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Dining and entertainment company Dave & Buster's (PLAY) isn't having much fun today as shares plunge to their lowest levels of the year after missing Q1 EPS and revenue estimates. While consumers have shifted their spending habits towards experiences and entertainment, PLAY's weak results suggest that the company isn't benefiting from that trend. Adding insult to injury, the company took an $11 mln hit in Q1 due to incremental labor and marketing costs related to the rollout of its new menu, new service model, and the deployment of new systems.

Fortunately, PLAY doesn't expect those costs to repeat in Q2, but the company has plenty of other challenges on its plate.

• Most notably, this includes reinvigorating the company's sales growth. In Q1, comparable sales decreased by 5.6%, falling short of expectations, as the choppiness that PLAY described during the last earnings call persisted. On the positive side, the company stated that it's seen improving top and bottom-line trends in May and early June after scaling some of its more impactful growth initiatives.
• PLAY's growth initiatives include optimizing its marketing investments, which it believes represents its largest revenue and adjusted EBITDA opportunity, improving its menu and realizing more pricing opportunities, optimizing game prices, and opening and remodeling more stores.
• The company is further along in achieving these goals for some initiatives as compared to others. For instance, in game price optimization, PLAY completed its first increase in chip prices in over twenty years following a significant overhaul of its game system. After implementing this initial rollout, PLAY says that it saw an improvement in sales trends, spend, and amusement guest satisfaction.
• Additionally, PLAY is on track to open ten more stores in 2024 with an additional 16 units opening each year in 2025 and beyond. Over the long-term, the company continues to believe it has the potential for 550 stores. For some context, as of the end of this period, PLAY had 224 company-owned stores.

Despite the disappointing Q1 results, PLAY remains steadfast in its plan to generate $1.0 bln in adjusted EBITDA in "the coming years." Entering transactions like the sales leaseback involving two stores it executed in Q1 should help. PLAY anticipates generating $45.0 mln in proceeds upon closing that transaction, which it can reinvest into its growth initiatives. From a demand standpoint, though, PLAY has its work cut out for it and until it can show some meaningful improvement in its comps, the stock will likely have trouble establishing a sustained rally.