Dave & Buster's Balances Food, Fun and Finance

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North America, USA, IL, Addison. Dave and Busters Arcade and Restaurant, virtual reality video games. (MR)
Danita Delimont/AlamyVirtual reality games are part of Dave & Buster's draw.
One of last year's more impressive IPOs continues to live up to the hype. Dave & Buster's Entertainment (PLAY) -- the company behind the huge restaurants and bars complete with their own video game arcades -- served up another quarter of strong growth on Tuesday night.

Revenue climbed 21 percent since the prior year's holiday quarter to $207.1 million. Adjusted net income nearly doubled to $14.1 million or 33 cents a share. Analysts were only holding out for a profit of 31 cents a share on $201.3 million in revenue.

It's the second quarterly report that Dave & Buster's has put out since going public late last year, and it's thankfully the second time in a row that results have exceeded expectations.

Earning Its PLAY Ticker Symbol

Folks are flocking to the eateries that can be accurately described as Chuck E. Cheese for adults, as patrons play high-tech arcade and virtual reality games or take a chance at ticket redemption diversions between rounds of food and drinks. Half of the top-line growth at Dave & Buster's can be attributed to the chain's brisk expansion. It added eight locations over the past year, growing its empire to 72 units.

However, the other half of Dave & Buster's revenue growth is attributed to a 10.5 percent surge in comparable-restaurant sales. In other words, the average location rang up 10.5 percent more in sales than it did a year earlier. There aren't too many restaurants posting double-digit comps growth these days, and that's been even harder to come by in table-service eateries.

This is a very scalable model, particularly with the high-margin games. If the locations are busy -- and they were certainly very busy this past quarter -- a little uptick in revenue can translate into a much bigger move on the bottom line. Roughly half of the chain's revenue comes from the games, so there's big money to be made in playing.

Playing to Win

Shares of Dave & Buster's have nearly doubled since the company went public at $16 in October. It didn't start off as a memorable IPO. It opened at $17 on its first day of trading, and the stock closed in the teens during its first 16 days of trading. Its first well-received quarterly report pushed the stock into the low $20s two months later, and now another strong report finds Dave & Buster's earning its right to trade in the low $30s.

Dave & Buster's will continue to grow. It plans to open another seven to eight locations this year. Why not? They have become gold mines. Despite the ups and downs of restaurants in general and casual dining in particular, Dave & Buster's has come through with four consecutive years of positive comps. Its initial forecast for the new year calls for it to stretch that streak to five years.

Things can always go wrong for Dave & Buster's, but as long as the economy continues to show signs of life, it's a safe bet that grown-ups looking for something a little different from the traditional outing will find their way to Dave & Buster's.

Motley Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. Click here to check out The Motley Fool's free report on one great stock to buy for 2015 and beyond.
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