Analyst Says Dave & Buster's On Weakness: Best-In-Class Company Could Continue To Outperform The Industry

Dave & Buster’s Entertainment, Inc. (NASDAQ: PLAY) fell sharply Wednesday following a fourth quarter results that saw disappointing comp, despite outperforming the entire industry. Earnings came ahead of consensus estimates, and same-store sales grew 3.2 percent, just short of the streets 3.7 percent target.

Following the release, Canaccord Genuity maintained a Buy rating and $67 price target on the company, saying the comp shortfall was mostly due to an unfavorable Q4 calendar shift. Dave & Buster’s did deliver a solid Q4 despite high expectations, with new unit performance remaining strong.

“We would be buyers on the weakness given best-in-class unit economics, double-digit annual unit growth, and our belief that SSS will continue to outperform the industry,” analyst Lynne Collier said.

Dave & Busters managed to outperform the Knapp-Track casual dining benchmark by 600 basis points. The company’s class of 2015 stores have been performing exceptionally well, with 52 percent cash-on-cash return in their first year of operation, but a honeymoon effect tends to have a significant effect on new Dave & Busters locations. Volumes tend to drop 10-20 percent in year two.

The firm trimmed 2017 EPS estimates slightly to $2.40, from $2.42, due to lower restaurant margins and higher deprecation, while maintaining 2018 EPS estimate of $2.72, representing a 13.3 percent growth rate.

Dave and Busters shares dropped 3.3 percent to close at $60.09.

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