Dave & Buster’s wants to clean up its marketing calendar as it looks to end a lengthy streak of same-store sales declines.
In the quarter ended Aug. 4, same-store sales fell 2.9% at the eatertainment chain, marking its 14th straight quarter of negative same-store sales.
The lower sales contributed to a net loss of $12.5 million, compared to net income of $11.4 million a year ago, surprising investors. Dave & Buster’s stock plummeted nearly 20% on Tuesday.
Still, the top line was an improvement over the previous quarter, when same-store sales were down 5.4%. And same-store sales got better as the quarter progressed, from negative 5% in June to negative 1.6% in July.
New CEO Darin Harper pointed to the recent momentum as proof that the chain’s back-to-basics strategy is working. Devised by previous CEO Tarun Lal, who abruptly retired last month, the strategy is focused on marketing, food and beverage, games, and operations.
At the same time, Harper also highlighted a few areas that Dave & Buster’s needs to adjust, starting with marketing. Despite brand awareness of 90%, consumers are still not consistently choosing Dave & Buster’s for their food-and-games outings, he said.
He said the chain’s marketing calendar has become too busy and difficult for consumers to follow, and some recent promotions, like unlimited gaming passes for summer, have fallen flat. He also noted that Dave & Buster’s had gone more than a year without a CMO before hiring Jeremy Tucker, former CMO of AutoNation, in June.
Under new leadership, Dave & Buster’s will consolidate its marketing behind an “evergreen value message,” highlighting things like its Eat & Play Combos and half-price games on Wednesday and Sunday. It will also tie more marketing to “seasonal and cultural” events such as the World Cup, which drove incremental sales over the summer.
“What you’re likely going to see is less big, disconnected tentpole campaigns and a greater focus on tapping into these seasonal, cultural moments,” Harper said.
It hopes these efforts will help make the brand a more obvious choice for consumers.
Dave & Buster’s other big challenge has been getting customers who do visit to play more games. Total games revenue fell about 9% year over year in the quarter, even as food and beverage revenue rose about 9%. The chain has invested in bringing new and exciting games to the floor, adding 10 games so far this year, many tied to popular IP like “Star Wars’ The Mandalorian and Grogu” and “Stranger Things.”
It has also lowered game prices and simplified the pricing for its gaming passes. This resulted in a 16% to 20% increase in gameplay, and though customers are spending about the same amount of money, it is hopefully translating to a better value perception and more food and beverage sales, Harper said.
The company also plans to capitalize on consumer interest in collectibles by adding new merchandise to its claw machines and other parts of the gaming floor.
“We have very high confidence that [the gaming] experience is still very sought after, but we have to innovate more and we have to be more relevant for the guest,” Harper said.
Food has been the bright spot for Dave & Buster’s. Food and beverage same-store sales were up 7.6% last quarter, their fifth consecutive quarter of growth, thanks to menu improvements and the Eat & Play combo, which gives customers a $4.99 entree when they buy a gaming pass of $10 or more.
Meanwhile, the company is looking to shore up the bottom line, which suffered from both revenue declines and a series of abnormalities in the quarter.
A cost-cutting initiative has already identified $15 million in savings to be realized over the next 12 months and Dave & Buster’s believes it can double that figure. Executives said savings will come from non-customer-facing items like sunsetting incomplete IT projects, negotiating better insurance premiums, and using its buying power to move from regional services to national ones for things like janitorial.
In the quarter, adjusted earnings before interest, taxes, appreciation, and amortization declined by $31 million, to $98.9 million, from $129.8 million in the same quarter a year ago. Besides lower revenue, several one-time items contributed to the dropoff, including lapping a $10 million non-cash deferral adjustment from last year; $3 million in higher than normal pre-opening expenses; and about $2 million of non-normalized growth and insurance expenses.
Total revenue was $544.1 million, a 2.4% decline year over year.
Adjusted free cash flow was positive $19.5 million for the six months ended Aug. 4, compared to negative $36.5 million through the end of the same period last year.
Dave & Buster’s opened six new U.S. locations in the quarter for a total of seven this year, and expects to open four more in the second half of the year. It now has 184 Dave & Buster’s and 66 Main Event locations.
