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Dave & Buster's (NASDAQ: PLAY) stock has been surging again since the company reported second-quarter earnings, marking the second straight post-earnings rally for a stock that was forgotten just a few months ago. Shares were up 7% on Friday, and the stock jumped a total of 63% since its bottom in May, a surprising run for a company that is still dealing with a number of challenges.
The eatertainment chain beat estimates on both and top and bottom lines and raised its guidance. Revenue in the quarter increased 13.7%, or 11.4% on a comparable-week basis to $319.2 million, which easily beat estimates at $311.9 million.
On the bottom line, earnings per share increased from $0.71 to $0.84, which breezed past expectations at $0.67. D&B also raised its full-year guidance, calling for full-year revenue of $1.23 to $1.255 billion, up from a previous forecast of $1.2 to $1.24 billion. It also now sees a low-single-digit decline in comparable sales, as opposed to a low-to-mid-single-digit decline, and it boosted net income guidance to $101-$111 million from $95-$110 million.
Based on those numbers, it's not surprising to see the stock moving higher -- but beyond the headline numbers there are some concerning signs.
Image source: Dave & Buster's.
The dirty details
Comparable store sales fell for the fourth quarter in a row, dropping 2.4%, though that did mark a sequential improvement over a 4.9% slide in the first quarter. That improvement may indicate that the worst of the dive in comparable sales is over, but it's worth remembering why comps are such a key metric for a restaurant chain like Dave & Buster's: The figure strips out the impact of new stores, meaning it represents the best measure of underlying demand for Dave & Buster's food and entertainment offerings. Also, growing sales at existing stores is much more profitable than opening new stores, as comparable sales growth comes without the capital and labor costs required to build new stores and hire and train staff. Finally, no restaurant chain can open new stores forever. Dave & Buster's has said before that it sees a capacity of 200 locations in North America. With 117 currently, the company still has several years of store growth ahead of it, but it will eventually need to drive comparable sales higher in order to grow its business.
As a gaming concept, D&B also doesn't have the opportunity that other restaurant chains have to grow through delivery and take-out. It can't use platforms like Grubhub, which have become increasingly popular among casual dining chains.