Good afternoon, everyone. Welcome to the Dave & Buster's Entertainment, Inc. first quarter 2021 earnings results conference call. Today's call is being hosted by Kevin Sheehan, Chief Executive Officer. He will be joined on the call by Michael Quartieri, Chief Financial Officer, and Margo Manning, Chief Operating Officer. I'd like to remind everyone that this call is being recorded and will be available for replay beginning later today. Now, I would like to turn the conference over to Michael Quartieri for opening remarks.
Thank you, operator. Thank you for joining us today. After prepared comments, we'll be happy to take your questions. I'd like to remind you that this call is being recorded on behalf of Dave & Buster's Entertainment, Inc. and is copyrighted. Before we begin our discussion on the conference results, I'd like to call your attention to the fact that in our remarks and responses to questions, certain items may be discussed which are not entirely based on historical fact. Any of these items should be considered forward-looking statements relating to future events within the meaning of the Private Securities Litigation Reform Act of 1995. All such forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ from those anticipated.
Information on the various risk factors and uncertainties have been published in our filings with the SEC, which are available on our website at www.daveandbusters.com under the Investor Relations section. In addition, our remarks today will include references to financial measures that are not defined under Generally Accepted Accounting Principles. Investors should review the reconciliation of these non-GAAP measures to the comparable GAAP results contained in our earnings announcement released this afternoon, which is also available on our website. Now I'll turn the call over to Sheehan.
Thank you, Michael. Good afternoon, everyone, and thank you for joining our call today. The strong first quarter results we announced earlier today provide solid evidence for the strength of the D&B brand and another great example of the outstanding commitment of the entire D&B team. I continue to be inspired by what we've accomplished together over the past year to strengthen the company on many fronts. Michael will provide a review of our first quarter financial performance in a few minutes. I want to call out a few of the highlights. After closing out fiscal 2020 with accelerating momentum, our sales trend strengthened further during the first quarter. Despite continuing to operate with capacity and other operating restrictions, we saw a significant improvement in demand across our store base, including at our recently reopened New York and California stores.
The reopening of our store base, coupled with stimulus payments, expanding vaccinations, and excellent operational execution drove significant revenue recovery. We generated $265 million in total sales, surpassing the top end of our expected range for the quarter and established a new high water mark in our post-COVID sales recovery. Encouragingly, we exited the quarter with total comp sales down only 12% in April compared to 2019, with close to half of our comp stores exceeding their respective 2019 performance levels. This strong sales rebound, combined with our lean operating model, produced outstanding flow through during the quarter, driving $72 million in EBITDA, only 19% below the first quarter of 2019, and reflecting 280 basis points of EBITDA margin improvement. Through the first five weeks of the second quarter, comp sales continued to accelerate, down just 4%, and total sales are running slightly ahead of 2019 levels.
This trend, coupled with our summer initiatives, points to a promising second quarter. As of today, we have all stores back online except for our two Canadian stores that we anticipate will open late in the second quarter. Clearly, we've come a long way over the past year, and we are optimistic about our future as we implement strategic initiatives to modernize and enhance our food and beverage menu, service model, entertainment offerings, and guest engagement. With these initiatives and the steps we took during 2020 to bolster our financial foundation, we are now a more competitive, more guest-centric company and positioned to be a more profitable business as our sales fully recover. At this time, I'm going to ask Michael to cover the results of our first quarter and to share some insights on our expectations for the second quarter.
After that, Margo will join me to provide an update on our 2021 strategic plan. Michael Quartieri?
Thanks, Sheehan. The results of the first quarter mark a major inflection point for Dave & Buster's, and we have begun to move beyond the significant impacts of the pandemic. We ended the quarter with 138 open stores, including one new store that opened during the quarter. With most of our stores open since mid-April, our business is showing strong momentum, generating revenues well above expectations for the quarter and extending into the first five weeks of the second quarter. We've also achieved a dramatic turnaround in profitability, driven by our lean operating model and the extraordinary efforts by our entire operations and support teams. For the first quarter, total revenues of $265 million reflects a 35% decline in comparable store sales compared with the first quarter of 2019. In terms of category sales, the F&B business was down 49% comp, while amusements were down 25%.
Amusements outperformed mainly due to a higher average spend for Power Card purchases. Throughout the quarter, comparable store sales showed steady improvement compared to 2019 and were - 59% in February, - 31% in March, and - 12% in April. This sequential improvement was driven by the reopening of our stores and improving comp trends in our previously reopened stores. As a reminder, we will continue to report comparable store sales against 2019, as we believe this is a more meaningful comparison. Regarding sales mix, amusements were 67.5% of total sales for the quarter versus 58.5% in the first quarter of 2019, driven primarily by a purposeful reduction in discounting and a shift to higher denomination Power Cards. EBITDA for the quarter was $72.1 million, or 27.2% of sales, and represented a 280 basis point improvement compared with the same period in 2019.
The improved performance was driven by a higher amusements mix, strong sales leverage on labor costs due to lower staffing levels, and reduced marketing and pre-opening costs. From a store perspective, 84% of our stores posted positive EBITDA for the quarter, and 90% of stores did so in April. The company also returned to profitability for the first time since the onset of the pandemic, posting net income of $19.6 million, or $0.40 per diluted share. These improved operating results also produced $77 million of operating cash flow during the quarter, of which $60 million was used to completely pay down our revolving credit facility. We ended the quarter with $20 million in cash and $340 million of availability under our revolving credit facility, net of $150 million minimum liquidity covenant and $10 million in letters of credit.
Total long-term debt stood at $550 million at the end of the quarter, consisting of our senior secured notes maturing in 2025. Additionally, at the end of the quarter, we had paid down all but $3 million of our deferred vendor payables balance and had approximately $45 million of negotiated rent deferrals on the balance sheet. We expect to pay back approximately $17 million of deferred rent throughout the remainder of fiscal 2021, $25 million in fiscal 2022, and the remainder thereafter. In addition, we received a tax refund of approximately $8 million in the first quarter, resulting from CARES Act legislation, and paid $22 million in semiannual interest on our senior secured note.
We expect to receive an additional tax refund of $3 million in fiscal 2021 resulting from CARES Act legislation, and expect to receive a refund of over $50 million late in the fourth quarter or early in the first quarter of 2022 related to the carryback of fiscal 2020 losses. Turning to capital spending, we opened one new store in the first quarter and it does spend a total of $12 million in capital additions, net of tenant allowances. We expect to open one additional new store in each of the remaining three quarters of the fiscal year. We look forward to the remainder of the year, we are very encouraged with our progress and are very grateful for our outstanding operations team and supporting functions that have driven our success. Turning to our outlook, I'd like to offer some insights for the second quarter of fiscal 2021.
For the first five weeks of the second quarter, we've continued to see strong demand for our brand, with comp sales down 4% compared to 2019. Two of our Canadian stores have yet to reopen. Based on current trends, and barring any significant setbacks, we expect total second quarter revenues to be in the range of $335 million-$350 million, which is comparable to 2019. We expect EBITDA margins to decline compared to the first quarter due to higher commodity costs, higher labor and seasonal marketing costs, and a moderation of our amusement sales mix. Importantly, we expect EBITDA dollars to be in line with 2019 levels, a major milestone for our brand.
From a CapEx perspective, we are reiterating our plan to invest $65 - $70 million in CapEx for fiscal 2021, with approximately 49% dedicated to new stores and other operating initiatives, 19% for games, and 32% for maintenance needs. Finally, I'd like to reiterate our commitment to achieve 200 basis points of EBITDA margin improvement as we reach 2019 AUV levels, which will be largely driven by structural changes in our hourly labor model, management labor, and G&A spending. With that, I'll turn it back over to Sheehan and Margo to discuss our strategic initiatives.
Well, thanks, Michael Quartieri. We're very encouraged by the first quarter results and the continuing early second quarter momentum that Michael Quartieri just covered. Over the past several quarters, we've outlined our strategic initiatives to enhance the guest experience, and we've made great progress implementing them, which has set us up for what we think is going to be a really strong season for our brand. I'm going to turn the call over to Margo Manning to bring you up to date on the progress on several of those initiatives, then I'll follow up with some additional commentary. Here's Margo.
Thank you, Sheehan , and thanks to everyone for joining us this afternoon. When we talked at the end of March, we were already making progress on our key initiatives. I'm excited about the positive momentum and appreciate the opportunity to give you an update today. The overarching objective of our food and service model initiative is to efficiently drive increased sales, improve the guest experience, and enhance our long-term profitability. On the food front, we have completed the transition to a new menu with the food identity Inspired American Kitchen. This new menu offers 28 items, representing 33% fewer items than were on our menu prior to COVID. While it is still early, dishes like the IPA Fish & Chips, Hawaiian Chicken Sandwich, and Mushroom Stout Burger are big sellers on the menu and clearly resonating with our guests.
As we move into summer, we'll be evaluating the performance of the fully deployed menu to better understand its longer-term impact on sales and on the guest experience. This summer, our guests will be tempted with seasonal drinks in the form of LTOs, limited time offers. Our summer LTO lineup includes Elderflower Tonics and Bomb Pop Margaritas . Starting in September, we'll be offering our guests a heartier selection of food and beverage LTOs that pair well for both fall football and Oktoberfest. We plan to use our LTO strategy to take advantage of the freshness of seasonal products to give our guests a constant stream of amazing new culinary options to drive food attachment and sales. Additionally, we have completed the brand-wide rollout of our high-speed ovens and kitchen management system upgrade, both aimed at simplifying our operations.
These back-of-the-house initiatives make it easier for our teams to execute at a high level by reducing cook times by 40% on a third of the menu, and also by facilitating a more seamless flow of food in the kitchen. Our research shows that the D&B guest defines food quality by food that is served hot and fast. The combination of our new menu, high-speed ovens, and new kitchen management system set our teams up to deliver a great dining experience to our guests. We expect our new menu to drive an improved guest experience and increase food attachment rates, all aimed towards increasing food and beverage sales. Next, we'll move our attention to the beverage menu.
The same disciplined approach and extensive guest research will be used to evolve our beverage offerings, with the goal of launching a freshly curated beverage menu early in Q4 to improve relevance and attachment to drive beverage sales. We need great people in order to fully bring the fun to life at D&B, and the labor market that we are facing today is the most challenging one that I have seen in my career. To improve our staffing levels for the demand that we expect this summer, we have earmarked an estimated $5 million, largely in Q2, for hiring programs and retention incentives. This is a significant investment that's been thoughtfully placed to help us attract the talent that we need to capitalize on the upcoming summer season.
Another key initiative is to deliver a more integrated experience by evolving our service model to give the guests more control over their in-store experience. This involves deploying a combination of a new service model, tablets, and a mobile web platform to enable a completely contactless order pay experience. The stores operating on this platform have been able to expand the size of server sections and reduce staffing levels to be more efficient. We have over half of our stores on this new model and will have brand wide deployment next month. Our rolling four-week average for mobile ordering adoption is over 40%. Due to the strong adoption by our guests, we are also testing a completely self-serve mobile web-enabled guest experience in two stores.
We believe this technology will help us transform our business model, allow us to operate more efficiently, and grow our culture of social fun by freeing up our team members to focus on the guest touch points that matter most. As I wrap up, I want to thank our team, the very heart of D&B. Our strong first quarter performance is a result of every team member embracing change and looking for how they can bring the fun back to our guests. D&B has an exceptionally talented operating team. I'm very grateful for their resilience and passion for our brand. With that, I'm going to turn the call back over to you, Sheehan .
Well, thanks, Margo. I'll take the next few minutes to update you on our new entertainment and guest engagement initiatives designed to fuel a strong summer season and balance a year. We continue to work diligently to ensure that Dave & Buster's remains the premier destination where guests can discover the latest entertainment to enjoy together. This summer, we'll feature seven new games across our entire system, all of which launched exclusively at Dave & Buster's. Games like a life-size version of the classic board game Hungry Hungry Hippos and the arcade version of Minecraft Dungeons, which have already established themselves as two of our best performing titles in their categories.
With the postponement of the new "Top Gun" movie to November, we made the decision to push back the release of this proprietary VR game to capitalize on the brand awareness that will accompany the film's launch later this year. However, this has given us an opportunity to draw more awareness to our enhanced version of "Terminator: Guardian of Fate Special Edition," which we released earlier this year and that has already become one of our most popular VR titles. Finally, we are broadening our entertainment offering through the production of high energy interactive events. We recently brought on a new leader for our dedicated entertainment programming function and began executing our plan, starting with a very successful live music test in our Tampa store, produced in partnership with the well-known dueling piano brand Howl at the Moon.
In the coming weeks, we will begin testing national themed trivia nights in conjunction with market leaders Geeks Who Drink. We'll continue developing a wide range of recurring events. By expanding our entertainment lens, we look to broaden our appeal and increase visit frequency. For the upcoming football season, we have a number of initiatives planned to establish Dave & Buster's as the ultimate tailgate destination. These include proprietary video content, live entertainment in select markets, contests designed to draw our guests into the game, and of course, compelling food and beverage promotions. We also continue to make progress in our discussions with potential sports betting partners and look forward to concluding negotiations later this year. Q2 is an important quarter as we look to drive deeper guest engagement. We see three forces converging this quarter to accelerate our sales recovery.
First, we're seeing pent-up demand in the marketplace from people seeking social entertainment after the lockdowns of the past 14 months, coupled with higher levels of household savings and punctuated by the reopening of our stores. The second force is our new brand positioning, which highlights how Dave & Buster's turns ordinary situations into extraordinary social moments. This transformation is signaled by the iconic arcade sound, "Ding, ding," and is prominently featured this summer in the first campaign of our new seasonal window strategy. This will be followed by a holiday campaign that will mark the next significant investment in marketing to reach guests and drive conversion during our fourth quarter. The summer campaign leverages a new media mix, which shifts the brand to a significantly higher digital social mix while increasing our video reach to audiences through connected TV within our key trade zones.
The new modern approach to media will be accompanied by unique activations ranging from bank card partnerships to TikTok influencers. The third and final force behind our accelerating recovery is the introduction of exciting new products. We know that new product news is a powerful motivator for visitation, and it will be an important message to drive conversion this summer. Communication of this key message, both outside and inside our stores, will highlight new games, new food, and new beverages. As we look to drive deeper guest engagement, we're also developing a new loyalty program to encourage guests to level up by eating, drinking, and playing games. Launching in late Q3, the program will have robust targeting and personalization capabilities. We'll also bring additional relevance to our mobile app, as guests must use the app to complete challenges and earn rewards.
Our research suggests that this program is significantly more attractive to guests than our current offering and will drive higher engagement. It is truly an exciting time at Dave & Buster's as the strategy, the planning, and the preparation that occurred during the pandemic are now coming together to accelerate our recovery. I'll close today by emphasizing how much I appreciate the team's commitment, how encouraged I am by the proven resilience of our brand, and how confident I am in our plan to drive Dave & Buster's to new heights. Our brand is back. We have a solid financial foundation, and we are ready to move full speed ahead into summer. Now we'd like to take the call to your questions, operator.
Thank you. If you would like to ask a question,please signalize by pressing star one on your telephone keypad. And if you are on a speaker phone, make sure that your mute function is turned off to allow your signal to reach our equipment. Again press one to ask a question, and we'll pause a moment to allow everyone an opportunity to signal for questions. We will go to our first question from Chris O'Cull of Stifel.
Hey, good afternoon, guys. Thanks for taking a call. A question.
Sure. Hey, good morning.
I'm doing well. Michael, the company's second quarter total revenue guidance is similar to 2019 actuals, and based on our math, the implied AUV for the second quarter is about 10% lower than the second quarter of 2019. First, is that correct? I had a follow-up.
That sounds about right.
Okay.
I don't have the number in front of me, but that sounds pretty close.
Okay. The company stated the EBITDA margin would be 200 basis points higher than 2019 at similar AUV levels to 2019. If you exclude the $5 million labor investment that you guys are making in the second quarter, it would seem the company is able to achieve the 2019 EBITDA margin at a much lower AUV level. Am I thinking about that correctly?
Yes. Let me give you a couple things to think about, because as we think about the 200 basis points in savings, first off, you are correct. As we approach the 2019 AUV, that's the point where we thought we could achieve that level of savings. With how dynamic things are right now, I'll just give you a couple items to think about as we get into the second quarter.
First off, food costs are a little bit higher on the commodity front, which is, I think, very common out there. I expect we'll see a little bit more in higher commodity costs in the second quarter and kind of the back half of the year as well. You mentioned this one on the labor cost front. We are having some incentives out there to kind of bolster our staffing position. We'll spend some money there, about $5 million, to try to attract more talent for staffing. From a marketing standpoint, we're kind of taking a little bit of a different position, and we kind of touched on it a little bit, where the second quarter and the fourth quarter are going to be heavier, right?
We're taking this windows-based approach where, especially in the second quarter, we're going to really have heavy media during the summer timeframe, kind of coinciding with our new menu and new games. We want to have a pretty strong push with marketing and really get the reach that we need to make an impact. That's a little bit of a shift from how we've done it in the past and with a little bit more of an even spread. That'll give us a little bit of a headwind in Q2. In Q4, you'll see the same thing. We'll lighten up a little bit in Q3, and then we'll be heavier in Q4 from the marketing standpoint.
From a sales mix standpoint, you can kind of see the numbers that we were over eight points higher in mix in amusements than we were in prior years. Obviously, that carries with it some nice upside in our overall margins. We expect that will moderate somewhat. Time will tell exactly how much, kind of what that new normal is. We saw some pretty heavy increases in our per capita, just people buying higher value Power Cards and really contributed to the sales and the mix shift there in amusement. We did assume some moderation in amusement in the second quarter as well. Those are some nuggets there that can kind of help you take a look at the modeling for EBITDA.
I think the important takeaway here is that, number one, we feel very comfortable with the savings areas that we have lined out. As a reminder, about three-quarters of that is hourly labor, management labor, and G&A cost. From a structural standpoint, we still feel comfortable with that. The only caveat is you may see some fluctuation quarter to quarter until we get there.
Just to wrap a bow on this. You talked about roughly 150 basis points or more of incremental cost in the second quarter with margin flat relative to 2019 and volumes 10% lower than 2019. Am I thinking about that right?
Yeah, that's correct.
Okay.
I think one of the other things to think about as well is just from an occupancy expense standpoint, that's going to be a big drag for us because that is fixed in nature. Really throughout this year with the lower volumes, we still will see a pretty hefty drag from occupancy.
Great. I'll pass it on. Thank you, guys.
Thank you.
We'll go next to Jake Bartlett, Truist Securities.
Great, thanks for taking the question. My first one was on the quarter-to-date sales. I think you mentioned that you were running roughly in line with the second quarter of 2019, or actually, no, above, but the second quarter guidance was more in line. I'm just wondering what the drivers to that may be, more modest increases for the rest of the quarter are?
Well, Jake, I appreciate the question. Our guide for the quarter is actually the top end's above our 2019 level by a bit. We are currently five weeks in, just surpassing 2019 in the top end of our guide. Basically saying the same thing here. I don't know that it's materially different than what we've seen so far this quarter at the top end of the guide here. I think, as Michael Quartieri said, we definitely have. First of all, we're extremely optimistic about where this business is right now. We're seeing a lot of strength really broadly across our store base here, and so we're extremely optimistic about the quarter. There are some elements and drivers here that we're watching around some of the per caps that Michael Quartieri mentioned on our amusement business that we've not seen in our history before here in 14 years.
The buy-ins on our Power Cards are really high and elevated. A lot of that is driven by things we've done, purposeful things around pulling discounting. We're virtually not discounting right now, so effective price increase, if you will. That is helping the per capita quite a bit on amusements. There is an elevated demand here right now, and a lot of folks are talking about pent-up demand. As COVID restrictions come off, people get now being locked up. There's a lot of stimulus money. I think we're a benefactor of that a bit, we'll see how that all settles out. We're super excited about kind of the recovery and the patterns we're seeing in the recovery in California and certainly New York. I think we're positioned to have a really good summer for
Going to get back out with a voice for, in some ways, the first time since COVID. We had a little bit of media back in, I think it was the third quarter of last year that we couldn't cancel. We've been relatively quiet, and we were saving our powder, if you will, to get out big and strong this summer, and I think the timing is perfect. COVID fears are waning a bit, obviously, with the vaccines. We've got some great product that we're going to be able to put in front of our guests, and the team is really energized. We're really excited about what summer's going to bring. Feels a lot different this year than one year ago, let's put it that way.
Yeah. Well, I appreciate that, and that sounds great. The other question I had was on last quarter, you provided quartiles of performance. I'm just wondering how much that has tightened, if you could maybe provide that again in terms of, it sounds like, I would imagine that a good portion of your stores are doing better than 2019. Do you have any of that data that you can share just in terms of the range of how stores are doing right now?
Sure. As I said, Jake, we're seeing broad recovery, a strong broad recovery right now. We're really encouraged by that. That said, as you might expect, we have certainly some regional variability as a company. There's a couple, I think, key factors in our minds that are driving that. I think you've seen some of the, we called it the maturity curve graphs that we put out early on in COVID. Our stores that are in markets that have been open longer and really further along in that maturity curve. I'm really talking about some of the southern markets, are performing better. I would say the other factor here is there are certain markets where COVID fears and discomfort is different. We think that's impacting some of the regions.
Clearly, we have a number of locations that are still subject to some form of operating restrictions. We've got about 40% of our store base where we still operate with either a capacity restriction or something else. Those are kind of the three big things that sort of separate the quartiles and the regions for us. The good news, in our view, is that we think all these factors are going to self-correct over time. Stores are ramping up. Here I'm going to speak specifically about California. They got out of the gate very strong, much stronger than other stores and regions, but they're still pretty green in their maturity curve. I think COVID fears are declining with the expanding vaccinations. We expect to see operating restrictions get lifted over time. We're pretty optimistic here, but there are separations being created.
Specifically on your quartile question here, that separation has created differences. Our top quartile in the last five weeks is just shy of 120%. They're above 2019 by about 20%. The lowest quartile we have is about 75%. We definitely have separation. We view that as an opportunity to get the bottom quartile moving higher over time. I point to California as being sort of a big part of that because as I said, earlier in their maturity, and there's still quite a bit of restrictions in that market. Our second and third quartiles are, I'm going to say, just right at 2019 levels, average between the two of them. We feel really good about the store base. We see the boats are rising. As I said, we're really optimistic as we head into summer.
Great. That's helpful. My last question is just on the staffing challenges, and I believe you're giving bonuses for summer hires and things like that. If you can, and because you're having to ramp up so quickly, I think you have a great insight as to how difficult it is. Can you provide any insight as to whether there's been any change in the last weeks or months in terms of that getting better? How do you feel your second quarter is going to be in terms of staffing? Do you think you're going to be light? I know there's this extra cost from the bonuses and other efforts, but maybe stripping that out, do you think you're going to be running fairly lean because of the staffing issues?
Well, go ahead.
I'll jump in, and then Sheehan or Michael Quartieri can join on. Just to the first part of your question, which is it getting better? We are seeing in markets where they are pulling back on some of the stimulus, we are seeing the applicant flow increase, and in some markets, actually pretty significantly. In terms of is staffing getting a little bit easier, we are seeing that in specific markets. Not only is the applicant flow increasing, but you are actually having people accept the offers and show up at work. Sometimes we were having applicant flow, and then that would not translate into an interview, or it would interview. It almost was like activity, but that did not result in a hire. That we are seeing change. We are encouraged by that as we go into Q2.
We're also seeing some of the recruiting and retention programs that we had mentioned start to take hold, specifically in our referral programs. We're encouraged by that as it relates to staffing in Q2. I don't think that you're going to see Q2 be as difficult from a staffing standpoint as what we've operated in the past quarter. Additionally, the new technology that we're rolling out and the new service model has been really powerful for us.
It's allowing us to operate more efficiently. We're able to have servers cover off on a bigger station. The teams like it. The technology is pretty easy for the guests to acclimate to. We're really encouraged about the combination of all of those things coming together to help make just the staffing situation better for us in the upcoming months. Anything else? Okay.
Great.
Yeah.
Great. I appreciate it. Thank you very much.
Sure.
We'll go to our next question from Jeff Farmer of Gordon Haskett.
Thank you. I actually just wanted to follow up on some of those lean staffing comments that you guys just made. In terms of thinking about the big picture of the initiatives you guys have put in place over the last several months, where do you stand? Did the first quarter sort of see the full benefit of those initiatives? Theoretically, are there more to come in terms of cost controls as you get in deeper into the second quarter?
The efficiency initiatives that we've put in place were really rolling out over the course of the first quarter. As Margo said in her prepared remarks, we're a little over halfway through the system in terms of rolling out our mobile web and POS handhelds that really help facilitate the new server and service model. We'll be done tail end of July. We still have room to go on that. We'll see some dividends over that as we get through the rest of the store base over the course of the summer.
Okay. Separate question, you mentioned it in an answer to an earlier question, but with all but of the stores open today, I just wanted to better understand what effective capacity, whatever term you want to use is, what that effective capacity number looks like currently, meaning in terms of your ability to use all of the bar areas, the amusement floor, whatever it might be, where that stands today versus where you think it might be moving deeper into the summer.
That's a little bit of a hard call. As I said, we've got roughly 40% of our stores that have some form of capacity limitations. Could be, particularly California, not being able to use the bar or table limitations on games, which I think is less of an impact for us. I think we feel like that over the course of the coming months, we're going to see these things get lifted. I know we read a lot of stuff in terms of casual dining and pointing to this as the primary factor of limiting business. As I said before, this is not as big of an issue for us just because of our sheer size and scale, the number of square feet we have. Certainly, as these stores recover and get to bigger numbers, it can put pressure at peak hours and stuff.
When you look at our top quartile producing 120%, we've had stores that are been well over 100% with restrictions, capacity restrictions. It's impactful, but it's not the same kind of magnitude that you would see in casual dining.
I apologize, just one more quick one. A lot of conversation about staffing levels and where you guys are and what the labor market looks like. Any early thoughts on potential wage rate inflation, not only for your business, but just sort of looking more broadly out across the sector and your thoughts on wage rate inflation as we get into the back half of 2021 moving into 2022?
Sure. I can start on that one. So far, the incremental wage inflation that we've seen, most of that is actually due to additional overtime. With lower staffing levels, we are augmenting more with overtime, than we had in the past. Just from store opening standpoint, of course, when you add California to the mix, that's going to raise our average, by itself, just internally. As we get into the second half, we expect the wage pressure to moderate somewhat as some of these labor charges ease, which we think we will see that. I say that just for a couple of reasons, really. As unemployment benefits start to go away in early September and even earlier in some states that have already pulled back, we think that COVID fear should start to subside, with more folks willing to return to work.
As schools reopen as well, we think there's a few factors out there that over the course of the next few months should help the labor shortage situation. In the meantime, we'll continue to augment with some overtime. Also, with the technology that we've kind of talked about with the tablets and service model, that's definitely helping us, as well as fewer operating hours for the time being.
Appreciate it. Thank you.
Thanks, Jeff.
We'll go next to Andrew Strelzik of BMO Capital Markets.
Hey, good afternoon. Thanks for taking the question. My first one, I think over the last couple of quarters, you've talked about the demographics driving the sales recovery really being more millennial heavy. I'm curious if you're seeing that start to broaden out to include more families or is the sales recovery still really being driven by one of those two buckets of the customer base?
Hi, Andrew, it's Margo. I'll add a little color, and then Michael and Kevin can go in. We're seeing both families and adults return to Dave & Buster's and while it's been great to welcome our guests back to the brand, we are also looking to learn more about the guest through a new tool that we've launched in May, Medallia. It's basically a comprehensive guest experience platform, and it's going to offer deeper insights. It kind of captures everything for you in one spot. It's in-store experience, it's guest relation feedback, it's all mobile and all social. Think of all the review sites, your Yelp, your TripAdvisor, all of that. It's going to help us better understand what the guests want, and it's going to put us in a position from an operations standpoint to have actionable feedback about improving the execution.
We're excited to not only welcome the guests back, but also to wow them. Yeah, we're seeing more of a pre-COVID reflected in the guest base, where to your point earlier, it was weighted more adults. It's a little bit more balanced now.
Yeah, Andrew, I'd just add one thing. I think I mentioned this on one of the prior calls. We really just launched this program here in May. During the course of COVID, we actually pulled back on a lot of the investments we had made and our guest satisfaction, those tools, just due to cost management. We ended up re-engineering the whole platform here that we feel a lot better about. As Margo says, comprehensive. The dashboard that we get today compared to before is significantly different. A lot of what we are talking about in terms of returning guests is a little more anecdotal today than it was when we had a system and platform that was in place and was in place for a long time. Not to be evasive on the specifics, but that's the reality here.
Good color. No, thanks .
It sounds like an exciting opportunity. My second question is just, you were talking about how you pull back on the promotions, and I'm just curious how you're thinking about more broadly promotional levels and layering that back in over time, and how much do you think of this as sticky versus how you're thinking about layering that back in?
That's a really great question, and we're talking about it frequently now. Right now, I don't feel a strong need to go back into the discount territory here, where we're seeing strong demand without it, and it's having a significant impact on sort of our per capita, as Michael Quartieri mentioned in his prepared remarks. Going back to an always-on discounting strategy is not something that we're planning to do near-term because we're going to opt much more towards pulsing things versus just a constant discount train.
If I could just squeeze one more quick one in here. It sounds like above and beyond the service model changes that you're implementing, you mentioned testing in two stores, this fully automated kind of F&B situation. Can you just give a little more detail about what that looks like?
Yeah. We have two stores where we have basically offered to the guest the ability for them to order via their phone, food and beverage, so that they can control the complete experience themselves. That being said, if a guest is uncomfortable and is looking for the server experience, we can adapt. What's been interesting is in both of these situations, we've had high guest adoption, and it's been really pretty well-received, so we're encouraged by that. Additionally, as we're rolling out the mobile web platform into different regions, the other thing that we've seen is that we've gotten better at the rollout and better at best practices. Every week when we're bringing on a new region, they come on with stronger guest adoption in the beginning.
It's been an encouraging situation in our overall brand rollout, additionally in the two stores that are basically a contactless mobile-enabled experience for the guests throughout the building.
Yeah. Just to add something here. This is a pretty transformative change in terms of how we're thinking about using technology to really transform the service model. Here in the two stores, one is in Dallas and one is actually in Times Square. We're talking about really moving the transaction piece of the experience over to the technology, and the roles are being rewritten. In this environment, there's technically not really a server role. We've defined scripted roles to drive engagement and enhance the guest experience. Move transactions over, reimagine the roles of our team members. It's been a lot of work and it's evolving and our technology team, along with our operations team, have really done some great work here, and we'll see where it goes. I'm excited about it. I think it could be very transformative for our brand.
Great. I really appreciate the color. Thanks a lot.
Sure.
We'll hear next from Nicole Miller of Piper Sandler.
Thank you. Good afternoon. Just two questions. The first, around, I think you said half of the CapEx would be for new store development. I wanted to understand, how the bench strength is, how do you kind of get the pipeline restarted, and just in making sure that's sitting on G&A as we pencil out both the top line and EBITDA here. Thanks.
Well, I guess, there's no doubt that with the events of COVID, we put ourselves back a notch or two in terms of our ability to build out stores. That's, at this point, less about capital because our cash flow is now returning. We're seeing a lot of strength in the business, and our financial foundation is getting stronger by the day. I think we have flexibility to begin to re-accelerate development. Our development team really is in place. They were heavily focused on lease negotiation. It was a complete pivot during COVID in terms of what the role was. We have an incredible development team, and they still are in place, and we are pivoting their focus, obviously now. Where we have the pain points and more difficulty is the bench strength in the field, just because we are operating at lower par levels post-COVID.
We've had some people move on to other industries and move on to other companies. That's something that's going to take some time to rebuild. That's the work that we have now is to think about the rebuilding of the leadership team that's really gonna fuel the stores. Every day that goes by and as our recovery gets better, our numbers get better. We're adding back more pars, but that's going to take a little time. I don't foresee We're not going to be in a position where we're going to move back to 15 stores and kind of the numbers that we were running pre-COVID, in the near term.
That all makes sense. There's nothing that would change dramatically. I mean, the team was basically in place. I think the pivot point comment is super important. They're just gonna, again, shift direction. Thank you for that. The second question, I know it's a little bit more difficult because everybody's coming back in real time, and you're doing some research around the guests. How are they spending their time? We understand, like, the percentage mix as you've reported, but are you kind of able to track the behavior, meaning, how long are they sitting to eat and how long are they playing or watching sports? What days of the week are they coming? What times of the day? Kind of just on an absolute basis, but also very curious to understand how that on average might compare to those stores running above, right?
I think you said 120% was the top quartile. How does the behavior look the same or different in those stores? Thank you.
That's a lot of questions in there. Obviously, we have a pretty big separation in kind of amusement performance relative to F&B in the first quarter, and we're still seeing that here early into the second quarter. If you kind of drill into sort of traffic, which is sort of indicative of how people are spending their time, the traffic metrics for us right now in our food and beverage business versus amusements are pretty similar. They're down about the same number. As Michael mentioned, we've seen pretty massive increase in per capita spend on the amusement side, entertainment side. In terms of how they're spending their time, they're consuming and attaching to our offering in similar ways. The higher per capita spend in amusement would indicate they're spending more time. They're putting more chips on their Power Cards.
I can't give you if they're staying going from an hour and a half to two. We don't really have that stat. To the point of that a bit, that said, in our release, you may notice that we had a pretty large deferred revenue adjustment in the quarter. I think some of that is we've got some of these guests that are buying the cards, and they're deferring some of those chips because we had a pretty big pressure on that metric. Biggest number since I've been here in terms of reduction to sales and sort of a direct hit to our quarterly performance. In terms of consuming food, consuming beverage, that mix is about the same. I think they're spending probably a little more time in the arcade.
Just to confirm on a lower store, let's say sales in someone above 100% in 2019, it sounds like the behavior of the consumer isn't shifting at all. It's just how they can use the store in their geography in terms of mobilization. I want to make sure I don't miss the finer point of any consumer behavior shifts that you see.
No, I think the separation when you look at top quartile versus low quartile stores is much more driven about traffic, return of people in the box, less about certain geographies are consuming a lot more food relative to, or less or more food relative to amusement. It's less about that. It's more about people coming back into our box. That's where our opportunity is. California is on the train. They got their stores open, but they still trail the rest of the system right now. I think that's going to change. If California likes our branding, they'll be back.
Thank you very much. I appreciate it.
Thank you, Nicole.
We'll go to our next question from Andy Barish of Jefferies.
Hey, guys. A lot of the stuff's already been asked. Wondering if you've done any recent work or even anecdotally can sort of comment on the competitive set out there and closures that you're seeing in some of the folks that you track.
Yeah. That's evolving. Good question, Andy. Clearly, when COVID hit, we saw temporary closures in virtually every competitor. As we sit here today, I would say virtually every competitor is largely reopened at this point. That's kind of where it sits right now. There's a few that have some units that are closed permanently, but the competitive set's largely open at this point. I think during COVID, we all wrestled with the challenges of that. We saw a pronounced deceleration in openings, obviously in 2020, relative to what was pretty strong growth in 2019 and those earlier years. Just as we look at it and look at the competitive set, we do expect competitors to accelerate into 2021 versus 2020, which is probably obvious, right? Because 2020 was somewhat shut down.
It appears to us is that the collective set is going to grow faster than 20%, but not collectively as high as what they were doing back in 2019 and earlier. That kind of temporary lull that we talked about did happen. It's still probably there in 2021. I think, as I said before, we're in an attractive space. We understand that there will be competitive investment, and it's likely to re-accelerate. I think we're going to see competitors begin to gear back up in 2022 and beyond, as will we. As I said before, I think, for us, I would say in my view, we have the best team. We have a very strong business model. We have a balance sheet that is much stronger. We have flexibility to invest, and we have a great plan.
I'm confident that we're going to emerge as an even stronger competitor as we all gear back up.
Thanks very much. Helpful.
We'll go to our next question from Sharon Zackfia of William Blair.
Hi, good afternoon. I guess I just wanted to clarify something. Sheehan, I think you talked about pent-up demand. Are you seeing any kind of ebbing of sales volumes for the stores or the locations that have been in areas that have had less restrictions now for quite a while?
Are we seeing stronger performance where people have less restrictions for a while?
No, no. I think there's a hypothesis on pent-up demand, meaning that when you first reopen the doors, all these folks come in, and then there's a big honeymoon, and then it tapers off. I was just wondering, obviously, you have stores all over the country. Some of those areas have been open quite a bit longer. Are you seeing any kind of slowdown in sales trends as a market's been open longer, or is it maintaining?
No. We haven't published it because we've had so many fits and stops and starts with COVID. We had a pretty good start out there on our maturity curve.
Kind of how stores had gradual and continued improvement over time. I think our most recent states are New York and California. They're doing better today than they were doing in the first week of reopening. I think we're seeing sort of that same maturity curve kind of reality in our performance and a gradual recovery. That said, we have stores in states that have been open a long time that are over-indexing significantly, Florida in particular. I would say that they have dialed back. We've got a lot of strength in that top quartile in particular. As I said before, the second quartile is surpassing 2019, and the third quartile is just shy of 100%. We feel really good about it, kind of where we sit.
Okay. On the revenue guidance for the second quarter, and I'm sorry if I missed this, but I know you talked about normal seasonality was kind of the thought process as you looked to giving that second quarter guidance. As you all mentioned, you've been really quiet on the marketing front, and that's changing. I'm just wondering, did you include in any kind of sales lift from the marketing that's starting now?
Yeah, we definitely did. There's many inputs, and that was one of them that we did assume a lift from.
Okay, great. Thank you.
Yeah. Thank you, Sharon.
We will go next to Brian Vaccaro at Raymond James.
Hey, thanks and good evening. I just want to quickly circle back on the quarter to date sales that you mentioned. Michael Quartieri, I think the down 4% puts you somewhere in the low to mid 190-ish range on average weekly sales across the system. I just wanted to hopefully level set that and make sure that's right. Then any additional quantification on the pace of recovery you could provide on California or New York since both have reopened in recent months?
Do you want to take the first?
Yeah, sure. Yeah, you're correct on the first one, and then Sheehan can give you some color on New York and California.
Brian, we talked a little bit about New York last time around. I think I said we just opened up, if I remember right. Both of those markets got out of the gate stronger than really any state in terms of those initial weeks. In our view, that actually makes a lot of sense. They've been closed for so long, and a lot of the earlier states, there's still a lot of COVID fear. They got out of the gate stronger in terms of that index that we've been quoting. New York a bit better than California. At this point, I think we said this, our New York stores are essentially back to our overall system average at this point. That's good news. If you look at our - 4, they're right in the hunt. California is trailing. It's lagging.
It started off out of the gate a little slower, and it's recovering. It's better than the first weeks of reopening. That is a state that's still subject to restrictions. New York's opened up. We're not restricted there. California still has a lot of restrictions. I would argue, I think when we talk about what are the factors, the COVID fear, that would be one of the states that I would probably point to. Because I think there's still some consumer fear in California around COVID. It's been locked down a long time. They've been pretty aggressive as a state. I think that's the opportunity. People are people. They want to get back to their life and socializing, and I think California will be back. It's just recovered a bit slower, but we're going to get there.
Makes sense. I guess thinking about historical seasonality during the summer, how important is the end of the school season? I know it differs around the country, but how important of a driver is that for your business moving into July and August relative to the month of May, and I suppose June as well, though it's a little bit more mixed on that front. Would you expect that to be an incremental driver of sales, I guess, moving from here as the school year ends around the country?
You want me to take that?
Yes. Sure. Brian, you're talking about in May, we do typically under index the average, about 89% of our average weekly sales. As we get into the August timeframe, we're about at our overall average weekly sales. June and July are heavier for us. June, we see a ramp up, and then July is one of our highest months. It's in the top three as we look at just in normal cadence, at least, of average weekly sales and seasonality.
All right. That's very helpful. On the labor front, if I could just squeeze one more in. On the labor front, can you help us level set where current staffing levels are compared to pre-COVID-19 levels? Or maybe how many employees you see yourself as needing to hire to be able to catch up to the stronger demand you've seen?
It really will vary pretty dramatically by market.
Yeah. I do not know if I have that stat here, Brian, right now. I think pre-COVID, we had a team, correct me if I am wrong here, of around 14,000 hourlies, and I want to say we are in that 10,000 something range right now.
Yeah. We've actually done a little better over the last couple of weeks. We're just short of 12,000.
Is that what it is?
Yeah. Just short of 12,000 people. We are catching up. We still have a little bit more to go. We're not operating at full volume yet. Yeah, we're getting there, but there's still some ways to go there.
Yeah. Okay. That's great. Commodity inflation, a topic on everybody's radar it seems these days. I know it's not a big driver of your cost structure normally, and obviously today as well, what level of inflation do you expect moving through the rest of 2021? I'll leave it there. Thank you.
Yeah. Per capita, you are correct. It's not as big of an issue for us, thankfully. As we look at some of the key proteins and down the list, chicken, beef, and dairy, probably seeing the biggest inflation. Chicken at the top, not a surprise. We feel like as we get towards the end of the year and from the balance of the year, actually, we're estimating about a 6%-8% increase in food costs. With what we're seeing right now, at least.
We do have a follow-up question from Chris O'Cull at Stifel.
Hi, guys. I just wanted to make sure to clarify a question or a response to a question earlier. Michael Quartieri, did you say that the advertising that's planned is the list of the potential sales lift from that is reflected in the guidance?
It is, yes.
I'm curious, with the quarter to date comp down roughly 4% in the midpoint of the guidance below that quarter to date trend, what am I missing? Why are you expecting some sort of underlying softening?
That's a good question. As we look where we are, we've talked about the really big increase that we're seeing in per capita, especially on the amusement side. We see that moderating. It may be a question of when that moderates, we have built some of that in there. With also the pent-up demand that we're seeing, we're assuming that there'll be some moderation of that as well. There's no perfect science to understand when exactly that will happen. That is built into our assumptions as we look at the second quarter.
Very helpful. Thank you.
Thank you.
Do we have time to take additional questions?
No, I think we've overshot this by a little bit. I appreciate everybody's attention, and sorry for running over here about 10 minutes, but I think we probably ought to call it.
I'll turn the floor back to the presenters for any final comments.
Okay. Well, listen, folks, we really appreciate you guys joining the call today. Wish you and your families a great and active summer. Get out there, get to one of our stores very soon because we're open virtually everywhere but Canada. Come out and see us. Have a great night. Thank you very much.
This concludes today's call. Thank you for your participation. You may now disconnect.