ARK Restaurants Corp. — Form 10-Q Summary
Business context and reporting period
For the 13- and 26-week periods ended March 31, 2018, compared with periods ended April 1, 2017. The company operated 20 restaurants and bars, 19 fast-food concepts, and catering operations in the United States. Fiscal 2018 ends September 29, 2018. Amounts below are in thousands of dollars, except per-share data.
Financial results and liquidity
| Metric | 13 weeks ended Mar. 31, 2018 | 13 weeks ended Apr. 1, 2017 | 26 weeks ended Mar. 31, 2018 | 26 weeks ended Apr. 1, 2017 |
|---|---|---|---|---|
| Revenue | $35,276 | $34,640 | $74,628 | $73,059 |
| Restaurant operating income (loss) | ($562) | ($253) | $320 | $1,079 |
| Net income (loss) attributable to Ark | ($637) | ($393) | $990 | $1,341 |
| Basic earnings (loss) per share | ($0.19) | ($0.11) | $0.29 | $0.39 |
- Quarterly revenue increased 1.8%; six-month revenue increased 2.1%. Company-wide same-store sales rose 2.4% in the quarter.
- Restaurant operating margin was approximately negative 1.6% for the quarter and 0.4% year to date, versus negative 0.7% and 1.5%, respectively, in the prior-year periods.
- Six-month operating cash flow was $2,234, down from $3,180. Investing cash outflow was $3,619, including $3,666 of fixed-asset purchases. Cash declined by $443 to $963.
- At March 31, cash was $963, current assets $9,527, and current liabilities $30,046, producing a $20,519 working-capital deficit. Management attributed the deficit chiefly to the Oyster House purchase and Sequoia renovation costs.
- Credit-facility borrowings were $10,998, up from $6,198 at September 30, 2017; the weighted average rate was 5.3%. Notes payable were $10,986 before current maturities and deferred financing costs.
- Total assets were $81,865 and total liabilities were $40,308 at March 31. The company paid $2,575 in dividends during the six-month period and declared two quarterly dividends of $0.25 per share.
Material changes versus prior periods
- Quarterly operating loss widened to $562 from $253. Management cited Sequoia DC depreciation after reopening, along with higher costs and expenses.
- Six-month restaurant operating income fell to $320 from $1,079. The prior-year comparison included a $1,637 gain on the sale of Ark Jupiter RI; excluding that item, reported operating income fell from $2,716 to $320.
- Payroll rose 4.2% year to date, and occupancy expense rose 7.7%; management cited minimum-wage increases and rents tied to sales. Six-month food-cost percentage also increased, partly due to Oyster House’s higher-cost seafood mix.
- Six-month net income included an approximately $1,200 discrete tax benefit related to the Tax Cuts and Jobs Act. The company estimated a 24% blended statutory rate for fiscal 2018; its accounting for the law remained incomplete.
- Quarterly same-store sales varied by market: Las Vegas +7.7% and Florida +4.6%; Washington, DC −15.4%, Boston −12.8%, Atlantic City −6.3%, Alabama −6.2%, and Connecticut −2.6%. Management cited local traffic, weather, and nearby construction or tenant changes.
Outlook, risks and unusual items
- Management said existing cash, banking facilities, and operating cash flow should fund liquidity and capital spending requirements through at least May 16, 2019. It was negotiating increased facility availability and longer repayment periods, with refinancing expected in fiscal Q3 2018.
- The company was out of compliance with its fixed-charge-coverage covenant at March 31. A May 10, 2018 waiver runs until the earlier of October 2, 2018 or a $3,000 increase in the facility. The filing does not establish that the planned refinancing or facility increase was completed.
- Management intends to continue quarterly dividends, but future payments are discretionary and depend on earnings, cash flow, financial condition, capital needs, and other factors.
- Key business risks include seasonality and weather exposure, food commodity price volatility, labor costs, competition, consumer preferences, and economic conditions. Management reported no material change to the risk factors in its 2017 Form 10-K.
- Ordinary-course accident, workers’ compensation, and employment-related claims were disclosed; management did not expect them to materially affect results. The company reported no significant adverse change in its New Meadowlands Racetrack investment and recorded no impairment at March 31, 2018.
- The filing gives no specific sales or earnings guidance. Management cautioned that results are seasonal and interim results are not necessarily indicative of full-year performance.
Important facts for investors to verify
- Whether the covenant waiver conditions were met and whether the planned credit-facility increase and refinancing were completed.
- How the substantial working-capital deficit, limited cash balance, and continued dividend payments affect liquidity and capital spending.
- Whether Sequoia DC and other locations can improve operating performance as costs rise and same-store sales remain uneven across markets.
- The final tax effects of the Tax Cuts and Jobs Act and any resulting changes to reported earnings or deferred tax balances.