Sequential Improvement Drives Dave & Buster's To A New High
Dave & Buster's (NASDAQ: PLAY) was not immune to the pandemic. At the height of the pandemic, sales were down more than 85%. For most, that would be a death knell but not for Dave & Buster's. The company’s Brand strength and capital position helped it navigate the pandemic and set the company up for the economic rebound. The company emerged as a reopening play earlier this year when revenue began to pick up and now it looks as if the company is on track to regain pre-COVID business within the next quarter or two. While risk remains, we view Dave & Buster's as a great play on the reopening and one that could see share prices rise 50% or more by the end of the year.
“The strength and resilience of the Dave & Buster’s brand has never been more evident. We saw a significant improvement in demand across our store base in the first quarter, including at our recently re-opened New York and California stores. We generated $265 million in total sales, surpassing the top end of our expected range for the quarter, and established a new high-water mark in our post-Covid sales recovery…” said Brian Jenkins, CEO.
Dave & Buster's Beat On All Metrics
Dave & Buster's didn't have a truly great quarter based on historical performance but it was a great quarter in regards to the pandemic and the rebound. The company posted the third sequential quarter of revenue growth, sequential revenue growth above 100%, And YOY Revenue growth of 66%. To keep this in perspective the $265.3 million in net revenue is down 27% on a 2-year basis but even within that, there are rays of light. While comp sales across the network fell 35% on a two-year basis, comparable store sales at fully operational and comparable stores were down only 17%. With the reopening began, we see business picking back up to pre-COVID levels very quickly.
The even better news is that operations were profitable. The company says store-level operating income was positive in 119 stores for the quarter and 127 stores in the final month. EBITDA came in at $72.1 million or 27.2% of revenues compared with a loss of $26.1 million in the same period last year. The company generated $77 million in operating cash flow and $19.6 million or $0.40 per share in EPS compared to a loss of $1.37 last year.
Looking forward, the company is also very optimistic. The guidance of $335 million to $350 million assumes flat to slightly higher revenue on a two-year basis and for earnings to be roughly in line with the 2019 second quarter. The only negative in the guidance is that the company is expecting margin pressure due to commodity costs, labor, and marketing but that's not a worry yet. The reopening is a great time for Dave and Buster's to enact incremental price increases on menu items like so many other companies are doing and that could offset margin declines in future quarters.
“Our brand is back, we have a solid financial foundation, and we are ready to move full speed ahead into summer. We are encouraged by our momentum and are thankful for the hard work and commitment of all of our team members,” concluded Brian Jenkins.
The Technical Outlook: Dave & Buster's Surges To New High
The analysts are generally bullish on Dave & Buster's and the sentiment is warming in the wake of the report. At least two sell-side analysts have come out with price target increases that assume roughly 25% upside for the stock. Based on the results and the outlook we expect to see more analysts add their voice to the chorus and drive the stock even higher. Regardless, the stock is up more than 5% in early trading and looks very strong on the weekly charts. If today’s momentum continues, the charts are showing a strong Buy Signal and a continuation of a rally that began earlier this year. Based on our analysis the stock could rise as much as $30 from the $40 support level and hit $70 by the end of the year.
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