Dave & Buster's -- A Treat*
By Rick "The Mummy" Munarriz (TMF Edible)

I love Halloween! There is no sound as sweet as a plastic jack o' lantern rattling triangle-eye high in candy as I go from door to door in a Teletubbies outfit a few sizes too small. Oops! I think I hath revealeth too much.

Anyway, this is still that magical day of the year when it's okay for grown-ups everywhere to be kids again. But you know what? Nothing beats going to a place where an adult can revert back to childhood mode the other 364 days of the year as well. I am talking about the high-tech playground that will card you at the door.

It's Dave & Buster's!

If you are as lucky as me and live near one of the fifteen domestic locations of Dave & Buster's, then you probably know where I'm coming from. If you don't, be patient -- the chain plans to double in size by the end of the year 2000.

Step into one of the 50,000 square foot units and your senses are in for a treat. You will find a sea of lavishly finished championship shuffleboard and billiard tables. You can dine on some great comfort-food platters or just hang out by the rich mahogany bar. Some units feature bowling alleys, virtual golf, and even a conference area for private functions or the occasional murder mystery event. They are all anchored by the Million Dollar Midway, where traditional and virtual reality arcade games line up in all their blinking splendor. You can play Skeeball and collect enough tickets to line up at the glass-enclosed prize redemption booth and trade them in for -- a shot glass?

That's right, this is no Chuck E. Cheese. Dave & Buster's is where one can ride a motion simulator or strap on virtual reality headgear and go into battle with a fellow patron while sucking back an obscure brew to wash down some tasty spicy spring rolls. No sticky floors. No angst-ridden teen with a stack of quarters atop the Galaga machine. No hat-wearing mouse singing Happy Birthday for the zillionth time. This is a diversion paradise. It is the one true place that lives up to being an eatertainment destination. The topline revenue distribution shows the diversity here: 30% restaurant, 20% bar, 50% leisure -- 100% high-margin satisfaction.

Dave & Buster's Stock Performance

The guys behind the circular D&B logo were spun off by mall-retailer Edison Brothers <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: EDBR)") else Response.Write("(Nasdaq: EDBR)") end if %> in the summer of 1995. The shares have not exactly had a stellar performance since then. From a split-adjusted debut of $10 per share, the stock has managed a paltry 8% annualized return as of the recent lows set earlier this month.

Considering that its parent company filed for bankruptcy in November of 1995, and the fact that themed restaurant bellwether Planet Hollywood <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PHL)") else Response.Write("(NYSE: PHL)") end if %> has lost two-thirds of its value since its own 1996 Initial Public Offering -- Dave & Buster's has held up relatively well.

What Wall Street Is Saying...

Analysts want to have fun, too. They are generally bullish on the company and expect it to earn $1.01 a share this year and $1.31 next year. Since the company netted $0.76 a share last year, we are talking about consistent bottom-line growth projections of just over 30% per year.

Trading at a conservative 30 times this year's and next year's earnings would have the stock fetching $30 1/4 and $40 respectively. But it isn't, is it? The share price is trading in the mid-teens -- an age group that Dave & Buster's won't let in after 10:00 p.m. to begin with.

Why the Treat?

This company has everything going for it right now. While most themed restaurants are showing a lack of repeat business, same-store sales are up at Dave & Buster's. In a casual dining world, where rising wages are cutting into profits, the company is the least labor-dependent chain in the country. That's right, these boxes cost a lot to build -- in excess of $12 million apiece -- yet they are raking in $15 million per year, and most of that is coming from high-margin, low-maintenance games. Operating margins in the 30% range are rare in the eatery world, and it should have the company rising well above a restaurant sector that has been out of favor for the last few years.

In a stock market where companies are reporting soft earnings because of the Asian flu, this is one of the few inoculated beneficiaries. If you take out a currency conversion chart and figure that a lot of these high-tech toys are coming from the Far East, you will find a company that is now able to buy cheaper without having to charge less to patrons lining up in a vibrant domestic economy.

Even if the U.S. economy falters, it will be hard to imagine demand drying up for these all-in-one destinations. Dave & Buster's is also proving to be a popular low-risk export. There are two licensed units already open in England. Deals have also been struck in continental Europe, Mexico, and Asia. The keyword here is "licensed" units. Dave & Buster's is simply franchising the concept, sitting back, and collecting royalty payments. With the company expecting around 30 D&B's overseas over the course of the next decade, that 1500% growth in international expansion should beef up the bottom line for years to come.

Originality may be fleeting, as Gameworks and Disney's <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DIS)") else Response.Write("(NYSE: DIS)") end if %> Disney Quest try to duplicate the success of D&B. However, not only is there plenty of room for even more players in this young industry, but these unproven entrants aren't even catering to the same audience. Dave & Buster's is still a unique adult magnet, and it continues to be a desired tenant for landlords.

Concluding Folly

So, take this treat and digest it Foolishly. Like a Dave & Buster's Power Card, it might just take one swipe to recharge your portfolio. The future holds no guarantees, of course. Any kind of downturn in D&B's popularity will naturally hurt these costly unit investments.

However, you won't often find a quality company with decades of experience in merging food, libations, and entertainment trading for less than half of its projected growth rate. Like landing a Snickers bar after a few houses dishing out candy corn and sticky lint pennies, this is a treat to savor. Happy Halloween!

Related Items:
-- Dave & Buster's Message Board
-- Check the Most Recent Price
-- Daily Double - 10/2/98

* A Ghoul's Opinion represents the opinion of one Ghoul and in no way should be taken as the opinion of either the Motley Fool, Inc., the company in question or representative of anyone or anything else other than that specific Ghoul's thoughts.