ARK RESTAURANTS CORP. - 10-Q Summary
Business Context and Reporting Period
This is a Quarterly Report (Form 10-Q) for ARK RESTAURANTS CORP. covering the 13-week and 39-week periods ended July 3, 1999. The Company operates and manages restaurants, with significant expansion projects underway in Las Vegas and Southfield, Michigan.
Key Financial Metrics
| Metric | 13 Weeks Ended July 3, 1999 | 39 Weeks Ended July 3, 1999 |
|---|---|---|
| Net Sales | $31,564,000 | $81,842,000 |
| Net Income | $2,116,000 | $2,985,000 |
| Diluted EPS | $0.63 | $0.85 |
| Operating Cash Flow | N/A | $5,153,000 |
| Cash and Equivalents | $372,000 (End of Period) | $372,000 (End of Period) |
| Working Capital | Deficit of $2,365,000 | Deficit of $2,365,000 |
| Total Debt (Current + Long-Term) | $6,363,000 | $6,363,000 |
| Gross Restaurant Profit Margin | 74.2% | 73.6% |
Material Changes vs. Prior Period
- Revenue Decline: Net sales decreased 4.4% in the 13-week period and 3.9% in the 39-week period compared to the prior year. This was primarily due to the sale of several restaurants (B. Smith's DC, Perretti Italian Cafe, An American Place, Beekman 1766 Tavern) in prior periods.
- Same Store Sales: Same store sales decreased 0.5% in the quarter but increased 0.5% for the 39-week period, driven by a 2.0% increase in Las Vegas operations.
- Profitability: Net income decreased 13% in the quarter ($2.1M vs $2.4M) but increased 3% for the 39-week period ($3.0M vs $2.9M). The 39-week results included after-tax gains of $430,000 from restaurant sales.
- Cost Structure: Cost of sales as a percentage of net sales improved slightly (25.8% vs 26.0% in the quarter). Operating expenses increased as a percentage of sales (59.2% vs 58.1%) due to pre-opening costs for new locations.
- Liquidity: Cash and cash equivalents decreased from $1,023,000 to $372,000. The Company repurchased $3,804,000 of its own stock during the 39-week period.
Guidance, Outlook, and Risks
- Expansion Projects: The Company is constructing three restaurants and four fast-food outlets at the Venetian Hotel & Casino in Las Vegas, with an expected investment of up to $13,000,000. Additionally, a joint venture project in Southfield, Michigan, is scheduled to open in December 1999 with a capital contribution of $7,500,000.
- Capital Resources: In March 1999, the Company extended its Revolving Credit Facility with Bank Leumi USA to $13,000,000 through April 2001. As of July 3, 1999, $4,400,000 was outstanding. The Company also has a $4,000,000 equipment financing commitment.
- Year 2000 Compliance: The Company estimates total remediation costs will not exceed $100,000. While core financial systems are compliant, some point-of-sale systems and hardware are being modified or replaced. There is a risk of material adverse effect if third-party vendors (e.g., the New York-New York Hotel) fail to remediate their systems.
- Tax Contingency: The IRS is examining federal returns for fiscal years 1991-1994 regarding capitalization of pre-opening expenses and record-keeping for travel/meal expenses. The Company contests these adjustments and does not believe they will be material.
Investor Verification Checklist
- Verify the timeline and capital requirements for the Venetian Las Vegas and Southfield, Michigan expansion projects.
- Monitor the utilization of the $13,000,000 credit facility and the impact of debt service on future cash flows.
- Assess the progress of Year 2000 remediation for point-of-sale systems and third-party vendor dependencies.
- Review the status of the IRS examination regarding pre-opening expense capitalization.
- Confirm the impact of the working capital deficit on day-to-day operations, given the Company's reliance on credit facilities.