Bowlero surprises with strong quarterly figures and drives up stock price

The stock of the bowling center operator Bowlero saw a significant increase on Friday after the company presented convincing results for the fourth quarter of its fiscal year 2024. While the S&P 500 recorded a decline of 1.3% around 10:45 AM ET, Bowlero's stock rose by 10% at that time and had previously surged nearly 18%. Bowlero's fourth quarter ended in June, during which the company registered a 19% increase in revenue compared to the previous year. This growth exceeded expectations and was driven by a 7% rise in same-store sales. In addition to better-than-expected results for the fiscal year 2024, management also presented an optimistic outlook for fiscal year 2025, which began in July. The company anticipates revenue growth of up to 10% and forecasted a margin of 32% to 34% for adjusted EBITDA, slightly above the 31% margin in fiscal year 2024. Investors were pleased with the strong growth and rising profit margins, explaining the stock's increase on that day. Bowlero operates over 350 bowling centers and has grown through a mix of new constructions and acquisitions. In fiscal year 2024, three new bowling centers were constructed, while 22 existing ones were acquired. Management reports an increasing number of attractive acquisition opportunities, indicating that more acquisitions are likely in the future. However, this strategy of acquiring and rehabilitating distressed assets is not without risk. Although management deserves recognition for its past success, this strategy can become risky due to the associated debt if problems arise. To further enhance attractiveness for investors, Bowlero rewards its shareholders not only through acquisitions but also via share buybacks and dividends. Management still has a budget of $164 million for additional buybacks and currently pays a dividend with a yield of approximately 2%. These measures might motivate some investors to overlook the risks of the growth strategy through acquisitions and invest in the stock.