Dave & Buster's 1Q Results
The stock was up 18% on the following results - PLAY by the numbers:
- Food SSS slowed from 27.5% to 1.1%
- Beverage SSS slowed from 24% to 3.3%
- Amusement SSS slowed from 17.1% to (-7.0) the highest margin and 34% of revenues in the quarter
- Total Comp slowed from 20% to (-4%) the street was at (-1.5%)
- Sale per operating week slowed faster than SSS at (-7.7%) - New store productivity issues?
- Restaurant level margin only declined by 160bps (cutting labor to manage the numbers?)
- EBIT margin also declined 160bps as G&A was reduced by 100bps (i thought this was a growth company?)
- EBITDA was $170 million up 29% versus total sales of 32%
- The street was "encouraged by strong margins on cost controls and healthy underlying demand" Cutting labor costs when comps are declining suggest further decline in comps and a 1000bps deceleration in sales of the most profitable segment does not suggest a underlying healthy demand.
- The real juice in the quarter was the company buying back $127.4 million in stock, but they burned $90 million to do it. And subsequent to the end of the quarter, repurchased an additional 2.1mm shares at a total cost of $74.5mm, bringing the total purchases to the 5.7mm shares totaling $200mm, representing nearly 12% of the outstanding shares as of the end of FY2022. The company still has $100mm available on our remaining existing share repurchase authorization. Again I thought this was a growth company?
The company stopped guiding to how trends are looking early 2Q23. The street is excited about the analyst day next week and potential new initiative and expect unit remodels/development to act as a key catalyst going forward. That may happen at some point but it will not help slow a further slowdown in sales for the balance of 2023. Revenue growth in 1Q23 was 32.4% in 1Q23 slowing to 4.5% in 2Q23 and declining -4 to -6% in 2H23.
The stock will likely levitate into the analyst day and then follow the business lower in 2H23
QSR & Casual Dining Traffic Trends
For the week ending on 5/29, QSR traffic was down 5.72% YoY, which represents a 121bps improvement from the prior week, while casual dining traffic came in at down 5.59% YoY, representing a 26bps deceleration from the prior week. In the month of May, casual dining traffic was down 5.8% YoY, which is an improvement from being down 7.3% in the prior month. QSR traffic continues to get worse as May traffic was down 5.1%, 200bps worse than the prior month.
The IPO's Keep Coming
Earlier in the week, Fat Brands announced its intentions to pursue an initial public offering of its Twin Peaks business. This comes just a week after the company celebrated the opening of its 100th store. Twin Peaks forecasts that they will open roughly 20 more locations in 2023, which represents 40% unit growth since Fat Brands acquired the concept back in October of 2021 for ~$300M. “Twin Peaks was an exceptional acquisition for us in 2021,” Ken Kuick, Co-CEO and CFO of Fat Brands said in the press release. “Led by veteran CEO Joe Hummel and a seasoned management team, Twin Peaks continues to produce industry-leading average unit volumes, with annual same-store sales increasing by 11.3% in 2022.” Kuick continues by saying, “We believe that creating a separate publicly traded company will provide the best opportunity to further enhance the brand, capitalize on its expansion plans and build upon its position as a leader in the sports lodge dining category”. It is clear now that there is a very small window for these concepts to enter the public markets, and if they don't do it in the coming months, they probably won't get the same valuation in the foreseeable future.
