Description

Dave & Buster's operates 26 large-format, high-volume, upscale restaurant and enterntainment complexes, offering casual food, drinks,and a variety of adult-style parlor games (e.g., billiards, shuffleboard, virtual reality, etc.) for baby boomers. Founded in 1982, management opened their first unit in Dallas, quickly found a yuppie niche, IPOed in 1995, split 3 for 2 in 1997, and (signalling its strong growth)moved from the NASDAQ to the NYSE in June 1999. Two months later its shares crashed.
On Aug. 27th, 1999, DAB shares plunged 45% (from $24.975 to $13.75) on a selling climax. Q2 earnings of between $0.14 & $0.16 would come in well below the $0.28 Wall Street expected. Execution errors at DAB's 3 southern CA units was the reason given for an overall 2.2% decline in same store sales. Management moved swiftly canning 3 CA managers & scaling back expansion plans from 8 units to just 4. This was DAB's first stumble: at the time top & bottom line 3 year CAGRs were 51% & 45%. The other shoe dropped 15 weeks later: on Dec. 10th, 1999, DAB shares plunged another 35% to just $5.8125 on a second earnings shocker - this time earning just two cents, not the (alredy reduced)$0.18 expected.
Since then management has slowly turned things around. Store operations have improved. Radio & TV ads have replace word of mouth. And a $110 million revolver has been secured. Finally, after 4 disappointing quaters, some good news: just released Q2 EPS of $0.17 were better than expected on 35% sales growth. While this was the first year-over-year EPS gain in 5 quarters, DAB never actually lost money & sales remained strong. Today, at $8.125, DAB shares are still 70% off their 52 week high, have a PE of 12 (FPE of 6.6), price-to-sales of 0.40, price-to-book of 0.68, PEG of 0.33 and trade at 3.5 times cash flow.

Catalyst

Still below their $11.96 BV & with EPS & SSS regaining momentum, next quarter's comparisons should be extremely favorable ($0.15 vs. $0.02). I expect a 100% price gain by yearend.