After a first quarter of food and fun, the stock lit up like a winner for restaurant/entertainment operator Dave & Buster's
In the fourth quarter, Dave & Buster's was hit with higher food and beverage expenses, up 25% compared with the same period in the previous year. While these expenses were slightly higher again in the first quarter -- 13.1% of revenues vs. 12.9% last year -- the company was able to absorb the difference through improved amusement expenses. In a nutshell, the total costs associated with selling its products were 18.2% of sales in the first quarter vs. 18.7% from last year. The improvement helped increase operating profit margins to 7.7%, 5.5% higher than a year ago.
Higher profit margins helped Dave & Buster's take better advantage of its robust sales. The company achieved double-digit revenue growth for the fourth quarter, and in the latest quarter there was no sign of a slowdown. Sales from food and beverages were 25.2% higher than a year ago, while amusements revenues were better by 18.3%.
This is some tasty growth to be sure, but much of this growth seems to be attributable to new unit openings, as same-store sales, or comps, declined 1.7%. The drag to comps is a concern, but the company says it has a plan in place to address this problem later this fiscal year.
If it can grow its existing-store sales, Dave & Buster's would be firing on all cylinders. As it is, quarter-over-quarter net income growth of 27.8% is very impressive. The company used its strong sales to pay off 7% of its debt. With positive operating cash flow and $42.3 million in current assets (cash and marketable securities), it has plenty of flexibility in handling the remaining $74.6 million of long-term debt.
Dave & Buster's shareholders applauded the company's efforts, as seen in the higher trading price. If the company can manage to improve comparable sales, the stock surely would begin moving up the prospective investors' food chain.
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Fool contributor Jeremy MacNealy does not own shares in any of the companies mentioned.