ARK Restaurants Corp. — Form 10-Q Summary
Reporting period: Fiscal second quarter and first half ended April 2, 2022 (13 and 26 weeks, respectively); comparisons are with the periods ended April 3, 2021. Dollar amounts below are in thousands unless stated otherwise.
Business context and results
The Company operated 17 restaurants and bars, 17 fast-food concepts, and catering operations in the United States, reported as one segment. Management attributed the recovery in results primarily to restaurants operating without dining restrictions, increased customer traffic, and a modest recovery in events in Washington, D.C. and New York City.
| Metric | 13 weeks ended Apr. 2, 2022 | 13 weeks ended Apr. 3, 2021 | 26 weeks ended Apr. 2, 2022 | 26 weeks ended Apr. 3, 2021 |
|---|---|---|---|---|
| Total revenue | $39,586 | $25,767 | $83,571 | $46,066 |
| Operating income (loss) | $227 | $(1,497) | $3,018 | $(4,803) |
| Net income attributable to Ark | $1,055 | $4,161 | $3,264 | $3,398 |
| Diluted EPS | $0.29 | $1.15 | $0.91 | $0.95 |
| Operating cash flow | Not presented for quarter | Not presented for quarter | $4,963 | $(1,644) |
Revenue increased 53.6% in the quarter and 81.4% in the first half. Same-store food and beverage sales rose 54.0% and 79.6%, respectively; management cited traffic recovery, menu price increases, and event business. Connecticut same-store sales declined 26.2% in the quarter, attributed to disruption from relocating within Foxwoods Resort and Casino.
Operating margin was approximately 0.6% for the quarter and 3.6% for the first half, compared with approximately (5.8)% and (10.4)% in the prior periods. Despite higher sales, quarterly payroll costs rose to 34.1% of revenue from 32.6%, reflecting labor challenges. Food and beverage costs were 31.0% of revenue versus 30.1%; management also cited higher seafood and other input costs. First-half payroll costs were 33.2% of revenue versus 37.0%.
Financial position, liquidity and debt
- At April 2, 2022, cash and cash equivalents were $18,542, compared with $19,171 at October 2, 2021. Current assets were $34,307 and current liabilities were $30,540.
- Notes payable totaled $28,050 before deferred financing costs, including $5,839 current maturities; long-term notes payable, net of financing costs, were $22,121. Notes payable declined from $32,596 at fiscal year-end. The principal bank debt bears interest at LIBOR plus 3.5%; the Company expected to work with its lender on a replacement benchmark.
- Operating lease liabilities totaled $55,268, including current and long-term portions. The balance sheet also reported $52,575 of operating lease right-of-use assets.
- First-half operating cash flow was $4,963; investing cash use was $1,090, primarily fixed-asset purchases; financing cash use was $4,502, mainly debt payments and distributions to non-controlling interests. Cash declined by $629 over the half year.
Outlook, risks and notable items
- No specific revenue or earnings guidance was provided. Management said all restaurants were operating without dining restrictions but could not predict the duration or future effects of COVID-19, including labor, supply-chain and consumer impacts.
- The business is seasonal: management identifies the January–March quarter as typically its weakest, while warm-weather outdoor dining locations generally perform best. Weather can affect those locations.
- Food, beverage and supply inflation, wage and benefit costs, competition, local economic and political conditions, lease renewals, weather, food safety, cybersecurity, and debt covenant compliance were identified as risks. The Company stated that current results do not necessarily indicate full-year results.
- PPP loan forgiveness contributed $1,122 of income in the current quarter, versus $4,124 in the prior-year quarter, materially affecting the year-over-year comparison of net income. $2,645 of PPP loans remained outstanding at April 2, 2022; the Company said forgiveness of the remaining balance was uncertain. It paid $976 toward unforgiven PPP loans during the first half.
- The Company received $347 of distributions from its New Meadowlands Racetrack investment in the first half, recorded as other income. It recorded no impairment in the period but said future impairment could be material if conditions change.
- After quarter-end, the Company extended the Las Vegas Gallagher’s Steakhouse lease through December 31, 2032 and agreed to spend at least $1,500 on a premises refresh by September 30, 2022, subject to extensions. The Board declared a $0.125-per-share dividend, payable June 13, 2022; future dividends remain at Board discretion.
- A previously settled New York labor class action was awaiting final court approval. Management believed other ordinary-course claims would not materially affect the Company.
Most important facts for investors to verify
- Whether revenue and operating improvement persist after the comparison with pandemic-affected 2021 periods, and how seasonal performance affects the remainder of the fiscal year.
- Whether labor and food-cost inflation continues to pressure margins despite pricing and increased traffic.
- Remaining PPP loan forgiveness and repayment outcomes, as well as compliance with bank debt covenants and refinancing or benchmark-rate changes.
- Cash requirements for the $1,500 minimum Las Vegas refresh, scheduled debt payments, lease obligations, and the Company’s capacity to sustain dividends.
- Whether operating performance at monitored restaurants and the New Meadowlands investment supports current asset carrying values without future impairment.