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Where Dave & Buster’s Stock Could Be Headed in 2018

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Dave & Buster’s stock is headed southbound

On June 5, Dave & Buster’s Entertainment (PLAY) stock fell 19.4% to $44.48 on a YTD (year-to-date) basis. The stock’s price movement was impacted, as the company’s performance is improving slowly despite its implementation of several strategic measures. For the fiscal fourth quarter of 2017, Dave & Buster’s reported a 5.9% decline in comps (comparable store sales).

A 4.2% decline in the amusement category comps negatively impacted the overall comps performance in the holiday quarter. Going ahead, the fiscal 2018 comps are expected to fall in the low- to mid-single digits due to softer trends and stiff competition in the restaurant industry.

Dave & Buster’s lowered its fiscal 2018 revenue guidance. For fiscal 2018, the company expects its revenues to increase $1.20 billion–$1.24 billion, representing 5.0%–9.0% YoY (year-over-year) growth. The company previously projected low double-digit revenue growth.

Dave & Buster’s is also witnessing increasing expenses, which could dent its margins and EPS performance in the near future. For the fiscal fourth quarter of 2017, the company delivered a 16.4% increase in operating costs to $262.5 million.

Its operating costs increased due to higher operating payroll, benefits, and pre-opening costs. We expect its fiscal second-quarter costs to remain high, as most of the company’s store openings occur in the first half of the year. The company expects to open 14–15 stores in fiscal 2018.

YTD movement for peers

In comparison, peers Jack in the Box (JACK) and Darden Restaurants (DRI) are down 15.6% and 7.0%, respectively, on a YTD basis as of June 5. However, Dunkin’ Brands (DNKN) is up 1.0%. Escalating expenses stemming from restaurant operations and stiff competition is subduing the performance of restaurant stocks.

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