ARK Restaurants Corp. — Q1 FY2016 Form 10-Q
Business and period: The 13 weeks ended January 2, 2016; comparison is the 13 weeks ended December 27, 2014. Ark operated 22 restaurants and bars, 19 fast-food concepts, and catering operations in the United States. Figures below are in U.S. dollars; financial statement amounts are in thousands unless noted.
Financial performance and position
| Metric | Q1 FY2016 | Prior comparable period |
|---|---|---|
| Total revenue | $36.109 million | $33.359 million |
| Operating income | $633,000 | $1.219 million |
| Net income attributable to Ark | $321,000 | $722,000 |
| Diluted EPS | $0.09 | $0.21 |
| Cash from (used in) operations | $(961,000) | $1.766 million |
- Revenue increased 8.2%; company-wide same-store food and beverage sales rose 1.9%.
- Operating margin was approximately 1.8%, versus 3.7% in the prior period. Food and beverage costs were 26.6% of revenue (26.2% prior); payroll was 34.1% (32.5% prior).
- Cash and cash equivalents were $5.880 million, down from $9.735 million at October 3, 2015. Current assets were $14.839 million and current liabilities $16.741 million, a $1.902 million working-capital deficit.
- Notes payable totaled $9.831 million: $2.571 million current and $7.260 million long-term. Debt increased from $5.524 million at fiscal year-end, largely reflecting the Shuckers acquisition. No additional Revolving Facility borrowings were outstanding; the company reported compliance with debt covenants.
- Investing cash outflow was $942,000, including $717,000 cash paid for Shuckers. Financing cash outflow was $1.952 million, including $855,000 of dividends, $571,000 of principal payments, and $396,000 of distributions to non-controlling interests.
Changes, management commentary, and outlook
- Operating income fell 48.1% despite higher revenue. Management cited approximately $120,000 of Shuckers transaction costs, labor-law-related payroll increases, and lease expirations of three Las Vegas properties. Newer operations partly offset these factors: Southwest Porch contributed $314,000 of operating income and Shuckers $110,000.
- Revenue growth reflected Shuckers, Southwest Porch, and same-store gains, partly offset by the closed Las Vegas locations. Same-store sales increased in New York, Atlantic City, and Florida, but declined 3.8% in Washington, D.C., which management attributed to construction at Union Station.
- Management said existing cash and operating cash flows should meet liquidity and capital-spending needs for at least the next 12 months. The filing gives no earnings or revenue guidance. Management intended to continue quarterly dividends, subject to board discretion and financial conditions.
- Shuckers was acquired October 22, 2015, for $5.717 million, financed with a $5.0 million bank loan and cash. Reported results included approximately $876,000 of Shuckers revenue and $110,000 of earnings.
- After quarter-end, Ark extended the Sequoia lease through November 2032. The property is planned to close for renovations from January through March 2017; estimated project cost is $4 million to $5 million, with annual rent of approximately $1.2 million, increasing over the lease term.
- Risks include seasonal demand and weather exposure, volatile food commodity prices, labor costs and competition. The company uses no forward commodity contracts. It reported ordinary-course litigation that management did not expect to have a material adverse effect; no material changes to previously disclosed risk factors were reported.
Important facts for investors to verify
- Whether the working-capital deficit and negative operating cash flow persist; management’s 12-month liquidity assessment depends on cash and future operating cash flows.
- Shuckers’ ongoing contribution and the effect of its acquisition debt, interest costs, and integration on earnings and cash flow.
- Whether payroll and food-cost pressures ease, and whether same-store sales and operating margins improve.
- The affordability of planned Sequoia renovation spending alongside debt service and the $0.25-per-share quarterly dividend.
- The filing’s comparison uses the prior-year 13-week period ended December 27, 2014; interim results are seasonal and not necessarily indicative of full-year performance.