Dave & Buster’s Entertainment, Inc. — Form 10-Q Summary
Reporting period: The filing covers the 13 and 26 weeks ended July 30, 2023, compared with the periods ended July 31, 2022. The request metadata identifies “2022 Q2,” but the filing is for the second quarter of fiscal 2023. Fiscal 2023 includes 53 weeks. The company operated 211 stores in 42 states, Puerto Rico and one Canadian province, including Dave & Buster’s and Main Event locations.
Financial performance and key metrics
| Metric | Q2 FY2023 | Q2 FY2022 | 26 Weeks FY2023 | 26 Weeks FY2022 |
|---|---|---|---|---|
| Total revenue | $542.1 million | $468.4 million | $1,139.4 million | $919.5 million |
| Operating income | $77.1 million | $56.5 million | $198.5 million | $155.2 million |
| Operating margin | 14.2% | 12.1% | 17.4% | 16.9% |
| Net income | $25.9 million | $29.1 million | $96.0 million | $96.1 million |
| Net margin | 4.8% | 6.2% | 8.4% | 10.5% |
| Diluted EPS | $0.60 | $0.59 | $2.09 | $1.95 |
| Adjusted EBITDA | $140.3 million | $115.7 million | $322.3 million | $255.9 million |
| Adjusted EBITDA margin | 25.9% | 24.7% | 28.3% | 27.8% |
- Q2 revenue increased 15.7%; year-to-date revenue increased 23.9%, primarily because of Main Event revenues and new store openings.
- Comparable store sales declined 7.1% in Q2 and 5.5% year to date. Management attributed the decline primarily to lower walk-in transaction counts, partly offset by pricing and special-event bookings.
- Food and beverage cost margins improved to 27.1% in Q2 and 27.3% year to date, versus 29.6% and 29.0%, respectively, in the prior periods, primarily due to menu price increases and product mix.
- Operating payroll was 23.4% of revenue in Q2 versus 24.3% previously; year-to-date payroll was 22.6% versus 22.5%.
- General and administrative expense declined to 5.9% of Q2 revenue from 8.0%, and to 5.6% year to date from 7.2%, reflecting Main Event synergies and sales leverage.
- Interest expense increased to $32.9 million in Q2 and $63.6 million year to date, versus $17.1 million and $28.5 million, respectively, primarily because of higher average debt.
Cash flow, debt and liquidity
- Operating cash flow was $196.2 million for the first 26 weeks, down from $233.1 million, primarily because the prior-year period included a federal tax refund of approximately $33.2 million and had different working-capital timing.
- Capital expenditures were $133.8 million, compared with $99.9 million. Cash used in investing activities was $133.4 million; the prior-year period included $822.7 million for the Main Event acquisition.
- Cash used in financing was $161.8 million, including $200.0 million of share repurchases, $44.3 million of debt payments and $3.1 million of debt issuance costs, partially offset by $87.4 million of net debt proceeds.
- Cash and cash equivalents were $82.6 million at July 30, 2023, compared with $181.6 million at January 29, 2023.
- Total debt outstanding was $1.340 billion, consisting of a $900.0 million term loan and $440.0 million of senior secured notes. The revolver had no borrowings, $490.2 million of unused capacity and $9.8 million of letters of credit.
- Trailing-four-quarter Credit Adjusted EBITDA was $575.4 million, and the reported net total leverage ratio was 2.1x. The company was in compliance with its debt covenants.
- Management stated that cash, operating cash flow, revolver availability and expected landlord payments should be sufficient for operating needs and capital allocation through at least the next twelve months.
Material changes and unusual items
- The June 29, 2022 acquisition of Main Event materially expanded the store base and revenue but affects year-over-year comparability because Main Event was included for only part of the prior-year period.
- On June 30, 2023, the company refinanced its term loans with $900.0 million of new Term B Loans, including $56.4 million of additional borrowings for general corporate and working-capital purposes. The transaction reduced applicable interest-rate margins by 1.25%.
- The refinancing generated an $11.2 million loss on debt refinancing in Q2 and year to date.
- The company opened seven stores during the first 26 weeks: three Dave & Buster’s stores and four Main Event stores. Two additional Dave & Buster’s and Main Event stores opened after quarter-end.
- The company repurchased 5.70 million shares for $200.0 million during the first 26 weeks, reducing the share count by approximately 11.8% relative to fiscal 2022 year-end. A further $100.0 million remained authorized at July 30, 2023; an additional $100.0 million was authorized on September 4, 2023.
Outlook, commentary and risks
The filing does not provide specific full-year revenue, earnings or comparable-store-sales guidance. Management highlighted continued expansion, store openings, Main Event integration synergies and capital investment. Results may fluctuate because of seasonality, the timing of new-store openings and the “honeymoon” effect at new locations.
- Key operating risks include lower consumer spending and walk-in traffic, inflation, food and energy costs, wage increases, occupancy costs and the ability to pass cost increases to customers without reducing demand.
- The company is exposed to variable interest rates; it estimated that a one-percentage-point rate change on the July 30, 2023 credit-facility balance would affect annual results by approximately $9.0 million.
- Debt agreements restrict certain activities, including additional borrowing, dividends, acquisitions and asset sales, and require compliance with a maximum net total leverage ratio.
- The company had approximately $183.6 million of fixed lease payments related to ten signed but not yet commenced facility leases. These commitments were not included in the balance sheet lease liabilities at quarter-end.
- Ordinary-course legal proceedings include employment, discrimination, customer injury and similar claims. Management does not expect these matters to materially affect results or financial condition.
Investor verification checklist
- Verify the effect of Main Event’s acquisition timing on comparable-store sales and year-over-year revenue growth.
- Reconcile GAAP net income and cash flow with Adjusted EBITDA and Credit Adjusted EBITDA, including excluded refinancing, integration, pre-opening and system-implementation costs.
- Monitor interest expense, floating-rate debt exposure, refinancing terms and the November 2025 maturity of the 7.625% senior secured notes.
- Assess whether declining comparable-store traffic persists and whether pricing is offsetting lower transaction counts.
- Track capital expenditures, new-store returns, lease commitments, cash balances and continued share repurchases.
- Confirm the impact of the September 4, 2023 additional $100.0 million repurchase authorization and any subsequent borrowing or covenant developments.