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Cramer: Dave & Busters has the keys to successful retail in 2019

Key Points
  • "The malls need Dave & Buster's because they're what's known as a 'traffic donor,'" CNBC's Jim Cramer says.
  • "[It] used everything at their disposal to generate excitement, to create an experience where people will throw money away playing games for near worthless prizes that have only small value to children," the "Mad Money" host says.
  • A combination of business adjustments "is exactly what makes Dave & Buster's the stock to own in the retail group in a successful 2019," he says.
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Dave & Busters has the keys to successful retail: Cramer

Dave & Busters' earnings show how the company has found the right strategy to draw customers into its locations, CNBC's Jim Cramer said.

The game and food franchise said it could soon double its 125 locations, he said. He pointed out the company has been more effective at bringing people out to the malls than once-dominant retail chains such as Sears and J.C. Penney.

"The malls need Dave & Buster's because they're what's known as a 'traffic donor,'" the "Mad Money" host said. "That's the term mall managers use for businesses that can actually bring in more customers, rather than repel them."

At at time when more people are inclined to shop and play games at home in lieu of hanging out at a mall, the gaming center operator beat sales and revenue growth expectations, Cramer said.

Same-store sales growth was just shy of 3 percent, compared to the 2.1 percent projected by analysts. Wall Street had expected $324 million in revenue, but Dave & Busters reported $332 million, up 8.8 percent from the year prior.

The chain installed new technology, controlled costs, and boosted digital advertising to get the results it needed, Cramer said.

"Dave & Buster's used everything at their disposal to generate excitement, to create an experience where people will throw money away playing games for near worthless prizes that have only small value to children," the he said.

Customers are returning to Dave & Busters because they can find new experiences, Cramer said. The company has virtual reality attractions and the ability to change the station to new games, he said. Cramer noted that the arcade accounts for about 55 percent of revenue.

Challenged by a tight labor market, the company was forced to raise wages, but it has also used technology to better optimize its work shifts and workforce, Cramer said. Additionally, the restaurant revamped its menu to cut back on the amount of required kitchen labor, he noted. The franchise is also offering fresh juices and a zucchini-based pasta, among other products, to lure millennials for a night out, he said.

"That's why 5 percent wage inflation and higher medical insurance costs we'rent enough to wreck the quarter," he said.

To further target millennials and their families, Dave & Busters is attracting customers to its game centers with digital advertising. That includes a mobile app and rewards program that provide discounts to customers, Cramer said.

"I know each of these points seems pedestrian ... But, in the end, this combination is exactly what makes Dave & Buster's the stock to own in the retail group in a successful 2019," Cramer said.

Shares of Dave & Buster gained nearly 5 percent in Wednesday's session.

WATCH: Cramer explains why Dave & Busters' got game

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Cramer: Dave & Busters has the keys to successful retail in 2019

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