Dave & Buster's Entertainment, Inc. Stock

Thank you. Hello and welcome to the Dave & Buster's Entertainment, Inc. Q2 2026 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press *1 on your telephone keypad. I would now like to turn the conference over to Cory Hatton, Interim CFO. You may begin.

Thank you, Operator, and welcome to everyone on the line. Joining me on today's call is Darin Harper, our Chief Executive Officer. After our prepared remarks, we will take questions. This call is being recorded on behalf of Dave & Buster's Entertainment, Incorporated, and is copyrighted. Before we begin the discussion on our company's second quarter 2026 results, I'd like to call your attention to the fact that in our prepared remarks and responses to questions, certain items may be discussed which are not entirely based on historical fact. Any of these items should be considered forward-looking statements relating to future events within the meaning of the Private Securities Litigation Reform Act of 1995. All such forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ from those anticipated. Information on these risks and uncertainties has been published in our filings with the SEC, which are available on our website. In addition, our remarks today will include references to financial measures that are not defined under generally accepted accounting principles. Investors should review the reconciliation of these non-GAAP measures to the comparable GAAP measure contained in our earnings release. And with that, let me turn the call over to Darin.

Thank you, Cory, and good evening, everyone. Before I get into our results, I want to start by saying how grateful I am for the trust that the board and this team have placed in me. I've spent almost 20 years in this industry and originally joined the company almost 10 years ago. And we have an obvious, actionable, and enormous opportunity in front of us to improve this business and create meaningful value for our shareholders. The back to basic strategy that we are executing continues to bear fruit. We are experiencing ongoing growth in food and beverage sales, as well as in special event sales. Store sales of our remodels continue to outperform the system, and we are also encouraged by the results we saw from activations we executed around certain holidays and sporting events. Further, we improved same-store sales in July and saw continued improvement in the third quarter to date. While we are not satisfied with the overall result, we are encouraged by these trends and the success of our strategies, and we are confident that the actions now underway will restore traffic and sales growth.

Same-store sales declined 2.9% in Q2, but July improved sequentially, with total company same-store sales down 1.6% versus down 5% in June. Additionally, same-store sales trends have further improved over the first five weeks of the third quarter. And we expect continuing improvement in trends and significantly better top-line performance over the remainder of the year and beyond. Following my appointment as CEO, we have further strengthened the executive leadership team. In late August, we announced recent appointments and promotions within our management team. Amanda Busby was recently appointed Chief Operations Officer, and she joins other previously announced appointments of Jeremy Tucker, Chief Marketing Officer, Kevin Fish, Chief Technology and Digital Officer, and Rachel Morgan, Chief Legal Administrative Officer and Corporate Secretary. Additionally, Aldo Rosales was promoted to Chief Strategy and Revenue Management Officer. All these individuals have significant and relevant experience and are highly incentivized and motivated to drive this business forward. I truly believe this is an incredibly robust leadership team. And together we have strengthened our ability to elevate operations, drive sustainable revenue growth, accelerate digital innovation, and maintain the strong governance and discipline necessary to support long-term success and drive shareholder value.

Our priorities going forward are clear: restore traffic and same-store sales growth, and convert that progress into durable EBITDA growth and free cash flow generation. Before I get into updates on our back to basics plan, let me quickly take a moment to establish the framework for how we're approaching our priorities. We are predominantly an occasion-based business with high awareness, but we have not consistently been the obvious answer when a guest is planning one of those occasions and our value and execution have not been dependable enough. Our guests come a couple times a year for a reason, plan days in advance. When we're the obvious answer, we win decisively. So we're focused on three things, all within our control. Number 1, the occasion, meaning we focus on capturing demand that already exists within personal, seasonal, and cultural calendars. Second, relevance, meaning our entertainment and F&B offerings are unmistakably appealing for that occasion. And lastly, consistent value and execution, meaning a singular and consistent value message that a guest can recall at the moment of consideration and a visit that delivers exceptional guest experience to drive another visit.

I'll now provide an update on each pillar of our back-to-basics plan and how the strategic framework of occasion, relevancy, and consistent value and execution informs our priorities within each. Let me start with marketing because this is where the clearest evidence of progress showed up this quarter and where we believe tremendous opportunity exists when we focus on capitalizing on existing demand for an out-of-home occasion. First, as stated earlier, Jeremy Tucker joined us as CMO during Q2. Before Jeremy, we had gone more than a year without a CMO and several years without consistent marketing leadership. And the result was a frequently changing promotional calendar, significant media shifts and measurement challenges, and messaging that did not always connect. Under Jeremy's leadership, I'm extremely confident we're now on the right path to addressing these challenges. Jeremy and I have been working very closely together, and we both recognize the enormous opportunity in marketing, given the renewed focus on execution and capturing demand at the right time within our guests' personal, seasonal, and cultural needs moments.

You'll hear more from us in the coming months with regard to how we're optimizing our media to more effectively capture consumer demand through better targeting, discoverability, media flighting, and messaging. Combined with relevant in-store entertainment and watch experiences that align with existing seasonal and cultural demand, we believe we are well positioned to drive meaningful traffic growth. Lastly, we also intend to simplify our messages and market, keeping a consistent evergreen value message with our guests that has strong recall at the point of consideration. Jeremy is building out the team and continuing to refine and revolve the strategy using the insights and learnings from all of our testing and research we've conducted over the last several months. We have made clear and significant progress in both confirming our strategic direction and ensuring we're executing day to day and we have significant opportunity to continue improving. Second, an update on games and entertainment. As previously discussed, our guests value relevant experiences, including new games, games that they can play together, experiences targeted at guests, unique fandom, and in-culture collectibles. Recent research tells us that more than 70% of our guests say learning about new games or activities would incentivize them to come more, supporting the importance of innovating in our games and prize and merchandise. So far this year, we launched 10 new games and attractions, including Mandalorian and Grogu, John Wick, Stranger Things, Hot Wheels Speedway, Icy Slush Rush, Perfect Pump, and Odin's Hammer.

And we have several additional exciting games we will announce in the coming months, including several bespoke entertainment offerings we are working on. This year was a step in the right direction to enhancing our relevancy, and we expect continued improvement in our new game strategy in FY27 and beyond. We also recognize that entertainment value is important to our consumers. We have taken actions to defend overall value perception relative to peers through our rate card and game pricing changes and have furthered our goal to make sure we are offering clear, compelling value for the right occasion. Furthermore, an additional area we are addressing is the strong cultural demand for collectibles, which we can deliver through multiple areas of our Midway. Research and own experience clearly demonstrates that this is an obvious and ongoing area of demand amongst our consumer demographics. We are spending material time developing a thoughtful and prompt plan around this topic and expect to have more to discuss in the coming months. Together, entertainment relevancy in all that we do, games, experiences, including a strong watch and cultural events calendar, partnerships, and in-culture collectibles, along with clear, understandable value, can grow traffic, and check. Third, food and beverage continues to see significant success. Company-wide food and beverage comparable sales grew 7.6% in Q2. F&B has now been positive for five straight quarters, driven primarily by a return to the proven menu and better execution of the eat and play combo. We will continue to thoughtfully evolve the menu, focusing on execution consistency and designs to increase attached opportunity. We will raise awareness as to the quality of our F&B offerings and strategically take inflationary price increases on a consistent basis.

Watch is also an important element of our F&B business. More than half our guests identify football, basketball, or baseball as sports they typically watch. And when guests watch sports at a food or bar venue, more than 90% order food and more than 80% order alcohol. Our 40-foot screens, broad menu, and game day F&B offers give us a differentiated platform. And there is low-hanging fruit for us to become more dependable in showcasing popular and increasingly localized sports to these natural customers who still don't often think of us as their go-to destination to watch sports out of the house. We have seen a lot of success when we create activations around popular watch occasions, including double-digit sales growth during World Cup matches activated in our stores. We believe we have significant opportunity to keep growing this part of the business. Fourth, operations. As previously discussed, consistent execution is critical to driving sales. Brand fundamentals are only as strong as the experience delivered in each location. Amanda, our new Chief Operations Officer, is raising standards through field leadership, training, and accountability. We are enabling our team members to succeed and better leverage our support center to support the field. Guest experience cannot exceed the team member experience, and we are building the culture and tools to make the standard real. This is another area where we are extremely excited about new leadership and highly confident in the team's strategic direction. Delivering a high-quality guest experience is critical and driving repeat visitation. And we believe that Amanda and her team are already making significant improvements on that front and will continue to do so.

Finally, remodels. We have completed six Dave & Buster's remodels in FY26 in Cincinnati, Jacksonville, San Antonio, Nashville, San Diego, and Miami. The current wave is continuing to outperform non-remodel locations, and two additional remodels are scheduled for the second half of the year in Frisco, Texas, and Westbury, New York. This is the investment we want focused, repeatable, and tied to a clear return threshold. The new prototype is materially more cost-effective than the legacy program. And early results show we can preserve the highest impact guests and productivity elements while eliminating ineffective spend. Remodels can augment our traffic billing initiatives by making the experience more modern, easier to navigate, and more productive. That said, we will pace the program to performance, construction readiness, and returns, all while ensuring we allocate our capital toward its best and highest overall returns. Capital discipline remains central. We have invested $127.6 million of net capex year-to-date through Q2 and remain on pace to spend under $200 million in net capex in FY26, as we indicated earlier this year. We are scrutinizing every project against minimum return thresholds and prioritizing remodels, new games, and technology that improve the guest experience and unit economics. Our capital framework is straightforward. Protect liquidity, fund the highest return projects, improve cash conversion and reduce leverage over time. So in summary, we are encouraged by this high-quality leadership team we've built. The improving top line trend we are seeing and the numerous initiatives we have in place.

As mentioned earlier, F&B sales have now grown for five consecutive quarters, and special events have grown for seven consecutive quarters. We also demonstrated an improved ability to grow sales during key seasonal and cultural moments by capturing demand in ways we haven't been as successful in doing in the past. We are investing capital more intelligently, and net capex continues to decrease, and cash flow conversion is improving. While acknowledging room for further progress, Q2 was an improvement compared to Q1. Encouragingly, Q3 has further improved since July. We have a clear map: capture existing demand, deliver relevant entertainment, make value clear, and execute consistently in every store. Our focus is converting these leading indicators into durable traffic, stronger guest frequency, and improved profitability, generate significant shareholder value in the near term. And with that, let me turn the call back over to Cory to walk through our financial results in more detail.

Thank you, Darin. I will now review the quarter and the actions we are taking to improve cash generation and margins. Same-store sales sequentially improved 250 basis points from Q1 in the second quarter, improving to down 2.9% company-wide. Food and beverage remained strong, special events grew, and higher attach rates to F&B from our gaming customers supported the overall occasion. Adjusted EBITDA declined by approximately $31 million on a year-over-year basis during the quarter, driven by a decline in same-store sales and a number of non-normalized items, without which Adjusted EBITDA would have declined by approximately $16 million, including (1) a $10 million non-cash deferral adjustment last year that did not exist in Q2 of this year. (2) an impact of $3 million from higher than normal pre-opening expenses due to timing of new stores. And (3) approximately $2 million of non-normalized growth and insurance expenses, which we have subsequently addressed and reduced. The non-cash deferrals will be a lower but still relevant headwind in Q3 of this year, after which there will be no more material adjustments to lap.

Q2 revenue was $544.1 million versus $557.4 million in the prior year. Adjusted EBITDA was $98.9 million, an 18.2% margin versus $129.7 million and a 23.3% margin in Q2 FY25. Under GAAP, we reported a net loss of $12.5 million, or $0.36 per diluted share, versus net income of $11.4 million, or $0.32 per diluted share, in the prior year. Adjusted net loss was $9.5 million or $0.27 per diluted share versus adjusted net income of $13.9 million or $0.40 per diluted share in the prior year. Cash generation improved. Adjusted free cash flow was positive $19.5 million through Q2 FY26, versus negative $36.5 million through Q2 in the prior year period, a year-over-year improvement of approximately $56 million. Cash from operations was $160.6 million year-to-date, up from $129.8 million in the prior year. Net capital expenditures were $127.6 million for the six months ended August 4, 2026, versus $155.4 million in the prior year period. Despite softer sales, this conversion reflects our focus on capital discipline and cash generation.

We are taking an aggressive and proactive approach to costs. As mentioned in prior quarters, we have hired a dedicated resource to help lead a comprehensive cost-saving initiative across the entire enterprise. That effort has already identified $15 million of savings, which will be realized over the next 12 months. However, we are not stopping there. We believe there are significant additional costs that can be removed from the business without having any impact to the customer experience. More to come on this, but we are targeting at least doubling the $15 million in the coming months. On development, we opened six new domestic stores in Q2 for a total of seven in the first half: five Dave & Buster's and two Main Event. We operate 250 company-owned stores: 184 Dave & Buster's and 66 Main Event, plus six international franchise stores. We are tailoring the new store pipeline and pacing development carefully. We plan to open four new domestic stores in the balance of FY26 and five in FY27. We plan to have extremely high standards for additional new stores until comps turn decisively positive, allowing us to deploy capital to higher return uses in the core business and set ourselves up to generate consistent free cash flow for the foreseeable future. As Darin mentioned, we completed six Dave & Buster's remodels year-to-date and plan on two more during the remainder of FY26. We also expect at least one additional international franchise store opening this year in Mexico City. We will execute remodel development as long as it continues to produce attractive returns and monitor uses of capital alongside other accretive opportunities. Our path is straightforward. Traffic recovery, cost discipline, and capital discipline will translate into improving free cash flow and deleveraging. Encouraged by the strength in food and beverage, special events, and our remodel program, and we remain focused on converting those successes into sustained traffic, margin, and cash flow improvement. With that, operator, please open the line for questions.

Thank you. [Operator Instructions] Your first question comes from Andy Barish with Jefferies. Your line is open.

Hey, guys, congrats to both on the new roles. Darin, it doesn't sound like there's any big strategic directional changes, but maybe kind of behind the scenes some differences in your management style and your background that may, you know, may drive some, you know, some changes. Would you be willing to kind of just talk about that? Talk about that as we look out for the next couple of quarters, please.

Sure. Thanks, Andy. Yeah, first, let me say that the bones of our back-to-basic strategy are sound, so you're not going to hear a materially different shift from that. What you will see, however, is a deeper articulation of how this comes to life. So for instance, you heard me talk about occasions, and this is a critical component of how we're going to approach our marketing, both messaging and media. So this drives how we tap into the consumer demand at the right time and the right channels with the right message. And so, as we noted on the call, when we do this right and have done this right historically, we generate significant growth. So behind the scenes, we're really going to be focused on that and how to do that at scale.

What you're likely going to see is less big, disconnected tentpole campaigns and a greater focus on tapping into these seasonal cultural moments, you know, likely through middle to lower funnel focused. So more to come on that, but Jeremy, our new CMO, is really building this out. Again, from a relevancy perspective, you're going to see us leverage our brand in ways I'd say that we haven't historically. We have incredible brand awareness. We punch above our weight and we have access to amazing IP, partnerships and other relevancy plays that can really lead to more exclusive and culturally relevant experiences in our box. So I think that will be a key differentiator for how we tap into that demand consideration from a guest. And then from a value and execution standpoint, you're going to, I think, see more urgency and focus on a singular value message to the guest. And Amanda, our new COO, is going to be focused on really raising the standards out in the field. So I think with all that, you know, we want to move smartly, but we're going to move quickly. I'd say promptness is a capstone here in terms of making sure we make smart decisions, make sure that we can measure those, quick test and learn, and then pivot and execute well. I can't reiterate enough that the management team that we have here is phenomenal, so high confidence. So hopefully that provides you a little context, Andy.

Yes, very helpful. And then if I could just double-click on value. You noted some changes on the rate card and game pricing. I'm assuming that is going to be lower to reinforce value. Can you give us kind of a sense as you move through the through when that's going to be taking place and maybe maybe the impact on basket or check at this point in terms of what you're expecting out of that?

Most of that has already occurred, Andy, with changes that we've made over the last few months. So it really, it's come in various iterations, but the key focus is simplifying the rate card to the guest. So, I think that Aldo and team have done a great job designing that so that it's more, it's clear to the guest in terms of what they're getting when they're buying power cards. That was just significant feedback that we've got through all of our guest research is, it's confusing and I don't know what to get. So we've done a lot of work there trying to simplify that entire guest experience on the kiosk or with the server. And then furthermore, we adjusted our game pricing to allow the guests to play longer and have a longer dwell time in the Midway. And we've seen 16%, 20% plus increase in gameplay and dwell time. And we've really been managing that through smartly managing the redemption payout, our pricing in the Win Store. Net, we've really been able to accomplish this while maintaining basket as well as maintaining our margins. I think we've done a great job there. We're measuring our value scores all the time and where we lost value over the last couple of years by taking too much price, we've gained that back and are in a really great position relative to our peers.

Thank you very much. Your next question comes from Jordan Bender with Citizens. Your line is open.

Hey, everyone. Thanks for the question. Darin, you know, you kind of laid out a few kind of inputs on the call around, you know, some of the renovations, some of the new store openings into next year. I guess from a high level, like, you know, we know what your net CapEx number is going to be this year, but as we think about that kind of going into the future, and maybe some of this CapEx starting to slow, just how do you kind of envision the company and just some of that spend as we start to head into '27 and beyond?

Yeah, good question, Jordan. What I'd say is, as we've communicated, our new stores are going to be pulled back as well as some other aspects of the business. I think we, we can conservatively look at a net CapEx number that could be $150 million or south of $150 million next year. It's all going to be dependent upon, you know, where we allocate capital in in terms of our existing business, in terms of entertainment, in terms of some other things that we think are going to have a great return. But the good news is we have a lot of optionality and a lot of flexibility with that capital. But what we've indicated to date, we could easily be at $150 million or less in net CapEx next year.

Yes, just to chime in there a little bit, Jordan, I think to Darin's point, you know, there's a really kind of a core CapEx need for the business. You know, other companies might call it maintenance. With us, it includes games, which we want to continue to refresh. But that's about $95 million to $100 million a year of, you know, kind of recurring CapEx spend. And I think what the market has kind of gotten away from is realizing a lot of the spend we've done over the last couple of years has been deemed to be growth and we haven't seen as much as that growth. And I think we are now, you know, returning to a plan that's, you know, very much investing in the core business by pulling back on some of the new stores and evaluating the remodel program. It allows our development team to really focus on the existing portfolio, make it as efficient as possible, making the investments in maintenance and other things to bolster that same-store sales number. And we feel really good about deploying capital in those areas while pulling back in aggregate on total CapEx dollars, which will benefit our cash flow profile significantly.

Great. Thanks for that. And then maybe just a follow-up on some of the cadence here. So you said June down 5%, July down 1.6%. I think you your last call, you said you you're running some promotions around World Cup. Can you just kind of talk about the impact that World Cup had on your performance in June if it contributed to that performance and then it's been kind of exited that into the third quarter here?

Yes, so our World Cup promotion, overall, we were really pleased with our performance. And I'd say we even gained and executed on that activation better as the World Cup went on. But we did lean into sort of a full action plan activation within our four walls with, you know, with a watch experience, themed food, some reskinned games, a soccer game, some prize integration. Then we had some ticketed events as well. I'll say even for the final, you know, we saw nice double-digit growth. You know, we're a perfect occasion for that type of experience. And there was a lot that we learned, in fact, with sort of tapping into that cultural moment. So, overall, we were well-placed to capture it. And overall, I think, especially as we got later into the World Cup, we felt like it was incremental for us overall.

Great. Thank you very much. Your next question comes from Brian Vaccaro with Raymond James. Your line is open.

Hi, thanks and good evening. I have a question on the operations front, and you talked about your new COO that's coming in. I was wondering if you could provide some more color just on how some of your most important internal ops metrics have trended in recent years, and what do they show as the clearest opportunities that could be to improve the guest experience and hopefully comps.

Yeah, hey, Brian. Yeah, um, we have, um, speed of service is really number 1. Speed of service, game uptime, and then a few other metrics. But those are a lot of the key areas that the team has been hyper-focused on and, you know, it's speed of service largely in the dining room, but also speed of service if there's an issue in the Midway, how quickly do we resolve that for the consumer? And so we, we have focused a lot of time on addressing that, ensuring that we have people staffed at the right time, at the right position staff to deliver on that, whether if it's the hostess, server, it's back of house, food runner, bartender, those are all, they all play a critical role in that. And so we have seen, continue to see an increase in in those metrics. And so we're pleased with the direction it's going. But we know we've got a long way to go to really deliver on that experience. Again, we've got, when you have a frequency of less than 2 times a year, you know, and it's typically for an occasion, people are going out celebrating date night, night with the family, et cetera. You can't screw that up for the guest, and that really impacts our ability to get them to come back another visit. So we've made good progress, but there's more to come, and Amanda and team are hyper-focused on that.

All right, thank you for that. I guess my follow-up was just on store margins in the quarter. You know, the pressure seemed to step up quite a bit versus the first quarter, despite same-store sales declines improving versus the last quarter. So could you just talk about the level of the pressure or any areas of reinvestment that we could be seeing in the P&L during the second quarter? Or is it more really a factor of the sales were down to a level on sales and obviously entertainment or the amusement comps are higher margins. So when they're down here in the second quarter, hitting sort of a base level of cost line that we're seeing. But any, you know, I guess so color on the second quarter and any directional comments on the second half, the degree to which you might see margin pressure relative to either Q2 or Q1 would be helpful. Thanks again.

Yes, Brian, I can take that one. I think looking at the second quarter, there's a lot of noise, as we called out, with that deferred revenue and the $10 million headwind that really kind of throws some of the P&L out of whack, and that translates to the stores as well. Just to give you some helpful insights there, if you look at the comp being down the way it was at 2.9%, in total revenue being down 2.4%, that spread of about 50 basis points is one of the lowest on records, largely attributable to that $10 million. It's just, I think, really making it challenging to judge the margins for this quarter at the store level that you're talking about for that reason. I really don't think there's a material difference in the investment requirements or anything else that we feel like we need to reinvest in the stores, whether it's labor or any other op-ex. I feel like certain line items of that P&L, as we talked about from a cost-saving perspective, we're addressing very recently and it's going to be impactful here for the coming quarters to grow those margins accordingly.

Your next question comes from Eric Wolfe with Texas Capital Securities. Your line is open.

Thanks. Good afternoon. I want to talk a little bit more on the game side. You talked about some of the changes in pricing. I think you said it was somewhere in the mid-teen to 20% kind of increase in dwell time at the Midway. Is the right way to think about that as you're seeing people hanging out longer with the same amount of spend on entertainment they would have had, but obviously, hopefully spending more on food and beverage, you're able to get that check there, but, you know, what are the thoughts on that and then kind of the impact on how that could kind of change the mix and margins if that if that you know continues into place.

Yeah, that, that's right. They're spending the same amount, but getting greater gameplay and and thus greater dwell time in the box. So your intuition is exactly correct. One of the, there's a couple of benefits. Number 1, we're providing a better value proposition to the guest. And their game card is lasting longer and is just having a better experience. But secondly, the longer they're in the box, hopefully the greater opportunity we have to get them to attach or spend more on F&B. So as we work through our process, defining how we measure that better, I think we'll have a better sense for how to do that. There are some things that Amanda and team are going to do to try to drive more food attached when people are in the Midway. Where we've really seen a lot of that is from the introduction of our eat and play combo on the kiosk and we've been able to convert a lot of what would have been just game players into F&B. So, there's more to unlock there for us, but our primary objective was to provide better value for the entertainment experience. Second is how can we attach more food? So more to come there, but we're pleased with the value that we've delivered to the guest.

I think also chiming in there, Eric, I think the importance of what we've achieved with re-solidifying our menu as a really compelling offering and even for some guests on a standalone basis, the more that that gets out there and the more we're able to fine-tune the execution on that menu, which is a much better product offering than I think we've arguably ever had at Dave & Buster's. You're going to get more and more, call it higher frequency food and beverage occasions than once or twice a year gaming occasion. As we see that, which we've solidified primarily from the games to the food and beverage to date. Eventually, you know, our aspirations are for that to work the other way as well. We'll get more food and beverage occasions that transfer into a gaming customer and that comes at a really high margin. And, you know, that's the kind of cornerstone of this offering from an e-commerce entertainment model perspective that we're really trying to drive. And we're going to see some really good fruit from that effort as we proceed and get that work in both directions.

No, that's helpful. Then kind of a follow-up on, still on the games, so obviously, you know, game, you know, your comps still running negative. Maybe talk about what you've seen with the introduction of the 10 new games so far this year. Are you seeing – a meaningful delta in kind of game play, they kind of call out between the new games, I could call it the older games. And when you put in new games, are you seeing any kind of beneficial lift on the remainder of the Midway, or is it really focused on the new games getting put into place?

Yeah, so when we look at introducing new games onto the game room floor, there's a number of different metrics that we look at to try to assess how they're performing and what they've done. You know, we look at, you know, gameplay, we look at penetration, we look at room-to-room play, we look at the game, reach and some other operational metrics to really understand, you know, how these are performing. And so overall, we were really pleased with the 10 new games that we've put in to date. They are all performing really well in a lot of those measures that I gave, which demonstrates that, um, that, that they're being used and and the guest likes them. Um, and some of them are addressing, um, other attributes that that we're going after in terms of, you know, more social games that groups can play together, et cetera. What I'd say is because we have under-invested in the Midway over the last few years, that it's also a bit of a catch-up to get that relevancy back into play. And there's a bit of just consistency that you're going to need with that. And just a new game standalone is not going to be enough, um, to do that. But, um, but we're getting some good learnings on some other areas that, um, we think could unlock some interesting opportunities for us with regard to where going to lean into from a merchandise collectible standpoint and that has really driven, um, incremental spend and we think will ultimately drive incremental traffic into our boxes.

Yes, and I think that's a huge point there, Eric, that Darin just made in terms of what we've seen from these new games. I think a light bulb went off for us as a management team in terms of, you know, the customer demand for merchandise, you know, as well as, you know, whether you get it directly from the game in the case of a crane machine, or if you're collecting tickets and go into our Win Store, we have a lot of work to do in a really exciting way to get our Win Store in a much more competitive position than it's been, as well as with those merchandiser games, like the claw machines, getting better inventory in there and, collectible nature to attract fandoms and the IP we're already cultivating. We just feel like we have a really big moment here to bring it into a really natural ecosystem that we already have built. And that's going to reap some really big rewards in the future for us and something we're very focused on. Perfect. Thank you both.

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

Hey, thank you. Hey, Darin. Thanks for taking our questions. Just on, um, I guess the macro, your model has been vulnerable or headwinds on the macro. And now, you know, we're dealing with diesel over $6 a gallon. Looks like interest rates are going higher. You know, we're going to go into Q4. Politics are going to be on our face. I can't imagine that's great for sentiment. I mean, what are you seeing today on your business impact from prices, inflation, sentiment, and how do you think it'll trend, and how do you sort of combat that?

It's, uh, it, it's a tricky reality of where we are right now. Um, you know, as we've communicated in the past, certainly that lower end consumer has been impacted more, you know, that's not, that's not unique to us. Um, but that is, um, that, that is a pressure we're facing. I guess what I'd say, and, I think you all have noted that we didn't discuss the economy at all in our prepared remarks. And the reason is, you know, we believe all these areas that we're focused on, there's latent and significant opportunity there, notwithstanding the environment. Yes. And the reason I say that is, you know, other brands who were in the same economic environment we're in have performed better. We know because we've seen it with our own data when we execute right, we, we, we can really drive the business.

So, are we going to operate in a difficult consumer environment? Yes. Can we, do we still believe that we can drive the business? The answer is also yes, because there's so much latent opportunity there. But that's one reason why when I discussed having a singular, consistent, evergreen value message. It's really important because we've bounced around with so many different messages over, you know, few years. And when it comes to sort of that recall for the guests, um, it's very confusing for them. Like, hey, what, what, what's Dave & Buster's running today? I don't know. There's too much stuff going on. Um, what our thesis is and what we believe is, especially our eat and play combo and half-price games on Wednesday and Sunday, for instance, those two, we really just want to beat that drum, be evergreen, be consistent. So that when that occasion consideration comes to mind, the guest, um, immediately is like, oh yeah, Dave & Buster's has great value. We can get an entree for $4.99. That does not become a veto. I think we feel like despite the difficult environment, we can still execute and grow sales in it.

Thanks, Darin. Last question from us. About eight quarters into year-over-year declines in your entertainment business. It looks like over the last four or five quarters, that weakness is actually accelerated regardless of what promo, what new games you're putting into the So, I guess at this point, I'm curious what evidence you have that sort of game-centric model that's really defined your business over time isn't broken at this point.

Yeah, what I'd say is, number 1, through our own extensive consumer research on what guests are looking for, we're looking at, we know it's a remarkably stable offering that still appeals. And you see other concepts out there with similar type offerings that are able to grow. Where we haven't delivered great is that ongoing innovation and ongoing relevancy in our game room floor. So the modality of kind of how consumers are using out-of-home entertainment has changed some, but our product, we have very high confidence that that experience is still very sought after. But we have to innovate more and we have to be more relevant for the guest. And tying back to the comment I made with respect to our brand power and our access to partnerships, IP, exclusive items, those are absolutely things that we should be leveraging that we haven't as much as we can. That's a key element, along with our ongoing entertainment investment to drive our traffic, which will ultimately drive the entertainment category. Our entertainment is really, is in line with where we see our traffic pretty much. And we've done great job driving F&B through these various attach with our new menu. And now it's really driving and tapping into that demand with a relevant product to our consumer. And we firmly believe we can do that.

Thanks. Your next question comes from Andrew Strelzik with BMO Capital. Your line is open.

Hey, good afternoon. Thanks for taking the questions. Um, I wanted first to ask about demographics and how the demographics for your business are kind of evolving as you've seen, you know, you know, the F&B growth and the amusement declines pretty persistently here, and maybe how that's framing the initiatives on the amusement side of the business in particular to try to drive traffic, not so much from an income cohort perspective, but, you know, whether it's age or families or otherwise.

Yes. Hey, Andrew. Yes. One thing that we have noticed between I'll just talk about maybe the occasions with guests and occasions with, I'm sorry, occasions with kids and occasions without kids. That occasions without kids is where we've seen more of a decline. And so when you think about how that's impacting our strategy, um, you know, we are an adult first occasion, but families are welcome and we cannot alienate families. What you're seeing is our focus on where do we drive that appeal for the adult occasion. And again, in a way to not alienate families. And so, you know, so it's, for instance, let's take Halloween. This is an occasion that is a clearly viewed as a family occasion, but it's also a large, highly social event. $13 billion a year is spent on Halloween. Halloween falls into Saturday this year. So it creates this unique opportunity for our business to serve family demand earlier in the day and then convert into a differentiated adult occasion at night. And so we're really focused on a Halloween activation, you know, throughout the month. and then a ticketed event, adult only event in the evening. When we look at our game selection, it's very much of, does this hold appeal for young adults? F&B, um, how how we're looking at different cultural experiences Is this something that adults are focused on? So while 50% of our occasions approximately include kids, half of those occasions are still driven by an adult finding appeal in the Dave & Buster's offering. So that's probably the biggest, you know, sort of learning and how we're sort of approaching it through the different elements of the business.

Okay. All right, that's helpful. And I wanted to also ask about the cost saves, the $15 million, and then, you know, potentially doubling that. And I guess the question is, you know, you've taken a lot of, the company's taken a lot of costs out of the business over the last several years, obviously trying to restore the momentum and make sure investments as well. So number 1, kind of where is that $15 million coming from? And number 2, what gives you the confidence that you can balance both those cost saves and the reinvestment to the end? better position the business. Thanks.

Yes. Hey, Andrew, I'll take that one. With regards to the $15 million that we've identified and have already executed on, so it's just a matter of rolling over the quarters to come and letting them season into our P&L. We've been very selective here. It's not totally changing the business or anything else. This is all very strategic on the margin in terms of identifying areas that don't impact the guests, largely kind of G&A, overhead, specific examples, you know, there's a lot in our IT area that we're very focused on, you know, just a plethora of systems that, you know, maybe a project started and we didn't get to the other side of it. And, you know, yet we didn't sunset it in an appropriate way. We're very focused in that area, just being more efficient, which is going to come with some significant cost saves. On the insurance front, there's a lot of policies we're looking at very closely, working with new brokers and others to just make the right decision for the company, and being tighter on how we evaluate the premiums we're paying and the service levels we're getting. So those are two really big buckets in this area, but it ranges all over the place from janitorial services. Some of these are kind of legacy post-acquisition of Main Event. We did harvest some significant synergies, but didn't go as far as we probably could in some areas as the portfolio has been. has grown as well, being able to transfer from regional service to more national service and really leverage our buying power with the size of the company we've become. And these are going to be really impactful. I think above and beyond the $15 million that we've executed on, there's, as I mentioned, in the prepared remarks, at least double that, that is a clear line of sight, just a matter of negotiating the contract, et cetera. But there's a lot of areas that we're very encouraged by and some significant dollars that are going to add up quickly that we feel like are real savings that we're going to be able to produce.

in the quarters to come.

Great. Thank you very much.

Your next question comes from Dennis Geiger with UBS. Your line is open.

Thanks, guys. I wanted to ask a little bit more about the improvement that you saw into the quarter to date period and and what you attribute that to. I know you guys touched on a bunch of initiatives with the World Cup at that point behind you. Anything you would flag there, you know, beyond anything on comparisons, driving that improvement in the 1-year momentum. And then as you talked about, you know, sort of continued improvement looking ahead. Any thoughts with where this heads over the coming quarters? Thank you.

Sure. Look, we're pleased with our quarter to date performance, but we don't want to let these last five weeks be indicative of where we're trying to guide. I think we've sharpened our marketing approach, which we've thankfully not had any unusual lapse overall that have impacted the business. But I think we're feeling good about Jeremy's been in seat for a couple of months now, or 3, 3 months or so. We're starting to work with our partners better. We're getting a better line of sight into what's working from a media standpoint. We've gotten better with discoverability and some search, still a long way to go, but there's some elements that we're pleased with. We can't comment about what this looks like over the next few weeks or over the next few periods, but we're just going to be hyper-focused on just continuing to drive the business as we articulated.

Makes sense. Thanks, Darin. Just one more, just on remodels. I know you said outperforming the broader system. Any additional insights there as far as what kind of sales uplift you've been seeing? Anything on kind of where the latest return profile sits? Anything that you want to share or able to share? on the latest remodel performance side of things. Thanks.

Sure. Yes, we're continuing to see outperformance in our remodels, as we've noted. I think as the overall system has, has performed better over the last couple of periods or so. That delta between the two has contracted some. So it's too early to get any other sort of read on that. I think as we continue to better hone our overall marketing efficiency for our base stores, that's certainly going to inform us from a remodel perspective. Um, you know, we've obviously spent a lot of time over the last few calls talking about what's worked and hasn't worked with the remodels and sort of what we've done from a marketing perspective. But I think I'm convinced there's more that we can do, um, really from a local activation standpoint. to let our guests know even more what's happening. But I, I think we've, we've seen enough to to also know that this reduced capital model that has been built can still yield, um, just as good of results as the more expensive remodel program previously. So, more to come there. But as we proceed with any capital allocation decisions, we're going to prioritize what where we're going to get the best return over the near term. And so whether that's entertainment, remodels, balance sheet, whatever, we'll continue to make those decisions through that lens. Thanks, Darin. And your final question will come from Jeff Farmer with Gordon Haskett. Your line is open.

Thanks for taking the call pretty late. Just two quick modeling questions, hopefully quick. Q2 same-store sales down 2.9%, average weekly sales down More than 6%, so assuming that spread is new store productivity, How should we be thinking about that spread as we're moving forward in modeling the business?

Yes, hey Jeff, I think in terms of looking at that and looking at the numbers you're looking at as well if you do it on a per operating week basis, obviously the comp is in line with the reported comp. But if you get into that kind of non-comp bucket, there's a couple things going on this piggybacking off of Darin's prior response. But when you look at certain new stores, you are also apart from the newest stores and six open this quarter, so we're still getting a good gauge on them. We're very close on the marketing of those new stores, just making sure they're opening up. Um, if it's in a new market, um, especially if it's Dave & Buster's, you get kind of that halo effect of awareness with the 90% plus national brand awareness we have, but making sure we're kind of activating them as appropriately as possible. Um, we're going to be even better at that. And then I think the other big noisy thing in that bucket, which is important is you have stores that opened last year that then this year are going through, um, kind of their honeymoon effect. And so there's a handful of stores in there. It's about 26 non-comp stores that are just going through that element of decline from the year, which is modeled out, but can be a little bit more extreme for smaller markets, the smaller boxes that we've opened recently. And that's really the factor that's going on in that non-comp bucket.

Okay. And just to follow up on that, so as it relates to those 26 stores, I haven't looked at the model that closely, but in terms of thinking about what could potentially happen over the next couple of quarters, is that that 3 percentage point plus spread a reasonable benchmark or we should be thinking about something sort of higher or lower than that?

No, we absolutely expected to improve from there. I think we'll see how these six that opened just this quarter, some in the later parts of the quarter. As we get into the third quarter, seeing some good traction on those new stores and, of course, correcting where we need to in terms of doing an additional marketing blast and with Jeremy on board, he's getting very focused on those. And then I think from a kind of transition into the comp next year, we don't expect this to be a perennial challenge for us. We feel like we're making the right decisions in terms of site selection. And with the 11 new stores we're opening this year, going down to five next year. You know, we think we're making the right capital allocation decisions and this is all going to be an improving scenario. I appreciate it. Thank you.

This concludes the question and answer session. I'll turn the call to CEO Darin Harper for closing remarks.

Thank you, Operator, and thank you, everyone, for joining us this evening. Dave & Buster's and Main Event are iconic brands with exciting and significant opportunity ahead. Clearly Q2 was not where we want it to be, but it clarified both the challenges and the opportunity. We are encouraged by sequential improvement in July and quarter to date and by guest response in food and beverage, special events, and remodels, while remaining focused on traffic, affordability, and service consistency. We will stay close to the data, listen to our guests, and keep improving product and execution. Our teams across the country make this possible, and I thank them for their incredible work. I want to reiterate that our strategy is working. We went from minus 5.4% in Q1 to minus 2.9% in the second quarter, with sequential improvement of both July and the third quarter to date. As a result of all the initiatives we have in process, we expect same-store sales, revenue and EBITDA to grow in the near term. This growth will be accompanied by significant cash flow generation and materially increased equity value. I'm excited about the opportunity ahead and I look forward to updating you on our progress. Have a wonderful evening.

This concludes today's conference call.

This live transcript is auto-generated without human intervention or review.

Hello, and welcome to the Dave & Buster's Entertainment Inc. First Quarter 2026 Earnings Call. [Operator Instructions]

I'll now turn the conference over to Cory Hatton, VP of Entertainment, Finance, Investor Relations and Treasurer. Please go ahead.

Thank you, operator, and welcome to everyone on the line. Joining me in the room on today's call are Tarun Lal, our Chief Executive Officer; and Darin Harper, our Chief Financial Officer. After our prepared remarks, we will be happy to answer any questions. This call is being recorded on behalf of Dave & Buster's Entertainment, Inc. and is copyrighted.

Before we begin the discussion on our company's first quarter 2026 results, I'd like to call your attention to the fact that in our prepared remarks and responses to questions, certain items may be discussed, which are not entirely based on historical fact. Any of these items should be considered forward-looking statements relating to future events within the meaning of the Private Securities Litigation Reform Act of 1995. All such forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ from those anticipated. Information on these risks and uncertainties have been published in our filings with the SEC, which are available on our website.

In addition, our remarks today will include references to financial measures that are not defined under generally accepted accounting principles. Investors should review the reconciliation of these non-GAAP measures to the comparable GAAP measure contained in our earnings release this afternoon.

And with that, let me turn the call over to our CEO, Tarun.

Thank you, Cory. Good evening, everyone. I first want to speak directly to our Q1 results, which came in below both our own expectations and the expectations we set with you last quarter.

We started the quarter well in February. The spring break calendar shift between March and April played out largely as expected. Of the macro backdrop, elevated gas prices, geopolitical uncertainty and a meaningful softness in consumer sentiment. They all were a real headwind in April.

That said, we are not here to make excuses. We have a resilient business model and expect to be able to navigate these obstacles.

Our same-store sales growth declined 5.4% in the first quarter of fiscal 2026. We found that our dollar per day messaging did not resonate as strongly as we hoped. And since then, we have pivoted to more compelling promotions, which are resonating with customers.

We've also made significant progress in establishing partnerships with IP providers and expect to have exciting entertainment announcements for you in the coming months.

We are making significant progress, but I want to remind you that we are in the early innings and look forward to providing updates as soon as possible. We have seen improvement in quarter-to-date in the second quarter despite unfavorable weather with comps down approximately 4%. We remain confident in our ability to continue improving in the back half of the quarter. We're extremely excited about our summer offerings, including our new game rollout and the World Cup watch activation, which kicked off last Thursday.

After nearly a year fully immersed in this business, I remain extremely confident in our ability to dramatically improve operating results. Over the past several years, we have shifted from the core elements that historically drove our success, investment in games, F&B, marketing and operational excellence. We are systematically restoring each of these pillars now.

We've also significantly strengthened our leadership team. In just the last month, we've added top caliber executives. Our Chief Marketing Officer in Jeremy Tucker, who joins us from AutoNation, Planet Fitness, Walt Disney and Spin Master. Our Chief Technology and Digital Officer in Kevin Fish, who joins us from Wingstop. And our Chief Legal Officer in Rachel Morgan, who joins us from Nexstar.

We're equally focused on field operations and culture because we know exceptional execution and guest experience traffic and sales. With that in mind, I'm delighted to share that we will be announcing a new COO by next week.

Now we have the right strategy, the right team and the right business model to create meaningful value for our guests and our shareholders.

Our priorities this year remain clear: turn same-store sales sustainably positive and generate meaningful free cash flow. This management team is highly confident we will generate positive comparable store sales growth in the remainder of the year, driving revenue and adjusted EBITDA growth and more than $100 million in free cash flow for the full year.

Let me now provide an update on each pillar of our Back to Basics strategy. First, on marketing, we are rebuilding our strategy around discipline, a simplified promotional calendar, data-driven media mix modeling and an optimized balance between TV and digital.

Getting the right message to the right audience at the right time is 1 of our biggest opportunities to improve traffic, sales and EBITDA. Our priority is rebuilding brand consideration through culturally relevant promotions and attractively priced offerings.

We are still in the early innings of our marketing optimization. We've conducted a number of tests in the first quarter, which have shown success and which we expect to roll out nationally this year.

On the flip side, we also tested a number of items such as our dollar per day messaging and certain changes to our media spend, mix and target audience that had less success, but have provided us with valuable loss lessons and learnings for the future.

On the owned media side, we've seen a lot of success with bold activations that generate meaningful earned media and put us into cultural conversations. For example, in May, we announced that we replaced tickets to the World Cup finals inside our human crane and the response has been extraordinary. These shareable moments drive organic awareness. Beyond that, we are activating our loyalty program to drive personalized messaging and increase visit frequency. We're building a scalable special events engine that turn events into cultural moments and convert even guests into repeat walk-in visitors.

Overall, we are very excited about the evolution of our marketing leadership and look forward to continued progress with Jeremy now at the helm as CMO.

Second, our food and beverage business that has seen an early win from our Back to Basics strategy. Comparable food and beverage sales grew approximately 5% in Q1, driven by our return to the historically proven menu last October and by a strong eat and play combo execution.

Before these changes, the share of gaming guests who also bought food had declined significantly as our menu drifted post-COVID. We've reversed that trend decisively in 2025, which has continued in 2026.

Our ongoing success in food and beverage has resulted in 9 straight months of positive F&B same-store sales. We have additionally exciting LTOs launching in the coming months, which we expect to be highly accretive. Main Event rolled out a new menu last month, and we continue to test food-focused promotions, which have shown signs of success, and we expect to drive continued growth in the back half of the year.

Third, our games offering. This management team strongly believes we need to reinvest in new games after a 6-year pullback. New relevant gains and attractions are essential to driving both new and repeat visitation and same-store sales growth.

Just a few weeks ago, we rolled out 10 new games, the most since 2017. Coupled with initial game investments in 2025, this reverses a prolonged period of underinvestment. And we expect to roll out at least 5 additional new games in the balance of 2026. This is a direct response to an abundance of customer feedback citing a lack of newness on our traditional game flows, and we have moved with significant urgency to address it.

We also know from our inaugural state of fund report that nearly half of the Americans say their lives like fun and more than half would prioritize fun if affordable options existed. Our strategy is simple, give people exciting, affordable reasons to reconnect in the real world. The new lineup spans high-energy competition, immersive gameplay and hands-on skill challenges. Highlights include Hot Wheels, Ultimate Speedway, ICEE Slush Rush, John Wick: Continental Pursuit, Odin's Hammer and Perfect Pump. Plus, of course, The Mandalorian and Grogu and Stranger Things IP, alongside guest-tested original concepts.

Many of these games are already pacing amongst the top revenue generators in the first weeks, which is validation of our continued Midway investment. And this is only Phase 1. We have a lot more in the pipeline, including several exciting IP partnerships that I look forward to sharing soon.

We're equally excited about leveraging our watch offering on massive 40-foot screens and 30-plus TV per location to drive visitation during the World Cup this summer. The World Cup, which kicked off on June 11 is a major catalyst for our business. We have launched a full 360-degree activation, 2 new software inspired arcade games, World Soccer and Kick and Bend, plus exclusive tournament themes food and drinks, including sliders inspired by the host countries. And as I mentioned, we've put tickets to a major World Cup matches inside our human cranes, including USA group stages game and all the way through the finals.

We've also launched our Hat Trick Watch Experience, a ticketed watch party for kickoff and championship matches with all you can eat wings and fries and unlimited gameplay all day, starting at just $24.99. It has attracted significant crowds for the opening games cheering on the Mexico 2-0 victory. This builds on the playbook we deployed during the summer ball -- during the Super Bowl and creates a repeatable, high engagement format for major watch occasions that we will continue to enhance and make more pragmatic.

Combined with our summer season's pass, the World Cup activation positions us to capture significant incremental traffic during an already strong summer season. This revitalized product offering represents a meaningful step forward in quality, variety and cultural relevance with combining world-class IP with innovative original concepts in a way that drives per capita spend and repeat visitation.

For full year '26, our ambition is to continue evolving our play experience and position Dave & Buster's as the fun capital of America.

Fourth, operations. We are investing in and energizing the field to training that empowers teams to deliver exceptional guest experiences. A collaborative culture, supported by our shared service center is reducing turnover and creating an environment where our people and brand can thrive.

As we discussed at the start of the year, our full year '26 obsession metric is speed of service, our 1-minute greet and 4 minutes drinks backed by coaching and performance management. We are sending a clear signal. Our success is tied directly to execution and to the guest experience.

Finally, our revamped remodel program continues to progress. We are confident we have identified the right layout to drive traffic, improve productivity and deliver strong ROI at a reasonable cost.

We recently opened 6 remodels and plan to open 2 more over the next few months. Early results from this new remodel prototype have been very encouraging, driving a strong 7% comp uplift consistent with a far more expensive remodels of full year '24 and '25.

As a reminder, the new cohort of remodels cost approximately half of what the legacy remodels cost, while still contributing a similar sales lift. In fact, these remodels were positive in same-store sales in the first quarter and year-to-date, providing us further confidence that we are executing on the optimal prototype. This renewed remodel strategy highlights the power and importance of continuing to invest in our core business as a key traffic and comp driver for our brands.

Taking a step back, after COVID, this company moved away from the core and also simple elements that made it successful. Marketing and promotions, the F&B offerings, the annual investment in games and entertainment, operational excellence and store refreshes that preserved what customers love about D&B, all changed significantly. We are now actively going back to basics, restoring those elements piece by piece, and it is working.

Armed with direct and candid feedback from the guest, we know that games innovation and value are of utmost important, and we are urgently addressing these issues.

We know Q1 was disappointing. What I hope you take from tonight is that we understand why and that we are taking the right actions and that the underlying business is already responding. We have made meaningful progress over the past years and expect that progress to convert into financial results more quickly from here.

Before I pass the call over to Darin, I want to be clear that we are highly focused on strict capital expenditure discipline, minimum ROI thresholds and generating significant free cash flow. Net CapEx for full year '26 remains targeted at no more than $200 million, down from approximately $270 million in full year '25, and we have committed to a very strict ROI thresholds and eliminating inefficient use of capital. We dynamically evaluate our capital investment plans, including our new store plans and we'll make adjustments as we weigh the best returns for each dollar of capital. We continue to plan to open 11 total new stores in full year '26. If and as we make material adjustments to the same, we will communicate them to you. Very importantly, we continue to expect to deliver over $100 million in free cash flow this year.

To talk about this more and review our financial results for the quarter, let me hand the call over to Darin Harper.

Thank you, Tarun, and good afternoon, everyone. As Tarun touched on in his comments, there are several areas where we have made solid progress over the past several months that I'll provide highlights on here shortly.

Before that, as a reminder, on a weather-adjusted basis, Q4 FY '25 comparable store sales were down 1.5% with sequential improvements throughout the quarter. February, our first period of Q1 FY '26 continued this improvement in trend. However, given broader macroeconomic challenges that intensified in March and April, but during our highest seasonal time of the year due to spring breaks, our Q1 FY '26 comparable store sales decreased to 5.4% versus the prior year.

As Tarun mentioned, despite some unfavorable weather, our comps quarter-to-date in Q2 have improved to down approximately 4%.

Despite this consumer headwind, there are several areas of the business we have seen improvements, which, coupled with our strong unit economics and cash flow generation led to an overall $84 million improvement in free cash flow in Q1 FY '26 as compared to Q1 FY '25. This, in turn, allowed us to reduce our outstanding debt all while still continuing to invest in new stores, remodels and a fresh set of high-quality games.

During the quarter, we have continued our trends of F&B same-store sales growth with an increase of over 5%. Special events grew approximately 3% and our remodel locations continue to outperform the balance of the system, nearly 700 basis points led by our most recent and significantly more cost-effective remodel prototype.

During the first quarter, we generated total revenue of $559 million, net income of $6 million or $0.16 per diluted share, adjusted net income of $8 million or $0.22 per diluted share and adjusted EBITDA of $123 million, resulting in an adjusted EBITDA margin of 22%.

As Tarun mentioned, we expect to generate positive comp sales in the remainder of FY '26, leading to EBITDA growth and a steady improvement of our margin profile.

As a reminder, reconciliations of all non-GAAP financial measures can be found in today's press release.

We believe we can meaningfully improve our margins over time by continuing improvements in our cost management. We have put significant additional effort into further improving our internal processes and controls around costs and remain steadfast in identifying material cost savings across all aspects of the business.

As you know, we have reworked our D&D store remodel strategy to bring down costs by half versus the store remodels of FY '24 and '25. And I'm pleased to report that we've recently completed 6 of these new remodel prototypes with an additional 2 scheduled to open in the coming months.

As a reminder, despite costing half of our prior remodels, our new cohort generates the same nearly 700 basis points of outperformance versus the rest of the system. And as Tarun mentioned, we're positive in both the first quarter and year-to-date in this new cohort.

We are very encouraged by their initial performance and particularly robust return profile due to the efficiencies we have found on our costs. We believe this new prototype will maximize the impactful elements of our successful store remodels, while eliminating previously ineffective spend. We expect to remodel another 10 to 20 locations in FY '27.

Our new store development continues to deliver strong returns, and we have a solid pipeline of upcoming store openings. In the first quarter, we opened 1 new domestic store and already in the second quarter, we have opened 3 additional domestic stores. We continue to anticipate opening 11 new stores at FY '26.

Looking beyond FY '26, we continue to identify optimal sites, but will remain extremely judicious in maximizing return on every dollar of capital spending. We see merits in potentially redirecting new store capital to further invest in our core through remodels, deleveraging and other forms of returning capital to shareholders. And as Tarun mentioned, we will communicate material adjustments to our capital strategy to you.

On the international front, we opened our fifth international franchise location during Q1, which is in Australia and our sixth international franchise location opened in Q2, which is in Delhi, India. We expect at least 1 more international opening in the balance of the year in Mexico City, Mexico.

As a reminder, we have secured agreements for over 30 additional international franchise stores in the coming years and we see international franchising as a driver of highly efficient growth, increasing our customer base around the world with minimal investment and risk. We have a sizable opportunity internationally and see strong upside from this asset-light growth model.

We generated $25 million in free cash flow during the first quarter which, as previously noted, is an $84 million improvement to the negative free cash flow in Q1 FY '25 of $59 million.

As a result of this free cash flow generation, we ended the quarter with $20 million in cash and $499 million in total liquidity, combined with the availability under our $650 million revolving credit facility, net of $20 million in outstanding measures of credit. We remain committed to generating meaningful free cash flow while continuing to invest in new store growth, new games in our revamped remodel program.

In the first quarter, we invested approximately $71 million in CapEx on a net basis when factoring in payments from landlords. We continue to make progress converting our strong operating cash flow to free cash flow through more strict management on capital spending by eliminating inefficient capital spend. As Tarun mentioned, this year, we continue to expect this net CapEx figure to be no greater than $200 million. Our FY '26, our entire team to squarely focus on driving savings to expand EBITDA margins while tightly managing capital spending to generate significant free cash flow.

Given our plans, management is highly confident in its ability to generate comp store sales growth for the balance of the year. Coupled with our capital expenditure discipline, we continue to expect to generate more than $100 million in free cash flow during FY '26, which we believe position us well to continue investing in the business.

Our financial foundation is strong, underpinned by high returns, a strong unit economics, disciplined cost management and clear potential to generate meaningful cash flow. This was demonstrated by our generation of $25 million in free cash flow in Q1 despite over $70 million in net CapEx investment and a 5.4% comparable store sales decline. Leadership in the Board remain focused on driving same-store sales growth and significant cash flow generation.

And with that, operator, please open the line for questions.

[Operator Instructions] Your first question comes from the line of Andy Barish of Jefferies.

Just wondering on the second half sort of inflection on same-store sales. I mean, are you assuming anything changes sort of in the external environment, just given that that's been a challenge you noted today on the call?

I think that we have more confidence in our internal strategy and execution than be really dependent on the external, Andy. We can't say anything about the external environment. Of course, we are highly optimistic that things will improve in terms of consumer sentiments.

But I think what really gives us a sense of confidence is the fact that a lot of things that we have put into motion are now becoming a reality from a guest perspective, from new games to new watch experiences to new IP partnerships. So I think that's what is giving us confidence as we get into the second half of the year.

Got you. And then just a follow-up. Are we still, I guess, seeing sort of incremental investment in labor and the value initiatives that's kind of weighing on margins? Or is that starting to be lap from the year now that you've been there, Tarun?

Yes, Andy, I'll take this. Yes, overall, we feel like we've managed our margins well in terms of the key elements that are impacting the value equation with cost of sales and labor.

From what we've been able to do from a cost improvement standpoint on cost of sales as well as what we've seen from margin improvements on our new menu enhancements as well as driving more attach, we've really been able to elevate that offering and manage our margins well.

And again, on the labor side, we continue to be as effective as we can with our scheduling at key peak times where we're really delivering on that guest experience, particularly coupled with our F&B offering.

So yes, look, we don't anticipate any material changes to those items as we go out to the balance of the year and believe we've got the structure in place to deliver on the growth that we need.

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

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

That's a great question. And that's exactly our objective that once you get this special events guests in, how do you build a durable business by getting them back again and again?

So first of all, it's a big part of our business is growing. And of course, even such as World Cup does kind of help promote that part of the business even more.

With regards to what's really driven this is that we have invested in an incredible organization. We've got an outstanding leader who leads our special events business, is -- we call him RJ, Robert Jenkins. He's got a team of people in the field who are speaking to corporates and different institutions at all times, they're leveraging a massive database that we have in making costs. This is like -- this is the kind of business that requires a massive amount of getting into details, a lot of hard work, missing a lot of cold calls.

I think in terms of the durability of the business, that's where I believe, and I strongly believe that the investments we are making into new games and the investments we are making into food and beverage and experiences matter so much because when these guests come in and they see the difference as far as the arcade area is concerned, they see how exciting the new menu is, they see the value promotions we have, that brings them back.

And Sharon, I would add with regard to the World Cup, we did launch a full 360 activation. We have a couple of new soccer inspired games, tournament themed food and drinks. We had a ticketed event on Thursdays in human crane. We're really leveraging human crane that offers some free tickets to the World Cup, some influencer-driven watch content.

So yes. So I think we're pleased with how we've executed that and to your point, and leveraging what Tarun said, once we get those people in, they get to taste our food, get their experience or 40-foot Wow Wall. We really hope they now -- it becomes part of the consideration set for them.

That's helpful. And then in April, when you saw kind of the shift in the business, is there anything to call out in terms of trends by household income and anything that you've been able to come up with subsequently that might kind of attract that customer back?

Consistent with what we have seen here recently, purely that lower end consumer is where we've seen most of that pressure. The higher end of middle consumer is consistently trading, but we're seeing more of that pressure on the low end. And that's part of really what we've been trying to focus on with our value offers, how we have really focused on revamping our rate cards with our games. However we've offered half-price games. What we've done with the Eat & Play Combos, really trying to highlight that value component so that those lower-end consumers can still have an occasion at Dave & Buster’s that is economical for them.

So we're very focused on that, but not trying to overdiscount the business and cannibalize ourselves as well. So we're really pleased with the -- what we've seen, particularly on the Eat & Play Combo side, we're really starting to promote the ability to have an entree for $4.99, you come in by any denomination of Power Card and you can attach food and beverage to it. And so we're really starting to see some really nice ice attach that we've never seen before. And -- so those are elements that we think could be really helpful in targeting this lower-end consumer.

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

My first one, I was hoping maybe you could be a little bit more specific about what you're learning around the marketing messaging, the customer targeting, maybe why some of the stuff you tried recently didn't work and how that's framing your approach going forward?

Yes, Andrew, that's a great question. Let me kind of first take a step back and share with you what our guests have been saying to us. I think as you won, they have been saying that, listen, you've got to elevate your product. And by that, I mean that you need to elevate your games, you need to elevate your food and beverage. Now with both of them, we clearly responded by investing in a ton of games, but that's only happened in the last -- almost like what, I would say, 30 days. We've talked about food and beverage. That investment has gone very well. That happened in October of last year, and we have seen a significant increase in our cash and growth in our F&B business. I think that's kind of like the first thing that the guests told us.

I think the second thing that guests have told us is that hey, from a value perspective, consumers are trading for value today, right? And they have been for some time. If you look at the competitive marketplace, a lot of ask -- a lot of offerings around value. And so again, we have promoted our half-off games. It went off really well. We've talked about dollar a day. Now that didn't really hit the bulls eye. But our new version of EPC has tested tremendously well, and we plan to launch that in the next 30 days.

I think in terms of learning, I think we -- as far as media is concerned, I think what we have learned is that you can't swing in 1 direction. So what we did at some stage, we spent all the money on television. And then we swung double way around and we invested all the money on digital.

I think consumers -- our consumers consume media in different ways and therefore, we need to have a very data-based media planning and investment. And I think that's where we had gone wrong in the past. Now in the month of February or March, we have invested in MMM with the media modeling. And that's really now helping us learn faster on what kind of target audience should you go after, what channels, which -- whether -- how much money should we be investing in linear TV, how much money should we be investing in CDV and so on and so forth. So basis that learning, we have now deployed our media a lot more effectively.

I think -- and finally, in terms of, I think, messaging, this is like we are now working in a very structured, disciplined approach of there being the primary message and then there being a secondary message. And so we invest a lot more money, of course, on the primary messaging. So if you think about the current calendar construct, our primary messaging is 10 new games. So we want every guest in the U.S. to know that there are 10 new games with exciting IP partnerships that are on -- at Dave & Buster’s arcade.

Our secondary messaging is that, hey, if you -- the World Cup soccer event is on. And if you want to watch it on massive screens and enjoy exceptional food and beverage and enjoy playing during breaks, come in Dave & Buster’s. So that's our kind of secondary message.

So we now have -- are becoming more and more disciplined. One in creating messages based on what consumers are saying they want. And secondly, using real data to define what media channels to invest behind.

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

Okay. So fundamentally, at the highest level, Andrew, our belief is that our #1 priority is to drive same-store sales growth in our core stores. So our core business is definitely a priority. And so if there's a requirement of CapEx as far as remodel is concerned, that would be definitely a priority for us.

As far as new unit growth is concerned, it's not something that we are kind of taking -- kind of turning our backs on. What we are now very, very clear is that we must be very responsible with our capital. And so only when we have supreme confidence in a new site, are we going to go put capital behind it. That we are going to be a little bit more risk averse as far as new CapEx deployment on new stores are concerned.

And so again, in summary, our core priority, our key focus is going to be our core business. We will continue to build new stores, but only when we have supreme confidence in the returns that we're going to get from that CapEx investment.

Darin, anything you wish to add there?

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

Yes. And Andrew, once again, I just want to reiterate that between Darin and I, the 1 number that we are very fixated on is the $200 million of CapEx. And so that's a finite amount of money that we have and we need to just decide where to kind of allocate that money.

Your next question comes from the line of Eric Wold of Texas Capital.

So a couple of questions. I guess, first -- sorry, clarify the comment around your expectation for positive same-store sales for the balance of fiscal '26. Is that starting today? Or does that kind of include the quarter-to-date decline of 4% and that you would expect a reversal in the remainder of the quarter to get back to positive comps for Q2?

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

Yes. That's great. And then my second question is on the games and the installation of the kind of 10 new games to date and I guess 5 more for the remainder of the year. When you sold a new game, market a new game and kind of promote that and hopefully drive traffic for that new game production, are you seeing a lift in game play outside of the new games as people come in there and kind of on the Midway and trying everything? Or is really -- is it more of a focus? Or is it more of a -- is the game plan more focused on the new games you're not really seeing a broader list?

Yes. I can take this, and Tarun can add any color to it. The best way to look at it is how these games complement the overall entertainment experience. So from the perspective of these new 10 to 15 games that we're rolling out this year. That's 10% plus of our game room for. So we really look at it as -- it is a -- it's refreshing our gaming floors, it's keeping it relevant. It's giving us that new relevant news to talk about to message to our guests and to drive visitation. It's less about, hey, can we get incremental spend while they're in our stores. That can happen. And certain games investments will do that. Human crane is a great example based on the type of experience it is, there's incrementality to that. So it's more about traffic driving relevancy, messaging getting lapsed customers in, getting repeat visitation than it is about driving more growth when they're there.

But that being said, more to come. But as we -- as Tarun has mentioned, some proprietary type of entertainment that we're working on, we believe that can unlock more check growth.

And lastly, I guess, what I'll say is as we've coupled with these new games, as we continue to find the right way to optimize the dwell time of the guests when they're in the box, we have also found that, that leads to more F&B sales, which is incremental to our check growth. So that's broadly the right way to think about it.

Absolutely. Completely concur, Darin. And Eric, just to add. I think that if you just look at the current consumer sentiment, 1 of the positive highlights for us is that we have lost -- we haven't lost it. It's not that consumers are spending less, consumers actually are spending more time on our games floor. And that's what's also helping us actually drive F&B revenue.

And so I think the key challenge for us remains how do we market that these games more effectively to consumers so that we drive footfalls. And that's kind of our primary area of focus that how do we drive our awareness, like what's the best use of media. And I think that the earlier question, I think, from Andrew on this -- this is a great question, and it's a very, very competitive marketplace out there. There are lots of messages going out from different companies. I think we remain singularly focused on finding the most effective way to communicate with that consumer and said, "Hey, there are 10 new games, and they're really exciting. They're very different to what we had on the games floor." And our belief is that, hey, this message will land with consumers. But as we continue to invest and bring new games, this is all kind of -- have a compounding impact on the brand image of Dave & Buster’s as a place to go to. It's a brand that will suddenly be back in consideration, be back in conversation, be back in culture.

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

I have a question on the adjusted free cash flow guidance. Can you help us just bridge that, that guide you're maintaining it over $100 million despite the weaker-than-expected first half. So just could you walk us through the moving pieces that allows you to maintain that guidance?

Yes, sure. Brian. Yes, I think what it demonstrates is despite same-store sales performance, we've got a lot of other levers in order to drive free cash flow. And so really, the simplest way of looking at it is our operating cash flow less gross CapEx adjusted for sale leaseback proceeds.

Again, as demonstrated by our the ability here in Q1 despite comps around 5.4% and $70-plus million in net CapEx, we're still able to generate $25 million in free cash flow. So it's -- we're able to do it through how we're managing our capital spend, how we're managing working capital, how we're managing other costs in the business. And that's what gives us the confidence to be able to reiterate that guide.

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

Yes. Yes, really, really excited about a number of areas that we're focused on right now, and it's really across the P&L from cost of sales optimization, not lessening the product for the guests, but being smarter and more efficient with our spend, how we're looking at our utility costs, insurance costs, et cetera. There are a number of areas that we've identified some very significant cost opportunities. And so without quantifying or getting into any more detail, yes, that's another great area that we're leaning into to be able to deliver on the $100 million free cash flow guide.

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

Yes, sure. Yes, look, you're in the right ballpark with the AUVs. Keep in mind, a lot or a good chunk of this latest cohort are some of our smaller prototype locations that we underwrote at those volumes. But we have continued to deliver strong circa 30% plus cash-on-cash returns even at those volumes. So still good returns for us that we remain confident in.

On that topic, as well, I guess, just maybe to put a finer point on the discussion that we had. We are in our redeployment of capital, I would anticipate that we will have about half the number of new units in FY '27. And probably FY '28 for now. So you're looking at circa 5 new units. And so just wanted to sort of firm up sort of how to think about that. So hopefully, that answered all your questions there, Brian.

Yes, very helpful.

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

We've got 2. We've kind of hit on this one, but just given your track record here over the last year and quarter-to-date on same-store sales, it's just sort of flexing that you're still highly confident that as of today, going to inflect positive on comp sales here, especially when macro is a factor -- was a factor that took down April and it took down your first quarter, but you won't give a view on it. So just curious if there's any specific evidence you can point to as to why your confidence given that backdrop?

The second question, over the last year, it was pretty clear that not having a refresh on your games was a problem. But so far, last year, you're going to refresh of your arcade. So when you think about capital allocation and resetting your business, especially on the entertainment side, which I think you're about 8 quarters in a row of down year-over-year growth, why haven't you been more aggressive in terms of refreshing that area of your business, which is clearly a concern that you've already illustrated to us?

Michael, great question. So I will kind of address both. So I think our confidence and optimism comes from the fact that there are a lot of things that we have set in motion in terms of improving our execution, whether it's marketing operations or investment in games that are all now kind of coming together. And so that's kind of one.

The second piece is really that we have kind of partnered with some very exciting IPs that we can't kind of announce just now, but we will announce in the months to come. That, again, gives us tremendous confidence that we will be a brand that will be in conversation and once brands get into culture, into conversations, you see that business and traffic kind of follows. So that kind of gives us optimism about the future.

I think your second question on why have we not invested earlier and like why are we slowing -- why we were slow. I think that is -- I think it's a very, very fair question. One of the learnings I've had is that if you just go to buy any games from any of the suppliers, you could get a very similar game that you currently have already in your arcade just painted differently. And therefore, there's actually a significant lead time in developing proprietary games especially those that come with IPs because, again, IP and partnerships take time to kind of formalize.

So we do want to invest in new games. We have the capital to invest in new games. We're just being thoughtful in what kind of games do we add to the arcade so that consumers have diverse experiences versus the same experience that they get from the existing games.

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

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

Yes. That is a great question, and even more Darin and I'll try and kind of respond to this question. So like I think the biggest competitor really is a couch at our home, because you're right, it's a mobile phone is all the games that you can play at home. And therefore, it's so important to introduce games that are truly distinctive that you can only experience at a Dave & Buster’s. And that's exactly why there's a lead time involved in kind of introducing, kind of launching them. And so we've brought in an exceptional talent about 6 months back in a gentleman called Putnam Shin. Putnam comes from -- again, Walt Disney and he's kind of been involved with several other companies innovating in the area of games. And since Putnam has come in, he has really kind of transformed our internal thinking around what experiences guests should have when they come to Dave & Buster. And so we are in a very methodical and disciplined way, kind of investing valuable capital behind it.

One of the things I am very conscious and careful about is not making -- some of our past mistakes where we have not put enough thought into the quality and not really gone into the wise of an investment and just kind of rushed in. And so once again, we are committed to investing in different kind of experiences different new games. We're just kind of being mindful of what would really drive consumer guest satisfaction and what would drive traffic. Dennis, I hope that helps.

I would just add 1 thing, yes. So certainly, value has been 1 of the key feedback from the guests on that entertaining side. And that is where we have been hyperfocused on a number of things with promotion testing, these passes that we've been testing, how our rate card is set up for the consumer. What the kiosk flows is like or half-price games, et cetera, et cetera. So we've -- our team has done a lot of great things there. And we are now -- we've addressed a lot of those in a really nice way. We are up -- based on these changes that we've made while still capturing the same fun card load. We've increased the number of games guest could play in 20% year-over-year, dwell time is up nearly that same amount. So we've done a lot of really nice things and have some additional things in place we're rolling out later this summer that they are going to further address some of these value concerns from our consumers.

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

Thank you, operator, and thank you all for joining us this evening. Dave & Buster's is an iconic brand at an obvious inflection point. We're executing a clear differentiated strategy built on innovation, operational rigor and an unwavering focus on the guest experience.

Across brand marketing, F&B quality, in-store execution and next-generation game content, we are raising the bar and early results are validating our thesis.

We want to remind you that we are still in the early stages of this transformation and we are encouraged by the momentum we are building. We're deeply engaged with our guests and our operators, listening closely to their direct feedback and using it to inform every decision we make. That connection gives us confidence that the initiatives we have in play from our evolving product offering and the Eat Play Combo to our sharpened approach to value are all resonating and we will continue to drive meaningful results.

We are already seeing it in the data, metrics on new games, guest satisfaction scores and value perception scores are all trending in the right direction. We're going to accelerate our revamped remodel program and further optimize our media spend to sharpen our approach to both new and repeat customer acquisition.

We are also cultivating exciting IP partnerships that we look forward to announcing in the coming months and are very enthusiastic about what they will mean for the brand.

There is significant improvements still to come, and we look forward to sharing with you the positive results, we are confident these initiatives will produce.

Our strategic framework is simple and disciplined, building lasting brand equity, drive top line growth with urgency, deliver a world-class guest experience at every touch point, protect and expand industry-leading unit economics and underpin it all with the right talent, culture and technology.

The financial model is straightforward. Same-store sales growth drives EBITDA expansion and EBITDA expansion drives long-term shareholder value. We are building momentum, and we are still in the early innings of unlocking this platform's full potential.

We have a major catalyst ahead with our currently live and comprehensive World Cup 360-degree activation, which is an exciting step along our clear and achievable path to sustained same-store sales growth, expanding free cash flow and durable value creation for head shareholders.

I want to thank our teams across the country. They are the ones making this all happen. I look forward to updating you on our continued progress. Have a wonderful evening. Thank you.

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

Good afternoon, and welcome to the Dave & Buster's Fourth Quarter 2025 (sic) [ 2026 ] Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded.

I would now like to turn the conference over to Cory Hatton, Head of Entertainment Finance, Investor Relations and Treasurer. Please go ahead.

Thank you, Gary, and welcome to everyone on the line. Joining me in the room on today's call are Tarun Lal, our Chief Executive Officer; and Darin Harper, our Chief Financial Officer. After our prepared remarks, 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 the discussion on our company's fourth quarter and full year 2025 results, I'd like to call your attention to the fact that in our prepared remarks and responses to questions certain items may be discussed, which are not entirely based on historical fact. Any of these items should be considered forward-looking statements relating to future events within the meaning of the Private Securities Litigation Reform Act of 1995. All such forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ from those anticipated. Information on these risks and uncertainties have been published in our filings with the SEC, which are available on our website.

In addition, our remarks today will include references to financial measures that are not defined under generally accepted accounting principles. Investors should review the reconciliation of these non-GAAP measures to the comparable GAAP measure contained in our earnings release this afternoon.

And with that, let me turn the call over to Tarun.

Thank you, Cory. Good evening, everyone, and thank you for joining our call today. I'm pleased to report that our back to back -- back to basics strategy continues to gain meaningful traction. As we discussed on our Q3 call, we saw improvement in same-store sales throughout last quarter. I'm encouraged to share that excluding the 3 days of impact from Winter Storm Fern in January, we also saw improvement throughout the fourth quarter. We have now had 6 consecutive fiscal months of improving same-store sales for the Dave & Buster's brand, when adjusting for the 3-day storm impact and ended February roughly flat in same-store sales.

We're also pleased to report that during the first fiscal month of 2026, we have experienced continued momentum with roughly flat total company same-store sales as well as growth in revenue and adjusted EBITDA. Since joining the company about 9 months ago and fully immersing myself in every facet of the business, I'm even more confident in our ability to dramatically improve operating results.

During financial year 2026, we will continue to make meaningful improvements to the business. Sharpening our marketing and promotions to drive brand consideration, traffic and repeat visitation, refining our food and beverage pricing and menu architecture, launching a powerful lineup of culturally relevant new games, implementing our improved remodel program and opening up several new stores at attractive returns on investment.

We've also significantly strengthened our leadership team and are prioritizing our field operations and culture, because we know that exceptional execution and guest experience will lead to improved traffic and sales. We believe we have the right strategy, the right team and the right momentum to create meaningful value for our guests and our shareholders.

Our priorities for financial year 2026 are clear. One, grow same-store sales; and two, generate meaningful free cash flow. To that end, during financial year 2026, this management team is highly confident in its ability to deliver an increase in same-store sales, revenue and adjusted EBITDA and to generate more than $100 million in free cash flow.

Let me now provide an update on each pillar of our back to basics strategy. First, on marketing. As we discussed last quarter, we have reconstructed our marketing strategy with a clearer, more disciplined approach to planning and execution. We created a simplified marketing and promotional calendar which effectively communicates the attractiveness of our offerings. We continue to believe that improving and optimizing our marketing message as well as our media mix are one of the biggest opportunities we have to improve traffic, sales and adjusted EBITDA. We've been laser-focused on leveraging data to balance our investment between television and digital channels, and to make sure we get the right message to the right people at the right time.

Looking ahead to 2026, our marketing reset will go even further. Our focus is to rebuild brand consideration while promoting culturally relevant promotions at attractive price points. We're also focused on building brand buzz, leveraging our exciting Instagram-worthy entertainments on the arcade. One recent example of this was our Valentine's Day promotion where we gave away diamond engagement rings to 5 lucky customers using our Human Crane. The campaign generated over 6 billion impressions and a tremendous amount of earned media value.

We're also activating our loyalty program to drive personalized messaging and increase guest traffic through frequency. We are building a scalable special events business engine that turns even into culturally relevant moments and converts our event guests into repeat walk-in customers. For example, Super Bowl, which used to be one of the worst Sundays of the year for us, ended up being a highly productive day for us this year with ticketed advanced purchase programming where guests would enjoy our massive 40-foot screens, unlimited wings and games for $24.99. Looking ahead, and as already highlighted, the FIFA World Cup represents another significant opportunity to establish Dave & Buster's as a destination of choice for major watch occasions and drive incremental traffic this summer.

Second, during the last several quarters, our food and beverage offering has been one of the earliest success stories of our back to basics strategy. As we've discussed, the percentage of guests who came into our stores to play games and then also ate food had declined significantly versus historical levels. Our menu had changed quite materially in the years following COVID. Over the course of 2025, we reversed that trend decisively. Our new menu, which is largely a return to our successful pre-COVID menu was launched in October and delivered strong results. In late 2025, traffic in our dining rooms was up meaningfully year-over-year which helped us grow our comparable food and beverage sales approximately 7% during the fourth quarter. Our F&B same-store sales have now been positive for the last 6 fiscal months through February 2026.

In addition to our new menu, our improved execution around our Eat & Play Combo offering has also been a powerful driver. Guest opt-in to EPC has improved significantly to a double-digit percentage of our guests since the beginning of 2025, growing from roughly 10% in Q1 2025 to approximately 16% in Q4 2025, demonstrating the attractiveness of the offering and seamless accessibility via kiosk. All told, the percentage of people who came into the stores -- excuse me, all told, the percentage of people who came into our stores to play games and then also ate food also improved by roughly 700 basis points year-over-year in Q4.

Third, regarding our games offering. As we have previously discussed, we moved away from introducing new games to the system over the last 6 years. This current management team strongly believes that was a mistake and that delivering new and relevant games and attractions as the company had done consistently before COVID is a key element to attracting new and repeat guests and drive traffic and same-store sales. To that end, we've been hard at work and are excited to be introducing at least 10 new games and attractions across our store portfolio in year 2026. This is the most new games we have introduced in a year since 2017, demonstrating that a renewed focus on our entertainment offering is a core and obvious pillar of the back to basics strategy.

Many of the new games we will introduce this year will be associated with highly relevant cultural IPs, which will maximize awareness, engagement and traffic. This is one of the strongest lineups we have ever assembled as a company, and it reflects our commitment to delivering experiences that are bigger, bolder and more immersive than anything our guests have seen before.

Our new lineup of innovation includes games featuring John Wick, Stranger Things, Mandalorian and Grogu. Additionally, given the exceptional demand, we have now rolled out Human Crane across the entire system. We're equally excited about our big push to leverage our highly differentiated watch offering, which includes massive 40-foot screens, promote visitation to our stores during World Cup soccer games this summer. We devised a comprehensive 360 activation around soccer this summer, which will experience new games, win items and new F&B innovation all linked to soccer.

This revitalized product offering represents a significant step forward in the quality, variety and cultural relevance of our entertainment offerings. We are combining world-class IP partnerships and innovative original concepts, and we are doing it in a way that drives both per capita spend and repeat visitation. I could not be more enthusiastic about what this means for our guest experience and our business. For year 2026, our ambition is to continue to evolve our play experience and position Dave & Buster's as the fun capital of America.

Fourth, regarding operations. We are reinvesting in our field operations with comprehensive training programs designed to empower our teams to deliver exceptional guest experiences and drive higher customer satisfaction. By fostering a collaborative culture that receives strong support from our shared services center, we're reducing turnover, enhancing engagement and creating an environment where our people and our brand can truly thrive. For year 2026, we are establishing what we call an obsession metric around speed of service with clear standards at critical guest moments such as 1-minute greet and 4-minute drinks time, supported by coaching and performance management. We are also revamping our labor model to optimize staffing and simplify operational processes.

To bring all this together and further accelerate our momentum, we are elevating our culture and people capabilities across the organization. From launching industry-leading GM incentives to investing in training programs and simplifying task for our team members, we are sending a message to the field that our success is closely tied to our execution and to our guest experience. For year '26, we're implementing leadership development programs and tools across both the shared services center and the field to strengthen our bench, improve retention and increase internal mobility.

We're also establishing our employee value proposition and unifying our culture by defining and activating a shared mission across Dave & Buster's and Main Event. We want our teams to know that we are walking the talk on the fundamental truth that our guest experience can never exceed our team member experience.

Finally, we have made continued progress on our revamped remodel program. As mentioned last quarter, we have high confidence. We have found the right layout to increase traffic and overall productivity and generate highly attractive ROIs at a reasonable cost. We recently opened 3 new remodels and we have 3 new remodels under construction and plan to open an additional 4 remodels in the next 9 months. As a reminder, remodeled stores consistently outperform non-remodeled stores by approximately 700 basis points.

As we have discussed before, after COVID, this company moved away from many of the very clear and obvious elements that made it successful. Marketing and promotions changed significantly. The F&B menu and offerings changed significantly. The commitment to annual games and entertainment investment changed significantly. The focus on operations excellence changed significantly and a commitment to refresh stores while maintaining the core ethos of what customers love about D&B changed significantly.

We are now going back to basics piece by piece to restore those elements that made this brand and this company is successful and it's working. We have made meaningful progress over the past 9-plus months and expect that progress to now even more quickly convert to financial results. We cannot have more confidence in our back to basic plan and our ability to grow this business meaningfully in the near term and over the long term.

Before I pass the call over to Darin, I'd like to spend a minute addressing a topic we have gotten from many shareholders, our plans around capital expenditures, including our investment in new stores. I want to be clear that we are highly focused on strict capital expenditure discipline, minimum ROI thresholds and generating significant free cash flow. We are consistently evaluating our capital investment plans, including our new store plans and will make adjustments as we weigh the best returns for each dollar of capital. If and as we make material adjustments, we will communicate them to you. We currently plan to spend no more than $200 million in CapEx during year '26 and to deliver over $100 million in free cash flow this year.

To talk about this more and review our financial results, let me hand the call over to Darin Harper, our Chief Financial Officer.

Thank you, Tarun, and good afternoon, everyone. As Tarun touched on in his comments, there are several areas where we have made very solid progress over the past several months. While our comparable store sales decreased 3.3% versus the prior year in the fourth quarter of fiscal 2025. Excluding the impact from the extreme winter weather, we estimate our comparable store sales would have decreased 1.5%. Excluding the impact of the winter storm, we saw sequential improvements in our comps during Q4 with period 12, the month of January, up 90 basis points at the Dave & Buster's brand year-over-year.

Also during the quarter, F&B same-store sales increased approximately 7%, special events grew nearly 7% and as Tarun mentioned, our remodel locations continue to outperform the balance of the system by approximately 700 basis points. Additionally, we drove sales improvement throughout our half-price games test on Sunday through Thursday. As Tarun mentioned, we experienced roughly flat comp sales performance to start the first period of FY '26. And while early days, we also saw year-over-year total revenue and EBITDA growth in the first period of FY '26 versus the corresponding period in the prior year.

This year, we also have seen a spring break calendar shift from March into the month of April. So we need a few more weeks before we have a good read on performance during our spring break period. During the fourth quarter, we generated total revenue of $530 million, a net loss of $40 million or $1.15 per diluted share, adjusted net loss of $12 million or $0.35 per diluted share and adjusted EBITDA of $111 million, resulting in an adjusted EBITDA margin of 21%. We estimate that the negative impact of the winter storm in January was approximately $1 million in adjusted EBITDA, and there was further EBITDA headwind of $9 million related to higher deferred revenue from the prior year. We expect this deferred revenue headwind to decrease in magnitude for the next couple of quarters and to be approximately $10 million in total for FY '26.

Our fourth quarter EBITDA margin decline year-over-year was impacted by 110 basis points related to this deferred revenue headwind, 100 basis points of higher marketing costs and the balance of the margin impact due to net deleverage coming from the 3.3% same-store sales decline, which, as previously noted, was impacted 180 basis points by the winter storm in January. As Tarun mentioned, we expect positive comps in FY '26, leading to EBITDA growth and steady improvement of our margin profile over the course of FY '26.

Our adjusted net loss of $12 million for the quarter was impacted by $24 million of incremental depreciation expense year-over-year. We anticipate a more normalized depreciation and amortization expense in FY '26 of approximately $75 million per quarter. As a reminder, reconciliations of all non-GAAP financial measures can be found in today's press release. On the expense side, we believe that we have an opportunity to drive even more cost optimization.

Over recent weeks, we have put together -- we have put significant effort into further improving our internal processes and controls and costs and have in parallel kicked off a comprehensive initiative to identify material cost savings across all aspects of our business, including bringing on a new senior resource who spends 100% of his time focused on cost savings initiatives. As a result, we believe we can meaningfully improve our margins over time.

Our new store development continues to deliver strong returns, and we have had a solid pipeline of upcoming store openings. In the fourth quarter, we opened 2 new domestic Dave & Buster's stores which, as expected, took our new domestic store openings for the year to 11 plus 1 relocation. We anticipate opening 11 new stores in FY '26 comprised of 8 new Dave & Buster's and 3 main events, and we expect them to contribute approximately 280 incremental operating weeks in FY '26.

On the international front, with the opening of our fourth international franchise location in the Dominican Republic, we expect 3 more international openings in the next few months in Delhi, India; Perth, Australia and Mexico City, Mexico. As a reminder, we have secured agreements for over 35 additional international franchise stores in the coming years, and we see international franchising as a driver of highly efficient incremental growth, monetizing our brand around the world with minimal investment and risk. We have a massive opportunity internationally.

We generated $103 million in operating cash flow during the fourth quarter, ending the quarter with $17 million in cash and $483 million in total liquidity, combined with the availability under our $650 million revolving credit facility, net of $14 million in outstanding letters of credit. In 2025, we invested approximately $270 million of CapEx on a net basis when factoring in payments from our landlords. We are making increasing progress converting our strong operating cash flow to free cash flow through more strict management on capital spending by eliminating inefficient capital spend. As a reminder, we are committed to generating meaningful free cash flow while continuing to invest in double-digit new store growth, new games, other high ROI initiatives and a more diligent remodel program.

As Tarun mentioned, in FY '26, we fully expect the net CapEx figure to be no greater than $200 million. We are constantly evaluating our capital investment program. And if we identify better uses of our capital that makes sense for the business, we will be sure to provide an update. We completed 3 remodels of our latest remodel prototype at 3 Dave & Buster's already this year in FY '26 and are under construction at an additional 3 D&B stores. We believe this new prototype will maximize the impact elements of our successful store remodels, while eliminating previously ineffective spend for a high return outcome, and we look forward to updating you on the progress in this area.

As Tarun also mentioned, given our plans, management is highly confident in its ability to grow comparable store sales, total revenue and adjusted EBITDA during FY '26. Additionally, given our improved discipline around capital expenditures, we expect to generate more than $100 million in free cash flow during FY '26, which we believe positions us well to continue investing in the business, reduce leverage and return capital to shareholders at ours and the Board's discretion.

Our financial foundation remains strong, supported by a business model that consistently generates high returns, healthy unit level performance, disciplined cost management and very straightforward potential to generate meaningful free cash flow. Both leadership and the Board remain sharply focused on executing our priorities to drive same-store sales growth and generate significant free cash flow.

And with that, operator, please open the line for questions.

[Operator Instructions] The first question comes from Andy Barish with Jefferies.

I was just making sure on the opening comments, you were just referring to February because of the March spring break shift, but anything else just obviously, the world's changed a lot in March. Anything else you care to comment on just in terms of consumer behavior, just too tough to read with if everything is shifting around in the business.

Andy, it's Darin. Yes, look, it's -- obviously, there's a lot going on from a macro perspective from gas prices, from consumer sentiment and the like. It's just -- it's hard for us to parse through what's impacted to the macro versus some of these holiday shifts with spring break and Easter. So as typical for our business, we kind of like to get through this spring break period of time and try to get a better read on things. But it's mindful. We certainly know it's out there, but it's too early for us to really parse through what impact that's having.

Okay. Helpful. I guess kind of philosophically Tarun, more value seems to be helping to stabilize the business, whether that's half price gains now more than just Wednesday or kind of eat and play and the season pass and things like that. Are we -- I guess, are we seeing the impact of that on margins sort of as we came through the back half of last year? Or do you think like the promotional stuff can be offset by more traffic? Just trying to get a sense of kind of like what the trade-off is to kind of continue to improve margins as you guys have talked about for 2026?

Andy, that's a great question. And I must say kudos to our product design and our marketing teams. They've designed the product in such a way that actually there is minimal margin erosion on either half of games or on the seasons pass. In fact, what we are seeing is that our consumers are spending the same amount of money on the games, but because they're spending more time on the games floor, they're actually consuming more food and beverage. So it's working really well. And we don't see any risk of margin dilution as a result of these value promotions.

Yes, I'll add too, Andy, with -- because we've driven more attached on the F&B side. We're seeing more sales mix sort of weighting to F&B. And again, that's not a product of less entertainment or anything happening on the entertainment side, it's us driving more revenue on the F&B side. So that inherently -- every percentage point of sales mix into F&B will have about 16 basis points of sort of inherent pressure on gross margins. But that's something that obviously we'll live with. It's incremental penny profit. But yes, as Tarun said, we've really done a nice job designing these to be very margin neutral.

Got you. And then just finally, Darin, on the net CapEx kind of finished up about $50 million more than you kind of originally had targeted. Could you give us a little sense of the variance? Was it real estate proceeds or TIs or just kind of spending a little bit more as we look at the weighting or the timing of '26 openings?

Yes. Most of it, Andy, is coming from there was $33 million of FY '24 CapEx that bled into FY '25 that was a cash outflow this year. So that was a big factor. If you net that out, it's about a $233 million number versus the $220 million guide and that $13 million incremental increase, some of that came from rolling out human cranes faster than we wanted and a few other areas that we anticipated. So really, most of it is just due to timing really from the prior year. FY '24, that bled into FY '25.

The next question is from Andrew Strelzik with BMO.

I wanted to ask about the amusement business. With the momentum you're seeing in F&B, obviously, that means with the overall comp amusement was down pretty solidly. And so I guess, to me, that kind of feels like a truer sense of incremental traffic. Correct me if you think I'm wrong on that. But I guess I just want to ask then in your confidence that the initiatives that you have in store for '26 can change the trajectory of that business, which still seems like it's under a decent amount of pressure.

Yes, Andrew, thanks for the question. As we have acknowledged that I think one of the mistakes we've made as a business is that over the past 6 years, we've not invested in amusements at all. And the number of new games in our arcade or in general, the total number of games in the arcade or partnerships with relevant IPs, that's been missing for a long time. And consumers have told us that when we've spoken to them. And so as we've done our research and as we've heard from our customers and responded to what they have said, we actually feel extremely confident that our strategy of bringing new games and bringing not only new games, but different kind of games with immersive experiences with culturally relevant IPs will attract a lot more foot traffic. And that's what we're looking for.

We're looking for same-store sales growth driven by traffic. So it's early days to share all the plans for 2026. But we are in -- I mean, in addition to the -- what we have already shared with you about these 10 games that are being launched shortly, we're actually in discussions with big brands and partnerships, again, that are very, very exciting and gives us tremendous confidence that this is going to drive consumer interest. It will lead to brand consideration, and that will drive traffic and same-store sales growth.

Okay. That's helpful. And maybe just following up on that, as you think about communicating that to guests. I mean the first point you brought up was the marketing. And so I guess from -- for 2026, I wanted to better understand exactly kind of how to think about what's changing from a marketing perspective. Is it mostly visibility or messaging and that type of thing? Or is the spend or media mix shifting in '26 versus kind of since you came in? How should we think about that?

So Andrew, I think it's a combination of several things. I think -- my very strong view is one, that you need to have the right product. If you have the right product, it just gives marketing that ammunition to fire effectively. So we believe that by investing in products, in new games, in culturally relevant IPs, we're giving marketing the right ammunition and so that's kind of one piece. The second piece really is that we've now driven every execution on the back of compelling customer insights. So these are not just kind of marketing activations that are happening because of our gut or something that someone likes. It's actually based on the foundation of what consumers are telling us. So that gives us confidence.

And then finally, to your point, that I think that we had really kind of leaned on two extreme ends on media mixes. And now because we are using data and we're using MMM, we feel a lot more confident that we are reaching the right target audience through our campaigns, both using television as well as social and digital.

The next question is from Dennis Geiger with UBS.

First question, I wanted to ask a little bit more on the free cash flow guide for the year. Anything else that you could share sort of on thinking about margins as we go through the year or for the year or sort of the EBITDA at a high level? And then within the context of the CapEx, the net CapEx guide, I forget if you've given gross or anything on kind of sale-leaseback assumptions for '26 that you could share maybe?

Yes. So on the first part of your question, yes, we're not providing any incremental EBITDA guidance for FY '26. Yes, I think one thing that might be helpful is to point you to the sort of mini deck that we had back in September that there's a slide in there with a cash flow waterfall. I think that may give you some perspective on sort of how to think about modeling this free cash flow guide a bit. When it comes to the margins for the year, overall, we feel like obviously, growing comps is what's going to drive the margin growth.

We feel like we are managing the rest of our lines pretty well between what we're doing from a cost optimization standpoint. We talked about how we're designing these promos to be as margin neutral as possible. And so we feel like how we're designing these, any inflationary pressures that we're able to manage through our cost initiatives. And then again, as we've communicated, getting it to positive comp territory, all that is going to lead and drive to margin accretion. So hopefully, that's a little bit helpful. And remind me, Dennis, the second part of your question, what was your question?

That's great, Darin. I think just a part and maybe you touched on it with the slide, I have to double check that. But just on the growth CapEx and the sale-leaseback assumption...

Yes, yes, as far as -- yes, the gross Yes. Look, we haven't sort of historically broken that out too much. However, look, I think you could look even in our K that was filed as well. There's a table in MD&A, which breaks out the gross versus net in terms of some of the sale-leaseback proceeds. Look, I'd say that's a pretty good proxy. If you take our sale-leaseback proceeds there, divided by the number of new units. Yes, I think that will kind of give you a sense for sort of how to think about gross CapEx and sort of how we're thinking about it in FY '26 as well with -- because we're opening about the same number of units.

Got it. Very helpful. And then just a follow-up question. Just as it relates to the positive comps target for the year, really helpful to get a good sense of the key initiatives and sort of where progress is there. Anything else as you guys look into your crystal ball and you think about benefits from tax rebates over the coming couple of months, you think about maybe where gas prices might be, World Cup. Just kind of factors beyond the strategic plans, how you're thinking about some of those factors and how important they may or may not be within the context of full year comp expectations?

Yes. Dennis, as far as the external environment is concerned, we cannot really predict what's going to happen tomorrow. So our focus is really on internal plans. And as we've shared before today that we are very confident that by just going back to our back to basics strategy of things that we used to do really well until COVID hit and we kind of stopped doing it. We feel very confident that, that's going to drive same-store sales growth, and we're already seeing that. We're already seeing in the last 4 periods that we've stemmed the decline. We're getting increased traffic. The business has stabilized now.

Now the big investment we are making is in new games, which, again, is like not something that is just a mere hope. We have spoken to our customers. We have spoken to our teams to understand what our guests are saying, and one of the things that they've been craving for is more games, more experiences and more immersive experiences. So we're going to give it to them, not only through like the typical arcade game, but through culturally relevant IPs. So that's kind of the second piece of the puzzle.

The third piece of the puzzle that gives us confidence is that as we shared earlier that a micro event like a Super Bowl became like a big day for us in our business. And we are now latching on to several such micro events, including the World Cup soccer, which is like honestly, in our mind, is going to be a catalyst for us to truly show our guests how compelling our watch program is. Like there's nobody in this country who has 40-foot televisions across the entire estate. Like this is -- and again, we are guilty of not promoting this enough, but now we have a really strong catalyst that gives us this opportunity.

And then finally, as I said to you that we are in conversations with big IP holders on partnerships that we should be in a position to share when we kind of come back in 3 months' time to speak to you guys. And all that in combination gives us confidence that the trend we are seeing will continue and in fact, improve.

The next question is from Mike Hickey with StoneX.

Tarun, Darin, Cory, just curious, double-clicking here again on 1Q. February, flat same-store sales. It seems like we should be very excited, but March, I'm just not getting a good feel for it. Obviously, we're last day of March here, you are 2/3 through your 1Q period. You guided to inflection in same-store sales. Is this a 1Q possibility? Or should we set expectations here, which obviously are important to maybe 2Q. 2Q I'm guessing you get some new games in. You've got the World Cup, you kick in marketing. You got tax refunds, you got no tax on tips. Is it really Q2 that we should be looking for your business to inflect? Or the February that we saw being flat, should that be a signpost for us here that your business has turned.

Mike yes, certainly, we're not prepared to sort of say what we think Q1 is going to print out and where that ultimate inflection point is. As mentioned, I mean, the spring break period of time is honestly our -- it's our high watermark during the year in terms of sales volumes. And so when you have these shifts, it's pretty meaningful to our business, and we always like to get through this 4- to 5-week period of time and have a good sort of postmortem view of kind of where we were heading into it? What did it look like blended and kind of what's our exit velocity coming out of there.

So look, we'll be very excited to share results in Q1. But at the moment, it's just too early for us to say. But as Tarun mentioned, I mean, all the areas that we're focused on, we have a lot of confidence in. I mean, I guess kind of drafting a bit off of even Dennis' questions of the income tax refunds and things like that. None of that, we sort of factored into, hey, these are going to be tailwinds that we're anticipating. But the other thing I'll say is, look, if there is some consumer pullback and consumers aren't traveling as much, having been in this space for a long time, sort of that staycation concept. D&B and Main Events are well placed to sort of take advantage of that as we get into the out of school and into the summer months as well. And that, combined with what we're doing with our 10 new games, we're really optimistic about. But I'll stop shy of sort of predicting when we think sort of that trend inflection point is going to occur?

All right. I get it. You did say very excited. So hopefully, you'll be excited when you do report. It's nice to see the attach on the F&B. I think you highlighted a lot of that was the promo activity, the Sunday through Thursday half-price games. That seemed like it was a real driver for you. You pulled back on that. I'm guessing you're going to maybe start it again when you get some new games. So that's sort of a question -- a lead-in question to the question. Ten games is great. Is there anything -- your Human Crane was phenomenal. Putting IP on to boring games is not great. I mean, when you think about the -- not to say that they are, we just don't know -- when you look at the 10 games, is there anything to get excited about? Or are you just sort of installing and sort of hope and pray here?

I mean besides the IP, like the games themselves, like is there anything compelling, and I didn't hear a World Cup game, I would have to imagine that you'd have the World Cup game. So any more color, please, on the games. If there's anything, innovation -- and if you're going to reengage that promo activity that Sunday through Thursday, we're all excited. It seemed like it was really moving traffic and you mentioned traffic was maybe what you need. That incremental traffic to split positive same-store sales. So it seems like the combination of those two will lead us to the inflection.

I'll take that. So first of all, I think, we are far more excited than you highlighted on the new games. I think that the quality -- so as you know that in the last call, we mentioned that we brought in our Chief Games and Entertainment Officer, Putnam Shin. He's had experience with several entertainment companies in the past, including Disney, and he's worked on our games innovation calendar. And it is true that in the past, we have kind of almost kind of brought in games that are more reskin than anything truly innovative. We feel actually strongly that some of the games that we are launching now are different experiences and provide a far more social experience than the regular games that arcades have.

So whether you talk about Stranger Things or John Wick these are games that will be exciting and exciting to our guests. We've actually tested these out, by the way. These are tested with guests, and we've got a lot of good feedback. We have a -- we have a game called the Perfect Pump actually, which is on the face of it, it may sound not exciting, but it's the most popular game in the lineup, and it could be because of the gas prices. But you can -- it's funny how much time our guests are spending on some of these games.

Now as far as World Cup is concerned, we have 2 games that we're bringing in that's associated with soccer. We also have the arena that we are reskinning and we are bringing in 5 games within the arena that's associated with the World Cup. And that's not included in the list of 10 games that we're talking about. So honestly, once again, I want to reiterate that these are very exciting games. These are very exciting IPs. And as we move into the rest of the year, the quality of IPs, the quality of the games will only improve from here.

The next question is from Jeff Farmer with Gordon Haskett.

Just a few follow-up questions to some of the stuff that's already been discussed. But from a same-store sales perspective in 2026, can you offer anything as it relates to what type of comp you might need to hold store level margins flat in 2026?

Yes. I -- in terms of holding flat comps, it's flat margins. I think you're looking at 1%, 1.5% sales lift, and that could keep us at flat margins.

Okay. And then -- as it relates to the Sunday, I think Sunday to Thursday LTO in terms of the half-price games, when that ran, what was the consumer response? Did you get the traffic sort of bump you wanted to in those sort of early week day parts or week parts rather?

Yes. So it was a really good learning for us because it was the first time that we've done it for an extended period of time. We had tested half-price Sundays for a while as well in sort of the latter half of Q4 last year. But yes, we saw traffic lift. We saw spend lift and there was some really good learnings for us to really understand the experience from some of our more loyal consumers versus the consumers that don't have as high a frequency level, how it impacted their spend, how it impacted their dwell time and how was their win experience impacted as well. So some really good learnings, and I would anticipate that you'll see more of that in the days ahead.

Yes. Okay. And then final question. You've been asked this in prior quarters over the last year or so. But what is the strategic upside pursuing another year of double-digit store growth on the heels of a multiyear run of same-store sales declines. Do you feel like that's what the investor community is sort of expecting of you? Or do you think that's the best way to run the model? What is the strategy in terms of maintaining that high level of unit growth as opposed to slowing down a little bit until you get the comps up?

Yes. Yes. Great question. And it's certainly the right question to ask. The overall historically, and here as of late, it's really been pinned on, hey, we continue to get good returns on these locations. The competition has not been slowing down, so it helps us continue to fill out markets and take a competitive advantage along the way. But I will say -- and one more comment. Obviously, the timetable for these is very lengthy in terms of turning the spigot slower or faster on it. And when we look at FY '26, we're under construction to some degree for every one of those locations, but FY '27 and beyond, there's obviously more flexibility.

We are -- as we always have been hyper diligent on just making sure that we're investing these dollars correctly. But I think we are even more focused on absolutely making sure that we're going to get the right return. And that deploying capital there does not keep us from investing in something that can drive comps. Up to this point, we've been able to do both. But we are very mindful of whether separate capital allocation approach in terms of new stores can be accretive to us from a same-store sales perspective. But -- but it's very mindful. This is a very, very, very important consideration as we move forward on that end.

Jeff, I just want to add to what Darin said. First of all, let me assure you that we've heard your feedback and the investment community feedback. Two, again, internally, we are committed to making sure that our core business delivers and anything that distracts us from the core business, we will not do. So it brings me to the fact that I don't believe that opening new stores that deliver very high cash and cash returns is a distraction. Now if somebody asked me "Hey Tarun, is there a growth target, are you going to open 15 stores, 18 stores, 20 stores?" My answer is going to be no, because that could become distracting.

But I think that if we had sites that were very carefully chosen for their ability to deliver access to our guests to provide D&B in a way that's more convenient to our customers to ensure that the competition doesn't take the right side we are still very, very excited and committed about these opportunities. But if we feel that, that opportunity is not going to deliver, if there's a risk associated with that, we will rather conserve the CapEx and invest that into the core business. So once again, our assurance that we hear you guys and we are committed to really focusing and prioritizing our core business and making sure that it delivers positive same-store sales growth.

The next question is from Brian Vaccaro with Raymond James.

My question was just on the fourth quarter comps and the monthly cadence. I just want to make sure my notes were right. I think you had previously said that your November comps were down -- and today, I believe you said January was up 90 bps, which would imply December was down pretty significantly. Is that correct? And if so, maybe just some color on what might have driven that in December?

Yes, Brian, our same-store sales cadence sequentially actually improved throughout the quarter. And so P10 was the softer of the 3 as we -- and again, this is adjusting for the weather impact. So yes, there is actually a sequential improvement throughout the quarter. And keep in mind, too, the 90 basis points was the Dave & Buster's brand, specifically as well. I guess I do want to highlight that just we felt like that was worth calling out.

Okay. Okay. That's good to note as well. And just so we're on the same page in terms of cadence of new unit openings there in 280 weeks implies pretty back-end weighted. Just -- is there any way to just high-level expectations kind of on the pace of openings, but if I heard the 280 weeks correctly?

Yes, that's right. Yes. You heard the 280 weeks correctly. Yes. I guess as some high level for you, we've got 3 locations expected to open in May, location in June, location in July, a couple in August, 1 in September and then 3 in November, if that's sort of helpful from a top line sort of cadence.

Yes, that's great. And then just last one, I wanted to just ask about the marketing spend. I believe that was about $93 million in fiscal '25. Can you elaborate a little bit on your marketing plans for '26, either as it relates to the spend level or the mix you might deploy between sort of traditional TV versus digital?

Yes, sure. So from a spend level, overall, we anticipate sort of traditional media spend to be very similar year-over-year. Some nontraditional type of spend may go down a little bit, some nonworking, we expect it to go and add a little bit as well. But overall, sort of that core media, we expect to be similar-ish currently. As -- in terms of mix, like we're going to continue to optimize this. I think what you'll will find as in FY '25, as we leaned more into TV, linear, CTV, et cetera, that mix may wait a little bit more into digital as we've gotten better with our modeling and targeting our consumers, but certainly not where it was 2, 3 years ago.

So I think a good blend as we work through our right mix analysis and just continue to iterate with the consumer on the right message and the right channel. So I hope that's helpful.

This concludes our question-and-answer session. I would like to turn the conference back over to Tarun Lal for any closing remarks.

Thank you, operator, and thank you to everyone for your time this evening. Let me leave you with this. Dave & Buster's is at an inflection point. We are executing against a clear differentiated strategy rooted in innovation, operational rigor and an unwavering commitment to the guest experience across every dimension of the business, brand marketing, culinary quality, in-store execution and next-generation game content, we are raising the bar, and the early returns are validating the thesis.

Our strategic framework is straightforward and disciplined, building enduring brand equity over time, drive top line performance with urgency, deliver a world-class guest experience at every touch point, protect and expand industry-leading unit economics and underpin all of it with the right talent, the right culture and the right technology infrastructure.

At the end of the day, the financial model is elegantly simple. Same-store sales growth-driven EBITDA expansion and EBITDA expansion drives long-term shareholder value creation. We are operating from a position of growing momentum. And frankly, we are still in the very early innings of unlocking the full potential of this platform.

Nonetheless, in these early innings, we have made significant and tangible progress, including; one, 6 months of sequentially improving Dave & Buster's brand same-store sales; two, roughly flat total company same-store sales and positive revenue and adjusted EBITDA growth in February; three, securing an exciting lineup of 10 new exciting games. Four, successfully turning F&B same-store sales consistently positive; five, returning to and executing on the EPC, the Eat & Play Combo, a highly successful promotion with continually increasing opt-in rates. Six, other successful promotions, including half off games, seven, successful remodels, which outperformed the system consistently by 700 basis points and lastly, eight, continued international expansion, reaching 4 total international locations with an additional 3 more to open in the next 60 days.

We see a clear path to sustain same-store sales growth, expanding free cash flow and durable value creation for our shareholders. I want to thank our teams across the globe for their extraordinary effort and dedication. They are the ones making this happen. I look forward to updating you on our continued progress. Have a wonderful evening. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Good day, ladies and gentlemen, and welcome to the Dave & Buster's Q3 2025 Earnings Conference Call. [Operator Instructions]. Please also note today's event is being recorded.

At this time, I'd like to turn the floor over to Cory Hatton, Entertainment, Finance, Investor Relations and Treasurer. Please go ahead.

Thank you, Jamie, and welcome to everyone online. Joining me in the room on today's call are Tarun Lal, our Chief Executive Officer; and Darin Harper, our Chief Financial Officer. After our prepared remarks, 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 the discussion on our company's third quarter 2025 results, I'd like to call your attention to the fact that in our prepared remarks and responses to questions, certain items may be discussed, which are not entirely based on historical fact. Any of these items should be considered forward-looking statements relating to future events within the meaning of the Private Securities Litigation Reform Act of 1995. All such forward-looking statements are subject to risks and uncertainties and which could cause actual results to differ from those anticipated. Information on these risks and uncertainties have been published in our filings with the SEC, which are available on our website.

In addition, our remarks today will include references to financial measures that are not defined under generally accepted accounting principles. Investors should review the reconciliation of these non-GAAP measures to the comparable GAAP measure contained in our earnings release this afternoon.

And with that, let me turn the call over to Tarun.

Thank you, Cory. Good evening, everyone, and thank you for joining our call today. I'm pleased to report we are making substantive progress on our back-to-basics plan. We've been hard at working our marketing engine, strengthening our food and beverage offering, improving our operations, refreshing our games offering and revamping our remodels.

This was all fruits over the course of the third quarter as we saw sequential improvement in same-store sales each month with the final month of the quarter down only roughly 1%. We are also quite pleased with our Back to Basics new menu launch, which helped contribute to positive same-store sales for food and beverage during the quarter. We are laser focused on executing our Back to Basics plan, strengthening our culture, elevating the guest experience and fully realizing the significant potential of our unique and iconic brand.

After being here for about 5 months and fully immersing myself in the business, I'm even more confident in our ability to dramatically improve operating results and drive meaningful value creation for our guests and our shareholders.

I'll now provide an update on each of the pillars of Back to Basics, which, as I mentioned, is already driving measurable improvements across the business. First, we have reconstructed our marketing strategy with a clearer, more disciplined approach to planning and execution. We have created a simplified marketing and promo calendar, which effectively communicates the attractiveness of our offerings such as the Eat & Play combo, which highlights our offerings across both food and beverage and games. We continue to improve and optimize leveraging data, our media mix and the flighting of our investment between television and digital.

Organizational enhancements are empowering our marketing to function as a growth engine driving both guest acquisition and sales performance. We have built out a comprehensive revenue management team, which, among other things, test games promotions, creative, marketing messages and other strategic components well ahead of the major launches. This process ensures that we make data-driven decisions which has led to smoother execution and strong results, which we expect to continue in the remainder of 2025 and beyond.

Second, we have made significant progress implementing our new food and beverage offerings. As we have discussed previously, the percentage of people who came into our stores to play games and then also at food was significantly lower than in the past, and it has been our goal to return that number to historical levels. Earlier this year, we made certain changes to the presentation of our existing menu, while in parallel testing a new menu, which included significantly more items and brought back numerous fan favorites.

As previously discussed, the new menu test performed extremely well, and we launched the new menu in October. It has delivered strong results and accelerated momentum in our food and beverage performance. This new menu as well as A number of other food initiatives is driving higher average checks through an improved product mix and stronger volumes in its first month, creating additional momentum in Q4.

We are pleased that during the quarter, traffic in our dining rooms was up meaningfully up year-over-year with October same-store food sales being the best month of the year a trend that has only further improved in November. As we discussed earlier this year, we brought back the Eaton play combo. And we continue to see positive momentum from this promotion, which we believe provides a highly compelling value to our guests.

We have continued to improve this offering throughout the year and guest attached to EPC has improved significantly to a double-digit percentage of our guests since the beginning of the year, demonstrating the attractiveness of the offering. We are continuing to optimize dayparts and experiences such as refining our lunch offerings and enhancing mobile and kiosk ordering.

To ensure our guests enjoy both convenience and cravable quality on every visit. Third, we are reinvigorating our field operations with comprehensive training programs designed to empower our teams to deliver exceptional guest experiences. By fostering a collaborative culture that received strong support from our shared service center, we are reducing turnover, enhancing engagement and creating an environment where our people and our brand can truly thrive. We have high confidence that these initiatives are working as our guests are staying longer in our stores and spending more while continuing to provide high guest satisfaction.

Fourth, regarding our games offering, we are focused on tightly aligning our marketing campaigns with high impact IP-driven game launches. While we aren't ready to make an announcement, we are highly confident that our upcoming 2026 lineup has highly relevant cultural IPs is which will maximize awareness, engagement and traffic.

As previously discussed, we have renewed our focus on regularly introducing exciting new games which we were able to do in 2025, but which we will be able to do even more effectively in 2026. We have significantly improved our process and plan to introduce 10 new games throughout the year. We are confident based on tests that are on the market that the games are highly marketable and will resonate well with our customers. We expect these games to drive significant repeat visitation based on data from robust customer tests.

Additionally, we expect the rollout of human crane to all remaining locations, along with its debut in main event to deliver an immediate and proven lift in sales in the coming months. Beyond our in-house innovations, we are exploring powerful partnerships at the intersection of media, sports technology, embracing the growing potential of location-based entertainment to create experiences that are truly unmatched in our category. Finally, we have commenced our revamped remodel program.

As mentioned last quarter, we've been focused on optimizing the remodel prototype to modernize and refresh the look and feel of the units at an appropriate cost. We have high confidence we have found the right layout to increase traffic and overall productivity and will generate highly attractive ROIs at reasonable cost. We have 3 new remodels under construction and plan to open 6 new remodels in the next 5 months.

To further accelerate our momentum and our execution of all pillars of the Back to Basic strategy we are elevating our culture and people capabilities across the organization to strengthen our foundation for growth and success. With the recent addition of key new executives to our leadership team, including our Chief Strategy Officer, Aldo; our Chief Growth and Partnership Officer, Portman Chen; and our Chief People Officer, Devesh Sinha. We have significantly enhanced the depth and expertise of our leadership team. Aldo, Putnam and Devesh are highly quality -- high-quality executives who have tremendous capability and experience, and they're joining our teams highlight the power of D&B as an employer of choice.

Aldo joins us from McKinsey, Putnam has experience with both Walt Disney and Merlin and Devesh comes from Yum! Restaurants. As we build our support center capabilities, we are equally committed to our field. From launching industry-leading GM incentives, investing in training programs to simplifying tasks and initiative for our team members we are sending a message to the feel that our success is closely tied to our execution and to our guest experience. By fostering a culture that is fun, collaborative and supported by the shared service center with reducing turnover, enhancing engagement and creating an environment where our people and our brands can truly thrive.

With that, I would like to turn the call over to Darin to walk through the financial results of our third quarter. Darin?

Thank you, Tarun, and good evening, everyone. Our financial foundation remains strong, supported by a business model that consistently generates high returns, healthy unit-level performance disciplined cost management and meaningful free cash flow. Both leadership and the Board remain sharply focused on executing our priorities to drive same-store sales growth and generate significant cash flow. We have clear operational levers at our disposal, and we are confident in our ability to further enhance performance and deliver long-term shareholder value.

Turning to a more detailed review of our financials. In our third quarter of fiscal 2025, comparable store sales decreased 4% versus the prior year period. We are encouraged by the improving monthly trends throughout the third quarter with relative strength in the final month of October down approximately 1% versus the prior year period. We are also encouraged by a continuation of these improved trends throughout November.

During the third quarter, we generated revenue of $448 million, a net loss of $42 million or $1.22 per diluted share, adjusted net loss of $39 million or $1.14 per diluted share and adjusted EBITDA of $59 million, resulting in an adjusted EBITDA margin of 13%. As a reminder, reconciliations of all non-GAAP financial measures can be found in today's press release. We generated $58 million in operating cash flow during the third quarter, ending the quarter with $14 million in cash and $442 million in total liquidity, combined with the availability under our $650 million revolving credit facility, net of $14 million in outstanding letters of credit.

On the expense side, we see meaningful opportunities to further optimize our cost structure. In recent weeks, we have focused on enhancing our internal cost management processes, and we have also launched a comprehensive initiative to identify material efficiencies across the business. We are confident these efforts will support continued margin expansion, and we look forward to sharing updates on our progress in future quarters.

Year-to-date in 2025, we have invested a total of $268 million in capital additions on a gross basis or approximately $155 million on a net basis when factoring in payments from landlords. Details of this can be found in the table in our 10-Q filing. We are making increasing progress converting our strong operating cash flow to free cash flow through more strict management on capital spending by eliminating inefficient spend.

As a reminder, we are committed to demonstrating our ability to generate free cash flow while continuing to invest in double-digit new store growth, new games, other high ROI initiatives and a more diligent remodel program.

Our new store development continues to deliver strong returns, and we have a solid pipeline of upcoming store openings. In the third quarter, we opened 1 domestic D&B store in Spokane, Washington and 3 new domestic Main Event stores and Taylor, Michigan, Norm in Oklahoma and Greensville, North Carolina. This takes our new store openings year-to-date to 9 on our path to 11 new domestic store openings and 1 relocation in fiscal 2025 and in line with our previously communicated expectations for the year.

With the opening of our third international franchise location in the Manila Philippines in October, we expect 4 more international openings over the next 6 months. As a reminder, we have secured agreements for over 35 additional stores in the coming years. We see international franchising as a driver of highly efficient incremental growth monetizing our brand around the world with minimal investment and risk.

As Tarun mentioned, we kicked off construction of our latest remodel prototype at 3 D&B stores at the beginning of November, there we are excited to launch in their respective markets in early 2026. We believe this new prototype will maximize the impactful elements of our successful store models while eliminating previously ineffective spend for a high return outcome, and we look forward to updating you on the progress in this area.

And with that, operator, please open the line for questions.

[Operator Instructions]. Our first question comes from Eric Wold from Texas Capital Securities.

Just a couple of questions. I guess, first off, with the marketing messages that you've been kind of switching and kind of trialing recently, can you talk about what you found has been resonating with the consumer? Is it a consumer that's still primarily driven by promotional offers, discounting and the like? Or are you seeing one that can be able to go to buy more kind of top of mind where that's marketing?

That's a great question, Eric. What is really working just now is like smart value offers. And these are not necessarily discounts, but just packages that are put as a combo offer that allows our guests to appreciate and enjoy both our games and our entertainment. Our games entertainment and our food and beverage offering. And if that is seen as compelling value that's attractive to them.

So as I mentioned, one of the things that we have done differently in this quarter and we will institutionalized as a process going forward is that we test everything with consumers. And this value messaging resonated with them. And so we kind of launched this in November, and we are seeing a lot of traction for this message.

Perfect. And then just a follow-up question on that. Your marketing, obviously, a combo, food and beverage and game, you talked about the food and beverage comps have been positive again for kind of the consecutive quarter, at least. Maybe talk about kind of what you're seeing as those consumers go into the midway, are you seeing more or less time from what you can monitor spent in the midway or more or less being spent purposing -- any kind of trends that you can talk to?

Yes, Eric, I've kind of spent now like 5 months in the company and have spent a lot of time in our midway. I think one of the things that we acknowledged in the last call was that we hadn't invested in the right level of innovation in the games area in our Arcade, and that's something that we're beginning to do. We've launched a bunch of games in 2025 and moving into 2026, actually, we already have a pipeline of more than 10 games that are associated with strong IPs and we've tested all of them. So they kind of lined up for launches in 2026. So I'm really excited about the next year as far as our games business is concerned.

In addition, we are seeing a lot of interest and excitement around the human crane. And these are now in about 70% of our Dave & Buster stores by the end of this year, we'll complete rollout across the system, and then they'll be launched in Main Event in the first quarter of next year. And as I said, these are incredible games, people absolutely love them. There is a strong tick talk or Instagram value to them, and we are seeing like less than a year kind of return on investment on these games. So yes, that would be kind of my response.

And I'll add one thing to that. Just in terms of spend within the Midway, we're continuing to see very healthy spend. And in fact, our guests are spending a bit more. And they are spending more time in the midway as well. So we continue to see very healthy spending from the consumer there.

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

Given Dave & Buster's high brand awareness, our refinements to the marketing media mix enough to change consumer perception? Or are you evaluating increased marketing investment to broaden reach and reinforce the updated value in experiencing messaging?

So Andrew, it's absolutely true that we have very strong brand awareness. I think as far as the media planning and flighting is concerned, all we are saying is that it should be more data-driven and how do we invest in the right mix as far as linear television, connected television and digital investments are concerned. And reach is going to be important, absolutely critical. But I think in addition to reach, I think our learning is that we need to invest equal amounts of money in converting those into real customers. So it's really kind of now using a high level of science and system and processed to invest versus kind of more guesswork that and impulse as far as media investment is concerned.

Got it. That was helpful. And then 1 quick follow-up. You've mentioned a refined remodel prototype coming soon that you deliver stronger results at a reasonable cost. What have been the biggest learnings as you finalize that format? And is the aggregate remodel outperformance, you've called out at roughly 700 basis points above the system still holding directionally?

So both Darin and I can take this question. So first of all, yes, we're still seeing a 700 basis point kind of impact -- a positive impact of remodels. I think our biggest learning is that remodels work and that's kind of almost a fundamental kind of truth, right, that you need to refresh your access to ensure that your guests have the right experience. Our learning was that we had kind of overinvested capital in areas that did not really impact guest experience and kind of -- it was kind of a wasted investment. And through, again, consumer insight work, we have now found like the areas where there is a direct correlation between our investment in guest experience and therefore, repeat visit and we are focusing on that now. So we kind of -- we are saving a significant amount of capital now in our remodels. And as Darin said, that's kind of like a general message that we just will be far more responsible with our CapEx and general cost management. We will continue to invest. We have the capital to invest, but we'll use it purposefully and meaningfully.

And our next question comes from Sharon Zackfia from William Blair.

It sounds like the food is doing tremendously and is to bolster trends. I'm curious, as you look throughout the October quarter, did you see entertainment comps as well improve as the quarter progressed?

We did Sharon, we did see improvement on the entertainment line as well. And obviously, we believe we've got a lot more to leverage. We've been talking about our F&B and menu for a while for a few quarters now. And so we're really proud of the performance that we're seeing there. And so now that focus on the entertainment side is something that we anticipate seeing some good returns there as well. But we have -- we did see sequential improvement in that line.

And then I know you mentioned continued improved trends in November. Should I Think about that as being similar to October? Just curious on that. And then on united -- margins, I mean there's been pressure there for a while. Obviously, sales have been pressured. What kind of comp do you think you need to get expansion on that line?

Yes. So your first question, yes, you interpret that to say November is performing similar to October. Look, in terms of what type of same-store sales. Look, we get to flat and positive same-store sales growth. We can manage and expand margins. While I think you'll see we were able to manage our margins relatively well despite a 4% same-store sales decline. We believe there's a lot more opportunity to reiterate what I mentioned. We're very focused on a number of margin enhancement initiatives right now. But look, we can grow margins with comps flattish. And so that's obviously what we're focused on.

[Operator Instructions]. Our next question comes from Brian Vaccaro from Raymond James.

So you noted the comps improved through the quarter, obviously. I wanted to ask just the 2-year stack, it does look like it decelerated sequentially versus the second quarter. So maybe you could just kind of elaborate on how you view the underlying trend? And then did I hear correctly, Darin, you said the November comp similar to October, so down around 1%. I just wanted to clarify that, that was the total comp.

Yes. Yes, that's right, Brian. Yes. No, you're absolutely right. From a 2-year stack perspective, I think it's -- there was some deceleration. And that was largely driven by the softer start to the quarter relative to where we ended. But if you look at it from a 2-year or a 3-year perspective, you see a little deceleration on that front. But we continue to see those sequential trends in the areas that we're focused on, which really gives us a lot of optimism around being focused on the areas that can really drive that same-store sales growth as we go through the quarter and into FY '26.

Okay. And then just a quick follow-up. I'm curious just how the walk-in versus corporate events business performed in the third quarter. And just heading into the important holiday season, could you give us a sense of how holiday bookings look or just broadly how you expect the corporate piece to perform kind of thinking year-on-year through the fourth quarter?

Yes. Yes. So for the quarter, our special events was mid-single-digit growth year-over-year. And we're very pleased with the performance that the team has executed on there. As a reminder, we have effectively completed the rollout of in-store sales managers, which has really helped us drive even stronger performance in those locations. And as we look at pacing for the balance of the quarter, which is obviously an important time for us, we're pleased with where we are. and anticipate continued year-over-year growth in Q4. So we feel good about where we're going to end the year.

And ladies and gentlemen, with that, we'll be concluding today's question-and-answer session. I'd like to turn the floor back over to Tarun Lal for closing remarks.

Thank you, operator, and thank you all for joining. In closing, David & Busters is in the midst of an exciting chapter, one fueled by innovation renewed guest-first mindset and the passion of our incredible teams. We're sharpening execution and elevating every part of the experience from marketing and menu quality to operational excellence and games innovation. The results are already taking shape, reflecting the power of our iconic brand and the effectiveness of our Back to Basic strategy. With growing momentum and significant untapped potential, we are confidently positioning Dave & Busters for sustained growth in same-store sales and cash flow and meaningful value creation for our guests and our shareholders. I look forward to speaking with you again soon. Have a great evening. Thank you.

And with that, we'll conclude today's conference call. We do thank you for attending today's presentation. You may now disconnect your lines.

Good afternoon, and welcome to the Dave & Buster's Second Quarter 2025 Earnings Conference Call. [Operator Instructions]. Please note, this event is being recorded. I would now like to turn the conference over to Cory Hatton, Vice President, Head of Entertainment Finance, Investor Relations and Treasurer. Please go ahead.

Thank you, operator, and welcome to everyone on the line. In connection with today's call, you can find our earnings release, 10-Q and a supplemental deck titled September 2025 Investor Update that has been posted to the Events and Presentations section of our Investor Relations website. Joining me in the room and on today's call are Tarun Lal, our Chief Executive Officer; and Darin Harper, our Chief Financial Officer. After our prepared remarks, 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 the discussion on our company's second quarter 2025 results, I'd like to call your attention to the fact that in our prepared remarks and responses to questions, certain items may be discussed, which are not entirely based on historical fact. Many of these items should be considered forward-looking statements 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 these risks and uncertainties have been published in our filings with the SEC, which are available on our website. In addition, our remarks today will include references to financial measures that are not defined under generally accepted accounting principles. Investors should review the reconciliation of these non-GAAP measures to the comparable GAAP measure contained in our earnings release this afternoon. And with that, let me turn the call over to Tarun.

Thank you, Cory. Good afternoon, everyone, and thank you for joining our call today. I am deeply honored to take the helmet and collaborate with this talented team to drive innovation, growth and the company's next chapter. Our brand strengths and unique national footprint provide a powerful platform to deliver meaningful social connections at scale. I have spent a lot of time over the past 6 months researching the space and analyzing this business, including meeting with many key members of the team and the Board, and this is prior to joining while I evaluated this opportunity. This prework has allowed me to align quickly on areas of success as well as missteps and develop my own views on the clear focus areas of near-term opportunity.

Importantly, this largely aligns with the strategic plan put in place by Kevin Sheehan, our Interim CEO and the current Nonexecutive Chair of our Board. Just a little bit about my past experience. I officially joined this iconic brand in July with more than 30 years of leadership experience at Yum!, including recent roles as President of the KFC U.S. business, being the Global COO of KFC and Managing Director across key international markets. I have overseen marketing, operations and development in multiple geographies across the world. I've built and developed high-performing teams and together with them, have led multiple successful turnarounds in key markets.

As a team, we drove strong same-store sales and profitability and catalyze breakthrough development of new stores. I'm disciplined and tenacious and strongly believe that executional excellence behind a few big strategic priorities can unlock significant value creation. To that end, I'm confident that my extensive U.S. and global experience uniquely positions me to drive strategic and operational excellence and financial success at Dave & Buster's. Dave & Buster's is a phenomenal business with very addressable challenges that I'm very confident we can overcome as a team. In my first several weeks here on the job, I've invested time training in stores and have gained what I believe is a solid understanding of our products. I've also developed a better appreciation of our team member and guest experiences.

I have traveled across the country and witnessed firsthand the pride and dedication of our teams out in the field. The field, which is where the majority of our teams, our products and our customers are, is the best training ground. There is no better way to learn than the ground up. My manager and trainer in my training store was [ Garrett ], who graciously invested time with me and taught me everything from the most popular games to cooking the most popular items like wings and the burgers and making some of the guests' favorite cocktails like the million dollar margarita. Spending time with our guests and team members reminded me that Dave & Buster's is more than just a business. It's a place where people connect, celebrate and create lasting memories.

I truly believe that the strength of our brands and the passion of our people give us a foundation to reach far beyond what we've already achieved. I look forward to shaping a vision that not only drives growth but also deepens our role as a destination where joy and connection thrive. As you may recall, the management presented a formal investor plan a few years ago that I studied in detail. My conclusion is that the principles and initiatives outlined in that strategy are generally right. However, the true measure of success depends not only on the strength of the ideas, but on the quality and consistency of execution. I believe there has been a very clear executional failure that will be rectified.

My intention is to build on the sound foundations of that plan, assess where we can raise the bar and provide a clear focus that will allow us immediate and long-term growth and value creation, which we will get into a lot more detail with my presentation later on in the call. My immediate focus is clear: reinforce our guest-first culture, deliver memorable experiences and drive meaningful growth in sales, cash flow and shareholder value. We have significant key strengths. We are a true category of one with no peer at our scale. Our $1 million midway appeals broadly across demographics, driving repeat visits while our unique ability to serve multiple occasions, play, watch, eat and drink creates meaningful social connections that keep guests coming back.

Our challenges are also clear: sharpening brand distinctiveness, improving retail marketing, strengthening value perception and delivering an excellent customer experience across both F&B and games. Tackling these areas will be critical to unlocking the full potential of our business. With that, and before getting into more details on my initial observations and strategic plan updates, I would like to turn the call over to Darin, our CFO, to walk us through the financial results of our second quarter. Darin?

Thank you, Tarun, and good afternoon, everyone. Overall, our financial position remains strong, underpinned by a business model that consistently delivers high returns on new unit investments, strong unit level economics, disciplined cost control and a robust free cash flow generation. The leadership team and Board remain focused on executing against our priorities to drive both top line growth and sustained cash flow. We are confident in the levers available to further improve operating performance and enhance shareholder value.

So turning to a more detailed view of our financials. In our second quarter of fiscal 2025, comparable store sales decreased 3% versus the prior year period. We updated you on our last call that comps for the first 5 weeks of the quarter were down 2.2% versus the prior year period. We were negatively impacted in the second half of the quarter by the July 4 holiday falling on a Friday this year versus a Thursday in the prior year. And our same-store [Technical Difficulty]

We seem to have lost the connection with the speakers. We'll reattempt to rejoin them shortly. [Audio Gap].

Ladies and gentleman, the speakers have rejoined us. Please continue.

All right. Sorry for that technical delay, everyone. Picking up where I left off. We're confident we are focused on the right priorities in the second half of 2025. And as a reminder, we are lapping particularly soft numbers in the balance of the year. During the second quarter, we generated revenue of $557 million, net income of $11 million or $0.32 per diluted share. Adjusted net income of $14 million or $0.40 per diluted share and adjusted EBITDA of $130 million, resulting in an adjusted EBITDA margin of 23%.

As a reminder, reconciliations of all non-GAAP financial measures can be found in today's press release. We generated $34 million in operating cash flow during the second quarter, ending the quarter with $12 million in cash and $443 million in total liquidity, combined with the availability under our $650 million revolving credit facility, net of $14 million in outstanding letters of credit. Year-to-date, we have generated $130 million of operating cash flow. We ended the quarter with net total leverage ratio of 3.2x as defined under our credit agreement. Year-to-date, in 2025, we have invested a total of $193 million in capital additions on a gross basis or approximately $110 million on a net basis when factoring in payments from landlords.

Details of which can be found in our table in our 10-Q filing. As we mentioned to you before, we are focused on converting our significant operating cash flow to free cash flow through more strict management and capital spend, eliminating ineffective and inefficient spend. We're committed to demonstrating our ability to generate free cash flow while continuing to invest in double-digit new store growth, new gains, other high ROI initiatives and a more diligent remodel program. In the quarter, we closed on a sale-leaseback transaction for the real estate of 2 open and operating Dave & Buster's stores and entered into a build-to-suit takeout commitment for additional real estate assets of future Dave & Buster's and Main Event stores with an institutional real estate investor.

In the quarter, we received approximately $77 million in funds related to these properties. We are pleased with the outcome, the executional abilities of our team and the support of our real estate partners to close on this important transaction for our company. This transaction significantly enhances a long-term partnership with a very large real estate capital provider, solidifies a long-term funding vehicle for our robust pipeline of future new store openings, monetizes our real estate at attractive valuations underwritten to reflect our successful track record of new store openings and future earnings power of our superior 4-wall economics and ultimately provides a significant amount of liquidity for us to continue to make accretive investments to grow our business.

Our new store development continues to deliver strong returns, and we have a solid pipeline of upcoming store openings. In the second quarter, we opened 3 new Dave & Buster's stores in Freehold, New Jersey; Wilmington, North Carolina; and Reno, Nevada. Already in the third quarter, we have opened 1 additional Dave & Buster's store in Spokane, Washington and 2 additional Main Event locations in Taylor, Michigan and Norman, Oklahoma. This takes our new store openings year-to-date to 8, and we now expect a total of 11 new store openings in fiscal 2025, the midpoint of our previously guided range of 10 to 12 new stores.

With the opening of our second international franchise location in India in August, we expect 5 more international openings over the next 6 months. As a reminder, we have secured agreements for over 35 additional stores in the coming years. We see international franchising as a driver of highly efficient incremental growth, monetizing our brand around the world with minimal investment and risk. Now with that, I will turn the call back over to Tarun for some additional thoughts and materials before opening up the line for questions. Tarun?

Thank you, Darin. Now I would like to walk through a short presentation to put some structure around my initial observations and the ultimate framework for our go-forward plan. So starting with a bit more detail on my initial observations, many of which should be stating the obvious to you as investors. We have a very strong iconic brand with excellent brand recognition in Dave & Buster's and of course, associated with that very strong brand awareness.

Our customers love us. We provide a fun-filled customer experience and receive strong guest satisfaction scores, which translates into a loyal customer base. We have an exceptional business model with best-in-class scale and unit economics along with highly compelling new store economics. We made specific execution missteps that resulted in lack of awareness of our offerings and inconsistent operational execution. We have high confidence that we will improve performance in the near term by executing on focused improvements. Our value proposition remains highly attractive, and our back-to-basics approach has shown meaningful progress.

I genuinely see our stock as materially undervalued in the public markets with significant upside potential. I'm truly excited with this opportunity to work together with an outstanding team and Board to unlock significant shareholder value in the near term. Moving to the next slide. In reviewing our performance, it became very clear where our approach was falling short. Starting with what was not working column on the left. So in marketing, we moved away from TV completely, and we had an unfocused promotional strategy going from a few targeted promotions to weigh too many promotions. In food and beverage, we leaned too heavily on appetizers and shareable and cut most of our highest revenue menu items.

Operationally, we moved too fast, creating disruptions and breakdowns in communication between corporate and the field and a loss of focus on training. In games, we pulled back almost entirely on new games introductions, reducing them by almost 80%, along with a very complex pricing structure. These missteps limited our ability to drive traffic, sales and brand relevance. Our remodel program, while moving the needle, also missed the mark, overspending against plan with a prototype that underperformed potential with limited marketing support. Finally, poor CapEx discipline translated to significantly lower than normalized cash flow generation.

Now turning the right-hand side of what has worked. Recently, we have made meaningful progress in several areas. In marketing, we reintroduced TV advertising and sharpened promotions with fewer, more focused offerings. In food and beverage, we improved attach rates with our Eat & Play combo and through stronger positioning of entrées and a revamped and successfully tested new menu. Operationally, we have simplified our initiatives, which I will touch on more in a later slide, and we have rebuilt our corporate field communication as well as our training teams, which I'm particularly passionate about given my background as an operator.

In games, we have moved quickly to introduce 10 new titles in '25. With remodels, we have controlled spending, and we have a new prototype that we will be getting out in the market very soon that we are encouraged will drive better results at a fraction of the cost, and we will couple it with better marketing support to drive awareness with traffic to really showcase the newness of the asset. Finally, on cash flow, we have pursued a more capital-light new store financing, as Darin mentioned earlier, that will bring down upfront expenditure, and we have successfully cut low ROI and wasteful CapEx now.

Together, these actions are strengthening our performance and positioning us for sustained growth. Moving to the next slide. On the back of the things that are working, on this next slide, we demonstrate progress made so far. Our back-to-basic strategy with Kevin drove a material improvement in same-store sales. It's still short of where we ultimately want to be, but has been a significant stabilizer. Our food and beverage and special events business are turning solidly positive, driven by our winning promotions, menu revamp and investment in field sales managers.

Our company continues to benefit from the recent and significant improvements in our special events business, which drives awareness, subsequent trips and deeper brand engagement. While our overall same-store sales special events revenue has been up 6% year-to-date, the Dave & Buster's brand comparable special events revenue was up nearly 10% year-over-year and 20% over 2023 in the second quarter. We continue to achieve sizable 40%-plus returns on our new stores, and we have opened 22 since the start of fiscal 2024. While we did not execute our remodel program to date as we did like, these new assets are outperforming non-remodel stores by 700 basis points, which continues to highlight the opportunity to do more remodels at an appropriate cost and with the right elements.

Moving to the next slide. As you all know, our company unveiled a comprehensive strategic plan at our Investor Day in 2023. I believe this plan had the right ideas. We just attempted to implement too much at the same time. I strongly believe that focus on prioritized execution is key. The areas that I am most focused on at the moment are: one, marketing, where we look to drive incremental traffic by improving consideration and frequency by improving the overall marketing message through an optimized media mix and leverage our large national sports viewing platform; two, food and beverage, improving all aspects of the menu and attach and spend per customer; three, operations, continue to repair communication between the corporate and the field, reemphasize training and reenergize the focus of the field to provide a high-quality guest experience.

Four, games, introduce a marketable lineup of 10 or more new games each year. We scrambled in fiscal 2025, 2026 and beyond will be awesome. We will push harder to include exclusive titles and more culturally relevant IP. And finally, 5 remodels, modernize and refresh the look and feel of units and improve the layout to increase traffic and overall productivity. Moving to the next slide, what are the immediate near-term goals. I want to take this opportunity to make it very clear, and this is internally too, that my near-term goals are to grow same-store sales and generate and grow free cash flow now. We will do this by narrowing our focus to the 5 areas outlined on the prior page.

And I'm just reminding relaunching our marketing engine by implementing an effective integrated marketing strategy and continuing to press on the success of local store sales managers and simplifying our value messages. Two, transform our food and beverage offerings with the launch of our Back to Basics menu nationwide this quarter; three, improving operations with a renewed focus on delivering an exceptional guest experience; four, refreshing our games offering to continue to introduce over 10 new marketable games to the midway each year; and finally, revamping our remodel program with a new prototype and appropriate marketing support.

I also wanted to share with you all that we are not waiting to make changes and implement our refocused strategy. We are making changes and implementing them real time. So coming up, we have a strong fall campaign, and we are excited to have launched our new fall season pass, giving guests unlimited daily gameplay, exclusive food and beverage discounts and 3 value-packed options to choose from. Building on the success of our summer pass, this program creates even more reasons to visit Dave & Buster's throughout the season. With everyday value and experiences that bring people together, we are reinforcing Dave & Buster's as a go-to destination for fun this fall. We're also putting the final touches on our winter pass that we will debut in the fourth quarter.

Our recently launched football watch offering complete with specials like 10 for 10 wings, continued enhancements to the leaderboard competition on our arcade floors while continuing to run our very popular evergreen promotions of the $19.99 Eat & Play combo sets us up for good momentum. Capping off the fall football festivities is our latest midway challenge, the 2-minute drill, where we invite football fans and gamers to compete for national and local leaderboard positions each week, looking to break single season passing records over the course of the season.

We will be debuting our new back-to-basics menu in October and are doubling down on the rollout of our very profitable human crane to additional Dave & Buster's and the main event stores. We will also be launching our revised remodel program in the coming weeks. Moving to the next slide. I wanted to touch briefly on our financial position and leave you with a few key takeaways from my position. We have a strong cash flow and a strong balance sheet. This business will generate cash flow and here is the profile of the cash flow generation. We have a very strong balance sheet with no near-term maturities and significant liquidity to invest in our strategy.

Moving to the next slide. I also wanted to touch briefly on our current valuation. Comparing against our broad peer group, there's no other way to say it than this business is extremely undervalued today. Based on the strength of our brand, the basic economics of the business, the strong cash flow generation and the significant potential of the business, I'm very confident we are worth a lot more than we are today, which leads me to my final point in the presentation.

As you all know, I personally signed up to a compensation package tied to a near-term achievement of $675 million of annual EBITDA. As you can see from this page, and as you all know well, I think the point is important to make, nonetheless, there is very meaningful upside in the price of our stock and the value of our business based on very achievable financial results in the near term. I'm personally highly motivated and aligned to drive this business forward, and I look forward to our shared success. And with that, operator, please open the line for questions.

[Operator Instructions]. The first question is from Jeff Farmer with Gordon Haskett.

And welcome to Tarun. Good to have you on board. I might have missed this, but in the release, you noted that 3Q same-store sales to date are consistent with what you saw exiting Q2. The call did cut out, but did you guys mention those numbers more specifically, what those same-store sales trends look like?

No, we did not. We didn't quantify those. But -- but with 5 weeks into Q2 last year of down 2.2% and we printed down 3% for the quarter, you can kind of back into what the second half looked like. And our trends are pretty consistent with that in Q3.

Okay. I only bring it up because you mentioned July was sort of a little bit of a low watermark with the calendar shift. So I didn't know if things have gotten a little bit better. So I'll move on from that. Again, in the prepared remarks, you did call out value perception as one of the challenges that Dave & Buster's is facing. Can you just elaborate on that and what you think some of the opportunities are with value perception?

Yes. Thank you for the question and for the welcome. We have a very strong value proposition. I just think that we have marketed in a way that has confused our customers. And so we are currently working on simplifying the messaging and that messaging should go out as we execute our next marketing window. So I think it's not about not having the right value. I just think that both our retail marketing and our general communication has created confusion on the value ladders, and we know how to fix this now.

The next question is from Andy Barish with Jefferies.

Welcome. I guess just -- this was the first quarter where the same-store sales were kind of close, but margins missed. So I'm just trying to get a sense of kind of where things shake out. I know the food mix is higher, which is lower margins. But is your impression, Tarun, that there is some reinvestment needed in the business and just kind of trying to gauge where -- what that means for kind of fourth quarter margins. I know 3Q is sort of the low of the year. But yes, just trying to level set on sort of where you think margins are near term in the business.

Yes. Andy, this is Darin. I'll take that question. Yes. So in the quarter, we had a few things at play. When you look overall at our cost structure and our cost increase year-over-year, 1/3 of our cost increase just in terms of just raw dollars is coming from new units. We've got another 1/3 that we were lapping a number of credits in the prior year and some other one-off items. There were some insurance adjustments in the prior year. There were some other franchise tax items impacting EBITDA in the prior year.

And then we had some unusual sort of one-off legal type costs as well this quarter. And then on top of it, sort of the remaining 1/3 was a mix of -- there was some reinvestment in the game room floor and the stores from an RM perspective, particularly as we geared up for the summer of games when we rolled out all of our new games. We wanted to make sure that, that experience was tight and our games were operable. But we believe that's a bit of a high watermark on that and the second half of the year is not going to be at those levels, but that was some incremental cost.

And then obviously, we had some incremental marketing costs as well in the quarter. So when we think about the second half of the year in terms of where we've seen sort of that EBITDA margin miss versus the prior year. We anticipate that, that will be very much moderated in the second half of the year, not only through, we believe, just more profitable top line performance, but also us not lapping some of these items from the prior year and not having some of these one-off items that impacted us for the quarter.

Got you. Very helpful. And then can you just kind of give us a sense of sort of getting back on marketing and value with Eat & Play, where that has kind of mixed of late versus maybe versus historical levels or something kind of give us a sense of how the back to basics is working?

Yes, sure. So we've continued to experience some nice opt-in on the EPC. We're still at about 8% to 10% opt-in rate, which we like, which has -- which is higher than where things have been historically. And for a few reasons. Number one, I think we've done a really nice job with the offers within the Eat & Play combo. We're seeing food upgrades on 30% of our EPC mix, which we really like. We're also -- as mentioned before, we're now offering this Eat & Play combo on the kiosk. So for those guests, that might just be coming in intending just to play games, we're now presenting to them a very valuable offer on the kiosk, which is really driving some nice attach for us there that we really like.

And so overall, we're really liking our performance. We're seeing a nice upgrade on the Power Card piece as well, including an all you can play upgrade and a $75 card upgrade. I mean that's representing almost 1/3 of our Eat & Play combo opt-ins as well. So, really liking that. And to Tarun's point, this is a really good value message that we know our guests like and our operators really like executing on as well.

The next question is from Andrew Strelzik with BMO.

My first one, Tarun, maybe if you take a step back, you mentioned in some of the prepared remarks some of the prior turnarounds that you led in your prior roles. And I guess I was wondering if you could maybe compare or contrast what you're seeing at Dave & Buster's with that prior experience. And I guess I'm wondering, in particular, it's such a different type of brand, different type of concept than in your prior roles. So I guess where do you see the similarities that you can draw on and maybe some of the differences that might take a little bit more learning?

That's a great question, Andrew. So my view, Andrew, is that when it comes to business transformations, there are generally more similarities than differences. And if I really think about it from a short-term perspective, the brand has kind of lost its distinctiveness. There's generally a value perception at play. And so if you can kind of sharply communicate value in the short term through a really distinctive communication, you can drive some levels of same-store sales growth.

But really, what is very important is that in the medium to short -- in the medium to long term, 2 things are very, very important. One is making sure that you have the right capability on the team and you have the right culture in the business, which is really guest-first culture, a true obsession with guests. And the second piece is really ensuring that your brand positioning is right, and there's clarity that your brand has that consumers truly understand.

So in those areas, there is complete -- there is similarity between what I've done in the past and the challenge at Dave & Buster's. I think the one difference for sure is that there is additional complexity at Dave & Buster's because not only do you offer food and beverage here, not only do we offer food and beverage here, there's also a massive fun and entertainment business that's almost an anchor for us. So it's a different product for me that I'm trying to understand. And that's why I spent so much time in the field, like learning from the ground up. So I think the product is where the real distinction is. But as I said, in my mind, with most of these transformations, there are more similarities than differences.

Okay. That's helpful context. And then maybe I wanted to dig in a little on your comments about the poor CapEx discipline and I'm curious about some of the ways you plan to evolve that. But in particular, I'd love to hear your thoughts on new store growth and continuing to open double-digit new stores at a time when you are trying to affect a lot of change and the comps have been under pressure. And I know the 40% returns, we've heard that number a lot over time.

I think the investment community probably has a hard time with that number just given the performance over the last several years. So just would love to get your perspective on the CapEx evolution here and the new store growth.

So Andrew, let me first request Darin to respond to one part of the question, then I'll share my thoughts on this too. Darin?

Yes. So as you noted, the 40% return is obviously -- and that's a year 1 cash-on-cash return that is very advantageous for us. We continue to have the ability to find great sites, staff them appropriately despite the focus on the core business and find really great partners to help us with our capital for ground ups. So I think we continue to feel like we can open these at $9 million to $10 million net CapEx each. And that's an area that, as we've discussed before, look, we can lever up or down there depending on the needs of the business.

But where we currently sit with the returns, with the pipeline that we have in front of us and how we think about competitive positioning over the medium and long term, it's an area that we're still very, very bullish on. So with that, Tarun, any other context you want to provide?

Yes. Thank you. Thank you, Darin. So just to add to that, Andrew, in my perspective, adding 6% to 7% of growth is, in my mind, not really a distraction. Clearly, our focus is on growing same-store sales growth. And so the core business is definitely our primary focus. And to that end, if you think about -- if you look at international, where I've spent a lot of my time, that offers tremendous growth opportunities. But like for me, the real focus is the core business in the U.S.

And I strongly believe that we can get the core business humming and continue to add 6% to 7% growth through net new unit addition without distracting the team. And I believe this not only because of my past experience, but because I spent a lot of time in the field, this sort of growth really excites and energizes the team. Growth is -- it makes them feel like they're winning, and it's quite -- it's very motivating. So we will continue with this level of growth until we kind of feel that we are in a stronger position. We've got our momentum -- sales momentum back, and then we would explore whether we want to change this number or change this target in the future.

[Operator Instructions]. The next question is from Jake Bartlett with Truist Securities.

Welcome, Tarun. I look forward to hearing from you over the next number of years. My question is on the strategic game pricing. We had done a check and just found a pretty big change in the pricing over the last -- I'm not sure how much time exactly, but at least the last few months and then even more recently, where the pricing has gone to one tier essentially. Part of the prior plan had been multiple tiers. And it seems like there's one level of kind of pricing across the system now. And it also seems like the average price per ticket is significantly lower than it had been under the prior plan.

So the question is, one, what kind of impact is that having on the results kind of near term, and we look at positive food and beverage same-store sales, but negative same-store sales overall. Is that contributing to it? And then also why the change? There were some questions earlier about value. This seems like a pretty big step towards the value direction and just the thought process around it.

Yes. Jake, Darin. Yes, I'll take that. We -- going back to Tarun's comment on just the value proposition and the value perception with our guests, the game pricing was a really large focus of that. And to go back to last year, when you think about what the brand did in terms of increasing rate card pricing as well as increasing game level pricing at a time where there was not investment in the midway. It was really -- it was a combination that really led to a less than advantageous value proposition for the guest.

And so what we did really starting in April was we started testing some various rate card optimizations where we really focused on the entry point for the rate card, how many chips that you got with some very defined objectives around value. And then we -- and the game level pricing, what we really wanted to do was allow the guest to spend the same amount that they've been spending, but have more time in the midway. We wanted to increase dwell time. We wanted their power card to extend longer and for them to enjoy their experience more because that was key findings that we got in consumer research after the fact.

And then the last leg is managing margins through strategic win pricing. So we've done a number of different tests on that over the last several weeks, the last few months. And we think we're in a nice spot right now. We're starting to see growth in our average card loads, but also provide a much, much better value to the guest. And so look, this is an area that we're going to continue to be smart, continue to optimize.

And I think there still is the opportunity for us to look at that different sort of regional pricing. But in terms of simplicity of rollout, simplicity of messaging, this was an area that we really wanted to focus on.

The next question is from Eric Wold with Texas Capital Securities.

I just want to dig in a little bit on the kind of the same-store sales trends in the quarter. I know you kind of gave us the down 2.2% in the first 5 weeks. I know in the last call, you talked about some optimism around the Memorial Day holiday and kind of what you're seeing in June with some positive days in June. Maybe a little kind of what you saw kind of as you went into July, other than the calendar shift and maybe some comparisons with an earlier school start versus last year.

Was there any shift in terms of spending habits or kind of the way the consumer is reacting that you kind of was different from what you were seeing in the last call, kind of really shift in terms of the way the consumer is spending once you were in the store? I know you don't break out attendance versus spend. But kind of once they were in there, were you seeing any kind of shift in terms of their habits once they're in the locations?

No, really didn't see any change in spending. That was pretty consistent. We -- I think as we continue to determine what the right messaging is, particularly in this environment, our learnings with the Eat & Play combo messaging as well as the summer of games, we think that resonated more with our guests than maybe the later summer leaderboard initiative. So those are learnings that we're grabbing hold of and optimizing in the second half of the year.

The next question is from Brian Mullan with Piper Sandler.

I wanted to come back to the marketing conversation. I don't want to belabor it, but just ask in maybe a different way. Tarun, I'm wondering if you could give your assessment, does this business need to significantly increase the dollar amount of marketing investments in order to really drive traffic back to the stores? I understand you're going back on TV, you're changing the messaging. Those are good things. But was there enough spend even prior to when the brand went off TV?

I don't believe we need to change the run rate of investments in marketing just now. We have tried a different media mix, which is working. We will continue to further refine it to make the spend more effective. But I don't believe that we need to increase the dollar amount of spend at this point of time.

The next question is from Brian Vaccaro with Raymond James.

Congratulations on your new role, Tarun. I just wanted to follow up on the pricing changes that you mentioned earlier. I know it can be tough to quantify, but I guess, can you level set what level of check versus traffic growth we're seeing reflected in the down 3% comp this quarter? Maybe how that compares? Is there a meaningful change in check that we should be mindful of? And also as we think about the second half, how average check could trend given some of these changes that you've made?

Yes. Brian, yes, we didn't provide much -- any color there. But what I say is some of the things that we've done on the F&B side with respect to the attach on the Eat & Play combo, in particular, we're seeing more -- we're seeing check growth coming from that aspect of the business. I think more importantly, to the second half of your question, as we look at the second half of the year, look, I think that's going to continue to be a tailwind for us. We're rolling out a new menu in October system-wide that is going to be reintroducing a bunch of fan favorites historically. We've been testing that for a while and are seeing nice check growth there. And again, the nice thing is it's not due to price.

Really, it's due to just driving guests towards entrées and some other menu options that are just driving check that we like. And then this work that we've done with the game pricing, we believe will provide a tailwind for us as well. So optimistic that we'll have some tailwinds on the check side in the second half of the year.

The next question is from Mike Hickey with -- the Benchmark Stone Company.

Welcome aboard here. Just a quick one on your strategic plan. We appreciate that you feel it was sound and it was just missed execution. And when you look back on the plan, I think one of the bigger takeaways for investors at the time was that you're targeting $1 billion in adjusted EBITDA. And if I heard you correctly, it looks like your comp plan is tied to $675 million in adjusted EBITDA, which is a pretty big disconnect from the original strategic plan. Could you just explain that and if the $675 million is the new target?

So Mike, I'm not aware of the time line for the $1 billion. We can certainly connect separately on that topic. But I'm confident that the $675 million is a number -- is a target that we can hit within the time line that we have kind of committed to. So from my perspective and from this team's perspective, $675 million is a new EBITDA target.

The next question is from Dennis Geiger with UBS.

Tarun, welcome. I'm curious if you could spend a few more minutes maybe just talking about how you think about maybe the brand-specific missteps, but more so the macro currently and the competitive environment and kind of really just looking ahead and thinking about the macro and how you think about the competitive environment broadly, perhaps relative to your plans? I'm sure the focus is to play your game and execute against the plans that you've outlined. But just how you think about those 2 dynamics within that context?

Yes. Thank you, Dennis. So Dennis, yes, there are macro headwinds, absolutely for all businesses. But these come in cycles and businesses should be prepared for them. Consumers are looking for value for their money and brands and companies that deliver that prosper even in tough macro environment. So as I shared earlier, one of our priorities is simplifying our marketing message, simplifying our promotions and making it easy for guests to understand what the real value is.

And essentially, with value, remember, it's all about trust. It's not how much you're paying only. It's about the value that you're actually receiving from the brand. So I really believe that a key part of the pivot that we are making is kind of really simplifying the messages and making it really transparent for our customers on what they are getting for the money they are spending.

So that clearly is one key part of the pivot on marketing. I think the second part is really making sure that our brand comes across as being distinctive. And there are 2 components to that. One is the product. As I talked about earlier, we are kind of working on collaborations and partnerships that will give us IP rights that will allow us to offer unique games that only D&B and Main Event can offer. So that's one part that what is the product you're offering to your consumer. I think the second piece within that is how do you communicate that? And there's so much of communication going on now on both traditional media and the digital medium that if you're not distinctive and you don't stand out, you're basically wasting your dollars. So I think that's the second part of what we are working towards now.

This concludes our question-and-answer session. I would like to turn the conference back over to Tarun Lal for any closing remarks.

Thank you, operator, and thank you all for joining. In closing, our business is built on a strong foundation, a resilient model, 2 brands that resonate with customers and experiences that foster loyalty. We delivered solid returns, disciplined operations and sustainable cash flow. Our leadership team, operators and Board are focused on driving growth and maximum value. We are confident in the opportunities ahead to further enhance performance and create long-term value for our shareholders. I look forward to meeting you in person and speaking with you again soon. Have a great evening. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.