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Dave & Buster's (PLAY) Q4 Earnings: Unit Growth Holds the Key

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Dave & Buster’s Entertainment, Inc. (PLAY - Free Report) is scheduled to report fourth-quarter fiscal 2018 results on Apr 2, after the market closes.

Despite the company’s limited international presence, revenues in the fiscal fourth quarter are likely to have increased on the back of its unique business model, continued expansion and sales building initiatives. Earnings in the to-be-reported quarter are likely to have gained from strong top-line growth.

Notably, Dave & Buster’s earnings have surpassed the Zacks Consensus Estimate in the trailing four quarters, recording positive earnings surprise of 17.9%. Backed by such impressive earnings trend, shares of the company have gained 12.2% so far this year, outperforming the industry’s 11.7% rally.


Let us delve deeper and analyze the factors likely to influence the company in the to-be-reported quarter.

Unit Expansion & Other Initiatives to Drive Top Line Growth

Dave & Buster's continues to pursue a disciplined strategy of opening stores in both new and existing markets. Management believes that it can grow the concept to more than 200 units in North America over time. Dave & Buster’s launched one store during the fiscal third quarter in Harrisburg, PA. In the fiscal fourth quarter, the company opened stores in Milford, CT, and Birmingham, AL. It currently has 12 units under construction. Management anticipates opening 15 stores, representing 14% unit growth in fiscal 2018.

Coming to innovation, Dave & Buster’s continues to evolve its amusement strategy on the back of new and riveting content, including games based on some of the world’s finest movie properties. Additionally, 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 through employing better technology. Meanwhile, menu innovation is a key attribute of the brand and guests have responded favorably to the menu additions by the company.

Subsequently, the company expects fiscal fourth quarter comparable same store sales to increase 1.8% to 2.5%. In the first nine months of fiscal 2018, the company’s total revenues increased 11.8% year over year and the trend in likely to have continued in the fiscal fourth quarter as well. The Zacks Consensus Estimate for Dave & Buster’s fiscal fourth-quarter revenues is pegged at $325.6 million, reflecting growth of 6.8% from the year-ago quarter.

Bottom Line to Gain From Robust Sales

Although Dave & Buster’s is shouldering higher expenses, a strong top line is likely to more than offset earnings pressure in the fourth quarter of fiscal 2018. Further, the company continues to draw profits from its unique customizable experience that it offers across its four platforms, “Eat, Drink, Play and Watch.” The company’s distinctive model also generates favorable store economics and strong return.

In the first nine months of fiscal 2018, the company’s earnings increased 9.5% year over year. We believe that fourth-quarter earnings have also gained. Subsequently, the consensus estimate pegs the quarter’s earnings at 63 cents, reflecting year-over-year growth of 3.3%.

Our Model Suggests a Beat

According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP. Sell-rated stocks (Zacks Rank #4 or 5) are best avoided. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Presently, Dave & Buster’s has an Earnings ESP of +1.32% and a Zacks Rank #3, a combination that increases the likelihood of an earnings beat.

You can see the complete list of today’s Zacks #1 Rank stocks here.

Dave & Buster's Entertainment, Inc. Price and EPS Surprise

Peer Releases

Brinker (EAT - Free Report) reported mixed second-quarter fiscal 2019 results, wherein earnings were in line with the Zacks Consensus Estimate but revenues surpassed the same. Adjusted earnings of 89 cents per share were in line with the Zacks Consensus Estimate and increased 2.3% on a year-over-year basis.

McDonald’s (MCD - Free Report) reported impressive fourth-quarter 2018 results. Adjusted earnings of $1.97 per share surpassed the consensus mark of $1.90 and increased 15% from the year-ago quarter (18% in constant currencies). The upside reflects stronger operating performance.

Starbucks (SBUX - Free Report) reported impressive first-quarter fiscal 2019 results. Adjusted earnings of 75 cents per share surpassed the Zacks Consensus Estimate of 65 cents and grew 15.4% on a year-over-year basis.

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