ARK Restaurants Corp. — Form 10-Q Summary
Reporting period: 13 and 39 weeks ended June 30, 2012, compared with periods ended July 2, 2011. The filing checks both quarterly-report and transition-report boxes but does not explain the transition designation. Financial amounts below are in thousands of dollars unless otherwise stated.
Business context and results
ARK operated 21 restaurants and bars, 22 fast-food concepts, and catering operations in the United States, reported as one segment. Results are seasonal; winter quarters generally have lower traffic, while outdoor dining can be affected by weather.
| Metric | 13 weeks ended June 30, 2012 | 13 weeks ended July 2, 2011 | 39 weeks ended June 30, 2012 | 39 weeks ended July 2, 2011 |
|---|---|---|---|---|
| Revenue | $38,993 | $38,749 | $101,595 | $99,915 |
| Operating income | $4,312 | $3,438 | $5,835 | $2,832 |
| Income before taxes | $4,541 | $3,557 | $6,620 | $3,251 |
| Net income attributable to ARK | $2,964 | $2,306 | $3,647 | $541 |
| Diluted EPS | $0.90 | $0.65 | $1.09 | $0.15 |
- Revenue increased 0.6% for the quarter and 1.7% year to date. Company-wide same-store sales rose 4.0% in the quarter; Washington, D.C. increased 36.4%, while Las Vegas fell 2.7% and Boston fell 11.0%.
- Operating margin improved to approximately 11.1% from 8.9% for the quarter, and to 5.7% from 2.8% year to date. Food costs declined as a share of revenue, which management attributed to improved menu costing, partly offset by higher commodity prices.
- Quarterly net income attributable to ARK rose about 29%; year-to-date net income rose from $541 to $3,647. Year-to-date results included discontinued-operation losses of $395, compared with $1,037 a year earlier.
Cash flow, balance sheet, and capital allocation
- Operating cash flow was $7,690 for the 39 weeks, versus $3,601 a year earlier. Investing activities used $5,688, including $7,828 of fixed-asset purchases; financing activities used $5,337.
- Cash and cash equivalents were $4,445 at June 30, down from $7,780 at October 1, 2011. Short-term investments were $75, versus $2,699. Working capital was a $367 surplus, down from $4,080.
- Total note payable was $2,125: $620 current and $1,505 long-term. It arose from a 250,000-share repurchase for $3,125; ARK paid $1,000 in cash and issued the seller a note for $2,125, bearing 0.19% interest and payable in monthly installments beginning December 2012.
- ARK paid quarterly dividends of $0.25 per share in December, April, and June; the filing says it intends to continue quarterly dividends, subject to Board discretion and future financial conditions. Cash dividends paid year to date were $2,434. ARK also distributed $1,825 to non-controlling interests.
- Total assets were $52,943 and total equity was $35,241. Outstanding shares declined from 3.495 million to 3.245 million, primarily reflecting the repurchase.
Material developments, outlook, and risks
- Management attributed improved quarterly operating income mainly to better conditions in Washington, D.C. after a prior-year flood and improved menu costing. This was partly offset by losses at new New York restaurant Clyde Frazier’s Wine and Dine. Management cited approximately $1,383 of operating losses for the quarter; another note reports approximately $970 of pre-opening and early operating losses for the 39-week period.
- ARK closed or vacated several locations, including The Grill Room, America, and the Foxwoods food-court operation. The filing reports a $270 disposal loss and $343 of operating losses for the Foxwoods operation year to date; its discussion contains an apparent period reference inconsistency about when the disposal loss was recorded.
- Management believes cash, investments, and operating cash flow will cover liquidity and capital-spending needs for at least the next 12 months. No numerical earnings or revenue guidance is provided.
- ARK committed to spend at least $3,000 on remodeling its Las Vegas food court during 2012; approximately $2,000 had been spent by June 30. It also expected to begin managing a Basketball City restaurant and catering operation within the next 12 months.
- Management cited economic conditions, restaurant sales, labor and food costs, consumer preferences, competition, and weather as risks. A single vendor represented approximately 12% of purchases year to date. Ordinary-course legal claims were not expected by management to have a material adverse effect. The filing reports effective disclosure controls and no material changes in internal control during the quarter.
Key facts for investors to verify
- Reconcile the stated $1,383 quarterly Clyde Frazier’s losses with the note’s $970 year-to-date pre-opening and early operating losses, and assess the restaurant’s ongoing performance.
- Review the sharp decline in working capital and cash, the timing of remaining remodeling expenditures, and the company’s stated 12-month liquidity outlook.
- Confirm the Foxwoods disposal-loss period and treatment, given the inconsistency in the filing’s discussion.
- Assess whether the dividend policy remains supportable alongside capital spending, the treasury-stock note repayments, and distributions to non-controlling interests.
- Monitor same-store sales by market, especially Las Vegas and Boston, plus food, labor, weather, and supplier-concentration exposure.