Business context and reporting period
Ark Restaurants Corp. (NASDAQ: ARKR) operates restaurants, bars, fast-food concepts and catering businesses across the United States. At October 1, 2022, it reported 17 restaurants and bars and 16 fast-food concepts. This 10-K covers the 52-week fiscal year ended October 1, 2022; the filing does not provide standalone fourth-quarter results.
Financial performance and liquidity
Amounts below are in millions, except per-share data and percentages.
| Metric | FY2022 | FY2021 | Change / context |
|---|---|---|---|
| Total revenue | $183.674 | $131.870 | +39.3% |
| Food and beverage sales | $180.010 | $128.988 | +39.6% |
| Operating income | $9.864 | $6.207 | +58.9%; operating margin 5.4% vs. 4.7% |
| Consolidated net income | $10.174 | $14.247 | Lower largely because PPP loan forgiveness income fell to $2.420 from $10.400 |
| Net income attributable to Ark | $9.281 | $12.895 | Basic EPS $2.61 vs. $3.67; diluted EPS $2.58 vs. $3.58 |
| Cash from operations | $20.347 | $9.294 | Increased with operating recovery and working-capital movements |
| Cash and cash equivalents | $23.439 | $19.171 | Plus a $5.021 certificate of deposit maturing January 2023 |
| Working capital | $4.210 | $2.572 | Improved year over year |
| Notes payable | $23.729 | $32.596 | Includes $6.575 current; operating lease liabilities total $104.974 |
Investing cash outflow was $7.761 million, including a $5.000 million certificate-of-deposit purchase and $2.701 million of fixed-asset purchases. Financing cash outflow was $8.318 million, including debt principal payments, distributions to non-controlling interests and $0.894 million of dividends. The company stated that cash balances and banking facilities should fund operations and capital needs for at least 12 months.
Material changes versus the prior period
- Company-wide same-store food and beverage sales rose 38.1%. Management attributed the recovery mainly to higher traffic as all restaurants operated without dining restrictions, menu price increases and stronger event business in New York City and Washington, D.C.
- Operating costs increased with higher sales. Food and beverage costs were 28.6% of revenue versus 29.5%; payroll was 32.7% versus 32.3%; and occupancy was 12.1% versus 11.2%. Management cited commodity and wage inflation, labor challenges and percentage rent on higher sales.
- FY2021 included an $0.810 million gain on lease termination and substantially greater PPP forgiveness income, making year-over-year net income comparisons less representative of underlying restaurant operations.
- The company resumed quarterly dividends in FY2022, paying $0.125 per share in June and September. A further $0.125 dividend was declared after year-end and paid in December 2022.
Outlook, risks, contingencies and unusual items
- No quantitative revenue or earnings guidance is provided. Management cautioned that inflation, labor availability and costs, supply disruption, consumer behavior, COVID-19 impacts, competition and adverse weather could affect results and cash flow. The business is seasonal, with outdoor-dependent locations particularly exposed to weather.
- Lease extensions at Las Vegas locations require material refresh work: at least $1.5 million at Gallagher’s Steakhouse and $3.5 million across Village Eateries and two related locations by June 2023, and at least $4.0 million at America by December 2024. The company continues to pay rent during construction.
- Gross notes payable were $23.729 million, including $22.345 million under bank notes. Bank debt is secured by company assets and subject to financial covenants; the company reported compliance at year-end. Several notes include balloon payments in 2025. The bank notes use LIBOR plus 3.5%; management expected to agree a replacement reference rate before LIBOR discontinuation and did not expect a material effect.
- The company had $0.797 million of PPP loans remaining at year-end and said forgiveness was uncertain; any unforgiven amount would require repayment.
- A New York tipped-worker class action settlement received court approval in October 2022 for approximately the amount previously accrued; payments were expected in FY2023. Management said other ordinary-course claims were not expected to have a material adverse effect.
- In November 2022, the company agreed to pay a departing Las Vegas operations executive $0.500 million on January 1, 2023, and entered a consulting agreement at $0.200 million annually through December 31, 2025.
- The company reported no FY2022 impairment charges for long-lived assets, goodwill or trademarks. The auditor identified long-lived and right-of-use asset valuation as a critical audit matter because of judgment involved in projected cash flows. Future impairment remains possible if performance falls short of assumptions.
Important facts for investors to verify
- Whether revenue and same-store sales growth persist after the reopening-related rebound, and how much reflects traffic versus menu pricing and event activity.
- Whether wage, food and other cost inflation can be managed without eroding operating margins.
- Funding and execution of the approximately $9.0 million of stated Las Vegas refresh commitments, alongside lease payments and debt maturities.
- Repayment or forgiveness outcome for the remaining PPP loans, and the replacement rate and terms for LIBOR-linked bank debt.
- Whether cash generation supports continued dividends, given management’s discretion to suspend them if cash flow is materially affected.