Dave & Buster’s Entertainment, Inc. (NASDAQ:PLAY) appears poised for growth thanks to a combination of innovative strategies, digital advancements, and expansion plans. The company’s commitment to revamping its offerings with fresh entertainment options is also promising, though there are concerns regarding high operating costs. Let’s delve into the factors supporting the case for investors to retain this stock.

Key Growth Drivers

1. Menu Innovation: Dave & Buster’s is streamlining its menu offerings, enhancing quality, investing in technology to expedite service, and optimizing its labor model to boost its food and beverage segment. In the fiscal second quarter, the company tested a new hospitality-focused service model, garnering positive feedback. This trial phase led to a low single-digit sales increase, a 170 basis point reduction in food cost of sales, improved labor efficiency, and quicker service. Encouraged by these results, the company aims to launch this new menu and food & beverage strategy across all locations by September 2023.
2. Digitization: The company is banking on its digital initiatives to drive growth by enhancing the customer experience both in-store and beyond. Investments in digital and mobile strategic initiatives and updated store IT infrastructure are expected to result in improved data analytics, better guest engagement, and enhanced customer satisfaction. Dave & Buster’s plans to leverage its growing loyalty database and invest in mobile applications to strengthen customer relationships and boost repeat visits.
3. Expansion: Dave & Buster’s continues to follow a prudent new store-growth strategy in both new and existing markets. During the second quarter of fiscal 2023, the company successfully opened new locations, reporting robust performances. In the current fiscal year, it intends to open 16 new stores, including 11 Dave & Buster’s and 5 Main Event locations, further expanding its footprint.
4. Sales Enhancement Initiatives: The company is actively revamping the layout and appearance of its D&B stores to attract more foot traffic and improve overall productivity. Utilizing technology to engage guests and introducing fresh entertainment options are key components of this strategy. With 12 test remodels already underway and plans for more in the pipeline, Dave & Buster’s aims to roll out the remodel program to all D&B locations in 2024 and beyond based on testing results and financial evaluations.

Concerns 

Despite these growth prospects, Dave & Buster’s stock has experienced a 14% decline in the past three months, underperforming the industry average due to lower walk-in transaction counts and a soft consumer spending environment.

The company has also been grappling with elevated expenses, with other store operating costs in the second quarter of 2023 reaching $169.1 million, compared to $142.5 million in the previous year. This increase is primarily attributed to higher occupancy expenses, utilities, maintenance, security, cleaning services, and marketing costs. Additionally, the extended operating hours of Main Event stores and the impact of new Dave & Buster’s store openings have contributed to rising expenses. Given the uncertain macroeconomic landscape, the company remains cautious about managing these costs moving forward.

Featured Image: Unsplash @ Pablo Arenas

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