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Author: CWRailroad Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 401  
Subject: Defending Dave and Busters, The Street and Me Date: 12/13/1999 8:50 PM
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I came into DAB at around 18 or so with 3 diffrent buy dates at about that same price. I watched as the stock wendt to almost but just short of 30. Then the annoucment of Thursday August 26th 1999 came out. I had been mugged and shot, the stock had been violated and I lost a lot of equity on the next day of trading. So what did I do. Sold my BNI stock and bought as many shares of DAB as the proceeds would allow at about 13. Opps goofed there too! I sold a losing stock for more shares of another losing stock. I truely had faith that DAB was going to turn it around this quarter. They were to going to show them idiots! So the question is "At what temperature and for how long do you cook Crow". The pictures of me eating the crow will be extra. I need the funds!

More seriously. I not going to bail yet. I have the money in the stock and while shaken I still believe that they have a good popular product. It needs just a lot better execution and less overhead. With the Pacific Rim now open and more in Europe things do look brighter. I think the decision to not expand more then 4 stores next year is wise and positive. Let's get the debt down some and take good care of the ones that are already open. If the stock recovers somewhat or begins other positive things begin to happen I probably double my current stake in the company. In the meantime my 5 or so year time line with this stock looks okay as long as there are no new disasters on the horizon. Coporate headquarters is just down the road from here and I do tend to drop in now and then to check on things. I definitally will be going to the stock holders meeting whenever!
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Author: edmay Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 272 of 401
Subject: Re: Defending Dave and Busters, The Street and M Date: 12/15/1999 4:42 PM
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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,
Ed

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Author: dduct Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 273 of 401
Subject: Re: Defending Dave and Busters, The Street and M Date: 12/16/1999 12:06 PM
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edmay: Since I am not a shareholder (just looking) I am not trying to find fault with your numbers.

If DAB earns $1.21 next year, it is selling for 4 times earnings. Now that is a buy! If they just earned that, worked down debt, and then expanded slowly, the stock would be a buy. But, based on your tone, both of us do not expect them to make anywhere near that amount. Who believes DAB after what has happened in 1999.

DAB could issue shares. In doing so I would guess that OTC:BB would become the result.

I enjoyed your post. In Fooldom, the best post is one that helps you learn (and think) and invest long term. Your post gets a star from me.

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Author: edmay Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 274 of 401
Subject: Re: Defending Dave and Busters, The Street and M Date: 12/16/1999 12:43 PM
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If DAB earns $1.21 next year, it is selling for 4 times earnings. Now that is a buy!

Yes, but only if they actually make these estimates and get the growth rate back up. As we know, they came a wee bit short this past qtr (negative 88% surprise). I agree, if they can turn it around and make the numbers it could probably double from here. But, the confidence in this company has been badly shaken and it will take awhile to repair the damage, even with some good numbers.

If they just earned that, worked down debt, and then expanded slowly

Yep. That's what they have to do. But I don't think they'll open four stores AND reduce debt. Opening those stores will require capital which they don't have. If they reduce debt they'll need to cut back on even the four store expansion.

DAB could issue shares

Who will underwrite it? Investment banks want willing buyers to do a secondary and there sure hasn't been much of that. With a 80%+ loss from the summer highs I think it will be difficult--if not impossible--to raise money thru a secondary. Maybe they could change the name to dave and busters.com :-) Even if they do a secondary, of course, this will dilute earnings.

Ed

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Author: dduct Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 275 of 401
Subject: Re: Defending Dave and Busters, The Street and M Date: 12/16/1999 1:20 PM
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"Who will underwrite it?" Private placements are done frequently. An underwriter and all that overhead can be avoided. With the stock so low there is probably someone knocking on their door now making a pitch.

To borrow money they will have to show the ability to generate cash flow and plans to continue cash flow growth. For companies with sales in excess of $100 million, size brings credibility. Remember, they are going to borrow against their assets so the new stores are like homes. The bank is willing to lend if there is something you can touch and re-sell.

Dave and Busters is far from going out of business. Because of their debt, they need to slow down and get under control. How they do it is still their option (i.e., they are not so far out of control that they will be considered a bad debt risk).

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Author: TMFEdible Big red star, 1000 posts Supernova Phoenix 1
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Subject: Re: Defending Dave and Busters, The Street and M Date: 12/19/1999 12:42 AM
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Ed, great analysis. Two quick comments. One is that, of course no one is expecting $1.21 anymore. That's obsolete and will continue to shrink as the downward revisions come in. Bank of America and Jefferies, each who were expecting $1.45 next year, dropped to $1 and $0.73 respectively for next year.

So the net income will be substantially less to support expansion. However, there's a problem with that. You can't use net income and add it to cash because that's only paper money. You need to look at cash flow. Next year DAB will have about $20 million in depreciation. That gets added back into cash (becuase it was spent already, it's just how it is amortized on the financial statements).

So they do have enough to open four units next year, but not by much.

Rick


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Author: edmay Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 282 of 401
Subject: Re: Defending Dave and Busters, The Street and M Date: 12/23/1999 11:31 AM
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You need to look at cash flow. Next year DAB will have about $20 million in depreciation

Thank you, Rick. I kinda knew that, but for the forward projections I was doing I didn't know how to forecast cash flow, so I just used income as a substitute.

How do you go about estimating what a companies cash flow will be? Where did you get the depreciation number for DAB? Still learning the art of financial document interpretation.

Thanks for the response,
Ed

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Author: msmerritt Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 283 of 401
Subject: Re: Defending Dave and Busters, The Street and M Date: 12/23/1999 5:37 PM
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How do you go about estimating what a companies cash flow will be?

Using GAP cash flow estimates can be tedious for me. I usually get pretty close by taking the net income after taxes adding back in depreciation and interest payments then subtracting any dividends they may be paying out. What ever is left is how much cash is available to play with from continuing operations. Also need to take into account any money they may have available from borrowing and what it is going to cost.

mark

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Author: TMFEdible Big red star, 1000 posts Supernova Phoenix 1
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Subject: Re: Defending Dave and Busters, The Street and M Date: 12/27/1999 7:33 AM
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Ed, Mark pretty much nailed it. Depreciation is one of the easier numbers to estimate (certainly easier than sales and way easier than earnings).

To understand why the cash flowing in is greater than the net income reported, let's take a quick look at how depreciation works in the first place (Hit the "Next" button if you don't care for my simpleton ways).

Let's say Dave & Buster's spends $12 million on a new 50,000 square foot location. If it's leased, leasehold improvements are broken down into the length of the lease. What? All of the decor. All of the improvements made to the place. This tab that will run a few million easy for D&B are paid for right away. Naturally. However, with a typical lease running ten years minimum, D&B will expense the property improvements over each of those ten years (not completely, down to some kind of salvage value if there is any). Different items, from furniture to kitchen appliances, also get expensed that way. So, while a company may have paid $12 million for a new location, and paid it all right away, it might only take a million or so off the income statement every year.

But that's money that was already gone. So, it's almost a phantom expense. The accountants take it out but it is still there based on the previous balance sheet (since the full $12 million was taken out during a previous year).

Since we know how many D&B's are out there, and we have recent depreciation data, it is easy to guess how much it will report in the year ahead (add in expected A&D for the new year, subtract older A&D that won't recur, etc.).

I've done a lousy job explaining this, but it's early. Still, I hope it helps!

Rick


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Author: mowmowwhis Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 307 of 401
Subject: Re: Defending Dave and Busters, The Street and M Date: 3/31/2000 8:27 PM
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this is a great place but way too expensive. We dropped 50 bucks in 1 hour for 2 nine year olds and 1 5 year old

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