Dave & Buster’s Stock Has a Lot to Prove on Tuesday — The Motley Fool

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If there’s a company that can use a good financial report here near the end of earnings season, it would have to be Dave & Buster’s Entertainment (NASDAQ:PLAY). The big-box eatery and diversions hub is trading 9% lower than it was when it put out poorly received quarterly results  three months ago. The stock has fallen 28% since peaking in early June. If Dave & Buster’s wants to become a market darling again — a shining beacon during the so-called restaurant recession — it will have to turn heads on Tuesday, when it reports its fiscal third-quarter results. 

Analysts are bracing for a mixed report. They see revenue climbing 12% to $259.1 million, a princely increase for most restaurant operators, but it would be the company’s weakest top-line growth since going public in 2014. The news should be even worse on the bottom line, where Wall Street pros are targeting a profit of $0.24 a share. Dave & Buster’s earned $0.25 a share a year earlier. 

Patrons celebrating at the Dave & Buster's arcade.

Image source: Dave & Buster’s.

Playing to win

Wall Street sees Dave & Buster’s posting its first decline in net income since its 2014 return as a public company, but that doesn’t mean it will happen. Another thing Dave & Buster’s has been able to do in every quarter since its IPO is land well ahead of market expectations on the bottom line. 

Quarter EPS EPS
Estimate
Surprise
Q3 2014 ($0.06) ($0.09) N/A
Q4 2014 $0.33 $0.28 18%
Q1 2015 $0.46 $0.37 24%
Q2 2015 $0.40 $0.23 74%
Q3 2015 $0.12 $0.03 300%
Q4 2015 $0.53 $0.43 23%
Q1 2016 $0.72 $0.59 22%
Q2 2016 $0.50 $0.44 14%
Q3 2016 $0.25 $0.14 79%
Q4 2016 $0.63 $0.59 7%
Q1 2017 $0.98 $0.81 21%
Q2 2017 $0.71 $0.57 25%

Data source: Yahoo! Finance. EPS = earnings per share. 

Stretching the impressive streak to 13 quarters of bottom-line beats would result in flat, if not growing, earnings. Even if the company nails Wall Street’s top-line target of 12%, it would still mean surprising consistency on that front, as revenue has risen between 12.4% and 20.8% in each of its 12 previous quarters, according to data from S&P Global Market Intelligence.

Wells Fargo lowered its price target on Thursday, taking the firm’s goal on Dave & Buster’s stock from $71 to $66. Analysts hosing down their numbers ahead of a critical report is typically a bad omen, but even $66 represents 25% of upside for the 100-unit chain.

The real dagger last time out was Dave & Buster’s hosing down some elements of its full-year guidance. Dave & Buster’s lowered its EBITDA and comps guidance for all of 2017, explaining why analysts are modeling a slight decline in profitability this quarter. There are also concerns about the concept’s popularity. Comps rose a mere 1.1% last time out — expansion was the driver of the fiscal second quarter’s — and that was with gains on the arcade side of its business bailing out a decline at the restaurant level. If Dave & Buster’s wants to become a growth-stock darling again, it will have to avoid another downward guidance revision and bounce back into positive territory for its restaurant comps. 

Rick Munarriz has no position in any of the stocks mentioned. The Motley Fool recommends Dave & Buster’s Entertainment. The Motley Fool has a disclosure policy.

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