Dave & Buster’s (NASDAQ:PLAY) has just been hit hard in recent months. The name is at a level where we were compelled to get back into the name at just 24 times trailing earnings. why do we like the name?

Why we like the name in general

First, the hurricane fears were way overblown. There is some exposure but this is a growing national brand. There is massive room for expansion, and there are stores nationwide. Don’t worry about Texas. From an anecdotal standpoint you will recall that back in the very last week of 2015, we detailed our experience at a local store and was completely astonished by the sheer size and atmosphere of the establishment I visited. After dropping a quick hundred dollars, we realized that Dave & Buster’s was a cash cow. However, it is indeed a fragile sector, in that it is both dining and entertainment, which is the first to get cut when consumers tighten their belt. As of right now however, the economy is strong and unemployment is at decade lows. We also like that the company is well managed, with efficient in store operations focused on building comps, building loyalty and providing a positive experience at all times. That is a big thing when it comes to repeat business. Feeling welcomed and feeling as though your dollar matters to the business. It is a culture and atmosphere that our local shop stresses.

Hurricane impact

During the third quarter, stores in the Texas markets affected by hurricane Harvey and in the Florida markets affected by hurricane Irma remained closed for several days. In addition, the company delayed its Puerto Rico store opening following hurricane Maria. Management estimates that these hurricanes had an unfavorable impact of approximately 50 basis points our comparable store sales growth, $2 million on total revenue and $0.7 million on EBITDA. Let us discuss these numbers more:

Sales

Earnings are now out, so how did the company do?  Total revenue growth slowed. Revenues increased 9.3% to $250.0 million from $228.7 million in the third quarter 2016. Across all stores, Food and Beverage revenues increased 6.3% to $107.7 million from $101.3 million and Amusement and Other revenues increased 11.8% to $142.3 million from $127.3 million. Food and Beverage represented 43.1% of total revenues while Amusements and Other represented 56.9% of total revenues in the third quarter 2017. In last year’s third quarter, Food & Beverage represented 44.3% of total revenues while Amusements and Other represented 55.7% of total revenues.

Comparable sales

Here is where there are problems. Comparable store sales decreased 1.3% in the third quarter 2017 compared to a 5.9% increase in the same period last year. Our comparable store sales performance was driven by a 0.9% decrease in walk-in sales and a 4.8% decrease in special events sales. Comparable store sales in Amusements and Other increased 1.1% and in Food & Beverage decreased 4.2%. Non-comparable store revenues increased $22.9 million in the third quarter 2017 to $52.4 million.

Income

Operating income increased to $19.9 million in the third quarter of 2017 from $18.7 million in last year’s third quarter. As a percentage of total revenues, operating income decreased 20 basis points to 8.0% from 8.2%. Net income increased to $12.2 million, or $0.29 per diluted share (42.3 million diluted share base).. This compared to net income of $10.8 million, or $0.25 per diluted share (43.3 million diluted share base), in the same period last year.

Looking ahead

Looking ahead, expect continued growth, but at a reduced pace. This has tempered our bullishness Year-to-date the company has opened about a dozen stores and now has an additional nine stores under construction. Longer-term management is aiming 10% growth in store count over the long-term and is eyeing a 200 plus potential store count, in just the United States and Canada. That would represent a doubling in the size of growth. However, thanks to some impacts of the hurricane and projected softness in the sector, the company reduced guidance for comp sales down to 1-2% from 2-3%.

We want you to join our community

Benefits of signing up for a FREE membership now:

-No more costly delays in waiting for material

-Dozens of publications per week, including news coverage, earnings commentary, analysis, politics, and more

-Access to special guest contributions, including from WSJ, CNBC, and prolific SA authors

Ability to comment on articles

Access to our weekly newsletter

-Publish your own opinion/analysis

CLICK HERE: All you have to do is register, and join the community today. 

Thank you for your readership, and for your loyalty.

Regards,

Quad7Capital

——

Not interested? We understand. However, you will miss out on the insights we have provided over the years, that helped drive us to the NUMBER ONE AUTHOR on long ideas on the Seeking Alpha Platform,

Please Like And Share Our Content!