UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
10-K
(Mark One)
| ☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE FISCAL YEAR ENDED February 2, 2020January 31, 2021
OR
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE TRANSITION PERIOD FROMTO
Commission File
No. 001-35664
Dave & Buster’s Entertainment, Inc.
(Exact name of registrant as specified in its charter)
Delaware | 35-2382255 | |
(State of Incorporation) | (I.R.S. Employer ID) | |
2481 Mañana Drive, Dallas, | (214) | |
(Address of principal executive offices) (Zip Code) | (Registrant’s telephone number) | |
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||
Common Stock $0.01 par value | PLAY | NASDAQ Global Select Market | ||||
Preferred Stock Purchase Rights | PLAY | NASDAQ Global Select Market |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by checkmark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.Ac
t.
Yes
☒
No ☐
Indicate by checkmark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes
☐
No ☒Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes
☒
No ☐
Indicate by checkmark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulationand post such files). Yes
S-T
(§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ☒
No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule12b-2
of the Exchange Act.| Large accelerated filer | ☒ | Accelerated filer | ☐ | |||
☐ | ||||||
| Emerging Growth Company | ||||||
☐ | ||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. Yes ☒ No ☐
Indicate by checkmark whether the registrant is a shell company (as defined in
Rule
12b-2
of the Exchange Act). Yes ☐
No ☒The aggregate market value of common stock held by$1.3 billion.
$580 million.non-affiliates,
based on the closing price of the last day of the registrant’s most recently completed second fiscal quarter as reported on the NASDAQ Global Select Market was The number of shares of Registrant’s Common Stock outstanding as of March 30, 202028, 2021 was 30,606,840.
47,658,356.DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement for the registrant’s 20202021 Annual Meeting of Shareholders have been incorporated by reference into Part III of this Annual Report on
Form
10-K.
DAVE & BUSTER’S ENTERTAINMENT, INC.
ANNUAL REPORT ON FORM
10-K
FOR FISCAL YEAR ENDED FEBRUARY 2, 2020JANUARY 31, 2021
TABLE OF CONTENTS
PART I | ||||||||||
| ITEM 1. | 3 | |||||||||
| ITEM 1A. | 15 | |||||||||
| ITEM 1B. | 29 | |||||||||
| ITEM 2. | 30 | |||||||||
| ITEM 3. | 31 | |||||||||
| ITEM 4. | 31 | |||||||||
PART II | ||||||||||
| ITEM 5. | ||||||||||
ITEM 6. | ||||||||||
ITEM 7. | ||||||||||
ITEM 7A. | ||||||||||
ITEM 8. | ||||||||||
ITEM 9. | ||||||||||
ITEM 9A. | ||||||||||
ITEM 9B. | ||||||||||
PART III | ||||||||||
ITEM 10. | ||||||||||
ITEM 11. | ||||||||||
ITEM 12. | ||||||||||
ITEM 13. | ||||||||||
ITEM 14. | ||||||||||
PART IV | ||||||||||
ITEM 15. | 54 | |||||||||
2
FORWARD-LOOKING STATEMENTS
Matters discussed in this report and in other public disclosures, both written and oral, include “forward-looking” statements as defined in the Private Securities Litigation Reform Act of 1995, as codified in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Act of 1934, as amended (the “Exchange Act”). Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. TheThey often include words such as “believes,” “estimates,” “anticipates,” “expects,” “intends,” “plans,” “seeks,” or words of similar meaning, or future or conditional verbs, such as “may,” “will” “should” “could,” “aims,” “intends,” or “projects,” and similar expressions, whether in the negative or the affirmative. You should not place undue reliance on forward-looking statements, which speak only as of the date of the report. These forward-looking statements are all based on currently available operating, financial and competitive information and are subject to various risks and uncertainties. Our actual future results and trends may differ materially depending on a variety of factors, including, but not limited to, the risk and uncertainties discussed under “Item 1A. Risk Factors” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Given these risks and uncertainties, you should not rely on forward-looking statements as a prediction of actual results. Any or all forward-looking statements contained in this report and other public statements made by us, including by our management, may turn out to be incorrect. We are including this cautionary note to make applicable and take advantage of the safe harbor provision the Private Securities Litigation Reform Act of 1995 for forward-looking statements. We expressly disclaim any obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.
(“COVID-19”).
non-essential
movement outside of the home. Shortly after the national emergency declaration, state and local officials began placing restrictions on businesses, some of which allowedTo-Go
or curbside service only while others limited capacity in the re-opened
107 of our 140 stores with limited operations, including five new stores that opened in the last half of the year. Many of these stores that werere-opened
in limited capacity were required to temporarily close again in areas more severely impacted by theCOVID-19
pandemic, particularly during the fourth quarter holiday season. As of March 28, 2021, fifteen stores continue to remain closed toin-person
customers as a result of state and localCOVID-19
restrictions, and we anticipate the majority of these stores willre-open
in some capacity by the end of the our first quarter of fiscal 2021.These developments the Company expectshave had a material adverse impact on itsthe Company’s revenues, results of operations and cash flows.flows for fiscal 2020. The situation is rapidlycontinually changing and additional impacts to the business may arise that we are not aware of currently. We cannot predict whether, when or the manner in which the conditions surroundingor closure requirements, when our remaining closed stores will reopen, reopened and customerbrand. As a result, the Company is leveraging its balance sheet and has fully drawn its $500,000 revolving credit facility to increase its cash position and help preserve its financial flexibility.brand, or possible
COVID-19
will change including the timing of lifting any restrictions, re-open,
staffing levels forre-opened
stores,re-engagement
with our re-closures
of our currently open stores.PART I
ITEM 1. |
Dave & Buster’s Entertainment, Inc. (“D&B Entertainment”) is a leading owner and operator of high-volume entertainment and dining venues (“stores”) that operate under the name “Dave & Buster’s”.Buster’s.” We offer our
3
customers the opportunity to “Eat Drink Play and Watch” all in one location. We provide our guestscustomers the most social, shareable fun, with high-quality food and beverages as well as interactive entertainment options for adults and families to enjoy together. We opened the first Dave & Buster’s store in Dallas, Texas in 1982, and as of February 2, 2020January 31, 2021 (the last day of fiscal 2019)2020), we owned and operated 136140 stores located in 3940 states, Puerto Rico and one Canadian province. Unless otherwise provided in this report, references to “Dave & Buster’s,” “we,” “us,” “our” or the “Company” refer to D&B Entertainment and its wholly-ownedwholly owned subsidiaries and any predecessor entities.
Our fiscal year consists of 52 or 53 weeks ending on the Sunday after the Saturday closest to January 31. Each quarterly period has 13 weeks, except in a weeks. Fiscal 2019, 2018, 2016, and 2015 each contained 52 weeks. We refer to our fiscal years as 2020, 2019, 2018, 2017 2016, and 20152016 throughout this report. All dollar amounts are presented in thousands, unless otherwise noted, except share and per share amounts.
53-week
year when the fourth quarter has 14 weeks. Fiscal 2020, 2019, 2018 and 2016 each contained 52 weeks. Fiscal 2017 contained 53Eat Drink Play and Watch - All Under One Roof
We have developed a distinctive brand based on our customer value proposition: “Eat Drink Play and Watch.” The interaction between dining, enjoying our full-service bar, playing games, and watching sports and other entertainment is the defining feature of the Dave & Buster’s customer experience. We believe this combination creates an experience at a single location that cannot be easily replicated elsewhere. Our stores are also designed to accommodate premium sports viewing events, private parties, business functions and other corporate-sponsored events. We believe we appeal to a diverse customer base by creating a highly customizable experience in a dynamic and fun setting.
Eat
We strive to differentiate our food with quality, flavorful offerings. We have made improvements to many of our food itemsofferings guided by an “Inspired American Kitchen” identity. This identity is rooted in enhanced flavors and have renewed our focus on cooking technique and execution. We have also significantly reduced thequality ingredients across a condensed number of menu items that enables our customers to enable better execution.explore new flavors while offering a balanced selection of familiar dishes. Our menu also simplifies execution, and along with recent kitchen enhancements allows us to deliver dishes to customers hotter and faster to drive an improved customer experience. While our menu appeals to a broad spectrum of customers, we continue to evolve it to reflect the changing tastes of our target guests,customers, with options for full meals as well as grabbing an appetizer to share with friends. We deliver high-quality offerings, including a wide variety of starters,burgers and handhelds, choice-grade steaks, pasta, and health-conscious options comparable to those of otherhigher-endcasual dining operators.low calorie, vegetarian, and gluten friendly options. We believe our broad menu offers something for everyone and is appropriate for many different occasions. To ensure that we stayroll outupdate our menus that featureregularly with new food items two times a year.or limited time offers. Our food revenues, which include68%66% of our food and beverage revenues and approximately 28%24.1% of our total revenues during fiscal 2019.2020.
one-of-a-kind
on-trend,
we non-alcoholic
beverages, accounted for approximately Drink
Each of our locations also offers full bar service, including a variety of beers, hand-crafted cocktails, and premium spirits. We havere-craftedrecipes and switched to moreare focused on maintaining a streamlined beverage menu for ease of execution, while using quality ingredients including fresh juices, and purees and house-made mixers and reduced the number of featured cocktails in our beverage menu to improve focus and execution by our bartender staff.mixers. Beverage service is typically available throughout the entire store, allowing for multiple point of sale opportunities. We believe that our high margin beverage offering is complementary to each of the Eat, Play and Watch aspects of our brand. Our alcoholic beverage revenues accounted for approximately 32%34% of our total food and beverage revenues and approximately 13%12.4% of our total revenues during fiscal 2019.2020.
Play
The games in our Midway are a key aspect of the Dave & Buster’s entertainment experience, which we believe is the core differentiating feature of our brand. The Midway in each of our stores is an area where we
4
offer a wide array of amusement and entertainment options, some of which are exclusive to Dave & Buster’s on a permanent or temporary basis. Each of our stores typically has approximately 150 redemption and simulation games as well as our proprietary virtual reality platform that we introduced in fiscal 2018.platform. Most of our games are activated by game play credits on cards or other RFID devices (collectively, “Power Cards”). A customer purchases thea Power Card with game play credits or “chips” at an automated kiosk, through aour mobile application, or from an employee.one of our team members. Our amusement and other revenues accounted for approximately 59%63.5% of our total revenues during fiscal 2019.2020. Redemption games, which represented approximately 71% of our amusement and other revenues in fiscal 2019,2020, offer our customers the opportunity to win tickets that are redeemable at a retail-style space in our stores that we have branded WIN!, with prizes ranging from branded novelty items to26%27% of our amusement and other revenues in fiscal 2019.2020. Other traditional amusements, such as billiards and bowling, represented the remainder of our amusement revenues in fiscal 2019.2020.
high-end
electronics. We believe this “opportunity to win” creates a fun and highly energized social experience that is an important aspect of the Dave & Buster’sin-store
experience and cannot be easily replicated at home. Many of ournon-redemption
games, which include our virtual reality, video, and simulation offerings, can be played by multiple customers simultaneously and include some of the latest high-tech games that are commercially available. These games represented approximately Watch
Sports-viewing is another key component of the entertainment experience at Dave & Buster’s. All of our stores have multiple large screen televisions and high-quality audio systems providing customers with a venue for watching live sports and other televised events.immersive programming. For 56 of our stores, we have an enhanced Watch experience with huge cutting-edge LED “Wow Walls”, that differentiates Dave & Buster’s by delivering an elevated viewing experience and providing a platform for broader programming and marketing opportunities. Our “D&B Sports” areas provideoffer an immersive viewing environment that provides customers with large, high definition televisions, to watch community-focused sports programming and enjoy our full bar and extensive food menu. We believe that we have created an attractive and comfortable environment that includes a differentiated and interactive viewing experience that offers a reason for customers, to visit Dave & Buster’s. Through continued development of the D&B Sports concept in new stores and additional renovations of existing stores, our goal is to build awareness of D&B Sports as “the best place to watch sports” and the “only place to watch the games and play the games.”
Competitive Positioning
Theentertainment market is highly competitive. We compete for customers’ discretionary entertainment dollars with providers ofentertainment, including localized attraction facilities such as movie theaters, sporting events, bowling alleys, sports activity centers, arcades and entertainment centers, night clubs and restaurants as well as theme parks. We also face competition from local, regional, and national establishments that offer similar entertainment experiences similar to ours and restaurants that are highly competitive with respect to price, quality of service, location, ambience and type and quality of food. Some of these establishments may exist in multiple locations, and we may also face competition on a national basis in the future from other concepts that are similar to ours.our concept. We also face competition from increasingly sophisticated home-based forms of entertainment, such as internet and video gaming and home movie streaming and delivery.
out-of-home
out-of-home
The key elements that drive our total customer experience and help position us from a competitive standpoint include the following:
Strong, distinctive brand with broad customer appeal
21-39,
but we are also Multi-faceted customer experience highlights our value proposition.
5
delivered in a highly-energized atmosphere, provides a multi-faceted customer experience that cannot be easily replicated at home or elsewhere without having to visit multiple destinations. We aim to offer our customers a value proposition comparable or superior to many of the separately available dining and entertainment options. We are continuously working with game manufacturers and others to create new games and attractions that include content that is exclusively available at Dave & Buster’s on a permanent or temporary basis. Our new games in combination with new food and beverage offerings and focused attention to the customer experience help us to retain and generate customer traffic. Our value proposition is enhanced by marketing initiatives, including free game play that often features the introduction of our new games, Super ChargeSupercharge Power Card offerings (when purchasing or adding value to a Power Card, the customer is given the opportunity to add more chips to the Power Card at a lower costprice per chip amount)chip), and Half-Price Game Play (every Wednesday, from open to close, we reduce the price of every gamegames in the Midway byIn addition, we expanded the “All You Can Eat” wings limited time promotional offer in fiscal 2019. We believe these initiatives encourage customers to participate more fully across our broad range of food, beverage and entertainment offerings.
one-half).
Vibrant, contemporary store design that integrates entertainment and dining.
Strong history of growth.
COVID-19,
from fiscal Operations—Non-GAAP
Financial Measures”) increased by approximately 120 basis points. During times of normal operations, we expect our continued focus on operating performance Store model generates favorable store economics and strong returns.
Operations—Non-GAAP
Financial Measures”)Our entertainment offerings have low variable costs and produced gross margins of 89.2%89.3% for fiscal 2019.2020. With approximately 59%63.5% of our revenues from entertainment, we have less exposure than traditional restaurant concepts to food costs, which represented only 8%approximately 7.0% of our total revenues in fiscal 2019.2020. Our business model generates strong cash flow that we can use to execute our growth strategy. We believe the combination of our operating income margins, our Store Operating Income Before Depreciation and Amortization Margins, our refined new store formats and the fact that our stores typically open with high volumes that drive margins in year one will help us achieve our targeted average year onereturns of approximately 35% and five-year averagereturns in excess of 25% for both our large format and small format store openings.. Historicalreturns through fiscal 2019 have beenwere well above target, however, there is no guarantee such results will continue with future store openings. although a decline was realized in fiscal 2020 due to impacts fromreturns for an individual store as (a) Store Operating Income Before Depreciation and
cash-on-cash
cash-on-cash
cash-on-cash
COVID-19.
We define and calculatecash-on-cash
6
Amortization, excluding
pre-opening
expenses, national marketing expense allocation,non-cash
charges related to asset disposals, currency transactions and changes innon-cash
deferred amusement revenue, divided by (b) our net development costs. Net development costs include equipment, building, leaseholds and site costs, net of tenant improvement allowances and other landlord payments, excludingpre-opening
costs and capitalized interest.Commitment to customer satisfaction.
COVID-19
on our business during fiscal 2020, we temporarily paused the use of a national customer survey platform. In 2019, 86.0% of respondents to our Guest Satisfaction Survey rated us “Top Box” (score of 5 out of a possible 5) in “Overall Experience” and 87.2%Strategy
During fiscal 2019,2020, we focused on refreshingthe and customer experience to set us up for the next phase of growth. As part of this initiative, we commissioned external consultants to provide insight and review opportunities to assist in refreshing our strategy built on the following key components:
re-opening
of our stores after mandated shutdowns related toCOVID-19,
but also refreshed our strategyDrive our comparable store sales.
Offer novel food
& drink to bring people together.
one-of-a-kind
Offer the latest entertainment to enjoy together.
eye-catching
appearance, virtual reality features, association with recognizable brands or the fact that they cannot be easily replicated at home. We also intend to one-time
events leveraging our investments in the best and latest audio-visual Align team and integrated experience.
in-store
experience. We will also refresh our commitment to serving 7
Drive guestcustomer engagement.
Invest in new stores.
COVID-19
and re-opening
of our remaining closed stores. Longer term, the number of openingspre-opening
costs, obtain necessary local governmental permits, and recruit and train management and hourly personnel.We currently operate stores varying in size from 16,000 to 70,000 square feet. To optimize sales per square foot and further enhance our store economics we currently utilize three basic formats when designing new stores. The target size of our future large format stores is expected to be between 30,001 and 45,000 square feet, the target size of our future medium format stores is expected to be between 25,001 and 30,000 square feet while our small format stores are below 25,00025,001 square feet. At February 2, 2020,January 31, 2021, we operated 109110 large format stores, 1720 medium format stores and 10 small format stores.
We utilizebelieve that the smaller store format allows us to reduce capital investment risk per store. For the smaller format, stores to penetrate less densely populated markets and backfill existing markets. The smaller format haswe have reduced thespace and optimized the salescustomer facing area dedicated to video and redemption games. We believe that the smaller format maintains the dynamic customer experience that is the foundation of our brand and allows us flexibility in our site selection process.
back-of-house
Human Capital Management
Our team members are the heart of our Company, and they help us run the fun in our stores every day. We depend on our team members to provide great service and maintain consistently strong operations. Our ability to attract and retain an engaged and experienced team is critical to successful execution of our business strategies. While we continue to operate in a competitive labor environment, we believe our culture, policies, and labor practices contribute to strong relations with our team members. (See Item 1A. Risk Factors, “.”)
Our success depends upon our ability to recruit and retain qualified store management and operating personnel while also controlling our labor costs
Our Culture
In our stores and at our corporate office, we are committed to being fun creators. Our team members share a deep commitment to four culture pillars, which describe the relationships our team members have with our customers and each other. We are devoted to our “You Got It” service philosophy that calls us to provide exceptional service to our customers and to each other every day. Our “Play Your Heart Out” attitude encourages
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intensity, hard work, and having fun. We firmly believe we are “Better Together,” and through this culture pillar we encourage inclusivity, teamwork, and good judgment. Finally, we encourage all team members to be “Game Changers” committed to innovation, embracing change, and continuous learning and growth.
Our Team
As of January 31, 2021, we employed 8,547 team members, 208 of whom served at our corporate headquarters, 1,026 of whom served as management personnel and the remainder of whom were hourly personnel. Included in our total team members are 758 store and corporate team members who remain on furlough while the Company continues its recovery, 42% of which are management personnel.
Our Better Together culture pillar binds us to a shared commitment to attract, retain, engage, and develop a team that mirrors the diversity of the customers we serve. We strive to provide inclusive fun for all, and we believe our commitment to diversity, equity and inclusion promotes teamwork to achieve our common goals, helps our team members reach their highest potential at work, enables our team members to make better decisions to serve all of our stakeholders, and fuels innovation. Racial minorities make up over 53% of our U.S. workforce, and we are proud of our diversity, which is summarized below:
Male | Female | Total | ||||||||||
White | 23.9 | % | 22.6 | % | 46.5 | % | ||||||
Black or African American | 14.4 | % | 11.7 | % | 26.1 | % | ||||||
Hispanic | 12.3 | % | 9.6 | % | 21.9 | % | ||||||
Asian/American Indian/Pacific Islander | 2.1 | % | 1.4 | % | 3.5 | % | ||||||
Two or more races | 1.2 | % | 0.8 | % | 2.0 | % | ||||||
Total | 53.9 | % | 46.1 | % | 100.0 | % | ||||||
In fiscal 2020, we strengthened our commitment to diversity, equity, and inclusion. Among other key accomplishments, we:
adopted an enterprise Human Rights policy, which may be found on our Company website;
formed a Human Resources Steering Committee comprised of leaders from different levels and departments in our organization that is specifically charged with stewardship of, and ensuring accountability to, our diversity, equity and inclusion strategy and goals;
set goals for improving representation of women and team members who are black, indigenous, or people of color in our corporate and field leadership, and began providing quarterly updates to our Board of Directors on our progress in meeting our goals; and
improved representation of women in our internal governance committees by more than 50%, and increased representation of team members who are black, indigenous, or people of color on these same committees by nearly 100%.
In addition to our focus on improving diversity, equity, and inclusion, fiscal 2020 also demanded additional focus on the health and safety for our team members and our customers. Health and safety have always been a top priority for our Company, but in response to the pandemic, we implemented several changes for the protection of our team members and our customers. Our cross-functional
COVID-19
response team met frequently throughout the pandemic to review the latest guidance from health agencies, update our safety protocols and ensure team members across our Company had the opportunity to collaborate and share in our collective commitment to health and safety. Among other actions, we:worked together to adhere to all local, state and federal health guidelines and requirements in setting capacity limits, hours of operation, determining what service and product offerings we were able to provide, establishing testing and close contact tracing protocols, and setting other operational policies;
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implemented health and temperature checks before each shift and required team members to wear protective masks and gloves;
were among the first casual dining brands to require all customers to wear masks following the onset of the pandemic;
assigned team members to cleaning and sanitizing our stores full-time during all operating hours;
added hand sanitizer stations at each store and socially distanced all tables, games, and line queues; and
for most of fiscal 2020, the majority of our corporate team members worked remotely.
In fiscal 2020, our leaders worked to continue to maintain strong communications and relationships with our team members throughout the year. We believe our culture, policies, and labor practices contribute to strong relations with our team member. None of our team members are covered by collective bargaining agreements and we have never experienced an organized work stoppage, strike, or labor dispute.
Our Leadership Team
We are led by a strong senior management team averaging over 20 years of experience with national brands spanning casual dining, entertainment, and other consumer-centric industries. We believe that our management team’s prior experience, combined with its experience at Dave & Buster’s provides us with insights into our customer base and enables us to create the smallerdynamic environment that is core to our brand.
Our Store Teams
Historically, our typical store formatteam consisted of a General Manager supported by an average of eight additional management positions. During the
COVID-19
recovery period, we significantly changed our management model, reducing the average additional management positions to approximately four, which was largely due to much lower store volumes uponre-opening.
Management team members handle various departments within the store including responsibility for hourly team members. Historically, a typical store employed approximately 110 hourly team members, most of whom worked part-time. During theCOVID-19
recovery period, the Company changed the hourly labor model, reducing the average to approximately 65 hourly team members. In the future, post-recovery, we intend to deploy a new labor model and leverage our technology investments, potentially requiring fewer management and/or hourly positions than historical levels.The General Manager and the management team are responsible for theoperation of the store, including the hiring, training, and development of team members, as well as financial and operational performance. There is a defined structure of development and progression of job responsibilities within the supporting management positions to ensure that an adequate succession plan exists within each store. Each store is overseen by a Regional Operations Manager, Regional Operations Director or Vice President of Operations (collectively, “Regional Management”) who directly or indirectly report to our Chief Operating Officer. We are proud of the experience of our store leadership teams and carefully monitor store management team retention rates, which for us has consistently tracked in the top quartile of the upscale casual dining industry.
day-to-day
Prior to the
COVID-19
pandemic, our stores were generally open seven days a week, from 11:30 a.m. to midnight on Sunday through Thursday and 11:30 a.m. to 2:00 a.m. on Friday and Saturday. During the recovery, to comply with various federal, state and local guidelines and in response to changing guest levels, our stores have reduced the hours of operation and in some cases, the number of days operating in a week.Attracting Talent
We seek to hire experienced leaders and team members and offer competitive wage and benefit programs. We offer performance-based compensation programs to our store management and corporate employees. In
10
addition to salaries, these programs (which vary by employee level) include, among other items, bonuses, stock awards, and various employee assistance programs. In addition, our salaried and hourly team members are also eligible to participate in a 401(k) plan, medical/dental/vision insurance plans and receive vacation/paid time off based on tenure. While certain of our team members were on furlough due to the impacts of the
COVID-19
pandemic, we offered continued benefit coverage.Developing Talent
We motivate and develop our team members by providing them with opportunities for increased responsibilities and advancement. Throughout the year, we provide numerous training opportunities for our team members, with a focus on continuous learning and development. With hundreds of leadership positions across our stores, we provide a pathway and training for individuals across the organization to advance from entry-level jobs into management roles. In addition, our geographic footprint often allows us to take less capital investment risk per store. Our fiscal 2019offer our store team members relocation options.
We strive to maintain quality and consistency in each of our stores through the careful training and supervision of our team members and the establishment of, and adherence to, high standards relating to personnel performance, food and beverage preparation, safety protocols, game playability and maintenance of our stores. We provide all new team members with comprehensive orientation andtraining for their positions to help ensure they meet our high standards. All new team members are trained by partnering with a trainer to assure that the training and information they receive is complete and accurate. Team members are certified for their positions by passing a series of tests, including alcohol awareness and responsibility training for service team members.
one-on-one
We require our new store openings included thirteen large formatmanagers to complete an eight-week training program that includesservice, kitchen, amusements, and management responsibilities. Newly trained managers are then assigned to their home store, where they receive additional training with their General Manager. Their last two weeks of training include a comprehensive validation of new skills. We place a high priority on our continuing management development programs to ensure that qualified managers are available for our future openings. We conduct regular evaluations with each manager to discuss prior performance and future performance goals. We hold an annual General Manager conference in which our General Managers share best practices and receive an update on our business strategies.
front-of-house
When we open a new store, we provide varying levels of training to team members in each position to ensure the smooth and efficient operation of the store from the first day it opens to the public. Prior to opening a new store, our dedicated training and opening team travels to the store to deliver an intensive training program for all team members. We believe this additional investment in our new stores is important because it helps us provide our customers with a quality experience from day one. After a store has been opened and is operating smoothly, the store managers supervise the training of new team members.
Corporate Responsibility
Our core value of “Better Together” calls each of our team members to care for each other, our customers, and the communities we serve. We will not do business with organizations that employ or condone unfair labor practices anywhere in the world. We partner with suppliers who share our commitment to ethical business conduct, fair labor practices, proven environmental, health, and safety practices, and environmental sustainability. We also specifically condemn human trafficking and abuse of child labor. We understand that supporting our communities includes being good environmental stewards and striving to conduct business in a sustainable and environmentally responsible manner.
In addition, we strongly encourage team members to give back to the communities we serve. Although our Company invests time and resources in many charitable causes, we have two main causes we focus our efforts to support. The first is our long-standing partnership withWe have proudly supported
Make-A-Wish.
11
Make-A-Wish
Make-A-Wish.
In addition, we invest in helping our own team members during their times of greatest need. The D&B H.E.A.R.T. (Helping Employees at Rough Times) Fund is an independent
non-profit
established to create an employee assistance fund for the benefit of team members who suffer catastrophic events resulting in severe economic hardship. The D&B H.E.A.R.T. Fund is financed by contributions from our employees, customers, and business partners. During the pandemic, many of our team members were furloughed and experienced financial and personal hardships, and the D&B H.E.A.R.T. Fund provided financial assistance to several team members facing exceptionally tough challenges.Advertising and Marketing
We use advertising and marketing to build awareness and strengthen our brand relevance. We spent approximately $44,834$21.1 million in marketing efforts in fiscal 2019, $40,7672020, $44.8 million in fiscal 2018,2019, and $37,876$40.8 million in fiscal 2017. To drive traffic2018. During fiscal 2020, as a result of the closures, capacity restrictions and increase visit frequency and average check size,other operating limitations imposed as a result of the bulkbudget is allocatedand marketing spend. In the future, we plan to national cable television media.shift some funding to other forms of media, including investments in social and digital video, and test new types of programmatic display and digital audio. To enhance that effort,our marketing efforts, we also conduct digital initiatives including search engine marketing and optimization, mobile campaigns, programmatic marketing and social media, maintain and optimize the website for search, implementimprovements. We also execute periodic promotions, and creatematerials and createexecute local marketing plans to address specific objectives in individual stores or markets. We work with external advertising, digital, media and design agencies in the development and execution of these programs.
COVID-19
pandemic, we substantially curtailed national cable television media, which continues to be the largest portion of our advertising in-store
point-of-purchase
During fiscal 2019, we continued our investmentinvested in developing and implementing new technology platforms that will allow us to digitally engage with our customers and team members and strengthen our marketing and analytics capabilities in an increasingly connected society. We launchedOur investment efforts were significantly curtailed during fiscal 2020 as a newresult of theduring the second half of fiscal 2019platform, which is used to enhance existing customer satisfaction and attract new onescustomers by providing periodic exclusive offers and discounts and providing a convenient way to purchase Power Cards. We also intend to leveragelaunch a new loyalty program in fiscal 2021, which will be integrated into the new mobile application to buildprovide further functionality and accessibility for our loyalty program in the future.
customers.COVID-19
pandemic, but we plan to continue to invest in fiscal 2021. Central to this effort is continued investment in our mobile application We utilize a number of other initiatives to continually improve our market effectiveness, including refining our marketing strategy to better reach both young adults and families, creating new advertising campaigns, investing in menu research and development to differentiate our food offerings from our competition and improve key product attributes (quality, consistency, value and overall customer satisfaction) and execution, developing product/promotional strategies to attract new customers and increase spending/length of stay, and reflecting a consistent brand identity that represents our positioning and commitment to quality.
Our special event marketing programs are managed by our sales department, which provides direction, training, and support to theour special events team consisting of district sales managers and their teams within each store. Theysales managers. Our special events programs are supported by a special event call center located at our corporate office, targeted print and online media plans, as well as promotional incentives at appropriate times during the year. In addition, we have online booking for social parties in order to provide additional convenience in booking events for our customers.
Information Technology and Cyber Security
We utilize a number ofseveral proprietary and third-party management information systems. These systems are designed to enable our games’ functionality, improve operating efficiencies, provide us with timely access to financial and
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marketing data and reduce store and corporate administrative time and expense. We believe our management information systems are sufficient to support our business plans. Information systems projects are prioritized based upon strategic, financial, regulatory and other business advantage criteria.
Our managers have daily routines focused on driving consistent execution in food, beverage, and gaming. We utilizeamusements. While fiscal 2020 was a very unusual year with the impact ofA mobile salesmanship application with daily sales contests is used by ourOur workforce management teamplatform also allows management to evaluate sales performance by shiftquickly add or reduce labor based on real-time business needs and to drive staff engagement. We have developed tools to forecast sales and schedule labor to assisthistorically assisted our managers in optimizing hourly labor based on anticipated sales volumes. This program was enhanced during fiscal 2018 with the introduction of a new workforce management platform which offers real time data that allows management to quickly add or reduce labor based on business needs. Our amusement team uses a proprietary system that is supported by a mobile application that identifies gamingamusement issues and needed repairs to help ensure our games are operational and meeting our ideal playing standard. Complementing this program is our routine preventative maintenance program, designed to prevent game failure and extend the functionality of our midway games. To maximize
COVID-19,
we historically utilized a customized food and beverage analysis program that determines the theoretical food and beverage costs for each store and provides additional tools and reports to help us identify opportunities, including waste management. In addition to our own routines, we leverage a third-party vendor to help ensure quality beverage operations, responsible alcohol service and loss prevention. During 2019, we invested in connectivity and data infrastructure to modernize and upgrade the capacity of our store systems, continued work on new, customer facing digital experiences, such as the launch of our new mobile application that supportsdevices to a limited group of stores. Our investment efforts were significantly curtailed during fiscal 2020 due to the impacts of the
in-store
andoff-premise
amusement entertainment, and deployed hand-heldpoint-of-sale
COVID-19
pandemic, but we plan to continue to invest in fiscal 2021.We accept electronic payment cards from our customers for payment in our stores. We also receive and maintain certain personal information about our customers and employees.team members. We have systems and processes in place that focus on the protection of our customers’ credit card information and other private information we are required to protect, such as our employees’ personal information. Our existing cyber security policy includes cyber security techniques, tactics and procedures, including continuous monitorymonitoring and detection programs, network protections, employee training and awareness and incident response preparedness. In addition, we periodically scan our environment for any vulnerability, perform penetration testing and engage third parties to assess effectiveness of our data security practices. We utilize a voluntary tool to help manage privacy risk by independently benchmarking our cyber security program to the NIST Cybersecurity Framework, using an independent third party, and we share the results of our annual audit with our Audit Committee.
Food Preparation, Quality Control and Purchasing
We strive to maintain high food quality standards. To ensure our quality standards are met, we negotiate directly with independent producers of food products. We provide detailed quality and yield specifications to suppliers for our purchases. Our systems are designed to protect the safety and quality of our food supply throughout the procurement and preparation process. Within each store, the Kitchen Manager is primarily responsible for ensuring the timely and correct preparation of food products per the recipes we specify. We provide each of our stores with various tools and training to facilitate these activities.
Foreign Operations
We own and operate two stores outside of the United States in the Canadian province of Ontario. These stores generated revenues of approximately $18,649, $18,848$2.9 million, $18.6 million, and $20,075$18.8 million in fiscal 2020, 2019, 2018 and 2017,2018, respectively, representing approximately 1.4%0.7%, 1.5%1.4%, and 1.8%1.5%, respectively, of our consolidated revenues. As of February 2, 2020,January 31, 2021, less than 2.0% of our long-lived assets were located outside of the United States.
The foreign activities of these stores are subject to various risks of doing business in a foreign country, including currency fluctuations, changes in laws and regulations and economic and political stability. We do not believe there is any material risk associated with the Canadian operations or any dependence by the domestic business upon the Canadian operations.
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Store-Level Quarterly Fluctuations and Seasonality
Our revenues are influenced by seasonal shifts in consumer spending. Typically, we have higher revenues associated with the spring andfall season, has historically had lower revenues as compared to other quarters. During fiscal 2020, results also fluctuated due to the timing and frequency of temporary closures and operating restrictions as a result of state and local guidelines imposed due to the
year-end
holidays, which will continue to be susceptible to the impact of severe or unseasonably mild weather on customer traffic and sales during that period. Our third quarter, which encompasses theback-to-school
COVID-19
pandemic.Suppliers
The principal goods used by us are redemption game prizes and food and beverage products, which are available from a number of suppliers. We currently purchase a significant amount of our amusement merchandise through a direct import program, a program in which we purchase WIN! merchandise and certain glassware, platewareplate ware and furniture directly from offshore manufacturers. We are a large buyer of traditional and amusement games and as a result believe we receive discounted pricing arrangements. Federal and state health care mandates and mandated increases in the minimum wage and other macro-economic pressures could have the repercussion of increasing expenses, as suppliers may be adversely impacted and seek to pass on higher costs to us.
Intellectual Property
We have registered the trademarks Dave & Buster’s
®
, Power Card®
, Eat & Play Combo®
, Eat Drink Play®
, and Eat Drink Play Watch®
, and have registered or applied to register certain additional trademarks with the United States Patent and Trademark Office and in various foreign countries. We consider our tradename and our logo to be important features of our operations and seek to actively monitor and protect our interest in this property in the various jurisdictions where we operate. We also have certain trade secrets, such as our recipes, processes, proprietary information and certain software programs that we protect by requiring all of our employees to sign a code of ethics, which includes an agreement to keep trade secrets confidential.Government Regulation
We are subject to a variety of federal, state and local laws affecting our business. For a discussion of the risks and potential impact on our business of a failure by us to comply with applicable laws and regulations, see “Item 1A. Risk Factors”.Factors.” Each of our stores is subject to permitting and licensing requirements and regulations by a number of government authorities, which may include, among others, alcoholic beverage control, health and safety, sanitation, environmental, labor and zoning. The development and construction of new stores is subject to compliance with applicable zoning, land use and environmental regulations. We must comply with laws and regulations relating to consumer protection, fair trade practices, and the preparation and sale of food, including regulations regarding product safety, nutritional content and menu labeling. We are also subject to federal, state and local laws that govern health benefits, employment practices and working conditions, including minimum wage rates, wage and hour practices, gratuities, overtime, various family leave mandates, discrimination and harassment, immigration, workplace safety and other areas. In California, we are subject to the Private Attorneys General Act, which authorizes employees to file lawsuits to recover civil penalties on behalf of themselves, other employees, and the State of California for labor code violation.violations. We must comply with laws relating to information security, consumer credit protection and fraud, and data privacy laws and standards for the protection of personal and health information.
Available Information
Our annual reports on Form
10-K,
quarterly reports on Form10-Q,
current reports on Form8-K
and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act are available free of charge through our internet website, at www.daveandbusters.com, as soon as reasonably practicable after they are electronically filed with or furnished to the Securities and Exchange Commission (“SEC”). Such reports may also be obtained on the SEC’s website at www.sec.gov. Information on our corporate governance principles and practices can also be found on our website.14
ITEM 1A. | Risk Factors |
Various risks and uncertainties could affect our business. In addition to the information contained elsewhere in this report and other filings that we make with the SEC, the risk factors described below could have a material impact on our business, financial condition, results of operation, cash flows or the trading price of our common stock. It is not possible to identify all risk factors. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also impair our business operations.
Risks Related to our BusinessGrowth and IndustryOperating Strategy
The
COVID-19
pandemic has disrupted and is expected to continue to disrupt our business, which has had a material adverse impact on our business, results of operations, liquidity and financial condition and could continue for an extended period of time. Future outbreaks of contagious diseases or other adverse public health developments in the United States or worldwide could have similar impacts on our business.The recent outbreak of
COVID-19
has had a material adverse effect on our business, results of operations, liquidity and financial condition and the same could continue for an extended period of time. In fiscal 2020, theCOVID-19
pandemic significantly impacted the economy in general, and our business specifically, and continues to negatively affect our business in a number of ways. These effects include, but are not limited to:the unprecedented impact on our business, operations and liquidity;
our ability to obtain additional waivers or amendments, and thereafter continue to satisfy covenant requirements (even as they may be amended), under our amended credit agreement and derivative contract payables;
our ability to access other funding sources;
the duration of government-mandated and voluntary shutdowns, and operating restrictions on our business once our stores can
re-open;
the level of customer demand following
re-opening;
the economic impact of
COVID-19
and related disruptions on the communities we serve;our overall level of indebtedness;
further impairments of our long-lived assets or impairment of goodwill or other intangibles; and
management’s ability to estimate future performance of our business.
The extent to which the current or future outbreaks of disease or similar public health threats materially and adversely impact our business, results of operations, liquidity and financial condition is highly uncertain and will depend on future developments. Such developments may include the geographic spread and duration of the virus, the severity of the disease and the mitigating and remedial actions that may be taken by various governmental authorities and other third parties in response to the outbreak. In addition, how quickly, and to what extent, normal economic and operating conditions can be maintained or resumed cannot be predicted, and the resumption of normal business operations may be delayed or constrained by lingering effects of any pandemic on us or our suppliers, third-party service providers, and/or customers.
If we are unable to successfully design and execute aour business strategy plan, including growing comparable store sales, our revenues and profitability may be adversely affected.
Our ability to increase revenues and profitability is dependent on designing and executing effective business strategies. If we are delayed or unsuccessful in executing our strategies or if our strategies do not yield the desired
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results, our business, financial condition and results of operations may suffer. Our ability to meet our business strategy plan is dependent upon, among other things, our ability to:
increase gross sales and operating profits at our existing stores with food, beverage, game food and beverageentertainment options desired by our customers;
evolve our marketing and branding strategies to appeal to our customers;
innovate and implement technology initiatives to provide a unique digital customer experience;
identify adequate sources of capital to fund and finance strategic initiatives, including new store openings, remodeling existing stores and new game development;initiatives;
grow and expand operations, including identifying available, suitableoperations; and economically viable sites for new stores; and
improve the speed and quality of our service.
Changes in consumer preferences and buying patterns could negatively affect our results of operations.
The success of our stores depends in large part on leased locations. Our locations are primarily located near high density retail areas such as regional malls, lifestyle centers, big box shopping centers and entertainment centers. We depend on a high volume of visitors at these centers to attract customers to our locations. As demographic and economic patterns change, current locations may or may not continue to be attractive or profitable.
E-commerce
or online shopping continues to increase and negatively impact consumer traffic at traditional “brick and mortar” retail sites located in regional malls, lifestyle centers, big box shopping centers and entertainment centers. Vacancies have also increased due to theCOVID-19
pandemic. A decline in development or closures of businesses in these settings or a decline in visitors to retail areas near our locations could negatively affect our sales. In addition, desirable locations for the relocation of existing locations may not be available at an acceptable cost, due in part to the inability to easily terminate a long-term lease.Consumers have continually changing health or dietary preferences. As a result, we are challenged to evolve our food and beverage menu offerings to appeal to these changing customer preferences, while maintaining our brand character and retaining popular menu items. New information or changes in dietary, nutritional, allergen or health guidelines or environmental or sustainability concerns, whether issued by governmental agencies, academic studies, advocacy organizations or similar groups, may cause some groups of consumers to select foods other than those that are offered by our store. Additionally, it is unclear currently if the
COVID-19
pandemic may have a lasting impact on consumer demand. If we fail to anticipate changing trends or other consumer preferences, our business, financial condition and results of operations would be adversely affected.Advances in technologies or certain changes in consumer behavior driven by such technologies could have a negative effect on our business. Technology and consumer offerings continue to develop, and we expect new or enhanced technologies and consumer offerings will be available in the future. As part of our marketing efforts, we use a variety of digital platforms including search engines, mobile, online videos and social media platforms such as Facebook
®
, Twitter®
and Instagram®
to attract and retain customers. We also test new technology platforms to improve our level of digital engagement with our customers and employees to help strengthen our marketing and related consumer analytics capabilities. These initiatives may not prove to be successful and may result in expenses incurred without the benefit of higher revenues or increased engagement.We may not be able to compete favorably in the highly competitiveand home-based entertainment and restaurant markets, which could have a material adverse effect on our business, results of operations or financial condition.
out-of-home
Theentertainment market is highly competitive. We compete for customers’ discretionary entertainment dollars with providers ofentertainment, including localized attraction facilities such as movie theatres, sporting events, bowling alleys, sports activity centers, arcades and entertainment centers, nightclubs, and restaurants as well as theme parks. Many of the entities operating these businesses are larger and
out-of-home
out-of-home
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have significantly greater financial resources, a greater number of stores, have been in business longer, have greater name recognition and are better established in the markets where our stores are located or are planned to be located. As a result, they may be able to invest greater resources than we can in attracting customers and succeed in attracting customers who would otherwise come to our stores. The legalization of casino gambling in geographic areas near any current or future store and the expanded availability of online sports betting could also have a material adverse effect on our business and financial condition. We also face competition from local, regional, and national establishments that offer similar entertainment experiences to ours and restaurants that are highly competitive with respect to price, quality of service, location, ambience and type and quality of food. We also face competition from increasingly sophisticated home-based forms of entertainment, such as internet and video gaming and home movie streaming and delivery. Our failure to compete favorably in the competitiveand home-based entertainment and restaurant markets could have a material adverse effect on our business, results of operations and financial condition.
out-of-home
Unfavorable publicity or a failure to respond effectively to adverse publicity, could harm our business.
Our brand and our reputation are among our most important assets. Our ability to attract and retain customers depends, in part, upon the external perception of our Company, the quality of our food service and facilities and our integrity. Multi-store businesses, such as ours, can be adversely affected by unfavorable publicity resulting from poor food quality, food safety concerns, flu or other virus outbreaks and other public health concerns stemming from one or a limited number of our stores. While we dedicate substantial resources and provide training to ensure the safety and quality of the food we serve, these risks cannot be eliminated. Additionally, we rely on our network of suppliers to properly handle, store, and transport our ingredients for delivery to our stores. Any failure by our suppliers, or their suppliers, could cause our ingredients to be contaminated, which could be difficult to detect and put the safety of our food in jeopardy. The risk of food-borne illness also may increase whenever our menu items are served outside of our control, such as by third-party food delivery services or customer
take-out.
Negative publicity may also
result from crime incidents, data privacy breaches, scandals involving our employees or operational problems at our stores. Regardless of whether the allegations or complaints are valid, unfavorable publicity related to one or more of our stores could affect public perception of the entire brand. Even incidents at similar businesses such as restaurants, at our competitors, or in the supply chain generally could result in negative publicity that wouldcould indirectly harm our brand. If one or more of our stores were the subject of unfavorable publicity and we are unable to quickly and effectively respond to such reports, our overall brand could be adversely affected, which could have a material adverse effect on our business, results of operations and financial condition.
There has been a significant increase in the use of social media and similar platforms, including weblogs (blogs), social media websites and other forms of Internet-based communications whichthat allow individuals’individuals access to a broad audience of consumers and other interested persons. Consumers value readily available information concerning goods and services that they have or plan to purchase and may act on such information without further investigation or authentication. Many social media platforms immediately publish the content their subscribers and participant’sparticipants post, often without filters or checks on accuracy of the content posted. The opportunity exists for dissemination of information, including inaccurate information, is seemingly limitless and readily available.to spread quickly. Inaccurate or adverse information concerning our Company may be posted on such platforms at any time. The harm may be immediate without affording us an opportunity for redress or correction. Such platforms also may be used for dissemination of trade secret information, compromising valuable company assets. In summary, the dissemination of information via social media and similar platforms may harm our business, prospects, financial condition, and results of operations, regardless of the information’s accuracy. The inappropriate use of social media vehicles by our customers or employees could increase our costs, lead to litigation or result in negative publicity that could damage our reputation.
17
brand value could diminish significantly if any such incidents or other matters erode consumer confidence in us or our products, which would likely result in lower revenues.
We are subject to risks associated with leasing space subject to long-term,
non-cancelable
leases.We typically do not own any real property.property for long periods. Payments under ourwouldcould have a material adverse effect on us.
non-cancelable,
long-term operating leases account for a significant portion of our operating expenses and we expect the new stores we open in the future will also be leased. The leases typically provide for a base rent plus additional rent based on a percentage of the revenue generated by the stores on the leased premises once certain thresholds are met. We generally cannot cancel these leases without substantial economic penalty. If an existing or future store is not profitable, and we decide to close it, we may nonetheless be committed to perform our obligation under the applicable lease, including, among other things, paying the base rent for the remainder of the lease term. We depend on cash flow from operations to pay our lease obligations. If our business does not generate adequate cash flow from operating activities and sufficient funds are not otherwise available to us from borrowings under our existing credit facility, we may not be able to service our operating lease obligations, grow our business, respond to competitive challenges or fund other liquidity and capital needs, all of which In addition, as each of our leases expires, we may choose not to renew, or may not be able to renew, such existing leases if the capital investment required to maintain the stores at the leased locations is not justified by the return required on the investment. If we are not able to renew the leases at rents that allow such stores to remain profitable as their terms expire, the number of such stores may decrease, resulting in lower revenue from operations, or we may relocate a store, which could subject us to construction and other costs and risks, and in either case, could have a material adverse effect on our business, results of operations and financial condition.
Our financial performance and the ability to successfully implement our strategic direction could be adversely affected if we fail to retain, or effectively respond, to a loss of key management.
Our future success is substantially supported by the contributions and abilities of senior management, including key executives and other leadership team members. Changes in senior management could expose us to significant changes in strategic direction and initiatives. A failure to maintain appropriate organizational capacity and capability to support leadership excellence or a loss of key skill sets could jeopardize our ability to meet our business performance expectations and growth targets. Although we have employment agreements with all members of senior management, we cannot prevent members of senior management from terminating their employment with us. Losing the services of members of senior management could materially harm our business until a suitable replacement is found, and such replacement may not have equal experience and capabilities.
We face risks related to our substantial indebtedness and limitations on future sources of liquidity.
Our substantial indebtedness could have important consequences to us, including:
making it more difficult for us to satisfy our obligations with respect to our debt, and any failure to comply with the obligations under our debt instruments, including restrictive covenants, could result in an event of default under the agreements governing our indebtedness increasing our vulnerability to general economic and industry conditions, including as a result of disruption caused by the global
COVID-19
pandemic;requiring a substantial portion of our cash flow from operations to be dedicated to the payment of obligations with respect to our debt, thereby reducing our ability to use our cash flow to fund our operations, lease payments, capital expenditures, selling and marketing efforts, product development, future business opportunities and other purposes;
exposing us to the risk of increased interest rates as some of our borrowings are at variable rates;
18
limiting our ability to obtain additional financing for working capital, capital expenditures, product development, debt service requirements, strategic acquisitions, and general corporate or other purposes; and
limiting our ability to plan for, or adjust to, changing market conditions and placing us at a competitive disadvantage compared to our competitors who may be less highly leveraged.
Covenants in our debt agreements restrict our business and could limit our ability to implement our business plan.
The credit facility and the indenture governing the senior secured notes contain covenants that may restrict our ability to implement our business plan, finance future operations, respond to changing business and economic conditions, secure additional financing, and engage in opportunistic transactions, such as strategic acquisitions. In addition, if we fail to satisfy the covenants contained in the credit facility, our ability to borrow under the revolving credit loans portion of the credit facility may be restricted. The credit facility and the indenture governing the senior secured notes include covenants restricting, among other things, our ability to do the following under certain circumstances:
incur or guarantee additional indebtedness or issue certain disqualified or preferred stock;
pay dividends or make other distributions on, or redeem or purchase any equity interests or make other restricted payments;
make certain acquisitions or investments;
create or incur liens;
transfer or sell assets;
incur restrictions on the payment of dividends or other distributions from our restricted subsidiaries;
alter the business that we conduct;
enter into transactions with affiliates; and
consummate a merger or consolidation or sell, assign, transfer, lease or otherwise dispose of all or substantially all our assets.
The covenants in the credit facility are generally more restrictive than the covenants in the indenture governing the senior secured notes and place certain limitations on our ability to: incur additional indebtedness, make loans or advances to subsidiaries and other entities, pay dividends, acquire other businesses or sell assets. In addition, other than during the second amendment suspension period, our credit facility requires us to comply with a total leverage ratio that is no greater than the applicable financial covenant level and a fixed charge ratio that is no greater than 1.25:1.00, which are each tested as of the last day of each fiscal quarter. During the second amendment suspension period, we are required to maintain minimum liquidity of $150.0 million.
Events beyond our control, including the impact of
COVID-19,
may affect our ability to comply with our covenants, even after the cessation of the second amendment suspension period. If we default under the credit facility or the indenture governing the senior secured notes, because of a covenant breach or otherwise, all outstanding amounts thereunder could become immediately due and payable. We cannot assure you that we will be able to comply with our covenants under the credit facility, or the indenture governing the senior secured notes or that any covenant violations will be waived in the future. Any violation that is not waived could result in an event of default, permitting our lenders to declare outstanding indebtedness and interest thereon due and payable, and permitting the lenders under the revolving credit loans provided under the credit facility to suspend commitments to make any advance, or require any outstanding letters of credit to be collateralized by an interest bearing cash account, any or all of which could have a material adverse effect on our business, financial condition and results of operations. In addition, if we fail to comply with our financial or other covenants under19
the credit facility or the indenture governing the senior secured notes, we may need additional financing to service or extinguish our indebtedness. We may not be able to obtain financing or refinancing on commercially reasonable terms, or at all. We cannot assure you that we would have sufficient funds to repay outstanding amounts under the credit facility or the indenture governing the senior secured notes and any acceleration of amounts due would have a material adverse effect on our liquidity and financial condition.
The success of our longer-term growth strategy depends in part on our ability to open and operate new stores profitability.
Our ability to timely and efficiently open new stores and to operate these stores on a profitable basis is dependent on numerous factors including quality locations, acceptable lease or purchase agreements, zoning, use and other regulations, our liquidity, staffing needs and training, permitting, customer acceptance, impact on existing stores and financial performance targets. The timing of new store openings may result in significant fluctuations in our quarterly performance. We typically incur significant costs prior to opening for
pre-opening
and construction and increased labor and operating costs for a newly opened store. Due to these substantial upfront financial requirements to open new stores, the investment risk related to any single store is much larger than that associated with many other restaurant or entertainment venues.Risks Related to Information Technology and Cyber Security
Information technology system failures or interruptions may impact our ability to effectively operate our business.
We rely heavily on various information technology systems, includingkiosk and amusement operations systems in our stores, data centers that process transactions, communication systems and various other software applications used throughout our operations. Some of these systems have been internally developed or we rely on third party providers and platforms for some of these information technology systems and support. Although we have operational safeguards in place, those technology systems and solutions could become vulnerable to damage, disability, or failures due to theft, fire, power outages, telecommunications failure or other catastrophic events. Any failure of these systems could significantly impact our operations. We rely on third-party service providers for certain key elements of our operations including credit card processing, telecommunications, and utilities. Our reliance on systems operated by third parties also present the risk faced by the third party’s business, including the operational, cyber security, and credit risks of those parties. If those systems were to fail or otherwise be unavailable, and we were unable to timely recover, we could experience an interruption in our operations.
point-of-sale,
Cyber security breaches or other privacy or data security incidents that expose confidential customer, personal employee or other material, confidential information that is stored in our information systems or by third parties on our behalf may impact our business.
Many of our information technology systems (and those of our third-party business partners, whether cloud-based or hosted in proprietary servers), including those used forweb and mobile platforms, mobile payment systems and administrative functions, contain personal, financial or other information that is entrusted to us by our customers and team members. Many of our information technology systems also contain proprietary and other confidential information related to our business, such as business plans and initiatives. A cyber incident (generally any intentional or unintentional attack that results in unauthorized access resulting in disruption of systems, corruption of data, theft or exposure of confidential information or intellectual property) that compromises the information of our customers or employees could result in widespread negative publicity, damage to our reputation, a loss of customers, and disruption of our business.
point-of-sale,
The regulatory environment surrounding information security and privacy is increasingly demanding, with the frequent imposition of new and constantly changing requirements. Compliance with these requirements can
20
be costly and time-consuming and the costs could adversely impact our results of operations due to necessary system changes and the development of new administrative processes. The California Consumer Privacy Act of 2018, provides a private right of action for data breaches and requires companies that process information about California residents to make new disclosures to consumers about their data collection, use and sharing practices and allow consumers to opt out of certain data sharing with third parties. Security breaches could also result in a violation of applicable privacy and other laws, and subject us to private consumer, business partner or securities litigation and governmental investigations and proceedings, any of which could result in our exposure to material civil or criminal liability. We are required to maintain the highest level of Payment Card Industry (“PCI”) Data Security Standard compliance at our corporate office and stores. If we do not maintain the required level of PCI compliance, we could be subject to costly fines or additional fees from the card brands that we accept or lose our ability to accept those payment cards. Additionally, an increasing number of government and industry groups have established laws and standards for the protection of personal and health information.
Our existing cyber security policy includes cyber security techniques, tactics, and procedures, including continuous monitoring and detection programs, network protections, annual employee training and awareness and incident response preparedness. In addition, we periodically scan our environment for any vulnerabilities, perform penetration testing and engage third parties to assess effectiveness of our security measures. We utilize a voluntary tool to help manage privacy risk by independently benchmarking our cyber security program to the NIST Cybersecurity Framework, using an independent third party, and we share the results of our annual audit with our Audit Committee. Although we employ security technologies and practices and have taken other steps to try to prevent a breach, there are no assurances that such measures will prevent or detect cyber security breaches, and we may nevertheless not have the resources or technical sophistication to prevent rapidly evolving types of cyberattacks. We maintain a separate insurance policy covering cybersecurity risks and such insurance coverage may, subject to policy terms and conditions, cover certain aspects of cyber risks, but this policy is subject to a retention amount and may not be applicable to a particular incident or otherwise may be insufficient to cover all our losses beyond any retention. Based on recent court rulings, there is uncertainty as to whether traditional commercial general liability policies will be construed to cover the expenses related to cyberattacks and breaches if credit and debit card information is stolen.
We have been and likely will continue to be, the target of cyber and other security threats. In fiscal 2007, there was an external breach of our credit card processing systems, which led to fraudulent credit card activity and resulted in the payment of fines and reimbursements for the fraudulent credit card activity. As part of a settlement with the Federal Trade Commission, we implemented a series of corrective measures to ensure that our computer systems are secure and that our customers’ personal information is protected. If in the future, we experience another security breach, we could become subject to claims, lawsuits or other proceedings for purportedly fraudulent transactions arising out of the theft of credit or debit card information, compromised security and information systems, failure of our employees to comply with applicable laws, the unauthorized acquisition or use of such information by third parties, or other similar claims. In addition, such breach could put us in violation of our settlement agreement with the Federal Trade Commission.
Risks Related to the Restaurant and Entertainment Industries
Our success depends upon our ability to recruit and retain qualified store management and operating personnel while also controlling our labor costs.
We must continue to attract, retain, and motivate qualified management and operating personnel to maintain consistency in our service, hospitality, quality, and atmosphere of our stores, and to also support future growth. Adequate staffing of qualified personnel is a critical factor impacting our customers’ experience in our stores. Qualified management and operating personnel are typically in high demand. Current unemployment subsidies and difficult pandemic-related operating demands are resulting in aggressive competition for talent, wage inflation and pressure to improve benefits and workplace conditions to remain competitive. If we are unable to attract and retain a satisfactory number of qualified management and operating personnel, labor shortages could
21
delay the planned openings of new stores or adversely impact our existing stores. Any such delays, material increases in employee turnover rates in existing stores or widespread employee dissatisfaction could have a material adverse effect on our business and results of operations. Competition for qualified employees could require us to pay higher wages, which could result in higher labor costs and could have a material adverse effect on our results of operations.
Our revenues and operating results may fluctuate significantly due to various risks and unforeseen circumstances, including increases in costs, seasonality, weather, acts of violence or terrorism and other factors outside our control.
Certain of the regions in which our stores are located have been, and may in the future be, subject to natural disasters, such as earthquakes, floods, and hurricanes. Depending upon its magnitude, a natural disaster could severely damage our stores, which could adversely affect our business, results of operations or financial condition. Our corporate headquarters, company-owned distribution center, game repair facility and our data center, as well as our backup data facility, are all located in Dallas, Texas. A natural or
man-made
disaster could significantly impact our ability to provide services and systems to our stores and negatively impact store operations throughout our operations. We currently maintain property and business interruption insurance through the aggregate property policy for each of our stores.Any act of violence at or threatened against our stores or the centers in which they are located, including active shooter situations and terrorist activities, may result in restricted access to our stores and/or store closures in the short-term and, in the long term, may cause our customers and employeesteam members to avoid visiting our stores. Any such situation could adversely impact cash flows and make it more difficult to fully staff our stores, which could materially adversely affect our business.
Our operating results may fluctuate significantly due to seasonal factors. Typically, we have higher revenues associated with the spring andyear-endholidays. Ourour third quarter, which encompasses thefall season, has historically had lower revenues as compared to other quarters. Revenues associated with the spring andwe generategenerated during the December holiday season and can affect our results for the full fiscal year. In addition, unfavorable weather conditions during the winter and spring seasons could have a significant impact on our results. During fiscal 2020, results also fluctuated due to the timing and frequency of temporary closures and operating restrictions due to state and local guidelines imposed due to the
back-to-school
year-end
holidays are typically higher. As a result, factors affecting peak seasons could have a disproportionate effect on our results. For example, the number of days between Thanksgiving and New Year’s Day and the days of the week on which Christmas and New Year’s Eve fall affect the volume of business COVID-19
pandemic.22
other supplies. Also, the risks, or the public perception of the risks, related to an epidemic, pandemic, outbreak, or other public health crisis, such as the recent outbreak of coronavirus(COVID-19).To the extent that a virus or disease is food-borne, or perceived to be food-borne, future outbreaks may adversely affect the price and availability of certain food products and cause our customers to eat lessunplanned loss of a product, or could reduce public confidence in food handling and/or public assembly. If a virus is transmitted by human contact, our employees or customers could become infected or could choose, or be advised, to avoid gathering in public places or avoid touching game or screen surfaces, any of whichmajor distributor could adversely affect our store guest trafficbusiness by disrupting our operations as we seek out and sales as well asnegotiate a new distribution contract. Further, a significant percentage of our WIN! merchandise inventory is directly or indirectly sourced outside the United States and changes in trade policy and tariffs could negatively impact our costs. If we have to pay higher prices for food or other product costs, our operating costs may increase, and, if we are unable to adjust our purchasing practices or pass any cost increases on to our customers, our operating results could be adversely affected.
Our procurement of new games and amusement and entertainment offerings is contingent upon availability, and in some instances, our ability to adequately staffobtain licensing rights.
Our ability to continue to procure new games, amusement and entertainment offerings, and other entertainment-related equipment is important to our stores, receive deliveries on a timely basis or perform functions at the corporate level. We could also be adversely affected if the World Health Organization and /or the Centers for Disease Control and/or other governmental agencies were to restrict travel to affected geographic areas where we source our products, thus possibly impacting the continuitybusiness strategy. The number of supply. Additionally, certain jurisdictions insuppliers from which we operatecan purchase games, amusement offerings and other entertainment-related equipment is limited. To the extent the number of suppliers declines, we could be subject to the risk of distribution delays, pricing pressure, lack of innovation and other associated risks. We may impose mandatory closures, seek voluntary closuresnot be able to anticipate and react to changing amusement offerings cost by adjusting purchasing practices or impose restrictionsgame prices, and a failure to do so could have a material adverse effect on operations. Even if our storesoperating results. In addition, any decrease in availability of new amusement offerings that appeal to customers could lead to decreases in revenues as customers negatively react to lack of new game options.
We have successfully developed several proprietary amusement offerings that are not directly impacted, a health pandemic can result in a disruption of our supply chain if our suppliers’available to operations outside the Company. Our ability to manufacture, transportdevelop future offerings is dependent on, among other things, obtaining rights to compelling game content and developing new amusement offerings that are accepted by our customers. There is no guarantee that additional licensing rights will be obtained by us or otherwise provide goods or services are adversely affected. Additionally, even if such measures are not implemented and a virus or other disease does not spread significantly, the perceived risk of infection or significant health risk may adversely affect our business.
We may not be able to operate our stores or obtain and obtain/maintain licenses and permits necessary for such operation, in compliance with laws, regulations and other requirements, which could adversely affect our business, results of operations or financial condition.
We are subject to licensing and regulation by state and local authorities relating to the sale of alcoholic beverages, health, sanitation, safety, building and fire codes. Each store is required to obtain a license to sell alcoholic beverages on the premises from a state authority and, in certain locations, county and municipal authorities. Typically, licenses must be renewed annually and may be revoked or suspended for cause at any time. In some states, the loss of a license for cause with respect to one store may lead to the loss of licenses at all stores in that state and could make it more difficult to obtain additional licenses in that state. Alcoholic beverage control regulations relate to numerous aspects of the daily operations of each store, including minimum age of patrons and employees, hours of operation, advertising, wholesale purchasing, inventory control and handling and storage and dispensing of alcoholic beverages. We generally have not encountered any material difficulties or failures in obtaining and maintaining the required licenses, permits and approvals that could impact the continuing operations of an existing store, or delay or prevent the opening of a new store. Although we do not anticipate any material difficulties occurring in the future, the failure to receive or retain a liquor license, or any other required permit or license, in a particular location, or to continue to qualify for, or renew licenses, could have a material adverse effect on operations and our ability to obtain such a license or permit in other locations.
We are also subject to amusement licensing and regulation by the states, counties and municipalities in which our stores are located, as a result of operating certain entertainment games and attractions, including skill-based games, that offer redemption prizes. These laws and regulations can vary significantly by state, county, and municipality and, in some jurisdictions, may require us to modify our business operations or alter the mix of redemption games and simulators we offer. Moreover, as more states and local communities implement legalized gambling, the laws and corresponding enabling regulations may also be applicable to our redemption games and regulators may create new licensing requirements, taxes or fees, or restrictions on the various types of
23
redemption games we offer. Furthermore, other states, counties and municipalities may make changes to existing laws to further regulate legalized gaming and illegal gambling. Adoption of these laws, or adverse interpretation of existing laws, could require our existing stores in these jurisdictions to alter the mix of games, modify certain games, limit the number of tickets that may be won by a customer from a redemption game, change the mix of prizes that we may offer at our WIN! area or terminate the use of specific games, any of which could adversely affect our operations. If we fail to comply with such laws and regulations, we may be subject to various sanctions and/or penalties and fines or may be required to cease operations until we achieve compliance, which could have an adverse effect on our business and our financial results.
We are subject to extensive laws and regulations and failure to comply with existing or new laws and regulations could adversely affect our operational efficiencies, cost structure and talent availability.
COVID-19
pandemic.We are also subject to various federal, state, and local laws and regulations that govern numerous aspects of our business, including the following:
the Fair Labor Standards Act and other federal, state and local laws and regulations that govern employment practices and working conditions, including minimum wage rates, wage and hour practices, gratuities, overtime, labor practices, various family leave mandates, discrimination and harassment, immigration, workplace safety and other areas;
the Americans with Disabilities Act and similar state laws that give civil rights protections to individuals with disabilities in the context of employment, public accommodations and other areas;
the Patient Protection and Affordable Care Act as amended by the Health Care and Education Affordability Reconciliation Act of 2010 (“PPACA”) and uncertainties surrounding future changes to or replacement of our health insurance system;
preparation, sale and labeling of food, including the federal regulations of the Food and Drug Administration, which oversees the safety of the entire food system, including inspection and mandatory food recalls, menu labeling and nutritional content, and additional requirements in certain states and local jurisdictions;
environmental laws and regulations governing, among other things, discharges of pollutants into the air and water as well as the presence, handling, release and disposal of and exposure to hazardous substances; and
other environmental matters, such as climate change, the reduction of greenhouse gases, water consumption and animal health and welfare;welfare.
Compliance with these laws and regulations and future new laws or changes in these laws or regulations that impose additional requirements can be costly. Any failure or perceived failure to comply with these laws or regulations could result in, among other things, revocation of required license, administrative enforcement actions, fines, civil and criminal liability, and/or closure of stores. We could also be strictly liable, without regard to fault, for certain environmental conditions at properties we formerly owned or operated as well as at our current properties. Additionally,Further, more stringent and varied requirements of local and state governmental bodies with respect to zoning, land use and environmental factors could delay or prevent development of new stores in certain locations.
If new immigration legislation is enacted, such laws may contain provisions that could increase our costs in recruiting, training and retaining employees. Also, although our hiring practices comply with the requirements of federal law in reviewing employees’ citizenship or authority to work in the United States, increased enforcement efforts with respect to existing immigration laws by governmental authorities may disrupt a portion of our workforce or our operations at one or more of our stores, thereby negatively impacting our business.
24
We believe it is becoming increasing likely that the United States federal state and local mandated increases ingovernment will significantly increase the federal minimum wage and tip credit wage (or eliminate the tip credit wage) and require significantly more mandated benefits than what is currently required under federal law. Should this happen, other jurisdictions that have historically mandated higher wages and greater benefits than what is required under federal law may seek to further increase wages and mandated benefits. In addition to increasing the overall wages paid to our minimum wage and tip credit wage earners, these increases create pressure to increase wages and other benefits paid to other team members who, in recognition of their tenure, performance, job responsibilities and other similar considerations, historically received a rate of pay exceeding the applicable minimum wage or minimum tip credit wage. Because we employ a large workforce, any wage increase and/or expansion of benefits mandates will have a particularly significant impact on our labor costs. Our vendors, contractors and business partners are uncertain of the repercussions, if any, of increased minimum wages on other expenses. For example, our suppliers may be more severelysimilarly impacted by higher minimum wage standards, which could resultand benefit cost inflation, and many have or will increase their price for goods, construction, and services in increased costsorder to us.offset their increasing labor costs. We may not be able to partially or fully offset cost increases resulting from changes in minimum wage rates by increasing menu or game prices, improving productivity, or through other adjustments, and our business, results of operations and financial condition could be adversely affected. Moreover, although none of our employees have been or are now represented by any unions, labor organizations may seek to represent certain of our employees in the future, and if they are successful, our payroll expenses and other labor costs may be increased in the course of collective bargaining, and/or there may be strikes or other work disruptions that may adversely affect our business.
We face potential liability with our gift cards under the property laws of some states.
Our gift cards, which may be used to purchase food, beverages, merchandise and game play credits in our stores, may be considered stored value cards. Certain states include gift cards under their abandoned and unclaimed property laws and require companies to remit to the state cash in an amount equal to all or a designated portion of the unredeemed balance on the gift cards based on certain card attributes and the length of time that the cards are inactive. To date we have not remitted any amounts relating to unredeemed gift cards to states based upon our assessment of applicable laws.
The analysis of the potential application of the abandoned and unclaimed property laws to our gift cards is complex, involving an analysis of constitutional, statutory provisions and factual issues. In the event that one or more states change their existing abandoned and unclaimed property laws or successfully challenge our position on the application of its abandoned and unclaimed property laws to our gift cards, our liabilities with respect to unredeemed gift cards may be materially higher than the amounts shown in our financial statements. If we are required to materially increase the estimated liability recorded in our financial statements with respect to unredeemed gift cards, our net income could be materially and adversely affected.
Our Power Cards may raise similar concerns to gift cards in terms of the applicability of state abandoned and unclaimed property laws. However, based on our analysis of abandoned and unclaimed property laws, we believe that our Power Cards are not stored value cards and such laws do not apply, although there can be no assurance that states will not take a different position.
Litigation, including allegations of illegal, unfair or inconsistent employment practices, may adversely affect our business, results of operations or financial condition.
Our business may be adversely affected by the risk of legal proceedings brought by or on behalf of our customers, employees, suppliers, shareholders, government agencies or others through private actions, class actions, administrative proceedings, regulatory actions or other litigation. In recent years, a number of restaurant companies, including ours, have been subject to lawsuits, including class action lawsuits, alleging violations of federal and state law regarding workplace and employment matters, discrimination and similar matters, and a number of these lawsuits have resulted in the payment of substantial damages by the defendants. We have had from time to time and now have such lawsuits pending against us. In addition, from time to time, customers file complaints or lawsuits against us alleging that we are responsible for some illness or injury they suffered at or after a visit to a store. We are also subject to a variety of other claims in the ordinary course of business, including personal injury, lease, and contract claims.
We are also subject to “dram shop” statutes in certain states in which our stores are located. These statutes generally provide a person injured by an intoxicated person the right to recover damages from an establishment that wrongfully served alcoholic beverages to the intoxicated individual. Recent litigation against restaurant chains has resulted in significant judgments and settlements under dram shop statutes. Because these cases often seek punitive damages, which may not be covered by insurance, such litigation could have an adverse impact on our business, results of operations or financial condition. Regardless of whether any claims against us are valid or whether we are liable, claims may be expensive to defend and may divert time and money away from operations and hurt our financial performance. A judgment significantly in excess of our insurance coverage or not covered by insurance could have a material adverse effect on our business, results of operations or financial condition. Also, adverse publicity resulting from these allegations may materially affect our stores and us.
Failure to adequately protect our intellectual property could harm our business.
We regard our intellectual property as having significant value and being important to our marketing efforts. We use a combination of intellectual property rights, such as trademarks and trade secrets, to protect our brand and certain other proprietary processes and information material to our business. The success of our business strategy depends, in part, on our continued ability to use our intellectual property rights to increase brand awareness and further develop our branded products in both existing and new markets. If we fail to protect our intellectual property rights adequately, we may lose an important advantage in the markets in which we compete. If third parties misappropriate or infringe our intellectual property, the value of our image, brand and the goodwill associated therewith may be diminished, our brand may fail to achieve and maintain market recognition, and our competitive position may be harmed, any of which could have a material adverse effect on our business, including our revenues. Policing unauthorized use of our intellectual property is difficult, and we cannot be certain that the steps we have taken will prevent the violation or misappropriation of such intellectual property rights by others. To protect our intellectual property, we may become involved in litigation, which could result in substantial expenses, divert the attention of management and adversely affect our revenue, financial condition and results of operations.
We cannot be certain that our products and services do not and will not infringe on the intellectual property rights of others. Any such claims, regardless of merit, could be time-consuming and expensive to litigate or settle, divert the attention of management, cause significant delays, materially disrupt the conduct of our business and have a material adverse effect on our financial condition and results of operations. As a consequence of such claims, we could be required to pay a substantial damage award, take a royalty-bearing license, discontinue the use of third-party products used within our operations and/or rebrand our products and services.
The market price of our common stock is responsiblesubject to volatility.
The market price of our common stock may be significantly affected by a number of factors, including, but not limited to, actual or anticipated variations in our operating results or those of our competitors as compared to analyst expectations, changes in financial estimates by research analysts with respect to us or others in the restaurant and other entertainment industries, and announcement of significant transactions (including mergers or acquisitions, divestitures, joint ventures or other strategic initiatives) by us or others in the restaurant and other entertainment industries. In addition, the equity markets have experienced price and volume fluctuations that affect the stock price of companies in ways that have been unrelated to an individual company’s operating performance. The price for establishingour common stock may continue to be volatile, based on factors specific to our company and maintaining effective internal control over financial reporting. Internal control over financial reporting is a processindustry, as well as factors related to provide reasonable assurance regarding the reliability of financial reporting for external purposes in accordance with generally accepted accounting principlesequity markets overall.
During and following March 2020, the coronavirus global pandemic and the significant uncertainties in the United States. Because of its inherent limitations, internal control over financial reporting is not intendedStates economy created due to provide absolute assurance that we would prevent or detectthe health crisis had a misstatement of our financial statements or fraud. Any failure to maintain an effective system of internal control over financial reporting, including such a failure by third party service providerssignificant impact on whose controls we rely, could limit our ability to report our financial results accurately and timely or to detect and prevent fraud. A significant financial reporting failure or material weakness in internal control over financial reporting could result in substantial cost to remediate and could cause a loss of investor confidence and decline in the market price of our common stock.
26
Provisions in our certificate of incorporation and bylaws may discourage, delay or prevent a change of control of our company or changes in our management and, therefore, may depress the trading price of our stock.
Our certificate of incorporation and bylaws include certain provisions that could have the effect of discouraging, delaying or preventing a change of control of our Company or changes in our management, including:
restrictions on the ability of our stockholders to fill a vacancy on the Board of Directors;
our ability to issue preferred stock with terms that the Board of Directors may determine, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquirer;
the inability of our stockholders to call a special meeting of stockholders;
specify that special meetings of our stockholders can be called only upon the request of a majority of our Board of Directors or our Chief Executive Officer;
the absence of cumulative voting in the election of directors, which may limit the ability of minority stockholders to elect directors; and
advance notice requirements for stockholder proposals and nominations, which may discourage or deter a potential acquirer from soliciting proxies to elect a particular slate of directors or otherwise attempting to obtain control of us.
These provisions in our certificate of incorporation and our bylaws may discourage, delay, or prevent a transaction involving a change of control of our Company that is in the best interest of our minority stockholders. Even in the absence of a takeover attempt, the existence of these provisions may adversely affect the prevailing market price of our common stock if they are viewed as discouraging future takeover attempts.
Unsolicited takeover proposals, governance change proposals, proxy contests and certain proposals/actions by activist investors may create additional risks and uncertainties with respect to the Company’s financial position, operations, strategies and management, and may adversely affect our ability to attract and retain key employees. Any perceived uncertainties may affect the market price and volatility of our securities.
Public companies in the restaurant industry have been the target of unsolicited takeover proposals in the past. In the event that a third party, such as a competitor, private equity firm or activist investor makes an unsolicited takeover proposal, or proposes to change our governance policies or board of directors, or makes other proposals concerning the Company’s ownership structure or operations, our review and consideration of such proposals may be a significant distraction for our management and employees, and may require us to expend significant time and resources. Such proposals may create uncertainty for our employees, additional risks and uncertainties with respect to the Company’s financial position, operations, strategies, and management, and may adversely affect our ability to attract and retain key employees. Any perceived uncertainties as to our future direction also may affect the market price and volatility of our securities.
Our fourth amended and restated certificate of incorporation, which was effective June 9, 2017, designates specific courts as the exclusive forum for certain litigation that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a judicial forum of their choice for disputes with us.
Our fourth amended and restated certificate of incorporation provides that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware will, to the fullest extent permitted by law, be the sole and exclusive forum for the following types of actions or proceedings under Delaware statutory or common law:
any derivative action or proceeding brought on our behalf;
any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers, employees or stockholders to our company or our stockholders;
27
any action asserting a claim arising pursuant to any provision of the DGCL or as to which the DGCL confers jurisdiction on the Court of Chancery of the State of Delaware; or
any action asserting a claim arising pursuant to any provision of our certificate of incorporation or bylaws (in each case, as they may be amended from time to time) or governed by the internal affairs doctrine.
The choice of forum provision in our certificate of incorporation does not waive our compliance with our obligations under the federal securities laws and the rules and regulations thereunder. Moreover, the provision does not apply to suits brought to enforce a duty or liability created by the Exchange Act or by the Securities Act. Section 27 of the Exchange Act creates exclusive federal jurisdiction over all suits brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder, and Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts with respect to suits brought to enforce a duty or liability created by the Securities Act or the rules and regulations thereunder. Accordingly, both state and federal courts have jurisdiction to entertain claims under the Securities Act.
General Risk Factors
Changes in tax laws and resulting regulations could result in changes to our tax provisions and subject us to additional tax liabilities that could materially adversely affect our financial performance.
We are subject to income, sales, use and other taxes in the United States and certain foreign jurisdictions. Changes in applicable U.S. or foreign tax laws and regulations, including the Tax Cuts and Jobs Act (“Tax Act”), or their interpretation and application, including the possibility of retroactive effect and changes to state tax laws that may occur in response to the Tax Act, could affect our effective income tax rate. In addition, the final determination of any tax audits or related litigation could be materially different from our historical tax provisions and accruals. Changes in our tax expense or an increase in our tax liabilities, whether due to changes in applicable laws and regulation, the interpretation or application thereof, or a final determination of tax audits or litigation, could materially adversely affect our financial performance.
1-month,
3-month,
and6-month
U.S. Dollar LIBOR will either cease to be provided by any administrator or no longer be representative after June 30, 2023. The Alternative Reference Rate Committee, a committee convened by the a rising interest rate environment could have an adverse impact on the possible inability to achieve the intended objectives of the business combination; and
Failure of our common stock may be significantly affected by a number of factors, including, but not limited to, actual or anticipated variations ininternal control over financial reporting could harm our operating results or those of our competitors as compared to analyst expectations, changes inbusiness and financial estimates by research analysts with respect to us or others in the restaurant and other entertainment industries, and announcement of significant transactions (including mergers or acquisitions, divestitures, joint ventures or other strategic initiatives) by us or others in the restaurant and other entertainment industries. In addition, the equity markets have experienced price and volume fluctuations that affect the stock price of companies in ways that have been unrelated to an individual company’s operating performance. The price for our common stock may continue to be volatile, based on factors specific to our company and industry, as well as factors related to the equity markets overall.
Our certificatemanagement is responsible for establishing and maintaining effective internal control over financial reporting. Internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of incorporation and bylaws include certain provisions that could have the effect of discouraging, delaying or preventing a change of control of our Company or changesfinancial reporting for external purposes in our management, including, among other things:
ITEM 1B. | Unresolved Staff Comments |
Not applicable.
29
ITEM 2. | Properties |
We lease a 47,000 square foot office building and 30,000 square foot warehouse facility in Dallas, Texas for use as our corporate headquarters and distribution center. This lease expires in October 2021,during the third quarter of fiscal 2022, with options to renew until Octoberthrough the third quarter of fiscal 2041. We also lease a 43,000 square foot warehouse facility in Dallas, Texas for use as additional warehouse space. This lease will also expire in Septemberduring the third quarter of fiscal 2022, with an option to renew until September 2027.for an additional five years.
As of February 2, 2020,January 31, 2021, we lease the building or site of all but onetwo of our 136140 operating stores, and we own land related to two future sites. An additional building lease will expire in fiscal 2021 for a store which permanently closed during fiscal 2020. Our leases typically have initial terms ranging from ten to twenty years and most include options to extend the leases for one or more
5-year
periods.The table below shows the locations of our operating stores as of February 2, 2020:January 31, 2021:
Location | Total | |||
Alabama | 2 | |||
Alaska | 1 | |||
Arizona | 4 | |||
Arkansas | 2 | |||
California | 16 | |||
Colorado | 2 | |||
Connecticut | 2 | |||
Florida | 8 | |||
Georgia | 4 | |||
Hawaii | 1 | |||
Idaho | 1 | |||
Illinois | ||||
Indiana | ||||
Kansas | 3 | |||
Kentucky | 2 | |||
Louisiana | 1 | |||
Maryland | 5 | |||
Massachusetts | 3 | |||
Michigan | 3 | |||
Minnesota | 2 | |||
Missouri | 1 | |||
Nebraska | 1 | |||
Nevada | 1 | |||
| 1 | ||||
New Jersey | ||||
New Mexico | 1 | |||
New York | 11 | |||
North Carolina | 4 | |||
Ohio | 6 | |||
Oklahoma | 2 | |||
Oregon | 1 | |||
Pennsylvania | ||||
Rhode Island | 1 | |||
South Carolina | 3 | |||
Tennessee | ||||
Texas | ||||
Utah | 1 | |||
Virginia | 4 | |||
Washington | 1 | |||
Wisconsin | ||||
Puerto Rico | 1 | |||
Ontario, Canada | 2 | |||
Total | ||||
30
As of the date of this report, allMarch 28, 2021, fifteen of our 137141 operating stores (including our one store which opened on March 16, 2020) wereFebruary 8, 2021) continue to remain closed due to guidelines and restrictions put in place by federal, governments in response to thepandemic.restrictions, and we anticipate the majority of these stores will
in-person
customers as a result of state and localCOVID-19
re-open
in some capacity by the end of the our first quarter of fiscal 2021.ITEM 3. |
We are subject to certain legal proceedings and claims that arise in the ordinary course of our business, including intellectual property disputes, miscellaneous premises liability, employment-related claims and dram shop claims. In the opinion of management, based upon consultation with legal counsel, the amount of ultimate liability with respect to, or an adverse outcome in any such legal proceedings or claims will not materially affect our business, the consolidated results of our operations or our financial condition. Refer to Note 10 of Notes to Consolidated Financial Statements for a summary of legal proceedings.
ITEM 4. |
None.
PART II
ITEM 5. |
Market Information and Dividend Policy
The Company’s common stock trades under the symbol PLAY and is listed on the NASDAQ Global Market (“NASDAQ”).
The number of shareholders of record of the Company’s common stock as of March 30, 202028, 2021 was estimated to be 278.approximately 400.
As a result of the impacts to our business arising from the
COVID-19
pandemic, share purchases and dividend payments were indefinitely suspended during the first quarter of fiscal 2020.During the third and fourth quarters of fiscal 2019, our Board of Directors authorized and declared a quarterly cash dividend of $0.16 per share of common stock. The fourth quarter dividend was paid subsequent to the end of fiscal 2019. During the first and second quarters of fiscal 2019 and the last two quarters of fiscal 2018, our Board of Directors authorized and declared a quarterly cash dividend of $0.15 per share of common stock.
Issuer Purchases of Equity Securities
Performance Graph
The following performance graph depicts the total returns to shareholders for the period from October 10, 2014 (the date when our common stock first started trading)February 1, 2016 through February 2, 2020,January 31, 2021, relative to the performance of the NASDAQ Composite Index, Standard & Poor’s (“S&P”) 600 Small Cap Index and S&P’s 600 Consumer Discretionary Index. All indices shown in the graph have been set at a base of 100 as of October 10, 2014February 1, 2016 and assume an investment of $100 on that date and the reinvestment of dividends paid since that date. The stock price performance shown in the graph is not necessarily indicative of future price performance.
Period Ended | ||||||||||||||||||||||||
2/1/2015 | 1/31/2016 | 1/29/2019 | 2/4/2018 | 2/3/2019 | 2/2/2020 | |||||||||||||||||||
PLAY | $ | 100.00 | $ | 126.20 | $ | 190.68 | $ | 165.97 | $ | 178.64 | $ | 153.65 | ||||||||||||
S&P 600 Small Cap | $ | 100.00 | $ | 95.31 | $ | 128.67 | $ | 146.79 | $ | 147.31 | $ | 157.07 | ||||||||||||
S&P 600 Consumer Discretionary | $ | 100.00 | $ | 88.69 | $ | 103.97 | $ | 123.49 | $ | 125.84 | $ | 131.48 | ||||||||||||
NASDAQ Composite | $ | 100.00 | $ | 99.54 | $ | 122.12 | $ | 156.22 | $ | 156.71 | $ | 209.97 | ||||||||||||
ITEM 6. |
The following selected financial data is qualified in its entirety by the consolidated financial statements (and the related Notes thereto) contained in Item 8 and should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7. The statement of operations and cash flows data for each of the fiscal years ended January 31, 2021, February 2, 2020, and February 3, 2019 and February 4, 2018 and the balance sheet data as of January 31, 2021 and February 2, 2020 and February 3, 2019 were derived from our audited consolidated financial statements included elsewhere in this report. The statement of operations and cash flows data for the fiscal year ended February 4, 2018 and January 29, 2017 and January 31, 2016 and the balance sheet data as of February 3, 2019, February 4, 2018 and January 29, 2017 and January 31, 2016 were derived from our audited consolidated financial statements that are not included elsewhere in this report.
The Company’s fiscal year consists of 52 or 53 weeks ending on the Sunday after the Saturday closest to January 31. Each quarterly period has 13 weeks, except in a
53-week
year when the fourth quarter has 14 weeks. All fiscal years presented herein consist of 52 weeks, except fiscal 2017 (ended February 4, 2018), which consists of 53 weeks. All dollar amounts are presented in thousands, unless otherwise noted, except share and per share amounts.Fiscal Year Ended | ||||||||||||||||||||
February 2, 2020 | February 3, 2019 | February 4, 2018 | January 29, 2017 | January 31, 2016 | ||||||||||||||||
Statement of Operations Data: | ||||||||||||||||||||
Total revenues | $ | 1,354,691 | $ | 1,265,301 | $ | 1,139,791 | $ | 1,005,158 | $ | 866,982 | ||||||||||
Operating income | 148,079 | 161,000 | 165,772 | 150,516 | 110,036 | |||||||||||||||
Net income | 100,263 | 117,221 | 120,949 | 90,795 | 59,619 | |||||||||||||||
Balance sheet data (as of end of period): | ||||||||||||||||||||
Cash and cash equivalents | 24,655 | 21,585 | 18,795 | 20,083 | 25,495 | |||||||||||||||
Working capital (deficit) (1) | (211,888 | ) | (153,297 | ) | (112,918 | ) | (102,193 | ) | (46,567 | ) | ||||||||||
Property and equipment, net | 900,637 | 805,337 | 726,455 | 606,865 | 523,891 | |||||||||||||||
Total assets (2) | 2,370,139 | 1,273,187 | 1,197,030 | 1,052,733 | 1,003,701 | |||||||||||||||
Total debt, net (2) | 647,689 | 393,469 | 366,249 | 264,128 | 337,416 | |||||||||||||||
Stockholders’ equity | 169,650 | 387,837 | 421,646 | 439,452 | 346,338 | |||||||||||||||
Other data: | ||||||||||||||||||||
Capital expenditures | $ | 228,091 | $ | 216,286 | $ | 219,901 | $ | 180,577 | $ | 162,892 | ||||||||||
Stores open at end of period | 136 | 121 | 106 | 92 | 81 | |||||||||||||||
Stores closed during period | 1 | — | — | — | 2 | |||||||||||||||
Cash dividends declared per share | $ | 0.62 | 0.30 | — | — | — | ||||||||||||||
Net income per share of common stock: | ||||||||||||||||||||
Basic | $ | 3.00 | $ | 3.00 | $ | 2.93 | $ | 2.16 | $ | 1.46 | ||||||||||
Diluted | $ | 2.94 | $ | 2.93 | $ | 2.84 | $ | 2.10 | $ | 1.39 | ||||||||||
Weighted average number of shares outstanding: | ||||||||||||||||||||
Basic | 33,450,217 | 39,047,106 | 41,276,314 | 41,951,770 | 40,968,455 | |||||||||||||||
Diluted | 34,099,378 | 39,975,122 | 42,583,009 | 43,288,592 | 42,783,905 | |||||||||||||||
Fiscal Year Ended | ||||||||||||||||||||
January 31, 2021 | February 2, 2020 | February 3, 2019 | February 4, 2018 | January 29, 2017 | ||||||||||||||||
Statement of Operations Data: | ||||||||||||||||||||
Total revenues | $ | 436,512 | $ | 1,354,691 | $ | 1,265,301 | $ | 1,139,791 | $ | 1,005,158 | ||||||||||
Operating income (loss) | (252,612 | ) | 148,079 | 161,000 | 165,772 | 150,516 | ||||||||||||||
Net income (loss) | (206,974 | ) | 100,263 | 117,221 | 120,949 | 90,795 | ||||||||||||||
Balance sheet data (as of end of period): | ||||||||||||||||||||
Cash and cash equivalents | 11,891 | 24,655 | 21,585 | 18,795 | 20,083 | |||||||||||||||
Working capital (deficit) (1) | (152,765 | ) | (211,888 | ) | (153,297 | ) | (112,918 | ) | (102,193 | ) | ||||||||||
Property and equipment, net | 815,027 | 900,637 | 805,337 | 726,455 | 606,865 | |||||||||||||||
Total assets | 2,352,824 | 2,370,139 | 1,273,187 | 1,197,030 | 1,052,733 | |||||||||||||||
Total debt, net | 596,388 | 647,689 | 393,469 | 366,249 | 264,128 | |||||||||||||||
Stockholders’ equity | 153,232 | 169,650 | 387,837 | 421,646 | 439,452 | |||||||||||||||
Other data: | ||||||||||||||||||||
Capital expenditures | $ | 83,016 | $ | 228,091 | $ | 216,286 | $ | 219,901 | $ | 180,577 | ||||||||||
Company-owned stores at end of period | 140 | 136 | 121 | 106 | 92 | |||||||||||||||
Stores closed during period | 2 | 1 | — | — | — | |||||||||||||||
Cash dividends declared per share | $ | — | $ | 0.62 | $ | 0.30 | $ | — | $ | — | ||||||||||
Net income (loss) per share of common stock: | ||||||||||||||||||||
Basic | $ | (4.75 | ) | $ | 3.00 | $ | 3.00 | $ | 2.93 | $ | 2.16 | |||||||||
Diluted | $ | (4.75 | ) | $ | 2.94 | $ | 2.93 | $ | 2.84 | $ | 2.10 | |||||||||
Weighted average number of shares outstanding: | ||||||||||||||||||||
Basic | 43,549,887 | 33,450,217 | 39,047,106 | 41,276,314 | 41,951,770 | |||||||||||||||
Diluted | 43,549,887 | 34,099,378 | 39,975,122 | 42,583,009 | 43,288,592 | |||||||||||||||
| (1) | Defined as total current assets minus total current liabilities. |
ITEM 7. |
The following discussion and analysis of our financial condition and results of operations should be read together with our audited consolidated financial statements and related notes included herein. Unless otherwise specified, the meanings of all defined terms in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” are consistent with the meanings of such terms as defined in the Notes to Consolidated Financial Statements. All dollar amounts are presented in thousands, unless otherwise noted, except share and per share amounts.
Recent Developments
On March 11, 2020, a global pandemic was declared by the World Health Organization relateddeclared thethe rapidly growing outbreak ofbe a novel strain of coronavirus(“COVID-19”).Theglobal pandemic has significantly impacted the economic conditions inand on March 13, 2020, the United States with accelerated effects in February and March, as federal,declared a National Public Health Emergency. As a result, several state and local governments react tomandates were implemented that encouraged the public health crisis, creating significant uncertaintiespractice of social distancing, placed restrictions from individuals gathering in groups and, in many areas, placed complete restrictions onUnited States economy. In the interest of public health and safety, jurisdictions (national, state and local) where our stores are located, required mandatory store closuresdining room or capacity limitations or other restrictions for those that continued to operate. As of the date of this report,midway. By March 20, 2020, all of our 137 operating stores were temporarily closed (including our one new store that opened on March 16, 2020).
COVID-19
outbreak to non-essential
movement outside of the home. Shortly after the national emergency declaration, state and local officials began placing restrictions on businesses, some of which allowedTo-Go
or curbside service only while others limited capacity in the On April 30, 2020, our first store
re-opened
to the public, as state and local guidelines began to allow dining rooms and arcades to open at limited capacity and/or limited hours of operation. By the end of fiscal 2020, we had progressivelyre-opened
an additional 101 stores with limited operations. Many of these stores that werere-opened
in limited capacity were required to temporarily close again in areas more severely impacted by theCOVID-19
pandemic, particularly during the fourth quarter holiday season. The Company also opened five new stores in the second half of the fiscal year, all of which commenced construction prior to the outbreak of theCOVID-19
pandemic. As of January 31, 2021, 107 of our 140 stores were open and operating in limited capacity. As of March 28, 2021, fifteen stores continue to remain closed toin-person
customers as a result of state and localCOVID-19
restrictions, and we anticipate the majority of these stores willre-open
in some capacity by the end of the our first quarter of fiscal 2021.As a result of these developments, the Company expectsexperienced a material adverse impact on its revenues, results of operations and cash flowssignificant decrease in traffic which raises substantial doubt abouthas impacted the Company’s abilityoperating results during fiscal 2020. We expect our operating results to continue as a going concern. The situation is rapidly changingto be severely impacted until such time that state and additional impacts to the business may arise that welocal restrictions are not aware of currently.lifted, and our dining rooms and midways canwhether,how long the pandemic will last or when the state and local restrictions will be lifted or potentiallymanner in whichimpact this will have on consumer spending habits.
re-open
at full capacity. We cannot predict re-imposed.
In addition, we cannot predict with certainty how quickly our customers will return to our stores once such restrictions have been lifted or the In response to the conditions surroundingongoing pandemic, the Company and its Board of Directors implemented the following measures to enhance financial flexibility:
reduced expenses broadly, including by furloughing all of our hourly store team members and approximately 94% of store management personnel, on or about March 19, 2020, while enactingtimingCompany furloughed all but a small team of lifting any restrictions or closure requirements, whenessential corporate and administrative staff, enactedwill reopen, staffing levelsand corporate office have returned to work;
12-week
salary reductions for remaining managers. In addition, effective March 24, 2020, the 12-week
salary reductions ranging from 10% to 50%, and suspended all cash board fees through the remainder of fiscal 2020. As stores reopen with a reduced workforce, a portion of the furloughed personnel at our stores canceled or delayed allreopenedthe remainder of fiscal 2020;
non-essential
planned capital spending for halted or delayed planned store openings after our one store opening in Chattanooga, TN, on March 16, 2020, except five new stores which commenced construction prior to the pandemic that opened during the third and customerfourth quarter;
34
stopped work on future planned sites and commenced negotiations to terminate related contracts, as applicable;
suspended our share repurchase program and declaration of dividends;
negotiated amendments to our credit facility resulting in an extension of the maturity date of our revolving credit facility to August 17, 2024;
issued $550,000 of senior secured notes, maturing November 1, 2025;
sold shares of our common stock, which generated gross proceeds of approximately $185,600; and
negotiated with our brand.landlords, vendors, and other business partners to temporarily reduce our lease and contract payments and obtain other concessions. During fiscal 2020, a total of 126 rent relief agreements related to our operating locations and corporate headquarters were initially executed, which generally provide for full deferral for three months beginning April 2020, with partial deferral continuing for periods of up to six months, at approximately 50% of those locations. As the pandemic continued to impact our business into the fourth quarter, the Company renewed negotiations with the majority of these landlords in order to provide additional rent relief, generally seeking to push out or extend the terms of deferral pay back periods and/or provide rent relief beyond the periods in the initial agreements. As of March 31,the end of fiscal 2020, the Company had executed 17 of these additional rent relief agreements.
Thehad approximiately $99,622 cash on handwill also continue to pursue long-term operating efficiencies and $752,500 funded debt on our credit facility.fixed cost restructuring opportunities.
re-opening
process has been a gradual one with the safety of our team members and customers as our top priority. All of ourre-opened
stores are operating with some combination of streamlined menus, reduced games, new seating and game configurations, reduced operating hours, and reduced staff levels. As dining room and midway restrictions continue to ease and sales begin to improve, some labor inefficiencies and increased cleaning and supply costs are anticipated as stores adjust to improved sales volumes and enhanced health and safety protocols. On an ongoing basis, we General
We are a leading owner and operator of high-volume venues in North America that combine dining and entertainment for both adults and families under the name “Dave & Buster’s”. Founded in 1982, the core of our concept is to offer our customers the opportunity to “Eat Drink Play and Watch” all in one location. Eat and Drink are offered through a full menu of entrées and appetizers and a full selection of
non-alcoholic
and alcoholic beverages. Our Play and Watch offerings provide an extensive assortment of entertainment attractions centered around playing games and watching live sports and other televised events. Our brand appeals to a relatively balanced mix of male and female adults, as well as families and teenagers. We believe we appeal to a diverse customer base by providing a highly customizable experience in a dynamic and fun setting.Our stores average 41,00040,000 square feet, range in size between 16,000 and 70,000 square feet and arefeet. Prior to the
COVID-19
pandemic, our stores were generally open seven days a week, with normal hours of operation typically from 11:30 a.m. to midnight on Sunday through Thursday and 11:30 a.m. to 2:00 a.m. on Friday and Saturday.Strategy
During fiscal 2019,2020, we continued to invest in new stores, and focused on refreshingthe and customer experience to set us up for the next phase of growth. Our refreshed strategy is built on four key components, including offering the latest entertainment to enjoy together, novel food & drink to bring people together, creating an aligned team and integrated experience, and driving guestcustomer engagement. For further information about our strategy, refer to “Item 1. Strategy”.
re-opening
of our stores after mandated shutdowns related toCOVID-19,
but also refreshed our strategy35
Key Measures of Our Performance
We monitor and analyze several key performance measures to manage our business and evaluate financial and operating performance. These measures include:
Comparable store sales.
New store openings.
Non-GAAP
Financial MeasuresIn addition to the results provided in accordance with generally accepted accounting principles (“GAAP”), we provide
non-GAAP
measures which present operating results on an adjusted basis. These are supplemental measures of performance that are not required by or presented in accordance with GAAP and include Adjusted EBITDA, Adjusted EBITDA Margin, Store Operating Income Before Depreciation and Amortization and Store Operating Income Before Depreciation and Amortization Margin (defined below). Thesenon-GAAP
measures do not represent and should not be considered as an alternative to net income or cash flows from operations, as determined in accordance with GAAP, and our calculations thereof may not be comparable to similarly entitled measures reported by other companies and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP. Although we use thesenon-GAAP
measures to assess the operating performance of our business, they have significant limitations as an analytical tool because they exclude certain material costs. For example, Adjusted EBITDA does not take into account a number of significant items, including our interest expense and depreciation and amortization expense. In addition, Adjusted EBITDA excludespre-opening
and other costs which may be important in analyzing our GAAP results. Because Adjusted EBITDA does not account for these expenses, its utility as a measure of our operating performance has material limitations. Our calculations of Adjusted EBITDA adjust for these amounts because they vary from period to period and do not directly relate to the ongoing operations of the currently underlying business of our stores and therefore complicate comparison of the underlying business between periods. Nevertheless, because of the limitations described above, management does not view Adjusted EBITDA or Store Operating Income Before Depreciation and Amortization in isolation and also uses other measures, such as revenues, gross margin, operating income and net income to measure operating performance.Adjusted EBITDA and Adjusted EBITDA Margin
pre-opening
costs, currency transaction (gains) losses and other costs. “Adjusted EBITDA Margin” is defined as Adjusted EBITDA divided by total revenues.Adjusted EBITDA is presented because we believe that it provides useful information to investors and analysts regarding our operating performance. By reporting Adjusted EBITDA, we provide a basis for comparison of our business operations between current, past and future periods by excluding items that we do not believe are indicative of our core operating performance.
Store Operating Income Before Depreciation and Amortization and Store Operating Income Before Depreciation and Amortization Margin.
36
expenses and
pre-opening
costs. “Store Operating Income Before Depreciation and Amortization Margin” is defined as Store Operating Income Before Depreciation and Amortization divided by total revenues. Store Operating Income Before Depreciation and Amortization Margin allows us to evaluate operating performance of each store across stores of varying size and volume.We believe that Store Operating Income Before Depreciation and Amortization is another useful measure in evaluating our operating performance because it removes the impact of general and administrative expenses, which are not incurred at the store level, and the costs of opening new stores, which are
non-recurring
at the store level, and thereby enables the comparability of the operating performance of our stores for the periods presented. We also believe that Store Operating Income Before Depreciation and Amortization is a useful measure in evaluating our operating performance within the entertainment and dining industry because it permits the evaluation of store-level productivity, efficiency and performance, and we use Store Operating Income Before Depreciation and Amortization as a means of evaluating store financial performance compared with our competitors. However, because this measure excludes significant items such as general and administrative expenses andpre-opening
costs, as well as our interest expense, net and depreciation and amortization expense, which are important in evaluating our consolidated financial performance from period to period, the value of this measure is limited as a measure of our consolidated financial performance.Presentation of Operating Results
The Company’s fiscal year consists of 52 or 53 weeks ending on the Sunday after the Saturday closest to January 31. Each quarterly period has 13 weeks, except in a weeks. Fiscal 2017, which ended on February 4, 2018, contained 53 weeks. All dollar amounts are presented in thousands, unless otherwise noted, except share and per share amounts.
53-week
year when the fourth quarter has 14 weeks. Fiscal 2020, 2019 and 2018, which ended on January 31, 2021, February 2, 2020, and February 3, 2019, respectively, each contained 52Store-Level Variability, Quarterly Fluctuations, Seasonality and Inflation
We have historically operated stores varying in size and have experienced significant variability among stores in volumes, operating results and net investment costs.
Our new stores typically open with sales volumes in excess of their expected long-term
run-rate
levels, which we refer to as a “honeymoon” effect. We traditionally expect our new store sales volumes in year two to be 10% to 20% lower than our year one targets, and to grow in line with the rest of our comparable store base thereafter. As a result of the substantial revenues associated with each new store, the number and timing of new store openings will result in significant fluctuations in quarterly results.COVID-19,
historically in the first year of operation, new store operating margins (excludingpre-opening
expenses) typically benefit from honeymoon sales leverage on occupancy, management labor and other fixed costs. This benefit is partially offset by normal inefficiencies in hourly labor and other costs associated with establishing a new store. In year two, operating margins may decline due to the loss of honeymoon sales leverage on fixed costs which is partially offset by improvements in store operating efficiency. Furthermore, rents in our new stores are typically higher than our comparable store base.year-end
holidays, which will continue to be susceptible to the impact of severe or unseasonably mild weather on customer traffic and sales during that period. Our third quarter, which encompasses theback-to-school
COVID-19
pandemic.We expect that economic and environmental conditions and changes in regulatory legislation will continue to exert pressure on both consumer spending related to entertainment and dining alternatives and availability and
37
cost of products and supplies. Although there is no assurance that our cost of products will remain stable or that federal, state or local minimum wage rates will not increase beyond amounts currently legislated, the effects of any supplier price increases or wage rate increases are expected to be partially offset by selected menu or game price increases where competitively appropriate.
COVID-19
pandemic on us or our suppliers, third-party service providers, and/or customers.
Fiscal 20192020 Compared to Fiscal 20182019
Results of operations.
The following table sets forth selected data, in thousands of dollars and as a percentage of total revenues (unless otherwise noted) for the periods indicated. All information is derived from the accompanying consolidated statements of comprehensive
Fiscal Year Ended | Fiscal Year Ended | |||||||||||||||
February 2, 2020 | February 3, 2019 | |||||||||||||||
Food and beverage revenues | $ | 563,576 | 41.6 | % | $ | 536,469 | 42.4 | % | ||||||||
Amusement and other revenues | 791,115 | 58.4 | 728,832 | 57.6 | ||||||||||||
Total revenues | 1,354,691 | 100.0 | 1,265,301 | 100.0 | ||||||||||||
Cost of food and beverage (as a percentage of food and beverage revenues) | 148,196 | 26.3 | 139,199 | 25.9 | ||||||||||||
Cost of amusement and other (as a percentage of amusement and other revenues) | 85,115 | 10.8 | 81,064 | 11.1 | ||||||||||||
Total cost of products | 233,311 | 17.2 | 220,263 | 17.4 | ||||||||||||
Operating payroll and benefits | 322,970 | 23.8 | 296,924 | 23.5 | ||||||||||||
Other store operating expenses | 429,431 | 31.8 | 384,155 | 30.4 | ||||||||||||
General and administrative expenses | 69,469 | 5.1 | 61,521 | 4.9 | ||||||||||||
Depreciation and amortization expense | 132,460 | 9.8 | 118,275 | 9.3 | ||||||||||||
Pre-opening costs | 18,971 | 1.4 | 23,163 | 1.8 | ||||||||||||
Total operating costs | 1,206,612 | 89.1 | 1,104,301 | 87.3 | ||||||||||||
Operating income | 148,079 | 10.9 | 161,000 | 12.7 | ||||||||||||
Interest expense, net | 20,937 | 1.5 | 13,113 | 1.0 | ||||||||||||
Income before provision for income taxes | 127,142 | 9.4 | 147,887 | 11.7 | ||||||||||||
Provision for income taxes | 26,879 | 2.0 | 30,666 | 2.4 | ||||||||||||
Net income | $ | 100,263 | 7.4 | % | $ | 117,221 | 9.3 | % | ||||||||
Change in comparable store sales | (2.6 | )% | (1.6 | )% | ||||||||||||
Company-owned stores open at end of period (1) | 136 | 121 | ||||||||||||||
Comparable stores open at end of period (1) | 99 | 86 | ||||||||||||||
Fiscal Year Ended | Fiscal Year Ended | |||||||||||||||
January 31, 2021 | February 2, 2020 | |||||||||||||||
Food and beverage revenues | $ | 159,501 | 36.5 | % | $ | 563,576 | 41.6 | % | ||||||||
Amusement and other revenues | 277,011 | 63.5 | 791,115 | 58.4 | ||||||||||||
Total revenues | 436,512 | 100.0 | 1,354,691 | 100.0 | ||||||||||||
Cost of food and beverage (as a percent of food and beverage revenues) | 45,207 | 28.3 | 148,196 | 26.3 | ||||||||||||
Cost of amusement and other (as a percent of amusement and other revenues) | 29,698 | 10.7 | 85,115 | 10.8 | ||||||||||||
Total cost of products | 74,905 | 17.2 | 233,311 | 17.2 | ||||||||||||
Operating payroll and benefits | 117,475 | 26.9 | 322,970 | 23.8 | ||||||||||||
Other store operating expenses | 299,464 | 68.6 | 429,431 | 31.8 | ||||||||||||
General and administrative expenses | 47,215 | 10.8 | 69,469 | 5.1 | ||||||||||||
Depreciation and amortization expense | 138,789 | 31.8 | 132,460 | 9.8 | ||||||||||||
Pre-opening costs | 11,276 | 2.6 | 18,971 | 1.4 | ||||||||||||
Total operating costs | 689,124 | 157.9 | 1,206,612 | 89.1 | ||||||||||||
Operating income (loss) | (252,612 | ) | (57.9 | ) | 148,079 | 10.9 | ||||||||||
Interest expense, net | 36,890 | 8.4 | 20,937 | 1.5 | ||||||||||||
Loss on debt refinance | 904 | 0.2 | — | — | ||||||||||||
Income (loss) before provision (benefit) for income taxes | (290,406 | ) | (66.5 | ) | 127,142 | 9.4 | ||||||||||
Provision (benefit) for income taxes | (83,432 | ) | (19.1 | ) | 26,879 | 2.0 | ||||||||||
Net income (loss) | $ | (206,974 | ) | (47.4 | )% | $ | 100,263 | 7.4 | % | |||||||
Change in comparable store sales | (70.2 | )% | (2.6 | )% | ||||||||||||
Company-owned stores at end of period (1) | 140 | 136 | ||||||||||||||
Comparable stores at end of period (1) | 114 | 99 | ||||||||||||||
| (1) | As of January 31, 2021, 107 of our 140 stores were open and 84 of our 114 comparable stores were open. Our total and comparable store counts as of the end of fiscal 2020 exclude a store in Chicago, Illinois and a store in Houston, Texas which are at or near the end of their respective lease terms which the Company has decided not to re-open. Our store in Duluth (Atlanta), Georgia permanently closed on March 3, 2019 as we did not exercise the renewal option and is excluded from fiscal 2019 store counts and comparable store sales. We opened six new stores during fiscal 2020 and 16 new stores during fiscal 2019. |
38
Reconciliations of
Non-GAAP
Financial MeasuresAdjusted EBITDA
The following table reconciles Net income (loss) to Adjusted EBITDA for the periods indicated:
Fiscal Year Ended | Fiscal Year Ended | |||||||||||||||
January 31, 2021 | February 2, 2020 | |||||||||||||||
Net income (loss) | $ | (206,974 | ) | -47.4 | % | $ | 100,263 | 7.4 | % | |||||||
Interest expense, net | 36,890 | 20,937 | ||||||||||||||
Loss on debt refinance | 904 | — | ||||||||||||||
Provision (benefit) for income tax | (83,432 | ) | 26,879 | |||||||||||||
Depreciation and amortization expense | 138,789 | 132,460 | ||||||||||||||
EBITDA | (113,823 | ) | -26.1 | % | 280,539 | 20.7 | % | |||||||||
Loss on asset disposal | 577 | 1,813 | ||||||||||||||
Impairment of long-lived assets and lease termination costs | 13,727 | — | ||||||||||||||
Share-based compensation | 6,985 | 6,857 | ||||||||||||||
Pre-opening costs | 11,276 | 18,971 | ||||||||||||||
Other costs (1) | (15 | ) | 42 | |||||||||||||
Adjusted EBITDA | $ | (81,273 | ) | -18.6 | % | $ | 308,222 | 22.8 | % | |||||||
| (1) | Primarily represents costs related to currency transaction (gains) or losses. |
Store Operating Income Before Depreciation and Amortization
The following table reconciles Operating income (loss) to Store Operating Income Before Depreciation and Amortization for the periods indicated:
Fiscal Year Ended | Fiscal Year Ended | |||||||||||||||
January 31, 2021 | February 2, 2020 | |||||||||||||||
Operating income (loss) | $ | (252,612 | ) | -57.9 | % | $ | 148,079 | 10.9 | % | |||||||
General and administrative expenses | 47,215 | 69,469 | ||||||||||||||
Depreciation and amortization expense | 138,789 | 132,460 | ||||||||||||||
Pre-opening costs | 11,276 | 18,971 | ||||||||||||||
Store Operating Income Before Depreciation and Amortization | $ | (55,332 | ) | -12.7 | % | $ | 368,979 | 27.2 | % | |||||||
Capital Additions
The following table reflects accrual-based capital additions. Capital additions do not include any reductions for accrual-based tenant improvement allowances or proceeds from sale-leaseback transactions (collectively, “Payments from landlords”).
Fiscal Year Ended | Fiscal Year Ended | |||||||
January 31, 2021 | February 3, 2020 | |||||||
New store and operating initiatives | $ | 51,572 | $ | 183,897 | ||||
Games | 8,795 | 19,749 | ||||||
Maintenance capital | 3,266 | 27,351 | ||||||
Total capital additions | $ | 63,633 | $ | 230,997 | ||||
Payments from landlords | $ | 12,923 | $ | 33,544 | ||||
39
Results of Operations
Revenues
In response to the
COVID-19
outbreak, which was declared a global pandemic on March 11, 2020 and a National Public Health Emergency in the United States on March 13, 2020, the Company temporarily closed of all of our 137 stores by March 20, 2020 (including our one new store opening March 16, 2020). On April 30, 2020, our first storere-opened
to the public, as state and local guidelines began to allow dining rooms and arcades to open at limited capacity and/or limited hours of operation. By the end of fiscal 2020, we had progressivelyre-opened
an additional 101 stores with limited operations. Many of these stores that werere-opened
in limited capacity were required to temporarily close again in areas more severely impacted by theCOVID-19
pandemic, particularly during the fourth quarter holiday season. The Company also opened five new stores in the second half of the fiscal year, all of which commenced construction prior to the outbreak of theCOVID-19
pandemic. As of January 31, 2021, 107 of our 140 stores were open and operating in limited capacity. Of these 107 open stores, 84 are comparable stores. These stores are operating with a combination of limited menus, reduced dining room seating, reduced games in the midway, reduced operating hours and other restrictions referred to as “limited operations”.Selected revenue and store data for the periods indicated are as follows:
Fiscal year ended January 31, 2021 | Fiscal year ended February 2, 2020 | Change | ||||||||||
Total revenues | $ | 436,512 | $ | 1,354,691 | $ | (918,179 | ) | |||||
Total store operating weeks | 3,922 | 6,769 | (2,847 | ) | ||||||||
Comparable store revenues | $ | 358,395 | $ | 1,200,983 | $ | (842,588 | ) | |||||
Comparable store operating weeks | 3,157 | 5,928 | (2,771 | ) | ||||||||
Noncomparable store revenues | $ | 81,272 | 162,467 | $ | (81,195 | ) | ||||||
Noncomparable store operating weeks | 765 | 841 | (76 | ) | ||||||||
Other revenues | $ | (3,155 | ) | $ | (8,759 | ) | $ | 5,604 | ||||
Total revenues decreased $918,179, or 67.8%, to $436,512 in fiscal 2020 compared to total revenues of $1,354,691 in fiscal 2019. The decline in revenue is attributable to fewer store operating weeks in fiscal 2020 as a result of temporary store closures, lower customer volumes due to limited food and beverage and amusement operations and the canceling or postponement of special events as a result of the
COVID-19
pandemic. For the year ended January 31, 2021, we derived 24.1% of our total revenue from food sales, 12.4% from beverage sales, 63.1% from amusement sales and 0.4% from other sources. For the year ended February 2, 2020 we derived 28.3% of our total revenue from food sales, 13.3% from beverage sales, 57.5% from amusement sales and 0.9% from other sources.Comparable store revenue decreased $842,588, or 70.2%, in fiscal 2020 compared to fiscal 2019, due primarily to a 46.7% reduction in comparable store operating weeks and lower customer volumes as stores
re-opened
with limited operations. As of March 20, 2020, all the Company’s 114 comparable stores were closed due to operating restrictions put in place by local jurisdictions in response to theCOVID-19
pandemic. Beginning April 30, 2020, we beganre-opening
our stores based on changes in operating restrictions in the various jurisdictions. As of January 31, 2021, 84 of our comparable stores hadre-opened
under limited operating conditions. Our individual comparable stores generally experienced gradual increases in weekly sales performance as operating weeks increased. Individual store performance afterre-opening
was impacted by changes in local operating restrictions and consumer reactions to changes in localCOVID-19
infection rates.Comparable
walk-in
revenues, which accounted for 97.0% of comparable store revenue for fiscal 2020, decreased 67.8% compared to the similar period in fiscal 2019. Comparable store special events revenues, which accounted for 3.0% of comparable store revenue for fiscal 2020, decreased 91.1% compared to the similar period in fiscal 2019 as events were canceled or postponed due to local restrictions on group gathering size and operating restrictions on our business.40
Food sales at comparable stores decreased by $252,827, or 74.5%, to $86,382 in fiscal 2020 from $339,209 in fiscal 2019. Beverage sales at comparable stores decreased by $113,917, or 71.6%, to $45,104 in fiscal 2020 from $159,021 in fiscal 2019. Comparable store amusement and other revenues in fiscal 2020 decreased by $475,844, or 67.7%, to $226,909 from $702,753 in fiscal 2019.
Non-comparable
store revenue decreased $81,195 in fiscal 2020 compared to fiscal 2019. During the first four-week period of fiscal 2020,non-comparable
stores contributed an additional $9,668 of revenue and 54 additional operating weeks over the same period of fiscal 2019. During the remainder of thefifty-two
weeks ended January 31, 2021,non-comparable
store revenue decreased $90,863 for the same reasons noted above, including 130 fewer store operating weeks.Cost of products
The total cost of products was $74,905 for fiscal 2020 and $233,311 for fiscal 2019. The total cost of products as a percentage of total revenues was 17.2% for both fiscal 2020 and fiscal 2019. For the year ended January 31, 2021, the cost of food products was 29.9% of food revenue, the cost of beverage products was 25.3% of beverage revenue, and the amusement and other cost of products was 10.7% of amusement and other revenues. For the year ended February 2, 2020, the cost of food products was 27.2% of food revenue, the cost of beverage products was 24.3% of beverage revenue, and the amusement and other cost of products was 10.8% of amusement and other revenues.
Cost of food and beverage products decreased to $45,207 in fiscal 2020 compared to $148,196 for fiscal 2019. Cost of food and beverage products, as a percentage of food and beverage revenues, increased 200 basis points to 28.3% for fiscal 2020 from 26.3% for fiscal 2019. Cost of food and beverage products during fiscal 2020 was negatively impacted by food and beverage spoilage of approximately $3,567 associated with store closures and the upcoming new menu rollout, partially offset by cost reductions resulting from vendor payment negotiations.
Cost of amusement and other decreased to $29,698 in fiscal 2020 compared to $85,115 in fiscal 2019. The costs of amusement and other, as a percentage of amusement and other revenues, decreased 10 basis points to 10.7% for fiscal 2020 from 10.8% for fiscal 2019. This decrease was driven by lower freight costs, lower cost per ticket and higher revenue per game play credit sold as a result of less discounting of amusement revenues, partially offset by an unfavorable shift in ticket redemption patterns.
Operating payroll and benefits
Total operating payroll and benefits decreased by $205,495, or 63.6%, to $117,475 in fiscal 2020 compared to $322,970 in fiscal 2019. Nearly all of our store workforce, with the exception of a small team of essential personnel, were furloughed in
mid-March
2020. Hourly team members returned only as storesre-opened
and at reduced staffing levels. The total cost of operating payroll and benefits, as a percentage of total revenues, increased 310 basis points to 26.9% in fiscal 2020 compared to 23.8% for fiscal 2019. Favorable results in hourly labor were offset by the deleveraging impact of management labor as a result of the temporary store closures and continued benefit coverage for furloughed team members. Additionally, late in the third quarter, we recalled a core group of store managers at unopened stores and then maintained this core group throughout the fourth quarter to ensure retention of key team members. Other store operating expenses
Other store operating expenses decreased by $129,967, or 30.3%, to $299,464 in fiscal 2020 compared to $429,431 in fiscal 2019. Decreased spend on marketing, maintenance and restaurant services due to temporary store closures and $1,000 insurance proceeds related to the
COVID-19
business disruptions were partially offset by a net loss on derivatives of $1,729 and special charges of $13,727 (consisting of a charge for impairment of long-lived assets of $12,248 and lease termination costs of $1,479). We have also incurred additional costs to address government regulations and the safety of our team members and customers. Other store operating41
expense as a percent of total revenues increased to 68.6% in fiscal 2020 compared to 31.8% in fiscal 2019. This increase was primarily due to sales deleveraging of occupancy costs and utilities as a result of the temporary store closures and the charges for impairment.
General and administrative expenses
General and administrative expenses decreased by $22,254, or 32.0%, to $47,215 in fiscal 2020 compared to $69,469 in fiscal 2019. The decrease in general and administrative expenses was driven primarily by lower labor costs due to continued furloughs and elimination of a significant number of positions at our corporate office, temporarily reducing pay and benefits for team members that were not furloughed for a twelve-week period and the elimination of the corporate bonus program, lower professional services, and reduced travel expenses. General and administrative expenses, as a percentage of total revenues, increased 570 basis points to 10.8% in fiscal 2020 compared to 5.1% in fiscal 2019, due primarily to unfavorable leverage on revenue decreases.
Depreciation and amortization expense
Depreciation and amortization expense increased by $6,329, or 4.8%, to $138,789 in fiscal 2020 compared to $132,460 in fiscal 2019. Increased depreciation due to our 2020 and 2019 capital expenditures for new stores, operating initiatives, games and maintenance capital, was partially offset by other assets reaching the end of their depreciable lives.
Pre-opening
costsPre-opening
costs decreased by $7,695 to $11,276 in fiscal 2020 compared to $18,971 in fiscal 2019 due to a decrease in the number of new store openings in the current year, as construction was put on hold or delayed after the disruption of our business from theCOVID-19
pandemic, withpre-opening
costs being primarily limited topre-opening
rent expense, including three future sites for which the leases have commenced.Interest expense, net and Loss on debt refinance
Interest expense, net increased by $15,953 to $36,890 in fiscal 2020 compared to $20,937 in fiscal 2019 due primarily to an increase in interest rates and partially due to an increase in average outstanding debt. In connection with the October 27, 2020 debt refinancing, which is explained in Note 5 to the Consolidated Financial Statements, the Company recorded a charge of $904 during fiscal 2020.
Provision for income taxes
The effective income tax rate for fiscal 2020 was a benefit of 28.7% compared to a provision of 21.1% in fiscal 2019, primarily due to the impact of a decrease in operating earnings before income tax as well as the impact of provisions of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), including technical amendments to qualified improvement property and the impact of carrying back tax net operating losses from fiscal years 2020 and 2019 to years with a higher federal corporate income tax rate.
42
Fiscal 2019 Compared to Fiscal 2018
Results of operations.
The following table sets forth selected data, in thousands of dollars and as a percentage of total revenues (unless otherwise noted) for the periods indicated. All information is derived from the accompanying consolidated statements of comprehensive income (loss).
Fiscal Year Ended | Fiscal Year Ended | |||||||||||||||
February 2, 2020 | February 3, 2019 | |||||||||||||||
Food and beverage revenues | $ | 563,576 | 41.6 | % | $ | 536,469 | 42.4 | % | ||||||||
Amusement and other revenues | 791,115 | 58.4 | 728,832 | 57.6 | ||||||||||||
Total revenues | 1,354,691 | 100.0 | 1,265,301 | 100.0 | ||||||||||||
Cost of food and beverage (as a percentage of food and beverage revenues) | 148,196 | 26.3 | 139,199 | 25.9 | ||||||||||||
Cost of amusement and other (as a percentage of amusement and other revenues) | 85,115 | 10.8 | 81,064 | 11.1 | ||||||||||||
Total cost of products | 233,311 | 17.2 | 220,263 | 17.4 | ||||||||||||
Operating payroll and benefits | 322,970 | 23.8 | 296,924 | 23.5 | ||||||||||||
Other store operating expenses | 429,431 | 31.8 | 384,155 | 30.4 | ||||||||||||
General and administrative expenses | 69,469 | 5.1 | 61,521 | 4.9 | ||||||||||||
Depreciation and amortization expense | 132,460 | 9.8 | 118,275 | 9.3 | ||||||||||||
Pre-opening costs | 18,971 | 1.4 | 23,163 | 1.8 | ||||||||||||
Total operating costs | 1,206,612 | 89.1 | 1,104,301 | 87.3 | ||||||||||||
Operating income | 148,079 | 10.9 | 161,000 | 12.7 | ||||||||||||
Interest expense, net | 20,937 | 1.5 | 13,113 | 1.0 | ||||||||||||
Income before provision for income taxes | 127,142 | 9.4 | 147,887 | 11.7 | ||||||||||||
Provision for income taxes | 26,879 | 2.0 | 30,666 | 2.4 | ||||||||||||
Net income | $ | 100,263 | 7.4 | % | $ | 117,221 | 9.3 | % | ||||||||
Change in comparable store sales | (2.6 | )% | (1.6 | )% | ||||||||||||
Company-owned stores open at end of period (1) | 136 | 121 | ||||||||||||||
Comparable stores open at end of period (1) | 99 | 86 | ||||||||||||||
| (1) | Our store in Duluth (Atlanta), Georgia permanently closed on March 3, 2019, as we did not exercise the renewal option, and has been excluded from fiscal 2019 store counts and comparable store sales. The number of new store openings during the last two fiscal years were as follows: |
Fiscal Year Ended | Fiscal Year Ended | |||||||
February 2, 2020 | February 3, 2019 | |||||||
First Quarter | 7 | 6 | ||||||
Second Quarter | 3 | 5 | ||||||
Third Quarter | 4 | 1 | ||||||
Fourth Quarter | 2 | 3 | ||||||
| 16 | 15 | |||||||
43
Fiscal Year Ended | Fiscal Year Ended | |||||||
February 2, 2020 | February 3, 2019 | |||||||
First Quarter | 7 | 6 | ||||||
Second Quarter | 3 | 5 | ||||||
Third Quarter | 4 | 1 | ||||||
Fourth Quarter | 2 | 3 | ||||||
16 | 15 | |||||||
Reconciliations of
Non-GAAP
Financial MeasuresAdjusted EBITDA
The following table reconciles (in dollars and as a percent of total revenues) Net income to Adjusted EBITDA for the periods indicated:
Fiscal Year Ended | Fiscal Year Ended | |||||||||||||||
February 2, 2020 | February 3, 2019 | |||||||||||||||
Net income | $ | 100,263 | 7.4 | % | $ | 117,221 | 9.3 | % | ||||||||
Interest expense, net | 20,937 | 13,113 | ||||||||||||||
Provision for income tax | 26,879 | 30,666 | ||||||||||||||
Depreciation and amortization expense | 132,460 | 118,275 | ||||||||||||||
EBITDA | 280,539 | 20.7 | % | 279,275 | 22.1 | % | ||||||||||
Loss on asset disposal | 1,813 | 1,121 | ||||||||||||||
Share-based compensation | 6,857 | 7,422 | ||||||||||||||
Pre-opening costs | 18,971 | 23,163 | ||||||||||||||
Other costs (1) | 42 | 136 | ||||||||||||||
Adjusted EBITDA | $ | 308,222 | 22.8 | % | $ | 311,117 | 24.6 | % | ||||||||
Fiscal Year Ended | Fiscal Year Ended | |||||||||||||||
February 2, 2020 | February 3, 2019 | |||||||||||||||
Net income | $ | 100,263 | 7.4 | % | $ | 117,221 | 9.3 | % | ||||||||
Interest expense, net | 20,937 | 13,113 | ||||||||||||||
Provision for income tax | 26,879 | 30,666 | ||||||||||||||
Depreciation and amortization expense | 132,460 | 118,275 | ||||||||||||||
EBITDA | 280,539 | 20.7 | % | 279,275 | 22.1 | % | ||||||||||
Loss on asset disposal | 1,813 | 1,121 | ||||||||||||||
Share-based compensation | 6,857 | 7,422 | ||||||||||||||
Pre-opening costs | 18,971 | 23,163 | ||||||||||||||
Other costs (1) | 42 | 136 | ||||||||||||||
Adjusted EBITDA | $ | 308,222 | 22.8 | % | $ | 311,117 | 24.6 | % | ||||||||
| (1) | Primarily represents costs related to currency transaction (gains) or losses. |
Store Operating Income Before Depreciation and Amortization
The following table reconciles (in dollars and as a percent of total revenues) Operating income to Store Operating Income Before Depreciation and Amortization for the periods indicated:
Fiscal Year Ended | Fiscal Year Ended | |||||||||||||||
February 2, 2020 | February 3, 2019 | |||||||||||||||
Operating income | $ | 148,079 | 10.9 | % | $ | 161,000 | 12.7 | % | ||||||||
General and administrative expenses | 69,469 | 61,521 | ||||||||||||||
Depreciation and amortization expense | 132,460 | 118,275 | ||||||||||||||
Pre-opening costs | 18,971 | 23,163 | ||||||||||||||
Store Operating Income Before Depreciation and Amortization | $ | 368,979 | 27.2 | % | $ | 363,959 | 28.8 | % | ||||||||
Fiscal Year Ended | Fiscal Year Ended | |||||||||||||||
February 2, 2020 | February 3, 2019 | |||||||||||||||
Operating income | $ | 148,079 | 10.9 | % | $ | 161,000 | 12.7 | % | ||||||||
General and administrative expenses | 69,469 | 61,521 | ||||||||||||||
Depreciation and amortization expense | 132,460 | 118,275 | ||||||||||||||
Pre-opening costs | 18,971 | 23,163 | ||||||||||||||
Store Operating Income Before Depreciation and Amortization | $ | 368,979 | 27.2 | % | $ | 363,959 | 28.8 | % | ||||||||
Capital Additions
The following table reflects accrual-based capital additions. Capital additions do not include any reductions for accrual-based tenant improvement allowances or proceedsPayments from sale-leaseback transactions (collectively, “Payments from landlords”).landlords.
Fiscal Year Ended | Fiscal Year Ended | |||||||
February 3, 2020 | February 3, 2019 | |||||||
New store and operating initiatives | $ | 183,897 | $ | 162,763 | ||||
Games | 19,749 | 27,381 | ||||||
Maintenance capital | 27,351 | 20,821 | ||||||
Total capital additions | $ | 230,997 | $ | 210,965 | ||||
Payments from landlords | $ | 33,544 | $ | 52,099 | ||||
Fiscal Year Ended | Fiscal Year Ended | |||||||
February 3, 2020 | February 3, 2019 | |||||||
New store and operating initiatives | $ | 183,897 | $ | 162,763 | ||||
Games | 19,749 | 27,381 | ||||||
Maintenance capital | 27,351 | 20,821 | ||||||
Total capital additions | $ | 230,997 | $ | 210,965 | ||||
Payments from landlords | $ | 33,544 | $ | 52,099 | ||||
44
Results of Operations
Revenues
Total revenues increased $89,390 or 7.1%, to $1,354,691 in fiscal 2019 compared to total revenues of $1,265,301 in fiscal 2018. For the year ended February 2, 2020, we derived 28.3% of our total revenue from food sales, 13.3% from beverage sales, 57.5% from amusement sales and 0.9% from other sources. For the year ended February 3, 2019 we derived 28.9% of our total revenue from food sales, 13.5% from beverage sales, 56.8% from amusement sales and 0.8% from other sources.
The net increase in revenues for fiscal 2019 compared to fiscal 2018 were from the following sources:
Comparable stores | $ | (28,408 | ) | |
Non-comparable stores | 117,592 | |||
Other | 206 | |||
Total | $ | 89,390 | ||
Comparable stores | $ | (28,408 | ) | |
Non-comparable stores | 117,592 | |||
Other | 206 | |||
Total | $ | 89,390 | ||
Comparable store revenue decreased $28,408 or 2.6%, in fiscal 2019 compared to fiscal 2018. Comparable store revenue compared to the prior fiscal year was, in part, negatively impacted by an unfavorable shift in the current year holiday/school break calendar, sales transfers to new stores that we opened in markets where we operate and increased competitive pressure. Comparable
walk-in
revenues, which accounted for 89.6% of comparable store revenue for fiscal 2019, decreased $29,304, or 3.0% compared to fiscal 2018. Comparable store special events revenues, which accounted for 10.4% of consolidated comparable store revenue for fiscal 2019, increased $896, or 0.8% compared to fiscal 2018.Food sales at comparable stores decreased by $13,303, or 4.3%, to $296,389 for fiscal 2019 from $309,692 in fiscal 2018. Beverage sales at comparable stores decreased by $5,356, or 3.7%, to $139,446 for fiscal 2019 from $144,802 in the 2018 comparison period. The decrease in food and beverage unit sales at comparable stores was partially offset by an overall increase in menu prices. Comparable store amusement and other revenues in fiscal 2019 decreased by $9,749, or 1.6%, to $608,243 from $617,992 in fiscal 2018. The decrease in amusement sales was due in part to lower customer volumes partially offset by various pricing initiatives in the current year, including an increase in new card fees with the launch of our RFID power card.
Non-comparable
store revenue increased by $117,592 for fiscal 2019 compared to fiscal 2018. The increase innon-comparable
store revenue was primarily driven by 811 additional operating store weeks contributed by our thirty-sevennon-comparable
stores, partially offset by a decrease in revenue due to the closure of our store in Duluth (Atlanta), Georgia on March 3, 2019. The year-over-year decline in average weeklynon-comparable
store sales during fiscal 2019 is driven primarily by a honeymoon effect on fiscal 2017 and 2018 opening sales volumes and larger than expected declines in two of those markets which were adversely impacted by slowdowns in their local economies following a natural disaster. Additionally, stores opened during fiscal 2019 experienced slightly lower opening volumes than our 2018 openings.Cost of products
The total cost of products was $233,311 for fiscal 2019 and $220,263 for fiscal 2018. The total cost of products as a percentage of total revenues was 17.2% and 17.4% for fiscal 2019 and fiscal 2018, respectively. For the year ended February 2, 2020, the cost of food products was 27.2% of food revenue, the cost of beverage products was 24.3% of beverage revenue, and the amusement and other cost of products was 10.8% of amusement and other revenues. For the year ended February 3, 2019, the cost of food products was 26.8% of food revenue, the cost of beverage products was 24.2% of beverage revenue, and the amusement and other cost of products was 11.1% of amusement and other revenues.
45
Cost of food and beverage products increased to $148,196 in fiscal 2019 compared to $139,199 for fiscal 2018 due primarily to the increased sales volume related to new store openings. Cost of food and beverage products, as a percentage of food and beverage revenues, increased 40 basis points to 26.3% for fiscal 2019 from 25.9% for fiscal 2018. Higher meat costs resulting from our upgraded steak products, higher poultry costs due to our “All You Can Eat” wings promotion and higher bar consumable costs due to our shift to fresh juices at the bar as well as the impact of our larger
non-comparable
store group, were partially offset by declines in seafood costs and increases in food and beverage menu prices.Cost of amusement and other increased to $85,115 in fiscal 2019 compared to $81,064 in fiscal 2018. The costs of amusement and other, as a percentage of amusement and other revenues, decreased 30 basis points to 10.8% for fiscal 2019 from 11.1% for fiscal 2018. The decrease in cost of amusement and other as a percentage of revenue was due primarily to a shift in game play to
non-redemption
games and an increase in the price of power cards.Operating payroll and benefits
Total operating payroll and benefits increased by $26,046, or 8.8%, to $322,970 in fiscal 2019 compared to $296,924 in fiscal 2018. This increase was primarily due to labor associated with the additional operating store weeks of our
non-comparable
stores. The total cost of operating payroll and benefits, as a percentage of total revenues, increased 30 basis points to 23.8% in fiscal 2019 compared to 23.5% for fiscal 2018. This increase was due to an average hourly wage rate increase of approximately 4.1% and unfavorable leverage on decreased comparable store sales, partially offset by lower incentive compensation.Other store operating expenses
Other store operating expenses increased by $45,276, or 11.8%, to $429,431 in fiscal 2019 compared to $384,155 in fiscal 2018, primarily due to new store openings. Other store operating expenses as a percentage of total revenues increased 140 basis points to 31.8% in fiscal 2019 compared to 30.4% in fiscal 2018. This increase was due primarily to higher occupancy costs associated with our
non-comparable
stores and the deleveraging impact of lower comparable store sales, the absence of hurricane-related business interruption proceeds recorded in the prior year and incremental legal costs.General and administrative expenses
General and administrative expenses increased by $7,948, or 12.9%, to $69,469 in fiscal 2019 compared to $61,521 in fiscal 2018. The increase in general and administrative expenses was driven primarily by professional services at our corporate headquarters including costs related to shareholder activism. General and administrative expenses, as a percentage of total revenues, increased 20 basis points to 5.1% in fiscal 2019 compared to 4.9% in fiscal 2018, for the same reasons above offset by favorable leverage on revenue increases.
Depreciation and amortization expense
Depreciation and amortization expense increased by $14,185, or 12.0%, to $132,460 in fiscal 2019 compared to $118,275 in fiscal 2018. Increased depreciation due to our 2018 and 2017 capital expenditures for new stores, operating initiatives, including remodels, games and maintenance capital, was partially offset by other assets reaching the end of their depreciable lives.
Pre-opening
costsPre-opening
costs decreased by $4,192 to $18,971 in fiscal 2019 compared to $23,163 in fiscal 2018 due to the number and timing of new store openings and stores in development.46
Interest expense, net
Interest expense, net increased by $7,824 to $20,937 in fiscal 2019 compared to $13,113 in fiscal 2018 due primarily to an increase in average outstanding debt partially offset by slightly lower interest rates.
Provision for income taxes
The effective income tax rate increased to 21.1% in fiscal 2019 compared to 20.7% in fiscal 2018. This increase primarily reflects lower excess tax benefits associated with share-based compensation, offset partially with higher tax credits.
Fiscal Year Ended | Fiscal Year Ended | |||||||||||||||
February 3, 2019 | February 4, 2018 | |||||||||||||||
Food and beverage revenues | $ | 536,469 | 42.4 | % | $ | 494,816 | 43.4 | % | ||||||||
Amusement and other revenues | 728,832 | 57.6 | 644,975 | 56.6 | ||||||||||||
Total revenues | 1,265,301 | 100.0 | 1,139,791 | 100.0 | ||||||||||||
Cost of food and beverage (as a percentage of food and beverage revenues) | 139,199 | 25.9 | 127,600 | 25.8 | ||||||||||||
Cost of amusement and other (as a percentage of amusement and other revenues) | 81,064 | 11.1 | 69,072 | 10.7 | ||||||||||||
Total cost of products | 220,263 | 17.4 | 196,672 | 17.3 | ||||||||||||
Operating payroll and benefits | 296,924 | 23.5 | 256,724 | 22.5 | ||||||||||||
Other store operating expenses | 384,155 | 30.4 | 334,546 | 29.4 | ||||||||||||
General and administrative expenses | 61,521 | 4.9 | 59,565 | 5.2 | ||||||||||||
Depreciation and amortization expense | 118,275 | 9.3 | 102,766 | 9.0 | ||||||||||||
Pre-opening costs | 23,163 | 1.8 | 23,746 | 2.1 | ||||||||||||
Total operating costs | 1,104,301 | 87.3 | 974,019 | 85.5 | ||||||||||||
Operating income | 161,000 | 12.7 | 165,772 | 14.5 | ||||||||||||
Interest expense, net | 13,113 | 1.0 | 8,665 | 0.7 | ||||||||||||
Loss on debt retirement | — | — | 718 | 0.1 | ||||||||||||
Income before provision for income taxes | 147,887 | 11.7 | 156,389 | 13.7 | ||||||||||||
Provision for income taxes | 30,666 | 2.4 | 35,440 | 3.1 | ||||||||||||
Net income | $ | 117,221 | 9.3 | % | $ | 120,949 | 10.6 | % | ||||||||
Change in comparable store sales (1) | (1.6 | )% | (0.9 | )% | ||||||||||||
Company-owned stores open at end of period (2) | 121 | 106 | ||||||||||||||
Comparable stores open at end of period | 86 | 76 | ||||||||||||||
Fiscal Year Ended | Fiscal Year Ended | |||||||
February 3, 2019 | February 4, 2018 | |||||||
First Quarter | 6 | 4 | ||||||
Second Quarter | 5 | 4 | ||||||
Third Quarter | 1 | 1 | ||||||
Fourth Quarter | 3 | 5 | ||||||
15 | 14 | |||||||
Fiscal Year Ended | Fiscal Year Ended | |||||||||||||||
February 3, 2019 | February 4, 2018 | |||||||||||||||
Net income | $ | 117,221 | 9.3 | % | $ | 120,949 | 10.6 | % | ||||||||
Interest expense, net | 13,113 | 8,665 | ||||||||||||||
Loss on debt retirement | — | 718 | ||||||||||||||
Provision for income tax | 30,666 | 35,440 | ||||||||||||||
Depreciation and amortization expense | 118,275 | 102,766 | ||||||||||||||
EBITDA | 279,275 | 22.1 | % | 268,538 | 23.6 | % | ||||||||||
Loss on asset disposal | 1,121 | 1,863 | ||||||||||||||
Share-based compensation | 7,422 | 8,916 | ||||||||||||||
Pre-opening costs | 23,163 | 23,746 | ||||||||||||||
Other costs (1) | 136 | (333 | ) | |||||||||||||
Adjusted EBITDA | $ | 311,117 | 24.6 | % | $ | 302,730 | 26.6 | % | ||||||||
Fiscal Year Ended | Fiscal Year Ended | |||||||||||||||
February 3, 2019 | February 4, 2018 | |||||||||||||||
Operating income | 161,000 | 12.7 | % | $ | 165,772 | 14.5 | % | |||||||||
General and administrative expenses | 61,521 | 59,565 | ||||||||||||||
Depreciation and amortization expense | 118,275 | 102,766 | ||||||||||||||
Pre-opening costs | 23,163 | 23,746 | ||||||||||||||
Store Operating Income Before Depreciation and Amortization | 363,959 | 28.8 | % | $ | 351,849 | 30.9 | % | |||||||||
Fiscal Year Ended | Fiscal Year Ended | |||||||
February 3, 2019 | February 4, 2018 | |||||||
New store and operating initiatives | $ | 162,763 | $ | 185,449 | ||||
Games | 27,381 | 18,712 | ||||||
Maintenance capital | 20,821 | 19,160 | ||||||
Total capital additions | $ | 210,965 | $ | 223,321 | ||||
Payments from landlords | $ | 52,099 | $ | 40,334 | ||||
Comparable stores | $ | (15,250 | ) | |
Comparable stores - impact of one less week | (17,551 | ) | ||
Non-comparable stores | 163,250 | |||
Other | (4,939 | ) | ||
Total | $ | 125,510 | ||
Liquidity and Capital Resources
In response to the business disruption caused by the
COVID-19
pandemic, the Company has taken the following actions to enable it to meet its obligations over the next twelve months:reduced expenses and capital expenditures, and utilizing funds available under our existing revolving credit facility. To mitigate the effects of the store closures, we:broadly;
canceled or delayed allsignificantly reducedplanned capital spending;fully drew down substantially all the remaining credit available under our $500,000 revolving credit facility.facility during our first quarter of fiscal 2020;In addition, we:have begun discussionsareconcessions. During fiscal 2020, a total of 126 rent relief agreements related to our operating locations and corporate headquarters were initially executed, which generally provide for full deferral for three months beginning April 2020, with partial deferral continuing for periods of up to six months, at approximately 50% of those locations. As the pandemic continued to impact our business into the fourth quarter, the Company renewed negotiations with the majority of these landlords in discussions with our lendersorder to obtain covenantprovide additional rent relief, generally seeking to avoid eventspush out or extend the terms of default;deferral pay back periods and/or provide rent relief beyond the periods in the initial agreements. As of the end of fiscal 2020, the Company had executed 17 of these additional rent relief agreements; andare negotiating with potential investors to secure additional sources of financing.While33
non-essential
spending for the remainder of fiscal 2020 and halted or delayed all planned store openings;openings, except stores that commenced construction prior to the
COVID-19
pandemic;
indefinitely suspended our share repurchase program and our dividend;cash dividends and
sold shares of our common stock, generating gross proceeds of $185,600;
negotiated two amendments with our lenders, resulting in an extension of the maturity date of our revolving credit facility to August 17, 2024 and relief from testing compliance with certain financial covenants until the last day of the fiscal quarter ending on May 1, 2022;
issued $550,000 of senior secured notes, maturing November 1, 2025;
negotiated with our landlords, vendors, and other business partners to temporarily reduce our lease and contract payments and obtain other concessions;
submitted a proposal, approved by our lenders have granted a waivershareholders, increasing the number of any event of default associated with our independent auditor’s report indicating a substantial doubt aboutshares available for incentive awards, which enables management to maintain key talent while preserving the Company’s abilityliquidity by minimizing cash outlays.
Although uncertainty surrounds the timing ofcontinue as a going concern in connection with our year-end audit,stores, due to continued concerns over safety and/or depressed consumer sentiment due to adverse economic conditions, including job losses, the Company has taken measures to provide sufficient liquidity to meet estimated cash flow needs and some landlords and business partners have agreed to certain concessions, there can be no assurance that we will be successful in obtaining allcovenant compliance obligations for at least the next twelve months from the issuance of the relief we are seeking. Refer to “Risk Factors – COVID-19 has had an adverse effect that is material on our business and may continue to do so” and “Risk Factors – As a result of the COVID-19 pandemic, our financial statements contain a statement regarding a substantial doubt about the Company’s ability to continue as a going concern.”
re-opening
of our remaining stores and lifting of capacity restrictions and other requirements, as well as how quickly customers will return to statements.
47
Debt and Derivatives
On October 27, 2020, the Company wasissued $550,000 aggregate principal amount of 7.625% senior secured notes (the “Notes”). Interest on the Notes accrues from October 27, 2020 and is payable in compliance with all our covenants containedarrears on November 1 and May 1 of each year, commencing on May 1, 2021. The Notes mature on November 1, 2025, unless earlier redeemed, and are subject to the terms and conditions set forth in ourthe related indenture. The Notes were issued by Dave &Buster’s, Inc. and are unconditionally guaranteed by Dave & Buster’s Holdings, Inc. and certain of Dave &Buster’s, Inc. existing and future wholly owned material domestic subsidiaries, which is substantially the same as the guarantors of the Company’s existing credit facility.
The Company used the proceeds of the Notes offering, along with cash on hand, to repay the $255,000 principal balance of the term loan facility, $463,000 of borrowings under the revolving credit facility, and related accrued interest. The Company incurred debt issuance costs of $18,300, which are being amortized over the terms of the respective Notes and revolving credit facility. The Company also recorded a loss of $904 related to approximately $500,000.the unamortized debt costs associated with the term portion of the credit facility.
During fiscal 2019, we entered into interest rate swaps in the management ofswap agreements to manage our exposure to fluctuations in interest rates on our variable rate credit facility. Our swap agreements with our derivative counterparties contain a provision where if the Company defaults on any of its indebtedness and repayment of the indebtedness has been accelerated, the Company could also be declared in default on its derivative obligations. Refer to Note 1 of the Consolidated Financial Statements for further discussion of our swap agreements.agreements, which were
de-designated
as hedges effective April 14, 2020, the date of the first amendment to our credit facility.Dividends and Share Repurchases
10b5-1
of the Exchange Act. 48
Cash FlowsFlow Summary
Fiscal Year Ended | ||||||||||||
February 2, 2020 | February 3, 2019 | February 4, 2018 | ||||||||||
Net cash provided by (used in): | ||||||||||||
Operating activities | $ | 288,946 | $ | 337,616 | $ | 264,672 | ||||||
Investing activities | (227,291 | ) | (203,808 | ) | (216,623 | ) | ||||||
Financing activities | (58,585 | ) | (131,018 | ) | (49,337 | ) | ||||||
Operating Activities
Cash flow from operating activities decreased $338,170 in fiscal 2020 compared fiscal 2019 driven primarily by the closure of all of our 137 operating stores as of March 20, 2020. Operations ceased until April 30, 2020, when we
re-opened
our first store, followed by the progressivere-opening
of 106 additional stores with limited operations through the end of the fiscal year, including five new stores that opened in the second half of fiscal 2020. The impact of approximately 2,847 fewer store weeks and limited operations was lessened somewhat by reduced income tax payments as well as our efforts to actively manage the Company’s daily cash flows, including deferrals and short payments of rent and other payments to landlords.Investing Activities
In fiscal 2020, the Company spent approximately $64,000 ($51,000 net of payments from landlords) for new store construction and operating improvement initiatives, $10,000 for game refreshment and $9,000 for maintenance capital.
In fiscal 2019, the Company spent approximately $187,000 ($153,000 net of payments from landlords) for new store construction and operating improvement initiatives, $19,000 for game refreshment and $22,000 for maintenance capital.
In fiscal 2018, the Company spent approximately $164,500 ($112,500 net of payments from landlords) for new store construction and operating improvement initiatives, $29,000 for game refreshment, and $22,500 for maintenance capital.
Financing Activities
In fiscal 2020, prior to the debt refinancing, the Company drew down substantially all the available credit under our revolving credit facility, or approximately $100,000, and the Company received net proceeds of approximately $182,200 from the issuance of shares of our common stock in April and May 2020. In October 2020, the Company issued $550,000 of senior secured notes in a private offering and amended the existing credit facility. The proceeds from the offering, along with cash on hand, were used to pay debt issuance costs, the $255,000 balance of the term portion of the credit facility, and $463,000 of outstanding borrowings under the revolving portion of the credit facility. Subsequent to the refinancing, the Company had net borrowings of $34,000 under the revolver.
In fiscal 2019, approximately $297,000 of share repurchases and approximately $16,000 of cash dividends paid, partially offset by $254,000 of net proceeds from borrowings of debt.
In fiscal 2018, approximately $149,000 of share repurchases and approximately $11,500 of cash dividends paid, partially offset by $27,000 of net proceeds from borrowings.
49
Contractual Obligations and Commercial Commitments
The following table sets forth the contractual obligations and commercial commitments as of February 2, 2020:January 31, 2021:
1 Year | After 5 | |||||||||||||||||||
Total | or Less | 2-3 Years | 4-5 Years | Years | ||||||||||||||||
Credit Facility (1) | $ | 648,250 | $ | 15,000 | $ | 633,250 | $ | — | $ | — | ||||||||||
Interest requirements (2) | 56,251 | 22,481 | 33,770 | — | — | |||||||||||||||
Operating leases (3) | 2,023,656 | 125,624 | 259,664 | 243,373 | 1,394,995 | |||||||||||||||
Total | $ | 2,728,157 | $ | 163,105 | $ | 926,684 | $ | 243,373 | $ | 1,394,995 | ||||||||||
1 Year | After 5 | |||||||||||||||||||
Total | or Less | 2-3 Years | 4-5 Years | Years | ||||||||||||||||
Debt (1) | $ | 610,000 | $ | — | $ | — | $ | 610,000 | $ | — | ||||||||||
Interest requirements (2) | 216,067 | 47,753 | 93,041 | 75,273 | — | |||||||||||||||
Operating leases (3) | 2,049,535 | 132,037 | 273,801 | 269,403 | 1,374,294 | |||||||||||||||
Total | $ | 2,875,602 | $ | 179,790 | $ | 366,842 | $ | 954,676 | $ | 1,374,294 | ||||||||||
| (1) | Available commitments under the revolving credit |
| (2) | The cash obligations for the variable interest requirements on the outstanding balance of the revolving credit facility and the unused commitment are based on |
| (3) | Our operating leases generally provide for one or more renewal options. These renewal options allow us to extend the term of the lease for a specified time at an established annual lease payment. Future obligations related to lease renewal options that have been exercised or were reasonably |
Off-Balance
Sheet ArrangementsWe have no material
off-balance
sheet arrangements.Critical accounting policies and estimates
The above discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements. The preparation of financial statements in conformity with GAAP requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and disclosures of contingent assets and liabilities. Our significant accounting policies are described in Note 1 of Notes to Consolidated Financial Statements. Critical accounting policies are those that we believe are most important to portraying our financial condition and results of operations and require the greatest amount of judgment by management. Judgment or uncertainties regarding the application of these policies may result in materially different amounts being reported under different conditions or using different assumptions. We consider the following policies to be the most critical in understanding the judgment that is involved in preparing the consolidated financial statements.
Accounting for amusement operations
.
50
Accounting for impairment of long-lived assets.
right-of-use
Recent accounting pronouncements.
Refer to Note 1 of Consolidated Financial Statements for information regarding new accounting pronouncements.
ITEM 7A. |
Commodity Price Risk
We are exposed to market price fluctuation in food and beverage product prices. Given the historical volatility of certain of our food product prices, including proteins, seafood, produce, dairy products, and cooking oil, these fluctuations can materially impact our food costs. While our purchasing commitments partially mitigate the risk of such fluctuations, there is no assurance that supply and demand factors such as disease or inclement weather will not cause the prices of the commodities used in our restaurant operations to fluctuate. Additionally, the cost of purchased materials may be influenced by tariffs and other trade regulations which are outside of our control. To the extent that we do not pass along cost increases to our customers, our results of operations may be adversely affected. Currently, we do not use financial instruments to hedge our commodity risk.
Interest Rate Risk
one-month
LIBOR, one-month
LIBOR is below 1.00%.Inflation
The primary inflationary factors affecting our operations are food, labor costs, and energy costs. Many of our leases require us to pay taxes, maintenance, repairs, insurance and utilities, all of which are generally subject to inflationary increases. Also, the cost of new store construction is subject to inflationary increases in the costs of labor and material.
In general, we have been able to partially offset cost increases resulting from inflation by increasing menu or game prices, improving productivity, or other operating changes. We may or may not be able to offset cost increases in the future.
51
ITEM 8. |
The consolidated financial statements of the Company and supplementary data are included as pagesF-24F-27in this report.
F-1
throughITEM 9. |
None.
ITEM 9A. |
Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rule
13a-15(e)
and15d-15(e)
under the Exchange Act) that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including the Chief Executive Officer (CEO) and Chief Financial Officer (CFO), as appropriate, to allow timely decisions regarding required disclosure.Our management, with the participation of our CEO and CFO, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of February 2, 2020.January 31, 2021. Based upon that evaluation, our CEO and CFO concluded that, as of February 2, 2020,January 31, 2021, such disclosure controls and procedures were effective.
Management’s Report on Internal Control over Financial Reporting
Our management, including our CEO and CFO, is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule
13a-15(f)
under the Exchange Act. Our system of internal control over financial reporting was designed to provide reasonable assurance regarding the preparation and fair presentation of published financial statements in accordance with GAAP. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance and may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.Our management conducted an evaluation of the effectiveness of our internal control over financial reporting as of February 2, 2020January 31, 2021 based on the framework in, issued by the Committee of Sponsoring Organizations of the Treadway Commission. This evaluation included reviewing the documentation of controls,documenting, evaluating, and testing the design effectiveness of controls, testing of theand operating effectiveness of controls and concluding on this evaluation.our internal control over financial reporting. Based on this evaluation, management concluded that our internal control over financial reporting was effective as of February 2, 2020.January 31, 2021.
Internal Control
— Integrated Framework (2013)
Our independent registered public accounting firm, KPMG LLP, audited the effectiveness of our internal control over financial reporting as of February 2, 2020,January 31, 2021, as stated in their report which is included herein.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting that occurred during our fourth fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. |
None.
PART III
ITEM 10. |
The information required by Item 10 is incorporated herein by reference to the sections entitled “Proposal No. 1—Election of Directors”, “Directors and Corporate Governance”, “Executive Officers” and “Executive Compensation” in the Proxy Statement.
ITEM 11. |
The information required by Item 11 is incorporated herein by reference to the sections entitled “Proposal No. 1—Election of Directors”, “Directors and Corporate Governance” and “Executive Compensation” in the Proxy Statement.
ITEM 12. |
The information required by Item 12 is incorporated herein by reference to the sections entitled “Executive Compensation” and “Security Ownership of Certain Beneficial Owners and Management” in the Proxy Statement.
ITEM 13. |
The information required by Item 13 is incorporated herein by reference to the sections entitled “Directors and Corporate Governance” and “Transactions with Related Persons” in the Proxy Statement.
ITEM 14. |
The information required by Item 14 is incorporated herein by reference to the section entitled “Proposal No. 2 – Ratification of Appointment of Independent Registered Public Accounting Firm” in the Proxy Statement.
PART IV
ITEM 15. | Exhibits and Financial Statement Schedules |
| (1) | Financial Statements |
See PagesF-24F-27of this report.
F-1
to| (2) | Financial Statement Schedules |
None.
INDEX OF EXHIBITS
55
Exhibit Number | Description | ||||
| 10.7 | |||||
10.8 | |||||
10.9 | |||||
10.10 | |||||
10.11 | |||||
56
Exhibit Number | Description | ||||
| 10.18 | |||||
| 10.20 | Form of Restricted Stock Unit Agreement, by and between Dave & Buster’s Entertainment, Inc. and various employees of the Company (incorporated by reference to Exhibit 10.2 of the Registrant’s Current Report on Form 8-K filed on May 4, 2020 (No. 001-35664)) | ||||
21.1* | Subsidiaries of the Registrant | ||||
| 23.1* | Consent of KPMG LLP, Independent Registered Public Accounting Firm | ||||
24.1* | |||||
31.1* | |||||
31.2* | |||||
32.1* | |||||
32.2* | |||||
| 101.INS | XBRL Inline Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | ||||
XBRL | |||||
| 101.CAL | XBRL Inline Taxonomy Extension Calculation Linkbase Document | ||||
XBRL Inline Taxonomy Extension | |||||
| 101.LAB | XBRL Inline Taxonomy Extension Label Linkbase Document | ||||
XBRL Inline Taxonomy Extension | |||||
| 104 | |||||
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | |||||
| * | Filed herein |
57
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
DAVE & BUSTER’S ENTERTAINMENT, INC., a Delaware Corporation | ||||||
| Date: March 31, 2021 | By: | |||||
/s/ Scott J. Bowman | ||||||
Scott J. Bowman | ||||||
Chief Financial Officer | ||||||
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned constitutes and appoints each of Brian A. Jenkins and Rob W. Edmund, or either of them, each acting alone, his/her true and lawfuland agent, with full power of substitution and resubstitution, and agents, each acting alone, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he/she might or could do in person, hereby ratifying and confirming that any suchand agent, or his/her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
attorney-in-fact
re-substitution,
for such person and in his/her name, place and stead, in any and all capacities, to sign any and all amendments to this Report, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto saidattorneys-in-fact
attorney-in-fact
Pursuant to the requirements of the Securities Exchange Act of 1934, we have signed in our indicated capacities on April 3, 2020.March 31, 2021.
By: | /s/ Brian A. Jenkins | Chief Executive Officer and Director | ||||||
Brian A. Jenkins | (Principal Executive Officer) | |||||||
By: | /s/ Scott J. Bowman | Chief Financial Officer | ||||||
Scott J. Bowman | (Principal Financial and Accounting Officer) | |||||||
By: | /s/ Stephen M. King | Chairman of the Board | ||||||
| Stephen M. King | ||||||||
By: | /s/ | Director | ||||||
| James Chambers | ||||||||
By: | /s/ Hamish A. Dodds | Director | ||||||
| Hamish A. Dodds | ||||||||
By: | /s/ Michael J. Griffith | Director | ||||||
| Michael J. Griffith | ||||||||
By: | /s/ Jonathan S. Halkyard | Director | ||||||
| Jonathan S. Halkyard | ||||||||
| By: | Director | |||||||
| John C. Hockin | ||||||||
58
| By: | /s/ Patricia H. Mueller | Director | ||||||
| Patricia H. Mueller | ||||||||
By: | /s/ Kevin M. Sheehan | Director | ||||||
| Kevin M. Sheehan | ||||||||
By: | /s/ Jennifer Storms | Director | ||||||
Jennifer Storms | ||||||||
59
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
Dave & Buster’s Entertainment, Inc.:
Opinion on Internal Control Over Financial Reporting
We have audited Dave & Buster’s Entertainment, Inc.’s and subsidiaries’ (the Company) internal control over financial reporting as of February 2, 2020,January 31, 2021, based on criteria established in issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of February 2, 2020,January 31, 2021, based on criteria established in issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Internal Control – Integrated Framework (2013)
Internal Control – Integrated Framework (2013)
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as ofJanuary 31, 2021 and February 2, 2020, and February 3, 2019, the related consolidated statements of comprehensive income (loss), stockholders’ equity, and cash flows for each of the fiscal years in the three-year period ended February 2, 2020, February 3, 2019, and February 4, 2018,January 31, 2021 and the related notes (collectively, the consolidated financial statements), and our report dated April 3, 2020March 31, 2021 expressed an unqualified opinion on those consolidated financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
Management’s Report on Internal Control over Financial Reporting.Reporting
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ KPMG LLP
Dallas, Texas
F-1
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
Dave & Buster’s Entertainment, Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Dave & Buster’s Entertainment, Inc. and subsidiaries (the Company) as of January 31, 2021 and February 2, 2020, and February 3, 2019, the related consolidated statements of comprehensive income (loss), stockholders’ equity, and cash flows for each of the fiscal years in theFebruary 2, 2020, February 3, 2019, February 4, 2018,January 31, 2021, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of January 31, 2021 and February 2, 2020, and February 3, 2019, and the results of its operations and its cash flows for each of the fiscal years in theFebruary 2, 2020, February 3, 2019, and February 4, 2018,January 31, 2021, in conformity with U.S. generally accepted accounting principles.
three-year
period ended three-year
period ended We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of February 2, 2020,January 31, 2021, based on criteria established in issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated April 3, 2020March 31, 2021 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
Internal Control – Integrated Framework (2013)
Change in Accounting Principle
As discussed in Note 1 to the consolidated financial statements, the Company has changed its method of accounting for leasing transactions as of February 4, 2019 due to the adoption of Accounting Standards Update.
2016-02,
Leases (Topic 842)
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
As discussed in Notes 1 and 4 to the consolidated financial statements, the Company defers a portion of amusement revenues for the estimated unfulfilled performance obligations related to unused game play
F-2
credits which they believe their customers will utilize in the future. The Company recorded deferred amusement revenue of $75.1$78.9 million as of February 2, 2020,January 31, 2021, which is included in accrued liabilities on the consolidated balance sheet and disclosed as deferred amusement revenue. This balance includes deferred revenue related to unused game play credits. The deferral is based on an estimated rate of future use by customers. The Company applies judgment to determine the estimated rate of future use by customers using information about game play credits outstanding and historical customer utilization patterns.
We identified the evaluation of the estimated rate of future use assumption used to determine deferred amusement revenue for unused game play credits as a critical audit matter. Subjective auditor judgment was required to evaluate the effect of historical customer usage patterns on the estimated rate of future use assumption, including consideration of the impacts of customer usage patterns during the
COVID-19
pandemic on management’s assumption.The following are the primary procedures we performed to address this critical audit matter includedmatter. We evaluated the following. Wedesign and tested the operating effectiveness of certain internal controls over the Company’s deferred amusement revenue process, including controls related to the development of the estimated rate of future use assumption. We evaluated historical periods’ game play credit activity for indication of significant changes in customer behavior and to determine whether changes in the historical activity were consistent with changes in the Company’s business that impact the estimated rate of future usage assumption.assumption, including changes in customer usage patterns during the
COVID-19
pandemic. We compared trends of customers’ historical use patterns to the Company’s estimated rate of future use assumption. We assessed the outstanding game play credit data utilized by the Company to derive the estimated rate of future use assumption by comparing it to relevant underlying documentation.As discussed in Notes 1 and 4 to the consolidated financial statements, the Company defers a portion of amusement revenue for the estimated unfulfilled performance obligations relatedmaterial right provided to unredeemedcustomers to redeem tickets which they believe their customers will utilize in the future.future for prizes. The Company recorded deferred amusement revenue of $75.1$78.9 million as of February 2, 2020,January 31, 2021, which is included in accrued liabilities on the consolidated balance sheet and disclosed as deferred amusement revenue. This balance includes deferred revenue related to the material right to redeem tickets in the future. The deferral is based on an estimated redemption rate of outstanding tickets that will be redeemed in subsequent periods. The Company applies judgment to determine the redemption rate assumption using information about tickets outstanding and customers’ historic redemptionhistorical customer utilization patterns.
We identified the evaluation of the estimated redemption rate assumption used to determine deferred amusement revenue related tofor unredeemed tickets as a critical audit matter. Subjective auditor judgment was required to evaluate the effect of historical customer redemptionusage patterns on the estimated rate of future use assumption, including consideration of the impacts of customer usage patterns during the
COVID-19
pandemic on management’s assumption.The following are the primary procedures we performed to address this critical audit matter includedmatter. We evaluated the following. Wedesign and tested the operating effectiveness of certain internal controls over the Company’s deferred amusement revenue process, including controls related to the development of the redemption rate assumption. We evaluated previoushistorical periods’ ticket redemption activity for indication of significant changes in customer behavior and to determine whether changes in the historical activity were consistent with changes in the Company’s business that impact the estimated redemption rate.rate assumption, including changes in customer redemption patterns during therate.rate assumption. We assessed the outstanding ticket data utilized by the Company to derive the redemption rate assumption by comparing it to relevant underlying documentation.
COVID-19
pandemic. We compared trends of customers’ historical redemption patterns to the Company’s estimated redemption /s/ KPMG LLP
We have served as the Company’s auditor since 2010.
Dallas, Texas
F-3
DAVE & BUSTER’S ENTERTAINMENT, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
February 2, 2020 | February 3, 2019 | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 24,655 | $ | 21,585 | ||||
Inventories | 34,477 | 27,315 | ||||||
Prepaid expenses | 14,269 | 20,713 | ||||||
Income taxes receivable | 2,331 | 1,880 | ||||||
Other current assets | 3,245 | 19,600 | ||||||
Total current assets | 78,977 | 91,093 | ||||||
Property and equipment (net of $686,824 and $578,178 accumulated depreciation as of February 2, 2020 and February 3, 2019, respectively) | 900,637 | 805,337 | ||||||
Operating l ease right of use assets, net | 1,011,568 | — | ||||||
Deferred tax assets | 7,639 | 6,736 | ||||||
Tradenames | 79,000 | 79,000 | ||||||
Goodwill | 272,636 | 272,625 | ||||||
Other assets and deferred charges | 19,682 | 18,396 | ||||||
Total assets | $ | 2,370,139 | $ | 1,273,187 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Current installments of long-term debt | $ | 15,000 | $ | 15,000 | ||||
Accounts payable | 65,359 | 60,427 | ||||||
Accrued liabilities | 207,452 | 157,164 | ||||||
Income taxes payable | 3,054 | 11,799 | ||||||
Total current liabilities | 290,865 | 244,390 | ||||||
Deferred income taxes | 19,102 | 14,634 | ||||||
Deferred occupancy costs | — | 223,678 | ||||||
Operating lease liabilities | 1,222,054 | — | ||||||
Other liabilities | 35,779 | 24,179 | ||||||
Long-term debt, net | 632,689 | 378,469 | ||||||
Commitments and contingencies | ||||||||
Stockholders’ equity: | ||||||||
Common stock, par value $0.01; authorized: 400,000,000 shares; issued: 43,386,852 shares at February 2, 2020 and 43,177,476 shares at February 3, 2019; outstanding: 30,603,340 shares at February 2, 2020 and 37,522,085 shares at February 3, 2019 | 434 | 432 | ||||||
Preferred stock, 50,000,000 authorized; NaN issued | — | — | ||||||
Paid-in capital | 339,161 | 331,255 | ||||||
Treasury stock, 12,783,512 and 5,655,391 shares as of February 2, 2020 and February 3, 2019, respectively | (595,041 | ) | (297,129 | ) | ||||
Accumulated other comprehensive loss | (8,369 | ) | (683 | ) | ||||
Retained earnings | 433,465 | 353,962 | ||||||
Total stockholders’ equity | 169,650 | 387,837 | ||||||
Total liabilities and stockholders’ equity | $ | 2,370,139 | $ | 1,273,187 | ||||
January 31, | February 2, | |||||||
2021 | 2020 | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 11,891 | $ | 24,655 | ||||
Inventories | 23,807 | 34,477 | ||||||
Prepaid expenses | 11,878 | 14,269 | ||||||
Income taxes receivable | 70,064 | 2,331 | ||||||
Other current assets | 1,231 | 3,245 | ||||||
Total current assets | 118,871 | 78,977 | ||||||
Property and equipment (net of $798,804 and $686,824 accumulated depreciation as of January 31, 2021 and February 2, 2020, respectively) | 815,027 | 900,637 | ||||||
Operating lease right of use assets, net | 1,037,569 | 1,011,568 | ||||||
Deferred tax assets | 5,874 | 7,639 | ||||||
Tradenames | 79,000 | 79,000 | ||||||
Goodwill | 272,597 | 272,636 | ||||||
Other assets and deferred charges | 23,886 | 19,682 | ||||||
Total assets | $ | 2,352,824 | $ | 2,370,139 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Current installments of long-term debt | $ | — | $ | 15,000 | ||||
Accounts payable | 36,400 | 65,359 | ||||||
Accrued liabilities | 234,790 | 207,452 | ||||||
Income taxes payable | 446 | 3,054 | ||||||
Total current liabilities | 271,636 | 290,865 | ||||||
Deferred income taxes | 13,658 | 19,102 | ||||||
Operating lease liabilities | 1,267,791 | 1,222,054 | ||||||
Other liabilities | 50,119 | 35,779 | ||||||
Long-term debt, net | 596,388 | 632,689 | ||||||
Commitments and contingencies | ||||||||
Stockholders’ equity: | ||||||||
Common stock, par value $0.01; authorized: 400,000,000 shares; issued: 60,488,833 shares at January 31, 2021 and 43,386,852 shares at February 2, 2020; outstanding: 47,646,606 shares at January 31, 2021 and 30,603,340 shares at February 2, 2020 | 605 | 434 | ||||||
Preferred stock, 50,000,000 authorized; NaN issued | — | — | ||||||
Paid-in capital | 531,191 | 339,161 | ||||||
Treasury stock, 12,842,227 and 12,783,512 shares as of January 31, 2021 and February 2, 2020, respectively | (595,970 | ) | (595,041 | ) | ||||
Accumulated other comprehensive loss | (9,085 | ) | (8,369 | ) | ||||
Retained earnings | 226,491 | 433,465 | ||||||
Total stockholders’ equity | 153,232 | 169,650 | ||||||
Total liabilities and stockholders’ equity | $ | 2,352,824 | $ | 2,370,139 | ||||
See accompanying notes to consolidated financial statements.
DAVE & BUSTER’S ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands, except share and per share amounts)
Fiscal Year Ended February 2, 2020 | Fiscal Year Ended February 3, 2019 | Fiscal Year Ended Fe 4,bruary 2018 | ||||||||||
Food and beverage revenues | $ | 563,576 | $ | 536,469 | $ | 494,816 | ||||||
Amusement and other revenues | 791,115 | 728,832 | 644,975 | |||||||||
Total revenues | 1,354,691 | 1,265,301 | 1,139,791 | |||||||||
Cost of food and beverage | 148,196 | 139,199 | 127,600 | |||||||||
Cost of amusement and other | 85,115 | 81,064 | 69,072 | |||||||||
Total cost of products | 233,311 | 220,263 | 196,672 | |||||||||
Operating payroll and benefits | 322,970 | 296,924 | 256,724 | |||||||||
Other store operating expenses | 429,431 | 384,155 | 334,546 | |||||||||
General and administrative expenses | 69,469 | 61,521 | 59,565 | |||||||||
Depreciation and amortization expense | 132,460 | 118,275 | 102,766 | |||||||||
Pre-opening costs | 18,971 | 23,163 | 23,746 | |||||||||
Total operating costs | 1,206,612 | 1,104,301 | 974,019 | |||||||||
Operating income | 148,079 | 161,000 | 165,772 | |||||||||
Interest expense, net | 20,937 | 13,113 | 8,665 | |||||||||
Loss on debt retirement | — | — | 718 | |||||||||
Income before provision for income taxes | 127,142 | 147,887 | 156,389 | |||||||||
Provision for income taxes | 26,879 | 30,666 | 35,440 | |||||||||
Net income | 100,263 | 117,221 | 120,949 | |||||||||
Unrealized foreign currency translation gain (loss) | (65 | ) | (434 | ) | 474 | |||||||
Unrealized loss of derivatives, net of tax | (7,621 | ) | — | — | ||||||||
Total other comprehensive income ( loss) | (7,686 | ) | (434 | ) | 474 | |||||||
Total comprehensive income | $ | 92,577 | $ | 116,787 | $ | 121,423 | ||||||
Net i ncome per share: | ||||||||||||
Basic | $ | 3.00 | $ | 3.00 | $ | 2.93 | ||||||
Diluted | $ | 2.94 | $ | 2.93 | $ | 2.84 | ||||||
Weighted average shares used in per share calculations: | ||||||||||||
Basic | 33,450,217 | 39,047,106 | 41,276,314 | |||||||||
Diluted | 34,099,378 | 39,975,122 | 42,583,009 | |||||||||
Fiscal Year Ended January 31, 2021 | Fiscal Year Ended February 2, 2020 | Fiscal Year Ended February 3, 2019 | ||||||||||
Food and beverage revenues | $ | 159,501 | $ | 563,576 | $ | 536,469 | ||||||
Amusement and other revenues | 277,011 | 791,115 | 728,832 | |||||||||
Total revenues | 436,512 | 1,354,691 | 1,265,301 | |||||||||
Cost of food and beverage | 45,207 | 148,196 | 139,199 | |||||||||
Cost of amusement and other | 29,698 | 85,115 | 81,064 | |||||||||
Total cost of products | 74,905 | 233,311 | 220,263 | |||||||||
Operating payroll and benefits | 117,475 | 322,970 | 296,924 | |||||||||
Other store operating expenses | 299,464 | 429,431 | 384,155 | |||||||||
General and administrative expenses | 47,215 | 69,469 | 61,521 | |||||||||
Depreciation and amortization expense | 138,789 | 132,460 | 118,275 | |||||||||
Pre-opening costs | 11,276 | 18,971 | 23,163 | |||||||||
Total operating costs | 689,124 | 1,206,612 | 1,104,301 | |||||||||
Operating income (loss) | (252,612 | ) | 148,079 | 161,000 | ||||||||
Interest expense, net | 36,890 | 20,937 | 13,113 | |||||||||
Loss on debt refinance | 904 | — | — | |||||||||
Income (loss) before provision (benefit) for income taxes | (290,406 | ) | 127,142 | 147,887 | ||||||||
Provision (benefit) for income taxes | (83,432 | ) | 26,879 | 30,666 | ||||||||
Net income (loss) | (206,974 | ) | 100,263 | 117,221 | ||||||||
Unrealized foreign currency translation gain (loss) | 119 | (65 | ) | (434 | ) | |||||||
| Unrealized loss on derivatives, net of tax | (835 | ) | (7,621 | ) | — | |||||||
| Total other comprehensive loss | (716 | ) | (7,686 | ) | (434 | ) | ||||||
Total comprehensive income (loss) | $ | (207,690 | ) | $ | 92,577 | $ | 116,787 | |||||
Net income (loss) per share: | ||||||||||||
Basic | $ | (4.75 | ) | $ | 3.00 | $ | 3.00 | |||||
Diluted | $ | (4.75 | ) | $ | 2.94 | $ | 2.93 | |||||
Weighted average shares used in per share calculations: | ||||||||||||
Basic | 43,549,887 | 33,450,217 | 39,047,106 | |||||||||
Diluted | 43,549,887 | 34,099,378 | 39,975,122 | |||||||||
See accompanying notes to consolidated financial statements.
DAVE & BUSTER’S ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITYEQUIT
Y
(in thousands, except share and per share amounts)
Common Stock | Paid-In Capital | Treasury Stock At Cost | Accumulated Other Comprehensive Income (loss) | Retained Earnings | Total | |||||||||||||||||||||||||||
Shares | Amt. | Shares | Amt. | |||||||||||||||||||||||||||||
Balance January 29, 2017 | 42,469,570 | $ | 425 | $ | 310,230 | 264,983 | $ | (14,817 | ) | $ | (723 | ) | $ | 144,337 | $ | 439,452 | ||||||||||||||||
Net income | — | — | — | — | — | — | 120,949 | 120,949 | ||||||||||||||||||||||||
Unrealized foreign currency translation gain | — | — | — | — | — | 474 | — | 474 | ||||||||||||||||||||||||
Share-based compensation | — | — | 8,916 | — | — | — | — | 8,916 | ||||||||||||||||||||||||
Cumulative effect of a change in accounting principle | — | — | — | — | 782 | 782 | ||||||||||||||||||||||||||
Issuance of common stock | 191,236 | 2 | 1,342 | — | — | — | — | 1,344 | ||||||||||||||||||||||||
Repurchase of common stock | — | — | — | 2,636,616 | (151,913 | ) | — | — | (151,913 | ) | ||||||||||||||||||||||
Issuance of treasury stock | — | — | (342,878 | ) | 19,399 | — | (17,757 | ) | 1,642 | |||||||||||||||||||||||
Balance February 4, 2018 | 42,660,806 | 427 | 320,488 | 2,558,721 | (147,331 | ) | (249 | ) | 248,311 | 421,646 | ||||||||||||||||||||||
Net income | — | — | — | — | — | — | 117,221 | 117,221 | ||||||||||||||||||||||||
Unrealized foreign currency translation loss | — | — | — | — | — | (434 | ) | — | (434 | ) | ||||||||||||||||||||||
Dividends declared ($0.30 per share) | — | — | — | — | — | — | (11,570 | ) | (11,570 | ) | ||||||||||||||||||||||
Share-based compensation | — | — | 7,422 | — | — | — | — | 7,422 | ||||||||||||||||||||||||
Issuance of common stock | 516,670 | 5 | 3,345 | — | — | — | — | 3,350 | ||||||||||||||||||||||||
Repurchase of common stock | — | — | — | 3,096,670 | (149,798 | ) | — | — | (149,798 | ) | ||||||||||||||||||||||
Balance February 3, 2019 | 43,177,476 | 432 | 331,255 | 5,655,391 | (297,129 | ) | (683 | ) | 353,962 | 387,837 | ||||||||||||||||||||||
Cumulative effect of a change in accounting principle, net of tax | — | — | — | — | — | — | (145 | ) | (145 | ) | ||||||||||||||||||||||
Net income | — | — | — | — | — | — | 100,263 | 100,263 | ||||||||||||||||||||||||
Unrealized foreign currency translation loss | — | — | — | — | — | (65 | ) | — | (65 | ) | ||||||||||||||||||||||
Unrealized loss of derivatives, net of tax | — | — | — | — | — | (7,621 | ) | — | (7,621 | ) | ||||||||||||||||||||||
Dividends declared ($0.62 per share) | — | — | — | — | — | — | (20,615 | ) | (20,615 | ) | ||||||||||||||||||||||
Share-based compensation | — | — | 6,857 | — | — | — | — | 6,857 | ||||||||||||||||||||||||
Issuance of common stock | 209,376 | 2 | 1,049 | — | — | — | — | 1,051 | ||||||||||||||||||||||||
Repurchase of common stock | — | — | — | 7,128,121 | (297,912 | ) | — | — | (297,912 | ) | ||||||||||||||||||||||
Balance February 2, 2020 | 43,386,852 | $ | 434 | $ | 339,161 | 12,783,512 | $ | (595,041 | ) | $ | (8,369 | ) | $ | 433,465 | $ | 169,650 | ||||||||||||||||
Common Stock | Paid-In Capital | Treasury Stock At Cost | Accumulated Other Comprehensive Income (loss) | Retained Earnings | Total | |||||||||||||||||||||||||||
Shares | Amt. | Shares | Amt. | |||||||||||||||||||||||||||||
Balance February 4, 2018 | 42,660,806 | $ | 427 | $ | 320,488 | 2,558,721 | (147,331 | ) | (249 | ) | 248,311 | 421,646 | ||||||||||||||||||||
Net income | — | — | — | — | — | — | 117,221 | 117,221 | ||||||||||||||||||||||||
Unrealized foreign currency translation loss | — | — | — | — | — | (434 | ) | — | (434 | ) | ||||||||||||||||||||||
Dividends declared ($0.30 per share) | — | — | — | — | — | — | (11,570 | ) | (11,570 | ) | ||||||||||||||||||||||
Share-based compensation | — | — | 7,422 | — | — | — | — | 7,422 | ||||||||||||||||||||||||
Issuance of common stock | 516,670 | 5 | 3,345 | — | — | — | — | 3,350 | ||||||||||||||||||||||||
Repurchase of common stock | — | — | — | 3,096,670 | (149,798 | ) | — | — | (149,798 | ) | ||||||||||||||||||||||
Balance February 3, 2019 | 43,177,476 | 432 | 331,255 | 5,655,391 | (297,129 | ) | (683 | ) | 353,962 | 387,837 | ||||||||||||||||||||||
Cumulative effect of a change in accounting principle, net of tax | — | — | — | — | — | — | (145 | ) | (145 | ) | ||||||||||||||||||||||
Net income | — | — | — | — | — | — | 100,263 | 100,263 | ||||||||||||||||||||||||
Unrealized foreign currency translation loss | — | — | — | — | — | (65 | ) | — | (65 | ) | ||||||||||||||||||||||
Unrealized loss on derivatives, net of tax | — | — | — | — | — | (7,621 | ) | — | (7,621 | ) | ||||||||||||||||||||||
Dividends declared ($0.62 per share) | — | — | — | — | — | — | (20,615 | ) | (20,615 | ) | ||||||||||||||||||||||
Share-based compensation | — | — | 6,857 | — | — | — | — | 6,857 | ||||||||||||||||||||||||
Issuance of common stock | 209,376 | 2 | 1,049 | — | — | — | — | 1,051 | ||||||||||||||||||||||||
Repurchase of common stock | — | — | — | 7,128,121 | (297,912 | ) | — | — | (297,912 | ) | ||||||||||||||||||||||
Balance February 2, 2020 | 43,386,852 | 434 | 339,161 | 12,783,512 | (595,041 | ) | (8,369 | ) | 433,465 | 169,650 | ||||||||||||||||||||||
| Net loss | — | — | — | — | — | — | (206,974 | ) | (206,974 | ) | ||||||||||||||||||||||
| Unrealized foreign currency translation gain | — | — | — | — | — | 119 | — | 119 | ||||||||||||||||||||||||
Unrealized loss on derivatives, net of tax | — | — | — | — | — | (835 | ) | — | (835 | ) | ||||||||||||||||||||||
Share-based compensation | — | — | 6,985 | — | — | — | — | 6,985 | ||||||||||||||||||||||||
Issuance of common stock | 17,101,981 | 171 | 185,045 | — | — | — | — | 185,216 | ||||||||||||||||||||||||
Repurchase of common stock | — | — | — | 58,715 | (929 | ) | — | — | (929 | ) | ||||||||||||||||||||||
Balance January 31, 2021 | 60,488,833 | $ | 605 | $ | 531,191 | 12,842,227 | $ | (595,970 | ) | $ | (9,085 | ) | $ | 226,491 | $ | 153,232 | ||||||||||||||||
See accompanying notes to consolidated financial statements.
DAVE & BUSTER’S ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Fiscal Year Ended February 2, 2020 | Fiscal Year Ended February 3, 2019 | Fiscal Year Ended February 4, 2018 | ||||||||||
Cash flows from operating activities: | ||||||||||||
Net income | $ | 100,263 | $ | 117,221 | $ | 120,949 | ||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||
Depreciation and amortization expense | 132,460 | 118,275 | 102,766 | |||||||||
Deferred taxes | 6,473 | 5,474 | (8,845 | ) | ||||||||
Loss on debt refinancing | — | — | 718 | |||||||||
Loss on disposal of fixed assets | 1,813 | 1,121 | 1,863 | |||||||||
Share-based compensation | 6,857 | 7,422 | 8,916 | |||||||||
Other, net | 1,070 | 1,049 | 881 | |||||||||
Changes in assets and liabilities: | ||||||||||||
Inventories | (7,162 | ) | 245 | (5,700 | ) | |||||||
Prepaid expenses | (2,162 | ) | (1,661 | ) | (3,224 | ) | ||||||
Income tax receivable | (451 | ) | 2,987 | 1,034 | ||||||||
Other current assets | 5,320 | 4,705 | (13,361 | ) | ||||||||
Other assets and deferred charges | (1,017 | ) | (2,523 | ) | (224 | ) | ||||||
Accounts payable | 2,026 | 11,122 | (4,071 | ) | ||||||||
Accrued liabilities | 47,896 | 21,329 | 22,394 | |||||||||
Income taxes payable | (8,745 | ) | 8,762 | 345 | ||||||||
Deferred occupancy costs | — | 38,958 | 37,702 | |||||||||
Other liabilities | 4,305 | 3,130 | 2,529 | |||||||||
Net cash provided by operating activities | 288,946 | 337,616 | 264,672 | |||||||||
Cash flows from investing activities: | ||||||||||||
Capital expenditures | (228,091 | ) | (216,286 | ) | (219,901 | ) | ||||||
Proceeds from sale-leaseback transactions | — | 11,571 | — | |||||||||
Proceeds from insurance | — | 541 | — | |||||||||
Proceeds from sales of property and equipment | 800 | 366 | 78 | |||||||||
Collections on notes receivable | — | — | 3,200 | |||||||||
Net cash used in investing activities | (227,291 | ) | (203,808 | ) | (216,623 | ) | ||||||
Cash flows from financing activities: | ||||||||||||
Proceeds from debt | 406,000 | 265,000 | 509,000 | |||||||||
Payments of debt | (152,000 | ) | (238,000 | ) | (406,500 | ) | ||||||
Debt issuance costs | — | — | (2,910 | ) | ||||||||
Repurchase of common stock | (297,317 | ) | (149,125 | ) | (151,913 | ) | ||||||
Repurchases of common stock to satisfy employee withholding tax obligations | (595 | ) | (673 | ) | — | |||||||
Dividends paid | (15,724 | ) | (11,570 | ) | — | |||||||
Proceeds from the exercise of stock options | 1,051 | 3,350 | 1,344 | |||||||||
Proceeds from issuance of treasury stock | — | — | 1,642 | |||||||||
Net cash used in financing activities | (58,585 | ) | (131,018 | ) | (49,337 | ) | ||||||
Increase (decrease) in cash and cash equivalents | 3,070 | 2,790 | (1,288 | ) | ||||||||
Beginning cash and cash equivalents | 21,585 | 18,795 | 20,083 | |||||||||
Ending cash and cash equivalents | $ | 24,655 | $ | 21,585 | $ | 18,795 | ||||||
Supplemental disclosures of cash flow information: | ||||||||||||
Increase (decrease) in fixed asset accounts payable | $ | 2,906 | $ | (5,321 | ) | $ | 3,420 | |||||
Cash paid for income taxes, net | $ | 27,245 | $ | 13,464 | $ | 43,072 | ||||||
Cash paid for interest, net | $ | 20,115 | $ | 12,247 | $ | 7,853 | ||||||
Dividend s declared, not paid | $ | 4,891 | $ | — | $ | — | ||||||
Fiscal Year Ended January 31, 2021 | Fiscal Year Ended February 2, 2020 | Fiscal Year Ended February 3, 2019 | ||||||||||
Cash flows from operating activities: | ||||||||||||
Net income (loss) | $ | (206,974 | ) | $ | 100,263 | $ | 117,221 | |||||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||||||
Depreciation and amortization expense | 138,789 | 132,460 | 118,275 | |||||||||
Non-cash interest expense | 5,974 | — | — | |||||||||
Impairment of long-lived assets | 12,248 | — | — | |||||||||
Deferred taxes | (3,365 | ) | 6,473 | 5,474 | ||||||||
Loss on debt refinance | 904 | — | — | |||||||||
Loss on disposal of fixed assets | 577 | 1,813 | 1,121 | |||||||||
Share-based compensation | 6,985 | 6,857 | 7,422 | |||||||||
Other, net | 2,033 | 1,070 | 1,049 | |||||||||
Changes in assets and liabilities: | ||||||||||||
Inventories | 10,670 | (7,162 | ) | 245 | ||||||||
Prepaid expenses | 2,993 | (2,162 | ) | (1,661 | ) | |||||||
Income tax receivable | (67,733 | ) | (451 | ) | 2,987 | |||||||
Other current assets | 2,014 | 5,320 | 4,705 | |||||||||
Other assets and deferred charges | 484 | (1,017 | ) | (2,523 | ) | |||||||
Accounts payable | (9,576 | ) | 2,026 | 11,122 | ||||||||
Accrued liabilities | 56,757 | 47,896 | 21,329 | |||||||||
Income taxes payable | (2,608 | ) | (8,745 | ) | 8,762 | |||||||
Deferred occupancy costs | — | — | 38,958 | |||||||||
Other liabilities | 604 | 4,305 | 3,130 | |||||||||
| Net cash provided by (used in) operating activities | (49,224 | ) | 288,946 | 337,616 | ||||||||
Cash flows from investing activities: | ||||||||||||
Capital expenditures | (83,016 | ) | (228,091 | ) | (216,286 | ) | ||||||
Proceeds from sale-leaseback transactions | — | — | 11,571 | |||||||||
Proceeds from insurance | 595 | — | 541 | |||||||||
Proceeds from sales of property and equipment | 461 | 800 | 366 | |||||||||
Net cash used in investing activities | (81,960 | ) | (227,291 | ) | (203,808 | ) | ||||||
Cash flows from financing activities: | ||||||||||||
Proceeds from debt | 732,000 | 406,000 | 265,000 | |||||||||
Payments of debt | (770,250 | ) | (152,000 | ) | (238,000 | ) | ||||||
Debt issuance costs | (20,209 | ) | — | — | ||||||||
Net proceeds from the issuance of common stock | 182,207 | — | — | |||||||||
Repurchase of common stock under share repurchase program | — | (297,317 | ) | (149,125 | ) | |||||||
Repurchases of common stock to satisfy employee withholding tax obligations | (929 | ) | (595 | ) | (673 | ) | ||||||
Dividends paid | (4,891 | ) | (15,724 | ) | (11,570 | ) | ||||||
Proceeds from the exercise of stock options | 492 | 1,051 | 3,350 | |||||||||
| Net cash provided by (used in) financing activities | 118,420 | (58,585 | ) | (131,018 | ) | |||||||
Increase (decrease) in cash and cash equivalents | (12,764 | ) | 3,070 | 2,790 | ||||||||
Beginning cash and cash equivalents | 24,655 | 21,585 | 18,795 | |||||||||
Ending cash and cash equivalents | $ | 11,891 | $ | 24,655 | $ | 21,585 | ||||||
Supplemental disclosures of cash flow information: | ||||||||||||
| Increase (decrease) for capital expenditures in accounts payable | $ | (19,383 | ) | $ | 2,906 | $ | (5,321 | ) | ||||
Cash paid (received) for income taxes, net | $ | (9,352 | ) | $ | 27,245 | $ | 13,464 | |||||
Cash paid for interest, net | $ | 17,916 | $ | 20,115 | $ | 12,247 | ||||||
Dividends declared, not paid | $ | — | $ | 4,891 | $ | — | ||||||
See accompanying notes to consolidated financial statements.
DAVE & BUSTER’S ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
Note 1: Description of the Business and Summary of Significant Accounting PoliciesPolicies���
Description of the business
During fiscal 2020, we opened six new stores, and management made the decision to notFebruary 2, 2020,January 31, 2021, we owned and operated 136
140re-open
two stores located in the Chicago, Illinois area and Houston, Texas area, which are at or near the end of their respective lease terms. As of stores located in 39
40states, Puerto Rico and
1Canadian province.
$
18,649, and $18,848 and $20,075 in fiscal 2020, 2019 2018 and 2017,2018, respectively. As of February 2, 2020,January 31, 2021, less than 2.0% of our long-lived assets were located outside of the United States.
COVID-19
ConsiderationsCOVID-19
outbreak to be a global pandemic and on March 13, 2020, the United States declared a National Public Health Emergency. As a result, several state and local mandates were implemented that encouraged the practice of social distancing, placed restrictions from non-essential
movement outside of the home. Shortly after the national emergency declaration, state and local officials began placing restrictions on businesses, some of which allowedTo-Go
or curbside service only while others limited capacity in the dining room or midway. By March 20, 2020, On April 30, 2020, our first storegovernmentsguidelines began to combatallow dining rooms and arcades to open at limited capacity and/or limited hours of operation. By the spreadend of fiscal 2020, we hadThese developments have causedAs of January 31, 2021, 107 of our 140 stores were open and operating in limited capacity.
re-opened
to the public, as state and local re-opened
an additional 101 stores with limited operations. Many of these stores that werere-opened
in limited capacity were required to temporarily close again in areas more severely impacted by theCOVID-19
pandemic, particularly during the fourth quarter holiday season. The Company also opened five new stores in the second half of the fiscal year, all of which commenced construction prior to the outbreak of theCOVID-19
pandemic. As stores are
re-opened,
typically in limited capacity, the Company hasreduced
labor and other operating costs. The Company has also been in ongoing discussions with landlords and other vendors to negotiate relief from cash payments under existing lease and trade payable obligations. During fiscal 2020, a material adversetotal of 126 rent relief agreements related to our operating locations and corporate headquarters were initially executed, which generally provide for full deferral for three months beginning April 2020, with partial deferral continuing for periods of up to six months, at approximately 50% of those locations. As the pandemic continued to impact our business into the fourth quarter, the Company renewed negotiations with the majority of these landlords in order to provide additional rent relief, generally seeking to push out or extend the terms of deferral pay back periods and/or provide rent relief beyond the periods in the initial agreements. As of the end of fiscal 2020, the Company had executed 17 of these additional rent relief agreements. The Company also negotiated extended and reduced payment terms with several vendors.
In addition to reducing or deferring expenditures, including capital expenditures and discretionary spending, the
Company obtained additional liquidity through the sale of common stock, which resulted in net proceeds ofF-8
$182,207. On October 27, 2020, D&B Inc completed the private sale of $550,000 in aggregate principal amount of 7.625% senior secured notes due 2025. At the same time, the revolving credit commitments under our existing credit facility were extended through August 17, 2024, and the suspension of our financial ratio covenants was extended until the last day of the first quarter of fiscal year 2022. See
Note 5,
Debt, for more information on these transactions.
The measures taken by the Company’s revenues, results of operations and cash flows, including the Company’s abilityCompany provide sufficient liquidity to meet itsestimated cash flow needs and covenant compliance obligations whendue. These conditions raise substantial doubt aboutfor at least the Company’s ability to continue as a going concern for a period of one yearnext twelve months from the dateissuance of the financial statements are issued. The extent of impact of these conditions will be based in part on the duration of the store closures and the timing and extent of customers re-engaging with the brand. The Company is unable to determinestatements. We cannot predict whether, when or the manner in which the conditions surrounding the whenthe timing of lifting any restrictions, when our remaining closed stores willclosure requirements will be lifted, when it will be able to reopen its stores, whether it will be able to successfully staff stores, and the degree to which it will be able to reengage customers.possible
COVID-19 pandemic
will change including re-open,
staffing levels forre-opened
stores, customerre-engagement
with our brand, or re-closures
of our currently open stores.Principles of consolidation
Fiscal year
— The Company’s fiscal year consists of 52 or 53 weeks ending on the Sunday after the Saturday closest to January 31. Fiscal years 2020, 2019
,
and February 3, 2019, respectively, each contained 5253-week
year when the fourth quarter has 14 weeks.Use of estimates
Cash and cash equivalents
Cash and cash equivalents are maintained with multiple financial institutions. Generally, these deposits may be redeemed upon demand and are maintained with financial institutions with reputable credit and therefore bear minimal credit risk. The Company
Inventories
(first-in,
first-out
method) or net realizable value. We record inventory reserves for obsolete and slow-moving inventory.Cloud-Based Computing Arrangements
Property and equipment
F-9
terms of the underlying leases of the related assets. Estimated depreciable lives for the categories of property and equipment follows:
Estimated Depreciable Lives (In Years) | ||||
Building and building improvements | 5-40 | |||
Leasehold improvements | 5-20 | |||
Furniture, fixtures and equipment | 3-10 | |||
Games | 3-20 | |||
Expenditures that extend the life, increase capacity of or improve the safety or the efficiency of the property and equipment are capitalized,
whereas costs incurred to maintain the appearance and functionality of such assets are charged to repair and maintenance expense. Application development stage costs for significantinternally-developedinternally developed software projects are capitalized and amortized as part of furniture, fixtures, and equipment. Interest cost on funds used during the acquisition period of significant capital assets are capitalized as part of the asset and depreciated. Gains and losses related to store property and equipment disposals are recorded in “Other store operating expenses” in the Consolidated Statements of Comprehensive Income.Income (Loss).
whereas costs incurred to maintain the appearance and functionality of such assets are charged to repair and maintenance expense. Application development stage costs for significant
Annually or more frequently if an event occurs or circumstances change that would indicate that the carrying values of these assets may not be recoverable, we evaluate long-lived assets related to each store to be held and used in business, including property and equipment and(“ROU”) assets. In determining the recoverability of the asset value, an analysis is performed at the individual store level, since this is the lowest level of identifiable cash flows and primarily includes an assessment of historical cash flows and other relevant factors and circumstances, including the maturity of the store, changes in the economic environment, unfavorable changes in legal factors or business climate and future operating plans. The more significant inputs used in determining our estimate of the projected undiscounted cash flows included future revenue growth and projected margins as well as the estimate of the remaining useful life of the assets. If the carrying amount is not recoverable, we record an impairment charge if any, forequal to the excess of the carrying amount over the fair value, which is estimated based on discounted projected future operating cash flows of the store over the remaining service life using a risk adjusted discount rate that is commensurate with the inherent risk.
right-of-use
During fiscal 2020, the Company recorded an impairment charge for its long-lived assets, including ROU assets, of $6,746, primarily driven by the expected impact of the or 2017.
COVID-19
pandemic on future cash flows of specific stores. Additionally, the Company is continuing discussions topotentially
terminate or delay possession on
certain
executed lease contracts that have not yet commenced. The Company has also curtailed several potential new store projects that were in the early stage of development. During fiscal
2020, we recorded an impairment loss and related contract termination costs of $
6,981related to these projects, which is included in “Other store operating expenses” in the Consolidated Statements of Comprehensive
Income (Loss). Given the ongoing impacts of
NaNCOVID-19
to our business, the projected undiscounted cash flows are subject to greater uncertainty than historically. If in the future we reduce our estimate of cash flow projections, we could be required to record additional impairment charges.impairment charges were recognized in fiscal
2019and
2018.
Goodwill and tradenames
carrying amount of goodwill is impacted by foreign currency translation adjustments. The foreign currency translation adjustment decreased goodwill by $
39and increased goodwill by $11 and $59 $
11during fiscal 2019
2020and fiscal 2018,
2019, respectively. Goodwill and tradenames which have an indefinite useful life, are not subject to amortization, and are evaluated for impairment annually or more frequently if an event occurs or circumstances change that would indicate that impairment may exist. Goodwill and tradenames are evaluated at year end at the level of the Company’s single operating segment, which also represents the Company’s only reporting unit.
F-10
When evaluating goodwill and tradenames for impairment, the Company first performs a qualitative assessment to determine whether it is more likely than not that its reporting unit or tradenames are impaired. For fiscal year 2020, 2019 2018 and 2017,2018, there was 0no impairment to our goodwill or tradenames.
Other assets and deferred charges, net
assets and deferred charges, net consist primarily of intangible assets related to transferable liquor licenses and intellectual property licenses associated with some of our proprietary amusement offerings, and assets related to various deposits, the employee deferred compensation plan, and unamortized debt issuance costs on the revolving portion of our credit facility.
The balance of transferable liquor licenses was $5,025$5,213 and $3,837$5,025 at the end of fiscal 20192020 and fiscal 2018,2019, respectively. The costs of purchasing transferable liquor licenses through open markets in jurisdictions with a limited number of authorized liquor licenses are capitalized as indefinite-lived intangible assets and are tested for impairment annually by comparing the estimated fair value of each asset with their carrying amount. The unamortized balance of our intellectual license costs was $2,422$1,862 and $2,029$2,422 at the end of fiscal 20192020 and fiscal 2018,2019, respectively. Intellectual licenses are amortized over the respective term of the license agreements, with a weighted average term remaining of five3.2 years at the end of fiscal 2019.2020. Amortization of intellectual licenses of $575
, $507 and $259
$
259in fiscal 2020, fiscal 2019 and fiscal 2018, respectively, is included in “Other store operating expenses” in the Consolidated Statements of Comprehensive Income. Amortization expense in fiscal 2019, 2018 and 2017 includes $61, $188 and $588, respectively, of amortization associated with our customer relationships and trademarks, which were fully amortized as of the end of fiscal 2019 and fiscal 2017, respectively.Income (Loss).
The Company capitalizes certain costs incurred in connection with borrowings or establishment of credit facilities, and these costs are amortized as interest expense over the life of the borrowing or life of the related debt facility. Debt issuance costs on the revolving portion of our credit facility$1,454 $5,525 and $2,026$1,454 at the end of fiscal 20192020 and fiscal 2018,2019, respectively. Debt issuance costs on the term loan portion of our credit facilitysenior secured notes are reported as a direct reduction from the carrying amount of our debt.
were
Fair value of financial instruments
The carrying amounts of cash and cash equivalents, accounts and notes receivable, accounts payable and other current liabilities approximate fair value because of their short-term nature. We believe that the carrying amount of our credit facility approximates its fair value because the interest rates are adjusted regularly based on current market conditions. The fair value of the Company’s credit facility was determined to be a Level Two instrument as defined by GAAP. The fair value of the Company’s interest rate swap is determined based upon Level Two inputs which includes valuation models as reported by our counterparties and third-party valuation specialists. These valuation models are based on the present value of expected cash flows using forward rate curves. The fair values of our revolving credit facility of $62,114 and senior secured notes of $576,033 as of January 31, 2021, were valued
using
a discounted cash flow method, using a sector-specific yield curve based on market-derived, traded price data as of the measurement date, which we classify as a Level Two input within the fair value hierarchy. In fiscal 2019, the carrying value of our credit facility approximated its fair value because the interest rates were adjusted regularly based on current market conditions, and there was no LIBOR floor.Interest rate swaps
one-month
LIBOR in exchange for the payment of a fixed rate of interest throughout the life of the agreements. The notional amount of the swap agreements, The Company hasinitially designated its interest rate swap agreements as a cash flow hedge and accountsaccounted for the underlying activity in accordance with hedge accounting. ToEffective April 14, 2020, the extent thatCompany amended its
F-11
existing credit facility agreement to obtain relief from its financial covenants, and as a result, the swaps are effective in offsettingvariable interest rate terms were modified to create an interest rate floor of 1.00%. Accordingly, and as a result of the variability
then
current forward interest rate curve, the Company discontinued the hedging relationship as of April 14, 2020(de-designation
date). Giventhe continued existence of the hedged cash flows, interest payments, the Company is reclassifying its accumulated other comprehensive loss of $
17,609as of the
de-designation
date into “Interest expense, net” using a straight-line approach over the remaining life of the originally designated hedging relationship. During fiscal
2020, the amount of
pre-tax
losses in accumulated other comprehensive loss that was reclassified into interest expense subsequent to the
de-designation
date was $
5,974, and the Company expects to reclassify $
7,547within the next twelve months. Effective with the
de-designation,
any gain or loss on the derivatives are recognized in earnings in the period in which the change occurs. During fiscal
2020, a loss of $
1,729was recognized, which is included in “Other store operating expenses” in the Consolidated Statements of Comprehensive Income (Loss).
Prior to thevaluevalues of the derivatives are not included in earnings but are included in other comprehensive loss. These changes in fair value are subsequently reclassified into net earningsinterest rate swaps were recorded as a component of other comprehensive loss until the interest payments being hedged were recorded as interest expense, at which time the amounts in accumulated other comprehensive loss were reclassified as the hedgedan adjustment to interest payments are made on our variable rate debt.expense. Cash flows related to the interest rate swaps arewere included as a component of interest expense and in operating activities. Any portion of the fair value of the swaps determined to be ineffective will be recognized currently in earnings.
de-designation,
changes in the fair Credit risk related to the failure of our counterparties to perform under the terms of the swap agreements is minimized by entering into transactions with carefully selected, credit-worthy parties and the fact that the swap contracts are distributed among several financial institutions to reduce the concentration of credit risk. Our swap agreements with our derivative counterparties contain a provision where if the Company defaults on any of its indebtedness, and repayment of the indebtedness has been accelerated, the Company could also be declared in default on its derivative obligations.
The following derivative instruments were outstanding as offor the end of the period:fiscal years ended:
Fair Value | ||||||||
February 2, | ||||||||
Derivatives designated as hedging instruments: | ||||||||
Interest rate swaps | Accrued liabilities | $ | (3,518 | ) | ||||
Interest rate swaps | Other liabilities | (6,967 | ) | |||||
Total derivatives | $ | (10,485 | ) | |||||
Fair Value | ||||||||||||
Balance Sheet Location | January 31, 2021 | February 2, 2020 | ||||||||||
Derivatives designated as hedging instruments: | ||||||||||||
Interest rate swaps | Accrued liabilities | $ | (8,350 | ) | $ | (3,518 | ) | |||||
Interest rate swaps | Other liabilities | (4,416 | ) | (6,967 | ) | |||||||
Total derivatives (1) | $ | (12,766 | ) | $ | (10,485 | ) | ||||||
| (1) | The balance at January 31, 2021 relates to our swap agreements after hedge accounting was discontinued. |
The following table summarizes the activity in accumulated other comprehensive loss related to our interest rate swap derivative instruments:instruments for the fiscal years ended:
February 2, | ||||
Loss recognized in accumulated other comprehensive loss | $ | (10,485 | ) | |
Loss reclassified from accumulated other comprehensive loss into net earnings | $ | 969 | ||
Income tax benefit of interest rate swaps in accumulated other comprehensive loss | $ | 2,864 | ||
January 31, 2021 | February 2, 2020 | |||||||
Amount of loss recorded in accumulated other comprehensive income | $ | 7,602 | $ | 11,454 | ||||
Amount of loss reclassified into income (1) | $ | (6,453 | ) | $ | (969 | ) | ||
Income tax expense (benefit) in accumulated other comprehensive income | $ | (314 | ) | $ | (2,864 | ) | ||
| (1) | Amounts reclassified into |
F-12
Revenue recognition
Power Cards
purchased and used by customers to activate video and redemption games. Redemption games allow customers to earn tickets, which may be redeemed for prizes in our WIN! area. We have deferred a portion of amusement revenues for the estimated unfulfilled performance obligations based on an estimated rate of future use by customers of unused game play credits and the material right provided to customers to redeem tickets in the future for prizes. We estimate the amount of deferred revenue based upon credits and tickets remaining on Power Cards, historic game play credit and ticket utilization patterns and estimates of the standalone selling prices
of
game play credits and the customer material right. The standalone selling price of the customer material right is estimated using an equivalent chip cost plus margin approach. For purposes of recognizing revenue, the total amount collected from each customer is then allocated between the two performance obligations based on the relative standalone selling price of each obligation.Total deferred amusement revenue is included in “Accrued liabilities” in our Consolidated Balance Sheets. During the fiscal year ended February 2, 2020,January 31, 2021, we recognized revenue of approximately $31,000
$20,100related to the amount in deferred amusement revenue as of the end of fiscal 19
.We sell gift cards, which do not have expiration dates, and we do not deductIncome.Income (Loss). The contract liability related to our gift cards is included in “Accrued liabilities” in our Consolidated Balance Sheets. During the fiscal year ended February 2, 2020,January 31, 2021, we recognized revenue of approximately $4,700
$2,330non-usage
fees from outstanding gift card balances. The Company recognizes revenue from gift cards upon redemption by the customer. For unredeemed gift cards that the Company expects to be entitled to breakage and for which there is not a legal obligation to remit the unredeemed gift card balances to the relevant jurisdictions, the Company recognizes expected breakage as revenue in proportion to the pattern of redemption by the customers. The determination of the gift card breakage is based on the Company’s specific historical redemption patterns. Recognized gift card breakage revenue is included in “Amusements and other revenues” in the Consolidated Statements of Comprehensive related to the amount in deferred gift card revenue as of the end of fiscal 2018,2019, of which approximately $780
$570 was gift card breakage revenue.Revenues are reported net of sales-related taxes collected from customers to be remitted to governmental taxing authorities. Sales tax collected is included in “Accrued liabilities” until the taxes are remitted to the appropriate taxing authorities. CertainHistorically, certain of our promotional programs include multiple performance obligations that are discounted from the standalone selling prices. We allocate the entire discount to the amusement performance obligation.
Advertising costs
Comprehensive Income.
Leases
F-13
contract. Generally, the Company’s lease contracts do not provide a readily determinable implicit rate, and therefore, the Company uses an estimated incremental borrowing rate as of the commencement date in determining the present value of lease payments. The Company uses judgment in determining its incremental borrowing rate, which includes selecting a yield curve based on a hypothetical credit rating.
Our leases typically have initial terms ranging from ten to twenty years and most include options to extend the leases for one or more
5-year
periods. Generally, the lease term includes the noncancelable period of the lease inclusive of reasonably certain renewal periods up to a term of twenty years. The Company’s lease agreements generally contain rent holidays and/or escalating rent clauses. Lease cost is recognized on a straight-line basis over the lease term. The Company is generally obligated for the cost of property taxes, insurance and maintenance of the leased assets, which are often variable lease payments. Our leases typically provide for a fixed base rent plus contingent rent to be determined as a percentage of sales greater than certain specified target amounts. Contingent rental payments, when considered probable, are recognized as variable lease expenses. The Company accounts for the lease components andnon-lease
components, primarily fixed maintenance, for all leases, as a single lease component for new and modified leases. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.Tenant incentives used to fund leasehold improvements are recognized when earned and reduce our ROU asset related to the lease. Tenant incentives are amortized through the ROU asset as reductions of expense over the lease term. The balance of leasehold improvement incentive receivables was $6,339 and $10,742 at February 2, 2020 and February 3, 2019, respectively, and is reflected as a reduction of the current portion of operating lease liabilities as of the end of fiscal 2019. As of the end of fiscal 2018, the balance was included in “Other current assets” in the Consolidated Balance Sheets.liabilities. We consider the concentration of credit risk for tenant improvement allowance receivables from landlords to be minimal due the payment histories and general financial condition of our landlords.
During fiscal 2020, the Company entered into 126 initial rent relief agreements with our respective landlords on operating locations and our corporate headquarters. Under these agreements, certain rent payments will be abated, deferred or modified without penalty for various periods, generally providing for full deferral for three months beginning April 2020, with partial deferrals continuing for periods of up to six months at approximately 50% of those locations. The Company has chosen not to pay rent or to pay a portion of operating lease obligations as they become due for five properties without any rent relief agreements as of the end of fiscal 2020. As the pandemic continued to impact our business into the fourth quarter, the Company renewed negotiations with the majority of these landlords in order to provide additional rent relief, generally seeking to push out or extend the terms of deferral pay back periods and/or provide rent relief beyond the periods in the initial agreements. In anticipation of the second phase of relief agreements, the Company chose not to pay certain scheduled deferred rent payments or not to pay all or a portion of rent due under the initial rent relief agreements, for an additional 52 locations. As of the end of fiscal 2020, the Company had executed 17 rent relief agreements related to the second phase of negotiations. The Company has elected to apply the practical expedient to account for lease concessions and deferrals resulting directly from
COVID-19
as though the enforceable rights and obligations to the deferrals existed in the respective contracts at lease inception and will not account for the concessions as lease modifications, unless the concession results in a substantial increase in the Company’s obligations. During fiscal 2020, 130 of our 143 rent relief agreements qualified for this accounting election, and the remaining agreements were treated as lease modifications, primarily due to a significant extension of the lease term. As of January 31, 2021, we have bifurcated our current operating lease liabilities into the portion that remains subject to accretion and the portion that is accounted for as a deferral of payments or as short payments. The current portion of deferred occupancy costs or short pays is included in “Accrued liabilities” and the balance, or $16,243, is included in “Other liabilities” in the Consolidated Balance Sheets.Operating leases are included within the “Operating lease right of use assets”, “Accrued liabilities” and “Operating lease liabilities” in the Consolidated Balance Sheets. Operating lease payments are classified as cash flows from operating activities with ROU asset amortization and the change in the lease liability combined within “Other liabilities” in the reconciliation of net income to cash flows provided by operating activities in the Consolidated StatementsStatements of Cash Flows.
F-14
Self-insurance programs
Pre-opening
costsPre-opening
costs include costs associated with the opening and organizing of new stores, including the cost of feasibility studies,pre-opening
rent, training, relocation, recruiting and travel costs for pre-opening
activities. Allpre-opening
costs are expensed as incurred.Income taxes
The calculation of tax liabilities involves judgment and evaluation of uncertainties in the interpretation of federal and state tax regulations. We evaluate our exposures associated with our various tax filing positions and recognize a tax benefit from an uncertain tax position only if it is more likely than not that the position will be sustained on examination by the taxing authorities based on the technical merits of the position. For uncertain tax positions that do not meet this threshold, we have established accruals for taxes that may become payable in future years as a result of audits by tax authorities. Tax accruals are adjusted as events occur that affect the potential liability for taxes such as the expiration of statutes of limitations, conclusion of tax audits, identification of additional exposure based on current calculations, identification of new issues, or the issuance of statutory or administrative guidance or rendering of a court decision affecting a certain issue.
Foreign currency
Earnings per share
January 31, 2021 | February 2, 2020 | February 3, 2019 | ||||||||||
Basic weighted average shares outstanding | 43,549,887 | 33,450,217 | 39,047,106 | |||||||||
Weighted average dilutive impact of awards (1) | — | 649,161 | 928,016 | |||||||||
Diluted weighted average shares outstanding | 43,549,887 | 34,099,378 | 39,975,122 | |||||||||
(1) | Amounts exclude all potential common and common equivalent shares for periods when there is a net loss. |
F-15
Recently adopted accounting guidance
2017-04
, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment,
In August 2018, the FASB issued ASU, which eliminates, modifies and adds disclosure requirements for fair value measurements. The Company adopted this standard as of the beginning of fiscal year 2020, and the adoption did not have a material impact on our consolidated financial statements.
2018-13,
Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement
On February 4, 2019, we adopted Accounting Standards Update (“ASU”)ASU. This newThe guidance requires the recognition of lease liabilities, representing future minimum lease payments on a discounted basis, and corresponding ROU assets on the balance sheet for most leases. We adopted this standard using a modified retrospective approach, and we elected the transition method that allows us to initially apply the new standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The comparative period information has not been restated.
2016-02,
Leases (Topic 842)
Upon adoption of the new lease accounting standard, we applied the package of practical expedients, which eliminated the requirements to reassess prior conclusions about lease identification, lease classification and initial direct costs. We also elected a short-term lease exception policy and an accounting policy to not separate
The adoption of this guidance resulted in the recognition of ROU assets related to our operating leases of $877,714 and operating lease liabilities of $1,116,252. At the date of adoption, all lease-related balances consisting of $239,416 of deferred occupancy costs (including unfavorable lease liabilities) and $878 of favorable lease assets have been eliminated as an adjustment to ROU assets. We also recorded a cumulative effect reduction to the opening balance of retained earnings of $145, net of tax, from adoption of this guidance. There was no significant impact to our results of operations or cash flows.non-lease
components from lease components for our facility leases.Recent accounting pronouncements
Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes
In January 2017,March 2020, the FASB issued ASU2017-042020-04,, Intangibles – Goodwillwhich provides temporary optional expedients and Other (Topic 350): Simplifyingexceptions to the Testcurrent guidance for Goodwill Impairment,
Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Reform on Financial Reporting
de-designation
of the de-designation
of our hedging relationships in fiscal 2020.Note 2: Inventories
Inventories consist of the following for the fiscal years ended: following:
February 2, | February 3, | |||||||
Operating store - food and beverage | $ | 7,950 | $ | 7,617 | ||||
Operating store - amusement | 9,585 | 9,258 | ||||||
Corporate - | 16,942 | 10,440 | ||||||
| $ | 34,477 | $ | 27,315 | |||||
January 31, 2021 | February 2, 2020 | |||||||
Operating store—food and beverage | $ | 4,175 | $ | 7,950 | ||||
Operating store—amusement | 8,640 | 9,585 | ||||||
Corporate—amusement, supplies and other | 10,992 | 16,942 | ||||||
| $ | 23,807 | $ | 34,477 | |||||
Amusement inventory includes electronics, plush toys and small novelty and other items used as redemption prizes for certain midway games, as well as supplies needed for midway operations.
Note 3: Property and Equipment
Property and equipment consist of the following for the fiscal years ended:following:
February 2, | February 3, | |||||||
Land | $ | 9,021 | $ | 2,444 | ||||
Buildings and building improvements | 23,484 | 17,153 | ||||||
Leasehold improvements | 793,698 | 698,328 | ||||||
Furniture, fixtures and equipment | 412,716 | 338,605 | ||||||
Games | 286,195 | 251,819 | ||||||
Construction in progress | 62,347 | 75,166 | ||||||
Total cost | 1,587,461 | 1,383,515 | ||||||
Accumulated depreciation | (686,824 | ) | (578,178 | ) | ||||
Property and equipment, net | $ | 900,637 | $ | 805,337 | ||||
January 31, 2021 | February 2, 2020 | |||||||
Land | $ | 12,302 | $ | 9,021 | ||||
Buildings and building improvements | 37,417 | 23,484 | ||||||
Leasehold improvements | 805,229 | 793,698 | ||||||
Furniture, fixtures and equipment | 430,331 | 412,716 | ||||||
Games | 295,170 | 286,195 | ||||||
Construction in progress | 33,382 | 62,347 | ||||||
Total cost | 1,613,831 | 1,587,461 | ||||||
Accumulated depreciation | (798,804 | ) | (686,824 | ) | ||||
Property and equipment, net | $ | 815,027 | $ | 900,637 | ||||
Depreciation expense totaled $138,789 for fiscal 2020, $132,399 for fiscal 2019, and $118,087 for fiscal 2018, and $102,178 for fiscal 2017.2018.
During fiscal 2019,2020, we purchased landrecognized business interruption insurance and property insurance recoveries of $160 and $595, respectively, related to flooding at one of our stores, and a net gain on disposal of fixed assets of $500, which are included in Gloucester, New Jersey and Gainseville, Florida“other store operating expenses” in the amountsConsolidated Statements of $3,766 and $2,811, respectively.purchased landrecognized business interruption insurance recoveries of approximately $3,075 related to three major hurricanes that made landfall during fiscal 2017 and negatively impacted certain store revenues, which are included in Wichita, Kansas“Other store operating expenses” in the amountConsolidated Statements of
Comprehensive Income (Loss). During fiscal
2018, we Comprehensive Income (Loss).
We also recognized property insurance recoveries of approximately $541, related to the events, which resulted in a net gain on disposal of fixed assets of approximately $180, which is included in “Other store operating expenses” in the Consolidated Statements ofComprehensive Income (Loss). Additionally, duringDuring fiscal 2018, we completed a sale-leaseback transaction under which we sold the land and buildings of one of our stores to an unrelated party we recordedfor net proceeds from the sale of $$11,571.
F-17
Note 4: Accrued Liabilities
Accrued liabilities consist of the following as of the fiscal years ended:
February 2, | February 3, | |||||||
Deferred amusement revenue | $ | 75,113 | $ | 64,143 | ||||
Current portion of operating lease liabilities, net ( 1 ) | 45,611 | — | ||||||
Current portion of deferred occupancy costs | — | 15,737 | ||||||
Compensation and benefits | 23,421 | 24,280 | ||||||
Deferred gift card revenue | 11,253 | 9,450 | ||||||
Property taxes | 7,226 | 7,278 | ||||||
Current portion of long-term insurance | 6,500 | 5,900 | ||||||
Dividend payable | 4,891 | — | ||||||
Utilities | 4,442 | 4,032 | ||||||
Customer deposits | 4,324 | 3,731 | ||||||
Sales and use taxes | 4,000 | 5,226 | ||||||
Current portion of derivatives | 3,518 | — | ||||||
Inventory liabilities | 2,179 | 2,876 | ||||||
Variable rent liabilities | 1,331 | 2,245 | ||||||
Other (Note 10) | 13,643 | 12,266 | ||||||
Total accrued liabilities | $ | 207,452 | $ | 157,164 | ||||
January 31, 2021 | February 2, 2020 | |||||||
Deferred amusement revenue | $ | 78,852 | $ | 75,113 | ||||
Current portion of operating lease liabilities, net (1) | 46,471 | 45,611 | ||||||
Current portion of deferred occupancy costs | 36,121 | 0 | ||||||
Compensation and benefits | 13,846 | 23,421 | ||||||
Accrued interest | 11,321 | 648 | ||||||
Deferred gift card revenue | 10,918 | 11,253 | ||||||
Current portion of derivatives | 8,350 | 3,518 | ||||||
Property taxes | 8,149 | 7,226 | ||||||
Current portion of long-term insurance | 5,100 | 6,500 | ||||||
Utilities | 4,151 | 4,442 | ||||||
Sales and use taxes | 1,385 | 4,000 | ||||||
Customer deposits | 1,373 | 4,324 | ||||||
Dividend payable | 0 | 4,891 | ||||||
Other (Note 10) | 8,753 | 16,505 | ||||||
Total accrued liabilities | $ | 234,790 | $ | 207,452 | ||||
| (1) | The balance of leasehold incentive receivables of $8,763 and $6,339 at January 31, 2021 and February 2, 2020, respectively, is reflected as a reduction of the current portion of operating lease liabilities. |
Note 5: Debt
Long-term debt consists of the following as of the fiscal years ended:following:
February 2, | February 3, | |||||||
Credit Facility - term | $ | 266,250 | $ | 281,250 | ||||
Credit Facility - revolver | 382,000 | 113,000 | ||||||
Total debt outstanding | 648,250 | 394,250 | ||||||
Less current installments - term | (15,000 | ) | (15,000 | ) | ||||
Less debt issuance costs - term | (561 | ) | (781 | ) | ||||
Long-term debt, net | $ | 632,689 | $ | 378,469 | ||||
January 31, 2021 | February 2, 2020 | |||||||
Credit Facility—term | $ | 0 | $ | 266,250 | ||||
Credit Facility—revolver | 60,000 | 382,000 | ||||||
Senior secured notes | 550,000 | 0 | ||||||
Total debt outstanding | 610,000 | 648,250 | ||||||
Less current installments | — | (15,000 | ) | |||||
Less debt issuance costs | (13,612 | ) | (561 | ) | ||||
Long-term debt, net | $ | 596,388 | $ | 632,689 | ||||
On August 17, 2017, we enteredprovidesprovided a $300,000 term loan facility and a $500,000 revolving credit facility with a maturity date of August 17, 2022. The $500,000 revolving credit facility includes a $35,000 letter of creditThe revolving credit facility is available to provide financing for general purposes. Principal payments on the term loan facility of $3,750 perquarter arewere required beginning December 31, 2017 through maturity, when the remaining balance isbecame due. Our currentThe credit facility is secured by the assets of D&B Inc and is unconditionally guaranteed by D&B Holdings and each of its direct and indirect domestic wholly-owned subsidiaries. As of February 2, 2020, we had letters of credit outstanding of $8,147 and $109,853 of borrowing available under our credit facility.
into
a senior secured credit facility that sub-facility
and a $15,000 swing loansub-facility.
Our credit facility containsand Notes contain restrictive covenants that, among other things, place certain limitations on our ability to:to incur additional indebtedness, make loans or advances to subsidiaries and other entities, pay dividends, acquire other businesses or sell assets. In addition, our credit facility requires us to maintain certain financial ratio
covenants. As
Effective April 14, 2020, we amended our existing credit facility, which provided relief from compliance with financial covenants through the third quarter of February 2,fiscal 2020. The interest rate spread increased to 2.00% plus a LIBOR floor of 1.00%.
F-18
On October 27, 2020, the Company wasissued $550,000 aggregate principal amount of 7.625% senior secured notes (the “Notes”). Interest on the Notes accrues from October 27, 2020 and is payable in arrears on November 1 and May 1 of each year, commencing on May 1, 2021. The Notes mature on
November 1, 2025
, unless earlier redeemed, and are subject to the terms and conditions set forth in the related indenture. The Notes were issued by D&B Inc and are unconditionally guaranteed by D&B Holdings and certain of D&B Inc’s existing and future wholly owned material domestic subsidiaries, which is substantially the same as the guarantors of the Company’s existing credit facility.Concurrent and subject to the issuance of the Notes, the Company entered into a second amendment to its existing credit facility, which included relief from testing compliance with certain financial covenants until the restrictive last day of the fiscal quarter ending on May 1, 2022. During the financial covenant suspension period the Company is required to maintain minimum liquidity (primarily availability under the credit facility) of $150,000. The second amendment extended the maturity date of the $500,000 revolving portion of the facility from August 17, 2022 to August 17, 2024,
inc
the interest ratereased
spread to
4.00% during the financial covenant suspension period,
and instituted a
1.00% utilization feeduring that same time period. The utilization fee is due
at maturity. After the financial ratio covenantscovenant suspension period, the interest rate spread ranges from
1.25% to
3.00%. The second amendment terminated the term loan portion of ourthe credit facility, which triggered payment of $
1,900of lender debt costs associated with the first amendment.
The Company used the proceeds of the Notes offering, along with cash on hand, to repay the $255,000 principal balance of the term loan facility, $463,000 of borrowings under the revolving credit facility, and related accrued interest. The Company incurred debt costs of $18,300, which are being amortized over the terms of the respective Notes and revolving credit facility. The Company also recorded a loss of $904 related to the unamortized debt costs associated with the term portion of the credit facility.
For fiscal 2020 and fiscal 2019, the Company’s weighted average interest rate on outstanding borrowings was 5.40% and 3.98%, respectively. As of January 31, 2021, we had letters of credit outstanding of $9,686 and an unused commitment balance of $430,314 under the revolving credit facility.
Future debt obligations
2020 | $ | 15,000 | ||
2021 | 15,000 | |||
2022 | 618,250 | |||
Total future payments | $ | 648,250 | ||
2024 | $ | 60,000 | ||
2025 | 550,000 | |||
Total future payments | $ | 610,000 | ||
Interest expense, net
February 2, | February 3, | February 4, | ||||||||||
Interest expense on credit facilities | $ | 21,246 | $ | 13,408 | $ | 8,697 | ||||||
Amortization of issuance cost | 792 | 792 | 739 | |||||||||
Interest income | (119 | ) | (136 | ) | (224 | ) | ||||||
Capitalized interest | (982 | ) | (1,009 | ) | (786 | ) | ||||||
Change in fair value of interest rate cap | — | 58 | 239 | |||||||||
Total interest expense, net | $ | 20,937 | $ | 13,113 | $ | 8,665 | ||||||
January 31, 2021 | February 2, 2020 | February 3, 2019 | ||||||||||
Interest expense on debt | $ | 29,124 | $ | 20,277 | $ | 13,408 | ||||||
Interest associated with swap agreements | 6,453 | 969 | 0 | |||||||||
Amortization of issuance cost | 2,184 | 792 | 792 | |||||||||
Interest income | (22 | ) | (119 | ) | (136 | ) | ||||||
Capitalized interest | (849 | ) | (982 | ) | (1,009 | ) | ||||||
Change in fair value of interest rate cap | 0 | 0 | 58 | |||||||||
Total interest expense, net | $ | 36,890 | $ | 20,937 | $ | 13,113 | ||||||
Note 6: Income Taxes
On December 22, 2017,March 27, 2020, the U.S. government enacted the Tax CutsCoronavirus Aid, Relief and JobsEconomic Security Act (“TaxCARES Act”). The Tax was signed into law. Intended to provide economic relief to those impacted by the made significant changes to corporate taxation, including a reduction of the corporate tax rate from 35% to 21%, creating a territorial tax system, allowing for immediate expensing of certain qualified property, modifying or repealing many business deductions and credits, implementing a deemed repatriation transition tax, and providing other incentives.
COVID-19
pandemic, the CARES Actincludes provisions, among others, allowing for the carryback of net operating losses generated in fiscal 2018, 2019 and 2020 and technical amendments regarding the expensing of qualified improvement property. We accelerated tax depreciation expense due to the technical amendments made by the CARES Act to qualified improvement property and carried back tax net operating losses from fiscal 2020 and fiscal 2019 to years with a higher federal corporate income tax rate. We expect to file fiscal 2020 carryback claims during fiscal 2021, and we
expect
that these claims will generate cash refunds of approximately $55,400.The effects of these claims were included in our provision for income taxes based on the best information available at the time we prepared or consolidated financial statements. Legislative and judicial developments relating to these provisions may evolve and the actual effect of these claims may differ, which, in turn, may result in adjustments to our effective tax rate.
Additionally, the CARES Act, in efforts to enhance business’ liquidity, provides for the deferral of the employer-paid portion of social security taxes. As of January 31, 2021, we have elected to defer employer-paid portion of social security taxes of $4,798. The current portion is included in “Accrued liabilities” and the balance is included in “Other liabilities” in the Consolidated Balance Sheets.
The following table sets forth our income tax provision for the fiscal yearsended:provision:
February 2, | February 3 ,9 | February 4, | ||||||||||
Current provision: | ||||||||||||
Federal | $ | 11,744 | $ | 13,456 | $ | 35,195 | ||||||
State and local | 8,562 | 10,730 | 9,112 | |||||||||
Foreign | 100 | 1,006 | (22 | ) | ||||||||
Total current provision | 20,406 | 25,192 | 44,285 | |||||||||
Deferred provision (benefit): | ||||||||||||
Federal | 7,109 | 5,029 | (5,697 | ) | ||||||||
State and local | (365 | ) | (228 | ) | (2,885 | ) | ||||||
Foreign | (271 | ) | 673 | (263 | ) | |||||||
Total deferred provision (benefit) | 6,473 | 5,474 | (8,845 | ) | ||||||||
Provision for income taxes | $ | 26,879 | $ | 30,666 | $ | 35,440 | ||||||
January 31, 2021 | February 2, 2020 | February 3, 2019 | ||||||||||
Current provision: | ||||||||||||
Federal | $ | (78,629 | ) | $ | 11,744 | $ | 13,456 | |||||
State and local | (1,360 | ) | 8,562 | 10,730 | ||||||||
Foreign | (78 | ) | 100 | 1,006 | ||||||||
Total current provision | (80,067 | ) | 20,406 | 25,192 | ||||||||
Deferred provision (benefit): | ||||||||||||
Federal | (5,415 | ) | 7,109 | 5,029 | ||||||||
State and local | 1,951 | (365 | ) | (228 | ) | |||||||
Foreign | 99 | (271 | ) | 673 | ||||||||
Total deferred provision (benefit) | (3,365 | ) | 6,473 | 5,474 | ||||||||
Provision for income taxes | $ | (83,432 | ) | $ | 26,879 | $ | 30,666 | |||||
The following table reconciles the federal statutoryeffective tax rate to the effectivefederal income tax rate for the fiscal years ended:rate:
February 2, 2020 | February 3, 2019 | February 4, 2018 | ||||||||||
Federal corporate statutory rate | 21.0 | % | 21.0 | % | 33.7 | % | ||||||
State and local income taxes, net of federal benefit | 5.4 | % | 5.3 | % | 3.8 | % | ||||||
Permanent differences | 1.5 | % | 1.2 | % | 1.4 | % | ||||||
Tax credits | (6.4 | )% | (5.0 | )% | (4.0 | )% | ||||||
Share-based compensation | (0.9 | )% | (3.4 | )% | (7.3 | )% | ||||||
Impacts related to the Tax Act | — | % | — | % | (5.1 | )% | ||||||
Other | 0.5 | % | 1.6 | % | 0.2 | % | ||||||
Effective tax rate | 21.1 | % | 20.7 | % | 22.7 | % | ||||||
January 31, 2021 | February 2, 2020 | February 3, 2019 | ||||||||||
| Federal income tax rate | 21.0 | % | 21.0 | % | 21.0 | % | ||||||
State and local income taxes, net of federal benefit | 2.7 | % | 5.4 | % | 5.3 | % | ||||||
Permanent differences | (0.2 | ) % | 1.5 | % | 1.2 | % | ||||||
Tax credits | 0.7 | % | (6.4 | )% | (5.0 | )% | ||||||
Share-based compensation | (0.2 | ) % | (0.9 | )% | (3.4 | )% | ||||||
| Impact of net operating loss carryback | 7.5 | % | — | % | — | % | ||||||
Other | (2.8 | ) % | 0.5 | % | 1.6 | % | ||||||
Effective tax rate | 28.7 | % | 21.1 | % | 20.7 | % | ||||||
F-20
Components of the deferred income tax asset (liability) consist of the following as of the fiscal years ended:following:
February 2, 2020 | February 3, 2019 | |||||||
Deferred tax assets: | ||||||||
Deferred revenu e | $ | 21,961 | $ | 18,503 | ||||
Operating lease liability | 355,566 | 16,678 | ||||||
Accrued liabilities | 3,744 | 5,510 | ||||||
Workers compensation and general liability insurance | 4,397 | 4,103 | ||||||
Share-based compensation | 6,740 | 5,991 | ||||||
Hedging transactions | 2,864 | — | ||||||
Net operating loss carryovers | 2,817 | 3,177 | ||||||
Indirect benefit of unrecognized tax benefits | 525 | 574 | ||||||
Other | 3,209 | 2,431 | ||||||
Total | 401,823 | 56,967 | ||||||
Valuation allowance | (2,620 | ) | (1,341 | ) | ||||
Total deferred tax assets, net of valuation allowance | 399,203 | 55,626 | ||||||
Deferred tax liabilities: | ||||||||
Trademark/tradename | (21,583 | ) | (21,498 | ) | ||||
Property and equipment | (108,685 | ) | (40,171 | ) | ||||
Operating lease right of use asset | (279,812 | ) | — | |||||
Other | (586 | ) | (1,855 | ) | ||||
Total deferred tax liabilities | (410,666 | ) | (63,524 | ) | ||||
Net deferred income tax liability | $ | (11,463 | ) | $ | (7,898 | ) | ||
Reported as: | ||||||||
Deferred tax assets, net - noncurrent | 7,639 | 6,736 | ||||||
Deferred tax liabilities, net - noncurrent | (19,102 | ) | (14,634 | ) | ||||
Net deferred income tax liability | $ | (11,463 | ) | $ | (7,898 | ) | ||
January 31, 2021 | February 2, 2020 | |||||||
Deferred revenue | $ | 24,136 | $ | 21,961 | ||||
Operating lease liability | 383,378 | 355,566 | ||||||
Accrued liabilities | 1,332 | 3,744 | ||||||
Workers compensation and general liability insurance | 3,923 | 4,397 | ||||||
Share-based compensation | 7,236 | 6,740 | ||||||
Hedging transactions | 3,488 | 2,864 | ||||||
Net operating loss carryovers | 10,303 | 2,817 | ||||||
Tax credit carryovers | 3,054 | 810 | ||||||
Indirect benefit of unrecognized tax benefits | 639 | 525 | ||||||
Other | 5,549 | 2,399 | ||||||
| Total deferred tax assets | 443,038 | 401,823 | ||||||
Trademark/tradename | (21,583 | ) | (21,583 | ) | ||||
Property and equipment | (127,969 | ) | (108,685 | ) | ||||
Operating lease right of use asset | (287,030 | ) | (279,812 | ) | ||||
Other | (493 | ) | (586 | ) | ||||
Total deferred tax liabilitie s | (437,075 | ) | (410,666 | ) | ||||
Net deferred tax asset (liability) before valuation allowance | 5,963 | (8,843 | ) | |||||
Valuation allowanc e | (13,747 | ) | (2,620 | ) | ||||
Net deferred tax liability | $ | (7,784 | ) | $ | (11,463 | ) | ||
As of February 2, 2020,January 31, 2021, we had $56,632had $157,779 of state net operating loss carryforwards,
which will begin to expire in 2020,202carryforwardscarryforwards of $618,$6,528, which will begin to expire in 2029, and foreign tax credit carryovers of $779,$870, which will begin to expire in 2028.
1
, foreign operating loss We also have general business credit carryovers of $2,158, which will begin to expire in 2040.
A reconciliation of the beginning and ending amount of unrecognized tax benefits follows, for the fiscal years ended:follows:
February 2, 2020 | February 3, 2019 | February 4, 2018 | ||||||||||
Balance at beginning of year | $ | 2,333 | $ | 1,568 | $ | 1,348 | ||||||
Additions for tax positions of prior years | 463 | 435 | — | |||||||||
Reductions for tax positions of prior years | (44 | ) | (30 | ) | (31 | ) | ||||||
Additions for tax positions of current year | 450 | 437 | 290 | |||||||||
Settlements with taxing authorities | (390 | ) | — | — | ||||||||
Lapse of statute of limitations | (732 | ) | (77 | ) | (39 | ) | ||||||
Balance at end of year | $ | 2,080 | $ | 2,333 | $ | 1,568 | ||||||
January 31, 2021 | February 2, 2020 | February 3, 2019 | ||||||||||
Balance at beginning of year | $ | 2,080 | $ | 2,333 | $ | 1,568 | ||||||
Additions for tax positions of prior years | 28 | 463 | 435 | |||||||||
Reductions for tax positions of prior years | — | (44 | ) | (30 | ) | |||||||
Additions for tax positions of current year | 660 | 450 | 437 | |||||||||
Settlements with taxing authorities | — | (390 | ) | — | ||||||||
Lapse of statute of limitations | (204 | ) | (732 | ) | (77 | ) | ||||||
Balance at end of year | $ | 2,564 | $ | 2,080 | $ | 2,333 | ||||||
The February 2, 2020January 31, 2021 balance of unrecognized tax benefits includes $1,945,$2,337, that if recognized, and February 3, 2019, we had accrued interest and penalties of
would
affectour
effective tax rate. As of January 31, 2021, and February 2, 2020,$412
and $
penalties as a component of the provision for income taxes recognized in the Consolidated Statements of Comprehensive Income.Income
(
Loss)
.
In the next twelve months, it is reasonably possible that our unrecognized tax benefits could change due to the resolution of certain tax matters, including payments on those tax matters or due to lapse of the statute of limitations. These resolutions and payments could reduce our unrecognized tax benefits by up to approximately $250.$
280.F-21
We file consolidated income tax returns with all our domestic subsidiaries, which are periodically audited by various federal, state and foreign jurisdictions. We are generally no longer subject to federal, state, or foreign income tax examinations for years prior to 2014.
The Company recorded excess tax benefitsexpense (benefits) of $1,201, $4,998
($1,201), and $437,
in fiscal 2020, fiscal 2019 and fiscal 2018, and fiscal 2017, respectively, to the provision for income taxes in the Consolidated Statements of Comprehensive Income.Income (Loss).
Note 7: Leases
The components of lease expense, including variable lease costs primarily consisting of common area maintenance charges and property taxes, are as follows for the fiscal year ended:follows:
February 2, | ||||
Operating lease cost | $ | 124,065 | ||
Variable lease cost | 30,009 | |||
Short-term lease cost (1) | 435 | |||
Total lease cost | $ | 154,509 | ||
January 31, 2021 | February 2, 2020 | |||||||
Operating lease cost | $ | 132,658 | $ | 124,065 | ||||
Variable lease cost | 25,360 | 30,009 | ||||||
Short-term lease cost (1) | 457 | 435 | ||||||
Total lease cost | $ | 158,475 | $ | 154,509 | ||||
| (1) | We have elected the short-term lease recognition exemption for all applicable classes of underlying assets. Leases with an initial term of 12 months or less, that do not include a purchase option that we are reasonably certain to exercise, are not recorded on the Consolidated Balance Sheet. |
Operating lease cost, variable lease cost and short-term lease cost related primarily to our facilities is included in “Other store operating expenses” for our operating stores,“Pre-opening “Pre-opening costs” for our stores not yet operating, or “General and administrative expenses” for our corporate office and warehouse, in the Consolidated Statements of Comprehensive Income.
February 2, | ||||
Cash paid for operating lease liabilities | $ | 123,748 | ||
ROU assets obtained in exchange for new operating lease liabilities (1) | $ | 220,648 | ||
Weighted-average remaining lease term - operating leases (in years) | 15.7 | |||
Weighted-average discount rate - operating leases | 5.90 | % | ||
2021 | $ | 125,624 | ||
2022 | 133,289 | |||
2023 | 126,375 | |||
2024 | 122,836 | |||
2025 | 120,537 | |||
Thereafter | 1,394,995 | |||
Total future operating lease liability | $ | 2,023,656 | ||
| Less: amount representing interest | 749,652 | |||
| Present value of operating lease liabilities | $ | 1,274,004 |
curre
guidance, consisted of nt
February 3, 2019 | February 4, 2018 | |||||||
Base rentals | $ | 109,481 | $ | 93,387 | ||||
Contingent rentals | 3,526 | 3,427 | ||||||
Total rent expense | $ | 113,007 | $ | 96,814 | ||||
Supplemental disclosures of cash flow information related to leases were as follows:
January 31, 2021 | February 2, 2020 | |||||||
Cash paid for operating lease liabilities | $ | 77,292 | $ | 123,748 | ||||
ROU assets obtained in exchange for new operating lease liabilities (1) | $ | 98,218 | $ | 220,648 | ||||
Weighted-average remaining lease term - operating leases (in years) | 14.8 | 15.7 | ||||||
Weighted-average discount rate - operating leases | 5.94 | % | 5.90 | % | ||||
| (1) | Excludes the transition adjustment at adoption of Topic 842 in fiscal 2019. |
2019 | $ | 122,501 | ||
2020 | 117,908 | |||
2021 | 111,642 | |||
2022 | 104,195 | |||
2023 | 100,779 | |||
Ther e after | 1,229,803 | |||
Total | $ | 1,786,828 | ||
2022 | $ | 132,037 | ||
2023 | 138,413 | |||
2024 | 135,388 | |||
2025 | 134,488 | |||
2026 | 134,915 | |||
Thereafter | 1,374,294 | |||
Total future operating lease liability | $ | 2,049,535 | ||
| Less: interest | (726,510 | ) | ||
Present value of operating lease liabilities | $ | 1,323,025 | ||
F-22
Operating lease payments in the table above includes minimum lease payments for three future sites for which the leases have commenced. Operating lease payments exclude approximately $173,000 of minimum lease payments for seven executed facility leases which have not yet commenced.
Note 8: Stockholders’ Equity
Effective March 18, 2020, the Board of Directors of the Company adopted a
364-day
duration Shareholder Rights Plan (the “Rights Plan”) and declared a dividend of one preferred share purchase right for each outstanding share of common stock to shareholders of record on March 30, 2020 to purchase from the Company oneone-ten
thousandth of a share of Series A Junior Participating Preferred Stock, par value $0.01 per share, of the Company for an exercise price of $45.00, once the rights become exercisable, subject to adjustment as provided in the related rights agreement. The Rights Plan expired on March 17, 2021.Sale of common stock
During May 2020, the Company increasedentered into an underwriting agreement, pursuant to which it sold an additional
10,593,416 shares of its common stock(including shares under an over-allotment option)
at a price of $
10.44per share,
for proceeds of $110,600, prior to deducting offering costs.
Share repurchases and cash dividends
As a result of the impacts to our business arising from therepurchase authorization to $800,000. The share repurchase authorization expirespurchases and dividend payments were indefinitely suspended, and at the end of fiscal 2020, the Company’s share repurchase program expired. During fiscal 2019 and asfiscal 2018, the Company purchased 7,116,585 and 3,080,419 shares of stock for $297,317 and $149,125, respectively. Our Board of Directors authorized and declared quarterly cash dividends totaling $0.62 and $0.30 per share of common stock during fiscal 2019 and fiscal 2018, respectively. The fiscal 2019 fourth quarter dividend was paid in the endfirst quarter of fiscal 2019, there was approximately $172,820 of share repurchase authorization remaining.
COVID-19
pandemic, share Fiscal 2019 | Fiscal 2018 | Fiscal 2017 | ||||||||||
Total number of shares repurchased | 7,116,585 | 3,080,419 | 2,636,616 | |||||||||
Average price paid per share | $ | 41.78 | $ | 48.41 | $ | 57.62 | ||||||
To t al cash paid for share repurchases | $ | 297,317 | $ | 149,125 | $ | 151,913 | ||||||
2020.
The Company treats shares withheld for tax purposes on behalf of our employees in connection with the vesting of performance restricted stock units as common stock repurchases because they reduce the number of shares that would have been issued upon vesting. These withheld shares of common stock arewere not considered common stock repurchases under our authorized common stockthe share repurchase plan and are not included in the table above.plan. During the fiscal year ended 2020, 2019, we withheld 58,715, 11,536, respectively.
and fiscal year ended 2018,
and 16,251
shares of common stock to satisfy $929, $595and $673
of employees’ tax obligations,Share-based compensation
The Company maintains an equity incentive plan under which it may grant awards denominated in the Company’s common stock or units of the Company’s common stock, as well as cash variable compensation awards. The Company’s long-term incentive compensation provides awards to executive and management personnel as well as directors. Prior to October 2014, we issued share-based awards under our 2010 Stock Incentive Plan,, and alloutstanding outstanding grants under thisoptions, restricted stockoption or restricted stock units (“RSU’s”) to executive and management personnel as well as directors. The maximum number of shares of common stock issuable under the 2014 Stock Incentive Plan is 3,100,000 shares. Time-based options granted to employees generally become exercisable ratably over aRSU’srestricted stock units awarded to employees fully vest after three years, subject to the achievement of specified performance conditions. Market stock units (“MSU’s”) awarded to employees vest ratably over a
three-year period from the grant date, subject to the achievement of specific market conditions. Time-basedplan
were
fully vestedas of
theend of fiscal 2018.
Share-based awards granted after October 2014 were issued pursuant to the terms of our 2014 Stock Incentive Plan. We may grant stock three-year
period from the grant date. Performance-based restricted stock units
have various service periods not exceeding five years.
F-23
Options granted under both plans terminate on the (“
ten-year
anniversary of the grants. Stock option awards generally provide continued vesting, in the event of termination, for employees that reach age 60 or greater and have at least ten years of service or for employees that reach age 65(“retired employees”). Unvested stock options, and restricted stock and RSU’sunits are generally forfeited by employees who terminate prior to vesting and prorated for retired employees.
Each share granted subject to a stock option award or time-based RSU
restricted stock unit
award reduces the number of shares available under our stock incentive plans by one share. Each share granted subject to a performance RSUrestricted stock unit or market stock unit award reduces the number of shares available under our stock incentive plans by a range of
1 share if the target performance or market condition is achieved, up to a maximum of 2 shares for performance or market condition achieved above target and a minimum of 0 shares if performance or market condition achieved isbelow a minimum threshold target. On June
23,
2020, shareholders approved a proposal to amend the
2014Stock Incentive Plan to increase the number of shares available for awards to
6,100,000shares. The number of unissued common shares reserved for future grants under the
2014Stock Incentive Plan is approximately
3,300,000as of January 31, 2021. The Company satisfies stock option exercises and vesting of restricted stock units with newly issued shares.
The valuationgrant date fair value of our stock option awards has been determined using the Black-Scholes option valuation model. The Black-Scholes option valuation model uses assumptions of expected volatility, the expected dividend yield of our stock, the expected term of the awards and the risk-free interest rate, as well as an estimated fair value of our common stock. Fair value valuation analyses were prepared by an independent third-party valuation firm, utilizing the market-determined share price. Since our stock had not been publicly traded prior to our IPO, the expected volatility was based on an average of the historical volatility of certain of our competitors’ stocks over the expected term of the share-based awards with the calculation placing more weight on company-specific volatilities each year thereafter. The dividend yield assumption was based on our history. The simplified method was used to estimate the expected term of share-based awards. This method was used because the Company does not have enough historical option activity to derive an expected life. The risk-free interest rate was based on the implied yield on U.S. Treasuryterm.
zero-coupon
issues with a remaining term equivalent to the expected term. No options were granted during fiscal 2020.The significant assumptions used in determining the underlying fair value of the weighted-average options granted in fiscal 2019 2018 and 20172018 were as follows:
Fiscal 2019 | Fiscal 2018 | Fiscal 2017 | ||||||||||
Volatility | 34.2 | % | 32.7 | % | 32.9 | % | ||||||
Risk free interest rate | 2.34 | % | 2.73 | % | 2.00 | % | ||||||
Expected dividend yield | 1.15 | % | 0.00 | % | 0.00 | % | ||||||
Expected term – in years | 6.0 | 6.0 | 6.0 | |||||||||
Weighted average grant-date fair value | $ | 16.93 | $ | 15.36 | $ | 20.54 | ||||||
Fiscal 2019 | Fiscal 2018 | |||||||
Volatility | 34.2 | % | 32.7 | % | ||||
Risk free interest rate | 2.34 | % | 2.73 | % | ||||
Expected dividend yield | 1.15 | % | 0.00 | % | ||||
Expected term – in years | 6.0 | 6.0 | ||||||
Weighted average grant-date fair value | $ | 16.93 | $ | 15.36 | ||||
Based on the terms and conditions of our MSU awards, the grant date fair value of the MSU’s was determined using a Monte-Carlo simulation model, which simulated the Company’s stock price over the performance period using a volatility assumption of 126.2%, and a risk-free interest rate of 0.16% to discount the value of the award. The dividend yield was 0 as the Company has suspended dividends as a result of the
COVID-19
pandemic.Compensation expense related to stock options with only service conditions (time-based) is recognized on a straight-line basis over the requisite service period for each separately vesting portion of the award or to the date on which retirement eligibility is achieved, if shorter. Compensation expense related to stock option plans was $1,318, $3,010, $3,185, and $4,875$3,185 during the fiscal years ended January 31, 2021, February 2, 2020, and February 3, 2019, and February 4, 2018, respectively.
Compensation expense for RSU’s andtime-based restricted sharesstock units is based on the market price of the shares underlying the awards on the grant date. Compensation expense for RSU’s based on performanceperformance-based restricted stock units reflects the estimated probability that performance conditions at target or above will be met, and time-based RSU’s and restricted sharesmet. Restricted stock units are
F-24
expensed ratably over the service period. The effect of market conditions is considered in determining the grant date fair value of MSU awards, which is not subsequently revised based on actual performance. We recorded compensation expense related to our RSU’s and restricted sharesstock unit awards of $
5,667, $3,847, Compensation expense related to stock options and restricted stock units is included in “General and administrative expenses” in the Consolidated Statements of Comprehensive Income (Loss). Forfeitures are estimated at the time of grant and adjusted, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The forfeiture rate is based on historical experience.
Transactions related to stock option awards during fiscal 20192020 were as follows:
2014 Stock Incentive Plan | 2010 Stock Incentive Plan | |||||||||||||||
Number of Options | Weighted Average Exercise Price | Number of Options | Weighted Average Exercise Price | |||||||||||||
Outstanding at February 3, 2019 | 1,134,218 | $ | 34.22 | 359,984 | $ | 6.48 | ||||||||||
Granted | 222,266 | 52.04 | — | — | ||||||||||||
Exercised | (13,887 | ) | 36.87 | (93,084 | ) | 5.79 | ||||||||||
Forfeited | (19,102 | ) | 49.43 | — | — | |||||||||||
Outstanding at February 2, 2020 | 1,323,495 | 36.97 | 266,900 | 6.72 | ||||||||||||
Exercisable at February 2, 2020 | 922,734 | $ | 31.49 | 266,900 | $ | 6.72 | ||||||||||
2014 Stock Incentive Plan | 2010 Stock Incentive Plan | |||||||||||||||
Number of Options | Weighted Average Exercise Price | Number of Options | Weighted Average Exercise Price | |||||||||||||
Outstanding at February 2, 2020 | 1,323,495 | $ | 36.97 | 266,900 | $ | 6.72 | ||||||||||
Granted | — | — | — | — | ||||||||||||
Exercised | — | — | (93,337 | ) | 5.27 | |||||||||||
Forfeited | (91,894 | ) | 39.56 | — | — | |||||||||||
Outstanding at January 31, 2021 | 1,231,601 | 36.77 | 173,563 | 7.51 | ||||||||||||
Exercisable at January 31, 2021 | 1,043,759 | $ | 34.60 | 173,563 | $ | 7.51 | ||||||||||
The total intrinsic value of options exercised during fiscal 2020, 2019, and 2018 and
Transactions related to time-based and performance-based RSU’srestricted stock unit awards during fiscal 20192020 were as follows:
Shares | Weighted Avg Grant Date Fair Value | |||||||
Outstanding at February 3, 2019 | 220,830 | $ | 47.79 | |||||
Granted | 76,602 | 51.44 | ||||||
Change in units based on performance | 27,372 | 39.10 | ||||||
Vested | (102,405 | ) | 40.08 | |||||
Forfeited | (5,584 | ) | 49.53 | |||||
Outstanding at February 2, 2020 | 216,815 | $ | 51.58 | |||||
Shares | Weighted Avg Grant Date Fair Value | |||||||
Outstanding at February 2, 2020 | 216,815 | $ | 51.58 | |||||
Granted | 1,064,336 | 12.75 | ||||||
Change in units based on performance | 4,352 | 59.67 | ||||||
Vested | (104,752 | ) | 38.50 | |||||
Forfeited | (64,410 | ) | 25.58 | |||||
Outstanding at January 31, 202 1 | 1,116,341 | $ | 17.32 | |||||
respectively. The unrecognized expense related to our time-based and performance-based RSU’srestricted stock units was approximately $4,800$
7,009 as of of
2.0 years.Note 9: Employee Benefit Plans
We sponsor a defined contribution plan to provide retirement benefits under the provisions of Section 401(k) of the Internal Revenue Code (the “401(k) Savings Plan”) for all employees who have completed a specified term of service. We provide for a guaranteed matching of 25% of employee contributions, up to a maximum of 6% of eligible employee compensation, as defined by the 401(k) Plan. We also have a discretionary contribution dependent upon attaining a specified performance target. Should we achieve the performance target, it would contribute an additional 25% of qualified employee contributions. Employees may elect to contribute up to 50% of their eligible compensation on a pretax basis. Benefits underUnder the
F-25
401(k) Savings Plan, are limitedthe Company may match 25% of employee contributions, up to a maximum of 6% of eligible employee compensation, as defined. If a specified performance target is achieved, there may be an annual discretionary contribution by the assetsCompany, based on eligible employee contributions. As a result of the 401(k) Plan.impacts to our business arising from theourCompany contributions to the 401(k) Savings Plan were $0, $817, and $692 $1,089 for fiscal 2020, 2019, and 2018, and 2017, respectively.
COVID-19
pandemic, the Company suspended matching of employee contributions during fiscal 2020. Expenses related to compensation
plan that permits a select group of management or highly compensated employees to defer a portion of their compensation. Under this plan, eligible employees may electto defer up to 50%
50% of their base salary on a
pre-tax
basis each plan year. Each pay period, weUnder the deferred compensation plan, the Company may match 25%
25% of the employee’s contributions up to the first 6%
6% of salary deferred. At the end of each year, if ourIf a specified performance target is met, we contributeachieved, there may be an additional amount, equalannual discretionary contribution by the Company, based on eligible employee contributions. As a result of the impacts to our business arising from the
COVID-19
pandemic, the employer match contributed each pay period. Company suspended matching of employee contributions during fiscal 2020.
Any contributions to a participant’s account vest in equal portions over a The Company recognized $158, $135,$
0, $
158, and $246 $
135of deferred compensation expense in fiscal 2020, 2019, 2018 and 2017,2018, respectively. The deferred compensation plan assets are invested through a rabbi trust. Assets in the rabbi trust are invested in certain mutual funds that cover an investment spectrum ranging from equities to money market instruments and are available to satisfy the claims of our creditors in the event of bankruptcy or insolvency. These mutual funds have published market prices and are reported at fair value using quoted prices available on identical assets and liabilities in active markets, representing Level One8,89610,1157,4098,896
One assets as defined by GAAP. Deferred compensation
planassets of $
and $
, at January 31, 2021 and February 2, 2020, and February 3, 2019, respectively, are included in “Other assets and deferred charges” and the offsetting deferred compensation plan liabilities are included in “Other liabilities” in the accompanying Consolidated Balance Sheets.
Note 10: Commitments and
Contingencies
We areand other guest-relatedcustomer-related incidents and similar matters. In the opinion of management, based upon consultation with legal counsel, the amount of ultimate liability, with respect to such legal proceedings and claims will not materially affect the consolidated results of our operations or our financial condition. Legal costs related to such claims are expensed as incurred.
subject
to certain legal proceedings andclaims
that arise in theordinary
course of our business, including claims alleging violations of federal and state law regarding workplace and employment matters, discrimination,slip-and-fall
The Company is currently a defendant in several lawsuits filed in courts in California alleging violations of California Business and Professions Code, industry wage orders,laws and rules and regulations pertaining primarily to the failure to pay proper regular and overtime wages, failure to pay for missed meals and rest periods, pay stub violations, failure to pay all wages due at the time of termination and other employment related claims (the “California Cases”). Some of the California Cases purport or may be determined to be class actions or Private Attorneys General Act representative actions and seek substantial damages and penalties. With respect to these California Cases, whereThe Company estimated and accrued for the most likely amount of loss during fiscal 2019 and fiscal 2020. During fiscal 2020, the Company has determined thatsettled a loss is reasonably possible but not probable, the Company is unable to estimate the amount or rangeportion of the reasonably possible loss due tocases at the inherent difficulties of predictingapproximate amount estimated. For the outcome of uncertainties regarding legal proceedings. Theremaining cases, the Company’s assessments are based on estimates and assumptions that have been deemed reasonable by management, but that may prove to be incomplete or inaccurate, and unanticipated events and circumstances may occur that might cause the Company to change those estimates and assumptions. Management’s assessment of these California Cases, as well as other lawsuits, could change because of future determinations or the discovery of facts that are not presently known. Accordingly, the ultimate costs of resolving these cases may be substantially higher or lower than estimated. The Company iscontinues to aggressively defending thesedefend the remaining cases.
wage-and-hour
F-26
We are subject to the terms of a settlement agreement with the Federal Trade Commission that requires us, on an ongoing basis, to establish, implement, and maintain a comprehensive information security program that is reasonably designed to protect the security, confidentiality, and integrity of personal information collected from or about consumers. The agreement does not require us to pay any fines or other monetary assessments and we do not believe that the terms of the agreement will have a material adverse effect on our business, operations, or financial performance.
Note 11: Earnings per share
February 2, 2020 | February 3, 2019 | Februa r y 4, 2018 | ||||||||||
Numerator: | ||||||||||||
Net income | $ | 100,263 | $ | 117,221 | $ | 120,949 | ||||||
Denominator: | ||||||||||||
Weighted average number of common shares outstanding (basic) | 33,450,217 | 39,047,106 | 41,276,314 | |||||||||
Weighted average dilutive impact of equity-based awards | 649,161 | 928,016 | 1,306,695 | |||||||||
Weighted average number of common and common equivalent shares outstanding (dilutive) | 34,099,378 | 39,975,122 | 42,583,009 | |||||||||
Net income per share: | ||||||||||||
Basic | $ | 3.00 | $ | 3.00 | $ | 2.93 | ||||||
Diluted | $ | 2.94 | $ | 2.93 | $ | 2.84 | ||||||
Fiscal 2019 Quarters Ended | ||||||||||||||||
5/5/2019 | 8/4/2019 | 11/3/2019 | 2/2/2020 | |||||||||||||
Total revenues | $ | 363,582 | $ | 344,599 | $ | 299,352 | $ | 347,158 | ||||||||
Total cost of products | 61,725 | 59,623 | 52,180 | 59,783 | ||||||||||||
Operating income | 57,750 | 46,214 | 6,499 | 37,616 | ||||||||||||
Net income | 42,443 | 32,356 | 482 | 24,982 | ||||||||||||
Net income per share of common stock: | ||||||||||||||||
Basic | $ | 1.15 | $ | 0.91 | $ | 0.02 | $ | 0.82 | ||||||||
Diluted | $ | 1.13 | $ | 0.90 | $ | 0.02 | $ | 0.80 | ||||||||
Weighted average number of shares outstanding: | ||||||||||||||||
Basic | 36,827,665 | 35,407,965 | 30,980,878 | 30,584,360 | ||||||||||||
Diluted | 37,591,944 | 36,015,710 | 31,515,454 | 31,158,919 | ||||||||||||
Stores open at end of period | 127 | 130 | 134 | 136 | ||||||||||||
Fiscal 2018 Quarters Ended | ||||||||||||||||
5/6/2018 | 8/5/2018 | 11/4/2018 | 2/3/2019 | |||||||||||||
Total revenues | $ | 332,190 | $ | 319,188 | $ | 282,139 | $ | 331,784 | ||||||||
Total cost of products | 57,139 | 55,556 | 48,734 | 58,834 | ||||||||||||
Operating income | 58,604 | 45,930 | 15,472 | 40,994 | ||||||||||||
Net income | 42,150 | 33,779 | 11,856 | 29,436 | ||||||||||||
Net income per share of common stock: | ||||||||||||||||
Basic | $ | 1.06 | $ | 0.86 | $ | 0.30 | $ | 0.77 | ||||||||
Diluted | $ | 1.04 | $ | 0.84 | $ | 0.30 | $ | 0.75 | ||||||||
Weighted average number of shares outstanding: | ||||||||||||||||
Basic | 39,695,421 | 39,355,105 | 38,892,288 | 38,245,612 | ||||||||||||
Diluted | 40,612,388 | 40,280,301 | 39,855,648 | 39,065,459 | ||||||||||||
Stores open at end of period | 112 | 117 | 118 | 121 | ||||||||||||
Fiscal 2020 Quarters Ended | ||||||||||||||||
5/3/2020 | 8/2/2020 | 11/1/2020 | 1/31/2021 | |||||||||||||
Total revenues | $ | 159,806 | $ | 50,833 | $ | 109,052 | $ | 116,821 | ||||||||
Total cost of products | 28,072 | 8,684 | 17,908 | 20,241 | ||||||||||||
Operating loss | (61,413 | ) | (81,115 | ) | (56,043 | ) | (54,041 | ) | ||||||||
Net loss | (43,544 | ) | (58,602 | ) | (48,043 | ) | (56,785 | ) | ||||||||
Net loss per share of common stock: | ||||||||||||||||
Basic | $ | (1.37 | ) | $ | (1.24 | ) | $ | (1.01 | ) | $ | (1.19 | ) | ||||
Diluted | $ | (1.37 | ) | $ | (1.24 | ) | $ | (1.01 | ) | $ | (1.19 | ) | ||||
Weighted average number of shares outstanding: | ||||||||||||||||
Basic | 31,829,985 | 47,111,763 | 47,613,741 | 47,644,062 | ||||||||||||
Diluted | 31,829,985 | 47,111,763 | 47,613,741 | 47,644,062 | ||||||||||||
| Company-owned stores at end of period | 137 | 137 | 137 | 140 | ||||||||||||
Fiscal 2019 Quarters Ended | ||||||||||||||||
5/5/2019 | 8/4/2019 | 11/3/2019 | 2/2/2020 | |||||||||||||
Total revenues | $ | 363,582 | $ | 344,599 | $ | 299,352 | $ | 347,158 | ||||||||
Total cost of products | 61,725 | 59,623 | 52,180 | 59,783 | ||||||||||||
Operating income | 57,750 | 46,214 | 6,499 | 37,616 | ||||||||||||
Net income | 42,443 | 32,356 | 482 | 24,982 | ||||||||||||
Net income per share of common stock: | ||||||||||||||||
Basic | $ | 1.15 | $ | 0.91 | $ | 0.02 | $ | 0.82 | ||||||||
Diluted | $ | 1.13 | $ | 0.90 | $ | 0.02 | $ | 0.80 | ||||||||
Weighted average number of shares outstanding: | ||||||||||||||||
Basic | 36,827,665 | 35,407,965 | 30,980,878 | 30,584,360 | ||||||||||||
Diluted | 37,591,944 | 36,015,710 | 31,515,454 | 31,158,919 | ||||||||||||
Company-owned stores at end of period | 127 | 130 | 134 | 136 | ||||||||||||
Refer to Note 13: Subsequent Events1 of our Consolidated Financial Statements for a discussion of the material impact of the
COVID-19
pandemic on our business during fiscal 2020.