ARK Restaurants Corp. 10-Q Summary
Business Context and Reporting Period
ARK Restaurants Corp. operates a chain of restaurants, primarily in Las Vegas, New York, and Washington D.C. This Form 10-Q covers the quarterly period ended March 27, 2004 (the second fiscal quarter) and the 26-week period ended on the same date. The company reported a net loss for the quarter but a net income for the six-month period, heavily influenced by discontinued operations and one-time charges.
Key Financial Metrics
| Metric | 13 Weeks Ended Mar 27, 2004 | 26 Weeks Ended Mar 27, 2004 |
|---|---|---|
| Total Revenues | $25,732,000 | $51,485,000 |
| Operating Income | $658,000 | $1,429,000 |
| Net Income (Loss) | $(114,000) | $441,000 |
| Net Income (Loss) Per Share (Diluted) | $(0.04) | $0.13 |
| Cash from Operating Activities | N/A | $2,002,000 |
| Long-Term Debt (Outstanding) | $2,925,000 | $2,925,000 |
| Working Capital | $(6,701,000) Deficit | $(6,701,000) Deficit |
Note: The company operates with a working capital deficit, which is typical for the restaurant industry due to low inventory and receivable requirements.
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 10.0% in the quarter and 9.4% for the 26-week period compared to the prior year. Same-store sales increased 10.1% company-wide, driven by strong performance in Las Vegas (+11.1%) and recovery in New York (+5.7%) and Washington D.C. (+13.1%).
- Profitability: Operating income improved significantly to $658,000 from $592,000 in the prior year quarter. However, net income turned negative ($-114,000) compared to a profit of $30,000 in the prior year quarter due to discontinued operations and one-time charges.
- Discontinued Operations: The company sold or closed four restaurants (Lutece, Lorelei, La Rambla, and Jack Rose). These dispositions resulted in a net loss from discontinued operations of $618,000 for the quarter, compared to $262,000 in the prior year.
- Cost Structure: Food and beverage costs as a percentage of revenue increased to 26.0% from 24.4% due to rising food costs. Payroll expenses decreased slightly as a percentage of revenue (34.0% vs 34.7%) due to sales growth.
Guidance, Outlook, and Risks
- Menu Pricing: Management plans to increase menu prices in the latter half of the third quarter of 2004 to offset rising food costs.
- Expansion: The company opened five fast food facilities in Tampa, Florida, in February 2004, with eight more scheduled to open in Hollywood, Florida, in May 2004. Partners in this venture assumed the financial risk.
- Debt Covenants: The company violated a cash flow covenant and a consolidated indebtedness covenant during the quarter. A waiver was obtained from Bank Leumi USA through May 11, 2004. The company has a history of receiving such waivers.
- One-Time Charges: A $470,000 charge was recorded for pension plan contributions related to the closure of the Lutece restaurant, payable over nine years.
- Risks: The company remains exposed to risks associated with terrorism, international unrest, and declines in tourism, which materially affect its revenue in key markets like New York and Las Vegas.
Investor Verification Checklist
- Covenant Compliance: Verify the status of the debt covenant waiver with Bank Leumi USA and ensure no further violations occur before the waiver expiration.
- Discontinued Operations: Confirm the final financial impact of the Lutece closure, specifically the $470,000 pension liability and future cash outflows.
- Food Cost Margins: Monitor the effectiveness of the planned menu price increases in the third quarter to stabilize the rising food cost percentage (currently 26.0%).
- Working Capital: Review the sustainability of the $6.7 million working capital deficit and the company's reliance on its $8.5 million credit facility.
- Florida Expansion: Assess the performance of the new fast food facilities in Florida, noting that partners assumed the financial risk, which may limit direct revenue impact on the balance sheet.