ARK Restaurants Corp. 10-Q Summary
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended June 30, 2007, and the 39-week period ended on the same date. Ark Restaurants Corp. operates and manages restaurants in New York, Las Vegas, Washington D.C., and Atlantic City. The reporting period includes significant restructuring activities, including the sale of three Las Vegas locations (Lutece, Tsunami, and part of Vivid) and the acquisition of two Boston restaurants (Durgin Park and BlackHorse Tavern).
Key Financial Metrics
| Metric | 13 Weeks Ended June 30, 2007 | 39 Weeks Ended June 30, 2007 |
|---|---|---|
| Total Revenues | $36,064,000 | $90,133,000 |
| Operating Income | $4,867,000 | $7,770,000 |
| Net Income | $3,471,000 | $10,439,000 |
| Diluted EPS | $0.96 | $2.90 |
| Cash and Equivalents | $2,425,000 | (Balance Sheet End of Period) |
| Working Capital | $8,423,000 | (Surplus) |
| Debt | $929,000 | (Total Notes Payable) |
Margins (39 Weeks Ended June 30, 2007):
- Food and Beverage Cost: 25.5% of revenue
- Payroll Expenses: 31.1% of revenue
- Occupancy Expenses: 13.3% of revenue
- Operating Margin: 8.6%
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 16% in the quarter and 11% for the 39-week period compared to the prior year. This growth was driven by same-store sales increases in Las Vegas (8.2%), New York (13.5%), Washington D.C. (11.0%), and Atlantic City (44.6%).
- Discontinued Operations: The 39-week period included a significant gain of $7,814,000 from the sale of the Lutece, Tsunami, and Vivid locations to the Venetian Casino Resort. This transaction is classified as discontinued operations.
- Acquisitions: The company acquired Durgin Park and BlackHorse Tavern in Boston for $3,000,000 ($2M cash, $1M note) in January 2007.
- Dividends: The company paid significant dividends, including a special dividend of $3.00 per share in December 2006 and a regular quarterly dividend of $0.44 per share in May 2007. Total dividends paid in the 39-week period were $14,500,000.
- Cash Flow: Net cash provided by operating activities was $8,751,000. However, cash and cash equivalents decreased by $5,246,000 during the period, primarily due to dividend payments and investment in securities.
Guidance, Outlook, and Risks
Management Commentary: Management attributes revenue increases to improved weather, general economic conditions, and the rebranding of the Luna Bar to Gallagher's Burger Bar in Atlantic City. They do not anticipate similar percentage increases in Atlantic City in future periods. The company plans to continue paying quarterly cash dividends based on future earnings and cash flow.
Future Projects: In June 2007, the company entered an agreement to design and lease a food court at the MGM Grand Casino at Foxwoods Resort Casino, expected to open in the third quarter of fiscal 2008. The company will act as the managing member for a 5% management fee with no capital contribution required.
Risks and Contingencies:
- Forward-Looking Statements: Actual results may differ due to economic conditions, labor costs, food product costs, weather, and competition.
- Accounting Changes: The company is evaluating the impact of FIN 48 (Accounting for Uncertainty in Income Taxes) and SFAS 157 (Fair Value Measurements), which are required to be adopted in future fiscal years.
- Liquidity: The company's primary source of capital is cash from operations. The previous revolving credit facility matured in 2005, and the company does not currently plan to enter a new credit facility.
Investor Verification Checklist
- Discontinued Operations Impact: Verify the sustainability of net income excluding the one-time $7.8M gain from the sale of Las Vegas locations.
- Dividend Sustainability: Assess whether operating cash flows ($8.75M for 39 weeks) can support the high dividend payout ($14.5M for 39 weeks) without depleting cash reserves further.
- Atlantic City Performance: Monitor the 44.6% same-store sales increase in Atlantic City to confirm if it normalizes as management suggests.
- Debt Structure: Review the terms of the $1M promissory note issued for the Boston acquisition and the $178k current portion of notes payable.
- Investment Portfolio: Note the $8.6M in short-term investments; verify the liquidity and unrealized gains/losses associated with these available-for-sale securities.