ARK Restaurants Corp. — Q1 FY2022 Form 10-Q
Reporting period: 13 weeks ended January 1, 2022; comparison is the 13 weeks ended January 2, 2021. The company operated 17 restaurants and bars, 17 fast-food concepts, and catering operations in the United States.
Financial performance
| Metric | Q1 FY2022 | Prior-year quarter |
|---|---|---|
| Total revenue | $43.986 million | $20.299 million |
| Operating income (loss) | $2.791 million | $(3.307) million |
| Consolidated net income (loss) | $2.429 million | $(0.699) million |
| Net income (loss) attributable to ARK Restaurants | $2.209 million | $(0.763) million |
| Basic / diluted EPS | $0.62 / $0.61 | $(0.22) / $(0.22) |
| Operating margin | 6.3% | (16.3)% |
| Operating cash flow | $3.852 million | $(2.985) million |
| Capital expenditures | $0.449 million | $0.594 million |
Food and beverage same-store sales rose 112.8%. Food and beverage costs were 28.5% of revenue versus 29.3%; payroll was 32.4% versus 42.6%; occupancy was 11.9% versus 17.1%. Cost ratios benefited from higher sales against costs that are partly fixed, targeted menu-price increases, and a modest recovery in events; higher seafood and other food costs partly offset the improvement.
Liquidity, debt and balance sheet
- Cash and cash equivalents were $20.167 million, up from $19.171 million at October 2, 2021. Current assets were $34.769 million and current liabilities $31.077 million.
- Notes payable totaled $30.677 million before unamortized financing costs, including $6.756 million current and $23.819 million long-term net of financing costs. The company paid $1.919 million of note principal during the quarter.
- Operating lease liabilities totaled $56.802 million, including $6.298 million current; undiscounted future lease commitments were $79.964 million.
- Total liabilities were $105.400 million and total equity was $53.426 million. Net cash provided by operations exceeded investing and financing outflows; cash increased by $0.996 million.
Management reported compliance with financial covenants at January 1, 2022. COVID-related covenant modifications were in effect through fiscal Q2 2022. Bank debt bears interest at LIBOR plus 3.5%; the company expected to work with its lender on a replacement reference rate as LIBOR was to be discontinued.
Material changes and unusual items
- Revenue increased 116.7% and operating results improved by $6.098 million year over year, primarily because restaurants operated without indoor dining restrictions except for New York City vaccination requirements, compared with pandemic-related closures or capacity restrictions in the prior-year quarter. Higher customer traffic, pricing, and recovering event business also contributed.
- The prior-year comparison included a $2.919 million income-tax benefit, largely related to tax-loss carrybacks; the current quarter recorded a $0.309 million tax provision. Accordingly, the change in net income reflects materially different tax effects as well as improved operations.
- Blue Moon Fish Company, acquired in December 2020, contributed approximately $1.982 million of revenue and $0.356 million of income in the current quarter. The company also recorded $0.222 million of income from a New Meadowlands Racetrack distribution.
- Cash distributions to non-controlling interests were $0.529 million. PPP loans outstanding were $4.056 million; forgiveness of the remaining balance was uncertain, and $0.666 million of related payments were made during the quarter.
Outlook, risks and contingencies
The filing gives no quantified revenue or earnings guidance. Management cautioned that COVID-19 effects remain uncertain, including possible restrictions, labor impacts, supply disruptions, and changes in customer behavior. The company described its business as highly seasonal: January through March is generally its weakest quarter, while warmer weather and outdoor dining often support stronger results. Fixed costs, adverse weather, wage and benefit increases, and food-cost inflation may pressure results.
The company identified potential future impairment risk for goodwill, trademarks, and restaurant assets if projected performance is not achieved, although it recorded no impairment in the quarter. It also warned that economic conditions or renewed disruption could affect liquidity, debt-covenant compliance, and its ability to pay or refinance debt. Remaining PPP-loan forgiveness is not assured. A previously settled New York labor-law class action awaited final court approval; management did not expect ordinary legal matters to materially affect results. A new 2022 Stock Option Plan covering up to 500,000 shares was approved by the board, subject to shareholder approval.
Investor verification points
- Confirm whether the post-quarter operating recovery continued and whether same-store sales growth was sustained beyond the pandemic-affected comparison period.
- Monitor food, labor, and occupancy costs against sales, along with seasonal and weather-related performance.
- Review debt amortization, covenant terms and compliance after the temporary covenant modifications, and the resolution of the LIBOR replacement rate.
- Verify the status and amount of PPP-loan forgiveness and any remaining repayment obligations.
- Track final court approval of the labor-law settlement and shareholder approval of the 2022 Stock Option Plan.