$PLAY Q3 2022 Earnings Report

$PLAY Long

Dave & Buster's is an American restaurant and entertainment business that has more than 140 locations in the United States. The company operates full-service restaurants that also have an arcade component, providing a full family entertainment experience for all ages. Dave & Buster's has provided strong returns YTD, returning 6.74% YTD compared to the S&P 500's return of -12.33%.

Dave & Buster's had been negatively affected by lockdowns due to the pandemic however, in its most recent quarterly results, the company has reported great financial performance with the results being higher than the ones reported in the same period in 2019 before the pandemic. Some of these achievements include: Revenue increased 24.1% from the first quarter of 2019 to a record $451.1 million compared with $265.3 million in the first quarter of 2021 and $363.6 million in the first quarter of 2019 Total comparable sales increased 10.9% compared with the same period in 2019 Net income totaled a record $67.0 million, or $1.35 per diluted share, compared with net income of $19.6 million, or $0.40 per diluted share in the first quarter of 2021 and net income of $42.4 million, or $1.13 per diluted share in the first quarter of 2019. In general, total comparable sales have increased by 11% over the same time frame, which shows that the company has come back to its original long-term growth trajectory. These results should ease any worry related to the long-term decline in the restaurant/entertainment industry as a result of the pandemic.

Looking at these results and how they have managed to recover, I believe that the same thing is going to be true for this quarter. This report is going to be based on the last 3 months which was the summer time. Generally looking back at other stocks that are in the same industry, they record their best quarters in the summertime when everyone is free and go out with their friends and family. Dave and Buster's is a great place for that. It has a restaurant, bar, and arcades which makes it suitable for all demographics whether you want to go out with your friends or family. They reported record revenues that hadn’t been done before last quarter which was around the winter time when people go out the least. Considering inflation, I believe that it has also helped add to their revenue. Many people might say that now that there has been an increase in the cost of food people will be going out less. However, I don't find it to be true with averagely priced restaurants. Most people usually only go to these types of places once a week if not less and it’s their only way of socializing or spending time with family. At the same time, you are paying for the food there which is considered a necessity and not luxury spending. Taking all these to mind, I just can’t imagine a middle-class person or family deciding to eat at home and cut out the socializing simply because there has been an inflation of 8%. In fact, I believe that this number will also greatly help out the restaurant. One reason why companies are posting very high revenues all of the sudden is due to their price increases which in return causes a bigger cash flow. When Dave and Buster first beat their revenue record in winter, the inflation wasn’t even at its peak and it was also low season. Looking at their competition, they recently purchased one of their biggest competitors Main Event around a month ago for $835 Million. Making these types of large purchases during an economic recession wouldn’t make sense at all unless the company both has a very big amount of cash sitting around along with a very strong business plan that will keep the company thriving. The acquisition of Main Event is a good decision as these two are very closely related and they aren’t trying to branch out into a sector they have never been a part of. As also stated by the CEO, “These two brands perfectly complement each other, and their joining puts our company in a strategically unparalleled position for accelerated, profitable growth under the leadership of Chris Morris”. The two companies have a similar focus on food, drinks, and games. But their demographic targets are different as Main Event largely attracts families with young children while Dave & Buster’s attracts young adults. Going back to last quarter, they came out with a report that beat market expectations by 17%. This has generally been a trend for them as over the last two years, they have missed estimates only once.

Another indicator of strong growth and future for a company is its revenue. As pictured on the chart above, they are set on the track and have had profits that weren’t even possible before Covid. Some people might argue and say that just because their revenue is high doesn’t mean that their profits are gonna be high as well.

The picture above shows a dip when inflation first occurred in 2021 however, they have since then recovered from them and gone to what they normally had been at since 2018.

What I’m not comfortable with: Dave and Buster’s is now a very outdated business and people are starting to try out new places for their food. Taking a look at their arcade section, while it was a good idea in the 90s, they aren’t as popular as they used to be considering all the technological advancements. Due to an increase in pricing, many people may also prefer to leave after they had their food instead of staying for longer and also enjoying the arcades. As it's the summer, most people would also rather do outdoor activities instead of staying in a room with no windows and playing with the arcades.

Market Cap: 2.12B P/E Ratio: 13.74 Initial reaction: Long Researched reaction: Long CEO: Time: After close Estimate: +8%

Market Expectations and Reactions

● “Strong history of beating ER, with a strong history of a positive change after. &, Est is higher than same Q last year Est.”- Securities Trader

● “Brian Vaccaro published "PLAY|Expect Solid, In-Line F2Q; Strong QTD Reacceleration..." in his belief that QTD comps have accelerated and that margins should sustain in the near term above 2019/pre-pandemic levels with additional positive commentary on Main Event fundamentals. $PLAY”- Equity Research Company

● “#long #watchlist for #trading on #nyse #nasdaq between $40 and $50: $PLAY $RCL $TECS”- Random Trader

Higher estimates and consistent growth cause traders to long the stock as they are expecting Dave and Busters to have done well this quarter. The purchase of main event also seems to please investors as it claims to have solid fundamentals.

Average Person’s View “Stay away from Dave and Busters on 28th street if you value your health. The kitchen in that place is fucking nasty. I worked there for like a week and not only was there grease and food shit everywhere but nobody washed their hands.”

“I wish Grand Rapids had more “barcades”, instead of D&B D&B is overpriced AND apparently nasty A bar with classic arcade games would be sick"

“D&B in general is not somewhere to go if you actually want to eat. I’ve been to a few across the US and they all seem to be the same. Even the deep fried appetizers are never very good. I only go to play overpriced games and drink overpriced drinks.”

● It seems that the salary is good and workers are fairly pleased with their worker benefits alongside the company structure. The major downside seems to be management and the problems with hiring, managing, and nepotism. I believe it comes down to the fact that most workers here are either students or very uneducated/underqualified which would explain the lack of proper management.

● The racial demographic of workers seems fairly mixed and diverse.

● Road to success seems relatively simple and workers appreciate that, but it does require the sacrifice of time as longer work hours are expected of those who want to climb the ladder.

● Health Benefits and insurance are decent, but not anything extraordinary. They do match 401k’s somewhat which may mean expendable cash, alongside heavy bonuses for their higher ranking management.

● Grassroots level management is hit or miss, depending on location.

● Corporate management is not effective at communicating

● Base salary is $2/h

● A lot of competition for climbing the corporate ladder

Initial Reaction: Short Researched Reaction: Long