Dave & Buster's (NASDAQ:PLAY) Misses Q1 Revenue Estimates, Stock Drops

Jabin Bastian /
2024/06/12 4:32 pm EDT

Arcade company Dave & Buster’s (NASDAQ:PLAY) fell short of analysts' expectations in Q1 CY2024, with revenue down 1.5% year on year to $588.1 million. It made a non-GAAP profit of $1.12 per share, down from its profit of $1.45 per share in the same quarter last year.

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Dave & Buster's (PLAY) Q1 CY2024 Highlights:

  • Revenue: $588.1 million vs analyst estimates of $615.9 million (4.5% miss)
  • EPS (non-GAAP): $1.12 vs analyst expectations of $1.70 (34.1% miss)
  • Gross Margin (GAAP): 31.1%, down from 34.6% in the same quarter last year
  • Same-Store Sales fell 5.6% year on year
  • (0.9% in the same quarter last year)
  • Market Capitalization: $1.95 billion

"We continue to make material progress advancing our key organic growth initiatives. We have seen meaningful success growing our loyalty database through our new marketing engine, highlighting our enhanced food and beverage offering through compelling promotions, refining our games pricing strategy, driving incremental special events and clear outperformance in our remodel initiative which we expect will lead to substantial improvement in revenue and profitability over the medium term. We also continued to open new stores at highly attractive returns on our investment and have continued to opportunistically return capital to shareholders via our share repurchase program in a highly accretive manner” said Chris Morris, Dave & Buster's Chief Executive Officer.

Founded by a former game parlor and bar operator, Dave & Buster’s (NASDAQ:PLAY) operates a chain of arcades providing immersive entertainment experiences.

Leisure Facilities

Leisure facilities companies often sell experiences rather than tangible products, and in the last decade-plus, consumers have slowly shifted their spending from "things" to "experiences". Leisure facilities seek to benefit but must innovate to do so because of the industry's high competition and capital intensity.

Sales Growth

A company’s long-term performance can indicate its business health. Any business can put up a good quarter or two, but many enduring ones tend to grow for years. Unfortunately, Dave & Buster's 11.1% annualized revenue growth over the last five years was sluggish. This shows it couldn't expand its business in any major way. Dave & Buster's Total Revenue

Long-term growth is the most important, but within consumer discretionary, product cycles are short and revenue can be hit-driven due to rapidly changing trends and consumer preferences. Dave & Buster's annualized revenue growth of 21.4% over the last two years is above its five-year trend, suggesting its demand has recently accelerated. Note that COVID hurt Dave & Buster's business in 2020 and part of 2021, and it bounced back in a big way thereafter.

Dave & Buster's also reports same-store sales, which show how much revenue its established locations generate. Over the last two years, Dave & Buster's same-store sales averaged 4.7% year-on-year growth. Because this number is lower than its revenue growth, we can see the opening of new locations is boosting the company's top-line performance. Dave & Buster's Year-On-Year Same-Store Sales Growth

This quarter, Dave & Buster's missed Wall Street's estimates and reported a rather uninspiring 1.5% year-on-year revenue decline, generating $588.1 million of revenue. Looking ahead, Wall Street expects sales to grow 7% over the next 12 months, an acceleration from this quarter.

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Operating Margin

Dave & Buster's has done a decent job managing its expenses over the last two years. The company has produced an average operating margin of 12.9%, higher than the broader consumer discretionary sector.

Dave & Buster's Operating Margin (GAAP)

This quarter, Dave & Buster's generated an operating profit margin of 14.5%, down 5.8 percentage points year on year. Looking ahead, Wall Street expects Dave & Buster's to become more profitable. Analysts are expecting the company’s trailing 12 month operating margin of 12.3% to rise to 15% in the coming year.

Key Takeaways from Dave & Buster's Q1 Results

We struggled to find many strong positives in these results. Its revenue unfortunately missed and its operating margin fell short of Wall Street's estimates. Management called out "a complex macroeconomic environment and consumer demand curve". Overall, this was a mediocre quarter for Dave & Buster's. The company is down 7.2% on the results and currently trades at $46.77 per share.

Dave & Buster's may have had a tough quarter, but does that actually create an opportunity to invest right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.