ARK Restaurants Corp. — Form 10-Q Summary
Reporting period: First fiscal quarter of 2013, the 13 weeks ended December 29, 2012; comparison is the 13 weeks ended December 31, 2011. Amounts below are in U.S. dollars; financial-statement amounts are in thousands unless noted.
Business context and results
The company operated 19 restaurants and bars, 22 fast-food concepts, and catering operations in the United States. It reports one aggregated operating segment. Results reflect the seasonally slower winter quarter.
| Metric | Q1 FY2013 | Prior-year quarter | Change |
|---|---|---|---|
| Revenue | $31.336 million | $32.861 million | Down 4.6% |
| Operating income | $282,000 | $1.587 million | Down 82.2% |
| Operating margin | 0.9% | 4.8% | Down 3.9 percentage points |
| Income from continuing operations | $247,000 | $1.242 million | Down |
| Net income attributable to ARK | $8,000 | $1.086 million | Down |
| Basic and diluted EPS | $0.00 | $0.32 basic; $0.31 diluted | Down |
| Net cash provided by operations | $1.504 million | $698,000 | Up |
Food and beverage same-store sales declined 4.6% to $29.556 million. By region, same-store sales fell 6.0% in Las Vegas, 6.1% in Washington, D.C., 31.6% in Atlantic City, 4.4% in Connecticut, and 5.9% in Florida; New York increased 2.1%. Food and beverage costs were 24.7% of revenue versus 25.4% a year earlier. Payroll was 34.6% of revenue versus 32.6%; occupancy was 14.5% versus 13.6%.
Financial position, cash flow, and capital
- Cash and cash equivalents were $5.336 million at December 29, 2012, versus $8.705 million at September 29, 2012. Working capital was a $593,000 surplus, down from $4.061 million.
- Current assets were $11.695 million and current liabilities were $11.102 million. Total liabilities were $16.641 million; total equity was $33.758 million.
- Notes payable totaled approximately $2.037 million, including $1.063 million current and $974,000 long-term. Interest expense was reported as zero for the quarter.
- Operating cash flow was $1.504 million. Investing activities used $3.374 million, including $409,000 for fixed assets and $2.965 million to acquire additional interests in a subsidiary. Financing activities used $1.499 million, including $811,000 in dividends and $600,000 in distributions to non-controlling interests. Cash decreased by $3.369 million during the quarter.
- The company paid a quarterly dividend of $0.25 per share, totaling $811,000, and said it intended to continue quarterly dividends, subject to board discretion and financial conditions.
Material changes, outlook, and risks
Management attributed the operating-income decline primarily to Hurricane Sandy’s effects on businesses in New York, Atlantic City, and Washington, D.C.; approximately $600,000 of operating losses at the new Clyde Frazier’s Wine and Dine restaurant; and weaker Las Vegas performance amid added hotel-room capacity. Management cited approximately $900,000 of combined hurricane-related effects and closure losses, including $256,000 of assets written off. The Red and Sequoia properties were not reopened after flooding and were closed ahead of lease expirations. The prior-year comparison included about $500,000 of non-recurring costs related to the former president’s resignation, partly offsetting the current-period pressures.
ARK purchased an additional 14.39% interest in Ark Hollywood/Tampa Investment, LLC for approximately $2.965 million, bringing its voting ownership to 64.39%. The company treated the purchase as an equity transaction; it recorded a $1.020 million related deferred tax benefit. Operating results attributable to non-controlling interests were $239,000, compared with $29,000 in the prior-year quarter.
Management said existing cash, investments, and operating cash flow should be sufficient for liquidity and capital needs for at least 12 months. No specific earnings or revenue guidance was provided. The company expected its full-year effective tax rate to be significantly below the statutory rate, while noting the final rate could differ. Planned or discussed commitments included approximately $1 million to build a Tropicana Atlantic City restaurant, expected to open in fiscal Q3 2013; the company had spent approximately $2.3 million of a $3 million Las Vegas food-court remodeling commitment. It also expected to begin operating the Basketball City restaurant and catering facility within 12 months.
Key risks cited include economic and market conditions, sales at existing and new restaurants, labor and food costs, competition, consumer preferences, weather, and seasonality. The company reported that two vendors accounted for approximately 22% of purchases in the quarter. It described ordinary-course legal and employment claims and did not expect their resolution to materially affect its financial position, results, or cash flows.
Subsequent event: On February 6, 2013, ARK received an unsolicited all-cash offer from Landry’s, Inc. to purchase all outstanding capital stock for $22 per share. The board was reviewing the offer; the filing does not report an acceptance or outcome.
Important facts for investors to verify
- Whether the Landry’s $22-per-share offer advanced, was amended, or was accepted after the filing date.
- The duration and financial impact of Hurricane Sandy-related business disruption, closures, and insurance recoveries; the filing does not provide a clear amount of recoveries.
- Whether Clyde Frazier’s Wine and Dine reduced its approximately $600,000 quarterly operating losses and whether planned openings met their schedules and budgets.
- Whether cash generation supports the stated 12-month liquidity outlook, planned capital spending, debt payments, and continued $0.25 quarterly dividends.
- The effect of the subsidiary-interest purchase and the associated tax benefit on future earnings attributable to ARK shareholders.