ARK Restaurants Corp. — Form 10-Q Summary
Business context and period. The filing covers the 13 weeks and 26 weeks ended March 30, 2013, the second quarter and first half of fiscal 2013. ARK operated 19 restaurants and bars, 22 fast-food concepts and catering operations in the United States, reported as one segment. Amounts below are in millions unless noted.
Financial performance and liquidity
| Metric | 13 weeks ended Mar. 30, 2013 | 13 weeks ended Mar. 31, 2012 | 26 weeks ended Mar. 30, 2013 | 26 weeks ended Mar. 31, 2012 |
|---|---|---|---|---|
| Revenue | $29.090 | $29.892 | $60.426 | $62.752 |
| Operating income (loss) | $(0.282) | $0.085 | $0.000 | $1.672 |
| Net income (loss) attributable to ARK | $(0.265) | $(0.404) | $(0.257) | $0.683 |
| Net income (loss) per share | $(0.08) | $(0.12) | $(0.08) | $0.20 |
| Cash provided by operations | Not presented for the quarter | $3.764 | $2.464 |
- Quarterly revenue fell 2.7%; first-half revenue fell 3.7%. Company-wide second-quarter same-store sales declined 4.4%.
- Second-quarter operating margin was approximately negative 1.0%, versus positive 0.3% a year earlier. First-half operating margin was approximately 0%, versus 2.7%.
- At March 30, cash was $4.209, total assets $53.412 and total equity $32.482. Working capital was negative $3.165, compared with positive $4.061 at September 29, 2012.
- Notes payable totaled approximately $4.688, including $2.063 current and $2.625 long-term. The company reported compliance with the bank note’s covenants.
- First-half investing cash outflow was $8.197, including $4.2 invested in New Meadowlands Racetrack LLC, $2.965 to acquire additional Florida subsidiary interests and $1.125 of fixed-asset purchases. Financing cash outflow was $0.063. Cash declined $4.496 from the fiscal year start.
Material changes and management commentary
- Management attributed weaker quarterly operating results to poor weather and reduced traffic in New York, Atlantic City and Washington, D.C.; increased competition and fewer casino complimentary offers in Florida; additional Las Vegas room capacity without corresponding traffic; and professional fees related to Landry’s unsolicited bid. Improved performance at Clyde Frazier’s Wine and Dine partly offset these factors.
- Same-store sales fell in Florida 13.0%, Washington, D.C. 12.7%, Atlantic City 12.0%, Las Vegas 2.1%, Connecticut 1.6% and New York 1.4%; Boston rose 33.0%, largely reflecting a prior-year fire closure.
- Hurricane Sandy flooding led to the closure of the Red and Sequoia properties; $0.256 of closure losses was recognized in the first half. The company also reported that it would not reopen them because their leases were nearing expiration.
- ARK acquired an additional 14.39% interest in Ark Hollywood/Tampa Investment, bringing its ownership to 64.39%, for approximately $2.965. It also entered a food-and-beverage services agreement tied to the planned Meadowlands Racetrack facility.
Outlook, risks and contingencies
- Management said existing cash and operating cash flow should meet liquidity and capital-spending needs for at least the next 12 months, despite the working-capital deficit.
- The company paid $0.25 per share quarterly dividends in December and March and intended to continue them for the foreseeable future, subject to board discretion and financial conditions.
- Planned projects included an Atlantic City Tropicana restaurant, expected to cost about $1.5 and open in fiscal 2013’s third quarter, and a Basketball City restaurant and catering facility expected to begin operations within 12 months. These are forward-looking expectations, not guarantees.
- Risks include economic and market conditions, sales and traffic, labor and food costs, weather, consumer preferences, competition and seasonality. Two vendors accounted for approximately 24% of purchases in the quarter and 23% for the first half.
- Restaurant leases extend to various dates through 2032. The company reported ordinary-course accident, workers’ compensation and employment-related claims; management did not expect their resolution to materially affect financial position, results or cash flows.
- Management expects the fiscal-year effective tax rate to be below the statutory rate, but said the final rate remains uncertain. The company cautioned that interim results may not indicate full-year performance.
Important facts for investors to verify
- Whether sales and same-store traffic stabilize in the regions with the steepest declines, particularly Florida, Washington, D.C. and Atlantic City.
- Whether operating cash flow can sustain dividends, debt service and planned capital spending while working capital is negative.
- The timing, cost and operating contribution of the Meadowlands, Tropicana and Basketball City projects.
- The continuing effect of Landry’s bid-related costs and the status or outcome of the unsolicited bid.
- Exposure to weather-related disruptions, concentrated vendors, casino traffic and complimentary policies, and compliance with bank debt covenants.