One of the handful of companies stepping up with fresh financials this week is Dave & Buster's Entertainment (NASDAQ:PLAY), and it may also be one of the more interesting reports. The chain of big-box locations that houses casual dining and high-tech arcade gaming will discuss its earnings for its fiscal second quarter shortly after Thursday's market close.
The pandemic hasn't been kind to Dave & Buster's business, as you can probably imagine. Indoor dining has been a challenge, and hands-on arcade gaming has had it even worse. The stock enters the shortened trading week down 53% year to date, but at least one Wall Street pro thinks that it's time to warm up to the "eatertainment" bellwether.
Ready to play
Brian Mullan at Deutsche Bank is upgrading shares of Dave & Buster's -- from hold to buy -- just a couple of days ahead of Thursday afternoon's earnings report. With the chain starting to open some of its stores since late April, he feels that the next step back in the recovery will be when the weekly comps at the operating locations get to the point of generating neutral or ideally positive cash flow generation. Will Dave & Buster's be announcing that milestone next week?
Mullan recognizes that offering visibility on that front on Wednesday can cut both ways. A disappointing report could send the stock lower with the market fretting about another potential capital raise to keep the business going by the end of this year. However, he feels that the rewards outweigh the risks at this point. He's bumping his price target from $18 to $28, a move that translates to nearly 50% of upside for the stock from current levels.
Only a handful of 137 Dave & Buster's stores were open the last time the company offered an operational update. More locations have gone on to open, but we'll get the official tally from Dave & Buster's on Thursday if you don't want to personally check on all of its big-box havens of food, brews, and fun. Resuming operations is only part of the turnaround strategy. Patrons have to feel comfortable dining indoors and respecting the new social distancing norms. Safety and sanitation are important at any retail business right now, but it's critical for a company anchored by its Million Dollar Midway arcade with high-tech games that rely on physical contact with gaming surfaces.
Dave & Buster's won't return to peak profit levels until COVID-19 is essentially eradicated, and even that won't be a total fix. A day at Dave & Buster's isn't exactly cheap, so one can imagine that the pesky recession that has escalated during the pandemic will also need to be vanquished. The upside for now is that depressed shares could spring back to life this week with even a ho-hum report as long as the near-term outlook is optimistic. It's time for Dave & Buster's to play the earnings game that ultimately Wall Street will score.