Please ensure Javascript is enabled for purposes of website accessibility

Why Dave & Buster's Shares Dropped Today

By Jeremy Bowman - Updated Apr 14, 2020 at 3:13PM

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

A secondary offering pushed the stock lower.

What happened

Shares of Dave & Buster's Entertainment (PLAY -2.18%) were in the red again today after the troubled "eat and play" chain said it will sell equity to stay afloat as it struggles to cope with the fallout from the coronavirus pandemic.

The stock was down 11.2% as of 2:19 p.m. EDT on Tuesday.

The entrance to a Dave & Buster's.

Image source: Dave & Buster's.

So what

In a press release this morning, Dave & Buster's said that it plans to sell up to $75 million in new stock in an at-the-market equity offering. The move is essentially a secondary stock offering, but comes at a time when the company is reeling from the impact of the coronavirus and the stock has plunged. At its current market cap of roughly $375 million, the move would dilute current shareholders by 20% if the offering is executed in full. 

Management said it would use the proceeds to strengthen its balance sheet, which it said had been impacted by COVID-19, and for general corporate purposes. After completely drawing down its credit facility in March, Dave & Buster's said it had $100 million in cash on hand as of March 31. The company has reduced its expense run-rate during its shutdown to $6.5 million a week, which would mean its current cash on hand would last only about 16 weeks.

The company closed all 137 of its locations since it makes the majority of its revenue from games, and is not relying on takeout and delivery during the crisis, the way some casual dining chains are. 

Now what

By tapping the equity market, the restaurant chain may be signaling that it has exhausted debt markets or that it may not be able to get a reasonably priced loan, considering the company finished the fourth quarter with $632.7 million in debt, more than the company's market value currently. It doesn't help that its stores are closed indefinitely, either.

The equity raise may be the chain's best option right now as it's doing what it can to avoid bankruptcy, but the move shows that the company will have to pay a steep price to stay afloat. The longer the shutdowns continue, the greater its chance of going bankrupt becomes.

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.
PLAY
$34.95 (-2.18%) $0.78

*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
336%
 
S&P 500 Returns
115%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 06/27/2022.

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.