Is PLAY Time Over For Investors Of Dave & Buster's?

Based in Texas, Dave & Buster's Entertainment, Inc. (NASDAQ:PLAY) posted solid results for second-quarter 2016, with both earnings and revenues witnessing year-over-year increases of 25% and 12.4%, respectively.

Notably, the company’s earnings of 50 cents also surpassed the Zacks Consensus Estimate by 13.6%, while revenues of $244 million were in line with the same.

However, the company’s shares declined nearly 7% in after hours trading on Sep 6, mirroring investor concerns over soft comparable store sales (comps) growth in the second quarter as well as slashed 2016 comps guidance.

DAVE&BUSTRS ENT Price

DAVE&BUSTRS ENT Price | DAVE&BUSTRS ENT Quote

What’s the Fuss About?

Notably, Dave & Buster's began trading in Oct 2014 and since the launch of its IPO, shares have gained nearly 168%.

The core concept of the restaurateur is “Eat Drink Play and Watch”, all in one location. Its menu comprises “Fun American New Gourmet” entrées and appetizers, and a full selection of non-alcoholic and alcoholic beverages.

However, like other restaurateurs, Dave & Buster's is bearing the brunt of the challenges facing the casual dining industry.

Despite economic growth, relatively lower energy prices and higher incomes, consumers are still modestly dining out, which has resulted in low consumption over the last few months. The situation has been aggravated by higher health care costs and still tight credit availability in the U.S. Moreover, unfavorable currency and a cooling Chinese economy have compounded the restaurateur’s woes.

As a result, most restaurateurs have been witnessing sluggish comps and traffic growth over the past few months.

Evidently, comps at Dave & Buster's increased a mere 1.0% in the second quarter of 2016 compared with an 11.0% increase in the same period last year. The figure was also lower than the 3.6% growth registered last quarter.

Meanwhile, the company cut its full-year 2016 comps guidance as quarterly sales at renowned locations were weaker than expected. Comps are now projected to grow 2.25–3.25%, lower than the earlier guidance of 3.25–4.5%.

Bottom Line

So far, Dave & Buster’s Entertainment has had a phenomenal run, and the company still believes that it is well positioned for long-term growth.

However, the company’s strong comps were a major growth driver in the past. Thus, lowered expectations for comps growth this year, given continued softening in the macro environment, suggests that the great run might finally be over for this Zacks Rank #4 (Sell) company.

Stocks to Consider

Better-ranked stocks in the restaurant space include Papa John's International Inc. (NASDAQ:PZZA) , Del Taco Restaurants, Inc. (NASDAQ:TACO) and Wingstop Inc. (NASDAQ:WING) . All three stocks carry a Zacks Rank #2 (Buy).

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