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Dave & Buster’s trims unit size for smaller markets

First reduced-format location to open in early 2018

Dave & Buster's Entertainment Inc. is again paring down the size of its big-box entertainment complexes and plans to open two of the new, smaller 15,000- to 20,000-square-foot units in 2018, company executives said Tuesday.

The reduced format — trimmed from what the Dallas-based company had labeled small at 25,000 to 30,000 square feet — will debut early next year in Rodriguez, Ark., in the northwest part of that state, said Stephen King, Dave & Buster’s CEO, in a third-quarter analyst call.

Eight of 14 units that the company expects to open in this fiscal year cover about 40,000 square feet, he said, while two are 30,000 to 40,000 square feet and four are 30,000 square feet or less.

The planned smaller units are expected to require lower pre-opening costs but also, because of their size, will generate lower average revenue per unit, said Brian Jenkins, Dave & Buster’s chief financial officer.

The company expects the format to produce average unit volumes of $4 million to $5 million and investment costs, excluding taxes and insurance, of less than $5 million.

“We see the potential for 20 to 40 such locations over the long-term,” King added. 

“Our primary growth vehicle continues to be building stores that have industry leading averaging of volume, great store level margins and outstanding cash on cash returns,” he said.

Dave & Buster’s has tried smaller units before, but Jenkins said layout of the new format is improved.

“Last time, essentially, we just took everything and proportionately shrunk it,” Jenkins said, “So we had special-event space in there, and we had a dining room. We had everything that you have in our traditional-size stores just everything was smaller. And what that manifested itself in the midway or the arcade was about 5,500 square feet.”

The newer format has a 10,000-square-foot midway with the dining area oriented toward the arcade, Jenkins said. “We just think it's going to be a much better and more effective way for us to try to tackle those smaller markets.”

King said the new format could fit into markets with populations of 200,000 to 500,000, with 400,000 being the average. “We looked at a number of different factors to try to determine where we thought we could get that $4 million to $4.5 million of sales,” he said.

For the third quarter ended Oct. 29, Dave & Buster’s net income increased 13 percent to $12.2 million, or 29 cents a share, up from $10.8 million, or 25 cents a share, in the prior-year period. Revenue rose 9.3 percent to $250 million from $228.7 million in the same quarter last year.

Same-store sales in the quarter declined 1.3 percent, with same-store amusement sales up 1.1 percent and same-store food and beverage sales down 4.2 percent.

Jefferies analyst Andy Barish said this quarter’s same-store amusements paled in comparison to a “monster” increase in that metric last year, when amusements posted a 10.4 percent same-store-sales increase. He added that Dave & Buster’s is likely to focus more on proprietary and exclusive games and introduce a multiplayer virtual reality platform. 

Dave & Buster's, founded in 1982, owns and operates 105 locations in 36 states and Canada. 

Contact Ron Ruggless at [email protected]

Follow him on Twitter: @RonRuggless   

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