ARK Restaurants Corp. — Form 10-Q Summary
Reporting period: Second fiscal quarter and first half of fiscal 2024, ended March 30, 2024. The comparable periods ended April 1, 2023. Amounts below are in U.S. dollars; financial statement amounts are in thousands unless stated otherwise.
Business context
Ark operated 17 restaurants and bars, 16 fast-food concepts, and catering operations in the United States. It reports as one operating segment. Management identifies the second fiscal quarter—January through March—as typically its weakest, reflecting the cold-weather season in New York and Washington, D.C.; Florida locations partly offset that seasonality.
Financial performance
| Metric | 13 weeks ended Mar. 30, 2024 | 13 weeks ended Apr. 1, 2023 | 26 weeks ended Mar. 30, 2024 | 26 weeks ended Apr. 1, 2023 |
|---|---|---|---|---|
| Total revenue | $42.257 million | $41.897 million | $89.743 million | $89.342 million |
| Operating income (loss) | $(1.202) million | $0.023 million | $0.401 million | $2.227 million |
| Operating margin | (2.8)% | 0.1% | 0.4% | 2.5% |
| Net income (loss) attributable to Ark | $(1.449) million | $(0.484) million | $(0.079) million | $1.241 million |
| Basic and diluted EPS | $(0.40) | $(0.13) | $(0.02) | $0.34 |
| Operating cash flow | Not presented for the quarter | $0.766 million | $2.111 million |
Quarter revenue grew 0.9%, while first-half revenue increased 0.4%. Company-wide same-store food and beverage sales rose 0.4% in the quarter and were essentially flat for the half. First-half catering revenue increased to $8.617 million from $7.124 million.
Costs grew faster than revenue. For the quarter, payroll, occupancy, other operating costs, and food and beverage costs increased year over year; occupancy and other operating costs rose 9.9% and 9.0%, respectively. Management cited labor cost pressures, inflation, higher rents and insurance, and increased commodity costs. First-half operating income fell 82.0%.
For the quarter, food and beverage costs were 28.7% of revenue, payroll 36.7%, occupancy 13.7%, and other operating costs 13.8%. For the first half, the respective ratios were 27.0%, 36.2%, 13.5%, and 13.3%.
Balance sheet, debt and liquidity
- Cash and cash equivalents were $10.412 million at March 30, 2024, down from $13.415 million at September 30, 2023.
- Working capital deficit was $7.028 million, compared with a $5.932 million deficit at fiscal year-end; management attributed the increase primarily to catering deposits included in accrued liabilities.
- Notes payable totaled $6.241 million, including $1.946 million current; the company had no outstanding borrowings on its $10 million revolving credit facility. The facility matures June 1, 2025, and outstanding Bank Hapoalim debt carried a weighted-average interest rate of approximately 9.0%.
- Operating lease liabilities totaled $96.306 million, including $8.079 million current. Total liabilities were $119.485 million.
- First-half cash flow from operations was $0.766 million; investing activities used $0.596 million and financing activities used $3.173 million. Cash decreased by $3.003 million. Capital expenditures were $0.632 million, dividends paid were $1.352 million, and note principal payments were $0.981 million.
Management said cash, operating cash generation, banking facilities, and potential access to additional financing should be sufficient for capital expenditures, debt maturities, and operations for at least the next 12 months. This is management’s assessment, not a guarantee.
Changes, outlook and notable items
- Management attributed weaker operating results chiefly to labor and other inflation-related costs. Comparisons were partly affected by Gallagher’s Steakhouse, which was temporarily closed for renovation in the prior-year period and reopened April 28, 2023.
- Regional same-store sales were mixed: first-half sales increased 10.2% in New York and 1.6% in Las Vegas, but fell 9.9% in Washington, D.C. and 5.1% in Florida. Management cited event business in New York, lower headcounts in several markets, and the prior-year comparison in Florida.
- The company has agreed to refresh Las Vegas premises with minimum stated spend of $4.0 million by December 31, 2024, and $3.5 million for three premises by June 30, 2024, as extended. No spend had been made on the first project and approximately $150,000 on the second as of the filing. These commitments are relevant to future cash needs.
- In the first half, the company recorded $285,000 of income from forgiveness of a PPP loan and received a refund; no PPP loans remained outstanding at period-end. This item helped reported first-half results and is not recurring operating revenue.
- The board declared a quarterly dividend of $0.1875 per share for payment in June 2024. Management cautioned that dividends could be suspended if inflation or other pressures materially affect cash flow.
- Risks highlighted include inflation in food, wages and other costs; consumer demand and pricing limits; staffing and supply challenges; adverse weather; lease renewals and restaurant expansion; food safety, reputation and cybersecurity. Management reported no impairment charges for the periods, but said it continues monitoring several restaurants for asset recoverability. Ordinary-course legal matters were not expected to have a material adverse effect.
Important facts for investors to verify
- Whether sales and margins recover after the seasonal quarter, particularly given flat first-half same-store sales and weaker results in several markets.
- Whether labor, rent, insurance, commodity, and other cost increases can be offset without harming customer traffic or margins.
- Cash generation and covenant compliance, and the company’s ability to address debt obligations and the June 2025 credit-facility maturity.
- Funding and completion status of the two Las Vegas refresh projects, including any timing changes or additional cash requirements.
- Whether the dividend remains sustainable alongside the working capital deficit, lease commitments, and planned capital spending.
- Concentration and collectability of receivables: one hotel operator represented 42% of accounts receivable at March 30, 2024.