Dave & Buster's Recovery Gains Momentum
Dave & Buster's (NASDAQ: PLAY) has been on our radar over the past few months as a reopening play with the potential to outpace pre-pandemic revenue before the end of the year. The analysts were expecting big numbers out of the company with the second-quarter report and they were right. We felt there was some upside risk in the outlook and we were also right. Dave & Buster's second quarter was so good the company was able to increase its guidance and put some fear into the bears who've been selling the stock short. According to Market beat data, shares of Dave & Buster's were more than 17% short going into the report and that is a figure we see helping drive the stock back to its recent highs and higher before the end of the year.
Brian Jenkins, Dave & Buster’s Chief Executive Officer, said, “Dave & Buster’s second quarter was clear evidence that the brand is back, posting record revenues and EBITDA with all 142 stores open as of the end of the quarter. The entire team has demonstrated great resilience navigating the pandemic and positioning the Company to achieve new levels of performance.”
Dave & Buster's Raises The Bar For Market Expectations
Dave & Buster's had a truly remarkable quarter in which business not only returned but returned to growth relative to pre-COVID business levels. The company reported $377.64 in consolidated revenue which is good for a gain of 643% over last year. Remember, the comp versus last year was very easy as Dave & Busters, which is an eat-in-only facility, was heavily impacted by the pandemic. The 2 key details in the report are that revenue is an all-time record, it beat the consensus by 530 basis points, and that comp-store sales are up 3.6% versus the same time frame in 2019.
Moving down the report, the company's profitability is equally impressive. The company improved margin To 30.6% of revenue which is not a record but reverses a loss in the prior year, outpaces the 2019 comparison, and helped to drive record EBITDA for the quarter. As for earnings, the company's GAAP earnings of $1.07 are up 20% over 2019 and beat the consensus by $0.50.
Turning to the guidance, the company did not give specific numbers but said that it expects third-quarter results to be comparably strong to the second quarter. What this means is for a low-to-mid single-digit increase in comp-store sales versus 2019 with what the company calls a” significantly high” comparison to EBITDA. this includes the opening of 4 new stores as well.
The Analysts Are Behind The Curve With Dave & Buster's
Data from Pricetargets.com reveals the analysts are behind the curve when it comes to Dave & Buster’s. The most recent shout-out came earlier this month but included a reduced price target as did some other commentary over the past few weeks. This is setting up an additional tailwind for the stock price in the form of upgrades and price target increases because the analysts have been grossly underestimating the rebound. We expect to see vigorous revaluations now that results are out.
The Technical Outlook: Dave & Buster's Is In Reversal
Shares of Dave & Buster's have been in correction over the past few months aided by a very high short interest. The Q2 results were strong enough to get the stock up about 10% in pre-market action confirming a reversal that has been forming over the past couple of weeks. Assuming that support holds above the $38 level, we see this stock moving back up to the $48 level and higher. The current consensus target is just shy of $50 and assumes a 25% upside. We think this stock could get up to the $70 level by the end of the year which is good for almost 100% of upside.
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