Dave & Buster's Entertainment, an experiential restaurant chain known for its games and arcades, is looking for this year to be "transformative" as it builds on a global expansion, upgrades its existing real estate and seeks to bring sale-leaseback deals to fruition.
The executive team at Dave & Buster's, with a Dallas-area headquarters, unveiled growth initiatives in its fourth quarter earnings call. From real estate to the company's loyalty program to improving the food and beverage offerings to customers, Dave & Buster's is seeking to upgrade the customer experience. Between Dave & Buster's and Main Event, a once-rival brand it acquired in 2022 for $835 million, the company has 222 locations in North America, including Canada and Puerto Rico.
The chain also has plans to open 33 international locations, including in the Middle East, Australia and India, across six countries after completing a franchise agreement in the Dominican Republic during the fourth quarter that ended Feb. 4. Dave & Buster's, which has been seeking to build its international pipeline for the past two years, said it expects to open four of the planned locations by the end of 2025.
This fiscal year "is set up to be a transformative year for our company with significant progress on our organic growth initiatives, including the acceleration of our remodel program, as well as continued growth in our store base and focus on cost efficiency," CEO Chris Morris told investors and analysts during the earnings call. "Despite the uncertain macroeconomic backdrop, everything we have seen has only strengthened our resolve and our strategic plan and the belief in our ability to achieve our $1 billion [earnings] target in the coming years."
Dave & Buster's isn't the only "eatertainment" chain seeking to boost its offerings and expand its business on a global scale. Last August, a Topgolf executive told Fast Company it expected to grow from 95 locations worldwide to more than 150 locations. Meanwhile, Chicken N Pickle has been focused on expanding its concept of combining food and pickleball throughout the country.
Even Tiger Woods-backed PopStroke Entertainment Group is seeking to build scale to compete with rival Topgolf.
Dave & Buster's "more efficient operating model following tech and kitchen equipment investments," as well as a limited menu meant to improve its food and beverage offerings with faster service and higher quality, make it a company worthy of investment, said Jake Bartlett, an analyst with Truist covering Dave & Buster's and its rival peer set.
Bartlett, who said the company launched "meaningful sales drivers" in the fourth quarter such as its new menu, increased game pricing and push for special events, will continue to support margin expansion for the business.
The company's fourth-quarter revenue increased 6.3% in fiscal 2023, compared with the same period the prior year. Annual revenue also increased 12.3% in fiscal 2023 to $2.2 billion.
Domestic Pivot
Dave & Buster's opened six new stores of its namesake brand in the fourth quarter, which are all performing with historically high return-on-investment to date, Morris told investors. In all, the company opened a total of 16 stores, including 11 Dave & Buster's locations and five new Main Events during fiscal 2023. In fiscal 2024, Dave & Buster's plans to open a total of 15 new stores across both brands.
The additions to Dave & Buster's real estate portfolio come as the company began testing nine months ago a store remodel program at its Friendswood locations in the greater Houston area. The transformation included new attractions, a revamped food menu and physical changes to the look and feel of the space. A dedicated special event sales team and a new service model also was deployed at the test location.
"The results are exceeding expectations, driving a double-digit sales uplift compared to the prior year and a more than 30% sales uplift compared to 2019," Morris told analysts. "We are very encouraged that now more than 30 weeks after completion, it continues to perform at these levels."
In recent months, Dave & Buster's has completed eight additional test remodels at various stores across geography, with varying levels of legacy performance, store age and layout, as well as offerings to further test the improvements. Dave & Buster's declined to share information on the specific stores being tested. Through March, those stores outperformed the nontest stores by 9% post-remodel, Morris added.
"What has become crystal clear in the test is that our fully programmed large-scale remodel similar to Friendswood is performing exceptionally well relative to the remodels that do not include the enhanced entertainment offering," Morris said, adding that some are nearing a 30% outperformance on a relative year-over-year basis.
By the end of fiscal 2024, Morris said Dave & Buster's expects to have 40 to 45 stores remodeled, with a target of driving a similar outperformance of sales. The entire fleet also will be fully integrated with the company's back-office systems by the end of fiscal 2024. He added, "We are convinced that this remodel program is a significant gateway to the future of the Dave & Buster's brand."
In addition, Dave & Buster's is seeking potential sale-leaseback deals on four of its namesake branded venues owned by the company. Dave & Buster's declined to share with CoStar News the details of those venues or their locations.
Michael Quartieri, the company's chief financial officer, said he expects the assets, when monetized, to command a "premium price in the market," compared with similar real estate because of the company's strong credit and its commitment to being a long-term tenant in the space.