Ark Restaurants Corp. (ARKR) Q4 2012 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Ark Restaurants Fourth Quarter and Full Year 2012 Results Conference Call. [Operator Instructions] This conference is being recorded today, Thursday, December 27, 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 fourth fiscal quarter and year ended September 29, 2012. With me on the call today is Michael Weinstein, our Chairman and CEO; and Vinny Pascal, our COO. 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 view the -- to review the full text of the 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. Thank you for listening in. So this was a good quarter and a good year. We had particular strength in the New York and Washington, D.C. markets and also Atlantic City, which is not a big factor in our earnings, but we also had double-digit growth there, which is kind of remarkable given the condition of Atlantic City in general. But the big items to discuss are the opening of Clyde's, which is placed in the current fiscal year. And I think we've discussed in prior quarters the fact that we had a much delayed opening, which cost us a great deal of money. And subsequent to finally opening, we also were inefficient, misread the market, and the whole year was not a good one at Clyde's. We lost about $1,800,000. We have -- believe that we have corrected that problem, helped by a Christmas season, probably made money in December, although we don't have the final numbers, but I'm pretty confident we made money in December. And certainly, the minimum we can look forward to is a greatly reduced operating loss in the current fiscal year. We also, in the year that just ended, had a $500,000 charge for the severance package of Bob Towers, who had been with us for a great number of years as President of the company, and he retired, so there was a severance package that's in the year ending figures. The other disappointment in the company is Las Vegas, which just remains flat to down a little. We think we're doing a very good job there. The revenue stream has just been mediocre for the last 3 to 4 years. If Vegas were to perk up, that would have a significant impact on our EBITDA and our cash flow, obviously. The -- there was also a charge in this year, a small one, of some $300,000 as we wrote off an operation in Connecticut. We're at Foxwoods Casino with a -- 3 [ph] operations. One of them is a restaurant in a hotel, a hotel that is on the -- or borders the Indian reservation. We're treading water there, but the probability is unless the tribe wants to make a contribution to the revenue up there, we will be exiting that sometime early this year, and we wrote it off accordingly. So that's about it. We just had very strong results in New York and Washington, D.C., decent results in Atlantic City, okay results in Boston. Las Vegas is still a very good cash pump, but nothing like it was in 2007. Florida remains very, very strong. In the current year, we had bought out some of our limited partners in the Florida operation. That will probably contribute another $0.5 million to EBITDA this current year. We haven't extended the offer to other limited partners. Whether or not we have any hedgers is hard to tell. But we'll keep trying to buy out that partnership as we go along. Cash is good. The only debt we have is related to the purchase a year ago of 250,000 shares of stock from an estate. And we look forward to a better year this year. We think we're on a good track here. So I'll take questions.

[Operator Instructions] And our first question is from the line of Robert Plump [ph] with -- I'm sorry, a private investor.

Hi, there. Thank you for taking my question. Can you tell me what effects Hurricane Sandy had on operations?

Well, it had big effects, and they'll show up in the first quarter. We've lost, essentially, operations of most of our restaurants in New York for 5 days or so. There was no -- most of our restaurants are south of 40th Street, and that seemed to be the demarcation line of where you had power and didn't have power. So the exception of Robert and Canyon Road, which were operating during the whole thing -- I think we had 1 day closure on both -- the rest of the restaurants were closed. And for 5 or 6 days, 2 of our restaurants, Sequoia and Red at the South Street Seaport, though, were closed much longer than that. The damage at Red was quite extensive. We have a lease that ends May of 2013, and we met with the, actually, Chairperson and President of Howard Hughes, which owns the South Street Seaport, and we decided on very amicable terms to give them back Red and not rebuild it. It made no sense for us to rebuild it, and build -- the whole South Street Seaport is in a redevelopment phase. We think we're going to have a significant footprint when it is redeveloped. The final -- the project will be final and ready to open in 2015. And we have this very cooperative relationship with them. So we gave them back Red. We decided not to rebuild. That was a prudent decision. Sequoia, the lease was actually up at the end of this December, so -- excuse me, January. And again, we decided not to rebuild. The -- there were significant questions about the safety of the pier, and they had to examine some 1,700 pylons. And for us, not that it would've been expensive, there was very little damage at Sequoia, but we just decided, again, to work with them and not rebuild. So we have 2 restaurants that we've lost. They probably, together, last year, contributed something slightly under $0.5 million to EBITDA, but we have every indication that our footprint in the new project, again, which is 2.5 years off, will be much more significant than now.

The next question is from the line of Richard Ratzinger [ph], private investor.

I'm calling from Edmonton, Alberta, Canada. Do you have any plans on expanding into Canada? We have a very good footprint for you in Calgary. It's stronger on the east end of Canada. So like I say, do you have any plans on coming up here?

Well, thank you for the invitation. No, we don't. We try to stay within trading areas where we think we have some knowledge on the ground. And the most efficient way for us to operate our overhead is to sort of cluster restaurants around local overhead. So obviously, in Las Vegas and New York and Washington, D.C., we've done that. Florida is sort of easy for us to service because they're fast food operations and casinos, and we have great management in place, which reports directly to New York. The same with Boston. The projects that we are looking at center around where we have corporate overhead. And we think those opportunities are significant. While you are -- so I hope that explains your question. I would like to just go back a second to the previous gentleman's question. One of the problems that we faced last year is not only with Sandy, but with the flood in Sequoia and Washington, D.C., which took place in the previous year, and a fire in Boston, which took place this year, is the collection of business interruption insurance, which always seems to be a negotiation and a difficult process. So we still have some insurance money owing to us in terms of several hundred thousand dollars in total that we have not accrued for. We'll take it when it receive -- when it's received into our P&L, or in the terms of contents, as a balance sheet item. So there's still a little sloppiness around our negotiations with the insurance companies. We plead innocent, but we think the sloppiness is with the insurance company. So thank you for the invitation, but we have to turn it down at this present time.

Don't forget, the door is always open for you guys.

[Operator Instructions] The next question is a follow-up from the line of Robert Plump [ph], private investor.

Can you tell me kind of what effect, if any, the tax increase of dividends will have on future policy for the company?

We're -- we sort of think there'll be some -- like everybody else, there'll be some increase on dividend income. If it were to go to 49% or some ridiculous number, we would reevaluate it. If it's going to go to 20% dividend policy, it will remain in effect. The -- many years ago, we said and we continue to believe that we want to return money to our investors above any structured requirement we have for expansion or a level of safety that we want to retain here in terms of our cash. We have not been a borrower at the corporate level, except this note that we executed when we bought back those 250,000 shares of stock. We intend to stay that way and -- so the availability of our excess cash is going to be available to our shareholders. And unless there's a dramatic shift in tax policy on dividends, we're going to continue to think that way.

There are no further questions at this time. I will turn it back over to management for any closing comments.

So I guess I'm supposed to speak again. I think one of the things we should discuss before we end this call is health care. And this will have a significant impact on companies our size and especially those that are in the restaurant industry. We probably have, on a full-time basis, 1,500 employees here, some number like that. It expands in the summer months dramatically when we open our outdoor cafés in the Northeast. We probably go up to 1,800, 1,900 employees. Most of those are not insured. Although we offer insurance to everybody, it tends to be a young workforce that doesn't want to spend money on health insurance. Well, now, they're going to, and we've been asked to pick up 60% of that. How this is handled in 2014, when the law becomes in effect, may vary region by region in the country. In San Francisco they've already put, many restaurants, a health care charge on checks. I don't know if that's going to expand throughout the country. My guess is the whole world is going to go up in pricing, and if it costs us $1 a check to cover health care, I think we can increase our prices to reflect that. And one of the indications, to me, that this will have -- the increase of prices will have little impact on our customer count, is the fact that we raised prices in the middle of a bad economy because food costs were going up dramatically, and we did 2 things: we lowered the content of our meal size by about 5% on protein, and we raised prices about 2% or 3% at the same time. And I think part of the good results that we had this year is a direct correlation to that move. I mean, food costs were going crazy and seemed to not have a lid on them 2 years ago, and expenses were going up in a bad economy, and you just had to do something. And surprisingly, our customer counts went up since last year with these increases in price and with the reduction of protein on the plate. So I think we have ample room, if history serves me correctly, to take care of health care costs. So we're not overly concerned. We are anxious to see what the final legislation is in terms of the impact on temporary employees and other areas which have not been well defined. So with that thought, I want to thank you all for participating in the call. I think we're going to have a very, very good year. And I look forward to speaking to you at the end of the first quarter. Thank you.

Ladies and gentlemen, this does conclude the conference call. You may now disconnect, and thank you for your participation.