Back to top

Image: Bigstock

Dave & Buster's (PLAY) Posts Narrower-Than-Expected Q3 Loss

Read MoreHide Full Article

Dave & Buster's Entertainment, Inc. (PLAY - Free Report) reported third-quarter fiscal 2020 results, wherein the bottom line surpassed the Zacks Consensus Estimate but the top line lagged the same. However, both earnings and revenues declined sharply year over year.

Nonetheless, the company stated that it achieved strong sales recovery through late October on the back of its reopening initiatives.

In regard to the resurgence of COVID-19 cases, Dave & Buster’s Chief Executive Officer, Brian Jenkins stated, “Despite this temporary setback, our resilient and committed team, our focused plan, enhanced liquidity, and our strong brand put us in position to bounce back quickly when the threat of COVID begins to subside.” Following the announcement, positive investor sentiments were witnessed as shares of the company gained 3% during after hours trading session on Dec 10.

Let’s delve into the quarterly numbers.

Earnings & Revenue Discussion

During the fiscal third quarter, the company posted loss of $1.01 per share, which was narrower than the Zacks Consensus Estimate of loss of $1.11 by 9%. The company had reported earnings per share of 2 cents in the year-ago quarter.

Quarterly revenues of $109.1 million missed the consensus mark of $113 million by 3.5%. The top line also slumped 63.6% from the prior-year quarter’s number. The decline was primarily due to the coronavirus pandemic. In fact, Amusements and Other revenues, and Food and Beverage revenues fell considerably during the quarter owing to the pandemic.

Food and Beverage revenues (35.2% of total revenues in the fiscal third quarter) plunged 69.2% year over year to $38.3 million, Amusement and Other revenues (64.8% of total revenues) fell 59.5% to $70.7 million.

Comps Details

Comparable store restaurant sales declined 66% year over year in the fiscal third quarter. The downside can primarily be attributed to the rise in COVID-19 cases along with related operational restrictions. Meanwhile, non-comparable store revenues in the reported quarter came in at $20.1 million, down from $40.1 million in the year-ago quarter.

Operating Highlights

Operating loss in the fiscal third quarter totaled $56 million against operating profit of $6.5 million in the prior-year quarter. Operating margin came in at (51.4%) versus 2.2% in the prior-year quarter. Notably, decline in traffic due to temporary store closures negatively impacted the fiscal third-quarter operating results.

Adjusted EBITDA was ($16 million) against $46.3 million in the prior-year quarter.

Balance Sheet

As of Nov 1, cash and cash equivalents totaled $8.3 million compared with $24.7 million as of Feb 2, 2020.

At the end of the fiscal third quarter, long-term debt came in at $561.8 million compared with $632.7 million at the end of Feb 2, 2020.

Stores Update

Although Dave & Buster’s was operating only through delivery and takeaway services from late March through late April, it started to initiate dine-in openings thereafter. As of Dec 6, the company had 90 stores (or 65% of its chain) open that comprised 15 store reclosures and one new store opening.

Fiscal Q4 Business Update

In the first five weeks of the fiscal fourth quarter (through Dec 6, 2020), the company’s operations were negatively impacted by the resurgence of COVID-19 cases. Notably, the company has been witnessing renewed operating limitations imposed by local jurisdictions, store reclosures and delays in store re-openings particularly in California and New York. Resultantly, comps during the period declined 71% year over year.

Notably, the company anticipates December sales and profitability to reflect the surge in COVID-19 cases along with operating restrictions. Furthermore, rise in costs related to labor, repair and maintenance as well as spoilage costs (due to prolonged closures) are likely to impact the same.

Zacks Rank & Key Picks

Dave & Buster’s currently carries a Zacks Rank #4 (Sell).

Some better-ranked stocks in the same space are Brinker International, Inc. (EAT - Free Report) , Darden Restaurants, Inc. (DRI - Free Report) and Jack in the Box Inc. (JACK - Free Report) . Brinker sports a Zacks Rank #1 (Strong Buy), while Darden and Jack in the Box carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Brinker has a three-five year earnings per share growth rate of 21.8%.

Darden has a trailing four-quarter earnings surprise of 262.8%, on average.

Jack in the Box's 2021 earnings are expected to surge 20.22%.

Looking for Stocks with Skyrocketing Upside?

Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.

Ignited by referendums and legislation, this industry is expected to blast from an already robust $17.7 billion in 2019 to a staggering $73.6 billion by 2027. Early investors stand to make a killing, but you have to be ready to act and know just where to look.

See the pot stocks we're targeting >>