Dave & Buster's stock rides lower pay and food costs to best day since 2020

By Wallace Witkowski

More on margin improvements and ongoing cost initiatives expected at company's investor day next week

Dave & Buster's Entertainment Inc. shares rallied for their best day since 2020 Wednesday, as earnings got a boost from declining pay and lower food costs.

Dave & Buster's (PLAY) shares rallied as much as 26.8% to an intraday high of $42.77, and finished up 18.3% at $39.91 for their best one-day performance since Nov. 9, 2020, when shares soared 33.3%, according to FactSet data. Wednesday's move puts Dave & Buster's shares up 12.6% year to date, compared with an 11.2% gain by the S&P 500 .

Late Tuesday, Dave & Buster's reported an earnings beat along with a revenue miss, and announced share buybacks. Truist Securities analyst Jake Bartlett credited the stronger earnings to cost cuts, including lower costs for wages and food.

"We are encouraged by sustained strong margins as costs decline and operating initiatives bear fruit," Bartlett wrote.

Bartlett said Dave & Buster's is benefiting from "ongoing initiatives, such as improved labor scheduling, and falling costs," noting that average hourly pay was down about 0.5% from the fourth quarter of 2022 and that food costs were down about 3% year over year.

He pointed out that "margin improvements appear sustainable" and that store-level margins of 34.6% beat both his estimate of 29.5% and the 32.6% consensus, "with lower-than-expected labor the largest driver."

Bartlett maintained a buy rating and raised his price target to $63 from $60. He expects same-store sales declines to last through the fourth quarter, but wrote that it would be "a function of lapping a post-COVID surge in demand rather than macro pressure."

In a note Wednesday, he wrote: "The post-COVID surge will be difficult to lap, but underlying demand appears to be holding up despite macro pressures, in our view."

He expects to hear more next week when executives host a presentation for investors.

"We do not expect management to announce any silver bullets to sales growth at [Dave & Buster's] virtual investor day on 6/13, but expect investors to come away more confident in [its] competitive positioning and margin expansion opportunities," Bartlett said.

BMO Capital analyst Andrew Strelzik, who has a buy rating on the stock and hiked his target price to $60, said stronger margins offset softer comparisons, and that he remains "encouraged by potential earnings implications of [Dave & Buster's] evolving strategy and see attractive risk/reward."

Of the nine analysts who cover Dave & Buster's, seven have buy ratings and two have holds, with an average target price of $52.

-Wallace Witkowski

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06-07-23 1742ET

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