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Entertainment and dining purveyor Dave & Buster’s Entertainment (NASDAQ: PLAY) reported better-than-expected quarterly results on Tuesday after the market close. Investors responded very favorably to Dave & Buster’s earnings, sending the stock up as much as 11% in early trading Wednesday.
It’s been a spectacular year for Dave & Buster’s. Even before its quarterly earnings, the stock had been up 36% year-to-date.
Here are the reasons why Dave & Buster’s is pressing the play button on fantastic returns for its investors.
Classic Beat-and-Raise
In all, Dave & Buster’s reported $0.29 per diluted share in earnings on $217 million of revenue. Analysts polled by FactSet expected the company to register just $0.23 per share of profit on $204 million of expected revenue.
Dave & Buster’s earnings easily topped analyst projections and posted strong growth for the quarter. Year-over-year, revenue jumped 20%. Comparable-store sales, which measures sales at restaurants open at least one year, was up 11% in the quarter. Dave & Buster’s $12 million profit last quarter completely reversed the $13.9 million loss registered in the same quarter last year.
Not only did Dave & Buster’s post an excellent performance last quarter, but the company also raised its full-year guidance along with its quarterly report. The company now expects $844 million to $853 million in revenue this year, versus prior expectations of $822 million to $831 million in revenue. Comparable-store sales are expected to grow 6.5% to 7.5%, well above the previous forecast for just 4% to 5% growth.
As a result, it’s easy to see why investors so enthusiastically bid up Dave & Buster’s stock price after the company beat revenue and earnings forecasts for last quarter, then raised its forecast for the remainder of the year.
Aggressive Store Openings
Dave & Buster’s has carved out a strong niche for itself, as it caters to consumers both young and old with its combination of fun games and entertainment, along with high-quality dining and sports viewing.
Because of its excellent growth rates, it’s clear the Dave & Buster’s brand is resonating with consumers. Not surprisingly, management plans to aggressively open new restaurants to keep growing. Dave & Buster’s has already opened five new restaurants this year, and expects to open eight to nine new restaurants for 2015.
Longer term, management has even bigger expectations. The company believes it can eventually open more than 200 locations just in North America. That would represent approximately 10% annual growth in the company’s store base. And, Dave & Buster’s has plans to branch out into international markets in coming years.
To be sure, Dave & Buster’s stock isn’t cheap. Shares trade for nearly 30 times forward earnings estimates, a valuation multiple that is much richer than the market as a whole. But the trade-off is that this company is growing at very high rates, and if its growth continues, it can easily justify its current seemingly lofty valuation.
As the saying goes, premium companies command premium valuations, and that seems to perfectly fit Dave & Buster’s.
5 times more profitable than Apple
On Wednesday, September 9th Apple CEO Tim Cook will reveal the iPhone 6S to world audiences. While Apple’s latest creation stands to be a big boon for shareholders, lost among all the commotion is this: There’s another stock set to soar even higher once the iPhone 6S is unveiled. In fact, every new iPhone release has seen this stock soar to the stars — as much as 200% in 8 months.