Bowlero(BOWL) Q1 Thoughts

Bowlero (BOWL) Q1 Review

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Seasonality and Business Shift:
Q1 results are typically Bowlero’s weakest quarter due to seasonality during the summer months. However, the company’s recent pivot into waterparks could help smooth out quarter-to-quarter seasonality in the future.

Segment Results:

1. Bowling & Shoe Rental Revenue (Miss):

   • Reported: $122.2 million (+4.9% y/y)

   • My estimate: $126.7 million

2. Food & Beverage (Beat):

   • Reported: $88 million (+17.5% y/y)

   • My estimate: $84.9 million

3. Amusement & Other (Beat):

   • Reported: $50 million (+38.5% y/y)

   • My estimate: $40.8 million

Guidance Update:

Entering the year, management guided revenue between $1.22 billion and $1.28 billion. They have now raised the lower end of guidance to $1.23 billion, keeping the upper end unchanged at $1.28 billion.

EPS Revision:

Initially, I estimated Bowlero’s EPS at ($0.06) for the year. Post-results, I now expect them to generate $0.02 in EPS.

Key Observations:

1. Gross Margins:
   My calculation (not the company’s) showed gross margins declined by 280 bps y/y.

2. Stock Reaction and Short Interest:
   Results came in better than expected, and the stock reacted positively, likely due to high short interest.

3. Food & Beverage Trends:
   New food menus continue to roll out across centers, and management mentioned increasing food prices while bringing in a Chief Procurement Officer to drive efficiencies. Food and beverage (F&B) sales are becoming a key growth driver, with F&B as a percentage of Bowling revenue increasing from 64% in Q1 2024 to 72% in Q1 2025. This trend is expected to continue.

4. Bowling Traffic Decline:
   Bowling revenue underperformed this quarter. I estimate traffic per center was down 4.6% year-over-year. F&B and amusement sales have helped offset this decline, but a trend like this can only continue for so long before it becomes problematic.

5. SSS vs. EBITDA Growth Debate:
   A sell-side note suggested that analysts should focus on EBITDA growth instead of same-store sales (SSS) growth. I disagree with this approach. Given Bowlero's high operating leverage, I believe SSS remains the key metric to watch.

M&A and Center Growth:

Management continues highlighting an active M&A environment, but they’ve only added 8 centers in the past year. The thesis for Bowlero has always relied on a growing center count, which should drive growth and EPS as newly acquired centers improve their operations. This makes the performance of existing centers—and thus SSS growth—even more critical.

Valuation and Final Thoughts:

The stock currently trades at 27x 2027 estimated EPS, which is unattractive on the long side. The underperformance in bowling traffic and limited center growth raises questions about the sustainability of the growth story