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DALLAS-New games, an improved menu and an upgraded look will seed the Dallas-based Dave & Buster’s Inc.’s $47-million takeover of nine Jillian’s, all mall locations and most with bowling alleys. Beyond the initial $8-million cap-ex plan, it’s too early to tell what else is in store for the destination entertainment giant.

For now, the Jillian’s banner will remain flying on the locations, confirms Geralyn DeBusk, Dave & Buster’s investor relations director with Halliburton IR of Dallas. Beyond that, Dave & Buster’s corporate chiefs are still evaluating the potential in the partial buyout from the Louisville, KY-based Jillian’s Entertainment Holdings Inc.’s Chapter 11 bankruptcy. Dave & Buster’s top team is busy finalizing the 2005 budget, which goes before its board in January, and wasn’t available for an interview.

But the eyes of investors and analysts are on the repositioning of the nine locations by Jillian’s chief competitor, which took a revenue hit in the third quarter. That loss, WC Hammett, Dave & Buster’s CFO, said in last week’s earnings call was true to the firm’s 22-year track record, as will be a win in the fourth quarter, historically a moneymaking period. This quarter, the financial impact of the Jillian’s acquisition will show on Dave & Buster’s corporate account along with the first $2 million of the $8-million cap-ex pool dedicated to the store changes.

“It’s too early to really say what they’re going to do or change, like keeping the bowling alleys,” Michael W. Gallo, analyst with CL King & Associates Inc. of New York City, tells GSR. “The Jillian’s name does have some broad appeal with the consumer. But over time, it’s possible they will be converted to Dave & Buster’s.”

Gallo predicts it will take three to six months “to get a handle on where the opportunities are…They really cherry-picked what they bought.”

Meanwhile, the team is forging ahead on negotiations with mall owners to restructure leases for the stores–Arundel Mills in Baltimore; Concord Mills in Concord, NC; 261 Airport Plaza Blvd. in Farmingdale and 1504 Old Country Road in Westbury, NY; Franklin Mills in Philadelphia; Marq E Entertainment Center in Houston; Mall of America in Bloomington, MN; Opry Mills in Nashville; and Desert Ridge Marketplace in Scottsdale, AZ. “There will be some movement,” Buster Corley, co-founder of Dave & Buster’s, said during the earnings call.

Jillian’s president Dan Smith held onto reins for 19 urban locations and Louisville retained the headquarters location, thanks to the Boston-based Gemini Investors III LP putting up $18 million for the rest of the chain.

The Jillian’s locations, now under Dave & Buster’s control, are considerably larger venues, but with older games and a menu that needs to be improved, according to Corley. “We recognize the great potential for improvement for these stores,” he told investors and analysts. Dave & Buster’s has 13 stores under 50,000 sf and 21 in the 50,000-sf to 70,000-sf range. The average Jillian’s store is 62,000 sf.

Corley says a Jillian store generates $2 million versus Dave & Buster’s $3 million. But that will be changing as improvements, some quite subtle, are made to marry the two concepts without eroding Jillian’s loyal customer base.

One of the first moves will be to convert Jillian’s to Dave & Buster’s supply sources for food service along with “testing and re-testing their recipes,” Corley says. “That’s one of the key areas that we thought we could get improvement.” The chain’s senior vice president of kitchen operations, Michael Plunkett, has been assigned to the menu review. Additional gain will come from the prize side as the Jillian’s stores are supplied with direct import items, a move that Dave & Buster’s undertook last year for its operations and one that proved profitable for the bottom line.

The cap-ex plan will be executed over the next six months, keeping construction for now limited since December is traditionally one of the industry’s top revenue-making periods. “We will seek to make these improvements rapidly,” Corley says.

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