Investors who are looking for an undervalued name in discretionary spending may want to consider Dave & Busters (PLAY). The restaurant and entertainment giant is set to report second-quarter fiscal 2019 earnings results after Tuesday's closing bell.
PLAY shares have been under heavy selling pressure ever since the company reported first-quarter revenue and earnings that missed analysts consensus estimates. Although first-quarter revenue grew more than 9% year over year, the closely-watched metric of comparable sales dropped 0.3%, falling short of the consensus expectation for a 1.6% gain. The shift of the Easter holiday was blamed in part for the shortfall. The results sent PLAY stock falling to more than 16% to a 52-week low. But things could be about to change.
Sales at eating and drinking establishments are up more than 4% this year, topping the 3% rise in grocery store spending, according to the U.S. Census Bureau. The data cited higher prices as the major reason for some of the growth. This is yet one more sign of the strength of the U.S. consumer, noted Morningstar restaurant analyst R.J. Hottovy. "Generally speaking, the consumer — particularly the middle to upper middle-income consumer — is healthy," Hottovy said. Can Tuesday's results affirm the company's standing with the consumer?
In the three months that ended July, the Dallas-based company is expected to earn 84 cents per share on revenue of $344.54 million. This compares to the year-ago quarter when earnings came to 84 cents per share on revenue of $319.19 million. For the full year, ending January, earnings of $2.96 per share would rise 1% year over year, while full-year revenue of $1.37 billion would increase 8.5% year over year.
Without question, Dave & Busters has a lot to prove on Tuesday, given that the stock has struggled even after the company not only initiated a dividend policy that now yields 1.5% but management also recently authorized $200 million share buyback program. It would seem the market would have applauded these events. That, however, hasn't been the case as the stock still reached a 52-week low. Investors are concerned that comps are not as impressive as they should be considering the strength of the consumer.
Looking at the first-quarter results, although the measures fell short of estimates, things weren't that bad. Total revenues rose 9.5% to $363.6 million from $332.2 million, owing to an 11.9% increase in Amusements and a 6.1% rise in Food and Beverage revenue. What's more, the company said it remains on track to deliver double-digit growth in the fiscal year. And although comps decreased 0.3%, it was better than the 4.9% fall in the year-ago quarter.
To the extent second-quarter comps can show meaningful improvement, now would be the time to play with PLAY shares. The stock is priced at just 12 times forward estimates, which is more than half below the industry's average forward P/E of 26.73. For this to matter, on Tuesday, Dave & Busters must show that the first-quarter miss on profits and same-store sales was just a hiccup and that its strategy to drive new store growth can deliver long-term value.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.