Dave & Buster’s Entertainment, Inc. — Form 10-K Summary
Reporting period: The provided filing is the annual report for the 52-week fiscal year ended January 31, 2021, not fiscal 2019 Q4. Fiscal 2019 ended February 2, 2020 and is presented as the primary comparable period. The filing was signed March 31, 2021.
Business context
Dave & Buster’s operates high-volume dining and entertainment venues offering food, beverages, arcade and redemption games, sports viewing, and private events. It operated 140 stores in 40 states, Puerto Rico, and Ontario, Canada at fiscal year-end. COVID-19 materially disrupted operations: all 137 operating stores were temporarily closed by March 20, 2020; 107 stores had reopened with limited operations by January 31, 2021.
Financial performance and liquidity
| Metric | Fiscal 2020 | Fiscal 2019 | Change |
|---|---|---|---|
| Total revenue | $436.5 million | $1,354.7 million | Down 67.8% |
| Food and beverage revenue | $159.5 million | $563.6 million | Down 71.7% |
| Amusement and other revenue | $277.0 million | $791.1 million | Down 65.0% |
| Operating income (loss) | $(252.6) million | $148.1 million | Declined $400.7 million |
| Net income (loss) | $(207.0) million | $100.3 million | Declined $307.2 million |
| Adjusted EBITDA | $(81.3) million | $308.2 million | Down $389.5 million |
| Operating cash flow | $(49.2) million | $288.9 million | Down $338.2 million |
| Capital expenditures | $83.0 million | $228.1 million | Down 63.6% |
| Cash and equivalents | $11.9 million | $24.7 million | Down $12.8 million |
| Total debt outstanding | $610.0 million | $648.3 million | Down $38.3 million |
Comparable-store sales declined 70.2%, reflecting a 46.7% reduction in comparable-store operating weeks and limited capacity after reopening. Operating costs exceeded revenue, producing a negative operating margin of 57.9%, compared with a positive 10.9% margin in fiscal 2019. Net loss per diluted share was $4.75 versus net income per diluted share of $2.94.
Food and beverage product costs rose to 28.3% of related revenue from 26.3%, partly due to approximately $3.6 million of spoilage. Amusement product costs were 10.7% of amusement revenue, compared with 10.8% in fiscal 2019. Deferred amusement revenue was $78.9 million at year-end, primarily related to unused game credits and unredeemed tickets.
Material changes versus fiscal 2019
- Revenue fell $918.2 million as a result of closures, reduced capacity, lower customer traffic, and canceled or postponed events.
- Operating payroll and benefits decreased 63.6% to $117.5 million, but increased to 26.9% of revenue from 23.8% because fixed and management costs were deleveraged.
- Other store operating expenses declined in absolute terms but increased to 68.6% of revenue from 31.8%, including $12.2 million of long-lived asset impairment and $1.5 million of lease termination costs.
- Depreciation and amortization increased 4.8% to $138.8 million despite lower sales.
- Interest expense increased to $36.9 million from $20.9 million, reflecting higher average debt and interest costs.
- The Company opened six stores and closed two; five openings occurred in the second half of fiscal 2020 under projects begun before the pandemic.
- Share repurchases and dividends were suspended. The Company issued approximately 17.1 million common shares for gross proceeds of approximately $185.6 million.
Debt, liquidity, and financing actions
- In October 2020, the Company issued $550.0 million of 7.625% senior secured notes due November 1, 2025.
- The revolving credit facility was extended to August 17, 2024. The term-loan portion was terminated and repaid.
- At January 31, 2021, the Company had $60.0 million drawn on the revolver, $430.3 million of unused revolver commitments, and $9.7 million of letters of credit.
- During the financial-covenant suspension period, the Company must maintain minimum liquidity of $150.0 million. Certain financial covenant testing is suspended through the fiscal quarter ending May 1, 2022.
- Contractual obligations included $610.0 million of debt principal, $216.1 million of interest requirements, and $2.05 billion of operating lease payments.
- Management stated that actions taken provided sufficient liquidity for estimated cash-flow needs and covenant compliance obligations for at least twelve months from issuance of the financial statements; actual recovery remains dependent on reopening and customer demand.
Outlook, commentary, risks, and unusual items
Management planned a moderate pace of four new store openings in fiscal 2021 while prioritizing reopening closed stores and recovery from COVID-19. The Company introduced a new food and beverage menu in March 2021, intends to improve digital engagement and loyalty capabilities, and expects to continue updating games and entertainment offerings.
- As of March 28, 2021, 15 stores remained closed to in-person customers; management expected most to reopen in some capacity by the end of the first quarter of fiscal 2021.
- Management could not predict the timing of removal or reimposition of restrictions, customer reengagement, staffing levels, or future store closures.
- Rent relief agreements were executed for 126 locations and headquarters, with 17 additional agreements executed after renewed negotiations. Deferred or unpaid rent creates future cash obligations.
- The Company recorded $13.7 million of impairment and lease termination charges and reported greater uncertainty in projected store cash flows, creating risk of additional impairment.
- The CARES Act generated a tax benefit and was expected to produce approximately $55.4 million of cash tax refunds through net operating loss carrybacks, subject to legislative, judicial, and tax-authority developments.
- Key risks include prolonged pandemic effects, substantial lease and debt obligations, covenant compliance, customer demand, labor shortages and wage inflation, food and game supply costs, competition, cybersecurity, regulatory compliance, litigation, and potential additional asset impairments.
- The Company reported pending California employment-related litigation and other ordinary-course claims; management believed ultimate liabilities would not materially affect results, but noted that estimates could change substantially.
Important facts for investors to verify
- Confirm the requested period: the supplied filing is fiscal 2020 annual reporting, not 2019 Q4.
- Review current store reopening status, comparable sales trends, capacity restrictions, and customer traffic after January 31, 2021.
- Assess liquidity against the $150.0 million minimum-liquidity requirement, debt maturities, interest costs, rent deferrals, and lease obligations.
- Evaluate the sustainability of the projected $55.4 million tax refund and the effect of any changes to CARES Act treatment.
- Review impairment assumptions, deferred amusement revenue estimates, and the potential for additional impairment or liability charges.
- Monitor covenant relief expiration, refinancing needs, dividend and repurchase reinstatement, and dilution from the 2020 equity issuance.