Good afternoon, and welcome to the Dave & Buster's Fourth Quarter and Full Year 2023 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded.

I would now like to turn the conference over to Cory Hatton, Vice President of Investor Relations and Treasurer. Please go ahead..

Thank you, operator, and welcome to everyone on the line. Leading today's call will be Chris Morris, our Chief Executive Officer; and Mike Quartieri, our Chief Financial Officer. After our prepared remarks, we will be happy to take your questions. This call is being recorded on behalf of Dave & Buster's Entertainment, Inc. and is copyrighted.

Before we begin the discussion on our company's fourth quarter and fiscal year-end 2023 results, I'd like to call your attention to the fact that in our remarks and our 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 within 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 have 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 announcement released this afternoon. And with that, it is my pleasure to turn the call over to Chris..

All right. Thank you, Cory. Good afternoon, everyone, and thank you for joining our call today. In our fourth quarter of fiscal 2023, we generated revenue of $599 million and adjusted EBITDA of $152 million. These improved year-over-year results benefited from an extra 14th operating week in the fourth quarter.

However, this was partially offset by the considerable weather related headwinds, our business faced in the month of January, as you've likely heard about by now from many of our peers.

The weather disruption resulted in numerous full and partial store closures to our system and contributed a significant headwind to the quarter's comparable store sales growth.

Weather aside, I'm pleased with our strong financial results for the final quarter of fiscal 2023 in the year as a whole, which are a testament to the hard work and dedication of our phenomenal team members at our growing portfolio of 223 stores across the country.

With respect to our most recent progress in 2024, while there has been some choppiness in the quarter-to-date and some significant calendar shifts with the timing of spring breaks, I'm even more excited than I have been in the past by the significant progress in our goal of substantially improving the revenue, EBITDA and cash flow generation of the business over the medium and long-term.

During the quarter, we opened up six new domestic Dave & Buster's stores that are all performing in line with expectations and our historically high ROIs. We also signed up an additional franchise agreement, bringing our total signed pipeline of new international stores to 33.

We will discuss in more detail shortly, but we also advanced a number of our organic growth initiatives, all of which are showing positive signs and give us confidence in our ability to drive same-store sales growth in the business.

Additionally, due to rigorous focus on managing expenses, we grew adjusted EBITDA and further expanded our adjusted EBITDA margins. We strongly believe that all the work we have done over the last several months has laid the foundation to help us achieve our ambitious yet achievable expectations we have for the business going forward.

Fiscal '24 is set up to be a transformative year for our company with significant expected progress on our organic growth initiatives, including an acceleration of our remodel program, as well as continued growth in our store base and continued focus on cost efficiency.

I can confidently state that everything we have seen has only strengthened our resolve and our strategic plan and the belief in our ability to achieve our $1 billion adjusted EBITDA target in the coming years.

In fiscal '23, we grew adjusted EBITDA $28 million and expanded adjusted EBITDA margins 80 basis points on a pro forma year-over-year basis, despite a reset of the consumer demand curve relative to the post-COVID highs of 2022.

Since 2019, our adjusted EBITDA margin has expanded 380 basis points, well in excess of the 200 basis point expansion target, driven by top line growth and material improvements to our recurring cost structure that provides our business a substantially stronger cash flow base to grow.

In 2023, we opened 16 new stores, 11 Dave & Buster's and five Main Events with six of these new Dave & Buster's opened in the fourth quarter alone. Our new stores continue to produce exceptional cash-on-cash returns across both brands and remain one of our most accretive investment opportunities.

As a reminder, as we showed you during Investor Day, since 2018, our new stores have generated cash-on-cash returns greater than 40%. We still have a very robust pipeline of new units that we plan to open over the next several years that we expect will continue to perform similarly.

Our business benefits from significant national awareness, which allows us to open stores in new markets with an enormous amount of local excitement as evidenced by the consistently strong sales, our new units generate in their first weeks operation.

Importantly, we have recently optimized our new unit opening strategy to better capitalize on the immediate demand our stores generate by using our loyalty database to capture significantly more relevant information about our new customers and markets which we expect to translate into a superior level of frequency management and ultimately even higher returns on new store capital.

Turning to our international development efforts. We recently entered into another international franchise partnership agreement to develop two Dave & Buster's stores in the Dominican Republic.

All told, in just two years since we reinvigorated our international strategy, we currently have 33 stores in the international development pipeline across six countries with anticipation of opening up to four of these stores in the next 12 months to 18 months.

We also continue to engage with potential partners all over the world, which we expect will lead to continued strong growth of this international pipeline over the balance of the year. I'd now like to take a moment to go into more detail -- a more detailed update on the progress of each of our six key organic growth initiatives.

First, marketing optimization. As a reminder, we believe there is huge opportunity to improve both conversion and guest frequency by getting the right message to the right people at the right time.

We spoke last quarter about the development of our marketing engine in the pilot program for quick wins to better engage our existing customers with relevant content and offers to drive frequency.

Our material shift to digital marketing allows us to act fast to build campaigns and align our spend with more specific business needs, while returning significant data driven insights about our customer that were impossible to glean from the primarily linear TV approach of our company's past.

We have a balance of compelling promotions, paired with our strong product offers, hyper-targeted within paid media at the segment and market level. For example, our Kids Eat Free promo targeted towards families and $2 beers in all-you-can-eat wings targeted toward young adults.

Additionally, we've enlisted top tier talent and influencers to amplify our seasonal offers and experiences in-store to promote a spring break for everyone campaign and a contextually relevant campaign around March basketball, along with our buster brackets 1 million ship giveaway rewarding guests with free play.

This combination of hyper-targeted paid media and promotions and influencer talent to amplify unique experiences and offerings across our stores has generated more effective and efficient campaigns in recent months.

While still early innings, our ability to roll campaigns and promotions out swiftly across our growing database of users who are quickly becoming the lion's share of our most profitable guests by visiting us 50% more frequently and spending 15% more on each visit versus non-loyalty guests is having a material impact.

Our loyalty program grew by 500,000 users in the fourth quarter and we continue to drive higher levels of sales penetration with these loyalty guests with the improvements we are making. Our loyalty offers are personalized at the tier and individual level to appeal to the specific behaviors of each guest.

For example, rewarding our primarily gaming audience with free play incentives and our dining enthusiasts with food and beverage offers. We believe enhanced personalized engagement is leading to higher guest satisfaction scores by cultivating consistent newsworthy communication that brings a more excited guests into our doors.

Tying back to our influencer programs and unique partnerships, we always provide our loyalty members with the first look at any marketing campaign that we launched, and we have exciting big reward giveaways and new promotions planned for this audience in April, with the launch of our exciting brand new menu.

In 2024, we expect to channel this power and continually refine the approach, which will ultimately allow us to manage our traffic via frequency and conversion. Second, strategic game pricing. We made material strides in the implementation of our new games pricing strategy in the quarter.

We continue to unlock new abilities and glean insights from various tests across regions by adjusting the multiple layers of price in our gaming ecosystem. We have launched a number of nationwide tests adjusting both absolute price as well as introducing regional differentiation. [Technical Difficulty].

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Thank you..

number one, grow overall revenue through the introduction of disruptive entertainment product news; number two, improve F&B sales through a reconsidered dining room, improving operational execution and an elevated relevant new design; number three, grow Special Event sales through the introduction of more group-related entertainment options; number four, improved guest engagement and gather important best data and analytics through the introduction of the digital guest engagement platform; and number five, improved brand relevancy and intent to return through a fresh, modern look and feel.

Our first test location was Friendswood in Houston, Texas, which embodied our go-forward offering with new attractions, service model, food menu, inserted a dedicated store Special Event sales team and completely transform the look and feel of the space.

During our last call, we highlighted the encouraging results from our first remodel in Friendswood that was exceeding expectations, driving a double-digit sales uplift compared to the prior year and a more than 30% sales uplift compared to 2019.

We are very encouraged that now more than 30 weeks after completion of this remodel, it continues to perform at these levels.

We have hit the mark across all of our objectives with this remodel and are making meaningful improvement with OSAT scores and higher intent to return, less than loyalty members and Special Event revenues up nearly 60%, all of which gives us even more confidence in the importance and staying power of these remodel investments.

Over the past few months, we completed eight additional test remodels. For the test, we intentionally hand selected a variety of our stores across geography, legacy performance, store age and layout, and tailored key product offerings. On average, these test stores have outperformed the balance of the system by 9% post remodel through March.

While the remodels are exceeding expectations in aggregate across the varying scopes, what has become crystal clear in the test is that our fully programmed large scale remodel similar to Friendswood are performing exceptionally well relative to the remodels that do not include the enhanced entertainment offering.

Our fully programmed remodels are seeing substantial increases in traffic, check and overall same-store sales versus the prior year and are outperforming the double digits with some nearing 30% outperformance on a relative year-over-year basis.

We have also accumulated a significant amount of loans on how to improve these results even further, reduce construction time and minimize costs that will lead to even higher returns. We are very confident in these findings and know what it takes to drive this business.

Our plan now is to apply what we've done Friendswood across the next 35 remodel stores with a strict stage gate process laser focused on our 20% plus return threshold. As a result of that, we will have a total of 40 to 45 stores remodeled by the end of fiscal '24, which we are confident will drive a similar outperformance.

We are convinced that this remodel program is a significant gateway to the future of the Dave & Buster's brand in the culmination of everything we've set out to achieve through our organic growth initiatives. Fifth, Special Events.

We are making considerable strides reinvigorating our special events business by repositioning the team with a more local hands-on approach and equipping them with enhanced training and tools to win our fair share. Based on independent tests, we run to evaluate our sales team effectiveness and the competitiveness of our product offering.

We are encouraged that these changes and strategy or having the desired outcomes. After embedding 20 dedicated sales managers into the D&B stores in the back half of 2023, we are accelerating the rollout of an additional 45 local sales managers at the store level in 2024.

The upcoming phases of our menu of the future, our refined service model and our remodel stores that introduced social base in the arena, along with a VIP watch area provide our new sales team areas of focus and are all very conducive to drive additional Special Event revenue.

We are pacing to finish the first quarter up mid-single digits in Special Events revenue versus 2019, which is a material improvement versus prior quarters, and we have strong expectations for our next peak season with graduations in May and June. Six, Tech Enablement.

As a reminder, we are powering the growth of all strategic initiatives through an optimized service model, enterprise gaming ecosystem, new IT infrastructure and improved data and analytics. In many ways, this is the glue that creates a digital guest platform and connects all the other initiatives together.

In 2023, we completed the rollout of our updated IT infrastructure at 62 Dave & Buster's stores and we'll have the remainder of the Dave & Buster's system complete in 2024, along with full integration of our back office systems.

We also expect to drive further innovation in our app in 2024 with the integration of additional features and games to engage with our guests before, during and after each visit. We are proud of the achievements and long overdue investments we are making in this area to lead the industry and a seamless guest experience.

To summarize our organic growth initiative update, we remain very confident that these initiatives will create significant shareholder value by driving our business into a period of material, sustainable and profitable growth. Our conviction that we are focused in the right areas and making the right investments is unwavering.

We looked at building on the achievements of this quarter and look forward to continuing to update you on each of these initiatives moving forward with a clear line of sight on our long-term goals.

In addition to these organic growth initiatives, we made tremendous strides throughout the year streamlining our business to be more efficient and reduce our recurring cost base, which had a material impact to our whole P&L, allowing us to increase adjusted EBITDA and expand our adjusted EBITDA margins.

By the fourth quarter, as a percentage of revenue versus the prior year, our cost of food and beverage declined 240 basis points. Our other store OpEx declined 80 basis points and our G&A cost declined 180 basis points.

Our team of exceptional general managers continue to drive down labor costs while improving OSAT scores by implementing efficiencies in our back of house operations to reduce hours and redeploying a portion of those hours to guest facing and revenue generating front-of-house labor particularly during peak times.

It is important to highlight that we have realized these cost savings and margin improvements during the 12 month economic period characterized by high inflation, a tight labor market and with same-store sales growth well below our long-term expectations for the business, which underscores the incredible amount of upside in a more normal environment.

Given the success in this area as well as the realities of the environment, we have increased our efforts and have implemented a number of new cost savings initiatives that we believe will further reduce our cost base.

We are confident that these additional cost efforts, combined with an improving labor market and supply chain will create an increasingly more efficient and profitable organization over time.

While the improvements we have made to our recurring cost base have driven a significant amount of margin and profitability, what is most exciting to us is that at the same time, our operational execution has made great strides in taking care of the guests.

We have made very significant improvements to the guest experience with our evolving service model, and we continue to layer on additional enhancements to drive higher OSAT and Net Promoter Scores. During 2023, our overall satisfaction scores as well as our overall speed of service score improved 5 points.

Our social media scores improved 3.5 points, and our Net Promoter Scores improved 3 points. All of these metrics are continuing their trend of improvement thus far in 2024.

In fact, we've seen sequential growth in each of these metrics over the past three months, and each metric has reached their respective all-time high since we've been tracking this data. Finally, before I turn the call over to him, I'd like to take a moment to recognize Mike, who we affectionately call Q.

As he steps away from the day-to-day responsibilities as CFO at the end of April, to enjoy a much deserved retirement.

He will leave a positive mark on this company long into the future, having successfully integrated the two great brands at Dave & Buster's and Main Event, built high-class teams and demonstrated the highest standards of ethics and capital stewardship. So with that Q, please walk us through a more detail review of Q4 results..

Thanks, Chris. We generated fourth quarter revenue of $599 million and adjusted EBITDA of $152 million for an adjusted EBITDA margin of 25.3%, a 380 basis point margin expansion versus the same period in 2019. Net income in the fourth quarter totaled $36 million or $0.88 per diluted share.

We reported $42 million of adjusted net income or $1.03 of adjusted earnings per diluted share. Reconciliations of all non-GAAP financial measures can be found in today's press release. Pro forma comparable store sales decreased 7% in the fourth quarter versus 2022.

And looking back at a more normalized level of business, we were up 8% versus the fourth quarter of 2019. As a reminder, in the fourth quarter, we are lapping over a fourth quarter of 2022 that had a 14.1% comp to 2019 and an over 25% comp in the last four weeks of the quarter with particularly robust consumer spending.

Through early January, our quarter-to-date comp was pacing down low-single digits to the prior year and then the culmination of severe weather, which significantly negatively impacted our business and challenging January comparison led to our ending the quarter down 7%.

We generated $97 million of operating cash flow during the quarter, contributing to an ending cash balance of $37 million for total liquidity of $527 million. When combined with the $490 million available on our $500 million revolving credit facility, net of outstanding letters of credit.

We ended the year with a net total leverage ratio of 2.2 times as defined under our credit agreement. As a small update on future sale leaseback opportunities, we have four owned and operating Dave & Buster's real estate assets today.

While we are being judicious in how and when we decide to monetize these assets, we expect these assets when monetized to command a premium price in the market versus other comparable real estate given our superior unit economics. Strong credit, attractive brand attributes and commitment to being a long-term tenant in the space.

Turning to capital spending. We invested a total of $122.6 million in capital additions during the fourth quarter, opening six new Dave & Buster's. We've already opened two new Dave & Buster's and one new Main Event during the first quarter of fiscal '24, in Schaumburg, Illinois, Folsom, California, and Murfreesboro, Tennessee.

We expect to open a total of 15 new stores across both brands during fiscal '24. Our Board of Directors approved a $100 million increase to our share repurchase authorization which gives us a total of $200 million of availability to opportunistically repurchase our shares.

As you know, we, and our Board, are maniacally focused on driving shareholder value.

As we have stated historically, we will use our significant excess free cash flow to invest in new units, which continue to generate over 40% cash-on-cash returns, make accretive investments to support our organic growth initiatives and opportunistically return capital to shareholders.

We have a lot to be proud of in this fourth quarter and full year 2023 results. We grew adjusted EBITDA, continued to expand our industry-leading adjusted EBITDA margins, strengthen our balance sheet and credit profile, lowered our controllable interest cost, and bought back 17.5% of our shares outstanding, all to the benefit of our shareholders.

We have considerable high ROI investment opportunities to grow organically. Both by improving our existing store base and opening new stores with a pipeline of attractive international frontiers on the horizon. I have tremendous confidence that the trajectory ahead will bear material fruit for all stakeholders.

Now operator, you can open up the line for questions..

We will now begin the question-and-answer session. [Operator Instructions]. Our first question today comes from Jake Bartlett with Truist Securities. Please go ahead..

Great. Thank you so much. My first question was about the more recent performance. And Chris, you talked about feeling more confident in the plan, more confident than ever. We also mentioned that results have been choppy quarter-to-date. We've seen that industry-wide.

So what can you point to and hopefully you could point maybe to some specific change in trajectory here from January.

But any more detail there on what gives you such confidence that the things are actually getting more encouraging for you?.

Yeah. Absolutely, Jake. Every area that we're focused on and everything that we've outlined during our Investor Day, we're making progress and we're seeing the impact on the business. I think the thing that's most encouraging is, we've been hard at work in F '23. We're hard at work at testing, learning, adjusting.

And we are now in a position where we are executing these initiatives that have already been tested and validated. And so that gives us great confidence that as we execute these that we will be able to continue to drive the same impact that we saw during the test period. And so when we go through SMB (ph), we have a brand-new menu that's rolling out.

And that -- we know that, that menu is driving check, it's improving speed of service, it's setting our opportunity up for success. And there's no doubt in our mind over time, that's going to be a big contributor to our attach. We know that we've been able to successfully pass through menu price increases with strategic game pricing.

That's something we didn't have figured out last year. We now have the ability to tier our pricing and have different pricing in different parts of the country. That seems so simple, but yet the company has never had that before. This is the first time we've been able to have different game pricing and different parts of the country.

And so we've tested that and we see that we're able to flow dollars through. That gives us confidence.

The work that we're doing on Special Events and the fact that we are on pace to exceed the pre-pandemic levels and we have so many other things coming down the pike on Special Events, preparing our teams for the May and June busy season, school events and then setting ourselves up for banquet towards the end of the year.

The new service model is driving the results and we just rolled that out at our operator conference in March. And you saw -- you heard in my remarks, those are meaningful improvements that we've made to the guest experience. We're still a long ways away from where we want to be, but there is no doubt that we're better than where we've been.

And every month for the past three months, we've been setting record highs in all of our key satisfactory metrics. And that's before we've rolled out our new refined service model system-wide that we just introduced at conference. That had us exciting. Our remodels, what we walk through.

Now we've -- before, we didn't know which -- exactly how to program or remodel. We don't know what was the right spending. We now have that answer, and the answer is crystal clear and it's compelling. We're not only hitting our return thresholds, we're exceeding those thresholds. And so you see us ramping that up.

And so now we have confidence that we're taking what we did in Friendswood, and we're rolling that out across 35 stores next year. So by the end of the year, we'll have 44 in the system. But at the same, we're going to continue to evaluate to make sure that we are getting the returns that we expect.

So, in international, we just -- now we're getting real momentum on international. Our new units continue to perform. So we just -- we have -- we're seeing so much progress in all these different initiatives, and this is the year. This is why we said it's a transformative year.

This is the year when all these initiatives will start to layer on top of each other, and we believe will go a long ways putting us on the trajectory to accomplishing our long-term goals..

Great. That's really helpful and I appreciate the detailed response there. I guess the question -- another question that I have is, I understand that this is the year to implement these changes, but you also have to contend with where the consumer is right now.

So we think about the price increases, we have found that a pretty significant increase in the just cost per chip for buy-in. Phase 2 of the menu changes in, I think, largely increasing the check. That's one of the biggest drivers to the sales impact.

So it might be a good thing to do, but is the consumer in a spot to take to accept some of those increases. Is this the right time for the consumer, that's when, I'm wondering about the quarter-to-date and just how -- what you're seeing, how the consumer is actually responding to all this in this particular environment.

Any detail there would be helpful..

Well, I mean, first, I think the way you're thinking about it is exactly right. And so those -- you have the right instincts, and it's something we think about all the time is making sure that we're navigating the business to meet the consumer where they are right now. What I can tell you on pricing, let's kind of step through each one of those.

On the game pricing, keep in mind, that's not something we did system-wide. We did it region by region. And we did it testing along the way, evaluating, ensuring that we are protecting the value proposition.

And so we have a lot of confidence that we've not only been able to pass through price in the right area, but do it in a way where the value proposition is held intact. On food and beverage, you are correct that we are seeing an increase in check. That's not being driven by price, that's being driven by a favorable mix shift.

And so we're just simply being very smart about the products that we're offering and doing it in a way to where the guest is selecting items that they see real value in and doing it a way that also drives check. We have a lot of confidence that our food satisfaction scores have grown substantially on both Phase 2 and Phase 3.

We also have a lot of confidence that the service model that we're implementing. We're investing dollars, taking dollars out of the back, investing in the front and enhancing our overall guest experience. We think that helps drive the value proposition for the guest.

At the same time, we're also -- and this is where as we continue to refine our marketing muscle, and that's just going to get better and better. We are better equipped today than ever before to be nimble and to not only roll out the right discounting, but do it in the right way where we're aiming at the right guest.

And that's something that we're just going to get better and better as we move forward. But you saw us kind of pivot here recently. We've introduced $2 beers that timed with the NCAA tournament, we have all-you-can-eat wings and on Thursday, both of those are going very well. And we have Kids Eat Free that’s really aimed at families.

We feel good about that. And we’ve got an offer that we’re going to be announcing here in a couple of weeks that we think really kind of hits a lot of the things that we’ve been doing strategically that also addresses value. So the brick is balancing. We think we’re being very careful about where we’re taking price versus value.

And as I’ve now said, I think it was the third time I’ve said this, we’re going to get better and better at that. That’s a muscle that we’re in the process of developing, we’re better than we’ve been, but we’re going to get better going forward..

Great. I really appreciate it..

You bet. Thank you..

The next question is from Andy Barish with Jefferies. Please go ahead..

Hey. Good evening, guys. I know you're not offering kind of guidance today. But in your remarks in the press release, Chris, I mean, it talks about adjusted EBITDA margin improvement in regard to fiscal '24.

Is that something that even without the additional cost savings, you were sort of thinking about as you come into this new year?.

Yeah. No, absolutely. It's something that we're always thinking about, and that's -- we will always have that mindset. Our approach is we -- we're developing a culture that is absolutely maniacal about eradicating waste in the business and not allowing it to occur because we're so committed to our strategic initiatives.

And so we're constantly looking for opportunities to be efficient, so then we can invest in the right areas and so that's just something that we will always be doing..

Got you. And then on the remodels, it sounds like the full remodels are where you're heading.

I think initially, the split was more kind of half and half between kind of the full touches and a lighter touches, should we be kind of thinking about that over the next couple of years as being more skewed towards the full remodels at this point?.

At this point, the answer is yes. And I'll let Q jump in here and provide some more color on the financial side. But as I said, the real benefit to where we are in our journey is the fact that we have gone through the testing phase. And so as we move forward, we're moving forward with confidence.

But it is very clear in the testing that we've done that the fully programmed remodels not only generate, hit our return thresholds. But I think that what has us so enthusiastic is the manner in which we're driving the results. It's not just the results. We see the staying power at Friendswood.

And the other, as we've extended that test beyond, the units where we're driving the results, we see it building over time. We dig into the numbers. It's coming from -- the reason we took so much time to walk you to remind you of our objectives on the remarks is because each one of those objectives are leading to the results.

We're seeing the incremental entertainment offerings that we've provided, where we're expanding our variety, each one of those on a stand-alone basis, are generating our returns on a stand-alone basis. And then combined, we believe they're creating just energy that's lifting up all traffic.

We're seeing double-digit increases in Special Events when we add these new entertainment offerings. We're seeing improved service model execution. We're seeing in a couple of stores, we're seeing very significant growth in food and beverage mix. So we're able to trace the results into the remodel. And so that gives us a lot of confidence.

But it's moving forward, it's a little more capital-intensive. But the team has done a great job at value engineering and taking cost out. And so I'm going to have Q walk you through that..

Yeah. I think is an important aspect to think about when you start talking about what a light touch is, that has probably more to do with the fact that the stage of the building and the condition that it's in, the size of it as it is the amount of additional work that's going into to expand the full offering from an entertainment perspective.

So when we start talking about LiDAR touches, those are stores that are around the 20,000, 25,000 foot locations.

They're more current in the pipeline where they've been built like probably like in the last 5 years, versus some of the older stores or the larger safe footprint of the D|&B 1s and 2s, which are more in that 40,000 to 45,000 square foot location.

So all in all, I think the CapEx that we laid out previously will still be fairly close to where we'll end up over this journey over the next two years or so..

So just to summarize, we are moving more into the large format, but the big benefit is we’ve been able to drive down the capital investment. And at the same time, the performance has exceeded our expectations. And so we’re very confident that we’re going to hit our return thresholds.

We’re actually cautiously optimistic that we’re going to exceed overturn thresholds. But you’re going to continue to see from a very disciplined approach when it comes to capital allocation.

So we’re committed to doing those 35, but we’ve built in the right stage gates that if for some reason, we’re not replicating these results, we will have the ability to pivot at the right time and redirect..

The next question is from Jeff Farmer with Gordon Haskett. Please go ahead..

Thank you. Just wanted to follow up on the tiered pricing efforts, more specifically how we should be thinking about the scale of those increases or potential scale of those increases.

Anything you can offer there in terms of order of magnitude as you've gone ahead and made some changes to the pricing structure on the gaming side, on the recent side?.

Yeah. What I'll tell you is, we -- during the -- our Investor Day last June, we sized up the opportunity, and we said that we believe that there's approximately -- there's an opportunity to add a tenant increase in strategic game pricing over a period of time, and we're still committed to that. And so we still believe that that's a good number.

What you’ll see as we move forward into F ‘24 is that the price is going to be different region to region. But we would expect the pass through a price increase that would be consistent with what we communicated at Investor Day, which is 10% over a longer period of time. So 2024 would be a step in that direction..

The next question is from Brian Vaccaro with Raymond James. Please go ahead..

Hi. Thanks and good evening. Just a question on sales. If we can go back to that, Mike. I think you said you were running down low-single digit comps up until January which, if my quick math is right, January was down somewhat low to mid-teens. Year-on-year, I wanted to just confirm that was right for -- sorry, quick math here.

But -- and if it is, I understand it's really murky, but how do you view sort of the underlying comp trend and what's a reasonable expectation near term for when comps might stabilize, if not turn positive moving through 2024?.

Kind of put it this way. I think your math is fairly close because when we look at -- when we exited out of the holiday season, you're looking at it being about the end of the first full week of January, which is right at the time that we're talking about comp that was 20-plus percent mark. That plus the weather impact did have a significant impact.

We had close to 60-plus stores that were either partially closed or fully closed for a certain number of days during that period of time. So there was a material impact to us. As we look forward to the consumer trends and everything else, I think it's kind of hard for us to pinpoint given the uncertainty.

And I say when uncertainty is there's so much holiday mismatch around spring break at this point in time and the continued choppiness that we're seeing. So at this point, we're continuing to be focused on the longer-term objectives. You heard the passion that Chris has in laying out each of the strict initiatives that we have.

And all of those will continue to just produce green shoots and provide with a better return as we get further into the year and beyond..

The next question is from Andrew Strelzik with BMO. Please go ahead..

Hey. Thanks for taking the question. I guess it's been almost, I guess, a year since the Investor Day when you laid out kind of the earnings build towards your EBITDA targets. And so I guess I'd be curious to hear you kind of step back and frame where you are now in terms of versus where you maybe would have expected to be at that point in time.

Are there some of the initiatives where you're seeing more or less traction than you expected or where you're ahead or behind on time lines? And kind of if you were to recast your expectations, anything that would have been different versus at that time..

Yeah. That's a great question. So I'll tell you the way that we've have been thinking about this journey that we've all been on. Internally, we've always referred to year 1 as the year of the foundation.

And the reason we described as the year of the foundation is because there was so much infrastructure work that we needed to do just to catch up for what we would refer to as 15 years of neglect in this business. There's -- from a system standpoint, the systems were just way behind where they needed to be.

the processes were way behind where they needed to be. As evidenced by the fact that I just mentioned that we didn't even have the ability to have variable pricing across regions. So there's a lot of work to do on the infrastructure. There's also a lot of testing that needs to be done. And so I -- where we are right now is we're right on schedule.

We've executed everything that we set out to do on the infrastructure. We've tested everything that we set out to do, and we are now in the process of implementing all of those initiatives. And so I'm very proud of the work that the team has done. We're right where we want to be on remodels, our new units continue to perform exceptionally well.

We're on pace on international right in line with what we were expecting when we built out our long-term plan. Game pricing is where we thought we'd be, just given the system limitations.

Our food and beverage offering, I feel very good about the work that we're doing there and the results that we're driving and the new service model as evidenced by the impact that we're already having on the guest experience. So on the initiative side of things I'm very proud of the work the team is doing.

And so -- this is -- but what we did say is like, look, this is a journey that we're on. And clearly, there is tremendous upside in this business. There's upside on each one of these initiatives when you size it up.

And there's collectively an enormous amount of upside in the value of the stock, and we continue to believe that the stock is significantly undervalued with the potential that we have in front of us. The unknown is just the macro environment and what's going to happen with the consumer and the uncertainties.

And so our focus is just focusing on what we can control. And clearly, what we can control, we’re executing against. And there’s – as we’ve dug deeper into each one of these initiatives, we’re as confident as we ever have been and being able to make a positive impact on this business over the medium term.

So the time line might shift a little bit here or there, but committed to getting the job done..

The next question is from Sharon Zackfia with William Blair. Please go ahead..

Hi. Thank you for taking the question. I wanted to go back to the kind of phases of what you're doing with the gaming prices. I know you indicated that, that's been a positive going through to the bottom line. I guess I'm curious on kind of what amount of impact there is from maybe people staying longer.

I mean is it or saying for a lesser amount of time because the Power Cards are up quicker.

I mean what is the -- or is there any potential offset that you're seeing the game price increases?.

Yeah. No, again, very good question and exactly the right question. So keep in mind, I said that we've gone through the testing and learning process. And one of the things that we wanted to make sure we understood is exactly what you just outlined to.

We didn't want to have a negative impact on value proposition, and we didn't want to just kind of trade right pocket for less pocket and grow price on the front end, but then you reduce your overall spend by reducing dwell time. And so we've been closely evaluating that and tweaking it to get to the right balance.

And so what we are implementing or what we implemented, we rolled out in February of 2024 was the results of all of that testing. And so we didn't get it right at the beginning, and so we made some adjustments. And we changed pricing to make sure that we were protecting the value proposition. We move stores in-tier, out-tier. We did all of that.

And so now we’re moving forward with confidence that we’ve got the right formula. And so what we’ve rolled out, we’re not seeing a material deterioration in dwell time. And we’re not seeing any impact on value proposition. But I will tell you, we’re going to continue to closely monitor this. And we need to make changes, we’ll make changes.

And so that’s the benefit of where we are now is we’re in a much better position to be nimble and to adapt to the extent that the consumer starts to go a different direction..

The next question is from Dennis Geiger with UBS. Please go ahead..

Great. Thanks, guys. Wondering if you could just speak a little bit more to that maybe choppiness comments for the first quarter. Are you recognizing you're appropriately focused on the longer-term strategic opportunities.

But just maybe as it relates to anything you're seeing from a customer standpoint, whether it's across visits, other spending patterns, income or age cohorts. Anything to kind of call out there? And again, recognizing there has been a choppiness across the industry in recent months.

But is there anything you could share on the customer behaviors, et cetera, in recent months? Any kind of shifting it on that front?.

You want to take that, Q?.

Yeah. I guess I would say it this way. It's -- the choppiness we've seen is really from a visitation perspective, but once people are in the door, they're still spending at the same levels, they've always spent. The dwell times are just the same as they were before. So it's really more of that visitation aspect of it than it is anything else.

So that's the piece that we're feeling really good about. And that's where we start seeing the improvement in the food and beverage, the spend and things of that effect that we've got us really excited about the long-term potential of the actions that were taken from an organic growth perspective..

We've seen -- maybe just to add in just a little bit more color as we've continued to dig in and look at our business. We've seen a couple of things. We've seen a little bit of weakness on the lower income consumer, but at the same time, we've seen strength on the high-end consumer. And everybody in between kind of acting in a normal fashion.

And so that's -- those two are somewhat offsetting each other, but it is something that we've been able to kind of tease out of the data and we're using that data to inform how we're approaching the business and inform promotions and things of that nature..

This concludes our question-and-answer session. I would like to turn the conference back over to Chris Morris for any closing remarks..

Okay. All right. Thank you, operator. We are entering 2024 from a position of financial strength, and we expect this year to be a transformative on our journey to unlock the potential of this phenomenal business. Thank you all for joining. We look forward to welcome you at one of our stores this year and speaking with you again soon. Thank you..

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect..