Friday saw Motley Fool Hidden Gems Tiny Gem stock Ark Restaurants (NASDAQ:ARKR) serve up some less than appetizing numbers for its fiscal third quarter. Ark posted essentially flat sales in Q3 2005 but a 5% decline in profitability. Still, the year-to-date results don't look half bad. Although the company has grown sales only 2.5%, its profits over the past nine months are already 24% greater than were reported in the year-ago period.

The company made a point of highlighting the differences between its Las Vegas operations, where same-store sales declined 7.2% over the year-ago quarter, and its East Coast restaurants. Despite some "poor weather conditions" (often an excuse for underperformance) that Ark had expected to hurt sales at the company's outdoor cafe seating, the company's New York City and Washington, D.C., operations still managed to post mid-single-digit increases in same-store sales over Q3 2004. This was quite a reversal of past trends. Up until this quarter, Ark's Las Vegas operations had been the powerhouse driving the company's profits, as illustrated by the fact that over the past nine months, Las Vegas revenues made up 58% of the company's total sales. In Q3, that proportion dropped to just 49%.

That unwelcome news helped to send Ark shares down by as much as 5% in early Monday trading. But this Fool suspects that the sell-off may have been premature. According to Yahoo! Finance, Ark's two primary competitors are both owned by British restauranteur Compass Group (OTC BB: CMPGF), which also operates several New York franchises of embattled doughnut king Krispy Kreme (NYSE:KKD). As a foreign-listed company, Compass' margins aren't easy to come by. And neither are the margins of its subsidiaries -- Ark's competitors. What we do know, though, is that however well or badly Ark may stack up against its primary competitors, within the restaurant industry as a whole, this company is a Tiny Gem.

Whether it's gross, operating, or net margins that float your boat, Ark has built up some impressive numbers over the past 12 months. For example, the company's 29.8% gross margin is a full 380 basis points better than the industry average; it keeps most of that lead with an 8.4% operating margin (250 basis points better than the average); and on the bottom line, Ark sports a 6.8% net margin -- more than twice the industry's 3.1% average.

Despite all that, Ark still has a P/E of just 13, when 24 is the more usual number found in this industry. Which means that, despite the bad quarter just reported, Ark remains a deal of a meal (stock).

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Fool contributor Rich Smith owns no shares in any of the companies mentioned in this article.