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Why Is Dave & Buster's (PLAY) Up 22.2% Since Last Earnings Report?

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It has been about a month since the last earnings report for Dave & Buster's (PLAY - Free Report) . Shares have added about 22.2% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Dave & Buster's due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Dave & Buster's Posts Narrower-Than-Expected Q3 Loss

Dave & Buster's Entertainment reported third-quarter fiscal 2020 results, wherein the bottom line surpassed the Zacks Consensus Estimate but the top line lagged the same. However, both earnings and revenues declined sharply year over year.

Nonetheless, the company stated that it achieved strong sales recovery through late October on the back of its reopening initiatives.

In regard to the resurgence of COVID-19 cases, Dave & Buster’s Chief Executive Officer, Brian Jenkins stated, “Despite this temporary setback, our resilient and committed team, our focused plan, enhanced liquidity, and our strong brand put us in position to bounce back quickly when the threat of COVID begins to subside.” Following the announcement, positive investor sentiments were witnessed as shares of the company gained 3% during after hours trading session on Dec 10.

Let’s delve into the quarterly numbers.

Earnings & Revenue Discussion

During the fiscal third quarter, the company posted loss of $1.01 per share, which was narrower than the Zacks Consensus Estimate of loss of $1.11 by 9%. The company had reported earnings per share of 2 cents in the year-ago quarter.

Quarterly revenues of $109.1 million missed the consensus mark of $113 million by 3.5%. The top line also slumped 63.6% from the prior-year quarter’s number. The decline was primarily due to the coronavirus pandemic. In fact, Amusements and Other revenues, and Food and Beverage revenues fell considerably during the quarter owing to the pandemic.

Food and Beverage revenues (35.2% of total revenues in the fiscal third quarter) plunged 69.2% year over year to $38.3 million, Amusement and Other revenues (64.8% of total revenues) fell 59.5% to $70.7 million.

Comps Details

Comparable store restaurant sales declined 66% year over year in the fiscal third quarter. The downside can primarily be attributed to the rise in COVID-19 cases along with related operational restrictions. Meanwhile, non-comparable store revenues in the reported quarter came in at $20.1 million, down from $40.1 million in the year-ago quarter.

Operating Highlights

Operating loss in the fiscal third quarter totaled $56 million against operating profit of $6.5 million in the prior-year quarter. Operating margin came in at (51.4%) versus 2.2% in the prior-year quarter. Notably, decline in traffic due to temporary store closures negatively impacted the fiscal third-quarter operating results.

Adjusted EBITDA was ($16 million) against $46.3 million in the prior-year quarter.

Balance Sheet

As of Nov 1, cash and cash equivalents totaled $8.3 million compared with $24.7 million as of Feb 2, 2020.

At the end of the fiscal third quarter, long-term debt came in at $561.8 million compared with $632.7 million at the end of Feb 2, 2020.

Stores Update

Although Dave & Buster’s was operating only through delivery and takeaway services from late March through late April, it started to initiate dine-in openings thereafter. As of Dec 6, the company had 90 stores (or 65% of its chain) open that comprised 15 store reclosures and one new store opening.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month. The consensus estimate has shifted -69.69% due to these changes.

VGM Scores

Currently, Dave & Buster's has a poor Growth Score of F, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Dave & Buster's has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.


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