ARK RESTAURANTS CORP. - 10-Q Summary
Business Context and Reporting Period
This Form 10-Q covers the 13-week period ended January 1, 2005. Ark Restaurants Corp. operates a chain of restaurants, primarily in New York, Las Vegas, and Washington D.C. The company is actively restructuring its portfolio, having reclassified several underperforming locations (Lutece, Lorelei, La Rambla, Jack Rose, and America) as discontinued operations.
Key Financial Metrics
| Metric | 13 Weeks Ended Jan 1, 2005 | 13 Weeks Ended Dec 27, 2003 |
|---|---|---|
| Total Revenues | $26,882,000 | $24,672,000 |
| Operating Income | $1,553,000 | $617,000 |
| Net Income | $1,184,000 | $556,000 |
| Diluted EPS | $0.34 | $0.17 |
| Cash and Equivalents | $1,375,000 | $4,435,000 (Prior Period End) |
| Working Capital | $1,746,000 | $1,263,000 |
| Long-Term Debt | $0 | $7,775,000 (Outstanding prior period) |
Margins: Food and beverage costs were 24.9% of revenue (down from 25.7%). Payroll expenses were 32.2% (down from 33.2%). Operating margin improved significantly to approximately 5.8% from 2.5%.
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 9.0% year-over-year. Same-store sales rose 8.3% company-wide, driven by 10.5% growth in New York, 10.7% in Washington D.C., and 6.6% in Las Vegas.
- Profitability: Net income more than doubled to $1.184 million. This was driven by higher revenues, improved cost controls, and a reduction in interest expense from $93,000 to $3,000 due to the repayment of borrowings.
- Cash Flow: Net cash used in operating activities was $1.519 million, compared to $229,000 used in the prior year. This increase in cash usage was primarily due to a $1.36 million payment in accrued income taxes and a $1.405 million increase in receivables.
- Debt Reduction: The company paid down its credit facility, resulting in zero borrowings outstanding as of January 1, 2005.
Outlook, Risks, and Management Commentary
- Discontinued Operations: The company is in the process of selling the "America" restaurant, with closing expected in the second quarter of fiscal 2005. Other locations (Lutece, Lorelei, La Rambla, Jack Rose) have been sold or closed, with results reported as discontinued operations.
- Expansion: Agreements have been entered to operate a Gallagher's Steakhouse and a new bar in the Resorts Atlantic City Hotel and Casino.
- Liquidity: The company maintains an $8.5 million revolving credit facility maturing February 12, 2005, with no current borrowings. They are negotiating a new facility that will be limited to letters of credit.
- Dividends: A quarterly dividend of $0.35 per share was paid on February 1, 2005.
- Accounting Changes: The company notes the upcoming adoption of SFAS No. 123(R) regarding stock-based compensation, effective for periods beginning after June 15, 2005, which may impact future earnings.
Investor Verification Checklist
- Verify the closing date and final proceeds of the "America" restaurant sale scheduled for Q2 2005.
- Monitor the renewal terms of the $8.5 million credit facility maturing in February 2005.
- Assess the impact of the new Atlantic City expansion on capital expenditures and future cash flows.
- Review the pro forma impact of SFAS 123(R) adoption on future net income and EPS.
- Confirm the sustainability of same-store sales growth in New York and Las Vegas given the re-concepting of the "Venus" bar to "Vivid."