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Wells Fargo On Dave & Buster's: Time To Hit 'Pause'

Jayson Derrick

Dave & Buster's Entertainment Inc (NASDAQ: PLAY) reported Tuesday concerning first-quarter earnings, which prompted Wells Fargo to hit the "pause" button.

The Analyst

Wells Fargo's Jon Tower downgraded Dave & Buster's from Outperform to Market Perform with a price target lowered from $65 to $48.

The Thesis

Dave & Buster's earned $1.13 per share in the quarter, which missed the Street's estimate by 2 cents. Tower said the miss was driven by three factors: lower than expected revenue of $363.6 million versus expectations of $371.7 million, same-store sales miss at negative 0.3% versus expectations of 1.6% and store-level margin compression of 180 basis points.

Tower said the report generates incremental concern related to the company's ability to drive same-store sales growth without margin erosion. In addition, management's plan of opening new stores to drive long-term growth at the expense of near-term metrics like same-store sales is the proper move.

Investors are now less likely to buy the stock as a long-term unit growth story amid same-store volatility, according to Tower. As such, the stock is likely to trade within a "tight range" over the next year.

Price Action

Shares of Dave & Buster's were trading lower by 21% Wednesday and hit a new 52-week low of $40.38.

View more earnings on PLAY

Related Links:

3 Bulls React To Dave & Buster's Q4 Earnings

Benzinga's Top Upgrades, Downgrades For June 12, 2019

Photo credit: Mike Mozart, Flickr

Latest Ratings for PLAY

Date Firm Action From To
Jun 2019 Downgrades Buy Hold
Jun 2019 Downgrades Outperform Market Perform
Jun 2019 Downgrades Buy Hold

View More Analyst Ratings for PLAY
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