Lucky Strike Entertainment Corp Q3 FY2025 Earnings Call

Thank you for joining us. My name is Leslie, and I will be your conference operator today. I would like to welcome everyone to the Lucky Strike Entertainment Third Quarter 2025 Earnings Conference Call. I will now hand the call over to Bobby Lavan. Please proceed.

Good morning to everyone on the call. This is Bobby Lavan, Lucky Strike’s Chief Financial Officer. Welcome to our conference call to discuss Lucky Strike's Third Quarter 2025 Earnings. Today, we issued a press release announcing our financial results for the period ended March 30, 2025. A copy of the press release is available in the Investor Relations section of our website. Joining me on the call today are Thomas Shannon, our Founder and Chief Executive; and Lev Ekster, our President. I'd like to remind you that during today's conference call, we may make certain forward-looking statements about the company's performance. Such forward-looking statements are not guarantees of future performance, and therefore, one should not place undue reliance on them. Forward-looking statements are also subject to the inherent risks and uncertainties that could cause actual results to differ materially from those expressed. For additional information concerning factors that could cause actual results to differ from those discussed in our forward-looking statements, you should refer to cautionary statements contained in our press release as well as the risk factors contained in the company's filings with the SEC. Lucky Strike Entertainment undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances that could occur after today's call. Also during today's call, the company may discuss certain non-GAAP financial measures as defined by SEC Regulation G. The GAAP financial measures most directly comparable to each non-GAAP financial measure discussed and the reconciliation of those differences between each non-GAAP financial measure and the comparable GAAP financial measure can be found on the company's website. I'll now turn the call over to Tom.

Good morning. I am Thomas Shannon, Founder, Chairman and CEO of Lucky Strike Entertainment. Last quarter, we spoke about the resilience that defines our team and our brands, how we navigate volatility with focus and versatility. This past quarter that same turbulence persisted, but so did our momentum. In fact, we've been actively calibrating our business to not just withstand the uncertainty, but to thrive in it. Our total revenue rose 0.7% for the quarter, a modest increase that masks meaningful gains in our retail, online and league segments. While layoffs and corporate austerity, particularly in the tech sector, have impacted our off-line mostly corporate business on the West Coast, we see this as a transitory headwind. We felt this since summer, but brighter skies are ahead. As we lap those declines in the coming months, we expect the picture to shift. Meanwhile, we are filling available land capacity by growing our leagues business, which is already up low single digits and continues a multi-year growth trajectory. The leagues business is sticky, high frequency, loyal and managed correctly, high margin. Corporate events have been hit by macro uncertainty, but we're already seeing signs of rebound. Our Boston, Miami, and New Jersey sales groups all comped positive in April, and several more sales groups are close to flat. And with sales driving initiatives coming online ahead of our peak season in September, we're positioned for a strong comeback. In Southern California, the lingering impact of January's devastating fires continues to weigh on our business there. More broadly, layoffs and corporate caution have created headwinds since summer 2024. But here's what's changing. Consumers are turning towards local, high-value entertainment. As air travel softens, we're ideally positioned to meet demand for convenient and memorable out-of-home experiences. In a clear indication of that, early sales of our summer season passes are already up over 200% year-over-year. That tells us where the consumer mindset is, and it's encouraging. For the first time, we're entering summer with large water parks in Destin and Panama City Beach, Florida, our flagship 54-acre Raging Waves Water Park in Illinois, Six Boomers branded parks in California and Boca Raton, Florida; and our newest family entertainment center, Adventure Park in Visalia, California. Whether it rains or shines, we are becoming more hedged to the climate. Lucky Strike is on track to deliver positive growth this fiscal year, continuing our remarkable streak of consistent revenue gains over the last 12 years. Alongside that growth, our team has adeptly adjusted our cost structure to increase operating leverage. Despite some lumpiness, we've delivered 4% to 5% average annualized same-store sales growth since 2013. Our new builds or properties launched between September and December of 2024 are exceeding expectations, delivering nearly $8 million in revenue and $4 million in EBITDA. These results prove the power of our model and the strength of our team's execution. As we invest in our water parks, family entertainment centers, and upgraded bowling experiences, we expect to not only maintain our industry-leading performance but to accelerate it. With that, I'll hand it over to Lucky Strike's President, Lev Ekster, to walk you through the exciting organic initiatives ahead.

Thank you, Tom. We launched the presale of our popular summer season pass in early March, and the response has been incredible. With 1 week of the presale remaining before redemption begins, we're already approaching 100,000 passes sold. At a time of macroeconomic uncertainty, consumers are clearly gravitating towards high-value offerings, and our summer season pass delivers just that. It is set to drive meaningful traffic to our centers during what is typically a seasonally softer period. When these guests arrive, they'll be met with our refreshed food and beverage experience and a lineup of exciting limited-time summer offerings, which will continue to drive strong results. In Q3, comparable food sales rose 1%, with total food sales up 8% year-over-year. With increased summer traffic, we are confident that this momentum will continue as our revamped food initiatives gain even more traction and attachment. I also want to share an exciting update on the PBA, which just achieved a 103% year-over-year increase in viewership for this past Sunday telecast of its first round of playoffs. Last week, we announced a multi-year media rights agreement with our new broadcast partner, CW. Starting next season, CW will be featuring 10 PBA events on consecutive Sundays, which our fans are thrilled about. We will soon announce additional partners that will increase the distribution of our events across broadcast and streaming. These media rights partnerships, combined with a growing roster of sponsors, which strengthen the PBA's financial footing, we are now well positioned to unlock its full potential in the years ahead. Now, I will hand it over to Bobby to review the financial results.

Thank you, Lev. In the third quarter of 2025, we delivered total revenue of $339.9 million and adjusted EBITDA of $117.3 million. This compares to $337.7 million in revenue and $122.8 million in adjusted EBITDA. While total revenue grew modestly by 0.7%, same-store sales declined by 5.6%. Breaking down the performance by segment: our retail business remains steady; our leagues operations experienced low single-digit growth and our events business faced high single-digit decline. Adjusted EBITDA for the quarter came in at $117.3 million, with same-store sales acting as a $19 million headwind to the bottom line. Offsetting that were improvements in comp payroll to the tune of $8 million and reductions in repair and maintenance, supplies, and services costs coming in around $3 million. Boomers and Raising Waves represented a $2 million drag in the quarter. However, we anticipate this will reverse in the next two quarters as we move into the peak summer season. For context, Raising Waves generated $9 million in EBITDA last summer, and we expect Boomers to perform similarly for this summer. Geographically, California, which accounts for 21% of our total sales, contributed nearly 50% of the same-store sales decline. This was primarily due to broad-based softness in the Los Angeles market and double-digit declines in the Corporate Events segment. However, as we cycle past tougher comparisons, we expect improved performance starting this summer. We also continue to invest in growth through acquisitions. In April, we acquired Shipwreck Island in Panama City Beach, Florida for $30 million. We are excited about the long-term potential this property adds to our portfolio. During the quarter, we deployed $25 million in capital expenditures; $14 million for growth initiatives, $1 million for new builds and $12 million for maintenance. Additionally, we invested $9 million to acquire incremental land at Raising Waves; excluding this land purchase, CapEx year-to-date is down $40 million compared to last year. Our liquidity position remained strong at $391 million, with $79 million in cash and no borrowings on our revolver. Net debt stands at $1.2 billion and our bank credit facility net leverage ratio is 2.9. We appreciate your continued support and look forward to welcoming you to one of our new or expanded venues this summer. Operator, please open the line for questions.

Your first question comes from the line of Matthew Boss with JPMorgan. Please go ahead.

Great, thanks. Maybe Tom, could you elaborate on what you're seeing from walk-in versus corporate trends over the course of the quarter, maybe what you've seen in April and early May. And then if we just take a step back and we think about economic uncertainty today relative to historical, what behaviors are you seeing today that maybe are influenced by using times of the past thinking about your business model and how maybe historically it remains more resilient.

Hey Matt, I'll respond to the second part of your question and pass the first part to Bobby. We've encountered this situation before, where companies tend to cut back on entertainment in the face of macroeconomic challenges like what we're experiencing now. Just last weekend, an article in the Wall Street Journal highlighted the significant layoffs in Silicon Valley and noted that companies are cancelling most travel and corporate events, essentially all discretionary spending related to employees. We've observed similar situations in 2008, during COVID, and after 9/11. This outcome is entirely predictable. The positive aspect is that these conditions are typically temporary, and while corporate America has reacted strongly to recent macro developments, circumstances can also shift rapidly in a favorable direction. I'm not saying we're heavily reliant on the corporate event business, but it represents a significant portion of our operations. We generate $300 million annually from events, not all of which are corporate—some are birthday parties. However, we have a higher sensitivity to corporate events compared to many competitors. This means we perform well during good times but face challenges in tough periods. As Bobby mentioned in his remarks, over half of our same-store sales decline on a comparable basis was primarily due to California, which accounts for 21% of our revenue, largely from corporate sources. I anticipate a recovery by the third calendar quarter of this year, if not by the fourth. I don't see this as a long-term trend, but it's the reality we are currently navigating. On a positive note, other segments of our business have been surprisingly robust. Now, I’ll hand it over to Bobby for more details on the performance of our lead business and retail walk-in business.

The retail business is flat, while the league business has seen low single-digit growth. The offline corporate business, which we focused on between November and March, is down significantly. In January, we experienced a 3% decline, influenced by fires in L.A. February showed a 10% drop, which I believe was largely due to weather impacts within the industry. The uncertainty peaked in February but has improved since March, which was comparable to January, and April has shown signs of recovery. Our recent numbers over the past few days are positive, and I am optimistic as we approach May and June, where the summer season pass is currently performing at double the rate of last year. Additionally, during this period, corporate events will shift from being more than 20% of our business to single digits. Overall, retail trends are satisfactory, and we anticipate a boost driven by food sales. The lead trends are strong, and we are focusing on leads. However, as Lev mentioned, the events business is essential across our 14,000 venues. If we expect a strong events business, we need to ensure we also bring in more stable, lower per capita lane leads, which we are currently prioritizing. Ultimately, the trends are improving, and as Tom pointed out, once corporate starts to show growth, the entire business will follow suit.

Great. And then maybe just a follow-up, Bobby. Areas of expense flexibility near term that you have? And maybe relative to that, how you're prioritizing multi-year initiatives? And if you see potential for M&A opportunity that might arise out of all of this disruption?

Yes, we've reduced payroll by about $8 million each quarter. While this reduction is less noticeable in our March quarter, we expect to see a larger impact in the June and September quarters. We’ve also cut back on repairs and maintenance, supplies, and services by around $3 million per quarter. During higher revenue periods, we will see both negative and positive operating leverage, so the benefits will be more evident in June and September. Regarding mergers and acquisitions, we completed a $30 million deal in April, which is set to close in 30 days. We acquired a water park along with the land at a multiple of nearly 6 to 7 times. We believe that once we start operating it, the cost will be even lower. Prices are decreasing, and activity is increasing, though there is still significant concern about the macroeconomic situation. Therefore, I anticipate a very active summer for us.

Great, best of luck.

Thank you.

Your next question comes from the line of Steven Wieczynski with Stifel. Your line is now open.

Good morning, everyone. I would like to ask Bobby or Tom about the situation compared to your last call in early February and where we currently stand. It seems you were anticipating positive same-store sales in the third quarter, but instead, we saw a decrease of about 5.5% or 6%. I'm trying to understand what occurred in the last eight weeks of the quarter that led to such a significant shift in same-store sales. You mentioned corporate factors, but I would like to know if it was entirely due to that or if there were other unexpected elements at play.

Yes, we were very cautious about revenue during that call. I want to mention that the corporate business deteriorated significantly in February and March. In California, the fires in L.A. impacted the corporate business, and overall, it's just getting worse. It has reached its lowest point, and we anticipate an easier comparison starting in July. However, the corporate segment accounted for 20% of our business in the quarter.

Okay, I understand. Regarding the decision to remove guidance, we completely grasp the rationale behind that given the prevailing uncertainty in the marketplace. However, I'm trying to make sense of the timing since your fiscal year ends in June, which is about seven weeks away. Is the choice to remove guidance stemming from the unexpected issues you encountered in February and March? I'm not sure I'm articulating this clearly, but I want to gain more insight into that decision. Additionally, could you provide some context on the choice to continue buying back shares instead of focusing on debt reduction during this uncertain environment? A bit of information regarding free cash flow at this stage would also be helpful.

Well, this is Tom. I think Bobby mentioned that he feels more confident in providing guidance regarding expenses than revenue. In the past month, we reduced hours by 90,000 year-over-year on a same-store basis, which shows our aggressive approach to managing expenses. Even though we were down around $18 million or $19 million on a comparative basis this quarter, we managed to offset most of that loss through our EBITDA. We have control over expenses and can influence factors like upselling and boosting the per capita business. We're taking a proactive stance, especially with corporate events, and have required our sales team to return to the office, fully effective by June 30, though many have already returned. We're conducting walk-throughs and tastings to enhance our efforts. However, there are external factors beyond our control, such as if Silicon Valley decides to halt corporate activities, which would significantly impact the business we've seen before. On the flip side, when sentiments shift positively, we capitalize on that as much as possible. Our business is quite short-cycle; many retail decisions happen on the same day or a day or two prior. Corporate business typically has a longer decision-making period, but rarely extends beyond a few weeks. This makes it challenging for us to provide solid guidance because we lack insight into future developments. However, management is satisfied with the quarter, especially given the various external challenges we faced. If we hadn't been proactive, our EBITDA might have seen a more significant decline, unlike some of our main competitors. When their revenues drop, their EBITDA plummets, but our EBITDA only saw a modest decrease. This success stems from effective expense management and generating revenue where we can, although some areas are simply out of our hands. For instance, issues like the West Coast fires can prevent companies from hosting events in Southern California due to sensitivities, complicating our ability to forecast months in advance. On a positive note, we have strong visibility regarding our summer season pass sales, which surpassed last summer's figures by 200% in presales, representing significant revenue. We are also excited about the opening of two water parks this summer that weren't accessible last year, which should contribute meaningfully to our EBITDA. Moreover, we have seven family entertainment centers, mostly in California and one in Florida, that will benefit from favorable weather. Overall, we see many positive developments, and we're hoping to overcome the corporate downturn that began in the last two quarters of 2024. While we remain optimistic, providing precise guidance remains challenging due to the nature of our business cycles.

Steve, when I think about the next 7, 8 weeks, we have round numbers, $200 million of revenue over the next two weeks. You heard on the previous question, like the comp is whipping right now, down 3%, down 10%, down 3%, getting better from there. So, from our perspective, you can sort of drive a truck through sort of the volatility right now. And it's very important for us to be honest with our stakeholders about when we're confident on which direction the business is going in the short term, in the long term; in the short term, the volatility is too high. I think that we are evaluating throughout the summer that the volatility come down. Are there better KPIs that we can give the Street, so they can focus on the performance of our business? But ultimately, I still have $200 million of revenue to go over the next 8 weeks. And that sort of variability is still very high. We are excited about, as Tom said, the season pass. We are very excited about corporate being less of the business this summer; but ultimately, the volatility continues to be very high in the market.

Okay, got you. That’s great color. Thanks guys, appreciate it.

Your next question comes from the line of Jason Tilchen with Cannacord Genuity. Your line is now open.

Good morning and thank you for taking my question. I would like to know more about how the rebranding initiative is progressing, particularly how the performance of the centers that have already undergone rebranding compares to those that have not. You mentioned in your prepared remarks and in the press release a desire to adopt a more disciplined approach to capital investments given the current macroeconomic conditions. How does that align with the previously announced plans to accelerate the pace of rebrandings in the coming months?

This is Lev. Since the beginning of the calendar year, we've completed 15 rebrands of Bowlero to Lucky Strikes, and we remain committed to maintaining that pace because the rebranding costs are quite modest. There are some sign changes, but the main difference lies in how Lucky Strike operates compared to Bowlero. Lucky Strike offers a better menu, enhanced hospitality, and a different playlist, creating a distinct environment that we can establish efficiently, which we have done. These rebrands generate renewed excitement among consumers in the market, leading to increased foot traffic. They are often accompanied by events to reintroduce the community to the Lucky Strike concept, and we plan to continue these efforts. Our aim is still to reach 75 rebrands by the end of the calendar year. The costs involved are modest, while the benefits are significant. Importantly, this initiative increases our representation of Lucky Strike, which will allow us to invest more in national marketing efforts as we will have enough centers to support those expenses.

Yes, it’s important to highlight that our comparable store sales decreased by 5.6%. However, our food sales were positive, and overall food revenue grew in high single digits. Consumers are responding well to our rebrand and food initiatives. Therefore, we are reducing investments in non-high-return capital expenditures. The Lucky Strike rebranding is currently yielding the highest returns in the market.

That's really helpful. And just one quick follow-up there. I think you mentioned sort of total food up high single digit, and then food and bev, I think, was up maybe 1% from the paired remarks, and that would imply sort of continued softness on the bev side of things. Any additional color you can share on sort of the rollout of tablets and things like that and how those have had a benefit and impact on sales trends in centers?

Yes, I'll take this one. While there are societal changes regarding alcohol consumption, we are not deterred. We're expanding our Zero Fruit cocktail program to over 100 locations this summer and launching an exciting national craft lemonade initiative. This will be tied to our summer season pass, offering discounts on this new product for premium pass holders. Food is a significant advantage for us currently. We've made innovations with our menu, which is showing growth and reduced costs, thanks to better inventory management and the introduction of crunch time. Soon, 100 of our locations will be utilizing server tablets. We are committed to ongoing innovation and will be introducing new feature menu items for our premium menus, such as our chopped chicken Caesar wrap, Chipotle honey chicken bowls, and strawberry poppy salads. These offerings are unconventional for a bowling alley, but we see ourselves as a location-based entertainment business now, and Lucky Strike allows us to present this type of menu. Consumers are responding positively, which is evident in our strong food performance. We will apply the same focus to alcohol and our Zero Fruit lemonade programs. We are committed to innovating and launching better products, enhancing our menus, and I believe the results will continue to reflect our efforts.

The tablets are driving an increase on per check 7%. So it's working. And we're leaning into food while we wait for the corporate business to come back.

Great, thank you very much.

Your next question comes from the line of Eric Handler of ROTH Capital. Please go ahead.

Is that you, Eric, or us? Operator, let's proceed to the next question.

I'm sorry. Your next question comes line of Michael Kupinski of Noble Capital Markets. Please go ahead.

Thank you, thanks for taking my question. A quick one. I'm kind of trying to understand the cutbacks in corporate events. Is it due to short-term concerns or are there more broad, longer-term economic concerns specific to Silicon Valley? For instance, a number of companies that I follow also have indicated that business and particularly corporate business seems to be floating around the tariff issues and they saw weakness around Liberation Day, but then you saw some improvements come back as some of those concerns subsided. And I was just wondering in terms of your corporate events business and you're seeing some improvement. I was just wondering, do you have any thoughts if it is really related to more of the tariff issues and how businesses are trying to react to the prospects and the economic fallout around that?

I believe the situation varies by market. For instance, in April, out of about 25 sales groups nationwide, a few had positive comps, while several were flat, and those on the West Coast saw significant declines. The year-over-year comp difference between the East Coast and West Coast was 20 percentage points. The tech industry often responds first to negative macro news, while other sectors are less affected. I don't see this as a long-term trend; it reminds me of 2008 when people's spending habits changed rapidly. Other industries will adapt to fill the void. As I mentioned, we are bringing our event sales team back to the office. We've been remote since the pandemic, which worked well due to strong corporate activity. However, as conditions change, we recognize that many of our customers have had minimal contact with our sales team or venues before booking events. They were likely searching online, viewing our pictures alongside those of our competitors without truly understanding the differences. We have premier locations and excellent food, so we are now inviting inquiries to visit our properties and sample the food, which has resulted in a significant increase in our conversion rates. We are actively working to address this. As Bobby noted, corporate business tends to decline as a percentage of revenue in the summer and will become less crucial until the fourth quarter of this year. By then, I expect much of the market noise to settle. However, the impact of tariffs is significant. For instance, we halted negotiations on eight leases, which represented about $100 million in capital spending, due to anticipated construction cost increases of 20% to 30% caused by rising material costs and labor shortages. Many companies share similar concerns about the unpredictable negative impacts of tariffs, including revenue uncertainty and unexpected cost increases. Currently, the effect of tariffs on corporate sentiment is pronounced. Recent earnings reports may not reflect this, as those companies had orders fulfilled before the tariff impacts were felt. I can assure you that overall activity has slowed considerably due to the tariffs. Yet, this issue could resolve as quickly as it emerged, with sentiment potentially shifting just as fast. I'm not in the prediction business, so I can't say when that will occur. Nevertheless, I don't believe these negative external shocks are permanent. The economy tends to stabilize, and sentiment returns to average levels, whether that takes two, four, or six months. I do not view this as a lasting detriment to our business.

Great, thank you for that color. I greatly appreciate it, that’s all I have.

Your next question comes from the line of Michael Swartz with Truist Securities. Please go ahead.

Hey guys, good morning. Maybe just wanted to touch on some of the water parks and family entertainment centers. As this is a growing part of the portfolio, I know it's still small in the context of 300-plus locations. Can you give us a sense or maybe frame for us the annual contribution from these businesses now? And maybe how to think about the seasonality in totality?

Yes. So on the water park side, you're really going to see revenue pretty much from June to August. We have a little bit of revenue in April, May. Really, it's June to August. Right now, we have 3 water parks that will contribute $30-plus million of revenue between June and August. Then you have the Boomers/FEC business, that's another $30 million of revenue that is throughout the year, but 50-plus percent of it happens between June and September when school is out. So, from my perspective, we're highly confident in strong growth this quarter, strong growth next quarter, because we just have these businesses flowing in and so we'll continue to do that. And again, the comp on the bowling side is one thing, but the inorganic growth that we get on these businesses in Boomers, we bought for $26.5 million, it's going to do $10-plus million of EBITDA going to higher than that. And so the flow-through on that business is very similar to the rest of our business is that, overall, we can get good 30s, if not low 40s EBITDA margin.

Okay, that's helpful. And then Tom, I think you made the comment of consumers during periods of uncertainty, consumers turn to local entertainment to a greater degree. And I think you kind of mentioned the season success of the season pass this year. Are there any other data points that kind of give you the confidence that we are starting to see that happen?

We are seeing significant growth not only in bowling summer season pass sales but also in water park season pass sales. Our flagship park, Raging Waves in Illinois, has experienced over 100% increase in season pass sales this year. This is likely due to a combination of people wanting to stay local and our successful marketing efforts and pricing strategies. Our management team has been proactive on multiple fronts, focusing on building a strong marketing function. We are hiring and training new sales staff and adjusting their activities to better target areas we hadn't focused on before. These efforts are showing positive results. Additionally, the data suggests that our business was only slightly affected by challenges in a small region during the first quarter, indicating a healthy consumer willing to spend on these activities. Historically, if we weren't as strong in the corporate party business, we’d likely be seeing positive comps now, but that wouldn’t necessarily be ideal since corporate events are a profitable, albeit volatile, segment for us. Currently, walk-in retail business is flat. It's important to note that since 2013, we've averaged about 5% increase in same-store sales. We're currently seeing a 25% increase on a same-store basis compared to 2019. Therefore, a negative comp reflects substantial prior growth. Our average unit volume has risen from $2.1 million to around $3.3 million in the last five years, and while we’re experiencing a slight decline, it’s a natural part of the growth cycle. Our history of 28 years has shown us that there are ups and downs in business cycles, but there are many positive aspects here. We have eliminated unnecessary costs, improved capital efficiency, and reduced capital expenditures to focus on the most promising projects. We also made a favorable acquisition, Boomers, for $26.5 million, which we expect to generate over $15 million in EBITDA while obtaining assets at approximately 5x EBITDA. We feel optimistic about our position. Regarding the stock buyback, our focus may shift to deleveraging. I wish we had managed our buybacks with more liquidity, but it's something we can address. Ultimately, our aim, supported by the Board, is to deleverage the business while increasing EBITDA at a steady debt level.

Your last question comes from the line of Jeremy Hamblin with Craig-Hallum Capital Group. Your line is now open.

Great, thanks for taking the question this morning. I wanted to focus actually on SG&A spend. And so as you saw very modest growth here in the March quarter, you saw a pretty significant uptick in the total SG&A costs. I wanted to just get an understanding. I know you've talked about in the past some flexibility to really dial down your spend if the market conditions warranted. And obviously, uncertainty, I think, is probably going to be around not just for a couple of months, but probably for an extended period of time. How should we be thinking about your SG&A spend here given that you've got a change in the dynamic where you now have water parks, you have boomers, businesses that you have to operate and spend money on during the summer months. But how should we be thinking about your SG&A cost structure here year-over-year in the June quarter? And then as we look ahead into the back half of calendar 2026?

Let me address a complex technical aspect from the quarter. SG&A included a $5 million noncash charge due to Brett's retirement. We had to account for that charge, but I anticipate SG&A to decline. It was down last quarter and would have decreased further, primarily due to an accounting adjustment rather than operational changes. We are focused on managing SG&A costs while aiming to increase revenue. That is the core of our business strategy moving forward.

Okay, following up on that, as we look towards fiscal 2026 and consider the less aggressive approach to new deal flow, what are your expectations regarding costs as you shift focus to higher return remodels in the Lucky Strike brand? You mentioned a slight increase in costs related to tariffs. How should we interpret that? Additionally, could you share insights on the employee market, specifically whether it remains robust or if there are indications that employee availability in the pure-play restaurant sector is becoming more restricted than it has been?

Yes. My cost structure includes $400 million for payroll, which will naturally have some cost of living adjustments and inflationary impacts. Additionally, we have $600 million in non-payroll expenses that we plan to reduce. Even in a tariff environment, there are various opportunities to lower costs and enhance efficiencies. We are developing a procurement organization and collaborating with our vendors to achieve scale. Instead of purchasing items like couches individually, we are now ordering in bulk, such as 1,000 at a time. The primary reason for the Lucky Strike rebrand is to establish a single, unified brand that can enhance efficiencies across our cost structure.

Great, thanks for the color. Best wishes.

That will conclude our question-and-answer session. And I will now turn the call back over to Bobby Lavan for closing remarks.

Thanks, everyone. We'll be on the road for the next few months and look forward to seeing you. Thank you.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.