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Why Is Dave & Buster's (PLAY) Down 3.2% 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 lost about 3.2% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Dave & Buster's due for a breakout? 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 Top

Dave & Buster's Entertainment reported mixed second-quarter fiscal 2019 results, wherein earnings surpassed the Zacks Consensus Estimate but revenues marginally missed the same. This marked the company’s second straight quarter of revenue miss. Furthermore, Dave & Buster's lowered its guidance for the fiscal year.

Adjusted earnings in the first quarter came in at 90 cents per share, which outpaced the Zacks Consensus Estimate of 86 cents and increased 7.1% year over year. Results were aided by revenue and unit growth.

Let’s delve deeper into numbers.

Detailed Revenue Discussion


Quarterly revenues of $344.6 million in the quarter under review marginally missed the consensus mark of $345 million. However, the top line rose 8% from the prior-year quarter number. The upside was primarily driven by consistent unit growth and robust Amusements and Other revenues as well as Food and Beverage revenues.

Food and Beverage revenues (40% of total revenues in the fiscal second quarter) increased 5.9% year over year to $137.9 million, and Amusement and Other revenues (60%) rose 9.4% to $206.7 million.

Meanwhile, overall comps decreased 1.8% in the fiscal second quarter, comparing favorably with a 2.4% decline in the year-ago quarter. This decrease can be attributed to a 2% decrease in walk-in sales, which overshadowed a 0.1% increase in special events sales. Moreover, comps at Amusements & Other decreased 0.8%, the same declined 3.2% at Food & Beverage.

Non-comparable store revenues in the reported quarter increased 62.3% from the year-ago quarter to $77.2 million.

Operating Highlights

In the second quarter, operating margin contracted roughly 100 basis points (bps) year over year to 13.4%.

Net income totaled $32.4 million, up from $33.8 million registered in the prior-year quarter. Adjusted EBITDA increased 4.4% to $86 million compared with $82.4 million in the same period last year. Meanwhile, the EBITDA margin contracted 80 bps year over year to 25%.

Balance Sheet

As of Aug 4, 2019, cash and cash equivalents totaled $23.3 million compared with $21.6 million as of Feb 3, 2019.

Long-term debt summed $552.1 million at the end of the reported quarter, up from $378.5 million at the end of Feb 3, 2019.

During the fiscal second quarter, the company repurchased roughly 3.4 million shares for $137 million.

On Apr 2, 2019, the company’s board of directors authorized the repurchase of an additional $200-million stock, under the existing share repurchase program, through the end of fiscal 2020.

Furthermore, management paid a quarterly cash dividend of 15 cents per share in the quarter under review.

Store Development

Dave & Buster’s launched three stores during the fiscal second quarter in Winston-Salem, North Carolina; Natick, Massachusetts (west of Boston); and Gaithersburg, Maryland (northwest of Washington, D.C.). In fiscal 2019, management expects to open 15-16 stores in new locations, with 12% unit growth.

Fiscal 2019 Outlook

Dave & Buster’s trimmed its fiscal 2019 guidance. The company expects total revenues of $1.338-$1.359 billion compared with $1.365-$1.390 billion projected earlier. Comps are anticipated to be in the range of -3.5% to -2% compared with prior guided range of down 1.5% to up 0.5%. Adjusted EBITDA is expected to be $272-$282 million, down from $274-$284 million anticipated earlier.

In an effort to drive near and long-term value, the company is focusing on five priorities —revival of existing stores, building guest engagement, cost management, investment in highest-return new locations, and share repurchases and dividend payments.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month. The consensus estimate has shifted -98.25% due to these changes.

VGM Scores

At this time, 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 second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. 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 these revisions indicates a downward shift. It's no surprise Dave & Buster's has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.


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