What happened
Shares of Dave & Buster's(NASDAQ: PLAY) trounced the market this week. The stock was up 15% through Thursday trading, compared to a 0.3% increase in the S&P 500. That rally erased a large portion of recent losses for shareholders, according to data provided by S&P Global Market Intelligence. The restaurant and arcade specialist's stock has gained 8% so far in 2023.
The rally came after Dave & Buster's reported strong first-quarter earnings results.
So what
On Tuesday, management revealed that Q1 sales jumped 32% to reach a record $597 million through late April. Earnings expanded at a solid clip, too, as profit improved to $1.45 per share from $1.35 per share a year earlier. Factoring in the addition of the newly acquired Main Event chain, sales rose 4%. "We are pleased to report strong results for our first quarter of fiscal 2023," CEO Chris Morris said in a press release.
Demand was strong across the company's food and beverage segment, its entertainment division, and its special events unit. But investors were just as happy to see the company take more steps toward improving its earnings power. Operating profit margin rose, in part thanks to cost cuts and rising menu prices.
Now what
The restaurant and in-person entertainment industries are growing right now, and that's lifting Dave & Buster's results. Investors are still concerned that a downturn in consumer spending could reverse this positive trend if a recession develops in the U.S. market.
But the company eased a few other shareholder worries, including the concern that its Main Event acquisition would temporarily reduce profitability or disrupt the momentum of the wider business. This week's update instead showed that Dave & Buster's is boosting its annual earnings power, giving investors a good reason to send the stock higher.
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Demitri Kalogeropoulos has no position in any of the stocks mentioned. The Motley Fool recommends Dave & Buster's Entertainment. The Motley Fool has a disclosure policy.
