Dave & Buster's Entertainment, Inc.: Form 10-Q for the period ended Nov 5, 2024
Filed with the SEC on Dec 10, 2024 and accepted by EDGAR at Dec 10, 2024, 16:46 ET.
Management's discussion and analysis
As filed, 57,840 characters, with its headings, lists and tables. Extracted from the main document; charts and exhibits are in the original on sec.gov.
The following discussion and analysis of our financial condition and results of operations should be read together with the accompanying consolidated financial statements and the related notes in Item 1 and with the audited consolidated financial statements and the related notes included in our Annual Report on Form 10-K as filed with the SEC on April 2, 2024. Amounts included in the following discussion, except for operating weeks and per share amounts, are rounded in millions.
Unless otherwise specified, the meanings of all defined terms in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” are consistent with the meanings of such terms as defined in the Notes to Consolidated Financial Statements. This discussion contains statements that are, or may be deemed to be, “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements can be identified by the use of forward-looking terminology, including the terms “believes,” “estimates,” “anticipates,” “expects,” “intends,” “may,” “will” or “should” or, in each case, their negative or other variations or comparable terminology. These forward-looking statements include all matters that are not historical facts. They appear in a number of places throughout this report and include statements regarding our intentions, beliefs or current expectations concerning, among other things, our results of operations, financial condition, liquidity, prospects, growth, strategies and the industry in which we operate.
By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. Forward-looking statements are not a guarantee of future performance and our actual results of operations, financial condition and liquidity, and the development of the industry in which we operate may differ materially from those made in or suggested by the forward-looking statements contained in this quarterly report as a result of various factors, including those set forth in the section entitled “Risk Factors” in our Annual Report on Form 10-K filed with the SEC on April 2, 2024. In addition, even if our results of operations, financial condition and liquidity, and the development of the industry in which we operate are consistent with the forward-looking statements contained in this Form 10-Q, such results or developments may not be indicative of results or developments in subsequent periods.
Quarterly Financial Highlights
- Third quarter revenue of $453.0 million decreased 3.0% from the third quarter of 2023.
- Comparable store sales decreased 7.7% compared to the same calendar period in 2023. The same calendar period compares the 91 days of the third quarter from August 7, 2024 through November 5, 2024 to the 91 days of the prior year from August 9, 2023 through November 7, 2023. See further discussion of comparable store sales below at Revenues.
- Net loss totaled $32.7 million, or $0.84 per diluted share, compared with net loss of $5.2 million, or $0.12 per diluted share in the third quarter of 2023.
- Adjusted EBITDA of $68.3 million decreased 16.3%, or $13.3 million, from the third quarter of 2023.
General
We are a leading owner and operator of high-volume venues in North America that combine dining and entertainment for both adults and families under the “Dave & Buster’s” and “Main Event” brands. The core of our concept is to offer our customers quality dining and various forms of entertainment all in one location. Our entertainment offerings provide an extensive assortment of attractions centered around playing games, bowling, and watching live sports and other televised events. Our brands appeal to a relatively balanced mix of male and female adults, as well as families and young adults. We believe we appeal to a diverse customer base by providing a highly customizable experience in a dynamic and fun setting.
Our Dave & Buster’s stores average 40,000 square feet and range in size between 16,000 and 70,000 square feet. Our Main Event stores average 54,000 square feet and range in size between 37,500 and 78,000 square feet. Generally, our stores are open seven days a week, with normal hours of operation generally from between 10:00 to 11:30 a.m. until midnight, with stores typically open for extended hours on weekends.
Key Measures of Our Performance
We monitor and analyze several key performance measures to manage our business and evaluate financial and operating performance, including:
Comparable store sales — Comparable store sales are a comparison of sales to the same period of prior years for the comparable store base. We historically define the comparable store base to include those stores open for a full 18 months before the beginning of the current fiscal year and excluding stores permanently closed or planned for closure during the current fiscal year. For fiscal 2024, our comparable store base consists of 195 stores, of which 146 are Dave & Buster's branded stores and 49 are Main Event branded stores.
New store openings — Our ability to expand our business and reach new customers is influenced by the opening of additional stores in both new and existing markets. The success of our new stores is indicative of our brand appeal and the efficacy of our site selection and operating models. For the nine months ended November 5, 2024, we opened nine new stores (seven Dave & Buster's branded stores and two Main Event branded stores).
Non-GAAP Financial Measures
In addition to the results provided in accordance with GAAP, we provide non-GAAP measures which present operating results on an adjusted basis. These are supplemental measures of performance that are not required by or presented in accordance with GAAP and include Adjusted EBITDA, Credit Adjusted EBITDA and Store Operating Income Before Depreciation and Amortization (defined below). These non-GAAP measures do not represent and should not be considered as an alternative to net income or cash flows from operations, as determined in accordance with GAAP, and our calculations thereof may not be comparable to similarly titled measures reported by other companies and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP.
Although we use these non-GAAP measures to assess the operating performance of our business, they have significant limitations as an analytical tool because they exclude certain material costs. For example, Adjusted EBITDA does not take into account a number of significant items, including our interest expense and depreciation and amortization expense. In addition, Adjusted EBITDA excludes certain other costs which may be important in analyzing our GAAP results. Because Adjusted EBITDA does not account for these expenses, its utility as a measure of our operating performance has material limitations. Our calculations of Adjusted EBITDA adjust for these amounts because they do not directly relate to the ongoing operations of the currently underlying business of our stores and therefore complicate comparison of the underlying business between periods. Nevertheless, because of the limitations described above, management does not view Adjusted EBITDA, Credit Adjusted EBITDA or Store Operating Income Before Depreciation and Amortization in isolation and also uses other measures, such as revenues, gross margin, operating income and net income to measure operating performance.
Adjusted EBITDA
We define “Adjusted EBITDA” as net income, plus interest expense, net, loss on debt refinancing, provision for (benefit from) income taxes, depreciation and amortization expense, (gain) loss on property and equipment transactions, impairment of long-lived assets, share-based compensation, currency transaction (gains) losses and other costs.
Adjusted EBITDA is presented because we believe that it provides useful information to investors and analysts regarding our operating performance. By reporting Adjusted EBITDA, we provide a basis for comparison of our business operations between current, past and future periods by excluding items that we do not believe are indicative of our core operating performance.
Credit Adjusted EBITDA
We define “Credit Adjusted EBITDA” as net income plus certain items as defined at Adjusted EBITDA above, as well as certain other adjustments as defined in our Credit Facility (see Liquidity and Capital Resources below for additional discussion and reconciliation). These other adjustments include (i) increases in entertainment revenue deferrals, (ii) the cost of new projects, including store pre-opening costs, and (iii) other costs and adjustments as permitted by the debt agreements. We believe the presentation of Credit Adjusted EBITDA is appropriate as it provides additional information to investors about the calculation of, and compliance with, certain financial covenants in the Credit Facility.
Store Operating Income Before Depreciation and Amortization
We define “Store Operating Income Before Depreciation and Amortization” as operating income, plus depreciation and amortization expense, general and administrative expenses and pre-opening costs. Store Operating Income Before Depreciation and Amortization allows us to evaluate operating performance of each store across stores of varying size and volume.
We believe that Store Operating Income Before Depreciation and Amortization is another useful measure in evaluating our operating performance because it removes the impact of general and administrative expenses, which are not incurred at the store level, and the costs of opening new stores, which are non-recurring at the store level, and thereby enables the comparability of the operating performance of our stores for the periods presented. We also believe that Store Operating Income Before Depreciation and Amortization is a useful measure in evaluating our operating performance within the entertainment and dining industry because it permits the evaluation of store-level productivity, efficiency, and performance, and we use Store Operating Income Before Depreciation and Amortization as a means of evaluating store financial performance compared with our competitors. However, because this measure excludes significant items such as general and administrative expenses and pre-opening costs, as well as our interest expense, net, loss on debt refinancing and depreciation and amortization expense, which are important in evaluating our consolidated financial performance from period to period, the value of this measure is limited as a measure of our consolidated financial performance.
Presentation of Operating Results
We have historically operated on a 52 or 53-week fiscal year that ends on the Sunday after the Saturday closest to January 31. Each quarterly period reported has 13 weeks, except for 53-week fiscal years when the fourth quarter has 14 weeks. Fiscal 2023, which ended on February 4, 2024, followed this calendar and had 53 weeks. The first quarter of fiscal 2024 also followed this calendar and had 13 weeks.
On May 6, 2024, the first day of the second quarter of fiscal 2024, the Company changed its fiscal year to end on the Tuesday after the Monday closest to January 31st. The change was made to improve labor and operational efficiencies by ending the Company's periods outside of the busier weekend timeframe. As a result of this change, the second quarter and fiscal year 2024 have two additional days added to its normal 13-week quarter and 52-week year. The fourth quarter of fiscal 2024 will end on February 4, 2025.
All dollar amounts are presented in millions, unless otherwise noted, except per share amounts.
Store-Level Variability, Quarterly Fluctuations, Seasonality and Inflation
We operate stores varying in size and have experienced significant variability among stores in volumes, operating results and net investment costs.
Our new stores typically open with sales volumes in excess of their expected long-term run-rate levels, which we refer to as a “honeymoon” effect. We traditionally expect our new store sales volumes in year two to be 10% to 20% lower than our year one targets, and to grow in line with the rest of our comparable store base thereafter. As a result of the substantial revenues associated with each new store, the number and timing of new store openings will result in significant fluctuations in quarterly results.
New store operating margins (excluding pre-opening expenses) during the first year of operation historically benefit from honeymoon sales leverage on occupancy, management labor and other fixed costs. This benefit is partially offset by normal inefficiencies in hourly labor and other costs associated with establishing a new store. In year two, operating margins may decline due to the loss of honeymoon sales leverage on fixed costs which is partially offset by improvements in store operating efficiency.
Our operating results historically have fluctuated due to seasonal factors. Typically, we have higher revenues associated with the spring and year-end holidays, which will continue to be susceptible to the impact of severe or unseasonably mild weather on customer traffic and sales during that period. Our third quarter, which encompasses the back-to-school fall season, has historically had lower revenues as compared to other quarters.
We expect that economic and environmental conditions and changes in regulatory legislation will continue to exert pressure on both supplier pricing and consumer spending related to entertainment and dining alternatives. There is no assurance that our cost of products will remain stable or that federal, state, or local minimum wage rates will not increase beyond amounts currently legislated, however, the effects of any supplier price increase or wage rate increases might be partially offset by selective price increases if competitively appropriate.
Three Months Ended November 5, 2024 (the “third quarter of 2024”) Compared to the Three Months Ended October 29, 2023 (the “third quarter of 2023”)
Results of operations — The following table sets forth selected data for the periods indicated. All information is derived from the accompanying unaudited consolidated statement of comprehensive income.
| Three Months Ended November 5, 2024 (1) | October 29, 2023 (1) | |||
|---|---|---|---|---|
| Entertainment revenues | $294.6 | 65.0% | $302.0 | 64.7% |
| Food and beverage revenues | 158.4 | 35.0% | 164.9 | 35.3% |
| Total revenues | 453.0 | 100.0% | 466.9 | 100.0% |
| Cost of entertainment (2) | 25.1 | 8.5% | 30.5 | 10.1% |
| Cost of food and beverage (2) | 42.7 | 27.0% | 45.9 | 27.8% |
| Total cost of products | 67.8 | 15.0% | 76.4 | 16.4% |
| Operating payroll and benefits | 120.9 | 26.7% | 119.9 | 25.7% |
| Other store operating expenses (2) | 171.7 | 37.9% | 167.7 | 35.9% |
| General and administrative expenses | 27.2 | 6.0% | 28.4 | 6.1% |
| Depreciation and amortization expenses | 53.9 | 11.9% | 51.9 | 11.1% |
| Pre-opening costs | 5.2 | 1.1% | 4.0 | 0.9% |
| Total operating costs | 446.7 | 98.6% | 448.3 | 96.0% |
| Operating income | 6.3 | 1.4% | 18.6 | 4.0% |
| Interest expense, net | 32.9 | 7.3% | 28.9 | 6.2% |
| Loss on debt refinancing | 15.2 | 3.4% | — | —% |
| Loss before benefit from income taxes | (41.8) | (9.2)% | (10.3) | (2.2)% |
| Benefit from income taxes | (9.1) | (2.0)% | (5.1) | (1.1)% |
| Net loss | $(32.7) | (7.2)% | $(5.2) | (1.1)% |
| Company-owned stores at end of period | 227 | 214 |
(1) All percentages are expressed as a percentage of total revenues for the respective period presented, except cost of entertainment, which is expressed as a percentage of entertainment revenues, and cost of food and beverage, which is expressed as a percentage of food and beverage revenues.
(2) We reclassified $1.0 to cost of entertainment and $2.6 to cost of food and beverage, respectively, from other store operating expenses for the third quarter of 2023 to be consistent with the presentation for the third quarter of 2024. We determined that reclassifying the expenses, which are primarily related to inventory items provided to customers during promotions and events, results in a clearer presentation of the cost of goods sold.
Reconciliations of Non-GAAP Financial Measures
Adjusted EBITDA
The following table reconciles Net loss to Adjusted EBITDA for the periods indicated:
| Three Months Ended November 5, 2024 (5) | October 29, 2023 (5) | |||
|---|---|---|---|---|
| Net loss | $(32.7) | (7.2)% | $(5.2) | (1.1)% |
| Interest expense, net | 32.9 | 28.9 | ||
| Loss on debt refinancing | 15.2 | — | ||
| Benefit from income taxes | (9.1) | (5.1) | ||
| Depreciation and amortization expense | 53.9 | 51.9 | ||
| Share-based compensation (1) | 2.8 | 3.5 | ||
| Transaction and integration costs (2) | 0.4 | 1.6 | ||
| System implementation costs (3) | 2.9 | 3.0 | ||
| Other items, net (4) | 2.0 | 3.0 | ||
| Adjusted EBITDA | $68.3 | 15.1% | $81.6 | 17.5% |
(1) Non-cash share-based compensation expense, net of forfeitures, recorded in general and administrative expenses on the consolidated statement of comprehensive income.
(2) Transaction and integration costs related to the acquisition and integration of Main Event recorded in general and administrative expenses on the consolidated statement of comprehensive income.
(3) System implementation costs represent expenses incurred related to the development of new enterprise resource planning, human capital management and inventory software for our stores and store support teams. These charges are primarily recorded in general and administrative expenses on the consolidated statement of comprehensive income.
(4) The amount for the third quarter of 2024 primarily consisted of $1.3 million of one-time, third-party consulting fees, $0.3 million of severance costs and a $0.4 million gain on property and equipment transactions. The amount for the third quarter of 2023 primarily consisted of losses on property and equipment transactions. The third-party consulting fees are not part of our ongoing operations and were incurred to execute two related, discrete, and project-based strategic initiatives aimed at transforming our marketing strategy and one discrete, project-based initiative to transform our supply chain operational efficiency. They are included in general and administrative expenses on the consolidated statement of comprehensive income. The transformative nature, narrow scope, and limited duration of these incremental consulting fees are not reflective of the ordinary course expenses incurred to operate our business.
(5) All percentages are expressed as a percentage of total revenues for the respective period presented.
Store Operating Income Before Depreciation and Amortization
The following table reconciles Operating income to Store Operating Income Before Depreciation and Amortization for the periods indicated:
| Three Months Ended November 5, 2024 (1) | October 29, 2023 (1) | |||
|---|---|---|---|---|
| Operating income | $6.3 | 1.4% | $18.6 | 4.0% |
| General and administrative expenses | 27.2 | 28.4 | ||
| Depreciation and amortization expense | 53.9 | 51.9 | ||
| Pre-opening costs | 5.2 | 4.0 | ||
| Store Operating Income Before Depreciation and Amortization | $92.6 | 20.4% | $102.9 | 22.0% |
(1) All percentages are expressed as a percentage of total revenues for the respective period presented.
Results of Operations
Revenues
Total revenues for the third quarter of 2024 decreased $13.9 million, or 3.0%, to $453.0 million compared to $466.9 million for the third quarter of 2023. Entertainment revenues for the third quarter of 2024 decreased by $7.4 million, or 2.5%, to $294.6 million from $302.0 million in the third quarter of 2023. Food sales decreased by $3.0 million, or 2.7%, to $106.6 million in the third quarter of 2024 from $109.6 million in the third quarter of 2023. Beverage sales decreased by $3.5 million, or 6.3%, to $51.8 million in the third quarter of 2024 from $55.3 million in the third quarter of 2023.
Revenue mix by category, as a percentage of total revenues, for the periods indicated was as follows:
| Three Months Ended November 5, 2024 | October 29, 2023 | |
|---|---|---|
| Entertainment revenues | 65.0% | 64.7% |
| Food revenues | 23.5% | 23.5% |
| Beverage revenues | 11.5% | 11.8% |
Selected revenue and store data for the periods indicated are as follows:
| Three Months Ended November 5, 2024 | October 29, 2023 | Change | |
|---|---|---|---|
| Comparable store revenues, on a fiscal calendar basis | $383.2 | $426.5 | $(43.3) |
| Noncomparable store revenues (1) | 57.0 | 41.1 | 15.9 |
| Changes in entertainment revenue deferrals | 11.3 | (1.5) | 12.8 |
| Other noncomparable revenues | 1.5 | 0.8 | 0.7 |
| Total revenues | $453.0 | $466.9 | $(13.9) |
| Comparable store operating weeks | 2,535 | 2,535 | — |
| Noncomparable store operating weeks (1) | 431 | 239 | 192 |
| Total store operating weeks | 2,966 | 2,774 | 192 |
(1) Our noncomparable store count includes two stores that were closed during the second quarter of 2024.
The decrease in revenue is primarily attributable to a $43.3 million decrease in comparable store sales, partially offset by $15.9 million of incremental sales from new stores, an increase in other noncomparable revenues of $0.7 million, and $12.8 million in changes in entertainment revenue deferrals. The decrease in comparable store revenues is due primarily to a reduction in demand relative to a more robust consumer environment in the prior year period. The changes in entertainment revenue deferrals reflect breakage on unredeemed game play credits and tickets corresponding to guest redemption patterns over time. See Revenue Recognition at Note 1 to the unaudited consolidated financial statements for discussion of revenue recognition associated with play credits and tickets.
The $43.3 million, or 10.2%, comparable store revenue decrease presented in the table above is on a fiscal period basis. Due to the 53rd week in fiscal 2023, the third quarter of 2024 ended one week later than the third quarter of 2023. Comparable store revenues based on the same calendar period adjusts for these impacts and compares the 91-day period from August 7, 2024 through November 5, 2024 to the 91-day period from August 9, 2023 through November 7, 2023. Comparable store revenues based on the same calendar period decreased 7.7%.
Cost of products
The total cost of products was $67.8 million for the third quarter of 2024 compared to $76.4 million for the third quarter of 2023. The total cost of products as a percentage of total revenues decreased to 15.0% for the third quarter of 2024 compared to 16.4% for the third quarter of 2023.
Cost of entertainment was $25.1 million in the third quarter of 2024 compared to $30.5 million in the third quarter of 2023. The cost of entertainment, as a percentage of entertainment revenues, decreased to 8.5% for the third quarter of 2024 from 10.1% in the third quarter of 2023. The decrease was primarily attributable to price increases.
Cost of food and beverage products was $42.7 million for the third quarter of 2024 compared to $45.9 million for the third quarter of 2023. Cost of food and beverage products, as a percentage of food and beverage revenues, decreased to 27.0% for the third quarter of 2024 from 27.8% for the third quarter of 2023. The decrease was primarily attributable to food and beverage menu price increases, continued supply chain and ingredient optimization, and the mix of products sold with our new menu.
Operating payroll and benefits
Total operating payroll and benefits was $120.9 million in the third quarter of 2024 compared to $119.9 million in the third quarter of 2023. The total cost of operating payroll and benefits as a percentage of total revenues was 26.7% in the third quarter of 2024 compared to 25.7% in the third quarter of 2023. This increase is primarily due to additional stores in the current year and employee retention tax credits recognized in the prior year, partially offset by labor management efficiencies.
Other store operating expenses
Other store operating expenses was $171.7 million in the third quarter of 2024 compared to $167.7 million in the third quarter of 2023. Other store operating expense as a percentage of total revenues increased to 37.9% in the third quarter of 2024 compared to 35.9% in the third quarter of 2023. The increase is primarily due to higher occupancy costs for new stores and repairs & maintenance costs.
General and administrative expenses
General and administrative expenses decreased to $27.2 million in the third quarter of 2024 compared to $28.4 million in the third quarter of 2023. The decrease in general and administrative expenses was driven primarily by lower share-based and incentive compensation in the current year, partially offset by increased consulting and other costs related to discrete, one-time initiatives. General and administrative expenses as a percentage of total revenues decreased to 6.0% in the third quarter of 2024 compared to 6.1% in the third quarter of 2023 for the same reasons.
Depreciation and amortization expense
Depreciation and amortization expense increased to $53.9 million in the third quarter of 2024 compared to $51.9 million in the third quarter of 2023, primarily due to new store openings and store remodels.
Pre-opening costs
Pre-opening costs of $5.2 million in the third quarter of 2024 increased to $4.0 million in the third quarter of 2023 due to the timing of costs in our pipeline of new stores for each period.
Interest expense, net
Interest expense, net increased to $32.9 million in the third quarter of 2024 compared to $28.9 million in the third quarter of 2023 due primarily to a decrease in interest income and incremental interest expense associated with sale-leaseback transactions and borrowings outstanding under our Credit Agreement, partially offset by a decrease in interest rates on our Credit Facility. See further discussion of the Company's debt activity and failed sale-leaseback transaction at Note 4 and Note 3, respectively, to the unaudited consolidated financial statements.
Loss on debt refinancing
Loss on debt refinancing was $15.2 million in the third quarter of 2024 as a result of an amendment to our Credit Facility. See further discussion at Note 4 to the unaudited consolidated financial statements.
Benefit from income taxes
The effective tax rate for the third quarter of 2024 was 21.8%, compared to 49.5% for the third quarter of 2023. The third quarter of 2024 year tax provision included lower excess tax benefits associated with share-based compensation and higher permanent differences compared to the third quarter of 2023.
Nine Months Ended November 5, 2024 (the “2024 period”) Compared to the Nine Months Ended October 29, 2023 (the “2023 period”)
Results of operations
The following table sets forth selected data for the periods indicated. All information is derived from the accompanying consolidated statement of comprehensive income.
| Nine Months Ended November 5, 2024 (1) | October 29, 2023 (1) | |||
|---|---|---|---|---|
| Entertainment revenues | $1,056.0 | 66.1% | $1,055.9 | 65.7% |
| Food and beverage revenues | 542.2 | 33.9% | 550.4 | 34.3% |
| Total revenues | 1,598.2 | 100.0% | 1,606.3 | 100.0% |
| Cost of entertainment (2) | 91.2 | 8.6% | 101.0 | 9.6% |
| Cost of food and beverage (2) | 145.7 | 26.9% | 156.8 | 28.5% |
| Total cost of products | 236.9 | 14.8% | 257.8 | 16.0% |
| Operating payroll and benefits | 393.7 | 24.6% | 377.5 | 23.5% |
| Other store operating expenses (2) | 515.4 | 32.2% | 499.3 | 31.1% |
| General and administrative expenses | 89.1 | 5.6% | 92.0 | 5.7% |
| Depreciation and amortization expenses | 174.2 | 10.9% | 149.9 | 9.3% |
| Pre-opening costs | 12.6 | 0.8% | 12.7 | 0.8% |
| Total operating costs | 1,421.9 | 89.0% | 1,389.2 | 86.5% |
| Operating income | 176.3 | 11.0% | 217.1 | 13.5% |
| Interest expense, net | 99.9 | 6.3% | 92.5 | 5.8% |
| Loss on debt refinancing | 15.2 | 1.0% | 11.2 | 0.7% |
| Income before provision for income taxes | 61.2 | 3.8% | 113.4 | 7.1% |
| Provision for income taxes | 12.2 | 0.8% | 22.6 | 1.4% |
| Net income | $49.0 | 3.1% | $90.8 | 5.7% |
| Company-owned stores at end of period | 227 | 214 |
(1) All percentages are expressed as a percentage of total revenues for the respective period presented, except cost of entertainment, which is expressed as a percentage of entertainment revenues, and cost of food and beverage, which is expressed as a percentage of food and beverage revenues.
(2) We reclassified $2.8 to cost of entertainment and $8.3 to cost of food and beverage, respectively, from other store operating expenses for the 2023 period to be consistent with the presentation for the 2024 period. We determined that reclassifying the expenses, which are primarily related to inventory items provided to customers during promotions and events, results in a clearer presentation of the cost of goods sold.
Reconciliations of Non-GAAP Financial Measures
Adjusted EBITDA
The following table reconciles Net income to Adjusted EBITDA for the periods indicated:
| Nine Months Ended November 5, 2024 (5) | October 29, 2023 (5) | |||
|---|---|---|---|---|
| Net income | $49.0 | 3.1% | $90.8 | 5.7% |
| Interest expense, net | 99.9 | 92.5 | ||
| Loss on debt refinancing | 15.2 | 11.2 | ||
| Provision for income taxes | 12.2 | 22.6 | ||
| Depreciation and amortization expense | 174.2 | 149.9 | ||
| Share-based compensation (1) | 9.1 | 15.4 | ||
| Transaction and integration costs (2) | 1.4 | 9.6 | ||
| System implementation costs (3) | 9.5 | 6.2 | ||
| Other items, net (4) | 8.5 | 5.7 | ||
| Adjusted EBITDA | $379.0 | 23.7% | $403.9 | 25.1% |
(1) Non-cash share-based compensation expense, net of forfeitures, recorded in general and administrative expenses on the consolidated statement of comprehensive income.
(2) Transaction and integration costs related to the acquisition and integration of Main Event recorded in general and administrative expenses on the consolidated statement of comprehensive income.
(3) System implementation costs represent expenses incurred related to the development of new enterprise resource planning, human capital management and inventory software for our stores and store support teams. These charges are primarily recorded in general and administrative expenses on the consolidated statement of comprehensive income.
(4) The amount for the 2024 period primarily consisted of $10.3 million of one-time, third-party consulting fees, $1.2 million of severance costs and a $3.0 million gain on property and equipment transactions. The amount for the 2023 period primarily consisted of $2.0 million of one-time, third-party consulting fees, a $1.7 million impairment charge related to assets removed from service and a $1.6 million loss on property and equipment transactions. The third-party consulting fees are not part of our ongoing operations and were incurred to execute two related, discrete, and project-based strategic initiatives aimed at transforming our marketing strategy, and one discrete, project-based initiative to transform our supply chain operational efficiency. They are included in general and administrative expenses on the consolidated statement of comprehensive income. The transformative nature, narrow scope, and limited duration of these incremental consulting fees are not reflective of the ordinary course expenses incurred to operate our business.
(5) All percentages are expressed as a percentage of total revenues for the respective period presented.
Store Operating Income Before Depreciation and Amortization
The following table reconciles Operating income to Store Operating Income Before Depreciation and Amortization for the periods indicated:
| Nine Months Ended November 5, 2024 (1) | October 29, 2023 (1) | |||
|---|---|---|---|---|
| Operating income | $176.3 | 11.0% | $217.1 | 13.5% |
| General and administrative expenses | 89.1 | 92.0 | ||
| Depreciation and amortization expense | 174.2 | 149.9 | ||
| Pre-opening costs | 12.6 | 12.7 | ||
| Store Operating Income Before Depreciation and Amortization | $452.2 | 28.3% | $471.7 | 29.4% |
(1) All percentages are expressed as a percentage of total revenues for the respective period presented.
Results of Operations
Revenues
Total revenues for the 2024 period decreased $8.1 million, or 0.5%, to $1,598.2 million compared to $1,606.3 million for the 2023 period. Entertainment revenues for the 2024 period increased by $0.1 million to 1,056.0 from $1,055.9 million in the 2023 period. Food sales decreased by $0.4 million, or 0.1%, to $370.4 million in the 2024 period from $370.8 million in the 2023 period. Beverage sales decreased by $7.8 million, or 4.3%, to $171.8 million in the 2024 period from $179.6 million in the 2023 period.
Revenue mix by category, as a percentage of total revenues, for the periods indicated was as follows:
| Nine Months Ended November 5, 2024 | October 29, 2023 | |
|---|---|---|
| Entertainment revenues | 66.1% | 65.7% |
| Food revenues | 23.2% | 23.1% |
| Beverage revenues | 10.7% | 11.2% |
Selected revenue and store data for the periods indicated are as follows:
| Nine Months Ended November 5, 2024 | October 29, 2023 | Change | |
|---|---|---|---|
| Comparable store revenues, on a fiscal calendar basis (1) | $1,389.2 | $1,490.3 | $(101.1) |
| Noncomparable store revenues (1)(2) | 189.8 | 118.1 | 71.7 |
| Changes in entertainment revenue deferrals | 17.5 | (6.5) | 24.0 |
| Other noncomparable revenues | 1.7 | 4.4 | (2.7) |
| Total revenues | $1,598.2 | $1,606.3 | $(8.1) |
| Comparable store operating weeks (1) | 7,661 | 7,605 | 56 |
| Noncomparable store operating weeks (1)(2) | 1,182 | 587 | 595 |
| Total store operating weeks | 8,843 | 8,192 | 651 |
(1) During the 2024 period we adjusted our period close from Sunday to Tuesday of each week (see further discussion at Note 1). This adjustment had the effect of adding 56 store operating weeks for our comparable stores and nine weeks for our noncomparable stores for the 2024 period.
(2) Our noncomparable store count includes two stores that were closed during the 2024 period.
The decrease in revenue is primarily attributable to a $101.1 million decrease in comparable store sales and a decrease of $2.7 million in other noncomparable revenues, partially offset by $71.7 million of incremental sales from new stores and $24.0 million in changes in deferred entertainment revenue. The decrease in comparable store revenues is due primarily to a reduction in demand relative to a more robust consumer environment in the prior year period. The changes in entertainment revenue deferrals reflect breakage on unredeemed game play credits and tickets corresponding to guest redemption patterns over time. See Revenue Recognition at Note 1 to the unaudited consolidated financial statements for discussion of revenue recognition associated with play credits and tickets
The $101.1 million, or 6.8%, comparable store revenue decrease presented in the table above is on a fiscal period basis. Due to the 53rd week in fiscal 2023, the 2024 period ended approximately one week later than the 2023 period. Additionally, the 2024 period includes two additional days of revenue due to the adjusted calendar discussed in the footnote to the table above. Comparable store revenues based on the same calendar period adjusts for this shift in weeks and compares the period from February 5, 2024 through November 5, 2024 to the period from February 6, 2023 through November 7, 2023. Comparable store revenues based on the same calendar period decreased 6.4%.
Cost of products
The total cost of products was $236.9 million for the 2024 period and $257.8 million for the 2023 period. The total cost of products as a percentage of total revenues decreased to 14.8% for the 2024 period compared to 16.0% for the 2023 period.
Cost of entertainment decreased to $91.2 million in the 2024 period compared to $101.0 million in the 2023 period. The cost of entertainment, as a percentage of entertainment revenues, decreased to 8.6% for the 2024 period from 9.6% in the 2023 period. The decrease was primarily attributable to price increases.
Cost of food and beverage products decreased to $145.7 million for the 2024 period compared to $156.8 million for the 2023 period. Cost of food and beverage products, as a percentage of food and beverage revenues, decreased to 26.9% for the 2024 period from 28.5% for the 2023 period. The decrease was primarily attributable to food and beverage menu price increases, continued supply chain and ingredient optimization, and the mix of products sold with our new menu, partially offset by promotional pricing to drive traffic and loyalty engagement.
Operating payroll and benefits
Total operating payroll and benefits increased to $393.7 million in the 2024 period compared to $377.5 million in the 2023 period. The total cost of operating payroll and benefits as a percentage of total revenues was 24.6% in the 2024 period compared to 23.5% in the 2023 period. This increase is primarily due to additional stores in the current year and $9.6 million in employee retention tax credits recognized in the prior year, partially offset by labor management efficiencies.
Other store operating expenses
Other store operating expenses increased to $515.4 million in the 2024 period compared to $499.3 million in the 2023 period. The increase is primarily due to higher occupancy and utilities costs related to new store openings, marketing costs, and IT costs related to newly implemented store and enterprise technology systems, partially offset by gains on asset disposals and lease terminations and favorable self-insurance experience rates. Other store operating expense as a percentage of total revenues increased to 32.2% in the 2024 period compared to 31.1% in the 2023 period. This increase as a percentage of total revenues was due primarily to the reasons above.
General and administrative expenses
General and administrative expenses decreased to $89.1 million in the 2024 period compared to $92.0 million in the 2023 period. The decrease in general and administrative expenses was driven primarily by lower share-based and incentive compensation in the current year, partially offset by increased consulting and other costs related to discrete, one-time initiatives. General and administrative expenses as a percentage of total revenues decreased to 5.6% in the 2024 period compared to 5.7% in the 2023 period due primarily to the reasons noted above.
Depreciation and amortization expense
Depreciation and amortization expense increased to $174.2 million in the 2024 period compared to $149.9 million in the 2023 period, primarily due to new store openings and remodels and the acceleration of depreciation for two store closures.
Pre-opening costs
Pre-opening costs of $12.6 million in the 2024 period was comparable to $12.7 million in the 2023 period primarily due to the similar cadence of new store openings.
Loss on debt refinancing
Loss on debt refinancing was $15.2 million in the 2024 period and $11.2 million in the 2023 period as a result of amendments to our Credit Facility in the respective periods. See further discussion at Note 4 to the unaudited consolidated financial statements.
Interest expense, net
Interest expense, net increased to $99.9 million in the 2024 period compared to $92.5 million in the 2023 period due primarily to incremental interest expense associated with sale-leaseback transactions and borrowings outstanding under our Credit Agreement, partially offset by a decrease in interest rates on our Credit Facility. See further discussion of the Company's debt activity and failed sale-leaseback transaction at Note 4 and Note 3, respectively, to the unaudited consolidated financial statements.
Provision for income taxes
The effective tax rate for the 2024 period was 19.9%, compared to 19.9% for the 2023 period.
Liquidity and Capital Resources
Credit Facility
The Company has a senior secured credit agreement (the "Credit Facility") including a revolving credit facility (the "Revolving Credit Facility") and a term loan facility (together with the Revolving Credit Facility, the “Credit Facility”). On November 1, 2024, D&B Inc. entered into an amendment with its banking syndicate, which amended the Credit Facility (the "Fourth Amendment"). For discussion of prior amendments, see Note 7 to the Consolidated Financial Statements in the Company's Annual Report on Form 10-K for the year ended February 4, 2024.
The Fourth Amendment, among other things:
- provides for a new tranche of term loans in an aggregate principal amount of $700.0 (the “Incremental Term B Loans”) with a maturity date of November 1, 2031, and
- increased the Revolving Credit Facility by $150.0 to a total $650.0 and extended the maturity to November 1, 2029.
The proceeds from the Incremental Term B Loans were primarily used to:
- redeem the $440.0 of outstanding senior secured notes (see 7.625% Senior Secured Notes below), and
- pay down $200.0 of the term loans outstanding under the Credit Facility immediately prior to the Fourth Amendment (the “Existing Term B Loans”).
Both the Existing Term B Loans and the Incremental Term B Loans bear interest at Term SOFR or ABR (each, as defined in the amended Credit Facility) plus (i) in the case of Term SOFR loans, 3.25% per annum and (ii) in the case of ABR loans, 2.25% per annum. Loans under the Revolving Credit Facility bear interest subject to a pricing grid based on net total leverage, at Term SOFR plus a spread ranging from 2.50% to 3.00% per annum or ABR plus a spread ranging from 1.50% to 2.00% per annum. Unused commitments under the Revolving Credit Facility incur initial commitment fees of 0.30% to 0.50%. Additionally, the interest rate margin applicable to the Existing Term B Loans and loans outstanding under the Revolving Credit Facility would be subject to an additional 0.25% step-down if a rating of B1/B+ or higher from Moody’s and S&P is achieved (which will step back up if such rating is subsequently not maintained).
A portion of the Revolving Credit Facility not to exceed $35.0 is available for the issuance of letters of credit. As of November 5, 2024, we had letters of credit outstanding of $11.6 and an unused commitment balance of $537.4 under the Revolving Credit Facility. The Credit Facility may be increased through incremental facilities, by an amount equal to the greater of (i) $650.0 and (ii) 0.75 times trailing twelve-month Adjusted EBITDA, as defined in the Credit Facility, plus additional amounts subject to compliance with applicable leverage ratio and/or interest coverage ratio requirements. The Credit Facility is unconditionally guaranteed by D&B Holdings and certain of D&B Inc.’s existing and future wholly owned material domestic subsidiaries.
7.625% Senior Secured Notes
During fiscal 2020, the Company issued $550.0 aggregate principal amount of 7.625% senior secured notes (the “Notes”). Interest on the Notes is payable in arrears on November 1 and May 1 of each year. The Notes mature on November 1, 2025, unless earlier redeemed, and are subject to the terms and conditions set forth in the related indenture. The Notes were issued by D&B Inc. and are unconditionally guaranteed by D&B Holdings and certain of D&B Inc.’s existing and future wholly owned material domestic subsidiaries. During fiscal 2021, the Company redeemed a total of $110.0 outstanding principal amount of the Notes.
On November 1, 2024, using the proceeds from the Fourth Amendment to the Credit Facility discussed above, the Company redeemed the remaining $440.0 outstanding principal amount of the Notes.
Loss on debt refinancing
Term Loans — Immediately prior to the Fourth Amendment, the Company had $35.1 of unamortized debt issuance discounts and debt issuance costs. In connection with the Fourth Amendment described above, certain lenders exited the syndicate and were replaced by new syndicate members. The term loans, in the aggregate, were increased, a portion of the term loan facility was deemed extinguished, and a portion was determined to be modified. As a result, $4.1 of unamortized costs were written off and $8.2 of new fees were expensed on the modified portion resulting in a total charge of $12.3 included in loss on debt refinancing on the consolidated statements of comprehensive income. The remaining unamortized issuance discounts and new issuance discount and costs immediately subsequent to the refinancings were deferred and are amortized into interest expense, net over the remaining term of the Existing Term B Loans and the Incremental Term B Loans.
Revolving Credit Facility — Immediately prior to the Fourth Amendment, the Company had $3.8 of unamortized debt issuance costs. In connection with the Fourth Amendment described above, certain lenders exited the syndicate and were replaced by new syndicate members. The Revolving Credit Facility was increased in size, a portion of the Revolving Credit Facility was deemed extinguished, and a portion was determined to be modified. As a result, $0.6 of unamortized costs were written off and included in loss on debt refinancing on the consolidated statements of comprehensive income. The remaining unamortized issuance discounts and new issuance costs immediately subsequent to the refinancings were deferred and are amortized into interest expense, net over the remaining term of the Credit Facility.
The Notes — Immediately prior to paying down the Notes, the Company had $2.3 of unamortized debt issuance costs. The Notes were deemed fully extinguished, and all such costs were included in loss on debt refinancing on the consolidated statements of comprehensive income.
Sale-leaseback transactions
In July 2024, the Company entered into a sale and master lease agreement (a "sale-leaseback") with an unrelated third party. Under this agreement, the Company sold two of its store properties, including land, buildings and certain improvements, at a sale price of $44.8 and then leased the assets back through the sale-leaseback transaction.
In September 2024, the Company entered into a sale-leaseback with an unrelated third party. Under this agreement, the Company sold one of its store properties, including land, buildings and certain improvements, at a sale price of $28.5 and then leased the assets back through the sale-leaseback transaction.
These transactions were accounted for as failed sale-leasebacks based on GAAP under ASC 842, Leases. As a result, the store property assets remain on the consolidated balance sheet at their historical net book value and are depreciated over the remaining term of the applicable master lease. Financing liabilities were recognized in the amount of the proceeds received, net of certain transactions costs, in the amount of $44.3 and $28.0 related to the July 2024 and September 2024 transactions, respectively. The Company will not recognize rent expense related to the leased assets. Instead, monthly rent payments under the applicable master lease agreement (initially, $3.6 and $2.1 per year related to the July 2024 and September 2024 transactions, respectively) will be recorded as interest expense and a reduction of the outstanding liability.
As of November 5, 2024, including the transactions noted above, the Company had financing liabilities related to seven properties. The current outstanding liability of $0.3 is included in accrued liabilities and the long-term outstanding liability of $155.0 is included in other long-term liabilities on the consolidated balance sheet.
Interest expense
The following table sets forth our recorded interest expense, net for the periods presented:
| Three Months Ended November 5, 2024 | October 29, 2023 | Nine Months Ended November 5, 2024 | October 29, 2023 | |
|---|---|---|---|---|
| Interest expense on debt | $28.5 | $30.0 | $88.3 | $90.7 |
| Interest associated with swap agreements | — | (0.2) | — | (0.4) |
| Amortization of debt issue discount and debt issuance cost | 2.8 | 2.6 | 8.4 | 8.6 |
| Interest expense on sale-leasebacks (1) | 2.5 | — | 5.4 | — |
| Interest income | (0.1) | (2.9) | (0.4) | (4.6) |
| Capitalized interest | (0.8) | (0.6) | (1.8) | (1.8) |
| Total interest expense, net | $32.9 | $28.9 | $99.9 | $92.5 |
(1) See discussion of sale-leaseback transactions at Note 3 to the unaudited consolidated financial statements.
Credit Adjusted EBITDA and Net Total Leverage Ratio.
Credit Adjusted EBITDA, a non-GAAP measure, represents net income plus certain items as defined at Adjusted EBITDA at Non-GAAP Financial Measures above, as well as certain other adjustments as defined in our Credit Facility. The following table reconciles Net income to Credit Adjusted EBITDA, as defined in our Credit Facility for the period indicated:
| Trailing Four Quarters Ended November 5, 2024 | |
|---|---|
| Net income | $85.1 |
| Add back: | |
| Interest expense, net | 134.8 |
| Loss on debt refinancing | 20.1 |
| Provision for income taxes | 25.8 |
| Depreciation and amortization expense | 232.8 |
| Share-based compensation (1) | 9.7 |
| Transaction and integration costs (2) | 2.9 |
| System implementation costs (3) | 12.7 |
| Pre-opening costs (4) | 18.3 |
| Other items, net (5) | 6.8 |
| Credit Adjusted EBITDA, a non-GAAP measure | $549.0 |
(1) Non-cash share-based compensation expense, net of forfeitures, recorded in general and administrative expenses on the consolidated comprehensive income statement.
(2) Transaction and integration costs related to the acquisition and integration of Main Event recorded in general and administrative expenses on the consolidated comprehensive income statement.
(3) System implementation costs represent expenses incurred related to the development and launch of new enterprise resource planning, human capital management and inventory software for our stores and store support teams. These charges are primarily recorded in general and administrative expenses on the consolidated comprehensive income statement.
(4) Represents costs incurred, primarily consisting of occupancy and payroll related expenses, associated with the opening of new stores. These costs are considered a "cost of new projects" as defined in our Credit Facility.
(5) Amount primarily consists of one-time, third-party consulting fees, severance costs and (gain) loss on property and equipment transactions. The third-party consulting fees are not part of our ongoing operations and were incurred to execute two related, discrete, and project-based strategic initiatives aimed at transforming our marketing strategy, which are included in general and administrative expenses on the consolidated statement of comprehensive income. The transformative nature, narrow scope, and limited duration of these incremental consulting fees are not reflective of the ordinary course expenses incurred to operate our business.
The Company's maximum permitted Net Total Leverage Ratio, as defined in our Credit Facility, is 3.5x. The following table calculates Net Total Leverage Ratio as of and for the period indicated:
| As of, and for the Trailing Four Quarters Ended November 5, 2024 | |
|---|---|
| Credit Adjusted EBITDA (a) | $549.0 |
| Total debt (1) | $1,451.8 |
| Less: Cash and cash equivalents | $(8.6) |
| Add: Outstanding letters of credit | $11.6 |
| Net debt (b) | $1,454.8 |
| Net Total Leverage Ratio (b / a) | 2.6 x |
(1) Amount represents the face amount of debt outstanding, net of unamortized debt issuance costs and debt discount.
Dividends and Share Repurchases
Our Board of Directors has approved a share repurchase program with a total authorization limit of $500.0 million. During the 2024 period, the Company repurchased 2.04 million shares for a total of $88.0 million representing 5.1% of the shares issued and outstanding as of February 4, 2024. The remaining dollar value of shares that may be repurchased under the program is $112.0 million as of November 5, 2024.
There were no dividends declared or paid during the 2024 period. Future decisions to pay cash dividends or repurchase shares continue to be at the discretion of the Board of Directors and will be dependent on our operating performance, financial condition, capital expenditure requirements, compliance with debt agreements and other factors that the Board of Directors considers relevant.
Cash and Cash Equivalents
As of November 5, 2024, the Company had cash and cash equivalents of $8.6 million. The Company can operate with a working capital deficit because cash from sales is usually received before related liabilities for product supplies, labor and services become due. Our operations do not require significant inventory or receivables, and we continually invest in our business through the growth of stores and operating improvement additions, which are reflected as non-current assets and not a part of working capital. Based on our current business plan, we believe our cash and cash equivalents, combined with expected cash flows from operations and available borrowings under our Revolving Credit Facility, should be sufficient not only for our operating requirements but also to enable us, in the aggregate, to finance our capital allocation strategy, including capital expenditures, through at least the next twelve months.
Cash Flow Activity
Operating Activities — Cash flow from operations typically provides us with a significant source of liquidity. Our operating cash flows result primarily from cash received from our customers, offset by cash payments we make for products and services, team member compensation, occupancy, and other operating costs. Cash from operating activities is also subject to changes in working capital. Working capital at any specific point in time is subject to many variables, including seasonality, the timing of cash receipts and payments, and vendor payment terms.
Cash flow from operating activities decreased to $203.4 million for the 2024 period compared to $267.0 million for the 2023 period. The decrease was primarily driven by a decrease in net income and the timing of changes in working capital.
Investing Activities — Cash flow used in investing increased to $359.9 million for the 2024 period from $207.2 million for the 2023 period primarily due to an increase in capital expenditures related to store remodels and new store openings.
The table below reflects accrual-based capital additions. Capital additions do not include any reductions for accrual-based leasehold improvement incentives (“Payments from landlords”).
| Nine Months Ended November 5, 2024 | October 29, 2023 | |
|---|---|---|
| New stores | $155.6 | $132.5 |
| Remodels and other initiatives | 148.9 | 23.7 |
| Games | 15.2 | 13.5 |
| Maintenance | 44.3 | 45.8 |
| Total capital additions | $364.0 | $215.5 |
| Payments from landlords | $16.3 | $13.1 |
Financing Activities — Cash flow from financing was $127.8 million in the 2024 period primarily consisting of net debt proceeds, proceeds from sale leaseback transactions and proceeds from stock option exercises, partially offset by share repurchases. Cash flow used in financing activities of $177.4 million in the 2023 period primarily consisted of share repurchases, partially offset by net debt proceeds.
Contractual Obligations and Commitments
Other than the debt refinancing activity discussed at Note 4 to the unaudited consolidated financial statements, there have been no material changes to our contractual obligations as reported on Form 10-K for the year ended February 4, 2024.
Accounting policies and estimates
The preparation of financial statements in conformity with GAAP requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and disclosures of contingent assets and liabilities. These estimates and assumptions affect amounts of assets, liabilities, revenues and expenses and the disclosure of gain and loss contingencies at the date of the consolidated financial statements. Our current estimates are subject to change if different assumptions as to the outcome of future events were made. We evaluate our estimates and judgments on an ongoing basis, and we adjust our assumptions and judgments when facts and circumstances dictate. Since future events and their effects cannot be determined with absolute certainty, actual results may differ from the estimates we used in preparing the accompanying consolidated financial statements. A complete description of our critical accounting policies and estimates is included in our annual consolidated financial statements and the related notes in our Annual Report on Form 10-K for the fiscal year ended February 4, 2024.
Recent accounting pronouncements
Refer to Note 1 to the unaudited consolidated financial statements for information regarding new accounting pronouncements.
Market risk
As filed, 1,909 characters, with its headings, lists and tables. Extracted from the main document; charts and exhibits are in the original on sec.gov.
Commodity Price Risk
We are exposed to market price fluctuation in food, beverage, supplies and other costs such as energy. Given the historical volatility of certain of our food product prices, including proteins, seafood, produce, dairy products, and cooking oil, these fluctuations can materially impact our food costs. While our purchasing commitments partially mitigate the risk of such fluctuations, there is no assurance that supply and demand factors such as disease or inclement weather will not cause the prices of the commodities used in our restaurant operations to fluctuate. Additionally, the cost of purchased materials may be influenced by tariffs and other trade regulations which are outside of our control. To the extent that we do not pass along cost increases to our customers, our results of operations may be adversely affected.
Interest Rate Risk
The Credit Facility, discussed further at Note 4 to the unaudited consolidated financial statements, is based on variable interest rates. As of November 5, 2024, the Company had $101.0 million outstanding on its revolving facility and an outstanding balance of $1,391.0 million on its term loan facility. The impact on our annual results of operations of a hypothetical one percentage point interest rate change on the outstanding balance of the credit facility as of November 5, 2024 would be approximately $14.9 million.
Inflation
Severe increases in inflation could affect the United States or global economies and have an adverse impact on our business, financial condition and results of operation. If several of the various costs in our business experience inflation at the same time, such as commodity price increases beyond our ability to control and increased labor costs, we may not be able to adjust prices to sufficiently offset the effect of the various cost increases without negatively impacting consumer demand.
Controls and procedures
As filed, 1,696 characters, with its headings, lists and tables. Extracted from the main document; charts and exhibits are in the original on sec.gov.
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures pursuant to Rules 13a-15 and 15d-15 promulgated under the Exchange Act as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures are effective.
Changes in Internal Control Over Financial Reporting
In fiscal 2023, we began the implementation of a new enterprise resource planning system (“ERP”) to align processes across the organization, enhance operational efficiency, and provide timely information to the Company’s management team related to the operation of the business.
During the second quarter of 2024, we substantially completed the implementation of the ERP, which also included new financial management, inventory management, payroll and human capital management systems. The implementation of these systems resulted in material changes to our internal controls. The Company updated our internal controls to reflect changes to the financial reporting business processes impacted by the implementation and will continue to monitor the impact of the implementation on our financial reporting business processes.
There were no other changes to our internal control over financial reporting practices or processes that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting during our third quarter ended November 5, 2024.
Risk factors
As filed, 124 characters, with its headings, lists and tables. Extracted from the main document; charts and exhibits are in the original on sec.gov.
See discussion in “Risk Factors” in Item 1A of the Company's Annual Report on Form 10-K for the year ended February 4, 2024.
Figures reported in this filing
Standardized line items from the XBRL in this filing, for the period ended 2024-11-05. Comparative periods it repeats are left out.
| Line item | Period | Value | XBRL concept |
|---|---|---|---|
| Revenue | 3 months2024-08-07 to 2024-11-05 | $453.0m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months2024-02-05 to 2024-11-05 | $1.60bn | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months2024-08-07 to 2024-11-05 | $67.8m | us-gaap:CostOfRevenue |
| Cost of revenue | 9 months2024-02-05 to 2024-11-05 | $236.9m | us-gaap:CostOfRevenue |
| Operating income | 3 months2024-08-07 to 2024-11-05 | $6.3m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months2024-02-05 to 2024-11-05 | $176.3m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months2024-08-07 to 2024-11-05 | $32.9m | us-gaap:InterestExpenseNonoperating |
| Interest expense | 9 months2024-02-05 to 2024-11-05 | $99.9m | us-gaap:InterestExpenseNonoperating |
| Income tax | 3 months2024-08-07 to 2024-11-05 | −$9.1m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months2024-02-05 to 2024-11-05 | $12.2m | us-gaap:IncomeTaxExpenseBenefit |
| Diluted EPS | 3 months2024-08-07 to 2024-11-05 | −$0.84 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months2024-02-05 to 2024-11-05 | $1.21 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months2024-08-07 to 2024-11-05 | −$0.84 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months2024-02-05 to 2024-11-05 | $1.24 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months2024-08-07 to 2024-11-05 | 39,110,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months2024-02-05 to 2024-11-05 | 40,600,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months2024-02-05 to 2024-11-05 | $203.4m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months2024-02-05 to 2024-11-05 | $360.3m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Share repurchases | 9 months2024-02-05 to 2024-11-05 | $88.0m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | At period end2024-11-05 | $8.6m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | At period end2024-11-05 | $112.0m | us-gaap:AssetsCurrent |
| Total assets | At period end2024-11-05 | $3.94bn | us-gaap:Assets |
| Current liabilities | At period end2024-11-05 | $391.0m | us-gaap:LiabilitiesCurrent |
| Long-term debt | At period end2024-11-05 | $1.44bn | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | At period end2024-11-05 | $7.0m | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | At period end2024-11-05 | $226.6m | us-gaap:StockholdersEquity |
Source: SEC EDGAR, the filing index for accession 0001628280-24-050625. Last ingested by Listed: Oct 27, 2026, 16:11 ET. Listed shows no prices and gives no investment advice.