ARK Restaurants Corp. — FY2023 Form 10-K
Reporting period: Fiscal year ended September 30, 2023 (52 weeks), compared with the 52-week year ended October 1, 2022. The company operates restaurants, bars, fast-food concepts and catering businesses across the United States.
Financial performance
| Metric | FY2023 | FY2022 |
|---|---|---|
| Total revenue | $184.8 million | $183.7 million |
| Operating income (loss) | ($4.8 million), including $10.0 million goodwill impairment | $9.9 million |
| Operating income excluding impairment | $5.2 million | $9.9 million |
| Net income (loss) attributable to Ark Restaurants | ($5.9 million); ($1.65) per diluted share | $9.3 million; $2.58 per diluted share |
| Net cash from operating activities | $8.4 million | $20.3 million |
| Cash and cash equivalents at year-end | $13.4 million | $23.4 million |
Revenue increased 0.6%. Same-store food and beverage sales were essentially flat overall: New York rose 10.9%, Florida fell 6.0%, and Atlantic City fell 15.6%. Food and beverage costs declined to 26.9% of revenue from 28.6%, while payroll costs increased to 35.9% from 32.7%. Management attributed margin pressure primarily to labor costs, higher base rents, insurance and inflation in other operating expenses; easing commodity costs and strong event business partly offset these increases.
Liquidity, debt and cash flow
- Working capital was negative $5.9 million at year-end, versus positive $4.2 million a year earlier; management cited substantial debt prepayments as the primary driver.
- Notes payable totaled $7.2 million, including $2.0 million current and $5.1 million long-term net of financing costs. The company had no borrowings outstanding on its $10 million revolving facility at September 30, 2023; the facility matures June 1, 2025.
- Operating lease liabilities totaled $100.2 million. Cash used in financing was $19.7 million, including $15.8 million of principal payments, $2.3 million of dividends and $1.1 million of distributions to non-controlling interests.
- Management said existing cash and banking facilities should fund operations and capital needs for at least the next 12 months.
Material changes, outlook and notable items
- The $10.0 million noncash goodwill impairment was recorded in the fourth quarter, following lower-than-expected profitability, stock-price volatility and uncertainty over renewal of the Bryant Park Grill & Cafe and The Porch at Bryant Park leases. The charge contributed to the annual loss; $8.0 million was tax-deductible and generated a $2.3 million deferred tax benefit.
- The company did not meet its minimum annual net income covenant at September 30 because of the impairment. Its lender waived the covenant’s applicability and any resulting breach on December 13, 2023. The company reported compliance with its other financial covenants.
- The Bryant Park Grill & Cafe and The Porch leases expire April 30, 2025. The landlord issued RFPs for new 10-year agreements, each with one five-year renewal option; the landlord had not announced successful bidders by the filing date.
- Refresh commitments include at least $4.0 million for America by December 2024 and $3.5 million for the Village Eateries, Broadway Burger Bar and Gonzalez y Gonzalez premises by March 2024; approximately $0.3 million had been spent on the latter project by year-end. Gallagher’s Steakhouse reopened after renovation in April 2023, at a cost of approximately $1.9 million.
- No numerical earnings or revenue guidance was provided. Management identified inflation, food and labor costs, staffing, consumer demand, weather, competition, lease renewals and financing availability as important risks. The business is seasonal, with its second fiscal quarter typically weakest.
- The audited financial statements received an unqualified opinion. Management reported effective disclosure controls and internal control over financial reporting. The filing identifies no pending legal proceeding expected to materially affect the company; a previously accrued approximately $0.6 million New York labor-law settlement was paid in FY2023.
Important facts for investors to verify
- Progress and funding for the Las Vegas refresh commitments, and the potential operating impact during construction.
- Outcomes of the Bryant Park lease RFPs before the April 2025 expirations and the assumptions underpinning the goodwill valuation.
- Ongoing compliance with lender covenants, available revolver capacity, debt maturities and the sustainability of liquidity given the working-capital deficit.
- Whether labor, occupancy and other cost inflation can be offset without weakening customer traffic or margins, and whether recent regional same-store sales trends persist.
- Future dividend decisions: FY2023 dividends totaled $0.625 per share, but the board retains discretion to change or suspend them.