Dave & Buster’s Stock Drops as Earnings Miss Estimates Amid Soft Consumer Demand

Dave & Buster’s Entertainment (PLAY) shares slumped more than 10% in premarket trading on Thursday after the restaurant and entertainment chain posted quarterly results that fell short of expectations amid challenging economic conditions weighing on consumer demand.

For the quarter ending May 5, the company reported diluted earnings of 99 cents per share, significantly below the $1.73 a-share-figure expected by analysts. Revenue in the period of $588.1 million fell 1.5% from a year earlier and came in below the consensus forecast of $616 million. Moreover, same store sales declined 5.6% from last year’s equivalent quarter, a steeper fall than the 3.8% Street estimate.

Breaking down the top line, the company’s entertainment revenue, which makes up about two-thirds of net sales, fell 1.9% to $385.7 million, while revenue in its food and beverage business tallied $202.4 million, down from $204.2 million in the same quarter last year.

Economic Conditions Weigh on Customer Demand

Although the company did not quantify guidance, it said that sales and profit have improved in the current quarter as the company continues to freshen its restaurants, build its loyalty program and upsell food and games through various promotional strategies. However, Dave & Buster's CEO Chris Morris noted in the company’s earnings statement that "complex" economic conditions continue to weigh on consumer demand.

Over the past year, restaurants in most categories have dealt with the challenge of raising prices to cover increasing food and wage costs without turning away inflation-weary customers as they rein in spending on non-essential activities like dining out.

Monitor if Shares Can Hold This Key Chart Zone

Since Dave & Buster's shares formed a bull trap in early April, the price has continued to trend lower. Although the price managed to close above the closely-watched 200-day moving average leading into the quarterly results, it sits poised to resume its sell-off following the chain's earnings and revenue miss

Looking ahead, investors should monitor if buyers can defend a zone of support from prior price action over the past 15 months between $45 and $47. A failure to hold this key area could see the price revisit lower support around $37.50.

The stock was down 10.1% at $45.25 about two hours before Thursday's opening bell.

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As of the date this article was written, the author does not own any of the above securities.