Dave & Buster's Q4 earnings appeared positive on the surface, but our text analytics platform revealed that there are two concerns worth exploring. A Deception analysis of the earnings transcript showed a significant increase in language that was clichéd, evasive, vague, and containing euphamisms.
April 3, 2019
Deception Analysis Spots Trouble Behind Dave & Buster's Positive Earnings
Dave & Buster’s (ticker: PLAY) reported its Q4 earnings on April 2nd, with a beat in same-store sales driving a positive stock reaction the following day. We analyzed the earnings call through the Amenity text analytics platform, and identified two concerning trends beneath the positive headline.
Game On for PLAY? Don't Put That Token in Just Yet
The high-level view: overall sentiment bottomed. The Amenity Score of the Q4 call was +4 (scale -100/+100), up 1 point from last quarter, but remained well below the Q1 that PLAY will be lapping next quarter.
Next, the concerns:
Uptick in Deception: indicates elevated uncertainty on ability to maintain positive comps
Labor cost headwinds: this continues to challenge the restaurant/hospitality sector, and Dave & Buster’s plan to mitigate this headwind is new and unproven as evidenced by commentary such as: “there’s a learning curve”, and “that takes time to figure that out"
Amenity's Deception Analysis Flags Hints of Aspiration Among Positive Guidance Commentary
The Amenity Deception monitor identified a significant increase in comments the NLP model identified as evasive, vague, euphemisms, or clichés. Dave & Buster’s guided to comparable sales growth of flat to +1.5% next year, though positive comments were frequently accompanied by hedging language. Management also acknowledged that they continue to face headwinds of competition and cannibalization from their own store footprint:
Dave & Buster's (4/2/19):
"We’re excited to be in positive comp territory in Q4. And as we look to 2019, we’re guiding comps of flat to up 1.5%. We think that is a strong pursuit for this brand in the face of the competitive environment we face today. It’s early in the year."
"We’re doing all those things to drive positive comps,and we think we have the playbook to do that. I think it’s a proven guide. I’ll give you a little color. We don’t typically do this but I’m just going to get it out of the way. Q1 is a very volatile quarter for this company in that spring break and Easter shifts are significant. We – in past lives, we’ve hesitated really to talk about performance in the quarter. But I do want to share with you that through 7 weeks, before we started to hit that Easter shift, we were up about 1%. We view that as good news. We are in positive land in a difficult environment. There’s a lot of runway and year left to go and we’re pursuing positive comps being flat to up and that’s what our team is waking up every day trying to drive in 2019."
"That doesn’t mean that’s(competition/cannibalization) not a significant headwind for us. We’ve talked about this – started talking about this a couple of years ago. It has accelerated over the past couple of years. I mean,it’s a meaningful headwind. Our stores that are not impacted by competitive entrants or ourselves performed very well. It’s a drag on our comps and it’s something that we are working very hard to offset with our initiatives. So it’s a meaningful number."
Wage Inflation is Here, and Here to Stay
We have highlighted several other companies in the restaurant/hospitality sector seeing increasing wage pressure on their margins. Dave & Busters can join the club. While the company is rolling out a new tool to manage its workforce, the commentary below suggests meaningful benefits are not a near-term prospect:
Dave & Buster's (4/2/19):
"We’re definitely seeing labor headwinds. We don’t anticipate that’s really going to subside."
"I think, with the labor pressure particularly on wage rates that – for investors not to think about that continually. There are some real headwinds there, and we don’t think it will correct in the right strategy long term."
"The new labor tool is to really try to match demand and peak labor needs and make sure we have the right number of people at the right time and we scale down at the appropriate timing. We think the new tool is more nimble than our old one. We’ve had a tool for a long time. It actually helped us a lot back in 2010, I think it was. And this one is more nimble and I think we’re – it’s a learning curve here. We – I think we completed the launch somewhere in Q4. I can’t remember the exact date, but that takes time to figure that out."
See Amenity in April:
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Request access to Amenity Key Drivers, the NLP language modeling and scoring system. Analyze earnings call transcripts based on key fundamental factors that drive stock performance and uncover areas of risk, exposure, and opportunity hidden in financial documents.
This communication does not represent investment advice. Transcript text provided by S&P Global Market Intelligence.