For your consideration: PLAY

Investment Analysis Clubs Saul’s Investing Discussions
#1

Folks,

I was planning to carve out some time to put together a full research briefing (ala Neil) on Dave & Buster’s Entertainment (PLAY).

I started tracking this company on my spreadsheet back in the early summer of last year. It was still a rather fresh IPO with about a year or so into fully reported earnings. I had to reverse engineer estimates on revenue and EPS based on what I could gather from their investor briefing.

As such, I didn’t feel it was time to bring it forward to the group. As of December, they now have 2 years of official numbers to go on, and as I said, I was planning to do a formal analysis and write up on it this month, but things in both life and work are keeping me from doing that as of right now.

That said, I will share the basics with you and you can decide on your own if you think it is worthy of your own research. Here goes it:

Dave & Buster’s Entertainment Inc. is an owner and operator of venues in North America that combine dining and entertainment. The Company offers its customers the opportunity to Eat Drink Play and Watch in one location. Eat and Drink is offered through a full menu of Fun American New Gourmet entrees and appetizers and a selection of non-alcoholic and alcoholic beverages. The Company’s Play and Watch offerings provide an assortment of entertainment attractions centered on playing games and watching live sports and other televised events. Dave & Buster’s Entertainment Inc. is headquartered in Dallas, Texas.

EPS by quarter


                        $0.18	
$0.33	$0.16	-$0.06	$0.33
$0.46	$0.40	$0.12

Revenue by quarter


                        $171	
$195	$181	$164	$207
$223	$217	$193

TTM EPS growth = 115%
TTM Rev growth = 18%

P/E = 27

1YPEG = .23

This stock (PLAY) is a play on play for the American consumer (pun intended). It is strictly a US-based enterprise, for now, with locations spread across the country.

https://www.daveandbusters.com/locations

That’s all I have time to report on for now unfortunately, but I welcome comments from you all. I feel strongly about the company and have dipped my toe in during the last turmoil dip.

Best,
–Kevin
Small position in PLAY

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#2

When a company makes little profits, small changes are magnified. If you compare $0.04 to $0.01, it looks like 300% growth in EPS.

So you gotta look at the revenue side and the growth there is only 18%> Okay but not outstanding.

This is a domestic play and it that regard you have to pay some attention to the US transportation stocks that are in bear territory and flash warning signs. UNP (rail company) came out with earnings today and their statements are alarming. They are seeing a serious slowdown in moving input materials and finished goods across America.

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#3

Dovbgood, rather than laying a blanket statement like that I think it is also helpful to look at the reason for the decline. Scanning the full report for an explanation:

Union Pacific Chairman and CEO Lance Fritz said he doesn’t think the economy is nearing a recession, but shipping volume has fallen dramatically, especially in energy products and exports.

Fritz said he expects the economic uncertainty and strong U.S. dollar will continue to affect the railroad’s business this year. Union Pacific expects total volume will be down slightly in 2016.

I appreciate the insight here but I don’t see the transportation industry affecting the American Consumer - not unless we’re talking about serious job cuts across the country as a result. If you told me we were on the brink of an employment crash then that would be relevant.

Thanks,
–Kevin

5 Likes
#4

I prefer DineEquity, Inc, DIN (NYSE) 80.15 up 0.19%. and BWLD up 2.67% ala super bowl consumption. Best seasonality play from 1/25 to 3/1

we have lost two (2) Dave & Buster’s locations in our area. One to Applebees and the other to Stew Leonard’s - which Ripley’s Believe It or Not! deemed “The World’s Largest Dairy”

1 Like
#5

IBD ratings…

…Checklist…Rating
Composite Rating …95 Pass
EPS Rating …99 Pass
RS Rating …85 Pass
Group RS Rating… B- Pass
SMR Rating …A Pass
Acc/Dis Rating …E Fail

Not bad. Most stock will have a bad distribution rating in this crappy market.

The dining part is heavy on sports bar staples such as burgers, sandwiches, wings and nachos, as well as a wide selection of beers and cocktails. The entertainment part includes plenty of sports on big-screen TVs, along with areas devoted to arcade and video games that range from “Pop-A-Shot,” “Pac-Man” and “Skeeball” to “Star Wars” and “Batman.”

Dave & Buster’s isn’t the only restaurant chain that offers food and games on such a wide scale (think Chuck E. Cheese’s). But among publicly traded restaurant companies, Dave & Buster’s is pretty unique…

For one thing, it gets about half its revenue from games and the other half from food and beverages. Most restaurant chains get the vast majority of sales from food and drinks.
…
Dave & Buster’s game revenue includes not only games played in-store, but also those provided on free mobile apps. When customers win tickets on their apps, they can return to a Dave & Buster’s restaurant to redeem them — which usually translates into the selling of more food and drinks.

Second Stream

One obvious advantage of this business model is that Dave & Buster’s has a second income stream that other restaurant chains lack.

“Dave and Buster’s experiential nature inherently creates a differentiated consumer appeal that we believe better insulates the concept against an ever-growing fast-casual threat within the broader restaurant landscape,” William Blair analyst Sharon Zackfia noted in a report.

Higher Margins

Another advantage of getting half your revenue from games is that it kicks your margins higher. Amusement revenue has much lower labor and costs than the food-and-beverage end of the business…

“The company’s sales mix generates above-average store-level profitability relative to casual dining norms, driven by its high-margin amusement business,” Raymond James analyst Brian Vaccaro said.

Earnings came in at 12 cents a share, up from a loss of 6 cents in the previous year and well ahead of consensus Wall Street estimates for 3 cents a share. Third-quarter revenue rose 18% to $192.8 million, also above views. Same-store sales climbed 8.8%, up from an 8.7% gain the previous year.

…

Analysts polled by Thomson Reuters expect Dave & Buster’s to post fiscal-fourth-quarter earnings of 43 cents a share, up from 33 cents the previous year.

Full-year profit is seen rising 86% for fiscal 2015 and another 17% for fiscal 2016.

Dave & Buster’s restaurants are broken down between large- and small-store formats. Large stores are 30,000 to 45,000 square feet. Newer, smaller models range from 25,000 to 30,000 square feet.

The company said it intends to open nine to 10 new stores this year. With 79 locations right now, it still has plenty of room to grow.

“Management expects to maintain a 10% annual unit growth rate and believes it can grow the concept to about 200 units in North America over time,” Vaccaro said.

Meanwhile, look for Dave & Buster’s to venture beyond North America for additional growth. It recently signed a licensing agreement for seven stores in the Middle East.

“We are forging ahead with international development through multi-store licensing,” CEO King said. “We look forward to signing additional agreements across other geographies over time.”

3 Likes
#6

I prefer DineEquity, Inc, DIN (NYSE)

…Checklist…Rating
Composite Rating …70 Fail
EPS Rating …88 Pass
RS Rating …46 Fail
Group RS Rating …B- Pass
SMR Rating …A Pass
Acc/Dis Rating …E Fail

Ratings not nearly as good as PLAY.

#7

Hey Quillnpenn,

I was checking into those store closures in Long Island and could only come up with one.

It seems the reason for the closure in Farmingdale was due to an aggressive move by Stew Leonards:

http://blog.kimcorealty.com/2015/06/bringing-the-farm-to-far…

Stew Leonard’s originally planned to enter the Long Island market 12 years ago, in a proposed shopping center across the street from Airport Plaza. While a lease was signed and site work started, the necessary agreements could not be reached regarding the store’s proximity to Republic Airport and the existing flight paths. As a result, construction was halted. At that time, Stew Leonard’s signed a lease in Airport Plaza to be used as a hiring center for the new store. But the accompanying store was never built, so the empty Airport Plaza space was converted into a Stew Leonard’s Wines* — which has proven to be a popular draw to the center ever since

Kimco purchased Airport Plaza in 2006, and soon began planning for the future of the center. When Dave & Buster’s lease was approaching expiration, we seized that as an opportunity to bring the sought-after Stew Leonard’s to the area. The surrounding community never lost its desire to see a Stew Leonard’s on Long Island, so the grocery chain knew the customer base was there. Preparing for the future, neither Stew Leonard’s nor Kimco wanted to wait for the Dave & Buster’s lease to expire, so a lease was inked two years before Dave & Buster’s lease expiration. The approvals were started, obtained, and held waiting for the day that Dave & Buster’s would vacate.

So this one was not due to demand or popularity issues, but was rather a forced closure.

For the the other closure in Long Island… I just couldn’t find one. Would you be able to share its prior location?

The closest closure I found was in Maryland, and there again it was a desire by the property owner to find a clause in their lease agreement to force an eviction, with the intent of redeveloping the property for a new “mixed use mini-city” concept. Apparently Dave and Busters had a location that was considered too close to the one in White Flint:

http://www.bethesdamagazine.com/Bethesda-Beat/2015/Dave-Bust…

In 2012, as White Flint Mall prepared for its planned redevelopment, it notified Dave & Buster’s that the business was violating a “radius restriction clause” in its lease by operating the Anne Arundel location within close proximity of North Bethesda.

The mall and Dave & Buster’s tried to negotiate a resolution to the dispute, but in October 2013, the mall told Dave & Buster’s to leave its property within a month.

Dave & Buster’s then filed a lawsuit against the mall. After it lost the case in the U.S. District Court of Maryland, it was forced to close and move out last August.

In its appeal to the U.S. Court of Appeals in Richmond, Dave & Buster’s argued that White Flint Mall had knownabout the Anne Arundel County location since it opened in 2006.

At the time, White Flint Mall notified Dave & Buster’s that out of “deference to the longstanding, mutually beneficial relationship between the parties,” the company had “elected not to formally place Dave & Buster’s in default under the Lease” even though “the Arundel Mills situation constitute[d] a significant violation of the Lease.”

Dave & Buster’s attorneys argued the statute of limitations had run out on the mall’s breach of contract claim and that the mall essentially waived the radius restriction clause when it allowed the entertainment chain to continue operating until it wanted to demolish and redevelop the property.

Judge James Wynn Jr. wrote a dissenting opinion in which he said Dave & Buster’s could’ve reasonably assumed the mall had waived the radius restriction clause.

Was this the other location you referred to?

Thanks in advance for your insight.

–Kevin

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#8

Hi Kevin, not sure about up in NY but we had a Dave and Busters close here in Louisville. It didn’t seem to last long and was sitting empty for a while after it closed. May have been a bad location as the shopping center is a bit slow, but close to plenty of potential diners and we have a loads of successful local restaurants.

Just wanted to pass it along as a bit of data. I don’t have any position yet.

Brian

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