Dave & Buster’s Entertainment, Inc. (PLAY) Under Pressure On Weak Comps
Shares in restaurant and arcade venues operator Dave & Buster’s Entertainment, Inc. (NASDAQ:PLAY) are set to open sharply lower Wednesday on underwhelming comparable store sales. Comps at PLAY, which operates nearly hundred stores in the US and Canada, grew 1.1% during the fiscal second quarter, below the expected 2.6%. For the full year, PLAY now expects comps to grow between 1% and 2% against the previous forecast of 2%–3%. PLAY, however, is quite content with the non-comp growth it’s experiencing. “Our non-comp store base is performing well and we are very pleased with our recent store openings”, said CEO Steve King. During the year, the company opened eight stores and has nine more under construction. “Our recent debt refinancing improved our capital structure and financial flexibility, enabling us to invest in new store growth and return value to shareholders for years to come”, said CFO Brian Jenkins. The company now expects to open 14 stores this year compared to previous guidance of 12 new stores. Revenue and core earnings (EBITDA) grew 14.9% and 11.5%, respectively. Without including litigation expense, PLAY’s EBITDA grew 16% at a slightly higher margin than the year-ago quarter. Food and beverage revenue grew 10.2% to $118.7 million, while Amusement and other entertainment segment reported 18.6% growth to $162.1 million. PLAY shares are up more than 230% since listing in late-2014, but a continued trend of lower than the expected comps growth can negatively affect investors’ expectations of long-term profitability. For now, geographic expansion is expected to drive double-digit growth, but lower comps going forward can bring down margins. In terms of valuation, despite the rally, PLAY trades well below, at 2.5x, the industry’s average enterprise value of 3.7 times revenue, while its net income profit margin is in-line with the industry.