Shares of Dave & Buster's (NASDAQ:PLAY) were taking a dive today after the eat-and-play chain reported a secondary stock offering, a sign that its liquidity concerns have continued as the coronavirus crisis drags on.
As of 9:58 a.m. EDT, the stock was down 15.9%.
In a press release this morning, Dave & Buster's said it was offering $100 million in stock, which will be sold to Jefferies, which will then resell it at variable prices. Jefferies has the option to purchase another $15 million worth of stock as well.
Management said the proceeds from the sale would primarily be used to strengthen its balance sheet, which has been impacted by COVID-19, and also said it could be used for general corporate purposes and to repay outstanding debt.
Dave & Buster's is currently valued at just $343 million, meaning the stock sale will dilute investors by more than 25%, and shows that its liquidity position and its ability to raise debt is fast weakening. The company said it had $100 million in cash on hand as of March 31, and was taking a number of steps to improve its liquidity, including negotiating with landlords and vendors to reduce expenses and extend payment terms.
It's unclear how quickly Dave & Buster's is burning cash, but the company is in an even worse position than its restaurant peers that have been able to rely on takeout and delivery during the crisis. D&B closed all of its locations in March, and has not yet reopened them. Even when they do reopen, customers will likely be reluctant to visit a high-traffic, heavy-touch space like an arcade.
Dave & Buster's stock is down more 75% since February, but that sell-off is warranted given the company is facing a mortal threat in the coronavirus pandemic. Even if D&B is able to survive, it will emerge from the crisis with more debt and with shareholders significantly more diluted. The U.S. economy is also rapidly sinking into a recession, and all of that means that the company won't return to its former sales levels and overall health for years, if it ever does.