Investors reacted positively to the latest earnings report from Dave & Buster's Entertainment (PLAY +2.30%) after the restaurant chain announced improving sales trends while initiating a regular dividend.
But, as CEO Brian Jenkins and his team explained in a conference call with Wall Street analysts, there was a lot more to this report than just the headline numbers. Management discussed why it believes its expansion trends will continue improving, for example, while affirming its long-term store growth targets.
Let's look at the key metrics and strategic initiatives that management wanted investors to hear about.
Image source: Getty Images.
Sales are still shrinking
"During the quarter, the combination of competitive intrusion and cannibalization was a greater headwind, both sequentially as well as compared to the same period last year." -- CFO Joe DeProspero
Dave & Buster's sales at existing locations shrank, as they have for over a year now. Comparable-store sales fell 2.4%, in fact, thanks mainly to declines in its food and alcohol segments. The amusement division dipped by a more modest 1.2%, executives said, as new virtual-reality games resonated well with customers.
The figures represented solid improvements over the prior quarter, which showed a 5% overall sales drop. And while executives were disappointed with last quarter's results, they said they were pleasantly surprised about the demand trends during the most recent quarter.
Finding good locations
"We are expanding our footprint at a measured pace and have a strong, dedicated team to execute on our new store-opening plan. New stores continue to generate excellent cash-on-cash returns, even after taking into account the sales impact on the existing system. We are very pleased with the response to our recent store openings." -- Jenkins
The company added five stores to its base during the quarter, and expanded its footprint by 17 over the preceding 12 months so that it now operates 117 locations across 28 states. That expansion was the main driver behind the overall 11% sales increase.
Executives still plan to launch roughly 15 new locations in fiscal 2018, representing a 14% increase from the prior year. Over the long term, Dave & Buster's is optimistic that the store base could double from its current total to between 231 and 251.
The company's latest store launches are trending slightly smaller, with a greater emphasis on the gaming aspect over dining. That shift is helping lift profitability since amusement spending carries much higher margins.
Fixing food
"Within [food & beverage], the key thing is the quality, simplification, and accessibility remain in play. In terms of quality, our team's focus is not just on the raw ingredients, where we are making changes, but also on excellent execution, with the goal of enhancing flavor..." -- Jenkins
Dave & Buster's recently cut its menu by 20% to simplify ordering and preparation. It also launched innovative options in food and alcoholic beverages.
Image source: Getty Images.
The changes appear to be helping, since food and drink trends improved as compared to the prior quarter even though prices inched higher.
The bigger picture
"We are confident that by focusing on evolving our offering, improving our service, and more effectively communicating our [offerings] and value, we will positively impact comp sales performance over time." -- Jenkins
Executives lifted their sales outlook, and while they still expect comps to fall for the second straight year, that drop will be smaller than they originally projected. Virtual reality games and exclusive titles like the new Halo: Fireteam Raven will likely help keep the entertainment section busy, they said. New food launches, meanwhile, plus a stepped-up marketing program, should allow for better restaurant results, especially as growth comparisons become easier during the fiscal third and fourth quarters.
Looking further out, management is optimistic that major initiatives across the business have the potential to lift the brand and make it stand out in a competitive industry. Investors will look to see continued improvements in sales and profitability.
