THE HEDGEYE EDGE
We were never believers in the long-term growth opportunity of the Dave & Buster’s (PLAY) business model. Our view is that PLAY is a broken stock and that the street is not focused on the reality of what the business trends will look like over the next two years. A recovery in the business is far from reality at this point, and PLAY continues to be crushed by both macro and structural company-specific issues.
F&B LEADING THE CONCEPT LOWER
We have been saying that the food and beverage segment of this restaurant would lead the broader concept lower – and that’s what is happening! The most recent quarter, although better than the sell-side consensus, gave us no reason to get off our SHORT call. Now management has decided to launch a quick casual concept within the store to take advantage of the off-premise occasion – who wants food from D&B unless they are there for the games?
COMPETITIVE INTRUSIONS UP YoY
Management noted during their recent earnings call that the impact of cannibalization and competitive intrusions increased YoY. The increasing competitive intrusions primarily from TopGolf and The Main Event have steadily increased due in part to the readily available ex-department store real estate locations and free flowing capital markets for experiential consumer concepts.
IS VR GOING TO BE THEIR SAVIOR?
Management and the sell-side (which has 100% buy-ratings) like to believe that virtual reality is going to save this brand. PLAY is in the process of launching their first virtual reality concept which is a Jurassic World ride. They will have this ride available during limited hours and charge roughly $5 per person. Although this has the potential to drive some initial traffic we don’t think its impact is sustainable.