Dave & Buster's Entertainment Inc (PLAY) 2017 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to today's Dave & Buster's Inc.

Second Quarter 2017 Earnings Call.

Today's conference is being recorded.

And at this time, I'd like to turn the floor over to Jay Tobin, Senior Vice President and General Counsel.

Please go ahead.

Thank you, Greg, and thank you all for joining us.

On the call today are Steve King, Chief Executive Officer; and Brian Jenkins, Chief Financial Officer.

After comments from Mr. King and Mr. Jenkins, we will be happy to take your questions.

This call is being recorded on behalf of Dave and Buster's Entertainment, Inc.

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 EBITDA, adjusted EBITDA and store operating income before depreciation and amortization, 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 our second quarter call.

First, on behalf of everyone at Dave & Buster's, I would like to express our deepest sympathy and concern for those affected by Hurricane Harvey.

I want you to know that you are in our thoughts and prayers.

We're fortunate to have reopened our 3 stores in Houston last Friday, and most of our employees are back at work.

Today, I'll review our second quarter performance, highlight our strong new store pipeline and significant white space opportunity and then provide an update on our ongoing initiatives.

Brian will walk through the key financial highlights, our new $800 million credit facility and our ongoing share repurchase program, and then I'll conclude by talking about our development and remodeling efforts before we open it up for your questions.

We're pleased to report another strong quarter, including revenue growth of approximately 15% and EBITDA growth of 11.5%.

Excluding a one -- a $2.6 million litigation settlement expense in the quarter, we grew EBITDA by nearly 16%.

As we previously said, our long-term target is for low double-digit growth in annual revenue and EBITDA.

Strong new store performance and an impressive growth in our high-margin amusement segment were some of the key underlying drivers of these results.

Our company's primary growth vehicle is building stores that have industry-leading average unit volumes, great store level margins and outstanding cash and cash returns.

The white space opportunity is large, and our pipeline is stronger than ever before.

We remain laser-focused on our long-term target of 211 locations in the United States and Canada, and we'll continue to open new stores at a measured pace that ensures continued solid execution.

Let me take a minute now to talk about our same-store sales performance.

First, our brand remains quite healthy as Q2 comps were 1.1%, which marks our 21st consecutive quarter of outperformance relative to Knapp-Track.

The amusement segment once again reported strong comps during the quarter.

However, our overall comp came in below expectations as the environment for casual dining remains challenged.

While D&B's differentiated experience across our 4 platforms, Eat, Drink, Play and Watch, has provided us with meaningful degree of separation from casual dining over the past several years, we are certainly not immune to the macro trends around us.

As I mentioned our non-comp store performance was impressive, and we were pleased with our 2017 store openings to-date.

Of the 100 stores, we operated during the second quarter, 24 or 24% of the total were non-comp stores.

Their strong performance and contribution to our overall revenue growth once again demonstrates the broad appeal of our brand.

Next I'll spend a couple of minutes highlighting our amusement business.

On the heels of a very successful 2016, this year continues to shape up as another exciting year for amusement segment of our business.

With new and compelling content, including games based on some of the world's best-known movie properties, 2017 underscores the further evolution of our amusement strategy as we continue to collaborate with our many game manufacturing partners to deliver our strategy.

Our Summer of Games lineup this year was comprised of highly recognizable and marketing -- marketable content including Spider-Man, Alien, Despicable Me, Space Invaders and the World's Largest Pac-Man, among others.

Meanwhile, our proprietary title, Rock'Em Sock'Em Robots, remains very popular, typically ranking in the top 5 of our non-redemption games.

We continue to see good results from our efforts to enhance the game's durability.

From a food standpoint, we introduced several new items, including 2 shareable appetizers, an upgraded Caesar salad, an additional sandwich and 2 new entrées, dynamite fried shrimp and Americana ribs.

Within our beverage lineup, the 4 rum-based Monster Isle Punch drinks introduced during the quarter are performing extremely well for us.

Food and Beverage is a focus area for us, and we're taking a thoughtful approach to reignite the momentum there.

Fundamentally, our approach is to increase the crossover between amusement and F&B traffic in a manner that will incrementally drive sales.

For example, in recent weeks, we began highlighting our Eat & Play Combo promotion on national television.

We're also conducting tests that will help inform our F&B strategy going forward, but we're still in the early stages of reading those results.

Additionally, menu innovation remains a hallmark of our brand, especially in a more challenging casual dining environment.

In a few of our stores, we're testing a pared down menu in our bar area to enable quicker service.

We've also conducted additional focus group testing as well as some in-depth quantitative F&B research.

From a longer-term perspective, we're preparing to test technology initiatives such as pay at the table and handheld ordering technologies that should improve both the speed of service and overall guest satisfaction.

With respect to advertising and promotions, amusements continues to be our focus, given that it's our strongest sales channel and our highest margin segment.

Our promotional strategy includes driving traffic by featuring games as well as great-looking food and beverage items on national cable television, typically coupled with an immediate call to action including an element of free game play.

As an additional note, the number of weeks for national cable advertising during the second quarter was the same on a year-over-year basis.

Looking ahead to the third quarter, we'll run our All You Can Eat Wings promotion for the first 6 Sunday, Monday and Thursday of the NFL season from $19.99 with a $10 Power Card.

As you'll recall, last year, we ran a similar promotion on a $29.99 price point with a $20 Power Card, so lower incidence during 2015 when we ran the promotion with the lower price point.

In terms of our guidance for 2017, broadly speaking, we continue to expect low to mid-teens growth in revenue and EBITDA.

That said, we lowered our same-store sales guidance.

Additionally, the investments that we're making in preopening for new stores, coupled with the litigation settlement expense in the second quarter, has prompted us to lower our EBITDA range as well.

Brian will elaborate on these changes and provide a more detailed financial update in his prepared remarks.

Brian?

Thank you, Steve, and good afternoon, everyone.

Before walking through the numbers, let me just take a minute and thank our many team members across the country for helping us produce another strong quarter, especially in a tougher environment.

Speaking of a difficult environment, I would like to echo Steve's comments on Hurricane Harvey as our hearts go out to everyone impacted by the storm.

Now in terms of the second quarter, total revenues increased 14.9% to $280.8 million.

That's up from $244.3 million in the prior year due to strong contributions from newer stores as well as positive growth from our comp store base.

Revenues from our 76 comparable stores increased 1.1% to $220.5 million, that's up from $218 million, while revenues from our 24 non-comp stores, including 4 that opened during the quarter, increased to $61.1 million.

That's up $27 million from the prior year.

Turning to category sales, the mix shift to our more profitable entertainment business continued as total Amusement and Other sales grew 18.6% while Food and Beverage collectively increased 10.2%.

During the second quarter, Amusement and Other represented 57.7% of total revenues, reflecting 180 basis point increase from the prior year period as we continue to feature and to promote the entertainment aspect of the brand.

Now breaking down the 1.1% increase in comp sales, our walk-in sales grew 1.1%, while our special events business was up 1.9%.

And in terms of category sales, amusement grows 4.7%, while our food and bar business was down 3.5% and 3.3% respectively.

As Steve mentioned, the environment for casual dining remains challenged.

In addition, during the second quarter, the impact of cannibalization and competition on our system was modestly above our expectations.

That said, our long-term growth strategy and our plans to continue to gain market share anticipate some cannibalization and competitive intrusion in our existing stores.

From a regional standpoint, stores in our Texas market, which is one of our most competitive markets, continues their rebound and delivered cost above the system average for the second quarter in a row.

The impact of weather and calendar was a net neutral for us during the quarter.

While weather was favorable in the early part of the quarter, the benefit was offset by somewhat unfavorable weather and a calendar shift in the latter part of the quarter.

In terms of cost, total cost of sales was $48.5 million in the second quarter and as a percentage of sales, improved 80 basis points, reflecting relatively stable F&B margins, improved amusement margin and higher amusement sales mix.

Food and Beverage cost as a percentage of Food and Beverage sales increased 10 basis points compared to last year as about 2.3% in food pricing and 1.9% in bev pricing was more than offset by a growing mix of new stores.

For full year 2017, we expect a relatively flat commodity environment.

Cost of amusement as a percentage of Amusement and Other sales was 100 basis points lower than last year.

This was driven by a moderate price increase in our WIN!

merchandise and a shift in game play towards simulation games.

Total store operating expenses, which include payroll and benefits and other store operating expenses, were $147 million.

And as a percentage of revenue, store operating expenses were 52.3% or 70 basis points higher year-over-year.

Our operating payroll and benefit cost was 40 basis points higher year-over-year.

Leverage on higher amusement sales mix was more than offset by hourly wage inflation of about 5% and the typical -- the inefficiency at our non-comp stores.

Our non-comp stores, representing 24% of our store base, continues to perform well for us and generate excellent returns but are not as efficient as our mature comp base from a labor perspective.

Other store operating expenses were 30 basis points higher year-over-year as higher occupancy costs at our non-comp stores more than offset leverage of marketing expenses.

Store operating income before depreciation and amortization was $85.3 million for the quarter, reflecting growth of 15.4% compared to $73.9 million last year.

And as a percentage of sales, this was an increase of 10 basis points year-over-year to 30.4%.

G&A expenses were $16.8 million.

That's up from $13.6 million in the prior year.

And as a percentage of revenues, G&A expenses were 40 basis points higher year-over-year.

In the second quarter this year, we recorded a $2.6 million litigation settlement expense related to alleged ERISA violation.

Excluding this expense, G&A would've been $14.2 million and as a percentage of sales, would have improved 50 basis points year-over-year.

Preopening costs increased to $4.5 million.

That's up from $2.9 million in 2016, primarily due to the impact of 2 additional new store openings versus the prior year quarter.

And I would ask you to recall that for large format stores, we typically expect to spend about $1.4 million in preopening, and for small formats, we spend around $1 million.

Our EBITDA grew 11.5% to $64 million, and our margins declined 70 basis points while our adjusted EBITDA grew 13.2% to $70.6 million.

Excluding the litigation settlement expense recorded in the quarter, EBITDA would have been $66.6 million, representing year-over-year growth of 15.9% and margin improvement of 20 basis points.

Net interest expense for the quarter increased $2.1 million.

That's up from 9 -- $1.9 million in the prior year, driven by higher cost of debt due to increases in the underlying LIBOR rate, and that's partially offset by a lower average debt levels.

Our effective tax rate for the quarter was 18.2% compared to 36.9% in the second quarter of last year.

The decrease in the effective rate reflected a favorable 18.4 percentage point impact from the adoption of the new accounting standard related to share-based payment transactions, which reduced our income tax provision by $6.8 million and increased shares outstanding by 418,000 shares compared to the prior year quarter.

As a reminder, the implementation of this new standard does not have any incremental effect on our cash taxes.

However, as we indicated on our last earnings call, it does increase our diluted share count and can significantly reduce our effective tax rate, depending on the magnitude and timing of stock option exercises.

We generated net income of $30.4 million or $0.71 per share on a diluted share base of 42.8 million shares compared to net income of $21.5 million or $0.50 per share in the second quarter of last year on a diluted share base of 43.3 million shares.

I do want to point out that the new accounting standard for share-based payment favorably impacted our net income and our EPS by $0.16 per share, while the litigation settlement expense had an unfavorable impact of $0.04 per share on our second quarter results.

Excluding these 2 items, EPS would have been $0.59, reflecting strong net income and EPS growth in the high teens.

Now starting to the balance sheet for just a minute.

At the end of the quarter, we had $302 million outstanding debt on our credit facility, resulting in low leverage of around 1x.

Just a few weeks ago, we announced the new 5-year $800 million credit facility that puts us on even a stronger footing.

This new facility replaced our existing $500 million facility that extended our maturity by 2 years to 2022 and lowered our borrowing cost by 25 basis points.

Associated with this refinancing, we experienced a charge, a pretax charge actually, of about $800,000 in the third quarter of 2017.

As we have stated previously, investing in growth via high-return new store development remains the top priority of our capital allocation strategy.

At the same time, our significant free cash flow, strong balance sheet and now expanded borrowing capacity provide us flexibility to return value to shareholders for years to come.

During the second quarter this year, we repurchased approximately 1 million shares of our common stock for $67 million, and at the end of the second quarter, this brought our year-to-date total purchases -- repurchases to 1.5 million shares for $98 million and inception-to-date total of 2.1 million shares for $127 million.

At the end of the quarter, $73 million was still available under our $100 million buyback program authorized in June of this year.

Turning now to our outlook.

As we have referenced on previous conference calls, we continue to view 2017 as the year of more normalized growth coming off a record 2016 year.

Our long-term financial targets are for low double-digit annual growth in total revenue and EBITDA.

With this in mind, based on our second quarter results, we are updating our annual guidance on several key metrics for 2017.

Total revenues are expected to range from $1.16 billion to $1.17 billion, which is unchanged from our prior guidance.

Comp store sales growth on a comparable 52-week basis is projected between 1% and 2% for the year, down from prior guidance of between 2% and 3%.

Note that we have 76 stores in our comp base for the fiscal year 2017.

From a development perspective, we are now targeting 14 new store openings, above our prior guidance of 12 stores.

We expect our 2017 class will skew towards large format stores and new markets for the brand.

We have already opened 8 stores so far this year and currently have 9 under construction, so very confident in this guidance.

While we have not historically provided specific guidance on preopening expenses, we now expect preopening expenses to be approximately $21 million this year compared to slightly above $15 million last year.

This is higher than we had previously expected due to our increased 2017 new unit guidance and a higher pre-spend on our strong pipeline of new stores for 2018.

EBITDA is now expected to range between $270 million and $276 million.

That's down from the prior range of $276 million to $282 million.

However, this guidance now includes the previously mentioned litigation settlement expense of $2.6 million and higher preopening expenses.

We are projecting net income of $109 million to $113 million.

That's based on an effective tax rate of 30.5% to 31%.

This guidance now includes the year-to-date impact of the new accounting standard related to share-based payment.

However, we have excluded any potential future tax benefits in the balance of 2017 as the timing and magnitude is largely out of our control and will likely exhibit significant volatility.

We also estimate a diluted share count of 42.6 million to 42.8 million shares.

That's down from our prior guidance of 43.2 million shares to 43.4 million shares due to increased share repurchases during the second quarter.

And finally, we project net capital additions after tenant allowances and other landlord payments of $182 million to $192 million.

This reflects a $16 million increase from our prior guidance driven by our increased new store guidance for 2017.

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

Thanks, Brian.

I want to review our recent and upcoming store development activities as well as our remodel program.

We're very pleased with the response to our recent store openings.

As I mentioned, during the second quarter, we opened 4 stores, the first in New Orleans, Louisiana, which is a new state for us; Alpharetta, Georgia, near Atlanta; Myrtle Beach, South Carolina; and McAllen, Texas, which is our 100th store.

And as Brian mentioned, we currently have 9 stores under construction but also have 27 signed leases, providing us with excellent visibility on new store growth well into 2018 and some of 2019.

As Brian mentioned, we now expect to open 14 stores for this fiscal year, which equates to unit growth of right at 15%, up from our previous expectation of 12 stores.

Of these stores, 8 will be in new markets for Dave & Buster's with the remaining 6 located in markets where we already have a brand presence.

In terms of square footage, we expect 10 large stores this year including 8 that are right at that 40,000 square-foot size, 2 that are between 30,000 and 40,000 square feet, and the remaining 4 stores will be our small format of 30,000 square feet or less.

By the end of fiscal 2017, we'll have 106 stores operating across 36 states, Puerto Rico and Canada, and that's right at half of our addressable market.

As a reminder, our long-term target is for 10% or more annual new store growth, including a combination of large and small store formats.

We're confident that we have a strong and dedicated team needed to execute on this vision.

That said, we're constantly refining our process to ensure greater efficiencies in the preopening process and during the first 90 days of operations.

We remain focused on having new stores and the teams ready to handle the typically strong opening week and an operational team focused on driving and getting those new stores to their performance targets as soon as possible.

As you know, developers continue to pivot towards more entertainment options, and our position as a premier sought-after entertainment and dining concept continues to strengthen.

The combination of these 2 dynamics is enabling us to capitalize on additional development opportunities as evidenced by our opening of 14 stores, but we remain selective in picking best sites for our brand.

With respect to this year's 4 comprehensive remodels, we've completed these projects on time and well ahead of the start of the football season.

So in conclusion, we had another strong quarter of revenue and EBITDA growth, our white space opportunity is significant, we have one of the best experiential brands in the country and remain focused on returning value to shareholders, including share repurchases.

As always, we appreciate your continued support and interest in Dave & Buster's.

And with that, operator, would you please open the lines for Q&A?

(Operator Instructions) And first, from SunTrust, we have Jake Bartlett.

My first was on the sales.

And looking at your mix to family, it's gone up, I think, 44% of sales as of the first quarter and versus 40% last year.

If I do the math on that, it looks like your family business is up pretty solidly on a kind of same-store sales basis, but your adults business is down, estimated to come down low single digits.

Can you maybe just on both sides explain why the family business has been growing so much quicker and then also why you think there's been this weakness in the adult business?

I don't know.

I mean, I think that to equate that percentage of parties that is self-reporting with having somebody under 18 as being the equivalent of sales might be a mistake.

We know they have a lower incidence of Food and Beverage, and we do believe that is kind of one of the issues, not the majority of the issue, but one of the issues that we're seeing on the Food and Beverage side.

There is more of a chance that, that audience just comes in and plays games and doesn't really order food or beverage.

So we haven't cut it that way, and I'm not sure we have the data to exactly cut it that way, but I don't think that I would jump to that conclusion.

Okay.

All right.

So moving to your pipeline, your development, so you increased your development by 2 this year.

Is there any -- is that pulling in from '18 at all?

Or is there any kind of -- should we be concerned that maybe '18 won't be as strong as that level, this is more of a timing issue versus the momentum in your pipeline?

I think it's actually the opposite.

I mean, we have so much momentum that we have the ability and the choice to move from stores that were originally intended or at least on our schedule to be opened in '18 in '17 but clearly have plenty of backlog for 2018 to open our target.

If you think about the -- basically, we guided the preopening at $21 million, but that's up pretty significantly from what we expected previously, roughly $4 million, I think against consensus as well.

2 stores that are not $4 million.

So we actually have more pre-spend in that preopening number for our 2018 class.

So there's strength in the '17 class and I think strength in the '18 class is what we're saying here.

Great.

And then lastly, on your new credit facility, you increased it by a fair amount, by $300 million.

How should we read that in terms of why you did it?

You're free cash flow positive.

Is it -- when you think about that as funding your accelerating unit growth but also returning cash to shareholders, and as we look at the second quarter, how much you bought back in shares, is that the kind of level we could expect going forward?

Or is that an anomaly in any way?

Maybe just help us out on what your goals are for the capital structure.

Well, I don't think we really necessarily want to telegraph what we're going to spend next quarter or whether you should expect the same level of spend.

I think, for us, given the strength of the brand and how we performed over the last couple of years, we had the opportunity to put in place a new credit facility that had lower interest rate, allowed us to have longer term to take us out farther in our long-range plan, again at a lower cost of debt, very low cost to get the deal done.

So for us, it made a lot of sense to go ahead and seize that opportunity because it does allow us to continue our plan of investing in the stores as a top priority, and we increased our guidance by 2 stores.

We increased our capital -- this guidance by $16 million.

We've increased the outlay on the expense on the preopening line by $4 million.

So we did accelerate our store growth.

And as you pointed out, we did accelerate our repurchase activity in the second quarter, about $67 million, and that is the second kind of use of cash for us.

And this facility allows us to do all those things while maintaining what we would view a prudent level of leverage, which for us, we don't think going below 1 is a good idea.

You can see we came in at 1 for the quarter.

We were actually lower than 1 at the end of Q1, so we put in a facility that gives us flexibility for many years to come.

Moving on, we'll next hear from Nicole Miller with Piper Jaffray.

Just a couple of quick questions.

The first one, if I look at the first half of the year and look at the 2-year trend and imply that to the back half and take comparisons into consideration, I think you'd be down mid-single digits in 3Q and then down low single digits in 4Q, but that would be below what you've guided for the year.

So can you talk to us a little bit about what is or what might improve in the back half of the year?

Well, I mean, as we thought about our guidance, we did bring our guide down by a full percentage point.

We came in at 1.1.

As we indicated, that was a bit below our expectation, so we partially brought down the guide for that reason.

As we think about the back half of this year, we see 3 things that we're looking at.

One, a casual dining environment that seems to have been progressively worse over the course of the summer if you look at how the headwinds -- the casual dining environment space over the course of the summer, they got progressively worse.

For us, the competitive openings, I mentioned in my comments, that was modestly higher than we expected.

We had Main Event open 5 stores in our corridor and 2 Topgolfs.

So that was a little bit -- it's an imprecise science for us to know exactly when these guys are going to open, and that was a little more than we expected.

So well, it would be nice if Main Event slows down their pace of growth.

That would be a pleasant surprise.

There are some indications that they may do that because of some shareholder activism in terms of how they're performing as a company.

So that would be a potential good news thing if they slowed their growth because we did see a little more pressure on the competitive front in the quarter than we expected.

And then I think, the unknown here is right as we were thinking about this guidance is the impact related to Hurricane Harvey, which we were shut down for a full week, and we're back open but not at full strength.

So we'll see how that goes.

So we provided some room to accommodate some underperformance in the Houston area where we have 3 stores...

And that's helpful color.

I actually fear I didn't ask the question clearly at all.

So to get to your even the low end of your downward revised guidance, the back half of the year has to get better at some point than the first half of the year, and everything you just talked about are reasons why it might not.

So I mean, I want to be very delicate, but I think I'm kind of wondering how are you even going to get to that number?

Well, I mean, we look at a 3-year stack, too.

You can go back and get a little bit different answer.

If you look at our numbers, if you look at a 3-year stack kind of how we performed Q1, Q2 and you look at our kind of estimate on a 3-year basis, I think it will look a little bit different to you.

And then just maybe talking about the Eat & Play Combo on TV, the national advertisement of that and pushing to get the Food and Beverage comp up where you want it.

I mean, that's very interesting.

The research that you said, I think maybe Steve commented that you're doing, is that done?

And if you have it, what does it say?

And if it's not completed yet, when are you getting it?

And what do you expect maybe to learn and to do with that?

Yes.

So we have done the research.

Literally, we got the top line back I think on Friday or Saturday, something like that.

So it's a pretty early read, but it confirms some of what we saw in the focus groups that we conducted as well earlier in the quarter, and that is, particularly millennials want kind of shareable, snackable fast, and they equate fast with service.

And so anything that we can do to increase speed will probably help us in 2 ways, and that will be to help both the quality and the service scores.

We mentioned that we were going to -- that we have been testing a pared down menu in the bar and sports lounges and several stores.

A little early to read exactly what that means.

But as you might expect, it's going to take some repetition before you get it clear.

In other words, some amount of time for people to repeat their visit before you get a real clear line to what that does for or does to you from that standpoint.

But also based on this focus group and quant that we did, we're going to roll a storewide -- we're going to do a test of a storewide smaller menu in October as well, with the idea that if we see positive results from that, we'd be able to roll it systemwide towards the end of the year and the beginning of next year.

So that's really what we've been focused on in terms of the research and trying to read the research.

It's really been more about menu, menu items and kind of what are the other elements that folks are focused on.

And then finally, in the longer term, our intent is to look at service from a technology standpoint.

We've committed to a test of pay at the table was quicker by MasterPass later this year, and we think that could be very helpful in terms of eliminating a pinch point in terms of being able to pay when you want to pay and leave when you want to leave from a guest perspective.

Our next question will come from Jeff Farmer with Wells Fargo.

You might have said something, but what headwind the 3Q same-store sales do you expect to see from those Houston units?

And what headwinds do you guys factor in to the full year same-store sales guidance for Houston?

I don't know that we're going to get specific on that.

We just opened these stores back up on Friday, so they were shut down for a week, 2 of them in our comp set, one of them is not.

So it's a little early to call, and I don't want to comment specifically on the exact basis point, but we tried to factor in some negative impact for what we see right now for the Houston market.

But we'll see how that all develops over time, and we're back on track.

Okay, and a follow-up to that.

Do you have any case study -- it's a tough question, but just extreme weather resulting in a sustained period of closure for any given unit?

Is there anything comparable that you could point to?

And what type of same-store sales recovery did you see in the weeks that followed that reopening of those units?

I don't think we have a case study that either we can point to or that we've made public in the past.

So for example, like we've not had stores closed in the Florida market when we've had hurricanes there for a whole week.

I mean, the only other significant period of time that we've had a store closed for a flood, it was closed for 2.5 years I think.

So it wasn't -- it was closed for so long that it became irrelevant in terms of the bounce back of how, but we haven't closed anything as long as a week.

I think the bigger issue, quite honestly, is that it will be more about how those communities are able to recover, whether people are going out and dining and going to entertainment brands and that sort of thing more so than it is kind of whether or not we're prepared to handle the traffic.

And I think just about everybody has said that each one of the storms is unique.

Houston is going to be, I believe, unique in terms of how its recovery occurs.

I would also say one last thing, over my career, hurricanes in the intermediate term have typically been a tailwind but not in the short term.

Okay.

Just one more follow-up, moving away from the hurricane and just focusing on cannibalization.

You guys did mention it, but ball-parking, what do you think the rough cannibalization headwind is right now on your comparable same-store sales number?

As in theoretically, as you move forward, I think more than half of your future development is expected to be in existing markets.

Or I guess more importantly, do you think that your cannibalization headwind will sort of grow in the coming years or sort of hold steady?

Well, we've kind of said before, the whole competitive cannibalization front is a little bit of an imprecise science in some ways.

We are watching the competitors closely in terms of when we think they're going to open and trying to measure the magnitude of that opening, but it's not always totally clear.

I think I said this.

We were probably a little bit surprised on the high side on how many units Main Event opened in the quarter.

They opened 5 units, 4 of which were in our markets and 2 Topgolfs, both of which were in our markets.

So that headwind was a little more than, I think, we were expecting.

It does look to us as though Main Event may be slowing down in the back half, but we don't run those companies, and it's a little difficult to say.

I do think from a cannibalization standpoint, we are trying our best to think through kind of a good balance of new market versus existing markets so that we are not oversaturated with opening stores in existing markets.

But we said this before, our long-term strategy is to grow our sales and grow our earnings, and that will have some negative headwind related to cannibalization.

That's just going to be a part of it.

The stores return great returns, and it's just something that we're going to live with, and we're going to try to manage it as best we can that we don't have any huge stock here.

But we have not gotten specific to talk about, when you look at our 1.1, how much was cannibalization, how much was competitive intrusion.

And we haven't gotten to quantifying that publicly at this point, so I'm probably not going to start on that today.

We just said if there's 20 or 30 basis points on each of those, we wouldn't be talking about it.

So it's something more significant than that, it's a real headwind.

Next from Jefferies, we'll hear from Andy Barish.

I just wanted to follow up on the back half implied guide.

I mean, it seems like it's flat to maybe 2% at the high end if some things go right.

Is that the way we should be thinking about it?

And should there be more of an issue in the 3Q as we sit here today?

Well, I don't think we'll want to get into the quarterly guide, but I think the way you have backed in -- I mean we did guide, I think, in our earnings releases and our Qs now that you can pretty easily kind of back in what this was implying here.

You're kind of on the money.

It's slightly positive.

(inaudible) 2% balance of the year to hit that 1 to 2 guide, so I think you're in the right zone here.

And then just on -- you mentioned the 2Q advertising weeks were the same, Steve.

Anything, as you kick off football season, that we should be aware of other than the pricing shift on wings?

Do you have an extra marketing week?

Is there anything on the calendar with the start of season or anything like that we should be aware of?

I think as we said on some of our prior calls, we're going to be a little less transparent about exactly how many weeks and how many points and all the rest of that, but we did change the promotion.

We are going to come out with a strong advertising campaign around that promotion.

We believe the $19.99 price point should be more effective for us just based on our prior experience, and we're excited to kick off football in a big way.

Our next question comes from Brian Vaccaro with Raymond James.

I wanted to just circle back on the second quarter comp.

You mentioned the calendar shift that impacted the quarter.

Was that the July 4 shift or something else?

And are there any calendar shifts in the second half of fiscal '17 that we should be aware of?

Yes, the calendar shift was the July 4 holiday, ended up being a little worse than what we expected going into it.

And then balance of the year, the only other significant one is really around the Christmas holidays and how that falls this year, which should be a net benefit.

Okay.

And on the F&B side with another quarter under your belt, can you provide a little more color on where you're seeing the softness?

Is it concentrated in a particular area within the restaurant and whether it be the dining room, the bar area or the midway?

Or is it more broadly based than that?

It's broadly based.

I mean, the gap that you're seeing is broadly based.

I mean, as we've sort of said before, we're seeing the strongest growth when you look at our comp performance.

Actually, it started last year, and it's continuing this year.

Our strongest growth period of time is the early dayparts, lunch-afternoon daypart where amusement mix is higher, and we're seeing more lift in that -- during that daypart.

That's where our growth is coming from.

And we think part of it is the family.

A question came up earlier, part of that is driven by increase in family mix, which I would say is less penetration around alcoholic beverages, and we think also food.

That said, they're coming in and playing the games.

Games are driving -- amusement, it's still driving positive comps for us, but there is less propensity to buy food and bev.

Food and bev is down across all dayparts.

It's not just lunch and afternoon.

Okay.

All right.

That's helpful.

And on the EBITDA guidance, if I can shift to that, Brian, did you say -- I just want to make sure I heard correctly.

Did you say that your preopening cost estimate went up about $4 million versus your prior expectation?

Yes, about that.

And I think, if I remember right, consensus, not that I'm tracking that, you guys [are driven around that theory].

We bumped these 2 stores, increased the '17 count by 2 stores, but it is also higher pre-spend on the 2018 class.

So I view that as a positive.

You guys may view it as a negative.

We think of it as positive as we do the capital increase as well.

So ex the preopening bump and the litigation, sort of the core EBITDA was unched despite a reduced comp expectation for the year.

Can you help with sort of what changed on a core underlying basis or versus your regional expectations, whether it be on the labor cost front, other operating, et cetera, where the other offset might have been versus prior guidance?

We're holding our sales range flat here.

At 1.160, and 1.170.

So the 1 point decline in the comp range, if you guys could do the math, we've given you enough numbers, that's not an immaterial number for the full year.

What we're saying is really the implication here is the non-comp stores are doing better than expected.

And we've also added a little bit of sales near the end of the year for those 2 extra stores.

They're actually dilutive, those 2 stores, from an EBITDA standpoint because they come in late.

Brian, to us, that is a noble pursuit.

We're about long term here, but they are dilutive.

So I'm not sure if that's answering your question.

We're holding sales.

But we're taking the shot on this litigation expense that wasn't in our guide that was shy of $3 million, and we actually have pre-spend increase related to an '18 class that is just a straight shot hit to the EBITDA number.

Old world, we're talking about adjusted EBITDA, we wouldn't be talking about that, some of that (inaudible) EBITDA line.

Yes.

Okay.

That's helpful.

And then just last one from me, the 14 unit, if you think about the cadence the rest of the year, I think there are 2 planned for October in the third quarter and then the rest in the fourth quarter.

Is that correct?

I think you have that correct.

That's correct, yes.

Okay.

And then last one on this development piece.

2018, I assume you have pretty good visibility on the pipeline.

Can you give a sort of early read on large versus small, new versus existing?

I apologize.

I missed...

We'll probably guide that the next time.

Yes, next year.

You're talking about 2018, correct?

That's right.

Right.

I went through the 2017, but on the 2018, I think we're a little early.

We will guide that on the next call.

We gave you a directional.

Our next question comes from Sharon Zackfia with William Blair.

I guess a question on unit productivity.

Brian, if I look kind of through the comp numbers relative to the overall revenue guidance, it looks like you're expecting unit productivity to start to weaken year-over-year on the back half where it's been really solid in the first half.

Is that something that, whether cannibalization or something else is picking up?

Or is that some sort of conservatism in your guidance in the back half?

Well, we've tried to kind of talk about the store makeup when you look at our -- as we grow our store base.

We've got, right now, 24 non-comp stores.

The reality is only 10 of those are truly large 40,000 square feet or higher.

So the large majority of the stores we got in our non-comp set are not the full-blown 40,000 square-foot boxes, and we've got coming down the pike stores that we expect to open.

We've got another set of -- a couple of another small, medium.

So some of this is driven by when you guys are looking at AUVs.

We expect these AUVs to come down over time.

I mean, we're not -- we've got roughly half of the opportunities large, half, small, and we're building these stores in between.

So our view is store productivity is really more about -- a more appropriate way to look at it is ROI-driven, and we feel very good about the ROI production out of these stores where from '11 to '15, we've got kind of over 15% ROI in year 1. We feel good about the '16 and '17 class, but AUVs are going to be lower moving forward than kind of the 12 million AUV average of our comp store base because the mix is different, and we'll continue to look that way somewhat so...

I guess one follow-up question.

There's been a lot of conversation on The Street about performance of mall-based restaurants.

And I know you're not heavy mall, but can you talk at all about what you're seeing in your mall-based locations versus the rest of the base?

Sure.

This is Steve.

So as you've heard us say before, mall stores represent about 1/3 of our store base.

And I think we said it on a public call that have historically outperformed in terms of AUV and comp compared to the system average.

However, after a pretty long period of outperformance, the first half of this year, mall comps were slightly lower than the system average.

They're still outperforming on a 2-year and a 3-year stack basis, so it's a little unclear to us whether it is just the tougher rollover or it's kind of something more substantive, but that's what our data shows at this point.

Next from Maxim Group, we have Stephen Anderson.

Two quick questions.

I noticed that for the first time in the last several quarters, the special events comp actually outperformed the systemwide comp.

Is it something -- are you seeing more of a family business there?

Or are you starting to notice maybe a pickup in corporate spending as to how they approach this, and then I have a follow-up.

First of all, yes.

It did outperform.

It was 1.9.

It is a very small quarter.

I will emphasize still less than 10% of overall sales in the quarter are coming from our special events, but I would not attribute it had anything to do with holiday or whatnot.

I think that it has to do a little bit with the different channels we've opened.

The strongest channels for us in terms of bookings came from our call center and from online.

Okay.

And a follow-up question on the effect of some of the sporting events.

One of your peers talking about maybe fewer NHL and NBA playoff games hurting results during the spring, but maybe you might have seen some lift from the Mayweather fight particularly on the West Coast.

Well, first of all, Mayweather and McGregor happened in the third quarter, so we're typically not commenting on that.

But I will comment in general on that because we've seen a couple of those big kind of mega fights in the past.

And I would say that in general, they're pretty expensive for us to put on in every store, and they're happening in a time frame where we're pretty busy anyway.

So getting enough incremental to offset the cost is a pretty tough proposition.

But we remain committed to becoming and building awareness on our D&B Sports, so we think it's important for us to carry things like McGregor-Mayweather and we covered Mayweather-Pacquiao and all the rest of that.

But it is hard on a Saturday night to be able to kind of boost sales enough to make the economics of that overly attractive for us.

Our next question comes from Andrew Strelzik with BMO Capital Markets.

The first one is on the food and bev side.

I mean, you talked about the lower incidence of the wing promotion at the higher price point.

It looks like you're working on some bundles, things like tacos and beers and game play, for example.

Do you think that maybe price point on the food and bev side is creating any headwinds within your trends?

And also within those bundles, how do we think about the margin impact of those?

EPC is something -- so EPC is our shorthand for Eat & Play Combo.

It is something that we've had in place for a very long time, and we've had Eat & Play Combo as an opportunity for both since I want to say since 2007, 2006.

So that's been out there a long time.

We have seen a reduction in the incidence of that, so one of the things that we're trying to point out is we do have this value message out there.

It's a Sunday through Thursday mostly promotion and get it Friday through noon.

But we try to not do it on peak.

And again, we've seen a reduction in the incidence of that.

So trying to make sure that people are aware of that, we think, is important, in the research, yes, value comes back as one of their main reasons for not buying.

But actually, promotional activity comes back as one of the chief reasons for buying food and beverage products.

So it seems like you have both sides of the coin, so we want to make sure everybody is aware of the big value opportunities that we have out there.

So the $10 Power Card with, I think it's for example, 2 tacos and 2 beers, that's just part of the broader Eat & Play.

That's not something that's separate.

I saw it advertised on the website and on a number of different places, so I thought maybe that was incremental.

Is that not right?

That is done on a more local basis.

That's not something we're doing everywhere on a national basis.

But as you mentioned, it is a promotion that we run in a number of our stores per Thursday night.

Okay.

I got you.

Another question that we get a lot is about the traffic versus ticket in the amusement business, and I know in the past you mentioned it's hard to kind of disaggregate the comp among the 2. Have you got any better visibility on that as maybe you've been able to get better insight on the data?

Do you believe that your traffic overall is up?

Or is it really ticket that's driving that piece?

Well, I mentioned the pricing we talked in the quarter was about 2.3 on food, 1.9 on bev.

We actually had about 0.5 percentage point on amusement related to Eat & Play Combo increasing last year at some point.

So overall weighted traffic was -- or price was about 1.2 for the quarter in line with Q1 and fairly similar to what we had in 2016 on a full year basis.

So reasonably similar.

Obviously, with the comps that we put up in food and bev, that implies negative traffic and mix and counts were down on food and bev, on the food and bev front.

On the amusement front, we actually did see count go slightly negative in Q2, and we think there could be -- part of that due to the summer play pass that we offered this quarter for a number of weeks where for $50 or more, you could play unlimited video all summer.

So a little difficult to tease through traffic.

But overall, our spend per card went up quite a bit in the quarter, maybe partly on the heels of a play pass but card counts themselves were slightly negative.

Okay.

And then my last question, CapEx ticked up because of the new stores, the incremental stores, excuse me.

How do we think going forward, just as we're thinking about the free cash flow profile, how do we think about the CapEx trajectory over the next several years?

Not asking for you to guide '18, but just for remodels, you mentioned that there's roll off and some various puts and takes.

So what does the CapEx trajectory look like from here?

Well, I don't think we're prepared to give multiyear CapEx guidance right now, Andrew.

We're pretty committed to kind of the game level of spend and maintenance spend that you see in our guide right now, which is, if you look at it, it's about $38 million, kind of look at that by store, and that's got a few bathroom redos in it.

So we've got a pretty healthy number in there.

I think the number that may move down some over time is our what we call remodel spend.

We've got about $18 million in our guide around remodel type projects.

We're coming closer to the end of those opportunities, so that number may drop.

And the big number is -- that's left is what we decided to do on store growth.

So not really prepared to talk about what our store unit number is going to be for next year right now on this call, but that will be the driver of a capital.

And the pipeline is strong, so we have some choice.

Ladies and gentlemen, that does conclude our question-and-answer session.

I'd like to turn the floor back to management for any additional or closing remarks.

I just want to thank you for joining the call today.

We look forward to reviewing our third quarter results with you in early December.

Thanks again.

Ladies and gentlemen, that does conclude today's conference call.

We appreciate your participation.

You may now disconnect.