ARK Restaurants Corp. — FY2019 Form 10-K
Reporting period: Fiscal year ended September 28, 2019 (52 weeks); comparable period ended September 29, 2018 (also 52 weeks). The filing reports annual results, not standalone fourth-quarter results. Ark operated 20 restaurants and bars, 17 fast-food concepts and catering operations across the United States.
Financial performance
| Metric | FY2019 | FY2018 | Change |
|---|---|---|---|
| Total revenue | $162.4 million | $160.0 million | +1.5% |
| Restaurant operating income, before specified closure and impairment charges | $7.2 million | $5.0 million | +43.3% |
| Operating income | $3.2 million | $5.0 million | -35.5% |
| Net income attributable to Ark | $2.7 million | $4.7 million | Down |
| Diluted EPS | $0.76 | $1.31 | Down |
| Cash provided by operations | $10.6 million | $9.6 million | Up |
| Cash and cash equivalents at year-end | $7.2 million | $5.0 million | Up |
Food and beverage same-store sales increased 0.3% overall. Regional results varied: Alabama rose 3.8% and Las Vegas 2.0%, while Atlantic City fell 6.1% and Connecticut fell 6.6%. Payroll expense was 34.9% of revenue versus 34.8%; food and beverage costs were 26.8% versus 26.9%. Restaurant operating income was approximately 4.4% of revenue, compared with 3.1% in FY2018; reported operating income was approximately 2.0% of revenue, compared with 3.1%.
Liquidity, debt and capital
- Net cash used in investing activities was $3.2 million, principally for restaurant fixed-asset purchases. Net cash used in financing activities was $5.3 million, mainly reflecting dividends, debt principal payments and distributions to non-controlling interests.
- Working capital was negative $4.4 million at year-end, versus negative $4.6 million a year earlier. Management said cash, banking facilities and operating cash flow should meet liquidity and capital-spending needs at least through December 18, 2020.
- Bank notes and revolving-facility borrowings totaled $26.6 million before unamortized financing costs; $2.7 million was classified as current. The revolving facility expires May 31, 2021, and outstanding borrowings were $3.4 million at 4.9% weighted-average interest. The company reported compliance with its financial covenants.
- Cash dividends were $0.25 per share quarterly, or $1.00 per share for FY2019. The board declared another $0.25 dividend in November 2019; future dividends remain discretionary.
Material changes and unusual items
- Ark acquired JB’s on the Beach in Florida on May 15, 2019 for $7.0 million, financed primarily with a $7.0 million bank loan. The restaurant contributed approximately $3.4 million of revenue and an operating loss of $0.1 million after acquisition.
- Durgin-Park closed in January 2019 after reduced traffic and rising labor costs. Closure charges were $1.1 million. Clyde Frazier’s Wine and Dine recorded a $2.9 million impairment charge due to underperformance and increased competition. Together these charges explain the decline in reported operating income despite higher restaurant operating income before those items.
- Landlords funded renovations and relocation work at the Hollywood and Tampa Hard Rock food courts; Ark recorded $8.7 million of related fixed assets and deferred rent. The Tampa location was closed for renovation for the final four months of the fiscal year.
- Management attributed improved underlying restaurant operating income to Florida and Alabama performance, better Washington, D.C. profitability and the absence of prior-year Durgin-Park losses. Higher labor costs, legal fees and Tampa renovation-related losses partly offset those gains.
- Adoption of the new lease standard began September 29, 2019. Ark expected to recognize $52–$56 million of right-of-use assets and lease liabilities, primarily for real estate leases.
Outlook, risks and contingencies
The filing provides no quantified revenue or earnings guidance. Management described the restaurant business as seasonal, with winter quarters typically weaker and substantial fixed costs; weather can also affect outdoor dining in the warmer quarters. The company cited competition, consumer preferences, labor and food-cost changes, adverse weather and local economic conditions as factors that could affect results. It said it was not committed to significant expansion projects, but could pursue opportunities subject to financing and other factors.
A putative class action by former tipped service workers alleges violations of New York labor laws. The company’s motion to dismiss was denied; it intends to defend the case, but stated that reasonably possible losses could not be estimated and recorded no accrual. The company also disclosed ordinary-course litigation and employment, licensing, liquor-liability, supplier-cost and regulatory risks. It reported no material weakness in internal control over financial reporting, and the independent auditor issued an unmodified opinion on the financial statements.
Investor verification points
- Track same-store sales and restaurant-level profitability by region, particularly the recovery or performance of Atlantic City, Connecticut and Clyde Frazier’s Wine and Dine.
- Assess whether JB’s on the Beach can improve from its reported post-acquisition operating loss and support its lease and debt obligations.
- Review the tipped-worker class action as discovery proceeds; potential losses remain unquantified.
- Confirm the impact of lease-standard adoption and the expected $52–$56 million balance-sheet recognition.
- Monitor debt maturities, revolving-facility renewal, covenant compliance, working-capital deficit and whether operating cash flow supports dividends and capital needs.