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Dave & Buster’s (NASDAQ:PLAY) shares tumble on comp sales slump

  • Game-themed restaurant company posts earnings and revenue beats for fiscal Q2
  • Shares slide as investors take a dim view of recent comp sales decline, lowered full-year profit guidance
  • Raymond James and William Blair cut ratings to Market Perform

Dave & Buster’s Entertainment (NASDAQ:PLAY) received two analyst rating downgrades on Wednesday after posting weak comparable sales and cutting its profit forecast for the year – despite coming in with higher than expected earnings and revenue for Q2.

The initial figures look promising, with the Dallas-based restaurant company logging $0.90 EPS for the three months until 4th August.

The figures represent a 7% increase on the comparable period in 2018 and a healthy six cents before the pre-report consensus.

Company revenues also tracked higher, climbing 8% year-over-year to $344.6m for another forecast beat. However, a 1.8% decline in comparable sales proved to be a sticking point for investors and analysts.

The drop-off was driven by a 2% slump in walk-in sales, which was most keenly felt in the company’s ‘food & beverage’ (-3.2%) and ‘amusements & other’ divisions (-0.8%) – although ‘special event’ sales did rise 0.1% during the quarter.

Dave & Buster’s short-to-medium term guidance did little to soothe investor fears of a tough end to the fiscal year.

It now expects a 2%–3.5% decline in same-store sales and revenues ranging $1.338–$1.359bn for the full year, the latter being $13m lower than its estimate.

CEO Brian Jenkins noted: “While we continue to profitably grow our business and return significant capital to shareholders, our comp sales results came in below expectations.

“Last year's VR launched proved difficult to match and our promotions were not as effective as we had anticipated.

“In the meantime, continuing to open high returning stores is the right strategy from a competitive perspective, but also in terms of maximizing the return on investment.”

Dave & Buster’s shares retreated 5.8% before Wednesday’s opening bell and once trading began, fell 10% as analysts lined up to lower ratings and price targets.

“The outlook for the next several quarters is similarly uninspiring,” BMO Capital Markets analyst, Andrew Strelzik said in a note.

He attributed the company’s challenges to: “three more quarters of challenging virtual reality laps, accelerating competition headwinds, and absence of meaningful food/beverage drivers.”

The company is hopeful that its recent growth drive centred on esports, sports betting and digital VR experiences will stand it in good stead moving forward.

However, the latest drop in comparable sales has many analysts looking towards the sidelines.

“A recent further deterioration in comps offsets the stock’s low valuation and potential activists, in our view (recall Hill Path now owns just under 5.0% + new shareholders HG Vora 5.5%, Blue Harbour 1.8%),” Raymond James revealed after lowering its rating from Outperform to Market Perform.

William Blair followed suit with a cut to Market Perform on Wednesday morning. The less bullish moves are not a complete surprise though as the average Quant Rating shifted towards Bearish before Dave & Busters posted its report.