Dave & Buster's 'Disappointing' Comps Still Managed To Outperform The Entire Industry In Q4

Dave & Buster's Entertainment, Inc. PLAY announced its Q4 results, with the EPS ahead of the consensus expectations, while issuing the FY17 EPS guidance at $2.33-$2.43, implying same store sales growth of 2-3 percent.

BMO Capital’s Andrew Strelzik reiterated an Outperform rating on the company, with a price target of $64.

Industry Leading Comp Growth

Although same-store sales came in below the estimate for Q4, the analyst mentioned Dave & Buster's Entertainment’s underlying business momentum continues to be strong.

“Overall comp growth outpaced industry trends by almost 600 basis points, including solid traffic growth despite the calendar shift and lackluster industry backdrop. Moreover, PLAY's earnings potential continues to be underestimated as EBITDA and EPS were stronger than expected despite the slight comp shortfall,” Strelzik stated.

The analyst pointed out that management usually takes a cautious approach to guidance, and the FY2017 guidance appears to be no different.

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Potential for Upside

Strelzik believes there are opportunities for Dave & Buster's to post upside to the comp and margin expectations, given the easing compares, moderating competition headwinds and abating weather headwinds, along with “greater emphasis on upcoming movie tie-ins and proprietary games.”

In fact, the analyst believes the long-term, multi-year investment case for Dave & Buster's is still intact, given the company’s highly differentiated concept and ability to continue to outpace industry trends by incrementally capitalizing on secular growth opportunities via the development of high-return new units.

“We expect greater deployment of free cash flow to share repurchases to add an additional layer to earnings growth over time. In the context of its growth potential, PLAY’s valuation is attractive,” Strelzik added.

Image: Mike Mozart, Flickr