ARK Restaurants Corp. — Fiscal 2020 First Quarter
Reporting period: 13 weeks ended December 28, 2019; compared with the 13 weeks ended December 29, 2018. Ark operated 20 restaurants and bars, 17 fast-food concepts, and catering operations in the United States.
Financial performance
| Metric | Q1 2020 | Q1 2019 | Change |
|---|---|---|---|
| Revenue | $43.514 million | $40.548 million | +7.3% |
| Restaurant operating income | $2.436 million | $1.372 million | +77.6% |
| Operating income | $2.436 million | $0.305 million | Prior period included $1.067 million Durgin-Park closure loss |
| Net income (loss) attributable to Ark | $1.513 million | $(0.062) million | Improved |
| Diluted earnings (loss) per share | $0.43 | $(0.02) | Improved |
| Net cash from operating activities | $2.452 million | $0.840 million | +$1.612 million |
Restaurant operating margin was approximately 5.6% of revenue, up from 3.4%. Food and beverage cost of sales was 25.1% of revenue versus 25.8%; payroll remained 34.8%. G&A declined to 7.0% of revenue from 8.4%. Interest expense rose to $459,000 from $311,000.
Cash, debt and liquidity
- Cash and cash equivalents were $7.211 million at quarter-end, versus $7.177 million at September 28, 2019.
- Bank notes payable totaled $25.973 million gross, including $2.701 million current maturities; the balance sheet reports $23.121 million of long-term notes, net of current maturities and financing costs.
- The revolving facility had $3.366 million outstanding and $6.396 million available; its weighted-average interest rate was 4.4%. The facility expires May 31, 2021. The company reported compliance with financial covenants.
- Working capital was negative $10.086 million, compared with a $4.373 million deficiency at September 28, 2019. Management attributed the deterioration primarily to recording current operating lease liabilities upon adoption of the new lease standard.
- Investing cash outflow was $796,000, primarily for fixed-asset purchases; financing cash outflow was $1.622 million, including $675,000 of principal payments and $875,000 of dividends.
Material changes and management commentary
- Company-wide same-store sales increased 3.5%. Florida same-store sales rose 24.2%, driven particularly by the expanded Hollywood Hard Rock food court; Washington, D.C. rose 8.9% and Alabama 6.5%. Sales declined in Las Vegas, New York, Atlantic City, and Connecticut.
- Management cited stronger Florida and Alabama results, improved profitability at the Hollywood location, and a rent renegotiation at a D.C. property. These gains were partly offset by higher labor costs and weaker-than-expected New York results. The company attributed market-level softness to competition, lower Las Vegas convention traffic, and building construction affecting one New York property.
- JB’s on the Beach, acquired in May 2019, contributed approximately $2.4 million of current-quarter revenue and $43,000 of income. The prior-year comparison includes Durgin-Park closure charges of $1.067 million; Durgin-Park closed in January 2019 after declining traffic and rising labor costs.
- Ark adopted lease accounting standard ASC 842 on September 29, 2019, recording $62.330 million of right-of-use assets and $63.943 million of lease liabilities at adoption. At December 28, lease liabilities totaled $62.460 million. Adoption did not materially affect retained earnings, operating results, or cash flows; prior-year figures were not restated.
Outlook, risks and contingencies
- No specific revenue or earnings guidance was provided. Management believes cash, banking facilities, and operating cash flow will meet liquidity and capital spending needs at least through February 12, 2021.
- The board declared a $0.25-per-share quarterly dividend, paid January 7, 2020. Management expressed intent to continue quarterly dividends, subject to board discretion and future results, cash flow, financial condition, and capital needs.
- Management highlighted seasonal demand, fixed costs, labor expense, food-cost fluctuations, weather, consumer preferences, and competition as factors that could affect results. Winter quarters typically have lower traffic in northeastern markets; outdoor seating makes some locations weather-sensitive.
- A New York tipped-worker putative class action alleging labor-law violations remains in early discovery; the motion to dismiss was denied. The company disputes the claims, but stated that any reasonably possible loss cannot be estimated and recorded no accrual.
- One hotel operator represented 38% of accounts receivable at December 28, 2019. Management also noted that estimates—including asset recoverability, lease discount rates, and tax assets—could differ from actual outcomes.
Important facts for investors to verify
- Whether the improvement in restaurant operating income and same-store sales persists, particularly in Florida, and whether weaker New York and Las Vegas trends continue.
- Cash generation and covenant headroom relative to the working-capital deficit, debt obligations, capital spending, and the stated liquidity outlook.
- The impact of lease obligations and the new lease accounting presentation on liquidity measures and occupancy expense.
- Future dividend capacity and board decisions, given the quarterly dividend and financing needs.
- Developments in the tipped-worker litigation and the potential exposure, which the filing says cannot currently be estimated.