Dave & Busters Entertainment (PLAY - Get Report) shares traded sharply lower Wednesday after the game-themed restaurant group lowered its full-year profit guidance after posted stronger-than-expected second quarter earnings.
Dave & Busters said earnings for the three months ending on August 4, the group's fiscal second quarter, came in at 90 cents per share, up 7% from the same period last year and 5 cents ahead of the Street consensus forecast. Group revenues, the company said, rose 8% to $344.6 million, again topping analysts' forecast.
However, the group said same-store sales fell 1.8% from the same period last year, a trend it sees deepening to between -2% and -3.5% through the full fiscal year as re-vamps is restaurants with an aim to drive growth in e-sports, sports betting and virtual reality experiences. It also sees full-year revenues in the region of $1.338 billion to $1.359 billion and net income of $100 million at the higher end of its forecast, down $13 million from its previous estimate.
"While we continue to profitably grow our business and return significant capital to shareholders, our comp sales results came in below expectations as last year's VR launched proved difficult to match and our promotions were not as effective as we had anticipated," CEO Brian Jenkins told investors on a conference call late Tuesday. "We also face headwinds from adverse weather and the continued impact of competitive intrusion and cannibalization."
"As a part of our ongoing review process, we are carefully considering the pace of new unit growth, consistent with our top priority of revitalizing our existing stores; we are preserving our optionality on new store openings in the back half of 2020 and in 2021," he added. "While it's too soon to announce any changes at this time, we are evaluating our options and will pursue the path that we believe will create the most value to shareholders. In the meantime, continuing to open high returning stores is the right strategy from a competitive perspective, but also in terms of maximizing the return on investment."
Dave & Busters shares were marked 5.8% lower at the start of trading Wednesday to change hands at $41.22 each, a move that erase most of the stock's year-to-date gain.
"Not surprisingly, given lack of clear sales drivers coming out of last quarter, (Dave & Busters) realized another quarter of soft comp trends and lowered guidance in part as FY3Q is off to a slower start", said BMO Capital Markets analyst Andrew Strelzik. " The outlook for the next several quarters is similarly uninspiring given three more quarters of challenging virtual reality laps, accelerating competition headwinds, and absence of meaningful food/beverage drivers."