Lucky Strike (LUCK)

Entertainment venue operator Lucky Strike (NYSE:LUCK) fell short of the market’s revenue expectations in Q4 CY2025 as sales rose 2.3% year on year to $306.9 million. On the other hand, the company’s outlook for the full year was close to analysts’ estimates with revenue guided to $1.29 billion at the midpoint. Its GAAP loss of $0.11 per share was significantly below analysts’ consensus estimates.

Company Overview

Born from the transformation of traditional bowling alleys into modern entertainment destinations, Lucky Strike (NYSE:LUCK) operates bowling alleys and other entertainment venues with upscale amenities, arcade games, and food and beverage services across North America.

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.

Lucky Strike Entertainment competes with other entertainment venue operators like Dave & Buster's (NASDAQ:PLAY), Main Event Entertainment (owned by Dave & Buster's), Round One Entertainment, and regional family entertainment centers that combine dining, games, and activities.

Reviewing a company’s long-term sales performance reveals insights into its quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Over the last five years, Lucky Strike grew its sales at a solid 46.1% compounded annual growth rate. Its growth beat the average consumer discretionary company and shows its offerings resonate with customers.

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. Lucky Strike’s recent performance shows its demand has slowed as its annualized revenue growth of 6.8% over the last two years was below its five-year trend. Note that COVID hurt Lucky Strike’s business in 2020 and part of 2021, and it bounced back in a big way thereafter.

We can better understand the company’s revenue dynamics by analyzing its same-store sales, which show how much revenue its established locations generate. Over the last two years, Lucky Strike’s same-store sales were flat. 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.

This quarter, Lucky Strike’s revenue grew by 2.3% year on year to $306.9 million, falling short of Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 6.2% over the next 12 months, similar to its two-year rate. This projection is underwhelming and suggests its newer products and services will not lead to better top-line performance yet.

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

Lucky Strike’s operating margin has been trending up over the last 12 months and averaged 9.7% over the last two years. The company’s higher efficiency is a breath of fresh air, but its suboptimal cost structure means it still sports inadequate profitability for a consumer discretionary business.

In Q4, Lucky Strike generated an operating margin profit margin of 10.9%, down 4.8 percentage points year on year. This contraction shows it was less efficient because its expenses grew faster than its revenue.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Although Lucky Strike’s full-year earnings are still negative, it reduced its losses and improved its EPS by 44.8% annually over the last five years. The next few quarters will be critical for assessing its long-term profitability.

In Q4, Lucky Strike reported EPS of negative $0.11, down from $0.16 in the same quarter last year. This print missed analysts’ estimates. Over the next 12 months, Wall Street is optimistic. Analysts forecast Lucky Strike’s full-year EPS of negative $0.80 will flip to positive $0.17.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

Lucky Strike broke even from a free cash flow perspective over the last two years, giving the company limited opportunities to return capital to shareholders.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Lucky Strike historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 13.1%, somewhat low compared to the best consumer discretionary companies that consistently pump out 25%+.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, Lucky Strike’s ROIC has unfortunately decreased. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.

As long-term investors, the risk we care about most is the permanent loss of capital, which can happen when a company goes bankrupt or raises money from a disadvantaged position. This is separate from short-term stock price volatility, something we are much less bothered by.

Lucky Strike’s $2.80 billion of debt exceeds the $95.91 million of cash on its balance sheet. Furthermore, its 8× net-debt-to-EBITDA ratio (based on its EBITDA of $356.1 million over the last 12 months) shows the company is overleveraged.

At this level of debt, incremental borrowing becomes increasingly expensive and credit agencies could downgrade the company’s rating if profitability falls. Lucky Strike could also be backed into a corner if the market turns unexpectedly – a situation we seek to avoid as investors in high-quality companies.

We hope Lucky Strike can improve its balance sheet and remain cautious until it increases its profitability or pays down its debt.

It was encouraging to see Lucky Strike’s full-year EBITDA guidance beat analysts’ expectations. On the other hand, its EPS missed and its EBITDA fell short of Wall Street’s estimates. Overall, this was a weaker quarter. The stock traded down 4.9% to $6.98 immediately after reporting.

Updated: February 4, 2026 at 10:09 PM EST

Before making an investment decision, investors should account for Lucky Strike’s business fundamentals and valuation in addition to what happened in the latest quarter.

We cheer for all companies serving everyday consumers, but in the case of Lucky Strike, we’ll be cheering from the sidelines. Although its revenue growth was solid over the last five years, it’s expected to deteriorate over the next 12 months and its same-store sales performance has disappointed. And while the company’s projected EPS for the next year implies the company’s fundamentals will improve, the downside is its relatively low ROIC suggests management has struggled to find compelling investment opportunities.

Lucky Strike’s P/E ratio based on the next 12 months is 30.9x. This valuation is reasonable, but the company’s shaky fundamentals present too much downside risk. There are more exciting stocks to buy at the moment.

Wall Street analysts have a consensus one-year price target of $13.05 on the company (compared to the current share price of $7.02).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.