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Why Dave & Buster's Shares Dropped Today

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

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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.

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