Dave & Buster’s Stock Plunges 45% on Disappointing Profit Forecast
Dave & Buster’s Inc. stock tumbled 45% Friday after the operator of restaurant and entertainment centers warned that its second-quarter earnings will fall far below expectations, largely because of operational problems at its three Southern California outlets.
The Dallas-based company’s stock slumped $11.13 a share, to close at $13.75 on the New York Stock Exchange, making it the largest percentage loser in U.S. markets. Company officials blamed the financial setback on the performance of Dave & Buster’s eateries in Orange, Irvine and Ontario, which failed to meet revenue projections.
The company has either transferred or fired the regional manager and managers of the three stores.
“When things aren’t going well, sometimes you have to mix the team up to make things go better,” the chain’s co-founder, Buster Corley, said Friday in an interview. He didn’t go into specifics. “We have some of our best people on it to get it to where we want it to be, which we think will happen.”
Corley said the Southern California market offers such an array of competition that Dave & Buster’s must step up its marketing and publicity efforts to stand out in the crowd.
“In many ways we were just overly optimistic,” he said. “We’ve never missed our numbers before, and we’ve been around for a long time. We are doing great in California; we just thought we’d be doing super-great. It’s just going to take us a little longer than we thought.”
Corley said he was stunned by the stock’s slump, which he called a “gross overreaction” by Wall Street to the company’s problems. The sell-off also was personally painful, as the value of Corley’s 3.4% stake was nearly halved to $6.2 million, a loss on paper of $5.04 million.
The company estimated that it earned 14 to 16 cents a share for the quarter ended Aug. 1, far short of the 28 cents estimated by analysts surveyed by First Call Corp. A year earlier, Dave & Buster’s posted earnings of 21 cents a share.
Revenue for the quarter totaled $57.6 million, up 42% from a year earlier. But analysts had expected revenue to hit at least $60 million. The company also said sales at stores open at least a year--a key measure of industry growth--were down 2.2%.
Several analysts lowered their ratings in the wake of the disappointing forecast.
Analyst Andrew M. Barish said it may take the company some time to build sales in its Southern California market, although it may be able to bring costs there “back in line to some degree.”
Barish, with BancBoston Robertson Stephens in San Francisco, lowered the company’s rating from “buy” to “long-term attractive.” But he added that “the Dave & Buster’s concept continues to be a strong one.”
Described by some as a “Chuck E. Cheese’s for adults,” the carnival-like nightspot is part playground, part arcade and part sports bar and targets adults ages 21 to 44. In addition to a restaurant, the establishments offer state-of-the-art virtual-reality games, billiards, shuffleboard and other attractions.
There are 21 Dave & Buster’s locations nationwide.
