Shares of Dave & Buster's Entertainment (PLAY 1.54%) opened slightly higher on Tuesday. The chain of "eatertainment" restaurants that also feature sports bars and huge arcades housing next-gen video games alongside retro diversions initially stumbled in after-hours trading following the posting of disappointing financial results shortly after Monday's close. It's a quick recovery for a less-than-perfect performance.
Dave & Buster's seemed to have fully recovered from the pandemic slowdown just three months ago when it posted blowout financial results. The turnaround apparently won't be a straight walk back. The chain falling short of Wall Street expectations on both ends of the income statement this week isn't a good look, but there's also the hope that it could be a brief hiccup on a broader path to recovery, judging by the market's response on Tuesday.
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Playing to win
Dave & Buster's financial performance seems solid on the surface. Revenue soared 194% to $343.1 million for the fiscal fourth quarter that ended in January. Net income of $0.52 a share reversed a substantial deficit. However, year-over-year comparisons aren't fair for a concept that was clearly slammed during the darkest stretches of the pandemic in 2020.
The chain gets it. Dave & Buster's has routinely stacked up its financials to where it was in 2019 as the best baseline, and this is where Dave & Buster's is slipping. Revenue was slightly higher -- and net income was considerably higher -- for the fiscal fourth quarter two years ago. Analysts were holding out for more. Wall Street pros were modeling earnings of $0.60 a share on $364.5 million in revenue.
Store-level comps aren't great. The average store is ringing up 6.8% less than it did two years ago. There are more than a dozen stores that had vaccine mandates in place, but even if you back those out of the existing store base, comps would've clocked in 2.6% lower.
The step back is a bitter pill to swallow for investors and analysts who saw strong momentum when it last updated its financials back in December. The two-year comparison then was positive with revenue for the fiscal third quarter coming in 6% ahead of where it was in 2019. The two-year surge on the bottom line was even better. Guidance was promising. The chain felt that it would deliver positive two-year comps for the third consecutive quarter. Despite the unfavorable timing of the holidays (with Christmas and New Year's happening over the weekend), Dave & Buster's thought it would land ahead of its pre-pandemic levels. Things didn't work out that way.
You don't have to look hard for a culprit. The omicron variant of the coronavirus was raging during the fiscal quarter that included the months of November, December, and January. Retail customers left their game faces at home. Corporate office parties and other gatherings that would often take place at Dave & Buster's also weren't willing to congregate in the enclosed spaces.
The good news is that things are already starting to bounce back. The special events business is still slow to come around, but walk-in retail comps are up 9.1% through the first eight weeks of the current quarter compared to where D&B was two years ago. Total comps are up 5.4% so far this quarter.
The stock continues to trade well below its 2017 peak, and that's an opportunity for investors considering it's one of the more unique restaurant stocks on the market. the concept it still expanding. All 142 locations are now open, and that includes a new unit it opened in its latest quarter. Naturally it will be susceptible if there's another spike in COVID-19 cases. It's not as if Dave & Buster's can deliver its gaming experience via takeout delivery apps the way other eateries do. However, Dave & Buster's is on the turnaround track again, and it's playing to win.
