Dave & Buster's Entertainment, Inc. 2027 Q2 Earnings Call

You may begin. Thank you, operator, and welcome to everyone on the line.

Joining me on today's call is Darren Harper, our Chief Executive Officer. After our prepared remarks, we will take questions. This call is being recorded on behalf of Dave & Buster's Entertainment Incorporated and is copyrighted. Before we begin the discussion on our company's second quarter 2026 results, I would like to call your attention to the fact that in our prepared remarks and responses to questions, certain items may be discussed which are not entirely based on historical fact. Any of these items should be considered forward-looking statements relating to future events within the meaning of the Private Securities Litigation Reform Act of 1995. All such forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ from those anticipated.

Information on these risks and uncertainties has been published in our filings with the SEC, which are available on our website. In addition, our remarks today will include references to 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 measure contained in our earnings release. With that, let me turn the call over to Darren.

Thank you, Corey, and good evening, everyone. Before I get into our results, I want to start by saying how grateful I am for the trust that the board and this team have placed in me. I have spent almost 20 years in this industry and originally joined the company almost 10 years ago. We have an obvious, actionable, and enormous opportunity in front of us to improve this business and create meaningful value for our shareholders. The back-to-basics strategy that we are executing continues to bear fruit. We are experiencing ongoing growth in food and beverage sales, as well as in special event sales. The same-store sales of our remodels continue to outperform the system. We are also encouraged by the results we saw from activations we executed around certain holidays and sporting events.

Further, we improved same-store sales in July and saw continued improvement in the third quarter to date. While we are not satisfied with the overall results, we are encouraged by these trends and the success of our strategies, and we are confident that the actions now underway will restore traffic and sales growth. Same-store sales declined 2.9% in Q2, but July improved sequentially with total company same-store sales down 1.6% versus down 5% in June. Additionally, same-store sales trends have further improved over the first five weeks of the third quarter, and we expect continuing improvement in trends and significantly better top-line performance over the remainder of the year and beyond. Following my appointment as CEO, we have further strengthened the executive leadership team. In late August, we announced recent appointments and promotions within our management team.

Amanda Busby was recently appointed Chief Operations Officer, and she joins other previously announced appointments of Jeremy Tucker, Chief Marketing Officer, Kevin Fish, Chief Technology and Digital Officer, and Rachel Morgan, Chief Legal Administrative Officer and Corporate Secretary. Additionally, Aldo Rosales was promoted to Chief Strategy and Revenue Management Officer. All these individuals have significant and relevant experience and are highly incentivized and motivated to drive this business forward. I truly believe this is an incredibly robust leadership team, and together, we have strengthened our ability to elevate operations, drive sustainable revenue growth, accelerate digital innovation, and maintain the strong governance and discipline necessary to support long-term success and drive shareholder value. Our priorities going forward are clear. Restore traffic and same-store sales growth and convert that progress into durable EBITDA growth and free cash flow generation.

Before I get into updates on our back-to-basics plan, let me quickly take a moment to establish the framework for how we're approaching our priorities. We are predominantly an occasion-based business with high awareness, but we have not consistently been the obvious answer when a guest is planning one of those occasions, and our value and execution have not been dependable enough. Our guests come a couple times a year for a reason, plan days in advance. When we're the obvious answer, we win decisively. So we're focused on three things, all within our control. Number one, the occasion, meaning we focus on capturing demand that already exists within personal, seasonal, and cultural calendars. Second, relevance, meaning our entertainment and F&B offerings are unmistakably appealing for that occasion.

Lastly, consistent value and execution, meaning a singular and consistent value message that a guest can recall at the moment of consideration and a visit that delivers exceptional guest experience to drive another visit. I'll now provide an update on each pillar of our Back to Basics plan and how the strategic framework of occasion, relevancy, and consistent value and execution informs our priorities within each. Let me start with marketing, because this is where the clearest evidence of progress showed up this quarter, and where we believe tremendous opportunity exists when we focus on capitalizing on existing demand for an out-of-home occasion. First, as stated earlier, Jeremy Tucker joined us as CMO during Q2.

Before Jeremy, we had gone more than a year without a CMO and several years without consistent marketing leadership. The result was a frequently changing promotional calendar, significant media shifts and measurement challenges, and messaging that did not always connect. Under Jeremy's leadership, I am extremely confident we are now on the right path to addressing these challenges. Jeremy and I have been working very closely together, and we both recognize the enormous opportunity in marketing, given the renewed focus on execution and capturing demand at the right time within our guests' personal, seasonal, and cultural moments. You will hear more from us in the coming months with regard to how we are optimizing our media to more effectively capture consumer demand through better targeting, discoverability, media flighting, and messaging.

Combined with relevant in-store entertainment and watch experiences that align with existing seasonal and cultural demand, we believe we are well positioned to drive meaningful traffic growth. Lastly, we also intend to simplify our messages and market, keeping a consistent evergreen value message with our guests that has strong recall at the point of consideration. Jeremy is building out the team and continuing to refine and evolve the strategy using the insights and learnings from all of our testing and research we have conducted over the last several months. We have made clear and significant progress in both confirming our strategic direction and ensuring we are executing day to day, and we have significant opportunity to continue improving. Second, an update on games and entertainment. As previously discussed, our guests value relevant experiences, including new games that they can play together, experiences targeted at guests' unique fandom, and in-culture collectibles.

Recent research tells us that more than 70% of our guests say learning about new games or activities would incentivize them to come more, supporting the importance of innovating in our games and prize and merchandise. So far this year, we launched 10 new games and attractions, including The Mandalorian and Grogu, John Wick, Stranger Things, Hot Wheels Speedway, Icy Slush Rush, Perfect Pump, and Odin's Hammer. We have several additional exciting games we will announce in the coming months, including several bespoke entertainment offerings we are working on. This year was a step in the right direction to enhancing our relevancy, and we expect continued improvement in our new game strategy in FY 2027 and beyond. We also recognize that entertainment value is important to our consumers.

We have taken actions to defend overall value perception relative to peers through our rate card and game pricing changes, and have furthered our goal to make sure we are offering clear, compelling value for the right occasion. Furthermore, an additional area we are addressing is the strong cultural demand for collectibles, which we can deliver through multiple areas of our midway. Our research and own experience clearly demonstrates that this is an obvious and ongoing area of demand amongst our consumer demographics. Our stores and our inherent gaming experience are perfectly suited to better capitalize on this significant opportunity. We are spending material time developing a thoughtful and prompt plan around this topic and expect to have more to discuss in the coming months.

Together, entertainment relevancy in all that we do, games, experiences, including a strong watch and cultural events calendar, partnerships, and in-culture collectibles, along with clear, understandable value, can grow traffic and check. Third, food and beverage continues to see significant success. Company-wide food and beverage comparable sales grew 7.6% in Q2. F&B has now been positive for five straight quarters, driven primarily by a return to the proven menu and better execution of the Eat & Play Combo. We will continue to thoughtfully evolve the menu, focusing on execution consistency, and designs to increase attach opportunity. We will raise awareness as to the quality of our F&B offerings and strategically take inflationary price increases on a consistent basis. Watch is also an important element of our F&B business. More than half our guests identify football, basketball, or baseball as sports they typically watch.