Dave and Buster’s Entertainment Today
Dave and Buster’s Entertainment
(As of 12/13/2024 ET)
- 52 week range
- US$25.00
▼
$69.82
- P/E ratio
- 13.60
- Target price
- $53.38
After years of struggling to succeed, Dave & Buster’s NASDAQ: PLAY has the opportunity to revitalize the business with a new CEO. The surprise departure of former CEO Chris Morris is clouding the outlook and increasing uncertainty over execution, but the right choice could end that. The board says it is looking for a successor, so finding a suitable candidate could take a long time. The company is in excellent financial condition and can generate profits; the only question is how long it will take to turn the ship around.
Dave and Buster’s battle with headwinds in the third quarter
Dave & Buster’s business faced numerous headwinds in the third quarter, including economic, consumer, significant calendar, weather and the impact of remodeling efforts. The bottom line is that revenue fell 3% year-over-year despite an increase in store count, below consensus, and margins contracted. The revenue decline was driven by negative calendar-adjusted revenue growth of 7.7% as it impacted both traffic and tickets. The bad news is obvious, but the silver lining is that redevelopment efforts continue to yield results in completed properties. These spaces resonate with consumers and outperform older layouts.
The margin news is the worst in the report. The company’s margins have been squeezed by costs, investments and deleveraging, and are not expected to recover quickly. Adjusted EBITDA margin fell 240 basis points to 15.1%, pushing the dollar down 16%. GAAP losses widened and adjusted profitability was out of reach, resulting in negative cash flow for the quarter. As a result, many factors affecting profitability, including consumer headwinds and turnarounds, are expected to have a diminishing impact in future quarters, resulting in improved cash flow and leverage.
The company did not provide specific guidance, but provided enough detail to form a bullish outlook for the business. Fourth quarter sales may be below pre-publication estimates but should show strong sequential growth. Strength will be driven by seasonal trends and supported by recovering events business, improved customer satisfaction, new store openings and refurbishments. The company is on track in its redevelopment efforts, showing it can get the job done, with its store count up by three in the quarter. By the end of the year, the company plans to complete at least 40 renovations, and the number of stores will continue to grow.
Dave & Buster’s buyouts are in jeopardy
Dave & Buster’s continued to repurchase shares in the third quarter, reducing shares by more than 5% year-to-date, and will likely continue to repurchase shares. However, as the business struggles to gain traction and cash flow is negative, the pace may slow or buybacks may be suspended until cash flow improves. The company’s overall net leverage ratio is currently within the target range of 2.6x, but relatively high in terms of capital at over 6x, so there is cause for concern. The company refinanced some debt during the quarter, which helped, but it could only keep its balance sheet healthy for so long, burning through capital in the process.
Analysts were not thrilled with the news and issued numerous revisions, including several rating downgrades and further reductions in price targets. The bottom line is that analysts have downgraded sentiment to Hold, with the consensus price target falling over 10% overnight. Consensus calls for strong upside potential, around 80%, with the stock at long-term lows, but revisions are lower and suggest this stock is fairly priced and has little room for growth.
Dave and Buster’s hits have hit rock bottom, but will they rise?
Dave & Buster’s share price fell after reporting its third-quarter data, falling more than 15%, fueled by short selling. On the eve of the issue, the short interest rate was high at 16%, and is likely higher now. The question is whether the market can fall further, and the answer is yes. The price action is at a critical support target but is not yet showing signs of a rebound. In this scenario, the market could fall below support and potentially confirm it as resistance shortly thereafter. This would indicate a complete market reversal, possibly leading to a sustained downtrend and sell-offs to much lower levels. If the market confirms support around $30.50, it will likely continue to move sideways as it has over the past few years.
Before you think about Dave & Buster’s Entertainment, you should hear this.
MarketBeat tracks Wall Street’s top-rated and best-performing analysts daily and the stocks they recommend to their clients. MarketBeat has identified five stocks that top analysts are quietly whispering to their clients to buy now, before the broader market catches on… and Dave & Buster’s Entertainment didn’t make the list.
While Dave & Buster’s Entertainment currently has a Hold rating among analysts, the top-rated analysts think these five stocks are Outperform Buys.
View five stocks here
As the AI market heats up, investors with AI dreams have the potential to see real profits. Learn about the industry as a whole, as well as seven companies powered by AI.
Get this free report