3 Reasons Why Dave & Buster's Is Crushing The Competition

Based in Texas, Dave & Buster's Entertainment, Inc. PLAY began trading in Oct 2014. Since the launch of its IPO, the shares of the company have gained over 142%.

The core concept of the restaurateur is “Eat Drink Play and Watch”, all in one location. Its menu comprises “Fun American New Gourmet” entrées and appetizers and a full selection of non-alcoholic and alcoholic beverages.

Despite stiff competition from the likes of McDonald's Corp. (NYSE:MCD) , BJ's Restaurants, Inc. (NASDAQ:BJRI) and Darden Restaurants, Inc. (NYSE:DRI) , the company has been doing pretty well. In fact, the long-term growth prospects of the company are compelling, given its strong sales, earnings growth and significant margin improvement.

Additionally, Dave & Buster’s has a Zacks Rank #2 (Buy) and a VGM Score of ‘A’.

Back-tested results show that stocks with a VGM Score of A or B and a Zacks Rank #1 (Strong Buy) or #2 (Buy) garner better returns, on an average, than individual components, as it considers three times as many items that are correlated to stock returns.

3 Factors Driving Dave & Buster’s

Here we have highlighted the three compelling factors that have helped the company crush competition and also hold it well for long-term growth:

A Distinct Business Style

The company continues to perform well on the back of the unique customizable experience that it offers across its four platforms, “Eat Drink Play and Watch”.

Apart from great food or beverages, the company’s amusement and other segment have been driving growth. In fact, in the last reported quarter, the segment accounted for over 55% of the company’s revenues, and is thus one of the major reasons behind the company’s success over competitors as with increased dependence on gaming makes the company is less prone to food costs variations.

It is this unique model that sets it apart and we expect the company’s amusement and other segment to carry the growth story forward.

Growth Scope & Initiatives

Dave & Buster’s consistent efforts to build sales and improve margins through various initiatives bode well. In this regard, continual opening of stores, menu innovation, launch of new games and the new Fun American New Gourmet and beverage options should help the company boost its top and bottom line, going ahead.

Keeping with this, in fiscal 2016 (ending Jan 29, 2017), the company intends to open a total of nine to ten new stores across the small and large store formats.

Moreover, for 2016, sales and EPS are likely to improve 13.1% and 19.2%, respectively, further underlining its potential.

Earnings & Estimate Revisions

On Jun 7, 2016, Dave & Buster’s posted strong financial results for first-quarter 2016. Adjusted earnings of 72 cents per share were significantly ahead of the Zacks Consensus Estimate of 59 cents. Total revenue of $262 million also surpassed the Zacks Consensus Estimate of $251 million. The company also raised its financial outlook for fiscal 2016.

Meanwhile, the share price of the company soared over 21% over the past one year. Despite the strong price appreciation, the stock has room for plenty of upside, given the positive estimate revisions witnessed over the past 60 days. Over the past 60 days, the Zacks Consensus Estimate for 2016 and 2017 earnings has increased 2.3% and 2.4% to $1.81 and $2.11, respectively.

Bottom Line

So far, Dave & Buster’s has had a phenomenal run. With improving consumer spending patterns and booming prospects of the restaurant industry, we expect the company to sustain the momentum going ahead.

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