Dave & Buster’s profits improve but sales slow

The eatertainment chain operator’s stock fell 7% after saying sales slowed down so far this quarter.
Dave & Buster's earnings
Dave & Buster's profit margins improved but sales momentum slowed in November. / Photograph: Shutterstock.

Dave & Buster’s, the operator of a pair of food-and-games concepts, on Tuesday said that its earnings were well above investor expectations, the result of profit margins that came in 320 basis points above where they were in the same period in 2019.

But the Dallas-based company also said that its same-store sales have slowed down thus far this quarter.

Same-store sales, which rose 13.3% in the third quarter ended Oct. 30, are up 3.1% thus far in the company’s fiscal fourth quarter. Compared with the same period in 2019, same-store sales are up 12.2% so far this earnings period, after adjustments for calendar shifts, a 550-basis-point slowdown from the 17.6% three-year increase last quarter.

The result sent Dave & Buster’s stock down more than 7% on Wednesday.

Executives defended the company’s sales performance. “I would just look at overall trends in the business,” Michael Quartieri, the company’s chief financial officer, told investors on Tuesday, according to a transcript on the financial services site Sentieo. “I think from a back-to-school perspective, there are economic issues that are out there, although we don’t see it as much.

“I mean, to talk about comp store sales at the levels we are versus ‘19, I think it’s still a remarkable component of this business that shows the strength of the overall business itself.”

Dave & Buster’s struggled mightily during the pandemic as dine-in closures forced its so-called eatertainment restaurants to shut down, while COVID concerns kept many customers home.

But the company’s sales recovered strongly over the past year as consumers returned to concepts offering an experience. It was strong enough that Dave & Buster’s doubled down on the food-and-games business by spending $825 million to acquire Main Event, the 50-unit, Dallas-based chain. Main Event targets families with children. The 147-unit Dave & Buster’s targets young adults.

To a certain extent, Dave & Buster’s may think of itself as somewhat snakebit, at least when it comes to meeting expectations. The company saw sales accelerate in the second quarter only to displease investors because its margins took a hit. This time, the company’s margins improved but its sales slowed. EBITDA margin, or earnings before interest, taxes, depreciation and amortization, was 18.7% in the quarter, 320 basis points above the same level in 2019.

Still, the company said it is making progress with the combination of its two chains. Dave & Buster’s said it has implemented $17 million of its planned $25 million in cost savings from the merger of the two chains. The cost savings are coming from eliminating “redundant staffing” while it combines purchasing power, CEO Christopher Morris said.

The company also said it plans to refine the brand positioning of its flagship concept to “bring a greater focus to executing adult occasions aged 21 to 39 who are visiting our locations to have a great time with their squad,” Morris said.

That effort will guide the company’s marketing strategy, entertainment innovations, food and beverage offerings, store design and hospitality technology.

Dave & Buster’s brought back its Eat & Play combo in November, giving customers a $10 game card and a choice of appetizers or entrees starting at $17.99. “We’re pleased that we did it,” Morris said while acknowledging that data from the deal is “a little murky.” “We have no regrets,” he said, despite the sales slowdown. 

“When you think through our Q4 sales performance, overall, we’re pleased,” he added. “When you make the adjustments for the timing there’s still considerable momentum in the business on both brands.”

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