ARK RESTAURANTS CORP. - 10-Q Summary
Business Context and Reporting Period
This is a Quarterly Report (Form 10-Q) for Ark Restaurants Corp., covering the 13-week and 39-week periods ended July 1, 2000. The company operates and manages restaurants, with significant expansion activities in Las Vegas (Venetian and Aladdin Resorts) and New York. As of August 3, 2000, there were 3,181,699 shares of common stock outstanding.
Key Financial Metrics
| Metric | 13 Weeks Ended July 1, 2000 | 39 Weeks Ended July 1, 2000 | 39 Weeks Ended July 3, 1999 |
|---|---|---|---|
| Net Sales | $33,810,000 | $86,532,000 | $81,842,000 |
| Net Income (Loss) | $1,773,000 | $(3,112,000) | $2,985,000 |
| Operating Income (Loss) | $3,281,000 | $(3,459,000) | $4,812,000 |
| Cash from Operations | N/A | $1,548,000 | $5,153,000 |
| Long-Term Debt | $24,536,000 | $24,536,000 | $6,683,000 |
| Working Capital | $1,753,000 | $1,753,000 | $(3,044,000) |
| Cash & Equivalents | $421,000 | $421,000 | $372,000 |
Margins (39 Weeks): Cost of sales was 26.0% of net sales (vs. 26.4% prior year). Operating expenses were 66.3% of net sales (vs. 63.0% prior year). General and administrative expenses were 6.4% of net sales (vs. 5.6% prior year).
Material Changes vs. Prior Period
- Revenue Growth: Net sales increased 7.1% in the quarter and 5.7% for the 39-week period, driven by new openings in Las Vegas (Lutece, Tsunami, food courts) and a 2.9% same-store sales increase in the quarter.
- Profitability Decline: While the quarter remained profitable, the 39-week period swung from a net income of $2.985 million to a net loss of $3.112 million.
- Debt Increase: Long-term debt increased significantly from $6.683 million to $24.536 million due to borrowings under a $28 million revolving credit facility to fund expansion.
- Joint Venture Write-off: A major non-recurring charge of $4.988 million (pre-tax) was recorded for the withdrawal from a Southfield, Michigan theater development project.
Guidance, Outlook, and Risks
- Expansion: The company is constructing facilities at the Aladdin Resort and Casino in Las Vegas, expecting to spend up to $10 million. One additional restaurant at the Venetian is scheduled to open in fiscal 2001.
- Liquidity: The company relies on cash from operations and a $28 million revolving credit facility. As of July 1, 2000, $22.85 million was outstanding.
- Covenant Waiver: Shareholders' equity fell below the minimum required by the credit agreement due to the Michigan project write-off. The company received a waiver from the bank.
- Accounting Changes: Adoption of SOP 98-5 resulted in a $190,000 after-tax charge for expensing start-up costs. SFAS No. 133 adoption is expected to have no effect.
- Tax Risks: The IRS is examining returns for fiscal years 1995-1997; management does not expect a material effect. A tax credit for tip income is estimated at over $500,000 for the year.
Investor Verification Checklist
- Verify the sustainability of the $1.773 million quarterly profit given the $3.1 million loss for the 39-week period.
- Confirm the status of the bank covenant waiver regarding minimum shareholders' equity.
- Assess the impact of the $4.988 million joint venture write-off on future capital allocation.
- Monitor the $10 million capital expenditure requirement for the Aladdin Resort project and funding sources.
- Review the details of the $22.85 million outstanding debt and interest rate exposure (prime + 0.5%).