Stock market volatility hasn't been kind to Dave & Buster's (NASDAQ:PLAY) investors in recent weeks. Shareholders had been up over 30% year to date by early May, but they're now looking at a much smaller increase heading into the restaurant chain's first-quarter earnings report.
That trend could quickly reverse if the company announces more positive momentum on its recovery efforts, which recently helped sales growth return after over a year of declines. But that's just one key metric investors will be watching on Tuesday, June 11.
Let's take a closer look at what investors might see from Dave & Buster's.
1. Growth progress
Investors shouldn't expect much in the way of sales growth at existing locations. Sure, comparable-store sales rose 3% last quarter to mark Dave & Buster's first increase since early 2017. Comps trends have now improved for four consecutive quarters after hitting a low of 6% declines at the end of 2017.
However, Dave & Buster's benefited from a few temporary factors last quarter, including that weak prior-year period, warmer weather, and a favorable calendar shift. These elements help explain why the company predicted a growth slowdown over the coming quarters, with comps landing at close to zero for the 2019 year.
The good news is CEO Brian Jenkins and his team believe the company won back some market share in the fiscal fourth quarter, and investors will want to see more evidence of that kind of success to start the new year even if comps are only modestly positive.
2. Store economics
The economic returns of its latest store launches are arguably more important than comps since the chain plans to double its selling footprint to around 250 locations across the country. The news here has been encouraging lately, with sales volumes being lifted in recent quarters by the addition of exclusive virtual reality (VR) titles and improvements to the food menu.
Investors will find out next week whether there's more room for profitability gains, since Dave & Buster's just raised prices on key VR games. As amusement margins rise, and as the sales base tilts further toward entertainment and away from food, the company could see operating margin rebound in 2019 after falling to 13% of sales last year compared to 15% in 2017.
3. Management's outlook
Dave & Buster's initial 2019 guidance contained a wide range of possibilities that ideally will be narrowed for investors next week. On the sales side, executives see comps rising by a maximum of 1.5% to reverse the prior year's 1.6% drop. The addition of 16 new locations, meanwhile, would set a back-to-back record for annual restaurant launches.
Net income might land anywhere between $105 million and $117 million, translating into earnings that are flat or down 10%. Investors will likely accept even the low end of that scenario, so long as the company continues demonstrating progress with its growth initiatives.
Modest comparable-store sales gains and healthy store economics would together imply that Dave & Buster's is succeeding at winning market share in a competitive industry, and that means the chain would be free to continue aggressively expanding its base toward management's footprint goals. Worsening metrics, on the other hand, might mean the chain has more work to do to secure its turnaround.