ARK Restaurants Corp. — Form 10-Q Summary
Reporting period: First quarter of fiscal 2024, the 13 weeks ended December 30, 2023; comparable period ended December 31, 2022. The company operates restaurants, bars, fast-food concepts and catering businesses in the United States.
Financial performance
| Metric | Q1 FY2024 | Q1 FY2023 | Change |
|---|---|---|---|
| Total revenue | $47.487 million | $47.445 million | Up 0.1% |
| Operating income | $1.603 million | $2.203 million | Down 27.2% |
| Operating margin | 3.4% | 4.6% | Down 1.2 percentage points |
| Consolidated net income | $1.596 million | $2.022 million | Down 21.1% |
| Net income attributable to Ark | $1.370 million | $1.725 million | Down 20.6% |
| Diluted EPS | $0.38 | $0.47 | Down $0.09 |
| Cash from operating activities | $0.558 million | $(0.903) million | Improved $1.461 million |
Food and beverage cost of sales fell 2.9% to $12.071 million, or 25.4% of revenue versus 26.2%. Payroll rose 2.8% to $16.977 million and increased to 35.8% of revenue from 34.8%. Occupancy costs rose 2.4%; general and administrative expense rose 5.8%. Management attributed operating-income pressure primarily to higher labor and non-commodity costs, partly offset by easing commodity prices and stronger New York event business.
Company-wide same-store sales declined 0.3%. New York increased 12.5%, primarily on event revenue; Las Vegas declined 3.0%, Washington, D.C. 12.6%, Atlantic City 6.3%, Alabama 1.6% and Florida 4.6%, with lower customer counts cited in most declining markets.
Financial position and liquidity
- Cash and cash equivalents were $12.122 million at December 30, 2023, versus $13.415 million at September 30, 2023. Cash declined $1.293 million during the quarter.
- Working capital deficit was $5.079 million, improved from a $5.932 million deficit at fiscal year-end.
- Notes payable totaled $6.742 million, including $2.011 million current; no advances were outstanding on the $10 million revolving credit facility. Average interest on outstanding Bank Hapoalim debt was approximately 9.0%.
- The revolving facility matures June 1, 2025 and is subject to financial covenants, including minimum tangible net worth, fixed-charge coverage and annual net-income requirements. Debt is secured by the company’s assets.
- Operating lease liabilities totaled $98.273 million, including current obligations. The filing lists $138.775 million of future lease payments before $40.502 million of imputed interest.
- Investing cash outflow was $0.254 million, mainly for fixed-asset purchases. Financing cash outflow was $1.597 million, including $0.480 million of note principal payments, $0.676 million of dividends and $0.441 million of distributions to non-controlling interests.
Management stated that cash, operating cash generation, banking facilities and potential additional financing should be sufficient for capital expenditures, debt maturities and operations for at least the next 12 months. This assessment is subject to the risks described in the filing.
Material developments, outlook and risks
- The quarter included $0.285 million of income from a refund after the company prevailed in an appeal concerning forgiveness of a PPP loan; no PPP loans remained outstanding. The comparable period included $0.272 million of PPP loan forgiveness income.
- The company paid a quarterly dividend of $0.1875 per share in December 2023. A further $0.1875 dividend was declared in February 2024, payable March 13, 2024. Future dividends remain at the board’s discretion.
- Lease extensions in Las Vegas require refresh work: a minimum $4.0 million at America by December 31, 2024, with no spending reported to date, and a minimum $3.5 million for three Village Eateries premises by June 30, 2024, with approximately $0.1 million spent. Deadlines may be extended under the agreements.
- The company dissolved the entity that owned Lucky 7, closed since July 2022, and reclassified its remaining non-controlling interest to additional paid-in capital.
- Management cited inflation, labor availability and wages, food and supply costs, insurance, consumer spending, weather, competition, restaurant traffic and lease terms as risks. The business is seasonal; management identifies the January–March quarter as generally its weakest, partly offset by Florida operations.
- No formal earnings guidance was provided. The company reported no impairment charges in the quarter, but said several restaurant locations are being monitored and future impairment charges could be material if expected performance is not achieved.
- The company has concentration exposure: one hotel operator represented 50% of accounts receivable at quarter-end; one vendor represented 11% of quarterly purchases. Ordinary-course legal claims were not expected by management to have a material adverse effect.
Important facts for investors to verify
- Whether the labor, occupancy and other cost pressures persist and continue to compress operating margins.
- Performance and customer traffic trends by region, including whether New York event strength offsets declines elsewhere.
- Cash generation, working-capital needs and compliance with credit-facility covenants, particularly given the working-capital deficit and 2025 facility maturity.
- Funding and completion of the Las Vegas refresh obligations, and the effect of those projects on liquidity and operations.
- Whether the declared dividend remains supportable under future operating and cash-flow conditions.
- Collection of the concentrated hotel-operator receivable and the impact of supplier concentration.