It’s Time To PLAY With Dave & Buster’s

Dave & Busters Surpasses 2019 Results, Shares Pop 

After a year of uncertainty, it looks like the Dave & Buster’s Entertainment (NASDAQ: PLAY) recovery is gaining momentum. The company reported revenue total revenue and comps well above the 2019 levels which bring us to an important point. The stock was trading at least 25% above the current levels in 2019 with comp-sales 10% lower and net sales 24% lower. In this light, we can’t help but think the stock is grossly undervalued at these levels and on the way higher. Based on the guidance, we think much higher. 

We haven’t seen any analysts' activity post-release but we know it's coming. Until then, the trend in sentiment is positive and strengthening. Both the Marketbeat.com consensus rating and price target have firmed over the last year and have the stock pegged at a solid Buy. The price target is more than 32% above the current price action and is itself up 25% in the last 12 months. Assuming these trends continue, we see both the sentiment and price target firming over the summer and for the price action to follow suit. 

Dave & Buster’s Has Record Quarter 

Dave & Buster’s had a record-setting quarter and that is really saying something because the company is still experiencing a sharp contraction in event sales. The company reported $451.1 million in net sales for a gain of 70% versus last year and 24% versus 2019. The gains are driven by a 10% increase in comp sales, store count expansion, and acquisition that were offset by a 34% decline in event sales. In regard to the analyst's expectations, the revenue beat by 230 basis points and is accompanied by margin expansion as well. 

The company reported a record EBITDA margin of 31.8% despite the ongoing impact of higher wages and cost inflation. The company’s efforts to operate leaner and more efficiently are paying off and expected to drive bottom-line strength for the remainder of the year. On the bottom line, the company reported $1.35 in GAAP EPS which is up $0.40 YOY, $0.22 versus 2019, and beat the consensus estimate by $0.19. 

The company did not give any formal guidance but did give a very favorable update on the quarter-to-date operation. Management says business trends have strengthened in the first five weeks of the new quarter and driving comps to 12.2%. This is not only good news but evidence of acceleration that we think will continue into the end of the period. 

The Technical Outlook: Short-Covering Begins For Dave & Buster’s 

Dave & Buster’s price action popped in the wake of the results and the guidance but it looks like short-covering to us. The short interest is relatively high at 11.65% which is enough to cause a pop like this and then there is the intraday action to consider. Resistance is present at the $40 level/short-term EMA and it may cap gains in the nearer term. Longer-term, we would expect to see the price action move down to retest for support and find it in the $30 to $35 region. Assuming the market is able to find support, we see this stock moving sideways and possibly higher over the summer. The next major catalyst will be the Q2 results due out in September.