Investors who pressed pause on Dave & Buster's (PLAY) following the company's second-quarter earnings release should consider getting back in the game despite disappointing comparable guidance for the rest of the year, according to multiple analyst reports since the report's release earlier this week.
However, the company's soft full-year guidance was enough to give supporter Jim Cramer pause.
"When they talk about putting up too many Dave & Buster's in one area and they talk about the possibility of people not going out as much because of macro factors, that causes a stunning pullback for me," Cramer said in a recent interview. "This is supposed to be a decent economy."
The restaurant entertainment company was able to top Wall Street's top- and bottom-line expectations for the period, but fell more than $2 anyway due to same-store sales growth in the period that was about half of expectations. The company also lowered its full-year same-store sales expectations. That bit of bad news was enough to depress the stock during Wednesday's session, but digging deeper into the report, savvy long-term investors should see the dip as a buying opportunity.
Analysts at Canaccord Genuity reiterated their Buy rating and $52 price target on the company today, citing the company's favorable appeal to millennials, long runway for unit growth, "best-in-class economics," and what it expects to be accelerating comps in the second half of this fiscal year.
The dual nature of Dave & Buster's business model (restaurant and entertainment) may have hurt the company's bottom line as the company's entertainment business rose 3.5% in the quarter while the restaurant business wasn't immune to industry-wide headwinds, falling 2%.
But even in that bit of negative news, the company's restaurant business still contributed more than 30% to the company's profit margin, 1.5% higher than the year-earlier period and ahead of the 28.4% contribution analysts at William Blair were expecting.
Dave & Buster's long-term growth prospects continues to be the most attractive aspect of its story, with the company expecting to more than double its store count to 200 by 2020 from about 82 now.
This year alone the company is on track to increase its number of stores by 12%.
The company's new-store expansion strategy is dictated by a "site-selection process" that takes into account the "location, size and design of our stores based on consumer research and analysis of operating data from sales in our existing stores," the company wrote in its latest 10K report. The process aims to maximize the return on capital investments by choosing the right areas and right venues to house its massive restaurant, bar and game room.
Dave & Buster's tends to open stores in mall areas, and Real Money previously reported that the recent rash of department store closings could prove to be an opportunity for the company to expand its operations.
The outlook on Dave & Buster's has been generally positive in spite of the overall disappointing outlook for the rest of the year, with Jefferies analysts maintaining their Buy rating and $50 price target due in part to its expectations for the new stores that will be opening in the near future.
"New stores continue to show strong performance and with continued marketing, we expect broadening brand awareness to benefit SSS, margins and PLAY's expanding footprint," Jefferies analyst Andy Barish wrote.
Dave & Buster's didn't have the greatest quarter, but there is still a lot to like about the stock. There are opportunities for growth, and as macro headwinds soften towards the holiday season, the company should start to reap the benefits from its continued expansion.