Pinstripes Q3 2024 Earnings Call Transcript

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February 21, 2024

There are 5 speakers on the call.

Operator

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Pinchas Holdings, Inc. Third Quarter Fiscal 20 24 Earnings Conference Call. At this time, all participants have been placed in a listen only mode and the lines will be opened for your questions following the presentation. Please note that this conference is being recorded today, February 21, 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 the Q4 of fiscal 2024. 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 10Q for the Q3 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 Generally Accepted Accounting Principles, but are intended to illustrate alternative measures of the company's operating performance that may be useful. Reconciliations of the non GAAP financial measures to the most directly comparable GAAP measures can be found in the earnings release.

Operator

The company has posted its Q3 fiscal 2024 earnings release and earnings presentation on its website atwww.pinstripes.com under the Investor Relations section. And now, I'd like to turn the conference over to Pinstripe's Founder, President and CEO, Dale Schwartz.

Speaker 1

Thank you. Good afternoon, everyone, and welcome to our inaugural public company quarterly earnings call. I want to start by thanking our Pinstripes team for their passion and dedication and our guests who for 17 years have joined us for countless celebrations and magical moments. I would also like to thank Banyan and Oaktree for their strong partnership in introducing pinstripes to the public market. It has been quite a journey that started over 50 years ago when I bowled in Cleveland as a child, and as they say, it takes 50 years to make an overnight success.

Speaker 1

I coined the name Pinstripes in 1989. And 28 years later, in 2007, the dream became a reality when we opened our flagship pinstripes location in Northbrook, Illinois. Fast forward to today, we now have 16 beautiful pinstripes venues with additional new venue openings over the next few months, including locations in Orlando, Walnut Creek, California and Coral Gables, Florida. For those of you not familiar or have never been to Pinstripe before, let me give you a brief overview. Our vision is a simple one, to create a unique dining and entertainment destination where guests can connect in an old fashioned way.

Speaker 1

By combining aesthetically beautiful venues, delicious Italian American cuisine, best in class service, and the timeless games of bowling and bocce, along with private event space for memorable parties, our venues foster authentic human connections across life every day and special events, creating broad market appeal. This has resulted in our ability to generate substantial sales while maintaining robust venue level economics. Pinstripe is also capitalizing on the dislocation of the retail industry, filling the void as a traffic creator. Historically, when considering malls and other large retail centers, the movie theater and anchored apartment stores were the key traffic drivers. Over time, streaming and the rise of e commerce have created significant dislocations within the retail industry.

Speaker 1

By providing high quality and connection oriented dining, entertainment and event spaces, Kim Stripes is able to address the key elements that developers need to drive traffic and establish or transition their properties as lifestyle centers. With that, let me go through the differentiating factors that set Pinstripe apart from other concepts in the market. While we're comprised of bistro, bowling and bocce, our made from scratch dining is what truly differentiates our brand. Food and beverage comprise approximately 75% of our total revenue, with bowling bocce comprising almost the rest of the balance. Equally important is our private event space where each of our location hosts over 1,000 events per year.

Speaker 1

Private events represent nearly 50% of our sales, both social and corporate and are an extraordinarily important and profitable facet of our business. It also creates a flywheel effect of increased brand awareness, which further drives repeat customers and future open dining and play visits. Turning to unit economics, the average unit volume for Pinstripe's venues is in excess of $8,000,000 with select locations in excess of $10,000,000 Our venues range in size from 25 to 38000 square feet of interior space with additional outdoor patio space generating venue level EBITDA margins averaging over 17%. As we build new venues going forward, we will continue to target year 2 revenue of $9,000,000 plus venue level EBITDA margins of 17%. Combined with build out costs of approximately $3,000,000 net of tenant allowances, we are looking at 40% plus cash on cash returns, which equates to a payback period of approximately 2 years.

Speaker 1

Lastly, let's talk about our development plan. As I mentioned earlier, we currently have 16 venues in 11 states with 3 additional openings planned for the next couple of months in California and Florida. Approximately 85% of our current locations and all planned new locations are suburban, which is ideal with the post COVID hybrid office trends. That said, the broad appeal of our brand has proven itself across both suburban and urban markets, showcasing the power of what PinsRice has to offer and proving our national portability. With respect to site selection process, we consider residential and commercial demographics, co tenancy with top brands, iconic settings and the availability of outdoor patios, ideally on two levels with our venues spanning across Signature Mall properties, experiential lifestyle centers and prime urban locations.

Speaker 1

In terms of white space, we believe we have the potential for at least 150 locations domestically. And internationally, we believe in equal or greater opportunity as we do domestically, driven by global consumers yearning for interpersonal connections much like consumers in the U. S. In summary, we are at an exciting inflection point in our 17 year journey. Our brand is uniquely positioned for the current consumer environment and we have a solid foundation of over 2,000 passionate team members that are excited to capitalize on the white space opportunity ahead of us.

Speaker 1

With that, let me now turn the call over to our CFO, Tony, to discuss our Q3 results in greater detail.

Speaker 2

Thank you, Dale, and good afternoon, everyone. Let me start by giving you a brief overview of where we are as company year to date, provide you with our Q3 results, and lastly, our expectation for the Q4 of fiscal 2024. To Accodale's sentiment, fiscal 2024 has been an exciting year for Pinstripes as we embark on being a public company. In connection with the closing of our SPAC merger with Banyan Acquisition Corporation, we raised more than $70,000,000 in gross proceeds, which will help fuel our growth as we continue to scale and open additional pinstripes venues. For the fiscal 2024 Q3, total revenue increased 14.1 percent to $32,200,000 compared to $28,200,000 in the same quarter last year, including a 14.2% increase in food and beverage revenues and a 13.9% increase in recreation revenues.

Speaker 2

This increase was driven by 2 new unit openings and a 6.9% increase in same store sales. Turning to expenses, cost of food and beverage as a percentage of total revenue decreased 30 basis points to 15.6% driven by food cost optimization initiatives in the quarter. Labor and benefits as a percentage of total revenue decreased 10 basis points to 33.7%. Occupancy costs as a percentage of total revenue increased 10 basis points to 15.4%. Other operating expenses as a percentage of total revenue increased 20 basis points to 16%.

Speaker 2

The increase is primarily due to increased repair and maintenance activities as well as other store level initiatives that kicked off in the quarter. Venue level EBITDA as a percentage of total revenue decreased 104 basis points to 19.4%, driven primarily by the partial period opening of our Aventura location. Please refer to our earnings release for a reconciliation of non GAAP measures. General and administrative expenses increased to $5,300,000 including $1,200,000 of M and A and public company readiness and related expense, compared to $2,500,000 in the same period last year. Turning to liquidity.

Speaker 2

As of January 7, 2024, we had $39,600,000 in cash and cash equivalents and $102,000,000 of outstanding debt. Turning to our outlook, let me begin with a reminder that our fiscal year ends April 28, 2024 with a 16 week Q4. With that in mind, our guidance for the fiscal 2024 Q4 is as follows: same store sales growth of low single digits. To put this in context, same store sales growth in Q4 fiscal 2023 versus Q4 fiscal 2022 was 40.7% and 25.7% versus pre COVID levels. Venue level EBITDA margin of 13% to 16%, general and administrative expenses of $4,000,000 to $4,500,000 including $400,000 of non cash stock based compensation and tax and adjusted EBITDA of negative $750,000 to positive $300,000 We'd like to thank you again for your interest in Pinstripes.

Speaker 2

Dale and I are now happy to answer any questions that you may have. Operator, please open the line for questions.

Operator

Thank you. Ladies and gentlemen, at this time, we'll be conducting a question and answer Our first question comes from the line of Peter Saleh with BTIG. Please proceed with your question.

Speaker 3

Great. Thanks and congrats on your first earnings call. I did want to ask on the just on the same store sales in the quarter, the 6.9%. Could you guys provide a little bit more color on maybe traffic versus check during the quarter?

Speaker 2

Hey, Peter. This is Tony. So if you look at just price, it's about 2.5% of that 6.9%. And the remaining amount is volume, which is how we've kind of broken it out so far.

Speaker 3

Great. Now that's very helpful. Just on the guidance on the go forward, I know you guys talked about low single digit. I know we're several weeks into the quarter here. Just curious if you guys could provide any update on what you're seeing intra quarter?

Speaker 3

Is it consistent with the same store sales guidance you guys have given for the quarter? Just trying to understand if the trends are matched kind of the guidance so far?

Speaker 2

Yes. So a couple of things. First, the guidance sort of is informed a bit by we saw the same weather related sort of impacts in January that just about everybody else has seen. So that informed that a bit. And then I got to point out that kind of the same store sales stack.

Speaker 2

So if you look at Q3, right, where we were at 6.9%, over pre COVID levels, we were 19.4%. And if you look at Q4, that same kind of look versus pre COVID was 25.7%. So it's a bit of a step up. So for us to comp up at that same 6.9%, for example, in Q4 is a little bit of a tough spot.

Speaker 3

Okay. That's helpful. Okay. And then just on the guidance, the venue level margin for the Q4 here, 13% to 16%, I guess, first, that's substantially above what we were expecting and it's above, I think, last year's levels. Can you give us a little bit of color on what's driving that year over year increase?

Speaker 3

And then also, it is a pretty wide range, 13% to 16%. What would lead us at this point with about 2 months to go here in the quarter to be either at the low end or the high end of that range?

Speaker 2

Good question, Peter. So we see significant opportunities both in the labor line as well as other OpEx. If you look at Q3, other OpEx was actually an area where we could have done a bit better. And we've identified those areas. And what gives the range is really can we get it in within the quarter.

Speaker 2

Some of it we've already taken action on, but there's a couple of things that could slip in the next quarter. And so that's why we put the wide range around it.

Speaker 3

Great. Understood. Okay. I'll pass it along. Thanks.

Speaker 2

Thanks, Peter.

Operator

Our next question comes from the line of Sharon Zackfia with William Blair. Please proceed with your question.

Speaker 4

Hi, good afternoon. Hi Sharon. I have a couple of questions. On the development pipeline, where do you stand as you look out beyond this The time to construct and the kind of the quality of sites that you see today versus maybe a few years ago, as you alluded to, kind of becoming a traffic driver, obviously being better capitalized now. I'm just curious kind of on that quality of the sites that you're seeing today versus historically?

Speaker 1

Sure, Sharon. It's Dale. So the quality of sites just keeps getting better at the margin. A lot of the same developer partners that we're already working with we're in active discussions with some very exciting locations all over the country that some of which we've been in discussions for 6, 12 months prior and a good number of which are happening in real time. So all the same trends of some of the large retailers and boxes, downsizing and or closing locations and the continued Amazon effect is as real as it's ever been.

Speaker 1

And admittedly, our go public has made us an even more attractive tenant for a lot of these landlords.

Speaker 4

And I guess, Dale, on the number of units that you're looking at potentially opening in fiscal 2025?

Speaker 1

So we're still comfortable with that 6 to 8 locations, call it every fiscal or calendar year, but both now and going forward. And pipeline wise to do that, I and we are in active in various discussions with over 30, 40 different locations currently all over the country just in the interest of not just filling the pipeline, but qualitatively making sure that we find and proceed with some really exciting location.

Speaker 4

And I wanted to ask a question on private parties versus walk in. I would assume I mean, you have a big private party business annually. I would assume it's a little bit higher even than the January quarter. I might be wrong, but I was thinking with holiday parties that, that could be even higher. Did you see any divergence in kind of the way that private party business trended versus the consumer kind of walk in business?

Speaker 2

Yes. So Q3 is our largest event sort of mix quarter. But we saw both growth across events and open play. So it wasn't like we saw like a large slowdown or some of these things you're hearing about the consumer pulling back a bit. We saw growth across both.

Speaker 1

The other piece that I'd add, Sharon, the corporate component of our, call it, private event business can run considerably higher than 50% during the busy December period. The holiday parties are extraordinarily busy, and we saw that again this year. So we had record holiday sales at just about every location. And probably the only difference this year was the decision making of a lot of companies was just a little longer. So companies that maybe in the past would commit in February, March or April for a future 6, 8 months later December party, we had a little more of the equivalent of pop ups with companies just all figuring out some of the culture and how to handle flexible office.

Speaker 4

Okay. I guess last question for me. It's really helpful to look at that 13% to 16% in the April quarter and you've had a lot of improvement in margin year over year really throughout the year. What are the pushes and pulls as you think beyond fiscal 2024 on margins at the unit level?

Speaker 2

I mean, obviously, continuing to go towards that mid single digit same store sales growth level that we like to be at, to capture a lot of operating leverage. That would probably be the key contributor. We still think we've got multiple quarters well into fiscal 2025 of opportunity in a number of different cost lines at the venue level, labor being a big one, but also a couple of other areas as well.

Speaker 1

Okay, great. Thank you.

Speaker 4

Sorry, Dale. I didn't mean to cut you off.

Speaker 1

No, I was only just going to add the continued increase in our bowling and bocce sales as a percentage of total sales has continued to increase. And it's varied, as you know, 100% gross margin, so that plays right into that higher store contribution.

Speaker 4

Great. Thank you.

Operator

There are no further questions in the queue. I'd like to hand the call back to Dale Schwartz for closing remarks.

Speaker 1

I just want to thank everyone for joining us this afternoon. We're looking forward to the next opening in Orlando, Walnut Creek and Coral Gables the next several months and we welcome you joining us at any location of ours to enjoy the magic of pinstripes. Thank you.

Operator

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time and have a wonderful day.

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Earnings Conference Call
Pinstripes Q3 2024
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