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

If there's a company that can use a good financial report here near the end of earnings season, it would have to be Dave & Buster's Entertainment (NASDAQ: PLAY). The big-box eatery and diversions hub is trading 9% lower than it was when it put out poorly received quarterly results  three months ago. The stock has fallen 28% since peaking in early June. If Dave & Buster's wants to become a market darling again -- a shining beacon during the so-called restaurant recession -- it will have to turn heads on Tuesday, when it reports its fiscal third-quarter results.

Analysts are bracing for a mixed report. They see revenue climbing 12% to $259.1 million, a princely increase for most restaurant operators, but it would be the company's weakest top-line growth since going public in 2014. The news should be even worse on the bottom line, where Wall Street pros are targeting a profit of $0.24 a share. Dave & Buster's earned $0.25 a share a year earlier.

Playing to win

Wall Street sees Dave & Buster's posting its first decline in net income since its 2014 return as a public company, but that doesn't mean it will happen. Another thing Dave & Buster's has been able to do in every quarter since its IPO is land well ahead of market expectations on the bottom line.

Quarter EPS EPS
Q3 2014 ($0.06) ($0.09) N/A
Q4 2014 $0.33 $0.28 18%
Q1 2015 $0.46 $0.37 24%
Q2 2015 $0.40 $0.23 74%
Q3 2015 $0.12 $0.03 300%
Q4 2015 $0.53 $0.43 23%
Q1 2016 $0.72 $0.59 22%
Q2 2016 $0.50 $0.44 14%
Q3 2016 $0.25 $0.14 79%
Q4 2016 $0.63 $0.59 7%
Q1 2017 $0.98 $0.81 21%
Q2 2017 $0.71 $0.57 25%

Stretching the impressive streak to 13 quarters of bottom-line beats would result in flat, if not growing, earnings. Even if the company nails Wall Street's top-line target of 12%, it would still mean surprising consistency on that front, as revenue has risen between 12.4% and 20.8% in each of its 12 previous quarters, according to data from S&P Global Market Intelligence.

Wells Fargo lowered its price target on Thursday, taking the firm's goal on Dave & Buster's stock from $71 to $66. Analysts hosing down their numbers ahead of a critical report is typically a bad omen, but even $66 represents 25% of upside for the 100-unit chain.

The real dagger last time out was Dave & Buster's hosing down some elements of its full-year guidance. Dave & Buster's lowered its EBITDA and comps guidance for all of 2017, explaining why analysts are modeling a slight decline in profitability this quarter. There are also concerns about the concept's popularity. Comps rose a mere 1.1% last time out -- expansion was the driver of the fiscal second quarter's -- and that was with gains on the arcade side of its business bailing out a decline at the restaurant level. If Dave & Buster's wants to become a growth-stock darling again, it will have to avoid another downward guidance revision and bounce back into positive territory for its restaurant comps.

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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.