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Why Dave & Buster's Shareholders Are Smiling

Motley Fool Staff, The Motley Fool

Restaurant and entertainment chain Dave & Buster's (NASDAQ: PLAY) released its fourth-quarter report Wednesday, and there was a lot to like. It beat expectations on comps growth and posted solid numbers overall.

In this segment from MarketFoolery, host Chris Hill and analyst Emily Flippen discuss the company's expansion plans, how it's upgrading its offerings, and most importantly, the ways it has successfully reinvigorated its image. But it's not all sunshine and rainbows -- the duo also talk about the less upbeat aspects of Dave & Buster's outlook.

A full transcript follows the video.

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This video was recorded on April 3, 2019.

Chris Hill: Dave & Buster's had a pretty solid fourth quarter. Same-store sales came in higher than expected. Shares of Dave & Buster's up about 4% or 5% this morning. They look like they are doing a very good job of not only just operating well quarter after quarter, but also not really sitting on their hands.

Emily Flippen: Yeah, definitely. They've been expanding aggressively. They've done a great job marketing this reformed Dave & Buster's, where it's a trendy, fun spot for adults to hang out after work or on the weekends. Been running a ton of promotions, including happy hours and food specials. Trimming down the business model to make it look sleeker and more exciting. Changing up the amusements to be more modern and high-tech. They're actually doing an impressive job.

I will say that the company, while it beat on this quarter, they still expect same-store sales to be flat to the range of 0% to 1.5% over the next fiscal 2019. That to me is a little bit concerning, especially because you see this pop today, but ultimately, net income, while it beat expectations, it's still down 17% year over year. It's not like this is a really high-growth business. But they're definitely taking steps to change the brand and change the awareness of the company.

Hill: Yeah. Some would, in the years past, derisively refer to this as Chuck E. Cheese for adults. To your point, they're doing a good job of refreshing the games that they have. They're also doing a good job of slimming down their menu and just saying, "We just need to have enough food and make it be good enough." They're doing a good job with the menu. The food menu is being slimmed down. They're doing a good job with their drink promotions. Think what you want about that, but that's a profit part of the business for them. So it seems like they're doing well on the operating level.

Did you get a sense of any plans they have for expansion? I forget the company we were talking about, some retailer, last week. Maybe it was Five Below. I was really surprised by how many new locations Five Below is planning in this calendar year. Do you have a sense of what Dave & Buster's [is planning]? Among other things, management at Dave & Buster's has struck me as being pretty smart about not being overly aggressive in opening new locations.

Flippen: Yeah, they're definitely not being as aggressive as someone like Five Below is. But, that's largely because Dave & Buster's already has a huge footprint. They are still expanding, though. They're net expanding. You mentioned the food. I know we're going to touch on this a little bit later, but they're doing a good job of staying trendy with their menu. One of the foods that they're bringing on is actually the Impossible Burger, a meat alternative burger. They're now offering that at their locations, as part of that slimmed-down menu. It's going to be a fun company to watch. I'm not really sold at this point, though.

Chris Hill has no position in any of the stocks mentioned. Emily Flippen has no position in any of the stocks mentioned. The Motley Fool recommends Dave & Buster's Entertainment and FIVE. The Motley Fool has a disclosure policy.