Dave & Buster's (PLAY 51.53, +0.96, +1.90%), which operates a restaurant/arcade concept, is under heavy pressure after reporting Q1 (Apr) results last night.
You might think that's a pretty severe sell-off for just a small miss on the EPS line. However, we must keep in mind that this was PLAY's first EPS miss in five years and its first revenue miss in six quarters. Not only that, but the average EPS beat in the past six quarters has been larger. Also, cutting full year comps to "-1.5.% to +0.5%" from prior guidance of "Flat to +1.5%" is spooking investors as well. Increasing competition has been a concern for investors and they may see these results as that fear starting to be realized.
So, what happened? First of all, on the call, CEO Brian Jenkins noted that "Q1 tends to be a volatile quarter for us due to the timing of Easter and spring breaks and the impact of weather during those specific time periods, and this year was no exception." Basically, it sounds like AprQ is a pretty hit-or-miss quarter generally.
Another problem seems to be getting customers to notice the improvements PLAY has made in terms of its menu/drinks. The company has been improving food quality (more premium choice meats, improving on meal presentation) and has bolstered its cocktail offering. Its menu has 35% fewer food items, so it's simpler for the customer and the kitchens are more efficient as well.
The lack of focus on food from the customer seems to be due to the arcade games being the primary thing that draws in traffic This is impacting attach rates for its Food & Beverage segment. To fix this, PLAY plans to feature food more prominently in its marketing campaigns going forward.
There was also some disappointment on the international front. Jenkins said on the call that PLAY "terminated our Middle East partnership due to continued delays and missed contractual deadlines from our partner." In addition to earnings, this development may also be weighing on the stock this morning as international growth has been an important part of the growth story. This was definitely a stumble for PLAY.
Investors are aggressively selling the stock as an EPS miss was a surprise given PLAY's long track record of upside. The fairly large cut in full year comp guidance is troubling as well. That's because this was just the first quarter of the fiscal year. Usually this early in the year, companies wait another quarter before cutting full year comp guidance. This tells us management may be worried the weak results will linger for a while.