Dave & Buster's Earnings Dilemma: Navigating Through Rough Waters or Sinking Ship
In summary, Dave & Buster's is facing a challenging period, with market expectations set low for the upcoming earnings AMC, which could lead to some short covering. The company's strategies, particularly around share repurchases and capital expenditure, alongside management's efforts to revitalize the business, will be key focus areas for investors and analysts. The broader context of the lowing industry sales and consumer spending trends might also significantly shape the company's future guidance, but this is unlikely. The 4Q numbers look unrealistic, with a (-5.9%) decline in SSS in 4Q24; the street has 4Q24 EPS of 1.08, up 34% on top of 53.8% in 4Q23.
- Earnings and Revenue Estimates: The 3Q23 FactSet EPS Estimate of -0.15 and Revenue Estimate of 472M, with a (-1.6%) year-over-year decline, indicate that analysts expect a weaker performance. The downward revisions in both EPS and revenue estimates over the last three months further underscore this sentiment.
- Same-Store Sales (SSS) Estimates: The 3Q23 SSS estimate of -8.9% shows a 320bps improvement in 2-year trends but still represents a significant decline YoY. This could reflect ongoing challenges driving foot traffic and sales efficiency and how the revitalization strategy is not working.
- Previous Quarter Performance: The stock decline following the last quarter's results, driven by a sales shortfall and downgrades, highlights investor sensitivity to PLAY's performance metrics. The narrow beat in EPS but a miss in revenue, along with weaker-than-expected comparable sales, likely contributed to the negative sentiment.
- Management and Strategy Concerns: We see management's revitalization is underwhelming and suggests skepticism about the company's ability to navigate current challenges effectively. This street is more bullish than me on this point.
- Share Repurchases and Capital Expenditure (Capex): Dave & Buster's decision to buy back 200M of stock and spend 255 million in Capex in 2023 is notable. Share repurchases can be a sign of confidence from management in the company or just a way to prop up the stock's value by reducing the number of shares outstanding. However, this strategy might be questioned in the context of current performance challenges. The company also has an aggressive growth algo, but the share repo raises questions about allocating cash resources, especially when revenue and earnings are under pressure.
- Risk/Reward Balance: The declining profitability and near-term challenges do not give investors a favorable risk/reward balance. This could be due to the combination of declining sales, skeptical market sentiment, and concerns about the effectiveness of management strategies.
Breaking Bread: A Crusty Chronicle of Boulangerie Adventures
In the intricate tapestry of the 2023 IPO calendar, Panera Brands Inc., a conglomerate that encompasses the likes of Panera Bread, Einstein Bros. Bagels, and Caribou Coffee, stands on the cusp of a pivotal transformation. Whispers in the financial corridors suggest this titan is inching towards its much-anticipated initial public offering (IPO). Diving into the depths of this development, the Financial Times has unveiled that Panera has initiated the IPO process under the cloak of confidentiality. This stride is monumental, especially when one recalls the aborted leap in 2021—a dance with a special purpose acquisition company (SPAC) led by the renowned Danny Meyer, which stumbled amidst the capricious tides of the market.
The narrative of Panera Bread, since its acquisition by JAB in 2017, is akin to a chess game played by grandmasters. The strategic maneuvers include reshuffling the leadership deck, with Mike Tattersfield and Paul Carbone stepping into roles pivotal for the IPO odyssey. The company, a restaurant behemoth with its tentacles spread across approximately 3,800 locations, boasted 4.8 billion in revenue in 2022. Its ambition to re-embrace the public market is not just a solitary dream; it echoes the successful IPOs of culinary comrades like Cava Group Inc. and GEN Korean BBQ.
Budget Bites: How Low Prices are Reshaping the Convenience Store Craze
As the economic landscape shifts, consumers' dining habits are evolving in tandem. The persistent high prices have nudged diners to recalibrate their frequency of restaurant visits, steering them towards more wallet-friendly alternatives. Amidst this financial tightrope walk, as Reported in Restaurant Business, Donna Hood Crecca of Technomic illuminates a fascinating trend: the enduring allure of food beyond the confines of home kitchens. This scenario unfurls a golden opportunity for convenience stores (c-stores) to swoop in and claim a larger slice of the market pie, traditionally dominated by restaurants.
The data from Technomic paints a telling picture: while a significant 54% of consumers are trimming down their restaurant outings, a mere 30% are curtailing their C-store culinary escapades. This resilience of C-stores in the face of economic headwinds can be attributed to their compelling value proposition, particularly in the realms of beverages and food items. Such offerings continue to keep the consumer engagement meter ticking robustly.
The food quality at convenience stores (c-stores) has evolved significantly over the years. Traditionally, c-stores were not known for high-quality food offerings, often associated with pre-packaged snacks, fast food, and limited fresh options. However, this perception has changed, especially with the growing consumer demand for healthier, fresher, and more diverse food options:
- Improved Freshness and Health Options: Many C-stores have started offering fresh food items, including fruits, salads, and sandwiches made daily. This shift caters to the increasing health consciousness among consumers.
- Diverse Menu Offerings: C-stores are expanding their menu to include a wider variety of foods, ranging from gourmet sandwiches and salads to ethnic foods and artisanal coffee. This diversification responds to consumer demand for more sophisticated and diverse food options.
- Quality of Prepared Foods: Some c-stores have invested in on-site kitchens, allowing fresh, hot foods to be prepared. This can include pizza, grilled items, and breakfast foods, often comparable in quality to fast-food restaurants.
- Partnerships with Food Brands: Many C-stores collaborate with well-known food brands to offer branded food items, which can enhance the perceived quality of their food offerings.
- Focus on Food Safety and Hygiene: With the increased focus on fresh and prepared foods, c-stores are also paying more attention to food safety and hygiene practices to ensure the quality and safety of their food products.
- Consumer Perceptions: While the quality of food at C-stores has improved, consumer perceptions may vary widely based on individual experiences, the specific C-store chain, and regional differences.
With restaurant foot traffic witnessing a downtrend, c-stores stand at the threshold of an expansion era. They can strategically position themselves as the new havens for fast-food lovers. The roadmap to this growth is paved with innovative strategies: think tantalizing menu revamps that embrace trending and global flavors, especially in breakfast and snack offerings. Introducing unique combo meals featuring special entrees, indulgent sandwiches, and creative frozen beverages can further enhance their appeal.
One way to play this trend is Casey's General Stores, Inc. - CASY has experienced a 14% stock increase in the past month and 24% YTD. The 1Q24 numbers were mixed, surpassing EPS expectations (missed top line) and raising its fiscal 2024 store expansion forecast from 110 to at least 150. The company maintained its 3-5% same-store sales growth prediction, with fuel sales expected to vary between -1% and +1%. The first fiscal quarter showed a GAAP EPS of 4.52, exceeding estimates by 1.19, despite a 13% year-over-year revenue drop to 3.87B. Fuel sales marginally increased, with a notable fuel margin of 41.6 cents per gallon. Casey's is set to acquire 125 stores, including 63 from EG Group. CEO Darren Rebelez highlighted the company's robust business model, driven by food (pizza sales and new product launches.)
