Q4 2023 Dave & Buster's Entertainment Inc Earnings Call

Participants

Cory Hatton; Vice President Investor Relations & Treasurer; Dave & Buster's Entertainment Inc

Christopher Morris; Chief Executive Officer, Director; Dave & Buster's Entertainment Inc

Michael Quartieri; CFO; Dave & Buster's Entertainment Inc

Jake Bartlett; Analyst; Truist Securities

Andy Barish; Analyst; Jefferies LLC

Jeff Farmer; Analyst; Gordon Haskett Research Advisors

Brian Vaccaro; Analyst; Raymond James & Associates, Inc

Andrew Strelzik; Analyst; BMO Capital Markets

Sharon Zackfia; Analyst; William Blair & Company, L.L.C.

Dennis Geiger; Analyst; UBS Equities

Presentation

Operator

Good afternoon and welcome to the Dave & Buster's Fourth Quarter and Full Year 2023 earnings conference call. (Operator Instructions) Please note, this event is being recorded. I would now like to turn the conference over to Corey have Vice President of Investor Relations and Treasurer. Please go ahead.

Cory Hatton

Thank you, operator, and welcome to everyone on the line. Leading today's call will be Chris Morris, our Chief Executive Officer, and Mike courts, Perry, our Chief Financial Officer. After our prepared remarks, we will be happy to take your questions. This call is being recorded on behalf of Dave & Buster's Entertainment, Inc, and is copyrighted.
Before we begin the discussion on our Company's fourth-quarter and fiscal year end 2023 results, I'd like to call your attention to the fact that in our remarks and our responses to questions, certain items may be discussed, costs which are not entirely based on historical fact. Any of these items should be considered forward looking statements within 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. In addition, our remarks today will include references to 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 measure contained in our earnings announcement released this afternoon.
And with that, it is my pleasure to turn the call over to Chris.

Christopher Morris

All right. Thank you, Cory, and good afternoon, everyone, and thank you for joining our call today. In our fourth quarter of fiscal 2023, we generated revenue of $599 million and adjusted EBITDA of $152 million. These improved year over year results benefited from an extra 14th operating week in the fourth quarter. However, this was partially offset by the considerable weather related headwinds our business based in the month of January, as you've likely heard about by now for many of our peers.
The weather disruption resulted in numerous full and partial store closures to our system and contributed a significant headwind to the quarter's comparable store sales growth. Weather aside, I'm pleased with our strong financial results for the final quarter of fiscal 2023 in the year as a whole, which are testament to the hard work and dedication of our phenomenal team members at our growing portfolio of 223 stores across the country.
With respect to our most recent progress in 2024, while there has been some choppiness in the quarter to date and some significant calendar shifts with the timing of spring breaks, I'm even more excited than I had been in the past by the significant progress in our goal of substantially improving the revenue, EBITDA and cash flow generation of the business over the medium and long term. During the quarter, we opened up six new domestic Dave & Buster's stores that are all performing in line with expectations and are historically high ROIs.
We also signed up an additional franchise agreement, bringing our total signed pipelines of new international stores to 33. We will discuss in more detail shortly, but we also advanced a number of our organic growth initiatives, all of which are showing positive signs in gives us confidence in our ability to drive same-store sales growth in the business.
Additionally, due to a rigorous focus on managing expenses, we grew adjusted EBITDA and further expanded our adjusted EBITDA margins. We strongly believe that all the work we have done over the last several months has laid the foundation to help us achieve our ambitious yet achievable expectations we have for the business going forward. Fiscal '24 is set out to be a transformative year for our company with significant expected progress on our organic growth initiatives, including an acceleration of our remodel program as well as continued growth in our store base and continued focus on cost efficiency.
I can clearly state that everything we are seeing it in the belief and our ability to achieve our $1 billion adjusted EBITDA target in the coming years. In fiscal '23, we grew adjusted EBITDA $28 million and expanded adjusted EBITDA margins 80 basis points on a pro forma year-over-year basis despite a reset of the consumer demand curve relative to the post COVID highs of 2022.
Since 2019, our adjusted EBITDA margin has expanded 380 basis points, well in excess of the 200 basis point expansion target, driven by top line growth and material improvements to our recurring cost structure that provides our business a substantially stronger cash flow base to grow. In 2023, we opened 16 new stores, 11 Dave & Buster's, and 5 main events with 6 of these new Dave & Buster's opened in the fourth quarter alone. Our new stores continue to produce exceptional cash on cash returns across both brands and remain one of our most accretive investment opportunities.
As a reminder, as we showed you during an Investor Day, since 2018, our new stores generated cash on cash returns greater than [40%]. We still have a very robust pipeline of new units that we plan to open over the next several years that we expect will continue to perform similarly. Our business benefits from significant national awareness, which allows us to open stores in new markets with an enormous amount of local excitement, as evidenced by the consistently strong sales of new units generate in their first two weeks of operation.
Importantly, we have recently optimize our new unit opening strategy to better capitalize on immediate demand our stores generate by using our loyalty database to capture significantly more relevant information about our new customers and markets, which we expect to translate into superior level of frequency management and ultimately even higher returns on new store capital.
Turning to our international development efforts, we recently entered into another international franchise partnership agreement to develop to Dave & Buster's stores in the Dominican Republic, all told and just two years since we reinvigorated our international strategy, we currently have 33 stores in international development pipeline across six countries, with anticipation of opening up to 4 of these stores and the next 12 to 18 months.
We also continue to engage with potential partners all over the world, which we expect will lead to continued strong growth of this international pipeline over the balance of the year. I'd now like to take a moment to go into more detail, a more detailed update on the progress of each of our six key organic growth initiatives. First, marketing optimization. As a reminder, we believe there's huge opportunity to improve both conversion and guest frequency by getting the right message, the right people, the right time.
We spoke last quarter about the development of our marketing engine in the pilot program for quick wins to better engage our existing customers with relevant content and offers to drive frequency. Our material shift to digital marketing allows us to act fast to build campaigns and align our spend with more specific business needs while returning significant data-driven insights about our customer that were impossible to glean from the primarily linear TV approach of our company's past.
We have a balance of compelling promotions paired with our strong product offers hyper targeted within paid media at the segment and market level. For example, our Kids Eat Free promo targeted towards families and $2 beers, and All You Can Eat Wings targeted for young adults. Additionally, we've enlisted top-tier talent and influencers to amplify our seasonal offers and experiences in store to promote spring break for everyone campaign and contextually relevant campaign around March basketball, along with our buster brackets, 1 million ship giveaway, rewarding gas with free play.
This combination of hyper targeted paid media and promotions and influencer talent to amplify unique experiences as an offerings across our stores has generated more effective and efficient campaigns in recent months While still early innings, our ability to roll campaigns and promotions out swiftly across our growing database of users who are quickly becoming the lion's share of our most profitable guests by visiting us 50% more frequently and spending 15% more on each visit versus non-loyalty guest is having a material impact.
Our loyalty program grew by 500,000 users in the fourth quarter, and we continue to drive higher levels of sales penetration with these loyalty guests with improvements we are making. Our loyalty offers our personalized at the tier an individual level to appeal to the specific behaviors of each guest. For example, While rewarding are primarily gaming audience was free play incentives in our dining enthusiasts with food and beverage offers. We believe enhance personalized engagement is leading to higher guest satisfaction scores by cultivating consistent newsworthy communication.
That brings a more excited guests into our doors. Tying back to our influencer programs and unique partnerships. We always provide our loyalty members with the first plus any marketing campaign that we launch, and we have excess citing big reward giveaways and new promotions planned for this audience in April with the launch of our exciting brand new menu. In 2024, we expect that channel this power and continually refine the approach, which will ultimately allow us to manage our traffic via frequency and conversion.
Second, strategic game pricing. We made material strides in the implementation of our new games pricing strategy in the quarter. We continue to unlock new abilities and glean insights from various tests across regions by adjusting the multiple layers of price in our gaming ecosystem. We have launched a number of nationwide tests, adjusting adjusting both absolute price as well as introducing regional differentiation (technical difficulty) --

Operator

Pardon me, ladies analyst conference operator, we appear to have lost the audio signal from the speakers location. Please stand by as we tried to regain content.
Pardon me, everybody. This is accomplished. Operator, we have regained audio from these speakers, location. Gentleman, please re-queue, continued call. Thank you.

Christopher Morris

Okay. All right. Thank you. And everybody. Thank you for your patience. As we work through those technical glitch, it's our understanding that the call dropped off right, the beginning of strategic game pricing. So I'm going to pick up from the from the beginning.
So our update on the second piece of our strategic plan and strategic game pricing. We made material strides in it limitation of our new games pricing strategy in the quarter, we continue to unlock new abilities and glean insights from various tests across regions by adjusting the multiple layers of clients in our gaming ecosystem.
We have launched a number of nationwide cast, adjusting both absolute price as well as introducing regional differentiation, both of which are showing encouraging results. Specifically, the stores with the highest price increases have shown the most positive impact to sales and have not shown any material negative impact. The guest satisfaction, which is encouraging. We enacted a tier point-of-sale pricing change for the Power Card in mid February to optimize the volume amount and corresponding shifts purchase to better align with the significant regional variations across our Dave & Buster's portfolio of stores.
We expect these changes to provide a significant boost to our entertainment sales in fiscal '24, highlighting the exciting flow through possibilities for what how revenue consistently delivered over 90% gross margins. We are closely monitoring the results of our pricing tests and will continue to test, learn and optimize our strategy with near term near real-time strategic intelligence we are receiving. I can not stress and not how siding these unlocks our for our business and take a great leap forward to proactively manage our entertainment pricing while still maintaining a strong value proposition.
Third, improved food and beverage. As a reminder, we see a tremendous opportunity to improve the overall quality and service model of our F&B offering in an area we know our company has lots of cash flow over the past decade. We believe the steps we are taking to improve our food offering and service model will go a long way towards recapturing are historically higher levels of attachment.
As discussed in the past, we have created a multi-phase roadmap to introduce the Dave & Buster's many of the future and our improved hospitality service model, which we are introducing and in close strategic connection with the physical changes of our system wide store remodel program.
In the first full quarter of its rollout, we continue to experience material gains with our Phase 2 menu, which enhanced operational execution by removing unnecessary complexity in the back of house, improved overall food quality, and accelerated speed of service to drive more throughput at peak. Since the system wide launch at the two, we have been testing phase three of our D&D the menu, the future and 10 stores and unveiled the final plans in training internally at our Annual General Manager's Conference in early March.
The Phase 3 menu aims to introduce targeted culinary innovation around appetizers, bowls, desserts and signs that aligns with our new hospitality model and better meet the need states of our guests to drive our cash. Really just last week, we rolled out our Phase three menu to roughly third of the Dave & Buster's system, and we'll launch into the remainder of the system on April 15.
Based on how the Phase two menus performed since launching system wide on September 25 and our test results from the Phase three menu, we expect to drive at least a mid single digit increase in F&B revenue per check, a material impact movement and F&B [COGS], a further 3 to 5 point improvement in food satisfaction scores versus the prior year period.
We are very proud of the new menu service model we have rolled out in order to drive the most amount of trial and consistent with the results of the tests we have done to date in the coming weeks, we expect to officially launch our new menu nationally in connection with a strong value focused message, which we believe will drive traffic, new loyalty member sign-ups, food and beverage attach, as well as incremental gaming revenue.
Fourth, remodels. Nine months ago, we embarked on a store remodel program that after a substantial amount of research was designed to accomplish the following five things. Number one, grow overall revenue through the introduction of disruptive entertainment product news. Number two, improve F&B sales through a reconfigured dining room, improving operational execution and an elevated relevant new design.
Number three, gross specials and sells through the introduction of more group-related entertainment options. Number four, improved guest engagement and gather important gas data and analytics through the introduction of a digital guest engagement platform. And number five, improved brand relevancy and intent to return direct fresh, modern look and feel.
Our first test location was [principally] in Houston, Texas, which embodies our go forward offering with new attractions, service model, food menu inserted a dedicated store special events sales team in completely transformed the look and feel of the space. During our last call, we highlighted the encouraging results from our first remodel Brentwood that was exceeding expectations, driving a double digit sales uplift compared to the prior year and a more than 30% sales uplift compared to 2019.
We are very encouraged that now more than 30 weeks after completion of this remodel, it continues to perform at these levels. We have hit the mark across all of our objectives with this remodel and are making meaningful improvement with OSAT scores and higher intent to return. I've listened loyalty members and special event revenues of nearly 60%, all of which gives us even more confidence in the importance and staying power of these remodel investments.
Over the past few months, we completed eight additional tests remodels for the test. We intentionally hand-selected of a variety of our stores across geography, legacy performance, store age, and layout and tailored key product offerings. On average, these test stores have outperformed the balance of the system by 9% post remodel through March.
While the remodels are exceeding expectations in aggregate across the bearing scopes, what has become crystal clear in the tests that are fully programmed, large-scale remodels similar to friends would are performing exceptionally well relative to the remodels that do not include the enhanced entertainment offering.
Our fully program remodels are seeing substantial increases in traffic check and overall same-store sales versus the prior year and are outperforming the system double digits with some nearing 30% outperformance on a relative year over year basis. We have also accumulated a significant amount of learnings on how to improve these results were further reduced construction time and minimize costs that will lead to even higher returns. We are very confident in these findings and know what it takes to drive this business.
Our plan now apply what we've done in friends way across the next 35 remodel stores with a strict stage gate process laser focused on our 20%-plus return threshold. As a result of that, we will have a total of 40 to 45 stores remodeled by the end of fiscal '24, which we're confident will drive a similar outperformance. We are convinced that this remodel program is a significant gateway to the future of the Dave & Buster's brand in the culmination of everything we've set out to achieve through our organic growth initiatives.
Fifth, special events. We are making considerable strides reinvigorating our special events business by repositioning the team with a more local hands on approach and equipping them with enhanced training and tools to win our fair share. Based on independent test, we run to evaluate ourselves looking at effectiveness and the competitiveness of our product offering. We are encouraged that these changes in strategy or having the desired outcomes.
After embedding 20 dedicated sales managers into the D&B stores in the back half of 2023, we are accelerating the rollout of an additional 45 local sales managers at the store level in 2024. The upcoming upcoming phases of our menu of the future, our refined service model and our remodeled stores that introduced social base in the arena, along with of VIT. watch area provide our new sales team areas of focus and are all very conducive to do drive additional special event revenue.
We are pacing to finish the first quarter were up mid single digits and special events revenue versus 2019 is a material improvement versus prior quarters, treatment with graduations in May and June.
Sixth, tech enablement. As a reminder, we are powering the growth of our strategic initiatives through an optimized service model, enterprise gaming ecosystem, new IT infrastructure, and improved data and analytics. In many ways, this is the glue that creates a digital guest platform and connects all the other initiatives together.
In 2023, we completed the rollout of our updated IT infrastructure at 62 Dave & Buster's stores, and we'll have the remainder of the Dave & Buster's system complete in 2024, along with full integration of our back office systems.
We also expect to drive further innovation in our app in 2024, with the integration of additional features in gains to engage with our guests before during and after each visit. We are proud of the achievements and long overdue investments we are making in this area and lead the industry in a seamless guest experience.
To summarize organic growth initiative update, we remain very confident that these initiatives will create significant shareholder value by driving our business into a period of material, sustainable and profitable growth. Our conviction that we are focused in the right areas and making the right investments is unwavering. We looked at building on the achievements of this quarter and look forward to continuing to update you on each of these initiatives moving forward with a clear line of sight on our long-term goals.
In addition to these organic growth initiatives, we made tremendous strides throughout the year, streamlining our business to be more efficient and reduce our recurring cost base, which had a material impact to our whole P&L, allowing us to increase adjusted EBITDA and expand our adjusted EBITDA margins. By the fourth quarter as a percentage of revenue versus the prior year, our cost of food and beverage declined 240 basis points, our other store OpEx declined 80 basis points, and our G&A costs declined 180 basis points.
Our team of exceptional general managers continue to drive down labor costs while improving OSAT scores by implementing efficiencies in our back-of-house operations to reduce hours and redeploying a portion of those hours to guest facing and revenue generating front-of-house labor, particularly during peak times.
It is important to highlight that we realize these cost savings and margin improvements during the 12-month economic period, characterized by high inflation, a tight labor market, and with same-store sales growth well below our long-term expectations for the business, which underscores the incredible amount of upside in a more normal environment.
Given the success in this area as well as the realities of the environment, we have increased our efforts and have implemented a number of new cost savings initiatives that we believe will further reduce our cost base. We are confident that these additional cost efforts, combined with an improving labor market and supply chain, will create an increasingly more efficient and profitable organization over time.
While the improvements we've made to our recurring cost base and driven a significant amount of margin and profitability, what is most exciting to us is that at the same time, our operational execution has made great strides and taking care of the guest.
We have made very significant improvements to the guest experience with our evolving service model. And we continue to layer on additional enhancements to drive higher gross debt and net promoter scores. During 2023, our overall satisfaction scores as well as our overall speed of service score improved 5 points. Our social media scores improved 3.5 points, and our net promoter scores improved 3 points.
All of these metrics are queuing their trend of improvement thus far in 2024 and fast. We've seen sequential growth in each of these metrics over the past three months in each metric has reached their respective all-time high since we've been tracking this data.
Finally, before I turn the call over to him, I'd like to take a moment to recognize Mike, who we affectionately call Q as he steps away from the day-to-day responsibilities as CFO at the end of April, I enjoy a much deserved retirement. He will leave a positive mark on this company long into the future, having successfully integrated the two great brands and Dave & Buster's, I mean, I know Bill high-class teams and demonstrated the highest standards of ethics on capital stewardship.
So with that, Q please walk us through a more detailed review of Q4 results.

Michael Quartieri

Thanks, Chris. We generated fourth-quarter revenue of $599 million and adjusted EBITDA of $152 million for an adjusted EBITDA margin of 25.3%, a 380 basis point margin expansion versus the same period in 2019. Net income in the fourth quarter totaled $36 million, or $0.88 per diluted share. We reported $42 million of adjusted net income or $1.3 of adjusted earnings per diluted share.
Reconciliations of all non-GAAP financial measures can be found in today's press release. Pro forma comparable store sales decreased 7% in the fourth quarter versus 2022. And looking back at a more normalized level of business, we were up 8% versus the fourth quarter of 2019.
As a reminder, in the fourth quarter, we are lapping over the fourth quarter of 2022 that had a 14.1% comp to 2019 and an over 25% comp in the last four weeks of the quarter was particularly robust consumer spending. Through early January, our quarter-to-date comp was pacing down low single digits to the prior year and then the culmination of severe weather was significantly negatively impacted our business and challenging January comparison led to our ending the quarter down 7%.
We've generated $97 million of operating cash flow during the quarter. Contributing to an ending cash balance of $37 million for total liquidity of $527 million when combined with the $490 million available on our $500 million revolving credit facility net of outstanding letters of credit. We ended the year with a net total leverage ratio of 2.2 times as defined under our credit agreement.
At a small update on future sale leaseback opportunities, we have four owned and operating Dave & Buster's real estate assets today. While we are being judicious in how and when we decide to monetize these assets, we expect these assets when monetize to command a premium price in the market versus other comparable real estate given our superior unit economics, strong credit, attractive brand attributes, and commitment to being a long-term tenant in this space.
Turning to capital spending, we invested a total of $122.6 million in capital additions during the fourth quarter, opening six new Dave & Buster's. We've already opened two new Dave & Buster's and one new main event during the first quarter of fiscal '24 in Schaumburg, Illinois; Folsom, California. We expect to open a total of 15 new stores across both brands during fiscal '24.
Our Board of Directors approved a $100 million increase to our share repurchase authorization, which gives us a total of $200 million of availability to opportunistically repurchase our shares. As you know, we and our Board are maniacally focused on driving shareholder value. As we have stated historically, we will use our significant excess free cash flow to invest in new units, which continue to generate over 40% cash-on-cash returns, make accretive investments to support our organic growth initiative, and opportunistically return capital to shareholders.
We have a lot to be proud of in this fourth quarter and full year 2023 results. We grew adjusted EBITDA, continued to expand our industry-leading adjusted EBITDA margin, strengthen our balance sheet and credit profile, lowered our controllable interest cost, and bought back 17.5% of our shares outstanding, all to the benefit of our shareholders.
We have considerable high ROI investment opportunities to grow organically, both by improving our existing store base and opening new stores with a pipeline of attractive international Frontier's on the horizon. I have tremendous confidence that the trajectory ahead will bear scenario fruit for all stakeholders.
Now, operator, you can open up the line for questions.

Question and Answer Session

Operator

(Operator Instructions)
Jake Bartlett, Truist Securities.

Jake Bartlett

Great. Thank you so much. My first question was about on the more recent performance. And Chris, you talked about feeling more confident in the plan, more confident than ever on. We also mentioned the results have been choppy quarter to date. We've seen that's an industry-wide. So what can you point to in Vinod? I hope you could point maybe choosing specific your change in trajectory here from from January. But any more detail there, what gives you such confidence that the things you're actually getting more encouraging for you?

Christopher Morris

Yes, absolutely. Jake. The at every area that we're focused on and everything that we've outlined during our Investor Day, we're making progress and we're seeing the impact on the business. I think the thing that's most encouraging as we've been hard at work in F23, we're hard at work at testing, learning adjusting, and we are now in a position where we are executing these initiatives that have already been tested and validated.
And so that gives us great confidence that as we execute these, that we will be able to continue to drive the same impact that we saw during the test period. And so when we go through F&B, we have a brand new menu that's rolling out and that we know that that menu is driving check. It's improving speed of service of setting our operators have for excess. And there's no doubt in our mind over time, that's going to be a big contributor to our cash.
We know that we've been able to successfully pass through menu price increases with strategic game pricing. That's something we didn't have figureṇ out last year. We now have the ability to add here our pricing and have different pricing in different parts of the country. That seems so simple. But yet the Company has never had that before the fall last time, we've been able to have different game pricing in different parts of the country.
And so we've tested that and we see that we're able to flow through that gives us confidence the work that we're doing on special events and the fact that we are on pace to exceed the pre pandemic levels. And we have so many other things coming down down the pike on special events, preparing our teams for the May and June busy season school events and setting ourselves up for banquet towards the end of the year.
The new service model is driving the results, and we just rolled that out at our operator conference in March. And as you saw you heard ever in my remarks, those are meaningful improvements that we've made to the guest experience. We're still a long ways away from where we want to be, but there is no doubt that were better than where we bend.
And at every month for the past three months, we've been setting record highs in all of our key satisfaction metrics. And that's before we've rolled out our new refined service model system. Why that we just introduced that conference that that has us excited on our remodels that we walk through. Now we've before we didn't know which is exactly how to program a remodel.
We don't know what was the right amount of spending. We now have that to answer. And the answer is crystal clear and compelling were not only hitting our return thresholds were exceeding those thresholds. And so you see us ramping that up. And so now we have confidence that were taking what we did in Brentwood, and we're rolling that out across 35 stores next year. So by the end of the year, we have 44 in the system.
But at the same time, we're going to continue to evaluate to make sure that we are getting the returns we expect. So we there yet and international. We just now we're gaining real momentum on international. Our new units continued to perform. So we just we have worse, seeing so much progress and all these different initiatives. And this is the year and this is why we said it's a transformative year. This is the year when all these initiatives will start to layer on top of each other and we believe will go a long ways to on put is putting us on the trajectory to accomplish our long-term goals.

Jake Bartlett

Great. That's really helpful. I appreciate the detailed response here. I guess the another question that I have is you understand that this year to implement these changes, but you also have to contend with where the consumer is right now.
So we think about the price increases and we have found it and pretty significant increase in the just cost per chip on in for volumes on your Phase two is you have the menu in changes isn't, I think largely increase in the chat. That's one of the biggest drivers to the sales impact.
So it might be a good thing to do with is the consumer in a spot to take to accept some of those increases? Is this the right time, the fruit for the consumer? That's where I'm wondering about the quarter to date and just how what you're seeing how the consumers actually responding to all of this in this particular environment? Any detail there would be helpful.

Christopher Morris

Well, I mean, first, I think the way you're thinking about it is exactly right. And so that you have the right instincts. And it's something we think about all the time is making sure that we're navigating the business to meet the consumer where they are right now. What I can tell you on pricing, let's kind of set for each one of those on the game pricing. Keep in mind, we've that's not something we did system wide. We did it region by region, and we did it testing along the way evaluating ensuring that we are protecting the value proposition.
And so we have a lot of confidence that we've now we've been able to pass through price in the right area, but do in a way where the value proposition is held impact on food and beverage, you are correct that we are seeing an increase in check that that's not being driven by product that's being driven by favorable mix shift. And so we're just simply being very smart about the products that were offering and doing it in a way to where the gas is selecting items that they've not in a way that also drives check.
And we have a lot of confidence that our food satisfaction scores have grown substantially on both Phase two and Phase three. We also have a lot of confidence that the service model that we're implementing. We're investing dollars taken aback investment in the front and enhancing our overall guest experience. We think that helps drive the value proposition for the guest. And at the same time, we're also and this is where as we continue to refine our marketing muscle, and that's just going to get better and better.
We are better equipped today than ever before. To be nimble and to come not only roll out there right discounting, but do it in the right way where we're aiming at the right depth. And that's something that we're just going to get better and better as we move forward. But you saw kind of pivot here recently, we've introduced and $2 beers the timed with the NCWA tournament. We have All You Can Eat Wings and on Thursday, both of those are going very well and we have kids eat free that's really aimed at families. We feel good about that.
And we've got we've got an offer that we're going to be announcing here in a couple of weeks that we think really kind of a headset, a lot of the things that we've been doing strategically and it also addresses value.
So the trick is balancing. We think we're being very careful about where we're taking price versus value and to have. I've now said, I think the third time I've said this, we're going to get better and better at that. That's a muscle that that were in the process of developing were better than we've been that we're going to get better going forward.

Jake Bartlett

Great. I really appreciate it.

Christopher Morris

Thank you.

Operator

Andy Barish, Jefferies.

Andy Barish

Significant goes on offering kind of guidance, you know today. But in in your remarks, the press release, Chris, I mean, can you talk about some adjusted EBITDA margin improvement? You know, in regard to fiscal '24, is that something that, um, you know, even without the additional cost savings you were you were sort of thinking about as you come into this new year?

Christopher Morris

Yes. No, absolutely. It's something that we're always thinking about and that's what we will always have that mindset. Yes, our approaches, we were developing a culture that is absolutely maniacal about eradicating waste in the business and not allowing it to incur because we're so committed to our strategic initiatives. And so we're constantly looking for opportunities to be efficient. So then we can invest in the right areas. And so that's just something that we will always be doing.

Andy Barish

Got you. And then on the remodels on it sounds like, you know, the full remodels or where you're heading. I think, you know, initially the split was more kind of half and half between kind of a full touches in the light or touches from. Should we be kind of thinking about that, you know, over the next couple of years as being more skewed towards the mill full remodels at this point?

Christopher Morris

At this point? The answer is yes. And I'll let you jump in here and provide some more color on the financial side. But as I said, that the real benefit to where we are in our journey as the fact that we on have gone through the testing phase. And so as we move forward, we're moving forward with confidence, but it is very clear and the testing that we've done that the fully program remodels and not only generate and hit our return thresholds. But I think that what has us I'm so enthusiastic is the manner in which are driving the result is not just the results.
We see the staying power at Trentwood and the other as we've extended that test beyond the units were that were driving the results. We see it building over time. When we dig into the numbers, it's coming from the reason we took so much time to walk you through remind you of our objectives of the remodel is because each one of those objectives are leading to the results.
We're seeing the incremental entertainment offerings that we've that we've provided, where we're expanding our variety. Each one of those on a stand-alone basis are generating on our returns on a stand-alone basis. And then combined, we believe they're creating Just Energy. That's looking up all traffic. We're seeing double digit increases and special events. When we add these new entertainment offerings, we're seeing improved service model execution. We're seeing a couple of stores. We're seeing very significant growth in food beverage mix.
So we're able to trade through results into the remodel. And so that gives us a lot of confidence, but it's moving forward. It's a little more capital intensive, but the team has has done a great job at value engineering and taking cost out. And so I'm going to have to walk Q through that.

Michael Quartieri

Yes, they have see as an important aspect to think about when you start talking about when a light touch is that has probably more to do with the fact that this stage of the building and the condition that is in the size of it as it is the amount of additional work that's going into to expand the offering from an entertainment perspective.
So when we start talking about lighter touch, as those are stores that are around the 20,000 25,000 foot locations, they're more current in the pipeline where they've been built, like probably like in the last five years versus some of the older stores or the larger, say, footprint of the DB1s and 2s, which are more in that 40,000 to 45,000 square foot location.
So all in all, I think the CapEx that we laid out previously will still be fairly close to where we'll end up over this journey over the next two years or so.

Christopher Morris

So just to summarize, we are moving more into the large format, but the big benefit as we've been able to drive down the capital investment. At the same time, the performance has exceeded our expectations. And so we're very confident that we're going to hit our return thresholds were actually go cautiously optimistic that we're going to exceed our return thresholds. But you're going to continue to see from this team, a very disciplined approach when it comes to capital allocation. So we're committed to doing those [35] that we've built in the right stage gates that if for some reason we're not replicating these results, we will have the ability to pivot at the right time and redirect.

Operator

Jeff Farmer, Gordon Haskett.

Jeff Farmer

Thank you. Just wanted to follow up on the tiered pricing efforts, more specifically, how we should be thinking about the scale of those increases? Were potential skills, those increases on anything you can offer there in terms of order of magnitude as you've gone ahead and made some changes to the pricing structure on the gaming side from engagement as such?

Christopher Morris

Yes. What I'll tell you is we had during the at our Investor Day last June, we sized up the opportunity. And we said that we believe that there's approximately there's an opportunity that you add a 10% increase in strategic game pricing over a period of time, and we're still committed to that. And so we still do believe that's a good number. What you'll see on as we move forward into F24 is that the price is going to be different region to region, but we would expect that to a price increase that occurred in the day, which is 10% over a longer period of time. So 2024 would be a step in that direction.

Operator

Brian Vaccaro, Raymond James.

Brian Vaccaro

Hi, thanks and good evening up. Just a question on sales, if we can go back to that, Mike, I think you said you were running down low single digit comps up until January, which is if my quick math is right, January, it was down somewhat low to mid-teens. Year on year. I'm going to just confirm that was right, sir. Sorry, quick math here, but and if it is, I understand it's really marquee, but how do you view sort of the underlying comp trend? And what's a reasonable expectation near term for when comps might stabilize if not turned positive moving through 2024?

Michael Quartieri

Sure I'll kind of preferences. Just reading your math is fairly close because when we look at when we exited out of the holiday season, you're looking at it being about the end of the first full week of January, which is right at the time that we've talked about confident over that 20%-plus mark plus the the weather impact did have a significant impact. We had close to 60-plus stores that were either partially closed or fully closed for certain number of days during that period of time.
So there was a material impact to us as we look forward to the consumer trends and everything else, I think it's kind of hard for us to pinpoint given the uncertainty. And I say with certainty is there's so much holiday mismatch around spring breaks at this point in time. And the continued choppiness that we're seeing. So at this point, we're continuing to be focused on the longer-term objectives, as you heard the passion that Chris has been laying out each of the strategic initiatives that we are up and all of those will continue to just produce green shoots and provide with a better return as we get further into the year and beyond.

Operator

Andrew Strelzik, BMO.

Andrew Strelzik

Thanks for taking the question. Yes, it's been almost, I guess, a year since the Investor Day when you laid out kind of the earnings build towards you reviewed EBITDA targets. And so I guess I'd be curious to hear you kind of biggest step back and frame where you are now in terms versus where you maybe would have expect to be at that point in time. Are there? Are there some of the initiatives where you're seeing more or less track and then you expected or were your ahead or behind on time lines and kind of as you were to recast your expectations, anything that would have been different versus at that time?

Christopher Morris

Yes, that's a great question. So I'll tell you that the way the way that we've done, I've been thinking about this journey that we've all been on the internally. We've always referred to a year one of the year, the foundation and the reason we describe as the year the foundation is because there was so much infrastructural work that we needed to do just to catch up for what we refer to as 15 years of neglect in this business.
From a systems standpoint, the systems are just waiting behind where they needed to be. Their processes were way behind where they needed to be, as evidenced by the fact that I just mentioned that we didn't even have the ability to have variable pricing across regions.
And so there's a lot of work to do on the infrastructure at. There's also a lot of testing that needs to be done. And so I know where we are right now is we're right on schedule. We believe we've executed everything that we set out to do on the infrastructure. We've tested everything that we set out to do, and we are now in the process of implementing all of those initiatives.
And so I'm very proud of the work that the team has done on. We're right, where we want to be on remodels are new units continue to perform exceptionally well. We're on pace on international, right in line with what we were expecting when we built out our long-term plan.
Again, pricing is where we thought we'd be just given the system limitations on our food and beverage offering. I feel very good about the work that we're doing there and the results that were driving and the new service model, as evidenced by the impact that were already happened on the guest experience.
So on the initiatives side of things, I'm very proud of the work the team is doing. And so this is that what we did say is I look, this is and this is a journey that we're on. And clearly, there is tremendous upside in this business. There's upside on each one of these initiatives when you size it up and there's collectively an enormous amount of upside side and the value of stock. And we continue to believe that the stock is significantly undervalued with the potential that we have in front of us.
That the unknown is just the macro environment and you know what's going to happen with the consumer and the uncertainties. And so our focus is just focusing on and what we can control. And clearly what we can control we're executing against.
And and there's as we've done a deep dive deeper into each one of these initiatives, we're as confident as we ever have been and being able to make a positive impact on this business over the medium term. And so the time line might shift a little bit here or there, but we're still committed to getting the job done.

Operator

Sharon Zackfia, William Blair.

Sharon Zackfia

Hi, thanks for taking the question. I wanted to go back to me that kind of phases and what you're doing with the gaming prices. I know you indicated that that's been a positive going through to the bottom line. I guess I'm curious on kind of what amount of some impact there is from maybe in only and people staying longer. I mean is it isn't saying for a lesser amount of time because the Power Cards are are enough click or any what is the the core? Is there any potential offset that you're seeing in the game price increases?

Christopher Morris

Yes. No, it's again, very good question. So keep in mind, I said that we've gone through the testing and learning process. And one of the things that we wanted to make sure we understood is exactly what you'd outlined is we didn't want to have a negative impact on value proposition. And we did it. I want to just kind of trade right pocket for left pocket and grow price on the front end, but then you reduce your overall spend by reducing to all-time.
And so we've been closely evaluating that and tweaking it to get to the right balance. And so what what we are implementing or what we implemented we rolled out in February of 2024 was on the result of all of that testing. And so we didn't get it right at the beginning. And so we made some adjustments and we changed pricing to make sure that we were protecting the value proposition. We move stores tier added here. We did all of that.
And so now we're moving forward with confidence that we've got the right formula. And so what we rolled out, we're not seeing any material deterioration and dwell time, and we're not seeing any impact on value proposition. But I will tell you we're going to continue to closely monitor this and ask you to make changes will make changes. And so that's the benefit of where we are now is we're in a much better position to be nimble and to adapt to the extent that the consumer starts to go different directions.

Operator

Dennis Geiger, UBS.

Dennis Geiger

Great. Thanks, guys. I'm wondering if you could just speak a little bit more to that, maybe choppiness content for the first quarter. Are you recognizing you're appropriately, you're focused on the longer term strategic opportunities. But just maybe as it relates to anything you're seeing from from a customer standpoint, whether it's across visits, other other spending patterns of income or or age cohorts, anything to kind of call out there? And again, recognizing there has been a choppiness across the industry in recent months, but is there anything you could share on the customer behaviors, et cetera, in recent months, any kind of shifting, et cetera on that front?

Christopher Morris

Do you want to, Q?

Michael Quartieri

Yes, I guess I would say it this way. The choppiness we've seen is really from a visitation perspective. But once people are in the door, they're still spending at the same levels. They've already spent the dwell time or just the same as they were before. So it's really more of that visitation aspect of it than it is anything else.
So that's the piece that we're feeling really good about. And that's where we start seeing the improvement in the food and beverage spend and things of that effect that we've got us really excited about the long-term potential of the actions were taken from an organic growth perspective.

Christopher Morris

Yeah maybe to just add in just a little bit more color as we continue to dig in and look at our business, we've seen couple of things. We've seen a little bit of weakness on the lower income consumer. But at the same time, we've seen strength on the higher end consumer and everybody in between kind of acting in a normal fashion.
And so that's those tiers somewhat offsetting each other. But it is something that we've been able to kind of tease out of the data. And we're using data to inform how we're approaching the business and inform promotions and things that nature.

Operator

This concludes our question and answer session. I'd like to turn the conference back over to Chris Morris for any closing remarks.

Christopher Morris

Okay. Thank you. We are entering 2024 from a position of financial strength. And we expect this year to be a transformative on our journey to unlock the potential that for now M&O business. Thank you all for joining. We look forward to welcome you at one of our stores this year. And speaking with you again soon. Thank you.

Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.