Things Will Get Worse for Dave & Buster’s Before They Get Better

The purgatory state restaurants find themselves in – wedged between looming vaccine distribution and a COVID-19 case resurgence—continues to flare up a familiar cliché: It’s going to get worse before it gets better. But for Dave & Buster’s, it’s an irrefutable reality. The eatertainment chain’s same-store sales plunged 75 percent in August, yet started to tick up as store openings did and public fears subsided. Comps declined 62 percent in September and 59 percent in October. Over the full quarter, Dave & Buster’s averaged 74 reopened, fully operational stores in its comps base that generated revenues at 57 percent of 2019 levels, up from 35 percent in Q2 when the brand boasted an average of 39 open comp venues. And reopened location sales peaked in late October at a 68 percent index to year-ago metrics, with the top quartile reaching a combined index of 91 percent. More telling, four restaurants actually generated figures above 2019 results. In Q3, 68 of Dave & Buster’s 104 reopened (total, not mature comp units) achieved positive store-level EBITDA, and 80 did so in October, bringing the company “within a few million dollars” of breakeven, despite the fact all of its California and New York stores were still closed, which represent 25 percent of Dave & Buster’s overall sales. Simply, the company’s recovery was pointing up. November, though, proved a different story. And December is likely to be even bleaker. Industry tracker Black Box Intelligence reported restaurant comp sales across the entire chain sector declined 10.3 percent in November—the worst since August. COVID-19 hospitalization rates climbed above 100,000. Previous April and July highs were short of 60,000. As infections and deaths eclipsed earlier records as well, more than 20 states rolled back reopening plans and put a lid back on the capacity for restaurants. Renewed restrictions led to 15 store re-closings throughout November for Dave & Buster’s and, in turn, overall sales took another shot. The chain closed Q3 with 104 opened stores, but now has 90, or 65 percent of the system. Conditions resulted in the business of about $32.6 million, including a 69 percent drop in same-store sales and EBITDA loss of roughly $11 million—in just one month. The company burned through EBITDA cash of $2.7 million per week. CFO Scott Bowman said Thursday on a conference call Dave & Buster’s doesn’t see November’s downturn reversing near-term. Rather, it’s likelier to intensify over the balance of Q4, with the company conceding California and New York locations won’t open until early 2021. Additionally, holiday timing will take its toll. Historically, Dave & Buster’s benefits from high foot traffic and a robust special events business during December. “It’s going to have a pretty significant impact,” CEO Brian Jenkins said. December special events typically represent about 15 percent of Dave & Buster’s overall sales in the month. Early on, the company was actually booking some parties and allowed itself to hope for the best. “We kind of lost that bet a bit,” Jenkins said. Overall for the year, party business mixes 10 percent of Dave & Buster’s total take. Even Thursday, the company lost additional stores temporarily to restrictions. Jenkins said two dropped and the company was bracing for a “further dial back.” Yet as tumultuous as the coming weeks promise to be, Dave & Buster’s feels better positioned than early March, when rollbacks and shutdowns dominated the entire organization. “I’m not trying to minimize it, but I do view this as a temporary setback,” Jenkins said. He noted vaccines on the horizon. Also, the projection when restaurants reopen this next time, there won’t be the stop-start-close activity that’s made the past few months so daunting. “I think we’re pretty optimistic that when we get these stores open again, we have a pretty good shot that they’re going to stay open,” Jenkins said, “and we’re on a path to better days.”When Dave & Buster’s does get back online, it won’t be the same chain. Margo Manning, the brand’s chief operating officer, said Dave & Buster’s implemented and refined a number of service model and menu initiatives ahead of COVID-19. Originally, they planned to refresh the system in 2020 and ignite a banner year for Dave & Buster’s. Naturally, that didn’t happen. But the updates continued stirring even as priorities shifted from brand revitalization to survival tactics.