Dave & Buster's (PLAY) Expansion Moves Aid, High Costs Persist

Dave & Buster's Entertainment, Inc. PLAY is likely to benefit from expansion efforts, sales building efforts, digitalization and robust amusement and other revenues growth. However, high costs remain a concern.

Let’s delve deeper.

Growth Drivers

This Zacks Rank #3 (Hold) company continues to expand its presence in new as well as existing markets. In first-quarter fiscal 2022, the company opened one new store in Sioux Falls, SD. Moving into the fiscal second quarter, the company opened three Dave & Buster's in Brooklyn, NY, Modesto, CA and Augusta, GA, and one Main Event in Brownsville, TX.

During third-quarter 2022, the company opened three fresh Dave & Buster stores: one in Lynnwood, WA; one in Long Beach, CA; and the other in Bakersfield, CA. During fourth-quarter 2022, the company is planning to open one new Dave & Buster's branded store and two Main Event branded stores.

In an effort to drive organic growth, Dave & Buster's intends to broaden its entertainment offering by including more immersive sports viewing experiences, adding fantasy sports and permitting in-sports betting option.

The company continues to focus on simplifying its store operations, improving the guest experience and enhancing its food and beverage, and entertainment offerings to drive sales and profitability. It has also taken steps to widen its entertainment plans by operating programmed events in selected markets.

Dave & Buster's digital initiatives are likely to drive growth. The company believes that it can drive traffic by enhancing in-store and out-of-store customer experience via digital and mobile strategic initiatives, and deployment of better technology.

Robust comps growth bodes well for the company. During the first five weeks of fourth-quarter fiscal 2022, the company’s comps rose 3.1% from 2021 levels and 9.2% from 2019 levels. During the five-week period, pro-forma combined walk-in comparable store sales fell 2.4% year over year but increased 15.7% from 2019 levels.

Meanwhile, Special Event comparable store sales (on a pro-forma basis) increased 65.3% year over year, but declined 21.7% from 2019 levels.

Shares of the company have increased 14.8% in the past six months, compared with the industry’s growth of 10.2%.

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A challenging macro environment, including inflationary pressures on labor and commodities, continues to affect the company. The company anticipates the headwinds to persist over the next few quarters. The industry players expect to witness higher costs due to labor and supply-chain shortages for quite some time. The company has been witnessing labor challenges in a handful of markets.

At the end of third-quarter fiscal 2022, total operating expenses were $451.1 million, up from $293.5 million reported in the prior-year quarter.

Key Picks

Some better-ranked stocks in the Zacks Retail-Wholesale sector are Wingstop Inc. WING, Tecnoglass Inc. TGLS and Yum China Holdings, Inc. YUMC.

Wingstop currently sports a Zacks Rank #1 (Strong Buy). WING has a long-term earnings growth rate of 12%. Shares of WING have lost 19.6% in the past year. You can see the complete list of today's Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Wingstop’s 2023 sales and EPS suggests growth of 18.4% and 16.1%, respectively, from the year-ago period’s estimated levels.

Tecnoglass currently carries a Zacks Rank #2 (Buy). Shares of the company have gained 27% in the past year.

The Zacks Consensus Estimate for TGLS’ 2023 sales and EPS suggests growth of 11.2% and 9%, respectively, from the year-ago period’s estimated levels.

Yum China currently carries a Zacks Rank #2. YUMC has a long-term earnings growth rate of 11%. Shares of YUMC have gained 17.5% in the past year.

The Zacks Consensus Estimate for Yum China’s 2023 sales and EPS suggests growth of 14.3% and 56.5%, respectively, from the year-ago period’s estimated levels.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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