Dave & Buster's plunges 19% as Q1 earnings miss sparks downgrade

Dave & Buster's Entertainment Inc. reported Q1 revenue of $559.2 million, down 1.5%, sending shares down 19% in pre-market trading.

"While first quarter results fell short of expectations, our back-to-basics strategy is gaining clear traction," Chief Executive Officer Tarun Lal said. "We are driving meaningful progress across food and beverage, marketing, and our refreshed remodel program, which are delivering a sharper value proposition."

Comparable store sales declined 5.4% from the prior year. Net income fell to $5.7 million, or $0.16 per diluted share, from $21.7 million, or $0.62 per share, a year earlier. Adjusted net income was $7.8 million, or $0.22 per diluted share, compared with $26.7 million, or $0.76 per share. Adjusted EBITDA contracted to $123.2 million from $136.1 million, with the margin narrowing to 22% from 24%.

Entertainment revenue, which includes arcade games and attractions, fell 5.9% to $345.1 million from $366.6 million, representing 61.7% of total revenue. Food and beverage revenue rose 6.5% to $214.1 million from $201.1 million, accounting for 38.3% of sales. Cost of products as a percentage of revenue improved to 14.3% from 14.5%, while operating payroll and benefits increased to 25.1% of revenue from 23.8%, reflecting wage inflation and staffing investments.

The results triggered at least one analyst downgrade, with the stock falling to $9.98 in pre-market trading. Revenue per store operating week fell to $177,000 from $188,000 a year earlier, and total revenue per square foot per store operating week declined to $4.32 from $4.55.

The company ended the quarter with 244 company-owned stores, up from 234 a year ago, and opened one new domestic store during the period. It has since opened three additional domestic stores in the second quarter and completed remodels of six Dave & Buster's locations, with two more planned for the remainder of fiscal 2026. Internationally, the company opened its fifth and sixth franchise stores in May and June, with at least one more expected this year.

Dave & Buster's maintained its full-year free cash flow target of more than $100 million, with adjusted free cash flow of $25.3 million in the first quarter compared with negative $58.8 million a year earlier. The company ended the quarter with $499.1 million in available liquidity, including $19.6 million in cash and $479.5 million of undrawn capacity on its $650 million revolving credit facility. Net total leverage ratio stood at 3.3 times Credit Adjusted EBITDA of $461.9 million.

The earnings miss points to continued pressure on the restaurant and entertainment sector as consumers pull back on discretionary spending. Investors will watch the company's Q2 performance for signs that its remodel program and marketing initiatives are reversing the comparable sales decline.

This article is for informational purposes only and does not constitute investment advice.