Dave & Buster’s did perfectly well last quarter, so long as you don’t look at the sales numbers.
The Dallas-based food-and-games chain said on Tuesday that its profitability increased last quarter. Net income adjusted for one-time events, for instance, increased 12% in the period. Adjusted EBITDA, or earnings before interest, taxes, depreciation and amortization, increased 8.1% to $151.6 million.
The improved profitability was particularly surprising given the company’s topline numbers. Same-store sales declined 6.3% in the quarter. It was the sixth straight quarter the company reported a negative figure in the key metric, which measures sales at existing stores.
“We are disappointed with our same-store sales performance during this complex and challenging environment,” CEO Chris Morris told analysts on Wednesday, according to a transcript on the financial services site AlphaSense.
The report, which sent the company’s stock higher on Wednesday, comes amid a difficult overall sales environment for many chains, but particularly entertainment-focused brands like Dave & Buster’s.
Chains such as Topgolf and Pinstripes have also reported sales challenges more recently. Topgolf is being spun off from its parent company, while Pinstripes is cutting back on its workforce.
But Dave & Buster’s has focused on managing expenses, which helped it improve profit margins despite the sales issues.
Morris told analysts that the company is managing labor and improving productivity while improving customer service scores. “The team has really stepped up and delivered,” Morris said. “We’re managing all the things within our control and the team is doing an outstanding job of managing those things.”
The improving profitability helped the company generate cash flow, which it is either sending back to shareholders or investing in new initiatives.
Dave & Buster’s is working to improve marketing, focusing more on digital channels and building its loyalty program. The company has nearly 7 million loyalty members, up 25% over the past year.
A member of Dave & Buster’s loyalty program visits one of the chain’s locations 2.5 times more than the average customer per year and spends 15% more when they do visit. The company now plans to launch a loyalty program at its Main Event business that executives believe can emulate that success.
The company has also been testing higher prices for games in certain higher cost markets, or tiered pricing. “Before we started enacting all these changes, we had one price,” Morris said. “There’s a price in Times Square and there’s a price in Overland Park, Kansas, and they’re exactly the same. The higher-priced tier is reflective of more cost-of-living adjustments.”
Dave & Buster’s continues to work on improving food and beverage. And it changed to a new service model that executives believe to be more efficient. The company has also been remodeling locations and spruced up nine such units last quarter.
The company expects 44 locations to be remodeled by the end of the year.
Sales increase in the double digits once a store is remodeled. “We’re seeing nice separation in sales and we haven’t even put our marketing muscle behind those yet,” Morris said.
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