Dave & Buster's Stock Has a Lot to Prove on Friday

Dave & Buster's Entertainment (NASDAQ: PLAY) has been on a roll in recent months. Shares of the "eatertainment" restaurant operator have soared 52% since bottoming out in April. Investors are feeling pretty good about their positions in the stock, and understandably so, but they may also want to circle Sept. 14 on the calendar.

Dave & Buster's reports its fiscal second-quarter results on Friday morning, and with the recent buoyancy in the stock, it's fair to say that expectations are high for the chain that combines a high-tech gaming arcade with a casual dining restaurant, sports bar, and corporate event rooms. The monster rally in the stock since its springtime low is going to need a blowout financial report this week if it wants to keep going.

It's time to play

Analysts are holding out for modest top-line growth in Friday's report. They see revenue rising 12% to $315.3 million, fueled more by expansion than unit-level sales growth. Dave & Buster's is working on its fourth year of gradually decelerating revenue growth.

Despite the scintillating stock gains over the past five months, Dave & Buster's isn't at its best. Comps have been negative for three consecutive quarters, and its own guidance three months ago was calling for a decline in same-store sales for the entire fiscal year. Profitability is also going the wrong way. Net income barely inched higher in the fiscal first quarter, and things are expected to only get more challenging this time around. Wall Street also sees earnings per share declining slightly, down to $0.67 from $0.71 a year earlier. The silver lining, here, is that Dave & Buster's has consistently trounced Wall Street's profit targets in the past.

Quarter EPS (Estimate) EPS (Actual) Surprise
Q2 2017 $0.57 $0.71 25%
Q3 2017 $0.24 $0.29 21%
Q4 2017 $0.60 $0.61 2%
Q1 2018 $0.93 $1.04 12%

Dave & Buster's should be thriving in this perky economy, as young adults with disposable income flock to its big-box havens offering one-stop dining and gaming entertainment. The high-margin amusements side of its business has typically held up during brief lulls on the casual dining front, but the weakness has been lingering now. Dave & Buster's needs heavy traffic volume to make the most of its high-margin arcade, and now investors are waiting for either menu updates or recently introduced virtual reality gaming experiences to woo customers.

An interesting wrinkle in Friday's report is that it will be the first under its new CEO. CFO Brian Jenkins took the helm from the retiring Stephen M. King this summer. It's an internal hire, so Jenkins isn't likely to offer a radical turnaround strategy, but investors will naturally be tuning in to see if there is any shift in the chain's strategy. There are some big gains for Dave & Buster's to justify, but the first whiffs of a legitimate turnaround could earn those upticks and then some.

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Rick Munarriz has no position in any of the stocks mentioned. The Motley Fool recommends Dave & Buster's Entertainment. The Motley Fool has a disclosure policy.