Analysts who lined up for the earnings call this week for a peek into the financial health of Dallas-based Dave & Buster’s (PLAY, Financial) had a single focus.
The burning question: When is the company unveiling a virtual reality platform?
The answer: Mid-year.
While no specific date was given, everyone on the call appeared to be ready for something new and exciting. At least that is the hope of executives at Dave & Buster’s, who affirmed they are ironing out the details of a proprietary virtual reality platform with a “studio partner based on a Hollywood film franchise” but could not yet provide a specific date for the launch.
Even so, shares of the operator of high-volume venues kept climbing hours after the post-market earnings call on Monday. By Tuesday, shares flew to over $55, an increase of more than 16% near market close. The 52-week range is $37.85 to $70.15 a share. Over three years, the stock has jumped 49%. Over the last year, it had dropped 22%. The stock of Dave & Buster is trading below its historical value, based on the median-price sales chart provided by GuruFocus.
The company beat expectations on earnings and revenue in the first quarter, which ended on May 6. It reported earnings of $1.04 per share on revenues of $332.2 million, beating Wall Street’s estimates of 93 cents on revenues of $321.6 million. Total revenues were up 9.2%.
On guidance, executives reiterated prior forecasts of an increase in revenues to $1.20 billion to $1.24 billion. It is targeting net income of $95 million to $110 million for the year. In earnings before interest, taxes, depreciation and amortization, it is predicting $255 million to $275 million.
In the first quarter, officials said the brand opened six stores while eight more are under construction. It expects to open up to 15 new stores this year.
The only downside to the report was a 1% drop in same-store sales in fiscal 2017. Comparable store sales dropped 4.9% in the first quarter compared to 2.2% in the prior-year quarter. Officials said a 6.8% decline in special events sales and a 4.8% drop in the walk-in sales were responsible for the weak results.
Executives said they were surprised by the weakness in traffic, and attributed it to poor weather at the end of the year, competition from other sources and gaming content. Officials said “competitive intrusion” was higher than forecasted.
Executives at the company also foresee similar headwinds in the upcoming year and say they are launching efforts to counter them. The brand is working on improving food and beverage offerings. For example, it is introducing a new 100% Angus Butcher’s Blend burger at its venues.
It is also aiming to improve its gaming content and concepts, as well as offering faster service and easier redemption policies. Games like "Pirates of the Caribbean" were not as successful as had been anticipated, officials said.
The company plans to offer in-store kiosks so that customers don’t have to wait in line for service. It also is in the middle of conducting surveys about the preferences of its primary customer base of young adults. Some early data is showing a younger subset of customers who are more casual about the gaming experience and seek out the entertainment venue for other reasons.
More than likely, officials said, 2018 will be a year of “recalibration” that will lay the groundwork for an evolution of the brand.
Virtual reality
Company executives explained during the earnings call that customers would use a separate system of cash credits to play games that are on the virtual reality platform.
The company expects to price the game at $5 per person. It expects to roll out a series of promotions when it launches the platform. It is looking to create what it calls an “attraction chip” that can be placed on the power card that is used to load credits for games at the venue.
Financial data
Dave & Buster's has a market cap of $2.17 billion and is rated a 6 out of 10 in financial strength and 8 out of 10 in profitability and growth. The company’s top- and bottom-lines support the GuruFocus ratings. For example, the company has a Pitrioski F-score of 8, which reflects excellent business operations. And it has seen operating margins expanding over the years. Executives during the earnings call credit the success to management that has been able to adapt to the changing preferences of Dave & Buster’s target audience of young adult consumers and families.
The company’s stock is trading at 19.37 times earnings with a forward price-earnings ratio of 19.12 times. Both ratios are higher than the median of 25.91 times and 19.69 times respectively.
Dave & Buster's has a price-book ratio of 5.21 times and a price-sales ratio of 2.05. Both are lower than 69% of peers.
The Peter Lynch chart suggests its stock price is trading slightly above the median, suggesting also that it is trading above fair market value.
In earnings, the company reported an average annual rate of 16.4% over the last five years. It has seen growth in revenue and net income over the years.
Dave & Buster’s also announced this week that Chief Financial Officer Brian Jenkins will take over the CEO responsibilities from Steve King. King will retire this summer and will continue to serve as chair of the board of directors..
The brand was founded in 1982. It has more than 100 venues in North America.
