Dave & Buster's (PLAY) stock took a hard hit in after hours trading on Tuesday. The sports bar/arcade destination reported revenue growth and earnings that missed estimates. To me, the bigger thing here was a failure to create a positive trend in comparable-store sales, and the full-year guidance revisions that are not an improvement. The stock was down nearly 20% in premarket trading on Wednesday in response to the underwhelming news.
I've been talking about the declining comparable-store sales for a while now. Through new store openings and lower taxes, the company has managed to put up revenue and earnings that countered the problem. But in the first quarter of 2019, things didn't quite cover it. Dave & Buster's reported revenue of $363.6 million, marking a 9.5% increase year over year. Unfortunately, that growth rate came in below the $371.72 million that many analysts had been expecting.
Earnings increased to $1.13 per diluted share vs. $1.04 per diluted share a year ago. Those earnings were $0.01 off of estimates of $1.14. Total operating income actually decreased by 1.5% to $57.7 million year over year. Net income managed to squeak out an increase to $42.4 million vs. $42.2 million a year ago thanks only to lower tax provisions. Income before taxes actually decreased to $53.69 million vs. $55.74 million a year ago.
While these figures might not overwhelm relative to analyst expectations, I'll extend credit to the fact that Dave & Buster's did report overall sales and earnings growth. My primary concern lies with comparable-store sales. Comps decreased 0.3% in the first quarter. This is demonstrably better than 2018's decrease of 4.9%, but it's still a disappointment after the buzz created in Q4 2018. This weakness is what is hindering the bigger picture. Anytime Dave & Buster's opens a new store, the sales gains from those stores are cannibalized by the fallout in established locations. It begs a long-term question of whether PLAY can maintain sustained demand at its stores.
The revised full-year guidance leads me to believe that the company hasn't quite figured out the fix yet. Full-year 2019 revenue are now expected to be $1.365 billion to $1.390 billion, marking a slight decrease from previous guidance of $1.37 billion to $1.40 billion.
The more concerning statistics are once again comp sales. Dave & Buster's expects full-year comp sales now to be -1.5% to 0.5%. That's a disappointing shift from previous guidance of 0% to 1.5% growth. These new expectations indicate that revenue growth will stem from the plans for 15-16 new store openings this year. New guidance for net income of $103 million to $113 million would mark a decline from 2018's net income of $117.22 million.
In my opinion, investors really wanted to see something more this quarter. The after-hours decline drastically altered the stock's forward p/e ratio. Guidance says the diluted share count for the year should be 36.5 million shares. That would break net income of $113 million down to $3.09 per diluted share. That would mean PLAY is trading at 13.88x full-year earnings guidance.
It might be tempting to take a swing at the stock after such a dip. Unless the sentiment on comparable-store sales changes, I don't think that's wise. Just like most other American males, I want to root for Dave & Buster's with all my soul. Unfortunately, the numbers make that a difficult task. I'd rate PLAY as a "hold" after the decline.