Dave & Buster's (PLAY 0.13%) just closed the books on a difficult fiscal year. The food and entertainment specialist notched its second straight year of falling customer traffic at established locations. Profitability worsened, too, as the chain spent more money on labor, food, and other expenses.
Investors cheered the latest earnings report anyway, since it contained encouraging signs for the business as it enters fiscal 2019. CEO Brian Jenkins and his team discussed those hopeful trends in a conference call with Wall Street analysts, and below are a few key highlights from that discussion.
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Getting back to growth
Comparable-store sales increased 2.9%, which was ahead of our casual dining benchmark by 70 basis points. We believe an increased focus on value, a favorable holiday calendar, better weather, and the ongoing improvement in our core offering were the key drivers of this growth. -- Jenkins
Dave & Buster's had the wind at its back this quarter. It was up against an especially easy prior-year period, for example, in which comps dove 6%. The chain also got assists from warmer weather and favorable calendar shifts that moved the Christmas and New Year holidays to weekdays from the weekend last year, which added abnormally high traffic during typically off-peak days.
Still, it's impressive that Dave & Buster's notched its first increase in comparable-store sales since mid-2017. Executives said that growth translated into market-share gains and was powered in part by higher food demand thanks to an improved menu and a popular all-you-can-eat chicken wings promotion.
Video games
Our amusements team is driving the creation of new proprietary games, a key differentiator for us, as evidenced by the successful launch of our virtual reality platform in 2018. Our ability to efficiently execute such a large-scale national rollout is unmatched in the industry. -- Jenkins
The amusement side of the business benefited from Dave & Buster's continued shift toward offering exclusive branded games, including hit virtual reality titles. Dragonfrost VR joined Jurassic World, Halo, and Connect 4 Hoops as customer traffic drivers.
Demand was strong enough on these games that management decided to hike prices, which are typically applauded for being affordable and accessible, in about half of its stores. Thus, not only are the new games helping Dave & Buster's stand out in a crowded entertainment industry, they're also supporting higher profit margins. Amusement revenue accounted for 57% of the overall business for the full year, up from 55% a year ago.
Store expansion
For the full year, we added 15 new stores representing 14% unit growth, a new high watermark for new store openings, a great accomplishment for our team. -- Jenkins
Jenkins and his team projected that comps will land somewhere between flat to up 1.5% in 2019, which implies Dave & Buster's first annual increase in that core metric in three years. But investors are more excited about the company's growth strategy, which includes plans to add as many as 16 new stores to a base of 120 in 2019 to set a back-to-back record for its expansion pace. "Our confidence in our ability to execute our store expansion strategy remains high," Jenkins said, adding that their confidence was supported by the fact that the most recent class of launches nearly set a record in terms of early cash returns.
That success is the best support investors have for the belief that Dave & Buster's will significantly improve on its current $1.3 billion annual sales pace. Management is targeting as many as 251 locations across the country over the long term, which would roughly double its footprint. The chain aims to move toward that goal at a pace of about 10% per year. Now it's up to the company to show, through improved market-share trends, that this aggressive target is achievable.
