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Here's Why You Should Retain Dave & Buster's (PLAY) Stock

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Dave & Buster's Entertainment, Inc. (PLAY - Free Report) is likely to benefit from digital efforts, kitchen optimizations and reopening initiatives. This along with transition of a new menu bodes well. However, decline in traffic and soft comps are concerns.

Let us discuss the factors that suggest that investors should retain the stock for the time being.

Growth Catalysts

Dave & Buster's digital initiatives are likely to drive growth. The company believes that it can drive traffic by enhancing in-store and out-of-store customer experience via digital and mobile strategic initiatives as well as deployment of better technology. The company thus intends to leverage its growing loyalty database and continue to invest in other mobile applications to build customer connections and drive frequent customer visitation.

Moreover, the company has increased focus on its service model to boost customers’ in-store experience. To this end, the company deployed a combination of new service model, tablets and a mobile web platform to enable a completely contactless order-pay experience. With services being implemented in more than half of its stores, brandwide deployment is likely in the near future.

Also, the company is stated to have started working on a new loyalty program to boost guests’ participation in eating, drinking and playing games. The application is likely to add relevance to its mobile app and drive higher engagement, as it enables guests to complete challenges and earn rewards. The company is highly optimistic regarding this program and plans to launch it by third-quarter fiscal 2021.

Meanwhile, the company continues to focus on virtual kitchen concepts, optimizing back-of-the-house operations and enhancing its bar menu to enable seamless flow of food as well as boost guest experience. It has rolled out high-speed ovens as well as upgraded kitchen management systems for simplifying operations. Moreover, the company completed the transition toward a new menu with 28 offerings. Although the items are 33% lower than pre-pandemic levels, guests are resonating well with dishes like the IPA fish and chips, Hawaiian chicken sandwich and Mushroom Stout Burger. Going forward, the company intends to launch freshly-curated beverage menu by fourth-quarter fiscal 2021.

In a bid to recover its business post the coronavirus-induced shutdowns, Dave & Buster's is focused on reopening stores in compliance with the state and local regulators. During fiscal first quarter, the company re-opened 31 stores. Also, it reportedly witnessed improved demand across reopened stores in New York and California.


Zacks Investment ResearchImage Source: Zacks Investment Research

Shares of Dave & Buster's have declined 13% in the past three months against the industry’s growth of 2.2%. The dismal performance was primarily caused by the coronavirus pandemic. Although the company reopened majority of its restaurants, it is likely to witness low traffic due to social-distancing protocols. Owing to the uncertainty of the crisis, the company also suspended its dividend payout and share buyback programs.

Moreover, the company’s soft comps trend in the past few quarters has been a major concern. In first-quarter fiscal 2021, comparable store restaurant sales declined 35% compared with 2019 levels. The downside was primarily caused by pandemic-related operational restrictions. In fourth-quarter 2020, overall comps plunged 70% following a decline of 66%, 87% and 58.6% in third, second and first-quarter fiscal 2020, respectively.

Zacks Rank & Key Picks

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.

Some better-ranked stocks in the same space include Chuy's Holdings, Inc. (CHUY - Free Report) , Dine Brands Global, Inc. (DIN - Free Report) and Papa John's International, Inc. (PZZA - Free Report) , each carrying a Zacks Rank #2 (Buy).

Chuy's Holdings has a trailing four-quarter earnings surprise of 127.6%, on average.

Dine Brands 2021 earnings are expected to surge 269.3%.

Papa John's has a three-five year earnings per share growth rate of 15%.

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