ARK Restaurants Corp. — Form 10-Q Summary
Reporting period: 13 and 39 weeks ended July 3, 2021; comparable periods ended June 27, 2020. Amounts are in thousands unless stated otherwise. The company operated 18 restaurants and bars, 17 fast-food concepts, and catering operations in the United States.
Financial performance
| Metric | 13 weeks ended July 3, 2021 | 13 weeks ended June 27, 2020 | 39 weeks ended July 3, 2021 | 39 weeks ended June 27, 2020 |
|---|---|---|---|---|
| Total revenue | $42,965 | $7,199 | $89,031 | $84,716 |
| Operating income (loss) | $5,113 | $(5,623) | $309 | $(5,123) |
| Net income (loss) attributable to Ark | $2,670 | $(2,526) | $6,067 | $(2,791) |
| Basic EPS | $0.76 | $(0.72) | $1.73 | $(0.80) |
| Operating cash flow | — | $6,648 | $(2,510) |
- Quarterly revenue increased 496.8% year over year; company-wide same-store sales rose 455.0%. The comparison is heavily affected by pandemic closures and capacity restrictions in the prior-year quarter.
- For the 39-week period, revenue increased 5.1%. Food and beverage costs rose 18.0% to $26,382 and represented 29.6% of revenue, versus 26.4% in the prior period; management cited higher seafood and other high-volume item costs.
- Operating cash flow was $6,648; investing cash outflow was $3,455, including the Blue Moon Fish Company acquisition; financing cash outflow was $1,799. Cash increased $1,394 to $18,280.
- At July 3, 2021, notes payable were $36,958 before current maturities and deferred financing costs; the balance sheet reported $7,377 current and $29,455 long-term, net of financing costs. Operating lease liabilities totaled $61,172.
Liquidity, debt, and material changes
- Working capital was deficient by $2,134 at July 3, 2021, improved from a $3,234 deficiency at October 3, 2020. Management said cash, banking facilities, and operating cash flow should meet liquidity and capital needs for at least 12 months; the filing also states through August 18, 2022.
- PPP loan forgiveness generated $3,195 of income in the quarter and $7,318 year to date. The company reported $7,851 of PPP loans at period-end and said forgiveness of the remaining balance was uncertain.
- On July 26, 2021, after quarter-end, $9,666 of revolver borrowings were converted to a term note with quarterly principal payments and a balloon payment due June 1, 2025. The company was in compliance with financial covenants at July 3; covenant modifications were in place through fiscal Q2 2022.
- Blue Moon Fish Company, acquired December 1, 2020 for $2,820, contributed approximately $2,141 of quarterly revenue and $432 of quarterly net income, and $4,582 of year-to-date revenue and $887 of net income.
- The company closed Gallagher’s Steakhouse and Gallagher’s Burger Bar in January 2021 and decided not to reopen Thunder Grill. It received a 5% interest in an entity acquiring the JB’s on the Beach property.
Outlook, risks, and unusual items
- No specific revenue or earnings guidance was provided. Management said the pandemic could continue to affect results, liquidity, staffing, and supply chains; future closures or capacity restrictions remained possible.
- On August 8, 2021, the company temporarily closed Clyde Frazier’s Wine & Dine following New York City’s announcement of a vaccine-proof requirement for indoor dining. The requirements were to take effect August 16, with enforcement beginning September 13.
- Quarterly results included PPP forgiveness income, while the quarter’s income-tax provision was $4,684 and the effective tax rate was 58.5%. Year-to-date income-tax benefit was $155. Tax rates reflect estimates, tax-loss carrybacks, and the non-taxable treatment of PPP forgiveness; the final annual rate could differ.
- COVID-related impairment indicators were identified, but no goodwill, trademark, or long-lived asset impairments were recorded in the period. Management cautioned that future impairment charges could be material if expected performance is not achieved.
- Other disclosed risks include food and labor cost inflation, seasonality and weather, consumer demand, debt service and refinancing, lease obligations, food safety, cybersecurity, and concentration of receivables and vendors. Management said the resolved New York labor-law class action settled for approximately the amount previously accrued.
Important facts for investors to verify
- How much of the reported profit reflects recurring restaurant operations versus PPP loan forgiveness and tax-related effects.
- Whether sales recovery and margins persist after reopening-related comparisons, particularly given higher food costs and potential staffing constraints.
- The status and terms of forgiveness for remaining PPP loans and the company’s ability to meet debt covenants and scheduled repayments.
- Whether the July 26 revolver conversion and management’s liquidity assumptions remain adequate if COVID-related restrictions or operating disruptions return.
- The effect of the New York City vaccine requirement and the temporary Clyde Frazier’s closure, as well as any future impairment or lease-related charges.