Restaurant chain Dave & Buster’s Entertainment (NASDAQ:PLAY) has faced a tough start to 2024. The company experienced a notable decrease in comparable sales, leading to revenue and EPS missing expectations. Despite these hurdles, the firm’s long-term growth narrative remains buoyant, spurred by new store openings, remodeling of existing locations, and a successful integration of the Main Event acquisition.
The stock is down by 18.72% year-to-date and heading in the wrong direction. While the shares trade at a discount, investors may want to exercise caution and await evidence of more positive performance before establishing a position.
Dave & Buster’s Is Growing in Size and Profitability
Dave & Buster’s operates a chain of dining and entertainment venues, featuring 165 Dave & Buster’s branded stores in 42 states, Puerto Rico, and Canada across North America, and 59 Main Event branded venues in 20 states.
Management plans to optimize revenue and EBITDA, expecting incremental growth of $632 to $825 million through increased customer engagement, lower game and Power Card prices, and improved Food and Beverage sales. These strategies could significantly improve the company’s financial position.
The market for global family entertainment centers is on a steady growth trajectory. It is projected to expand from approximately $30 billion in 2024 to $70 billion by 2030, representing a compound annual growth rate (CAGR) of 11%. As a market leader, this growth potential bodes well for the company’s future prospects.
Dave & Buster’s Recent Financial Results
The company recently reported financial results for the first quarter. Revenue of $588.10 million missed expectations of $621.26 million and marked a 1.5% decrease from the first quarter of 2023. There was also a drop in comparable store sales by 5.6% compared to the same period in 2023. Net income amounted to $41.4 million, or $0.99 per diluted share, a decrease from $70.1 million, or $1.45 per diluted share in 2023’s first quarter. Earnings per share (EPS) of $0.99 also fell short of analysts’ expectations of $1.73.
At the end of the quarter, the company had $32.1 million in cash and $484.0 million available under its $500.0 million revolving credit facility. The Net Total Leverage Ratio was 2.3x.
The company also revealed its share repurchase actions, having bought back 1.0 million shares at a total cost of $50.0 million, accounting for 2.4% of the outstanding shares as of Fiscal year 2023. There is $150.0 million remaining on its share repurchase authorization.
What Is the Price Target for PLAY Stock?
Analysts following the company have been cautiously optimistic about the stock. BMO Capital analyst Andrew Strelzik recently lowered the price target from $75 to $65 while keeping an Outperform rating on the shares. He stated the company’s weaker recent margins, though he sees cost savings efforts bridging to a more conducive environment.
Dave & Busters Entertainment is rated a Moderate Buy overall, based on seven analysts’ recommendations and price targets issued over the past three months. The average price target for PLAY stock is $66.50, representing a potential upside of 51.93% from current levels.
The stock has been trending downward, losing roughly 30% in the past 90 days. It trades at the lower end of its 52-week price range of $33.07 – $69.82 and demonstrates ongoing negative price momentum, trading below its 20-day (49.47) and 50-day (52.28) moving averages. It trades at a relative discount, with a P/S ratio of 0.84x, well below the Entertainment industry average of 2.01x.
Bottom Line on Dave & Buster’s
Dave & Buster encountered operational hurdles in Q1 but maintained a positive growth outlook through new store launches, renovations, and the successful integration of the Main Event acquisition. While the stock has been underperforming, it trades at a discount, suggesting it could be an attractive value play. However, investors may want to wait for signs of improvement and confirmation of the company’s dedication to leverage its potential growth opportunities before taking action.
