Good afternoon, everyone. Welcome to the Dave and Buster's Incorporated First Quarter 2018 Earnings Call. Today's call is being hosted by Steve King, 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 the conference over to Arvind Patia, Director of Investor Relations for opening remarks.
Please go ahead.
Thank you, Rebecca, and thank you all for joining us. On the call today are Steve King, Chief Executive and Brian Jenkins, Chief Financial Officer. After comments from Mr. King and Mr. Jenkins, we will be happy to take your questions.
This call is being recorded on behalf of David Busters and Entertainment Incorporated and is copyrighted. Before we begin our discussion of the company's results, I'd like to call your attention to the fact that in our remarks and our responses to your questions, certain items may be discussed, which are not based entirely on historical facts. Any such items should be considered forward looking statements and relating to future events within the meaning of the Private Securities Litigation Reform Act of 1995. All such forward looking statements are subject to risks and none of which could cause actual results to differ from those anticipated. Information on the various risk factors and uncertainties has been published in our filings with the SEC, which are available on our website at www.daveinvestors.com under the Investor Relations section.
In addition, our remarks today will include references to EBITDA, adjusted EBITDA and store operating income before depreciation and amortization, which are financial measures that are not defined under generally accepted accounting principles. Investors should review the reconciliation of these non GAAP measures to the comparable GAAP results contained in our earnings announcement released this afternoon, which is also available on our website. Now, I will turn the call over to Steve.
Thank you, Arvind, and good evening, everyone. We appreciate your participation in our quarterly conference call. Today, I'll begin by providing an overview of our Q1 performance and speak about the organizational change we announced this afternoon. Brian will delve into the financials and update you on our 2018 guidance, and I'll complete my remarks by discussing our development efforts before we open it up for questions. During the Q1, we grew revenue by 9.2%, driven by continued strength in our non comp and new stores.
On a comparable week basis, revenue increased by 9.7%. Of the 112 stores we operated during the Q1, 26 stores or 23% of the total were non comp or new stores. We opened 6 stores during
the quarter, which was our
fastest pace so far, and I'm pleased to share that these openings include a few that have delivered some of the highest volumes openings in our history. Their strong performance and contribution to our overall revenue growth continues to give us confidence in our model. Comparable store sales on a calendar basis declined 4.9% versus the year ago period, a slight improvement from the trends in the first quarter, although clearly not where we want to be. While EBITDA was down about 2% on a reported basis, for the quarter, it was up about 2% on a comparable net lease basis, excluding the 2017 use tax settlement. This is roughly in line with the midpoint of our full year guidance of flat EBITDA year over year.
Now let me update you on our 4 strategic priorities for driving results from the intermediate to long term, which include amusements, F and B, improving service and reducing friction in the guest experience as well as driving 10% or more unit growth annually. Let me also remind you that we consider 2018 to be a year of recalibration as we lay the groundwork for evolving the brand. In terms of amusements, we launched our first two exclusive titles of the year, Tomb Raider and Rampage, during the quarter. Both titles are performing well for us. We are now in the midst of nationally rolling out our first proprietary VR title, Jurassic World VR Expedition.
This is right in line with our target of a mid year launch, and we remain excited about its potential. We're also on track to launch our 2nd VR title towards the end of the calendar year. Our plan, as we mentioned before, is to build a library of proprietary VR content that will enable us to capitalize on this opportunity for many years. In addition, we recently announced with Microsoft the launch of Halo Fireteam Raven as a limited time exclusive arcade title for D and D. Players of the arcade game will be able to share their achievements by connecting to their Xbox account, which will unlock a special badge on Microsoft Halo Waypoint website.
We expect to release this title early in our 3rd fiscal quarter and believe it has strong potential. Within F and B, our new leadership is focused on quality, simplification and accessibility. We are happy with the response to our new and improved burger and are planning to launch our new chicken and steak products later this year, in line with our strategy of investing in quality that our guests can see and taste. Our pared down menu, which we rolled out in February, is beginning to help us simplify some of the processes in the kitchen will positively impact B2C service. In terms of accessibility, we remain on track to test a quick casual offering inside D and B during the back half of the year, and we continue to view this as a complementary delivery mechanism to casual dining inside our facilities.
Improving service and reducing friction in the guest experience is also a strategic priority for us and we're focusing our attention on pain points at the front desk at our bars, in the dining room and while purchasing power cards and activating games. A combination of technology and operating processes, including how we deploy our people are key elements of this strategy. We've begun testing digital media to understand its effectiveness relative to broadcast media. To be clear, while broadcast media has under delivered recently, it will remain a key element of our advertising strategy in the near term as we read the results of our digital test. The 4th strategic priority is driving 10% or more unit growth annually, which we firmly believe will be the biggest driver of value over the long term.
Our new stores continue to generate very strong cash on cash returns even after taking into account the sales impact on the existing system. All of our strategic priorities are aimed at evolving the brand and improving relevance among our guests. We need to deliver new game content, food improvements, faster service and effectively communicate these value enhancements to our guests. In terms of our guidance for 2018, we continue to expect year over year revenue growth on a 52 week basis in the 7% to 11% range. And at the midpoint of our guidance, we still expect EBITDA to be flat on the year over year.
Brian will discuss this further in his prepared remarks. I'm sure you've all seen the organizational announcement we issued this afternoon. I'm retiring from my role as CEO of Dave and Buster's, but I plan to remain on as Chairman of the Board. This change has been part of our succession planning at the Board level for some time now, and I believe a seamless transition is a good thing for the company. Most of you know that Brian and I have been the face of Dave and Buster's to the investment community since we went public in 2014.
We've been close strategic partners in what we and this tremendous management team have achieved over those past 12 years. For the organization, this is a time of great excitement as we roll out a new virtual reality attraction that is highly differentiated and exclusive to D and B. While games and entertainment will always be the centerpiece of our brand, I'm optimistic about the changes that we're making to our food and beverage offering in order to be more relevant and more convenient for our guests. As for the timing, it's just the right time for me personally. One can only see another milestone to be completed and push something like this off into the future.
Some of you know that for my first 10 years as CEO of Dave and Buster's, I commuted from Dallas to New Haven while my wife was an officer at Yale University. Now that she's retired, I want to spend more time with her and the rest of my family. I continue to have a big emotional and financial stake in the success of Dave and Buster's. I will remain involved from a different chair, so I'm excited to have someone that I've partnered with for more than a decade take the CEO role. And now I'll turn it over to Brian.
Thank you, Steve, and good afternoon, everybody. I'd like to begin by thanking our incredibly talented team for their continued dedication as we evolve the brand and embark on our next phase of growth. Before I discuss our Q1 financial results and our 2018 guidance, let me remind you that 2017 was a 53 week year and as a result our fiscal year 2018 calendar shifted by 1 week and has 1 less week for the full year. Due to seasonality in our business, our quarterly results this year will not be directly comparable to our results last year. More specifically, in Q1 of this year, we had one less high volume winter week compared to last year and this shift had an unfavorable 0.9000000 dollars In order to provide a more meaningful picture of our performance, I'll be quoting our comp sales on a same calendar week basis adjusting for this shift.
Turning now to some of the highlights for the Q1. Total revenues increased 9.2% to 330 $2,200,000 versus $304,100,000 reported in Q1 of last year. On a comparable week basis, revenue was up 9 point 7% driven by strong contributions from our 26 non comparable stores. Including the fixed stores that opened during the quarter, non comp store sales increased to $74,500,000 that's up from $30,300,000 in the prior year on a comparable week basis. However, revenues from our 86 comparable stores fell 4.9% to $260,200,000 that's down from $273,700,000 in the prior year, again on a comparable week basis.
Looking at overall sales by category, amusement and other sales grew 10.4%, while food and beverage sales collectively grew 7.7%. During the quarter, amusement and other represented 57.9 percent of total revenues, reflecting 60 basis point increase from the prior year period, continuing a long term trend. Breaking down comp sales, our walk in sales fell 4.8%, while our special events business was down 6.4%. In terms of category comps, our amusements was down 4%, while our food and bar business was down 6.7% percent and 5% respectively. During the quarter, the combination of weather and the Easter calendar shift had a net neutral impact on our performance, while competitive intrusion and cannibalization had a slightly more unfavorable impact compared to last year.
In terms of content, as Steve mentioned, our new games for Q1, Tomb Raider and Rampage are doing well based on objective metrics like utilization rate, and we are optimistic about the upcoming launch of virtual reality. In terms of costs, total cost of sales was $57,100,000 in the quarter and as a percentage of sales was 110 basis points higher versus the same period last year. Recall during Q1 of last year, we recorded a $2,500,000 reduction in amusement costs resulting from the favorable settlement of a multiyear Texas use tax audit. Excluding this settlement, cost of sales would have been only 30 basis points higher year over year, reflecting a decline in F and B and amusement margins, partially offset by higher mix of amusement sales. Food and beverage cost as a percentage of food and beverage sales was 60 basis points higher compared to last year as the unfavorable impact of commodity inflation, the impact of our newer stores and investment in our new Angus Burger was only partially offset by the favorable impact of food and beverage pricing.
Cost of amusement as a percentage of amusement and other sales was 170 basis points higher than last year and excluding the favorable use tax settlement last year would have only been 20 basis points higher year over year. This was driven by a change in product mix, partially offset by the favorable impact of the shift in gameplay towards simulation game. Our operating payroll and benefit a percentage of sales was 21.9 percent or up 50 basis points year over year due to deleverage of our comp stores and the unfavorable impact of about 4% wage inflation that was partially offset by year over year improvements in our non comp store set, which represented 23% of our store base in the quarter. That said, please keep in mind that our newer stores do tend to be less efficient from a labor perspective relative to our mature stores. Other store operating expenses were 110 basis points higher year over year, primarily driven by higher occupancy costs at our non comp stores and deleveraging in our comp store base.
Marketing expenses were also higher as a result of inflation in media costs and continued tests in the digital media space. Store operating income before depreciation and amortization
was $108,800,000
for the quarter compared to $107,600,000 last year over reflecting growth of 1.1 percent. And as a percentage of sales, this was a decrease of 2 60 basis points year over year to 32.8 percent and excluding the favorable use tax settlement, a decrease of 180 basis points. G and A expenses were $15,700,000 that's up from $15,000,000 in the prior year due to increased headcount and higher stock based compensation, partially offset by lower incentive comp and legal costs. As a percentage of revenues, our G and A expenses improved 20 basis points year over year. Preopening costs increased to $7,100,000 that's up $2,600,000 from the Q1 2017.
This was primarily due to an increase in store openings versus the prior year as well as pre spending associated with our strong remaining lineup of 2018 openings. As a percentage of revenue, pre opening costs increased to 2.1%, that's up 60 basis points compared to the prior year. EBITDA was $86,100,000 that's down 2.3 percent and EBITDA margins were down were 25.9 percent and that's down 310 basis points versus the same period last year. On a comparable week basis and excluding the favorable 2017 use tax settlement, our EBITDA was up 1.8% year over year. Adjusted EBITDA of $95,900,000 grew slightly versus the prior year, marking our 31st consecutive quarter of growth.
And on a comparable week basis and excluding the use tax settlement, adjusted EBITDA grew by 4%. Net interest expense for the quarter increased to $2,900,000 that's from $1,900,000 in the prior year, driven by higher average debt levels resulting from our share buyback program and also due to increases in the underlying LIBOR rate. Our effective tax rate for the quarter was 24.4% compared to 31.4% in the year ago period. That's been driven by a lower federal statutory rate under tax reform, partially offset by lower tax benefits from reduced stock option exercises. We generated net income of $42,200,000 or $1.04 per share on a diluted share base of 40,600,000 shares as compared to net income of $42,800,000 or $0.98 per share in the Q1 of last year on a diluted share base of 43,500,000 shares.
Shifting to the balance sheet for just a minute. At the end of the quarter, we had just over $355,000,000 of outstanding debt on our credit facility, resulting in low leverage of about 1.2x EBITDA. During the quarter, we repurchased 600,000 shares of our common stock for $27,400,000 The inception to date total now as of June 6 this year is 4,100,000 shares or $218,000,000 leaving about $82,000,000 under our current authorization. Turning now to our outlook for fiscal year 2018. We're reaffirming our prior guidance for 2018 on several key financial metrics.
Total revenues are expected to range from $1,200,000,000 to 1,240,000,000 dollars That's up 7% to 11% on a comparable 52 week basis. This is unchanged from our prior guidance. We continue to project comp store sales on a comparable 52 week basis to be down low to mid single digits. On a relative basis and at the upper end of our guidance, we expect second half comps to be better than the first half as we roll over easier compares. From a development perspective, our target remains to open 14 to 15 new stores, including 2 of our new 17,000 ks format stores.
These openings will skew towards the large store format and new markets for our brand. We've already opened 9 stores so far this year and currently have 5 stores under construction, so very confident in this guidance. We're projecting net income of $95,000,000 to $110,000,000 That's 2% is unchanged from prior guidance based on an effective tax rate of about 24%, which includes the impact of new tax legislation. We are now estimating our diluted share count of at approximately 40,500,000 shares versus prior guidance of $41,000,000 We continue to project EBITDA of $255,000,000 to $275,000,000 for the fiscal year. In terms of capital, net capital additions after tenant allowances and other landlord payments are now projected to be $179,000,000 to $189,000,000 That's up about $9,000,000 from our prior guidance due to additional spending on games and remodel projects.
Finally, I want to remind you that the impact of 1 less week in fiscal 2018 versus our 2017 year has an unfavorable impact on revenue and EBITDA of about $20,000,000 $4,000,000 respectively on a full year basis. With that, I'll turn the call back
to Steve. Thank you, Brian. I'd like to review our recent and upcoming store development recent store openings. During the Q1, we opened 6 new stores in Rogers, Arkansas Memphis, Tennessee Wayne, New Jersey Anchorage, Alaska, which is a new state for us Madison, Wisconsin and Rosemont, Illinois. Rogers was our first 17,000 format store, and I'm pleased to announce that our next 17,000 format store will be in Corpus Christi, Texas later this year.
It might be worth reminding everybody that the economics of the 17 ks store, we anticipate steady state AUVs of about $4,000,000 to 4 point $5,000,000 store level EBITDA margins of around 25 percent cash investment excluding Keyai of less than $5,000,000 and cash on returns in the low 20s for this format. In the same quarter so far, we've already opened 3 stores, including Salt Lake City, Utah, which is also a new state for us, Massapequa, New York, which is on Long Island and just today in Torrance, California in the South Bay region of Los Angeles County. We plan to open 2 more stores during the quarter in Northridge, California in the San Fernando Valley and Staten Island, New York. As Brian mentioned, with 9 stores opened so far and 5 stores under construction, we are well on track to open the 14 to 15 stores that we guided this year, representing 13% to 14% unit growth. These stores will skew towards new markets for our brand.
Including the stores under construction, we currently have a total of 24 signed leases, providing us significant visibility on new store growth into 2019 early 2020. We remain confident that we have a strong and dedicated team needed to execute on our new store opening plan. In terms of square footage, at the higher end of the range, we expect 11 large stores this year, including 9 that are approximately 30,000 square feet and 2 that are between 30000 and 40000 square feet. And the remaining 4 stores will be comprised of 2 of our small store format and 2 of the 17 ks format stores. Our target is to ultimately open to or 231 to 251 locations in the United States and Canada, including 20 to 40 of the 17000 square foot stores.
We plan to capture market share through unit growth at a consistent measured pace and by driving improvement in our comp store sales. We can win by focusing on enhancing our offering, strengthening our execution inside the box and ensuring that we're reaching our audiences effectively. As always, we appreciate your continued support and interest in Dave and Buster's. Operator, please open the lines for Q and A.
Thank you. From SunTrust, we'll hear from Jake Bartlett.
Great. Thanks for taking the question. The first one is the cadence of the same store sales throughout the quarter on a monthly basis. I believe what you communicated before was that same store sales had decelerated into the holidays and hadn't materially improved. I'm just trying to get a sense as to, it sounds like it started at a lower level than improved, but if you could confirm that, that would be helpful.
That would be the way the math works on that. And we did say both of those things that it deteriorated in December January and it continued on into the early part of the Q1.
I'd also say, Jake, that the Q1 is a somewhat volatile quarter in that Easter calendar shift and spring breaks and all that stuff make that really hard to read. I mean, Easter moved earlier, which is into the quarter and shifted at so that does shift some of the sales earlier into the quarter than we had last year. But it does make it hard to read and that's why we really don't like to talk about the trends strictly within Q1.
Okay. That makes sense. And then if you could share what you've learned about the VR game and how it's performed in test? Maybe if you have a couple of hours here of some of the stores that have had it running today or over the weekend? Any insight you could provide would be helpful.
And just your level of confidence the virtual reality is going to be a material driver to traffic?
Well, Jake, I mean, we're very optimistic and excited about the VR concept that we're introducing, particularly with the intellectual property around Jurassic World. It's such a great launch of a platform that we plan to utilize with other titles over time. So it does represent really the biggest investment we've made as a company in amusements, single game. We're going to follow it up later in the year with another game that we will think also resonate well with Guess. We do have it rolling into stores right now.
We'll be launching it really officially here Thursday, I think 14. So we're excited about that. But we're very optimistic about the game. The reaction from our guests have been positive and we view it as an attraction that can not only drive traffic it's going to look it's going to present well on our TV spot, but also drive some incremental spend while they're in the store because we are charging a separate price for it. So again, it's really early, but we're excited about the product offering here.
And we think we're going to be able to leverage it with more of a library as we go down the road.
Great. And lastly, how confident are you that over the last 6 months, some of the changes you've made to menu, to service levels, to the quality product
in the
food and beverage side. Is it going to be effective or anything you could point to in terms of metrics or how you've measured customer satisfaction? Just give us confidence that the consumers are going to come in because of VR and hopefully become repeat users?
RJ, I think that there's a couple of questions wrapped into that. I mean, we clearly think that kind of driving comp store sales is a priority for us and we're really focused on 4 things in order to do that. Brian mentioned content is one and that we believe is a big part of driving traffic. But we have gone with an enhanced simplified menu. We have invested in what we're calling quality of the count.
We've done the burger. We're planning on doing some changes to our chicken and steak. We have new leadership in the F and D area in terms of our R and D function. And then we also plan to test quick casual later in the year. I think while and then improving service and reducing friction, there's some technology elements to that.
I mean, we've deployed some additional kiosks. We're testing some RFID and different operating processes in terms of how we deploy people. It's early for a lot of those to say that they are going to be things that we roll to the entire system. But we have confidence that we'll be able to figure this out and come up with models that both enhance our service and also contributes to comp store sales.
Moving on, we'll hear from Andy Barish with Jefferies.
Yes, I'm sorry about that. I was just trying to get a clarification, Brian, on your comments around the labor line and non comp stores. I was just a little confused. It seemed as if you mentioned non comp store labor was better year over year. Is that a function of some new procedures on new restaurant opening in glide path or did I mishear that?
No, it probably just wasn't that clear in my comments. What I was trying to say there is that we talked about this gap between our mature stores in terms of the efficiency on the hourly labor line in particular relative to our new or immature stores, what I was trying to communicate there was that gap of inefficiency narrowed quite a bit in Q1. So the drag of our new stores was less and that was helpful to us year over year.
Okay. And I assume that that's come from some focus on that area in the last year or so?
Well, I mean, I kind of say this every time. I mean, we're opening new stores every day and quite a few, I was 6 in the Q1, I think 5 maybe in Q4, if I remember it right. So there is a lot of effort trying to dial the stores in, continue to deliver great experience, but dial them and try to get them closer to our mature store base. And so it's a constant focus and every day it's a new store to try to dial in. So there's a team of people, we have some great operators out there that are working hard at it.
And we have a tool, a labor management, workforce management tool that we've been using for a long time that we deployed it to try to do that in a, let's call it, a smart way. And we are in the midst of a rollout of a new tool that we think is better. There are probably 20 stores into it, I think, or so right now. But this is a tool that we think is a little more a lot more state of the art, more nimble, more real time. So we're in the midst of that and we're going to continue to focus on labor, obviously one of the biggest line items we have.
We'll hear from Sharon Zackfia with William Blair.
Congratulations on the retirement and the promotion.
A
couple of questions. On the VR, are you launching the media simultaneously with the launch on Thursday?
We've been rolling VR into the stores over the last about 10 days or so. And so we will have it in all the stores that are going to get it by Thursday. And that's when we will be launching the television advertising to support it.
Okay, great.
It's helpful to have the attraction run and tested before we launch on air. So that's actually by design. There are a couple of stores just to clarify a little bit here. With some of the I don't know if you guys remember, so we had some of what we called our original smalls back in the day, 2008, 2009 timeframe that we'll not be receiving the attraction, couple of stores, 3. And then we are going to have some of the stores that are a long distance away, let's call it Hawaii, that will be a little delayed getting the title, but will be largely out and rolled out by the 14th, so we can get this on air.
So we're excited about it.
Okay. And then on the shift that you're talking about doing over time away from more traditional media towards digital, I know you said you were doing some tests. Do you have any early learnings on the effectiveness of digital with your business?
I think it's exactly a test your way into smarter and better deployment. You just get better at it as you utilize it more. And so I would say our early testing was, I would say, not outstanding. And as we went through the quarter and as we come into this quarter, it's gotten better in terms of our ability to efficiently target and have a reasonable cost per acquisition. But I think this will take a while for us to learn our way into.
And again, as I said earlier, I think linear is still going to be a big part of what we do here over the next several quarters and probably over the next couple of years. Just to have that kind of broad voice against things like a VR attraction, it's just really hard to get that out efficiently to a broad enough audience using the digital format.
Okay. And then last question. Do you have any thoughts on whether or not Fortnite is impacting your business negatively?
We've gotten that question a couple of times. We haven't been able to correlate anything specifically to it. It's obviously a hugely popular game and one that lots of young adults as well as teenagers are playing. So we have been keeping our eye on it, but we can't really draw any specific correlation.
Moving on, we'll hear from Andrew Strelzik with BMO Capital Markets.
Hey, good afternoon. I had a couple of questions. First, you mentioned in talking about the amusement cost of sales, a product mix shift. I was just wondering exactly what you're referring to there and if that's something we should expect to continue? We saw some shift in some of the license merchandise that we kind of featured in some of our resets.
And so we had a little bit of shift away from some of our imported products or some licensed product in the quarter. I don't know that we'll see I don't know that we'll see that continue totally because we tend to move the product around and we'll be we'll have another reset here in the near future. So I don't know if I'd count on it. Okay. And among the initiatives on the food side that you had talked about previously, trying to emphasize the value that was already on the menu was among the things you had spoken about.
I'm wondering if there were any signs that that has started to resonate?
A lot of that advertising actually occurred in the early part of the Q2 and we're really not going to comment specific trends on the Q2. But we've tried to talk about recasting kind of our Eat and Play combo or our combination also on some of our drink offerings, which we think are a great value and we didn't necessarily get a lot of credit for. And we are going to be rolling what we've described earlier as 3, 4, 5 for happy hour across all our stores. Previously, we had a 50% off for happy hour and people really didn't understand what that meant. And so now we're saying, hey, all drinks are going to be either $3, $4 or $5 during happy hour.
We tested a couple of ideas with respect to the Eat and Play combo. One specifically that we tried was kind of buy a Power Card and then get 50% off your meal. That didn't resonate so well. That was probably the same issue as you have with 50% off cocktails where people really are more interested in price certainty. So if you've been watching television lately, we ran a eat and play combo over another course of the last several weeks all week long, which was a difference compared to what we had done previously.
So over the next couple of weeks here, we'll be able to kind of get a better read through on kind of what that really meant for us pre post and net of control.
Comparing for Jeffrey, Nicole Miller.
Thanks. Good afternoon. Just a numbers question and a follow-up. Is the earnings guidance this year built out the $1.04 GAAP
number
that you have in the press release or is it off the dollar per share if we take the tax settlement into consideration? And then in the Q1 of the 6 openings, how many were large and how many were small? And for the Q2 of the 5 stores, how many large and how many are small?
I'm not totally sure I understood what you're asking about the $1.04 in the guide here.
No, I'm just looking if you take out the tax settlement, right, that was a $0.04 benefit, is that right in the
quarter? Yes, so yes, it was about yes, exactly. Dollars 0.04 The term I said, Texas use tax settlement. Yes.
Thank you.
The guidance includes that. And our guidance also includes, you may recall, last year in our Q2, we had a legal settlement of similar magnitude. So on a full year basis, they kind of wash out and that happened in the Q2 as you kind of roll back the tape. So it's kind of on a full year basis, we had 2 kind of large items, one good one in the Q1 and a negative one in the second, similar magnitude.
Okay.
You asked about store counts. We opened 6 stores in the quarter. As I mentioned, 4 of them were large, 1 was small and 1 was our first our 17 ks in Rogers. So that was the profile of how the store is opened up. And
did you ask about
the 2nd quarter, too? Oh, did you ask about the 2nd quarter? I'm sorry. I don't know that we've given that. I mean, we're going to I mentioned in the remarks, I mean, we're skewed earlier in the year.
So we've opened 3 so far in the quarter. I think we've got 1 left to go.
2 left to go? 2 left to go. Yes. So at the end of the second quarter, we'll have 3 stores and of those, 4 of them will be large stores and one will be a medium store.
And next we will hear from Stephen Anderson with Maxim Group.
Yes, good afternoon. I wanted to talk about the 14 to 15 locations. Those are going to be company owned North America. In the past, you talked about your international development outside North America and you're looking to open your first one this year. Can you give any guidance as to which quarter you'll be doing this?
I think,
first of all,
just back to international more broadly, we still believe this is a long term opportunity for us. Clearly, with most of our time right now is being focused on the domestic opportunity and the domestic priorities. The Middle East is really the store we're talking about to open towards the end of this fiscal year. Progress has been slower than we had hoped. They are making some progress, but I'd say it would be very late in 2018.
And we will go to Brian Vaccaro with Raymond James.
Thanks and good evening. I am circling back on the improved comp performance as the quarter progressed, I'm just curious to get your perspective on what drove that improvement. Are there a couple of sort of company specific initiatives or offers that you started to see particular traction on and maybe move the needle? Or would you say it's mainly the broader industry improvement that we saw in March April compared to the chance that?
Well, I would go back to Brian's comments and make sure we don't ascribe too, too much to the cadence within the quarter as that Q1 is highly volatile by virtue of all the calendar shifts and what's going on with Easter and the rest of it. I think it's early to say that kind of some of the underlying things that we're doing have made significant impact. Overall, did we improve on a sequential basis from the Q4? Yes, we did. It was 100 basis points.
So not tremendously significant, but we believe that we're on the right track with the 4 strategic priorities that we've been talking about, which again is about content, simplifying our F and B, working on service and the friction in our system and then really on effectively communicating that new news as well as value. So we believe the we will be able to improve as we get a little more time under our belt with those things.
Okay. And shifting to the new unit, pretty strong new unit performance that was evident in the quarter. I guess, to what do you attribute the better than expected performance? Is there a common thread or something that stands out in the class of 'eighteen so far, say, as it compares to the class of 'seventeen or 'sixteen?
Well, just to be clear, we say new and non comp. I did reference that we really thought the results from the new stores were very strong in the Q1. But some of the non comp stores, the ones that opened towards the end of last year are very good for us as well. So, I would say that among others, we did skew towards kind of some new markets for us and those new markets tend to do well for us. I think we've talked about that in the past.
So 4 of the 6 were in new markets during the course of the Q1 and that's part of what we attribute it to. They tend to have a little bigger honeymoon than what we see in the existing markets. Okay. That's helpful. And if I
could just take another stab at the labor cost line, Brian. If you look back at the Q4, you saw 35 bps of leverage on a down 6 comp roughly. This quarter, it flipped the other way, 50 basis points on a slightly better comp. Can you help parse out sort of the underlying dynamics, why the cost per week was a little favorable this quarter versus the last two quarters of 2017?
Well, I mean, as I mentioned, we were about 50 bps unfavorable for the quarter on the overall labor line. Really, the piece of that that we dialed back on was the management labor in the stores, so the more fixed piece of the business. And that by far was the most significant portion of that 50 bps and hourly kind of we kind of held our own despite having a negative comp close to 5% and having all these new stores. So we actually felt pretty good about the way the hourly line would sell, the deleveraging on our non comps I'm sorry, our comp stores with that negative comp sales number was a headwind for us though.
Okay. And I think
you said on the last quarter call and the one prior to one of the big year on year benefits, if you want to call it that, was lower store bonuses. How about the store bonus line in Q1 2018 versus last year?
Not really a significant event within the quarter at the store level.
Okay, great. And then on the virtual reality, just a couple of specifics if I could. How will customers I know in the last call, you were talking about maybe going with the VR chip. Is that what you settled on just in terms of how will customers pay for it? And then also if you could just say, let us know how many days and hours per week will it be offered initially in the average store?
Thank you.
Well, we are going to sell it as an attraction and we have created the capability within our systems to sell a VR chip, both at our kiosks and obviously at a register. We will be able to sell a chip if a guest comes up to the attraction. So we have point of sale device actually, so they can do it there. They could have a server, give them the chip or sell them the chip, they could do it at a kiosk. So that's multiple points of purchase.
I think the depth and number of hours that we plan to operate will depend somewhat on the store. Obviously, we have a range of performance within our portfolio, but we're going to be operating this at night and on weekends primarily. It won't probably be operated all the time, but if we do really, really well and we're making marginal dollars, we'll evaluate that. We have a number of these stores that are going to get 2 of them. I think we've got about 15 high volume stores that will have 2 units.
And so I think the operating hours will be somewhat dependent on how we see the demand unfold.
Understood. Okay, thank you.
And at this time, I would like to turn
the conference back over to Steve King for additional or concluding remarks.
Well, this will be my last earnings call as CEO and I want to thank all of you for your support over the years. And actually with that, I'm going to turn it over to Brian to make some final remarks.
Okay. Thanks, Steve. First, I want to thank Steve and congratulate Steve for over 12 years of dedicated service to D and D. Under his great leadership, we've transformed the brand. We've reached some height, more than doubled our store count, increased revenues over $1,000,000,000 quadrupled our EBITDA, very impressive performance.
So I want to thank him for that. And on behalf of the entire DNB team and our Board shareholders, I would like to thank Steve for a job well done and wish him well in his retirement. On a more personal note, I also want to thank Steve for his mentorship, his guidance to me over the past decade. It has been an absolute privilege for me to partner with him and the rest of our team here and I look forward to his continued counsel as he serves as our Chairman going forward. As for me, I'm both honored and excited to take on the role of CEO of this great company.
I'm 100% committed to work with our exceptional team to evolve the D and B brand and continue our long track record of growth. I sincerely appreciate the tireless effort of both our store and corporate team members who work together to bring our brand to life each and every day in our stores for our guests. Over the past 20 years, I've developed a passion for the entertainment business. I mean, spent a decade with 6 Flags and now over 11 years here at D and D, entertainment is in my DNA. I've always looked at our business through an entertainment lens and believe that our relatively low frequency continues to represent an opportunity for
us. Consistent with
the priorities we've communicated, I'm confident that a laser focus on involving our content and offering, improving our service and reducing friction and effectively communicating our new news and value will drive improved comp sales performance. We expect this in combination with building great new stores will create growth and shareholder value for years to come. I look forward to the next chapter of our success that our team will achieve together. And finally, I appreciate the continued support of our shareholders. I want to thank you for your time tonight and look forward to speaking to you again soon.
Have a great evening.
Ladies and gentlemen, that
does conclude today's presentation. We do thank everyone for your participation and you may now disconnect.