ARK Restaurants Corp. — Form 10-Q Summary
Business context and reporting period
The filing covers the 13 and 39 weeks ended June 30, 2018, compared with the periods ended July 1, 2017. Ark operated 20 restaurants and bars, 19 fast-food concepts, and catering operations in the United States, reported as one segment. Fiscal 2018 ends September 29, 2018.
Key financial metrics
| Metric | 13 weeks ended June 30, 2018 | 13 weeks ended July 1, 2017 | 39 weeks ended June 30, 2018 | 39 weeks ended July 1, 2017 |
|---|---|---|---|---|
| Total revenue | $44.8m | $41.35m | $119.43m | $114.41m |
| Restaurant operating income | $3.79m | $2.45m | $4.11m | $3.53m |
| Operating income | $3.79m | $2.45m | $4.11m | $5.16m |
| Net income attributable to Ark | $2.66m | $1.39m | $3.65m | $2.73m |
| Diluted earnings per share | $0.75 | $0.39 | $1.03 | $0.77 |
- Revenue grew 8.3% for the quarter and 4.4% year to date. Restaurant operating margin was approximately 8.5% for the quarter and 3.4% year to date.
- Quarterly net income attributable to Ark rose about 92%; nine-month net income rose about 34%. Year-to-date operating income fell 20.5% as the prior-year period included a $1.637m gain on the sale of Ark Jupiter.
- Same-store food and beverage sales increased 2.3% in the quarter. Performance varied by market: New York +4.7%, Las Vegas +3.2%, Florida +3.3%, Washington, D.C. −14.0%, and Boston −18.6%.
- Nine-month operating cash flow was $7.575m, down from $8.339m. Investing cash outflow was $4.638m, primarily for fixed-asset purchases; capital expenditures were $4.702m, versus $11.843m in the prior period. Cash increased $3.6m to $5.006m.
- At June 30, cash was $5.006m and current assets were $13.062m versus current liabilities of $17.608m, a $4.546m working-capital deficit. Total assets were $85.166m and total equity was $43.999m.
- Bank debt principal totaled $21.568m, including $6.568m outstanding under the revolving facility; balance-sheet notes payable were $21.414m net of deferred financing costs. The June refinancing extended the revolving facility to May 31, 2021 and moved substantial maturities out of current liabilities. The revolver rate was LIBOR plus 3.5%, subject to adjustment; its weighted-average rate was 5.4% at June 30.
Material changes, outlook, and risks
- Quarterly revenue and operating income benefited from Sequoia’s reopening after renovation; its prior-year closure affected comparisons. Revenue also reflected the Oyster House properties, while closures following lease expirations partly offset growth.
- Management attributed lower quarterly food-cost and payroll ratios partly to a stronger catering mix; nine-month payroll costs as a share of revenue increased, partly reflecting minimum-wage increases. Depreciation rose with Sequoia improvements placed in service.
- The nine-month tax provision was a benefit of $0.661m, including an approximately $1.2m provisional discrete benefit from the Tax Cuts and Jobs Act. Tax accounting remained incomplete; management estimated a 24% blended statutory rate for fiscal 2018 and expected the full-year effective rate to be significantly lower because of the discrete benefit.
- Management said cash balances, banking facilities, and operating cash flow should meet liquidity and capital-spending needs through at least August 15, 2019. The company was in compliance with its financial covenants at June 30. It intended to continue quarterly cash dividends of $0.25 per share, subject to Board discretion and future financial conditions.
- No specific earnings or revenue guidance was provided. Risks include labor and food-cost volatility, competition, economic conditions, weather and seasonality; outdoor seating makes results weather-sensitive. The company reported no material change to previously disclosed risk factors.
- The company’s accounting for the tax-law changes remained provisional. Adoption of the new lease standard, planned for fiscal 2020, was expected to materially affect balance-sheet presentation through recognition of operating-lease assets and liabilities.
- The company reported no significant adverse change in its New Meadowlands Racetrack investment and recorded no impairment. Its value and potential concession opportunity depend partly on uncertain casino approval and licensing.
- On July 29, 2018, President and CFO Robert J. Stewart died. The company said it had begun a search for a replacement and expected the position to be filled before year-end. Management considered disclosure controls effective as of June 30, 2018.
Important facts for investors to verify
- Whether operating cash flow and the working-capital deficit remain manageable, and the facility’s actual availability after applying its borrowing limits and covenants.
- How much of reported earnings reflects recurring restaurant operations versus the provisional tax benefit and prior-year asset-sale gain.
- Whether weakness in Washington, D.C. and Boston persists, and whether same-store growth continues across the company’s markets.
- The effects of labor costs, food-price changes, weather, lease obligations, and the upcoming lease-accounting change on margins and liquidity.
- Progress on the CFO replacement, the sustainability of the quarterly dividend, and developments affecting the New Meadowlands investment.