Dave and Buster’s Reports Weaker Than Expected Earnings

Dave and Buster’s Entertainment Inc (Ticker Symbol: PLAY) released first-quarter earnings after the bell on Tuesday that were weaker than expected and the company lowered fiscal year guidance below previous forecasts. The restaurant chain reported an earnings per share miss of $1.13 per share vs. Wall Street analysts’ expectations of $1.15 per share.   In addition, Dave and Buster’s net revenue failed to meet Wall Street’s expectations, reporting a revenue of $363.6 million vs. analysts’ estimates of $372 million.  The company lowered fiscal year earnings to $103 million to $113 million vs. prior guidance of $105 million to $107 million and revenue for the year from $1.365 billion to $1.39 billion vs. previous revenue forecast of $1.37 billion to $1.4 billion.

In the third quarter of 2018, Dave and Buster’s announced a $100 million dollar stock buyback program.  Companies do this because they see value in their own shares more so than in other companies or investments elsewhere.  During the first quarter of this year, the company repurchased 1.3 million shares at an average price of $48.85 per share.  Dave and Buster’s has forecasted to open 15 new locations during 2019.  So far the company has opened seven new stores in the first quarter of 2019 and one store so far in the second quarter.  Dave and Buster’s stated it has room to support up to 250 locations in North America, which is double the number of locations they currently have.

Dave and Buster’s stock had a rough start to 2018.  The stock gapped down over 10% early in January to set off a negative tone for the stock.  The stock continued to sell off over the first two quarters, before finding some price support around the $38.00 price level.  The company’s stock then rallied over 20% led by a strong earnings report in the second quarter of 2018.  It pulled back slightly to its 200-day Moving Average where it formed a Double Bottom reversal pattern. Dave and Buster’s stock broke out of this pattern to the upside, rallying nearly 25%, before putting in a Head and Shoulders topping formation. Traders and investors sometimes look at Head and Shoulders patterns for a possible pause within the current trend which can, at times, lead to a reversal, as occurred in Dave and Buster’s case.  Dave and Buster’s stock was positive for the year so far in 2019 until the negative earnings and guidance release on Tuesday sent the stock gapping lower over 20%, turning the stock negative for the year.

(Chart above courtesy of ​www.tipranks.com​)

Based on a survey of 6 analysts offering 12-month price targets, the average price target for Dave and Buster’s stock is $55.83. According to that number, the stock is priced at a discount relative to Wall Street’s analysts and could be considered undervalued around current levels near $13.76.

Dave and Buster’s has also experimented with simplifying its menu. The feedback has been positive and customer satisfaction scores increased for food and beverages.  The company also released two new games that are based on Marvel and Star Trek movies and will be added to select game rooms. Dave and Buster’s will also be releasing a mobile app in the second half of this year, with more details coming in the future.  Investors in Dave and Busters will need to wait until their next earnings call on September 15th for fresh news on the company.