Raymond James analyst Brian Vaccaro said a further deterioration in comps offsets the stock’s low valuation and potential activists.
“Amusement comps (high margin) have turned incrementally negative on difficult VR/HALO comparisons while recent F&B value initiatives have failed to gain traction,” he wrote in a note.
“Management communicated several near-term initiatives to revitalize the brand, streamline costs, and work towards a more flexible new unit growth pipeline, though increased competition remains a primary headwind.”
Vaccaro downgraded the stock from Outperform to Market Perform.
See Also: Wall Street Sours On Dave & Buster's
Wells Fargo analyst Jon Tower said the company’s second-quarter same-store sales results and third quarter-to-date same-stores sales did little to bolster investor confidence that a turn in the business is at hand.
Tower said unit growth is near the highest within the industry and investors have not yet been willing to award the shares a premium for this growth.
“Management appears to be heeding the investor sentiment, suggesting that the company will step-up the rigor around new store growth decisions and potentially slow down the pace of growth as soon as F2H20,” he wrote in a note.
Tower also believes the company may explore new sales channels, including hosting e-sporting events as well as potentially looking into the sports betting partnerships, similar to what Buffalo Wild Wings did recently with MGM Resorts International (NYSE: MGM). That said, “neither are likely to remedy what ails sales in the near-term,” he said.
Wells Fargo maintains a Market Perform rating with a $40 price target.
Dave & Buster’s shares traded down 6.4% to $40.92 at time of publication.
Photo credit: Mike Mozart, Flickr
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