Why Dave & Buster's Entertainment Stock Jumped 15% Today

Shares of Dave & Buster's Entertainment (NASDAQ: PLAY) jumped as much as 19.2% on Wednesday, despite a modest earnings report. The stock had cooled down to a 15.4% gain by 1 p.m. ET.

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Dave & Buster's Q1 by the numbers

The restaurant and video arcade chain saw first-quarter sales fall 3.5% year over year, stopping at $567.7 million. The average Wall Street analyst had expected $573.3 million. On the bottom line, adjusted earnings fell from $1.12 to $0.76 per diluted share. Here, the analyst consensus pointed to $1.01 per share.

Management admitted that the Q1 results were disappointing, but also said that the "back to basics" turnaround plan is making a difference.

"We are improving our execution every day and have a very clear road map of work to do to continue to drive improvements and meaningful growth in the business," interim CEO Kevin Sheehan said in a prepared statement. Sheehan did not follow up with revenue or earnings guidance, but reiterated the full-year spending targets Dave & Buster's offered three months ago.

Investors cheer for the pep talk

That report was more of a rebound than a victory march. Dave & Buster's is experiencing weak foot traffic and sales while operating under a temporary management team, and investors get excited about positive management commentary even if the financial results were disappointing.

Former CEO Chris Morris is now the CEO of European Wax Center instead, where he was hailed as a proven consumer services expert with a strong focus on marketing and day-to-day operations. Dave & Buster's has to fill these large shoes with another star player, and investors had started to give up hope.

But Kevin Sheehan's bullish commentary had a calming effect, and the stock is back where it was at the end of 2024. In the meantime, the company remains profitable. Dave & Buster's valuation is a mixed bag, with lofty multiples based on reported profits but a forward P/E ratio of just 12.1. In other words, analysts expect a robust turnaround story here.

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Anders Bylund has no position in any of the stocks mentioned. The Motley Fool recommends Dave & Buster's Entertainment. The Motley Fool has a disclosure policy.