NASDAQ: PLAY – A Guest Post from Llenrock Group
Jun 30, 2015
This post from Eric Hawthorn is part of our Llenrock Group guest post series and originally appeared on the Llenrock Group blog.
Today we’re taking on a fun subject: entertainment and dining establishment Dave & Buster’s (NASDAQ: PLAY), which returned to the public stock market last fall in an IPO that raised $94MM (sure, it’s not the Hilton IPO’s more than $2B, but it’s certainly not a bad haul for a chain of approximately 70 arcades). The company used the IPO’s proceeds to pay down outstanding debt.
This company is worth paying attention to if you’re interested in “experiential,” large-footprint retail tenants. Yeah, D&B is kind of like Chuck E Cheese for grown-ups, an 80s or 90s-era video arcade but with greasy food and overpriced booze (thank goodness for at least one high-margin offering…), plus sports on strategically positioned TV screens. The establishment caters to corporate events, families, couples (young and not-so-young) on dates, dudes who want to eat wings and watch the game, birthday parties, and so on. In essence, this company with its 70-something locations across the U.S. has brought video games into the mainstream by pairing them with food and a fair-midway atmosphere, then raised all the prices and began serving alcohol to make the whole proposition bankable.
And Amazon.com cannot compete (unless we’re talking about Amazon’s streaming movies, which I suppose could de-motivate a potential D&B client from leaving their home). In fact, other than perhaps movie theaters and bowling alleys (and laser tag? mini golf?) there are few if any competitors.
To be sure, based on its audience and the experience it offers, D&B will never become the roadside fixture that McDonald’s and Burger King have become, so for real estate owners and brokers, a potential or current D&B tenancy isn’t a shoo-in for success. After all, this business–operating at the confluence of hospitality and entertainment, but with its feet firmly planted in retail–only thrives in markets that offer all the right conditions: a substantial population within X miles of the site, a local median income of $X, economic drivers in the vicinity, major transportation infrastructure (highways most of all), an available work force, etc.
But in a market that meets these criteria (and has a 100,000+ SF property to accommodate the massive, multi-million-dollar entertainment complex, not to mention sufficient parking), there is a great opportunity for a landlord and related real estate professionals.
And the company, as I mentioned earlier, recently returned to public trading, showing confidence toward its near-term prospects. Likewise, it has done it’s share of, to get buzz-wordy for a moment, “optimizing” at various locations to figure out the ideal property operations, construction decisions, and other considerations with which to boost efficiency and profitability.
National Retail Federation reports,
In building new stores, Dave & Buster’s found it could reduce restaurant size from 55,000 square feet to 40,000 square feet, which brought expenses down. Each comprehensive remodeling costs about $2.5 million and most have been carried out in stages. While that complicates scheduling, it precludes having to shut down entire restaurants during the remodeling.
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The investments appear to be paying off. In reporting preliminary financial results for the year ended February 1, 2015, Dave & Buster’s said it expected total revenues to be $744 million for the year, a year-over-year increase of about 17 percent. Comparable store sales growth was expected to be 7 percent.
Additionally, the above-linked article explains, the company has this year embarked on an expansive rebranding effort to draw in customers they have yet to reach. This is essential, and will prove pivotal to the chain’s role as a driver of nearby retail. Like gaming giant Nintendo and their Wii game console, D&B must convince the public that their product/experience is not something for a select few–it’s for everyone.