Business Context and Reporting Period
Company: ARK Restaurants Corp.
Filing Type: Form 10-Q (Quarterly Report)
Reporting Period: 13 and 26 weeks ended April 3, 2010 (Second Fiscal Quarter 2010)
Business Overview: The Company operates upscale restaurants in major U.S. cities including New York, Las Vegas, Washington D.C., and Atlantic City. The business is highly seasonal, with winter quarters typically reflecting lower traffic. The Company is classified as a Smaller Reporting Company.
Key Financial Metrics
| Metric (in thousands) | 13 Weeks Ended Apr 3, 2010 |
13 Weeks Ended Mar 28, 2009 |
26 Weeks Ended Apr 3, 2010 |
26 Weeks Ended Mar 28, 2009 |
|---|---|---|---|---|
| Total Revenues | $25,113 | $23,756 | $50,689 | $50,549 |
| Operating Loss | $(1,372) | $(1,461) | $(2,445) | $(1,076) |
| Net Income (Loss) Attributable to ARK | $(671) | $(712) | $(1,395) | $136 |
| Diluted EPS | $(0.19) | $(0.20) | $(0.40) | $0.04 |
| Cash and Cash Equivalents | $2,562 | $1,790 (End of prior period) | $2,562 | $1,790 (End of prior period) |
| Working Capital | $3,268 | $5,883 (Oct 3, 2009) | $3,268 | $5,883 (Oct 3, 2009) |
| Debt (Notes Payable) | $408 (Total) | $511 (Total) | $408 (Total) | $511 (Total) |
Note: Debt figures represent the sum of current and long-term portions of notes payable.
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 5.7% in the quarter to $25.1 million, driven by the new "Robert" restaurant in New York City and higher management fees. However, same-store sales decreased 2.4% company-wide.
- Regional Performance:
- New York: Same-store sales increased 12.9% due to mild weather enabling early outdoor seating.
- Las Vegas & Atlantic City: Sales declined (5.4% and 5.6% respectively) due to reduced tourism and lower gaming activity.
- Washington D.C.: Sales decreased 11.7%, impacted by snowstorms and the lack of the presidential inauguration revenue seen in the prior year.
- Expense Trends:
- Payroll: Increased to 35.0% of revenue (from 34.5%) due to the new restaurant opening and salary increases.
- Occupancy: Decreased to 15.3% of revenue (from 17.3%) primarily due to a one-time tax adjustment expense in the prior year.
- Liquidity: Working capital surplus decreased from $5.9 million to $3.3 million. Cash and cash equivalents declined from $5.5 million to $2.6 million, largely due to dividend payments of $5.2 million over the 26-week period.
Guidance, Outlook, and Risks
- Outlook: Management expects the effective tax rate for the fiscal year to be between 23.0% and 27.0%, lower than the statutory rate due to tax credits. The Company intends to continue paying quarterly cash dividends ($0.25 per share) based on future earnings and cash flow.
- Expansion: The Company committed to spending no less than $3.0 million to remodel its 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:
- Seasonality & Weather: Significant reliance on outdoor seating makes the business vulnerable to inclement weather.
- Commodity Prices: Exposure to volatile prices for food commodities (chicken, beef, lobster, shrimp) without hedging contracts.
- Legal: Routine litigation regarding accidents and employment discrimination; approximately $500,000 is accrued for potential settlements.
- Unusual Items: The 26-week period included $439,000 in pre-opening and early operating losses related to the new "Robert" restaurant.
Investor Verification Checklist
- Dividend Sustainability: Verify if the $5.2 million in dividends paid over 26 weeks is sustainable given the net loss of $1.4 million and declining cash reserves.
- Same-Store Sales Trend: Monitor the divergence between New York growth and Las Vegas/Washington D.C. declines to assess overall portfolio health.
- Capital Commitments: Confirm the impact of the $3.0 million Las Vegas remodeling commitment on future cash flows.
- Non-Controlling Interests: Review the $393,000 net loss attributable to non-controlling interests to understand the full scope of consolidated losses.
- Legal Accruals: Track the $500,000 accrued liability for legal claims to ensure no material increase in litigation costs.