S&P Global Ratings has revised the outlook on Dave & Buster’s Inc. (NASDAQ: PLAY) to negative from stable, while affirming the company's issuer credit rating at B-. The change reflects the rating agency's concern about ongoing top-line weakness and its potential to weaken financial metrics that support the company's capital structure.
The operator of combined entertainment and dining venues reported a 5.4% decline in same-store sales during the first quarter of 2026. That result marks the thirteenth consecutive quarter of falling same-store sales and is a larger contraction than the 3.3% drop reported in the prior quarter.
Dave & Buster’s recorded roughly $8 million of free operating cash flow in the quarter. That figure included a working capital benefit of about $32 million stemming from lower accounts receivable and higher accounts payable. When those working capital movements are stripped out, the company posted a free operating cash flow deficit of $16 million for the period.
S&P’s outlook documents include a forecast that Dave & Buster’s will post a free operating cash flow deficit of $40 million in 2026, an improvement from the roughly $100 million deficit recorded in the prior fiscal year. The company curtailed capital spending in the quarter to $105 million, down from $155 million a year earlier, reflecting fewer new store openings and a shift toward simpler renovation projects.
The rating agency expects same-store sales to fall by a low single-digit percentage in 2026, and projects that such a decline would compress the company’s adjusted EBITDA margin by an additional 140 basis points. That margin contraction is an explicit channel through which S&P sees profitability and cash generation potentially deteriorating further should sales remain weak.
During the latest quarter, net cash flow activity reduced the company's adjusted debt by $3 million. That change reflects the combined effects of $20 million of revolver borrowings repaid and $16.8 million in proceeds from sale-leaseback transactions. Meanwhile, management continues to fund new locations and renovation activity with the intent of keeping revenue roughly flat, a strategy that S&P notes is associated with negative free operating cash flow generation and rising lease liabilities.
S&P’s shift to a negative outlook signals that continued declines in same-store sales could lead the agency to view the current capital structure as unsustainable. The agency said it could lower Dave & Buster’s credit rating within the next 12 months if persistent negative same-store sales result in sustained contractions in adjusted EBITDA and operating cash flow.
Context and implications
The combination of a sustained run of same-store sales declines, ongoing negative free operating cash flow excluding working capital timing benefits, and an active program of site openings and renovations frames S&P’s concerns. Reduced capital expenditure in the most recent quarter provided some near-term relief to cash outflows, but S&P’s forecast still contemplates another year of negative free operating cash flow overall.
Investors and market participants should expect close monitoring of quarterly same-store sales trends, adjusted EBITDA margins, and the company’s operating cash flow performance over the coming year, as these metrics are central to S&P’s forward-looking assessment.