Dave & Buster’s downgraded to ’B-’ by S&P on sales decline

Investing.com -- S&P Global Ratings has downgraded Dave & Buster’s Inc. to ’B-’ from a higher rating due to ongoing same-store sales declines, compressed margins, and high capital expenditure requirements that are pressuring cash flow.

The entertainment and dining chain has experienced lower demand attributed to both macroeconomic factors and operational decisions. The company’s core customers, who fall below the national median income level, are facing greater financial pressure, leading to reduced discretionary spending.

Operational changes over the past two years have likely hurt sales and cash flow. These include increasing game costs and creating complex options for purchasing gaming tokens before later simplifying the model. The company also emphasized lower-priced food menu items like appetizers to grow restaurant traffic, which reduced average check size without substantially growing food and beverage revenue.

Management is now making menu changes to shift focus back to entrees, including its Eat & Play Combos, to increase check size while also emphasizing value offerings to attract the current value-oriented consumer.

Dave & Buster’s acquired Main Event in 2022, creating additional operating complexity in managing two separate concepts with unique offerings. The new management team is focusing on simplification and returning to basics, which should improve messaging to customers and staff, though these changes will likely take time to show results.

Same-store sales declines were in the mid- to high-single digits before the most recent quarter’s 3% drop. These declines have reduced adjusted EBITDA margins in 2025 by about 300 basis points compared to 2022. S&P believes revenue growth is the most likely driver of future EBITDA expansion.

High capital expenditures are constraining cash flow but are considered necessary to stabilize revenue. The company spent $520 million on store remodels and build-outs in 2024, nearly 25% of revenue. It has since rationalized construction plans, with expected annual capital expenditures of about $275 million going forward, approximately 12% of revenue.

S&P expects adjusted debt to EBITDA of 5.6x in 2025 and 5.7x in 2026, over one turn of leverage weaker than previously forecast. Adjusted free operating cash flow to debt is expected to be 0.3% in 2025 and 2.9% in 2026. A reported free cash flow deficit of about $70 million is expected in 2025, with slightly positive free cash flow in 2026, primarily due to lower capital expenditures.

The rating agency noted positive momentum in the most recent quarter, particularly in food and beverage sales, which showed positive year-over-year growth in the second quarter of 2025 for the first time in about two years. Entertainment revenue still declined but to a lesser extent than in the first quarter.

S&P expects pressure on Dave & Buster’s core customer to keep overall same-store sales slightly negative in 2026 before turning positive in 2027, as GDP growth is expected to decelerate and unemployment to rise in the second half of 2025 and in 2026.

The outlook is stable, reflecting S&P’s view that results are stabilizing but leverage will remain high in the mid- to high-5x area and cash flow will be constrained.

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