Dave & Buster's Entertainment Inc (PLAY) 2016 Q1 法說會逐字稿

Good afternoon, everyone, and welcome to the Dave & Buster's Incorporated first-quarter 2016 earnings conference call. Today's call is being hosted by Steve King, Chief Executive Officer.

I would like to remind everyone that this call is being recorded and will be available for replay beginning later today. Now I'd like to turn the conference over to Jay Tobin, Senior Vice President and General Counsel, for opening remarks. Sir, please go ahead.

Thank you, Kevin, and thank you all for joining us. On the call today are Steve King, Chief Executive Officer, Dolf Berle, President and Chief Operating Officer, and Brian Jenkins, Chief Financial Officer.

After comments from each of Mr. King, Mr. Berle and Mr. Jenkins, we'll be happy to take your questions. This call is being recorded on behalf of Dave & Buster's Entertainment, Inc. and is copyrighted.

Before we begin our discussion of the Company's results, I would like to call your attention to the fact that in our remarks and our responses to your questions, certain items may be discussed which are not based entirely on historical facts. Any such items should be considered forward-looking statements and relating to future events within the meaning of the Private Securities Litigation Reform Act of 1995.

All such forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ from those anticipated. Information on the various risk factors and uncertainties has been published in our filings with the SEC, which are available on our website at www.daveandbusters.com under the Investor Relations section.

In addition, our remarks today will include references to adjusted EBITDA and store level EBITDA, which are financial measures that are not defined under Generally Accepted Accounting Principles. Investors should review the reconciliation of these non-GAAP measures to the comparable GAAP results contained in our earnings announcement released this afternoon, which is also available on our website.

Now I'll turn the call over to Steve.

Thank you, Jay, and good afternoon, everyone. We appreciate your participation in today's quarterly conference call and your interest in Dave & Buster's.

I'm going to begin with some quarterly highlights. Afterwards, Dolf will detail our current initiative and plans, and Brian will review the key financials and update our annual guidance. Finally, I'll conclude with a discussion of our development and remodeling efforts, as well as the initiation of our $100 million share repurchase program.

We had another great first quarter, characterized by strong top-line growth, comparable stores at the higher end of our annual guidance range and significant operating leverage. I'm especially excited by our 17.7% revenue growth, demonstrating that our newer stores are adding significant to the top line enabling us to continue to leverage our margins and grow the bottom line at an even faster rate.

While comparable store sales decelerated relative to last year's fourth quarter as we had anticipated, total revenue growth accelerated because of the sales generated from newer stores. In fact, 18 of the 84 stores we operated during the first quarter, or 21%, are non-comp stores. And this reflects the growth we've realized over the past two years in expanding our footprint across the country.

Moreover, we were delighted to have achieved outstanding growth in store-level EBITDA and adjusted EBITDA in dollars terms, as well as record store-level EBITDA and adjusted EBITDA margins. This has in turn enabled us to increase our annual guidance as Brian will explain later.

Comparable store sales increased 3.6% during the first quarter. The quarter was marked by significant shifts in seasonality and relatively mild weather, creating some significant week-to-week volatility. The year-over-year comps comparative for the first quarter was up 9.9%, so on a two year's tax basis comp store sales increased 13.5%.

Like many others, we did experience softness in Texas, where we have seven comp stores representing about 10% of our comp store base. We attribute the softness to the impact of cannibalization, as three of our 2015 new stores were in the state, some competitive intrusion, along with economic pressures related to the oil industry.

We were able to extend our out performance relative to Knapp Track to 16 consecutive quarters, and our (background noise) actually increased in Q1. I think this was due to the uniquely customizable experience we provide across our four platforms, eat, drink, play, and watch.

In fact, in our estimation, offering our guests something new, whether games, great food, or beverages, along with the best viewing areas for live sporting events, give us some degree of insulation from casual dining trend. However, we too experienced milder food and beverage comp sales, although both these categories were still positive for us.

The driver of our comparable store sales growth was walk-ins, which grew 4%, while our special events business declined 7/10 of one percent. Note that we cycled over the Mayweather Pacquiao boxing match in the first quarter, and last year we sold tickets as a special event to watch that fight.

That event alone contributed about $400,000 to our special events business in the first quarter of 2015. If you exclude this special event, special event comps would have been positive, up by approximately 2%.

As you may remember from our call last year, we said that we would have been better off if the fight hadn't been such a cultural phenomenon. But believe that showing continued to build our brand as the place for out of home sports viewing.

The overall effect of not having the fight this year was a positive for the quarter. Roughly offsetting the other seasonal negative of having the Superbowl a week later, which moved it into our first fiscal quarter of 2016 from the fourth quarter of 2014. While this day has improved for us with the introduction of D&B Sports, it's still a slower than average weekend.

So once again, another record setting quarter for sales, margins, and adjusted EBITDA. Not to mention that we made $0.72 a share, which is a 57% improvement from last year.

Now, let's here from Dolf on some of our key 2016 initiatives.

Thank you, Steve.

Let me be begin by publicly thanking our store teams across the country for a strong first-quarter performance. They're doing an outstanding job growing our top line and increasing profitability.

With that in mind, I'd like to share a few comments on three important areas of focus. The first is new products and promotions. Secondly, our ongoing margin improvement initiatives, and thirdly, new store opening.

As I shared on our last call, our primary guest target is 21 to 39-year-olds, what we refer to as play together young adults. Given their interest in exploring new amusements, as well as food and beverage offerings. They also have a passion for sports viewing in a social setting.

In addition to this audience, we tried to appeal to two secondary targets, which are families who visit us on a walk-in basis and corporations having party events. We'll continue our strategy of targeting all of these groups with new news of interest to them. With these targets in mind, we continued to focus our advertising spend on TV aimed at the play together young adult audience.

Early in the quarter, our marketing campaign led by CMO, Sean Gleason and his team, focused on sports and football-related messaging tied to our D&B Sports branding, including a one-day all-you-can-eat wings promotion. Then we transitioned to our popular Everyone's a Winner promotion for five weeks that we've run successfully in each of the two prior years. In the last four weeks of the quarter, we switched to a broader theme of New is What We Do.

Our media strategy consisted of national cable advertising, Mike and Mike on ESPN focused on D&B Sports featuring the Superbowl and March Madness, and kid-related channels, such as Nickelodeon and the Cartoon Network. Although still a relatively small portion of our advertising spend, we did increase the number of weeks of advertising directed towards the family markets by five weeks, to capture cold weather weekend business and spring break weeks. We believe this strategy allowed us to optimize key weeks around Spring Break and also school holidays.

In the first quarter, we continued our emphasis on bringing new and innovative products to our guests in both amusements and food and beverage offerings. Led by SVP Kevin Bachus and his team, we launched Luigi's Mansion. An arcade version of Nintendo's best selling franchise.

For a promotional call to action, we provided our guests with the opportunity to play three games of their choice for free with the purchase of a $10 or more Power Card. We view this promotion which allows guests to customize their free game play as a new twist on the Dave & Buster's experience.

Over the course of 2016, we look forward to introducing our guests to additional new games such as Ghostbusters. Also an enhanced version of the Star Wars Battle Pod, and also Star Trek. In each of these cases, we have exclusive windows where these games will only be found at D&B for some length of time.

This month, we're launching wearable RFID enabled merchandise, which may be purchased by guests in place of power cards to activate our games. Then in July, we'll be testing the impact of promotions supported by the new game swipe technology, which we rolled out late last year. I'm referring to the new technology which has green swipes on the redemption games and blue swipes on the simulators.

From a food standpoint, we introduced four new menu items that are visually impactful, innovative, and shareable, all characteristics which are well suited to the fun focused D&B environment. Two of these food items were appetizers, bacon cheese crispy tater cakes and three-cheese grilled cheese sticks. And the other two were entrees, the Caveman Combo, featuring both ribs and mini cheeseburgers, and bacon wrapped shrimp and chicken with creamy lobster sauce.

As a reminder, 35% of menu items sold last year were new items introduced in the last four years as we committed ourselves to the D&B brand revitalization. So we're excited to see how these new innovative products continue that trend over the course of 2016.

Within our adult beverage lineup, we introduced a new line of drinks we call South of the Border Sangrias. These give our guests the opportunity to trade up from our current Sangrias to three new tequila-based Sangrias featuring on-trend flavors. The new lineup includes spiced strawberry, cina-mango and forbidden fruit flavors.

Turning to watch, which is what we call the sports viewing part of our business, we continued to present major sporting events such as March Madness in our sports lounges across the country in the first quarter. These events also included major network sports and Pay Per View UFC fights.

Now I'd like to share with you some thoughts regarding our margin improvement and also quality initiatives. As our results demonstrate, we've shown great discipline in controlling costs, which has in turn yielded adjusted EBITDA margin growth. On previous calls we've discussed the launch of our E-ticket innovation and how the rollout has led to multiple benefits, including reduced amusement COGS, higher guest feedback scores, and an increase in non-redemption game play.

During the first quarter, we had an over 93% opt-in rate for the ticketless power card, which represented a few points of increase in opt in versus last year, and significantly more than our original projections dating back to this time last year. As a result of this higher opt in by our guests, the e-ticket initiative has yielded even higher gross margins on games than we've seen previously.

In order to continue quality management practices in both food and beverage cost of goods sold, we recertified all of our store managers in the use of our COGS management program during the first quarter. This initiative is part of our ongoing emphasis to insure that best practices in all stores are maintained at the same time that we support our new store growth. In the second quarter, we will be recertifying all management teams in best practices regarding labor forecasting and scheduling.

From a new store opening standpoint, we're on track with our previously announced nine to ten store openings this fiscal year and are encouraged that our most recent store openings have been well received in those communities. We're particularly pleased with the strong guest response, the quality of the teams that we were able to hire in those locations and the performance of our new state-of-the-art store format.

To generate immediate buzz in these openings, we also refined our pre-opening launch programs and initial PR approach. While some of these processes can be standardized, we also appreciate that each new store opening is different and therefore must reflect certain local distinctions.

We also continue our new store opening processes in order to make the openings more efficient. Over the past year, we've worked hard to develop capable trainers for all hourly positions so that we can deliver greater satisfaction in the often high volume opening weeks of new stores.

Our construction department has also focused on delivering a great quality building on time and on budget. The totality of these efforts have given us great confidence in our ability to reliably build and open the number of stores quoted in our guidance.

In closing, I'm pleased to say that the combination of new product launches and promotions, the ongoing training and development of our hourly and management staff, and our continued focus on the quality of our new store openings has yielded not only ongoing improvement in our store level financial performance. But also our year-over-year guest feedback scores in the first quarter.

And now we'll hear from Brian who will walk you through the numbers.

Thank you, Dolf, and good afternoon, everyone.

Before walking through the numbers, I want to express my appreciation to the Dave & Buster's team for a great quarter and for setting us up for what looks to be a great year. In fact, as detailed in our earnings release, we're already raising our guidance for 2016, which I will review shortly.

But first, let's discuss the first quarter. Total revenues increased 17.7% to $262 million, up from $222.7 million in the prior year. Revenues from our 66 comparable stores increased 3.6% to $215.1 million, up from $207.7 million, while revenues from our 18 non-comparable stores, including 3 that opened during the quarter, increased 181.6% to $48.2 million, that's up from $17.1 million in the prior year. Note, this was the largest number of non-comp stores we've ever had in a first quarter at Dave & Buster's, and reflects the positive impact that new development is having on our revenue growth and ultimately our profitability.

Turning to category sales, the mix shift to the more profitable gaming side of our business continued as total amusement and other sales grew 21.6%, while food and beverage collectively increased 13.1%. During the first quarter, amusements and other represented 55.3% of total revenues, reflecting 180 basis point increase from the prior year.

Breaking down the 3.6% increase in comp, amusements rose 6.1%. Food sales increased 0.7% while our bar business grew 0.5%, for a combined food and beverage increase of 0.6%. We extended our track record of out performance to Knapp Track, as Steve mentioned, to 16 consecutive quarters and increased our two-year GAAP to Knapp by approximately 60 basis points.

In terms of cost, total cost of sales was $46.2 million for the first quarter, and as a percent of sales improved 150 basis points. Food and beverage costs as a percent of food and beverage sales were 60 basis points lower than last year. Food commodity deflation and approximately 2.2% in food pricing and 1.7% in beverage pricing drove improved margins versus the prior year.

We are now projecting a modest percentage decline in commodity costs, partially offset by typical new store inefficiencies for the year. Cost of amusement and other were 180 basis points lower than last year, due to our e-ticket initiative, which has resulted in both lower pay per ticket costs and a reduction in prize redemptions due to a slight shift in game play toward non-redemption games. Note, we will be lapping the e-ticket initiative in the second quarter, and will have completely cycled over it by the beginning of the third quarter.

Total store operating expenses in the first quarter, which includes operating payroll and benefits and other store operating expenses, were $127.9 million. And as a percentage of revenue, decreased 70 basis points year over year to 48.8% of sales as we leveraged many fixed expenses on strong comps and overall sales growth.

Our operating and payroll and benefit cost improved 50 basis points, as we experienced over favorability on overall medical claims, payroll taxes, and bonus expenses. This was partially offset by higher hourly labor costs as we experienced wage inflation of about 4% during the quarter, and that's been primarily due to higher minimum wage rates in both California and New York. We are similarly projecting wage inflation of about 4% for the full year 2016 at the high end of our previous estimate.

Store EBITDA was $87.9 million for the quarter, reflecting growth of 25.7%, compared to $69.9 million last year. An improvement of 220 basis points to 33.6% of sales. This is the highest store EBITDA and margin we've ever generated during the first quarter.

G&A expenses were $13 million, an increase of about $200,000 compared to last year, but as a percentage of revenues were 80 basis points lower at 5%. The increase in dollars was primarily driven by additional corporate resources to support our store expansion, and also higher stock-based compensation expenses. These increases were largely offset by lower legal, bonus, and transaction-related costs compared to the prior year.

Taking that all together, our adjusted EBITDA grew 28.4% to $79.5 million. Our margins rose roughly 250 basis points to 30.3%, representing the highest quarterly performance we've ever attained as a Company. So again, I'd like to thank all of our team members for this achievement.

Net interest expense for the quarter fell to $2.1 million from $4.6 million in the prior year, driven by the lower interest rate under our recapitalized debt and reduced debt levels, due to the debt repayments that have occurred since our May 2015 refinancing. At the end of the quarter, we had approximately $300 million in outstanding debt, resulting in leverage of 1.3 times. And as a result of our strong operating performance and that reduced leverage, the interest rate under our credit facility will step down, or improve, by 25 basis points following our Q1 earnings release, resulting in annualized interest savings of about $750,000, assuming the quarter-end debt level.

We generated net income of $31.2 million, or $0.72 a share on a diluted share base of 43.1 million shares, compared to net income of $19.5 million, or $0.46 per share in the first quarter of last year, and that was on a diluted share base of 42.4 million shares. Turning to our outlook, in view of our strong performance in the first quarter, I'm going to update and we're going to raise some of our guidance for 2016, which ends on January 29, 2017.

Total revenues are now expected between $983 million and $995 million versus our previous range of $967 million to $987 million. Comp store sales growth is now projected between 3.25% and 4.25% as we raise the low end of our range from 2% due to the strength of our comp performance during the first quarter. We also raised the high end, as looking ahead, we are modeling slightly more growth in the back half of the year given the tougher first half comparisons and a moderating impact of cannibalization due to our 2015 class of new stores. That said, the overall macro environment is rather volatile and these Company-specific factors may not prove sufficient to sustain comp store sales at the higher end of our new range.

From a development perspective, we are still targeting 9 to 10 new store openings. And with three already open and six under construction, we are very confident in this guidance. Adjusted EBITDA is now anticipated between $254 million and $260 million. That's up from $243 million to $251 million previously. Our effective tax rate is still 36.5% to 37.5%. We are now projecting net income in the range of $80 million to $85 million. That's up from $74 million to $80 million previously.

As a result of today's share repurchase announcement, we are lowering our diluted share count estimate to range from 43.1 million to 43.2 million shares, which is in line with our Q1 level. We'll update this range if and when we repurchase shares.

And finally, we are planning net capital addition (background noise) allowances and other landlord payments of $123 million to $133 million. That's up $3 million from our previous range as we are increasing our investment and gain.

With that, I'll turn the call back over to Steve to make some final remarks.

Thank you, Brian. I'd like to first discuss the recent and upcoming store development activities and ongoing modeling programs, before transitioning into the news about our new share repurchase authorization.

During the first quarter, we opened three large format stores: Rochester, New York, El Paso, Texas, and Capital Heights, Maryland, which is outside of DC. Both Rochester and El Paso were entirely new markets for us, while we expanded our presence in the Washington, DC market with Capital Heights.

In the second quarter, we're opening two stores, one in Little Rock, Arkansas and a second in Florence, Kentucky, which is a suburb of the Cincinnati market. The remaining four or five additional stores we plan to open in the back half of 2016, for an annual total of nine to ten locations.

Four store openings are in markets where we already have a brand presence. And if we hit the top end of the range, six store openings will be in brand new markets for D&B. In terms of sizes of these stores, we're using the entire range between 25,000 and 45,000 square feet. Three of the stores will be 30,000 square feet or less, three will be 40,000 square feet or more. And the remaining three to four stores will be in the 32,000 to 36,000 square foot range.

By the end of the fiscal year, we'll have nearly 90 stores operating across 33 states, but that's still less than half of our long-term plan for over 200 stores in North America. Given what's going on with some department store brands and big box retailers, there's a lot of real estate becoming available in markets that meet our criteria.

So while others are having challenges at their mall locations, our mall stores are performing quite well. So as landlords and developers pivot towards more entertainment options versus tradition fashion retail at malls, we're in a good position to capitalize on these opportunities.

We also have a development agreement for the Middle East with the first opening planned for FY17, and we continue to pursue additional agreements for other geographies outside of North America. As we previously announced, we'll be doing six comprehensive remodels during 2016, all of which will be completed before the beginning of the football season. We'll also be enhancing three additional stores with D&B sports lounges, substantially completing our sports-related remodeling projects for the brand.

Lastly, we are pleased to announce that our Board of Directors approved a $100 million share repurchase program through the end of FY18. Our intention is to buy back shares subject to applicable blackout periods on the open market through black trades and through the use of 10B51 plans. This authorization will be used primarily to offset dilution causes by the issuance and exercise of stock options and other equity compensation, and represents a tangible demonstration of our ability to enhance value to our shareholders, while still growing units at the top end of our long-term growth model. This program will not impact our plans for new store development or the commitments we have to refreshing our asset base through the remodel and other enhancements such as new games.

To wrap things up, our brand is off to a great start for this year and we're pleased to be raising our annual guidance. We're working on many exciting initiatives centered on bringing new news to our guests as detailed earlier, because this is what sets us apart and makes a visit to Dave & Buster's a truly one of a kind experience.

We appreciate your continued support and interest in Dave & Buster's. So with that, we're now ready to take your questions. Operator, please open the lines to questions.

Thank you.

(Operator instructions)

We'll take our first question from Nicole Miller with Piper Jaffray.

Thanks. Good afternoon. Congrats on a great quarter.

I wanted to hear a little bit about the advertising. How do the weeks compare year over year in the first quarter, and how do they line up for the remainder of the year? Are you getting incremental impressions, or what is your reason on how marketing is benefiting? Thanks.

First, the number of weeks on a year-over-year basis was the same for the core advertising, but we did advertise some additional weeks on kids oriented television. I believe that extra was five extra weeks, as Dolf mentioned in his comments. So that's more of a reallocation than more dollars and more impressions.

But the bulk of the dollars are still going against those play together young adults, as we call them, and those weeks were the same on a year-over-year basis. For the balance of the year, our anticipation is that we will add one or two more weeks in the third quarter and that is in response to filling in some holes in the schedule during the football viewing season that we had in last year's calendar. So third quarter, it appears that we'll add some weeks.

And we haven't fully determined exactly what we're going to do in the fourth quarter. We may come back and add some weeks in the fourth quarter as well. But as it sits right now, our current plan is for the bulk of the advertising, another week or two in the third quarter.

Thank you.

We'll go next to Andrew Strelzik with BMO Capital Markets.

Good afternoon, guys. I have two questions.

The first one, you provided the guidance on the last earnings call which was the end of March and you said the quarter exceeded your internal expectations. So is the implication then that the last month of the quarter the exit rate was better? Number one.

And number two, was that really top line driven, was it cost driven? Any commentary on day parts? I know last quarter you called out some of the weakness on the late night. So if you could just give any color on where it was better than your expectations.

The way I would describe it is first of all, I'm not sure I would draw any substantive conclusions about momentum, so to speak, of how period 1, period 2, period 3 performed for us. It really was probably the most volatile quarter since Brian and I have been with the Company, and in large measure, that was because of the calendar and how some of the calendar things shifted around a little bit because of the weather as well. So I wouldn't read anything to that that the momentum was stronger in P3 for example than it was in P1.

Okay. If I could sneak one more in there, about a year ago now, you tested in one of your stores some virtual reality. Just wondering how you see that playing into the concept going forward over the next several years, if that's an opportunity that's on your radar?

Okay, so first, I'm going to let Brian talk to the day part question that we didn't quite get in before you asked your third question.

Andrew, you asked a little bit about day parts. We had indicated on the fourth quarter that we had seen some better lunch afternoon business, and that's continued in to the first quarter. Lunch afternoon was our strongest day part and weekends were our strongest day part. And I think it has to do in part to some of the increase you saw in kids advertising, where we pretty much doubled the number of weeks that we were advertising over the course of the quarter. So I think that's what you see there.

It's still a small portion of the overall spend, less than 10%.

It's very effective. It's an efficient media spend for us. Impressions for a fairly inexpensive rate.

As it relates to VR, we have tested some VR products. And I would say that our results are not compelling from an overall revenue growth standpoint at this point, and I don't think that means we're going to give up on VR. I still think there's something to it, and there's probably a way for us to roll that in a way that will create some significant either attraction for us or potentially some meaningful increase in revenue.

But I think that what we've seen so far is that the content is such that people are likely to do it a single time and then not repeat, which makes it more difficult for-- so it has novelty value I guess is one way to think about it. So people are willing to try it, but they don't tend to play it over and over.

Great. Thanks. Sorry for jamming so many questions in there.

That's all right.

Next is Sharon Zackfia with William Blair.

Good afternoon. Wanted to ask about the RIFD which you mentioned in your commentary. Can you talk about how you're rolling that out?

Is it going to be a broad rollout or a test? And what kind of data you'll get back from the RIFD, if it will be enhanced data versus what you get from the cards?

So we don't get -- essentially, this will be a replacement for a card. There's no difference by virtue of the way the machine reads it compared to the way it will read a power card. So there's not really anything different in that element of it.

And in terms of how we're going to do it, we view it as a relatively low-risk proposition. We're basically rolling it to the entire system.

And basically we're going to be selling these items for $10 with about $5 worth of power card value on them, they can obviously add to it beyond that. And we think it will just be a more convenient way for people to access the games and activate the games than a power card itself.

We have a wristband that looks a lot like a FitBit in a way that a guest could wear, which is kind of exciting. Three different colors. We've got a lanyard that you can put around your neck with an ability to activate a game, and then actually a wand that would probably be more attractive for the younger guests. And so we've got a couple of devices we're going to be rolling out, so we're excited to see how it does.

Okay. Then separately, I know you talked about the first quarter being volatile. Have you seen the second-quarter volatility subside?

I would say the answer to that is no. I think it continues into our second quarter. I think we still feel good about the annual guidance we've given, but the day-to-day and week-to-week volatility remains.

Thank you.

Thank you.

(Operator instructions)

We'll go next to Brian Vaccaro with Raymond James.

Thanks and good afternoon. Just wanted to start with a quick clarification. Brian, did you say menu pricing on the food category was 2.2% in the quarter?

Yes, 2.2% on food, 1.7% on bev. It gets close to an effective 1% overall price increase for the quarter.

Okay. And I think on the last call you'd indicated maybe thinking about taking a little bit more menu pricing on the food side for the year than historically. Is that still the case, or has there maybe been a change given maybe a little bit more deflation on the food side that's played out?

Yes, we're at 2.2% right now. I think we were talking about 2.5%, maybe even heading toward 3%. I think we're going to -- I think it's going to be hard for us to get to 3% for the year given where we sit right now.

We were around 2.6% last year. I think we're going to be directionally in a similar spot.

Okay. All right, that's helpful. Wanted to shift gears --

The good news is, our margins are, as you saw, are really, really good. We have moderating food costs, we've got e-ticket that clearly gave us a big -- had a big impact on Q1, and will have some impact on Q2 then it will moderate and wane as we roll over it. But the gross margin picture is quite good for us this year.

That certainly seemed to be the case. Switching gears to the new share repurchase authorization, is there a leverage ratio that you're targeting on a go-forward basis? Also, can you remind us what the maintenance level of cash is we should be thinking about at the end of each quarter? Thank you.

So I'll answer the first question. Is we really didn't set this up as a target ratio for leverage, as much as to say that we'd really like to maintain our share count and make sure that it doesn't go up because of what we're doing from a compensation standpoint. The authorization enables us to do that, and so that's the primary purpose of what we have authorized.

As it relates to the maintenance cash level --

We were in the upper [$20 millions] I think on our balance sheet at the end of the first quarter, I think we ended the year [$26 million] or something in the prior year. We're probably around [$20 million], [$19 million] of working capital cash in the business. Those levels are a little higher than what we would have to have in terms of the maintenance level.

That's helpful. Thank you.

We go next to Brian Vieten with Stifel.

Thanks, guys. This is Brian on for Paul Westra. I just had a quick one for you guys on comp guidance. So I assume that it came up a little bit in the quarter, it seemed like it kind of came within the prior guidance. Could you maybe talk a little bit more about the moderating cannibalization that you were talking about?

We had indicated on our year-end call and talked a little bit about the 15 class of new stores where we opened 10 stores, 8 of which were in existing markets. And a lot of those opened up late in the first quarter, fourth quarter of 2015. So we really didn't see a big cannibalization impact in 2015.

As we headed in to this year, we were expecting to see some cannibalization, and we did. In line with our expectations, we hadn't really cited a specific number, and I'm not sure I'm going to do that today. But we expect that to moderate somewhat over the course of the year.

The 2016 class is skewed more towards new markets. Six of the stores that we're going to build this year, if we go to the high end of the range will be in new markets. So we don't anticipate the same level of cannibalization in the back part of this year as what we saw in Q1.

Okay, great. That's helpful. Congrats on a good quarter.

Thank you.

At this time, there are no further questions. I'd like to turn the conference back over to your presenters and management for any additional or closing remarks.

Thank you very much for your continued interest in Dave & Buster's. We look forward to seeing many of you at the Piper Jaffray conference, the William Blair conference next week, or the Jefferies conference in the following week which we're attending all three of those. Beyond that, we'll be back to you in early September with our second-quarter results. Thank you.

Ladies and gentlemen, this does conclude today's conference. We thank you for your participation.