Entertainment and dining venue operator Dave & Buster’s Entertainment (PLAY) is in a challenging period, with shares declining by over 20% amid discouraging Q3 results, the CEO’s resignation, and a lack of a clear recovery roadmap. The third quarter saw top-and-bottom-line misses, as revenue dropped due to a significant decrease in comparable store sales compared to the previous fiscal year. The company is headed in the wrong direction, with a growing net loss, despite efforts to improve liquidity, including refinancing a portion of its debt and closing on a sale-leaseback transaction.
Stay Ahead of the Market:
- Discover outperforming stocks and invest smarter with Top Smart Score Stocks
- Filter, analyze, and streamline your search for investment opportunities using Tipranks' Stock Screener
Ongoing challenges and uncertainties continue to plague the company, suggesting investors might want to wait for indications that the company has found a workable strategy to return to its winning ways.
Dave & Buster’s Struggles Send CEO Packing
Dave & Buster’s Entertainment owns over 200 venues across North America under the brands Dave & Buster’s and Main Event. The company has recently seen changes to its executive structure, as CEO Chris Morris resigned after the company posted disappointing results for Q3. Chairman of the Board, Kevin Sheehan, will take on the role of interim CEO while the company searches for a permanent replacement.
In recent operations, the company has continued to expand its footprint by opening new Dave & Buster’s stores in Barboursville, WV, Lombard, IL, and Clarksville, TN, and a new Main Event store in Grand Rapids, MI.
On the financial front, Dave & Buster’s initiated a strategic refinancing of its debt in Q3 to extend its maturities, reduce interest costs, and increase liquidity. It raised a new $700.0 million term loan due in 2031, cleared the remaining outstanding $440.0 million of its senior notes due in 2025, and made a $200.0 million payment on its existing term loan due in 2029. Moreover, its revolving credit facility was upsized to $650.0 million, extending its maturity until 2029. Furthermore, it executed an additional sale-leaseback transaction for the real estate of one Dave & Buster’s store, generating $28.5 million in proceeds.
Sales Down, Net Loss Up
The company’s financial results for Q3 2024 fell short of expectations. Revenue was $453 million, a 3% year-over-year decrease, falling short of analysts’ projections by $10.74 million. This was driven by a 7.7% year-over-year decline in comparable store sales.
The company’s operating loss totaled $6.3 million, making up 1.4% of revenue, a decrease from the operating income of $18.6 million or 4.0% of revenue in the same quarter of the previous year. However, the company posted a net loss of $32.7 million, a significant increase from the net loss of $5.2 million in Q3 2023 – the non-GAAP earnings per share (EPS) of -$0.84 missed consensus expectations by $0.44.
For the third quarter, the company reported an operating cash outflow of $7.2 million. It ended with a cash balance of $8.6 million, with $537.4 million available from a $650.0 million credit facility.
Negative Momentum Drives Shares into Value Territory
It has been a rough year overall for shareholders, as the stock has slid down over 50%. It trades at the bottom of its 52-week price range of $25 – $69.82 and shows ongoing negative price momentum as it trades below all major moving averages. The price decline has driven the stock into value territory, with a P/S ratio of 0.46x compared to the Consumer Discretionary sector average of 0.96x.
Analysts following the company have increasingly lost enthusiasm for PLAY stock. For instance, five-star analyst Jake Bartlett from Truist Financial has recently downgraded Dave & Buster’s to a Hold, with a $36.00 price target, noting the disappointing Q3 results, the abrupt resignation of the CEO, and recent remodeling efforts that failed to result in expected sales increases. Despite the attractive valuation of the shares, he urges caution until there’s evidence of a successful turnaround.
Eight analysts recently recommended Dave & Buster’s Entertainment as a Moderate Buy. Their average price target for PLAY stock is $42.00, which represents a potential 52.84% upside from current levels.
Bottom Line on Dave & Buster’s
Dave & Buster’s Entertainment is facing a challenging period marked by a declining stock price and disappointing results. The company has seen a drop in revenue, while efforts to improve liquidity and restructure debt have not prevented the increase in net loss. Although the company continues to expand its footprint, it is currently without a permanent CEO following the resignation of Chris Morris. The stock, now in value territory due to a significant decline in share price, is best approached with caution, and investors may want to wait for signs that the company has developed a viable recovery strategy before investing.
