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Here's Why You Should Hold Dave & Buster's (PLAY) Stock Now

Dave & Buster's Entertainment, Inc. PLAY is benefiting from digital initiatives, reopening of stores and various sales-boosting initiatives. Also, expansion of entertainment options bode well. However, decline in traffic compared to the pre-pandemic levels is a concern.

Let us discuss the factors that suggest that investors should retain the stock for the time being.

Factors Driving Growth

Digitalization to Drive Growth: Dave & Buster's is also investing heavily in technology-driven initiatives, like online ordering, to augment sales and boost guest services. The company believes that it can drive traffic by enhancing in-store and out-of-store customer experience via digital and mobile strategic initiatives, and the deployment of better technology. During the second quarter of fiscal 2021, mobile ordering adoption was more than 50%. Backed by solid customer acceptance, the company is testing a completely self-serve mobile web-enabled guest experience in two of its stores. Also, the company dramatically changed its media mix during the summer campaign by shifting the majority of its spending to digital media.

Meanwhile, the company stated the development of its new D&B rewards program to boost guests’ participation in eating, drinking and playing games. Scheduled to launch during the fourth quarter of 2021, the application is likely to feature robust targeting and personalization capabilities. It is also expected to add relevance to its mobile app and drive higher engagement as it enables guests to complete challenges and earn rewards.

Reopening of Stores: Dave & Buster's is focused on reopening stores in compliance with the state and local regulators. In order to support the re-openings, the company has increased focus on marketing message and media execution. During second-quarter fiscal 2021, the company re-opened all of its 142 stores, including one new store that opened during the quarter. Nonetheless, the company witnessed improved demand across its reopened stores in California. At the end of the fiscal second quarter, comps of operational store restaurant sales increased 3.6% compared with 2019 levels. Meanwhile, non-comparable store revenues in the reported quarter came in at $67.3 million, up from $10.4 million in the year-ago quarter.

Strategic Initiatives Boosting Sales: Dave & Buster's has been focusing on implementing strategic initiatives to boost sales. During second-quarter fiscal 2021, the company introduced an entirely new menu that enhances its appeal. Over the summer, the company has made a meaningful investment in entertainment offerings with the introduction of seven new games. It has also taken steps to widen the entertainment plans by operating programmed events in select markets. During the fiscal second quarter, the company continued to evolve its programming strategy around its stores. Going forward, the company intends to expand entertainment options and enhance its appeal, thereby making way for increased visit frequency. To this end, the company initiated the testing of events such as Trivia Night with Geeks Who Drink as well as live music. Also, it intends to expand the tests in more markets, subject to customer acceptance.

Concerns

In the past six months, shares of Dave & Buster's have fallen 22.6% against the industry’s growth of 8.2%. The dismal performance can be primarily attributed to the coronavirus pandemic. Although majority of the stores have re-opened after the coronavirus-led shutdown, traffic is still below the pre-outbreak level. We believe that the Delta variant of coronavirus might hurt traffic and sales in the upcoming periods.


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Zacks Rank & Key Picks

Currently, Dave & Buster's carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Some better-ranked stocks in the same industry include The Wendy's Company WEN, Jack in the Box Inc. JACK and Cracker Barrel Old Country Store, Inc. CBRL, each carrying a Zacks Rank #2 (Buy).

Wendy's has a three-five-year earnings per share growth rate of 9%.

Jack in the Box earnings for fiscal 2021 are expected to rise 54.8%.

Cracker Barrel has a trailing four-quarter earnings surprise of 357.3%, on average.


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