ARK Restaurants Corp. 10-Q Summary
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended April 1, 2006, and the 26-week period ended on the same date. Ark Restaurants Corp. operates upscale dining and entertainment venues, primarily in Las Vegas, New York, and Washington D.C. The company recently opened Gallagher's Steakhouse and Luna Lounge in Atlantic City and is managing new facilities at Foxwoods Resort Casino.
Key Financial Metrics
| Metric | 13 Weeks Ended Apr 1, 2006 | 26 Weeks Ended Apr 1, 2006 |
|---|---|---|
| Total Revenues | $25,592,000 | $52,954,000 |
| Net Income (Loss) | $(151,000) | $765,000 |
| Operating Income (Loss) | $(182,000) | $1,390,000 |
| Net Cash from Operating Activities | N/A | $1,391,000 |
| Cash and Equivalents (Ending) | $1,589,000 | $1,589,000 |
| Working Capital | $5,618,000 | $5,618,000 |
| Food & Beverage Cost % | 26.3% | 25.4% |
| Payroll Expense % | 35.5% | 34.1% |
Note: The company has no long-term debt outstanding as of April 1, 2006. The previous revolving credit facility matured in March 2005 and was not renewed.
Material Changes vs. Prior Period
- Profitability Decline: The company reported a net loss of $151,000 for the quarter, compared to net income of $554,000 in the prior year quarter. For the 26-week period, net income dropped to $765,000 from $1,739,000.
- Revenue Growth: Total revenues increased 5.9% for the quarter and 4.2% for the 26-week period compared to the prior year.
- Discontinued Operations: Significant losses were recorded in discontinued operations ($165,000 for the quarter; $441,000 for 26 weeks) due to the "Vivid" facility at the Venetian Casino Resort, which is classified as "held for sale." Conversely, the prior year included a $644,000 gain from the sale of the "America" restaurant.
- New Openings: Pre-opening and early operating losses of $421,000 (quarter) and $447,000 (26 weeks) were incurred at new Atlantic City locations (Gallagher's Steakhouse and Luna Lounge).
- Share-Based Compensation: Adoption of SFAS No. 123R resulted in $187,000 (quarter) and $374,000 (26 weeks) of new compensation expense.
Outlook, Risks, and Management Commentary
- Same Store Sales: Las Vegas same-store sales decreased 1.3% due to lower business at the Venetian. New York same-store sales increased 10.1% driven by economic improvement and weather. Washington D.C. sales decreased slightly (0.7%).
- Liquidity: The company maintains a working capital surplus of $5.6 million. Management expects cash requirements to be met by operations and does not plan to enter a new credit facility immediately.
- Expansion: The company opened Fifth Street Cafe at Foxwoods in March 2006 and Lucky Seven in May 2006. It anticipates operating at least one more facility at Foxwoods in the third quarter.
- Risks: Key risks include the failure of new concepts to reach profitability targets (specifically the Atlantic City and Venetian locations), reliance on specific casino partners, and the inability to consolidate tax losses across subsidiaries due to state tax laws.
Investor Verification Checklist
- Discontinued Operations: Verify the timeline and expected proceeds for the sale of the "Vivid" facility currently held for sale.
- New Unit Performance: Monitor the ramp-up period and break-even timeline for the Atlantic City (Gallagher's/Luna) and Foxwoods locations.
- Dividend Sustainability: Confirm the ability to maintain the $0.35 quarterly dividend given the recent net loss and cash outflows for fixed asset additions ($3.3 million in 26 weeks).
- Share-Based Compensation: Review the impact of the remaining $537,000 in unrecognized compensation cost on future earnings.
- Debt Status: Confirm the company's strategy regarding the lack of a revolving credit facility and its reliance solely on operating cash flow for capital needs.