ARK Restaurants Corp. 10-Q Summary
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended June 28, 2008, and the 39-week period ended on the same date. Ark Restaurants Corp. operates and manages restaurants in New York, Las Vegas, Atlantic City, Washington D.C., and Boston. The company is classified as a smaller reporting company. As of August 11, 2008, there were 3,596,799 shares of common stock outstanding.
Key Financial Metrics
| Metric | 13 Weeks Ended June 28, 2008 | 39 Weeks Ended June 28, 2008 |
|---|---|---|
| Total Revenues | $36,077,000 | $90,764,000 |
| Operating Income | $4,938,000 | $7,142,000 |
| Net Income | $3,136,000 | $4,966,000 |
| Diluted EPS | $0.87 | $1.38 |
| Cash and Equivalents | $4,714,000 | $4,714,000 (Balance Sheet) |
| Working Capital | $7,494,000 | N/A |
| Debt (Notes Payable) | $751,000 (Total) | N/A |
Cost Structure (13 Weeks): Food and beverage costs were 25.6% of revenue; payroll expenses were 28.1%; occupancy expenses were 13.0%.
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 4.8% in the quarter and 6.2% for the 39-week period compared to the prior year.
- Net Income Decline: Despite revenue growth, net income for the 39-week period dropped significantly to $4.966 million from $10.439 million in the prior year. This decline is primarily due to the absence of a $7.8 million gain on the disposal of restaurants (Lutece, Tsunami, and Vivid) recorded in the prior year.
- Discontinued Operations: The company reclassified operations of the Columbus Bakery and Stage Deli (Las Vegas) as discontinued. The Stage Deli closure resulted in a $294,000 goodwill impairment and a $19,000 loss on disposal.
- Same Store Sales: Mixed results were reported. Las Vegas same-store sales increased 0.9%, while New York (-0.2%), Washington D.C. (-1.1%), and Atlantic City (-13.5%) saw declines.
- Cost Pressures: Food costs as a percentage of revenue increased to 25.6% (Q3) and 25.8% (39 weeks) due to rising commodity prices. Management is reviewing menu pricing in specific locations.
Outlook, Risks, and Unusual Items
- Expansion: The company opened "Yolos" in Las Vegas (incurring $210,000 in pre-opening losses) and consolidated a new food court operation at Foxwoods Resort Casino (67% ownership). A new restaurant is planned for the Museum of Arts & Design in NYC, expected to open in fiscal 2009.
- Dividends: The quarterly cash dividend was increased to $0.44 per share. The company intends to continue paying quarterly dividends based on future earnings and cash flows.
- Stock Repurchase: A program to repurchase up to 500,000 shares was authorized in March 2008. As of August 5, 2008, 4,954 shares were repurchased at an average price of $18.74.
- Risks: Key risks include volatility in food commodity prices (chicken, beef, lobster), adverse weather conditions affecting outdoor seating, and an ongoing abandoned property audit by the New York State Office of the State Comptroller, which led to an accrual in G&A expenses.
- Liquidity: The company relies on cash from operations and does not currently plan to enter into a new credit facility, as its previous facility matured in 2005.
Investor Verification Checklist
- Verify the sustainability of revenue growth given the decline in same-store sales in key markets like Atlantic City (-13.5%).
- Monitor the impact of rising food costs on margins and the effectiveness of planned menu price increases.
- Review the status and potential financial impact of the New York State abandoned property audit.
- Assess the profitability timeline for the new "Yolos" restaurant and the Foxwoods food court.
- Confirm the company's ability to maintain dividend payments without external financing given the lack of a credit facility.