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Why Is Dave & Buster's (PLAY) Up 6.4% Since Last Earnings Report?

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A month has gone by since the last earnings report for Dave & Buster's (PLAY - Free Report) . Shares have added about 6.4% 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 catalysts.

Dave & Buster's Q3 Earnings & Revenues Beat Estimates

Dave & Buster’s reported better-than-expected earnings and revenues for the third quarter of fiscal 2018. Adjusted earnings of 30 cents surpassed the Zacks Consensus Estimate of 21 cents by 42.9%. The bottom line also grew 3.4% year over year. Results were aided by solid segmental revenues and consistent unit growth.

Detailed Revenue Discussion

Quarterly revenues of $282.1 million outpaced the consensus mark by 2.9%. The top-line figure increased 12.9% from the prior-year quarter. The top line was primarily favored by consistent unit growth.

Overall comps declined 1.3% in the fiscal third quarter, same as what was recorded in the year-ago quarter. The decline in comps can be attributed to a 0.7% dip in walk-in sales and a decline of 6.9% in special events sales. Comps at Amusements & Other increased 1.5% but decreased 5% in Food & Beverage.

Non-comparable store revenues in the reported quarter increased 135.5% from the year-ago quarter to $75 million.

Food and Beverage revenues (42.1% of total revenues in the fiscal third quarter) increased 10.3% year over year to $118.8 million while Amusement and Other revenues (57.9%) rose 14.8% to $163.3 million.

Operating Highlights

In the reported quarter, operating margin declined roughly 250 basis points (bps) year over year to 5.5%.

Net income in the fiscal third quarter totaled $11.9 million, down from $12.2 million in the prior-year quarter. Adjusted EBITDA decreased 2.7% to $52.7 million compared with $54.1 million in the same period last year. However, EBITDA margin decreased 300 bps year over year.

Balance Sheet

As of Nov 4, 2018, cash and cash equivalents were $19.7 million compared with $18.8 million as of Feb 4, 2018.

Long-term debt totaled $368.2 million at the end of the reported quarter, up from $351.2 million at the end of fiscal 2017.

During the fiscal third quarter, the company repurchased roughly 437,000 shares for $25 million, with an additional 149,000 shares for $8.8 million through Dec 4. As of the same date, cumulatively, management repurchased 5.1 million shares for $275.6 million under the $400-million share repurchase authorization.

Store Development

Dave & Buster’s launched one store during the fiscal third quarter in Harrisburg, PA. In the fourth quarter, the company has 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.

Fiscal 2018 Outlook

Dave & Buster’s expects revenues of $1.243-$1.255 billion for fiscal 2018, up from $1.230-$1.255 billion mentioned previously.

Comps are still anticipated to decrease by a low-single digit.

Net income is anticipated to come in between $106 million and $113 million, up from $101-$111 million mentioned earlier.

The company informs that it will open 15 stores, representing 14% unit growth in fiscal 2018. The stores will include one large, two small and two 17K format stores.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

Currently, Dave & Buster's has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Charting a somewhat similar path, 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 #3 (Hold). We expect an in-line return from the stock in the next few months.



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