Ark Restaurants Corp (ARKR) 2010 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Ark Restaurants fourth quarter and year end 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)

I would now like to turn the conference over to Bob Towers, President and COO. Please go ahead, sir.

Thank you. Good morning and thank you for joining us on our conference call for the fourth fiscal quarter and year ended October 2, 2010. With me on the call today is Michael Weinstein, our Chairman and Chief Executive Officer, and Bob Stewart, our Chief Financial Officer. For those of you who have not yet obtained a copy of our press release that was issued over the Newswire yesterday, December 29, and is available on our website. To review the full text of that release along with the associated financial tables, please go to our website which is www.arkrestaurants.com.

Before we begin, however I'd like to read the legal stuff, the Safe Harbor Statement. I need to remind everyone that part of our discussion will include forward-looking statements and that these statements are not guarantees of future performance and therefore undo 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 be a direct-- have a direct bearing on our operating results, performance and financial condition. I would now like to turn the call over to Michael Weinstein.

Hi, everybody. I think it would be productive to go over what's happening with the Company, venue by venue. But before I do that, I just want to emphasize that there has been a distortion in this years' numbers compared to last year because last year was a 53-week year, the year that just ended was a 52-week year. The numbers, if you try to create a comparison by averaging out revenues and EBITDA are-- the numbers would have been slightly better than the prior year and that slightly better has to do with our non-Las Vegas properties which are performing better than the prior year. Las Vegas actually performed slightly worse than the prior year, so the thing that's holding the EBITDA down is when does the recovery in Vegas take place and I have some thoughts on that as we get to each area of the country that we operate in.

New York, we did quite well. We had a very good summer, spring and summer. We have a lot of outdoor cafe seats in the Northeast, so New York performed well, Washington D.C. performed well. We seem to be very much on track with those two areas, they're well managed. We're fighting through costs in all venues a little bit. As I said in previous phone conferences, we did not cut labor as deeply as we could. We have this belief that when an economy goes bad and people are spending less money at restaurants, they choose those places where they get full services and we want memory of their stay with us, the dining experience with us, to be that it was great experience and that they will come back and not short change them by trying to cut labor to show a better EBITDA. So where we did cut was basically in overtime and raises were less than they would have been for normal times and bonuses were less than they would have been in normal times and that cuts through all areas of our operations.

As I said, New York did very well. Washington did well. Boston did well. And our Florida managed properties did extremely well. The Hard Rock Casinos in Tampa and Hollywood again showed double-digit increases, defying gravity for whatever reason, it's just-- they're just terrific properties for us. Our Atlantic City property did not do well, although it was still profitable there but just marginally. Resorts went into bankruptcy where we have Gallagher's and our Burger Bar. That property has recently been taken over by new owners. We're discussing with them a new lease arrangement. We very much think that the new owners will bring some capacity for increased revenues to the property and we're not losing anything there, but in no way does it make as much money as it used to.

Also, Foxwoods in Connecticut, and the casino there has come under terrific revenue pressure. They think they are at the bottom of the U and going up, we don't see it. We run a marginal profit there when you take all of the operations into consideration but no way is it a good return on investment, and there's no real good exit strategy there, so we're sort of stuck with that one.

Las Vegas. We have I think run a very good operation there. It's still profitable in all our venues. Yolos and Planet Hollywood is down slightly on the year, New York New York was down again on the year slightly, maybe 5%. It doesn't take a genius to figure out what's going on in Las Vegas. More capacity is to build, traffic is not increasing, there are more and more restaurant seats as well as hotel rooms. The only good news in Vegas is what's going on with-- and room rates have reduced dramatically. What we see in Vegas which is some good news is that airline seats are costing more to get to Vegas which seems to indicate there's more demand. That should be the first thing that happens. Fares should rise before airlines put on extra capacity. They are not putting on extra capacity yet but fares have increased significantly.

Room rates are edging up a little bit. They're still very low in relation to several years ago but they are inching up. And I guess the last thing that becomes the most meaningful thing is first quarter rooms for meetings and conventions has gone up significantly from last year. I think last year in the first quarter, there was some 500,000 rooms designated for meetings and conventions and this year it's 800,000 rooms. That's nowhere near the million plus rooms several years ago but it shows some sort of recovery.

We are leveraged dramatically to a recovery in Las Vegas. We don't have to increase payroll significantly as revenues go up. Our rents are reasonable rent fields, so any additional traffic that flows into Las Vegas and to the extent of closing New York New York or Planet Hollywood or the Venetian, where we have our operations benefits us dramatically. We think that's starting to happen. The spread between the comp sales has narrowed dramatically so-- in the last couple months.

We have also added two operations in Las Vegas. We-- ESPN went out of business, they had a facility in New York New York. We are now the lessee of that space. It's called Sporting House. It's a sports related restaurant/bar. It has been basically profitable for the first, in the first quarter that we operated, we started operating in about October. However, the way the lease is defined, those profits don't show up significantly until the latter part of the year and it's basically because our rent deal is based upon the first monies to New York New York of x amount of dollars and after that, we start to share in the cash flow. So I'm told the first moneys are expended to New York New York which is a $1 million a year. We do not show any profit, so the profitability will start to show up in the third and fourth quarter, but we're quite confident that profitability does show up.

We also just opened a week and a half ago a Burger Bar in New York New York. It's not fully opened. There's some additional construction needed to be done and construction is interfering a little bit with the opening but we are open to the public and the revenues there have been quite satisfactory and we think we have a big hit on our hands. So if Vegas does start to see additional demand and the facilities we have out there benefit from it, I think you'll start to see some significantly improved EBITDA from that venue.

We are not doing too much in this fiscal year in the Northeast, although we are negotiating and finalizing at least four and maybe five new venues for the New York area. They'll all come on in the fall of next year, fall or early winter of next year. I assume we're going to sign leases on all of these and they're all favorable leases, they're all good ideas, so-- and we're doing that because we think things have gotten better. We will not take on any debt to do any of these deals. They're all (inaudible) out of our current balance sheet or expected cash flow, and that's our plans for the year.

We think we feel that we're on more solid footing. Last year, by the way this past year that just ended, the EBITDA was somewhat compromised by extraordinary legal expenses which we do not think we will have in the current year as we've had three litigations going on. It was also compromised by heavy pre-opening expenses at our restaurant using the [Martin sign] in New York, it's called Robert. That restaurant is significantly profitable in the December quarter and will help our December quarter. The December quarter looks substantially better than last years' September quarter, although we've been impaired a little bit these last three days by snowstorms in New York, but it should be a substantial increase from last year.

So we think things are looking better. We are not as cautious as we were last year at this time and it's speaking about the improvement, and we think we'll have a good year. We think our balance sheet will improve nicely. We will not have any debt. We don't have any debt now. Our cash balance is strong and I hope that gives you a good review. And I'm happy to answer any questions.

Thank you. We'll now begin the question-and-answer session. (Operator Instructions) Our first question is from the line of Mariusz Skonieczny of Classic Value Investors. Go ahead.

Yes, hi guys. My question is in terms of your dividend and how do you see the safety of it in 2011?

Well, I think when we reinstated the dividend, we first of all said we had done better than we thought and we gave a special $1 dividend and then placed the dividend at an amount that we thought we certainly were comfortable with and maybe a little bit more conservative than we should have been. I have no problem with the safety of the dividend. We have a history in the Company of saying if we earn more money than we thought we would and the amount of cash we have on hand at any given time is greater than we really foresee our needs to distribute it, so the idea of paying $1 was that that was a very safe number. We're a little bit more active than we have been in the past two or three years in terms of construction. But if we have a good year and we feel that our cash on hand is sufficient to do what we need to do, we'll probably distribute more, but $1 is certainly comfortable.

Okay. All right, well thank you very much. That's the only question I had.

Thank you.

(Operator Instructions) Our next question is from the line of [Michael Margullen], Private Investor. Please go ahead.

Mike, in the first quarter I noticed that, of course because of distortion due to the calendar difference, revenue was down 4.3%. Expenses were down only 2.1%. Is that because there's just not the flexibility that you would have with expenses that you have with revenue?

Well first of all as I said in my letter to shareholders last year, it's going to be the same bit of writing this year. The restaurant industry is under definite cost push increases. First of all, minimum wage is going up everywhere that we operate and it's going to go up again in January. There has been no relief in energy prices, although a lot of our leases fortunately are not tied to energy prices because we sort of in many of our bigger operations have defined leases that include utility expense as part of the rent, part of percentage rent, so some of our leases do not get directly hit by increased utility expenses, but they are up. Utility expenses are still a bigger factor than they were three, four, five years ago. And then there's this-- the commodity prices are going berserk, so they aren't operating expenses but you certainly see it in cost of goods. Everything is up.

We're trying to be as clever as we can. We got a lot of people working on trying to figure out how we can buy alternatives and maintain quality and you don't have the luxury and the economy you just went through of raising prices. Nobody is going to accept price increases. I had this dogma that I used to say all the time that if you don't see it increasing at the supermarket with the customer, you're not going to accept price increases at restaurants. Well, now you're seeing it at the supermarket but you aren't accepting it at the restaurant anyway because you can't afford it.

So revenues have been affected by people not spending as much as you would expect in this economy. If they eat out, they are not buying the big bottle of wine and they're not-- they're foregoing appetizers or they're sharing deserts. Whatever is going on on the revenue side is exactly what you would expect.

On the expense side, we have these fixed costs that don't go away. You need a chef whether you sell one hamburger or 11 hamburgers, you need that position. And given that we were unprepared to cut services which means cutting payroll and those expenses, we're sort of a little bit stuck. I think you could make an argument and I am, me and others here, are starting to tinker with menus a little bit and see where we get certain price increases but you're not keeping up with price increases. Unfortunately, the way EBITDA is going to flow back to this Company and we're down significantly from the top. I mean significantly. No one is more aware of it than I am.

The big flow of EBITDA is going to come from the recovery of Vegas to a lesser extent recovery more in New York and Washington D.C., which has room to grow in our present units, and then from new units and that's where it's going to come from, but it ain't going to come from decreasing operating expenses. They're reasonable given the type of services we offer and you don't want me to cut those expenses.

There's an item on the income statement that I had a question about and that's the other income. There was a cost of $431,000. Can you help us understand that?

Which costs, Michael, we couldn't quite hear that?

Under other income, there was an expense--

The revenue item?

An expenses of $431,000. I'm sorry, you're cutting out too. It's under other income, and it shows an expense-- I'm sorry, it's-- I'm sorry, sorry--

It's in parenthesis.

Yes. It's in-- yes, so is that just an interest on your cash? No.

Well, I don't know if this directly answers your question but we have other income from ancillary management services that we provide. One of the services we provide is our purchasing department which purchases for us over the last two years, we've segwayed that into a purchasing service for other restaurants in and around the metropolitan area of New York. And that is starting to show some decent income, so other restaurants are [piggy backing] our buying services. There's also other catering fees that we get for doing outside catering ventures. There is some miscellaneous rebates we get from manufactures or wholesalers of product, so those are the areas where it could be. It's not a significant line item for us but there are very few expenses associated with those line items.

And you did mention you're working on five new venues in the, four or five in the Northeast and around New York. Are those-- are the nature of those high end restaurants, lower end? How would you describe that?

We-- our success at the Museum of Art & Design has done two things for us because we're not only the Restaurant of Museum of Art & Design, by the way that-- the numbers have just come out, it's the fourth leading museum attraction in New York City right behind the Guggenheim, the Metropolitan and Museum of Modern Art. So it's attracted a lot of attention as a museum and the restaurant has attracted a lot of attention in terms of its design and it's views of the city and it's become a decent catering venue for us. We don't have a big catering space but there have been a lot of events there that we catered.

So we have-- there are two other venues that sort of line up with that, another museum and another sports center that's being built in New York that we are in the final stages of lease negotiations, and when I say the final stages the business terms have all been agreed to by both parties, that's sort of like tweaking certain languages in these agreements, that should be finalized in the next month or so. There are also two new restaurants that we're actively in the end stages of negotiation. One is a waterfront restaurant and that's gotten some publicity recently, so it's in Williamsburg, Brooklyn with great views of the city. It's sits at a park, it's a decent size facility with a lot of outdoor space as well, so that'll come on stream. And the last restaurant is a 10,000 square foot venue that we're building in a new residential area just south of 42nd street on 10th Avenue, way west in Manhattan and-- but that's an underserviced area and we think we'll do quite well there as well. So those are four of them and the fifth one that's sort of up in the air that we hope we can get back on track.

But we're active. We think we've caught the real estate market right when we started negotiating these deals. We think you can create those deals again very easily if the market were to improve over the next six to seven months as it seems to be improving right now. So it was time to try to force the issue a little bit and take some, I don't want to say chances, more like calculated risks with our balance sheet. I think these will turn out to be very good moves.

It sounds like they fit into a pattern in the past of finding distinctive locations and venues.

I think that's what we're doing.

Okay, okay. All right, well thanks very much, Mike.

Thank you.

And I show there are no further questions. You may continue with any closing remarks.

Hello. Are there any other questions?

There are no further questions. You may continue.

All right, so let's say thank you. We'll see everybody in three months. Have a happy New Year. Thank you for listening in.

Ladies and gentlemen, this concludes our conference for today. Thank you for your participation. You may now disconnect.