On Wednesday, Truist Securities maintained its Buy rating on Dave & Buster's Entertainment, Inc. (NASDAQ:PLAY), with a consistent price target of $59.00. The firm's analysis suggests that despite recent macroeconomic pressures that have resulted in slightly lower comparable store sales (SSS), Dave & Buster's is poised for a turnaround due to various sales initiatives.
In the second quarter of 2024, the company's SSS were reported to be slightly below the levels of 2019 on a compounded basis. This downturn was attributed to macroeconomic challenges outpacing the effect of Dave & Buster's sales drivers, which include a roughly 9% increase in amusements pricing, a remodel of 18 stores, a new menu and service model, the addition of special events sales managers, and increased targeted digital marketing.
However, a slight acceleration in SSS was noted in August, as confirmed by the company's management and supported by Truist Card Data. This trend is expected to continue improving as the company's sales initiatives gain traction throughout the remainder of the year. Truist forecasts a modest acceleration in SSS to -5.0% in the third quarter of 2024 and -3.0% in the fourth quarter, before turning positive in the first quarter of 2025 with a projected increase of +1.5%.
The firm remains optimistic about the impact of Dave & Buster's remodeling efforts, which have yielded positive sales lifts at locations that have undergone full-scale updates. This is part of the 26 remodels planned to be completed in the second half of 2024. Additionally, the effectiveness of marketing efforts is anticipated to improve with the focus on the 'Power 5 Lineup' promotion, which has shown promising test results.
Dave & Buster's has also been actively hiring special events sales managers, with approximately 70 stores now staffed compared to around 20 in the fourth quarter of 2023. This strategy has already led to positive special events SSS and strong forward bookings, indicating a potential uplift in future revenue.
In other recent news, Dave & Buster's Entertainment Inc. reported impressive second-quarter earnings that exceeded analyst estimates. The company posted adjusted earnings per share of $1.12, beating projections of $0.91.
However, despite a 2.8% year-over-year increase, the revenue of $557.1 million fell slightly short of the anticipated $567.33 million. BMO Capital Markets maintained its Outperform rating on the company, keeping a steady price target of $55.00 and recognizing the company's cost savings as a key factor in overcoming revenue challenges.
Dave & Buster's also expanded its adjusted EBITDA margin to 27.2%, up from 25.9% a year ago, despite a 6.3% decrease in comparable store sales. BMO Capital's analysis suggests that the company's financial management and cost-efficiency measures are contributing to its resilience. Additionally, the company opened two new locations, remodeled nine existing stores, and repurchased $47.4 million worth of shares during the quarter.
These recent developments point to the company's potential to navigate a difficult market, with BMO Capital Markets expressing confidence in Dave & Buster's strategic initiatives. The company ended the quarter with $13.1 million in cash and $481 million available under its revolving credit facility, maintaining a net leverage ratio of 2.3x.
InvestingPro Insights
As Dave & Buster's Entertainment, Inc. (NASDAQ:PLAY) navigates a challenging economic environment, insights from InvestingPro shed light on the company's financial health and market performance. With a market capitalization of $1.18 billion and a trailing twelve-month P/E ratio of 9.9, the company shows a valuation that might attract investors looking for potentially undervalued opportunities. Despite a slight decline in quarterly revenue growth, down 1.54% for Q1 2023, the company has maintained a gross profit margin of 31.9%, indicating a robust capacity to generate earnings relative to its revenue.
However, it's important to note that the company's stock has experienced significant volatility, with a 38.22% drop over the last three months and currently trading near its 52-week low. This aligns with the InvestingPro Tip highlighting the stock's price movements and its current position at 42.77% of its 52-week high. Moreover, the company is trading at a high Price to Book multiple of 4.04, which investors should consider when evaluating the stock's current price relative to its book value.
InvestingPro Tips also reveal that management has been actively buying back shares, a move that can signal confidence in the company's future and potentially support the stock price. Additionally, there are more tips available on InvestingPro, offering further insights into the company's financial health and operational strategies. Interested readers can explore a total of 12 additional InvestingPro Tips for Dave & Buster's to better understand the investment potential and risks associated with the stock.
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