Dave & Buster's Entertainment, Inc. PLAY is navigating a dynamic and somewhat conflicting consumer environment. The macroeconomic headwinds continue to pose significant pressures, particularly affecting lower-income consumers, where spending has declined at twice the rate of higher-income groups.
While no significant regional performance changes or notable behavioral shifts have emerged, overall trends remain consistent with previous quarters, with ongoing pressures affecting visit frequency and spending patterns. Although PLAY has rolled out initiatives concerning remodeling program and entertainment-driven innovation based on consumer feedback, the overall environment remains constrained.
Dave & Buster's shares have declined 43% in the past year against the Zacks Retail - Restaurants industry's growth of 6.8%. The stock has also underperformed the sector and the S&P 500.
One-Year PLAY Stock Price Performance
Image Source: Zacks Investment Research
Closing at $29.48 yesterday, the stock stands almost 58% below its 52-week high of $69.82. Adding to investor caution, the stock is trading below both its 50-day and 200-day moving averages, signaling a bearish trend.
PLAY Stock Trades Below 50 & 200-Day Moving Average
Image Source: Zacks Investment Research
Decoding Dave & Buster's Headwinds
Declining Comparable Store Sales: The decrease in comparable store sales continues to hurt the company. During third-quarter fiscal 2024, comparable store sales (including Main Event branded stores) declined 7.7% year over year. The downside was caused by a drop in walk-in transaction counts compared with a stronger consumer environment in the prior year.
Seasonal Weakness and External Pressures: The company's fiscal third-quarter performance (traditionally its lowest seasonal volume period) faced challenges compared with the previous year due to a fiscal calendar mismatch, unfavorable weather in key regions, disruptions from remodel construction at certain locations and unusual items that influenced prior-year comparability.
Balance Sheet Concerns: The company recently refinanced a portion of its debt, raising a $700 million term loan and upsizing its revolving credit facility to $650 million. While these steps enhance liquidity and extend maturities, they also increase financial leverage. As of Nov. 4, 2024, long-term debt, net stood at $1.44 billion compared with $1.28 billion as of Feb. 4, 2024. Times Interest earned at the end of the fiscal third quarter came in at 1.8X compared with 2.1X reported in the previous quarter. With economic uncertainties looming, this level of debt could pressure margins.
Impact of Inflation on Business Performance: Severe inflationary pressures could significantly affect both the United States and global economies, potentially leading to adverse consequences for the company’s operations, financial condition, and overall performance. If multiple cost factors within the business — such as uncontrollable commodity price hikes and rising labor expenses — experience inflation simultaneously, the company may struggle to raise prices sufficiently to counterbalance these increases. This could result in negative repercussions for consumer demand, limiting its ability to maintain profitability.
PLAY’s Earnings Estimates Southbound
The Zacks Consensus Estimate for PLAY’s fiscal 2025 and 2026 earnings per share have declined 3.8% and 12.7%, respectively, in the past 60 days. The downward revision in earnings estimates indicates analysts’ declining confidence in the stock.
Image Source: Zacks Investment Research
Initiatives to Bring PLAY Back on Track
Dave & Buster's is navigating headwinds with a focused approach, implementing six key organic growth initiatives to reinvigorate its performance. The company is optimizing its marketing strategy, leveraging its high brand awareness and customer satisfaction to enhance targeting through digital channels. By revisiting its media strategy, Dave & Buster's aims to increase the effectiveness of its marketing spend, focusing on initiatives like the relaunch of its Eat & Play Combo and the introduction of a Winter Pass.
Furthermore, with over 7 million loyalty members, the company is expanding its database to encourage a higher frequency of visits and spending. On the pricing front, Dave & Buster’s has also implemented strategic gaming price hikes after more than 25 years, introducing new games like “The Human Crane” to maintain customer value while boosting revenue.
In addition to its marketing and pricing strategies, Dave & Buster's is focusing on its food and beverage offerings, with a new Phase IV menu driving improved satisfaction and higher revenues. The company’s remodel program is also progressing well, with 44 stores slated for upgrades by the end of fiscal 2024, creating an enhanced customer experience. Special events continue to show growth, particularly with group bookings and an expanded sales team, while the company sees significant potential in this area for 2025. To support these initiatives, Dave & Buster's is investing in technology enablement, enhancing its IT infrastructure to integrate real-time data and improve guest satisfaction.
PLAY Valuation: A Discount Worth Considering?
Dave & Buster's — sharing space with McDonald's Corporation MCD, Chipotle Mexican Grill, Inc. CMG and Starbucks Corporation SBUX — is trading at a discount. PLAY is currently trading at a forward 12-month price-to-earnings (P/E) multiple of 10.72X, well below the industry average of 25.30X. This discount offers a compelling opportunity for investors looking for growth at a reasonable price.
Image Source: Zacks Investment Research
Our Take
Dave & Buster's is taking active steps to revitalize its growth trajectory through a series of strategic initiatives, including optimizing marketing efforts, enhancing its food and beverage offerings, and expanding its loyalty program. Additionally, the company's ongoing remodel program and focus on technology improvements provide a solid foundation for long-term growth. While its efforts are promising, near-term pressures such as declining comparable store sales, inflationary challenges, and balance sheet concerns pose risks to short-term profitability.
For current shareholders, retaining this Zacks Rank #3 (Hold) stock appears to be a prudent choice as Dave & Buster's works through these challenges and executes its growth strategies. However, prospective investors should exercise caution and wait for a more opportune entry point, especially as the company’s initiatives take effect and market conditions stabilize. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
7 Best Stocks for the Next 30 Days
Just released: Experts distill 7 elite stocks from the current list of 220 Zacks Rank #1 Strong Buys. They deem these tickers "Most Likely for Early Price Pops."
Since 1988, the full list has beaten the market more than 2X over with an average gain of +24.1% per year. So be sure to give these hand picked 7 your immediate attention.
See them now >>Starbucks Corporation (SBUX) : Free Stock Analysis Report
McDonald's Corporation (MCD) : Free Stock Analysis Report
Chipotle Mexican Grill, Inc. (CMG) : Free Stock Analysis Report
Dave & Buster's Entertainment, Inc. (PLAY) : Free Stock Analysis Report
To read this article on Zacks.com click here.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
