and that remains our philosophy today.
More recently, we've implemented additional protocols to reduce risk of COVID transmission in our stores. We are also enabling and encouraging guests to participate in maintaining a clean and safe environment for themselves and their fellow guests. I'll call out 2 other important changes that we consider to be temporary or temporary transitional, if you will, during our reopening phase. 1st, based on our historical data and insights from our culinary leadership, we've temporarily narrowed our menu to 15 items from more than 40 items pre COVID. This narrow menu provides a good variety of guests to choose from and an efficient assortment to execute with unlimited kitchen staff.
We are able to fulfill orders faster, and it also fits well with the new curbside order and delivery option that we are experimenting with in some markets. The second temporary or transitional change during our reopening process is in our marketing message execution. Recall that as a part of our cost saving strategy during the shutdown, we significantly reduced our marketing spend. Now our team is focused on a local approach to marketing that utilizes traditional and digital media to drive awareness and accelerate recovery. These integrated plans are leveraging local TV, out of home, social advertising and digital radio to saturate our target market.
2 of the 3 markets currently using it, of course, are leading their brand in recovery in terms of revenue, and this early success has given us the confidence to expand to additional markets in coming weeks. This approach as well as traditional outreach methods, such as our loyalty database, suggests that our efforts are working. During the past week, our Reimbursement stores generated sales at an index of 37% compared to the 2019 levels. For the top quartile of those stores, we are running at a 55% index. And for the bottom quartile, we're running at about 18% index at this point.
We are also encouraged by a steady week to week recovery we're seeing ramping from an average of 17% indexed in the 1st week to an average of 46% of those stores that have been reopened for 5 weeks, and that's the limit of our history at this point. It's also important to note here that all 28 of our reopened stores are producing variable profit. As we look forward, based on current information from each state, our projected reopening schedule anticipates having about 90 to 95 stores opened by the end of July and then all stores opened by September barring any delays due to COVID-nineteen resurgence or changes in states or local guidelines. We also anticipate some of our stores in the Northeast and West Coast will be among the last to reopen. As I mentioned previously, we currently estimate that stores can cover the reverted cost at 10% to 20% of 2019 sales levels.
At approximately 60% of 2019 sales levels, we achieved EBITDA profitability at an enterprise level under normal operating conditions. This enterprise level breakeven point will be a bit higher in 2020 due to additional costs and charges related to the shutdown and our financing efforts. Next, I want to turn to our 2nd near term priority, recalibrating and re prioritizing our strategic initiatives. As we look to rebuild our business, our team has rallied around the philosophy that great disruption can also lead to great opportunity to think differently. And our focus for the near term will be to invest and accelerate change in the following key areas: our service model, our menu, our programming and our marketing.
Regarding changes to our service model, our corporate technology team has been working night and day and tirelessly working to rapidly develop and fighting new technology to enhance guest service through a self-service, contactless order and pay platform. This technology is going to enable our guests to access the menu, order their food, their beverage items, pay
for their
selections using their mobile device. Enabling our guests to control the experience on their terms will free our team members to focus on interacting guests in more ways than enhance the overall experience. We're currently piloting technology in food stores as an optional experience for our guests. In July, we will launch in one store as the primary way to order and pay, and we will take those learnings to evaluate a larger scale rollout. Another area we are investing in accelerating with Arminium.
After we complete the reopening process across the country, and traffic has recovered to an appropriate degree, we plan to expand the temporary 15 item menu. The expansion will not simply be a matter of reactivating our pre filled menu. Rather, we will leverage our earlier work with the assistance of a 3rd party consulting firm to inform these changes and target the engineered menu as well as Sierra. The ultimate goal is to create new, stronger group identity that resonates with our guests and is the differentiator of the D and D brand. The 3rd area where we're investing in accelerating change is developing strong programming strategy around our Wow Walls and other watch assets.
Live sports broadcast will return at some point. However, it seems likely that those first games or in some cases, entire club seasons will be played in 2 stadiums. We believe this creates a unique opportunity for us, and our team is developing strategies to leverage and amplify our unique Wow Walls and other extensive Wow! Assets. We plan to promote our stores as venues where fans can enjoy a unique fan experience in a great fun environment with great access to food and beverage and other great forms of jeans and entertainment.
We'll have more to share on that as our plans come together over the next few months. Another area where we're impacting and accelerating changes in our marketing. We have already begun to rethink our marketing strategy before COVID. And in March, we welcomed Brandon Coleman, their new CMO, to inject leadership and perspectives into our marketing strategy. We also initiated an agency review process prior to COVID with the original intent to launch a new brand campaign in May.
That process, while delayed, continued throughout the shutdown and culminated in the selection of Mother New York as our new creative agent suites. By fall, assuming we have successfully reopened all or most of our stores, our temporary marketing efforts will pivot to a new national brand campaign developed with mother under Brandon's leadership. Our new campaign will amplify David Muft's strong brand and unique assets through activations aligned with several key event driven windows, all of which will contribute to engaging our guests on a more emotional level. To conclude, although the operating environment continues to be very fluid and uncertain, we are confident in our plan and optimistic about our ability to recover and emerge in a stronger competitive position. Our team is always focused on reopening our stores, reengaging our guests and rebuilding for business.
And we're using this opportunity to invest and accelerate change across key areas of the business, all with the goal of enhancing both the speed and magnitude of our business recovery. None of what we have been able to accomplish over the past 90 days or what we have set our sights on achieving looking forward would be possible without our dedicated team members. I want to extend a special heartfelt thanks to our team members across the country who are working tirelessly for state investors as well as just who remain on furlough. Your passion for the company personifies this great brand and will be a key intangible ingredient as we work together to detail that business. Now, Eduardo, why don't we open the call for questions?
Thank you. We'll now take our first question from Andy Barish at Jefferies. Please go ahead, sir.
Yes. Hey, guys. Nice to touch base. I guess, first question, have you done any consumer work? I know it's early on on returning to the locations and just kind of the feeling around cleaning procedures and social distancing that you may be able to learn something from?
Yes. I Tambia said talk to you. I hope your families a lot as well. So we are as we reopen the stores, clearly, external factors like the health of the economy, fears around pandemic fears make it somewhat difficult to predict how our business is going to recover. So that said, I fundamentally believe that peaceful or social by nature and want to get back to living life.
And I think we're seeing that in our numbers. We're really encouraged by what we've seen in the Tilghri zone and our top stores to be 37% here. It's a very limited amount of weeks of operation. And we've got some of our top tier stores,
top tier
50 5%. Some of those stores are actually in the 50% range, and that's moved up here as well. And the recovery ramp is also encouraging. So we're really optimistic about our ability to call back.
But the consumers have come in our stores and might still come
back into our stores. The feedback that we're getting right now is that in general, somewhat overwhelmingly, we're getting positive feedback of what we're doing as it relates to our sanitation efforts, right? We have a pretty comprehensive program that we put in place for extreme issues, stuff like that. So feedback has been good. And we have admittedly reduced some of our offering with our limited menu and removing some of the gains.
And we really haven't got a lot of negative feedback on that. And I think in general, just the team is very happy that we're opening. They're kicking really well, which is obviously great for our team and are offering some fantastic job getting these tools back on since we're off in our desk back end. So I'm extremely pleased with what we sit right now. Nice to hear.
And then just pivoting to prod, what is your definition of variable profit just to level set? Yes, sure. So what we did, Amy, we calculated what the kind of the burn rate is, expense burn rate
when our stores are closed, okay? And so variable profit is those additional expenses needed to open, what is needed to cover that additional
expense to open the doors. So once we're able
to cover those additional expenses to open the doors, we call that very
topic. Okay. Andy, one last thing that I actually didn't mention in response to your question. One of the other encouraging thing, again, it's not like we have a lot of weeks here, 5 weeks. But what we are seeing is that the stores that are coming on later in the cycle, stores went from last week and the ones that are open actually this week, are coming on at a higher index at a good date.
So I think that's you guys are very good news. So as far as we get away from the original onset of this back in March, and some of these states that are opening up a little later, we're coming out of the gate a little bit, I guess, with higher performance.
We'll now take our next question from Nicole Miller at Piper Sandler.
Thank you and good afternoon and we're very happy to have you listening back and the stores opening. I wanted to ask about the employees and taking back to the IPO and how you introduced us to what I would call your senior investors' career level labor. And obviously, you've seen the team have done really well during this crisis. So as you did before back online, how many are what you would call those career individuals? Are they less than half, half or the vast majority?
And then asking that question because it seems like you've been running a whole lot faster, at least in best practice leverage there? And then in addition to that, when you can operate at 90% of revenue, what labor are you running? Is that less than 90% or at that equivalent 90% or more than that?
Okay. Nicole, pleased to talk to you, and hopefully, I'm doing well also. You're right. The Z and B brand, our company has an incredible team that are extremely committed to the company. And so as we have begun to reopen this store, we've had a lot of success in bringing back the skilled management team to reenter these stores.
And so extremely pleased with that. I We're glad to have them back. I appreciate the loyalty that they've shown to come back after the parallel period of time. And we're coming back with a much smaller team. We're opening these tours kind of week 1 with 2 to 3 managers, that's the compare closer to 10 in a normal situation.
So we have some very committed people that are just are extremely happy to get back to work and help rebuild the building for us. I'm extremely grateful. Have a lot to do with the culture in this company and our COO, Margot Manning, our regional VP that I've known this company a very long time, but has stayed in touch with the team. And so I don't think that's paying us dividends right now. And that's allowing us, as you said, to get open pretty quickly here.
We're I'd say we and Margo and the team are getting stores up within certain days. We've done a couple faster than that. Once we make an internal decision to move forward, we're going to stay up really quickly. So I'm really pleased about that. And we're being we're aggressive.
Once we make the decision and the mandates allow, we're going to move forward. We're going to give these we're going to give our team members a chance to get these doors off and rebuild this business as soon as we possibly can. I think the other question you asked is about what labor will we have at 90%. We are working on a labor model that would allow us to operate at a lower index than that as it relates to team members. And then some of that on the automotive side I talked about, we're looking at a more of a potential for technology enabled to take some of the transaction oriented elements of the guest interaction out of the service hands so that we can focus on the experience of that guest.
So it remains to be seen how that's going to work now, but we are definitely going to come up in a nimble way. At this point, it's imperative that we do that.
So both of those sound very promising. I'll just ask a last question. We've been seeing a lot of survey data and I'm going to state how much it matters because consumers say they didn't do one thing and they might do something different, especially in this situation. So just by observation only, I'm not going to put you to it, it's just by observation. And if you look at demographics of the competitors in the stores that are open, are they more individual, is there group size, smaller group size?
How much is eating? How much is the movement in the Midway? Does it feed longer? Does it eat earlier? Just what are your service in general?
Early on, as you know, we have what I call our core box that we're putting together on some stores. We don't think that try to get an understanding of what kind of best profile we see at the end of the year. And it's skewing a little less family and a little more hotel right now, and I think some of that makes sense here. So we have seen that. And we are seeing amusements.
The mix has increased from amusements. They're running about 5 percentage points higher in terms of sales mix of these stores open up. And so it's coming out of the food side. Our beverage mix is about the same. So we're seeing more play, people coming back to play.
And that is the primary reason to visit. We've seen it It's pretty old in that way. And that's what we're seeing as we just explore trends up.
We'll take our next question from Jake Bartlett of SunTrust.
And also congrats
on all the hard work and engineering that seems to get us back up and running. Brian, my question was about, it's really encouraging to say that you expect to have stores open 90% to 90 5% by the end of July. So how should we think of the trajectory as we get there? Maybe any intention at the end of June, for instance, or is it really just some laggards, as you mentioned, in the Northeast, as you kind of see later in July? Just trying to kind of understand how that compresses over the next 2 months?
Well, we're sitting here in June right now. I don't know that I want to pause the June end and the July end. So July is the 90% to 95%, and we're essentially saying months or so later, the rest of them are a third done. So that's pretty supposed to be precise to me. And we are right now, we're expecting our California stores to be some of our California stores to be among the last.
And so that would imply that that's sort of late August early September. And then New York, which is got pegged. Obviously, those 2 markets are huge for us, insurance and store counts. We've got 20% of our store counts in those 2 states. So we're estimating California very more at the end of July, early part of August.
For instance, we're going to move on really just this week in California. We actually are going to be compounding up leaf stores in California, 2 in the San Diego market and actually in Ontario, Ontario store. So we've got a crack into some of the West Coast Northeast markets, the West Coast, Connecticut stores also. So that's encouraging to see, and we hope to see more from them. But it's really hard to predict, Jake, exactly what we need to estimate.
And likely, we'll be not on these. But we need twice a week to review the mandate for the team and so that's our assessment right now. Got it. And then just looking into the performance at the stores that have been opened. I think it's encouraging at this point
that with the range, especially some of
the things that's at the higher end of the range. But what is versus the 18% to the 55%, what is the common denominator? Is that just the length of the existing? Or is it a very different consumer behavior in different markets? It's somewhat all of it.
As I mentioned in my response to Andy a minute ago, We are look, we're seeing some of the stores that are opening later. The first store, I'm going to really hit the tailing April 1 May, I think it was one day in April, but it was a single store. So we don't have a long history. But the stores that are coming in now, the stores that we opened last week are coming in at a higher index at the outset. So that's encouraging.
And we are seeing steady development, improvement, actually, in all the, I'm going to call it, meet classes. And at certain stores, we don't get into We've seen steady movement up in each class. And the class that most developed right now is at 46%. So the numbers for the known probably staying at 46% right now. And as I mentioned, we have some those that are actually doing quite a bit better than that.
So and there are some geographical differences. We attribute as we some production work, I think, unlimited data, but particularly for what it's worth in some of these. But we're seeing markets where they have a lower incidence of COVID cases tend to have stronger performance. And we're seeing stores that or have a tourist topspin, some of the coastal areas in particular seem to be performing better. So I think it's there's some unique market elements, and I also think there's timing within the company cycle here.
Got it. And then my last question really pressed for stat. You mentioned that I think
it was sales at 60% at prior level, so this interest rate was down 30% EBITDA breakeven. Can you help us break that down of what that looks like for G and A versus store level profits, just to kind of help us there's a lot of moving pieces that are hard to change. So any help on what that would mean for profit margins versus what you're expecting for kind of the absolute level of G and A? Yes. So maybe it will help you to break it down kind of enterprise level and just at the store level.
So if you could think about the store level kind of full model profitability, we need to get back to about 50% in that company or this past year to get the profitability at the store level. And then as you think of the enterprise, you have to get closer to that 50% kind of index level to do profitable covering G and A and all those extra costs. Go ahead, I'm thinking about that a little bit, Jeff. You think about the 10% to 20% to get to variable profit and covering our variable cost to the open. We're achieving that.
If you look at our 1st week of operational revenue, 17%, the development curve in the 50% stands at just shy of 50%. So we're working our way up the curve here. So we're encouraged by it.
All right. Thank you so much.
We'll now take our next question from Chris O'Cullow at Stifel.
Thanks. Good afternoon, guys. The company has always had really high amusement margin because of the minimal attendant requirements for those games. Do you expect this is going to
change or will need to change new operating safety standards?
Yes. I can start on that. We talked about kind of the work we're doing in each of our stores to make sure it's a safe environment
and that's our team members are good. And so obviously, that takes some labor.
It takes a lot of cleaning materials and masking costs and everything. So we have invested in all of that, and we're doing a very diligent job of keeping our sourcing and making sure that everyone feels safe. And so that's on the cost. It's on pace of about a $7,000,000 number or so to do that activity kind of at the current pace. And so I think time will tell how much that cost may vary or potentially decline as
time goes on. But we think that, although it is
a fairly heavy cost, it's really well worth
it and really a requirement for us
in our mind to be able to provide that environment as we ramp up. And then I know the company I mean, the company was looking at some new gaming technology
prior to the crisis. And I'm just wondering how you're thinking around multiplayer games or how you are thinking about gaming in the future for Dave and Buster's into this new situation, this new environment?
That is thanks for the question, Nir. I mentioned in the prepared remarks what we're really focused on right now around service model, mainly programming and marketing. Those are what we're leaning into as we open the stores in an environment where we have some capital constraints, and we also have resource constraints from the Uniti side. So we have we had worked on our strategy request plan really in the whole back of last year. And are still very committed to all the things that we were working on.
But we are taking a pause on a number of things that get our stores back open. And game purchases, physical games, loyalty care games. We had a couple of VR games, 1 pass. We're taking a pause on that right now. Our focus is getting still tight open.
And our belief is that, and I'll say it before, I think people want a fundamentally socialized, which is definitely put a
print in that for a period of time.
And we're going to have to wait and see how consumer preferences change before we lean in in a huge way on the game We have some great assets on the floor already, and that is not a near term focus for
We'll take our next question from Andrew Strelzik with BMO Capital Markets.
Hey, good afternoon and nice talking to you guys. Great. Thank you. Can you describe the number of the steps that you've taken, whether it was the menu or more scale or kind of labor model, those things. I think you described them as transitional.
Is there anything that you've learned from what you've done with the design maybe more permanent Or why or why not? In the situation where I'm particularly, you will tend to have been forced to shut your entire company. There's no question this creates an opportunity to make it So we are operating in a completely different way, both in the field and certainly here in our corporate office. People are working from home, and we've been very productive with an extremely small team, getting the stores built back up. So I expect that we will make changes and majority of those in the areas that I talked about around our service model and how we engage our guests on that experience and leveraging technology, the menu, which is something that we were aggressively working on.
It was often time in the shutdown, but we are gearing that back up. And so the marketing is an area that we have had run the same playbook for a long time. And the brand and leadership, we're excited about him on our team. We're going to show up differently real soon. And so excited.
Show up brand in the different light. We have a lot of brand fans and we're going to look to take advantage of that. So I think we've got some good things that we're trying to lean into. I but we're going to need to be focused here. And we are pausing some things, at least for a period of time.
And so previously talked about that potential maybe as early as 'twenty one.
Is that the right way
to think about it? Or is it maybe too early? Andrew, you were garbled at least on our lines here, maybe not somebody else, but I'm not sure I got my question. Can you give us a quick note to that one more time? I apologize.
You were on our line.
I was just trying to figure out if
given the termination is on the least, we should anticipate Are you referring to the rest of the rest of the year?
Yes. Next year
is it, man. Yes.
Yes. Okay.
Yes. So what we've done so
far, Andrew, as we as I mentioned
in my remarks, we took a pretty hard look at our sales pipeline in
the last year, the current situation. And so we did decide to move forward on some stores that we may have to
complete that makes sense for us. But
the other stores that were in the pipeline, we did terminate already, but we still have some children
in the pipeline that are just on hold right now.
They've been very wealthy in those stores in 2021,
but we're kind of in the right now. And so they're on hold. I'm trying to get a little bit further down the road and really understand kind of what the new normal may look like. And so
we don't know exactly today what that will look like in a little
bit more time, but we should have some more detail to share on the next call.
Okay. Thank you very much.
Thank you, Andrew.
We'll now take our next question from Brian Vaccaro of N. James. Please go ahead.
Good afternoon and good to reach next. Just on that last point, when do you expect to open the 6th that you're finishing construction on? And how many signed leases do you currently have? Scott, you had in your prepared remarks. We're we have a limited amount of net dollar outlay on the fixed we have remaining for this year.
We're going to look for more clarity and more business will probably the reason on those stores to allow us a fairly small net number. We're looking for a little more clarity and visibility fully starting soon. Yes. So likely, it will be in the back half. Not entirely sure right now.
But expectation right now, at least, obviously, changes in the back half. Okay. And then Brian, I wanted to get your perspective on the competitive landscape as well. There's obviously a growing headwind for the business
for several years pre COVID.
So what have you seen in
terms of permanent closures and the like? And how do you
see that playing out in a post COVID world? Thanks for taking my question, Brian. First of all, I guess, I'll clear this. As I think about COVID-nineteen, it's really devastating to a number of business, many businesses, particularly as you think about consumer facing brands, restaurant, entertainment and not to mention and understate all the people that have been impacted that lost a job and livelihoods right now. So nothing positive about that settlement really.
It's really tragic in my view. That said, as we think about what we've been facing, particularly over the last 3 to 4 years, we've seen a rapid growth in the number of brands coming into the space, into our space and the speed at which they were developing new stores. So clearly, we've had a lot of headwind for a long time. And I think it's going to take a little bit of time for some of the best to settle at least on some of these companies, some of our competitors. But I do think there is a pretty good chance the odds there are that there would be one of 2 things, either a number of the names that don't reopen or at least aren't growing at the same pace and have to create a growth for some period of time.
So as I said, we're redesigning the space. We're a leader in the space. And I think we're well positioned to emerge in even a better competitive position, so it's going to be a little bit. And we've seen some of our competitors that haven't opened many stores right now. So some of them have been very, very few.
So we can't speculate on what that means about most of the companies are positive what that's going to end up mean. And I think we're going to see less competitive headwind here on the other side. All right. That's helpful. And then last one for me.
I just wanted to circle back on the streamline menu and labor model you talked about. Can you provide more color on
each of those compared to the pre
COVID levels, maybe the amount that you streamlined the menu? And just how you plan to manage each as sales volumes build? How you're managing the labor there? Okay. Thanks, Brian.
So I guess I'll ask about the new first. As we began to think about the reemergence after we're shutting down. Again, we had a very small team, our culinary team working on that and our Carl, our VP in that area. So we took the items on our existing menu, put it out in the new were the most popular generated, existing that includes that, that could generate a significant portion of our food revenue. So and obviously, the supply tools getting a good selection and having to direct, and that's it can be a little bit of a challenge at 15,000,000.
So it wasn't driven by the pricing. It was driven by our desire to add a menu that we could execute, or teams could execute in a good way when we're coming up with some of the skeleton, we were comping stores initially with extremely small things and demand and then balance as we grow and we're being very number about that. So we start with a fairly soft team and then we scale up. And we've done the operating team has done a fantastic job in doing that. And it's not it's in heavy lifting to get your team members back right now on the hourly front, believe it or not.
So that's we're expecting them. We're really efficient. When you think about 10% to 20% of our overall sales volumes and the covering the direct cost. You know our average AEV, that's a pretty low sales number. So we've developed a pretty number model with these stores, Duncan.
My feeling is that I want to get these stores Duncan as soon as we can get our team engaged and get them back and then we go from there. And that's where we're going.
All right. Thank you.
Thank you.
We'll now take our last question from Jon Tower at Wells Fargo. Please go ahead.
Thank you very much. I'm glad to hear you guys are doing well. Thank you for all the details during the call and the script. I was curious, maybe if you could provide us a little bit information on the burn rate. So obviously, last time you updated us, you talked about a $6,500,000 plus plus $700,000 in debt expense interest expense recovery.
Do you have an equivalent for now in terms of business running right now?
Yes. Let me just comment on that. So it's a little better. So as we look at the month of May, at the end of May, we had 22 stores open. We opened our 1st store on April 30.
So we ramped up during that month. But as I looked at those stores for the month of May, they contributed about $300,000 a week towards that overall burn rate. So that gives you some indication and understanding that they're ramping up and opening throughout the month. So I guess you have at least some perspective on how things may go in the future. So we're pleased with those stores, and hopefully, that will continue.
But we're pleased with those results in May for the entire month of about $1,200,000 contribution to that overall runway.
Okay. And sorry, just to make sure I understand that completely. You mean contribution on the positive side of the negative? Quarter? That's correct.
Okay, great. Perfect. And obviously, quite a few moving pieces in your business right now. I am curious, in stores themselves as you're reopening, obviously, some of the business in part of the store is being respected either in the basement or the dining side. I am curious, how are you dealing with the amusements that are that require more customer engagement and great team member engagement like VR and things like top of the shot.
How do you see these coming back online? And when do you see that happening?
I guess I'll address Doctor first. We have had guests request for Doctor, but we have not opened up our stores with VR game and operation. We may test a location. Where there are some stores that are doing huge volumes right now. But in some ways, our VR games are probably the cleanest games in the store because we have a practice of wiping and cleaning those after every use.
It's just part of the normal protocol here. So but that hasn't not the not the driver of pure success because it's still a stock company and we're listening. As it relates to Cock A Shot or actually any of our multiplayer games, what we're tending to do here is deactivate some of the games because most of these have multiple player positions. So we are deactivating some of those to create the separation at this point.
Okay. And then just last one for me. I'm curious, do you know the menu piece of it all, even down to the 15 items from more than 40 prior to the crisis? And you alluded to it earlier, the idea that's potentially altering how the menu looks as you emerge from the crisis. I'm just curious how much of a streamlined menu are you thinking about?
Is it 15 items, obviously right now the highest market, highest earning ones? Could you envision a period where it's only 20 items more time and much more streamlined and perhaps you can strengthen the footprint in the dining room? Or do you plan to return to somewhere near where you were close to 40? I'm just curious to get your thinking on that.
Thanks for the question. Obviously, that's something that we were in the midst of that work prior to COVID. We had partnered with a 3rd party consulting firm to assist us with some of that thinking. And I do not expect that we will get back to the 40 Avenue. I think when you get thrown into a disruption of this magnitude, it does give you a really good environment to learn some things.
And by necessity, we drop them in back to 15 items. Again, popular items generate a lion's share of our food revenue, these items that we kept. So keeping So I think it will help inform actually the number that we come back with at some point in time here. I don't expect it to be reported. I expect it to be South West.
I think it will be about 15. I think it's going to be somewhere between the best time I work on right now.
Great. Well, thank you very much and best of luck.
That is all the time we have for questions, Mr. Jenkins. Mr. Rubin, I just want to turn the call back to you for any additional or closing remarks. Please go ahead.
All right. Well, thank you. Well, thank you guys for joining our call today. We look forward to updating you on our progress in September. Also want to wish you a safe and a happy summer and look forward to seeing you at one of our Reopening Dave and Buster's locations very soon.
Have a great day.