Dallas-based Dave and Buster’s Entertainment (PLAY, Financial) reported a strong third quarter and improved its guidance. With improved top and bottom lines, the management raised the revenues and net income guidance. It saw momentum across the country in the quarter.
Dave and Buster’s boasts of its one-of-a-kind dining, entertainment and sports-viewing venues. Founded in 1982, this company owns 91 venues in North America. It offers the customers American gourmet in a different style. From hamburgers to steaks to seafood, it offers a wide array of items. The stores offer various fun attractions like watching sports while eating out. It caters to a diverse customer base.
Strong third quarter
Total revenues during the quarter increased by 19% and were $228.7 million ($192.8 million in the prior-year quarter).
Across all stores, Food and Beverage revenues increased by 13% and were $101.3 million ($89.8 million in the prior-year quarter).
Amusements and Other revenues increased by 24% and were $127.3 million ($102.9 million in the prior-year quarter).
Comparable store sales increased by 5.9% in the third quarter.
Noncomparable store revenues increased by $26.2 million or 106% in the third quarter and were $50.9 million.
Operating income increased to $18.7 million in the third quarter ($9.5 million in the prior-year quarter).
Net income increased to $10.8 million, or 25 cents per diluted share ($4.6 million, or 11 cents per diluted share, in the prior-year quarter).
Store-level EBITDA increased by 34% and was $59.6 million in the third quarter ($44.5 million in the prior-year quarter).
Adjusted EBITDA increased by 42% and was $48.9 million in the third quarter ($34.5 million in the prior-year quarter).
Expectations
| Â | Fiscal 2016 | Fiscal 2017 |
| Total revenues | To be between $998 million and $1.003 billion | The company expects low double-digit growth in total revenue. |
| Effective tax rate | To be between 36.5% and 37.5% | Â |
| Net income | To be between $86.5 million and $88.5 million | The company expects low double-digit growth in net income. |
| Adjusted EBITDA | To be between $265 million and $268 million | The company expects low double-digit growth Adjusted EBITDA. |
| Diluted share count | To be around 43.2 million | Â |
| Stores | Â | The company intends to open 11 to 12 new stores. |
Strong attributes of the quarter
- Margin improvement.
- Increase in comparable store sales.
- Improved third-quarter revenue, net income and adjusted EBITDA.
- CAGR of 20%.
Focus
- Plans to open 11 new restaurants (of which six are in new markets).
- Capitalizing on the changing retail dynamics.
- Innovative marketing initiatives.
- Operational efficiencies.
- Cost curtailment.
- New store expansion strategy.
- International development strategy.
Conclusion
The company’s exceptional quarterly results are an indication of the company’s future growth. The third quarter was marked by a 5.9% increase in comparable store sales. This included a 5.7% increase in walk-in sales and a 7.6% increase in special events sales. It continues to leverage the operating costs. With a robust development pipeline, this company is poised to grow. What works well for this company is its offbeat concept. It has already marked a niche among its competitors providing interactive entertainment options for adults and families along with good food and beverages.
Restaurant stocks are volatile as well as favorites among investors. As per research conducted by the National Restaurant Association, the restaurant industry is expected to be the nation’s second-largest private sector employer with a workforce of 14.4 million and will create 1.7 million jobs by 2026. It is moving in the right direction and has the potential to create value for its shareholders in the future. Being one of the leading players in the industry, this company is a growth stock. It takes the tagline seriously: "Eat, Drink, Play and Watch." The company is focusing on disciplined new store growth to expand its reach.
This restaurant and gaming company boasts of a proven track record of margin improvement. From 2010 to 2015, it increased adjusted EBITDA margins by about 830 bps. It has strong cash flows to fuel its future. It is continuously leveraging the loyalty database to engage and motivate customers.
Adding this company will reap shareholder returns.
Disclosure: I do not hold any position in the company.
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