Dave & Buster's Entertainment, Inc. (NASDAQ:PLAY) Q3 2018 Earnings Conference Call - Final Transcript 2018-12-11T22:00:00+0000 Executives Arvind Bhatia - Dave & Buster's Entertainment, Inc., Brian Jenkins - Dave & Buster's Entertainment, Inc., Joe DeProspero - Dave & Buster's Entertainment, Inc., Analysts Jake Bartlett - SunTrust, Andy Barish - Jefferies, Andrew Strelzik - BMO Capital Markets, Jeff Farmer - Gordon Haskett, Brian Vaccaro - Raymond James, Joshua Long - Piper Jaffray, Sharon Zackfia - William Blair, Operator - Good afternoon, everybody. Welcome to the Dave & Buster's Entertainment Incorporated Third Quarter 2018 Earnings Results Conference Call. Today's call is being hosted by Mr. Brian Jenkins, CEO. I'd like to remind everyone that today's call is being recorded and will be available for replay beginning later today. Now I would like to turn the conference over to Mr. Arvind Bhatia, Director of IR, for opening remarks. Arvind Bhatia - Dave & Buster's Entertainment, Inc. Thank you, John and thank you all for joining us. On the call today are Brian Jenkins, CEO; and Joe DeProspero, Interim CFO. After comments from Mr. Jenkins and Mr. DeProspero, we will be happy to take your question. This call is being recorded on behalf of Dave & Buster's Entertainment Incorporated and is copyrighted. (Forward-Looking Cautionary Statements) 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 Brian. Brian Jenkins - Dave & Buster's Entertainment, Inc. Thank you, Arvind. Good afternoon, everyone and thank you for joining our call today. Well, I'm encouraged by our third quarter results and progress on our strategic priority. On a comparable week basis, we grew revenue by over 15%, EBITDA by 11%, and drove sequential improvement in comp store sales, including positive comps in amusement. At the same time, new store performance remained strong. Our 2017 class of stores is on track to generate first year cash on cash returns of about 60%, one of our best in recent history. As you may have seen, we are raising the lower end of our 2018 guidance on key performance metrics. With respect to fiscal 2019, we are confident in delivering yet another year of double-digit unit growth. We continue to be the leader in the combined dining and entertainment space and have the opportunity and resources to consistently grow units by more than 10% annually, while generating very strong returns. Our capital allocation priorities include investing in unit growth, share repurchases and paying a quarterly cash dividend and we are delivering on all three. Now let me update you on our four strategic priorities as an organization. First, we are evolving the offering to drive greater differentiation including, introducing compelling games and enhancing our food and beverage. In terms of amusement, we are pleased with the continued strength of Jurassic World VR Expedition, as well as Halo: Fireteam Raven, our Q2 titles. During Q3, we introduced Connect 4 Hoops, already a top performing game for us. And in time for Halloween, House of the Dead: Scarlet Dawn, the next entry in Vegas highly popular House of the Dead series. Looking forward, we are pleased to announce our second VR title, Dragonfrost. Going (ph) for release next week, this proprietary VR title based on original content is designed to encourage repeat gameplay. Looking ahead, we have an exciting lineup for Q1 of 2019. We are happy to announce the planned launch of our third VR attraction that is proprietary title to D&B. Based on the Star Trek movie franchise, we are well on our way to building the strong library of VR content and remain excited about its potential. Q1 will also include Marvel's Contest of Champions, featuring highly popular characters from the Marvel Universe. This title is also proprietary to us and one of the key elements of the experience will be collectible cards available only at D&B which should encouraged repeat game play. With respect to F&B, the team continues to focus on quality, simplification and accessibility. We are planning to roll out new premium choice steaks and expect to be complete by prior to our February menu launch. This follows quality upgrades to our burger and chicken earlier this year. We will be re-crafting and re-branding some of our all-time favorites such as Dave's Double Cheeseburger and Parmesan Chicken Alfredo. To highlight improvements in quality, we are introducing healthy offerings such as Zoodles, zucchini based noodles guests can substitute in pastas. With respect to alcoholic beverages, we will be adding fresh juices and (inaudible) systemwide to further enhance flavor. We've seen an uptick in our food quality scores this year, which is encouraging, and we believe this combination of improved ingredients, as well as better execution is the right recipe. With our February 2019 menu launch, our focus on simplification will continue, and we do plan to further reduce the size of the food menu slightly. This is on top, if you recall, of about a 20% reduction early in 2018. In order to improve accessibility and capture more food occasions, we recently initiated a quick casual test in our Dallas store. We have converted one of our special event party rooms, adjacent to the arcade, into a highly visible area where guests can order street tacos and drink. The interior includes a three-dimensional food truck facade and tables and walls and the cuisine includes tacos with a twist. This area is designed to add fun to the guest experience, while serving their need for convenience and speed. We continue to view quick casual as complementary to our casual dining offerings at our facilities. Our second strategic priority is improving service and reducing friction. We continue to test and implement service model changes and improve technology. At select stores, we have to deploy front desk guest ambassadors that guide our guest experience, kiosks attendance that facilitate interaction with the technology, and hosted feeding in the sports lounge to improve flow during busy times. Technology initiatives include kiosks upgrades and a newly implemented workforce management system, which is now available systemwide. In addition, we recently began rolling out RFID-enabled Power Cards, currently in over 20% of our stores, which should reduce friction and activating gain. Our third priority is to ensure we're reaching our audiences and effectively communicating new news and value. In the early part of the third quarter, we continued to promote our highly successful Q2 game releases, Jurassic World VR Expedition and Halo, and then for the football season, initially, we did not put enough emphasis on sports viewing as we skip the All You Can Eat Wings promotion that we ran last year during the first six weeks of the season. This had an unfavorable impact on cost. To correct course, towards the end of the quarter, we introduced a new and more compelling $19.99 unlimited wings promotion on game nights that also included unlimited video game play. In terms of media mix, while the bulk of our spending in the quarter was on national cable TV, we continue to invest in digital media and you will see a shift towards even more programmatic and social media in the future. The fourth strategic priority for us, and really the biggest driver of value over the long term is delivering 10% or more unit growth annually. We are expanding our footprint at a measured pace and have a strong and a dedicated team to execute on our new store opening plan. As I mentioned, new stores continue to generate excellent cash-on-cash return, even after taking into account the sales impact on the existing system. With respect to store openings for the year, we now expect to open 15 stores, representing 14% unit growth, which is at the upper end of our prior guidance. We're pleased with the response to our recent store openings. During the third quarter, we opened one new store in Harrisburg, Pennsylvania, and in the fourth quarter, we've opened two stores, one in Milford, Connecticut, and another in Birmingham, Alabama, which is a new state for us. Our final store of the year will be in Corpus, Christi, Texas, which we will open next week, and will be our second 17K format store. Our opening this year was skewed slightly towards new markets for our brand. In terms of square footage, the mix consists of 11 large stores, including nine that are about 40,000 square feet and two that are between 30, 0000 square feet and 40,000 square feet. The remaining four stores comprise two small format stores and two of our 17K format stores. Looking forward, we currently have a total of 22 signed leases, providing us significant visibility on new store growth into 2019, and the first half of 2020. Our long-term target is to open 231 to 259 locations in the U.S. and Canada, including 20 to 40 of the 17K format stores. Now, I'll turn it over to Jeff, who will discuss our financial performance and updated guidance. Thanks. All yours, Joe. Joe DeProspero - Dave & Buster's Entertainment, Inc. Thank you, Brian, and good afternoon everyone. Before I discuss our Q3 financial results and 2018 guidance, let me remind you that 2017 was a 53-week year. And as a result, our fiscal year 2018 calendar shifted by one week, and has one less week. Due to seasonality in our business, our quarterly results of this year will not be directly comparable to our reported results last year. More specifically in Q3 this year, we had one less higher volumes summer weak compared to last year. This shift had an unfavorable impact on revenue of $5.5 million, EBITDA of $4.1 million, adjusted EBITDA of $3.8 million, and EBITDA margin of 130 basis points. 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 the shift. Turning now to some of the highlights from the third quarter. Total revenues increased 12.9% to $282.1 million versus $250 million reported in Q3 of last year. On a comparable week basis, revenue was up 15.4%, driven by strong contribution from our 32 non-comparable stores, which represented 27% of our store base during the quarter. Please note, Q3 this year included the unfavorable impact of a higher-than-normal accrual for deferred amusement revenue. Non-comp store sales increased to $75 million, up from $31.8 million in the prior-year on a comparable week basis. Revenues from our 86 comparable stores decreased 1.3% to $208.8 million, down from $211.5 million in the prior-year, on a comparable week basis. Looking at overall reported sales by category, amusement and other sales grew 14.8%, while food and beverage sales collectively grew 10.3%. During the quarter, amusement and other represented 57.9% of total revenues, reflecting a 100 basis point increase from the prior-year period, continuing the long-term trend. Breaking down comp sales in a comparable week basis, our walk-in sales were down 0.7%, while our special events business, which can be volatile, was down 6.9%. In terms of category comp sales, amusements was up 1.5%, but F&B was down 5%. Within F&B, food and bar business was down 5% and 4.9% respectively. The gap between amusements from F&B widened during the quarter relative to the trend in the first, in part due to the positive impact of virtual reality on our Amusement comp sales. At the same time, food and beverage comp sales were unfavorably impacted by the timing of our All You Can Eat Wings, promotion as well as decline in special events, which is a higher mix of F&B. Weather was a net positive as we rolled over the impact of hurricanes Harvey and Irma last year, partially offset by the impact of Hurricane Michael this year. On the other hand, the combination of competitive intrusion and cannibalization continued to be a greater headwind, both sequentially as well as compared to the same period last year and as we mentioned, the timing of the All You Can Eat Wings promotion proved unfavorable in the quarter. In terms of content, as Brian mentioned, our new releases for Q3, Connect 4 Hoops and House of the Dead are doing well. Meanwhile, Jurassic World VR Expedition and Halo, our Q2 releases also remained strong. Looking forward, we remain excited about our upcoming games, including the new virtual reality titles. Total cost of sales was $48.7 million in the quarter and as a percentage of sales was 50 basis points better versus the same period last year, reflecting a slight increase in F&B margins, improvement in amusement margins as well as a higher mix of amusement sales. Food and beverage cost as a percentage of food and beverage sales was 20 basis points favorable compared to last year due to the impact of 1.9% in food pricing, 0.8% in bev pricing and fewer weeks of the All You Can Eat Wings promotion, partially offset by the unfavorable impact of commodity inflation, including investment in our new burger and chicken. Cost of amusement and other as a percentage of amusement and other sales was 60 basis points favorable compared to last year. This improvement was driven by the impact of lower expense associated with estimated amusement redemption liabilities and a slight shift in gameplay for simulation games, including virtual reality. Our operating payroll and benefits cost as a percentage of sales was 25.3% or 210 basis points higher year-over-year due to the unfavorable impact of nearly 5% wage inflation, incremental investment and labor related to virtual reality, non-comp and new store impact, impact of calendar shift, higher medical claims compared to last year, sales deleverage in our comp stores and investment and service initiatives. Other store operating expenses were 100 basis points higher year-over-year primarily driven by higher occupancy costs, higher legal settlement expenses and sales to leverage -- deleverage, partially offset by business interruption insurance proceeds related to our Puerto Rico store and leverage on our marketing expenses. Store operating income before depreciation and amortization was $65.8 million for the quarter, up 1.8% compared to $64.6 million last year. As a percentage of sales, margins declined 260 basis points year-over-year to 23.3%. On a comparable week basis, store operating income before depreciation and amortization was up 8.2% and as a percentage of total revenue was down 160 basis points. G&A expenses were $15 million up from $13.4 million in the prior year, reflecting increased headcount to support a growing store base, higher IT spending, and costs associated with senior executive changes, partially offset by lower share-based compensation expense. As a percentage of revenues, G&A expenses were 10 basis points favorable year-over-year. Preopening costs were $4.7 million versus $5.6 million in the third quarter of 2017. This decrease reflected the timing of new store openings. As a percentage of revenue, preopening costs were 1.7%, 50 basis points better compared to the prior year. EBITDA was $46 million, up 1% and EBITDA margins were 16.3%, down 190 basis points versus the prior year. On a comparable week basis, EBITDA was up 11% year-over-year and EBITDA margins were down 70 basis points. Adjusted EBITDA of $52.7 million was down 2.7% and on a comparable week basis was up 4.6%. I'd like to point out that the collective net impact of some of the call-outs I mentioned this quarter was not material to EBITDA. Specifically, the unfavorable impact of higher deferred amusement revenue, expenses related to senior executive changes and higher legal settlement expenses were offset by the favorable impact of business interruption insurance proceeds and lower expenses related to amusement redemption liabilities. Net interest expense for the quarter increased to $3.3 million, up from $2.9 million in the prior year driven by increases in the underlying LIBOR rate and higher average debt levels resulting from our capital allocation initiatives including share repurchases and quarterly cash dividend. Please note, interest expense in the third quarter of last year included approximately $700,000 in expenses related to our debt refinancing. Our effective tax rate for the quarter was 2.4% compared to 28.7% in the year-ago period, driven by the lower federal statutory rate and greater tax benefits from increased stock option exercises. We generated net income of $11.9 million or $0.30 per share on a diluted share base of 39.9 million shares, compared to net income of $12.2 million or $0.29 per share in the third quarter of last year on a diluted share base of 42.3 million shares. On a comparable week basis, prior-year net income was $9.7 million or $0.22 per diluted share. Shifting to the balance sheet, at the end of the quarter we had $384 million of outstanding debt, resulting in a leverage of approximately 1.4 times EBITDA. During the quarter, we repurchased approximately 437,000 shares of our common stock for $25 million. The inception-to-date total as of December 4, 2018, is 5.1 million shares for $276 million with approximately $124 million still available under our $400 million authorization. In addition, we paid our first quarterly cash dividend of $0.15 per share during Q3. Turning now to our outlook for fiscal year 2018, we are raising the lower end of our guidance on several key metrics. Total revenues are now expected to range from $1.243 billion to $1.255 billion, up 11% to 12% on a comparable 52-week basis. The revised guidance is $13 million (ph) higher at the lower end and unchanged at the upper end compared to prior guidance. This increase reflects the sequential improvement in our comp sales, outperformance at our new and non-comp stores and at the lower end of guidance in store (ph). We continue to project comp store sales on a comparable 52-week basis to decline low single digit. From a development perspective, we are refining our target to 15 new stores this year from prior guidance of 14 to 15 new stores, including two of our new 17K format stores. We plan to open our 15th and final store for the year next week in Corpus Christi, Texas. We are projecting net income of $106 million to $113 million, which is $5 million higher at the lower end and $2 million higher at the upper end. Net income is based on an effective tax rate of approximately 22% which compares to prior guidance of approximately 24%. We estimate a diluted share count of approximately $40.2 million, slightly lower than prior guidance of $40.3 million. We are projecting EBITDA of $268 million to $277 million for the fiscal year. The lower end of the range represents an increase of $5 million versus prior guidance, while at the upper end, guidance is unchanged. Guidance reflects investments in our ongoing initiatives Brian discussed in prepared remarks. Furthermore, as you model Q4 this year, please note that in the fourth quarter last year we had material bonus correction as 2017 Q4 results were worse than expected. Net capital additions after tenant allowances and other landlord payments is projected to be $179 million to $189 million, unchanged from prior guidance. I want to remind you that the impact of one less week in fiscal year 2018 versus 2017 has an unfavorable impact on revenue and EBITDA of approximately $20 million and $4 million respectively on a full year basis. During the first three quarters of the year, a calendar shift had an unfavorable impact of approximately $1.2 million on revenue, $1.4 million on EBITDA and $1 million on adjusted EBITDA. In the fourth quarter this year, the shift will have an unfavorable impact of approximately $18.3 million on revenue, $2.5 million on EBITDA and $3.3 million on adjusted EBITDA due to one less week. Please keep this shift in mind for modeling purposes. Finally, while we plan to provide detailed guidance for 2019 on our next call, I would like to share our preliminary view on the upcoming year. Overall, we expect revenue to grow high single digits and EBITDA to grow mid-to-high single digits. This expectation reflects margin compression primarily resulting from continued wage pressure and a rising mix of new stores that although have strong returns, are modeled to have lower AUVs and margins compared to our existing stores. We are excited to have a strong store pipeline and plan to add 15 to 16 new stores in 2019. We will not be renewing the lease for one of our older lower volume stores in Q1. On a net basis, we are planning on unit growth of approximately 12% in 2019 consistent with our target of 10% plus annual unit growth. With that, I will turn the call back over to Brian. Brian Jenkins - Dave & Buster's Entertainment, Inc. Thank you, Joe. We are confident that by continuing to focus on our strategic priorities that include evolving our offering, improving our service, and more effectively communicating our new news and values, we will positively impact comp sales performance over time. At the same time, we will continue to open new stores at a disciplined pace to ensure strong returns and this combination of improving comps and consistent double-digit unit growth positions us well for enhanced shareholder value for years to come. I'd like to close by thanking our exceptional team members. Their hard work continues to help differentiate us every day and strengthen our leadership position in the entertainment and dining space. As always, we appreciate your continued support and interest in D&B. John, please open the call -- the lines for Q&A. Q & A Operator - (Operator Instructions) Jake Bartlett, SunTrust. Jake Bartlett - SunTrust Great, thanks for taking the question. My first is really on the 2019 guidance. The revenue growing slower than your unit count. And I think there are some questioners whether -- how much of that is driven by new unit AUVs or versus an expectation that you think that same-store sales might be negative. So if you could comment on just were you positive or negative on the same-store sales? And then if it is the unit growth more exclusively, what is driving that? Can you talk about the mix of small versus large stores? Brian Jenkins - Dave & Buster's Entertainment, Inc. Yes, Jake, it's a good question. We're not going to provide specifics on the comp guidance on this call. We will dive into that detail on -- a little bit on our year-end call in April. But I would attribute high-single-digit sales growth more to the AUV element of our expectations. We've indicated that if you look at our model online, that our AUVs that we're modeling for new stores are lower than our current AUVs as a brand. And that's really the primary driver. We will skew, we still expect to skew slightly to large next year, but we are not planning for the stores to have the same kind of AUVs as our existing base. So I wouldn't think about it that way. Jake Bartlett - SunTrust Got it. And then with your guidance or same-store sales guidance for the year here, the implied in the fourth quarter is pretty wide. I'm wondering whether you can help us out there, I guess low-single-digits can mean different things to different people. And maybe in the context of the answer, just talk about what happened with the not running the All You Can Eat Wings, you said you've course corrected and I assume that means that it would also corrected the same-store sales impact. So maybe if you could comment on those two things? Brian Jenkins - Dave & Buster's Entertainment, Inc. Well, I guess first on the All You Can Eat Wings question, our initial value message in September start of season really focused on our game capital, specifically Jurassic World and Halo, with play games free kind of message, and that's how we kicked off the football season and then followed it with some $5 bar bites. We really found that not to be as effective as last year's All You Can Eat Wings promo that we ran for the first six weeks of the season. It did have an unfavorable impact on our cost. And in hindsight, we underestimated the impact of All You Can Eat Wings, when we decided to remove it from our promotional flight plan (ph) at the beginning of the year. So we corrected course. We lined up available wing stock so to speak and late in the quarter introduced a more compelling $19.99 All You Can Eat Wings offer that included unlimited video games. And we did that on Thursday, Sundays, and Mondays. And we continued that really through mid -- it will be through mid-December. So we did course correct, but it did negatively impact. So as it relates to our guide in balance of the year, we're maintaining our guide right now at low-single-digit. We're not changing that, and that's based on what we know today. It would, depending on where you pick in that range of low single-digit would imply sequential improvement on a year-to-date performance. But I just want you guys to keep in mind that we are headed towards some significantly large weeks, probably the three to four largest weeks for this brand coming up on the holidays tends to be a more volatile quarter, more subject to weather. So we're going to be careful about the guide and we're going to stick with what we discussed on the last call. Jake Bartlett - SunTrust Great. Thanks very much. I appreciate it. Arvind Bhatia - Dave & Buster's Entertainment, Inc. Thanks, Jake. Operator - Andy Barish, Jefferies. Andy Barish - Jefferies Hey, guys. Just wondering -- Good afternoon, wondering if you could kind of quantify the -- some of the incremental labor expenditures in terms of kind of teasing out what's going to be ongoing maybe for the next few quarters until you sort of wrap around this in the back half of next year? Joe DeProspero - Dave & Buster's Entertainment, Inc. Sure, Andy. Thanks for the question. Some of the things that I referenced in the prepared remarks, and these are somewhat in descending order of magnitude, I am not going to quantify (ph) specifics, but clearly wage inflation, including mandatory minimum, in Q3 it was nearly 5%. So that is a headwind that we anticipate to continue going forward. VR labor was a factor for us. Clearly we have an attended attraction that's operating in Q3 of this year that was not operating Q3 of last year. And then so we roll over that in Q2, will remain a headwind. Calendar shift was somewhat unique to this quarter and obviously going into next year will not be an issue. Medical claims, just looking at medical claims was somewhat higher this year than last year. Comp sales deleverage, our comp sales were negative in the quarter, is an issue. Non-comp new store was an impact given the fact that sometimes the new stores when they open, they are inefficient. That's an issue. And at the same time, we are investing in service, as Brian mentioned in his prepared remarks. So I will say we didn't mention quite a few headwinds with no offsetting tailwinds and going forward this is something that we're going to definitely focused on. Brian Jenkins - Dave & Buster's Entertainment, Inc. I think the wing -- though not having All You Can Eat Wings, we were a little surprised by that in September. And you can see it in our food comps and there was probably some adjustment on labor that we could have made a little quicker, I think in the quarter in term -- really around, more around the kitchen labor. Andy Barish - Jefferies And the new workforce management tools, are those going to take some time and are they designed to try to manage a little bit tighter or is this just some investment you've got to make back in the business at this point? Brian Jenkins - Dave & Buster's Entertainment, Inc. Well, Andy you may remember from years ago, we introduced our labor management system, I believe that was in 2010 for the first time from Dave & Buster's right on that, and that was very impactful when we did that because it was a sales forecasting tool. So we've had a tool in place for a long time. We upgraded to, I'm going to go ahead and call it maybe the catalog of workforce management with a product from Kronos. Really just last week I think in the last set of stores went live on it. So I do think there will be a time of adjustment on the tool, because it is a new tool, I think it's more powerful one, bit I think it will take a little time to settle in with the team. But it's been one of the better executed pieces of technology in my time here, in terms of how the Group worked together to get this thing out on time. But I think it will take a little time for the teams to adjust to what it can do. It is a -- has the ability to be a little more real-time which we are hopeful will allows us to be more precise in managing labor mix where we have people at the right time and don't when don't when we don't need them. So we're hopeful with it, but it is there. Andy Barish - Jefferies Thank you. Brian Jenkins - Dave & Buster's Entertainment, Inc. Thank you, Andy. Operator - Andrew Strelzik, BMO. Andrew Strelzik - BMO Capital Markets Hey. Thanks for the questions. My first one is just on the upcoming virtual reality rollout. As you reflect back on the initial launch, is there anything either operationally or from a marketing perspective, maybe labor adjustments that you're planning on making as you roll out the second title? Brian Jenkins - Dave & Buster's Entertainment, Inc. I think we continue to learn and get better at how to operate unattended attraction. This is really the first one. We never had in at least that I can recall in my time here for sure with Jurassic World. And we view it to be a very successful platform for us. That is a platform that has helped us meaningfully in terms of comps. It is today , in our view, a traffic builder and a per cap builder, both, and our feeling is that when we launched that, we want to make sure we deliver the guest experience. So we operated that with at least one, if not two attendance during peak times, and we continue to try to dial in that labor model and get that horned in (ph) because the attraction is it's available at any time. You can actually go ask an attendant to run the game for you even if it is not attended and we want the guest to be able to do that. But we continue to try to dial in the labor and make sure we have number one, deliver the right guest experience, we're excited about Dragonfrost that will be now two titles, that we'll be able to offer our guests in short order in Q1 at our third title Star Trek. So we're hopeful that we get increased plays that will have guests consume more than one experience, actually try more than one and it will help repeat play -- drive repeat play and use. So we tend to be excited about that platform. We think it's one that really offers us the best -- one of the best ways to introduce proprietary content, something that no one else has and that's what Dragonfrost will be, that's what Star Trek will be. Andrew Strelzik - BMO Capital Markets And then my other question is about connecting with your customers via technology and it's clearly a big focus among a lot of the restaurant companies and other consumer-facing companies being able to understand your customers and speak directly to them. And it feels like an area where Dave & Buster's maybe has lagged some others, but also maybe relative to the competitive intrusion has a big scale opportunity to maybe move the needle for traffic and frequency perspective. So my question is how much of a priority is that moving forward for Dave & Buster's and is it anywhere in the near term in terms of moving towards that? I know you've been doing some high level kind of demographic stuff, but maybe getting more granular in understanding your customer and building those relationships. Thanks. Brian Jenkins - Dave & Buster's Entertainment, Inc. I mean, that's a great question and we are leaning into with our new CIO that we've brought on mid-year last year or this year, I guess, technically so, we are working on a couple of things to drive a better connection with our guest. First and foremost, a mobile app that we have -- that we are working on, we look to launch next year, kind of mid-year time frame is the target for that to really try to drive a deeper connection with them and offer more ability to engage with our product either by activating a game, receiving offers, and so expanding our current capabilities to try to capture information and data on our guests so that we can talk to them. We're also, as I mentioned on the marketing front, our CMO, Sean Gleason is working very hard to develop a deeper understanding of our guests through a data engine right now just working hand-in-hand with our CIO to understand our guests better. So those are some of the investments that are actually hitting our P&L right now, some will be capital and some will be expense. But I agree with you, I think it's an opportunity that we are probably a little behind in and we're going to -- we're focusing on it right now. Andrew Strelzik - BMO Capital Markets Great, thank you very much. Operator - Jeff Farmer, Gordon Haskett. Jeff Farmer - Gordon Haskett Thanks. A couple of follow-ups and a bigger picture question. So first on the follow-up, can you guys just quantify the impact on 3Q same-store sales from making a decision to not bring back All You Can Eat Wings promo? Brian Jenkins - Dave & Buster's Entertainment, Inc. Hey, Jeff. That's a good question. I think we're going to -- not going to get specific on that other than to say, it was a meaningful negative impact and trajectory for us. But I don't really want to get into the specifics of the bridge there on that. Jeff Farmer - Gordon Haskett Okay. And then just going back to December of last year. So just a little bit more color on sort of the rate and time period when the same-store sales were declining pretty rapidly. I think you guys had an earnings call in early December. Then we went, we showed up at ICR five or six weeks later and things have gotten materially worse for your guys. Can you just sort of remind us when in December of last year things began to get real challenging for you guys? Brian Jenkins - Dave & Buster's Entertainment, Inc. Well, we're coming up on it. I mean, I remember it all too well. So we're coming up on here in about a week, the time period where we did not have Christmas holiday season that we expected and -- which gave rise to the announcement we made right on ICR. So we're about to come up on softer time here. Jeff Farmer - Gordon Haskett Okay. Then last question as I said bigger picture, you guys outlined a lot of top line strategy stuff, but in terms of how you're thinking about this heading into 2019? What potentially is your greatest opportunity to drive improved customer accounts as we move into 2019? Brian Jenkins - Dave & Buster's Entertainment, Inc. Well, I think it's all the things that we're talking about here, Jeff. I mean we are working very hard on making sure we have an offering, a compelling offering and that's why our Head of Games, Kevin Bachus is working very hard to build the lineup to new games with an eye towards proprietary when we can do it. And we feel good about leveraging the platform that we invested heavily in last year on the VR platform that will allow us to bring new news that's proprietary, can't keep where else. So that's one piece. The food and bev think, I think it's a little longer period of time. We feel really good about the progress we've made and what we're seeing in guest poll scores on quality and value on our food with some of the changes we made in the ingredients and the way we prepped our food. And I think that's going to take a little time. The fast casual test, we're -- I'm optimistic on that. I mean, we just -- we actually just opened that last week, last Friday, I believe it was. And I had a nice taco and Saturday and they're quite good. I recommend them. But I'm optimistic on that. It makes a lot of sense to when you think about proximity to the arcade to be able to dash in-dash out, get back to play. So that's something that we'll have to read and see what it does incrementally, and it's obviously very early (inaudible) way too early to call that one way or the other. But that's something that we could scale to a number of stores, but that's going to take a little time, but we could get started on that some in '19 if we see merit in the past that we have in place right now. And then we are -- I have got to take that real (ph) question on how we communicate with our guests. We're working hard to develop a deeper relationship with the guests through some technology, with the app that we're working on, but also really transitioning some of our media towards digital which -- our target, the millennials tend to have disconnected a little more and more towards with linear TV. We're not going to depart totally from linear. We have a great message and we shouted on linear TV, cable TV, it can move the needle. But we will be leaning into more digital investment mix in our media next year to continue some of the progress we've made this year on that front. Jeff Farmer - Gordon Haskett Thank you for that. Operator - (Operator Instructions) Brian Vaccaro, Raymond James. Brian Vaccaro - Raymond James Thanks, and good evening. I just wanted to circle back on the 2019 resonated growth guidance and could you give us a sense of the pipeline, Brian? How do you think -- I think you have been skewing slightly larger but how about in terms of large versus small versus sub 20,000 square feet unit? Brian Jenkins - Dave & Buster's Entertainment, Inc. As, I think, we already said, it's going to skew large format, it's going to bring out, we expected to skew new market slightly. And right now, we are going to read the 17K unit. We're going to have our second one open up here next week. There is a potential that we could have one in that mix. But right now, it's going to skew large. I think what we're trying to message here is that we are -- we will have 121 stores by the end of this year. We are not anticipating that the AUVs our new store that we build will match up to the existing store base. And for doing our jobs right, we're trying to pick some of the highest potential stores first and it doesn't always work out that way. But I think we've been trying to message that you can't -- we shouldn't always expect to do 60% year-one returns or mid-50%s and -- so that's probably what we're trying to message, your AV potentially lower both on largest, as well as the mix continuing to shift towards more small format stores, just simply don't do the same kind of volume as the large stores. Brian Vaccaro - Raymond James Yeah, yeah, understood. Okay. And just a few questions on the game side, if I could. First, could you provide a little more color on how the virtual reality Jurassic game performed during the quarter? What you saw in terms of per capita attached and repeat play, and did it remain a relatively stable contribution through the quarter? Brian Jenkins - Dave & Buster's Entertainment, Inc. Well, I think, you know there is a couple of things going on. We launched it in the summer, it's a different guest profile than once schools good back. But we saw a strong contribution from the attraction. It was an incremental $5 and it's clearly a per cap play (ph). That's probably the larger piece of what it's doing for us, it's helping drive per capita spend in amusement and it was -- continued to be meaningful in Q3. So I think we feel like Jurassic World was a great experience. It was -- it lacked, maybe some of the game play, competition and collaboration in place, so some of the new titles that we're working on as a team will try to expand on the ability to compete and collaborate with the player that you're sitting on the chair next to. So in our view that will help continued 3P play that people will continue trying to play it and beat their neighbors, so to speak. So we couldn't be more happy with the VR platform. We think it differentiates us for our brand that scaled VR to 120 locations. And I don't think there are brands out there that can say that and could be happier with the way the teams executed on this. Brian Vaccaro - Raymond James All right, that's helpful. And I know we'll see it next week, but could you talk a little bit about the new Dragonfrost game just from the gaming experience standpoint and will that game also cost $5? And then just sort of your advertising plan around it, I guess your broader expectation sort of around Dragonfrost versus Jurassic World? Brian Jenkins - Dave & Buster's Entertainment, Inc. Well, clearly Jurassic World was, I am going to call it an experienced with really great IP. Here Dragonfrost, is a proprietary title for us, and it kind of features more gameplays, so clearly you have a goal in mind where you are , in this particular case, trying -- you're riding dragons trying to free the fire (inaudible) from the evil brother, the (inaudible) been captured and make the kingdom Dragonfrost sunny and warm again and you're competing and collaborating with the riders next to you. So we think the game play is going to be really good on this theme. Obviously a combination of great game with strong IP is probably best, that would be our desire. But I think what we have in the works here is a really healthy mix of some strong license games with Star Trek coming, and Jurassic World, and we're excited to see what Dragonfrost can do as a proprietary unlicensed game. So our intent is to offer both games. So you'll be able to come in -- we will feature Dragonfrost, the emblem on the actual platform, but you will be able to engage Jurassic World and\/or Dragonfrost both which is exciting to see how -- what kind of update we get on the combination. Brian Vaccaro - Raymond James Okay, great. And then just last one for me. Joe, you highlighted in your prepared remarks unusually low bonus to be mindful of as we think about modeling the fourth quarter. Could you remind us how much of a headwind, does this represent to your fourth quarter '18, and how much of that's been labor versus G&A? Joe DeProspero - Dave & Buster's Entertainment, Inc. We have never quantified that amount, but it's not a material -- just want to refresh your memory, I think we've talked about the fact on a recent question that comp sales around this time last year were materially worse than we anticipated. So the full-year impact of our bonus expense on the G&A side and certainly on the store side quarterly amount, it was a material call it credit that we are not anticipating to roll over in Q4 2018. I'm sorry, not anticipating the recur in Q4 2018. So we never quantified the number, but it's not an immaterial amount. Brian Vaccaro - Raymond James All right. Fair enough. I will pass it along. Thank you. Joe DeProspero - Dave & Buster's Entertainment, Inc. Thank you. Brian Jenkins - Dave & Buster's Entertainment, Inc. Thanks, Brian. Operator - Joshua Long, Piper Jaffray. Joshua Long - Piper Jaffray Thank you for taking the question. I wanted to dig into some of the trends you're seeing on that food side though, it sounds like the quick casual test is going well. Curious if you have any early read on just how the consumer is using that avenue or that dining occasion a little bit differently? And then you also mentioned higher food scores with some of the work you've been doing on the menu. Curious if you could go through that. And then, also maybe something similar showing up on the amusement game side as you've layered into these new games and the VR, if that's something that consumers are giving you credit for you yet? Brian Jenkins - Dave & Buster's Entertainment, Inc. Well, I mean our Q3 guest poll story is really across the board of p value, quality and service, the whole game that went up, which we were pleased to see. We are a couple of days into the TNT Tacos test. So -- and it's primarily a late-night, what we're finding, and we were operating, we're not operating that, first of all, every operating hour -- it's offered at really peak and we're seeing nice utilization late night to work, and we're literally a couple of days into this. So I don't really want to make any comments about what it's going to do and not do right now based off of a couple of days of operation. I think that would be way premature. We like the concept. We think it can be potentially additive to our offering. We know our guests when we did research in 2017, said they like to have stuff faster, quicker and available and that was more accessible and this is an answer to that question, or that desire. So we're optimistic, but again, way early to call it one way or the other on that front and try to estimate what it may or may not do to food. We definitely saw a separation from food and amusement this quarter, a lot of that expected by having full quarter VR, which was impactful, pushes the positive comps. But the All You Can Eat Wings event was not helpful to our food comps in the quarter, cost separation between food and bev and amusement for sure, and that's why we took corrective action really in the final two weeks of the quarter. Joshua Long - Piper Jaffray Thank you for that, that's helpful. And as you took those corrective action, did you see a nice bounce back, any sort of qualitative discussion that you'd offer there? And then you also talked about the opportunity to further reduce the menu. What have you been able to see as you've worked through that first initial round of many reductions and then what's kind of expectation as we go forward? Is a lot of work already been done and it should -- we should be thinking about this as an optimization piece or is there maybe some material opportunities going forward to realign that menu in 2019? Brian Jenkins - Dave & Buster's Entertainment, Inc. Yeah, I think, just using the word took corrective steps indicates that it was not helpful when we didn't have All You Can Eat Wings and bringing it back was helpful. So I don't want to get into the magnitude of it, but it definitely helped the trends in terms of the business when we brought that back and as I said continued it through mid-December. Joshua Long - Piper Jaffray Menu reduction. Brian Jenkins - Dave & Buster's Entertainment, Inc. Menu reduction. So on the menu reduction, we really took a big swath off in terms of menu decrease at the early part of 2018, about 20%. The adjustments we're going to make or plan to make in February, our February '19 launch is by more in the 10% range here. So, not near the magnitude. I think more so it's continued focus by our new leader in the food and bev area that is really focused on crafting capability and he is looking at every menu item we haven't, as I think I said last time, making sure it competes for space on the menu that is resulting in changing recipes, changing prep method. And I think we're seeing some uptick in how our guests view that. I think we're seeing some speed of service help. But I think this is a longer haul, our frequency is pretty low as a brand. And I think it takes -- it's going to take time to get credit for that, to have that be some huge driver of traffic. I wouldn't expect that to manifest itself quickly. Let's just put it that way. Joshua Long - Piper Jaffray Great. And then last one from me. In terms of thinking about these strong new store returns for that class of 2017, how should we be thinking about that or maybe how are you all thinking about that? Is that, would you tie it to site selection, would you tie it to just the cumulative effect of a lot of the initiatives in the marketing pieces that you've been working on for the last several years and we're starting to see that come into fruition now with some of these newer classes? Any sort of help there would be appreciated. Brian Jenkins - Dave & Buster's Entertainment, Inc. Well, I mean obviously we are -- it's hard not to like what we're thinking is going to be over 60% year one return. I guess when you look at our kind of five, six-year history, we've been averaging 50% plus. So we've had a long track record of really strong returns. We definitely had one particular store that knocked it out of the ballpark. But even when you remove that one, it's still in that 50% range. So I think our target remains 35%. We're happy to get 50%, 60%. We'll be happy if we get 35% plus and over the long, long haul, we don't intend to really change our target model that we have posted out there. I do think it gets harder, the deeper we get into our remaining store base, just we're doing our jobs right. Joshua Long - Piper Jaffray Right, thank you for the time today. Brian Jenkins - Dave & Buster's Entertainment, Inc. You bet. Operator - Sharon Zackfia, William Blair. Sharon Zackfia - William Blair Hi, good afternoon. I guess just a couple of questions. On the special events I don't think you talked about it too much in the quarter, but I'm just curious on your visibility into special events here for the fourth quarter. Brian Jenkins - Dave & Buster's Entertainment, Inc. Yes, special events can be bit volatile, you noticed that when you looked at kind of our Q1 numbers to kind of bounce back in Q2, here we bounced back down, it can tend to be a little volatile in Q3. Fortunately, it is a seasonally low quarter in some ways for us just as a brand and an SE. I wouldn't read too much into that. Our year-to-date SE numbers are within about a point or so of our walk-in, so a little bit under. We were -- I don't think we mentioned this in our remarks, we were unfavorably impacted by let me call (ph) the mega fight of 2017, the Mayweather, McGregor fight, which was kind of paid staying across most of our stores. So that was a difficult rollover for the SE team this quarter. And I'm going to hesitate we have, as I mentioned, big weeks to come, the biggest week in the brand to come. I'm not going to dive into interim Q4 kind of sale SE bookings and kind of where we're at. Sharon Zackfia - William Blair Okay. As you sit in there, (ph) this was a point in time where you had good visibility on fourth quarter holiday if there was still a lot to be booked yet? Brian Jenkins - Dave & Buster's Entertainment, Inc. Well, clearly we have a significant amount booked at this stage, but there's always -- and I think increasingly it seems like people book later and lazy in the mid year. So last minute (multiple speakers). Sharon Zackfia - William Blair Fair enough. Also booked my (multiple speakers). Brian Jenkins - Dave & Buster's Entertainment, Inc. And I guess the whole weather factor of Q4 is always one of those things that we are worried a little bit about. If weather hit at the bad time we're expecting to be a great week, we're just more subject to weather impact in Q4 than most of the time. Sharon Zackfia - William Blair Okay. And then maybe this ties back to the revenue question for next year. Do you have any color on the cadence of new unit openings? I know you were front-end weighted this year, just kind of unusual. And then any update on international? I thought international was supposed to open this year. Maybe that was pushed to 2019 just anything there? Brian Jenkins - Dave & Buster's Entertainment, Inc. Yeah, we'll try to give some cadence guidance. We have quite a few of the stores that are under construction right now. I would think about it even right now, but we can try to give you a little more cadence on the Q4 -- on our Q4 call in April. We've got quite a few under construction right now. So we feel very confident in the guide overall for the year and think we have a good pipeline for 2019 and actually well into the 2020 actually as well. International, that's an excellent question. We still believe international is a good long-term opportunity for the brand. Candidly, heavily focused here on igniting the core business as a top priority, that's getting a lot of attention as it should as a team here. But we do believe international represents an opportunity and we are still progressing on our first Middle East store, although much slower than we had hoped, but we have a lot of sites to be liked and we -- that have targeted and we hope to have more that we could talk to you about on our fiscal year-end call. Sharon Zackfia - William Blair Okay. Thank you. Brian Jenkins - Dave & Buster's Entertainment, Inc. Thank you, Sharon. Operator - And ladies and gentlemen, in the interest of time, I'm going to turn the call back over to Mr. Perkins (ph) for closing remarks. Brian Jenkins - Dave & Buster's Entertainment, Inc. Okay. Well I will be Mr. Jenkins. But listen I want to thank you for your time this afternoon. We wish everyone a happy and safe holiday season and we look forward to reviewing our fourth quarter results with you in early April. Have a great evening. Operator - Ladies and gentlemen, that does conclude our call. On behalf of Dave & Buster's, we do appreciate your participation and please have a great night. At this time you may disconnect. Thank you.