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Friday, October 2, 1998
Dave & Buster's Inc.
<% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DANB)") else Response.Write("(Nasdaq: DANB)") end if %>
Phone: 214-357-9588
Price (10/1/98): $14 1/4
HOW DID IT FIND TROUBLE?
Where have all the good times gone? For Dave & Buster's it is hard to imagine anyone having a bad time at any of the growing chain's entertainment-intensive watering holes. Between a game of table shuffleboard or downing some spring rolls, its Good Food, Good Fun slogan fits, right?
Maybe, but it hasn't been extended to Good Stock lately. After hitting all-time highs in April, the shares have been grounded like one of the restaurant's Cinema Ride <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MOVE)") else Response.Write("(Nasdaq: MOVE)") end if %> motion simulators coming to a complete stop.
While not a true "themed" restaurant, it has often been categorized as such and has not been helped by being lumped with recent high volume laggards like Planet Hollywood <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PHL)") else Response.Write("(NYSE: PHL)") end if %> and Rainforest Cafe <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: RAIN)") else Response.Write("(Nasdaq: RAIN)") end if %>.
The company also fell victim to its success as a secondary offering to drum up funds for a more ambitious expansion schedule has bloated the shares outstanding. With the new money going out almost as quickly as it's being raised, the spinning D&B storefronts have had its beancounters feeling dizzy. Over the first half of fiscal 1999, current assets have been cut in half and the shares have been put through the grinder.
BUSINESS DESCRIPTION
Last month, Dave & Buster's opened its 15th "eatertainment" restaurant in New York. Often called a Chuck E. Cheese for adults, the namesake units offer a full bar and table service dining as well as the latest and not-so-latest in arcade game play.
From billiards to virtual golf, the traditional and high-tech diversions are many in the oversized units. Beyond the 15 stateside units, with openings in Ohio and California yet to come this year, D&B also has two licensed units in England -- run by brewmeisters Bass Plc. The company also has international licensing deals in place for both Asia and continental Europe.
Dave & Buster's was 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. A few months later, Edison filed for bankruptcy.
FINANCIAL FACTS
Income Statement
12-month sales: $149.8 million
12-month income: $10.8 million
12-month EPS: $0.85
Profit Margin: 7.2%
Market Cap: $189.5 million
Balance Sheet
Cash: $0.4 million
Current Assets: $16.9 million
Current Liabilities: $14.9 million
Long-term Debt: $12.5 million
Ratios
Price-to-earnings: 16.8
Price-to-sales: 1.3
HOW COULD YOU HAVE SEEN IT COMING?
If you're looking for the Dave & Buster's buster, it is probably on its back. The company has had to carry the burden of others for most of its publicly traded life. When Edison Brothers spun-off the chain in June of 1995, a move to give the restaurant access to funds to grow as well as to give the mall apparel retailer one last chance to focus and save itself, it was only a matter of months before gains were tempered. Edison filed for bankruptcy in November of 1995 and creditors immediately called for Dave & Buster's to bail out its former parent company.
While the stock eventually overcame the unsavory association, it was a dark cloud that hovered until just this summer when Dave & Buster's agreed to a $2.1 million settlement.
The payout may be small potatoes considering the company, six months into fiscal 1999, had already spent $37 million, mostly in new unit construction. It would take six of those Edison settlements to build just one new Dave & Buster's unit. While the restaurant is addressing the costly openings with a smaller format unit of which the first opened in Irvine, California, earlier this year (and another to follow later this year in Columbus, Ohio), the eateries simply aren't cheap to erect.
So the secondary offering, which will be dilutive in the short term, and a 3-for-2 stock split may have come across as excessively euphoric gestures but certainly not the means to a precipitous decline. That came as Wall Street apathy towards restaurant stocks in general was compounded with an outright repulsion to those perceived to have faddish theme tendencies. Dave & Buster's fell, but it was a case of mistaken identity.
WHERE TO FROM HERE?
Mistaken Identity? For starters, the real culprit was that Rainforest Cafe and Planet Hollywood have recently reported double-digit same-store sales declines. The repeat visits just aren't materializing. That has not been the case at D&B, where the comparable unit revenues were up 6% for the past quarter and 8% year-to-date.
Also, any worries about how the company will finance its heady plans to double its store count over the next two years can be put to rest in the near term. The chain has only used up barely a quarter of its $50 million credit line.
With estimates for the company to earn $1.01 a share this year and $1.33 the year after, the price looks as attractive as the company's shiny Million Dollar Midway of high-tech redemption games.
As a potential bonus, recently the high-margin diversions have crept past 50% of total revenues. Since that segment requires little overhead beyond the initial capital investment, if the trend continues to favor the games over the cost and labor-intensive food and libations, the operating efficiencies might allow the company to beat even those already rosy projections. Good Fun -- it might just be on the way again.
-Rick Aristotle Munarriz
([email protected])
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