Operator of an interactive entertainment restaurant Dave & Buster’s Entertainment, Inc. (NASDAQ:PLAY) proves that it is possible to mitigate both inflationary pressures and declining consumer spending. They are, in a sense, the last man standing when it comes to standalone video game arcades coupled with dining.
While cinemas please AMC Entertainment Holdings, Inc. (NYSE:AMC), Cinemark Holdings, Inc. (NYSE:CNK) and Cineworld Group plc (OTCMKTS: CNNWF) Struggling to return to pre-pandemic levels due to the migration to home movie streaming, Dave & Busters is purely an experience that can only be had away from home.
They pioneered the concept of huge, bold, blaring, bright, action-packed carnival-like video game entertainment with prizes, a sports bar, pool tables, skeeball, and a restaurant, all packed into one massive coliseum-sized venue. It overwhelms the senses the moment you step into Dave & Buster’s like entering another world.
It’s the experience factor that propelled their business back up through pre-pandemic levels. Rather than a pullback during normalization, pent-up demand has actually cemented a higher baseline, proving that consumers will still spend on truly experiential entertainment and dining.
A beautiful union
On June 29, 2022, Dave & Busters acquired the food and entertainment franchise Main Event Entertainment, based in Dallas, TX, for $835 million. They expect to generate up to $25 million in cost synergies as the complementary businesses target the entire customer demographic, from children to Gen-Xers. Dave & Busters has been around for over 40 years and understands the concept of generational customers.
The Gen-Xers who grew up with them now have children they can take to the restaurants. While Dave & Busters caters more to the sports bar and older gaming crowd, Main Event caters to families and younger kids. This makes the union between Dave & Busters and Main Event a logical and synergistic match-up.
Unlike movie theater chains, Dave & Busters does not rely on third-party content providers, such as movie studios The Walt Disney Company (NYSE: DIS) , Comcast Corporation (NASDAQ: CMCSA) or Warner Bros. Discovery, Inc. (NYSE:WBD) for major releases to lure people to their venues. It’s even worse when they’re competing with the same studios for eyeballs as they’re now releasing their movies on streaming even faster. While the movie theater experience can be recreated at home with increasingly affordable 4K LED televisions and soundbars, Dave & Busters must be experienced outdoors. It is truly an experiential dining concept that has stood the test of time and economic backgrounds.
Descending Triangle Looms
The weekly candlestick chart on PLAY stock shows progressively lower highs on bounces against a flat low on declines. This sets up a descending triangle where the lower highs are the unstoppable force versus the immovable object of the flat lows near the $30.50 baseline. As the range approaches the apex, stocks will eventually either break through the $30 level, creating new 52-week lows, or break through the descending trendline.
The 20-period exponential moving average (EMA) was choppy at $37.46, along with the weekly 50-period MA at $38.59. The weekly stochastic is starting to move down again as sales volume was strong following the release of the Q3 2022 figures. The market structure high (MSH) sells triggers below $36.02 and the market structure low (MSL) buys triggers above $33.26, which also happened to be the support level it bounced off of during the earnings sell-off.
Pullback support areas sit at the $33.26 weekly MSL trigger, $30.92 triangle support, $29.60 swing low, $28.05, $25.52 and $23.96.
Record sales and cost savings are growing
On December 6, 2022, Dave & Buster’s announced third quarter results for fiscal 2022 for the quarter ended October 2022. The company reported earnings per share (EPS) of $0.04 excluding one-time items. Revenue increased 51.3% year-over-year (YoY) to $481.21 million, beating analyst consensus estimates at $470.78 million. Pro forma comparable sales at Dave & Buster’s and combined Main Event locations were up 13.3% year over year and 17.5% compared to the same quarter of 2019 pre-covid.
Dave & Busters is on track to realize its annual cost savings of $25 million, having already implemented $17 million to date. The company opened 3 new locations in California. The company ended the quarter with $599.3 million in liquidity, including $108.2 million in cash and $491.1 million in a $500 million revolver.
Chris Morris, CEO of Dave & Buster, commented: “We are pleased to report strong financial results for the third quarter. We achieved record revenue driven by double-digit comparable store sales growth, resulting in record Adjusted EBITDA.” He concluded: “The future looks incredibly bright for this new organization and I am excited to share with you our progress in the years to come.”
A preview of Q4 2022
As has been customary of late, Dave & Buster’s previewed the first five weeks of Q4 2022. Comparable store sales during the period were up 3.1% year-over-year and 9.2% from Q4 2019. Pro forma comparable combined walk-in store sales were down (-2.4%) year-over-year, but were 15.7% higher than Q4 2019. Comparable store sales from pro forma special events increased 65.3% year-over-year , but decreased (-21.7%) compared to the fourth quarter of 2019.
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