We came across a bearish thesis on Lucky Strike Entertainment Corporation (LUCK) on Substack by Dominick D’Angelo. In this article, we will summarize the bears’ thesis on LUCK. Lucky Strike Entertainment Corporation (LUCK)’s share was trading at $10.88 as of Feb 25th. LUCK’s trailing and forward P/E were 24.12 and 18.15 respectively according to Yahoo Finance.
A large and spacious bowling alley, with lanes full of customers throwing strikes.
The second quarter for Lucky Strike Entertainment was a critical test for the company, and it fell short. Same-store sales (SSS) declined 6.2%, worse than management’s expectations of flat performance. While some seasonal factors played a role, the decline in traffic—down 10% year-over-year—raises concerns. Notably, corporate and event business, which typically drives Q2 revenue, was weak, with last-minute event cancellations dragging down results. Management now expects low single-digit SSS declines for the full year, reinforcing the downward trend in estimates. The stock remains expensive despite a relatively strong macro backdrop, and with a high fixed-cost base and leverage profile, there is an almost certain probability of liquidity challenges within the next decade.
Promotional activity has ramped up in response to weak traffic. The company has aggressively pushed discounts, including 50% off a third game and bundled food-and-beverage deals. However, there have been frequent strategic shifts. It initially focused on the Money Bowl app to drive engagement, then pivoted to encouraging customers to bowl more games, and now emphasizes premium food and beverage offerings while rebranding centers under the Lucky Strike name. These moves appear contradictory—management positions bowling as an affordable entertainment option, yet simultaneously pushes higher-priced offerings to elevate the brand. The average customer spend per visit has risen to ~$47.40 and climbs to ~$55 with tips.
Despite weak sales, expense management was a bright spot. Labor costs per center declined 12% year-over-year, largely due to operational efficiencies. Handheld tablets have improved server capacity, reducing staff requirements per center and lifting four-wall margins. The company also expanded its footprint, opening four new Lucky Strike locations and acquiring Boomers Parks & Spectrum Entertainment for $42.8 million. Early signs from the Lucky Strike openings in Beverly Hills and Ladera Ranch are promising, with each location generating over $1 million in revenue in their first month.
Looking ahead, management pointed to external factors like wildfires in Los Angeles as a $5 million Q2 revenue headwind but expects a boost from the school break shift into Q3. While January comps were down low single digits, February and March are expected to improve. Revised Q3 revenue estimates now stand at $350.4 million, assuming a modest +1% SSS gain from new center openings. However, given the ongoing struggles in corporate event bookings and promotional activity, further downward revisions to FY25 guidance appear likely.
The stock remains expensive and unattractive at current levels. The market remains optimistic, but signs of further pressure are mounting. A potential write-off of net operating losses (NOLs) looms, and further analyst downgrades could weigh on sentiment. The company’s best chance at reversing the trend is a rebound in corporate event demand and successful execution of the Lucky Strike rebranding. However, if corporate event spending fails to recover, it could signal a more permanent shift in demand. Until a meaningful turnaround materializes, the risk/reward remains unfavorable.
Lucky Strike Entertainment Corporation (LUCK) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 16 hedge fund portfolios held LUCK at the end of the third quarter which was 13 in the previous quarter. While we acknowledge the risk and potential of LUCK as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than LUCK but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.