Good afternoon, everyone. Welcome to the Dave & Buster's Entertainment, Inc. Fourth Quarter 2020 Earnings Results Conference Call. Today's call is being hosted by Brian Jenkins, Chief Executive Officer. He'll be joined on 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'd like to turn the conference over to Scott Bowman for opening remarks.

Thank you, James. And thank you for all of you for 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 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 at www.daveandbusters.com, under the investor relations section. In addition, our remarks today will include references to EBITDA, adjusted EBITDA and store operating income before depreciation and amortization, which are financial measures that are not defined under generally accepted accounting principles. Investors should review the reconciliation of these non-GAAP measures to the comparable GAAP results contained in our earnings announcements released this afternoon, which is also available on our website. Now we'll turn the call over to Brian.

Well, thank you, Scott. And good afternoon, everyone, and thank you for joining our call today. As we close out a challenging 2020 fiscal year, I am pleased to report today that our business is on a clear path to recovery. Our stores are reopening, comp sales trends are improving, our financial performance is rebounding, and our liquidity remains strong. As I reflect back on the agility, the resilience, and resolve that our team has demonstrated over the past year, I am extremely proud of what they have accomplished. Dave & Buster's is a stronger company today because of the outstanding effort of our team, and for that, I am grateful. Following a temporary setback caused by the COVID resurgence over the holidays, our business recovery maintained solid momentum. We concluded our fiscal year in January with 107 reopened stores. Our fully operational reopened comp stores generated January sales at 67% of 2019 levels, representing our strongest COVID-impacted month in fiscal 2020. In January, 85 stores, representing approximately 80% of our reopened stores, achieved positive store-level EBITDA, enabling us to post our first month of positive enterprise-level EBITDA since the shutdown of our entire store base just over a year ago. Our operating and corporate teams continue to execute a lean operating model as our stores rebuild their business. When our revenues return to 2019 levels, we estimate the operational improvements we've implemented will drive approximately 200 basis points of incremental EBITDA margin over the rate we achieved in 2019, excluding the impacts of cost pressures that may emerge over time. With improving COVID trends, higher seasonal sales and stimulus-related demand, our recovery has continued during the first 8 weeks of fiscal 2021.

Thanks, Brian. I'll first spend some time summarizing our fourth quarter performance and our liquidity position, and then provide some insights on the first quarter and fiscal 2021. For the fourth quarter, total revenues of $117 million reflected a 70% decline in comparable store sales. We ended the year with 107 open stores, including 3 new stores opened during the quarter. By month, overall comparable store sales were negative 69% in November, negative 78% in December, and negative 59% in January. January performance improved mainly due to the benefit from the government stimulus and the reopening of 14 comparable stores compared with December. Turning to the balance of the P&L, gross margin declined 11 basis points to 82.7% in the quarter primarily due to inventory write-offs related to closed stores, which was substantially offset by a higher mix of amusement sales. Operating payroll and benefits expense was 27.6% of sales compared to 23.9% last year. This was mainly due to deleveraging management labor due to lower sales and our decision to recall a core group of managers in New York and California to help ensure effective restart capabilities. Other store operating expense was 60.3% of sales compared to 31.2% last year. Most of this deleverage was due to occupancy costs and lower sales, along with deleverage in areas such as utilities and repair and maintenance expense.

Thanks, Scott. We're very encouraged by the first quarter momentum that Scott just described to you and are confidently implementing our 2021 strategic plan built around 4 key pillars that really define the Dave & Buster's brand. The first is to offer novel food and drink to bring people together. The second is to offer the latest entertainment to enjoy together. Third is to deliver an integrated guest experience with an aligned team, and the fourth is to drive deeper guest engagement. Our COO, Margo, shared further details of the first and third pillars during the last quarter's call. She will bring you up-to-date on our more recent progress, and then I'll follow up with an update on the second and the fourth pillars. Margo?

Thank you, Brian. I appreciate the opportunity to give an update on the progress we have made on our key initiatives. First, however, I do want to recognize our operating team. They are dedicated to bringing our stores up quickly and profitably. Successfully relaunching these stores takes great effort. They continue to deliver strong performance, and I'm incredibly proud of this team. As Brian shared, our team has been implementing and refining a number of initiatives under each of the strategic pillars that Brian just discussed. Under the first pillar, offering novel food and drinks to bring people together, our teams have been working to establish a stronger, differentiated food identity for the Dave & Buster's brand, exploring virtual kitchen concepts, optimizing back of the house operations and enhancing our bar menu. Our new food identity, Inspired American Kitchen, is rooted in enhanced flavor and quality ingredients across a condensed number of menu items that we have priced to maintain our historic gross margins. This is the most extensive update to our food offering in more than 10 years, and it allows our guests to explore new flavors while offering a balanced selection of familiar dishes. Our stores have just completed the second phase of our menu initiative, taking our menu from 17 items to 22. Completion of the third phase of our menu by late May will bring us up to our final target of 28 items. This represents 33% fewer items than were on our pre-COVID menu. We expect our new menu to drive an improved guest experience and increased food attachment rates, all aimed towards increasing food and beverage sales. By the end of April, we'll have completed the rollout of high-speed ovens at all stores, reducing cook times by more than 40% on approximately one-third of our menu.

Thanks, Margo, and thank you for your leadership and your team's incredible commitment and dedication to this company. The two strategic pillars that round out our 2021 strategic plans are also central to enhancing guest experience. The first is offering the latest entertainment to enjoy together. Over the past 12 months, our entertainment team has been working on several fronts to support this pillar, starting with 6 new games that will launch exclusively at Dave & Buster's this summer. This exciting lineup of new games includes titles such as Minecraft Dungeons Arcade, a 4-player cooperative game based on the best-selling video game of all time; which brings the excitement of competitive act flow into Dave & Buster's guests in a fun, safe, fast-paced arcade format. Then there's Hungry Hungry Hippos, which brings a life-size version of the classic board game for up to 4 players. And we'll add a brand-new VR attraction to our proprietary platform with the launch of top one VR arcade just prior to the release of the new top one maybe this summer. We also continue to explore a sports betting partnership to bring sports racing and daily fantasy sports to D&B where allowed by law. We believe this could represent a meaningful accelerator to our appeal as a sports-watching destination and better leverage our watch assets. We expect to bring our negotiations to a conclusion over the next several months. Finally, we are committed to broadening our entertainment offering by building a programming capability. We are investing in a dedicated entertainment programming function focused on creating compelling content-based events to drive broader reach and increase visit frequency. The fourth and the final pillar of our 2021 plans is to drive deeper guest engagement to fuel our sales recovery and growth. We look to drive seasonal traffic by focusing our marketing into key media windows highlighting new product news, limited-time offers with a message that connects with our guests on an emotional level. Following a year of limited media spend, we have 2 campaigns planned for the remainder of 2021. The first campaign this summer will feature our new menu items, new limited-time drinks and our exciting lineup of new games. The second campaign, still under development, will target a November-December time frame, around the holidays. In response to changes in the media landscape that were accelerated during 2020, our plan also includes modernizing our media mix to reach guests where and how they consume content. This includes shifting a meaningful portion of our media spend from traditional cable to a more flexible mix that leverages advanced TV, digital audio and social channels. This new digital approach provides us with the ability to flex spending up or down market by market, depending on near-real-time results. Finally, even during COVID, our marketing and IT teams were pushing forward to complete implementation of a new marketing technology stack. These investments now position us to deliver more personalized targeted marketing messages to a wider variety of digital channels as we return to full operation. Before I close, I want to take a moment to thank retiring Board Chair Steve King for his vision and leadership over the past 15 years at Dave & Buster's. It has been an honor working alongside Steve over the years. He has been a great mentor and friend to me and to many other members of the D&B family. His influence will be long-lasting, and he will be greatly missed. So I want to congratulate Steve and his family on his well-deserved retirement. Steve will sort out the remainder of his term that ends in June with our annual meeting. At the same time, I want to congratulate Kevin Sheehan, who has been elected as the new Chair of our Board. As a member of the Board over the past 10 years, Kevin has been instrumental in shaping our success, and I look forward to his continued guidance. He will be working closely with Steve to execute a smooth transition between now and the June annual meeting. I'll close today by reiterating how encouraged we are by the momentum we've seen during these early months of 2021. We've achieved enterprise-level EBITDA profitability for 2 consecutive months in January and February; and believe we will do so for the first quarter of 2021, a significant milestone in our recovery. We are laser-focused on our strategic plans and the execution of an enhanced business model, with the potential to generate approximately $30 million of incremental EBITDA as annual revenues recover to 2019 levels. We are optimistic that these efforts, along with the waning COVID challenges, will drive the D&B brand to new heights over time. And I am extremely proud of every member of the D&B team for their tenacity and creativity that they displayed over the past year through an unprecedented challenge. We are moving forward together confidently, excited to reopen the remainder of our stores and to thrive once again as a leader in the combined dining and entertainment space. Now we'd like to open the call to your questions. James, you can open it up.

And we'll take our first question today from Jake Bartlett with Truist Securities.

Congrats on the improvement in the results here. Exciting that we're getting beyond this. Brian or Scott, my first question is just on the trajectory of sales and the improvement. I think you said January was down 59% versus '19, down 47% in the first 8 weeks, but how did those 8 weeks look? Has it been a continual or a sharp improvement month to month or week to week? What is the trajectory of the business?

Thank you for the question, Jake. We're very pleased with the recovery we've experienced as we entered January. November and December were challenging due to a resurgence and considerable volatility, but since then we have seen a strong rebound. In January, we reached a high point in our comp sales index at 67% at our reopened, fully operational stores, which was the best month we’ve had in 2020. We believe that the economic stimulus received in January over a span of about three to four weeks had a significant impact and helped drive demand. We are encouraged about our start to the year. In the first eight weeks, we achieved a 74% index compared to 2019. While comp sales were down 47%, we have reached new highs, and these figures have improved further in March. We believe the upcoming economic stimulus has helped boost demand and the COVID trends have also improved recently. Additionally, we think there is some pent-up demand, and March is typically a stronger sales period for us. With some spring breaks occurring in March, we expect performance to improve compared to February.

Yes. I'll just make a quick comment, Jake. Looking at the last couple of weeks, it was well-timed with the stimulus checks beginning in week 7 and continuing into week 8. We also experienced a significant amount of spring break activity during those two weeks, which seemed to amplify that effect. Therefore, the timing was favorable from that perspective.

Great, yes. I found the charts you shared quite interesting, particularly the ones from October that showed the performance of different types of stores across various states and their duration of operation. Can you provide us with an update on how your stores are doing in places like Florida or the Southeast? At that time, their performance was roughly flat compared to 2019. What is the current state of sales in those regions?

Another great question. We're currently experiencing broad strength in the first eight weeks, with particularly strong performance in the southern states, especially Florida. While we're seeing excellent results there, the northern states and some stores in the Upper Midwest are not as strong. This may be influenced by pandemic restrictions, which vary by region. Overall, our brand is at 74%, while the top quartile competitors are at 91%. Our second quartile stands at 78%, and the lowest quartile is around 47%. We feel optimistic about our current position. We also discussed our New York stores during spring break in the Northeast and are pleased with early performance across the chain, though it's still early days. We remain encouraged about the results we're seeing.

Next we'll hear from Jeff Farmer with Gordon Haskett.

I know you guys are reluctant to provide too much detailed guidance on 2021, but I did want to drill down a little bit on G&A. It looks like your G&A dollars were down somewhere around 30% in 2020 versus 2021, so from a big picture perspective, how should we be thinking about G&A in 2021 for the company?

Yes, it's a good question. As we consider general and administrative expenses, we made significant reductions in 2020 due to COVID. Going forward, we plan to gradually increase G&A, but we'll be cautious in our approach. For instance, we have new programming initiatives that will require some additional personnel, but we want to retain most of the savings we achieved in 2020. The key takeaway is that we will be careful in adding back expenses to G&A, both in terms of headcount and other areas like consulting. We intend to spend less on consulting this year compared to 2019, as we already have a clear plan and initiatives to implement. Therefore, we will require less consulting in the near term and focus on executing our current plan.

All right. And just as a quick follow-up on that, and I did want to ask just one more quick question, but incentive comp, stock-based comp, anything from a true-up perspective that could potentially happen in 2021 that we need to be aware of for G&A?

Yes. I mean stock-based comp just depending on results always can vary with results. And so, I think that has the opportunity to be a little bit higher, and so that goes kind of hand-in-hand with our performance.

Okay. And then final question, and I might have missed this. I apologize for that, but in terms of that $210 million to $220 million revenue guidance, I wasn't quite sure what that implied or factored in terms of same-store sales level versus the 2019 level for the quarter and the number of stores that you expect to have open on average for the quarter. So those are 2 big drivers of that revenue number. I'm just curious if you can provide a little bit more detail.

I believe we will be opening a few more stores, but we're nearing the end of our store openings, so there won't be significant changes in that area. As we consider the remainder of the quarter, there are several factors to keep in mind. Firstly, April has historically lower sales volume compared to February or March. For context, March 2019 was our highest sales month based on average weekly sales, with February coming in third. In contrast, April ranks lower when looking at average weekly sales historically. Much of this is due to seasonal effects. Additionally, we should also consider the impact of stimulus. We previously noted that stimulus had a substantial impact, particularly in the last couple of weeks, during weeks 7 and 8. We expect some continued benefit from stimulus over the next couple of weeks, although not to the same degree as we experienced initially. These will be the main factors influencing our revenue for the remainder of the quarter.

Jeff, you asked about the impact of our stores. Currently, the majority of our stores still to open are located in California. Right now, we have 130 out of 141 stores operational, which is an increase from about 107 earlier in the fiscal year. Of those 130, nine are restricted from arcade use, which includes a few stores in California, New Orleans, and Albuquerque. This leaves us with approximately 121 fully operational stores. We expect this number to rise to 138 total stores next week, primarily from California. However, we do not anticipate having arcade use fully operational in California this quarter, which complicates our ability to generate substantial revenue.

Next, we'll hear from Andy Barish with Jefferies.

I wanted to try to dive into sort of the marketing side of things. I think on previous calls you highlighted sort of the summer was going to be more brand relaunch related. Is there a shift going on that to kind of focus more on the specific new food and game offerings?

Thank you for the question, Andy. There's not really a change. Along with our new creative agency, we've been developing marketing materials that will truly reflect our brand to our guests and foster an emotional connection. We plan to showcase some of our exciting new games and food offerings. As I mentioned in the last call, we aim to make a strong impact this summer after being relatively quiet for a year. We have 22 new food items and 6 new games lined up for significant investment. Our spending on games has been minimal over the past year, so we need to be very strategic. We also found that we're generating a lot of demand without frequent discounting, so we don’t plan to discount as much as we have previously. While I can't rule out some discounts, we intend to speak about our brand more prominently starting in June, incorporating content and messages that highlight new games and food. We're genuinely excited about what we have planned for the late May and June timeframe.

And then let me follow up with I appreciate the drivers behind the 200 basis points of EBITDA margin associated with the revenue recovery. Is there an expectation that it's starting to get built into '22 can be sort of a full revenue recovery year to look close to 2019? Or how are you guys kind of thinking about the ramp, obviously given a lot of potential unknowns out there?

Yes, I'll respond this way. We are taking things one quarter at a time. We're providing our insights for this quarter, but we're hesitant to provide guidance for full-year sales. One reason for this is the variable of new store openings. While we are very optimistic about the recovery, it is challenging to predict when we will reach the levels we saw in 2019. Our focus is on managing quarter by quarter, and we believe we have plans that will position us strongly for 2021. However, we are not anticipating a return to a 2019 run rate this year. It is possible, but we're not forecasting that at the moment, nor are we looking to project for 2022.

We'll now hear from Andrew Strelzik with BMO.

Great. Obviously the amusement side of the business has been quite strong relative to the F&B business here recently, but there's a lot that you're going to be working on, on F&B, it sounds like, going forward. So I guess, with respect to how you expect to exit the pandemic kind of longer term, do you think that the mix of the business will look different than it did pre-pandemic? And have you contemplated any of that in the EBITDA margin target that you've given?

I'll address the first part and then pass it to Scott. Regarding our expectations, we believe that the current trend, which is leaning more towards amusement, is likely to persist in the short term. Our brand resonates with guests because they choose to visit us mainly for our games. It’s not surprising to see a shift towards amusement as people return to their normal lives and seek entertainment. Therefore, we anticipate this trend will continue for a while. However, that doesn’t diminish the hard work of Art Carl and Brandon Coleman on our menu, which will yield benefits in time. In the near term, we expect a notable and steady shift toward amusement for the foreseeable future.

As we consider the 200 basis points of improvement we discussed, I did not factor in any advantages from that in my estimate. The reasoning is that we are likely to encounter other cost pressures or inflation, which could balance that out. Therefore, I did not include it in the 200 basis points.

Got it, okay. So that's helpful. My other question is about the competitive environment and if you have any updates on that. I know it's challenging to understand the broader situation with closures and similar issues, but any internal insights you can provide would be appreciated.

Another good question. I don't think anything has materially changed since we spoke at the end of December. Before COVID, we faced significant competitive challenges with many new entrants and rapid store growth. As of now, it seems many of our competitors have had to redirect their focus, as we have, back to their core business while managing liquidity pressures, store closures, and declining demand. It's a mixed situation. If you check the websites of our main competitors, Topgolf and Main Event, you'll see they're fully operational at the moment. Their performance is unclear, but Main Event has a diverse product range that requires a more labor-intensive approach. I expect a period of stability as businesses work to regain their footing. We can monitor the announcements for new openings, but it's uncertain how quickly those stores will actually launch and adapt this year. Our strategy is to focus on our strengths—operating our stores and getting them up and running again. I believe we're doing a remarkable job at that. We have ample liquidity and a clear path to profitability, which we have already achieved. Our financial model remains very appealing, particularly in the current landscape compared to our competitors, so I'm quite confident in our competitive capabilities. We have an excellent team, and we are ready for the post-COVID environment whenever it arrives. Overall, I feel positive about the brand's position.

Great. And congrats on the progress that you're seeing.

Thank you.

Sharon Zackfia with William Blair has our next question.

Brian, I want to follow up on the competitive question because there will clearly be significant changes in this space, and you will come out as one of the survivors. Instead of simply translating these savings into profits, have you considered reinvesting more into the business to strengthen your competitive advantage as you move forward? We know that competitive environments don't remain stable indefinitely.

That's a really great question. If you think back to 2019, we talked about some savings we had identified, and our intent was to reinvest in the business. We are currently making reinvestments around a programming engine, some of our technology that Margo described, and the service model, as we rethink how to deliver the experience in our stores. We are planning ahead and have significant capital in our budget to make progress in that area. We will be very selective and focused on where we make those investments, but we agree as a company that we need to invest in the future, and that is our intent.

If I could sneak in another question. I'm really intrigued by the sports betting, but the parental side of me just wonders. How do you balance that with being a family-friendly environment at the same time?

Another really good question. We will explore this over time. Currently, we believe that sports betting could be a significant opportunity for our brand. This trend is just starting, and we anticipate that more states will eventually legalize it. We see it as potentially very complementary to our business. Our main focus is on adults aged 21 and older. We are actively pursuing this and are in negotiations. At present, we estimate that we could offer online sports betting in about 13 locations across 3 states. There are around 5 other states that permit mobile sports betting but have some liquor licensing issues that we need to address. This will be a journey, and we expect that in the near term, this market could involve around 27 to 30 stores in our chain. We will monitor its progress, but we believe it could enhance what we do, and we are moving forward with it.

Next, we'll hear from Chris O'Cull with Stifel.

Scott, I apologize if I missed this, but how much of the operational improvements that are expected to improve the EBITDA margin by 200 basis points are already in place today?

Yes, good question, Chris. To help clarify, there are three main factors driving nearly 75% of our savings. The first is hourly labor. We've discussed the technology we're implementing, such as tablets, mobile ordering and payment systems, upgrades to our kitchen management system, and high-speed kitchen equipment. We're focused on enhancing both back-of-house and front-of-house efficiency, including improvements in scheduling and off-peak staffing. Hourly labor is a significant aspect of our discussion, along with the service model associated with it. Additionally, we will reduce the number of managers in our stores, potentially supplementing with some hourly team members. The third factor is G&A expense, which I believe will show a favorable reduction compared to 2019 in terms of both headcount and consulting costs. When you combine these three elements, they account for about three-quarters of our savings. Beyond that, we have identified additional line items contributing to the remaining savings, and we are confident about those as well. If we were to hypothetically return to our 2019 annual volumes, which isn't planned, I would feel assured that we'd achieve these savings because they have already been identified, and most structural adjustments have been implemented to realize these savings, so we are optimistic about the changes we've made.

Great. And then my other question just relates to labor. I was hoping you could help us understand how labor will be impacted now that the New York stores are open; and whether or not you have a sense of where we could settle out in the intermediate term once they fully reopen, potentially conditioned on, I guess, a few levels of different index sales performance.

Yes. It's another good question. So New York. And then one in California opens as well. I mean they'll definitely raise the average on hourly labor. So it will definitely come up from where it is and will start to normalize as we get all of our stores open and fully operational, yes. So we got a little bit of runway before that happens, but as that happens, we will settle out and definitely at a higher level than we are today, okay? But during that time frame, we'll also have some of this new technology and service model that will help us sustain a lower level of hourly labor as a percent of sales than we saw in 2019, but it definitely will be higher than it is today because of that.

Brian Vaccaro with Raymond James has our next question.

I want to circle back on the quarter-to-date. And I think you said the $150 million in sales over the 8 weeks. Could you give us how many operating weeks are reflected in that? Or maybe just help us level set where weekly sales dollars are on the fully operational units in February versus March just to make sure we're all on the same page.

In terms of operating weeks? Scott, you're asking about the total number of operating store weeks?

You're asking about the total number of operating store weeks.

Yes, yes. Because I mean the definition gets a little confusing, the stores open, the stores closed. Obviously California is open, but the sales are down, so I'm just trying to level set kind of average weekly sales trends that's reflected in the $150 million quarter-to-date.

Brian, I'm not sure we have the store weeks here. To share with you. I don't have that stat right now, honestly. We've averaged collectively about $18 million or so a week, but I don't have the store weeks here to provide to you.

Okay, all right. Maybe we can circle back after, off-line, but I also wanted to clarify the quartile stat that you gave, Brian, I think, earlier in the Q&A, the 91% top quartile; 78%, I think it was, for the second quartile; et cetera. Was that a quarter-to-date? That's over the full 8 weeks quarter-to-date period?

That's right. That is correct.

All right, great. Shifting back to the margin recovery framework you mentioned, does the $30 million in savings include marketing efficiencies? Can you provide a rough idea of how that $30 million is expected to be allocated across areas like labor, other operational expenses, and marketing?

Yes. From a marketing perspective, we are planning to reduce the number of promotional discounts. This represents a shift in our strategy towards offering more limited-time promotions instead of ongoing discounts. This approach should save us some money, and we have learned over the past few months that we can achieve strong sales, particularly in the amusement sector, despite the reduced discounting. Additionally, we are simplifying our menus to a one-page paper format, which will further cut costs. While marketing savings won't constitute the majority of our overall savings, they will contribute positively. We've also restructured our special events team and invested in technology to enhance efficiency, adopting a more centralized approach with better tools. These changes will aid us as well. The primary sources of savings will come from general and administrative expenses, hourly labor, and management labor.

Yes, okay. And on the management labor side, I think, pre-COVID, you had the general manager. And then I think the average store had 8 managers per store. Where do you see that settling out in the post-COVID world on average?

Yes. On average, it will settle between 7.5 and 8.

Okay, okay. And that includes the GM.

Correct.

Could you provide more details about the virtual brand? How many concepts are you currently operating? I believe I heard about the wing concept, but is there another one or possibly one you are testing? Additionally, what sales revenue per week are you generating from these virtual brands? I may have missed this information during the call.

Margo. We have 2 ghost kitchen concepts right now, the wings out that we have testing in 7 of our stores. And then we have a concept which is Buster's American kitchen, which is basically the Dave & Buster's menu under the Buster's American kitchen concept. So we have 2 ghost kitchen concepts right now and we have 1 that we have planned to test in September. And I don't have the weekly sales number right now, but what we had given is the 3 concepts combined, so the Dave & Buster's to go, the wings out and then also the Buster's American kitchen. We see that averaging at about $50,000 per store. And the ones.

Annualized.

Yes, we are early in this process and are working on developing our promotional strategy. We have implemented three promotional windows and have observed a positive uptick for all three concepts during these periods. We see this as a significant opportunity, but we must consider that we operate a 140-store chain rather than 1,000 stores. Additionally, our sales are primarily focused on entertainment, so the potential impact on our business compared to traditional casual dining is less substantial.

We'll now hear from Brian Mullan with Deutsche Bank.

Just a question on development. It sounds like there's 10 stores that are in some form of planning now, but looking out beyond that big picture, do you expect Dave & Buster's to be a consistent unit growth concept once again? And if you do, could you just talk about the longer-term opportunity? Would you do smaller formats than prior? Would you go slower than prior? Just maybe none of that, but how are you thinking about this topic?

We have previously indicated that we intended to slow down our store growth even before COVID-19, shifting our focus more towards strengthening our core brand in response to increased competition. Currently, our main challenge is to reopen our existing stores and rebuild our core business, which we believe is the most straightforward route to recovery for our company and financial health. Additionally, rapid new unit growth puts significant strain on our store leadership, who are already under considerable pressure. Therefore, for the near term, specifically in 2021, we will take a cautious approach to new store development. We had initially planned to open four new stores, having already opened one small-format store in Gainesville that is performing well, with three more planned. The development for 2021 will be fairly balanced, with two larger stores around 35,000 square feet, one small store under 20,000 square feet, and one medium store around 30,000 square feet. We currently have a pipeline of about ten attractive stores but will remain flexible in our approach as we assess our recovery. We may adjust our people resources accordingly based on the recovery of our business. I believe there will be an appropriate time for us to start increasing our unit growth again, and we are confident in our potential for 230 to 250 locations in North America, which we anticipate being more feasible as we move into 2022 and beyond. Our immediate focus is on getting our core business back on track and performing efficiently.

Okay. And then just my follow-up: Scott, I think you mentioned earlier you don't expect sales recapture to 2019 at any point this year, but if you were to somehow be surprised by that this summer with if this Roaring Twenties theme is real or anything like that, consumer demand, is there a scenario where you could exceed 200 basis points of margin expansion if the revenue recapture is actually greater than 100%? So if it's 105%, 106% this summer or even next year. Or would there be costs that come in association with that?

Yes. If we were to suddenly return to 2019 revenue levels more quickly than expected, the necessary changes to achieve savings have largely already been implemented. We have considered the structure needed to realize these savings, and most adjustments have been made. Therefore, if this scenario were to occur sooner, we would likely see the savings materialize earlier as well, since most of the work is already completed.

We'll now hear from Joshua Long with Piper Sandler.

When thinking about marketing and the shift to more digital, is that more of a strategic pivot here over the near term? As I think about the story over the last several years, incremental weeks and diving deeper into some of these different channels, whether it's Nickelodeon or other things in the TV category, has been a meaningful driver of sales. And so just curious on how to contextualize the commentary around moving a significant piece of those dollars into digital and if we should think about that as just a near-term pivot given that there's a little bit of a lead time in getting back into TV. Or is this more of a structural shift longer term into really prioritizing the digital channel?

I believe 2020 really accelerated our plans. When COVID hit, we had to halt all media spending we could and cancel a lot of our upfront buys in cable as our stores were closed. We had some media running for us in the third quarter, but in this environment, we want to move away from fixed cable buys. Flexibility in our media plan is a priority. I'm also encouraged by how our stores are recovering even with limited media exposure. We have always had a strategy in place to maintain a presence on TV nearly every week of the year. As we move beyond the COVID situation, our strategy will shift to emphasize digital channels. During the shutdown, we invested a lot of effort into developing our marketing technology stack, which we intend to leverage to connect with our guests in more effective ways than through traditional broadcast TV. This change allows us the flexibility to quickly adapt our spending. I see this disruption as an opportunity to rethink our strategies, and we will explore how to maximize our deliverables.

That makes sense. I appreciate that color. And then secondarily, thinking about guest engagement and really leaning into digital, can you talk about where you are on that journey in terms of understanding and developing more of that conversation or that one-to-one marketing opportunity with your guest set either through your digital app or maybe with some of the forthcoming plans on investing in the digital channel?

In 2020 and early 2021, we focused on implementing new tools in our technology framework. One significant addition was a new customer data platform that allows us to collect and organize customer data into profiles, enabling us to create targeted look-alike audiences, which can help reduce media costs and improve effectiveness. We're eager to unlock this capability. We also invested in a marketing cloud and a CRM system, which is important for us. We made this investment during the height of COVID in July 2020 and are working to integrate it with our customer data platform. It was a considerable effort for us in 2020. Additionally, we have two other key tools, and I believe our marketing team is now equipped with the necessary tools to engage with our guests on a one-on-one basis, moving away from relying solely on traditional broadcast television.

Our final question will come from Jon Tower with Wells Fargo.

All right. I won't take up much of your time. Most of the questions have been answered, but I am interested to know if you have reached out to any of your core customers who haven't been able to visit during the pandemic. Specifically, I would like to know what they have been doing for entertainment during this time. Have they turned to other gaming options, or have they not engaged in any amusements similar to what you offer in your stores? Additionally, for the stores you have reopened, what trends are you seeing regarding amusement use? Are customers avoiding high-contact games like pop-a-shot, or are they returning to those games faster than you expected?

So I'll take the latter part of the question and just let you know it's the guests have been coming back. It's been great to see the stores fill up with guests that are excited to be back at Dave & Buster's and for us to welcome back to the fun, but what we've seen is the guests have been really embracing just coming back and having the Dave & Buster's experience the way they'd like to have it. We have social distancing not only in our dining rooms but also in our midways. And we have a tremendous amount of efforts to ensure that we have sanitation stations; and really on every shift, constant cleaning that's going on through the stores, including the midway and including our games. And so what we found is the guest is coming back and enjoying all of the games, and we're thrilled by that. And we're thrilled to be able to provide the fun, but we haven't seen any modification in their behavior in the midway.

The first part of the question is about how we maintain communication with our guests and gather their feedback. The reality is that in 2020, when we needed to make substantial cuts to our cost structure, we stopped many of our initiatives, including some guest surveys. Recently, just last month, we began implementing a new customer feedback and collection system with a partner that we believe is an improvement over what we had before COVID. However, it's important to note that we have not conducted significant research or normal survey activities since the onset of COVID. We are only now starting to reinvest in that area, recognizing its importance and allocating funds towards it. Up until now, most of the research we've been reviewing this past year has been commissioned by third parties rather than conducted internally.

And that will conclude today's question-and-answer session. I will now turn the conference over to Brian Jenkins for any additional or closing remarks.

All right, well, thank you for joining our call today. Sorry we ran a little long. We wish you and your families a safe spring, hope you have a great one. And I hope you'll come out to one of our Dave & Buster's locations really soon. They are going to be open really soon. We've got a few left, but please come out and see us. Have a great night.

This concludes today's call. Thank you for your participation. You may now disconnect.