ARK RESTAURANTS CORP. - 10-K Summary (Fiscal Year Ended Oct 3, 2009)
Business Context and Reporting Period
Ark Restaurants Corp. (ARKR) is a New York corporation operating 20 restaurants and bars, 30 fast food concepts, and catering operations across seven regions, including New York City, Washington D.C., Las Vegas, Atlantic City, Connecticut, and Boston. A significant portion of operations are located within casinos. The fiscal year ended October 3, 2009, consisted of 53 weeks (compared to 52 weeks in the prior year). The company is classified as a Smaller Reporting Company.
Key Financial Metrics
| Metric | Fiscal 2009 | Fiscal 2008 |
|---|---|---|
| Total Revenues | $115.0 million | $125.4 million |
| Net Income | $3.1 million | $7.0 million |
| Operating Income | $3.3 million | $9.8 million |
| Net Cash from Operating Activities | $7.7 million | $11.3 million |
| Food & Beverage Cost % | 25.6% | 26.2% |
| Payroll Expense % | 32.3% | 30.6% |
| Working Capital | $5.9 million | $9.1 million |
| Cash & Equivalents | $5.5 million | $3.0 million |
| Long-Term Debt (Note Payable) | $0.5 million | $0.7 million |
Material Changes vs. Prior Period
- Revenue Decline: Total revenues decreased 8.3% to $115.0 million. Same-store sales dropped 10.4% ($12.1 million) due to economic downturns, reduced tourism, and inclement weather.
- Regional Performance:
- New York same-store sales fell 18.3% due to layoffs in the financial sector and weather.
- Las Vegas same-store sales fell 8.2% due to reduced gaming activity.
- Atlantic City same-store sales fell 19.6% due to competition from Pennsylvania slot parlors and economic conditions.
- Profitability: Net income declined 56% to $3.1 million. Operating income dropped significantly from $9.8 million to $3.3 million.
- Cost Structure: While food costs as a percentage of revenue improved slightly (26.2% to 25.6%), payroll expenses as a percentage of revenue increased from 30.6% to 32.3% due to lower sales volumes.
- Dividends: The company declared a special cash dividend of $1.00 per share in September 2009 and a quarterly dividend of $0.25 per share in December 2009.
Guidance, Outlook, Risks, and Unusual Items
- Expansion: Construction began on "Robert" at the Museum of Arts & Design in Manhattan, which opened in December 2009. Pre-opening expenses for this location were $15,000 in fiscal 2009.
- Discontinued Operations: The company closed the Stage Deli in Las Vegas in 2008 due to unprofitable lease renewal terms, recording a $294,000 goodwill impairment charge and a $19,000 loss on disposal. Columbus Bakery was also discontinued and converted to a joint venture ("Pinch & S'Mac").
- Internal Control Material Weakness: Management concluded that internal controls over financial reporting were ineffective due to a material weakness. The CEO received salary advances totaling $298,000 and a loan to his former wife of $160,000, which were deemed potential violations of the Sarbanes-Oxley Act. These amounts were repaid in late 2009.
- Risks: Significant risks include economic downturns affecting discretionary spending, seasonality (Q2 is typically the weakest quarter), dependence on casino traffic, rising labor and food costs, and potential litigation regarding food safety or employment laws.
Investor Verification Checklist
- Internal Controls: Verify the status of remediation efforts regarding the CEO salary advances and Sarbanes-Oxley compliance issues disclosed in Item 9A.
- Lease Obligations: Review future minimum lease commitments totaling $55.6 million over the next 20+ years, noting that several key leases expire between 2009 and 2015.
- Stock Repurchases: Confirm the status of the $500,000 share repurchase program authorized in 2008; no shares were repurchased in the final quarter of 2009.
- Related Party Transactions: Monitor the repayment of the $252,000 outstanding CEO advance and the $160,000 loan to the CEO's former wife.
- Seasonality: Assess the impact of the upcoming Q2 (Jan-Mar) on cash flow, as this is historically the poorest performing quarter due to weather in key markets.