PLAY Dave and Busters Entertainment Inc

Dave & Buster's Entertainment, Inc., (NASDAQ:PLAY), ("Dave & Buster's" or "the Company"), an owner and operator of entertainment and dining venues, today announced financial results for its second quarter 2019, which ended on August 4, 2019.

Key highlights from the second quarter 2019 compared to the second quarter 2018 include:

• Total revenues increased 8.0% to $344.6 million from $319.2 million
• Number of stores increased 11.1% to 130 from 117
• Comparable store sales decreased 1.8%
• Net income totaled $32.4 million, or $0.90 per diluted share, vs. net income of $33.8 million, or $0.84 per diluted share
• EBITDA increased 5.3% to $79.0 million from $75.0 million
• Adjusted EBITDA increased 4.4% to $86.0 million from $82.4 million
• Launched Men in Black: Galactic Getaway, the Company’s fourth proprietary virtual reality title 
• Expanded share repurchase authorization by $200 million to $800 million; repurchased 3.4 million shares for approximately $137 million and paid a quarterly cash dividend of $0.15 per share

“We continue to deliver strong revenue and earnings per share growth – including record second quarter sales, EBITDA and EPS – while investing for the future and returning substantial capital to shareholders through dividends and share repurchases,” said Brian Jenkins, Chief Executive Officer. “We are executing on five near-term priorities to improve performance and capitalize on the growing consumer demand for our offerings. By realizing operational efficiencies and cost savings, we will fund investments to fuel comp sales growth going forward. We are acting decisively to accelerate near and long-term value creation, and to deliver superior returns for all Dave & Buster’s shareholders.”

Near-Term Priorities The Company is focused on five priorities to drive near and long-term value creation:

1. Revitalization of existing stores beginning with the installation of “Wow Walls,” LED television displays that create high-energy, contemporary, sports and entertainment-oriented dining areas. This cutting-edge visual technology will be initially deployed across 35 stores by mid-October to drive greater traffic and food and beverage penetration. The Company’s revitalization also includes continued food, beverage and amusements innovation, including the upcoming launch of Terminator VR, all of which is part of introducing new “wow” experiences for guests.
2. Building deeper guest engagement starting with the nation-wide launch of the Dave & Buster’s mobile app in October. This will be coupled with technology upgrades, enhanced data analytics and digital marketing investments to drive deeper engagement with customers.
3. Disciplined cost management to fuel growth investments. The Company has identified approximately $15 million of gross annualized cost savings, most of which will be redeployed towards guest engagement initiatives to fuel comp sales growth.
4. Investment in highest-return new store locations to strengthen the Dave & Buster’s brand and portfolio over the long term. This includes optimizing store formats to match market sales potential and managing the pace of new store openings to maximize returns and advance the Company’s store revitalization efforts.
5. Continued capital return to shareholders in the form of share repurchases and dividend payments. The Company has returned more than $200 million to shareholders through the end of the second quarter of 2019. 

These five priorities will be the focus of the Company’s efforts in the near term, although the Board and management team will continue to evaluate other opportunities as part of the ongoing strategic planning process. 

Scott Bowman, Chief Financial Officer, said, “We intend to maintain and build upon our industry leading position, even as new entrants in our market are creating a more competitive operating environment. Despite challenges, our team once again delivered solid overall results. Consistent with our commitment to deliver outstanding margins, and in light of our revised outlook, we have taken cost management actions to facilitate greater investments to increase traffic and same store sales. We look forward to reporting on our progress.”

Review of Second Quarter 2019 Operating Results Compared to Second Quarter 2018

Total revenues increased 8.0% to $344.6 million from $319.2 million in the second quarter 2018. This growth was driven by a 9.4% increase in Amusements and Other revenue and a 5.9% increase in Food and Beverage revenue. The mix of Amusement and Other as a percentage of total revenue increased 80 basis points to 60.0% in the second quarter of 2019.

Comparable store sales decreased 1.8% in the second quarter 2019, compared to a decrease of 2.4% in the comparable period last year. The decrease in comparable store sales was driven by a 2.0% decline in walk-in sales, which was partially offset by a 0.1% increase in special events sales. Comparable store sales decreased 0.8% in Amusements & Other and 3.2% in Food & Beverage. Non-comparable store revenue was $77.2 million in the second quarter of 2019, an increase of $29.6 million or 62.3% versus the comparable period last year.

Operating income increased 0.6% to $46.2 million in the second quarter of 2019 from $45.9 million in the second quarter of 2018. As a percentage of total revenues, operating income decreased 100 basis points to 13.4% from 14.4%.

Net income was $32.4 million, or $0.90 per diluted share (36.0 million diluted share base) in the second quarter of 2019 compared to $33.8 million, or $0.84 per diluted share (40.3 million diluted share base) in the second quarter of 2018.

EBITDA increased 5.3% to $79.0 million in the second quarter of 2019 from $75.0 million in the second quarter of 2018. As a percentage of total revenues, EBITDA decreased 60 basis points to 22.9% from 23.5%.

Adjusted EBITDA increased 4.4% to $86.0 million in the second quarter of 2019 from $82.4 million in the second quarter of 2018. As a percentage of total revenues, Adjusted EBITDA decreased 80 basis points to 25.0% from 25.8%.

Store operating income before depreciation and amortization increased 4.8% to $99.7 million in the second quarter 2019 from $95.1 million in last year's second quarter. As a percentage of total revenues, store operating income before depreciation and amortization decreased 90 basis points to 28.9% from 29.8%.

Development

The Company remains on track to open 15 to 16 new locations in fiscal 2019, representing unit growth of approximately 12% (net of Gwinnett (Duluth), Georgia closing). At the top end of the range, these store openings will include 11 large and 5 small format locations and will skew towards new markets for the Dave & Buster’s brand.

During the second quarter of 2019, the Company opened three new stores located in Winston-Salem, North Carolina; Natick, Massachusetts (west of Boston); and Gaithersburg, Maryland (northwest of Washington, D.C.). During the third quarter, the Company has already opened a store in Huntsville, Alabama and Concord, California. Two more stores in McDonough, Georgia and Wichita, Kansas are scheduled to open later in the fiscal third quarter. As of September 4, 2019, there were six stores under construction.

Capital Allocation Initiatives

During the second quarter of 2019, the Company repurchased 3.4 million shares for approximately $137 million and at quarter-end had approximately $270 million remaining under the $800 million authorization. The Company paid a quarterly cash dividend of $0.15 per share during the second quarter.

Financial Outlook

In light of the competitive environment, and because the initiatives underway will take time to execute and drive results, the Company is setting new guidance for fiscal 2019, which ends February 2, 2020:

• Total revenues of $1.338 billion to $1.359 billion (vs. $1.365 billion to $1.390 billion)
• Comparable store sales of -3.5% to -2.0% (vs. -1.5% to +0.5%) 
• 15 to 16 new stores (unchanged)
• Net income of $91 million to $100 million (vs. $103 million to $113 million)
• Effective tax rate of 22.0% to 22.5% (unchanged) and diluted share count of approximately 34.0 million (vs. 36.5 million shares)
• EBITDA of $272 million to $282 million ($274 million to $284 million excluding approximately $2 million in one-time charges) (vs. $283 million to $295 million previously)
• Total capital additions (net of tenant improvement allowances and other landlord payments) of $200 million to $210 million (vs. $190 million to $200 million)

Conference Call Today

Management will hold a conference call to discuss these results today at 4:00 p.m. Central Time (5:00 p.m. Eastern Time). The conference call can be accessed over the phone by dialing (323) 794-2423 or toll-free (888) 204-4368. A replay will be available after the call for one year beginning at 7:00 p.m. Central Time (8:00 p.m. Eastern Time) and can be accessed by dialing (412) 317-6671 or toll-free (844) 512-2921; the passcode is 6093533.

Additionally, a live and archived webcast of the conference call will be available at www.daveandbusters.com under the Investor Relations section.

About Dave & Buster’s Entertainment, Inc.

Founded in 1982 and headquartered in Dallas, Texas, Dave & Buster's Entertainment, Inc., is the owner and operator of 132 venues in North America that combine entertainment and dining and offer customers the opportunity to "Eat Drink Play and Watch," all in one location. Dave & Buster's offers a full menu of entrées and appetizers, a complete selection of alcoholic and non-alcoholic beverages, and an extensive assortment of entertainment attractions centered around playing games and watching live sports and other televised events. Dave & Buster's currently has stores in 39 states, Puerto Rico, and Canada.

Forward-Looking Statements

The statements contained in this release that are not historical facts are forward-looking statements. These forward-looking statements involve risks and uncertainties and, consequently, could be affected by our level of indebtedness, general business and economic conditions, the impact of competition, the seasonality of the Company's business, adverse weather conditions, future commodity prices, guest and employee complaints and litigation, fuel and utility costs, labor costs and availability, changes in consumer and corporate spending, changes in demographic trends, changes in governmental regulations, unfavorable publicity, our ability to open new stores, and acts of God. Accordingly, actual results may differ materially from the forward-looking statements, and the Company therefore cautions you against relying on such forward-looking statements. Dave & Buster's intends these forward-looking statements to speak only as of the time of this release and does not undertake to update or revise them as more appropriate information becomes available, except as required by law.

Non-GAAP Measures

To supplement its consolidated financial statements, which are prepared and presented in accordance with GAAP, the Company uses the following non-GAAP financial measures: EBITDA, EBITDA margin, Adjusted EBITDA, Adjusted EBITDA margin, Store operating income before depreciation and amortization, and store operating income before depreciation and amortization margin (collectively the "non-GAAP financial measures"). The presentation of this financial information is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP. The Company uses these non-GAAP financial measures for financial and operational decision making and as a means to evaluate period-to-period comparisons. The Company believes that they provide useful information about operating results, enhance the overall understanding of our operating performance and future prospects, and allow for greater transparency with respect to key metrics used by management in its financial and operational decision making. The non-GAAP measures used by the Company in this press release may be different from the measures used by other companies.

DAVE & BUSTER'S ENTERTAINMENT, INC.
Condensed Consolidated Balance Sheets
(in thousands)
ASSETS		August 4, 2019			February 3, 2019
		(unaudited)			(audited)
Current assets:
Cash and cash equivalents		$	23,318		$	21,585
Other current assets			54,897			69,508
Total current assets			78,215			91,093
Property and equipment, net			851,715			805,337
Operating lease right of use assets			924,461			-
Intangible and other assets, net			379,686			376,757
Total assets		$	2,234,077		$	1,273,187
LIABILITIES AND STOCKHOLDERS' EQUITY
Total current liabilities		$	256,641		$	244,390
Operating lease liabilities			1,125,874			-
Other long-term liabilities			50,181			262,491
Long-term debt, net			552,079			378,469
Stockholders' equity			249,302			387,837
Total liabilities and stockholders' equity		$	2,234,077		$	1,273,187

DAVE & BUSTER'S ENTERTAINMENT, INC.
Consolidated Statements of Operations (Unaudited)
(in thousands, except share and per share amounts)
		13 Weeks Ended							13 Weeks Ended
		August 4, 2019							August 5, 2018
Food and beverage revenues		$	137,921			40.0	%		$	130,242		40.8	%
Amusement and other revenues			206,678			60.0	%			188,946		59.2	%
Total revenues			344,599			100.0	%			319,188		100.0	%
Cost of food and beverage (as a percentage of food and beverage revenues)			36,934			26.8	%			33,998		26.1	%
Cost of amusement and other (as a percentage of amusement and other revenues)			22,689			11.0	%			21,558		11.4	%
Total cost of products			59,623			17.3	%			55,556		17.4	%
Operating payroll and benefits			80,927			23.5	%			73,736		23.1	%
Other store operating expenses			104,376			30.3	%			94,825		29.7	%
General and administrative expenses			15,991			4.6	%			14,764		4.6	%
Depreciation and amortization expense			32,745			9.5	%			29,049		9.1	%
Pre-opening costs			4,723			1.4	%			5,328		1.7	%
Total operating costs			298,385			86.6	%			273,258		85.6	%
Operating income			46,214			13.4	%			45,930		14.4	%
Interest expense, net			4,605			1.3	%			3,228		1.0	%
Income before provision for income taxes			41,609			12.1	%			42,702		13.4	%
Provision for income taxes			9,253			2.7	%			8,923		2.8	%
Net income		$	32,356			9.4	%		$	33,779		10.6	%
Net income per share:
Basic		$	0.91						$	0.86
Diluted		$	0.90						$	0.84
Weighted average shares used in per share calculations:
Basic shares			35,407,965							39,355,105
Diluted shares			36,015,710							40,280,301
Other information:
Company-owned and operated stores open at end of period			130							117
The following table sets forth a reconciliation of net income to EBITDA and Adjusted EBITDA for the periods shown:
		13 Weeks Ended							13 Weeks Ended
		August 4, 2019							August 5, 2018
Net income		$	32,356			9.4	%		$	33,779		10.6	%
Add back: Interest expense, net			4,605							3,228
Provision for income taxes			9,253							8,923
Depreciation and amortization expense			32,745							29,049
EBITDA			78,959			22.9	%			74,979		23.5	%
Add back: Loss on asset disposal			406							431
Share-based compensation			1,907							1,626
Pre-opening costs			4,723							5,328
Other costs			(13	)						26
Adjusted EBITDA		$	85,982			25.0	%		$	82,390		25.8	%
The following table sets forth a reconciliation of operating income to store operating income before depreciation and amortization for the periods shown:
		13 Weeks Ended							13 Weeks Ended
		August 4, 2019							August 5, 2018
Operating income		$	46,214			13.4	%		$	45,930		14.4	%
Add back: General and administrative expenses			15,991							14,764
Depreciation and amortization expense			32,745							29,049
Pre-opening costs			4,723							5,328
Store operating income before depreciation and amortization		$	99,673			28.9	%		$	95,071		29.8	%

DAVE & BUSTER'S ENTERTAINMENT, INC.
Consolidated Statements of Operations (Unaudited)
(in thousands, except share and per share amounts)
		26 Weeks Ended						26 Weeks Ended
		August 4, 2019						August 5, 2018
Food and beverage revenues		$	286,142		40.4	%		$	269,997		41.5	%
Amusement and other revenues			422,039		59.6	%			381,381		58.5	%
Total revenues			708,181		100.0	%			651,378		100.0	%
Cost of food and beverage (as a percentage of food and beverage revenues)			75,688		26.5	%			70,018		25.9	%
Cost of amusement and other (as a percentage of amusement and other revenues)			45,660		10.8	%			42,677		11.2	%
Total cost of products			121,348		17.1	%			112,695		17.3	%
Operating payroll and benefits			163,800		23.1	%			146,630		22.5	%
Other store operating expenses			210,621		29.8	%			188,165		28.9	%
General and administrative expenses			32,837		4.6	%			30,418		4.7	%
Depreciation and amortization expense			63,886		9.0	%			56,555		8.7	%
Pre-opening costs			11,725		1.7	%			12,381		1.9	%
Total operating costs			604,217		85.3	%			546,844		84.0	%
Operating income			103,964		14.7	%			104,534		16.0	%
Interest expense, net			8,661		1.2	%			6,085		0.9	%
Income before provision for income taxes			95,303		13.5	%			98,449		15.1	%
Provision for income taxes			20,504		2.9	%			22,520		3.4	%
Net income		$	74,799		10.6	%		$	75,929		11.7	%
Net income per share:
Basic		$	2.07					$	1.92
Diluted		$	2.03					$	1.88
Weighted average shares used in per share calculations:
Basic shares			36,117,815						39,525,263
Diluted shares			36,803,001						40,444,201
Other information:
Company-owned and operated stores open at end of period			130						117
The following table sets forth a reconciliation of net income to EBITDA and Adjusted EBITDA for the periods shown:
		26 Weeks Ended						26 Weeks Ended
		August 4, 2019						August 5, 2018
Net income		$	74,799		10.6	%		$	75,929		11.7	%
Add back: Interest expense, net			8,661						6,085
Provision for income taxes			20,504						22,520
Depreciation and amortization expense			63,886						56,555
EBITDA			167,850		23.7	%			161,089		24.7	%
Add back: Loss on asset disposal			826						693
Share-based compensation			3,732						4,014
Pre-opening costs			11,725						12,381
Other costs			33						121
Adjusted EBITDA		$	184,166		26.0	%		$	178,298		27.4	%
The following table sets forth a reconciliation of operating income to store operating income before depreciation and amortization for the periods shown:
		26 Weeks Ended						26 Weeks Ended
		August 4, 2019						August 5, 2018
Operating income		$	103,964		14.7	%		$	104,534		16.0	%
Add back: General and administrative expenses			32,837						30,418
Depreciation and amortization expense			63,886						56,555
Pre-opening costs			11,725						12,381
Store operating income before depreciation and amortization		$	212,412		30.0	%		$	203,888		31.3	%

For Investor Relations Inquiries:

Arvind Bhatia, CFADave & Buster’s Entertainment, Inc.214.904.2202arvind.bhatia@daveandbusters.com