Ark Restaurants Corp (ARKR) 2007 Q2 法說會逐字稿

At this time, I would like to welcome everyone to the Ark Restaurants' second-quarter results conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer period. (OPERATOR INSTRUCTIONS) Thank you. It is now my pleasure to turn the floor over to your host, Bob Towers, Executive Vice President and Chief Operating Officer. You may begin your conference.

Thank you, Jennifer. Good morning and thank you for joining us on our conference call for the second fiscal quarter and six months ended March 31, 2007. With me on the call today is Michael Weinstein, our Chairman, President, and Chief Executive Officer; Bob Stewart, our Chief Financial Officer; Michael Buck, our General Counsel and Secretary; and Vincent Pascal, our Senior Vice President.

For those of you who have not yet obtained a copy of our press release, it was issued over the newswire yesterday and is available on our website. To review the full text of that press release along with the associated financial tables, please go to our homepage, which is www.ArkRestaurants.com. That is Ark Restaurants, plural, dot-com.

Before we begin, however, I would like to read the Safe Harbor statement. I need to remind everyone that part of our discussion this morning will include forward-looking statements and that these statements are not guarantees of future performance and, therefore, undo reliance should not be placed on them. We refer all of you to our filings with the Securities and Exchange Commission for a more detailed discussion of the risks that may have a direct bearing on our operating results, performance, and financial condition.

Before we go to the question-and-answer period I would like to turn the call over to Michael Weinstein, our Chairman, who has some comments.

Hi, everybody. Good morning. We had a fairly decent quarter. I would like to sort of go over what is going on region by region in the Company in terms of sales, and then focus on other areas of our business and what we are experiencing.

In New York, sales remained fairly strong despite the fact that we had not have a good weather pattern in April. April was a cold month here. Usually when our outdoor cafe season starts around April 15, both in New York and Washington D.C., we do get some good days in April. This year, we did not have more than one or two. So our outdoor cafe seats, which number in the thousands, were not well utilized. But we're still up in sales, as we were in March.

The June quarter, so far, we still see good growth in comp sales in most of our restaurants in New York.

In Washington, the same situation. I think we spoke briefly last time about how Washington had been underperforming. We seem to be getting sales back. We changed menus. Management is more focused. We're doing a better job.

In New Jersey, where we do not have any outdoor cafes, but we operate in resorts, hotel, and casino, both Gallagher's and the Gallagher's Burger Bar are doing exceptionally well. I think we made reference to the fact that last year the March quarter was a startup for us in those two facilities; so sales were at a low level during the startup. They certainly accelerated dramatically in the March quarter. So far, in the June quarter, which is six weeks old, we are up 43% there.

In Las Vegas, where we have what we consider to be mature businesses, New York-New York, we did very well in the March quarter. Interesting to note in the June quarter are up 8% there. What we have remaining in Venetian does very well, especially at the V Bar, where we are seeing a resurgence in sales. For instance, in the six weeks of this June quarter, Venetian is up 24%, with V Bar up 45%.

So comp sales continue to be strong in those regions. In Hollywood and Tampa, Florida, where we operate fast food operations in the Seminole Indian Casinos in Tampa and Hollywood, sales continue very, very strong. In the March quarter, we were up significantly. So far in the June quarter, we are up 14%.

Our only problem area remains Foxwoods, where we are operating two fast food operations and a small restaurant in a hotel property just outside the reservation. We are not losing any money, but we're not making any money, and we have to do more work there to align our lease with the revenues that we are receiving. But we still expect that that will work out well for us. We have high hopes that we will be doing much more with Foxwoods and will achieve better economics.

Our biggest problem to date in the business in general is the escalation in cost of goods sold that we are experiencing the last two or three months. We are doing a good job in terms of our purchasing, and I think a good job in the restaurants. But just what we are facing is things cost more, and we are reluctant to raise prices, always, until we see that this is a permanent price increase.

We have seen dairy prices go crazy. Chicken is up 70% for certain chicken products. It has made our life somewhat difficult in trying to figure out how we maintain our margins. But fortunately our comp sales have been strong enough that we are still making progress on the bottom line. But this is something that may have to be addressed with price increases in the near future. Again, we are very reluctant to do that.

Other than that, I think we're running a good business. We have a lease signed for a Mexican operation in the Planet Hollywood Hotel, which opens in late September. We are very pleased with the way the hotel has been redesigned. Our facility is right at the front door, off of Las Vegas Boulevard. It will be a big bar operation as well as a high-end Mexican food operation. We have high hopes there. We have a very strong lease. Construction costs are reasonable in relation to what we suspect our revenues might be.

We are in the tail end of three other negotiations that will all be open in mid next year, 2008. So we think we have three very interesting new locations that will, by the way, not require very much capital from us.

So things continue to be very good here. We look forward to a very strong June quarter and September quarter, always with the fear that the weather will not cooperate. If we have any sort of weather pattern here which is amenable to the use of outdoor cafe seats we're going to have a terrific, terrific two quarters facing us.

Cash, by the way, in the bank right now is about $10 million. This is our season, so with very good cash flow cash is building rapidly. That is about it from here. Any questions, please go ahead.

(OPERATOR INSTRUCTIONS) [Michael Margolis] from A.G. Edwards.

Can you tell me, is there a seasonal pattern to your margin levels?

To our margins?

Right.

Yes, our margins are better in the June and in September quarters, because, you know, the revenue flow is much stronger because of the outdoor cafe season. Just because in the Northeast, people eat out more in those quarters. So we are always better, you know, the higher the revenues, the more utilization we have, and the more efficient we can be.

What about Q1 and Q2? Are they normally one way or the other compared to one another?

Margins are less in the March quarter than they are in any other quarter. In the December quarter, you have the benefit of tons of Christmas parties. Those parties are very easy for us to do, because we are getting big prices. And there is no waste because we know how many people we are delivering too. So any catered event, we do much better on margins than just normal business. So you know, the March quarter is the toughest quarter for margins.

You didn't mention anything about Boston. How is that doing?

Oh, I apologize. We took over Durgin Park on January 8. In the March quarter we lost some money, and that is to be expected. In April and May sales picked up. We made money in April. We are making a lot of money in May. We think that is going to be a very strong asset for us. It is a 25-year lease. You know, it is very predictable asset, so we are very happy with how that is performing.

Mike, you mentioned several things about some restaurants that are near signing and one that is opening now. Is there any way you can put some percentages on the various aging of your properties? I would imagine the large bulk of what you have would be in the mature area. It doesn't mean they can't grow.

But then you would have other restaurants that have been open a short time; one that is opening very soon; and then you have several that are in the near-signing stage. Can you attach any kind of scale to those different categories?

You can look up in our Qs or Ks the aging of our leases. But what is interesting about this business right now is a high percentage of our cash flow comes from leases that have long terms still on them. If you asked me every year about New York-New York, in Las Vegas, with all the competition coming in -- not only in the form of new hotels, but also in new restaurants in those new hotels, and new restaurants in Las Vegas in general that are on the street -- one would be quite surprised to be able to sit here today and say to you, hey, my business for the June quarter so far is up 8%.

Every year, we seem to be up 2, 3, 4, 5%. We keep working on those businesses. We tweak them. We make changes in menu. We make changes in price. But here is a property that is going on its 11th year, and we have been up every single year.

The same thing is true with Bryant Park. We have been there 11 years and every year the sales are larger. The revenue base keeps growing. Some of it is from price increases, but most of it is from headcounts.

So I can go through this, and I will tell you if we are running properties correctly -- and we think we have good leases fundamentally in all of these properties. If we're running them correctly, and because of where they are and the footprint they have, they should do more business.

If we run them badly, we have a situation like we had in Washington last year, where all of sudden sales dip and all the alarms go off. We recognize that we're doing a bad job and we correct it.

So I don't think your question is a bad question. I just think that the conventional wisdom -- that as these properties get older they sort of flatten out -- is not what should be happening here if we're doing a good job. And I think right now, we're doing a good job.

We're up in Hollywood and Tampa; we are in our third year entering our fourth year, and we have had double-digit growth every single year. Now that is certainly not only because we're doing a good job. The hotels are doing a great job of marketing. But we have to figure out technically how to deliver from those kitchens 14% more product every year. That is essentially what is going on. And how to make it attractive for people to have a fast food court that is outperforming all their other restaurants. It is because our product is great, our price points are right, and we give phenomenal service in those two locations.

So if we're doing it right, the age of the lease is immaterial to us.

I can see your point, and the record seems to just speak for itself. I was really trying to -- and thanks for emphasizing many of those things. I was also trying to get a feel, though, for how much business is represented by the recent additions. Namely, in New Jersey; also, Connecticut; the new Planet Hollywood, the new Mexican restaurant there; and then the three that you are adding or hopefully going to add. Do you think all that business two years from now could represent on a yearly basis 25, $30 million?

You know, I don't want to speculate on that, Michael. I think we are doing good, solid deals that make good use of our capital. You know, we are in the capital allocation business here. We're going to put capital into good venues where we have strong tenant leases.

We don't have to hit home runs to do well. Certainly, Atlantic City is a prime example of that, where we are going to cash flow a lot of money in a restaurant that is really not living up to our expectations in sales. I think it will eventually get there, and we are certainly doing well. But we got a spectacular return on investment because of the way the deal was structured.

So we are more concerned about the way deals are structured and how we can protect our capital than we are in putting numbers on, hey, it's going to do $10 million in sales and $7 million in sales. You know, obviously, we would like to do those numbers where we see them as a potential number.

But I am not in the business of trying to guess what sales are. I am in the business of trying to make good, solid investments that if we hit singles it is good for our shareholders. I don't want to have to hit home runs.

Okay. Well, thanks, Mike.

(OPERATOR INSTRUCTIONS) There appears to be no questions at this time. I will now turn the floor over to management for any finishing remarks.

All right. Well, we have got five guys in the room that are working very hard for you. I appreciate the fact that you are not asking a lot of questions, which hopefully means we have given you a good overview of what is going on here.

As always in my mind, but not always in my talks with you, we have great people in these restaurants that are doing terrific job. They have been with us a long, long time. It is always appropriate to recognize those efforts. They are just doing a great job for us.

Right now, we are in a pretty much a sweet spot for this Company, and we don't see anything going on that would change that at the moment. There are always black clouds that seemed to appear, and you never can tell when you are -- you can't always look around the corner. But as far as our viewing is, we are in for a good period here.

So thank you for being shareholders and look forward to speaking to you next conference call.

This concludes today's Ark Restaurants conference call. You may now disconnect.