Pinstripes Holdings Inc. Price & Performance (PNST)

I would like to turn the conference over to PennStrip's Founder and CEO Pinstripes, Dale Schwartz. Good afternoon, everyone. Thank you for joining our call today.

The profitability improvements that our team has been driving over the last several quarters began to shine through during the fiscal third quarter. Some of the highlights include strong venue level EBITDA margins of over 19% and our best corporate profitability quarter in two years with adjusted EBITDA of 2,700,000 Moreover, our new stores are continuing to mature delivering a $1,300,000 improvement in venue level EBITDA versus last quarter and a venue level EBITDA margin of over 10%. Excluding extraordinary expenses. While our top line results are not where we want them to be, want to thank our more than 1,900 team members, for their passion and dedication every day they continue to provide our guests with those magical moments they've come to expect from Pinstripes. Over the last few quarters, our strategic focus has been on three main initiatives. One, improving our top line comp growth trajectory two, driving improved profitability at both the venue level and corporate level and three, opening high quality locations within our current funding capacity. Let me speak to each of these areas starting with improving our top line comp growth. As we spoke to previously, during the first four weeks of the third quarter, we saw comp trends in the negative mid to high teens as we made some adjustments to our marketing that had unintended impacts to our business.

As we corrected those changes along with adjustments on our promotional strategy, we saw comps improve 10 percentage points to the down 7% range. Improvement was primarily driven by a meaningful improvement in our Events business in the final month of the quarter as both corporate and social event and our teams drove positive bookings. For our Open Play business, we are focused on ensuring we have the right level of value for our guests through programs such as happy hour gaming promotion, where you can enjoy Elaine and both for 50% off during certain hours as well as our daily special. Additionally, we have made exciting changes in additions our legendary weekend brunch buffet offering In addition, our local store marketing campaigns continued to see exciting success we've introduced activities such as kids clubs, comedy nights, line dancing, yoga classes, trivia nights, As we enter the fiscal third quarter, we continue to test programs that we believe are right for our brand and our guests being quick to discontinue those that did not perform to expectation. We believe we found the right balance as demonstrated by the substantial improvement in our comp performance, in recent weeks compared to the second quarter.

On the event side of the business, our third quarters are seasonally strongest and our teams worked hard to drive as many events as possible for Pinstripes through the holiday season and beyond. Are encouraged by the fact that we are seeing strong lead generation and booking performance, which on the event side of the business in recent weeks and our continued investment in the tourism convention segment of our event business is showing very promising bookings and sales results. We believe that targeting these adjacent opportunities will allow us to grow our event business beyond the third quarter and create additional momentum through the rest of calendar 2025. [indiscernible] the third quarter represented our best quarter for corporate profitability two years. The substantial work that our teams have done since the start of the fiscal year to remove $10,000,000 in annualized cost savings at the store level helped to protect our overall profitability and mostly offset our near term comp growth headwinds resulting in a venue level EBITDA margin of 19.2% for the third quarter, reduction of only 20 basis points. As a reminder, these savings range from strategic hourly and salaried labor savings a more favorable credit card processing agreement, to more intense negotiations with our various vendor partners leveraging our growing scale and brand.

Our cost saving initiatives extended to the corporate level with the targeted removal of approximately $4,000,000 of annualized cost savings in our SG and A. The fiscal third quarter year over year SG and A decline of almost $500,000 represented the beginning of those savings starting to flow through our P and L the remainder expected to flow through in future quarters. As a reminder, these cost savings range from negotiations with agency partners to strategic corporate headcount reductions and a renewed focus on marketing efficiency. Overall, our profitability improvements were one of the major bright spots in our third quarter results and following the completion of our cost reduction efforts at the venue level and corporate level, we believe we have the appropriate cost structure for our business and are focused on driving top line improvements to be able to drive further corporate profitability upside. Turning to unit development, During the third quarter, on November 15, we opened our eight at Broadway Plaza marking our second location in the San Francisco area in close proximity to our location in San Mateo.

This new two story Walnut Creek venue features 25,000 square feet across two levels with eight bowling lanes, two indoor bocce courts, and private event space for groups of up to 1,500. Overall, we remain very pleased with the new opening. Next, I want to touch on liquidity. As of January 5, we had $2,400,000 in cash and cash equivalents. While our third quarter represented a substantial improvement in our trajectory with positive corporate level EBITDA and only modestly negative free cash flow, we company is exploring several strategic alternatives in order to improve our overall liquidity position. As part of this, on January 21, Oaktree funded an additional 6,000,000 under the Oaktree Tranche II loan, Otherwise, until we conclude the strategic and financing alternative process, we do not intend to make any further public comment unless as deemed appropriate or necessary. [indiscernible] In summary, while we are pleased with what we've accomplished in writing our cost structure, both venue level and corporate, we remain acutely aware of our needs to improve our top line growth trajectory to further realize improved profitability. Before I turn the call over, as we noted in our earnings release this afternoon, Tony Cucagrossa, our CFO will be stepping down effective February 28, pursue other opportunities outside of the restaurant entertainment industry.

I want to personally thank Tony for the work he's done over the past eighteen months, including contributing to our transition to a public company. It's been a privilege to work with you and I wish you well in your future endeavors. With that, let me now turn the call over to Tony to discuss our fiscal third quarter results in greater detail. Thank you, Dale. It's been an honor to be part of the Pinstripe Pinstripes, including, as you noted, the transition to becoming a public company. I look forward to working with you and the rest of the management team to ensure a smooth transition. Turning to results. For fiscal third quarter, total revenue increased 10.4% to $35,500,000 compared to $32,200,000 in the same quarter last year. Including a 10.5% increase in food and beverage revenues and 10.3% increase in recreation revenues. The increase in total revenue was primarily due to having one new store open for a portion of the third quarter of fiscal twenty twenty five and three new stores opened in the third quarter of fiscal twenty twenty five for the full period compared to the third quarter of fiscal twenty twenty four. Turning to expenses, cost of food and beverage as a percentage of total revenue decreased 10 basis points to 15.5%.

Primarily due to cost efficiencies offsetting negative sales leverage in mature venues.

Labor and benefits as a percentage of total revenue decreased 60 basis points to 33.1% primarily due to reduced headcount in the third quarter of twenty twenty five as compared to the third quarter of fiscal twenty twenty four, and increased labor efficiency at locations opened less than twenty four months.

Excluding the addition of four new stores, store labor and benefits costs were down approximately 20 basis points.

Occupancy costs as a percentage of total revenue increased 140 basis points to 16.8%. Other operating expenses as a percentage of total revenue increased 60 basis points to 16.6%. Primarily due to increases in janitorial and software as a service costs in the third quarter of fiscal twenty twenty five, compared to the third quarter of fiscal twenty twenty four. Menu level EBITDA as a percentage of total revenue decreased 20 basis points to 19.2%. Driven by sales deleverage on negative comps, partially offset by modest positive store contribution from the new locations that opened in fiscal twenty twenty four and fiscal twenty twenty five as these stores have continued to see improvements in profitability. Please refer to our earnings release for a reconciliation of non GAAP measures. Our mature stores, those open more than twenty four months, generated average contribution margins of 21.6%, representing a 30 basis point decrease year over year driven primarily by cost efficiency improvements offset by sales deleverage that we've previously discussed. General and administrative expenses decreased to $4,800,000 compared to $5,300,000 in the same period last year. Turning to liquidity. As of 01/05/2025, we had $2,400,000 in cash and cash equivalents and $114,000,000 of debt outstanding.

This concludes our prepared remarks. I'd like to thank you again for your interest in Pinstripes. Dale and I are now happy to answer any questions that you may have Operator, please open the line for questions. Thank you. We will now be conducting a question and answer session. Okay. And our first question comes from Peter Saleh with BTIG.

Great. Thanks for taking the question. Tony, it was a pleasure working with you and best of luck in the future.

I did want to ask about same store sales and maybe you can walk us through the trajectory throughout the quarter, it seemed like it improved. And any thoughts you could provide on where we're headed here in the fiscal fourth quarter. Just trying to understand what's worked It seems like you guys made some changes on the marketing schedule. And did see an improvement. So just trying to understand if there's more tweaks that you guys can make on the marketing advertise Hey, Peter. It's Tony. In terms of the trajectory on comps, as we went through Q3, it was double digits down the first couple of months and then in the final months, we had a nice snapback particularly in the events business that got us to the the negative 7.7%. Also in that 7.7%, only about 4% was traffic.

Some of that promotion and marketing activity did give us about a 300 basis point headwind. And so we've made some adjustments to that. As we look at Q4, not to sound like a broken record, across the industry, but weather was a factor, particularly in January and then even a little bit here in in February. But we are seeing things rebound and also lapping easier comp in Q4 than we were in Q3.

Got it. Okay. And then just on some of the cost reductions, Dale, I think you said you removed $4,000,000 from the G and A line. I think $500,000 was reflected, if I have that number right. In 3Q. I'm assuming the rationale will start to see the full maybe million reflected in 4Q. In terms of the $10,000,000 annualized cost savings that you guys have been talking about, are those now fully implemented? And are those flowing through the P and L?

Yes, Peter, it's Dan. $10,000,000 correct. Those are fully implemented and absolutely flowing through in Q3 and certainly will continue in Q4. And a little much the same on the $4,000,000 or $5,000,000 on the SG and A front.

All that's been completed. So there was some partial timing that accounts for a portion of it in Q3, but all of annualized savings we'll be seeing in Q4 and thereafter.

Understood. And then just lastly on my end, What are your thoughts on pricing as we head into the the fourth quarter here? You guys planning on taking any incremental pricing How are you thinking about that for the next six months or so?

Sure.

On the private event side of our business, we are not planning on increasing price. We've kept prices in large measure the same for last number of months and we won't be materially changing prices on the private event side of our business, which as you know is about half our sales. On the Open Play side, we're always looking at dynamic pricing certainly for gaming depending on certain dayparts weekend, etcetera. But generally speaking, much the same lunch, dinner, etcetera, we're not taking any material price increases and we are where appropriate doing [indiscernible] price promotions, whether it's two for Tuesdays in certain certain marketing initiatives to garner more business.

Thank you. And our next question comes from Brian Bittner with Oppenheimer and Company. Please proceed with your question. Hey, guys. It's Mike on for Can you just talk about maybe unit growth maybe in the fourth quarter?

I think you were still expecting up in one unit this year.

And how many you plan to open in '26?

Sure. So we still plan to open Coral Gables and call it our Q4.

And locations thereafter were being Certainly, proven vis a vis some of the capital required We still plan on opening Jacksonville later this calendar year that's a project with Simon and St. John Center.

And locations beyond that, we'll provide a further update soon after we complete Some financing and other efforts.

Okay.

Thanks. And then how are you thinking about venue level margins for sort of fourth quarter of of this year Don, only just basis points I think in 3Q versus last year and Do you think that you have an opportunity to expand margins here in the fourth quarter? Yes. Hey, Mike, it's Tony.

Yes, I think we'll we'll continue to see trajectory certainly on our mature venues.

As we see us kind of snap back hopefully next couple of months here as we close out the quarter, which should allow us to expand margins potentially above Q3 And then yes, our new locations, I think it's important to note, we saw all of them profitable Q3 and we're aiming to be in the same sort of zip code from a profitability perspective in Q4. Thank you.

And we have reached the end of today's question and answer session. I would like to turn the call back to Dale for any closing remarks.

I want to thank everyone again for joining us this afternoon and your interest in Prince To Pitzerice. We're certainly looking forward to seeing you any of our 18 locations across the country to enjoy the magic that we're always delivering. Thanks again. Appreciate it.

Thank you. And this does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time.