Factors Setting the Tone for Dave & Buster’s (PLAY) Q1 Earnings

Dave & Buster’s Entertainment, Inc. PLAY is scheduled to report first-quarter fiscal 2018 results on Jun 11, after market close. In fourth-quarter fiscal 2017, the company’s earnings surpassed the Zacks Consensus Estimate by 3.4%. The bottom line also outpaced the consensus mark in each of the trailing four quarters, with an average beat of 16.5%.

Which Way Are Estimates Treading?

Let’s look at earnings estimate revisions in order to get a clear picture of what analysts are thinking about the company prior to the release. Notably, the consensus estimate has been stable in the last 30 days. For the quarter under review, the Zacks Consensus Estimate is pegged at 93 cents. This reflects an improvement of 6.9% from 87 cents in the year-ago quarter. Analysts polled by Zacks expect revenues of $322.3 million, up 6% year over year.

Factors at Play

Dave & Buster's unique business model with increased dependence on gaming is impressive. We expect the company’s entertainment business to carry the momentum forward. Consistent efforts to improve sales and margins through various initiatives have also been key growth drivers. In this regard, continual opening of stores, menu innovation and launch of games are anticipated to continue boosting its top and bottom line.

Furthermore, menu innovation remains a key attribute of the brand and guests have responded favorably to it. In the fourth quarter of fiscal 2017, Dave & Buster’s also appointed new vice president of Food and Beverage development in order to improve speed of service through menu redesign and positive simplification in the kitchen area. In February, the company streamlined its menu and reduced the number of food orders by about 20% and beverage offerings by 12% to achieve increased efficiency.

Meanwhile, the company continues to evolve its amusement strategy backed by new and riveting content, including games based on some of the world’s finest movie properties. In this regard, Dave & Buster’s is consistently collaborating with various game manufacturing partners and remains steadfast on its strategy of including proprietary content exclusive to the company forever.

However, rising labor costs and a non-franchised business model might hurt profits. In fact, the non-franchised model makes the company susceptible to increased expenses. Since all the restaurants are owned and operated by Dave & Buster’s, instead of signing franchise agreements and putting the burden of costs on the franchisee, the company is solely responsible for the expenses of operating the business.

Dave & Buster's Entertainment, Inc. Price, Consensus and EPS Surprise

What the Zacks Model Unveils

Our proven model does not conclusively show that Dave & Buster’s is likely to beat earnings estimates this quarter. This is because a stock needs to have both a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a positive Earnings ESP for this to happen. You may uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Dave & Buster’s has an Earnings ESP of -0.90% and a Zacks Rank #4 (Sell).

Note that we caution against stocks with a Zacks Rank #4 or 5 ((Strong Sell) going into earnings announcement, especially when the company is seeing negative estimate revisions.

You can see the complete list of today’s Zacks #1 Rank stocks here.

Peer Releases

Darden DRI reported mixed third-quarter fiscal 2018 results, wherein earnings surpassed the Zacks Consensus Estimate but revenues lagged the same. Adjusted earnings of $1.71 per share increased 29.5% year over year backed by higher revenues.

Restaurant Brands’ QSR first-quarter 2018 earnings and revenues outpaced the Zacks Consensus Estimate. Earnings under the previous accounting standard came in at 67 cents, improving 86.1% year over year.

Chipotle’s CMG first-quarter 2018 earnings surpassed analysts’ expectations while revenues were in line with the same. Adjusted earnings of $2.13 per share surged 33.1% from the year-ago quarter, courtesy of higher revenues and lower food costs.

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