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Why Dave & Buster's Stock Was Sliding Today

By Jeremy Bowman – Updated Sep 11, 2020 at 12:23PM

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Shares of the "eatertainment" chain fell after a disappointing earnings report.

What happened

Shares of Dave & Buster's Entertainment (PLAY -0.68%) were pulling back today after the eat-and-play chain posted dismal results in its second quarter. With much of its restaurant base closed during the period, analysts had expected sales to plunge, but the results were even worse than expected. As of 11:06 a.m. EDT on Friday, the stock was down 8.2%.

The entrance to a Dave & Buster's.

Image source: Dave & Buster's.

So what

Revenue in the quarter tumbled 85% to $50.8 million, which was well below estimates at $80.9 million. The company closed down all of its restaurants on March 20, and started to gradually reopen them on April 30. Currently, it has reopened 89 of its 137 stores with all of them operating with reduced hours and capacity restrictions. At the 68 in its comparable base that are currently open, comps fell 42% in the two-week period ended Sept. 7.

For the second quarter, its cash burn rate was $3.3 million, and it posted a loss of $1.24 per share, versus a $0.90 per-share profit in the quarter a year ago. That result was slightly better than analyst estimates of a loss of $1.39 per share.

CEO Brian Jenkins said: "We have made steady progress reopening our stores while rapidly implementing numerous initiatives that are accelerating our business recovery and positioning us for long-term success. By continuing to refine our lean operating model, we believe we have lowered our near-term enterprise EBITDA break-even sales index benchmark to approximately 50 percent to 55 percent of prior-year sales, compared with the 60 percent sales index we initially estimated in June."

Now what

Despite the weak results, a number of analysts actually raised their price targets on Dave & Buster's as they cheered the company's cost controls, and noted that restaurants in the comparable base that are currently open are now cash flow positive on a unit-level basis.  

Dave & Buster's results should improve from here, but as an indoor-dining chain with high-touch games, this consumer discretionary stock is unlikely to make a full recovery until people feel safe to return to its restaurants -- meaning when a vaccine is approved or the pandemic ends in some other way.

Jeremy Bowman owns shares of Dave & Busters Entertainment. The Motley Fool recommends Dave & Busters Entertainment. The Motley Fool has a disclosure policy.

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