This improving trend has been driven by a few main factors, including the launch of new, popular (and higher-priced) VR games, the simplification and revamping of the Dave & Buster’s menu, and improved technology that strengthens the customer experience at its venues. A caveat here, however, is that PLAY lapped some pretty easy yr/yr comparables. The real challenge will come later this year when it begins lapping more difficult figures.
Additionally, like many others in the restaurant and entertainment industry, PLAY is facing significant wage pressures, which are hurting margins. For the quarter, the company experienced a negative 5% impact from wages, driving its operating payroll and benefits expense to 23.8% of revenue -- 110 basis points worse than the year ago quarter. Consequently, its operating margin dipped to 12.4% from 13.9% in the year ago quarter.
While there is room for skeptics to still question PLAY's turnaround, the positive trend in comps is definitely encouraging, especially considering that expectations haven't exactly been sky-high for PLAY. The stock was still down about 20% from last fall prior to today's move.
Taking a look at the headline numbers, EPS came in at $0.75, up 23% yr/yr, and easily ahead of the $0.64 consensus. However, operating income actually declined by about 3.5% yr/yr as payroll and benefits expense jumped by 14%. So, the growth in EPS is partially due to PLAY buying back stock. Over the past year, it has repurchased about 7.2 mln shares. On that note, the company also announced an additional $200 mln to its share repurchase authorization, further bolstering the stock this morning.
On the top line, revenue was up 8.8% to $331.8 mln, also ahead of expectations, which called for revenues of $325 mln. The growth was driven by strong contribution from its 35 non-comparable stores, which represented 29% of its store base, and the +2.9% increase in comps. That came in above its guidance from January 14, when the company issued expectations for Q4 comp growth of 1.8-2.5%.
What especially stands out is that PLAY achieved its first positive comp in its food and beverage business in two years, coming in at +1.1%. Over the past several quarters, PLAY has been revamping its menu, focusing on simplification and quality. This strategy led PLAY to reduce the size of its menu in February by another 15%, on top of a 20% reduction implemented a year ago. Altogether, PLAY has replaced or revamped about 75% of its menu over the past year. More specifically, management noted that the reduced gap between its amusement and F&B comps was partly attributable to its "All You Can Eat Wings" promotion as well as a 2% bump in food pricing.
PLAY has been making a big push into VR games, which has translated into a significant catalyst in the company’s turnaround. In Q2, it launched its first VR game (Jurassic World), followed by Dragonfrost in Q3. Last night, it announced another VR title, based on the Men in Black movie series, which will be launched in Q2 around the June release of the new MIB film. Based on the popularity of its new VR games, PLAY has implemented price increases on these titles in over half of its locations.
In its earnings press release, PLAY also issued in-line guidance for FY20, seeing EPS of $2.84-$3.16 vs. the $3.02 consensus, with revenues of $1.37-$1.40 bln vs. the $1.38 bln expectation. It is also forecasting comp growth to be flat to up +1.5% for the year, with the addition of 15-16 new stores.