Ark Restaurants Corp (ARKR) 2012 Q1 法說會逐字稿

Welcome to the Ark Restaurant's first quarter 2012 results conference call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be opened for questions. (Operator Instructions)

I would now like to turn the conference over to Chief Financial Officer Bob Stewart. Please go ahead, sir.

Thank you, operator. Good morning and thank you for joining us on our conference call for the first fiscal-quarter ended December 31, 2011. With me today on the call is Michael Weinstein, our Chairman and CEO; Vincent Pascal, our Chief Operating Officer; and Oona Cassidy, our Secretary and Legal Counsel. For those of you who have not yet obtained a copy of our press release, it was issued over the newswire yesterday and is available on our website. To review the full text of that press release, along with the associated financial tables, please go to our home page at 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 afternoon will include forward-looking statements and that these statements are not guarantees of future performances, and therefore undue reliance should not be placed on 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 conditions. I will now turn the call over to Michael.

Hi, everyone. The December quarter was marked by a series of events. Number one, revenues started to perk up in Las Vegas. This has been in a free fall since about three years ago. And we started to see some improved comp sales in June and July, and that has continued. And as the quarter got into play, we were seeing 7% to 10% increases weekly on a regular basis. Interesting, to give you a sense of what we were seeing in Vegas, we have about 25,000 square feet of banquet space at New York, New York Hotel that, prior to 2008, regularly did significant business. By the time we got into late 2009, 2010, we were doing no business in that space. There was just a complete absence of any meetings, any banquets, and it's only recently in the last four or five months that we have begun to see a little business in that space. We think Vegas is on an uptrend; it is not a steep incline; it is a gradual increase. We have got to remember that more rooms are available, more restaurant seats are available, more banquet spaces are available than they were 3.5 years ago. And for us to do better, we have to eat through that extra supply; and that has to fill up before we really do much better. But we are doing better.

New York was blessed with very good weather, which helped our revenues on the East Coast and New York City and Washington, DC and Boston. So revenues were better. The second factor that is important to understand this quarter is, in the mid summer, we made some really radical decisions, for us, about how to treat the rising prices of our food products that we were buying. We did two things. We increased prices by 2%, which was sort of easy, but we re-engineered our menus and in many cases, our portions of protein are slightly smaller, not really, we think, noticeable, but they are smaller. And we have rewritten menus to use product that is less volatile on the upside. So our cost-of-goods sold came down from the prior year, but more importantly, from the prior months before the December quarter. So margins improved. I think that was most of what's responsible for the better P&L, increasing revenues, better cost of goods, widening margins.

There were other events that took place in the quarter, which I think are worth mentioning. Number one, in October, we purchased 250,000 shares of stock from a deceased shareholder. We bought that stock for a price of $12.50 a share. The math works out that it was an over $3 million purchase. We paid for it with $1 million down, and notes that start next December. So there is a 12-month lag between the time we purchased the new stock and when the notes start; and those notes go for 24 months. So we are paying for that purchase over time. The second thing that occurred is we lost The Grill Room, which has been a long-term lease. Brookfield, the landlord of the World Financial Center which is in lower Manhattan, decided, with several leases, to terminate. Not only ours, but several other tenants, to redo the facility, and essentially eliminated food service where we were. So we were able to get $350,000 from the landlord for a termination fee, because we closed down slightly before the end of our lease. So that $350,000 is in our P&L.

Also Robert Towers, who was our COO, retired and we also accrued in that period $475,000 in severance fees for him. So that sort of gives you a picture of what went on in December. In January and early February, we have seen very strong results in terms of comp sales. Again, the weather has been very good, but Vegas continues to improve. The Northeast is being blessed with this great weather, which is probably helpful, but we see a very strong customer demand for what we are doing in New York City. If you would like, I would like to open it up for questions at this time. We are waiting for the moderator to come on. I'm sorry.

(Operator Instructions)

Mike Margolis, who is a private investor. Please go ahead.

Good afternoon, Mike. I noticed that overall sales were up about 2.1%, and same store sales were up 8.9%. Can you speak to the differential there? The size of the difference?

I think if you are looking at total revenues, included in the total revenues are variable interest entities, which, when we are looking at our same store sales, as opposed to the variable interest entities sales, it affects the ratios. I mean, if we are looking at straight same store sales, we are talking more along the lines of a 9% increase. The variable interest entities have a way of weighing on that, plus there -- on the total revenue lines serviced, there are other revenues that are included in there. So, it's -- the total revenue number includes other miscellaneous revenues that don't necessarily time right quarter to quarter. But it's really the variable interest entities that are creating the differences.

But, weren't the variable interest entities present in last year's figures as well?

Yes. But the variable interest entities, we had a decrease in sales at our property in Hollywood. So, that's affected the same store sales numbers, if you are looking at revenue-to-revenue number. So, Michael, when we are talking about comp sales, we are not talking about variable interest properties. What used to happen is, we would just report our share of the profits, management fees and profits in the management fee line. Regulations changed a little over a year ago where we now do it differently where we report 100% of the revenues and then back out the variable interest entities' share of those expenses, and what's left is what would be our management fee and profitability.

But in Hollywood last year, because of the change in marketing at the Hollywood Casino, the way they're dealing with comps, our sales went down. And they went down enough in Hollywood that the increase of sales of revenues, which include variable interest properties, are not that significantly higher. But the comp sales in our restaurants in Las Vegas, Boston, New York City, and Washington were the higher number, closer to 9%. I hope that explains it.

So you think 9% is representative of -- (multiple speakers)

Everything but Florida.

Of how business is increasing? And Florida was down fairly significantly?

Well, in Hollywood it was down about 15%. Tampa was up. And Foxwoods has been down, which is another variable interest entity. So, those are down. Now, in truth, the sales being down in Hollywood and up in Tampa, our profitability was about the same, but it has more to do with the efficiency of payroll and cost of goods sold. So, even though sales were down in Hollywood, the combination of better efficiency and some higher revenue numbers in Tampa kept the profitability about the same as last year.

So your higher efficiency was a major player in this quarter's results?

Yes. In cost of goods sold especially.

Okay. Can you speak to the openings that you are scheduled to have in the near future?

Yes, well, some time in the next three weeks we are opening Clyde's, which is Clyde Frazier's Wine and Dine, which is our partnership with Walt Frazier. It's a 10,000 square foot facility. We have the correct rent deal. Our deal with him is very fair. There has been a lot of buzz about the restaurant. It was designed by Thom Mayne who won the Pritzker Awards several years ago. We had used Thom many, many years back on the Venetian. I think what he's done is extraordinary. It's unlike anything that I think people will expect. It's just extraordinary, extraordinary design.

It is in a upcoming area of New York, which is Midtown west. There are about 9,000 condo units that have been built in the last couple of years. There is extraordinary expansion in construction going on there right now. In the next couple of years, I think there will be almost 15,000, 16,000 units. The High Line is going to be extended up very close to the restaurant. The Javits Center is a block away. So, we think that the demographics are very, very strong. The Garden is not so far away, Madison Square Garden. And he is an icon in New York. So, we think we got a very good chance to have a significant success there.

Basketball City, which is a basketball facility -- strangely enough we are doing two things with basketball -- Basketball City is a 66,000-square-foot basketball facility on Manhattan's East River down in south Manhattan. We are opening a small restaurant there, probably May, June. The big thing is we have the exclusive catering rights to the facility, and that is a hot facility. It is a non-union facility, it is easy loaded and easy access.

They have done some significant events before we have signed our deal -- a 5,000-person party for Nike, a big party for Puma, the introduction of the new Volkswagens. There seems to be something constantly going on. And, as a provider of the food and beverage, we think we'll do very, very well.

And then, the last thing, we're pretty much finished with the leases and the contracts is for the new Museum of African Art, which is on the upper East Side of Manhattan. It's set on the northeast corner of Central Park. We have a 300-seat outdoor cafe with a small, enclosed restaurant serving it; and then we have a 6,000-square-foot catering facility that we are the exclusive caterers to. But that won't be opened until the next fiscal year. But, it's, again, a very exciting project. We are looking at some stuff in Vegas that will happen next year. We are also pursuing some other sites in New York in the New York City area. So, we are busy.

Is Robert's continuing to do well?

Robert continues to do extremely well. As a matter of fact this is Fashion Week in New York, and the fashion press has, essentially, booked out Robert for the four days, ending today, of Fashion Week. We are seeing extraordinary volume of demand for private parties there. We were booked out, literally, the whole month of December for private events. It's a very strong, sales continue to go up, profitability continues to rise. It did very well last year. We are talking to the museum about making some changes in the facility, which will enable us to house more people for private events, and they seem to be receptive.

And, if that were happened, we could achieve an even higher revenue number. But it's constantly building. One thing, as you know from previous conference calls and when I've had meetings with shareholders, we have no public relations people working for us on our restaurants. We do very little advertising. Almost zero. Robert is a ninth-floor restaurant on the top of the Museum of Art and Design with panoramic views of the city and Central Park.

It's sort of following the same course that our restaurant in Bryant Park followed about 15, 16 years ago. It took concierges and tourists a while to find the place. There is no effective way that we can advertise it. We do have concierge parties. But, you can't take ads out in every country and say, hey, here we are. So, word of mouth is very strong.

And, any night you go in there, you can hear six or seven languages now. The tourists are starting to find it. We are just in an updraft there, barring any economic slide in terms of demand in the New York economy. I think we are just going to go much, much higher with that restaurant.

Thanks, Mike.

Thank you.

Next question comes from the line of Ben Schmidt, a private investor.

Glad to see the continued improvement in regards to the revenue; and finally, the margins starting to show some of the impacts in regards to that. As you look forward here from a dividend policy standpoint, recognizing you can't project the future out, and stuff, but would it be your intention or your goal as a management team to try to maintain the dividend structure as you have it today as we go throughout this year?

I'm going to repeat something that I said. I think I have been consistent on. Somebody may correct me and say I have been inconsistent. But I think I have been consistent. We are dealing with cash flow here and a minimum level of comfort, which we put at about $10 million in cash that we would like to have sitting around to take advantage of opportunities. When we get to that number, and if there is an excess, we are going to distribute it as we have in the past.

Right now, we are going to retain the dollar dividend. Our cash right now is probably the lowest it's been in three, four, five years. It's winter. We have no outdoor facilities. Those restaurants, which are geared to outdoor seats, and we have thousands of them, carry payrolls that make them unprofitable during this time of year.

Payrolls have been cut back, but we can't cut back far enough because we have key people that we don't want to lose who are important for production, especially in Bryant Park and Sequoia. Each one of those has -- Sequoia has 600-some odd outdoor seats. Bryant Park literally has 1,000 outdoor seats. So you have to keep the key people, even though you are not doing business.

So, our profits are always squeezed in the March quarter. And right now, we are building Clyde's. And we have tenant improvement money coming back from the landlord, which is considerable, $2 million, or nearly $2 million, which we haven't received yet, not because the landlord doesn't want to give it to us, it is just that the paperwork that has to be signed off isn't quite ready.

We also have money coming in from, still, the fire damage -- the water damage at Sequoia in Washington, DC, that was an event in the June quarter last year; and we've been still negotiating our tenant improvement money -- excuse me, our tenant repair money, facilities repair money with Liberty, our insurance carrier. So we come in to March with a new restaurant, with a lot of pre-opening costs, a lot of -- big construction budget. We are way below the $10 million. But that will build up very, very quickly.

And once we get into the June quarter, we start to see -- the spigot turns on, we start to see a lot of cash. I am sure by the end of the June quarter, even though we -- also as an addendum to this, is we have also, in addition to Clyde's, we have been building out Basketball City. So we are active at a time of year with construction, and pre-opening expenses for two facilities when it's the worst cash flow period in our fiscal year.

So I think you know, you get back to June, we'll be comfortably above $10 million, based upon cash flow projections and tax rates. And then we can look at dividend policy again. Our intent is to dividend out any money that we can't use. We have a dividend [and bucket share]. If we find more money that we are not going to use, we'll declare a special dividend. We have done that in the past.

Thank you very much.

My pleasure.

Thank you.

(Operator instructions)

I'm showing no further audio questions at this time. I'll now turn the call back over to Management for any closing remarks you may have.

I guess I should be a little trite and wish everybody a Happy Valentine's Day. So we'll see you next quarter, and thank you for attending our conference call.