Bowling operator Bowlero Corp. (NYSE: BOWL) shares surge on impressive Q1 results
CEO Tom Shannon explains how Bowlero stands out in a challenging market
Sees "massive pent-up demand" as Covid restrictions lifted across the country
Mr. Shannon also expects to outperform in the event of a recession for multiple reasons
Sees Bowlero as a winner if consumers become budget conscious, hurt by inflation
Bowlero could also capitalize on any economic downturn with smart real estate moves
Stock looks undervalued given growth, profit profile at just 8x 2021 Ebitda
In a market littered with bombed out stocks, it's tough to find a newly-listed company in good form. For a rare example, look no further than bowling giant Bowlero Corp. (NYSE: BOWL).
Shares of Bowlero surged as much as 17% in midday trade Thursday after the company posted first quarter revenue of $258 million, an increase of 129.8% year over year and 25.8% above 2019 pre-pandemic levels. Ebitda skyrocketed 296% from a year earlier to $108.4 million-also reflecting a 61% rise from 2019. Both revenue and Ebitda were new records for Bowlero.
Bowlero's comeback to pre-pandemic levels is nothing short of remarkable. The company offers an experience that's upscale and local, while also being much more affordable than a vacation with air travel or a theme park. And it has a strong moat-it owns nearly eight times as many bowling centers as its next competitor.
In an interview with IPO Edge Thursday morning, Founder and CEO Tom Shannon said that consumers have returned in droves after facing regional Covid and Omicron-variant restrictions. "There is massive pent-up demand. Massive," he said.
Bowlero Founder and CEO Tom Shannon (photo credit: Amanda Schwab/startraksphoto.com)
To underscore the trend, he pointed out that demand is especially strong in California, where mask mandates were only recently lifted. The state is outperforming all other regions at the moment.
Mr. Shannon emphasized that the company's performance is the culmination of years of work making acquisitions and constantly improving the customer experience. "While we're extremely pleased with the performance it's not really a surprise," he said, pointing out that the company has stuck to the same execution framework as it grew though purchases of AMF, Brunswick and Bowl America - all since 2013.
While the company's bowling centers have different footprints from their legacy operations, Bowlero transforms them to have the same look and feel. The experience includes much more than bowling-high-end bars, cuisine and arcade entertainment. The result is a venue that can be enjoyed by customers who don't even pick up a bowling ball.
Asked if inflation was hurting spending at Bowlero locations, Mr. Shannon said "We're not seeing it yet. If you're budget conscious, we're the more affordable local alternative. And if we go into an economic downturn, we'll be one of the few safe havens."
What's more, Bowlero has recently raised prices that more than compensate for the cost pressures it sees in areas like food. "Our margins are widening," Mr. Shannon said.
Another possible way for Bowlero to win in recession: Savvy real estate deals. The company pounced on the chance to buy bowling centers when Covid struck and Mr. Shannon said similar opportunities could arise again.
"We'll use it to our advantage," he said. "Leases and property get cheaper."
Other recent acquisitions are also paying off. The Professional Bowlers Association (PBA), which Bowlero purchased in 2019, continues to draw a record number of viewers and is a great marketing tool for the business.
A key difference between Bowlero and other companies that recently went public via SPAC is that it has a quarter-century track record of profitability. And unlike other SPAC deals, Bowlero wasn't actually in need of cash and has a strong balance sheet. "The company didn't need growth capital," Mr. Shannon said.
Even after Thursday's rally, Bowlero shares look very reasonable by any measure. The company trades an enterprise value of roughly $2.3 bilion - just 8 times 2021 Ebitda.