Dave & Buster's Entertainment, Inc. (PLAY) CEO Steve King on Q1 2018 Results - Earnings Call Transcript

| About: Dave & (PLAY)

Dave & Buster's Entertainment, Inc. (NASDAQ:PLAY) Q1 2018 Earnings Conference Call June 11, 2018 5:00 PM ET

Executives

Arvind Bhatia - IR

Steve King - CEO

Brian Jenkins - CFO

Analysts

Jake Bartlett - SunTrust

Andy Barish - Jefferies

Sharon Zackfia - William Blair

Andrew Strelzik - BMO Capital Markets

Nicole Miller - Piper Jaffray

Steven Anderson - Maxim Group

Brian Vaccaro - Raymond James

Operator

Good afternoon, everyone. Welcome to the Dave & Buster's Incorporated First Quarter 2018 Earnings Conference Call. Today's call is being hosted by Steve King, 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 would like to turn the conference over to Arvind Bhatia, Investor Relations, for opening remarks. Please go ahead.

Arvind Bhatia

Thank you, Rebecca, and thank you all for joining us. On the call today are Steve King, Chief Executive Officer; and Brian Jenkins, Chief Financial Officer. After comments from Mr. King and Mr. Jenkins, 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 our discussion of the Company's results, I'd like to call your attention to the fact that in our remarks and our responses to your questions, certain items may be discussed which are not based entirely on historical facts. Any such items should be considered forward-looking statements and 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 has 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 and 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 Steve.

Steve King

Thank you, Arvind, and good evening, everyone. We appreciate your participation in our quarterly conference call. Today, I'll begin by providing an overview of our first quarter performance and speak about the organizational change we announced this afternoon. Brian will delve into the financials and update you on our 2018 guidance, and I'll complete my remarks by discussing our development efforts before we open it up to your questions.

During the first quarter, we grew revenue by 9.2% driven by continued strength in our non-comp and new stores. On a comparable week basis, revenue increased by 9.7%. Of the 112 stores we operated during the first quarter, 26 stores or 23% of the total were non-comp or new stores. We opened 6 stores during the quarter which was our fastest pace so far, and I'm pleased to share that these openings include a few that have delivered some of the highest volume openings in our history. Their strong performance and contribution to our overall revenue growth continues to give us confidence in our model. Comparable store sales on a calendar basis declined 4.9% versus the year ago period, a slight improvement on the trends in the first quarter, although fairly not where we wanted to be.

While EBITDA was down about 2% on a reported basis for the quarter, it was up about 2% on a comparable week basis excluding the 2017 used tax settlement. This is roughly in line with the midpoint of our full year guidance of flat EBITDA year-over-year.

Now let me update you on our four strategic practices [ph] that are driving results in the intermediate to long-term which includes amusement, F&B, improving service, and reducing friction in the guest experience, as well as driving 10% or more unit growth annually. Let me also remind you that we consider 2018 to be a year of recalibration as we lay the groundwork for evolving the brand.

In terms of amusements, we launched our first two exclusive titles of the year, Tomb Raider and Rampage during the quarter. Both titles are performing well for us. We are now in the midst of nationally rolling out our first proprietary VR title, Jurassic World VR Expedition. This is right in line with our target of a mid-year launch and we remain excited about its potential. We're also on track to launch our second VR title towards the end of the calendar year. Our plan as we mentioned before is to build a library of proprietary VR content that will enable us to capitalize on this opportunity for many years. In addition, we recently announced with Microsoft, the launch of Halo: Fireteam Raven as a limited time exclusive Arcade title for D&B. Titles of the Arcade game will be able to share their achievements by connecting to their Xbox account which will unlock a special badge on Microsoft Halo Waypoint website. We expect to release this title early in our third fiscal quarter and believe it has strong potential.

Within F&B, our new leadership is focused on quality, simplification, and accessibility. We are happy with the response to our new and improved burger and are planning to launch our new chicken and steak products later this year, in line with our strategy of investing in quality that our guests can speak [ph] and taste. Our paired down menu, which we rolled out in February is beginning to help us simplify some of the processes in the kitchen that will positively impact [indiscernible] service. In terms of accessibility, we remain on-track to test a quick casual offering inside D&B during the back half of the year, and we continue to view this as a complimentary delivery mechanism to casual dining inside our facility. Improving service and reducing friction in the guest experience is also a strategic priority for us, and we're focusing our intentions on pinpoints at the front desk [indiscernible] in the dining room, and while purchasing power cards and activating game. A combination of technology and operating processes, including how we deploy our people are key elements of this strategy.

We've begun testing digital media to understand its effectiveness relative to broadcast media. To be clear, our broadcast media has under delivery recently, it will remain a key element of our advertising strategy in the near-term as we reach the results of our digital tests.

The fourth strategic priority is driving 10% or more unit growth annually which we firmly believe will be the biggest driver of value over the long-term. Our new stars continue to generate very strong cash-on-cash returns, even after taking into account the sales impact of investing [ph] systems. All of our strategic priorities are aimed at evolving the brand and improving relevance among our guests. We need to deliver new game content, food improvement, faster service, and effectively communicate these value enhancements to our guests. In terms of our guidance for 2018, we continue to expect year-over-year revenue growth on a 52-week basis in the 7% to 11% range, and at the midpoint of our guidance, [indiscernible] EBITDA to be part on a year-over-year. Brian will discuss this further in his prepared remarks.

I'm sure you've all seen the organizational announcement we issued this afternoon. I'm retiring from my role as CEO of Dave & Buster's, but I plan to remain on as Chairman of the Board. This change has been part of our succession planning at the Board level for some time now, and I believe a seamless transition is a good thing for the Company. Most of you know that Brian and I have been the face of Dave & Buster's to the investment community since we went public in 2014. We've been close strategic partners in what we and this tremendous management team have achieved over those past 12 years. For the organization, this is a time of great excitement as we roll out a new virtual reality attraction that is highly differentiated and exclusive to D&B. While games and entertainment will always be the center piece of our brand, I'm optimistic about the changes that we're making to our food and beverage offering in order to be more relevant and more convenient for our guests-.

As for the timing, it's just the right time for me personally, one can only see another milestone to be completed and push something like this off into the future. Some of you know that for my first 10 years as CEO of Dave & Buster's, I commuted from Dallas, New Heaven while my wife was an officer at Yale University. Now that she has retired, I want to spend more time with her and the rest of my family. I continue to have a big emotional and financial stake in the success of Dave & Buster's, I will remain involved from a different chair and I'm excited to have someone that I've partnered with for more than a decade to take the CEO role.

Now, I'll turn it over to Brian.

Brian Jenkins

Thank you, Steve, and good afternoon, everybody. I'd like to begin by thanking our incredibly talented team for their continued dedication as we evolve the brand and embark on our next basic growth.

Before I discuss our Q1 financial results and our 2018 guidance, let me remind you that 2017 was a 53-week year and as a result, our fiscal year 2018 calendar shifted by one week and has one less week for the full year. Due to seasonality in our business, our quarterly results this year will not be direct to comparable to our results last year. More specifically, in Q1 of this year, we had one last high volume winter week compared to last year, and this shift had an unfavorable impact on revenue of $1.4 million, EBITDA of $1 million and adjusted EBITDA of $0.9 million. In order to provide a more meaningful fixture of our performance, I'll be quoting our comp sales on a same calendar week basis adjusting for this shift.

Turning now to some of the highlights for the first quarter; total revenues increased 9.2% to $332.2 million versus $304.1 million as reported in Q1 of last year. On a comparable week basis revenue was up 9.7% driven by strong contributions from our 26 non-comparable stores. Including the 6 stores that opened during the quarter, non-comp store sales increased to $74.5 million, that's up from $30.3 million in the prior year on a comparable week basis. However, revenues from our 86 comparable stores feel 4.9% to $260.2 million, that's down from $273.7 million in the prior year, again on a comparable week basis. Looking at overall sales by category, amusement and other sales grew 10.4% while food and beverage sales collectively grew 7.7%. During the quarter, amusement and other represented 57.9% of total revenues reflecting a 60 basis point increase from the prior year period continuing the long-term trend.

Breaking down comp sales; our walk-in sales fell 4.8%, while our special events business was down 6.4%. In terms of category comps, our amusements was down 4%, while our food and bar business was down 6.7% and 5%, respectively. During the quarter, the combination of weather and the Easter calendar shift had a net neutral impact on our performance [ph], while competitive intrusion and cannibal [ph] inflation, had a slightly more unfavorable impact compared to last year. In terms of content, as Steve mentioned, our new games for Q1, Tomb Raider and Rampage are doing well based on objective metric while utilization rate, and we're optimistic about the upcoming launch of virtual reality.

In terms of cost, total cost of sales was $57.1 million in the quarter, and as a percentage of sales, was a 110 basis points higher versus the same period last year. Recall, during Q1 of last year, we recorded a $2.5 million reduction in amusement costs resulting from the favorable settlement of a multi-year excess use tax audit [ph]. Excluding this settlement, cost of sales would have been only 30 basis points higher year-over-year reflecting a decline in F&B and amusement margin, partially offset by higher mix of amusement sales. Food and beverage cost as a percentage of food and beverage sales was 60 basis points higher compared to last year, as the unfavorable impact of commodity inflation, the impact of our newer stores, and investment in our new Angus burger was only partially offset by the favorable impact of food and beverage pricing.

Cost of amusement as a percentage of amusement and other sales was 170 basis points higher than last year. And excluding the favorable used pack settlement last year would have only gotten 20 basis points higher year-over-year. This was driven by a change in product mix, partially offset by the favorable impact of the shift in game-play towards simulation games.

Our operating payroll and benefit cost as a percentage of sales was 21.9%, or up 50 basis points year-over-year due to deleverage of our comp stores and the unfavorable impact of about 4% wage inflation that was personally offset by year-over-year improvements in our non-comp store set which represented 23% of our store base in the quarter. That said, we keep in mind that our newer stores do tend to be less efficient from a labor perspective relative to our mature stores. Other store operating expenses were 110 basis points higher year-over-year, primarily driven by higher occupancy costs at our non-comp stores and deleveraging in our comp store base. Marketing expenses were also higher as a result of inflation and media costs, and continued tests and the digital media space.

Lower operating income before depreciation and amortization was $108.8 million for the quarter compared to $107.6 million last year, reflecting growth of 1.1%; and as a percentage of sales, this was a decrease of 260 basis points year-over-year for 32.8% and excluding the favorable used pack settlement decrease of 180 basis points. G&A expenses were $15.7 million, that's up from $15 million in the prior year due to increased headcount and higher stock-based compensation partially offset by lower incentive comp and legal costs. As a percentage of revenues, our G&A expenses improved 20 basis points year-over-year.

Pre-opening costs increased to $7.1 million, that's up $2.6 million from the first quarter of 2017. This was primarily due to an increase in store openings versus the prior year, as well as pre-spending associated with our strong lineup of 2018 openings. As a percentage of revenue, pre-opening costs increased to 2.1%, that's up 60 basis points compared to the prior year. EBITDA was $86.1 million, that's down 2.3%, and EBITDA margins were down for 25.9%, that's down 310 basis points versus the same period last year. On a comparable week basis and excluding the favorable 2017 new tax settlement, our EBITDA was up 1.8% year-over-year. Adjusted EBITDA of $95.9 million improved slightly versus the prior year marking our 31st consecutive quarter of growth and on a comparable week basis, and excluding the used tax settlement, adjusted EBITDA grew by 4%.

Net interest expense for the quarter increased to $2.9 million, that's up from $1.9 million in the prior year driven by higher average debt levels resulting from our share buyback program and also due to increases in the underlying LIBOR rate. Our expected tax rate for the quarter was 4.4% compared to 31.4% in the year ago period, that's been driven by a lower federal statutory rate under tax reform, partially offset by a lower tax benefit from reduced stock option exercises. We generated net income of $42.2 million, that $1.4 per share on a revolving share base of 40.6 million shares as compared to net income of $42.8 million or $0.98 per share in the first quarter of last year on a diluted share base of 43.5 million shares.

Shifting to the balance sheet for just a minute; at the end of the quarter, we had just over $355 million of outstanding debt on our credit facility, resulting in low leverage of about 1.2 times EBITDA. During the quarter, we repurchased approximately 600,000 shares of our common stock for $27.4 million. The inception-to-date total now as of June 6 this year is 4.1 million shares for $218 million leaving about $82 million under our current authorization.

Turning now to our outlook for the fiscal year 2018; we're reaffirming our prior guidance for 2018 on several key financial metrics. Total revenues are expected to range from $1.2 billion to $1.24 billion, that's up 7% to 11% on a comparable 52-week basis. This is unchanged from our prior guidance. We continue to project comp-store sales on a comparable 52-week basis to be down low to mid-single digits on a relative basis and at the upper end of our guidance, we expect second half comps to be better than the first half as we roll over easier compared [ph].

From a development perspective, our target remains to open 14 to 15 new stores including 2 of our new 17K format. Of course, these openings will skew towards the lower storage format and our new markets for our brand. We've already opened 9 stores so far this year and currently have 5 stores under construction, so really confident in this guidance. We are projecting net income of $95 million to $110 million, that's too is unchanged from prior guidance based on an effective tax rate of about 24%, which includes the impact of new tax legislation. We're now estimating our diluted share counts at approximately 40.5 million shares versus prior guidance of 41 million.

We continue to project the EBITDA of $255 million to $275 million for the fiscal year. In terms of capital, net capital additions after tenant allowances and other landlord payments are now projected to be $179 million to $189 million. That's up $9 million from our prior guidance due to additional spending on gains and remodel project.

Finally, I want to remind you that the impact of one less week than fiscal 2018 versus our 2017 year has an unfavorable impact on revenue and EBITDA of about $20 million and $4 million, respectively on a full year basis.

With that, I will turn the call back to Steve.

Steve King

Thank you, Brian. I'd like to review our recent and upcoming store-development activities and the long-term opportunity for our unit growth. As I mentioned in my opening remarks, we're very pleased with the response of our recent store openings.

During the first quarter, we opened 6 new stores in Rogers, Arkansas; Memphis, Tennessee; and New Jersey, Anchorage, Alaska, [indiscernible], Madison, Wisconsin; and Rosemont, Illinois. Rogers was our first 17K format store and I'm pleased to announce that our next 17K format store will be in corporate -- specifically [ph] Texas, later this year. It might be worth to reminding everybody that the economics of the 17K store -- we anticipate steady-state AUVs of about $4 million to $4.5 million, store level EBITDA margins of around 25%, cash investment excluding TI of less than $5 million in cash-by-cash returns and the low 20 for this format.

In the second quarter so far we've already opened 3 stores, including Salt Lake City, Utah; which is also a new state for us. Mass [ph], in New York which is on Long Islands; and just today, and towards California in the South Bay region of Los Angeles County. We plan to open two more stores during the quarter in North Ridge, California in the Fernando Valley and Scotts Island, New York.

As Brian mentioned, with 9 stores opened so far and 5 stores under construction, we're well on-track to open the 14 to 15 stores that we've guided this year representing 13% to 14% unit growth. These stores will skew towards new markets for our brand. Including the stores under construction, we currently have a total of signed leases providing us significant visibility on new-store growth into 2019 and early 2020. We remain confident that we have a strong and dedicated team needed to execute on our new store opening plan.

In terms of square footage, at the higher end of the range, we expect 11 large stores this year including 9 that are approximately 60,000 [ph] square feet, and 2 that are between 30,000 and 40,000 square feet, and the remaining 4 stores will be comprised of two of our small store format, and 2 of our 17K-format stores. Our target is to ultimately open 235 -- or 231 to 251 locations in United States and Canada, including 20 to 40 of the 17K square foot stores. We plan to capture market shares for unit growth on a consistent measured pace and by driving improvement in our comp stores sales. We can win by focusing on enhancing our operating, strengthening our execution inside the box, and ensuring that we're reaching our audiences effectively.

As always, we appreciate your continued support and interest in Dave & Buster's. Operator, please open the lines for Q&A.

Question-and-Answer Session

Operator

[Operator Instructions] From SunTrust, we'll hear from Jake Bartlett.

Jake Bartlett

The first one is the cadence of the same-store sales throughout the quarter on a monthly basis. I believe what you communicated before was that same-store sales had decelerated into the holidays and hadn't materially improved. I'm just trying to get a sense as to -- it sounds like it started at a lower level and then improved, but if you could confirm that, that would be helpful.

Brian Jenkins

That would be the way the math works on that and we did say both of those things that, you know, degenerated in December and January, and it continued on into the early part of the first quarter.

Steve King

I'd also say Jake that the first quarter is a somewhat volatile quarter in that Easter calendar shift and spring breaks and all that stuff make that really hard to read. I mean Easter moved earlier which is into the quarter and shifted that -- so that will shift some of the sales earlier into the quarter than we had last year, but it does make it hard to read and that's why we really don't like to talk about the trend particularly with them to be won.

Jake Bartlett

And then, if you could share what you've learned about the VR game and how it performed in test, maybe if you have a couple hours of some of the stores that have had it running today or over the weekend, any insight you could provide would be helpful. And your level of confidence that the virtual reality is going to be a material driver to traffic?

Steve King

We're very optimistic and excited about the VR concept that we're introducing, particularly with the intellectual property around Jurassic World, it is such a great launch of platform that we plan to utilize with other titles overtime. So it does represent the biggest investments we've made as a company in amusement, single game; we're going to follow it up later in the year with another game that we think also resonates well with guests. We do have it rolling into stores right now, we'll be launching it really officially here, Thursday, I think the 14th. So we're excited about that but we're very optimistic about the game, the reaction from our guests have been positive, and we deal it as an attraction that can not only drive traffic, it's going to look -- it's going to present well on our TV spot but also drive some incremental spend while they are in the store because we're charging a separate price for it. Again, it's really early but we're excited about the product offering here, and we think we're going to be able to leverage it with more of a library as we go down the road.

Jake Bartlett

And lastly, how confident are you that over the last six months some of the changes you've made to menu, to service levels, to the quality product in the food and beverage side; you know, is going to be effective or anything you could point in terms of metrics or how you measure customer satisfaction just to give us confidence that the consumers are going to come in because of VR and hopefully, become repeat users?

Steve King

I mean, we clearly think that kind of driving comps [indisernible] is a priority for us, and we're really focused on four things in order to do that. Brain mentioned content is one and in that we believe it's a big part of driving traffic, but we have gone with an enhanced simplified menu, we have invested in what we're calling quality to count, we've done the burger, we're planning on doing some changes to our chicken and steak, with new leadership in the F&B area in terms of our R&D function, and then we're also planning the test -- quite casual, later in the year. I think -- and then improving service and reducing friction, there are some technology elements for that, I mean, we've deployed some additional kiosks, we're testing some RFID and different operating processes in terms of how we deploy people. It's early for a lot of those to say that they are going to be things that we roll to the entire system, but we have confidence that we will be able to figure this out and come up with models that both enhance our service and also contribute to comp store sales.

Operator

Moving on, we'll hear from Andy Barish with Jefferies.

Andy Barish

Just trying to get a clarification, Brain, on your comments around the labor line and non-comp stores, I was just a little confused. It seems as if some -- you mentioned non-comp store labor was better year-over-year; is that a function of some new procedures on new restaurant opening and glide-path or did I miss-hear that?

Brian Jenkins

Right, it wasn't that clear from my comments. You know, what I was trying to say there is that we talked about this gap between our mature stores in terms of the efficiency on the hourly labor line in particular relative to our new or immature stores. What I was trying to communicate there was that gap in efficiency narrowed quite a bit in Q1, so the drag of our new stores was less and that was helpful to us year-over-year.

Andy Barish

And I assume that's come from some focus on that area in the last year or so?

Brian Jenkins

I kind of say this every time, I know. We're opening new stores every day and quite a few, I guess 6 in the Q1, and I think 5 maybe in Q4 if I remember it right. So there is a lot of effort trying to dial the stores in, continue to deliver great experience but dial when -- and trying to get them closer to our mature store base and -- so, it's constant focus every day at the new stores to dial-in. So there is a team of people -- we have some great operators out there that are working hard at it. We have a tool -- labor management, workforce management tool that we've been using for a long time that we deployed to try to do that and it's called a Smart Way [ph] and we are in the midst of a rollout of a neutral that we think better, probably 20 stores into it I think or so right now but this is a tool that we think is a little more -- a lot more state-of-the-art, more nimble, more real-time. So in the midst of that -- and we're going to continue to focus on labors, obviously one of the biggest plans that we have.

Operator

[Operator Instructions] We'll hear from Sharon Zackfia with William Blair.

Sharon Zackfia

On the VR, are you launching the media simultaneously with the launch on Thursday?

Steve King

We've been rolling VR into the stores over the last -- about 10 days or so and so we will have it in all the stores that are going to get it by Thursday and that's when we will be launching the television advertising to support it.

Brian Jenkins

It's helpful to add. It has the attraction to run and test it before we launched on air, so that's actually by design. There are couple of stores, just to clarify a little bit here -- with some of the out -- remember, the estimates, what we called our original smalls [ph] back in the day 2008-2009 timeframe; that we'll not be receiving the attraction that's couple of stores [ph]. And then, we are going to have some of the stores that are a long distance away, let's call it why that it will be a little delay to getting that title that will be largely out and rolled out by the 14th so we can get this on air. So we're trying that [ph].

Sharon Zackfia

And then on the shift that you're talking about, doing overtime away from more traditional media towards digital; I know you said you were doing some tests -- do you have any early learning's on the effectiveness of digital with your business?

Steve King

I think it's exactly test your way into smarter and better deployment. You just get better at it as you utilize it more, until I would say our early testing was -- I would say not outstanding and as we went through the quarter and as we come into this quarter, it's gotten better in terms of our ability to efficiently target and have a reasonable cost per acquisition. But I think this will take a while for us to learn our way into, and again, as I said earlier, I think linear is still going to be a big part of what we do here over the next several quarters and probably over the next couple of years, just to have that kind of broad voice against things like -- a VR attraction, it's really hard to get that out efficiently to broaden up audience using the digital format.

Sharon Zackfia

Do you have any thoughts on whether or not Fortnight is impacting your business negatively?

Steve King

We've gotten that question a couple of times. We haven't been able to correlate anything specifically to it. [Indiscernible] it's a hugely popular game and one that lots of young adults, as well as teenagers are playing; so we have been keeping our eye on it but we can't really draw any specific correlation.

Operator

Moving on, we'll hear from Andrew Strelzik with BMO Capital Markets.

Andrew Strelzik

First, you mentioned in talking about the amusement cost of sales -- a product mix shift, I was just wondering exactly what you're referring to there and if that's something we should expect to continue?

Brian Jenkins

We saw some shift in some of the license merchandise that we kind of featured in some of our -- in our reset and so we are little bit of shift away from some of our imported products towards some license product in the quarter. I don't know that we'll see -- I mean, I don't know that we'll see that continue totally because we're -- we intend to move the product around and we'll have another reset here in the near future. So I don't know if I'd count on it.

Andrew Strelzik

And among the initiatives on the food side that you had talked about previously, trying to emphasize the value that was already on the menu was among the things you had spoken about. I'm wondering if there were any signs if that has started to resonate.

Steve King

A lot of that actually occurred in the early part of the second quarter and we're really not going to comment specific trends on the second quarter but we've tried to talk about recasting kind of our events like combo or a combination also on some of our drink offerings which we think are of great value and we necessarily get a lot of credit for. So we are going to enrolling what we've described earlier as $3, $4, $5 for happy hour across all our stores. Previously, we had a 50% off for happy hour and people really didn't understand what that meant and so now we're saying all rates are going to be to $3, $4, $5 for a happy hour. We tested a couple of ideas with respect to the eat and play combo; one specifically that we tried was kind of buy power card and then get 50% off on your meal. That thing resonates that well, that was probably the same issue as you have with 50% off cocktails where people really are more interested in price certainty. So if you've watching television lately, we ran a eat and play combo over -- of course for the last several weeks, all week long which was the difference compared to what we have done previously. So over the next to full week, there will be over kind of get a better week drew on, kind of what that really meant for us, pre-kiosk, net of control [ph].

Operator

From Piper Jaffray, Nicole Miller.

Nicole Miller

Just a numbers question; so in the follow-up, is the earnings guidance this year built up to $1.04 gap -- number that you have in the press release or is after dollar per share if we take the tax settlement into consideration? And then in the first quarter of the 6 openings, how many were large and how many were small? And so the second quarter of the 5 stores, how many large and how many are small?

Brian Jenkins

I was going on that, totally. Sure, I understood what you're asking about the $1.04 and the gap here…

Nicole Miller

I'm just looking -- if you take out the tax settlement, right, those are $0.04 benefit, is that right, in the quarter?

Brian Jenkins

Yes, exactly. The $0.04 -- it is about the Texas huge tax owner. [Crosstalk] The guidance includes that and our guidance also includes -- you may recall, last year in our second quarter we had a legal settlement of similar magnitude, so on a full year basis they kind of wash out and that happened in the second quarter as you go back the date. On a full year basis, they have two kind of large items, one good one in the first quarter and one negative one in the second, similar magnitude. You asked about store counts, we opened 6 stores in the quarter; as I mentioned, 4 of them were large, 1 was small and 1 was our first -- 17K in Rogers. So, that was the profile of how the stores went [ph].

Did you ask about second quarter? I'm sorry. I don't know that we've given that. I mean we're going to, I mentioned in the remarks, I mean, we're skewed earlier in the year, so we've opened 3 so far in the quarter and I think we've got 1 left to go -- 2 left to go.

Steve King

At the end of the second quarter, we'll have 3 stores and off those 4 of them will be large stores and 1 will be a medium store.

Operator

And next, we'll hear from Steven Anderson with Maxim Group.

Steven Anderson

I want to talk about the 14 to 15 locations, those are going to be company-owned North America. Now in the past you've talked about your international development outside of North of America and looking to open your first one this year. Can you give any guidance as to which core you will be doing this?

Steve King

First of all, just back to international more broadly, we still believe this is a long-term opportunity for us. Clearly, where most of our time right now is being focused on the domestic opportunity in the domestic priority; the Middle East is really the store we're talking about to open towards the end of this fiscal year. [Indiscernible] that we had hoped, they are making some progress that I'd say it would be very late in 2018.

Operator

And we'll go to Brian Vaccaro with Raymond James.

Brian Vaccaro

Circling back on the improved comp performance as the quarter progressed. I'm just curious to get your perspective on what drove that improvement? Are there a couple of sort of company-specific initiatives or offers that you started to see particularly traction on, and into the needle or would you say it's mainly the broader industry improvement that we saw in March and April compared to Jan-Feb?

Steve King

I would go back to Brian's comments and make sure we don't describe too too much of to the cadence was in the quarter as that first quarter is highly volatile by virtue of all the calendar shifts and what's going on with Easter and the rest of it. I think it's early to say that kind of -- some of the underlying things that we are doing have made significant impact, overall, did we improve on a sequential basis from the fourth quarter; yes, we did. It was 100 basis points, so not tremendously significant but we believe that we're on the right track with 4 strategic priorities that we've been talking about. Again, it's about content, simplifying our F&B, working on service and the friction in our system, and then really on effectively communicating that new news, as well as value. Now we believe that's the right path for us and we believe that we will be able to improve as we get a little more time under our belt with those things.

Brian Vaccaro

And shifting to this new unit; pretty strong new unit performance that was evident in the quarter. I guess to what do you attribute to better than expected performance? Is there a common thread or something that stands out in the class of '18 so far as it compares to the class of '17 or '16?

Steve King

Just to be clear, we say new and non-comp; I did reference that we really thought the results from the new stores were very strong in the first quarter but some of the non-comp stores -- one's that are opened towards the end of last year are very good for us as well. So I would say that among others, we did skew towards -- kind of -- some new markets for us and those new markets tend to do well for us, I think we've talked about that in the past. So for the 6 store in new markets during the course of first quarter, and that part what we attributed to, they didn't have a little bigger honeymoon than what we see in the existing markets.

Brian Vaccaro

Brain, you look back at the fourth quarter, you saw 35 fiscal leverage on a down 6 comp, roughly this quarter, it's up the other way, 50 basis points on a slightly better comp. Can you help pass out for the underlying dynamics, where the cost per week was a little favorable this quarter versus the last two quarters of solid gain?

Brian Jenkins

I mean, as I mentioned, we're about 50 bips on favorable to the quarter on the overall labor line. Really the piece of that that we dial back on what's the management labor in the stores, so that's talking more fixed piece of the business. And that by far was them -- the most significant portion of that 50 bips and hourly, kind of held our own despite how the negative comp closed to 5% and having all these new stores, we actually felt pretty good about new way the hourly line would sell the deleveraging on our non-comps -- I'm sorry, our comp stores with that negative comp sales number or is the headwind for us there.

Brian Vaccaro

And I think you said on the last quarter call and prior to one of the big year-on-year benefit if you want to call it that was lower store bonuses. How about the store bonus line in Q1 '18 versus last year?

Brian Jenkins

Not really significant within the quarter at the store level.

Brian Vaccaro

And then on the virtual reality, just a couple of specifics like that -- how will customers -- I know on the last call you were talking about maybe going within the hardship that were you settled on just in terms of how will customers pay for it? And then also if you could just say about this -- how many days and hours per week will it be offered initially in the average store? Thank you.

Brian Jenkins

We are going to sell it as an attraction and we have created the capability within our systems to sell our VR chip, both at our key auction, obviously had a register. We will be able to sell a chip if a guest comes upto the attraction. So we have points still to buy actually, so they can do it there, they could have a server, give them a chip or sell them a chip, they could do it as a kiosk. So that's multiple points of purchase. I think the depth in the number of hours that we plan to operate will depend somewhat on the store, obviously we have the range of performance within our portfolio but we're going to be operating this at night and on weekends, primarily. It won't probably we operated all the time but if we do really really well and we're making marginal dollars, we'll evaluate that. We have a number of these stores that are going to get two of them. I think we've got about 15 high volume stores that will have two units. And so -- I think the operating hours will be somewhat dependent on how we see the demand unfold.

Operator

And at this time, I would like to turn the conference back over to Steve King for any additional or concluding remarks.

Steve King

Well, this will be my last earnings call as CEO and I want to thank all of you for your support over the years. And actually with that, I'm going to turn it over to Brian to make some final remarks.

Brian Jenkins

Okay, thanks, Steve. First, I want to thanks Steve and congratulate Steve for the 12 years of dedicated service at D&B. Under his great leadership we've transformed the brand, we've reached some height, we've been doubled our store count, increased revenues over $1 billion, quadrupled our EBITDA, very impressive performance, so I want to thank him for that. And on behalf of the entire D&B team and our board, shareholders I would like to thank you for job well done and wish him well in his retirement.

On a more personal note, I also want to thank Steve for his minute shift, his guidance to me over the past decade, it has been an absolute privilege for me to partner with him and the rest of our team here and I look towards to his continued council as he serves as our Chairman going forward. As for me, I'm both honored and excited to take on the role of CEO of this great Company, I'm 100% committed to work with our special team to evolve the D&B brand and continue our rolling track record of growth. I sincerely appreciate the tireless effort of both, our store and corporate team members who work together and bring our brand to life each and every day in our stores for our guests.

Over the past 20 years I've developed the passion for the entertainment business. I mean, it's been a decade with Six Flanks [ph] and now over 11 years here at D&B. Entertainment is in my DNA, I've always looked at our business through an entertainment lens and believe that our relatively low frequency continues to represent an opportunity for us consistent with the priorities we've communicated, I'm confident that are laser focused on involving our content and offering, improving our service and reducing friction, and effectively communicating our new news and value in product improved comp sales performance. We expect this in combination with building great new stores, will create growth and shareholder value for years to come.

I look forward to the next chapter of our success that our team will achieve together. And finally, I appreciate the continued support of our shareholders and I want to thank you for your time tonight, and look forward to speaking to you again soon. Have a great evening.

Operator

Ladies and gentlemen, that does conclude today's presentation. We do thank everyone for your participation, and you may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!