Business Context and Reporting Period
Company: ARK RESTAURANTS CORP.
Filing Type: Form 10-Q (Quarterly Report)
Reporting Period: 13-week and 26-week periods ended April 3, 1999 (Fiscal Year 1999).
Business Overview: The Company operates and manages restaurants, primarily in New York and Las Vegas. Key activities during the period included the sale of two restaurants (B. Smith's DC and Perretti Italian Cafe), the opening of "Thunder Grill" in Washington, D.C., and the commencement of construction for fast-food outlets in the Venetian Hotel & Casino in Las Vegas.
Key Financial Metrics
| Metric (in thousands) | 13 Weeks Ended Apr 3, 1999 |
13 Weeks Ended Mar 28, 1998 |
26 Weeks Ended Apr 3, 1999 |
26 Weeks Ended Mar 28, 1998 |
|---|---|---|---|---|
| Net Sales | $23,345 | $25,198 | $50,278 | $52,138 |
| Gross Restaurant Profit | $16,984 | $18,345 | $36,807 | $38,037 |
| Operating Income (Loss) | $(372) | $(402) | $1,295 | $727 |
| Net Income (Loss) | $(157) | $(254) | $869 | $473 |
| EPS (Basic & Diluted) | $(0.04) | $(0.07) | $0.24 | $0.12 |
| Cash and Equivalents | $1,177 | $1,023 | $1,177 | $695 |
| Working Capital | $(171) | $(719) | $(171) | $(719) |
| Total Debt (Current + Long-Term) | $6,717 | $5,014 | $6,717 | $5,014 |
Note: Debt figures include current maturities of long-term debt ($975k), current maturities of capital leases ($192k), long-term debt net of current maturities ($5,742k), and capital lease obligations net of current maturities ($51k).
Material Changes vs. Prior Period
- Revenue Decline: Net sales decreased 7.4% in the 13-week period and 3.6% in the 26-week period compared to the prior year. This was primarily due to the sale of four restaurants (B. Smith's DC, Perretti Italian Cafe, An American Place, and Beekman 1766 Tavern) in the prior year or current period.
- Profitability Improvement: Despite lower sales, Net Loss improved from $(254k) to $(157k) for the 13-week period, and Net Income increased from $473k to $869k for the 26-week period. The 26-week improvement included after-tax gains of $388k from restaurant sales.
- Same Store Sales: Same store sales decreased 1.0% in the 13-week period but increased 0.8% in the 26-week period, driven by growth in Las Vegas operations offset by declines in other locations.
- Cost Control: Operating expenses as a percentage of net sales improved to 65.4% for the 26-week period (down from 66.8% last year), aided by gains on restaurant sales.
- Share Repurchases: The Company repurchased 166,500 shares of common stock for $1.63 million during the 26-week period.
Guidance, Outlook, and Risks
Expansion and Capital Needs
- New Openings: Opened "Thunder Grill" in Washington, D.C. (approx. $1.6M cost). Opened "Rialto Deli" in Las Vegas with a second outlet expected shortly (approx. $1.0M total cost).
- Future Projects: Commencing construction on a joint venture project in Southfield, Michigan (4 restaurants, 50,000 sq ft). Company's share of capital contribution is estimated at $6.5M, with an expected opening in the December 1999 quarter.
- Financing: In March 1999, the Company extended its Revolving Credit Facility with Bank Leumi USA to $13.0 million through April 2001. Outstanding borrowings were $4.6 million as of April 3, 1999.
Risks and Contingencies
- Year 2000 Compliance: The Company estimates total remediation costs will not exceed $120,000. While core financial systems are compliant, some point-of-sale systems and hardware require modification or replacement. Risks exist regarding third-party vendors (e.g., hotel systems at New York-New York Hotel & Casino).
- Tax Examination: 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.
- Legal Proceedings: An Administrative Law Judge issued a favorable decision regarding unfair labor practice charges in Las Vegas. A second matter remains pending before the NLRB, though management does not anticipate a material adverse effect.
Investor Verification Checklist
- Debt Covenants: Verify the specific financial covenants within the new $13M credit facility and the impact of the current working capital deficit on borrowing capacity.
- Capital Expenditure Funding: Confirm the ability to fund the $6.5M Michigan project and ongoing Las Vegas expansion using current cash flow and the existing credit line.
- Restaurant Sales Impact: Assess the long-term revenue impact of the divestiture of four restaurants versus the ramp-up time for new locations (Thunder Grill, Rialto Deli, Michigan project).
- Year 2000 Status: Monitor the completion of hardware and point-of-sale system upgrades by the September 1999 quarter deadline.
- Tax Liability: Track the outcome of the IRS examination for fiscal years 1991-1994 to ensure no unexpected tax liabilities arise.