Dave & Buster’s Entertainment Inc. (PLAY) experienced a dramatic stock drop on Wednesday, plummeting 13.7% to $31.75, following the release of its disappointing third-quarter financial results and the announcement of CEO Chris Morris’s resignation. The news sent shockwaves through the market, prompting immediate reactions from analysts who swiftly downgraded the stock.
The company’s Q3 performance fell significantly short of expectations. Revenue reached $453 million, a stark contrast to analyst projections of $563.6 million. This represents a 3% year-over-year decrease in total revenue. Even more concerning was the 7.7% year-over-year decline in comparable store sales, indicating a troubling trend in customer spending at Dave & Buster’s locations. Adding to the negative outlook, the company reported an adjusted EPS loss of 45 cents, against analyst estimates of a 90-cent gain. While Dave & Buster’s ended the quarter with $8.6 million in cash and $537.4 million available under its revolving credit facility, the overall financial picture painted a bleak image for investors.
Adding to the turmoil, CEO Chris Morris stepped down, citing a desire to pursue other opportunities. The board of directors immediately initiated a search for a permanent replacement, engaging a global executive search firm. In the interim, Board Chair Kevin Sheehan will assume the role of interim CEO. Further organizational changes include the appointment of director James Chambers as vice chair and director Michael Griffith as temporary lead independent director.
Sheehan, in a statement, expressed confidence in the management team and the company’s overall strategy, emphasizing ongoing efforts to improve same-store sales, revenue, and cash flow. He highlighted the team’s dedication to customer experience and their optimism for future growth. However, the market clearly reacted negatively to the immediate challenges the company faces.
The market’s negative response was swift and decisive. Prominent analysts, including Jake Bartlett from Truist Securities and Sharon Zackfia from William Blair, issued downgrades. Bartlett lowered the price target from $56 to $36, while Zackfia shifted the rating from Outperform to Market Perform. These actions underscored the widespread concern among financial professionals about Dave & Buster’s prospects.
The substantial drop in PLAY’s stock price underscores the gravity of the situation. Investors are keenly watching the company’s actions as it navigates this period of transition and strives to address the underlying issues that contributed to its disappointing Q3 results. The search for a new CEO, along with the strategic initiatives mentioned by Sheehan, will be key factors in determining the company’s ability to regain investor confidence and reverse its current negative trajectory.
