Business Context and Reporting Period
Company: ARK RESTAURANTS CORP.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: June 28, 2003 (13 weeks and 39 weeks)
Business Overview: The Company operates restaurants primarily in New York, Washington D.C., and Las Vegas. Operations continue to be materially affected by the September 11, 2001 terrorist attacks, including the closure and subsequent reopening of the Grill Room in New York and the abandonment of operations at the Aladdin Resort in Las Vegas.
Key Financial Metrics
| Metric ($ in thousands) | 13 Weeks Ended June 28, 2003 |
13 Weeks Ended June 29, 2002 |
39 Weeks Ended June 28, 2003 |
39 Weeks Ended June 29, 2002 |
|---|---|---|---|---|
| Total Revenues | $31,871 | $33,331 | $84,692 | $85,545 |
| Net Income | $1,619 | $1,835 | $1,534 | $2,620 |
| Operating Income | $2,199 | $3,293 | $2,120 | $5,061 |
| Net Cash from Operating Activities | N/A | N/A | $5,872 | $5,631 |
| Cash and Equivalents (End of Period) | $1,884 | $282 | $1,884 | $282 |
| Long-Term Debt (Outstanding) | $11,200 | $17,890 | $11,200 | $17,890 |
| Working Capital | ($5,084) | N/A | ($5,084) | ($7,990) |
Note: Working capital is calculated as Current Assets ($9,352) minus Current Liabilities ($14,436). The Company operates with a negative working capital position, which is typical for the restaurant industry.
Material Changes vs. Prior Period
- Revenue Decline: Total revenues decreased 4.4% in the 13-week period and 1.0% in the 39-week period compared to the prior year. Same-store sales decreased 3.6% for the quarter and 0.9% for the nine-month period.
- Regional Performance:
- New York: Revenues decreased $639,000 for the quarter, despite a $477,000 increase from the reopened Grill Room. Same-store sales dropped 8.5% due to record rainfall limiting outdoor seating.
- Washington D.C.: Revenues decreased $946,000 for the quarter; same-store sales dropped 14.2%.
- Las Vegas: Revenues increased $166,000 for the quarter, offsetting the loss of the Aladdin operations abandoned in the prior fiscal year.
- Expense Ratios: Payroll expenses as a percentage of revenue increased to 31.6% (quarter) and 33.5% (nine months) due to the discontinuation of salary reductions and overtime eliminations implemented post-9/11. Food and beverage costs remained stable at 25.2% (quarter).
- Asset Impairment: The Company recorded a $667,000 impairment charge for the Lutece restaurant in New York during the quarter ended March 29, 2003, due to projected negative cash flows.
- Debt Reduction: Outstanding borrowings on the credit facility decreased to $11.2 million from $17.9 million in the prior year, reducing interest expense.
Guidance, Outlook, and Risks
- Outlook: Management does not provide specific numerical guidance but notes that results for interim periods are not necessarily indicative of full-year results. The Company is not currently committed to any new expansion projects.
- Restaurant Conversion: The Ernie's location in Manhattan was closed in June 2003 to convert to a Latin-themed concept, "La Rambla," with an estimated cost of $350,000, reopening in August 2003.
- Debt Covenants: The Company violated a cash flow covenant during the quarter ended June 28, 2003. A waiver was obtained from Bank Leumi USA through June 28, 2003. Management expects to be in compliance in future quarters but notes that future waivers may be required.
- Risks and Contingencies:
- 9/11 Impact: Continued adverse effects on tourism and revenue in New York and Washington D.C. remain a significant risk.
- Aladdin Liability: Approximately $969,000 remains in accrued liabilities for future lease payments related to the abandoned Aladdin operations.
- Liquidity: The Company relies on cash from operations and a revolving credit facility that will step down to $11.5 million on June 29, 2003, and $8.5 million on September 29, 2003.
Investor Verification Checklist
- Covenant Compliance: Verify the Company's ability to maintain the cash flow covenant without further waivers, given the step-down in credit facility availability.
- Same-Store Sales Trends: Monitor the recovery of same-store sales in New York and Washington D.C., particularly regarding the utilization of outdoor seating.
- La Rambla Conversion: Assess the performance of the new La Rambla concept upon its August 2003 reopening.
- Aladdin Liability: Confirm the status of the $969,000 accrued liability for the abandoned Aladdin lease and any potential further legal or financial exposure.
- Interest Rate Sensitivity: Note that a 100 basis point increase in interest rates would increase annual interest expense by approximately $112,000 on the current $11.2 million debt balance.