Ark Restaurants Corp (ARKR) 2011 Q2 法說會逐字稿

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Ark Restaurants second quarter 2011 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 our host, President and Chief Operating Officer, Mr. Bob Towers. Please go ahead, sir.

Thank you. Good morning and thank you for joining us on our conference call for the second fiscal quarter ended April 2, 2011. With me on the call today is Michael Weinstein, our Chairman and Chief Executive Officer; Vincent Pascal, our Senior Vice President and member of our Board of Directors; 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 news wire yesterday and is available on our website. To review the full text of that press release along with associated financial tables, please go to our home page, 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. 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 who has some comments.

Hi, everybody. Fist of all, despite what the release shows, we have this sense here and it's starting to bear out that our business is becoming much better. I would like to review that first and then maybe myself and Bob Stewart will go over the differences in the quarter results compared to last quarter. I apologize, we have a fire truck in the background. It's not one of our restaurants.

First of all we are seeing a improvement in our Vegas results. We are in three properties in Vegas and all of them seem to be showing some new life in the general business, general traffic. But more importantly in New York, New York, we have two new facilities operating and they are operating really well. In the last quarterly report conference call I told you that we had opened up a Burger Bar, which is a full service restaurant, meaning waiter service at tables. It's a 150 some odd seats and it replaced three fast food court operations that were in New York, New York, which those three operations were obviously part of our whole food courts concept. The three of them, the food courts, were doing about $1.8 million. We are now doing about $3.8 million annualized at the Burger Bar, and that seems to be improving weekly. It's catching on, it's a great product, it's a great price point.

Obviously, a full service restaurant has a higher payroll cost than a fast food operation. But we are probably doing in excess of roughly $2 million incremental in sales, and we probably have incrementally about a $400,000 or $500,000 a year payroll increase. So when you work the numbers and the food costs are the same, we think we probably have added $700,000 to $800,000 of operating profit annualized at the Burger Bar.

The second thing we opened which we alluded to in the last quarterly report to you, was the Sporting House. This was the old ESPN Zone in New York, New York. We made a deal with New York, New York where the lease is a little unlike other leases in that there is no rent. They were very optimistic about our ability to generate cash flow there. That debt is paid off now. So with no rent, the deal was we split cash flow where they get the $1 million, and we get a management fee. After $1 million we split cash flow 50/50. So we think we are generating between the managements fee and the splitting cash flow about $1 million a year (inaudible). But that doesn't show up in the first or second quarter. It's going to show up in the third and fourth quarter as we get over the hurdle of them having their first $1 million in cash flow.

We have two successful businesses that are starting to throw off good cash flow to us. But it's not yet reflected so much in the - - it's not reflected with the Sporting House in the second quarter, and maybe just a little bit with what is reflected in the second quarter of this year for the Burger Bar. In New York, the last quarter and continuing into this quarter, we have had horrendous weather. The comparisons are bleak because we just haven't had use of our outdoor cafes. So hat affected us in the second quarter. We were down 6.4% in New York.

In DC we were down about 4%, again, weather. Atlantic City, we have a new owner but that's not a very big business for us in relation to the whole, but those sales are 20%. The new owner is, meaning the new company, management company took over resorts where Gallagher's, and our Gallagher's Burger Bar is, they are having an impact, so we are better there.

Florida continues to be good. Boston is fine. All in all - - if it wasn't for the weather, we thought we would be up a nice number. We just get the sense that the business is better. We are fighting a couple of things in the second quarter report. One is food costs. We didn't get and didn't want to put in place price increases until the end of March, early April. It was the wait and see attitude, we didn't know that food - - we just didn't have a sense of whether food costs were going to recede, or not. When we saw the strength and the stability of higher food costs, we decided to raise prices. The good news is those price increases have been accepted by our customers. We've been running now almost a month and a half. We don't see any complaints. We see when the weather is good, very strong customer counts. Brian Clark, which is the bell weather for us, because it has roughly a thousand outdoor cafe seats in the nice weather. When the few days that we have had, very few, two or three, our numbers are much better than they have for similar days last year when the weather was good.

So we think the business is better. We have been hampered by bad weather. We've been hampered by second quarter increased food costs which were not offset by higher menu prices until very recently. And the other part of this is we have been hurt by new minimum wage requirements. In New York they are very complicated. It took us a while and we are still working on it to neutralize those increases which went into effect the beginning of the year. I think all in all, the business is better. We are getting the price increases to take care of menus, taking care of food costs and we're back to showing cost of goods sold, at our normal percentage number. The payroll numbers are starting to come into line again. So that's really a story. We are very encouraged.

I will turn it over for questions.

Thank you. We will now begin the question-and-answer session. (Operator Instructions)

Our next question comes from the line of Catherine Lee with Bergamot Capital. Please go ahead.

Hi. It's great to hear that the Vegas business is picking up. I was wondering if you could provide some more color on the type of customer that you are seeing there and your other casino properties. Is it foreign, domestic, business, personal, et cetera, what? What is coming out so far?

It's very hard for us to figure out who our customer is in each one of these units. We run many operations for instance in New York, New York. But let me tell you about one of them, which I think is relatively important and we shouldn't lose sight of, ever. Gallagher's is a 220 seat restaurant, that does about $14 million in revenue, a little bit more than that. It does not do it primarily with a New York, New York customer. A New York, New York customer is generally staying there right now at $89 a night, or $119 on weekends, and Gallagher's is a pretty heft checkout. So we are pulling from all over the strip.

So if we start to pull a lot of business, it means that the convention business is getting better. One of the statistics I can give you on convention business and I may be off a little bit, and I will use round numbers because I know I'm going to be off a little bit. But in the March quarter last year, there was some 500,000 rooms booked for meetings and conventions, so I'm told. This year it was in excess of 800,000. So we are seeing that customer, that's a steak house customer, and we are seeing that customer.

In New York, New York, I've said this and people thought I was joking, but it was a fact. If you stood there in the last two years, and saw who was coming in to register at New York, New York, I would say one out of 15 people had a rice cooker or a microwave under their arm. They were cooking in their rooms. This was true of many low-end and mid-priced Vegas properties. This was really happening. You don't see that anymore. So I think the quality of the customer is a little bit better. Our food court sales are sort of plateaued out by unit and our restaurant sales are going up a little bit by unit, which means that there is a better spender in these hotels and around.

Yolo's, in Planet Hollywood is a really upscale restaurant, a Mexican restaurant. And although it's about 2.5 years old now, and it had a very, very big opening, and part of what was going on there, was a late night bar scene. What I think the late night bar scene is not quite as robust as it used to be, but the food sales have - - seemed to have kept up or even moved ahead a little bit. I just see, think you're seeing a better spender in Vegas. And we see room rates inching up a little bit at the MGM properties and at the Venetian properties. I just think things are getting better.

Great, thank you.

Okay.

Thank you. And our next question comes from the line of Ben Schmidt, a private investor. Please go ahead.

You had mentioned in regard to the pricing and the commodity cost, the food costs, do you feel that food costs have turned? Have you gotten those under control now? And then likewise on the pricing side, what type of price increases are you talking about, and they do fully recover that food cost, or do you still see some margin compression, going forward here with today's economic?

Okay. So I will get to your question and I just want to give you a little bit of philosophy here. We have never priced the back of the line. Our formula for pricing was let's be really efficient and give the customer the benefit of that efficiency and we will have an umbrella of comfort between us and other restaurants what they are charging for a hamburger or any particular dish. And we look at menus that are competing with us and we always feel like we are a little bit less. The price increases we put into place when our costs went from where we used to be 25.5% cost of goods sold for the Company. We started to see 26's and as a matter of fact there was a period of time we saw 27% and 28% cost of goods sold for the Company. That was kind of frightening.

We looked at - - we were looking at this increase in a still what is perceived to be a soft economy when we were looking into Vegas. Vegas was still very soft. It's only been in the last month and a half, two months that we have really seen a consistent upswing. So we try to figure what was digestible by our customers. I think we got 3% to 4% across the board. And in the way we got the 3% to 4% it's not every item, we don't just say raise everything 3% to 4%. We try to look at perceived values of every item on the menu, we put in some changes in menu items where we know the cost - - cost push would be less dramatic. So it's really a selective process of trying to refigure these menus to reflect the 3% to 4% increase and have the customer feel they are getting great value. And that's basically what we did.

Since that time, we are not back to 25.5%, but we're floating around 26.2% of cost of goods sold. Our feeling is that - - and there is no indication that I'm right yet. Our feeling is that some of these prices will start to recede. We've seen it before in various commodity items. And it looks like it's never going to come down but eventually it does. We are taking that attitude that eventually it will come down, the price increases will stick and our margins will actually improve. That doesn't mean that our bottom line will improve because there is always other things doing on, whether it's minimum wage increases or utilities going crazy or insurance premiums. But for, our belief is that you are going to start to see a receding of some of these prices.

Does that answer your question, I hope?

Yes, it does. It sounds like some of it started to go up, you are waiting for it to see where it's going end to up, and eventually you took some action. And maybe it's the delayed effect of that impacted this last quarter a little more severely than I would have hoped I guess as an investor.

In our opinion, the food in the last quarter, and it's a scary number, before we got to raise prices, increases in commodity prices costs us $200,000 in EBITDA. Okay?

Thank you very much.

Thank you.

(Operator Instructions) One moment, please. We do have an additional question from the line of Mike Margoose, a private investor. Please go ahead.

Mike, in the past you've mentioned some things about new projects in the New York area. Can you add any information to those?

Yes. We are through the design phase and we will start to build in the next month and a half a 10,000 square foot facility on the west side of Manhattan where our partner is Walt Fraser, the Knick' s basketball star from the 70's and 80's, who is presently the Knick broadcaster. It is a completely new type of sports bar. I don't think there is anything out there that has precedent. And we think this is going to be a very exciting opportunity for us. So that is being built.

We are in the final stages, I'm confident it will be signed so I will mention it, there is a 66,000 square foot facility being built right now on East River in Manhattan, lower Manhattan, just north of the Brooklyn Bridge called Basketball City. And Basketball City is geared towards team play, corporate team play, league play. It is not a new business. The business is being moved and expanded from a previous site. They had 108 corporations signed up for league play. And, more importantly, this is a ground level 66,000 square foot facility with enormous height in the ceilings and parking for 150 cars, easy load and an easy load out. We are going to operate a small burger bar in the facility, but the real kiss here is, the exclusive catering. The last two weeks we have had a Volkswagen event introducing their new cars in New York. There was a wrestling event, 1,200 people attended. Nike has done a 5,000 person event there. Puma has done a big event there. We see this as a huge catering opportunity for us. That is also, - - will be signed probably this week.

There are two other properties we are looking at that we have been working with for nearly 7 to 8 months. We are getting closer to sign those. The developers owe us a few things on those two properties and I'm sure they are going to deliver them. And we will have another interesting catering opportunity, restaurant and museum, and another waterfront property in Brooklyn that we are going to build a restaurant. We are active in New York.

Great. Thanks. And how is your current museum restaurant doing? Is it the Robert?

It's doing very well. Keeps getting better, it's at the Museum of Art and Design. What is really getting interesting there is the catering. We are very happy with the performance. It's sort of similar to Brian Park. We don't really do any PR or advertising, we find that to be ineffective in comparison to word of mouth. Robert's on the 9th floor overlooks Central Park and the upper west side of Manhattan, extraordinary views, they're really extraordinary. Looks right down on Columbus Circle. The world of concierges and foreign travelers don't know about it yet. Although we are starting to see some of that business come in. The business is a very good business now. It's going to become a great business.

Okay, well, thanks very much.

My pleasure.

Thank you. (Operator Instructions) One moment, please. At this time, I will hand it back to management. I show no further questions in queue.

All right. Well if any of you have any further questions after this conference call, you're certainly welcome to call me or Bob Stewart. There's specific answers to any of the numbers. I appreciate your interest and we look forward to seeing you on the next conference call. Thanks.

Ladies and gentlemen, this concludes the Ark Restaurants second quarter 2011 results conference call. Thank you for your participation. You may now disconnect.