On Thursday, BMO (TSX:BMO) Capital Markets adjusted its outlook on Dave & Buster's Entertainment, Inc. (NASDAQ:PLAY) shares, reducing the price target to $65 from the previous $75, while maintaining an Outperform rating on the stock.
This revision comes after the company's first quarter fiscal year 2024 earnings before interest, taxes, depreciation, and amortization (EBITDA) of $159 million fell approximately 10% short of the consensus, impacted by softer comparable store sales (comps) and weaker margins. The shortfall included an $11 million impact from operational missteps.
Dave & Buster's has acknowledged these challenges and noted improvements in the second quarter to date (QTD) comps. The company also expects a further ramp in performance and has stated that the operational inefficiencies have been resolved.
In light of these developments, BMO Capital has recalibrated its target price and moderated its estimates to account for a slower comp build and more prudent margin assumptions.
Despite the reduction in the price target and tempered estimates, BMO Capital sees an appealing risk/reward balance for Dave & Buster's shares. The firm remains positive about the company's initiatives aimed at repositioning the business and driving EBITDA growth over the next several years. BMO Capital anticipates that cost savings will help bridge the gap to a more favorable revenue environment.
The analyst's comments highlighted the operational challenges faced by Dave & Buster's in the first quarter but also underscored the company's proactive measures to address these issues and the expectation for improved performance going forward. The revised price target reflects a more cautious outlook in the near term while still signaling confidence in the company's long-term strategy.
In other recent news, Dave & Buster's Entertainment, Inc. reported Q1 2024 earnings, with a revenue of $588 million and adjusted EBITDA of $159 million. UBS maintained a Neutral rating on the company's stock, acknowledging the challenges of persistent sales headwinds and margin pressures.
Despite these issues, Dave & Buster's has identified long-term opportunities and updated its strategic initiatives. The company announced the expansion of seven new international franchise units and future store openings, with a target of over $1 billion in adjusted EBITDA.
The Main Event merger resulted in $25 million in cost savings, with an additional $40-60 million targeted. These are among the recent developments for Dave & Buster's, which remains focused on organic growth and capital return to shareholders.
Despite a complex macro environment and labor performance issues, the company sees an optimistic future, backed by store remodeling, enhancing food and beverage offerings, and growing their loyalty database.
InvestingPro Insights
In the context of BMO Capital Markets adjusting its outlook on Dave & Buster's Entertainment, Inc. (NASDAQ:PLAY), it's worth noting that the company's management has been proactive in buying back shares, which could signal confidence in the company's value proposition. Additionally, analysts have predicted that the company will be profitable this year, which aligns with the positive long-term strategy that BMO Capital Markets has confidence in.
From a financial standpoint, Dave & Buster's is trading at a high Price / Book multiple of 7.93 as of the last twelve months ending Q4 2024, which might raise concerns about the stock's valuation relative to its book value. Moreover, the company has experienced a significant price drop over the last three months, with a 19.49% total return decrease, which could be indicative of the market's reaction to the recent operational missteps and earnings shortfall.
Investors should consider these dynamics and also note that there are additional InvestingPro Tips available for Dave & Buster's Entertainment, Inc. To explore these further insights and to make more informed decisions, readers can take advantage of the special offer using coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription at https://www.investing.com/pro/PLAY. With these resources, investors can gain a more comprehensive understanding of both the risks and opportunities associated with Dave & Buster's stock.
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