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Dave & Buster's (PLAY) Falls 26% YTD: More Pain or Gain Ahead?
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Shares of Dave & Buster's Entertainment, Inc. (PLAY - Free Report) have declined 26.2% year to date compared with the broader industry’s decline of 8.4%. This underperformance has been mainly due to reduced walk-in traffic, a tough economic environment and poor comparable sales figures.
The drop in PLAY's stock price has many investors wondering how long the decline will continue. On Jul 17, the stock closed at $39.73, which was well below its 52-week high of $69.82 but higher than its 52-week low of $33.07. The company has also underperformed other industry players so far this year, like BJ's Restaurants, Inc. (BJRI - Free Report) , up 3.4%, The Wendy's Company (WEN - Free Report) , down 6.4% and Brinker International, Inc. (EAT - Free Report) , up 53.9%.
Stock Performance
Image Source: Zacks Investment Research
Technical indicators point to a continued bearish trend for the stock. PLAY is trading below its 50-day moving average, indicating ongoing downward momentum.
50-Day Moving Average
Image Source: Zacks Investment Research
Factors Acting Against PLAY
The broader economic conditions have made it difficult for the company to attract and retain customers, impacting overall sales. Inflationary pressure on labor and commodities continues to impact the company negatively. The company anticipates the headwinds to persist over the next few quarters. The industry players expect to witness higher costs for quite some time due to labor and supply-chain shortages. The company has been witnessing labor challenges in a handful of markets. The company is cautious, given the difficult macroeconomic environment.
Moreover, the bottom line of Dave & Buster’s, in the fiscal first quarter, was compromised mainly due to the realization of more than $10 million of incremental labor and marketing costs associated with the rollout of new initiatives and certain marketing tests. The company aims not to repeat the realization of these costs going forward, as it hugely impacted the bottom line during the quarter.
The decline in comparable sales continues to hurt the company. During the first quarter of fiscal 2024, pro-forma comparable store sales (including Main Event branded stores) declined 5.6% year over year. The downside was caused by a drop in walk-in transaction count compared to a stronger consumer environment in the prior year. Higher food and beverage prices and increased special event revenues partially offset this. For 2024, the company expects comparable sales to be influenced by calendar adjustments related to the timing of spring breaks.
Despite management's positive outlook on their remodeling program, only a small portion of the stores have been remodeled so far, which is insufficient to significantly improve overall sales trends immediately. Specifically, only nine remodels have been completed, with eight more expected by the end of the second quarter of 2024. This slow pace of remodeling means that the positive effects on sales are not yet substantial. However, management remains optimistic, projecting that 35% of the stores will be remodeled by the end of 2024, 68% by the end of 2025, and the entire system by the end of 2026.
Earnings Estimates Southbound
Earnings estimates for PLAY have been going down over the past 60 days. The Zacks Consensus Estimate for 2024 has decreased 22.5%. The consensus estimate for second-quarter 2024 earnings has also been revised 15% downward over the same time frame.
Image Source: Zacks Investment Research
Valuation
From a price perspective, PLAY is currently trading near the lower end of its 52-week range. Notably, annual earnings estimates have significantly declined. Based on the forward 12-month earnings ratio, PLAY’s shares are currently trading at 11.59, which is below both its average of 11.96 and the industry average of 22.01.
Image Source: Zacks Investment Research
Wrapping Up
Given the current state of Dave & Buster's, investors should approach this stock with caution. Though there has been some improvement in sales due to recent initiatives, it is not enough to reverse the bearish trend.
The economic headwinds, including inflationary pressures and labor challenges, are expected to persist, negatively impacting the company's operations and profitability. Moreover, the slow pace of store remodels means that the benefits of these improvements will take time to materialize.
From a valuation perspective, while PLAY is trading near the lower end of its 52-week range, its forward 12-month earnings ratio is below both its average and the industry average, indicating potential undervaluation. However, the negative trends and uncertain outlook suggest that the stock could remain under pressure in the near term.
Considering these factors, investors might find it prudent to stay away from the Zacks Rank #5 (Strong Sell) stock for now until there is clearer evidence of a turnaround and improved sales and earnings performance.
Image: Shutterstock
Dave & Buster's (PLAY) Falls 26% YTD: More Pain or Gain Ahead?
Shares of Dave & Buster's Entertainment, Inc. (PLAY - Free Report) have declined 26.2% year to date compared with the broader industry’s decline of 8.4%. This underperformance has been mainly due to reduced walk-in traffic, a tough economic environment and poor comparable sales figures.
The drop in PLAY's stock price has many investors wondering how long the decline will continue. On Jul 17, the stock closed at $39.73, which was well below its 52-week high of $69.82 but higher than its 52-week low of $33.07. The company has also underperformed other industry players so far this year, like BJ's Restaurants, Inc. (BJRI - Free Report) , up 3.4%, The Wendy's Company (WEN - Free Report) , down 6.4% and Brinker International, Inc. (EAT - Free Report) , up 53.9%.
Stock Performance
Image Source: Zacks Investment Research
Technical indicators point to a continued bearish trend for the stock. PLAY is trading below its 50-day moving average, indicating ongoing downward momentum.
50-Day Moving Average
Image Source: Zacks Investment Research
Factors Acting Against PLAY
The broader economic conditions have made it difficult for the company to attract and retain customers, impacting overall sales. Inflationary pressure on labor and commodities continues to impact the company negatively. The company anticipates the headwinds to persist over the next few quarters. The industry players expect to witness higher costs for quite some time due to labor and supply-chain shortages. The company has been witnessing labor challenges in a handful of markets. The company is cautious, given the difficult macroeconomic environment.
Moreover, the bottom line of Dave & Buster’s, in the fiscal first quarter, was compromised mainly due to the realization of more than $10 million of incremental labor and marketing costs associated with the rollout of new initiatives and certain marketing tests. The company aims not to repeat the realization of these costs going forward, as it hugely impacted the bottom line during the quarter.
The decline in comparable sales continues to hurt the company. During the first quarter of fiscal 2024, pro-forma comparable store sales (including Main Event branded stores) declined 5.6% year over year. The downside was caused by a drop in walk-in transaction count compared to a stronger consumer environment in the prior year. Higher food and beverage prices and increased special event revenues partially offset this. For 2024, the company expects comparable sales to be influenced by calendar adjustments related to the timing of spring breaks.
Despite management's positive outlook on their remodeling program, only a small portion of the stores have been remodeled so far, which is insufficient to significantly improve overall sales trends immediately. Specifically, only nine remodels have been completed, with eight more expected by the end of the second quarter of 2024. This slow pace of remodeling means that the positive effects on sales are not yet substantial. However, management remains optimistic, projecting that 35% of the stores will be remodeled by the end of 2024, 68% by the end of 2025, and the entire system by the end of 2026.
Earnings Estimates Southbound
Earnings estimates for PLAY have been going down over the past 60 days. The Zacks Consensus Estimate for 2024 has decreased 22.5%. The consensus estimate for second-quarter 2024 earnings has also been revised 15% downward over the same time frame.
Image Source: Zacks Investment Research
Valuation
From a price perspective, PLAY is currently trading near the lower end of its 52-week range. Notably, annual earnings estimates have significantly declined. Based on the forward 12-month earnings ratio, PLAY’s shares are currently trading at 11.59, which is below both its average of 11.96 and the industry average of 22.01.
Image Source: Zacks Investment Research
Wrapping Up
Given the current state of Dave & Buster's, investors should approach this stock with caution. Though there has been some improvement in sales due to recent initiatives, it is not enough to reverse the bearish trend.
The economic headwinds, including inflationary pressures and labor challenges, are expected to persist, negatively impacting the company's operations and profitability. Moreover, the slow pace of store remodels means that the benefits of these improvements will take time to materialize.
From a valuation perspective, while PLAY is trading near the lower end of its 52-week range, its forward 12-month earnings ratio is below both its average and the industry average, indicating potential undervaluation. However, the negative trends and uncertain outlook suggest that the stock could remain under pressure in the near term.
Considering these factors, investors might find it prudent to stay away from the Zacks Rank #5 (Strong Sell) stock for now until there is clearer evidence of a turnaround and improved sales and earnings performance.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.