ARK Restaurants Corp. 10-Q Summary
Business Context and Reporting Period
This Form 10-Q covers the 13-week period ended December 27, 2003 (First Quarter of Fiscal 2004). Ark Restaurants Corp. operates upscale dining establishments primarily in New York, Las Vegas, Washington D.C., and Florida. The company is currently constructing fast food facilities at two Seminole Indian Tribe casino properties in Florida, scheduled to open in March and April 2004.
Key Financial Metrics
| Metric | Q1 2004 (13 wks) | Q1 2003 (13 wks) |
|---|---|---|
| Total Revenues | $27,105,000 | $24,965,000 |
| Operating Income | $782,000 | ($176,000) |
| Net Income | $556,000 | ($116,000) |
| Diluted EPS | $0.17 | ($0.04) |
| Cash from Operations | $135,000 | ($475,000) |
| Long-Term Debt Outstanding | $7,775,000 | $14,800,000 |
| Working Capital | ($1,870,000) | ($4,802,000) |
Margins: Food and beverage costs were 25.8% of revenue (up from 24.9%). Payroll expenses were 33.2% (down from 34.7%). Occupancy expenses were 16.1% (down from 16.5%).
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 8.6% year-over-year. Same-store sales increased 6% company-wide, driven by a 12.4% increase in Las Vegas and a 6.1% increase in Washington D.C., partially offset by a 2% decline in New York.
- Profitability Turnaround: The company reported a net income of $556,000 compared to a net loss of $116,000 in the prior year. This improvement was aided by a $225,000 gain on the sale of the Lorelei restaurant (classified as discontinued operations).
- Debt Reduction: Borrowings on the revolving credit facility decreased significantly from $14.8 million to $7.775 million, reducing interest expense from $215,000 to $58,000.
- Discontinued Operations: The company sold the Lorelei restaurant in December 2003 and the La Rambla restaurant (formerly Ernie's) in January 2004. Results for these locations are reported as discontinued operations.
Outlook, Risks, and Contingencies
- Covenant Waivers: The company violated covenants related to cash flow and consolidated indebtedness during the quarter. A waiver was obtained from Bank Leumi USA through February 9, 2004. Management notes a history of receiving such waivers.
- Liquidity: The company maintains a working capital deficit, which is typical for the restaurant industry. It relies on a $8.5 million credit facility (maturing February 2005) and cash from operations.
- Market Risks: Operations remain sensitive to tourism levels and economic conditions. The filing highlights lingering adverse effects from the September 11, 2001 attacks on New York and Washington D.C. markets, though Las Vegas has shown resilience.
- Guarantees: The company holds a lease guaranty of $175,000 for the Saloon restaurant in Las Vegas, expiring in May 2004.
Investor Verification Checklist
- Verify the status of the covenant waiver with Bank Leumi USA and the likelihood of renewal beyond February 2004.
- Monitor the performance of the new Florida casino fast food facilities scheduled to open in Q2 2004.
- Assess the sustainability of the Las Vegas sales growth versus the continued weakness in the New York market.
- Review the impact of rising food costs (specifically beef) on future gross margins.
- Confirm the classification and future cash flow implications of the discontinued operations (Lorelei and La Rambla).