Ark Restaurants Corp (ARKR) 2009 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Ark Restaurants second quarter 2009 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, May 11, 2009.

At this time, I'd like to turn the conference over to Mr. Bob Stewart, Chief Financial Officer. Please go ahead, sir.

Thank you, Operator. Good afternoon and thank you for joining us on our conference call for the second fiscal quarter and six months ended March 28, 2009. With me on the call today is Michael Weinstein, our Chairman and CEO; 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 earlier today and available on our website. To review the full text of that press release along with the associated financial tables, please go to our homepage at www.arkrestaurants.com.

Before we begin, however, I'd 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 that these statements are not guarantees of future performance, and therefore undue reliance should not be placed on them. We referral 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 Chairman and CEO.

Hi, everybody. I think the best thing to do in terms of giving an overall view to the conditions we're seeing is go through this region by region.

We continue to do extremely well in Florida where we're in the Hard Rock Casinos. And those casinos switched over from Class 2 gaming to Class 3 gaming last summer and our comp sales are still up significantly.

In Las Vegas, we are seeing less traffic but not as bad as the public relations problem for Vegas seems to be. But they'vere still filling rooms, although they'vere filling rooms at much reduced prices. Those rooms generally don't have many bars and people are still eating and our business is off, but it's not off severely. We are still nicely profitable. Our Yolos concept, which does not have any comparison because literally we opened it in January of the prior year and it was in the startup phase for a while, but we are doing extremely well at Yolos and Planet Hollywood and much better than we could have ever projected. At the Venetian, we're doing fairly well, but we are mostly contained to fast food and one bar and not full service restaurants and may not be getting as affected as full service restaurants are in Vegas.

In New York, obviously, I should say this about New York and Washington DC as well as Vegas to some degree where we have large catering facilities and meeting rooms. That business is significantly off. Corporate catering is suffering dramatically. Social catering is not so bad. Our general business in New York is probably off 10% and Washington DC is probably off a little less than 10%.

So not such a bad picture given what we were coming out of in December, January, and February. Those three months were just awful. December primarily because of the cancellations of a lot of corporate Christmas events, the news in January and February and the amount of publicity given to the economic plight of the country disheartened a lot of people that were not going out in March. We saw an uptick, and we're seeing in April somewhat of an improvement in our comp sales as opposed to what they were in January and February. But in the Northeast especially, we have been hit by just terrible weather. We have not used our outdoor cafe seats hardly at all. So that's a big part of our business when you get into late April and May, and it's hard to judge how businesses that have huge outdoor seating like Bryant Park, which has 700 outdoor seats, or in [Washington], 600 outdoor seats -- it's hard to judge how they would be comping if they were comping against same weather conditions.

All in all, not terrible. I think we're running the businesses fairly efficiently. We were nicely profitable in April. Again, not as profitable as last year. We're going to have a profitable year. EBITDA will be okay, but nowhere near what it was last year. Cash will build. We have got $10 million in the bank right now.

And I'll open to all of the questions.

Thank you, sir. (Operator Instructions). Our first question is from the line of Justin Sebastiano with Morgan Joseph.

Thanks, guys. The two non-recurring expenses booked on the income statement -- could you just let us know where we can find that, what line item that's in?

Yes, one would be in occupancy expenses and that would be for the -- there is a real estate tax issue. And the other one would be in other operating costs and expenses.

Okay, are they even? Is it around $260,000 each or so?

More or less.

Okay. And I know the number you give is cash and the short-term investments, but how much is just cash? How much of that is on the books?

Just the cash portion, not the short-term investments?

Correct.

It was about $1.7 million.

Okay, and you said that right now you've got about $10 million in the bank right now?

Roughly, with investments, and [investments] too.

Is that appreciation in your investments or is it just a cash build or where is that coming from?

Oh, that's cash build -- as cash builds we invest it depending on what we're using our cash for. So what will happen as our cash builds, the investments will grow.

Okay, so the $260,000 is -- it's just not your investments appreciating. It's the actual cash being driven by the business?

Right.

Okay. How much of the restaurant sales I guess in Las Vegas and EC, how much of those bills are being comped by the casinos?

A minor portion.

Okay.

Under 5%.

I mean I ask because if things are getting better but people are getting comped, who's to say that won't fall off when they stop getting comped. But you're saying it's a minor portion, only 5%. So this looks like real stability there in those markets. So that's good. And so are the customers -- do you see the ones where the customer counts have flattened out, are customers spending less at the restaurants? Is the average check coming down?

Yes, the average check is coming down.

About how much compared to last year maybe?

6% to 7%.

Okay, and --

The more expensive the restaurant, the more check average is coming down. We're not seeing anything, I mean our fast food costs are actually doing quite well.

Okay.

So we don't see anything there. There's just a general shifting down to lower cost menus.

Okay, that makes sense. And I know you guys are open to acquiring assets certainly at reasonable prices to get an adequate return. Have you seen potential sellers of said assets rein in their expectations for selling multiples or are they still somewhat irrationally high this point?

No. I think there are deals to be done. The problem is that there's no financing available to do those deals.

Okay, so it's not that people are asking for too much. You think just the credit environment -- it's cost prohibitive, the cost of debt at this point?

Exactly.

Okay.

But that's one of the things we misread when we were getting excited toward September, October, November of last year and saying we're going to be able to buy something significant at a bargain price. Well, there were instances where there were bargain prices around, but the deals couldn't get done.

Okay, so with that said, are you looking at possibly repoing more shares? Are you looking to possibly reinstate the dividend sooner? Or is that still your goal is to hopefully when the credit market gets more accommodating, you can go in and buy some of those assets?

Let me give you a vague answer because the first answer is we really don't have to do anything. We can just sit and wait and see how this develops without committing to a dividend or committing to a deal. The things that we're trying to do here, we have always stated and we mean it -- that the dividends suspension was a true suspension, with every intent to reinstate it. The timing of that depends upon economic circumstances and how we're doing within those economic circumstances. Right now, we have more than enough cash to carry out whatever business plans that we have. We're building a new restaurant in New York that opens in September. We are discussing building two new facilities in Las Vegas. We have enough cash for that on hand.

But the other things we're trying to do is -- with the idea that a dividend will be reinstated at some point is to make those dividends more reliable, which means to us extending the leases where most of our cash flow comes from, so if you take a look at those things that provide us with significant cash flow -- our Las Vegas locations, Bryan Park, and some others -- we are working with the landlords and trying to extend those leases significantly out into the future so that once we reinstate a dividend that people can look at it and say that this is not for seven years, this is for 15 to 20 years going forward based upon the leases they have, and try to build the business from there. So those are the things we're trying to do. But somewhere in the future, ill-defined what future means, this company will start to pay a dividend.

Okay, and you didn't repurchase any shares in the Q, right?

Not in this quarter.

Lastly, I appreciate you letting me kind of spout on here, but when do you plan on filing the Q?

Tomorrow.

Okay, thanks a lot guys.

You're very welcome.

Thank you. (Operator Instructions). Our next question is from the line of Mike [Margolis] with Wells Fargo. Please go ahead.

Mike, I had a few questions here, please. You mentioned $10 million roughly as being what you have in cash and cash equivalents and investments and in your release you referred to $7.4 million. Can you -- ?

I have to apologize. I'm giving you the number as of today as opposed to March 28th.

So it was actually that much of a difference?

Yes, well we start to build cash once we get into April, the middle of April, May, June. Business gets better, we're out of the throes of winter and nicer weather hopefully, although it hasn't been that nice. But there still has been improvement.

Okay, all right, thanks. On the subject of other deals, in previous calls you've mentioned a reluctance to go into debt, but you're saying that the poor credit environment has been a deterrent to any deals. Does that mean that you would be willing to--

We would do, we would throw debt on to what we're acquiring and put some equity into the deal, but we would not encumber the parent.

Oh, all right. Food prices, raw material prices, are they coming down?

They're coming down without a question. One of the problems we have is that our food costs will not come down as fast as commodity prices or raw materials will come down, because the nature of our business is that the -- where we make the biggest spreads in our sales are in corporate parties. So the cost of goods sold is lowest on corporate parties in our business. Since that business is under pressure, on the sales side, we're not seeing the advantages in lower cost of goods that you would normally see if our business was basically the same in terms of the bell curve or where the sales come from. So our cost of goods is coming down, but it doesn't reflect as much as it could if our corporate business was doing what it used to do.

Okay. The litigation expense that you mentioned, is that something that might be continuing?

It is continuing but we think we're at the end. And if we're not, then we'll have, then we go to trial and litigation expenses will be exacerbated some. But we have -- our feeling is that we have a strong position in what we're litigating, and if we don't get the settlement that meets the criteria that we've set out and that the Board has set out, we're going to go to trial. Right now, we're hopeful that the other sides will be amenable to seeking something that's fair and hopefully it will be settled.

Do you have details of that in the Q?

No.

It's not material enough.

So far it's a $260,000 to $270,000 item, probably going to $350,000 or something like that if it settles. And if it's not settled, it will be more substantial and at that time probably will make its way into the Q.

Am I right in saying that without those extra expenses and without the start up costs at Yolos, this quarter might have been close to a breakeven?

Yes.

Okay. Well, thanks very much.

You're welcome.

Thank you. Our next question comes from the line of Noah Agron with Gilford Securities Inc. Please go ahead.

Hi, gentlemen. Could you elaborate at all on these two new restaurant concepts that you have planned for the Fall?

Yes. Opening right around the end of August and September will be a restaurant at the Museum of Art and Design in Columbus Circle in New York. And in conjunction with that, there is a catering space that we also have exclusive use of. So we're the only restaurant in the Museum of Art and Design as well as the exclusive caterer into the exclusive Museum of Art and Design. So that's one facility.

Then, sometime in the fall, we hope to have a sit down burger restaurant at New York New York which will replace and expand on a fast food burger concept that we already run at New York New York. But it's really more than a replacement. It will do for us what I think is significant in raising the check average. It will have beer and liquor sales attached to it, where right now we only sell soda, and we think there's a huge opportunity in that. Some time after that, we will be opening up a significant bar/lounge banquet space at New York New York Hotel. So those are the immediate projects.

Then speaking for your more intermediate and long term vision, do you plan to pursue launch of products at all of the price points? Or do you see yourself growing more towards the fast food type demographic? Or are you going to continue in all directions?

We're opportunistic. One of the problems in trying to describe what we do to the satisfaction of our investors is that we really have no single area of this business other than the four star restaurants that we try to avoid. We're trying to solve problems for developers and sometimes those problems include a myriad of opportunities -- fast food, banquets, room service. We're making a deal with a developer who sees this as a solution. And hopefully that solution is holographic for them, meaning that any food needs they have they will try to do them with us. And those opportunities still are out there and we discuss them and we love fast food. We love fast food. It's easy to do. The margins are great when you get high volumes. But we also love doing something like Yolos, which is a Mexican lounge/bar where the returns are extraordinary.

So we look for opportunities where the leases are right, where our exposure is de minimis, and where we can really predict what it's going to cost us to get in there. Obviously, some of the things we've done in the past by making a big move to casinos, which benefited us for a long time -- with the current economy underway, that doesn't look as wonderful as it did 1.5 years ago, but we're confident -- our leases are wonderful leases. We're not getting hurt here because we pay capital attention to our leases and as a company we don't guarantee any lease. Each lease stands on its own. There is security deposits up in some of them, most of them not. We're trying not to lose money here and hold our capital as precious, and I keep saying that. Capital is precious. We're not going out to grow this company by signing stupid leases and being in bed with partners who don't know how to operate the facilities they got to operate.

Okay, thank you.

Thank you. Our next question is a follow-up from the line of Justin Sebastiano with Morgan Joseph.

Thanks. Just very quickly on those non-recurring expenses, do we just throw them -- you could just take them out of those two lines and use the same tax effects to drive down to -- I'm getting a loss of $0.11. So does that sound right -- like a $0.09 loss based on those two charges?

I would think somewhere along that range, yes. You can just pull them right out of those.

And so just use the same tax effect?

Yes.

And so I assume you work with MGM clearly when you're doing New York New York. I mean, is there any talks with possibly getting into some of their other -- maybe the lower price point hotels like an Excalibur or Luxor? Are you going down that route? I mean you say you love fast food. That seems like the clear way to go if you want to capitalize on that sort of customer that's in Vegas.

If there are opportunities available and there are some in New York New York right now as they change the strategy, we have a strong working relationship with the President of New York New York and with MGM whereby they are showing us those opportunities. If you said to me, do I want to be in City Center at the rent prices they were asking, the answer is no. I mean, I might have a great relationship with them but the rent deals did not make sense to us. So we passed on those early on. And one of the problems with passing on them early on when you get the first call, you're seeing the highest rents and you hope that maybe they will call back when they've seen the light and understand that the rents don't reflect the risks in the transaction. But we haven't gotten called yet. And these are very well meaning, smart managements, and their first obligation is to the current tenants they have and I think they try to keep them in most cases, especially with fast food. And most of those fast food guys are branded -- we're not. So we don't see the opportunities in fast food the other hotels.

Okay, all right thanks guys.

Thank you. Gentlemen, at this time we have no further questions in the queue. Please continue.

So that's it. We'll see you in three months and I think business is getting slightly better and if the weather would break in New York and people could sit outside, I'm sure we'll have wonderful results to share with you. Thank you.

Thank you, sir. Ladies and gentlemen, this does conclude the Ark Restaurants second quarter 2009 results conference call. Thank you very much for your participation. You may now disconnect.