Dave & Buster's announced mixed results for its second-quarter earnings report Wednesday afternoon. It's the first Dave & Buster's earnings report since the sports bar and video game company changed leadership after buying competitor Main Event earlier this summer. PLAY stock rose toward a buy point prior to Wednesday's results, but quickly dropped in after hours trading.
Dave & Buster's completed its $835 million acquisition of Main Event from Ardent Leisure Group Limited and RedBird Capital Partners on June 29. Dave & Buster's announced it was buying its rival food-and-games chain back in April.
Main Event CEO Chris Morris took over as Dave & Buster's chief executive after the deal closed, taking over for interim CEO and Board Chairman Kevin Sheehan. Sheehan had served in the interim role since last September, when then-CEO Brian Jenkins announced his retirement.
Dave & Buster's expects to generate $20 million in cost synergies from the acquisition within the first 12-18 months.
The combined company has nearly 200 store locations across 41 states, and generates $1.9 billion in revenue, according to the latest investor update. Dave & Buster's $1.5 billion in sales make up a majority of the net revenue.
Dave & Buster's Earnings
Dave & Buster's earnings have grown for the past five quarters. But that streak came to an abrupt end in the second quarter.
Results: Dave & Buster's earnings crumpled nearly 45% over the year to 59 cents per share. But it posted record Q2 revenue of $468.9 million, up 24% from $377.6 million last year.
Estimates: Analysts saw Dave & Buster's earnings per share falling 3% to $1.04 vs. $1.07 a year earlier. Revenue was expected to climb 14.5% to $433 million, continuing a huge growth slowdown as year-over-year comparisons get tougher.
Dave & Buster's faced "substantial headwinds" from wage and commodity inflation, CEO Morris said in the announcement. The company will focus on driving revenue and cash flow, Morris says. And will mitigate inflation pressures through operational efficiencies and pricing action.
Same-store sales at Dave & Buster's grew 9.6% for the period compared to 2019. The company chose to use pre-COVID figures in its report for a more accurate comparison. And same-store sales for its Main Event locations increased 29.7% vs. 2019 numbers.
Dave & Buster's repurchased $25 million of its shares during the quarter, as part of its $100 million stock buyback plan. And the company ended the period with $591.8 million in liquidity, including $100.4 million in cash and the rest as part of its $500 million revolving credit facility.
PLAY Stock Analysis
PLAY stock rose 3.6% to 43.94 in Wednesday's regular session, hitting 44.27 intraday.
But shares fell 2% overnight following the big earnings miss.
On Aug. 26, Dave & Buster's stock briefly cleared a cup-with-handle base buy point of 43.92, but reversed lower that day.
PLAY stock briefly dropped into stop-loss territory on Sept. 1, but rebounded to close higher and above its 21-day exponential moving average. A 7-8% drop below the buy point is an automatic sell signal.
However, with shares finding support at the 21-day line and bouncing back, investors could still use 43.92 as an entry. Alternatively, 44.25, just above the Aug. 26 high, would also work. On a weekly chart, 44.25 is a legitimate buy point from a three-weeks-tight pattern.
PLAY stock had closed above the 43.92 buy point and just peeked above the 44.25 entry intraday, but looks set to fall back from those areas.
Still, investors should be cautious about any buys with the stock market struggling and the major indexes below their 50-day moving averages.
PLAY stock is ranked first in the Retail-Restaurants Group according to the IBD Stock Checkup.
Dave & Buster's stock has a 94 Relative Strength Rating, indicating it's outperformed its S&P 500 peers over the last 12 months. The stock has a solid EPS Rating of 80. And a perfect 99 Composite Rating, which combines a number of key technical indicators.
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