At least we now have a sense of why Dave & Buster’s opted to change leadership late last year.
The food and games chain, in an unusually extensive dose of management honesty, lamented the “significant and ill-advised changes” at the brand under the company’s former executives, suggesting those changes led to the brand’s weak performance recently.
That included a 9.4% decline in same-store sales in the fourth quarter ended Feb. 4, a decline that capped a particularly difficult year in which the company’s same-store sales fell 7.2% while both revenues and profits declined.
“Prior leadership, while well-intentioned, made significant and ill-advised changes to marketing, food and beverage, operations, remodels and games investment that negatively impacted the business,” Kevin Sheehan, interim CEO of Dave & Buster’s, said during the company’s fiscal fourth quarter earnings call Monday. “The current leadership team has been systematically unwinding these mistakes.”
“This is a simple business with an exceptional business model that was doing quite well,” he added. “In [deciding] to improve a business that was already doing well, prior leadership made very dramatic and chaotic changes that, among other things, distracted, confused and overwhelmed our customers and operators.”
Sheehan said the company’s efforts to fix that are already improving results, noting that sales in March and April have improved, calling them “markedly better.”
Dave & Buster’s abruptly changed management in December with the departure of CEO Chris Morris, leaving Sheehan, the company’s chairman, in charge on an interim basis. This is Sheehan’s second go-round as interim CEO, and Monday was his first earnings call since Morris’s departure.
Executives brought into companies on an interim basis often use their first earnings call to detail challenges at brands they’re trying to fix, which often yield the most blunt assessments such calls provide. But the Dave & Buster’s earnings call was unusual in the extent of that assessment, effectively blaming previous management for a host of challenges on everything from marketing to remodels.
Sheehan said that Dave & Buster’s eliminated television advertising in marketing, going from spending 90% of its marketing budget on television to “essentially zero.”
Sheehan also said there were “too many and often overlapping and conflicting promotions” that confused both customers and operators. Dave & Buster’s has reintroduced television and has returned to its historical cadence of marketing, such as its most popular promotion, the Eat & Play Combo.
Sheehan said the frequency of changes overwhelmed operators. He said the company made numerous changes to its menu, service style, pricing, labor configuration, remodels and other areas. And he said the company reduced or eliminated training. “We were not properly engaging with and listening to our operators,” Sheehan said.
He said the company eliminated popular entrees and overpromoted “sharable” items that had a lower overall price. Dave & Buster’s has changed its pricing architecture, menu design and configuration and returned popular items to the menu.
Sheehan also said that the company didn’t properly test prototypes on remodels, didn’t prioritize stores to remodel and spent “well beyond budget on many stores.” The company is reevaluating its prototype and is reevaluating which stores should be remodeled first.
As for games, Sheehan said the company deemphasized new games, and so the company has not introduced many new games into its stores in over two years, which is a departure from its historical practice. Dave & Buster’s is fixing that and recently added “The Human Crane,” which allows customers to become the claw in a claw machine, lowering them down into a “sea of oversized prizes.” More than 40 locations now have the Human Crane.
To be sure, Dave & Buster’s fourth quarter came during an otherwise difficult period for so-called eatertainment chains. Several such companies are struggling to generate sales, including TopGolf, Pinstripes and others.
That market has been flooded with new competitors pairing restaurants with everything from baseball to pickleball. One analyst served that competition excuse to Sheehan on a silver platter. He didn’t bite.
“I’d like to use the excuse that it’s a competitive thing, but it’s not,” Sheehan said. “I think it was mostly our own execution.”
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