Moving PLAY & SBUX higher on the SHORT list
Is PLAY "on fire?"
PLAY is scheduled to 1Q23 report earnings on 6/7 before the market opens
Dave & Buster's (PLAY) has outperformed the market by falling only 7.2% YTD; much of its decline has come in the past month, down 24% leading up to earnings. While we are bearish on the core Dave & Busters concept, we are very skeptical about the reason for the expensive acquisition of Main Event Entertainment when consumer confidence is weakening. As U.S. consumer spending weakens, the expensive Dave & Buster's/Main Event concepts could be among the first and hardest hit concepts.
On the last earnings call, management set a very positive outlook for the future of the business - the outlook from the 4Q22 earnings call:
"Regarding sales trends, our comp sales for the first eight weeks have been positive 5.4% compared to 2019, our walk-in business is up 9.1% on a quarter-to-date basis, and our special events business is down 42% on a quarter-to-date basis."
"So you can really fully understand that other than the Omicron, this business is on fire and just the beginning of it. We've got so many things that we've talked about on other calls that we're starting to shape to drive demand. So we're excited about where we are today, and we're excited about the prospects for the future."
So, any commentary on sales trends and traffic into locations that do not fit the narrative that the business is "on fire" could serve as crucial data points for investors to watch. The consensus estimates are for a company that is on fire.
- Consensus SSS Estimates: 63% vs 56% last year
- Consensus Revenue Estimates: $441MM vs $265MM last year (+66% YoY)
- Consensus EBITDA Estimates: $120MM vs $72MM% last year (+66% YoY)
- Consensus EPS Estimates: $1.15 vs $0.40 last year (+188% YoY)
For PLAY in FY2023 the street is looking for SSS growth of 23.2%; sales growth of 24.1% and leverage in business model to deliver 44.5% EPS growth.
Moving SBUX higher on the shortlist.
The unionization genie is out of the bottle, and the CEO looks to try to stop it at all costs.
Alleged unfair labor practices at Starbucks are drawing regulatory scrutiny, and the NLRB regional office in Buffalo, New York, has already charged Starbucks with over 200 labor law violations. The company appears to have elevated it's union-busting tactical and is now closing a store. In a Friday filing with the U.S. National Labor Relations Board, the Workers United union accused Starbucks of violating federal labor law by announcing it will permanently close an Ithaca, New York store and alleged it was in retaliation for workers' union activism.
SBUX regularly closes stores so it can hide behind the company's historical practices, but closing a unionized store in a college town after it unionizes has a negative appearance. The company could close all 200 unionized stores representing 1% of the global store base, and it would have a minimal impact on its financials. Although, a move like that would send a very bad message. The broader question and likely more consequential is the long-term impact on the brand! It is hard to imagine a scenario where this ends well for the company. The company recently moved its Investor Day to September in Seattle from December in New York. We will see some new technology, but a significant restructuring is also likely.
Also, on Friday, SBUX announced that it had reopened almost 600 of the 940 stores in China. "We will continue to reopen the rest of our store portfolio. With most of our stores providing mobile ordering only, we are also working with the local authorities to gradually resume indoor dining as soon as possible." For years, the company has been saying that the chain's business in China will eventually be more significant than its business in the U.S. However, the company also acknowledged that it has virtually no ability to predict the performance in China during the back half of this year.
For FY2023 the street is looking for SSS growth of 6.6%; sales growth of 11% and de-leverage in the business model to deliver (-10.7%) EPS growth.
