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Dave & Buster's (PLAY +1%) looks to bust free from its extended downward trend today after delivering a sizeable beat on its bottom line in Q2 (Jul). While revenue growth missed the mark in the quarter, dragged down by lackluster same-store sales, which fell short of street estimates, the restaurant and entertainment chain registered several uplifting developments, possibly pointing to a long-awaited comeback.

Since April, PLAY shares tumbled by over 50% ahead of Q2 numbers. PLAY encountered softening foot traffic due to its price hikes across food, beverage, and games, which coincided with sticky inflationary pressures. However, management believed that as it enhanced its locations, remodeled interiors and revamped menu items and game offerings, consumers would respond positively to higher prices.

• While PLAY's Q2 comps of -6.3% were disappointing, they do not fully portray the early success of PLAY's initiatives. Instead, it is essential to look at forward bookings for FY25 (Jan), which management noted were significantly higher than where they were last year. Meanwhile, PLAY's adjusted EPS of $1.12 marked a notable improvement from the year-ago period, supported by expanding adjusted EBITDA margins due to updated pricing.
  • Furthermore, PLAY just rolled out the next phase of its new menu in August, which focuses on beverages and special events. Its previous new menu items have already been well received by guests, illuminated by improving food and beverage performance and satisfaction scores.
• Loyalty membership continues to expand, with 25% more active members yr/yr. PLAY noted that loyalty guests visit locations 2.5x more often on average and spend 15% more per visit compared to non-loyalty members. Given these numbers, PLAY is deploying a similar loyalty program for Main Event, which it acquired in 2022. Management commented that it is laying the foundation to launch a loyalty program at Main Event in early 2025. It is also evaluating partnerships that it expects will boost traffic and sales trends later this year.
• PLAY anticipates its array of store models, menu item refreshes, and pricing to lead to growth in comps, revs, and margins over the coming quarters. However, because of the dynamic economic environment, PLAY emphasized being methodical regarding pricing.

With forward bookings for the back half of the year trending considerably higher yr/yr, PLAY's ongoing strategic actions are finally beginning to bear fruit. At the same time, the company is penetrating the international market, expecting to open 4-5 stores outside the U.S. over the next 12 months, with the first to open before year's end.

However, with plenty on its plate, heightened uncertainty remains, especially given the volatile economic backdrop. We mentioned last quarter that after PLAY enjoyed a similar gap higher, the company could encounter difficulty sustaining a rally until its comps show meaningful improvement. While overall trends in Q2 were a promising sign that perhaps comps will begin to improve over the coming quarters, it may still be better to wait and see.