ARK Restaurants Corp. — Form 10-Q Summary
Business context and reporting period. The filing covers the 13 and 39 weeks ended July 1, 2023; comparable periods ended July 2, 2022. Ark operated 17 restaurants and bars, 16 fast-food concepts, and catering operations in the United States. The company reports as one operating segment.
Key financial results
| Metric | 13 weeks ended July 1, 2023 | 13 weeks ended July 2, 2022 | 39 weeks ended July 1, 2023 | 39 weeks ended July 2, 2022 |
|---|---|---|---|---|
| Revenue | $51.1 million | $53.2 million | $140.4 million | $136.8 million |
| Operating income | $3.6 million | $5.4 million | $5.9 million | $8.4 million |
| Net income attributable to Ark | $3.2 million | $5.3 million | $4.4 million | $8.5 million |
| Diluted earnings per share | $0.88 | $1.46 | $1.22 | $2.37 |
| Net cash from operating activities | Not presented quarterly | $6.9 million | $15.8 million |
Quarterly operating margin was approximately 7.1%, versus 10.2% a year earlier; year-to-date operating margin was approximately 4.2%, versus 6.2%. Food and beverage cost of sales fell to 25.9% of revenue for the quarter from 27.7%, and to 26.7% year to date from 28.9%. Payroll rose to 33.7% of quarterly revenue from 30.5%, and to 34.9% year to date from 32.1%.
Material changes and drivers
- Quarterly revenue decreased 4.1%, while year-to-date revenue increased 2.6%. Same-store food and beverage sales declined 4.8% for the quarter but rose 1.7% year to date.
- Quarterly operating income fell 32.9% and year-to-date operating income fell 30.5%. Management cited weaker same-store sales, labor-cost increases, and, year to date, the temporary Gallagher’s Steakhouse renovation closure.
- Quarterly same-store sales were mixed: New York increased 3.8%, while Florida declined 9.9%, Las Vegas declined 6.5%, Washington, D.C. declined 6.2%, Atlantic City declined 16.6%, and Alabama declined 0.9%. The Las Vegas result was affected by Gallagher’s closure; New York benefited from event business.
- For the 39-week period, New York same-store sales rose 17.1%, while Florida fell 5.9% and Atlantic City fell 15.2%. Event business supported New York and Washington, D.C.; Florida comparisons reflected unusually high prior-period volumes.
- Payroll, occupancy, and other operating costs increased year over year, reflecting labor shortages and wage increases, higher rents and insurance, and inflation. Some easing in commodity prices helped food-cost ratios.
Liquidity, debt, and capital allocation
- At July 1, 2023, cash and cash equivalents were $14.0 million, compared with $23.4 million at October 1, 2022. Working capital was a deficit of $4.1 million, versus positive working capital of $4.2 million at fiscal year-end; management attributed the change principally to substantial debt prepayments.
- Year-to-date operating cash flow was $6.9 million. Investing activities provided $2.0 million, including $5.0 million from a matured certificate of deposit, partly offset by $3.1 million of fixed-asset purchases. Financing activities used $18.3 million, including $15.2 million of note principal payments, $1.6 million of dividends, and $1.0 million of distributions to non-controlling interests. Cash declined $9.5 million.
- Notes payable totaled $7.7 million, including $2.0 million current; no advances were outstanding under the $10.0 million revolving facility. The facility matures June 1, 2025, carries specified SOFR- or prime-based borrowing rates and financial covenants, and is secured by company assets. Weighted-average interest on outstanding Bank Hapoalim debt was approximately 8.8%.
- Operating lease liabilities totaled $99.4 million, including $8.2 million current. The company reported $139.8 million of future lease payments before $40.4 million of imputed interest.
- Dividends of $0.4375 per share were declared for the first three quarters of fiscal 2023. A further $0.1875-per-share dividend was declared August 8, 2023, payable September 12, 2023.
Outlook, risks, and unusual items
- No quantified earnings or revenue guidance was provided. Management said cash balances, operating cash generation, banking facilities, and potential access to additional financing should be sufficient for capital expenditures, debt maturities, and operations for at least the next 12 months.
- Management warned that inflation, food and supply costs, labor availability and wages, consumer demand, weather, competition, and geopolitical or pandemic-related disruptions could pressure results and liquidity. It said menu pricing and purchasing efficiencies have helped offset costs, but cannot be assured to do so in the future; dividends could be suspended or borrowing increased if cash flow is materially affected.
- Capital commitments include minimum refresh spending of $4.0 million at America by December 31, 2024, and $3.5 million for Village Eateries and two related Las Vegas locations by December 31, 2023; approximately $50,000 had been spent on the latter work by the filing date. Gallagher’s completed a refresh costing approximately $1.9 million and reopened April 28, 2023.
- The company recognized $272,000 of PPP loan forgiveness income year to date, versus $2.4 million in the comparable prior period. No PPP loans remained outstanding, but the company was appealing a $280,000 forgiveness denial after repaying that amount.
- A New York tipped-worker class-action settlement of approximately $600,000 received court approval and was paid in fiscal 2023; it had been accrued previously. Management said ordinary-course legal matters are not expected to materially affect results. No impairment charges were recorded in the periods presented, although management is monitoring certain restaurant assets.
Important facts for investors to verify
- Whether sales and traffic stabilize in Florida, Las Vegas, Atlantic City, and other weaker markets, and whether event-driven strength in New York and Washington, D.C. continues.
- Whether labor, occupancy, insurance, and other inflationary costs continue to outpace revenue or menu-price actions.
- Liquidity and covenant headroom given the working-capital deficit, debt-service needs, lease obligations, and planned restaurant refresh spending.
- Progress and costs of the Las Vegas refresh commitments, including the remaining Village Eateries work and America renovation.
- Outcome of the $280,000 PPP forgiveness appeal and the company’s ability to sustain dividends while funding operations and capital needs.