What a difference a (new) year makes. As was the experience
of a vast majority of stocks, the end of 2018 was not particularly kind to Dave
& Busters (PLAY 52.35, +1.58, +3.11%) as the stock market suffered one of the worst Decembers on
record. But PLAY, an owner and operator of dining and entertainment venues, cannot
completely pin its 20% dive last month on market turbulence. It contributed a
catalyst of its own: on December 11, PLAY issued Q3 results that helped to fuel
the stock’s downward spiral.
While the headline numbers relative to consensus estimates looked good -- EPS of $0.30 vs. $0.24, revenue of $282.1 mln vs. $277.3 mln -- the company's negative comparable store sales and the year/year decline (-1.9%) in operating income overshadowed the upside results. More specifically, comparable store sales fell by 1.3% year/year due to a 0.7% dip in walk-in sales and a 6.9% drop in special event sales.
Last quarter's negative comps were not an outlier, either. In fact, it marked the fifth quarter in a row in which Dave & Busters reported a year/year decline in comps: 3Q18 saw declines (of 1.9%), as did 2Q18 (-2.4%), 1Q18 (-4.9%), 4Q17 (-5.9%), and 3Q17 (-1.3%). In 2Q17, the company posted a positive comp of +1.1%.
With that discouraging trend having persisted through the third quarter, and while bracing volatility in the stock market, shares of PLAY sank to six-month lows in mid-December, taking the stock south of its 50, 100, and 200 day moving averages.
However, once the calendar turned the page to 2019, it has been a completely different story for PLAY. Year-to-date, the stock has reversed higher by about 18%, and it is up 3% in morning trading today after it raised its FY18 guidance and reported positive Q4 comps after the close last night -- putting an end to that aforementioned streak.
Specifically, PLAY raised its FY18 revenue guidance to $1.259-$1.263 bln (+11% at mid-point) from its prior outlook of $1.243-$1.255 bln, and slightly better than the $1.252 bln consensus estimate. It also lifted its net income and EBITDA outlook for the year, moving to $112-$114 mln from $106-$113 mln and to $276-$278 mln from $268-$277 mln, respectively.
Perhaps most encouragingly, the company said that it expects Q4 comparable sales growth of 1.8-2.5%. The one caveat here is that it is lapping a pretty easy comparable from the year ago period, when comps were down 5.9%. But it is certainly good, nevertheless, to see a positive number, and it could become a building block for a string of positive comps as the remainder of 2019 will continue to present opportunities for the company to lap some easier year/year comparables.
The improved comparable store sales number is a positive step in the right direction and an indicator that the company’s strategy to enhance its gaming and service capabilities is beginning to pay dividends. On that topic, PLAY launched its first virtual reality game in Q2 last year (Jurassic World VR Expedition) followed by another last quarter (Dragonfrost). Looking ahead, PLAY expects to make a third VR attraction, based on the Star Trek movie franchise, available in 1Q19.
On the service side, PLAY has deployed new front desk ambassadors that help guide guests' experiences. Additionally, it has implemented certain technology upgrades to customer kiosks and has integrated a new workforce management system. Finally, PLAY began rolling out RFID-enabled "Power Cards", which it believes will push gaming activity higher. When combined with the new gaming attractions, PLAY is hoping this improved customer experience will drive sustained growth at its existing stores.
Wrapping up, PLAY's upside guidance and its return to positive comps are pushing shares higher, keeping the stock’s upward momentum going. That said, there are plenty of challenges ahead, most notably including reigning in operating costs as the company seeks to expand its store count by 15-16 units this year.
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