Time to PLAY at Dave and Buster's

Focus: STOCKS

Tom Bishop Image Tom Bishop Founder, BI Research

Dave and Buster's (PLAY) vaulted over $4 a share on news of another strong quarter with revenues and EPS beating consensus and an increase in guidance, notes small cap expert Tom Bishop, editor of BI Research

Revenues increased 16% to $304 million aided by a 2.2% increase in comps (strong for this industry lately), in fact marking the 20th consecutive quarter of comp store sales increasing by more than the industry average.

The company also opened 4 new stores in Q1 and has opened 3 more since the end of the quarter for a total of 7 year to date. 

Five more are on tap for the balance of the year, equaling the high end of its guidance of 11-12 store openings. Regionally, Texas rebounded nicely, likely aided by the rebound in the oil patch in Q1. 

The company’s amusement games and other revenue continues to be an important driver of results surging 20.3% and now accounting for 57.3% of revenues. 

Dave & Busters is constantly adding new games to keep its amusement section timely and exciting.  For example, in the most recent quarter they added two Zombie-themed games, Zombie Snatcher and The Walking Dead and recently launched a game based on the Pirates of the Caribbean with a Spider Man game coming this summer.

Meanwhile after a somewhat rocky start, the company said the uptime for its proprietary Rock ‘em Sock ‘em Robots continues to improve. As you can imagine the game is extremely popular. 

The company also is constantly adding new menu and drinks items.  Its rum-based Monster Isle punch line-up has quickly become a fan favorite. 

All this new innovation (and never ending attention to controlling costs) remains a hallmark of the Dave and Busters brand, particularly in a more challenging casual dining environment for others in the sector. 

All this drove adjusted EPS 21% higher to $.87 a share vs. last year’s $.72, handily beating the consensus of $0.81.  The company has also been buying up its own stock as part of a $100 million share purchases authorization, which is running out, so it has authorized another $100 million.

One thing of particular note was that the company commented, “We remain committed to driving 10% or more unit growth over the longer-term and continue to foresee a 200+ store opportunity … in the United States and Canada alone.” 

Then there is the rest of the world.  So this concept should have a long growth story.  Several analysts have raised their price targets towards ~ $80, and when we near that down the road they will raise them again. And of course estimates are ratcheting higher as well, as has guidance.

The company is now guiding to revenues of $1.16 - $1.17 billion vs. a low end of $1.15 billion earlier) comps of 2-3% and EPS of $2.47-$2.60 for this 53-week fiscal year ending 2/4/18.  Although the stock is up 83% from our initial recommendation price of $39.29, I am upgrading PLAY to a Long Term Buy.

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