ARK RESTAURANTS CORP. - 10-K Summary (Fiscal Year Ended Sept 30, 2006)
Business Context and Reporting Period
Ark Restaurants Corp. (ARKR) is a New York corporation operating a portfolio of restaurants, bars, and bakeries. As of September 30, 2006, the company owned or operated 23 restaurants and bars, 25 fast food concepts, and catering/bakery operations across six regions: New York City, Washington D.C., Las Vegas, Atlantic City, Florida, and Connecticut. A significant portion of operations are located within casino resorts. The fiscal year ended September 30, 2006, consisted of 52 weeks.
Key Financial Metrics
| Metric | Fiscal 2006 | Fiscal 2005 |
|---|---|---|
| Total Revenues | $115,969,000 | $113,237,000 |
| Operating Income | $7,716,000 | $9,110,000 |
| Net Income | $5,220,000 | $6,579,000 |
| Net Income Per Share (Diluted) | $1.47 | $1.85 |
| Food & Beverage Cost % | 25.3% | 25.2% |
| Payroll Expense % | 32.3% | 31.4% |
| Working Capital | $8,398,000 | $3,399,000 |
| Long-Term Debt | $0 | $0 |
| Cash and Equivalents | $7,671,000 | $5,723,000 |
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 2.4% to $115.97 million. Same-store sales increased 0.2% company-wide, driven by a 5.8% increase in New York, offset by a 7.6% decrease in Washington D.C. (due to poor weather) and a 0.1% decrease in Las Vegas.
- Profitability Decline: Operating income decreased 15.3% to $7.72 million. Net income fell 20.7% to $5.22 million. This decline was primarily due to increased minimum wage costs in New York and Washington D.C., a $748,000 expense related to the adoption of SFAS 123R (share-based compensation), and increased occupancy costs.
- Discontinued Operations: The company reclassified several underperforming or sold locations (including Lutece, Tsunami, Vivid, and Vico's Burrito's) as discontinued operations. Losses from discontinued operations were $467,000 in 2006 compared to $231,000 in 2005.
- Liquidity Improvement: Working capital improved significantly from $3.4 million to $8.4 million. The company had no borrowings on its credit facility as of September 30, 2006.
Guidance, Outlook, and Risks
- Expansion: The company entered agreements to lease a Mexican restaurant at the Planet Hollywood Resort in Las Vegas (expected opening Q3 2007) and purchase the Durgin Park Restaurant in Boston (pending liquor license). Operations expanded at Foxwoods Resort Casino in Connecticut.
- Dividends: The company declared a regular quarterly dividend of $0.35 per share and a special cash dividend of $3.00 per share in December 2006. A stock repurchase program of up to $4 million was authorized in August 2006, though no shares were purchased by year-end.
- Dispositions: Effective December 1, 2006, the company agreed to sell its Lutece, Tsunami, and a portion of the Vivid location at the Venetian Casino Resort for an aggregate of $14 million. The company does not anticipate a loss on this sale.
- Risks: Key risks include geographic concentration (heavy reliance on casino markets), seasonality (Q2 is typically the weakest quarter), food and labor cost inflation, and the impact of terrorism or economic downturns on tourist traffic.
Investor Verification Checklist
- Discontinued Operations: Verify the final sale price and closing date of the Venetian locations (Lutece, Tsunami, Vivid) to confirm the $14 million aggregate proceeds and impact on future earnings.
- Share-Based Compensation: Review the impact of the new SFAS 123R accounting standard on future earnings, as the $748,000 expense in 2006 represents a structural change in cost reporting.
- Dividend Sustainability: Assess the company's ability to maintain the $0.35 quarterly dividend plus special dividends given the decline in net income and the $4.85 million paid in dividends during the fiscal year.
- Lease Obligations: Review the $58 million in future minimum lease payments, noting that a significant portion is contingent on sales performance in high-rent casino locations.
- Same-Store Sales Trends: Monitor the divergence between New York (growing) and Washington D.C./Las Vegas (declining) same-store sales to gauge regional economic sensitivity.