Dave & Buster's (PLAY +1%) looks to break free from its extended downward trend after a notable beat on its Q2 bottom line. Despite revenue growth missing expectations due to weak same-store sales, the restaurant and entertainment chain registered several positive developments, hinting at a potential comeback.
Since April, PLAY shares have plummeted over 50% ahead of Q2 results. The company faced declining foot traffic due to price hikes in food, beverages, and games amidst persistent inflation. However, management believes that enhancements in locations, remodeled interiors, and revamped menu items and games will positively influence consumer response to higher prices.
- PLAY's Q2 comps of -6.3% were disappointing but don't fully capture the early success of its initiatives. Forward bookings for FY25 (Jan) are significantly higher than last year. Adjusted EPS of $1.12 showed notable improvement from the previous year, supported by expanding adjusted EBITDA margins due to updated pricing.
- In August, PLAY rolled out the next phase of its new menu focusing on beverages and special events. Previous new menu items have been well-received, as evidenced by improving food and beverage performance and satisfaction scores.
- Loyalty membership is expanding, with a 25% increase in active members year-over-year. Loyalty guests visit 2.5 times more often and spend 15% more per visit compared to non-loyalty members. PLAY plans to deploy a similar loyalty program for Main Event, which it acquired in 2022, with a launch expected in early 2025. The company is also evaluating partnerships to boost traffic and sales trends later this year.
- PLAY anticipates that its store models, menu refreshes, and pricing will drive growth in comps, revenues, and margins in the coming quarters. However, due to the dynamic economic environment, the company is cautious about pricing strategies.
With forward bookings for the latter half of the year trending significantly higher year-over-year, PLAY's strategic actions are starting to pay off. The company is also expanding internationally, planning to open 4-5 stores outside the U.S. in the next 12 months, with the first opening by year's end.
Despite these positive signs, uncertainty remains, especially given the volatile economic backdrop. While Q2 trends are promising, indicating potential improvement in comps over the coming quarters, it may be prudent to wait and see.
