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Dave & Buster's (PLAY) Q2 Earnings Top, Stock Down on View Cut

Zacks Equity Research

Dave & Buster's Entertainment, Inc. PLAY reported mixed second-quarter fiscal 2019 results, wherein earnings surpassed the Zacks Consensus Estimate but revenues marginally missed the same. This marked the company’s second straight quarter of revenue miss. Furthermore, Dave & Buster's lowered its guidance for the fiscal year.

Following the quarterly results and bleak view for fiscal 2019, the stock declined 14.2% in after-hours trading on Sep 10.

Adjusted earnings in the first quarter came in at 90 cents per share, which outpaced the Zacks Consensus Estimate of 86 cents and increased 7.1% year over year. Results were aided by revenue and unit growth.

Let’s delve deeper into numbers.

Detailed Revenue Discussion

Quarterly revenues of $344.6 million in the quarter under review marginally missed the consensus mark of $345 million. However, the top line rose 8% from the prior-year quarter number. The upside was primarily driven by consistent unit growth and robust Amusements and Other revenues as well as Food and Beverage revenues.

Food and Beverage revenues (40% of total revenues in the fiscal second quarter) increased 5.9% year over year to $137.9 million, and Amusement and Other revenues (60%) rose 9.4% to $206.7 million.

Meanwhile, overall comps decreased 1.8% in the fiscal second quarter, comparing favorably with a 2.4% decline in the year-ago quarter. This decrease can be attributed to a 2% decrease in walk-in sales, which overshadowed a 0.1% increase in special events sales. Moreover, comps at Amusements & Other decreased 0.8%, the same declined 3.2% at Food & Beverage.

Non-comparable store revenues in the reported quarter increased 62.3% from the year-ago quarter to $77.2 million.

Operating Highlights

In the second quarter, operating margin contracted roughly 100 basis points (bps) year over year to 13.4%.

Net income totaled $32.4 million, up from $33.8 million registered in the prior-year quarter. Adjusted EBITDA increased 4.4% to $86 million compared with $82.4 million in the same period last year. Meanwhile, the EBITDA margin contracted 80 bps year over year to 25%.

Dave & Buster's Entertainment, Inc. Price, Consensus and EPS Surprise

Dave & Buster's Entertainment, Inc. Price, Consensus and EPS Surprise

Dave & Buster's Entertainment, Inc. price-consensus-eps-surprise-chart | Dave & Buster's Entertainment, Inc. Quote

Balance Sheet

As of Aug 4, 2019, cash and cash equivalents totaled $23.3 million compared with $21.6 million as of Feb 3, 2019.

Long-term debt summed $552.1 million at the end of the reported quarter, up from $378.5 million at the end of Feb 3, 2019.

During the fiscal second quarter, the company repurchased roughly 3.4 million shares for $137 million.

On Apr 2, 2019, the company’s board of directors authorized the repurchase of an additional $200-million stock, under the existing share repurchase program, through the end of fiscal 2020.

Furthermore, management paid a quarterly cash dividend of 15 cents per share in the quarter under review.

Store Development

Dave & Buster’s launched three stores during the fiscal second quarter in Winston-Salem, North Carolina; Natick, Massachusetts (west of Boston); and Gaithersburg, Maryland (northwest of Washington, D.C.). In fiscal 2019, management expects to open 15-16 stores in new locations, with 12% unit growth.

Fiscal 2019 Outlook

Dave & Buster’s trimmed its fiscal 2019 guidance. The company expects total revenues of $1.338-$1.359 billion compared with $1.365-$1.390 billion projected earlier. Comps are anticipated to be in the range of -3.5% to -2% compared with prior guided range of down 1.5% to up 0.5%. Adjusted EBITDA is expected to be $272-$282 million, down from $274-$284 million anticipated earlier.

In an effort to drive near and long-term value, the company is focusing on five priorities —revival of existing stores, building guest engagement, cost management, investment in highest-return new locations, and share repurchases and dividend payments.

Zacks Rank & Other Key Picks

Dave & Buster’s has a Zacks Rank #2 (Buy). Other stocks, which warrant a look in the same space, include Chuy's Holdings, Inc. CHUY, YUM! Brands, Inc. YUM and Shake Shack Inc. SHAK. Chuy's Holdings sports a Zacks Rank #1 (Strong Buy), whereas YUM! Brands and Shake Shack carry a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Chuy's Holdings, YUM! Brands and Shake Shack have an impressive long-term earnings growth rate of 17.5%, 12.3% and 22.5%, respectively.

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