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Dave & Buster's Stock Is Showing Signs of Life

By Rick Munarriz – Updated Apr 18, 2019 at 10:26PM

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The high-volume restaurant chain bounces back with positive comps after five quarters of declines.

Check out the latest Dave & Buster's earnings call transcript.

Dave & Buster's Entertainment (PLAY 1.59%) is having a better holiday quarter than it was originally publicly projecting. The fast-growing chain of large-format locations that seamlessly blend casual dining, sports bars, and high-tech video arcade gaming is boosting its guidance for the current quarter. This is a welcome break from what happened a year ago, when Dave & Buster's was lowering its outlook in early January.

The purveyor of fun's fiscal fourth quarter doesn't end until Feb. 3, but it thinks that same-store sales will rise 1.8% to 2.5% for the period. It's a notable achievement, snapping a streak of five consecutive quarters of negative comps. This quarter's rebound finds Dave & Buster's improving the language of the full-year guidance it served up just last month. The 120-unit chain was targeting a comps hit in the "low single digits" for the entire fiscal year, but now it expects same-store sales to slide by just 1.7% to 1.9% in fiscal 2018. 

Adults playing in Dave & Buster's Million Dollar Midway arcade.

Image source: Dave & Buster's.

Playing to win

The good news doesn't end with an overdue return to growing at the individual unit level. Dave & Buster's is also juicing up its full-year outlook for its top- and bottom-line results. The holiday season was clearly a winner for the chain, especially since its guidance just five weeks ago was suggesting extending its streak of negative comps to six quarters.

Dave & Buster's still has a long way to go before it claws its way back to peak form. Comps plunged 5.9% during the fiscal fourth quarter of last year, so we're talking about unit-level results that are still below where the chain was two years ago. However, with Dave & Buster's continuing to expand aggressively -- we're up to 120 stores now with another 15 to 16 set to open in the year ahead -- it's refreshing to see same-store sales turn positive without having to slow down its construction efforts to focus on a turnaround. 

There's been a push to return money to its shareholders at Dave & Buster's lately. It's more than halfway done with a $400 million buyback authorization, and just a few months ago it initiated a quarterly dividend policy. The $0.15-a-share distributions every three months may not seem like much, but the 1.2% yield should at least provide some cushion during the lulls as it rewards buy-and-hold investors. 

The shares were already moving higher in 2019 ahead of the rosy guidance for the current quarter. After back-to-back years of declining stock prices, investors are finally starting to get a break. Posting positive comps is a great start, but it obviously isn't enough for stakeholders that have been burned before. 

Momentum will be the key to sustaining the stock's initial bounce on Wednesday. It's already getting a healthy return on its recently opened stores, and it's doing a better job of communicating the new and exclusive games going into its Million Dollar Midway arcades. The game's afoot, and right now Dave & Buster's appears to be back on a winning streak.

Rick Munarriz has no position in any of the stocks mentioned. The Motley Fool recommends Dave & Buster's Entertainment. The Motley Fool has a disclosure policy.

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