ARK RESTAURANTS CORP. - 10-Q Summary
Business Context and Reporting Period
This is a Quarterly Report (Form 10-Q) for ARK RESTAURANTS CORP. for the 13-week period ended December 29, 2001. The Company operates restaurants and bars, primarily in New York, Washington D.C., and Las Vegas. The reporting period was significantly impacted by the September 11, 2001 terrorist attacks, which caused severe declines in tourism and corporate business in the Company's primary markets.
Key Financial Metrics
| Metric | Q4 2001 (13 Weeks) | Q4 2000 (13 Weeks) |
|---|---|---|
| Net Sales | $25,780,000 | $30,815,000 |
| Gross Restaurant Profit | $19,470,000 | $22,961,000 |
| Operating Income | $1,763,000 | $1,023,000 |
| Net Income | $974,000 | $225,000 |
| Earnings Per Share (Basic) | $0.31 | $0.07 |
| Cash and Cash Equivalents | $0 | $1,132,000 |
| Net Cash from Operating Activities | $96,000 | $236,000 |
| Total Debt (Current + Long-Term) | $23,805,000 | N/A |
| Working Capital | ($5,170,000) Deficit | N/A |
Margins: Cost of sales decreased to 24.5% of net sales (from 25.5%). Operating expenses decreased to 63.5% of net sales (from 66.3%).
Material Changes vs. Prior Period
- Revenue Decline: Net sales decreased 16.3% year-over-year. This was driven by a 13% decrease in same-store sales and the closure of the "Grill Room" restaurant adjacent to the World Trade Center, which accounted for a $1.06 million sales decrease.
- Profitability Improvement: Despite lower sales, Net Income increased 333% to $974,000. This was achieved through aggressive cost-cutting (reduced payroll and G&A) and a significant reduction in interest expense ($355,000 vs. $744,000) due to lower borrowings and reduced prime rates.
- Liquidity Position: Cash and cash equivalents dropped to zero. The Company maintained a working capital deficit of $5.17 million, which management notes is typical for the restaurant business model.
- Debt Structure: The Company amended its Revolving Credit Facility in late 2001, extending the conversion date to June 30, 2002, and maintaining a $26 million facility limit. Outstanding borrowings were $22.6 million.
Outlook, Risks, and Contingencies
- September 11 Impact: The "Grill Room" is expected to remain closed until late fiscal 2002. The Company expects to recover a substantial portion of physical and business interruption costs via insurance, having recorded $250,000 in partial recoveries for the quarter.
- Aladdin Bankruptcy: Operations at the Aladdin in Las Vegas were significantly impaired by the attacks and the venue's subsequent bankruptcy. A $10.045 million impairment charge was recorded in the prior fiscal year; operations continue pending resolution.
- Future Outlook: Management expects to generate sufficient cash flow in fiscal 2002 to meet debt obligations and does not anticipate capital-intensive projects. A new 200-seat restaurant is planned for Las Vegas, funded by a $2.4 million landlord allowance.
- Accounting Standards: The Company is evaluating the impact of new standards (SFAS 142, 143, 144) regarding goodwill, asset retirement, and impairment, effective in fiscal 2003 and 2004.
Investor Verification Checklist
- Verify the status of insurance claims regarding the World Trade Center adjacent restaurant and the Aladdin bankruptcy proceedings.
- Monitor the Company's ability to maintain compliance with financial covenants (minimum cash flow, debt-to-equity) given the working capital deficit.
- Assess the sustainability of the cost-cutting measures (payroll and G&A reductions) if sales volumes do not recover to pre-September 11 levels.
- Review the timeline for the reopening of the "Grill Room" and the impact of its continued closure on future revenue projections.
- Confirm the utilization of the $26 million credit facility and the terms of the June 30, 2002 conversion requirement.