“Armchair Trader Series” Recommendations
- Week Beginning -
Monday, April 02, 2018

by Ian Harvey

IMPORTANT NOTE: This is a recommendation and individual members can use their own discretion as to when to enter or exit!

You may also wish to read Stock Options Made Easy Trading Philosophy

Option Trade - Dave & Buster's Entertainment, Inc. (NASDAQ:PLAY) Puts

Tuesday, April 03, 2018

** OPTION TRADE: Buy the PLAY MAY 18 2018 40.000 PUT at approximately $2.70. Place a pre-determined sell at $5.40.

Also include a protective stop loss of $1.10.

REFERENCE: “Earnings Predictions for the Week Beginning April 02, 2018”

“Dave & Buster's Entertainment Inc (NASDAQ: PLAY), an American restaurant and entertainment business headquartered in Dallas, will report earnings after the market closes.

The consensus earnings estimate is $0.61 per share on revenue of $304.59 million. The Earnings Whisper number is for $0.64 per share. Consensus estimates are for earnings to decline year-over-year by 3.17% with revenue increasing by 12.74%.

 Dave & Buster's stock has trailed the market since the entertainment chain revealed weakening traffic trends in early January. Rather than speeding up during the seasonally strong holiday weeks, comparable-store sales worsened from the third-quarter's 1.3% decline, to fall by 5% early in the fourth quarter. As a result, CEO Steve King and his management team now believe comps will be slightly negative for the full 2017 year. Dave & Buster's also lowered its profit forecast to between $108 million and $110 million compared to $91 million in 2016.

Short interest has increased by 23.7% since the company's last earnings release. Also, overall earnings estimates have been revised lower.”

Analysts see revenue climbing 13% to $305.5 million. A restaurant coming through with double-digit revenue growth would normally seem impressive, but Dave & Buster's growth is coming from expansion lately. The chain's fiscal fourth-quarter results will likely clinch this as the third fiscal year in a row of decelerating top-line growth.

The news only gets worse on the bottom line; where analysts see Dave & Buster's earning $0.60 a share, just shy of the $0.63 a share profit it managed a year earlier. It's not really a surprise to see the stock hit a new 52-week low last week, and Wall Street pros that have chimed in lately aren't feeling very optimistic.

High costs associated with restaurant operations might have dented fourth-quarter earnings.

Also, in a press release on Jan 8, 2018, the company revealed that it had a slower-than-expected start to the fourth quarter. Generally, restaurant sales witness an uplift in the month of December, but Dave & Buster's trends in the month softened. This has led to management lowering the fiscal 2017 outlook.

Notably, shares of the company have lost 31.1% over the last year, substantially under-performing 9.9% growth of the industry it belongs to.

Influencing Factors

The chain rocked the market late last year when it posted negative comps in its fiscal third quarter , something that Dave & Buster's hadn't done in its return as a public company. Things only got worse a month later when it hosed down the guidance  it had put out for the fiscal fourth quarter that it will be reporting on this week. Dave & Buster's warned that comps had declined 5.1% in the quarter-to-date, forcing it to lower the midpoint of its revenue growth guidance from 17.2% to 12.9%. Earnings would also naturally take a hit.

Analysts have been souring on the chain's near-term fundamentals. Stephen Anderson at Maxim slashed his price target from $83 to $74 last week, pointing out that revenue volatility and the need to beef up marketing expenses to boost sales after what will be back-to-back quarters of negative comps will sting results. He also lowered his profit forecast for the quarter. He's still sticking to his buy rating, and his lower price target still implies 77% of upside from current levels. However, it's still a bad sign when analysts pare back their expectations just days ahead of a critical financial report.

Like most other restaurant operators, Dave & Buster's has been bearing the brunt of increased labor costs from Obamacare. Further, the company's non-franchised model makes it 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.

Moreover, pre-opening costs of outlets, given the company's unit expansion plans and expenses related to sales initiatives are adding to the costs, and likely to hurt profits. Total operating costs in the first nine months of fiscal 2017 increased 13.1% and are expected to further rise in the to-be-reported quarter. This in turn is likely to affect margins and earnings.

Analysts and Hedge Funds Opinions

Wells Fargo decreased their price objective on shares of Dave & Buster’s from $60.00 to $56.00 and set an “outperform” rating for the company in a report on Wednesday, March 28th.

Also, several other equities analysts have recently commented on the company…..

  • BMO Capital Markets decreased their target price on shares of Dave & Buster’s to $68.00 and set an “outperform” rating for the company in a report on Wednesday, December 6th.
  • ValuEngine lowered shares of Dave & Buster’s from a “hold” rating to a “sell” rating in a research report on Monday.
  • Maxim Group dropped their price target on shares of Dave & Buster’s from $83.00 to $74.00 and set a “buy” rating for the company in a research report on Tuesday, March 27th.
  • Finally, Canaccord Genuity reiterated a “buy” rating and issued a $70.00 price target on shares of Dave & Buster’s in a research report on Wednesday, December 6th.

Institutional investors that have recently made a change to their positions in the stock….

First Trust Advisors LP lowered its holdings in shares of Dave & Buster’s by 12.6% during the 4th quarter. The fund owned 18,182 shares of the restaurant operator’s stock after selling 2,613 shares during the period.

Insider news……

VP J Michael Plunkett sold 2,000 shares of the stock in a transaction that occurred on Wednesday, February 7th. The shares were sold at an average price of $46.60, for a total transaction of $93,200.00.

Harvey’s Options Volatility Indicator


Dave & Buster’s has a twelve month low of $39.24 and a twelve month high of $73.48. The firm has a market capitalization of $1,698.58, a PE ratio of 16.70, a PEG ratio of 1.02 and a beta of 0.44. The company has a current ratio of 0.38, a quick ratio of 0.26 and a debt-to-equity ratio of 0.70.