An increasingly innovative strategy could catalyze Dave & Buster's Entertainment Inc.'s (PLAY, Financial) stock performance. The company is introducing a range of virtual reality content, which is set to entice customers to return, and is relaunching its menu, aiming to provide a simpler offering that includes greater product diversity.
Investing in new technology such as a workforce management system could improve the customer experience. In addition, increased spending on digital media may enhance its return on investment.
Although comparable sales declined last quarter, an ambitious store expansion program is set to catalyze its sales growth. Having recorded a 3% decline in its stock price in the last year versus a 7% fall for the S&P 500, the company appears to have investment appeal.
Innovation
An increasingly innovative approach to food and beverages could boost the company’s financial outlook. It is planning to relaunch its menu in February with a focus on simplification set to follow a 20% reduction in menu size in early 2018. It is adding fresh juices to its menu and improving the ingredients used in several of its dishes. This has led to an increase in food quality scores. It is rebranding and recrafting some of its all-time favorites, such as the Parmesan Chicken Alfredo, while introducing healthier options in order to appeal to a wider number of consumers.Â
Product innovation will include a greater focus on differentiation. The company will soon introduce its second virtual reality title, "Dragonfrost," while planning for its third release later in the year, which is based on the Star Trek movie franchise. Dave & Buster's is building a range of virtual reality content in order to encourage repeat gameplay among customers. The release of collectible cards alongside its "Marvel: Contest of Champions" game is also expected to boost repeat visits.
Competitive advantage
Dave & Buster’s is seeking to enhance its competitive advantage through improving the customer experience. It is investing in new technology in order to improve service and reduce friction. It recently installed a workforce management system and is improving its kiosks, while deploying front desk guest ambassadors at some of its stores. It has also introduced hosted feeding in its sports lounges to improve flow during busy periods.
Investments in digital media are expected to increase. The company intends to aim the majority of its spending toward national cable TV, but anticipates there will be a transition toward social media and online advertising. It also plans to place greater emphasis on sports viewing following the successful introduction of a more compelling promotion on game nights, which included unlimited video game play in the latter part of the most recent quarter.
Threats
The company faces a challenging operating environment, with the U.S. restaurant industry experiencing declining foot traffic in recent months. Dave & Buster's recorded a 0.7% decline in walk-in traffic in the most recent quarter, while events traffic was down 6.9%. This contributed to a 1.3% decrease in comparable sales last quarter.
Dave & Buster's plans to open 15 stores this year, which is at the upper end of its previous guidance and represents 14% unit growth. It also intends to continue to roll out its smaller format store, which saw success in a recent pilot. The company expects to open between 20 and 40 such stores over the long term, alongside 211 to 239 larger locations across the U.S. and Canada. An expansion of its estate could offset disappointing comparable sales performance. In the third quarter, an expanding base contributed to a 15% increase in revenue despite negative comparable sales growth.
Outlook
An innovative approach to its food and beverage offering could catalyze Dave & Buster’s financial prospects. It is seeking to include a broader range of products on its menu, while also improving the ingredients used.
New products across the virtual reality segment could increase customer retention and loyalty. A greater investment in digital media may improve return on investment. An enhanced customer experience has the potential to boost its competitive advantage.
A store opening program could offset declining comparable sales in a tough operating environment. Having outperformed the S&P 500 in the last year, Dave & Buster's could offer further capital growth.
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