ARK Restaurants Corp. 10-Q Summary
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended June 26, 2004, and the 39-week period ended on the same date. Ark Restaurants Corp. operates fine dining and fast food facilities, primarily in Las Vegas, New York, and Washington D.C. The company has recently divested several underperforming locations, reclassifying them as discontinued operations.
Key Financial Metrics
| Metric | 13 Weeks Ended 6/26/04 | 39 Weeks Ended 6/26/04 | 13 Weeks Ended 6/28/03 | 39 Weeks Ended 6/28/03 |
|---|---|---|---|---|
| Total Revenues | $33,767,000 | $85,252,000 | $29,223,000 | $76,318,000 |
| Operating Income | $4,546,000 | $5,975,000 | $2,536,000 | $3,167,000 |
| Net Income | $2,972,000 | $3,502,000 | $1,619,000 | $1,535,000 |
| Diluted EPS | $0.84 | $1.02 | $0.50 | $0.48 |
| Cash from Operations | N/A | $6,493,000 | N/A | $6,231,000 |
| Ending Cash Balance | $1,494,000 | $1,494,000 | $486,000 | $1,884,000 |
| Long-Term Debt | $0 | $0 | $7,226,000 | $7,226,000 |
| Working Capital | ($870,000) | ($870,000) | ($4,802,000) | ($4,802,000) |
Note: Working capital is calculated as Current Assets minus Current Liabilities. The company operates with a negative working capital position, which is typical for the restaurant industry.
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 15.5% in the quarter and 11.7% for the 39-week period compared to the prior year. This growth was driven by strong same-store sales increases in Las Vegas (12.7%), New York (21.8%), and Washington D.C. (17.9%).
- Profitability: Net income more than doubled in the quarter ($2.97M vs $1.62M) and increased significantly for the 39-week period ($3.50M vs $1.54M). Operating margins improved due to revenue growth outpacing expense increases.
- Debt Reduction: The company paid down its long-term debt, resulting in zero borrowings outstanding on its $8.5 million credit facility as of June 26, 2004, compared to $11.2 million in the prior year. Consequently, interest expense dropped significantly.
- Discontinued Operations: The company recorded losses from discontinued operations totaling $59,000 for the quarter and $640,000 for the 39-week period, related to the closure and sale of restaurants including Lutece, Lorelei, La Rambla, and Jack Rose.
Outlook, Risks, and Contingencies
- Covenant Waiver: The company violated a cash flow covenant related to its credit facility during the quarter. It received a waiver from Bank Leumi USA valid through September 29, 2004. Management notes a history of receiving such waivers.
- Restaurant Dispositions: The company continues to divest underperforming assets. A one-time charge of $470,000 was incurred for pension plan contributions related to the closure of the Lutece restaurant, payable over nine years.
- Expansion: The company has committed to building fast food facilities at two Seminole Indian Tribe casino properties in Florida, with partners assuming the financial risk.
- Liquidity: Liquidity is supported by cash from operations and an $8.5 million revolving credit facility. The company also generated $1.93 million in proceeds from stock option exercises during the 39-week period.
Investor Verification Checklist
- Verify the status of the covenant waiver with Bank Leumi USA and the likelihood of renewal beyond September 29, 2004.
- Confirm the sustainability of same-store sales growth in New York and Las Vegas, which drove the current period's performance.
- Review the timeline and financial impact of the $470,000 pension liability associated with the Lutece closure.
- Assess the performance of the new fast food facilities in Florida and the terms of the partnership agreement.
- Monitor the company's ability to maintain positive cash flow from operations to service future debt or expansion needs without relying on waivers.