What happened
It was game over for Dave & Buster's Entertainment Inc (PLAY -0.35%) on Wednesday after the popular arcade and restaurant chain posted disappointing second-quarter results. As of 2:16 p.m EDT, the stock had given up 10.1%.
D&B said comparable sales increased just 1.1% in the quarter, and that overall revenue grew 14.9% to $280.8 million, missing estimates at $281.7 million. However, adjusted earnings per share rose from $0.50 to $0.59, with the help of a lower tax rate, topping expectations at $0.55.
Image source: Dave & Buster's.
So what
In addition to the slow comparable sales growth, investors also seemed to be concerned about falling sales in the food-and-beverage category, a sign that the brand may be succumbing to pressure in the broader casual dining sector. Growth in amusement comps offset the weakness in food.
Management also said, "Our non-comp store base is performing well and we are very pleased with our recent store openings," and noted that its comparable sales beat the casual dining benchmark for the 21st quarter in a row.
Now what
The company dialed down same-store sales expectations for the full year, guiding at 1% to 2% growth compared to a prior range of 2% to 3%. It also lowered its EBITDA expectations as it said pre-opening costs from increased store openings at the end of the year would bite into profits.
While the food-and-amusement company's report was not as strong as previous ones and the slower comparable sales guidance is a negative sign, the double-digit sell-off seems to be exaggerated. Dave & Buster's continues to open new stores at an aggressive pace and is well on its way to reaching its goal of 211 locations in North America, more than doubling its count from 100 today. Meanwhile, profits continue to march higher as the company has topped earnings estimates in all of its quarterly reports since going public in 2014. I'd expect the stock to bounce back from Wednesday's sell-off as it still has a number of catalysts in its favor.
