Restaurant stocks are always a hot favorite among investors, especially when it is a growth stock. A great player in this industry is Dave & Buster's Entertainment Inc. (PLAY, Financial).
The company has posted excellent quarterly results, including a 17.9% increase in revenue. During the third quarter, Dave & Buster's opened a store in Edina, Minnesota and relocated a store in Buffalo, New York. Further, the company has raised its fiscal year 2015 financial outlook for the third consecutive time.
The company began in 1982 and now operates in 79 venues in North America that combine dining and entertainment and offer customers (both adults and families) the opportunity to "Eat, Drink, Play and Watch," all in one location. The company owns and operates stores in 30 states and Canada. Dave & Buster's offers a full menu of entrées and appetizers, a full selection of alcoholic and nonalcoholic beverages and an extensive assortment of entertainment attractions centered around playing games (including skill- and sports-oriented games, video games, interactive simulators and other traditional games) and watching live sports and other televised events.
Strong third quarter results
On Dec. 8, 2015, Dave & Buster's reported financial results for its third quarter 2015, which ended on Nov. 1, 2015. The company’s total revenue increased 17.9% to $192.8 million, compared to $163.5 million in the previous year quarter. Across all stores, Food and Beverage revenues increased 14.9% to $89.8 million and Amusements and Other revenues increased 20.7% to $102.9 million. In the reported quarter, Food and Beverage revenues represented 46.6% of total revenues compared to 47.8% in the third quarter 2014. Comparable store sales increased 8.8% compared to an 8.7% increase in the year ago quarter.
Store-level EBITDA and adjusted EBITDA increased 32.5% to $44.5 million and 40.3% to $34.5 million compared to the prior year quarter. Operating income increased to $9.5 million. The company’s net income increased to $4.6 million, or 11 cents per diluted share (42.9 million diluted share base), compared to net loss of $4.6 million, or 13 cents per share (34.9 million share base), in the same period last year.
Dave & Buster's ended the quarter with cash and cash equivalents of $19.3 million and long-term debt of $347.6 million.
Stores
In the fourth quarter, it has opened stores in Houston, Texas and Phoenix, and plans to open stores in Springfield, Virginia and San Antonio, Texas by year-end.
Further, in 2016, the company intends to open a total of nine to 10 new stores in both the large and small store formats. The company’s long-term target for store growth remains roughly 10% and it foresees at least a 200-store opportunity in North America alone.
Projections for fiscal 2015
Based on strong third quarter results, Dave & Buster's has raised its fiscal year 2015 financial outlook, which ends on Jan. 31, for the third consecutive time.
- Total revenues are expected to be between $857 million to $861 million.
- Comparable store sales increase is expected to be between 8.5% to 9%.
- Adjusted EBITDA is expected to be in the range of $207 million to $209 million.
- Pro-forma net income is expected to be between $59 million to $60.5 million.
The company expects its effective tax rate of approximately 34.5% to 35.5% and diluted share count of 42.8 million to 42.9 million. Further, for 2016, Dave & Buster's expects total revenues and adjusted EBITDA growth to be above its long-term financial targets of approximately 10% growth and low double digit growth, respectively.
Growth strategies
- Pursue disciplined new store growth.
- Expand the Dave & Buster’s brand internationally through multi-store licensing.
- Grow comparable store sales.
How Dave & Buster's stands out
Dave & Buster’s is focusing on expanding its brand appeal "Eat, Drink, Play and Watch." The company is confident that its one-of-a-kind dining, entertainment, and sports viewing venues will resonate with guests outside of North America, while adding yet another layer of growth to its business model. Recently, Dave & Buster’s has signed an agreement for seven stores in the Middle East over a seven-year period with an experienced retail and restaurant operator.
Dave & Buster’s is well positioned and has industry-leading average unit volume and margins. Further, for the growth of comparable store sales, Dave & Buster’s is expanding online booking, effectively utilizing sales force and call centers in each store. Additionally, to enhance customer value, the company is building team member capability.
(Source: Company Website)
On a concluding note
Overall, Dave & Buster’s is a rock solid company with solid stock price performance, robust revenue growth, and notable return on equity. Restaurant stocks are booming, and this company is no exception. Its category defining concept, outstanding store-level economics, and experienced management team will help to provide greater shareholder returns.
Disclosure: I do not hold any position in the company.
