Message Font: Serif | Sans-Serif
 
UnThreaded | Threaded | Whole Thread (10) | Ignore Thread Prev Thread | Prev | Next | Next Thread
Author: edmay Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 401  
Subject: Re: Defending Dave and Busters, The Street and M Date: 12/15/1999 4:42 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 5
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
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Print the post  
UnThreaded | Threaded | Whole Thread (10) | Ignore Thread Prev Thread | Prev | Next | Next Thread

Announcements

Post of the Day:
Berkshire Hathaway

Is the Market Overvalued?
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Community Home
Speak Your Mind, Start Your Blog, Rate Your Stocks

Community Team Fools - who are those TMF's?
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and "#1 Media Company to Work For" (BusinessInsider 2011)! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.
Advertisement