Earnings Call Transcript - PLAY Q2 2024

Operator, Operator

Good day and welcome to the Dave & Buster's Second Quarter 2024 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. Please go ahead.

Cory Hatton, VP of Investor Relations

Thank you, operator, and welcome to everyone on the line. Joining me on today's call are Chris Morris, our Chief Executive Officer, and Darin Harper, 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 second quarter 2024 results, I'd like to call your attention to the fact that in our prepared remarks and 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 these risks 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 release this afternoon. And with that, it is my pleasure to turn the call over to Chris.

Chris Morris, CEO

All right. Thank you, Cory. Good afternoon, everyone. Thank you for joining our call today. In our second quarter of fiscal '24, we generated revenue of $557 million and adjusted EBITDA of $152 million. We are pleased with the progress we're making on our strategic initiatives and on the strong financial results achieved during the quarter. During the quarter, we grew revenue and adjusted EBITDA, expanded our adjusted EBITDA margins, and generated strong operating cash flow, which allowed us to invest in the business and return cash to shareholders. We've also continued to make significant progress toward our strategic goals. Our initial fully programmed remodels continue to perform well and we are excited about the remodels that have recently opened and will open throughout the remainder of fiscal '24 and beyond. Our new menu continues to be well received by our guests, as indicated by improving food and beverage performance and guest satisfaction scores. We continue to refine our menu and are excited about the next phase of our menu rollout that just occurred in August. We've also continued to test our games in food and beverage pricing levels, which have benefited our top line and margins, and which we expect to bear more fruit going forward as we optimize our pricing strategies. Additionally, we have seen material improvement in our special events business with substantial growth in same-store sales in the quarter and year-to-date, with the forward bookings for fiscal '24 currently significantly above the prior year period. Further, we have continued to open new domestic stores which have consistently performed in line with or above our expectations. We've also managed our cost structure well, which has enabled us to expand our adjusted EBITDA margins while still delivering a high-quality experience to our guests. While we are disappointed with our same-store sales performance during the quarter in this complex and challenging environment, we are laser-focused on our medium-term goals and encouraged by the progress we are making on each of the initiatives. We fully expect the impact of our initiatives to lead to growth in same-store sales, revenue, EBITDA, and cash flow in the coming quarters. I will now give you a brief update on the progress of each of our strategic initiatives, starting with our six key organic revenue growth initiatives. First, marketing and optimization. As a reminder, we believe there is a huge opportunity to improve both conversion and guest frequency with the right marketing approach. We've made a material shift to digital marketing and away from linear TV over the past few years, which allows us to move quickly on campaigns and rapidly address specific business needs while localizing and personalizing our messaging. The data we glean from this digital approach are immense and constantly fueling our marketing engine to progress forward with more actionable insights. These digital channels also allow us to be particularly nimble with our spend and enable us to quickly pivot when we are not achieving the desired results. Leveraging our learnings over the past few quarters, we are beginning to more strategically target our growing loyalty database with creative and compelling tailored messaging to drive visit frequency and spend. We now have nearly 7 million loyalty members in our database and active members have grown over 25% on a year-over-year basis. As a reminder, these loyalty guests visit us 2.5 times more frequently on average and spend 15% more per visit than non-loyalty members. As we have discussed, we've been focused on a test-and-learn approach to our marketing. Due to a number of tests we have run across our portfolio over the last several weeks, we are excited for what we have to offer our guests for the fall season. In addition to our new food menu, our new beverage menu, our selection of new games, and new experiences, particularly in our remodeled stores, which are rapidly increasing as a percentage of our portfolio. We also have a number of local store activations and compelling value-driven promotions tied to the fall football season that we expect to drive continued improvement in top line trends at Dave & Buster's. On the Main Event side, we are applying many of the learnings we have gleaned from Dave & Buster's and are excited about some recent strategies we have executed to drive awareness, excitement, and attachment to our full product assortment. We are also laying the foundation of our plan to launch a loyalty program at Main Event in early 2025 that we think can emulate the success of the Dave & Buster's database. We will continue to optimize our media mix messaging and better leverage our scale and presence to drive traffic. We also are evaluating numerous partnerships that we expect will help improve traffic and sales trends later this year. We're particularly excited about a number of these big-name partnerships with the buzz we generated during the summer movie season, with the box office success of Deadpool versus Wolverine and our exclusive crane experience. Second, strategic game pricing. We continue to believe there is a significant amount of upside on game pricing and we've been particularly methodical in the current consumer environment, while we continue to gain insights from our various iterations of regional and game specific tests constantly running within our gaming ecosystem. We have driven clear uplifts with our multi-tiered approach to regional pricing with the highest tier significantly outperforming the other tiers and we are constantly evaluating performance to make changes on an individual store basis, a technical ability that was unlocked with the recent enhancements to our gaming system. We are also increasingly applying these learnings from the Dave & Buster's brand to the Main Event brand. Third, improved food and beverage. As a reminder, we see a tremendous opportunity to improve the overall quality and service model of our food and beverage offering, in order to bring attachment back towards the historical levels and to drive increased revenue and EBITDA. As a reminder, earlier this year we successfully implemented a new service model, which has been focused on enhancing efficiency, while improving the guest experience and the quality of our food offering through a new menu. We are pleased with the initial success in this area as we've seen improvement in trends on the food side of our business both during Q2 and subsequent to the quarter. As we mentioned on our last call in August, we launched our Phase 4 menu, which is primarily focused on beverage innovation and special events. On the beverage side as part of this new menu, we've introduced 13 new and 12 revised beverages, including premium drink offerings that significantly elevate our bar experience. We've also created a set of near-term beverage sales initiatives like a reinvigorated happy hour and improved salesmanship strategies for our bartenders to drive beverage attach based on our ongoing research findings from guest feedback. We believe that this focus on improvement in beverage, in addition to continued momentum in food will set up the food and beverage side of our business for success in the coming quarters. With respect to the special event side of Phase 4, our new banquet menu features eight new menu items and significant plating and menu revisions, creating additional opportunities for salesmanship on our special events team. We're excited for the opportunity that these new items give us to further add to the momentum we are seeing in special events in which we will detail later. Fourth, remodels. Our fully programmed remodels continue to perform well with positive sales trends on both a year-over-year basis and on a pre-post net of control basis. This sustained positive performance has solidified our confidence that product news and innovation are a proven lever to ignite our momentum. We're pleased to report that our first fully programmed remodel in Friendswood, Texas, just outside of Houston, has lapped the anniversary of the remodel completion and thus far in its second year, it is still comping up relative to prior year, which is a true testament to not only the success and healthy return profile of the remodel program, but most importantly, its staying power as a complete strategic reset and new platform for sustainable growth. During the quarter, we remodeled nine existing stores as our development team has gone into overdrive to accelerate the exciting investments we are making into Dave & Buster's stores of the future across the system. Interestingly, while we have not yet fully reintroduced our newest remodels in their respective markets with the same preopening and marketing push, we've done for our first batch of fully programmed remodels, we're still seeing strong performance with aggregate year-over-year growth on both a pre-post and year-over-year basis over the last few weeks across these nine remodels. All told, we have opened 18 remodels and are on pace to have 29 remodels completed by the end of the third quarter and 44 remodels completed by the end of this fiscal year. Fifth, special events. We continue to make considerable strides reinvigorating our special event business by repositioning the team with a more local, hands-on approach and equipping them with enhanced training and tools to win in this area. Beginning in the back half of last year, we reinserted sales managers into several of our Dave & Buster's stores as a test. The idea was that more dedicated on-premise sales managers would be able to tailor the guest experience at the individual store level and that aiming this team with more product news like the innovation of our Phase 4 banquet menu and increasingly our remodels would further allow them to drive success for this business. We've also mentioned that due to the strong performance that we saw in those stores that we would be reinserting sales managers into a significant number of additional stores. As of today, we now have over 70 on-premise sales managers inserted into the Dave & Buster's portfolio. We're pleased to report that this strategy has been working well, driving high-single-digit year-over-year growth in special event sales across the entire Dave & Buster's system during the second quarter, with continued strong momentum in the third quarter. Additionally, as mentioned earlier, forward bookings for the third and fourth quarter are meaningfully above where they were a year ago, which gives us confidence and excitement about our strategy and momentum ahead of the peak special event holiday season in the fourth quarter. Sixth, tech enablement. As a reminder, we are powering the growth of all strategic initiatives through an optimized service model, enterprise gaming ecosystem, new store IT infrastructure, and improved data and analytics. Thus far in 2024, we have completed major IT enhancements to the whole Dave & Buster's system, which updated connectivity and all server infrastructure. This was paramount to support our new service model because it heavily relies on wireless connectivity and stable computing power for all points-of-sale in PCs along with our handheld server tablets. We've also completed the back office modernization of our service center, and this is the first quarter we seamlessly closed the books in our new ERP system. New store monitoring technology has been installed in most of Dave & Buster's locations and we are working diligently to embed these new property level insights into our strategic analysis. Our mission of driving further innovation in our mobile app will continue throughout the balance of 2024 with the integration of additional features and games to better engage with our guests before, during, and after each visit. We are still just scratching the surface of what we can do with our growing loyalty database from a data analytics and product offering perspective, which we are excited to unveil to you in the coming quarters and are confident it will drive meaningful relevance and repeat visitation for our brands. We are proud of the achievements and long overdue investments we are making in this area, which will enable us to lead the industry in a far more seamless and desirable guest experience. To summarize our organic growth initiative update, we remain convinced that we are putting our focus, resources, and investments in the right opportunities to grow the top line and in doing so that will drive meaningful shareholder return along the way. I had the pleasure of spending significant time with our store general managers this quarter, and with each interaction, I come away feeling more energized and passionate about our culture and the team members who are part of this great company. Their commitment to the cause of enhancing the guest experience and competitive spirits to win are remarkable. There is a positive ripple effect in the way that we treat our team members, to how they treat each other, to how they serve the guests, to how that environment manifests in our stores, making them an enjoyable place for friends and families to create memorable experiences. We see this hospitality loud and clear in the guest satisfaction metrics that we meticulously track with our combined overall satisfaction, speed of service, overall cleanliness, and the fully independent satisfaction social media scores all up materially on a year-over-year basis, and this improvement is even more pronounced when we compare our cohort of remodeled stores to the balance of the system. We are very confident that these results are not coincidental and that the enhancements we are making to our service model, coupled with the investments we are making in our remodels, are driving these strong leading indicators of success. In addition to our organic revenue growth initiatives, as we have discussed, we have also maintained a focus on managing our cost structure. Due to our always rigorous focus on managing expenses, we grew adjusted EBITDA by $11 million or 8% and expanded our adjusted EBITDA margins by 130 basis points in the second quarter. It's important to note that while we are very focused on managing costs and enhancing margins, we've also strived to do that while ensuring we continue to deliver a high-quality experience to our guests. We are proud that we've been able to cut costs and improve margins while simultaneously improving our guest satisfaction metrics, which is not always an easy balance to strike. With respect to new domestic units during the second quarter, we opened two new Dave & Buster's stores in Port St. Lucie, Florida, and Johnson City, New York. Both are performing in line with our historically high ROIs. In the third quarter, we've already opened a new Dave & Buster's in Barboursville, West Virginia, and a new Main Event in Grand Rapids, Michigan. We continue to expect to open a total of 15 stores during fiscal 2024. On the international development front, we expect to open four to five stores in the next 12 months with our respective franchise partners across the globe as the commitment to develop a current total of 38 sites and counting comes to fruition. We expect the first of these international sites to open before the end of the year. Our business is in an enviable position with strong operating cash flow that it consistently generates to continue to grow, invest, and return capital to shareholders in tandem, while we execute on the sizable upside potential of these two brands, and we look forward to continuing to update you on our progress as we find better and more efficient paths to unlock the value for all of us. Finally, before I turn the call over to Darin, I would like to take a minute to introduce our new CFO, Darin Harper. Darin and I have worked together during transformative moments at multiple companies throughout our respective careers and I cannot be more excited to publicly welcome him on board. With his vast experience and intimate knowledge of the location-based entertainment space, he has hit the ground running overseeing the financial elements of the numerous initiatives we have going for us, and I have a tremendous amount of confidence he will be a significant asset to our company. So, with that, Darin, please walk us through a more detailed review of our Q2 results.

Darin Harper, CFO

Thanks, Chris, and good afternoon, everyone. Let me first start by saying how excited I am to be here and working alongside Chris again. It's truly an honor to represent this great company and to work with the fantastic team that we've got here. So, turning to the results for the second quarter, comp store sales decreased 6.3% on a calendar basis in the second quarter versus 2023. We generated second quarter revenue of $557 million, which reflects year-over-year growth of $15 million or 3% and adjusted EBITDA of $152 million, which reflects year-over-year growth of $11 million or 8% and an adjusted EBITDA margin of 27.2%, which is a 130 basis points margin expansion versus the prior year and a 360 basis points margin expansion versus the same period in 2019. Net income in the second quarter totaled $40 million or $0.99 per diluted share. We reported $46 million of adjusted net income or $1.12 of adjusted earnings per diluted share, and reconciliations of all non-GAAP financial measures can be found in the press release from earlier today. We generated $102 million in operating cash flow during the second quarter, ended the quarter with a net cash balance of $13 million for a total liquidity of $494 million when combined with the $481 million available on our $500 million revolving credit facility, nets of outstanding letters of credit. We ended the quarter with a net total leverage ratio of 2.3 times as defined under our credit agreement. Our decisive plans for the Dave & Buster's store remodel program are progressing at an impressive cadence under the leadership of our best-in-class development team. We now have 18 completed remodels under our belt with 26 additional scheduled for completion in the balance of fiscal 2024 as we approach critical mass of the system in fiscal 2025. The results that we have seen remain very encouraging, with the earliest fully programmed remodeled units continuing to significantly outperform the balance of the system. Our first remodel of this program in Friendswood, Texas completed its construction in August of 2023, and as Chris mentioned, it's a testament to the effectiveness, staying power, and potential upside of this remodel program that the Friendswood store is comping up in the early innings of its second year post remodel. As a small update and reminder on sale-leaseback opportunities, we closed on the previously announced sale of two Dave & Buster's properties in July, generating $45 million in proceeds. We have five owned and operating real estate assets today, with one more wholly owned property scheduled to open later this year. We are being methodical in how and when we decide to monetize these assets and 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 of the space. Turning to capital spending, we invested a total of $112 million in capital additions during the second quarter, opening two Dave & Buster's in Port St. Lucie, Florida, and Johnson City, New York. We have already opened one new Dave & Buster's and one new main event during the third quarter thus far in Barboursville, West Virginia, and Grand Rapids, Michigan, respectively. We continue to expect to open a total of 15 new stores across both brands during fiscal '24, with eight already open to date. We have $140 million remaining on our Board-approved share repurchase authorization to opportunistically repurchase our shares. As you know, we and our Board are maniacally focused on driving shareholder value. We will use our significant excess cash flow to invest in our accelerated remodel program, new units, which continue to generate sizable cash-on-cash returns, make accretive investments to support our organic growth initiatives, and opportunistically return capital to shareholders. Our team has a lot to be proud of in the second quarter results; we grew adjusted EBITDA, continued to expand our industry-leading adjusted EBITDA margins, progressed our organic growth journey through strategic investments in our remodels and other initiatives, and bought back additional shares outstanding, all of which will benefit our shareholders over the long run. We also have a growing pipeline of attractive international frontiers with our many franchise partners with four to five anticipated to open in the next 12 months. I'm excited to be back at the financial helm of this great company, particularly since it's well-positioned for growth, and I have a significant amount of confidence that the work we are putting into these two great brands will provide material upside for all of our stakeholders. Now, with that operator, please open the line for questions.

Operator, Operator

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

Jake Bartlett, Analyst

Great. Thank you so much for taking the question. My first was on the top line and so far you have your initiatives in place. It seems like you're feeling very confident in them. Same-store sales have decelerated, though, so it looks like macro headwinds are offsetting it. The question is, you expressed confidence in accelerating same-store sales in coming quarters and that your initiatives are going to do that. I guess how can you feel so confident given the macro headwinds? Maybe in that answer, you could talk about whether you see the macro headwinds building or decreasing or just staying consistent as well as whether you're seeing kind of improved or increased contribution from your initiatives in the last few months?

Chris Morris, CEO

Yes. Hey, Jake, great question. The first thing I'll say is we continue to be very bullish about the long-term prospects of our initiatives. And I think that's what you're hearing from us. The initiatives that we're focused on, we've shared with all of you the math and the upside. And there is still a tremendous opportunity to add incredible value to this organization through executing on those initiatives. And as we've always said, the one thing we can't control is the macro environment. But make no mistake, there's real value creation opportunity on these initiatives, and our stance really hasn't changed. It is a tough kind of consumer environment; it's complicated, and there are headwinds in this business, and we felt those headwinds in the second quarter, and they're still there. I think what has us excited is as we move forward, more of our initiatives are starting to come online. And when we look forward, we really like what we're seeing on our remodel program. The remodel program is, you've heard us talk about it as a strategic reset. It's the culmination of everything we're doing all wrapped up into one. And we continue to see very nice improvement on the remodels. And so we've got the nine that we just opened this quarter. They opened towards the end of the quarter, but now we have 11 in Q3 and then 15 in Q4. And so those remodels at this point in time, we continue to believe that they're going to continue to see the same results that we've seen in previous remodels. And so that gives us a lot of optimism. In addition to that, the other initiatives we're focused on, that I outlined with special events and the banquet season coming up and so on and so forth. So I think that's what you're hearing from us is just confidence in the things that we're working on.

Jake Bartlett, Analyst

Got it. And just building on the commentary around the remodels. Last quarter and I think in prior quarters, you've been a little more specific. You said double-digit sales lift for the fully-loaded remodels. Is that true? I'm wondering whether the omission is conspicuous or not or whether it just kind of the message remains the same, but anything changed there in terms of what kind of lift you're getting from the remodels?

Chris Morris, CEO

No, no, it's still, no, nothing has changed. We're still seeing a double-digit increase in those first four fully programmed remodels. And the nine that just came on, as I said, it's still very early; they were towards the end of the quarter, but at this point in time, we're seeing a nice lift there. And there's no reason to believe that they're performing in line with what we would expect. And I think on those in particular, we're seeing nice separation in sales, and we haven't even fully put our marketing muscle behind those yet. And so that's – and as we start getting more critical mass, there'll just be more we can do from a marketing standpoint to get out and tell the story of store of the future. So and then the last thing, the one thing that has changed is we now have Friendswood in year two and that's always been – we've been very open about that, that we don't you know time will tell you know what this looks like in year two. And so far Friendswood is green on green. So that's very encouraging as well and it just speaks to the staying power of what we're doing.

Jake Bartlett, Analyst

Okay, great. And last question for me, a pretty interesting or impressive feat to grow margins as you did, 170 basis points at the store level with such negative same-store sales. So the question, I just want to make sure there's nothing in there that's abnormal, that's not maybe enough non-recurring to be backed out, but just that will not happen or benefit you in the future or coming quarters. Anything in there that we should be wary about? I guess the idea, the real question is, can you drive, if we expect negative same-store sales for the next quarter or two, is it feasible to continue to drive restaurant level or store level margin expansion?

Chris Morris, CEO

Yeah, I'm going to answer the first part of that and I'll turn it over to Darin to kind of comment on the second part. I mean, we're very proud of the work that's going into managing our bottom line, given the uncertain top-line environment. And that's really you know it's so important that we do that as we're starting to continue to execute these initiatives in a period of time where the consumer environment is challenging and the team really stepped up and delivered. We've implemented a number of cost-cutting initiatives that are coming through the P&L that we expect will continue to benefit the rest of this year. We're managing our you know all the things within our control. The team is just doing an outstanding job managing those things, but we've seen very significant improvement in cost of sales. We're tightly managing labor in all areas. It's not it's wage rates are flat to down on a year-over-year basis. Our productivity has improved and we're doing all that at the same time our guest experience metrics are improving. And as I said in my prepared remarks, that's not easy to do. The team is doing it just through managing the details every single week and just being absolutely maniacal about protecting the bottom line. And then we've been able to capture some considerable G&A savings. And so there's real margin improvement in the numbers that will that's not going away. And that's going to put us in the best possible position to navigate a challenging top-line environment. And with respect to other items, I'll let Darin kind of jump in on that.

Darin Harper, CFO

Yeah. Just to echo what Chris said. Yeah, we feel like we have a number of levers here and I think the brand has demonstrated that in being able to manage margins despite some sales headwinds. And every quarter there's noise in the prior year and there's always certain adjustments in the current year and the prior year that frequently just have an offsetting impact as we go along. So I wouldn't raise anything of note that is reflected in this quarter that we don't think is reflective of our ongoing trends of the business.

Jake Bartlett, Analyst

Great. I really appreciate it. Thank you.

Chris Morris, CEO

Yeah. Thank you.

Operator, Operator

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

Jeff Farmer, Analyst

Thank you. A little specific here, but I think on the last call you presented that presentation that showed that I think you had 33 of the 165 stores running at that highest price increase tier as of Q1. I'm just curious where that stands as of Q2 or currently in terms of the number of stores running at that highest pricing increase tier?

Chris Morris, CEO

We haven't made any significant changes to the tiers. We believe we are currently in a strong position. As you know, we have undergone extensive testing and have learned a lot, and we think we have established the right approach. We will continue to assess the situation, and we now believe we have a mechanism to adjust as we progress. As we begin our planning for next year, there may be some changes. However, at this moment, we feel secure and do not expect any significant changes for the remainder of this year.

Jeff Farmer, Analyst

Okay. Unrelated, just in terms of trying to understand whether or not the demand headwinds are sort of further mounting or you're seeing some stability. At the beginning, actually, when you reported the Q1, you pointed to low single-digit same-store sales declines through the first. I think it was four or five weeks of Q2. You finished the quarter down 6%. The math implies sort of mid-to-high single-digit same-store sales declines over the balance of the quarter. So can you help us sort of reconcile what went on there? It sounds like you have more initiatives that were kicking in, but the comps got softer. So, what was it; the demand headwinds that mounted? Just any color there would be helpful?

Chris Morris, CEO

Sure. Yeah, I mean, June and July were tougher months. And so the summer months were just a little more challenging than where we started the quarter. And that's we're not alone. Many others felt that same pressure. We saw equally Main Event and Dave & Buster's, the two brands have really been moving in lockstep. And so which is just another data point that we're dealing with something that's a little more macro. And so it was a challenging summer, which is, again all the more reason why our team really hunkered down and managed the bottom line and did all the great things that we did to control costs, just to give ourselves breathing room to continue to execute these initiatives.

Jeff Farmer, Analyst

Okay. Thank you.

Chris Morris, CEO

Yeah.

Operator, Operator

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

Andy Barish, Analyst

Hey, guys, just wanted to dig into the highest price tier that's kind of performing well. I mean, does that show that that's a demographic that's also maybe a little higher than a broad cross section and that demos kind of hanging in there better than what we've heard from pressures being seen at the lower end? Just trying to sort of tease that one point out as an opener.

Chris Morris, CEO

Well, it's the higher price tier certainly is reflective of higher cost of living. What we've talked about before we started enacting all these changes, we had, one, the same price. There's a price in Times Square and there's a price in Overland Park, Kansas and they were exactly the same. And so the higher price tier is reflective of more of cost of living adjustments. We did play around with kind of like demographic profiles on household income and things of that nature, but for the most part, generally speaking, our tiers are more in line with traditional pricing tiers that have to do with the cost of living.

Andy Barish, Analyst

Okay. And then just checking in on the rest of the remodels this year, are a majority or all of those going to be fully programmed at this point?

Chris Morris, CEO

The vast majority of them. We'll have three or four that won't have the arena attraction. They'll have everything else but the arena. And that's just simply because we don't have the space in those stores. But based on everything that we've seen to date suggests that there's real value in a fully programmed entertainment offering. And so the plan is to continue to move forward with that type of offering. But we will continue to evaluate it as we always do and to make sure that hold ourselves to a strict return on investment threshold. And we always leave room for adjustments if necessary. But at this point in time, that's the plan.

Andy Barish, Analyst

Got it. And then just finally, on food costs, you said you were managing. I assumed there is still some of the 50% off kind of promotion discounting on food that you've used. How are you kind of measuring the returns on that? Is it driving some of the incremental traffic you expected? And then does that kind of continue as we move forward? Do you use it for certain times of the quarter or things like that kind of like a boost when needed?

Chris Morris, CEO

We have discussed our strategy of testing and learning by introducing various initiatives in the market instead of relying solely on a single large campaign. This gives us a range of tools to drive traffic. Half-off food is one of those tools that we may utilize in the future as needed. Looking back, this initiative broke even because we carefully designed the economics for it to do so. Although it offers a 50% discount, it accounts for approximately 20% of our sales, which makes it economically viable. We are pleased with this outcome. Additionally, this promotion was limited to loyalty program members, which helped reduce the risk of cannibalization and encouraged loyalty sign-ups that we can leverage for engagement. Overall, half-off food exemplifies our approach of testing and learning. When we identify a successful offer, we dive deeper into it while continuously assessing our strategy. Does that make sense?

Andy Barish, Analyst

It does. Yeah, and then just finally, I know, quarter-to-date, basically August. I mean, industry numbers got better. Are you willing to kind of comment on how you started the 3Q?

Chris Morris, CEO

Yeah. Andy, as you know, we don't quantify intra-quarter results. I'll say that and it's just one period, we just wrapped up our first period of the quarter, that one period, the sales performance was better than the previous two periods, but it's just one quarter. We still have two periods left of this quarter. And so our focus is on the initiatives and continue to execute at a high level, managing the bottom line and putting ourselves in a position to really get the most out of our remodels as they start to come online.

Andy Barish, Analyst

Thanks, guys.

Chris Morris, CEO

Thank you.

Operator, Operator

The next question comes with Andrew Strelzik with BMO Capital Markets. Please go ahead.

Jared Hludzinski, Analyst

Hey, this is Jared Hludzinski on for Andrew Strelzik. Thank you for taking the question. So you discussed the opportunity to accelerate the pace of remodels, but I'm wondering if there's an opportunity to improve returns based on what you've learned from existing remodels? And if you could provide any color on how the company is prioritizing remodels through 2026, and whether that's based on store tenure, geography, or some other factor? Thank you.

Chris Morris, CEO

We are currently working on our plans for the fiscal year 2025, in close collaboration with our Board, which will ultimately approve the capital expenditures for that year. Internally, we are ensuring that if data indicates we should accelerate our capital allocation, we are prepared to do so. Our development team is diligently creating plans to ramp up efficiently. Our focus remains on using our capital wisely while seeking every opportunity to enhance our return on investment. We are actively exploring value engineering opportunities, and while we've had success in that area, we continuously push ourselves for more. Moreover, we are closely collaborating with our operators to identify what is effective and what isn’t, and how we can further boost revenue through these remodels. I am confident in what we are observing and believe there is potential for even greater outcomes, so we are dedicating significant time to optimize this process.

Jared Hludzinski, Analyst

Great. Thank you. And then I just wanted to get an update on how you're tracking against the marketing optimization initiative relative to your expectations and any learnings that you can share with us. And then on loyalty, what would you attribute to the continued strength in membership growth? I believe you said it was up 25% this quarter. What gives you confidence that this growth is sustainable going forward? Thank you.

Chris Morris, CEO

Yes. First, we're in the very early stages of marketing authorization. Last quarter during our Investor Day presentation, we provided an update and indicated that we are still in the initial phases. There is a lot involved in this process, including building the technology, developing capabilities, and going through testing and learning. I would say we are just getting started on reaching our goals, and we are pushing ourselves to move faster. Regarding loyalty, the team is making it a priority and is actively looking for opportunities to encourage sign-ups and keep guests engaged. We are improving in both areas. We are effectively using strategies like loyalty fencing with offers such as half off food, which has increased awareness of our food and beverage options as we introduced the new menu. This approach has driven sign-ups and allowed us to engage with those guests better than before. In our remodeled stores, we are seeing a significant increase in frequency among loyalty members compared to non-remodeled stores. This demonstrates that combining the right product offerings, execution, and engagement can yield positive results, validating our strategy. Regarding the 25% growth, while I won't provide specific expectations for the future, I can say we have high hopes. The focus remains on how we engage in a personalized way with our guests and earn the right to communicate with them, delivering relevant content. We will continue to enhance our efforts in this area. As I mentioned earlier, we are just beginning this journey.

Jared Hludzinski, Analyst

Great. Thank you very much.

Chris Morris, CEO

Thank you.

Operator, Operator

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

Brian Vaccaro, Analyst

Hi. Thanks and good evening. I wanted to ask a question just on the other operating cost line, and obviously leverage that line despite the negative comps. I noted in the 10-Q that it disclosed some gain on some transactions. Could you quantify that? And then maybe more broadly, talk about other sources of year-on-year favorability you saw within that line.

Chris Morris, CEO

I'll let Darin answer that. Go ahead, Darin.

Darin Harper, CFO

Yeah. One of the items in that line was a $4 million gain related to a termination of one of our leases in New York. That line is excluded from our adjusted EBITDA measure. But that was a big item that was in there. Really the most notable just in terms of flagging one-off benefits for the period is the additional two operating days that we had in quarter two, which added about a couple million dollars of EBITDA. And then you just have routine adjustments that come throughout the year as well. But that gain is the most notable.

Brian Vaccaro, Analyst

Yeah, I was going to ask you about that too, Darin. The extra sales on those two days is ballpark say maybe $12 million, $13 million. I guess sales days can change depending on seasonality and whatnot but. And just how to think about the flow through on those sales, because a lot of costs are accrued for either weekly or monthly, are you able to tighten any of that math up on the two extra days?

Chris Morris, CEO

Yes. No, they were low sales volume days. It was a Monday and a Tuesday. So it's about $4 million in incremental sales with about a 50% flow through. So it's about a $2 million EBITDA impact.

Brian Vaccaro, Analyst

Comps, I know it's tough to measure traffic, but could you just maybe give us a sense of how much price you'd estimate is reflected in your Q2 year-on-year comps and just kind of level-set what your latest thinking is on potentially taking additional pricing in the second half, either food and beverage or amusements?

Chris Morris, CEO

At this point, we do not have plans to make significant price adjustments for the second half of the year. As mentioned earlier, we are currently working on our plans for 2025. We will definitely develop a pricing optimization plan for that year. However, we believe we are in a good position for the remainder of this year. We do not provide detailed disclosure about all of our initiatives, and therefore, we will not share specifics regarding our pricing strategy.

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

Okay. Well, thank you so much for the participation today. We look forward to speaking to you and continue to give you an update on all of our initiatives. Thank you. Have a great day.

Operator, Operator

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