Please ensure Javascript is enabled for purposes of website accessibility

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

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

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

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.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Dave & Buster's Entertainment, Inc. Stock Quote
Dave & Buster's Entertainment, Inc.
$32.02 (2.76%) $0.86

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/28/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.