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Dave & Buster's Has Slashed Cash Outflow to Below $10 Million per Week

By Demitri Kalogeropoulos – Apr 10, 2020 at 8:00AM

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But the restaurant chain still might need more debt to see it through the disruption caused by the COVID-19 pandemic.

Dave & Buster's Entertainment (PLAY 2.76%) recently announced preliminary fiscal fourth-quarter results that continued the mixed trends that investors have seen for over a year. Comparable-store sales fell slightly, but overall revenue improved thanks to a growing store base. The entertainment and dining specialist also noted another modest drop in profitability even as overall profits rose.

But investors were more concerned with management's plan to navigate through the temporary closure of its entire store base due to COVID-19 containment measures. In a conference call with investors, CEO Brian Jenkins and his team said they've succeeded in slashing costs to a comfortable level. Yet risks to the business remain high, since they can't predict when the mandated shutdown periods will end, let alone the pace of the following economic rebound.

Let's look at a few key points that executives sought to get across to shareholders.

A father and son playing arcade games.

Image source: Getty Images.

Slashing cash outflows

As a result of the aggressive actions we have taken and while we remain in full temporary shutdown mode, we reduced our shutdown period expense run rate to approximately $6.5 million per week.
-- Jenkins

The restaurant chain has made several extraordinary financial moves since customer traffic levels started diving around March 9, including suspending the dividend payment, furloughing nearly all store and corporate staff, and halting all nonessential investment projects. It has also drawn down its full credit line.

As a result, cash outflows are averaging around $7 million each week, which should give the company flexibility to ride out even a prolonged pause in sales given its $100 million cash balance. "In the current environment," Jenkins said, "preserving liquidity is of paramount importance."

Business strengths

In 2019 we achieved record sales and [adjusted earnings] results, eclipsing our recent expectation and past years' results. We remain the leading category-defining brand in our industry. Our attractive store model has consistently generated industry-leading volume and EBITDA margins over many years and through many economic cycles.
-- Jenkins

Management is optimistic that the business will keep generating healthy long-term returns for investors even as the company works through a time of significant financial stress. Dave & Buster's cited the past year's 5% sales increase and modest boost in adjusted earnings as evidence that the business model is strong and that consumers enjoy the pairing of entertainment options with dining service.

Difficult financial times ahead

We are unable to predict when mandated shutdown periods may conclude or the pace at which our business may recover after reopening.
-- Jenkins

While the management team is optimistic that Dave & Buster's will emerge from the current crisis even stronger than before, it left investors with a few sobering warnings about its short-term operating position. There's no telling when states will begin lifting their mandatory shutdown orders for example, or the pace at which customer traffic will rebound following those reopenings. The chain has ample cash to maintain its limited operations during the pause, but other major expenses loom, including payments to landlords and key vendors. These may require additional debt and/or equity issuances, the company warned.

"We are not in a position today to project the benefits of these actions," management said while noting that it is currently holding $648 million of debt, or roughly twice its annual adjusted earnings haul.

Demitrios Kalogeropoulos has no position in any of the stocks mentioned. The Motley Fool recommends Dave & Buster's Entertainment. The Motley Fool has a disclosure policy.

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Dave & Buster's Entertainment, Inc. Stock Quote
Dave & Buster's Entertainment, Inc.
PLAY
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