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Dave & Buster's Gains From Unit Expansion Amid Competition
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Dave & Buster's Entertainment, Inc. (PLAY - Free Report) banks on a unique business model that combines customizable experience across four platforms, “Eat, Drink, Play and Watch.” This distinctive model also generates favorable store economics and strong return. However, high costs of operations and intense competition are major concerns.
Recently, Dave & Buster’s posted better-than-expected results for the second quarter of fiscal 2018. Earnings and revenues not only surpassed the Zacks Consensus Estimate but also increased year over year. The company’s earnings surpassed the consensus mark in each of the trailing four quarters, with an average beat of 13.7%.
Backed by such impressive earnings history, shares of Dave & Buster have gained 17.8% in the past year, outperforming the industry’s collective growth of 6.8%. Earnings estimates for the fiscal third quarter and current fiscal have also increased 27.8% and 0.4%, respectively, over the past two months, reflecting analysts’ optimism, surrounding the company’s future earnings potential.
Strength in Entertainment Business Drives Growth
Over the past few quarters, Dave & Buster’s entertainment business has been driving growth alongside its food and beverage offerings. Notably, amusement and other revenues accounted for 59.2% of total revenues in the second quarter of fiscal 2018. In fact, it is a major reason for the company’s success. Further, the segment’s revenues grew 16.6% year over year.
This is because, increased dependence on gaming has cushioned the company from the headwinds of consumer discretionary spending that characterizes the restaurant industry, and is in turn driving market share and comps. Further, the shift toward increased focus on amusement is driving Dave & Buster’s earnings, given its higher-margin business. In fact, this unique model sets it apart. We expect the company’s entertainment business to carry its growth story forward.
Store Openings Drive Top Line
Dave & Buster's continues to pursue a disciplined store growth strategy in both new and existing markets, given the broad appeal of its brand. Banking on this concept, management expects operating more than 200 units in North America over time. In the second quarter of fiscal 2018, the company opened five stores. Currently, it has eight stores under construction. It plans to further ride on new store growth in fiscal 2019 and early 2020.
In fiscal 2018, the company anticipates opening 14-15 stores, including two latest 17-K format stores, a combination of eight stores in new markets for D&B, with the remaining located in markets where the brand is already established. With these store openings, it intends to achieve a 13-14% annual unit growth rate.
Moreover, driven by robust unit development, revenues in the fiscal second quarter increased 13.7% year over year.
Concerns
Dave & Buster’s is plagued with high labor and operating costs. Further, the non-franchised model makes it susceptible to increased expenses. Since all the restaurants are owned and operated by the company, instead of signing franchise agreements and putting the burden of costs into the franchise, it is solely responsible for the expenses of operating the business. In the first nine months of fiscal 2018, total operating costs increased 13.6% year over year.
Meanwhile, Dave & Buster’s restaurants are located in the United States and Canada, and the company has no exposure to international markets. While several other fast-casual restaurateurs like Mc Donald’s (MCD - Free Report) , Domino’s (DPZ - Free Report) and YUM! Brands (YUM - Free Report) are capitalizing on the emerging market potential; the company seems to be slow. We believe that it needs to expand presence beyond the United States in order to offset the impact of cut-throat competition in the saturated domestic market.
Did you miss Apple's 9X stock explosion after they launched their iPhone in 2007? Now 2018 looks to be a pivotal year to get in on another emerging technology expected to rock the market. Demand could soar from almost nothing to $42 billion by 2025. Reports suggest it could save 10 million lives per decade which could in turn save $200 billion in U.S. healthcare costs. A bonus Zacks Special Report names this breakthrough and the 5 best stocks to exploit it. Like Apple in 2007, these companies are already strong and coiling for potential mega-gains.
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Dave & Buster's Gains From Unit Expansion Amid Competition
Dave & Buster's Entertainment, Inc. (PLAY - Free Report) banks on a unique business model that combines customizable experience across four platforms, “Eat, Drink, Play and Watch.” This distinctive model also generates favorable store economics and strong return. However, high costs of operations and intense competition are major concerns.
Recently, Dave & Buster’s posted better-than-expected results for the second quarter of fiscal 2018. Earnings and revenues not only surpassed the Zacks Consensus Estimate but also increased year over year. The company’s earnings surpassed the consensus mark in each of the trailing four quarters, with an average beat of 13.7%.
Backed by such impressive earnings history, shares of Dave & Buster have gained 17.8% in the past year, outperforming the industry’s collective growth of 6.8%. Earnings estimates for the fiscal third quarter and current fiscal have also increased 27.8% and 0.4%, respectively, over the past two months, reflecting analysts’ optimism, surrounding the company’s future earnings potential.
Strength in Entertainment Business Drives Growth
Over the past few quarters, Dave & Buster’s entertainment business has been driving growth alongside its food and beverage offerings. Notably, amusement and other revenues accounted for 59.2% of total revenues in the second quarter of fiscal 2018. In fact, it is a major reason for the company’s success. Further, the segment’s revenues grew 16.6% year over year.
This is because, increased dependence on gaming has cushioned the company from the headwinds of consumer discretionary spending that characterizes the restaurant industry, and is in turn driving market share and comps. Further, the shift toward increased focus on amusement is driving Dave & Buster’s earnings, given its higher-margin business. In fact, this unique model sets it apart. We expect the company’s entertainment business to carry its growth story forward.
Store Openings Drive Top Line
Dave & Buster's continues to pursue a disciplined store growth strategy in both new and existing markets, given the broad appeal of its brand. Banking on this concept, management expects operating more than 200 units in North America over time. In the second quarter of fiscal 2018, the company opened five stores. Currently, it has eight stores under construction. It plans to further ride on new store growth in fiscal 2019 and early 2020.
In fiscal 2018, the company anticipates opening 14-15 stores, including two latest 17-K format stores, a combination of eight stores in new markets for D&B, with the remaining located in markets where the brand is already established. With these store openings, it intends to achieve a 13-14% annual unit growth rate.
Moreover, driven by robust unit development, revenues in the fiscal second quarter increased 13.7% year over year.
Concerns
Dave & Buster’s is plagued with high labor and operating costs. Further, the non-franchised model makes it susceptible to increased expenses. Since all the restaurants are owned and operated by the company, instead of signing franchise agreements and putting the burden of costs into the franchise, it is solely responsible for the expenses of operating the business. In the first nine months of fiscal 2018, total operating costs increased 13.6% year over year.
Meanwhile, Dave & Buster’s restaurants are located in the United States and Canada, and the company has no exposure to international markets. While several other fast-casual restaurateurs like Mc Donald’s (MCD - Free Report) , Domino’s (DPZ - Free Report) and YUM! Brands (YUM - Free Report) are capitalizing on the emerging market potential; the company seems to be slow. We believe that it 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.
5 Companies Verge on Apple-Like Run
Did you miss Apple's 9X stock explosion after they launched their iPhone in 2007? Now 2018 looks to be a pivotal year to get in on another emerging technology expected to rock the market. Demand could soar from almost nothing to $42 billion by 2025. Reports suggest it could save 10 million lives per decade which could in turn save $200 billion in U.S. healthcare costs. A bonus Zacks Special Report names this breakthrough and the 5 best stocks to exploit it. Like Apple in 2007, these companies are already strong and coiling for potential mega-gains.
Click to see them right now >>