Ark Restaurants Corp (ARKR) 2010 Q3 法說會逐字稿

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Ark Restaurants third-quarter 2010 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 16, 2010.

I would know like to turn the conference over to Bob Towers. Please go ahead.

Thank you. Good morning and thank you for joining us on our conference call for the third fiscal quarter and nine months ended July 3, 2010. With me on the call today is Michael Weinstein, our Chairman and Chief Executive Officer; Vincent Pascal, our Senior Vice President and Director; and Bob Stewart, our Chief Financial Officer.

For those of you who have not yet obtained a copy of our press release, it was issued over the newswire on Friday, August 13, and is available on our website. To review the full text of that press release along with associated financial tables, please go to our homepage -- our website, which is www.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 everyone 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 Michael Weinstein.

I thought this would be a good time, especially because of the convergence of a lot of events, to discuss more than just the quarter but basically where this company stands, what we see going on, and how the economy has reflected our business.

First of all, we have a very strong balance sheet for a company our size, so it was hovering around $12 million in cash in the bank. There is some small amount of float in that. We have no long-term debt. We paid our purveyors on a 10-day cycle, so we are in a very strong financial position.

We have been sitting here waiting for a break, whether it be a company that became available at a -- with multiple of cash flow that we could buy -- good meaning good for us -- whether it be leaseholds that we can get a hold of at rents that seem reasonable on a long-term basis. And up until this point, not much of that has happened.

Companies we looked at that were for sale were either too expensive or the debt required to finance the purchase was too expensive or they were flawed. Real estate was generally still overpriced in relation to what we thought sales could be at those sites. So we have been just sitting here and it has been sort of like a lava lamp with activity in our business, new activity.

But that seems to have changed recently. Rents in New York and Las Vegas that we have been looking at have come down considerably over the last three or four months, so we have been kind of active in trying to secure new sites. And I think from that point of view you will see a good deal of activity over the next three to four to five months.

As far as purchasing companies, we have seen a couple recently that look attractive and have good long-term prospects. We sort of dipped our toe in the water in terms of starting negotiations on that. So even though the economy had soured dramatically, our ability to do deals was not improved through most of this period time, but we are beginning to see that as an opportunity.

What this will also accomplish -- landlords sort of throwing in the towel at a time when we see at least the stability of our business in several markets. We had a very strong quarter in New York. I would reflect on that as being more due to the weather compared to last year than a big improvement in the outlook for consumers.

We had a gigantic quarter in terms of our restaurants with outdoor cafes. It just did not rain in June or if it rained, it rained at the right times, meaning three o'clock in the morning. So the big improvement to comp sales could be really traced to weather.

Our DC properties are doing better, partially because of the weather but partially I think we finally got those under control. We have had a couple of bad years in terms of our management experience down there. I think we have good (technical difficulty) in the right positions and they have really turned that around, especially Sequoia which is on the water in Washington.

Atlantic City remains problematic. It's going to be more problematic as Philadelphia gets gaming. Full-table gaming went into some of the outlying non-Philadelphia casinos in Pennsylvania. I think Atlantic City is just a disaster. Fortunately, we don't have much exposure there.

We are in resorts. That property is in bankruptcy; somehow because of our wonderful manager we still continue to make some money there. I don't know how long that is going to last. It has been a good financial deal for us throughout, I just don't see anything prospectively that will improve our business in Atlantic City.

Connecticut, pretty much the same thing with Foxwoods. They are getting competition from other venues; New York especially. If Aqueduct Racetrack ever gets done as a casino, I think that could hurt Foxwoods business. We are treading water there; don't have a lot of capital involved.

Boston, Durgin-Park we had a good quarter. We do not have outdoor cafe seasons at Durgin-Park. I think Faneuil Hall did better where Durgin-Park is, basically because of the good weather and there was more traffic. And it's just fine; we had almost 10% comp positive sales.

Las Vegas still remains a problem, although in a call I had this morning a good friend of mine who knows Jim Murren at MGM quoted Jim as having told him they are beginning to raise rates a little bit. Airline seats, although there is a reduced number of airlines going to Vegas, these flights are now full.

So I think what you are seeing is a cycle of Las Vegas. First, they filled up some hotels with these very discounted room rates. Now that the hotels are filled, I see some return of demand. They are inching up room rates slightly. I don't know that we benefit immediately from that, whether the right type of customer comes back into these hotels, whether meetings and conferences are fully attended, I think that is a while off.

But it does seem like there is a bottom in Vegas finally. We have had terrible comp sales for 2.5 years now and in this last quarter we were down 2.7% from last year's quarter. The total of our comp sales over the last 2.5 years, I think we are down something like 22%, 23% from where we were when things were good.

So obviously this company cannot move forward on an EBITDA basis dramatically without one or two things happening -- either new deals that generate new cash flow, which involves some risk because there is capital to be put out, or a return of better business in Las Vegas.

I think, I think, that we are going to see some slight improvements in Vegas. I don't think it's immediate. I think it's many quarters until we get back to close to where we were. I do believe that you are going to see some new business being developed by us, some of it I hope very exciting, and that is the way we have to grow this company.

It's not going to be an immediate return to where we were and the pace we thought we had, but we are in a good position to execute (technical difficulty) reasonably safe plan for our shareholders. And that is where we are right now. I will take questions.

(Operator Instructions) [Mark Margoulis], private investor.

Mike, I came in late on the call so I apologize if this was something you already recovered. But I noticed that your labor cost as a percent of sales stayed about the same -- I am sorry, labor costs did not go up that much this quarter. Is that because last year you had a concerted effort to maintain wages and salaries and not cut them, and then this year you didn't have to raise them that much?

It's really a question that is a complex question. And first of all, we have said several times that we -- do you have something to add Vinnie?

We did make -- we did give raises.

Yes, we have said several times that during this economic crisis that the way we were going to handle payroll expenses was to eliminate over time, to eliminate bonuses, and not give raises. But we weren't going to fire anybody. The -- and that basically was what we did.

However, during this period of time we also had a lot that legislation that came into being -- the minimum wages were raised everywhere, hired some new people in preparation for this coming year because we are trying to expand our catering business so we hired a key person there for a decent amount of money, and basically, in New York especially, we had full employment because we were doing really good business.

In Vegas, we had minimum wage increases -- unavoidable. We have to be prepared to do full business but we didn't do full business. So it's a very mixed bag. You almost have to go restaurant by restaurant to look at the impact of the legislation and the impact of business.

Bob Stewart has a comment with regard to this.

Well, one of the things -- when you look at it, you are down 2% basically on the cost. Also, last year one of the things that affected our labor costs were that it rained constantly so were bringing in staff. We had to pay the staff; we would let them leave early.

So it's very hard, unless as Michael said you go restaurant to restaurant to delve into these. But last year it was a very difficult year for labor costs because of that in this quarter.

So your operating income as a percent rose dramatically and a lot of that is due to the labor element, right?

Yes, it's $500,000 approximately because of labor, but it's driven by sales to a large extent also.

But as a percentage, it should --

As a percentage, we are fine.

So as a percent labor had a lot to do with that?

Well, you also opened the new restaurant.

Yes, we also opened Robert which figures into that. And labor costs for the year, for Robert in its opening year are going to be higher than they are going to land on a regular basis. The last quarter, though, we ran Robert pretty efficiently.

We have to understand the obsession with labor with this company; we are very obsessive about it. It's a daily conversation, and we pay attention to it every day.

What I think happened in a lot of the restaurants, people got a lot more efficient where you had two guys doing the job of three guys this time. Last year it might have been four guys doing the same job. So we got very, very efficient of anticipation of it not being a great year.

I have to really -- I think what you have got to do is look at 2008 where before the minimum wages went into effect. Labor is an obsession here; we pay very close attention to it. I am not saying there isn't room to adjust it but we are pretty lean in this company.

But we are not lean enough if you had a disaster. But what we have said in the past and I continue to say is when customers have few dollars to spend and are choosing where they want to go, they are going to want to go to a place where they are serviced appropriately and their money is respected. And I think to have cut beyond the overtime and no bonuses and no salaries, to have cut beyond that would have been a mistake.

I think our customer advantage is very, very high. Very high, and as this economy improves (technical difficulty) become a little bit more lenient with the way they are spending their dollars, I think you are going to see us move dramatically because of this philosophy.

Mike, thanks very much.

(Operator Instructions) Gentlemen, there are no further questions in the queue. Please proceed.

It was pointed out to me here that I really didn't discuss Robert and our Florida properties. I sort of don't think about our Florida properties because they seem to go up double digits in comp sales every single quarter so Hollywood and Tampa continue to be extremely, extremely strong for us.

And Robert, our new restaurant at the Museum of Art and Design in New York, is doing nicely and our catering business, where we are the exclusive caterer into the museum, is also going nicely. This is its first year of operation and we are very, very pleased.

Last thing I should do is probably just give you an overall sense of how safe this business appears to be right now. We have no restaurants that are losing money on an annual basis. Despite the problems in Atlantic City and in Connecticut, a lot of these -- a couple of these we are treading water; we are figuring out how breakeven and make a little each quarter. But nothing is losing money.

And faster in Vegas; faster for us is just less EBITDA. But cash flow is still significant, we are in great shape. For the moment no black holes and will try to keep it that way.

Thank you for participating in this. We look forward to our next call.

Ladies and gentlemen, this concludes the Ark Restaurants third-quarter 2010 results conference call. You may now disconnect. Thank you for your participation.