UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

FOR THE QUARTERLY PERIOD ENDED NOVEMBER 2, 2014May 3, 2015

OR

FOR THE TRANSITION PERIOD FROM                    TO                    

Commission File No. 001-35664

Dave & Buster’s Entertainment, Inc.

(Exact name of registrant as specified in its charter)

2481 Mañana Drive

Dallas, Texas 75220

(Address of principal executive offices)

(Zip (Zip Code)

(214) 357-9588

(Registrant’s telephone number, including area code)

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  ¨x    No  x¨

Indicate by checkmark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “small reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

As of December 15, 2014,June 3, 2015, there were 39,969,23341,122,534 shares of the Issuer’s common stock outstanding.

DAVE & BUSTER’S ENTERTAINMENT, INC.

FORM 10-Q FOR PERIOD ENDED NOVEMBER 2, 2014MAY 3, 2015

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION

DAVE & BUSTER’S ENTERTAINMENT, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)amounts)

See accompanying notes to consolidated financial statements.

DAVE & BUSTER’S ENTERTAINMENT, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSSINCOME (UNAUDITED)

(in thousands, except share and per share data)amounts)

See accompanying notes to consolidated financial statements.

DAVE & BUSTER’S ENTERTAINMENT, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (UNAUDITED)

(in thousands, except share and per share data)

See accompanying notes to consolidated financial statements.

DAVE & BUSTER’S ENTERTAINMENT, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)

(in thousands, except share data)amounts)

See accompanying notes to consolidated financial statements.

DAVE & BUSTER’S ENTERTAINMENT, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)

See accompanying notes to consolidated financial statements.

DAVE & BUSTER’S ENTERTAINMENT, INC.

Notes to Consolidated Financial Statements

(in thousands, except share and per share data)amounts)

Note 1: Description of Business and Basis of Presentation

Description of Businessbusiness and basis of presentation—On June 1, 2010, Dave & Buster’s Entertainment, Inc. (“D&B Entertainment”), is a newly-formed Delaware corporation owned byheadquartered in Dallas, Texas. As of May 3, 2015, Oak Hill Capital Partners III, L.P. and Oak Hill Capital Management Partners, III, L.P. (collectively, the “Oak Hill Funds”) acquired allbeneficially owned approximately 62.1% of the Company’s outstanding common stock of Dave & Buster’s Holding, Inc. (“D&B Holdings”) from Wellspring Capital Partners III, L.P and HBK Main Street Investors L.P. In connection therewith, Games Merger Corp., a newly-formed Missouri corporation and an indirect wholly-owned subsidiary of D&B Entertainment, merged with and into D&B Holdings’ wholly-owned, direct subsidiary, Dave & Buster’s, Inc. (with Dave & Buster’s, Inc. being the surviving corporation in the merger). Dave & Buster’s, Inc. owns and operates high-volume venues in North America that combine dining and entertainment for both adults and families.stock.

D&B Entertainment owns no significant assets or operations other than the ownership of all the common stock of Dave & Buster’s Holdings, Inc. (“D&B Holdings.Holdings”). D&B Holdings owns no significant assets or operations other than the ownership of all the common stock of Dave & Buster’s, Inc. (“D&B Inc”). References to the “Company”, “we”, “us”, and “our” refersrefer to D&B Entertainment and its subsidiaries and any predecessor companies. All material intercompany accounts and transactions have been eliminated in consolidation.

On October 9, 2014, we amended our certificate of incorporation to increase our authorized The Company’s activities are conducted through D&B Inc. All dollar amounts are presented in thousands, unless otherwise noted, except share count to 450,000,000 shares of stock, including 400,000,000 shares of common stock and 50,000,000 shares of preferred stock, each with a par value of $0.01 per share and to split our common stock 224.9835679 for 1. On October 16, 2014, we amended and restated our certificate of incorporation in its entirety.

On October 9, 2014, we completed our initial public offering of 5,882,353 shares of common stock at a price to the public of $16.00 per share. On October 10, 2014, the Company’s common stock began trading on the NASDAQ Global Market under the ticker symbol “PLAY”. We had granted the underwriters an option for a period of 30 days to purchase an additional 882,352 shares of our common stock which was exercised in full on October 21, 2014. After underwriting discounts and commissions and offering expenses, we received net proceeds from the initial public offering (the “IPO”) of approximately $98,573. We used these proceeds to repay a portion of the principal amount of term loan debt outstanding under the new senior secured credit facility.amounts.

We operate our business as one operating and one reportable segment. Our one industry segment is the operation and licensing of high-volume entertainment and dining venues under the names “Dave & Buster’s” and “Dave & Buster’s Grand Sports Café”.” We operate on a 52 or 53 week fiscal year that ends on the Sunday after the Saturday closest to January 31. Each quarterly period has 13 weeks, except for a 53 week year when the fourth quarter has 14 weeks. Our fiscal years ending January 31, 2016 (“fiscal 2015”) and February 1, 2015, and February 2, 2014, both consist of 52 weeks.

During the first thirty-nine weeks of fiscalIn October 2014, we opened fiveamended and restated our certificate of incorporation to increase our authorized share count to 450,000,000 shares of stock, including 400,000,000 shares of common stock and 50,000,000 shares of preferred stock, each with a par value $0.01 per share and to split our common stock 224.9835679 for 1. On October 9, 2014, we completed our initial public offering (the “IPO”) of 5,882,353 shares of common stock at a price of $16.00 per share. We granted the underwriters an option to purchase an additional 882,352 shares of common stock, which was exercised in full on October 21, 2014. Unless otherwise noted herein, historic share data has been adjusted to give effect to the stock split.

On February 5, 2015, we completed a follow-on offering of 6,600,000 shares of our common stock at a price of $29.50 per share. We granted the underwriters an option to purchase an additional 990,000 shares of our common stock which was exercised in full on February 20, 2015. All of these shares were offered by the selling stockholders. In connection with the offering, 300,151 options were exercised at a weighted average price of $4.49. We issued new stores. shares in satisfaction of this exercise. We received $1,346 upon the exercise of options which were sold as part of this offering.

On May 27, 2015, subsequent to the end of our first quarter, we completed a follow-on offering of 9,775,000 shares of our common stock (including the underwriters overallotment option of 1,275,000 shares) at a price of $31.50 per share. All of these shares were offered by the selling stockholders. In connection with the offering, 853,155 options were exercised at a weighted average price of $4.46. We issued 604,743 new shares and utilized 248,412 treasury shares in satisfaction of this exercise. We received $3,809 upon the exercise of options which were sold as part of this offering.

As of November 2, 2014,May 3, 2015, there were 70 company-owned74 stores in the United States and Canada. We have alsoDuring the first quarter, we opened new stores in Albuquerque,Pelham Manor (metro New MexicoYork City), New York on NovemberApril 27, 2015 and Euless (Dallas), Texas on May 3, 2015 and permanently closed our location in Farmingdale (Long Island), New York (“Farmingdale”) on February 8, 2015. Revenues for our Farmingdale store were $110 and $2,365 in the thirteen weeks ended May 3, 2015 and May 4, 2014, Clackamas (Portland), Oregon on November 10, 2014respectively. Operating loss for the store was $443 for the thirteen weeks ended May 3, 2015 and Greenville, South Carolina on November 17,operating income was $509 for the same period of fiscal 2014. On August 12, 2014, we permanently closed our location in Kensington/Bethesda, Maryland (“Bethesda”). Revenues for our Bethesda store were $5,416$2,912 and $8,973 inoperating income was $722 for the thirty-ninethirteen weeks ended November 2, 2014May 4, 2014. Subsequent to May 3, 2015, we opened new stores in Kentwood (Grand Rapids), Michigan on May 18, 2015 and November 3, 2013, respectively. Operating income for the store was $851 for the thirty-nine weeks ended November 2, 2014, and $2,109 for the same period of fiscal 2013.

Reclassifications—All share and per-share data herein have been retroactively adjusted to reflect the 224.9835679 for 1 stock split as though it had occurred prior to the earliest data presented. One reclassification has been made to the fiscal year 2013 Consolidated Balance Sheets to conform to the fiscal year 2014 presentation. We reclassified $333 of Paid-in capital as of February 2, 2014, to Common stock to effect the 224.9835679 for 1 stock split.Woburn (Boston), Massachusetts on May 26, 2015.

Related Party Transactionsparty transactions ——Funds managed by Oak Hill Advisors, L.P. (the “OHA Funds”) comprise one of the creditors participating in the term loan portion of our new senior secured credit facility. As of November 2, 2014,May 3, 2015, the OHA Funds held approximately 10.8%5.0% or $46,622$21,403 of our total term loan obligation. Oak Hill Advisors, L.P. is an independent investment firm that is not an affiliate of the Oak Hill Funds and is not under common control with the Oak Hill Funds. Certain employees of the Oak Hill Funds, in their individual capacities, have passive investments in Oak Hill Advisors, L.P. and/or the funds it manages.

Subsequent to May 3, 2015, the IPO,Company refinanced its debt and the OHA Funds no longer participate in our term loan. See “Note 3: Long-Term Debt” for further discussions.

As of May 3, 2015, the Oak Hill Funds beneficially own approximately 79.2%62.1% of our outstanding stock and certain members of our Board of Directors and our management beneficially own approximately 3.7%2.2% of our outstanding stock. The remaining 35.7% is owned by the public. Subsequent to the May 27, 2015 follow-on offering, the Oak Hill Funds continue tobeneficially own a majority of the voting powerapproximately 40.1% of our outstanding commonstock and certain members of our Board of Directors and our management beneficially own approximately 1.1% of our outstanding stock. As a result, we are a “controlled company” within the meaning of the corporate governance standards of NASDAQ.

DAVE & BUSTER’S ENTERTAINMENT, INC.

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share data)

We have an expense reimbursement agreement with Oak Hill Capital Management, LLC (“Oak Hill Capital”), which provides for the reimbursement of certain costs and expenses of Oak Hill Capital.expenses. We made payments to Oak Hill Capital of $7$14 and $41$27 during the thirteen and thirty-nine weeks ended November 2,May 3, 2015 and May 4, 2014, respectively,respectively. We paid compensation of $39 and $20 and $115$59 during the thirteen and thirty-nine weeks ended NovemberMay 3, 2013, respectively.

We paid board compensation of $592015 and $176 during the thirteen and thirty-nine weeks ended November 2,May 4, 2014, and November 3, 2013, respectively, to David Jones and Alan Lacy, two board members who serveserves as a senior advisorsadvisor to the Oak Hill Funds.

DAVE & BUSTER’S ENTERTAINMENT, INC.

NotesFunds, and Alan Lacy, who served as a senior advisor to Consolidated Financial Statements (continued)

(in thousands, except share and per share data)

the Oak Hill Funds until December 2014.

Interim financial statements—The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) in the United States for interim financial information as prescribed by the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, these financial statements contain all adjustments, consisting of normal recurring accruals, necessary to present fairly the financial position, results of operations and cash flows for the periods indicated. The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. We are a seasonal business, therefore operatingOperating results for the thirty-ninethirteen weeks ended November 2, 2014May 3, 2015 are not necessarily indicative of results that may be expected for any other interim period or for the year ending February 1, 2015. TheseJanuary 31, 2016. Our quarterly financial statementsdata should be read in conjunction with the audited financial statements and notes thereto for the year ended February 2, 2014,1, 2015, included in our prospectusAnnual Report on Form 10-K as filed with the SEC pursuant to Rule 424(b) (4) under the Securities Act of 1933 on October 14, 2014.

The financial statements include our accounts after elimination of all significant intercompany balances and transactions. All dollar amounts are presented in thousands, unless otherwise noted, except share amounts.SEC.

Concentration of Credit Riskcredit risk—Financial instruments which potentially subject us to a concentration of credit risk are cash and cash equivalents. We currently maintain our day-to-day operating cash balances with major financial institutions. At times, our operating cash balances may be in excess of the Federal Deposit Insurance Corporation (“FDIC”) insurance limit. From time to time, we invest temporary excess cash in overnight investments with expected minimal volatility, such as money market funds. Although we maintain balances that exceed the FDIC insured limit, we have not experienced any losses related to this balance, and we believe credit risk to be minimal.

Recent Accounting PronouncementsUse of estimates—The preparation of financial statements in conformity with GAAP requires us to make certain estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. The Company’s significant estimates include estimates for impairment of goodwill, useful lives of property and equipment, fair value of equity-based compensation, self-insurance reserves, deferred revenue on our Power Cards and gift cards, reserve for outstanding tickets, estimated effective tax rates and deferred tax valuation allowances.

Recent accounting pronouncements — In May 2014,April 2015, the Financial Accounting Standards Board (“FASB”) issued guidance outliningAccounting Standards Update (“ASU”) No. 2015-03, Interest — Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. The amendments in ASU 2015-03 require the debt issuance costs related to a single comprehensive model for entities to userecognized debt liability be presented in accounting for revenue arisingthe balance sheet as a direct deduction from contractsthe carrying amount of that debt liability, consistent with customers. This guidance requires an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Additionally, this guidance expands related disclosure requirements. This guidancedebt discounts. ASU 2015-03 is effective for reportingannual and interim periods beginning on or after December 15, 2016. We are currently evaluating2015. As of May 3, 2015, if we were to adopt ASU2015-03, $5,987 of net deferred financing costs would be reclassified from “Other assets and deferred charges” to a reduction in the impact this guidance will have oncarrying amount of our consolidated financial positiondebt.

DAVE & BUSTER’S ENTERTAINMENT, INC.

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and results of operations.per share data)

Note 2: Accrued Liabilities

Accrued liabilities consist of the following:following as of:

DAVE & BUSTER’S ENTERTAINMENT, INC.

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share data)

Note 3: Long-Term Debt

Long-term debt consisted of the following:following as of:

New Senior Secured Credit Facility—On July 25, 2014, D&B Holdings together with Dave & Buster’s, Inc.D&B Inc entered into a senior secured credit facility that provides a $530,000 term loan facility with a maturity date of July 25, 2020 and a $50,000 revolving credit facility with a maturity date of July 25, 2019. The $50,000 revolving credit facility includes a $20,000 letter of credit sub-facility and a $5,000 swingline sub-facility. The revolving credit facility will be usedis available to provide financing for general purposes.

The senior secured credit facility is secured by the assets of Dave & Buster’s, Inc. and is unconditionally guaranteed by each of its direct and indirect, existing and future domestic subsidiaries (with certain agreed-upon exceptions). The Company originally received proceeds from the term loan facility of $528,675, net of a $1,325 discount. The discount is being amortized to interest expense over the six-year life of the term loan facility.

Following the IPO, we repaid $100,000 principal amount of term loan facility. This payment was applied to the future quarterly payments required by the credit agreement. No principal payments are required until the maturity of the credit facility on July 25, 2020. In conjunction with the repayment, we incurred a loss on extinguishment charge of $1,586, consisting of the write-off of unamortized deferred debt issuance cost and unamortized discount related to the portion of the term loan that was repaid. This loss is included in the “Loss on debt retirement” in the Consolidated Statement of Comprehensive Loss.

As of November 2, 2014, we had no borrowings under the revolving credit facility, borrowings of $430,000 ($428,976, net of discount) under the term loan facility and $5,822 in letters of credit outstanding. We believe that the carrying amount of our term loan facility approximates its fair value because the interest rates are adjusted regularly based on current market conditions. The fair value of the Company’s new senior secured credit facility was determined to be a Level Two instrument as defined by GAAP.

The interest rates per annum applicable to loans, other than swingline loans, under our new senior secured credit facility are currently set based on a defined LIBOR rate plus an applicable margin. Swingline loans bear interest at a base rate plus an applicable margin. The loans bear interest subject to a pricing grid based on a secured leveraged ratio, at LIBOR plus a spread ranging from 3.25% to 3.5% for the term loans and LIBOR plus a spread ranging from 3.0% to 3.5% for the revolving loans. The stated interest rate on the term loan facility at November 2, 2014May 3, 2015 was 4.5%4.25%. The weighted average effective interest rate incurred on our borrowings under the senior secured credit facility was 4.7%. The weighted average effective rate includes amortization of debt issuance costs and original issue discount and commitment and other fees.

The senior secured credit facility is secured by the assets of D&B Inc and is unconditionally guaranteed by each of its direct and indirect, existing and future domestic subsidiaries (with certain agreed-upon exceptions). The Company originally received proceeds from the term loan facility of $528,675, net of a $1,325 discount. The discount is being amortized to interest expense over the six-year life of the term loan facility.

Proceeds from the senior secured credit facility were used to refinance in whole the prior senior secured credit facility (of which $143,509 was outstanding as of July 25, 2014), repay in full $200,000 aggregate principal amount of the 11.0% senior notes due June 1, 2018, repay all outstanding 12.25% senior discount notes due February 15, 2016 ($150,193 accreted value as of

DAVE & BUSTER’S ENTERTAINMENT, INC.

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share data)

Proceeds fromJuly 25, 2014) and pay related premiums, interest and expenses of $30,940. As a result of the newrefinancing, we incurred a loss on extinguishment charge of $25,992, consisting of premiums for early repayment, additional interest charges, and write-off of unamortized debt issue costs and unamortized discount.

Following the IPO, we prepaid $100,000 principal amount of term loan facility. This payment was applied to the future quarterly payments required by the credit agreement. No principal payments are required until the maturity of the credit facility. In conjunction with the prepayment, we incurred a loss on extinguishment charge of $1,586, consisting of the write-off of unamortized deferred debt issuance cost and unamortized discount related to the portion of the term loan that was prepaid.

As of May 3, 2015, we had no borrowings under the revolving credit facility, borrowings of $430,000 ($429,065, net of discount) under the term facility and $5,185 in letters of credit outstanding. We believe that the carrying amount of our term loan facility approximates its fair value because the interest rates are adjusted regularly based on current market conditions. The fair value of the Company’s senior secured credit facility were usedwas determined to be a Level Two instrument as follows:defined by GAAP.

DAVE & BUSTER’S ENTERTAINMENT, INC.

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share data)

The loss on debt retirement is comprised of the following:

Our new senior secured credit facility contains restrictive covenants that, among other things, limit our ability and the ability of our subsidiaries to: incur additional indebtedness, make loans or advances to subsidiaries and other entities, make initial capital expenditures in relation to new stores, declare dividends, acquire other businesses or sell assets. In addition, under our senior secured credit facility, we are required to meet a maximum total leverage ratio if outstanding revolving loans and letters of credit (other than letters of credit that have been backstopped or cash collateralized) are in excess of 30% of the outstanding revolving commitments. As of November 2, 2014,May 3, 2015, we were not required to maintain any of the financial ratios under the senior secured credit facility and we were in compliance with the other restrictive covenants.

The following tables set forth our recorded interest expense, net for the periods indicated:

Future debt obligations— The following table sets forth our future debt principal payment obligations as of:

Subsequent to the end of our first quarter, on May 15, 2015, we entered into a new senior secured credit facility that provides a $150,000 term loan facility and a $350,000 revolving credit facility. The proceeds of this senior secured credit facility were used to refinance in full the prior senior secured credit facility (of which $430,000 was outstanding) and to pay related interest and expenses. Additionally, we utilized approximately $45,265 of available cash on hand to pay down a portion of the new revolving credit facility that was outstanding after payment in full of the prior senior secured credit facility and to pay related fees and expenses.

DAVE & BUSTER’S ENTERTAINMENT, INC.

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share data)

Future debt obligations—Note 4: Income Taxes

The following table sets forth our future debt principal payment obligations as of:

Note 4: Income Taxes

The benefitprovision for income taxes is as follows:for the periods indicated:

DAVE & BUSTER’S ENTERTAINMENT, INC.

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share data)

We use the asset/liability method for recording income taxes, which recognizes the amount of current and deferred taxes payable or refundable at the date of the financial statements as a result of all events that are recognized in the financial statements and as measured by the provisions of enacted tax laws. We also recognize liabilities for uncertain income tax positions for those items that meet the “more likely than not” threshold.

In assessing the realizability of deferred tax assetsAt May 3, 2015, we consider whether it is more likely than not that some or all of the deferred tax assets will not be realized. Accordingly, as of November 2, 2014, we have establishedhad a valuation allowance of $923 for$871 against our deferred tax assets associated with state taxes and uncertain tax positions.assets. The ultimate realization of our deferred tax assets is dependent on the generation of future taxable income during periods in which temporary differences and tax credit carryforwards become deductible.

The calculation In assessing the realizability of our deferred tax liabilities involves significant judgmentassets, at May 3, 2015 we considered whether it is more likely than not that some or all of the deferred tax assets will not be realized. Based on the level of recent historical taxable income; consistent generation of annual taxable income, and evaluationestimations of uncertainties infuture taxable income we have concluded that it is more likely than not that we will realize the interpretationfederal tax benefits associated with our deferred tax assets. We assessed the realizability of federalthe deferred tax assets associated with state taxes, foreign taxes and stateuncertain tax regulations. Aspositions and have concluded that it is more likely than not that we will realize only a result,portion of these benefits. Accordingly, we have established accruals for taxes that may become payablea valuation allowance to reduce those deferred tax assets to an amount which we believe will ultimately be realized. During the first quarter 2015, as a result of our assessment, we reduced our previously established valuation allowance by $60.

As of May 3, 2015, we had remaining available $3,273 federal tax credit carryovers, including $3,210 of general business credits and $63 of AMT credit carryovers, and $39,619 of state net operating loss carryforwards. There is a 20 year carry-forward on general business credits and AMT credits can be carried forward indefinitely. The general business credits do not begin to expire until 2030 and are expected to be utilized in future years due to audits by tax authorities. Tax accruals are reviewed regularly pursuant to accounting guidance for uncertainty in income taxes. 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 exposure2015 based on current calculations, identificationenacted tax laws. As of new issues, the issuanceMay 3, 2015, we have no federal net operating loss carryforwards. Generally, state net operating losses can be carried forward 20 years. State net operating loss carryforwards do not begin to expire until 2024. As of statutory or administrative guidance, or renderingMay 3, 2015, we could not conclude that it was more likely than not that all of our state net operating loss carryforwards, when considered on a court decision affecting a particular issue. Accordingly, westate by state basis, will be fully utilized prior to their expiration. Included in our total valuation allowance is $672 related to state net operating losses that may experience significant changes in tax accruals in the future, if or when such events occur.not be realized.

As of November 2,May 3, 2015 and May 4, 2014, we havethe accrued interest and penalties on the unrecognized tax benefits were $355 and $322, respectively, excluding any related income tax benefits. The Company recorded accrued interest related to the unrecognized tax benefits and penalties as a component of the provision for income taxes recognized in the Consolidated Statements of Comprehensive Income.

We currently anticipate that approximately $457$14 of unrecognized tax benefits will be settled through federal and approximately $316state audits or will be recognized as a result of penalties and interest.the expiration of statute of limitations during fiscal 2015. Future recognition of potential interest or penalties, if any, will be recorded as a component of income tax expense. Because of the impact of deferred income tax accounting, $330$564 of unrecognized tax benefits, if recognized, would affect the effective tax rate.

The Company expectsWe file income tax returns, which are periodically audited by various federal, state and foreign jurisdictions. We are generally no longer subject to utilize approximately $6,558 of available federal, state, or foreign income tax credit carryforwardsexaminations for years prior to offset our estimated consolidated cash tax liability for the 2014 fiscal year. We anticipate having approximately $3,267 of federal tax credit carryforwards at February 1, 2015, including $2,886 of general business credits and $381 of Alternative Minimum Tax (“AMT”) credit carryforwards. There is a 20-year carryforward on general business credits and AMT credits can be carried forward indefinitely.2010.

Note 5: Commitments and Contingencies

We are subject to certain legal proceedings and claims that arise in the ordinary course of our business.business, including claims alleging violations of federal and state law regarding workplace and employment matters, discrimination 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.

On November 14, 2013, Dave & Buster’s, Inc. filed a complaint in federal court seeking declaratory and injunctive relief related to actions taken by a landlord attempting to terminate the lease agreement for our Bethesda store. The landlord alleged that the Company was in default of certain lease agreement provisions which restrict our ability to operate other Dave & Buster’s facilities within a prescribed distance of the Bethesda location. We believed that the lease provisions cited by the landlord were not legally enforceable and that the Company had the right to operate all facilities for the duration of the original lease term and any available lease extension periods. On July 21, 2014, the court issued its final ruling against the Company and the Bethesda store permanently closed on August 12, 2014. All our fixed assets from the Bethesda store are either fully depreciated or transferred to other locations. As with past store closures, we have experienced customer migration to other stores within the same market.

DAVE & BUSTER’S ENTERTAINMENT, INC.

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share data)

We lease certain property and equipment under various non-cancelable operating leases. Some of the leases include options for renewal or extension on various terms. Most of the leases require us to pay property taxes, insurance and maintenance of the leased assets. Certain leases also have provisions for additional percentagecontingent rentals based on revenues.

The following table sets forth our lease commitments as of November 2, 2014:May 3, 2015:

We have signed operating lease agreements for our stores located in Albuquerque, New Mexico, Clackamas (Portland)Kentwood (Grand Rapids), OregonMichigan, and Greenville, South CarolinaWoburn (Boston), Massachusetts, which opened for business on November 3, 2014, November 10, 2014May 18, 2015 and November 17, 2014,May 26, 2015, respectively. In addition weWe also have a signed lease agreementsagreement for a future sitessite located in Woburn (Boston)Edina (Minneapolis), Massachusetts, Pelham, New York and Euless (Dallas), Texas.Minnesota which is expected to open in the second quarter of fiscal 2015. The landlord has fulfilled the obligations to commit us to the lease terms under these agreements and therefore, the future obligations related to these locations are included in the table above.

As of November 2, 2014,May 3, 2015, we have signed elevenfifteen additional lease agreements which contain certain landlord obligations which remain unfulfilled as of that date.for future sites. Our commitments under these agreements are contingent upon among other things, the landlord’s delivery of access to the premises for construction. Future obligations related to these agreements are not included in the table above.table. Subsequent to the quarter ended May 3, 2015, our future site located in Friendswood (Houston), Texas, included in the fifteen lease agreements noted above, has been delivered by the landlord resulting in future commitments of approximately $22,511. We also have a signed lease agreement for a future site in Buffalo, New York which will replace an existing location. This site was delivered by the landlord subsequent to the end of the first quarter resulting in additional future commitments of $4,707.

Note 6: Earnings per share

Basic earnings per share (“EPS”) represents net lossincome divided by the weighted average number of common shares outstanding during the period. Diluted EPS represents net lossincome divided by the basic weighted average number of common shares plus, if dilutive, potential common shares outstanding during the period. Potential common shares consist of incremental common shares issuable upon the exercise of outstanding stock options.options or the fulfillment of restricted and performance share vesting conditions. The dilutive effect of potential common shares is determined using the treasury stock method.

The following tables set forthmethod, whereby outstanding stock options are assumed exercised at the computationbeginning of EPS, basicthe reporting period and diluted, for the periods indicated:exercise proceeds from such stock options are assumed to be used to repurchase our common stock at the average market price during the period.

DAVE & BUSTER’S ENTERTAINMENT, INC.

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share data)

AsThe following table sets forth the computation of November 2, 2014EPS, basic and November 3, 2013, respectively, wediluted for the periods indicated:

We had approximately 4,441,2574,397,575 and 2,102,9522,167,492 time-based and vested performance-based stock option awards outstanding under our stock option plans as of May 3, 2015 and May 4, 2014, respectively, which were included in the Dave & Buster’s Entertainment, Inc. 2010 Management Incentive Plan (the “2010 Stock Incentive Plan”) whichcomputation of potential common shares. Unvested performance-based stock options under our stock option plans were not included in the dilutive earnings per share calculation because the effect would have been anti-dilutive. In connection with the IPO, all unvested performance-based stock options were modified and became fully vested. As of November 3, 2013, 420,772 unvested Adjusted EBITDA performance-based stock options and 1,528,538 unvested internal rate of return performance-based stock options granted under the 2010 Stock Incentive Plan were not included in the earnings per share calculationpotential common shares as they did not meet the criteria for inclusion per GAAP guidance.

Note 7: Equity-based Compensation

In June 2010As of May 3, 2015, options to purchase 4,397,575 shares of common stock were outstanding; including 3,217,350 vested and 1,180,225 unvested. Current unvested options vest over time. All performance-based options vested in connection with our IPO.

For the thirteen weeks ended May 3, 2015, there were exercises of stock options for 300,151 shares and grants of 258,709 stock options and 71,741 shares of restricted stock. Restricted stock grants included 10,799 time-based shares granted to certain Board of Director members and 60,942 performance shares granted to management and certain other employees of D&B Entertainment boardthe company. All stock options granted during fiscal 2015 are time-based options.

As of May 3, 2015 there were 71,741 restricted shares outstanding. Restricted shares vest over time or upon the Company achieving certain financial goals. We base the amount of unearned compensation recorded for restricted shares on the market value of the shares on the date of issuance.

As of May 3, 2015, we had total unrecognized compensation expense of $8,496, related to unvested stock options and restricted shares, which we expect to recognize over a weighted-average period of 2.6 years.

Total stock-based compensation expense was $549 for the thirteen weeks ended May 3, 2015 and was $274 for the thirteen weeks ended May 4, 2014.

DAVE & BUSTER’S ENTERTAINMENT, INC.

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share data)

2014 Stock Incentive Plan

The 2014 Omnibus Incentive Plan (“2014 Stock Incentive Plan”) allows the granting of incentive and nonqualified stock options, stock appreciation rights, restricted stock, other stock-based awards and cash-based awards to employees, directors, approvedand consultants of the Company. The maximum number of shares of common stock issuable under the 2014 Stock Incentive Plan is 3,100,000 shares. The term of service-based stock options is determined at the date of grant. Performance-based stock options can be based upon a variety of performance measures as defined in the plan document. Each award agreement will specify the effect of a holder’s termination of employment with, or service for, the Company. Options granted under the 2014 Stock Incentive Plan terminate on the ten-year anniversary of the grants.

2010 Stock Incentive Plan which

The Dave & Buster’s Entertainment, Inc. 2010 Management Incentive Plan (“2010 Stock Incentive Plan”) provides for the granting of options to acquire stock in D&B Entertainment to certain of our employees, outside directors and consultants. The options are subject to either time-based vesting or performance-based vesting. Options granted under the 2010 Stock Incentive Plan terminate on the ten-year anniversary of the grants.

Options provided for in the 2010 Stock Incentive Plan are subject to the grantee’s continued employment with or service to D&B Entertainment or its subsidiaries (subject to certain conditions in the event of grantee termination). Service-based options contain a service-based (or time-based) vesting provision, whereby the options will vest annually in equal amounts. Performance based options contain various performance-based vesting provisions depending on the type of performance option granted. As a result of the IPO, all unvested performance basedperformance-based shares were modified and became fully vested. We recognized compensation expense of $859 during the thirteen weeks ended November 2, 2014 related to the accelerated vesting of these performance-based options. All time-based options will continue to vest under the existing vesting schedule. As

Additionally as a result of the performance-based options fully vesting, we re-evaluated our forfeiture assumptions and recognized additional compensation expense of $221 during the thirteen weeks ended November 2, 2014.

In connection withIPO, all stock option awards granted prior to the IPO we adoptedwere adjusted to affect the 2014 Omnibus Incentive Plan (the “2014224.9835679 for 1 stock split on both number of outstanding options and the exercise price. No further grants of equity or other awards will be made under the 2010 Stock Incentive Plan”), which provides for grants of stock options, stock appreciation rights, restricted stock, other stock-based awards and cash-based awards. The number of shares of common stock available for issuance under the 2014 Stock Incentive Plan may not exceed 3,100,000. During the thirteen weeks ended November 2, 2014, 444,969 options to purchase our common stock at an exercise price equal to the initial public offering price ($16.00) were granted under the 2014 Stock Incentive Plan. Half of the options will vest three years after the grant date and the other half will vest four years after the grant date. The fair value of these stock options was estimated using the Black-Scholes option valuation model, which relied on the following assumptions: expected volatility (51.29%), expected dividend yield (0%), expected weighted-average term of the awards (6.75 years); risk-free interest rate (based on U.S. Treasury rates) (1.96%) and estimated fair value at the grant date ($16.00).

We recognized equity-based compensation as a component of general and administrative expenses of $1,361 and $287 during the thirteen weeks ended November 2, 2014 and November 3, 2013, respectively, and $1,864 and $909 during the thirty-nine weeks ended November 2, 2014 and November 3, 2013, respectively. Of the total equity-based compensation recognized in the thirty-nine weeks ended November 2, 2014, $64 is related to stock options granted at the date of the IPO. As of November 2, 2014, total unrecognized compensation expense related to non-vested stock awards, including an estimate for pre-vesting forfeitures was $4,009, which is expected to be recognized over a weighted-average period of 3.9 years.

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (dollars in thousands).

The following discussion and analysis of our financial condition and results of operations should be read in conjunctiontogether with the accompanying unaudited consolidated financial statements and the related notes in Item 1 and with the audited consolidated financial statements and the related notes included in our final prospectusAnnual Report on Form 10-K as filed on October 14, 2014.with the SEC. Unless otherwise specified, the meaning of all defined terms in Management’s Discussion and Analysis are consistent with the meanings of such terms as defined in the Notes to Consolidated Financial Statements. This discussion contains statements that are, or may be deemed to be, “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements can be identified by the use of forward-looking terminology, including the terms “believes,” “estimates,” “anticipates,” “expects,” “intends,” “may,” “will” or “should” or, in each case, their negative or other variations or comparable terminology. These forward-looking statements include all matters that are not historical facts. They appear in a number of places throughout this quarterly report and include statements regarding our intentions, beliefs or current expectations concerning, among other things, our results of operations, financial condition, liquidity, prospects, growth, strategies and the industry in which we operate.

By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. Forward-looking statements are not guarantees of future performance and our actual results of operations, financial condition and liquidity, and the development of the industry in which we operate may differ materially from those made in or suggested by the forward-looking statements contained in this quarterly report as a result of various factors, including those set forth in the section entitled “Risk Factors” in our final prospectusAnnual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on October 14, 2014.April 7, 2015. In addition, even if our results of operations, financial condition and liquidity, and the development of the industry in which we operate are consistent with the forward-looking statements contained in this Form10-Q, those results or developments may not be indicative of results or developments in subsequent periods.

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. 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 “Fun American New Gourmet” 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 customers are a balanced mix of men and women, primarily aged between 21 and 39, and we believe we also serve as an attractive venue for families with children 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 44,000 square feet, range in size between 16,000 and 66,000 square feet and are open seven days a week, with 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.

Our Growth Strategies and Outlook

We plan to executeOur growth is based primarily on the following strategies to continue to enhance our brand awareness and grow our revenue:strategies:

We intend for new store expansion to be a key growth driver. Our long-term plan is to open new stores at an annual rate of approximately 10% of our existing stores. During the first thirty-ninethirteen weeks of fiscal 2014, we2015, the Company opened fivetwo new stores. As of November 2, 2014,May 3, 2015, there were 7074 company-owned stores in the UnitedUnites States and Canada. WeSubsequent to the end of our first quarter, we opened new stores in Albuquerque, New MexicoKentwood (Grand Rapids), Michigan on NovemberMay 18, 2015 and Woburn (Boston), Massachusetts on May 26, 2015 and plan to open an additional 3 2014, Clackamas (Portland), Oregon on November 10, 2014 and Greenville, South Carolina on November 17, 2014. On August 12, 2014, we permanently closed our locationto 4 stores in Kensington/Bethesda, Maryland (“Bethesda”). Revenues for our Bethesda store were $184 and $5,416 in the thirteen and thirty-nine weeks ended November 2, 2014, respectively and $2,589 and $8,973 in the thirteen and thirty-nine weeks ended November 3, 2013, respectively. Operating loss for the store was $14 for the thirteen weeks ended November 2, 2014 and operating income was $851 for the thirty-nine weeks ended November 2, 2014. Operating income was $455 and $2,109 for the same periods of fiscal 2013, respectively.

2015. To increase comparable store sales we plan to provide our customers with the latest exciting games by updating approximately 10% of our games each year, and targeting three new product launches per year in our food and beverage offerings. We also plan to leverage the D&B Sports concept by building awareness through national cable advertising and utilize our existing special events sales force and call center to attract new corporate customers. We plan to drive customer frequency by enhancing the in-store and out-of-store customer experience via digital and mobile strategic initiatives. To increase national awareness of our brand, we plan to continue to utilize national cable television and radio advertising, local store marketing programs and our customer loyalty program.

We believe that in addition to the growth potential that exists in North America, the Dave & Buster’s brand can also have significant appeal in certain international markets. Our goal is to sign an agreement with our first international partner by the end of fiscal 2014,2015, and we are targeting our first international opening outside of Canada in fiscal 2016.

We believe that we are well positioned for growth with a corporate infrastructure that can support a larger store base than we currently have, and that we will benefit from economies of scale as we expand.

For further information about our growth strategies and outlook, see the section entitled “Business — Our Growth Strategies” in our Annual Report on Form 10-K filed with the SEC.

Key Events

On July 25, 2014, we entered into a senior secured credit facility that provides a $530,000 term loan facility and a $50,000 revolving credit facility. The proceeds of the new senior secured credit facility were used to refinance in whole the prior senior secured credit facility (of which $143,509 was outstanding as of July 25, 2014), repay in full $200,000 aggregate principal amount of the 11.0% senior notes due June 1, 2010, Dave & Buster’s Entertainment, Inc. (“D&B Entertainment”), a newly-formed Delaware corporation owned by Oak Hill Capital Partners III, L.P.2018, repay all outstanding 12.25% senior discount notes due February 15, 2016 ($150,193 accreted value as of July 25, 2014) and Oak Hill Capital Management Partners III, L.P. (collectively, the “Oak Hill Funds”) acquired all of the outstanding common stock of Dave & Buster’s Holding, Inc. (“D&B Holdings”) from Wellspring Capital Partners III, L.Ppay related premiums for early redemption, interest and HBK Main Street Investors L.P.expenses. In connection therewith, Games Merger Corp.with the our initial public offering (“the IPO”), a newly-formed Missouri corporation and an indirect wholly-owned subsidiarywe prepaid $100,000 principal amount of D&B Entertainment, merged with and into D&B Holdings’ wholly-owned, direct subsidiary, Dave & Buster’s, Inc. (with Dave & Buster’s, Inc. being the surviving corporation in the merger).our senior secured credit facility

OnIn October 9, 2014, we amended and restated our certificate of incorporation to increase our authorized share count to 450,000,000 shares of stock, including 400,000,000 shares of common stock and 50,000,000 shares of preferred stock, each with a par value of $0.01 per share and to split our common stock 224.9835679 for 1. On October 16, 2014, we amended and restated our certificate of incorporation in its entirety.

On October 9, 2014, we completed our initial public offeringIPO of 5,882,353 shares of common stock at a price to the public of $16.00 per share. On October 10, 2014, the Company’s common stock began trading on the NASDAQ Global Market under the ticker symbol “PLAY”. We had granted the underwriters an option for a period of 30 days to purchase an additional 882,352 shares of common stock, which was exercised in full on October 21, 2014. Unless otherwise noted herein, historic share data has been adjusted to give effect to the stock split.

On February 5, 2015, we completed a follow-on offering of 6,600,000 shares of our common stock at a price of $29.50 per share. We granted the underwriters an option to purchase an additional 990,000 shares of our common stock which was exercised in full on October 21, 2014. After underwriting discounts and commissions andFebruary 20, 2015. All of these shares were offered by the selling stockholders. In connection with the offering, expenses, we300,151 options were exercised at a weighted average price of $4.49. We issued new shares in satisfaction of this exercise. We received net proceeds from$1,346 upon the initial public offering (the “IPO”)exercise of approximately $98,573. We used these proceeds to repay a portionoptions which were sold as part of the principal amount of term loan debt outstanding under the new senior secured credit facility.this offering.

As a result of the IPO and the repayment of a portion of our new senior credit facility, we expect to have lower interest expense, but we also expect to incur incremental costs as a public company. Incremental costs include legal, accounting, insurance and other compliance costs.

Following the issuance of the shares sold in the IPO,May 3, 2015, the Company had a total of 39,969,23340,269,379 common shares outstanding and no preferred shares outstanding as of November 2, 2014.

As a result of the IPO, theissued and outstanding. Oak Hill Funds beneficially own 79.2%owned approximately 62.1% of our outstanding common stock and have the right to appoint certain members of our Board of Directors. Certain members of our Board of Directors and our management controlbeneficially owned approximately 3.7%2.2% of our outstanding stock. The remaining 35.7% was owned by the public.

On May 15, 2015, we entered into a new senior secured credit facility that provides a $150,000 term loan facility and a $350,000 revolving credit facility. The proceeds of this senior secured credit facility were used to refinance in full the prior senior secured credit facility (of which $430,000 was outstanding) and to pay related interest and expenses. After completion of the refinancing on May 15, 2015, we had total debt and letters of credit outstanding of $389,000 and $5,185, respectively and $105,815 of borrowing available under our senior secured credit facility. As a result of the refinancing, we expect to have lower interest expense.

On May 27, 2015, subsequent to the end of our first quarter, we completed a follow-on offering of 9,775,000 shares of our common stock (including the underwriters overallotment option of 1,275,000 shares) at a price of $31.50 per share. All of these shares were offered by the selling stockholders. In connection with the offering, 853,155 options were exercised at a weighted average price of $4.46. We issued 604,743 new shares and utilized 248,412 treasury shares, in satisfaction of this exercise. We received $3,809 upon the exercise of options which were sold as part of this offering. Subsequent to the follow-on offering transactions, the Oak Hill Funds beneficially own approximately 40.1% of our outstanding stock and certain members of our Board of Directors and our management beneficially own approximately 1.1% of our outstanding common stock. The remaining 17.1%58.8% is owned by the public.

Dave & Buster’s Entertainment, Inc. (“D&B EntertainmentEntertainment”) has no material assets or operations other than 100% ownership of the outstanding common stock of Dave & Buster’s Holdings, Inc. (“D&B Holdings.Holdings”). D&B Holdings has no material assets or operations other than 100% ownership of the outstanding common stock of Dave & Buster’s, Inc. (“D&B Inc”). As such, the following discussion, unless specifically identified otherwise, addresses the operations of Dave & Buster’s,D&B Inc.

Key Measures of Our Performance

We monitor and analyze a number of key performance measures to manage our business and evaluate financial and operating performance. These measures include:

Comparable Store Salesstore sales—Comparable store sales are a year-over-year comparison of sales at stores open at the end of the period which have been opened for at least 18 months as of the beginning of each of the fiscal years. It is a key performance indicator used within the industry and is indicative of acceptance of our initiatives as well as local economic and consumer trends. Our comparable stores consisted of 5760 and 5557 stores as of November 2,May 3, 2015 and May 4, 2014, and November 3, 2013, respectively. Fiscal 2015 comparable store sales exclude sales from our Farmingdale (Long Island), NY (“Farmingdale”) location, which permanently closed on February 8, 2015. Fiscal 2014 comparable store sales exclude sales from our Bethesda location, which permanently closed on August 12, 2014.

New Store Openingsstore openings—Our ability to expand our business and reach new customers is influenced by the opening of additional stores in both new and existing markets. The success of our new stores is indicative of our brand appeal and the efficacy of our site selection and operating models.

Our new storeslocations typically open with sales volumes in excess of their run-rate levels, which we refer to as a “honeymoon” effect. We expect our new store volumes in year two to be 15% to 20% lower and to grow in line with the rest of our comparable store base thereafter. We also expect our Store-level Adjusted EBITDA margins to be two to five percentage points lower in the second full year of operations than our year one targets, and to grow in line with the rest of our comparable store base thereafter.targets. As a result of the substantial revenues associated with each new store and the seasonality of our business, the number and timing of new store openings will result in significant fluctuations in quarterly results.

Non-GAAP Financial Measures

In 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 Store-level EBITDA, Store-level EBITDA Margin, Adjusted EBITDA and Adjusted EBITDA Margin. These non-GAAP measures aredo not measurements of our operating or financial performance under GAAPrepresent and should not be considered as an alternative to performance measures derivednet income or cash flows from operations, as determined in accordance with GAAP, or as an alternative to cash flow from operating activities as measures ofand our liquidity. These non-GAAP measurescalculations thereof may not be comparable to similarly titledentitled measures usedreported 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 useduse these non-GAAP measures as a measure 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 and Adjusted EBITDA margin dodoes not take into account a number of significant items, including our interest expense and depreciation and amortization expense. Because Adjusted EBITDA does not account for these expenses, its utility as a measure of our operating performance has material limitations. In addition, Adjusted EBITDA excludes pre-opening costs and adjustments for changes in the accruals for deferred amusement revenue and ticket liability, which we expect customers to redeem in future periods and which may be important in analyzing our GAAP results. 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 current underlying business of our stores and therefore complicate comparison of underlying business between periods. Nevertheless, because of the limitations described above management does not view Adjusted EBITDA in isolation and also uses other measures, such as net sales, gross margin, operating income and net income (loss), to measure operating performance.

Store-level EBITDA and Store-level EBITDA Margin—We define “Store-level EBITDA” as net income (loss), plus interest expense, (net),net, loss on debt retirement, provision (benefit) for income taxes, depreciation and amortization expense, general and administrative expenses and pre-opening costs. We use Store-level EBITDA to measure operating performance and returns from opening new stores. “Store-level EBITDA Margin” is defined as Store-level EBITDA divided by total revenues. Store-level EBITDA Margin allows us to evaluate operating performance of each store across stores of varying size and volume.