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Why Dave & Buster's Stock Jumped 35% in August

By Demitri Kalogeropoulos – Sep 3, 2020 at 9:09AM

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Investors got a bit more optimistic ahead of its second-quarter earnings report.

What happened

Dave & Buster's Entertainment (PLAY 5.36%) shares outpaced a booming market in August, notching a 35% return compared to the S&P 500's 7% increase, according to data provided by S&P Global Market Intelligence.

That rally only erased a portion of the losses shareholders have seen in recent months. The restaurant and entertainment chain remains lower by over 50% so far in 2020.

A young woman plays an arcade game.

Image source: Getty Images.

So what

August's rally was supported by rising investor optimism in an eventual industry rebound once the COVID-19 threat has ended. Some of Dave & Buster's best performance days last month coincided with positive news about the development of a vaccine.

Now what

Until the pandemic ends, Dave & Buster's is likely to show weak sales and profitability as consumers choose more outdoor-focused entertainment and dining options. There will be plenty of evidence of those pressures when the company reports its second-quarter earnings results on Sept. 10.

In that announcement, investors are expecting to see the chain's sales slump improve slightly as revenue declines land at 21% compared to nearly 60% last quarter. But the prospect for several additional quarters of reduced revenue will put the focus on CEO Brian Jenkins' cost-cutting plans and on the retailer's wider expansion strategy through what could be a painful recession in the restaurant industry.

Demitri Kalogeropoulos has no position in any of the stocks mentioned. The Motley Fool recommends Dave & Busters Entertainment. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Dave & Buster's Entertainment, Inc. Stock Quote
Dave & Buster's Entertainment, Inc.
PLAY
$33.01 (5.36%) $1.68

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