Ark Restaurants Corp (ARKR) 2007 Q4 法說會逐字稿

Good morning, ladies and gentlemen and thank you for standing by. Welcome to Ark Restaurants fourth-quarter and year-end financial results conference call. During today's presentation, all parties will be in a listen-only mode. (OPERATOR INSTRUCTIONS). This conference is being recorded today, Wednesday, December 19, 2007. I would now like to turn the conference to Bob Towers, President and Chief Operating Officer of Ark. Please go ahead, sir.

Thank you, Eric. Good afternoon and thank you for joining us on our conference call for the fourth fiscal quarter and year ended September 29, 2007.

With me on the call today is Michael Weinstein, our Chairman and Chief Executive Officer; Vincent Pascal, our Senior Vice President and Director; Bob Stewart, our Chief Financial Officer; and Michael Buck, our General Counsel. Everyone of us is available to answer any questions although Michael Weinstein will be talking right after this dialogue.

For those of you who have not yet obtained a copy of our press release, it was issued over the newswire yesterday and it's available on our website. Our website is ArkRestaurants.com, ArkRestaurants.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 afternoon will include forward-looking statements and these statements are not guarantees of future performance and, therefore, undue 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. I will now turn the call over to Michael Weinstein, who will answer any questions. Of course, as I said, we are all available, but Michael has something to say.

I would like to try to explain what is going to happen here next year because we have an unusual quarter, the December quarter. And not give you a forecast for the year, but tell you we think it will be an up year in terms of EBITDA and sales, give you the reasons we think it's an up year. But primarily, within that context, discuss the December quarter.

Last year, we had a very good December. We are running ahead right now on sales, comp sales, about 5% in the Company. It breaks down, New York is up 9%; Washington is up 5%; New Jersey, which is Gallagher's and the Gallagher's Burger Bar, is up 12%. Vegas is up 2%; and Company-wide, we are up 5%. We are also -- our Florida totals are up slightly from last year. And last year was a really strong quarter in Florida. So that's all good, but we have some unusual things going on in this December quarter that I would like to make you aware of.

Number one, last year, the Company did not give any cash bonuses to its executives. The Board of Directors determines this, and obviously, the this year being a record year, they were gracious and there are cash bonuses, which are considerable. So they will be in this December quarter where there were none last year.

We also have pre opening expenses at [Yolo's], which is a new restaurant opening hopefully next week at the Planet Hollywood Hotel in Las Vegas. We are very optimistic about this. It's probably the best single location of any of our Vegas locations. So but in the meantime, we do have 120,000 $130,000 of pre opening expenses so far this quarter.

We also have a situation with the banquet rooms at New York, New York Hotel & Casino. We had about 10,000 square feet of banquet spaces that were very active last year. And this year, up until recently, those banquet rooms were closed by the hotel for renovation and expansion. We now are in possession of 20,000 square feet of banquet space, which we think gives us, certainly, increased capacity. But the problem in this quarter is that because the hotel could not give a delivery date as to when they would finish those banquet rooms, this was not our construction -- hotel's construction. And because New York, New York basically books those rooms in conjunction with hotel rooms that they sell.

They were not active in the sales of those banquet rooms well into the quarter. So we are finally starting to see a trickling of business as the sales staff gets up to speed. We think for the year this will be a huge plus for us. But in the December quarter, it's going to compare badly with last December's quarter.

And thirdly, or fourth, I guess, we are seeing food cost increases across the board. It's hard for us to project what the differential will be in this December quarter because we are actually in our biggest week right now in terms of Christmas parties. And when we're doing these parties, our cost of goods is well below the average cost of goods during any period. But the feeling is that we're going to come in at least a few tenths of a point higher than last year. So all of these are things which make comparisons December to December difficult for us.

But I would tell you from what we're looking at so far, if we are down in the December quarter, it will be not by a lot and depending upon how the rest of the month works out, we might not be down at all. So given that, we have very strong comp sales going on here and we're being efficient. So I just wanted to talk about that for a minute.

And now, in terms of the forecast for the year, it's not a forecast, but I can tell you what things we think are going to benefit us in this year. Number one is the addition of Yolo's at Planet Hollywood. Again, this is a great location. We think we're going to get a great return on investment. Adding the new banquet rooms at New York, New York, as I said, this doubles the capacity and puts us in a position to do a lot more business. There are no pre opening costs related to this. We already have a sales staff in place, and we are in a position to deliver to those rooms right now as sales come through.

We've also acquired the right -- this did not cost us money -- to book a banquet venue in New York City. This is the first time we've ever been exclusive on a banquet facility in New York City and it's a place in which we've been doing business for the last year and a half, but we think our exclusivity in that adds dramatically to our ability to profit in that venue.

On the expense side, we have closed the Columbus Bakery. The Columbus Bakery served us well for many years as being the wholesaler to our own restaurants. But as our New York restaurants have -- a number of them has decreased, it no longer became a viable alternative to buying baked goods on the outside, baked goods, primarily bread. So we closed that. Last year, the Columbus Bakery lost a few hundred thousand dollars and we won't have that loss this year. And there were onetime charges last year of $350,000, $400,000 related to an acquisition we tried to make, which was not -- we were not the successful bidder. So we are eliminating some expenses in that. So we think we will do pretty good on that score.

In addition to which, we had Durgin Park for the last nine months. We were not efficient. We bought a restaurant that was highly inefficient, and it's been taking us a while to sort through what we knew was there in terms of expenses that we could eliminate in some cases and (technical difficulty) in other cases. And we are now going to have a full year of Durgin Park and we think we will do very, very well this year. All our expenses are -- our ratios are coming into line and that's sort of on full throttle right now.

In May, we will open a fast food court at the new MGM Grand Hotel in Foxwoods. So while that will not contribute to the whole year, it will contribute to a partial year. So those are the reasons we think we will have a very solid year this year. I will now open it up for questions.

(OPERATOR INSTRUCTIONS). Dean Haskell, Morgan Joseph.

Good afternoon, gentlemen. Congratulations on a great quarter. And my question is, you mentioned the expenses for a possible acquisition last year. Are you still looking for acquisitions?

It's -- first of all, as a background, we don't want to be in businesses where we don't have corporate overhead. So the acquisition we were looking at last year, which was Smith & Wollensky, was one in which they lined up pretty well with our -- where our corporate overhead was and the size of the units were big enough in terms of sales that we didn't have corporate overhead. It warranted our attention anyway. So we're not just going to look at something that has 200 restaurants across the country or 26 restaurants in 26 different places. So we are limited in terms of what our rules are. So I think it's unlikely that you will see us do anything very quickly.

Okay, but it's still an ancillary strategy to building new stores. Talk to us about the Washington National project, please.

Pardon?

Refresh our -- bring us up to date on the Washington National project, the Harbor project.

We have canceled our negotiations with that. We were -- the landlord was backing down on certain promises that they made to us. There were redefining certain terms and we just felt that that was inappropriate on their part and we're not going to negotiate with people who don't keep their word.

Okay. And development for later '08 or early '09, how is that progressing?

We have some very interesting conversations going on. There are always interesting conversations. But again, we are in the mood to preserve capital and strengthen our balance sheet and we're not aggressive, and we have very strict terms under which we will do business and -- in terms of the lease form that we will accept from a landlord. And there are no corporate guarantees here, and so we're very picky, but we have interesting conversations going on.

Okay. Well then as the cash builds on the balance sheet, will you increase your long-term dividend rate?

We just did, as you know. We have always said we're a cash-flow company and when we have excess cash and we don't think it's necessary in the business, we will dividend it out. We paid a $3.00 special dividend to shareholders last year.

Right now, I would tell you that we have to amend our prior position a little bit by the state of the economy and the comfort level we have in having a stronger balance sheet because we think more opportunities are coming under present economic conditions, (technical difficulty) were in the past. And so while we are amenable to paying special dividends and increasing our long-term dividend, we will just wait and see how the economy progresses.

Excellent. I agree with you. I think you will have some opportunities here in the future as we struggle our way through the '08 economy.

Mike [Margolis], A.G. Edwards.

Terrific quarter, Mike. Thanks. Can you clarify what you said about the banquet facility in New York? I didn't understand that.

We're talking about two banquet facilities. One is at New York, New York Hotel in Las Vegas, and that's a 10,000 square foot facility that they closed in late summer to expand it and refurbish it. So it went from 10,000 feet to 20,000 feet. But during that time, the hotel was not booking the rooms because they did not know when that would be complete. There were some extenuating circumstances that they had to deal with.

But the rooms are now complete and we think it benefits us for the 12-month period, but it does not benefit us in the December quarter. It's a negative compared to last year because we had no facilities for most of the quarter where last year they were available, the 10,000 feet was available. Then we have a banquet facility in New York City that we just started to manage on an exclusive basis, that was very active last year, but we were one of several companies that were catering into it. But now we're going to be the primary caterer into it and sole sales force allowed to book it. So we think that that will increase, by many fold, the operating profits we took out of that facility last year.

Great. Okay, thank you.

Blaine Marder, Loeb Partners.

You were very successful in fiscal '07 in terms of your same-store sales pretty much in and out every quarter. And with a potential weakening in the economy and facing hard comparisons, what sort of same-store sales are you budgeting to in terms of your expenses in 2008?

You really can't budget sales in our kind of business. There are too many influences that occur and maybe we feel a little prehistoric here, but we don't budget sales.

So I would give you the following opinion about that. Number one, the big pressure on this business and every business like it next year is going to be cost pushing on the food and beverage side. And the question becomes, given the strong comp sales we've had, what can we expect and whether those comp sales will cover the increased cost and let us move forward on EBITDA and operating profits.

And that begs a couple of questions. Number one, what everybody thinks of our locations. We think we have primary locations everywhere right now. And quite frankly, we don't see ourselves as an ordinary restaurant company that's spread out in many cities.

We have made a strong attempt over the years to improve our locations and get into what we consider landmark positions with these locations. I think they're less vulnerable than most other restaurants that don't have these same positions. We are in train stations. We are in casinos. We are in public parks. If you go down all of these locations, I think they are all A locations -- or any of them that are meaningful in terms of sales productivity.

The second thing is what do you do about prices? And we made, for the moment, a decision that we're not raising prices or the perception of raising prices. We have done things around the edges, where we didn't charge for refills of iced tea. We're now charging for the first refill and not for the third, fourth, fifth, sixth, et cetera. There are spots where we could see -- and by the way, that iced tea decision is probably $50,000 in incremental revenue.

So you try to find little spots where you can make up some of this, but if cost of goods sold increases 1.5 on $130 million business, that's a lot of dollars. And hopefully, you can keep running at 5% comps, which will cover that plus a little bit. And that's the position we're taking. We think our locations and the efficiency with which we bring product to the customer and the services that we offer, will keep these comp sales moving forward.

Fair enough. And then, I just noticed -- and maybe this is not correct -- the change in tone when you're talking about being conservative with the cash; you're unlikely to do anything quickly on the acquisition front. Obviously, you guys have your hands in a lot of things all the time. So why the change in tone? You really think that some of these properties you looked at in the past maybe will come back on the market at a much more favorable price?

The answer is yes. I think -- I don't know what you mean like things will be retraded down lower. I'm not looking for that. I just think that there are -- there is a scare factor, and if the economy weakens, where some very good operators will say, hey, let's sell this thing before values deteriorate further. And we just feel comfortable that a strong balance sheet with a strong cash position is going to advantage us dramatically. So I'm not saying there's going to be a bargain basement value there, but certainly more reasonable values than have been there in the last few years.

It's not really a change of tone -- a dramatic change in tone. I think the change in tone is will we be as aggressive when it comes June or September of next year when we have $20 some-odd million to cash in the Company, to pay out a special dividend or will we just increase quarterly dividend if this all comes to pass and say hey, let's increase the quarterly dividend and keep this cash, for which I know it sounds stupid, but for which is -- for us it's a (expletive) -- to take advantage of the situation. So that's the only change in tone.

Fair enough. Thanks, guys.

(OPERATOR INSTRUCTIONS). Gentlemen, at this time, I'm showing no additional questions in the queue. Please continue with your presentation.

There is no continuation! Thank you very much for being good shareholders that you are. Happy holidays to all of you. It's a pleasure to be able to deliver good numbers, especially this time of year. So everybody have a good new year and we will speak to you after the first quarter.

Ladies and gentlemen, this does conclude Ark Restaurants' fourth-quarter and year-end financial results conference call. You may now disconnect and we thank you for using ACT Conferencing.