Operator of interactive entertainment restaurant Dave & Buster’s Entertainment, Inc. (NASDAQ: PLAY) proves that it is possible to curb both inflationary pressure and falling consumer spending. They’re kind of the last man standing when it comes to stand-alone video game arcades combined with dining.
While cinemas like 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 streaming movies at home, Dave & Busters is a pure experience that can only be had from home.
They have pioneered the concept of huge, bold, booming, bright, action-packed carnival-like video game entertainment with prizes, a sports bar, pool tables, skeeball and a restaurant, all packed into one huge venue the size of the Colosseum. It overwhelms the senses the moment you walk into Dave & Busters like you’re entering another world.
It is the experiential factor that has driven their business back up through pre-pandemic levels. Rather than a pullback during normalization, the pent-up demand has actually cemented a higher baseline proving that consumers will continue to spend on truly experiential entertainment and dining.
A beautiful union
On June 29, 2022, Dave & Buster’s dining and entertainment franchise acquired Dallas, TX-based Main Event Entertainment for $835 million. They expect to generate up to $25 million in cost synergies as the complementary businesses target the entire demographic of customers 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 bring into the restaurants. While Dave & Busters itself caters more to the sports bar and older gaming crowd, Main Event caters to families and younger kids. This makes the association 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, included The Walt Disney Company (NYSE: DIS) , Comcast Corporation (NASDAQ: CMCSA) or Warner Bros Discovery, Inc. (NYSE: WBD) for big releases to draw people to their locations. It’s even worse when they’re competing with the same studios for eyeballs that they’re releasing their movies on streaming even faster now. While the cinema experience can be imitated at home with increasingly cheaper 4K LED TVs and sound bars, Dave & Busters must be experienced from home. It really is an experiential dining concept that has stood the test of time and financial backgrounds.
Descending triangle looms
The weekly candlestick chart on PLAY stock shows gradually lower highs on the bounce to a flat low on the fall. 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 nears its apex, shares will eventually either break through the $30 level and make new 52-week lows or break through the descending trend line.
The 20-period exponential moving average (EMA) has been choppy at $37.46 along with the weekly 50-period MA at $38.59. The weekly stochastic is starting to pull back as selling volume was heavy after the Q3 2022 results. The market structure high (MSH) sell triggers below $36.02 and the market structure low (MSL) buy triggers above $33.26, which also happened to be the support level it returned to during the earnings selloff.
The pullback support areas are located at $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 grow
On December 6, 2022, Dave & Buster’s released its third quarter 2022 fiscal results for the quarter ending October 2022. The company reported earnings per share (EPS) of $0.04 excluding non-recurring items. Revenue rose 51.3% year-over-year (YoY) to $481.21 million, beating consensus analysts’ estimates of $470.78 million. Pro forma comparable sales at Dave & Buster’s and combined main events increased 13.3% on the prior year and 17.5% compared to the same quarter of 2019 before covid.
Dave & Busters is on track to realize its annual cost synergy savings of $25 million after implementing $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 $500 million revolver.
Dave & Buster’s CEO Chris Morris commented, “We are pleased to report strong financial results for the third quarter. We delivered record revenue driven by double-digit comparable sales growth, resulting in record adjusted EBITDA.” He concluded: “The future is incredibly bright for this new organization and I am excited to share our progress with you over the next few years.”
A sneak peek at Q4 2022
As has been its custom lately, Dave & Buster’s provided a sneak peek into the first five weeks of Q4 2022. Comparable store sales for the period increased 3.1% year-over-year and 9.2% compared to 4 .quarter 2019. Proforma comparable combined walk-in store sales decreased (-2.4%) YoY, but were up 15.7% vs. Q4 2019. Proforma Special Events comparable sales increased 65.3% YoY , but fell (-21.7%) compared to Q4 2019.
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