Earnings Call Transcript - PLAY Q1 2023

Operator, Operator

Good afternoon, and welcome to the Dave & Buster's First Quarter 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, VP of Investor Relations and Treasurer. Please go ahead.

Cory Hatton, VP of Investor Relations and Treasurer

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, Incorporated and is copyrighted. Before we begin the discussion on our company's first quarter 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 relating to future events within the meaning of the Private Securities Litigation Reform Act of 1995. All such forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ from those anticipated. Information on the various risk factors and uncertainties have been published in our filings with the SEC, which are available on our website. In addition, our remarks today will include references to financial measures that are not defined under generally accepted accounting principles. Investors should review the reconciliation of these non-GAAP measures to the comparable GAAP measure contained in our earnings announcement released this afternoon. Pro forma financials, including Main Event for the trailing four quarters ended April 30, 2023 can be found directly in our earnings release this quarter. Now it is my pleasure to turn the call over to Chris.

Chris Morris, CEO

Okay. Thank you, Cory. Good afternoon, everyone, and thank you for joining our call today. We are pleased to report record results for the first quarter of fiscal 2023. In Q1, we generated record revenue of $597 million and record adjusted EBITDA of $182 million, resulting in an adjusted EBITDA margin of 30.5%. In a few moments, Mike will walk you through the details of our financial performance. In the first quarter, our team did a phenomenal job running the business. Our extremely talented team of operators and support center employees continue to execute on the breadth of strategic opportunities we've identified to unlock significant revenue growth and cost efficiency opportunities in our business. Our operational achievements in the quarter are indicative of the progress on our strategy, and we're also seeing improved guest satisfaction scores as we perfect the service model and optimize the role of our team members as our most important brand ambassadors. In addition, with key enhancements we've made to our culinary team, we are working diligently to improve our overall food and beverage offering, including improving the quality of the food, simplifying the menu, improving operating efficiencies, and upgrading guest-facing technology to simplify the ordering process among other initiatives. We remain particularly encouraged by the opportunity for our Special Event business, which saw significant comp store growth on a sequential basis, returning back to 2019 levels. We are taking full advantage of the recovery and with the heightened focus we are applying to this important business, we have a clear path ahead to grow meaningfully into the future. The improved growth has been driven by structural alignment changes to the team, both at the local store and support center level. And these changes are already bearing fruit. As Mike will discuss more in a few moments, we continue to be laser-focused on implementing efficiencies and reducing costs across all areas of the business. While we previously exceeded our synergy target and have locked in at least $25 million in cost reductions as a result of the combination with Main Event, we have parlayed these efforts into running the business with sharpened cost controls, as we believe significant opportunities still exist to reduce our cost base across cost of goods sold, store labor, store operating expenses, and corporate overhead. As you can see, our results this quarter are already benefiting from improved input costs, as well as improved labor optimization. In combination with our other initiatives, we expect these cost efforts to drive a lower cost base, expand our margins, and improve cash flow generation. Turning to market initiatives in the quarter, as a follow-on to our fall football campaign, we continue to dedicate a portion of our marketing spend to our Watch experience. The out-of-home social sports watch audience is large and we feel confident in our ability to drive both brand relevancy and visit frequency by building even greater awareness that Dave and Buster's is America's new favorite place to watch sports. Over the spring, we leveraged marquee NBA and college sports watching events to get the word out and were featured in 30 NCAA basketball games during Conference Championships appealing to both families and young adults. We also ran over 60 spots in key NBA playoff games to create awareness nationally, as well as in those local communities. The first quarter is also spring break season. So in parallel, we ran several digital promotions, targeting families and social, paid digital and CRM to keep D&B top of mind and in consideration for families looking for out of home fun during spring break. Running these programs and digital channels allows us to stay nimble by adjusting deals and spends based on performance and timing given spring break weeks vary so greatly across the nation. We are very excited about the enhanced digital capabilities of the team that we've assembled to elevate our ability to meet our guests where they are, and maximize media effectiveness. Looking ahead, summer is an important time for our brands as both families and young adults look for fun things to do to fill long days with experiences that allow them to connect. As we announced yesterday, at Dave & Buster's, our summer campaign features a high-value limited time five free games promotion to drive traffic in conjunction with our new highly appealing You Know You Want To campaign. In the quarter, we opened one new Dave & Buster's store in Puerto Rico and three new Main Event stores in Little Rock, Arkansas, Tucson, Arizona, and Lexington, Kentucky. We also signed two international franchise agreements for up to 15 stores in India and up to five stores in Australia. We continue to be extremely excited about the future of this organization. We have two industry-leading brands in Dave & Buster's and Main Event. These brands have exceptional business models, strong assets and are led by a talented and passionate group of operators. We have a clear line of sight on the strategic opportunities ahead for the business and a management team with a proven track record of superior execution. As evidence of the conviction we have in the long-term success of our business and the value we see in our shares, we have repurchased $200 million of common stock thus far in fiscal 2023, reducing our shares outstanding by nearly 12%. We have an additional $100 million remaining on our share repurchase authorization. We highly encourage you to tune into our virtual Investor Day next Tuesday, June 13 at 7:00 AM Central where we look forward to unveiling more details about our vision and strategy with you. With conclusions drawn from extensive research and field work by management teams with a track record of successful execution, we will specifically outline the numerous levers we have to drive top and bottom line growth, as well as cash flow over the next three years. You're not going to want to miss this exciting and informative event. With that, let me turn the call over to Mike to review our first quarter results. Mike?

Mike Quartieri, CFO

Thanks, Chris. We're pleased to report strong financial results for the first quarter. We generated record revenue of $597.3 million, record net income of $70.1 million, and record adjusted EBITDA of $182.1 million in the first quarter. On a pro forma basis, our first quarter revenue and adjusted EBITDA reflect growth of 3.8% and 4.6%, respectively, relative to our first quarter of fiscal 2022. We continue to make significant strides, optimizing our business model to drive revenue, realize meaningful cost savings across the company, and deploy capital at high ROI opportunities. We produced a 30.5% adjusted EBITDA margin in the first quarter, an improvement of 20 basis points versus the prior year period on a pro forma basis. Our margin profile remains one of our strongest attributes of our business and we are confident in the levers we have on the cost side to defend it. Also, our strategic investments to lower our overall cost base will be a meaningful catalyst to expand margins as we continue to grow and consumer confidence improves. Pro forma comparable store sales decreased 4.1% versus 2022 as we lapped a very robust prior-year period. Recall that in March and April of 2022, we saw outsized comp performance of 15% and 26%, respectively, as the country emerged from the Omicron variant. When we look back at a more normalized level of business, we were up 10.3% versus 2019 on a consolidated basis. Our Special Events business continued to grow in Q1 2023 with our combined comps now flat to pro forma 2019 levels. We generated $92.4 million in operating cash flow during the first quarter, contributing to an ending cash balance of $91.5 million, for total liquidity of over $581 million when combined with the $490 million available on our $500 million revolving credit facility, net of outstanding letters of credit. We ended the quarter with total leverage ratio of 2 times. Our strong cash flow generation and conversion gives us the ability to simultaneously invest in our system, grow new stores, and repurchase shares. As previously mentioned, we repurchased 3.6 million shares in the first quarter at a total cost of $125.5 million. Subsequently, to the end of the quarter, we repurchased an additional 2.1 million shares at a total cost of $74.5 million, bringing the total purchases to 5.7 million shares, totaling $200 million representing nearly 12% of our outstanding shares as of the end of fiscal 2022, and we still have $100 million available on our remaining existing share repurchase authorization. Turning to capital spending, we invested a total of $50.8 million in capital additions during the quarter, opening one new Dave & Buster's store in Puerto Rico and three new Main Event stores in Little Rock, Arkansas, Tucson, Arizona, and Lexington, Kentucky. We have already opened two new Dave & Buster's stores during the second quarter, one in Lubbock, Texas, and the other in Queen Creek, Arizona. Consistent with our prior statements, we are on track to open a total of 16 new stores during the fiscal 2023 period, comprised of 11 Dave & Buster's and five Main Event locations, plus the relocation of our Dave and Buster's Vernon Hills, Illinois store. To summarize, we are extremely excited about the strong execution in our business, our progress capturing synergies, the numerous growth opportunities for us to pursue, and the talent and experience of our team to drive growth despite the challenging macroeconomic environment. We remain focused on closely managing costs and capital spending to ensure we strategically unlock the maximum value of these two great brands and deliver the highest returns possible for our shareholders. We look forward to speaking to you again next week at our virtual Investor Day where we will be discussing our mid-term growth strategy in detail. Now, operator, you can open up the line for questions.

Operator, Operator

We will now begin the question-and-answer session. Our first question will come from Andy Barish with Jefferies. You may now go ahead.

Andy Barish, Analyst

Good evening, everyone. I have a couple of questions. Mike, could you highlight any specific items in the other operating expense category, particularly in other store operating expenses, where we've seen notable improvements compared to our modeling? Is there anything in that area that's different from previous periods?

Mike Quartieri, CFO

I'll touch on a couple of things. One, from an inflationary perspective, we're starting to see a little bit of deflation quarter sequential on our hourly wage rates, we’re down approximately about 0.5% there and we're down about 3% quarter sequential on our commodities. So that's benefiting our cost of goods sold at the top line. Besides that, we are continuing to realize the synergies which are benefiting our G&A costs and we have continued to look at the other store operating expenses whether that's store operating supplies, utilities, or things of that effect that we've been able to put some programs in place to help reduce those types of costs.

Andy Barish, Analyst

Got you. Thank you. And then just a follow-up. I'm sure we'll hear more on this next week. But where are you kind of in the remodel test and some of the new entertainment, the social gaming aspects and things like that? Are some of those out in stores at this point or how do we kind of think about that for the rest of 2023 and then into 2024?

Chris Morris, CEO

Yes, Andy, I'll take that. This is Chris. And you're absolutely right. Next week at our Investor Day, we're really excited to be able to walk everybody through the details of our plan. We've got a lot to share with you. Remodels are certainly one of those items. We strongly see remodels as one of the key catalysts to get our top-line moving on a sustainable basis. Right now, the first remodel to open will be late July or early August. So we don't have a remodel yet in the market. We are going through the permitting process for 12 units and we expect to have six of those 12 done this year. So, we're really looking forward to getting those in the market and we will walk you through a lot more details next week.

Andy Barish, Analyst

Okay. Very helpful. Thanks, guys.

Operator, Operator

Our next question will come from Jake Bartlett with Truist. You may now go ahead.

Jake Bartlett, Analyst

Thank you for addressing the questions. My first inquiry is about the quarter-to-date; in previous quarters, you provided trends on sales, and I hope you can share that information this quarter as well. Additionally, regarding the same-store sales compared to 2019, there has been a deceleration over the past three quarters, suggesting mounting pressure and potentially declining momentum. Your insights on the quarter-to-date will likely inform this question, but could you explain the reasons behind this slowdown and whether you foresee a re-acceleration?

Chris Morris, CEO

This is Chris. I'll address the first part of that question and then I'll pass it to Mike for the second part. Regarding intra-quarter sales figures, we mentioned in our last call that we are moving away from that practice. We want to focus more on a long-term perspective. Therefore, we won’t provide updates on our performance for the initial weeks of the current quarter. However, I can share that our year-to-date comparisons through May versus April show no significant differences. Still, I wouldn’t read too much into that since May is a relatively small month for us. Our business typically picks up in June and July due to seasonal factors. May generally accounts for around 25% of our quarterly sales. We are looking forward to the summer months, as both of our brands tend to perform well during this period. Our emphasis remains on the long-term outlook.

Mike Quartieri, CFO

Yes. In response to the second part of your question about comparing to 2019, we observed that each month this quarter showed progressive improvement compared to 2019. Although there is some decline when looking at the sequential quarters, this mainly reflects the pent-up demand in the economy due to the excess spending from COVID relief and stimulus measures that had been implemented.

Jake Bartlett, Analyst

I appreciate that, and I understand your point about the quarter-to-date. My other question pertains to the marketing cadence. You've launched the five games for free promotion, but I'm aware of the gap from last summer's games that were relaunched last year. Do you anticipate that whatever strategy you implement this summer will be more effective? Is there a reason to believe that your approach this year will drive more traffic compared to last year's strategy?

Chris Morris, CEO

Our goal is to improve every year, and we fully anticipate that this year's campaign will outperform last year's. This is the standard we set for ourselves. Specifically, the Summer Games promotion has typically taken place during the summer months. After thoroughly analyzing our marketing performance over an extended period, we believe last year's campaign was one of our weakest. When we reviewed the results, we found that Summer Games didn't significantly impact sales apart from 2018, when it coincided with the launch of our new VR attraction related to Jurassic Park. However, we recognize that our guests seek value during this time and are eager to experience our entertainment offerings. Therefore, we felt it was essential to focus on entertainment and generate interest in the game room. Our concept testing showed that our current offer significantly outperformed other options. We are optimistic based on the research we conducted. However, since it just launched yesterday, we will need to see how it performs over time.

Jake Bartlett, Analyst

Great. And for the last question, regarding the share buybacks, it's impressive and aggressive to see that. It seems that the amount you've repurchased so far this quarter is roughly equal to your cash balance at the end of the quarter. I understand you've likely been generating free cash flow since then. However, I'm curious if you would consider reducing debt to facilitate share buybacks. I want to ensure I fully grasp your strategy concerning the balance sheet.

Mike Quartieri, CFO

That would be conversations we have back and forth with the Board. But rest assured, given our liquidity and the future cash flow generation that we are able to produce and what we've done historically on a free cash flow conversion from EBITDA, we're very comfortable taking either approach, either using just the cash on the balance sheet or to take out a piece of debt on the revolver to do so.

Jake Bartlett, Analyst

Great. I appreciate it.

Operator, Operator

Our next question will come from Brian Vaccaro with Raymond James. You may now go ahead.

Brian Vaccaro, Analyst

Hi, thanks, and good evening. I just wanted to circle back to the comps in the first quarter and ask about it on a year-on-year basis. I mean, it looks like both brands were down around 4% based on your 10-Q disclosures. I'm just trying to keep in perspective, quarter-to-date you had said was down low singles, it implies a sharper decline in April. Could you just provide more color on what you think is driving that decline? I mean, is it primarily the difficult lap or are there any sequential changes in behavior beyond normal seasonality that might be worth highlighting, like low amounts being loaded on cards or how consumers are navigating the menu on the F&B side or just anything across the incumbents, just any color would be helpful there.

Chris Morris, CEO

Sure, Brian. I'll start and let you wrap it up. I mean, the short answer is no. There's nothing that's noticeable that happened between March and April. There was a considerably higher compare in April. So we're lapping a much stronger number in the prior year. And so that's definitely a consideration. As Mike mentioned earlier when we compare our results to the 2019 year, the pre-pandemic year, we actually saw a sequential improvement going from March to April. We've spent a lot of time looking at our numbers to see if there are any trends that we should be aware of, changes in consumer behavior, or anything along those lines, and there was nothing noteworthy there.

Mike Quartieri, CFO

Yes. I think the only other thing to add on to your point of regarding Power Card loads, we haven't seen any decline in that dollar value. So, the health of the customer is still there. So I think it's really more around a very tough comp when you're lapping over 26% growth which is 9% higher than what we had in the March period of 15% on a combined basis.

Brian Vaccaro, Analyst

That's helpful. I wanted to revisit the comments on labor margins. We observed about 40 basis points of deleverage, with comparable sales down 4%. It seems the cost per week is decreasing by 1% to 2% year-over-year according to my calculations, and I'm interested in how you're achieving that. Could you elaborate on how you're optimizing the labor used in the units? Mike, could you also share the year-over-year wage inflation for the quarter?

Mike Quartieri, CFO

Yes, sure. So, I'll start with the beginning. How are we controlling labor right now is really a testament to Tony and the operating team that we have. Very much a diligent view of looking at the weekly forecast for sales, analyzing that on a per day basis in order to get the staffing right where you're getting that staffing out of Monday through Thursday to really hone it in on the weekend when we're peaking, is driving the labor overall down but also having the right labor at the right time and the right place, allows us to improve our overall scores with our guests and our guest satisfaction. So I think from that perspective, it's really about driving that discipline and do it on a weekly basis, on a daily basis, on a per-shift basis and that type of rigor is really paying off for us. In regards to the wage inflation, give me one second. Overall wages in Q1 from an hourly perspective, Q4 was roughly $13.14 and we're seeing now closer to just over $13 and with a couple of pennies above that. So continued focus on as we replace employees who have learned or had left, and so we're getting the new employees at a slightly lower rate, just based on the controls that we see and the discipline around our hiring practices.

Brian Vaccaro, Analyst

Okay, great. That's helpful. I wanted to ask about your decisions regarding share repurchases and capital allocation. Can you discuss the choice between buying back stock and paying down debt, especially considering your term loan rate is around 10%? Additionally, I'm interested in your plans for refinancing some or all of your debt. Thank you.

Mike Quartieri, CFO

Yes. In assessing the significant undervaluation of our shares in comparison to the 10% debt, we believe the shares hold substantial upside potential, which aligns with our plan to repurchase $200 million worth. Regarding refinancing opportunities, the soft call ends on June 29, and we aim to leverage market conditions, hoping there will be favorable conditions, to reprice that debt and achieve interest savings.

Brian Vaccaro, Analyst

All right, great. I'll pass along. Thank you.

Chris Morris, CEO

Thank you.

Operator, Operator

Our next question will come from Jeff Farmer with Gordon Haskett. You may now go ahead.

Jeff Farmer, Analyst

Great, thank you. Just looking for a follow-up to a couple of earlier questions. Specifically, the first one would be, additional color on your guest trends in general. You touched on it, but I'm curious if there's anything more notable across weekend, weekday, family, young adults, income, demographics, any way you want to slice it, but is there anything that you've noticed in terms of shift changes in recent months as the consumers come under a little bit more pressure?

Chris Morris, CEO

I apologize for the confusion. I'll start by saying that there has not been any significant change in consumer behavior throughout the quarter. It remained consistent over all three months. Regarding the specific items you mentioned, we do not provide that level of detail in our disclosures. If something significant arises, we will inform you. Overall, the trends were steady throughout the entire quarter.

Mike Quartieri, CFO

Yes. And just to add on top of that, it's not only at the demographics level from an income perspective for our guests, we also look at across the spectrum of all the geographies and the DMAs that we're in. There is not any particular area that's falling off more than anything else. So everything has been staying relatively consistent.

Jeff Farmer, Analyst

Okay. And this was also touched on, but a lot of us are sort of looking at that same-store sales metric versus 2019. It's already been asked above. But I am curious sort of one thing that sort of popped up and there has been a conversation with investors is that, perhaps the strength of the NFL campaign in September, October, into early November was sort of stronger than everyone appreciated. And as you rolled off of that, again, this is all sort of theoretical, as you rolled off of that, potentially that became a little bit of a traffic headwind or you just lost that tailwind. So did you subscribe to that at all? Do you think that there is just so much strength around or resonance with the NFL campaign that once you sort of rolled off of that, you saw this? I won't call it a normalization, but a downshift as it relates to traffic trends.

Chris Morris, CEO

I wouldn't go that far. What I can say is that we were pleased with the success of the campaign and learned a lot from it. This was the first time we promoted the Watch side at a national level, and having someone like Travis Kelce endorse it was a significant win for us. This endorsement actually influenced our decision to initiate the Slam Dunk Deal and capitalize on March Madness and the NBA Finals. We're very pleased with the results, but I wouldn't say it was the main driver of our sales. Currently, we're not noticing any significant changes throughout the quarter, and we didn't see material shifts in the various aspects of the business. Compounding this is the challenging period we faced last year, which has made things more difficult. We will have a clearer understanding come summer, as those months are crucial for us. June and July are when young adults and families tend to engage with us, making it a high-volume time. Observing consumer behavior over the summer will be particularly interesting. For now, we're concentrating on everything within our control and focusing on what we know. Next week, we will share why we are so enthusiastic about our plan. We have several options available to drive business growth and look forward to explaining them in detail. By the end of that discussion, it will be clear that there is significant potential in this business. Right now, we're still trying to gauge the consumer environment and top-line performance. We will have more information by the end of summer, and we are excited about our plan.

Jeff Farmer, Analyst

I appreciate that. Just one more follow-up, and I apologize for being lengthy. The margin performance has been impressive, especially considering the comparison you delivered. The question now is whether you are fully optimizing the margin efficiencies that this business can achieve at this stage. The best scenario would be to maintain these margin efficiencies as you progress, but are there additional margin opportunities that extend beyond just revenue growth? Are there other strategies you have that could further enhance margin improvement beyond what you have already accomplished?

Chris Morris, CEO

Yes. So we see further improvement. That's one of the items that will walk you through next week. If you could just hold off a week, we're going to give you a ton of information on it, and I believe you're going to be very pleased.

Mike Quartieri, CFO

The one thing I'll add, Jeff, there is a seasonality nature to our business, especially when it comes through just your top line, and then how that flows through. In this period of Q1 and Q4, we've historically always had our best margins. Q2 has been pretty much about average and then obviously when Q3, when kids go back to school, it's our general seasonally low period of time, and then you just see that margin drop accordingly, because you just don't have the top-line flows through that you typically would see in these higher periods of Q1 and Q4.

Jeff Farmer, Analyst

I was just going to say, I think investors clearly understand the seasonality aspect of it. It is just the improvement in the margin, which was the thing that's getting attention. So I hear you loud and clear and more to come at the Investor Day. So I appreciate it, guys. Thank you.

Michael Quartieri, CFO

You got it.

Chris Morris, CEO

Thank you.

Operator, Operator

Our next question will come from Sharon Zackfia with William Blair. You may now go ahead.

Sharon Zackfia, Analyst

Hi, good afternoon. So on the last earnings call you talked about a choppy kind of sales environment. I think part of that was related to the movement in spring breaks and it's always kind of tough in mid to late March to kind of know where things are going to lie. Do you feel like now there's more predictability in your sales trends? And I'm also curious as to kind of how you're viewing the competitive environment at this point, whether you're seeing any more incremental pressure from new competitors opening, kind of like, we used to hear about would Dave & Buster's back before the pandemic.

Chris Morris, CEO

Let me address the competition first. That’s not something we’re focusing on right now. We are concentrated on maximizing the opportunities we have with Dave & Buster's, and we will share our plans next week. We're very enthusiastic about it. As I mentioned earlier, we have multiple strategies that we believe will effectively drive our business forward. Our goal is to outperform competitors. Regarding sales predictability compared to the previous period you mentioned, the answer is yes. Last quarter was quite confusing due to spring break mismatches, but we are not facing that level of confusion now. Overall, we're in a better position to gauge sales. However, I want to point out that there is a lot of discussion in the broader market about consumer behavior and spending as we move into summer and fall, which does impact our ability to accurately forecast sales. As I said before, we aim to stay focused on what we can control, work efficiently, and aggressively pursue the strategic initiatives we have planned.

Sharon Zackfia, Analyst

Thanks for that. And then one question on the Amusement comp down 6.5% ish. Is that a proxy for kind of the traffic on the Amusement side or are you seeing kind of lower loads per card than you would have seen in the year-ago period?

Mike Quartieri, CFO

Yes, I'll address that. We are actually observing an increase in some of the card loads. This means that when we give customers the chance to invest more in higher value cards, we see situations where a parent may purchase one more expensive card and share the value among their children instead of buying two separate cards. While this is one aspect, it's also an important indicator we monitor as we evaluate traffic and other metrics to assess the effectiveness of our marketing efforts and the value propositions we offer to our customers.

Sharon Zackfia, Analyst

Okay. Thank you.

Chris Morris, CEO

Thank you.

Operator, Operator

Our next question will come from Chris O'Cull with Stifel. You may now go ahead.

Chris O’Cull, Analyst

Thanks, good afternoon, guys. I had a follow-up question regarding that. Just given a lot of the comp performance has been coming from Check build or pricing, how are you thinking about that moving forward, especially given the transaction performance, because it may be a little pause about, maybe trying to raise the Check with a higher entry point with the Power Card or do you feel like you can still raise that Check going forward?

Chris Morris, CEO

We still believe there is an opportunity to grow Check, but I understand the need to proceed with caution, as we always want to protect our value proposition. In these low frequency, high experiential businesses, guests perceive value differently than they do at a restaurant chain. Our focus is on the overall experience. We believe there is still room to adjust prices and certain aspects of the business. We can be strategic about growing Check while also providing guests with value in return. We will discuss all of this next week, and I think you will be pleased with what you hear.

Mike Quartieri, CFO

Historically, Main Event has utilized developer financing when selecting a site, which would involve entering into a sale leaseback at closing and using those proceeds to offset the capital expenses. Generally, you can expect a Main Event to cost a bit more than $20 million, around $22 million, since it is over 55,000 square feet and includes bowling, leading to higher construction costs. They would use the proceeds from developer financing, resulting in a net investment of about $8 million. Currently, due to the strength of our balance sheet and free cash flow conversion, we are planning to invest that excess amount and fund the full capital expenditures upfront using our existing balance sheet and liquidity. While this will increase our capital spending, we intend to engage in sale leasebacks once the stores open. By treating these as operating assets, we will achieve a significantly better return on the cash from the sale leaseback, making it worthwhile to utilize our balance sheet to safeguard our overall position. As it stands, our pipeline was established with Main Event at the time of the transaction, so we have not needed to touch our balance sheet yet, but Murfreesboro will be our first instance. You can expect about a $30 million increase in capital expenditures compared to our historical levels when merging the two companies. This increase is simply a timing issue, as we will secure a much better return on sale leasebacks once the store is operational.

Chris O’Cull, Analyst

Do you expect the sales-to-investment ratio to be below one, with the high margin potentially leading to higher returns of around 25% or more in cash, and how are you considering the unit economics for that business?

Mike Quartieri, CFO

You're thinking of it correctly.

Chris Morris, CEO

Thank you.

Operator, Operator

Our next question will come from Dennis Geiger with UBS. You may now go ahead.

Dennis Geiger, Analyst

Great, thank you. One quick follow-up sort of on the lack of changes in consumer behavior, and you kind of touched on it a bit here. But any updated thoughts on the resiliency of the brands into the tougher macro relative to prior, just given what you've seen and kind of the lack of any of those notable changes as you look ahead over the coming quarters or so?

Mike Quartieri, CFO

Yes. I mean, I think we will get into this a little bit more on Investor Day, but when we go back and look at prior uncertainty in the market, whether that's the 2008, 2009 crisis, the company performed extremely well. Although comp store sales would have been down, the amount of adjusted EBITDA decline was far less than what the comp store sales are. From that perspective, there's a very much of a protective environment that we have. As we get further into these types of situations or these environments, that's when the trade down from more expensive vacations into the staycations yields into that Dave & Buster's trip, helps protect us in that type of an environment.

Dennis Geiger, Analyst

That sounds good. Looking forward to next week. Thanks guys.

Operator, Operator

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

Chris Morris, CEO

All right. Thank you operator. In closing, we'd like to again commend our team for the exceptional results they continue to produce at our stores across the country. Thank you all for joining. We look forward to keeping you apprised of our continued progress on our growth initiatives and revealing more details about our long-term strategic plan at our Investor Day next week. Thank you.

Operator, Operator

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