Dave & Buster’s Entertainment Inc  (NASDAQ: PLAY) Q1 2020 Earnings Call Transcript

Dave & Buster’s Entertainment Inc  (PLAY) Q1 2020 earnings call dated June 11, 2020

Corporate Participants:

Scott J. Bowman — Senior Vice President and Chief Financial Officer

Brian A. Jenkins — Chief Executive Officer

Analysts:

Andy Barish — Jefferies — Analyst

Nicole Miller Regan — Piper Sandler — Analyst

Jake Bartlett — SunTrust — Analyst

Chris O’Cull — Stifel — Analyst

Andrew Strelzik — BMO Capital Markets — Analyst

Brian Vaccaro — Raymond James — Analyst

Jon Tower — Wells Fargo — Analyst

Presentation:

Operator

Good afternoon, everyone and welcome to the Dave & Buster’s Entertainment Incorporated First Quarter 2020 Earnings Results Conference Call. Today’s call is being hosted by Brian Jenkins, Chief Executive Officer. I’d like to remind everyone that this call is being recorded and will be available for replay beginning later today.

Now I’d like to turn the conference over to Scott Bowman, Chief Financial Officer, for opening remarks. Please go ahead, sir.

Scott J. Bowman — Senior Vice President and Chief Financial Officer

Thank you, Eduardo and thank you all for joining us today. After comments from Mr. Jenkins and myself, we will be happy to take your questions. Just as a reminder, this call is being recorded on behalf of Dave & Buster’s Entertainment Incorporated and is copyrighted.

Before we begin our discussion on the Company’s results, I’d like to call your attention to the fact that in our remarks and our responses to question, certain items may be discussed which are not entirely based on historical fact. Any of these items should be considered forward-looking statements relating to future events within the meaning of the Private Securities Litigation Reform Act of 1995. All such forward-looking statements are subject to risks and uncertainties which could cause actual results to differ from those anticipated. Information on the various risk factors and uncertainties have been published in our filings with the SEC, which are available on our website at www.daveandbusters.com under the Investor Relations section.

In addition, our remarks today will include references to EBITDA, adjusted EBITDA, store operating income before depreciation and amortization which are financial measures that are not defined under Generally Accepted Accounting Principles. Investors should review the reconciliation of these non-GAAP measures to the comparable GAAP results contained in our earnings announcement released this afternoon, which is also available on our website.

Now, I will turn the call over to Brian.

Brian A. Jenkins — Chief Executive Officer

Good afternoon and thank you for joining our call today. On behalf of the entire Dave & Buster’s team, we hope you and your families are remaining healthy and safe. Since our last conference call in early April, the COVID-19 pandemic has continued to take an unprecedented toll on our Company, our industry and the entire US economy. We shut down all 137 of our stores as of March 20th and only began to reopen some in May as certain states began lifting restrictions. As of last week, we had opened 28 stores and by the end of this week we will have 48 stores opened in 15 states.

While none of us anticipated this unprecedented crisis, I’m very proud of how our team has responded to the challenge it posed. You know tough times often bring out the best in people and that is the case here at D&B. Our team has demonstrated passion and commitment to the D&B brand and we are fighting every day to rebuild the business and ultimately to emerge from this crisis and return our company to its leadership position in our category. I’m extremely grateful for their tireless efforts and honored to work alongside them.

As we said back in April, our singular goal has been to weather the shutdown period and reopen our stores as soon as we safely can so that we can welcome back our furloughed team members, turn our games back on and bring fun back into the communities we serve, fun that we believe will be a very important part of the healing process as the country emerges from the shutdown. Our initial responses during the first several weeks of the crisis were thoughtful and decisive and we implemented them effectively.

First, in the face of the store closures, we immediately took extremely difficult but necessary steps to significantly reduce our cash burn rate. This involved dramatically curtailing operating expenses, extending rent payments, temporarily halting all capital spending and suspending our dividend and share repurchase programs. At the same time we were reducing our cash burn, we were also taking steps to extend our liquidity. This included fully drawing our credit facility, securing covenant relief on our credit agreement until the fourth quarter of fiscal 2020 and raising an additional $186 million in equity capital.

As a result of these efforts, we currently have over $255 million of cash on hand to fund our liquidity needs going forward. Out of necessity, much of our efforts over the past three months were defensive in nature. But now as states reopen and relax restrictions on dine-in and entertainment venues, we have pivoted toward implementing a series of proactive initiatives positioning the Company to reopen stores, reengage guests and rebuild our business.

Accordingly, we have adopted two main principles as we emerge from this crisis. Number one, establish a deliberate and measured approach to reopen our stores and number two, recalibrate our strategic initiatives to emphasize the return to profitability as soon as possible while positioning ourselves to capitalize on future opportunities.

Relating to the store openings of stores, a key priority is providing a safe, clean environment for our team members and guests. We put intense emphasis on sanitation and distancing protocols to ensure our stores adhere to the highest standards. At the same time as we reopen stores, we have been mindful of the opportunities to redesign our operating model to serve guests more efficiently and to take advantage of evolving technology, which is a win on every front.

At this point, I’m going to ask Scott to quickly review our operating results for the first quarter and current liquidity position. After that I’ll dive deeper into our store reopening process and our recalibrated near-term initiatives and also share some of the early results we’re seeing at our reopened stores, which has become our primary focus in the second quarter.

Here is Scott.

Scott J. Bowman — Senior Vice President and Chief Financial Officer

Before I walk through our first quarter results, let me remind everyone that all of our 137 stores were closed from March 20th through the end of the quarter ending on May 3rd. In addition, during the three weeks leading up to the March 20th closures, we had already experienced significant declines in traffic as consumers proactively started avoiding restaurants and group entertainment venues. Our first quarter results clearly reflect that sudden change in our business.

For the first quarter revenues decreased 56% compared with the prior-year period, including a 59% decrease in comparable store sales. Total cost of sales was $28.1 million [Phonetic] in the quarter, an increase of 59 basis points as a percent of sales. The increase was mainly due to the write-off of perishable inventory associated with the shutdown of our stores. Operating payroll and benefits expense was $43.7 million, a decline of 47% from the prior-year period, mainly due to furloughs associated with the shutdown. Other store operating expenses were $95.7 million, a decline of 10% from the prior-year period. Expenses were reduced during — due to the shutdown, although we incurred $11.5 million in charges during the quarter related to the impairment of three of our existing stores, the write-down of site development costs related to our pipeline stores and the termination of leases for three of our pipeline stores.

G&A expenses of $14.6 million declined 13.6% from the prior year. Compensation and incentive costs were down $5.1 million, offset by an increase of $3.1 million in professional fees. Professional fees increased mainly due to advisory and legal costs related to raising additional capital and to assist with lease negotiations. For the month of April all of our stores were shut down and the weekly expense burn rate was consistent with our previous estimate of $6.5 million per week. Our debt service cost of $700,000 per week also remained consistent with prior expectations.

EBITDA for the quarter was negative $26.1 million, which was slightly less than initial expectations due to non-cash writedowns. From a balance sheet standpoint, our main focus was to preserve financial liquidity while maintaining critical store restart capabilities. To that end, we drew down the remainder of our revolving credit line, curtailed capital spending and significantly reduced operating expenses. Additionally, we opened negotiations with our landlords on rent deferrals and abatements and aggressively managed our working capital position. We also reviewed our feature store pipeline and made adjustments given the current environment. After a careful review, we made the decision to complete construction on six stores that were near completion prior to the shutdown and we will resume construction as we gain further clarity our market conditions and business recovery. The net capital investment needed to complete these stores is approximately $3 million. Including these new stores, we now expect to spend approximately $68 million in capex for fiscal 2020. An additional 11 stores were in earlier stages of permitting and construction at the time of the shutdown and are currently on hold pending further analysis and visibility into the ramp-up of our existing stores. And finally, we terminated nine leases which were stores slated for 2021 or beyond.

Having taken those difficult steps related to our operations, we acted quickly and thoughtfully to pursue additional sources of capital to improve our liquidity position in anticipation of a prolonged shutdown and extended business recovery. After careful consideration of a wide variety of financing options to improve our liquidity in a highly uncertain environment, we executed the following actions to improve our liquidity position.

First, we executed a $75 million At-The-Market equity offering of 6.1 million shares at an average price of $12.20 per share completed on April 14th. And then subsequent to the end of the quarter, we completed a $100 million private placement of 9.6 million shares at a price of $10.44 per share, followed by a $10.6 million Over-Allotment option of just over 1 million shares at a price of $10.44 per share.

Additionally, in conjunction with our $75 million equity raise on April 14th, our credit agreement was amended with the following changes. The total leverage ratio and fixed charge coverage ratio will not be tested until our financial statements are required to be delivered for the fiscal quarter ending on January, 31st, 2021. A minimum liquidity of $30 million is to be maintained which is to include unrestricted cash and cash equivalents. In addition to these recent financing actions, we are pursuing tax savings and deferrals up into the CARES Act, but have not — have chosen not to participate in the PPP program. We will continue to evaluate all government programs and other viable financing options as we navigate through this uncertain time.

At the end of the quarter, we had $157 million in cash and cash equivalents on the balance sheet, which was an increase of $132 million compared to the end of the last fiscal year. This was mainly due to the drawdown of our revolver, net proceeds from the first equity raise and deferral of rent payments, which was partially offset by capital spending for prior construction work on new stores. Currently, including the $111 million in proceeds from the second equity raise, we have over $255 million in cash and total debt of $750 million. We continue to aggressively manage our working capital position and prioritize all spending and are grateful to all of our vendors and landlords that continue to support us through this reopening and rebuilding phase.

To date, we have successfully negotiated rent deferrals and/or abatements on over 80% of our stores. Payback of most of these deferrals is scheduled to begin in January 2021 and is expected to be completed over a 12 to 18-month time period.

Keep in mind that our previously communicated expense burn rate does not include reducing our working capital deficit, which we began to manage more aggressively by seeking extended terms and other accommodations. As stores have begun to reopen and generate sales and variable profit, we begun to direct a portion of this available cash towards gradually normalizing our working capital deficit. This could cause our near-term burn rate to temporarily increase until we get a larger portion of our stores reopened.

With that, I will turn it back over to Brian.

Brian A. Jenkins — Chief Executive Officer

Thank you, Scott. With new capital secured, credit terms amended and tight controls on our cash spending, we significantly extended our liquidity horizon. That has enabled the management team to focus our attention on two near-term priorities as we rebuild the business and emerge from the crisis. I want to take just a few minutes to unpack each of these near-term priorities in more detail.

First, reopening our stores. Our store reopening process starts with a careful evaluation of state and local restrictions as it relates to guest capacity and hours of operation. And based on a scale-down operating model, a store must have the initial potential to generate between 10% to 20% of its 2019 revenues in order to generate a variable profit. We set hours of operation for each store based on pre-COVID high volume days and dayparts in tandem with state mandated limitations. And for those stores that are open as of this week, we are currently operating at an average of 60 hours a week or roughly 65% of our pre-COVID average weekly operating hours. More importantly, those 60 hours of op [Phonetic] generated about 90% of our pre-COVID revenue. So we are deliberately focusing operations in our most productive times.

Now once we’ve made the decision to reopen, the store staffing is the next critical step in executing our store reopening. For all of us next to welcoming back our guests into the stores the most gratifying part of reopening has been the opportunity to welcome back some of our valued team members who were furloughed in March. We’re deeply appreciative of their loyalty and the enthusiasm and expertise they bring to the team.

As we re-engage our team, our staffing model anticipates a gradual ramp in sales. Currently with reduced hours and a narrowed menu, our reopened stores are able to operate with a smaller staff compared to our pre-COVID labor model. And then once the store is reopen we are adjusting our staffing as sales levels dictate.

The next major step in preparing each store to reopen is physically and considering the space to promote and enable social distancing. Our large dining and bar footprint enable us to reconfigure the space to support social distancing guidelines and still maintain seating capacity of about 50% of our pre-COVID levels. We’ve also reconfigured our arcade areas to promote six-foot spacing by taking some of our games off-line. In doing, so we’ve been able to maintain approximately 75% of our player positions and an even higher percentage of unique titles available for play.

So given the size of our stores, we are still in a really good position to generate meaningful revenue even with capacity limitations and social distancing. As we reopen our stores, sanitation and safety protocol to ensure the health and safety of our team members and guests is of paramount importance. We have always prided ourselves on maintaining sanitation protocols that meet or exceed local health standards, and that remains our philosophy today. More recently, we’ve implemented additional protocols to reduce risk of COVID transmission in our stores. We are also enabling and encouraging guests to participate in maintaining a clean and safe environment for themselves and their fellow guests.

I call out two other important changes that we consider to be temporary or — transitional, if you will, during our reopening pace. First, based on our historical data and insights from our culinary leadership, we’ve temporarily narrowed our menu to 15 items from more than 40 items pre-COVID. This narrowed menu provides a good variety for guests to choose from and an efficient assortment to execute with a limited kitchen staff. We are able to fulfill orders faster, and it also fits well with the new curbside order and delivery option that we are experimenting with in some markets.

The second temporary or transitional change during our reopening process is in our marketing message and media execution. Recall that as a part of our cost-saving strategy during the shutdown, we significantly reduced our marketing spend. Now our team is focused on a local approach to marketing that utilizes traditional and digital media to drive awareness and accelerate recovery. These integrated plans are leveraging local TV, out-of-home, social advertising and digital radio to saturate our target market. Two of the three markets currently using this approach are leading our brand in recovery in terms of revenue. And this early success has given us the confidence to expand to additional markets in coming weeks. This approach as well as traditional outreach methods such as our loyalty database suggests that our efforts are working.

During the past week, our reopened comp stores generated sales at an index of 37% compared to the 2019 levels. For the top quartile of those stores, we are running at a 55% index. And for the bottom quartile, we’re running at about 18% index at this point. We are also encouraged by the steady week-to-week recovery we’re seeing ramping from an average of 17% index in the first week to an average of 46% at those stores that have been reopened for five weeks, and that’s the limit of our history at this point. It’s also important to note here that all 28 of our reopened stores are producing variable profit.

As we look forward, based on current information from each state, our projected reopening schedule anticipates having about 90 to 95 stores opened by the end of July, and all stores opened by September, barring any delays due to COVID-19 resurgence or changes in state for local guidelines. We also anticipate some of our stores in the Northeast and the West Coast will be among the last to reopen.

As I mentioned previously, we currently estimate that stores can cover their variable cost at 10% to 20% of 2019 sales levels. At approximately 60% of 2019 sales levels, we achieved EBITDA profitability at an enterprise level under normal operating conditions. This enterprise-level break-even point will be a bit higher in 2020 due to additional costs and charges related to the shutdown and our financing efforts.

Next, I want to turn to our second near-term priority, recalibrating and reprioritizing our strategic initiatives. As we look to rebuild our business, our team has rallied around the philosophy that great disruption can also lead to great opportunity to think differently. And our focus for the near term will be to invest and accelerate change in the following key areas, our service model, our menu, our programming and our marketing.

Regarding changes to our service model, our corporate technology team has been working night and day and tirelessly with our store teams to rapidly develop an exciting new technology to enhance guest service through a self-service, contactless order-and-pay platform. This technology is going to enable guests to access the menu, order their food and beverage items, pay for their selections, using the mobile — their mobile device. Enabling our guests to control the experience on their terms will free our team members to focus on interacting guests in more ways than enhance the overall experience. We’re currently piloting the technology in two stores as an optional experience for our guests. In July, we will launch in one store as the primary way to order and pay. And we’ll then take those learnings to evaluate a larger scale roll-out.

Another area we are investing in accelerating change is with our menu. After we complete the reopening process across the country and traffic has recovered to an appropriate degree, we plan to expand the temporary 15-item menu. The expansion will not simply be a matter of reactivating our pre-COVID menu, rather we will leverage our earlier work with the assistance of a third-party consulting firm to inform these changes and target a re-engineered menu by fall this year. Our ultimate goal is to create new, stronger food identity that resonates with our guests and is a differentiator of the D&B brand.

The third area where we’re investing in accelerating change is developing a strong programming strategy around our Wow Walls and other watch assets. Live sports broadcast will return at some point. However, it seems like that those first games — or, in some cases, entire sports seasons will be played in empty stadiums. We believe this creates a unique opportunity for us. And our team is developing strategies to leverage and amplify our unique Wow Walls and other extensive watch assets. And we plan to promote our stores as venues where fans can enjoy a unique fan experience in a safe fun environment with great access to food and beverage and other great forms of gaming and entertainment. We’ll have more to share on that as our plans come together over the next few months.

Another area where we’re investing and accelerating changes in our marketing. We had already begun to rethink our marketing strategy before COVID. And in March, we welcomed Brandon Coleman as our new CMO to inject new leadership and perspective into our marketing strategy. We had also initiated an agency review process prior to COVID with the original intent to launch a new brand campaign in May. That process, while delayed, continued throughout the shutdown and culminated in the selection of Mother New York as our new creative agency. By fall, assuming we have successfully reopened all or most of our stores, our temporary marketing efforts will pivot to a new national brand campaign developed with Mother under Brandon’s leadership. Our new campaign will amplify Dave & Buster’s strong brand and unique assets through activations aligned with several key events-driven windows, all of which will contribute to engaging against on a more emotional level.

To conclude, although the operating environment continues to be very fluid and uncertain, we are confident in our plan and optimistic about our ability to recover and emerge in a stronger competitive position. Our team is laser-focused on reopening our stores, re-engaging our guests and rebuilding our business. And we’re using this opportunity to invest and accelerate change across key areas of the business, all with the goals of enhancing both the speed and magnitude of our business recovery. None of what we have been able to accomplish over the past 90 days or what we have set our sights on achieving looking forward would be possible without our dedicated team members.

I want to extend a special heartfelt thanks to our team members across the country who are working tirelessly for Dave & Buster’s as well as those who remain at furlough. Your passion for the company personifies this great brand and will be a key intangible ingredient as we work together to rebuild our business.

Now Eduardo, why don’t we open the call to questions.

Questions and Answers:

Operator

[Operator Instructions]

Now we’ll take our first question from Andy Barish at Jefferies. Please go ahead, sir.

Andy Barish — Jefferies — Analyst

Hey guys. Nice to — nice update [Phonetic]. I guess first question, have you done any consumer work? I know it’s early on returning to the locations and just kind of the feeling around cleaning procedures and social distancing that we may be able to learn something from?

Brian A. Jenkins — Chief Executive Officer

Yeah. Andy, it’s good to talk to you. I hope your family is well. So we are — as we reopened the stores, clearly, external factors like the health of the economy, fears of around — the pandemic fears make it somewhat difficult to predict how our business is going to recover. That — I fundamentally believe that people are social by nature and want to get back to living life. And I think we’re seeing that in our numbers. We’re really encouraged by what we’ve seen in the stores we’ve opened with our comp stores producing 37% here with a very limited amount of weeks of operation, and we’ve got some of our top-tier stores, top quartile, as I said, 55%, some of those stores are actually in the 60% range, and that’s moved up here this week as well. And the recovery ramp is also encouraging.

So we’re really optimistic about our ability to claw back. As consumers have come in our stores and guests that come back into our stores, the feedback that we’re getting right now is that, in general and somewhat overwhelmingly, we’re getting positive feedback on what we’re doing as it relates to our sanitation efforts. We have a pretty comprehensive program that we’ve put in place. We’re extremely serious about this. So feedback has been good. And we have admittedly reduced some of our offering with our guests with our limited menu and we’re moving some of the games, and we really haven’t got a lot of negative feedback on that.

And I think, in general, guests were seen very happy that we’re open. They’re tipping really well, which is obviously great for our team. And our op team has done just a fantastic job of getting these stores back open and welcoming our guest back in. So I’m extremely pleased with where we sit right now.

Andy Barish — Jefferies — Analyst

Yeah. Nice to hear. And then I’m just pivoting to Scott, what is your definition of variable profit just to level set?

Scott J. Bowman — Senior Vice President and Chief Financial Officer

Yeah, sure. So what we did, Andy, is we calculated what the kind of the burn rate is — expense burn rate when our stores are closed, okay. And so the variable profit is, those additional expenses needed to open, what is needed to cover that additional expense to open the doors. So once we’re able to cover those additional expenses to open the doors, we call that variable profit.

Brian A. Jenkins — Chief Executive Officer

Andy, one last thing that I actually meant to mention in response to your question. One of the other encouraging thing, again, it’s not like we have a lot of weeks here, five weeks, but what we are seeing is that the stores that are coming on later in the cycle, stores opened last week and the ones that are opened actually this week, are coming on at a higher index out of the gate. So I think that’s — we view that as very good news, as a part that we get away from the original onset of this, back in March. And some of these states that are opened up a little later, we’re coming out of the gate a little bit — with higher performance.

Andy Barish — Jefferies — Analyst

Thank you.

Brian A. Jenkins — Chief Executive Officer

Thank you, Andy.

Operator

We’ll now take our next question from Nicole Miller at Piper Sandler. Please go ahead.

Nicole Miller Regan — Piper Sandler — Analyst

Thank you and good afternoon. And we’re very happy to have you and the team back and the stores opening. I wanted to ask about the employees. I was thinking back to the IPO and how you introduced us to what I would call Dave & Buster’s career-level labor. And obviously, you’ve communicated with them really well during this crisis. So as you get the stores back online, how many are what you would call it those career individuals? Are they less than half, half, or the vast majority? And I’m asking that question because it seems like you could get up and running a whole lot faster, probably some best practice leverage there. And then in addition to that, when you can operate at that 90% of revenue, what labor are you running? Is that less than 90% or at that equivalent 90%, or more than that?

Brian A. Jenkins — Chief Executive Officer

Okay. Nicole, it’s good to talk to you, and I hope you’re doing well also. You’re right. The D&B brand, our company has an incredible team that are extremely committed to the company. And so as we have begun to reopen the stores, we’ve had a lot of success in bringing back the skilled management team to reopen these stores. And so extremely pleased with that. We’re glad to have them back. I appreciate the loyalty that they’ve shown to come back after the furlough period of time. And we’re coming back with a much smaller team. We’re opening these stores kind of week one with two to three managers. That would compare closer to 10 in a normal situation.

So we have some very committed people that just are extremely happy to get back — get back to work and help rebuild the business. So I’m extremely grateful and it has a lot to do with the culture in this company, and our COO, Margo Manning and our regional VPs that have been with this company a very long time that has stayed in touch with the team. And so I think that’s paying us dividends right now. And that’s allowing us, as you said, to get opened pretty quickly here. We’re — I’ll say we — Margo and the team are getting stores up within seven days, we’ve done a couple faster than that. Once we make an internal decision and to move forward, we’re getting these stood up really quickly.

So I’m very pleased about that. And we’re being — we’re aggressive. Once we make the decision and the mandates allow, we’re going to move forward. We’re going to give our team members a chance to get these stores opened, rebuild this business as soon as we possibly can.

I think the other question you asked was about what labor will we have at 90%. We are working on a labor model that would allow us to operate at a lower index than that as it relates to team members. [Indecipherable] I talked about, we’re looking at more — a potential for technology-enabled to take some of the transaction-oriented elements of the guest interaction out of the service hands so that they can focus on the experience with our guests. So it remains to be seen how that’s going to work out, but we are definitely going to come up in a nimble way. Because at this point, it’s imperative that we do that.

Nicole Miller Regan — Piper Sandler — Analyst

So both of those sound very promising. I’ll just ask the last question. We’ve been doing a lot of survey data. And honestly, I don’t know how much it matters because consumers say they’re going to do one thing and they might do something different, especially in this situation. Just by observation only — we’re not going to hold you to it, but just by observation, if you look at demographics or look at behaviors in these 28 stores that are open, are they more individuals, bigger group size, smaller group size? How much is eating, how much is amusement in the Midway? Do they stay longer? Do they leave earlier? Just what are you observing in general?

Brian A. Jenkins — Chief Executive Officer

Early on, we have, what I call our four box that we’re putting together on each store reopen to try to get an understanding of what kind of guest profile we see as we reopen. It’s skewing a little less family and a little more adult right now. And I think some of that makes sense here. So we have seen that. And we are seeing amusements — the mix has increased on the amusement side. We were running about 5 percentage points higher in terms of sales mix as these stores open up. And so it’s coming out of the food side. Our beverage mix is about the same. So we’re seeing more play, people coming back to play. And that is the primary reason to visit D&B, and it’s really always been that way, and that’s what we’re seeing as we get these stores ramped up.

Nicole Miller Regan — Piper Sandler — Analyst

Thanks for sharing that, and best of luck.

Brian A. Jenkins — Chief Executive Officer

Thank you. Thank you. It’s good to talk to you.

Operator

Now we’ll take our next question from Jake Bartlett at SunTrust. Please go ahead.

Jake Bartlett — SunTrust — Analyst

Great. Thanks for taking the question. And also congrats on all the hard work in getting the getting the business back up and running. Brian, my question was about — it was — it’s really encouraging to hear that you expect to have stores open 90% to 95% by the end of July. How should we think of the trajectory as we get there? Maybe any indication at the end of June, for instance? Or is it really just some laggards, as you mentioned in the Northeast that are going to be later in July. Just trying to understand how that progresses over the next two months.

Brian A. Jenkins — Chief Executive Officer

Well, here — we’re sitting here in June right now. I don’t know that I want to peg the June-end and the July-end. So July is the 90% to 95%. And we’re essentially saying a month or so later, the rest of them are done. So I think that’s pretty — feels pretty precise to me. And we are — right now, we’re expecting our California stores to be — some of our California stores to be among the last to open. So that would imply that sort of late August, early September. And then New York, we got pegged. Obviously, those two markets are huge for us in terms of store count. We got 20% of our store count in those two states. So we’re estimating California really more at the end of July, early part of August.

Some good news on — really this week in California. We actually are going to be opening up three stores in California, two in the San Diego market, and actually in Ontario — our Ontario store. So we’ve got a crack into some of these West Coast/Northeast markets. We’ve got a couple of Connecticut stores also. So that’s encouraging to see, and we hope we’ll see more coming, but it’s really hard to predict, Jake, exactly what we — these are estimates and likely we’ll be on these a bit. So we meet twice a week to review the mandates as a small team. And so those are our best estimates right now.

Jake Bartlett — SunTrust — Analyst

Got it. And then just digging into the performance at the stores that have been opened. I think encouraging at this point that the range and especially some of those at the higher end of the range. But what is it — versus the 18% to the 55%, what is the common denominator? Is that just the length that they’ve been open? Or is it a very different consumer behavior in different markets?

Brian A. Jenkins — Chief Executive Officer

It’s some of all of what you said. As I mentioned in my response to Andy a minute ago, we’re seeing some of the stores that are opening later. The first store open really at the tail end of April, first of May, I think it was one day in April, and it was a single store. So we don’t have a long history, but the stores that are coming in now, the stores that we opened last week, are coming in at a higher index at the outset. So that’s encouraging. And we are seeing steady development improvement really in all the — I’m going to call them week classes. We have certain stores that are open each week. We’re seeing steady movement up in each class. And the class that is most developed right now is at 46%. So the number of stores that have been open five weeks, sustain at 46% right now. And as I mentioned, we have some stores that are actually doing quite a bit better than that.

And there are some geographical differences. We attribute — as we’ve done some progression work again, limited data. So I take it for what it’s worth in someways. But we’re seeing markets where they have a lower incidence of COVID cases tend to have stronger performance. And we’re seeing stores that — or have a tourist top spend, some of the coastal areas, in particular, seem to be performing better. So I think it’s — there are some unique market elements, and I also think there’s timing within the opening cycle here.

Jake Bartlett — SunTrust — Analyst

Got it. And then my last question, perhaps for Scott. You mentioned that I think it was sales at 60% at prior levels. So your same-store sales were down 40% that you’d be EBITDA break-even. Could you help us break that down of what that looks like for G&A versus store level profits? Just to kind of help us — a lot of moving pieces, hard to gauge. So any help on what that would mean for profit margins versus what you’re expecting for kind of the absolute level of G&A?

Scott J. Bowman — Senior Vice President and Chief Financial Officer

Yeah. So maybe this will help us to break it down kind of at enterprise level and just at the store level. So if you just think about the store level kind of four-wall profitability, we need to get back to about 50% index from where we were this past year to get to profitability at the store level. And then as you think of the enterprise, you have to get closer to that 50% kind of index level to be profitable, covering G&A and all those extra costs.

Jake Bartlett — SunTrust — Analyst

That’s really helpful. Thank you.

Brian A. Jenkins — Chief Executive Officer

The way I’m thinking about it — the way I’m thinking about that a little bit, Jake — if you think about the 10% to 20% to get to variable profit, meaning covering our variable cost to reopen, we’re achieving that. If you look at our first week of operational, we’re averaging 17%. That’s well within that variable profit range of 10% to 20%. And really, all of our stores are generating variable profit as I said. And right now, the development curve in the fifth week stands at just shy of 50%. So we’re working our way up the curve here. So we’re encouraged by it.

Jake Bartlett — SunTrust — Analyst

Great. Thank you so much.

Operator

We’ll now take our next question from Chris O’Cull at Stifel. Please go ahead.

Chris O’Cull — Stifel — Analyst

Hey, thanks. Good afternoon, guys. The company has always had really high amusement margin because of the minimal attendant requirements on those games. Do you expect this is going to change or will need to change with new operating and safety standards?

Brian A. Jenkins — Chief Executive Officer

Yeah. I can start on that. And so we talked about kind of the work we’re doing in each of our stores to make sure it’s a safe environment for our team members can guests. And so obviously, that takes some labor. It takes a lot of cleaning materials and masks and gloves and everything. So we have invested in all that, and we’re doing a very diligent job of keeping our stores clean and making sure that everyone feels safe. And so that’s going to cost — it’s on pace of about a $7 million number or so to do that activity kind of at the current pace. And — so I think time will tell how much that cost may vary or potentially decline as time goes on. But we think that although it is a fairly heavy cost, it’s very well worth it and really a requirement for us in our mind to be able to provide that environment as we ramp up.

Chris O’Cull — Stifel — Analyst

And then I know the companies — I mean, the Company was looking at some new gaming technology prior to the crisis. And I’m just wondering how you’re thinking around multiplayer games or how you are thinking about gaming in the future for Dave & Buster’s under this new — this new situation, this new environment.

Brian A. Jenkins — Chief Executive Officer

That is — thanks for the question there. I mentioned in my prepared remarks what we’re really focused on right now around the service model, menu, programming and marketing. Those are what we’re leaning into as we open — reopen the stores in an environment where we have some capital constraints and we also have resource constraints from the human side.

So we have — we had worked on our strategy refresh plan really in the whole back of last year and are still very committed to all the things that we were working on. But we are taking a pause on a number of things to get our stores back open. And game purchases, physical games, multiplayer games, we had a couple of VR games on tap, yeah, we’re taking a pause on that right now.

Our focus is to getting the stores back open. And our belief is that, and I’ve said it before, I think people want to fundamentally socialize. This is definitely put a crimp in that for a period of time. And we’re going to have to wait and see how consumer preferences change before we lean in in a huge way on the game plan. We have some great assets on the floor already and that is not a near-term focus for us.

Chris O’Cull — Stifel — Analyst

Great. Okay. Thanks, guys.

Operator

Thank you. We will take the next question from Andrew Strelzik with BMO Capital Markets.

Andrew Strelzik — BMO Capital Markets — Analyst

Hey. Good afternoon. And nice to talk with you guys. My question —

Brian A. Jenkins — Chief Executive Officer

How are you?

Andrew Strelzik — BMO Capital Markets — Analyst

I’m great. Thank you.

Brian A. Jenkins — Chief Executive Officer

Good.

Andrew Strelzik — BMO Capital Markets — Analyst

You described a number of the steps that you’ve taken, whether it was the menu or maybe more scalable kind of labor model, those types of things you described them as transitional. Is there anything that you’ve learned from what you’ve done that could become maybe more permanent or why or why not?

Brian A. Jenkins — Chief Executive Officer

Hey. You know when you get in — Andrew, when you get in a situation like this where you have essentially been forced to shut your entire company, there is no question this creates an opportunity to think differently. So we are operating in a completely different way both in the field and certainly here in our corporate office. People are working from home and we’ve been very productive with an extremely smart team getting these stores built back up. So I expect that we will make changes and the majority of those are in the areas I just talked about, around our service model and how we engage our guests and that experience and leveraging technology, the menu, which was something that we were aggressively working on. We lost some time in the shutdown, but we are gearing that back up. And so — and the marketing is an area that we have run the same playbook for a long time. And under Brandon’s leadership, we’re excited to have him on our team, we’re going to show up differently real soon. And — so we’re excited to show our brand in the different light. We have a lot of brand fans and we’re going to look to take advantage of that.

So I think we’ve got some good things that we’re trying to lean into. I — but we’re going to need to be focused here and we are pausing some things at least for a period of time. So I’ll leave it at that.

Andrew Strelzik — BMO Capital Markets — Analyst

[Technical Issues] you mentioned the nine leases [Technical Issues] should we assume that there’s going to be a slower pace of reopening [Indecipherable] you had previously talked about that potential maybe as early as ’21. Is that the right way to think about it or is it maybe too early to think about that way?

Brian A. Jenkins — Chief Executive Officer

Hey. Andrew, you were garbled, at least on our line here, maybe not for anybody else. But I’m not sure I got that question. Did you? Can you give us the questions one more time. I apologize, man. You were — on our line [Indecipherable].

Andrew Strelzik — BMO Capital Markets — Analyst

[Technical Issues] now?

Brian A. Jenkins — Chief Executive Officer

Not really.

Andrew Strelzik — BMO Capital Markets — Analyst

Not really. I was just trying to figure out, given the termination of some releases, should we anticipate in coming years [Technical Issues]?

Brian A. Jenkins — Chief Executive Officer

Did you hear? [Phonetic]

Scott J. Bowman — Senior Vice President and Chief Financial Officer

You are still a little bit garbled. Andrew, were you — are you referring to just on new store openings, as we look into next year?

Andy Barish — Jefferies — Analyst

Yes. Next year and beyond, yes.

Scott J. Bowman — Senior Vice President and Chief Financial Officer

Yeah. Okay.

Brian A. Jenkins — Chief Executive Officer

Yeah. So what we’ve done so far, Andrew, is we — as I kind of mentioned in some of my remarks, we took a pretty hard look at our store pipeline in light of the current situation. And so we did decide to move forward on some stores that were nearly complete that makes sense for us. But the other stores that were in the pipeline, some we did terminate already. But we still have some stores in the pipeline that really are just on hold right now. They could very well be in our stores in 2021, but we’re kind of in a wait and see approach right now. And so they are on hold until we get a little bit further down the road and really understand kind of what the new normal may look like.

And so we don’t know exactly today what that will look like, maybe a little bit more time. But we should have some more detail to share on our next call.

Andrew Strelzik — BMO Capital Markets — Analyst

Great. Thank you very much.

Brian A. Jenkins — Chief Executive Officer

Thank you, Andrew.

Operator

All right. We will now take our next question from Brian Vaccaro at Raymond James. Please go ahead.

Brian Vaccaro — Raymond James — Analyst

Good afternoon and great to reconnect. Just on that last point, when do you expect to open the six that you’re finishing construction on? And how many signed leases do you currently have?

Brian A. Jenkins — Chief Executive Officer

Scott, you had in your prepared remarks, but we are — we have a limited amount of net dollar outlay on the six we have remaining for this year. But we’re going to look for more clarity and more business recovery before moving again on those stores. So while it’s a fairly small net number, we’re looking for a little more clarity and visibility before we start them again.

Scott J. Bowman — Senior Vice President and Chief Financial Officer

Yeah. So likely it would be in the back half. I’m not entirely sure right now, but that’s — our expectation right now is subject to changes in the back half.

Brian Vaccaro — Raymond James — Analyst

Okay. And then, Brian, I wanted to get your perspective on the competitive landscape as well. There is obviously a growing headwind to the business for several years pre-COVID. But what have you seen in terms of permanent closures and the like and how do you see that playing out in a post-COVID world?

Brian A. Jenkins — Chief Executive Officer

Thanks for the question, Brian. First of all I guess I would say that as I think about COVID-19, it’s clearly devastating to a number of business — many businesses, particularly if you think about consumer-facing brands, restaurants, entertainment and not to mention and understate all the people that have been impacted through loss of job and livelihoods right now. So nothing positive about that to celebrate. Really — it’s really tragic in my view.

That said, as we think about what we’ve been facing particularly over the last three to four years, we’ve seen a rapid growth in the number of brands coming into the space — into our space and the speed at which they were developing new stores. So clearly, we’ve had a lot of hot headwind for a long time. And I think it’s going to take a little bit of time for some of the dust to settle, at least on some of these companies, some of our competitors, but I do think there is a pretty good chance. The odds are that there will be, one or two things, either a number of the names that don’t reopen or at least aren’t growing at the same pace in terms of the rate of growth for some period of time. So as I think about us, we’re — we define the space, we are a leader in this space. And I think we’re well positioned to emerge in even a better competitive position post-COVID, I really do. And we’ve seen some of our competitors that haven’t opened any stores right now or some that have opened very, very few. So I can’t speculate on what that means about most of the companies are private what that’s going to end up being. But I think we’re going to see less competitive headwind here on the other side.

Brian Vaccaro — Raymond James — Analyst

All right. That’s helpful. And then the last one for me. I just wanted to circle back on the streamlined menu and labor model you talked about. Can you provide more color on each of those sort of compared to pre-COVID levels, maybe the amount that you streamlined, the menu and just how you plan to manage each as sales volumes build, how you’re managing, particularly the labor till then? Thank you.

Brian A. Jenkins — Chief Executive Officer

Okay. Thanks, Brian. So I guess let’s talk [Phonetic] about the menu first. As we — we began to think about the reemergence that we were shutting down, again had a very small team, our culinary team, working on that and Art Carl, our VP in that area. So we took the items on our existing menu, our 40-item menu that were the most popular, generated — the 15 items selected generate a significant portion of our food revenue. And obviously with an eye towards getting a good selection and having some breadth can be a little bit of a challenge with 15 items.

So it wasn’t driven by supply chain. It was driven by our desire to have a menu that we could execute, our team could execute in a good way when we’re coming up with a, in some ways, a skeleton crew. We were opening stores initially with extremely small team and demand imbalance it as we grow and we are being very nimble about that. So we start with a fairly small team and then we scale up and we’ve done — the operating team just done a fantastic job in doing that. And it’s not — it’s some heavy lifting to get your team members back right now, particularly on the hourly front, believe it or not. So that’s easier said than done.

So we’re really efficient. When you’re buying — when you think about doing 10% to 20% of our overall sales volumes and covering your variable cost that’s — in our average AUVs that’s a pretty low sales number. So we’ve developed a pretty nimble model to get these stores open because my feeling is that I want to get the stores opened as soon as we can, get our team engaged and get them back and then we build from there and that’s what we are doing.

Brian Vaccaro — Raymond James — Analyst

All right. Thank you.

Brian A. Jenkins — Chief Executive Officer

Thank you.

Operator

All right. We’ll now take our last question from Jon Tower at Wells Fargo. Please go ahead. Mr. Tower, your line is now open.

Jon Tower — Wells Fargo — Analyst

Thank you very much. I got to find that mute button. That’s always helpful. So, thank you. I’m glad to hear you guys are doing well. Thank you for all the details during the call and the script. I was curious maybe if you could provide us a little bit information on the burn rate. I know obviously last time you had updated us, you talked about a $6.5 million metric plus the $700,000 in debt expense or interest expense to cover. Do you have an equivalent for now and how the business is running right now?

Brian A. Jenkins — Chief Executive Officer

Yeah. Let me just comment on that. So it’s a little better. So as you look at the month of May, at the end of May, we had about 26 stores opened, we opened our first store on April 30th. Okay. So we ramped up during that month. But as I looked at those stores for the month of May, they contributed about $300,000 a week towards net overall burn rate. So that gives you some indication and understanding that they are ramping up in opening throughout the month, that gives you at least some perspective on how things may go in the future. So we are pleased with those stores and hopefully that will continue, but we’re pleased with those results in May for the entire month is about $1.2 million contribution to that overall burn rate.

Jon Tower — Wells Fargo — Analyst

Okay. I am sorry, just to make sure I understand that completely. You mean contribution on the positive side, not on the negative side.

Brian A. Jenkins — Chief Executive Officer

That’s correct.

Jon Tower — Wells Fargo — Analyst

Okay, great. Perfect. And obviously quite a few moving pieces in your business right now. I am curious in stores themselves as you are reopening obviously some amusements in part of the stores being restricted, either the amusement to the dining side. But I’m curious, how are you dealing with the amusements that are — that require more customer engagement and frankly even team member engagement like VR or even things like pop-a-shot, like how do you see these coming back online and when do you see that happening?

Brian A. Jenkins — Chief Executive Officer

I guess I’ll address VR first. We have had guest requests for VR. But we have not opened up our stores with the VR game in operation. We may test a location where we have some stores that are doing huge volumes right now. But — and in some ways, our VR games are probably the cleanest games in the store because we’re — we have a practice of wiping and cleaning those after every use. It’s just part of the normal protocol here. But that hasn’t — reintroducing VR is not at the top of my list right now.

We’re — it’s a great attractions, it’s a piece of what we do, but it’s not a driver to our success to get these stores back open and the wheels moving. As it relates to pop-a-shot or actually any of our, let’s call it, multiplayer games, what we’re tending to do here is deactivate some of the games because most of these have multiple look — multiple player positions. So we are deactivating some of those to create the separation at this point.

Jon Tower — Wells Fargo — Analyst

Okay. And then just last one for me. I’m curious, just on the menu piece of it all, getting down to the 15 items from the more than 40 prior to the crisis. I think you alluded to it earlier, the idea of this potentially altering how the menu looks as you emerge from the crisis. I’m just curious how much of a streamlined menu are you thinking about? Is it 15 items? Obviously, right now the highest profit, highest turning ones. Could you envision a period where it’s only 20 items over time and much more streamlined and perhaps you even shrink the footprint of the dining room or is — do you plan to return to somewhere near where you were close to 40? I’m just curious to get your thinking around that.

Brian A. Jenkins — Chief Executive Officer

Thank you for the question. Obviously that’s something we were in the midst of that work prior to COVID. We had partnered with a third-party consulting firm to assist us with some of that thinking. And I do not expect that we will go back to the 40 item menu. I think what — when you get thrown into a disruption of this magnitude, it does give you a really good environment to learn some things.

And by necessity, we dropped the menu back 15 items. Again popular items generate the lion’s share of our food revenue, these items that we kept, still keeping breadth. So it will help inform actually the number that we come back with at some point in time here. And I don’t expect it to be over 40. I expect it will be south of that. I think it will be about 15. I think it’s going to be somewhere in between, but that’s something we’re working on right now.

Jon Tower — Wells Fargo — Analyst

Okay. Great. Well thank you very much and best of luck.

Brian A. Jenkins — Chief Executive Officer

Thank you, Jon. You have a good evening.

Operator

That is all the questions, Mr. Jenkins, Mr. Bowman. At this time, I’d like to turn the conference back to you for any additional or closing remarks. Please go ahead.

Brian A. Jenkins — Chief Executive Officer

All right. Well, thank you. Well, thank you guys for joining our call today. We will look forward to updating you on our progress in September. Also we want to wish you a safe and happy summer and look forward to seeing you at one of our reopened Dave & Buster’s locations very soon. Have a great night.

Operator

[Operator Closing Remarks]