• Total Revenue Growth: 8.8% increase

• Same-Store Sales Growth: Negative 2.1% for the quarter

• Adjusted EBITDA: $122.8 million, down from $127.6 million year-over-year

• Event Revenue: Increased 27% year-over-year

• League Revenue: Up 9% year-over-year

• New Locations: Opened Lucky Strike Miami; planning four new builds in the next nine months

• Acquisitions: Acquired Raging Waves water park with 53.5 acres of land

• Capital Expenditure: $13 million on growth, $9 million on new builds, $7 million on maintenance

• Acquisition Spend: $12 million

• Net Debt: $943 million

• Liquidity: $437 million available

• Net Leverage Ratio: 2.4 times

• Store Count: Closed one center, ending with 352 centers

• Warning! GuruFocus has detected 8 Warning Signs with BOWL.

Release Date: May 06, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Bowlero Corp reported a solid revenue growth of 8.8% in the third quarter, indicating strong business performance despite initial setbacks.

• The company successfully launched new premium menus in recently opened locations, enhancing food and beverage offerings which are expected to drive higher customer spend.

• Event revenue increased by 27% year-over-year, and league revenue was up by 9%, showing robust growth in these segments.

• Bowlero Corp made significant investments in traffic-driving initiatives which have started to show positive results, as evidenced by industry-leading same-store comp growth.

• The acquisition of Raging Waves, the largest water park in Illinois, presents new business opportunities and diversification into the location-based entertainment space.

Negative Points

• Same-store comp growth was negative at -2.1% for the quarter, primarily due to severe weather impacts in January.

• Adjusted EBITDA decreased to $122.8 million from $127.6 million in the previous year, reflecting higher operational costs and investments.

• The company faced underperformance relative to the third quarter guidance, mainly due to unexpected costs from investments aimed at driving foot traffic.

• Significant investments in the PBA and amusements resulted in a $2 million loss for the quarter, indicating challenges in achieving immediate profitability from these initiatives.

• Bowlero Corp adjusted its full-year guidance to the lower end of the previously disclosed range, suggesting some uncertainty in achieving initial financial targets.

Q & A Highlights

Q: Can you elaborate on trends you've seen with walk-in retail traffic as the third quarter progressed? A: (Thomas Shannon - CEO) Positive trends were observed in walk-in retail traffic, with a positive comp in February and March. April showed a same-store basis increase of over 6%, and total company revenue was up 20%. The company is optimistic about maintaining low- to mid-single digit same-store sales comps through the rest of the year.

Q: What drove the underperformance relative to the third quarter guidance? A: (Robert Lavan - CFO) The underperformance was primarily due to increased costs, particularly from investments in amusements and the Professional Bowlers Association (PBA), as well as higher payroll costs. Despite revenue being in line with expectations, these additional costs impacted overall performance.

Q: Can you provide insights into the acquisition outside of the bowling space, specifically the waterpark? A: (Thomas Shannon - CEO) The acquisition of the waterpark aligns with Bowlero's strategy to expand into the broader location-based entertainment market, which has a significantly larger total addressable market (TAM) compared to bowling alone. The acquisition was seen as an opportunity to partner with experienced operators in a profitable and well-located asset.

Q: How should we think about the investments made to drive traffic, and is there a plan to reduce these investments? A: (Robert Lavan - CFO) Investments in traffic-driving initiatives like the PBA and amusements are expected to normalize over the next quarters. The company anticipates a reduction in these investments as they begin to see returns and improvements in revenue from these initiatives.

Q: What are the expectations for EBITDA margin expansion in the fourth quarter compared to the third quarter contraction? A: (Robert Lavan - CFO) The company expects EBITDA margin expansion in the fourth quarter due to a combination of positive comps and reduced costs. The reduction in costs is anticipated from lower seasonal payroll expenses and decreased corporate expenses.

Q: Can you discuss the performance and future plans for the events business, particularly in terms of revenue growth and customer mix? A: (Thomas Shannon - CEO) The events business has shown strong performance with significant revenue growth. The company has streamlined pricing and improved systems to enhance this segment. The mix includes a healthy balance of corporate events, birthday parties, and online bookings, contributing to overall growth.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.