DAB looks like a prime bounce candidate to me. Here is a comprehensive article on the situation.
<<Dave & Buster's Inc.
Dow Jones Newswires -- August 27, 1999
DJ Dave & Busters Dn 47% After Weak 2Q, 3Q Earns Forecast
By Dwight Oestricher
NEW YORK (Dow Jones)--Shares of Dave & Busters Inc. (DAB) dropped as much as 49% Friday after the company said late Thursday that it expected weak fiscal second-quarter and third-quarter earnings.
Analysts responded Friday by downgrading the stock. Jefferies & Co. Inc. cut it to hold from buy; BancBoston Robertson Stephens & Co. lowered its rating to long-term attractive from buy; and U.S. Bancorp Piper Jaffray downgraded the stock to buy from strong buy.
Dave & Busters fell as low as 12 5/8, far below the 52-week low of 23 1/8 set Aug. 17.
"The market reaction has been very harsh and it's expected, especially when you miss estimates," said Dave & Busters Chief Financial Officer Chas Michel. "But that just makes you work that much harder to make sure it doesn't happen again."
The Dallas operator of fast-food restaurants that offer games and other entertainment said it expected earnings of 14 cents to 16 cents a share for the fiscal second quarter ended Aug. 1. First Call/Thomson Financial's consensus estimate was 28 cents, compared with 21 cents for the year-earlier period.
Dave & Busters said a weaker than expected performance at its West Coast stores and mild weather in early summer contributed to a revenue shortfall. Same-store sales in the second quarter were down 2.2% from a year earlier, the company said, and it expects some of these conditions to carry over into the third quarter.
According to First Call, analyst projections had Dave & Busters earning $1.33 in fiscal 2000 ending in January and $1.73 in fiscal 2001, compared with $1.03 in fiscal 1999.
Jefferies analyst David Rose cut views for fiscal 2000 to $1.09 from $1.32 and for fiscal 2001 to $1.45 from $1.77.
In his research note, Rose said the earnings shortfall "seems to be a major bump, not a blow up, as the fundamentals reman substantially intact." He said additional units will continue to drive growth and a new debt package will shore up Dave & Busters' capital structure.
Rose cut his 12-month price target to $24 from $35.
The stock was recently down 11 3/16, or 45%, at 13 11/16 on volume of 2.7 million shares, compared with a daily average of 55,100.
Dave & Busters' management doesn't have a stock buyback plan in place to take advantage of the lower price, said Michel, adding that the company prefers to use its cash to open new stores. He added, however, that there is nothing to stop insiders and large shareholders from buying more shares.
With kids going back to school in the third quarter, Dave & Busters usually sees seasonal weakening in the period, said Chief Financial Officer Michel. In addition to meals, Dave & Busters also offers virtual reality systems and traditional carnival-style games at its restaurants.
In the second quarter, comfortable weather in the northern markets prompted people to stay outdoors instead of walking into a restaurant, resulting in lower revenue, Michel added.
Some West Coast stores also cut into top-line growth because of "the way they looked and how guests were greeted," said Michel. "That is not how we run our business." He said the management problems in those stores have been resolved.
However, the "California units must have had significant cost issues to lead to margin contraction," said BancBoston Robertson Stephens & Co. analyst Andrew Barish is a research note. The analyst was most concerned about the margin impact of what appears to be a $3 million to $4 million revenue shortfall on about $60 million to $61 million in revenue for the quarter.
"We will monitor that situation (because) the management changes in those units should help some of the cost pressures," Barish said. Three general managers and a regional manager were replaced in California, he added.
The analyst cut his fiscal 2000 view to $1.10 a share from $1.34 and his fiscal 2001 estimate to $1.55 from $1.75.
Even with the near-term uncertainty, "if the stock were to drop below $20 per share, we believe it would represent a very attractive valuation for longer-term investors," Barish said.
Dave & Busters stock, which fell to a new 52-week low of 12 5/8 Friday morning, was most recently down 11 5/16, or 45.5%, at 13 9/16 on volume of 2.9 million shares versus average volume of 55,056.
Noting that comparable sales were down 2.2% in the second quarter against a 6% same-store sales increase in the year-ago quarter, U.S. Bancorp Piper Jaffray analyst Allan Hickok said in a research note that he expects comparable sales to remain negative in the third quarter.
Hickok cut his fiscal 2000 view to $1.10 from $1.33 and his fiscal 2001 view to $1.55 from $1.72. The analyst also lowered his price target to $24 from $30.
On the plus side, Hickok said the company's development pipeline remains solids with two more new units in this fiscal year and seven in the next fiscal year. >>
Source:
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