Why Bankruptcy May Be In Dave & Buster’s Near Future

Struggling food and game restaurant chain Dave & Buster’s (PLAY) could be heading toward an unavoidable bankruptcy filing if it doesn’t get the help it needs from its lenders, according to a Securities & Exchange Commission filing.

The company, which has seen its sales drop by 87% in the second quarter, announced that it was laying off more than 1,300 workers in Michigan, Massachusetts, Colorado, New Jersey, North Carolina, Louisiana, and Oregon, according to Worker Adjustment and Retraining Notification (WARN) notices filed in the states. The layoffs are effective Nov. 8, the notices said.

Dave & Buster’s cited the impact of the coronavirus on its business, which caused restaurant dining rooms to temporarily shutter across the U.S. due to the pandemic. The company has since reopened 89 of its 137 locations, saying that it will be December before all of its restaurants will be reopened.

In one WARN notice, Dave & Buster’s Senior Director of Human Resources Kathryn Rainey said: “We did not foresee how significantly and for how long a time the pandemic and related governmental lockdown orders would impact our business."

She continued, “We also did not foresee that lockdown orders, initially issued for short durations in only a few cities, would spread through the country and be repeatedly extended."

The company said it is not closing stores as a result of the pandemic, but warned of its “financial condition,” which it said could result in a voluntary Chapter 11 filing.

Dave & Buster’s said its financial position was an ongoing concern despite the steps it has taken to reduce operating costs and conserve cash. The company furloughed nearly all of its workforce, reduced pay and benefits for its remaining staff, and borrowed all available monies available under its revolving credit facility.

The restaurant also negotiated 92 lease arrangements, including its corporate headquarters in Dallas, allowing for three months of deferred rent beginning in April. It also negotiated extended and reduced payment terms with several of its lenders.

Dave & Buster’s reported a revenue decrease of $50.8 million for Q2 2020, down from $344.6 million in the second quarter of 2019. The total operating loss was $81.1 million for the quarter.

Dave & Buster's would join several other restaurant chains that have filed for bankruptcy during the pandemic, including Chuck E. Cheese and California Pizza Kitchen.

Shares of Dave & Buster’s were trading at $14.47 as of 1:57 p.m. EDT on Thursday, down $4.64 or 24.29%.