It's all fun and games until there's no more fun and games to be had. Dave & Buster's Entertainment (NASDAQ:PLAY) was hit as hard as you probably think it would be during the COVID-19 shutdown. The chain of big-box entertainment centers that blend casual dining with a high-tech video arcade shuttered all 137 of its locations by March 20, forcing it into negotiations with landlords and vendors to trim its operating costs in an effort to stretch out its then-limited liquidity.

Beat the end boss to get to today's gaming level, and things have improved for the chain. It was able to raise some much-needed financing. It's also been gradually opening locations in select markets since late April. With investors now less concerned about a liquidity crunch or a prolonged shutdown, the stock has been one of the market's biggest winners in recent months. The shares have more than quadrupled since bottoming out in mid-March. 

Players gathers around a video game at Dave & Buster's.

Image source: Dave & Buster's.

Back to the future

Dave & Buster's reports financial results later this week, and Thursday afternoon's report isn't going to be pretty, with its locations shuttered for the latter half of the reporting period. Even when the stores were open, things weren't so hot. Comps declined 4.7% for the fiscal fourth quarter that ended on Feb. 2, clocking in 2.6% lower for the entire year. The next couple of quarters will be hairy given the expected slow ramp-up for both the economy and interest in hands-on arcade games in the new normal.

The chances of Dave & Buster's surviving the crisis are understandably better now than they were three months ago when bankruptcy concerns were legitimate. If we set our sights to what Dave & Buster's will look like in 2025, five years from now, we can also assume that we've either licked COVID-19 or have devised safeguards to keep enjoying high-energy social entertainment outlets. 

The Dave & Buster's experience has evolved over the years when it comes to arcade gaming. We saw the shift from tokens and tickets to Power Cards and RFID Power Tap bracelets to play and collect points that can be used for prizes. The games themselves have also evolved to ride high-tech trends in ways that smaller arcades can't keep up with. Right now, it's easy to predict that there will be more virtual reality and augmented reality diversions to keep folks coming to Dave & Buster's in the future, but as new bar-raising forms of gaming emerge, there's no reason for the chain not to be a leader as an early adopter. 

On the dining front, Dave & Buster's should be better positioned to deal with any potential disruptions than it was now. Most casual dining concepts were able to generate at least some revenue during the shelter-in-place phase of the pandemic by embracing takeout and food delivery, but Dave & Buster's figured that its offerings wouldn't stand out absent its in-store bells and whistles. However, just as we saw Chuck E. Cheese (the kid version of Dave & Buster's) make the most of the situation by rebranding its edibles as Pasqually's Pizza & Wings to attract third-party delivery app business, Dave & Buster's isn't likely to be caught off-guard again. 

In terms of unit growth, Dave & Buster's sees as many as 250 units in North America. It has expanded its store count by 12% over the past year to hit 137 locations, so there is still room for the concept to nearly double in size before considering the broader international market. The company hit the pause button on the development of new stores during the pandemic, and it will be humbled into moving slower in the near term. But with the operating climate likely more encouraging in five years, we could see expansion return to its former cadence. The stores will inevitably get smaller as the chain enters smaller markets or builds out existing hubs, but there's no reason to expect a retreat in unit counts anytime soon.

It's OK to be cautious here. We saw how the evolution of home theaters has eaten into the multiplex industry, and improvements in home gaming could disrupt the arcade space. But folks can't duplicate the full Dave & Buster's experience at home. It's still a one-stop shop that can entertain patrons for an entire evening, and that's going to make it a survivor no matter how social trends play out. Domestic growth may slow as expansion exhausts the juiciest markets, but then we have the world to tackle. The recent trend of negative comps is problematic, but Dave & Buster's has overcome slumps before. 

It's a lot easier to be bullish on the company once you work your way past the current coronavirus and recessionary fears that will come into play later this year. The next few quarters will be challenging, but by 2025 Dave & Buster's should be back to its former glory as an "eatertainment" leader. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.