On Wednesday, BMO Capital adjusted its outlook on Dave & Buster's Entertainment Inc. (NASDAQ:PLAY), reducing the price target from the previous $51.00 to $47.00, though the firm maintained its Outperform rating on the company's shares.
This adjustment follows the entertainment and dining venue's reported third-quarter earnings before interest, taxes, depreciation, and amortization (EBITDA) for the fiscal year 2024, which came in at $68 million, falling short of the consensus by $6 million.
Factors such as softer comparable store sales (comp) and weaker margins were noted, with influences including shifts in the calendar and adverse weather conditions.
Dave & Buster's has provided guidance for its fiscal year 2024 EBITDA to be between $510 and $515 million, suggesting an estimated fourth-quarter EBITDA of $126 to $136 million, which is below the consensus estimate of $139 million. In addition to the financial updates, the company announced the resignation of CEO Chris Morris. The lowered price target reflects the pressures on comparable store sales and the heightened uncertainty following the CEO's departure.
BMO Capital reiterated its positive stance on Dave & Buster's, citing a favorable risk-to-reward ratio, which is approximately 5.3 times the firm's projected EBITDA for fiscal year 2025. The analyst expressed optimism for the company's future, anticipating that initiatives underway would start to significantly improve comparable store sales in the fiscal year 2025. These initiatives include fully programmed remodels and marketing optimization efforts, which are expected to gain traction and contribute to stronger performance.
Despite the current challenges, BMO Capital remains confident in Dave & Buster's potential for improved performance in the coming fiscal year and beyond. The firm highlighted the company's modest EBITDA multiple as an attractive point for investors to engage with the stock and wait for the anticipated upturn in performance.
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