Investors in Dave & Buster's Entertainment (PLAY) aren't having much fun on hump day as promotional efforts received little play from patrons.
Shares of the Dallas, Texas-based restaurant and arcade business have plummeted more than 10% in pre-market trading, building on over 20% in losses since the start of October.
Despite a beat on top and bottom line earnings for the quarter ended November 4, a glaring weakness in comparable sales is drawing the market's wrath. Same store sales figures declined 1.3% in the quarter, led by food and beverage same store sales declines of 5%.
"The combination of competitive intrusion and cannibalization continue to be a greater headwind both sequentially as well as compared to the same period last year," CFO Joseph DeProspero admitted.
The pain in food and beverage sales was particularly disappointing given the company's tie-in to the NFL season and its heavy promotion of a $19.99 "All You Can Eat, All You Can Play" wings deal.
Analysts picked up on the issue, as many covering the stock reduced price targets due to the company's inability to drive same store sales despite the margin-squeezing offers.
Jefferies analyst Andy Barish trimmed his price target from $72 per share to just $58 per share, highlighting concerns that will carry into future quarters.
"It appears as if competition and company shift to next stage of development will create headwinds," he wrote on Wednesday morning. "With 12% unit growth expected, initial guide for high single-digit revenue growth and mid-to-high single digit EBITDA growth implies some uncertainty around same store sales (which were not guided) as well as new store productivity due to competition."
To be sure, new stores were quite productive in the third quarter.
"With the 2017 class of stores on track to generate one of our best cash-on-cash returns in recent history, we are more confident than ever in our ability to drive double-digit unit growth and benefit from the large opportunity ahead," CEO Brian Jenkins said.
However, as worries of an economic slowdown into 2019 fester and weaker comparable sales come through, significant issues could arise as the company continues to spend on opening new stores.
The company stands to lose from opening stores too near one another, risking a worsening of the "cannibalization" that management highlighted as an issue..
Additionally, the company is not immune to the labor and freight pressures that have impacted the overall restaurant and retail industries into year end.
"You can see it in our food comps and there was probably some adjustment on labor that we could have made a little quicker I think in the quarter, in term - really around - more around the kitchen labor," Jenkins explained, noting that the labor issues also came into play as a driver of the sales disappointment.
The issues on these market problems, which only stand to intensify, should continue to pressure moving forward.
"Key issues on call were labor pressure as PLAY reinvests in brand and an implied reduction in new store productivity going forward," Barish noted. "Labor pressures should also continue moving margins lower as guidance implies."
He suggested that margins should stabilize into 2020.
While the stock remains a favorite for many playing the experiential economy, the sales numbers reported and the company's muddled third quarter execution is certainly not enticing more players on Wednesday.