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Stocks D / Dave & Buster's, Inc.


Subject:  Re: Defending Dave and Busters, The Street and M Date:  12/15/1999  4:42 PM
Author:  edmay Number:  272 of 401

I think the decision to not expand more then 4 stores next year is wise and positive.

I saw this one coming and bailed before the last report at around 10 after getting in last winter at 20. The decision to slow down expansion is not really wise and positive, they don't have a choice! With the slide in SSS and margins they have NO cash with which to expand.

I'm no finance major, but here is my analysis. Each new store costs around $12 mil to build. So to build 4 stores they're going to need $48 mil. Please correct me if you think I err, but here is the cash they have access to over the coming year:

Cash on hand: 1.4 mil
Remaining on Credit: $20 mil
Earnings over next year using current projections: 1.21/EPS proj for next yr * 13160 shares = approx $16 mil net income
Total: $37 mil available over next year
Chance of getting cash thru secondary: zilch

Now the net income for next year is a very rough approximation based on analyst projections, which keep getting revised downwards, incidentally. It assumes they meet these estimates, so they certainly can't afford anymore $0.02 qtrs. And don't forget they'll have to tap out the credit facility to do the scaled back expansion. Looks like they'll have to borrow more--if they can--to do even the more modest expansion.

It is crucial to the survival of the company that they get their existing stores in order. This is probably going to be their only source of cash over the coming year. If SSS continue to slide they won't be opening anything.

The interest on their debt consumed 73% of their operating profits in this past qtr! Remember, too that they pay a floating interest rate on this debt, so if rates go up this burden will be even more onerous.

Bottom line: DAB seemed like a great concept, but when you combine capital intensive business financed with debt and then have slowing sales growth on a business with a small profit margin to begin with you get BIG TROUBLE!

They may turn it around and $5 today may be looked back upon as a huge bargain. But when I bought last January I was looking to get into a great growth story. Now it's a turnaround play and I don't want any part of it.

All in all, I lost 50% on this one, but it has been the best learning experience of my short investment carrer. You seldom learn anything from your winners.

Good luck longs,
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