Your assumption would be correct if DANB continues to spend the same percentage of cash flow on expansion going forward and same store sales stay flat (increase at the inflation rate). However, that same percentage will represent a huge increase in actual dollars precisely because expansion has not been financed with debt and thus will produce significant new earnings right out of the gate. Also, the impact of international licensing fees has been ignored in your roe assumptions. In short, don't sell DANB short. Any company that can keep producing new cash cows out of cash flow is extremely promising in my opinion. ss
Last quarter, DANB earned pretax 8 million dollars, ending the year with assets of 133 million. figuring four quarters forward at that same profit, without doing anything, we get 32 million profit, on equity of 133 or 24% ROE. However with uncle sam having taxes, maybe net profit is a better measure. 5.2 million last quater, forward one year gives 20.4 million profit on equity of 133 and we get a 15.6% ROE.
Last year we ended with a value of 124 million after earning a profit of 14.3, or net profit of 8.9 million. This breaks down to a ROE of 11.5% or 7.1% ROE.
I would say this is a big improvement and movement in the right direction, toward your 15% ROE and a reason to buy the stock.
I said we earned 8 million last quarter on equity of 133 million, which was the year end total, the calculation might have been made on a 128 million (assets - net profit), and result in a higher ROE.
They have proposed opening a new store every two months (on average) for the next three years, with no new debt. Personnally if they borrowed at 8% and invest with an ROE of 15% we can live on that 7% profitably.
What I am trying to say, is that this is a good stock, and meets you ROE criteria. Additionally there was some accounting changes last year about opening cost deductions, which may have affected the above calculations.
Interesting situation. Same Store Sales are flat and will stay flat because as "Hedge_Trader" pointed out, Dave & Busters stores essentially operate at capacity.
1) I live in Dallas. The one million residents have kept two Dave & Busters jammed-packed for the past 10 years.
2) The evidence is on this board. Look at the past 2 months posts about any DANB location and you'll see comments such as, "opened to capacity crowds", "always full", etc. Bottom line: even new stores have little room for an increase in year-to-year sales.
Same store comparisons will not impress a casual analyst who sees no growth and assumes they have hit the wall. Fact is, a store hits the wall almost as soon as it opens (assuming they don't want to gamble on losing customers by raising prices). That also means that every opening will probably be a home run.
Future growth will be almost 100% based on new stores. They have 18 now. Their announcement today projects 6 new stores this year (including the one already open), 7 next year, and 8 the year after that. The math is pretty simple.
I appreciate all the interesting comments. They are quite insightful.
Danb says it takes about 10 million to open a location. Does anybody know the specific amount of debt associated with a location? And how many years does it take for that location to pay itself off? ie 5 yrs?
If locations are paid for in a relatively short time and interest rates are very low right now. Debt does not seem to be much of a concern.