New York City / NY. (arc) Ark Restaurants Corporation reported financial results for the fourth quarter and fiscal year ended October 03, 2020. The Company’s fiscal year ends on the Saturday nearest September 30. Accordingly, the fiscal years ended October 03, 2020 and September 28, 2019 included 53 and 52 weeks, respectively and the quarters ended October 03, 2020 and September 28, 2019 contained 14 and 13 weeks, respectively. Having one more week in the fourth quarter and full year ended October 03, 2020 distorts the comparison of results with the prior year periods.
Total revenues for the 14-weeks ended October 03, 2020 were USD 21,774,000 versus USD 41,688,000 for the 13-weeks ended September 28, 2019.
Total revenues for the year ended October 03, 2020 were USD 106,490,000 versus USD 162,354,000 for the year ended September 28, 2019. The year ended September 28, 2019 includes revenues of USD 1,040,000 related to Durgin-Park which was closed January 12, 2019.
As a result of state and local governments issuing «stay at home» orders and mandatory shut-down requirements all of our restaurants were temporarily closed in March 2020. Such orders were lifted from May through August 2020 by the various states in which we operate allowing the Company to reopen all of its properties, with the exception of Thunder Grill in Washington, D.C., at varying levels of limited capacity as allowed by federal, state and local governments. Accordingly, we have not presented Company-wide same store sales as they are not meaningful based on these events.
The Company’s Ebitda, adjusted for non-controlling interests and non-cash stock option expense, for the 14-weeks ended October 03, 2020 was (USD 1,785,000) versus USD 2,636,000 during the 13 week period ended September 28, 2019. Net loss for the 14-weeks ended October 03, 2020 was (USD 1,897,000) or (USD 0.54) per basic and diluted share, compared to a net loss of (USD 554,000) or (USD 0.16) per basic and diluted share, for the 13 week period ended September 28, 2019.
The Company’s Ebitda, adjusted for non-controlling interests, non-cash stock option expense, losses on property closures and an impairment loss, for the year ended October 03, 2020 was (USD 3,182,000) versus USD 12,340,000 last year. Net loss for the year ended October 03, 2020 was (USD 4,688,000) or (USD 1.34) per basic and diluted share, compared to net income of USD 2,676,000, or USD 0.77 per basic share, USD 0.76 per diluted share, last year.
The Company’s 2020 fiscal year started strong with revenues and same store sales up 7.3 percent and 3.5 percent, respectively for the first quarter compared to the prior year and continuing through February. However, as the novel Coronavirus («Covid-19») rapidly spread throughout the world and to the United States we began to experience the impact of Covid-19 during March 2020, resulting in a decline in traffic in early March and the government mandated temporary closures of all of our restaurants during the last two weeks of March 2020. As state and local governments lifted «stay at home» orders and mandatory shut-down requirements from May through August 2020, the Company has reopened all of its properties, with the exception of Thunder Grill in Washington, D.C., at varying levels of limited capacity as allowed by federal, state and local governments. Although we have experienced some recovery from the initial impact of Covid-19, to date, the impact on our business has been substantial and the long-term impact on our business remains uncertain. We continue to monitor and adhere to local restrictions and are maintaining elevated safety measures.
As a result of the above, included in our operating losses for the 14 weeks and year ended October 03, 2020, are approximately USD 150,000 and USD 3,150,000 of costs directly related to Covid-19. Such costs consist primarily of payments to employees for paid-time off during restaurant closures, inventory waste, and rent and related costs for closed restaurants from the day that they closed until reopening.
In response to the business disruption and liquidity concerns caused by the Covid-19 pandemic, the Company has taken the following actions, which management expects will enable it to meet its obligations over the next 12 months:
- While restaurants were closed or continue to be closed, we furloughed all hourly employees and approximately 95 percent of salaried restaurant management personnel, while enacting salary reductions for all remaining restaurant management personnel.
- As restaurants re-opened, restaurants management salaries were restored to 70 percent of pre-pandemic amounts. If a location produced sustained cash flow, restaurant management salaries were restored to 100 percent of pre-pandemic amounts.
- Initially reduced the pay of all corporate and administrative staff by 50 percent to 75 percent and senior management salaries by 75 percent to 95 percent. As of October 03, 2020, most corporate salaries have been restored to 65 percent of pre-pandemic levels. In addition, the Board waived its fees for the balance of 2020.
- Entered into a Payment Suspension Agreement with our bank which deferred aggregate principal payments of USD 675,000 due on June 1, 2020 to the respective loan maturity dates and an agreement to extend the maturity dates of our revolving credit facility. In addition, the bank agreed to relaxed financial covenants through fiscal Q3 2021.
- Canceled the payment of the USD 0.25 dividend declared on March 2, 2020.
- Suspended future dividend payments until such time as the Board deems appropriate to reinstate.
- Canceled or delayed all non-essential capital expenditures.
- Suspended the vast majority of lease payments while our restaurants were closed as a result of government mandated shutdowns, and attempted to negotiate rent concessions, abatements and deferrals with our landlords to reduce the lease payments. While some landlords have agreed to concessions, several negotiations are still ongoing as of the date of this filing and we will attempt to obtain further concessions through April 2021 at many of our leased properties. However, there can be no assurance that the Company will be successful in obtaining the relief it is seeking.
- Certain Company subsidiaries applied for and received a total of approximately USD 15.0 million of loans under the Paycheck Protection Program of the Coronavirus Aid, Relief and Economic Security Act (the «CARES Act»), which was enacted March 27, 2020.
- Utilized additional provisions of the CARES Act to obtain tax savings as well as the deferral of our portion of social security taxes to future years.
Due to the rapid development and fluidity of this situation, management cannot determine the ultimate impact that the Covid-19 pandemic will have on the Company’s consolidated financial condition, liquidity, future results of operations, suppliers, industry, and workforce and therefore any prediction as to the ultimate material adverse impact on the Company’s consolidated financial condition, liquidity, and future results of operations is uncertain. The disruption in operations has led the Company to consider the impact of the Covid-19 pandemic on its liquidity, debt covenant compliance, and recoverability of long-lived and right-of-use assets, goodwill and intangible assets, among others. In addition, we cannot predict how soon we will be able to reopen any or all of our restaurants at full capacity or whether they will be required to close again in the future, as these decisions will depend primarily on the actions of a number of governmental bodies over which we have no control. Moreover, once restrictions are lifted, it is unclear how quickly customers will return to our restaurants, which may be a function of continued concerns over safety and/or depressed consumer sentiment due to adverse economic conditions, including job losses. If these disruptions continue, the Company expects a continued material negative impact on its consolidated financial position, future results of operations and liquidity. The extent of such negative impact will be determined, in part, by the longevity and severity of the pandemic.
During the 2019 fiscal year, the Company determined that it would not be able to operate Durgin-Park profitably due to decreased traffic at the Faneuil Hall Marketplace in Boston, MA, where it was located, and rising labor costs. As a result, included in the Consolidated Condensed Statement of Operations for the year ended September 28, 2019 are losses on closure in the amount of USD 1,106,000 consisting of: (i) impairment of trademarks of USD 721,000, (ii) accelerated depreciation of fixed assets of USD 333,000, and (iii) write-offs of prepaid and other expenses of USD 52,000. The restaurant was closed on January 12, 2019.
Management continually evaluates unfavorable cash flows, if any, related to underperforming restaurants. Periodically it is concluded that certain properties have become impaired based on their existing and anticipated future economic outlook in their respective markets. In such instances, we may impair assets to reduce their carrying values to fair values. Estimated fair values of impaired properties are based on comparable valuations, cash flows and/or management judgment. As a result of the underperformance and increased competition at Clyde Frazier’s Wine and Dine, the Company has recorded an impairment charge of USD 2,857,000 for the year ended September 28, 2019 related to this property.
On April 02, 2020, the Company advised the landlord of a catering space in New York, NY that we would be terminating the lease. In connection with this notification, the Company recorded a loss of USD 364,000 during the year ended October 03, 2020 consisting of (i) rent accrued in accordance with the termination provisions of the lease, (ii) the write-off of the unamortized balance of purchased leasehold rights, (iii) the write-off of our security deposit, (iv) the write-off of right-of-use assets and related lease liabilities, and (v) the write-off of the net book value of fixed assets.
The Company adopted the new lease accounting standards on September 29, 2019 (the first day of fiscal year 2020) which requires us to recognize assets and liabilities for leases with lease terms of more than twelve months on our balance sheet. We used a modified retrospective approach and therefore did not restate comparative periods for those lease contracts for which we have taken possession of the property as of September 28, 2019. Accordingly, prior period amounts were not revised and continue to be reported in accordance with the accounting standards then in effect. As a result of the adoption of this standard, we recorded right-of-use assets of USD 62,330,000 and lease liabilities related to our real estate operating leases of USD 63,943,000. The adoption of this standard did not materially impact retained earnings or our Consolidated Condensed Statement of Operations and had no impact on cash flows.
On November 13, 2020, the Company was advised by the landlord that it would have to vacate Gallagher’s Steakhouse and Gallagher’s Burger Bar at the Resorts Casino Hotel located in Atlantic City, NJ. which were on a month-to-month, no rent lease. The Company expects that the closure of this property will occur on January 4, 2021 and will not result in a material charge to the Company’s operations.
On October 02, 2020, the Company, through a newly formed, wholly-owned subsidiary, entered into an agreement to acquire the assets of Bear Ice Inc. and File Gumbo Inc., which collectively operate a restaurant and bar named Blue Moon Fish Company located in Lauderdale by the Sea, Florida. The transaction closed on December 1, 2020 with the total purchase price being USD 2,750,000 plus inventory and was paid with cash in the amount of USD 1,750,000 and a four year note held by the sellers in the amount of USD 1,000,000 payable monthly with 5 percent interest. The acquisition will be accounted for as a business combination. Concurrent with the acquisition, the Company assumed the related lease which expires in 2026 and has four, five-year extension options. Rent payments under the lease are approximately USD 360,000 per year and increase by approximately 15 percent as each option is exercised.
On December 11, 2020, New York State Governor Andrew Cuomo announced the shutdown of indoor dining in New York City indefinitely starting on Monday, December 14, 2020. We expect this will have a material adverse impact on our operations in New York, as will a shutdown of the entire City of New York, which is being considered by the Mayor of New York City as well as shut downs in any other cities where we operate.