Investors in Dave & Buster's Entertainment (PLAY) felt the pain of a game-day loss on Wednesday.
Shares of the Dallas, Texas-based restaurant and arcade business plummeted 7.88% to $47.01 on the day's trading, falling to its lowest close since July.
Despite a beat on top and bottom line earnings for the quarter ended November 4, a glaring weakness in comparable sales and fears of a slowdown in consumer discretionary spending drew 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 for the quarter.
The comments highlighted unsound location discretion by company management, which drew further questions to the company's expansion and the existential challenges from competition.
The competition angle and sales figures, given the company's unique business model, were troubling as it suggests shifting consumer interests away from the core experience of Dave & Buster's.
"The place is fun, but there is a ton of competition for fun-based disposable income," Real Money contributor and trader Stephen "Sarge" Guilfoyle commented. "If one does not offer the target audience the perception of a good time at a good deal, they can go anywhere. In fact for video games and football, they can stay home. Some of them apparently have."
The pain in food and beverage sales were 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, that was noted to be mistimed by management.
Essentially, even in a peak season, deals couldn't keep customers coming back.
Real Money contributor David Butler noted that even with the deals, many would simply not visit the restaurant should a slowdown come to fruition.
"Dave & Buster's definitely seems like the type of business that would suffer from any economic slowdown," he said. "If push comes to shove, you're not going to spend money on games at D&B.
Analysts picked up on the issues as well, as many covering the stock reduced price targets due to the company's inability to drive same store sales despite the margin-squeezing offers and the potential slowdown that Butler notes.
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."
Macro Margin Squeeze
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," CEO Brian 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 might not stabilize into 2020 given the persisting headwinds.
Bet on a Buzzer Beater?
However, for the longer term, the trend of experience-based restaurant and shopping that younger generations crave is buoying analyst's "Buy" ratings on the stock.
"[Dave & Buster's has] a unique positioning as a destination restaurant and entertainment experience," Jefferies' Barish said in his Long View take. "We believe PLAY can outperform other full-service concepts and drive multiple expansion as it proves itself as a differentiated growth concept."
The Harvard Business Review explains that economists are now beginning to separate services from experiences in a way that was never outlined before.
"Today we can identify and describe this fourth economic offering because consumers unquestionably desire experiences, and more and more businesses are responding by explicitly designing and promoting them," the report states.
Maybe no restaurant is better positioned to seize on that shift than Dave & Buster's, making it a key play for those positioning themselves for the shift.
The opportunity becomes more enticing based upon the growth projected for experiential "shoppertainment" and restaurant experiences in younger generations.
According to Eventbrite (EB) , a San Francisco-based management and ticketing website, millennials and younger generations much prefer spending on things to do rather than things themselves.
"When it comes to money, experiences trump things," a report from the company reads. "More than 3 in 4 millennials (78%) would choose to spend money on a desirable experience or event over buying something desirable, and 55% of millennials say they're spending more on events and live experiences than ever before."
Therefore, as millennials, which stand to control $1.3 trillion in consumer spending power in the coming years, choose their restaurants and shopping locales of choice, Dave & Buster's could be a big winner.
Still, even for those betting on the long term turnaround from today's trend, there may yet be room to find a better entry point.
The Relative Strength Index on the day seemed to have little impact, as a dive below 20 did little to dig the company out of its hole. With that in mind, more weakness almost surely lies ahead.
Summing up the technical indicators, Real Money's Bruce Kamich suggested the stock could retest of the April-May lows around $42-$38 in the months ahead.
There is still time on the clock for Dave & Buster's, but the fans appear to be filing out of the stadium already.