Good afternoon, and welcome to the Dave & Buster's Fourth Quarter and Full Year 2023 Earnings Conference Call. All participants will be in listen-only mode. After today’s presentation, there will be an opportunity to ask questions. Please note, this event is being recorded. I would now like to turn the conference over to Cory Hatton, Vice President of Investor Relations and Treasurer. Please go ahead.

Thank you, operator, and welcome to everyone on the line. Leading today's call will be Chris Morris, our Chief Executive Officer; and Mike Quartieri, our Chief Financial Officer. After our prepared remarks, we will be happy to take your questions. This call is being recorded on behalf of Dave & Buster's Entertainment, Inc. and is copyrighted. Before we begin the discussion on our company's fourth quarter and fiscal year-end 2023 results, I'd like to call your attention to the fact that in our remarks and our responses to questions, certain items may be discussed, which are not entirely based on historical fact. Any of these items should be considered forward-looking statements 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 various risk factors and uncertainties have been published in our filings with the SEC, which are available on our website. In addition, our remarks today will include references to financial measures that are not defined under generally accepted accounting principles. Investors should review the reconciliation of these non-GAAP measures to the comparable GAAP measure contained in our earnings announcement released this afternoon. And with that, it is my pleasure to turn the call over to Chris.

All right. Thank you, Cory. Good afternoon, everyone, and thank you for joining our call today. In our fourth quarter of fiscal 2023, we generated revenue of $599 million and adjusted EBITDA of $152 million. These improved year-over-year results benefited from an extra 14th operating week in the fourth quarter. However, this was partially offset by the considerable weather-related headwinds our business faced in the month of January, as you've likely heard about by now from many of our peers. The weather disruption resulted in numerous full and partial store closures in our system and contributed a significant headwind to the quarter's comparable store sales growth. Weather aside, I am pleased with our strong financial results for the final quarter of fiscal 2023 and the year as a whole, which is a testament to the hard work and dedication of our phenomenal team members at our growing portfolio of 223 stores across the country. With respect to our most recent progress in 2024, while there has been some choppiness in the quarter-to-date and some significant calendar shifts with the timing of spring breaks, I am even more excited than I have been in the past by the significant progress in our goal of substantially improving the revenue, EBITDA and cash flow generation of the business over the medium and long-term. During the quarter, we opened up six new domestic Dave & Buster's stores that are all performing in line with expectations and our historically high ROIs. We also signed an additional franchise agreement, bringing our total signed pipeline of new international stores to 33. We will discuss in more detail shortly, but we also advanced a number of our organic growth initiatives, all of which are showing positive signs and give us confidence in our ability to drive same-store sales growth in the business. Additionally, due to our rigorous focus on managing expenses, we grew adjusted EBITDA and further expanded our adjusted EBITDA margins. We strongly believe that all the work we have done over the last several months has laid the foundation to help us achieve our ambitious yet achievable expectations for the business going forward. Fiscal '24 is set up to be a transformative year for our company with significant expected progress on our organic growth initiatives, including an acceleration of our remodel program, as well as continued growth in our store base and continued focus on cost efficiency. I can confidently state that everything we have seen has only strengthened our resolve and our strategic plan and the belief in our ability to achieve our $1 billion adjusted EBITDA target in the coming years. In fiscal '23, we grew adjusted EBITDA by $28 million and expanded adjusted EBITDA margins by 80 basis points on a pro forma year-over-year basis, despite a reset of the consumer demand curve relative to the post-COVID highs of 2022. Since 2019, our adjusted EBITDA margin has expanded by 380 basis points, well in excess of the 200 basis point expansion target, driven by top line growth and material improvements to our recurring cost structure that provides our business with a substantially stronger cash flow base to grow. In 2023, we opened 16 new stores, 11 Dave & Buster's and five Main Events, with six of these new Dave & Buster's opened in the fourth quarter alone. Our new stores continue to produce exceptional cash-on-cash returns across both brands and remain one of our most accretive investment opportunities. As a reminder, as we showed you during Investor Day, since 2018, our new stores have generated cash-on-cash returns greater than 40%. We still have a very robust pipeline of new units that we plan to open over the next several years that we expect will continue to perform similarly. Our business benefits from significant national awareness, which allows us to open stores in new markets with a tremendous amount of local excitement, as evidenced by the consistently strong sales our new units generate in their first weeks of operation. Importantly, we have recently optimized our new unit opening strategy to better capitalize on the immediate demand our stores generate by using our loyalty database to capture significantly more relevant information about our new customers and markets, which we expect to translate into a superior level of frequency management and ultimately into even higher returns on new store capital. Turning to our international development efforts. We recently entered into another international franchise partnership agreement to develop two Dave & Buster's stores in the Dominican Republic. All told, in just two years since we reinvigorated our international strategy, we currently have 33 stores in the international development pipeline across six countries, with anticipation of opening up to four of these stores in the next 12 to 18 months. We also continue to engage with potential partners all over the world, which we expect will lead to continued strong growth of this international pipeline over the balance of the year. I'd now like to take a moment to go into a more detailed update on the progress of each of our six key organic growth initiatives. First, marketing optimization. As a reminder, we believe there is huge opportunity to improve both conversion and guest frequency by getting the right message to the right people at the right time. We spoke last quarter about the development of our marketing engine in the pilot program for quick wins to better engage our existing customers with relevant content and offers to drive frequency. Our material shift to digital marketing allows us to act quickly to build campaigns and align our spending with more specific business needs while returning significant data-driven insights about our customers that were impossible to glean from the primarily linear TV approach of our company's past. We have a balance of compelling promotions paired with our strong product offers, hyper-targeted within paid media at the segment and market level. For example, our Kids Eat Free promo targeted towards families and $2 beers in all-you-can-eat wings targeted toward young adults. Additionally, we've enlisted top-tier talent and influencers to amplify our seasonal offers and experiences in-store to promote a spring break for everyone campaign and a contextually relevant campaign around March basketball, along with our Buster Brackets $1 million ship giveaway rewarding guests with free play. This combination of hyper-targeted paid media and promotions, plus influencer talent, to amplify unique experiences and offerings across our stores has generated more effective and efficient campaigns in recent months. While still in the early innings, our ability to roll out campaigns and promotions swiftly across our growing database of users, who are quickly becoming the lion's share of our most profitable guests by visiting us 50% more frequently and spending 15% more on each visit compared to non-loyalty guests is having a material impact. Our loyalty program grew by 500,000 users in the fourth quarter, and we continue to drive higher levels of sales penetration with these loyalty guests with the improvements we are making. Our loyalty offers are personalized at the tier and individual level to appeal to the specific behaviors of each guest; for example, rewarding our primarily gaming audience with free play incentives and our dining enthusiasts with food and beverage offers. We believe enhanced personalized engagement is leading to higher guest satisfaction scores by cultivating consistent, newsworthy communication that brings more excited guests into our doors. Tying back to our influencer programs and unique partnerships, we always provide our loyalty members with the first look at any marketing campaign that we launch, and we have exciting, big reward giveaways and new promotions planned for this audience in April, with the launch of our exciting brand new menu. In 2024, we expect to channel this power and continually refine the approach, which will ultimately allow us to manage our traffic via frequency and conversion. Second, strategic game pricing. We made material strides in the implementation of our new games pricing strategy in the quarter. We continue to unlock new abilities and glean insights from various tests across regions by adjusting multiple layers of price in our gaming ecosystem. We have launched a number of nationwide tests adjusting both absolute price as well as introducing regional differentiation.

Pardon me, ladies and gentlemen, this is the conference operator. We appear to have lost the audio signal from the speakers' location. Please stand by as we try to regain contact. Pardon me, everybody. This is the conference operator. We have regained audio from the speakers' location. Gentlemen, please continue your call. Thank you.

Okay. All right. Thank you. And everybody, thank you for your patience as we work through this technical glitch. It's our understanding that the call dropped off right at the beginning of strategic game pricing. So I'm going to pick up from the beginning. So our update on the second piece of our strategic plan and strategic game pricing, we made material strides in the implementation of our new games pricing strategy in the quarter. We continue to unlock new abilities and glean insights from various tests across regions by adjusting multiple layers of price in our gaming ecosystem. We have launched a number of nationwide tests adjusting both absolute price, as well as introducing regional differentiation, both of which are showing encouraging results. Specifically, the stores with the highest price increases have shown the most positive impact on sales and have not shown any material negative impact on guest satisfaction, which is encouraging. We enacted a tier point-of-sale pricing change for the Power Card in mid-February to optimize the buy-in amount and corresponding chips purchased to better align with the significant regional variations across our Dave & Buster's portfolio of stores. We expect these changes to provide a significant boost to our entertainment sales in fiscal '24, highlighting the exciting flow-through possibilities for what has become approximately 65% of revenue and has consistently delivered over 90% gross margins. We are closely monitoring the results of our pricing test, and we'll continue to test, learn and optimize our strategy with near real-time strategic intelligence we are now receiving. I cannot stress enough how exciting these unlocks are for our business, and we have taken a great leap forward to proactively manage our entertainment pricing while still maintaining a strong value proposition. Third, improved food and beverage. As a reminder, we see a tremendous opportunity to improve the overall quality and service model of our F&B offering in an area we know our company has lost attachment over the past decade. We believe the steps we are taking to improve our food offering and service model will go a long way toward recapturing our historically higher levels of attachment. As discussed in the past, we have created a multiphase road map to introduce the Dave & Buster's menu of the future and our improved hospitality service model, which we are introducing in close strategic connection with the physical changes of our system-wide store remodel program. In the first full quarter of its rollout, we continue to experience material gains with our Phase 2 menu, which enhanced operational execution by removing unnecessary complexity in the back-of-house, improved overall food quality and accelerated speed of service to drive more throughput at peak. Since the system-wide launch of Phase 2, we have been testing Phase 3 of our D&B menu of the future in 10 stores and unveiled the final plans and training internally at our Annual General Managers Conference in early March. The Phase 3 menu aims to introduce targeted culinary innovation around appetizers, bowls, desserts and sides that align with our new hospitality model and better meet the need states of our guests to drive our attach rate. Just last week, we rolled out our Phase 3 menu to roughly one-third of the Dave & Buster's system and we'll launch it to the remainder of the system on April 15. Based on how the Phase 2 menus performed since launching system-wide on September 25, and our test results for the Phase 3 menu, we expect to drive at least a mid-single digit increase in F&B revenue per check, a material improvement in F&B COGS, and a further 3 to 5-point improvement in food satisfaction scores versus the prior year period. We are very proud of the new menu and service model we have rolled out and, in order to drive the most amount of trial, and consistent with the results of the test we have done to date, in the coming weeks, we expect to officially launch our new menu nationally in connection with a strong value-focused message which we believe will drive traffic, new loyalty member sign-ups, food and beverage attach as well as incremental gaming revenue. Fourth, remodels. Nine months ago, we embarked on a store remodel program that after a substantial amount of research was designed to accomplish the following five things: grow overall revenue through the introduction of disruptive entertainment product news; improve F&B sales through a reconsidered dining room, improving operational execution and elevated relevant new design; grow Special Event sales through the introduction of more group-related entertainment options; improve guest engagement and gather important data and analytics through the introduction of the digital guest engagement platform; and improved brand relevancy and intent to return through a fresh, modern look and feel. Our first test location was Friendswood in Houston, Texas, which embodied our go-forward offering with new attractions, service model, food menu, inserted a dedicated store Special Event sales team and completely transformed the look and feel of the space. During our last call, we highlighted the encouraging results from our first remodel in Friendswood that was exceeding expectations, driving a double-digit sales uplift compared to the prior year and a more than 30% sales uplift compared to 2019. We are very encouraged that now more than 30 weeks after completion of this remodel, it continues to perform at these levels. We have hit the mark across all of our objectives with this remodel and are making meaningful improvements with OSAT scores and higher intent to return, with loyalty members and Special Event revenues up nearly 60%, all of which gives us even more confidence in the importance and staying power of these remodel investments. Over the past few months, we completed eight additional test remodels. For the test, we intentionally hand-selected a variety of our stores across geography, legacy performance, store age and layout, and tailored key product offerings. On average, these test stores have outperformed the balance of the system by 9% post remodel through March. While the remodels are exceeding expectations in aggregate across the varying scopes, what has become crystal clear in the test is that our fully programmed large-scale remodel, similar to Friendswood, are performing exceptionally well relative to the remodels that do not include the enhanced entertainment offering. Our fully programmed remodels are seeing substantial increases in traffic, check and overall same-store sales versus the prior year and are outperforming by double digits, with some nearing 30% outperformance on a relative year-over-year basis. We have also accumulated a significant amount of knowledge on how to improve these results even further, reduce construction time and minimize costs, that will lead to even higher returns. We are very confident in these findings and know what it takes to drive this business. Our plan now is to apply what we've done at Friendswood across the next 35 remodel stores with a strict stage gate process laser focused on our 20% plus return threshold. As a result of that, we will have a total of 40 to 45 stores remodeled by the end of fiscal '24, which we are confident will drive a similar outperformance. We are convinced that this remodel program is a significant gateway to the future of the Dave & Buster's brand and is the culmination of everything we've set out to achieve through our organic growth initiatives. Fifth, Special Events. We are making considerable strides in reinvigorating our special events business by repositioning the team with a more local hands-on approach and equipping them with enhanced training and tools to win our fair share. Based on independent tests, we run to evaluate our sales team effectiveness and the competitiveness of our product offering, we are encouraged that these changes and strategy are having the desired outcomes. After embedding 20 dedicated sales managers into the D&B stores in the back half of 2023, we are accelerating the rollout of an additional 45 local sales managers at the store level in 2024. The upcoming phases of our menu of the future, our refined service model and our remodel stores that introduced a social base in the arena, along with a VIP watch area, provide our new sales team areas of focus and are all very conducive to driving additional Special Event revenue. We are pacing to finish the first quarter up mid-single digits in Special Events revenue versus 2019, which is a material improvement versus prior quarters, and we have strong expectations for our next peak season with graduations in May and June. Sixth, Tech Enablement. As a reminder, we are powering the growth of all strategic initiatives through an optimized service model, enterprise gaming ecosystem, new IT infrastructure and improved data and analytics. In many ways, this is the glue that creates a digital guest platform and connects all the other initiatives together. In 2023, we completed the rollout of our updated IT infrastructure at 62 Dave & Buster's stores and we'll have the remainder of the Dave & Buster's system complete in 2024, along with full integration of our back-office systems. We also expect to drive further innovation in our app in 2024 with the integration of additional features and games to engage with our guests before, during and after each visit. We are proud of the achievements and long overdue investments we are making in this area to lead the industry and a seamless guest experience. To summarize our organic growth initiative update, we remain very confident that these initiatives will create significant shareholder value by driving our business into a period of material, sustainable and profitable growth. Our conviction that we are focused in the right areas and making the right investments is unwavering. We looked at building on the achievements of this quarter and look forward to continuing to update you on each of these initiatives moving forward with a clear line of sight on our long-term goals. In addition to these organic growth initiatives, we made tremendous strides throughout the year streamlining our business to be more efficient and reduce our recurring cost base, which had a material impact on our whole P&L, allowing us to increase adjusted EBITDA and expand our adjusted EBITDA margins. By the fourth quarter, as a percentage of revenue versus the prior year, our cost of food and beverage declined 240 basis points. Our other store OpEx declined 80 basis points and our G&A cost declined 180 basis points. Our team of exceptional general managers continue to drive down labor costs while improving OSAT scores by implementing efficiencies in our back-of-house operations to reduce hours and redeploying a portion of those hours to guest-facing and revenue-generating front-of-house labor, particularly during peak times. It is important to highlight that we have realized these cost savings and margin improvements during the 12-month economic period characterized by high inflation, a tight labor market and with same-store sales growth well below our long-term expectations for the business, which underscores the incredible amount of upside in a more normal environment. Given the success in this area, as well as the realities of the environment, we have increased our efforts and implemented a number of new cost-saving initiatives that we believe will further reduce our cost base. We are confident that these additional cost efforts, combined with an improving labor market and supply chain, will create an increasingly more efficient and profitable organization over time. While the improvements we have made to our recurring cost base have driven a significant amount of margin and profitability, what is most exciting to us is that at the same time, our operational execution has made great strides in taking care of the guests. We have made very significant improvements to the guest experience with our evolving service model, and we continue to layer on additional enhancements to drive higher OSAT and Net Promoter Scores. During 2023, our overall satisfaction scores, as well as our overall speed of service score improved by 5 points. Our social media scores improved by 3.5 points, and our Net Promoter Scores improved by 3 points. All of these metrics are continuing their trend of improvement thus far in 2024. In fact, we've seen sequential growth in each of these metrics over the past three months, and each metric has reached their respective all-time high since we've been tracking this data. Finally, before I turn the call over to him, I'd like to take a moment to recognize Mike, who we affectionately call Q. As he steps away from the day-to-day responsibilities as CFO at the end of April, to enjoy a much-deserved retirement. He will leave a positive mark on this company long into the future, having successfully integrated the two great brands at Dave & Buster's and Main Event, built high-class teams, and demonstrated the highest standards of ethics and capital stewardship. So with that Q, please walk us through a more detailed review of Q4 results.

Thanks, Chris. We generated fourth quarter revenue of $599 million and adjusted EBITDA of $152 million for an adjusted EBITDA margin of 25.3%, a 380 basis point margin expansion versus the same period in 2019. Net income in the fourth quarter totaled $36 million or $0.88 per diluted share. We reported $42 million of adjusted net income or $1.03 of adjusted earnings per diluted share. Reconciliations of all non-GAAP financial measures can be found in today's press release. Pro forma comparable store sales decreased 7% in the fourth quarter versus 2022. Looking back at a more normalized level of business, we were up 8% versus the fourth quarter of 2019. As a reminder, in the fourth quarter, we are lapping over a fourth quarter of 2022 that had a 14.1% comp to 2019 and over 25% comp in the last four weeks of the quarter, with particularly robust consumer spending. Through early January, our quarter-to-date comp was pacing down low-single digits to the prior year and then the culmination of severe weather, which significantly negatively impacted our business, and challenging January comparisons led to our ending the quarter down 7%. We generated $97 million of operating cash flow during the quarter, contributing to an ending cash balance of $37 million for total liquidity of $527 million. When combined with the $490 million available on our $500 million revolving credit facility, net of outstanding letters of credit, we ended the year with a net total leverage ratio of 2.2 times as defined under our credit agreement. As a small update on future sale leaseback opportunities, we have four owned and operating Dave & Buster's real estate assets today. While we are being judicious in how and when we decide to monetize these assets, we expect these assets, when monetized, to command a premium price in the market versus other comparable real estate given our superior unit economics, strong credit, attractive brand attributes, and commitment to being a long-term tenant in the space. Turning to capital spending. We invested a total of $122.6 million in capital additions during the fourth quarter, opening six new Dave & Buster's. We've already opened two new Dave & Buster's and one new Main Event during the first quarter of fiscal '24, in Schaumburg, Illinois, Folsom, California, and Murfreesboro, Tennessee. We expect to open a total of 15 new stores across both brands during fiscal '24. Our Board of Directors approved a $100 million increase to our share repurchase authorization, which gives us a total of $200 million of availability to opportunistically repurchase our shares. As you know, we, and our Board, are focused on driving shareholder value. As we have stated historically, we will use our significant excess free cash flow to invest in new units, which continue to generate over 40% cash-on-cash returns, make accretive investments to support our organic growth initiatives and opportunistically return capital to shareholders. We have a lot to be proud of in this fourth quarter and full year 2023 results. We grew adjusted EBITDA, continued to expand our industry-leading adjusted EBITDA margins, strengthen our balance sheet and credit profile, lowered our controllable interest cost, and bought back 17.5% of our shares outstanding, all to the benefit of our shareholders. We have considerable high ROI investment opportunities to grow organically, both by improving our existing store base and opening new stores with a pipeline of attractive international frontiers on the horizon. I have tremendous confidence that the trajectory ahead will bear material fruit for all stakeholders. Now operator, you can open up the line for questions.

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

Great. Thank you so much. My first question was about the more recent performance. And Chris, you talked about feeling more confident in the plan, more confident than ever. We also mentioned that results have been choppy quarter-to-date. We've seen that industry-wide. So what can you point to and hopefully you could point maybe to some specific change in trajectory here from January. But any more detail there on what gives you such confidence that things are actually getting more encouraging for you?

Yes, absolutely. We are making progress in every area we've focused on, as outlined during our Investor Day, and we are seeing a positive impact on the business. What’s most encouraging is our hard work in fiscal '23. We've been testing, learning, and adapting, and we are now executing initiatives that have been validated through testing. This gives us confidence that we can maintain the same positive impact as we did during the test phase. For example, our new menu for SMB is rolling out, and we know it's driving sales, improving service speed, and setting us up for success. We believe it will significantly contribute to our attach rate over time. Additionally, we've successfully implemented menu price increases with strategic game pricing, a capability we didn't have last year. We can now have tiered pricing in different regions of the country, which is a first for us. We’ve tested this and are able to effectively increase revenue, giving us further confidence. Our work on Special Events is also progressing well, and we are on track to exceed pre-pandemic levels. We have many upcoming initiatives for Special Events, preparing our teams for the busy seasons in May and June, school events, and banquets towards the end of the year. The new service model we introduced at our operator conference in March is already showing meaningful improvements in the guest experience. While we still have a long way to go, we are clearly better off than before. For the past three months, we have set record highs in key satisfaction metrics, even before rolling out our refined service model system-wide. This has us excited. Regarding our remodels, we have clarity on how to effectively program and spend, and we are achieving and exceeding our return thresholds. We are ramping up these efforts and plan to roll out what we learned in Friendswood across 35 stores next year, ultimately having 44 in the system by the end of the year. We will continue to evaluate our returns. On the international front, we are gaining real momentum, and our new units are performing well. There is significant progress across these initiatives, making this a transformative year for us. We believe these initiatives will combine to help us reach our long-term goals.

That's really helpful and I appreciate the detailed response. I have another question. I understand this is the year to implement these changes, but you also have to consider the current consumer circumstances. With the price increases, we've noticed a significant rise in the cost per chip for buy-in. Phase 2 of the menu changes seems to mainly focus on increasing the check, which is one of the biggest contributors to the sales impact. While this could be a positive move, is the consumer ready to accept these increases? Is this the appropriate time for such changes? I'm curious about the quarter-to-date performance and how the consumer is responding in this particular environment. Any insights on that would be appreciated.

I believe your perspective is spot on. We constantly consider how to align our business with current consumer needs. Regarding pricing, we approached game pricing on a regional basis, testing and evaluating to ensure we maintain our value proposition. We're confident in our ability to adjust prices appropriately while preserving value. For food and beverage, the increase in our checks is due to a favorable shift in the mix of items, not just price. We're smart in curating the products we offer, ensuring guests choose items that provide them real value, which in turn drives our check size. Our food satisfaction scores have significantly improved in both Phase 2 and Phase 3. We're also confident in our service model, as we reallocate resources to enhance the guest experience. This investment reinforces our value proposition. Additionally, as we refine our marketing efforts, we are now more agile than ever in implementing the right promotions targeted at the appropriate audience. Recently, we've successfully introduced initiatives like $2 beers during the NCAA tournament and all-you-can-eat wings on Thursdays, along with a Kids Eat Free program aimed at families. We anticipate announcing another offer soon that aligns with our strategic goals and addresses value. We're carefully balancing price with value and, as I've mentioned before, we are committed to improving in this area. We are actively developing our capabilities, and I believe we will continue to enhance our approach moving forward.

Great. I really appreciate it.

You bet. Thank you.

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

Hey. Good evening, guys. I know you're not offering guidance today. But in your remarks in the press release, Chris, I mean, it talks about adjusted EBITDA margin improvement in regards to fiscal '24. Is that something that even without the additional cost savings, you were sort of thinking about as you come into this new year?

We're always focused on eradicating waste in our business and ensuring it doesn't happen because of our commitment to our strategic initiatives. Our approach is to continuously seek out opportunities for efficiency so we can invest in the right areas, and that will always be part of our mindset.

Got you. And then on the remodels, it sounds like the full remodels are where you're heading. I think initially, the split was more kind of half and half between kind of the full touches and lighter touches. Should we be kind of thinking about that over the next couple of years as being more skewed towards the full remodels at this point?

At this point, the answer is yes. And I'll let Q jump in here and provide some more color on the financial side. But as I said, the real benefit to where we are in our journey is the fact that we have gone through the testing phase. And so as we move forward, we're moving forward with confidence. But it is very clear in the testing that we've done that the fully programmed remodels not only generate, hit our return thresholds. But I think that what has us so enthusiastic is the manner in which we're driving the results. It's not just the results. We see the staying power at Friendswood. And the other, as we've extended that test beyond, the units where we're driving the results, we see it building over time. We dig into the numbers, and the reason we took so much time to walk you through our objectives in the remarks is because each one of those objectives are leading to the results. We're seeing the incremental entertainment offerings that we've provided, where we're expanding our variety, each one of those on a stand-alone basis, are generating our returns on a stand-alone basis. Combined, we believe they're creating just energy that's lifting up all traffic. We're seeing double-digit increases in Special Events when we add these new entertainment offerings. We're seeing improved service model execution. We're seeing in a couple of stores, we're seeing very significant growth in food and beverage mix. So we're able to trace the results into the remodel. And so that gives us a lot of confidence. But it's moving forward, it's a little more capital-intensive. But the team has done a great job at value engineering and taking cost out. And so I'm going to have Q walk you through that.

Yeah. I think is an important aspect to think about when you start talking about what a light touch is, that has probably more to do with the fact that the stage of the building and the condition that it's in, the size of it, as it is the amount of additional work that's going into to expand the full offering from an entertainment perspective. So when we start talking about light touches, those are stores that are around the 20,000 to 25,000-foot locations. They're more current in the pipeline where they've been built like probably like in the last 5 years, versus some of the older stores or the larger safe footprint of the D& B 1s and 2s, which are more in that 40,000 to 45,000 square foot location. So all in all, I think the CapEx that we laid out previously will still be fairly close to where we'll end up over this journey over the next two years or so.

So just to summarize, we are moving more into the large format, but the big benefit is we’ve been able to drive down the capital investment. And at the same time, the performance has exceeded our expectations. And so we’re very confident that we’re going to hit our return thresholds. We’re actually cautiously optimistic that we’re going to exceed return thresholds. But you’re going to continue to see a very disciplined approach when it comes to capital allocation. So we’re committed to doing those 35, but we’ve built in the right stage gates that if for some reason, we’re not replicating these results, we will have the ability to pivot at the right time and redirect.

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

Thank you. Just wanted to follow up on the tiered pricing efforts, more specifically how we should be thinking about the scale of those increases or potential scale of those increases. Anything you can offer there in terms of order of magnitude as you've gone ahead and made some changes to the pricing structure on the gaming side, on the recent side?

During our Investor Day last June, we assessed the opportunity and indicated that we believe there is a chance to implement a ten percent increase in strategic game pricing over time, and we remain committed to that. We still think that's a reasonable target. As we move into fiscal '24, expect that prices will vary from region to region. However, we anticipate a price increase that aligns with what we shared at Investor Day, which is a ten percent increase spread over a longer timeframe. Thus, 2024 will be a step in that direction.

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

Hi, thanks and good evening. I have a question about sales. Mike, I believe you indicated that you were experiencing low-single digit comparisons leading up to January, which, if my calculations are correct, showed a decline in the low to mid-teens in January year-on-year. I wanted to verify if that's accurate. I realize it's a bit unclear, but how do you perceive the underlying comparison trends, and what would be a reasonable expectation for when comparisons might stabilize, or even turn positive as we move through 2024?

I think your calculations are fairly accurate. When we wrapped up the holiday season, which was around the end of the first full week of January, we were discussing a comparable sales increase of over 20 percent. The weather also had a significant influence on our situation, as nearly 60 stores were either partially or fully closed for a number of days during that timeframe. This undoubtedly affected us materially. Looking ahead to consumer trends, it’s challenging to predict given the current uncertainties, particularly with the mismatch between holiday sales and spring break coupled with the ongoing fluctuations we're observing. At this point, our focus remains on long-term goals. You heard Chris’s enthusiasm as he outlined the various initiatives we have, all of which are expected to foster growth and improve returns as we progress further into the year and beyond.

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

Hey. Thanks for taking the question. I guess it's been almost, I guess, a year since the Investor Day when you laid out kind of the earnings build towards your EBITDA targets. And so I guess I'd be curious to hear you kind of step back and frame where you are now in terms of versus where you maybe would have expected to be at that point in time. Are there some of the initiatives where you're seeing more or less traction than you expected or where you're ahead or behind on timelines? And kind of if you were to recast your expectations, anything that would have been different versus at that time.

That's a great question. We've been considering our journey quite closely. We refer to year one as the year of laying the foundation because we needed to address a significant amount of infrastructure work due to years of neglect in the business. Our systems and processes were not up to par. For instance, we didn't even have variable pricing capabilities across regions. There's a considerable amount of work on the infrastructure front, as well as testing that remains. Currently, we're right on track. We've completed everything we intended to do regarding infrastructure and have tested all our initiatives. We are now in the implementation phase, and I’m very proud of the team's efforts. We are achieving our targets for remodels, our new units are performing exceptionally well, and our international pace aligns with our long-term plan. Game pricing is also where we anticipated, given the system constraints. I feel optimistic about our food and beverage offerings and the improvements we've made in guest experience through our new service model. On the initiative side, I'm proud of the team's accomplishments. This is a journey, and there is significant potential in this business. Each initiative offers an opportunity for upside, and collectively there’s substantial potential in the stock's value. We believe the stock is undervalued considering our potential. The uncertainties mainly relate to the macro environment and consumer behavior. Our focus is on what we can control, and we are executing well in those areas. As we delve deeper into these initiatives, we're more confident than ever about positively impacting the business in the medium term. While timelines may shift slightly, we remain dedicated to completing our goals.

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

Hi. Thank you for the question. I wanted to revisit the phases regarding the gaming prices. I understand that this has positively affected the bottom line. I'm curious about the impact of people potentially staying longer or perhaps spending less time because the Power Cards are available more quickly. Is there any offset you’re observing from the increase in game prices?

Yeah. No, again, very good question and exactly the right question. So keep in mind, I said that we've gone through the testing and learning process. And one of the things that we wanted to make sure we understood is exactly what you just outlined. We didn't want to have a negative impact on value proposition, and we didn't want to just kind of trade right pocket for left pocket and grow price on the front end, but then you reduce your overall spend by reducing dwell time. We've been closely evaluating that and tweaking it to get to the right balance. And so what we are implementing or what we implemented, we rolled out in February of 2024 was the results of all of that testing. We didn't get it right at the beginning, so we made some adjustments. We changed pricing to make sure that we were protecting the value proposition. We moved stores in-tier, out-tier. We did all of that. And so now we’re moving forward with confidence that we’ve got the right formula. And so what we’ve rolled out, we’re not seeing a material deterioration in dwell time, and we’re not seeing any impact on value proposition. But I will tell you, we’re going to continue to closely monitor this. And if we need to make changes, we’ll make changes. That’s the benefit of where we are now; we’re in a much better position to be nimble and adapt to the extent that the consumer starts to go a different direction.

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

Great. Thanks, guys. Wondering if you could just speak a little bit more to that maybe choppiness comments for the first quarter. Are you recognizing you're appropriately focused on the longer-term strategic opportunities. But just maybe as it relates to anything you're seeing from a customer standpoint, whether it's across visits, other spending patterns, income or age cohorts. Anything to kind of call out there? And again, recognizing there has been a choppiness across the industry in recent months. But is there anything you could share on the customer behaviors, et cetera, in recent months? Any kind of shifting it on that front?

You want to take that, Q?

I would say that the fluctuations we've observed are primarily tied to visitation. However, once customers arrive, their spending remains consistent with previous levels, and their time spent at the venue is unchanged. The main concern is really around visitation rather than other factors. This gives us confidence, particularly as we notice improvements in food and beverage spending, which has us excited about the long-term potential of our organic growth strategies.

We've noticed a bit of weakness among lower-income consumers, while high-end consumers are showing strength. Those in between are behaving normally. These factors are somewhat balancing each other out, but we've been able to analyze our data and use it to guide our business strategies and promotions.

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

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

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