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Dave & Buster's Rides on Unit Expansion Despite High Costs
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Dave & Buster's Entertainment, Inc. (PLAY - Free Report) continues to perform well on the back of the unique customizable experience that it offers across its four platforms, “Eat, Drink, Play and Watch.” The company’s distinctive model also generates favorable store economics and strong return.
However, high costs of operations and limited international presence are hurting the company’s profitability. Shares of Dave & Buster’s have lost 18.5% over the past year against the industry’s rally of 3.7%.
Nonetheless, consistent unit growth and solid segmental revenues helped the company to achieve earnings growth in the third quarter of fiscal 2018.
Expansion — Key Growth Driver
Dave & Buster's continues to pursue a disciplined new store growth strategy in both new and existing markets, given the broad appeal of its brand. Management believes that it can grow the concept to more than 200 units in North America over time. Meanwhile, in addition to growth potential that exists in North America, management is positive on the brand’s significant appeal in certain international markets.
Dave & Buster’s launched one store during the fiscal third quarter in Harrisburg, PA. In the fiscal fourth quarter, the company already opened stores in Milford, CT, and Birmingham, AL. By the end of the fiscal year, the company plans to open its final store in Corpus Christi, TX. It currently has 12 units under construction. The company expects to open 15 stores, representing 14% unit growth in fiscal 2018. The stores will include one large, two small and two 17K format stores.
Top-Line Initiatives Encourage
Dave & Buster’s continues to evolve its amusement business on the back of new and riveting content — including games based on some of the world’s finest movie properties. In this regard, the company continues to collaborate with various game manufacturing partners.
Meanwhile, Dave & Buster’s appointed new vice president of Food and Beverage development in order to improve the speed of service through menu redesign, and positive simplification in the kitchen area. In February, the company streamlined its menu and reduced the number of food orders by about 20%, and beverage offerings by 12% to achieve increased efficiency.
Additionally, the company believes that it can drive traffic by enhancing in-store and out-of-store customer experience via digital and mobile initiatives as well as through employing better technology. The company, thus, intends to leverage its growing loyalty database, as well as continue to invest in other mobile applications, to build customer connections and drive frequent customer visitation.
Concerns
Apart from increased labor wages, Dave & Buster’s is affected by the high costs of operations. The company’s non-franchised model makes it susceptible to increased expenses. Since all the restaurants are owned and operated by Dave & Buster’s, instead of signing franchise agreements and putting the burden of costs into the franchise, the company is solely responsible for expenses of operating the business. In the first nine months of fiscal 2018, total operating costs increased 14.3% year over year.
Dave & Buster’s restaurants are located in the United States and Canada, and the company has no exposure in international markets. While several other fast-casual restaurateurs, including Domino’s (DPZ - Free Report) , McDonald’s (MCD - Free Report) and Yum! Brands (YUM - Free Report) , are capitalizing on the emerging market potential, Dave & Buster’s seems to be slow on this front. We believe that the company needs to expand presence beyond the United States in order to offset the impact of cut-throat competition in the saturated domestic market.
Zacks EVP Kevin Matras believes this familiar stock has only just begun its climb to become one of the greatest investments of all time. It’s a once-in-a-generation opportunity to invest in pure genius.
Image: Bigstock
Dave & Buster's Rides on Unit Expansion Despite High Costs
Dave & Buster's Entertainment, Inc. (PLAY - Free Report) continues to perform well on the back of the unique customizable experience that it offers across its four platforms, “Eat, Drink, Play and Watch.” The company’s distinctive model also generates favorable store economics and strong return.
However, high costs of operations and limited international presence are hurting the company’s profitability. Shares of Dave & Buster’s have lost 18.5% over the past year against the industry’s rally of 3.7%.
Nonetheless, consistent unit growth and solid segmental revenues helped the company to achieve earnings growth in the third quarter of fiscal 2018.
Expansion — Key Growth Driver
Dave & Buster's continues to pursue a disciplined new store growth strategy in both new and existing markets, given the broad appeal of its brand. Management believes that it can grow the concept to more than 200 units in North America over time. Meanwhile, in addition to growth potential that exists in North America, management is positive on the brand’s significant appeal in certain international markets.
Dave & Buster’s launched one store during the fiscal third quarter in Harrisburg, PA. In the fiscal fourth quarter, the company already opened stores in Milford, CT, and Birmingham, AL. By the end of the fiscal year, the company plans to open its final store in Corpus Christi, TX. It currently has 12 units under construction. The company expects to open 15 stores, representing 14% unit growth in fiscal 2018. The stores will include one large, two small and two 17K format stores.
Top-Line Initiatives Encourage
Dave & Buster’s continues to evolve its amusement business on the back of new and riveting content — including games based on some of the world’s finest movie properties. In this regard, the company continues to collaborate with various game manufacturing partners.
Meanwhile, Dave & Buster’s appointed new vice president of Food and Beverage development in order to improve the speed of service through menu redesign, and positive simplification in the kitchen area. In February, the company streamlined its menu and reduced the number of food orders by about 20%, and beverage offerings by 12% to achieve increased efficiency.
Additionally, the company believes that it can drive traffic by enhancing in-store and out-of-store customer experience via digital and mobile initiatives as well as through employing better technology. The company, thus, intends to leverage its growing loyalty database, as well as continue to invest in other mobile applications, to build customer connections and drive frequent customer visitation.
Concerns
Apart from increased labor wages, Dave & Buster’s is affected by the high costs of operations. The company’s non-franchised model makes it susceptible to increased expenses. Since all the restaurants are owned and operated by Dave & Buster’s, instead of signing franchise agreements and putting the burden of costs into the franchise, the company is solely responsible for expenses of operating the business. In the first nine months of fiscal 2018, total operating costs increased 14.3% year over year.
Dave & Buster’s restaurants are located in the United States and Canada, and the company has no exposure in international markets. While several other fast-casual restaurateurs, including Domino’s (DPZ - Free Report) , McDonald’s (MCD - Free Report) and Yum! Brands (YUM - Free Report) , are capitalizing on the emerging market potential, Dave & Buster’s seems to be slow on this front. We believe that the company needs to expand presence beyond the United States in order to offset the impact of cut-throat competition in the saturated domestic market.
Dave & Buster’s currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Wall Street’s Next Amazon
Zacks EVP Kevin Matras believes this familiar stock has only just begun its climb to become one of the greatest investments of all time. It’s a once-in-a-generation opportunity to invest in pure genius.
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