Dave & Buster's (PLAY) Stock up 51% in a Year: More Upside Left?
Shares of Dave & Buster's Entertainment, Inc. PLAY have surged 51.3% in the past year against the industry’s 5% fall. The company is benefiting from organic growth initiatives, including the remodel program, ongoing store expansion and a consistent focus on cost efficiency. Also, the focus on price adjustments and improved food and beverage (F&B) offerings bode well. However, an uncertain macroeconomic environment is a concern.
Let us discuss the factors highlighting why investors should retain the stock now.
Growth Catalysts
Store Remodel Program: Dave & Buster's intends to focus on a store remodel program to increase overall revenues. Also, focus on enhancing guest engagement through digital platforms and updating the brand's appearance bode well. The first test location in Friendswood, TX, generated a double-digit sales uplift and improved guest engagement in the fiscal fourth quarter. Eight additional test remodels have also exceeded expectations, with significant increases in traffic and sales. The company plans to remodel 40-45 stores by fiscal 2024-end and anticipates the investments to drive substantial outperformance.
Improved F&B Offering: PLAY sees a tremendous opportunity to enhance the overall quality and service model of its F&B offerings. The company developed a multiphase roadmap to introduce the ‘Dave & Buster's Menu of the Future’ alongside an improved hospitality service model closely tied to the physical changes of the store remodel program. Phase 2 of the menu rollout has shown material gains, improving operational execution by reducing complexity, enhancing food quality and accelerating service speed. The company focuses on Phase 3, comprising targeted culinary innovation. PLAY has tested in 10 stores and expects the initiative to drive a mid-single digit increase in F&B revenue per check and improve F&B cost of goods sold and food satisfaction scores.
Cost Efficiency and Profitability: The company streamlined operations to reduce recurring costs, leading to increased adjusted EBITDA and expanded margins. In 2023, cost-saving measures included declines in food and beverage costs, other store operating expenses and general and administrative costs. Despite high inflation and a tight labor market, Dave & Buster's managed to improve operational efficiency, guest satisfaction scores and Net Promoter Scores. These improvements underscore the potential for significant upside in a more normalized economic environment.
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Strategic Game Pricing: The company made material strides in adjusting game pricing across regions. It conducted nationwide tests, altering absolute prices and introducing regional differentiation. Encouraging results were registered, especially in stores with the highest price increases, which have made a positive impact on sales without affecting guest satisfaction. In mid-February, the company initiated a tiered point-of-sale pricing change for the Power Card to optimize buy-in amounts and chip purchases to support regional variations. These changes are expected to significantly boost entertainment sales in the fiscal 2024, thereby contributing to approximately 65% of revenues and more than 90% of gross margins.
Concerns
Significant increases in inflation could negatively impact PLAY's business, financial condition and operational results. If multiple costs, such as commodity prices and labor expenses, rise simultaneously beyond the company's control, PLAY might struggle to adjust prices adequately without reducing consumer demand. The company is cautious about the uncertain macroeconomic environment.
Zacks Rank & Key Picks
Dave & Buster's currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the Zacks Retail-Wholesale sector include:
Wingstop Inc. WING sports a Zacks Rank #1 (Strong Buy). It has a trailing four-quarter negative earnings surprise of 21.4%, on average. The stock has surged 93.6% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for WING’s 2024 sales and earnings per share (EPS) suggests a rise of 27.5% and 36.7%, respectively, from the year-ago levels.
Brinker International, Inc. EAT sports a Zacks Rank #1. It has a trailing four-quarter earnings surprise of 213.4%, on average. EAT’s shares have risen 90.9% in the past year.
The Zacks Consensus Estimate for EAT’s 2024 sales and EPS indicates 5% and 40.3% growth, respectively, from the year-earlier actuals.
El Pollo Loco Holdings, Inc. LOCO carries a Zacks Rank #2 (Buy). It has a trailing four-quarter earnings surprise of 19.4%, on average. LOCO’s shares have risen 15.6% in the past year.
The Zacks Consensus Estimate for LOCO’s 2025 sales and EPS indicates 3.8% and 9.9% growth, respectively, from the prior-year figures.
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Brinker International, Inc. (EAT) : Free Stock Analysis Report
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Dave & Buster's Entertainment, Inc. (PLAY) : Free Stock Analysis Report
Wingstop Inc. (WING) : Free Stock Analysis Report
