Business Context and Reporting Period
Company: Ark Restaurants Corp.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: July 3, 2010 (13 weeks) and 39 weeks ended July 3, 2010.
Business Overview: The Company operates a portfolio of restaurants in major U.S. cities including New York, Las Vegas, Washington D.C., Atlantic City, Connecticut, and Boston. Operations are seasonal, with higher traffic in the third and fourth fiscal quarters, though results are sensitive to weather conditions affecting outdoor seating.
Key Financial Metrics
| Metric (in thousands) | 13 Weeks Ended July 3, 2010 |
13 Weeks Ended June 27, 2009 |
39 Weeks Ended July 3, 2010 |
39 Weeks Ended June 27, 2009 |
|---|---|---|---|---|
| Total Revenues | $35,162 | $31,123 | $85,852 | $81,672 |
| Operating Income | $4,321 | $2,484 | $1,876 | $1,409 |
| Net Income (Ark Restaurants Corp.) | $2,916 | $1,597 | $1,521 | $1,733 |
| Diluted EPS | $0.83 | $0.46 | $0.43 | $0.50 |
| Cash and Equivalents (Balance Sheet) | $4,125 | $5,452 | N/A (Balance Sheet Item) | |
| Working Capital Surplus | $5,933 | $5,883 | ||
| Net Cash from Operating Activities | N/A (39-week data only) | $3,196 | $2,298 | |
| Net Cash from Investing Activities | $1,815 | $(143) | ||
| Net Cash Used in Financing Activities | N/A (39-week data only) | $(6,338) | $(2,233) | |
| Debt (Notes Payable) | $355 (Total) | $511 (Total) |
Note: Debt figures represent the sum of current and long-term notes payable as of July 3, 2010 ($212k + $143k) and October 3, 2009 ($209k + $302k).
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 13.0% in the 13-week period and 5.1% in the 39-week period compared to the prior year. This was driven by improved weather conditions, the opening of the new "Robert" restaurant in New York City, and higher management fees.
- Operating Income: Operating income surged 74% in the 13-week period ($4.3M vs $2.5M) due to revenue growth and expense management.
- Same Store Sales: Company-wide same store sales increased 9% in the quarter. New York sales rose 29.9% due to outdoor seating utilization. Conversely, Las Vegas sales declined 2.7% due to reduced tourism and gaming activity.
- Expense Ratios: Payroll expenses as a percentage of revenue decreased to 28.5% (from 30.8%) in the quarter, and occupancy expenses dropped to 12.1% (from 13.3%), partly due to a one-time tax adjustment in the prior year.
- Cash Flow: Net cash provided by operating activities increased by $890,000 year-over-year for the 39-week period, primarily due to favorable working capital changes.
Guidance, Outlook, and Risks
- Dividends: The Board declared quarterly cash dividends of $0.25 per share in December 2009, March 2010, and May 2010. The Company intends to continue paying quarterly dividends, subject to future earnings and cash flow.
- Tax Outlook: The Company expects an effective tax rate of approximately 32.0% to 36.0% for the current fiscal year. Tax returns for fiscal years 2008 and 2009 are under IRS audit, though no material adjustments are expected.
- Capital Commitments: In February 2010, the Company committed to spend no less than $3,000,000 to remodel the food court at the New York-New York Hotel and Casino in Las Vegas by March 2012, in exchange for a four-year lease extension.
- Risks: Key risks include economic conditions, weather impacts on outdoor seating, fluctuations in food costs, labor costs, and competition. The Company does not hedge commodity prices.
- Contingencies: Approximately $500,000 is accrued for potential settlements of various claims, including employment discrimination and worker's compensation.
Investor Verification Checklist
- Weather Sensitivity: Verify the extent to which Q3 results were driven by favorable weather versus organic growth, given the heavy reliance on outdoor seating.
- Las Vegas Performance: Monitor the continued decline in Las Vegas same-store sales and the impact of the $3M remodeling commitment on future cash flows.
- Dividend Sustainability: Assess whether the $0.25 quarterly dividend is sustainable given the significant cash outflows for dividends ($6.1M in the 39-week period) relative to operating cash flow.
- New Restaurant Ramp-up: Track the profitability timeline for the new "Robert" restaurant, which incurred $439,000 in pre-opening and early operating losses in Q1.
- Related Party Receivables: Note the increase in related party receivables from $504,000 to $1,425,000 and verify the collectability of these amounts.