Ark Restaurants' Q3 2025: Contradictions in Goodwill Impairment, Casino Licensing, Pricing, and Capital Allocation

Business Commentary:

• EBITDA and Financial Performance:
• Ark Restaurants reported an EBITDA of $9.6 million for the fiscal year, with significant financial impact from redoing Gallagher's.

• The redo cost about $1.6 million to $1.7 million in lost cash flow due to continued operating expenses despite closure, and post-reopening food and beverage costs were high.

• Impact of Goodwill Impairment:

• A goodwill impairment of $10 million was recorded due to a triggering event in the stock price and upcoming lease expirations.
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• The impairment was based on a discounted cash flow analysis, considering the potential loss of leases, not solely on Bryant Park's lease situation.

• Regional Performance Variations:

• Sales in Southern Florida's full-service restaurants experienced a 10% to 15% decline, while Alabama and Las Vegas markets performed well, and Hollywood saw improved sales with table games.

• The decline in Southern Florida was attributed to ongoing challenges with sales, while Alabama and Las Vegas benefited from strong performance and improved payroll efficiency.

• Strategic Positioning and Lease Situations:

• Ark Restaurants are in the final stages of the RFP process for Bryant Park, with a potential decision in early 2024.

• The company remains optimistic about securing a casino license in the Meadowlands but acknowledges the dependency on New York's downstate liquor licenses.

• Acquisition and Stock Strategy:

• Despite having around $14 million to $15 million in liquidity for acquisitions, the company has not initiated a buyback program due to the stock's thin trading volume.
• The company prefers to find reliable long-term cash flow acquisitions rather than supporting the stock price, maintaining focus on enhancing shareholder value through strategic investments.
  

  Sentiment Analysis:

  Overall Tone: Neutral

  • Management highlighted a 'strong' year-end balance sheet with 'about $13.5 million' cash and reduced debt to $7.2 million; disclosed a noncash '$10 million' goodwill impairment tied to a stock-price trigger but said it 'does not affect the operations of the company'; noted record sales in New York and Las Vegas while Southern Florida comps remain weak.

Q&A:

• Question from Jeffrey Kaminsky (JJK Consultants): What specifically triggered the $10M goodwill impairment — stock-price volatility or Bryant Park lease uncertainty — and if Bryant Park is retained, can the impairment be reversed?
  Response: The trigger was the stock price falling below book value, which forced a second-step DCF that factored in a weighted scenario of possibly losing Bryant Park; the $10M goodwill write-off is permanent under accounting rules and cannot be reinstated if circumstances improve.

• Question from Peter Jackson (Private Investor): Timing for the Bryant Park decision? Does incumbent status give you an advantage versus better‑funded bidders? How are you thinking about price increases vs. rising costs and acquisitions? Do you disclose Bryant Park revenues? Thoughts on Meadowlands and potential buyout by Hard Rock?
  Response: Bryant Park decision expected in spring; Ark is a finalist but has no special advantage and won’t disclose individual restaurant revenues; management prefers modest price increases (cited ~7% post‑pandemic), is prioritizing cash to pursue accretive acquisitions over buybacks, and sees Meadowlands upside but timing and counterparty roles (e.g., Hard Rock) remain uncertain.

Contradiction Point 1

Bryant Park Lease Expiration and Impact on Goodwill Impairment

It involves the impact of the Bryant Park lease expiration on the goodwill impairment, which significantly affects the company's financial reporting and valuation.

What triggered the goodwill impairment—stock price volatility or the Bryant Park lease expiration? - Jeffrey Kaminsky(JJK Consultants)

2023Q4: The first test is comparing the value of shares to book value. Stock was below that threshold at the end of the quarter. The second step is discounted cash flow analysis. Bryant Park's lease expiration was considered in this analysis, assuming potential loss of cash flows. - Anthony Sirica(CFO)

Can you provide an overview of restaurant performance and challenges? - Not Applicable

2025Q3: An additional $4.7 million impairment was recorded for Sequoia's leasehold improvements and right-of-use assets. - Anthony Sirica(CFO)

Contradiction Point 2

Casino License Possibilities for Meadowlands

It involves the company's expectations and strategy regarding the potential for securing a casino license in Meadowlands, which could have significant implications for the company's future growth and financial performance.

Can the company capitalize on the Meadowlands' potential upside without privatization? - Unknown Analyst(Private Investor)

2023Q4: Hard Rock is part of the bidding process for another casino, which could change their involvement with us. Our opinion is that the likelihood of getting a casino license is strong. We'd rather buy recurring cash flow than take the company private, but it's a decision for our Board of Directors. - Michael Weinstein(CEO)

What are the possibilities for a casino license at Meadowlands? - Not Applicable

2025Q3: New Jersey legislature is expected to allow gaming in the northern part of the state, possibly triggered by New York's announcement of downstate casino licenses. Ark Restaurants anticipates being in a strong position to secure a casino license in Meadowlands. - Michael Weinstein(CEO)

Contradiction Point 3

Price Increases Amidst Increased Costs

It involves the company's strategy regarding pricing in response to increased costs, which directly impacts revenue and customer perception.

How does the company view price increases amid rising costs? - Unknown Analyst(Private Investor)

2023Q4: We raised prices by 7% post-pandemic, and revenues are up 12%. We're sensitive to headcounts and price stability. We don't want to be known as too expensive. Our strategy is to maintain quality and fair prices, which has served us well historically. - Michael Weinstein(CEO)

What are the key highlights from the balance sheet? - Not Applicable

2025Q3: Obviously, there is a cost at the end of the day. We have a decision to make as to whether we raise prices or not, and we did not raise the prices. - Anthony Sirica(CFO)

Contradiction Point 4

Goodwill Impairment and Stock Buyback

It involves the company's handling of goodwill impairment and the consideration of stock buybacks, which are significant financial decisions impacting the company's financial health and investor relations.

Would you reconsider goodwill impairment if you retain the Bryant Park lease and the stock price recovers? - Jeffrey Kaminsky(JJK Consultants)

2023Q4: Once goodwill is written off, it's gone. It doesn't get put back on the books, even if the stock price bounces. The accounting standards don't allow it. - Anthony Sirica(CFO)

How do you plan to allocate capital over the next 6-12 months, including dividends, buybacks, and strategic acquisitions? - Ravi Desai(Private Investor)

2025Q1: We have cash ready for acquisitions. The stock is thin and hard to buy. We'd rather use cash for reliable cash flow acquisitions. - Michael Weinstein(CEO)

Contradiction Point 5

Capital Allocation Strategy

It involves the company's capital allocation strategy, particularly regarding dividends and acquisitions, which are crucial for investor expectations and financial planning.

How does the company view price increases amid rising costs? - Unknown Analyst(Private Investor)

2023Q4: We have cash ready for acquisitions. The stock is thin and hard to buy. We'd rather use cash for reliable cash flow acquisitions. - Michael Weinstein(CEO)

How do you plan to allocate capital over the next 6-12 months, including dividends, buybacks, and strategic acquisitions? - Ravi Desai(Private Investor)

2025Q1: Without Bryant Park's cash flow, the company would not be paying dividends. Similarly, buybacks would be limited. - Michael Weinstein(CEO)