Shares of Ark Restaurants Corp. ARKR have gained 1.1% since the company reported its earnings for the quarter ended Dec. 28, 2024. This compares to the S&P 500 Index’s 0.4% gain over the same time frame. Over the past month, the stock lost 10.9% versus the S&P 500’s 3.4% rise.

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Financial Performance

Ark Restaurants reported total revenues of $44.9 million for the first quarter of fiscal 2025, a decline of 5.3% from $47.5 million in the year-ago period. Same-store sales, excluding revenue from the now-closed El Rio Grande and Tampa Food Court locations, declined 2.3% year over year. Net income attributable to Ark Restaurants was $3.2 million, or $0.88 per share, compared with $1.4 million, or $0.38 per share, in the prior-year quarter.

Despite the year-over-year decline in revenues, the company’s operating income increased to $5.7 million from $1.6 million in the prior-year quarter. However, this figure includes a $5.2 million gain from the termination of the Tampa Food Court lease, offset by a $146,000 loss on the closure of El Rio Grande. Excluding these items, adjusted EBITDA fell 46.4% to $1.4 million from $2.6 million a year ago.

Other Key Business Metrics

Food and beverage costs increased 0.3% to $12.11 million from $12.07 million in the prior-year quarter, making up 26.9% of total revenues compared with 25.4% in the previous year. Payroll expenses declined 3.4% to $16.4 million but increased as a percentage of total revenue due to wage inflation.

Occupancy expenses of $6.1 million and general administrative costs of $3.1 million also declined 2.9% and 5.2% year over year, respectively, reflecting cost-saving measures. However, inflationary pressures continued to impact the company’s margins. Depreciation and amortization expenses decreased 28.8% year over year to $0.8 million due to certain assets becoming fully depreciated.

Management Commentary

CEO Michael Weinstein noted that cost pressures, particularly in wages and insurance premiums, remain a challenge. The company has resisted raising menu prices to maintain its value proposition for customers. Weinstein also highlighted efforts to improve operational efficiency, including consolidating functions and reducing payroll expenses where feasible.

Regarding demand trends, Weinstein cited strong sales in Alabama and steady performance in Las Vegas, while Washington, D.C., continues to struggle with weak traffic, particularly during lunch and after-work hours. The company has brought in experienced management to improve performance at its Sequoia location in D.C., but demand remains a challenge.

Factors Influencing Results

The decline in revenue was largely attributed to the closure of the El Rio Grande and Tampa Food Court locations. On the positive side, the company received a $5.5 million lease termination payment related to the Tampa Food Court, contributing to its quarterly net income.

The decline in same-store sales was most pronounced in Washington, D.C., where revenue dropped 18.2%, primarily due to continued hybrid work schedules affecting lunchtime and after-work dining. Las Vegas sales fell 3.8% year over year, attributed to lower traffic at the New York-New York Hotel and Casino, while Florida revenue remained stable. Alabama was a bright spot, with sales increasing 6.9% year over year, supported by menu price adjustments and stronger customer traffic.

Inflationary pressures on labor and food costs continue to weigh on the restaurant industry. ARKR, like many in the sector, is facing rising wage expenses and higher insurance premiums. The company has opted against aggressive menu price increases, which could limit its ability to offset these cost pressures in the near term.

Guidance and Outlook

Management did not provide formal revenue or earnings guidance but expressed confidence in its ability to improve efficiency and reduce costs. Weinstein noted that the company is actively reviewing its operational structure to adapt to current demand levels and preserve margins.

The company’s future prospects are also tied to the outcome of its lease negotiations for the Bryant Park Grill & Café and The Porch at Bryant Park. The landlord has indicated a preference for a new operator, but Ark Restaurants is contesting the process, arguing that its bid was competitive and that it has a strong track record at the location. Losing these leases could have a material impact on future earnings.

Other Developments

Ark Restaurants is working on a new banking agreement as its current credit facility is set to expire on May 31, 2025. The uncertainty surrounding the Bryant Park leases has complicated these negotiations. The company ended the quarter with $13.1 million in cash and $4.7 million in total outstanding debt.

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