We're getting one step closer to Dave & Buster's returning as a publicly traded company. The company behind the namesake eateries with sprawling video game arcades indicated its initial pricing range, a necessary prelude to its IPO. Monday's amended filing with the SEC indicates that Dave & Buster's expects to price its offering between $16-$18 a share.
At the high end of the spectrum, Dave & Buster's would receive more than $100 million in proceeds. The money being raised is being earmarked to pay down its debt, but that's ultimately about providing more wiggle room to expand the chain from the 69 locations it has open today.
The stock -- which will trade under ticker symbol P-L-A-Y on the Nasdaq exchange -- should be popular. There have been a handful of hot and cold eatery IPOs hitting the market since last year, and Dave & Buster's has most of the ingredients of a winner.
- It's a well-known brand of a high-volume chain. The average large format restaurant rings up $11.6 million in sales in its first year. The smaller format that Dave & Buster's is testing as it expands into smaller markets checks in with average first-year sales of $7.5 million.
- Concept popularity continues to movie higher. Comparable-store sales rose 1%, 3%, and 2.2% over the past three fiscal years, respectively. It's not spectacular, but at least it's moving in the right direction. Comps are up an ambitious 5.2% through the first half of this fiscal year.
- Dave & Buster's is profitable, and its operational performance improves with every passing year. Operating income has gone from $34.2 million in fiscal 2011 to $43.7 million in 2012 to just over $51 million last year.
- Momentum is on its side. Sales may have only moved 5% higher last year, but Dave & Buster's top line has soared 17% through the first half of the fiscal year.
It's also going to help that Dave & Buster's isn't as susceptible to fluctuating commodity prices like most traditional restaurant operators. Food sales made up just 33.6% of its revenue last year with beverage sales accounting for just 15.2% of the revenue mix. That leaves a little more than half of its revenue coming from its gargantuan gaming arcade and other non-food opportunities. Another welcome bonus here is that gross margins on the video arcade end of its business are higher than its food and bar tabs.
Latching on to a winner
Naturally the best IPOs are the ones that can be tied to something bigger. It was easy to sell some of last year's fast casual IPOs as the next Chipotle, even if they lacked the comps and cult-like status of Chipotle Mexican Grill.
For Dave & Buster's the winning combo might be if the market sees it as the next Buffalo Wild Wings (NASDAQ:BWLD). Dave & Buster's isn't necessarily seen as a conventional sports bar, but the sea of TVs and competitive nature of its video games make it a close enough fit. Buffalo Wild Wings has made family friendly sports bars popular, and Dave & Buster's -- with larger footprints and greater revenue per store -- is going public at the right time. In its earlier iteration as a public company it was lumped into the Planet Hollywoods and Rainforest Cafes that were hot for a spell when eatertainment was all the crave, but fell out of favor with investors when theme restaurants went stale. Now it has a second shot at getting it right as a public company, and now that the initial pricing range has been set it's just a matter of time before investors start to play with P-L-A-Y.
Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends Apple, Buffalo Wild Wings, and Chipotle Mexican Grill. The Motley Fool owns shares of Apple, Buffalo Wild Wings, and Chipotle Mexican Grill. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.