Pinstripes Q2 2025 Earnings Call Transcript

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November 26, 2024

There are 6 speakers on the call.

Operator

day, ladies and gentlemen, and thank you for standing by. Welcome to the Pinchotty Pollard Inc. 2020 I'm sorry, 2nd Quarter Fiscal 2025 Earnings Conference Call. At this time, all participants have been placed in a listen only mode and the lines will be open for your questions following the presentation. Please note that this conference is being recorded today, November 26, 2024.

Operator

During management's presentation and in response to your questions, they will be making forward looking statements about the company's business outlook and expectations, including in respect of guidance for fiscal 2025. These forward looking statements and all other statements that are not historical facts and reflect management's beliefs and predictions as of today and therefore are subject to risks and uncertainties as described in the company's quarterly report on Form 10 ks for fiscal 2024 and subsequent SEC filings. Management will also discuss non GAAP financial measures as part of today's conference call. These non GAAP measures are not prepared in accordance with the generally accepted accounting principles, but are intended to illustrate alternative measures of the company's operating performance that may be useful. Reconciliations of these non GAAP financial measures to the most direct comparable GAAP measures can be found in the earnings release.

Operator

The company has posted its Q2 2025 earnings release and an earnings presentation on its website at www.pinstripes.com under the Investor Relations section. And now, I'd like to turn the conference to Pinstripes' Founder and CEO, Dale Schwartz. Thank you. You may begin.

Speaker 1

Good afternoon, everyone, and thank you for joining our call today. Over the last few months, we have been focused on 3 main initiatives: 1, improving our top line sales comp growth trajectory 2, driving improved profitability at both the venue level and corporate level and 3, opening high quality locations within our current funding capacity. Let me speak to each of these areas starting with improving our top line comp growth. As most of you are aware, consumer wallets remain pressured and we are seeing this most pronounced in our Open Play business, which was down approximately 13% year over year in Q2, while our event business was only down approximately 6%. For our open play business, we are focused on ensuring we have the right level of value for our guests through programs such as Happy Hour Gaming promotion, where you can enjoy a lane and bowl for 50% off during certain hours, as well as our daily specials and weekend brunch offerings.

Speaker 1

In addition, our local store marketing campaigns have seen exciting success as we have introduced activities such as kids clubs, comedy nights, fine dancing, yoga classes, trivia nights, and many other community activities that complement our F and B and gaming offering. As we entered the fiscal Q3, we continue to test programs that we believe are right for our brand and our guests while being quick to discontinue those that did not perform to expectation. We believe we found the right balance as demonstrated by the substantial improvement in our comp performance in recent weeks compared to the Q2. On the event side of the business, our Q3 is seasonally strongest and our teams are working hard to drive as many events as possible for pinstripes through the holiday season. We are encouraged by the fact that we are seeing strong lead generation and booking performance on the event side of the business in recent weeks, and our continued investment in the tourism and convention segment of our event business is showing very promising bookings and sales results.

Speaker 1

With respect to profitability, our team has successfully removed the annualized $10,000,000 in cost savings we spoke to last quarter. This is most evident in our mature store base with margin leverage in cost of sales, labor and operating expenses despite our current short term comp growth headwinds. These savings range from strategic hourly and salaried labor savings, a more favorable credit card processing agreement, the more intense negotiations with our various vendor partners leveraging our growing scale and brand. The Q2 saw substantially all of these savings implemented, and we expect a full run rate benefit going forward. In addition, we are a target in removing approximately 4 $1,000,000 of additional annualized savings in our SG and A, with the majority of these savings yet to fully flow through our financials.

Speaker 1

These cost savings range from negotiations with agency partners, the strategic corporate headcount reductions, and a renewed focus on marketing efficiency. Following the completion of our cost reduction efforts at the venue level and ongoing work on corporate level costs, we believe we are on track towards the appropriate cost structure to drive long term top line performance through same store sales growth as well as new unit openings while ensuring we are maintaining sufficient corporate level profitability. Turning to new unit development, on November 15, we opened our 18th location in Walnut Creek, California at Broadway Plaza, marking our 2nd location in the San Francisco area in close proximity to our location in San Mateo. This new 2 story Walnut Creek venue features 25,000 square feet across two levels, with 8 bowling lanes, 2 indoor bocce courts and private event space for groups of up to 1500. Our opening to date has been very promising and our initial private event bookings have been very strong complementing the continued success of our San Mateo location.

Speaker 1

Finally, I want to touch on our liquidity. As of October 13, we had $3,200,000 in cash and cash equivalents. While we anticipate significant positive cash flow in the 3rd fiscal quarter as holiday sales volumes increase substantially, we are also evaluating and seeking to raise additional external capital, which could include funding from new outside sources as well as additional funds from our existing lenders. We will continue to balance our unit growth pipeline with the capital available to us as we scale our business nationwide. In summary, despite challenging results for the Q2, we are encouraged by what we are seeing in recent weeks as trends have improved substantially.

Speaker 1

The holiday event period for Pinstripes is a significant source of EBITDA, and we are optimistic about our potential in the fiscal Q3. We continue to believe that our high quality, connection oriented dining, entertainment, and event spaces put us in a strong position to drive long term shareholder value. Of course, none of this would be possible without the passion and dedication of our more than 2,000 team members as they continue to provide our guests with those magical moments they've come to expect from Pinstripe. With that, let me now turn the call over to our CFO, Tony, to discuss our fiscal 2nd quarter results in greater detail.

Speaker 2

Thank you, Dale, and good afternoon, everyone. For fiscal 2nd quarter, total revenue increased 7.5 percent to $26,500,000 compared to $24,600,000 in the same quarter last year, including an 8.6% increase in food and beverage revenues and 3.6% increase in recreation revenues. The increase in total revenue was primarily due to having 4 new stores opened in the Q2 of fiscal 2025 for the full period compared to the Q2 of fiscal 2024, partially offset by modest decreases in volume at our 13 legacy locations. Turning to expenses, cost of food and beverage as a percentage of total revenue increased 10 basis points to 17.5%, primarily due to cost efficiencies offsetting changes in product mix. Labor and benefits as a percentage of total revenue increased 100 basis points to 38.9%, primarily due to the addition of 4 new stores contributing to higher store labor and benefit costs.

Speaker 2

Excluding the addition of 4 new stores, store labor and benefit costs were down approximately 30 basis points. Occupancy costs as a percentage of total revenue were 18.6%. Other operating expenses as a percentage of total revenue decreased 100 basis points to 19.9%, primarily due to decreases in repairs and maintenance activities, credit card fees and technology offset by an increase in insurance costs and janitorial costs. Venue level EBITDA as a percentage of total revenue decreased 160 basis points to 5%, driven by modest negative store contribution from some of our new locations that opened in fiscal 2024 as these stores continue to progress through the maturation curve with the profitability of this group continuing to improve. Please refer to our earnings release for a reconciliation of non GAAP measures.

Speaker 2

Our mature stores, those opened more than 24 months, generated average contribution margins of 8.3%, representing a 50 basis point increase year over year driven primarily by cost efficiency improvements that we've previously discussed. General and administrative expenses increased to $5,100,000 compared to $3,800,000 in the same period last year. Turning to liquidity, as of October 13, 2024, we had $3,200,000 in cash and cash equivalents and $114,000,000 of debt outstanding. For the 3rd fiscal quarter, we anticipate positive cash flow and continue to evaluate additional liquidity options, including but not limited to raising additional capital and receiving additional funding from our existing lenders. With that, in lieu of annual guidance, we want to provide an update on our quarter to date results.

Speaker 2

3rd quarter to date through November 24, 2024, same store sales decreased 8.1% with the last 2 weeks up 10.1%. We opened 1 new venue in Walnut Creek, California on November 15th and do not anticipate opening any additional venues during the quarter. And we expect overall venue level EBITDA to be meaningfully higher than prior year and adjusted EBITDA to be positive in Q3 and above prior year. We'd like to thank you again for your interest in Pinstripes. Dale and I are now happy to answer any questions that you may have.

Speaker 2

Operator, please open the line for questions.

Operator

Thank you. At this time, we will be conducting a question and answer session. 1st question here is from Brian Brintner from Oppenheimer. Please go ahead.

Speaker 3

Thank you. Just question on the same store sales. I understand the last couple of weeks have improved, but still quarter to date is pretty down meaningfully after down 9% in the Q2. So can you just outline what you believe the pressures are, maybe dig a little deeper into that? How much is macro versus maybe what you can control?

Speaker 3

Yes.

Speaker 2

Hey, Brian, it's Tony. Yes, I'd say if I wanted to unpack kind of the Q2 comp, I'd say half of it is macro. And I'm using the Events business as kind of our proxy there and then relative to the Event Openplay business. We control our destiny a little bit more on the Event side and so you can see the macro pressure kind of making up half that 9%. And then the rest I'd say is, look, we did some aggressive promotional activity, particularly on the gaming side of the business.

Speaker 2

And we changed some things from a marketing perspective, which we've since course corrected and we're seeing the results in the last couple of weeks, which is why we called it out specifically in our prepared remarks.

Speaker 3

Okay. And just a follow-up question is on margins. I know we're talking about EBITDA for the Q3. And is there any outlook you can give us on restaurant level margins just considering the previous disclosure on guidance? How are you thinking about restaurant level margins in the second half?

Speaker 2

I mean, so obviously, if you look at just Q2, in spite of some pretty negative sales leverage, we still increased margins. So we don't expect that much negative sales leverage to be in the second half, that meaningfully better, I think, just based on what we're seeing in the last couple of weeks. Look, but still given the volatility, we're not going to call out a specific number on venue level margins. But it's very obvious you can just look at just the last quarter and say, look, if sales are meaningfully better, which we're thinking they are, you're going to see that flow through a pretty high rate. So that's what we're saying.

Speaker 3

Okay. Thank you.

Operator

Next question here is from Matt Curtis from William Blair. Please go ahead.

Speaker 4

Hi, good afternoon. So I understand you're looking for positive operating cash flow in the Q3. But looking beyond that, can you give us a sense of how far your current liquidity can take you before you need to raise more capital before it becomes really something you have to do? Yes.

Speaker 2

We hey, Matt, it's Tony. Yes. So we believe our current liquidity situation given the build and cash that we'll see here as we work through the holiday season plus the cost out that we've completed. We should be able to get through most of calendar 20 25 with our current liquidity situation and debt service. We have to look, we're looking at it raising additional capital, so we're not being shy about that.

Speaker 2

But we do have with the holiday season and what we're seeing kind of on the outlook, enough liquidity to get well into next year.

Speaker 4

Okay, great. And then on Coral Gables, it sounds like that's being pushed out into fiscal 'twenty six at this point. Could you give us a better idea on the timing around that?

Speaker 2

We didn't say it's pushed out in the fiscal 'twenty six, just not in Q3. So likely in Q4 of fiscal 'twenty five, Coral Gables will open.

Speaker 4

Okay. Understood. And then I guess on marketing, could you talk about maybe what misfired on marketing? And maybe if you could describe what course correction measures you've implemented?

Speaker 1

Sure. It's Gail. One of the main elements, we have a quite substantial paid digital spend, not just Google AdWord, but Facebook and other. And we did a reevaluation of that spend. We decreased it a bit in, I'll call it, the early period of Q2 to get a beat is testing to see what the flow through and effects are.

Speaker 1

And we did see some diminution in sales by pulling back the spend, and we very quickly course adjusted. And so that's what you were hearing Tony mostly refer to.

Speaker 4

Okay. Understood. Thanks very much.

Operator

Next question is from Peter Saleh from BTIG. Please go ahead. Yes, sorry, Peter, your line is live. I might be muted by accident.

Speaker 5

Can you guys hear me all right?

Operator

Hey Pete.

Speaker 5

Yes. Hey, okay, great. Sorry about that. So just a question on the most recent comp trajectory that you've seen improvement. Could you just talk about is that I don't know if I missed it, is that from mostly from open play events?

Speaker 5

Just any color around that? And then also is this typical for your business to have this much volatility in same store sales? Or just trying to understand why so volatile in most recent weeks?

Speaker 2

Yes. So look, a little color on the quarter to 8 comp, primarily driven by the Events business. And there is a little bit of volatility in that. So it can be or I should say more lumpy, which drives some of that. In terms of is our business normally this volatile?

Speaker 2

I'd say, look, this is a macro environment that we haven't seen in some time. And so that's probably amplifying a bit of what is otherwise us lapping some pretty big comps over the last couple of years.

Speaker 5

Got it. And can you guys provide a little bit of color on just the breakdown maybe in the quarterly comp and maybe go forward in terms of how much pricing or check you expect in the go forward comps versus traffic?

Speaker 2

So in Q2, we had an effective 2%, what I'll call menu price increase on the business that was completely offset by promotional pricing in gaming. So the 9.4% is essentially traffic. And then how the comp broke down in the quarter, that mid July to mid August period, we were down about 8%. And then it we saw significant change kind of in mid August to mid September, and then back to about 8% down in mid September to the end of the quarter in middle October. So really it was that kind of the middle 4 weeks that really drove us down further than I would have expected.

Speaker 5

Got it. Understood. Thank you very much.

Speaker 4

Thanks, Pete.

Operator

This concludes the question and answer session. I'd like to turn the floor back to Dale Schwartz for any closing comments.

Speaker 1

I want to just thank everyone again for joining us this afternoon and your interest in PinsRice. We wish everyone a happy Thanksgiving and holidays and hope to see you all at any of our 18 locations across the country and experience the magic with us. Thank you.

Operator

This concludes the conference today. You may disconnect your lines at this time. Thank you again for your participation.

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Earnings Conference Call
Pinstripes Q2 2025
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