Ark Restaurants (ARKR, Financial) is a small cap stock trading near its 52-week low at $20.29 per share. The current dividend of $1 yields 4.93%. The company was founded in New York in 1983 and operates 22 restaurants and bars, 19 fast food concepts and catering operations. Ark employs approximately 2,000 people with 65% full-time employees and the rest part-time. The company started off with small neighborhood New York restaurants but gradually expanded to other states. Its strategy shifted from small neighborhoods to high traffic destination properties. Many of the restaurants are located in casinos. Six restaurants are located in Las Vegas, three are located in Atlantic City, New Jersey, and one is located at the Foxwoods Resort Casino in Ledyard, Connecticut. From the latest 10-Q, here are the company’s revenues broken down by geographic region.
| Region | % of Revenue |
| Las Vegas | 38.24% |
| New York | 22.44% |
| Florida | 22.43% |
| Washington DC | 6.11% |
| Atlantic City, NJ | 5.78% |
| Connecticut | 2.99% |
| Boston | 2.01% |
| Total | 100.00% |
Ark restaurants’ revenues are affected by seasonality and the weather since a number of the locations have outdoor seating. Poor weather also decreases traffic to casino locations. The picture below is of the Sequoia restaurant in Washington DC, which is its largest restaurant by seating capacity. It can fit 600 indoors and 400 outdoors. The January through March quarter is the company’s weakest time of the year, and it generally loses money during that time.
The company also owns an 11.6% stake in Meadowlands Racetrack in East Rutherford, New Jersey. Ark invested in the company three and a half years ago with the hopes that casino gaming would be approved in the region. On March 16, the New Jersey legislature allowed a referendum to go on ballot this November, which would allow casino gaming in northern New Jersey. If the proposal is approved, Ark would benefit from its share of the Meadowlands Racetrack casino profits. It also owns rights for food service for the location, which includes four restaurants. A Hard Rock Cafe would be the only competitor allowed at the racetrack. So far, polls shows that 50% of the voters support the proposal.
Financials
The company has strong fundamentals and a reasonable valuation. Trailing 12 month annual revenues were $151.3 million. Market capitalization was $69.4 million. ROE was 13.06% and ROIC was 15.59%. The company has low debt with a debt to equity ratio of 0.25%. The dividend currently stands at 4.93% with the payout ratio at 0.65. The company has paid dividends for the last 11 years. For valuation metrics, the EV / EBIT was 8.85 and P / FCF was 9.09. The PE ratio was 15.06. In the last 15 years, the PE has ranged from 5.26 in 2002 to 32.54 in 2011 with the average being 15.34. Ark also has not lost money since 2001.
Final thoughts
For the latest quarter, revenues were $34.27 million versus $31.55 for the same quarter last year. Same store sales increased 1% during the period. There was a 14% improvement in its New York restaurants because of favorable weather. The improvement was offset with a 9% decline in the Florida restaurants due to increased competition. The company lost 19 cents per share versus a loss of 17 cents last year. As previously mentioned, January through March is the weakest quarter and losses are typical.
Ark is a quality company trading near its 52-week lows. There may be upside if casino gambling is approved in northern New Jersey in November. For investors who like dividends, this may be a stock for your watchlist. Since this is a small cap stock, be sure to use limit orders as there are low trading volumes.
Disclosure: I don't own any ARKR.
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