ARK Restaurants Corp. 10-Q Summary
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended June 27, 2009, and the 39-week period ended on the same date. Ark Restaurants Corp. operates a chain of upscale restaurants in major U.S. cities including New York, Las Vegas, Washington D.C., Atlantic City, Connecticut, and Boston. The company is classified as a smaller reporting company.
Key Financial Metrics
| Metric | 13 Weeks Ended June 27, 2009 |
39 Weeks Ended June 27, 2009 |
|---|---|---|
| Total Revenues | $31,123,000 | $81,672,000 |
| Net Income | $1,597,000 | $1,733,000 |
| Operating Income | $2,484,000 | $1,409,000 |
| Diluted EPS | $0.46 | $0.50 |
| Cash and Equivalents | $2,900,000 | (Balance Sheet) |
| Working Capital | $9,493,000 | (Surplus) |
| Debt (Notes Payable) | $560,000 | (Total) |
Margins (39 Weeks Ended June 27, 2009):
- Food and Beverage Cost: 25.4% of revenue
- Payroll Expenses: 32.6% of revenue
- Occupancy Expenses: 15.1% of revenue
- Effective Tax Rate: 32.5%
Material Changes vs. Prior Period
Compared to the same periods in 2008, the company experienced significant declines in revenue and profitability:
- Revenue Decline: Total revenues decreased 13.7% for the quarter and 10% for the 39-week period.
- Net Income Decline: Net income dropped 49.1% for the quarter (from $3.14M to $1.60M) and 65.1% for the 39-week period (from $4.97M to $1.73M).
- Same Store Sales: Company-wide same store sales decreased 14.3% for the quarter. Significant declines were reported in New York (-24.1%), Atlantic City (-21.9%), and Las Vegas (-10.3%).
- Expense Ratios: Payroll and occupancy expenses as a percentage of revenue increased due to the decline in sales volume.
Outlook, Risks, and Management Commentary
Management Commentary: The decline in sales is attributed to the broader economic downturn, reduced tourism and convention business, and inclement weather (heavy rain) affecting outdoor seating. Specific regional factors include a decrease in gaming activity in Las Vegas and Atlantic City, and layoffs in the financial sector impacting New York.
Unusual Items: Net income was negatively impacted by approximately $100,000 in legal expenses during the quarter and $400,000 during the 39-week period related to litigation concerning one New York City restaurant. Conversely, the company recognized a $118,000 tax benefit due to the resolution of a tax audit.
Dividends: The Board suspended the quarterly dividend in December 2008. No dividends were declared during the quarter ended June 27, 2009. Future dividends will be determined on a quarter-by-quarter basis.
Risks: The company faces risks related to economic conditions, consumer preferences, labor costs, food price fluctuations, and weather. The business is highly seasonal and dependent on clement weather for outdoor dining.
Investor Verification Checklist
- Legal Litigation: Verify the status and potential financial exposure of the New York City restaurant litigation cited as a cause for increased legal expenses.
- Dividend Policy: Confirm the Board's stance on future dividends given the suspension since December 2008.
- Regional Performance: Monitor recovery trends in key markets, particularly New York and Las Vegas, which saw the steepest sales declines.
- Debt Maturity: Note that the Revolving Credit and Term Loan Facility matured in 2005; verify the company's current liquidity strategy as it relies on operating cash flow rather than new credit facilities.
- Stock Repurchases: Confirm if the company will resume stock repurchases under the existing program (393,043 shares remaining) given the cash position.