ARK Restaurants Corp. — Form 10-Q Summary
Business context and reporting period
ARK Restaurants Corp. operates restaurants and food-service venues, including in New York, Las Vegas, Washington, D.C., Atlantic City and Boston. This filing reports the 13 weeks ended December 31, 2011, compared with the 13 weeks ended January 1, 2011; the balance-sheet comparison is with October 1, 2011. Amounts below are in thousands of dollars, except per-share data.
Financial performance
| Metric | 13 weeks ended Dec. 31, 2011 | 13 weeks ended Jan. 1, 2011 |
|---|---|---|
| Total revenue | $33,218 | $32,541 |
| Operating income | $1,272 | $58 |
| Income before taxes | $1,455 | $127 |
| Consolidated net income | $1,115 | $96 |
| Net income (loss) attributable to ARK | $1,086 | $(213) |
| Basic / diluted earnings (loss) per share | $0.32 / $0.31 | $(0.06) / $(0.06) |
| Cash flow from operations | $698 | $(481) |
Revenue grew 2.1%. Operating margin was approximately 3.8%, versus 0.2% in the prior-year quarter; net margin attributable to ARK was approximately 3.3%, versus a loss margin of 0.7%. Same-store sales increased 8.9% company-wide, according to management.
Food and beverage costs were 25.6% of revenue, down from 26.4%; payroll was 33.0%, down from 34.6%. Occupancy costs rose to 13.9% from 13.5%, and other operating costs declined to 12.4% from 14.3%. General and administrative expense rose to 8.4% of revenue from 7.5%, partly due to the former president’s separation agreement.
Financial position, liquidity and capital allocation
- At December 31, 2011, cash and cash equivalents were $3,464 and short-term investments were $2,680, totaling $6,144. Cash declined $4,316 during the quarter.
- Current assets were $12,838 and current liabilities $11,453, leaving working capital of $1,385, compared with $4,080 at October 1, 2011.
- Total liabilities were $16,956. Notes payable totaled $2,144, including $108 current and $2,036 long-term. The long-term note arose from the share repurchase described below.
- Operating cash flow of $698 was more than offset by $2,590 of investing cash outflow and $2,424 of financing cash outflow. Investing included $2,389 of fixed-asset purchases and $200 for management rights.
- The company paid a $0.25-per-share quarterly dividend ($811 total) and bought back 250,000 shares for $3,125, or $12.50 per share. It paid $1,000 in cash and issued an unsecured $2,125 note at 0.19% interest, payable in 24 monthly installments starting December 1, 2012.
Changes, outlook, risks and unusual items
- Management attributed improved operating income primarily to more favorable weather, improving Las Vegas conditions and improved menu costing. Las Vegas, New York, Washington, D.C. and Atlantic City same-store sales rose; Boston and the consolidated variable-interest entities reported declines.
- The Grill Room and America locations closed during the quarter. Related closure losses totaled $365, included in other operating costs. The company also recorded $475.4 of compensation under the former president’s separation agreement and forgave $66 of loans to him; the cash-flow statement includes a $66 write-off of notes receivable.
- ARK expected Clyde Frazier’s Wine and Dine to open in fiscal Q2 2012, with estimated construction costs of $6,000–$7,000 and a landlord contribution of up to $1,800. It expected to begin operating the Basketball City restaurant and catering facility in fiscal Q3 2012.
- The company had committed at least $3,000 to remodel its Las Vegas food court by March 2012; approximately $1,400 had been spent by quarter-end. Management said existing cash, investments and operating cash flow should cover liquidity and capital needs for at least 12 months. It intended to continue quarterly dividends, subject to board discretion and financial conditions. No quantified earnings or revenue guidance was provided.
- Management cited seasonality, weather, food-cost volatility, labor costs, competition and consumer preferences as risks. It said the business has substantial fixed costs and that winter quarters typically have lower customer traffic. One vendor represented approximately 13% of purchases in both comparative quarters.
- A February 3, 2012 fire at Durgin Park and a prior flood at Sequoia were expected by the company to be substantially covered by insurance and/or landlord recoveries; management did not expect unrecovered amounts to be material. Routine lawsuits and employment-related claims were also disclosed.
- The company consolidated certain variable-interest entities. Their reported assets and liabilities are specific to those entities and, the filing says, do not represent additional general-company assets or claims against general assets.
Most important facts to verify
- Whether the improved quarterly earnings and 8.9% same-store sales growth persist beyond the period, given seasonality and the favorable-weather comparison.
- Cash available for corporate use, including the effect of cash held by consolidated variable-interest entities, and the funding plan for planned construction and remodeling.
- Repayment terms and cash-flow impact of the $2,125 treasury-stock note, alongside dividends and other capital commitments.
- Actual costs, opening dates and operating performance of Clyde Frazier’s Wine and Dine and Basketball City, and completion of the Las Vegas food-court remodel commitment.
- The filing gives different investing-cash-flow figures in different sections: the cash-flow statement reports net cash used of $2,590, while MD&A reports $2,551 for the same quarter. Confirm the correct amount against the filed financial statements.