Ark Restaurants Corp. (ARKR) Q3 2012 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Ark Restaurants Third Quarter 2012 Results Conference Call. [Operator Instructions] This conference is being recorded, August 13, 2012. I would now like to turn the conference over to Bob Stewart, Chief Financial Officer. Please go ahead, sir.

Thank you, operator. Good morning, and thank you for joining us on our conference call for the third fiscal quarter ended June 30, 2012. With me on the call today is Michael Weinstein, our Chairman and CEO. 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 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 morning 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 fairly good quarter, driven primarily by sales in Washington and income in Washington. That's -- those properties have been building consistently over the last 3 or 4 quarters, and we really saw a great performance this past quarter, the third quarter, in those properties. New York remains up and very stable. Atlantic City is up significantly, and we'll talk about that in a few minutes. Connecticut is about flat. We had, in Boston, a fire, and we only have one restaurant up there, Durgin-Park, so that hurt the third quarter numbers, but we're insured. We were closed about 3 or 4 weeks. I would tell you that if there wasn't a fire up there, would have been up slightly or even, at worse. Las Vegas, we continued to see really good improvement in Planet Hollywood, primarily, we think because the new owners are – of Harrah's, are very marketing-minded and drive a lot of business into that facility. New York, New York is up slightly. And the Venetian is down slightly. So we would tell you this. We think the New York market and the Boston market right now are exceptional markets. New York seems to be less price-sensitive than it has been over the last couple of years, and take that up from what we see in corporate events and parties and how strong the negotiations are from the other side and trying to push prices down. We're seeing that we're being able to hold our prices, and our prices are slightly higher than last year. Our individual restaurants in New York, Robert, Canyon Road, Bryant Park, Sequoia and Red are all doing very, very well in the earlier quarters. They were driven by good weather, because we have a lot of outdoor cafe seats. In this quarter, the weather was pretty much what we experienced last year, and we were up nicely. Atlantic City, we've been seeing more business. We don't understand it. We're in a property resort, which is down on its heels. We have Gallagher's and the Burger Bar down there. We were up 25% this quarter over last year's quarter. Generally, even though it's a small deal for us, it, generally has not been doing as well as this, because of the problems in the hotel. The hotel went through a bankruptcy. But we're seeing strong numbers there. There -- the likelihood, that we will do better in that property is pretty good odds, there being -- the property's being changed into Margaritaville. The renderings we've seen of what they're doing are quite exciting, and we will maintain a high profile within that new property. And we don't have to close while they're redoing the property. So I think we'll continue to see strong sales there. Connecticut, where we have these deals with the tribe at Foxwoods. They've been treading water for a long time, and we're only treading water. Boston, I mentioned Durgin-Park, we think, is a premier property. The Faneuil Hall property itself in which Durgin-Park is a part of that facility, has been taken over by a new owner, Ben Ashkenazy. He has good success and track record. We think the whole complex under his ownership will do better, and therefore, we expect to do better. Las Vegas is -- while not disappointing, we were comp-ing in the first and second quarter, up 10%, 11%, 12%, and this quarter, we're only up 2.7%. So there may be some slowing. If this double-dip recession is a thought in anybody's mind, the only properties we have that would demonstrate that, that may be happening is Las Vegas. The positive comp sales numbers narrowed dramatically. But all in all, a good quarter. We expect it to continue, and if anybody has any questions, I'd be happy to answer them.

[Operator Instructions] We have a question from Robert Plum [ph], who's a private investor.

Can you tell me, have the following items been resolved: the insurance claim from the flood in Washington D.C. and then the build out allowance for Walt Frazier's in New York City?

Yes, and I've been neglectful of not talking about Frasier's. So let me first address the Sequoia. We have 4 open items in terms of cash to us, one of them is about half, 50% of the insurance claim on the Sequoia property, and Bob has a better handle on it, but it's several-hundred-thousand dollars outstanding. The second item is an overpayment of federal income taxes in which we think we have a $500,000 credit against future taxes, but we're applying for the refund, and we're confident in that. The third is a number for Boston and the fire, which may be $100,000 to $200,000. These things -- these fire claims and water claims seem to take forever. It's -- we push hard. We have -- it's negotiated. But we're pretty confident in all those numbers I just stated. We recently received most of the payment for the landlord's contribution at Clyde's. It was a total of $1.875 million, and they owe us $300,000 at this point. And it's dependent upon getting final sign off from New York City's Building Department, and one would expect that could be another 3, 4, 5 months. It's just the administrative process. So today, in the bank, we're sitting with about $7.3 million. And this -- all of this that I just mentioned prior is probably another $1 million, $2 million, so it's the equivalent of $8.5 million in cash in the banks and what's receivable. I want to talk about Clyde's. And this has been a dramatic disappointment for us, so far. It's a restaurant, which from the point of view of the least [ph] deal we did, with the visibility we thought we had created; the menu, which has gotten great reviews; the decor, which has gotten great reviews; and his participation, which has been spectacular. He's there, every night he's in New York. We really thought we had something that would perform very well. It has not. We think there is a problem in terms of anchoring this in people's heads about what it is. We didn't intend to be a sports bar, we intended to be a really fine restaurant, certainly, with a big area for the bar and the lounge and a lot of TV sets. But we thought we had done this at a very high level. The truth of the matter is, I think, people want it to be a sports bar. And they're ignoring dining room. The bar is busy, the lounge is doing what it's supposed to be doing, but they're ignoring the dining room. And I think we have to change menu dramatically to recognize that; that we're not doing what the public wants us to do, so we're in the process of doing that. We also got a little unlucky with the place, although I say that with a grain of salt also, because you sort of make your own luck. We had intended to open this during the early part of the basketball season last year, and we got delayed by one of the subcontractors, who had control over a significant portion of the interior design, and he was 4 months late, and so we sort of walked in at the tail end of the basketball season. And not that this should be seen as a place where people would only go to watch basketball games, or see Clyde or -- it still had a lot of impetus in terms of trying to create an initial sense that this place exists in the middle of the basketball season, and we missed it, we missed it. So we think the fall will be better. Summer has been terrible, just been terrible. We're doing everything we can to be stingy with costs without changing the product, but I think we really have to change this menu. So thank you for the question and spurring me on to this long dialogue about Clyde's.

[Operator Instructions] There's a follow-up from Mr. Plum [ph], a private investor, again.

Can you tell me about Basketball City? I see that it opened the first week of June, are you guys up and running there?

What we have -- what was interesting to us, and why we did this deal with Basketball City is the catering. It's the 66,000 square, column-free facility, on which there are 7 basketball courts, but he has already done the introduction with the new Volkswagen. He's hosted parties for Nike and Adidas and the New York bike show. It's a facility that's going to not only be used for league games basketball, meaning corporate leagues, it's also a facility that's an event space. And one of the attractive things about it as an event space is that it's an easy load-in and load-out and has parking to 140 cars. So we saw this as a venue that is going to develop a lot of catering opportunities for baked food and beverage. So what we signed with him was exclusive catering for all events that come from sauces other than other caterers. If it comes from other caterers, we get a percentage of sales that the other caterer generates. But if it doesn't come from another caterer, and comes from an event planner or any other corporate user, we have exclusive food and beverage. In order to cement that deal, and as part of the deal, we have to operate a restaurant there, which has not yet been built. The -- it's a small restaurant, it's basically a burger bar. We do not expect that to be a high-performance venue for us. We think it does modest sales, and hopefully, we breakeven to make a couple of dollars. But what that restaurant facility does, in conjunction with other things we designed within the facility, is allow us to do food and beverage catering for 5,000 to 10,000 people. And that was the reason to build the restaurant. The restaurant is a sort of next to this catering, functioning kitchen. And so we had done some minor events there. We think we'll start to get active. He just opened; a very, very attractive space. So we don't think the restaurant will be up and running until January of next year, but we think the catering operations, especially in the December quarter, which is our first quarter of next year, could be a worthwhile number, as corporate events, Christmas events, New Year's Eve, we think that's worth something, and more than rationalize, I think, our total investment in it is slightly over $1 million.

And we have no further questions at this time, sir.

All right. Well, thanks very much, and we'll see you next quarter.

Ladies and gentlemen, this concludes the Ark Restaurants Third Quarter 2012 Results Conference Call. Thank you for your participation. You may now disconnect.