Ark Restaurants Corp (ARKR) 2008 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Ark Restaurants third-quarter 2008 financial results conference call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. (Operator Instructions).

This conference is being recorded today, Monday, August 11, 2008. I would now like to turn the conference over to Bob Towers, President of Ark Restaurants. Go ahead, sir.

Good morning and thank you for joining us on our conference call for the third fiscal quarter and nine months ended June 28, 2008. With me today on the call are Michael Weinstein, our Chief Executive Officer; Vincent Pascal, our Senior Vice President and Director; and Michael Buck, our General Counsel.

For those of you who have not yet obtained a copy of our press release, it was issued over the newswire on Friday after the close of business and is available on our website. To view it, you can just go to www.arkrestaurants.com. That is Ark restaurants, plural, .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, undue reliance should not be placed upon 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, our Chief Executive Officer, who has some comments.

Hi, everybody. This was a fairly good quarter, especially given conditions. The two things we are constantly fighting here are obviously food costs and comp sales. The comp sales were basically flat for the quarter.

We have some challenges right now that are in specific venues. We are doing well in New York, which probably helped a little bit by tourism, and I am going to give you updated comps in a few seconds. We are doing fairly well in Washington DC. We are doing badly in New Jersey. We're -- in the resort casinos there and Atlantic City is doing badly, both because of competition from Pennsylvania slots; as well as gas prices, I would imagine, is affecting Atlantic City.

We are actually doing pretty well in two of our venues in Connecticut at Foxwoods Casino. And we are slower than we would like to be at the new MGM Grand in Connecticut at the Foxwoods Casino, but we are profitable there. We opened that about five or six weeks ago and those numbers -- in my opinion, the product is good in terms of the whole casino, and we have the exclusive on fast food there. So I think we are doing decent, given -- in fact, that's a destination place also affected greatly by gas prices.

In Las Vegas, we are doing well, despite all you hear about Las Vegas, and we are doing particularly well because our largest venue in the company is that New York, New York Hotel and Casino. And that casino floor is under renovation. And when I say renovation, you know, there are days when you can't even see our fast food because there are these black curtains dividing it from the casino floor. There is jackhammering going on. And what has really occurred is for the last few months and until the end of September, we are going to be basically in a construction site. So I think we are doing very well there.

Our numbers in Venetian are strong. Just to give you an idea, for the four weeks just ended in July, we are up pretty much -- you know -- let's see -- we are up 2%. We are flat in Las Vegas. New York, we are up 60%. Atlantic City, we are down 20%. Washington DC, we are up a point. Connecticut is hard to compare because of the MGM is the new facility. Boston, we are up 4%. So we are up 2%. In Florida, we are up about 3.5%, 4% for the last four weeks.

So our comp sales, while challenged, have held up pretty well. We have said in the past that we have raised prices selectively on some of these menus where we have good demand. We are not raising prices and (inaudible) -- and the price increases we are getting are something on the order of 1.5%, 2%. We are not in the process right now of raising any more prices. We are trying to hold our customers, and we just would rather take that approach than try to keep up with the increased food costs.

That is the real challenge. I think our managers and chefs and buying departments in all venues are doing a good job. The bump in costs for the year so far is about 0.5% -- and for the quarter as well.

So all in all, I think it is pretty good. We are controlling operating costs and expenses very well. G&A expenses, we are controlling pretty well. You know, the Company is on sound footing. I would tell you that in my opinion, given the inventory that we have right now, the operations we are running, I think we are probably in the best shape we have ever been in terms of where these restaurants are.

A lot of them are in mature facilities. They are running well. Our newer facilities are on good track. Boston, over the last year, we made significant, significant improvements in the cost structure there. It was a restaurant we bought a little over a year ago, and, you know, so far for the fourth quarter, we are up 7% there.

So all in all, very happy with the way the restaurants are running. We have a good cash position. I think as of a couple of days ago -- I didn't look at it this morning -- but as of Friday, it is around $13.5 million, $14 million. We think it is important to keep that money on our balance sheet right now. This marketplace is difficult for a lot of restaurants. We think there will be some wonderful opportunities [as at the past]. We've been negotiating on a couple of deals that did not come to fruition. But having cash on your balance sheet at this time in the history of the world seems to be a big plus.

So we will continue to pay the present dividend. We have no inclination in the next couple of quarters of raising it, despite our strong cash position. And that is where we are. I am happy to take questions.

(Operator Instructions). Blaine Marder, Loeb Partners.

Hi, guys. Remind me what the discontinued operation was this year that lost money versus made profits last year.

Well, it did lose money. What happened is we lost our lease at Stage Deli at the end of June; the Stage Deli being in Caesar's, at the Forum Shops in Las Vegas. There was a technicality. I don't like this whole discontinued operations thing. It gets very confusing at some point.

But because we were offered a new lease and we refused it, as opposed to if we were not offered the new lease, that operation would have just gone away and it wouldn't have appeared in discontinued operations. But because we were offered a new lease and refused it -- and we refused it because the rent went from $60 a foot to $250 a foot a foot -- the accountants require that, in strict observance of accounting rules, that that go into discontinued operations.

So we pulled out of continuing operations last year the earnings from the Stage, the sales and earnings from the Stage, and from this year also. This year, the last six months, we had a rent that was substantially higher while we waited to see if -- the lease was originally supposed to end December 31, 2007. The landlord made an accommodation where we paid a much higher rent than we were paying in 2007 the first six months of this year while we were seeking to negotiate a new lease with them, which obviously we could not do. So essentially, we lost that operation. It was pulled out and discontinued.

The good news is that Yolos, which we established at Planet Hollywood -- you know, you want to do a trade-off here -- I'm not so sure that's the right way to look at it. But Yolos is going at an earned operating profit right now greater than that of the Stage. So fortunately, we picked up -- not in this quarter so much, because in we first turned profitable in the early part of May -- but in June and July, we have been running very, very strong numbers at Yolos, and it seems to be building further. We think we are about three quarters of the way there on the sales side. So that has become a very significant earn for us.

Okay. All right, good. And then as you start to budget and look at fiscal '09 now, what are you thinking in terms of growth? I mean, can you grow or what are you looking at in terms of new development or prospects for next year?

Well, we just signed a new lease -- first of all, we have MGM Grand, which, you know, as I said, went on about five weeks ago, and we are profitable. Now we own that with investors and we get a management fee as well as a share of the cash flow. So we think that we are going to do okay there.

I don't know when they get their marketing in-line. They have admitted to us that -- they just fired their advertising agency and they fired all of their marketing people up there. And they feel that they just had not done a good job.

We see a little bit of improvement the last couple of weeks. It is amazing to me how that facility has opened, and it is largely -- it is unknown that it is there. People know Foxwoods is there, but they don't know the MGM Grand is there yet. And despite that, we are doing okay. So we think that is a growth vehicle for us in terms of operating profit.

We have signed a lease; it is signed and completed, and we are in the design phase for a restaurant at the new Museum of Art and Design, which is at Columbus Circle in Manhattan. I would tell you that we think what we have designed in terms of the lease is -- we are very optimistic about it. It is not only a restaurant; it is also all the exclusive rights to the catering into the facility.

And that probably is the hottest new cultural venue in New York, and it opens -- the museum opens in September. Our restaurant will not open until next March of 2009. But the catering starts immediately, and we have so many events lined up there already, without even trying to market it. I mean, our sales force is just starting to take people there and we are swamped with requests. So I think that could be very good for us.

Other than that, we are looking at a few things, but we are -- we are in the capital preservation business here. We are in the let's try not to make any mistakes business here. And we don't have our tongue hanging out for anything. We have a formal lease that we think gives us a great deal of safety on the downside if things don't work out.

But, you know, I think things will come our way. This is a time where I think we should be very, very cautious. I don't know where the world is going yet. And we just want to build cash on the balance sheet and we don't want to make any mistakes. So we are not in a growth spurt mode. If something comes our way that is a fat softball coming across the plate, we will take a swing at it; but nothing else.

Have you bought any stock under your share repurchase authorization?

You know, we have bought an insignificant amount. The rules for buying stock, you know, are very, very difficult. You can't buy it in the first half hour; you can't buy it in the second half hour. If -- the last half hour, if you want it -- you know, our shares don't trade enough. So we are limited to 25% of the 30-day average of -- it doesn't allow us to buy much stock. And we were trying to find a block; we were unsuccessful. Although a couple of blocks traded, we were not able to find anything significant.

Okay. I don't know what is more attractive than your own stock as far as what you're looking at in terms of assets. You seem to feel that things will come your way. I mean, is that the case, or are you just sort of waiting?

No. We are talking; we are having conversations and we think something will happen here that will be good for shareholders. The question is, always, if you buy back your own stock, is it creating value for shareholders? Without a question, it is creating value.

Is there more value in finding something that gives you a fairly good flow of income for 10, 15 years -- as opposed to buying stock, buying somebody else's operation where the cash flow is significant and recurring and reliable. That is what we are looking for. If we can't find it, we will buy more stock.

And by the way, one doesn't preclude the other. If the shares are attractive in terms of where we think they are attractive, we will buy more stock if it comes in.

And Blaine, this is Bob. Hi. We are meeting with more developers and more casino operators than we have ever met with before. So as Michael said, the deal has got to be correct before -- for us to move on.

Okay. But are these deals that would require capital?

Not necessarily.

Okay. So I mean, you are sort of hoarding of cash almost borders on imprudent. I mean, nobody is asking you to leverage the Company. But, you know, if I can pay -- if I can pay $70 million for an enterprise that throws off between $7 million to 10 million of free cash flow a year, I don't see that as imprudent.

I don't think we would pay $70 million for $7 million in cash. I think we would pay $30 million.

For another vehicle, another kind of -- set of assets?

Yes. Look, they are out there. People are in trouble.

No, I am talking about your own stock.

Oh, our own stock?

Your own debt-free enterprise that throws off $7 million to $10 million of free cash flow a year.

Right.

That I can buy right here for $70 million.

I understand that. It is cheap.

Okay.

I am not saying to you we are not in the market looking for stock. What I am saying to you is -- and I am not saying to you trying to buy stock is mutually exclusive to trying to find something else -- another asset that throws off cash. You have to weigh one against the other.

Okay, guys. Thanks.

[Michael Margulies.]

Thank you. My questions have already been answered.

(Operator Instructions). Paul Taylor, Taylor Business Services.

Hi, folks. I apologize for this; this is just an editorial comment. You all did a great job in the quarter, and based on my years of following the Company, the Company knows exactly what to do with its capital. The dividend is certainly proof of that. And if you choose to buy stock, that is great. If you choose to wait, that makes me happy too. That is all I have to say.

Thank you.

(Operator Instructions). We have no more audio questions at this time. I would like to turn the conference back over to management for any closing statements.

All right. Thank you all very much. We will see you next quarter.

Ladies and gentlemen, this concludes the Ark Restaurants third-quarter 2008 financial results conference call. Thank you for your participation and you may now disconnect.