Dave & Buster's Entertainment Inc (PLAY) 2019 Q1 法說會逐字稿

Good afternoon, everyone.

Welcome to the Dave & Buster's Entertainment, Inc.

First Quarter 2019 Earnings Results Conference Call.

Today's call is being hosted by Brian Jenkins, Chief Executive Officer.

I'd 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 Arvind Bhatia, Senior Director of Investor Relations, for opening remarks.

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

On the call today are Brian Jenkins, Chief Executive Officer; and Scott Bowman, Chief Financial Officer.

After comments from Mr. Jenkins and Mr. Bowman, we will 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'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 www.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 will turn the call over to Brian.

Well, thank you, Arvind.

Good afternoon, everyone, and thank you for joining our call today.

Before I begin, I'd like to welcome Scott Bowman, who recently joined us as our Chief Financial Officer.

Scott has a long proven track record of success working with brands like Home Depot and most recently Hibbett Sports.

His strategic vision and financial discipline make him a strong addition to our leadership team, and I am extremely excited to have him on board.

I'd also like to take the opportunity to thank Joseph DeProspero for serving as our interim CFO and congratulate him on his new role as our SVP of Supply Chain and Business Development.

With respect to Q1, we grew overall revenue by more than 9%; EBITDA by over 3%; and EPS by nearly 9%, reaching new high watermarks for these metrics.

That said, our results were mixed.

While new store performance remains strong, comparable store sales were below expectations as this year's Easter calendar shift proved challenging, F&B underperformed and competitive headwinds remained stiff.

As I mentioned on the last call, Q1 tends to be a volatile quarter for us due to the timing of Easter and spring breaks and the impact of weather during those specific time periods, and this year was no exception.

You may recall that our comp sales were tracking up about 1% after the first 7 weeks in the quarter and before the impact of the Easter shift.

In the back half of the quarter, the net impact of the Easter rollover proved unfavorable, resulting in a slight decline in overall comps for the quarter.

On a positive note, comp sales in amusements were up nearly 2%, and our Q1 guest poll scores for key metrics improved compared to the prior year, an important indication our strategy is resonating with guests.

As we look forward to the remainder of the year, we are working to drive awareness of our F&B improvements but expect this will take time.

Additionally, we expect increased competition over the balance of the year as we continue to see aggressive entry into our markets.

Based on the year-to-date performance, recent trends and our current read of the competitive landscape, we are lowering our full year estimates on key metrics, and Scott will provide specific guidance in his prepared remarks.

While we are pleased to have reached new high levels for sales, EBITDA and EPS, we are working with urgency to improve our comp sales performance, and we'll continue to focus on our 4 strategic priorities to strengthen the brand and drive long-term shareholder value.

Our first priority is to evolve our offering, including our amusements and F&B.

In amusements, we continue to differentiate our brand by offering bigger, better marquee titles to delight our guests.

Looking at Q1 our new release slate included 2 proprietary titles: Marvel Contest of Champions and Star Trek: Dark Remnant.

Both titles are performing well for us.

Combining fan-favorite titles with our proprietary gaming technology allows our customers to deepen their connection with our brand through these iconic properties.

Star Trek is proving to be a strong addition to our growing library of VR titles, and the continued strength of Jurassic World VR Expedition a year after its launch is a strong sign of its sustainability.

Furthering our commitment to our best-in-class VR technology in Q2, we've launched Men in Black: Galactic Getaway, our fourth VR title ahead of the release of the new Men in Black: International movie.

With subtle differences in gameplay, dialogue that responds to the players' performance and completely different endings, this game entices guests to play multiple times to get the full experience.

Turning to F&B.

Our focus remains on simplification, quality and accessibility.

With a 35% smaller menu today compared to the beginning of last year, we have reduced complexity in kitchen processes and improved our ability to deliver items quicker on busier nights.

Our guest poll scores for speed of service in both the dining room and bar were up in Q1 this year compared to the same period last year, indicating our simplification efforts are beginning to pay off.

With the strides we've made in improving culinary efficiency, our commitment to quality remains unchanged.

Our mantra is Crafting Craveability, and we live into the standard by enhancing techniques for creating craveable flavors and textures using premium choice steaks and chicken, elevating our plated presentations and perfecting final execution to our guests.

Overall, more than 75% of our menu has been recrafted or rebranded.

Importantly, our guests appeared to be noticing as we saw an uptick in our food quality scores over the course of 2018, a trend that held firm in Q1.

That said, we recognize that games are the primary driver of guest visitations, and we expect it will take some time to build awareness of our new food offering to enhance our F&B attachment rate.

We will look to feature food more prominently in our marketing campaigns in the future.

Now we wouldn't be Dave & Buster's if we didn't extend our menu enhancements to flavorful craveable cocktails.

You already know we have added fresh juices and purées systemwide to take our handcrafted cocktails to the next level.

We've also standardized our core cocktail recipes and preparation techniques so our drinks not only taste better but are easier to execute on a consistent basis.

In terms of enhancing accessibility, we continue to test a quick casual offers -- offering in our Dallas store.

And as I mentioned on the last call, the initial response has been slower than expected, and we are evaluating ways to increase in-store awareness.

Our second strategic priority is to enhance guest-to-guest experience.

We are laser focused on improving service by delivering a more friendly, available and memorable experience.

While results of overall service improvements are best evaluated over a long period, we did see a meaningful uptick in our service scores during Q1.

Kronos, our new labor scheduling system, is important for improving our scheduling efficiency and guest service, and we continue to move up the learning curve with this new technology.

The new RFID TAP & PLAY Power Card we rolled out in February is facilitating faster and more accurate game activation, and we have recently seen improvement in our guest scores for games working.

Meanwhile, we're on track to unveil our new mobile app in the back half of 2019.

Our business must remain digitally relevant to attract and retain our core consumer groups, and our new app is being designed to offer greater functionality, convenience and reduce friction for our guests.

We believe that over time, our new app will allow us to drive better guest connection and engagement with our brand, ultimately leading to greater frequency and spend.

Our third strategic priority is to effectively communicate our offering and value.

During Q1, we promoted our 2 new game titles: Marvel Contest of Champions and Star Trek, which launched during the quarter.

We focused -- featured that on national cable TV.

With respect to value, we ran our successful unlimited wings, unlimited video games promotion on Thursdays and also on select days during March Madness.

In addition, at the end of March, we introduced a new free $10 video game promotion with the purchase of a $20 Power Card.

As I mentioned earlier, we must remain savvy to the evolving digital landscape.

While national cable TV remains our primary channel, our digital media mix continues to increase compared to last year including a focus on programmatic, social media, search engine marketing and optimization.

Finally, I'll highlight our fourth and biggest long-term driver of shareholder value, and that is to expand our brand geographically.

We've opened 8 stores so far this year including 5 that are in new markets and 3 in existing markets.

And in terms of size, 6 of the stores we've opened are large, while the remaining 2 are small.

As I mentioned on the last call, for the full year, our new store openings will skew towards large-format stores and new markets, although we are going to some smaller DMAs this year.

With 8 stores under construction, our confidence in delivering on the full year target of 15 to 16 new stores, representing 12% net unit growth, remains very high.

Including stores under construction, we currently have fully executed commitments for 23 new sites, providing us significant visibility on new store expansions really well into 2020.

We continue to believe our long-term opportunity is 230 to 250 stores in the United States and Canada alone, nearly double our current store base, and plan to capture this large opportunity by growing units at a steady annual pace of 10% or more while generating excellent returns.

On the international front, we recently terminated our Middle East partnership due to continued delays and missed contractual deadlines from our partner.

While we are disappointed with this turn of events, we continue to believe international represents a good long-term growth vehicle for us, and we will continue to pursue potential opportunities.

With that, I will turn the call over to Scott to discuss our financial performance and 2019 guidance.

Thank you, Brian.

Good afternoon, everyone.

First of all, I'd like to say that I feel privileged to be joining such a great company with a great history and long runway for growth.

I'm very excited to be part of the team and look forward to helping drive the company's future success.

Turning to highlights from the first quarter.

Total revenues increased 9.5% driven by strong contribution from our 28 noncomparable stores, slightly offset by a 0.3% decrease in our comparable stores.

As Brian mentioned, our comparable store sales were unfavorably impacted by this year's Easter calendar shift.

Also, the combination of competitive intrusion and cannibalization continued to be a greater headwind compared to the same period last year, but sequentially, the impact was flattish.

Looking at overall sales by category, Amusements grew 11.9%, and F&B grew 6.1%.

Amusements and Other represented 59.2% of total revenues during the quarter, an increase of 130 basis points in mix from the prior year period.

Breaking down comp sales, our walk-in sales were down 0.6%, while our special events was up 3%.

In terms of category comp sales, amusements was up 8 -- 1.8%, while F&B was down 3.3%.

Within F&B, food was down 2.8%, and the bar business was down 4.4%.

The gap between amusements and F&B widened in Q1 relative to Q4 partially due to amusement pricing initiatives taken during the quarter.

At the same time, the positive impact of All You Can Eat Wings promo on F&B was less than in Q4 although it was somewhat offset by a stronger performance in special events, which had a higher mix of F&B.

Total cost of sales was $61.7 million in the quarter and was 20 basis points favorable as a percent of sales.

This was due to an improvement in amusement margins and the higher mix of amusement revenue, partially offset by a decline in F&B margins.

Food and Beverage cost as a percent of sales was 30 basis points unfavorable compared to last year as the impact of 2% in food pricing and 1% in beverage pricing was more than offset by the unfavorable impact of slight commodity inflation, higher cost associated with the All You Can Eat Wings promotion and timing of vendor rebates.

Cost of Amusements and Other as a percent of sales was 30 basis points favorable compared to last year.

Amusement margins benefited from our pricing initiatives and the continued shift towards simulation games, including our virtual reality games.

Our operating and payroll benefits cost as a percent of sales was 22.8%, 90 basis points higher year-over-year due to the unfavorable impact of wage inflation, incremental investment in labor related to virtual reality and deleverage on comp stores.

Other store operating expenses were up 100 basis points year-over-year largely driven by higher occupancy cost primarily at our noncomp stores and increased investments in sports programming.

G&A expenses were $16.8 million, up 7% from the prior year, reflecting increases to support a growing store base and higher technology and legal expenses partially offset by lower stock-based compensation expense.

As a percent of sales, G&A was down 10 basis points in the quarter.

EBITDA increased 3.2% to $88.9 million and was 24.4% of sales, reflecting a reduction of 150 basis points versus the prior year.

Adjusted EBITDA was $98.2 million and was up 2.4%.

EPS was $1.13 per share, up 8.8% over the prior year.

Shifting to the balance sheet.

We had approximately $443 million of outstanding debt quarter end resulting in leverage of approximately 1.6x EBITDA.

The new lease accounting standard that went into effect at the beginning of the quarter resulted in the recognition of $880 million in operating lease right-of-use assets and $1.1 billion in operating lease liability.

From a P&L standpoint, this change had an immaterial impact on our net income and cash flows in the quarter.

During the quarter, we repurchased approximately 1.3 million shares of our common stock at an average price of approximately $49 and currently have over $200 million remaining under the existing authorization.

Since its inception, we have repurchased 7.6 million shares for an average price of slightly under $52.

We paid our third quarterly cash dividend of $0.15 per share during Q1.

Now turning to guidance.

Based on year-to-date trends, we are revising our fiscal year 2019 guidance as follows.

Total revenues are expected to be in the range of $1.365 billion to $1.39 billion versus prior guidance of $1.37 billion to $1.4 billion, reflecting growth of 8% to 10% versus the prior year.

Comp store sales are expected to be in the range of negative 1.5% to positive 0.5% compared to previous guidance of flat to up 1.5%.

We are projecting net income to be in the range of $103 million to $113 million versus prior guidance of $105 million to $117 million.

Guidance was based on an effective tax rate of 22% to 22.5%, which is unchanged.

Finally, EBITDA is expected to be in the range of $283 million to $295 million versus prior guidance of $285 million to $300 million.

Thank you for your interest in Dave & Buster's, and now I will turn the call back over to Brian.

Well, thank you, Scott.

I just want to close by reiterating our firm commitment to the 4 strategic priorities our team is focused on.

These priorities are fundamental to enhancing our brand positioning and for driving long-term shareholder value.

Our proprietary and exclusive games' ability to promote our offering through national advertising, attractiveness to landlords and ability to attract the best talent are only a few advantages that set us apart from the competition.

As always, I want to thank our entire D&B team for their continued hard work and to our shareholders for your continued support and interest in Dave & Buster's.

James, at this time, please open the line for Q&A.

(Operator Instructions) And we'll take our first question today from Andrew Barish with Jefferies.

Just wondering on the comp guidance, as we -- and maybe it's a bigger picture question around virtual reality also as you lap the launch coming up.

Is it getting you kind of the movement in traffic and interest that you wanted?

And are we seeing the second half of the 1Q trends kind of continue here after the 2Q?

Is that part of the reason why we're seeing the lower guidance overall on same-store sales for the year?

Well, I guess a couple of questions in there.

Just in terms of what VR is doing for our business, clearly, we have -- we featured proprietary titles here in Q1.

Our comps in amusements were positive, just under 2%.

So -- and part of that is due to price.

Part of that is due to VR itself.

And obviously, that's an incremental per-capita spend for us.

So -- and we are seeing some uptick in percent, the percent that VR represents over our overall amusement when we introduced the title here recently.

So I think VR still is one of the primary avenues that we have on that platform to introduce proprietary content that we can feature on TV.

That said, I don't think that amusements alone can drive the whole bus here.

So we're clearly focused on food and bev, trying to drive that attach rate.

We need to pull that gap in, and we're working very hard to do that, drive the awareness and build that business back and close the gap.

The choppiness of kind of how we -- we actually ended the quarter -- April was a strong month because of spring break and Easter break -- Easter and spring breaks fell into April.

The start of the quarter, May, has been choppy for us, particularly up the Eastern seaboard in particular.

And so that gives rise to the guidance change of kind of down 1 point.

And we missed fundamentally what we were setting out to achieve in Q1.

And just can you quantify the Easter spring break shift, just kind of how you looked at that in the last quarter?

Yes.

As we said, we were kind of -- we were up 1% in the first 7 weeks heading into the really big weeks.

Week 9 was Easter the prior year, a lot of spring breaks.

And that pushed back 3 full weeks into weeks 11 and 12.

As we look at sort of -- you kind of have to look at the spring break Easter time and the associated weather during that time.

Obviously, we like a rainy spring break.

The combination of the 2 weeks, we track at about 150 bps of headwind that we had between the 2, in the quarter.

Next, we'll hear from Joshua Long with Piper Jaffray.

Just curious on the mobile app and what you believe you could accomplish there as you roll that out in the back half of the year.

I think high level, you mentioned increased opportunity for connection with your guests, and then I think in prior calls and over its history, we talked about your guests coming a few times a year.

So just curious on how you think you might be able to bridge that gap and develop more touch points or maybe even increase frequency with that guest going forward.

Josh, clearly, we'll provide some more details on the functionality as we get closer to the app launch, which will be in the back half of the year.

But in general, our focus areas with the app are to reduce friction with the guests, improve the experience with the guests, improve our ability to communicate and connect with them, and really be the platform that will accommodate new features over the course of years.

So we will be focusing on, and I think I said this the last call, creating a true guest account, first-party data -- relationship with our guests, streamline the mobile payment, connect it with our loyalty program and also have some [ETV] charge features.

So there's a number of features and there are some others but we think that the app over time will be a good vehicle for us because, as you said and we have said previously, our visit frequency is very low with the brand.

It is a big opportunity.

And we do not know enough about our guests on a first-party data basis, and that's something that we want to leverage over time and are working -- the IT and the Marketing teams are highly focused on that initiative right now.

Great.

And then one quick one if I could on the competition piece, it seems like that's still weighing on the overall environment.

Is the messaging that it's flat, more or less flat sequentially but still, on a year-over-year basis, you're still having that year-over-year impact?

When do you -- can you remind us when do you expect to see that year-over-year impact level off?

And provide any sort of qualitative details on other venues or areas you're particularly seeing that impacting your system?

Well, I mean that's -- the competitive environment is something that we're tracking regularly, trying to read when the -- there are over 2 dozen brands out there building some form of combined dining and entertainment space, and we're doing our best to track their indications about stores that they're opening.

And right now, we think that headwind's going to increase over the balance of the year.

Just in this past quarter, we have about 40% of our comp stores where either a competitor or one of our own stores has opened on them.

So it's a meaningful headwind for us.

And our most recent intelligence on at least indicated openings by the competitive set is the number of units is going to be increasing year-over-year.

So that's something we don't see abating for some time.

I think what we have to do is focus on what we do best.

We have a large nucleus of our stores that are very healthy.

Our guest metrics are improving.

And as we think about the competitive set for the long haul, long term, I'm not convinced that all the brands that are building stores will have sustainability.

Many of them are small, independent players.

And candidly, we have significant advantages over them.

We have a strong proven business model, which is why I think you see a lot of investment in this space.

We have some of the best AUVs, margins and returns in this space.

We have scale.

We have access to real estate, human capital, and we have a great balance sheet as well.

So a lot of flexibility to invest, and are in my view, very well positioned for the long term and confident that we're working on the right things as a brand to sustain our leadership position here.

Andrew Strelzik with BMO Capital has our next question.

This is actually [Dan] on for Andrew today.

Firstly, I guess just understanding that there's been a lot of evolution in the food and beverage business over the last year or 2, what's a reasonable time line to expect the food business to improve?

And do you think you can improve it independently of the game business maybe through shifting advertising spend or through some other initiative?

Really good questions.

We have -- we do believe we're pursuing the right F&B strategy really for the long term of this brand.

We have new leadership that -- and a team that's extremely passionate about food, and we are proud of the changes we've made.

We've simplified our menus significantly, made substantial quality improvements, and our execution is improving.

We're seeing results from that on a qualitative basis.

In other words, food quality scores, speed of service and value scores are all improved.

And obviously, we want that to translate into better quantitative performance.

But as I said on the call, increasing guest awareness of the changes that we have made in food and bev and really improving that attachment rate to amusements, I think, is going to take some time since guests are primarily coming in for amusements, and our visit frequency is low.

And we're going to work hard to drive that awareness.

We have just launched our -- a new craveable combo promo, which is going to be a combined offer of some of our new craveable items along with gameplay.

And we're also encouraged by what we've seen as a strong guest response in a dining room repositioning that we've made in our Dallas store.

We've done a couple of tests in that store.

In this particular store, we've created what we call fondly a wild wall, basically a 15x50 foot multi-projector -- laser projector screen.

And we've seen a fairly significant uptick in food comps in that store.

So that's an area that we are going to explore further as a brand over the balance of this year.

Great.

That's helpful.

And then just one follow-up on the amusements side.

I guess I'm just curious how do customers react to the increase in the VR pricing?

I guess was there any noticeable or measurable impact on traffic or anything as you -- anything you guys noticed maybe qualitatively after the price increase?

Yes.

As we mentioned, we took an amusement price increase, basically $1 increase, in a little over half of our store base after doing some testing.

And anytime you take up price, you're going to see a little bit of a traffic decline, which we did.

But incrementally, it has been additive to our comps, the price increase.

And our view is we will begin to think about how we package multiple VR experiences in one package, and we have not done that yet.

But there are some opportunities for us to think about how we package price multiple experiences, and we think that was the right move after looking at what many others are doing in the VR space, and I think it was the right strategic move.

Next, we'll hear from Jeff Farmer with Gordon Haskett.

You guys have been more aggressive with your value-oriented offers.

But I'm just curious what has worked, what hasn't worked, and where do you see the opportunity moving forward.

Good question, Jeff.

The value -- our work in driving the promotional engine is a continued effort on the part of the marketing team, and we have been focused, I would say, primarily on some of the off-peak offers around our Wednesday offer and most recently our unlimited wings video play on Thursdays, which was our strongest day of the week in terms of the first quarter.

So we are going to continue to look for ways to drive traffic.

Particularly off-peak, we have a lot of capacity.

And we're going to be more -- we're going to clearly be more thoughtful and careful about how we lean into discounting some value-related things on our peak times.

We did introduce a national promo, a free video, free $10 video with a $20 Power Card in the first quarter.

Didn't really see the traction we were hoping for on that.

That was a broad offer across the chain.

And so this is a metric that we're continuing to try to unlock.

We have -- we clearly believe value starts first with the numerator in the equation, the offering, the experience and the service level that we provide.

And that we're moving the needle on in our view, but we know we're going to need to surgically and maybe in some cases more broadly put in value to drive traffic particularly around off-peak dayparts.

Okay.

And just one more sort of a follow-up question.

So the same-store sales guidance reduction, a lot of moving pieces there.

So in terms of what proved to be the greatest surprise to you relative to the expectations that you set in April, was this a traffic shortfall?

You alluded to this was just more about the Food and Beverage gap being greater than you expected.

What did prove to be the greatest surprise relative to what you had expected back in April?

Well, clearly, we were -- our guidance was expecting a stronger first quarter than flat.

We were up 1. We were counting on a good spring break, Easter calendar, and that didn't prove to be the case.

So the miss to our internal estimates for Q1 is not an insignificant part of a 1-point decline in the top end of our guide -- new guide rate on comps.

So -- and then a bit more choppy start to the first quarter -- I'm sorry, the second quarter.

But we have a lot of the year in front of us.

We have a lot of things that we're working on to drive to positive comps.

We're -- we have a huge sense of urgency on this team to do so, and we have a lot of this quarter left to go.

Big weeks, summer weeks when kids are out of school, and we are doing everything as a management team we can to drive the comps to a positive place.

We'll now hear from Jake Bartlett with SunTrust.

Brian, I wanted to better understand the comments around Easter.

You talked about the impact of the calendar shift.

I'm just trying to understand whether it was a calendar shift that impact it or whether it was just worse results during the spring break period or the Easter period maybe due to competition or other factors.

Just trying to understand what -- how the shift aspect impacted the results.

That's -- there's a bit of an inexact science to some of that stuff, Jake.

But what we look at -- what we did look at -- again, being -- coming in to the Easter calendar shift, we've said that we were up 1. So we had some confidence in how that -- the quarter was going to end up.

When we take week 9, week 11, 12 and we look at some of those weeks where spring breaks were shifting, we lost, in our estimation, about 150 bps.

Was some of that competition?

Really hard to tease that out.

Clearly, the competitive headwind is stiff for us.

But -- and a lot of this has to do -- because later, Easter calendar, spring break calendar can work to our favor, can work against us.

And a lot of it has to do with the combination of the timing of the Easter and spring break and the associated weather at that time.

And as it turned out for us, we had an earlier, colder spring break time period in 2018 followed by a later and unfortunately better weather, warmer weather, and sometimes it can go the other way.

If it's a rainy spring break and April showers, so to speak, we can have big weeks.

So it just didn't fall our way.

I'm not saying that's the whole thing for the quarter, but it was a headwind for us.

Got it.

And you mentioned the big summer weeks that are coming up and allow room to gain ground, but how confident are you?

Can you provide us any insight as to the games that you have coming up?

You're right about now starting to lap Jurassic Park.

But last year, you had Halo, which was, I think, a pretty successful game in late July.

But what -- anything you can talk about in terms of your content that you have that should give us some confidence that those big summer weeks will really come through?

Well, I mean clearly, we just launched Men in Black, which is an impressive title.

Very telegenic, and we'll continue to try to drive business with our VR platform over the course of the summer.

And we're going to be looking at our offer -- our promotional offers.

We've launched our craveable combo offer here just yesterday, really trying to drive consumption of both parts of our offering.

This particular offer will also include a potential to upgrade to unlimited video for just $8.

So we are trying to drive traffic with both combination of content, but as I said, my view is we'll need to do it with 2 batches this year.

Got it.

And then lastly, I'm wondering just the differential between amusements and the Food and Beverage.

How much of that might have been attributed to just a shift in your consumers?

So it may be more families, less adults as a mix of your business and whether that's more of a longer-term problem than kind of shorter term.

Well, I'm not going to mince words on the food and bev challenge we have.

We are -- we've had a fairly significant gap for some time.

It was significant early part of last year, and we closed it some with our wing offering, particularly in Q4.

It widened back out somewhat in Q1.

That is why we're looking at trying to do things in combination, where we are trying to drive attachment rate of both offerings, and wings has been very successful in doing that, that's why we saw it narrow a lot.

We didn't have as many days.

We did that around football.

We want to be careful not to have that offer grow stale.

But you're going to see us continue to look at ways to drive the combination of both offerings over the course of the summer to try to narrow that gap.

But obviously, the best thing we can do about comps is drive amusement stuff first, but the gap, we need to narrow as well.

Next, we'll hear from Brian Vaccaro with Raymond James.

Sorry, still learning that mute button.

I just wanted to circle back to the first quarter comp performance.

I'm curious if you're seeing a noticeable difference in your mall versus non-mall locations?

And Brian, back to your quarter to date, you said, I think, the Eastern seaboard was maybe a soft patch or particularly soft.

Curious what you think is driving that.

Is competitive intrusion concentrated there or something else you'd call out?

I guess, first, on mall stores, 2 questions in there.

In the long haul, our mall stores have outperformed -- in Q1, they did underperform and have kind of for the last 2 years.

So they did trail our in-line stores and freestanding stores in Q1.

In terms of Eastern seaboard, weather was -- in fact, I think I saw a piece you put out yesterday, Brian, on May, the Eastern seaboard for us, and unfortunately on Memorial Day weekend and the week following was extremely dry relative to what we saw in the prior year.

So -- and I think that even showed on your analysis.

So we struggled on the East Coast, up and down, particularly around Memorial Day weekend.

Okay.

And on the malls, could you remind us what percentage of your comp base is mall-based?

And would you be willing to quantify the differential that you saw this quarter or just kind of gauge the range that you've seen in the last several quarters between the 2 cohorts?

I'm not going to probably answer the latter, but comps -- our mall stores are about 33% of our overall comp stores, and about 39%, just about 40% of our overall store base.

Okay, great.

That's helpful.

Shifting gears just to the COGS outlook, and I wanted to ask about amusement COGS specifically.

And could you walk through the impact of China tariffs and remind us what percentage of your amusement COGS are imported from China?

And of that, what percentage might be impacted by tariffs?

And have you or are you planning to make any changes in how you source certain items as a result?

Yes.

I'll start off on that.

As we look at tariffs, what we've seen so far, we've made some adjustments internally and also working with our vendors, we've been able to offset -- mostly offset the impact of what we've seen so far.

It's mainly in our redemption area category that that applies to.

And so, so far, what we've seen, we've been mostly able to mitigate or offset.

Now for future tariffs, who knows?

I mean there's still kind of that lingering tariff out there that could or could not be put into place, 25% tariff on the remaining $350 billion or so of goods.

So obviously, that would be a larger impact.

We wouldn't be able to mitigate some of that.

But much tougher, as you can imagine, with that amount of goods coming in.

So right now, we're in pretty good shape, but we'll continue to monitor the possibility and magnitude of the future tariffs down the road and we'll give those updates when the possibility and timing is more clear.

But we'll continue to monitor it and put plans in place to mitigate as best we can.

All right.

And then just last one if I could, your updated EBITDA guidance.

In the past, when comps have been soft, there's been declines in store level and corporate bonuses and G&A.

Curious if you've embedded any assumptions on either of those explicitly in your -- in the rest of your guidance, on either labor or G&A.

Well, I mean we lowered the top end of the EBITDA guide by about $5 million.

So sure -- there's some adjustment in that correction implicit in that $5 million reduction as in the lower end of the range.

So there are some, but that's inclusive of that guide.

Next, we'll hear from Jon Tower with Wells Fargo.

Just on the marketing side of the equation, I know you're pivoting a little bit more towards digital mix relative to years past.

But one could argue that perhaps your brand awareness isn't where it needs to be today, and that could also argue that you need to take up the actual marketing spend.

So could you talk about that and your thoughts around where the marketing spend optimally could be for the business over time?

Well, that's a very good question and something we discuss and debate regularly, the corporate marketing spend.

Clearly, it's been an area that we've leveraged as we've grown our store base over the years.

And from a national cable standpoint, we're advertising the majority of the weeks already.

So what we're doing -- and we did spend more money in marketing in Q1 primarily on digital.

And that is a -- it's moved from essentially a no spend, no allocation a few years ago to a meaningful allocation.

But in our view, this is sort of a test and measure kind of activity.

We are looking for real results when we go out digitally.

It does allow us to be more targeted in our view with both message as well as where we go.

And we'd like to get traction in that area and have great reasons to continue to invest.

But you make a valid point.

The marketing team is continuing to evaluate both the mix and the spend.

And right now, we're pivoting into digital.

And Jon, this is Scott.

I'll just tag on onto that with one other comment.

As we talked about the mobile app, I mean that's all tied into kind of our strategy around digital marketing.

And one of the things that we've clearly put a lot of work into when we thought about the mobile app is, how do we connect with customers?

How do we acquire customers through that vehicle?

And so from the way that we look at it, that mobile app will be a great intake mechanism for customers.

It will help them as they use that app inside the store, reduce friction and so forth, but it will also provide us a wealth of customer data to be able to use that in the future to do more segmented and targeted marketing to our customers, to what's the most relevant to them.

And that's not just promos.

It's also just informational type things of what's new and so forth.

And I've seen that in my past work be very effective.

And so I think we're on the right track with that, and that will just accelerate digital marketing even more as we build that customer database.

Can you just remind us what percentage of sales marketing is today?

It's just slightly over 3% of sales.

Okay.

And then just pivoting a little bit here, but in terms of thinking about the balance of unit growth versus, say, shareholder payout, given where the stock has traded over time at discount to a lot of the peer group, it looks like public investors aren't necessarily willing to pay you for the unit growth that you're putting up, at the double-digit level that you've been at.

So why continue to grow units at this pace if these public market investors aren't willing to pay for it versus say slowing the unit growth and more aggressively attacking same-store sales growth and then in the interim perhaps enhancing shareholder payouts?

Well, I think we are attacking comp sales growth.

That is a major focus for the team here.

And that's why we're focused on -- 3 of our strategic priorities of the 4 are focused clearly on that.

And so to say we're not focused on that wouldn't be so.

We definitely are.

Our view is, for right now, that this business generates a significant amount of free cash flow, that our returns on these stores are extremely high if you look at our historical track record.

And in our view, it doesn't make sense to slow down that growth if we can accommodate it with the team.

We certainly have the cash flow to accommodate it and more than enough left over to continue to return value to shareholders, and we can do all things.

And then I think that to the extent that we allow a competitor or someone else looking to take what we view as a market that is on our radar and get there in front of us, it does inform our go-forward plan in the market.

So we're not really looking to hand over the keys to some of these markets.

There are many names that are out there trying to build sites right now.

(Operator Instructions) We'll now hear from Stephen Anderson with Maxim Group.

Two quick questions, mostly regarding your test location.

First of all, you say the taco truck test really hasn't had a great deal of awareness at this point.

But have you given any thought to ultimately broadening the menu to maybe appeal to more of the guests so there can be maybe somewhat higher guest attraction?

And I have a follow-up.

We have.

We have considered that, and we may in fact do that.

But we did 2 tests in Dallas: one was our wild wall TV and one was taco truck.

Our guest research focus group work said fast casual, there were a meaningful number of people that were looking for that.

And we expected it to perform better than it had.

So we're exploring what to do with the taco truck, what to do with the particular offering.

And so I hear you.

The flip side is, the other test looks to be more impactful so far, and that is the wild wall.

You know, we made an investment, and we do need to increase the energy, in my view, in our dining rooms that are really the lowest utilization space in our stores.

And that test has performed very well, and it's something...

Has that resulted to increase in F&B?

Yes, it has.

Dallas is essentially one of our top-performing stores in the system right now.

So -- and Texas in general is performing well, but it's outpacing.

So this is an area that we're going to look to expand in a few more stores over time.

If you can go also to some of the -- actually, I went to go visit that location, I saw there are 2 VR machines in operation there, which I haven't seen rolled out to any other store at this point.

Is that another test that you're doing?

Or is that something that you're considering on a case-by-case basis?

Yes.

We have 2 VR machines in, I believe it's roughly 10 stores.

And maybe it's -- anybody know?

Yes.

We did that at launch stores with some higher volumes.

We elected to put 2 machines in to be able to handle peak capacity.

And Dallas happens to be one of them, and there are a few others as well.

Okay.

And in terms of like the labor considerations, are they running roughly in line with some of the other locations that have 1 VR machine in operation?

No.

I would say they're going to tend to be a little higher because we have -- each machine requires 2 dedicated people -- I'm sorry, requires a dedicated person in that peak.

Sometimes we run more than that.

So I would -- I don't have those numbers in front of me, but I would say they run a little less efficiently.

But from a profitability -- overall bottom line profit, we elected to do that because we think it's incremental to overall profit.

We have a follow-up from Jake Bartlett with SunTrust.

I just wanted to ask about your philosophy on the balance sheet, taking leverage up a little bit here.

Is there a level of leverage that you're comfortable with maybe taking up through buybacks, a little more aggressive buybacks going forward?

We haven't really given a targeted range on our leverage.

Kind of with where it is right now at 1.6 [turns], we're fairly comfortable with that, where that is.

And so we don't think, at least near term on the base business, it's really going to fluctuate a lot from kind of where we are today.

But as we say that, we'll continue to look for opportunities in buyback and things like that, so that could fluctuate somewhat just based on how things trend in the near future.

But we're fairly comfortable with where it is with the base business.

And Jake, clearly, we were pretty active in Q1.

We repurchased 1.3 million shares, over $63 million.

I think that's our most active of any quarter so far obviously with the multiple on the stock the way it is.

So we've been pretty active with our share repurchase program, which is, as you know, our Board authorized an expansion of that.

So we have over $200 million available to us right now.

That will conclude today's question-and-answer session.

At this time, I'd like to turn the conference over the Brian Jenkins for closing remarks.

Well, thank you for your time this afternoon.

We look forward to reviewing our second quarter results with you in September.

You guys have a great evening.

That will conclude today's conference call.

Thank you for your participation.