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Dave and Buster's Is a Growth Stock

- By Mrinalini Chaudhuri

Dallas-based Dave and Buster's Entertainment (PLAY), the one-of-a-kind dining, entertainment and sports-viewing restaurant, reported strong fourth quarter results. It achieved an income growth of 19% in the current quarter. For the full year, the company crossed the $1 Billion annual sales milestone. During the fourth quarter, revenue and net income grew by 15.4% and 19.2% respectively. As a percentage of total revenues, operating income increased approximately 20 basis points to 16.5% from 16.3%.


Fourth Quarter Performance

Total revenues during the quarter increased by 15.4% and were $270.2 million (which was $234.2 million in the prior year quarter).

Food and Beverage revenues increased by 11.3% and were $126 million (which was $113.2 million in the prior year quarter).

Amusement and Other revenues increased by 19.2% and were $144.2 million (which was $121.0 million in the prior year quarter).

Comparable store sales increased by 3.2% in the fourth quarter 2016. Non-comparable store revenues increased by $30 million or 79% in the fourth quarter of 2016 and were $68.2 million.

Operating income increased to $44.7 million in the fourth quarter (which was $38.1 million in the prior year quarter).

Net income increased to $27.4 million, or $0.63 per diluted share (which was $23 million, or $0.53 per diluted share in the prior year quarter).

Store operating income before depreciation and amortization increased by 13.4% and was $87.2 million in the fourth quarter (which was $76.9 million in the prior year quarter).

Adjusted EBITDA increased by 16.5% and was $74.5 million in the fourth quarter (which was $63.9 million in the prior year quarter). As a percentage of total revenues, Adjusted EBITDA increased by around 30 basis points and was 27.6% (which was 27.3% in the prior year quarter).

Share Repurchases

The company repurchased 567,000 shares during the fiscal year for $29 million.

Expectations for 2017

Range

EBITDA

To be between $270 million and $277 million

Total revenues

To be between $1.155 billion and $1.170 billion

Effective tax rate

To range between 36% and 37%

Net income

To range between $101 million and $105 million

Total capital additions

To be between $156 million and $166 million

Store openings

To be around 11/12

Comparable store sales increase

To be around 2% and 3%



Focus

  • Cost curtailment
  • Pursue disciplined new store growth
  • Grow comparable store sales
  • Providing customers with the latest exciting games
  • To expand its footprint internationally
  • Investing more in customer loyalty program
  • Menu innovation



Conclusion

The management expects annual unit growth to be around to be 10% or more and a possible 200+ store opportunity in North America. This owner and operator of 95 venues in North America, offers American gourmet in a different style. It has stores in 33 states and Canada. From hamburgers to steaks to seafood, it offers a wide array of items. With the tagline of "Eat, Drink, Play and Watch", the company offers fun attractions like watching sports while eating out.

As per research conducted by the National Restaurant Association, the restaurant industry is expected to be the nation's second-largest private sector employer with a workforce of 14.4 million and will create 1.7 million jobs by 2026. It has a robust pipeline of products and is well positioned over the long term to capitalize on the changing retail dynamics of this restaurant industry. This quarter was the 19th quarter where comparable store sales growth exceeded the competitive casual dining benchmark. The company boasts of a free cash flow and strong balance sheet. It is also returning value to the shareholders in the forms of share repurchases. Adding this company may reap shareholder returns.

Disclosure: I do not hold any position in the company

This article first appeared on GuruFocus.