Pinstripes Holdings Inc. (NYSE:PNST) Q3 2023 Earnings Call Transcript

Pinstripes Holdings Inc. (NYSE:PNST) Q3 2023 Earnings Call Transcript February 24, 2024

Pinstripes Holdings Inc. isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Pinstripes Holdings Inc. Third Quarter Fiscal 2024 Earnings Conference Call. At this time, all participants have been placed in a listen-only mode, and the lines will be open for your questions following the presentation. Please note, that this conference is being recorded today, February 21st, 2024. During management's presentation and in response to your questions, they will be making forward-looking statements about the company's business outlook and expectations, including in respect of guidance for the fourth quarter of fiscal 2024. These forward-looking statements and all other statements that are not historical facts and reflect management's beliefs and predictions as of today and therefore are subjects to risks and uncertainties as described in the company's quarterly report on Form 10-Q for the third quarter fiscal 2024 and subsequent SEC filings.

Management will also discuss non-GAAP financial measures as part of today's conference call. These non-GAAP measures are not prepared in accordance with generally accepted accounting principles, but are intended to illustrate alternative measures of the company's operating performance that may be useful. Reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures can be found in the earnings release. The company has posted its third quarter fiscal 2024 earnings release and earnings presentation on its website at www.pinstripes.com. under the Investor Relations section. And now, I'd like to turn the conference over to Pinstripes's Founder, President and CEO, Dale Schwartz.

Dale Schwartz: Thank you. Good afternoon, everyone, and welcome to our inaugural public company quarterly earnings call. I want to start by thanking our Pinstripes's team for their passion and dedication, and our guests who for 17 years have joined us for countless celebrations and magical moments. I would also like to thank Banyan and Oaktree for their strong partnership in introducing Pinstripes to the public market. It has been quite a journey that started over 50 years ago when I bowled in Cleveland as a child, and as they say, it takes 50 years to make an overnight success. I coined the name Pinstripes in 1989 and 28 years later in 2007 the dream became a reality when we opened our flagship Pinstripes location in Northbrook Illinois.

Fast forward to today we now have 16 beautiful Pinstripes venues with additional new venue openings over the next few months, including locations in Orlando, Walnut Creek, California, and Coral Gables, Florida. For those of you not familiar or have never been to Pinstripe before, let me give you a brief overview. Our vision is a simple one, to create a unique dining and entertainment destination where guests can connect in an old-fashioned way. By combining aesthetically beautiful venues, delicious Italian-American cuisine, best-in-class service, and the timeless games of bowling and bocce, along with private events based for memorable parties, our venues foster authentic human connections across life's everyday and special events, creating broad market appeal.

This has resulted in our ability to generate substantial sales, while maintaining robust venue-level economics. Pinstripes is also capitalizing on the dislocation of the retail industry, filling the void as a traffic creator. Historically, when considering malls and other large retail centers, the movie theater and anchored apartment stores were the key traffic drivers. Over time, streaming and the rise of e-commerce have created significant dislocations within the retail industry. By providing high quality and connection-oriented dining, entertainment, and event spaces, Pinstripes is able to address the key elements that developers need to drive traffic and establish or transition their properties as lifestyle centers. With that, let me go through the differentiating factors that set Pinstripes apart from other concepts in the market.

While we're comprised of bistro, bowling and bocce, our made-from-scratch dining is what truly differentiates our brand. Food and beverage comprise approximately 75% of our total revenue, with bowling, bocce comprising almost the rest of the balance. Equally important is our private event space, where each of our location hosts over 1,000 events per year. Private events represent nearly 50% of our sales, both social and corporate, and are an extraordinarily important and profitable facet of our business. It also creates a flywheel effect of increased brand awareness, which further drives repeat customers and future open dining and play visits. Turning to unit economics, the average unit volume for Pinstripe's venues is in excess of $8 million, with select locations in excess of $10 million.

Our venues range in size from 25,000 to 38,000 square feet of interior space, with additional outdoor patio space generating venue level EBITDA margins averaging over 17%. As we build new venues going forward, we will continue to target year two revenue of $9 million plus venue level EBITDA margins of 17%. Combined with build out costs of approximately $3 million, net of tenant allowances, we are looking at 40% plus cash on cash returns, which equates to a payback period of approximately two years. Lastly, let's talk about our development plan. As I mentioned earlier, we currently have 16 venues in 11 states with three additional openings planned for the next couple of months in California and Florida. Approximately 85% of our current locations and all planned new locations are suburban, which is ideal with the post-COVID hybrid office trends.

That said, the broad appeal of our brand has proven itself across both suburban and urban markets, showcasing the power of what Pinstripes has to offer and proving our national portability. With respect to site selection process, we consider residential and commercial demographics, co-tenancy with top brands, iconic settings, and the availability of outdoor patios, ideally on two levels, with our venues spanning across signature mall properties, experiential lifestyle centers, and prime urban locations. In terms of light space, we believe we have the potential for at least 150 locations domestically, and internationally, we believe in equal or greater opportunity as we do domestically, driven by global consumers' yearning for interpersonal connections, much like consumers in the U.S. In summary, we are at an exciting inflection point in our 17-year journey.

Our brand is uniquely positioned for the current consumer environment, and we have a solid foundation of over 2,000 passionate team members that are excited to capitalize on the white space opportunity ahead of us. With that, let me now turn the call over to our CFO Tony to discuss our third quarter results in greater detail.

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Tony Querciagrossa: Thank you, Dale, and good afternoon, everyone. Let me start by giving you a brief overview of where we are as a company year to date, provide you with our third quarter results, and lastly, our expectation for the fourth quarter of fiscal 2024. [Dackledale] (ph) Sentiment, fiscal 2024 has been an exciting year for Pinstripes as we embark on being a public company. In connection with the closing of our SPAC merger with Banyan Acquisition Corporation, we raised more than $70 million in gross proceeds, which will help fuel our growth as we continue to scale and open additional Pinstripes venues. For the fiscal 2024 third quarter, total revenue increased 14.1% to $32.2 million compared to $28.2 million in the same quarter last year, including a 14.2% increase in food and beverage revenues and a 13.9% increase in recreation revenues.

This increase was driven by two new unit openings and a 6.9% increase in same-store sales. Turning to expenses, cost of food and beverage as a percentage of total revenue decreased 30 basis points to 15.6%, driven by food cost optimization initiatives in the quarter. Labor and benefits as a percentage of total revenue decreased 10 basis points to 33.7%. Occupancy costs as a percentage of total revenue increased 10 basis points to 15.4%. Other operating expenses as a percentage of total revenue increased 20 basis points to 16%. The increase is primarily due to increased repair and maintenance activities, as well as other store-level initiatives that kicked off in the quarter. Venue-level EBITDA as a percentage of total revenue decreased 104 basis points to 19.4%, driven primarily by the partial period opening of our Aventura location.

Please refer to our earnings release for a reconciliation of non-GAAP measures. General and administrative expenses increased to $5.3 million, including $1.2 million of M&A and public company readiness and related expense, compared to $2.5 million in the same period last year. Turning to liquidity, as of January 7, 2024, we had $39.6 million in cash and cash equivalents and $102 million of outstanding debt. Turning to our outlook, let me begin with a reminder that our fiscal year ends April 28th, 2024 with a 16 week fourth quarter. With that in mind, our guidance for the fiscal 2024 fourth quarter is as follows; same store sales growth of low single digits. To put this in context, same store sales growth in Q4 fiscal 2023 versus Q4 fiscal 2022 was 40.7% and 25.7% versus pre-COVID levels.

Venue level EBITDA margin of 13% to 16%. General and administrative expenses of $4 to $4.5 million, including $400,000 of non-cash stock-based compensation and tax, and adjusted EBITDA of negative $0.75 million to positive $0.3 million. We'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.

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