New Stores, Remodels, And Innovative Games Will Boost Revenue And Margins Despite Leadership Shifts

Key Takeaways

• New store openings, remodels, and IT enhancements are projected to drive long-term revenue and EBITDA growth through improved operations and customer experience.
  
• Marketing strategies, strategic pricing, and upgraded offerings are boosting customer engagement, increasing revenue per guest, and strengthening financial margins.
  
• Leadership uncertainty, declining sales, pressured consumer spending, capital-intensive remodels, and marketing strategy shifts pose risks to Dave & Buster’s performance and revenue growth.

Catalysts

Owns and operates entertainment and dining venues for adults and families in North America.

• The opening of new stores and the completion of remodels are expected to drive long-term revenue growth. The new stores are performing well, and remodels are leading to higher traffic and improved sales, potentially boosting overall revenue and EBITDA.
  
• The roll-out of marketing optimization efforts, including a revamped Eat & Play Combo and Winter Pass, are expected to enhance customer engagement and loyalty. These initiatives aim to increase visit frequency and drive top-line growth, thus positively influencing revenue.
  
• Strategic games pricing and new game launches are designed to increase revenue per guest. The ability to adjust prices based on real-time data and the introduction of exciting new games like The Human Crane enhance the value proposition, likely bolstering revenues and margins.
  
• Improved food and beverage offerings, coupled with a new service model, are leading to higher customer satisfaction scores and improved revenue metrics, suggesting potential future revenue and EBITDA growth as customer engagement with F&B offerings increases.
  
• The company is investing in IT enhancements to improve operations and cost management, aiming to scale the business efficiently. These improvements are expected to streamline operations, enhance customer experience, and ultimately improve net margins.

Dave & Buster's Entertainment Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Dave & Buster's Entertainment's revenue will grow by 3.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from 3.9% today to 7.2% in 3 years time.
• Analysts expect earnings to reach $178.4 million (and earnings per share of $4.82) by about December 2027, up from $85.1 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 11.2x on those 2027 earnings, down from 13.1x today. This future PE is lower than the current PE for the US Hospitality industry at 23.6x.
• Analysts expect the number of shares outstanding to decline by 1.3% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.86%, as per the Simply Wall St company report.

Dave & Buster's Entertainment Future Earnings Per Share Growth

Risks

• The departure of CEO Chris Morris introduces uncertainty about the strategic direction and leadership consistency of Dave & Buster's, potentially impacting overall company performance and investor confidence. This can pose risks to the execution of ongoing initiatives and may affect earnings.
  
• Comparable store sales declined by 7.7% year-over-year in the third quarter, indicating potential challenges in attracting customers and driving top-line growth. This continued decline in sales performance could negatively impact revenue.
  
• The current economic environment appears to be pressuring consumer discretionary spending, particularly affecting low-end consumers who are seen spending less. This could dampen revenue and negatively affect net margins if such trends persist.
  
• Dave & Buster's is engaged in an extensive remodel program, which requires significant capital investment. Any missteps or delays in the execution and realization of expected returns on these remodels can lead to increased costs and may impact net margins and earnings negatively.
  
• The shift in the company's marketing strategy towards a heavier digital focus, while potentially positive in the long term, has faced challenges and could have initially contributed to the underperformance in recent sales trends. If marketing initiatives fail to drive traffic effectively, it risks adversely affecting revenue.

Valuation

• The analysts have a consensus price target of $39.71 for Dave & Buster's Entertainment based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $48.0, and the most bearish reporting a price target of just $33.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $2.5 billion, earnings will come to $178.4 million, and it would be trading on a PE ratio of 11.2x, assuming you use a discount rate of 10.9%.
• Given the current share price of $29.06, the analyst's price target of $39.71 is 26.8% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.