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Bowlero: The Growth Story Continues

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Klaus Vedfelt

Thesis

I proceed to urge going agelong connected Bowlero (NYSE:BOWL) aft reviewing nan 2Q23 results. Management has surely executed arsenic I expected since my first post, and I do not spot immoderate slowing down moving forward. The business itself is simply a straightforward patient pinch unthinkable portion economics. I now expect BOWL to make $466 cardinal successful EBITDA successful FY25, and attaching a 11x guardant EBITDA aggregate consequence successful $20.64/share of equity worth (32% upside).

2Q23 results

BOWL's second-quarter 2023 adjusted EBITDA was $97 million, which exceeded nan statement estimate by $8 cardinal aliases 9%. This outperformance was driven by a robust gross maturation of 33%, which was 8pts higher than nan statement estimate. The EBITDA separator was astir successful statement pinch expectations, astatine 35.5%.

Bowling centers performance

I americium pleased pinch BOWL 2Q23 results, fixed a beardown 33.2% y/y maturation summation successful revenues, which useful retired to a robust 14% CAGR complete 3 years. The beardown gross maturation tin mostly beryllium attributed to nan 27% y/y summation successful same-center sales, which useful retired to a 9% 3Y CAGR. This is very promising news that bodes good for continued maturation and post-covid recovery. There was immoderate thief from an easy comparison twelvemonth before, but overall, nan 2Q23 maturation was driven by an summation successful arena gross of 74% and a 24% summation successful gross from walk-in retail. Management's commentary connected nan quarter-to-date capacity was 1 of nan astir telling indicators of ongoing maturation momentum - location has been nary discernible slowdown successful user request crossed each segments of nan business. That said, my proposal is to measure capacity complete a 3 years stack ground arsenic it paints a clearer image pinch nary distortion from y/y soft and difficult comps. Management has besides expressed optimism that nan existent three-year trends will proceed into nan 2nd half of nan year.

In addition, I deliberation location are still plentifulness of caller opening opportunities, and acceleration of caller builds complete nan adjacent 18 months, opening successful 2H23 and accelerating into CY24, pinch 2x summation successful AUVs of caller builds vs bequest centers (this aligns pinch my thesis beneath that separator is optically depressed). To beryllium much specific, guidance has confirmed 5 signed leases (not completed yet), a number that could importantly turn successful nan future. Consistent pinch guidance comments, I spot important opportunity for caller openings successful top-tier markets. Management has singled retired Miami and LA suburbs arsenic areas flush pinch rate for caller openings and acquisition opportunities. In nan future, nan guidance foresees nan imaginable to boost yearly maturation by leveraging nan accrued standard of nan organization. This maturation is expected to beryllium driven by improvements successful nan company's floor plan pinch REITs and a displacement successful in installments perspective. Furthermore, an advantage of this guidance squad is that they do not person nan "growth astatine immoderate cost" mentality that plagues galore businesses today. The company's activity is fixated connected sustainable maturation complete nan agelong word and is not consenting to discuss this privilege by ignoring nan woody surface successful bid to hasten maturation successful nan short term.

Overall, I deliberation nan momentum is still insanely beardown for BOWL and unless different pandemic hits, I don’t spot a logic for a slowdown.

Pricing

Management has observed that value increases are successful nan 10% to 15% scope compared to nan periods earlier nan pandemic. Since BOWL's yearly pricing strategy has historically been successful nan debased azygous digits% range, this only strengthens my condemnation successful nan company's maturation potential. To trim hold times astatine bowling centers, nan pricing strategy is not implemented system-wide, but alternatively is strategically applied astatine circumstantial locations successful consequence to highest demand. Demand is inelastic astatine this time, meaning that utilization is unaffected and that nan incremental margins connected immoderate further gross are 100%, making this a smart pricing strategy.

Improving margin

In position of margin, it's encouraging to perceive that guidance is moving to rationalize costs arsenic overmuch arsenic possible. They pointed retired that location is room for betterment successful nan areas of operating leverage and Corporate SG&A spending. In summation to this, I judge that galore BOWL centers are not yet astatine "mature" levels, meaning that location is room for some incremental games per subordinate and nan effect of a displacement successful halfway size mix. Larger accommodation person a greater profit separator because they tin accommodate much lanes pinch less employees. As a consequence of nan accelerated summation successful nan number of centers, I judge that margins look "depressed" today, indicating that location is simply a "catch-up" communicative successful position of margin. Since location has been minimal maturation successful BOWL's COGS, value summation implemented by guidance should thief boost margins.

Valuation

The upside for BOWL is still charismatic astatine 32% complete 2 years. My updated exemplary reflects nan higher maturation complaint supported by pricing summation and accelerated gait of centers rotation out. This higher maturation would besides support higher margins arsenic BOWL sees precocious incremental separator moving forward. Cost rationalization is besides expected to thrust margins higher.

Valuation

Author's calculation

Conclusion

BOWL 2Q23 results person exceeded expectations, pinch a beardown gross maturation of 33% and an adjusted EBITDA of $97 million. The beardown capacity tin mostly beryllium attributed to nan summation successful same-center income and gross from events and walk-in retail. Management's commentary suggests that location is nary discernible slowdown successful user request crossed each segments of nan business, which bodes good for continued maturation and post-COVID recovery. All successful all, nan upside imaginable for BOWL remains charismatic astatine 32% complete 2 years, supported by higher maturation rates, costs rationalization, and separator improvement. Based connected these factors, I proceed to urge going agelong connected BOWL.

This article was written by

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I americium an finance expert successful a mini boutique firm, covering companies crossed APAC and US.With complete 5 years of dissecting businesses and what makes them tick, I look for opportunities successful nan markets and americium not confined to a peculiar strategy. I look for beardown companies pinch superior moats, but besides judge powerfully successful managing risks to past to conflict different day.

Disclosure: I/we person nary stock, action aliases akin derivative position successful immoderate of nan companies mentioned, and nary plans to initiate immoderate specified positions wrong nan adjacent 72 hours. I wrote this article myself, and it expresses my ain opinions. I americium not receiving compensation for it (other than from Seeking Alpha). I person nary business narration pinch immoderate institution whose banal is mentioned successful this article.

Editor: Naga



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