Ark Restaurants Corp (ARKR) 2009 Q3 法說會逐字稿

Good morning, ladies and gentlemen. Thank you so much for standing by. Welcome to the Ark Restaurants third-quarter 2009 results conference call. (Operator Instructions). As a reminder, the conference is being recorded today on Monday, 10th of August, 2009. I would now like to turn the conference over to Mr. Bob Towers, President and COO. Please go ahead, sir.

Thank you, Michael. Good morning and thank you for joining us on our conference call for the third fiscal quarter and nine months ended June 27, 2009. With me today on the call is Michael Weinstein, our Chairman and Chief Executive Officer; Bob Stewart, our Chief Financial Officer; Michael Buck, our General Counsel; and Vincent Pascal, our Senior Vice President of Operations and Director.

For those of you who have not yet obtained a copy of our press release, it was issued over the newswire on Friday and is available on our website. Our website is www.arkrestaurants.com. That is 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 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 would now like to turn the call over to Mike Weinstein, our Chairman.

Hi everybody. I think the best way to proceed with an explanation of what is going on in this past quarter and what we see in the future is to first explain our overall philosophy, how we are running this business briefly and then in more detail go over the various venues where we have business operations.

First of all, we have not -- despite the economic situation, we have not really dug into our payrolls all that much. We've obviously cut overtime, and we have cut hourly employees where they were not needed. But in terms of core management at the restaurants and at the corporate office, we have not touched that. The philosophy here is that this, too, will pass, and we have good teams that we really don't want to disturb.

So the results sort of reflect differently than what happened at 9/11 where we did not know what was going on and businesses were down 50% and we cut deeply at that point because we had a lot of debt. We had big interest payments to make at that time, and we were protecting the life line of the business. In this case we came into this period with a lot of cash, no debt, and we felt we had the luxury as long as we were profitable of keeping good people who have been with us a long time. So we have not dug into payroll the way some people might expect we would or should. We did not find that to be the case here.

The second thing is we continue to be very conservative. We are looking at new businesses. We think we have an opportunity. We have not acquired anything yet. We don't think things are cheap enough, or where they have been cheap enough, we haven't been able to make a deal. But we have signed some new leases. We have extended some leases that are good cash flow properties, and we are expanding our businesses in Vegas and more.

In terms of the results this year, two things have affected the year. One of them obviously is the economy. The second thing in the quarter that just ended is weather. We have had awful weather in the Northeast, and our outdoor cafe seats, which are numerous, have been greatly affected.

For instance, at the Bryant Park Cafe, last year in the June quarter we were closed four days because of weather. This year we were closed 16, meaning we never opened the cafes. But the number of times we were open and had to close because of weather factors was enormous, and that has affected us in the Washington, New York and Boston markets dramatically.

My guess is that if we did not have or if we had similar weather, our business would be down somewhere around 6% to 8%. Instead it has been down in New York, Washington and Boston greater than that as a percentage, a comparative percentage because of weather. So we have just been unlucky with weather.

The rest of the venues, the gaming venues -- Connecticut, Las Vegas, Atlantic City -- have all been affected by traffic counts. The last number I heard for the June quarter in the Venetian Grand Canal Shoppes in Fashion Mall and in the forum shops, headcount is down some 37% from last year. Vegas is suffering from a lack of headcounts and lesser spend, and that is also true in Atlantic City and then Foxwoods.

We are experiencing that, and that has hurt our numbers. The best news we have for you is our Hollywood properties, which are still doing great because we are still experiencing the change from Class II to Class III gaming, and our numbers are still up on a comparative basis there.

All-in-all I would tell you that I think the worst is probably behind us. We get the feeling if the weather is good in the Northeast, we are doing numbers close to what we would have done last year. Las Vegas, the people we speak to there who we think are smart tell us that they think the worst is over. We see an inching up in our businesses there, and overall of all of the operations we run, we are cash flow positive right now in every single one of them.

So we don't have anything that is draining us. Our cash position remains very strong. We are excited about the fact that we are able to renegotiate some of our leases for longer terms, and we think very highly of our business and the way it is being run. So we have a very strong business here, and we are very optimistic.

I think now we should open it up for questions.

(Operator Instructions). Justin Sebastiano, Morgan Joseph.

On the acquisition strategy, I mean I know you guys are always looking, have the sellers reined in their expectations as far as the multiples they are looking for?

Everybody has reined in their expectations. It is just hard to make a deal because if you are looking at one or two offs, your problem is not so much the guy that wants to sell. It is the landlord that does not want to reduce the rents. So all of those deals have to be three-way deals.

We see plenty of spaces. Landlords are not -- the rents no longer -- still do not reflect an economy which is not performing. So commercial rents have not come down enough.

If you are looking at a bigger deal, the real problem is we have a great balance sheet but go try to find reasonable financing. It is too expensive. So it is not quite there yet. It is close, but it is not quite there. So acquisitions are still problematic for us. I mean we are very conservative.

Okay. And are you still talking with the casino operators as far as possibly bringing in new concepts in some of the areas?

This conversation is going on now. New York, New York wants us to do some more stuff. We have a meeting out there today -- I'm obviously not there -- making a presentation on something that I'm sure will get done. Planet Hollywood has called us on doing some more stuff. Yes, there is stuff that we are doing. We're going to continue to expand the business, but it has got to be on reasonable terms.

Sure. Would you be looking to displace a non-arc restaurant, or would you be doing something with some of the concepts that you have there now?

No, we are looking at -- in one instance we are looking to displace something that we are already running but making it bigger and more upscale. In another sense there is a failed concept that they ask us to take a look at it and reconcept it and do, which we are prepared to do.

And that failed concept, that is New York, New York?

No, the failed concept is in Planet Hollywood.

Okay. As then far as the dividend, I mean that is still on the shelf. It is that something -- I assume you guys look at it probably almost every day, but is that something you are looking to maybe reinstitute anytime soon?

We've said that we are going to share our cash with our shareholders, our cash flow with our shareholders, but we have a wait and see attitude. We are going to review that before the end of the year. Right now we have more cash than we need. So unless an opportunity comes up pretty soon that requires us to use that cash, I would suspect that we would be distributing some of it.

Okay. And then just lastly, the museum restaurant, I mean that --

That opens in late September. We are very excited about that. We are excited because it's a huge catering opportunity with exclusive catering to the museum, and we are excited about the restaurant. We think that restaurant will do very, very well. It has a very reasonably priced lease, its 26th year lease. We should do very, very well there.

Okay. And it was supposed to open in the third quarter, right? What was the reason for the lag?

We feel it is in Museum of Arts and Design; that is the name of the museum. Our space is being -- we are trying to represent that art space in relation to what the museum's displays are or exhibits will be. So we have five different artist doing artist installations there. Some of them are very, very complicated, especially the lighting, which is coming from Italy, and there have been some problems with the lighting that have now been resolved. But that is most of the way.

(Operator Instructions). Mike Margolis, Wells Fargo.

In the last quarter, you incurred some expenses for legal work.

Yes, that is $400,000, $500,000 in legal expenses. That was -- which we mentioned -- we were in a conflict with our landlord at Bryant Park, and that has been resolved.

So you would expect no more expenses of that type right now from that source?

No, we have another litigation that has to do with New York's labor laws where, by the way, we do not think we have any substantial liability at all. But we have an employee lawsuit out of Bryant Park also, and we think we are very, very clean in that. But it is an expense to defend it. We think that will be settled rather quickly, but that could cost us a couple of hundred thousand dollars. The Bryant Park lawsuit, by the way, got resolved with us getting a substantial extension on our leases at Bryant Park, an annual cash payment, not substantial but decent payment, and it also provides us with other opportunities in food service and liquor service in the park.

An annual payment for you or from you?

For us, going toward us.

Okay. All right. Thank you.

[Chris Gaston], [Faircourt Valuation].

Do you get a sense that maybe through this downturn that we are having, we could have -- potentially have some competition in our markets that may be sort of shaken away in this such that when we recover we are going to be potentially in a stronger competitive position?

You know, I have this conventional wisdom that has stuck with me for the 33 years I have been doing this, and that is you never see a restaurant close and become a furniture store. Eventually it always becomes a restaurant again. Because the guy leaving always leaves behind his kitchen and the plumbing and the air conditioning and the landlord always says, Jesus, I can rent this as a restaurant and get more money than I can from anybody else because I'm transferring value to the new tenant.

So there are not -- there are certainly a lot of for rent signs around the city. Very few of them are in restaurants that have closed and stayed close. In the other venues, Vegas is not stopping in the hotels from trying to get other attractions, and for the most part, those attractions are famous chefs, even though those restaurants right now don't work economically at all for anybody. But they are still trying to find attractions, marquees for hotels. So I don't really think you're going to see fewer restaurant seats.

However, what I do see and I have always seen and I always thought we operated under that umbrella is that there are guys who are good at this business who have run efficient operations and, therefore, because they are efficient don't have to charge as much. Because we just know how to do it better, and we don't need to overcharge to make up for mistakes. And I think in a price-sensitive world, our restaurants will do better because the competitive factor is that we charge less for an appetizer and an entree of the same quality as the next guy who does not have this kind of experience or the leverage of running so many operations. So I think that is where the competitive factor comes into play.

(Operator Instructions). Justin Sebastiano.

You mentioned that you have signed new and extended leases. I assume the extended leases are done at cheaper rents.

No, not necessarily.

So have any of the newer extended leases been cheaper than what you were paying?

No.

Nothing?

No. They are not -- in both instances and one which is already done and another one that will get done, we have significant cash flow that we're looking to protect. If you went to these landlords and said to them, I want a longer lease at a cheaper price they would say, well, you still have seven, eight, nine years left. Let's wait until times are more normal, and we will see what it is then. But you can go to them now and say, hey, we want a longer lease. We're not trying to create a lower rent, and the landlord will say, Jesus, that is a good deal for us because we're in at a rent that is maybe market or $1.00 or $2.00 above market.

We are not -- we never had -- throughout all of this, with the exception of maybe our property at MGM at Foxwoods, we never had a rent that was above market or at market. All the rents have always been below market, and the market is starting to trend down toward our rents. But we never signed any of these stupid rents.

As a matter of fact, if you looked at our history in New York City, we have not done anything in New York City for seven or eight years, a new restaurant, because we could not find a rent that made sense. The Museum of Arts and Design is an anomaly. I mean we got a below market rent because they wanted us, and that rent will be below market forever. I don't care where rents go. You can't -- that rent will always be cheap.

So, therefore, we are using the opportunity now to say to the landlord, look, you have got a rent that is a payer rent, and we're doing a good job, and we want to put capital into this to make it even better. But we're not going to put capital in with a seven or eight-year lease. We need a longer lease. And those are the kind of deals we do.

Chris Gaston.

I just thought of something while I was on the phone, I was reading in the Wall Street Journal about this Hell's Kitchen, that Ramsay guy, I guess is stuck in wind. Any way we might be able to come and get him maybe to bus some tables at one of our restaurants? I would love to go in and abuse that guy.

We are actually doing fine. You know, I -- look, I'm old enough unfortunately where I have seen these kinds of conditions before. I think our businesses are really in great shape, and am I happy with the stock price? No. Am I happy with the EBITDA? It could be better if I wanted to claim more payrolls and do other things that in the long run would not serve our customers well.

When you go through a 9/11 -- and I think this is an important point and not a diversion -- when you go through a 9/11 and your business goes from $800,000 a week to $400,000 a week at New York, New York for an instance, and New York, New York's business is in the toilet as well, everybody is laying off overhead because they got debt payments to make, and they are killing payrolls. And at that point, customers did not mind that service was not really good. Because they understood the situation and they put up with it and they did not penalize you because the emotional content was so enormous.

Here you have got an economy where people are still eating out. Business is off 10%, 12%, 14% with bad weather 6%, 7%, 8% if weather had been comparable. They expect full service. And the danger here is, if you don't give it to them, they ain't dumbing back, and you are hurting your business in the long-term. So we made this decision to keep these payrolls at full tilt because we think this is a great opportunity to win customers who maybe visit us once or twice a year as opposed to 15 times a year and show them how great we could be when the dollars to them are important. And if they are spending money in our restaurants, they have a lot of choices. And if you are one or two waiters short or a busboy short or a host short, they notice it and they are saying, hey, you know, I've got a limited budget here. Let's use it where somebody is going to give me the kind of quality that I think I deserve.

And so, you know, am I happy with the EBITDA? Am I happy with you know -- with the quarter we just had in weather? Absolutely not. But am I happy with the position of the businesses, with the quality of product we are serving, with the quality of service we are giving? The fact that we are running a lot of operations and every single one of them is cash flow positive. I think, as this thing starts to get better and my feeling is it is starting to get better, we have got a lot of leverage to really do really, really well for our shareholders. And so I'm excited.

[John Saper], [FirstRidge Capital].

I apologize. I got on a little bit late, so if you covered this --

I thought I was boring you and you fell asleep.

No, no, sorry. So just in looking back on the last four years or so, your earnings have typically been down Q3 to Q4, although the revenue has not necessarily been down quite as much on a proportional basis. And I'm just trying to understand the dynamics that may affect the business here through the next two or three quarters. So would you think that if the economy starts to get better and given that the comps I would guess will become easier in the September and December quarter, is it possible that you could have better results in September and break that seasonal pattern that we have seen in the last four years? Or is it still a little too hard to say in terms of what the business may look like?

Look, with us it is -- historically, if I remember, we are opening restaurants in September a lot of times in that quarter, and we have all these pre-opening expenses that filter in. It is going to happen again this year. The Museum of Arts and Design is opening in September. So there will be -- you know, obviously it is not going to be zillions of dollars, but there will be a few hundred thousand dollars and pre-opening expenses to get hit on.

Other than that, though, I think our businesses are getting better. I just -- if the weather cooperates for the September quarter, I think you're going to see a really good quarter. I thought you would have seen it in June. We just got clobbered with weather. If you're here in New York, you know how many times it rained in April, May and June.

Yes, I know. It was awful.

So we had outdoor cafes, we had two things going on. If we call people into work, we've got to pay them a minimum of four hours -- three hours, excuse me, of labor if they are on an hourly wage. But we have to have these kitchens fully manned, and all of a sudden we don't have an outdoor cafe.

Well, in Bryant Park we have 800 seats outside. In Washington DC at Sequoia alone we have 650 seats outside. And then there are all of the other cafes, the Rio Grande -- it was -- Sequoia and Red downtown. It was just awful. But whenever the weather is nice, I have got to tell you we feel like we're very close to last year's numbers. So I don't know whether that represents, hey, it is nice, let's all New Yorkers go out because it is finally nice, or if it really represents that things are better and people are dining out again.

I think it is the latter. I think business is better. And I would tell you in Las Vegas, although the conventions are not well attended as they were and they are driving business in into the hotels with low daily rates, if you stand at New York, New York -- and I'm serious when I say this, this is not an exaggeration -- and you see families coming in -- now New York, New York has this theme now of a mid-level property. It is not a luxury property by any means. And you stand there and you watch people come in to check in, they are bringing rice cookers and microwaves. Unheard of before.

So they are taking a cheap vacation. There are a lot of free events for the kids. They are putting a family in one room, and they are cooking in the room. But despite that, despite that, we are not down that much. We are down 8% in New York, New York.

So there is an inherent -- and in terms of cash flow, we are going to -- cash flow, $9 million there? No, but we're going to cash flow $7 million. So none of these businesses are in bad shape. They are just affected by the fact that we are reluctant to cut payroll and the top line is not what it used to be. And when the top line is not there, a lot of other things come into play where you're not as efficient as you would like to be. I think we are pretty efficient, but it is easier when the top line is there.

So I think the top line is getting there, and I think -- I know this is sort of a rambling answer -- but I think the quarters will start to compare better, and I don't know whether it's two or three or four quarters when we start to move ahead on a comparative basis with EBITDA, but we are certainly going to get there.

Okay. No, that is very helpful. I guess I did not realize that your September quarter had a disproportionate amount of opening expenses. I've only been tracking the stock for (multiple speakers) year.

We laugh about it. Every single year we are opening something that was probably supposed to open in the June quarter in the September quarter.

Is that because things maybe slow down a bit in August and it's just --?

No, it is just our cycle of when we sign leases and by the time we get things designed -- it is just sort of our cycle.

Gentlemen, there are no further questions. Please continue with any closing remarks you might have.

I have no closing remarks. We will see you next quarter. Thank you for paying attention.

Thank you. Ladies and gentlemen, this does conclude the Ark Restaurants third-quarter 2009 results conference call. This conference will be available after 12:00 PM Eastern daylight time today through August 17 at midnight. You may access the replay system at any time by dialing 800-406-7325. International callers may dial 303-590-3030 and enter the access code 4135830.

We thank you very much for your participation today. You may now disconnect. Have a very pleasant rest of your day.