Dave & Buster's Entertainment, Inc. (PLAY) Earnings

Management highlights

### Overall Performance & Strategic Direction - Q1 FY26 results missed internal and analyst expectations, driven by macro headwinds including elevated gas prices, geopolitical uncertainty, and softened consumer sentiment that disproportionately impacted April results during the key spring break travel period. Management acknowledges the miss and is executing a "back to basics" strategy to restore core historical drivers of success: investment in games, F&B quality, marketing, and operational excellence. - As of Q2 quarter-to-date, same store comps have improved to down approximately 4% despite unfavorable weather, and management expects continued improvement through the back half of the year. ### Leadership Team Updates - Management has significantly strengthened the C-suite in the past month, adding a new Chief Marketing Officer (Jeremy Tucker, from AutoNation, Planet Fitness, Walt Disney), Chief Technology and Digital Officer (Kevin Fay, from Wingstop), and Chief Legal Officer (Rachel Morgan, from Nexstar). A new Chief Operating Officer will be announced within the next week. ### Marketing Strategy Updates - The prior "dollar per day" promotional messaging failed to resonate with consumers, so management has pivoted to tested, more compelling promotions. The company is moving to a simplified promotional calendar, data-driven media mix modeling balancing linear TV, CTV and digital, and clear prioritization of primary/secondary messaging tied to current offerings. - Earned media and shareable cultural activations (such as the World Cup final ticket giveaway via the human crane game) have driven strong organic awareness. The company is also activating its loyalty program for personalized messaging to increase visit frequency, and building a scalable special events engine to convert first-time event guests into repeat customers. ### Capital & Remodel Strategy - The revamped remodel program has delivered strong early results: new prototypes cost half the price of prior remodels while delivering the same 7% same store sales uplift. Management plans to remodel 10 to 20 additional locations in FY27. - Capital expenditure discipline is a core priority, with strict minimum ROI thresholds for all investments. Full year net CapEx is capped at $200 million, down from ~$270 million in FY25. Management is open to reallocating capital from new store development to core store investments (remodels, game refresh) and deleveraging if higher returns are available. ### International Growth - International franchising is an asset-light growth strategy, with agreements already secured for over 30 additional franchise locations across global markets, requiring minimal capital outlay and risk from the company. At least 1 more international opening is planned for 2026 in Mexico City.

Guidance

- Management maintains that same store sales will turn positive for the remainder of FY26 (starting from the current Q2 period, excluding the already recorded 4% decline quarter-to-date), driving full year adjusted EBITDA growth and gradual margin expansion. - Full year 2026 net CapEx guidance is maintained at no more than $200 million, and full year free cash flow guidance is maintained at over $100 million, despite weaker than expected Q1 results. - The company reaffirms its plan to open 11 new domestic stores in FY26; management expects to open approximately 5 new domestic stores per year in FY27 and FY28, down from prior planned levels, as capital is reallocated to core store investments. - Management expects 10 to 20 store remodels in FY27, and at least 1 additional international franchise opening in 2026 in Mexico City.

Segment performance

Overall: Dave & Buster's generated total Q1 FY26 revenue of $559 million, with net income of $6 million ($0.16 per diluted share), adjusted net income of $8 million ($0.22 per diluted share), and adjusted EBITDA of $123 million (for an adjusted EBITDA margin of 22%). Free cash flow in Q1 was $25 million, an $84 million improvement from the negative $59 million free cash flow in Q1 FY25. Food and Beverage Segment: Comparable food and beverage same store sales grew 5% in Q1 FY26, marking 9 consecutive months of positive same store sales growth for this segment. F&B attach to gaming guests has reversed a post-COVID decline after the October 2025 return to a proven core menu, with strong execution of eat-and-play combo offerings. Gaming/Entertainment Segment: Overall company same store sales (driven primarily by gaming) declined 5.4% in Q1 FY26. After a 6-year period of underinvestment, the company recently rolled out 10 new games, with 5 more planned for 2026; new games are already pacing among top revenue generators in their first weeks. Comps for the segment are down approximately 4% quarter-to-date in Q2 FY26. Remodeled Locations: New low-cost remodeled locations outperformed the rest of the store portfolio by nearly 700 basis points, delivering a consistent 7% same store sales uplift matching far more expensive prior remodel cohorts, at half the cost. 6 new remodels have been completed, with 2 more opening in the next few months. New Store/International Franchise: 1 new domestic store opened in Q1, with 3 additional domestic stores already opened in Q2. 1 new international franchise location opened in Australia in Q1, and 1 in Delhi, India in Q2, bringing the total international franchise footprint to 6 locations. International franchising operates with minimal capital investment and risk for the company.

Risks & headwinds

- Macroeconomic headwinds, including elevated energy prices, broader geopolitical uncertainty, and weakened consumer sentiment, disproportionately impacted low-income consumer visitation in April Q1, and remain a potential headwind to sales performance for the remainder of the year. - After 6 years of sustained underinvestment in new games, the company is playing catch-up to address consumer demand for fresh, relevant entertainment experiences; rushing untested new game additions could lead to poor ROI or continued softness in gaming traffic. - Over-discounting to attract price-sensitive low-income consumers could lead to margin compression and cannibalization of existing full-price sales. - Inability to secure high-return new store sites could lead to slower unit growth than previously planned, though the capital reallocation to core stores is expected to offset this with higher incremental returns.

Analyst Q&A

• Q: What makes management confident in a second half same store sales inflection, even amid ongoing uncertain external macro conditions? /

  A: Management's confidence is based on execution of internal strategy rather than reliance on an improving macro environment. Many key strategic initiatives, including new game rollouts, IP partnerships, and World Cup watch event activations, have only recently launched and are already resonating with guests. These changes to the core offering are expected to drive traffic and comp improvement regardless of broader macro trends, according to management.

• Q: Why did prior marketing tests fail, and what learnings are shaping the revised marketing strategy going forward? /

  A: Consumer feedback highlighted two core gaps: lack of fresh product (games and F&B) and demand for clear value. The prior dollar-per-day messaging missed the mark, but tested revised eat-and-play combo offers have performed very well and will launch nationally within 30 days. On the media side, the company learned extreme swings to 100% TV or 100% digital spend were ineffective, so it now uses data-driven modeling to balance investment across linear TV, CTV and digital, with disciplined prioritization of clear primary and secondary messaging tied to current offerings.

• Q: How is the company evaluating potential capital reallocation from new store development to core store investments? /

  A: Driving same store sales growth in the existing core store base is the company's top capital priority. The company is not abandoning new store growth, which still delivers strong ~30%+ cash on cash returns, but will be far more risk-averse and selective when approving new store sites, only moving forward with sites that have clear high return outlooks. The full year CapEx budget is fixed at $200 million, so any reallocation would shift capital from lower-confidence new stores to remodels and game refresh for existing core locations.

• Q: Why hasn't the company been more aggressive refreshing its game portfolio, given years of declining entertainment growth? /

  A: Management emphasized the need for thoughtful, high-quality game additions rather than rapid untested rollouts. Most off-the-shelf games from suppliers are just reskinned versions of existing games already on the floor, which do not drive incremental consumer interest. Developing unique, IP-backed proprietary games takes significant lead time to finalize partnerships and develop custom experiences that can only be played at Dave & Buster's, which has slowed the pace of rollout to ensure quality that drives traffic.