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Why Dave & Buster's Stock Plunged Today

By Jeremy Bowman - May 4, 2020 at 10:43AM

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A secondary stock offering sparked further liquidity concerns about the "eatertainment" chain.

What happened

Shares of Dave & Buster's (PLAY -3.81%) 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%.

The entrance to a Dave & Buster's venue

Image source: Dave & Buster's.

So what

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.

Now what

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.

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Stocks Mentioned

Dave & Buster's Entertainment, Inc. Stock Quote
Dave & Buster's Entertainment, Inc.
$33.62 (-3.81%) $-1.33
Jefferies Financial Group Inc. Stock Quote
Jefferies Financial Group Inc.
$28.25 (1.04%) $0.29

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