ARK Restaurants Corp. 10-Q Summary
Business Context and Reporting Period
This Quarterly Report on Form 10-Q covers the 13-week period ended December 29, 2007. Ark Restaurants Corp. operates and manages restaurants in New York, Las Vegas, Washington D.C., and Atlantic City. The company reported a net income of $1.485 million for the quarter, a significant decrease from the prior year due to the absence of a large gain from discontinued operations.
Key Financial Metrics
| Metric | Q1 2008 (13 weeks) | Q1 2007 (13 weeks) |
|---|---|---|
| Total Revenues | $30,318,000 | $27,521,000 |
| Operating Income | $2,112,000 | $2,438,000 |
| Net Income | $1,485,000 | $6,590,000 |
| Diluted EPS | $0.40 | $1.84 |
| Cash and Equivalents | $2,669,000 | $7,377,000 (End of period) |
| Working Capital | $10,487,000 | $11,571,000 (Prior period) |
| Food Cost % of Revenue | 25.5% | 24.8% |
| Payroll % of Revenue | 31.5% | 31.5% |
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 10.2% year-over-year, driven by a 3.7% increase in same-store sales. New York same-store sales rose 10.0%, while Las Vegas increased 0.3% despite temporary closures for renovations.
- Profitability Decline: Net income dropped significantly from $6.59 million to $1.485 million. The prior year included a one-time after-tax gain of $5.196 million from the sale of two facilities, which is absent in the current period.
- Cost Pressures: Food and beverage costs as a percentage of revenue increased to 25.5% from 24.8% due to rising commodity prices. Management noted they are reviewing menu prices to address this.
- Cash Flow: Net cash provided by operating activities was $930,000, compared to $496,000 in the prior year. However, cash and cash equivalents decreased by $1.34 million during the quarter, primarily due to dividend payments of $1.583 million and capital expenditures.
- Discontinued Operations: The company discontinued operations of its Columbus Bakery in New York City, which was no longer profitable. This is presented as a discontinued operation.
Guidance, Outlook, and Risks
- Expansion: The company is expanding with a new Mexican restaurant (Yolos) in Las Vegas, expected to open in Q2 2008, and a food court at Foxwoods Resort Casino, expected in Q3 2008. Pre-opening expenses of $150,000 were incurred for the Las Vegas location.
- Dividends: The quarterly cash dividend was increased to $0.44 per share. A quarterly dividend of $0.44 was declared on October 12, 2007, and January 11, 2008.
- Liquidity: The company relies on cash from operations and does not currently plan to enter into a new credit facility, as its previous facility matured in 2005.
- Risks: Key risks include volatility in food commodity prices (chicken, beef, lobster), seasonal weather impacts on outdoor seating, and competition. The company does not hedge commodity prices.
- Accounting Changes: The company adopted FIN 48 regarding uncertainty in income taxes and is assessing the impact of SFAS 157 (Fair Value Measurements) and SFAS 159.
Investor Verification Checklist
- Verify the sustainability of the 10.2% revenue growth given the 25.5% food cost margin increase.
- Confirm the timeline and capital requirements for the new Las Vegas (Yolos) and Foxwoods food court openings.
- Monitor the impact of the Columbus Bakery closure and the new "Pinch & S'Mac" venture (37.5% ownership).
- Review the company's ability to maintain dividend payments ($0.44/share) given the $1.58 million cash outflow for dividends in this quarter.
- Assess the effectiveness of menu price increases in offsetting rising food costs.