ARK RESTAURANTS CORP. - 10-Q Summary
Business Context and Reporting Period
This is a Quarterly Report (Form 10-Q) for ARK RESTAURANTS CORP. for the 13-week and 26-week periods ended March 31, 2001. The company operates and manages restaurants, with significant recent expansion in Las Vegas (Venetian Casino Resort and Desert Passage). The report is unaudited.
Key Financial Metrics
| Metric | 13 Weeks Ended Mar 31, 2001 | 26 Weeks Ended Mar 31, 2001 |
|---|---|---|
| Net Sales | $28,417,000 | $59,231,000 |
| Gross Restaurant Profit | $21,068,000 | $44,028,000 |
| Operating Loss | $(1,080,000) | $(58,000) |
| Net Loss | $(1,000,000) | $(775,000) |
| Net Loss Per Share (Basic/Diluted) | $(0.31) | $(0.24) |
| Cash and Cash Equivalents | $423,000 (Ending Balance) | $423,000 (Ending Balance) |
| Net Cash from Operating Activities | N/A | $344,000 |
| Total Debt (Current + Long-Term) | $27,769,000 | $27,769,000 |
| Working Capital | $(6,089,000) Deficit | $(6,089,000) Deficit |
Margins: Cost of sales was 25.9% of net sales for the quarter (down from 26.4% prior year). Operating expenses were 71.6% of net sales for the quarter (down from 75.3% prior year).
Material Changes vs. Prior Period
- Revenue Growth: Net sales increased 10.3% for the quarter and 12.3% for the six-month period compared to the prior year. This was driven primarily by new openings in Las Vegas (V-Bar, Fat Anthony's, Alakazam Food Court) and partial-year operations of Tsunami and Lutece. Same-store sales increased 0.6% for the quarter.
- Profitability Improvement: The company reported a net loss of $1.0 million for the quarter, a significant improvement from the $4.976 million net loss in the comparable prior year period. The prior year loss included a $4.828 million charge related to the withdrawal from a joint venture in Southfield, Michigan.
- Expense Management: General and administrative expenses decreased as a percentage of sales (5.9% vs 8.0% last year) due to reduced non-recurring travel and development costs associated with new openings.
- Joint Venture: The company recorded a $150,000 charge in the current quarter for a partial write-off of a note receivable from the Southfield project, compared to the massive $4.8 million write-off in the prior year.
Guidance, Outlook, and Risks
- Outlook: Management notes that Venetian Casino Resort operations are profitable, while Desert Passage operations are not yet profitable. A new bar (V-Bar) opened in November 2000, and another restaurant is scheduled to open in fiscal 2001. No other projects are currently committed.
- Capital Allocation: A substantial portion of current cash flow is scheduled for debt reduction. New projects would require external financing.
- Liquidity and Debt: The company has a working capital deficit of $6.089 million, which is typical for the restaurant business. The company amended its credit facility in November 2000 to allow borrowing up to $28.5 million. As of March 31, 2001, $25.85 million was outstanding. The company is currently in compliance with all financial covenants.
- Risks: The company is exposed to interest rate risk on its variable-rate credit facility (Prime + 0.5%). The filing contains forward-looking statements regarding future profitability and expansion which are subject to risks and uncertainties.
- Unusual Items: The company closed its "America" restaurant in McLean, Virginia, in January 2001 after failing to sell it, having previously recorded an impairment charge of $810,769.
Investor Verification Checklist
- Verify the profitability timeline for the Desert Passage operations in Las Vegas.
- Confirm the status of the $25.85 million outstanding debt and adherence to the repayment schedule (reductions required by June, September, and December 2001).
- Monitor the utilization of the $1.5 million letter of credit facility for lease security deposits.
- Assess the impact of the closed "America" restaurant on future same-store sales comparisons.
- Review the status of the IRS examination of Federal Income Tax returns for fiscal years 1995-1997.