ARK Restaurants Corp. 10-Q Summary
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended December 27, 2008 (the first quarter of fiscal year 2009). Ark Restaurants Corp. operates and manages a portfolio of restaurants, primarily in New York City, Las Vegas, Washington D.C., Atlantic City, and Connecticut. The company is classified as a smaller reporting company.
Key Financial Metrics
| Metric | Q1 2009 (13 weeks) | Q1 2008 (13 weeks) |
|---|---|---|
| Total Revenues | $26,792,000 | $29,280,000 |
| Operating Income | $385,000 | $1,917,000 |
| Net Income | $847,000 | $1,485,000 |
| Diluted EPS | $0.24 | $0.41 |
| Cash and Equivalents (End of Period) | $953,000 | $2,669,000 |
| Working Capital | $8,000,000 | $9,144,000 |
| Net Cash Used in Operating Activities | ($1,071,000) | $930,000 |
Margins: Food and beverage costs were 25.0% of revenue (vs. 25.5% prior year). Payroll expenses increased to 33.3% of revenue (vs. 31.6% prior year) due to lower sales volumes. Occupancy expenses rose to 14.2% of revenue (vs. 13.4% prior year).
Material Changes vs. Prior Period
- Revenue Decline: Total revenues decreased 8.5% year-over-year. Same-store sales dropped 14.8% company-wide, driven by significant declines in New York (23.9%) and Las Vegas (11.0%).
- Profitability: Net income fell 43% to $847,000. Operating income decreased by $1.53 million.
- Cash Flow: Operating cash flow turned negative, using $1.071 million, compared to a positive $930,000 in the prior year. This was primarily due to a reduction in accounts payable and accrued expenses.
- Dividends: The Board suspended the customary dividend declaration for January 2009. Future dividends will be determined on a quarter-by-quarter basis.
- Stock Repurchases: The company purchased 42,000 shares of common stock at an average price of $11.90 during the quarter.
Outlook, Risks, and Management Commentary
Management Commentary: The decline in same-store sales is attributed to the broader economic downturn, specifically layoffs in the financial sector (impacting New York), reduced tourism and convention business, and decreased gaming activity in Las Vegas and Atlantic City. Management has adjusted payroll to reflect lower sales volumes.
Expansion and Dispositions:
- Expansion: A new restaurant at The Museum of Arts & Design in New York City is anticipated to open in the third quarter of fiscal 2009. A food court at Foxwoods Resort Casino commenced operations in the third quarter of 2008.
- Dispositions: Operations for the Stage Deli in Las Vegas were discontinued in the third quarter of 2008 due to unfavorable lease renewal terms, resulting in a goodwill impairment charge of $294,000 and a disposal loss of $19,000.
Risks: The company faces risks related to economic conditions, consumer preferences, labor costs, and food product price fluctuations. The business is highly seasonal and dependent on weather conditions for outdoor seating.
Investor Verification Checklist
- Liquidity Position: Verify the sustainability of operations given the negative operating cash flow and the suspension of dividends.
- Same-Store Sales Trend: Monitor if the 14.8% decline in same-store sales stabilizes or worsens in subsequent quarters as economic conditions evolve.
- Debt and Leases: Review the impact of fixed occupancy costs on margins as revenue remains under pressure.
- Capital Allocation: Assess the impact of the $500,000 stock repurchase and the suspension of dividends on shareholder returns.
- Discontinued Operations: Confirm that the charges related to the Las Vegas Stage Deli closure are fully accounted for and do not recur.