Dave & Buster's Entertainment, Inc. PLAY is likely to benefit from expansion efforts, digital initiatives and kitchen optimizations. This along with focus on store reopenings bode well. However, decline in traffic and soft comps are concerns.
Let us discuss the factors that suggest that investors should hold on to the stock for the time being.
Dave & Buster's continues to pursue a disciplined new store growth strategy in new and existing markets. Management believes that it can extend the concept to more than 200 units in North America over time. Also, it is optimistic with respect to the brand’s significant appeal in certain international markets. Nonetheless, the company opened three new stores during the fiscal fourth quarter and 6 new stores in fiscal 2020.
Moreover, the company believes that it can drive traffic by enhancing in-store and out-of-store customer experience via digital and mobile initiatives as well as through employing better technology. During the fiscal fourth quarter, the company initiated a combination of a new service model, tablets and a mobile web platform to enable a completely contactless order-pay experience. Nonetheless, the company intends to leverage its growing loyalty database and continue to invest in other mobile applications to build customer connections as well as drive frequent customer visitation.
The company also continues to focus on virtual kitchen concepts, optimizing back-of-the-house operations and enhancing bar menu to enable seamless flow of food as well as boost guest experience. During fiscal fourth quarter, the company initiated the Wings Out concept, thereby offering a narrow menu of wings and beverages. Going forward, the company intends to roll-out high-speed ovens across stores that reduce cook time by more than 40%.
Meanwhile, to recover its business post the coronavirus-induced shutdowns, Dave & Buster's is focused on reopening stores in compliance with the state and local regulators. In order to support the same, the company increased focus on marketing message and media execution.
Shares of Dave & Buster's have gained 3.8% in the past three months compared with the industry’s 7.4% growth. Notably, the dismal performance was primarily caused by the coronavirus pandemic. Although the company reopened majority of its restaurants, it is likely to witness dismal traffic due to social-distancing protocols. Owing to the uncertainty of the crisis, the company also suspended its dividend payout and share buyback programs.
Moreover, the company’s soft comps trend in the past few quarters has been a major concern. In fourth-quarter fiscal 2020, comparable store restaurant sales declined 70% year over year. The downside was primarily caused by pandemic-related operational restrictions. In the first, the second and the third quarter of fiscal 2020, comps declined 58.6%, 87% and 66% respectively.
Zacks Rank & Key Picks
Dave & Buster’s currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Some other top-ranked stocks in the same space include Chuy's Holdings, Inc. CHUY and Dine Brands Global, Inc. DIN and Texas Roadhouse, Inc. TXRH each sporting a Zacks Rank #1.
Chuy's Holdings has a trailing four-quarter earnings surprise of 127.6%, on average.
Dine Brands 2021 earnings are expected to surge 268.7%.
Texas Roadhouse has a three-five year earnings per share growth rate of 10%.
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