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Why Is Dave & Buster's (PLAY) Up 6.7% 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 6.7% 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 the most recent earnings report in order to get a better handle on the important drivers.

Dave & Buster's Q2 Earnings & Revenue Beat Estimates

Shares of Dave & Buster's gained following the company’s better-than-expected results in second-quarter fiscal 2018. Both the top and bottom lines improved year over year.

Earnings came in at 84 cents per share surpassing the Zacks Consensus Estimate of 74 cents by 13.5% in the reported quarter. The bottom-line figure also increased 18.3% on a year-over-year basis. Results were aided by solid revenues generated from the Food and Beverage as well as the Amusement and Other segments.

Detailed Revenue Discussion

Quarterly revenues of $319.2 million outpaced the consensus mark by 0.8%. The top-line figure also increased 13.7% from the prior-year quarter.

Overall comps declined 2.4% in the second quarter, against an increase of1.1% in the year-ago quarter. The decline in comps can be attributed to a dip of 2.6% in walk-in sales offset by a 0.1% increase in special events sales. However, the company remains confident about returning to growth despite decline in comps.

Non-comparable store revenues in the reported quarter increased 99.6% from the year-ago quarter to $78.8 million.

Food and Beverage revenues (40.8% of total revenues in the second quarter) increased 9.7% year over year to $130.2 million, while Amusement and Other revenues (59.2%) rose 16.6% to $188.9 million.

However, comps at the Food and Beverage segment fell 4.1% in the reported quarter. Further, Amusement and Other witnessed a comps decline of 1.2%.

Operating Highlights

In the reported quarter, operating margin increased roughly 50 basis points (bps) year over year to 14.4%.

Net income in the second quarter totaled $33.8 million, up from $30.4 million in the prior-year quarter. Adjusted EBITDA increased 16.7% to $82.4 million compared with $70.6 million in the same period last year. However, EBITDA margin decreased 100 bps year over year.

Balance Sheet

As of Aug 5, 2018, cash and cash equivalents were $22.4 million compared with $18.8 million as of Feb 4, 2018.

Long-term debt totaled $346.9 million at the end of quarter, down from $351.2 million at the end of 2017. During the second quarter, the company expanded share repurchase authorization by $100 million and initiated quarterly dividend of 15 cents per share.

During the second quarter, the company repurchased roughly 729,000 shares for $33.7 million, with an additional 212,000 shares for $11.3 million through Sep 11, 2018. Cumulatively it had repurchased 4.8 million shares for $253.1 million.

Store Development

Dave & Buster’s had launched five stores during the second quarter. Currently, the company has eight stores under construction.

Fiscal 2018 Outlook Raised

Dave & Buster’s expects 2018 revenues in the range of $1.230-$1.255 billion, up from the previously guided range of $1.200-$1.240 billion. Comps are anticipated to decrease by low-single digits as compared with the prior expectation of comps decline by low to mid-single digits.

Net income is anticipated to come in between $101 million and $111 million, up from the prior guidance of $95-$110 million.

The company maintains that it will open 14 to 15 new stores, representing 13% to 14% unit growth in fiscal 2018.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -10.37% due to these changes.

VGM Scores

At this time, Dave & Buster's has a nice Growth Score of B, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. 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 this revision indicates a downward shift. Notably, Dave & Buster's has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.



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