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Expansion Efforts Aid Dave & Buster's (PLAY) Despite Cost Woes

Dave & Buster's Entertainment, Inc. PLAY is benefiting from organic growth initiatives, expansion efforts, digitalization and amusement strategy. However, inflationary pressures continue to hurt the company’s performance.

Let’s delve deeper.

Growth Drivers

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

PLAY is also focusing on 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.

Management stated plans to boost its entertainment offerings with the introduction of new games. Mobile web adoption has been extremely strong, significantly exceeding the company’s expectations.

In an effort to drive traffic, Dave & Buster's is focusing on enhancing in-store and out-of-store customer experience via digital and mobile strategic initiatives, and deployment of better technology.  It intends to leverage its growing loyalty database and continue to invest in other mobile applications to build customer connections and drive frequent customer visitation.

The Zacks Rank #3 (Hold) company continues to pursue a disciplined new store growth strategy in both new and existing markets, given the broad appeal of its brand. Management believes that it can grow the concept to more than 200 units in North America over time.

In addition to the growth potential that exists in North America, management is optimistic regarding the brand’s significant appeal in certain international markets. In September 2022, it signed an international franchise partnership to expand Dave & Buster's brand to locations in the Kingdom of Saudi Arabia, the United Arab Emirates and Egypt.

 

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

 

Concerns

A challenging macro environment, including inflationary pressures on labor and commodities, continue to impact PLAY negatively. Management anticipates these 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 fourth-quarter fiscal 2022, total operating expenses were $486.5 million, up from $296.6 million reported in the prior-year quarter.

Shares of PLAY have declined 13.2% in the past six months against the industry’s growth of 4.8%.

Key Picks

Some better-ranked stocks in the Zacks Retail-Wholesale sector are Chipotle Mexican Grill, Inc. CMG, Arcos Dorados Holdings Inc. ARCO and Chuy's Holdings, Inc. CHUY.

Chipotle currently sports a Zacks Rank #1 (Strong Buy). CMG has a long-term earnings growth rate of 31.8%. The stock has improved 59.3% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.

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The Zacks Consensus Estimate for Chipotle’s 2024 sales and EPS suggests growth of 12.4% and 19.6%, respectively, from the year-ago period’s reported levels.

Arcos Dorados carries a Zacks Rank #2 (Buy) at present. ARCO has a long-term earnings growth rate of 9.5%. The stock has gained 16.9% in the past year.

The Zacks Consensus Estimate for Arcos Dorados’ 2023 sales and EPS suggests rises of 13.4% and 4.4%, respectively, from the year-ago period’s reported levels.

Chuy’s Holdings currently carries a Zacks Rank #2. CHUY has a trailing four-quarter earnings surprise of 23.4%, on average. Shares of CHUY have gained 78.8% in the past year.

The Zacks Consensus Estimate for Chuy’s Holdings’ 2023 sales and EPS suggests improvements of 9.9% and 24.8%, respectively, from the year-ago period’s reported levels.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Chipotle Mexican Grill, Inc. (CMG) : Free Stock Analysis Report

Chuy's Holdings, Inc. (CHUY) : Free Stock Analysis Report

Arcos Dorados Holdings Inc. (ARCO) : Free Stock Analysis Report

Dave & Buster's Entertainment, Inc. (PLAY) : Free Stock Analysis Report

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Zacks Investment Research