ARK Restaurants Corp. 10-Q Summary
Business Context and Reporting Period
ARK Restaurants Corp. operates a chain of restaurants and bars, primarily in Las Vegas, New York, and Washington D.C. This Form 10-Q covers the quarterly period ended July 1, 2006 (13 weeks) and the year-to-date period (39 weeks). The company is a non-accelerated filer with 3,462,299 shares of common stock outstanding as of July 25, 2006.
Key Financial Metrics
| Metric | 13 Weeks Ended July 1, 2006 | 39 Weeks Ended July 1, 2006 |
|---|---|---|
| Total Revenues | $32,606,000 | $85,321,000 |
| Net Income | $2,488,000 | $3,252,000 |
| Operating Income | $3,823,000 | $5,210,000 |
| EPS (Diluted) | $0.70 | $0.92 |
| Cash from Operations | N/A (Quarterly not provided) | $7,421,000 |
| Cash and Equivalents | $5,889,000 | $5,889,000 |
| Working Capital | $6,979,000 | $6,979,000 |
| Long-Term Debt | $0 | $0 |
Margins (39 Weeks): Food and beverage costs were 25.2% of revenue; Payroll expenses were 32.5%; Occupancy expenses were 14.8%.
Material Changes vs. Prior Period
- Revenue: Increased 1.2% in the quarter and 3.1% year-to-date compared to the prior year. Growth was partially offset by the reclassification of certain facilities to discontinued operations.
- Net Income: Decreased 11.8% in the quarter ($2.49M vs $2.82M) and 28.7% year-to-date ($3.25M vs $4.56M). The prior year included a $644,000 gain from the sale of the "America" restaurant.
- Discontinued Operations: The company recorded a loss of $168,000 for the quarter and $608,000 year-to-date from discontinued operations, primarily due to the underperformance of the "Vivid" facility (formerly Venus) and lease termination costs.
- Share-Based Compensation: The adoption of SFAS No. 123R resulted in a $561,000 expense year-to-date, negatively impacting net income.
- Same Store Sales: Las Vegas sales decreased 0.4%; New York increased 2.3%; Washington D.C. decreased 10.4% due to inclement weather.
Outlook, Risks, and Management Commentary
- Expansion: The company opened Gallagher's Steakhouse and Luna Lounge in Atlantic City in late 2005, which incurred $447,000 in pre-opening and early operating losses year-to-date. New agreements were signed for "The Grill at Two Trees" in Connecticut, pending liquor license approval.
- Dispositions: The company is actively disposing of underperforming assets. The "Vivid" facility is held for sale. The lease for "Vico's Burrito's" was terminated with an expected $200,000 recovery for improvements. The management agreement for "The Saloon" was terminated by the landlord.
- Liquidity: The company maintains a working capital surplus of $6.98 million. Its revolving credit facility matured in March 2005, and management does not currently plan to enter a new credit facility, relying instead on cash from operations.
- Risks: Results are sensitive to weather conditions (notably in Washington D.C.) and the performance of new concepts. The company faces tax complexities due to non-consolidated state tax filings for New York subsidiaries.
Investor Verification Checklist
- Verify the timeline and expected proceeds from the sale of the "Vivid" facility and the "Vico's Burrito's" lease termination payment.
- Monitor the performance of the new Atlantic City locations (Gallagher's and Luna Lounge) to assess if pre-opening losses are stabilizing.
- Confirm the status of the liquor license application for "The Grill at Two Trees" in Connecticut.
- Review the impact of the new share-based compensation accounting (SFAS 123R) on future earnings, noting $350,000 of unrecognized cost remains.
- Assess the sustainability of the dividend policy ($0.35 per share quarterly) given the reduction in net income and lack of new debt financing.