What happened
Shares of entertainment and restaurant chain Dave & Buster's Entertainment (PLAY 3.29%) soared on Wednesday after the company reported record quarterly financial results. As of 11:30 a.m. ET, Dave & Buster's stock was up 24%.
So what
Dave & Buster's, one of the hardest-hit companies during the pandemic, has fully rebounded. During the first quarter of 2023, which ended in April, the company generated record revenue of $597 million, up 32.4% year over year. But adjusting for the revenue of last year's acquisition of Main Event, quarterly revenue was only up about 4%.
NASDAQ: PLAY
Key Data Points
Surprisingly, top-line numbers fell short of Wall Street's expectations even though the stock is up today. Adjusting the numbers again for the acquisition of Main Event, same-store sales fell 4.1%. Typically, the market would react poorly to this.
However, the restaurant chain surprised on the bottom line, and that appears to be making the difference today. In the first quarter, the company earned $1.45 per diluted share, up from $1.35 in the prior-year period. This was also a quarterly record.
Now what
Having fully rebounded, Dave & Buster's is a stock worth researching today, I believe, especially considering it trades at an inexpensive valuation of 14 times its trailing earnings.
There are several reasons to believe earnings could rise. First, Dave & Buster's is growing; the company just signed franchise agreements for India and Australia.
Second, the company earned a healthy profit margin of almost 12% in the quarter, which is quite good for a restaurant stock.
Lastly, it is repurchasing shares. So far this year, it has repurchased almost 12% of its shares outstanding.
From the beginning of 2017 through the end of 2019, Dave & Buster's reduced its share count by over 27%, an impressive three-year run. So we know this was management's playbook prior to the pandemic.
PLAY average diluted shares outstanding (quarterly), data by YCharts.
I expect management to return to its previous playbook now that it's hitting record numbers. And this dynamic can compound quickly for Dave & Buster's shareholders. Therefore, if you haven't looked at this company in a while, now may be an opportune time to revisit it.
