Good afternoon, everybody. Welcome to the Dave & Buster’s Entertainment Incorporated Third Quarter 2018 Earnings Results Conference Call. Today’s call has been hosted by Mr. Brian Jenkins, Chief Executive Officer. I would like to remind everybody that today’s call is being recorded and will be available for replay beginning later today.

Now, I would like to turn the conference over to Mr. Arvind Bhatia, Director of Investor Relations, for opening remarks..

Thank you, John, and thank you all for joining us. On the call today are Brian Jenkins, Chief Executive Officer and Joe DeProspero, Interim Chief Financial Officer. After comments from Mr. Jenkins and Mr. DeProspero, we will be happy to take your questions.

This call is being recorded on behalf of Dave & Buster’s Entertainment Incorporated and is copyrighted. Before we begin our discussion of the Company’s results, I would like to call your attention to the fact that in our remarks and our responses to your questions, certain items may be discussed which are not based entirely on historical facts.

Any such items should be considered forward-looking statements and 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 the various risk factors and uncertainties has been published in our filings with the SEC, which are available on our Web site at www.daveandbusters.com under the Investor Relations section.

In addition, our remarks today will include references to EBITDA, adjusted EBITDA and store operating income before depreciation and amortization, which are 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 results contained in our earnings announcement released this afternoon, which is also available on our Web site. Now, I will turn the call over to Brian..

Scarlet Dawn the next entry and Sega's highly popular House of the Dead series. Looking forward, we’re pleased to announce our second VR title, Dragonfrost, slated for release next week. This proprietary VR titled based on original content is designed to encourage repeat gameplay.

Looking ahead, we have an exciting lineup for Q1 of 2019, we’re happy to announce the planned launch of our third VR attraction that is proprietary title to D&B based on the Star Trek movie franchise. We are well on our way to building a strong library of VR content and remain excited about its potential.

Q1 will also include Marvel’s Contest of Champions, featuring highly popular characters from the Marvel Universe. This title is also proprietary to us and one of the key elements of the experience will be collectible cards available only at D&B, which should encourage repeat gameplay.

With respect to F&B, the team continues to focus on quality, simplification and accessibility. We are planning to roll out new premium choice steaks and expect to be complete by prior to our February menu launch. This follows quality upgrades to our burger and chicken earlier this year.

We’ll be re-crafting and re-branding some of our all-time favorites, such as Dave’s Double Cheeseburger and Parmesan Chicken Alfredo, a highlight improvement in quality. We are introducing healthy offerings such as noodles, zucchini-based noodles, guest can substitute in pastas.

With respect to alcoholic beverages, we’ll be adding fresh juices and puree system wide to further enhance flavor. We have seen an uptick in our food quality scores this year, which is encouraging and we believe this combination of improved ingredients as well as better execution is the right recipe.

With our February 2019 menu launch, our focus on simplification will continue and we do plan to further reduce the size of this food menu slightly. This is on top, if you recall, of about a 20% reduction early in 2018. In order to improve accessibility and cash for more food occasions, we recently initiated a quick casual taste in our Dallas store.

We have converted one of our special event party rooms adjacent to the Arcade into a highly visible area where guests can order street tacos and drink. The interior includes a three dimensional food truck facade being tables and walls, and a cuisine includes tacos with the twist.

This area is designed to add fun to the guest experience, while serving their need for convenience and speed. We continue to view quick casual as complementary to our casual dining offering inside our facility. Our second strategic priority is improving service and reducing friction.

We continue to test and implement service model changes and improve technology. At select stores, we have deployed front desk guest ambassadors that guide our guest experience, kiosk attendants that facilitate interaction with the technology and hosted seating in the sports lounge to improve flow during busy times.

Technology initiatives include kiosk upgrade and a newly implemented workforce management system, which is now available system wide. In addition, we recently began rolling out RFID-enabled power cards currently in over 20% of our stores, which should reduce friction in activating gains.

Our third priority is to ensure we are reaching our audiences and effectively communicating new news and value. In the early part of the third quarter, we continued to promote our highly successful Q2 game releases, Jurassic World VR Expedition and Halo.

And then for the football season, initially we did not put enough emphasis on sports viewing as we skip the All You Can Eat Wings promotion that we ran last year during the first six weeks of the season. This had an unfavorable impact on cost.

Through that correct course towards the end of the quarter, we introduced a new and more compelling $19.99 Unlimited Wings promotion on game nights that also included unlimited video game plays.

In terms of media mix, while the bulk of the spending in the quarter was on national cable TV, we continued to invest in digital media and you will see a shift towards even more programmatic and social media in the future.

The fourth strategic priority for us and really the biggest driver of value over the long-term is delivering 10% or more unit growth annually. We are expanding our footprint at a measured pace and have a strong and a dedicated team to execute on our new store opening plan.

As I mentioned, new stores continued to generate excellent cash on cash return even after taking into account the sales impact on the existing system. With respect to store openings for the year, we now expect to open 15 stores, representing 14% unit growth, which is at the upper end of our prior guidance.

We are pleased with the response to our recent store openings. During the third quarter, we opened one new store in Harrisburg, Pennsylvania. And in the fourth quarter, we have opened two stores, one in Milford, Connecticut and another in Birmingham, Alabama, which is a new state for us.

Our final store of the year will be in Corpus Christi, Texas, which will open next week and will be our second 17K format store. Our openings this year will skew slightly towards new markets for our brand in terms of square footage.

The mix consists of 11 large stores, including nine that are about 40,000 square feet and two that are between 30,000 and 40,000 square feet. The remaining four stores comprise two small format stores and two of our 17K format stores.

Looking forward, we currently have a total of 22 signed leases, providing us significant visibility on new store growth into 2019 and the first half of 2020. Our long-term target is down from 231 to 251 locations in the U.S. and Canada, including 20 to 40 of the 17K format stores.

Now, I'll turn it over to Joe who will discuss our financial performance and updated guidance..

Thank you, Brian, and good afternoon everyone. Before I discuss our Q3 financial results and 2018 guidance, let me remind you that 2017 was a 53 week year and as a result, our fiscal year 2018 calendar shifted by one week and has one less week.

Due to seasonality in our business, our quarterly results for this year will not be directly comparable to our reported results last year. More specifically in Q3 this year, we had one less higher volume summer week compared to last year.

This shift had an unfavorable impact on the revenue of $5.5 million, EBITDA of $4.1 million, adjusted EBITDA of $3.8 million and EBITDA margin of 130 basis points. In order to provide a more meaningful picture of our performance, I will be quoting our comp sales on a same calendar week basis adjusting for the shift.

Turning now to some of the highlights from the third quarter. Total revenues increased 12.9% to $282.1 million versus $250 million reported in Q3 of last year. On a comparable week basis, revenue was up 15.4%, driven by strong contribution from our 32 non-comparable stores, which represented 27% of our store base during the quarter.

Please note Q3 this year included the unfavorable impact of a higher than normal accrual for deferred amusement revenue. Non-comp store sales increased to $75 million, up from 31.8 million in the prior year on a comparable week basis.

Revenues from our 86 comparable stores decreased to 1.3% to $208.8 million, down from $211.5 million in the prior year on a comparable week basis. Looking at overall reported sales by category, amusement and other sales grew 14.8%, while food and beverage sales collectively grew 10.3%.

During the quarter, amusement and other represented 57.9% of total revenues, reflecting a 100 basis point increase from the prior year period, continuing a long-term trend. Breaking down comp sales on a comparable week basis, our walk-in sales were down 0.7%, while our special events business, which can be volatile, was down 6.9%.

In terms of category comp sales, amusement was up 1.5% but F&B was down 5%. Within F&B, food and bar business was down 5% and 4.9%, respectively. The gap between amusement and F&B widened during the quarter relative to the trend in the first half, in part due to the positive impact of virtual reality on our amusement comp sales.

At the same time, food and beverage comp sales were unfavorably impacted by the timing of our All You Can Eat Wings promotion, as well as decline in special events such as higher mix of F&B. Weather was a net positive as we rolled over the impact of hurricane Harvey and Irma last year, partially offset by the impact of Hurricane Michael this year.

On the other hand, the combination of competitive intrusion and cannibalization continued to be a greater headwind both sequentially, as well as compared to the same period last year and as we mentioned, the timing of the All You Can Eat Wings promotion improved unfavorable in the quarter.

In terms of contents as Brian mentioned, our new releases for Q3 Connect 4 Hoops and House of the Dead are doing well. Meanwhile, Jurassic World VR Expedition and Halo, our Q2 releases, also remained strong. Looking forward, we remain excited about our upcoming games, including the new virtual reality titles.

Total cost of sales was $48.7 million in the quarter, and as a percentage of sales, was 50 basis points better versus the same period last year, reflecting a slight increase in F&B margins, improvement in amusement margins, as well as a higher mix of amusement sales.

Food and beverage costs as a percentage of food and beverage sales was 20 basis points favorable compared to last year due to the impact of 1.9% in food pricing, 0.8% in bev pricing and zero weeks of the All You Can Eat Wings promotion, partially offset by the unfavorable impact of commodity inflation, including investment in our new burger and chicken.

Cost of amusement and other as a percentage of amusement and other sales was 60 basis points favorable compared to last year. This improvement was driven by the impact of lower expense associated with estimated amusement redemption liability and a slight shift in gameplays for simulation games, including virtual reality.

Our operating payroll and benefits costs as a percentage of sales was 25.3% or 210 basis points higher year-over-year due to the unfavorable impact of nearly 5% wage inflation, incremental investment in labor related to virtual-reality, non-comp and new store impact, impact of calendar shift, higher medical claims compared to last year, sales deleverage in our comp stores and investment in service initiatives.

Additional operating expenses were 100 basis points higher year-over-year, primarily driven by higher occupancy costs, higher legal settlement expenses and sales deleverage, partially offset by business interruption insurance proceed related to our Puerto Rico store and leverage on our marketing expenses.

Store operating income before depreciation and amortization was $65.8 million for the quarter, up 1.8% compared to $64.6 million last year. As a percentage of sales, margins declined 260 basis points year-over-year to 23.3%.

On a comparable week basis, store operating income before depreciation and amortization was up 8.2% and as a percentage of total revenue, was down 160 basis points.

G&A expenses were $15 million, up from $13.4 million in the prior year, reflecting increased headcount to support a growing store base, higher IT spending and costs associated with senior execute changes, partially offset by lower share based compensation expense.

As a percentage of revenues, G&A expenses were 10 basis points favorable year-over-year. Pre-opening costs were $4.7 million versus $5.6 million in the third quarter of 2017. This decrease reflected the timing of new store openings. As a percentage of revenue, preopening costs were 1.7%, 50 basis points better compared to the prior year.

EBITDA was $46 million, up 1% and EBITDA margins were 16.3%, down 190 basis points versus the prior year. On a comparable week basis, EBITDA was up 11% year-over-year and EBITDA margins were down 70 basis points. Adjusted EBITDA of $52.7 million was down 2.7% but on a comparable week basis was up 4.6%.

I’d like to point out that the collective net impact of some of the callouts I mentioned this quarter was not material to EBITDA.

Specifically, the unfavorable impact of higher deferred amusement revenue, expenses related to senior executive changes and higher legal settlement expenses was offset by the favorable impact of the business interruption insurance proceeds and lower expenses related to amusement redemption liabilities.

Net interest expense for the quarter increased to $3.3 million, up from $2.9 million in the prior year, driven by increases in the underlying LIBOR rate and higher average debt levels, resulting from our capital allocation initiatives, including share repurchases and quarterly cash dividend.

Please note interest expense in the third quarter of last year included approximately $700,000 in expenses related to our debt refinancing. Our effective tax rate for the quarter was 2.4% compared to 28.7% in the year ago period, driven by the lower federal statutory rate and greater tax benefits from increased stock option exercises.

We generated net income of $11.9 million or $0.30 per share on a diluted share base, up 39.9 million shares compared to net income of $12.2 million or $0.29 per share in the third quarter of last year on a diluted share base of 42.3 million shares. On a comparable week basis, prior year net income was $9.7 million or $0.22 per diluted share.

Shifting to the balance sheet. At the end of the quarter, we had $384 million of outstanding debt, resulting in leverage of approximately 1.4 times EBITDA. During the quarter, we repurchased approximately 437,000 shares of our common stock for $25 million.

The inception-to-date total as of December 4, 2018 is 5.1 million shares or $276 million with approximately $124 million still available under our $400 million authorization. In addition, we paid our first quarterly cash dividend of $0.15 per share during Q3. Turning now to our outlook for fiscal year 2018.

We are raising the lower end of our guidance on several key metrics. Total revenues are now expected to range from $1.243 billion to $1.255 billion, up 11% to 12% on a comparable 52 week basis. Revised guidance of $13 million higher at the lower end and unchanged to the upper end compared to prior guidance.

This increase reflects the sequential improvement in our comp sales, outperformance on our new and non-comp stores and at the lower end of guidance from extra store. We continue to project comp store sales on a comparable 52 week basis to decline low single-digit.

From a development perspective, we are refining our target to 15 new stores this year from prior guidance of 14 to 15 new stores, including two of our new 17K format stores. We plan to open our 15 and final store for the year next week in Corpus Christi, Texas.

We are projecting net income of $106 million to $113 million, which is $5 million higher at the lower end and $2 million higher at the upper end. Net income is based on an effective tax rate of approximately 22%, which compares to prior guidance of approximately 24%.

We estimate a diluted share count of approximately $40.2 million, slightly lower than prior guidance of $40.3 million. We are projecting EBITDA of $268 million to $277 million for the fiscal year. The lower end of the range represents an increase of $5 million versus prior guidance, while at the upper end guidance is unchanged.

Guidance reflects investments in our ongoing initiatives Brian discussed in his remarks. Furthermore, as you model Q4 this year, please note that in the fourth quarter of last year, we had material bonus correction as 2017 Q4 results were worse than expected.

Net capital additions after tenant allowances and other landlord payment is projected to be $179 million to $189 million unchanged from prior guidance.

I want to remind you that the impact of one less week in fiscal year 2018 versus 2017 has an unfavorable impact on the revenue and EBITDA of approximately $20 million and $4 million respectively on a full-year basis.

During the first three quarters of the year, the calendar shift had an unfavorable impact of approximately $1.2 million on revenue, $1.4 million on EBITDA and $1 million on adjusted EBITDA.

In the fourth quarter of this year, the shift will have an unfavorable impact approximately $18.3 million on revenue, $2.5 million on EBITDA and $3.3 million on adjusted EBITDA due to one last week. Please keep this in mind for modeling purposes.

Finally, while we plan to provide detail guidance for 2019 on our next call, I would like to share our preliminary view on the upcoming year. Overall, we expect revenue to grow high single digits and EBITDA to grow mid-to-high single digits.

This expectation reflects margin compression, primarily resulting from continued wage pressure and rising mix of new stores that although have strong returns, are modeled to have lower AUVs and margins compared to our existing stores. We’re excited to have a strong store pipeline and plan to add 15 to 16 new stores in 2019.

We will not be renewing the lease for one of our older lower volume stores in Q1. On a net basis, we’re planning on unit growth of approximately 12% in 2019 consistent with our target of 10% plus annual unit growth. With that, I will turn the call back over to Brian..

Thank you, Joe. We’re confident that by continuing to focus on our strategic priorities that include evolving our offerings, improving our service and more effectively communicating our new news and values, we will positively impact comp sales performance over times.

At the same time, we will continue to open new stores at a disciplined pace to ensure strong returns. And this combination of improving comps and consistent double-digit unit growth positions us well to enhance shareholder value for years to come. I would like to close by thanking our exceptional team members.

Their hard work continues to help differentiate us every day and strengthen our leadership position in the entertainment and dining space. As always, we appreciate your continued support and interest in D&B. John, please open the lines for Q&A..

[Operator Instructions] Our first question will come from Jake Bartlett from SunTrust..

My first is really in the 2019 guidance. The revenue growing slower than their unit count, and I think there is some question is whether how much of that is driven by new unit AUV or versus expectation that you think that same store sales might be negative.

So if you could comment on just were you positive or negative on the same-store sales? And then if it is the unit growth more exclusively, what is driving that? Can you talk about the mix of small versus large stores?.

Jake, it's a good question. We’re not going to provide specifics on the comp guidance on this call. We will dive into that detail on little bit on our year-end call in April. But I would attribute the high single digit sales growth more to the AUV element of our expectations.

We've indicated that if you look our model online that our AUVs that we're modeling for new stores are lower than our current AUVs as a brand and that’s really the primary driver. We will skew. We still expect to skew slightly to large next year. But we are planning for stores that have same AUVs as of 15 days. So, I'll think about it that way..

And with your guidance, your same-store sales guidance for the year here. The implied in the fourth quarter is pretty wide. I'm wondering whether you’d help us out there I guess low single digits could mean different things to different people.

And maybe in the context of the answer just to talk about what happened with the not running All You Can Eat Wings. You said, you course corrected. I assume that means that it would have also corrected the same store sales impact.

So, maybe if you could comment on those two things?.

Well, I guess first on the All You Can Eat Wings question. Our initial value message in September start season really focused on our game capital specifically Jurassic World and Halo with the play games free kind of message, and that’s how we kicked off the football season and then followed that with some $5 bar bites.

We really found that it has to be as effective as last year’s All You Can Eat Wings promo that we were bringing for the first six weeks of the season. It did have an unfavorable impact on our comps.

And in hindsight, we underestimated the impact of All You Can Eat Wings when we decided to remove it from our promotional flight plan at the beginning of the year. So we corrected course.

We lined up available wings stock, so to speak, and late in the quarter introduced a more compelling $19.99 All You Can Eat Wing offer that included unlimited videogames. So we did that on Thursday, Sundays and Mondays, and we continued that really through mid -- it’ll be through mid-December. So we did course correct, but it did negatively impact it.

So as it relates to our guide and balance of the year, we’re maintaining our guide right now at low single digits. We’re not changing that and that’s based on what we know today. It would -- depending on where you’re picking that range of low single digits would imply sequential improvement from a year to date performance.

I just want you guys to keep in mind that we are headed towards some significantly large weeks, probably three to four largest weeks for this brand coming up on the holiday. It tends to be a more volatile quarter, more subject to weather. So, we’re going to be careful about the guide and we’re going to stick with what we discussed on the last call..

And our next question comes from Andy Barish from Jefferies..

Just wondering, if you could quantify the -- some of the incremental labor expenditures in terms of teasing out what’s going to be ongoing maybe for the next few quarters until you wrap around this in the back half of next year?.

Some of the things that I referenced in the prepared remarks, and these are somewhat in descending order of magnitude. I am not going to quantify specifics, but clearly wage inflation including mandatory minimum in Q3, it was nearly 5%. So that is a headwind that we anticipate to continue going forward.

VR labor was a factor for us and clearly have an attended attraction that’s operating in Q3 of this year, that was not operating Q3 of last year and until we rollover that in Q2 will remain a headwind. Calendar shift was somewhat unique to this quarter and obviously going into next year will not be an issue.

Medical claims, we are just looking at -- medical claims was somewhat higher this year than last year. Comp sales deleverage -- our comp sales were negative in the quarter is an issue. Non-comp new store wan an impact given the fact -- but sometimes the new stores when they open, they are inefficient that’s an issue.

And at the same time, we are investing in service as Brian mentioned in his prepared remarks. So I will say we did mentioned quite a few headwinds with no offset in tailwinds. And going forward, this is something that we are going to definitely focus on..

I think the wing though not having All You Can Eat Wings, we were little surprised by that in September and you can see it in our food comps. And there was probably some adjustment on labor that we could have made a little quicker I think in the quarter, really around, more around the kitchen labor..

And the new workforce management tools are those going to take some time? And are they designed to try to manage a little bit tighter? Is this just some investment you have got to make back in the business at this point?.

Well, Andy, you may remember from years ago, we introduced a labor management system, I believe it was in 2010 for the first time down about right on that. And that was very impactful when we did that, because it was a sales forecasting tool. So, we have had a tool in place for a long time.

We upgrade it through -- I'm going to go ahead and call it, maybe the Cadillac of workforce management with a product from Kronos really just last week I think the last set of our stores weren’t live on it. So, I do think there will be a time of adjustment on the tool, because it is a new tool.

I think it’s a more powerful one but I think it will take a little time to settle in with the team. But it's been one of the better executed piece of the technology in my time here in terms of how the group work together to get this thing out on time. But I think it will take a little time to for the teams to adjust to what it can do.

And it has the ability to be a little more real time, which we're hopeful will allow us to be more precise in managing labor, make sure we have to keep up the right time and don’t when we don’t need them. So we are hopeful with it, but it is there..

And our next question comes from Andrew Strelzik from BMO..

My first one is just on the upcoming virtual reality rollout as you reflect back on the initial launch.

Is there anything either operationally or from a marketing perspective, maybe labor adjustments that you are planning on making as you rollout the second title?.

Well, I think we continue to learn and get better at how to operate unattended attraction, that is really the first one that we have ever had are like the act of recall in my time here for sure with Jurassic World. And we view it to be a very successful platform for us that it’s a platform that has helped us meaningfully in terms of comps.

It is in our view a traffic builder and per cap builder both. And our feeling is that when we launched it, we wanted to make sure we delivered the guest experience.

So we operated it with at least one, if not two attendance during peak times, and we continued to try to dial in that labor model and get that honed in, because the attraction is available at any time. You can actually go at and attend it to run the game for you, even if it's not attended and we want a guest to be able to do that.

But we continue to try to dial in the labor mixture we have. Number one, deliver the right guest experience, we’re excited about Dragonfrost, it will net now two titles that we'll be able to offer our guests in short order. In Q1, I had our third title Star Trek.

So, we’re hopeful that we get increased play that will have guest consumed more than one experience, actually try more than one, and it will help repeat play, drive repeat play and use. So we tend to be excited about that platform.

We think it's more really offers us the best -- one of the best ways to introduce the proprietary content, something that no one else has and that’s what Dragonfrost will be, that’s what Star Trek will be..

And then my other question is about connecting with your customers via technology. And it’s clearly a big focus among a lot of the restaurant companies and other consumer facing companies being able to understand your customers and speak directly to them.

And it feels like an area where Dave & Buster's maybe has lagged some others but also maybe relative to their competitive intrusion has a big scale opportunity to maybe move the needle for traffic and frequency perspective. So my question is how much of a priority is that moving forward for Dave & Buster's.

And is it anywhere in the new term in terms of moving towards that. I know you been doing some high level demographic stuff but maybe getting more granular understanding your customer and building those relationships. Thanks..

We are leaning into with our new CIO that we brought on midyear last year or this year, I guess, technically. So, we are working on a couple of things to drive a better connection with our guest. First and foremost, a mobile app that we are working on that we look to launch next year, mid-year timeframe.

The target for that to really try to drive a deeper connection with them and offer more ability to engage our product either by activating a game, receiving offer and expanding our current capability with product capture and information and data on our guests, so that you can talk to them.

We’re also like, as I mentioned on the marketing front, our CMO, Sean Gleason, is working very hard to develop a deeper understanding of our guests through a data engine right now that's working hand in hand with your CIOs to understand our guests better.

So, those are some of the investments that are actually taking our P&L right now and some will be capital and some will make expense. But I agree with you, I think it's an opportunity that we are probably a little behind in and that we’re going to focusing on it right now..

And our next question comes from Jeff Farmer from Gordon Haskett..

A couple of follow ups and a bigger picture question, so first on the follow-up.

Can you guys just quantify the impact onto reducing through sales from making and distributing to not bring back that All You Can Eat Wings promo?.

I think we’re going to not going to get specific on that other than to say, it was a meaningful negative impact in trajectory for us. But I don't really want to get into the specifics of the bridge there on that..

And then just going back to December of last year, so just a little more color on the rate and time period when the same store sales were decreasing pretty rapidly. I think you guys had us an earnings call in early December. Then we showed up at ICR five or six weeks later and things have gotten materially worse for you guys.

Can you just remind us when, in December of last year, things began to get little challenging for you guys?.

Well, we’re coming off on it. I mean, I remember it all too well. So, we’re coming up on here in about a week the time period where we did not have Christmas holiday season that we expected, and which gave rise to the announcement we made right from ICR. So, we’re come up on the softer time here..

And then last question as I said bigger picture. You guys outlined a lot of top line strategy stuff, but in terms of how you’re thinking about this heading into 2019.

What potentially is your greatest opportunity to drive improved customer counts as we move into 2019?.

Well, I think it’s all the things we’re talking about here, Jeff. I mean, we’re working very hard on making sure we’ve an offering -- a compelling offering and that’s why our Head of Games, Kevin Bachus, is working very hard to build a lineup of new games with an eye towards proprietary when we can do it.

And we feel good about leveraging the platform that we invested heavily in last year on the VR platform. That will allow us to bring new news this proprietary can’t see somewhere else, so that’s one piece. The food and bev, I think it's a little longer period of time.

We feel really good about the progress we've made and what we're seeing in guest fast forward on quality and value on our food with some of the changes we made in the ingredients and the way we prepped our food. And I think that’s going to take a little time. The fast casual test, we’re -- I am optimistic on that.

I mean we just -- we actually just opened that last week, last Friday, I believe it was. And I have had a nice taco on Saturday and they’re quite good, I recommend them. But I'm optimistic on that. It makes a lot of sense to when you think about the proximity to the arcade to be able to dash-in and dash-out, get that to play.

So that's something that we will have to read and see what it does incrementally, and it’s obviously very early, way too early to call that one way or the other.

But that’s something that we could scale to a number of stores, but that’s going to take a little time, but we could get started on that some in '19 if we see merits in the fast business that we have in place right now. And then we got -- Jake asked a great question on how we communicate with our guests.

We’re working hard to develop a deeper relationships with the guests through some technology with the asset we’re working on, but also really transitioning some of our media towards digital, which our target, the millennials tend to have disconnect a little more and more towards linear TV. We are not going to depart totally from linear.

We have a great message and we shouted on linear TV, cable TV that it can move the needle. But we will be leaning into more digital investment mix in our media mix next year to continue some of the progress we have made this year on that front..

[Operator Instructions] Our next question comes from Brian Vaccaro from Raymond James..

I just wanted to circle back on the 2019 revenue growth guidance. Could you give us a sense of the pipeline, Brian? How you think -- I think a bit skewing slightly larger.

But how about in terms of large versus small versus sub 20,000 square foot unit?.

As I think we have already said, incentive skew large format is going to, right now -- and we expect to skew new market slightly. And right now, we are going to read the 17K unit. We are going to have our second one open up here next week. There is a potential that we could have one in that mix, but right now it's going to skew large.

I think what we are trying to message to you here is that, we will really have 121 stores by the end of this year. We are not anticipating that the AUVs of our new store that we build will match up to the existing store base.

And if we are doing our own jobs right, we are trying to pick some of the highest potential stores first and the knowledge work that way. But I think we have been trying to message that we can't -- we shouldn’t always expect to do 60% tier 1 returns or mid 50s.

And that’s what we are trying to message our AUVs potentially lower, both on largest as well as the mix, continuing the shift towards more small format stores that just simply don’t do the same volumes as the large stores..

And just a few questions on the game side, if I could.

First, could you provide a little more color on how the virtual reality trafficking performed during this quarter? What you saw in terms of per capita attached and repeat way? And did it remain a relatively stable contribution through the quarter?.

Well, I think there is couple of things going on. We launched that in the summer as -- it's a different guests prolife than once full to go back, but we saw strong contribution from the attraction. There's an incremental $5 and it's clearly per cap play peak.

And that’s probably the larger piece of what it's doing for us is helping drive per capita spend and amusements. And it was continued to be meaningful in Q3. So I think we -- our Jurassic World was a great experience. It lacked mainly some of the gameplay, the competition, collaboration in place.

So some of the new titles that we are working on as a team we'll try to expand on the ability to compete and collaborate with a player that you're sit on the chair next too. So, in our view, that will help continue to repeat play that people will continue to try to play it, to beat their neighbors so to speak.

So we couldn’t be more happy with the VR platform. We think it differentiates us for a brand that scales VR to 120 locations. And I don’t think there are brands out there that could play that and I couldn’t be happier with way the teams executed on it..

And I know we will see it next week.

But could you talk a little bit about the new Dragonfrost game just from the gaming experience standpoint, and will that game also cost $5? And then just through your advertising plan around it, I guess your broader expectations sort of on around Dragonfrost versus Jurassic World?.

Well, clearly, Jurassic world was, I’m going to call it, an experience with really great IP. Here Dragonfrost is a proprietary title for us and it features more game play. So clearly you have a goal in mind where you were, in this particular, trying -- riding dragons, trying to free the Fire Prince from his evil brother, the Ice Prince.

He's been captured and makes the kingdom Dragonfrost friendly and warm again. And you’re competing and collaborating with the riders next to you. So, we think the gameplay is going to really good on this thing. Obviously, combination of great games with strong IP is probably best, that'd be our desire.

But I think what we have in the work here is really healthy mix of some strong license games with Star Trek coming and Jurassic World. And we’re excited to see Dragonfrost what can do as a proprietary unlicensed game. So, our intent is to offer both games, so you will be able to come in.

We will feature Dragonfrost that will be emblem on exit platform, but you will be able to engage Jurassic World and/or Dragonfrost, which is excited to see how it will update we get on the combination..

And then just last one for me. Joe, you highlighted in your prepared remarks and usually low bonus to be mindful of as we think about modeling the fourth quarter.

Could you remind us how much of the headwind does this represent to your fourth quarter '18? And how much of that's in labor versus the G&A?.

We have never quantified that amount, but it's not immaterial. I just want to refresh your memory. I think we talked about the fact and in the recent question that comp sales around this time last year, the material work that we anticipated. So the full year impacts on our bonus expenses on the G&A side and certainly on the store side quarterly amount.

It was a material credit that we’re not anticipating to roll over in Q4 2018 --, not anticipating to recur in Q2 2018. So we never would quantify the number but it's not an immaterial amount..

And our next question comes from Joshua Long from Piper Jaffray..

Wanted to dig into some of the trends you’re seeing on the food side though. It sounds like the quick casual test is going well.

Curious, if you have any early read on just how the consumer is using that avenue or that dining occasions a little bit differently? And then you also mentioned how your food score is with some of the work you’ve been doing on the menu.

Curious, if you could go through that? And then also may be something similar showing up on the amusement game side as you layered in some of these new games and VR, if that’s something that consumers are giving you credit for you?.

Well, I mean our Q3 guest pulse score is really across the board went up value, quality and service. The whole game bit went up, which we were pleased to see. We’re a couple of days into the TNT Tacos’ test, and it’s primarily a late night what we were finding, and when we were operating that.

We are not operating that, first of all, every operating hour. Its offer at really peak and we’re seeing nice utilization late night. And we’re literally a couple of days into this. So I don’t really want to make any comments about what it’s going to do and not do right now based off of a couple of days of operation, I think that’d be way premature.

We like the concept. We think it can be potentially additive to our offering. We know our guests when we did research, in 2017, said they like to have stuff faster, quicker and available and that was more accessible and this is an answer to that question or that desire.

So we’re optimistic but again way early to call it one way or the other on that front and try to estimate what it may or may not do to food. And we definitely saw separation from food and amusement this quarter, a lot of that expected by having full quarter of VR, which was impactful and help pushes the positive comp.

But the All You Can Eat Wings example is not helpful to our food comps in the quarter, and caused separation between food and bev and amusement for sure. And that’s why we took corrective action really in the final two weeks of the quarter..

And as you took those corrective actions, did you see a nice bounce back, any qualitative discussion that you’d offer there? And then you also talked about the opportunity to further reduce the menu, what have you been able to see as you've worked through that first initial round of menu reductions? And then what’s the expectation as we go forward? Is a lot of work already been done and we should be thinking about this as an optimization piece? Or is there maybe some material opportunities going forward to realign that menu in 2019?.

I think just using the word took corrective steps indicates that it was not helpful when we didn’t have All You Can Eat Wings and bringing it back was helpful. So I don’t want to get into the magnitude of it but it definitely helped the trends in terms of the business when we brought that back and as I said continued it through mid-December.

So on menu reduction, we really took a big swap-off in terms of menu decrease early part of 2018 about 20%. The adjustments we’re going to make, trying to make in February -- February ’19 launch, slightly more in the 10% range here so not near the magnitude.

I think more so is continued focus by our leader in the food and bev area that has really focused on crafting capability. And is looking at every menu item we have. And as I think I said last time, making sure it competes for space on the menu that is resulting in, changing the recipes, changing prep methods.

And I think we are seeing some uptick in how our guests view that. I think we've seen some speed of service help, but I think this is a longer haul. Our frequency is pretty low as a brand and I think it's going to take time to get credit for that to have that huge driver of traffic.

I wouldn’t expect for that to manifest itself quickly, I'll just put it that way..

And then last one for me in terms of thinking about the strong new store return to that class of 2017.

How should we'd be thinking about that, or maybe how are you all thinking about that? Is that -- would you tie it to site selection? Would you tie it to just the cumulative effect of the lot of the initiatives in the marketing piece that you have been working on for the last several years, and we are expecting to see that coming to fruition now as some of these newer classes.

Any help there would be appreciated?.

Well, I mean, obviously, it's hard not to like that what we are thinking. It's going to be over 60% year one return. I guess when you look at our five, six year history, we have been averaging 50% plus. So we will have a long track record of really strong returns.

We definitely had a one particular store that knocked it out of the ballpark but you remove that one, it's still in that 50% range. So I think our target remained 35%. We are happy to get 50%, 60%. We will be happy if we get 35% plus. And over the long-long haul, we don’t intend to really change our target model that we have posted out there.

And I do think it gets harder the deeper we get into our remaining store base, it's just we are doing our jobs right..

And our next question comes from Sharon Zackfia from William Blair..

I guess just a couple of questions. On the special events, I don’t think you talked about it too much in the quarter.

But I'm just curious on your visibility into special events here for the fourth quarter?.

Yes, special events can be a bit volatile. You notice that when you look at our Q1 numbers to bounce back in Q2. Here, we bounce back down that can be -- tend to be a little volatile. And Q3 unfortunately is a seasonally low quarter in some way for just as a brand and an SE. I wouldn’t read too much into that.

Our year-to-date SE numbers are within about 1 point or of our walk-ins it's a little bit under. We were and I don't think we mentioned this on our remarks, we were unfavorably impacted by, I am going to call it's the mega fight of 2017, the Mayweather-McGregor fight, which was paid thing across most of our stores.

So that was a difficult rollover for the SE team this quarter. And I'm going to hesitate because we have, as I mentioned, big weeks to come, the biggest weeks in the brand to come. I'm not going to dive into interim Q4 sales SE bookings and where we are at….

Okay, I just want to know this was a planning time where you had good visibility on fourth quarter holiday, if there was still a lot to be booked yet?.

Well, I mean clearly, we have a significant amount booked at this stage, but there is always I think increasingly, it seems like people booked later in recent year. The whole weather factor of Q4 is always one of those things that we’re weary a little bit of working in, if weather hit at a bad time that we’re expecting to be a great week.

We're just more subject to weather impacts in Q4 than most times..

And then maybe this ties back to the revenue question for next year. Do you have any color on the cadence of new unit openings? I know you were front-half-weighted this year, it was just unusual.

And then, any update on international? I thought international was supposed to open this year, maybe that was pushed to 2019, just anything there?.

Yes, we will try to give some cadence guidance. We have quite a few of these stores that are under construction right now. I would think about it even right now. But we can try to give you a little more cadence on our Q4 call in April. But we've got quite a few hundred construction right now, so we feel very confident in the guide overall for the year.

And I think we have a good pipeline for 2019 and actually well into 2020, actually as well. International, that’s an excellent question.

We still believe international is a good long-term opportunity for the brand, candidly -- heavily focused here on igniting the core business as a top priority that gets a lot of attention as it should and the team here. But we do believe international represents an opportunity and we are still projecting on our first Middle-East store.

Although, much lower than we had hoped but we have a lot of sites we like that we have targeted. And we hope to have more that we could talk to you about on our fiscal year end call..

And ladies and gentlemen, in the interest of time I’m going to turn the call back over to Mr. Jenkins for closing remarks..

I want to thank you for your time this afternoon. We wish everyone a happy and safe holiday season, and we look forward to reviewing our fourth quarter results with you in early April. Have a great evening..

Ladies and gentlemen, that does conclude our call. On behalf of Dave & Buster's, we do appreciate your participation and please have a great night. At this time, you may disconnect. Thank you..