Market Yawns as Dave & Buster's Entertainment Inc. Turns in a Huge Quarter

Dave & Buster's has become a popular location for food, family fun, and sports. Photo: Dave & Buster's

Usually, when you report revenue and earnings that blow expectations away while also raising your guidance, your stock explodes. But though shares of Dave & Buster's (PLAY 2.84%) advanced 6% immediately following the earnings release, the stock was virtually flat by the end of trading on Wednesday.

As you'll see, the company performed exceptionally well last quarter, and this lukewarm reaction may prove to be a buying opportunity for investors.

Just the numbers

EPS figures are non-GAAP. EPS growth not available as the company was recorded losses during the year-ago quarter. Source: Dave & Buster's

Revenue came in about $7 million higher than expected, but earnings were a whopping four times greater than analysts were predicting.

But as impressive as those figures are, the real eye-opener was that Dave & Buster's announced that same-store sales were up an impressive 8.8%. That news comes on top of 8.7% same-store gains during the same quarter last year. Between the third quarter of 2013 and today, existing locations have boosted their revenue by an impressive 18.3%.

What happened during the quarter
The company announced several details of the business that investors should take note of:

• Revenue for food and beverages was up 15% to $90 million and accounted for 47% of sales.
• Revenue fot amusement was up 21% to $103 million and accounted for the other 53% of sales.
• The "Summer of Games" promotion was largely successful, and the company is now focusing on football-themed promotions to drive sales.
• Management has entered into an agreement to bring seven Dave & Buster's locations to the Middle East over the next seven years.

What management had to say
While management had lots of great things to share, it's possible that the market's muted reaction came from CFO Brian Jenkins' comments related to what investors should expect in 2016:

Coming off this record year at Dave & Buster's, we believe that move toward more normalized growth is most likely for 2016. We anticipate delivering results that are above our long-term financial targets of approximately 10% growth in revenue and low double-digit growth in adjusted EBITDA, respectively. 

As the stock now trades for about 30 times non-GAAP earnings, "low double-digit growth" might not be high enough for some investors. That said, the company has consistently outpaced even its own expectations, so I wouldn't be surprised to find that the company performs better than its management is letting on.

Looking forward
Dave & Buster's raised several of its forecasts for fiscal 2015 -- which has only one quarter left.

• The midpoint of annual revenue was bumped from $849 million to $859 million.
• Same-store sales for the year are now expected to come in at 8.8%, compared with previous guidance of 7%.
• The midpoint of non-GAAP earnings per share is now $1.39, compared with the previous estimate of $1.25.

If we assume that the company hits on all these targets, that would mean revenue of $226 million (9% growth) and non-GAAP earnings of $0.41 (24% growth) for the final quarter

Don't be surprised, however, to find out that the real numbers come in higher, as more and more customers respond to what Dave & Buster's has to offer.