Dave & Buster's Entertainment, Inc. (PLAY) Q1 2026 Earnings Report, Transcript and Summary

Hello, and welcome to the Dave and Buster's Entertainment Inc. First Quarter 26 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. Followed by the number 1 on your telephone keypad. If you would like to withdraw your question, just press star 1 again. I will now turn the conference over to Cory Hatton, VP and Head of Entertainment Finance, Investor Relations and Treasurer. Please go ahead.

Thank you, operator. And welcome to everyone on the line. Joining me in the room on today's call are Tarun Lal, our Chief Executive Officer; and Darin E. Harper, our Chief Financial Officer. After our prepared remarks, we will be happy to answer any questions. This call is being recorded on behalf of Dave and Buster's Entertainment Incorporated and is copyrighted. Before we begin the discussion on our company's first quarter 26 results, I would like to call your attention to the fact that in our prepared remarks, and responses to questions, certain items may be discussed which are not entirely based on historical fact. Any of these items should be considered forward looking statements relating to future events within the meaning of the Private Securities Litigation Reform Act of 2000. All such forward looking statements are subject to risks and uncertainties, which could cause actual results to differ from those anticipated. Information on these risks and uncertainties have been published in our filings with the SEC, which are available on our website. In addition, our remarks today will include references financial measures that are not defined under generally accepted accounting principles. Investors should review the reconciliation of these non GAAP measures to the comparable GAAP measure contained in our earnings released this afternoon. And with that, let me turn the call over to our CEO, Tarun Lal.

Thank you, Cory. Good evening, everyone. I first want to speak directly to our Q1 results which came in below both our own expectations and the expectations we set with you last quarter. We started the quarter well in February, The spring break calendar shift between March and April played out largely as expected. But the macro backdrop elevated gas prices, geopolitical uncertainty, and a meaningful softening in consumer sentiment were all a real headwind in April. That said, we are not here to make excuses. We have a resilient business model and expect to be able to navigate these obstacles. Our same store sales growth declined 5.4% in the first quarter of fiscal 26, We found that our dollar per day messaging did not resonate as strongly as we hoped And since then, we have pivoted to more compelling promotions. Which are resonating with customers. We have also made significant progress in establishing partnerships with IP providers and expect to have exciting entertainments announcements for you in the coming months. We are making significant progress, but I want to remind you that we are in the early innings and look forward to providing updates as soon as possible. We have seen improvement quarter to date in the second quarter despite unfavorable weather with comps down approximately 4%. We remain confident in our ability to continue improving in the back half of the quarter. We are extremely excited about our summary summer offerings, including our new games rollout and the World Cup watch activation, which kicked off last Thursday. After nearly a year fully immersed in this business, I remain extremely confident in our ability to dramatically improve operating results. Over the past several years, we have drifted from the core elements that historically drove our success. Investment in games, F&B, marketing, and operational excellence. We are systematically restoring each of these pillars now. We have also significantly strengthened our leadership team. In just the last month, we have added top caliber executives. A chief marketing officer in Jeremy Tucker who joins us from AutoNation, Planet Fitness, Walt Disney, and Spin Master. a Chief Technology and Digital Officer in Kevin Fay who joins us from Wingstop, and a Chief Legal Officer in Rachel Morgan, who joins us from Nexstar. We are equally focused on field operations and culture. Because we know exceptional execution and guest experience drive traffic and sales. With that in mind, I am delighted to share that we will be announcing a new COO by next week. Now we have the right strategy, the right team, and the right business model to create meaningful value for our guests and our shareholders. Our priorities this year remain clear. Turn same store sales sustainably positive and generate meaningful free cash flow. This management team is highly confident we will generate positive comparable store sales growth in the remainder of the year driving revenue and adjusted EBITDA growth. And more than $100 million in free cash flow for the full year. Let me now provide an update on each pillar of our back to basics strategy. First, on marketing. We are rebuilding our strategy around discipline. A simplified promotional calendar, data driven media mix modeling, and an optimized balance between TV and digital. Getting the right message to the right audience at the right time is 1 of our biggest opportunities to improve traffic sales, EBITDA. Our priority is rebuilding brand consideration through culturally relevant promotions and attractively priced offerings. We are still in the early innings of our marketing optimization. We have conducted a number of tests in the first quarter which have shown success, and which we expect to roll out nationally this year. On the flip side, we also tested a number of items such as our dollar per day messaging and certain changes to our media spend mix, and target audience that had less success but have provided us with valuable less lessons and learnings for the future. On the earned media side, we have seen a lot of success with bold activations that generate meaningful earned media and put us into cultural conversations. For example, in May, we announced that we would place tickets to the World Cup finals inside our human crane, and the response has been extraordinary. These shareable moments drive organic awareness. Beyond that, we are activating our loyalty program to drive personalized messaging and increase visit frequency. We are building a scalable special events engine that turns events into cultural moments and convert event guests into repeat walk in visitors. Overall, we are very excited about the evolution of our marketing leadership and look forward to continued progress with Jeremy now at the helm as CMO. Second, our food and beverage business has seen an early win from our back to basics strategy. Comparable food and beverage sales grew approximately 5% in Q1. Driven by our return to the historically proven menu last October and by our strong eat and play combo execution. Before these changes, the share of gaming guest who also bought food had declined significantly as our menu drifted post COVID. We have reversed that trend decisively in 2025, which has continued in 2026. Our ongoing success in food and beverage has resulted in 9 straight months of positive F&B same store sales. We have additional exciting LTOs launching in the coming months which we expect to be highly accretive Main event rolled out a new menu last month, and we continue to test food focused promotions which have shown signs of success. And we expect to drive continued growth in the back half of the year. Third, our games offering. This management team strongly believes we need to reinvest in new games after 6-year pullback. New, relevant games and attractions are essential to driving both new and repeat visitation. And same store sales growth. Just a few weeks ago, we rolled out 10 new games, the most since 2017. Coupled with initial game investments in 2025, this reverses a prolonged period of underinvestment. And we expect to roll out at least 5 additional new games in the balance of 2026. This is a direct response to an abundance of customer feedback citing a lack of newness on our traditional game floors. We have moved with significant urgency to address it. We also know from our inaugural state of fund report that nearly half of the Americans say their lives lack fun. And more than half would prioritize fun if affordable options existed. Our strategy is simple. Give people exciting, affordable reasons to reconnect in the real world. The new lineup spans high-energy competition, immersive gameplay, and hands on skill challenges. Highlights include Hot Wheels, Ultimate Speedway, Icy Slush Rush, John Wick: Continental Pursuit, Odin's Hammer, and Perfect Pump. Plus, of course, The Mandalorian and Grogu and Stranger Things IP, alongside guest tested original concepts. Many of these games are already pacing amongst the top revenue generators in their first weeks. Which is validation of our continued midway investment. And this is only phase 1. We have a lot more in the pipeline. Including several exciting IP partnerships that I look forward to sharing soon. We are equally excited about leveraging our watch offering on massive 40-foot screens and 30-plus TVs per location to drive visitation during the World Cup this summer. The World Cup which kicked off on June 11, is a major catalyst for our business. We have launched a full 360-degree activation, 2 new soccer inspired arcade games, world soccer and kick and win, plus exclusive tournament themed food and drinks, including sliders inspired by the host countries. And as I mentioned, we put tickets to major World Cup matches inside our human cranes including USA group stage games and all the way through the finals. We have also launched our hat trick watch experience, a ticketed watch party for kickoff and championship matches with all you can eat wings and fries and unlimited gameplay all day. Starting at just $24.99. It has attracted significant crowds for the opening games, cheering on the Mexico 2-0 victory. This builds on the playbook we deployed during the Super Bowl and create a repeatable high engagement format for major watch occasions that we will continue to enhance and make more programmatic. Combined with our summer seasons pass, the World Cup activation positions us to capture significant incremental traffic during an already strong summer season. This revitalized product offering represents a meaningful step forward in quality, variety, and cultural relevance. We are combining world class IP with innovative original concepts in a way that drives per capita spend and repeat visitation. For full year 2026, our ambition is to continue evolving our play experience and position Dave and Buster's as the fun capital of America. Fourth, operations. We are investing in and energizing the field through training that empowers teams to deliver exceptional guest experiences. A collaborative culture, supported by our shared service center is reducing turnover and creating an environment where our people and brand can thrive. As we discussed at the start of the year, our full year 2026 obsession metric is speed of service, a 1-minute greet and 4-minute drinks, backed by coaching and performance management. We are sending a clear signal. Our success is tied directly to execution and to the guest experience. Finally, our revamped remodel program continues to progress. We are confident we have identified the right layout to drive traffic improve productivity, and deliver strong ROIs at a reasonable cost. We recently opened 6 remodels and plan to open 2 more over the next few months. Early results from this new remodel prototype have been very encouraging. Driving a strong 7% comp uplift consistent with the far more expensive remodels of full year 2024 and 2025. As a reminder, the new cohort of remodels cost approximately half of what the legacy remodels cost. While still contributing a similar sales lift. In fact, these remodels were positive in same store sales in the first quarter and year to date, providing us further confidence that we are executing on the optimal prototype. This renewed remodel strategy highlights the power and importance of continuing to invest in our core business as a key traffic and comp driver for our brands. Taking a step back, after COVID, this company moved away from the core. And often simple elements that made it successful. Marketing, promotions, the F&B offerings, the annual investment in games and entertainment, operational excellence, and store refreshes that preserved what customers love about D&B all changed significantly. We are now actively going back to basics restoring those elements piece by piece and it is working. Armed with direct and candid feedback from the guest, we know that games innovation and value are of utmost importance and we are urgently addressing these issues. We know Q1 was disappointing. What I hope you take from tonight is that we understand why. And that we are taking the right actions and that the underlying business is already responding. We have made meaningful progress over the past years and expect that progress to convert into financial results more quickly from here. Before I pass the call over to Darren, I want to be clear That we are highly focused on strict capital expenditure discipline, minimum ROI thresholds, and generating significant free cash flow. Net CapEx for full year 2026 remains targeted at no more than $200 million down from approximately $270 million in full year 2025. And we are committed to a very strict ROI thresholds and eliminating inefficient use of capital. We dynamically reevaluate our capital investment plans, including our new store plans, and we will make adjustments as we weigh the best returns for each dollar of capital. We continue to plan to open 11 total new stores in full year 2026. If and as we make material adjustments to the same, we will communicate them to you. Very importantly, we continue to expect to deliver over $100 million in free cash flow this year. To talk about this more and review our financial results for the quarter, let me hand the call over to Darin E. Harper.

Thank you, Tarun, and good afternoon, everyone. As Tarun touched on in his comments, there are several areas where we have made solid progress over the past several months that I will provide highlights on here shortly. Before that, as a reminder, on a weather adjusted basis, Q4 FY 25 comparable store sales were down 1.5% with sequential improvements throughout the quarter. February, our first period of Q1 FY 26 continued this improvement in trend however, given broader macroeconomic challenges that intensified in March and April, during our highest seasonal time of the year due to spring breaks. Our Q1 FY 26 comparable store sales decreased 5.4% versus the prior year. As Tarun mentioned, despite some unfavorable weather, our comps quarter to date in Q2 have improved to down approximately 4%. Despite this consumer headwind, there are several areas of the business we have seen improvements. Which coupled with our strong unit economics and cash flow generation led to an overall $84 million improvement in free cash flow in Q1 f y 26 as compared to Q1 f y 25. This in turn allowed us to reduce our outstanding debt all while still continuing to invest in new stores, remodels, and a fresh set of high quality games. During the quarter, we have continued our trend of F&B same store sales growth, with an increase of over 5%. Special events grew approximately 3%. And our remodeled locations continue to outperform the balance of the system nearly 700 basis points led by our most recent and significantly more cost effective remodel prototype. During the first quarter, we generated total revenue of $559 million net income of $6 million or $0.16, per diluted share, adjusted net income of $8 million or $0.22 per diluted share, and adjusted EBITDA of $123 million resulting in an adjusted EBITDA margin of 22%. As Tarun mentioned, we expect to generate positive comp sales in the remainder of FY 2026 leading to EBITDA growth and a steady improvement of our margin profile. As a reminder, reconciliations of all non GAAP financial measures can be found in today's press release. We believe we can meaningfully improve our margins over time by continuing improvements in our cost management. We have put significant additional effort into further improving our internal processes and controls around costs and remain steadfast in identifying material cost savings across all aspects of the business. As you know, we have reworked our D and B store remodel strategy to bring down by half versus the store remodels of f y 2024 and f y 2025. I am pleased to report that we have recently completed 6 of these new remodel prototypes with an additional 2 scheduled to open in the coming months. As a reminder, despite costing half of our prior remodels, our new cohort generates the same nearly 700 basis points of outperformance versus the rest of the system, as Tarun mentioned, we are positive in both the first quarter and year to date in this new cohort. We are very encouraged by their initial performance and particularly robust return profile due to the efficiencies we have found on our costs. We believe this new prototype will maximize the impactful elements of our successful store models while eliminating previously ineffective spend. We expect to remodel another 10 to 20 locations in FY 27. Our new store development continues to deliver strong returns. And we have a solid pipeline of upcoming store openings. In the first quarter, we opened 1 new domestic store. And already in the second quarter, we have opened 3 additional domestic stores. We continue to anticipate opening 11 new stores in FY 26. Looking beyond FY 26, we continue to identify optimal sites but will remain extremely judicious in maximizing return on every dollar of capital spending. We see merit in potentially redirecting new store capital to further invest in our core, through remodels, deleveraging, and other forms of returning capital to shareholders. And as Tarun mentioned, we will communicate material adjustments to our capital strategy to you. On the international front, we opened our 5th international franchise location during Q1, which is in Australia. And our 6th international franchise location opened in Q2, Which is in Delhi, India. We expect at least 1 more international opening in the balance of the year in Mexico City, Mexico. As a reminder, we have secured agreements for over 30 additional international franchise stores in the coming years, and we see international franchising as a driver of highly efficient growth increasing our customer base around the world, with minimal investment and risk. We have a sizable opportunity internationally and see strong upside from this asset light growth model. We generated $25 million in free cash flow during the first quarter which as previously noted is an $84 million improvement to the negative free cash flow in Q1 FY 25 of 59 million. As a result of this free cash flow generation, we ended the quarter with $20 million in cash and $499 million in total liquidity combined with the availability under our $650 million revolving credit facility. Net of $20 million in outstanding letters of credit. We remain committed to generating meaningful free cash flow while continuing to invest in new store growth, new games, and our revamped remodel program. In the first quarter, we invested approximately $71 million in CapEx on a net basis when factoring in payments from landlords. We continue to make progress converting our strong operating cash flow to free cash flow through more strict management on capital spending by eliminating inefficient capital spend. As Tarun mentioned, this year, we continue to expect this net CapEx figure to be no greater than 200 million For FY 2026, our entire team is squarely focused on driving savings to expand EBITDA margins while tightly managing capital spending to generate significant free cash flow. Given our plans, management is highly confident in its ability to generate comp-store sales growth for the balance of the year. Coupled with our capital expenditure discipline, we continue to expect to generate more than $100 million free cash flow. during FY 2026. Which we believe position us well to continue investing in the business financial foundation is strong, underpinned by high returns, strong unit economics, disciplined cost management, and clear potential to generate meaningful cash flow. This was demonstrated by our generation of $25 million in free cash flow. In Q1, despite over $70 million in net CapEx investment and a 5.4% comparable store sales decline. Leadership and the board remained focused on driving same store sales growth. Significant cash flow generation. And with that, operator, please open the line for questions.

Thank you. If you wish to remove yourself from the queue, simply press 1 again. And we do ask for today's session that you please restrict yourself to 1 question and 1 follow-up. First question comes from the line of Andy Barish of Jefferies. Your line is open.

Hey, guys. Good afternoon. Just wondering on the second half sort of inflection on same store sales. I mean, are you assuming anything changes sort of in the external environment, just given that is been a challenge you noted, you know, today on the call?

I think that we have more confidence in our internal strategy and execution than, you know, be really dependent on the external environment, Andy. We cannot say anything about the external environment. And, of course, you know, we are highly optimistic that things will improve in terms of consumer sentiments. But I think what really gives us a sense of confidence is the fact that a lot of things that we have put into motion are now becoming reality, from a from a guest perspective. From new games, to new watch experiences, to new, IP partnerships, So I think that is what is giving us confidence as we get into the second half of the year. Gotcha. And then just a follow-up.

Are we still, I guess, seeing sort of incrementality in labor and the value initiatives that kind of weighing on margins? Or is that, starting to be lapped from the year now that you have been there, Tarun? Yeah, Andy. I will take this. Yeah. Overall, you know, we feel like we have we have managed our margins well in terms of the key elements that are impacting the value equation with cost of sales and labor. From what we have been able to do from a cost standpoint, on cost of sales as well as what we have seen from margin improvements on our new menu enhancements as well as driving more attach. We have we have really been able to elevate that offering and manage our margins well. And again, on the labor side, you know, we continue to be as effective as we can with our scheduling. At key peak times, you know, where we are really delivering on that guest experience. Particularly coupled with our F&B offering. So yeah. Look. We do not anticipate any material changes to those items as we go out through the balance of the year. And believe we have got the structure in place to deliver on the growth that we need. Thank you.

Your next question comes from the line of Sharon Zackfia of William Blair. Your line is open.

Hi, thanks for taking the question. I guess, first, on World Cup. So I wanted to ask if you are doing anything there with special events as well and what your insight is on what that demand generation could be. And then as you think about that guest that might be coming in that could be lapsed or even new to Dave and Buster's, what is the plan that you have to kind of create more durability with that revenue stream following the World Cup?

that is a that is a great question. And, you know, that is exactly our objective that once you get this special events guest in, how do you build a durable business by getting them back again and again. So first of all, it is a it is a big part of our business. it is growing. And, of course, you know, even such as World Cup does kind of help promote that part of the business even more. With regards to what is really driven this is that we have invested in an incredible organization We have got a outstanding leader who leads our special events business. We call him RJ, Robert Jenkins. he is he is got a team of people in the field who are speaking to corporates and, you know, different institutions at all times. You know, you know, they are leveraging a massive database that we have in making calls. This is like a this is like this is the kind of business that requires massive amount of you know, getting into details, a lot of hard work, making a lot of cold calls, I think in terms of the durability of the business, that is where I believe, and I strongly believe that the investments we are making into new games and the investments we are making in food and beverage and experiences matter so much because when these guests come in and they see the difference as far as the arcade area is concerned, they see they see how you know, exciting the new menu is. They see the value promotions we have. That brings them back.

And Sharon, I would add to that. With regard to the World Cup, we did launch a full 360-degree activation. We have a couple new soccer inspired games. Tournament themed food and drinks. We had a ticketed event. On Thursday, some human crane. We are we are really leveraging Human Crane to offer some free tickets to the World Cup some influencer driven watch content. So, yeah, so I think we are we are pleased with how we have executed that and to your point, and, leveraging what Tarun said, once we get those people in, they get to taste our food, experience our 40-foot wall. You know, we really hope they now it becomes part of the consideration set for them. that is helpful. And then in April, when you saw kind of the shift in the business? Is there anything to call out in terms of trends by household income? And anything that you have been able to come up with subsequently that might kind of attract that customer back Consistent with what we have seen here recently, certainly that lower end consumer is where we have seen most of that pressure. You know, the higher end middle consumer is consistently, you know, trading, but, you know, we are we are seeing more of that pressure on the low end. And that is you know, part of really what we have been trying to focus on with our value offers. How we have really focused on revamping our rate cards with our games, how we are we have offered half price games, what we have done with the eat and play combos, really trying to highlight that value component so that, you know, those lower end consumers can still have an occasion at Dave & Buster's that is that is economical for them. So we are we are very focused on that. But not trying to over discount the business. And cannibalize ourselves as well. So we are we are we are really pleased with the you know, what we have seen particularly on the eat and play combo side. We are really starting to promote the ability to add an entrée for $4.99. You come in, buy any denomination of PowerCard, and you can attach food and beverage to it. So we are really starting to see some really nice attach that we have never seen before. And so those are elements that we think could be really in targeting this lower end consumer. Okay. Thank you.

Your next question comes from the line of Andrew Strelzik of BMO. Your line is open.

Hey, thanks for taking the question. My first 1, I was hoping maybe you could be a little bit more specific about what you are learning around the marketing messaging, the customer targeting, maybe why some of the stuff you tried recently did not work, and how that is framing your approach going forward.

Yeah. Andrew, that is a that is a great question. You know, let me kind of first take a step back and share with you what our guests have been saying to us. I think I think 1, they have been saying that, listen. You have got to elevate your product. And by that, I mean that you need to elevate your games You need to elevate your food and beverage. Now with both of them, it like, we have responded in, you know, by investing in a ton of games, but that is only happened in the last, you know, almost, what I would say 30 days. You know, we have talked about food and beverage. You know, that investment has gone really well. That happened in October of last year, and we have seen a significant increase in our attach and growth in our in our F and B business. I think that is kind of, like, the first thing that, you know, the guest told us. I think the second thing the guests have told us is that hey. From a, you know, value perspective, you know, you know, consumers are craving for value today. Right? And they have been for some time. If you look at you know, the competitive, you know, marketplace, there is a lot of ask or a lot of offerings around value. And so again, we have, you know, promoted our half off games It went off really well. We have talked about dollar-a-day. Now that did not that did not really hit, you know, the bull's eye. But our new version of EPC has tested, you know, tremendously well, and we plan to launch that in the next 30 days. I think in terms of learning, I think we on as far as media is concerned, I think what we have learned is that you cannot swing in 1 direction. So what we did at some stage, we spent all the money on television. And then, you know, then we swung the other way around, and we spent invested all the money on digital. I think I think consumers, you know, are media in different ways, and, therefore, we need to have a very data based, you know, media planning and investment And I think that is where we had gone wrong in the past. Now in the month of February or March, we have invested in the media modeling and, you know, that is really now helping us learn faster on what kind of target audience should you go after, what channels, whether you know, how much money we invest in linear TV, how much money should we be investing in CTV, And so on and so forth. So basis that learning, we have now deployed a media a lot more effectively. I think in finally, in terms of, I think, you know, messaging, you know, this is like you know, we are we are now, you know, working in a very structured, disciplined approach of there being a primary message and then there being a secondary message. And so we invest a lot more money, of course, on the primary So in, you know, if you think about a current calendar construct, our primary messaging is our 10 new games. So we want every guest in the U.S. to know that there are 10 new games with exciting IP partnerships that, you know, are in the Dave and Buster's arcade. Our secondary messaging is that, hey, if you know, the World Cup soccer event is on, and, you know, if you wanna watch it on massive screens and enjoy exceptional food and beverage and enjoy, you know, playing during, you know, during breaks, you know, come to Dave and Buster. So that is our kind of secondary message. So we now are becoming more and more disciplined. 1, in creating you know, messages based on, you know, what consumers are saying they want, and secondly, using real data to define what media channels to invest behind. Got it. Okay. that is very helpful.

And maybe my follow-up I guess based on your comments about you seem maybe a little, bit more open to potentially shifting dollars between the new store CapEx and the internal investments you had talked about taking a disciplined approach previously, but maybe this sounded a little bit more like it is in the consideration set. Even though no formal decision has been made. But so how are you evaluating that decision at this point? Is it more about the site selection you are able to find or internal performance, something else? Just a little more color around that would be great. Thanks.

K. So fundamentally, at the highest level, you know, Andrew, our belief is that our number 1 priority is to drive same store sales growth in our core stores. So our core business is definitely priority. And so if there is requirement of CapEx, you know, as far as remodel is concerned, you know, that would be definitely a priority for us. You know, as far as new unit growth is concerned, it is not something that we are kind of taking, like, you know, we are kind of turning, you know, our backs on. What we are now very, very clear is that we must be very responsible with our capital. And so only when we have supreme confidence in a new site are we gonna go put capital behind it? That we are going to be a little bit more risk averse as far as new CapEx deployment for on new stores is concerned. And so, again, in summary, our, you know, our core priority, our key focus is going to be our core business. We will continue to build new stores. But only when we have supreme confidence the returns that we are going to get from that CapEx investment. Darin, anything you wish to add there?

Yeah. No. I think you covered it well. Yeah. I think in interpret it less as we have not lost confidence in new store growth In fact, we continue to get really, really great returns there. But we do want to reallocate capital to our core business. And so that, in turn, allows us to be even more discriminating on what sites to open. So more to come there, but we feel like this reallocation of capital is going to be really meaningful for us.

Yeah. And, Andrew, you know, once again, I just want to reiterate that between Darren and I, the 1 number that we are very, very fixated on is the $200 million of CapEx. And so that is a finite amount of money. That we have, and we need to just decide where to kind of allocate that money. Very clear. Thank you very much.

Thank you, Andrew. Your next question comes from the line of Eric Wold of B. Riley Securities. Your line is open.

Thanks. Good afternoon. So a couple of questions. First, to clarify the comment around, your expectation for positive same store sales for the for the balance of fiscal 26. Is that starting today, or is that kind of include the quarter to date decline of 4% and that you would expect a reversal in the remainder of the quarter to get back to positive comps for, Q2?

Yeah, Eric. I think the best way to look at that is starting today through the balance of the year. Is how we are looking at it from a same store sales growth perspective. So, hopefully, that clears that up a little bit.

Yes. that is perfect, Darin.

And then my second question is on the games and the installation of the kind of the 10 new games. To date and, you know, I guess, 5 more for the remainder of the year. When you install a new game and market a new game, and kinda promote that and hopefully drive traffic for that new game. Are you seeing a list in gameplay, outside of the new games as people come in there and kind of are on the midway and try everything? Or is it really is it more of a focus, or is the gameplay more focused on the new games? You are not really seeing a broader lift Yeah.

I could take this, and Tarun can add any color to it. I The best way to look at it is how these games complement the overall entertainment experience. So from the perspective of these new you know, 10 to 15 games that we are rolling out this year, you know, that is 10%-plus of our game room floor. So we really look at it as it is refreshing our gamer floor. it is keeping it relevant. it is giving us that new relevant news talk about, to message to our guests, and to drive visitation. it is less about, hey. Can we get incremental spend while they are in our stores, that can happen, and certain game investments will do that. Human Crane is a great example. You know, based on the type of experience it is. there is incrementality to that. So it is more about traffic driving, relevancy, messaging, getting lapsed customers in, getting repeat visitation. Than it is about driving more growth when they are there. But that being said, more to come. But as we you know, as Tarun has mentioned, you know, some proprietary type of entertainment that we are working on, we believe that can unlock more. You know, check growth And lastly, I guess what I will say is as we have coupled with these new games, as we continue to find the right way to optimize the dwell time of the guests when they are in the box. We have also found that leads to more F&B sales, which is incremental to our check growth. So that is that is broadly the right way to think about it.

Yeah. Absolutely. Completely concur, Darin. And, Eric, just to add, I think that like, if you just look at the current consumer sentiment, you know, 1 of the, you know, positive highlights, you know, for us is that we have lost we have not lost ticket. it is not that consumers are spending less. Consumers actually spending more time on our games floor, and that is what is also helping us actually drive our F&B revenue. And so think the key challenge for us remains how do we market these games more effectively to consumers so that we drive footfalls And that is kind of our primary area of focus that how do we drive awareness? what is the best use of media? And I think that, you know, there was the earlier question, I think, from Andrew on this, you know, which is a which is a great question and, you know, it is a very, very competitive you know, marketplace out there. There are lots of messages going on going out. From different companies. I think, you know, we remain singularly focused on finding the most effective way to communicate with our consumers. I said, hey. There are 10 new games that are really exciting. They are very different to what we had on the games floor. And, you know, our belief is that, hey. You know you know, this message will land with consumers, But as we continue to invest and bring new games, this will all have a compounding impact on the brand image of Dave and Buster's as a place to go to it is a brand that will suddenly be back in consideration. Be back in conversation, be back in culture. Perfect. Thank you both.

Your next question comes from the line of Brian Vaccaro of Raymond James. Your line is open.

I had a question on the adjusted free cash flow guidance. Can you help us just bridge that guide? You are maintaining it at $100 million despite the weaker than expected first half. So just could you walk us through the moving pieces that allow you to maintain that guide?

Yeah. Sure. Hey, Brian. Yeah. I think what it demonstrates is you know, despite same store sales performance, we have got a lot of other levers in order to drive free cash flow. And so, really, the simplest way of looking at it is our operating cash flow less gross CapEx adjusted for sale leaseback proceeds. Again, as demonstrated by our ability here in Q1 despite comps down 5.4% and $70-plus million in net CapEx. You know, we are still able to generate $25 million in free cash flow. So we are able to do it through how we are how we are managing our capital spend, how we are managing working capital, how we are managing other costs in the business. And that is what gives us the confidence to be able to reiterate that guide.

Okay. And I know, Darren, on the last call, you spoke about adding some resources. I think a senior resource is how you put it to look at cost savings, etcetera. Are there additional cost savings that you have identified? Can you give some color on that if that is the case? Versus the prior call that could be helping that free cash flow outlook?

Yeah. Yeah. Really, really excited about a number of areas that we are focused on right now, and it is really across the p and l from cost of sales up optimization, not lessening the product for the guest. But being smarter and more efficient with our spend, how we are looking at our utility costs, insurance costs, etcetera. There are a number of areas. That we have identified, some very significant cost opportunities. And so without quantifying or getting into any more detail, yeah, that is another great area that we are leaning into to be able to deliver on the $100 million free cash flow guide. All right. Thank you.

And then a quick follow-up. Just on the capital allocation and new unit growth We ran some quick math on your non comp stores. And we arrived at a noncomp AUV in sort of the mid to high $7 million range. Can you confirm that is about right? And if so, can you tell me what is the average cash investment on those units? Or maybe you could help us sort of sketch out the cash on cash ROI that you have seen on the current non comp base at these AUVs.

Yeah. Sure. Yeah. Look, you are in the right ballpark. With the AUVs. Keep in mind, a lot or a good chunk of this latest cohort are some of our smaller prototype locations. That we underwrote at those volumes. But we have continued to deliver strong circa 30%-plus cash on cash returns. Even at those volumes. So still good returns for us that we remain confident in. You know, on that topic, as well, I guess, maybe to put a finer point on the discussion that we had. We are in our redeployment of capital. I would anticipate that we will have about half the number of new units in FY 2027. And probably FY 2028 for now. So you are looking at circa 5 new units. And so just wanted to sort of firm up sort of how to think about that. So, hopefully, that answered all your questions there, Brian. Yeah. Very helpful. Thank you.

Your next question comes from the line of Michael Hickey of StoneX. Your line is open.

Hey guys, thanks for taking our questions. We have got 2 we have kind of hit on this 1, but just given your track record here over the last year and quarter to date on same store sales. it is just sort of flexing that you are so highly confident that as of today, you are going to inflect positive on, comp sales here, especially when macro is a factor. Was a factor that took down April and then took down your first quarter but you will not give a view on it. So just curious if there is any specific evidence you can point to. As to why your confidence given that backdrop. And the second question, over the last year, it is pretty clear. That not having a refresh on your games was a problem. But so far, last year, you have only refreshed about 8% of your arcade. And so when you think about capital allocation, and resetting your business, on the entertainment side, which I think you are about 8 quarters in a row of down year over year growth. Why have not you been more aggressive in terms of refreshing that area of your business, which is clearly a concern that you have already illustrated to us? Thanks, guys.

Michael, Michael, great questions. So I will kind of address both. So I think our confidence and optimism comes from the fact that there are a lot of things that we have set in motion in terms of improving our execution, you know, whether it is marketing operations or investment in games that are all now kind of coming together And that so that is kinda 1. The second piece is really that we you know, we have kind of partnered with some very exciting IPs that we cannot kind of announce just now, but we will announce in the months to come. That, again, gives us tremendous confidence that we will be a brand that will be in conversation and you know, once brands get into culture and into conversations, you know, you see that, you know, business and traffic follows. So that kind of gives us, you know, optimism about the future. I think your second question on why have we not invested in you know, earlier and, like, why we were slow? You know, I think that is I think it is it is a very, very fair question. And you know, 1 of the learnings I have had is that if you just go to buy any games from any of the suppliers, you know, you could get you know, a very similar game that you currently have already in your arcade just skinned differently? And therefore, there is actually a significant lead time in developing proprietary games, especially those that come with IPs. Because, you know, again, IP and partnerships take time to kind of formalize. So we do wanna invest in new games. We have the capital to invest in new games. We are just being thoughtful. In what kind of games do we add to the arcade so that consumers have diverse experiences versus the same experience that they get from the existing games. Thank you.

Your last question comes from the line of Dennis Geiger of UBS. Your line is open.

Thanks, guys. I have 1 more question on the entertainment part of the business. I know you mentioned the lack of newness as you know, as kind of what you have observed. And I think that you have said the customer is saying is maybe the biggest the biggest headwind. Anything else you would highlight that you are hearing, that you are seeing or you are hearing from the customer as it relates to the entertainment softness in the business? Anything additional on value proposition? I know you talked about that some. You know, anything maybe with this is probably been a question that is come up over the years, but the quality of games on mobile phones having some impact. Just anything else on entertainment besides the newness factor or the lack of newness factor that you have observed or that you are hearing from your guests? Thank you.

Yeah. Dennis, great question. And, you know, both Darren and I will try and kind of respond to this question. So I think the biggest competitor you know, really is a couch at home because you are right. it is it is a mobile phone. it is all the games that you can play, you know, at home, and therefore, it is so important to introduce games that are truly distinctive. That you can only experience at a Dave & Buster's. And that is exactly why there is a lead time involved in kind of introducing and launching them. And so you know, we brought in an exceptional talent about you know, 6 months back in a gentleman called Putnam Shin. Putnam comes from, again, Walt Disney. And, you know, he is been involved with you know, several other companies, you know, innovating in the area of games. And since he has come in, he has really kind of transformed our internal thinking around you know, what experiences guests should have when they come to Dave and Buster. And so we are in a very methodical and disciplined way kind of investing, you know, valuable capital behind it. You know, 1 of the things I am very conscious and careful about is not making some of our past mistakes where we have not put enough thought into the quality and not really gone into the whys of an investment and just kind of rushed in. And so you know, once again, we are committed to investing in different kind of experiences, different new games. We are just kind of being mindful of what would really drive consumer guest satisfaction and what would drive traffic. Dennis, I hope that helps.

Does.

Dennis, Thank you. Yeah. I would just add 1 thing. Yeah. So certainly value you know, has been 1 of the key feedbacks from the guests. On that entertainment side. And that is where we have been hyper focused you know, on a number of things with promotion testing, these passes that we have been testing, how our rate card is set up, for the consumer, what the kiosk flow is like, or half-price games, etcetera, etcetera. So we have our team has done a lot of great things there and we are now we have addressed a lot of those in a really nice way. Based on these changes that we have made while still capturing the same fun card load, we have increased the number of games guests are playing 20% year over year. Dwell time is up nearly that same amount. So we have done a lot of really nice things and have some additional things in place for rolling out later this summer that are going to further address some of those value concerns from our consumers. Thanks, Darin.

That concludes our Q&A session. I will now turn the call back over to CEO, Tarun Lal, for closing remarks.

Thank you, operator, and thank you all for joining us this evening. Dave and Buster's is an iconic brand. at an obvious inflection point. We are executing a clear differentiated strategy built on innovation, operational rigor, and an unwavering focus on the guest experience. Across brand marketing, F&B quality, in store execution, and next generation game content, we are raising the bar, and early results are validating our thesis. We I want to remind you that we are still in the early stages of this transformation. And we are encouraged by the momentum we are building. We deeply engage with our guests and our operators listening closely to their direct feedback and using it to inform every decision we make. That connection gives us confidence that the initiatives we have in play from our evolving product offering and the Eat & Play Combo to our sharpened approach to value are all resonating, and they will continue to drive meaningful results. We are already seeing it in the data. Metrics on new games, guest satisfaction scores, and value perception scores are all trending in the right direction. We are going to accelerate our revamped remodel program and further optimize our media spend to sharpen our approach to both new and repeat customer acquisition. We are also cultivating exciting IP partnerships that we look forward to announcing in the coming months. and are very enthusiastic about what they will mean for the brand. There are significant improvements still to come. And we look forward to sharing with you the positive results we are confident these initiatives will produce. Our strategic framework is simple and disciplined. build lasting brand equity, drive top line growth with urgency, deliver a world class guest experience at every touch point, protect and expand industry leading unit economics, and underpin it all with the right talent, culture, and technology. The financial model is straightforward. Same store sales growth drives EBITDA expansion, and EBITDA expansion drives long-term shareholder value. We are building momentum and we are still in the early innings of unlocking this platform's full potential. We have a major catalyst ahead with our currently live and comprehensive World Cup 360-degree activation. Which is an exciting step along our clear and achievable path to sustained same-store sales growth. Expanding free cash flow, and durable value creation for shareholders. I want to thank our teams across the country. They are the ones making this all happen. I look forward to updating you on our continued progress. Have a wonderful evening. Thank you.

This concludes today's conference call. You may now disconnect.