Ark Restaurants Corp. (ARKR) Q2 2014 Earnings Report, Transcript and Summary

Greetings, and welcome to the Ark Restaurants Second Quarter 2014 Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Bob Stewart, Chief Financial Officer of Ark Restaurants. Thank you. Sir, you may begin.

Thank you, operator. Good morning, and thank you for joining us on our conference call for the second fiscal quarter of March 29, 2014. With me on the call today is Michael Weinstein, our Chairman and CEO; and Vincent Pascal, our Chief Operating Officer. For those of you who have not yet obtained a copy of our press release, it was issued over the Newswire Friday, 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 homepage at www.arkrestaurants.com. Before we begin, however, I'd 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 performance, 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 condition. I will now turn the call over to Michael.

Hi, everybody. This is a decent quarter and the benefit that enured to a higher EBITDA was the acquisition of the Rustic Inn in Florida, which did very well in its first 6 weeks of our ownership, and the improved performance of Clyde's in New York City. The rest of the business, we're in 7 venues: Las Vegas was down slightly in comp sales; New York, in general, is very, very strong, in addition to Clyde's doing well, all our restaurants in New York are doing extremely well; Washington D.C. was a down a bit; Atlantic City up a little bit; Boston down 1 point; and Florida was down, away from the Rustic Inn, our 2 operations, the Hard Rock casinos in Tampa and Hollywood, were down and that reflects a change in the marketing program that the Hard Rocks have imposed. Hard Rock used to do a lot of comping as part of their marketing program, giving out discount certificates or free meal certificates, for which we got reimbursed, and they have recently ended that. So there is a significant amount of money, several million dollars in comps that have been eliminated, which we benefited from. Now we're not going to lose $2 million in sales from that. First of all, we only got 80% of the sales to start out with. But second of all, not everybody is going to stay away from the fast food courts because they don't have a free comp or a discount meal ticket. We are extremely happy with the way all our businesses are being run. Las Vegas still remains a challenge with a lot of competition, expanded a number of restaurant seats every single quarter, and we just don't feel the city has come back enough to absorb all of that, so we lose a couple of points there. As I said, New York is extremely strong. We are redoing our restaurants in Washington, D.C. right now, refurbishing them. We think that will help dramatically. Atlantic City is doing very well in a difficult market. We're up a little bit. Boston, as I said, is down, a little flat. And the big issue for us right now is the Hard Rocks and how we regain those lost sales. We are looking at some interesting new deals. I think all of you would like to hear about the progress at the Meadowlands. We think the odds of us and our group getting a casino license at the Meadowlands are improving every day. This was especially helped along by Caesars, who's in Atlantic City, having a bid in for 1 of the New York City -- New York state locations about 60 miles outside of Manhattan. Atlantic City legislators have been protecting Atlantic City because -- trying to help them convert it into a overnight resort location. That -- that support erodes quickly when the guy you're trying to help is trying to compete with you. So there have been some strong editorials in the Newark Star-Ledger and the Bergen Record, which basically says, "What are we waiting for? We need the tax income that would come from the casino at the Meadowlands." We think we're getting closer and closer. And that progress of -- if it finalized in a license being issued to the Meadowlands, not only are we an owner in the Meadowlands, but we have an exclusive to all the food at a casino at the Meadowlands, with the exception of 1 Hard Rock Cafe. Hard Rock is 1 of our partners in that deal. So that seems to be going along well, and we are looking at a couple of other big development deals. I guess at this point, I'll take questions. Any questions, operator?

[Operator Instructions] Our first question comes from the line of Bruce Geller with DGHM.

It seemed like the first quarter of last -- I'm sorry, the second quarter of last year was kind of soft in its own right. The comps were down about 4%. So you had a relatively easy comparable. I'm just wondering what held you back from seeing even better progress relative to what, seemingly, was a pretty easy comp year-over-year?

Well, the March quarter is generally a very difficult quarter for us. The weather is a big factor. This year, the weather was atrocious in March. And part of the reason we're down in Washington, D.C. is we just had horrendous weather. It's been cold, raining. It was a very, very difficult period. What helped us in New York, and the reason our businesses were so strong in New York, is we've made some adjustments in Clyde's, so we picked up volume there. But we happened to have 2 very, very hot restaurants in New York, in Bryant Park Grill and Robert at the Museum of Art and Design, and both of those were booked for a lot of events, many more events this year than last year. Meaning, closures, where the restaurant wasn't open to the public. And on those closures, we get a premium. And 1 of those closures was an NFL Super Bowl event that Pepsi ran for about 3 days at Bryant Park. So our -- you're right, we had an easy quarter to compare with. March quarters are always easy to compare with. But other than the event business in New York, we had really, really rough weather on the East Coast, and that affected Boston and Washington tremendously. Washington, it was down 9 points in the March quarter in comp sales. So I don't know if that helps you at all.

Yes. Looking back, when I look back to this quarter of last year, you also attributed the negative 4% comp to weather. So even though the weather was tough this year...

You're absolutely right. You're absolutely right, but this was a winter that was I think, on record, as brutal as anything we've seen.

So I guess, along those lines, April, May so far, what's kind of your outlook for the rest -- as the rest of the year progresses?

Well, we are going to do better than last year in EBITDA. I mean, we are up significantly already. And Rustic, while it's a seasonal business, it's profitable throughout every quarter. There is certainly a dip when you get into the June and September quarters, as the weather gets better here, fewer people I guess are there. But we'll see accretion from Rustic. We have not been lucky again this year in terms of weather. We have 13 weekends in New York before people start to go away for weekends to wherever they go, the Jersey Shore, or Long Island. Thursdays is our big day at Bryant Park. I just want to give you a sense of this. So there are 13 Thursdays that we consider critical. On a good Thursday, which we had a couple of weeks ago, we did $130,000 at 1 restaurant, at Bryant Park. Last week, it rained, we did $50,000. So the differential is not only at Bryant Park, it's at El Rio Grande. It doesn't affect us so much at Robert, but it certainly affects us in Sequoia in D.C., where we have 600 outdoor seats. So those swings could be -- on a bad Thursday, it's an excess of $100,000 in revenue, but that revenue is basically bar revenue and highly profitable to us. So if we have a normal season, I think we'll be up a couple of million dollars in EBITDA from last year. If we have a good season, we'll be up a little bit more. If we have a horrible season, we'll still be up, but not quite as much. Everything else is -- I hate to trivialize the other operations. Las Vegas, you'll be up 1 point, you'll be down 1 point. Boston, you're up 1 point. And I'm talking about comp sales. We're down a couple of points. Florida, as I said, at the Hard Rocks, you're going to be down 8%, 9%, 10% compared to last year because of this comp change. New York, because of the event business in Robert and Bryant Park, even with bad weather. You'll be up in events, the question is, how much down you are in à la carte? But nothing moves that much. There's no catastrophes here in any 1 of our 7 venues. So what you really got to pay attention to, I think -- not you, but what we pay attention to is what new stuff are we doing? How are these -- how are we handling these lease terminations that are coming up when they come up? What new developments take place? And what we really keep our eye on now in terms of really expanding the top line, as well as the bottom line, is what's going on in the Meadowlands, what's going on with a couple of these other developments that we're getting closer to doing. We're looking for a new site for Rustic Inn to expand it to a second venue to see -- I mean, we bought Rustic Inn at a very, very good enterprise value for us. If we can make it work in a second location, we think this restaurant is unique enough that we could have several of them over a short period of time. The question is, does it work in a second location? I mean, right now, I don't know if you've ever been there, I can't find it. I know 1 way to get there from the south. I mean, on 95, I know if I make a left on Griffin Road and take a right at the second stoplight -- stop sign, I get there. But if you ask me to come from the western part of Fort Lauderdale to try to find it, I can't find it. But this thing has a 2- or 3-hour wait in a location that you literally can't find, that's in the middle of nowhere. And so we think we found a second location that's not in the middle of nowhere, that's pretty visible. So we'll see if it works, if we do manage to sign this lease. So there are things we're doing. I mean, I think our core business doesn't really move that much, you're within a small EBITDA range. Depending upon weather, depending upon the world's economic situation, you're in a tight range. What really has to happen here is we have to move this forward with more Rustics, new developments. Obviously, the Meadowlands will be extremely important to us.

Sure. When does the Bryant Park lease go through?

13 more years.

And can you give an update on Clyde's? I know that's been a struggle and you were getting closer to breakeven...

We made a little bit of money on an operating basis in the March quarter, a little bit. It looks like the June quarter will be alright. That restaurant suffers dramatically in July and August. At least in the first 2 years, we've had a really tough time. We think we're gaining traction very slowly. We are having decent weeks. We are starting to see more event business. The area is improving dramatically. The only good thing we've done there so far, I mean, the food -- the place gets very high ratings on OpenTable, Yelp, all of the review sites. It gets enormously good reviews. It's in an area of town that's difficult to gain traction, but that area is being built up quickly and we are seeing better progress. And we're sort of on a cycle. The first year -- we are a block away from the Javits Center. The first year, we never saw any business from the Javits Center. They didn't know we were there. This year, we're starting to see -- when there are events at the Javits Center, we're doing better lunches, we are doing after-work business. We're getting there. There's no question we're going to get there, it's just a slow, slow pull. But to come out of the March quarter with a profit and I think the June quarter with a small operating profit, pre-depreciation, we are sort of happy about that right now, given where we were.

Okay. And what is the noncontrolling interest attributable to -- on the P&L? Because that went up -- a fair amount year-over-year.

Yes. I'll let Bob Stewart address that part.

Yes, and a large part of that is the Florida operations, where we have partners in that venue, are the 2, Tampa and Hollywood. So that's pretty, that's primarily the noncontrolling interest. We also have a partnership with our El Rio operation, which we've had for 25 years. So those are the main impacts and that's what you'll see in noncontrolling interest.

[Operator Instructions] Our next question comes from the line of Tom Winner, a private investor.

You've gone over most of my questions already. I was hoping for an update. In the past, you had talked about future involvement with South Street Seaport, I know that you've closed 2 properties there whilst being developed. I think you had mentioned that there may be future interest there. Is that still on the table?

No. We walked away from that. They came up here on several occasions, and quite honest -- look, we may be getting long in the tooth, and I hope we're not disadvantaging our shareholders by our attitude. But we thought they were disingenuous, and what we were offered, we were not comfortable with what their plans were -- had evolved to for the South Street Seaport. And we didn't think the company of retailers that they were bringing to the site would be advantageous to what we do. We want to be in a certain -- in a development that has, especially at the South Street Seaport, that has retailers that are interesting, that will bring people down to a part of town that most people don't go to unless they have a strong reason, and it was going to be the same bunch of retailers they had there before, THE LIMITED, the Gap and there are 400 of those in New York, Uptown and Midtown, Tribeca, Chelsea, and we didn't think that they were building something that was going to be enough of a draw. So we passed.

[Operator Instructions] Mr. Weinstein, it appears we have no further questions at this time. I would now like to turn the floor back over to you for closing comments.

Closing comments is just thank you for paying attention, and we'll see you next quarter.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.

Thank you.

Okay.