Shares of Dave & Buster's Entertainment (PLAY 0.69%) fell 14% on Thursday after the restaurant operator's second-quarter earnings fell short of its shareholders' expectations.
Dave & Buster's revenue rose 24% year over year to $468.4 million. Its growth was bolstered by its acquisition of Main Event for $835 million in June. The all-cash deal paired Dave & Buster's namesake restaurant and entertainment chain, which caters to young adults, with Main Event's family-focused concept.
Both chains have enjoyed solid revenue gains during the pandemic. Dave & Buster's branded stores saw their comparable sales rise by 9.6% compared with the second quarter of 2019. And from June 29 through July 31 -- the day Dave & Buster's purchased Main Event to the end of the second quarter -- Main Event's comps were up 29.7% compared with the same period in 2019.
However, rising costs are denting the company's profitability. Dave & Buster's operating margin declined to 12.1% from 21% in the year-ago quarter, due in part to acquisition-related costs and higher compensation expenses. Its net income, in turn, plunged 45% to $29.1 million, or $0.59 per share.
Still, Dave & Buster's said its consolidated comparable store sales are up 22.1% through the first five weeks of the third quarter compared with the same period in 2019. Additionally, management has implemented a cost-cutting plan it expects will save the company up to $25 million annually.
"While we saw substantial headwinds during the [second] quarter from wage and commodity inflation, we remained focused on driving revenue and strong cash flow while still working to mitigate these pressures with operational efficiencies and appropriate pricing actions," CEO Chris Morris said.