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Dave & Buster's Entertainment Inc (NASDAQ: PLAY ) is riding high following its earnings announcement. The Dallas-based owner and operator of dining and entertainment venues reported third-quarter earnings of 27-cents-per-share. Analysts had expected only 24 cents from PLAY stock. But there were a few disappointments.
Source: Mike Mozart via Flickr
Revenue disappointed as it came in at $249.98 million. Although the company saw a 9.3% year-over-year increase, analysts had predicted $5.77 million more in revenue. Still, PLAY stock surged following the report.
Most revenue increases depend on the store openings, which appear to be on track. As long as the company's expansion continues and revenue and earnings growth stay on track, it will remain "PLAY-time" for Dave & Buster's investors.
Natural Disasters Slowed PLAY Stock Growth
While PLAY stock delivered on profits this quarter, the company faced unexpected struggles. Hurricanes in Puerto Rico, Florida and Texas left operations shut down in those areas for several days. Wildfires in California had the same effect on existing locations in that state.
Due to these disasters, the company revised revenue expectations downward. Also, the PLAY stock price fell by 30% between June and November amid the disasters. However, the price has much of that loss over the past month.
Still, the PLAY earnings report has left investors plenty of reasons to buy. The company took nearly three decades to grow from 2 to 83 locations in the U.S. and Canada in 2016. The number of stores now stands at 105. The company announced 14 new locations would open in fiscal 2017. An additional 14-15 have been planned for fiscal 2018.
Further, PLAY has introduced a smaller store format of 15,000-20,000 sq. ft. This arrangement allows it to enter markets not large enough to support its current 40,000 sq. ft. format. With the pace of openings on track and a concept to go into more markets, revenue growth should remain in the double digits for the foreseeable future.
Moreover, buybacks on PLAY stock remain on track. The company has bought back $152.2 million worth of stock. The current buyback plan allows the company to spend an additional $147.6 million on repurchases. The program has removed 2.6 million shares from the market to date. This should help lift the price of PLAY stock.
Dave & Buster's Owns Its Niche
The first Dave & Buster's opened when Dave Corriveau, a game parlor owner, and James "Buster" Corley, a restauranteur, combined their business concepts in 1982. The original owners sold a majority stake in 1989. However, the concept that Corriveau and Corley left the world remains popular, perhaps now more than ever.
Whatever moat they have comes from dominance and understanding of the adult play niche. Dave & Buster's is an adult version of what a Walt Disney Co (NYSE: DIS ) would offer. It provides a place where adults can relive their childhood in a sense. They play fun games they enjoyed as children, but are free to indulge the foods and alcoholic beverages they now enjoy as adults.
Few other large entities offer a similar experience. Regarding food, PLAY competes with the likes of McDonald's Corporation (NYSE: MCD ), BJ's Restaurants, Inc. (NASDAQ: BJRI ) and Darden Restaurants, Inc. (NYSE: DRI ).
However, none of those entities offer gaming. Main Event Entertainment Group, an American subsidiary of Australia-based Ardent Leisure Group , remains the nearest equivalent. However, its 37 U.S. locations do not compare to the 105 operated by PLAY.
Final Thoughts on PLAY Stock
Dave and Buster's drive to expand, as well as growing profits and ownership of its niche, will drive PLAY stock higher for the foreseeable future. Although natural disasters set revenue growth back, PLAY continues to open new stores across the U.S. and Canada. This expansion will deepen with its smaller-market concept.
Moreover, increasing revenues and PLAY earnings, as well as stock buybacks, are driving the equity even higher. The company's dominance in this niche creates conditions that should bring success to any market where it wants to expand. For investors wanting a midsize company set on expansion into a large-cap company, conditions are ripe for buyers to purchase shares of Dave and Buster's.
As of this writing, Will Healy did not hold a position in any of the aforementioned stocks.
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