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The Honolulu Advertiser
Posted on: Monday, December 24, 2001

Dave & Buster's feels pinch of recession

By Jerry Gleeson
Westchester (N.Y.) Journal News

The signature line at Dave & Buster's Inc., the restaurant/game room for grown-ups, is "Big Time Fun." But with an economy stuck in recession and terrorism dominating the headlines, is America in the mood?

Dave & Buster's opened in the Ward Entertainment Center this year.

Cory Lum • The Honolulu Advertiser

Executives at the Dallas-based company say they believe that it is, but they're hedging their bets. The company is scaling back its two-year expansion plan with an eye on reducing costs and debt. In a conference call earlier this month, officials said the company would open just one new store next year, instead of the planned four.

Dave & Buster's now operates 31 restaurants, including one in Kaka'ako on O'ahu.

Dave & Buster's posted a $1.87 million loss for the third quarter ending Nov. 4, or 14 cents a share, compared with a $1.5 million profit, or 12 cents a share, for the comparable quarter a year earlier. While comparable store sales for the quarter were down 6.7 percent, officials said, the numbers are picking up in the fourth quarter, traditionally the busiest for the company.

"Based on our November results, we believe that much of the business effects of the Sept. 11 tragedy are substantially behind us," said co-founder James "Buster" Corley.

Although the company has had some missteps expanding in recent years, it occupies a unique niche, restaurant industry officials say. There are places for adults to eat and there are places for adults to play billiards, shuffleboard and electronic video games. But no place combines the activities in the way that Dave & Buster's does.

Dave Farcas, senior editor at Chain Leader, a national restaurant trade magazine, said Dave & Buster's has struggled a little bit because of soft sales trends. But competitors stay away from Dave & Buster's turf because of the high cost of opening and operating a site, he said.

"Really, they're their own niche," Farcas said.

Its business roots trace back to Little Rock, Ark., in the late 1970s. David Corriveau was running Slick Willy's World of Entertainment, a billiard parlor/arcade for adults, while Corley was operating Buster's Restaurant next door. Both men noticed the same customers traveling back and forth between both establishments and decided there was a market for a combined operation. The new company was formed in 1982.

The typical Dave & Buster's restaurant is big — 50,000 square feet on average — and attracts about a million visitors a year. Annual sales average about $13 million for each site, with about half of that in food and drink and the rest in amusements.

It's the lose-yourself quality that some in the company hope will keep attracting customers after the Sept. 11 terrorist attacks, said Stuart Myers, the company's vice president of marketing.

"So many people have been beaten down emotionally, that I think people are ready to blow off some steam and have a little fun," he said.

The company has seen dry times before.

Dave & Buster's had planned to open seven stores in 2000, but in August 1999 the company missed an earnings estimate that caused the stock to lose nearly half its value. The company cut its 2000 openings schedule to four stores. Analysts blamed the problem on ineffective management at several California stores and not on flaws in the company concept.

The company opened four stores this year and planned to open four more in 2002, at a combined cost of $92 million, until the third quarter changed its plans. Reducing the 2002 store openings will save $3 million in pre-opening costs, Corley said.

The company's sale-leaseback plans, which include six other stores as well as the headquarters, will provide $35 million to $40 million for liquidity and debt reduction if all the transactions are completed, said W.C. Hammett Jr, the company's new chief financial officer.

He projected fourth-quarter earnings of 35 cents to 38 cents a share, and annual earnings per share of 57 cents to 60 cents.

The company said it will offer fiscal 2002 projections later this quarter.