ARK Restaurants Corp. — Form 10-Q Summary
Reporting period: Fiscal second quarter and first six months ended April 1, 2023; comparable periods ended April 2, 2022. Amounts are in U.S. dollars. The company operated 17 restaurants and bars, 16 fast-food concepts, and catering operations in the United States.
Financial performance
| Metric | 13 weeks ended Apr. 1, 2023 | 13 weeks ended Apr. 2, 2022 | 26 weeks ended Apr. 1, 2023 | 26 weeks ended Apr. 2, 2022 |
|---|---|---|---|---|
| Revenue | $41.9m | $39.6m | $89.3m | $83.6m |
| Operating income | $0.02m | $0.23m | $2.23m | $3.02m |
| Operating margin | 0.1% | 0.6% | 2.5% | 3.6% |
| Net income (loss) attributable to Ark | $(0.48)m | $1.06m | $1.24m | $3.26m |
| Basic EPS | $(0.13) | $0.30 | $0.34 | $0.92 |
| Operating cash flow | Not presented quarterly | $2.11m | $4.96m |
- Quarterly revenue increased 5.8%; first-half revenue increased 6.9%. Company-wide same-store sales rose 5.0% for the quarter and 5.7% for the half year.
- Operating income fell 89.9% for the quarter and 26.2% for the half year. Payroll, occupancy, and other operating costs rose faster than revenue. Food and beverage costs declined as a percentage of revenue to 28.2% for the quarter and 27.1% for the half year, from 31.0% and 29.7%, respectively.
- Quarterly results included a $0.24m consolidated net loss; income attributable to non-controlling interests contributed to Ark’s larger attributable loss. First-half results included $0.27m of PPP loan-forgiveness income, versus $1.12m in the prior-year half.
Balance sheet, debt, and liquidity
- At April 1, 2023, cash and cash equivalents were $17.89m, down from $23.44m at October 1, 2022. Current assets were $27.36m and current liabilities $33.20m, a reported working-capital deficit of $5.84m.
- Notes payable totaled $14.29m, including $8.05m current; operating lease liabilities totaled $101.38m. No borrowings were outstanding under the $10m revolving credit facility at quarter-end. Outstanding Bank Hapoalim debt carried a weighted-average interest rate of approximately 8.2%.
- First-half operating cash flow was $2.11m. Investing activities provided $3.00m, including $5.02m from maturity of a certificate of deposit, partly offset by $2.09m of fixed-asset purchases. Financing used $10.66m, principally for $8.64m of note principal payments, $0.90m of dividends, and $0.59m of distributions to non-controlling interests. Cash declined by $5.55m.
- Management stated that cash, operating cash generation, banking facilities, and potential additional financing are expected to be sufficient for capital expenditures, debt maturities, and operations for at least 12 months. The credit agreement includes tangible-net-worth, fixed-charge-coverage, and annual-net-income requirements.
Material changes, outlook, and risks
- On March 30, 2023, the company refinanced its revolving facility, established a new $10m revolver maturing June 1, 2025, and repaid $6.67m of prior-facility borrowings. The facility and related obligations are secured by company assets.
- On April 4, after quarter-end, the company repaid $3.49m of Shuckers notes and $2.56m of Oyster House notes. These amounts were classified as current debt at April 1. It also extended the maturity of its $1.5m Meadowlands note receivable to June 30, 2029.
- Gallagher’s Steakhouse in Las Vegas was substantially closed for renovation from February 5 through April 27 and reopened April 28, 2023. Its refresh cost approximately $1.9m. The company also has planned refresh obligations of at least $4m for America and $3.5m for three Village Eateries premises; it reported approximately $50,000 spent on the latter at the time of the filing.
- Management cited record-low unemployment, wage and benefit increases, commodity inflation, higher rents and insurance, and labor challenges as pressures on results. Menu-price increases and purchasing efficiencies may not offset future cost increases, and pricing may affect customer traffic or spending.
- Seasonality is significant: management identifies the January–March quarter as typically the company’s weakest, with warm-weather outdoor dining generally driving stronger results. Weather, consumer demand, supply-chain disruption, COVID-related developments, and conditions in the company’s concentrated markets remain risks.
- The Board declared a $0.125-per-share quarterly dividend paid in March and, on May 9, declared a $0.1875-per-share dividend payable in June. Future dividends remain discretionary. A $0.28m PPP forgiveness denial is under appeal; the loan had been repaid pending the appeal. Management reported no impairment charges in the periods presented but said future impairment charges could be material if restaurant performance falls short of projections.
Most important facts for investors to verify
- Whether weaker operating margins persist as payroll, occupancy, and other operating costs continue to rise.
- Cash generation, near-term debt payments, and compliance with the new facility’s financial covenants, alongside the substantial lease obligations.
- Completion, timing, and funding of the announced restaurant refresh projects and their effect on sales and cash flow.
- Whether same-store sales trends in New York and Washington, D.C. continue to offset softness in locations such as Atlantic City and Florida.
- The outcome of the PPP forgiveness appeal and the sustainability of the declared dividend level.