ARK Restaurants Corp. — Form 10-Q Summary
Reporting period: Fiscal third quarter ended June 29, 2013 (13 weeks), with year-to-date results for the 39 weeks ended June 29, 2013. Comparatives are the periods ended June 30, 2012. The company operated 20 restaurants and bars, 22 fast-food concepts, and catering operations in the United States.
Key financial results
Amounts below are in millions, except per-share data and percentages.
| Metric | 13 weeks 2013 | 13 weeks 2012 | 39 weeks 2013 | 39 weeks 2012 |
|---|---|---|---|---|
| Total revenue | $36.473 | $39.193 | $96.899 | $101.946 |
| Operating income | $4.387 | $4.512 | $4.387 | $6.186 |
| Operating margin | 12.0% | 11.5% | 4.5% | 6.1% |
| Net income attributable to ARK | $2.629 | $2.964 | $2.372 | $3.647 |
| Diluted earnings per share | $0.77 | $0.90 | $0.71 | $1.09 |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $7.894 | $7.690 |
- For the quarter, revenue fell 6.9% and operating income fell 2.8%; ARK-attributable net income declined 11.3%. Year to date, revenue declined 5.0%, operating income 29.1%, and ARK-attributable net income 35.0%.
- Quarterly same-store food-and-beverage sales decreased 2.2% overall. New York increased 13.8%, while Washington, DC declined 17.3%, Las Vegas 3.4%, Florida 8.6%, Atlantic City 5.4%, Boston 9.7%, and Connecticut 2.5%.
- Quarterly food and beverage cost was 24.6% of revenue versus 25.5% a year earlier; payroll was 29.6% versus 29.9%. Year-to-date food cost improved to 24.9% from 25.5%, while payroll rose to 32.8% from 32.1% and occupancy to 13.5% from 13.2%.
Financial position, cash flow, and capital
- At June 29, 2013, cash was $4.571 million, down from $8.705 million at September 29, 2012. Current assets were $10.627 million and current liabilities $12.804 million, a $2.177 million working-capital deficit, compared with a $4.061 million surplus at fiscal year-end.
- Year-to-date operating cash flow of $7.894 million was below investing outflows of $10.081 million, which included $2.980 million of fixed-asset purchases, $2.965 million to acquire additional Florida subsidiary interests, and a $4.200 million Meadowlands Racetrack investment. Financing outflows were $1.947 million; cash decreased $4.134 million.
- Notes payable totaled $4.083 million, including a $2.667 million bank note and approximately $1.416 million remaining on the treasury-share repurchase note. The bank note is secured by company assets, bears interest at LIBOR plus 3%, and has financial covenants. The company reported compliance with all covenants at quarter-end.
- Equity was $34.571 million. The company paid three quarterly dividends of $0.25 per share during the 39-week period and said it intended to continue quarterly dividends, subject to board discretion and financial conditions.
Changes, outlook, and risks
- Management attributed lower sales and operating income to Hurricane Sandy’s effects and closure of the Red and Sequoia properties, weaker traffic and competition in Washington, DC and Florida, increased Las Vegas room capacity without corresponding traffic growth, and lower Atlantic City traffic. Strong New York catering and improved performance at Clyde Frazier’s partly offset these pressures.
- Broadway Burger Bar opened at the Tropicana during the quarter; the company reported about $100,000 of pre-opening and early operating losses year to date. Sandy-related closures generated $256,000 of closure losses in the 39-week period.
- ARK invested $4.2 million in Meadowlands Newmark, LLC and entered a food-and-beverage services agreement for the planned Meadowlands Racetrack facility, which was expected to open in November 2013. This is a stated expectation, not a guarantee.
- Management said available cash and operating cash flow should cover liquidity and capital-spending needs for at least 12 months despite the working-capital deficit. No specific earnings or revenue guidance was provided. It cited seasonality, weather, economic conditions, restaurant traffic, labor and food costs, consumer preferences, and competition as risks.
- ARK reclassified $1.2 million relating to a delayed Basketball City project to other assets after demanding repayment of its exclusivity fee and an advance; it was negotiating a promissory note. Management did not expect ordinary-course litigation to have a material adverse effect. Two vendors represented approximately 22% of year-to-date purchases.
- The filing notes professional fees related to an unsolicited Landry’s bid. Management also said the effective tax rate was expected to be below the statutory rate, but the final annual rate remained uncertain.
Important facts for investors to verify
- Whether sales and traffic weakness in Washington, DC, Florida, Las Vegas, and other markets persisted after quarter-end, and the continuing impact of Sandy-related closures.
- Cash generation and working-capital trends relative to investment spending, debt repayments, and the recurring dividend.
- Meadowlands project opening and performance, and repayment prospects for the $1.2 million Basketball City receivable.
- Debt covenant headroom, variable-rate exposure on the bank note, and the company’s ability to sustain dividends.
- Any developments in the unsolicited Landry’s bid and associated professional costs.