What happened

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%.

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.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.