SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE QUARTERLY PERIOD ENDED August 4, 20192, 2020
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE TRANSITION PERIOD FROMTO
FOR THE TRANSITION PERIOD FROMCommission FileNo. 001-35664
TOCommission File No. 001-35664
Dave & Buster’s Entertainment, Inc.
(Exact name of registrant as specified in its charter)
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(State or Other Jurisdiction of Incorporation or Organization) Incorporation) | | |
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2481 Mañana Drive, Dallas, Texas, 75220 | | |
(Address of principal executive offices) (Zip Code) | | Identification No.)
(Registrant’s telephone number) |
(Address of principal executive offices)
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Common Stock $0.01 par value | | | | NASDAQ Global Select Market |
Preferred Stock Purchase Rights | | | | NASDAQ StockGlobal Select Market LLC |
Securities registered pursuant to Section 12(g) of the Act: None
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 Regulation
S-T
(§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes
☒
No
☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer,
a 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 Rule
12b-2
of the Exchange Act.
| | | | | | |
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| | | | Smaller reporting company | | | ☐ |
| | | | | | |
Emerging growth companyGrowth 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 checkmark whether the registrant is a shell company (as defined in
Rule
12b-2
of the Exchange Act). Yes
☐
No
☒
As of
September
4,
2019,2020, the registrant had
30,831,29747,594,912 shares of common stock, $0.01 par value per share, outstanding.
DAVE & BUSTER’S ENTERTAINMENT, INC.
FORM
10-Q
FOR QUARTERLY PERIOD ENDED
August 4, 2019AUGUST 2, 2020 | | | | | | |
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ITEM 1. | | | | | | |
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ITEM 2. | | | | | 18 | |
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ITEM 3. | | | | | 30 | |
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ITEM 4. | | | | | 31 | |
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ITEM 1. | | | | | 31 | | |
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ITEM 1A. | | | | | 31 | |
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ITEM 2. | | | | | 32 | |
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ITEM 6. | | | | | 33 | |
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PART I – FINANCIAL INFORMATION
DAVE & BUSTER’S ENTERTAINMENT, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
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Cash and cash equivalents | | $ | | | | $ | | |
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Property and equipment (net of $627,036 and $578,178 accumulated depreciation as of August 4, 2019 and February 3, 2019, respectively) | | | | | | | | |
Operating lease right of use assets | | | | | | | | |
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Other assets and deferred charges | | | | | | | | |
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| | $ | | | | $ | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | |
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Current installments of long-term debt | | $ | | | | $ | | |
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Total current liabilities | | | | | | | | |
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Operating lease liabilities | | | | | | | | |
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Commitments and contingencies | | | | | | | | |
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Common stock, par value $0.01; authorized: 400,000,000 shares; issued: 43,337,125 shares at August 4, 2019 and 43,177,476 shares at February 3, 2019; outstanding: 32,978,834 shares at August 4, 2019 and 37,522,085 shares at February 3, 2019 | | | | | | | | |
Preferred stock, 50,000,000 authorized; NaN issued | | | | | | | | |
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Treasury stock, 10,358,291 and 5,655,391 shares as of August 4, 2019 and February 3, 2019, respectively | | | | ) | | | | ) |
Accumulated other comprehensive loss | | | | ) | | | | ) |
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Total stockholders’ equity | | | | | | | | |
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Total liabilities and stockholders’ equity | | $ | | | | $ | | |
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Cash and cash equivalents | | $ | 224,305 | | | $ | 24,655 | |
| | | 31,189 | | | | 34,477 | |
| | | 12,751 | | | | 14,269 | |
| | | 23,805 | | | | 2,331 | |
| | | 934 | | | | 3,245 | |
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| | | 292,984 | | | | 78,977 | |
Property and equipment (net of $739,805 and $686,824 accumulated depreciation as of August 2, 2020 and February 2, 2020, respectively) | | | 872,010 | | | | 900,637 | |
Operating lease right of use assets | | | 1,062,266 | | | | 1,011,568 | |
| | | 21,491 | | | | 7,639 | |
| | | 79,000 | | | | 79,000 | |
| | | 272,650 | | | | 272,636 | |
Other assets and deferred charges | | | 19,566 | | | | 19,682 | |
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| | $ | 2,619,967 | | | $ | 2,370,139 | |
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LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | |
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Current installments of long-term debt | | $ | 15,000 | | | $ | 15,000 | |
| | | 59,539 | | | | 65,359 | |
| | | 238,651 | | | | 207,452 | |
| | | 624 | | | | 3,054 | |
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Total current liabilities | | | 313,814 | | | | 290,865 | |
| | | — | | | | 19,102 | |
Operating lease liabilities | | | 1,285,533 | | | | 1,222,054 | |
| | | 38,603 | | | | 35,779 | |
| | | 731,646 | | | | 632,689 | |
Commitments and contingencies | | | | | | | | |
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Common stock, par value $0.01; authorized: 400,000,000 shares; issued: 60,422,212 shares at August 2, 2020 and 43,386,852 shares at February 2, 2020; outstanding: 47,594,912 shares at August 2, 2020 and 30,603,340 shares at February 2, 2020 | | | 604 | | | | 434 | |
Preferred stock, 50,000,000 authorized; 0ne issued | | | — | | | | — | |
| | | 526,253 | | | | 339,161 | |
Treasury stock, 12,827,300 and 12,783,512 shares as of August 2, 2020 and February 2, 2020, respectively | | | (595,728 | ) | | | (595,041 | ) |
Accumulated other comprehensive loss | | | (12,077 | ) | | | (8,369 | ) |
| | | 331,319 | | | | 433,465 | |
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Total stockholders’ equity | | | 250,371 | | | | 169,650 | |
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Total liabilities and stockholders’ equity | | $ | 2,619,967 | | | $ | 2,370,139 | |
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See accompanying notes to consolidated financial statements.
DAVE & BUSTER’S ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
(in thousands, except share and per share amounts)
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Food and beverage revenues | | $ | 17,002 | | | $ | 137,921 | |
Amusement and other revenues | | | 33,831 | | | | 206,678 | |
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| | | 50,833 | | | | 344,599 | |
Cost of food and beverage | | | 4,659 | | | | 36,934 | |
Cost of amusement and other | | | 4,025 | | | | 22,689 | |
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| | | 8,684 | | | | 59,623 | |
Operating payroll and benefits | | | 13,756 | | | | 80,927 | |
Other store operating expenses | | | 62,682 | | | | 104,376 | |
General and administrative expenses | | | 9,278 | | | | 15,991 | |
Depreciation and amortization expense | | | 35,160 | | | | 32,745 | |
| | | 2,388 | | | | 4,723 | |
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| | | 131,948 | | | | 298,385 | |
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| | | (81,115 | ) | | | 46,214 | |
| | | 8,163 | | | | 4,605 | |
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Income (loss) before provision (benefit) for income taxes | | | (89,278 | ) | | | 41,609 | |
Provision (benefit) for income taxes | | | (30,676 | ) | | | 9,253 | |
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| | | (58,602 | ) | | | 32,356 | |
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Unrealized foreign currency translation gain | | | 304 | | | | 134 | |
Unrealized gain (loss) on derivatives, net of tax | | | 1,372 | | | | (3,373 | ) |
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Total other comprehensive income ( loss ) | | | 1,676 | | | | (3,239 | ) |
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Total comprehensive income (loss) | | $ | (56,926 | ) | | $ | 29,117 | |
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Net income (loss) per share: | | | | | | | | |
| | $ | (1.24 | ) | | $ | 0.91 | |
| | $ | (1.24 | ) | | $ | 0.90 | |
Weighted average shares used in per share calculations: | | | | | | | | |
| | | 47,111,763 | | | | 35,407,965 | |
| | | 47,111,763 | | | | 36,015,710 | |
See accompanying notes to consolidated financial statements.
DAVE & BUSTER’S ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
(in thousands, except share and per share amounts)
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Food and beverage revenues | | $ | | | | $ | | |
Amusement and other revenues | | | | | | | | |
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Cost of food and beverage | | | | | | | | |
Cost of amusement and other | | | | | | | | |
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Operating payroll and benefits | | | | | | | | |
Other store operating expenses | | | | | | | | |
General and administrative expenses | | | | | | | | |
Depreciation and amortization expense | | | | | | | | |
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Income before provision for income taxes | | | | | | | | |
Provision for income taxes | | | | | | | | |
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Unrealized foreign currency translation gain (loss) | | | | | | | | ) |
Change in fair value of derivatives, net of tax | | | | ) | | | | |
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Total other comprehensive loss | | | | ) | | | | ) |
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Total comprehensive income | | $ | | | | $ | | |
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| | $ | | | | $ | | |
| | $ | | | | $ | | |
Weighted average shares used in per share calculations: | | | | | | | | |
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Cash dividends declared per share | | $ | | | | $ | | |
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Food and beverage revenues | | $ | 80,922 | | | $ | 286,142 | |
Amusement and other revenues | | | 129,717 | | | | 422,039 | |
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| | | 210,639 | | | | 708,181 | |
Cost of food and beverage | | | 22,003 | | | | 75,688 | |
Cost of amusement and other | | | 14,753 | | | | 45,660 | |
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| | | 36,756 | | | | 121,348 | |
Operating payroll and benefits | | | 57,493 | | | | 163,800 | |
Other store operating expenses | | | 158,354 | | | | 210,621 | |
General and administrative expenses | | | 23,841 | | | | 32,837 | |
Depreciation and amortization expense | | | 70,512 | | | | 63,886 | |
| | | 6,211 | | | | 11,725 | |
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| | | 353,167 | | | | 604,217 | |
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| | | (142,528 | ) | | | 103,964 | |
| | | 14,278 | | | | 8,661 | |
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Income (loss) before provision (benefit) for income taxes | | | (156,806 | ) | | | 95,303 | |
Provision (benefit) for income taxes | | | (54,660 | ) | | | 20,504 | |
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| | | (102,146 | ) | | | 74,799 | |
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Unrealized foreign currency translation loss | | | (131 | ) | | | (57 | ) |
Unrealized loss on derivatives, net of tax | | | (3,577 | ) | | | (5,907 | ) |
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Total other comprehensive loss | | | (3,708 | ) | | | (5,964 | ) |
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Total comprehensive income (loss) | | $ | (105,854 | ) | | $ | 68,835 | |
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Net income (loss) per share: | | | | | | | | |
| | $ | (2.59 | ) | | $ | 2.07 | |
| | $ | (2.59 | ) | | $ | 2.03 | |
Weighted average shares used in per share calculations: | | | | | | | | |
| | | 39,470,874 | | | | 36,117,815 | |
| | | 39,470,874 | | | | 36,803,001 | |
See accompanying notes to consolidated financial statements.
DAVE & BUSTER’S ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(in thousands, except share and per share amounts)
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Food and beverage revenues | | $ | | | | $ | | |
Amusement and other revenues | | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Cost of food and beverage | | | | | | | | |
Cost of amusement and other | | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Operating payroll and benefits | | | | | | | | |
Other store operating expenses | | | | | | | | |
General and administrative expenses | | | | | | | | |
Depreciation and amortization expense | | | | | | | | |
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Income before provision for income taxes | | | | | | | | |
Provision for income taxes | | | | | | | | |
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| | | | | | | | |
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Unrealized foreign currency translation loss | | | | ) | | | | ) |
Change in fair value of derivatives, net of tax | | | | ) | | | | |
| | | | | | | | |
Total other comprehensive loss | | | | ) | | | | ) |
| | | | | | | | |
Total comprehensive income | | $ | | | | $ | | |
| | | | | | | | |
| | $ | | | | $ | | |
| | $ | | | | $ | | |
Weighted average shares used in per share calculations: | | | | | | | | |
| | | | | | | | |
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Cash dividends declared per share | | $ | | | | $ | | |
See accompanying notes to consolidated financial statements.
DAVE & BUSTER’S ENTERTAINMENT, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (UNAUDITED)
(in thousands, except share amounts)
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| | Thirteen Weeks Ended August 4, 2019 | |
| | | | | | | | | | | Accumulated Other Comprehensive Loss | | | | | | | |
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| | | | | | $ | | | | $ | | | | | | | | $ | | ) | | $ | | ) | | $ | | | | $ | | |
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Unrealized foreign currency translation gain | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Change in fair value of derivatives, net of tax | | | | | | | | | | | | | | | | | | | | | | | | ) | | | | | | | | ) |
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Repurchase of common stock | | | | | | | | | | | | | | | | | | | | ) | | | | | | | | | | | | ) |
Dividends declared ($0.15 per share) | | | | | | | | | | | | | | | | | | | | | | | | | | | | ) | | | | ) |
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| | | | | | $ | | | | $ | | | | | | | | $ | | ) | | $ | | ) | | $ | | | | $ | | |
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| | Thirteen Weeks Ended August 2, 2020 | |
| | | | | | | | | | | Accumulated Other Comprehensive Loss | | | | | | | |
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| | | 49,578,351 | | | $ | 496 | | | $ | 411,048 | | | | 12,786,624 | | | $ | (595,077 | ) | | $ | (13,753 | ) | | $ | 389,921 | | | $ | 192,635 | |
| | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (58,602 | ) | | | (58,602 | ) |
Unrealized foreign currency translation gain | | | — | | | | — | | | | — | | | | — | | | | — | | | | 304 | | | | — | | | | 304 | |
Unrealized gain on derivatives, net of tax | | | — | | | | — | | | | — | | | | — | | | | — | | | | 1,372 | | | | — | | | | 1,372 | |
| | | — | | | | — | | | | 2,734 | | | | — | | | | — | | | | — | | | | — | | | | 2,734 | |
| | | 10,843,861 | | | | 108 | | | | 112,471 | | | | — | | | | — | | | | — | | | | — | | | | 112,579 | |
Repurchase of common stock | | | — | | | | — | | | | — | | | | 40,676 | | | | (651 | ) | | | — | | | | — | | | | (651 | ) |
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| | | 60,422,212 | | | $ | 604 | | | $ | 526,253 | | | | 12,827,300 | | | $ | (595,728 | ) | | $ | (12,077 | ) | | $ | 331,319 | | | $ | 250,371 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Thirteen Weeks Ended August 5, 2018 | |
| | | | | | | | | | | Accumulated Other Comprehensive Loss | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | 42,801,006 | | | $ | 428 | | | $ | 323,211 | | | | 3,181,280 | | | $ | (175,372 | ) | | $ | (518 | ) | | $ | 290,461 | | | $ | 438,210 | |
Net income | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 33,779 | | | | 33,779 | |
Unrealized foreign currency translation loss | | | — | | | | — | | | | — | | | | — | | | | — | | | | (93 | ) | | | — | | | | (93 | ) |
Share-based compensation | | | — | | | | — | | | | 1,626 | | | | — | | | | — | | | | — | | | | — | | | | 1,626 | |
Issuance of common stock | | | 136,982 | | | | 1 | | | | 1,114 | | | | — | | | | — | | | | — | | | | — | | | | 1,115 | |
Repurchase of common stock | | | — | | | | — | | | | — | | | | 728,753 | | | | (33,712 | ) | | | — | | | | — | | | | (33,712 | ) |
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| | | 42,937,988 | | | $ | 429 | | | $ | 325,951 | | | | 3,910,033 | | | $ | (209,084 | ) | | $ | (611 | ) | | $ | 324,240 | | | $ | 440,925 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Thirteen Weeks Ended August 4, 2019 | |
| | | | | | | | | | | Accumulated Other Comprehensive Loss | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | 43,323,049 | | | $ | 433 | | | $ | 333,515 | | | | 6,958,291 | | | $ | (361,186 | ) | | $ | (3,408 | ) | | $ | 390,771 | | | $ | 360,125 | |
| | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 32,356 | | | | 32,356 | |
Unrealized foreign currency translation gain | | | — | | | | — | | | | — | | | | — | | | | — | | | | 134 | | | | — | | | | 134 | |
Unrealized loss on derivatives, net of tax | | | — | | | | — | | | | — | | | | — | | | | — | | | | (3,373 | ) | | | — | | | | (3,373 | ) |
| | | — | | | | — | | | | 1,907 | | | | — | | | | — | | | | — | | | | — | | | | 1,907 | |
| | | 14,076 | | | | — | | | | 177 | | | | — | | | | — | | | | — | | | | — | | | | 177 | |
Repurchase of common stock | | | — | | | | — | | | | | | | | 3,400,000 | | | | (136,676 | ) | | | — | | | | — | | | | (136,676 | ) |
Dividends declared ($0.15 per share) | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (5,348 | ) | | | (5,348 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 43,337,125 | | | $ | 433 | | | $ | 335,599 | | | | 10,358,291 | | | $ | (497,862 | ) | | $ | (6,647 | ) | | $ | 417,779 | | | $ | 249,302 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
See accompanying notes to consolidated financial statements.
DAVE & BUSTER’S ENTERTAINMENT, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (UNAUDITED)
(in thousands, except share amounts)
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| | Twenty-Six Weeks Ended August 4, 2019 | |
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| | | 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 | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 74,799 | | | | 74,799 | |
Unrealized foreign currency translation loss | | | — | | | | — | | | | — | | | | — | | | | — | | | | (57 | ) | | | — | | | | (57 | ) |
Change in fair value of derivatives, net of tax | | | — | | | | — | | | | — | | | | — | | | | — | | | | (5,907 | ) | | | — | | | | (5,907 | ) |
Share-based compensation | | | — | | | | — | | | | 3,732 | | | | — | | | | — | | | | — | | | | — | | | | 3,732 | |
Issuance of common stock | | | 159,649 | | | | 1 | | | | 612 | | | | — | | | | — | | | | — | | | | — | | | | 613 | |
Repurchase of common stock | | | — | | | | — | | | | | | | | 4,702,900 | | | | (200,733 | ) | | | — | | | | — | | | | (200,733 | ) |
Dividends declared ($0.30 per share) | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (10,837 | ) | | | (10,837 | ) |
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| | | 43,337,125 | | | $ | 433 | | | $ | 335,599 | | | | 10,358,291 | | | $ | (497,862 | ) | | $ | (6,647 | ) | | $ | 417,779 | | | $ | 249,302 | |
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| | Twenty-Six Weeks Ended August 5, 2018 | |
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| | | 42,660,806 | | | $ | 427 | | | $ | 320,488 | | | | 2,558,721 | | | $ | (147,331 | ) | | $ | (249 | ) | | $ | 248,311 | | | $ | 421,646 | |
Net income | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 75,929 | | | | 75,929 | |
Unrealized foreign currency translation loss | | | — | | | | — | | | | — | | | | — | | | | — | | | | (362 | ) | | | — | | | | (362 | ) |
Share-based compensation | | | — | | | | — | | | | 4,014 | | | | — | | | | — | | | | — | | | | — | | | | 4,014 | |
Issuance of common stock | | | 277,182 | | | | 2 | | | | 1,449 | | | | — | | | | — | | | | — | | | | — | | | | 1,451 | |
Repurchase of common stock | | | — | | | | — | | | | — | | | | 1,351,312 | | | | (61,753 | ) | | | — | | | | — | | | | (61,753 | ) |
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| | | 42,937,988 | | | $ | 429 | | | $ | 325,951 | | | | 3,910,033 | | | $ | (209,084 | ) | | $ | (611 | ) | | $ | 324,240 | | | $ | 440,925 | |
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| | Twenty-Six Weeks Ended August 2, 2020 | |
| | | | | | | | | | | Accumulated Other Comprehensive Loss | | | | | | | |
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| | | 43,386,852 | | | $ | 434 | | | $ | 339,161 | | | | 12,783,512 | | | $ | (595,041 | ) | | $ | (8,369 | ) | | $ | 433,465 | | | $ | 169,650 | |
| | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (102,146 | ) | | | (102,146 | ) |
Unrealized foreign currency translation loss | | | — | | | | — | | | | — | | | | — | | | | — | | | | (131 | ) | | | — | | | | (131 | ) |
Unrealized loss on derivatives, net of tax | | | — | | | | — | | | | — | | | | — | | | | — | | | | (3,577 | ) | | | — | | | | (3,577 | ) |
| | | — | | | | — | | | | 2,345 | | | | — | | | | — | | | | — | | | | — | | | | 2,345 | |
| | | 17,035,360 | | | | 170 | | | | 184,747 | | | | — | | | | — | | | | — | | | | — | | | | 184,917 | |
Repurchase of common stock | | | — | | | | — | | | | — | | | | 43,788 | | | | (687 | ) | | | — | | | | — | | | | (687 | ) |
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| | | 60,422,212 | | | $ | 604 | | | $ | 526,253 | | | | 12,827,300 | | | $ | (595,728 | ) | | $ | (12,077 | ) | | $ | 331,319 | | | $ | 250,371 | |
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| | Twenty-Six Weeks Ended August 4, 2019 | |
| | | | | | | | | | | Accumulated Other Comprehensive Loss | | | | | | | |
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| | | 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 | ) |
| | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 74,799 | | | | 74,799 | |
Unrealized foreign currency translation loss | | | — | | | | — | | | | — | | | | — | | | | — | | | | (57 | ) | | | — | | | | (57 | ) |
Unrealized loss on derivatives, net of tax | | | — | | | | — | | | | — | | | | — | | | | — | | | | (5,907 | ) | | | — | | | | (5,907 | ) |
| | | — | | | | — | | | | 3,732 | | | | — | | | | — | | | | — | | | | — | | | | 3,732 | |
| | | 159,649 | | | | 1 | | | | 612 | | | | — | | | | — | | | | — | | | | — | | | | 613 | |
Repurchase of common stock | | | — | | | | — | | | | | | | | 4,702,900 | | | | (200,733 | ) | | | — | | | | — | | | | (200,733 | ) |
Dividends declared ($0.30 per share) | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (10,837 | ) | | | (10,837 | ) |
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| | | 43,337,125 | | | $ | 433 | | | $ | 335,599 | | | | 10,358,291 | | | $ | (497,862 | ) | | $ | (6,647 | ) | | $ | 417,779 | | | $ | 249,302 | |
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See accompanying notes to consolidated financial statements.
DAVE & BUSTER’S ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
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Cash flows from operating activities: | | | | | | | | |
| | $ | | | | $ | | |
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Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | |
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Depreciation and amortization expense | | | | | | | | |
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Loss on disposal of fixed assets | | | | | | | | |
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Changes in assets and liabilities: | | | | | | | | |
| | | | ) | | | | |
| | | | ) | | | | ) |
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Other assets and deferred charges | | | | ) | | | | ) |
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| | | | ) | | | | |
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Net cash provided by operating activities | | | | | | | | |
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Cash flows from investing activities: | | | | | | | | |
| | | | ) | | | | ) |
Proceeds from sales of property and equipment | | | | | | | | |
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Net cash used in investing activities | | | | ) | | | | ) |
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Cash flows from financing activities: | | | | | | | | |
| | | | | | | | |
| | | | ) | | | | ) |
Proceeds from the exercise of stock options | | | | | | | | |
Repurchase of common stock under share repurchase program | | | | ) | | | | ) |
| | | | ) | | | | |
Repurchases of common stock to satisfy employee withholding tax obligations | | | | ) | | | | ) |
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Net cash used in financing activities | | | | ) | | | | ) |
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Increase in cash and cash equivalents | | | | | | | | |
Beginning cash and cash equivalents | | | | | | | | |
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Ending cash and cash equivalents | | $ | | | | $ | | |
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Supplemental disclosures of cash flow information: | | | | | | | | |
Decrease in fixed asset accounts payable | | $ | | ) | | $ | | ) |
Cash paid for income taxes, net | | $ | | | | $ | | |
Cash paid for interest, net | | $ | | | | $ | | |
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Cash flows from operating activities: | | | | | | | | |
| | $ | (102,146 | ) | | $ | 74,799 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | |
Depreciation and amortization expense | | | 70,512 | | | | 63,886 | |
| | | 2,201 | | | | — | |
Impairment of long-lived assets | | | 13,727 | | | | — | |
| | | (31,609 | ) | | | 4,659 | |
Loss on disposal of fixed assets | | | 417 | | | | 826 | |
| | | 2,345 | | | | 3,732 | |
| | | 173 | | | | 376 | |
Changes in assets and liabilities: | | | | | | | | |
| | | 3,288 | | | | (94 | ) |
| | | 2,089 | | | | (4,811 | ) |
| | | (21,474 | ) | | | 311 | |
| | | 2,311 | | | | (444 | ) |
Other assets and deferred charges | | | 107 | | | | (1,163 | ) |
| | | 6,646 | | | | (428 | ) |
| | | 37,522 | | | | 22,057 | |
| | | (2,430 | ) | | | (7,362 | ) |
| | | 2,817 | | | | 346 | |
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Net cash provided by operating activities | | | (13,504 | ) | | | 156,690 | |
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Cash flows from investing activities: | | | | | | | | |
| | | (63,486 | ) | | | (117,875 | ) |
Proceeds from sales of property and equipment | | | 152 | | | | 375 | |
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Net cash used in investing activities | | | (63,334 | ) | | | (117,500 | ) |
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Cash flows from financing activities: | | | | | | | | |
| | | 138,000 | | | | 233,000 | |
| | | (38,500 | ) | | | (59,500 | ) |
Net proceeds from the issuance of common stock | | | 182,207 | | | | — | |
Proceeds from the exercise of stock options | | | 359 | | | | 613 | |
Repurchase of common stock under share repurchase program | | | — | | | | (200,147 | ) |
| | | (4,891 | ) | | | (10,837 | ) |
Repurchases of common stock to satisfy employee withholding tax obligations | | | (687 | ) | | | (586 | ) |
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Net cash provided by (used in) financing activities | | | 276,488 | | | | (37,457 | ) |
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Increase in cash and cash equivalents | | | 199,650 | | | | 1,733 | |
Beginning cash and cash equivalents | | | 24,655 | | | | 21,585 | |
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Ending cash and cash equivalents | | $ | 224,305 | | | $ | 23,318 | |
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Supplemental disclosures of cash flow information: | | | | | | | | |
Decrease in fixed asset accounts payable | | $ | (12,466 | ) | | $ | (6,101 | ) |
Cash paid for income taxes, net | | $ | 752 | | | $ | 22,850 | |
Cash paid for interest, net | | $ | 11,295 | | | $ | 8,050 | |
See accompanying notes to consolidated financial statements.
DAVE & BUSTER’S ENTERTAINMENT, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
Note 1: Summary of Significant Accounting Policies
BasisThe accompanying unaudited consolidated financial statements include the accounts of presentation
— Dave & Buster’s Entertainment, Inc.
(“D&B Entertainment”) is a Delaware corporation formed in June 2010. References(referred to
herein as the “Company”,
“we”,“we,” “us”
, and “our”
refers to D&B Entertainment,), any predecessor companies and its wholly-owned subsidiaries, Dave & Buster’s Holdings, Inc. (“D&B Holdings”),
a holding company which owns 100% of the outstanding common stock of Dave &
Buster’s,Busters, Inc. (“D&B Inc”), the operating company.
All intercompany balances and transactions have been eliminated in consolidation. The Company, headquartered in Dallas, Texas, is a leading operator of high-volume entertainment and dining venues (“stores”) in North America for adults and families under the name “Dave & Buster’s”. The Company operates its business as 1 operating and 1 reportable segment.
During the first half of fiscal 2019, we opened ten stores and permanently closed one store in Duluth (Atlanta), Georgia on March 3, 2019. As of August
4, 2019,2, 2020, we owned and operated
130137 stores located in 39 states, Puerto Rico and 1 Canadian province.
The
accompanying unaudited consolidated financial statements includeCompany operates on a 52 or53-week
fiscal year that ends on the
accounts ofSunday after the
CompanySaturday closest to January 31. Each quarterly period reported has 13 weeks. Fiscal 2020 and
its wholly-owned subsidiaries. All intercompany accounts2019, which end on January 31, 2021 and
transactions have been eliminated in consolidation. February 2, 2020, respectively, contain 52 weeks.The Company’s 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 the information and notes 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 consolidated financial statements in conformity with GAAP requires us to make certain estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Operating results for thetwenty-six
weeks ended August 4, 2019 are not necessarily indicative of results that may be expected for any other interim period or for the fiscal year ending February 2, 2020. Our quarterly financial data should be read in conjunction with the audited financial statements and notes thereto for the year ended February
3, 2019,2, 2020, included in our Annual Report on Form
10-K
as filed with the SEC.
We operate on a 52 or 53-week fiscal year that ends the period from March 14, 2020 to March 20, 2020, the Company
c
losed
100% of its
137operating stores in compliance with guidance and orders issued by federal, state and local governments to combat the spread of theCOVID-19
pandemic. The extent of impact of these conditions will be based in part on the
Sunday afterduration of the
Saturday closest store closures orre-opening
of stores at full capacity and the timing and extent of customersre-engaging
with the brand. During our first quarter, one storere-opened
to
January 31. Each quarterlythe public with limited food and beverage offerings and 2 additional stores offeredoff-premise
dining options. During our second quarter, we have progressivelyre-opened
limited operations in an additional 83stores in
27states, Puerto Rico and Canada. Subsequent to the end of our second quarter, were-opened
one store and opened a new store located in Manchester, New Hampshire. As of September 4, 2020, 52 stores are closed due to jurisdictional restrictions. The Company is unable to determine whether, when or the manner in which the conditions surrounding theCOVID-19
pandemic will change, including when any restrictions or closure requirements will be lifted or potentiallyre-imposed
in certain states or local jurisdictions, whether it will be able to successfully staff stores, and the degree to which it will be able tore-engage
customers. These developments have caused a material adverse impact on the Company’s revenues, results of operations and cash flows, including the Company’s ability to meet its obligations when due. These conditions raise substantial doubt about the Company’s ability to continue as a going concern for a period
reportedof one year from the date the financial statements are issued. The Company has 13 weeks. Fiscal 2019taken several steps to reduce operating costs and 2018,to conserve cash. The Company initially furloughed nearly all its workforce, except a small team of essential personnel and temporarily reduced pay and benefits for the remaining employees for a twelve-week period. On March 18, 2020, the Company borrowed substantially all the remaining availability under its revolving credit facility, and the Company continues to actively manage its daily cash flows. During our first and second quarter, the Company obtained additional liquidity through the sale of common stock, which end on Februaryresulted in net proceeds of $182,207.
Additionally, the Company initiated ongoing discussions with landlords and other vendors to negotiate relief from cash payments under existing lease and trade payable obligations. As of August 2, 2020, a total of 92 rent relief agreements related to our operating locations and corporate headquarters were 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. We have also been successful in negotiating extended and reduced payment terms with several vendors.
Effective April 14, 2020, the Company negotiated an amendment to its existing credit facility, which included relief from compliance with financial covenants for the periods ended May 3, 2020, August 2, 2020 and
February 3, 2019, contain 52 weeks.November 1, 2020. During the financial covenant suspension period, the Company is required to maintain a minimum liquidity amount of $30,000. If the Company is not in compliance with financial covenants after the suspension period or some other event of default arises, the Company’s lenders could instruct the administrative agent under the existing credit facility to exercise remedies including declaring the principal of and accrued interest on all outstanding indebtedness due and payable, terminating all remaining commitments and obligations under the revolving credit facility and requiring the posting of cash collateral in respect of 103% of
the outstanding letters of credit under the revolving credit facility. Additionally, the full amount due under the interest rate swap
agreements would become due. Although the lenders under the existing credit facility may waive the default or forebear the exercise of remedies, they are not obligated to do so. Failure to obtain additional waivers would have a material adverse effect on the Company’s liquidity, financial condition and results of operations and may result in filing a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code to implement a restructuring plan.
The consolidated financial statements have been prepared assuming the Company will continue as a going concern.
The preparation of consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures of contingent assets and liabilities at the date of the consolidated financial statements and for the period then ended. Actual results could differ from those estimates. Operating results for thetwenty-six
weeks ended August 2, 2020 are not necessarily indicative of results that may be expected for any other interim period or for the fiscal year ending January 31, 2021. Cash and cash equivalents
— We consider transaction settlements in process from credit card companies and all highly-liquid investments with
original maturities of three months or less to be cash equivalents. Our cash management system provides for the daily funding of all major bank disbursement accounts as checks are presented for payment. Under this system, outstanding checks in excess of the cash balances at certain banks creates book overdrafts.
Book overdraftsThere was 0 book overdraft as of
$12,757 and $12,782 areAugust 2, 2020. A book overdraft of $14,026 is presented in “Accounts payable” in the Consolidated Balance Sheets as of
August 4, 2019 and February
3, 2019, respectively.2, 2020. Changes in the book overdraft position are presented within “Net cash provided by
(used in)
operating activities” within the Consolidated Statements of Cash Flows.
Fair value of financial instruments
— Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date under current market conditions. In determining fair value, the accounting standards establish a three-level hierarchy for inputs used in measuring fair value as follows: Level One inputs are quoted prices available for identical assets or liabilities in active markets; Level Two inputs are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets or liabilities in active markets; and Level Three inputs are unobservable and reflect management’s own assumptions.
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 onreflect 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. These valuation models are based on the present value of expected cash flows using forward rate curves.
Non-financial
assets and liabilities recognized or disclosed at fair value in the consolidated financial statements on a nonrecurring basis include such items as property and equipment,
(“ROU”) assets, goodwill, tradenames and other assets.
TheseThe disruption in operations and reduction in revenues have led the Company to consider the impact of theCOVID-19
pandemic on the recoverability of its property and equipment and ROU assets
are measured atfor operating leases.fiscal
2020, each store’s past and present operating performance was reviewed in combination with projected future results primarily through projected undiscounted cash flows that included management’s current expectation of future financial impacts fromCOVID-19.
If the store’s assets through comparison of the asset’s carrying value to its undiscounted cash flows, the Company compared the carrying amount of each store’s assets to its fair value
when theyas estimated by management to calculate the impairment amount The fair value of the store’s assets is generally determined using a discounted cash flow projection model, which is based on Level Three inputs. Store asset impairment charges represent the excess of the carrying amount over the estimated fair value of the store asset. The Company recorded an impairment charge for its long-lived assets, including ROU assets, of $6,746 during the2020, primarily driven by the expected impact of theCOVID-19
pandemic on future cash flows of specific stores.During the second quarter of fiscal 2020, the Company did not identify additional triggering events which would require a change in management’s estimate regarding the recoverability of store asset values, and
impairment related to our operating stores was recognized.
The Company has determined no events and circumstances existed during thetwenty-six
weeks
ended August 2, 2020 that would indicate it is more likely than not that its goodwill or tradename are impaired. The ultimate severity and longevity of theCOVID-19
pandemic is unknown, and therefore, it is possible that impairments could be identified in future periods, and such amounts could be material. Additionally, the Company discussions to terminate or delay possession on several executed lease contracts that have not yet commenced. The Company is also curtailing several potential new store projects that were
evaluated for impairment.in the early stage of development. During the
thirteen andtwenty-six
weeks ended August
4, 2019, there were2, 2020, we recorded an impairment loss and related contract termination costs of $2,178 and $6,9810related to these projects, which is included in “Other store operating expenses” in the Consolidated Statements of Comprehensive Income (Loss).
impairments recognized.
— The Company entered into three interest rate swap agreements to manage our exposure to interest rate movements on our
variable rate credit facility. The agreements entitle the Company to receive at specified intervals, a variable rate of interest based on
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 total $350,000 and the fixed rate of interest for all agreements is 2.47% plus the applicable spread.. The agreements became effective on February 28, 2019 and mature on August 17, 2022, which is the maturity date of our credit facility.
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 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 floorof
1.00%. Accordingly, and as a result of the
variabilitycurrent forward interest rate curve, the Company discontinued the hedging relationship as of April 14, 2020(de-designation
date). Given the continued existence of the hedged
cash flows, interest payments, the Company will reclassify its accumulated other comprehensiveloss
of $ 17,609as of the de-
into “Interest expense, net” using a straight-line approach over the remaining life of the originally designated hedging relationship.The
amount of
pre-tax
losses in accumulated other comprehensive loss that was reclassified into interest expense subsequent to the
de-designation
date was $
1,887and $
2,201 for the thirt
een and twenty-six weeks ended August 2, 2020
, respectively, 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. For the thirteen and
twenty-six
weeks ended August 2, 2020, a loss of $
976and $
1,796was recognized,respectively,
whichare
included in “Other store operating expenses” in the Consolidated Statements of Comprehensive Income (Loss). Prior to thede-designation,
changes in the fair
valuevalues 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 component of interest expense and in operating activities.
Any portion Credit risk related to the failure of the fair valueour counterparties to perform under the terms of the swaps determinedswap 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 ineffective will be recognized currentlydeclared in earnings.default on its derivative obligations.
The following derivative instruments were outstanding as of the end of the period:periods indicated:
| | | | | | | | |
| | | | | | |
| | | | | | |
Derivatives designated as hedging instruments: | | | | | | | | |
Interest rate swaps | | | Accrued liabilities | | | $ | (1,977 | ) |
Interest rate swaps | | | Other liabilities | | | | (6,151 | ) |
| | | | | | | | |
Total derivatives | | | | | | $ | (8,128 | ) |
| | | | | | | | |
| | | | | | | | | | | | |
| | | | | | |
| | | | | | | | | |
| | | Accrued liabilities | | | $ | (8,215 | ) | | $ | (3,518 | ) |
| | | Other liabilities | | | | (8,724 | ) | | | (6,967 | ) |
| | | | | | | | | | | | |
| | | | | | $ | (16,939 | ) | | $ | (10,485 | ) |
| | | | | | | | | | | | |
(1) | The balance at August 2, 2020 relates to our swap agreements after hedge accounting was discontinued, effective April 14, 2020. |
The following table summarizes the activity in accumulated other comprehensive loss related to our interest rate swap derivative instruments:
| | | | | | | | | | | | | | | | |
| | | | | | |
| | | | | | | | | | | |
Amount of loss recorded in accumulated other comprehensive income | | $ | — | | | | 4,668 | | | $ | 7,602 | | | | 8,140 | |
Amount of loss reclassified into income (1) | | $ | (1,887 | ) | | | (27 | ) | | $ | (2,680 | ) | | | (12 | ) |
Income tax expense (benefit) in accumulated other comprehensive income | | $ | 515 | | | | (1,268 | ) | | $ | (1,345 | ) | | | (2,221 | ) |
| | | | | | | | | |
| | | Thirteen Weeks Ended August 4, 2019 | | | Twenty-six Weeks Ended August 4, 2019 | |
Gain (loss) recognized in accumulated other comprehensive loss | | | $ | (4,668 | ) | | $ | (8,140 | ) |
Loss reclassified from accumulated other comprehensive loss into net earnings (1) | | | $ | 27 | | | $ | 12 | |
Income tax (expense) benefit of interest rate swaps on accumulated other comprehensive loss | | | $ | 1,268 | | | $ | 2,221 | |
(1) | | Amounts reclassified into net earningsincome are included in “Interest expense, net” in the Consolidated Statements of Comprehensive Income.Income (Loss). |
— Amusement revenues are primarily recognized upon utilization of game play credits on power cards purchased and used by customers to activate
most of the 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
related tobased on an estimated rate of future use by customers of unused game play credits
which we believe ourand the material right provided to customers
will utilizeto redeem tickets in the
future.future for prizes. During the thirteen
weeks and
twenty-six
weeks ended August
4, 2019,2, 2020, we recognized revenue of approximately
$5,000$2,500 and $17,000,$
12,100, respectively, related to the amount in deferred amusement revenue as of the end of fiscal 2018. 2019.
In jurisdictions where we do not have a legal obligation to remit unredeemed gift card balances to a legal authority, we recognize revenue on unredeemed gift cards in proportion to the pattern of redemption by the customers. During the thirteen and
twenty-six
weeks ended August
4, 2019,2, 2020, we recognized revenue of approximately
$200 $140
and
$1,300,$1,440, respectively, related to the amount in deferred gift card revenue as of the end of fiscal
2018,2019, of which approximately
$140 $40
and
$430$210 was
gift card breakage revenue.
of Directors has approved a share repurchase program under which the Company may repurchase shares on the open market, through privately negotiated transactions and through trading plans.
The share repurchase program may be modified, suspended or discontinued at any time.
On July 12, 2019, the Company increased itstotal share repurchase authorization to $
800,000. Theis $800,000 and the share repurchase authorization expires at the end of fiscal 2020.
During the thirteen and
twenty-six
weekweeks s
ended August
4, 2019,2, 2020, the Company
purchased3,400,000and
4,691,564shares of common stock at an average cost of $
40.20and $
42.66perindefinitely suspended all share respectively. Since the inception of the repurchase program, the Company has purchased
10,975,355shares of common stock at an average cost of $
48.29per share.activity. As of August 4, 2019,2, 2020, we have approximately $
269,990$172,820 of share repurchase authorization remaining under the current plan.
In our consolidated financial statements, the Company treats shares withheld for tax purposes on behalf of our employees in connection with the vesting of
time-based and 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 are not considered common stock repurchases under our authorized common stock repurchase plan. During the
twenty-six
weeks ended August
2, 2020 and August 4, 2019, we withheld
43,788 and 11,336 shares of common stock to satisfy
$586
$687 and $586 of employees’ tax
obligations.obligations, respectively. The share activity in thetwenty-six
weeks ended August 2, 2020 includes the settlements of $2,351 cash obligations through the issuance of 150,455 shares of common stock.Effective March 18, 2020, the Board of Directors of the Company adopted a364-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 Companyone-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. 10
On April 14, 2020, pursuant to an open market sale agreement, the Company sold 6,149,936 shares of its common stock at a price of $12.20 per share, for proceeds of $75,000, prior to deducting offering expenses related to the offering. On May 4, 2020, the Company entered into an underwriting agreement, pursuant to which it sold 9,578,545 shares of its common stock at a price of $10.44 per share, and on May 18, 2020, the underwriter exercised its over-allotment option for an additional 1,014,871 shares at $10.44 per share, resulting in additional proceeds of $110,600 prior to deducting offering costs.Recently adopted accounting guidance
— On February 4, 2019, we adopted Accounting Standard Update (“ASU”)2016-02,
Leases (Topic 842). This new guidance requires the recognition of lease liabilities, representing future minimum lease payments on a discounted basis, and correspondingright-of-use
(“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 had not been restated.Upon adoption of ASU2016-02,
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 separatenon-lease
components from lease components for our facility leases. 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.Recent accounting pronouncements
— In
January 2017, June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU
2016-13
, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,
which requires measurement and recognition of expected versus incurred losses for financial assets held. The guidance primarily relates to our credit card and tenant incentive receivables. 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.In January 2017, the FASB issued ASU2017-04
, Intangibles – Goodwill and Other (Topic 350), : Simplifying the Test for Goodwill Impairment,
which eliminates the requirement to calculate the implied fair value of goodwill if the fair value of a reporting unit is less than the carrying amount of the reporting unit. Instead, if the carrying amount of a reporting unit exceeds its fair value, an impairment loss will be recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit. The
guidance is effective for goodwill impairment tests inCompany adopted this standard as of the beginning of fiscal
years beginning after December 15, 2019year 2020, and
should be applied on a prospective basis. The Company does not expect the adoption
willdid not have a material impact on our consolidated financial
statements when we perform future annual impairment tests.statements. In August 2018, the FASB issued ASU
2018-13,
Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement
, which eliminates, modifies and adds disclosure requirements for fair value measurements. The
updateCompany 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.Recent accounting pronouncements
— InDecember 2019, the FASB issued ASU
2019-12,
Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes
, which removes certain exceptions related to the approach for
intraperiodtax allocations, the calculation of income taxes in interim periods, and the recognition of deferred taxes for taxable goodwill. The guidance is effective for fiscal years beginning after December 15, 20192020 and for interim periods within those fiscal years, with early adoption permitted. The Company is currently assessing the impact of this new standard on our consolidated financial statements.
In March 2020, the FASB issued ASU2020-04,
Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Reform on Financial Reporting
, which provides temporary optional expedients and exceptions to the current guidance for contract modifications and hedging relationships through December 31, 2022, that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. A contract modification resulting from reference rate reform may be accounted for as a continuation of the existing contract rather than the creation of a new contract. Additionally, changes in the critical terms of hedging relationships, caused by reference rate reform, should not result in thede-designation
of the instrument, provided certain criteria are met. As of the end of the first quarter of fiscal 2020, the Company’s exposure to LIBOR rates included its senior credit facility and swap agreements. The Company is currently evaluating the impact of this new standard on our consolidated financial statements. Note 2: Accrued Liabilities
Accrued liabilities consist of the following as of the end of each period:
| | | | | | | | |
| | | | | | |
Current portion of operating lease liabilities, net (refer to Note 4) | | $ | | | | $ | | |
Current portion of deferred occupancy costs | | | | | | | | |
Deferred amusement revenue | | | | | | | | |
Compensation and benefits | | | | | | | | |
Amusement redemption liability | | | | | | | | |
| | | | | | | | |
Deferred gift card revenue | | | | | | | | |
Current portion of long-term insurance | | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Variable rent liabilities | | | | | | | | |
Current portion of derivatives | | | 1,977 | | | | — | |
| | | | | | | | |
| | | | | | | | |
Total accrued liabilities | | $ | | | | $ | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | |
Deferred amusement revenue | | $ | 78,159 | | | $ | 75,113 | |
Current portion of operating lease liabilities, net (1) | | | 52,636 | | | | 45,611 | |
| | | 31,589 | | | | — | |
Variable rent liabilities (note 4) | | | | | | | | |
Deferred gift card revenue | | | 10,832 | | | | 11,253 | |
| | | 9,936 | | | | 7,226 | |
Compensation and benefits | | | 8,664 | | | | 23,421 | |
Current portion of derivatives | | | 8,215 | | | | 3,518 | |
Current portion of long-term insurance | | | 6,200 | | | | 6,500 | |
| | | 4,219 | | | | 4,442 | |
| | | 1,840 | | | | 4,324 | |
| | | 1,737 | | | | 2,179 | |
| | | 973 | | | | 4,000 | |
| | | — | | | | 4,891 | |
| | | 14,614 | | | | 13,643 | |
| | | | | | | | |
Total accrued liabilities | | $ | 238,651 | | | $ | 207,452 | |
| | | | | | | | |
11
(1) | The balance of leasehold incentive receivables of $2,231 and $6,339 at August 2, 2020 and February 2, 2020, respectively, is reflected as a reduction of the current portion of operating lease liabilities. |
Long-term debt consists of the following as of:
| | | | | | | | |
| | | | | | |
| | $ | | | | $ | | |
Credit facility - revolver | | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Current installments - term | | | | ) | | | | ) |
Debt issuance costs - term | | | | ) | | | | ) |
| | | | | | | | |
| | $ | | | | $ | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | |
| | $ | 258,750 | | | $ | 266,250 | |
| | | 489,000 | | | | 382,000 | |
| | | | | | | | |
| | | 747,750 | | | | 648,250 | |
Current installments — term | | | (15,000 | ) | | | (15,000 | ) |
| | | (1,104 | ) | | | (561 | ) |
| | | | | | | | |
| | $ | 731,646 | | | $ | 632,689 | |
| | | | | | | | |
On August 17, 2017, we entered into a senior secured credit facility that provides 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 credit
sub-facility
and a $15,000 swing loan
sub-facility.
The revolving credit facility is available to provide financing for general purposes. Principal payments on the term loan facility are $3,750 per
quarter
through maturity, when the remaining balance is due. Our current 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 August
4, 2019,2, 2020, we had letters of credit outstanding of
$8,147$9,686 and
$197,853an unused commitment balance of
borrowing available$1,314 under
ourof revolving credit facility.
The interest rates per annum applicable to loans, other than swing loans, under our existing credit facility are currently set based on a defined LIBOR rate plus an applicable margin. Swing loans bear interest at a base rate plus an applicable margin.
The loans bear interest subject to a pricing grid based on a total leverage ratio, at
one-month
LIBOR plus a spread ranging from 1.25% to 2.00% for the term loans and the revolving loans.
The interest rate at August 4, 2019 was based onone-month
LIBOR plus 1.25%. As of August 4, 2019, the Company’s weighted average interest rate on outstanding borrowings was 4.11%, including the impact of the interest rate swap agreements. The weighted average effective rate includes amortization of debt issuance costs, commitment and other fees.Our credit facility contains 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 included relief from compliance with financial covenants for the quarterly periods ended May 3, 2020, August 2, 2020 and November 1, 2020. During the financial covenant suspension period, a $30,000 liquidity covenant was added as well as certain additional reporting requirements, and the termination of
additional borrowings under our revolving credit facility during the suspension period. The interest rate increased to LIBOR plus 2.00% with a LIBOR floor of 1.00%. For thetwenty-six
weeks ended August 2, 2020,and August 4, 2019,
the Company’s weighted average interest rate on outstanding borrowings was 3.98% and 4.11%, respectively. In connection with the amendment, we
were in compliance with our restrictive and financial ratio covenantsincurred debt costs of
our$2,000, which are being amortized over the life of the credit facility.
These costs are payable at the maturity date of the credit facility, with earlier payment required in the event of certain conditions, as defined in the agreement.
— The following
tables settable sets forth our recorded interest expense, net for the periods indicated:
| | | | | | | | |
| | | | | | |
Interest expense on credit facilities | | $ | | | | $ | | |
Amortization of issuance cost | | | | | | | | |
| | | | ) | | | | ) |
| | | | ) | | | | ) |
Change in fair value of interest rate cap | | | | | | | | |
| | | | | | | | |
Total interest expense, net | | $ | | | | $ | | |
| | | | | | | | |
| | | | | | |
Interest expense on credit facilities | | $ | | | | $ | | |
Amortization of issuance cost | | | | | | | | |
| | | | ) | | | | ) |
| | | | ) | | | | ) |
Change in fair value of interest rate cap | | | | | | | | ) |
| | | | | | | | |
Total interest expense, net | | $ | | | | $ | | |
| | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | |
| | | | | | | | | | | |
Interest expense on credit facilities | | $ | 5,865 | | | | 4,708 | | | $ | 11,163 | | | | 8,903 | |
Interest associated with swap agreements | | | | | | | | | | | | | | | | |
Amortization of issuance cost | | | 411 | | | | 198 | | | | 654 | | | | 396 | |
| | | 0 | | | | (25 | ) | | | (22 | ) | | | (51 | ) |
| | | 0 | | | | (303 | ) | | | (197 | ) | | | (599 | ) |
| | | | | | | | | | | | | | | | |
Total interest expense, net | | $ | 8,163 | | | $ | 4,605 | | | $ | 14,278 | | | $ | 8,661 | |
We currently lease the building or site for our stores, corporate office and warehouse space under facility operating leases. These leases typically have initial terms ranging from ten to twenty years and include one or more options to renew. When determining the lease term, we include option periods for which renewal is reasonably certain. Most of the leases require us to pay property taxes, insurance and maintenance of the leased assets. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. Operating leases also includes certain equipment leases that have a term in excess of one year. Certain facility leases also have provisions for additional contingent rentals based on revenues. Contingent rent and other variable rent are included as
Operating lease cost, variable lease costs in the table below.
Lease expense consisted of the following:
Storecost and short-term lease
expensecost related primarily to our facilities is included in “Other store operating expenses”
orfor our operating stores,“Pre-opening
costs,” accordingly, and corporate lease expense is included incosts” for our stores not yet operating, or “General and administrative expenses”
for our corporate office and warehouse, in the Consolidated Statements of Comprehensive
Income.Income (Loss).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 ROU assets and lease liabilities are recognized at commencement date based on the present valueThe components of lease payments overexpense, including variable lease costs primarily consisting of common area maintenance charges and property taxes, are as follows for the lease term and include both facility and equipment leases. The operating lease ROU asset is reduced by leasehold improvement incentives as the incentives are earned. As of August 4, 2019, the balance of leasehold improvement incentive receivables was $17,482 and is reflected as a reduction of the current portion of operating lease liabilities. The Company uses its incremental borrowing rate at 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.fiscal year ended:
| | | | | | | | | | | | | | | | |
| | | | | | |
| | | | | | | | | | | |
| | $ | | | | | 30,448 | | | $ | | | | | 60,240 | |
| | | | | | | 6,713 | | | | | | | | 14,643 | |
| | | | | | | 116 | | | | | | | | 217 | |
| | | | | | | | | | | | | | | | |
| | $ | 39,149 | | | $ | 37,277 | | | $ | 80,165 | | | $ | 75,100 | |
| | | | | | | | | | | | | | | | |
During thetwenty-six
Other information relatedweeks ended August 2, 2020, the Company entered into 92 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
leases is six months at approximately 50% of those locations. The Company has elected to account for lease concessions and deferrals resulting directly fromCOVID-19
as
follows: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 thetwenty-six
| | | | |
| | | |
Cash paid for amounts included in the measurement of lease liabities | | | | |
Operating cash flows from operating leases | | $ | | |
ROU assets obtained in exchange for new operating lease liabilities | | $ | | |
Weighted-average remaining lease term - operating leases (in years) | | | | |
Weighted-average discount rate - operating leases | | | | % |
The maturitiesweeks ended August 2, 2020, 84 of our
92 rent relief agreements qualified for this accounting election, and the remaining eight agreements were treated as lease modifications, primarily due to a significant extension of the lease term. Further, as a result of theCOVID-19
pandemic and its impact on our financial condition, the Company has chosen not to pay the majority of its remaining facility operating lease obligations as they become due for properties without rent relief agreements as of the end of the second quarter. As of August 2, 2020, we have bifurcated our current operating lease liabilities
are as follows as of August 4, 2019: | | | | |
| | $ | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | $ | | |
| | | | |
| | | | |
Total discounted operating lease liabilities | | $ | | |
| | | | |
Operating lease payments ininto the table above includes minimum lease payments for five future sites for which the lease has commenced,portion that remains subject to accretion and the stores are expected to open in fiscal 2019. Operating leaseportion that is accounted for as a deferral of payments exclude minimum lease payments for eighteen executed facility leases that we have not yet taken possession.or as short payments.
At February 3, 2019, aggregate minimum annual lease payments under facility and equipment operating leases were as follows:
5: Commitments and Contingencies
We are subject to certain legal proceedings and claims that arise in the ordinary course of our business, including claims alleging violations of federal and state law regarding workplace and employment matters, discrimination,
and other guest-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.
On June 30, 2017, we agreed to settle litigation Legal costs related to alleged violations of the Employee Retirement Income Security Act. The settlement agreement was preliminarily approved by the court on December 7, 2018 with final approval on July 19, 2019. To cover the estimated net costs of settlement, including estimated payment to any opt-in members and class attorneys,such claims are expensed as well as related settlement administration costs, we recorded a net charge of $2,550 (representing $7,500 of gross settlement costs less $4,950 of insurance recoveries) during fiscal 2017. Subsequent to August 4, 2019, all funds required to be paid under the final settlement and release agreement were remitted to a settlement fund as directed by the court.incurred.
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
AttorneyAttorneys General Act representative actions and seek substantial damages and penalties. With respect to
thesea portion of the California Cases,
wherethe Company has estimated and accrued for the most likely amount of loss. Where the Company has determined that a loss is reasonably possible but not probable, the Company is unable to estimate the amount or range of the reasonably possible loss due to the inherent
difficultydifficulties of predicting the outcome of uncertainties regarding legal proceedings. 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 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 is aggressively defending these cases.
Note 6: Earnings per share
Potential dilutive shares consist of the incremental common shares issuable upon the exercise of outstanding stock options (both vested and unvested), unvested time-based restricted stock units (RSU’s) and unvested performance RSU’s to the extent performance measures were attained as of the end of the reporting period, calculated using the treasury-stock method. Potential dilutive shares are excluded from the computation of earnings per share (“EPS”) if their effect is anti-dilutive. Stock options for which the exercise price exceeds the average market price over the period are anti-dilutive and, accordingly, are excluded from the calculation. The weighted average anti-dilutive options excluded from the calculation of common equivalent shares were 160,967 and
90,14397,502 in the thirteen
weeks ended August 4, 2019 and
August 5, 2018, respectively, and 97,502 and 99,331 in thetwenty-six
weeks ended August 4,
2019 and August 5, 2018, respectively.2019.
The following table sets forth the computation of EPS, basic and diluted for the periods indicated:
| | | | | | | | |
| | Thirteen Weeks Ended August 4, 2019 | | | Thirteen Weeks Ended August 5, 2018 | |
| | | | | | | | |
| | $ | | | | $ | | |
| | | | | | | | |
Weighted average number of common shares outstanding (basic) | | | | | | | | |
Weighted average dilutive impact of equity-based awards | | | | | | | | |
Weighted average number of common and common equivalent shares outstanding (diluted) | | | | | | | | |
| | | | | | | | |
| | $ | | | | $ | | |
| | $ | | | | $ | | |
| | | | | | |
| | | | | Twenty-six Weeks Ended August 5, 2018 | |
| | | | | | | | |
| | $ | | | | $ | | |
| | | | | | | | |
Weighted average number of common shares outstanding (basic) | | | | | | | | |
Weighted average dilutive impact of equity-based awards | | | | | | | | |
Weighted average number of common and common equivalent shares outstanding (diluted) | | | | | | | | |
| | | | | | | | |
| | $ | | | | $ | | |
| | $ | | | | $ | | |
| | | | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | | | |
| | $ | (58,602 | ) | | $ | 32,356 | |
| | | | | | | | |
Weighted average number of common shares outstanding (basic) | | | 47,111,763 | | | | 35,407,965 | |
Weighted average dilutive impact of equity-based awards (1) | | | — | | | | 607,745 | |
Weighted average number of common and common equivalent shares outstanding (diluted) | | | 47,111,763 | | | | 36,015,710 | |
Net income (loss) per share: | | | | | | | | |
| | $ | (1.24 | ) | | $ | 0.91 | |
| | $ | (1.24 | ) | | $ | 0.90 | |
| | | | | | | | |
| | Twenty-Six Weeks Ended August 2, 2020 | | | Twenty-Six Weeks Ended August 4, 2019 | |
| | | | | | | | |
| | $ | (102,146 | ) | | $ | 74,799 | |
| | | | | | | | |
Weighted average number of common shares outstanding (basic) | | | 39,470,874 | | | | 36,117,815 | |
Weighted average dilutive impact of equity-based awards (1) | | | — | | | | 685,186 | |
Weighted average number of common and common equivalent shares outstanding (diluted) | | | 39,470,874 | | | | 36,803,001 | |
Net income (loss) per share: | | | | | | | | |
| | $ | (2.59 | ) | | $ | 2.07 | |
| | $ | (2.59 | ) | | $ | 2.03 | |
(1) | Due to the net loss for the thirteen andtwenty-six weeks ended August 2, 2020, 0 incremental shares are included because the effect would be anti-dilutive. |
Note 7: Share-Based Compensation
Compensation expense related to stock options, time-based and performance-based RSU’s and restricted stock areis included in general and administrative expenses and wereis as follows:
| | | | | | | | | | | | | | | | |
| | | | | | |
| | | | | | | | | | |
| | $ | | | | | | | | $ | | | | $ | | |
RSU’s and restricted stock | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Total share-based compensation expense | | $ | | | | $ | | | | $ | | | | $ | | |
| | | | | | | | | | | | | | | | |
| | | | | | |
| | | | | | | | | | | |
| | $ | 290 | | | | 804 | | | $ | 830 | | | | 1,563 | |
| | | 2,444 | | | | 1,103 | | | | 1,515 | | | | 2,169 | |
| | | | | | | | | | | | | | | | |
Share-based compensation expense | | $ | 2,734 | | | $ | 1,907 | | | $ | 2,345 | | | $ | 3,732 | |
| | | | | | | | | | | | | | | | |
Transactions related to stock option awards during the
twenty-six
weeks ended August 4, 2019
2,
2020were as follows:
| | | | | | | | | | | | | | | | |
| | 2014 Stock Incentive Plan | | | 2010 Stock Incentive Plan | |
| | | | | Weighted Average Exercise Price | | | | | | Weighted Average Exercise Price | |
Outstanding at February 3, 2019 | | | | | | $ | | | | | | | | $ | | |
| | | | | | | | | | | | | | | | |
| | | | ) | | | | | | | | ) | | | | |
| | | | ) | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Outstanding at August 4, 2019 | | | | | | $ | | | | | | | | $ | | |
| | | | | | | | | | | | | | | | |
Exercisable at August 4, 2019 | | | | | | $ | | | | | | | | $ | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | 2014 Stock Incentive Plan | | | 2010 Stock Incentive Plan | |
| | | | | | | | | | | | |
| | | | | | | | | | | |
Outstanding at February 2, 2020 | | | 1,323,495 | | | $ | 36.97 | | | | 266,900 | | | $ | 6.72 | |
| | | — | | | | — | | | | — | | | | — | |
| | | — | | | | — | | | | (79,142 | ) | | | 4.54 | |
| | | (82,741 | ) | | | 38.60 | | | | — | | | | — | |
| | | | | | | | | | | | | | | | |
Outstanding at August 2, 2020 | | | 1,240,754 | | | $ | 36.86 | | | | 187,758 | | | $ | 7.64 | |
| | | | | | | | | | | | | | | | |
Exercisable at August 2, 2020 | | | 1,037,513 | | | $ | 34.49 | | | | 187,758 | | | $ | 7.64 | |
| | | | | | | | | | | | | | | | |
The total intrinsic value of options exercised during the
twenty-six
weeks ended August 4, 2019
2,
2020was $2,505.$
792. The unrecognized expense related to our stock option plan totaled approximately $3,916 $
1,157as of August 4, 2019
2,
2020and will be expensed over a weighted average period of 2.5
1.5years.
Transactions related to time-based and
performance-based
RSU’s
and restricted stock during the
twenty-six
weeks ended August 4, 2019
2,
2020, were as follows:
| | | | | | | | |
| | | | | Weighted Average Fair Value | |
Outstanding at February 3, 2019 | | | | | | $ | | |
| | | | | | | | |
Change in units based on performance | | | | | | | | |
| | | | ) | | | | |
| | | | ) | | | | |
| | | | | | | | |
Outstanding at August 4, 2019 | | | | | | $ | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | |
| | | | | | |
Outstanding at February 2, 2020 | | | 216,815 | | | $ | 51.58 | |
| | | 1,061,926 | | | | 12.74 | |
Change in performance units | | | 4,352 | | | | 59.67 | |
| | | (62,411 | ) | | | 53.81 | |
| | | (48,409 | ) | | | 28.14 | |
| | | | | | | | |
Outstanding at August 2, 2020 | | | 1,172,273 | | | $ | 17.27 | |
| | | | | | | | |
Fair value of our time-based and performance-based RSU’s and restricted stock is based on our closing stock price on the date of grant. The unrecognized expense related to our time-based and performance-based RSU’s and unvested restricted stock was $6,911$12,658 as of August 4, 20192, 2020 and will be expensed over a weighted average period of 2.22.3 years.
During the
twenty-six
weeks ended August
2, 2020 and August 4, 2019,
and August 5, 2018, excess tax
benefitsexpense (benefit) of
$884$477 and
$1,919,($884), respectively, were recognized as
a benefitan expense (benefit) in the “Provision
(benefit) for income taxes” in the Consolidated Statement of Comprehensive Income
(Loss) and classified as a source in operating activities in the Consolidated Statement of Cash Flows.
Forfeitures are estimatedOn March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”). Intended to provide economic relief to those impacted by theCOVID-19
pandemic, the CARES Act includes provisions, among others, addressing the carryback of net operating losses for specific periods, temporary modifications to the limitations placed on the tax deductibility of net interest expenses, and technical amendments for qualified improvement property. 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 August 2, 2020, we have elected to defer employer-paid portion of social security taxes of $1,448, which is included in “Other liabilities” in the Consolidated Balance Sheets. The Company has historically calculated the provision for income taxes during interim reporting periods by applying an estimate of the annualized effective tax rate for the full fiscal year to “ordinary” income or loss for the reporting period. Due to the uncertainty created by the events surrounding theCOVID-19
pandemic, the actual effective tax rate for the year to date period was used to calculate the income tax benefit for thetwenty-six
weeks ended August 2, 2020. The effective tax rate for thetwenty-six
weeks ended August 2, 2020, was a benefit of 34.9%, compared to an effective tax rate of 21.5% for thetwenty-six
weeks ended August 4, 2019, primarily due to the impact of a decrease in operating earnings before income tax and the impact of the tax provisions within the CARES Act. As a result of the impact of the technical amendments for qualified improvement property within the CARES Act, the Company generated a taxable loss in 2019, which together with the taxable loss in 2020, can now be carried back to prior years when the statutory federal tax rate was 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.35.0%.
| Management’s Discussion and Analysis of Financial Condition and Results of Operations |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read together 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 Annual Report on Form
10-K
as filed with the Securities and Exchange Commission (“SEC”) on April
2, 2019.3, 2020. 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 Unaudited 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 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 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 Annual Report on Form
10-K
filed with the SEC on April
2, 2019.3, 2020. 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 Form
10-Q,
those results or developments may not be indicative of results or developments in subsequent periods.
On March 11, 2020, the World Health Organization declared theCOVID-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 individuals gathering in groups and, in many areas, placed complete restrictions onnon-essential
movement outside of the home. Shortly after the national emergency declaration, state and local officials began placing restrictions on restaurants, some of which allowedTo-Go
or curbside service only while others limited capacity in the dining room or midway. By March 20, 2020, all of our 137 operating stores were temporarily closed. During our first quarter, one storere-opened
to the public with limited food and beverage offerings and two additional stores offeredoff-premise
dining options. During our second quarter, we have progressivelyre-opened
limited operations in an additional 83 stores in 27 states, Puerto Rico and Canada. Additionally, eight stores werere-opened
during the second quarter and subsequently closed prior to August 2, 2020, due to changes in jurisdictional operating limits. Our scaled-down operating model includes a limited15-item
menu, reduced dining capacity and games in our midway for social distancing, reduced operating hours and reduced staffing levels designed to be responsive to restrictions imposed by various jurisdictions related toCOVID-19
re-openings.
Subsequent to the end of our second quarter, were-opened
one store and opened a new store located in Manchester, New Hampshire. As of September 4, 2020, 52 stores are closed due to jurisdictional restrictions. As a result of these developments, the Company is experiencing a significant decrease in traffic which has impacted the Company’s operating results during the thirteen andtwenty-six
weeks ended August 2, 2020. We expect our operating results to continue to be severely impacted until such time that state and local restrictions are lifted, and our dining rooms and midways canre-open
at full capacity. We cannot predict how long the pandemic will last or when the state and local restrictions will be lifted or potentiallyre-imposed.
In addition, we cannot predict how quickly our guests will return to our restaurants once such restrictions have been lifted or the impact this will have on consumer spending habits. In response to the 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 enacting12-week
salary reductions for remaining managers. In addition, effective March 24, 2020, the Company furloughed all but a small team of essential corporate and administrative staff, enacted12-week
salary reductions ranging from 10% to 50%, and suspended all cash board fees through the remainder of fiscal 2020; canceled or delayed allnon-essential
planned capital spending for the remainder of fiscal 2020;
halted or delayed planned store openings after our one store opening in Chattanooga, TN, on March 16, 2020, including delayed construction through the second quarter of fiscal 2020;
stopped work on future planned sites and commenced negotiations to terminate related contracts, as applicable;
suspended our share repurchase program and declaration of dividends;
drew down substantially all the remaining credit available under our $500,000 revolving credit facility;
sold shares of our common stock, which generated gross proceeds of approximately $185,600; and
negotiated with our landlords, vendors, and other business partners to temporarily reduce our lease and contract payments and obtain other concessions. As of August 2, 2020, a total of 92 rent relief agreements related to our operating locations and corporate headquarters were 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.
There-opening
process has been a gradual one with the safety of our employees and guests as our top priority. All of ourre-opened
stores are operating with 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 will also continue to pursue long-term operating efficiencies and fixed cost restructuring opportunities. Given the level of volatility and uncertainty surrounding the future impact of the pandemic, we have not provided a full year financial outlook for fiscal 2020.
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
customer mix skews moderately to males, primarily between the ages of 21 and 39, and we believe we also serve as an attractive venue for families with children and teenagers. We believe we appealbrand appeals to a
diverse customer base by providing a highly customizable experiencerelatively balanced mix of male and female adults, as well as families and teenagers, in
a dynamic and fun setting.low to middle-income households.Our stores average 41,000 square feet, range in size between 16,000 and 66,00070,000 square feet and are 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.
Our near-term strategies are as follows:
Revitalize our existing stores
Build deeper guest engagement
Maintain disciplined cost management
Invest in high-return new stores
Return capital to shareholders
Our revitalization of existing stores includes there-energizing
of our dining rooms through the installation of “Wow Walls,” LED television displays that create high-energy, contemporary, sports and entertainment-oriented dining areas. This cutting-edge visual technology will be initially deployed across 35 stores in the third quarter of fiscal 2019 in an effort to drive greater traffic and food and beverage penetration. We will also continue to invest in food, beverage and amusement innovations to continually enhance the guest experience.We are focused on building deeper guest engagement through initiatives such as the nation-wide launch of the Dave & Buster’s mobile app. The launch of the new app is scheduled to be completed in the third quarter of fiscal 2019. The Company’s investments in enhanced data analytics will provide valuable customer insights, actionable intelligence and ultimately drive deeper engagements with existing and new customers, including through targeted promotions and offers.
We utilize disciplined cost management, including G&A savings and operational efficiencies to fuel growth investments. The Company has identified future cost saving opportunities that we intend to pursue in the near-term. We intend to utilize a significant portion of these cost reductions to fund store technology, data analytics and digital marketing investments to fuel growth in comparable store sales.
We invest in highest-return new store locations to strengthen the Dave & Buster’s brand and portfolio over the long term. During the firsttwenty-six
weeks of fiscal 2019, the Company opened ten new stores, compared to eleven new store openings in the comparable 2018 period. We currently anticipate opening fifteen to sixteen new stores in fiscal 2019. As part of this strategy, we are actively evaluating new initiatives related to store format. Our efforts include rightsizing the square footage of new stores to match market sales potential and evaluating the pace of new store openings to enhance focus on both new stores and existing store revitalization.Our robust initiatives to return capital to shareholders encompasses both share repurchases and dividend payments. During the first half of fiscal 2019 we increased our total share repurchase authorization to $800 million and executed additional share repurchases totaling $200,147. We also paid dividends totaling $10,837 during the same period.
Although we will focus our efforts on the near-term priorities, we will continue to evaluate other opportunities as part of our ongoing strategic planning process.
Key Measures of Our Performance
We monitor and analyze a number ofseveral key performance measures to manage our business and evaluate financial and operating performance. These measures include:
Comparable store sales are a year-over-year comparison of sales at stores open at the end of the period which have been open 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.
OurAs of August 2, 2020, our comparable store base consisted of
99115 stores,
as of
August 4, 2019.which 47 stores were closed.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. Between August
5, 20184, 2019 and August
4, 2019,2, 2020, we opened
fourteenseven new stores
eight of which were(six in
new markets.fiscal 2019 and one in fiscal 2020).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 Adjusted EBITDA, Adjusted EBITDA Margin, Store Operating Income Before Depreciation and Amortization and Store Operating Income Before Depreciation and Amortization Margin (defined
below). These
non-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 these
non-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 excludes
pre-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 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
. We define “Adjusted EBITDA” as net income
(loss) plus interest expense, net, loss on debt refinancing, provision
(benefit) for income taxes, depreciation and amortization expense, loss on asset disposal,
impairment of long-lived assets, share-based compensation,
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.
We define “Store Operating Income Before Depreciation and Amortization” as operating income
(loss) plus depreciation and amortization expense, general and administrative 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 and
pre-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
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 in a
53-week
year when the fourth quarter has 14 weeks. All references to the second quarter of
20192020 relate to the
13-week
period ended August
4, 2019.2, 2020. All references to the second quarter of
20182019 relate to the
13-week
period ended August
5, 2018.4, 2019. Fiscal
20192020 and fiscal
20182019 consist of 52 weeks. All dollar amounts are presented in thousands, unless otherwise noted, except share and per share amounts.
Store-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
typicallyhistorically open with sales volumes in excess of their expected
long term long-termrun-rate
levels, which we refer to as a “honeymoon” effect. We 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
willmay result in significant fluctuations in quarterly results.
In the first year of operation new store operating margins (excluding
pre-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.
Our operating results fluctuate significantly due to seasonal factors. Typically, we have higher revenues associated with spring and
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 the
fall season, has historically had lower revenues as compared to the other quarters.
We expect that economic and environmental conditions and changes in regulatory legislation will continue to exert pressure on both supplier pricing and consumer spending related to entertainment and dining alternatives. 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 tomight be partially offset by selected menu price increases
whereif competitively appropriate.
In addition, how quickly, and to what extent, normal economic and operating conditions can resume cannot be predicted, and the resumption of normal business operations may be delayed or constrained by lingering effects of theCOVID-19
pandemic on us or our suppliers, third-party service providers, and/or customers.Thirteen Weeks Ended August 4, 20192, 2020 Compared to Thirteen Weeks Ended August 5, 20184, 2019
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 unaudited consolidated statements of comprehensive
income.income (loss). | | | | | | | | | | | | | | | | |
| | | | | | |
| | | | | | |
Food and beverage revenues | | $ | 137,921 | | | | 40.0 | % | | $ | 130,242 | | | | 40.8 | % |
Amusement and other revenues | | | 206,678 | | | | 60.0 | | | | 188,946 | | | | 59.2 | |
| | | | | | | | | | | | | | | | |
Total revenues | | | 344,599 | | | | 100.0 | | | | 319,188 | | | | 100.0 | |
Cost of food and beverage (as a percentage of food and beverage revenues) | | | 36,934 | | | | 26.8 | | | | 33,998 | | | | 26.1 | |
Cost of amusement and other (as a percentage of amusement and other revenues) | | | 22,689 | | | | 11.0 | | | | 21,558 | | | | 11.4 | |
| | | | | | | | | | | | | | | | |
Total cost of products | | | 59,623 | | | | 17.3 | | | | 55,556 | | | | 17.4 | |
Operating payroll and benefits | | | 80,927 | | | | 23.5 | | | | 73,736 | | | | 23.1 | |
Other store operating expenses | | | 104,376 | | | | 30.3 | | | | 94,825 | | | | 29.7 | |
General and administrative expenses | | | 15,991 | | | | 4.6 | | | | 14,764 | | | | 4.6 | |
Depreciation and amortization expense | | | 32,745 | | | | 9.5 | | | | 29,049 | | | | 9.1 | |
Pre-opening costs | | | 4,723 | | | | 1.4 | | | | 5,328 | | | | 1.7 | |
| | | | | | | | | | | | | | | | |
Total operating costs | | | 298,385 | | | | 86.6 | | | | 273,258 | | | | 85.6 | |
| | | | | | | | | | | | | | | | |
Operating income | | | 46,214 | | | | 13.4 | | | | 45,930 | | | | 14.4 | |
Interest expense, net | | | 4,605 | | | | 1.3 | | | | 3,228 | | | | 1.0 | |
| | | | | | | | | | | | | | | | |
Income before provision for income taxes | | | 41,609 | | | | 12.1 | | | | 42,702 | | | | 13.4 | |
Provision for income taxes | | | 9,253 | | | | 2.7 | | | | 8,923 | | | | 2.8 | |
| | | | | | | | | | | | | | | | |
Net income | | $ | 32,356 | | | | 9.4 | % | | $ | 33,779 | | | | 10.6 | % |
Change in comparable store sales (1) | | | | | | | (1.8 | )% | | | | | | | (2.4 | )% |
Company-owned stores open at end of period (1) | | | | | | | 130 | | | | | | | | 117 | |
Comparable stores open at end of period (1) | | | | | | | 99 | | | | | | | | 86 | |
| | | | | | | | | | | | | | | | |
| | Thirteen Weeks Ended August 2, 2020 | | | Thirteen Weeks Ended August 4, 2019 | |
Food and beverage revenues | | $ | 17,002 | | | | 33.4 | % | | $ | 137,921 | | | | 40.0 | % |
Amusement and other revenues | | | 33,831 | | | | 66.6 | | | | 206,678 | | | | 60.0 | |
| | | | | | | | | | | | | | | | |
| | | 50,833 | | | | 100.0 | | | | 344,599 | | | | 100.0 | |
Cost of food and beverage (as a percentage of food and beverage revenues) | | | 4,659 | | | | 27.4 | | | | 36,934 | | | | 26.8 | |
Cost of amusement and other (as a percentage of amusement and other revenues) | | | 4,025 | | | | 11.9 | | | | 22,689 | | | | 11.0 | |
| | | | | | | | | | | | | | | | |
| | | 8,684 | | | | 17.1 | | | | 59,623 | | | | 17.3 | |
Operating payroll and benefits | | | 13,756 | | | | 27.1 | | | | 80,927 | | | | 23.5 | |
Other store operating expenses | | | 62,682 | | | | 123.2 | | | | 104,376 | | | | 30.3 | |
General and administrative expenses | | | 9,278 | | | | 18.3 | | | | 15,991 | | | | 4.6 | |
Depreciation and amortization expense | | | 35,160 | | | | 69.2 | | | | 32,745 | | | | 9.5 | |
| | | 2,388 | | | | 4.7 | | | | 4,723 | | | | 1.4 | |
| | | | | | | | | | | | | | | | |
| | | 131,948 | | | | 259.6 | | | | 298,385 | | | | 86.6 | |
| | | | | | | | | | | | | | | | |
| | | (81,115 | ) | | | (159.6 | ) | | | 46,214 | | | | 13.4 | |
| | | 8,163 | | | | 16.0 | | | | 4,605 | | | | 1.3 | |
| | | | | | | | | | | | | | | | |
Income (loss) before provision (benefit) for income taxes | | | (89,278 | ) | | | (175.6 | ) | | | 41,609 | | | | 12.1 | |
Provision (benefit) for income taxes | | | (30,676 | ) | | | (60.3 | ) | | | 9,253 | | | | 2.7 | |
| | | | | | | | | | | | | | | | |
| | $ | (58,602 | ) | | | (115.3 | )% | | $ | 32,356 | | | | 9.4 | % |
| | | | | | | | | | | | | | | | |
Change in comparable store sales (1) | | | | | | | (87.0 | )% | | | | | | | (1.8 | )% |
Company-owned stores at end of period (1) | | | | | | | 137 | | | | | | | | 130 | |
Comparable stores at end of period (1) | | | | | | | 115 | | | | | | | | 99 | |
(1) | As of the end of the second quarter of fiscal 2020, 84 of our 137 stores were open. Our comparable store count as of the end of the second quarter of fiscal 2020 excludes a store in Chicago, Illinois which is near the end of its lease term which the Company has decided not tore-open. 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. |
Reconciliations of
Non-GAAP
Financial Measures
The following table reconciles (in dollars and as a percent of total revenues) Net income (loss) to Adjusted EBITDA for the periods indicated:
| | | | | | | | | | | | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
Net income | | $ | 32,356 | | | | 9.4 | % | | $ | 33,779 | | | | 10.6 | % |
Interest expense, net | | | 4,605 | | | | | | | | 3,228 | | | | | |
Provision for income taxes | | | 9,253 | | | | | | | | 8,923 | | | | | |
Depreciation and amortization expense | | | 32,745 | | | | | | | | 29,049 | | | | | |
| | | | | | | | | | | | | | | | |
EBITDA | | | 78,959 | | | | 22.9 | % | | | 74,979 | | | | 23.5 | % |
Loss on asset disposal | | | 406 | | | | | | | | 431 | | | | | |
Share-based compensation | | | 1,907 | | | | | | | | 1,626 | | | | | |
Pre-opening costs | | | 4,723 | | | | | | | | 5,328 | | | | | |
Other costs (1) | | | (13 | ) | | | | | | | 26 | | | | | |
| | | | | | | | | | | | | | | | |
Adjusted EBITDA | | $ | 85,982 | | | | 25.0 | % | | $ | 82,390 | | | | 25.8 | % |
| | | | | | | | | | | | | | | | |
| | Thirteen Weeks Ended August 2, 2020 | | | Thirteen Weeks Ended August 4, 2019 | |
| | $ | (58,602 | ) | | | -115.3 | % | | $ | 32,356 | | | | 9.4 | % |
| | | 8,163 | | | | | | | | 4,605 | | | | | |
Provision (benefit) for income taxes | | | (30,676 | ) | | | | | | | 9,253 | | | | | |
Depreciation and amortization expense | | | 35,160 | | | | | | | | 32,745 | | | | | |
| | | | | | | | | | | | | | | | |
| | | (45,955 | ) | | | -90.4 | % | | | 78,959 | | | | 22.9 | % |
| | | 264 | | | | | | | | 406 | | | | | |
Impairment of long-lived assets | | | 2,178 | | | | | | | | — | | | | | |
| | | 2,734 | | | | | | | | 1,907 | | | | | |
| | | 2,388 | | | | | | | | 4,723 | | | | | |
| | | (88 | ) | | | | | | | (13 | ) | | | | |
| | | | | | | | | | | | | | | | |
| | $ | (38,479 | ) | | | -75.7 | % | | $ | 85,982 | | | | 25.0 | % |
| | | | | | | | | | | | | | | | |
(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 (loss) to Store Operating Income Before Depreciation and Amortization for the periods indicated:
| | | | | | | | | | | | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
Operating income | | $ | 46,214 | | | | 13.4 | % | | $ | 45,930 | | | | 14.4 | % |
General and administrative expenses | | | 15,991 | | | | | | | | 14,764 | | | | | |
Depreciation and amortization expense | | | 32,745 | | | | | | | | 29,049 | | | | | |
Pre-opening costs | | | 4,723 | | | | | | | | 5,328 | | | | | |
| | | | | | | | | | | | | | | | |
Store Operating Income Before Depreciation and Amortization | | $ | 99,673 | | | | 28.9 | % | | $ | 95,071 | | | | 29.8 | % |
| | | | | | | | | | | | | | | | |
| | Thirteen Weeks Ended August 2, 2020 | | | Thirteen Weeks Ended August 4, 2019 | |
| | $ | (81,115 | ) | | | -159.6 | % | | $ | 46,214 | | | | 13.4 | % |
General and administrative expenses | | | 9,278 | | | | | | | | 15,991 | | | | | |
Depreciation and amortization expense | | | 35,160 | | | | | | | | 32,745 | | | | | |
| | | 2,388 | | | | | | | | 4,723 | | | | | |
| | | | | | | | | | | | | | | | |
Store Operating Income Before Depreciation and Amortization | | $ | (34,289 | ) | | | -67.5 | % | | $ | 99,673 | | | | 28.9 | % |
| | | | | | | | | | | | | | | | |
The table below reflects accrual-based capital additions. Capital additions do not include any reductions for accrual-based leasehold improvement incentives or proceeds from sale-leaseback transactions (collectively, “Payments formfrom landlords”).
| | | | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
New store and operating initiatives | | $ | 40,029 | | | $ | 30,256 | |
Games | | | 6,146 | | | | 11,171 | |
Maintenance capital | | | 4,190 | | | | 7,431 | |
| | | | | | | | |
Total capital additions | | $ | 50,365 | | | $ | 48,858 | |
Payments from landlords | | $ | 7,099 | | | $ | 15,758 | |
| | | | | | | | |
| | Thirteen Weeks Ended August 2, 2020 | | | Thirteen Weeks Ended August 4, 2019 | |
New store and operating initiatives | | $ | 1,921 | | | $ | 40,029 | |
| | | 810 | | | | 6,146 | |
| | | 838 | | | | 4,190 | |
| | | | | | | | |
| | $ | 3,569 | | | $ | 50,365 | |
| | | | | | | | |
| | $ | 4,014 | | | $ | 7,099 | |
In response to the business disruption caused by theCOVID-19
pandemic, the Company has taken the following actions, related to its store operations: Temporarily closures of all of our 137 stores, completed by March 20, 2020 (including our one new store opening March 16);
On April 30, 2020, one storere-opened
to the public with limited food and beverage offerings. Two additional stores offered limited food and beverage foroff-premises
dining; and During the thirteen weeks ended August 2, 2020, an additional 83 stores werere-opened.
These stores are operating with 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:
| | | | | | | | | | | | |
| | Thirteen weeks ended August 2, 2020 | | | Thirteen weeks ended August 4, 2019 | | | | |
| | $ | 50,833 | | | $ | 344,599 | | | $ | (293,766 | ) |
Total store operating weeks | | | 628 | | | | 1,674 | | | | (1,046 | ) |
Comparable store revenues | | $ | 40,201 | | | $ | 308,995 | | | $ | (268,794 | ) |
Comparable store operating weeks | | | 493 | | | | 1,495 | | | | (1,002 | ) |
Noncomparable store revenues | | $ | 10,435 | | | | 36,487 | | | $ | (26,052 | ) |
Noncomparable store operating weeks | | | 135 | | | | 179 | | | | (44 | ) |
| | $ | 197 | | | $ | (883 | ) | | $ | 1,080 | |
Total revenues
increased $25,411,decreased $293,766, or
8.0%85.2%, to
$50,833 in the second quarter of fiscal 2020 compared to total revenues of $344,599 in the second quarter of fiscal
2019 compared2019. The decline in revenue is attributable primarily to
total revenues of $319,188fewer store operating weeks in the second quarter of fiscal
2018.2020 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 theCOVID-19
pandemic. For the thirteen weeks ended August 2, 2020, we derived 22.2% of our total revenue from food sales, 11.2% from beverage sales, and 66.6% from amusement sales and less than 0.1% from other sources. For the thirteen weeks ended August 4, 2019, we derived 28.0% of our total revenue from food sales, 12.0% from beverage sales, 59.1% from amusement sales and 0.9% from other sources.
For the thirteen weeks ended August 5, 2018, we derived 28.8% of our total revenue from food sales, 12.0% from beverage sales, 58.5% from amusement sales and 0.7% from other sources.The net increase in revenues for the second quarter of fiscal 2019 compared to the second quarter of 2018 were from the following sources:
| | | | |
Comparable stores | | $ | (4,877 | ) |
Non-comparable stores | | | 29,633 | |
Other | | | 655 | |
| | | | |
Total | | $ | 25,411 | |
Comparable store revenue decreased
$4,877,$268,794 or
1.8%87.0%, in the second quarter of fiscal
20192020 compared to the second quarter of fiscal
2018. Comparable store revenue compared2019, due primarily to
prior year was negatively impacted by increased competitive pressure, and sales transfers to new stores that we openeda 67.0% reduction in
markets where we operate. Comparable walk-in revenues, which accounted for 90.4% of comparable store
revenue foroperating weeks and lower customer volumes as storesre-opened
with limited operations. During the second quarter of fiscal
2019, decreased 2.0% compared to2020, the
similar period in fiscal 2018. Comparable store special events revenues, which accounted for 9.6%number of comparable
stores operating increased from one at the beginning of the quarter to 68 at the end of the quarter. Our individual comparable stores generally experienced gradual increases in weekly sales performance as operating weeks increased. Individual store
revenue for the second quarter of fiscal 2019, increased 0.1% comparedperformance afterre-opening
was impacted by changes in local operating restrictions and consumer reactions to
the second quarter of fiscal 2018.changes in localCOVID-19
infection rates.Food sales at comparable stores decreased by
$2,985,$77,714, or
3.8%89.6%, to
$75,645$8,982 in the second quarter of fiscal
20192020 from
$78,630$86,696 in the second quarter of fiscal
2018.2019. Beverage sales at comparable stores decreased by
$537,$32,508, or
1.6%87.5%, to
$32,528$4,652 in the second quarter of fiscal
20192020 from
$33,065$37,160 in the
20182019 comparison period. Comparable store amusement and other revenues in the second quarter of fiscal
20192020 decreased by
$1,355,$158,572, or
0.8%85.7%, to
$160,112$26,567 from
$161,467$185,139 in the comparable thirteen weeks of fiscal
2018.2019. The
decreaseCOVID-19
pandemic driven reduction in
amusement sales was dueoperating hours and product offerings contributed to a shift 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 in the first quarter of fiscal 2019.Non-comparablecomparable store revenue increased $29,633, for the second quartermix away from food and beverage revenues to amusements and other revenues of fiscal 2019approximately 600 basis points when compared to the second quarter of fiscal 2018. The increase in non-comparable 2019.
Non-comparable
store revenue
was primarily driven by 198 additional operating store weeks contributed by our thirty-one non-comparable stores, fourteendecreased $26,052 in the second quarter of
which opened subsequentfiscal 2020 compared to the second quarter of fiscal
2018, partially offset by a decrease in revenue due to2019, for the
closuresame reasons noted above, including 44 fewer store operating weeks.
The total cost of products was $8,684 for the second quarter of fiscal 2020 and $59,623 for the second quarter of fiscal 2019 and $55,556 for the second quarter of fiscal 2018.2019. The total cost of products as a percentage of total revenues was 17.3% and 17.4%relatively unchanged at 17.1% for the second quarter of fiscal 2019 and2020 compared to 17.3% for the second quarter of fiscal 2018, respectively.2019.
Cost of food and beverage products
increaseddecreased to
$36,934 in the second quarter of fiscal 2019$4,659 compared to
$33,998$36,934 for the second quarter of fiscal
2018 due primarily to the increased sales volume related to new store openings.2019. Cost of food and beverage products, as a percentage of food and beverage revenues, increased
7060 basis points to
27.4% for the second quarter of fiscal 2020 from 26.8% for the second quarter of fiscal
2019 from 26.1% for2019. Cost of food and beverage products during the second quarter of
fiscal 2018. Higher2020 was negatively impacted by a shift in mix to poultry
costs due toresulting from our
“All You Can Eat” wings promotion, higher bar consumable costs due to our shift to fresh juices at the bar as well as the impact of our largernon-comparable
store group, were partially offset by declines in seafood costsstreamlined menu offering and
increases in food and beverage
prices.spoilage costs of approximately $500 associated with store closures, offset by cost reductions resulting from vendor payment negotiations.Cost of amusement and other increaseddecreased to $4,025 in the second quarter of fiscal 2020 compared to $22,689 in the second quarter of fiscal 2019 compared to $21,558 in the second quarter of fiscal 2018.2019. The costs of amusement and other, as a percentage of amusement and other revenues, decreased 40increased 90 basis points to 11.0%11.9% for the second quarter of fiscal 20192020 from 11.4% for11.0% in the second quarter of fiscal 2018. The decrease2019, due primarily to a shift in cost of amusement and other as a percentage of revenue was due, in part, to lower expense associated with our estimated amusementticket redemption liabilities and leverage from revenue increases derived from an increase in the price of power cards and higher revenue from our virtual reality platform. Increases in cost of amusements due to recently imposed tariffs were largely offset by price increases in WIN!.patterns.
Operating payroll and benefits
Total operating payroll and benefits
increaseddecreased by
$7,191,$67,171, or
9.8%83.0%,
to $13,756 in the second quarter of fiscal 2020 compared to $80,927 in the second quarter of fiscal
2019 compared to $73,736 in the second quarter2019. Nearly all of
fiscal 2018. This increase was primarily due to labor associatedour store workforce, with the
additional operating store weeksexception of
our non-comparable stores.a small team of essential personnel, were furloughed inmid-March,
returning only as storesre-opened
and at reduced staffing levels. The total cost of operating payroll and benefits, as a percentage of total revenues, increased
40360 basis points to
23.5%27.1% in the second quarter of fiscal
20192020 compared to
23.1%23.5% for the second quarter of fiscal
2018.2019. This increase was
primarily due to
an hourly wage rate increasesales deleveraging of
4.6%, normalmanagement labor
inefficiencies associated with our non-comparableas a result of the temporary store
baseclosures and
unfavorable leverage on decreased comparable store sales.partially attributable to continued benefit coverage for furloughed employees.Other store operating expenses
Other store operating expenses
increaseddecreased by
$9,551,$41,694, or
10.1%39.9%,
to $62,682 in the second quarter of fiscal 2020 compared to $104,376 in the second quarter of fiscal
2019 compared to $94,825 in the second quarter of fiscal 2018, primarily2019. Decreased spend on marketing, maintenance and other services due to
newtemporary store
openings.closures and $1,000 insurance proceeds related to theCOVID-19
business disruptions were partially offset by a $2,178 charge for impairment of long-lived assets and a net loss on derivatives of $976. Other store operating
expensesexpense as a percentage of total revenues increased
60 basis pointsto 123.2% in the second quarter of fiscal 2020 compared to 30.3% in the second quarter of fiscal
2019 compared2019. This increase was due primarily to
29.7%sales deleveraging on 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 $6,713, or 42.0%, to $9,278 in the second quarter of fiscal 2018. This increase was due primarily to higher occupancy costs associated with our non-comparable stores, deleveraging of our occupancy costs on lower comparable store sales, and incremental legal and sports viewing costs, partially offset by favorable leverage of marketing expenses relative to total revenue.
General and administrative expenses
General and administrative expenses increased by $1,227, or 8.3%,2020 compared to $15,991 in the second quarter of fiscal 2019 compared to $14,764 in the second quarter of fiscal 2018.2019. The increasedecrease in general and administrative expenses was primarily driven by increased compensation and professional serviceslower labor costs atdue to the furloughing of most of our corporate headquarters. Generalemployees, temporarily reducing pay and administrative expenses, as a percentagebenefits for the remaining employees through the first seven weeks of total revenues remained unchanged at 4.6% in both the second quarter, lower professional services, reduced travel and board fees. These cost reductions were partially offset by increased share-based compensation as a result of fiscal 2019 andnew grants issued during the second quarter of fiscal 2018.quarter.
Depreciation and amortization expense
Depreciation and amortization expense increased by $3,696$2,415 or 12.7%7.4%, to $35,160 in the second quarter of fiscal 2020 compared to $32,745 in the second quarter of fiscal 2019 compared to $29,049 in the second quarter of fiscal 2018.2019. Increased depreciation due to our 20182020 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
costs decreased by
$605$2,335 to $2,388 in the second quarter of fiscal 2020 compared to $4,723 in the second quarter of fiscal 2019
compareddue to
$5,328a decrease in the number of new store openings in the current year, as construction was put on hold, withpre-opening
costs being primarily limited topre-opening
rent expense after the disruption of our business as a result of theCOVID-19
pandemic.
Interest expense, net increased by $3,558 to $8,163 in the second quarter of fiscal
2018 Interest expense, net increased by $1,3772020 compared to $4,605 in the second quarter of fiscal 2019
compared to $3,228 in the second quarter of fiscal 2018 due primarily to an increase in
the average outstanding debt,
a slightly higher weighted average effective interest rate and
higher interest rates.the absence of capitalized interest. Provision (benefit) for income taxes
The effective tax rate for the thirteen weeks ended August 2, 2020, was a benefit of 34.4%, compared to an effective tax rate of 22.2% for the thirteen weeks ended August 4, 2019, primarily due to the impact of a decrease in operating earnings before income tax rate increasedas well as the impact of provisions of the CARES Act, including technical amendments to 22.2% inqualified improvement property and the second quarterimpact of carrying net operating losses from fiscal years 2020 and 2019 comparedback to 20.9% in the second quarter of fiscal 2018. The increase is driven by lower excessyears with a higher federal corporate income tax benefit associated with share-based compensation partially offset by higher tax credits and a favorable change in the mix of jurisdictional earnings.rate.
Weeks Ended August 2, 2020 Compared toTwenty-Six
Weeks Ended August 4, 2019
Compared to Twenty-Six Weeks Ended August 5, 2018 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 unaudited consolidated statements of comprehensive
income.income (loss). | | | | | | | | | | | | | | | | |
| | | | | | |
| | | | |
Food and beverage revenues | | $ | 286,142 | | | | 40.4 | % | | $ | 269,997 | | | | 41.5 | % |
Amusement and other revenues | | | 422,039 | | | | 59.6 | | | | 381,381 | | | | 58.5 | |
| | | | | | | | | | | | | | | | |
Total revenues | | | 708,181 | | | | 100.0 | | | | 651,378 | | | | 100.0 | |
Cost of food and beverage (as a percentage of food and beverage revenues) | | | 75,688 | | | | 26.5 | | | | 70,018 | | | | 25.9 | |
Cost of amusement and other (as a percentage of amusement and other revenues) | | | 45,660 | | | | 10.8 | | | | 42,677 | | | | 11.2 | |
| | | | | | | | | | | | | | | | |
Total cost of products | | | 121,348 | | | | 17.1 | | | | 112,695 | | | | 17.3 | |
Operating payroll and benefits | | | 163,800 | | | | 23.1 | | | | 146,630 | | | | 22.5 | |
Other store operating expenses | | | 210,621 | | | | 29.8 | | | | 188,165 | | | | 28.9 | |
General and administrative expenses | | | 32,837 | | | | 4.6 | | | | 30,418 | | | | 4.7 | |
Depreciation and amortization expense | | | 63,886 | | | | 9.0 | | | | 56,555 | | | | 8.7 | |
Pre-opening costs | | | 11,725 | | | | 1.7 | | | | 12,381 | | | | 1.9 | |
| | | | | | | | | | | | | | | | |
Total operating costs | | | 604,217 | | | | 85.3 | | | | 546,844 | | | | 84.0 | |
| | | | | | | | | | | | | | | | |
Operating income | | | 103,964 | | | | 14.7 | | | | 104,534 | | | | 16.0 | |
Interest expense, net | | | 8,661 | | | | 1.2 | | | | 6,085 | | | | 0.9 | |
| | | | | | | | | | | | | | | | |
Income before provision for income taxes | | | 95,303 | | | | 13.5 | | | | 98,449 | | | | 15.1 | |
Provision for income taxes | | | 20,504 | | | | 2.9 | | | | 22,520 | | | | 3.4 | |
| | | | | | | | | | | | | | | | |
Net income | | $ | 74,799 | | | | 10.6 | % | | $ | 75,929 | | | | 11.7 | % |
Change in comparable store sales (1) | | | | | | | (1.0 | )% | | | | | | | (3.7 | )% |
Company-owned stores open at end of period (1) | | | | | | | 130 | | | | | | | | 117 | |
Comparable stores open at end of period (1) | | | | | | | 99 | | | | | | | | 86 | |
| | | | | | | | | | | | | | | | |
| | | | | | |
| | | | | |
| | | | | |
Food and beverage revenues | | $ | 80,922 | | | | 38.4 | % | | $ | 286,142 | | | | 40.4 | % |
Amusement and other revenues | | | 129,717 | | | | 61.6 | | | | 422,039 | | | | 59.6 | |
| | | | | | | | | | | | | | | | |
| | | 210,639 | | | | 100.0 | | | | 708,181 | | | | 100.0 | |
Cost of food and beverage (as a percentage of food and beverage revenues) | | | 22,003 | | | | 27.2 | | | | 75,688 | | | | 26.5 | |
Cost of amusement and other (as a percentage of amusement and other revenues) | | | 14,753 | | | | 11.4 | | | | 45,660 | | | | 10.8 | |
| | | | | | | | | | | | | | | | |
| | | 36,756 | | | | 17.4 | | | | 121,348 | | | | 17.1 | |
Operating payroll and benefits | | | 57,493 | | | | 27.3 | | | | 163,800 | | | | 23.1 | |
Other store operating expenses | | | 158,354 | | | | 75.3 | | | | 210,621 | | | | 29.8 | |
General and administrative expenses | | | 23,841 | | | | 11.3 | | | | 32,837 | | | | 4.6 | |
Depreciation and amortization expense | | | 70,512 | | | | 33.5 | | | | 63,886 | | | | 9.0 | |
| | | 6,211 | | | | 2.9 | | | | 11,725 | | | | 1.7 | |
| | | | | | | | | | | | | | | | |
| | | 353,167 | | | | 167.7 | | | | 604,217 | | | | 85.3 | |
| | | | | | | | | | | | | | | | |
| | | (142,528 | ) | | | (67.7 | ) | | | 103,964 | | | | 14.7 | |
| | | 14,278 | | | | 6.7 | | | | 8,661 | | | | 1.2 | |
| | | | | | | | | | | | | | | | |
Income (loss) before provision (benefit) for income taxes | | | (156,806 | ) | | | (74.4 | ) | | | 95,303 | | | | 13.5 | |
Provision (benefit) for income taxes | | | (54,660 | ) | | | (25.9 | ) | | | 20,504 | | | | 2.9 | |
| | | | | | | | | | | | | | | | |
| | $ | (102,146 | ) | | | (48.5 | )% | | $ | 74,799 | | | | 10.6 | % |
| | | | | | | | | | | | | | | | |
Change in comparable store sales (1) | | | | | | | (72.2 | )% | | | | | | | (1.0 | )% |
Company-owned stores at end of period (1) | | | | | | | 137 | | | | | | | | 130 | |
Comparable stores at end of period (1) | | | | | | | 115 | | | | | | | | 99 | |
(1) | As of the end of the second quarter of fiscal 2020, 84 of our 137 stores were open. Our comparable store count as of the end of the second quarter of fiscal 2020 excludes a store in Chicago, Illinois which is near the end of its lease term which the Company has decided not tore-open. 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. |
Reconciliations of
Non-GAAP
Financial Measures
The following table reconciles (in dollars and as a percent of total revenues) Net income (loss) to Adjusted EBITDA for the periods indicated:
| | | | | | | | | | | | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | $ | | | | | | % | | $ | | | | | | % |
| | | | | | | | | | | | | | | | |
Provision for income taxes | | | | | | | | | | | | | | | | |
Depreciation and amortization expense | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | % | | | | | | | | % |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | $ | | | | | | % | | $ | | | | | | % |
| | | | | | | | | | | | | | | | |
| | Twenty-Six Weeks Ended August 2, 2020 | | | Twenty-Six Weeks Ended August 4, 2019 | |
| | $ | (102,146 | ) | | | -48.5 | % | | $ | 74,799 | | | | 10.6 | % |
| | | 14,278 | | | | | | | | 8,661 | | | | | |
Provision (benefit) for income taxes | | | (54,660 | ) | | | | | | | 20,504 | | | | | |
Depreciation and amortization expense | | | 70,512 | | | | | | | | 63,886 | | | | | |
| | | | | | | | | | | | | | | | |
| | | (72,016 | ) | | | -34.2 | % | | | 167,850 | | | | 23.7 | % |
| | | 417 | | | | | | | | 826 | | | | | |
Impairment of long-lived assets | | | 13,727 | | | | | | | | — | | | | | |
| | | 2,345 | | | | | | | | 3,732 | | | | | |
| | | 6,211 | | | | | | | | 11,725 | | | | | |
| | | 59 | | | | | | | | 33 | | | | | |
| | | | | | | | | | | | | | | | |
| | $ | (49,257 | ) | | | -23.4 | % | | $ | 184,166 | | | | 26.0 | % |
| | | | | | | | | | | | | | | | |
(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 (loss) to Store Operating Income Before Depreciation and Amortization for the periods indicated:
| | | | | | | | | | | | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | $ | | | | | | % | | $ | | | | | | % |
General and administrative expenses | | | | | | | | | | | | | | | | |
Depreciation and amortization expense | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Store Operating Income Before Depreciation and Amortization | | $ | | | | | | % | | $ | | | | | | % |
| | | | | | | | | | | | | | | | |
| | Twenty-Six Weeks Ended August 2, 2020 | | | Twenty-Six Weeks Ended August 4, 2019 | |
| | $ | (142,528 | ) | | | -67.7 | % | | $ | 103,964 | | | | 14.7 | % |
General and administrative expenses | | | 23,841 | | | | | | | | 32,837 | | | | | |
Depreciation and amortization expense | | | 70,512 | | | | | | | | 63,886 | | | | | |
| | | 6,211 | | | | | | | | 11,725 | | | | | |
| | | | | | | | | | | | | | | | |
Store Operating Income Before Depreciation and Amortization | | $ | (41,964 | ) | | | -19.9 | % | | $ | 212,412 | | | | 30.0 | % |
| | | | | | | | | | | | | | | | |
The table below reflects accrual-based capital additions. Capital additions do not include any reductions for Payments from landlords.
| | | | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
New store and operating initiatives | | $ | | | | $ | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | $ | | | | $ | | |
| | $ | | | | $ | | |
| | | | | | | | |
| | Twenty-Six Weeks Ended August 2, 2020 | | | Twenty-Six Weeks Ended August 4, 2019 | |
New store and operating initiatives | | $ | 40,522 | | | $ | 91,447 | |
| | | 8,718 | | | | 9,842 | |
| | | 1,780 | | | | 10,485 | |
| | | | | | | | |
| | $ | 51,020 | | | $ | 111,774 | |
| | | | | | | | |
| | $ | 4,014 | | | $ | 21,341 | |
Selected revenue and store data for the periods indicated are as follows:
| | | | | | | | | | | | |
| | Twenty-six weeks ended August 2, 2020 | | | Twenty-six weeks ended August 4, 2019 | | | | |
| | $ | 210,639 | | | $ | 708,181 | | | $ | (497,542 | ) |
Total store operating weeks | | | 1,461 | | | | 3,290 | | | | (1,829 | ) |
Comparable store revenues | | $ | 179,662 | | | $ | 645,839 | | | $ | (466,177 | ) |
Comparable store operating weeks | | | 1,196 | | | | 2,990 | | | | (1,794 | ) |
Noncomparable store revenues | | $ | 33,843 | | | $ | 65,968 | | | $ | (32,125 | ) |
Noncomparable store operating weeks | | | 265 | | | | 300 | | | | (35 | ) |
| | $ | (2,866 | ) | | $ | (3,626 | ) | | $ | 760 | |
Total revenues
increased $56,803,decreased $497,542, or
8.7%70.3%, to
$708,181$210,639 in the
twenty-six
week periodweeks ended August
4, 20192, 2020 compared to total revenues of
$651,378$708,181 in the
twenty-six
week periodweeks ended August
5, 2018.4, 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 theCOVID-19
pandemic. For thetwenty-six
weeks ended August 2, 2020, we derived 25.3% of our total revenue from food sales, 13.1% from beverage sales, 61.1% from amusement sales and 0.5% from other sources. For the
twenty-six
weeks ended August 4, 2019, we derived 27.9% of our total revenue from food sales, 12.5% from beverage sales, 58.8% from amusement sales and 0.8% from other sources.
ForComparable store revenue decreased $466,177, or 72.2%, in the
twenty-six
weeks ended August
5, 2018, we derived 28.6% of our total revenue from food sales, 12.9% from beverage sales, 57.9% from amusement sales and 0.6% from other sources. The net increase in revenues for2, 2020 compared to the
twenty-six
weeks ended August 4, 2019,
compareddue primarily to a 60.0% reduction in comparable store operating weeks and lower customer volumes as storesre-opened
with limited operations. As of March 20, 2020, all the Company’s 115 comparable stores were closed due to operating restrictions put in place by local jurisdictions in response to the
twenty-sixCOVID-19
period endedpandemic. Beginning April 30, 2020, we beganre-opening
our stores based on changes in operating restrictions in the various jurisdictions. As of August
5, 2018, were from the following sources:2, 2020, 68 of our comparable stores hadre-opened
Comparableunder limited operating conditions. Our individual comparable stores generally experienced gradual increases in weekly sales performance as operating weeks increased. Individual store
revenue decreased $5,802, or 1.0%, in theperformance aftertwenty-sixre-opening
weeks ended August 4, 2019 compared to thetwenty-six
weeks ended August 5, 2018. Comparable store revenue compared to prior year was
negatively impacted by
an unfavorable shiftchanges in
the current year holiday/school break calendar, increased competitive pressure,local operating restrictions and
sales transfersconsumer reactions to
new stores that we openedchanges in
markets where we operate. localCOVID-19
infection rates.Comparable
walk-in
revenues, which accounted for
91.3%94.4% of comparable store revenue for the
twenty-six
weeks ended August
4, 2019,2, 2020, decreased
1.3%71.3% compared to the similar period in fiscal
2018.2019. Comparable store special events revenues, which accounted for
8.7%5.6% of comparable store revenue for the
twenty-six
weeks ended August
4, 2019, increased 1.5%2, 2020, decreased 81.9% compared to the similar period in fiscal
2018.2019 as events were canceled or postponed due to local restrictions on group gathering size and operating restrictions on our business.Food sales at comparable stores decreased by
$5,276,$134,470, or
3.3%74.9%, to
$156,354$45,025 in thetwenty-six
weeks ended August 2, 2020 from $179,495 in the
twenty-six
weeks ended August 4,
2019 from $161,630 in the in thetwenty-six
weeks ended August 5, 2018.2019. Beverage sales at comparable stores decreased by
$2,293,$57,165, or
3.1%70.7%, to
$70,533$23,672 in the
twenty-six
week periodweeks ended August
4, 20192, 2020 from
$72,826$80,837 in the
20182019 comparison period. Comparable store amusement and other revenues in the
twenty-six
week periodweeks ended August
4, 2019 increased2, 2020 decreased by
$1,767,$274,542, or
0.5%71.2%, to
$332,689$110,965 from
$330,922$385,507 in the comparable
twenty-six
weeks of fiscal
2018. The increase2019.Non-comparable
store revenue decreased $32,125 in
amusement sales was positively impacted by various pricing initiatives inthetwenty-six
weeks ended August 2, 2020 compared to thetwenty-six
weeks ended August 4, 2019. During the
current year, includingfirst four-week period of fiscal 2020,non-comparable
stores contributed an
increase in new card fees withadditional $9,668 of revenue and 54 additional operating weeks over the
launchsame period of
our RFID power cardfiscal 2019. During the remainder of the first quarter and
incremental sales associated with our virtual reality platform which launched during the second quarter of fiscal
2018.Non-comparable
store revenue increased $62,221, for thetwenty-six
week period ended August 4, 2019 compared to thetwenty-six
week period ended August 5, 2018. The increase in2020,non-comparable
store revenue
was primarily driven by 394 additionaldecreased $41,793 for the same reasons noted above, including 89 fewer store operating
store weeks contributed by ourthirty-one
non-comparable
stores, fourteen of which opened subsequent to the second quarter of fiscal 2018, partially offset by a decrease in revenue due to the closure of our store in Duluth (Atlanta), Georgia on March 3, 2019.weeks.The total cost of products was
$36,756 for thetwenty-six
weeks ended August 2, 2020 and $121,348 for the
twenty-six
week periodweeks ended August 4,
2019 and $112,695 for thetwenty-six
week period ended August 5, 2018.2019. The total cost of products as a percentage of total revenues was
17.4% and 17.1%
for thetwenty-six
weeks August 2, 2020 and
17.3%thetwenty-six
weeks ended August 4, 2019, respectively.
Cost of food and beverage products decreased to $22,003 in thetwenty-six
weeks ended August 2, 2020 compared to $75,688 for the
twenty-six
weeks ended August 4,
2019 and thetwenty-six
week period ended August 5, 2018, respectively. Cost of food and beverage products increased to $75,688 in thetwenty-six
week period ended August 4, 2019 compared to $70,018 for thetwenty-six
week period ended August 5, 2018, due primarily to the increased sales volume related to new store openings.2019. Cost of food and beverage products, as a percentage of food and beverage revenues, increased
6070 basis points to
27.2% for thetwenty-six
weeks ended August 2, 2020 from 26.5% for the
twenty-six
week periodweeks ended August 4,
2019 from 25.9% for thetwenty-six
week period ended August 5, 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 impact2019. Cost of
our largernon-comparable
store group, were partially offset by declines in seafood costs and increases in food and beverage
prices.products in thetwenty-six
weeks ended August 2, 2020, was negatively impacted by food and beverage spoilage costs of approximately $1,022 associated with store closures, offset partially by cost reductions resulting from vendor payment negotiations.Cost of amusement and other
increaseddecreased to $14,753 in thetwenty-six
weeks ended August 2, 2020 compared to $45,660 in the
twenty-six
week periodweeks ended August 4,
2019 compared to $42,677 in thetwenty-six
week period ended August 5, 2018.2019. The costs of amusement and other, as a percentage of amusement and other revenues,
decreased 40increased 60 basis points to
11.4% for thetwenty-six
weeks ended August 2, 2020 from 10.8% for the
twenty-six
week periodweeks ended August 4, 2019,
from 11.2% for thetwenty-six
week period ended August 5, 2018. The decrease in cost of amusement and other asdue primarily to a
percentage of revenue was due, in part, to lower expense associated with our estimated amusement redemption liabilities, an increase in the price of power cards and a slight shift in
game play tonon-redemption
games.ticket redemption patterns. Operating payroll and benefits
Total operating payroll and benefits
increaseddecreased by
$17,170,$106,307, or
11.7%64.9%,
to $57,493 in thetwenty-six
weeks ended August 2, 2020 compared to $163,800 in the
twenty-six
week periodweeks ended August 4,
2019 compared to $146,630 in thetwenty-six
week period ended August 5, 2018. This increase was primarily due to labor associated with the additional operating store weeks2019. Nearly all of our
store workforce, except a small team of essential personnel, were furloughed innon-comparablemid-March,
stores.returning only as storesre-opened
and at reduced staffing levels. The total cost of operating payroll and benefits, as a percentage of total revenues, increased
60420 basis points
to 27.3% in thetwenty-six
week period ended August 2, 2020 compared to 23.1% in the
twenty-six
week period ended August 4, 2019,
compareddue primarily to
22.5%sales deleveraging of management labor as a result of the temporary store closures and partially attributable to continued benefit coverage for
thetwenty-six
week period ended August 5, 2018. This increase was due to an hourly wage rate increase of 4.5%, incremental amusements labor related to our virtual reality platform, normal labor inefficiencies associated with ournon-comparable
store base and unfavorable leverage on decreased comparable store sales.furloughed employees.Other store operating expenses
Other store operating expenses
increaseddecreased by
$22,456,$52,267, or
11.9%24.8%,
to $158,354 in thetwenty-six
weeks ended August 2, 2020 compared to $210,621 in the
twenty-six
week periodweeks ended August 4,
2019 compared to $188,165 in thetwenty-six
week period ended August 5, 2018, primarily2019. Decreased spend on marketing, maintenance and other services due to
newtemporary store
openings.closures and $1,000 insurance proceeds related to theCOVID-19
business disruptions were partially offset by a $13,727 charge for impairment of long-lived assets and a net loss on derivatives of $1,796. Other store operating
expensesexpense as a percentage of total revenues increased
90 basis pointsto 75.3% in thetwenty-six
weeks ended August 2, 2020 compared to 29.8% in the
twenty-six
week periodweeks ended August 4,
2019 compared to 28.9% in thetwenty-six
week period ended August 5, 2018.2019. This increase was due primarily to
highersales deleveraging on occupancy costs
associated with ournon-comparable
stores, deleveragingand utilities as a result of
our occupancy costs on lower comparablethe temporary store
sales, incremental legal and sports viewing costs,closures and the
absence of hurricane-related business interruption proceeds recorded in the first quarter of the prior year.charges for impairment.General and administrative expenses
General and administrative expenses
increaseddecreased by
$2,419,$8,996, or
8.0%27.4%,
to $23,841 in thetwenty-six
weeks ended August 2, 2020 compared to $32,837 in the
twenty-six
week periodweeks ended August 4,
2019 compared to $30,418 in thetwenty-six
week period ended August 5, 2018.2019. The
increasedecrease in general and administrative expenses was
driven primarily
driven by
increasedlower labor due to the furloughing of most of our corporate employees during the first quarter of fiscal 2020, temporarily reducing pay and benefits for the remaining employees for a twelve-week period, lower share-based compensation
due to changes in performance stock unit expense during the first quarter, and
reduced travel, slightly offset by higher professional services
costs at our corporate headquarters. General and administrative expenses, as a percentage of total revenues remained relatively unchanged at 4.6% in thetwenty-six
week period ended August 4, 2019 compared to 4.7% in thetwenty-six
week period ended August 5, 2018.costs.Depreciation and amortization expense
Depreciation and amortization expense increased by
$7,331$6,626 or
13.0%10.4%,
to $70,512 in thetwenty-six
weeks ended August 2, 2020 compared to $63,886 in the
twenty-six
week periodweeks ended August 4,
2019 compared to $56,555 in thetwenty-six
week period ended August 5, 2018.2019. Increased depreciation due to our
20182020 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
costs decreased by
$656$5,514 to $6,211 in thetwenty-six
weeks ended August 2, 2020 compared to $11,725 in the
twenty-six
week periodweeks ended August 4, 2019,
compareddue to
$12,381a decrease in the
comparable time periodnumber of
fiscal 2018new store openings in the current year, as construction was put on hold, withpre-opening
costs being primarily limited topre-opening
rent expense after the disruption of our business as a result of the.COVID-19
pandemic.Interest expense, net increased by
$2,576$5,617 to
$8,661$14,278 in the
twenty-six
week periodweeks ended August
4, 20192, 2020 compared to
$6,085 in thetwenty-six
week period ended August 5, 2018 due primarily to higher interest rates and an increase in average outstanding debt.Provision for income taxes
The effective income tax rate decreased to 21.5%$8,661 in the
twenty-six
weeks ended August 4, 2019,
due primarily to an increase in average outstanding debt, offset slightly by a lower weighted average effective interest rate.
Provision (benefit) for income taxes
The effective tax rate for thetwenty-six
weeks ended August 2, 2020, was a benefit of 34.9%, compared to
22.9% inan effective tax rate of 21.5% for the
twenty-six
week periodweeks ended August
5, 2018. The4, 2019, primarily due to the impact of a decrease
reflectsin operating earnings before income tax as well as the impact of provisions of the CARES Act, including technical amendments to qualified improvement property and the impact of carrying net operating losses from fiscal years 2020 and 2019 back to years with a higher
federal corporate income tax
credits and a favorable change in the mix of jurisdictional earnings partially offset by lower excess tax benefit associated with share-based compensation.rate. Liquidity and Capital Resources
In response to the business disruption caused by theCOVID-19
pandemic, the Company has taken the following actions to enable it to meet its obligations over the next twelve months: Cash and Cash Equivalents
During the first quarter of fiscal year 2020, we:At August 4, 2019, we had cash and cash equivalents of $23,318 and a net working capital deficit of $178,426. We are able to operate with a working capital deficit because cash from sales is usually received before related liabilities for product, supplies, labor and services become due. Our operations do not require significant inventory or receivables, and we continually invest in our business through the growth of stores and operating improvement additions, which are reflected as noncurrent assets and not a part of working capital.
reduced expenses broadly;
Based onsuspended our current business plan, we believeshare repurchase program and our cashdividend;
drew down substantially all the remaining credit available under our $500,000 revolving credit facility;
negotiated an amendment with our lenders, which included relief from compliance with financial covenants for the first, second and cash equivalents combined with expected cash flows from operations, available borrowings under the revolving portionthird quarterly periods of fiscal 2020;
sold shares of our credit facilitycommon stock, which generated gross proceeds of $75,000; and expected
initiated negotiations with our landlords, vendors, and other business partners to temporarily reduce our lease and contract payments fromand obtain other concessions.
In addition, during the second quarter of fiscal 2020, we:
sold additional shares of common stock, which generated gross proceeds of $110,600;
submitted a proposal, approved by our shareholders, increasing the number of shares available for incentive awards, which enables management to maintain key talent while preserving the Company’s liquidity by minimizing cash outlays; and
continued discussions with our landlords, should be sufficient not only forvendors and other business partners to reduce our lease and contract payments and obtain concessions. As of August 2, 2020, a total of 92 rent relief agreements relating to our operating requirements but alsolocations and corporate headquarters were executed, which generally provide for full deferral for three months beginning April 2020, with partial deferral continuing for periods of up to enable us, in the aggregate, to finance our capital allocation strategy, including capital expenditures, share repurchases, cash dividends and any required debt payments throughsix months, at least the next twelve months and the foreseeable future. approximately 50% of those locations.
We expect
While these measures have been successful in obtaining temporary relief, and we continue to
spend between $242,000negotiate additional relief measures, given the uncertainty surrounding the timing ofre-opening
of our stores and
$252,000 ($200,000lifting of capacity restrictions and other requirements and how quickly customers will return to
$210,000 netour stores, which may be a function of
payments from landlord) in capital additions during fiscal 2019. The fiscal 2019 additions are expectedcontinued concerns over safety and/or depressed consumer sentiment due to
include approximately $196,000adverse economic conditions, including job losses, substantial doubt exists about our ability to
$206,000 ($154,000 to $164,000 net of payments from landlords) for new store construction and operating improvement initiatives, $19,000 for game refreshment and $27,000 in maintenance capital. A portion of the 2019 new store spend is related to stores that will be under construction in 2019 but will not be open until 2020. meet our obligations when they become due.We maintain aDuring the first quarter of fiscal year 2020, we drew down substantially all the available credit under our $500,000 unsecured revolving credit facility. AvailabilityCurrent availability under the revolving credit facility is reduced by $9,686 of outstanding letters of credit, which are used to support our self-insurance programs. AtAs of August 4, 2019,2, 2020, we had net availability for borrowings of $197,853 based on an outstanding revolverunused commitment balance of $294,000$1,314 and $8,147 in standby letters of credit. We had total outstanding debt obligationobligations of $567,750$747,750 under the existing term loan and revolving credit facility, which matures in August 2022. At August 4, 2019, the Company was in compliance with all our covenants contained in
Effective April 14, 2020, we amended our existing credit facility, which included relief from compliance with financial covenants for the quarterly periods ended May 3, 2020, August 2, 2020, and noneNovember 1, 2020. During the financial covenant suspension period, a $30,000 liquidity covenant was added as well as certain additional reporting requirements, and the termination of additional borrowings under our revolving credit facility during the suspension period. The interest rate increased to LIBOR plus 2.00% with a LIBOR floor of 1.00%. In connection with the amendment, we incurred debt costs of $2,000, which are expected to impact our liquidity or capital resources.payable at the maturity date of the credit facility, with earlier payment required in the event of certain conditions, as defined in the agreement. For
thetwenty-six
weeks ended August 2, 2020, the Company’s weighted average interest rate
swapson outstanding borrowings was 3.98%. We expect this rate to increase slightly in
future quarters as a result of the
managementamendment. Further, if there is an event of
default on our revolving credit facility, the entire balance plus accrued interest may become due and payable or our interest rate could change to the default rate of interest, as defined, which would be higher than the current interest rate. During fiscal 2019, we entered into interest rate swap 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 Unaudited Consolidated Financial Statements for further
discussion.discussion of our swap agreements, which werede-designated
as hedges effective April 14, 2020, the date of the amendment to our credit facility. Dividends and Share Repurchases
Our Board of Directors approvedThe Company had previously established a share repurchase program, under which the Company may repurchase shares on the open market, through privately negotiated transactions, and through trading plans designed to comply with Rule
10b5-1
of the Exchange Act.
The share repurchase program may be modified, suspended or discontinued at any time. As ofAt August
4, 2019,2, 2020, we had approximately
$269,990$172,820 remaining of a total $800,000 share repurchase authorization. The existing share repurchase program expires at the end of fiscal 2020.
DuringAs a result of the
impacts to our business arising from the COVID-19
twenty-six
weeks ended August 4, 2019, we declaredpandemic, share purchases and
paid cash dividends of $10,837. Our Board of Directors may authorize capital allocation initiatives, including additional dividends, to return value to shareholders as allowable under our existing credit facility.dividend payments have been indefinitely suspended.At August 2, 2020, we had cash and cash equivalents of $224,305. The April 14, 2020 amendment to our credit facility requires that the Company maintain a minimum cash balance of $30,000 with our lenders.
—
Net cash provided by operating activities decreased $28,221 in thetwenty-six
weeks ended August 4, 2019 compared to thetwenty-six
weeks ended August 5, 2018 driven primarily by net cash flows associated with changes in working capital.Cash flow generated from operations typically provides us with a significant source of liquidity. Our operating cash flows result primarily from cash received from our customers, offset by cash payments we make for products and services, employee compensation, operations and occupancy costs.
Cash provided by or used in operating activities is also subject to changes in working capital. Working capital at any specific point in time is subject to many variables, including seasonality, the timing of cash receipts and payments, and vendor payment terms.
Net cash provided by operating activities decreased $170,194 in thetwenty-six
weeks ended August 2, 2020 compared to thetwenty-six
weeks ended August 4, 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 were-opened
our first store, followed by the progressivere-opening
of 83 additional stores with limited operations through the end of our second quarter. The impact of approximately 1,829 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. — Cash used in investing activities primarily reflects capital expenditures.
During the
twenty-six
weeks ended August
4, 2019,2, 2020, the Company spent
$99,483approximately $48,800 for new store construction and operating improvement initiatives ($
78,14244,800 net of payments from landlords), $8,600 for game refreshment and $6,100 for maintenance capital.During thetwenty-six
weeks ended August 4, 2019, we spent approximately $99,500 ($78,200 net of payments from landlords) for new store construction and operating improvement initiatives,
$9,763$9,800 for game refreshment and
$8,629$8,600 for maintenance capital.
During— Cash provided by financing activities in the
twenty-six
weeks ended August
5, 2018, we spent $86,979 ($56,4342, 2020, primarily reflected $99,500 of net
proceeds from borrowings of
paymentsdebt and approximately $182,200 of net proceeds from
landlords) for new store construction and operating improvement initiatives, $19,065 for game refreshment and $10,580 for maintenance capital.the issuance of shares of our common stock. In thetwenty-six
— Cashweeks ended August 4, 2019, cash used in financing activities primarily reflected approximately $200,000 of share repurchases and approximately
$11,000$10,800 of cash dividends paid, partially offset by $173,500 of net proceeds from
borrowings of debt in thetwenty-six
weeks ended August 4, 2019. Cash used in financing activities primarily reflected approximately $61,000 of share repurchases and $4,500 of net repayments of debt in thetwenty-six
weeks ended August 5, 2018.Contractual Obligations and Commitments
ThereOther than the amendment to our credit facility effective April 14, 2020, there have been no material changes outside the ordinary course of business to our contractual obligations since February
3, 2019,2, 2020, as reported on Form
10-K
filed with
the SEC on April
2, 2019.3, 2020.
Accounting policies and estimates
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. These estimates and assumptions affect amounts of assets, liabilities, revenues and expenses and the disclosure of gain and loss contingencies at the date of the consolidated financial statements. Our current estimates are subject to change if different assumptions as to the outcome of future events were made. We evaluate our estimates and judgments on an ongoing basis, and we adjust our assumptions and judgments when facts and circumstances dictate. Since future events and their effects cannot be determined with absolute certainty, actual results may differ from the estimates we used in preparing the accompanying consolidated financial statements. A complete description of our critical accounting policies and estimates is included in our annual consolidated financial statements and the related notes in our Annual Report on Form
10-K
filed with the SEC on April
2, 2019.3, 2020.Recent accounting pronouncements
Refer to Note 1 to the Unaudited Consolidated Financial Statements for information regarding new accounting pronouncements.
ITEM | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKQuantitative and Qualitative Disclosures About Market 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. At this time, we do not use financial instruments to hedge our commodity risk.
We are exposed to interest rate risk arising from changes in interest rates due to the variable rate indebtedness under our credit facility.
BorrowingsAt August 2, 2020, borrowings pursuant to our credit facility
of $747,750 bear interest at a floating rate based on
one-month
LIBOR plus
an applicable margin. Effective February 28, 2019, the Company entered into2.00%, with a LIBOR floor of 1.00%. We currently have an interest rate swap agreement
with a notional amount of $350,000 to manage our exposure to interest rate movements on our variable rate credit
facility.facility up to the notional amount of $350,000. The agreement converts the floating
portion of the interest rate to a fixed interest rate of approximately
2.5% plus a spread2.47% from the effective date
of the agreements through the term of our existing credit facility.
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. Finally, the cost of constructing our stores is subject to inflationary increases in the costs of labor and material.
We have a substantial numberA large portion of our hourly employees who are paid wage rates at or based on the applicable federal, state or city minimum wage and increases in the minimum wage will increase our labor costs. Several states and local jurisdictions in which we operate have enacted legislation to increase the minimum wage and/or minimum tipped wage rates by varying amounts, with more planned increases in the future.
In general, we have been able to partially offset cost increases resulting from inflation by increasing menu prices, improving productivity, or other operating changes. We may or may not be able to offset cost increases in the future.
ITEM | CONTROLS AND PROCEDURES |
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures pursuant to Rules
13a-15
and
15d-15
promulgated under the Securities Exchange Act of 1934, as amended, as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures are effective.
Changes in Internal Control Over Financial Reporting
Effective February 4, 2019 we adopted the new guidance for lease accounting (Topic 842). As a result, changes to processes and procedures occurred that affected the Company’s internal control over financial reporting. While we believe the Company’s internal control over financial reporting for affected process and procedures is effective, we will continue to evaluate and monitor these changes and assess the effectiveness of our internal control over financial reporting as of the end of our fiscal year.
There were no changes in our internal control over financial reporting (as defined in the Exchange Act
Rules
13a-15(f)
and
15d-15(f))
that occurred during our second quarter ended August
4, 2019,2, 2020, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II – OTHER INFORMATION
Information regarding legal proceedings is incorporated by reference from Note 5 to our Unaudited Consolidated Financial Statements set forth in Part I of this report.
The Company is supplementing the Risk Factors previously disclosed in Item 1A of the Annual Report on Form10-K
for the fiscal year ended February 2, 2020, (the “Annual Report”). The following risk factor should be read in conjunction with the Risk Factors disclosed in the Annual Report. TheCOVID-19
pandemic has disrupted and is expected to continue to disrupt our business, which could have a material adverse impact on our business, results of operations, liquidity and financial condition for an extended period of time. The recent outbreak ofCOVID-19,
and any other outbreaks of contagious diseases or other adverse public health developments in the United States or worldwide, could have a material adverse effect on our business, results of operations, liquidity and financial condition. In 2020, theCOVID-19
pandemic has significantly impacted the economy in general, and our business specifically, and it will continue to negatively affect our business in a number of ways. These effects could include, but are not limited to: the uncertain and unprecedented impact of the coronavirus and the disease it causes(COVID-19)
on our business and operations and the related impact on our liquidity needs; our ability to continue as a going concern;
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 the impact of ongoing mitigation restrictions on our operations once our stores canre-open;
the speed with which our stores safely can bere-opened
and the level of customer demand followingre-opening;
the economic impact ofCOVID-19
and related disruptions on the communities we serve; and our overall level of indebtedness.
The extent to which theCOVID-19
pandemic, or other outbreaks of disease or similar public health threats, materially and adversely impacts 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 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 resume cannot be predicted, and the resumption of normal business operations may be delayed or constrained by lingering effects of theCOVID-19
pandemic on us or our suppliers, third-party service providers, and/or customers. | Unregistered Sales of Equity Securities and Use of Proceeds |
There
havehas been no material
changeschange in the
risk factors previouslyuse of proceeds disclosed in our
Annual Report as filedprospectus supplement to our registration statement on Form
10-KS-3,
filed with the SEC on April
2, 2019.14, 2020.
There were no repurchases of our common stock under our share repurchase plan during the thirteen weeks ended August 2, 2020.
ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
Information regarding repurchase of our common stock, in thousands, except share
amounts, during the thirteen weeks ended
August 4, 2019:
| | | | | | | | | | | | | | | | |
| | Total Number of Shares Repurchased | | | Average Price Paid per Share | | | Total Number of Shares Repurchased as Part of Publicly Announced Plan (2) | | | Approximate Dollar Value of Shares That May Yet Be Repurchased Under the Plan (3) | |
May 6, 2019 – June 2, 2019 | | | | | | $ | | | | | | | | $ | | |
June 3, 2019 – July 7, 2019 | | | | | | $ | | | | | | | | $ | | |
July 8, 2019 – August 4, 2019 | | | | | | $ | | | | | | | | $ | | |
(1) | Monthly information is presented by reference to our fiscal periods during the thirteen weeks ended August 4, 2019. |
(2) | Our Board of Directors approved a share repurchase program, under which the Company may repurchase shares on the open market, through privately negotiated transactions, and through trading plans designed to comply with Rule10b5-1
of the Securities Exchange Act of 1934, as amended. The share repurchase program may be modified, suspended or discontinued at any time. |
(3) | Based on total share repurchase authorization in effect on August 4, 2019. |
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104 | | | | |
| | | | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101). |
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.
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