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Dave & Buster's (PLAY) Rides on Robust Entertainment Business

Zacks Equity Research
·4-min read

Dave & Buster's Entertainment, Inc. PLAY benefits from robust entertainment offerings, sales-building initiatives and robust digitalization. However, high costs and a weak Special Events business are hurting its performance. Let’s delve deeper.

Growth Drivers

In an effort to drive organic growth, Dave & Buster's intends to broaden its entertainment offerings by including more immersive sports viewing experiences, adding fantasy sports and permitting in-sports betting options. The company plans to explore sports betting partnerships to bring sports racing and daily fantasy sports to Dave & Buster's stores, subject to regulatory permissions.

It is also working on an entertainment programming function focused on creating compelling content-based events to broaden its reach and boost visit frequency. Thus, with the help of a centralized programming team, Dave & Buster's intends to enhance the live sports experience instead of becoming a premier sports-watching destination. The company also stated that it intends to give its stores a fresh look to drive organic growth.

Dave & Buster's, which shares space with Cracker Barrel Old Country Store, Inc. CBRL, Darden Restaurants, Inc. DRI and Restaurant Brands International Inc. QSR, continues to focus on simplifying its store operations, improving guest experience, and enhancing its food and beverage and entertainment offerings to drive sales and profitability. It has also taken steps to widen its entertainment plans by operating programmed events in select markets.

Meanwhile, the company continues to evolve its amusement strategy on the back of new and riveting content, including games based on some of the world’s finest movie properties. In this regard, Dave & Buster’s continues to collaborate with various game manufacturing partners and remains steadfast on its strategy of including proprietary content exclusive to the company forever.

Dave & Buster's digital initiatives are likely to drive growth. The company believes that it can drive traffic by enhancing in-store and out-of-store customer experience via digital and mobile strategic initiatives, and the deployment of better technology. The company thus intends to leverage its growing loyalty database and continue investing in other mobile applications to build customer connections and drive frequent customer visitation.

Concerns

A challenging macro environment, including inflationary pressures on labor and commodities, continues to hurt the company. The company anticipates the headwinds to persist over the next few quarters. The industry players expect to witness higher costs due to labor and supply chain shortages for quite some time.

The company has been witnessing labor challenges in a handful of markets. At the end of second-quarter fiscal 2022, total operating expenses were $411.9 million, up from the $298.5 million reported in the prior-year quarter.

On the other hand, the company continues to report softness in the Special Events business. During the fiscal second quarter, Special Events comparable store sales decreased 23.1% compared with the same period in 2019. During the first five weeks of third-quarter fiscal 2022, the company’s comps rose 22.1% from the 2019 level. Walk-in comparable store sales rose 24.7%, while Special Events comparable store sales declined 4.2% in the five weeks compared with 2019.

A Brief Review of the Other Stocks

Cracker Barrel: The company has been benefiting from menu innovation, marketing strategies, seasonal promotions and cost-cutting efforts. Increased focus on the off-premise business model also bodes well.

For fiscal 2022, Cracker Barrel plans to drive off-premise sales through awareness building, advertising and partnerships with third-party delivery companies. Further, it expects to attract new customers and drive sustained growth in its off-premise business through its virtual brand, Chicken and Biscuits.

Darden: The company is gaining from business model enhancements and menu simplifications. This and a focus on technological enhancements in online ordering, the introduction of To Go capacity management, and Curbside I'm Here notification bode well. Even though capacity restrictions continue to ease, off-premise sales remained strong during first-quarter fiscal 2023. In first-quarter fiscal 2023, off-premise sales contributed more than 24% to total sales at Olive Garden, 14% at LongHorn and 13% at Cheddar's Scratch Kitchen.

Restaurant Brands: The company has been benefiting from a rise in comparable sales and unit growth (across its segments), and a growing loyalty and e-commerce platform. Focus on menu innovation also bodes well. Going forward, the company emphasizes streamlining its products and simplifying its menu boards to boost order accuracy and overall customer satisfaction.


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Cracker Barrel Old Country Store, Inc. (CBRL) : Free Stock Analysis Report
 
Darden Restaurants, Inc. (DRI) : Free Stock Analysis Report
 
Restaurant Brands International Inc. (QSR) : Free Stock Analysis Report
 
Dave & Buster's Entertainment, Inc. (PLAY) : Free Stock Analysis Report
 
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