Good afternoon everyone. Welcome to the Dave & Buster's Entertainment, Incorporated Third Quarter 2020 Earnings Results Conference Call. Today's call is being hosted by Brian Jenkins, Chief Executive Officer. He will be joining the call by Scott Bowman, Chief Financial Officer; and Margo Manning, Chief Operating Officer. I’d like to remind everyone that this call is being recorded and will be available for replay beginning later today. Now, I would like to turn the conference over to Scott Bowman for opening remarks. Please go ahead.

Thank you, and thank you for all joining us today. Before we begin our discussion on the company's 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 related 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 risk factors and uncertainties have been published in our filings with the SEC, which are available on our website at www.daveandbusters.com under the Investor Relations section. In addition, our remarks today will conclude 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 website. Now, I will turn the call over to Brian.

Thank you, Scott. Good afternoon everyone and we appreciate you joining our call today. On behalf of the entire D&B team, we hope you and your families are remaining healthy and safe during what continues to be a challenging time in our nation’s history. I continue to be extremely proud of our team for their tremendous agility, their resilience, and commitment to succeeding under extremely difficult circumstances. As we have discussed on previous calls, our two key near-term priorities are to, number one, re-open and operate our stores safely and efficiently as quickly as possible; and two, to thoughtfully accelerate change in our service model, menu, programming, and marketing. We believe our focus on those two priorities will position our business to thrive in a future beyond COVID. And on both of those fronts, we had a very successful third quarter. I’ll speak to the first of those priorities now. And then Margo and I will provide an update on the second after Scott has had a chance to review our Q3 results and also our expectations for the fourth quarter. During the third quarter, we made significant progress, reopening stores and driving improved operating performance. We began the quarter with 84 open stores and finished with 104, representing 75% of our total store base. This included the opening of two brand new stores, one in Manchester, New Hampshire; and one in Lehigh Valley, Pennsylvania; and the permanent closure of one store in Houston, Texas.

Thanks, Brian, and thanks to everyone on the call for joining us today. I’ll first spend some time summarizing our third quarter performance and our current liquidity position. And then I’ll provide some expectations for the fourth quarter. For the third quarter, total revenues of $109 million decreased 64%, compared with the prior year period, reflecting a 66% decrease in comparable store sales. By month, comparable store sales were negative 75% in August, negative 62% in September, negative 59% in October. For comparable stores that were open and fully operational for these periods, I would also like to provide some performance details by month, compared with the same period last year. For August, our 68 open comparable stores produced a sales index of 46%. For September, 76 open comparable stores posted a sales index of 65%. And for October, our 77 open comparable stores produced a sales index of 61% compared to the prior year. As for sales mix, amusements and other continued to outperform food and beverage, accounting for 65% of total sales compared to 58% last year. Turning to the balance of the P&L, gross margin improved 101 basis points to 83.6% in the quarter, primarily due to higher mix of amusement sales, partially offset by food and beverage spoilage that was expensed as stores reopened. Operating payroll and benefits expense was $27.7 million, a decrease of 64% from the prior year, primarily due to fewer open stores and continued execution of a leaner labor model. Despite the lower sales base, we succeeded in managing these expenses to 25.4% of sales, equal to the same period last year. Other store operating expense was $70.8 million, a decline of 36% from the prior year, primarily due to lower variable costs compounded by savings in marketing, return maintenance, and rent abatements. As a percent of sales, other store operating expense was 64.9% of sales versus 37.1% last year. The higher percentage was mainly due to the deleveraging effect of lower sales on occupancy expense. G&A expense of $11.7 million decreased 28% from the prior year, mainly due to savings in compensation expense, consulting expense, and legal fees.

Thanks, Scott. Despite the recent temporary setback in our business, we’re very encouraged about our future potential due to the resilience demonstrated in our third quarter sales trends and our enhanced liquidity. Another reason we feel very confident is that even before COVID arrived, we were developing and preparing to implement strategic initiatives to accelerate change in our menu, service model, programming, and marketing. Over the past nine months, our team has worked to create a new future for Dave & Buster’s beyond COVID with a plan designed to broaden our relevance and enhance guest engagement while enabling us to operate more efficiently. As we’ve reopened and welcomed guests back to our stores, we gained confidence in each element of that plan. Much of the execution of our reopening game plan and implementation of our future-forward strategic initiatives is being driven by our Chief Operating Officer, Margo Manning. Margo is a 29-year veteran of Dave & Buster’s and has been in her current role for the past four years. She and her team, together with our store managers, have led our store-level COVID response with incredible professionalism, teamwork, and discipline. I’ll ask Margo to join us today to share more information about the investments we’re making in our service model and menu initiatives, which we believe will help put us in a very strong competitive position when we begin to emerge from the current COVID limitations. Here’s Margo.

Thank you, Brian, for this opportunity to highlight the exceptional job our operating teams have done reopening our stores. As each market has been cleared for reopening, our team has demonstrated their ability to get stores up and headed back toward store-level profitability quickly. This takes enormous effort, and I’m extremely proud of the team’s performance through these unprecedented conditions. The best part about reopening our stores is bringing back the staff. To date, we’ve been able to recall approximately 8,000 team members, almost half of the number we were forced to furlough at the onset of the pandemic. It’s been great seeing them welcome our guests back for good, clean fun. As Brian said, our team has been implementing and refining a number of service model and menu initiatives that we had already developed before COVID arrived and we were originally planning to roll out in 2020. The primary objective of our menu initiative is to establish a stronger differentiated food identity for the Dave & Buster’s brand. After extensive research, we have landed on inspired American kitchen as our identity and we have built a plan to bring it to life in 2021. Our new food identity is rooted in enhanced flavors and quality ingredients across a concise number of menu items priced to maintain our historic gross margins. It enables our guests to explore new flavors while also offering them a balanced selection of familiar dishes. Designed to simplify operational execution, this new menu sets our staff up to deliver dishes to our guests hot and fast. Taken together, we expect our new menu to drive an improved guest experience to increase our food attachment rates and to accelerate table turn, all aimed towards increasing food and beverage sales. Our new menu is supported by a dedicated training program that educates our kitchen and wait staff on everything from flavor profiles to cooking techniques. Additionally, we’re in the process of rolling out a new piece of kitchen equipment to every store that will speed up cooking times. We are also upgrading our kitchen management system to facilitate a seamless flow of food, both meaningful operational improvements that will be completed in the first half of 2021. In mid-November, we began the transition to our new menu from the temporary 15-item menu that we implemented as stores began to reopen last spring. We are now offering 17 items and currently plan to add six more dishes in early March and expand to 28 amazing items by late April. This represents a 33% reduction in items from the 42 items on our pre-COVID menu. Of course, we’re prepared to remain flexible in terms of the menu expansion timeline and we will adjust accordingly based on the status of the pandemic. Turning to the service level initiative, the primary goals here are to enable guests to control more of their in-store experience and to free up our team members to focus on cross-selling and up-selling. We believe that increased interaction with our guests will enhance their overall experience. The nucleus of this effort consists of deploying a combination of tablet, kiosk, and mobile web to enable a completely contactless order and pay experience. Our five new stores were launched on this platform and it’s been well received by our guests, most of whom have adopted a hybrid approach initially, utilizing both the new technology and the assistance of a team member. As we continue to refine this technology and service model, we are evaluating the potential to expand this platform to all of our stores during 2021. Another completely new element of our service model initiative involves the November launch of a third-party delivery partnership with Door Dash and Uber Eats at 105 of our stores, essentially all of the stores that we had reopened during the third quarter. Our plan is to add the remaining stores, primarily our California and New York locations once we are able to open them for onsite dining. Finally, to further expand our reach and leverage our kitchen capabilities, we’re beginning to cast several of those kitchen concepts highlighting specific food categories from our new menu. We’re exploring concepts that could be rolled out nationally, regionally, or offered in specific markets, or even seasonally or around specific major events. An overarching objective of our menu and service model initiative is to enhance our long-term profitability by driving increased sales more efficiently. Obviously, many aspects of the lean operating model that we’ve adopted for the past nine months will not be fully sustainable as we move back towards a full operating posture. However, we have learned a lot and are confident that our post-COVID, fully operational service model and menu will produce some degree of sustainable leverage across our major cost levers. Now, I’ll turn the call back to Brian for his closing remarks and I will remain on the call to answer any questions.

Thanks, Margo. And thank you so much for your leadership and your team’s ongoing commitment and dedication to this company that we both love so much. As Margo indicated, we have been working on our service model initiative even in the midst of COVID limitations. We’ve also refined our menu during this period and are poised to fully execute the next two phases of expansion as market conditions improve to a level that will support our success. In addition to those investments, we used some of our reopened stores to test new programming strategies that we believe will drive relevance and recovery as we are able to return to full operations. For example, we launched a system-wide in-store radio station, D&B Live, and deployed a cloud-based digital video system that enables us to centrally manage programming on our WOW Walls and other high-visibility screens in each store. We also experimented this fall with sports programming to see how our guests respond to a more immersive watch experience featuring live DJs and engaging events like vendor-managed beverage tastings at select stores. We’re taking the learnings from these tests and refining our programming and event strategies to be in a position to expand them as COVID restrictions ease. Additionally, during the third quarter, we launched our exclusive Star Wars Lightsaber Dojo VR game that quickly established itself as our top-earning single-player non-redemption game. In Q1, we’ll test multiple game titles to determine the extent of our 2021 game buy, and we’ll watch the pace of business recovery to time their broad rollout. We also launched our new national brand marketing campaign in September. Initial response to the campaign has been encouraging. We will continue to leverage our relationship with our new creative agency to expand the platform, along with a reimagined promotions and events calendar as market conditions recover. We currently anticipate rolling out our game programming and marketing initiatives more broadly in late spring to early summer, depending on COVID trends. I’ll close today by reiterating the themes we’ve been focused on for the past nine months. As difficult as those months have been, we are confident that our team, our plan, our liquidity, and our brand put us in a strong competitive position to bounce back quickly when the threat of COVID begins to subside. Our team is far more experienced and prepared for this current resurgence than we were back in March. We have confidence in our COVID game plan and in our team’s ability to execute it nimbly as market conditions allow. We have a vastly improved liquidity horizon extending beyond the projected threat of COVID with the promise of one or more vaccines expected to become widely available in 2021. We’ve validated that our store reopening process and lean operating model can produce positive enterprise EBITDA at a sales index of 50% to 55% of 2019 levels. Finally, and perhaps most importantly, we’ve demonstrated the resilience of the D&B brand and the pent-up demand that exists among our guests to return to Dave & Buster’s unique menus. When they do, they’ll be greeted by an inspired team, a fresh new menu, a more customer-centric experience, and the good clean fun they’ve come to expect from Dave & Buster’s. I continue to be very proud of and inspired by our team for their commitment and teamwork in the face of difficult and ever-fluctuating conditions. Each member of the D&B team is contributing their unique skills to drive our success while setting us up for a better future. For that, I am extremely grateful. We will get through this together. We’re going to come out on the other side, and we will thrive again in 2021. Now, Ali, we’d like to open up the call for questions.

Of course. Thank you. And we'll go ahead and take our first question from Jake Bartlett from Truist Securities. Please go ahead.

Great. Thanks for taking the question Brian. My first is on the deceleration of the same-store sales, actually really focusing in on the stores that remain open in the comp base and deceleration in the quarter to date from late October. Can you disaggregate what the impact has been on stores that have not had any change in restrictions in trying to, you know, it seems mathematical obviously, restrictions being imposed, but in the stores that have not, for instance, stores in Florida, and you gave us such great detail in the depths from mid-October, you have markets that have not been directly impacted by reclosures, have those also decelerated fairly meaningfully?

Yes. Those are very good questions, Jake. Hope you’re doing well by the way.

You as well.

Thank you. The deceleration we have seen in November has been broad. So, you know, restrictions in sales, if we're still allowed to open, you know, have not really created a big headwind in performance, you know, operating hours, a little bit, you know, capacity restrictions, those sorts of things nearly don’t impact us like they would a casual diner, because we have big facilities, and a lot of capacity and a lot of it is unused certainly over the week and many operating hours. That’s not particularly the headwind there. The decline that we have seen in November have been in virtually every market. So, there's definitely a COVID overhang now, you know, in most markets. Even in Florida, if you look at the data we put out on the website, showing trends by state, virtually every state is declining in November. So, I think, you know, you're seeing some reluctance, I think my guess is to get out really nationally right now.

Great. Okay. That makes a lot of sense. My next question is just on the work that you're doing with your initiatives around the menu and around some of the operational improvements. When you look out into the future, maybe it's a year, a couple of years, when you regain your sales? How much more efficient do you think you'd be? I'm not sure how you know what the best way to frame that is? Some companies have talked about, you know, we would need 90% of our sales to achieve the same level of profitability or something like that. So, is there a way you can frame, you know, how we should think about the more efficient model coming out of COVID just really the extent that it's going to be more efficient?

Yeah, I mean, I've always said, you know, we've learned a lot of things. You know, we've been really scrappy over the last month in terms of labor. And in some ways, a lot of initiatives we’re talking about, you know, what we’re trying to do with self-service, are not really driving what's happening today. I mean, we're – this is just grit on the part of our operators, and they're doing a fantastic job, and being very nimble in terms of how they're scheduling, you know, up and down, you know, the P&L and particularly labor. So, you know, we are definitely, you know, getting some efficiencies by our operating calendar, you know, we're not operating a week. So, some of the periods where we know are less efficient with less revenue. You know, that's helpful right now. And, you know, we're going to continue to look at that operating calendar as we move forward because it has been helpful. And, you know, the initiatives we're talking about and Margo is talking about are really more forward-looking, and we have some of that stuff in test, we think it could be very helpful to us. But, you know, I think we've learned some things. We don't anticipate that we're going to go back to full par level on our management team, you know, to the extent we – when we get back to our normal sales level. Some of this stuff is going to stick, it's not all going to stick. In terms of hourly labor, you know, we're going to see some pressure on that, as we get up north in New York and California. And those are hard cost bases for us. They're not open right now. But, you know, you want to add anything, Margo?

Nothing seems significant.

Okay.

Okay. And just lastly, it would be very helpful to see what the kind of the EBITDA burn rate is in November. You know, things are going to change here in December, as you talked about kind of on a year-over-year basis being much lower, just because they're high volume, weeks and months. Can you help us out on really from a free cash flow level, and that's kind of including your deferrals interest expense, you know, what you think the EBITDA might be, but just trying to understand how – what kind of cash burn you expect, you know, in the fourth quarter; maybe it's a wide range, but just trying to get a better idea of that?

Yeah, Jake. This is Scott. I'll give you a little bit of color as we saw November numbers come in, you know, with EBITDA, you know, about $11 million loss. So, as we start looking at that month our cash burn was, you know, between 3.5 million and 4 million. And so, you know, we do expect, you know, naturally to have a little bit higher cash burn. I think a couple of things to think about is, you know, our rent deferrals that we have out there. You know, so that will be a little bit of a drag on cash. But the other thing is, you know, we're really having some pretty good success in paying down our deferred payables, you know, outside of rent, you know, I mentioned that, you know, we should have around 6 million remaining at the end of this year. Then also the potential – another million dollars, or $11 million or so, from the CARES Act. So, I think, keep those things in mind just from an operational standpoint. Depending on what you're, you know, of EBITDA is, you know take that kind of example from November and hopefully that kind of helps you kind of model out what we may see in the future.

Right. That's very helpful. I appreciate it.

We'll take our next question from Jeff Farmer from Gordon Haskett. Please go ahead.

Thank you very much. I'm just curious if you guys can provide some color on the impact that what looks like a pretty significant drop in special event and large party bookings, will have on your fiscal fourth quarter same-store sales?

Well, as Scott said in his prepared remarks and I did too really, it’s going to have a pretty significant impact. December special events represents about 15% of our overall sales in the month of December. Early on in that business, we were actually booking some events. We geared up a small team to – in some ways think happy thoughts that things would be a little bit better. We kind of lost that bet a bit. And so, we’re not expecting to have a particularly big special events calendar here over the course of the holidays. That’s a pretty big headwind. As you know, our overall party business for the full year is around 10% of overall sales. So, even the index is that we’re talking about and we’re disclosing pretty transparently here, those are – we’re generating those numbers in the face of special events business that’s in the high single digits in terms of mix with really no business. That headwind is going to get a little bigger here as we hit December.

Okay. That’s helpful. And then, you also – I believe mentioned sort of the early entry into a third-party delivery. Anything you can share with us in terms of how impactful that’s been, delivery sales mix in the stores that offer delivery?

Hi, this is Margo. So, I’ll take this one. So, just starting with, we are an entertainment brand first. But in terms of third-party delivery, it’s low cost, low risk. And so, it makes complete sense for us to enter into this space. For us, we view it as being incremental. We’re early days into it. And so, we’ve rolled it out in December. We’re talking literally being live on it for about 2.5 to 3 weeks. We’re working on additional promotions, because we do feel like there is going to be an opportunity for us to expand this, in addition to experimenting with promotion and marketing, because again, it’s going to be sort of new space for us. It’s early for us to really comment on its impact. But just recognize the fact that for us we’re an experiential brand and that’s what the consumer is going to be looking for us. This is incremental, but probably not a game-changing initiative for us.

Okay. I appreciate that. And just one final question, and I believe you guys – sort of the math works out to 15 stores that have been closed in recent weeks. Obviously, you’ve outlined an expectation for potentially some additional stores to close with some of the intensifying mitigation efforts. But the question is, where would you theoretically expect those closures to take place from a state perspective?

Well, we had a couple today, and that’s...

Yeah, they’re kind of coming, you know, certainly rollbacks in terms of hours or even limited service we’ve seen coming at us, and...

We had a few in Maryland today.

Yeah.

I think the Northeast and Mid-Atlantic just had some fall. We have been eyeing some stores in the Midwest that actually we’re expecting to fall earlier, and they haven’t yet. But this is really hard to say. I think we feel like it’s going to get a little worse before it gets better, and we’re going to lose more stores. The 90 we have today lost two today. We’re going to see a further dial back here, I suspect. That said, again, I’m not trying to minimize it, but I do view this as a temporary setback here. I think the line of sight for us is much better today than when we were facing rollbacks and shutdowns of the entire brand back in March. There was a lot of optimism around a vaccine that’s on the horizon here. I don’t think we’re going to alleviate things and nobody really does, but there’s a brighter future in 2021. I think the way forward to get our store base open. In my view, when we get these open the next time, some of this stop and start close activity that we’ve seen and been dealing with over 2020, which has been very difficult, I think we’re pretty optimistic that when we get these stores open again, we have a pretty good shot that they’re going to stay open, and we’re on a path to just better days. What we’re encouraged about is even with COVID still running all around the country. We had our peak in October at the top quartile, as I said, at 90%. That’s very encouraging. We’re really confident that we’re going to bounce back. We just got to get these stores open. We got to weather the winter here. As I’ve said, we’re very hopeful for next year.

All right. Appreciate that. Thank you, guys.

Pleasure.

We’ll take our next question from Andrew Strelzik from BMO. Please go ahead.

Hi. Thanks for taking the question and hope everyone’s doing well. I’m curious about what you’re seeing in some of the stores that were farthest along in the sales recovery. So, whether that’s, you know, the 15 or 20 or so from the deck that you provided in mid-October about that – 100% or close or maybe the top quartile that we’re at 90% sales index. If you could just kind of compare and contrast how the business looked versus a year ago before the pandemic, where were the margins relative to a year ago for those stores, what did the demographics look like, and what did the business mix look like? Any other color and nuances that you can share would be helpful.

A lot of questions there. So, in terms of the stores that were performing the best over the course of COVID, with, I’m sorry, Florida and the Southeast were the states that were really performing the best for us. Those are the ones really getting close to 100% if you look that on our website. Some of those stores were actually performing better than they were in 2019. So, that’s sort of the good news. In terms of what’s happened recently with this resurgence, really all boats are declining here, and dropping also at levels across, you know, the states of Florida, South Carolina, some of those locations, Georgia that were performing so well, they’ve gone back quite a bit now. Again, we think it’s temporary – it will be temporary but they’re suffering right now, and a number of the other stores were.

That was pretty much ...

The demographics are – where I think Margo your here, we’re still seeing a little more adult, a little more male, I think, but...

And then, the families start to come back after the stores have been open for a while. We start seeing them sort of settle back to the pre-COVID sort of gateway. But initially when they opened, it does look a little different.

Okay, great. That’s very helpful. And then, the competitive environment, competitive intrusion had, before COVID, been a very key theme for the business. How do you think that could change moving forward? I’m just curious, have you been able to kind of quantify or dig in on kind of what you’ve seen so far from a closure perspective or how you expect that to evolve as we kind of move forward over the next couple of years?

So, we quite apologize on closures here?

Competitive.

Competitive closures?

Yeah.

We’re tracking kind of the competitive set right now. I think you are and many others trying to follow what we’re seeing. There’s a mixed bag right now in terms of the competitive set we have. Some of the ones that we’ve talked about in recent years, in particular, that are largely open right now. Then, there are others where some of them are largely closed down. So it’s definitely a mixed bag. My feeling is that we’re all grappling with store closures, softer demand, dealing with liquidity issues. My feeling is that we’re going to see, and we definitely saw a rollback and a decrease in store openings certainly. We did that. Others did that as well. I think we’re going to see a bit of a slowdown as people are really trying to concentrate on their core business. That’s definitely what we’re going to do. We are going to concentrate – our best path to recovering as a brand is getting our existing store base reopened and driving profitability in the business. And so, that’s what our focus is. I would expect that that’s going to be a bit of the focus here for some of these other brands. I do think there’s going to be a shakeout of a few. We’ve already seen some of that with a couple of our competitors. With this resurgence, some of the coming soon signs you might see on the websites, I wouldn’t be surprised to see some delays in that pipeline. We’re going to be very – we’re internally going to be very measured about our store development pipeline. Again, concentrating on getting our store base open. That’s the clearest path for recovery for us. I think, I’ve said this before on these calls, I’m very confident that we have one of the best operating models in this competitive space in terms of AUVs, margins, returns on a pre-COVID basis. I think that’s serving us really well right now. We’re doing it, I think, better than we ever have in terms of being nimble. I’m not sure the entire competitive set has that same situation because most of those models, I don’t think were as strong and solid as ours coming into COVID. So, we’re going to concentrate on what we’re doing and we’re going to do it the best we can do, and I think that’s going to position us really well.

Great. Thank you very much.

We’ll now take our next question from Andrew Barish from Jefferies. Please go ahead.

Yeah. Thanks, guys. Happy holidays. I hope you get a little break there coming up. A couple of quick ones on just looking back and trying to understand a little bit of the ramp in the 3Q, there was a big jump in the store sales index in September from August, like 20 points. So, I’m just trying to get a sense of what was going on there? Is this due to changes in schools or was it just kind of the momentum of adding some more stores and having additional ones open? It just seemed like a big jump.

Well, I mean, we were seeing – if you kind of roll back the tape and – I think we have all that laid out there, right. We showed the trends. We dialed back pretty quickly and sharply there. It was a pretty steady progression through the month of August moving up. In September, we were back on air and on TV really for the first time in a long time. We came out with a new brand campaign, launched that in September, we were on air. I want to say five weeks. It was a meaningful investment. These were some dollars that we were unable to cancel. It actually was perfect timing for us because some of the fears were subsiding at that time. The consumer appetite was improving and we had more stores opening. It was sort of the perfect combination in September, more stores open and we had dollars to put them to work. Right now, we’re not – we actually delayed and canceled some plans that we had for media over the holiday season, really looking to save that powder for a time when COVID fears are actually waning not increasing and the appetite for guests to get out is not something we’re swimming upstream on, which I think is what’s happening right now. That was helpful for us in September.

Yeah. That’s helpful in understanding that as well. Secondly, on the programming side of things, as obviously it’s been difficult for fans to get out to sporting events. Have you seen kind of noticeable increases on those weekend sports, football games, etcetera and how are you thinking about the Wow Wall rollout in light of that as you look out to 2021?

Yeah. I mean, we performed well on those days. Thursdays have been a little tougher for us as it had been working for us in the prior year. It took a little bit differently for us. We're not really discounting materially right now. We don’t have plans at this point to further rollout WOW Walls. We did pick up about 50 of them out now. Our view at the moment, number one, we’re going to be very conservative and cautious with the capital in this environment. We’ve got to go to work on building the programming muscle in this company. We have a lot of assets here. We have big facilities. Sports could be, you know we can improve on our sports offering and what we’re doing around that from an experience standpoint. We’re going to be focused on that and looking to see what other things we can do to drive frequency and the reason to visit within our stores. The programming engine is, I’d say, we’re running on a few cylinders right now. It’s a muscle that we’re trying to develop and get out. Sports is a natural fit for us just like we think about how we can create events and reasons to visit over the course of a calendar and a course of a month and year. Our SVP of Entertainment, Kevin Bachus, is leading that charge. I’d say we’re in pretty early innings and we’re focused on sports here obviously in the football season. It’s really tough to read that kind of stuff right now.

Okay. Thanks for the color.

Thank you, Andy. Be safe.

We’ll now take our next question from Chris O'Cull from Stifel. Please go ahead.

Hi. Good afternoon, guys. Brian, given you guys have seen stores go through one or two cycles of closing and reopening, what factors do you think influence the strength of sales recovery when a store reopens?

Well, you know I think some of it’s fundamentally in the market itself. I mean, we’ve definitely seen a stronger appetite for our experience in the Southeast. Those stores developed out quickly, pretty quickly. Many of the stores in the Southeast got – some of them actually were surpassing prior year over the course of – not recent weeks, but so – I think some of the Northern states and Midwest states have been a little more difficult for us. Some of this is the underpinnings of COVID fears in the particular market because we’re really not running really a different playbook when we open. So, it’s not unnecessary something we’re doing differently in different markets. It’s a little more about consumer appetite, I think. The good news is when you look at the recovery curve that’s out on the website and the maturity curve, you know, overall, by and large, all of them have an upward trajectory. We feel very confident that we’re going to be able to get all of our states when we get past this back to a really good place. Some of them may get there quicker, but we’re pretty darn confident. A good example of that is when we opened California, we went up in there for more than three weeks, and then they opened, and shut. Those stores opened up at a 30% index in their first week of operation. That’s actually one of the highest opening week indexes we had in any state. We’re really optimistic that people want to get back to their everyday lives and actually we think that’s going to happen everywhere eventually.

You guys mentioned increased labor costs in the fourth quarter to recall some key store leadership positions. I’m trying to understand the sales level you’re anticipating and when you expect to see that sales level to determine how many of those employees to recall?

Yeah. Let me explain that a little bit here. We – there’s really two pieces of this. A month or two ago – what months are those? October – end of October?

Yeah.

End of September actually.

Early October, we made the decision to bring back our core leadership team in our New York and California stores. Those stores represent 25% of our overall sales base. They represent about 20% of our units, and those stores were going on six, seven months of being closed. Nothing is more important for us right now than being able to reopen our stores quickly and effectively. We brought back a small team in each of those stores to make sure we could preserve our ability to reopen. When you’re closed that long, if you have to start with a brand new leadership team, you’re in trouble, and this is a win-the-battle-and-lose-the-war kind of thing. We were going to win that – we were going to try to win the labor battle and lose the war on being able to reopen. We brought those folks back, a team of folks. As we’ve reclosed the 15 net stores that Scott mentioned, we are not planning to course correct and have a significant furlough at this time. We think this is temporary, and we need to make sure that when the time comes to reopen, which we think we’re going to get some of these stores back open after the holidays and California, New York, we think can take longer until really our first quarter of next year or early next year. We have to have our eye on that. That’s really important. It’s imperative really. We don’t bounce back. We don’t recover, and we’re not going to save our way to profitability here. We’ve got to have sales. We’ve got to get these stores on.

I agree. And then, one last one. Just with the addition of those positions being filled and ramping operations back up during the quarter and some of the other investments you mentioned. Did you guys provide an update to your EBITDA breakeven target at the enterprise level? I think previously you’ve mentioned something like sales being at 45%, 50% breakeven. Any updates to that?

No, we would – yeah, I sort of confirmed it in my prepared remarks today or reaffirmed it. We have – if you look at October, we were pretty close to breakeven in the month of October. Just – we were at an EBITDA loss of $3 million. You could calculate that if you look at what we’ve disclosed close out there. No new news here. We were really close in the month of October. As I mentioned, our comp recovery index was, you know, we had a 68% index late in the quarter and had about 75% of the chain open. We feel really confident that when we get to 50% to 55%, we’re going to be at that enterprise level breakeven and then to profit.

I apologize. I meant, for future – for the upcoming quarter, not the third.

No, we’re not. No, as we said, we were close to it. So, we're confirming that when we get to 50, 55, we think when we need profitable. That's not going to happen in Q4. As Scott said, we're seeing rollback. We were in October. We're seeing rollbacks in November. So the topic covered index is going the wrong way on us. And more of the chain has been more than our store base is being shut down right now. So, we're going the wrong direction. What’s the comp for November, share that.

Yeah, for November is negative 69%.

Yeah, so we've got a ways to go. So, we've got to focus on the opening where we were – as Scott said, we’re running pretty close to breakeven. What’s the index for November compared to our pre-COVID situation? So, there's definitely a headwind there.

And we'll go ahead and take our next question from Brian Mullan from Deutsche Bank. Please go ahead.

Guys, thanks. So, you touched on sports as an opportunity earlier, but I was curious, does the legalization of sports betting across the country offer any opportunities to drive increased traffic to the stores over the long-term? Are you devoting any time or resources to exploring that opportunity right now? Is there an opportunity?

Yeah, short answer is, you know there is an opportunity, and we are devoting resources to explore that. Kevin Bachus, who is our SVP of entertainment, you know, is in discussions with a potential partner. We're deep into those discussions. We think it is a potential fit for us. I don't have any more to report on that right now. But hopefully, as we hit our next call, we'll have a little bit more to report out on that.

Okay, great, thanks. And then earlier, you touched a bit on the competitive environment, some of your competitors, but just in terms of your own unit growth coming out of the pandemic. You know, are you – same kind of question, are you devoting resources or time to thinking about what the pipeline could look like for Dave & Buster's? Big picture, do you anticipate being a net unit grower concept, once again, when we get out of this time period?

You know, short answer, eventually, you know, was really, you know, if you look at this year, you know we're going to open six stores, you know, we were well on our way with virtually every one of those stores. So, it makes sense that, you know, we’re wrapping those up, limiting capital remaining, and we have one last Green Day here in the fourth quarter, and I think it is the sixth. You know, as I look at 2021 and what our team has on the plate, you know, our top priority is not the opening of new stores, it is the reopening of a significant portion of the chain and as I said before, my view is that is the quickest path to the financial health and recovery of the D&B brand. We will be de-prioritizing new store growth in 2021, and we must prioritize the recovery and the reopening of the brand and that's not a, you know, as long as some of these stores have been down, typically California and New York, you know, we're coming up on a year. It feels a lot like a reopening, right Margo.

Yes, it does.

You know, that is why we're bringing back, you know, a small core leadership team to make sure we preserve that ability. But there’s still a lot of lifting to hit hourly team members that are calling to do other things, yet, rebuild those stores. So that is our top priority. Our view also is, you know, as we have gotten the stores back up in a really lean way, our bench strength is not what it once was. You know, we're operating in stores right now, at a fraction of the prior team, you know, typically 9 to 10 folks, and we're averaging around 5 right now. So, our bench strength actually is upon new stores; it has, you know, been hurt by this right now. We’re going to watch liquidity, you know, we want to see a better line of sight as we get more of the store base back open and we’re back on a cost recovery path that is healthy, like what we were seeing prior to this recent resurgence. There’ll be a time for acceleration. I don’t do that as 2021. You know, we have a good solid pipeline right now, in 2021. We have about 12 locations that we have under lease that we're working with our landlords in terms of the timing of those. So, you know, we still view, you know, the U.S. as a great market for us, there’s a lot of potential, we have some in our pipeline. We think there may be possibly a lot coming up to in the current real estate environment. So, you know, we will save it at some point; it’s not going to be the pivot here early into 2021.

Thank you.

We will now take our next question from Joshua Long from Piper Sandler. Please go ahead.

Great. Thank you for taking my question. Hope everyone is doing well. Just a point of clarification, I understand that some of the stores are closing back due to the restrictions, curious on what the opportunity is or if there is a need to revisit the idea of which of those closures would be not temporary, but permanent in terms of just optimizing the overall portfolio?

That's a good question. You know, I think the good news for us and I think we're maybe one of the few brands that could probably say that, you know, we had a very healthy seller days overall prior to COVID, you know, all our stores were EBITDA positive. In this environment, we have closed two stores, one of them in Chicago, one in Houston. We had made the Chicago call prior to COVID. Older store, market moved away; that location was profitable. We had made a decision, we just elected not to reopen it. Then we closed Houston, which is our oldest store right now, or whether it’s the fleet. We had a sister store five miles away, close to the area, and it just made sense; we expect it to be accretive because of transferring to the sister store. At this point, you know, we don’t plan to make any long-term closure decisions based on short-term results and disruption that we're seeing. I think we're going to want to see how these tours recover. We don't have plans to close any other stores at this time.

Understood. And then my follow-up question would be, lots of interesting opportunities and initiatives about extending the brand into new channels, whether that's through a third-party delivery, virtual brand, and then it also sounds like Kevin and his team are quite busy on some different pieces as well. But curious on, if you think about work from home being a larger piece incrementally or relative to how consumers spent time pre-pandemic, is there an opportunity to extend the gaming piece that you guys have leadership in as a category into mobile or into the home as well? Is that something that makes sense? And how do you think about engaging with guests on that core brand equity, if we're all going to be spending time and you'll have our consumer travel patterns disrupted versus opportunity?

That's a really good question. You know, our focus is, you know, in-store experiential, and I think we have a lot of opportunities to improve our lives there right now. And that is where we're focused. So, I can't say we're actively looking at that at this point. We have a lot of heavy lifting around the in-store experience right now. And that's where the team is focused. I will say that we have a lot on our plates right now. And a small team, and I think we're focused on the right thing. When you look at how people have responded in the markets, how much they want to get back out of their house and not be in their home, sitting in a room. I think that's where we're going to focus our attention.

It makes sense. Thank you.

We’ll take our next question from Brian Vaccaro from Raymond James. Please go ahead.

Thank you and good evening. Good to catch up with everyone hope everyone's doing well. I wanted to ask a question on the changes you're making to the menu. I understand you're adding the items back, I think you said you expected to settle for around a third fewer items, but can you help us understand where some of the more meaningful reductions have been, were there specific categories that were removed or will it be more sprinkled throughout the menu? Just trying to understand how you view the food and beverage experience and how that looks post-COVID versus where you were in 2018, or 2019?

Hi, this is Margo. So, I'll start, and Brian can chime in. For us, when we get the research, one of the things that came out was, again, just say strong interest in appetizer menu; you will see that we've had done some significant work with the new items along the category of appetizers, that every aspect of the menu has an impact. The objective was to get to very few, very good items that we could execute well to present to the guests quickly. At the end of the whole rollout, when we hit 28 items, we've distilled it down so that there is enough variety that you don't have a veto vote, but it is really tightly curated to enable perfect operational execution. Brian, do you want to add anything to that?

Okay, that's helpful. And I guess shifting gears a little bit, trying to think about the more efficient labor model in a post-COVID world, can you maybe expand and perhaps quantify some of the benefits you expect from the streamlined menu in the back of the house, things like prep, and that sort of thing? Also, the kiosks and the server handhelds how that will impact the labor model?

Yeah, we're still working through that, Brian. You know, if you look at kind of the numbers that we’ve put up, and you know, architecture sitting right across from, Margo, in terms of what the operators have been able to accomplish, in terms of managing labor. It's quite remarkable that, you know, we're having the kind of declines in sales, which will typically result in a significant de-leveraging event and hours of labor. It’s not all variable; we have, you know, a store within a store, and when we have game tech, so there's a semi-fix to fix elements, some of that. We’re running that very efficiently right now. Hourly labor, you know, is sort of flattish. If I recall the third quarter. So, that’s a really good outcome. Some of the things we're talking about, some of the technology kiosks, and mobile devices, you know, will be helpful, but I think some of that stuff is going to be a lot more helpful in terms of speed and execution for putting in a little less necessarily about, you know, efficiency. We’re winning the battle right now in terms of being very thoughtful and we’re not going to be able to keep all this on how we’re scheduling off-peak, and it's up and down. Essentially every job code within our operations from front of house, back to house to front desk to game tech, being very nimble and off-peak. We’re going to try to carry as much of that that we feel is appropriate that doesn't damage the guest experience. And, you know, I think we're going to add some stuff back eventually, for sure. But you know, I'm going to stop, because we're not going to get into the guidance on how many bips we think we're going to get in 2020, 2021 right now, or any of that stuff.

And are you thinking about on the manager side? Correct me if I'm wrong, but I think the historical structure was the general manager and maybe 10-ish managers throughout the unit on average, please correct me if that's not right. But I know it'll be limited, but what might that structure look like? Are you thinking about changing the mix of salaried versus hourly managers, maybe Team Leader type positions, just trying to get a sense of how you think that might settle out in a post-COVID world? Whenever sales recovered towards a normal level?

Hi, this is Margo. I'll just jump in on this one. One of the wonderful things about this COVID world is that it has presented the opportunity for us to look at every single thing that we do. When we look at the savings, the savings did not happen by accident; we have literally looked at every single spend in the store, and evaluated whether or not we will keep it or eliminate it permanently. We will definitely see us look at the management structure. This is we are looking at the hourly, and we’ll put them both through the same lens to ensure that we can get the experience that our destiny requires and that we're doing it thoughtfully and efficiently. We can expect that in 2021.

Alright, that's really helpful. Last one, just for me, thinking about the sales index and the next couple of months. Can you remind us in a normal year, how much higher are sales volumes or average weekly sales in December versus the shoulder months? And I'll pass it along. Thank you.

I don't have that. Yeah.

Yeah, it's a good question, Brian. December and March really are our two biggest months. If you look at December, I mean versus kind of an average, you know, weekly sales across the entire year, it runs about 20% higher than that.

And we have no further questions. I will pass it back over to our speakers for any additional or closing remarks.

Okay, thank you Ali. Guys, thank you for joining our call today. We wish you and your families a safe and healthy holiday season. And we look forward to seeing you at a D&B location really soon here. So, have a great night.

And with that, that does conclude today's call. Thank you for your participation. You may now disconnect.