Dave & Buster's Entertainment Inc (PLAY) 2016 Q2 法說會逐字稿

Good afternoon, everyone, and welcome to the Dave and Buster's Entertainment Incorporated second-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. 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 Mr. King, Mr. Burley and Mr. Jenkins, we will be happy to take your questions. This call is being recorded on behalf of Dave and Buster's Entertainment Incorporated and is copyrighted.

Before we begin our discussion of the Company's results, I'd 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 daveandbusters.com under the investor relations section. In addition, our remarks today will include references to adjusted EBITDA, store EBITDA, and pro forma net income, 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'm going to turn the call over to Steve.

Thank you, Jay, and good afternoon, everyone. We appreciate your participation in our quarterly conference call and interest in Dave and Buster's. On this call, I?m going to review the quarterly highlights; Dolf will take us through some of our current initiatives, and then Brian will walk us through the financials and guidance and then I will conclude with our development and remodeling efforts.

We grew total revenues by 12.4% on the strength of sales contributions from our newer stores, and also significantly leveraged our operating cost resulting in net income of $21.5 million driven by a 21.9% growth in adjusted EBITDA and a 210 basis point improvement in adjusted EBITDA margin. Given our results for the first half of the year, we are increasingly confident in our annual guidance for total revenues, net income and adjusted EBITDA, even as we lowered the range for comparable store sales growth.

For the 86 stores we operated during the second quarter, 20 stores or 23% of the total were non-comp stores. They are performing well, demonstrating the broad appeal of our brand as we expand our footprint and supporting double-digit growth in our top line despite our modest 1% growth in comparable store sales. Our comparable store sales growth consisted of a 0.9% increase in walk-in sales, while our special events business increased 1.9%.

From a cadence standpoint, comp trends were as we had anticipated in May, but dipped in June, only to rebound in July. We believe the Memorial Day shift one week later than the previous year was more of a factor than we had estimated previously, although there was significant amount of week-to-week volatility.

You may recall that we called out cannibalization, competitive intrusion, and economic pressures related to the oil industry during the first quarter, and these considerations continued into the second quarter as well. However, the macroeconomic environment and especially the casual dining industry also slowed relative to the first quarter and that also weighed on our results.

Note that our year-ago comparison for comp store sales was 11% on a two-year spac basis comp store sales still increased a robust 12%. With a 1% increase in comparable store sales, we were able to expand our out-performance relative to Knapp-Track for the 17th consecutive quarter, although our GAAP-to-Knapp narrowed relative to the first quarter.

As we've previously said, the uniquely customizable experience we provide across our four platforms, eat, drink, play and watch, provides us some degree of inflation from casual dining trends, although we are certainly not immune from what's going on all around us. Now let's hear from Dolf on the steady stream of new products and promotions, how we're working to improve margins, and how we are ensuring that our stores open successfully in both new and existing markets for our brand.

Thank you, Steve. I'd like to begin by thanking our many D&B leaders and team members across the country for their efforts during the second quarter. They are driving the programs that contribute to our ongoing sales and profit growth on a daily basis.

As I've shared in recent calls, D&B's primary guest target is play-together young adults, 21- to 39-year-olds. Our product's development emphasis taps into their interest in exploring new entertainment offerings as well as new and creative food and beverage items. Also, we appeal to two secondary targets, which are families who visit us on a walk-in basis and corporations who book party events.

By way of background, we knew that the strong results in 2015 would be a challenge to exceed. With this in mind, we pushed ourselves to develop new initiatives in order to keep driving comparable store sales growth. From an amusement standpoint, we ran our annual Summer of Games promotion, which featured nine new games this year.

Significantly, six out of nine of these games are based on popular and familiar licensed products, which are exciting to play and memorable when placed on a TV ad. Games such as Ghostbusters, Mario and Sonic at the Rio Olympics, and the new level for the Star Wars Battle Pod exemplify this strategy. You may have seen D&B in the new Ghostbusters movie, which is a demonstration of our continued efforts to partner with other popular entertainment properties.

I also want to make special mention of our new Star Trek game. It is based on the platform of our very popular Wizard of Oz game and features collectible cards from the original Star Trek series. We own the proprietary license for this Star Trek game and, therefore, it can only be enjoyed at D&B.

With this game, we intend to launch a new and different series of collectible Star Trek cards at different times of the year, which will be an incentive for guests to return and collect new cards when they are available. We're very appreciative of the efforts of our SVP, Kevin Bachus, and his team as we continue to partner with our many game manufacturing partners to find the newest and most exciting games available.

One of the additional innovations we tested this past quarter was the new RFID-enabled merchandise, which may be selected by guests in place of power cards to activate our games. The initial test of RFID bracelets worn in five stores showed that the technology is reliable and can be implemented at our discretion across the system and that a number of guests are willing to pay a premium for this technology. We are continuing to think through additional RFID promotions and intend to test them further over the remainder of 2016.

In our dining rooms, new menu items included two shareable appetizers, three surf and turf options, including bacon-wrapped shrimp with lobster sauce and fire grilled sirloin, as well as Angry Orchard hard cider barbecue half chicken. We, again, thank CMO, Sean Gleason, and his team for their ongoing creativity.

Within our beverage lineup, we introduced four new Luxe Patron Lit cocktails along with an adult Ghostbusters-themed cocktail and kid Ghostbusters-themed snow cone. We also featured our South of the Border sangrias, featuring the on-trend flavors of Spiced Strawberry, Cinnamango, and Forbidden Fruit.

In the second quarter, we have a greater focus on families than other quarters based on the school summer holidays. This year, we had a few initiatives which demonstrate this focus. First, starting in June, we increased our store operating hours by opening all of our stores one hour earlier than in previous years. For most stores, this meant a 10 AM opening time.

We found that this was appealing to families and especially those with school-aged children. In almost every store, we saw that the increase in business due to the change in hours was largely incremental and had minimal additional variable cost associated with it.

In July, we tested a weekday pass which enabled guests to play $50 worth of redemption games and unlimited simulation games weekdays between store opening and 5 PM. This test had a positive impact, but given the limited scope, did not materially impact our overall revenues. We're still evaluating if we would want to consider rolling this out at other times during the year and to additional markets in the future.

Looking ahead to the third quarter, we are currently promoting all-you-can-eat wings for the first five Sundays, Mondays and Thursdays of the NFL season for $29.99 with a $20 power card. This promotion is a variation on the very popular promotion we ran last year. We will also be adding two media weeks in the third quarter relative to last year.

Now I'd like to update you on our ongoing margin improvement initiatives. As our results have demonstrated over the years, we have shown great discipline in controlling costs, which has in turn yielded adjusted EBITDA margin growth. We continue to see good results from our ticketless power card rollout, which we completed last year.

We have an over 95% opt-in rate for the ticketless power card, which represented a few points of increase in opt-in versus late last year and exceeded 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 have seen previously.

As a reminder, we essentially completed the rollout of this technology late in the second quarter last year, which means that we have now fully rolled over the system-wide implementation of the technology. Given the timing of the rollout last year, we saw some margin improvement in the second quarter, but heading into the third quarter, we will see only the much smaller impact of a somewhat higher adoption rate versus the prior year.

You may recall that in the first quarter we re-certified all of our store managers in the use of our COGS management program. We believe that both the positive trend in food commodity costs coupled with the greater discipline that this recertification brought were both factors in our improved cost of goods sold performance.

In the second quarter, we re-certified all of our managers in labor forecasting and scheduling technology and procedures. Both the COGS and labor recertification efforts were designed to enable us to maintain strong discipline in our variable cost management at the same time that we are opening new stores.

I am encouraged that our most recent store openings have been well received in their communities. Recent openings in Little Rock, Arkansas; Florence, Kentucky; and Summerlin, Nevada have gone smoothly.

We are very focused on having buildings and teams ready to handle the typically strong opening weeks in these new stores. At the same time, we are constantly refining our processes to ensure greater efficiency during the pre-opening and first 90 days of operations phases.

In closing, we will continue to believe that our strategies regarding new products and promotions, margin improvement and in new store openings are appropriate. We are pleased with the improvements that our team has driven versus the same time last year, and we believe that there is even more opportunity for improvement in the quarters ahead. And now, we will hear from Brian who will walk you through the numbers.

Thank you, Dolf, and good afternoon, everyone. Our team is doing a great job executing our strategy in a tough environment, and they are a key reason why we believe we're in the right position to deliver on our annual guidance for total revenues, net income, and adjusted EBITDA.

Now, in terms of the second quarter, total revenues increased 12.4% to $244.3 million. That's up from $217.3 million in the prior year, primarily due to contributions from newer stores. Revenues from our 66 comparable stores increased 1% to $195.4 million, up from $193.5 million, while revenues from our 20 non-comparable stores, including two that opened during the quarter, increased 99.5% to $49.5 million. That's up from $24.8 million in the prior year.

Turning to category sales, the mix shift to the more profitable gaming side of our business continued as total amusement and other sales grew 15.7% while food and beverage collectively increased 8.5%. During the second quarter, amusement and other represented 55.9% of total revenues, reflecting 150 basis point increase from the prior-year period.

Now breaking down the 1% increase in comp sales, amusements rose 3.5%, while our food and bar business decreased 2.2% and 1.4%, respectively. As Steve mentioned, our second-quarter comp performance exceeded the casual dining industry for the 17th consecutive quarter. This was in spite of an unfavorable shift in the Memorial Day calendar, unfavorable weather patterns, and pervasive challenges facing casual dining because of the macro environment.

The impact to our business from cannibalization and competitive intrusion, while notable, was in line with our expectation. I would also remind you that we cycled over our lofty prior-year comp of 11%, representing the toughest quarterly comparison we had this year.

In terms of cost, total cost of sales was $44.1 million in the second quarter, and, as a percentage of sales, improved 70 basis points. Food and beverage cost as a percent of food and beverage sales were 50 basis points lower than last year.

Food commodity deflation at approximately 2.3% in food pricing and 1.7% in bev pricing drove the improved margins versus the prior year. As you may recall, we are projecting a modest percentage decline in commodity cost, partially offset by typical new store inefficiencies for the full year, but do expect that deflation will moderate in the back half of the year.

Cost of amusement and other were 70 basis points lower than last year. As Dolf mentioned, this was driven by our E ticket initiative which we rolled out over the course of the second quarter last year.

This has been our most impactful technology introduction in the past decade, driving an annualized savings of over $8 million, while also creating an improved guest experience. Note that we completely cycled over this rollout in the beginning of the third quarter and, as such, we do not anticipate significant E ticket margin improvements in the balance of the year.

Total store operating expenses in the second quarter, which includes operating payroll and benefits and other store operating expenses, were $126.3 million and, as a percentage of revenue, decreased 90 basis points year-over-year to 51.6% of sales as we leverage many fixed expenses on overall sales growth.

Our operating payroll and benefits cost improved 40 basis points as we experienced favorability on overall medical claims, payroll taxes and bonus expenses. This was partially offset by higher hourly labor cost as we experienced wage inflation of about 4.4% during the quarter, primarily due to higher minimum wage rates in both California and New York. We are projecting wage inflation of 4% to 4.5% for the balance of 2016.

Store EBITDA was $74 million for the quarter, reflecting growth of 18.3% compared to $62.5 million last year, an improvement of 150 basis points to 30.3% of sales. This is the highest store EBITDA and margin we have ever generated during a second quarter.

G&A expenses were $13.6 million, nearly flat with last year, but, as a percentage of revenues, were 60 basis points lower at 5.6%. The slight increase in dollars was primarily driven by additional corporate resources to support our store expansion and also higher stock-based compensation. These expenses were largely offset by lower incentive compensation compared to the prior year.

Now, taken altogether, our adjusted EBITDA grew 21.9% to $64.2 million and margins rose roughly 210 basis points to 26.3%, representing the highest second-quarter performance we have ever attained as a Company. So again, I would like to thank all of our team members for this achievement.

Net interest expense for the quarter fell to $1.9 million, down from $2.2 million in the prior year, driven by the lower interest rate under our recapitalized debt and reduced debt levels due to the repayments that have occurred since our May 2015 refinancing.

We generated net income of $21.5 million or $0.50 per share on a diluted share base of 43.3 million shares compared to net income of $12.6 million or $0.29 per share in the second quarter of last year on a diluted share base of 42.7 million shares. Note that the net income in the second quarter of 2015 included a nonrecurring loss on debt retirement of approximately $4.7 million, net of tax, or $0.11 per diluted share.

Turning to the balance sheet for just a minute, with our current capital structure and strong free cash flow, we have significant financial flexibility. At the end of the quarter, we had $290.5 million of outstanding debt on our credit facility, resulting in low leverage of 1.2 times with available capacity of $197 million.

Our capital allocation strategy remains focused on investing in growth via new store development, while preserving some dry powder for incremental stores and other growth opportunity. With our low leverage, we also have the ability to return value to shareholders.

Recall that we have a $100 million share repurchase program in place through the end of FY18, and our intention is to buy back shares to primarily offset dilution caused by the issuance and an exercise of stock options and other equity compensation. During the second quarter, we repurchased about 38,000 shares.

Turning to our outlook, for FY18, total revenues are still expected between $983 million and $995 million. Comp store sales growth is now projected between 2.25% and 3.25% compared to our previous range of 3.25% to 4.25%. This is in light of a more challenging second quarter than we had anticipated.

That said, we continue to expect the impact of cannibalization to moderate slightly in the back half of the year, and we also face easier comparisons overall. Through the first two quarters, comp store sales were tracking at 2.3%, which would imply a 2.25% to 4.25% range for the back half of the year. Note that our third-quarter-to-date performance is consistent with this implied range.

So while we're excited about our initiatives for the balance of the year, our new comp range provides for the potential for some softening of the macro environment. From a development perspective, we are now targeting 10 to 11 new store openings. That's up from nine to 10 previously. We have already opened six year-to-date and eight are currently under construction.

We continue to project net income in the range of $80 million to $85 million and adjusted EBITDA is still anticipated between $254 million and $260 million. Our effective tax rate remains at 36.5% to 37.5% and our diluted share count estimate remains at approximately 43.2 million shares.

And finally, we are now planning net capital additions after tenant allowances and other landlord payments of $130 million to $140 million. That's up from $123 million to $133 million previously. This is driven by increased development costs for new store openings as we have raised our guidance by one store from the previous range and are also making additional strategic investment in new games, some of which will be exclusive to D&B. With that, I will turn the call back over to Steve to make some final remarks.

Thank you, Brian. I would now like to review our recent and upcoming store development activities as well as our remodeling program. During the second quarter, as Dolf mentioned, we opened stores in Little Rock, Arkansas and Florence, Kentucky. Both of those stores are entirely new states for us, although Florence store represents our second location in the greater Cincinnati area.

This quarter, we opened in Summerlin, Nevada, which is a suburb of Las Vegas. Also a new state for us and we will be opening in Fresno, California next month. In the fourth quarter, we will open stores in Silver Spring, Maryland in the Washington, DC area; Toledo, Ohio; and our second store in Canada, Toronto, Ontario, as well as potentially one additional location.

As Brian mentioned, we have previously guided nine to 10 openings this year. We're now raising those expectations to between 10 and 11 openings. Of these 11 stores, four to five of those store openings are in markets where we already have brand presence and up to six store openings will be in new markets for Dave and Buster's.

In terms of store sizes, as we've mentioned previously, we used the entire range between 25,000 and 45,000 square feet. Three of the stores will be 30,000 square feet or less, or what we define as small. Three or four of those stores will be 40,000 square feet or more, our large size. But the remaining four stores will be in between that 32,000 to 36,000 square foot range.

As we've said in the past, there's a lot of real estate available that meets our criteria. We believe achieving our long-term goal of over 200 stores in North America is attainable despite having built out less than half of that domestic store potential. Between the well-known big box retailers and department stores announcing closings, and malls themselves emphasizing entertainment and dining options versus traditional retail in their redevelopment plans, we are very well-positioned and can be selective in choosing the outstanding sites for our brand.

We continue to work with our partner in evaluating real estate sites for our first of seven licensed stores in the Middle East. We also continue to work on finding additional agreements for other geographies outside of North America. Recall that we also guided to six comprehensive remodels this year, all of which have been completed ahead of the onset of the football season.

We've also enhanced three additional stores with D&B sports lounges and, in doing so, substantially completed our sports-related remodeling projects. So in conclusion, while comparable store sales trends proved to more difficult in Q2 than we anticipated, our profit outlook is intact and we are increasingly confident that we will meet our projections for total revenues, net income, and adjusted EBITDA.

Even in an environment such as this, with casual dining so challenged, we are demonstrating our ability to outperform because of our one-of-a-kind customizable experience that enables our guest to eat, drink, play and watch all under one roof. We appreciate your continued support and interest in Dave and Buster's. With that, we are now ready to take your questions. Operator, please open the lines.

(Operator Instructions)

Sharon Zackfia, William Blair.

Hello, good afternoon. A couple of questions. On the earnings guidance for the back half, I think the implication is something like flat to up 15%, and I'm trying to reconcile flat earnings growth in the second half with a comp of 2.2%, which would be the low end of guidance.

I would've thought you could have gotten margin on any positive comp. Maybe if you can walk me through if there are any kind of incremental investments happening in the second half that would dampen that.

Yes, Sharon. As we said on the call, we are going to roll over the E-ticket initiative in the back half and the commodity deflation that we've seen in the first half is going to moderate in the back half. And that's been a big part of the fuel to some of the margin improvement we have seen in the first half.

We also have indicated before that we were going to make some incremental investment on the marketing front. I think we'd mentioned -- talked a little bit about the two additional weeks that we plan to advertise in the third quarter, and we are looking at potential additional marketing investment in the fourth quarter. And we've mentioned that previously. So some of those things are going to impact the ability to lift the margins like we did in the first half.

Okay. And then, just wondering, the special event comps outpacing the walk-ins, is there anything to read there? Anything you're doing different in special events? I'm thinking about that particularly as we get into the holidays.

I don't really think there's anything to read into it as it relates to this quarter. This quarter is a relatively small quarter for special events. I do think we executed, at the unit level, actually outpaced our call center this quarter, which is a flip-flop from what it was in previous quarters. But I wouldn't read too much into it. It was a little bit better than what we saw on the walk-ins, though.

Okay, great. Thank you.

Andrew Strelzik, BMO Capital Markets.

Good afternoon, everyone.

Good afternoon, Andrew.

I just wanted to quickly confirm something that you said. You said July improved and then you're running in that range for the comps that you mentioned for the back half of the year. You said you're running there now, and then, secondarily to that, you said the guidance allows for some softening in the macro. I didn't fully understand. If you could just explain that, please.

Let me take July, first. July was the best period of the quarter. So we saw strengthening towards the end of July. And what Brian's reference was to, when you look at a 2.25% to 4.25% for the balance of the year, we are not seeing anything in the current data that suggests that is not a reasonable estimate.

And then the softening, allowing for some softening on the macro?

Yes, we've talked previously about the back half. We have significantly easier rollovers in the back half. I think we're in the mid-7%s, if I remember the number right, compared to a 10.4% comp in the first half we were rolling over. So the comparisons get easier in the back half.

We expect cannibalization to moderate in the back half, and then you may recall we were impacted significantly by Storm Jonas in the fourth quarter last year. So all of those things still exist that would call for a better second half than first. So at 2.25%, which is essentially where we are at year-to-date, we think that gives some room for some softening in the macro environment.

Got you. I appreciate that. I wanted to ask, also, you have been talking for the last several quarters that eventually there would be some realignment with the long-term algorithm in terms of, you guys have obviously been doing better than that. Do you think that we are now at the start of that, or do you think this is a bit of a period of aberration given what's going on in the macro environment? I'm wondering just how you are thinking about that conceptually.

I think conceptually we are still guiding to something that is ahead of our long-term guidance, but we said, I think, at the beginning of this year that we believe that we would begin to move towards -- were the words we used, I believe -- our long-term guidance and, clearly, this is a move towards the long-term guidance. Specifically, as it relates to the second quarter, I think, by virtue of what we're guiding for the balance of the year, we view it at somewhat of an aberration.

Okay, and then my last question, if I can, you mentioned that you're working on some efficiencies from a pre-open perspective and then also in the first 90 days. I don't think this is the first time you've actually mentioned that. But is there anything you're seeing from a new unit productivity perspective that's causing that, or is this just best practices in trying to be as efficient as possible? Or are you trying to preempt something? Any comment around the new unit productivity would be great.

We're not trying to preempt anything. What we are doing is we're steadily improving the ways in which we bring stores up to our standard. And what we have done is to initiate a program that sets very specific benchmarks in terms of not only the guest feedback, but also labor and cost of goods sold efficiencies that has stores marching towards our standard over a prescribed amount of time.

And so, I, as well as members of our finance team, do a 90-day audit and then again at 120 days and check in with the team, ensure that we are on track, and this is a way to really teach the organization how to make steady progress towards our standard on a more rapid timeframe than what we might have seen in years past.

Just to add on to that, Andrew, we've got, what, 20 of our 86 stores that are in our non-comp. So it's roughly a quarter of our store base, so it's a big number. And new stores typically start out not as efficient on the two prime costs: cost of goods sold and labor. So what Dolf and his team are working on is really trying to hone those stores in in a quicker pace. Because it's a big part of our store base right now.

So back in the days when we were building a couple of stores, some inefficiencies on those two lines didn't matter. It's more impactful now. So a program around that is important for us today.

Great. I appreciate the color. Thank you very much.

Sure.

Nicole Miller, Piper Jaffray.

Thank you; good afternoon. I wanted to ask about the RFID technology. Besides feeling good about the reliability, what else have you learned in the five-store test?

I think that the biggest thing we have learned, I would say, is that there are a group of guests who are interested in buying this technology and using this technology, and it does not seem to have a negative impact on the remainder of their spend of what they are putting on a Power Card.

So we were -- I think we mentioned previously, we were essentially selling this for $10 with $5 worth of chips, which is a good deal for us relative to selling them a $2 Power Card. But, in addition, it doesn't seem like whatever they were going to put on their normal Power Card purchase was negatively impacted by buying the RFID technology.

So we're optimistic that it's a technology that, again, it's cool. It's not going to have a huge uptake in terms of the number of people who select to -- or elect to buy it, but we do think there is some incremental there.

Thank you. And then a last question. If I missed it, I apologize, but additional store that's sneaking in for this year, where did that opportunity come from? Maybe location, size, and are there more of them out there? Thanks.

If it is, it will be a large. I don't think we'll go to another additional store, although I wouldn't completely rule it out. But I don't think we'll go to a 12th store in the year. It will be in the fourth quarter. So it's going to have some impact, but it's not a huge impact on overall sales. It's more of a benefit to next year, clearly, because you get the full year of it.

Thanks, again.

Thanks, Nicole.

Brian Vaccaro, Raymond James.

Thanks and good evening. I just wanted to circle back on the second-quarter comps. You just said July was the strongest month in the period, and just thinking about the broader industry, the trend would seem to be pretty similarly soft and choppy in June and July. Just curious what you think is driving the sequential improvement. Is it maybe just a monthly comparison issue or is there something more fundamental underlying you would attribute that to?

I would refer back to what Brian said. I think that the period between Memorial Day and the Fourth of July had more shifting of school calendars and whatnot than we originally anticipated. And I think that's a big part of it for us.

In addition, we didn't have a great year-over-year weather month in that period. And we don't talk a lot about weather. We really didn't talk about it last year after the second quarter, but it was a good year last year for us. And in the context of 11% comp, it's not that significant, but in the context of a 1% comp, you can measure it and it's more significant.

Okay. And on the last call, you also had mentioned -- given an update on your mall versus non-mall spend and you also touched on your trends in Texas. Could you give an update from both perspectives?

Malls are good. Malls are actually better than the average. So that's not a drag for us. And then, I don't know that we have exactly divided out Texas, per se, but our oil-oriented stores still remain under pressure -- Oklahoma and Texas -- somewhat relative to the remainder of the stores or the balance of the stores. And some of that, once again, is because of the fact that we did open a number of stores in Texas during the end of 2015 that are having an impact there as well.

Definitely. Good point. All right. And then, just second topic, could you give an update on the manager recertification programs you have been working on, both the food and labor side? I know it's still early, but have you started to see tangible benefits and any guideposts on how we should think about the magnitude of potential savings or efficiencies from these initiatives as we move through later this year?

I think it's probably most important to say that the reason for the recertifications was not to -- were not a belief that we could make a major change in either of those areas, but really to ensure that we have ongoing discipline as we grow.

And the challenge around that is that the number of new managers in our system that are either populating new stores or backfilling for managers who go to new stores, therefore, more new managers in the system, means that we need to pay a lot of attention to people's proficiency in our system.

And so, that's really the reason for the recertification. I am not looking for substantial change, but I think it's really important that we hold the line and don't go backwards, and with our current rate of growth, so far, so good.

All right. That's helpful. Thank you.

Andy Barish, Jefferies.

Hello, guys. A couple of quick ones. For the 2Q, was there any additional marketing or did the marketing match up year-over-year?

Essentially the same.

Matched up.

Okay (multiple speakers). And then, for margin retention in this kind of inflationary environment, as you lap E-ticket, what kind of comp do you think you need in the business to keep margins flattish?

I think, given the wage pressure, it's probably slightly above the 2%. I think in the long-term, we said we need about 2% in order to begin to leverage margins. It's hovered slightly above that in light of some of the margin pressure we are seeing on labor.

Labor is, as Brian mentioned, we are anticipating between 4% and 4.5% in the second half. It was in that range also in the first half. So it's a little more. And without having that fuel of E-ticket, as well as some reduced -- reduction in cost of sales on the food side, the margin side gets a little harder.

Got you. And then, just finally, in the 4Q, are you planning for continued competitive pressure, particularly in the special events business given that was a call-out from last year's fourth quarter for the first time and, obviously, a bigger waiting in that quarter from some of the new entertainment-type concepts out there?

I would say yes. We are trying to be specific around the markets where we know there is intrusion either already there or is coming and trying to reflect that in what we are anticipating for those stores. But we know there is more of that competitive intrusion coming that will affect our fourth quarter.

Okay. That's it for me. Thanks.

Great. Thank you, Andy.

This concludes the Q&A portion the program. At this time, I would like to turn the conference back over to your presenters for any additional or closing comments.

That's it for us. Thanks for your continued issue in Dave and Buster's. We look forward to speaking to you in early December when we review our third-quarter results. Goodbye.

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