Earnings Call Transcript - PLAY Q1 2022

Operator, Operator

Good morning and welcome to Dave & Buster's First Quarter 2022 Earnings Conference Call. All participants will be in listen-only mode. Please note this event is being recorded. I would now like to turn the conference over to Michael Quartieri, CFO. Please go ahead.

Michael Quartieri, CFO

Thank you, operator. And thank you all for joining us today. Joining me on today's call are Kevin Sheehan, Interim Chief Executive Officer, and Margo Manning, Chief Operating Officer. After our prepared comments, 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 our discussion on the company's results, I'd like to call your attention to the fact that, in our remarks, our responses to questions, certain items may be discussed which are not entirely based on historical facts. 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 results contained in our earnings announcement released this morning, which is also available on our website. Now, I'll turn the call over to Kevin.

Kevin Sheehan, Interim CEO

Thanks, Mike. Good morning, everyone. We're very pleased to report yet another quarter of outstanding financial results. We set records for revenue, net income, and adjusted EBITDA in the first quarter, reflecting both progress toward returning to a normalized operating environment and our success in driving top line growth. I'm so proud of our teams as they have enthusiastically welcomed back guests to our stores. We're excited about the trajectory of the business, and in particular, the next few months as we begin our summer of games rollout and other traffic-driving initiatives that we are confident will drive even more visitation to our stores. As demonstrated by our first quarter results, our teams continue to execute on our initiatives to drive organic growth, improve profitability, and produce significant cash flow for the business. We have significant upside potential. And with our continued focus on innovation, growth, and value creation, we can deliver on that potential. You can tell I'm very excited about the future of this company. We're optimistic about the state of the business and look forward to sharing our ongoing progress in coming quarters. At this time, Mike is going to cover the first quarter results. After that, our COO, Margo Manning, will update you on the operations. Then I will return with some final comments. Mike?

Michael Quartieri, CFO

Thanks, Kevin. Our record first quarter results demonstrated our ability to drive revenue, profitability, and strong cash flow despite continued headwinds in the economy. We continue to benefit from a higher mix of amusements and a leaner operating model. While we are still experiencing pressures from wage and commodity inflation, our margins continue to improve as we have offset inflationary costs with a more efficient labor model, cost savings and efficiencies, and thoughtful pricing actions. In the first quarter, comparable store sales increased 10.9% compared to the same period in 2019. Our walk-in sales continued to post strong comps, up 14.7%, while our special events business continued to lag down 34.6% compared with 2019. However, this showed sequential improvement from the fourth quarter and we believe this part of our business is recovering. When looking at our overall comparable store sales by month, in the quarter, February was flat due to the Omicron variant, March was up 12.5% as a substantial portion of the COVID restrictions were lifted in advance of the spring break season, and April was up 21.5%, which was helped by the return of our eat and play combo promotion. Our uplift in comparable store sales has continued during the first five weeks of Q2 as overall comps are up 12.2%. Regarding sales mix, amusements and other had a positive 23.8% comp and was 66% of our overall mix compared with 59% of our mix in 2019. This was mainly due to minimal discounting and a continued shift to higher denomination power cards. Food and Beverage had a negative 8.1% comp compared with 2019, a substantial portion of which was due to the softness in the special events business, which we believe is starting to rebound. Adjusted EBITDA for the quarter was a record of $143.2 million or 45.8% higher than the same period in 2019. This reflects a 31.8% adjusted EBITDA margin, which is 480 basis points higher compared to the same period in 2019. The improved performance was primarily driven by the higher amusement mix and leverage on labor due to a more efficient model. Net income of $67 million increased $24.5 million in the quarter compared with 2019, resulting in EPS of $1.35 per diluted share. These results generated solid positive operating cash flow in the quarter. We ended the quarter with $139.1 million in cash and approximately $492.5 million of liquidity under our $500 million revolving credit, net of any outstanding letters of credit. As a result of our continued improvement in our operating results over the trailing 12 months, our net debt leverage ratio has decreased to 0.7 times. Turning to capital spending, we invested a total of $42.2 million in capital additions, net of tenant allowances, and opened one new store in Sioux Falls, South Dakota this quarter. We opened our Brooklyn Atlantic Center, which is directly across from the Barclay Center, and Modesto, California locations in May and plan to open our Augusta, Georgia location later this month, making three new store openings in Q2. In fiscal year 2022, we plan to open a total of eight new stores. As you can tell, we are very pleased with our first quarter results and the strong momentum we are seeing. Through the first five weeks of the second quarter, comparable store sales increased 12.2% compared to the same period in 2019. Walk-in comps increased 17.8%, while special event comp store sales declined 27.9% for that five-week period. We remain bullish on our business based on the traffic levels we are seeing on a weekly basis, the upcoming summer season, and the rollout of our summer games program. With that, we do remain mindful of the macroeconomic factors facing everyone today. We remain diligent in our continuous improvement philosophy, watching costs and capital spending closely to ensure we deliver the highest possible returns for our shareholders. In summary, our team continues to execute on our initiatives to drive organic growth, improve profitability, and produce significant cash flow from the business. We are pleased with our progress and are well-positioned to deliver improved financial results in fiscal year 2022. With that, I'll turn it over to Margo.

Margo Manning, COO

Thank you, Mike. And good morning, everyone. We continue with our commitment to simplify store operations, improving our guest experience and enhancing our food, beverage, and entertainment offerings to drive sales and profitability. In Q1, we brought back one of our most successful promotions. Our eat and play combo ran as a limited-time offer for the length of April to capitalize on pent-up demand from our more value-oriented guests. We saw sequential comp store sales improvement in both food and beverage throughout Q1 with the comp food items count turning positive during the eat and play combo campaign window. In late May, we completed the brand-wide rollout of reservation capabilities to make it even easier for our guests to dine with us. Guests can now reserve a table in our dining rooms directly through the D&B website or via OpenTable. Our stabilized staffing levels have put us in a better position to serve our guests. We are already seeing the benefits of our now fully implemented service model that allows our guests to choose their service experience. The data pulled from our guest satisfaction tool showed our overall guest satisfaction and Net Promoter Scores hit a new high watermark in May. Our new beverage menu launched in January was designed to expand both reach and appeal. We're proud to share this new beverage program was recently recognized at the annual VIBE Conference as the best overall program for multi-unit operators. In Q1, we started our efforts to revitalize our late-night segments through a combination of marketing and programming efforts. Our late-night happy hour initiative includes reduced prices of popular items and an enhanced late-night vibe with live DJ sets and exclusive visuals taking over our screens and in-store audio. Q1 walk-in comp sales during the late-night segment were up 9% compared to 2019 and were significantly improved over the prior quarter. With the late-night happy hour programming fully established, our marketing team is now poised to promote it this summer through digital channels to build awareness. Our summer campaign launching in June positions Dave & Buster's as the great indoors and includes activations across the marketing funnel to drive trial of our 10 new arcade games, which are debuting exclusively at D&B, and our seven new food and beverage features. Also part of our summer of game lineup, we have introduced two new virtual reality titles based on Transformers and Top Gun: Maverick, both of which are proprietary to D&B. The Transformers virtual reality game has multiple branching paths and different endings, ensuring each player has a unique experience that leaves them wanting to play again. Our Top Gun virtual reality game ties in with the new blockbuster film and lets our guests take command of the weapons of an advanced fighter jet as they ride along with the best of the best. Enrollment in the D&B loyalty programs continues to grow, with Q1 seeing 800,000 additional downloads, a 23.9% increase in downloads. This increase in downloads, combined with reactivation efforts, led to a 33.2% increase in loyalty profiles, giving us a total of 3.65 million user profiles. Of those 3.65 million, 1.9 million are active in the last six months. Development of a new website began late in Q1 and will launch late in Q3, bringing new special event capabilities, e-commerce, programming content, and a platform that we can build upon with regular releases of new capabilities. Let me wrap up by thanking the D&B team. None of these results would be possible without your commitment to the guest experience and bringing the fun to life in our stores. Now I'll turn the call back over to Kevin.

Kevin Sheehan, Interim CEO

We are pleased with the record results we delivered in the first quarter. We’re seeing guests returning to our stores, our special events business is recovering, and I'm confident that in another few months we will be in a much better place as the core business returns, and we increase our efforts on corporate events and other opportunities. We've been able to offset inflationary pressures from labor and supply chain with a more efficient labor model enabled by technology, lean process improvements, proactive menu price adjustments, and more effective marketing investments. As a result, we've improved margins even though we've experienced some headwinds in our business. We're extremely excited to add Main Event to the Dave & Buster's team. Their strong management team and strategic fit with our company provide for even more growth opportunities for both brands, which will benefit all stakeholders. We expect to close the transaction in a couple of weeks, and we will schedule an investor update shortly thereafter. At that time, we will detail the compelling merits of the transaction, our integration efforts, and all of the value creation initiatives already being prepared. As I've said before, we have an exceptional business model, strong assets, and a talented team. We are optimizing the performance at our existing stores and are achieving best-in-class average unit volume, store level margins, and solid returns on our new stores. We're broadening our entertainment offering to include more immersive sports viewing experiences, including improvements to the watch environment, and we're looking forward to the addition of fantasy sports and the sports betting options in markets as permitted. We're optimistic about the summer games rollout, which will be supported by a significant marketing campaign. We're progressing with our refresh/remodel program to give our existing stores a fresh look. And we're also evaluating relocation opportunities in some of our legacy markets, where we can open new, more efficient stores and capitalize on higher potential return locations. Moreover, we continue to refine our store layouts and sizes to optimize their market potential. Finally, our international efforts are starting to develop, and we will begin to detail our efforts in the coming quarters. There’s a lot happening at Dave & Buster's and we are extremely excited about the meaningful upside potential for this company and our stakeholders. Now before we open it up to questions, I have some final comments. It's been my pleasure to serve in this role for the past nine months. Working together with this team, we have accomplished much, reopening all of our stores following the COVID shutdowns, broadening our entertainment offerings to include more immersive sports viewing experiences, commencing our refresh/remodel program that will give our existing stores a fresh look, launching a new beverage menu, establishing partnerships with both Pepsi and WWE to bring all of their pay-per-view events to our locations, introducing a new D&B rewards program, and initiating a fantastic merger with Main Event. Today, we are on a path of strong organic growth, improved margins, and a strong balance sheet as reflected in our 0.7 net debt/leverage ratio. All of these accomplishments are the result of the hard work and dedication of our team. And I look forward to continuing my role as chairman of the board. We have an outstanding organization and it will get even better following the acquisition of Main Event. I'm looking forward to having Chris Morris join as the new CEO of Main Event. He is an experienced leader and is excited to engage with our shareholders in the months ahead. Under Chris's leadership, I anticipate that our positive momentum will continue as we make progress towards realizing our ultimate potential. And now we can take your questions.

Operator, Operator

Our first question is from Jake Bartlett of Truist Securities.

Jake Bartlett, Analyst

First, Kevin, I'm hoping you can build on your last comments there, just in your experience at the helm of the company. You're looking at the company from a different perspective than your position on the board. How has that perspective changed as you dug into the details, and what do you think the greatest opportunities are going forward?

Kevin Sheehan, Interim CEO

I think as those of you that remember the very first call that I was on, I looked at this as a great opportunity. Steve and Brian were great CEOs. But sometimes when you get a new person coming in with a fresh perspective, it can change everything. I've always talked to you about taking a clean sheet of paper and trying to determine the art of the possible, not only on running the business but on each and every opportunity. And you heard me go on early on about, hey, what do we do with each day of the week, what do we do with the hours of the day, how do we spike the demand across the board? These are enormous opportunities. And we've taken advantage of quite a few, I would say. If you look at it, we're probably in the latter part of the second quarter of the football game, and we're going to get an opportunity with Chris coming in to take a halftime huddle and re-spirit everybody, refocusing on and driving all the initiatives that are still there. But if you think about it, we've got initiatives that we haven't announced yet on Mondays. We've got late nights that Margo talked about, which is a huge opportunity to get back to where we were, but not only that, to make it a more interesting place to come. We've got opportunities on what we're calling date night. We think there's a big opportunity there. Is there any more comfortable place to come on a date with someone and if you get bored, be able to kind of go play games and recover and then come back after you play a little bit and be more comfortable in your date evening? But there's a load of those opportunities. And as you know, expanding internationally is a big opportunity, refreshing the stores is an enormous opportunity to take each and every one of our stores and figure out how to put all of the new branding that we have in our new stores so that we can emulate those into these stores. So, it's just an enormous opportunity going forward. There's a lot of work going on today. And I feel very confident that we've cured the organic growth opportunity. As Mike said, our organic growth in this quarter continues in a very consistent way, which is very comforting. I joked with him as I saw the results from this morning, and it's just another day in that same linear kind of progression. Once we get some of these other things rolling, I see those as either, in the way I've run businesses over the years, as being juiced to drive the top line further or, if we have any more difficulty in the operating environment because of the economy, those will be the items that will offset any erosion that we might have to the running rates today. So, there's a lot of opportunity. I'm excited about it. I'm handing the baton off to Chris, and the business is in great shape. He's a good guy, by the way. I don't want to insult him, but he seems a lot like me. He comes out of the financial realm. And as many of you know, some financial guys turn into great CEOs, some don't. He's got that same energy level, and get-it-done ethos that I've had over the years. I think he's just going to do tremendous things with this brand. I'm excited to see it. I'm a big shareholder, and I can't wait to see him turn that into huge value creation that we rightfully deserve.

Jake Bartlett, Analyst

My follow-up question is on what you're seeing from the consumer. There's obviously some commentary out there that the lower-income consumer is pulling back on some spending – I would think discretionary spending in terms of your brand. What have you seen from that lower-income consumer? And then, building on that, in terms of April and the value inserted with the eat and play, was that something that you're going to try to increase or could you turn that lever on a bit more as we go throughout the quarter? So, it's really what you're seeing from that lower-income consumer at your concept and then how do you think you're going to respond to it?

Kevin Sheehan, Interim CEO

Yeah, it's funny you say that because we're not seeing it at all at this point. My comments about even looking at yesterday's revenue report reflect a very consistent and orderly performance across the organization. As I mentioned earlier, as we roll out these new programs, if there is any change in consumer spending—which we are not seeing at this point—these new initiatives will help offset that. I expect that we'll ride through this and then have the extra energy as we come through it. So, that's how I look at it. I also think, even little things like the events business that we talked about, we still have another 4 percentage points that could improve the top line as that comes back. We don't see any reason why that's not going to return to its normalized level as we get into the fall and late fall. The energy and excitement that Margo, Mike, and I have been working on with the team is this great proposition for corporate accounts to come and host their events in our stores. It's a much better option than going to a high-priced hotel for an event room where you're paying a premium for water. We believe that there's a huge opportunity there as well. So, there are many areas of potential growth. We're crossing the threshold from being cautious to seeing success, which is like hitting a tipping point. The inertia of this team is very different now. The equity program for the general managers has them feeling empowered, and they're coming to work with a sense of commitment that’s going to drive incremental benefits as we move forward. And I’ll leave it to you guys. Anything else?

Margo Manning, COO

Yeah, I'm just going to add—that with the stable staffing efforts, one of the things we've been able to really get back into meaningfully is our local school marketing initiatives where our GMs are engaging with their communities to find more opportunities to drive guests to the stores. I think that with the ability to leverage some of the off-peak times to attract more value-oriented guests, I think we're going to be well positioned to go through the summer.

Operator, Operator

The next question is from Nicole Miller of Piper Sandler.

Nicole Miller Regan, Analyst

Could you talk a little bit about the continued sequential improvement in the special events? I was wondering about the why and how. Curious if the why would be tied to box office. There seems to be some decent movies. I know anecdotally, I'm hearing about a lot of people heading to the theater, and you could be a good place to go before or after. Nonetheless, how is it improving? Meaning, like is it the same guest, or is it a different profile doing something different at a different time?

Margo Manning, COO

I'll jump in and then let you join. One of the things we have done over the past couple of months is invest in our special events structure with a specific objective. We've brought in stronger sales individuals that are actively soliciting business. Kevin alluded to pursuing corporate business. So, we've focused on re-engaging with past corporate clients and uncovering new corporate visits. We're starting to see great traction from our outbound efforts and are encouraged because we feel like we're at the tip of the iceberg on what we're seeing there. As for the types of guests coming in, we’re seeing social business returning, and we’re most keen to note the recovery in the corporate business. Kevin, do you have anything to add?

Michael Quartieri, CFO

I think on your point around the summer season with movies, we are located near several movie theaters. Therefore, we benefit from the extra draw of people coming out of the movies. They may ask, 'It's 9 o'clock, what do we want to do?' They can come into Dave & Buster's and enjoy a few games, a cocktail, a late dinner, or some appetizers. So, there is definitely a boost there. Moreover, we've done initiatives to become a gathering point before other events, be it concerts or other activities. So, we are experiencing a little pickup in that area, which is typical as summer rolls around and people start moving around more.

Kevin Sheehan, Interim CEO

Mike, just one thing on that: you're starting a conversation with a big events business to see if we can transform that into a mutual benefit for both companies. Regarding the corporate aspect, I'd highlight that we're distinguishing between those who simply process orders for events and those who proactively seek out new business. These are very different roles, and the latter category will make a significant difference for us moving forward.

Nicole Miller Regan, Analyst

Just a final follow-up question focusing on the numbers. I appreciate the detail around comps and certainly understand the message of continued improvement. From a modeling perspective, can we get comps for Q1 2022 versus Q1 2021? If you could share—and if it's out there. I just missed it, and I apologize—but what the food and beverage comp was again, 2022 versus 2021, and the same for amusement?

Michael Quartieri, CFO

Yes, the food and beverage comp was 71%.

Nicole Miller Regan, Analyst

71%. That was on food and beverage or total?

Michael Quartieri, CFO

Total.

Kevin Sheehan, Interim CEO

Nicole Miller Regan, Analyst

No, I know they're big numbers. That's how the models kind of tick and tie. 71%, total. Okay. All right.

Operator, Operator

The next question is from Andrew Barish of Jefferies.

Andrew Barish, Analyst

Just one for me. Also, modeling-wise, just level-setting on—if you could give us the average weekly sales, what that’s running, much if any kind of seasonal drop-off versus Q1 because, historically, average weekly sales do go down slightly in Q2 but, obviously, it feels like things are pretty strong right now with a lot of programs still rolling out.

Michael Quartieri, CFO

Just to give you a little perspective—so in Q2, usually, it's around—let’s just say for the first five weeks, we've averaged $186,000. As we look further into the quarter, we expect that to pick up slightly because we’re nearing the full summer season. Kids have graduated, so we typically experience that normal uptick, whether it’s vacation or staycation, given that kids are done with school. Therefore, you'll see a slight increase in average sales throughout the rest of the summer.

Andrew Barish, Analyst

Is that total or comp AWS, Mike?

Michael Quartieri, CFO

That’s total there.

Andrew Barish, Analyst

Secondly, can you give us a sense of how the pricing increases have been received by the guests, particularly on games? That was something that was relatively new to the strategy. Was there any shifting around of gameplay that you observed because of pricing or anything you can share with us?

Michael Quartieri, CFO

No, there really wasn't much of a change. I think the biggest impact was back in October when we increased the entry point at the kiosk level, which wasn't necessarily a price increase because the consumers still received the same number of equal value points relative to the dollars spent. However, they would just finish the card, so you would get that incremental revenue. When we adjusted some of the pricing at the game level, it just meant that the card was utilized faster. The uptick was around whether guests would recharge their cards; there has been a slight increase in recharges, though not significant.

Margo Manning, COO

And if you're asking if there was a shift between redemption and non-redemption games, I’m not aware of anything significant there regarding any shifts in gameplay categories.

Andrew Barish, Analyst

That's exactly what I was thinking about, Margo. And just finally, could you give us a sense of the smaller prototype? I think that Sioux Falls was your latest. Just kind of what you're learning from there and how it’s performing.

Margo Manning, COO

Andy, you're breaking up a little bit, so I'm not sure if I heard all of it. But you're asking about the mini format and how it’s performing. They’re performing really well. From an operational perspective, they’re a dream to manage and flow really well for the guests. It's very easy for us to serve the guests given the layout. We’re very happy with that, and you'll see more of them.

Operator, Operator

The next question is from Chris O'Cull of Stifel.

Patrick Johnson, Analyst

This is Patrick on for Chris. First, Michael, I wanted to follow up on that last question. But hoping you can help us understand just from a broader perspective, the composition of the comp performance in the quarter and the breakdown between traffic and check just to get a better understanding of what foot traffic is looking like relative to pre-COVID levels at this point.

Michael Quartieri, CFO

From a traffic perspective, it is lower than what we've seen pre-COVID. However, it's steadily improving. If you remember, the company, like almost every employer, had to close every store and has been rebuilding ever since. So, we are finally at the point today where we’ve reached a full staffing model, and we are up to full operating hours. Margo touched a little on the late-night happy hour, which is a valuable segment for us. Therefore, from that perspective, when we measure traffic and the fact that the number of items sold is lower than pre-COVID, the average check price more than offsets that.

Patrick Johnson, Analyst

Obviously, the labor line looks stellar this quarter, which is great. I know that’s partly driven or maybe wholly driven by the improved labor model you guys have implemented. But I'm also curious if there's a portion of that indicative of the fact that sales may have picked up even faster than you were expecting. Could there be an underlying need to potentially adjust labor hours going forward? How should we think about that line as we consider the rest of the year?

Michael Quartieri, CFO

Yeah, we are definitely benefiting from the mix shift into amusement. If you think about amusement and its profit margin, there’s very little labor involved. It’s mainly machine technicians and a few staff overseeing the guests to ensure they’re enjoying their time with the games. Conversely, within food and beverage, you've got servers, bartenders, food runners, and the entire kitchen staff. Hence, the labor model is very different across those two segments of the business. Given the shift to 66% from 59% for amusement, we are definitely benefiting from that. At the same time, we seized the opportunity to introduce tablets, ex dine, and other labor efficiency initiatives on the F&B side, which helped us serve customers with a more efficient labor model as well.

Operator, Operator

The next question is from Jeff Farmer of Gordon Haskett.

Jeff Farmer, Analyst

On the late March earnings call, you mentioned you were at roughly 95% of pre-COVID levels on the operating hour front. I'm curious how you define full operating hours and when that occurred for you guys. When did you get back to that full level of operating hours?

Margo Manning, COO

This is Margo. In terms of getting back to full operating hours, we did this in a phased approach. As stores started reaching the staffing levels we needed, we gradually extended hours. So it’s not like there's one date when every store returned to full operating hours. By mid to early May, however, we had all the stores back to pre-COVID hours. And I’m recalling from memory, so I could be off by a couple of weeks.

Michael Quartieri, CFO

Just remember, the traffic lags that, right? We need to ensure that everyone knows we're open during those extended hours. Those are the initiatives we’re currently undertaking to make sure that Dave & Buster's is the place to be—and not just for late-night, but for all time slots.

Jeff Farmer, Analyst

Moving on to a different topic, loyalty—you shared some color on your loyalty membership ranks, including the active ranks. But what I'm looking for is the percentage of your sales that these loyalty customers represent as you're renewing changes there. Do loyalty members have a greater visit frequency? Anything you can provide would be helpful to gauge how impactful this loyalty program has been for your business.

Margo Manning, COO

I don't have that information with me. However, I will tell you that as we build that program, it currently represents a smaller percentage of sales. We’re excited about the opportunity to leverage the loyalty program moving forward. So, you’ll hear more from us in the months to come as we maximize that opportunity.

Michael Quartieri, CFO

To offer some context, when I joined, the program was recently being launched. We cleaned up its backend and reinvigorated it. So, the fact we've reached 3.65 million users in fewer than six months is commendable for our type of clientele. This is still in its early stages, very much in its infancy. There will be plenty more developments as our marketing team harnesses this asset, which, as Kevin previously mentioned, will be another tool in our arsenal for driving organic growth. In the event of a slowdown in the economy, we will have this option to pull to bring customers in and offset any downturns.

Jeff Farmer, Analyst

Just one more. It's been roughly 18 months since the company first reported discussions with a potential sports betting partner. Can you clarify the hurdles to moving forward with a partnership or anything else we should consider regarding collaboration with a sports betting firm?

Michael Quartieri, CFO

As you know, the landscape for sports betting has shifted significantly, considering recent developments surrounding several notable companies within the space and the reactions the market has had to their results. Having said that, we've segmented sports betting and fantasy sports alongside the lottery systems that manage sports betting. We are on a path that doesn't necessitate rushing it, and I believe we are very close. We have announcements planned regarding three or four agreements that, combined, I think will present excellent opportunities. We are investing millions in ensuring we have the right audio systems and other preparations done in our sports sections ahead of the preseason. We anticipate these preparations will significantly drive traffic. The economics of having people on-site for sports betting is beneficial, as those guests tend to stay longer. This sustainability will allow for additional spending therein. Just to summarize, stay tuned. We have the Main Event acquisition a few weeks out, and sports betting developments are also on the horizon, so we have many positive announcements lined up.

Operator, Operator

The next question is from Andrew Strelzik of BMO.

Andrew Strelzik, Analyst

My first one is a follow-up on the loyalty profiles question that was just asked. Perhaps from the angle of those that are not active, it seems like it's a big percentage. Is there anything you guys are actively doing to bring those customers back? Maybe it’s a function of the time since your last messaging. Is there anything specific you’re doing to motivate those prior customers to return?

Michael Quartieri, CFO

The great thing about the app is it allows for one-on-one communication. That's what our marketing team is gearing up to leverage now. They now have the opportunity, and we are starting to collect the data. As Margo mentioned, 1.9 million of the 3.65 million are active users. Now that we have a distinct audience to target, we can utilize personalized outreach to get them back into a Dave & Buster's.

Andrew Strelzik, Analyst

One more demographic question. I know early on in the recovery, it was primarily the kind of play-together young adults, historically referred to. Has it evened out at this point? I'm trying to think through what this could mean longer-term for the amusement mix. How is it looking now, especially with the announcement of Main Event? Are you seeing this lag in your stores or just broader thoughts on which cohorts are driving the recovery?

Kevin Sheehan, Interim CEO

I’ll start and then Margo and Mike can elaborate. That's the whole basis for the transaction. We found a diamond in the rough that allows us to differentiate our customer base—Main Event will have more family-oriented activities while we’ll maintain focus on families with teens, young adults, and adults. This will give us clearer segmentation, which should significantly drive our business by attracting each population effectively. As we move into the summer months, you will see some seasonality come, which will attract families. This happens during spring break. However, the guest profile we have in our stores resembles what it was before COVID. Families are back, and adults are visiting as well. For most of our stores, it's a blend. To emphasize, you're seeing our guest face in its full diversity returning to Dave & Buster's.

Operator, Operator

The next question is from Brian Vaccaro of Raymond James.

Brian Vaccaro, Analyst

I just wanted to circle back on the quarter-to-date average weekly sales. Apologies; my phone might have broken up earlier in the call. Did you say that average weekly sales were $186,000? Additionally, Mike, could you remind us what the normal historical seasonality looks like, specifically for the last eight weeks? June and July compared to May?

Michael Quartieri, CFO

So, just to clarify, the average weekly sales during the first five weeks of Q2 were approximately $186,000. Moving into the later part of the quarter, those numbers typically increase to about $220,000, representing roughly an 18% increase.

Brian Vaccaro, Analyst

Current quarter-to-date average weekly sales are up 10% or 12% versus the $186,000—can you tell us what the quarter-to-date in the current five weeks is?

Michael Quartieri, CFO

We've communicated that comparable store sales are up 12.2%.

Brian Vaccaro, Analyst

On the margin front, I wanted to inquire about labor. Margo, could you provide some more specifics on the labor efficiencies realized during COVID and how the new service model compares to prior to COVID, whether discussing average salaried managers per store, server hours, or any other metrics you deem useful?

Margo Manning, COO

In terms of the management aspects in stores, we made slight reductions to the management team pre-COVID. From an hourly staffing perspective, levels are currently about 90% of what they were before COVID. However, I’d like to note that some markets haven’t completely regained staffing yet. This is a holistic overview. We are excited about the new service model, which saw a phased rollout throughout Q1. Each store was officially live by the end of May. The initial results have been promising regarding guest experience, so you’ll hear more as we fully implement this in the coming months.

Brian Vaccaro, Analyst

Can you provide any statistics on average table turns or the speed of food service in addition to the percentage of guests or sales on SMB that are occurring through the mobile digital ordering system?

Margo Manning, COO

Regarding mobile digital ordering, I don’t have that data at the moment. While we can track it, the current process is rather manual, and we are working on a way to automate this. I don’t have the recent changes available. However, I can tell you that during the tests of our new service model, we saw the percentage of guests selecting the ex-dine option fall to the mid-teens, indicating that more guests gravitated towards the full dining experience, though I lack current reporting on that so I can only provide insights from when it was in test.

Brian Vaccaro, Analyst

Just one last inquiry. I wanted to examine the other operating cost line. Can you help us bridge what drove the increase in expenditure in that area? I understood it's now in the mid-$120 million range compared to a quarterly expenditure that's remained below $110 million over the previous several quarters. Additionally, could you clarify marketing expenditures during the quarter and the anticipated trajectory for that spending through the remainder of the year?

Michael Quartieri, CFO

I'll provide some clarity on the marketing side of things. Remember, we ran the eat and play combo advertisement during April. This was a nationwide campaign with a total marketing spend of approximately $5 million, marking one of our largest campaigns. Beyond that, you’d revert to a more normalized marketing expenditure level throughout the rest of the year.

Margo Manning, COO

I'm not quite clear on the second part of your question. Can you clarify what you are asking? This increase stems partially from the fact that we have more stores. I'm unsure what other specifics you are seeking.

Brian Vaccaro, Analyst

You could also look at it based on cost per operating week if you prefer. However, it did seem like an evident step-up in other operating costs, particularly with the $5 million mentioned earlier regarding marketing. I merely wonder if there are other costs that came back or if we saw expenditures in repair and maintenance spike which might have influenced the normalization of your cost structure as we exit Omicron.

Michael Quartieri, CFO

The only other factor I can think of that might significantly influence an individual cost line would pertain to outside services. Consider cleaning crews and related expenses. As the labor market tightened, it became critical from an operation standpoint to focus on hiring people for core customer service roles and outsourcing cleaning services and similar tasks. Security would fall into this category as well. Such an approach explains a good portion of the increase. However, as we restore our staffing to the normalized levels, we’ll have opportunities to reconsider and potentially bring in-house some of those roles in order to improve margins.

Margo Manning, COO

Which we have already started to do.

Operator, Operator

This concludes our question and answer session and today's conference. Thank you for attending today's presentation. You may now disconnect.