Dave & Buster’s Entertainment, Inc. — Form 10-Q Summary
Reporting period: Thirteen weeks ended April 30, 2023, compared with thirteen weeks ended May 1, 2022. The request identifies “2022 Q1,” but the filing is for fiscal first quarter 2023. Fiscal 2023 contains 53 weeks. Following the June 29, 2022 acquisition of Main Event, the company operated 208 stores in 42 states, Puerto Rico, and one Canadian province.
Financial performance and position
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Total revenue | $597.3 million | $451.1 million | +32.4% |
| Entertainment revenue | $393.1 million | $299.2 million | +31.4% |
| Food and beverage revenue | $204.2 million | $151.9 million | +34.4% |
| Operating income | $121.4 million | $98.7 million | +23.0% |
| Operating margin | 20.3% | 21.9% | Down 160 bps |
| Net income | $70.1 million | $67.0 million | +4.6% |
| Diluted EPS | $1.45 | $1.35 | +7.4% |
| Net margin | 11.7% | 14.9% | Down 320 bps |
| Adjusted EBITDA | $182.1 million | $140.3 million | +29.8% |
| Adjusted EBITDA margin | 30.5% | 31.1% | Down 60 bps |
| Cash flow from operations | $92.4 million | $148.6 million | -$56.2 million |
| Capital expenditures | $51.2 million | $40.0 million | +$11.2 million |
Revenue growth primarily reflected $138.3 million from Main Event stores and $25.8 million from new, non-comparable Dave & Buster’s stores. Dave & Buster’s comparable-store sales declined 4.1%, driven mainly by lower transaction counts, partially offset by food and beverage price increases. Comparable entertainment revenue declined 7.0%, while comparable food and beverage revenue increased.
Product costs improved to 15.1% of revenue from 15.5%, aided by pricing, while payroll and benefits increased to 21.9% of revenue from 20.7% because of wage and salary increases. Other store operating expenses rose to 28.5% of revenue from 27.6%. General and administrative expense declined to 5.3% of revenue from 6.3% because of sales leverage and acquisition-related synergies.
Cash and cash equivalents were $91.5 million at April 30, 2023, down from $181.6 million at January 29, 2023. Operating cash flow was lower than the prior year primarily because the prior-year period included approximately $33.2 million of federal tax refunds and because of working-capital timing. Financing cash usage was $131.7 million, including $126.9 million of share repurchases and $4.3 million of debt payments.
Debt, liquidity, and capital allocation
- Total debt outstanding was $1.284 billion, consisting primarily of an $843.6 million term loan and $440.0 million of senior secured notes. Net debt for covenant purposes was $1.148 billion.
- The company had no revolving-facility borrowings, $9.8 million of outstanding letters of credit, and $490.2 million of unused revolver capacity.
- The weighted-average effective interest rate was 10.3%. A hypothetical one-percentage-point increase in interest rates would increase annual interest expense by approximately $8.4 million based on the term-loan balance at quarter-end.
- Credit Adjusted EBITDA was $566.6 million for the trailing four quarters, producing a reported net total leverage ratio of 2.0x. The company was in compliance with its debt covenants.
- The company repurchased 3.61 million shares for $125.5 million during the quarter. Through the filing date, it had repurchased 5.70 million shares for approximately $200.0 million, or 11.8% of shares outstanding at January 29, 2023. No dividends were paid.
Material changes, outlook, and risks
- The Main Event acquisition materially expanded the store base and revenue but also increased depreciation, lease obligations, payroll, operating costs, debt, and interest expense. The acquisition contributed $138.3 million of quarterly revenue and $15.0 million of depreciation and amortization.
- Four stores opened during the quarter: one Dave & Buster’s location in Puerto Rico and three Main Event locations in Little Rock, Tucson, and Lexington.
- Management stated that available cash, operating cash flow, revolver capacity, and expected landlord payments should be sufficient for operating needs and planned capital expenditures for at least the next twelve months. The filing does not provide formal full-year revenue or earnings guidance.
- Management expects quarterly results to fluctuate because of seasonality, store-opening timing, new-store “honeymoon” effects, weather, and consumer spending. Fiscal 2023 includes a 53rd week.
- Key risks include lower customer traffic and transaction counts, inflation in food and energy costs, wage increases, commodity volatility, interest-rate exposure, substantial lease and debt obligations, and the ability to realize Main Event synergies.
- The company had approximately $244.7 million of minimum lease payments for twelve executed facility leases that had not yet commenced. No material impairments were recognized during the quarter.
- Ordinary-course legal proceedings, including employment, discrimination, customer injury, and similar claims, were not expected by management to materially affect financial condition or results.
Investor verification checklist
- Confirm the requested period: this filing reports Q1 fiscal 2023, not Q1 fiscal 2022.
- Assess the sustainability of the 4.1% comparable-store sales decline and the effect of lower entertainment transactions.
- Reconcile Main Event’s revenue contribution, acquisition synergies, incremental costs, and remaining purchase-accounting adjustments.
- Monitor leverage, variable-rate debt exposure, refinancing requirements for the 2025 senior notes, and covenant compliance.
- Evaluate whether aggressive share repurchases are consistent with cash generation, capital expenditures, lease commitments, and debt reduction.
- Review the company’s ability to offset labor, commodity, utility, and other inflationary costs without weakening customer demand.