Dining and entertainment company Dave & Buster's (PLAY, Financial) is experiencing a significant drop in shares, hitting their lowest levels of the year after missing Q1 EPS and revenue estimates. Despite a consumer shift towards experiences and entertainment, PLAY's weak results indicate the company isn't benefiting from this trend. Additionally, the company incurred an $11 million hit in Q1 due to incremental labor and marketing costs related to new menu rollouts, a new service model, and new system deployments.
PLAY does not expect these costs to repeat in Q2, but other challenges remain:
- Reinvigorating sales growth: Comparable sales decreased by 5.6% in Q1, missing expectations. However, the company noted improving top and bottom-line trends in May and early June after scaling impactful growth initiatives.
- Growth initiatives: PLAY aims to optimize marketing investments, improve its menu, realize more pricing opportunities, optimize game prices, and open and remodel more stores.
- Game price optimization: PLAY completed its first chip price increase in over twenty years after a significant game system overhaul, resulting in improved sales trends, spend, and guest satisfaction.
- Store expansion: PLAY plans to open ten more stores in 2024 and an additional 16 units each year in 2025 and beyond, with a long-term goal of 550 stores. As of the end of this period, PLAY had 224 company-owned stores.
Despite disappointing Q1 results, PLAY is committed to generating $1.0 billion in adjusted EBITDA in the coming years. Transactions like the sales leaseback involving two stores executed in Q1, expected to generate $45 million in proceeds, should support this goal. However, until PLAY shows meaningful improvement in its comps, the stock may struggle to establish a sustained rally.
